UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended March 31, 2021

 

or

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________ to _________

 

Commission File Number 333-228681

 

Ezagoo Limited

(Exact name of registrant issuer as specified in its charter)

 

Nevada   30-1077936

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

YIJIAREN BUSINESS HOTEL NO. 168, TONG ZI PO XI LU, YUELU DISTRICT CHANGSHA,

HUNAN 410205, CHINA

(Address of principal executive offices, including zip code)

 

Registrant’s phone number, including area code (+86) 139 751 09168

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock   EZAGOO   OTC Markets

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

YES [X] NO [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding twelve months (or shorter period that the registrant was required to submit and post such files).

 

YES [X] NO [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” or an “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer [  ] Accelerated Filer [  ] Non-accelerated Filer [  ] Smaller reporting company [X]

 

Emerging Growth Company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of May 23, 2021.

 

Class   Outstanding at May 23, 2021
Common Stock, $.0001 par value   119,956,826

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
PART I FINANCIAL INFORMATION F-1
     
ITEM 1. FINANCIAL STATEMENTS: F-1
  Condensed Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020 F-1
  Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2021 and 2020 (unaudited) F-2
  Condensed Consolidated Statement of Changes in Stockholders’ Deficit for the Three Months Ended March 31, 2021 and 2020 (unaudited) F-3
  Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (unaudited) F-4
  Notes to the Condensed Consolidated Financial Statements F-5 – F-14
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2-4
ITEM 3. QUANTITATIVE AND QUALITATIVED IS CLOSURES ABOUT MARKET RISK 4
ITEM 4. CONTROLS AND PROCEDURES 4
     
PART II OTHER INFORMATION 4
     
ITEM 1 LEGAL PROCEEDINGS 4
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 4
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 4
ITEM 4 MINE SAFETY DISCLOSURES 4
ITEM 5 OTHER INFORMATION 4
ITEM 6 EXHIBITS 5
  SIGNATURES 6

 

1

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial statements

 

EZAGOO LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2021 AND DECEMBER 31, 2020

(Currency expressed in United States Dollars (“US$”), except for number of shares)

 

    As of  
    March 31, 2021     December 31, 2020  
    (Unaudited)     (Audited)  
ASSETS            
CURRENT ASSETS                
Cash and cash equivalents   $ 533,332     $ 824,733  
Amount due from related party     886,801       689,427  
Deposits paid, prepayments and other receivables     25,197       19,240  
Total current assets     1,445,330       1,533,400  
                 
NON-CURRENT ASSETS                
Plant and equipment, net     19,522       22,130  
Operating lease right-of-use assets     465,102       -  
                 
TOTAL ASSETS   $ 1,929,954     $ 1,555,530  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
CURRENT LIABILITIES                
Accounts payable   $ 11,895     $ 18,534  
Accrued expenses, other payable and deposits received     493,307       522,718  
Amount due to the related parties     1,113,809       967,372  
Amount due to a director     35,036       35,107  
Deferred revenue     1,298,997       1,585,905  
Operating lease liabilities, current portion     123,500       -  
Total current liabilities     3,076,544       3,129,636  
                 
NON-CURRENT LIABILITIES                
Operating lease liabilities, non-current portion     345,401       -  
                 
TOTAL LIABILITIES   $ 3,421,945     $ 3,129,636  
                 
STOCKHOLDERS’ DEFICIT                
Preferred stock, $0.0001 par value, 200,000,000 shares authorized, None issued and outstanding     -       -  
Common stock, $0.0001 par value, 600,000,000 shares authorized, 119,956,826 and 119,956,826 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively     11,996       11,996  
Additional paid-in capital     1,304,064       1,308,646  
Accumulated other comprehensive income     (59,071 )     (61,928 )
Accumulated deficit     (2,748,980 )     (2,832,820 )
TOTAL STOCKHOLDERS’ DEFICIT     (1,491,991 )     (1,574,106 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT   $ 1,929,954     $ 1,555,530  

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

F- 1

 

 

EZAGOO LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(unaudited)

 

   

Three months Ended

March 31

 
    2021     2020  
             
REVENUES   $ 452,254     $ 5,318  
COST OF REVENUES (including $161,806 & $0 of related party costs for the three months ended March 31, 2021 & 2020, respectively)     (179,343 )     (33,577 )
GROSS PROFIT (LOSS)     272,911       (28,259 )
                 
OPERATING EXPENSES     (198,701 )     (165,497 )
                 
PROFIT (LOSS) FROM OPERATIONS    

74,210

      (193,756 )
                 
Other income (expense):                
Other income     5,155       -  
Interest income (expense)     4,475       (16,636 )
Total other income (expense)     9,630       (16,636 )
                 
Net profit (loss) from operations     83,840       (210,392 )
Income tax expense     -       -  
Net profit (loss)   $ 83,840     $ (210,392 )
                 
Other comprehensive income:                
- Foreign currency translation adjustment    

2,857

      -  
COMPREHENSIVE LOSS   $

86,697

    $ (210,392 )
Net loss per share- Basic and diluted   $ 0.00     $ (0.00 )
Weighted Average Number of shares outstanding     119,956,826       119,956,826  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

F- 2

 

 

EZAGOO LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(unaudited)

 

For the three months ended March 31, 2021

 

