Attached files
| file | filename |
|---|---|
| EX-32.2 - EXHIBIT 32.2 - TINGO, INC. | tm211082d1_ex32-2.htm |
| EX-32.1 - EXHIBIT 32.1 - TINGO, INC. | tm211082d1_ex32-1.htm |
| EX-31.2 - EXHIBIT 31.2 - TINGO, INC. | tm211082d1_ex31-2.htm |
| EX-31.1 - EXHIBIT 31.1 - TINGO, INC. | tm211082d1_ex31-1.htm |
| EX-21.1 - EXHIBIT 21.1 - TINGO, INC. | tm211082d1_ex21-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
¨ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE ANNUAL PERIOD FROM TO
Commission file number: 333-205835
IWEB, INC.
(Exact name of Registrant as specified in its charter)
| Nevada | 83-0549737 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
8/6 Soi Patanakarn 30, Patanakarn Road, Suan Luang, Bangkok, Thailand
(Address of principal executive offices, Zip Code)
+662 319 0197 - 99
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | N/A | N/A |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
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 ¨ | Accelerated filer ¨ |
| Non-accelerated filer x | Smaller reporting company x |
| Emerging growth company ¨ |
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. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
The Company cannot determine the aggregate market value of common equity held by non-affiliates as of June 30, 2020, because there were no trades of the Company’s common stock on or around such date. As of April 12, 2021 the registrant had outstanding 40,306,211 shares of common stock.
IWEB, INC.
Table of Contents
2
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, regarding our company that include, but are not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by us. Words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “potential,” “believes,” “seeks,” “hopes,” “estimates,” “should,” “may,” “will,” “with a view to” and variations of these words or similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict.
These forward-looking statements involve various risks and uncertainties. Although we believe our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Our Business” and other sections in this report. You should read this report and the documents we refer to thoroughly with the understanding that our actual future results may be materially different from and worse than what we expect. Other sections of this report include additional factors which could adversely impact our business and financial performance.
This report contains statistical data we obtained from various publicly available government publications and industry-specific third party reports. Statistical data in these publications also include projections based on a number of assumptions. The markets for our products may not grow at the rate projected by market data, or at all. The failure of these markets to grow at the projected rates may have a material adverse effect on our business and the market price of our securities. In addition, the rapidly changing nature of our customers’ industries results in significant uncertainties in any projections or estimates relating to the growth prospects or future condition of our markets. Furthermore, if any one or more of the assumptions underlying the market data is later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.
Unless otherwise indicated, information in this report concerning economic conditions and our industry is based on information from independent industry analysts and publications, as well as our estimates. Except where otherwise noted, our estimates are derived from publicly available information released by third party sources, as well as data from our internal research, which are based on such data and our knowledge of our industry, which we believe to be reasonable. None of the independent industry publication market data cited in this report was prepared on our or our affiliates’ behalf.
The forward-looking statements made in this report relate only to events or information as of the date on which the statements are made in this report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this report and the documents we refer to in this report and have filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect.
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IWEB, Inc. (the “Company”) was incorporated under the laws of the State of Nevada on February 17, 2015.
The Company’s original business plan was to actively engage in providing high impact internet marketing strategies to internet based businesses and people seeking to create websites, but this business was not successful. On December 12, 2016, 24,997,500 shares of the common stock of the Company, representing 97.08% of the Company’s issued and outstanding shares of common stock at that time, were sold by Dmitriy Kolyvayko in a private transaction to Mr. Wai Hok Fung (the “Transaction”) for an aggregate purchase price of $380,000. In connection with the Transaction, Mr. Kolyvayko released the Company from certain liabilities and obligations arising out of his service as a director and officer of the Company.
On May 15, 2017, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with Enigma Technology International Corporation (“Enigma BVI”), and all the shareholders of Enigma BVI, namely, Mr. Ratanaphon Wongnapachant, Ms. Chanikarn Lertchawalitanon and S-Mark Co. Ltd. (collectively the “Shareholders”), to acquire all the issued and outstanding capital stock of Enigma BVI in exchange for the issuance to the Shareholders of an aggregate of 31,500,000 restricted shares of IWEB, Inc.’s common stock (the “Reverse Merger”). The Reverse Merger closed on May 15, 2017. As a result of the Reverse Merger, Enigma BVI is a wholly-owned subsidiary of the Company.
Enigma BVI was incorporated on February 22, 2017 in the British Virgin Islands.
Digiwork (Thailand) Co., Ltd. (“Digiwork”) was established and incorporated in Thailand on November 24, 2016. The authorized capital of Digiwork is THB5,000,000 (approximately $166,556), divided into 500,000 common shares with a par value of THB10 per share, which has been fully paid up as of December 31, 2016.
On May 15, 2017, Enigma BVI, Digiwork and the shareholders of Digiwork entered into the following commercial arrangements, or collectively, “VIE Agreements,” pursuant to which Enigma BVI has contractual rights to control and operate the businesses of Digiwork.
Pursuant to an Exclusive Technology Consulting and Service Agreement, Enigma BVI agreed to act as the exclusive consultant of Digiwork and provide technology consulting and services to Digiwork. In exchange, Digiwork agreed to pay Enigma BVI a technology consulting and service fee, the amount of which is decided by Enigma BVI on the basis of the work performed and commercial value of the services and the fee amount to be equivalent to the amount of net profit before tax of Digiwork on a quarterly basis; provided that the minimum amount of which is no less than THB30,000 (approximately $999) per quarter. Without the prior written consent of Enigma BVI, Digiwork may not accept the same or similar technology consulting and services provided by any third party during the term of the agreement. All the benefits and interests generated from the agreement, including but not limited to intellectual property rights, know-how and trade secrets, will be Enigma BVI’s sole and exclusive property. The term of this agreement will expire on May 15, 2027 and may be extended unilaterally by Enigma BVI with Enigma BVI's written confirmation prior to the expiration date. Digiwork cannot terminate the agreement early unless Enigma BVI commits fraud, gross negligence or illegal acts, or becomes bankrupt or winds up.
Pursuant to an Exclusive Purchase Option Agreement, the shareholders of Digiwork granted to Enigma BVI and any party designated by Enigma BVI the exclusive right to purchase at any time during the term of this agreement all or part of the equity interests in Digiwork, or the “Equity Interests,” at a purchase price equal to the registered capital paid by the shareholders of Digiwork for the Equity Interests, or, in the event that applicable law requires an appraisal of the Equity Interests, the lowest price permitted under applicable law; Pursuant to powers of attorney executed by each of the shareholders of Digiwork, such shareholders irrevocably authorized any person appointed by Enigma BVI to exercise all shareholder rights, including but not limited to voting on their behalf on all matters requiring approval of Digiwork’s shareholders, disposing of all or part of the shareholder's equity interest in Digiwork, and electing, appointing or removing directors and executive officers. The person designated by Enigma BVI is entitled to dispose of dividends and profits on the equity interest without reliance of any oral or written instructions of the shareholder. Each power of attorney will remain in force for so long as the shareholder remains a shareholder of Digiwork. Each shareholder has waived all the rights which have been authorized to Enigma BVI’s designated person under each power of attorney.
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Pursuant to equity pledge agreements, each of the shareholders of Digiwork pledged all of the Equity Interests to Enigma BVI to secure the full and complete performance of the obligations and liabilities on the part of Digiwork and each of its shareholders under this and the above contractual arrangements. If Digiwork or the shareholders of Digiwork breach their contractual obligations under these agreements, then Enigma BVI, as pledgee, will have the right to dispose of the pledged equity interests. The shareholders of Digiwork agree that, during the term of the equity pledge agreements, they will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests, and they also agree that Enigma BVI’s rights relating to the equity pledge should not be prejudiced by the legal actions of the shareholders, their successors or their designees. During the term of the equity pledge, Enigma BVI has the right to receive all of the dividends and profits distributed on the pledged equity. The equity pledge agreements will terminate on the second anniversary of the date when Digiwork and the shareholders of Digiwork have completed all their obligations under the contractual agreements described above.
As a result of the above contractual arrangements, Enigma BVI has substantial control over Digiwork’s daily operations and financial affairs, election of its senior executives and all matters requiring shareholder approval. Furthermore, as the primary beneficiary of Digiwork, the Company, via Enigma BVI, is entitled to consolidate the financial results of Digiwork in its own consolidated financial statements under Financial Accounting Standards Board Accounting Standard Codification (ASC) Topic 810 and related subtopics related to the consolidation of variable interest entities, or ASC Topic 810.
Digiwork was set up pursuant to a joint business agreement among its shareholders on August 4, 2016 and as amended and restated on March 31, 2017 (“JBA”). Pursuant to the JBA, Digiwork is obligated to pay a total of $10,000,000 to S-Mark Co. Ltd., a shareholder of Digiwork or to Digiwork Co., Ltd. (“Digiwork Korea”), a wholly owned subsidiary of S-Mark. As consideration for such payments, Digiwork Korea agreed to provide research and development services to Digiwork for a period of five years commencing on March 31, 2017. On December 31, 2016, an initial payment of $100,000 was paid to Digiwork Korea.
On July 10, 2017, the parties to the JBA entered into an amendment to the Amended and Restated Joint Business Agreement which amended the total payment from $10,000,000 to $1,100,000. In May 2018, the final payment of $1,000,000 was paid to Digiwork Korea. Towards the end of 2019, management started discussions with Digiwork Korea to review the scope of the research and development with respect of the coding technology. On March 5, 2020, the parties entered into Amendment No. 2 to the Amended and Restated Joint Business Agreement, pursuant to which Digiwork Korea agreed to provide research and development services to Digiwork until December 31, 2020. Upon expiration of its services, Digiwork Korea shall repay $150,000 to Digiwork. In first quarter of 2021, Digiwork Korea had repaid $150,000 to the Company. Prepaid R&D payments to Digiwork Korea were $nil and $391,274 as of December 31, 2020 and December 31, 2019, respectively. We are currently seeking other development and acquisition opportunities to grow our business.
Digiwork Korea also agreed to grant Digiwork full and exclusive licenses to any new launches, developments, improvements and any other intellectual property rights of coding technology developed by Digiwork Korea until December 31, 2020. The territories for such licenses are in Thailand, Vietnam, Myanmar, Laos, Cambodia, United Arab Emirates and Qatar.
Digiwork was authorized by Digiwork Korea to be an official licensee and distributor of its technology exclusively in Thailand, Vietnam, Myanmar, Laos, Cambodia, United Arab Emirates and Qatar, and the authorization covers all four categories of Digiwork Korea’s coding technology: image, audio, web and security coding. This technology enables governments and enterprises around the world to give digital identities to media and objects that computers can sense and recognize, and to which they can react.
Digiwork is a technology development and services provider specializing in coding services in various industries and markets.
On August 17, 2017, the Company filed a Certificate of Amendment (the “Certificate”) with the Secretary of State for the State of Nevada to amend its articles of incorporation to (i) increase the Company’s authorized shares of common stock, par value $0.0001 per share, from 75,000,000 to 150,000,000 shares and (ii) authorize the issuance of up to 25,000,000 shares of blank check preferred stock, par value $0.0001 per share, effective immediately (the “Amendment”). The Amendment was approved by the Company’s Board of Directors (the “Board”) and by shareholders holding a majority of the Company’s issued and outstanding capital stock effective on June 28, 2017.
On March 7, 2018, the Company filed a Certificate of Change with the State of Nevada (the “Certificate”) to effect a 1-for-2 reverse stock split of the Company’s authorized shares of common stock, par value $0.0001 (the “Common Stock”), accompanied by a corresponding decrease in the Company’s issued and outstanding shares of Common Stock (the “Reverse Stock Split”) such that, following the consummation of the Reverse Stock Split, the number of authorized shares of Common Stock was reduced from 150,000,000 to 75,000,000. The Reverse Stock Split became effective on March 13, 2018.
During 2019, One Belt One Network Holdings Limited, a British Virgin Island company (the “OBON BVI”) and 70% owned subsidiary of IWEB, Inc., OBON Corporation Company Limited, a Thailand Company (the “OBON Thailand”) and the shareholders of OBON Thailand (namely, Mr. Ratanaphon Wongnapachant, Mr. Wanee Watcharakangka and Ms. Chanikarn Lertchawalitanon, the “OBON Thailand Shareholders”) entered into the following agreements, or collectively, the “Variable Interest Entity or VIE Agreements,” pursuant to which OBON BVI has contractual rights to control and operate the business of OBON Thailand (the “VIE”). OBON Thailand was established as our VIE for our business expansion and development in Thailand, which imposes certain restrictions on foreign invested companies.
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The VIE Agreements are as follows:
| 1. | Exclusive Technology Consulting and Service Agreement by and between OBON BVI and OBON Thailand. Pursuant to the Exclusive Technology Consulting and Service Agreement, OBON BVI agreed to act as the exclusive consultant of OBON Thailand and provide technology consulting and services to OBON Thailand. In exchange, OBON Thailand agreed to pay OBON BVI a technology consulting and service fee, the amount of which is decided by OBON BVI on the basis of the work performed and commercial value of the services, and the fee amount is to be equivalent to the amount of net profit before tax of OBON Thailand on a quarterly basis; provided that the minimum amount of which shall be no less than THB30,000 (approximately $999) per quarter. Without the prior written consent of OBON BVI, OBON Thailand may not accept the same or similar technology consulting and services provided by any third party during the term of the agreement. All the benefits and interests generated from the agreement, including but not limited to intellectual property rights, know-how and trade secrets, will be OBON BVI’s sole and exclusive property. The term of this agreement will expire on June 3, 2029 and may be extended unilaterally by OBON BVI with OBON BVI's written confirmation prior to the expiration date. OBON Thailand cannot terminate the agreement early unless OBON BVI commits fraud, gross negligence or illegal acts, or becomes bankrupt or winds up. |
| 2. | Exclusive Purchase Option Agreements by and among OBON BVI, OBON Thailand and each of OBON Thailand Shareholders. Pursuant to the Exclusive Purchase Option Agreements, each of OBON Thailand Shareholders granted to OBON BVI and any party designated by OBON BVI the exclusive right to purchase at any time during the term of this agreement all or part of the equity interests in OBON Thailand, or the “Equity Interests,” at a purchase price equal to the registered capital paid by each of OBON Thailand Shareholders for the Equity Interests, or, in the event that applicable law requires an appraisal of the Equity Interests, the lowest price permitted under applicable law. Pursuant to a power of attorney executed by each of OBON Thailand Shareholders, each of them irrevocably authorized any person appointed by OBON BVI to exercise all shareholder rights, including but not limited to voting on his/her behalf on all matters requiring approval of OBON Thailand’s shareholder, disposing of all or part of the shareholder's equity interest in OBON Thailand, and electing, appointing or removing directors and executive officers. The person designated by OBON BVI is entitled to dispose of dividends and profits on the equity interest without reliance on any oral or written instructions of OBON Thailand Shareholders. The power of attorney will remain in force for so long as each of OBON Thailand Shareholders remains the shareholder of OBON Thailand. Each of OBON Thailand Shareholders has waived all the rights which have been authorized to OBON BVI’s designated person under power of attorney. |
| 3. | Equity Pledge Agreements by and among OBON BVI, OBON Thailand and each of OBON Thailand Shareholders. Pursuant to the Equity Pledge Agreements, each of OBON Thailand Shareholders pledged all of the Equity Interests to OBON BVI to secure the full and complete performance of the obligations and liabilities on the part of OBON Thailand and him/her under this and the above contractual arrangements. If OBON Thailand or OBON Thailand Shareholders breaches their contractual obligations under these agreements, then OBON BVI, as pledgee, will have the right to dispose of the pledged equity interests. Each OBON Thailand Shareholders agrees that, during the term of the Equity Pledge Agreement, he/she will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests, and he/she also agrees that OBON BVI’s rights relating to the equity pledge should not be prejudiced by the legal actions of the shareholder of OBON Thailand, his successors or designees. During the term of the equity pledge, OBON BVI has the right to receive all of the dividends and profits distributed on the pledged equity. The Equity Pledge Agreement will terminate on the second anniversary of the date when OBON Thailand and OBON Thailand Shareholders have completed all their obligations under the contractual agreements described above. |
As a result of the above contractual arrangements, OBON BVI has substantial control over OBON Thailand’s daily operations and financial affairs, election of its senior executives and all matters requiring shareholder approval. Furthermore, as the primary beneficiary of OBON Thailand, the Company, via OBON BVI, is entitled to consolidate the financial results of OBON Thailand in its own consolidated financial statements under ASC Topic 810.
On September 6, 2019, OBON Thailand, a Variable Interest Entity or VIE of OBON BVI, which is a 70% owned subsidiary of IWEB, Inc. entered into a Networking and WiFi Devices Installation Agreement (the “Agreement”) with CatBuzz TV Company Limited, a Thailand Company (“CatBuzz TV”).
Pursuant to the Agreement, OBON Thailand will lease and install network systems, WiFi devices and related accessories for CatBuzz TV and provide maintenance services. CatBuzz TV agrees to pay OBON Thailand compensation for the network systems, WiFi devices and the accessories and maintenance services with a monthly fee based upon the location and type of device, which fees range from 600 Baht (approximately $20) to 2,500 Baht (approximately $83) per device per month.
This Agreement has a term of 5 (five) years from the execution date of the Agreement. Upon the end of the term, if not agreed otherwise, both parties agree to extend the term of the Agreement for additional 2 (two) year terms, under the same terms or according to mutually agreeable terms determined by both parties in the future.
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Organization and Reorganization
Enigma BVI was incorporated on February 22, 2017 in the British Virgin Islands with limited liability as an investment holding company. Upon incorporation, Enigma BVI issued 50,000 shares at $1 each. Prior to the reorganization, Enigma BVI was owned 57.5% by Mr. Ratanaphon Wongnapachant, 2.5% by Ms. Chanikarn Lertchawalitanon, and 40% by S-Mark Co. Ltd., a KOSDAQ-listed corporation and 100% shareholder of Digiwork Korea.
Digiwork (Thailand) Co. Ltd was incorporated in Thailand with limited liability on November 24, 2016. Digiwork was also owned 57.5% by Mr. Ratanaphon Wongnapachant, 2.5% by Ms. Chanikarn Lertchawalitanon, and 40% by S-Mark Co. Ltd.
On May 15, 2017, Enigma BVI, Digiwork and the shareholders of Digiwork entered into the abovementioned VIE Agreements, pursuant to which Enigma BVI has contractual rights to control and operate the businesses of Digiwork. The change in control of and the acquisition of Digiwork by Enigma BVI have been accounted for as common control transactions in a manner similar to a pooling of interests, and there was no recognition of any goodwill or excess of the acquirers’ interest in the net fair value of the acquirees’ identifiable assets, liabilities and contingent liabilities over cost at the time of the common control combinations. Therefore, this transaction was recorded at historical cost with a reclassification of equity from retained profits to additional paid in capital to reflect the deemed value of consideration given in the local jurisdiction and the capital structure of Enigma BVI.
On May 15, 2017, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with Enigma Technology International Corporation (“Enigma BVI”), and all the shareholders of Enigma BVI, namely, Mr. Ratanaphon Wongnapachant, Ms. Chanikarn Lertchawalitanon, and S-Mark Co. Ltd. (collectively the “Shareholders”), to acquire all the issued and outstanding capital stock of Enigma BVI in exchange for the issuance to the Shareholders of an aggregate of 31,500,000 restricted shares of IWEB, Inc.’s common stock (the “Reverse Merger”). The Reverse Merger closed on May 15, 2017. As a result of the Reverse Merger, Enigma BVI is a wholly-owned subsidiary of the Company.
On May 15, 2017, the Company filed a Current Report on Form 8-K with the Securities and Exchange Commission (“SEC”) announcing the completion of the business combination between the Company and Enigma BVI in accordance with the terms of the Share Exchange Agreement. As a result of the transaction, Enigma BVI is a wholly owned subsidiary of the Company, and the former shareholders of Enigma BVI became the holders of approximately 84% of the Company’s issued and outstanding capital stock on a fully-diluted basis immediately after the transaction. The acquisition was accounted for as a recapitalization effected by a share exchange, wherein Enigma BVI is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized.
In September 2018, the Company incorporated Marvelous ERA Limited in the British Virgin Islands as a wholly-owned subsidiary (“Marvelous ERA”). Marvelous ERA is the 70% majority owner of One Belt One Network Holdings Limited, a British Virgin Islands company (“OBON BVI”), which was incorporated in October 2018. OBON BVI is the sole parent of One Belt One Network (HK) Limited, a company organized under the laws of Hong Kong SAR in October 2018.
In June 2019, OBON BVI, OBON Thailand and the shareholders of OBON Thailand entered into the abovementioned VIE agreements, pursuant to which OBON BVI has contractual rights to control and operate the business of OBON Thailand.
In December 2019, a novel strain of coronavirus, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China, which has spread rapidly to many parts of the world, including Thailand and the U.S. In March 2020, the World Health Organization declared the COVID-19 a pandemic. The pandemic has resulted in quarantines, travel restrictions, and the temporary closure of office buildings and facilities in Thailand.
Substantially all of our revenues are generated in Thailand. The Company’s business and services and results of operations have been adversely affected and could continue to be adversely affected by the COVID-19 pandemic. In response to the evolving dynamics related to the COVID-19 outbreak, the Company is following the guidelines of local authorities as it prioritizes the health and safety of its employees, contractors, suppliers and business partners. Our office in Thailand has been closed and all of the Company’s employees in Thailand have been working from home from March 23, 2020 to May 7, 2020. Since May 8, 2020, our office in Thailand has been reopened and in normal operation. The quarantines, travel restrictions, and the temporary closure of office buildings have negatively impacted our business including our wifi installation project. Our suppliers have negatively been affected, and could continue to be negatively affected in their ability to supply and ship wifi related devices and parts to us if there is any further outbreak or resurgence of COVID-19. Our customers that have been negatively impacted by the outbreak of COVID-19 may reduce their budgets to purchase our products and services, which may materially adversely impact our revenue. Some of our customers may require additional time to pay us or fail to pay us at all, which could significantly increase the amount of accounts receivable and require us to record additional allowances for doubtful accounts. The outbreak of COVID-19 has disrupted our supply chain and logistics and caused shortage of active installation workers and service providers for our project and might continue to impose negative impact to our business operations. Some of our customers, contractors, suppliers and other business partners are small and medium-sized enterprises (SMEs), which may not have strong cash flows or be well capitalized, and may be vulnerable to an epidemic outbreak and slowing macroeconomic conditions. If the SMEs that we work with cannot weather the COVID-19 and the resulting economic impact, or cannot resume business as usual after a prolonged outbreak, our revenues and business operations may be materially and adversely impacted.
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The global economy has also been materially negatively affected by the COVID-19 and there is continued severe uncertainty about the duration and intensity of its impacts. The Thailand and global growth forecast is extremely uncertain, which would seriously affect investment in infrastructures including building wifi network and related installation business.
While future economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.
