UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________________to ____________________
Commission file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None
Indicate
by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate the number of shares outstanding of each the registrant’s classes of common stock, as of the latest practicable date: As of May 14, 2025, there were shares outstanding of the registrant’s common stock $ par value.
Throughout this Report on Form 10-Q, the terms “Company,” “we,” “us” and “our” refer to Hapi Metaverse Inc. and “our board of directors” refers to the board of directors of Hapi Metaverse Inc.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve a number of risks and uncertainties. Although our forward-looking statements reflect the good faith judgment of our management, these statements can be based only on facts and factors of which we are currently aware. Consequently, forward-looking statements are inherently subject to risks and uncertainties. Actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements.
Forward-looking statements can be identified by the use of forward-looking words such as “may,” “will,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. Such forward-looking statements are based on our management’s current plans and expectations and are subject to risks, uncertainties and changes in plans that may cause actual results to differ materially from those anticipated in the forward-looking statements. You should be aware that, as a result of any of these factors materializing, the trading price of our common stock may decline. These factors include, but are not limited to, the following:
| ● | the availability and adequacy of capital to support and grow our business; |
| ● | economic, competitive, business and other conditions in our local and regional markets; |
| ● | actions taken or not taken by others, including competitors, as well as legislative, regulatory, judicial and other governmental authorities; |
| ● | competition in our industry; |
| ● | changes in our business and growth strategy, capital improvements or development plans; |
| ● | the availability of additional capital to support development; and |
| ● | other factors discussed elsewhere in this annual report. |
The cautionary statements made in this quarterly report are intended to be applicable to all related forward-looking statements wherever they may appear in this report.
We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly update any forward looking-statements, whether as a result of new information, future events or otherwise.
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TABLE OF CONTENTS
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PART I FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
| 4 |
HAPI METAVERSE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2025 (UNAUDITED)
AND DECEMBER 31, 2024
| (Unaudited) March 31, 2025 | December 31, 2024 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Accrued interest receivable - related party | ||||||||
| Investment in securities at fair value – related party | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Property and equipment, net | ||||||||
| Other non-current assets | ||||||||
| Promissory note receivable – related party | ||||||||
| Convertible promissory note receivable – related party | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | |||||||
| Amount due to related parties | ||||||||
| Convertible promissory note payable – related party | ||||||||
| Operating lease liabilities – current | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Operating lease liabilities- non-current | ||||||||
| Promissory note payable – related party | ||||||||
| TOTAL NON-CURRENT LIABILITIES: | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT): | ||||||||
| Preferred stock, $ par value, shares authorized, issued and outstanding as of March 31, 2025 and December 31, 2024 | $ | $ | ||||||
| Common stock, $ par value, shares authorized, shares issued and outstanding, as of March 31, 2025 and December 31, 2024 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL HAPI METAVERSE INC. STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| NON-CONTROLLING INTERESTS | ( | ) | ||||||
| TOTAL STOCKHOLDERS’ DEFICIT | $ | ( | ) | $ | ( | ) | ||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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HAPI METAVERSE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE ENDED MARCH 31, 2025 AND 2024 (UNAUDITED)
| Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | |||||||
| Revenues: | ||||||||
| Food & Beverage | $ | $ | ||||||
| Travel | ||||||||
| eCommerce | ||||||||
| Total of Revenue | $ | $ | ||||||
| Cost of revenues | ||||||||
| Food & Beverage – Depreciation | $ | ( | ) | $ | ||||
| Food & Beverage – Cost of revenues | ( | ) | ( | ) | ||||
| Travel – Cost of revenues | ( | ) | ||||||
| eCommerce - Cost of revenues | ( | ) | ||||||
| Total Cost of revenues | $ | ( | ) | $ | ( | ) | ||
| Gross profit | $ | $ | ||||||
| Operating expenses: | ||||||||
| Depreciation | $ | ( | ) | $ | ( | ) | ||
| General and administrative | ( | ) | ( | ) | ||||
| Total Operating expenses | $ | ( | ) | $ | ( | ) | ||
| Loss from operations | $ | ( | ) | $ | ( | ) | ||
| Other income (expense): | ||||||||
| Interest income – related party | $ | $ | ||||||
| Other income | ||||||||
| Interest expense – related party | ( | ) | ( | ) | ||||
| Foreign exchange gain (loss) | ( | ) | ||||||
| Unrealized loss on Securities Investment – related party | ( | ) | ( | ) | ||||
| Total Other expense | $ | ( | ) | $ | ( | ) | ||
| Loss before taxes | $ | ( | ) | $ | ( | ) | ||
| Provision for income taxes | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Less: Net loss attributable to non-controlling interests | ( | ) | ||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | ||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive loss, net of tax: | ||||||||
| Foreign currency translation adjustment | $ | ( | ) | $ | ||||
| Total Other comprehensive loss, net of tax: | $ | ( | ) | $ | ( | ) | ||
| Less Comprehensive loss attributable to non-controlling interests | $ | $ | ( | ) | ||||
| Total Comprehensive loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share – basic and diluted | ||||||||
| Basic and diluted net loss per share | $ | $ | ) | |||||
| Weighted average number of shares of common stock outstanding - | ||||||||
| Basic and diluted | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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HAPI METAVERSE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 (UnAUDITED)
| Common Shares | Par
Value | Additional Paid-In Capital | Accumulated
Other Comprehensive Loss | Accumulated Deficit | Total Hapi Metaverse Inc. Stockholders’ Deficit | Non-Controlling Interests | Stockholders’
Deficit | |||||||||||||||||||||||||
| Balance December 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Acquisition of a subsidiary | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance March 31, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||
| Common Shares | Par
Value | Additional Paid-In Capital | Accumulated
Other Comprehensive Loss | Accumulated Deficit | Total Hapi Metaverse Inc. Stockholders’ Deficit | Non-Controlling Interests | Stockholders’
Deficit | |||||||||||||||||||||||||
| Balance December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||
| Balance March 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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HAPI METAVERSE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 (UNAUDITED)
| 3 Months Ended March 31, 2025 | 3 Months Ended March 31, 2024 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash used in operations activities: | ||||||||
| Depreciation | ||||||||
| Non-cash lease expenses | ||||||||
| Foreign exchange gain | ( | ) | ||||||
| Unrealized loss on securities investment – related party | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accrued interest receivable - related party | ( | ) | ( | ) | ||||
| Other non-current assets | ( | ) | ||||||
| Accounts payable, other payable and accrued expenses | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | $ | ( | ) | $ | ( | ) | ||
| CASH FLOW FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | $ | ( | ) | $ | ||||
| Net cash used in investing activities | $ | ( | ) | $ | ||||
| CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||
| Advance from related parties | $ | $ | ||||||
| Net cash provided by financing activities | $ | $ | ||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | $ | $ | ( | ) | ||||
| Effects of foreign exchange rates on cash and cash equivalents | ( | ) | ( | ) | ||||
| CASH AND CASH EQUIVALENTS at the beginning of period | ||||||||
| CASH AND CASH EQUIVALENTS at the end of period | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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HAPI METAVERSE INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. ORGANIZATION AND PRINCIPAL BUSINESS ACTIVITIES
Hapi Metaverse Inc., formerly GigWorld Inc. (the “Company” or “Group”) was incorporated in the State of Delaware on March 7, 2012 and established a fiscal year end of December 31. The Company’s business is focused on serving business-to-business (B2B) needs in e-commerce, collaboration and social networking functions. The Company also started its Food and Beverage (“F&B”) business in 2022 and its travel business in 2023, which was stopped in 2024.
