NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018 AND DECEMBER 31, 2017
(Stated
in US Dollars)
1.
|
THE COMPANY AND
PRINCIPAL BUSINESS 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 the production, 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 to receive substantially all of the economic benefits of Ding Neng Bio-tech in consideration
for services provided by WFOE to Ding Neng 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 is 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 intends 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 RMB 1,000,000.
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 has 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 exceeds $1.00 per share (the “Conversion Conditions”). Upon conversion
of the note, the existing shareholders of the Registrant will 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 a recapitalization 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.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
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.
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America (“US GAAP”).
|
C.
|
Principles of 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, 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.
(WOFE)
|
|
|
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, 2018.
The
consolidated balance sheets and certain comparative information as of December 31, 2017 are derived from the audited consolidated
financial statements and related notes for the year ended December 31, 2017 (“2017 Annual Financial Statements”),
included in the Company’s 2017 Annual Report on Form 10-K. These unaudited interim condensed consolidated financial statements
should be read in conjunction with the 2017 Annual Financial Statements.
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.
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.
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 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 2018.
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 three-month periods ended September 30, 2018 and 2017, $477,261 and $0 stock-based compensation was recognized.
For
the nine-month periods ended September 30, 2018 and 2017, $1,351,848 and $0 stock-based compensation was recognized.
|
N.
|
Foreign currency
translation
|
The
accompanying financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi
(RMB) and Hong Kong dollar (HKD). The financial statements are translated into United States dollars from RMB at year-end exchange
rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at
their historical exchange rates when the capital transactions occurred.
|
Exchange Rates
|
|
9/30/2018
|
|
|
12/31/2017
|
|
|
9/30/2017
|
|
|
Year-end/period-end
RMB : US$ exchange rate
|
|
|
6.8665
|
|
|
|
6.5064
|
|
|
|
6.6545
|
|
|
Average annual/period RMB : US$ exchange rate
|
|
|
6.5137
|
|
|
|
6.7570
|
|
|
|
6.8057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-end/period-end HKD : US$ exchange rate
|
|
|
7.8277
|
|
|
|
7.8149
|
|
|
|
7.8110
|
|
|
Average annual/period
HKD : US$ exchange rate
|
|
|
7.8398
|
|
|
|
7.7922
|
|
|
|
7.7870
|
|
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.
The
Company recognizes services revenue when the following criteria have been met: 1.) it has agreed and entered into a contract for
service with it customers, 2.) the contract has set forth a fixed fee for the services to be rendered, 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, 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.
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
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.
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.
|
Recent accounting
pronouncements
|
In
January 2017, the Financial Accounting Standard Board (“FASB”) issued guidance, which simplifies the accounting for
goodwill impairment. The updated guidance eliminates Step 2 of the impairment test, which requires entities to calculate the implied
fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the
excess of a reporting unit’s carrying amount over its fair value. The Company is still assessing the impact of this pronouncement
to its financial statements.
As
of September 30, 2018, except for the above, there are no recently issued accounting standards not yet adopted that would have
a material effect on the Company’s financial statements.
|
T.
|
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 September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
10,179
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,179
|
|
|
Total financial assets
|
|
$
|
10,179
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Total financial liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
As of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
10,346
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,346
|
|
|
Total financial assets
|
|
$
|
10,346
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease
|
|
$
|
9,980
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,980
|
|
|
Total financial liabilities
|
|
$
|
9,980
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,980
|
|
3.
|
RELATED PARTY PAYABLES
|
Related
party payable consisted of the following:
|
|
|
9/30/2018
|
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
|
|
Beijing Yuxin Shangfang Technology Co., Ltd.
|
|
$
|
286,306
|
|
|
$
|
302,155
|
|
|
Xiang, Zuyue, director of SQEC and shareholder
|
|
|
10,827
|
|
|
|
60,198
|
|
|
Lim, Jehn Ming, shareholder of EGOOS BVI
|
|
|
1,289
|
|
|
|
1,289
|
|
|
Wang, Yue, director of EGOOS HK
|
|
|
161,233
|
|
|
|
161,942
|
|
|
Yang, Mei, shareholder
|
|
|
368,963
|
|
|
|
157,110
|
|
|
Li, Ping, director of WOFE
|
|
|
3,777
|
|
|
|
2,486
|
|
|
|
|
$
|
832,395
|
|
|
$
|
685,180
|
|
The
amounts were provided as working capital to financial the Company’s operations. The amounts are unsecured, interest-free
and due on demand.
