WEWA 10-Q
Wewards, Inc. (WEWA)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarter ended | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from __________to __________ |
Commission file number:
(Exact name of registrant as specified in its Charter)
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
|
|
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| (Address of principal executive offices) | (Zip Code) |
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 | None | None |
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.
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 during the preceding
12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☐ |
| Smaller reporting company | |
| 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 Exchange Act). Yes ☐
As of April 11, 2022, the registrant had shares of common stock issued and outstanding.
TABLE OF CONTENTS
| Page | |||
| No. | |||
| PART I - FINANCIAL INFORMATION | |||
| ITEM 1. | FINANCIAL STATEMENTS (Unaudited) | F-1 | |
| Condensed Balance Sheets as of February 28, 2022(Unaudited) and May 31, 2021 | F-1 | ||
| Condensed Statements of Operations for the Three and Nine Months Ended February 28, 2022 and 2021 (Unaudited) | F-2 | ||
| Condensed Statements of Changes in Stockholders’ Equity (Deficit) for the Three and Nine Months Ended February 28, 2022 and 2021 (Unaudited) | F-3 | ||
| Condensed Statements of Cash Flows for the Nine Months Ended February 28, 2022 and 2021 (Unaudited) | F-5 | ||
| Notes to the Condensed Financial Statements (Unaudited) | F-6 | ||
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 14 | |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 20 | |
| ITEM 4. | CONTROLS AND PROCEDURES | 20 | |
| PART II - OTHER INFORMATION | |||
| ITEM 1. | Legal Proceedings | 21 | |
| ITEM 1A. | RISK FACTORS | 21 | |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 21 | |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 21 | |
| ITEM 4. | MINE SAFETY DISCLOSURES | 21 | |
| ITEM 5. | OTHER INFORMATION | 21 | |
| ITEM 6. | EXHIBITS | 21 | |
| SIGNATURES | 22 | ||
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEWARDS, INC.
CONDENSED BALANCE SHEETS
| February 28, | May 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expense | ||||||||
| Total current assets | ||||||||
| Right-of-use asset | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued interest, related parties | ||||||||
| Current maturities of operating lease obligation | ||||||||
| Total current liabilities | ||||||||
| Long term liabilities: | ||||||||
| Operating lease obligation | ||||||||
| Convertible notes payable, related party | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity (deficit): | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized, issued and outstanding | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' equity (deficit) | ( | ) | ( | ) | ||||
| Total liabilities and stockholders' equity (deficit) | $ | $ | ||||||
See accompanying notes to financial statements.
| F-1 |
WEWARDS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| February 28, | February 28, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue, related party | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Software development, related party | ||||||||||||||||
| Rent expense | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, related party | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding - basic | ||||||||||||||||
| Weighted average number of common shares outstanding - fully diluted | ||||||||||||||||
| Net loss per share - basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share - fully diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See accompanying notes to financial statements.
| F-2 |
WEWARDS, INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
| For the Three Months Ended February 28, 2022 | |||||||||||||||||||||||||||||
| Additional | Total | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | |||||||||||||||||||||||
| Balance, November 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Net loss for the three months ended February 28, 2022 | — | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, February 28, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| For the Three Months Ended February 28, 2021 | |||||||||||||||||||||||||||||
| Additional | Total | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | |||||||||||||||||||||||
| Balance, November 30, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Net loss for the three months ended February 28, 2021 | — | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, February 28, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
See accompanying notes to financial statements.
| F-3 |
WEWARDS, INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
| For the Nine Months Ended February 28, 2022 | |||||||||||||||||||||||||||||
| Additional | Total | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | |||||||||||||||||||||||
| Balance, May 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Net loss for the nine months ended February 28, 2022 | — | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, February 28, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| For the Nine Months Ended February 28, 2021 | |||||||||||||||||||||||||||||
| Additional | Total | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Accumulated | Stockholders' | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | |||||||||||||||||||||||
| Balance, May 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Net loss for the nine months ended February 28, 2021 | — | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, February 28, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
See accompanying notes to financial statements.
| F-4 |
WEWARDS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended | ||||||||
| February 28, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Decrease (increase) in assets: | ||||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Right-of-use asset | ||||||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | ||||||||
| Accounts payable, related party | ( | ) | ||||||
| Accrued interest, related party | ||||||||
| Deferred revenue, related party | ||||||||
| Operating lease obligation | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| NET CHANGE IN CASH | ( | ) | ( | ) | ||||
| CASH AT BEGINNING OF PERIOD | ||||||||
| CASH AT END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL INFORMATION: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
See accompanying notes to financial statements.
| F-5 |
WEWARDS, INC.