Going Concern
These
financial statements have been prepared using accounting principles generally accepted in the United States of America applicable for
a going concern, which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business.
Since inception, the Company has incurred net losses of $
Our majority shareholder has advised us not to depend solely on it for financing. The Company has increased its efforts to raise additional capital through equity or debt financing from other sources. However, the Company cannot be certain that such capital (from its shareholders or third parties) will be available to us or whether such capital will be available on terms that are acceptable to the Company. Any such financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact our business. If we are unable to raise sufficient additional capital on acceptable terms, we will have insufficient funds to operate our business or pursue our planned growth. In considering our forecast for the next twelve months and the current cash and working capital as of the filing of this Form 10-Q, such matters create a substantial doubt regarding the Company’s ability to meet their financial needs and continue as a going concern.
These 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 this uncertainty.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). These condensed consolidated financial statements should be read in conjunction with the financial statements and additional information as contained in our Annual Report on Form 10-K for the year ended December 31, 2024 filed on April 4, 2025. Results of operations for the three months ended March 31, 2025 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2025. The consolidated balance sheet at December 31, 2024 was derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The other information in these condensed consolidated financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for a fair presentation of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise.
Basis of consolidation
The condensed consolidated financial statements include all accounts of the Company and its majority owned and controlled subsidiaries. The Company consolidates entities in which it owns more than 50% of the voting common stock and controls operations. All intercompany transactions and balances among consolidated subsidiaries have been eliminated.
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The Company’s condensed consolidated financial statements include the financial position, results of operations and cash flows of the following entities as of March 31, 2025 and December 31, 2024, as follows:
| Attributable interest as of, | ||||||||||
| Name of subsidiary consolidated under Hapi Metaverse Inc. | State or other jurisdiction of incorporation or organization | March 31, 2025 | December 31, 2024 | |||||||
| % | % | |||||||||
| HotApp BlockChain Pte. Ltd. | Singapore | |||||||||
| HotApp International Limited | Hong Kong | |||||||||
| Smart Reward Express Limited | Hong Kong | *1 | *1 | |||||||
| Hapi Café Limited | Hong Kong | *2 | *2 | |||||||
| Hapi Group HK Limited (f.k.a. MOC HK Limited) | Hong Kong | *3 | *3 | |||||||
| Guangdong LeFu Wealth Investment Consulting Co., Ltd. (f.k.a. Shenzhen Leyouyou Catering Management Co., Ltd.) | People’s Republic of China | *4 | *4 | |||||||
| Dongguan Leyouyou Catering Management Co., Ltd. | People’s Republic of China | *5 | *5 | |||||||
| Hapi Robot Service Pte. Ltd. (f.k.a. Hapi Acquisition Pte. Ltd.) | Singapore | *6 | *6 | |||||||
| Hapi Cafe Co., Ltd | Taiwan | *7 | *7 | |||||||
| *1 |
Smart Reward plans to be principally engaged in the business of developing a platform allowing small and medium sized merchants to set-up their own reward program, with the aim of creating a loyalty exchange program for participating merchants.
HotApp
International Limited holds
| *2 |
HotApp
BlockChain Pte. Ltd. is the owner of
| 10 |
| *3 | ||
| *4 | ||
| - | ||
| *5 |
| *6 | ||
| *7 |
HAPL
is the owner of HCTW. This business was acquired on April 18, 2024 from an independent third party. Goodwill of $
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, cost and expenses in the consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Group’s consolidated financial statements include revenue recognition, the useful lives and impairment of property and equipment, valuation allowance for deferred tax assets, valuation of goodwill, and the fair value estimate for the Company’s equity securities and convertible note receivable with a related party.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be cash equivalents.
Leases
The Company follows FASB ASC Topic 842 in accounting for its operating lease right-of-use assets and operating lease liabilities. At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange of a consideration. To assess whether a contract is or contains a lease, the Company assess whether the contract involves the use of an identified asset, whether it has the right to obtain substantially all the economic benefits from the use of the asset and whether it has the right to control the use of the asset. The right-of-use assets and related lease liabilities are recognized at the lease commencement date. The Company recognizes operating lease expenses on a straight-line basis over the lease term.
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The Company has also utilized the following practical expedients:
| ● | Short-term leases – for leases that are for a period of 12 months or less, the Company will not apply the recognition requirements of ASC 842. | |
| ● | For leases that contain related non-lease components, such as maintenance, the Company will account for these payments as a single lease component. |
Right-of-use of assets
The right-of-use of asset is measured at cost, which comprises the amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and less any lease incentive received.
Lease liabilities
Lease liability is measured at the present value of the outstanding lease payments at the commencement date, discounted using the Company incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise mainly fixed lease payments.
Foreign currency risk
Because
of its foreign operations, the Company holds cash in non-US dollars. As of March 31, 2025, cash of the Group includes, on an as converted
basis to US dollars, $
Investment in Securities at Fair Value – Related Party
The
Company currently has an investment in Value Exchange International, Inc. (“VEII”), a related party, consisting of
shares of common shares and
Property and Equipment
Property and equipment are recorded at cost, less depreciation. Repairs and maintenance are expensed as incurred. Expenditures incurred as a consequence of acquiring or using the asset, or that increase the value or productive capacity of assets are capitalized (such as removal, and restoration costs). When property and equipment is retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. Depreciation is computed by the straight-line method (after considering their respective estimated residual values) over the estimated useful lives of the respective assets as follows:
| Office Equipment | ||
| Operating Equipment | ||
| Leasehold improvement |
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Concentrations
Financial
instruments that potentially expose the Group to concentration of credit risk consist primarily of cash. Although the cash at each particular
bank in the United States is insured up to $
Fair value
Fair Value of Financial Instruments
The carrying value of cash, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the consolidated financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:
| ● | Level 1 – quoted prices in active markets for identical assets and liabilities. | |
| ● | Level 2 – observable market-based inputs or unobservable inputs that are corroborated by market data; and | |
| ● | Level 3 – significant unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. |
Revenue recognition
Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services through eCommerce, or catering service to customers.