    COMMON STOCK     ADDITIONAL          

ACCUMULATED

OTHER

       
    Number of shares     Amount     PAID-IN CAPITAL     ACCUMULATED DEFICIT     COMPREHENSIVE GAIN     TOTAL EQUITY  
Balance as of January 1, 2021 (audited)     119,956,826       11,996       1,308,646       (2,832,820 )     (61,928 )     (1,574,106 )
Imputed interest income     -       -       (4,582 )                     (4,582 )
Net profit     -       -       -       83,840       -       83,840  
Other comprehensive gain     -       -       -               2,857       2,857  
Balance as of March 31, 2021 (unaudited)     119,956,826       11,996       1,304,064       (2,748,980 )     (59,071 )     (1,491,991 )

 

For the three months ended March 31, 2020

 

    COMMON STOCK     ADDITIONAL          

ACCUMULATED

OTHER

       
    Number of
shares
    Amount     PAID-IN
CAPITAL
    ACCUMULATED
DEFICIT
    COMPREHENSIVE
GAIN
    TOTAL
EQUITY
 
Balance as of January 1, 2020 (audited)     119,956,826       11,996       1,308,646       (2,148,979 )     56,500     $ (771,837 )
Net loss     -       -       -       (210,392 )     -       (210,392 )
Other comprehensive gain     -       -       -               24,546       24,546  
Balance as of March 31, 2020 (unaudited)     119,956,826       11,996       1,308,646       (2,359,371 )     81,046       (957,683 )

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

F- 3

 

 

EZAGOO LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

    Three Months Ended
March 31,
 
    2021     2020  
CASH FLOWS FROM OPERATING ACTIVITIES:                
                 
Net profit (loss)   $ 83,840     $ (210,392 )
Adjustments to reconcile net loss to net cash used in operating activities                
Depreciation     2,608       2,412  
Changes in operating assets and liabilities:                
Prepayments, deposits and other receivables     (5,957 )     19,847  
Amount due from a related parties     (197,374 )     38,539  
Accounts payable     (6,639 )     16,232  
Accrued liabilities and other payable     52,858       33,315  
Receipts in advance     (82,269 )     -  
Deferred income     1,298,997       -  
Operating lease ROU assets     (465,102 )     (13,246 )

Operating lease liabilities

    449,608       14,778  
Income tax payable     -       (5,639 )
Net cash provided by (used in) operating activities     1,130,570       (104,154 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Imputed interests    

(4,582

)     -  
Repayment to related parties     (486,764 )     (386,616 )
Repayment to a director     (933,482 )     (5,318 )
Net cash used in financing activities     (1,424,828 )     (391,934 )
                 
Effect of exchange rate changes on cash and cash equivalents     2,857       (4,158 )
                 
Net change in cash and cash equivalents     (291,401 )     (500,246 )
Cash and cash equivalents, beginning of period     824,733       1,106,420  
CASH AND CASH EQUIVALENTS, END OF PERIOD   $ 533,332     $ 606,174  
                 
SUPPLEMENTAL CASH FLOWS INFORMATION                
Cash paid for income taxes   $ -     $ -  
Cash paid for interest paid   $ -     $ -  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

F- 4

 

 

EZAGOO LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

NOTE 1 – BASIS OF PREPARATION

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“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, the consolidated balance sheet as of March 31, 2021 which has been derived from unaudited financial statements and these unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2021 or for any future period.

 

These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

 

NOTE 2 - ORGANIZATION AND BUSINESS BACKGROUND

 

Ezagoo Limited, a Nevada corporation (“the Company”) was incorporated under the laws of the State of Nevada on May 9, 2018.

 

On May 9, 2018 Tan Xiaohao was appointed as President, Secretary, Treasurer, and Director of the Company.

 

On May 9, 2018, our President, Tan Xiaohao, purchased 90,050,500 shares of restricted common stock at a purchase price of $0.0001 (par value) per share. The proceeds from the sale, which were in the amount of $9,005 have gone directly to the Company for initial working capital.

 

On June 30, 2018 Zhang Qianwen and Greenpro Asia Strategic SPC- Greenpro Asia Strategic Fund SP purchased 3,591,000 and 1,358,500 shares of restricted common stock respectively at a purchase price of $0.0001 (par value) per share. The proceeds from the sale, which were in the amount of $495, have gone directly to the Company for initial working capital.

 

On June 6, 2018 Ezagoo Holding Limited, a Seychelles Company, acquired Ezagoo Limited, A Hong Kong Company, in consideration of $0.13.

 

Ezagoo Limited, a Nevada Company, acquired Ezagoo Holding Limited, a Seychelles Company, on June 25, 2018 in consideration of $1. Ezagoo Holding Limited is now a wholly owned subsidiary of the Company.

 

On July 20, 2018, Ezagoo Limited, a Hong Kong Company, incorporated a new subsidiary in Changsha, China, called Changsha Ezagoo Technology Limited, whereas it is owned entirely (100%) by Ezagoo Limited, the Hong Kong Company. There was no consideration exchanged per the transaction.

 

The three companies above are under common control Mr. Tan Xiaohao, the director of the Company, so they are related parties.

 

F- 5

 

 

EZAGOO LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

On July 20, 2018, Changsha Ezagoo Technology Limited, the Hong Kong Company, also referred to herein as “CETL”, entered into and consummated an agreement with Beijing Ezagoo Shopping Holding Limited, also referred to herein as “BESH”, and Ruiyin (Shenzhen) Financial Leasing Limited, also referred to herein as “RFLL”, whereas CETL has the option to purchase all of the equity interests of Beijing Ezagoo Zhicheng Internet Technology Limited, a Chinese, “PRC” Company, from RFLL and BESH. These equity interests would make up 100% of the equity interests of Beijing Ezagoo Zhicheng Internet Technology Limited. Beijing Ezagoo Zhicheng Internet Technology Limited is considered to be a variable interest entity, also referred to herein as a “VIE”, to Changsha Ezagoo Technology Limited, and therefore a VIE of the issuer, Ezagoo Limited, a Nevada Company. More information regarding this agreement can be found in exhibit 10.1, titled, “Call Option Agreement”.

