UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from ___________ to _____________
Commission File Number:
(Exact Name of Registrant as Specified in Its Charter)
(State of Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
(Address of Principal Executive Offices) | (ZIP Code) |
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Sections 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.
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 during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☐ | Smaller reporting company |
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
N/A | N/A | N/A |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding As of June 28, 2022 | |
Common stock, par value $0.001 |
TABLE OF CONTENTS
i
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain forward-looking statements. The statements herein which are not historical reflect our current expectations and projections about the Company’s future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and our interpretation of what we believe to be significant factors affecting our business, including many assumptions about future events. Such forward-looking statements include statements regarding, among other things:
● | our ability to produce, market and generate sales of our products and services; |
● | our ability to develop and/or introduce new products and services; |
● | our projected future sales, profitability and other financial metrics; |
● | our future financing plans; |
● | our anticipated needs for working capital; |
● | the anticipated trends in our industry; |
● | our ability to expand our sales and marketing capability; |
● | acquisitions of other companies or assets that we might undertake in the future; |
● | competition existing today or that will likely arise in the future; and |
● | other factors discussed elsewhere herein. |
Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “will,” “plan,” “could,” “target,” “contemplate,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these or similar words. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors, including the ability to raise sufficient capital to continue the Company’s operations. These statements may be found under Part I, Item 2-“Management’s Discussion And Analysis Of Financial Condition And Results Of Operations,” as well as elsewhere in this Quarterly Report on Form 10-Q generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, matters described in this Quarterly Report on Form 10-Q.
In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Quarterly Report on Form 10-Q will in fact occur.
Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. Such statements are presented only as a guide about future possibilities and do not represent assured events, and we anticipate that subsequent events and developments will cause our views to change. You should, therefore, not rely on these forward-looking statements as representing our views as of any date after the date of this Quarterly Report on Form 10-Q.
This Quarterly Report on Form 10-Q also contains estimates and other statistical data prepared by independent parties and by us relating to market size and growth and other data about our industry. These estimates and data involve a number of assumptions and limitations, and potential investors are cautioned not to give undue weight to these estimates and data. We have not independently verified the statistical and other industry data generated by independent parties and contained in this Quarterly Report on Form 10-Q. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk.
Potential investors should not make an investment decision based solely on our projections, estimates or expectations.
ii
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Contents
1
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 | $ | $ | ||||||
Accounts receivable, net of allowance | ||||||||
Inventory | ||||||||
Other receivable | ||||||||
Prepaid expenses | ||||||||
Deposit paid | ||||||||
Total Current Assets | ||||||||
Non-current assets | ||||||||
Property and equipment, net | ||||||||
Intangible assets, net | ||||||||
Long-term investment | ||||||||
Goodwill | ||||||||
Total Assets | $ | $ | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | $ | ||||||
Accrued expenses | ||||||||
Security deposits from customers | ||||||||
Short-term loans | ||||||||
Note payables | ||||||||
Other payables | ||||||||
Taxes payable | ||||||||
Due to related parties | ||||||||
Total Current Liabilities | ||||||||
Long term loans | ||||||||
Deferred tax liabilities | ||||||||
Total Liabilities | $ | $ | ||||||
Commitment and contingencies | ||||||||
Shareholders’ equity | ||||||||
Common Stock ($ | $ | $ | ||||||
Additional paid in capital | ||||||||
Accumulated deficits | ( | ) | ( | ) | ||||
Accumulated other comprehensive loss | ||||||||
Total Shareholders’ Equity | ||||||||
Total Liabilities and Shareholders’ Equity | $ | $ |
* | - 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