Revenue is recognized when (or as) the Company transfers promised goods or services or catering service to its customers in amounts that reflect the consideration to which the Company expects to be entitled to in exchange for those goods or services, which occurs when (or as) the Company satisfies its contractual obligations and transfers over control of the promised goods or services or catering service to its customers. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, the Company performs the following five steps: (i) identification of the promised goods or services or catering service in the contract by analyzing customer perspective, immateriality, implicit promises, setup activities, and marketing incentives; (ii) determination of whether the promised goods or services or catering service are performance obligations including whether they are distinct in the context of the contract by analyze the contract from the perspective of the customer; (iii) measurement of the transaction price, including the constraint on variable consideration by the expected value method and the most likely amount method; (iv) allocation of the transaction price to the performance obligations based on a relative stand-alone selling price basis, or the price at which the Company would sell the good or service separately to similar customers in similar circumstances; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. This should only be done once the transaction is complete and your obligation is fulfilled. The Company only applies the five-step model to contracts when it is probable that the entity will collect consideration it is entitled to in exchange for the goods or services or catering service it transfers to the customer.
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Costs to obtain or fulfill a contract are capitalized and expensed over the life of the contract.
The Company began generating revenue from the food and beverage business by providing quality catering services in Hong Kong since October 2022 and in the People’s Republic of China (“PRC”) since January 2023. The Company recognizes this revenue at a point in time when the Company provides the product to the customer.
Income taxes
Current income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. The components of the deferred tax assets and liabilities are individually classified as non-current in accordance with ASC 740.
The impact of an uncertain income tax position on the income tax return is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes. The Group did not recognize any income tax due to uncertain tax position or incur any interest and penalties related to potential underpaid income tax expenses for the three months ended March 31, 2025 or 2024, respectively.
Foreign currency translation
Items included in the consolidated financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“functional currency”).
The functional and reporting currency of the Company is the United States dollar (“U.S. dollar”). The financial records of the Company’s subsidiaries located in Singapore, Hong Kong, Mainland China and Taiwan are maintained in their local currencies, the Singapore Dollar (S$), Hong Kong Dollar (HK$), Chinese Yuan (CN ¥) and New Taiwan Dollar (NT$), which are also the functional currencies of these entities.
Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at the rates of exchange ruling at the balance sheet date. Transactions in currencies other than the functional currency during the year are converted into functional currency at the applicable rates of exchange prevailing when the transactions occurred. Transaction gains and losses are recognized in the consolidated statements of operations.
The Company’s entities with functional currency of Singapore Dollar, Hong Kong Dollar, Chinese Yuan and New Taiwan Dollar, translate their operating results and financial positions into the U.S. dollar, the Company’s reporting currency. Assets and liabilities are translated using the exchange rates in effect on the balance sheet date. Revenues, expenses, gains and losses are translated using the average rate for the year. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of comprehensive income (loss).
| 14 |
For
the three months ended March 31, 2025, the Company recorded other comprehensive loss from a translation of $
Comprehensive income (loss)
Comprehensive income (loss) includes gains (losses) from foreign currency translation adjustments. Comprehensive income (loss) is reported in the condensed consolidated statements of operations and comprehensive loss.
Basic earnings (loss) per share is computed by dividing net income (loss) attributable to stockholders by the weighted average number of shares outstanding during the year.
The calculation of diluted net income per unit includes the effects of the assumed conversion of the Company’s outstanding convertible debt, except during the loss periods as the effect would be anti-dilutive.
Non-controlling interests
Non-controlling interests represent the equity in a subsidiary not attributable, directly or indirectly, to owners of the Company, and are presented separately in the condensed consolidated statements of operation and comprehensive income, and within equity in the Condensed Consolidated Balance Sheets, separately from equity attributable to owners of the Company.
On
March 31, 2025 and December 31, 2024, the aggregate non-controlling interests in the Company were $ and $(
Accounting pronouncements pending adoption
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which modifies the rules on income tax disclosures to require disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. The guidance is effective for annual periods beginning after December 15, 2025, with early adoption permitted. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
On November 4, 2024, the FASB issued ASU No. 2024-03, Expense Disaggregation Disclosures (“ASU 2024-03”). ASU 2024-03 amends ASC 220, Comprehensive Income to expand income statement expense disclosures and require disclosure in the notes to the financial statements of specified information about certain costs and expenses. ASU 2024-03 is required to be adopted for fiscal years commencing after December 15, 2026, with early adoption permitted. The Company is currently evaluating the impact of adopting the standard on the Consolidated Financial Statements.
Segment reporting
The Company reports its segment information to reflect the manner in which the CODM reviews and assesses performance. The Company’s Chief Executive Officer is responsible as the CODM and reviews and assess the performance of the Company as a whole.
The primary financial measures used by the CODM to evaluate performance and allocate resources are net income (loss) and operating income (loss). The CODM uses net income (loss) and operating income (loss) to evaluate the performance of the Company’s ongoing operations and as part of the Company’s internal planning and forecasting processes. Information on Net income (loss) and Operating income (loss) is disclosed in the Consolidated Statements of Operations. Segment expenses and other segment items are provided to the CODM on the same basis as disclosed in the Consolidated Statements of Operations.
The CODM does not evaluate performance or allocate resources based on segment assets, and therefore such information is not presented in the notes to the financial statements.
Note 3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accrued expenses and other current liabilities consisted of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| Accrued payroll | $ | $ | ||||||
| Accrued professional fees | ||||||||
| Other account payable and accrued expenses | ||||||||
| Total | $ | $ | ||||||
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Note 4. PROPERTY AND EQUIPMENT, NET
Property and Equipment, net consisted of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| Cost | ||||||||
| Leasehold improvement | $ | $ | ||||||
| Computer equipment | ||||||||
| Furniture & Fittings | ||||||||
| Total cost | $ | $ | ||||||
| Less: accumulated depreciation # | ||||||||
| Leasehold improvement | $ | $ | ||||||
| Computer equipment | ||||||||
| Furniture & Fittings | ||||||||
| Total accumulated depreciation | $ | $ | ||||||
| NBV at the end of period | ||||||||
| Leasehold improvement | $ | $ | ||||||
| Computer equipment | ||||||||
| Furniture & Fittings | ||||||||
| Total NBV | $ | $ | ||||||
| # |
Note 5. INVESTMENT IN RELATED PARTY
The Company elected the fair value option, or “FVO,” and therefore the Company continued to measure at fair value, for those of its assets and liabilities it had previously measured at fair value and for which such election is permitted, as provided for under ASC 825, and the financial instrument is initially measured at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis at each reporting period date (as provided for by ASC 825). The Company initially elected the FVO for its equity method investment in VEII, a related party, to simplify the reporting process. As required under ASC 825, all other instruments with VEII are required to be reported at fair value, so the Company values its convertible loans receivable and warrants with VEII at fair value as well.
With respect to the above notes, ASC 825 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. As provided for by ASC 825, estimated fair value adjustment of the convertible promissory note is presented in a single line item within other income (expense) in the accompanying consolidated statements of operations and comprehensive loss.
