ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Contents
WAVE SYNC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2022 AND DECEMBER 31, 2021
(Stated in US Dollars)
| |
As of March 31 | | |
As of December 31 | |
| |
2022 | | |
2021 | |
| |
(Unaudited) | | |
(Audited) | |
ASSETS | |
| | |
| |
Current assets | |
| | |
| |
Cash and cash equivalents | |
$ | 555,717 | | |
$ | 2,877,456 | |
Accounts receivable, net of allowance | |
| 77,158 | | |
| 64,089 | |
Inventory | |
| 1,996 | | |
| 2,673 | |
Other receivable | |
| 11,851 | | |
| - | |
Prepaid expenses | |
| 235 | | |
| 5,706 | |
Deposit paid | |
| 299,565 | | |
| 99,553 | |
Total Current Assets | |
| 946,522 | | |
| 3,049,477 | |
Non-current assets | |
| | | |
| | |
Property and equipment, net | |
| 22,974,255 | | |
| 21,140,192 | |
Intangible assets, net | |
| 240,099 | | |
| 189,692 | |
Long-term investment | |
| 859,108 | | |
| 857,011 | |
Goodwill | |
| 91,556 | | |
| 63,417 | |
Total Assets | |
$ | 25,111,540 | | |
$ | 25,299,789 | |
| |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 204,280 | | |
$ | 340,826 | |
Accrued expenses | |
| 120,335 | | |
| 100,278 | |
Security deposits from customers | |
| 14,393 | | |
| 14,393 | |
Short-term loans | |
| 160,531 | | |
| 166,777 | |
Note payables | |
| 2,060,274 | | |
| 2,010,959 | |
Other payables | |
| 14,055 | | |
| - | |
Taxes payable | |
| 1,240 | | |
| 1,200 | |
Due to related parties | |
| 37,684 | | |
| 38,546 | |
Total Current Liabilities | |
| 2,612,792 | | |
| 2,672,979 | |
Long term loans | |
| 1,424,496 | | |
| 1,433,859 | |
Deferred tax liabilities | |
| - | | |
| - | |
Total Liabilities | |
$ | 4,037,288 | | |
$ | 4,106,838 | |
| |
| | | |
| | |
Commitment and contingencies | |
| | | |
| | |
| |
| | | |
| | |
Shareholders’ equity | |
| | | |
| | |
Common Stock ($0.001 par value, 100,000,000 shares authorized, 17,465,992 and 17,465,992 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively) | |
$ | 17,466 | | |
$ | 17,466 | |
Additional paid in capital | |
| 25,459,964 | | |
| 23,465,830 | |
Accumulated deficits | |
| (4,403,178 | ) | |
| (2,290,345 | ) |
Accumulated other comprehensive loss | |
| - | | |
| - | |
Total Shareholders’ Equity | |
| 21,074,252 | | |
| 21,192,951 | |
Total Liabilities and Shareholders’ Equity | |
$ | 25,111,540 | | |
$ | 25,299,789 | |
| * | - The number of shares outstanding
was adjusted retroactively for all periods presented to reflect the 5 to 1 reverse stock split change which became effective on November
1, 2021. |
See notes to condensed consolidated financial statements
WAVE SYNC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
FOR THE FISCAL QUARTERS ENDED MARCH 31, 2022
AND 2021 (Unaudited)
(Stated in US Dollars)
| |
Three
months
Ended March 31, 2022 | | |
Three
months
Ended March 31, 2021 | |
| |
(Unaudited) | | |
(Unaudited) | |
Revenue | |
$ | 789,348 | | |
$ | - | |
Cost of revenue | |
| 228,637 | | |
| - | |
Gross profit | |
| 560,711 | | |
| - | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
General and administrative expenses | |
| 658,031 | | |
| 10,723 | |
Financial expenses | |
| 49,497 | | |
| 280 | |
Total Operating expenses | |
| 707,528 | | |
| 11,003 | |
Loss from operations | |
| (146,817 | ) | |
| (11,003 | ) |
| |
| | | |
| | |
Other income (expenses) | |
| | | |
| | |
Interest income | |
| 2,644 | | |
| - | |
Interest expense | |
| (18,096 | ) | |
| - | |
Other income | |
| 22 | | |
| - | |
Total other (expenses) income, net | |
| (15,430 | ) | |
| - | |
| |
| | | |
| | |
Loss before income tax expenses | |
| (162,247 | ) | |
| (11,003 | ) |
Income tax expenses | |
| - | | |
| - | |
Net loss | |
$ | (162,247 | ) | |
$ | (11,003 | ) |
Other comprehensive loss | |
| | | |
| | |
Foreign currency translation (loss) gain | |
| - | | |
| - | |
Comprehensive loss | |
$ | (162,247 | ) | |
$ | (11,003 | ) |
| |
| | | |
| | |
Weighted average number of shares, basic and diluted | |
| 17,465,992 | | |
| 4,205,543 | * |
Basic and diluted loss per share | |
$ | (0.00929 | ) | |
$ | (0.00262 | ) |
| * | - The number of shares outstanding was adjusted retroactively
for all periods presented to reflect the 5 to 1 reverse stock split change which became effective on November 1, 2021. |
See notes to condensed consolidated financial statements
WAVE SYNC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL QUARTERS ENDED MARCH 31, 2022
AND 2021 (Unaudited)
(Stated in US Dollars)
|
|
Three months ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
Net loss |
|
$ |
(162,247 |
) |
|
$ |
(11,003 |
) |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
117,361 |
|
|
|
- |
|
Interest income on convertible loan note |
|
|
(2,097 |
) |
|
|
- |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivables |
|
|
(13,069 |
) |
|
|
- |
|
Inventory |
|
|
677 |
|
|
|
- |
|
Prepaid expenses |
|
|
5,471 |
|
|
|
- |
|
Other receivable |
|
|
(11,851 |
) |
|
|
- |
|
Deposit paid |
|
|
(200,012 |
) |
|
|
- |
|
Accounts payable |
|
|
(136,547 |
) |
|
|
- |
|
Accrued expenses |
|
|
68,511 |
|
|
|
(6,828 |
) |
Other payables |
|
|
12,579 |
|
|
|
- |
|
Tax payable |
|
|
- |
|
|
|
400 |
|
Net cash (used in)/provided by operating activities |
|
$ |
(321,224 |
) |
|
$ |
(17,431 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(1,918,350 |
) |
|
|
- |
|
Investment on intangible assets |
|
|
(66,556 |
) |
|
|
- |
|
Proceeds from disposal of property and equipment |
|
|
- |
|
|
|
- |
|
Net cash (used in)/provided by investing activities |
|
$ |
(1,984,906 |
) |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from related party |
|
|
- |
|
|
|
20,431 |
|
Repayment of bank loan |
|
|
(15,609 |
) |
|
|
- |
|
Proceeds from issuance of shares |
|
|
- |
|
|
|
- |
|
Repayment of bank loan |
|
|
- |
|
|
|
- |
|
Net cash provided by/ (used in) financing activities |
|
$ |
(15,609 |
) |
|
$ |
20,431 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
$ |
(2,321,739 |
) |
|
$ |
3,000 |
|
Cash at beginning of year |
|
|
2,877,456 |
|
|
|
3 |
|
Cash at end of year |
|
$ |
555,717 |
|
|
$ |
3,003 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
Interest received |
|
$ |
- |
|
|
$ |
- |
|
Interest paid |
|
|
- |
|
|
|
- |
|
Income taxes paid |
|
|
- |
|
|
|
- |
|
Non- cash financing activities |
|
|
|
|
|
|
|
|
Forgiveness of loans from related parties |
|
$ |
- |
|
|
$ |
- |
|
Undertaking of assets and liabilities by related parties |
|
$ |
- |
|
|
$ |
- |
|
See notes to the condensed consolidated financial
statements
WAVE SYNC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY/(DEFICIENCY)
FOR THE FISCAL QUARTERS ENDED MARCH 31, 2022
AND 2021 (Unaudited)
(Stated in US Dollars)
| |
Three months ended March 31, 2022 | |
| |
Common Stock | | |
Additional paid-in | | |
Accumulated | | |
Accumulated other comprehensive | | |
Total Shareholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
deficit | | |
income | | |
Equity | |
Balance as of December 31, 2021 | |
| 17,465,992 | | |
$ | 17,466 | | |
$ | 23,465,830 | | |
$ | (2,290,345 | ) | |
$ | - | | |
$ | 21,192,951 | |
Net (loss) | |
| - | | |
| - | | |
| - | | |
| (162,247 | ) | |
| - | | |
| (162,247 | ) |
Acquisition of subsidiaries | |
| - | | |
| - | | |
| 1,994,134 | | |
| (1,950,586 | ) | |
| - | | |
| 43,548 | |
Foreign currency translation loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Balance as of March 31, 2022 | |
| 17,465,992 | | |
$ | 17,466 | | |
$ | 25,459,964 | | |
$ | (4,403,178 | ) | |
$ | - | | |
$ | 21,074,252 | |
| |
Three months ended March 31, 2021 | |
| |
Common Stock | | |
Additional paid-in | | |
Accumulated | | |
Accumulated other comprehensive | | |
Total Shareholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
deficit | | |
income | | |
Equity | |
Balance as of December 31, 2020 | |
| 4,205,543 | * | |
$ | 4,206 | | |
$ | 27,314,316 | | |
$ | (27,131,839 | ) | |
$ | (258,524 | ) | |
$ | (71,841 | ) |
Net (loss) | |
| - | | |
| - | | |
| - | | |
| (11,003 | ) | |
| - | | |
| (11,003 | ) |
Foreign currency translation loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Balance as of December 31, 2021 | |
| 4,205,543 | * | |
$ | 4,206 | | |
$ | 27,314,316 | | |
$ | (27,142,842 | ) | |
$ | (258,524 | ) | |
$ | (82,844 | ) |
| * | - The number of shares outstanding was adjusted retroactively
for all periods presented to reflect the 5 to 1 reverse stock split change which became effective on November 1, 2021. |
See notes to the condensed consolidated financial
statements
WAVE SYNC CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
FOR THE FISCAL QUARTERS ENDED MARCH 31, 2022
AND 2021 (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 (collectively the “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 the 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. The 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 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 a 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 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 as amended on 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
SZ”), 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 SZ 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 SZ and GZYZ, which entitles WOFE SZ to receive
substantially all of the economic benefits of GZYZ in consideration for services provided by WOFE SZ to GZYZ, (2) a Call Option Agreement
with the shareholders of GZYZ, Yang Wenbin and Li Ping, allowing the WOFE SZ to acquire all the shares of GZYZ as permitted by PRC laws,
(3) a Voting Rights Proxy Agreement that provides WOFE SZ with the all voting rights of the GZYZ’s shareholders, and (4) an Equity
Pledge Agreement that pledges the shares in GZYZ to WOFE SZ. 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. SQEC
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; SQEC 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 his 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 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 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 had control over 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 had been accounted for as reverse takeover
transactions and were capitalization of the Company, including the conversion of the convertible promissory note; accordingly, the Company
(the legal acquirer) was considered the accounting acquiree and EGOOS BVI (the legal acquiree) was considered the accounting acquirer.