F-1
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 March 31, | Three March 31, | |||||||
(Unaudited) | (Unaudited) | |||||||
Revenue | $ | $ | ||||||
Cost of revenue | ||||||||
Gross profit | ||||||||
Operating expenses | ||||||||
General and administrative expenses | ||||||||
Financial expenses | ||||||||
Total Operating expenses | ||||||||
Loss from operations | ( | ) | ( | ) | ||||
Other income (expenses) | ||||||||
Interest income | ||||||||
Interest expense | ( | ) | ||||||
Other income | ||||||||
Total other (expenses) income, net | ( | ) | ||||||
Loss before income tax expenses | ( | ) | ( | ) | ||||
Income tax expenses | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Other comprehensive loss | ||||||||
Foreign currency translation (loss) gain | ||||||||
Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
Weighted average number of shares, basic and diluted | * | |||||||
Basic and diluted loss per share | $ | ( | ) | $ | ( | ) |
* |
See notes to condensed consolidated financial statements
F-2
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 | $ | ( |
) | $ | ( |
) | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | ||||||||
Interest income on convertible loan note | ( |
) | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivables | ( |
) | ||||||
Inventory | ||||||||
Prepaid expenses | ||||||||
Other receivable | ( |
) | ||||||
Deposit paid | ( |
) | ||||||
Accounts payable | ( |
) | ||||||
Accrued expenses | ( |
) | ||||||
Other payables | ||||||||
Tax payable | ||||||||
Net cash (used in)/provided by operating activities | $ | ( |
) | $ | ( |
) | ||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | ( |
) | ||||||
Investment on intangible assets | ( |
) | ||||||
Proceeds from disposal of property and equipment | ||||||||
Net cash (used in)/provided by investing activities | $ | ( |
) | $ | ||||
Cash flows from financing activities: | ||||||||
Proceeds from related party | ||||||||
Repayment of bank loan | ( |
) | ||||||
Proceeds from issuance of shares | ||||||||
Repayment of bank loan | ||||||||
Net cash provided by/ (used in) financing activities | $ | ( |
) | $ | ||||
Effect of exchange rate changes on cash | ||||||||
Net increase (decrease) in cash | $ | ( |
) | $ | ||||
Cash at beginning of year | ||||||||
Cash at end of year | $ | $ | ||||||
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
F-3
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 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
Net (loss) | - | ( | ) | ( | ) | |||||||||||||||||||
Acquisition of subsidiaries | - | ( | ) | |||||||||||||||||||||
Foreign currency translation loss | - | |||||||||||||||||||||||
Balance as of March 31, 2022 | $ | $ | $ | ( | ) | $ | $ |
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 | * | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||
Net (loss) | - | ( | ) | ( | ) | |||||||||||||||||||
Foreign currency translation loss | - | |||||||||||||||||||||||
Balance as of December 31, 2021 | * | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) |
* |
See notes to the condensed consolidated financial statements
F-4
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
F-5
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
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 $
F-6
On March 16, 2015, the GZRS was incorporated as
a wholly-owned subsidiary of SQEC. GZRS has an authorized capital of RMB
Pursuant to the Share Purchase Agreement the Company
issued a convertible note to EGOOS BVI’s sole shareholder for
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 $
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
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 (
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 (
F-7
On November 18, 2021,
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 $
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 $
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
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 | |||||||
% | $ | |||||||||
% | ||||||||||
% | ||||||||||
% | ||||||||||
% | ||||||||||
% | ||||||||||
% | ||||||||||
% | ||||||||||
% | ||||||||||
% |
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 | |||||||
% | $ | |||||||||
% | ||||||||||
% | ||||||||||
% | ||||||||||
% | ||||||||||
% |
F-8
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
Building and improvement | ||
Furniture and equipment | ||
Digital mining machine | ||
Office equipment | ||
Office furniture | ||
Motor vehicle |
F-9
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 $
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
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.
F-10
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.
F-11
For the periods ended
March 31, 2022 and 2021, $
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, | December 31, | ||||||
Year-end/period-end RMB : US$ exchange rate | ||||||||
Average annual/period RMB : US$ exchange rate |
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.
