ITEM
1. FINANCIAL STATEMENTS
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
WAVE
SYNC CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
AS
OF SEPTEMBER 30, 2019 AND DECEMBER 31, 2018
(Stated in US Dollars)
|
|
As of
September 30,
2019
|
|
|
As of
December 31,
2018
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
16
|
|
|
$
|
504
|
|
Other receivable
|
|
|
-
|
|
|
|
277
|
|
Advance to suppliers
|
|
|
-
|
|
|
|
-
|
|
Prepaid expenses
|
|
|
-
|
|
|
|
-
|
|
Prepaid taxes
|
|
|
-
|
|
|
|
6,422
|
|
Due from related parties
|
|
|
-
|
|
|
|
-
|
|
Total Current Assets
|
|
|
16
|
|
|
|
7,203
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
Property and Equipment, net
|
|
|
-
|
|
|
|
584
|
|
Intangible assets, net
|
|
|
-
|
|
|
|
-
|
|
Deferred Tax Assets
|
|
|
-
|
|
|
|
-
|
|
Total Assets
|
|
$
|
16
|
|
|
$
|
7,787
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
-
|
|
|
$
|
322,368
|
|
Other payables
|
|
|
-
|
|
|
|
51,806
|
|
Accrued expenses
|
|
|
3,533
|
|
|
|
46,751
|
|
Related party payables
|
|
|
-
|
|
|
|
994,040
|
|
Taxes payable
|
|
|
400
|
|
|
|
-
|
|
Total Current Liabilities
|
|
|
3,933
|
|
|
|
1,414,965
|
|
Provision of other liabilities
|
|
|
-
|
|
|
|
-
|
|
Deferred tax liabilities
|
|
|
-
|
|
|
|
-
|
|
Total Liabilities
|
|
$
|
3,933
|
|
|
$
|
1,414,965
|
|
|
|
|
|
|
|
|
|
|
Commitment and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
Common Stock ($0.001 par value, 100,000,000 shares authorized, 21,027,713 and 21,027,713 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively)
|
|
$
|
21,027
|
|
|
$
|
21,027
|
|
Additional paid in capital
|
|
|
27,297,495
|
|
|
|
25,889,431
|
|
Accumulated deficits
|
|
|
(27,063,916
|
)
|
|
|
(27,059,112
|
)
|
Accumulated other comprehensive loss
|
|
|
(258,523
|
)
|
|
|
(258,524
|
)
|
Total Shareholders’ Equity
|
|
|
(3,917
|
)
|
|
|
(1,407,178
|
)
|
Total Liabilities and Shareholders’ Equity
|
|
$
|
16
|
|
|
$
|
7,787
|
|
See
notes to consolidated financial statements
WAVE
SYNC CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR
THE FISCAL QUARTERS ENDED SEPTEMBER 30, 2019 AND 2018 (Unaudited)
(Stated
in US Dollars)
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
86,900
|
|
Cost of revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
85,317
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
1,472
|
|
|
|
548,900
|
|
|
|
4,546
|
|
|
|
1,754,251
|
|
Financial expenses
|
|
|
16
|
|
|
|
-
|
|
|
|
258
|
|
|
|
-
|
|
Total Operating expenses
|
|
|
1,488
|
|
|
|
548,900
|
|
|
|
4,804
|
|
|
|
1,754,251
|
|
Loss from operations
|
|
|
(1,488
|
)
|
|
|
(548,900
|
)
|
|
|
(4,804
|
)
|
|
|
(1,752,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,947,620
|
)
|
Other income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Impairment loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total other (expenses) income, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,947,594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax expenses
|
|
|
(1,488
|
)
|
|
|
(548,900
|
)
|
|
|
(4,804
|
)
|
|
|
(5,700,262
|
)
|
Income tax expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
$
|
(1,488
|
)
|
|
$
|
(548,900
|
)
|
|
$
|
(4,804
|
)
|
|
$
|
(5,700,262
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (loss) gain
|
|
|
-
|
|
|
|
(75,443
|
)
|
|
|
-
|
|
|
|
23,239
|
|
Comprehensive loss
|
|
$
|
(1,488
|
)
|
|
$
|
(624,343
|
)
|
|
$
|
(4,804
|
)
|
|
$
|
(5,677,023
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares, basic and diluted
|
|
|
21,027,713
|
|
|
|
21,027,713
|
|
|
|
21,027,713
|
|
|
|
21,027,713
|
|
Basic and diluted loss per share
|
|
$
|
(0.00007
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.00023
|
)
|
|
$
|
(0.27
|
)
|
See
notes to consolidated financial statements
WAVE
SYNC CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE FISCAL QUARTERS ENDED SEPTEMBER 30, 2019 AND 2018 (Unaudited)
(Stated
in US Dollars)
|
|
Nine months ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,804
|
)
|
|
$
|
(5,700,262
|
)
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
584
|
|
|
|
4,921
|
|
Stock compensation
|
|
|
-
|
|
|
|
1,351,848
|
|
Impairment loss on intangible assets
|
|
|
-
|
|
|
|
3,952,175
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
-
|
|
|
|
5,825
|
|
Other receivables
|
|
|
-
|
|
|
|
895
|
|
Advance to suppliers
|
|
|
-
|
|
|
|
1,897
|
|
Prepaid expenses and taxes
|
|
|
-
|
|
|
|
6,594
|
|
Accounts payable
|
|
|
-
|
|
|
|
107,013
|
|
Accrued expenses
|
|
|
3,533
|
|
|
|
(29,151
|
)
|
Other payables
|
|
|
-
|
|
|
|
128,332
|
|
Due from related parties
|
|
|
-
|
|
|
|
-
|
|
Tax payable
|
|
|
400
|
|
|
|
(6,145
|
)
|
Net cash (used in)/provided by operating activities
|
|
$
|
(287
|
)
|
|
$
|
(176,058
|
)
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
Repayment to a related party
|
|
|
-
|
|
|
|
-
|
|
Increase in related party payables
|
|
|
-
|
|
|
|
147,215
|
|
Net cash provided by/ (used in) financing activities
|
|
$
|
-
|
|
|
$
|
147,215
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
$
|
(287
|
)
|
|
$
|
(28,843
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(201
|
)
|
|
|
28,676
|
|
Cash at beginning of year
|
|
|
504
|
|
|
|
10,346
|
|
Cash at end of period
|
|
$
|
16
|
|
|
$
|
10,179
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Interest received
|
|
$
|
-
|
|
|
$
|
26
|
|
Interest paid
|
|
|
-
|
|
|
|
-
|
|
Income taxes paid
|
|
|
-
|
|
|
|
-
|
|
Non- cash operating and financing
activities
|
|
|
|
|
|
|
|
|
Forgiveness of loans from related parties
|
|
$
|
994,040
|
|
|
$
|
-
|
|
Undertaking of assets and liabilities by related parties
|
|
$
|
414,226
|
|
|
$
|
-
|
|
See
notes to the consolidated financial statements
WAVE
SYNC CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY/(DEFICIENCY)
FOR
THE FISCAL QUARTERS ENDED SEPTEMBER 30, 2019 AND 2018 (Unaudited)
(Stated
in US Dollars)
|
|
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
|
|
|
21,027,713
|
|
|
$
|
21,027
|
|
|
$
|
27,297,495
|
|
|
$
|
(27,059,112
|
)
|
|
$
|
(258,524
|
)
|
|
$
|
(1,407,178
|
)
|
Net (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,804
|
)
|
|
|
-
|
|
|
|
(4,804
|
)
|
Forgiveness of loans from related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
994,040
|
|
|
|
-
|
|
|
|
-
|
|
|
|
994,040
|
|
Undertaking of assets and liabilities by related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
414,226
|
|
|
|
-
|
|
|
|
-
|
|
|
|
414,226
|
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
(202
|
)
|
|
|
-
|
|
|
|
1
|
|
|
|
(201
|
)
|
Balance as of September 30, 2019
|
|
|
21,027,713
|
|
|
$
|
21,027
|
|
|
$
|
27,297,495
|
|
|
$
|
(27,063,916
|
)
|
|
$
|
(258,523
|
)
|
|
$
|
(3,917
|
)
|
|
|
Nine months ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
income
|
|
|
Equity
|
|
Balance as of December 31, 2017
|
|
|
21,027,713
|
|
|
$
|
21,027
|
|
|
$
|
24,776,214
|
|
|
$
|
(21,452,071
|
)
|
|
$
|
(223,357
|
)
|
|
$
|
3,121,813
|
|
Net (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,700,262
|
)
|
|
|
-
|
|
|
|
(5,700,262
|
)
|
Stock compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
1,351,848
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,351,848
|
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,239
|
|
|
|
23,239
|
|
Balance as of September 30, 2018
|
|
|
21,027,713
|
|
|
$
|
21,027
|
|
|
$
|
26,128,062
|
|
|
$
|
(27,152,332
|
)
|
|
$
|
(200,118
|
)
|
|
$
|
(1,203,361
|
)
|
|
|
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
|
|
|
21,027,713
|
|
|
$
|
21,027
|
|
|
$
|
27,297,495
|
|
|
$
|
(27,062,428
|
)
|
|
$
|
(258,519
|
)
|
|
$
|
(2,425
|
)
|
Net (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,488
|
)
|
|
|
-
|
|
|
|
(1,488
|
)
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Balance as of September 30, 2019
|
|
|
21,027,713
|
|
|
$
|
21,027
|
|
|
$
|
27,297,495
|
|
|
$
|
(27,063,916
|
)
|
|
$
|
(258,523
|
)
|
|
$
|
(3,917
|
)
|
|
|
Three months ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
income
|
|
|
Equity
|
|
Balance as of June 30, 2018
|
|
|
21,027,713
|
|
|
$
|
21,027
|
|
|
$
|
25,650,801
|
|
|
$
|
(26,694,626
|
)
|
|
$
|
(124,675
|
)
|
|
$
|
(1,147,473
|
)
|
Net (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(548,900
|
)
|
|
|
-
|
|
|
|
(548,900
|
)
|
Stock compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
477,261
|
|
|
|
-
|
|
|
|
-
|
|
|
|
477,261
|
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(75,443
|
)
|
|
|
(75,443
|
)
|
Balance as of September 30, 2018
|
|
|
21,027,713
|
|
|
$
|
21,027
|
|
|
$
|
26,128,062
|
|
|
$
|
(27,152,332
|
)
|
|
$
|
(200,118
|
)
|
|
$
|
(1,203,361
|
)
|
See notes to the consolidated financial statements
WAVE
SYNC CORP. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED STATEMENTS
FOR
THE FISCAL QUARTERS ENDED SEPTEMBER 30, 2019 AND 2018 (Unaudited)
(Stated
in US Dollars)
NOTE
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Wave
Sync Corp. formerly known as China Bio-Energy Corp. (the “Company”), and prior to that known as China INSOnline Corp., was
incorporated on December 23, 1988 as Lifequest Medical, Inc., a Delaware corporation.