No goodwill had been recorded. As a result of this transaction, the Company was deemed to be a continuation of the business of EGOOS BVI
and SQEC.
On December 30, 2021, the Company entered into a stock sale and purchase
agreement (the “Agreement”) with Terry Chu (the “Buyer”), pursuant to which the Company sold to Buyer (the “Disposal
Transaction”) EGOOS Mobile Technology Company Limited, a British Virgin Islands corporation (“EGOOS”) and wholly-owned
subsidiary of the Company, together with VIE, for an aggregate purchase price of $1.00 via selling all of EGOOS’ issued and outstanding
share capital. Before their entry into the Agreement, no material relationship existed between the Company and the Buyer, on one hand,
and EGOOS and the Buyer on the other hand. On December 30, 2021, the Company and Buyer consummated the Disposal Transaction set forth
in the Agreement and as a result the Company completely disposed its legacy audio bank card business in the People’s Republic of
China, which has ceased its meaningful operations since 2019. As such, the Company currently does not have the VIE structure or VIE agreements.
On October 18, 2021, the Company incorporated two wholly owned subsidiaries
New York Link Capital Inc. (“New York Link”) and New York Tech Capital Inc. (“New York Tech”) for conducting digital
currency business, including digital mining, trading of digital currencies and other relevant business. New York Link is holding company
of New York Tech, holding 100% equity interest in New York Tech.
On October 26, 2021, New York Tech entered into
a Hosting and Colocation Services Agreement (the “Gigacrypto Agreement”) with PLANBTC, LLC, d/b/a Gigacrypto, Inc., a Wyoming
limited liability company (“Gigacrypto”), pursuant to which Gigacrypto deploys, operates and maintains certain crypto currency
mining equipment to mine Bitcoins (the “Equipment”) that New York Tech has provided thereto for a service fee equal to twelve
percent (12%) of the total Bitcoin mining revenue payable in Bitcoin, irrespective of their dollar value, unless indicated otherwise by
Gigacrypto. In accordance with the Gigacrypto Agreement, New York Tech shall reimburse certain fees and expenses, including the energy
costs of operating the Equipment, actually incurred as a result of operating any of the Equipment. In connection with the Gigacrypto Agreement,
on October 26, 2021, New York Tech and Gigacrypto signed the initial statement of work to the Gigacrypto Agreement, which provided the
initial service term of three (3) years from the date of the Statement of Work. The Gigacrypto Agreement shall expire upon the end of
the term of the latest Statement of Work unless terminated earlier.
Center Florence was incorporated on March 18,
2021 as a Delaware corporation.
On April 16, 2021, Center Florence entered into
a securities exchange agreement among with among Center St. Louis,
LLC (“St. Louis”), a Delaware limited liability company, Royal Park, LLC (“Royal Park”), a South Carolina limited
liability company, Florence Development LLC (“Florence”), a Delaware limited liability company (each of St. Louis, Royal Park
and Florence, a “Subsidiary” and collectively, the “Subsidiaries”), Center Florence Holding, LLC, a Delaware limited
liability company (the “Center Florence Holding”), and all of the members of the Subsidiaries (each, a “Member”
and collectively, the “Members”).
Pursuant to the Securities Exchange Agreement,
each and all of the Members of St. Louis have agreed to transfer all of their respective membership interests (the “St. Louis Membership
Interests”) to the Center Florence in exchange for the respective membership interests in the Center Florence Holding; each and
all of the Members of Royal Park have agreed to transfer all of their respective membership interests (the “Royal Park Membership
Interests”) to the Center Florence in exchange for the respective membership interests in the Center Florence Holding; and, the
Member of Florence has agreed to transfer all of its membership interest (the “Florence Membership Interests”) to Center Florence
in exchange for the respective membership interests in the Center Florence Holding. In connection with above transaction, Center Florence
Holding has agreed to contribute and transfer each and all of the St. Louis Membership Interests, Royal Park Membership Interests and
Florence Membership Interests (collectively, the “Transferred Membership Interests”) to Center Florence in exchange for one
hundred (100) shares of the Center Florence Holding’s common stock to be issued by Center Florence, resulting in Center Florence
Holding owning 100% of the Center Florence’s common shares, issued and outstanding.
On November 18, 2021, the Company entered into a Share Purchase/Exchange
Agreement (the “Agreement”) with Center Florence Holding LLC (“Center Florence Holding”) and Center Florence,
Inc. (“Center Florence”), a wholly-owned subsidiary of Center Florence Holding. Under the Agreement, Center Florence Holding
sold and transferred one hundred percent (100%) of its shares in Center Florence to the Company in exchange for four million six hundred
thousand (4,600,000) shares (the “Exchange Shares”) of the Company’s common stock (the “Common Stock”),
par value $0.001 per share, at an agreed price of $4.00 per share of the Common Stock for a total valuation of $18,400,000 of the Company.
On December 1, 2021, the share exchange transaction was closed and the Center Florence became wholly-owned subsidiary of the Company.
The consolidated financial statements were prepared
assuming that Center Florence has controlled Subsidiaries: St Louis, Royal Park and Florence from the first period presented. The transaction
detailed above has been accounted for as an acquisition of business. Customer-related intangible assets of $175,536 and goodwill of $63,417
have been recorded. As a result of this transaction, Center Florence is deemed to be a continuation of the business of St Louis, Royal
Park and Florence.
On February 15, 2022, the Company entered into
a Stock Sale and Purchase Agreement with Hudson Capital Inc. for buying all shares of Hudson Capital USA Inc. (“Hudson Capital USA”)
for $1 and the transaction was closed at February 16, 2022.
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 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 March 31, 2022, the detailed identities
of the consolidating subsidiaries were as follows:
Name of Company | |
Place of incorporation | |
Attributable equity interest % | | |
Registered capital | |
New York Link Capital Inc. (“NY Link”) | |
New York | |
| 100 | % | |
$ | 100 | |
New York Tech Capital Inc. (“NY Tech”) | |
New York | |
| 100 | % | |
| 100 | |
Center Florence, Inc. | |
Delaware | |
| 100 | % | |
| 1 | |
Center St. Louis LLC (“St. Louis”) | |
Delaware | |
| 100 | % | |
| 1,000 | |
Royal Park, LLC (“Royal Park”) | |
South Carolina | |
| 100 | % | |
| 1,000 | |
Florence Development, LLC. (“Florence”) | |
Delaware | |
| 100 | % | |
| 1,000 | |
Time Capital Inc. (“Time Capital”) | |
New York | |
| 100 | % | |
| 100 | |
Time Capital Management Inc. (“Time Capital Management”) | |
New York | |
| 100 | % | |
| 100 | |
Hudson Capital USA Inc. (“NY Link”) | |
New York | |
| 100 | % | |
| 100 | |
Hongkong Internet Financial Services Limited (“HKIFS”) | |
Hong Kong | |
| 100 | % | |
| 0.14 | |
As of December 31, 2021, the detailed identities
of the consolidating subsidiaries were as follows:
Name of Company | |
Place of incorporation | |
Attributable equity interest % | | |
Registered capital | |
New York Link Capital Inc. (“NY Link”) | |
New York | |
| 100 | % | |
$ | 100 | |
New York Tech Capital Inc. (“NY Tech”) | |
New York | |
| 100 | % | |
| 100 | |
Center Florence, Inc. | |
Delaware | |
| 100 | % | |
| 1 | |
Center St. Louis LLC (“St. Louis”) | |
Delaware | |
| 100 | % | |
| 1,000 | |
Royal Park, LLC (“Royal Park”) | |
South Carolina | |
| 100 | % | |
| 1,000 | |
Florence Development, LLC. (“Florence”) | |
Delaware | |
| 100 | % | |
| 1,000 | |
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, 2022.
The consolidated balance sheets and certain comparative
information as of December 31, 2021 are derived from the audited consolidated financial statements and related notes for the year ended
December 31, 2021 (“2021 Annual Financial Statements”), included in the Company’s 2021 Annual Report on Form 10-K. These
unaudited interim condensed consolidated financial statements should be read in conjunction with the 2021 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
Lands are carried at cost and no depreciation
is provided.
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 from 0%
- 10%. Estimated useful lives of the plant and equipment are as follows:
Building and improvement | |
15-40 years |
Furniture and equipment | |
5-28 years |
Digital mining machine | |
5 years |
Office equipment | |
3 years |
Office furniture | |
5 years |
Motor vehicle | |
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. Intangible Assets
Intangible assets, comprising digital assets,
accounting software and big data platform, which are separable from the property and equipment, are stated at cost less accumulated amortization.
Amortization is computed using the straight-line method over the estimated useful lives of the assets.
Digital assets
Digital assets (including Bitcoin and USDT) are
included in current assets in the accompanying consolidated balance sheets. Digital assets purchased are recorded at cost and digital
assets awarded to the Company through its mining activities are accounted for in connection with the Company’s revenue recognition
policy disclosed below.
Digital assets held are accounted for as intangible
assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually,
or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived
asset is impaired.
Impairment exists when the carrying amount exceeds
its fair value, which is measured using the quoted price of the cryptocurrency at the time its fair value is being measured. In testing
for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that
an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test
is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment
loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
For the periods ended March 31, 2022 and 2021,
the Company has recognized impairment loss of $0 and $0 of its digital assets, respectively.