NOTES TO THE FINANCIAL STATEMENTS
February 28, 2022
(Unaudited)
NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Wewards, Inc. (“Wewards” or “the
Company”) was incorporated in the state of Nevada on September 10, 2013 as Betafox Corp., with the initial intent to manufacture
and sell color candles. On April 26, 2015, Giorgos Kallides (the “Seller”), entered into an agreement with Future Continental
Limited (“Purchaser”), pursuant to which, on May 11, 2015, the Seller sold to Purchaser six million () shares of
common stock of the Company (the “Shares”) owned by the Seller, constituting approximately
The Company has developed and is the owner of a web-based platform accessible by mobile apps (the “Platform”) that will enable consumers to purchase goods from merchants and earn rebates payable in the form of Bitcoin. The Platform provides an innovative Bitcoin rewards ecosystem. It is designed to transform traditional concepts of commerce into a cooperative society where both merchants and consumers are collaborating, utilizing Bitcoin to reward consumers. The ecosystem provides consumers with rewards each time they complete a challenge defined by a merchant. This is intended to make the ecommerce process beneficial to all market participants, and to help distribute commercial wealth among and between the merchants and consumers. The Company intends to generate revenue by licensing “white-label” versions of the Platform to third parties. However, to date, no such license agreement has been entered into, and the Company has not generated any revenues.
Basis of Presentation
The unaudited condensed financial statements of the Company and the accompanying notes included in this Quarterly Report on Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the Condensed Financial Statements have been included. Such adjustments are of a normal, recurring nature. The Condensed Financial Statements, and the accompanying notes, are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and do not contain certain information included in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2021. The interim Condensed Financial Statements should be read in conjunction with that Annual Report on Form 10-K. Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk
The Company maintains our cash in bank deposit accounts,
the balances of which at times may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation
(FDIC) up to $250,000 under current regulations. The Company had approximately $
Fair Value of Financial Instruments
Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the short-term nature of the instruments. The Company had no items that required fair value measurement on a recurring basis.
| F-6 |
WEWARDS, INC.
NOTES TO THE FINANCIAL STATEMENTS
February 28, 2022
(Unaudited)
Software Development Costs
The Company expenses software development costs, including costs to develop software products or the software component of products to be sold, leased, or marketed to external users, before technological feasibility is reached. Technological feasibility is typically reached shortly before the release of such products. Software development costs also include costs to develop software to be used solely to meet internal needs and cloud-based applications used to deliver our services. The Company capitalizes development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed, and the software will be used to perform the function intended. Capitalization ends, and amortization begins when the product is available for general release to customers.
Impairment of Intangible Assets
The Company reviews intangible assets for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. The Company measures recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows that the assets or the asset group are expected to generate. If the carrying value of the assets are not recoverable, the impairment recognized is measured as the amount by which the carrying value of the asset exceeds its fair value.
Convertible Instruments
The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date. We analyzed the derivative financial instruments (the Convertible Notes), in accordance with ASC 815. The objective is to provide guidance for determining whether an equity-linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non-derivative instrument that falls within the scope of ASC 815-40-05 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock. A non-derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability. There is a two-step approach in determining whether an instrument or embedded feature is indexed to an entity’s own stock. First, the instrument's contingent exercise provisions, if any, must be evaluated, followed by an evaluation of the instrument's settlement provisions. The Company utilized multinomial lattice models that value the derivative liability within the notes based on a probability weighted discounted cash flow model. The Company utilized the fair value standard set forth by the Financial Accounting Standards Board, defined as the amount at which the assets (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the licensing of our software by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. All revenues to date have been recognized from licensing Megopoly and related IP to Sandbx Corp., a separate company owned by the Chief Operating Officer of United Power and FL Galaxy, related parties of the Company, as our Chief Executive Officer, Lei Pei, is also the Chief Executive Officer of United Power and FL Galaxy.
We derive revenue principally from licensing our intellectual property, including our game, and related extra content and services that can be utilized by players of our game. Our product and service offerings include, but are not limited to, licensing to third parties (“software license”) to distribute and host our games and content (“Online-Hosted Service Games”).
| F-7 |
WEWARDS, INC.
NOTES TO THE FINANCIAL STATEMENTS
February 28, 2022
(Unaudited)
We evaluate and recognize revenue by:
| · | identifying the contract(s) with the customer; |
| · | identifying the performance obligations in the contract; |
| · | determining the transaction price; |
| · | allocating the transaction price to performance obligations in the contract; and |
| · | recognizing revenue as each performance obligation is satisfied through the transfer of a promised good or service to a customer (i.e., “transfer of control”). |
Online-Hosted Service Games. Sales of our Online-Hosted Service Games are determined to have one distinct performance obligation: the online hosting. We recognize revenue from these arrangements as the service is provided through our licensing agreement(s).
