PART
I
Item
1. Business
Corporate
History
The
Company was incorporated in Nevada on August 26, 2010, under the name “JA Energy,” as a subsidiary of Reshoot Production
Company, a Nevada corporation, incorporated October 31, 2007. In May, 2011, Reshoot Production Company spun off the Company to
its shareholders.
From
August 2010 to May 2014 the Company was in the business of designing a suite of modular, self-contained, fully automated, climate
controlled units for distributed production of energy. While some of these products were proven to be technologically viable,
none were ever developed to the point where they were ready for introduction to the marketplace.
In
October 2014, pursuant to the terms of an Irrevocable Asset and Liability Exchange Agreement, dated as of October 15, 2014, by
and among the Company, James Lusk, Mark DeStefano and T.J. Jesky, the Company transferred all of its assets and liabilities to
its wholly owned subsidiary, Peak Energy Holdings, a Nevada corporation (“Peak”) and Peak issued to the Company’s
shareholders, one share of Peak common stock for each share of common stock owned in the Company and one share of Peak preferred
stock for each share of preferred stock owned in the Company (the “Spin-Off”). Following the Spin-Off, Peak operated
as an independent entity separate from the Company with new management. The Spin-Off allowed the Company to explore new business
opportunities without the burden of the assets and liabilities on the corporate books.
In
September 2016, the Company established its headquarters in Hong Kong, and issued 30,000,000 shares of unregistered restricted
Class A Common Stock, 6,000,000 shares of unregistered restricted Class B Voting Common Stock, which carries a voting weight equal
to ten (10) Common Shares, and 40,000,000 shares of unregistered restricted Class C Common Stock to UBI Blockchain Internet, LTD
(“UBI Hong Kong”), in exchange for $200,000. UBI Hong Kong is beneficially owned and controlled by Tony Liu our CEO
and as a result of the transaction UBI Hong Kong and Tony Liu became controlling shareholders of the Company. Thereafter, the
Company’s business focus was dedicated to the application of the blockchain technology to safety issues arising out of counterfeit
and inferior substitute products and services in the Chinese health industry.
On
November 21, 2016, the Company changed its corporate name from JA Energy (“JA”) to UBI Blockchain Internet, LTD, and
changed its state of incorporation from the State of Nevada to the State of Delaware pursuant to a plan of conversion about which
the Company adopted a new certificate of incorporation under the laws of the State of Delaware after UBI acquired a controlling
equity in JA and this transaction was treated as a reverse merger for accounting purposes.
Acquisition
of UBI Shenzhen Cross Border E-commerce Co., formerly, Shenzhen Nova Cross-Border E-commerce, Ltd. (“UBI Shenzhen”)
On
May 16, 2017, the Board of Directors of the Company ratified and approved an Acquisition Agreement between the Company and UBI
Shenzhen. Under the terms of the Agreement, UBI acquired 100% ownership of UBI Shenzhen in exchange for the issuance to UBI Shenzhen’s
shareholders of 25,000,000 shares of UBI unregistered restricted Class C common stock. Upon completion of the acquisition, UBI
Shenzhen became a 100% owned subsidiary of UBI.
About
UBI Shenzhen
UBI
Shenzhen was formed as a private Shenzhen Chinese company on May 26, 2016, under the name Nova Cross-Border E-Commerce, and operates
an online store in China selling a wide range of products including maternal and infant products, cosmetics, wine, household goods,
digital and luxury products via its Oya Mall, a cross-border e-commerce platform. This website entered into operation in April,
2017.
In
April 2018, UBI Shenzhen changed its name from Shenzhen Nova Cross-Border E-commerce, Ltd. to UBI Shenzhen Cross Border E-commerce
Co. UBI Shenzhen is registered in Qianhai Free Trade Zone, China. The website changed its name from www.oyamall.com to www.hihealth8.com
in April 2018. On September 1, 2018, the website became operational as a marketplace for customers can buy products including,
food, non-prescription medicine, skin care products, etc.
UBI
Shenzhen’s operations include, but are not limited to:
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Researching
and developing business opportunities unique to a Chinese customer base
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Building
corporate infrastructure and administration
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Integration
of multiple technologies and programs
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Building
Business Relationships
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Human
resource staffing
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Training
personnel
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Equipment
procurement
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Building
the corporate website
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Developing
marketing strategies to capitalize on commercialization activities
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Establish
and maintain strategic collaborations with product suppliers
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Obtain
financing to implement the business activities
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Overview
UBI
Blockchain Internet is a company focused on research & development and application of blockchain technology, including the
combination of Internet of Things (“IoT”) and other high-tech technologies to health industry issues prevalent in
China.
UBI’s
business focus on blockchain technology is based on management’s persistent exploration and pursuit of solutions to prevent
and eliminate the health industry issues prevalent in China, i.e. the safety issues of products and services caused by counterfeits
and inferior substitutes resulting in harm to human lives. Entering the 21
st
century, with the rise of technology innovation
and progress, especially with the emergence of the blockchain technology, our management determined that an opportunity was available
to discover and apply blockchain based solutions to the problem of safety and counterfeits in health products and services.
UBI
has established a dedicated R&D team, developed in cooperation with the Hong Kong Polytechnic University (HKPU), and has obtained
approval from the Hong Kong government for the blockchain project, titled “Blockchain-Based Food and Drug Counterfeit Detection
and Regulatory System”, coded as “UIM/331”. Information related to this project is publicly available on Hong
Kong Special Administration Region (“HKSAR”)’s official website at http://itf.gov.hk/l-eng/Prj-eng/Prj_Search_Index.asp.
At the same time, UBI cooperates with blockchain experts and technical teams from Germany, India and other countries and regions,
committed to the development of blockchain and its application in health industry.
On
August 15-16, 2018, UBI together with other founders and sponsors, organized a Global Blockchain Cooperation Alliance Forum at
the Company’s Hong Kong Cyberport headquarters. More than 200 people who are blockchain experts, scholars, lawyers, financiers
and entrepreneurs, from universities, research institutes, and media from over 20 countries and regions attended the event. UBI
introduced and demonstrated the results of its blockchain development and application at the conference, and proposed the concept
“2018, the genesis of applied blockchain technology.”
UBI
is optimistic about blockchain technology because blockchain is an innovative form of combination of computer skills such as distributed
data storage, point-to-point transmission, consistent mechanisms, and encryption algorithms. Owing to its unique characteristics
such as being traceable and modification resistant, decentralized and open transparent. Blockchain technology can be used to effectively
address the safety and quality issues of products and services in the health industry. Monitored by the technology, the factitious
factors are eliminated. The integration of Internet of Things “IoT”, Virtual Reality “VR”, Augmented Reality
“AR”, Artificial Intelligence “AI”, and other technologies will greatly improve the application level
and effectiveness.
The
UBI blockchain system is based on the Ethereum framework and adopts the consortium blockchain (as defined below). This is the
first generation and the first product of UBI as well. In early September 2018, the product was introduced to the market for promotion.
UBI defines the consortium blockchain as follows: 1. Important product quality data must be stored in the blockchain to ensure
its traceability and resistance to modification; 2. Only authorized organizations or individual are allowed to enter product data
in the blockchain (characteristics of private chain); 3. Block Data in the blockchain is completely open and accessible to the
public (characteristics of public chain). 4. Smart contracts are widely used in application scenarios.
UBI
has developed a plan dedicated to the long-term development and application of blockchain technology to the Chinese health care
industry. The Company’s goal is to reshape the trust system and innovate the business model for the Chinese health care
industry by building the UBI blockchain based Global Health Chain system. This goal has three important parts: the first one is
Kang-Chain Network, which will be an internet-based blockchain network capable of worldwide coverage, which we believe will enable
connections through the internet between natural persons, medical institutions, and providers of health products and health services.
We may also describe it as a value oriented or trust internet, to differentiate it from the current information internet. A trust
system, service concept, and value orientation can be built for the safeguard of human lives and health quality from the perspective
of super technology and cutting-edge thinking. We believe this future model for health differentiates itself from the current
health practice in that it is built on trust and safeguard to provide a professional, targeted, flexible, easy to use, peer to
peer, group to group, and safe health world that is writable and readable. We believe that the Kang-Chain Network will connect
everyone, regardless the location in the world, to have all one’s needs of health satisfied. We believe that the Kang-Chain
Network has the potential to entirely change the health world as it is known to us today. The second part consists of the Kang-Kang-Chain
Cloud, which will fundamentally change people’s fear for and concerns about “clouds”. What is more important
is that it will protect data privacy with clustered blockchain technology, so as to truly realize the data safety, privacy, permit
based share, value, and socialization. Disconnected, and fragmented health data can be active and integrated with a humane premise,
hence making it possible a human shared wealth to serve the human health. Kang Chain Cloud establishes a convenient cloud storage,
a private safe, and information exchange of health data and information for individuals. The third part is Kang-Chain Community.
Exchange and transactions between people used to be simple. However, along with the emergence of residual value, the trust between
people started to disappear. People have worked hard to find a mechanism to get the lost trust back. People did not realize that
the mechanism they were looking for had deviated from their original intention until today. Peer to peer is forthright and simple.
This is exactly one of the essential characteristics of the blockchain technology, and the one that makes the disruption of reality
and return to the nature possible. UBI believes the peer to peer business model will replace the current ones, and will work as
a catalyst for the new communities and new business models. This also reflects the social progress and development, as well as
the new normal of the shared demand, shared value, shared interest, and mutual reliance. The satisfaction between supply and demand
featuring the exchange of peer to peer, group to group, and zero distance will naturally make the cost of exchange down to zero,
value and speed maximized, and trusted. The innovative Kang Chain Community will be the highlight of the UBI global public health
chain. Kang Chain Community is a commercial community formed out of an innovative model based on Kang Chain Network, and Kang
Chain Cloud. This is a voluntary consumer community of the new era built on mutual understanding and trusting with their common
needs and shared values.
Industry
Trends
Blockchain
techniques have shown considerable adaptability in recent years, as various market sectors have sought to find ways of incorporating
capabilities into their operations. Especially since 2014, the blockchain began to be applied in the industry and commerce, and
the blockchain application has entered a new era in 2018. Previously, the blockchain was mainly applied in the cryptocurrency,
which kind of replaced the blockchain to mainly serve the financial industry. However, as the governments of various countries
strengthen the supervision of virtual currency, the cryptocurrency circle will be restricted, and the blockchain will play an
increasingly important role in industrial applications. Blockchain technology will be widely applied in the future in the fields
of finance, medical health, games, copyright, sharing economy, social contact, cloud computing and other fields or industries.
It will subvert today’s thinking and social models in many ways.
Application
based on blockchain technology
Our
management plans to focus its blockchain business on the health industry in China, and give priority to food and pharmaceuticals
safety by providing effective technical systems, to prevent counterfeit foods and pharmaceuticals. With the development of blockchain
technology, we can trace the entire process of food or pharmaceuticals in an all-round way in the integration of technology clusters
such as IoT, VR, AR, AI, and robotics to provide manufacturers and consumers with the maximum symmetrical information exchange
throughout the whole manufacturing and logistics process.
We
are now in the early stages of blockchain technology, but we believe we have a good understanding of the framework design, the
transition between the health industry language and the IT language, and the combination between the blockchain & the IoT
and food & pharmaceutical technologies. We believe we are in a leading position and destined to have a bright future of blockchain
technology.
Healthcare
market
Our
management believes that with the improvement of people’s living standards and the growing health awareness, the era of
comprehensive health care has arrived. Following the article “Health China 2030” published by China government, we
came to further understanding that healthcare, genetic testing, cell storage, precise health management, personal health data
storage and analysis are increasingly recognized by humans and will become rigid demands. Traditional health care methods are
being subverted. In 2015, “Health in China” was upgraded to China’s national strategy; in 2016, China launched
the “Precision Medical Plan” with genetic testing technology as the main means; in 2016,“Health in China Outline
2030” plans to invest 60 billion yuan; in “The Development Plan for Emerging Industries of 2017”, genetic technology
is included in National Document No. 1. In the United States, more than 5 million people receive genetic testing every year, creating
a profit of 3 billion US dollars; Japan proposed the National Health Plan as early as in 1988 and nowadays the Japanese’s
average life expectancy has reached 84 years old. Everybody needs health management. It is estimated that the market scale of
China’s health industry will exceed 10 trillion yuan by 2020, according to China National Statistics Bureau.