Further, as we do not have access to a revolving credit facility, there can be no assurance that we would be able to secure commercial debt financing in the future in the event that we require additional capital. We currently believe that our financial resources will be adequate to see us through the outbreak. However, in the event that we do need to raise capital in the future, outbreak-related instability in the securities markets could adversely affect our ability to raise additional capital.
Consequently, our results of operations have been adversely, and may be materially, affected, to the extent that the COVID-19 harms the Thailand and global economy. Any potential impact to our results will depend on, to a large extent, future developments and new information that may emerge regarding the duration and severity of the COVID-19 and the actions taken by government authorities and other entities to contain the COVID-19 or treat its impact, almost all of which are beyond our control.
Our Business Strategy
Digiwork was set up pursuant to a joint business agreement among its shareholders (“JBA”) on August 4, 2016, as amended and restated on March 31, 2017. Pursuant to the JBA as amended, Digiwork was authorized by Digiwork Korea to be an official licensee and distributor of its technology exclusively in Thailand, Vietnam, Myanmar, Laos, Cambodia, United Arab Emirates and Qatar, and the authorization covers all four categories of Digiwork Korea’s coding technology: image, audio, web and security coding. This technology enables governments and enterprises around the world to give digital identities to media and objects that computers can sense and recognize, and to which they can react.
Pursuant to the JBA as amended, Digiwork was originally obligated to pay a total of $10,000,000 to S-Mark Co., Ltd., a shareholder of Digiwork or to Digiwork Co., Ltd. (“Digiwork Korea”, a 100% wholly owned subsidiary of S-Mark Co., Ltd., a major shareholder of the Company) for research and development services and exclusive licenses to any new launches, developments, improvements and any other intellectual property rights developed by Digiwork Korea (“R&D Services”). The territories for such licenses are Thailand, Vietnam, Myanmar, Laos, Cambodia, United Arab Emirates and Qatar. On July 10, 2017, parties to the JBA entered into an amendment to the Amended and Restated Joint Business Agreement which amended the total payment from $10,000,000 to $1,100,000. As the consideration for such payments, Digiwork Korea agreed to provide research and development services to Digiwork for a period of five years commencing from March 31, 2017. Towards the end of 2019, management started discussion with Digiwork Korea to review the scope of the research and development with respect of the coding technology. On March 5, 2020, the parties of JBA entered into Amendment No. 2 to the Amended and Restated Joint Business Agreement, pursuant to which Digiwork Korea agreed to provide R & D Services to Digiwork until December 31, 2020. The Company’s technical services are currently provided by contracted technicians from Digiwork Korea or unrelated third party. The Company is currently seeking other development and acquisition opportunities to grow its business.
Digiwork is a technology development and services provider specializing in coding services in various industries and markets. Digiwork’s technology enables governments and enterprises to imbed or imprint invisible digital identities to media and objects that various computer devices can sense and recognize and to which they can react. Our coding technology provides the means to infuse persistent digital information, perceptible only to computers and digital devices, into all forms of media content. Our coding technology permits computers and digital devices including smartphones, tablets, industrial scanners and other computer interfaces to quickly identify relevant data from vast amounts of media content. We focus on four coding technologies:
| · | Image coding technology, |
| · | Audio coding technology, |
| · | Web coding technology, and |
| · | Security coding technology |
We provide tailor-made coding technological solutions to various commercial entities in different markets. Our technologies enable companies to give digital identity or information through various media like music, movies, television broadcasts, images and printed materials. The wide range application of the above four technologies can provide improved media rights, asset management, reduce piracy and counterfeiting losses, improve marketing programs, permit more efficient and effective distribution of valuable media content and enhance consumer experiences.
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OBON Thailand leases and installs network systems, WiFi devices and related accessories for CatBuzz TV (“CAT”) and provides maintenance services. CAT is a government owned internet network service provider and we are expected to provide installation and operate 130,000 wifi access points for CAT in Thailand and charge rental fees for our network system and WiFi devices.
Human Capital Resources
We understand that our success depends on our ability to attract, train and retain our employees. We strive to attract, recruit, and retain employees through competitive compensation and benefit programs, learning and development opportunities that support career growth and advancement opportunities, and employee engagement initiatives that foster a strong Company culture. We also recognize the importance of keeping our employees safe. In response to the COVID-19 pandemic, we implemented changes that we determined were in the best interest of our employees and have followed local government orders to prevent the spread of COVID-19.
Employees
We currently have 11 full time employees, of which 9 employees are administrative personnel, 2 employees are technical and engineering personnel. Most of our technical and installation services are currently provided by the contracted technicians and engineers from Digiwork Korea or unrelated third parties. All of our employees are located in Thailand. None of our employees are covered by collective bargaining agreements. We consider our relationships with our employees to be good.
Research and Development
Research and development costs are paid to Digiwork Korea, which is providing research and development services to Digiwork for a period of five years commencing from March 31, 2017. Towards the end of 2019, management started discussion with Digiwork Korea to review the scope of the research and development with respect of the coding technology. On March 5, 2020, the parties entered into Amendment No. 2 to the Amended and Restated Joint Business Agreement, pursuant to which Digiwork Korea agreed to provide R & D Services to Digiwork until December 31, 2020. Upon expiration of its services, Digiwork Korea shall repay $150,000 to Digiwork. In first quarter of 2021, Digiwork Korea had repaid $150,000 to the Company. Research and development costs are recognized in general and administrative expenses and expensed as incurred. Research and development expenses were $229,275 and $238,250 for years ended December 31, 2020 and 2019, respectively. During the year ended December 31, 2019, we recorded a loss of $161,072 as a result of the amendment of this research and development services under the joint business agreement.
Available Information
Our common stock is listed on the OTCQB Marketplace and trades under the symbol “IWBB.” Our principal executive offices are located at 8/6 Soi Patanakarn 30, Patanakarn Road, Suan Luang, Bangkok, Thailand, and our telephone number is 662 319 0197 - 99. The internet address of our corporate website is http://iweb.company/.
We file annual reports, quarterly reports, current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended. You can inspect and obtain a copy of our reports, proxy statements and other information filed with the SEC at the offices of the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549, on official business days during the hours of 10 a.m. to 3 p.m. EST. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. The SEC maintains an internet website at http://www.sec.gov where you can access copies of most of our SEC filings.
We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, available free of charge on our corporate website. The contents of our corporate website are not incorporated into, or otherwise to be regarded as part of, this Annual Report on Form 10-K.
The Company operates in an environment that involves a number of risks and uncertainties. The risks and uncertainties described in this Annual Report on Form 10-K are not the only risks and uncertainties that we face. Additional risks and uncertainties that presently are not considered material or are not known to us, and therefore are not mentioned herein, may impair our business operations. If any of the risks described in this Annual Report on Form 10-K actually occur, our business, operating results and financial position could be adversely affected.
Risks Related to Our Business
We have a history of losses and we may not achieve or sustain profitability, particularly if we were to lose large contracts, and there is substantial doubt about our ability to continue as a going concern.
Digiwork was formed on November 24, 2016 and OBON Thailand was formed on June 26, 2018. As of December 31, 2020 and 2019, revenue of $5,095 and $nil was generated from the operation and the company is still in developing stage. In 2020, revenue is principally derived by OBON Thailand for provision of WiFi network devices and facilities services. Digiwork has not derived revenue since 2018, and has incurred net losses from inception. Although we anticipate that we will be a profitable company, in order to achieve sustained profitability we will need to generate more revenue from coding technologies and wifi installation services, which we cannot ensure will happen. Achieving sustained profitability will depend upon a variety of factors, including the extent to which we may be required to increase the size of our workforce in order to execute our business strategy and capitalize on new opportunities, which might increase the expenses significantly. In addition, we will evaluate our strategy and market opportunities on an ongoing basis and will adjust our approach to market conditions from time to time. Finally, various adverse developments, including the loss of contracts or cost overruns on our existing contracts, could have a negative effect on our revenue or our margins. Accordingly, increases in our expenses may not be offset by revenue generated and as a result we may not be able to achieve or sustain profitability.
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The report from our independent registered public accounting firm for the year ended December 31, 2020 included an explanatory paragraph in respect of the substantial doubt about our ability to continue as a going concern. As discussed in Note 1 to the consolidated financial statements included with this report, we have a history of recurring net losses, a significant accumulated deficit and a net working capital deficit. These conditions raise substantial doubt about our ability to continue as a going concern. Our plan for continuing as a going concern included improving our profitability, and obtaining additional debt financing, loans from existing directors and shareholders and private placements of capital stock for additional funding to meet our operating needs. There can be no assurance that we will be successful in our plans described above or in attracting equity or alternative financing on acceptable terms, or if at all. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
If we do not continually enhance our solutions and service offerings, we may have difficulty in retaining existing customers and attracting new customers.
We believe that our future success will depend, to a significant extent, upon our ability to enhance our existing products, technologies and services, and to introduce new features to meet the preferences and requirements of our customers in a rapidly developing and evolving market. Unexpected technical, operational, distribution or other problems could delay or prevent the introduction of one or more of these products or services, or any products or services that we may plan to introduce in the future. Our present or future products may not satisfy the evolving preferences and tastes of our customers, and these solutions and services may not achieve anticipated market acceptance or generate incremental revenue. If we are unable to anticipate or respond adequately to the need for service or product enhancements due to resource, technological or other constraints, our business, financial condition and results of operations could be materially and adversely affected.
If we are unable to develop competitive new products and service offerings our future results of operations could be adversely affected.
After December 31, 2020, Digiwork Korea no longer provides R & D Services to Digiwork and our future revenue stream depends to a large degree on our ability to utilize our technology in a way that will allow us to offer new types of products in relation to installation and solutions of network systems, WiFi devices and related accessories. We will be required to make investments in research and development in order to continually develop new products, and related service offerings, enhance our existing products, applications and related service offerings and achieve market acceptance of our solutions and service offerings. We may incur problems in the future in innovating and introducing new products, applications, solutions and service offerings. Our development-stage products and services may not be successfully completed or, if developed, may not achieve significant customer acceptance. If we are unable to successfully define, develop and introduce competitive new solutions and services, and enhance existing products and services, our future results of operations would be adversely affected. The timely availability of new solutions and services and their acceptance by customers are important to our future success. A delay in the development of new solutions and services could have a significant impact on its results of operations.
Changes in technology could adversely affect our business by increasing our costs, reducing our profit margins and causing a decline in our competitiveness.
The internet and wifi services industry, in which we operate, is characterized by rapidly changing technology, evolving industry standards, frequent introductions of new services and solutions and enhancements as well as changing customer demands. New solutions and new technologies often render existing solutions and services obsolete, excessively costly or otherwise unmarketable. As a result, our success depends on our ability to adapt to the latest technological progress, such as the 5G standard and technologies, and to develop or acquire and integrate new technologies into our products and related services. Advances in technology also require us to commit substantial resources to developing or acquiring and then deploying new technologies for use in our operations. We must continuously train personnel in new technologies and in how to integrate existing systems with these new technologies. We may not be able to adapt quickly to new technologies or commit sufficient resources to compete successfully against existing or new competitors in bringing to market solutions and services that incorporate these new technologies. We may incur problems in the future in innovating and introducing new products and service offerings. Our development of new product and services may not be successfully completed or, if developed, may not achieve significant customer acceptance. If we fail to adapt to changes in technologies and compete successfully against established or new competitors, our business, financial condition and results of operations could be adversely affected.
We may be subject to infringement, misappropriation and indemnity claims in the future, which may cause us to incur significant expenses, pay substantial damages and be prevented from providing our services or technologies.
Our success depends, in part, on our ability to carry out our business without infringing the intellectual property rights of third parties. Patent and copyright law covering software-related technologies is evolving rapidly and is subject to a great deal of uncertainty. Our self-developed or licensed technologies, processes or methods may be covered by third-party patents or copyrights, either now existing or to be issued in the future. Any potential litigation may cause us to incur significant expenses. Third-party claims, if successfully asserted against us may cause us to pay substantial damages, seek licenses from third parties, pay ongoing royalties, redesign our products, services or technologies, or prevent us from providing products, services or technologies subject to these claims. Even if we were to prevail, any litigation would likely be costly and time-consuming and divert the attention of our management and key personnel from our business operations.
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Our failure to protect our intellectual property rights may undermine our competitive position, and subject us to costly litigation to protect our intellectual property rights.
Any misappropriation of our technology or the development of competitive technology could seriously harm our business. We regard a substantial portion of our systems as proprietary and rely on statutory copyright, trademark, patent, trade secret laws, employee and third-party non-disclosure agreements and other methods to protect our proprietary rights. Nevertheless, these resources afford only limited protection and the actions we take to protect our intellectual property rights may not be adequate. In particular, third parties may infringe or misappropriate our proprietary technologies or other intellectual property rights, which could have a material adverse effect on our business, financial condition and results of operations. In addition, intellectual property rights and confidentiality protection in Thailand may not be as effective as in the United States, and policing unauthorized use of proprietary technology can be difficult and expensive. Further, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. The outcome of any such litigation may not be in our favor. Any such litigation may be costly and may divert management attention, as well as our other resources, away from our business. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, prospects and reputation. In addition, we have no insurance coverage against litigation costs and would have to bear all litigation costs in excess of the amount recoverable from other parties. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
Our services and solutions rely on and work in conjunction with, third-party hardware, software and installation services. If these third-party hardware, software and installation services are not available to us at reasonable costs, or at all, our results of operations could be adversely impacted.
The elements of our systems incorporate third-party hardware and software solutions and we also use third party contractors to install wifi network systems. If any third party were to discontinue making their intellectual property and services available to us or our customers on a timely basis, or increase materially the cost of their products, technologies or installation services, or if our systems failed to properly function or interoperate with replacement hardware or software, we may need to incur costs in finding replacement third-party solutions and/or redesigning our systems to replace or function with or on replacement third-party technology. Replacement technology and services may not be available on terms acceptable to us or at all, and we may be unable to develop alternative solutions or redesign our systems on a timely basis or at a reasonable cost. If any of these were to occur, our results of operations could be adversely impacted.
Our ability to sell our products is highly dependent on the quality of our service and support offerings, and our failure to offer high quality service could have a material adverse effect on our ability to market and sell our products.
Our customers depend upon our customer service and support staff to resolve issues relating to our products. High-quality support services are critical for the successful marketing and sale of our products. If we fail to provide high-quality support on an ongoing basis, our customers may react negatively and we may be materially and adversely affected in our ability to sell additional products to these customers. This could also damage our reputation and prospects with potential customers. Our failure to maintain high-quality support services could have a material and adverse effect on our business, results of operations and financial condition.
The telecommunications infrastructure in Thailand, which is not as well developed as in the United States, may limit our growth.
The telecommunications infrastructure in Thailand is not as well developed as it is in the United States. Our growth will depend on the reliable Internet and telecommunications infrastructure. The Internet infrastructure, standards, protocols and complementary products, services and facilities necessary to support the demands associated with continued growth may not be developed on a timely basis or at all by the Thai government and enterprises.
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We or the third parties upon whom we depend may be adversely affected by disaster or health epidemics, including the recent COVID-19 outbreak
In recent years, there have been outbreaks of epidemics in various countries. Recently, there was an outbreak of a novel strain of coronavirus (COVID-19) in China, which has spread rapidly to many parts of the world, including the Thailand. In March 2020, the World Health Organization declared the COVID-19 a pandemic.
Substantially all of our revenues are generated in Thailand. Consequently, our results of operations have been adversely affected, and may continually be adversely affected, to the extent that the COVID-19 or any other epidemic harms the Thailand and global economy. Any potential impact to our results will depend on, to a large extent, future developments and new information that may emerge regarding the duration and severity of the COVID-19 and the actions taken by government authorities and other entities to contain the COVID-19 or treat its impact, almost all of which are beyond our control. Potential impacts include, but are not limited to, the following:
| • | temporary closure of offices, travel restrictions or suspension of wifi network system installation to our customers and suppliers have negatively affected, and could continue to negatively affect, to supply our demand for materials; | |
| • | our customers that are negatively impacted by the outbreak of COVID-19 may reduce their budgets to purchase our products and services, which may materially adversely impact our revenue; | |
| • | our customers may require additional time to pay us or fail to pay us at all, which could significantly increase the amount of accounts receivable and require us to record additional allowances for doubtful accounts. We may have to provide significant sales incentives to our customers in response to the outbreak, which may in turn materially adversely affect our financial condition and operating results; | |
| • | the business operations of our customers have been and could continue to be negatively impacted by the outbreak and resurgence of the COVID-19, which may result in loss of customers or disruption of our business or services, which may in turn materially adversely affect our financial condition and operating results; | |
| • | any disruption of our supply chain, logistics providers or customers could adversely impact our business and results of operations, including causing our suppliers to cease manufacturing products for a period of time or materially delay delivery to customers, which may also lead to loss of customers, as well as reputational, competitive and business harm to us; | |
| • | some of our customers, distributors, suppliers and other partners are small and medium-sized enterprises (SMEs), which may not have strong cash flows or be well capitalized, and may be vulnerable to an epidemic outbreak and slowing macroeconomic conditions. If the SMEs that we work with cannot weather the COVID-19 and the resulting economic impact, or cannot resume business as usual after a prolonged outbreak, our revenues and business operations may be materially and adversely impacted; | |
| • | the global stock markets have experienced, and may continue to experience, significant decline from the COVID-19 outbreak, which could materially adversely affect our stock price; and |
Because of the uncertainty surrounding the COVID-19, the financial impact related to the further outbreak and resurgence of COVID-19 and response to the coronavirus cannot be reasonably estimated at this time, but our results for the first quarter of and full year 2021 may be adversely affected.
In general, our business could be adversely affected by the effects of epidemics, including, but not limited to, the COVID-19, avian influenza, severe acute respiratory syndrome (SARS), the influenza A virus, Ebola virus, severe weather conditions such as storm, flood or hazardous air pollution, or other outbreaks. In response to an epidemic, severe weather conditions, or other outbreaks, government and other organizations may adopt regulations and policies that could lead to severe disruption to our daily operations, including temporary closure of our offices and other facilities. These severe conditions may cause us and/or our partners to make internal adjustments, including but not limited to, temporarily closing down business, limiting business hours, and setting restrictions on travel and/or visits with clients and partners for a prolonged period of time. Various impact arising from a severe condition may cause business disruption, resulting in material, adverse impact to our financial condition and results of operations.
The majority of our revenue is subject to commercial contracts and development of new markets that may involve unpredictable delays and other unexpected changes, which might limit our actual revenue in any given quarter or year.
We will derive substantial portions of our revenue from commercial contracts tied to development schedules or development of new markets, which could shift for months, quarters or years as the needs of our customers and the markets in which they participate change. Commercial customers also face budget pressures that introduce added uncertainty. Any shift in development schedules, the markets in which we participate, or customer procurement processes, which are outside our control and may not be predictable, could result in delays in bookings forecasted for any particular period, could affect the predictability of our quarterly and annual results, and might limit our actual revenue in any given quarter or year, resulting in reduced and less predictable revenue and adversely affecting profitability.
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The market for our coding products and services is highly competitive and alternative technologies or larger companies may undermine, limit or eliminate the market for our products' technologies, which would decrease our revenue and profits.
The markets in which we compete for business are intensely competitive and rapidly evolving. We expect competition to continue from both existing competitors and new market entrants. We face competition from other companies and from alternative technologies. Because the market solutions based on our technologies are still in an early stage of development, we also may face competition from unexpected sources.
Alternative technologies that may directly or indirectly compete with particular applications of our watermarking technologies include:
· Encryption—securing data during distribution using a secret code so it cannot be accessed except by authorized users;
· Containers—inserting a media object in an encrypted wrapper, which prevents the media object from being duplicated and is used for content distribution and transaction management;
· DataGlyphs®—a slightly visible modification of the characteristics of an image or document that is machine-readable;
· Scrambled Indicia®—an optical refraction-based data-hiding technique that is inserted into an image and can be read with a lens;
· Traditional anti-counterfeiting technologies—a number of solutions used by many enterprises (and that compete for budgetary outlays) designed to deter counterfeiting, including traditional barcode, QR code, laser printing etc;
· Radio frequency tags—embedding a chip that emits a signal when in close proximity with a receiver, which is being used in photo identification credentials, labels and tags;
· Internet technologies—numerous existing and potential Internet access and search methods are competitive with Digiwork (Thailand);
· Digital fingerprints and signatures—a metric, or metrics, computed solely from a source image or audio or video track, that can be used to identify an image or track, or authenticate the image or track;
· Smart cards—badges and cards including a semiconductor memory and /or processor used for authentication and related purposes; and
· Bar codes or QR codes—data-carrying codes, typically visible in nature (but may be invisible if printed in ultraviolet- or infrared responsive inks).
In the competitive environment in which we operate, product generation, development and marketing processes relating to technology are uncertain and complex, requiring accurate prediction of demand as well as successful management of various development risks inherent in technology development. In light of these dependencies, it is possible that failure to successfully accommodate future changes in technologies related to our technologies could have a long-term effect on our growth and results of operations.
New developments are expected to continue, and we do not assure you that discoveries by others, including current and potential competitors, will not render our services and products noncompetitive. Moreover, because of rapid technological changes, we may be required to expend greater amounts of time and money than anticipated to develop new products and services, which in turn may require greater revenue streams from these products and services to cover developmental costs. Many of the companies that compete with us for some of our business, as well as other companies with whom we may compete in the future, are larger and may have greater technical, financial, marketing, and political resources than we do. These resources could enable these companies to initiate severe price cuts or take other measures in an effort to gain market share or otherwise impede our progress. We do not assure you that we will be able to compete successfully against current or future participants in our market or against alternative technologies, or that the competitive pressures we face will not decrease our revenue and profits in the future.
We depend on our management and key employees for our future success. If we are not able to retain, hire or integrate these employees, we may not be able to meet our commitments.
Our success depends to a significant extent on the performance and continued service of our management team. The loss of the services of any of these employees could limit our growth or undermine customer relationships.
Due to the high level of technical expertise that our industry requires, our ability to successfully develop, market, sell, license and support our products, services, and intellectual property depends to a significant degree upon the continued contributions of our key personnel in engineering, sales, marketing, operations, legal and licensing, many of whom would be difficult to replace. We believe our future success will depend in large part upon our ability to retain our current key employees and our ability to attract, integrate and retain these personnel in the future. It may not be practical for us to match the compensation some of our employees could garner at other employment. In addition, we may encounter difficulties in hiring and retaining employees because of concerns related to our financial performance. These circumstances may have a negative effect on the market price of our common stock, and employees and prospective employees may factor in the uncertainties relating to our stability and the value of any equity-based incentives in their decisions regarding employment opportunities and decide to leave our employ. Moreover, our business is based in large part on technologies, and new employees require substantial training, involving significant resources and management attention. Competition for experienced personnel in our business can be intense. If we do not succeed in attracting new, qualified personnel or in integrating, retaining and motivating our current personnel, our growth and ability to deliver products and services that our customers require may be hampered. Although our employees generally have executed agreements containing non-competition clauses, we do not assure you that a court would enforce all of the terms of these clauses or the clauses generally. If these clauses were not fully enforced, our employees could be able to freely join our competitors. Although we generally attempt to control access to and distribution of our proprietary information by our employees, we do not assure you that the confidential nature of our proprietary information will be maintained in the course of such future employment. Any of these events could have a material adverse effect on our financial and business prospects.
