PART
I
Item
1. Business
History
of the Company
Wave
Sync Corp. (the “Company”), formerly known as China Bio-Energy Corp., formerly known as China INSOnline Corp., was
initially incorporated on December 23, 1988 as Lifequest Medical, Inc. (“DEXT”) as a Delaware corporation. On December
6, 2010, the Company entered into an Amendment (the “Amendment”) to a certain share exchange agreement dated November
12, 2010 with Ding Neng Holdings, a British Virgin Islands company (“Ding Neng Holdings”). This share exchange agreement
and the Amendment provides for an acquisition transaction in which the Company, through the issuance of 25,875,000 shares of its
common stock, par value $0.001, representing 90% of the issued and outstanding common stock immediately following the closing
of this acquisition, acquired 100% of Ding Neng Holdings.
The
closing of this acquisition took place on February 10, 2011, on which date, pursuant to the terms of the share exchange
agreement as amended, the Company acquired all of the outstanding equity securities of Ding Neng Holdings from the
shareholders of Ding Neng Holdings; and the shareholders of Ding Neng Holdings transferred and contributed all of their
issued and outstanding shares of Ding Neng Holdings to the Company. Accordingly, on the closing of the acquisition,
the Company, via Ding Neng Holdings, held 100% of Ding Neng Bio-technology Co., Limited, a Hong Kong Company, which held 100%
of Zhangzhou Fuhua Biomass Energy Technology Co., Ltd., a wholly-foreign owned enterprise in China
(“Fuhua Biomass”), which, via a series of variable interest entity (or VIE) arrangements, controlled the
operating company Fujian Zhangzhou Ding Neng Bio-technology Co., Ltd. (“Ding Neng Bio-tech”). In connection of
this share exchange, the Company changed its fiscal year end from June 30 to December 31.
In
or about early October 2011, Mr. Nie Xinfeng, the Company’s former chairman of the Board of Directors (the “Board”),
took possession of, among other things, the company seal, financial seal, and original books and records of Ding Neng Bio-tech.
Since then, the Company was prevented from obtaining and did not have access to the financial information of Ding Neng Bio-tech.
The
Company and the previous management believed that from late 2011 to 2014, due to change in law, unfavorable market
conditions, and lack of effective management, the business of Ding Neng Bio-tech deteriorated significantly and eventually
the Company defaulted on various loan obligations. The Company also believes that Ding Neng Bio-tech guaranteed some of Mr.
Nie’s personal debts. From 2011 to 2014, multiple legal proceedings were brought against Ding Neng Bio-tech
by creditors, service vendors and former employees of the Company and against Mr. Nie by his creditors. As a
result, substantially all of Ding Neng Bio-tech’s assets were seized or disposed of by Ding Neng Bio-tech’s or
Mr. Nie’s creditors. Eventually, Ding Neng Bio-tech completely ceased its operations.
On
June 4, 2015, Fuhua Biomass filed a civil action in Haicang District People’s Court of Xiamen, Fujian, PRC (the
“Court”) against Ding Neng Bio-tech, alleging that the purposes of those certain Consulting Service Agreement,
Operating Agreement, Pledge and Security Agreement, Option Agreement, and Voting Rights Proxy Agreement (the “VIE
Agreements”) entered into by Fuhua Biomass and Ding Neng Bio-tech on October 28, 2010 had been frustrated, and that
these VIE Agreements should be terminated. Fuhua Biomass alleged that Ding Neng Bio-tech did not make any payment of service
fees to Fuhua Biomass, and that Ding Neng Bio-tech failed to perfect the security interest in the pledged stock. On July 14,
2015, this case was settled via in-court mediation directed by the Court. As a result, Fuhua Biomass and Ding Neng Bio-tech
entered into binding settlement (i) to terminate the VIE Agreements, (ii) to acknowledge that Fuhua Biomass and Ding Neng
Bio-tech did not have any other disputes over this case, and (iii) that the litigation fee in the amount of
RMB10,000 (approximately $1,610.5) would be borne by Ding Neng Bio-tech.
Given
that the Company was unable to exercise effective control over Ding Neng Bio-tech or gain access to Ding Neng Bio-tech’s
financial information since 2011, and that the VIE Agreements were terminated, the Company deconsolidated Ding Neng Bio-tech’s
financial results.
During
a review of the Company’s financial statements by its auditor, the auditor examined the share register and all the debts
provided to or by the Company, and instruments of transfer provided by the Secretary of the Company. There was no evidence that
ownership of Ding Neng Holdings was ever registered to be transferred and held by the Company. The Company also discovered that
Ding Neng Holdings was delinquent and defunct. Accordingly, it was unable to determine whether the Company was registered as the
sole shareholder of Ding Neng Holdings pursuant to the share exchange agreement dated November 12, 2010, as amended on December
6, 2010. As a result, the Company excluded the accounts of Ding Neng Holdings and its subsidiaries in the Company’s consolidated
financial statements and accompanying notes as contained herein. The Company has written off all investments made in Ding Neng
Holdings as loss on investment in subsidiary.
Share
Purchase Agreement with EGOOS Mobile Technology Co. Ltd.
On
October 19, 2015, the Registrant entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with EGOOS
Mobile Technology Company Limited, a British Virgin Islands holding company (“EGOOS BVI”), which owns 100% of EGOOS
Mobile Technology Company Limited, a Hong Kong company (“EGOOS HK”), which owns 100% of Move the Purchase Consulting
Management (Shenzhen) Co., Ltd. (“WOFE” or “Yigou”), a foreign investment enterprise organized under the
laws of the PRC, and which has, through various contractual agreements, management control and the rights to the profits of Guangzhou
Yuzhi Information Technology Co., Ltd., a corporation organized under the laws of the PRC as a variable interest entity(“Guangzhou
Yuzhi”), which owns 100% of Shenzhen Qianhai Exce-card Technology Co., Ltd., a Chinese corporation (“Shenzhen Exce-card”),
which owns 100% of Guangzhou Rongsheng Information Technology Co., Ltd., a Chinese corporation (“Guangzhou Rongsheng”,
together with Guangzhou Yuzhi and Shenzhen Exce-card, is collectively referred to herein as “Guangzhou Yuzhi and its Subsidiaries”),
and the sole shareholder of EGOOS BVI. Guangzhou Yuzhi and its Subsidiaries engage in research, development, marketing and distribution
of inlays/audio chips for audio bank card products.
The
Share Purchase Agreement provided for an acquisition transaction (the “Acquisition”) in which the Registrant, through
the issuance of a convertible note in the principal sum of Fifteen Million U.S. Dollars ($15,000,000) to EGOOS BVI’s sole
shareholder, acquired 100% of EGOOS BVI.
The
closing of the Acquisition (the “Closing”) took place on October 19, 2015 (the “Closing Date”). On the
Closing Date, pursuant to the terms of the Share Purchase Agreement, the Registrant acquired all of the outstanding equity securities
of EGOOS BVI from the sole shareholder of EGOOS BVI; and the shareholder of EGOOS BVI transferred and contributed all of his issued
and outstanding shares of EGOOS BVI to the Registrant. In exchange, the Registrant issued to the sole shareholder of EGOOS BVI
a convertible note, which was subsequently converted into an aggregate of 15,000,000 post-Reverse Split (as defined below) Common
Shares of the Registrant. There is no material relationship between the sole shareholder of EGOOS BVI and/or EGOOS BVI, on one
hand, and the Company and its affiliates or associates, on the other hand. Upon conversion of the note (the “Conversion”),
the then existing shareholders of the Registrant collectively own an aggregate of 24.7% of the post-Acquisition entity.
On
August 5, 2015, Yigou entered into an Exclusive Service Agreement which entitled Yigou to receive substantially all of the economic
benefits of Guangzhou Yuzhi and its Subsidiaries in consideration of services provided by Yigou to Guangzhou Yuzhi and its Subsidiaries.
In addition, Yigou entered into certain agreements with each of Wenbin Yang, Ping Li, (collectively, the “Guangzhou Yuzhi
shareholders”), as well as Guangzhou Yuzhi and its Subsidiaries, including (i) a Call Option Agreement allowing Yigou to
acquire the shares of Guangzhou Yuzhi as permitted by PRC laws, (ii) a Voting Rights Proxy Agreement that provided Yigou with
the voting rights of the Guangzhou Yuzhi shareholders and those of Guangzhou Yuzhi, and (iii) an Equity Pledge Agreement that
pledged the shares in Guangzhou Yuzhi and its Subsidiaries to Yigou. This VIE structure provides Yigou, a wholly-owned subsidiary
of EGOOS HK, with control over the operations and benefits of Guangzhou Yuzhi and its Subsidiaries without having a direct equity
ownership in Guangzhou Yuzhi and its Subsidiaries (EGOOS BVI, EGOOS HK, Guangzhou Yuzhi, Shenzhen Exce-card, Guangzhou Rongsheng
and Yigou are collectively referred to herein as the “Group”).
EGOOS
BVI’s organizational structure was crafted to abide by the laws of the PRC and maintain tax benefits as well as internal
organizational efficiencies. EGOOS BVI’s post–Acquisition organization structure is summarized below:
Reverse
Stock Split
On
October 13, 2015, the Company’s Board of Directors and stockholders collectively holding approximately 70.5% of the Company’s
outstanding common stock executed a joint written consent approving a reverse stock split at a ratio of one-for-twenty (the “Reverse
Split”). A Certificate of Amendment to our Certificate of Incorporation effecting the Reverse Split was filed with the Secretary
of State of Delaware on December 1, 2015.
Business
Overview
EGOOS
BVI, a British Virgin Islands business company, acts as a holding company and indirectly controls Guangzhou Yuzhi (a variable
interest entity in China) and its Subsidiaries. EGOOS BVI’s sole source of income and operations is through its indirect,
contractual control of Guangzhou Yuzhi and its Subsidiaries.
Based
in the city of Guangzhou, Guangdong Province, China, Guangzhou Yuzhi and Guangzhou Rongsheng are principally engaged in software
and information technology services and share full-time employees with Shenzhen Exce-card.
Shenzhen
Exce-card is based in the city of Guangzhou, Guangdong Province, China, with a business development department in New York, NY.