Opportunities
Blockchain
and the IoT are technologies that affect the future and are important ways and means to ensure the safety of health products and
health services in the health market. UBI is the first company to enter this market. Being the first one of applying blockchain
technology in the health industry will help the company position and develop itself in this field. The access in this market is
of high criteria and cost. The ideas and beliefs of the UBI team make us optimistic about the future.
In
conclusion, we believe that the global health market has the potential to be huge, not only because it has tremendous market dividends
formed by resources that people continuously invest, but also because this market is related to human life and wellness, directly
affecting the quality of human life and happiness. Therefore, we will seize the emerging technology of blockchain and the market
opportunities at this particular stage, from the perspective of interests as well as the responsibility for human life and wellness,
striving for the safety of food and pharmaceuticals and the safety of health services.
Our
Strategy
UBI
will firmly and persistently dedicate itself in research, development, application and promotion of the blockchain technology
to the health industry in China. We believe that this disruptive technology will profoundly affect the next ten years or even
longer and will, in our opinion, benefit all humanity in the health industry. Our mission is to reshape the trust system and innovate
the business model with blockchain technology. We will promote the wide application of blockchain technology in the entity industry
and commerce, to explore further of the blockchain beyond its characteristics of value transfer.
Our
growth strategy depends to a large extent on our ability to bring the products and technical service to potential customers in
target markets. We plan to initially target the China market and gradually expand to Europe, the United States and the other countries
and regions.
In
order to achieve the company’s strategy, UBI has made a market development plan:
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By
the end of 2018, the Company will further improve the development and promotion of the consortium blockchain product.
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Starting
from 2019, the company will develop the “UBI Global Health Public Chain” with full efforts. Our strategic position
and product deployment consists of “Kang-Chain Net”, “Kang-Chain Cloud” and “Kang-Chain Community”
to create and provide comprehensive security services plan for human health. This plan is to be completed in three years.
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By
the end of 2021, it will be fully promoted and applied.
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Competitive
Advantages
1.
Excellent technical team
In
its early stage of development, UBI has been cooperating with Hong Kong Polytechnic University (HKPU) and received support from
the HKSAR. In this context, a joint effort in research and development participated by enterprises, universities and governments
was formed with a competitive advantage. At the same time, we work closely with international blockchain experts and technical
teams. We have brought together the advantages of technology and talent.
2.
Innovate blockchain application system and products through independent design and development.
The
initial design of our blockchain system has firmly grasped the food and drug safety issue, an industry pain point that are widely
concerned. The technicians and enterprise personnel cooperated to make analysis and design, optimize various frameworks and solutions
from the perspective of the industry chain and supply chain, and has created a unique blockchain traceability system for safety
purpose — consortium blockchain product. Meanwhile, we are deploying the UBI global health chain global system based on
UBI blockchain technology world widely, in order to create Kang-Chain product group.
3.
We have reliable resources in China’s health industry.
In
China, UBI’s management has rich experience and resources in the health industry, which can be used for scientific research
and development, raw material production bases and other industrial chains. The company’s management is also familiar with
the international pharmaceutical market and the food market.
4.
A good management team.
Our
management, technical team and consulting team are the leading talents and professionals in their fields. They pursue high quality
work. They are smart, responsible, charitable and gifted with vision and innovation spirit.
Target
Market
Our
current target market is China, where we believe food and pharmaceuticals safety has become a major challenge. Counterfeit food
and pharmaceuticals are very common in China, due to natural and man-made factors. Although the safety of food and pharmaceuticals
is closely linked to the vital wellness of hundreds of millions of people, we believe that the laws and regulations governing
food and pharmaceutical safety in China are not perfect or complete and may not be strictly enforced in many occasions. The occurrence
of poison capsule events, vaccine incident, ginkgo leaf, licorice tablets and other major drug dealing and counterfeiting cases,
have had serious affects on people’s physical and mental health.
Sources
of Income and Pricing
UBI
plans to develop a series of blockchain technology based products, such as private blockchain, consortium blockchain and public
blockchain which are developed based on different application scenarios and market demands, and as well as the technical system
platform. The company generates revenue and profits by providing services and effective products to potential target customers.
The price will be determined by the market supply and demand. After initial promotion and marketing, the company’s products
and services may have an impact on the existing healthcare industry. Looking ahead, emerging technologies will lead new trends
in the health care industry, law enforcement, privacy protection, food and pharmaceuticals safety. UBI will produce good profit
by providing specific blockchain solutions and systematic services.
Sales
and Marketing
In
the future, we will mainly market UBI blockchain system and products through online and offline store. Marketing will also be
promoted through cross-border e-commerce platforms. Conference marketing and professional channel marketing will be utilized.
Our products and designs also consider the overall needs of human beings and will be tailor-made for some clients. Currently,
we are paying attention to the development, formation and demands of China’s “One Belt, One Road” infrastructure
initiative.
UBI
management believe that UBI’s Global Health Public Blockchain will be our flagship product. On this public blockchain, we
not only provide services for health institutions, enterprises, hospitals, etc., but more importantly, our health public blockchain
network will connect various communities. In this case, peer-to-peer non-centralized marketing will be realized, which will make
marketing faster and lower in cost. Meanwhile, enterprises and consumers can establish a common value on consuming. It will also
enable individuals in the community to establish their own health data leger on the public chain, so they can effectively and
safely manage their own health data, and become the true manager of their own health. Health data can be used for individuals
to improve their own health, and can also be managed to create economic and social benefits through data analysis and appropriate
use based on consented and shared value built among community members.
Manufacturing
The
Company does not now engage in any manufacturing but may engage in manufacturing of products to be sold on the Company’s
website in the future.
Government
Regulation
We
are or may become subject to a variety of laws and regulations in the State of Delaware, where we are incorporated, the United
States and the People’s Republic of China (“PRC”) that involve matters central to our business, including laws
and regulations regarding privacy, data protection, data security, data retention, consumer protection, advertising, electronic
commerce, intellectual property, manufacturing, anti-bribery and anti-corruption, and economic or other trade prohibitions or
sanctions. These laws and regulations are continuously evolving and developing. The scope and interpretation of the laws that
are or may be applicable to us are often uncertain and may be conflicting, particularly with respect to foreign laws.
In
particular, there are numerous U.S. federal, state, and local laws and regulations and foreign laws and regulations regarding
privacy and the collection, sharing, use, processing, disclosure, and protection of personal information and other user data,
the scope of which is changing, subject to differing interpretations, and may be inconsistent among different jurisdictions. We
strive to comply with all applicable laws, policies, legal obligations, and industry codes of conduct relating to privacy, data
security, and data protection. However, given that the scope, interpretation, and application of these laws and regulations are
often uncertain and may be conflicting, it is possible that these obligations may be interpreted and applied in a manner that
is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived
failure to comply with our privacy or security policies or privacy-related legal obligations by us or third-party service-providers
or the failure or perceived failure by third-party apps, with which our users choose to share their data, to comply with their
privacy policies or privacy-related legal obligations as they relate to the data shared with them, or any compromise of security
that results in the unauthorized release or transfer of personally identifiable information or other user data, may result in
governmental enforcement actions, litigation, or negative publicity, and could have an adverse effect on our brand and operating
results.
We
plan to develop solutions to ensure that data transfers from the E.U. provide adequate protections to comply with the E.U. Data
Protection Directive. If we fail to develop such alternative data transfer solutions, one or more national data protection authorities
in the European Union could bring enforcement actions seeking to prohibit or suspend our data transfers to the U.S. and we could
also face additional legal liability, fines, negative publicity, and resulting loss of business.
Governments
are continuing to focus on privacy and data security and it is possible that new privacy or data security laws will be passed
or existing laws will be amended in a way that is material to our business. Any significant change to applicable laws, regulations,
or industry practices regarding our users’ data could require us to modify our services and features, possibly in a material
manner, and may limit our ability to develop new products, services, and features. Although we have made efforts to design our
policies, procedures, and systems to comply with the current requirements of applicable state, federal, and foreign laws, changes
to applicable laws and regulations in this area could subject us to additional regulation and oversight, any of which could significantly
increase our operating costs.
The
labeling, distribution, importation, marketing, and sale of our intended products are subject to extensive regulation by various
U.S. state and federal and foreign agencies, including the CPSC, Federal Trade Commission, Food and Drug Administration, or FDA,
Federal Communications Commission, and state attorneys general, as well as by various other federal, state, provincial, local,
and international regulatory authorities in the countries in which our intended products and services are distributed or sold.
If we fail to comply with any of these regulations, we could become subject to enforcement actions or the imposition of significant
monetary fines, other penalties, or claims, which could harm our operating results or our ability to conduct our business.
The
global nature of our business operations also create various domestic and foreign regulatory challenges and subject us to laws
and regulations such as the U.S. Foreign Corrupt Practices Act, or FCPA, the U.K. Bribery Act, and similar anti-bribery and anti-corruption
laws in other jurisdictions, and our intended products are also subject to U.S. export controls, including the U.S. Department
of Commerce’s Export Administration Regulations and various economic and trade sanctions regulations established by the
Treasury Department’s Office of Foreign Assets Controls. If we become liable under these laws or regulations, we may be
forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources
or to discontinue certain products or services, which would negatively affect our business, financial condition, and operating
results. In addition, the increased attention focused upon liability issues as a result of lawsuits, regulatory proceedings, and
legislative proposals could harm our brand or otherwise impact the growth of our business. Any costs incurred as a result of compliance
or other liabilities under these laws or regulations could harm our business and operating results.
PRC
Government Regulations
Because
our business and employees are located in the PRC, our business is also regulated by the national and local laws of the PRC. We
believe our conduct of business complies with existing PRC laws, rules and regulations.
General
Regulation of Businesses
We
believe we are in material compliance with all applicable labor and safety laws and regulations in the PRC, including the PRC
Labor Contract Law, the PRC Production Safety Law, the PRC Regulation for Insurance for Labor Injury, the PRC Unemployment Insurance
Law, the PRC Provisional Insurance Measures for Maternity of Employees, PRC Interim Provisions on Registration of Social Insurance,
PRC Interim Regulation on the Collection and Payment of Social Insurance Premiums and other related regulations, rules and provisions
issued by the relevant governmental authorities from time to time.
According
to the PRC Labor Contract Law, we are required to enter into labor contracts with our employees. We are required to pay no less
than local minimum wages to our employees. We are also required to provide employees with labor safety and sanitation conditions
meeting PRC government laws and regulations and carry out regular health examinations of our employees engaged in hazardous occupations.
Violations of the PRC Labor Contract Law and the PRC Labor Law may result in the imposition of fines and other administrative
and criminal liability in the case of serious violations. In addition, according to the PRC Social Insurance Law, employers like
our PRC subsidiaries in China must provide employees with welfare schemes covering pension insurance, unemployment insurance,
maternity insurance, work-related injury insurance, medical insurance, and housing funds.
Foreign
Currency Exchange
The
principal regulation governing foreign currency exchange in China is the Foreign Currency Administration Rules (1996), as amended
(2008). Under these Rules, RMB is freely convertible for current account items, such as trade and service-related foreign exchange
transactions, but not for capital account items, such as direct investment, loan or investment in securities outside China unless
the prior approval of, and/or registration with, the State Administration of Foreign Exchange of the People’s Republic of
China, or SAFE, or its local counterparts (as the case may be) is obtained.
Pursuant
to the Foreign Currency Administration Rules, foreign invested enterprises, or FIEs, in China may purchase foreign currency without
the approval of SAFE for trade and service-related foreign exchange transactions by providing commercial documents evidencing
these transactions. They may also retain foreign exchange (subject to a cap approved by SAFE) to satisfy foreign exchange liabilities
or to pay dividends. In addition, if a foreign company acquires a subsidiary in China, the acquired company will also become an
FIE. However, the relevant PRC government authorities may limit or eliminate the ability of FIEs to purchase and retain foreign
currencies in the future. In addition, foreign exchange transactions for direct investment, loan and investment in securities
outside China are still subject to limitations and require approvals from, and/or registration with, SAFE.
Employees
We
have 18 full-time employees and we engage the services 47 non-employee contractors. Within our workforce, 8 employees are engaged
in product and business development and 10 employees are engaged in finance, human resources, facilities, information technology
and general management and administration. We expect the number of full-time employees to rise to about 26 by the end of December
2018. We have no collective bargaining agreements with our employees and we have not experienced any work stoppages. We consider
our relationship with our employees to be good.
Item
1A. Risk Factors
.