Licensing Revenue
We utilize third-party licensees to distribute and host our games and content in accordance with license agreements, for which the licensees typically pay us a fixed minimum guarantee and/or sales-based royalties. These arrangements typically include multiple performance obligations, such as a time-based license of software and future update rights. We recognize as revenue a portion of the minimum guarantee when we transfer control of the license of software (generally upon commercial launch) and the remaining portion ratably over the contractual term in which we provide the licensee with future update rights. Any sales-based royalties are generally recognized as the related sales occur by the licensee.
Significant Judgments around Revenue Arrangements
Identifying performance obligations. Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct, (i.e., the customer can benefit from the goods or services either on its own or together with other resources that are readily available), and are distinct in the context of the contract (i.e., it is separately identifiable from other goods or services in the contract). To the extent a contract includes multiple promises, we must apply judgment to determine whether those promises are separate and distinct performance obligations. If these criteria are not met, the promises are accounted for as a combined performance obligation.
Determining the transaction price. The transaction price is determined based on the consideration that we will be entitled to receive in exchange for transferring our goods and services to the customer. Determining the transaction price often requires judgment, based on an assessment of contractual terms and business practices. It further includes review of variable consideration such as discounts, sales returns, price protection, and rebates, which is estimated at the time of the transaction. In addition, the transaction price does not include an estimate of the variable consideration related to sales-based royalties. Sales-based royalties are recognized as the sales occur.
Allocating the transaction price. Allocating the transaction price requires that we determine an estimate of the relative stand-alone selling price for each distinct performance obligation. Determining the relative stand-alone selling price is inherently subjective, especially in situations where we do not sell the performance obligation on a stand-alone basis (which occurs in the majority of our transactions). In those situations, we determine the relative stand-alone selling price based on various observable inputs using all information that is reasonably available. Examples of observable inputs and information include: historical internal pricing data, cost plus margin analyses, third-party external pricing of similar or same products and services such as software licenses and maintenance support within the enterprise software industry. The results of our analysis resulted in a specific percentage of the transaction price being allocated to each performance obligation.
Determining the Estimated Offering Period. The offering period is the period in which we offer to provide the future update rights and/or online hosting for the game. Because the offering period is not an explicitly defined period, we must make an estimate of the offering period for the service-related performance obligations (i.e., future update rights and online hosting). Determining the Estimated Offering Period is inherently subjective and is subject to regular revision. Generally, we consider the specified contract period of our software licenses and therefore, the offering period is estimated to be over the term of the license. We recognize revenue for future update rights and online hosting performance obligations ratably on a straight-line basis over this period as there is a consistent pattern of delivery for these performance obligations.
| F-8 |
WEWARDS, INC.
NOTES TO THE FINANCIAL STATEMENTS
February 28, 2022
(Unaudited)
Stock-Based Compensation
The Company accounts for equity instruments issued to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718) and Equity-Based Payments to Non-employees pursuant to ASC 2018-07 (ASC 2018-07). All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty's performance is complete or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached because of sufficiently large disincentives for nonperformance.
Basic earnings per share (“EPS”) are computed by dividing net income (the numerator) by the weighted average number of common shares outstanding for the period (the denominator). Diluted EPS is computed by dividing net income by the weighted average number of common shares and potential common shares outstanding (if dilutive) during each period. Potential common shares include stock options, warrants and restricted stock. The number of potential common shares outstanding relating to stock options, warrants and restricted stock is computed using the treasury stock method. For the periods presented, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for significant deferred tax assets when it is more likely than not, that such asset will not be recovered through future operations.
Uncertain Tax Positions
In accordance with ASC 740, “Income Taxes” (“ASC 740”), the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
Various taxing authorities may periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures connected with various tax filing positions, including state and local taxes, the Company records allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
The assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with the Company’s various filing positions.
Recently Adopted Accounting Standards
In August 2020, the FASB issued ASU No. 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 convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if converted method. The new guidance is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2021, with early adoption permitted. The adoption of ASU 2020-06 is not expected to have a material impact on the Company’s financial statements or related disclosures.
No other new accounting pronouncements, issued or effective during the period ended February 28, 2022, have had or are expected to have a significant impact on the Company’s financial statements.
| F-9 |
WEWARDS, INC.
NOTES TO THE FINANCIAL STATEMENTS
February 28, 2022
(Unaudited)
NOTE 2 – RELATED PARTIES
Research and Development, Related Party
On January 4, 2021, the Company entered into a
Statement of Work with Sandbx Corp., a related party, pursuant to which Sandbx has been engaged to provide software development and
related services to further develop and improve Megopoly, the Company’s online MMO Game, at a rate of $
See also Notes 4, 5 and 6, below, for additional related party transactions.
NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS
Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.