Additionally, Shenzhen Exce-card has entered into a partnership agreement with UINT France located in Saint Aubin, France (“UINT”),
amended and supplemented by an amendment dated March 27, 2015 (as amended and supplemented, the “Partnership Agreement”),
pursuant to which UINT was engaged by Shenzhen Exce-card to conduct product research and development (“R&D”) and
other related services in connection with new audio signals, testing and producing new inlays for audio bank card and assisting
the card manufacturers with lamination test, new generation of audio card, and assisting the card manufacturers with certification
of the new audio card products. This Partnership Agreement was terminated in 2018 due to lack of sales of the audio cards.
In
February 2015, Shenzhen Exce-card developed an electronic inlay utilizing innovative audio technology and embedded in a
specialized IC card product, namely, “audio bank card.” We were granted the patent pertaining
to such audio bank cards inlay, which will expire in 2023. The audio bank cards meet innovative product standards set forth
by UnionPay, the only domestic bank card organization in China as well as the only interbank network in mainland China.
UnionPay has authorized its logo to be displayed on the audio bank cards. However, it should be noted that we have no
contractual agreement or arrangement with UnionPay with respect to audio bank cards.
We
intended to supply and sell electronic inlays embedded with audio chips and other modules to card manufacturers, such as Hengbao
Co., Ltd. (“Hengbao”) and Wuhan Tianyu Information Industry Co., Ltd. (“Tianyu”). However, we stopped
the negotiations with Hengbao and Tianyu in 2018. During the fiscal year ended December 31, 2018, we generated revenue in the
amount of approximately $85,573 from providing technology consulting services.
Our
Business Plan
We
encountered challenges to expand the sales of our audio bank cards. Mobile phone payments through smart phone apps, such as Wechat
and Venmo, have become one of the most popular methods to make payments. As of the date of this annual report, we ceased our efforts
to market and sell our audio bank cards.
We
sought to develop relationships with major card issuers in China since 2014 until 2018. We promoted two pilot programs with China
Construction Bank (“CCB”), one of China’s four major banks; however, we could not continue the pilot programs
due to lack of positive market reaction.
On
August 22, 2016, we announced that Guangdong Qilong Internet Technology Co., Ltd. (“Qilong”), a high technology company
based in Guangzhou, China, and one of the Company’s subsidiaries, Shenzhen Exce-card, entered into a strategic agreement
to jointly develop the next generation of audio bank cards within the China Union Pay network. Qilong and the Company agreed to
stop pursuing the strategic agreement referenced above.
On
February 15, 2017, we, through Shenzhen Exce-card, entered into a card supply agreement (the “SD Card Supply Agreement”)
with SmartDisplayer Technology, Co. Ltd. (“SmartDisplayer”), a company incorporated under the law of Taiwan, Republic
of China, pursuant to which SmartDisplayer agreed to supply audio bank cards in compliance with Shenzhen Exce-card’s specifications
and the ISO 7810 standard and in amounts requested by Shenzhen Exce-card from time to time for a term of two years commencing
from the execution date of the SD Card Supply Agreement. We never put any purchase order from SmartDisplayer due to lack of demand
for our audio cards.
Our
Customers
During
the fiscal year of 2018, we provided technology consulting services to our customer(s). We are in the process of shifting our
business focus to find additional sources of revenue.
Change
of Management and Directors of the Company
During
the fiscal year of 2018, the Company went through reorganization of its management to better align the management team with the
best interest and requirements of the shareholders. As disclosed in various current reports on Form 8-Ks filed during the twelve
months ended December 31, 2018 and the period as of the date of this annual report, the changes of the management team include
the following:
On
August 22, 2018, Mr. Yang Liu resigned as the CEO of the Company and a member of the Board, effective on August 30, 2018. Mr.
Liu resigned from the CEO position for personal reasons and not as a result of any disputes or disagreements between Mr. Liu and
the Company on any matter relating to the Company’s operations, policies or practices.
On
August 23, 2018, Mr. Ming Yi resigned as the CFO of the Company and a member of the Board, effective on August 30, 2018. Mr. Yi
resigned from the CFO position for personal reasons and not as a result of any disputes or disagreements between Mr. Yi and the
Company on any matter relating to the Company’s operations, policies, accounting policies or practices.
On
August 29, 2018, the Board appointed Ms. Mei Yang, the current Chairperson of the Board, as the Chief Executive Officer of the
Company, effective August 30, 2018.
On
August 29, 2018, the Board appointed Mr. Hon Man Yun as the Chief Financial Officer of the Company, effective August 30, 2018.
On
October 1, 2018, Ms. Hongxia Zhao resigned as a member of the Board, effective immediately. Ms. Zhao resigned from the Board for
personal reasons and not as a result of any disputes or disagreements between Ms. Zhao and the Company on any matter relating
to the Company’s operations, policies or practices.
On
January 2, 2019, Mr. Hon Man Yun resigned as the CFO of the Company, effective immediately. Mr. Hon Man Yun resigned from the
CFO position for personal reasons and not as a result of any disputes or disagreements between Mr. Yun and the Company on any
matter relating to the Company’s operations, policies, accounting policies or practices.
On
February 6, 2019, Ms. Mei Yang submitted her resignation as CEO of the Company, effective January 29, 2019. Ms. Yang shall remain
as the Chairperson of the Board to oversee the development of the Company. Ms. Yang resigned as CEO for personal reasons and not
as a result of any disputes or disagreements between Ms. Yang and the Company on any matter relating to the Company’s operations,
policies or practices.
On
February 4, 2019, the Board reappointed Mr. Zuyue Xiang as the CEO of the Company, effective January 29, 2019.
On
February 4, 2019, the Board appointed Mr. Zhenpeng Gao as the Chief Financial Officer of the Company, effective January 29, 2019.
Marketing
Since
we are in a business transition period, we conducted very limited marketing activities in the fiscal year of 2018. We stopped
the efforts with Qilong with respect to the customer base development.
Research
and Development
Pursuant
to the Partnership Agreement between Shenzhen Exce-card and UINT, for the period from May 1, 2014 to April 30, 2016, Shenzhen
Exce-card paid UINT €120,000 for R&D services, €20,000 of which was for developing new audio signals of new audio
card product, €30,000 of which was for the testing of new Inlay and assisting the card manufacturers with lamination test,
€50,000 of which was for the conception of new generation audio cards, and the last €20,000 of which was for assisting
the card manufacturers with certification of the new audio card product. Another €60,000 was loaned to UINT to cover its
operation costs. We ceased the cooperation relationship with UINT in 2018.
Employees
A
part of our employees are located in China. As of the date of this annual report, Guangzhou Yuzhi and its subsidiaries had
four (4) employees in China and seven (7) employees are located in the U.S. There are no collective bargaining contracts
covering any of our employees. We believe our relationship with our employees is satisfactory.
We
are required to contribute a portion of our employees’ total salaries to the Chinese government’s social insurance
funds, including medical insurance, unemployment insurance and workers’ compensation insurance, and a housing assistance
fund, in accordance with relevant regulations. Guangzhou Yuzhi and its Subsidiaries are currently paying social insurance for
all of their four (4) full-time employees through a third party agent.
Insurance
companies in China offer limited business insurance products. While business interruption insurance is available to a limited
extent in China, we have determined that the risks of interruption, cost of such insurance and the difficulties associated with
acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. As a result, we could
face liability from the interruption of our business.
Intellectual
Property
Currently
we have five (5) valid patents that were granted by the State Intellectual Property Office of the P.R.C. (“SIPO”)
and the terms of which are ten years from the dates of grant of the patent applications. The five patents relate to the audio
bank card technology and designs and its transaction system, such as the design of the circuit board embedded in the audio card,
the transaction platform processing the audio data and the design of the audio chip. Two of the five patents were granted on May
4, 2016 and the rest were granted respectively on January 22, 2014, September 9, 2015 and December 23, 2015. Our patents were
fully impaired in the fiscal year of 2018.
We
obtained one trademark of the Company’s logo from SIPO on August 21, 2016, which remains valid until August 20, 2026. On
April 23, 2015, the Company through one of its subsidiaries obtained the copyright on its software of Zhuozhi Changtian bank audio
card application for micro and small businesses.
Pursuant
to the Partnership Agreement, any background information and know-how used in connection with the agreement remain the property
of the party introducing such background information. UINT’s know-how relating to the services it provides under this agreement
remains the exclusive property of UINT and it may use such know-how for other clients. Additionally, the costs and rights of any
patent related to the new audio bank card product arises during the Term are borne by and shared equally by both parties.
Government
Approval and Regulation
Due
to the limited business operations, we were subject to very few regulations and governmental approvals in the fiscal year of 2018.
We believe that we have been compliant to date with all requirements required by the applicable governing authorities in China
with respect to the technology consulting services.
Going
Concern
As
reflected in the accompanying financial statements, as of December 31, 2018, the Company had accumulated deficits of $27,059,112
and working capital deficit of current liabilities exceeding current assets by $1,407,762 due to the substantial losses in operation
in previous periods. Management’s plan to support the Company in operations and to maintain its business strategy is to
raise funds through public and private offerings and to rely on officers and directors to perform essential functions with minimal
compensation. If we do not raise all of the money we need from public or private offerings, we will have to find alternative sources,
such as loans or advances from our officers, directors or others. Such additional financing may not become available on acceptable
terms and there can be no assurance that any additional financing that the Company does obtain will be sufficient to meet its
needs in the long term. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations,
in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing. If we require
additional cash and cannot raise it, we will either have to suspend operations or cease business entirely. The accompanying financial
statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classifications
of liabilities that might be necessary should the Company be unable to continue as a going concern.
ITEM
1A. RISK FACTORS
Not
applicable for smaller reporting companies.
ITEM
1B. UNRESOLVED STAFF COMMENTS
Not
applicable because we are a smaller reporting company.
ITEM
2. PROPERTIES
We
stopped the leases for Guangzhou Yuzhi’s office and Shenzhen Exce-card’s office in 2018. The computers and other office
equipment have been put into storage.
Wave
Sync Corp. is located at 11 Middlebury Blvd, Unit 3, Randolph, NJ. Our office space is approximately 800 square feet. The total
monthly rent for the office is approximately $833.
For
more details please refer to the section titled “Risks Related to the Overall Business of Guangzhou Yuzhi and its Subsidiaries”
included in “Item 1A Risk Factors” above.
ITEM
3. LEGAL PROCEEDINGS
To
the best knowledge of the Company, we are not a party to any legal proceedings as of the date of this annual report. We may from
time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.
