ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
WAVE SYNC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2019 AND DECEMBER 31, 2018
(Stated in US Dollars)
|
|
As of
June 30,
2019
|
|
|
As of
December 31,
2018
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
35
|
|
|
$
|
504
|
|
Other receivable
|
|
|
-
|
|
|
|
277
|
|
Advance to suppliers
|
|
|
-
|
|
|
|
-
|
|
Prepaid expenses
|
|
|
-
|
|
|
|
-
|
|
Prepaid taxes
|
|
|
-
|
|
|
|
6,422
|
|
Due from related parties
|
|
|
-
|
|
|
|
-
|
|
Total Current Assets
|
|
|
35
|
|
|
|
7,203
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
Property and Equipment, net
|
|
|
-
|
|
|
|
584
|
|
Intangible assets, net
|
|
|
-
|
|
|
|
-
|
|
Deferred Tax Assets
|
|
|
-
|
|
|
|
-
|
|
Total Assets
|
|
$
|
35
|
|
|
$
|
7,787
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
-
|
|
|
$
|
322,368
|
|
Other payables
|
|
|
-
|
|
|
|
51,806
|
|
Accrued expenses
|
|
|
2,061
|
|
|
|
46,751
|
|
Related party payables
|
|
|
-
|
|
|
|
994,040
|
|
Taxes payable
|
|
|
400
|
|
|
|
-
|
|
Total Current Liabilities
|
|
|
2,461
|
|
|
|
1,414,965
|
|
Provision of other liabilities
|
|
|
-
|
|
|
|
-
|
|
Deferred tax liabilities
|
|
|
-
|
|
|
|
-
|
|
Total Liabilities
|
|
$
|
2,461
|
|
|
$
|
1,414,965
|
|
|
|
|
|
|
|
|
|
|
Commitment and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
Common Stock ($0.001 par value, 100,000,000 shares authorized, 21,027,713 and 21,027,713 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively)
|
|
$
|
21,027
|
|
|
$
|
21,027
|
|
Additional paid in capital
|
|
|
27,297,495
|
|
|
|
25,889,431
|
|
Accumulated deficits
|
|
|
(27,062,428
|
)
|
|
|
(27,059,112
|
)
|
Accumulated other comprehensive loss
|
|
|
(258,520
|
)
|
|
|
(258,524
|
)
|
Total Shareholders’ Equity
|
|
|
(2,426
|
)
|
|
|
(1,407,178
|
)
|
Total Liabilities and Shareholders’ Equity
|
|
$
|
35
|
|
|
$
|
7,787
|
|
See notes to consolidated financial statements
WAVE SYNC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
FOR THE FISCAL QUARTERS ENDED JUNE 30, 2019
AND 2018 (Unaudited)
(Stated in US Dollars)
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
88,908
|
|
Cost of revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87,288
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
1,155
|
|
|
|
547,532
|
|
|
|
3,074
|
|
|
|
1,205,351
|
|
Financial expenses
|
|
|
110
|
|
|
|
-
|
|
|
|
242
|
|
|
|
-
|
|
Total Operating expenses
|
|
|
1,265
|
|
|
|
547,532
|
|
|
|
3,316
|
|
|
|
1,205,351
|
|
Loss from operations
|
|
|
(1,265
|
)
|
|
|
(547,532
|
)
|
|
|
(3,316
|
)
|
|
|
(1,203,731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
26
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other expenses
|
|
|
-
|
|
|
|
(4,038,850
|
)
|
|
|
-
|
|
|
|
(4,038,850
|
)
|
Other income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Impairment loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total other (expenses) income, net
|
|
|
-
|
|
|
|
(4,038,848
|
)
|
|
|
-
|
|
|
|
(4,038,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax expenses
|
|
|
(1,265
|
)
|
|
|
(4,586,380
|
)
|
|
|
(3,316
|
)
|
|
|
(5,242,555
|
)
|
Income tax expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
$
|
(1,265
|
)
|
|
$
|
(4,586,380
|
)
|
|
$
|
(3,316
|
)
|
|
$
|
(5,242,555
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (loss) gain
|
|
|
-
|
|
|
|
113,134
|
|
|
|
-
|
|
|
|
98,682
|
|
Comprehensive loss
|
|
$
|
(1,265
|
)
|
|
$
|
(4,473,246
|
)
|
|
$
|
(3,316
|
)
|
|
$
|
(5,143,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares, basic and diluted
|
|
|
21,027,713
|
|
|
|
21,027,713
|
|
|
|
21,027,713
|
|
|
|
21,027,713
|
|
Basic and diluted loss per share
|
|
$
|
(0.00006
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.00016
|
)
|
|
$
|
(0.25
|
)
|
See notes to consolidated financial statements
WAVE SYNC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL QUARTERS ENDED JUNE 30, 2019
AND 2018 (Unaudited)
(Stated in US Dollars)
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,316
|
)
|
|
$
|
(5,242,555
|
)
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
584
|
|
|
|
4,165
|
|
Stock compensation
|
|
|
-
|
|
|
|
874,587
|
|
Impairment loss on intangible assets
|
|
|
-
|
|
|
|
3,952,129
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
-
|
|
|
|
6,043
|
|
Other receivables
|
|
|
-
|
|
|
|
790
|
|
Advance to suppliers
|
|
|
-
|
|
|
|
616
|
|
Prepaid expenses and taxes
|
|
|
-
|
|
|
|
8,241
|
|
Accounts payable
|
|
|
-
|
|
|
|
88,324
|
|
Accrued expenses
|
|
|
2,061
|
|
|
|
(28,711
|
)
|
Other payables
|
|
|
-
|
|
|
|
134,933
|
|
Tax payable
|
|
|
400
|
|
|
|
(5,245
|
)
|
Net cash (used in)/provided by operating activities
|
|
$
|
(271
|
)
|
|
$
|
(206,683
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
-
|
|
|
|
-
|
|
Purchases of long term investment
|
|
|
-
|
|
|
|
-
|
|
Net cash (used in)/provided by investing activities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Increase in related party receivables
|
|
|
-
|
|
|
|
(1,275
|
)
|
Increase in related party payables
|
|
|
-
|
|
|
|
99,023
|
|
Net cash provided by/ (used in) financing activities
|
|
$
|
-
|
|
|
$
|
97,748
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
$
|
(271
|
)
|
|
$
|
(108,935
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(198
|
)
|
|
|
100,409
|
|
Cash at beginning of year
|
|
|
504
|
|
|
|
10,346
|
|
Cash at end of period
|
|
$
|
35
|
|
|
$
|
1,820
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Interest received
|
|
$
|
-
|
|
|
$
|
26
|
|
Interest paid
|
|
|
-
|
|
|
|
-
|
|
Income taxes paid
|
|
|
-
|
|
|
|
-
|
|
Non- cash operating and financing
activities
|
|
|
|
|
|
|
|
|
Forgiveness of loans from related parties
|
|
$
|
994,040
|
|
|
$
|
-
|
|
Undertaking of assets and liabilities by related parties
|
|
$
|
414,226
|
|
|
$
|
-
|
|
See
notes to the consolidated financial statements
WAVE SYNC CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY/(DEFICIENCY)
FOR THE FISCAL QUARTERS ENDED JUNE 30, 2019
AND 2018 (Unaudited)
(Stated in US Dollars)
|
|
Six months ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
income
|
|
|
Equity
|
|
Balance as of December 31, 2018
|
|
|
21,027,713
|
|
|
$
|
21,027
|
|
|
$
|
27,297,495
|
|
|
$
|
(27,059,112
|
)
|
|
$
|
(258,524
|
)
|
|
$
|
(1,407,178
|
)
|
Net (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,316
|
)
|
|
|
-
|
|
|
|
(3,316
|
)
|
Forgiveness of loans from related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
994,040
|
|
|
|
-
|
|
|
|
-
|
|
|
|
994,040
|
|
Undertaking of assets and liabilities by related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
414,226
|
|
|
|
-
|
|
|
|
-
|
|
|
|
414,226
|
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
(202
|
)
|
|
|
-
|
|
|
|
4
|
|
|
|
(198
|
)
|
Balance as of June 30, 2019
|
|
|
21,027,713
|
|
|
$
|
21,027
|
|
|
$
|
27,297,495
|
|
|
$
|
(27,062,428
|
)
|
|
$
|
(258,520
|
)
|
|
$
|
(2,426
|
)
|
|
|
Six months ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
income
|
|
|
Equity
|
|
Balance as of December 31, 2017
|
|
|
21,027,713
|
|
|
$
|
21,027
|
|
|
$
|
24,776,214
|
|
|
$
|
(21,452,071
|
)
|
|
$
|
(223,357
|
)
|
|
$
|
3,121,813
|
)
|
Net (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,242,555
|
)
|
|
|
-
|
|
|
|
(5,242,555
|
)
|
Stock compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
874,587
|
|
|
|
-
|
|
|
|
-
|
|
|
|
874,587
|
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
98,682
|
|
|
|
98,682
|
|
Balance as of June 30, 2018
|
|
|
21,027,713
|
|
|
$
|
21,027
|
|
|
$
|
25,650,801
|
|
|
$
|
(26,694,626
|
)
|
|
$
|
(124,675
|
)
|
|
$
|
(1,147,473
|
)
|
|
|
Three months ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
income
|
|
|
Equity
|
|
Balance as of March 31, 2019
|
|
|
21,027,713
|
|
|
$
|
21,027
|
|
|
$
|
27,297,495
|
|
|
$
|