On
September 6, 2023, the Company converted $
On
March 31, 2025 and December 31, 2024, the Company owned shares of VEII’s outstanding common stock and
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Financial assets measured at fair value on a recurring basis are summarized below and disclosed on the consolidated balance sheets as of March 31, 2025 and December 31, 2024:
| Fair Value Measurement Using | Amount at | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| March 31, 2025 | ||||||||||||||||
| Asset | ||||||||||||||||
| Investment Securities – Fair Value | $ | $ | $ | $ | ||||||||||||
| Warrants – VEII | ||||||||||||||||
| Total Investment in securities at Fair Value | $ | $ | $ | $ | ||||||||||||
| Fair Value Measurement Using | Amount at | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| December 31, 2024 | ||||||||||||||||
| Asset | ||||||||||||||||
| Investment Securities – Fair Value | $ | $ | $ | $ | ||||||||||||
| Warrants – VEII | ||||||||||||||||
| Total Investment in securities at Fair Value | $ | $ | $ | $ | ||||||||||||
Fair
value loss on securities investment was ($
Warrants
On
September 6, 2023, the Company received warrants to purchase shares of VEII, a related party listed company. For further details on this
transaction, refer to Note 6 - Related Party Balance and Transactions, As of March 31, 2025 and December 31, 2024, the fair value of
the warrants was $
The fair value of the VEII warrants under level 2 category as of March 31, 2025, and December 31, 2024 was calculated using a Black-Scholes valuation model valued with the following weighted average assumptions:
| March 31, 2025 | December 31, 2024 | |||||||
| Stock price | $ | $ | ||||||
| Exercise price | $ | $ | ||||||
| Risk free interest rate | % | % | ||||||
| Annualized volatility | % | % | ||||||
| Dividend Yield | $ | $ | ||||||
| Year to maturity | ||||||||
Changes in the observable input values would likely cause material changes in the fair value of the Company’s Level 2 financial instruments. A significant increase (decrease) in this likelihood would result in a higher (lower) fair value measurement.
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Note 6. RELATED PARTY BALANCES AND TRANSACTIONS
As
of March 31, 2025, the Company has an amount due to Alset Inc. of $
On
January 27, 2023, the Company and New Electric CV Corporation (together with the Company, the “Lenders”) entered into a Convertible
Credit Agreement (the “1st VEII Credit Agreement”) with Value Exchange International, Inc., a Nevada corporation.
The 1st VEII Credit Agreement provides VEII with a maximum credit line of $
On
February 23, 2023, the Company and Alset Inc., a Texas corporation (NASDAQ: AEI) (“Alset”) entered into a Subscription Agreement
(the “AEI Subscription Agreement”). Pursuant to the AEI Subscription Agreement, the Company has borrowed $
On
December 14, 2023, the Company entered into a Convertible Credit Agreement (“2nd VEII Credit Agreement”) with
VEII. On December 15, 2023, the Company loaned VEII $
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On
December 15, 2023, the Company and AIL entered into a Subscription Agreement (the “AIL Subscription Agreement”). Pursuant
to the AIL Subscription Agreement, the Company has borrowed $
On
July 15, 2024, the Company entered into a Convertible Credit Agreement (“3rd VEII Credit Agreement”) with VEII
for an unsecured credit line in the maximum amount of $
Our Chairman, Chan Heng Fai, and another member of our Board of Directors, Lum Kan Fai, are both members of the Board of Directors of VEII. In addition to Mr. Chan, three other members of the Board of Directors of Alset Inc., our majority stockholder, are also members of the Board of Directors of VEII (Wong Shui Yeung, Wong Tat Keung and Lim Sheng Hon, Danny).
On
December 17, 2024, the Company entered into a shares purchase agreement with Hapi Travel Holding Pte. Limited (“HTHPL”),
pursuant to which the Company sold ordinary shares of Hapi Travel Limited (“HTL”), representing % of the issued
and outstanding share capital of HTL, in accordance with the terms and conditions set out in the shares purchase agreement entered into
with HTHPL, in exchange for a promissory note in amount of $
Note 7. GOODWILL
On October 4, 2022, the Company completed its F&B business acquisition of MOC, an F&B business started in Hong Kong. The acquisition has been accounted for as a business combination. Accordingly, consideration paid by the Company to complete the acquisition was initially allocated to the acquired assets and liabilities assumed based upon their estimated acquisition date fair values.
As
a result of the acquisition of MOC, goodwill of $
On
September 16, 2024, the Company temporarily ceased the café business of MOC after the café’s lease expired and MOC
declined to enter into a new lease with the landlord. The Company is searching for a better location to restart the business in the future.
As a result, the goodwill of $
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On April 18, 2024, the Company completed its F&B business acquisition of Hapi Café Company Limited (“HCTW”), an F&B business started in Taiwan. The accompanying consolidated financial statements include the operations of the acquired entity from its acquisition date. The acquisition has been accounted for as a business combination. Accordingly, consideration paid by the Company to complete the acquisition is initially allocated to the acquired assets and liabilities assumed based upon their estimated acquisition date fair values.
As
of the date of acquisition, HCTW had a total of $
As
a result of the acquisition of HCTW, goodwill of $
The table below reflects the Company’s estimates of the acquisition date fair value of the assets acquired and liabilities assumed for the 2024 acquisition:
| HCTW | ||||
| Purchase Price | ||||
| Cash | $ | |||
| Total purchase consideration | $ | |||
| Purchase Price Allocation | ||||
| Assets acquired | ||||
| Current assets | $ | |||
| Deposit | ||||
| Property and Equipment, net | ||||
| Operating lease right-of-use assets, net | ||||
| Total assets acquired | $ | |||
| Liabilities assumed: | ||||
| Current liabilities | $ | ( | ) | |
| Due to related party | ( | ) | ||
| Operating lease liability | ( | ) | ||
| Total liabilities assumed | $ | ( | ) | |
| Net assets acquired | $ | ( | ) | |
| Goodwill | $ | |||
| Total purchase consideration | $ | |||
The Company evaluates goodwill on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. Such indicators could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a quantitative goodwill impairment test. The impairment test involves comparing the fair value of the applicable reporting unit with its carrying value. The Company estimates the fair values of its reporting units using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit
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The following table summarizes changes in the carrying amount of goodwill for the three months ended March 31, 2025 and the year ended December 31, 2024.