As
a “smaller reporting company”, we are not required to provide the information required by this Item.
The
above statement notwithstanding, shareholders and prospective investors should be aware that certain risks exist with respect
to our company and our business, including those risk factors contained in our most recent Registration Statement on Form S-1,
as amended. If any of the following risks actually occur, our business, financial condition, results of operations and prospects
for growth would likely suffer. As a result, you could lose all or part of your investment.
WE
HAVE LIMITED HISTORICAL FINANCIAL INFORMATION UPON WHICH YOU MAY EVALUATE OUR PERFORMANCE.
We
have a limited operating history and we are subject to all risks inherent in a developing business enterprise. The Company has
no revenues and has yet to develop any products for sale.
Our
likelihood of success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently
encountered in connection with the development of blockchain technology with a focus on the Internet of things covering areas
of food, drugs and healthcare and the competitive environment in which we operate. You should consider, among other factors, our
prospects for success in light of the risks and uncertainties encountered by companies that, like us, are in their early stages
of research. We may not be able to successfully address these risks and uncertainties or successfully implement our operating
and acquisition strategies. If we fail to do so, it could materially harm our business to the point of having to cease operations
and could impair the value of our common stock to the point that the investors may lose their entire investment. Even if we accomplish
these objectives, we may not be able to generate positive cash flows or profits that we anticipate in the future.
Our
auditors have made reference to the substantial doubt as to our ability to continue as a going concern,
THERE
IS NO ASSURANCE THAT WE WILL BE ABLE TO CONTINUE AS A GOING CONCERN.
Our
financial statements included with this Annual Report for the year ended August 31, 2018, have been prepared assuming that we
will continue as a going concern. Our auditors have made reference to the substantial doubt as to our ability to continue as a
going concern in their audit report on our audited financial statements for the year ended August 31, 2018. Because the Company
has been issued an opinion by its auditors that substantial doubt exists as to whether the Company can continue as a going concern,
it may be more difficult for the Company to attract investors. Since our auditors have raised a substantial doubt about our ability
to continue as a going concern, this typically results in greater difficulty to obtain loans than businesses that do not have
a qualified auditors opinion. Additionally, any loans we might obtain may be on less advantageous terms. Our future is dependent
upon our ability to obtain financing and upon future profitable operations from our business. We plan to seek additional funds
from additional loans made to us by Tony Liu, our CEO or through private placements of our common stock. You may be investing
in a company that will not have the funds necessary to continue to deploy its business strategies. If we are not able to achieve
sufficient revenues or find financing to cover our expenses, then we likely will be forced to cease operations and investors will
likely lose their entire investment.
WE
MAY NOT BE ABLE TO ATTAIN PROFITABILITY WITHOUT ADDITIONAL FUNDING, WHICH MAY BE UNAVAILABLE TO US.
We
have prepared audited financial statements for the fiscal year ended August 31, 2018. For the period from inception (August 26,
2010) through the year end for August 31, 2018, we experienced an accumulated deficit of $9,447,792. Our ability to continue to
operate as a going concern is fully dependent upon the Company obtaining sufficient financing to continue its development and
operational activities. The ability to achieve profitable operations is in direct correlation to our ability to generate revenues
or raise sufficient financing. It is important to note that even if the appropriate financing is received, there is no guarantee
that we will ever be able to operate profitably or derive any significant revenues from its operation. If we run out of cash reserves,
we would be forced to cease operations.
No
assurance can be given that the Company will obtain access to capital markets in the future or that financing, adequate to satisfy
the cash requirements of implementing our business strategies, will be available on acceptable terms. The inability of the Company
to gain access to capital markets or obtain acceptable financing could have a material adverse effect upon the results of its
operations and upon its financial conditions.
BASED
ON OUR BURN RATE, IF we are unable to obtain additional funding our business will fail and our shares may be worthless.
We
have limited financial resources. As of August 31, 2018, we had cash of $23,434, inventory of $23,448, current portion of prepaid
stock-based salaries and consulting fees of $493,333, deposit and prepaid expenses of $18,093, office equipment valued at $9,359,
and intangible assets of $127,037 for total assets of $694,704. Our current burn rate is approximately $120,000 per month. Based
on our current burn rate, we will run out of funds immediately without additional capital. If we fail to raise sufficient funds
to keep our business operational, investors may lose their entire cash investment. There is no assurance that we can raise funding
or that we will have sufficient funds to repay any indebtedness, or that we will not default on our debt obligations, jeopardizing
our business viability. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if
at all. If we are unable to obtain additional financing, we will likely be required to curtail our business plans and possibly
cease our operations.
THE
NATURE OF OUR OPERATIONS ARE HIGHLY SPECULATIVE.
The
success of our plan of operation depends on our ability to develop and commercialize our blockchain based services and products
and other related technologies.” Our business model is not yet established in the industry and we will have to convince
our customers to use our products and services.
Management
believes that we will be successful in marketing our services, but there can be no assurance that we will be able to attract sufficient
consumers to achieve profitability or even generate anything but minimal revenues. If our intended products and services are not
accepted by consumers, we will fail.
COMPANY
RISK FACTORS
Article
IX of our Certificate of Incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum
for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a
favorable judicial forum for disputes with us or our directors, officers or other stockholders.
Article
IX of our Certificate of Incorporation provides that the Court of Chancery of the State of Delaware (or, if the Court of Chancery
does not have jurisdiction, another state or federal court located in the State of Delaware) shall be the exclusive forum for:
(1) any derivative action or proceeding brought on behalf of the corporation, (2) any action asserting a claim of breach of a
fiduciary duty owed by, or other wrongdoing by, any director, officer, employee, agent or stockholder of the corporation to the
corporation or the corporation’s stockholders, (3) any action asserting a claim arising pursuant to any provision of the
General Corporation Law or the corporation’s Certificate of Incorporation or Bylaws, (4) any action to interpret, apply,
enforce or determine the validity of the corporation’s Certificate of Incorporation or Bylaws or (5) any action asserting
a claim governed by the internal affairs doctrine, in each such case subject to said Court of Chancery having personal jurisdiction
over the indispensable parties named as defendants therein. This exclusive forum provision may limit a stockholder’s ability
to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other stockholders,
which may discourage such lawsuits against us and our directors, officers and other stockholders. Alternatively, if a court were
to find this provision in our Articles to be inapplicable or unenforceable in an action, we may incur additional costs associated
with resolving such action in other jurisdictions, which could adversely affect our business, financial condition and results
of operations.
BECAUSE
OUR OPERATIONS ARE CONCENTRATED IN CHINA OUR STOCKHOLDERS WOULD FACE DIFFICULTY IN ENFORCING THEIR LEGAL RIGHTS UNDER UNITED STATES
SECURITIES LAWS.
Our
operations are concentrated in China and our stockholders would face difficulty in enforcing their legal rights under United States
securities laws in light of our management’s location outside of the United States. Legal protections and remedies available
to the company for certain harmful action taken against it will be pursued within the People’s Republic of China legal system,
which differs from the U.S. legal system in significant ways. Because the company conducts operations outside of the U.S. it is
difficult to pursue legal matters is subject to limitations imposed by other jurisdictions. It is limited ability for U.S. regulators’
to conduct investigations and inspections within China. There may be restrictions on the transfer of cash into and out of China,
as well as on the exchange of currency, which may constrain the company’s liquidity and impede its ability to use cash in
its operations.
U.S.
investors may experience difficulties in attempting to effect a service of process and enforce judgments based upon U.S. Federal
Securities Laws against our company and its non U.S. resident officers and directors.
We
are a Delaware corporation and, as such, we are subject to the jurisdiction of the State of Delaware and the United States courts
for purposes of any lawsuit, action or proceeding by investors herein. An investor would have the ability to effect service of
process in any action on the company within the United States. However, since Mr. Tony Liu, our CEO, Chan Cheung, our CFO and
two of our three directors reside outside the United States substantially all or a portion of the assets are located outside the
United States. As a result, it may not be possible for investors to:
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service of process within the United States against our non-U.S. resident officers or directors;
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Enforce
U.S. court judgments based upon the civil liability provisions of the U.S. federal securities laws against any of the above
referenced foreign persons in the United States;
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Enforce
in foreign courts U.S. court judgments based on the civil liability provisions of the U.S. federal securities laws against
the above foreign persons; and
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Bring
an original action in foreign courts to enforce liabilities based upon the U.S. federal securities laws against the above
foreign persons.
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WE
MAY NOT BE ABLE TO COMPETE WITH OTHER COMPANIES, SOME OF WHOM HAVE GREATER RESOURCES AND EXPERIENCE.
We
do not have the resources to compete with larger providers of these similar services at this time. With the limited, if not minimal,
resources the Company has available, the Company may experience great difficulties in building a customer base. Competition from
existing and future competitors could result in the Company’s inability to secure any new customers. This competition from
other entities with greater resources and reputations may result in the Company’s failure to maintain or expand its business
as the Company may never be able to successfully execute its business plan. Further, we cannot be assured that it will be able
to compete successfully against present or future competitors or that the competitive pressure it may face will not force the
Company to cease operations.
We
may be unable to gain any significant market acceptance for our products and services or be unable establish a significant market
presence.
Our
growth strategy is substantially dependent upon our ability to market our intended products and services successfully to prospective
clients in the target markets, which shall initially be China, Europe and the United States. This requires that we heavily rely
upon our development and marketing partners in the target markets. Failure to select the right development and marketing partners
in the target markets and other target markets will significantly delay or prohibit our ability to develop our intended products
and services, market the products and gain market acceptance. Our intended products and services may not achieve significant market
acceptance. If acceptance is achieved, it may not be sustained for any significant period of time. Failure of our intended products
and services to achieve or sustain market acceptance could have a material adverse effect on our business, financial conditions
and the results of our operations.
If
potential users within the target markets do not widely adopt OUR BLOCKCHAIN TECHNOLOGY or UBI fails to achieve and sustain sufficient
market acceptance, we will not generate sufficient revenue, IF ANY, and our growth prospects, financial condition and results
of operations WILL BE MATERIALLY ADVERSELY AFFECTED.
UBI
may never gain significant acceptance in the marketplace and, therefore, may never generate substantial revenue or allow us to
achieve or maintain profitability. Widespread adoption of virtual and online training portals in the target markets depends on
many factors, including acceptance by users that such systems and methods or other options. Our ability to achieve commercial
market acceptance for UBI or any other future products also depends on the strength of our sales, marketing and distribution organizations.
We
may not be able to attract qualified professionals, academics, university professors and communication professionals from around
the world, which will decrease the value of technological innovation platform and may make it difficult to differentiate UBI from
other online services providers.
Our
strategy includes developing relationships with professionals, academics, university professors and communication professionals
from around the world. If we are unable to establish relationships with these professionals, academics, university professors
and communication professionals that UBI’s technological innovation platform is not effective or that alternative products
are more effective, or if we encounter difficulty promoting adoption or establishing UBI as a standard, our ability to achieve
market acceptance of UBI could be significantly limited.
We
may not be able to develop new products or enhance the capabilities of UBI to keep pace with our industry’s rapidly changing
technology and customer requirements.
The
industry for blockchain technology is characterized by rapid technological changes, new product introductions, enhancements, and
evolving industry standards. Our business prospects depend on our ability to develop new products and applications for our technology
in new markets that develop as a result of technological and scientific advances, while improving the performance and cost-effectiveness.
New technologies, techniques or products could emerge that might offer better combinations of price and performance than UBI systems.
The market for online or virtual healthcare market is characterized by rapid innovation and advancement in technology. It is important
that we anticipate changes in technology and market demand. If we do not successfully innovate and introduce new technology into
our anticipated product lines or effectively manage the transitions of our technology to new product offerings, our business,
financial condition and results of operations could be harmed.
Cyber
security risks could adversely affect our business and disrupt our operations.
The
threats to network and data security are increasingly diverse and sophisticated. Despite our efforts and processes to prevent
breaches, our devices, as well as our servers, computer systems, and those of third parties that we use in our operations are
vulnerable to cyber security risks, including cyber attacks such as viruses and worms, phishing attacks, denial-of-service attacks,
physical or electronic break-ins, employee theft or misuse, and similar disruptions from unauthorized tampering with our servers
and computer systems or those of third parties that we use in our operations, which could lead to interruptions, delays, loss
of critical data, and loss of consumer confidence.