The Company has certain financial instruments that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of February 28, 2022 and May 31, 2021, respectively:
| Fair Value Measurements
at February 28, 2022 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Total assets | ||||||||||||
| Liabilities | ||||||||||||
| Convertible notes payable, related party | ||||||||||||
| Total liabilities | ||||||||||||
| $ | $ | $ | ( | ) | ||||||||
| Fair Value Measurements
at May 31, 2021 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Total assets | ||||||||||||
| Liabilities | ||||||||||||
| Convertible notes payable, related party | ||||||||||||
| Total liabilities | ||||||||||||
| $ | $ | $ | ( | ) | ||||||||
There were no transfers of financial assets or liabilities between Level 1, Level 2 and Level 3 inputs for the period ended February 28, 2022 or the year ended May 31, 2021.
| F-10 |
WEWARDS, INC.
NOTES TO THE FINANCIAL STATEMENTS
February 28, 2022
(Unaudited)
NOTE 4 – INTANGIBLE ASSETS
On April 2, 2020, the Company purchased intellectual
property rights (“IP”) from United Power, a Nevada corporation under common ownership
with Lei Pei, the Company’s sole officer and director and majority shareholder, for cash consideration of $179,300, based on
a price determined by an independent valuation. The IP consists of technology and related rights
associated with the game Megopoly, an MMO (Massively Multiplayer Online Game). Because United Power is a related party, the acquisition
did not result in a stepped-up basis in the IP, and the full purchase price of $
NOTE 5 – CONVERTIBLE NOTES PAYABLE, RELATED PARTY
Convertible notes payable, related party consists of the following at February 28, 2022 and May 31, 2021, respectively:
| February 28, | May 31, | |||||||
| 2022 | 2021 | |||||||
| On February 26, 2017, Sky Rover Holdings, Ltd (“Sky Rover), which is owned any
controlled by Mr. Pei, agreed to loan up $ | $ | $ | ||||||
| On November 20, 2017, Sky Rover loaned an additional $ | ||||||||
| Total convertible notes payable, related party | ||||||||
| Less: current portion | ||||||||
| Convertible notes payable, related party, less current portion | $ | $ | ||||||
If Sky Rover converts the remaining $
The Company recognized $
| F-11 |
WEWARDS, INC.
NOTES TO THE FINANCIAL STATEMENTS
February 28, 2022
(Unaudited)
NOTE 6 – COMMITMENTS AND CONTINGENCIES - LEASE
On March
1, 2018, the Company began occupying its current corporate headquarters at 2960 West Sahara Avenue, Las Vegas, NV 89102, under a
five-year sublease with United Power, an affiliate of the Company by reason of common ownership with Lei Pei. The sublease provided
for base monthly rent of $
The components of lease expense were as follows:
| For the Nine | ||||
| Months Ended | ||||
| February 28, | ||||
| 2022 | ||||
| Operating lease cost: | ||||
| Amortization of assets | $ | |||
| Interest on lease liabilities | ||||
| Total operating lease cost | $ | |||
Supplemental balance sheet information related to leases was as follows:
| February 28, | ||||
| 2022 | ||||
| Operating lease: | ||||
| Operating lease assets | $ | |||
| Current portion of operating lease obligation | $ | |||
| Noncurrent operating lease obligation | ||||
| Total operating lease obligation | $ | |||
| Weighted average remaining lease term: | ||||
| Operating leases | ||||
| Weighted average discount rate: | ||||
| Operating lease | % | |||
Supplemental cash flow and other information related to operating leases was as follows:
| For the Nine | ||||
| Months Ended | ||||
| February 28, | ||||
| 2022 | ||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating cash flows used for operating leases | $ | |||
| F-12 |
WEWARDS, INC.
NOTES TO THE FINANCIAL STATEMENTS
February 28, 2022
(Unaudited)
Future minimum annual lease payments required under the operating lease and the present value of the net minimum lease payments are as follows at February 28, 2022:
| For the Fiscal Year | Minimum Lease | |||
| Ended May 31: | Commitments | |||
| 2022* | $ | |||
| 2023 | ||||
| Total payments | ||||
| Amount representing interest | ( |
) | ||
| Lease obligation, net | ||||
| Less current portion | ( |
) | ||
| Lease obligation – long term | $ | |||
———————
| * |
NOTE 7 – CHANGES IN STOCKHOLDERS’ EQUITY
Preferred Stock
The Company has authorized preferred stock of shares, par value $ per share. The voting powers, conversion features, if any, designations, preferences, limitations, restrictions and other rights of the preferred stock shall be prescribed by resolution of the Board of Directors at the time a specific series of preferred stock is designated. of the preferred shares have been issued as of the date of this Report.
Common Stock
The Company has authorized shares of $ par value Common Stock, and had shares issued and outstanding as of February 28, 2022.
NOTE 8 - INCOME TAX
The Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences.