| March 31, 2025 | December 31, 2024 | |||||||
| Balance at beginning of the period | $ | $ | ||||||
| Add: acquisition of HCTW | ||||||||
| Less: impairment loss of goodwill of HCTW | ( | ) | ||||||
| Less: impairment loss of goodwill of MOC | ( | ) | ||||||
| Foreign currency exchange adjustment | ||||||||
| Balance as of end of the period | $ | $ | ||||||
Note 8. LEASES
The
Company has operating leases for its F&B stores and warehouse in Hong Kong. The related lease agreements do not contain any material
residual value guarantees or material restrictive covenants. Since the Company’s leases do not provide an implicit rate that can
be readily determined, management uses a discount rate based on the incremental borrowing rate. The Company’s weighted-average
remaining lease term relating to its operating leases are
The
current portion of operating lease liabilities and the non-current portion of operating lease liabilities are presented on the balance
sheets. Total lease expenses amounted to $
| March 31, 2025 | December 31, 2024 | |||||||
| Right-of-use assets | $ | $ | ||||||
| Lease liabilities - current | ||||||||
| Lease liabilities - non-current | ||||||||
| Total lease liabilities | $ | $ | ||||||
As of March 31, 2025, the aggregate future minimum rental payments under non-cancelable agreement are as follows:
| Maturity of Lease Liabilities | Total | |||
| 12 months ending March 31, 2026 | $ | |||
| 12 months ending March 31, 2027 | ||||
| 12 months ending March 31, 2028 | ||||
| 12 months ending March 31, 2029 | ||||
| 12 months ending March 31, 2030 | ||||
| Total undiscounted lease payments | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
| Operating lease liabilities - current | ||||
| Operating lease liabilities - non-current | $ | |||
Note 9. SUBSEQUENT EVENTS
The Company has evaluated events that have occurred after the balance sheet date through the date of this report and determined that there were no subsequent events or transactions that required recognition or disclosure in the condensed consolidated financial statements.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained in this Form 10-Q involve risks and uncertainties, including statements as to:
1. our future operating results;
2. our business prospects;
3. any contractual arrangements and relationships with third parties;
4. the dependence of our future success on the general economy;
5. any possible financings; and
6. the adequacy of our cash resources and working capital.
These forward-looking statements can generally be identified as such because the context of the statement will include words such as we “believe,” “anticipate,” “expect,” “estimate” or words of similar meaning. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated as of the date of filing of this Form 10-Q. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of filing of this Form 10-Q, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.
Background and business
Hapi Metaverse Inc. (the “Company” or “Group”), was incorporated in the State of Delaware on March 7, 2012. The Company’s initial business plan was to be a financial acquisition intermediary which would serve buyers and sellers for companies that are in highly fragmented industries. Our Board determined it was in the best interest of the Company to expand our business plan.
Since 2018, one of our main developments was a broadening of our scope of planned operations into a digital transformation technology business. As a digital transformation technology business, we are committed to enabling enterprises we work with to engage in a digital transformation by providing consulting, implementation and development services with various technologies, including instant messaging, blockchain, eCommerce, social media and payment solutions. We continue to advise businesses in network marketing and brands in block chain services and mobile collaboration.
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We are focused on serving business-to-business (B2B) needs in eCommerce, collaboration and supply chains. We will help enterprises and community users to transform their business models with digital economy in a more effective manner. With our platform, users can discover and build their own communities and create valuable content. Enterprises can in turn enhance the user experience with premium content, all of which are facilitated by the transactions of every stakeholder via eCommerce.
Our technology platform consists of instant messaging systems, social media, eCommerce and payment systems, and network marketing platforms. We are focused on business-to-business solutions such as enterprise messaging and workflow. We have successfully implemented several strategic platform developments for clients, including a mobile front-end solution for network marketing, a hotel eCommerce platform for Asia and a real estate agent management platform in China. We have also enhanced our technological capability from mobile application development to include blockchain architectural design, allowing mobile-friendly front-end solutions to integrate with software platforms. Our main digital assets at the present time are our applications. We continue to strengthen our technology architecture and develop Application Development Interface (API) for collaboration partners such as network marketing back end service providers. In addition, we are continuing our development activities in blockchain in order to prepare for future client opportunities.
The Group has relied significantly on AIL, our former majority stockholder, as its principal source of funding during the period. AIL, and later, our current majority stockholder, Alset Inc., advised us not to depend solely on it for financing. We have increased our efforts to raise additional capital through equity or debt financings from other sources. However, we cannot be certain that such capital (from our stockholders or third parties) will be available to us or whether such capital will be available on terms that are acceptable to us. Any such, financing likely would be dilutive to existing stockholders and could result in significant financial operating covenants that would negatively impact our business. If we are unable to raise sufficient additional capital on acceptable terms, we will have insufficient funds to operate our business or pursue our planned growth.
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Our Plan of Operations
We believe that we have significant opportunities to further enhance the value we deliver to our users. We intend to pursue the following plan of operations:
| ● | operation of global eCommerce marketplace bringing quality lifestyle products; | |
| ● | partner with technology providers to offer services for membership management, eCommerce, loyalty reward management and metaverse platform for community; and | |
| ● | identify solutions and licensing opportunities in accelerating the digital transformation for direct selling, affiliate marketing, travel membership and O2O (online-to-offline) eCommerce operations. |
Achieved and Target Milestones
In 2024 and the first quarter of 2025, we achieved the following milestones:
| ● | enhanced our software solutions to fit the needs of direct-to-consumer commerce with AI and Metaverse services; and | |
| ● | achieved a closer partnership with VEII for digital transformation of retail sectors including electronic sales label management, shelf check out solutions, and AI customer service. |
Over the next twelve months we plan to:
| ● | further enhance our software solutions to fit the need of direct-to-consumer commerce with AI and Metaverse services; and | |
| ● | continue our close partnership with VEII for digital transformation of retail sectors including sales label management applications for both electronics and paper labels, and a service management platform with AI assistant and store management software services. |
Our Business Model and User Monetization Plan
We plan to generate revenue through the following:
| ● | operation of global eCommerce marketplace; | |
| ● | IT services in serving retail business sector; and | |
| ● | digital transformation related consulting services. |
Our Competitiveness in the Businesses in Which we Operate
With the focus on being a service provider, our competitiveness is strengthened by:
| ● | strengthening the methodology for project management and development through continuous improvement through project engagement; | |
| ● | continuous strengthening of new technological development such as blockchain enabled services, metaverse and artificial intelligence; and | |
| ● | operating within effective overhead to reduce operational risk. |
Our Challenges
Our ability to execute our growth strategies is subject to risks and uncertainties, including those relating to our ability to:
| ● | raise additional funding for the continuous development of our technology and projects and to pursue our business strategy; | |
| ● | maintain the trusted status of our ecosystem; | |
| ● | grow our user base, enhance user engagement and create value services for communities and enterprises; | |
| ● | market and profit from our service offerings, monetize our user base and achieve profitability; | |
| ● | keep up with technological developments and evolving user expectations; | |
| ● | effectively manage our growth and control our costs and expenses; | |
| ● | address privacy and security concerns relating to our services and the use of user information; | |
| ● | identify a management team with owner mentality and proven track record; and | |
| ● | changing market behavior for those using competitive platform. |
Please see “Risk Factors” and other information included in this report for a detailed discussion on the above and other challenges and risks.
| 24 |
Our Key Competitive Strengths
We believe building the following will provide us with some key competitive strengths:
| ● | understanding local market needs - establish brand presence for local enterprises and communities based on the implementation know how for the early adopters; and | |
| ● | thin and lean organization – structure - to effectively adapt to the growth and contraction of operation based on market and sales pipelines. |
Our Technology
Based on our core technology infrastructure, we are building up additional functions on top of this stable and scalable infrastructure. The system architecture is designed in modular form so that we continue to add new applications modules while we are growing our customer base. In addition, we should also be able to incorporate third party application module effectively to continue building new services to cope with the digital transformation need of the direct selling industry and supporting them capitalizing on the gig economy opportunity.
