Item
2. - Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q/A contains forward-looking statements. When used in this Quarterly Report on Form 10-Q/A, the words
“may,” “could,” “estimate,” “intend,” “continue,” “believe,”
“expect” or “anticipate” and similar expressions identify forward-looking statements. Although we believe
that our plans, intentions, and expectations reflected in any forward-looking statements are reasonable, these plans, intentions,
or expectations may not be achieved. Our actual results, performance, or achievements could differ materially from those contemplated,
expressed, or implied, by the forward-looking statements contained in this Quarterly Report on Form 10-Q/A. Important factors
that could cause actual results to differ materially from our forward-looking statements are set forth in this Quarterly Report
on Form 10-Q/A. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only
as of the dates on which they are made. All forward-looking statements attributable to us or persons acting on our behalf are
expressly qualified in their entirety by the cautionary statements set forth in this Quarterly Report on Form 10-Q/A, except as
required by federal securities laws, we are under no obligation to update any forward-looking statement, whether as a result of
new information, future events, or otherwise.
Although
we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results
of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.
In
this form 10-Q/A references to “UBI Blockchain Internet, Ltd.,” “JA Energy,” “the Company”,
“we,” “us,” and “our” refer to UBI Blockchain Internet Ltd. (a Delaware Company).
Critical
Accounting Policies
There
have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”, included in our Annual Report on Form 10-K for
the fiscal year ended August 31, 2017 filed with the Securities and Exchange Commission on December 07, 2017.
Corporate
History
The
Company was organized August 26, 2010 (Date of Inception) under the laws of the State of Nevada, as JA Energy. The Company was
incorporated as a subsidiary of Reshoot Production Company, a Nevada corporation. Reshoot Production Company was incorporated
October 31, 2007, and, at the time of spin off was listed on the Over-the- Counter Bulletin Board.
From
August 2010 to May 2014 the Company was in the business of designing a suite of modular, self-contained, fully automated, climate
controlled units for distributed production of energy. While some of these products were proven to be technologically viable,
none were ever developed to the point where they were ready for introduction to the marketplace.
On
or about September 30, 2014, the Board of Directors approved the formation of a new company called Peak Energy Holdings, a Nevada
corporation, where each shareholder in the Company received one share of common of Peak Energy Holdings for each share of common
stock owned in the Company and one share of preferred stock of Peak Energy for each share of preferred share owned in the Company.
As part of the transaction, the Company spun-off all its assets and liabilities into Peak Energy. Further, the spin-off subsidiary
operated as an independent entity separate entity from the Company with new management operating the current core business of
Peak Energy for the benefit of the original stockholders. The effect of this action allowed the Company to explore new business
opportunities without the burden of the assets and liabilities on the corporate books.
On
November 21, 2016, the Company changed its corporate name to UBI Blockchain Internet, LTD, and changed the state of incorporation
from the State of Nevada to the State of Delaware pursuant to a plan of conversion about which the Company adopted a new certificate
of incorporation under the laws of the State of Delaware.
On
May 16, 2017, the Company acquired 100% ownership of Shenzhen Nova E-commerce, Ltd., a private Shenzhen Chinese corporation in
exchange for 25,000,000 unregistered restricted Class C common shares. In April 2017 Shenzhen Nova E-commerce began its operations
of an online store in China selling a wide range of products including maternal and infant products, cosmetics, wine, household
goods, digital and luxury products.
UBI
Blockchain Internet Ltd. business encompasses the research and application of blockchain technology with a focus on the Internet
of things covering areas of food, drugs and healthcare. Management plans to focus its business in the integrated wellness industry,
by providing procedures for safety and effectiveness in food and drugs, but also preventing counterfeit or fake food and drugs.
With the advancement of the blockchain technology, the Company plans to trace a food or drug product from its original source
within the context of the internet of things to the final consumer.
Overview
UBI’s
Blockchain Internet business includes research and application of blockchain technology, which includes Internet of Things (“IoT”)
technology, pharmaceutical research and manufacturing technology for the health industry, and platform trading technology for
the financial capital markets, which together, we refer to as IBSH technology. These technologies include well-established technologies,
such as Big Health Industry Technology and Financial Capital Market Technology. There are also emerging, forward-looking, technologies
such as blockchain and IoT technologies. We are familiar with big health and financial capital markets; however, we are not yet
familiar with blockchain and the Internet of Things. We have matured in the above-mentioned technology in the chest holds 50%
of the health and financial capital of the part. For the other 50%, we have hired professional and technical personnel to conduct
research and master the same time, and universities and other research institutions to discuss cooperation and establish a joint
R & D center platform. IBSH technologies will be our core focus technologies. They will become our patented intellectual property.
With the development of our technologies, we will conduct systematic research integration, development of a complete set of safety
control system, tentatively named “UBI Security Shield” which will be first applied to food and drug safety control.
UBI
has formed a research team dedicated to the application and research of IBSH technology to achieve the company’s business
goals.
IBSH
technical definition: The blockchain, Internet of things, big health industry, financial capital market technology integration
technology. Our technology has two major characteristics: First, the forward-looking and innovative technology, blockchain and
the Internet of things is a technology for the future world with forward-looking and innovative technologies. Second, management
believe the commercial value of our technology will have a strong practical application and it will combine with the industry
to deliver a commercial value.
Blockchain,
refers to a distributed database that is used to maintain a continually growing list of ordered records (called blocks). Each
block contains a timestamp and a link to the previous block. Blockchain has the characteristics of “decentralization”
and “tamper-proof”.
Internet
of Things, embedded physical devices, vehicles (also referred to as “networking devices” and “smart devices”),
buildings and other objects embedded in electronic technology, software, sensors, and brakes are connected via the Internet and
enable these objects to collect and exchange data for network connectivity. IoT allows remote sensing or remote control of objects
through existing network infrastructures to create opportunities for more direct integration of the physical world into computer-based
systems and to increase efficiency, accuracy and economic scale.
Industry
Trends
Recent
advances in streamlining video, monitoring sensors, high-speed broadband internet, introducing wireless standards (such as Bluetooth
low-power) and other technologies have brought many new opportunities and new choices to the modern society and to humankind.
Traditional industries also have new opportunities due to technological advances and innovations. The emergence and development
of blockchain and IoT technologies.
Management
believes Blockchain technology has shown considerable adaptability and acceptance in recent years and many market segments are
seeking to integrate blockchain technology into their operations. Although technology is mainly used in the financial services
industry at present, the blockchain has also begun to enter into more markets. For example, counterfeit drugs in the pharmaceutical
industry are hindered by using the characteristics of blockchain technology “tamper proof”. The adaptability of blockchain
to a broad range of industries has led to the growing attention it has received in the past few years.
Blockchain
technology and the Internet of things has aroused widespread concern and applied research. IBM, Bill Gates Foundation, Samsung,
Tsinghua University, Peking University, Hong Kong Polytechnic University and China Wanxiang Group have started the research.
UBI
management believes that blockchain technology and the Internet of things have contributed to the emergence of industry information
and technology solutions. By integrating the block chain technology with IoT as the core, it is possible to establish a seamless
industrial chain and achieve food and drug safety control and enterprise relationship management. Internet of Things is an extension
and continuation of the Internet. The Internet of Things can increase the popularity and wider use of the Internet by integrating
objects that interact through radio frequency identification (RFID) devices, infrared sensors, global positioning systems, laser
scanners, and other information sensing devices so that the height distributed network of devices communicate with humans and
other devices in real time. The Internet of Things is a completely new opportunity for a host of new applications based on the
Internet of Things that promise to improve the quality of life. In recent years, the Internet of Things has been integrated with
the blockchain, exchange and communication to realize the intelligent identification, location, tracking, monitoring and management
of the network. This technology is still in its infancy.