Purchases of digital assets by the Company, if
any, will be included within investing activities in the accompanying consolidated statements of cash flows, while digital assets awarded
to the Company through its mining activities are included within operating activities on the accompanying consolidated statements of cash
flows. The sales of digital assets are included within investing activities in the accompanying consolidated statements of cash flows
and any realized gains or losses from such sales are included in “realized gain (loss) on exchange of digital assets” in the
consolidated statements of operations and comprehensive income (loss). The Company accounts for its gains or losses in accordance with
the first-in first-out method of accounting.
Separable Intangible Asset - Customer-related
intangible assets
Customer-related intangible assets arising from
the acquisition of subsidiary which has been separated from goodwill by complying with ASC 805-20-55 which meets the contractual-legal
criterion for recognition separately from goodwill even though the Company cannot sell or otherwise transfer these lease contracts.
Customer-related intangible assets are accounted
for as intangible assets with useful lives of five years. It would be amortized for the useful lives on monthly basis.
The Company tests intangible assets for impairment
at the reporting unit level on an annual basis and between annual tests when an event occurs or circumstances change that could indicate
that the asset might be impaired. The Company first has the option to assess qualitative factors to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carrying amount. If the Company decides, as a result of its qualitative
assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative
impairment test is mandatory. Otherwise, no further testing is required.
L. Business combinations
Business combinations are recorded using the acquisition
method of accounting. The assets acquired, the liabilities assumed and any non-controlling interests of the acquiree at the acquisition
date, if any, are measured at their fair values as of the acquisition date. Goodwill is recognized and measured as the excess of the total
consideration transferred plus the fair value of any non-controlling interests of the acquiree and fair value of previously held equity
interest in the acquiree, if any, at the acquisition date over the fair values of the identifiable net assets acquired. Common forms of
the consideration made in acquisitions include cash and common equity instruments. Consideration transferred in a business acquisition
is measured at the fair value as of the date of acquisition.
M. Goodwill
Goodwill is the excess of the consideration transferred
over the fair value of the acquired assets and assumed liabilities in a business combination.
The Company tests goodwill for impairment at the
reporting unit level on an annual basis and between annual tests when an event occurs or circumstances change that could indicate that
the asset might be impaired. The Company first has the option to assess qualitative factors to determine whether it is more likely than
not that the fair value of a reporting unit is less than its carrying amount. If the Company decides, as a result of its qualitative assessment,
that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment
test is mandatory. Otherwise, no further testing is required.
N. Impairment of Long-lived Assets
The Company reviews long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to the future net undiscounted cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which
the carrying amount of the asset exceeds its fair value. For the periods ended March 31, 2022 and 2021, the Company did not recognize
any impairment loss of its long-lived assets.
O. Long term investment
The Company’s long-term investments include
equity securities without readily determinable fair values and available-for-sale investments.
Equity securities without readily determinable
fair values
As of March 31, 2022 and December 31, 2021, the
Company’s investment in two privately held companies over which the Company neither has control nor significant influence through
investment in common stock.
Equity securities not accounted for using the
equity method are carried at fair value with unrealized gains and losses recorded in the consolidated income statements, according to
ASC 321, Investments - Equity Securities. The Company elected to record the equity investments in privately held companies using
the measurement alternative at cost, less impairment, with subsequent adjustments for observable price changes resulting from orderly
transactions for identical or similar investments of the same issuer.
Equity investments in privately held companies
accounted for using the measurement alternative are subject to periodic impairment reviews. The Company’s impairment analysis considers
both qualitative and quantitative factors that may have a significant effect on the fair value of these equity securities, including consideration
of the impact of the COVID-19 pandemic. In computing realized gains and losses on equity securities, the Company determines cost based
on amounts paid using the average cost method. Dividend income is recognized when the right to receive the payment is established.
Available-for-sale investments
For investments in investees’ shares which
are determined to be debt securities, the Group accounts for them as available-for-sale investments when they are not classified as either
trading or held-to-maturity investments. Available-for-sale investments are reported at fair value, with unrealized gains and losses recorded
in accumulated other comprehensive income as a component of shareholders’ equity. Declines in the fair value of individual available-for-sale
investments below their amortized cost due to credit-related factors are recognized as an allowance for credit losses, whereas if declines
in the fair value is not due to credit-related factors, the loss is recorded in other comprehensive income / (loss).
P. 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
2021 and 2020.
Q. 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.
R. 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 periods ended
March 31, 2022 and 2021, $0 and $0 stock-based compensation was recognized.
S. Foreign currency translation
The accompanying financial statements are presented
in United States dollars (USD).
For the period ended March 31, 2022, the functional
currency of the Company is the USD.
For the period ended March 31, 2021, the functional
currency of the Company is the USD and Renminbi (RMB). The financial statements are translated into USD from RMB at period-end exchange
rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical
exchange rates when the capital transactions occurred.
Exchange rates | |
March 31,
2021 | | |
December 31,
2021 | |
Year-end/period-end RMB : US$ exchange rate | |
| 6.5713 | | |
| 6.4515 | |
Average annual/period RMB : US$ exchange rate | |
| 6.4844 | | |
| 6.3757 | |
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.
T. 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 it customers which the Company identifies
the contract and determines the transactions price with customers, 2) the contract has set forth a fixed fee for the services to be rendered
which the Company has determined the transactions 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 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.
Cryptocurrency
When the cryptocurrency is sold in the exchange,
which time revenue is recognized. There is no significant financing component in these transactions.
Fair value of the cryptocurrency award received
is determined using the quoted price of the related cryptocurrency at the time of receipt.
There is currently no specific definitive guidance
under GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management has
exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by
the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial
position and results from operations.
Rental income
Rental income from letting the Company’s
of investment properties is recognized on a straight-line basis over the lease term.
Clubhouse services
Clubhouse income is recognized when services are
rendered.
U. Cost of revenue
Cryptocurrency
The cost of revenue of cryptocurrency is the corresponding
amount of intangible assets.
Clubhouse services
The cost of revenue of clubhouse services is mainly
the labour costs and cost of food and beverage.
V. 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.
W. 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.
X. 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.
Y. 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 March 31, 2022:
| |
Quoted in Active Markets for Identical Assets (Level 1) | | |
Significant Other Observable Inputs (Level 3) | | |
Significant Unobservable Inputs (Level 3) | | |
Total | |
Financial assets: | |
| | |
| | |
| | |
| |
Cash | |
$ | 555,717 | | |
$ | - | | |
$ | - | | |
$ | 555,717 | |
Total financial assets | |
$ | 555,717 | | |
$ | - | | |
$ | - | | |
$ | 555,717 | |
As of December 31, 2021:
| |
Quoted in Active Markets for Identical Assets (Level 1) | | |
Significant Other Observable Inputs (Level 3) | | |
Significant Unobservable Inputs (Level 3) | | |
Total | |
Financial assets: | |
| | |
| | |
| | |
| |
Cash | |
$ | 2,877,456 | | |
$ | - | | |
$ | - | | |
$ | 2,877,456 | |
Total financial assets | |
$ | 2,877,456 | | |
$ | - | | |
$ | - | | |
$ | 2,877,456 | |
Z. Recently issued accounting standards
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.
In May 2021, the FASB issued ASU 2021-04, Earnings
Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic
718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain
Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance
as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written
call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new
instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified
or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model
that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination,
debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for
all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should
apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early
adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an
interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The adoption
of ASU 2021-04 is not expected to have any impact on the Company’s consolidated financial statement presentation or disclosures.
In November 2021, the FASB issued ASU 2021-10,
Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This update requires certain annual disclosures
about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This update
is effective for annual periods beginning after December 15, 2021, and early application is permitted. This guidance should be applied
either prospectively to all transactions that are reflected in financial statements at the date of initial application and new transactions
that are entered into after the date of initial application or retrospectively to those transactions. The Company does not expect the
impact of this guidance to have a material impact on the Company’s consolidated financial statements.
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.
NOTE 3. BUSINESS ACQUISITION
Acquisition of Center Florence, Inc.
On November 18, 2021, the Company entered into
a Share Purchase/Exchange Agreement (the “Agreement”) with Center Florence Holding LLC (“Center Florence Holding”)
and Center Florence, Inc. (“Center Florence”), a wholly-owned subsidiary of Center Florence Holding. Under the Agreement,
Center Florence Holding will sell and transfer one hundred percent (100%) of its shares in the Center Florence to the Company in exchange
for four million six hundred thousand (4,600,000) shares (the “Exchange Shares”) of the Company’s common stock (the
“Common Stock”), par value $0.001 per share, at an agreed price of $4.00 per share of the Common Stock for a total valuation
of $18,400,000 of the Company.
On December 1, 2021, the share exchange transaction
was closed and the Center Florence became a wholly-owned subsidiary of the Company.
The acquisition was recorded using the acquisition
method of accounting. Accordingly, the acquired assets and liabilities were recorded at fair value at the date of acquisition.
The purchase price of Center Florence was allocated
as of December 1, 2021, the date of acquisition, as follows:
| |
USD | |
| |
(Audited) | |
Cash and cash equivalents | |
$ | 48,850 | |
Net assets acquired, excluding cash and cash equivalents, related parties balances and property, plant and equipment, net | |
| (1,882,537 | ) |
Property, plant and equipment, net | |
| 19,994,734 | |
Separable Intangible Assets - Customer-related intangible assets | |
| 175,536 | |
Goodwill | |
| 63,417 | |
Total purchase consideration | |
$ | 18,400,000 | |
The purchase price allocation was determined by
the Company with the assistance of an independent valuation appraiser. The fair value of the acquired assets and liabilities were measured
by using the multi-period excess earnings method, replacement cost valuation methods and discounted cash flow method and taking into account
certain factors including the management projection of discounted future cash flow and an appropriate discount rate. Center Florence has
no intangible assets to be acquired by the Company.
Goodwill resulted from the acquisition is not
deductible for tax purposes, which was primarily attributable to intangible assets that cannot be recognized separately as identifiable
assets under GAAP, and comprised (a) the assembled workforce and (b) the expected but unidentifiable business growth as a result of the
synergy resulting from the acquisition.