Key aspects or strengths of our technology include:
| ● | scalable infrastructure; | |
| ● | quick adaptation to third party services, such as back-end systems, payment and logistics; and | |
| ● | dedicated to continuous improvement of user experience in local context. |
Results of Operations
Summary of Key Results
For the unaudited three months period ending March 31, 2025 and 2024
Revenue
Revenue generated primarily by the food and beverage (“F&B”) business, MOC, HCDG and HCTW, was $55,274 and $44,723, for the three months ended March 31, 2025 and 2024, respectively. The café under MOC was closed on September 16, 2024. Revenue generated from the travel business, HTL, was $0 and $2,380 respectively, for the three months ended March 31, 2025 and 2024, respectively. HTL was disposed on December 17, 2024. Revenue generated from the eCommerce business, HAIL, was $27 and $0 for the three months ended March 31, 2025 and 2024, respectively. The increase in revenue was mainly generated from HCTW after its acquisition on April 18, 2024.
Cost of Revenue
Cost of revenue related primarily to F&B cost was $21,631 and $14,054 for the three months ended March 31, 2025 and 2024, respectively, of which $5,479 and $0 were depreciation for computer equipment and leasehold improvement, respectively. The cost of travel business was $0 and $2,370 for the three months ended March 31, 2025 and 2024, respectively. The cost of eCommerce business was $31 and $0 for the three months ended March 31, 2025 and 2024, respectively. The increase in cost of revenue is due to HCTW after its acquisition on April 18, 2024.
Operating Expenses
Operating expenses consist primarily of salary and benefits, professional fees, consulting expenses and maintenance expenses of existing software framework. We expect to maintain our operating expenses with moderate changes in line with business activities. Total operating expenses for the three months ended March 31, 2025 and 2024 were $339,891 and $320,849, respectively, of which $4,602 and $977 were depreciation expenses and $2,149 and $2,411 were rent expenses, respectively. The increase was mainly due to the increase in consulting expenses for the exploration of new project and new market, a $9,104 increase of depreciation expenses, a $5,971 increase of amortization of right-of-use assets due to the expansion in the F&B businesses.
Other (Expense) Income
Total other (expense) / income for the three months ended March 31, 2025 and 2024 was ($1,231,733) and ($3,452,417), respectively, of which $25,240 and $22,141 was interest income, ($1,256,389) and ($3,386,702) was unrealized (loss) on securities investment, $284 and $3,122 was other income, ($39,945) and ($40,390) was interest expenses, and $39,077 and ($50,588) of foreign exchange gain / (loss), respectively. The decrease of other income was mainly due to $2,130,313 decrease of expenses due to the fair value loss of VEII shares and warrants.
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Liquidity and Capital Resources
At March 31, 2025, we had cash of $528,812 and a working capital deficit of $8,494,794. The increase in the working capital deficit during the three months ended March 31, 2025 was due to the increase in the loss on investment in securities.
We had a total stockholders’ deficit of $8,554,252 and an accumulated deficit of $19,432,951 as of March 31, 2025 compared with a total stockholders’ deficit of $6,958,455 and an accumulated deficit of $17,884,549 as of December 31, 2024. This difference is primarily due to the net loss incurred during the period.
For the three months ended March 31, 2025, we recorded a net loss of $1,543,464.
We had net cash used in operating activities of $350,195 for the three months ended March 31, 2025. We had a negative change of $23,868 due to related parties accounts receivable, $53,945 due to change in operating lease liability, $30,772 due to accounts payable and accrued expenses. We had a positive change of $1,256,389 due to unrealized loss on security investment, $51,181 in non-cash lease expenses, $26,623 due to prepaid expenses and other current assets.
For the three months ended March 31, 2024, we recorded a net loss of $3,742,587.
We had net cash used in operating activities of $410,291 for the three months ended March 31, 2024. We had a negative change of $29,301 due to accounts receivable, $2,850 due to prepaid expenses and $43,550 due to change in operating lease liability and $23,197 due to accounts payable and accrued expenses. We had a positive change of $3,386,702 due to unrealized loss on security investment, and $44,018 in non-cash lease expenses.
For the three months ended March 31, 2025, we had net cash used in investing activities of $47,991, of which $47,991 was due to purchase of property and equipment. For the three months ended March 31, 2024, we had net cash used in investing activities of $0.
For the three months ended March 31, 2025, we had net cash provided by financial activities of $618,469, of which $618,469 was due to advances from related parties. For the three months ended March 31, 2024, we had net cash provided by financial activities of $243,009, of which $243,009 was due to advances from related parties.
As of March 31, 2025, we had fixed operating office lease agreements in Taiwan and the People’s Republic of China.
We will need to raise additional capital through equity or debt financings. However, we cannot be certain that such capital (from our largest shareholder or third parties) will be available to us or whether such capital will be available on a term that is acceptable to us. Any such financing likely would be dilutive to existing stockholders and could result in significant financial and operating covenants that would negatively impact our business. If we are unable to raise sufficient additional capital on acceptable terms, we will have insufficient funds to operate our business and pursue our business plan.
We have included disclosures which discuss the matters which create substantial doubt as to whether we will be able to continue to operate as a going concern, including the facts that the Company has incurred net operating losses of $19,432,951 from inception though March 31, 2025 and has not yet established an ongoing source of revenue sufficient to cover its operating costs. The ability of the Company to continue as a going concern is dependent on the Company obtaining the adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
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Critical Accounting Policies
Our discussion and analysis of the consolidated financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. Certain of these critical accounting policies affect working capital account balances, including the policies for revenue recognition, allowance for doubtful accounts, inventory reserves and income taxes. These policies require that we make estimates in the preparation of our consolidated financial statements as of a given date.
Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.
Revenue recognition
Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services or catering service to customers.
Revenue is recognized when (or as) the Company transfers promised goods or services or catering service to its customers in amounts that reflect the consideration to which the Company expects to be entitled to in exchange for those goods or services, which occurs when (or as) the Company satisfies its contractual obligations and transfers over control of the promised goods or services or catering service to its customers. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, the Company performs the following five steps: (i) identification of the promised goods or services or catering service in the contract by analyzing customer perspective, immateriality, implicit promises, setup activities, and marketing incentives; (ii) determination of whether the promised goods or services or catering service are performance obligations including whether they are distinct in the context of the contract by analyze the contract from the perspective of the customer; (iii) measurement of the transaction price, including the constraint on variable consideration by the expected value method and the most likely amount method; (iv) allocation of the transaction price to the performance obligations based on a relative stand-alone selling price basis, or the price at which the Company would sell the good or service separately to similar customers in similar circumstances; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. This should only be done once the transaction is complete and your obligation is fulfilled. The Company only applies the five-step model to contracts when it is probable that the entity will collect consideration it is entitled to in exchange for the goods or services or catering service it transfers to the customer.