For the nine months ended February 28, 2022 and
the year ended May 31, 2021, the Company incurred a net operating loss and, accordingly, no provision for income taxes has been
recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets. At
February 28, 2022, the Company had approximately $
Based on the available objective evidence, including the Company’s history of losses, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at both February 28, 2022 and May 31, 2021.
In accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
NOTE 9 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, management has performed an evaluation of subsequent events through the date that the financial statements were available to be issued and has determined that it does not have any material subsequent events to disclose in these financial statements.
| F-13 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended May 31, 2021 and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Form 10-Q.
The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the factors described in our Annual Report on Form 10-K for the year ended May 31, 2021 in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this quarterly report on Form 10-Q. The following should also be read in conjunction with the unaudited Financial Statements and notes thereto that appear elsewhere in this report.
Overview
Wewards, Inc. (“Wewards” or the “Company”) was incorporated in Nevada on September 10, 2013, as Betafox Corp. On January 8, 2018, we changed our name to Wewards, Inc.
We have developed and are the owner of a web-based platform accessible by mobile apps (the “Platform”) that will enable consumers to purchase goods from merchants and earn rebates payable in the form of Bitcoin. The Platform provides an innovative Bitcoin rewards ecosystem. It is designed to transform traditional concepts of commerce into a cooperative society where both merchants and consumers are collaborating, utilizing Bitcoin to reward consumers. The ecosystem will provide consumers with rewards each time they complete a challenge defined by a merchant. This is intended to make the ecommerce process beneficial to all market participants, and to help distribute commercial wealth among and between the merchants and consumers. We intend to generate revenue by licensing “white-label” versions of the Platform to third parties. However, to date, no such license agreement has been entered into, and we have not generated any revenues from the Platform.
On April 2, 2020, we purchased intellectual property rights (“IP”) from United Power, a Nevada corporation under common ownership with Lei Pei, our sole officer and director and majority shareholder, for cash consideration of $179,300, based on a price determined by an independent valuation.
The IP consists of technology and related rights associated with the game Megopoly, an MMO (Massively Multiplayer Online Game). Megopoly is an MMO board game where players are able to earn fractions of Bitcoins (satoshi) through buying, selling, and managing virtual real estate properties using in-game currency (Megopoly Coins). The game is similar in some respects to Monopoly.
The game allows players around the world to interact with each other online. Players travel (move) through different parts of a city, earning profit by investing in properties, charging rent, acquiring bonus assets, and selling their properties to other players for in-game currency. A player is able to progress to higher levels of “cities” at any time.
The player’s goal in Megopoly is to earn Megopoly Coins by investing in properties and collecting rent from other players. Players can keep playing the game using their Megopoly Coins for the opportunity to earn more coins, or they can exchange those coins for Bitcoins based on real-time market exchange rates.
Megopoly is playable at any time through a web browser on a PC, tablet or smart phone, in both Chinese and English. The game has been designed for players of all skill levels.
We began generating revenues in the fourth quarter of our fiscal year ended May 31, 2020 from licensing Megopoly and related IP to Sandbx Corp., a separate company owned by the Chief Operating Officer of United Power and FL Galaxy, related parties of the Company, as our Chief Executive Officer, Lei Pei, is also the Chief Executive Officer of United Power and FL Galaxy. Pursuant to our license agreement with Sandbx Corp., we received a $50,000 initial setup fee, and a monthly royalty payment in the amount of 10% of net revenues from the sale of in-game assets by the licensee, or $5,000, whichever was greater, resulting in total revenues of $83,454 and $4,166 under this license agreement during the years ended May 31, 2021 and 2020, respectively. The license agreement was terminated on May 16, 2021. The Company also entered into an agreement in January of 2021 with Sandbx Corp. to further develop the Megopoly game, whereby the Company has paid Sandbx Corp. monthly fees of approximately $168,500, resulting in $1,622,500 of related party software development costs for the nine months ending February 28, 2022.
| 14 |
Results of Operations for the Three Months Ended February 28, 2022 and 2021:
The following table summarizes selected items from the statement of operations for the three months ended February 28, 2022 and 2021.
| Three Months Ended | ||||||||||||
| February 28, | February 28, | Increase / | ||||||||||
| 2022 | 2021 | (Decrease) | ||||||||||
| Revenue, related party | $ | — | $ | 27,500 | $ | (27,500 | ) | |||||
| Operating expenses: | ||||||||||||
| General and administrative | 727 | 553 | 174 | |||||||||
| Software development, related party | 611,500 | 337,000 | 274,500 | |||||||||
| Rent expense | 45,000 | 45,000 | — | |||||||||
| Professional fees | 12,689 | 9,957 | 2,732 | |||||||||
| Total operating expenses: | 669,916 | 392,510 | 277,406 | |||||||||
| Operating loss | (669,916 | ) | (365,010 | ) | 304,906 | |||||||
| Total other income (expense) | (128,603 | ) | (124,380 | ) | 4,223 | |||||||
| Net loss | $ | (798,519 | ) | $ | (489,390 | ) | $ | 309,129 | ||||
Revenue, Related Party
We began to generate revenues from the licensing of our Megopoly game platform to a company owned by United Power’s Chief Operating Officer during the fourth fiscal quarter of 2020. However, the license agreement under which we generated these revenues was terminated on May 16, 2021. Accordingly, we are not currently engaged in revenue producing activities. Such revenues were $27,500 for the three months ended February 28, 2021.