ITEM
4. MINE SAFETY DISCLOSURES.
Not
Applicable.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market
Information
Our
common stock is quoted on the OTCQB Market under the trading symbol “WAYS.” The OTCQB is a quotation service that
displays real time quotes, last sale prices, and volume information in over the counter (“OTC”) equity securities.
An OTC equity security generally is any equity that is not listed or traded on a national securities exchange.
Price
Range of Common Stock
The
following table shows, for the periods indicated, the high and low bid prices per share of our common stock as reported by the
OTC quotation service. These bid prices represent prices quoted by broker-dealers on the OTC quotation service. The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not represent actual transactions.
|
|
Fiscal Year
Ended
December 31,2018
|
|
|
Fiscal Year
Ended
December 31,
2017
|
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
First Quarter ended March 31
|
|
$
|
2.45
|
|
|
$
|
3.00
|
|
|
$
|
2.50
|
|
|
$
|
4.97
|
|
Second Quarter ended June 30
|
|
$
|
2.00
|
|
|
$
|
2.40
|
|
|
$
|
2.50
|
|
|
$
|
3.33
|
|
Third Quarter ended September 30
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2.50
|
|
|
$
|
2.50
|
|
Fourth Quarter ended December 31
|
|
$
|
2.25
|
|
|
$
|
2.25
|
|
|
$
|
2.50
|
|
|
$
|
3.00
|
|
On
January 29, 2019, the closing price for our common stock, as reported by the OTC Market, was $1.62 per share. As of April 2, 2019,
the Company had an aggregate of 21,027,713 shares of common stock issued and outstanding and 137 shareholders of record.
Stockholders
of Record
As
of April 2, 2019, we had 137 record holders of our common stock. Corporate Stock Transfer, Inc., 3200 Cherry Creek Drive S #430,
Denver, CO 80209 is the transfer agent for our common stock.
Dividends
Holders
of our common stock are entitled to receive dividends if, as and when declared by the Board of Directors out of funds legally
available therefore. We have never declared or paid any dividends on our common stock. We intend to retain any future earnings
for use in the operation and expansion of our business. Consequently, we do not anticipate paying any cash dividends on our common
stock to our stockholders for the foreseeable future.
Securities
Authorized for Issuance under Equity Compensation Agreements
We
do not have in effect any compensation plans under which our equity securities are authorized for issuance.
ITEM
6. SELECTED FINANCIAL DATA
Not
applicable because we are a smaller reporting company.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of our results of operations and financial condition since the Company’s inception should
be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in
this Prospectus. All statements, other than statements of historical facts, included in this report are forward-looking statements.
When used in this report, the words “may,” “will,” “should,” “would,” “anticipate,”
“estimate,” “possible,” “expect,” “plan,” “project,” “continuing,”
“ongoing,” “could,” “believe,” “predict,” “potential,” “intend,”
and similar expressions are intended to identify forward-looking statements. Forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include,
but are not limited to, availability of additional equity or debt financing, changes in sales or industry trends, competition,
retention of senior management and other key personnel, availability of materials or components, ability to make continued product
innovations, casualty or work stoppages at our facilities, adverse results of lawsuits against us and currency exchange rates.
Forward-looking statements are based on assumptions and assessments made by our management in light of their experience and their
perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.
Readers of this report are cautioned not to place undue reliance on these forward-looking statements, as there can be no assurance
that these forward-looking statements will prove to be accurate and speak only as of the date hereof. Management undertakes no
obligation to publicly release any revisions to these forward-looking statements that may reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events. This cautionary statement is applicable to all forward-looking
statements contained in this report.
Overview
of Business
The
Company is a development stage company 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.
Due to slow sales of the audio bank cards, the Company is looking for alternatives to its current business model.
Critical
Accounting Policies
Basis
of Presentation
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America (“US 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 December 31, 2018, the detailed identities of the consolidating subsidiaries are as follows:
Name
of Company
|
|
Place
of incorporation
|
|
Attributable
equity interest %
|
|
|
Registered
capital
|
|
EGOOS Mobile Technology Company Limited (“EGOOS BVI”)
|
|
BVI
|
|
|
100
|
%
|
|
$
|
1
|
|
EGOOS Mobile Technology Company Limited (“EGOOS HK”)
|
|
Hong Kong
|
|
|
100
|
%
|
|
|
1,290
|
|
Move the Purchase Consulting Management (Shenzhen) Co., Ltd. (“WOFE”)
|
|
P.R.C. (WOFE)
|
|
|
100
|
%
|
|
|
-
|
|
Guangzhou Yuzhi Information Technology Co., Ltd. (“GZYZ”)
|
|
P.R.C.
|
|
|
100
|
%
|
|
|
150,527
|
|
Shenzhen Qianhai Exce-card Technology Co., Ltd. (“SQEC”)
|
|
P.R.C.
|
|
|
100
|
%
|
|
|
150,527
|
|
Guangzhou Rongsheng Information Technology Co., Ltd. (“GZRS”)
|
|
P.R.C.
|
|
|
100
|
%
|
|
|
1,505,267
|
|
Use
of estimates
The
preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates. Estimates are used for, but not limited to, the accounting for certain items such as allowance for doubtful accounts,
depreciation and amortization, impairment, inventory allowance, taxes and contingencies.
Contingencies
Certain
conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will
only be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent
liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal
proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company’s
management evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the
amount of relief sought or expected to be sought.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment
indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be
estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable
and material would be disclosed.
Loss
contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case
the guarantee would be disclosed.
Cash
and cash equivalents
The
Company classifies the following instruments as cash and cash equivalents: cash on hand, unrestricted bank deposits, and all highly
liquid investments purchased with original maturities of three months or less.
Accounts
receivable
Trade
receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An estimate
for doubtful accounts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.
Other
receivables
Other
receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An allowance
for doubtful accounts is made when recovery of the full amount is doubtful.
Property,
plant and equipment
Plant
and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using
the straight-line method with a salvage value of 10%. Estimated useful lives of the plant and equipment are as follows:
|
Computer equipment
|
3 years
|
|
|
|
|
Office furniture
|
5 years
|
The
cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or
loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant
renewals and betterments are capitalized.
Accounting
for the Impairment of Long-lived assets
The
long-lived assets held by the Company are reviewed in accordance with Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Subtopic 360-10-35, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” for impairment whenever events or changes in circumstances indicate that the carrying amount of assets
may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry
changes. Impairment is present if carrying amount of an asset is less than its undiscounted cash flows to be generated.
If
an asset is considered impaired, a loss is recognized based on the amount by which the carrying amount exceeds the fair market
value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
The Company believes no impairment has occurred to its assets during 2018.
Income
taxes
The
Company uses the accrual method of accounting to determine income taxes for the year. The Company has implemented FASB ASC 740
Accounting for Income Taxes. Income tax liabilities computed according to the United States, People’s Republic of China
(PRC), and Hong Kong tax laws provide for the tax effects of transactions reported in the financial statements and consists of
taxes currently due, plus deferred taxes, related primarily to differences arising from the recognition of expenses related to
the depreciation of plant and equipment, amortization of intangible assets, and provisions for doubtful accounts between financial
and tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences,
which will be either taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized
for operating losses that are available to offset future income taxes.
A
valuation allowance is recognized for deferred tax assets if it is more likely than not, that the deferred tax assets will either
expire before the Company is able to realize that tax benefit, or that future realization is uncertain.
Stock-based
compensation
The
Company has elected to use the Black-Scholes-Merton (“BSM”) pricing model to determine the fair value of stock options
on the dates of grant. Also, the Company recognizes stock-based compensation using the straight-line method over the requisite
service period.
The
Company values stock awards using the market price on or around the date the shares were awarded and includes the amount of compensation
as a period compensation expense over the requisite service period.
For
the years ended December 31, 2018 and 2017, $1,113,217 and $373,509 stock-based compensation was recognized.
Foreign
currency translation
The
accompanying financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi
(RMB) and Hong Kong dollar (HKD). The financial statements are translated into United States dollars from RMB at year-end exchange
rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at
their historical exchange rates when the capital transactions occurred.
Exchange Rates
|
|
12/31/2018
|
|
|
12/31/2017
|
|
Year-end/period-end RMB : US$ exchange rate
|
|
|
6.8764
|
|
|
|
6.5064
|
|
Average annual/period RMB : US$ exchange rate
|
|
|
6.6146
|
|
|
|
6.7570
|
|
|
|
|
|
|
|
|
|
|
Year-end/period-end HKD : US$ exchange rate
|
|
|
7.8312
|
|
|
|
7.8149
|
|
Average annual/period HKD : US$ exchange rate
|
|
|
7.8370
|
|
|
|
7.7922
|
|
The
RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.
No representation is made that the RMB amounts could have been, or could be, converted into US Dollar at the rates used in translation.
Revenue
recognition
The
Company recognizes services revenue when the following criteria have been met: 1.) it has agreed and entered into a contract for
service with it customers, 2.) the contract has set forth a fixed fee for the services to be rendered, 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, and 4.) the Company has either received payment, or reasonably expects payment from the customer
in accordance to the payment terms set forth in the contract.
Earnings
per share
Basic
earnings per share is computed on the basis of the weighted average number of common stock outstanding during the period. Diluted
earnings per share is computed on the basis of the weighted average number of common stock and common stock equivalents outstanding.
Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation.
Dilution
is computed by applying the treasury stock method for options and warrants. Under this method, options and warrants are assumed
to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used
to purchase common stock at the average market price during the period.
Comprehensive
loss
Comprehensive
income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions
to owners. The Company presents components of comprehensive income with equal prominence to other financial statements. The Company’s
current component of other comprehensive income is the foreign currency translation adjustment.
Subsequent
events
The
Company evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued.
There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions
that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements,
and (2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance
sheet but arose subsequent to that date.
Fair
Value of Financial Instruments
ASC
825, Financial Instruments, requires that the Company discloses estimated fair values of financial instruments. The carrying amounts
reported in the balance sheets for current assets and current liabilities qualifying as financial instruments are a reasonable
estimate of fair value.
The
Company applies the provisions of ASC 820-10, Fair Value Measurements and Disclosures. ASC 820-10 defines fair value, and establishes
a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value
measures. For certain financial instruments, including cash and cash equivalents, loan receivables and short-term bank loans,
the carrying amounts approximate fair value due to their relatively short maturities. The three levels of valuation hierarchy
are defined as follows:
|
●
|
Level
1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
|
|
●
|
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities
in active markets, and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument.
|
|
●
|
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value
measurement.
|
The
Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities
from Equity,” and ASC 815.