Costs to obtain or fulfill a contract are capitalized and expensed over the life of the contract.
The Company began generating revenue from the F&B business by providing quality catering services in Hong Kong since October 2022, in the People’s Republic of China (“PRC”) since January 2023, and in Taiwan since April 2024.
In June 2023, the Company acquired a travel business and began generating revenue by providing travel packaging and ticketing services in Hong Kong. This was terminated in 2024.
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Transfers of Cash to and from Our Subsidiaries
Our equity structure is a direct holding company structure. Within our direct holding company structure, the cross-border transfer of funds between our corporate entities is legal and compliant with the laws and regulations of the PRC. After the foreign investors’ funds enter Hapi Metaverse Inc., the funds can only be transferred to the PRC operating companies through Hapi Cafe Limited (“HCHK”), the immediate holding company of the PRC operating companies. Hapi Metaverse Inc. is permitted under Delaware law to provide funding to all the subsidiaries, except for the PRC operating companies, through loans or capital contributions without restrictions on the amount of the funds, subject to satisfaction of applicable government registration, approval and filing requirements. All the subsidiaries except for the PRC operating companies are also permitted to provide funding between subsidiaries or to Hapi Metaverse Inc. through loans or dividend distribution without restrictions on the amount of the funds. HCHK is permitted by the laws of the PRC to provide funding in the form of loans or capital injection to Guangdong LeFu Wealth Investment Consulting Co., Ltd. (“HCCN”) and its subsidiaries for their daily operations.
HCCN is permitted by the laws of the PRC to distribute profit in the form of dividends only to its immediate holding company, HCHK.
As of March 31, 2025, the Company repaid $244,136 from Alset Inc. and its’ subsidiaries, referred to “Amount due to related parties” under Consolidated Statements of Cash Flows of Consolidated Financial Statements, of which a total $128,569 was transferred from its Hong Kong subsidiaries for their daily operation use, $128,569 from HCHK. A total of $120,134 in foreign exchange loss was generated during the period of 2025, please refer to “Item. 8 Financial Statements - Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2025 and 2024” set forth in this Quarterly Report.
We currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our Board of Directors after considering our financial condition, results of operations, capital requirements, contractual requirements, business prospects and other factors the Board of Directors deems relevant, and subject to the restrictions contained in any future financing instruments.
Subject to the Delaware General Corporation Law and our bylaws, our Board of Directors may authorize and declare a dividend to shareholders at such time and in such amount as it deems appropriate, provided that the Board reasonably believes that, immediately following the dividend, our assets will exceed our liabilities and we will be able to pay our debts as they become due.
To address persistent capital outflows and the RMB’s depreciation against the U.S. dollar in the fourth quarter of 2016, the People’s Bank of China and the State Administration of Foreign Exchange, or SAFE, have implemented a series of capital control measures in the subsequent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments. The PRC government may continue to strengthen its capital controls and our PRC subsidiaries’ dividends and other distributions may be subject to tightened scrutiny in the future. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from our operations, we may be unable to pay dividends on our common stock.
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Cash dividends, if any, on our common stock will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at up to 10%.
As of the date hereof, our PRC subsidiaries have not made any transfers or distributions. As of the date hereof, no cash or asset transfers have occurred between the Company and its subsidiaries. We do not expect to pay any cash dividends in the foreseeable future. Furthermore, as of the date hereof, no cash generated from one subsidiary is used to fund another subsidiary’s operations and we do not anticipate any difficulties or limitations on our ability to transfer cash between subsidiaries. We have also not installed any cash management policies that dictate the amount of such funds and how such funds are transferred.
PRC Regulations
In accordance with PRC regulations on Enterprises with Foreign Investment and their articles of association, a foreign-invested enterprise (“FIE”) established in the PRC is required to provide statutory reserves, which are appropriated from net profit, as reported in the FIE’s PRC statutory accounts. A FIE is required to allocate at least 10% of its annual after-tax profit to the surplus reserve until such reserve has reached 50% of its respective registered capital (based on the FIE’s PRC statutory accounts). The aforementioned reserves may only be used for specific purposes and may not be distributed as cash dividends. Until such contribution of capital is satisfied, the FIE is not allowed to repatriate profits to its stockholders, unless approved by the State Administration of Foreign Exchange. After satisfaction of this requirement, the remaining funds may be appropriated at the discretion of the FIE’s board of directors. Our subsidiary, Guangdong LeFu Wealth Investment Consulting Co., Ltd. (f.k.a. Shenzhen Leyouyou Catering Management Co., Ltd.) (“HCCN”) is the PRC holding company of the other PRC subsidiaries, qualifies as an FIE and is therefore subject to the above-mandated regulations on distributable profits.
Additionally, in accordance with PRC corporate law, a domestic enterprise is required to maintain a surplus reserve of at least 10% of its annual after-tax profit until such reserve has reached 50% of its respective registered capital based on the enterprise’s PRC statutory accounts. The aforementioned reserves can only be used for specific purposes and may not be distributed as cash dividends. Dongguan Leyouyou Catering Management Co., Ltd. (“HCDG”) is the subsidiary of HCCN that conducts operations in the PRC and Guangzhou Leyouyou Catering Management Co., Ltd. (“HCGZ”) is the subsidiary of HCCN that does not conduct any operations in the PRC and was dissolved on November 26, 2024. Both of these companies were established as domestic enterprises; therefore, each is subject to the above-mentioned restrictions on distributable profits.
As a result of PRC laws and regulations that require annual appropriations of 10% of after-tax income to be set aside, prior to payment of dividends, in a general reserve fund, the Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company as a dividend or otherwise.
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Income taxes
Current income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. The components of the deferred tax assets and liabilities are individually classified as non-current in accordance with ASC 740.
The impact of an uncertain income tax position on the income tax return is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes. The Group did not recognize any income tax due to uncertain tax position or incur any interest and penalties related to potential underpaid income tax expenses for the period ended March 31, 2025 or 2024, respectively.
Investment in Securities – related party
The Company entered into Securities Purchase Agreements pursuant to which the Company purchased 6,500,000 and 7,276,163 shares of Value Exchange International, Inc., a Nevada corporation on April 8, 2021 and October 17, 2022 respectively.
On January 27, 2023, the Company and New Electric CV Corporation (together with the Company, the “Lenders”) entered into a Convertible Credit Agreement (the “1st VEII Credit Agreement”) with VEII. The Credit Agreement provides VEII with a maximum credit line of $1,500,000 (“Maximum Credit Line”) with simple interest accrued on any advances of the money under the 1st VEII Credit Agreement at 8%. The principal amount of any advance of money under the 1st VEII Credit Agreement (each being referred to as an “Advance”) is due in a lump sum, balloon payment on the third annual anniversary of the date of the Advance (“Advance Maturity Date”). Accrued and unpaid interest on any Advance is due and payable on a semi-annual basis with interest payments due on the last business day of June and last business day of December of each year. A Lender may demand that any portion or all of the unpaid principal amount of any Advance as well as accrued and unpaid interest thereon may be paid by shares of VEII common stock in lieu of cash payment.