Acquisition of Hudson Capital USA Inc.
On February 15, 2022, the Company entered into
a Stock Sale and Purchase Agreement with Hudson Capital Inc. for buying all shares of Hudson Capital USA Inc. (“Hudson Capital USA”)
for $1 and the transaction was closed at February 16, 2022.
The acquisition was recorded using the acquisition
method of accounting. Accordingly, the acquired assets and liabilities were recorded at fair value at the date of acquisition.
The purchase price of Hudson Capital USA was allocated
as of February 16, 2022, the date of acquisition, as follows:
| |
USD | |
| |
(Unaudited) | |
Cash and cash equivalents | |
$ | 21,478 | |
Net assets acquired, excluding cash and cash equivalents, related parties balances and property, plant and equipment, net | |
| (1,416 | ) |
Property, plant and equipment, net | |
| 0 | |
Separable Intangible Liabilities – Lease commitment-related intangible liabilities | |
| (48,101 | ) |
Goodwill | |
| 28,139 | |
Total purchase consideration | |
$ | 100 | |
The purchase price allocation was determined by
the Company with the assistance of an independent valuation appraiser. The fair value of the acquired assets and liabilities were measured
by using the multi-period excess earnings method, replacement cost valuation methods and discounted cash flow method and taking into account
certain factors including the management projection of discounted future cash flow and an appropriate discount rate. Center Florence has
no intangible assets to be acquired by the Company.
Goodwill resulted from the acquisition is not
deductible for tax purposes, which was primarily attributable to intangible assets that cannot be recognized separately as identifiable
assets under GAAP, and comprised (a) the assembled workforce and (b) the expected but unidentifiable business growth as a result of the
synergy resulting from the acquisition.
Acquisition of Hongkong Internet Financial Services
Limited
On March 30, 2022, Hudson Capital USA, the subsidiary
of the Company, entered into a Bought and Sold Note with Hudson Capital Inc. and executed an Instrument of Transfer to transfer its one
(1) share, which represent all interest, in its wholly-owned Hong Kong subsidiary, Hongkong Internet Financial Services Limited for HK$1.
The acquisition was recorded using the acquisition
method of accounting. Accordingly, the acquired assets and liabilities were recorded at fair value at the date of acquisition.
The purchase price of Hongkong Internet Financial
Services Limited was allocated as of March 30, 2022, the date of acquisition, as follows:
| |
USD | |
| |
(Unaudited) | |
Cash and cash equivalents | |
$ | 0 | |
Net assets acquired, excluding cash and cash equivalents, and related parties balances | |
| 0 | |
Goodwill | |
| 0.14 | |
Total purchase consideration | |
$ | 0.14 | |
The purchase price allocation was determined by
the Company with the assistance of an independent valuation appraiser. The fair value of the acquired assets and liabilities were measured
by using the multi-period excess earnings method, replacement cost valuation methods and discounted cash flow method and taking into account
certain factors including the management projection of discounted future cash flow and an appropriate discount rate. Center Florence has
no intangible assets to be acquired by the Company.
Goodwill resulted from the acquisition is not
deductible for tax purposes, which was primarily attributable to intangible assets that cannot be recognized separately as identifiable
assets under GAAP, and comprised (a) the assembled workforce and (b) the expected but unidentifiable business growth as a result of the
synergy resulting from the acquisition.
NOTE 4. CASH AND CASH EQUIVALENTS
Cash consisted of the following:
| |
As of March 31, 2022 | | |
As of December 31, 2021 | |
| |
(Unaudited) | | |
(Audited) | |
Cash on hand | |
$ | - | | |
$ | 6,090 | |
Cash in banks | |
| 555,717 | | |
| 2,871,366 | |
Total cash | |
$ | 555,717 | | |
$ | 2,877,456 | |
NOTE 5. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
| |
As of March 31, 2022 | | |
As of December 31, 2021 | |
| |
(Unaudited) | | |
(Audited) | |
Accounts receivable | |
$ | 77,158 | | |
$ | 64,089 | |
Less: allowance | |
| - | | |
| - | |
Less: impairment | |
| - | | |
| - | |
Accounts receivable, net | |
$ | 77,158 | | |
$ | 64,089 | |
NOTE 6. INVENTORY
Inventory consisted of the following:
| |
As of March 31, 2022 | | |
As of December 31, 2021 | |
| |
(Unaudited) | | |
(Audited) | |
Consumable store | |
$ | 1,996 | | |
$ | 2,673 | |
Less: allowance | |
| - | | |
| - | |
Less: impairment | |
| - | | |
| - | |
Total | |
$ | 1,996 | | |
$ | 2,673 | |
NOTE 7. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of the
following:
| |
As of March31, 2021 | | |
As of December 31, 2021 | |
| |
(Unaudited) | | |
(Audited) | |
Land | |
$ | 18,148,238 | | |
$ | 18,148,238 | |
Building and improvement | |
| 2,614,790 | | |
| 2,614,790 | |
Furniture and equipment | |
| 285,694 | | |
| 261,397 | |
Digital mining equipment | |
| 3,218,350 | | |
| 1,300,000 | |
Motor vehicle | |
| 100,000 | | |
| 100,000 | |
Total property and equipment | |
| 24,367,072 | | |
| 22,424,425 | |
Less: accumulated depreciation | |
| (1,392,817 | ) | |
| (1,284,233 | ) |
Less: impairment | |
| - | | |
| - | |
Property, plant and equipment, net | |
$ | 22,974,255 | | |
$ | 21,140,192 | |
Depreciation expense was $108,584 and $0, respectively
for the years ended December 31, 2021 and 2020.
NOTE 8. INTANGIBLE ASSETS, NET
The intangible assets consisted of the following:
| |
As of March 31, 2022 (Unaudited) | |
Items | |
Gross
Carrying
Value | | |
Accumulated
Amortization | | |
Impairment | | |
Net
Carrying
Value | |
| |
$ | | | |
$ | | | |
$ | | | |
$ | | |
Intangible assets not subject to amortization: | |
| | | |
| | | |
| | | |
| | |
Goodwill (Note 9) | |
| 91,556 | | |
| - | | |
| - | | |
| 91,556 | |
Digital assets - Bitcoin | |
| 9,230 | | |
| - | | |
| - | | |
| 9,230 | |
Digital assets - USDT | |
| 67,035 | | |
| - | | |
| - | | |
| 67,035 | |
| |
| | | |
| | | |
| | | |
| | |
Intangible assets subject to amortization: | |
| | | |
| | | |
| | | |
| | |
--5-year life: | |
| | | |
| | | |
| | | |
| | |
Customer-related intangible assets | |
| 175,536 | | |
| (11,702 | ) | |
| - | | |
| 163,834 | |
Total | |
| 343,357 | | |
| (11,702 | ) | |
| - | | |
| 331,655 | |
| |
As of December 31, 2021 (Audited) | |
Items | |
Gross
Carrying
Value | | |
Accumulated
Amortization | | |
Impairment | | |
Net
Carrying
Value | |
| |
$ | | | |
$ | | | |
$ | | | |
$ | | |
Intangible assets not subject to amortization: | |
| | | |
| | | |
| | | |
| | |
Goodwill (Note 9) | |
| 63,417 | | |
| - | | |
| - | | |
| 63,417 | |
Digital assets | |
| 30,670 | | |
| - | | |
| (13,589 | ) | |
| 17,081 | |
| |
| | | |
| | | |
| | | |
| | |
Intangible assets subject to amortization: | |
| | | |
| | | |
| | | |
| | |
--5-year life: | |
| | | |
| | | |
| | | |
| | |
Customer-related intangible assets | |
| 175,536 | | |
| (2,923 | ) | |
| - | | |
| 172,613 | |
Total | |
| 269,623 | | |
| (2,923 | ) | |
| (13,589 | ) | |
| 253,111 | |
Digital assets
| |
As of March 31, 2021 | | |
As of December 31, 2021 | |
| |
(Unaudited) | | |
(Audited) | |
Digital assets | |
| | |
| |
Bitcoin - Digital mining costs | |
$ | 9,230 | | |
$ | 30,670 | |
USDT | |
| 67,035 | | |
| - | |
Less: accumulated amortization | |
| - | | |
| - | |
Less: impairment | |
| - | | |
| (13,589 | ) |
| |
$ | 76,265 | | |
$ | 17,081 | |
On October 26, 2021, the Company has entered into
hosting and colocation services agreement with GigaCrypto, Inc. (“GigaCrypto”) to deploy and maintain the Company’s
mining equipment to locations operated by GigaCrypto. GigaCrypto provides electrical power, internet access and maintenance services.
The contract is enforceable for 3 years and GigaCrypto will receive mining services fee, including the management service fee, power costs
and additional costs, which is caused by government regulatory conditions changes. The Company is entitled to all cryptocurrency award
for successfully adding a block to the blockchain.
The cryptocurrency award would be capitalized
as intangible assets according to the costs incurred, which includes mining services fees, depreciation of mining equipment and power
costs. What the Company receives, if any, is noncash consideration, which the Company measures at fair value on the date received, which
is not materially different than the fair value at contract inception or the time the Company has earned the award from the pools. The
consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration
is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and the Company receives
confirmation of the consideration it will receive, at which time intangible assets is recognized. There is no significant financing component
in these transactions.
Fair value of the cryptocurrency award received
is determined using the quoted price of the related cryptocurrency at the time of receipt.
No amortization on digital assets and the digital
assets include Bitcoin and USDT as the periods ended March 31, 2022 and 2021.
Impairment on intangible assets was $0 and $0,
respectively, for the periods ended March 31, 2022 and 2021.
Customer-related intangible assets
| |
As of March 31, 2021 | | |
As of December 31, 2021 | |
| |
(Unaudited) | | |
(Audited) | |
Separable Intangible Assets | |
| | |
| |
Customer-related intangible assets | |
$ | 175,536 | | |
$ | 175,536 | |
Less: accumulated amortization | |
| (11,702 | ) | |
| (2,923 | ) |
Less: impairment | |
| - | | |
| - | |
| |
$ | 163,834 | | |
$ | 172,613 | |
The fair value of the Customer-related intangible
assets was determined by the Company with the assistance of independent valuation appraisers using the income-based valuation methodology.