The
following tables present the Company’s financial assets and liabilities at fair value in accordance to ASC 820-10
As of December 31, 2018:
|
|
Quoted in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
504
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
504
|
|
Total financial assets
|
|
$
|
504
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total financial liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
As of December 31, 2017:
|
|
Quoted in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
10,346
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,346
|
|
Total financial assets
|
|
$
|
10,346
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease
|
|
$
|
9,980
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,980
|
|
Total financial liabilities
|
|
$
|
9,980
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,980
|
|
Results
of Operations
We
are a development stage company and have generated minimal revenues from operations since our inception on November 11, 2013 to
December 31, 2018. As of December 31, 2018, we had total assets of $7,787 and total liabilities of $1,414,965. We expect
we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through,
among other things, the sale of equity or debt securities.
We
are in the process of developing our products and services. Consequently, we generated minimal revenues as of the date of this
report. We have an accumulated deficit and have incurred operating losses since our inception and expect losses to continue
during 2019.
Revenue
Revenues
for the year ended December 31, 2018 were $85,573 compared to $230,805 for the period to December 31, 2017, reflecting a decrease
of $145,232 or 63%. The decrease of revenue during such period was primarily attributed to lack of sales of our bank audio cards
and decline in demand of the technology consulting services.
Expenses
General
and administrative and professional fee expenses were related to corporate overhead, financial and administrative contracted services,
such as legal and accounting, developmental costs, and marketing expenses. General and administrative expenses and professional
fees for the year ended December 31, 2018 were $1,671,264 as compared to $1,448,488 for the comparable period ended December 31,
2017, which represented an increase of $222,776 or approximately 15%. Such increase was primarily attributed to the recognition
of employee compensation to the previous chief executive officer.
LIQUIDITY
AND CAPITAL RESOURCES
Our
primary liquidity and capital resource needs are to finance the costs of our operations, to make capital expenditures and to service
our debt. We continue to be dependent on our ability to generate revenues, positive cash flows and additional financing.
Working
Capital Summary
|
|
As of December 31, 2018
($)
|
|
|
As of December 31, 2017
($)
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
7,203
|
|
|
|
67,137
|
|
Current Liabilities
|
|
|
1,414,965
|
|
|
|
964,653
|
|
Working Capital Deficit
|
|
|
(1,407,762
|
)
|
|
|
(897,516
|
)
|
Cash
Flows
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Cash Flows Used in Operating Activities
|
|
$
|
(283,480
|
)
|
|
$
|
(702,126
|
)
|
Cash Flows Generated from Investing Activities
|
|
|
-
|
|
|
|
(53,786
|
)
|
Cash Flows Provided by Financing Activities
|
|
|
308,860
|
|
|
|
282,347
|
|
Net (Decrease) Increase in Cash During Period
|
|
$
|
(25,380
|
)
|
|
$
|
473,565
|
|
Cash
Flow from Operating Activities
During
the years ended December 31, 2018 and 2017, the net cash used in operating activities were $283,480 and $702,126, respectively,
reflecting a decrease of $418,646 or 59.63%. Such decrease was primarily caused by the downsizing of the employees in China and
the U.S.
Cash
Flow from Investing Activities
The net cash used or generated
from investing activities during the year ended December 31, 2018 was $0 and $53,786 for the twelve months ended December 31,
2017. The net cash generated from investing activities decreased in the amount of $53,786, or 100%, which was mainly due to the
hardship in sales of the bank audio cards.
Cash
Flow from Financing Activities
During
the year ended December 31, 2018 and 2017, net cash generated from financing activities was $308,860 and $282,347. The increase
of $26,513 or 9.39% in net cash generated from financing activities was primarily because we received advances from certain related
parties.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.
Recent
Accounting Pronouncements
In
January 2017, the Financial Accounting Standard Board (“FASB”) issued guidance, which simplifies the accounting for
goodwill impairment. The updated guidance eliminates Step 2 of the impairment test, which requires entities to calculate the implied
fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the
excess of a reporting unit’s carrying amount over its fair value. The Company is still assessing the impact of this pronouncement
to its financial statements.
As
of December 31, 2018, except for the above, there are no recently issued accounting standards not yet adopted that would have
a material effect on the Company’s financial statements.
Quantitative
and Qualitative Disclosures about Market Risk
As a “smaller reporting company”,
we are not required to provide the information required by this Item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not applicable because
we are a smaller reporting company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
The full text
of the Company’s audited financial statements for fiscal years ended December 31, 2018 and 2017 begins on page F-1 of
this Audited Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. 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 the end of
the period covered by this annual report, our Chief Executive Officer and Principal Accounting 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.
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 December 31,
2018, we carried out an assessment of the effectiveness of our internal control over financial reporting based on the framework
in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on our evaluation, our management concluded that our internal control over financial reporting was not effective as of December
31, 2018. 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 our Controller based in China 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 period ended
December 31, 2018, 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 9B. OTHER INFORMATION.
Issuance of Shares
The Company’s common stock issued
within the past two years were summarized as follows:
|
|
|
|
Number
of
|
|
|
Issue
Value
|
|
|
|
Name
of Shareholder
|
|
Date
|
|
Shares
|
|
|
Per
Share
|
|
|
Reason
for Issuance
|
Zaixian Wang
|
|
(1)
|
|
|
1,025,000
|
|
|
$
|
2.00
|
|
|
Exercise of convertible note (2)
|
Mei Yang
|
|
(1)
|
|
|
81,837
|
|
|
$
|
2.00
|
|
|
Exercise of convertible note (2)
|
Total
|
|
|
|
|
1,106,837
|
|
|
|
|
|
|
|
(1)
|
Pursuant to the Note Conversion Exchange Agreement dated March 17, 2017, the Company shall issue 1,025,000 and 81,837 shares of Common Stock to Zaixian Wang and Mei Yang, respectively, in exchange for the convertible notes held by each of them.
|
(2)
|
The Company relied upon the exemption from registration under Section 3(a)(9) of the Securities Act in connection with these issuances.
|
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE
The Board and executive
officers of the Company as of the date of this annual report are as follows:
Directors and Executive Officers
|
|
Age
|
|
Position / Title
|
Mei Yang
|
|
46
|
|
Chairperson of the Board
|
Zuyue Xiang
|
|
48
|
|
Chief Executive Officer and Director
|
Xiaoqiang Zuo
|
|
49
|
|
Director
|
Minqin Tang
|
|
32
|
|
Director
|
Zhenpeng Gao
|
|
44
|
|
Chief Financial Officer
|
Ms.
Mei Yang
has ample managerial experience in businesses in the field of bank card technology solution. She has served as the
chairman of the Board of the Company since January 2015. She has also served as the vice president of Shenzhen Exce-card since
December 2013. From June 2009 to November 2013, Ms. Yang served as the chief financial officer of Beijing Yuxin ShangFang Technology
Company, a PRC-based debit card technology solution company. Ms. Yang holds a B.S. in economic information management from Xinjiang
Agricultural University.
Mr.
Zuyue Xiang
has served as the chief executive officer and director of the Company since October 16, 2015. Mr. Xiang commenced
his employment with Shenzhen Exce-card as managing staff in July 2014, and since April 2015, he served as the president of Shenzhen
Exce-card overseeing the company’s software product and IT solution business, including its financial IC card business, as
well as the research and development of its financial IC card technology. From March 2007 to March 2015, Mr. Xiang served as the
general manager of Beijing Yuxin Shangfang Technology Company Limited, a PRC-based technology company, responsible for and oversaw
the operation and development of the company’s business, the human resources and coordination with government agencies. Mr.
Xiang holds a B.S. in management from South China University of Technology.
Xiaoqiang
Zuo
has more than 20 years of experience in the engineering and technology in banking
and clearing systems. Mr. Zuo has served as the director of the Company since March 2015. He has also served as the president of
Shenzhen Tianshi Future Electronic Technology Company, a PRC-based company specializing in surface mounted technology and manufacturing
electronics since June 2010, and as the president of Huayuan Runtong (Beijing) Technology Company, a PRC-based software development
company since December 2004. Mr. Zuo holds a B.S. in electronics and information system from Mongolia University.
Ms.
Minqin Tang
, since July 2014 has served as an Executive Producer at Premier Event Management in New York. From June 2013 to
the date hereof, Minqin serves as the Chief Executive Officer for Excelture Group LLC in New York. Ms. Tang is a founding member
of the US China Federal Association of Business Councils, which began in September 2011. From 2012 to 2015, Ms. Tang was a partner
in Tutami Learnings LLC and from 2011 to 2014 Ms. Tang was a consultant at Weiming Education. Ms. Tang started her career as a
Tax Associate at PriceWaterhouseCoopers, LLP in 2008. She received a bachelor degree in accounting from University of International
Business and Economics in China in 2007 and a master in accountancy science from University of Illinois at Urbana-Champaign in
2008. Ms. Tang has been a chartered certified accountant from 2004.
Mr.
Zhenpeng Gao
was the chief accounting officer of both Guangzhou Rongsheng Information Technology Co., Ltd. and Shenzhen Qianhai
Zhuozhi Changtian Technology Co., Ltd., two affiliates under common control of the Company, since January 2015. Prior to that,
Mr. Gao served as the chief accounting officer of Beijing Yuxin Shangfang Technology Co., Ltd. from August 2009 to December 2018.
Mr. Zhenpeng Gao received a bachelor degree in Accounting from Southwestern University of Finance and Economics in 2002.
Committees and Meetings
We do not have a standing
audit committee of the Board of Directors. We do not have a financial expert serving on the Board of Directors or employed as an
officer based on management’s belief that the cost of obtaining the services of a person who meets the criteria for a financial
expert under Item 407(d) of Regulation S-K is beyond its limited financial resources and the financial skills of such an expert
are simply not required or necessary for us to maintain effective internal controls and procedures for financial reporting in light
of the limited scope and simplicity of accounting issues raised in its financial statements at this stage of its development.
Code of Ethics
We have not yet adopted
a code of ethics that applies to our principal executive officers, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, since we have been focusing our efforts on developing our business. We expect
to adopt a code as we develop our business.
Family Relationships
None.
Committees of the Board of Directors
We do not have any
committees of our board of directors.