VEII must request Advances from the Lenders. Either Lender may elect to separately, fully fund the Advance, or both Lenders may jointly elect to fund the Advance based on Lenders’ agreement on the portion of the Advance to be funded by each Lender. Lenders may severally or jointly reject any request for an Advance and neither Lender has an obligation to fund any Advance under the Credit Agreement. Accordingly, the Company will determine how much to loan to VEII pursuant to the Credit Agreement.
The 1st VEII Credit Agreement grants conversion rights to each Lender. Each Advance shall be convertible, in whole or in part, into shares of VEII common stock at the option of the Lender who made that Advance (being referred to as a “Conversion”), at any time and from time to time, at a price per share equal the “Conversion Price” (as defined below). The Conversion Price for a Conversion shall be the average closing price of the VEII common stock for the three (3) consecutive trading days prior to date of the Notice of Conversion. The Lenders shall also have certain conversion rights upon a change of control of VEII, or a breach of the Credit Agreement by VEII.
In the event that a Lender elects to convert any portion of an Advance into shares of VEII common stock in lieu of cash payment in satisfaction of that Advance, then VEII would issue to the Lender five (5) detachable warrants for each share of VEII common stock issued in a Conversion (“Warrants”). Each Warrant will entitle the Lender to purchase one (1) share of common stock at a per-share exercise price equal to the Conversion Price. The exercise period of each Warrant will be five (5) years from date of issuance of the Warrant.
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On February 23, 2023, Hapi Metaverse loaned VEII $1,400,000 (the “Loan Amount”). The Loan Amount can be converted into shares of VEII pursuant to the terms of the Convertible Credit Agreement for a period of three years. There is no fixed price for the derivative security until Hapi Metaverse converts the Loan Amount into shares of VEII common stock.
On September 6, 2023, the Company converted $1,300,000 of the principal amount loaned to VEII into 7,344,632 shares of VEII’s common stock. Under the terms of the Credit Agreement, the Company received common stock warrants to purchase a maximum of 36,723,160 shares of VEII common stock at an exercise price of $0.1770 per share. Such warrants expire five (5) years from date of their issuance.
On December 14, 2023, the Company entered into a Convertible Credit Agreement (“2nd VEII Second Credit Agreement”) with VEII. On December 15, 2023, the Company loaned VEII $1,000,000. The 2nd VEII Credit Agreement was amended pursuant to an agreement dated December 19, 2023. Under the 2nd VEII Credit Agreement, as amended, this amount can be converted into shares of VEII pursuant to the terms of the Convertible Credit Agreement for a period of three years. In the event that the Company converts this loan into shares of VEII common stock, the conversion price shall be $0.045 per share. In the event that the Company elects to convert any portion of the loan into shares of VEII common stock in lieu of cash payment in satisfaction of that loan, then VEII will issue to the Company five (5) detachable warrants for each share of VEII common stock issued in a conversion (“Warrants”). Each Warrant will entitle the Company to purchase one (1) share of common stock at a per-share exercise price equal to the Conversion Price. The exercise period of each Warrant will be five (5) years from date of issuance of the Warrant. At the time of this filing, the Company has not converted the Loan Amount.
On July 15, 2024, the Company entered into a Convertible Credit Agreement (“3rd VEII Credit Agreement”) with VEII for an unsecured credit line in the maximum amount of $110,000. Advances of the principal under the 3rd VEII Credit Agreement accrue simple interest at 8% per annum. Each Advance under the 3rd VEII Credit Agreement and all accrued interest thereon may, at the election of VEII, or the Company, be: (1) repaid in cash; (2) converted into shares of VEII Common Stock; or (3) be repaid in a combination of cash and shares of VEII Common Stock. The principal amount of each Advance under the 3rd VEII Credit Agreement shall be due and payable on the third (3rd) annual anniversary of the date that the Advance is received by VEII along with any unpaid interest accrued on the principal (the “Advance Maturity Date 3”). Prior to the Advance Maturity Date 3, unpaid interest accrued on any Advance shall be paid on the last business day of June and on the last business day of December of each year in which the Advance is outstanding and not converted into shares of VEII Common Stock. Company may prepay any Advance under the 3rd VEII Credit Agreement and interests accrued thereon prior to Advance Maturity Date 3 without penalty or charge. At the time of this filing, the Company has not converted the Loan Amount.
Our Chairman, Chan Heng Fai, and another member of our Board of Directors, Lum Kan Fai, are both members of the Board of Directors of VEII. In addition to Mr. Chan, two other members of the Board of Directors of our majority stockholder, Alset Inc., are also members of the Board of Directors of VEII (Wong Shui Yeung and Wong Tat Keung). The Company currently owns a total of 21,120,795 shares (representing 48.55%) of VEII, which are recorded at fair value of $365,390 and $747,676 at March 31, 2025 and December 31, 2024, respectively. ($1,256,389) and ($3,386,702) in unrealized (loss) was recognized during the three months ended March 31, 2025 and 2024, respectively.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item 10(f)(1) of Regulation S-K, the Company is not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of our Quarterly Report on Form 10-Q, an evaluation was carried out by management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act)) as of September 30, 2024. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
During evaluation of disclosure controls and procedures as of March 31, 2025 conducted as part of our quarter audit and preparation of our annual consolidated financial statements, management conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures and concluded that our disclosure controls and procedures were not effective. Management determined that at March 31, 2025, the following issues constitute as material weakness:
| ● | The Company has limited accounting personnel, and as such, is unable to properly segregate duties relating to the Company’s internal controls over financial reporting. | |
| ● | Additionally, well-defined accounting policies and procedures have not been established and many financial close procedures, including period-end review and reconciliations, did not occur on a timely basis or failed to identify material adjustments. |
These material weaknesses, which remained unremedied by the Company as of March 31, 2025, could result in a misstatement to the accounts and disclosures that would result in a material misstatement to our annual or interim consolidated financial statements that would not be prevented or detected. If we do not remediate the material weakness or if other material weaknesses are identified in the future, we may be unable to report our financial results accurately or to report them on a timely basis, which could result in the loss of investor confidence and have a material adverse effect on our stock price as well as our ability to access capital and lending markets.
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Changes in the Company’s Internal Controls Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any legal proceedings. Management is not aware of any legal proceedings proposed to be initiated against us. However, from time to time, we may become subject to claims and litigation generally associated with any business venture operating in the ordinary course.
ITEM 1A. RISK FACTORS
Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS
| Exhibit Number | Description | |
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| HAPI METAVERSE INC. | ||
| Date: May 14, 2025 | By: | /s/ Lee Wang Kei |
| Lee Wang Kei | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 14, 2025 | By: | /s/ Lui Wai Leung, Alan |
| Lui Wai Leung, Alan | ||
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||
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