NOTES TO THE FINANCIAL STATEMENTS
August 31, 2020
(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 (6,000,000) shares of common stock of the Company (the “Shares”) owned by the Seller, constituting approximately 73.8% of the Company’s 8,130,000 issued and outstanding common shares at such time, for $340,000. In October 2015, the Purchaser sold the 6,000,000 Shares to Mr. Lei Pei, an affiliate of the Purchaser, in consideration of Mr. Pei’s agreement to serve as our director and CEO. On January 8, 2018, by consent of Lei Pei as the Company’s principal shareholder, the Company changed its name to Wewards, Inc. The Company’s corporate office is located in Las Vegas, Nevada.
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, 2020. 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 $3,506,853 and $3,768,042 in excess of FDIC insured limits at August 31, 2020 and May 31, 2020, respectively. The Company has not experienced any losses in such accounts.
Reclassifications
In the current period, the Company separately classified professional fees from general and administrative expenses in the Condensed Statement of Operations. For comparative purposes, amounts in the prior period have been reclassified to conform to the current period presentation. These reclassifications had no effect on previously reported results of operations.
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.
5
WEWARDS, INC.
NOTES TO THE FINANCIAL STATEMENTS
August 31, 2020
(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
Effective June 1, 2019, the Company adopted 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.
There was no impact on the Company’s financial statements from the adoption of ASC 606 for the three months ended August 31, 2020 or the year ended May 31, 2020.
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”).
6
WEWARDS, INC.
NOTES TO THE FINANCIAL STATEMENTS
August 31, 2020
(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.
7
WEWARDS, INC.
NOTES TO THE FINANCIAL STATEMENTS
August 31, 2020
(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 and Diluted Loss Per Share
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 February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize assets and liabilities for most leases. ASU 2016-02 is effective for public entity financial statements for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. ASU 2016-02 was further clarified and amended within ASU 2018-01, ASU 2018-10, ASU 2018-11 and ASU 2018-20 which included provisions that would provide us with the option to adopt the provisions of the new guidance using a modified retrospective transition approach, without adjusting the comparative periods presented. We adopted the new standard on May 31, 2019 and used the effective date as our date of initial application under the modified retrospective approach. We elected the short-term lease recognition exemption for all of our leases that qualify. This means, for those leases we will not recognize right-of-use (RoU) assets or lease liabilities. The implementation of this new standard did not have a material impact on our financial statements, other than the presentation of a right of use asset and an operating lease obligation liability on the balance sheet in an equal amount.
No other new accounting pronouncements, issued or effective during the period ended August 31, 2020, have had or are expected to have a significant impact on the Company’s financial statements.
8
WEWARDS, INC.
NOTES TO THE FINANCIAL STATEMENTS
August 31, 2020
(Unaudited)
NOTE 2 – RELATED PARTIES
Accounts Payable, Related Party
The Company owed United Power, Inc. (“United Power”) $15,006 for unpaid rent and utilities as of August 31, 2020 and May 31, 2020. As disclosed in Note 6, below, the Company subleases office space from United Power, an affiliate of the Company by reason of common ownership with Lei Pei, the Company’s sole officer and director and majority shareholder, at a base monthly rent of $15,000. The building is owned by Future Property Limited.
See also Notes 4 and 5, 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 August 31, 2020 and May 31, 2020, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at August 31, 2020
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,969,649
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total assets
|
|
|
3,969,649
|
|
|
|
—
|
|
|
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, related party
|
|
|
—
|
|
|
|
—
|
|
|
|
10,500,000
|
|
|
Total liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
10,500,000
|
|
|
|
|
$
|
3,969,649
|
|
|
$
|
—
|
|
|
$
|
(10,500,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at May 31, 2020
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,017,107
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total assets
|
|
|
4,017,107
|
|
|
|
—
|
|
|
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, related party
|
|
|
—
|
|
|
|
—
|
|
|
|
10,500,000
|
|
|
Total liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
10,500,000
|
|
|
|
|
$
|
4,017,107
|
|
|
$
|
—
|
|
|
$
|
(10,500,000
|
)
|
There were no transfers of financial assets or liabilities between Level 1, Level 2 and Level 3 inputs for the period ended August 31, 2020 or the year ended May 31, 2020.
9
WEWARDS, INC.
NOTES TO THE FINANCIAL STATEMENTS
August 31, 2020
(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 $179,300 was treated as an equity contribution during the year ended May 31, 2020.
NOTE 5 – CONVERTIBLE NOTES PAYABLE, RELATED PARTY
Convertible notes payable, related party consists of the following at August 31, 2020 and May 31, 2020, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
May 31,
|
|
|
|
|
2020
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
On February 26, 2017, Sky Rover Holdings, Ltd (“Sky Rover), which is owned and controlled by Mr. Pei, agreed to loan up $20,000,000 to the Company, of which $8,000,000 was loaned on February 28, 2017. Sky Rover was issued an unsecured, 5%, convertible promissory note which, as amended, is due on February 28, 2022, and is, in whole or in part, at the option of the holder, convertible into common shares at any time before the due date, at a conversion price of $0.08 per share (subject to adjustment in the event of stock splits, forward splits, recapitalizations, a merger, etc.). At the option of the Company, the interest may also be paid by issuing restricted shares of common stock, at the same conversion price per share. On June 26, 2018, the Company repaid $4,000,000 of principal of this loan. In addition, Sky Rover converted $1,500,000 of principal of this loan into common shares at the conversion price of $0.08 per share into a total of 18,750,000 shares. Sky Rover waived accrued and unpaid interest of $363,904, which was credited to additional paid in capital. As of August 31, 2020, there is $439,467 of accrued interest due on this loan.