4.
|
PROPERTY, PLANT AND EQUIPMENT
|
Property,
plant, and equipment consisted of the following as of September 30, 2018 and December 31, 2017:
|
|
|
9/30/2018
|
|
|
12/31/2017
|
|
|
At Cost:
|
|
|
|
|
|
|
|
|
|
Machinery
|
|
$
|
68,083
|
|
|
$
|
71,852
|
|
|
Office equipment
|
|
|
18,346
|
|
|
|
19,362
|
|
|
Office furniture
|
|
|
12,741
|
|
|
|
13,446
|
|
|
|
|
$
|
99,170
|
|
|
$
|
104,660
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated
depreciation
|
|
|
(42,373
|
)
|
|
|
(37,383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
56,797
|
|
|
$
|
67,277
|
|
Depreciation
expense for the three-month periods ended September 30, 2018 and 2017 was $756 and $7,606, respectively.
Depreciation
expense for the nine-month periods ended September 30, 2018 and 2017 was $4,921 and $13,427, respectively.
Intangible
assets consisted of the following as of September 30, 2018 and December 31, 2017:
|
|
|
9/30/2018
|
|
|
12/31/2017
|
|
|
At Cost:
|
|
|
|
|
|
|
|
Patent
|
|
$
|
-
|
|
|
$
|
3,952,052
|
|
|
Software
|
|
|
1,299
|
|
|
|
1,322
|
|
|
|
|
$
|
1,299
|
|
|
$
|
3,953,374
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
:
Accumulated amortization
|
|
|
(1,299
|
)
|
|
|
(1,322
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
3,952,052
|
|
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 September 30,
2018 and was written off to other expense.
Amortization
expense for the three-month periods ended September 30, 2018 and 2017 was $0 and $24, respectively.
Amortization
expense for the nine-month periods ended September 30, 2018 and 2017 was $0 and $209, respectively.
Accrued
expenses consisted of the followings as of September 30, 2018 and December 31, 2017:
|
|
|
9/30/2018
|
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
|
|
Audit fee
|
|
$
|
6,500
|
|
|
$
|
35,000
|
|
|
Utilities
|
|
|
11,768
|
|
|
|
2,440
|
|
|
|
|
$
|
18,268
|
|
|
$
|
37,440
|
|
Taxes
payable consisted of the followings as of September 30, 2018 and December 31, 2017:
|
|
|
9/30/2018
|
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
|
|
Payroll tax
|
|
$
|
-
|
|
|
$
|
5,270
|
|
|
Individual income tax
|
|
|
-
|
|
|
|
875
|
|
|
|
|
$
|
-
|
|
|
$
|
6,145
|
|
Common
stock
As
of January 1, 2017, the Company had 100,000,000 shares of common stock authorized, 19,920,325 shares issued and outstanding at
par value of $0.001 per share.
On
March 17, 2017, the Company and each of the two holders (the “Noteholders”) of the Company’s convertible notes
(the “Convertible Notes”) entered into a convertible note exchange agreement (the “Agreement”). Pursuant
to the Agreement, the Company issued to the two noteholders an aggregate of approximately 1,106,837 shares of common stock (the
“Common Stock”) of the Company, par value $0.001, upon the conversion notice from the two Noteholders with respect
to converting the Convertible Notes in an aggregate principal amount of $2,213,673. Common stock was subsequently issued to the
two note holders on April 6, 2017 and April 7, 2017, respectively – please refer to note 3 related party receivables and
payables.