 

On July 20, 2018, CETL entered into and consummated an agreement with BESH and RFLL whereas BESH and RFLL have given CETL the right to appoint management of CETL to act as proxy to existing shareholders of Beijing Ezagoo Zhicheng Internet Technology Limited. This gives management of CETL the ability to conduct and control company affairs of Beijing Ezagoo Zhicheng Internet Technology Limited. Actions which management of CETL may be able to carry out include, but are not limited to, exercising voting rights as proxy of the existing shareholder(s), appointing new directors, hiring new management, and carrying out corporate actions. More information regarding this agreement can be found in exhibit 10.2, titled, “Shareholder’ Voting Rights Proxy Agreement.”

 

On July 20, 2018 CETL entered into and consummated an agreement with BESH and RFLL whereas BESH and RFLL have engaged CETL to provide management, financial, and other business services to Beijing Ezagoo Zhicheng Internet Technology Limited. CETL is to be compensated with 100% of all profits generated by Beijing Ezagoo Zhicheng Internet Technology Limited. This Agreement is effective as of July 20, 2018 and will continue in effect for a period of ten (10) years (the “Initial Term”), and for succeeding periods of the same duration (each, “Subsequent Term”), until terminated by one of the following means either during the Initial Term or thereafter: Mutual Consent, Termination by CETL, Breach or Insolvency. Beijing Ezagoo Zhicheng Internet Technology Limited is considered to be a variable interest entity to Changsha Ezagoo Technology Limited, and therefore a VIE of the issuer, Ezagoo Limited, a Nevada Company. More information regarding this agreement can be found in exhibit 10.3, titled, “Management Services Agreement.”

 

On July 20, 2018, CETL entered into and consummated an agreement with BESH and RFLL whereas BESH and RFLL have pledged their equity interests in Beijing Ezagoo Zhicheng Internet Technology Limited, to CETL. More information regarding this agreement can be found in exhibit 10.4, titled, “Equity Pledge Agreement.”

 

On July 20, 2018, CETL entered into a loan agreement with BESH and RFLL wherein CETL will loan the amount of approximately CNY$100,000 (Chinese Yuan) to BESH and RFLL, all of which shall be used for the benefit of Beijing Ezagoo Zhicheng Internet Technology Limited. The total amount of the loan is due on, or before, December 31, 2018. More information regarding this agreement can be found in exhibit 10.5, titled, “Loan Agreement.”

 

On March 3, 2021, incorporated a branch company of Beijing Ezagoo Industrial Development Group Holding Limited, named Changsha Branch of Beijing Ezagoo Industrial Development Group Holding Limited, to carry out the business in Changsha Hunan, China.

 

Beijing Ezagoo Zhicheng Internet Technology Limited and the Changsha Branch of Beijing Ezagoo Industrial Development Group Holding Limited are the company through which we operate, and which shares our business plan to provide video advertising on buses.

 

On July 31, 2018 Xin Yang was appointed Chief Financial Officer of the Company.

 

NOTE 3 - GOING CONCERN UNCERTAINTIES

 

The accompanying financial statements have been prepared using the going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

 

As of March 31, 2021, the Company suffered an accumulated deficit of $2,748,980 and continuously incurred a net operating profit of $83,840 for the three months ended March 31, 2021. The continuation of the Company as a going concern through December 31, 2020 is dependent upon improving the profitability and the continuing financial support from its stockholders. Management believes the existing shareholders or external financing will provide the additional cash to meet the Company’s obligations as they become due. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

The Company expects to finance its operations primarily through cash flow from revenue and continuing financial support from a shareholder. In the event that we require additional funding to finance the growth of the Company’s current and expected future operations as well as to achieve our strategic objectives, the shareholder has indicated the intent and ability to provide additional financing.

 

No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its stock holders, in the case of equity financing.

 

These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result in the Company not being able to continue as a going concern.

 

F- 6

 

 

EZAGOO LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited condensed consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying consolidated financial statements and notes.

 

Basis of presentation

 

The accompanying condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).

 

Basis of consolidation

 

The condensed consolidated financial statements include the accounts of Ezagoo Limited and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.

 

Use of estimates

 

In preparing these condensed consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the periods reported. Actual results may differ from these estimates.

 

Cash and cash equivalents

 

The company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.

 

Plant and equipment

 

Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational:

 

Categories   Estimated useful life   Residual value
Office equipment   3 years   -

 

Expenditures for maintenance and repairs are expensed as incurred.

 

Accounts receivable

 

Accounts receivable are recorded at the invoiced amount and do not bear interest. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s financial condition, credit history, and the current economic conditions to make adjustments in the allowance when it is considered necessary. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

 

F- 7

 

 

EZAGOO LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

Revenue recognition

 

Effective January 1, 2018, the Company adopted the guidance of Accounting Standards Codification (ASC) 606, Revenue from Contracts. The implementation of ASC 606 did not have a material impact on the Company’s consolidated financial statements. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients.

 

The Company’s revenue mainly from providing advertising services (“service revenue”).

 

Cost of revenue

 

Cost of revenue includes bus media terminal rental fees, bus monitors maintenance fees, bus screen installation fees advertising production cost and internet data fees.