Amortization on Customer-related intangible assets
was $8,779 and $0, respectively, for the periods ended March 31, 2022 and 2021.
NOTE 9. GOODWILL
Changes in the carrying amount of goodwill for
the period ended March 31, 2022 and year ended December 31, 2021 consisted of the following:
| |
As of
March 31,
2021 | | |
As of
December 31,
2021 | |
| |
(Unaudited) | | |
(Audited) | |
Beginning balance | |
$ | 63,417 | | |
$ | - | |
Addition (Note 3) | |
| 28,139 | | |
| 63,417 | |
Less: accumulated impairment loss | |
| - | | |
| - | |
Less: disposal and write off | |
| - | | |
| - | |
| |
$ | 91,556 | | |
$ | 63,417 | |
In the annual goodwill impairment assessment,
the Company concluded that the carrying amounts of certain reporting units exceeded their respective fair values and recorded impairment
losses of $0 and $0 for the periods ended March 31, 2022 and 2021. The fair value of the reporting units was determined by the Company
with the assistance of independent valuation appraisers using the income-based valuation methodology.
NOTE 10. LONG TERM INVESTMENT
The long term investment was valued at cost and
consisted of the following:
| |
As of March 31, 2021 | | |
As of December 31, 2021 | |
| |
(Unaudited) | | |
(Audited) | |
Equity securities without readily determinable fair values | |
| | |
| |
Archax Holdings Ltd. | |
$ | 500,000 | | |
$ | 500,000 | |
Montis Digital Limited | |
| 250,000 | | |
| 250,000 | |
| |
| 750,000 | | |
| 750,000 | |
Available-for-sale investments | |
| | | |
| | |
Archax Holdings Ltd.- Principal of Convertible note loan | |
| 106,289 | | |
| 106,289 | |
Archax Holdings Ltd.- Interest on Convertible note loan | |
| 2,819 | | |
| 722 | |
| |
| 109,108 | | |
| 107,011 | |
| |
| | | |
| | |
Total cost of long term investment | |
| 859,108 | | |
| 857,011 | |
Less: impairment | |
| - | | |
| - | |
| |
$ | 859,108 | | |
$ | 857,011 | |
a) |
Equity securities without readily determinable fair values |
On June 4, 2021, the Company 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.
For the year ended December 31, 2021, the Company
did not record upward adjustments or downward adjustments on the equity securities.
The Company’s impairment analysis considers
both qualitative and quantitative factors that may have a significant effect on the fair value of the equity securities. As of December
31, 2021, the Company did not recognize impairment against the equity securities.
b) |
Available-for-sale investments |
On November 16, 2021, the Company closed the convertible
note loan (the “Note”) transaction Archax. The Notes shall be known as 8% fixed rate unsecured convertible loan notes 2022
Series III and shall be issued by Archax in integral multiples of $1.00 and maturity date of the Note would be the last Business Day in
July 2022, which is July 22, 2022. Conversion price would be 80% lower of the lowest price per share which would have been paid for Senior
Shares.
Interest on Note was $723 and $0, respectively
for the periods ended March 31, 2022 and 2021.
For the period ended March 31, 2022, the Company
did not record upward adjustments or downward adjustments on the equity securities.
The Company’s impairment analysis considers
both qualitative and quantitative factors that may have a significant effect on the fair value of the equity securities. As of March 31,
2022, the Company did not recognize impairment against the equity securities.
NOTE 11. SHORT-TERM LOANS
Principal of short-term loans consisted of the
following:
| |
As of March 31, 2022 | | |
As of December 31, 2021 | |
| |
(Unaudited) | | |
(Audited) | |
7.00% bank loan, originally due July 15, 2020, but extended to December 31, 2022 | |
$ | 160,531 | | |
$ | 166,777 | |
| |
| - | | |
| - | |
| |
| - | | |
| - | |
Total | |
$ | 160,531 | | |
$ | 166,777 | |
NOTE 12. LONG-TERM LOAN
Principal of long-term loans consisted of the
following:
| |
As of March 31, 2022 | | |
As of December 31, 2021 | |
| |
(Unaudited) | | |
(Audited) | |
6.00% bank loan, due April 10, 2024 | |
$ | 1,124,596 | | |
$ | 1,133,959 | |
3.75% U.S federal government SBA loan, due June 27, 2030 | |
| 149,900 | | |
| 149,900 | |
3.75% U.S. federal government SBA loan, due June 27, 2030 | |
| 150,000 | | |
| 150,000 | |
Total | |
$ | 1,424,496 | | |
$ | 1,433,859 | |
NOTE 13. NOTE PAYABLES
Note payables consisted of the following:
| |
As of March 31, 2021 | | |
As of December 31, 2021 | |
| |
(Unaudited) | | |
(Audited) | |
PX Global Advisors, LLC | |
| | |
| |
Principal | |
$ | 2,000,000 | | |
$ | 2,000,000 | |
Interest | |
| 60,274 | | |
| 10,959 | |
Total | |
$ | 2,060,274 | | |
$ | 2,010,959 | |
On December 12, 2021, the Company entered into
a securities purchase agreement (the “Purchase Agreement”) with PX Global Advisors, LLC (“PX Global
Advisors”), pursuant to which the PX Global Advisors purchased a convertible promissory note (the “Note”)
from the Company in the principal amount of $2,000,000. Pursuant to the terms of the Note, the Note bears an interest rate of 10% per
annum, the principal amount and accrued but unpaid interest of the Note shall be due and payable on December 12, 2022 (the “Maturity
Date”) and such principal amount and the interest accrued thereon shall be convertible into shares of the Company’s common
stock at the selection of the PX Global Advisors on the Maturity Date at a fixed conversion price of $3.20 per share. The Company shall
have the right to prepay the outstanding balance of and interest on this Note at any time prior to the Maturity Date. The Company intends
to use the net proceeds from the Note for general working capital purposes. On December 13, 2021, the Company issued the Note to the PX
Global Advisors and consummated the transaction as set forth in the Purchase Agreement. The Note was wholly recognized as a liability
under ASC 470-20-25-10 and ASC 470-20-25-12.
Interest expense was $49,315 and $0, respectively
for the periods ended March 31, 2022 and 2021.
NOTE 14. RELATED PARTY TRANSACTIONS
On June 4, 2021, the Company 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.
b) |
Property, plant and equipment |
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.
c) |
Related party payables |
Related party payables consisted of the followings:
| |
As of March 31, 2022 | | |
As of December 31, 2021 | |
| |
(Unaudited) | | |
(Audited) | |
PX SPAC Capital Inc. | |
| | |
| |
Principal | |
$ | 36,916 | | |
$ | 36,916 | |
Interest | |
| 768 | | |
| 586 | |
Total | |
$ | 37,684 | | |
$ | 37,502 | |
The amount was provided as working capital to
financial the Company’s operations. The amount is unsecured, 2% annual interest bearing and due on demand. Interest expense was
$182 and $0, respectively for the periods ended March 31, 2022 and 2021.
NOTE 15. Taxation
The Company was incorporated in the state of Delaware,
U.S.A. The Company did not generate any taxable income from its operations for the periods ended March 31, 2022 and 2021.
For period ended March 31, 2022, the Company,
Center Florence, Inc. (“CFI”), Center St. Louis LLC (“St. Louis”), and Florence Development, LLC (“Florence”)
are subject to U.S. federal and Delaware franchise tax. New York Link Capital Inc. (“NY Link”), New York Tech Capital Inc.
(“NY Tech”) are subject to U.S. federal and New York state income taxes, Royal Park, LLC (“Royal Park”) and are
subject to U.S. federal and South Carolina state income taxes.
For U.S. Federal income tax purpose, the Company
and its subsidiaries did not elect to file consolidated tax returns and file separately as individual entity. For each company they have
filed separate federal and state tax returns and calculated the relevant taxes for taxable income; and relevant net operating loss will
be carry forwards according to relevant tax periods.
For U.S. Federal income tax purpose, the Company,
NY Link, NY Tech, CFI, St. Louis, Royal Park and Florence have net operating loss, or NOL carryforwards of approximately $983,255 at
March 31, 2022.
For Delaware franchise tax purpose, the Company,
CFI, St. Louis, and Florence are subject to annual franchise tax and have no NOL carry forwards.
For New York income tax purpose, NY Link and NY
Tech have no net operating loss, or NOL carry forwards at March 31, 2022.
For South Carolina, income tax purpose, Royal
Park has net operating loss, or NOL carry forwards of approximately $857,487 at March 31, 2022.
For period ended March 31, 2021, EGOOS Mobile
Technology Company Limited (“EGOOS BVI”) was incorporated in the BVI. There is no income tax for a company domiciled in the
BVI. Accordingly, the Company’s consolidated financial statements do not present any income tax provision related to the BVI tax
jurisdiction where EGOOS BVI is domiciled.
EGOOS Mobile Technology Company Limited (“EGOOS
HK”), which is subject to a 16.5% corporate income tax.
EGOOS HK has no net operating loss, or NOL carryforward,
as EGOOS HK has no operation for the period.
Move the Purchase Consulting Management (Shenzhen)
Co., Ltd. (“MPCM”), Guangzhou Yuzhi Information Technology Co., Ltd. (“GZYZ”), Shenzhen Qianhai Exce-card Technology
Co., Ltd. (“SQEC”) and Guangzhou Rongsheng Information Technology Co., Ltd. (“GZRS”) are subject to PRC Enterprise
Income Tax, which is 25% on taxable income.
MPCM, GZYZ, SQEC and GZRS has no net operating
loss, or NOL carryforward, as they have no operation for the period.
The components of the income tax expense are as follows:
| |
Three months ended March 31, 2022 | | |
Three months ended March 31, 2021 | |
| |
(Unaudited) | | |
(Unaudited) | |
Current | |
$ | - | | |
$ | - | |
Deferred | |
| - | | |
| - | |
Total | |
$ | - | | |
$ | - | |
Taxes recoverable (payable) consisted of the following
at March 31, 2022 and December 31, 2021:
| |
As of March 31, 2022 | | |
As of December 31, 2021 | |
| |
(Unaudited) | | |
(Audited) | |
Income tax recoverable - current | |
$ | - | | |
$ | - | |
Income tax payable – noncurrent | |
$ | - | | |
$ | - | |
As of March 31, 2022 and December 31, 2021, current
and noncurrent tax payable were $0 and $0.