In
June 2010, the Company ceased all operations conducted by its then subsidiaries: Ever Trend Investment Limited, Run Ze Yong Cheng (Beijing)
Technology, San Teng Da Fei Technology, and Guang Hua Insurance Agency (“Ever Trend Group”); on January 27, 2015, the Company
announced the completion of the disposition of the aforementioned subsidiaries. Accordingly, the Company has excluded the accounts of
Ever Trend Group in these financial statements and the accompanying notes contained herein.
On
November 12, 2010, the Company entered into a share exchange agreement with Ding Neng Holdings Ltd, an investment holdings company incorporated
in the British Virgin Islands (“Ding Neng Holdings”); the share exchange agreement was amended on December 6, 2010, whereby
the Company, under the share exchange agreement and its related amendment, would have contemplated acquiring 100% of Ding Neng Holdings
in exchange for the issuance of 26,162,505 shares of the Company’s common stock, par value $0.001. Under the share exchange agreement,
the Company would have contemplated owning and operating Ding Neng Holdings and Ding Neng Holdings’ directly, and indirectly held
subsidiaries: Ding Neng Bio-technology Co., Ltd. (“Ding Neng HK”), Zhangzhou Fuhua Biomass Energy Technology Co., Ltd. (“WOFE”),
and Ding Neng Bio-tech. Ding Neng HK was incorporated under the laws of Hong Kong on September 10, 2010. Ding Neng HK did not have any
operations. Ding Neng HK has been delinquent with its annual regulatory filings in Hong Kong, and should be considered dormant and defunct.
Ding Neng HK was wholly-owned by Ding Neng Holdings. Zhangzhou Fuhua Biomass Energy Technology Co., Ltd.(“WFOE”) was incorporated
as a wholly-foreign owned entity under the laws of the People’s Republic of China (“PRC”), on November 2, 2010. WFOE
was wholly-owned by Ding Neng HK. Ding Neng Bio-tech was incorporated under the laws of the PRC on December 8, 2006. It was located in
Zhangzhou city Fujian Province of PRC. Ding Neng Bio-tech was engaged in theproduction, refinement and distribution of bio-diesel fuel
in Southern China. Ding Neng Bio-tech operated a biodiesel manufacturing facility in Zhangzhou city. On October 28, 2010, WFOE and Ding
Neng Bio-tech entered into a set of variable interest entity agreements that included: (1) a Consulting Service Agreement with Ding Neng
Bio-tech, which entitled WFOE toreceive substantially all of the economic benefits of Ding Neng Bio-tech in consideration for services
provided by WFOE to DingNeng Bio-tech, (2) an Option Agreement with Xinfeng Nie, Sanfu Huang, and Shunlong Hu (the shareholders of Ding
Neng Bio-tech) allowing the WFOE to acquire all the shares of Ding Neng Bio-tech as permitted by PRC laws, (3) a Voting Rights Proxy
Agreement that provides WFOE with the all voting rights of the Ding Neng Bio-tech shareholders, and (4) an Equity Pledge Agreement that
pledges the shares in Ding Neng Bio-tech to WFOE (VIE Agreements). These VIE Agreements granted effective control of Ding Neng Bio-tech
to WFOE. On June 4, 2015, WFOE filed a civil action in Haicang District People’s Court of Xiamen, Fujian, PRC (the “Court”)
against Ding Neng Bio-tech, alleging that the purposes of those certain executed VIE Agreements entered into by WFOE and Ding Neng Bio-Tech
on October 28, 2010, had been frustrated, and that these VIE Agreements should be terminated. WFOE alleged that Ding Neng Bio-Tech did
not make any payment of service fees to WFOE, and that Ding Neng Bio-Tech failed to perfect the security interest in the pledged stocks.
On July 14, 2015, this case was settled via in-court mediation directed by the Court. As a result, WFOE and Ding Neng Bio-Tech entered
into binding settlement, among other things, (i) to terminate the VIE Agreements, and (ii) that the litigation fee in the amount of RMB10,000
(approximately$1,610.50) would be borne by Ding Neng Bio-Tech. Ding Neng Holdings is delinquent with its regulatory filings and annual
fees to the British Virgin Islands; accordingly, the Ding Neng Holdings should be considered dormant and defunct.
Given
that the Company has not been able to exercise effective control over Ding Neng Bio-Tech or to access Ding Neng Bio-tech’s financial
information since 2011, and the VIE Agreements were terminated, the Company has excluded the accounts of Ding Neng Bio-Tech’s in
these financial statements and the accompanying notes contained herein; the exclusion of such accounts is considered as a type two material
subsequent event that occurred prior to the issuance of the financial statements but after the balance sheets dates that required material
adjustments to the financial statements presented. Ding Neng Holdings is delinquent and defunct; the Company has determined that the
Company was never registered as the sole shareholder of Ding Neng Holdings pursuant to the share exchange agreement dated November 12,
2010, and amended December 6, 2010; accordingly, the Company has excluded the accounts of Ding Neng and its subsidiaries in these financial
statements and the accompanying notes as contained herein; the exclusion of such accounts is considered as a type two material subsequent
event that occurred prior to the issuance of the financial statements but after the balance sheets dates that required material adjustments
to the financial statements presented. The Company accounted for the issuance of shares to the shareholders of Ding Neng Holdings under
the contemplated share exchange transaction as a recapitalization of the Company under reverse take-over accounting; accordingly, the
Company’s historical stockholders’ equity has been retroactively restated to the first period presented; as a result of the
Company not being updated to Ding Neng Holdings shareholder register, and that Ding Neng Holdings being defunct, the Company has written
off all investments made in Ding Neng as loss on investment in subsidiary.
In
connection with the share exchange agreement with the shareholders of Ding Neng Holdings that contemplated the acquisition of Ding Neng
Holdings and its subsidiaries, the Company elected to adopt the fiscal year used by Ding Neng Holdings, which was a calendar year; accordingly,
the Company’s financial statements presented herein have been, and on a go-forward basis, will be prepared using a December 31
year-end date, and each operating period will cover twelve full calendar months.