F-12
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. |
F-13
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 (Level 1) | Significant (Level 3) | Significant (Level 3) | Total | |||||||||||||
Financial assets: | ||||||||||||||||
Cash | $ | $ | $ | $ | ||||||||||||
Total financial assets | $ | $ | $ | $ |
As of December 31, 2021:
Quoted in Active (Level 1) | Significant (Level 3) | Significant (Level 3) | Total | |||||||||||||
Financial assets: | ||||||||||||||||
Cash | $ | $ | $ | $ | ||||||||||||
Total financial assets | $ | $ | $ | $ |
F-14
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.
F-15
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 (
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 | $ | |||
Net assets acquired, excluding cash and cash equivalents, related parties balances and property, plant and equipment, net | ( | ) | ||
Property, plant and equipment, net | ||||
Separable Intangible Assets - Customer-related intangible assets | ||||
Goodwill | ||||
Total purchase consideration | $ |
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 $
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.
F-16
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 | $ | |||
Net assets acquired, excluding cash and cash equivalents, related parties balances and property, plant and equipment, net | ( | ) | ||
Property, plant and equipment, net | ||||
Separable Intangible Liabilities – Lease commitment-related intangible liabilities | ( | ) | ||
Goodwill | ||||
Total purchase consideration | $ |
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
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 | $ | |||
Net assets acquired, excluding cash and cash equivalents, and related parties balances | ||||
Goodwill | ||||
Total purchase consideration | $ |
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.
F-17
NOTE 4. CASH AND CASH EQUIVALENTS
Cash consisted of the following:
As of March 31, | As of December 31, 2021 | |||||||
(Unaudited) | (Audited) | |||||||
Cash on hand | $ | $ | ||||||
Cash in banks | ||||||||
Total cash | $ | $ |
NOTE 5. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
As of March 31, | As of December 31, | |||||||
(Unaudited) | (Audited) | |||||||
Accounts receivable | $ | $ | ||||||
Less: allowance | - | |||||||
Less: impairment | - | |||||||
Accounts receivable, net | $ | $ |
NOTE 6. INVENTORY
Inventory consisted of the following:
As of March 31, | As of December 31, | |||||||
(Unaudited) | (Audited) | |||||||
Consumable store | $ | $ | ||||||
Less: allowance | ||||||||
Less: impairment | ||||||||
Total | $ | $ |
NOTE 7. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of the following:
As of March31, | As of December 31, | |||||||
(Unaudited) | (Audited) | |||||||
Land | $ | $ | ||||||
Building and improvement | ||||||||
Furniture and equipment | ||||||||
Digital mining equipment | ||||||||
Motor vehicle | ||||||||
Total property and equipment | ||||||||
Less: accumulated depreciation | ( | ) | ( | ) | ||||
Less: impairment | ||||||||
Property, plant and equipment, net | $ | $ |
Depreciation expense was $
F-18
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) | ||||||||||||||||
Digital assets - Bitcoin | ||||||||||||||||
Digital assets - USDT | ||||||||||||||||
Intangible assets subject to amortization: | ||||||||||||||||
--5-year life: | ||||||||||||||||
Customer-related intangible assets | ( | ) | ||||||||||||||
Total | ( | ) |
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) | ||||||||||||||||
Digital assets | ( | ) | ||||||||||||||
Intangible assets subject to amortization: | ||||||||||||||||
--5-year life: | ||||||||||||||||
Customer-related intangible assets | ( | ) | ||||||||||||||
Total | ( | ) | ( | ) |
Digital assets
As of March 31, | As of December 31, | |||||||
(Unaudited) | (Audited) | |||||||
Digital assets | ||||||||
Bitcoin - Digital mining costs | $ | $ | ||||||
USDT | ||||||||
Less: accumulated amortization | ||||||||
Less: impairment | ( | ) | ||||||
$ | $ |
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
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.