(27,061,163
|
)
|
|
$
|
(258,524
|
)
|
|
$
|
(1,409,229
|
)
|
Net (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,265
|
)
|
|
|
-
|
|
|
|
(1,265
|
)
|
Forgiveness of loans from related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
994,040
|
|
|
|
-
|
|
|
|
-
|
|
|
|
994,040
|
|
Undertaking of assets and liabilities by related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
414,226
|
|
|
|
-
|
|
|
|
-
|
|
|
|
414,226
|
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
(202
|
)
|
|
|
-
|
|
|
|
4
|
|
|
|
(198
|
)
|
Balance as of June 30, 2019
|
|
|
21,027,713
|
|
|
$
|
21,027
|
|
|
$
|
27,297,495
|
|
|
$
|
(27,062,428
|
)
|
|
$
|
(258,520
|
)
|
|
$
|
(2,426
|
)
|
|
|
Three months ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
income
|
|
|
Equity
|
|
Balance as of March 31, 2018
|
|
|
21,027,713
|
|
|
$
|
21,027
|
|
|
$
|
25,243,101
|
|
|
$
|
(22,108,246
|
)
|
|
$
|
(237,809
|
)
|
|
$
|
2,918,073
|
|
Net (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,586,380
|
)
|
|
|
-
|
|
|
|
(4,586,380
|
)
|
Stock compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
407,700
|
|
|
|
-
|
|
|
|
-
|
|
|
|
407,700
|
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
113,134
|
|
|
|
113,134
|
|
Balance as of June 30, 2018
|
|
|
21,027,713
|
|
|
$
|
21,027
|
|
|
$
|
25,650,801
|
|
|
$
|
(26,694,626
|
)
|
|
$
|
(124,675
|
)
|
|
$
|
(1,147,473
|
)
|
See
notes to the consolidated financial statements
WAVE SYNC CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
FOR THE FISCAL QUARTERS ENDED JUNE 30, 2019
AND 2018 (Unaudited)
(Stated in US Dollars)
NOTE 1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Wave Sync Corp. formerly known as China Bio-Energy
Corp. (the “Company”), and prior to that known as China INSOnline Corp., was incorporated on December 23, 1988 as Lifequest
Medical, Inc., a Delaware corporation.
In June 2010, the Company ceased all operations
conducted by its then subsidiaries: Ever Trend Investment Limited, Run Ze Yong Cheng (Beijing) Technology, San Teng Da Fei Technology,
and Guang Hua Insurance Agency (“Ever Trend Group”); on January 27, 2015, the Company announced the completion of the disposition
of the aforementioned subsidiaries. Accordingly, the Company has excluded the accounts of Ever Trend Group in these financial statements
and the accompanying notes contained herein.
On November 12, 2010, the Company entered into
a share exchange agreement with Ding Neng Holdings Ltd, an investment holdings company incorporated in the British Virgin Islands (“Ding
Neng Holdings”); the share exchange agreement was amended on December 6, 2010, whereby the Company, under the share exchange agreement
and its related amendment, would have contemplated acquiring 100% of Ding Neng Holdings in exchange for the issuance of 26,162,505 shares
of the Company’s common stock, par value $0.001. Under the share exchange agreement, the Company would have contemplated owning
and operating Ding Neng Holdings and Ding Neng Holdings’ directly, and indirectly held subsidiaries: Ding Neng Bio-technology Co.,
Ltd. (“Ding Neng HK”), Zhangzhou Fuhua Biomass Energy Technology Co., Ltd. (“WOFE”), and Ding Neng Bio-tech. Ding
Neng HK was incorporated under the laws of Hong Kong on September 10, 2010. Ding Neng HK did not have any operations. Ding Neng HK has
been delinquent with its annual regulatory filings in Hong Kong, and should be considered dormant and defunct. Ding Neng HK was wholly-owned
by Ding Neng Holdings. Zhangzhou Fuhua Biomass Energy Technology Co., Ltd.(“WFOE”) was incorporated as a wholly-foreign owned
entity under the laws of the People’s Republic of China (“PRC”), on November 2, 2010. WFOE was wholly-owned by Ding
Neng HK. Ding Neng Bio-tech was incorporated under the laws of the PRC on December 8, 2006. It was located in Zhangzhou city Fujian Province
of PRC. Ding Neng Bio-tech was engaged in theproduction, refinement and distribution of bio-diesel fuel in Southern China. Ding Neng Bio-tech
operated a biodiesel manufacturing facility in Zhangzhou city. On October 28, 2010, WFOE and Ding Neng Bio-tech entered into a set of
variable interest entity agreements that included: (1) a Consulting Service Agreement with Ding Neng Bio-tech, which entitled WFOE toreceive
substantially all of the economic benefits of Ding Neng Bio-tech in consideration for services provided by WFOE to DingNeng Bio-tech,
(2) an Option Agreement with Xinfeng Nie, Sanfu Huang, and Shunlong Hu (the shareholders of Ding Neng Bio-tech) allowing the WFOE to acquire
all the shares of Ding Neng Bio-tech as permitted by PRC laws, (3) a Voting Rights Proxy Agreement that provides WFOE with the all voting
rights of the Ding Neng Bio-tech shareholders, and (4) an Equity Pledge Agreement that pledges the shares in Ding Neng Bio-tech to WFOE
(VIE Agreements). These VIE Agreements granted effective control of Ding Neng Bio-tech to WFOE. On June 4, 2015, WFOE filed a civil action
in Haicang District People’s Court of Xiamen, Fujian, PRC (the “Court”) against Ding Neng Bio-tech, alleging that the
purposes of those certain executed VIE Agreements entered into by WFOE and Ding Neng Bio-Tech on October 28, 2010, had been frustrated,
and that these VIE Agreements should be terminated. WFOE alleged that Ding Neng Bio-Tech did not make any payment of service fees to WFOE,
and that Ding Neng Bio-Tech failed to perfect the security interest in the pledged stocks. On July 14, 2015, this case was settled via
in-court mediation directed by the Court. As a result, WFOE and Ding Neng Bio-Tech entered into binding settlement, among other things,
(i) to terminate the VIE Agreements, and (ii) that the litigation fee in the amount of RMB10,000 (approximately$1,610.50) would be borne
by Ding Neng Bio-Tech. Ding Neng Holdings is delinquent with its regulatory filings and annual fees to the British Virgin Islands; accordingly,
the Ding Neng Holdings should be considered dormant and defunct.
Given that the Company has not been able to exercise
effective control over Ding Neng Bio-Tech or to access Ding Neng Bio-tech’s financial information since 2011, and the VIE Agreements
were terminated, the Company has excluded the accounts of Ding Neng Bio-Tech’s in these financial statements and the accompanying
notes contained herein; the exclusion of such accounts is considered as a type two material subsequent event that occurred prior to the
issuance of the financial statements but after the balance sheets dates that required material adjustments to the financial statements
presented. Ding Neng Holdings is delinquent and defunct; the Company has determined that the Company was never registered as the sole
shareholder of Ding Neng Holdings pursuant to the share exchange agreement dated November 12, 2010, and amended December 6, 2010; accordingly,
the Company has excluded the accounts of Ding Neng and its subsidiaries in these financial statements and the accompanying notes as contained
herein; the exclusion of such accounts is considered as a type two material subsequent event that occurred prior to the issuance of the
financial statements but after the balance sheets dates that required material adjustments to the financial statements presented. The
Company accounted for the issuance of shares to the shareholders of Ding Neng Holdings under the contemplated share exchange transaction
as a recapitalization of the Company under reverse take-over accounting; accordingly, the Company’s historical stockholders’
equity has been retroactively restated to the first period presented; as a result of the Company not being updated to Ding Neng Holdings
shareholder register, and that Ding Neng Holdings being defunct, the Company has written off all investments made in Ding Neng as loss
on investment in subsidiary.