Share
Purchase Agreement
On
October 19, 2015, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with EGOOS Mobile
Technology Company Limited, a British Virgin Islands holding company (“EGOOS BVI”), which owns 100% of EGOOS Mobile Technology
Company Limited, a Hong Kong company (“EGOOS HK”), which owns 100% of Move the Purchase Consulting Management (Shenzhen)
Co., Ltd. (“WOFE”), a foreign investment enterprise organized under the laws of the PRC, and which has, through various contractual
agreements known as variable interest entity (“VIE”) agreements. These VIE agreements provide the WOFE management control
and the rights to the profits of Guangzhou Yuzhi Information Technology Co., Ltd., a corporation organized under the laws of the PRC
as a variable interest entity (“GZYZ”), which owns 100% of Shenzhen Qianhai Exce-card Technology Co., Ltd., a Chinese corporation
(“SQEC”), which owns 100% of Guangzhou Rongsheng Information Technology Co., Ltd., a Chinese corporation (“GZRS”)
and the sole shareholder of EGOOS BVI. The VIE agreements include: (1) an Exclusive Service Agreement between WOFE and GZYZ, which entitles
WOFE to receive substantially all of the economic benefits of GZYZ in consideration for services provided by WOFE to GZYZ, (2) a Call
Option Agreement with the shareholders of GZYZ, Yang Wenbin and Li Ping, allowing the WOFE to acquire all the shares of GZYZ as permitted
by PRC laws, (3) a Voting Rights Proxy Agreement that provides WOFE with the all voting rights of the GZYZ’s shareholders, and
(4) an Equity Pledge Agreement that pledges the shares in GZYZ to WOFE. Management has assessed the terms of the VIE agreements and determined
that the Company is the primary beneficiary of those agreements based on Management’s ability to direct the use and disposition
of GZYZ assets including the payment of future profits to the Company. Management also determined the Company has implicitly provided
financial support to GYZY; accordingly, Management believes that GZYZ and its subsidiaries should be consolidated as variable interest
entities of the Company.
SQEC
was incorporated on November 11, 2013. The Company was in the business of design, development, and proliferation of next generation debit
and credit cards for financial institutions employing innovative secured encryption technology transmitted via audio wave technology;
the Company intended to work with China Union Pay and China Construction Bank under a potential pilot program to develop and market to
end user bank customers and business operators to adopt these next generation of cards by developing point of sale and commercial interfaces
via software and other solutions to generate demand for these cards as a value-added alternative to current generation debit and credit
cards.
On
January 28, 2015, ownership of SQEC’s was transferred from Bao, Shanshan to Xiang, Zuyue for a consideration of approximately $1,629,062
(RMB 10,000,000). Simultaneously, Xiang, Zuyue transferred 40% of ownership to Li, Na for a consideration of $651,625 (RMB 4,000,000).
On July 24, 2015, SQEC entire ownership was collectively transferred from Xiang, Zuyue and Li, Na to Guangzhou Yuzhi Information Technology
Co. Ltd. (“GZYZ”) for a consideration of approximately$1,629,062 (RMB 10,000,000).
On
March 16, 2015, the GZRS was incorporated as a wholly-owned subsidiary of SQEC. GZRS has an authorized capital of RMB1,000,000. As of
the date of this report, GZRS has not been capitalized.
Pursuant
to the Share Purchase Agreement the Company issued a convertible note to EGOOS BVI’s sole shareholder for 100% equity interest
in EGOOS BVI. The note is convertible into 15,000,000 shares of the Company’s common stock contingent on the following conditions:
(i) the Company had effectuated a reverse split of all of the issued and outstanding Common Stock as of the date of the issuance of the
note (the “Reverse Split”) and (ii) the average closing price of the common stock for 3 business days within any period of
10 consecutive business days exceeded $1.00 per share (the “Conversion Conditions”). Upon conversion of the note, the existing
shareholders of the Registrant would own an aggregate of 24.7% of the post-acquisition entity. The note was issued at Par, it is unsecured,
interest free, and is due on the second anniversary of the issuance date of the note. In accounting for the note, the Company has assumed
that the note does not carry any discount from face that requires accretion as interest expense to its results of operations, including
any potential beneficial conversion features. On January 26, 2016, the reverse split was effectuated, and subsequently, on February 4,
2016, the convertible promissory note was converted into 15 million newly issued shares of the Company’s common stock. The conversion
of the promissory note has been recognized retroactively to the first period presented as a component of the reverse takeover transactions
detailed below.
The
consolidated financial statements were prepared assuming that the Company has controlled EGOOS BVI and its intermediary holding companies,
operating subsidiaries, and variable interest entities: EGOOS HK, WOFE, GZYZ, SQEC, and GZRS from the first period presented. The transactions
detailed above have been accounted for as reverse takeover transactions and are capitalization of the Company, including the conversion
of the convertible promissory note; accordingly, the Company (the legal acquirer) is considered the accounting acquiree and EGOOS BVI
(the legal acquiree) is considered the accounting acquirer. No goodwill has been recorded. As a result of this transaction, the Company
is deemed to be a continuation of the business of EGOOS BVI and SQEC.
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A.
Method of Accounting
The
Company maintains its general ledger and journals with the accrual method of accounting for financial reporting purposes. The financial
statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting
principles in the United States of America and have been consistently applied in the presentation of financial statements.
B.
Basis of presentation
The
consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”).
C.
Principles of Consolidation
The
consolidated financial statements include the financial statements of all the subsidiaries and VIEs of the Company. All transactions
and balances between the Company and its subsidiaries and VIEs have been eliminated upon consolidation
The
consolidated financial statements include the accounts of the Company, its subsidiaries for which the Company is the primary beneficiary.
All significant inter-company accounts and transactions have been eliminated. The consolidated financial statements include 100% of assets,
liabilities, and net income or loss of those wholly-owned subsidiaries.
As
of September 30, 2019 and December 31, 2018, the detailed identities of the consolidating subsidiaries are as follows:
Name of Company
|
|
Place of
incorporation
|
|
Attributable
equity interest %
|
|
|
Registered
capital
|
|
EGOOS Mobile Technology Company Limited (“EGOOS BVI”)
|
|
BVI
|
|
100%
|
|
|
$
|
1
|
|
EGOOS Mobile Technology Company Limited (“EGOOS HK”)
|
|
Hong Kong
|
|
100%
|
|
|
|
1,290
|
|
Move the Purchase Consulting Management (Shenzhen) Co., Ltd. (“WOFE”)
|
|
P.R.C
|
|
100%
|
|
|
|
-
|
|
Guangzhou Yuzhi Information Technology Co., Ltd. (“GZYZ”)
|
|
P.R.C
|
|
100%
|
|
|
|
150,527
|
|
Shenzhen Qianhai Exce-card Technology Co., Ltd. (“SQEC”)
|
|
P.R.C
|
|
100%
|
|
|
|
150,527
|
|
Guangzhou Rongsheng Information Technology Co., Ltd. (“GZRS”)
|
|
P.R.C
|
|
100%
|
|
|
|
1,505,267
|
|
D.
Unaudited Interim Financial Information
These
unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial reporting
and the rules and regulations of the Securities and Exchange Commission that permit reduced disclosure for interim periods. Therefore,
certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed
or omitted. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation of the financial
position, results of operations and cash flows for the periods presented have been made. The results of operations for the interim periods
presented are not necessarily indicative of the results to be expected for the year ending December 31, 2019.
The
consolidated balance sheets and certain comparative information as of December 31, 2018 are derived from the audited consolidated financial
statements and related notes for the year ended December 31, 2018 (“2018 Annual Financial Statements”), included in the Company’s
2018 Annual Report on Form 10-K. These unaudited interim condensed consolidated financial statements should be read in conjunction with
the 2018 Annual Financial Statements.
E.
Use of estimates
The
preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates
are used for, but not limited to, the accounting for certain items such as allowance for doubtful accounts, depreciation and amortization,
impairment, inventory allowance, taxes and contingencies.
F.
Contingencies
Certain
conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only
be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities,
and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are
pending against the Company or un-asserted claims that may result in such proceedings, the Company’s management evaluates the perceived
merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be
sought.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates
that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the
nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
Loss
contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee
would be disclosed.
G.
Cash and cash equivalents
The
Company classifies the following instruments as cash and cash equivalents: cash on hand, unrestricted bank deposits, and all highly liquid
investments purchased with original maturities of three months or less.
H.
Accounts receivable
Trade
receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful
accounts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.
I.
Other receivables
Other
receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An allowance for
doubtful accounts is made when recovery of the full amount is doubtful.
J.