In
addition, we may be the target of email scams that attempt to acquire sensitive information or company assets. Despite our efforts
to create security barriers to such threats, we may not be able to entirely mitigate these risks. Any cyber attack that attempts
to obtain our data and assets, disrupt our service, or otherwise access our systems, or those of third parties we use, if successful,
could adversely affect our business, operating results, and financial condition, be expensive to remedy, and damage our reputation.
Our
financial performance is subject to risks associated with changes in the value of the U.S. dollar versus local currencies.
Our
primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar denominated sales and operating expenses
worldwide. Weakening of foreign currencies relative to the U.S. dollar adversely affects the U.S. dollar value of our foreign
currency-denominated sales and earnings, and generally leads us to raise international pricing, potentially reducing demand for
our intended products and services. In some circumstances, for competitive or other reasons, we may decide not to raise local
prices to fully offset the strengthening of the U.S. dollar, or at all, which would adversely affect the U.S. dollar value of
our foreign currency denominated sales and earnings. Conversely, a strengthening of foreign currencies relative to the U.S. dollar,
while generally beneficial to our foreign currency-denominated sales and earnings, could cause us to reduce international pricing,
incur losses on our foreign currency derivative instruments, and incur increased operating expenses thereby limiting any benefit.
Additionally, strengthening of foreign currencies may also increase our cost of product components denominated in those currencies,
thus adversely affecting gross margins.
We
do not use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations
in foreign currency exchange rates.
We
may acquire other businesses, form joint ventures or make investments in other companies or technologies that could negatively
affect our operating results, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense.
We
may pursue acquisitions of businesses and assets. We also may pursue strategic alliances and joint ventures that leverage our
proprietary technology and industry experience to expand our offerings or distribution. We have no experience with acquiring other
companies and limited experience with forming strategic partnerships. We may not be able to find suitable partners or acquisition
candidates, and we may not be able to complete such transactions on favorable terms, if at all. If we make any acquisitions, we
may not be able to integrate these acquisitions successfully into our existing business, and we could assume unknown or contingent
liabilities.
Any
future acquisitions also could result in the incurrence of debt, contingent liabilities or future write-offs of intangible assets
or goodwill, any of which could have a negative impact on our cash flows, financial condition and results of operations. Integration
of an acquired company also may disrupt ongoing operations and require management resources that we would otherwise focus on developing
our existing business. We may experience losses related to investments in other companies, which could harm our financial condition
and results of operations. We may not realize the anticipated benefits of any acquisition, strategic alliance or joint venture.
Foreign
acquisitions involve unique risks in addition to those mentioned above, including those related to integration of operations across
different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific
countries.
To
finance any acquisitions or joint ventures, we may choose to issue shares of common stock as consideration, which could dilute
the ownership of our stockholders. Additional funds may not be available on terms that are favorable to us, or at all. If the
price of our Common Stock is low or volatile, we may not be able to acquire other companies or fund a joint venture project using
our stock as consideration
.
WE
MAY NOT BE ABLE TO HIRE AND RETAIN QUALIFIED EMPLOYEES.
In
order to implement our business plan, management recognizes that additional staff will be required. No assurances can be given
that we will be able to find qualified employees that can support our needs or that these employees can be hired on favorable
terms. We do not plan to hire any additional employees until our cash flows can justify the expense.
Risks
Related to Being a Public Company
IF
WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS OR
PREVENT FRAUD AND AS A RESULT, INVESTORS MAY BE MISLED AND LOSE CONFIDENCE IN OUR FINANCIAL REPORTING AND DISCLOSURES, AND THE
PRICE OF OUR COMMON STOCK MAY BE NEGATIVELY AFFECTED.
The
Sarbanes-Oxley Act of 2002 requires that we report annually on the effectiveness of our internal control over financial reporting.
A “significant deficiency” means a deficiency or a combination of deficiencies, in internal control over financial
reporting that is less severe than a material weakness yet important enough to merit attention by those responsible for oversight
of the Company’s financial reporting. A “material weakness” is a deficiency or a combination of deficiencies
in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the
annual or interim financial statements will not be prevented or detected on a timely basis.
As
of August 31, 2018, management assessed the effectiveness of our internal control over financial reporting based on the criteria
for effective internal control over financial reporting. The matters involving internal controls and procedures that our management
considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a
functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on
our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and
procedures; and (2) inadequate segregation of duties consistent with control objectives.
In
addition, in connection with our on-going assessment of the effectiveness of our internal control over financial reporting, we
may discover “material weaknesses” in our internal controls as defined in standards established by the Public Company
Accounting Oversight Board, or the PCAOB. A material weakness is a significant deficiency, or combination of significant deficiencies,
that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will
not be prevented or detected.
Failure
to provide effective internal controls may cause investors to lose confidence in our financial reporting and may negatively affect
the price of our common stock. Moreover, effective internal controls are necessary to produce accurate, reliable financial reports
and to prevent fraud. If we have deficiencies in our internal controls over financial reporting, these deficiencies may negatively
impact our business and operations.
IN
THE FUTURE, WE WILL INCUR INCREMENTAL COSTS AS A RESULT OF OPERATING AS A PUBLIC COMPANY.
We
will incur legal, accounting and other expenses as a fully-reporting public company. Moreover, the Sarbanes-Oxley Act of 2002
(the “Sarbanes-Oxley Act”), as well as new rules subsequently implemented by the SEC, have imposed various new requirements
on public companies, including requiring changes in corporate governance practices. Moreover, these rules and regulations will
increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We project that
the total incremental operating expenses of being a public company will be approximately $25,000 and $30,000 for our fiscal years
ending in 2019 and 2020, respectively. The incremental costs are estimates, and actual incremental expenses could be materially
different from these estimates. Unless we can generate sufficient revenues and profits, we may not be able to absorb the costs
of being a public company.
As
a result of operating as a public company, our management will be required to devote substantial time to new compliance initiatives.
We
have never operated as a public company. As a public company, we will incur significant legal, accounting and other expenses that
we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Act of 2010, and rules subsequently implemented
and yet to be implemented by the U. S. Securities and Exchange Commission have imposed and will impose various new requirements
on public companies. Our management and other personnel will need to devote a substantial amount of time to these new compliance
initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities
more time-consuming and costly. For example, we expect these new rules and regulations to make it more difficult and more expensive
for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same
or similar coverage.
In
addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting
and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal
control over financial reporting to allow management, as required by Section 404 of the Sarbanes-Oxley Act. Compliance will require
us to increase our general and administrative expense in order to pay added compliance personnel, outside legal counsel and consultants
to assist us in, among other things, external reporting, instituting and monitoring a more comprehensive compliance function and
board governance function, establishing and maintaining internal controls over financial reporting in accordance with Section
404 of the Sarbanes-Oxley Act, and preparing and distributing periodic public reports in compliance with our obligations under
the U.S. federal securities laws. We currently do not have an internal audit group, and we will evaluate the need to hire additional
accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we
are not able to comply with the requirements of Section 404 in a timely manner, the market price of our stock could decline.
Risks
Related to Administrative, Organizational and Commercial Operations and Growth
The
loss of our Chief Executive Officer or our inability to attract and retain highly skilled developers and other personnel could
negatively impact our business.
Our
success depends on the skills, experience and performance of Tony Liu, our Chief Executive Officer, and other key employees. The
individual and collective efforts of these employees will be important as we continue to develop and as we expand our commercial
activities. The loss or incapacity of existing members of our executive management team could negatively impact our operations
if we experience difficulties in hiring qualified successors. We do not have any employment agreements in place for our executive
officers; the existence of an employment agreement does not guarantee the retention of the executive officer for any period of
time.
Our
use of “open source” software could negatively affect our ability to sell our INTENDED products and subject us to
possible litigation.
A
portion of the technologies we use incorporates “open source” software. Such open source software is generally licensed
by its authors or other third parties under open source licenses. These licenses may subject us to certain unfavorable conditions,
including requirements that we offer our intended products and services that incorporate the open source software for no cost,
that we make publicly available source code for modifications or derivative works we create based upon, incorporating, or using
the open source software, or that we license such modifications or derivative works under the terms of the particular open source
license. Additionally, if a third-party software provider has incorporated open source software into software that we license
from such provider, we could be required to disclose or provide at no cost any of our source code that incorporates or is a modification
of such licensed software. If an author or other third party that distributes open source software that we use or license were
to allege that we had not complied with the conditions of the applicable license, we could be required to incur significant legal
expenses defending against such allegations and could be subject to significant damages and enjoined from the sale of our intended
products and services that contained the open source software. Any of the foregoing could disrupt the distribution and sale of
our intended products and services and harm our business.
Risks
Related to Intellectual Property
If
we are unable to protect the confidentiality of our trade secrets, our business and competitive position could be harmed.
We
plan to rely upon patents, trademarks, copyright and trade secret protection, as well as non-disclosure agreements and invention
assignment agreements with our employees, consultants and third parties, to protect our confidential and proprietary information.
Significant elements of our intended products and services are based on unpatented trade secrets and know-how that are not publicly
disclosed. In addition to contractual measures, we try to protect the confidential nature of our proprietary information using
physical and technological security measures. Such measures may not, for example, in the case of misappropriation of a trade secret
by an employee or third party with authorized access, provide adequate protection for our proprietary information. Our security
measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to a competitor,
and recourse we take against such misconduct may not provide an adequate remedy to protect our interests fully. Enforcing a claim
that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome
is unpredictable. In addition, trade secrets may be independently developed by others in a manner that could prevent legal recourse
by us. If any of our confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated,
or if any such information was independently developed by a competitor, our competitive position could be harmed.
We
may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us
from commercializing or increase the costs of commercializing our intended products and services.
Our
commercial success depends significantly on our ability to operate without infringing the patents and other intellectual property
rights of third parties. For example, there could be issued patents of which we are not aware that our products infringe. There
also could be patents that we believe we do not infringe, but that we may ultimately be found to infringe. Moreover, patent applications
are in some cases maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature
frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were
filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that
may later result in issued patents that our products infringe. For example, pending applications may exist that provide support
or can be amended to provide support for a claim that results in an issued patent that our product infringes.
Our
software is built upon open-sourced code and platforms. Nevertheless, there is a risk a third party may assert that we are employing
their proprietary technology without authorization. If a court held that any third-party patents are valid, enforceable and cover
our products or their use, the holders of any of these patents may be able to block our ability to commercialize our products
unless we obtained a license under the applicable patents, or until the patents expire. We may not be able to enter into licensing
arrangements or make other arrangements at a reasonable cost or on reasonable terms. Any inability to secure licenses or alternative
technology could result in delays in the introduction of our products or lead to prohibition of the manufacture or sale of products
by us.
Risks
Related to Ownership of Our Common Stock
The
price of our Common Stock may be volatile and may be influenced by numerous factors, some of which are beyond our control
.
Factors
that could cause volatility in the market price of our Common Stock include, but are not limited to:
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or anticipated fluctuations in our financial condition and operating results;
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actual
or anticipated changes in our growth rate relative to our competitors;
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commercial
success and market acceptance of UBI;
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success
of our competitors in discovering, developing or commercializing products;
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strategic
transactions undertaken by us;
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additions
or departures of key personnel;
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prevailing
economic conditions;
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disputes
concerning our intellectual property or other proprietary rights;
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sales
of our Common Stock by our officers, directors or significant stockholders;
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future
sales or issuances of equity or debt securities by us;
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business
disruptions caused by earthquakes, tornadoes or other natural disasters; and
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issuance
of new or changed securities analysts’ reports or recommendations regarding us.
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In
addition, the stock markets in general have experienced extreme volatility that has been often unrelated to the operating performance
of the issuer. These broad market fluctuations may negatively impact the price or liquidity of our Common Stock. In the past,
when the price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation
against the issuer. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending
the lawsuit and the attention of our management would be diverted from the operation of our business.
UBI
Blockchain Internet LTD, a hong Kong Company, AND TONY LIU control 99.1% OF THE TOTAL VOTING POWER OF OUR CAPITAL STOCK, allowING
them to control the Company.
As
of August 31, 2018, UBI Blockchain Internet Ltd., a Hong Kong company (“UBI Hong Kong”), beneficially owned by Tony
Liu, our CEO, and Tony Liu controlled approximately 99.1% of the total voting power of our outstanding capital stock. As a result,
UBI Blockchain Internet LTD and Tony Liu have the ability to control substantially all matters submitted to our stockholders for
approval including:
a)
election of our board of directors;
b)
removal of any of our directors;
c)
amendment of our Certificate of Incorporation or bylaws; and
d)
adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination
involving us.