Involvement in Certain Legal Proceedings
To the best of our
knowledge, none of our directors or executive officers has, during the past ten years:
|
●
|
been
convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor
offenses);
|
|
●
|
had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
|
|
●
|
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
|
|
●
|
been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
|
|
●
|
been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
|
|
●
|
been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
|
None of our directors
or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or
associates which are required to be disclosed pursuant to the rules and regulations of the Commission.
Term of Office
Our directors are appointed
to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws.
Our officers are appointed by our board of directors and hold office until removed by the board.
Corporate Governance
The business and affairs
of the company are managed under the direction of our board. In addition to the contact information in this annual report, each
stockholder will be given specific information on how he/she can direct communications to the officers and directors of the corporation
at our annual stockholders meetings. All communications from stockholders are relayed to the members of the board of directors.
Role in Risk Oversight
Our board of directors
is primarily responsible for overseeing our risk management processes. The board of directors receives and reviews periodic reports
from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks.
The board of directors focuses on the most significant risks facing our company and our company’s general risk management
strategy, and also ensures that risks undertaken by our company are consistent with the board’s appetite for risk. While
the board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We
believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our
board leadership structure supports this approach.
Compliance with Section 16(a) of the
Securities Exchange Act of 1934
Section 16(a) of the
Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of
a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial
ownership, reports of changes in ownership and annual reports concerning their ownership of the our common stock and other equity
securities, on Form 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the
Securities and Exchange Commission regulations to furnish our company with copies of all Section 16(a) reports they file.
Based solely on our
review of the copies of such reports received by us, and on written representations by our officers and directors regarding their
compliance with the applicable reporting requirements under Section 16(a) of the Exchange Act, we believe that, with respect to
the period ended December 31, 2018, our officers and directors, and all of the persons known to us to own more than 10% of our
common stock, have not filed all required reports on a timely basis. Yang Liu, our previous CEO, did not timely file Form 3 and
Form 4 relating to the grant of options to purchase 1,050,000 shares of the Company’s common stock on October 20, 2017. Mei
Yang, our chairperson of the Board, did not timely file Form 3 and Form 4 relating to the receipt of 81,837 shares of the Company’s
common stock in exchange for the conversion of certain debt owed by the Company to her as set forth in the Note Conversion Exchange
Agreement dated March 17, 2017. Zaixian Wang, a shareholder owning more than 10% of our outstanding common stock, did not timely
file Form 3 and Form 4 relating to the receipt of 1,025,000 shares of the Company’s common stock in exchange for the conversion
of certain debt owed by the Company to him as set forth in the Note Conversion Exchange Agreement dated March 17, 2017. We plan
to file such forms required by the Securities and Exchange Commission regulations as soon as practicable.
ITEM 11: EXECUTIVE COMPENSATION.
The following summary
compensation table sets forth information concerning compensation for services rendered in all capacities during the period through
December 31, 2018, earned by or paid to our executive officers.
Name and Principal Position
|
|
Year
|
|
Salary
|
|
|
Bonus Awards
|
|
|
Stock Awards
|
|
|
Options/ Warrant Awards (1)
|
|
|
Non-Equity Plan Compensation
|
|
|
Nonqualified Deferred Earnings
|
|
|
All Other Compensation
|
|
|
Total
|
|
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
Zuyue Xiang,
|
|
2017
|
|
|
66,667
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
66,667
|
|
CEO and director
1
|
|
2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yang Liu,
|
|
2017
|
|
|
72,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72,000
|
|
Former CEO
2
|
|
2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ming Yi,
|
|
2017
|
|
|
36,0000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,0000
|
|
Former CFO
3
|
|
2018
|
|
|
48,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mei Yang,
|
|
2017
|
|
|
60,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
60,000
|
|
Chairperson of the Board, former CEO
4
|
|
2018
|
|
|
60,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
60,000
|
|
|
1.
|
Previously resigned on July 24, 2017. Reappointed on February
4, 2019, effective January 29, 2019.
|
|
2.
|
Resigned on August 22, 2018, effective August 30, 2018.
|
|
3.
|
Resigned on August 23, 2018, effective August 30, 2018.
|
|
4.
|
Appointed as Chairperson on January 6, 2015 and resigned
as CEO of the Company on February 6, 2019, effective January 29, 2019.
|
None
of the officers has received any other compensation or reimbursement from the Company as of December 31, 2018.
Employment Agreements
Mr. Zuyue Xiang (in
his capacity as general manager of Shenzhen Exce-card) had a written employment agreement with Shenzhen Exce-card for a term of
5 years from January 1, 2015 to December 31, 2019. He commenced his employment with Shenzhen Exce-card as managing staff in July
2014, and since April 2015, he served as the President of Shenzhen Exce-card. Mr. Xiang receives an annual salary of RMB 420,000
(approximately $66,667 based on an exchange ratio of 1 U.S. dollars = 6.30 RMB). On July 24, 2017, Mr. Zuyue Xiang resigned as
the Chief Executive Officer but has remained a member of the Board of the Company and the president of Shenzhen Exce-card. On February
4, 2019, the Board reappointed Mr. Zuyue Xiang as the CEO of the Company, effective January 29, 2019. Mr. Xiang does not currently
have any employment agreement with the Company and receives no compensation for the operations of Shenzhen Exce-card at the moment.
On October 20, 2017,
the Company entered into an employment agreement (the “Liu Employment Agreement”) with Mr. Yang Liu, the Company’s
former CEO, pursuant to which Mr. Liu served as the Company’s Chief Executive Officer until his resignation on August 22,
2018, effective August 30, 2018. In accordance with the Liu Employment Agreement, the Company paid Mr. Liu a base salary of $72,000
per year with the regular executive benefits and vacations. In connection with Mr. Liu’s prior service as the Chief Executive
Officer of the Company, Mr. Liu was granted non-qualified stock options (the “Options”) to purchase an aggregate of
1,050,000 shares of the Company’s common stock at an exercise price of $1.00 per share, exercisable for five years. The Options
fully vested upon his resignation on August 30, 2018.
There are no outstanding
employment agreements with the Company except as listed above.
Outstanding Equity Awards at Fiscal
Year-End (December 31, 2018)
The following table
summarizes outstanding unexercised options, unvested stocks and equity incentive plan awards held by each of our named executive
officers, as of December 31, 2018:
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION AWARDS
|
|
STOCK AWARDS
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
|
Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned Options
(#)
|
|
|
Options
Exercise
Prices
($)
|
|
|
Option
Expiration
Date
|
|
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
|
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
|
|
|
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Been Issued
(#)
|
|
|
Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights That
Have Not Been
Issued
($)
|
|
Yang Liu
(1)
|
|
|
—
|
|
|
|
1,050,000
|
|
|
|
—
|
|
|
|
1.00
|
|
|
10/19/2022
|
|
1,050,000
|
|
|
1,575,000
|
(2)
|
|
|
---
|
|
|
$
|
---
|
|
|
(1)
|
On
October 20, 2017, we entered into an employment agreement with Yang Liu to be the CEO of the Company, pursuant to which the Company
granted Mr. Yang Liu non-qualified stock options (the “Options”) to purchase an aggregate of 1,050,000 shares of the
Company’s common stock, vesting over three years in equal amount. Mr. Liu resigned as CEO on August 22, 2018, effective
August 30, 2018. The options fully vested upon Mr. Yang Liu’s resignation.
|
|
(2)
|
The
dollar amount shown is determined by multiplying the number of shares of common stock reported in the table by the closing price
of a share of our common stock on October 20, 2017 ($2.50), which was the day of such issuance.
|
Directors’ Compensation
Mei Yang received $60,000
from the Company as remuneration of her services provided to the Company in the capacity of the chairwoman of the Board of Directors.
Except for her annual salary, Ms. Yang has not received any other type or amount of compensation from the Company for her service
during the year of 2018.
The Company has not
compensated any other directors for their services on the Board of Directors. Executive directors are not compensated for their
service as directors; however they may receive compensation for their services as employees of the Company. The compensation received
by our executive directors is shown in the table above.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table
sets forth certain information regarding the ownership of our capital stock, as of April 2,2019 by (i) each person known by us
to be the beneficial owner of 5% or more of the outstanding common stock, (ii) each executive officer and director of the Company,
and (iii) all of our executive officers and directors as a group. As of April 2, 2019, the Company had 21,027,713 shares of Common
Stock issued and outstanding.
Unless otherwise indicated,
the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of common
stock beneficially owned by them.
Name and Address of Beneficial Owner (1)
|
|
Amount and Nature of Beneficial Ownership (2)
|
|
|
Percentage
of Class
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
Mei Yang, Chairperson of the Board
|
|
|
2,081,837
|
|
|
|
9.90
|
%
|
Zhenpeng Gao, CFO
|
|
|
0
|
|
|
|
-
|
|
Zuyue Xiang, Chief Executive Officer and Director
|
|
|
3,000,000
|
|
|
|
14.27
|
%
|
Minqin Tang, Director
|
|
|
0
|
|
|
|
-
|
|
Xiaoqiang Zuo, Director
|
|
|
100,000
|
|
|
|
*
|
|
All directors and executive officers as a group (5 persons)
|
|
|
5,225,024
|
|
|
|
24.85
|
%
|
|
|
|
|
|
|
|
|
|
5% Holders
|
|
|
|
|
|
|
|
|
Zaixian Wang (4)(5)
|
|
|
2,875,000
|
|
|
|
13.67
|
%
|
Warren Wang (5)
|
|
|
1,376,649
|
|
|
|
6.55
|
%
|
Zezhang Tan
|
|
|
1,100,000
|
|
|
|
5.23
|
%
|
Yue Wang
|
|
|
4,300,000
|
|
|
|
20.45
|
%
|
Total (All 5% holders as a group 6 persons)
|
|
|
14,733,486
|
|
|
|
70.07
|
%
|
*
|
Less than 1%.
|
(1)
|
Unless otherwise noted, the address is c/o 11 Middlebury Blvd, Unit 3, Randolph, NJ 07869.
|
(2)
|
The securities “beneficially owned” by an individual are determined in accordance with the definition of “beneficial ownership” set forth in the regulations promulgated under the Exchange Act and, accordingly, may include securities owned by or for, among others, the spouse and/ or minor children of an individual and any other relative who resides in the same home as such individual, as well as other securities as to which the individual has or shares voting or investment power or which each person has the right to acquire within sixty (60) days through the exercise of options or otherwise. Beneficial ownership may be disclaimed as to certain of the securities. This table has been prepared based on 21,027,713 shares of common stock outstanding as of April 2, 2019.
|
(3)
|
Pursuant to the Note Conversion Exchange Agreement dated March 17, 2017, the Company issued 81,837 shares of Common Stock to Mei Yang in exchange for the convertible notes held by her.
|
(4)
|
Pursuant to the Note Conversion Exchange Agreement dated March 17, 2017, the Company issued 1,025,000 shares of Common Stock to Zaixian Wang in exchange for the convertible notes held by him.
|
(5)
|
Includes 1,000,000 held by US New Media Holding Group Inc., the beneficiary holder of which is Warren Wang. Zaixian Wang is Warren Wang’s father, however, Warren Wang disclaims the beneficial ownership of the 2,875,000 shares of Common Stock.
|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
Related Transactions
Acquisition
Since
December 2013, Ms. Mei Yang, a director and former CEO of the Company, has served as a vice president of Shenzhen Exce-Card, a
wholly owned subsidiary of Guangzhou Yuzhi, which is indirectly wholly-controlled by EGOOS BVI. Ms. Yang therefore was on both
sides of the Company’s transactions with EGOOS BVI. Ms. Yang does not hold any equity interest in EGOOS BVI or Shenzhen Exce-Card.