A
universal healthcare system covers all citizens seeking to achieve efficiencies by integrating the basic functions of healthcare
delivery, health insurance, distribution of healthy food and drug safety and labor relations management. Based on the full integration
of internet of things with blockchain technology, this technology can change old systems. Blockchain technology is a distributed
database that maintains a continuously-growing list of records called blocks. Each block contains a timestamp and a link to a
previous block. The data in a block cannot be altered retrospectively. Blockchain has characteristics such as decentralization,
openness and transparency, autonomy, security of information that “tamper-proof”, and anonymity, these features can
strengthen solution to drug and food safety issues, as well as getting more meaningful solution to enterprise labor relations
management. Management believes the age of blockchain and IoT is coming.
Blockchain
technology-based applications
UBI
management plans to focus its operations on the integrated health industry, providing food and drug safety and effectiveness protocols,
as well as preventing counterfeiting or counterfeiting of foods and medicines. With the advancement of blockchain technology,
we can trace the source of food or medicine in the context of the Internet of Things.
We
are now in the early stages of blockchain technology, but we have good research, technical framework design, industry language
and IT language conversion recognition of how blockchain and IoT interface with food and drug technology. Soon, we will utilize
the technology in food and drug safety control.
Blockchain
technology has a very wide range of potential applications. Blockchain is a distributed ledger agreement that allows projects
or transactions to be registered in a transparent manner and was originally developed for use in various industries to provide
a wide range of services including banking, stock trading, real estate and even worldwide diamond sales. More and more financial
giants are joining blockchain technology applications, research and development, including IBM, Microsoft, Intel, Blockstream
and Thomson Reuters to accelerate further Blockchain technology as a development system. As the blockchain technology is becoming
mature and secure, it can play a role in many areas and management believes that the application area and development potential
of blockchain technology provide the Company with an opportunity to grow.
Health
Care Business Consideration
UBI
management believes the global IoT in the healthcare market is growing at a significant rate of growth due to the growing demand
for advanced healthcare information systems and the growing prevalence of chronic diseases and lifestyle-related diseases.
IoT’s
application in healthcare, such as telemedicine, medication administration, clinical surgery and workflow management, inpatient
care, etc., helps with compilation services related to diagnosis, treatment, care and rehabilitation. They improve communication
between patients and healthcare workers, reducing medication errors and providing better coordinated care.
The
Market Opportunity
Blockchain
and the Internet of Things are technologies that affect the future. UBI Company took the lead in entering this market. First,
using IBSH technology in the big health industry, will help position the company in this field. The standard of this market access
is hard and the cost is high. The UBI team is optimistic about the future.
Blockchain
technology can play a role in many fields. Blockcchain transactions are theoretically real-time. The block-based distributed accounting
technology, combined with its artificial intelligence and internet of things technologies, makes it possible for countless of
smart technologies to connect to internet for greater security, allowing technicians to return to the point at which the problem
occurred. One of potential applications of this technology is the creation of registers based on blockchain of IoT devices, and
the use of artificial intelligence programs to perform automated intelligent diagnostics and more advanced functions, which can
ultimately lead engineers and technicians to virtualize clock backwards. At the same time, blockchain technology can reduce audit
costs; reduce distrust of central node, so that flow of financial assets is more transparent and convenient. In fact, current
blockchain technology is indeed application of digital electronic payments to “block chain +” transition extension
from financial sector gradually to IoT and other non-financial areas which will trigger more and greater industrial restructuring
and revolution.
The
Internet of Things is based on computer science, including network, electronics, radio frequency, induction, wireless, artificial
intelligence, bar code, cloud computing, automation, embedded technology as an integrated technology. Internet of things is called
the third wave of the world information industry revolution, after computer revolution, and the second internet revolution. Management
believes that within 10 years, Internet of Things will be widely used in intelligent medicine, intelligent transportation, environmental
protection, government work, public safety, safety home, intelligent home appliance, industrial monitoring, elderly care, personal
health, intelligent building, green agriculture and breeding, surveillance, imaging, computers, mobile phones and other fields.