In
addition, the future prospect of sales of significant amounts of shares held by UBI Hong Kong or Tony Liu could affect the market
price of our common stock if the marketplace does not orderly adjust to the increase in shares in the market and the value of
shareholder’s investments in the Company may decrease. UBI Hong Kong’s and Tony Liu’s stock ownership may discourage
a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our
stock price or prevent our stockholders from realizing a premium over our stock price
Our
Common Stock is or may become subject to the “penny stock” rules of the SEC and the trading market in the securities
is limited, which makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.
Rule
15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any
equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer
approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written
agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In
order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information
and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks
are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating
the risks of transactions in penny stocks.
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating
to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability
determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the
transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock”
rules. If our Common Stock is or becomes subject to the “penny stock” rules, it may be more difficult for investors
to dispose of our Common Stock and cause a decline in the market value of our Common Stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and
the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have
to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in
penny stocks.
BECAUSE
WE DO NOT INTEND TO PAY ANY CASH DIVIDENDS ON OUR COMMON STOCK, OUR STOCKHOLDERS WILL NOT BE ABLE TO RECEIVE A RETURN ON THEIR
SHARES UNLESS THEY SELL THEM.
We
intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any
cash dividends on our common stock in the foreseeable future. Unless we pay dividends, our stockholders will not be able to receive
a return on their shares unless they sell them. There is no assurance that stockholders will be able to sell shares when desired.
FUTURE
SALES OF SHARES BY EXISTING CONTROLLING STOCKHOLDERS COULD CAUSE OUR STOCK PRICE TO DECLINE, FURTHER, CERTAIN SHARES OF OUR COMMON
STOCK ARE RESTRICTED FROM IMMEDIATE RESALE.
If
our existing controlling stockholder sell, or indicate an intention to sell, substantial amounts of our common stock in the public
market, the trading price of our common stock could decline. As of August 31, 2018, we have 30,799,046 Class A Common Shares issued
and outstanding. If in the future, he decides to sell his shares or if it is perceived that they will be sold, to the extent permitted
by the Rules 144 and 701 under the Securities Act, the trading price of our common stock could decline.
We
have authorized and unissued shares OF Class A, B and C COMMON stock that may be issued in the future, which would dilute your
ownership in the Company.
Our
authorized capital stock currently consists of 2,000,000,000 shares of common stock, $0.001 par value per share. The Company’s
shares structure currently consists of 1,000,000,000 shares of Class A common stock, 500,000,000 shares of Class B common stock,
and 500,000,000 shares of Class C common stock. As of August 31, 2018 there are 30,799,046 shares of our Class A Common Stock
issued and outstanding; 6,000,000 shares of our Class B Common Stock issued and outstanding; and 73,550,000 shares of our Class
C Common Stock issued and outstanding. The Board of Directors has a great deal of discretion, in the future, to issue more shares
in each Class, without shareholder approval. The issuance of more shares of any Class would dilute your ownership in the Company,
which would mean your percent of ownership in the Company would decrease.
HOLDERS
OF OUR COMMON STOCK HAVE A RISK OF POTENTIAL DILUTION IF WE ISSUE ADDITIONAL SHARES OF COMMON STOCK IN THE FUTURE.
Although
our Board of Directors intends to utilize its reasonable business judgment to fulfill its fiduciary obligations to our then existing
stockholders in connection with any future issuance of our common stock, the future issuance of additional shares of our common
stock would cause immediate, and potentially substantial, dilution to the net tangible book value of those shares of common stock
that are issued and outstanding immediately prior to such transaction. Any future decrease in the net tangible book value of our
issued and outstanding shares could have a material effect on the market value of the shares.
Item
1B. Unresolved Staff Comments.
Not
applicable.
Item
2. Properties
.
The
Company owns no real property. Our administrative offices are located at: SmartSpace 3F, Level 9, Unit 908, 100 Cyberport Rd.,
Hong Kong, People’s Republic of China., telephone: (212) 372-8836. The Company has been using this Hong Kong office space
provided by UBI Blockchain Internet, LTD. (a Hong Kong Company) at the Hong Kong Company’s cost. UBI Hong Kong owns 30,000,000
shares of the Company’s Class A common stock, Tony Liu, beneficial owner of the Hong Kong Company owns 6,000,000 shares
of the Company’s Class B common stock; and 40,000,000 shares of the Company’s C common stock.
Item
3. Legal Proceedings
.
We
are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against
us, which may materially affect us.
Item
4. Mine Safety Disclosures
.
Not
Applicable
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED AUGUST 31, 2018 AND 2017
NOTE
1 – ABOUT THE COMPANY
Organization
and Capitalization of the Company
The
Company was organized August 26, 2010 (Date of Inception) under the laws of the State of Nevada, as JA Energy. The Company was
incorporated as a subsidiary of Reshoot Production Company, a Nevada corporation. Reshoot Production Company was incorporated
October 31, 2007. In November 2014, Reshoot dividended its shares of JA Energy to the then stockholders of Reshoot. On November
21, 2016, the Company reincorporated in Delaware under the name UBI Blockchain Internet Ltd.
On
September 15, 2016, the Company, with the approval of the Board of Directors agreed to issue 30,000,000 shares of unregistered
restricted Class A Common Stock, 6,000,000 shares of unregistered restricted Class B Voting Common Stock, which carries a voting
weight equal to ten (10) Common Shares, and 40,000,000 shares of unregistered restricted Class C Common Stock to UBI Blockchain
Internet, LTD (“UBI Hong Kong”), a Hong Kong company, or assigns in exchange for $200,000. On September 26, 2016,
pursuant to NRS 78.1955, the Board of Directors approved the filing of a Certificate of Designation with the Nevada Secretary
of State to designate Class A, B and C common shares, par value $0.001. Concurrently with the filing of this Certificate of Designation,
all Common Stock issued and outstanding became Class A Common Stock. Class B Common Stock carries a voting weight equal to ten
(10) Common Shares. The Class B shares can be converted into fully paid and non-assessable Common Shares, on a one-to-one basis,
at the option of the holder at any time upon written notice to the Company and its authorized transfer agent. Class C Common Stock
has no voting or conversion rights.
On
October 7, 2016, the 30,000,000 Class A shares and 6,000,000 Class B shares were issued.
On
November 21, 2016, the Company reincorporated in Delaware under the name UBI Blockchain Internet Ltd. and increased the number
of authorized shares from 75,000,000 to 200,000,000 shares consisting of 130,000,000 authorized shares of Class A Common Stock,
6,000,000 authorized shares of Class B Common Stock and 64,000,000 authorized shares of Class C Common Stock. On March 1, 2017,
the 40,000,000 shares of Class C common stock were issued. All of the preceding shares were issued in reliance on the exemption
under Section 4(2) of the Securities Act of 1933, as amended (the “Act”) and were issued under Regulation S to one
(1) foreign entity who attested it is an accredited investor who is not a citizen or a resident of the USA.
On
January 3, 2017, the Company appointed four new directors, accepted the resignations of its two former directors and appointed
Tony Liu (who controls UBI Hong Kong) as Chief Executive Officer of the Company.
Commencing
in the three months ended February 28, 2017, the Company started research activities in Hong Kong relating to “blockchain”
technology planned to be provided for future customers.
On
March 1, 2017, the Company issued 40,000,000 shares of Class C common stock to our chief executive officer Tony Liu pursuant to
the September 15, 2016 agreement (see above).
On
April 3, 2017, the Company issued a total of 8,400,000 shares of Class C common stock to a total of 45 contractor employees and
nonemployees (see Note 7).
On
May 1, 2017, the Company issued 500,000 restricted shares of Class A common stock to an independent consultant for consulting
services to be performed for the Company (see Note 7).
On
May 24, 2017, the Company increased the number of authorized common shares from 200,000,000 shares to 2,000,000,000 shares (1,000,000,000
shares of Class A common stock, 500,000,000 shares of Class B common stock, and 500,000,000 shares of Class C common stock).
On
August 29, 2017, upon the approval of the acquisition by the related PRC authorities, the Company issued a total of 25,000,000
shares of Class C common stock to shareholders of Shenzhen Nova E-commerce, Ltd. (“Nova”) in exchange for control
of the business of Nova (see Notes 4 and 7). On April 7, 2018, Nova changed its name to UBI Shenzhen Cross Border E- Commerce
Co., Ltd. (“UBI Shenzhen”).
Current
Company Operations
UBI
Blockchain Internet Ltd. (“UBI Delaware”) was reincorporated in Delaware on November 21, 2016 for the purpose of entering
into the blockchain technology business. UBI Blockchain Internet, Ltd (“UBI Hong Kong”) was organized in the Hong
Kong Special Administrative Region (the “HKSAR”) in September 2016 to facilitate local financing participations. UBI
Delaware opened a bank account at Abacus Federal Savings Bank in New York City. This bank account is funded by Tony Liu and is
used to pay Company invoices from the U.S. UBI Hong Kong has a bank account at China Citic Bank International in Hong Kong, which
is also funded by Tony Liu; this account makes disbursements relating to UBI Delaware operations in Hong Kong (such as payroll,
rent, and other office expenses). UBI Hong Kong is owned and controlled by Tony Liu, CEO of UBI Delaware. UBI Hong Kong owns 30,000,000
(97%) of the 30,799,046 issued and outstanding shares of UBI Delaware Class A common stock at August 31, 2018. UBI Hong Kong has
no other assets and no business operations of its own.
In
December 2016, UBI Delaware engaged the services of 8 full time employees to principally work in its blockchain technology business.
In January 2018, UBI Hong Kong executed an agreement with the HKSAR and The Hong Kong Polytechnic University to complete a project
related to blockchain technology (see Note 12). Through August 31, 2018, UBI Delaware, UBI Hong Kong, and UBI Shenzhen did not
receive or earn any revenues in its blockchain technology business.
NOTE
2 - GOING CONCERN
The
accompanying financial statements have been prepared in accordance with generally accepted accounting principles applicable to
a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal
course of business. At August 31, 2018, the Company had cash of $23,434 and current liabilities of $2,075,004. For the year ended
August 31, 2018, the Company incurred a net loss of $3,104,366. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern.
The
Company’s ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements
and its ability to achieve and maintain profitable operations. Management plans to raise equity capital to finance the operating
and capital requirements of the Company. As described above, there was a change in control of the Company in October 2016.
The
accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded
asset amounts or amounts and classification of liabilities that might result from the outcome of this uncertainty.
NOTE
3 - SIGNIFICANT ACCOUNTING POLICIES
Basis
of Accounting
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission (“SEC”).
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of UBI Blockchain Internet Ltd. and its wholly owned subsidiary
UBI Shenzhen Cross Border E-Commerce Co., Ltd, (“UBI Shenzhen”), formerly Shenzhen Nova E-commerce, Ltd. (“Nova”)
from the date of acquisition of Nova on August 29, 2017 (see Note 4). All intercompany balances and transactions have been eliminated
in consolidation.
Earnings
per Share
The
basic earnings (loss) per share of Class A, Class B and Class C common stock is calculated by dividing the Company’s net
income (loss) available to Class A, Class B and Class C common shareholders by the weighted average number of Class A, Class B
and Class C common shares issued and outstanding during the period. The diluted earnings (loss) per share of Class A, Class B
and Class C common stock is calculated by dividing the Company’s net income (loss) available to Class A, Class B and Class
C common shareholders by the diluted weighted average number of Class A, Class B and Class C shares outstanding during the period.
The diluted weighted average number of Class A, Class B and Class C shares outstanding is the basic weighted average number of
Class A, Class B, and Class C shares adjusted as of the first day of the period for any potentially dilutive debt or equity (none
for the periods presented).
Cash
and Cash Equivalents
The
Company considers all short-term investments with a maturity of three months or less at the date of purchase to be cash and cash
equivalents.
Of
the $23,434 cash at August 31, 2018, $23,270 was held in foreign bank accounts not insured by FDIC.
Use
of Estimates
In
preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from
those estimates.
Inventory
Inventory,
consisting of finished goods purchased from third parties, are stated at the lower of cost (first-in, first-out method) or market.
Property
and Equipment
Property
and equipment is stated at cost less accumulated depreciation. Depreciation is calculated on the straight-line basis over the
estimated useful lives of the respective assets. Expenditures for repairs and maintenance are expensed as incurred.
