NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
(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.
WAVE SYNC CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
(Stated in US Dollars)
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.
WAVE SYNC CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
(Stated in US Dollars)
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.
WAVE SYNC CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
(Stated in US Dollars)
|
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, 2017, 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, 2017.
WAVE SYNC CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
(Stated in US Dollars)
The
consolidated balance sheets and certain comparative information as of December 31, 2016 are derived from the audited consolidated
financial statements and related notes for the year ended December 31, 2016 (“2016 Annual Financial Statements”), included
in the Company’s 2016 Annual Report on Form 10-K. These unaudited interim condensed consolidated financial statements should
be read in conjunction with the 2016 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.
WAVE SYNC CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
(Stated in US Dollars)
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 2017.
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.
WAVE SYNC CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
(Stated in US Dollars)
|
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 and nine month
periods ended September 30, 2017 and 2016, no stock-based compensation has been 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
|
|
9/30/2017
|
|
|
12/31/2016
|
|
|
9/30/2016
|
|
|
Year-end/period-end RMB : US$ exchange rate
|
|
|
6.6545
|
|
|
|
6.9437
|
|
|
|
6.6694
|
|
|
Average annual/period RMB : US$ exchange rate
|
|
|
6.8057
|
|
|
|
6.6430
|
|
|
|
6.5792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-end/period-end HKD : US$ exchange rate
|
|
|
7.8110
|
|
|
|
7.7543
|
|
|
|
7.7547
|
|
|
Average annual/period HKD : US$ exchange rate
|
|
|
7.7870
|
|
|
|
7.7617
|
|
|
|
7.7632
|
|
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.
In accordance to FASB ASC 605-10,
the Company will recognize product revenue net of value added tax (VAT) when persuasive evidence of an arrangement exists, delivery
of the goods has occurred, or when customer acceptance has been obtained, which means the significant risks and ownership have
been transferred to the customer, the price is fixed or determinable and collectability is reasonably assured. No return allowance
will be made for products returns as the Company has not historically experienced returns. The Company recognized service revenue
upon delivery of service and issuance of invoices to the customer.
Cost of revenue consists primarily
of raw materials, utility and supply costs consumed in the manufacturing process, manufacturing labor, depreciation expense and
direct overhead expenses necessary to manufacture finished goods as well as warehousing and distribution costs such as inbound
freight charges, shipping and handling costs, purchasing and receiving costs. In the future event that the Company incurs costs
of distributing products to the Company’s customers, those costs will be included in selling expenses.
WAVE SYNC CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
(Stated in US Dollars)
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.
|
T.
|
Recent accounting pronouncements
|
On August 26, 2016, the FASB
issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230)”. Stakeholders indicated that there is diversity in practice
in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement
of Cash Flows, and other Topics. This Update addresses eight specific cash flow issues with the objective of reducing the existing
diversity in practice. The amendments in this Update are effective for public business entities for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim
period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning
of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in
the same period. As a result, the Company has elected to early adopt this Update prospectively. As of December 31, 2016 and prior
periods retrospective adjustments have not been applied.
As of September 30, 2017, 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
.
|
U.
|
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.
WAVE SYNC CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
(Stated in US Dollars)
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, 2017:
|
|
|
Quoted in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
7,115
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,115
|
|
|
Total financial assets
|
|
$
|
7,115
|
|
|
$
|
-
|
|
|
$
|
--
|
|
|
$
|
7,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease
|
|
$
|
9,758
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,758
|
|
|
Total financial assets
|
|
$
|
9,758
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,758
|
|
As of December 31, 2016:
|
|
|
Quoted in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
480,609
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
480,609
|
|
|
Total financial assets
|
|
$
|
480,609
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
480,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease
|
|
$
|
9,352
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,352
|
|
|
Total financial assets
|
|
$
|
9,352
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,352
|
|
WAVE SYNC CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
(Stated in US Dollars)
|
3.
|
RELATED PARTY RECEIVABLES AND PAYABLES
|
Related party receivable consisted
of the following:
|
|
|
9/30/2017
|
|
|
12/31/2016
|
|
|
|
|
|
|
|
|
|
|
Xiang, Zuyue, CEO
|
|
$
|
-
|
|
|
$
|
1,350,714
|
|
|
|
|
|
-
|
|
|
|
1,350,714
|
|
The amounts are unsecured, interest-free
and due on demand.