Blockchain
technology is a good solution for: infrastructure investment, high maintenance costs and data security issues. Blockchain technology
supports IoT which is an extension and more advanced stage of internet. Blockchain technology research and application will make
IoT networking more efficient. Blockchain technology creates a shared, distributed, digital book between network nodes to record
transactions, rather than storing them on a central server. This eliminates the need for central verification. It provides a way
to create a consensus network without having to trust a single node, and data store does not need to be stored in a central server,
but by sharing it to all nodes in network. Blockchain technology can also solve medical field of data privacy and other issues,
such as custody of electronic medical records, safe storage of genetic data, and drug security.
Our
Strategy
Our
Group will plan to grasp the new technologies that will affect the future world, establish a new business model based on
the industrial and capital advantages that we have already formed, and create the technical advantages of UBI’s IBSH. Managements
wants UBI to become a world leader in excellence.
Our
growth strategy depends to a large extent on our ability to reach potential customers who successfully bring their products to
target markets. We plan to initially target the China market and gradually expand to Europe and the United States and beyond.
To
achieve corporate strategy, the company intends:
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Research
and develop IBSH core technologies to establish the leading position in this field
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At
present, we have initially established the technical framework and the core of the main body, with the combination of food and
drug use, access to our first phase of research and experimental results, that can be practical applications, and continuous technological
upgrading.
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Research
and development of the main product and core product group
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UBI’s
planned first product will be a food and drug safety monitoring and control system. It will also be our core product. At the same
time, we plan to systematically develop healthy big data and cloud computing, food products, health and service products, cross-border
e-commerce platform and global health and culture platform.
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Create
brand awareness and drive marketing company products and services in key markets
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We
plan to position the Company’s marketing as creating and building a corporate brand image globally. All this will start
in China.
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Employ
global professional and technical personnel, scholars, professional management personnel
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We
plan to hire professionals from all over the world. Together to create UBI a shared platform.
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Coordinate
with strategic partners in each of the target markets for marketing and distribution
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We
believe that international markets represent a significant growth opportunity for us and we intend to expand sales of our intended
products and services globally through selected retailers and strategic partnerships. We plan to work with key partners in the
target markets to provide marketing and distribution expertise and assistance. Although it may be challenging to gain market acceptance
in these markets, we believe the assistance of such experts will expedite the process.
Competitive
Strengths
1.
Unique IBSH technology
Our
technology is advanced, not only for its scientific characteristics, but also for maneuverability, derived from the design and
understanding of technical structures. Technology itself is spiritual.
2.
Creating a creative business platform through independent design and development.
We
intend to build a comprehensive platform, including blockchain technology, the Internet of Things, the health industry and the
stock market. Once established, this platform will support UBI’s global operations.
3.
We have a good network in the health industry in China
In
China, we believe the company’s management has a good network in the integration of the health industry, which can be used
for scientific research and development, raw material production bases and other industrial chains. The company’s management
is also familiar with the international pharmaceutical market and the food market.
4.
A good management team
Our
management believes the Company’s management and consulting team, are the industry’s leading talent and professionals.
They have a professional, quality, wisdom, and innovation.
Target
Market
At
present, food and drug safety is a major challenge for human beings. Counterfeit food and drug products are very common in the
Chinese market. These problems are derived from nature problems and human factors. The laws and regulations are not perfect and
complete and law enforcement is not seriously implemented in many occasions. The occurrence of poison capsule events, vaccine
cases, ginkgo leaf, licorice tablets and other major drug cases, seriously affecting people’s physical and mental health.
Therefore, the safety of food and medicine is closely linked to the vital interests of hundreds of millions of people. So UBI’s
market for food and drug safety goals is accurate and huge.
Sources
of Income and Pricing
We
plan to build a platform and a number of products that will generate revenues and generate profits by delivering services and
effective products to potential targets customers. The price will be determined by demand and market pricing. After initial publicity,
the company’s products and services may have an impact on the health care industry. As we look to the future, emerging technologies
will trigger new trends in the security, law enforcement, privacy, food and drug safety aspects of the healthcare industry.
Sales
and Marketing
In
the future marketing of UBI platform and products, we will mainly go through the Internet of Things to do online and offline store
marketing. Marketing will also be promoted through cross-border e-commerce platforms. Conference marketing and professional channel
marketing will be utilized. Our products and designs consider the overall needs of the population and will be tailor-made for
some clients. We are currently paying attention to the development, formation and needs of “one belt, one road” markets.