|
|
$
|
2,500,000
|
|
|
$
|
2,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
On November 20, 2017, Sky Rover loaned an additional $8,000,000 to the Company. Sky Rover was issued an unsecured, 5%, convertible promissory note which, as amended, is due on November 20, 2022, and is, in whole or in part, at the option of the holder, convertible into common shares at any time before the due date, at a conversion price of $0.08 per share (subject to adjustment in the event of stock splits, forward splits, recapitalizations, a merger, etc.). At the option of the Company, the interest may also be paid by issuing restricted shares of common stock, at the same conversion price per share. As of August 31, 2020, there is $1,112,329 of accrued interest on this loan.
|
|
|
8,000,000
|
|
|
|
8,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total convertible notes payable, related party
|
|
|
10,500,000
|
|
|
|
10,500,000
|
|
|
Less: current portion
|
|
|
—
|
|
|
|
—
|
|
|
Convertible notes payable, related party, less current portion
|
|
$
|
10,500,000
|
|
|
$
|
10,500,000
|
|
If Sky Rover converts the remaining $10,500,000 in principal of the Convertible Notes at the present conversion price of $0.08 per share into 131,250,000 shares, those shares, plus the approximate 101,353,450 shares Mr. Pei currently owns, would give him beneficial ownership of 232,603,450 shares of the Company’s 238,733,450 then-issued and outstanding shares (assuming that no other shares are issued prior to conversion), which would approximate 97.4% of the then-outstanding shares.
10
WEWARDS, INC.
NOTES TO THE FINANCIAL STATEMENTS
August 31, 2020
(Unaudited)
The Company recognized interest expense for the three months ended August 31, 2020 and 2019, respectively, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
August 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Interest on due to related parties
|
|
$
|
—
|
|
|
$
|
2,398
|
|
|
Interest on convertible notes, related party
|
|
|
132,329
|
|
|
|
132,329
|
|
|
Total interest expense
|
|
$
|
132,329
|
|
|
$
|
134,727
|
|
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 provides for base monthly rent of $15,000, plus increases of up to 3% each year based on increases, if any, of the Consumer Price Index. The building is owned by Future Property Limited. Future Property Limited entered into a lease with United Power, and the Company then sublet the space from United Power. The Company is occupying the space for executive and administrative offices. Rent expense for the three months ended August 31, 2020 and 2019 was $45,000. The Company has accounted for the lease under ASC 842, as follows:
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
|
Months Ended
|
|
|
|
|
August 31,
|
|
|
|
|
2020
|
|
|
Operating lease cost:
|
|
|
|
|
|
Amortization of assets
|
|
$
|
36,381
|
|
|
Interest on lease liabilities
|
|
|
8,619
|
|
|
Total operating lease cost
|
|
$
|
45,000
|
|
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
|
2020
|
|
|
Operating lease:
|
|
|
|
|
|
Operating lease assets
|
|
$
|
406,633
|
|
|
|
|
|
|
|
|
Current portion of operating lease obligation
|
|
$
|
152,999
|
|
|
Noncurrent operating lease obligation
|
|
|
253,634
|
|
|
Total operating lease obligation
|
|
$
|
406,633
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term:
|
|
|
|
|
|
Operating leases
|
|
|
2.5 years
|
|
|
|
|
|
|
|
|
Weighted average discount rate:
|
|
|
|
|
|
Operating lease
|
|
|
8.00
|
%
|
Supplemental cash flow and other information related to operating leases was as follows:
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
|
Months Ended
|
|
|
|
|
August 31,
|
|
|
|
|
2020
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
Operating cash flows used for operating leases
|
|
$
|
45,000
|
|
11
WEWARDS, INC.
NOTES TO THE FINANCIAL STATEMENTS
August 31, 2020
(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 August 31, 2020:
|
|
|
|
|
|
For the Fiscal Year
|
|
Minimum Lease
|
|
|
Ended May 31:
|
|
Commitments
|
|
|
2021*
|
|
$
|
135,000
|
|
|
2022
|
|
|
180,000
|
|
|
2023
|
|
|
135,000
|
|
|
Total payments
|
|
$
|
450,000
|
|
|
Amount representing interest
|
|
$
|
(43,367
|
)
|
|
Lease obligation, net
|
|
|
406,633
|
|
|
Less current portion
|
|
|
(152,999
|
)
|
|
Lease obligation – long term
|
|
$
|
253,634
|
|
———————
* Liability pertains to the remaining nine-month period from September 1, 2020 through May 31, 2021.
NOTE 7 – CHANGES IN STOCKHOLDERS’ EQUITY
Preferred Stock
The Company has authorized preferred stock of 50,000,000 shares, par value $0.001 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. None of the preferred shares have been issued as of the date of this Report.
Common Stock
The Company has 500,000,000 authorized shares of $0.001 par value Common Stock, and had 107,483,450 shares issued and outstanding as of August 31, 2020.
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 three months ended August 31, 2020 and the year ended May 31, 2020, 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 August 31, 2020, the Company had approximately $5,858,000 of federal net operating losses. The net operating loss carry forwards, if not utilized, will begin to expire in 2034.
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 August 31, 2020 and May 31, 2020.
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
On September 1, 2020, the Company terminated its sublease agreement with United Power and entered into a new lease agreement with the owner of the building, Future Property Limited, under substantially the same terms as the sublease agreement. The new lease requires monthly lease payments of $15,000 for the following two and a half years.
12