Property, plant and equipment
Plant
and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the
straight-line method with a salvage value of 10%. Estimated useful lives of the plant and equipment are as follows:
Computer equipment
|
|
3 years
|
|
Office furniture
|
|
5 years
|
|
The
cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is
included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals
and betterments are capitalized.
K.
Accounting for the Impairment of Long-lived assets
The
long-lived assets held by the Company are reviewed in accordance with Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) Subtopic 360-10-35, “Accounting for the Impairment or Disposal of Long-Lived Assets,”
for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is
reasonably possible that these assets could become impaired as a result of technology or other industry changes. Impairment is present
if carrying amount of an asset is less than its undiscounted cash flows to be generated.
If
an asset is considered impaired, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value
of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company
believes no impairment has occurred to its assets during the three months ended September 30, 2019 and 2018.
L.
Income taxes
The
Company uses the accrual method of accounting to determine income taxes for the year. The Company has implemented FASB ASC 740 Accounting
for Income Taxes. Income tax liabilities computed according to the United States, People’s Republic of China (PRC), and Hong Kong
tax laws provide for the tax effects of transactions reported in the financial statements and consists of taxes currently due, plus deferred
taxes, related primarily to differences arising from the recognition of expenses related to the depreciation of plant and equipment,
amortization of intangible assets, and provisions for doubtful accounts between financial and tax reporting. The deferred tax assets
and liabilities represent the future tax return consequences of those differences, which will be either taxable or deductible when the
assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses that are available to offset
future income taxes.
A
valuation allowance is recognized for deferred tax assets if it is more likely than not, that the deferred tax assets will either expire
before the Company is able to realize that tax benefit, or that future realization is uncertain.
M.
Stock-based compensation
The
Company has elected to use the Black-Scholes-Merton (“BSM”) pricing model to determine the fair value of stock options on
the dates of grant. Also, the Company recognizes stock-based compensation using the straight-line method over the requisite service period.
The
Company values stock awards using the market price on or around the date the shares were awarded and includes the amount of compensation
as a period compensation expense over the requisite service period.
For
the nine months ended September 30, 2019 and 2018, $0 and $1,351,848 stock-based compensation was recognized.
For
the three months ended September 30, 2019 and 2018, $0 and $447,261 stock-based compensation was recognized.
N.
Foreign currency translation
The
accompanying financial statements are presented in United States dollars (USD). The functional currency of the Company is the USD and
Renminbi (RMB). The financial statements are translated into USD from RMB at year-end exchange rates as to assets and liabilities and
average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital
transactions occurred.
Exchange rates
|
|
September 30,
2019
|
|
|
September 30,
2018
|
|
|
December 31,
2018
|
|
Year-end/period-end RMB : US$ exchange rate
|
|
|
7.0729
|
|
|
|
6.8665
|
|
|
|
6.8764
|
|
Average annual/period RMB : US$ exchange rate
|
|
|
6.8541
|
|
|
|
6.5137
|
|
|
|
6.6146
|
|
The
RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.
No representation is made that the RMB amounts could have been, or could be, converted into US Dollar at the rates used in translation.
O.
Revenue recognition
The
Company recognizes services revenue when the following criteria have been met: 1.) it has agreed and entered into a contract for service
with its customers pursuant to which the Company identifies the contract and determines the transactions price with its customers, 2.)
the contract has set forth a fixed fee for the services to be rendered under which the Company has determined the transaction’s
price and the allocation of such price to performance obligations with the customers, 3.) the Company has fully rendered service to its
customers, and there are no additional obligations that exist that under the terms of the contract that the Company has not fulfilled
such that the Company recognizes revenue when the performance obligation is satisfied, and 4.) the Company has either received payment,
or reasonably expects payment from the customer in accordance to the payment terms set forth in the contract.
P.
Earnings per share
Basic
earnings per share is computed on the basis of the weighted average number of common stock outstanding during the period. Diluted earnings
per share is computed on the basis of the weighted average number of common stock and common stock equivalents outstanding. Dilutive
securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation.
Dilution
is computed by applying the treasury stock method for options and warrants. Under this method, options and warrants are assumed to be
exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase
common stock at the average market price during the period.
Q.
Comprehensive loss
Comprehensive
income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions to owners.
The Company presents components of comprehensive income with equal prominence to other financial statements. The Company’s current
component of other comprehensive income is the foreign currency translation adjustment.
R.
Subsequent events
The
Company evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued. There
are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed
at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (2) non recognized,
or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to
that date.
S.
Fair Value of Financial Instruments
ASC
825, Financial Instruments, requires that the Company discloses estimated fair values of financial instruments. The carrying amounts
reported in the balance sheets for current assets and current liabilities qualifying as financial instruments are a reasonable estimate
of fair value.
The
Company applies the provisions of ASC 820-10, Fair Value Measurements and Disclosures. ASC 820-10 defines fair value, and establishes
a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures.
For certain financial instruments, including cash and cash equivalents, loan receivables and short-term bank loans, the carrying amounts
approximate fair value due to their relatively short maturities. The three levels of valuation hierarchy are defined as follows:
|
●
|
Level 1 inputs to the valuation
methodology are quoted prices for identical assets or liabilities in active markets.
|
|
●
|
Level 2 inputs to the valuation
methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset
or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
●
|
Level 3 inputs to the valuation
methodology are unobservable and significant to the fair value measurement.
|
The
Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities
from Equity,” and ASC 815.
The
following tables present the Company’s financial assets and liabilities at fair value in accordance to ASC 820-10
As
of September 30, 2019:
|
|
Quoted in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
16
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
16
|
|
Total financial assets
|
|
$
|
16
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
16
|
|
As
of December 31, 2018:
|
|
Quoted
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
|
|
(Audited)
|
|
|
(Audited)
|
|
|
(Audited)
|
|
|
(Audited)
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
504
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
504
|
|
Total financial assets
|
|
$
|
504
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
504
|
|
T.
Recently issued accounting standards
In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses
on Financial Instruments”, which will be effective for fiscal years beginning after December 15, 2019, including interim periods
within those fiscal years. The guidance replaces the incurred loss impairment methodology with an expected credit loss model for which
a company recognizes an allowance based on the estimate of expected credit loss. The standard did not have a material impact on our consolidated
financial statements.
In
January 2017, the FASB issued ASU 2017-04, “Intangibles — Goodwill and Other (Topic 350): simplifying the test for goodwill
impairment”, the guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation.
Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not the difference
between the fair value and carrying amount of goodwill which was the step 2 test before. The ASU should be adopted on a prospective basis
for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or
annual goodwill impairment tests performed on testing dates after January 1, 2017. The standard did not have a material impact on our
consolidated financial statements.
In
August 2018, the FASB issued ASU 2018-13, “Changes to the Disclosure Requirements for Fair Value Measurement.” This standard
eliminates the current requirement to disclose the amount or reason for transfers between level 1 and level 2 of the fair value hierarchy
and the requirement to disclose the valuation methodology for level 3 fair value measurements. The standard includes additional disclosure
requirements for level 3 fair value measurements, including the requirement to disclose the changes in unrealized gains and losses in
other comprehensive income during the period and permits the disclosure of other relevant quantitative information for certain unobservable
inputs. The new guidance is effective for interim and annual periods beginning after December 15, 2019. The standard did not have a material
impact on our consolidated financial statements.
In
August 2018, the FASB issued ASU 2018-15, “Internal-Use Software — Customer’s Accounting for Implementation Costs
Incurred in a Cloud Computing Arrangement.” This ASU aligns the requirements for capitalizing implementation costs incurred in
a hosting arrangement service contract with the guidance to capitalize implementation costs of internal use software. The ASU also requires
that the costs for implementation activities during the application development phase be capitalized in a hosting arrangement service
contract, and costs during the preliminary and post implementation phase are expensed. The new guidance is effective for interim and
annual periods beginning after December 15, 2019. The standard did not have a material impact on our consolidated financial statements.
In
October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest
Entities, (“ASU 2018-17”). ASU 2018-17 requires reporting entities to consider indirect interests held through related parties
under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety for determining whether
a decision-making fee is a variable interest. The standard is effective for all entities for financial statements issued for fiscal years
beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. Entities are required
to apply the amendments in ASU 2018-17 retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the
earliest period presented. The standard did not have a material impact on our consolidated financial statements
In
April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives
and Hedging, and Topic 825, Financial Instruments, (“ASU 2019-04”). ASU 2019-04 clarifies and improves areas of guidance
related to the recently issued standards on credit losses (ASU 2016-13), hedging (ASU 2017-12), and recognition and measurement of financial
instruments (ASU 2016-01). The amendments generally have the same effective dates as their related standards. If already adopted,
the amendments of ASU 2016-01 and ASU 2016-13 are effective for fiscal years beginning after December 15, 2019 and the amendments of
ASU 2017-12 are effective as of the beginning of the Company’s next annual reporting period; early adoption is permitted. The standard
did not have a material impact on our consolidated financial statements.