The (benefit) provision for income taxes on loss
from continuing operations consisted of the following:
| |
| Three months ended March 31, 2022 | | |
| Three months ended March 31, 2021 | |
| |
| (Unaudited) | | |
| (Unaudited) | |
Current: | |
| | | |
| | |
Federal | |
$ | - | | |
$ | - | |
State | |
| - | | |
| - | |
Hong Kong | |
| - | | |
| - | |
| |
| - | | |
| - | |
| |
| | | |
| | |
Deferred: | |
| | | |
| | |
Federal | |
| - | | |
| - | |
State | |
| - | | |
| - | |
Total provision (benefit) for income taxes | |
$ | - | | |
$ | - | |
The following is a reconciliation of the difference
between the actual (benefit) provision for income taxes and the (benefit) provision computed by applying the federal statutory rate on
income before income taxes from continuing operations:
| |
| Three months ended March 31, 2022 | | |
| Three months ended March 31, 2021 | |
| |
| (Unaudited) | | |
| (Unaudited) | |
Tax at federal statutory rate | |
$ | - | | |
$ | - | |
Foreign rate differential | |
| - | | |
| - | |
Others | |
| - | | |
| - | |
Valuation allowance | |
| - | | |
| - | |
Total provision (benefit) for income taxes | |
$ | - | | |
$ | - | |
| b) | Deferred
Taxes Assets and Liabilities |
Deferred tax assets and liabilities are recognized
for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax
bases using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred taxes are comprised of
the following:
|
|
As of
March 31,
2022 |
|
|
As of
December 31,
2021 |
|
|
|
(Unaudited) |
|
|
(Audited) |
|
Non-Current Deferred Tax Assets: |
|
|
|
|
|
|
NOL (Federal) |
|
$ |
294,977 |
|
|
$ |
294,977 |
|
NOL (NY) |
|
|
- |
|
|
|
- |
|
NOL (SC) |
|
|
42,874 |
|
|
|
42,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Non-Current Deferred Tax Assets before Valuation Allowance |
|
|
337,851 |
|
|
|
337,851 |
|
Less: Valuation Allowance |
|
|
(337,851 |
) |
|
|
(337,851 |
) |
Non-Current Deferred Tax Assets, Net: |
|
|
- |
|
|
|
- |
|
Total Deferred Assets, Net: |
|
$ |
- |
|
|
$ |
- |
|
Taxes payable consisted of the following:
| |
As
of
March 31, 2022 | | |
As
of December 31, 2021 | |
| |
(Unaudited) | | |
(Audited) | |
Corporate income tax payable | |
$ | - | | |
$ | - | |
Franchise tax payable | |
| 1,240 | | |
| 1,200 | |
Other surtaxes payable | |
| - | | |
| - | |
Total | |
$ | 1,240 | | |
$ | 1,200 | |
NOTE 16. STOCKHOLDERS’ EQUITY
Common stock
As of March 31, 2022 and December 31, 2021, the
Company has 100,000,000 shares of common stock authorized, 17,465,992 shares and 17,465,992 shares issued and outstanding at par value
of $0.001 per share, respectively.
On November 1, 2021, the Company filed an amended
and restated certificate of incorporation (the “Certificate of Incorporation”) with the State of Delaware, which has effected
a one-for-five reverse stock split (the “Reverse Stock Split”) of the Company’s outstanding common stock, par value
$0.001 per share (the “Common Stock”). As a result of the Reverse Stock Split, the number of outstanding shares of Common
Stock has been reduced by the ratio of one-for-five. No fractional shares will be issued in connection with the Reverse Stock Split and
the fractional share of the Common Stock shall be rounded up to the nearest whole share.
In connection with the Reverse Stock Split, our
par value per share did not change. The number of shares of common stock outstanding has been changed accordingly upon the effectiveness
of the Reverse Stock Split.
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 periods ended March 31, 2022 and 2021,
no stock option has been issued.
NOTE 17. LOSS PER SHARE
The following table presents a reconciliation
of basic and diluted earnings per share:
| |
For the three months ended March, 31 | |
| |
2022 | | |
2021 | |
| |
(Unaudited) | | |
(Unaudited) | |
Numerator: | |
| | |
| |
Net loss | |
$ | (162,247 | ) | |
$ | (11,003 | ) |
Denominator: | |
| | | |
| | |
Weighted average number of common stock outstanding - basic and diluted | |
| 17,465,992 | | |
| 4,205,543 | * |
Loss per share – Basic and diluted: | |
$ | (0.00929 | ) | |
$ | (0.00262 | ) |
| * | - The computation of basic and diluted share and EPS data was
adjusted retroactively for all period presented to reflect the 5 to 1 reverse stock split change which was effective on November 1, 2021. |
NOTE 18. CONCENTRATION OF RISK
The Company had certain customers who represented
10% or more of the Company’s total sales. For period ended March 31, 2022, the Company had one customer contributes for 10% or more
of the Company’s total sales.
| 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 period ended March 31, 2022, there was no concentration in any specific vendor.
The Company maintained cash balances at several
financial institutions located in the United States. Accounts located in the United States are insured by the Federal Deposit Insurance
Corporation up to $100,000.
NOTE 19. 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.
On January 13, 2022, the Company entered into
an engagement agreement (the “Agreement”) with Joseph Stone Capital, LLC (the “FA”), pursuant to which the FA
will act as an exclusive financial advisor for the Company to assist with certain matters, including up-listing, mergers and acquisitions,
licensing or a joint venture or partnership, and global capital raising transactions by the Company (the “Services”) for a
period of twelve (12) months, with an automatic extension for additional twelve (12) months with the mutual approval of the Company and
FA. For the Services provided and to be provided by the FA, the Company shall issue the FA 1,000,000 shares of the Company’s common
stock (the “Upfront Shares”) as upfront fees. Pursuant to the Agreement, the Company has granted the FA an anti-dilution right
to maintain the FA’s equity ownership percentage of the Company of at least five percentage (5%) on a fully diluted basis for a
period of eighteen (18) months from the date of the issuance of the Upfront Shares. The Company shall pay a certain percentage of the
Aggregate Consideration as compensation to the FA for any sale, merger, acquisition, joint venture, strategic alliance, technology partnership,
licensing agreement or other similar agreements undertaken by the Company due to the FA’s advice and facilitation. In addition,
the FA shall receive a mutually agreed compensation for any form of debt financing raised with the assistance of the FA for the Company.
Furthermore, for any successful equity raise by the Company as a result of the FA’s efforts, the FA shall receive (i) a Success
Fee, payable in cash, equal to ten percent (10%) of the gross proceeds of the equity offering, plus (ii) warrants to purchase shares of
Company’s commons stock (the “FA Warrants”), with the cashless exercise option, in the amount equal to ten percent (10%)
of the gross proceeds of the equity offering, exercisable, in whole or in part, at any time within five (5) years from a public offering
of the Company at a strike price equal to hundred-twenty percent (120%) of the public offering price of the Company’s common stock,
or, if a public offering price is not available, then the market price of the common stock on the date when such offering is commenced.
In accordance with the Agreement, the Company has granted the piggyback registration right to the shares underlying the FA Warrants and
the Upfront Shares. The Company paid the FA $25,000 as advanced payment for any accountable expenses pursuant to the Agreement. The Company
shall grant the FA a right to first refusal to act as the sole placement agent, sole book runner, manager, agent, or advisor for the Company’s
next placement of debt or equity securities for a period of 18 months, subject to the terms of the Agreement. Additionally, the FA shall
be entitled to compensation for any transaction undertaken by the Company with parties identified by the FA within eighteen (18) months
from the termination or expiration of the Agreement. Any capitalized term used but not defined herein shall have the meaning given thereto
in the Agreement. Before their entry into the Agreement, no material relationship existed between the Company and the FA.
The offer and issuance of the Upfront Shares is
and shall be made in reliance upon an exemption from registration provided by Section 4(a)(2) of the Securities Act and/or Regulation
D promulgated thereunder.
On February 1, 2022, the Company filed a Certificate
of Amendment to the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”) to
change its corporate name from “Wave Sync Corp.” to “New York Holding Corp.” effective on February 4, 2022. The Certificate
of Amendment and change of the corporate name do not and will not affect any right or obligation of the holders of the Company’s
securities. As of this report, the Company has submitted the name-change application with FINRA, and the same is currently under review.
On February 15, 2022, the Company entered into
a Stock Sale and Purchase Agreement with Hudson Capital Inc. for buying all shares of Hudson Capital USA Inc. (“Hudson Capital USA”)
for $1 and the transaction was closed at February 16, 2022.
On March 15, 2022, Time Capital Management Inc.,
a New York corporation (“Time Capital”) and a wholly owned subsidiary of the Company, entered into a business consulting agreement
(the “Agreement”) with Pengfei Xie, Zaixian Wang and Bingjiang Wang (collectively, the “Clients”), pursuant to
which Time Capital, as a business consultant, shall provide investment and financial advice in relation to Clients’ funds of a total
of one million dollars ($1,000,000.00) (the “Funds”) together with the income attributable to such Funds (the “Account”)
for a period of one year from the date of the Agreement to March 15, 2023. Subject to the terms and conditions of the Agreement, Time
Capital shall be entitled to a performance-based profit allocation of 8% of the Account’s net profits (the “Consulting Fees”)
payable quarterly to Time Capital for the services it provides.
Before their entry into the Agreement, no material
relationship existed between the Company or Time Capital on one hand and the Clients on the other hand, except that 1) Zaixian Wang is
a shareholder of the Company and 2) Zaixian Wang is the father of Warren Wang who in-turn is the control person of PX SPAC Capital Inc.,
one of the principal shareholders of the Company.
On March 25, 2022, the Company entered into a
private placement subscription agreement (the “Subscription Agreement”) in connection with its private sale (the “Offering”)
of the Company’s 156,250 unregistered shares of common stock, par value $0.001, to Yingbin Guo (the “Investor”), at
a purchase price of $3.20 per share. The Subscription Agreement contains customary representations, warranties and covenants by the parties
regularly applied under industry standards. The Investor acknowledged and agreed that any resale of the shares issued in connection with
this Offering is subject to resale restrictions pursuant to the Securities Exchange Act of 1934 and none of the shares purchased herein
has been registered under the Securities Act of 1933, as amended.