Related party payable consisted of the
following:
|
|
|
9/30/2017
|
|
|
12/31/2016
|
|
|
|
|
|
|
|
|
|
|
Beijing Yuxin Shangfang Technology Co., Ltd.
|
|
$
|
284,910
|
|
|
$
|
273,043
|
|
|
Xiang, Zuyue, director of SQEC and shareholder
|
|
|
28,384
|
|
|
|
-
|
|
|
Lim, Jehn Ming, shareholder of EGOOS BVI
|
|
|
1,289
|
|
|
|
1,289
|
|
|
Wang, Yue, director of EGOOS HK
|
|
|
161,942
|
|
|
|
163,125
|
|
|
Wang, Zaixian, a related party and shareholder
|
|
|
-
|
|
|
|
1,971,871
|
|
|
Yang, Mei, shareholder
|
|
|
71,899
|
|
|
|
20,000
|
|
|
Li, Ping, director of WOFE
|
|
|
1,134
|
|
|
|
910
|
|
|
|
|
$
|
549,558
|
|
|
$
|
2,430,238
|
|
The amounts are unsecured,
interest-free and due on demand.
During the nine months ended
September 30, 2017, the Company formalized the related party payables to Wang, Zaixian (“Wang”) and Yang, Mei (“Yang”)
by issuing convertible notes, which were unsecured and interest-free and due on demand. These notes were convertible into 1 common
share for every $2 of outstanding debt owed to those related parties. On April 6, 2017 and April 7, 2017, Wang and Yang converted
the notes into 1,025,000 and 81,837 common shares, respectively.
|
4.
|
PROPERTY, PLANT AND EQUIPMENT
|
Property, plant, and equipment
consisted of the following as of September 30, 2017 and December 31, 2016:
|
|
|
9/30/2017
|
|
|
12/31/2016
|
|
|
|
|
|
|
|
|
|
|
At Cost:
|
|
|
|
|
|
|
|
Machinery
|
|
$
|
70,252
|
|
|
$
|
7,676
|
|
|
Office equipment
|
|
|
18,931
|
|
|
|
18,142
|
|
|
Office furniture
|
|
|
13,147
|
|
|
|
12,600
|
|
|
|
|
$
|
102,330
|
|
|
$
|
38,418
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
:
Accumulated depreciation
|
|
|
(31,872
|
)
|
|
|
(18,654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
70,458
|
|
|
$
|
19,764
|
|
Depreciation expense for the
nine month periods ended September 30, 2017 and 2016 was $13,427 and $7,747, respectively.
WAVE SYNC CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
(Stated in US Dollars)
Intangible assets consisted
of the following as of September 30, 2017 and December 31, 2016:
|
|
|
9/30/2017
|
|
|
12/31/2016
|
|
|
|
|
|
|
|
|
|
|
At Cost:
|
|
|
|
|
|
|
|
Patent
|
|
$
|
7,728,167
|
|
|
$
|
-
|
|
|
Software
|
|
|
1,292
|
|
|
|
1,239
|
|
|
|
|
$
|
7,729,459
|
|
|
$
|
1,239
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
:
Accumulated amortization
|
|
|
(1,292
|
)
|
|
|
(1,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,728,167
|
|
|
$
|
155
|
|
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
will transfer 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 transferred was net off with the receivable from Xiang and also increased additional
paid in capital of $6,225,425 as a result of an appraised value of the patent of $7,728,167.
The patent will be amortized over a useful life of ten years. Amortization expense for the
nine month periods ended September 30, 2017 and 2016 was $209 and $470, respectively.
Accrued expenses consisted of the followings
as of September 30, 2017 and December 31, 2016:
|
|
|
9/30/2017
|
|
|
12/31/2016
|
|
|
|
|
|
|
|
|
|
|
Audit fee
|
|
$
|
6,500
|
|
|
$
|
35,000
|
|
|
Rental expense
|
|
|
-
|
|
|
|
895
|
|
|
Utilities
|
|
|
9,341
|
|
|
|
-
|
|
|
|
|
$
|
15,841
|
|
|
$
|
35,895
|
|
Taxes payable consisted of the followings as of September
30, 2017 and December 31, 2016:
|
|
|
9/30/2017
|
|
|
12/31/2016
|
|
|
|
|
|
|
|
|
|
|
Value added tax
|
|
$
|
-
|
|
|
$
|
881
|
|
|
Payroll tax
|
|
|
8,997
|
|
|
|
5,808
|
|
|
Individual income tax
|
|
|
552
|
|
|
|
2,289
|
|
|
|
|
$
|
9,549
|
|
|
$
|
8,978
|
|
WAVE SYNC CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
(Stated in US Dollars)
Common stock
As of December 31, 2016 and
2015, the Company has 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 shall
issue 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, in exchange for the Noteholders’ Convertible Notes in an aggregate principal amount of $2,213,673.