In connection with the share exchange agreement
with the shareholders of Ding Neng Holdings that contemplated the acquisition of Ding Neng Holdings and its subsidiaries, the Company
elected to adopt the fiscal year used by Ding Neng Holdings, which was a calendar year; accordingly, the Company’s financial statements
presented herein have been, and on a go-forward basis, will be prepared using a December 31 year-end date, and each operating period will
cover twelve full calendar months.
Share Purchase Agreement
On October 19, 2015, the Company entered into
a Share Purchase Agreement (the “Share Purchase Agreement”) with EGOOS Mobile Technology Company Limited, a British Virgin
Islands holding company (“EGOOS BVI”), which owns 100% of EGOOS Mobile Technology Company Limited, a Hong Kong company (“EGOOS
HK”), which owns 100% of Move the Purchase Consulting Management (Shenzhen) Co., Ltd. (“WOFE”), a foreign investment
enterprise organized under the laws of the PRC, and which has, through various contractual agreements known as variable interest entity
(“VIE”) agreements. These VIE agreements provide the WOFE management control and the rights to the profits of Guangzhou Yuzhi
Information Technology Co., Ltd., a corporation organized under the laws of the PRC as a variable interest entity (“GZYZ”),
which owns 100% of Shenzhen Qianhai Exce-card Technology Co., Ltd., a Chinese corporation (“SQEC”), which owns 100% of Guangzhou
Rongsheng Information Technology Co., Ltd., a Chinese corporation (“GZRS”) and the sole shareholder of EGOOS BVI. The VIE
agreements include: (1) an Exclusive Service Agreement between WOFE and GZYZ, which entitles WOFE to receive substantially all of the
economic benefits of GZYZ in consideration for services provided by WOFE to GZYZ, (2) a Call Option Agreement with the shareholders of
GZYZ, Yang Wenbin and Li Ping, allowing the WOFE to acquire all the shares of GZYZ as permitted by PRC laws, (3) a Voting Rights Proxy
Agreement that provides WOFE with the all voting rights of the GZYZ’s shareholders, and (4) an Equity Pledge Agreement that pledges
the shares in GZYZ to WOFE. Management has assessed the terms of the VIE agreements and determined that the Company is the primary beneficiary
of those agreements based on Management’s ability to direct the use and disposition of GZYZ assets including the payment of future
profits to the Company. Management also determined the Company has implicitly provided financial support to GYZY; accordingly, Management
believes that GZYZ and its subsidiaries should be consolidated as variable interest entities of the Company.
SQEC was incorporated on November 11, 2013. The
Company was in the business of design, development, and proliferation of next generation debit and credit cards for financial institutions
employing innovative secured encryption technology transmitted via audio wave technology; the Company intended to work with China Union
Pay and China Construction Bank under a potential pilot program to develop and market to end user bank customers and business operators
to adopt these next generation of cards by developing point of sale and commercial interfaces via software and other solutions to generate
demand for these cards as a value-added alternative to current generation debit and credit cards.
On January 28, 2015, ownership of SQEC’s
was transferred from Bao, Shanshan to Xiang, Zuyue for a consideration of approximately $1,629,062 (RMB 10,000,000). Simultaneously, Xiang,
Zuyue transferred 40% of ownership to Li, Na for a consideration of $651,625 (RMB 4,000,000). On July 24, 2015, SQEC entire ownership
was collectively transferred from Xiang, Zuyue and Li, Na to Guangzhou Yuzhi Information Technology Co. Ltd. (“GZYZ”) for
a consideration of approximately$1,629,062 (RMB 10,000,000).
On March 16, 2015, the GZRS was incorporated as
a wholly-owned subsidiary of SQEC. GZRS has an authorized capital of RMB1,000,000. As of the date of this report, GZRS has not been capitalized.
Pursuant to the Share Purchase Agreement the Company
issued a convertible note to EGOOS BVI’s sole shareholder for 100% equity interest in EGOOS BVI. The note is convertible into 15,000,000
shares of the Company’s common stock contingent on the following conditions: (i) the Company had effectuated a reverse split of
all of the issued and outstanding Common Stock as of the date of the issuance of the note (the “Reverse Split”) and (ii) the
average closing price of the common stock for 3 business days within any period of 10 consecutive business days exceeded $1.00 per share
(the “Conversion Conditions”). Upon conversion of the note, the existing shareholders of the Registrant would own an aggregate
of 24.7% of the post-acquisition entity. The note was issued at Par, it is unsecured, interest free, and is due on the second anniversary
of the issuance date of the note. In accounting for the note, the Company has assumed that the note does not carry any discount from face
that requires accretion as interest expense to its results of operations, including any potential beneficial conversion features. On January
26, 2016, the reverse split was effectuated, and subsequently, on February 4, 2016, the convertible promissory note was converted into
15 million newly issued shares of the Company’s common stock. The conversion of the promissory note has been recognized retroactively
to the first period presented as a component of the reverse takeover transactions detailed below.
The consolidated financial statements were prepared
assuming that the Company has controlled EGOOS BVI and its intermediary holding companies, operating subsidiaries, and variable interest
entities: EGOOS HK, WOFE, GZYZ, SQEC, and GZRS from the first period presented. The transactions detailed above have been accounted for
as reverse takeover transactions and are capitalization of the Company, including the conversion of the convertible promissory note; accordingly,
the Company (the legal acquirer) is considered the accounting acquiree and EGOOS BVI (the legal acquiree) is considered the accounting
acquirer. No goodwill has been recorded. As a result of this transaction, the Company is deemed to be a continuation of the business of
EGOOS BVI and SQEC.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Method of Accounting
The Company maintains its general ledger and journals
with the accrual method of accounting for financial reporting purposes. The financial statements and notes are representations of management.
Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have
been consistently applied in the presentation of financial statements.
B. Basis of presentation
The consolidated financial statements of the Company
have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
C. Principles of Consolidation
The consolidated financial statements include
the financial statements of all the subsidiaries and VIEs of the Company. All transactions and balances between the Company and its subsidiaries
and VIEs have been eliminated upon consolidation
The consolidated financial statements include
the accounts of the Company, its subsidiaries for which the Company is the primary beneficiary. All significant inter-company accounts
and transactions have been eliminated. The consolidated financial statements include 100% of assets, liabilities, and net income or loss
of those wholly-owned subsidiaries.
As of June 30, 2019 and December 31, 2018, the
detailed identities of the consolidating subsidiaries are as follows:
Name of Company
|
|
Place of
incorporation
|
|
Attributable
equity
interest %
|
|
|
Registered
capital
|
|
EGOOS Mobile Technology Company Limited (“EGOOS BVI”)
|
|
BVI
|
|
|
100
|
%
|
|
$
|
1
|
|
EGOOS Mobile Technology Company Limited (“EGOOS HK”)
|
|
Hong Kong
|
|
|
100
|
%
|
|
|
1,290
|
|
Move the Purchase Consulting Management (Shenzhen) Co., Ltd. (“WOFE”)
|
|
P.R.C
|
|
|
100
|
%
|
|
|
-
|
|
Guangzhou Yuzhi Information Technology Co., Ltd. (“GZYZ”)
|
|
P.R.C
|
|
|
100
|
%
|
|
|
150,527
|
|
Shenzhen Qianhai Exce-card Technology Co., Ltd. (“SQEC”)
|
|
P.R.C
|
|
|
100
|
%
|
|
|
150,527
|
|
Guangzhou Rongsheng Information Technology Co., Ltd. (“GZRS”)
|
|
P.R.C
|
|
|
100
|
%
|
|
|
1,505,267
|
|
D. Unaudited Interim Financial Information
These unaudited interim condensed consolidated
financial statements have been prepared in accordance with GAAP for interim financial reporting and the rules and regulations of the Securities
and Exchange Commission that permit reduced disclosure for interim periods. Therefore, certain information and footnote disclosures normally
included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, all adjustments
of a normal recurring nature necessary for a fair presentation of the financial position, results of operations and cash flows for the
periods presented have been made. The results of operations for the interim periods presented are not necessarily indicative of the results
to be expected for the year ending December 31, 2019.
The consolidated balance sheets and certain comparative
information as of December 31, 2018 are derived from the audited consolidated financial statements and related notes for the year ended
December 31, 2018 (“2018 Annual Financial Statements”), included in the Company’s 2018 Annual Report on Form 10-K. These
unaudited interim condensed consolidated financial statements should be read in conjunction with the 2018 Annual Financial Statements.
E. Use of estimates
The preparation of the financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. Estimates are used for, but not limited to, the accounting
for certain items such as allowance for doubtful accounts, depreciation and amortization, impairment, inventory allowance, taxes and contingencies.
F. Contingencies
Certain conditions may exist as of the date the
financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events
occur or fail to occur. The Company’s management assesses such contingent liabilities, and such assessment inherently involves an
exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted
claims that may result in such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or
un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that
it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would
be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not
probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with
an estimate of the range of possible loss if determinable and material would be disclosed.