The Company shall issue shares of its common stock
sold in this Offering in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act. The Company relied on
this exemption from registration for this Offering based in part on the representations made by the Investor, including the representations
with respect to the Investor’s status as accredited investors and his investment intent.
On March 30, 2022, Hudson Capital USA, the subsidiary
of the Company, entered into a Bought and Sold Note with Hudson Capital Inc. and executed an Instrument of Transfer to transfer its one
(1) share, which represent all interest, in its wholly-owned Hong Kong subsidiary, Hongkong Internet Financial Services Limited for HK$1.
NOTE 21. SUBSEQUENT EVENTS
On May 17, 2022, the Company and WeWin DAO LLC
( “WeWin”), a Wyoming limited liability company, entered into a token purchase agreement (the “Purchase Agreement”),
pursuant to which the Company shall purchase ten billion (10,000,000,000) WWC tokens (the “Sale Tokens”), which shall represent
ten percent (10%) of the ownership interest and voting rights in WeWin, for a total consideration of ten million dollars ($10,000,000.00)
(the “Purchase Price”) payable in two million and five hundred thousand (2,500,000) shares of common stock of the Company,
valued at $4.00 per share (the “Consideration Shares”). Upon satisfaction of the terms and conditions of the Purchase Agreement,
the parties of the Purchase Agreement expect to close the transactions set forth therein (the “Closing”) on or before June
27, 2022. Pursuant to the Purchase Agreement, the Company has agreed that it shall not, without the WeWin’s consent, offer, sell,
transfer, assign, pledge or otherwise dispose of any of the Sale Tokens until the earlier of (i) 365 days from the date of this Agreement
and (ii) the listing of WWC tokens on a cryptocurrency exchange platform. Similarly, in accordance with the Purchase Agreement, WeWin
has agreed that it shall not, without the Company’s consent, sell, assign, transfer, pledge, contract to sell, establish an open
“put equivalent position,” or otherwise dispose of, or announce the offering of, or request the Company to file a registration
statement under Securities Act of 1933 in respect of, any Consideration Shares until the earlier of (i) 365 days from the date of this
Agreement and (ii) the listing of Company’s shares on a national stock exchange.
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
Critical Accounting Policies
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.
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 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 March 31, 2022, the detailed identities
of the consolidating subsidiaries were as follows:
Name of Company | |
Place of incorporation | |
Attributable equity interest % | | |
Registered capital | |
New York Link Capital Inc. (“NY Link”) | |
New York | |
| 100 | % | |
$ | 100 | |
New York Tech Capital Inc. (“NY Tech”) | |
New York | |
| 100 | % | |
| 100 | |
Center Florence, Inc. | |
Delaware | |
| 100 | % | |
| 1 | |
Center St. Louis LLC (“St. Louis”) | |
Delaware | |
| 100 | % | |
| 1,000 | |
Royal Park, LLC (“Royal Park”) | |
South Carolina | |
| 100 | % | |
| 1,000 | |
Florence Development, LLC. (“Florence”) | |
Delaware | |
| 100 | % | |
| 1,000 | |
Time Capital Inc. (“Time Capital”) | |
New York | |
| 100 | % | |
| 100 | |
Time Capital Management Inc. (“Time Capital Management”) | |
New York | |
| 100 | % | |
| 100 | |
Hudson Capital USA Inc. (“NY Link”) | |
New York | |
| 100 | % | |
| 100 | |
Hongkong Internet Financial Services Limited (“HKIFS”) | |
Hong Kong | |
| 100 | % | |
| 0.14 | |
As of December 31, 2021, the detailed identities
of the consolidating subsidiaries were as follows:
Name of Company | |
Place of incorporation | |
Attributable equity interest % | | |
Registered capital | |
New York Link Capital Inc. (“NY Link”) | |
New York | |
| 100 | % | |
$ | 100 | |
New York Tech Capital Inc. (“NY Tech”) | |
New York | |
| 100 | % | |
| 100 | |
Center Florence, Inc. | |
Delaware | |
| 100 | % | |
| 1 | |
Center St. Louis LLC (“St. Louis”) | |
Delaware | |
| 100 | % | |
| 1,000 | |
Royal Park, LLC (“Royal Park”) | |
South Carolina | |
| 100 | % | |
| 1,000 | |
Florence Development, LLC. (“Florence”) | |
Delaware | |
| 100 | % | |
| 1,000 | |
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, 2022.
The consolidated balance sheets and certain comparative
information as of December 31, 2021 are derived from the audited consolidated financial statements and related notes for the year ended
December 31, 2021 (“2021 Annual Financial Statements”), included in the Company’s 2021 Annual Report on Form 10-K. These
unaudited interim condensed consolidated financial statements should be read in conjunction with the 2021 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
Lands are carried at cost and no depreciation
is provided.
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 from 0%
- 10%. Estimated useful lives of the plant and equipment are as follows:
Building and improvement | |
15-40 years |
Furniture and equipment | |
5-28 years |
Digital mining machine | |
5 years |
Office equipment | |
3 years |
Office furniture | |
5 years |
Motor vehicle | |
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.
Intangible Assets
Intangible assets, comprising digital assets,
accounting software and big data platform, which are separable from the property and equipment, are stated at cost less accumulated amortization.
Amortization is computed using the straight-line method over the estimated useful lives of the assets.
Digital assets
Digital assets (including Bitcoin and USDT) are
included in current assets in the accompanying consolidated balance sheets. Digital assets purchased are recorded at cost and digital
assets awarded to the Company through its mining activities are accounted for in connection with the Company’s revenue recognition
policy disclosed below.
Digital assets held are accounted for as intangible
assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually,
or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived
asset is impaired.
Impairment exists when the carrying amount exceeds
its fair value, which is measured using the quoted price of the cryptocurrency at the time its fair value is being measured. In testing
for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that
an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test
is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment
loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
For the periods ended March 31, 2022 and 2021,
the Company has recognized impairment loss of $0 and $0 of its digital assets, respectively.
Purchases of digital assets by the Company, if
any, will be included within investing activities in the accompanying consolidated statements of cash flows, while digital assets awarded
to the Company through its mining activities are included within operating activities on the accompanying consolidated statements of cash
flows. The sales of digital assets are included within investing activities in the accompanying consolidated statements of cash flows
and any realized gains or losses from such sales are included in “realized gain (loss) on exchange of digital assets” in the
consolidated statements of operations and comprehensive income (loss). The Company accounts for its gains or losses in accordance with
the first-in first-out method of accounting.
Separable Intangible Asset - Customer-related
intangible assets
Customer-related intangible assets arising from
the acquisition of subsidiary which has been separated from goodwill by complying with ASC 805-20-55 which meets the contractual-legal
criterion for recognition separately from goodwill even though the Company cannot sell or otherwise transfer these lease contracts.
Customer-related intangible assets are accounted
for as intangible assets with useful lives of five years. It would be amortized for the useful lives on monthly basis.
The Company tests intangible assets for impairment
at the reporting unit level on an annual basis and between annual tests when an event occurs or circumstances change that could indicate
that the asset might be impaired. The Company first has the option to assess qualitative factors to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carrying amount. If the Company decides, as a result of its qualitative
assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative
impairment test is mandatory. Otherwise, no further testing is required.
Business combinations
Business combinations are recorded using the acquisition
method of accounting. The assets acquired, the liabilities assumed and any non-controlling interests of the acquiree at the acquisition
date, if any, are measured at their fair values as of the acquisition date. Goodwill is recognized and measured as the excess of the total
consideration transferred plus the fair value of any non-controlling interests of the acquiree and fair value of previously held equity
interest in the acquiree, if any, at the acquisition date over the fair values of the identifiable net assets acquired. Common forms of
the consideration made in acquisitions include cash and common equity instruments. Consideration transferred in a business acquisition
is measured at the fair value as of the date of acquisition.
Goodwill
Goodwill is the excess of the consideration transferred
over the fair value of the acquired assets and assumed liabilities in a business combination.
The Company tests goodwill for impairment at the
reporting unit level on an annual basis and between annual tests when an event occurs or circumstances change that could indicate that
the asset might be impaired. The Company first has the option to assess qualitative factors to determine whether it is more likely than
not that the fair value of a reporting unit is less than its carrying amount. If the Company decides, as a result of its qualitative assessment,
that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment
test is mandatory. Otherwise, no further testing is required.
Impairment of Long-lived Assets
The Company reviews long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to the future net undiscounted cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which
the carrying amount of the asset exceeds its fair value. For the periods ended March 31, 2022 and 2021, the Company did not recognize
any impairment loss of its long-lived assets.
Long term investment
The Company’s long-term investments include
equity securities without readily determinable fair values and available-for-sale investments.
Equity securities without readily determinable
fair values
As of March 31, 2022 and December 31, 2021, the
Company’s investment in two privately held companies over which the Company neither has control nor significant influence through
investment in common stock.
Equity securities not accounted for using the
equity method are carried at fair value with unrealized gains and losses recorded in the consolidated income statements, according to
ASC 321, Investments - Equity Securities. The Company elected to record the equity investments in privately held companies using
the measurement alternative at cost, less impairment, with subsequent adjustments for observable price changes resulting from orderly
transactions for identical or similar investments of the same issuer.
Equity investments in privately held companies
accounted for using the measurement alternative are subject to periodic impairment reviews. The Company’s impairment analysis considers
both qualitative and quantitative factors that may have a significant effect on the fair value of these equity securities, including consideration
of the impact of the COVID-19 pandemic. In computing realized gains and losses on equity securities, the Company determines cost based
on amounts paid using the average cost method. Dividend income is recognized when the right to receive the payment is established.
Available-for-sale investments
For investments in investees’ shares which
are determined to be debt securities, the Group accounts for them as available-for-sale investments when they are not classified as either
trading or held-to-maturity investments. Available-for-sale investments are reported at fair value, with unrealized gains and losses recorded
in accumulated other comprehensive income as a component of shareholders’ equity. Declines in the fair value of individual available-for-sale
investments below their amortized cost due to credit-related factors are recognized as an allowance for credit losses, whereas if declines
in the fair value is not due to credit-related factors, the loss is recorded in other comprehensive income / (loss).