If leading companies in our industry or standard-setting bodies or institutions downplay, minimize, or reject the use of our technologies, deployment may be slowed and we may be unable to achieve revenue growth, particularly in the media and entertainment sectors.
Many of our business endeavors, such as our development of intellectual property in support of audio and video copy-control applications, can be impeded or frustrated by larger, more influential companies or by standard-setting bodies or institutions downplaying, minimizing or rejecting the value or use of our other technologies. A negative position by these companies, bodies or institutions, if taken, may result in obstacles for us that we would be incapable of overcoming and may block or impede the adoption of digital coding, particularly in the media and entertainment market. In addition, potential customers in the media and entertainment industry may delay or reject initiatives that relate to deployment of our technologies. Such a development would make the achievement of our business objectives in this market difficult or impossible.
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If we are unable to respond to regulatory or industry standards effectively, or if we are unable to develop and integrate new technologies effectively, our growth and the development of our products and services could be delayed or limited.
Our future success will depend in part on our ability to enhance and improve the responsiveness, functionality and features of our products and services, and those of our business partners, in accordance with regulatory or industry standards. Our ability to remain competitive will depend in part on our ability to influence and respond to emerging industry and governmental standards in a timely and cost-effective manner. If we are unable to influence these or other standards or respond to such standards effectively, our growth and the development of certain products and services could be delayed or limited.
Our market is characterized by new and evolving technologies. The success of our business will depend on our ability to develop and integrate new technologies effectively and address the increasingly sophisticated technological needs of our customers in a timely and cost effective manner. Our ability to remain competitive will depend in part on our ability to:
| · | enhance and improve the responsiveness, functionality and other features of the products and services we offer or plan to offer; | |
| · | continue to develop our technical expertise; and |
| · | develop and introduce new services, applications and technologies to meet changing customer needs and preferences and to integrate new technologies. |
We cannot assure you that we will be successful in responding to these technological and industry challenges in a timely and cost-effective manner. If we are unable to develop or integrate new technologies effectively or respond to these changing needs, our margins could decrease, and our release of new products and services and the deployment of our coding technology and wifi network system could be adversely affected.
We may need to retain additional employees or contract labor in the future in order to take advantage of new business opportunities arising from increased demand, which could impede our ability to achieve or sustain profitability.
We have staffed our company with the intent of achieving and sustaining profitability. Our current staffing levels could affect our ability to respond to increased demand for our services. In addition, to meet any increased demand and take advantage of new business opportunities in the future, we may need to increase our workforce through additional employees or contract labor, which would increase our costs. If we experience such an increase in costs, we may not succeed in achieving or sustaining profitability.
The terms and conditions of our contracts could subject us to damages, losses and other expenses if we fail to meet delivery and other performance requirements.
Our service contracts typically include provisions imposing (i) development, delivery and installation schedules and milestones, (ii) customer acceptance and testing requirements and (iii) other performance requirements. To the extent these provisions involve performance over extended periods of time, risks of noncompliance may increase. Companies operating in these industries often experience delays in system implementation, timely acceptance of programs, concerns regarding program performance and other contractual disputes. Any failure to meet contractual milestones or other performance requirements as promised, or to successfully resolve customer disputes, could result in us incurring liability for damages, as well as increased costs, lower margins, or compensatory obligations in addition to other losses, such as harm to our reputation. Any unexpected increases in costs to meet our contractual obligations or any other requirements necessary to address claims and damages with regard to our customer contracts could have a material adverse effect on our business and financial results.
Our products could have unknown defects or errors, which may give rise to claims against us, divert application of our resources from other purposes or increase our project implementation and support costs.
Products and services as complex as those we offer or develop may contain undetected defects or errors. Furthermore, we anticipate providing complex implementation, integration, customization, consulting and other technical services in connection with the implementation and ongoing maintenance of our products and services. Despite testing, defects or errors in our products and services may occur, which could result in delays in the development and implementation of products and systems, inability to meet customer requirements or expectations in a timely manner, loss of revenue or market share, increased implementation and support costs, failure to achieve market acceptance, diversion of development resources, injury to our reputation, increased insurance costs, increased service and warranty costs and warranty or breach of contract claims. Although we attempt to reduce the risk of losses resulting from warranty or breach of contract claims through warranty disclaimers and liability limitation clauses in our sales agreements when we can, these contractual provisions are sometimes not included and may not be enforceable in every instance. If a court refuses to enforce the liability- limiting provisions of our contracts for any reason, or if liabilities arose that were not contractually limited or adequately covered by insurance, the expense associated with defending these actions or paying the resultant claims could be significant.
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The security systems used in our product and service offerings may be circumvented or sabotaged by third parties, which could result in the disclosure of sensitive information or private personal information or cause other business interruptions that could damage our reputation and disrupt our business.
Our business relies on computers and other information technologies, both internal and at customer locations. The protective measures that we use may not prevent security breaches, and failure to prevent security breaches may disrupt our business, damage our reputation, and expose us to litigation and liability. A party who is able to circumvent security measures could misappropriate sensitive or proprietary information or materials or cause interruptions or otherwise damage our products, services and reputation, and the property of our customers. If unintended parties obtain sensitive data and information, or create bugs or viruses or otherwise sabotage the functionality of our systems, we may receive negative publicity, incur liability to our customers or lose the confidence of our customers, any of which may cause the termination or modification of our contracts. Further, we currently don’t have insurance coverage to cover losses and liabilities that may result from these events.
In addition, we may be required to expend significant capital and other resources to protect ourselves against the threat of security breaches or to alleviate problems caused by these breaches. Any protection or remedial measures may not be available at a reasonable price or at all, or may not be entirely effective if commenced.
We are subject to risks encountered by companies developing and relying upon new technologies, products and services for substantial amounts of their growth or revenue.
Our business and prospects must be considered in light of the risks and uncertainties to which companies with new and rapidly evolving technologies, products and services are exposed. These risks include the following:
· we may be unable to develop sources of new revenue or sustainable growth in revenue because our current and anticipated technologies, products and services may be inadequate or may be unable to attract or retain customers;
· the intense competition and rapid technological change in our industry could adversely affect the market's acceptance of our existing and new products and services; and
· we may be unable to develop and maintain new technologies upon which our existing and new products and services are dependent in order for our products and services to be sustainable and competitive and in order for us to expand our revenue and business.
Some of our key technologies and solutions are in the development stage. Consequently, products incorporating these technologies and solutions are undergoing technological change and are in the early stage of introduction in the marketplace. Delays in the adoption of these products or adverse competitive developments may result in delays in the development of new revenue sources or the growth in our revenue. In addition, we may be required to incur unanticipated expenditures if product changes or improvements are required. Additionally, new industry standards might redefine the products that we are able to sell, especially if these products are only in the prototype stage of development. If product changes or improvements are required, success in marketing these products by us and achieving profitability from these products could be delayed or halted. We also may be required to fund any changes or improvements out of operating income, which could adversely affect our profitability.
We may not be able to protect adequately our intellectual property, and we may be subject to infringement claims and other litigation, which could adversely affect our business.
Our success depends in part on our licensed technologies. To protect our intellectual property portfolio, we rely on a combination of trademark and trade secret rights, confidentiality procedures and licensing arrangements. Unlicensed copying and use of our intellectual property or infringement of our intellectual property rights result in the loss of revenue to us.
We face risks associated with our intellectual property rights, including the potential need from time to time to engage in significant legal proceedings to enforce our intellectual property rights, the possibility that the validity or enforceability of our intellectual property rights may be denied, and the possibility that third parties will be able to compete against us without infringing our intellectual property rights. Budgetary concerns may cause us not to file, or continue, litigation against known infringers of our intellectual property rights, or may cause us not to file for, or pursue, intellectual property protection for all of our inventive technologies in jurisdictions where they may have value. Some governmental entities that might infringe our intellectual property rights may enjoy sovereign immunity from such claims. If we fail to protect our intellectual property rights and proprietary technologies adequately, if there are changes in applicable laws that are adverse to our interests, or if we become involved in litigation relating to our intellectual property rights and proprietary technologies or relating to the intellectual property rights of others, our business could be seriously harmed because the value ascribed to our intellectual property could diminish and result in a lower stock price or we may incur significant costs in bringing legal proceedings against third parties who are infringing our intellectual property rights.
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Effective protection of intellectual property rights may be unavailable or limited. Intellectual property protection throughout the world is generally established on a country-by-country basis. We do not assure you that the protection of our proprietary rights will be adequate or that our competitors will not independently develop similar technologies, duplicate our services or design around any of our intellectual property rights.
As more companies engage in business activities relating to digital coding, and develop corresponding intellectual property rights, it is increasingly likely that claims may arise which assert that some of our products or services infringe upon other parties' intellectual property rights. These claims could subject us to costly litigation, divert management resources and result in the invalidation of our intellectual property rights. These claims may require us to pay significant damages, cease production of infringing products, terminate our use of infringing technologies or develop non-infringing technologies. In these circumstances, continued use of our technologies may require that we acquire licenses to the additional intellectual property that is the subject of the alleged infringement, and we might not be able to obtain these licenses on commercially reasonable terms or at all. Our use of protected technologies may result in liability that threatens our continuing operation.
Some of our contracts include provisions regarding our non-infringement of third-party intellectual property rights. As deployment of our technology increases, and more companies enter our markets, the likelihood of a third party lawsuit resulting from these provisions increases. If an infringement arose in a context governed by such a contract, we may have to refund to our customer amounts already paid to us or pay significant damages, or we may be sued by the party allegedly infringed upon. Compliance with any such contract provisions may require that we pursue litigation where our costs exceed our likely recovery.
As part of our confidentiality procedures, we generally enter into non-disclosure agreements with our employees, directors, consultants and corporate partners, and attempt to control access to and distribution of our technologies, solutions, documentation and other proprietary information. Despite these procedures, third parties could copy or otherwise obtain and make unauthorized use of our technologies, solutions or other proprietary information or independently develop similar technologies, solutions or information. The steps that we have taken to prevent misappropriation of our solutions, technologies or other proprietary information may not prevent their misappropriation, particularly outside Thailand where laws or law enforcement practices may not protect our proprietary rights differently as in Thailand.
We have identified material weaknesses in our internal control over financial reporting. If we fail to remediate the material weaknesses or maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our shares may be adversely affected.
To implement Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404, the SEC adopted rules requiring public companies to include a report of management on the company’s internal control over financial reporting in their annual reports on Form 10-K. Under current law, we are subject to the requirement that we maintain internal controls and that management perform periodic evaluation of the effectiveness of the internal controls, assuming our filing status remains as a smaller reporting company. A report of our management is included under Item 9A of this Annual Report on Form 10-K. Our management has identified the following material weaknesses in our internal control over financial reporting: we did not have an Audit Committee, we did not maintain appropriate cash controls, we did not implement appropriate information technology controls, and we currently lack sufficient accounting personnel with the appropriate level of knowledge, experience and training in U.S. GAAP and SEC reporting requirements. A "material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. We plan to take measures to remedy these material weaknesses. Our Board of Directors plans, if possible, to recommend the addition of an audit committee or a financial expert on our Board of Directors in fiscal 2022. We plan, as funding permits, to appoint additional personnel to assist with the preparation of the Company’s periodic financial reporting. However, the implementation of these measures may not fully address the material weakness in our internal control over financial reporting. Our failure to address any control deficiency could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, effective internal control over financial reporting is important to prevent fraud. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of our shares, may be materially and adversely affected.
If our revenue models and pricing structures relating to products and services that are under development do not gain market acceptance, the products and services may fail to attract or retain customers and we may not be able to generate new or sustain existing revenue.
Part of our business involves embedding digital watermarks in traditional and digital media, including identification documents, secure documents, audio, video and imagery. Our revenue stream for such business is based primarily on a combination of development, consulting, subscription and license fees from copyright protection, counterfeit deterrence and advertisement applications. We have not fully developed revenue models for some of our future digital coding applications. Because some of our products and services are not yet well-established in the marketplace, and because some of these products and services will not directly displace existing solutions, we cannot be certain that the pricing structure for these products and services will gain market acceptance or be sustainable over time or that the marketing for these products and services will be effective.
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While we currently have no claims, litigation or regulatory actions filed or pending by or against us, future claims, litigation or enforcement actions could arise, and any obligation to pay a judgment or damages could materially harm our business or financial condition.
From time to time, we may be engaged in litigation and incurred significant costs relating to these matters. The inherent uncertainties of litigation, and the ultimate cost and outcome of litigation cannot be predicted. We currently do not carry director and officer liability insurance and other insurance policies that provide protection against various liabilities relating to claims against us and our executive officers and directors. Any expenses and liabilities relating to future lawsuits will materially harm our financial condition. In addition, we will be unable to obtain this insurance coverage due to cost or other reasons. It could make it more difficult for us to retain and attract officers and directors and could expose us to potentially self-funding certain future liabilities ordinarily mitigated by director and officer liability insurance.
Our audit report included in this annual report has been prepared by auditors who are not inspected by the PCAOB. As such, you are deprived of the benefits of a PCAOB inspection. In addition, various legislative and regulatory developments related to a lack of PCAOB inspection and other developments may have a material adverse impact on our listing and trading in the U.S. and the trading prices of our common stock.
Our independent registered public accounting firm that issues the audit reports included in our annual reports filed with the SEC as an auditor of companies that are traded publicly in the United States and firms registered with the Public Company Accounting Oversight Board (United States), or the PCAOB, is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards.
Our auditor is located in Hong Kong, a special administrative region of China, a jurisdiction where the PCAOB is currently unable to conduct full inspections without the approval of the Chinese authorities. As a result, we understand that our auditor is not currently inspected by the PCAOB.
Inspections of other firms that the PCAOB has conducted outside mainland China have identified deficiencies in those firms’ audit procedures and quality control procedures, which can be addressed as part of the inspection process to improve future audit quality. The lack of PCAOB inspections in mainland China and Hong Kong prevents the PCAOB from regularly evaluating our auditors’ audit procedures and quality control procedures as they relate to their work in mainland China and Hong Kong. As a result, we and investors are deprived of the benefits of such regular inspections.
The inability of the PCAOB to conduct full inspections of auditors in mainland China and Hong Kong makes it more difficult to evaluate the effectiveness of our auditors’ audit procedures and quality control procedures as compared to auditors who primarily work in jurisdictions where the PCAOB has full inspection access. In addition, the SEC may initiate proceedings against our independent registered public accounting firm, whether in connection with an audit of our company or other China-based companies, which could result in the imposition of penalties against our independent registered public accounting firm, such as suspension of its ability to practice before the SEC. All of these could cause our investors and potential investors in our common stock to lose confidence in our audit procedures, reported financial information and the quality of our financial statements.
In April 2020, the SEC and the PCAOB issued another joint statement reiterating the greater risks of insufficient disclosures from companies in many emerging markets, compared to those from U.S. domestic companies. In June 2020, the U.S. President at that time issued a memorandum ordering the President’s Working Group on Financial Markets, or the PWG, to submit a report to him within 60 days of the memorandum that includes recommendations for actions that can be taken by the executive branch and by the SEC or the PCAOB on companies listed on U.S. stock exchanges whose audit firms are not subject to PCAOB inspection.
As part of a continued regulatory focus in the United States on access to audit and other information currently protected by national law, in June 2019, a bipartisan group of U.S. lawmakers introduced bills that would require the SEC to maintain a list of issuers for which the PCAOB is not able to inspect or investigate the audit work performed by a foreign public accounting firm completely. The proposed Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges (“EQUITABLE”) Act prescribes increased disclosure requirements for these issuers and, beginning in 2025, the delisting from U.S. national securities exchanges of issuers included on the SEC’s list for three consecutive years. It is unclear if this proposed legislation will be enacted. In addition, the Holding Foreign Companies Accountable Act (the “HFCA Act”) became law in December 2020. The HFCA Act includes requirements for the SEC to identify issuers whose audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely because of a restriction imposed by a non-U.S. authority in the auditor’s local jurisdiction. The HFCA Act also requires that, to the extent that the PCAOB has been unable to inspect an issuer’s auditor for three consecutive years since 2021, the SEC shall prohibit its securities registered in the United States from being traded on any national securities exchange or over-the-counter markets in the United States. On March 24, 2021, SEC announced it has adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of the Act. The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report on Forms 10-K, 20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction.
As a result, our securities may be prohibited from trading on U.S. stock exchange if our auditor is not inspected by the PCAOB for three consecutive years as specified in the HFCA Act, and this ultimately could result in our shares of common stock being delisted from OTC Markets. The market price of our shares could be materially adversely affected as a result of anticipated negative impacts of these actions upon, as well as negative investor sentiment towards, companies whose auditors are not inspected fully by the PCAOB, regardless of whether these actions are implemented and regardless of our actual operating performance.
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Risks Relating to our VIE Structure
If the Thailand government deems that the contractual arrangements in relation to our VIE do not comply with Thailand regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.
Foreign ownership in Thailand is subject to restrictions under current Thai laws and regulations. For example, foreign investors are generally not allowed to own more than 50% of the equity interests in a Thai company.
We are a U.S. company. To comply with Thai laws and regulations, we conduct such business activities through Digiwork and OBON Thailand, two Thai VIEs of ours. Digiwork is 57.5 % owned by Mr. Ratanaphon Wongnapachant, our chairman and chief executive officer, 2.5% owned by Ms. Chanikarn Lertchawalitanon, and 40% owned by S-Mark Co. Ltd. Mr. Ratanaphon Wongnapachant and Ms. Chanikarn Lertchawalitanon are Thai citizens. OBON Thailand is owned 90.9% by Ms. Chanikarn Lertchawalitanon, 0.1% by Wanee Watcharakangka, and 9.0% by Mr. Ratanaphon Wongnapachant, who are all Thai citizens.
We entered into a series of contractual arrangements with our VIEs and their respective shareholders, which enable us to:
| · | exercise effective control over our VIEs; |
| · | receive substantially all of the economic benefits of our VIEs; and |
| · | have an exclusive option to purchase all or part of the equity interests and assets in our VIEs when and to the extent permitted by Thai law. |
Because of these contractual arrangements, we are the primary beneficiary of our VIEs and hence consolidate their financial results as our VIE under U.S. GAAP. For a detailed discussion of these contractual arrangements, see “Section 2. Contractual Arrangements with Digiwork and OBON Thailand.
In the opinion of MVP International Law Office & Associates Co., Ltd, our Thai legal counsel, (i) the ownership structure of our VIEs in Thailand does not result in any violation of Thai laws and regulations currently in effect; and (ii) the contractual arrangements between our subsidiary and VIEs and their respective shareholders governed by Thai law will not result in any violation of Thai laws or regulations currently in effect. However, we have been advised by our Thai legal counsel that there are substantial uncertainties regarding the interpretation and application of current and future Thai laws, regulations and rules; accordingly, the Thai regulatory authorities may take a view that is contrary to or otherwise different from the opinion of our Thai legal counsel. If our ownership structure, contractual arrangements and businesses of our VIEs are found to be in violation of any existing or future Thai laws or regulations, or we fail to obtain the foresaid market entry clearance, or our VIEs fail to obtain or maintain any of the required permits or approvals, the relevant Thai regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including:
| · | revoking the business licenses and/or operating licenses of such entities; |
| · | shutting down our services or blocking our website, or discontinuing or placing restrictions or onerous conditions on our operation through any transactions between our subsidiaries and VIEs; |
| · | imposing fines, confiscating the income from VIEs, or imposing other requirements with which we or our VIEs may not be able to comply; |
| · | requiring us to restructure our ownership structure or operations, including terminating the contractual arrangements with our VIEs and deregistering the equity pledges of our VIEs, which in turn would affect our ability to consolidate, derive economic interests from, or exert effective control over our VIEs; or |
| · | restricting or prohibiting our use of the proceeds of our offshore offerings to finance our business and operations in Thai. |
Any of these actions could cause significant disruption to our business operations and severely damage our reputation, which would in turn materially and adversely affect our business, financial condition and results of operations. If any of these occurrences results in our inability to direct the activities of our VIEs that most significantly impact their economic performance, and/or our failure to receive the economic benefits from our VIEs, we may not be able to consolidate such entities in our consolidated financial statements in accordance with U.S. GAAP.
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We rely on contractual arrangements with our VIEs and their respective shareholders for a portion of our business operations, which may not be as effective as direct ownership in providing operational control.
We have relied and expect to continue to rely on contractual arrangements with our VIEs and their respective shareholders to hold our business license in Thailand. For a description of these contractual arrangements, see “Section 2. Contractual Arrangements with Digiwork and OBON Thailand.” These contractual arrangements may not be as effective as direct ownership in providing us with control over our VIEs. For example, our VIEs and their respective shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations, including maintaining our website and using the domain names and trademarks, in an acceptable manner or taking other actions that are detrimental to our interests.
If we had direct ownership of our VIEs, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of our VIEs, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the current contractual arrangements, we rely on the performance by our VIEs and their respective shareholders of their obligations under the contracts to exercise control over our VIEs. The shareholders of our consolidated VIEs may not act in the best interests of our company or may not perform their obligations under these contracts. Such risks exist throughout the period in which we intend to operate our business through the contractual arrangements with our VIEs. If any dispute relating to these contracts remains unresolved, we will have to enforce our rights under these contracts through the operations of Thai law and arbitration, litigation and other legal proceedings and therefore will be subject to uncertainties in the Thai legal system. Therefore, our contractual arrangements with our VIEs may not be as effective in ensuring our control over the relevant portion of our business operations as direct ownership would be.
Any failure by our VIEs or their shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on our business.
If our VIEs or their shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under Thai law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective under Thai law. For example, if the respective shareholders of our VIEs were to refuse to transfer their equity interest in the VIEs to us or our designee if we exercise the purchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations.
All the agreements under our contractual arrangements are governed by Thai law and provide for the resolution of disputes through arbitration in Thailand. Accordingly, these contracts would be interpreted in accordance with Thai law and any disputes would be resolved in accordance with Thai legal procedures. The legal system in the Thailand is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the Thai legal system could limit our ability to enforce these contractual arrangements. Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a variable interest entity should be interpreted or enforced under Thai law. There remain significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under Thai law, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and if the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in Thai courts through arbitration award recognition proceedings, which would require additional expenses and delay. In the event we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over our VIEs, and our ability to conduct our business may be negatively affected.
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The shareholders of our VIE may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.
Mr. Ratanaphon Wongnapachant, Ms. Chanikarn Lertchawalitanon and S-Mark Co., Ltd, are the shareholders of Digiwork, owning 57.5%, 2.5% and 40% equity interest, respectively, in Digiwork. OBON Thailand is owned 90.9% by Ms. Chanikarn Lertchawalitanon, 0.1% by Wanee Watcharakangka, and 9.0% by Mr. Ratanaphon Wongnapachant. Mr. Ratanaphon Wongnapachant is our chairman of board of directors and chief executive officer. The shareholders of our VIEs may have potential conflicts of interest with us. These shareholders may breach, or cause our VIEs to breach, or refuse to renew, the existing contractual arrangements we have with them and our VIEs, which would have a material and adverse effect on our ability to effectively control our VIEs and receive economic benefits from them. For example, the shareholders may be able to cause our agreements with our VIEs to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise, any or all of these shareholders will act in the best interests of our company or such conflicts will be resolved in our favor.