Loss contingencies considered to be remote by
management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
G. Cash and cash equivalents
The Company classifies the following instruments
as cash and cash equivalents: cash on hand, unrestricted bank deposits, and all highly liquid investments purchased with original maturities
of three months or less.
H. Accounts receivable
Trade receivables are recognized and carried at
the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of
the full amount is no longer probable. Bad debts are written off as incurred.
I. Other receivables
Other receivables are recognized and carried at
the original invoice amount less allowance for any uncollectible amounts. An allowance for doubtful accounts is made when recovery of
the full amount is doubtful.
J. Property, plant and equipment
Plant and equipment are carried at cost less accumulated
depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method with a salvage value of 10%.
Estimated useful lives of the plant and equipment are as follows:
Computer equipment
|
3 years
|
Office furniture
|
5 years
|
The cost and related accumulated depreciation
of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The
cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.
K. Accounting for the Impairment of Long-lived
assets
The long-lived assets held by the Company are
reviewed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Subtopic 360-10-35, “Accounting for the Impairment or Disposal of Long-Lived Assets,” for impairment whenever events or changes
in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could
become impaired as a result of technology or other industry changes. Impairment is present if carrying amount of an asset is less than
its undiscounted cash flows to be generated.
If an asset is considered impaired, a loss is
recognized based on the amount by which the carrying amount exceeds the fair market value of the asset. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less costs to sell. The Company believes no impairment has occurred to its assets during
the three months ended June 30, 2019 and 2018.
L. Income taxes
The Company uses the accrual method of accounting
to determine income taxes for the year. The Company has implemented FASB ASC 740 Accounting for Income Taxes. Income tax liabilities computed
according to the United States, People’s Republic of China (PRC), and Hong Kong tax laws provide for the tax effects of transactions
reported in the financial statements and consists of taxes currently due, plus deferred taxes, related primarily to differences arising
from the recognition of expenses related to the depreciation of plant and equipment, amortization of intangible assets, and provisions
for doubtful accounts between financial and tax reporting. The deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will be either taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes
also are recognized for operating losses that are available to offset future income taxes.
A valuation allowance is recognized for deferred
tax assets if it is more likely than not, that the deferred tax assets will either expire before the Company is able to realize that tax
benefit, or that future realization is uncertain.
M. Stock-based compensation
The Company has elected to use the Black-Scholes-Merton
(“BSM”) pricing model to determine the fair value of stock options on the dates of grant. Also, the Company recognizes stock-based
compensation using the straight-line method over the requisite service period.
The Company values stock awards using the market
price on or around the date the shares were awarded and includes the amount of compensation as a period compensation expense over the
requisite service period.
For the six months ended June 30, 2019 and 2018,
$0 and $874,587 stock-based compensation was recognized.
For the three months ended June 30, 2019 and 2018,
$0 and $407,701 stock-based compensation was recognized.
N. Foreign currency translation
The accompanying financial statements are presented
in United States dollars (USD). The functional currency of the Company is the USD and Renminbi (RMB). The financial statements are translated
into USD from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital
accounts are translated at their historical exchange rates when the capital transactions occurred.
Exchange rates
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
|
December 31,
2018
|
|
Year-end/period-end RMB : US$ exchange rate
|
|
|
6.8747
|
|
|
|
6.6191
|
|
|
|
6.8764
|
|
Average annual/period RMB : US$ exchange rate
|
|
|
6.7808
|
|
|
|
6.3665
|
|
|
|
6.6146
|
|
The RMB is not freely convertible into foreign
currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB
amounts could have been, or could be, converted into US Dollar at the rates used in translation.
O. Revenue recognition
The Company recognizes services revenue when the
following criteria have been met: 1.) it has agreed and entered into a contract for service with its customers pursuant to which the Company
identifies the contract and determines the transactions price with its customers, 2.) the contract has set forth a fixed fee for the services
to be rendered under which the Company has determined the transaction’s price and the allocation of such price to performance obligations
with the customers, 3.) the Company has fully rendered service to its customers, and there are no additional obligations that exist that
under the terms of the contract that the Company has not fulfilled such that the Company recognizes revenue when the performance obligation
is satisfied, and 4.) the Company has either received payment, or reasonably expects payment from the customer in accordance to the payment
terms set forth in the contract.
P. Earnings per share
Basic earnings per share is computed on the basis
of the weighted average number of common stock outstanding during the period. Diluted earnings per share is computed on the basis of the
weighted average number of common stock and common stock equivalents outstanding. Dilutive securities having an anti-dilutive effect on
diluted earnings per share are excluded from the calculation.
Dilution is computed by applying the treasury
stock method for options and warrants. Under this method, options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price
during the period.
Q. Comprehensive loss
Comprehensive income (loss) is defined to include
all changes in equity except those resulting from investments by owners and distributions to owners. The Company presents components of
comprehensive income with equal prominence to other financial statements. The Company’s current component of other comprehensive
income is the foreign currency translation adjustment.
R. Subsequent events
The Company evaluates subsequent events that have
occurred after the balance sheet date but before the financial statements are issued. There are two types of subsequent events: (1) recognized,
or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates
inherent in the process of preparing financial statements, and (2) non recognized, or those that provide evidence with respect to conditions
that did not exist at the date of the balance sheet but arose subsequent to that date.
S. Fair Value of Financial Instruments
ASC 825, Financial Instruments, requires that
the Company discloses estimated fair values of financial instruments. The carrying amounts reported in the balance sheets for current
assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.
The Company applies the provisions of ASC 820-10,
Fair Value Measurements and Disclosures. ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures
of fair value measurement that enhances disclosure requirements for fair value measures. For certain financial instruments, including
cash and cash equivalents, loan receivables and short-term bank loans, the carrying amounts approximate fair value due to their relatively
short maturities. The three levels of valuation hierarchy are defined as follows:
|
●
|
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
|
|
●
|
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
●
|
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The Company analyzes all financial instruments
with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815.
The following tables present the Company’s
financial assets and liabilities at fair value in accordance to ASC 820-10
As of June 30, 2019:
|
|
Quoted in
Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
35
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
35
|
|
Total financial assets
|
|
$
|
35
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
35
|
|
As of December 31, 2018:
|
|
Quoted in
Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
|
|
(Audited)
|
|
|
(Audited)
|
|
|
(Audited)
|
|
|
(Audited)
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
504
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
504
|
|
Total financial assets
|
|
$
|
504
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
504
|
|
T. Recently issued accounting standards
In June 2016, the FASB issued ASU 2016-13, “Financial
Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments”, which will be effective for
fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The guidance replaces the incurred
loss impairment methodology with an expected credit loss model for which a company recognizes an allowance based on the estimate of expected
credit loss. The standard did not have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04,
“Intangibles — Goodwill and Other (Topic 350): simplifying the test for goodwill impairment”, the guidance removes Step
2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount
by which a reporting unit’s carrying value exceeds its fair value, not the difference between the fair value and carrying amount
of goodwill which was the step 2 test before. The ASU should be adopted on a prospective basis for the annual or any interim goodwill
impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed
on testing dates after January 1, 2017. The standard did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, “Changes
to the Disclosure Requirements for Fair Value Measurement.” This standard eliminates the current requirement to disclose the amount
or reason for transfers between level 1 and level 2 of the fair value hierarchy and the requirement to disclose the valuation methodology
for level 3 fair value measurements. The standard includes additional disclosure requirements for level 3 fair value measurements, including
the requirement to disclose the changes in unrealized gains and losses in other comprehensive income during the period and permits the
disclosure of other relevant quantitative information for certain unobservable inputs. The new guidance is effective for interim and annual
periods beginning after December 15, 2019. The standard did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, “Internal-Use
Software — Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement.” This ASU
aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement service contract with the guidance to
capitalize implementation costs of internal use software. The ASU also requires that the costs for implementation activities during the
application development phase be capitalized in a hosting arrangement service contract, and costs during the preliminary and post implementation
phase are expensed. The new guidance is effective for interim and annual periods beginning after December 15, 2019. The standard did not
have a material impact on our consolidated financial statements.
In October 2018, the FASB issued ASU 2018-17,
Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, (“ASU 2018-17”).
ASU 2018-17 requires reporting entities to consider indirect interests held through related parties under common control on a proportional
basis rather than as the equivalent of a direct interest in its entirety for determining whether a decision-making fee is a variable interest.
The standard is effective for all entities for financial statements issued for fiscal years beginning after December 15, 2019, and interim
periods within those fiscal years. Early adoption is permitted. Entities are required to apply the amendments in ASU 2018-17 retrospectively
with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. The standard did not have
a material impact on our consolidated financial statements
In April 2019, the FASB issued ASU 2019-04, Codification
Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,
(“ASU 2019-04”). ASU 2019-04 clarifies and improves areas of guidance related to the recently issued standards on credit
losses (ASU 2016-13), hedging (ASU 2017-12), and recognition and measurement of financial instruments (ASU 2016-01). The amendments generally
have the same effective dates as their related standards. If already adopted, the amendments of ASU 2016-01 and ASU 2016-13 are effective
for fiscal years beginning after December 15, 2019 and the amendments of ASU 2017-12 are effective as of the beginning of the Company’s
next annual reporting period; early adoption is permitted. The standard did not have a material impact on our consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 will simplify the accounting for income taxes by removing
certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for
other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this Update are
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. ASU 2019-12 will be effective
for the Company in the first quarter of 2021. The Company does not expect the adoption of the new accounting rules to have a material
impact on the Company’s financial condition, results of operations, cash flows or disclosures.
In March 2020, the FASB issued ASU 2020-03, Codification
Improvements to Financial Instruments, (“ASU 2020-03”). ASU 2020-03 improves various financial instruments topics, including
the CECL Standard. ASU 2020-03 includes seven different issues that describe the areas of improvement and the related amendments to GAAP,
intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments
related to Issue 1, Issue 2, Issue 4 and Issue 5 were effective upon issuance of ASU 2020-03. The amendments related to Issue 3, Issue
6 and Issue 7 were effective for the Company beginning on January 1, 2020. The Company does not anticipate that the adoption of the new
standard will have a material effect on its consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional
expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform.
The amendments in this standard can be applied anytime between the first quarter of 2020 and the fourth quarter of 2022. The Company is
currently in the process of evaluating the impact of adoption of the new rules on the Company’s financial condition, results of
operations, cash flows and disclosures.
Other than the above, management does not believe
that any of the recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the
Company’s consolidated financial statements.
U. Going Concern
The
Company has suffered from losses from operation and significant accumulated deficits. It’s net loss for the six months ended June
30, 2019 and 2018 were $3,316 and $5,242,555 respectively, and the accumulated losses as of June 30, 2019 and December 31, 2018 were $27,062,428
and $27,059,112, respectively. As of June 30, 2019 and December 31, 2019, the Company has cash and cash equivalents of $35 and $504, respectively
and net cash used in operating activities during the six months ended June 30, 2019 and 2018 were $271 and
$206,683, respectively. The Company comes to have insufficient cash flows generated from operations and provided for development. In addition,
the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company’s
ability to continue as a going concern. The management determines that additional effort will be required to improve the operation so
that the Company may generate more profits to sustain its continuous. The Company may explore the channels to raise additional capital
or any opportunities to improve the cash flow in the years to come. Subsequent to the year ended December 31, 2020, the Company had raised
$1,050,000 (gross proceeds) and $1,780,000 (gross proceeds) as of April 23, 2021 and July 29, 2021, respectively, from share placement
to improve the financial position and cash flow of the Company.
NOTE 3. CASH AND CASH EQUIVALENTS
Cash consisted of the following:
|
|
As of
June 30,
2019
|
|
|
As of
December 31,
2018
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Cash on hand
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash in banks
|
|
|
35
|
|
|
|
504
|
|
Total cash
|
|
$
|
35
|
|
|
$
|
504
|
|
NOTE 4. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of the
following:
|
|
As of
June 30,
2019
|
|
|
As of
December 31,
2018
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
At Cost:
|
|
|
|
|
|
|
Office equipment
|
|
$
|
18,320
|
|
|
$
|
18,320
|
|
Office furniture
|
|
|
12,723
|
|
|
|
12,723
|
|
Total property and equipment
|
|
|
31,043
|
|
|
|
31,043
|
|
Less: accumulated depreciation
|
|
|
(31,043
|
)
|
|
|
(30,459
|
)
|
Less: impairment
|
|
|
-
|
|
|
|
-
|
|
Property, plant and equipment, net
|
|
$
|
-
|
|
|
$
|
584
|
|
Depreciation expense was $0 and $264, respectively
for the three months ended June 30, 2019 and 2018.
Depreciation expense was $584 and $4,165, respectively
for the six months ended June 30, 2019 and 2018.
NOTE 5. INTANGIBLE ASSETS, NET
Intangible assets consisted of the following:
|
|
As of
June 30,
2019
|
|
|
As of
December 31,
2018
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
At Cost:
|
|
|
|
|
|
|
Patent
|
|
$
|
-
|
|
|
$
|
-
|
|
Software
|
|
|
1,251
|
|
|
|
1,251
|
|
Total intangible assets
|
|
|
1,251
|
|
|
|
1,251
|
|
Less: accumulated amortization
|
|
|
(1,251
|
)
|
|
|
(1,251
|
)
|
Less: impairment
|
|
|
-
|
|
|
|
-
|
|
Intangible assets, net
|
|
$
|
-
|
|
|
$
|
-
|
|
On July 7, 2017, SQEC and the director and CEO
of the Company, Mr. Zuyue Xiang (“Xiang”), entered into an intangible asset transfer agreement. Xiang transferred his rights
and ownership of the patent to a voice smart card and trading system for a consideration of RMB 10,000,000 (equivalent to USD 1,447,696).
The patent was impaired during the period ended June 30, 2018 and was written off to other expense.
Amortization expense was $0 and $0, respectively
for the three months ended June 30, 2019 and 2018.
Amortization
expense was $0 and $0 , respectively for the six months ended June
30, 2019 and 2018.
NOTE 6. RELATED PARTY PAYABLES
Related party payables consisted of the following:
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Beijing Yuxin Shangfang Technology Co., Ltd.
|
|
$
|
-
|
|
|
$
|
285,894
|
|
Hainan Xin Jing Yuan Co., Ltd.
|
|
|
-
|
|
|
|
43,627
|
|
Xiang, Zuyue, director of SQEC and shareholder
|
|
|
-
|
|
|
|
102,217
|
|
Xiang, Lingqing, employee of SQEC
|
|
|
-
|
|
|
|
1,504
|
|
Lim, Jehn Ming, shareholder of EGOOS BVI
|
|
|
-
|
|
|
|
1,289
|
|
Wang, Yue, director of EGOOS HK
|
|
|
-
|
|
|
|
161,523
|
|
Yang, Mei, shareholder
|
|
|
-
|
|
|
|
393,963
|
|
Li, Ping, director of WOFE
|
|
|
-
|
|
|
|
4,023
|
|
|
|
$
|
-
|
|
|
$
|
994,040
|
|
The amounts were provided as working capital to
financial the Company’s operations. The amounts are unsecured, interest-free and due on demand.
NOTE 7. RELATED PARTY TRANSACTIONS
For the period ended June 30, 2019, the Company
entered into agreements with major shareholders and directors of the subsidiaries of the Company to forgive the Related Party Payables
amounting to $994,040 and the details consisted of the followings:
|
|
June 30,
2019
|
|
|
|
(Unaudited)
|
|
Beijing Yuxin Shangfang Technology Co., Ltd.
|
|
$
|
285,894
|
|
Hainan Xin Jing Yuan Co., Ltd.
|
|
|
43,627
|
|
Xiang, Zuyue, director of SQEC and shareholder
|
|
|
102,217
|
|
Xiang, Lingqing, employee of SQEC
|
|
|
1,504
|
|
Lim, Jehn Ming, shareholder of EGOOS BVI
|
|
|
1,289
|
|
Wang, Yue, director of EGOOS HK
|
|
|
161,523
|
|
Yang, Mei, shareholder
|
|
|
393,963
|
|
Li, Ping, director of WOFE
|
|
|
4,023
|
|
Forgiveness of Related Party Payables
|
|
$
|
994,040
|
|
For the period ended June 30, 2019, the Company
entered into agreements with major shareholders and directors of the subsidiaries of the Company to assume or receive, as applicable certain
assets and liabilities amounting to $414,226 and the details consisted of the followings:
|
|
June 30,
2019
|
|
|
|
(Unaudited)
|
|
Other receivable
|
|
$
|
277
|
|
Prepaid taxes
|
|
|
6,422
|
|
Accounts payable
|
|
|
(322,368
|
)
|
Other payable
|
|
|
(51,806
|
)
|
Accrued expenses
|
|
|
(46,751
|
)
|
Net liabilities undertaken by related party
|
|
$
|
(414,226
|
)
|
NOTE 8. Taxation
a)
|
Corporate Income Taxes
|
The Company was incorporated in the
United States of America (“USA”). The Company did not generate any taxable income from its operations for the six months
ended June 30, 2019 and 2018.
The Company was incorporated in the
United States (“USA”) and subject to taxes in the United States. The Company did not generate any taxable income from its
operations for the six months ended June 30, 2019 and 2018. The Company has evaluated their respective income tax positions and has determined
that they do not have any uncertain tax positions. The Company will recognize interest and penalties related to any uncertain tax positions
through their income tax expense.
The Company is subject to franchise
tax filing requirements in the State of Delaware.
The components of the income tax expense
are as follows:
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
Three months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
Uncertain Tax Positions
Interest associated with unrecognized
tax benefits are classified as income tax, and penalties are classified in selling, general and administrative expenses in the statements
of operations. For the three months ended June 30, 2019, and 2018, the Company had no unrecognized tax benefits and related interest and
penalties expenses. Currently, the Company is not subject to examination by major tax jurisdictions. For the six months ended June 30,
2019, and 2018, the Company had no unrecognized tax benefits and related interest and penalties expenses. Currently, the Company is not
subject to examination by major tax jurisdictions.
Deferred income tax benefits arise
from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which
will result in taxable or deductible amounts in the future. In evaluating the Company’s ability to recover the deferred tax assets,
the management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected
future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, the Company begins
with historical results adjusted for the results of discontinued operations and incorporate assumptions about the amount of future state,
federal, and foreign pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable
income require the use of significant judgment and are consistent with the plans and estimates that the Company is using to manage the
underlying businesses. As of June 30, 2019 and December 31, 2018, management was uncertain as to whether or not the Company would be able
to utilize the potential deferred tax assets arising from net operating losses’ since the Company is not currently generating any
revenue; accordingly, the Company has not recognized a deferred tax asset.
Taxes payable consisted of the following:
|
|
As of
June 30,
2019
|
|
|
As of
December 31,
2018
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Corporate income tax payable
|
|
$
|
-
|
|
|
$
|
-
|
|
Franchise tax payable
|
|
|
400
|
|
|
|
-
|
|
Other surtaxes payable
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
400
|
|
|
$
|
-
|
|
NOTE 9. STOCKHOLDERS’ EQUITY
Common stock
As of June 30, 2019 and December 31, 2018, the
Company had 100,000,000 shares of common stock authorized, 21,027,713 shares issued and outstanding at par value of $0.001 per share.
Stock option compensation
On October 20, 2017, the Company issued to Mr.
Yang Liu, the option to purchase 1,050,000 shares of the Company’s common stock to be issued upon his exercise of such option. The
option vests in three tranches according to the following schedule: 350,000 shares at October 19, 2018, 350,000 shares at October 19,
2019, and 350,000 at October 19, 2020. All three tranches expire on October 19, 2022. The Company has used the widely accepted Black Scholes
Merton Option Pricing Model to measure the fair value of these securities, because of their plain vanilla nature of this option. The Company
employed the followings assumptions to calculate the fair value of the option: expected forfeiture rate: 0%, risk free rate: 2.03%, expiration
date: October 19, 2022, exercise price: $1.00, annualized volatility: 602.71%, dividend yield: 0%, and the Company’s closing stock
price at year end.
For the years ended December 31, 2018 and 2017,
the Company recorded stock option compensation expense of $1,113,217 and $373,509. On August 22, 2018, Mr. Liu resigned from his position
as Chief Executive Officer. The stock options were not fully vested since his resignation was before the anniversary of his employment
period. Mr. Liu had forfeited all his stock options upon his resignation on August 30, 2018.
For the six months ended June 30, 2019, no stock
option has been issued. For the six months ended June 30, 2018, $874,587 stock option has been issued.
For the three months ended June 30, 2019, no stock
option has been issued. For the three months ended June 30, 2018, $407,701 stock option has been issued.
NOTE 10. LOSS PER SHARE
The following table presents a reconciliation
of basic and diluted earnings per share:
|
|
Six months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Numerator:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,316
|
)
|
|
$
|
(5,143,873
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of common stock outstanding - basic and diluted
|
|
|
21,027,713
|
|
|
|
21,027,713
|
|
Loss per share – Basic and diluted:
|
|
$
|
(0.00016
|
)
|
|
$
|
(0.25
|
)
|
|
|
Three months ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Numerator:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,265
|
)
|
|
$
|
(4,473,246
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of common stock outstanding - basic and diluted
|
|
|
21,027,713
|
|
|
|
21,027,713
|
|
Loss per share – Basic and diluted:
|
|
$
|
(0.00006
|
)
|
|
$
|
(0.22
|
)
|
NOTE 11. CONCENTRATION OF RISK
The Company has certain customers who represented
10% or more of the Company’s total sales. For the six months ended June 30, 2019, the Company did not generate any revenue. For
the six months ended June 30, 2018, the Company generated service revenue from one customer, which represented 100% of the revenue.
b)
|
Major Vendors and Accounts Payable
|
The Company has certain vendors who represented
10% or more of the Company’s total cost of sales or expenses, or whose accounts payable balances individually represented 10% or
more of the Company’s total accounts payable. For the six months ended June 30, 2019, there was no transaction on purchase. For
the six months ended June 30, 2018, there was no concentration in any specific vendor.
The Company maintains cash balances at several
financial institutions located in the United States and the PRC. Accounts located in the United States are insured by the Federal Deposit
Insurance Corporation up to $100,000. Accounts located outside of the United States are not insured and may be subject to such risk.
NOTE 12. GOING CONCERN UNCERTAINTIES
These financial statements have been prepared
assuming that Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities
in the normal course of business for the foreseeable future.
As of June 30, 2019 and December 31, 2018, the
Company had accumulated deficits of $27,062,428 and $27,059,112, respectively, and working capital deficit of current liabilities exceeding
current assets by $2,426 and $1,407,178, respectively. Management’s plan to support the Company in operations and to maintain its
business strategy is to raise funds through public and private offerings and to rely on officers and directors to perform essential functions
with minimal compensation. If the Company do not raise all of the money we need from public or private offerings, the Company will have
to find alternative sources, such as loans or advances from our officers, directors or others. Such additional financing may not become
available on acceptable terms and there can be no assurance that any additional financing that the Company does obtain will be sufficient
to meet its needs in the long term. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our
operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing. If the
Company require additional cash and cannot raise it, the Company will either have to suspend operations or cease business entirely.
The accompanying financial statements do not
include any adjustments related to the recoverability and classification of assets or the amounts and classifications of liabilities
that might be necessary should the Company be unable to continue as a going concern.
NOTE 13. SIGNIFICANT EVENTS
In December 2019, there was an outbreak of the
novel coronavirus (COVID-19) in China that has since spread to many other regions of the world. The outbreak was subsequently labeled
as a global pandemic by the World Health Organization in March 2020. It is anticipated that the COVID-19 outbreak may ultimately have
a material adverse impact on the Company’s results of operations, financial position and cash flow in 2020 including, but not limited
to:
Transportation delays and cost increases, more
extensive travel restrictions, closures or disruptions of businesses and facilities or social, economic, political or labor instability
in the affected areas, may impact the Company’s customers’ operations. Customers may not be able to repay their loans on time
due to lack of capital.
The extent of the impact of COVID-19 on the Company’s
operations and financial results depends on future developments and is highly uncertain due to the unknown duration and severity of the
outbreak. The situation is changing rapidly and future impacts may materialize that are not yet known. The Company continues to monitor
the situation closely and may implement further measures to provide additional financial flexibility and improve the Company’s cash
position and liquidity.
NOTE 14. SUBSEQUENT EVENTS
On February 25, 2021, the holder of the majority
outstanding voting stock of the Company restructured the board of directors (the “Board”) of the Company by removing Mei Yang,
Zuyue Xiang and Minqin Tang from the Board and appointing the following individuals to the Board (the “New Board”): Jiang
Hui, Hon Man Yun, Hong Chen, Xiaoyue Zhang and Ming Yi, effective immediately. Among the member of the New Board, Ming Yi shall serve
as the Chair of the Audit Committee, Hong Chen the Chair of the Compensation Committee and Xiaoyue Zhang the Chair of the Nominating and
Corporate Committee.
On February 25, 2021, the New Board removed Zuyue
Xiang as the Chief Executive Officer (the “CEO”) and Zhenpeng Gao as the Chief Financial Officer (“CFO”) and appointed
Jiang Hui as the new CEO and Hon Man Yun as the new CFO, effective immediately. The New Board believes that the new CEO and CFO shall
use their best efforts to execute the Board’s vision to change the direction of the Company’s business.
On March 31, 2021 (the “Commencement Date”),
the Company and Joseph Stone Capital, LLC (“JSC”) entered into an Advisory and Finder Agreement (the “Agreement”).
Pursuant to the Agreement, JSC has been engaged to advise the Company on matters related to the Company’s capital market activities.
Additionally, at the request of the Company, JSC will help the Company identify one or more investors, business and/or financing opportunities
(each a “Target”).
Pursuant to the Agreement, the Company paid JSC
an initial advisory fee equal to $12,500 plus $5,000 in non-accountable expenses. In addition, the Company also paid JSC another $9,500
advisory fee, $3,000 escrow expense plus additional $5,000 in non-accountable expenses upon the closing of an initial transaction with
investors identified by the Company in connection with the Private Placement I as described below. With respect to any investors introduced
to the Company directly or indirectly by JSC, JSC shall be paid a cash fee equal to ten percent of the gross proceeds raised by the Company
from any such investor (the “Commission Fee”).
The Agreement shall continue in effect for a period
of three (3) months from the Commencement Date and may be terminated upon thirty (30) days of written notice by either party after the
three (3) months. Should the Company effectuate a transaction (as defined in the Agreement) with any of the Target(s) identified by Advisor
in the eighteen (18)-month period after termination of Agreement, Advisor will be due the Commission Fee. JSC also has a right of first
refusal with respect to any financings that the Company decides to commence during the 18-month period following the consummation of a
Transaction (as defined in the Agreement”).
On April 23, 2021, the Company entered into subscription
agreements with five accredited investors for the sale and issuance of 10,500,000 shares of common stock of the Company at a per-share
price of $0.10 for aggregate gross proceeds of $1,050,000 (the “Private Placement I”). The Company closed the Private Placement
I on April 24, 2021 and intends to use the funds for working capital. No brokers or placement agents was involved. Our Private Placement
I is exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the “Securities Act”),
in reliance on Section 4(a)(2) thereof and/or Rule 506 of Regulation D and Regulation S thereunder
On May 28, 2021, the Company and Hudson Capital
USA Inc. (the “Seller”) entered into a vehicle purchase agreement, pursuant to which the Company agreed to buy from the Seller
$100,000 worth of motor vehicle.
The Company and Seller are related parties because
the majority of the board of directors of the Company are the board members of the Seller, constituting the majority of the board of directors
of the Seller and Hon Man Yun serves as the Chief Financial Officer of both the Company and Seller.
On June 4, 2021, the Company (the “Buyer”)
and Hudson Capital USA Inc. (the “Seller”) entered into a share transfer agreement (the “Archax SPA”), pursuant
to which the Company agreed to buy from the Seller $500,000 worth of shares (1.74% of ownership) of Archax Holdings Ltd. (“Archax”),
a company organized under the laws of England, UK. Archax is a global digital asset trading platform and ecosystem. In addition, on June
4, 2021, the Company and the Seller entered into another share transfer agreement (the “Montis SPA”), pursuant to which the
Company agreed to buy from the Seller $250,000 worth of shares (2.63% of ownership) of Montis Digital Limited (“Montis”),
a company organized under the laws of Gibraltar. Montis primarily provides marketing and consulting services for digital assets and related
entities in the digital asset ecosystems. Each of the Archax SPA and Montis SPA contained customary representations and warranties for
transactions of this nature and scale.
The Company and Seller are related parties because
the majority of the board of directors of the Company are the board members of the Seller, constituting the majority of the board of directors
of the Seller and Hon Man Yun serves as the Chief Financial Officer of both the Company and Seller.
On June 16, 2021, the Company and Seller closed
the stock purchase transaction in accordance with the Montis SPA. On June 17, 2021, the Company and Seller closed the stock purchase transaction
in accordance with the Archax SPA.
On July 19, 2021, the Company entered into a Consulting
Agreement with PX Global Advisors, LLC. for acting as advisor to assist the Company on business combination and listing on a U.S. national
stock exchange for a consultancy fee of $1,500,000.
On July 29, 2021, the Company entered into subscription
agreements with four accredited investors for the sale and issuance of seventeen million and eighty hundred thousand shares (17,800,000)
shares of common stock at a per-share price of $0.10 for aggregate gross proceeds of $1,780,000 (the “Private Placement II”).
The Company closed the Private Placement II on July 30, 2021 and intends to use the funds for working capital. No brokers or placement
agents was involved. Our Private Placement II is exempt from the registration requirements the Securities Act, in reliance on Section
4(a)(2) thereof and Rule 506 of Regulation D or Regulation S thereunder.
Except for the above mentioned matters, no other
material events are required to be adjusted or disclosed as of the report date of the consolidated financial statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our
results of operations and financial condition since the Company’s inception should be read in conjunction with our financial statements
and the notes to those financial statements that are included elsewhere in this quarterly report. All statements, other than statements
of historical facts, included in this report are forward-looking statements. When used in this report, the words “may,” “will,”
“should,” “would,” “anticipate,” “estimate,” “possible,” “expect,”
“plan,” “project,” “continuing,” “ongoing,” “could,” “believe,”
“predict,” “potential,” “intend,” and similar expressions are intended to identify forward-looking
statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from
those projected. These risks and uncertainties include, but are not limited to, availability of additional equity or debt financing, changes
in sales or industry trends, competition, retention of senior management and other key personnel, availability of materials or components,
ability to make continued product innovations, adverse results of lawsuits against us and currency exchange rates. Forward-looking statements
are based on assumptions and assessments made by our management in light of their experience and their perception of historical trends,
current conditions, expected future developments and other factors they believe to be appropriate. Readers of this report are cautioned
not to place undue reliance on these forward-looking statements, as there can be no assurance that these forward-looking statements will
prove to be accurate and speak only as of the date hereof. Management undertakes no obligation to publicly release any revisions to these
forward-looking statements that may reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated
events. This cautionary statement is applicable to all forward-looking statements contained in this report.
Critical Accounting Policies
Basis of presentation
The consolidated financial statements of the Company
have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Principles of Consolidation
The consolidated financial statements include
the financial statements of all the subsidiaries and VIEs of the Company. All transactions and balances between the Company and its subsidiaries
and VIEs have been eliminated upon consolidation
The consolidated financial statements include
the accounts of the Company, its subsidiaries for which the Company is the primary beneficiary. All significant inter-company accounts
and transactions have been eliminated. The consolidated financial statements include 100% of assets, liabilities, and net income or loss
of those wholly-owned subsidiaries.
As of June 30, 2019 and December 31, 2018, the
detailed identities of the consolidating subsidiaries are as follows:
Name of Company
|
|
Place
of
incorporation
|
|
Attributable
equity interest %
|
|
|
Registered
capital
|
|
EGOOS Mobile Technology Company Limited (“EGOOS BVI”)
|
|
BVI
|
|
|
100
|
%
|
|
$
|
1
|
|
EGOOS Mobile Technology Company Limited (“EGOOS HK”)
|
|
Hong Kong
|
|
|
100
|
%
|
|
|
1,290
|
|
Move the Purchase Consulting Management (Shenzhen) Co., Ltd. (“WOFE”)
|
|
P.R.C
|
|
|
100
|
%
|
|
|
-
|
|
Guangzhou Yuzhi Information Technology Co., Ltd. (“GZYZ”)
|
|
P.R.C
|
|
|
100
|
%
|
|
|
150,527
|
|
Shenzhen Qianhai Exce-card Technology Co., Ltd. (“SQEC”)
|
|
P.R.C
|
|
|
100
|
%
|
|
|
150,527
|
|
Guangzhou Rongsheng Information Technology Co., Ltd. (“GZRS”)
|
|
P.R.C
|
|
|
100
|
%
|
|
|
1,505,267
|
|
Unaudited Interim Financial Information
These unaudited interim condensed consolidated
financial statements have been prepared in accordance with GAAP for interim financial reporting and the rules and regulations of the Securities
and Exchange Commission that permit reduced disclosure for interim periods. Therefore, certain information and footnote disclosures normally
included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, all adjustments
of a normal recurring nature necessary for a fair presentation of the financial position, results of operations and cash flows for the
periods presented have been made. The results of operations for the interim periods presented are not necessarily indicative of the results
to be expected for the year ending December 31, 2019.
The consolidated balance sheets and certain comparative
information as of December 31, 2018 are derived from the audited consolidated financial statements and related notes for the year ended
December 31, 2018 (“2018 Annual Financial Statements”), included in the Company’s 2018 Annual Report on Form 10-K. These
unaudited interim condensed consolidated financial statements should be read in conjunction with the 2018 Annual Financial Statements.
Use of estimates
The preparation of the financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. Estimates are used for, but not limited to, the accounting
for certain items such as allowance for doubtful accounts, depreciation and amortization, impairment, inventory allowance, taxes and contingencies.
Contingencies
Certain conditions may exist as of the date the
financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events
occur or fail to occur. The Company’s management assesses such contingent liabilities, and such assessment inherently involves an
exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted
claims that may result in such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or
un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that
it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would
be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not
probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with
an estimate of the range of possible loss if determinable and material would be disclosed.
Loss contingencies considered to be remote by
management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
Cash and cash equivalents
The Company classifies the following instruments
as cash and cash equivalents: cash on hand, unrestricted bank deposits, and all highly liquid investments purchased with original maturities
of three months or less.
Accounts receivable
Trade receivables are recognized and carried at
the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of
the full amount is no longer probable. Bad debts are written off as incurred.
Other receivables
Other receivables are recognized and carried at
the original invoice amount less allowance for any uncollectible amounts. An allowance for doubtful accounts is made when recovery of
the full amount is doubtful.
Property, plant and equipment
Plant and equipment are carried at cost less accumulated
depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method with a salvage value of 10%.
Estimated useful lives of the plant and equipment are as follows:
Computer equipment
|
|
3 years
|
Office furniture
|
|
5 years
|
The cost and related accumulated depreciation
of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The
cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.
Accounting for the Impairment of Long-lived
assets
The long-lived assets held by the Company are
reviewed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Subtopic 360-10-35, “Accounting for the Impairment or Disposal of Long-Lived Assets,” for impairment whenever events or changes
in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could
become impaired as a result of technology or other industry changes. Impairment is present if carrying amount of an asset is less than
its undiscounted cash flows to be generated.
If an asset is considered impaired, a loss is
recognized based on the amount by which the carrying amount exceeds the fair market value of the asset. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less costs to sell. The Company believes no impairment has occurred to its assets during
2019 and 2018.
Income taxes
The Company uses the accrual method of accounting
to determine income taxes for the year. The Company has implemented FASB ASC 740 Accounting for Income Taxes. Income tax liabilities computed
according to the United States, People’s Republic of China (PRC), and Hong Kong tax laws provide for the tax effects of transactions
reported in the financial statements and consists of taxes currently due, plus deferred taxes, related primarily to differences arising
from the recognition of expenses related to the depreciation of plant and equipment, amortization of intangible assets, and provisions
for doubtful accounts between financial and tax reporting. The deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will be either taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes
also are recognized for operating losses that are available to offset future income taxes.
A valuation allowance is recognized for deferred
tax assets if it is more likely than not, that the deferred tax assets will either expire before the Company is able to realize that tax
benefit, or that future realization is uncertain.
Stock-based compensation
The Company has elected to use the Black-Scholes-Merton
(“BSM”) pricing model to determine the fair value of stock options on the dates of grant. Also, the Company recognizes stock-based
compensation using the straight-line method over the requisite service period.
The Company values stock awards using the market
price on or around the date the shares were awarded and includes the amount of compensation as a period compensation expense over the
requisite service period.
For the six months ended June 30, 2019 and 2018,
$0 and $874,587 stock-based compensation was recognized.
For the three months ended June 30, 2019 and 2018,
$0 and $407,701 stock-based compensation was recognized.
Foreign currency translation
The accompanying financial statements are presented
in United States dollars (USD). The functional currency of the Company is the USD and Renminbi (RMB). The financial statements are translated
into USD from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital
accounts are translated at their historical exchange rates when the capital transactions occurred.
Exchange rates
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
|
December 31,
2018
|
|
Year-end/period-end RMB : US$ exchange rate
|
|
|
6.8747
|
|
|
|
6.6191
|
|
|
|
6.8764
|
|
Average annual/period RMB : US$ exchange rate
|
|
|
6.7808
|
|
|
|
6.3665
|
|
|
|
6.6146
|
|
The RMB is not freely convertible into foreign
currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB
amounts could have been, or could be, converted into US Dollar at the rates used in translation.
Revenue recognition
The Company recognizes services revenue when the
following criteria have been met: 1.) it has agreed and entered into a contract for service with its customers pursuant to which the Company
identifies the contract and determines the transactions price with its customers, 2.) the contract has set forth a fixed fee for the services
to be rendered under which the Company has determined the transaction’s price and the allocation of such price to performance obligations
with the customers, 3.) the Company has fully rendered service to its customers, and there are no additional obligations that exist that
under the terms of the contract that the Company has not fulfilled such that the Company recognizes revenue when the performance obligation
is satisfied, and 4.) the Company has either received payment, or reasonably expects payment from the customer in accordance to the payment
terms set forth in the contract.
Earnings per share
Basic earnings per share is computed on the basis
of the weighted average number of common stock outstanding during the period. Diluted earnings per share is computed on the basis of the
weighted average number of common stock and common stock equivalents outstanding. Dilutive securities having an anti-dilutive effect on
diluted earnings per share are excluded from the calculation.
Dilution is computed by applying the treasury
stock method for options and warrants. Under this method, options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price
during the period.
Comprehensive loss
Comprehensive income (loss) is defined to include
all changes in equity except those resulting from investments by owners and distributions to owners. The Company presents components of
comprehensive income with equal prominence to other financial statements. The Company’s current component of other comprehensive
income is the foreign currency translation adjustment.
Subsequent events
The Company evaluates subsequent events that have
occurred after the balance sheet date but before the financial statements are issued. There are two types of subsequent events: (1) recognized,
or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates
inherent in the process of preparing financial statements, and (2) non recognized, or those that provide evidence with respect to conditions
that did not exist at the date of the balance sheet but arose subsequent to that date.
Fair Value of Financial Instruments
ASC 825, Financial Instruments, requires that
the Company discloses estimated fair values of financial instruments. The carrying amounts reported in the balance sheets for current
assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.
The Company applies the provisions of ASC 820-10,
Fair Value Measurements and Disclosures. ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures
of fair value measurement that enhances disclosure requirements for fair value measures. For certain financial instruments, including
cash and cash equivalents, loan receivables and short-term bank loans, the carrying amounts approximate fair value due to their relatively
short maturities. The three levels of valuation hierarchy are defined as follows:
|
●
|
Level
1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
|
|
●
|
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are
observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
●
|
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The Company analyzes all financial instruments
with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815.
The following tables present the Company’s
financial assets and liabilities at fair value in accordance to ASC 820-10
As of June 30, 2019:
|
|
Quoted in
Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
35
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
35
|
|
Total financial assets
|
|
$
|
35
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
35
|
|
As of December 31, 2018:
|
|
Quoted in Active
Markets
for
Identical Assets
(Level 1)
|
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
|
|
(Audited)
|
|
|
(Audited)
|
|
|
(Audited)
|
|
|
(Audited)
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
504
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
504
|
|
Total financial assets
|
|
$
|
504
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
504
|
|
Results of Operations
Three Months Ended June 30, 2019 and 2018
For the three months ended
June 30, 2019, we did not have any active business operations.
Revenue
There was no revenue for
the three months ended June 30, 2019 and 2018 because we ceased all active business operations in the first quarter of 2019 and remained
inactive since then.
We generated revenues from
our audio banking card operations (including software and hardware) in the past. We have no revenues during the three months ended June
30, 2018 primarily because the number of orders decreased.
Expenses
General and administrative
and financial expenses were related to corporate overhead, financial and administrative contracted services, such as legal and accounting.
General and administrative expenses and financial expenses for the three months ended June 30, 2019 were $1,265 as compared to $547,532
for the comparable period ended June 30, 2018, which represented a decrease of $546,267 or approximately 100%. Such decrease in our general
and administrative expenses was primarily attributed to the stock compensation expense paid to the management in the three months ended
June 30, 2018 and no such expenses in the three months ended June 30, 2019.
Six Months Ended June 30, 2019 and 2018
For the six months ended June
30, 2019, we ceased all active business operations.
Revenue
There was no revenue for the
six months ended June 30, 2019 because we ceased all active business operations in 2019.
We generated revenues from
our audio banking card operations (including software and hardware) in the six-month period ended June 30, 2018. We have earned $88,908
during the six months ended June 30, 2018.
Expenses
General and administrative
and financial expenses were related to corporate overhead, financial and administrative contracted services, such as legal and accounting.
General and administrative expenses and financial expenses for the six months ended June 30, 2019 were $3,316 as compared to $1,205,351
for the comparable period ended June 30, 2018, which represented a decrease of $1,202,035 or approximately 99.7%. Such decrease in our
general and administrative expenses was primarily attributed to the stock compensation expense paid to the management in the six months
ended June 30, 2018 and no such expenses in the six months ended June 30, 2019.
Liquidity and Capital Resources
Our primary liquidity and
capital resource needs are to finance the costs of our operations, to make capital expenditures and to service our debt. We continue to
be dependent on our ability to generate revenues, positive cash flows and additional financing.
Working Capital Summary
|
|
As of
June 30,
2019
|
|
|
As of
December 31,
2018
|
|
Current assets
|
|
$
|
35
|
|
|
$
|
7,203
|
|
Current liabilities
|
|
$
|
2,461
|
|
|
$
|
1,414,965
|
|
Working capital
|
|
$
|
(2,426
|
)
|
|
$
|
(1,407,762
|
)
|