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12
will simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also
improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public
business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2020. ASU 2019-12 will be effective for the Company in the first quarter of 2021. The Company does not expect the
adoption of the new accounting rules to have a material impact on the Company’s financial condition, results of operations, cash
flows or disclosures.
In
March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments, (“ASU 2020-03”). ASU 2020-03
improves various financial instruments topics, including the CECL Standard. ASU 2020-03 includes seven different issues that describe
the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating
inconsistencies and providing clarifications. The amendments related to Issue 1, Issue 2, Issue 4 and Issue 5 were effective upon issuance
of ASU 2020-03. The amendments related to Issue 3, Issue 6 and Issue 7 were effective for the Company beginning on January 1, 2020. The
Company does not anticipate that the adoption of the new standard will have a material effect on its consolidated financial statements.
In
March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform
on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships,
and other transactions affected by reference rate reform. The amendments in this standard can be applied anytime between the first quarter
of 2020 and the fourth quarter of 2022. The Company is currently in the process of evaluating the impact of adoption of the new rules
on the Company’s financial condition, results of operations, cash flows and disclosures.
Other
than the above, management does not believe that any of the recently issued, but not yet effective, accounting standards, if currently
adopted, would have a material effect on the Company’s consolidated financial statements.
U.
Going Concern
The
Company has suffered from losses from operation and significant accumulated deficits. It’s net loss for the nine months ended September
30, 2019 and 2018 were $4,804 and $5,700,262 respectively, and the accumulated losses as of September 30, 2019 and December 31, 2018
were $27,063,916 and $27,059,112, respectively. As of September 30, 2019 and December 31, 2018, the Company has cash and cash equivalents
of $16 and $504, respectively and net cash used in operating activities during the nine months ended September 30, 2019 and 2018 were
$287 and $176,058, respectively. The Company comes to have insufficient cash flows generated from operations and provided for development.
In addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the
Company’s ability to continue as a going concern. The management determines that additional effort will be required to improve
the operation so that the Company may generate more profits to sustain its continuous. The Company may explore the channels to raise
additional capital or any opportunities to improve the cash flow in the years to come. Subsequent to the year ended December 31, 2019,
the Company had raised $1,050,000 (gross proceeds) and $1,780,000 (gross proceeds) as of April 23, 2021 and July 29, 2021, respectively,
from share placement to improve the financial position and cash flow of the Company.
NOTE
3. CASH AND CASH EQUIVALENTS
Cash
consisted of the following:
|
|
As
of
September 30,
2019
|
|
|
As
of
December 31,
2018
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Cash on hand
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash in banks
|
|
|
16
|
|
|
|
504
|
|
Total cash
|
|
$
|
16
|
|
|
$
|
504
|
|
NOTE
4. PROPERTY, PLANT AND EQUIPMENT, NET
Property,
plant and equipment consisted of the following:
|
|
As
of
September 30,
2019
|
|
|
As
of
December 31,
2018
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
At Cost:
|
|
|
|
|
|
|
Office equipment
|
|
$
|
18,320
|
|
|
$
|
18,320
|
|
Office furniture
|
|
|
12,723
|
|
|
|
12,723
|
|
Total property and equipment
|
|
|
31,043
|
|
|
|
31,043
|
|
Less: accumulated depreciation
|
|
|
(31,043
|
)
|
|
|
(30,459
|
)
|
Less: impairment
|
|
|
-
|
|
|
|
-
|
|
Property, plant and equipment, net
|
|
$
|
-
|
|
|
$
|
584
|
|
Depreciation
expense was $0 and $756, respectively for the three months ended September 30, 2019 and 2018.
Depreciation
expense was $584 and $4,921, respectively for the nine months ended September 30, 2019 and 2018.
NOTE
5. INTANGIBLE ASSETS, NET
Intangible
assets consisted of the following:
|
|
As
of
September 30,
2019
|
|
|
As
of
December 31,
2018
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
At Cost:
|
|
|
|
|
|
|
Patent
|
|
$
|
-
|
|
|
$
|
-
|
|
Software
|
|
|
1,251
|
|
|
|
1,251
|
|
Total intangible assets
|
|
|
1,251
|
|
|
|
1,251
|
|
Less: accumulated amortization
|
|
|
(1,251
|
)
|
|
|
(1,251
|
)
|
Less: impairment
|
|
|
-
|
|
|
|
-
|
|
Intangible assets, net
|
|
$
|
-
|
|
|
$
|
-
|
|
On
July 7, 2017, SQEC and the director and CEO of the Company, Mr. Zuyue Xiang (“Xiang”), entered into an intangible asset transfer
agreement. Xiang transferred his rights and ownership of the patent to a voice smart card and trading system for a consideration of RMB
10,000,000 (equivalent to USD 1,447,696). The patent was impaired during the period ended September 30, 2018 and was written off to other
expense.
Amortization
expense was $0 and $0, respectively for the three months ended September 30, 2019 and 2018.
Amortization
expense was $0 and $0, respectively for the nine months ended September 30, 2019 and 2018.
NOTE
6. RELATED PARTY PAYABLES
Related
party payables consisted of the following:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Beijing Yuxin Shangfang Technology Co., Ltd.
|
|
$
|
-
|
|
|
$
|
285,894
|
|
Hainan Xin Jing Yuan Co., Ltd.
|
|
|
-
|
|
|
|
43,627
|
|
Xiang, Zuyue, director of SQEC and shareholder
|
|
|
-
|
|
|
|
102,217
|
|
Xiang, Lingqing, employee of SQEC
|
|
|
-
|
|
|
|
1,504
|
|
Lim, Jehn Ming, shareholder of EGOOS BVI
|
|
|
-
|
|
|
|
1,289
|
|
Wang, Yue, director of EGOOS HK
|
|
|
-
|
|
|
|
161,523
|
|
Yang, Mei, shareholder
|
|
|
-
|
|
|
|
393,963
|
|
Li, Ping, director of WOFE
|
|
|
-
|
|
|
|
4,023
|
|
|
|
$
|
-
|
|
|
$
|
994,040
|
|
The
amounts were provided as working capital to financial the Company’s operations. The amounts are unsecured, interest-free and due
on demand.
NOTE
7. RELATED PARTY TRANSACTIONS
For
the period ended September 30, 2019, the Company entered into agreements with major shareholders and directors of the subsidiaries of
the Company to forgive the Related Party Payables amounting to $994,040 and the details consisted of the followings:
|
|
September 30,
2019
|
|
|
|
(Unaudited)
|
|
Beijing Yuxin Shangfang Technology Co., Ltd.
|
|
$
|
285,894
|
|
Hainan Xin Jing Yuan Co., Ltd.
|
|
|
43,627
|
|
Xiang, Zuyue, director of SQEC and shareholder
|
|
|
102,217
|
|
Xiang, Lingqing, employee of SQEC
|
|
|
1,504
|
|
Lim, Jehn Ming, shareholder of EGOOS BVI
|
|
|
1,289
|
|
Wang, Yue, director of EGOOS HK
|
|
|
161,523
|
|
Yang, Mei, shareholder
|
|
|
393,963
|
|
Li, Ping, director of WOFE
|
|
|
4,023
|
|
Forgiveness of Related Party Payables
|
|
$
|
994,040
|
|
For
the period ended September 30, 2019, the Company entered into agreements with major shareholders and directors of the subsidiaries of
the Company to assume or receive, as applicable certain assets and liabilities amounting to $414,226 and the details consisted of the
followings:
|
|
September 30,
2019
|
|
|
|
(Unaudited)
|
|
Other receivable
|
|
$
|
277
|
|
Prepaid taxes
|
|
|
6,422
|
|
Accounts payable
|
|
|
(322,368
|
)
|
Other payable
|
|
|
(51,806
|
)
|
Accrued expenses
|
|
|
(46,751
|
)
|
Net liabilities undertaken by related party
|
|
$
|
(414,226
|
)
|
NOTE
8. Taxation
a)
|
Corporate Income Taxes
|
The
Company was incorporated in the United States of America (“USA”). The Company did not generate any taxable income from its
operations for the nine months ended September 30, 2019 and 2018.
The
Company was incorporated in the United States (“USA”) and subject to taxes in the United States. The Company did not generate
any taxable income from its operations for the nine months ended September 30, 2019 and 2018. The Company has evaluated their respective
income tax positions and has determined that they do not have any uncertain tax positions. The Company will recognize interest and penalties
related to any uncertain tax positions through their income tax expense.