Currently, we do not have any arrangements to address potential conflicts of interest between the respective shareholders of our VIEs and our company. Mr. Ratanaphon Wongnapachant is also a director of our company. We rely on Mr. Ratanaphon Wongnapachant to abide by the laws of the U.S. and Thai, which provide that directors owe a fiduciary duty to the company that requires them to act in good faith and in what they believe to be the best interests of the company and not to use their position for personal gains. There is currently no specific and clear guidance under Thai laws that address any conflict between Thai laws and laws of U.S. in respect of any conflict relating to corporate governance. If we cannot resolve any conflict of interest or dispute between us and the shareholders of our VIEs, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.
Contractual arrangements in relation to our VIEs may be subject to scrutiny by the Thai tax authorities and they may determine that we or our Thai VIEs owe additional taxes, which could negatively affect our financial condition and the value of your investment.
Under applicable Thai laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the Thai tax authorities within ten years after the taxable year when the transactions are conducted. We could face material and adverse tax consequences if the Thai tax authorities determine that the contractual arrangements between our wholly-owned subsidiary in BVI, our VIEs in Thailand, and their respective shareholders were not entered into on an arm’s length basis in such a way as to result in an impermissible reduction in taxes under applicable Thai laws, rules and regulations, and adjust our VIEs income in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by our VIEs for Thai tax purposes, which could in turn increase their tax liabilities without reducing our subsidiaries’ tax expenses. In addition, the Thai tax authorities may impose late payment fees and other penalties on our VIEs for the adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially and adversely affected if our VIEs’ tax liabilities increase or if they are required to pay late payment fees and other penalties.
We may lose the ability to use and enjoy assets held by our VIEs that are material to the operation of our business if the entities go bankrupt or become subject to dissolution or liquidation proceedings.
As part of our contractual arrangements with our VIEs, our VIEs hold certain assets that are material to the operation of our business. If our VIEs go bankrupt and all or part of their assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. Under the contractual arrangements, our VIEs may not, in any manner, sell, transfer, mortgage or dispose of their assets or legal or beneficial interests in the business without our prior consent. If our VIEs undergo a voluntary or involuntary liquidation proceeding, the independent third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.
Risks Relating to Doing Business in Thailand
Our business operation is headquartered in Thailand. Accordingly, our business, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic and social conditions in Thailand generally and by continued economic growth in Thailand as a whole.
Thai economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign investment and allocation of resources. Thai government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Thai economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations.
Uncertainties in the interpretation and enforcement of Thai laws and regulations could limit the legal protections available to you and us. We may be adversely affected by the complexity, uncertainties and changes in Thai regulations of IT businesses and companies.
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Fund Reservation in Thailand
The reform government of Thailand may issue laws or regulations without the approval by parliament that might have a material adverse impact on our financial and business prospects. For example, in 2014, the reform government issued new laws and regulations pursuant to section 44 exemption of the Constitution which allowed the government to issue new laws without approval of the parliament. The new law required all businesses in Thailand to have a reservation fund that equals to 30% of the entity’s annual net profits. The change of law affected the whole business sector in terms of dividend contributions and discouraged foreign investments in Thailand. Due to sharp criticism from foreign investors, the reform government withdrew the respective new laws and regulations and removed such reservation fund requirement.
Tax collection in Thailand
In 2016, the reform government issued the amnesty for tax law violations. However, the policy was subsequently changed by 180 degrees and the government issued stricter tax collection policies covering all companies and their accounts in order to collect more revenues from the business sectors. The new policies impose punishment not only on accountants and auditors as before but also extended to company directors. The uncertain tax regulation and enforcement increases our compliance cost and poses risks of potential violation of tax laws in Thailand.
IT Laws in Thailand
The current IT laws in Thailand have been outdated and might not be able to effectively protect our IT related intellectual properties and licenses, and thus make them vulnerable to imitation and infringements. Although the reform government is now considering new laws and regulations that better protect intellectual properties in Thailand, it might take time for such rules and regulations to be implemented. Any possible infringement of our intellectual properties could have a material adverse effect on our business and financial results.
Natural disasters, acts of terrorism and other destabilizing developments could harm our business, financial condition, and operating results.
Natural disasters, such as the October to November 2011 flooding in Thailand, could severely disrupt our operations. These events, over which we have little or no control, could cause a decrease in demand for our services, make it difficult or impossible for us to deliver products and services or require large expenditures to repair or replace our facilities. In addition, increased international political instability, evidenced by the threat or occurrence of terrorist attacks, enhanced national security measures, conflicts in the Middle East and Asia, strained international relations arising from these conflicts and the related decline in consumer confidence and economic weakness, may hinder our ability to do business. Any escalation in these events or similar future events may disrupt our operations and the operations of our customers. These events have had, and may continue to have, an adverse impact on the Thailand and world economy in general, and customer confidence and spending in particular, which in turn could adversely affect our total revenues and operating results.
Risks Related to Our Common Stock
The market price for our common stock is highly volatile and subject to wide fluctuations in response to factors including the following:
| · | actual or anticipated fluctuations in our quarterly operating results, | |
| · | announcements of new products and services by us or our competitors, | |
| · | changes in financial estimates by securities analysts, | |
| · | conditions in the information technology market, | |
| · | changes in the economic performance or market valuations of other companies involved in the same industry, | |
| · | announcements by our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments, | |
| · | additions or departures of key personnel, | |
| · | potential litigation, or | |
| · | conditions in the market. |
In addition, the securities markets from time to time experience significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
Shareholders could experience substantial dilution.
We may issue additional shares of our capital stock to raise additional cash for working capital. If we issue additional shares of our capital stock, our shareholders will experience dilution in their respective percentage ownership in the company.
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A large portion of our common stock is controlled by a small number of shareholders.
A large portion of our common stock is held by a small number of shareholders. As a result, these shareholders are able to influence the outcome of shareholder votes on various matters, including the election of directors and extraordinary corporate transactions including business combinations. In addition, the occurrence of sales of a large number of shares of our common stock, or the perception that these sales could occur, may affect our stock price and could impair our ability to obtain capital through an offering of equity securities. Furthermore, the current ratios of ownership of our common stock reduce the public float and liquidity of our common stock which can in turn affect the market price of our common stock.
We may be subject to “penny stock” regulations.
The Securities and Exchange Commission, or SEC, has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. A broker-dealer must also provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer, and sales person in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for stock that becomes subject to those penny stock rules. These additional sales practice and disclosure requirements could impede the sale of our securities. Whenever any of our securities become subject to the penny stock rules, holders of those securities may have difficulty in selling those securities.
We do not intend to pay dividends on our common stock in the foreseeable future.
For the foreseeable future, we intend to retain any earnings to finance the development of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will be dependent upon then-existing conditions, including our operating results and financial condition, capital requirements, contractual restrictions, business prospects and other factors that our board of directors considers relevant. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment.
Item 1B. Unresolved Staff Comments
Not applicable.
Our executive office and our consolidated entity are located at 8/6 Soi Patanakarn 30, Patanakarn Road, Suan Luang, Bangkok, Thailand. We lease our offices pursuant to lease agreements that will expire on October 31, 2021.
Our subsidiary, Enigma Technology International Corporation, is located in Hong Kong. Enigma Technology leases such office space pursuant to a lease agreement that will expire on September 30, 2021.
We believe that all our properties have been adequately maintained, are generally in good condition, and are suitable and adequate for our business.
Rent expense amounted to $130,957 and $135,887 for the years ended December 31, 2020 and 2019, respectively.
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not currently a party to any material legal proceedings, and to our knowledge none is threatened. There can be no assurance that future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our financial position, results of operations or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Not applicable.
Holders of Record
We have 350 stockholders of record as of March 30, 2021.
Dividend
The holders of our common stock are entitled to receive pro rata such dividends as our Board, from time to time, may declare out of funds legally available therefor. The current policy of the Board is to retain earnings, if any, for operations and growth.
Dividend Policy
The Company has never declared or paid a cash dividend. Any future decisions regarding dividends will be made by our Board, which has complete discretion on whether to pay dividends. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Even if our Board decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the Board may deem relevant.
Item 6. Selected Financial Data
Not applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report. Our financial statements are prepared in U.S. dollars and in accordance with U.S. GAAP.
Special Note Regarding Forward Looking Statements
In addition to historical information, this report contains forward-looking statements. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth; any projections of earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including without limitation, those listed in the “Risk Factors” section, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.
Overview
IWEB, Inc. (the “Company”) was incorporated under the laws of the State of Nevada on February 17, 2015.
The Company’s original business plan was to actively engage in providing high impact internet marketing strategies to internet based businesses and people seeking to create websites, but this business was not successful. On December 12, 2016, 24,997,500 shares of the common stock of the Company, representing 97.08% of the Company’s issued and outstanding shares of common stock at that time, were sold by Dmitriy Kolyvayko in a private transaction to Mr. Wai Hok Fung (the “Transaction”) for an aggregate purchase price of $380,000. In connection with the Transaction, Mr. Kolyvayko released the Company from certain liabilities and obligations arising out of his service as a director and officer of the Company.
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On May 15, 2017, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with Enigma Technology International Corporation (“Enigma BVI”), and all the shareholders of Enigma BVI, namely, Mr. Ratanaphon Wongnapachant, Ms. Chanikarn Lertchawalitanon and S-Mark Co. Ltd. (collectively the “Shareholders”), to acquire all the issued and outstanding capital stock of Enigma BVI in exchange for the issuance to the Shareholders of an aggregate of 31,500,000 restricted shares of IWEB, Inc.’s common stock (the “Reverse Merger”). The Reverse Merger closed on May 15, 2017. As a result of the Reverse Merger, Enigma BVI is a wholly-owned subsidiary of the Company.
Enigma BVI was incorporated on February 22, 2017 in the British Virgin Islands.
Digiwork (Thailand) Co., Ltd. (“Digiwork”) was established and incorporated in Thailand on November 24, 2016. The authorized capital of Digiwork is THB5,000,000 (approximately $166,556), divided into 500,000 common shares with a par value of THB10 per share, which has been fully paid up as of December 31, 2016.
On May 15, 2017, Enigma BVI, Digiwork and the shareholders of Digiwork entered into the following commercial arrangements, or collectively, “VIE Agreements,” pursuant to which Enigma BVI has contractual rights to control and operate the businesses of Digiwork.
Pursuant to an Exclusive Technology Consulting and Service Agreement, Enigma BVI agreed to act as the exclusive consultant of Digiwork and provide technology consulting and services to Digiwork. In exchange, Digiwork agreed to pay Enigma BVI a technology consulting and service fee, the amount of which is decided by Enigma BVI on the basis of the work performed and commercial value of the services and the fee amount to be equivalent to the amount of net profit before tax of Digiwork on a quarterly basis; provided that the minimum amount of which is no less than THB30,000 (approximately $999) per quarter. Without the prior written consent of Enigma BVI, Digiwork may not accept the same or similar technology consulting and services provided by any third party during the term of the agreement. All the benefits and interests generated from the agreement, including but not limited to intellectual property rights, know-how and trade secrets, will be Enigma BVI’s sole and exclusive property. The term of this agreement will expire on May 15, 2027 and may be extended unilaterally by Enigma BVI with Enigma BVI's written confirmation prior to the expiration date. Digiwork cannot terminate the agreement early unless Enigma BVI commits fraud, gross negligence or illegal acts, or becomes bankrupt or winds up.
Pursuant to an Exclusive Purchase Option Agreement, the shareholders of Digiwork granted to Enigma BVI and any party designated by Enigma BVI the exclusive right to purchase at any time during the term of this agreement all or part of the equity interests in Digiwork, or the “Equity Interests,” at a purchase price equal to the registered capital paid by the shareholders of Digiwork for the Equity Interests, or, in the event that applicable law requires an appraisal of the Equity Interests, the lowest price permitted under applicable law; Pursuant to powers of attorney executed by each of the shareholders of Digiwork, such shareholders irrevocably authorized any person appointed by Enigma BVI to exercise all shareholder rights, including but not limited to voting on their behalf on all matters requiring approval of Digiwork’s shareholders, disposing of all or part of the shareholder's equity interest in Digiwork, and electing, appointing or removing directors and executive officers. The person designated by Enigma BVI is entitled to dispose of dividends and profits on the equity interest without reliance of any oral or written instructions of the shareholder. Each power of attorney will remain in force for so long as the shareholder remains a shareholder of Digiwork. Each shareholder has waived all the rights which have been authorized to Enigma BVI’s designated person under each power of attorney.
Pursuant to equity pledge agreements, each of the shareholders of Digiwork pledged all of the Equity Interests to Enigma BVI to secure the full and complete performance of the obligations and liabilities on the part of Digiwork and each of its shareholders under this and the above contractual arrangements. If Digiwork or the shareholders of Digiwork breach their contractual obligations under these agreements, then Enigma BVI, as pledgee, will have the right to dispose of the pledged equity interests. The shareholders of Digiwork agree that, during the term of the equity pledge agreements, they will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests, and they also agree that Enigma BVI’s rights relating to the equity pledge should not be prejudiced by the legal actions of the shareholders, their successors or their designees. During the term of the equity pledge, Enigma BVI has the right to receive all of the dividends and profits distributed on the pledged equity. The equity pledge agreements will terminate on the second anniversary of the date when Digiwork and the shareholders of Digiwork have completed all their obligations under the contractual agreements described above.
As a result of the above contractual arrangements, Enigma BVI has substantial control over Digiwork’s daily operations and financial affairs, election of its senior executives and all matters requiring shareholder approval. Furthermore, as the primary beneficiary of Digiwork, the Company, via Enigma BVI, is entitled to consolidate the financial results of Digiwork in its own consolidated financial statements under Financial Accounting Standards Board Accounting Standard Codification (ASC) Topic 810 and related subtopics related to the consolidation of variable interest entities, or ASC Topic 810.
Digiwork was set up pursuant to a joint business agreement among its shareholders on August 4, 2016 and as amended and restated on March 31, 2017 (“JBA”). Pursuant to the JBA, Digiwork is obligated to pay a total of $10,000,000 to S-Mark Co. Ltd., a shareholder of Digiwork or to Digiwork Co., Ltd. (“Digiwork Korea”), a wholly owned subsidiary of S-Mark. As consideration for such payments, Digiwork Korea agreed to provide research and development services to Digiwork for a period of five years commencing on March 31, 2017. On December 31, 2016, an initial payment of $100,000 was paid to Digiwork Korea.
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On July 10, 2017, the parties to the JBA entered into an amendment to the Amended and Restated Joint Business Agreement which amended the total payment from $10,000,000 to $1,100,000. In May 2018, the final payment of $1,000,000 was paid to Digiwork Korea. Towards the end of 2019, management started discussions with Digiwork Korea to review the scope of the research and development with respect of the coding technology. On March 5, 2020, the parties entered into Amendment No. 2 to the Amended and Restated Joint Business Agreement, pursuant to which Digiwork Korea agreed to provide research and development services to Digiwork until December 31, 2020. Upon expiration of its services, Digiwork Korea shall repay $150,000 to Digiwork. In first quarter of 2021, Digiwork Korea had repaid $150,000 to the Company. Prepaid R&D payments to Digiwork Korea were $nil and $391,274 as of December 31, 2020 and December 31, 2019, respectively. We are currently seeking other development and acquisition opportunities to grow our business.
Digiwork Korea also agreed to grant Digiwork full and exclusive licenses to any new launches, developments, improvements and any other intellectual property rights of coding technology developed by Digiwork Korea until December 31, 2020. The territories for such licenses are in Thailand, Vietnam, Myanmar, Laos, Cambodia, United Arab Emirates and Qatar.
Digiwork was authorized by Digiwork Korea to be an official licensee and distributor of its technology exclusively in Thailand, Vietnam, Myanmar, Laos, Cambodia, United Arab Emirates and Qatar, and the authorization covers all four categories of Digiwork Korea’s coding technology: image, audio, web and security coding. This technology enables governments and enterprises around the world to give digital identities to media and objects that computers can sense and recognize, and to which they can react.
Digiwork is a technology development and services provider specializing in coding services in various industries and markets.
On August 17, 2017, the Company filed a Certificate of Amendment (the “Certificate”) with the Secretary of State for the State of Nevada to amend its articles of incorporation to (i) increase the Company’s authorized shares of common stock, par value $0.0001 per share, from 75,000,000 to 150,000,000 shares and (ii) authorize the issuance of up to 25,000,000 shares of blank check preferred stock, par value $0.0001 per share, effective immediately (the “Amendment”). The Amendment was approved by the Company’s Board of Directors (the “Board”) and by shareholders holding a majority of the Company’s issued and outstanding capital stock effective on June 28, 2017.
On March 7, 2018, the Company filed a Certificate of Change with the State of Nevada (the “Certificate”) to effect a 1-for-2 reverse stock split of the Company’s authorized shares of common stock, par value $0.0001 (the “Common Stock”), accompanied by a corresponding decrease in the Company’s issued and outstanding shares of Common Stock (the “Reverse Stock Split”) such that, following the consummation of the Reverse Stock Split, the number of authorized shares of Common Stock was reduced from 150,000,000 to 75,000,000. The Reverse Stock Split became effective on March 13, 2018.
During 2019, One Belt One Network Holdings Limited, a British Virgin Island company (the “OBON BVI”) and 70% owned subsidiary of IWEB, Inc., OBON Corporation Company Limited, a Thailand Company (the “OBON Thailand”) and the shareholders of OBON Thailand (namely, Mr. Ratanaphon Wongnapachant, Mr. Wanee Watcharakangka and Ms. Chanikarn Lertchawalitanon, the “OBON Thailand Shareholders”) entered into the following agreements, or collectively, the “Variable Interest Entity or VIE Agreements,” pursuant to which OBON BVI has contractual rights to control and operate the business of OBON Thailand (the “VIE”). OBON Thailand was established as our VIE for our business expansion and development in Thailand, which imposes certain restrictions on foreign invested companies.
The VIE Agreements are as follows:
| 1. | Exclusive Technology Consulting and Service Agreement by and between OBON BVI and OBON Thailand. Pursuant to the Exclusive Technology Consulting and Service Agreement, OBON BVI agreed to act as the exclusive consultant of OBON Thailand and provide technology consulting and services to OBON Thailand. In exchange, OBON Thailand agreed to pay OBON BVI a technology consulting and service fee, the amount of which is decided by OBON BVI on the basis of the work performed and commercial value of the services, and the fee amount is to be equivalent to the amount of net profit before tax of OBON Thailand on a quarterly basis; provided that the minimum amount of which shall be no less than THB30,000 (approximately $999) per quarter. Without the prior written consent of OBON BVI, OBON Thailand may not accept the same or similar technology consulting and services provided by any third party during the term of the agreement. All the benefits and interests generated from the agreement, including but not limited to intellectual property rights, know-how and trade secrets, will be OBON BVI’s sole and exclusive property. The term of this agreement will expire on June 3, 2029 and may be extended unilaterally by OBON BVI with OBON BVI's written confirmation prior to the expiration date. OBON Thailand cannot terminate the agreement early unless OBON BVI commits fraud, gross negligence or illegal acts, or becomes bankrupt or winds up. |
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| 2. | Exclusive Purchase Option Agreements by and among OBON BVI, OBON Thailand and each of OBON Thailand Shareholders. Pursuant to the Exclusive Purchase Option Agreements, each of OBON Thailand Shareholders granted to OBON BVI and any party designated by OBON BVI the exclusive right to purchase at any time during the term of this agreement all or part of the equity interests in OBON Thailand, or the “Equity Interests,” at a purchase price equal to the registered capital paid by each of OBON Thailand Shareholders for the Equity Interests, or, in the event that applicable law requires an appraisal of the Equity Interests, the lowest price permitted under applicable law. Pursuant to a power of attorney executed by each of OBON Thailand Shareholders, each of them irrevocably authorized any person appointed by OBON BVI to exercise all shareholder rights, including but not limited to voting on his/her behalf on all matters requiring approval of OBON Thailand’s shareholder, disposing of all or part of the shareholder's equity interest in OBON Thailand, and electing, appointing or removing directors and executive officers. The person designated by OBON BVI is entitled to dispose of dividends and profits on the equity interest without reliance on any oral or written instructions of OBON Thailand Shareholders. The power of attorney will remain in force for so long as each of OBON Thailand Shareholders remains the shareholder of OBON Thailand. Each of OBON Thailand Shareholders has waived all the rights which have been authorized to OBON BVI’s designated person under power of attorney. |
| 3. | Equity Pledge Agreements by and among OBON BVI, OBON Thailand and each of OBON Thailand Shareholders. Pursuant to the Equity Pledge Agreements, each of OBON Thailand Shareholders pledged all of the Equity Interests to OBON BVI to secure the full and complete performance of the obligations and liabilities on the part of OBON Thailand and him/her under this and the above contractual arrangements. If OBON Thailand or OBON Thailand Shareholders breaches their contractual obligations under these agreements, then OBON BVI, as pledgee, will have the right to dispose of the pledged equity interests. Each OBON Thailand Shareholders agrees that, during the term of the Equity Pledge Agreement, he/she will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests, and he/she also agrees that OBON BVI’s rights relating to the equity pledge should not be prejudiced by the legal actions of the shareholder of OBON Thailand, his successors or designees. During the term of the equity pledge, OBON BVI has the right to receive all of the dividends and profits distributed on the pledged equity. The Equity Pledge Agreement will terminate on the second anniversary of the date when OBON Thailand and OBON Thailand Shareholders have completed all their obligations under the contractual agreements described above. |
As a result of the above contractual arrangements, OBON BVI has substantial control over OBON Thailand’s daily operations and financial affairs, election of its senior executives and all matters requiring shareholder approval. Furthermore, as the primary beneficiary of OBON Thailand, the Company, via OBON BVI, is entitled to consolidate the financial results of OBON Thailand in its own consolidated financial statements under ASC Topic 810.
On September 6, 2019, OBON Thailand, a Variable Interest Entity or VIE of OBON BVI, which is a 70% owned subsidiary of IWEB, Inc. entered into a Networking and WiFi Devices Installation Agreement (the “Agreement”) with CatBuzz TV Company Limited, a Thailand Company (“CatBuzz TV”).
Pursuant to the Agreement, OBON Thailand will lease and install network systems, WiFi devices and related accessories for CatBuzz TV and provide maintenance services. CatBuzz TV agrees to pay OBON Thailand compensation for the network systems, WiFi devices and the accessories and maintenance services with a monthly fee based upon the location and type of device, which fees range from 600 Baht (approximately $20) to 2,500 Baht (approximately $83) per device per month.