As
of September 30, 2018, the Company has 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 three-month periods ended September 30, 2018 and 2017, the Company recorded stock option compensation expense of
$477,261 and $0. For the nine-month periods ended September 30, 2018 and 2017, the Company recorded stock option compensation
expense of $1,351,848 and $0.
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-month periods ended September 30, 2018 and 2017.
The
provision for income taxes consists of the following:
|
|
|
For
the nine-month periods
September 30,
|
|
|
Current:
|
|
2018
|
|
|
2017
|
|
|
USA
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
USA
|
|
|
-
|
|
|
|
-
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
|
-
|
|
The
reconciliation of USA statutory income tax rate to the Company’s effective income tax rate is as follows:
|
|
|
For
the nine-month periods
September 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Income tax
at USA statutory rate of 21%
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Others
|
|
|
-
|
|
|
|
-
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
|
-
|
|
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 nine-month periods ended September 30, 2018 and 2017, 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
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, 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.
Basic
loss per common share from operations attributable to the Company is based on the weighted-average common shares outstanding during
the relevant period. Diluted loss per common share from continuing operations attributable to the Company is based on the weighted-average
common shares outstanding during the relevant period adjusted for the dilutive effect of share-based awards. The Company did not
have significant share-based awards outstanding that were antidilutive and not included in the calculation of diluted loss per
common share from operations attributable to the Company for the nine month periods ended September 30, 2018 and 2017.
The
following table sets forth the computation of basic and diluted earnings per share of common stock:
|
|
|
For the nine-month
periods ended
September 30,
|
|
|
For the three-month periods ended
September 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss used in computing basic earnings per share
|
|
$
|
(5,700,262
|
)
|
|
$
|
(440,378
|
)
|
|
$
|
(548,900
|
)
|
|
$
|
(194,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
21,027,162
|
|
|
|
20,721,968
|
|
|
|
21,027,162
|
|
|
|
21,027,162
|
|
|
Basic loss per share
|
|
$
|
(0.27
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss used in computing diluted loss per share
|
|
$
|
(5,700,262
|
)
|
|
$
|
(440,378
|
)
|
|
$
|
(548,900
|
)
|
|
$
|
(194,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$
|
(0.27
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.01
|
)
|
Dilutive
securities having an anti-dilutive effect on diluted (loss) earnings per share are excluded from the calculation.
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, 2018, the Company had accumulated deficits of $27,152,332 and working capital deficit of current liabilities
exceeding current assets by $1,260,159. 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 we do not raise all of the money we need from public or private offerings, we 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 we require additional cash and cannot raise it, we 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.
|
(a.)
|
On June 2, 2016,
the Company entered into a lease agreement for office space in Guangzhou city, Guangdong Province, P.R.C. commencing on June
1, 2016 for a three-year lease term. The Company terminated its lease in May 2018 and vacated the premise.
|
|
(b.)
|
On September 1,
2016, Mr. Zuyue Xiang entered into a lease agreement on behalf of the Company for office space in Guangdong Province, P.R.C.
commencing on September 1, 2016 for a three-year lease term. The Company terminated its lease in May 2018 and vacated the
premise.
|
|
(c.)
|
On April 23, 2018,
the Company entered into a sublease agreement for office space in New Jersey commencing on April 23, 2018 for a nine-month
lease term. The monthly rental expense is $833.33.
|
13.
|
CONCENTRATION OF RISKS
|
The
Company has certain customers who represented 10% or more of the Company’s total sales. For the nine-month period ended
September 30, 2018, the Company generated service revenue from one customer which represented 100% of the revenue. For the nine-month
period ended September 30, 2017, the Company generated service revenue from three customers which represented 33%, 30%, and 35%
of the revenue. The Company is unable to forecast if re-occurring services revenue will be generated from these customers.
|
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 nine-month period
ended September 30, 2018, there was no concentration in any specific vendor. For the nine-month period ended September 30, 2017,
two vendors accounted for 20% and 80% of accounts payable, respectively.
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.
Management
evaluated all events subsequent to the balance sheet date through to November 19, 2018, the date the financial statements were
available to be issued and determined there are no events to report.