F-19
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 $
Customer-related intangible assets
As of March 31, | As of December 31, | |||||||
(Unaudited) | (Audited) | |||||||
Separable Intangible Assets | ||||||||
Customer-related intangible assets | $ | $ | ||||||
Less: accumulated amortization | ( | ) | ( | ) | ||||
Less: impairment | ||||||||
$ | $ |
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 $
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 | $ | $ | ||||||
Addition (Note 3) | ||||||||
Less: accumulated impairment loss | ||||||||
Less: disposal and write off | ||||||||
$ | $ |
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 $
F-20
NOTE 10. LONG TERM INVESTMENT
The long term investment was valued at cost and consisted of the following:
As of March 31, | As of December 31, | |||||||
(Unaudited) | (Audited) | |||||||
Equity securities without readily determinable fair values | ||||||||
Archax Holdings Ltd. | $ | $ | ||||||
Montis Digital Limited | ||||||||
Available-for-sale investments | ||||||||
Archax Holdings Ltd.- Principal of Convertible note loan | ||||||||
Archax Holdings Ltd.- Interest on Convertible note loan | ||||||||
Total cost of long term investment | ||||||||
Less: impairment | ||||||||
$ | $ |
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 $
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
Interest on Note was $
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.
F-21
NOTE 11. SHORT-TERM LOANS
Principal of short-term loans consisted of the following:
As of March 31, | As of December 31, | |||||||
(Unaudited) | (Audited) | |||||||
$ | $ | |||||||
Total | $ | $ |
NOTE 12. LONG-TERM LOAN
Principal of long-term loans consisted of the following:
As of March 31, | As of December 31, | |||||||
(Unaudited) | (Audited) | |||||||
$ | $ | |||||||
Total | $ | $ |
NOTE 13. NOTE PAYABLES
Note payables consisted of the following:
As of March 31, | As of December 31, | |||||||
(Unaudited) | (Audited) | |||||||
PX Global Advisors, LLC | ||||||||
Principal | $ | $ | ||||||
Interest | ||||||||
Total | $ | $ |
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 $
Interest expense was $
NOTE 14. RELATED PARTY TRANSACTIONS
a) | Long term investment |
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 $
F-22
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
$
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, | As of December 31, | |||||||
(Unaudited) | (Audited) | |||||||
PX SPAC Capital Inc. | ||||||||
Principal | $ | $ | ||||||
Interest | ||||||||
Total | $ | $ |
The amount was provided as working capital to
financial the Company’s operations. The amount is unsecured,
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 $
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 $
F-23
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
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
MPCM, GZYZ, SQEC and GZRS has no net operating loss, or NOL carryforward, as they have no operation for the period.
a) | Corporate Income Taxes |
The components of the income tax expense are as follows:
Three months ended March 31, 2022 | Three months | |||||||
(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 $
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 | $ | $ |
F-24
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) | $ | $ | ||||||
NOL (NY) | ||||||||
NOL (SC) | ||||||||
Net Non-Current Deferred Tax Assets before Valuation Allowance | ||||||||
Less: Valuation Allowance | ( |
) | ( |
) | ||||
Non-Current Deferred Tax Assets, Net: | ||||||||
Total Deferred Assets, Net: | $ | $ |
c) | Taxes Payable |
Taxes payable consisted of the following:
As
of | As of December 31, 2021 | |||||||
(Unaudited) | (Audited) | |||||||
Corporate income tax payable | $ | $ | ||||||
Franchise tax payable | ||||||||
Other surtaxes payable | ||||||||
Total | $ | $ |
F-25
NOTE 16. STOCKHOLDERS’ EQUITY
Common stock
As of March 31, 2022 and December 31, 2021, the
Company has
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
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 | $ | ( | ) | $ | ( | ) | ||
Denominator: | ||||||||
Weighted average number of common stock outstanding - basic and diluted | * | |||||||
Loss per share – Basic and diluted: | $ | ( | ) | $ | ( | ) |
NOTE 18. CONCENTRATION OF RISK
a) | Major Customer |
The Company had certain customers who represented
b) | Major Vendors and Accounts Payable |
The Company had certain vendors who represented
c) | Credit Risk |
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 $
F-26
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
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.