The
Company is subject to franchise tax filing requirements in the State of Delaware.
The
components of the income tax expense are as follows:
|
|
Nine months ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
Three months ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
Uncertain
Tax Positions
Interest
associated with unrecognized tax benefits are classified as income tax, and penalties are classified in selling, general and administrative
expenses in the statements of operations. For the three months ended September 30, 2019, and 2018, the Company had no unrecognized tax
benefits and related interest and penalties expenses. Currently, the Company is not subject to examination by major tax jurisdictions.
For the nine months ended September 30, 2019, and 2018, the Company had no unrecognized tax benefits and related interest and penalties
expenses. Currently, the Company is not subject to examination by major tax jurisdictions.
Deferred
income tax benefits arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the
financial statements, which will result in taxable or deductible amounts in the future. In evaluating the Company’s ability to
recover the deferred tax assets, the management considers all available positive and negative evidence, including scheduled reversals
of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting
future taxable income, the Company begins with historical results adjusted for the results of discontinued operations and incorporate
assumptions about the amount of future state, federal, and foreign pretax operating income adjusted for items that do not have tax consequences.
The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates that
the Company is using to manage the underlying businesses. As of September 30, 2019 and December 31, 2018, management was uncertain as
to whether or not the Company would be able to utilize the potential deferred tax assets arising from net operating losses’ since
the Company is not currently generating any revenue; accordingly, the Company has not recognized a deferred tax asset.
Taxes
payable consisted of the following:
|
|
As of
September 30,
2019
|
|
|
As of
December 31,
2018
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Corporate income tax payable
|
|
$
|
-
|
|
|
$
|
-
|
|
Franchise tax payable
|
|
|
400
|
|
|
|
-
|
|
Other surtaxes payable
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
400
|
|
|
$
|
-
|
|
NOTE
9. STOCKHOLDERS’ EQUITY
Common
stock
As
of September 30, 2019 and December 31, 2018, the Company had 100,000,000 shares of common stock authorized, 21,027,713 shares issued
and outstanding at par value of $0.001 per share.
Stock
option compensation
On
October 20, 2017, the Company issued to Mr. Yang Liu, the option to purchase 1,050,000 shares of the Company’s common stock to
be issued upon his exercise of such option. The option vests in three tranches according to the following schedule: 350,000 shares at
October 19, 2018, 350,000 shares at October 19, 2019, and 350,000 at October 19, 2020. All three tranches expire on October 19, 2022.
The Company has used the widely accepted Black Scholes Merton Option Pricing Model to measure the fair value of these securities, because
of their plain vanilla nature of this option. The Company employed the followings assumptions to calculate the fair value of the option:
expected forfeiture rate: 0%, risk free rate: 2.03%, expiration date: October 19, 2022, exercise price: $1.00, annualized volatility:
602.71%, dividend yield: 0%, and the Company’s closing stock price at year end.
For
the years ended December 31, 2018 and 2017, the Company recorded stock option compensation expense of $1,113,217 and $373,509. On August
22, 2018, Mr. Liu resigned from his position as Chief Executive Officer. The stock options were not fully vested since his resignation
was before the anniversary of his employment period. Mr. Liu had forfeited all his stock options upon his resignation on August 30, 2018.
For
the nine months ended September 30, 2019, no stock option has been issued. For the nine months ended September 30, 2018, $1,351,848 stock
option has been issued.
For
the three months ended September 30, 2019, no stock option has been issued. For the three months ended September 30, 2018, $447,261 stock
option has been issued.
NOTE
10. LOSS PER SHARE
The
following table presents a reconciliation of basic and diluted earnings per share:
|
|
Nine months ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Numerator:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,804
|
)
|
|
$
|
(5,700,262
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of common stock outstanding - basic and diluted
|
|
|
21,027,713
|
|
|
|
21,027,713
|
|
Loss per share – Basic and diluted:
|
|
$
|
(0.00023
|
)
|
|
$
|
(0.27
|
)
|
|
|
Three months ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Numerator:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,488
|
)
|
|
$
|
(548,900
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of common stock outstanding - basic and diluted
|
|
|
21,027,713
|
|
|
|
21,027,713
|
|
Loss per share – Basic and diluted:
|
|
$
|
(0.00007
|
)
|
|
$
|
(0.03
|
)
|
NOTE
11. CONCENTRATION OF RISK
The
Company has certain customers who represented 10% or more of the Company’s total sales. For the nine months ended September 30,
2019, the Company did not generate any revenue. For the nine months ended September 30, 2018, the Company generated service revenue from
one customer, which represented 100% of the revenue.
b)
|
Major Vendors and Accounts
Payable
|
The
Company has certain vendors who represented 10% or more of the Company’s total cost of sales or expenses, or whose accounts payable
balances individually represented 10% or more of the Company’s total accounts payable. For the nine months ended September 30,
2019, there was no transaction on purchase. For the nine months ended September 30, 2018, there was no concentration in any specific
vendor.
The
Company maintains cash balances at several financial institutions located in the United States and the PRC. Accounts located in the United
States are insured by the Federal Deposit Insurance Corporation up to $100,000. Accounts located outside of the United States are not
insured and may be subject to such risk.
NOTE
12. GOING CONCERN UNCERTAINTIES
These
financial statements have been prepared assuming that Company will continue as a going concern, which contemplates the realization of
assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As
of September 30, 2019 and December 31, 2018, the Company had accumulated deficits of $27,063,916 and $27,059,112, respectively, and working
capital deficit of current liabilities exceeding current assets by $3,917 and $1,407,178, respectively. Management’s plan to support
the Company in operations and to maintain its business strategy is to raise funds through public and private offerings and to rely on
officers and directors to perform essential functions with minimal compensation. If the Company do not raise all of the money we need
from public or private offerings, the Company will have to find alternative sources, such as loans or advances from our officers, directors
or others. Such additional financing may not become available on acceptable terms and there can be no assurance that any additional financing
that the Company does obtain will be sufficient to meet its needs in the long term. Even if the Company is able to obtain additional
financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our
stockholders, in the case of equity financing. If the Company require additional cash and cannot raise it, the Company will either have
to suspend operations or cease business entirely.
The
accompanying financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts
and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE
13. SIGNIFICANT EVENTS
In
December 2019, there was an outbreak of the novel coronavirus (COVID-19) in China that has since spread to many other regions of the
world. The outbreak was subsequently labeled as a global pandemic by the World Health Organization in March 2020. It is anticipated that
the COVID-19 outbreak may ultimately have a material adverse impact on the Company’s results of operations, financial position
and cash flow in 2020 including, but not limited to:
Transportation
delays and cost increases, more extensive travel restrictions, closures or disruptions of businesses and facilities or social, economic,
political or labor instability in the affected areas, may impact the Company’s customers’ operations. Customers may not be
able to repay their loans on time due to lack of capital.
The
extent of the impact of COVID-19 on the Company’s operations and financial results depends on future developments and is highly
uncertain due to the unknown duration and severity of the outbreak. The situation is changing rapidly and future impacts may materialize
that are not yet known. The Company continues to monitor the situation closely and may implement further measures to provide additional
financial flexibility and improve the Company’s cash position and liquidity.
NOTE
14. SUBSEQUENT EVENTS
On
February 25, 2021, the holder of the majority outstanding voting stock of the Company restructured the board of directors (the “Board”)
of the Company by removing Mei Yang, Zuyue Xiang and Minqin Tang from the Board and appointing the following individuals to the Board
(the “New Board”): Jiang Hui, Hon Man Yun, Hong Chen, Xiaoyue Zhang and Ming Yi, effective immediately. Among the member
of the New Board, Ming Yi shall serve as the Chair of the Audit Committee, Hong Chen the Chair of the Compensation Committee and Xiaoyue
Zhang the Chair of the Nominating and Corporate Committee.
On
February 25, 2021, the New Board removed Zuyue Xiang as the Chief Executive Officer (the “CEO”) and Zhenpeng Gao as the Chief
Financial Officer (“CFO”) and appointed Jiang Hui as the new CEO and Hon Man Yun as the new CFO, effective immediately. The
New Board believes that the new CEO and CFO shall use their best efforts to execute the Board’s vision to change the direction
of the Company’s business.
On
March 31, 2021 (the “Commencement Date”), the Company and Joseph Stone Capital, LLC (“JSC”) entered into an Advisory
and Finder Agreement (the “Agreement”). Pursuant to the Agreement, JSC has been engaged to advise the Company on matters
related to the Company’s capital market activities. Additionally, at the request of the Company, JSC will help the Company identify
one or more investors, business and/or financing opportunities (each a “Target”).