Management
believes Chinese consumers are more likely to consider buying a product if they see it mentioned on a social-media site and more
likely to purchase a product or service if a friend or acquaintance recommends it on a social-media site by word of mouth.
Chinese
consumers rely heavily upon peer-to-peer recommendations over general mass advertising. In general, the Chinese populace is skeptical
of information from news sources and advertising and rely more on word-of-mouth from friends, family, and key opinion leaders,
many of whom share information on social media.
Manufacturing
The
Company does not now engage in any manufacturing but may engage in manufacturing of products to be sold on the Company’s
website in the future.
Shenzhen
Nova E-commerce, Ltd.
On
May 16, 2017, the Board of Directors of the Company ratified and approved an Acquisition Agreement with Shenzhen Nova E-commerce,
Ltd., (“NOVA”), a private Shenzhen Chinese corporation. Under the terms of the Agreement UBI acquired 100% ownership
of Nova in exchange for 25,000,000 unregistered restricted Class C common shares by UBI. With the NOVA ownership completed, the
former 130 NOVA shareholders received UBI Class C common shares based on their pro-rata ownership of NOVA. With the NOVA acquisition
completed and the name of the permit holder changed to UBI, and NOVA became a 100% owned subsidiary of the UBI.
The
shareholders of NOVA converted their ownership of NOVA to UBIA’s Class C common shares. Following the conversion, NOVA shares
were canceled. In China, the conversion of shares requires the Chinese authorities to cancel NOVA’s registered shares. The
takeover formally takes place when the government cancels NOVA shares. The Chinese government approved the acquisition as of August
29, 2017.
About
Shenzhen Nova E-commerce, Ltd
Shenzhen
Nova E-commerce Ltd. (“NOVA”) was incorporated on May 26, 2016 and currently operates an online store in China selling
a wide range of products including maternal and infant products, cosmetics, wine, household goods, digital and luxury products.
Nova’s website became operational in April 2017.
Nova’s
operations prior to the date of acquisition, included, but was not limited to:
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Researching
and developing business opportunities unique to a Chinese customer base
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Building
corporate infrastructure and administration
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Integration
of multiple technologies and programs
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Building
Business Relationships
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Human
resource staffing
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Training
personnel
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Equipment
procurement
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Building
the corporate website
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Developing
marketing strategies to capitalize on commercialization activities
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Establish
and maintain strategic collaborations with product suppliers
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Obtain
financing to implement the business activities
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NOVA
is registered in Qianhai Free Trade Zone, China. Its business operation is an e-commerce platform offering online retail service,
via OYA Mall. From its inception on May 26, 2016 through April 2017, NOVA has been building its website and infrastructure. Nova
has commenced its pilot operation in May 2017.
NOVA’s
Chinese language website is: www.oyamall.com. The website is operational, where customers can buy products, including food, non-prescription
medicine, skin care products etc. offered on the website. The website is not part of this Annual report, but referenced for informational
purposes.
Recent
Events
SEC
Order of Trading Suspension
On
January 5, 2018, the Securities and Exchange Commission announced the temporary suspension, pursuant to Section 12(k) of the Securities
Exchange Act of 1934 (the “Exchange Act”), of trading in the securities of UBI Blockchain Internet, Ltd. at 9:30 a.m.
EST on January 8, 2018, and terminating at 11:59 p.m. EST, on January 22, 2018. The Commission temporarily suspended trading in
the securities of UBIA because of (i) questions regarding the accuracy of assertions, since at least September 2017, by UBIA in
filings with the Commission regarding the company’s business operations; and (ii) concerns about recent, unusual and unexplained
market activity in the company’s Class A common stock since at least November 2017.
Stock
Listing
The
suspension of trading eliminated our market makers and resulted in the listing of our stock on the grey sheets of the OTC markets.
Prior to the suspension, our stock was listed on the OTC-QB.