 

Income taxes

 

The provision of income taxes is determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC Topic 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

ASC Topic 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC Topic 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

 

The Company did not have any unrecognized tax positions or benefits and there was no effect on the financial conditions or results of operations for the three months ended March 31, 2021. The Company conducts major businesses in Hong Kong and is subject to tax in this jurisdiction. As a result of its business activities, the Company will file tax returns that are subject to examination by the foreign tax authority.

 

Imputed Interest

 

The Company owned director and related parties some loans which are unsecured, interest-free with no fixed payment term, for working capital purpose. Imputed interest is considered insignificant.

 

Net loss per share

 

The Company calculates net loss per share in accordance with ASC Topic 260 “Earnings per share”. Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive.

 

Foreign currencies translation

 

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of operations and comprehensive income.

 

The reporting currency of the Company is United States Dollars (“US$”) and the accompanying financial statements have been expressed in US$. In addition, the Company’s subsidiary in People’s Republic of China maintains its books and record in its local currency, Chinese Yuan (“CNY”), which is functional currency as being the primary currency of the economic environment in which the entity operates.

 

In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other comprehensive income within the statements of stockholders’ equity.

 

Translation of amounts from CNY into US$1 has been made at the following exchange rates for the respective periods:

 

    As of and for the
three months ended
March 31,
 
    2021     2020  
Period-end CNY: US$1 exchange rate     6.55       7.08  
Period-average CNY: US$1 exchange rate     6.48       6.98  
Period-end HK$: US$1 exchange rate     7.75       7.75  
Period-average HK$: US$1 exchange rate     7.77       7.77  

 

F- 8

 

 

EZAGOO LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

Related parties

 

Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

 

Fair value of financial instruments

 

The carrying value of the Company’s financial instruments: cash and cash equivalents, accounts receivable, deposits and other receivables, accounts payable, other payables and accrued liabilities approximate at their fair values because of the short-term nature of these financial instruments.

 

The Company follows the guidance of the ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC Topic 820-10”), with respect to financial assets and liabilities that are measured at fair value. ASC Topic 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

 

  Level 1 : Observable inputs such as quoted prices in active markets;
   
  Level 2 : Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
   
  Level 3 : Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions

 

Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

 

Lease

 

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases, which was subsequently amended in 2018 by ASU 2018-10, ASU 2018-11 and ASU 2018-20 (collectively, Topic 842). Topic 842 will require the recognition of a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, for all leases with terms longer than 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. Topic 842 is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. Upon adoption, leases will be recognized and measured at the beginning of the earliest period presented using a modified retrospective approach. Topic 842 allows for a cumulative-effect adjustment in the period the new lease standard is adopted and will not require restatement of prior periods.

 

Prior to January 1, 2019, the Company accounted for leases under ASC 840, Accounting for Leases. Effective January 1, 2019, the Company adopted the guidance of ASC 842, Leases, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases. The Company adopted ASC 842 using a modified retrospective approach. As a result, the comparative financial information has not been updated and the required disclosures prior to the date of adoption have not been updated and continue to be reported under the accounting standards in effect for those periods. After the adoption, $465,102 of operating lease right-of-use assets and $468,901 of lease liabilities for operating leases, and $3,799 of adjustment to accumulated deficit were reflected to March 31, 2021   financial statements. See Note 14 for further information regarding the impact of the adoption of ASC 842 on the Company’s financial statements.

 

Recent accounting pronouncements

 

In January 2017, the FASB issued ASU 2017-04, “Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which simplifies how an entity is required to test goodwill for impairment by eliminating step two from the goodwill impairment test. Step two of the goodwill impairment test measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with its carrying amount. The new guidance is effective prospectively for us for the year ending March 31, 2021 and interim reporting periods during the year ending March 31, 2021. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are evaluating the effects, if any, of the adoption of this guidance on our financial position, results of operations and cash flows.

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement. The new guidance modifies disclosure requirements related to fair value measurement. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Implementation on a prospective or retrospective basis varies by specific disclosure requirement. Early adoption is permitted. The standard also allows for early adoption of any removed or modified disclosures upon issuance of this ASU while delaying adoption of the additional disclosures until their effective date.

 

F- 9

 

 

EZAGOO LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

NOTE 5 - PROPERTY AND EQUIPMENT

 

    As of  
    March 31, 2021     December 31, 2020  
    (unaudited)     (audited)  
Office equipment   $ 42,332     $ 42,332  
Accumulated depreciation     (22,810 )     (20,202 )
Property and equipment, net   $ 19,522     $ 22,130  

 

Depreciation expense, classified as operating expenses, was $2,608 and $2,412 for the three months ended March 31, 2021 and 2020, respectively.

 

Accumulated depreciation for the three months ended March 31, 2021 and for year ended December 31, 2020 were $22,810 and $20,202, respectively.

 

NOTE 6 - AMOUNT DUE FROM RELATED PARTY

 

As of March 31, 2021, and December 31,2020, our amount due from related party are $886,801 and $689,427, respectively. It was expected to be settled by the related parties in the second quarter of year 2021.

 

NOTE 7 - PREPAID EXPENSES AND OTHER RECEIVABLES

 

Prepaid expenses and other receivables consisted of the following at March 31, 2021 and December 31, 2020:

 

    As of  
    March 31, 2021     December 31, 2020  
    (unaudited)     (audited)  
Prepaid expenses   $ 25,197     $ 19,240  
                 
Total prepaid expenses and other receivables   $ 25,197     $ 19,240  

 

As of March 31, 2021, the balance $25,197 represented an outstanding prepaid expenses and other receivables which included social security fee, bus monitors maintenance fee, management fee and employee receivables.

 

As of December 31, 2020, the balance $19,240 represented an outstanding prepaid expense and other receivables which included social security fee, bus monitors maintenance fee, management fee and employee receivables.