Intangible
Assets
Intangible
assets, including website development costs, software acquired to be marketed, and office software, are carried at cost less accumulated
amortization. Intangible assets are amortized using the straight-line method over the estimated economic lives of the respective
assets (5 years for website development costs and 5 years for the software acquired to be marketed and the office software).
Software
development costs include payments made to independent software developers under development agreements, as well as direct costs
incurred for internally developed products. Software development costs are capitalized once technological feasibility of a product
is established and such costs are determined to be recoverable. Technological feasibility of a product requires both technical
design documentation and game design documentation, or the completed and tested product design and a working model. Significant
management judgments and estimates are utilized in the assessment of when technological feasibility is established and the evaluation
is performed on a product-by-product basis. For products where proven technology exists, this may occur early in the development
cycle. Software development costs related to hosted service revenue arrangements are capitalized after the preliminary project
phase is complete and it is probable that the project will be completed and the software will be used to perform the function
intended. Prior to a product’s release, if and when we believe capitalized costs are not recoverable, we expense the amounts.
Capitalized costs for products that are canceled or are expected to be abandoned are expensed in the period of cancellation. Amounts
related to software development which are not capitalized are charged immediately to “Research and development”.
Foreign
Currency Translation
The
reporting currency and functional currency of the Company is the United States Dollar.
The
functional currency of UBI Shenzhen is the Chinese Renminbi (“RMB”). Assets and liabilities of UBI Shenzhen are translated
into United States dollars at period-end exchange rates ($1.00 = 6.8375 RMB at August 31, 2018 and $1.00 = 6.5876 RMB at August
31, 2017). UBI Shenzhen revenues and expenses are translated into United States dollars at weighted average exchange rates ($1.00
= 6.5202 RMB for the year ended August 31, 2018 and $1.00 = 6.5920 RMB for the year ended August 31, 2017). Resulting translation
adjustments are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity.
Transactions
denominated in currencies other than the functional currency (principally the Hong Kong Dollar) are translated at the exchange
rates prevailing at the dates of the transactions. Exchange gains and losses, which were not significant for the years ended August
31, 2018 and 2017 were reflected in income.
Income
Taxes
The
provision for income taxes is the total of the current taxes payable and the net of the change in the deferred income taxes. Provision
is made for the deferred income taxes where differences exist between the period in which transactions affect current taxable
income and the period in which they enter into the determination of net income in the financial statements.
Revenue
recognition
The
Company recognizes revenue from services and product sales once all the following criteria for revenue recognition have been met:
pervasive evidence that an agreement exists; the services or products have been delivered; the fee is fixed and determinable and
not subject to refund or adjustment; and collection of the amount due is reasonably assured. For the periods presented, the Company
had no revenues.
Stock-Based
Compensation
The
Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, “Compensation
- Stock Compensation,” which requires all share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values. The Company does not have an employee stock option plan.
The
Company follows ASC topic 505-50, formerly EITF 96-18, “
Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling Goods and Services
,” for stock issued to consultants and other
non-employees. In accordance with ASC Topic 505-50, the stock issued as compensation for services provided to the Company are
accounted for based upon the fair value of the services provided or the estimated fair market value of the stock, whichever can
be more clearly determined. The fair value of the equity instrument is charged directly to expense over the period during which
services are rendered.
Year
end
The
Company’s fiscal year-end is August 31.
Related
Parties
Related
parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries,
control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the
Company, its management, members of the immediate families of principal owners of the Company and its management and other parties
with which the Company may deal with if one party controls or can significantly influence the management or operating policies
of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
The Company discloses all related party transactions.
Recent
Accounting Pronouncements
In
May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which outlines a single
comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes and replaces nearly
all existing GAAP revenue recognition guidance, including industry-specific guidance. The authoritative guidance provides a five-step
analysis of transactions to determine when and how revenue is recognized. The five steps are: (i) identify the contract with the
customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the
transaction price to the performance obligations; and (v) recognize revenue when or as each performance obligation is satisfied.
The authoritative guidance applies to all contracts with customers except those that are within the scope of other topics in the
FASB ASC. The authoritative guidance requires significantly expanded disclosures about revenue recognition and was initially effective
for fiscal years and the interim periods within these fiscal years beginning on or after December 15, 2016. In August 2015, the
FASB issued ASU 2015-14 “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.” This
standard defers for one year the effective date of ASU 2014-09. The deferral will result in this standard being effective for
fiscal years and interim periods within those fiscal years beginning after December 15, 2017. Earlier application is permitted
only as of annual reporting periods beginning after December 15, 2016 including interim reporting periods within that reporting
period. We are presently studying the impact of ASU 2014-09 on our future financial statements.
Certain
other accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective
and therefore have not yet been adopted by the Company. The impact on the Company’s financial position and results of operations
from adoption of these standards is not expected to be material.
NOTE
4 – ACQUISITION OF UBI SHENZHEN CROSS BORDER E-COMMERCE CO., LTD (FORMERLY SHENZHEN NOVA E-COMMERCE, LTD.)
On
August 29, 2017, pursuant to an Acquisition Agreement dated May 16, 2017, the Company acquired 100% ownership of UBI Shenzhen
Cross Border E-Commerce Co., Ltd. (“UBI Shenzhen”), formerly Shenzhen Nova E-commerce, Ltd. (“Nova”),
in exchange for 25,000,000 shares of Company Class C common stock. UBI Shenzhen is a Shenzhen Chinese corporation which was incorporated
on May 26, 2016. UBI Shenzhen plans on operating an online store in China selling a wide range of products.
The
acquisition has been accounted for as a recapitalization transaction in the accompanying consolidated financial statements. Accordingly,
the financial position and results of operations of UBI Shenzhen prior to the August 29, 2017 date of acquisition have been excluded
from the accompanying consolidated financial statements.
The
carrying values of the assets and liabilities of UBI Shenzhen at the August 29, 2017 date of acquisition consisted of:
Cash
|
|
$
|
-
|
|
Office equipment, net
|
|
|
13,628
|
|
Website development costs
|
|
|
92,035
|
|
Total assets
|
|
|
105,663
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
24,651
|
|
Due to related party
|
|
|
135,865
|
|
Total liabilities
|
|
|
160,516
|
|
|
|
|
|
|
Excess of liabilities over assets
|
|
$
|
54,853
|
|
The
following proforma information (unaudited) summarizes the results of operations for the year ended August 31, 2017 as if UBI Shenzhen
was acquired on May 26, 2016 (UBI Shenzhen’s date of inception). The pro forma information is not necessarily indicative
of the results that would have been reported had the transaction actually occurred on May 26, 2016, not is it intended to project
results of operations for any future period.
|
|
Year Ended August 31, 2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
Employee compensation (including stock - based compensation of $120,833)
|
|
|
563,725
|
|
Consulting fees (including stock - based compensation of $1,173,334)
|
|
|
1,198,334
|
|
Professional fees
|
|
|
98,667
|
|
Occupancy
|
|
|
85,188
|
|
Other
|
|
|
254,255
|
|
Total operating expenses
|
|
|
2,200,169
|
|
Loss from Operations
|
|
|
(2,200,169
|
)
|
Other Income (expenses):
|
|
|
|
|
Gain on settlement of accounts payable and accrued liabilities
|
|
|
47,575
|
|
Interest expense - related party
|
|
|
(10,409
|
)
|
Net Loss
|
|
$
|
(2,163,003
|
)
|
Net Loss per share of Class A, Class B, and Class C common stock - basic and diluted
|
|
$
|
(0.02
|
)
|
Weighted average number of Class A, Class B, and Class C Common Shares outstanding - basic and diluted
|
|
|
101,712,936
|
|
NOTE
5 – PREPAID STOCK BASED SALARIES AND CONSULTING FEES
Prepaid
stock-based salaries and consulting fees at August 31, 2018 and 2017 consist of:
|
|
Fair value of stock issuance (Note 6)
|
|
|
Prepaid balance at August 31, 2018
|
|
|
Prepaid balance at August 31, 2017
|
|
1,450,000 shares of Class C common stock issued to 7 employees on April 3, 2017 pursuant to service agreements between UBI Delaware and the respective employees with a service term of one year expiring December 31, 2017
|
|
$
|
290,000
|
|
|
$
|
-
|
|
|
$
|
96,667
|
|
6,950,000 shares of Class C common stock issued to 38 consultants on April 3, 2017 pursuant to service agreements between UBI Delaware and the respective consultants with a service term of one year expiring December 31, 2017
|
|
|
1,390,000
|
|
|
|
-
|
|
|
|
463,333
|
|
500,000 shares of Class A common stock issued to a consultant on May 1, 2017 pursuant to Consulting Agreement dated April 28, 2017 between UBI Delaware and the respective consultant with a service term of two years expiring April 30, 2019
|
|
|
1,480,000
|
|
|
|
493,333
|
|
|
|
1,233,333
|
|
Total
|
|
$
|
3,160,000
|
|
|
|
493,333
|
|
|
|
1,793,333
|
|
Current portion
|
|
|
|
|
|
|
(493,333
|
)
|
|
|
(1,300,000
|
)
|
Non-current portion
|
|
|
|
|
|
$
|
-
|
|
|
$
|
493,333
|
|
At
August 31, 2018, there was $493,333 of unrecognized compensation costs related to shares of Class A common stock issued to a consultant
pursuant to a Consulting Agreement dated April 28, 2017 with a service term of two years expiring April 30, 2019. These costs
are expected to be recognized as expense in the year ended August 31, 2019.
NOTE
6 – INTANGIBLE ASSETS
Intangible
assets at August 31, 2018 and 2017 consist of:
|
|
August 31, 2018
|
|
|
August 31, 2017
|
|
Website development costs
|
|
$
|
93,952
|
|
|
$
|
92,035
|
|
Accumulated amortization
|
|
|
(11,278
|
)
|
|
|
-
|
|
Website development costs, net
|
|
|
82,674
|
|
|
|
92,035
|
|
|
|
|
|
|
|
|
|
|
Software acquired to be marketed
|
|
|
37,294
|
|
|
|
-
|
|
Accumulated amortization
|
|
|
-
|
|
|
|
-
|
|
Software acquired to be marketed, net
|
|
|
37,294
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Office software
|
|
|
8,483
|
|
|
|
-
|
|
Accumulated amortization
|
|
|
(1,414
|
)
|
|
|
-
|
|
Office software, net
|
|
|
7,069
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets - net
|
|
$
|
127,037
|
|
|
$
|
92,035
|
|
At
August 31, 2018, the expected future amortization expense of the intangible assets was:
|
|
Amount
|
|
Year ending August 31, 2019
|
|
$
|
27,946
|
|
Year ending August 31, 2020
|
|
|
27,946
|
|
Year ending August 31, 2021
|
|
|
27,946
|
|
Year ending August 31, 2022
|
|
|
27,946
|
|
Year ending August 31, 2023
|
|
|
15,253
|
|
Total
|
|
$
|
127,037
|
|
Website
Development Costs
In
January 2018, UBI Shenzhen changed the domain name for its website from
www.oyamall.com
to
www.hihealth8.com
. The
change was made to, among other things, correct certain technical problems which we experienced in testing potential transactions
involving Chinese currency. UBI Shenzhen’s website became operational on March 12, 2018.
UBI
Shenzhen has yet to generate any revenues from its website. In order for UBI Shenzhen to begin its business operations, UBI Shenzhen
will be selling third party products. In the future, management plans to develop its own products for sale. It was a management
decision to acquire UBI Shenzhen for primarily two business reasons: 1) as a separate subsidiary, once UBI Shenzhen is fully operational,
management anticipates it should generate revenues and profit for the Company; and 2) this acquisition provides a test model to
utilize the blockchain technology the Company is developing to track drug products sold by UBI Shenzhen. As a test model, this
will allow the Company to see if the products sold through its website are substituted with counterfeit products before they reach
the final consumer. In other words, products sold through a third-party consumer will be tracked using the Company’s blockchain
technology to see if there is a break in the supply chain. This will take place once the Company develops its blockchain digital
tracking system. The Company will be able to monitor UBI Shenzhen shipments to the final consumer, to determine if there has been
any tampering with shipments in the supply chain.
UBI
Shenzhen employs two people principally involved in website related creation/maintenance activities. UBI Shenzhen’s expenses
are being funded by loans from Tony Liu.