Broker-dealers are not willing
or able to publicly quote grey sheets securities because of a lack of investor interest, company information availability or regulatory
compliance.
Grey sheet is an unsolicited market where securities do not have bid or ask quotations. The listing on grey
sheets makes our stock more difficult to trade, dramatically reduces the liquidity of our stock and has a negative impact on our
investors. As such, our common stock being listed on the grey sheets has adversely effected the liquidity of the shares of common
stock. Investors may be unable to liquidate their investment.
Hong
Kong Government Grant
On
January 10, 2018, the Company announced that the Hong Kong Special Administrative Region (“HKSAR”) approved in principle
a grant of up to HK 3,018,750 (approximately $386,000) to assist in financing a project entitled “Blockchain-Based Food
and Drug Counterfeit Detection and Regulatory System” to be jointly developed by UBI Hong Kong and The Hong Kong Polytechnic
University (“HKPU”). The related agreement also provides for UBI Hong Kong to contribute up to HK$3,018,750 (approximately
$386,000) to the project cost in installments with the first installment of HK$561,198 (approximately $72,000) due upon HKSAR’s
signing of the agreement. This represents the completion of a project that commenced in November 2016 when UBI and HKPU began
discussions to build blockchain-based technology and research platforms with the mission of resolving important food and drug
safety issues. The parties applied for government funding when they filed their technology research and development project with
HKSPA. The estimated completion date of the project is the second quarter of 2019. To date, under the signed agreement received
from HKSAR on January 5, 2018 funding of the first installments by HKSAR and UBI Hong Kong has not yet occurred.
Government
Regulation
We
are or may become subject to a variety of laws and regulations in the State of Delaware, where we are incorporated, the United
States and the People’s Republic of China (“PRC”) that involve matters central to our business, including laws
and regulations regarding privacy, data protection, data security, data retention, consumer protection, advertising, electronic
commerce, intellectual property, manufacturing, anti-bribery and anti-corruption, and economic or other trade prohibitions or
sanctions. These laws and regulations are continuously evolving and developing. The scope and interpretation of the laws that
are or may be applicable to us are often uncertain and may be conflicting, particularly with respect to foreign laws.
In
particular, there are numerous U.S. federal, state, and local laws and regulations and foreign laws and regulations regarding
privacy and the collection, sharing, use, processing, disclosure, and protection of personal information and other user data,
the scope of which is changing, subject to differing interpretations, and may be inconsistent among different jurisdictions. We
strive to comply with all applicable laws, policies, legal obligations, and industry codes of conduct relating to privacy, data
security, and data protection. However, given that the scope, interpretation, and application of these laws and regulations are
often uncertain and may be conflicting, it is possible that these obligations may be interpreted and applied in a manner that
is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived
failure to comply with our privacy or security policies or privacy-related legal obligations by us or third-party service-providers
or the failure or perceived failure by third-party apps, with which our users choose to share their data, to comply with their
privacy policies or privacy-related legal obligations as they relate to the data shared with them, or any compromise of security
that results in the unauthorized release or transfer of personally identifiable information or other user data, may result in
governmental enforcement actions, litigation, or negative publicity, and could have an adverse effect on our brand and operating
results.
We
plan to develop solutions to ensure that data transfers from the E.U. provide adequate protections to comply with the E.U. Data
Protection Directive. If we fail to develop such alternative data transfer solutions, one or more national data protection authorities
in the European Union could bring enforcement actions seeking to prohibit or suspend our data transfers to the U.S. and we could
also face additional legal liability, fines, negative publicity, and resulting loss of business.
Governments
are continuing to focus on privacy and data security and it is possible that new privacy or data security laws will be passed
or existing laws will be amended in a way that is material to our business. Any significant change to applicable laws, regulations,
or industry practices regarding our users’ data could require us to modify our services and features, possibly in a material
manner, and may limit our ability to develop new products, services, and features. Although we have made efforts to design our
policies, procedures, and systems to comply with the current requirements of applicable state, federal, and foreign laws, changes
to applicable laws and regulations in this area could subject us to additional regulation and oversight, any of which could significantly
increase our operating costs.