F-27
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 $
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 ($
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
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
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.
F-28
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 |
2
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.
3
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.
4
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.
5
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.
6
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.
7
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 (Level 1) | Significant (Level 3) | Significant (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 (Level 1) | Significant (Level 3) | Significant (Level 3) | Total | |||||||||||||
Financial assets: | ||||||||||||||||
Cash | $ | 2,877,456 | $ | - | $ | - | $ | 2,877,456 | ||||||||
Total financial assets | $ | 2,877,456 | $ | - | $ | - | $ | 2,877,456 |
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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, | Three months ended March 31, | |||||||
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 | % |
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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.
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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 |
Cash Flows
The following table represents a comparison of our cash flows for the three months ended March 31, 2022 and 2021:
Three months ended March 31, | ||||||||
2022 | 2021 | |||||||
(Unaudited) | (Unaudited) | |||||||
Cash flows used in operating activities | $ | (321,224 | ) | $ | (17,431 | ) | ||
Cash flows used in investing activities | $ | (1,984,906 | ) | $ | - | |||
Cash flows (used in)/from financing activities | $ | (15,609 | ) | $ | 20,431 |
Cash flows used in operating activities
Since the change of management in February 25, 2021, the Company has resumed its operation and incurred cash flows used in operating activities. The Company incurred cash flows used in operating activities in the amounts of $321,224 and $17,431 for the three months ended March 31, 2022 and 2021, respectively.
Cash flows from investing activities
For the three months ended March 31, 2022, the Company has some investing activities, including mining equipment of $1,918,350 and investment on intangible assets, which is digital mining costs, of $66,556.
Cash flows from financing activities
For the three months ended March 31, 2022, the Company’s cash flows used in financing activities was $15,609, being repayment of bank loan, comparing with $20,431 cash flows from financing activities for the three months ended March 31, 2021, which represented the advance from a related party for operating fund.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for a smaller reporting company.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
As of March 31, 2022, our Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”), conducted an evaluation of our disclosure controls and procedures. Based on this evaluation, the Certifying Officers have concluded that our disclosure controls and procedures were, due to certain factors, not effective to ensure that material information is recorded, processed, summarized and reported by our management on a timely basis in order to comply with our disclosure obligations under the Exchange Act and the rules and regulations promulgated thereunder.
Management’s Report on Internal Control over Financial Reporting
Our management is also responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Our internal control over financial reporting includes those policies and procedures that:
● | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and |
● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
As of March 31, 2022, we carried out an assessment of the effectiveness of our internal control over financial reporting based on the framework in in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on our evaluation, our management concluded that our internal control over financial reporting was not effective as of March 31, 2022. Management has specifically observed that our accounting systems and current staffing resources in our finance department are currently insufficient to support the complexity of our financial reporting requirements. We currently do not have adequate staff members in our accounting and finance department who have experience or specialized training in preparing financial statements in the form and format required by the SEC. We have also experienced difficulty in applying complex accounting and financial reporting disclosure rules as required under various aspects of GAAP and SEC reporting regulations including those relating to accounting for business combinations, intangible assets, derivatives and income taxes.
We have instituted certain procedures to mitigate our internal control risks. Our Chief Executive Officer and Chief Financial Officer review and approve substantially all of our major transactions to ensure the completeness and fair presentation of our consolidated financial statements. We have, when needed, hired outside experts to assist us with implementing complex accounting principles. Management and the Board of Directors believe that the Company must allocate additional human and financial resources to address these matters.
Changes in Internal Control over Financial Reporting.
During the three months ended March 31, 2022, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 4B. OTHER INFORMATION
None.
ITEM 4C. DISCLOSURES REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION
Not applicable.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business. We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
ITEM 1A. RISK FACTORS
Smaller reporting companies are not required to provide the information required by this item.
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS.