Software
Acquired to be Marketed
On
November 24, 2017, January 17, 2018 and March 15, 2018, UBI Shenzhen executed agreements with a third-party vendor to produce
customized game software called Farmer Game for a total of RMB 285,000 ($41,682 using the August 31, 2018 exchange rate). UBI
Shenzhen expects to use the Farmer Game to attract more visitors to its website and to potentially earn revenues from users’
use of game points to purchase products sold on the website. Farmer Game is expected to be introduced to website visitors in the
near future.
Through
August 31, 2018, UBI Shenzhen has paid the Farmer Game vendor a total of RMB 285,000 ($41,682), of which RMB 30,000 ($4,388) has
been expensed and RMB 255,000 ($37,294) has been capitalized.
NOTE
7 - STOCKHOLDERS’ EQUITY
Pursuant
to the September 15, 2016 change in control agreement (see Note 1), a representative of UBI paid into an attorney trust account
$150,000 on September 14, 2016 and $67,500 on October 11, 2016, for a total of $217,500. The $217,500 consisted of $200,000 for
the newly issued shares of Class A, Class B Voting, and Class C Common Stock and $17,500 for the payment of specific expenses.
Starting
in December 2016, the Company engaged the services of a total of 45 employees and non-employees to perform certain marketing,
research and development and investor relations services. The related agreements, which were executed in March 2017, provided
for the contractors to work for the Company for terms ranging from September 2016 to January 1, 2017 to December 31, 2017 for
compensation including the issuance of a total of 8,400,000 shares of Class C common stock (which occurred April 3, 2017). Of
the 8,400,000 shares, 5,000,000 shares were issued to Star Bright International Investment Enterprise Limited, 100,000 shares
were issued to the Company’s chief financial officer and 500,000 shares were issued to an independent Director of the Company.
The
$1,680,000 estimated fair value of the 8,400,000 shares of Class C common stock (using a price of $0.20 per share) was recorded
as prepaid expenses and was expensed evenly over the year ended December 31, 2017 (see Note 5). For the year ended August 31,
2018, we recognized stock-based employee compensation of $96,668 and recognized stock-based consulting fees expense of $463,333
from these agreements. For the year ended August 31, 2017, we recognized stock-based employee compensation of $193,333 and recognized
stock-based consulting fees expense of $926,667 from these agreements.
On
May 1, 2017, the Company issued 500,000 restricted shares of Class A common stock to a consultant pursuant to a Consulting Agreement
dated April 28, 2017 with a service term of two years expiring April 30, 2019. The $1,480,000 estimated fair value of the 500,000
shares of Class A common stock (using a price of $2.96 per share based on a $3.95 closing trading price on April 28, 2017 less
a 25% restricted stock discount) was recorded as a prepaid expense and is being expensed evenly over the 2-year service period
expiring April 30, 2019. For the year ended August 31, 2018, we recognized stock-based consulting fees expense of $740,000 from
this agreement. For the year ended August 31, 2017, we recognized stock-based consulting fees expense of $246,667 from this agreement.
On
August 29, 2017, upon the regulatory approval of the transfer of Nova’s Hong Kong business license to the Company, the Company
acquired 100% ownership of Nova in exchange for the Company’s issuance of a total of 25,000,000 shares of Class C common
stock to the 130 owners of Nova.
On
October 2, 2017, the Company issued a total of 82,000 restricted shares of Class A common stock to 4 individuals associated with
the Company’s law firm for legal services rendered. The $335,872 estimated fair value of the 82,000 shares of Class A common
stock (using a price of $4.10 per share based on a $5.12 closing trading price on October 2, 2017 less a 20% restricted stock
discount) was expensed in the three months ended November 30, 2017.
On
December 26, 2017, the Company’s Board of Directors approved a 3 for 1 common stock dividend of the Company’s issued
and outstanding Class A and Class B common stock. On January 2, 2018, the Company was advised by FINRA to resubmit its request
as a forward stock split instead of a stock dividend.
On
January 4, 2018, the Company’s Board of Directors approved a 4 for 1 forward stock split for holders of record on January
10, 2018 of the Company’s issued and outstanding shares of Class A and Class B common stock. For each share of Class A common
stock held, stockholders were to receive an additional 3 shares of Class A common stock, for each share of Class B common stock
held, stockholders were to receive an additional 3 shares of Class B common stock. On January 18, 2018, the Company’s Board
of Directors decided to cancel the proposed 4-for-1 forward stock split.
On
January 5, 2018, the Securities and Exchange Commission announced the temporary suspension of trading in the Company’s securities
from January 8, 2018 to January 22, 2018 because of (i) questions regarding the accuracy of assertions, since at least September
2017, by the Company in filings with the Commission regarding the Company’s business operations; and (ii) concerns about
recent, unusual and unexplained market activity in the Company’s Class A common stock since at least November 2017.
On
March 31, 2018, the Company’s Board of Directors approved issuing 150,000 Class C common unregistered restricted shares
to Global Alliance Securities for consulting services. 150,000 Class C common shares were issued on August 30, 2018. The $30,000
estimated fair value of the 150,000 shares of Class C common stock (using a price of $0.20 per share) was expensed in the three
months ended August 31, 2018.
NOTE
8 - RELATED PARTY TRANSACTIONS
As
described in Note 10, the Company was obligated to Mr. Mark DeStefano (“DeStefano”) for a $50,000 note payable and
$26,981 for payments made on behalf of the Company. Subsequently, Mr. DeStefano advanced $1,285 to the Company. During the three
months ended November 30, 2016 the Company satisfied these obligations. DeStefano had voting control of the Company from June
2014 (see Note 10) to October 24, 2016 (when the Company purchased from DeStefano the 1,000,000 shares of Preferred Stock for
$33,735) through his ownership of the 1,000,000 shares of Voting Preferred Stock issued and outstanding (equivalent to 50,000,000
votes).
Commencing
March 2017, the Company has been using office space provided by an affiliate of UBI Blockchain Internet, LTD. (Hong Kong) (“UBI
Hong Kong”) at a monthly rent of 22,100 Hong Kong Dollars (approximately $2,816 at the August 31, 2018 exchange rate) per
month. For expediency reasons, the Company also uses bank accounts in the name of UBI Hong Kong to collect cash receipts and expend
cash disbursements relating to Company operations. UBI Hong Kong owns 30,000,000 shares of the Company’s Class A common
stock.
During
the year ended August 31, 2018, Tony Liu, chief executive officer of the Company, advanced or paid a total of $1,358,900 of expenditures
on behalf of the Company. As of August 31, 2018, the total amount due to Tony Liu was $1,831,903. The amount due to Tony Liu for
these expenditures is interest bearing at a rate of 7% per annum. $82,672 and $9,663 interest expense was accrued for the years
ended August 31, 2018 and 2017, respectively. As of August 31, 2018, accrued interest amounted to $91,696. The advances and related
accrued interest are due on demand.
Included
in accounts payable and accrued liabilities at August 31, 2018 is accrued salary due Tony Liu, chief executive officer of the
Company, of $62,744.
NOTE
9 - PROVISION FOR INCOME TAXES
The
Company accounts for income taxes under FASB Accounting Standard Codification ASC 740 “Income Taxes”. ASC 740 requires
use of the liability method. ASC 740 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. Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates
applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized.
As
of August 31, 2018, and 2017, the Company had net operating loss carry forwards of approximately $2,883,000 and $1,444,000, respectively,
as follows:
Tax Jurisdiction
|
|
August 31, 2018
|
|
|
August 31, 2017
|
|
United States
|
|
$
|
1,296,000
|
|
|
$
|
1,126,000
|
|
Hong Kong
|
|
|
855,000
|
|
|
|
2,000
|
|
China (UBI Shenzhen)
|
|
|
732,000
|
|
|
|
316,000
|
|
Total
|
|
$
|
2,883,000
|
|
|
$
|
1,444,000
|
|
United
States net operating losses prior to 2018 may be carried forward to reduce future years taxable income for 20 years; United States
net operating losses after 2017 may be carried forward indefinitely. Hong Kong net operating losses may be carried forward indefinitely.
China net operating losses may be carried forward for 5 years. Future tax benefits which may arise as a result of these losses
have not been recognized in these financial statements as their realization has not been determined likely to occur. Also, due
to the change in control, there are annual limitations on future United States net operating loss carry forward deductions.
At
August 31, 2018 and 2017, deferred tax assets consisted of:
|
|
August 31, 2018
|
|
|
August 31, 2017
|
|
Net operating loss carry forwards
|
|
$
|
587,617
|
|
|
$
|
473,511
|
|
Valuation allowance
|
|
|
(587,617
|
)
|
|
|
(473,511
|
)
|
Deferred tax assets - net
|
|
$
|
-
|
|
|
$
|
-
|
|
As
a result of the Tax Cuts and Jobs Act enacted on December 22, 2017, the United States corporate income tax rate was reduced from
35% to 21% effective January 1, 2018. Accordingly, we reduced our deferred income tax asset relating to our United States net
operating loss carryforward (and the valuation allowance thereon) by approximately $166,000 on December 31, 2017.
All
tax years remain subject to examination by the respective tax authorities.
NOTE
10 - NOTES PAYABLE – Former Related Party
On
April 4, 2014, the Company issued a One-year Promissory Note (“the Note”) in the amount of $50,000 to Mark DeStefano
(“DeStefano) (see Note 8). The Note bore interest at 12% percent per annum with interest due each month. In the event that
interest was not paid within three days from the time it was due the Note was to be considered in default and was to be fully
due and payable. Additional consideration for the Note included the Chief Executive Officer of the Company giving the note holder
his voting proxy for all of the shares he held with the exception of voting on a tender offer or a sale of the Company’s
assets. As of May 8, 2014, the Note was in default.
On
May 5, 2014, the Company issued a second One-Year Promissory Note (“the Second Note”) in the amount of $20,000 to
the same stockholder noted above. The Second Note was issued with the restriction that the funds be used specifically to pay the
Company’s Patent Counsel for fees to finalize certain patent filings and was secured by all patents and patent applications
held by the Company. The Second Note was to bear interest at 12% percent per annum with interest due each month. In the event
that interest was not paid within three days from the time it was due, the Second Note would be considered in default and would
be fully due and payable.
On
June 6, 2014, the Company received notices that it was in default of the two Promissory Notes described above. Rather than default
on the Notes, the Company issued 1,000,000 shares of $0.001 par value Voting Preferred Stock in exchange for Notes Payable totaling
$20,000 plus forgiveness of interest totaling $1,900. Additionally, the Company agreed to designate with the State of Nevada Secretary
of State that each share of preferred carries the voting power of 50 common shares. Finally, the shareholder agreed to cancel
the shares upon full payment of the $50,000 Note, without accrued interest and the sale of five units of the MDU.
In
October 2016, the $50,000 note payable was satisfied.
NOTE
11 – OTHER INCOME AND EXPENSE
On
January 27, 2017, the Company entered into a Settlement Agreement with a former landlord satisfying a $35,868 accrued liability
for $4,100. This settlement, along with an arrangement with another vendor, resulted in other income of $47,003.
NOTE
12 – COMMITMENTS AND CONTINGENCIES
The
Hong Kong Polytechnic University Project
On
January 10, 2018, the Company announced that the Hong Kong Special Administrative Region (“HKSAR”) approved in principle
a grant of up to HK$3,018,750 (approximately $385,000) to assist in financing a project entitled “Blockchain-Based Food
and Drug Counterfeit Detection and Regulatory System” (“the HKPU Project”) to be jointly developed by UBI Hong
Kong and The Hong Kong Polytechnic University (“HKPU”). The related agreement also provides for UBI Hong Kong to contribute
up to HK $3,018,750 (approximately $385,000) to the project cost in installments with the first installment of HK$561,198 (approximately
$72,000) due upon HKSAR’s signing of the agreement (which occurred on January 5, 2018). UBI Hong Kong, owned and controlled
by Tony Liu, is the largest Class A Common Stock shareholder of UBI Blockchain Internet, Ltd., (UBI Delaware). Although the Company
does not own or control UBI Hong Kong, UBI Hong Kong entered into an Assignment Agreement with UBI Delaware on May 1, 2018, whereby
UBI Hong Kong assigned all of its rights, plans, ideas, tangible assets, intangible assets and intellectual property under the
HKPU Project agreement to UBI Delaware, in order for UBI Delaware to commercialize the technology being developed. The project
is expected to be completed by November 14, 2019. In a series of two payments made by UBI Hong Kong on January 12, 2018 and January
16, 2018, UBI Hong Kong paid its first installment of a total of HK$561,198 (approximately $71,000) to HKPU. On February 1, 2018,
HKSAR paid its first installment of HK $561,198 (approximately $71,000) to HKPU. At this point, the project is progressing on
track, and the parties believe the established budget will be sufficient to complete the project.