General and Administrative Expenses
General and administrative expenses for the three months ended February 28, 2022 were $727, compared to $553 during the three months ended February 28, 2021, an increase of $174, or 31%. The expenses consisted primarily of office, travel, compliance and business development expenses. General and administrative expense decreased during the current period due to decreased office expenses.
Software Development, Related Party
Software development expenses for the three months ended February 28, 2022 were $611,500, compared to $337,000 during the three months ended February 28, 2021, an increase of $274,500. The software development costs relate to improvements in the Megopoly game performed by Sandbx.
Rent Expense
Rent expense was $45,000 during both the three months ended February 28, 2022 and February 28, 2021.
| 15 |
Professional Fees
Professional fees for the three months ended February 28, 2022 were $12,689, compared to $9,957 during the three months ended February 28, 2021, an increase of $2,732, or 27%. Professional fees increased primarily due to professional fees paid related to tax services during the current period.
Operating Loss
Our operating loss for the three months ended February 28, 2022 was $669,916, compared to $365,010 during the three months ended February 28, 2021, an increase of $304,906, or 84%. Our operating loss increased primarily due to $304,906 of software development fees incurred during the current period.
Other Income (Expense)
Other expense, on a net basis, for the three months ended February 28, 2022 was $128,603, compared to other expense, on a net basis, of $124,380 during the three months ended February 28, 2021, an increase of $4,223, or 3%. Other expense consisted of $129,452 of interest expense on related party loans, as offset by $849 of interest income for the three months ended February 28, 2022. Other expense consisted of $129,452 of interest expense on related party loans, as offset by $5,072 of interest income for the three months ended February 28, 2021. Other expense, on a net basis, increased primarily due to diminished interest income on cash balances.
Net Loss
Net loss for the three months ended February 28, 2022 was $798,519, compared to $489,390 during the three months ended February 28, 2021, an increase of $309,129, or 63%. The increased net loss was due primarily to $274,500 of increased software development fees incurred during the current period.
Results of Operations for the Nine Months Ended February 28, 2022 and 2021:
The following table summarizes selected items from the statement of operations for the nine months ended February 28, 2022 and 2021.
| Nine Months Ended | ||||||||||||
| February 28, | February 28, | Increase / | ||||||||||
| 2022 | 2021 | (Decrease) | ||||||||||
| Revenue, related party | $ | — | $ | 62,499 | $ | (62,499 | ) | |||||
| Operating expenses: | ||||||||||||
| General and administrative | 2,191 | 5,046 | (2,855 | ) | ||||||||
| Software development, related party | 1,622,500 | 337,000 | 1,285,500 | |||||||||
| Rent expense | 135,000 | 135,000 | — | |||||||||
| Professional fees | 49,057 | 74,341 | (25,284 | ) | ||||||||
| Total operating expenses: | 1,808,748 | 551,387 | 1,257,361 | |||||||||
| Operating loss | (1,808,748 | ) | (488,888 | ) | 1,319,860 | |||||||
| Total other income (expense) | (386,722 | ) | (373,413 | ) | 13,309 | |||||||
| Net loss | $ | (2,195,470 | ) | $ | (862,301 | ) | $ | 1,333,169 | ||||
Revenue, Related Party
We began to generate revenues from the licensing of our Megopoly game platform to a company owned by United Power’s Chief Operating Officer during the fourth fiscal quarter of 2020. However, the license agreement under which we generated these revenues was terminated on May 16, 2021. Accordingly, we are not currently engaged in revenue producing activities. Such revenues were $62,499 for the nine months ended February 28, 2021.
| 16 |
General and Administrative Expenses
General and administrative expenses for the nine months ended February 28, 2022 were $2,191, compared to $5,046 during the nine months ended February 28, 2021, a decrease of $2,855, or 57%. The expenses consisted primarily of office, travel, compliance and business development expenses. General and administrative expense decreased during the current period due to decreased office expenses.
Software Development, Related Party
Software development expenses for the nine months ended February 28, 2022 were $1,622,500, compared to $337,000 during the nine months ended February 28, 2021, an increase of $1,285,500. The $1,285,500 of increased software development costs relate to improvements in the Megopoly game performed by Sandbx.