The common stock were 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, 2017, the
Company has 100,000,000 shares of common stock authorized, 21,027,162 shares issued and outstanding at par value of $0.001 per
share.
The Company was incorporated
in the United States of America (“USA”). The Company does not generate any taxable income from its operations for the
nine month periods ended September 30, 2017 and 2016.
The provision for income taxes consists
of the following:
|
|
|
For the nine month periods September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Current:
|
|
|
|
|
|
|
|
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,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax at USA statutory rate of 34%
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Others
|
|
|
-
|
|
|
|
-
|
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
WAVE SYNC CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
(Stated in US Dollars)
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, 2017 and 2016, 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, 2017, 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
assets.
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, 2017 and 2016.
The following table sets forth the computation of
basic and diluted earnings per share of common stock:
|
|
|
For the nine months ended September 30,
|
|
|
For the three months ended September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss used in computing basic earnings per share
|
|
$
|
(432,859
|
)
|
|
$
|
(984,825
|
)
|
|
$
|
(193,991
|
)
|
|
$
|
(445,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
20,721,968
|
|
|
|
19,920,325
|
|
|
|
21,027,162
|
|
|
|
19,920,325
|
|
|
Basic loss per share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss used in computing diluted loss per share
|
|
$
|
(432,859
|
)
|
|
$
|
(984,825
|
)
|
|
$
|
(193,991
|
)
|
|
$
|
(445,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
Dilutive securities having an anti-dilutive effect
on diluted (loss) earnings per share are excluded from the calculation.
WAVE SYNC CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
(Stated in US Dollars)
|
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, 2017, the
Company had accumulated deficits of $17,030,887 and working capital deficit of current liabilities exceeding current assets by
$620,771. 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 monthly rental expense is approximately $2,962 (RMB 20,074)
.
|
|
(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 monthly rental expense is approximately $960
(RMB 6,503).
|
As of September 30, 2017, the
outstanding lease commitments are:
|
Year 1
|
|
$
|
48,141
|
|
|
Year 2
|
|
|
35,045
|
|
|
|
|
$
|
83,186
|
|
As of December 31, 2016, the
outstanding lease commitments are:
|
Year 1
|
|
$
|
71,831
|
|
|
Year 2
|
|
|
45,331
|
|
|
Year 3
|
|
|
21,663
|
|
|
|
|
$
|
138,825
|
|
WAVE SYNC CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2017 AND DECEMBER 31, 2016
(Stated in US Dollars)
The Company leases certain computer
equipment and furnishing under lease classified as capital lease.
On December 31, 2014, the Company
entered into a capital lease agreement in the amount of RMB 181,050, which was approximately $ 28,494, with a related party leasing
the following: eighteen computers, two mobile phones, one printer, and office furniture with an interest rate of 7.8% for a period
of 36 months with an expiration date of December 31, 2017 where the title of the leased assets will be transferred to the Company
at date of expiration of the lease.
The following is a schedule showing the future minimum
lease payments under capital leases together with the present value of the net minimum lease payments as of September 30, 2017:
|
Year 1
|
|
$
|
10,329
|
|
|
Total minimum lease payments
|
|
|
10,329
|
|
|
Less: Amount representing interest
|
|
|
(571
|
)
|
|
Present value of net minimum lease payments
|
|
$
|
9,758
|
|
As of September 30, 2017, current
and noncurrent obligations under capital leases are reflected as $9,758 and $0, respectively. As of September 30, 2017, the present
value of minimum lease payments due within one year is $9,758.
As of December 31, 2016, current
and noncurrent obligations under capital leases are reflected as $9,352 and $0, respectively. As of December 31, 2016, the present
value of minimum lease payments due within one year is $9,352.
|
14.
|
CONCENTRATION OF RISKS
|
The Company had certain customers
who represented 10% or more of the Company’s total sales. 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. For the nine month period ended
September 30, 2016, the Company did not generate any revenue. The Company is unable to forecast if re-occurring services revenue
will be generated from that customer.
|
B.
|
Major Vendors and Accounts Payable
|
The Company had 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, 2017, two
vendors accounted for 20% and 80% of accounts payable, respectively. For the nine month period ended September 30, 2016, three
vendors accounted for 10%, 28% and 62% 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.
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.
The Company has determined that are no material subsequent events that occur after the balance sheet date that require disclosure.