Pursuant
to the Agreement, the Company paid JSC an initial advisory fee equal to $12,500 plus $5,000 in non-accountable expenses. In addition,
the Company also paid JSC another $9,500 advisory fee, $3,000 escrow expense plus additional $5,000 in non-accountable expenses upon
the closing of an initial transaction with investors identified by the Company in connection with the Private Placement I as described
below. With respect to any investors introduced to the Company directly or indirectly by JSC, JSC shall be paid a cash fee equal to ten
percent of the gross proceeds raised by the Company from any such investor (the “Commission Fee”).
The
Agreement shall continue in effect for a period of three (3) months from the Commencement Date and may be terminated upon thirty (30)
days of written notice by either party after the three (3) months. Should the Company effectuate a transaction (as defined in the Agreement)
with any of the Target(s) identified by Advisor in the eighteen (18)-month period after termination of Agreement, Advisor will be due
the Commission Fee. JSC also has a right of first refusal with respect to any financings that the Company decides to commence during
the 18-month period following the consummation of a Transaction (as defined in the Agreement”).
On
April 23, 2021, the Company entered into subscription agreements with five accredited investors for the sale and issuance of 10,500,000
shares of common stock of the Company at a per-share price of $0.10 for aggregate gross proceeds of $1,050,000 (the “Private Placement
I”). The Company closed the Private Placement I on April 24, 2021 and intends to use the funds for working capital. No brokers
or placement agents was involved. Our Private Placement I is exempt from the registration requirements of Section 5 of the Securities
Act of 1933, as amended (the “Securities Act”), in reliance on Section 4(a)(2) thereof and/or Rule 506 of Regulation D and
Regulation S thereunder
On
May 28, 2021, the Company and Hudson Capital USA Inc. (the “Seller”) entered into a vehicle purchase agreement, pursuant
to which the Company agreed to buy from the Seller $100,000 worth of motor vehicle.
The
Company and Seller are related parties because the majority of the board of directors of the Company are the board members of the Seller,
constituting the majority of the board of directors of the Seller and Hon Man Yun serves as the Chief Financial Officer of both the Company
and Seller.
On
June 4, 2021, the Company (the “Buyer”) and Hudson Capital USA Inc. (the “Seller”) entered into a share transfer
agreement (the “Archax SPA”), pursuant to which the Company agreed to buy from the Seller $500,000 worth of shares (1.74%
of ownership) of Archax Holdings Ltd. (“Archax”), a company organized under the laws of England, UK. Archax is a global digital
asset trading platform and ecosystem. In addition, on June 4, 2021, the Company and the Seller entered into another share transfer agreement
(the “Montis SPA”), pursuant to which the Company agreed to buy from the Seller $250,000 worth of shares (2.63% of ownership)
of Montis Digital Limited (“Montis”), a company organized under the laws of Gibraltar. Montis primarily provides marketing
and consulting services for digital assets and related entities in the digital asset ecosystems. Each of the Archax SPA and Montis SPA
contained customary representations and warranties for transactions of this nature and scale.
The
Company and Seller are related parties because the majority of the board of directors of the Company are the board members of the Seller,
constituting the majority of the board of directors of the Seller and Hon Man Yun serves as the Chief Financial Officer of both the Company
and Seller.
On
June 16, 2021, the Company and Seller closed the stock purchase transaction in accordance with the Montis SPA. On June 17, 2021, the
Company and Seller closed the stock purchase transaction in accordance with the Archax SPA.
On
July 19, 2021, the Company entered into a Consulting Agreement with PX Global Advisors, LLC. for acting as advisor to assist the Company
on business combination and listing on a U.S. national stock exchange for a consultancy fee of $1,500,000.
On
July 29, 2021, the Company entered into subscription agreements with four accredited investors for the sale and issuance of seventeen
million and eighty hundred thousand shares (17,800,000) shares of common stock at a per-share price of $0.10 for aggregate gross proceeds
of $1,780,000 (the “Private Placement II”). The Company closed the Private Placement II on July 30, 2021 and intends to use
the funds for working capital. No brokers or placement agents was involved. Our Private Placement II is exempt from the registration
requirements the Securities Act, in reliance on Section 4(a)(2) thereof and Rule 506 of Regulation D or Regulation S thereunder.
Except
for the above mentioned matters, no other material events are required to be adjusted or disclosed as of the report date of the consolidated
financial statements.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of our results of operations and financial condition since the Company’s inception should be
read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this quarterly
report. All statements, other than statements of historical facts, included in this report are forward-looking statements. When used
in this report, the words “may,” “will,” “should,” “would,” “anticipate,”
“estimate,” “possible,” “expect,” “plan,” “project,” “continuing,”
“ongoing,” “could,” “believe,” “predict,” “potential,” “intend,”
and similar expressions are intended to identify forward-looking statements. Forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited
to, availability of additional equity or debt financing, changes in sales or industry trends, competition, retention of senior management
and other key personnel, availability of materials or components, ability to make continued product innovations, adverse results of lawsuits
against us and currency exchange rates. Forward-looking statements are based on assumptions and assessments made by our management in
light of their experience and their perception of historical trends, current conditions, expected future developments and other factors
they believe to be appropriate. Readers of this report are cautioned not to place undue reliance on these forward-looking statements,
as there can be no assurance that these forward-looking statements will prove to be accurate and speak only as of the date hereof. Management
undertakes no obligation to publicly release any revisions to these forward-looking statements that may reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events. This cautionary statement is applicable to all forward-looking
statements contained in this report.
Critical
Accounting Policies
Basis
of presentation
The
consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”).
Principles
of Consolidation
The
consolidated financial statements include the financial statements of all the subsidiaries and VIEs of the Company. All transactions
and balances between the Company and its subsidiaries and VIEs have been eliminated upon consolidation
The
consolidated financial statements include the accounts of the Company, its subsidiaries for which the Company is the primary beneficiary.
All significant inter-company accounts and transactions have been eliminated. The consolidated financial statements include 100% of assets,
liabilities, and net income or loss of those wholly-owned subsidiaries.
As
of September 30, 2019 and December 31, 2018, the detailed identities of the consolidating subsidiaries are as follows:
Name of Company
|
|
Place of
incorporation
|
|
Attributable
equity interest %
|
|
|
Registered
capital
|
|
EGOOS Mobile Technology Company Limited (“EGOOS BVI”)
|
|
BVI
|
|
100%
|
|
|
$
|
1
|
|
EGOOS Mobile Technology Company Limited (“EGOOS HK”)
|
|
Hong Kong
|
|
100%
|
|
|
|
1,290
|
|
Move the Purchase Consulting Management (Shenzhen) Co., Ltd. (“WOFE”)
|
|
P.R.C
|
|
100%
|
|
|
|
-
|
|
Guangzhou Yuzhi Information Technology Co., Ltd. (“GZYZ”)
|
|
P.R.C
|
|
100%
|
|
|
|
150,527
|
|
Shenzhen Qianhai Exce-card Technology Co., Ltd. (“SQEC”)
|
|
P.R.C
|
|
100%
|
|
|
|
150,527
|
|
Guangzhou Rongsheng Information Technology Co., Ltd. (“GZRS”)
|
|
P.R.C
|
|
100%
|
|
|
|
1,505,267
|
|
Unaudited
Interim Financial Information
These
unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial reporting
and the rules and regulations of the Securities and Exchange Commission that permit reduced disclosure for interim periods. Therefore,
certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed
or omitted. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation of the financial
position, results of operations and cash flows for the periods presented have been made. The results of operations for the interim periods
presented are not necessarily indicative of the results to be expected for the year ending December 31, 2019.
The
consolidated balance sheets and certain comparative information as of December 31, 2018 are derived from the audited consolidated financial
statements and related notes for the year ended December 31, 2018 (“2018 Annual Financial Statements”), included in the Company’s
2018 Annual Report on Form 10-K. These unaudited interim condensed consolidated financial statements should be read in conjunction with
the 2018 Annual Financial Statements.
Use
of estimates
The
preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates
are used for, but not limited to, the accounting for certain items such as allowance for doubtful accounts, depreciation and amortization,
impairment, inventory allowance, taxes and contingencies.
Contingencies
Certain
conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only
be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities,
and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are
pending against the Company or un-asserted claims that may result in such proceedings, the Company’s management evaluates the perceived
merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be
sought.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates
that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the
nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
Loss
contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee
would be disclosed.