This Agreement has a term of 5 (five) years from the execution date of the Agreement. Upon the end of the term, if not agreed otherwise, both parties agree to extend the term of the Agreement for additional 2 (two) year terms, under the same terms or according to mutually agreeable terms determined by both parties in the future.
Organization and Reorganization
Enigma BVI was incorporated on February 22, 2017 in the British Virgin Islands with limited liability as an investment holding company. Upon incorporation, Enigma BVI issued 50,000 shares at $1 each. Prior to the reorganization, Enigma BVI was owned 57.5% by Mr. Ratanaphon Wongnapachant, 2.5% by Ms. Chanikarn Lertchawalitanon, and 40% by S-Mark Co. Ltd., a KOSDAQ-listed corporation and 100% shareholder of Digiwork Korea.
Digiwork (Thailand) Co. Ltd was incorporated in Thailand with limited liability on November 24, 2016. Digiwork was also owned 57.5% by Mr. Ratanaphon Wongnapachant, 2.5% by Ms. Chanikarn Lertchawalitanon, and 40% by S-Mark Co. Ltd.
On May 15, 2017, Enigma BVI, Digiwork and the shareholders of Digiwork entered into the abovementioned VIE Agreements, pursuant to which Enigma BVI has contractual rights to control and operate the businesses of Digiwork. The change in control of and the acquisition of Digiwork by Enigma BVI have been accounted for as common control transactions in a manner similar to a pooling of interests, and there was no recognition of any goodwill or excess of the acquirers’ interest in the net fair value of the acquirees’ identifiable assets, liabilities and contingent liabilities over cost at the time of the common control combinations. Therefore, this transaction was recorded at historical cost with a reclassification of equity from retained profits to additional paid in capital to reflect the deemed value of consideration given in the local jurisdiction and the capital structure of Enigma BVI.
On May 15, 2017, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with Enigma Technology International Corporation (“Enigma BVI”), and all the shareholders of Enigma BVI, namely, Mr. Ratanaphon Wongnapachant, Ms. Chanikarn Lertchawalitanon, and S-Mark Co. Ltd. (collectively the “Shareholders”), to acquire all the issued and outstanding capital stock of Enigma BVI in exchange for the issuance to the Shareholders of an aggregate of 31,500,000 restricted shares of IWEB, Inc.’s common stock (the “Reverse Merger”). The Reverse Merger closed on May 15, 2017. As a result of the Reverse Merger, Enigma BVI is a wholly-owned subsidiary of the Company.
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On May 15, 2017, the Company filed a Current Report on Form 8-K with the Securities and Exchange Commission (“SEC”) announcing the completion of the business combination between the Company and Enigma BVI in accordance with the terms of the Share Exchange Agreement. As a result of the transaction, Enigma BVI is a wholly owned subsidiary of the Company, and the former shareholders of Enigma BVI became the holders of approximately 84% of the Company’s issued and outstanding capital stock on a fully-diluted basis immediately after the transaction. The acquisition was accounted for as a recapitalization effected by a share exchange, wherein Enigma BVI is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized.
In September 2018, the Company incorporated Marvelous ERA Limited in the British Virgin Islands as a wholly-owned subsidiary (“Marvelous ERA”). Marvelous ERA is the 70% majority owner of One Belt One Network Holdings Limited, a British Virgin Islands company (“OBON BVI”), which was incorporated in October 2018. OBON BVI is the sole parent of One Belt One Network (HK) Limited, a company organized under the laws of Hong Kong SAR in October 2018.
In June 2019, OBON BVI, OBON Thailand and the shareholders of OBON Thailand entered into the abovementioned VIE agreements, pursuant to which OBON BVI has contractual rights to control and operate the business of OBON Thailand.
In December 2019, a novel strain of coronavirus, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China, which has spread rapidly to many parts of the world, including Thailand and the U.S. In March 2020, the World Health Organization declared the COVID-19 a pandemic. The pandemic has resulted in quarantines, travel restrictions, and the temporary closure of office buildings and facilities in Thailand.
Substantially all of our revenues are generated in Thailand. The Company’s business and services and results of operations have been adversely affected and could continue to be adversely affected by the COVID-19 pandemic. In response to the evolving dynamics related to the COVID-19 outbreak, the Company is following the guidelines of local authorities as it prioritizes the health and safety of its employees, contractors, suppliers and business partners. Our office in Thailand has been closed and all of the Company’s employees in Thailand have been working from home from March 23, 2020 to May 7, 2020. Since May 8, 2020, our office in Thailand has been reopened and in normal operation. The quarantines, travel restrictions, and the temporary closure of office buildings have negatively impacted our business including our wifi installation project. Our suppliers have negatively been affected, and could continue to be negatively affected in their ability to supply and ship wifi related devices and parts to us if there is any further outbreak or resurgence of COVID-19. Our customers that have been negatively impacted by the outbreak of COVID-19 may reduce their budgets to purchase our products and services, which may materially adversely impact our revenue. Some of our customers may require additional time to pay us or fail to pay us at all, which could significantly increase the amount of accounts receivable and require us to record additional allowances for doubtful accounts. The outbreak of COVID-19 has disrupted our supply chain and logistics and caused shortage of active installation workers and service providers for our project and might continue to impose negative impact to our business operations. Some of our customers, contractors, suppliers and other business partners are small and medium-sized enterprises (SMEs), which may not have strong cash flows or be well capitalized, and may be vulnerable to an epidemic outbreak and slowing macroeconomic conditions. If the SMEs that we work with cannot weather the COVID-19 and the resulting economic impact, or cannot resume business as usual after a prolonged outbreak, our revenues and business operations may be materially and adversely impacted.
The global economy has also been materially negatively affected by the COVID-19 and there is continued severe uncertainty about the duration and intensity of its impacts. The Thailand and global growth forecast is extremely uncertain, which would seriously affect investment in infrastructures including building wifi network and related installation business.
While future economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.
Further, as we do not have access to a revolving credit facility, there can be no assurance that we would be able to secure commercial debt financing in the future in the event that we require additional capital. We currently believe that our financial resources will be adequate to see us through the outbreak. However, in the event that we do need to raise capital in the future, outbreak-related instability in the securities markets could adversely affect our ability to raise additional capital.
Consequently, our results of operations have been adversely, and may be materially, affected, to the extent that the COVID-19 harms the Thailand and global economy. Any potential impact to our results will depend on, to a large extent, future developments and new information that may emerge regarding the duration and severity of the COVID-19 and the actions taken by government authorities and other entities to contain the COVID-19 or treat its impact, almost all of which are beyond our control.
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Our Business Strategy
Digiwork was set up pursuant to a joint business agreement among its shareholders (“JBA”) on August 4, 2016, as amended and restated on March 31, 2017. Pursuant to the JBA as amended, Digiwork was authorized by Digiwork Korea to be an official licensee and distributor of its technology exclusively in Thailand, Vietnam, Myanmar, Laos, Cambodia, United Arab Emirates and Qatar, and the authorization covers all four categories of Digiwork Korea’s coding technology: image, audio, web and security coding. This technology enables governments and enterprises around the world to give digital identities to media and objects that computers can sense and recognize, and to which they can react.
Pursuant to the JBA as amended, Digiwork was originally obligated to pay a total of $10,000,000 to S-Mark Co., Ltd., a shareholder of Digiwork or Digiwork Co., Ltd. (“Digiwork Korea”, a 100% wholly owned subsidiary of S-Mark Co., Ltd., a major shareholder of the Company) for research and development services and exclusive licenses to any new launches, developments, improvements and any other intellectual property rights developed by Digiwork Korea (“R&D Services”). The territories for such licenses are Thailand, Vietnam, Myanmar, Laos, Cambodia, United Arab Emirates and Qatar. On July 10, 2017, parties to the JBA entered into an amendment to the Amended and Restated Joint Business Agreement which amended the total payment from $10,000,000 to $1,100,000. As the consideration for such payments, Digiwork Korea agreed to provide research and development services to Digiwork for a period of five years commencing from March 31, 2017. Towards the end of 2019, management started discussion with Digiwork Korea to review the scope of the research and development with respect of the coding technology. On March 5, 2020, the parties of JBA entered into Amendment No. 2 to the Amended and Restated Joint Business Agreement, pursuant to which Digiwork Korea agreed to provide R & D Services to Digiwork until December 31, 2020. The Company's technical services are currently provided by contracted technicians from Digiwork Korea or unrelated third party. We are currently seeking other development and acquisition opportunities to grow its business.
Digiwork is a technology development and services provider specializing in coding services in various industries and markets. Digiwork’s technology enables governments and enterprises to imbed or imprint invisible digital identities to media and objects that various computer devices can sense and recognize and to which they can react. Our coding technology provides the means to infuse persistent digital information, perceptible only to computers and digital devices, into all forms of media content. Our coding technology permits computers and digital devices including smartphones, tablets, industrial scanners and other computer interfaces to quickly identify relevant data from vast amounts of media content. We focus on four coding technologies:
| · | Image coding technology, |
| · | Audio coding technology, |
| · | Web coding technology, and |
| · | Security coding technology |
We provide tailor-made coding technological solutions to various commercial entities in different markets. Our technologies enable companies to give digital identity or information through various media like music, movies, television broadcasts, images and printed materials. The wide range application of the above four technologies can provide improved media rights, asset management, reduce piracy and counterfeiting losses, improve marketing programs, permit more efficient and effective distribution of valuable media content and enhance consumer experiences.
OBON Thailand leases and installs network systems, WiFi devices and related accessories for CatBuzz TV (“CAT”) and provides maintenance services. CAT is a government owned internet network service provider and we are expected to provide installation and operate 130,000 wifi access points for CAT in Thailand and charge rental fees for our network system and WiFi devices.
Results of Operations
The following table sets forth key components of our results of operations for the years ended December 31, 2020 and 2019:
| 2020 | 2019 | |||||||
| Revenue | $ | 5,095 | $ | - | ||||
| Cost of revenue | (1,628 | ) | - | |||||
| General and administrative expenses | (929,334 | ) | (1,140,901 | ) | ||||
| Finance cost | (257,079 | ) | (24,547 | ) | ||||
| Other (expense) income | (12,974 | ) | 82,203 | |||||
| Loss before income tax | (1,195,920 | ) | (1,083,245 | ) | ||||
| Income tax expense | - | - | ||||||
| Net loss | $ | (1,195,920 | ) | $ | (1,083,245 | ) | ||
Revenues and cost of revenue. Revenue is principally comprised of provision of WiFi network devices and facilities services, and represents the fair value of the consideration received or receivable for the provision of services in the ordinary course of our activities and is recorded net of value-added tax ("VAT").
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OBON Thailand’s revenues for the year ended December 31, 2020 of $5,095 was derived from a single customer, which individually accounted for 100% of the Company’s revenues. We did not recognize any revenue or associated cost of revenues for the year ended December 31, 2019.
General and administrative expenses. Our general and administrative expenses for the year ended December 31, 2020 was $929,334, $237,793 of which were costs associated with our personnel, $229,275 of which were R&D expenses, $167,411 of which were audit and professional fees and $130,957 of which were rental expenses.
Our general and administrative expenses for the year ended December 31, 2019 was $1,140,901, $113,495 of which were costs associated with our personnel, $238,250 of which were R&D expenses, a loss of $161,072 as a result of the revision of the term of the research and development services under the joint business agreement with Digiwork Korea, $182,408 of which were audit and professional fees and $135,887 of which were rental expenses.
We expect our general and administrative expenses to increase when we expand our operations.
Finance cost. In the fourth quarter of 2019, OBON Thailand obtained a short-term loan of $0.9 million, repayable by November 2020. Finance cost was $257,079 and $24,547 for the years ended December 31, 2020 and 2019, respectively.
Other (expense) income. Our other expense for the year ended December 31, 2020 was $12,974, and other income for the year ended December 31, 2019 was $82,203, which was partially related to exchange rate differences. Although a majority of total revenues, payroll and other operating expenses are incurred and paid by our VIE in Thailand in Thai baht, its payment of R&D services provided by Digiwork Korea is required to be made in U.S. dollars. During 2018, the final payment of $1,000,000 was paid by Enigma BVI to Digiwork Korea in connection with the agreement between those entities. As of December 31, 2020 and 2019, our VIE in Thailand owed Enigma BVI $1,000,000 for such R&D service fees paid by Enigma BVI.
Net loss. As a result of the above, we recorded a net loss of $1,195,920 and $1,083,245 for the years ended December 31, 2020 and 2019, respectively.
Segment Information
The Company used to have one reportable segment, being technology development and provision of coding services in various industries and markets. Starting from the last quarter of fiscal 2019, there is one additional segment, consisting of the leasing and installation of network systems, WiFi devices and related accessories.
| For the year ended December 31, 2020 | Technology development and services provider specializing in coding services in various industries and markets | Lease and install network systems, WiFi devices and related accessories | Corporate unallocated | Consolidated | ||||||||||||
| Revenues | $ | - | $ | 5,095 | $ | - | $ | 5,095 | ||||||||
| Gross profit | - | 3,467 | - | 3,467 | ||||||||||||
| General and administrative expenses | (491,944 | ) | (271,096 | ) | (166,294 | ) | (929,334 | ) | ||||||||
| Loss before income tax | (492,225 | ) | (537,401 | ) | (166,294 | ) | (1,195,920 | ) | ||||||||
We do not allocate our assets located and expenses incurred outside Hong Kong and Thailand to our reportable segments because these assets and activities are managed at a corporate level.
We primarily operate in Thailand. Substantially all our long-lived assets are located in Thailand.
Liquidity and Capital Resources
Working Capital
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Bank balances | $ | 12,511 | $ | 883,812 | ||||
| Bank overdraft | (13,739 | ) | - | |||||
| Cash and cash equivalents in the statements of cash flows | (1,228 | ) | 883,812 | |||||
| Total current assets | 347,996 | 1,401,351 | ||||||
| Total assets | 776,102 | 1,751,499 | ||||||
| Total liabilities | 1,181,480 | 1,153,983 | ||||||
| Accumulated deficit | (3,356,283 | ) | (2,321,583 | ) | ||||
| Total equity | (405,378 | ) | 597,516 | |||||
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Going Concern
We have a history of recurring net losses, a significant accumulated deficit and a net working capital deficit. At December 31, 2020, we had an accumulated deficit of $3,356,283. These conditions raise substantial doubt about our ability to continue as a going concern. The report from our independent registered public accounting firm for the year ended December 31, 2020 included an explanatory paragraph in respect of the substantial doubt of our ability to continue as a going concern. Our plan for continuing as a going concern included improving our profitability, and obtaining additional debt financing, loans from existing directors and shareholders and private placements of capital stock for additional funding to meet our operating needs. There can be no assurance that we will be successful in our plans described above or in attracting equity or alternative financing on acceptable terms, or if at all. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
The following table provides detailed information about our net cash flow for the years ended December 31, 2020 and 2019:
| 2020 | 2019 | |||||||
| Net cash used in operating activities | $ | (946,466 | ) | $ | (848,063 | ) | ||
| Net cash used in investing activities | (160,070 | ) | (331,214 | ) | ||||
| Net cash provided by financing activities | 255,769 | 1,303,159 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | (34,273 | ) | 28,691 | |||||
| Net (decrease) increase in cash and cash equivalents | $ | (885,040 | ) | $ | 152,573 | |||
Operating Activities
Net cash used in operating activities was $946,466 for the year ended December 31, 2020, which was mainly due to our net loss of $1,195,920 and partially offset by a decrease in other receivables of $227,793.
Net cash used in operating activities was $848,063 for the year ended December 31, 2019, which was mainly due to our net loss of $1,083,245 and partially offset by a decrease in prepayments and deposits of $221,965.
Investing Activities
We used cash of $160,182 and $331,214 for deposits paid for acquisition and purchases of property, plant and equipment for the years ended December 31, 2020 and 2019, respectively.
Financing Activities
Net cash provided by financing activities for the years ended December 31, 2020 and 2019 were $255,769 and $1,303,159, respectively. For the year ended December 31, 2020, we received $216,920 from issuance of our common stock, advances of $88,582 from our directors and offset by repayment to directors of $49,733.
For the year ended December 31, 2019, we received $829,598 from unsecured short-term loan, capital contribution of $334,341 from shareholders of VIE and advances of $139,220 from our director.
Contractual Obligations and Commercial Commitments
We had the following contractual obligations and commercial commitments as of December 31, 2020:
| Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
| Amounts due to directors | $ | 242,657 | $ | 242,657 | $ | - | $ | - | $ | - | ||||||||||
| Short-term loan, including accrued interest | 908,056 | 908,056 | - | - | - | |||||||||||||||
| Bank overdrafts | 13,739 | 13,739 | - | - | - | |||||||||||||||
| Capital commitments for purchase of equipment | 1,096,138 | 1,096,138 | - | - | - | |||||||||||||||
| Lease | 98,438 | 98,438 | - | - | - | |||||||||||||||
| TOTAL | $ | 2,359,028 | $ | 2,359,028 | $ | - | $ | - | $ | - | ||||||||||
30
Off-Balance Sheet Transactions
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements.
Basis of Presentation
The consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”).
Use of Estimates
The preparation of the accompanying financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
VIE Consolidation
Digiwork (Thailand) Co., Ltd. is owned by Mr. Ratanaphon Wongnapachant, Ms. Chanikarn Lertchawalitanon and S-Mark Co. Ltd. (a KOSDAQ-listed corporation) as nominee shareholders. For the consolidated VIE, management made evaluations of the relationships between Enigma BVI and the VIE and the economic benefit flow of contractual arrangements with the VIE. In connection with such evaluation, management also took into account the fact that, as a result of such contractual arrangements, Enigma BVI controls the shareholders’ voting interests in the VIE. As a result of such evaluation, management concluded that Enigma BVI is the primary beneficiary of our VIE- Digiwork (Thailand) Co., Ltd.
OBON Thailand is owned by Ms. Chanikarn Lertchawalitanon, Wanee Watcharakangka, and Mr. Ratanaphon Wongnapachant. For the consolidated VIE, management made evaluations of the relationships between the Company and the VIE and the economic benefit flow of contractual arrangements with the VIE. In connection with such evaluation, management also took into account the fact that, as a result of such contractual arrangements, the Company controls the shareholders’ voting interests in the VIE. As a result of such evaluation, management concluded that OBON BVI is the primary beneficiary of its consolidated VIE - OBON Thailand.
Owing primarily to Thailand’s legal restrictions on foreign ownership, we currently conduct our business in Thailand through Digiwork Thailand and OBON Thailand, which we effectively control through a series of contractual arrangements. We consolidate in our financial statements those of the VIEs, of which we are the primary beneficiary.
New Accounting Pronouncements
Recent Adopted Accounting Standards
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for Level 1, Level 2 and Level 3 instruments in the fair value hierarchy. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for any eliminated or modified disclosures. We applied the new standard beginning January 1, 2020.
31
Recently issued accounting pronouncements not yet adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. Adoption of the ASUs is on a modified retrospective basis. As a smaller reporting company, the standard will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022. We are currently evaluating the impact that the standard will have on our consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent application among reporting entities. The guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. We are evaluating the impact this update will have on our financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. We continue to evaluate the impact of the guidance and may apply the elections as applicable as changes in the market occur.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares.
For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. We are currently evaluating the impact that ASU 2020-06 may have on our consolidated financial statements and related disclosures.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
Item 8. Financial Statements and Supplementary Data
32
TABLE OF CONTENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of IWEB, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of IWEB, Inc. and subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of comprehensive loss, stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
Consideration of the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring net losses, and records an accumulated deficit as of December 31, 2020, and the Company currently has net working capital deficit. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-2
Basis of Presentation and Going Concern – Disclosure
The consolidated financial statements of the Company are prepared on a going concern basis, which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations. The Company has a history of recurring net losses, a significant accumulated deficit and currently has net working capital deficit. At December 31, 2020, the Company had an accumulated deficit of $3,356,283. The Company has contractual obligations such as commitments for purchases of equipment, payable, interest and short-term loan (collectively “obligations”). Currently management’s forecasts and related assumptions illustrate their ability to meet the obligations through management of expenditures and, if necessary, obtaining additional debt financing, loans from existing directors and shareholders and private placements of capital stock for additional funding to meet its operating needs. Should there be constraints on the ability to access such financing, the Company can manage cash outflows to meet the obligations through reductions in capital expenditures and other operating expenditures.
We identified management’s assessment of the Company’s ability to continue as a going concern as a critical audit matter. Management made judgments to conclude that it is probable that the Company’s plans will be effectively implemented and will provide the necessary cash flows to fund the Company’s obligations as they become due. Specifically, the judgments with the highest degree of impact and subjectivity in determining it is probable that the Company’s plans will be effectively implemented included its ability to reduce capital expenditures and other operating expenditures, its ability to access funding from the capital market and its ability to obtaining loans from existing directors and shareholders. Auditing the judgments made by management required a high degree of auditor judgment and an increased extent of audit effort.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included the following, among others: (i) evaluating the probability that the Company will be able to access funding from the capital market; (ii) evaluating the probability that the Company will be able to reduce capital expenditures and other operating expenditures if required and (iii) evaluating the probability that the Company will be able to obtain loans from existing directors and shareholders.
| /s/ Centurion ZD CPA & Co. | |
| Centurion ZD CPA & Co. | |
| We have served as the Company's auditor since 2017. | |
| Hong Kong, China | |
April 13, 2021 |
F-3
IWEB, INC.