Related Party Loans to the Company
As of December 31,
2018, the Company had an outstanding balance of an aggregate of $994,040 owed to certain related parties of the Company, such as
certain shareholders and directors of the Company and its Subsidiaries. The breakdown of the loans from related parties is as follows:
|
|
12/31/2018
|
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
Beijing Yuxin Shangfang Technology Co., Ltd.
|
|
$
|
285,894
|
|
|
$
|
302,155
|
|
Hainan Xin Jing Yuan Co., Ltd.
|
|
|
43,627
|
|
|
|
-
|
|
Xiang, Zuyue, director of SQEC and shareholder
|
|
|
102,217
|
|
|
|
60,198
|
|
Xiang, Lingqing, employee of SQEC
|
|
|
1,504
|
|
|
|
-
|
|
Lim, Jehn Ming, shareholder of EGOOS BVI
|
|
|
1,289
|
|
|
|
1,289
|
|
Wang, Yue, director of EGOOS HK
|
|
|
161,523
|
|
|
|
161,942
|
|
Yang, Mei, shareholder
|
|
|
393,963
|
|
|
|
157,110
|
|
Li, Ping, director of WOFE
|
|
|
4,023
|
|
|
|
2,486
|
|
|
|
$
|
994,040
|
|
|
$
|
685,180
|
|
The loans set forth above were provided
as working capital to finance the Company’s operations. The loans referenced above are unsecured, interest-free and due on
demand.
Director Independence
We believe that Ms.
Minqin Tang and Mr. Xiaoqiang Zuo are “independent” directors as defined by the rules of the OTC Markets Group.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES
For the year ended
December 31, 2018 and 2017, we engaged, WWC, Professional Corporation as our independent auditor. For the year ended December 31,
2018 and 2017, the audit fee was in the amount of $35,000 for each year and we did not incur any other audit related fees, tax
fees or other fees for the fiscal years ended December 31, 2018 and 2017.
Audit fees consist
of fees related to professional services rendered in connection with the audit of our annual financial statements. All other fees
relate to professional services rendered in connection with the review of the quarterly financial statements.
Our policy is to pre-approve
all audit and permissible non-audit services performed by the independent accountants. These services may include audit services,
audit-related services, tax services and other services.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
(Stated in US Dollars)
|
1.
|
THE
COMPANY AND PRINCIPAL BUSINESS ACTIVITIES
|
Wave
Sync Corp. formerly known as China Bio-Energy Corp. (the “Company”), and prior to that known as China INSOnline Corp.,
was incorporated on December 23, 1988 as Lifequest Medical, Inc., a Delaware corporation.
In
June 2010, the Company ceased all operations conducted by its then subsidiaries: Ever Trend Investment Limited, Run Ze Yong Cheng
(Beijing) Technology, San Teng Da Fei Technology, and Guang Hua Insurance Agency (“Ever Trend Group”); on January
27, 2015, the Company announced the completion of the disposition of the aforementioned subsidiaries. Accordingly, the Company
has excluded the accounts of Ever Trend Group in these financial statements and the accompanying notes contained herein.
On
November 12, 2010, the Company entered into a share exchange agreement with Ding Neng Holdings Ltd, an investment holdings company
incorporated in the British Virgin Islands (“Ding Neng Holdings”); the share exchange agreement was amended on December
6, 2010, whereby the Company, under the share exchange agreement and its related amendment, would have contemplated acquiring
100% of Ding Neng Holdings in exchange for the issuance of 26,162,505 shares of the Company’s common stock, par value $0.001.
Under the share exchange agreement, the Company would have contemplated owning and operating Ding Neng Holdings and Ding Neng
Holdings’ directly, and indirectly held subsidiaries: Ding Neng Bio-technology Co., Ltd. (“Ding Neng HK”), Zhangzhou
Fuhua Biomass Energy Technology Co., Ltd. (“WOFE”), and Ding Neng Bio-tech. Ding Neng HK was incorporated under the
laws of Hong Kong on September 10, 2010. Ding Neng HK did not have any operations. Ding Neng HK has been delinquent with its annual
regulatory filings in Hong Kong, and should be considered dormant and defunct. Ding Neng HK was wholly-owned by Ding Neng Holdings.
Zhangzhou Fuhua Biomass Energy Technology Co., Ltd. (“WFOE”) was incorporated as a wholly-foreign owned entity under
the laws of the People’s Republic of China (“PRC”), on November 2, 2010. WFOE was wholly-owned by Ding Neng
HK. Ding Neng Bio-tech was incorporated under the laws of the PRC on December 8, 2006. It was located in Zhangzhou city Fujian
Province of PRC. Ding Neng Bio-tech was engaged in the production, refinement and distribution of bio-diesel fuel in Southern
China. Ding Neng Bio-tech operated a biodiesel manufacturing facility in Zhangzhou city. On October 28, 2010, WFOE and Ding Neng
Bio-tech entered into a set of variable interest entity agreements that included: (1) a Consulting Service Agreement with Ding
Neng Bio-tech, which entitled WFOE to receive substantially all of the economic benefits of Ding Neng Bio-tech in consideration
for services provided by WFOE to Ding Neng Bio-tech, (2) an Option Agreement with Xinfeng Nie, Sanfu Huang, and Shunlong Hu (the
shareholders of Ding Neng Bio-tech) allowing the WFOE to acquire all the shares of Ding Neng Bio-tech as permitted by PRC laws,
(3) a Voting Rights Proxy Agreement that provides WFOE with the all voting rights of the Ding Neng Bio-tech shareholders, and
(4) an Equity Pledge Agreement that pledges the shares in Ding Neng Bio-tech to WFOE (VIE Agreements). These VIE Agreements granted
effective control of Ding Neng Bio-tech to WFOE. On June 4, 2015, WFOE filed a civil action in Haicang District People’s
Court of Xiamen, Fujian, PRC (the “Court”) against Ding Neng Bio-tech, alleging that the purposes of those certain
executed VIE Agreements entered into by WFOE and Ding Neng Bio-Tech on October 28, 2010, had been frustrated, and that these VIE
Agreements should be terminated. WFOE alleged that Ding Neng Bio-Tech did not make any payment of service fees to WFOE, and that
Ding Neng Bio-Tech failed to perfect the security interest in the pledged stocks. On July 14, 2015, this case was settled via
in-court mediation directed by the Court. As a result, WFOE and Ding Neng Bio-Tech entered into binding settlement, among other
things, (i) to terminate the VIE Agreements, and (ii) that the litigation fee in the amount of RMB10,000 (approximately $1,610.50)
would be borne by Ding Neng Bio-Tech. Ding Neng Holdings is delinquent with its regulatory filings and annual fees to the British
Virgin Islands; accordingly, the Ding Neng Holdings should be considered dormant and defunct.
WAVE SYNC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
(Stated in US Dollars)
Given
that the Company has not been able to exercise effective control over Ding Neng Bio-Tech or to access Ding Neng Bio-tech’s
financial information since 2011, and the VIE Agreements were terminated, the Company has excluded the accounts of Ding Neng Bio-Tech’s
in these financial statements and the accompanying notes contained herein; the exclusion of such accounts is considered as a type
two material subsequent event that occurred prior to the issuance of the financial statements but after the balance sheets dates
that required material adjustments to the financial statements presented. Ding Neng Holdings is delinquent and defunct; the Company
has determined that the Company was never registered as the sole shareholder of Ding Neng Holdings pursuant to the share exchange
agreement dated November 12, 2010, and amended December 6, 2010; accordingly, the Company has excluded the accounts of Ding Neng
and its subsidiaries in these financial statements and the accompanying notes as contained herein; the exclusion of such accounts
is considered as a type two material subsequent event that occurred prior to the issuance of the financial statements but after
the balance sheets dates that required material adjustments to the financial statements presented. The Company accounted for the
issuance of shares to the shareholders of Ding Neng Holdings under the contemplated share exchange transaction as a recapitalization
of the Company under reverse take-over accounting; accordingly, the Company’s historical stockholders’ equity has
been retroactively restated to the first period presented; as a result of the Company not being updated to Ding Neng Holdings
shareholder register, and that Ding Neng Holdings being defunct, the Company has written off all investments made in Ding Neng
as loss on investment in subsidiary.
In
connection with the share exchange agreement with the shareholders of Ding Neng Holdings that contemplated the acquisition of
Ding Neng Holdings and its subsidiaries, the Company elected to adopt the fiscal year used by Ding Neng Holdings, which was a
calendar year; accordingly, the Company’s financial statements presented herein have been, and on a go-forward basis, will
be prepared using a December 31 year-end date, and each operating period will cover twelve full calendar months.