Cash
and cash equivalents
The
Company classifies the following instruments as cash and cash equivalents: cash on hand, unrestricted bank deposits, and all highly liquid
investments purchased with original maturities of three months or less.
Accounts
receivable
Trade
receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful
accounts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.
Other
receivables
Other
receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An allowance for
doubtful accounts is made when recovery of the full amount is doubtful.
Property,
plant and equipment
Plant
and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the
straight-line method with a salvage value of 10%. Estimated useful lives of the plant and equipment are as follows:
Computer equipment
|
|
3 years
|
|
Office furniture
|
|
5 years
|
|
The
cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is
included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals
and betterments are capitalized.
Accounting
for the Impairment of Long-lived assets
The
long-lived assets held by the Company are reviewed in accordance with Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) Subtopic 360-10-35, “Accounting for the Impairment or Disposal of Long-Lived Assets,”
for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is
reasonably possible that these assets could become impaired as a result of technology or other industry changes. Impairment is present
if carrying amount of an asset is less than its undiscounted cash flows to be generated.
If
an asset is considered impaired, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value
of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company
believes no impairment has occurred to its assets during 2019 and 2018.
Income
taxes
The
Company uses the accrual method of accounting to determine income taxes for the year. The Company has implemented FASB ASC 740 Accounting
for Income Taxes. Income tax liabilities computed according to the United States, People’s Republic of China (PRC), and Hong Kong
tax laws provide for the tax effects of transactions reported in the financial statements and consists of taxes currently due, plus deferred
taxes, related primarily to differences arising from the recognition of expenses related to the depreciation of plant and equipment,
amortization of intangible assets, and provisions for doubtful accounts between financial and tax reporting. The deferred tax assets
and liabilities represent the future tax return consequences of those differences, which will be either taxable or deductible when the
assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses that are available to offset
future income taxes.
A
valuation allowance is recognized for deferred tax assets if it is more likely than not, that the deferred tax assets will either expire
before the Company is able to realize that tax benefit, or that future realization is uncertain.
Stock-based
compensation
The
Company has elected to use the Black-Scholes-Merton (“BSM”) pricing model to determine the fair value of stock options on
the dates of grant. Also, the Company recognizes stock-based compensation using the straight-line method over the requisite service period.
The
Company values stock awards using the market price on or around the date the shares were awarded and includes the amount of compensation
as a period compensation expense over the requisite service period.
For
the nine months ended September 30, 2019 and 2018, $0 and $1,351,848 stock-based compensation was recognized.
For
the three months ended September 30, 2019 and 2018, $0 and $447,261 stock-based compensation was recognized.
Foreign
currency translation
The
accompanying financial statements are presented in United States dollars (USD). The functional currency of the Company is the USD and
Renminbi (RMB). The financial statements are translated into USD from RMB at year-end exchange rates as to assets and liabilities and
average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital
transactions occurred.
Exchange rates
|
|
September 30,
2019
|
|
|
September 30,
2018
|
|
|
December 31,
2018
|
|
Year-end/period-end RMB : US$ exchange rate
|
|
|
7.0729
|
|
|
|
6.8665
|
|
|
|
6.8764
|
|
Average annual/period RMB : US$ exchange rate
|
|
|
6.8541
|
|
|
|
6.5137
|
|
|
|
6.6146
|
|
The
RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.
No representation is made that the RMB amounts could have been, or could be, converted into US Dollar at the rates used in translation.
Revenue
recognition
The
Company recognizes services revenue when the following criteria have been met: 1.) it has agreed and entered into a contract for service
with its customers pursuant to which the Company identifies the contract and determines the transactions price with its customers, 2.)
the contract has set forth a fixed fee for the services to be rendered under which the Company has determined the transaction’s
price and the allocation of such price to performance obligations with the customers, 3.) the Company has fully rendered service to its
customers, and there are no additional obligations that exist that under the terms of the contract that the Company has not fulfilled
such that the Company recognizes revenue when the performance obligation is satisfied, and 4.) the Company has either received payment,
or reasonably expects payment from the customer in accordance to the payment terms set forth in the contract.
Earnings
per share
Basic
earnings per share is computed on the basis of the weighted average number of common stock outstanding during the period. Diluted earnings
per share is computed on the basis of the weighted average number of common stock and common stock equivalents outstanding. Dilutive
securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation.
Dilution
is computed by applying the treasury stock method for options and warrants. Under this method, options and warrants are assumed to be
exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase
common stock at the average market price during the period.
Comprehensive
loss
Comprehensive
income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions to owners.
The Company presents components of comprehensive income with equal prominence to other financial statements. The Company’s current
component of other comprehensive income is the foreign currency translation adjustment.
Subsequent
events
The
Company evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued. There
are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed
at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (2) non recognized,
or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to
that date.
Fair
Value of Financial Instruments
ASC
825, Financial Instruments, requires that the Company discloses estimated fair values of financial instruments. The carrying amounts
reported in the balance sheets for current assets and current liabilities qualifying as financial instruments are a reasonable estimate
of fair value.
The
Company applies the provisions of ASC 820-10, Fair Value Measurements and Disclosures. ASC 820-10 defines fair value, and establishes
a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures.
For certain financial instruments, including cash and cash equivalents, loan receivables and short-term bank loans, the carrying amounts
approximate fair value due to their relatively short maturities. The three levels of valuation hierarchy are defined as follows:
|
●
|
Level 1 inputs to the valuation
methodology are quoted prices for identical assets or liabilities in active markets.
|
|
●
|
Level 2 inputs to the valuation
methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset
or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
●
|
Level 3 inputs to the valuation
methodology are unobservable and significant to the fair value measurement.
|
The
Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities
from Equity,” and ASC 815.
The
following tables present the Company’s financial assets and liabilities at fair value in accordance to ASC 820-10
As
of September 30, 2019:
|
|
Quoted in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
16
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
16
|
|
Total financial assets
|
|
$
|
16
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
16
|
|
As
of December 31, 2018:
|
|
Quoted
in Active
Markets for
Identical Assets
(Level
1)
|
|
|
Significant
Other Observable
Inputs
(Level
2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
Total
|
|
|
|
(Audited)
|
|
|
(Audited)
|
|
|
(Audited)
|
|
|
(Audited)
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
504
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
504
|
|
Total financial assets
|
|
$
|
504
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
504
|
|
Results
of Operations
Three
Months Ended September 30, 2019 and 2018
For
the three months ended September 30, 2019, we did not have any active business operations.
Revenue
There
was no revenue for the three months ended September 30, 2019 because we ceased all active business operations in the first quarter of
2019 and remained inactive since then.
We
generated revenues from our audio banking card operations (including software and hardware) in the past. We have no revenues during the
three months ended September 30, 2018 primarily because the sales department failed to meet the target.
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, 2019
were $1,488 as compared to $548,900 for the comparable period ended September 30, 2018, which represented a decrease of $547,412 or
approximately 99.9%. Such decrease in our general and administrative expenses was primarily attributed to the stock compensation
expense paid to the management in the three months ended September 30, 2018 and no such expenses in the three months ended September
30, 2019.
Nine
Months Ended September 30, 2019 and 2018
For
the nine months ended September 30, 2019, we ceased all active business operations.
Revenue
There
was no revenue for the nine months ended September 30, 2019 because we ceased all active business operations in 2019.
We
generated revenues from our audio banking card operations (including software and hardware) in the nine-month period ended September
30, 2018. We have earned $86,900 during the nine months ended September 30, 2018.
Expenses
General
and administrative and financial expenses were related to corporate overhead, financial and administrative contracted services, such
as legal and accounting. General and administrative expenses and financial expenses for the nine months ended September 30, 2019 were
$4,804 as compared to $1,754,251 for the comparable period ended September 30, 2018, which represented a decrease of $1,749,447 or approximately
99.7%. Such decrease in our general and administrative expenses was primarily attributed to the stock compensation expense paid to the
management in the nine months ended September 30, 2018 and no such expenses in the nine months ended September 30, 2019.
Liquidity
and Capital Resources
Our
primary liquidity and capital resource needs are to finance the costs of our operations, to make capital expenditures and to service
our debt. We continue to be dependent on our ability to generate revenues, positive cash flows and additional financing.
Working
Capital Summary
|
|
As of
September 30,
2019
|
|
|
As of
December 31,
2018
|
|
Current assets
|
|
$
|
16
|
|
|
$
|
7,203
|
|
Current liabilities
|
|
$
|
3,933
|
|
|
$
|
1,414,965
|
|
Working capital
|
|
$
|
(3,917
|
)
|
|
$
|
(1,407,762
|
)
|