AS OF DECEMBER 31, 2020 AND 2019
(In U.S. dollars)
| 2020 | 2019 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 12,511 | $ | 883,812 | ||||
| Prepayments and deposits | 163,744 | 501,547 | ||||||
| Other receivables | 164,806 | 14,742 | ||||||
| Accounts receivable | 5,685 | - | ||||||
| Amounts due from shareholders | 1,250 | 1,250 | ||||||
| Total current assets | 347,996 | 1,401,351 | ||||||
| NON-CURRENT ASSETS | ||||||||
| Deposits paid for acquisition of property, plant and equipment | 319,787 | 322,689 | ||||||
| Property, plant and equipment, net | 108,319 | 27,459 | ||||||
| Total non-current assets | 428,106 | 350,148 | ||||||
| TOTAL ASSETS | $ | 776,102 | $ | 1,751,499 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accruals | $ | 70,766 | $ | 80,167 | ||||
| Short-term loan | 854,318 | 865,625 | ||||||
| Bank overdrafts | 13,739 | - | ||||||
| Amounts due to directors | 242,657 | 208,191 | ||||||
| Total current liabilities | 1,181,480 | 1,153,983 | ||||||
| TOTAL LIABILITIES | 1,181,480 | 1,153,983 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Preferred stock: $0.0001 par value, 25,000,000 shares authorized, none issued and outstanding | - | - | ||||||
| Common stock, par value $0.0001 per share; 75,000,000 shares authorized, 40,306,211 (December 31, 2019: 40,197,751) shares issued and outstanding as of December 31, 2020 | 7,801 | 7,790 | ||||||
| Additional paid-in capital | 3,207,635 | 2,990,726 | ||||||
| Accumulated deficit | (3,356,283 | ) | (2,321,583 | ) | ||||
| Accumulated other comprehensive loss | (93,472 | ) | (76,721 | ) | ||||
| Total IWEB, Inc.'s stockholders' equity | (234,319 | ) | 600,212 | |||||
| Non-controlling interests | (171,059 | ) | (2,696 | ) | ||||
| Total equity | (405,378 | ) | 597,516 | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 776,102 | $ | 1,751,499 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
IWEB, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(In U.S. dollars)
| 2020 | 2019 | |||||||
| Revenue | $ | 5,095 | $ | - | ||||
| Cost of revenue | (1,628 | ) | - | |||||
| Gross profit | 3,467 | - | ||||||
| General and administrative expenses | (929,334 | ) | (1,140,901 | ) | ||||
| Loss from operations | (925,867 | ) | (1,140,901 | ) | ||||
| Finance expenses | (257,079 | ) | (24,547 | ) | ||||
| Other (expense) income | (12,974 | ) | 82,203 | |||||
| Loss before income tax | (1,195,920 | ) | (1,083,245 | ) | ||||
| Income tax expense | - | - | ||||||
| Net loss | $ | (1,195,920 | ) | $ | (1,083,245 | ) | ||
| Net loss attributable to non-controlling interests | 161,220 | 99,290 | ||||||
| Net loss attributable to IWEB, Inc. | $ | (1,034,700 | ) | $ | (983,955 | ) | ||
| Net loss | $ | (1,195,920 | ) | $ | (1,083,245 | ) | ||
| Other comprehensive loss | ||||||||
| Foreign currency translation adjustment | (23,894 | ) | (66,664 | ) | ||||
| Total comprehensive loss | $ | (1,219,814 | ) | $ | (1,149,909 | ) | ||
| Total comprehensive loss attributable to non-controlling interests | 168,363 | 98,217 | ||||||
| Total comprehensive loss attributable to ordinary stockholders of IWEB, Inc. | $ | (1,051,451 | ) | $ | (1,051,692 | ) | ||
| Loss per share - Basic and diluted | $ | (0.03 | ) | $ | (0.02 | ) | ||
| Weighted average number of common shares outstanding - Basic and diluted | 40,283,689 | 40,197,751 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
IWEB, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(In U.S. dollars)
| 2020 | 2019 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (1,195,920 | ) | $ | (1,083,245 | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Depreciation and amortization | 68,052 | 3,512 | ||||||
| Foreign exchange | 6,685 | - | ||||||
| Loss on disposal of property, plant and equipment | 14,245 | 2,517 | ||||||
| Accounts receivable | (5,451 | ) | - | |||||
| Prepayments and deposits | (52,225 | ) | 221,965 | |||||
| Amounts due from shareholders | - | 20,000 | ||||||
| Other receivables | 227,793 | (11,389 | ) | |||||
| Accruals | (9,645 | ) | (1,423 | ) | ||||
| Net cash used in operating activities | (946,466 | ) | (848,063 | ) | ||||
| Cash flows from investing activities | ||||||||
| Deposits paid for acquisition of property, plant and equipment | - | (309,259 | ) | |||||
| Proceeds from disposal of property, plant and equipment | 112 | - | ||||||
| Purchase of property, plant and equipment | (160,182 | ) | (21,955 | ) | ||||
| Advance to a director | (760,213 | ) | - | |||||
| Repayment to a director | 760,213 | - | ||||||
| Net cash used in investing activities | (160,070 | ) | (331,214 | ) | ||||
| Cash flows from financing activities | ||||||||
| Capital contribution from shareholders of VIE | - | 334,341 | ||||||
| Advance from directors | 88,582 | 139,220 | ||||||
| Repayment of advance from directors | (49,733 | ) | - | |||||
| Proceed from short-term loan | - | 829,598 | ||||||
| Proceed from issue of shares | 216,920 | - | ||||||
| Net cash provided by financing activities | 255,769 | 1,303,159 | ||||||
| Effect of exchange rates on cash | (34,273 | ) | 28,691 | |||||
| Net (decrease) increase in cash and cash equivalents | (885,040 | ) | 152,573 | |||||
| Cash and cash equivalents at beginning of year | 883,812 | 731,239 | ||||||
| Cash and cash equivalents at end of year | $ | (1,228 | ) | $ | 883,812 | |||
| Supplemental of cash flow information | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | 231,065 | $ | - | ||||
| Income taxes | $ | - | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
IWEB, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(In U.S. dollars)
| Common Stock | Treasury Shares | Accumulated | ||||||||||||||||||||||||||||||||||
| Number
of Shares |
Amount | Additional Paid-In Capital |
Number
of Shares |
Amount | Accumulated Deficit |
Other Comprehensive Income (Loss) |
Non- controlling Interests |
Total Stockholders’ Equity (Deficit) |
||||||||||||||||||||||||||||
| Balance as of January 1, 2019 | 40,197,751 | $ | 7,790 | $ | 2,756,687 | - | $ | - | $ | (1,337,628 | ) | $ | (8,984 | ) | $ | (4,781 | ) | $ | 1,413,084 | |||||||||||||||||
| Shares issued | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Capital contribution from shareholders of VIE | - | - | 234,039 | - | - | - | - | 100,302 | 334,341 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (983,955 | ) | - | (99,290 | ) | (1,083,245 | ) | ||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | (67,737 | ) | 1,073 | (66,664 | ) | |||||||||||||||||||||||||
| Balance as of December 31, 2019 | 40,197,751 | $ | 7,790 | $ | 2,990,726 | - | $ | - | $ | (2,321,583 | ) | $ | (76,721 | ) | $ | (2,696 | ) | $ | 597,516 | |||||||||||||||||
| Shares issued | 108,460 | 11 | 216,909 | - | - | - | - | - | 216,920 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (1,034,700 | ) | - | (161,220 | ) | (1,195,920 | ) | ||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | (16,751 | ) | (7,143 | ) | (23,894 | ) | ||||||||||||||||||||||||
| Balance as of December 31, 2020 | 40,306,211 | $ | 7,801 | $ | 3,207,635 | - | $ | - | $ | (3,356,283 | ) | $ | (93,472 | ) | $ | (171,059 | ) | $ | (405,378 | ) | ||||||||||||||||
The accompanying notes are an integral part of these financial statements.
F-7
IWEB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
NOTE 1 - ORGANIZATION AND BUSINESS
IWEB, Inc. (the “Company”) was incorporated under the laws of the State of Nevada on February 17, 2015.
The Company’s original business plan was to actively engage in providing high impact internet marketing strategies to internet based businesses and people seeking to create websites, but this business was not successful. On December 12, 2016, 24,997,500 shares of the common stock of the Company, representing 97.08% of the Company’s issued and outstanding shares of common stock at that time, were sold by Dmitriy Kolyvayko in a private transaction to Mr. Wai Hok Fung (the “Transaction”) for an aggregate purchase price of $380,000. In connection with the Transaction, Mr. Kolyvayko released the Company from certain liabilities and obligations arising out of his service as a director and officer of the Company.
On May 15, 2017, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with Enigma Technology International Corporation (“Enigma BVI”), and all the shareholders of Enigma BVI, namely, Mr. Ratanaphon Wongnapachant, Ms. Chanikarn Lertchawalitanon and S-Mark Co. Ltd. (collectively the “Shareholders”), to acquire all the issued and outstanding capital stock of Enigma BVI in exchange for the issuance to the Shareholders of an aggregate of 31,500,000 restricted shares of IWEB, Inc.’s common stock (the “Reverse Merger”). The Reverse Merger closed on May 15, 2017. As a result of the Reverse Merger, Enigma BVI is a wholly-owned subsidiary of the Company.
Enigma BVI was incorporated on February 22, 2017 in the British Virgin Islands.
Digiwork (Thailand) Co., Ltd. (“Digiwork”) was established and incorporated in Thailand on November 24, 2016. The authorized capital of Digiwork is THB5,000,000 (approximately $166,556), divided into 500,000 common shares with a par value of THB10 per share, which has been fully paid up as of December 31, 2016.
On May 15, 2017, Enigma BVI, Digiwork and the shareholders of Digiwork entered into the following commercial arrangements, or collectively, “VIE Agreements,” pursuant to which Enigma BVI has contractual rights to control and operate the businesses of Digiwork.
Pursuant to an Exclusive Technology Consulting and Service Agreement, Enigma BVI agreed to act as the exclusive consultant of Digiwork and provide technology consulting and services to Digiwork. In exchange, Digiwork agreed to pay Enigma BVI a technology consulting and service fee, the amount of which is decided by Enigma BVI on the basis of the work performed and commercial value of the services and the fee amount to be equivalent to the amount of net profit before tax of Digiwork on a quarterly basis; provided that the minimum amount of which is no less than THB30,000 (approximately $999) per quarter. Without the prior written consent of Enigma BVI, Digiwork may not accept the same or similar technology consulting and services provided by any third party during the term of the agreement. All the benefits and interests generated from the agreement, including but not limited to intellectual property rights, know-how and trade secrets, will be Enigma BVI’s sole and exclusive property. The term of this agreement will expire on May 15, 2027 and may be extended unilaterally by Enigma BVI with Enigma BVI's written confirmation prior to the expiration date. Digiwork cannot terminate the agreement early unless Enigma BVI commits fraud, gross negligence or illegal acts, or becomes bankrupt or winds up.
Pursuant to an Exclusive Purchase Option Agreement, the shareholders of Digiwork granted to Enigma BVI and any party designated by Enigma BVI the exclusive right to purchase at any time during the term of this agreement all or part of the equity interests in Digiwork, or the “Equity Interests,” at a purchase price equal to the registered capital paid by the shareholders of Digiwork for the Equity Interests, or, in the event that applicable law requires an appraisal of the Equity Interests, the lowest price permitted under applicable law; Pursuant to powers of attorney executed by each of the shareholders of Digiwork, such shareholders irrevocably authorized any person appointed by Enigma BVI to exercise all shareholder rights, including but not limited to voting on their behalf on all matters requiring approval of Digiwork’s shareholders, disposing of all or part of the shareholder's equity interest in Digiwork, and electing, appointing or removing directors and executive officers. The person designated by Enigma BVI is entitled to dispose of dividends and profits on the equity interest without reliance of any oral or written instructions of the shareholder. Each power of attorney will remain in force for so long as the shareholder remains a shareholder of Digiwork. Each shareholder has waived all the rights which have been authorized to Enigma BVI’s designated person under each power of attorney.
F-8
Pursuant to equity pledge agreements, each of the shareholders of Digiwork pledged all of the Equity Interests to Enigma BVI to secure the full and complete performance of the obligations and liabilities on the part of Digiwork and each of its shareholders under this and the above contractual arrangements. If Digiwork or the shareholders of Digiwork breach their contractual obligations under these agreements, then Enigma BVI, as pledgee, will have the right to dispose of the pledged equity interests. The shareholders of Digiwork agree that, during the term of the equity pledge agreements, they will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests, and they also agree that Enigma BVI’s rights relating to the equity pledge should not be prejudiced by the legal actions of the shareholders, their successors or their designees. During the term of the equity pledge, Enigma BVI has the right to receive all of the dividends and profits distributed on the pledged equity. The equity pledge agreements will terminate on the second anniversary of the date when Digiwork and the shareholders of Digiwork have completed all their obligations under the contractual agreements described above.
As a result of the above contractual arrangements, Enigma BVI has substantial control over Digiwork’s daily operations and financial affairs, election of its senior executives and all matters requiring shareholder approval. Furthermore, as the primary beneficiary of Digiwork, the Company, via Enigma BVI, is entitled to consolidate the financial results of Digiwork in its own consolidated financial statements under Financial Accounting Standards Board Accounting Standard Codification (ASC) Topic 810 and related subtopics related to the consolidation of variable interest entities, or ASC Topic 810.
Digiwork was set up pursuant to a joint business agreement among its shareholders on August 4, 2016 and as amended and restated on March 31, 2017 (“JBA”). Pursuant to the JBA, Digiwork is obligated to pay a total of $10,000,000 to S-Mark Co. Ltd., a shareholder of Digiwork or Digiwork Co., Ltd. (“Digiwork Korea”), a wholly owned subsidiary of S-Mark. As consideration for such payments, Digiwork Korea agreed to provide research and development services to Digiwork for a period of five years commencing on March 31, 2017. On December 31, 2016, an initial payment of $100,000 was paid to Digiwork Korea.
On July 10, 2017, the parties to the JBA entered into an amendment to the Amended and Restated Joint Business Agreement which amended the total payment from $10,000,000 to $1,100,000. In May 2018, the final payment of $1,000,000 was paid to Digiwork Korea. Towards the end of 2019, management started discussions with Digiwork Korea to review the scope of the research and development with respect of the coding technology. On March 5, 2020, the parties entered into Amendment No. 2 to the Amended and Restated Joint Business Agreement, pursuant to which Digiwork Korea agreed to provide research and development services to Digiwork until December 31, 2020. Upon expiration of its services, Digiwork Korea shall repay $150,000 to Digiwork. In first quarter of 2021, Digiwork Korea had repaid $150,000 to the Company. Prepaid R&D payments to Digiwork Korea were $nil and $391,274 as of December 31, 2020 and December 31, 2019, respectively. The Company is currently seeking other development and acquisition opportunities to grow its business.
Digiwork Korea also agreed to grant Digiwork full and exclusive licenses to any new launches, developments, improvements and any other intellectual property rights of coding technology developed by Digiwork Korea until December 31, 2020. The territories for such licenses are in Thailand, Vietnam, Myanmar, Laos, Cambodia, United Arab Emirates and Qatar.
Digiwork was authorized by Digiwork Korea to be an official licensee and distributor of its technology exclusively in Thailand, Vietnam, Myanmar, Laos, Cambodia, United Arab Emirates and Qatar, and the authorization covers all four categories of Digiwork Korea’s coding technology: image, audio, web and security coding. This technology enables governments and enterprises around the world to give digital identities to media and objects that computers can sense and recognize, and to which they can react.
Digiwork is a technology development and services provider specializing in coding services in various industries and markets.
On August 17, 2017, the Company filed a Certificate of Amendment (the “Certificate”) with the Secretary of State for the State of Nevada to amend its articles of incorporation to (i) increase the Company’s authorized shares of common stock, par value $0.0001 per share, from 75,000,000 to 150,000,000 shares and (ii) authorize the issuance of up to 25,000,000 shares of blank check preferred stock, par value $0.0001 per share, effective immediately (the “Amendment”). The Amendment was approved by the Company’s Board of Directors (the “Board”) and by shareholders holding a majority of the Company’s issued and outstanding capital stock effective on June 28, 2017.
On March 7, 2018, the Company filed a Certificate of Change with the State of Nevada (the “Certificate”) to effect a 1-for-2 reverse stock split of the Company’s authorized shares of common stock, par value $0.0001 (the “Common Stock”), accompanied by a corresponding decrease in the Company’s issued and outstanding shares of Common Stock (the “Reverse Stock Split”) such that, following the consummation of the Reverse Stock Split, the number of authorized shares of Common Stock was reduced from 150,000,000 to 75,000,000. The Reverse Stock Split became effective on March 13, 2018.
During 2019, One Belt One Network Holdings Limited, a British Virgin Island company (the “OBON BVI”) and 70% owned subsidiary of IWEB, Inc., OBON Corporation Company Limited, a Thailand Company (the “OBON Thailand”) and the shareholders of OBON Thailand (namely, Mr. Ratanaphon Wongnapachant, Mr. Wanee Watcharakangka and Ms. Chanikarn Lertchawalitanon, the “OBON Thailand Shareholders”) entered into the following agreements, or collectively, the “Variable Interest Entity or VIE Agreements,”pursuant to which OBON BVI has contractual rights to control and operate the business of OBON Thailand (the “VIE”). OBON Thailand was established as our VIE for our business expansion and development in Thailand, which imposes certain restrictions on foreign invested companies.
F-9
The VIE Agreements are as follows:
| 1. | Exclusive Technology Consulting and Service Agreement by and between OBON BVI and OBON Thailand. Pursuant to the Exclusive Technology Consulting and Service Agreement, OBON BVI agreed to act as the exclusive consultant of OBON Thailand and provide technology consulting and services to OBON Thailand. In exchange, OBON Thailand agreed to pay OBON BVI a technology consulting and service fee, the amount of which is decided by OBON BVI on the basis of the work performed and commercial value of the services, and the fee amount is to be equivalent to the amount of net profit before tax of OBON Thailand on a quarterly basis; provided that the minimum amount of which shall be no less than THB30,000 (approximately $999) per quarter. Without the prior written consent of OBON BVI, OBON Thailand may not accept the same or similar technology consulting and services provided by any third party during the term of the agreement. All the benefits and interests generated from the agreement, including but not limited to intellectual property rights, know-how and trade secrets, will be OBON BVI’s sole and exclusive property. The term of this agreement will expire on June 3, 2029 and may be extended unilaterally by OBON BVI with OBON BVI's written confirmation prior to the expiration date. OBON Thailand cannot terminate the agreement early unless OBON BVI commits fraud, gross negligence or illegal acts, or becomes bankrupt or winds up. |
| 2. | Exclusive Purchase Option Agreements by and among OBON BVI, OBON Thailand and each of OBON Thailand Shareholders. Pursuant to the Exclusive Purchase Option Agreements, each of OBON Thailand Shareholders granted to OBON BVI and any party designated by OBON BVI the exclusive right to purchase at any time during the term of this agreement all or part of the equity interests in OBON Thailand, or the “Equity Interests,” at a purchase price equal to the registered capital paid by each of OBON Thailand Shareholders for the Equity Interests, or, in the event that applicable law requires an appraisal of the Equity Interests, the lowest price permitted under applicable law. Pursuant to a power of attorney executed by each of OBON Thailand Shareholders, each of them irrevocably authorized any person appointed by OBON BVI to exercise all shareholder rights, including but not limited to voting on his/her behalf on all matters requiring approval of OBON Thailand’s shareholder, disposing of all or part of the shareholder's equity interest in OBON Thailand, and electing, appointing or removing directors and executive officers. The person designated by OBON BVI is entitled to dispose of dividends and profits on the equity interest without reliance on any oral or written instructions of OBON Thailand Shareholders. The power of attorney will remain in force for so long as each of OBON Thailand Shareholders remains the shareholder of OBON Thailand. Each of OBON Thailand Shareholders has waived all the rights which have been authorized to OBON BVI’s designated person under power of attorney. |
| 3. | Equity Pledge Agreements by and among OBON BVI, OBON Thailand and each of OBON Thailand Shareholders. Pursuant to the Equity Pledge Agreements, each of OBON Thailand Shareholders pledged all of the Equity Interests to OBON BVI to secure the full and complete performance of the obligations and liabilities on the part of OBON Thailand and him/her under this and the above contractual arrangements. If OBON Thailand or OBON Thailand Shareholders breaches their contractual obligations under these agreements, then OBON BVI, as pledgee, will have the right to dispose of the pledged equity interests. Each OBON Thailand Shareholders agrees that, during the term of the Equity Pledge Agreement, he/she will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests, and he/she also agrees that OBON BVI’s rights relating to the equity pledge should not be prejudiced by the legal actions of the shareholder of OBON Thailand, his successors or designees. During the term of the equity pledge, OBON BVI has the right to receive all of the dividends and profits distributed on the pledged equity. The Equity Pledge Agreement will terminate on the second anniversary of the date when OBON Thailand and OBON Thailand Shareholders have completed all their obligations under the contractual agreements described above. |
As a result of the above contractual arrangements, OBON BVI has substantial control over OBON Thailand’s daily operations and financial affairs, election of its senior executives and all matters requiring shareholder approval. Furthermore, as the primary beneficiary of OBON Thailand, the Company, via OBON BVI, is entitled to consolidate the financial results of OBON Thailand in its own consolidated financial statements under ASC Topic 810.
On September 6, 2019, OBON Thailand, a Variable Interest Entity or VIE of OBON BVI, which is a 70% owned subsidiary of IWEB, Inc. entered into a Networking and WiFi Devices Installation Agreement (the “Agreement”) with CatBuzz TV Company Limited, a Thailand Company (“CatBuzz TV”).
Pursuant to the Agreement, OBON Thailand will lease and install network systems, WiFi devices and related accessories for CatBuzz TV and provide maintenance services. CatBuzz TV agrees to pay OBON Thailand compensation for the network systems, WiFi devices and the accessories and maintenance services with a monthly fee based upon the location and type of device, which fees range from 600 Baht (approximately $20) to 2,500 Baht (approximately $83) per device per month.
This Agreement has a term of 5 (five) years from the execution date of the Agreement. Upon the end of the term, if not agreed otherwise, both parties agree to extend the term of the Agreement for additional 2 (two) year terms, under the same terms or according to mutually agreeable terms determined by both parties in the future.
F-10
Organization and Reorganization
Enigma BVI was incorporated on February 22, 2017 in the British Virgin Islands with limited liability as an investment holding company. Upon incorporation, Enigma BVI issued 50,000 shares at $1 each. Prior to the reorganization, Enigma BVI was owned 57.5% by Mr. Ratanaphon Wongnapachant, 2.5% by Ms. Chanikarn Lertchawalitanon, and 40% by S-Mark Co. Ltd., a KOSDAQ-listed corporation and 100% shareholder of Digiwork Korea.
Digiwork (Thailand) Co. Ltd was incorporated in Thailand with limited liability on November 24, 2016. Digiwork was also owned 57.5% by Mr. Ratanaphon Wongnapachant, 2.5% by Ms. Chanikarn Lertchawalitanon, and 40% by S-Mark Co. Ltd.
On May 15, 2017, Enigma BVI, Digiwork and the shareholders of Digiwork entered into the abovementioned VIE Agreements, pursuant to which Enigma BVI has contractual rights to control and operate the businesses of Digiwork. The change in control of and the acquisition of Digiwork by Enigma BVI have been accounted for as common control transactions in a manner similar to a pooling of interests, and there was no recognition of any goodwill or excess of the acquirers’ interest in the net fair value of the acquirees’ identifiable assets, liabilities and contingent liabilities over cost at the time of the common control combinations. Therefore, this transaction was recorded at historical cost with a reclassification of equity from retained profits to additional paid in capital to reflect the deemed value of consideration given in the local jurisdiction and the capital structure of Enigma BVI.
On May 15, 2017, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with Enigma Technology International Corporation (“Enigma BVI”), and all the shareholders of Enigma BVI, namely, Mr. Ratanaphon Wongnapachant, Ms. Chanikarn Lertchawalitanon, and S-Mark Co. Ltd. (collectively the “Shareholders”), to acquire all the issued and outstanding capital stock of Enigma BVI in exchange for the issuance to the Shareholders of an aggregate of 31,500,000 restricted shares of IWEB, Inc.’s common stock (the “Reverse Merger”). The Reverse Merger closed on May 15, 2017. As a result of the Reverse Merger, Enigma BVI is a wholly-owned subsidiary of the Company.