 

NOTE 8 - ACCOUNT PAYABLES

 

Accounts payable consists of the following:

 

    As of  
    March 31, 2021     December 31, 2020  
    (unaudited)     (audited)  
Account payables   $ 11,895     $ 18,534  
                 
Total   $ 11,895     $ 18,534  

 

The account payables balance of $11,895 includes $13,735 payables to a vendor for bus screen terminal platform fee. It was expected to be paid in the second quarter in 2021.

 

NOTE 9 – ACCRUED EXPENSES, OTHER PAYABLE AND DEPOSITS RECEIVED

 

Other payable consisted of the following:

 

    As of  
    March 31, 2021     December 31, 2020  
    (unaudited)     (audited)  
Accrued expenses   $ 7,176     $ 28,676  
Other payable     210,306       157,448  
Deposits received from customers     275,825       336,594  
                 
Total   $ 493,307     $ 522,718  

 

Accrued expenses include the audit fee & other accrued expenses. Other payable include the PRC tax payable, social insurance fee and housing fund, bus screen repair fee, accrued property management fee and employee payable. Deposits received from customers are advertisement service fee paid in advance by customers.

 

F- 10

 

 

EZAGOO LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

NOTE 10 - DEFERRED REVENUE

 

As of March 31, 2021 and December 31, 2020, our deferred revenue are $1,298,997 and $1,585,905, respectively. These deferred revenue were expected to be recognized as revenue during the year 2021 and the first quarter of year 2022.

 

NOTE 11 - DUE TO RELATED PARTIES

 

    As of  
    March 31, 2021     December 31, 2020  
    (unaudited)     (audited)  
Amount due to related party B   $ 227,238     $ 228,079  
Amount due to related party C     24,599       24,690  
Amount due to related party D     16,708       16,849  
Amount due to related party E     130,531       131,013  
Amount due to related party G     278,107       279,137  
Amount due to related party H     7,893       7,922  
Amount due to related party I     3,504       1,559  
Amount due to related party J     209,264       222,099  
Amount due to related party K     41,204       41,356  
Amount due to related party L     14,668       14,668  

Amount due to related party M

    160,093       -  
                 
Total   $ 1,113,809     $ 967,372  

 

Related party B is Hunan Ezagoo Shopping Co. Ltd., Mr. Xiaohao Tan owns 2.4% of this company, and is the Legal Company Representative of this company. For the three months ended March 31, 2021 and the years ended December 31, 2020, related party B advanced $227,238 and $228,079 to the company as working capital and to pay administrative expenses, which is unsecured, interest-free with no fixed payment term, for working capital purpose.

 

Related party C is Ms. Weihong Wan, Assistant and Secretary of Mr. Xiaohao Tan. Ms. Weihong Wan is a shareholder and Legal Company Representative of Ruiyin (Shenzhen) Financial Leasing Limited, which is a shareholder of Beijing Ezagoo Zhicheng Internet Technology Limited. For the three months ended March 31, 2021 and the years ended December 31, 2020, related party C advanced $24,599 and $24,690 to the company as working capital and to pay administrative expenses, which is unsecured, interest-free with no fixed payment term, for working capital purpose.

 

Related party D is Ms. Qianwen Zhang, spouse of Mr. Xiaohao Tan, a director of the Company. Ms. Qianwen Zhang is the Legal Company Representative of Hunan Ezagoo Internet Technology Limited. For the three months ended March 31, 2021 and the years ended December 31, 2020, related party D advanced $16,708 and $16,849 to the company as working capital, which is unsecured, interest-free with no fixed payment term, for working capital purpose.

 

Related party E is Changsha Kexibeier E-commerce Limited, 98% of its equity is owned by Mr. Xiaohao Tan, a director of the Company. For the three months ended March 31, 2021 and the years ended December 31, 2020, related party E advanced $130,531 and $131,013 to the company as working capital, which is unsecured, interest-free with no fixed payment term, for working capital purpose.

 

Related party F is Hunan Homestead Asset Management Co. Ltd., a shareholder of Beijing Ezagoo Shopping Holding Limited, which is a shareholder of Hunan Ezagoo Internet Technology Limited. For the three months ended March 31, 2021 and the years ended December 31, 2020, related party F advanced $886,801 and $689,427 from the company as working capital and to pay administrative expenses, which is unsecured, interest-free with no fixed payment term, for working capital purpose. And it’s expected be settle by them in the second quarter of year 2021.

 

Related party G is Kuaile Motors Camping Site Investment Development Limited. One of the shareholders of Beijing Ezagoo Zhicheng Internet Technology Limited, Beijing Ezagoo Shopping Holding Limited owns 92% of Hunan Kuaile Motors Camping Site Investment Development Limited. Ms. Qianwen Zhang, spouse of Mr. Xiaohao Tan owns 8% of Hunan Kuaile Motors Camping Site Investment Development Limited and is the Legal Company Representative of this company. For the three months ended March 31, 2021 and the years ended December 31, 2020, related party G advanced $278,107 and $279,137 to the company as working capital and to pay administrative expenses, which is unsecured, interest-free with no fixed payment term, for working capital purpose.

 

Related party H is Hunan Yijiaren Hotel Limited. One of the shareholders of Beijing Ezagoo Zhicheng Internet Technology Limited, Beijing Ezagoo Shopping Holding Limited owns 90% of Hunan Yijiaren Hotel Limited, and Ms. Qianwen Zhang, spouse of Mr. Xiaohao Tan owns 10% of this company. For the three months ended March 31, 2021 and the years ended December 31, 2020, related party H advanced $7,893 and $7,922 to the company as working capital, which is unsecured, interest-free with no fixed payment term, for working capital purpose.