Share
Purchase Agreement
On
October 19, 2015, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with EGOOS
Mobile Technology Company Limited, a British Virgin Islands holding company (“EGOOS BVI”), which owns 100% of EGOOS
Mobile Technology Company Limited, a Hong Kong company (“EGOOS HK”), which owns 100% of Move the Purchase Consulting
Management (Shenzhen) Co., Ltd. (“WOFE”), a foreign investment enterprise organized under the laws of the PRC, and
which has, through various contractual agreements known as variable interest entity (“VIE”) agreements. These
VIE agreements provide the WOFE management control and the rights to the profits of Guangzhou Yuzhi Information Technology Co.,
Ltd., a corporation organized under the laws of the PRC as a variable interest entity (“GZYZ”), which owns 100% of
Shenzhen Qianhai Exce-card Technology Co., Ltd., a Chinese corporation (“SQEC”), which owns 100% of Guangzhou Rongsheng
Information Technology Co., Ltd., a Chinese corporation (“GZRS”) and the sole shareholder of EGOOS BVI. The
VIE agreements include: (1) an Exclusive Service Agreement between WOFE and GZYZ, which entitles WOFE to receive substantially
all of the economic benefits of GZYZ in consideration for services provided by WOFE to GZYZ, (2) a Call Option Agreement with
the shareholders of GZYZ, Yang Wenbin and Li Ping, allowing the WOFE to acquire all the shares of GZYZ as permitted by PRC laws,
(3) a Voting Rights Proxy Agreement that provides WOFE with the all voting rights of the GZYZ’s shareholders, and (4) an
Equity Pledge Agreement that pledges the shares in GZYZ to WOFE. Management has assessed the terms of the VIE agreements
and determined that the Company is the primary beneficiary of those agreements based on Management’s ability to direct the
use and disposition of GZYZ assets including the payment of future profits to the Company. Management also determined the
Company has implicitly provided financial support to GYZY; accordingly, Management believes that GZYZ and its subsidiaries should
be consolidated as variable interest entities of the Company.
WAVE SYNC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
(Stated in US Dollars)
SQEC
was incorporated on November 11, 2013. The Company is in the business of design, development, and proliferation of next generation
debit and credit cards for financial institutions employing innovative secured encryption technology transmitted via audio wave
technology; the Company intends to work with China Union Pay and China Construction Bank under a potential pilot program to develop
and market to end user bank customers and business operators to adopt these next generation of cards by developing point of sale
and commercial interfaces via software and other solutions to generate demand for these cards as a value-added alternative to
current generation debit and credit cards.
On
January 28, 2015, ownership of SQEC’s was transferred from Bao, Shanshan to Xiang, Zuyue for a consideration of approximately
$1,629,062 (RMB 10,000,000). Simultaneously, Xiang, Zuyue transferred 40% of ownership to Li, Na for a consideration of $651,625
(RMB 4,000,000). On July 24, 2015, SQEC entire ownership was collectively transferred from Xiang, Zuyue and Li, Na to Guangzhou
Yuzhi Information Technology Co. Ltd. (“GZYZ”) for a consideration of approximately $1,629,062 (RMB 10,000,000).
On
March 16, 2015, the GZRS was incorporated as a wholly-owned subsidiary of SQEC. GZRS has an authorized capital of RMB 1,000,000.
As of the date of this report, GZRS has not been capitalized.
Pursuant
to the Share Purchase Agreement the Company issued a convertible note to EGOOS BVI’s sole shareholder for 100% equity interest
in EGOOS BVI. The note is convertible into 15,000,000 shares of the Company’s common stock contingent on the following conditions:
(i) the Company has effectuated a reverse split of all of the issued and outstanding Common Stock as of the date of the issuance
of the note (the “Reverse Split”) and (ii) the average closing price of the common stock for 3 business days within
any period of 10 consecutive business days exceeds $1.00 per share (the “Conversion Conditions”). Upon conversion
of the note, the existing shareholders of the Registrant will own an aggregate of 24.7% of the post-acquisition entity. The note
was issued at Par, it is unsecured, interest free, and is due on the second anniversary of the issuance date of the note. In accounting
for the note, the Company has assumed that the note does not carry any discount from face that requires accretion as interest
expense to its results of operations, including any potential beneficial conversion features. On January 26, 2016, the reverse
split was effectuated, and subsequently, on February 4, 2016, the convertible promissory note was converted into 15 million newly
issued shares of the Company’s common stock. The conversion of the promissory note has been recognized retroactively to
the first period presented as a component of the reverse takeover transactions detailed below.
The
consolidated financial statements were prepared assuming that the Company has controlled EGOOS BVI and its intermediary holding
companies, operating subsidiaries, and variable interest entities: EGOOS HK, WOFE, GZYZ, SQEC, and GZRS from the first period
presented. The transactions detailed above have been accounted for as reverse takeover transactions and a recapitalization of
the Company, including the conversion of the convertible promissory note; accordingly, the Company (the legal acquirer) is considered
the accounting acquiree and EGOOS BVI (the legal acquiree) is considered the accounting acquirer. No goodwill has been recorded.
As a result of this transaction, the Company is deemed to be a continuation of the business of EGOOS BVI and SQEC.
WAVE SYNC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
(Stated in US Dollars)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
The
Company maintains its general ledger and journals with the accrual method of accounting for financial reporting purposes. The
financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally
accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial
statements.
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America (“US GAAP”).
|
C.
|
Principles
of Consolidation
|
The
consolidated financial statements include the accounts of the Company, its subsidiaries for which the Company is the primary beneficiary.
All significant inter-company accounts and transactions have been eliminated. The consolidated financial statements include 100%
of assets, liabilities, and net income or loss of those wholly-owned subsidiaries.
As
of December 31, 2018, the detailed identities of the consolidating subsidiaries are as follows:
Name
of Company
|
|
Place
of incorporation
|
|
Attributable
equity interest %
|
|
|
Registered
capital
|
|
EGOOS Mobile Technology Company Limited (“EGOOS BVI”)
|
|
BVI
|
|
|
100
|
%
|
|
$
|
1
|
|
EGOOS Mobile Technology Company Limited (“EGOOS HK”)
|
|
Hong Kong
|
|
|
100
|
%
|
|
|
1,290
|
|
Move the Purchase Consulting Management (Shenzhen) Co., Ltd. (“WOFE”)
|
|
P.R.C. (WOFE)
|
|
|
100
|
%
|
|
|
-
|
|
Guangzhou Yuzhi Information Technology Co., Ltd. (“GZYZ”)
|
|
P.R.C.
|
|
|
100
|
%
|
|
|
150,527
|
|
Shenzhen Qianhai Exce-card Technology Co., Ltd. (“SQEC”)
|
|
P.R.C.
|
|
|
100
|
%
|
|
|
150,527
|
|
Guangzhou Rongsheng Information Technology Co., Ltd. (“GZRS”)
|
|
P.R.C.
|
|
|
100
|
%
|
|
|
1,505,267
|
|
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.
WAVE SYNC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
(Stated in US Dollars)
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.
|
F.
|
Cash
and cash equivalents
|
The
Company classifies the following instruments as cash and cash equivalents: cash on hand, unrestricted bank deposits, and all highly
liquid investments purchased with original maturities of three months or less.
Trade
receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An estimate
for doubtful accounts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.
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.
|
I.
|
Property,
plant and equipment
|
Plant
and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using
the straight-line method with a salvage value of 10%. Estimated useful lives of the plant and equipment are as follows:
|
Computer equipment
|
3 years
|
|
Office furniture
|
5 years
|
The
cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or
loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant
renewals and betterments are capitalized.
WAVE SYNC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
(Stated in US Dollars)
|
J.
|
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 2018.
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.
|
L.
|
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 years ended December 31, 2018 and 2017, $1,113,217 and $373,509 stock-based compensation was recognized.
|
M.
|
Foreign
currency translation
|
The
accompanying financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi
(RMB) and Hong Kong dollar (HKD). The financial statements are translated into United States dollars from RMB at year-end exchange
rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at
their historical exchange rates when the capital transactions occurred.
Exchange Rates
|
|
12/31/2018
|
|
|
12/31/2017
|
|
Year-end/period-end RMB : US$ exchange rate
|
|
|
6.8764
|
|
|
|
6.5064
|
|
Average annual/period RMB : US$ exchange rate
|
|
|
6.6146
|
|
|
|
6.7570
|
|
|
|
|
|
|
|
|
|
|
Year-end/period-end HKD : US$ exchange rate
|
|
|
7.8312
|
|
|
|
7.8149
|
|
Average annual/period HKD : US$ exchange rate
|
|
|
7.8370
|
|
|
|
7.7922
|
|
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.
WAVE SYNC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
(Stated in US Dollars)
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, 2.) the contract has set forth a fixed fee for the services to be rendered, 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, 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.
Basic
earnings per share is computed on the basis of the weighted average number of common stock outstanding during the period. Diluted
earnings per share is computed on the basis of the weighted average number of common stock and common stock equivalents outstanding.
Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation.
Dilution
is computed by applying the treasury stock method for options and warrants. Under this method, options and warrants are assumed
to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used
to purchase common stock at the average market price during the period.
Comprehensive
income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions
to owners. The Company presents components of comprehensive income with equal prominence to other financial statements. The Company’s
current component of other comprehensive income is the foreign currency translation adjustment.
The
Company evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued.
There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions
that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements,
and (2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance
sheet but arose subsequent to that date.
|
R.
|
Recent
accounting pronouncements
|
In
January 2017, the Financial Accounting Standard Board (“FASB”) issued guidance, which simplifies the accounting for
goodwill impairment. The updated guidance eliminates Step 2 of the impairment test, which requires entities to calculate the implied
fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the
excess of a reporting unit’s carrying amount over its fair value. The Company is still assessing the impact of this pronouncement
to its financial statements.
As of December 31, 2018, except for the above, there are no recently issued accounting standards not
yet adopted that would have a material effect on the Company’s financial statements.
WAVE SYNC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
(Stated in US Dollars)
|
S.
|
Fair
Value of Financial Instruments
|
ASC
825, Financial Instruments, requires that the Company discloses estimated fair values of financial instruments. The carrying amounts
reported in the balance sheets for current assets and current liabilities qualifying as financial instruments are a reasonable
estimate of fair value.
The
Company applies the provisions of ASC 820-10, Fair Value Measurements and Disclosures. ASC 820-10 defines fair value, and establishes
a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value
measures. For certain financial instruments, including cash and cash equivalents, loan receivables and short-term bank loans,
the carrying amounts approximate fair value due to their relatively short maturities. The three levels of valuation hierarchy
are defined as follows:
|
●
|
Level
1 inputs to the valuation methodology are quoted prices for identical assets or liabilities
in active markets.
|
|
|
|
|
●
|
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities
in active markets, and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument.
|
|
|
|
|
●
|
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value
measurement.
|
The
Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities
from Equity,” and ASC 815.