On May 15, 2017, the Company filed a Current Report on Form 8-K with the Securities and Exchange Commission (“SEC”) announcing the completion of the business combination between the Company and Enigma BVI in accordance with the terms of the Share Exchange Agreement. As a result of the transaction, Enigma BVI is a wholly owned subsidiary of the Company, and the former shareholders of Enigma BVI became the holders of approximately 84% of the Company’s issued and outstanding capital stock on a fully-diluted basis immediately after the transaction. The acquisition was accounted for as a recapitalization effected by a share exchange, wherein Enigma BVI is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized.
In September 2018, the Company incorporated Marvelous ERA Limited in the British Virgin Islands as a wholly-owned subsidiary (“Marvelous ERA”). Marvelous ERA is the 70% majority owner of One Belt One Network Holdings Limited, a British Virgin Islands company (“OBON BVI”), which was incorporated in October 2018. OBON BVI is the sole parent of One Belt One Network (HK) Limited, a company organized under the laws of Hong Kong SAR in October 2018.
In June 2019, OBON BVI, OBON Thailand and the shareholders of OBON Thailand entered into the abovementioned VIE agreements, pursuant to which OBON BVI has contractual rights to control and operate the business of OBON Thailand.
In December 2019, a novel strain of coronavirus, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China, which has spread rapidly to many parts of the world, including Thailand and the U.S. In March 2020, the World Health Organization declared the COVID-19 a pandemic. The pandemic has resulted in quarantines, travel restrictions, and the temporary closure of office buildings and facilities in Thailand.
Substantially all of our revenues are generated in Thailand. The Company’s business and services and results of operations have been adversely affected and could continue to be adversely affected by the COVID-19 pandemic. In response to the evolving dynamics related to the COVID-19 outbreak, the Company is following the guidelines of local authorities as it prioritizes the health and safety of its employees, contractors, suppliers and business partners. Our office in Thailand has been closed and all of the Company’s employees in Thailand have been working from home from March 23, 2020 to May 7, 2020. Since May 8, 2020, our office in Thailand has been reopened and in normal operation. The quarantines, travel restrictions, and the temporary closure of office buildings have negatively impacted our business including our wifi installation project. Our suppliers have negatively been affected, and could continue to be negatively affected in their ability to supply and ship wifi related devices and parts to us if there is any further outbreak or resurgence of COVID-19. Our customers that have been negatively impacted by the outbreak of COVID-19 may reduce their budgets to purchase our products and services, which may materially adversely impact our revenue. Some of our customers may require additional time to pay us or fail to pay us at all, which could significantly increase the amount of accounts receivable and require us to record additional allowances for doubtful accounts. The outbreak of COVID-19 has disrupted our supply chain and logistics and caused shortage of active installation workers and service providers for our project and might continue to impose negative impact to our business operations. Some of our customers, contractors, suppliers and other business partners are small and medium-sized enterprises (SMEs), which may not have strong cash flows or be well capitalized, and may be vulnerable to an epidemic outbreak and slowing macroeconomic conditions. If the SMEs that we work with cannot weather the COVID-19 and the resulting economic impact, or cannot resume business as usual after a prolonged outbreak, our revenues and business operations may be materially and adversely impacted.
F-11
The global economy has also been materially negatively affected by the COVID-19 and there is continued severe uncertainty about the duration and intensity of its impacts. The Thailand and global growth forecast is extremely uncertain, which would seriously affect investment in infrastructures including building wifi network and related installation business.
While future economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.
Further, as we do not have access to a revolving credit facility, there can be no assurance that we would be able to secure commercial debt financing in the future in the event that we require additional capital. We currently believe that our financial resources will be adequate to see us through the outbreak. However, in the event that we do need to raise capital in the future, outbreak-related instability in the securities markets could adversely affect our ability to raise additional capital.
Consequently, our results of operations have been adversely, and may be materially, affected, to the extent that the COVID-19 harms the Thailand and global economy. Any potential impact to our results will depend on, to a large extent, future developments and new information that may emerge regarding the duration and severity of the COVID-19 and the actions taken by government authorities and other entities to contain the COVID-19 or treat its impact, almost all of which are beyond our control.
Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has a history of recurring net losses, a significant accumulated deficit and a net working capital deficit. At December 31, 2020, the Company had an accumulated deficit of $3,356,283. These conditions raise substantial doubt about our ability to continue as a going concern. The Company’s plan for continuing as a going concern included improving its profitability, and obtaining additional debt financing, loans from existing directors and shareholders and private placements of capital stock for additional funding to meet its operating needs. There can be no assurance that we will be successful in our plans described above or in attracting equity or alternative financing on acceptable terms, or if at all. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”).
Use of Estimates
The preparation of these financial statements in conformity with U.S. GAAP requires management of the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, the Company evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Identified below are the accounting policies that reflect the Company’s most significant estimates and judgments, and those that the Company believes are the most critical to fully understanding and evaluating its consolidated financial statements.
Basis of Consolidation and Noncontrolling Interests
The consolidated financial statements include the financial statements of the Company, its subsidiaries and VIE entities. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.
A subsidiary is an entity in which (i) the Company directly or indirectly controls more than 50% of the voting power; or (ii) the Company has the power to appoint or remove the majority of the members of the board of directors or to cast a majority of votes at the meeting of the board of directors or to govern the financial and operating policies of the investee pursuant to a statute or under an agreement among the shareholders or equity holders.
F-12
For the Company's non-wholly owned subsidiaries, a noncontrolling interest is recognized to reflect a portion of equity that is not attributable, directly or indirectly, to the Company. Consolidated net income in the consolidated income statements includes net income (loss) attributable to noncontrolling interests. The cumulative results of operations attributable to noncontrolling interests are also recorded as noncontrolling interests in the Company's consolidated balance sheets. Cash flows related to transactions with noncontrolling interests are presented under financing activities in the consolidated statements of cash flows.
VIE Consolidation
Digiwork
Digiwork is owned as to 57.5% by Mr. Ratanaphon Wongnapachant, 2.5% by Ms. Chanikarn Lertchawalitanon, and 40% by S-Mark Co. Ltd., a KOSDAQ-listed corporation. For the consolidated VIE, management made evaluations of the relationships between the Company and the VIE and the economic benefit flow of contractual arrangements with the VIE. In connection with such evaluation, management also took into account the fact that, as a result of such contractual arrangements, the Company controls the shareholders’ voting interests in the VIE. As a result of such evaluation, management concluded that Enigma BVI is the primary beneficiary of its consolidated VIE.
Owing predominantly to the Thailand legal restrictions on foreign ownership, Enigma BVI currently conducts the coding business in Thailand through Digiwork, which it effectively controls through a series of contractual arrangements. The Company consolidates in its consolidated financial statements of the VIE of which the Company is the primary beneficiary.
The following financial information of Digiwork is included in the accompanying consolidated financial statements:
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| ASSETS | ||||||||
| Cash at bank and on hand | $ | 116 | $ | 377 | ||||
| Prepayments and deposits | 187 | 391,463 | ||||||
| Other receivables | 151,236 | 2,582 | ||||||
| Amount due from a fellow subsidiary | - | 849 | ||||||
| Property, plant and equipment, net | 3,006 | 5,409 | ||||||
| TOTAL ASSETS | $ | 154,545 | $ | 400,680 | ||||
| LIABILITIES | ||||||||
| Accruals | $ | 4,380 | $ | 13,239 | ||||
| Amount due to a director | 483,604 | 487,991 | ||||||
| Amount due to Enigma BVI | 1,000,000 | 1,000,000 | ||||||
| TOTAL LIABILITIES | $ | 1,487,984 | $ | 1,501,230 | ||||
| Years ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Revenue | $ | - | $ | - | ||||
| Net loss | $ | 232,809 | $ | 432,155 | ||||
| Years ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Net cash used in operating activities | $ | (1,168 | ) | $ | (95,179 | ) | ||
| Net cash provided by (used in) investing activities | 112 | (64 | ) | |||||
| Net cash provided by financing activities | 809 | 93,535 | ||||||
OBON Thailand
OBON Thailand is owned 90.9% by Ms. Chanikarn Lertchawalitanon, 0.1% by Wanee Watcharakangka, and 9.0% by Mr. Ratanaphon Wongnapachant. For the consolidated VIE, management made evaluations of the relationships between the Company and the VIE and the economic benefit flow of contractual arrangements with the VIE. In connection with such evaluation, management also took into account the fact that, as a result of such contractual arrangements, the Company controls the shareholders’ voting interests in the VIE. As a result of such evaluation, management concluded that OBON BVI is the primary beneficiary of its consolidated VIE.
F-13
OBON Thailand was established as a VIE for the Company’s business expansion and development in Thailand, which imposes certain restrictions on foreign invested companies. The Company consolidates in its consolidated financial statements of the VIE of which the Company is the primary beneficiary.
The following financial information of OBON Thailand is included in the accompanying consolidated financial statements:
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| ASSETS | ||||||||
| Cash at bank and on hand | $ | 11,498 | $ | 687,008 | ||||
| Accounts receivable | 5,685 | - | ||||||
| Other receivables | 13,570 | 12,160 | ||||||
| Prepayments and deposits | 163,558 | 110,084 | ||||||
| Amount due from a director | - | 124 | ||||||
| Deposits paid for acquisition of property, plant and equipment | 319,787 | 322,689 | ||||||
| Property, plant and equipment, net | 105,313 | 22,050 | ||||||
| TOTAL ASSETS | $ | 619,411 | $ | 1,154,115 | ||||
| LIABILITIES | ||||||||
| Accruals | $ | 60,015 | $ | 35,089 | ||||
| Bank overdrafts | 13,739 | - | ||||||
| Short-term loan | 854,318 | 865,625 | ||||||
| Amounts due to fellow subsidiaries | 166,666 | 167,515 | ||||||
| TOTAL LIABILITIES | $ | 1,094,738 | $ | 1,068,229 | ||||
| Years ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Revenue | $ | 5,095 | $ | - | ||||
| Net loss | $ | (537,401 | ) | $ | 252,030 | |||
| Years ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Net cash used in operating activities | $ | (545,925 | ) | $ | (334,798 | ) | ||
| Net cash used in investing activities | (109,182 | ) | (331,150 | ) | ||||
| Net cash provided by financing activities | 118 | 1,324,364 | ||||||
Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated depreciation and accumulated impairment. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.
| Estimated useful lives (years) | ||||
| Office and computer equipment | 5 | |||
| Software | 5 | |||
| Leasehold improvements | Remaining period of the leases | |||
Expenditure for maintenance and repairs is expensed as incurred.
The gain or loss on the disposal of property, plant and equipment is the difference between the net sales proceeds and the lower of the carrying value or fair value less cost to sell the relevant assets and is recognized in general and administrative expenses in the consolidated statements of comprehensive loss.
F-14
Impairment of Long-lived Assets
In accordance with ASC 360-10-35, we review the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Based on the existence of one or more indicators of impairment, the Company measures any impairment of long-lived assets using the projected discounted cash flow method at the asset group level. The estimation of future cash flows requires significant management judgment based on the Company’s historical results and anticipated results and is subject to many factors. The discount rate that is commensurate with the risk inherent in the Company’s business model is determined by its management. An impairment loss would be recorded if the Company determined that the carrying value of long-lived assets may not be recoverable. The impairment to be recognized is measured by the amount by which the carrying values of the assets exceed the fair value of the assets. No impairment has been recorded by the Company as of December 31, 2020 and 2019.
Revenue Recognition
Revenue is principally comprised of provision of WiFi network devices and facilities services, and represents the fair value of the consideration received or receivable for the provision of services in the ordinary course of the Company's activities and is recorded net of value-added tax ("VAT"). Under the new revenue standards, the Company recognizes revenues 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 recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify 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 revenues when (or as) the Company satisfies the performance obligation.
Revenues are recognized when the customer obtains control of our product or services, which may occur at a point in time or over time depending on the terms and conditions of the agreement.
Provision of services
Revenue from services is measured based on the usage of the Company’s WiFi network devices and facilities and is recognized when the services are rendered. In accordance with the Company’s service plan terms, service payments are generally due on a monthly basis.
The Company has not occurred any costs to obtain contracts, and does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
Below is the summary presenting the Company’s revenues disaggregated by products and services and timing of revenue recognition:
| December 31, | ||||||||
| Revenue by recognition over time vs point in time | 2020 | 2019 | ||||||
| Revenue by recognition over time | $ | 5,095 | $ | - | ||||
| Revenue by recognition at a point in time | - | - | ||||||
| $ | 5,095 | $ | - | |||||
Foreign Currency and Foreign Currency Translation
The functional currency of the Company and its subsidiaries is US$. The Company's VIEs with operations in Thailand use their respective local currency, Thai Baht (“THB”), as their functional currency. An entity’s functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements.
Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are re-measured at the applicable rates of exchange in effect at that date. Gains and losses resulting from foreign currency re-measurement are included in the statements of comprehensive loss.
The financial statements are presented in U.S. dollars. Assets and liabilities are translated into U.S. dollars at the current exchange rate in effect at the balance sheet date, and revenues and expenses are translated at the average of the exchange rates in effect during the reporting period. Stockholders’ equity accounts are translated using the historical exchange rates at the date the entry to stockholders’ equity was recorded, except for the change in retained earnings during the period, which is translated using the historical exchange rates used to translate each period’s income statement. Differences resulting from translating functional currencies to the reporting currency are recorded in accumulated other comprehensive income in the balance sheets.
F-15
Translation of amounts from THB into U.S. dollars has been made at the following exchange rates:
| Balance sheet items, except for equity accounts | |||
| December 31, 2020 | THB30.0200 to $1 | ||
| December 31, 2019 | THB29.7500 to $1 | ||
| Income statement and cash flows items | |||
| For the year ended December 31, 2020 | THB31.3070 to $1 | ||
| For the year ended December 31, 2019 | THB31.0419 to $1 |
Research and Development
Research and development costs are paid to Digiwork Korea, which is providing research and development services to Digiwork for a period of five years commencing from March 31, 2017. Pursuant to the Amendment No. 2 to the Amended and Restated Joint Business Agreement, the research and development services will expire on December 31, 2020. Research and development costs are recognized in general and administrative expenses and expensed as incurred. Research and development expense was $229,275 and $238,250 for the years ended December 31, 2020 and 2019, respectively.
Income Taxes
Income taxes are accounted for using an asset and liability approach which requires the recognition of income taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Deferred income taxes are determined based on the differences between the accounting basis and the tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws. Deferred tax assets are reduced by a valuation allowance, if based on available evidence, it is considered that it is more likely than not that some portion of or all of the deferred tax assets will not be realized. In making such determination, the Company considers factors including future reversals of existing taxable temporary differences, future profitability, and tax planning strategies. If events were to occur in the future that would allow the Company to realize more of its deferred tax assets than the presently recorded net amount, an adjustment would be made to the deferred tax assets that would increase income for the period when those events occurred. If events were to occur in the future that would require the Company to realize less of its deferred tax assets than the presently recorded net amount, an adjustment would be made to the valuation allowance against deferred tax assets that would decrease income for the period when those events occurred. Significant management judgment is required in determining income tax expense and deferred tax assets and liabilities.
Thailand Withholding Tax on Dividends
Dividends payable by a foreign invested enterprise in Thailand to its foreign investors are subject to a 10% withholding tax, unless any foreign investor’s jurisdiction of incorporation has a tax treaty with Thailand that provides for a different withholding arrangement.
Uncertain Tax Positions
Management reviews regularly the adequacy of the provisions for taxes as they relate to the Company’s income and transactions. In order to assess uncertain tax positions, the Company applies a more likely than not threshold and a two-step approach for tax position measurement and financial statement recognition. For the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon settlement. As of December 31, 2020, the Company had not recorded any liability for uncertain tax positions. In subsequent periods, any interest and penalties related to uncertain tax positions will be recognized as a component of income tax expense.
Net Loss per Share of Common Stock
The Company has adopted ASC Topic 260, “Earnings per Share,” (“EPS”) which requires presentation of basic EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation. In the accompanying financial statements, basic earnings (loss) per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.
F-16
| Years ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Net loss attributable to IWEB, Inc. | $ | (1,034,700 | ) | $ | (983,955 | ) | ||
| Weighted average number of common stock outstanding – basic and diluted | 40,283,689 | 40,197,751 | ||||||
| Basic and diluted loss per share | $ | (0.03 | ) | $ | (0.02 | ) | ||
The calculation of basic net loss per share of common stock is based on the net loss the years ended December 31, 2020 and 2019 and the weighted average number of ordinary shares outstanding.
The Company has no potentially dilutive securities, such as options or warrants, currently issued and outstanding.
Segments
The Company evaluates a reporting unit by first identifying its operating segments, and then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meets the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated.
Fair Value of Financial Instruments
U.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financial instruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three-tier fair value hierarchy is:
Level 1 – observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – include other inputs that are directly or indirectly observable in the market place.
Level 3 – unobservable inputs which are supported by little or no market activity.
The carrying value of the Company’s financial instruments, including cash at banks and on hand, balances with related parties and short-term loan approximate their fair value due to their short maturities or the rate of interest of these instruments approximate the market rate of interest.
Comprehensive Income
Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. Accumulated other comprehensive income includes cumulative foreign currency translation adjustment.
Leases
Effective with adoption of Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (the new lease standard) on January 1, 2019, the Company determines if an arrangement is a lease at inception. Operating lease right-of-use (ROU) assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company’s leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options.
Operating leases are included in operating lease right-of-use assets, operating lease liabilities, current and operating lease liabilities, non-current on the Company’s consolidated balance sheets.
New Accounting Pronouncements
Recent Adopted Accounting Standards
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for Level 1, Level 2 and Level 3 instruments in the fair value hierarchy. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for any eliminated or modified disclosures. The Company applied the new standard beginning January 1, 2020.
F-17
Recently issued accounting pronouncements not yet adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. Adoption of the ASUs is on a modified retrospective basis. As a smaller reporting company, the standard will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent application among reporting entities. The guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is evaluating the impact this update will have on its financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company continues to evaluate the impact of the guidance and may apply the elections as applicable as changes in the market occur.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares.
For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. The Company is currently evaluating the impact that ASU 2020-06 may have on its consolidated financial statements and related disclosures.
NOTE 3 - CASH AND CASH EQUIVALENTS
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Bank balances | $ | 12,511 | $ | 883,812 | ||||
| Bank overdrafts | (13,739 | ) | - | |||||
| Net cash and cash equivalents at year end | $ | (1,228 | ) | $ | 883,812 | |||
NOTE 4 - BALANCES WITH RELATED PARTIES
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Due from shareholders | $ | 1,250 | $ | 1,250 | ||||
| Due to directors | ||||||||
| Mr. Ratanaphon Wongnapachan | 109,324 | 163,319 | ||||||
| Mr. Wai Hok Fung | 133,333 | 44,872 | ||||||
| $ | 242,657 | $ | 208,191 | |||||
The balances with a shareholder and directors detailed above as of December 31, 2020 and 2019 are unsecured, non-interest bearing and repayable on demand.
F-18
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consist of the following:
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Office and computer equipment | $ | 130,052 | $ | 32,958 | ||||
| Leasehold improvements | 51,000 | - | ||||||
| Software | 2,954 | 1,566 | ||||||
| Less: Accumulated depreciation | (75,687 | ) | (7,065 | ) | ||||
| $ | 108,319 | $ | 27,459 | |||||
Depreciation expenses charged to the statements of comprehensive loss for the year ended December 31, 2020 and 2019 were $68,052 and $3,512, respectively.
NOTE 6 - COMMON STOCK
On March 13, 2020, the Company entered into a series of Securities Purchase Agreements with certain investors, pursuant to which the Company sold to the such investors in private placements for an aggregate of 108,460 shares of the Company’s common stock, par value $0.0001 per share, at a purchase price of $2.00 per share for an aggregate offering price of $216,920 (the “Private Placement”). The Private Placement was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.
NOTE 7 –SHORT-TERM LOAN
As of December 31, 2020 and 2019, short-term loan represents a loan of $854,318 and $865,625 advanced from an unrelated party to the Company. The loan is unsecured, bearing 30% interest per annum and repayable on demand. Interest of $53,738 and $25,613 were accrued (included in accruals) as of December 31, 2020 and 2019.
NOTE 8 – BANK OVERDRAFTS
During the year ended December 31, 2020, the Company entered into a bank overdraft facility with Thanachart Bank Plc for short-term liquidity needs. The bank overdraft facility includes an annual interest rate of 2.6%, a maximum spending limit of 0.45 million Thai baht (THB)($14,990) and is secured by the Company’s another bank account and by Mr. Ratanaphon Wongnapachant, the Company’s CEO and repayable on demand. As of December 31, 2020, the bank overdrafts outstanding was $13,739.
NOTE 9 - INCOME TAXES
| (a) | The local (United States) and foreign components of loss before income taxes were comprised of the following: |
| Years ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Tax jurisdictions from: | ||||||||
| - Local | $ | (166,294 | ) | $ | (157,404 | ) | ||
| - Foreign, representing: | ||||||||
| BVI | (259,416 | ) | (162,720 | ) | ||||
| HK | - | (78,936 | ) | |||||
| Thailand | (770,210 | ) | (684,185 | ) | ||||
| Loss before income taxes | $ | (1,195,920 | ) | $ | (1,083,245 | ) | ||
United States of America
The Company is incorporated in the State of Nevada and is subject to the U.S. federal tax and state tax. The Tax Cuts and Jobs Act of (“TCJ Act”) was signed into law in December 2017, and among its many provisions, it imposed a mandatory one-time transition tax on undistributed international earnings and reduced the U.S. corporate income tax rate to 21%, effective January 1, 2018. No provision for income taxes in the United States has been made as the Company had no taxable income for the years ended December 31, 2020 and 2019.
F-19
British Virgin Islands
Under the current laws of the British Virgin Islands, entities incorporated in British Virgin Islands are not subject to tax on their income or capital gains.
Hong Kong
One Belt One Network (HK) Limited is incorporated in Hong Kong and is subject to Hong Kong taxation at a rate of 16.5% on income derived from its activities conducted in Hong Kong. No provision for income taxes in Hong Kong has been made as One Belt One Network (HK) Limited had no taxable income since its inception.
Thailand
The statutory corporate income tax rate in Thailand (“CIT”) is 20%.