Rent Expense
Rent expense was $135,000 during both the nine months ended February 28, 2022 and February 28, 2021.
Professional Fees
Professional fees for the nine months ended February 28, 2022 were $49,057, compared to $74,341 during the nine months ended February 28, 2021, a decrease of $25,284, or 34%. Professional fees decreased primarily due to cost savings related to transitioning to new compliance professionals during the current period.
Operating Loss
Our operating loss for the nine months ended February 28, 2022 was $1,808,748, compared to $488,888 during the nine months ended February 28, 2021, an increase of $1,319,860, or 270%. Our operating loss increased primarily due to $1,622,500 of software development fees incurred during the current period.
Other Income (Expense)
Other expense, on a net basis, for the nine months ended February 28, 2022 was 386,722, compared to other expense, on a net basis, of $373,413 during the nine months ended February 28, 2021, an increase of $13,309, or 4%. Other expense consisted of $392,671 of interest expense on related party loans, as offset by $5,949 of interest income for the nine months ended February 28, 2022. Other expense consisted of $392,671 of interest expense on related party loans, as offset by $19,258 of interest income for the nine months ended February 28, 2021. Other expense, on a net basis, increased primarily due to diminished interest income on cash balances.
Net Loss
Net loss for the nine months ended February 28, 2022 was $2,195,470, compared to $373,413 during the nine months ended February 28, 2021, an increase of $1,333,169, or 155%. The increased net loss was due primarily to $1,622,500 of software development fees incurred during the current period.
Liquidity and Capital Resources
The following is a summary of the Company’s cash flows used in operating, investing, and financing activities for the nine-month periods ended February 28, 2022 and 2021:
| February 28, | February 28, | |||||||
| 2022 | 2021 | |||||||
| Operating Activities | $ | (1,799,631 | ) | $ | (456,038 | ) | ||
| Investing Activities | — | — | ||||||
| Financing Activities | — | — | ||||||
| Net Decrease in Cash | $ | (1,799,631 | ) | $ | (456,038 | ) | ||
| 17 |
Cash Flows from Operating Activities
We have not generated positive cash flows from operating activities. During the nine months ended February 28, 2022, net cash flows used in operating activities was $1,799,631. For the same period ended February 28, 2021, net cash flows used in operating activities was $456,038. The increase in cash used in operating activities is primarily attributable to our increased net loss.
Cash Flows from Investing Activities
We did not engage in any investing activities during the nine months ended February 28, 2022 and February 28, 2021.
Cash Flows from Financing Activities
We did not engage in any financing activities during the nine months ended February 28, 2022 and February 28, 2021.
Satisfaction of our Cash Obligations for the Next 12 Months
As of February 28, 2022, our balance of cash on hand was $1,200,167. We believe we currently have sufficient funds to fund our operations at their current levels for the next twelve months. Since our CEO and majority shareholder, Mr. Pei, acquired control over the Company in May 2015, we have been wholly dependent upon Mr. Pei and his affiliated companies, to provide financing to us when needed, generally in the form of convertible loans. There can be no assurance that Mr. Pei will continue to make additional financing available to us if and when needed.
We will need additional funds to repay our related party debts should they not be converted to equity. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing (whether from our affiliates or third parties), the terms of such financing may contain undue restrictions on our operations and result in substantial dilution for our stockholders. We cannot guarantee that we will ever become profitable. Even if we achieve profitability, given the competitive and evolving nature of the industry in which we operate, we may not be able to sustain or increase profitability, and our failure to do so would adversely affect our business, including our ability to raise additional funds.
Material Commitments
As of the date of this Quarterly Report, we do not have any material commitments.
Purchase of Significant Equipment
We do not have any agreements at this time, to purchase any significant equipment during the next twelve months.
Off-Balance Sheet Arrangements
As of the date of this Quarterly Report, 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, capital expenditures or capital resources that are material to investors.
Critical Accounting Policies and Estimates
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 operations. Critical accounting policies are those that are most important to the presentation of our financial condition and results of operations and require management’s 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.
While our significant accounting policies are more fully described in notes to our consolidated financial statements appearing elsewhere in this Form 10-Q, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we used in the preparation of our financial statements.
| 18 |
Concentrations of Credit Risk
The Company maintains our cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 under current regulations. The Company had approximately $950,182 and $2,499,798 in excess of FDIC insured limits at February 28, 2022 and May 31, 2021, respectively. The Company has not experienced any losses in such accounts.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the licensing of our software by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. All revenues to date have been recognized from licensing Megopoly and related IP to Sandbx Corp., a separate company owned by the Chief Operating Officer of United Power and FL Galaxy, related parties of the Company, as our Chief Executive Officer, Lei Pei, is also the Chief Executive Officer of United Power and FL Galaxy.