 

F- 11

 

 

EZAGOO LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

Related party I is Hunan Bright Lionrock Mountain Resort Limited. Beijing Ezagoo Industrial Development Group Holding Limited, formerly named Beijing Ezagoo Shopping Holding Limited, which is a shareholder of Beijing Ezagoo Zhicheng Internet Technology Limited, owns 80% of Hunan Bright Lionrock Mountain Resort Limited. Mr. Xiao Hao Tan is the Legal Company Representative of this company. For the three months ended March 31, 2021 and the years ended December 31, 2020 related party I advanced $3,504 and $1,559 to the company as working capital and to pay administrative expenses, which is unsecured, interest-free with no fixed payment term, for working capital purpose.

 

Related party J is Beijing Ezagoo Industrial Development Group Holding Limited, formerly named Beijing Ezagoo Shopping Holding Limited. It is a shareholder of Beijing Ezagoo Zhicheng Internet Technology Limited. For the three months ended March 31, 2021 and the years ended December 31, 2020 related party J advanced $209,264 and $222,099 to the company as working capital and to pay administrative expenses, which is unsecured, interest-free with no fixed payment term, for working capital purpose.

 

Related party K is Ruiyin (Shenzhen) Financial Leasing Limited, which is a shareholder of Beijing Ezagoo Zhicheng Internet Technology Limited. Weihong Wan, Assistant and Secretary of Xiaohao Tan, is a shareholder and Legal Company Representative of related party K. For the three months ended March 31, 2021 and the years ended December 31, 2020 related party K advanced $41,204 and $41,356 to the company as working capital and to pay administrative expenses, which is unsecured, interest-free with no fixed payment term, for working capital purpose.

 

Related party L is Ezagoo B&R (HongKong) Industry Development Group Limited, which is a shareholder of Beijing Ezagoo Zhicheng Internet Technology Limited, owns 100% of Ezagoo B&R(HongKong) Industry Development Group Limited. Mr. Xiao Hao Tan is the Legal Company Representative of this company. For the three months ended March 31, 2021 and the years ended December 31, 2020 related party L advanced $14,668 and $14,668 to the company as working capital and to pay administrative expenses, which is unsecured, interest-free with no fixed payment term, for working capital purpose.

 

Related party M is Hunan Ezagoo Film Co., Limited, which 85% of its equity is owned by Mr. Xiao Hao Tan, he is the director of the Company. For the three months ended March 31, 2021 and the years ended December 31, 2020, the Company has $160,093 and $0 advertising production cost payable to related party M, which is unsecured, interest-free with no fixed payment term.

 

During the period ended March 31, 2021, related parties imputed interest income of $4,475, and related party cost of revenue of 161,806.

 

NOTE 12 - DUE TO DIRECTOR

 

For the three months ended March 31, 2021 and the years ended December 31, 2020, a director of the Company advanced $35,036 and $35,107 to the Company, which is unsecured, interest-free with no fixed payment term, for working capital purpose.

 

NOTE 13 - CONCENTRATIONS OF RISK

 

(a) Major customers

 

For the three months ended March 31, 2021, there are the customers that is more than 10% showing below of the Company’s revenues and the accounts receivable balances at period-end are presented as follows:

 

    For the three months ended
March 31, 2021
    As of
March 31, 2021
 
    Revenues     Percentage of
revenues
    Accounts
receivable
 
Customer J   $ 47,312       10 %   $         -  
                         
Total:   $ 47,312       10 %   $ -  

 

F- 12

 

 

EZAGOO LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

(b) Major vendors

 

For the three months ended March 31, 2021, the vendors who accounted for more than 10% of the Company’s cost of revenues and its accounts payable balance at period-end are presented as follows:

 

    For the three months ended
March 31, 2021
    As of
March 31, 2021
 
    Purchases     Percentage of
Purchases
    Accounts
payable
 
Vendor H   $ 161,806       90 %   $ 160,096  
                         
Total:   $ 161,806       90 %   $ 160,096  

 

(c) Credit risk

 

Financial instruments that are potentially subject to credit risk consist principally of accounts receivable. The Company believes the concentration of credit risk in its accounts receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

 

NOTE - 14 OPERATING LEASE

 

The Company has two operating lease agreement for the office space, one is in Beijing China with lease term of 2 years 8 months and 17 days, one is in Changsha, Hunan China that paid month by month rent as of March 31, 2021 after the lease ends. A lease with an initial term of 12 months or less are not recorded on the balance sheet. The Company accounts for the lease and non-lease components of its leases as a single lease component. Lease expense is recognized on a straight-line basis over the lease term

 

Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives.

 

This standard did not have a significant impact on our liquidity or on our compliance with our financial covenants associated with our loans.