The
labeling, distribution, importation, marketing, and sale of our intended products are subject to extensive regulation by various
U.S. state and federal and foreign agencies, including the CPSC, Federal Trade Commission, Food and Drug Administration, or FDA,
Federal Communications Commission, and state attorneys general, as well as by various other federal, state, provincial, local,
and international regulatory authorities in the countries in which our intended products and services are distributed or sold.
If we fail to comply with any of these regulations, we could become subject to enforcement actions or the imposition of significant
monetary fines, other penalties, or claims, which could harm our operating results or our ability to conduct our business.
The
global nature of our business operations also create various domestic and foreign regulatory challenges and subject us to laws
and regulations such as the U.S. Foreign Corrupt Practices Act, or FCPA, the U.K. Bribery Act, and similar anti-bribery and anti-corruption
laws in other jurisdictions, and our intended products are also subject to U.S. export controls, including the U.S. Department
of Commerce’s Export Administration Regulations and various economic and trade sanctions regulations established by the
Treasury Department’s Office of Foreign Assets Controls. If we become liable under these laws or regulations, we may be
forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources
or to discontinue certain products or services, which would negatively affect our business, financial condition, and operating
results. In addition, the increased attention focused upon liability issues as a result of lawsuits, regulatory proceedings, and
legislative proposals could harm our brand or otherwise impact the growth of our business. Any costs incurred as a result of compliance
or other liabilities under these laws or regulations could harm our business and operating results.
PRC
Government Regulations
Because
our business and employees are located in the PRC, our business is also regulated by the national and local laws of the PRC. We
believe our conduct of business complies with existing PRC laws, rules and regulations.
General
Regulation of Businesses
We
believe we are in material compliance with all applicable labor and safety laws and regulations in the PRC, including the PRC
Labor Contract Law, the PRC Production Safety Law, the PRC Regulation for Insurance for Labor Injury, the PRC Unemployment Insurance
Law, the PRC Provisional Insurance Measures for Maternity of Employees, PRC Interim Provisions on Registration of Social Insurance,
PRC Interim Regulation on the Collection and Payment of Social Insurance Premiums and other related regulations, rules and provisions
issued by the relevant governmental authorities from time to time.
According
to the PRC Labor Contract Law, we are required to enter into labor contracts with our employees. We are required to pay no less
than local minimum wages to our employees. We are also required to provide employees with labor safety and sanitation conditions
meeting PRC government laws and regulations and carry out regular health examinations of our employees engaged in hazardous occupations.
Violations of the PRC Labor Contract Law and the PRC Labor Law may result in the imposition of fines and other administrative
and criminal liability in the case of serious violations. In addition, according to the PRC Social Insurance Law, employers like
our PRC subsidiaries in China must provide employees with welfare schemes covering pension insurance, unemployment insurance,
maternity insurance, work-related injury insurance, medical insurance, and housing funds.
Foreign
Currency Exchange
The
principal regulation governing foreign currency exchange in China is the Foreign Currency Administration Rules (1996), as amended
(2008). Under these Rules, RMB is freely convertible for current account items, such as trade and service-related foreign exchange
transactions, but not for capital account items, such as direct investment, loan or investment in securities outside China unless
the prior approval of, and/or registration with, the State Administration of Foreign Exchange of the People’s Republic of
China, or SAFE, or its local counterparts (as the case may be) is obtained.
Pursuant
to the Foreign Currency Administration Rules, foreign invested enterprises, or FIEs, in China may purchase foreign currency without
the approval of SAFE for trade and service-related foreign exchange transactions by providing commercial documents evidencing
these transactions. They may also retain foreign exchange (subject to a cap approved by SAFE) to satisfy foreign exchange liabilities
or to pay dividends. In addition, if a foreign company acquires a subsidiary in China, the acquired company will also become an
FIE. However, the relevant PRC government authorities may limit or eliminate the ability of FIEs to purchase and retain foreign
currencies in the future. In addition, foreign exchange transactions for direct investment, loan and investment in securities
outside China are still subject to limitations and require approvals from, and/or registration with, SAFE.