Digiwork, assuming a paid-in capital not exceeding 5 million Thai baht (THB)($166,556) at the end of any accounting period and income from the sale of goods and/or the provision of services not exceeding THB 30 million ($999,334) in any accounting period, is subject to CIT in Thailand at the following reduced rates:
For accounting periods beginning on or after January 1, 2017:
| Net profit | ||||
| Nil – THB300,000 ($9,993) | 0 | % | ||
| THB300,000 ($9,993) – THB3,000,000 ($99,933) | 15 | % | ||
| Over THB3,000,000 ($99,933) | 20 | % |
A reconciliation of loss before income taxes to the effective tax rate is as follows:
| Years ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Loss before income taxes | $ | (1,195,920 | ) | $ | (1,083,245 | ) | ||
| Statutory income tax rate | 21 | % | 21 | % | ||||
| Income tax credit computed at statutory income tax rate | (251,143 | ) | (227,481 | ) | ||||
| Reconciling items: | ||||||||
| Non-deductible expenses | 43,560 | 67,862 | ||||||
| Tax effect of tax exempt entity | 54,478 | 34,171 | ||||||
| Rate differential in different tax jurisdictions | 7,702 | 10,394 | ||||||
| Valuation allowance on deferred tax assets | 145,403 | 115,054 | ||||||
| Total tax expenses | $ | - | $ | - | ||||
| (b) | The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2020 and 2019 are presented below: |
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforwards: | ||||||||
| - United States of America | $ | 217,239 | $ | 155,475 | ||||
| - Thailand | 270,077 | 156,264 | ||||||
| 487,316 | 311,739 | |||||||
| Less: Valuation allowance | (487,316 | ) | (311,739 | ) | ||||
| $ | - | $ | - | |||||
The Company has accumulated net operating loss carryovers of approximately $1,034,473 and $740,358 as of December 31, 2020 and 2019, respectively, which are available to reduce future taxable income. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of $145,660 for federal income tax reporting purposes may be subject to annual limitations. A change in ownership may limit the utilization of the net operating loss carry forwards in future years. The tax losses will begin to expire in 2035.
F-20
As of December 31, 2020 and December 31, 2019, the entities in Thailand had net operating loss carry forwards of $1,350,383 and $781,318, respectively, which will expire in various years through 2024.
Management believes that it is more likely than not that the Company will not realize these potential tax benefits as these operations will not generate any operating profits in the foreseeable future. As a result, a valuation allowance was provided against the full amount of the potential tax benefits.
NOTE 10 - SEGMENT INFORMATION
The Company’s segments are business units that offer different products and services and are reviewed separately by the chief operating decision maker (the “CODM”), or the decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s CODM is the Company’s Chief Executive Officer. Starting from the last quarter of fiscal 2019, there is one additional segment, consisting of the leasing and installation of network systems, WiFi devices and related accessories.
| For the year ended December 31, 2020 | Technology development and services provider specializing in coding services in various industries and markets | Lease and install network systems, WiFi devices and related accessories | Corporate unallocated (note) | Consolidated | ||||||||||||
| Revenues | $ | - | $ | 5,095 | $ | - | $ | 5,095 | ||||||||
| Cost of Revenue | - | (1,628 | ) | - | (1,628 | ) | ||||||||||
| Gross profit | - | 3,467 | - | 3,467 | ||||||||||||
| General and administrative expenses | (491,944 | ) | (271,096 | ) | (166,294 | ) | (929,334 | ) | ||||||||
| Loss from operations | (491,944 | ) | (267,629 | ) | (166,294 | ) | (925,867 | ) | ||||||||
| Finance expenses | - | (257,079 | ) | - | (257,079 | ) | ||||||||||
| Other expense | (281 | ) | (12,693 | ) | - | (12,974 | ) | |||||||||
| Loss before income tax | (492,225 | ) | (537,401 | ) | (166,294 | ) | (1,195,920 | ) | ||||||||
| Income tax expense | - | - | - | - | ||||||||||||
| Net loss | (492,225 | ) | (537,401 | ) | (166,294 | ) | (1,195,920 | ) | ||||||||
| Total assets | ||||||||||||||||
| As of December 31, 2020 | $ | 156,270 | $ | 619,411 | $ | 421 | $ | 776,102 | ||||||||
| As of December 31, 2019 | $ | 597,087 | $ | 1,153,991 | $ | 421 | $ | 1,751,499 | ||||||||
| For the year ended December 31, 2019 | Technology development and services provider specializing in coding services in various industries and markets |
Lease and install network systems, WiFi devices and related accessories |
Corporate unallocated (note) |
Consolidated | ||||||||||||
| Revenues | $ | - | $ | - | $ | - | $ | - | ||||||||
| Cost of Revenue | - | - | - | - | ||||||||||||
| Gross profit | - | - | - | |||||||||||||
| General and administrative expenses | (675,897 | ) | (307,600 | ) | (157,404 | ) | (1,140,901 | ) | ||||||||
| Loss from operations | (675,897 | ) | (307,600 | ) | (157,404 | ) | (1,140,901 | ) | ||||||||
| Finance expenses | - | (24,547 | ) | - | (24,547 | ) | ||||||||||
| Other income | 81,021 | 1,182 | - | 82,203 | ||||||||||||
| Loss before income tax | (594,876 | ) | (330,965 | ) | (157,404 | ) | (1,083,245 | ) | ||||||||
| Income tax expense | - | - | - | - | ||||||||||||
| Net loss | (594,876 | ) | (330,965 | ) | (157,404 | ) | (1,083,245 | ) | ||||||||
| Total assets | ||||||||||||||||
| As of December 31, 2019 | $ | 597,087 | $ | 1,153,991 | $ | 421 | $ | 1,751,499 | ||||||||
Note: The Company does not allocate its assets located and expenses incurred outside Hong Kong and Thailand to its reportable segments because these assets and activities are managed at a corporate level.
The Company primarily operates in Thailand. Substantially all the Company’s long-lived assets are located in Thailand.
F-21
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company’s rental expense was $130,957 and $135,887 for the years ended December 31, 2020 and 2019, respectively.
On October 1, 2019, the Company entered into a lease with a company (“Lessor”) beneficially owned by Ms. Tang Oi Ming Denise (holding 7.5% of the Company’s ordinary shares as of December 31, 2020) and Ms. Tang Oi Ming Denise was also a director of Lessor who later resigned on March 15, 2021, for office space in Hong Kong for the period of one year, at HKD55,000 (approximately $7,051) per month. On October 1, 2020, the lease was renewed for the period of one year, at HKD55,000 (approximately $7,051) per month.
The Company has entered into a lease for office space located in Din Daeng Sub-district, Din Daeng District, Bangkok, Thailand for the period from February 21, 2017 to February 20, 2020, at THB127,120 ($4,235) per month. The Company early terminated the lease effective in July 2019.
On August 1, 2019, OBON Thailand entered into a rental agreement with Mr. Thanawat Wongnapachant, brother of the Company’s CEO, to lease an office space from Mr. Thanawat Wongnapachant for a period of twelve months at THB50,000 ($1,666) per month. On August 1, 2020, the rental agreement was renewed for a period of twelve months at THB50,000 ($1,666) per month.
On November 1, 2019, OBON Thailand entered into an additional rental agreement with Mr. Thanawat Wongnapachant, brother of the Company’s CEO, to lease an office space property from Mr. Thanawat Wongnapachant for a period of twelve months at THB70,000 ($2,332) per month. On November 1, 2020, the rental agreement was renewed for a period of twelve months at THB70,000 ($2,332) per month.
During the year ended December 31, 2020, the Company paid rental amounts of THB1,440,000 ($45,996) to Mr. Thanawat Wongnapachant that are included in General and administrative expenses.
As of December 31, 2020, all the outstanding leases are short-term leases. The total minimum future lease payments are $98,438 payable in the twelve months ending December 31, 2021.
Capital Commitments
As of December 31, 2020, the Company had the following contracted capital commitments:
| 2020 | ||||
| For purchases of equipment, payable in the twelve months ending December 31, 2021 | $ | 1,096,138 | ||
Employment Agreement
On October 1, 2019, Enigma BVI entered into a three-year employment agreement with Wai Hok Fung, the president of the Company to serve as Enigma BVI’s general manager from October 1, 2019 to October 1, 2022. Enigma BVI may, in its absolute discretion, terminate the employment with one month notice or for cause. The agreement provides Mr. Wai a monthly salary of HK$45,000 (approximately $5,769).
NOTE 12 - THAILAND AND HONG KONG CONTRIBUTION PLANS
In accordance with the rules and regulations of Thailand, the employees of the VIEs established in Thailand are required to participate in a defined contribution retirement plan organized by local government. Contributions to this plan are expensed as incurred and other than these monthly contributions, the VIEs have no further obligation for the payment of retirement benefits to its employees. For the years ended December 31, 2020 and 2019, the VIEs contributed a total of $1,414 and $905, respectively, to this plan.
The Company also makes payments to a defined contribution plan for the benefit of employees employed in Hong Kong. Amounts contributed during the years ended December 31, 2020 and 2019 were $2,308 and $1,700, respectively.
NOTE 13 - CERTAIN RISKS AND CONCENTRATIONS
Credit risk
At December 31, 2020 and 2019, the Company’s cash and cash equivalents included bank deposits in accounts maintained in Thailand. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.
Major customer
OBON Thailand’s revenues for the year ended December 31, 2020 of $5,095 were derived from one customer, which individually accounted for 100% of the Company’s revenues.
Foreign currency risk
As a result of the operations in Thailand, the Company is exposed to foreign exchange risk arising from the currency exposures primarily with respect to THB. The Company's VIEs with operations in Thailand use their respective local currency, THB, as their functional currency. Although a majority of their total revenues, their payroll and other operating expenses are incurred and paid in Thai baht, the payment of R&D services provided by Digiwork Korea is required to be made in the U.S. dollar. As of December 31, 2020 and 2019, Digiwork Thailand owed Enigma BVI $1,000,000, which Enigma BVI has settled the payment of R&D services provided by Digiwork Korea.
NOTE 14 - SUBSEQUENT EVENTS
The Company has analyzed its operations subsequent to December 31, 2020, and has determined that it does not have any material subsequent events to disclose in these financial statements.
F-22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2020. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were not effective.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including the Chief Executive Officer and Interim Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, using the criteria established in “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") (2013 framework).
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of December 31, 2020, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.
| 1. | We do not have an Audit Committee – While not being legally obligated to have an audit committee, it is the management’s view that such a committee, including a financial expert member, is of the utmost importance for entity-level control over the Company’s financial statement. Currently, the Board of Directors acts in the capacity of the Audit Committee. |
33
| 2. | We did not maintain appropriate cash controls – As of December 31, 2020, the Company had not maintained sufficient internal controls over financial reporting for the cash process, including failure to segregate cash handling and accounting functions, and did not require dual signature on the Company’s bank accounts. However, the effects of poor cash controls were mitigated in part by the fact that the Company had limited transactions in their bank accounts. |
| 3. | We did not implement appropriate information technology controls – As of December 31, 2020, the Company was retaining copies of all financial data and material agreements; however there is no formal procedure or evidence of normal backup of the Company’s data or off-site storage of the data in the event of theft, misplacement, or loss due to unmitigated factors. |
| 4. | We currently lack sufficient accounting personnel with the appropriate level of knowledge, experience and training in U.S. GAAP and SEC reporting requirements. |
Accordingly, the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls. As a result of the material weaknesses described above, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2020 based on criteria established in Internal Control—Integrated Framework issued by COSO (2013 framework).
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this Annual Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the SEC that permit the Company to provide only management’s report in this annual report.
Continuing Remediation Efforts to address deficiencies in Company’s Internal Control over Financial Reporting
Once the Company has sufficient personnel available, then our Board of Directors, in particular and in connection with the aforementioned deficiencies, will establish the following remediation measures:
| 1. | Our Board of Directors plans, if possible, to recommend the addition of an audit committee or a financial expert on our Board of Directors in fiscal 2022. |
| 2. | We plan, as funding permits, to appoint additional personnel to assist with the preparation of the Company’s monthly financial reporting. |
None.
Item 10. Directors, Executive Officers and Corporate Governance
Directors and Executive Officers
Our directors and executive officers and their respective ages, positions, term of office and biographical information are set forth below. Our directors serve until the next meeting of shareholders or until their successors are duly elected and qualified. Our executive officers are chosen by our board of directors and serve at its discretion. There are no existing family relationships between or among any of our executive officers or directors.
| Name | Age | Position | Served From | |||||
| Ratanaphon Wongnapachant | 40 | Chief Executive Officer, Chairman and Director | May, 2017 | |||||
| Wai Hok Fung | 45 | President and Director | December, 2016 | |||||
| Bodin Kasemset | 46 | Director | May, 2017 | |||||
| Direk Chantri | 55 | Interim Chief Financial Officer, Treasurer and Secretary | January, 2020 | |||||
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Director and Executive Officer Qualification
Ratanaphon Wongnapachant was appointed on May 15, 2017 as a director and the Chairman of the Board, and as the Company’s Chief Executive Officer. Mr. Wongnapachant has served as the chief executive officer of Digiwork (Thailand) Co., Ltd. since 2016, and as the managing director of SWA Capital Co. Ltd. since 2014. He was previously the executive director of PAE (Thailand) PLC, an engineering and construction company, from 2010 to 2011, and as its managing director from 2011 to 2014. Mr. Wongnapachant received his bachelor’s degree in marketing research from Seattle University in 2005 and his Executive MBA from the SASIN Graduate Institute of Business Administration of Chulalongkorn University in Bangkok, Thailand, in 2016. The Board believes that Mr. Wongnapachant’s experience leading Digiwork (Thailand) Co., Ltd. and other enterprises as a performance executive will benefit the Company and make him a valuable member of the Board and the Company’s management team.
Wai Hok Fung has served as a director and president of the Company since December 2016. Mr. Wai served as a director of SGOCO Group Ltd. (NASDAQ: SGOC) from December 2015 to September 2020, focusing on display and computer products and energy saving products and services. Mr. Wai has also served as a director of Wahfong Industrial Development Co., Ltd., a manufacturing company located in the PRC producing women’s clothing, since 2002, and as a director of Hebort International Limited, an exporter and wholesaler of wine, cigarettes and other products, since 2006. Hebort is a partner of Silverbear Capital and a strategic partner of UNIDO in exploring solar, Green and energy saving industry. Mr. Wai provides consulting services from time to time to companies exploring mining and energy projects internationally. Mr. Wai received his high school certificate from the Jockey Club TI-I College in Hong Kong in 1996, his Diploma of Account and Finance from the Sydney Institute of Business and Technology in 1998, and his Bachelor of Account and Finance from Macquarie University in Sydney, Australia, in 2002. The Board believes that Mr. Wai’s extensive business experience and knowledge will benefit the Company’s develop and operations and make him a valuable member of the Board.
Dr. Bodin Kasemset was appointed on May 15, 2017, as a director of the Board and has served as an innovation director with NXP Manufacturing Thailand Co. Ltd., since August 2011. He received his bachelor’s degree in engineering from Chulalongkorn University in Bangkok, Thailand, in 1997, his Master of Sciences degree from Technische Universitaet Hamburg-Harburg, in 2001, his Doktor-Ingenieur (Microsystems Technology) degree from Technische Universitaet Hamburg-Harburg, in 2009, and his Executive MBA from the SASIN Graduate Institute of Business Administration of Chulalongkorn University, in Bangkok, Thailand, in 2016. The Board believes that Dr. Kasemset’s extensive technical expertise and knowledge will benefit the Company’s develop and operations and make him a valuable member of the Board.
Direk Chantri has served as the Company’s Interim Chief Financial Officer, Treasurer and Secretary since January 6, 2020, and also serves as the CFO of Digiwork (Thailand) Co., Ltd since October 1, 2019. From July, 2017 to September, 2019, Mr. Chantri served as Finance and Accounting Manager of Vithai Biopower Co., Ltd., a biomass power generation plant. From June, 2014 to June, 2017, Mr. Chantri served as Finance and Accounting Manager of Orthopeasia Co., Ltd., a medical device manufacturing company. From January, 2010 to April, 2014, Mr. Chantri served as Internal Auditor Manager of S-one Group, a manufactory and distributor of aluminum windows and doors. Mr. Chantri received his bachelor’s degree in accounting from Ramkhamhaeng University in Bangkok Thailand in 1987.
Code of Ethics
Because the Company has a small number of persons serving as directors and executive officers, we have not adopted a code of ethics for our principal executive and financial officers. Our Board will revisit this issue in the future to determine if, and when, adoption of a code of ethics is appropriate. In the meantime, our management intends to promote honest and ethical conduct, full and fair disclosure in our reports to the SEC, and comply with applicable governmental laws and regulations.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company’s officers and directors are not subject to Section 16(a).
Item 11. Executive Compensation
Executive Officer Compensation
| Name and Principal Position | Year | Salary | Stock Awards | All Other Compensation | Total | |||||||||||||||
| Ratanaphon Wongnapachant, | 2020 | $ | - | $ | - | $ | - | $ | - | |||||||||||
| Chief Executive Officer, Chairman and Director | 2019 | - | - | - | - | |||||||||||||||
| Wai Hok Fung, | 2020 | $ | 75,000 | $ | - | $ | - | $ | 75,000 | |||||||||||
| President and Director | 2019 | 17,885 | - | - | 17,885 | |||||||||||||||
| Direk Chantri, | 2020 | $ | 22,998 | $ | - | $ | - | $ | 22,998 | |||||||||||
| Interim Chief Financial Officer, Treasurer and Secretary | 2019 | 5,799 | - | - | 5,799 | |||||||||||||||
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Compensation of Directors
For the year ended December 31, 2020, no compensation was paid to our directors as their roles of the directors of the Board the Company.
Employment Contracts
On October 1, 2019, Enigma BVI entered into a three-year employment agreement with Wai Hok Fung, the president of the Company to serve as Enigma BVI’s general manager from October 1, 2019 to October 1, 2022. Enigma BVI may, in its absolute discretion, terminate the employment with one month notice or for cause. The agreement provides Mr. Wai a monthly salary of HK$45,000 (approximately $5,769).
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information regarding beneficial ownership of our common stock as of April 12, 2021, the most recent practicable date for computing beneficial ownership, by:
| ● | each of our named executive officers; |
| ● | each of our directors; |
| ● | each person, or group of affiliated persons, known by us to beneficially own 5% or more of our common stock; and |
| ● | all of our directors and executive officers as a group. |
We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting or investment power with respect to those securities. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws.
Applicable percentage ownership is based on 40,306,211 shares of our common stock issued and outstanding as of April 12, 2021. The number of shares of common stock used to calculate the percentage ownership of each listed person includes the shares of common stock underlying options and warrants held by such persons that are currently exercisable or convertible, or will be exercisable or convertible within 60 days of April 12, 2021. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Except as otherwise indicated, the address of each of the shareholders listed below is: c/o IWeb, Inc., at 8/6 Soi Patanakarn 30, Patanakarn Road, Suan Luang, Bangkok, Thailand.
| Name of beneficial owner | Number of shares beneficially owned |
Percent of class |
||||||
| Wai Hok Fung, President and Director | 1,603,500 | 4.0 | % | |||||
| Ratanaphon Wongnapachant, Chief Executive Officer and Director | 19,955,000 | 49.5 | % | |||||
| Bodin Kasemset, Director | - | - | ||||||
| Direk Chantri, Interim Chief Financial Officer, Secretary, Treasurer | - | - | ||||||
| Directors and executive officers as a group (4 people) | 21,558,500 | 53.5 | % | |||||
| Chau Fung (1 ) | 6,620,000 | 16.4 | % | |||||
| Tang Oi Ming Denise (2) | 3,025,000 | 7.5 | % | |||||
(1) Address for Chau Fung is Flat B,3/F Loong Pong House,61-63 Lion Rock Road, Kowloon City, Hong Kong
(2) Address for Tang Oi Ming Denise is 11/F, Cheung Hing Industrial Building, 12-p Smithfield Road, Kennedy Town, Hong Kong.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Certain Relationships and Related Transactions
On October 1, 2019, the Company entered into a lease with a company (“Lessor”) beneficially owned by Ms. Tang Oi Ming Denise (holding 7.5% of the Company’s ordinary shares as of December 31, 2020) and Ms. Tang Oi Ming Denise was also a director of Lessor who later resigned on March 15, 2021, for office space in Hong Kong for the period of one year, at HKD55,000 (approximately $7,051) per month. On October 1, 2020, the lease was renewed for the period of one year, at HKD55,000 (approximately $7,051) per month.
On August 1, 2019, OBON Thailand entered into a rental agreement with Mr. Thanawat Wongnapachant, brother of the Company’s CEO, to lease an office space from Mr Thanawat Wongnapachant for a period of twelve months at THB50,000 ($1,666) per month. On August 1, 2020, the rental agreement was renewed for a period of twelve months at THB50,000 ($1,666) per month.
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On November 1, 2019, OBON Thailand entered into an additional rental agreement with Mr. Thanawat Wongnapachant, brother of the Company’s CEO, to lease an office space from Mr Thanawat Wongnapachant for a period of twelve months at THB70,000 ($2,332) per month. On November 1, 2020, the rental agreement was renewed for a period of twelve months at THB70,000 ($2,332) per month.
For the year ended December 31, 2020, the Company has paid THB1,440,000 ($45,996) rental to Mr Thanawat Wongnapachan.
Board Independence
As of the date of this Annual Report, Mr. Bodin Kasemset is the only director of the Company who is independent under the independence requirements of Rule 10A-3 promulgated under the Securities Exchange Act of 1934. This rule defines persons as “independent” who are neither officers nor employees of the company and have no relationships that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out their responsibilities as directors.
Item 14. Principal Accounting Fees and Services
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Centurion ZD CPA & Co., our independent registered public accounting firm.
| Years ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Audit fees | $ | 106,539 | $ | 98,000 | ||||
| Audit-related fees | - | - | ||||||
| Tax fees | - | - | ||||||
| All other services | - | - | ||||||
| Total | 106,539 | $ | 98,000 | |||||
AUDIT FEES
Audit fees represent the aggregate fees billed for the audit of our annual financial statements, review of our quarterly financial statements, review of registration statements or services that are normally provided in connection with statutory and regulatory filings or engagements for those fiscal years.
AUDIT-RELATED FEES
There were no fees were billed or incurred for assurance or related services by our auditors that were reasonably related to the audit or review of financial statements reported above.
TAX FEES
There were no tax preparation fees billed for the Annual Period.
ALL OTHER FEES
There were no other fees were billed or incurred for services by our auditors other than the fees noted above. Our board, acting as an audit committee, deemed the fees charged to be compatible with maintenance of the independence of our auditors.
THE BOARD OF DIRECTORS PRE-APPROVAL POLICIES
As of December 31, 2020, the Company did not have a formal documented pre-approval policy for the fees of the principal accountant. The Company does not have an audit committee. The percentage of hours expended on the principal accountant's engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was 0%.
The board approved all fees described above.
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Item 15. Exhibits and Financial Statement Schedules
Financial statement schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
Exhibits
The following exhibits are filed herewith and this list is intended to constitute the exhibit index.
38
*Filed herewith
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| IWEB, Inc. | ||
| Date: April 13, 2021 | By: | /s/ Ratanaphon Wongnapachant |
| Ratanaphon Wongnapachant | ||
| Chief Executive Officer and Chairman of the Board |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Ratanaphon Wongnapachant | Chief Executive Officer and Chairman of the Board | April 13, 2021 | ||
| Ratanaphon Wongnapachant | (Principal Executive Officer) | |||
| /s/ Wai Hok Fung | President and Director | April 13, 2021 | ||
| Wai Hok Fung | ||||
| /s/ Direk Chantri | Secretary, Treasurer, Interim Chief Financial Officer | April 13, 2021 | ||
| Direk Chantri | (Principal Financial and Accounting Officer) | |||
| /s/ Bodin Kasemset | Director | April 13, 2021 | ||
| Bodin Kasemset |