 

F- 13

 

 

EZAGOO LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

The components of lease expense and supplemental cash flow information related to leases for the period are as follows:

 

(a) Rent expenses

 

For three months ended March 31, 2021, the Company has incurred rent expenses solely for the office premises on a monthly basis as follows:

 

    Three months Ended
March 31, 2021
 
Lease Cost        
Operating lease cost (included in general and administration in the Company’s unaudited condensed statement of operations)   $ 14,675  
         
Other Information        
Cash paid for amounts included in the measurement of lease liabilities for the first quarter 2021   $ 14,728  
Weighted average remaining lease term – operating leases (in years)     2.58  
Average discount rate – operating leases     4.35 %
The supplemental balance sheet information related to leases for the period is as follows:        
Operating leases        
Right-of-use assets   $ 465,102  
Total operating lease assets   $ 468,901  
         
Short-term operating lease liabilities   $ 123,500  
Long-term operating lease liabilities   $ 345,401  
Total operating lease liabilities   $ 468,901  

 

Maturities of the Company’s lease liabilities are as follows:

 

Period ending March 31,   Operating Lease  
2021 (remaining 9 months)     136,446  
2022     190,759  
2023     167,974  
Total lease payments     495,179  
Less: Imputed interest/present value discount     (26,278 )
Present value of lease liabilities     468,901  

 

For three months ended March 31, 2020, the Company has incurred rent expenses solely for the office premises on a monthly basis as follows:

 

    Three months Ended
March 31, 2020
 
Lease Cost        
Operating lease cost (included in general and administration in the Company’s unaudited condensed statement of operations)   $ 13,791  
         
Other Information        
Cash paid for amounts included in the measurement of lease liabilities for the first quarter 2020   $ 15,106  
Weighted average remaining lease term – operating leases (in years)     0.67  
Average discount rate – operating leases     4.35 %
The supplemental balance sheet information related to leases for the period is as follows:        
Operating leases        
Right-of-use assets   $ 35,605  
Total operating lease assets   $ 35,605  
         
Short-term operating lease liabilities   $ 39,633  
Long-term operating lease liabilities   $ -  
Total operating lease liabilities   $ 39,633  

 

Maturities of the Company’s lease liabilities are as follows:

 

Period ending March 31,   Operating Lease  
2020 (remaining 9 months)     40,283  
2021     -  
Total lease payments     40,283  
Less: Imputed interest/present value discount     (650 )
Present value of lease liabilities     39,633  

 

Lease expenses were $0 and $13,791 during the three months ended March 31, 2021 and 2020, respectively.

 

NOTE 15 – ADDITIONAL PAID-IN CAPITAL – CAPITAL CONTRIBUTION

 

As of March 31, 2021, the Company has a total additional paid-in capital - capital contribution balance of $1,304,064. It includes $725,690 capital contribution from related party J.

 

As of December 31, 2020, the Company has a total additional paid-in capital - capital contribution balance of $1,308,646. It includes $725,690 capital contribution from related party J.

 

Related party J is Beijing Ezagoo Industrial Development Group Holding Limited, formerly named Beijing Ezagoo Shopping Holding Limited. It is a shareholder of Beijing Ezagoo Zhicheng Internet Technology Limited.

 

F- 14

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The information contained in this quarter report on Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2021 and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this Form 10-Q.

 

The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the factors described in our Form S-1 Amendment No.5, dated May 3, 2019 in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this transition report on Form10-Q. The following should also be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto that appear elsewhere in this report.

 

Company Overview

 

Advertising Industry

 

At present, Ezagoo Limited aims to solely provide services to consumers in China, although the Company may evaluate this focus in the future and may consider expanding into other countries. Given the demand for our services will be limited to China, at least initially, we will focus primarily on the Digital Advertising Industry as it pertains to China.

 

Advertising Industry Worldwide and In China

 

Since 2011, the global advertising market has grown steadily, with the growth rate remaining between 4% and 5%. It is expected that the advertising market will maintain this growth rate until 2018. Spending on advertising worldwide has been increasing steadily and is expected to reach almost 557.99 billion U.S. dollars in 2018, up from 534.8 billion in 2017, which amounts to an annual growth rate of 4.3 percent. In terms of digital advertising, spending is expected to grow from 229.25 billion U.S. dollars in 2017 to around 335.5 billion by 2020.

 

In China, the advertising industry has experienced tremendous growth and profitability. Currently, China is the second largest advertising market in the world. In terms of e-commerce advertisement, China has ranked first in search advertising. In 2012, China’s digital advertising market was about 77.31 billion Chinese Yuan and by 2016 it had nearly quadrupled in size. From 2015 to 2021, the digital video adverting revenue in China is expected to grow from 3.37 billion to 11.03 billion U.S. dollars.

 

Results of Operation

 

For the Three months ended March 31, 2021

 

For the three ended March 31, 2021, we realized revenue in amount of $452,254, while for the three months ended March 31, 2020, we realized revenues in the amount of $5,318. Our gross profit for the three months ended March 31, 2021 were $272,911, which is gross losses of $28,259 for the three months ended March 31, 2020. The increase in revenue & profit is the Company’s business development is on track, and the cost-effective services have price advantage in market that can attract more customers.

 

Result of operation for the three months ended March 31, 2021, we realized cost of revenue in amount of $179,343, while for the three months ended March 31, 2020, we realized cost of revenues in the amount of $33,577. The advertising production costs increased when the revenue was increased, since the customers’ materials were not fit for the standards for displaying the bus advertising & APP advertising, so the Company need to edit and produce the advertisements.

 

The overall gross profit (or loss) for the Company was $272,911 and negative $28,259 for the three months ended March 31, 2021 and 2020, respectively. Gross profit (or loss) as a percentage of total revenues was 60% and negative 5313% for the same period ended March 31, 2021 and 2020, respectively. During year 2021, the Company entered into more agreements with more customers than during year 2020.

 

Our net profit for the three months ended March 31, 2021 were $83,840, while net loss for the three months ended March 31, 2020 were $210,392. We attribute this increase due to the increasing in revenue.

 

Liquidity and Capital Resources

 

As of March 31, 2021, we had cash and cash equivalents of $533,332. We have negative operating cash flows and our working capital has been and will continue to be significant. As a result, we depend substantially on our previous financing activities to provide us with the liquidity and capital resources we need to meet our working capital requirements and to make capital investments in connection with ongoing operations. The Company expects its current capital resources to meet our basic operating requirements for approximately twelve months.