Employees
We
have 18 full-time employees and we engage the services 44 non-employee contractors. Within our workforce, 8 employees are engaged
in product development and 10 employees are engaged in business development, finance, human resources, facilities, information
technology and general management and administration. We have no collective bargaining agreements with our employees and we have
not experienced any work stoppages. We consider our relationship with our employees to be good.
Results
of Operations
Revenues
During
the three-month period ended November 30, 2017 and 2016, the Company had no revenues.
Expenses
For
the three months ended November 30, 2017, the Company had total operating expenses of $1,223,524 as compared to $75,869 in 2016.
For the three months ended November 30, 2017, operating expenses consisted of salaries of $263,963 (including stock-based compensation
of $72,500, consulting fees of $532,500 (stock-based compensation), legal and professional fees of $343,872 (including stock-based
compensation of $335,872) and other general and administrative expenses of $83,189. For the three months ended November 30,
2016, the Company’s operating expenses consisted of: consulting fees of $25,000, legal and professional fee of $31,369 and
other general and administrative expenses of $10,500. The increase in operating expenses resulted from the Company’s effort
to develop
Blockchain technology-based applications
For
the three months ended November 30, 2017, the interest expense accrued for loan from Tony Liu was $10,826.
For
the three months ended November 30, 2016, the Company had a gain of $572 from settlement of bank overdraft.
Net
Loss
For
the three months ended November 30, 2017, the Company had a net loss of $1,234,340 or $(0.01) per share of Class A and Class C
common stock and compared to a loss of $75,297 or $0.00 per share of Class A and Class C common stock for the same period last
year.
Going
Concern
The
financial statements included with this quarterly report have been prepared in accordance with generally accepted accounting principles
applicable to a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments
in the normal course of business. As of November 30, 2017, the Company had cash of 63,006 and current liabilities of $929,839.
For the three months ended November 30, 2017, the Company incurred a net loss of $1,234,340. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern.
The
Company’s ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements
and its ability to achieve and maintain profitable operations. Management plans to raise equity capital to finance the operating
and capital requirements of the Company. Amounts raised will be used to further development of the Company’s services, to
provide financing for marketing and promotion and for other working capital purposes. While the Company is putting forth its best
efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be available for
operations.
These
conditions raise substantial doubt about the Company’s ability to continue as a going concern. Our financial statements
do not include any adjustments that might arise from this uncertainty.
Liquidity
and Capital Resources
As
of November 30, 2017, the Company has total assets of $1,363,804 consisting of cash $63,006, prepaid stock-based compensation
of $1,188,333, prepaid expense of $5,000, office equipment of $15,790 and capitalized website development costs of $91,675 and
total liabilities of $929,839.
The
Company has limited financial resources available, which has had an adverse impact on the Company’s liquidity, activities
and operations. These limitations have adversely affected the Company’s ability to obtain certain projects and pursue additional
business. Without realization of additional capital, it would be unlikely for the Company to continue as a going concern. In order
for the Company to remain a Going Concern it will need to find additional capital. Additional working capital may be sought through
additional debt or equity private placements, additional notes payable to banks or related parties (officers, directors or stockholders),
or from other available funding sources at market rates of interest, or a combination of these. The ability to raise necessary
financing will depend on many factors, including the nature and prospects of any business to be acquired and the economic and
market conditions prevailing at the time financing is sought. No assurances can be given that any necessary financing can be obtained
on terms favorable to the Company, or at all.
Off-Balance
Sheet Arrangements
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 or operations, liquidity, capital expenditures or capital
resources that is material to investors.
Critical
Accounting Policies and Estimates
Revenue
Recognition: We recognize revenue from services and product sales once all of the following criteria for revenue recognition have
been met: pervasive evidence that an agreement exists; the services have been rendered; the fee is fixed and determinable and
not subject to refund or adjustment; and collection of the amount due is reasonable assured.
New
Accounting Standards
Management
has evaluated recently issued accounting pronouncements through November 30, 2017 and concluded that they will not have a material
effect on future financial statements.