We derive revenue principally from licensing our intellectual property, including our game, and related extra content and services that can be utilized by players of our game. Our product and service offerings include, but are not limited to, licensing to third parties (“software license”) to distribute and host our games and content (“Online-Hosted Service Games”).
We evaluate and recognize revenue by:
| · | identifying the contract(s) with the customer; |
| · | identifying the performance obligations in the contract; |
| · | determining the transaction price; |
| · | allocating the transaction price to performance obligations in the contract; and |
| · | recognizing revenue as each performance obligation is satisfied through the transfer of a promised good or service to a customer (i.e., “transfer of control”). |
Online-Hosted Service Games. Sales of our Online-Hosted Service Games are determined to have one distinct performance obligation: the online hosting. We recognize revenue from these arrangements as the service is provided through our licensing agreement(s).
Licensing Revenue
We utilize third-party licensees to distribute and host our games and content in accordance with license agreements, for which the licensees typically pay us a fixed minimum guarantee and/or sales-based royalties. These arrangements typically include multiple performance obligations, such as a time-based license of software and future update rights. We recognize as revenue a portion of the minimum guarantee when we transfer control of the license of software (generally upon commercial launch) and the remaining portion ratably over the contractual term in which we provide the licensee with future update rights. Any sales-based royalties are generally recognized as the related sales occur by the licensee.
Significant Judgments around Revenue Arrangements
Identifying performance obligations. Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct, (i.e., the customer can benefit from the goods or services either on its own or together with other resources that are readily available), and are distinct in the context of the contract (i.e., it is separately identifiable from other goods or services in the contract). To the extent a contract includes multiple promises, we must apply judgment to determine whether those promises are separate and distinct performance obligations. If these criteria are not met, the promises are accounted for as a combined performance obligation.
Determining the transaction price. The transaction price is determined based on the consideration that we will be entitled to receive in exchange for transferring our goods and services to the customer. Determining the transaction price often requires judgment, based on an assessment of contractual terms and business practices. It further includes review of variable consideration such as discounts, sales returns, price protection, and rebates, which is estimated at the time of the transaction. In addition, the transaction price does not include an estimate of the variable consideration related to sales-based royalties. Sales-based royalties are recognized as the sales occur.
| 19 |
Allocating the transaction price. Allocating the transaction price requires that we determine an estimate of the relative stand-alone selling price for each distinct performance obligation. Determining the relative stand-alone selling price is inherently subjective, especially in situations where we do not sell the performance obligation on a stand-alone basis (which occurs in the majority of our transactions). In those situations, we determine the relative stand-alone selling price based on various observable inputs using all information that is reasonably available. Examples of observable inputs and information include: historical internal pricing data, cost plus margin analyses, third-party external pricing of similar or same products and services such as software licenses and maintenance support within the enterprise software industry. The results of our analysis resulted in a specific percentage of the transaction price being allocated to each performance obligation.
Determining the Estimated Offering Period. The offering period is the period in which we offer to provide the future update rights and/or online hosting for the game. Because the offering period is not an explicitly defined period, we must make an estimate of the offering period for the service-related performance obligations (i.e., future update rights and online hosting). Determining the Estimated Offering Period is inherently subjective and is subject to regular revision. Generally, we consider the specified contract period of our software licenses and therefore, the offering period is estimated to be over the term of the license. We recognize revenue for future update rights and online hosting performance obligations ratably on a straight-line basis over this period as there is a consistent pattern of delivery for these performance obligations.
Software Development Costs
The Company expenses software development costs, including costs to develop software products or the software component of products to be sold, leased, or marketed to external users, before technological feasibility is reached. Technological feasibility is typically reached shortly before the release of such products. Software development costs also include costs to develop software to be used solely to meet internal needs and cloud-based applications used to deliver our services. The Company capitalizes development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed, and the software will be used to perform the function intended. Capitalization ends, and amortization begins when the product is available for general release to customers.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, who is one and the same, evaluated the effectiveness of our disclosure controls and procedures as of February 28, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of February 28, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described in Item 9A of our Annual Report on Form 10-K for the fiscal year ended May 31, 2021 under “Evaluation of Disclosure Controls and Procedures”.
Changes in Internal Control over Financial Reporting
There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or in other factors that occurred during the period of our evaluation or subsequent to the date we carried out our evaluation which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any system of controls and procedures will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
| 20 |
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any legal or administrative proceedings that we believe, individually or in the aggregate, would be likely to have a material adverse effect on our financial condition or results of operations.
ITEM 1A. RISK FACTORS
As a “smaller reporting company”, the Company is not required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following exhibits are included as part of this report by reference:
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| WEWARDS, INC. | ||||
| Date: April 12, 2022 | By: | /s/ Lei Pei | ||
| Lei Pei | ||||
| President, Chief Executive Officer and Chief Financial Officer | ||||
22