 

2

 

 

Operating Activities

 

For the three months ended March 31, 2021, net cash provided by operating activities was $1,130,570, compared to net cash used in operating activities of $104,154 for the three months ended March 31, 2020. The increase in cash provided by operating activities was mainly for deferred revenue.

 

Investing Activities

 

For the three months ended March 31, 2021, net cash used in investing activities was $0, compared to net cash used in investing activities of $0 for the three months ended March 31, 2020.

 

Financing Activities

 

For the three months periods ended March 31, 2021 net cash used in financing activities was $1,424,828 resulted from repayment to director and related parties. For the three months periods ended March 31, 2020, net cash used in finance activities was $391,934.

 

Credit Facilities

 

We do not have any credit facilities or other access to bank credit.

 

Contractual Obligations, Commitments and Contingencies

 

We currently have a lease agreement in place with respect to office premises in Beijing China to commence our business operations.

 

Off-balance Sheet Arrangements

 

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders as of March 31, 2021.

 

Recent accounting pronouncements

 

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

 

Additional Information

 

VIE STRUCTURE AND ARRANGEMENTS

 

Foreign ownership in companies providing media advertising services is subject to certain restrictions under PRC laws and regulations. To comply with the PRC laws and regulations, we, through our wholly-owned subsidiary, Changsha Ezagoo Technology Limited (CETL), entered into a set of contractual arrangements with Beijing Ezagoo Zhicheng Internet Technology Limited (BEZL) and its shareholders. The contractual arrangements between CETL, HEZL and shareholders of HEZL allow us to:

 

1. exercise effective control over BEZL whereby having the power to direct BEZL’s activities that most significantly drive the economic results of BEZL
   
2. receive substantially all of the economic benefits and residual returns, and absorb substantially all the risks and expected losses from BEZL as if it was their sole shareholder; and
   
3. have an exclusive option to purchase all of the equity interests in BEZL.

 

Our consolidated financial statements include the financial statements of our company, our subsidiaries and our consolidated VIE for which we are the primary beneficiary. All transactions and balances among our company, our subsidiaries and our consolidated VIE have been eliminated upon consolidation.

 

A subsidiary is an entity in which we, directly or indirectly, control more than one half of the voting powers; or has the power to appoint or remove the majority of the members of the board of directors; or to cast a majority of votes at the meeting of directors; or has the power to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.

 

A consolidated VIE is an entity in which we, or our subsidiaries, through contractual agreements, bears the risks of, and enjoys the rewards normally associated with ownership of the entity. In determining whether we or our subsidiaries are the primary beneficiary, we considered whether it has the power to direct activities that are significant to the consolidated VIE’s economic performance, and also our obligation to absorb losses of the consolidated VIE that could potentially be significant to the consolidated VIE or the right to receive benefits from the consolidated VIE that could potentially be significant to the consolidated VIE. We hold all the variable interests of the consolidated VIE and its subsidiaries, and has been determined to be the primary beneficiary of the consolidated VIE.

 

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In accordance with the contractual agreements among between CETL, BEZL and shareholders of BEZL allow us to:

 

1. exercise effective control over BEZL whereby having the power to direct BEZL’s activities that most significantly drive the economic results of BEZL;
   
2. receive substantially all of the economic benefits and residual returns, and absorb substantially all the risks and expected losses from BEZL as if it was their sole shareholder;
   
3. and have an exclusive option to purchase all of the equity interests in BEZL.

 

We believe that the contractual arrangements among CETL, BEZL and the shareholders of BEZL are in compliance with PRC law and are legally enforceable. However, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements and if the shareholders of our consolidated VIE were to reduce their interest in us, their interests may diverge from ours and that may potentially increase the risk that they would seek to act contrary to the contractual terms.

 

Our ability to control the consolidated VIE also depends on the voting rights proxy agreement and our company, through CETL, has to vote on all matters requiring shareholder approval in the consolidated VIE. As noted above, we believe this voting rights proxy agreement is legally enforceable but may not be as effective as direct equity ownership.

 

On July 31, 2018 Xin Yang was appointed as Chief Financial Officer of the Company.

 

The Company’s mailing address is Yijiaren Business Hotel No. 168, Tong Zi Po Xi Lu, Yuelu District Changsha, Hunan 410205, China.

 

Item 3 Quantitative and Qualitative Disclosures About Market Risk.

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

 

Item 4 Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures:

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2016. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2021, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of March 31, 2021, our disclosure controls and procedures were not effective: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

 

Changes in Internal Control over Financial Reporting:

 

There were no changes in our internal control over financial reporting during the quarter ending March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We know of no materials, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any beneficial shareholder are an adverse party or has a material interest adverse to us.

 

Item 1A. Risk Factors.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

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ITEM 6. Exhibits

 

Exhibit No.   Description
31.1   Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer*
31.2   Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer*
32.1   Section 1350 Certification of principal executive officer *
32.2   Section 1350 Certification of principal executive officer *
101.INS   XBRL Instance Document*
101.SCH   XBRL Schema Document*
101.CAL   XBRL Calculation Linkbase Document*
101.DEF   XBRL Definition Linkbase Document*
101.LAB   XBRL Label Linkbase Document*
101.PRE   XBRL Presentation Linkbase Document*

 

* Filed herewith.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  EZAGOO LIMITED
  (Name of Registrant)
   
Date: May 24, 2021    
     
  By: /s/ Tan Xiaohao
  Title: President, Secretary, Treasurer, Director

 

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