Going Concern and Management's Plans
|9 Months Ended|
Sep. 30, 2019
|Organization, Consolidation and Presentation of Financial Statements [Abstract]|
|Going Concern and Management's Plans||
2. Going Concern and Management’s Plans
At September 30, 2019 the Company’s principal sources of liquidity were its cash and cash equivalents and the net proceeds from the sales of shares of common stock in the first nine months of 2019.
The Company had an accumulated deficit of approximately $87,534,000 at September 30, 2019. During the nine months ended September 30, 2019, the Company generated a net loss from continuing operations of approximately $2,726,000, used cash in continuing operations of approximately $3,424,000, and the Company expects that it will continue to generate operating losses for the foreseeable future. At September 30, 2019, the Company had a cash balance of approximately $4,862,000. Total revenues were approximately $1,348,000 and $1,895,000 for the three months ended September 30, 2019 and 2018, respectively, and approximately $4,021,000 and $6,327,000 for the nine months ended September 30, 2019 and 2018, respectively. The Company had working capital of approximately $149,000 and working capital deficit of $3,384,000 at September 30, 2019 and December 31, 2018, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. In order to alleviate the substantial doubt, the Company has approved and undertaken several measures.
The Company is closely monitoring operating costs and capital requirements. Management of the Company also made efforts in 2018 and first three quarters of 2019 to contain and reduce cost, including implementing a new approval process over travel and other expenses, significantly reducing the cash compensation for independent board directors, terminating non-performing employees and eliminating certain positions, and replacing and negotiating with certain vendors. We also sold our Noble Voice business on May 25, 2018 to reduce operating losses and cash burns. If we are still not successful in sufficiently reducing our costs, we may then need to dispose our other assets or discontinue business lines.
On November 5, 2018, the Company entered into a $500,000 convertible note (the “Note”) with GNet Tech Holdings Public Limited Company (the “GNet”) in London, whose majority shareholder is also a shareholder of the Company’s largest shareholder, Cosmic Forward Limited (“CFL”), with a simple rate of 6% per annum interest. On June 14, 2019, the Company issued 209,205 shares to convert the principal of this Note. As a result, the Note has been satisfied and is no longer outstanding.
From January 9, 2019 to August 15, 2019, the Company sold an aggregate of 248,104 shares of its common stock at a purchase price ranging from $1.146 to $3.96 per share, representing 120% of the closing price the trading day immediately prior to the date of subscription. As of the date of this annual report, the Company has received an aggregate gross proceeds of $514,928 under this private placement. All of the purchasers are residents of the People’s Republic of China.
On August 5, 2019, the Company entered into a Stock Purchase Agreement with one purchaser Ms. Yingling Wu (the “Purchaser Wu”), pursuant to which the Purchaser Wu agreed to purchase 1,142,857 shares (the “Shares”) of the Company’s common stock for $1.75 per share for gross proceeds of $2,000,000 (the “Purchase Price”). This transaction was closed on August 6, 2019.
On September 5 and 9, 2019, the Company entered into Stock Purchase Agreements with Ms. Yao Wei Ling, an individual and a resident of the People’s Republic of China (“Yao”), in connection with the purchase by Yao of 442,830 shares of common stock of the Company (collectively the “Yao Shares”), Mr. Gao Yin Chun, an individual and a resident of the People’s Republic of China (“Gao”), in connection with the purchase by Gao of 189,873 shares of common stock of the Company (collectively the “Gao Shares”), and EGBT Foundation Ltd., a Singapore public company limited by guarantee (“EGBT”), in connection with the purchase by EGBT of 1,265,823 shares of common stock of the Company (collectively the “EGBT Shares”, and together with Yao Shares and Gao Shares, the “Shares”. These transactions occurred at a price of $1.58 per share for gross proceeds of $699,673, $300,000, and $2,000,000, respectively. The closing of the transactions with Yao and Gao took place on September 10, 2019. The closing of the EGBT transaction took place on September 30, 2019.
On November 15, 2019, an existing shareholder, CFL, purchased an additional 1,142,857 shares of the Company’s Common Stock at a price of $1.75 per share from an existing shareholder. This increases their total ownership stake to 38.5% of the total outstanding, issued shares of the Company.
Management believes that its available funds and cash flow from operations may not be sufficient to meet our working capital requirements for the twelve months subsequent to the issuance of our financial statements. In order to accomplish its business plan objectives, the Company will need to either raise capital by issuance of stock, or utilize the $2,000,000 revolving credit facility with GNet, or strategic merge and acquisitions. Management believes that it will be successful in obtaining additional financing based on its limited history of raising funds; However, there can be no assurances that our business plans and actions will be successful, that we will generate anticipated revenues, or that unforeseen circumstances will not require additional funding sources in the future or effectuate plans to conserve liquidity. Future efforts to raise additional funds may not be successful or they may not be available on acceptable terms, if at all. In addition, due to China’s foreign currency control, the Company cannot move money between China and the USA freely. The People’s Bank of China (PBOC) and State Administration of Foreign Exchange (SAFE) regulate the flow of foreign exchange in and out of the country strictly. We need to get approval from Chinese government to move money from China to the U.S. which might take extra time. As of September 30, 2019 we had a $3,304,000 cash balance in China.
The entire disclosure when substantial doubt is raised about the ability to continue as a going concern. Includes, but is not limited to, principal conditions or events that raised substantial doubt about the ability to continue as a going concern, management's evaluation of the significance of those conditions or events in relation to the ability to meet its obligations, and management's plans that alleviated or are intended to mitigate the conditions or events that raise substantial doubt about the ability to continue as a going concern.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef