UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from ___________ to ___________
Commission
File Number:
(Exact Name of Registrant as Specified in Its Charter)
(State of 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)
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 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 and posted on its corporate website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☐ | Smaller reporting company |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol (s) | Name on each exchange on which registered | ||
| n/a | n/a | n/a |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding As of August 31, 2021 | |
| Common stock, par value $0.001 |
TABLE OF CONTENTS
i
EXPLANATORY NOTE
This is a 10-Q Quarterly Report of Wave Sync Corp. (the “Company”, “we”, “us”, and “our”, unless the context indicates otherwise) covering the nine-month period ended September 30, 2020. Readers should be aware that this 10-Q is being filed well after the reporting period contained herein and therefore there is more recent information available. This more recent information is also being filed separately around the timing of this filing. This 10-Q and other Quarterly Reports on Form 10-Qs as well as Annual Reports on Form 10-Ks are a part of the Company’s effort to become current in its filing obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
ii
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain forward-looking statements. The statements herein which are not historical reflect our current expectations and projections about the Company’s future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and our interpretation of what we believe to be significant factors affecting our business, including many assumptions about future events. Such forward-looking statements include statements regarding, among other things:
| ● | our ability to produce, market and generate sales of our products and services; |
| ● | our ability to develop and/or introduce new products and services; |
| ● | our projected future sales, profitability and other financial metrics; |
| ● | our future financing plans; |
| ● | our anticipated needs for working capital; |
| ● | the anticipated trends in our industry; |
| ● | our ability to expand our sales and marketing capability; |
| ● | acquisitions of other companies or assets that we might undertake in the future; |
| ● | competition existing today or that will likely arise in the future; and |
| ● | other factors discussed elsewhere herein. |
Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “will,” “plan,” “could,” “target,” “contemplate,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these or similar words. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors, including the ability to raise sufficient capital to continue the Company’s operations. These statements may be found under Part I, Item 2-“Management’s Discussion And Analysis Of Financial Condition And Results Of Operations,” as well as elsewhere in this Quarterly Report on Form 10-Q generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, matters described in this Quarterly Report on Form 10-Q.
In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Quarterly Report on Form 10-Q will in fact occur.
Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. Such statements are presented only as a guide about future possibilities and do not represent assured events, and we anticipate that subsequent events and developments will cause our views to change. You should, therefore, not rely on these forward-looking statements as representing our views as of any date after the date of this Quarterly Report on Form 10-Q.
This Quarterly Report on Form 10-Q also contains estimates and other statistical data prepared by independent parties and by us relating to market size and growth and other data about our industry. These estimates and data involve a number of assumptions and limitations, and potential investors are cautioned not to give undue weight to these estimates and data. We have not independently verified the statistical and other industry data generated by independent parties and contained in this Quarterly Report on Form 10-Q. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk.
Potential investors should not make an investment decision based solely on our projections, estimates or expectations.
iii
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
1
WAVE SYNC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS
OF SEPTEMBER 30, 2020 AND DECEMBER 31, 2019
(Stated in US Dollars)
| As of September 30, 2020 | As of December 31, 2019 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Other receivable | ||||||||
| Advance to suppliers | ||||||||
| Prepaid expenses | ||||||||
| Prepaid taxes | ||||||||
| Due from related parties | ||||||||
| Total Current Assets | ||||||||
| Non-current assets | ||||||||
| Property and Equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Deferred Tax Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Other payables | ||||||||
| Accrued expenses | ||||||||
| Related party payables | ||||||||
| Taxes payable | ||||||||
| Total Current Liabilities | ||||||||
| Provision of other liabilities | ||||||||
| Deferred tax liabilities | ||||||||
| Total Liabilities | $ | $ | ||||||
| Commitment and contingencies | ||||||||
| Shareholders’ equity | ||||||||
| Common Stock ($ | $ | $ | ||||||
| Additional paid in capital | ||||||||
| Accumulated deficits | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Shareholders’ Equity | ( | ) | ( | ) | ||||
| Total Liabilities and Shareholders’ Equity | $ | $ | ||||||
See notes to consolidated financial statements
F-1
WAVE SYNC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE FISCAL QUARTERS ENDED SEPTEMBER 30, 2020 AND 2019 (Unaudited)
(Stated in US Dollars)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Financial expenses | ||||||||||||||||
| Total Operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Other expenses | ||||||||||||||||
| Other income | ||||||||||||||||
| Impairment loss | ||||||||||||||||
| Total other (expenses) income, net | ||||||||||||||||
| Loss before income tax expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expenses | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive loss | ||||||||||||||||
| Foreign currency translation (loss) gain | ||||||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares, basic and diluted | ||||||||||||||||
| Basic and diluted loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See notes to consolidated financial statements
F-2
WAVE SYNC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL QUARTERS ENDED SEPTEMBER 30, 2020 AND 2019 (Unaudited)
(Stated in US Dollars)
| Nine months ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Other receivables | ||||||||
| Advance to suppliers | ||||||||
| Prepaid expenses | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Other payables | ||||||||
| Due from related parties | ||||||||
| Tax payable | ||||||||
| Net cash (used in)/provided by operating activities | $ | ( | ) | $ | ( | ) | ||
| 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: | ||||||||
| Proceeds from related party | ||||||||
| Repayment to a related party | ||||||||
| Proceeds from share placing (net of offering cost of $ | ||||||||
| Net cash provided by/ (used in) financing activities | $ | $ | ||||||
| Effect of exchange rate changes on cash | - | ( | ) | |||||
| Net increase (decrease) in cash | $ | ( | ) | $ | ( | ) | ||
| Cash at beginning of year | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Interest received | $ | $ | ||||||
| Interest paid | ||||||||
| Income taxes paid | ||||||||
| Non- cash operating and financing activities | ||||||||
| Forgiveness of loans from related parties | $ | $ | ||||||
| Undertaking of assets and liabilities by related parties | $ | $ | ||||||
See notes to the consolidated financial statements
F-3
WAVE SYNC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY/(DEFICIENCY)
FOR THE FISCAL QUARTERS SEPTEMBER 30, 2020 AND 2019 (Unaudited)
(Stated in US Dollars)
| Nine months ended September 30, 2020 | ||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Additional | other | Total | ||||||||||||||||||||||
| Common Stock | paid-in | Accumulated | comprehensive | Shareholders’ | ||||||||||||||||||||
| Shares | Amount | capital | deficit | income | Equity | |||||||||||||||||||
| Balance as of December 31, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Net (loss) | - | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation loss | - | |||||||||||||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Nine months ended September 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 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Net (loss) | - | ( | ) | ( | ) | |||||||||||||||||||
| Forgiveness of loans from related parties | - | |||||||||||||||||||||||
| Undertaking of assets and liabilities by related parties | - | |||||||||||||||||||||||
| Foreign currency translation loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of September 30, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Three months ended September 30, 2020 | ||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Additional | other | Total | ||||||||||||||||||||||
| Common Stock | paid-in | Accumulated | comprehensive | Shareholders’ | ||||||||||||||||||||
| Shares | Amount | capital | deficit | income | Equity | |||||||||||||||||||
| Balance as of June 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Net (loss) | - | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation loss-rounding | - | |||||||||||||||||||||||
| Balance as of September 30, 2020 | 21,027,713 | $ | 21,027 | $ | 27,297,495 | $ | (27,102,825 | ) | $ | (258,524 | ) | $ | (42,827 | ) | ||||||||||
| 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 June 30, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Net (loss) | - | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of September 30, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
See notes to the consolidated financial statements
F-4
WAVE SYNC CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
FOR THE FISCAL QUARTERS ENDED SEPTEMBER 30, 2020 AND 2019 (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
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.
F-5
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,
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 $
On
March 16, 2015, the GZRS was incorporated as a wholly-owned subsidiary of SQEC. GZRS has an authorized capital of RMB
Pursuant
to the Share Purchase Agreement the Company issued a convertible note to EGOOS BVI’s sole shareholder for
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.
F-6
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
As of September 30, 2020 and December 31, 2019, the detailed identities of the consolidating subsidiaries are as follows:
| Name of Company | Place of incorporation | Attributable equity interest % | Registered capital | ||||||
| $ | |||||||||
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, 2020.
The consolidated balance sheets and certain comparative information as of December 31, 2019 are derived from the audited consolidated financial statements and related notes for the year ended December 31, 2019 (“2019 Annual Financial Statements”), included in the Company’s 2019 Annual Report on Form 10-K. These unaudited interim condensed consolidated financial statements should be read in conjunction with the 2019 Annual Financial Statements.
F-7
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
| Computer equipment | |||
| Office furniture |
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.
F-8
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 September 30, 2020 and 2019.
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 fiscal quarter ended September 30, 2020 and 2019, $
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 | September 30, 2020 | September 30, 2019 | December 31, 2019 | |||||||||
| Year-end/period-end RMB : US$ exchange rate | ||||||||||||
| Average annual/period RMB : US$ exchange rate | ||||||||||||
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.
F-9
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.
F-10
The following tables present the Company’s financial assets and liabilities at fair value in accordance to ASC 820-10
As of September 30, 2020:
Quoted
in Active | Significant | Significant | Total | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Financial assets: | ||||||||||||||||
| Cash | $ | $ | $ | $ | ||||||||||||
| Total financial assets | $ | $ | $ | $ | ||||||||||||
As of December 31, 2019:
Quoted
in Active | Significant | Significant | Total | |||||||||||||
| (Audited) | (Audited) | (Audited) | (Audited) | |||||||||||||
| Financial assets: | ||||||||||||||||
| Cash | $ | $ | $ | $ | ||||||||||||
| Total financial assets | $ | $ | $ | $ | ||||||||||||
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.
F-11
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.
F-12
U. Going Concern
The
Company has suffered from losses from operation and significant accumulated deficits. It’s net loss for the nine months ended September
30, 2020 and 2019 were $
NOTE 3. CASH AND CASH EQUIVALENTS
Cash consisted of the following:
As
of | As
of | |||||||
| (Unaudited) | (Audited) | |||||||
| Cash on hand | $ | $ | ||||||
| Cash in banks | ||||||||
| Total cash | $ | $ | ||||||
NOTE 4. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of the following:
As
of | As
of | |||||||
| (Unaudited) | (Audited) | |||||||
| At Cost: | ||||||||
| Office equipment | $ | $ | ||||||
| Office furniture | ||||||||
| Total property and equipment | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Less: impairment | ||||||||
| Property, plant and equipment, net | $ | $ | ||||||
Depreciation
expense was $
Depreciation
expense was $
F-13
NOTE 5. INTANGIBLE ASSETS, NET
Intangible assets consisted of the following:
As
of | As
of | |||||||
| (Unaudited) | (Audited) | |||||||
| At Cost: | ||||||||
| Patent | $ | $ | ||||||
| Software | ||||||||
| Total intangible assets | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| 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
Amortization
expense was $
Amortization
expense was $
NOTE 6. RELATED PARTY TRANSACTIONS
For
the year ended December 31, 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 $
| September 30, 2020 | December 31, 2019 | |||||||
| (Unaudited) | (Audited) | |||||||
| Beijing Yuxin Shangfang Technology Co., Ltd. | $ | $ | ||||||
| Hainan Xin Jing Yuan Co., Ltd. | ||||||||
| Xiang, Zuyue, director of SQEC and shareholder | ||||||||
| Xiang, Lingqing, employee of SQEC | ||||||||
| Lim, Jehn Ming, shareholder of EGOOS BVI | ||||||||
| Wang, Yue, director of EGOOS HK | ||||||||
| Yang, Mei, shareholder | ||||||||
| Li, Ping, director of WOFE | ||||||||
| Forgiveness of Related Party Payables | $ | $ | ||||||
F-14
For
the year ended December 31, 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 $
| September 30, 2020 | December 31, 2019 | |||||||
| (Unaudited) | (Audited) | |||||||
| Other receivable | $ | $ | ||||||
| Prepaid taxes | ||||||||
| Accounts payable | ( | ) | ||||||
| Other payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Net liabilities undertaken by related party | $ | $ | ( | ) | ||||
NOTE 7. 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 nine months ended September 30, 2020 and 2019.
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 nine months ended September 30, 2020 and 2019. 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:
| Nine months ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Current | $ | $ | ||||||
| Deferred | ||||||||
| Total | $ | $ | ||||||
| Three months ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Current | $ | $ | ||||||
| Deferred | ||||||||
| Total | $ | $ | ||||||
F-15
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 September 30, 2020, and 2019, 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 nine months ended September 30, 2020, and 2019, 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.
| b) | Deferred Taxes |
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 September 30, 2020 and December 31, 2019, 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.
| c) | Taxes Payable |
Taxes payable consisted of the following:
As of September 30, | As of December 31, 2019 | |||||||
| (Unaudited) | (Audited) | |||||||
| Corporate income tax payable | $ | $ | ||||||
| Franchise tax payable | ||||||||
| Other surtaxes payable | ||||||||
| Total | $ | $ | ||||||
NOTE 8. STOCKHOLDERS’ EQUITY
Common stock
As
of September 30, 2020 and December 31, 2019, the Company has
F-16
NOTE 9. LOSS PER SHARE
The following table presents a reconciliation of basic and diluted earnings per share:
| Nine months ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Numerator: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted average number of common stock outstanding - basic and diluted | ||||||||
| Loss per share – Basic and diluted: | $ | ( | ) | $ | ( | ) | ||
| Three months ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Numerator: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted average number of common stock outstanding - basic and diluted | ||||||||
| Loss per share – Basic and diluted: | $ | ( | ) | $ | ( | ) | ||
NOTE 10. CONCENTRATION OF RISK
| a) | Credit Risk |
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 $
F-17
NOTE 11. 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 September 30, 2020 and December 31, 2019, the Company had accumulated deficits of $
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 12. 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 13. 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”).
F-18
Pursuant
to the Agreement, the Company paid JSC an initial advisory fee equal to $
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
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 $
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 $
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 $
On
July 29, 2021,
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.
F-19
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 September 30, 2020 and December 31, 2019, 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, 2020.
2
The consolidated balance sheets and certain comparative information as of December 31, 2019 are derived from the audited consolidated financial statements and related notes for the year ended December 31, 2019 (“2019 Annual Financial Statements”), included in the Company’s 2019 Annual Report on Form 10-K. These unaudited interim condensed consolidated financial statements should be read in conjunction with the 2019 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.
3
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 2020 and 2019.
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 fiscal quarter ended September 30, 2020 and 2019, $0 and $0 stock-based compensation was recognized.
Foreign currency translation
The accompanying financial statements are presented in United States dollars (USD). The functional currency of the Company is the USD and Renminbi (RMB). The financial statements are translated into USD from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.
| Exchange rates | September 30, 2020 | September 30, 2019 | December 31, 2019 | |||||||||
| Year-end/period-end RMB : US$ exchange rate | 6.8101 | 7,0729 | 6.9762 | |||||||||
| Average annual/period RMB : US$ exchange rate | 6.9917 | 6.8541 | 6.8944 | |||||||||
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.
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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.
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The following tables present the Company’s financial assets and liabilities at fair value in accordance to ASC 820-10
As of September 30, 2020:
Quoted in Active (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Financial assets: | ||||||||||||||||
| Cash | $ | 3 | $ | - | $ | - | $ | 3 | ||||||||
| Total financial assets | $ | 3 | $ | - | $ | - | $ | 3 | ||||||||
As of December 31, 2019:
Quoted in Active (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | |||||||||||||
| (Audited) | (Audited) | (Audited) | (Audited) | |||||||||||||
| Financial assets: | ||||||||||||||||
| Cash | $ | 16 | $ | - | $ | - | $ | 16 | ||||||||
| Total financial assets | $ | 16 | $ | - | $ | - | $ | 16 | ||||||||
Results of Operations
Three Months Ended September 30, 2020 and 2019
For the three months ended September 30, 2020 and 2019, we ceased all active business operations.
Revenue
There was no revenue for the three months ended September 30, 2020 and 2019 because we ceased all active business operations in 2019 and remained inactive since then.
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 September 30, 2020 were $2,015 as compared to $1,488 for the comparable period ended September 30, 2019, which represented an increase of $527 or approximately 35%. Such increase was primarily attributed to the increase of corporate overhead.
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Nine Months Ended September 30, 2020 and 2019
For the nine months ended September 30, 2020 and 2019, we ceased all active business operations.
Revenue
There was no revenue for the nine months ended September 30, 2020 and 2019 because we ceased all active business operations in 2019.
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 nine months ended September 30, 2020 were $10,437 as compared to $4,804 for the comparable period ended September 30, 2019, which represented an increase of $5,633 or approximately 117%. Such increase was primarily attributed to the increase of corporate overhead.
Liquidity and Capital Resources
Our primary liquidity and capital resource needs are to finance 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 September 30, 2020 | As of December 31, 2019 | |||||||
| Current assets | $ | 3 | $ | 16 | ||||
| Current liabilities | $ | 42,830 | $ | 32,406 | ||||
| Working capital | $ | (42,827 | ) | $ | (32,390 | ) | ||
Cash Flows
| Nine months ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows used in operating activities | $ | (13 | ) | $ | (287 | ) | ||
| Cash flows from investing activities | $ | - | $ | - | ||||
| Cash flows from financing activities | $ | - | $ | - | ||||
We did not have significant active cash flow activities during the three months ended September 30, 2020 and 2019.
Off-Balance Sheet Arrangements
As of September 30, 2020, we did not have any off-balance sheet arrangements that had or were reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”), conducted an evaluation of our disclosure controls and procedures. Based on this evaluation, the Certifying Officers have concluded that as of September 30, 2020, our disclosure controls and procedures were, due to certain factors, not effective to ensure that material information is recorded, processed, summarized and reported by our management on a timely basis in order to comply with our disclosure obligations under the Exchange Act and the rules and regulations promulgated thereunder.
Management’s Report on Internal Control over Financial Reporting
Our management is also responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Our internal control over financial reporting includes those policies and procedures that:
| ● | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
As of September 30, 2020, we carried out an assessment of the effectiveness of our internal control over financial reporting based on the framework in in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on our evaluation, our management concluded that our internal control over financial reporting was not effective as of September 30, 2020. Management has specifically observed that our accounting systems and current staffing resources in our finance department are currently insufficient to support the complexity of our financial reporting requirements. We currently do not have adequate staff members in our accounting and finance department who have experience or specialized training in preparing financial statements in the form and format required by the SEC. We have also experienced difficulty in applying complex accounting and financial reporting disclosure rules as required under various aspects of GAAP and SEC reporting regulations including those relating to accounting for business combinations, intangible assets, derivatives and income taxes.
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We have instituted certain procedures to mitigate our internal control risks. Our Chief Executive Officer and our Controller based in China review and approve substantially all of our major transactions to ensure the completeness and fair presentation of our consolidated financial statements. We have, when needed, hired outside experts to assist us with implementing complex accounting principles. Management and the Board of Directors believe that the Company must allocate additional human and financial resources to address these matters.
Changes in Internal Control over Financial Reporting.
During the nine months ended September 30, 2020, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 4B. OTHER INFORMATION
None.
ITEM 4C. DISCLOSURES REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION
Not applicable.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business. We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
ITEM 1A. RISK FACTORS
Smaller reporting companies are not required to provide the information required by this item.
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS.
The Company did not sell any unregistered equity securities during the nine months ended September 30, 2020.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURE.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
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ITEM 6. EXHIBITS
The following exhibits are filed herewith:
| Exhibit | ||
| Number | Description of Exhibit | |
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 | |
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 | |
| 32.1* | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2* | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| * | The certifications attached as Exhibits 32.1 and 32.2 accompany this quarterly report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| WAVE SYNC CORP. | ||
| September 24, 2021 | By: | /s/ Jiang Hui |
| Jiang Hui | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
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