The
agreement also provides for UBI Hong Kong to pay the remaining HK $2,457,552 (approximately $314,000) of its installments as follows:
HK $687,934 (approximately $88,000) by April 1, 2018; HK$687,934 (approximately $88,000) by October 1, 2018; HK $687,934 (approximately
$88,000) by April 1, 2019 and HK$393,750 (approximately $50,000) within three months of the completion of the HKPU Project. On
May 11, 2018, UBI Hong Kong paid HKPU a second installment of HK $643,647 (approximately $82,000). On May 24, 2018, HKSAR also
paid HKPU a second installment of HK $643,647 (approximately $82,000). UBI Hong Kong has not yet paid the HK 687,934 (approximately
$88,000) installment due October 1, 2018. While UBI Hong Kong does not have the financial wherewithal to pay current installments
under the agreement as due, Tony Liu has personally agreed and been able to provide funding as necessary for both operations of
the Company and obligations due under the agreement.
The
agreement also provides for the HKSAR to pay the remaining HK $2,457,522 (approximately $314,000) of its installments periodically
within 30 days after the acceptance by the Commissioner of Innovation and Technology (“CIT”), an agency of the HKSAR,
of certain Progress Reports to be submitted periodically by HKPU. The agreement provides that HKPU should provide CIT the first
written Progress Report in a format acceptable to CIT covering from the Commencement Date to August 31, 2018 to be submitted on
or before September 30, 2018. The first written Progress Report was timely submitted by UBI Hong Kong and HKPU to CIT. The agreement
imposes no penalties on UBI Hong Kong should it fail to make any of its installment contributions except that HKSAR principally
has the right to cease their installment contributions if UBI Hong Kong fails to make its installment contributions. HKSAR may
terminate the agreement if UBI Hong Kong fails to make any of its installment contributions. Further, if any of the parties are
in breach of the terms of the agreement or fail in a material way to progress in accordance with the Project Proposal, HKPU shall
on demand by the government pay to the Government an amount equivalent to the funds or portion thereof released for the Project.
Project
Summary
The
goal of this project is to provide a comprehensive solution to the worldwide problem of counterfeit medicines. Leveraging latest
techniques the team wants to develop a low-cost, scalable, secure system for: (1) Manufacturers to record necessary data of the
drugs during their production and transportation; (2) Distributors to trace the drugs; (3) Auditors to inspect all data; and finally
(4) Consumers to verify the authenticity of the purchased product. This platform will provide suppliers of food and drug products
a safety control system to determine if there was a break in the supply chain. It will identify if a product was substituted with
a counterfeit or inferior product. It will help suppliers of perishable food products, reduce spoilage by tracking food shipments
in the supply chain to the final consumer.
In
February 2018, UBI Hong Kong performed a test at the offices of Guangxi Houde Mega Health Enterprise (“Guangxi”),
a medical products company, of the e-commerce “alpha” platform (using simulated test data provided by Guangxi). Guangxi
is owned 70% by Star Bright International Investment Enterprise Limited, owner of 5,000,000 shares of Company Class C Common Stock
(see Note 5). The test identified some technical issues that need to be addressed; the team is currently preparing for a second
test, the second test, originally scheduled for June 2018, will not be scheduled until the team believes the test will be successful.
The e-commerce platform will provide a digital shared accounting ledger that would make it possible to trace back a product to
the very origin of the raw material used.
Once
a working model of a platform is successfully operational, the Company plans to license the technology to larger food and drug
third party customers, in which case the licensee can use it in accordance with the license agreement; and the Company also intends
to provide the technology, when commercial ready, to third party suppliers as a paid service.
The
agreement provides that the equipment acquired from the HKPU Project will belong to HKPU, who is also identified as the Beneficiary
of the grant for the project and is required to provide CIT with interim and a final accounting for the proceeds of the grant
as well as monies advanced by UBI Hong Kong whether the project is successful or not. While HKPU, as the Beneficiary, is provided
discretion on how income arising from the intellectual property rights from the Project Materials (including among other things
computer software/programs, technical materials, models, documents and materials compiled developed, produced or created by or
on behalf of the Beneficiary – the “platform”) and Project Result is to be allocated, UBI Hong Kong is the sole
and absolute beneficial owner (has title to) of all of the intellectual property rights which would include the platform if successfully
completed under the project.
While
HKPU receives full legal and equitable title and interest in any and all of the equipment procured by the Beneficiary, the agreement
does not discuss whether HKPU can discontinue its own performance in the event that either HKSAR or UBI Hong Kong fail to make
the required payments. However, without funding no one would expect that HKPU would be obligated to continue its performance.
The
agreement also has a provision whereby the HKSAR can terminate the grant under certain conditions. These conditions include, among
other things, ethical misuse of funds received under the grant or violations of other requirements under the grant. This would
include UBI Hong Kong’s failure to meet its general financial obligations as due or go into liquidation. In the event of
termination, the HKSAR has the right to suspend payment under the grant or require that amounts previously paid by it be refundable
under the grant.
The
Company expects to use the technology learned from the HKPU Project to help it develop and market a platform system for application
to control and manage the safety of food and drugs. Pursuant to an understanding with UBI Hong Kong, the Company is responsible
for the installments due and other costs relating to the HKPU Project paid by UBI Hong Kong. These costs are expected to be paid
by UBI Hong Kong from loans received from the Company’s CEO Tony Liu. The Company records these costs as research and development
expenses and increases in amounts due to Tony Liu until such time as a “technologically feasible” working model of
the platform has been successfully produced.
The
Company plans to commercialize our blockchain technology, by selling suppliers of food and drug products a blockchain technology
platform to track the shipping of their products from its source to the final consumer with tamper-resistant digital records that
replaces the current related shipping paperwork. There are two ways we plan to commercialize the technology: 1) to license the
technology to third parties, in which case the licensee can use it in accordance with the license agreement; and 2) UBI to provide
the technology to third party suppliers (the supplier will pay for each use). The goal is to license our blockchain technology
to streamline record-keeping for the food and drug supply chain. We also plan to provide blockchain technology, when commercial
ready, to suppliers as a paid service. Our goal is to design a blockchain tracking system that eliminates counterfeit drug products
being substituted in the supply chain. And, with regards to food products where lost or delayed shipments causes perishable goods
lying in wait to spoil, our blockchain tracking is being designed to help expedite and monitor physical transportation. It is
management’s goal to have this technology ready for commercialization soon after the fiscal year ending August 31, 2019.
Management
believes that blockchain technology along with the capabilities of tamper resistance products can help bring about new safety
standards for the health industry. This makes blockchain technology worthy of our research and investment. It is for this reason
management made the decision to establish a company to research and develop blockchain technology. In order to achieve its goals,
management is working to design a product tracking system, where every step a product takes in its supply chain is recorded, time-stamped
and monitored to protect the integrity of the product(s) being shipped from its source to the final consumer. This is accomplished
by tracing the movement of the product from its origin to its final consumer. Utilizing blockchain technology, every time the
product moves, its location is recorded and time-stamped, and a shared accounting ledger can be reviewed to determine if there
was a break in the supply chain, to see if the product was substituted with a counterfeit or inferior product.
UBI’s
business strategy is to incorporate the research and application of blockchain technology, Internet of Things (“IoT”),
pharmaceutical and food products, which together, we refer to as IBSH platform. We have hired professional and technical personnel
to develop a working platform. With the development and research on the platform, we plan to build a blockchain based safety control
system, tentatively named “UBI Security Shield”, with its first application to be used for food and drug safety
Lease
Commitments
In
September 2017, UBI Shenzhen entered into two lease agreements for office space in Shenzhen China. The first lease provides for
monthly rent of RMB 12,353, or approximately $1,807 per month, and expires September 2020. The second lease provides for monthly
rent of RMB 8,964, or approximately $1,311 per month, and expires September 2019.
As
of August 31, 2018, the future minimum lease payments under non-cancelable operating leases were:
Year ending August 31, 2019
|
|
$
|
37,416
|
|
Year ending August 31, 2020
|
|
|
22,995
|
|
Year ending August 31, 2021
|
|
|
1,807
|
|
Total
|
|
$
|
62,218
|
|
For
the years ended August 31, 2018 and 2017, total rent expense was $86,604 and $13,953, respectively.
Right
of Rescission Contingency
The
offer and sale of the 25,000,000 Class C Common Shares for the acquisition of UBI Shenzhen may have been in violation of the rules
and regulations under the Securities Act and the interpretations of the SEC. The possible violation involves whether the Company
conducted a public offering without providing the former UBI Shenzhen shareholders with a registration statement declared effective
by the SEC. If a violation of the Section 5 of the Securities Act did in fact occur, anyone who acquired Class C Common Shares
at a price based on an evaluation of $0.20 per share would have a right to rescind the purchase. The Securities Act generally
requires that any claim brought for a violation of Section 5 of the Securities Act be brought within one year of the violation.
If all the shareholders who acquired Class C Common Shares for their exchange in the ownership of UBI Shenzhen demanded rescission
within that one-year period and prevailed in their claims, we would have potentially been obligated to repay approximately $5,000,000.
In
the opinion of management and company counsel, the likelihood of any of the former UBI Shenzhen shareholders making a claim for
a violation of Section 5 of the Securities Act is remote because the effected shareholders are all Chinese citizens who have a
close knit relationship with each other and who all voted in favor of the Company’s acquisition of UBI Shenzhen. None of
these effected shareholders have made any claim to date and the one-year period that they had to bring a claim expired August
29, 2018.
NOTE
13 – DEVELOPMENT AGREEMENTS
In
August 2018, the Company entered into a development agreement, by and among the Company, Heilongjiang Province TongFangZhuoXin
Brewing Co., Ltd. (the “Brewing Company”) and Global Blockchain Cooperation Alliance, dated August 26, 2018 (the “Brewing
Company Agreement”). Pursuant to the terms of the Brewing Company Agreement, the Company agreed to provide to the Brewing
Company blockchain based technology and software for the management of the Brewing Company’s manufacturing process. In exchange
for the services and technology provided by the Company, the Brewing Company agreed to pay to the Company a total of RMB 7,000,000
(approximately $1,023,766), which is payable over the term of the Brewing Company Agreement in a series of milestone payments.
The Company received the initial payment of RMB 400,000 (approximately $58,501) on September 30, 2018. The balance is payable
in a series of 8 payments ranging from RMB 300,000 (approximately $43,876) to RMB 1,500,000 (approximately $219,378) from time
to time as each milestone is completed over a period of 27 months, with the final payment being due on or before December 31,
2020. Any disputes between the parties are to be submitted to the Beijing International Arbitration Center. The Brewing Company
Agreement provides for a breach penalty in an amount equal to 5% of the contract amount in the event that either party defaults
in its obligations pursuant to the Brewing Company Agreement.
In
August 2018, the Company entered into a development agreement, by and between the Company and Harbin Madieer Hotel Group Co.,
Ltd. (the “Hotel Group”), dated August 26, 2018 (the “Hotel Group Agreement”). Pursuant to the terms of
the Hotel Group Agreement, the Company agreed to provide to the Hotel Group a blockchain based system for hotel management. In
exchange for the services and technology provided by the Company, the Hotel Group agreed to pay to the Company a total of RMB
1,000,000 (approximately $146,252) which is payable over the term of the Hotel Group Agreement in a series of milestone payments.
The initial payment of RMB 400,000 (approximately $58,501) was due on or before September 2, 2018. The balance is payable in a
series of 3 payments ranging from RMB 300,000 (approximately $43,876) to RMB 400,000 (approximately $58,501) from time to time
as each milestone is completed, over a period of 11 months, with the final payment being due on or before July 31, 2019. Any disputes
between the parties are to be submitted to the Beijing International Arbitration Agency or a People’s Court of the Hotel
Group’s location. The Hotel Group Agreement provides for a breach penalty in an amount equal to 5% of the contract amount
in the event that either party defaults in its obligations pursuant to the Hotel Group Agreement. To date, the Company has not
received the initial payment of RMB 400,000 (approximately $58,501) due the Company by September 2, 2018 under the Hotel Group
Agreement.