On January 13, 2022, the Company entered into the Engagement Agreement with the Joseph Stone Capital, LLC (the “FA”) , pursuant to which for the services provided and to be provided by the FA, on January 28, 2022 the Company issued 1,000,000 shares of the Company’s common stock (the “Upfront Shares”) as upfront fees. The Company also issued 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.
On March 25, 2022, the Company entered into a private placement subscription agreement (the “Subscription Agreement”), pursuant to which the Company issued 156,250 unregistered shares of its common stock, par value $0.001, to Yingbin Guo (the “Investor”), at a purchase price of $3.20 per share.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURE.
Not applicable.
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ITEM 5. OTHER INFORMATION.
Our auditor, Centurion ZD CPA & Co., is required to undergo regular inspections by the PCAOB as an auditor of companies that are publicly traded in the United States and a firm registered with the PCAOB. However, because our auditor is based in Hong Kong, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval, our auditor and its audit work are not currently being inspected independently and fully by the PCAOB.
Inspections of other auditors conducted by the PCAOB outside Hong Kong have at times identified deficiencies in those auditors’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The lack of PCAOB inspections of audit work prevents the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections and may lose confidence in our reported financial information and procedures and the quality of our financial statements.
The Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted on December 18, 2020. In accordance with the HFCA Act, trading in securities of any registrant on a national securities exchange or in the over-the-counter trading market in the United States may be prohibited if the PCAOB determines that it cannot inspect or fully investigate the registrant’s auditor for three consecutive years beginning in 2021, and, as a result, an exchange may determine to delist the securities of such registrant. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (the “AHFCA Act”), which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time period before our securities may be prohibited from trading or delisted if our auditor is unable to meet the PCAOB inspection requirement.
On December 2, 2021, SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act. The rules apply to registrants the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate (the “Commission-Identified Issuers”). A Commission-Identified Issuer will be required to comply with the submission and disclosure requirements in the annual report for each year in which it was identified. If a registrant is identified as a Commission-Identified Issuer based on its annual report for the fiscal year ended December 31, 2021, the registrant will be required to comply with the submission or disclosure requirements in its annual report filing covering the fiscal year ended December 31, 2022.
On December 16, 2021, the PCAOB issued its determinations (the “Determination”) that they are unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong. The Determination includes lists of public accounting firms headquartered in mainland China and Hong Kong that the PCAOB is unable to inspect or investigate completely. Our auditor, Centurion ZD CPA & Co. is headquartered in Hong Kong and is included in the PCAOB Determinations.
In June 2022, the Company was provisionally listed under the HFCA Act for retaining Centurion ZD CPA & Co. for its 2021 year end audit. As of the date of this quarterly report, the Company is currently on the Conclusive List of Issuers Identified under the HFCA Act.
On February 4, 2022, the U.S. House of Representatives passed the America Creating Opportunities for Manufacturing Pre-Eminence in Technology and Economic Strength (COMPETES) Act of 2022 (the “America COMPETES Act”). If the America COMPETES Act is enacted into law, it would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three.
As a result, we will be required to comply with the submission or disclosure requirements in our annual report filing covering the fiscal year ended December 31, 2022 and our securities may be prohibited from trading on OTCQB or another U.S. stock exchange if our auditor is not inspected by the PCAOB for three consecutive years as specified in the HFCA Act, or two-year if AHFCA Act or America COMPETES Act is enacted into law, and this ultimately could result in our shares of common stock being removed from quotation on the OTCQB. The market price of our shares could be materially adversely affected as a result of anticipated negative impacts of these actions upon, as well as negative investor sentiment towards, companies whose auditors are not inspected fully by the PCAOB, regardless of our actual operating performance.
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ITEM 6. EXHIBITS
The following exhibits are filed herewith:
Exhibit | ||
Number | Description of Exhibit | |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 | |
32.1* | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2* | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | The certifications attached as Exhibits 32.1 and 32.2 accompany this quarterly report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
15
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.
WAVE SYNC CORP. | ||
July 6, 2022 | By: | /s/ Jiang Hui |
Jiang Hui | ||
Chief Executive Officer |
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