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
2021 and 2020.
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 periods ended March 31, 2022 and 2021,
$0 and $0 stock-based compensation was recognized.
Foreign currency translation
The accompanying financial statements are presented
in United States dollars (USD).
For the period ended March 31, 2022, the functional
currency of the Company is the USD.
For the period ended March 31, 2021, the functional
currency of the Company is the USD and Renminbi (RMB). The financial statements are translated into USD from RMB at period-end exchange
rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical
exchange rates when the capital transactions occurred.
Exchange rates | |
March 31, 2021 | | |
December 31, 2021 | |
Year-end/period-end RMB : US$ exchange rate | |
| 6.5713 | | |
| 6.4515 | |
Average annual/period RMB : US$ exchange rate | |
| 6.4844 | | |
| 6.3757 | |
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 it customers which the Company identifies
the contract and determines the transactions price with customers, 2) the contract has set forth a fixed fee for the services to be rendered
which the Company has determined the transactions 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 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.
Cryptocurrency
When the cryptocurrency is sold in the exchange,
which time revenue is recognized. There is no significant financing component in these transactions.
Fair value of the cryptocurrency award received
is determined using the quoted price of the related cryptocurrency at the time of receipt.
There is currently no specific definitive guidance
under GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management has
exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by
the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial
position and results from operations.
Rental income
Rental income from letting the Company’s of investment properties
is recognised on a straight-line basis over the lease term.
Clubhouse services
Clubhouse income is recognised when services are rendered.
Cost of revenue
Cryptocurrency
The cost of revenue of cryptocurrency is the corresponding
amount of intangible assets.
Clubhouse services
The cost of revenue of clubhouse services is mainly
the labour costs and cost of food and beverage.
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 March 31, 2022:
| |
Quoted in Active Markets for Identical Assets (Level 1) | | |
Significant Other Observable Inputs (Level 3) | | |
Significant Unobservable Inputs (Level 3) | | |
Total | |
Financial assets: | |
| | |
| | |
| | |
| |
Cash | |
$ | 555,717 | | |
$ | - | | |
$ | - | | |
$ | 555,717 | |
Total financial assets | |
$ | 555,717 | | |
$ | - | | |
$ | - | | |
$ | 555,717 | |
As of December 31, 2021:
| |
Quoted in Active Markets for Identical Assets (Level 1) | | |
Significant Other Observable Inputs (Level 3) | | |
Significant Unobservable Inputs (Level 3) | | |
Total | |
Financial assets: | |
| | |
| | |
| | |
| |
Cash | |
$ | 2,877,456 | | |
$ | - | | |
$ | - | | |
$ | 2,877,456 | |
Total financial assets | |
$ | 2,877,456 | | |
$ | - | | |
$ | - | | |
$ | 2,877,456 | |
Results of Operations
Fiscal Quarters Ended March 31, 2022 and 2021
The following table shows the results of operations
for the three months ended March 31, 2022 and 2021:
| |
Three months ended March 31, | |
| |
2022 | | |
2021 | | |
Change | | |
Percent | |
Revenue | |
$ | 789,348 | | |
$ | - | | |
$ | 789,348 | | |
| 100.0 | % |
Cost of revenue | |
| 228,637 | | |
| - | | |
$ | 228,637 | | |
| 100.0 | % |
Gross profit | |
| 560,711 | | |
| - | | |
$ | 560,711 | | |
| 100.0 | % |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
General and administrative expenses | |
$ | 658,031 | | |
| 10,723 | | |
$ | 648,829 | | |
| 6050.8 | % |
Financial expenses | |
$ | 49,497 | | |
| 280 | | |
$ | 49,217 | | |
| 17577.5 | % |
Total operating expenses | |
$ | 707,528 | | |
| 11,003 | | |
$ | 696,525 | | |
| 6330.3 | % |
Income (loss) from operations | |
$ | (146,817 | ) | |
| (11,003 | ) | |
$ | (135,814 | ) | |
| 1248.2 | % |
| |
| | | |
| | | |
| | | |
| | |
Other income (expenses): | |
| | | |
| | | |
| | | |
| | |
Interest income | |
$ | 2,644 | | |
| - | | |
$ | 2,644 | | |
| 100.0 | % |
Interest expenses | |
$ | (18,096 | ) | |
| - | | |
$ | (18,096 | ) | |
| 100.0 | % |
Other income | |
$ | 22 | | |
| - | | |
$ | 22 | | |
| (100 | )% |
Total other income (expense), net | |
$ | (15,430 | ) | |
| - | | |
$ | (15,430 | ) | |
| 100.0 | % |
| |
| | | |
| | | |
| | | |
| | |
Income before income tax | |
| (162,247 | ) | |
| (11,003 | ) | |
| (151,244 | ) | |
| 1374.6 | % |
Income tax expense | |
$ | - | | |
| - | | |
$ | - | | |
| - | % |
Net income (loss) | |
$ | (162,247 | ) | |
$ | (11,003 | ) | |
$ | (151,244 | ) | |
| 1374.6 | % |
Revenue
| |
Three months ended March 31, 2022 | | |
Three months ended March 31, 2021 | |
Revenue | |
$ | 789,348 | | |
$ | - | |
Cost of revenue | |
| 228,637 | | |
| - | |
Gross profit | |
$ | 560,711 | | |
$ | - | |
There was no revenue for the
three months ended March 31, 2021, as the Company has ceased its active business operations since the year of 2019.
For the three months ended
March 31, 2022, our revenues were $522,848, representing revenue after the completion of acquisition of Center Florence at December 1,
2021, reflecting a stable revenue from rental of recreational facilities and industrial properties.
For the three months ended March 31, 2022, the
digital mining operation has generated revenue of $266,500 from the sales proceeds of Bitcoins.
Cost of revenue
For the three months ended
March 31, 2022, our cost of revenue was $67,848, representing cost of revenue after the completion of acquisition of Center Florence at
December 1, 2021, consisting of costs of food and beverage consumed by members and customers in the recreational facilities.
For the three months ended
March 31, 2022, the cost of digital mining operation revenue was $174,379.
Operating Expenses
The following table sets forth
the breakdown of our operating expenses for the years ended December 31, 2021 and 2020, respectively:
| |
For the three months ended March 31, | | |
Variance | |
| |
2021 | | |
% | | |
2020 | | |
% | | |
Amount | | |
% | |
General and administrative expenses | |
$ | 658,031 | | |
| 93.0 | % | |
$ | 10,723 | | |
| 99.9 | % | |
$ | 647,308 | | |
| 6036.6 | % |
Financial expenses | |
| 49,497 | | |
| 7.0 | % | |
| 280 | | |
| 0.1 | % | |
| 49,217 | | |
| 17577.5 | % |
Total Amount | |
$ | 707,528 | | |
| 100.0 | % | |
$ | 11,003 | | |
| 100 | % | |
$ | 696,525 | | |
| 6330.3 | % |
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 March 31, 2022 were $658,031 as compared to $10,723
for the comparable period ended March 31, 2021, which represented an increase of $647,308 or approximately 60 times. Such increase was
primarily attributed to increase of operating expenses of club house and rental business, consulting fee, audit fee, legal and professional
fees.
Financial expenses for the
three months ended March 31, 2022 were related to interests on related party loans and a convertible note from the related parties. The
increase of interests is contributed by draw down of an unsecured convertible note of $2,000,000, at an annual interest rate of 10%, on
December 12, 2021.
(Loss) Income from Operations and Operating
Margin
Loss from operations in the
three months ended March 31, 2022 was $162,247, compared with loss from operations of $11,003 in the three months ended March 31, 2021.
Operating margin, or income
from operations as a percentage of total revenue was negative 20% as for the three months ended March 31, 2022, compared with no revenue
for the three months ended March 31, 2021, due to the previously discussed changes.
Other income (expenses)
The following table sets forth
the breakdown of our other income for the three months ended March 31, 2022 and 2021:
| |
For the three months ended March 31, | | |
Variance | |
| |
2022 | | |
% | | |
2021 | | |
% | | |
Amount | | |
% | |
Interest income | |
$ | 2,644 | | |
| (17.1 | )% | |
$ | - | | |
| - | % | |
$ | 2,644 | | |
| 100.0 | % |
Interest expenses | |
| (18,096 | ) | |
| 117.3 | % | |
| - | | |
| - | % | |
| (18,096 | ) | |
| (100.0 | )% |
Other income | |
| 22 | | |
| (0.2 | )% | |
| - | | |
| - | % | |
| 22 | | |
| (100.0 | )% |
Total Amount | |
$ | (15,430 | ) | |
| 100.0 | % | |
$ | - | | |
| - | % | |
$ | (15,430 | ) | |
| 100.0 | % |
Interest income was $2,644
and $0 for the three months ended March 31, 2022 and 2021, respectively, showing an increase of 100.0%. This increase is mainly contributed
to interest income of $2,097 on convertible note acquired on November 16, 2021.
Interest expenses was $18,096
and $0 for the three months ended March 31, 2022 and 2021, respectively, showing an increase of 100.0%. This increase is mainly contributed
to interest expenses on short term and long term loans obtained by the Company for operation of club house and rental business.
Income tax (benefit) expense
Income tax expense was $0
and $0 for the three months ended March 31, 2022 and 2021, respectively.
Foreign Currency Translation Gain (Loss)
Foreign currency translation
gain was $0 and $0 in the three months ended March 31, 2022 and 2021, respectively.
Net (Loss) Income
Net loss for the three months
ended March 31, 2022 and 2021 were $162,247 and $11,003, respectively. The net loss is mainly due to increase of general and administrative
expenses.
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
The
following table represents a comparison of our working capital for the three months ended March 31, 2022 and 2021:
| |
As of March 31, 2022 | | |
As of December 31, 2021 | |
| |
(Unaudited) | | |
(Audited) | |
Current assets | |
$ | 946,522 | | |
$ | 3,049,477 | |
Current liabilities | |
$ | 2,612,792 | | |
$ | 2,672,979 | |
Working capital | |
$ | (1,666,270 | ) | |
$ | 376,498 | |