The
following tables present the Company’s financial assets and liabilities at fair value in accordance to ASC 820-10
As of December 31, 2018:
|
|
Quoted in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
|
Total
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
504
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
504
|
|
Total financial assets
|
|
$
|
504
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total financial liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
WAVE SYNC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
(Stated in US Dollars)
As of December 31, 2017:
|
|
Quoted in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
|
Total
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
10,346
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,346
|
|
Total financial assets
|
|
$
|
10,346
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease
|
|
$
|
9,980
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,980
|
|
Total financial liabilities
|
|
$
|
9,980
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,980
|
|
|
3.
|
RELATED
PARTY PAYABLES
|
Related
party payable consisted of the following:
|
|
12/31/2018
|
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
Beijing Yuxin Shangfang Technology Co., Ltd.
|
|
$
|
285,894
|
|
|
$
|
302,155
|
|
Hainan Xin Jing Yuan Co., Ltd.
|
|
|
43,627
|
|
|
|
-
|
|
Xiang, Zuyue, director of SQEC and shareholder
|
|
|
102,217
|
|
|
|
60,198
|
|
Xiang, Lingqing, employee of SQEC
|
|
|
1,504
|
|
|
|
-
|
|
Lim, Jehn Ming, shareholder of EGOOS BVI
|
|
|
1,289
|
|
|
|
1,289
|
|
Wang, Yue, director of EGOOS HK
|
|
|
161,523
|
|
|
|
161,942
|
|
Yang, Mei, shareholder
|
|
|
393,963
|
|
|
|
157,110
|
|
Li, Ping, director of WOFE
|
|
|
4,023
|
|
|
|
2,486
|
|
|
|
$
|
994,040
|
|
|
$
|
685,180
|
|
The
amounts were provided as working capital to financial the Company’s operations. The amounts are unsecured, interest-free
and due on demand.
|
4.
|
PROPERTY,
PLANT AND EQUIPMENT
|
Property,
plant, and equipment consisted of the following as of December 31, 2018 and 2017:
|
|
12/31/2018
|
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
At Cost:
|
|
|
|
|
|
|
Machinery
|
|
$
|
-
|
|
|
$
|
71,852
|
|
Office equipment
|
|
|
18,320
|
|
|
|
19,362
|
|
Office furniture
|
|
|
12,723
|
|
|
|
13,446
|
|
|
|
$
|
31,043
|
|
|
$
|
104,660
|
|
|
|
|
|
|
|
|
|
|
Less
:
Accumulated depreciation
|
|
|
(30,459
|
)
|
|
|
(37,383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
584
|
|
|
$
|
67,277
|
|
Depreciation
expense for the three-month periods ended December 31, 2018 and 2017 was $7,081 and $7,606, respectively.
WAVE SYNC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
(Stated in US Dollars)
Intangible
assets consisted of the following as of December 31, 2018 and 2017:
|
|
9/30/2018
|
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
At Cost:
|
|
|
|
|
|
|
Patent
|
|
$
|
-
|
|
|
$
|
3,952,052
|
|
Software
|
|
|
1,251
|
|
|
|
1,322
|
|
|
|
$
|
1,251
|
|
|
$
|
3,953,374
|
|
|
|
|
|
|
|
|
|
|
Less
:
Accumulated amortization
|
|
|
(1,251
|
)
|
|
|
(1,322
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
3,952,052
|
|
On
July 7, 2017, SQEC and the director and CEO of the Company, Mr. Zuyue Xiang (“Xiang”), entered into an intangible
asset transfer agreement. Xiang transferred his rights and ownership of the patent to a voice smart card and trading system for
a consideration of RMB 10,000,000 (equivalent to USD 1,447,696). The patent was impaired during the year ended December 31, 2018
and was written off to other expense.
Amortization
expense for the years ended December 31, 2018 and 2017 was $0 and $24, respectively.
Accrued
expenses consisted of the followings as of December 31, 2018 and 2017:
|
|
12/31/2018
|
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
Audit fee
|
|
$
|
35,000
|
|
|
$
|
35,000
|
|
Utilities
|
|
|
11,751
|
|
|
|
2,440
|
|
|
|
$
|
46,751
|
|
|
$
|
37,440
|
|
Taxes
payable consisted of the followings as of December 31, 2018 and 2017:
|
|
9/30/2018
|
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
Payroll tax
|
|
$
|
-
|
|
|
$
|
5,270
|
|
Individual income tax
|
|
|
-
|
|
|
|
875
|
|
|
|
$
|
-
|
|
|
$
|
6,145
|
|
WAVE SYNC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
(Stated in US Dollars)
Common
stock
As
of January 1, 2017, the Company had 100,000,000 shares of common stock authorized, 19,920,325 shares issued and outstanding at
par value of $0.001 per share.
On
March 17, 2017, the Company and each of the two holders (the “Noteholders”) of the Company’s convertible notes
(the “Convertible Notes”) entered into a convertible note exchange agreement (the “Agreement”). Pursuant
to the Agreement, the Company issued to the two noteholders an aggregate of approximately 1,106,837 shares of common stock (the
“Common Stock”) of the Company, par value $0.001, in exchange for the Noteholders’ Convertible Notes in an aggregate
principal amount of $2,213,673. Common stock was subsequently issued to the two note holders on April 6, 2017 and April 7, 2017,
respectively – please refer to note 3 related party receivables and payables.
As
of December 31, 2018, the Company has 100,000,000 shares of common stock authorized, 21,027,713 shares issued and outstanding
at par value of $0.001 per share.
Stock
option compensation
On
October 20, 2017, the Company issued to Mr. Yang Liu, the option to purchase 1,050,000 shares of the Company’s common stock
to be issued upon his exercise of such option. The option vests in three tranches according to the following schedule: 350,000
shares at October 19, 2018, 350,000 shares at October 19, 2019, and 350,000 at October 19, 2020. All three tranches expire on
October 19, 2022. The Company has used the widely accepted Black Scholes Merton Option Pricing Model to measure the fair value
of these securities, because of their plain vanilla nature of this option. The Company employed the followings assumptions to
calculate the fair value of the option: expected forfeiture rate: 0%, risk free rate: 2.03%, expiration date: October 19, 2022,
exercise price: $1.00, annualized volatility: 602.71%, dividend yield: 0%, and the Company’s closing stock price at year
end. For the years ended December 31, 2018 and 2017, the Company recorded stock option compensation expense of $1,113,217 and
$ 373,509. On August 22, 2018, Mr. Liu resigned from his position as Chief Executive Officer. The stock options were not fully
vested since his resignation was before the anniversary of his employment period.
The
Company was incorporated in the United States of America (“USA”). The Company did not generate any taxable income
from its operations for the years ended December 31, 2018 and 2017.
The
provision for income taxes consists of the following:
|
|
|
For
the years ended
December 31,
|
|
|
|
|
2018
|
|
|
|
2017
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USA
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
USA
|
|
|
-
|
|
|
|
-
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
WAVE SYNC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
(Stated in US Dollars)
The
reconciliation of USA statutory income tax rate to the Company’s effective income tax rate is as follows:
|
|
|
For
the years ended
December 31,
|
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Income tax at USA statutory rate of 21%
|
|
$
|
-
|
|
|
$
|
-
|
|
Others
|
|
|
-
|
|
|
|
-
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
Uncertain
Tax Positions
Interest
associated with unrecognized tax benefits are classified as income tax, and penalties are classified in selling, general and administrative
expenses in the statements of operations. For the years ended December 31, 2018 and 2017, the Company had no unrecognized
tax benefits and related interest and penalties expenses. Currently, the Company is not subject to examination by major
tax jurisdictions.
Deferred
Income Tax Benefits
Deferred
income tax benefits arise from temporary differences between the tax basis of assets and liabilities and their reported amounts
in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating the Company’s
ability to recover the deferred tax assets, the management considers all available positive and negative evidence, including scheduled
reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations.
In projecting future taxable income, the Company begins with historical results adjusted for the results of discontinued operations
and incorporate assumptions about the amount of future state, federal, and foreign pretax operating income adjusted for items
that do not have tax consequences. The assumptions about future taxable income require the use of significant judgment and are
consistent with the plans and estimates that the Company is using to manage the underlying businesses. As of December 31, 2018,
management was uncertain as to whether or not the Company would be able to utilize the potential deferred tax assets arising from
net operating losses’ since the Company is not currently generating any revenue; accordingly, the Company has not recognized
a deferred tax asset.
WAVE SYNC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
(Stated in US Dollars)
Basic
loss per common share from operations attributable to the Company is based on the weighted-average common shares outstanding during
the relevant period. Diluted loss per common share from continuing operations attributable to the Company is based on the weighted-average
common shares outstanding during the relevant period adjusted for the dilutive effect of share-based awards. The Company did not
have significant share-based awards outstanding that were antidilutive and not included in the calculation of diluted loss per
common share from operations attributable to the Company for the years ended December 31, 2018 and 2017.
The
following table sets forth the computation of basic and diluted earnings per share of common stock:
|
|
For the years ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Basic loss per share:
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
Net loss used in computing basic earnings per share
|
|
$
|
(5,607,041
|
)
|
|
$
|
(4,861,562
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
21,027,162
|
|
|
|
20,721,968
|
|
Basic loss per share
|
|
$
|
(0.27
|
)
|
|
$
|
(0.23
|
)
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss used in computing diluted loss per share
|
|
$
|
(5,607,041
|
)
|
|
$
|
(4,861,562
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$
|
(0.27
|
)
|
|
$
|
(0.23
|
)
|
Dilutive
securities having an anti-dilutive effect on diluted (loss) earnings per share are excluded from the calculation.
|
11.
|
GOING
CONCERN UNCERTAINTIES
|
These
financial statements have been prepared assuming that Company will continue as a going concern, which contemplates the realization
of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As
of December 31, 2018, the Company had accumulated deficits of $27,059,112 and working capital deficit of current liabilities exceeding
current assets by $1,407,762. Management’s plan to support the Company in operations and to maintain its business strategy
is to raise funds through public and private offerings and to rely on officers and directors to perform essential functions with
minimal compensation. If we do not raise all of the money we need from public or private offerings, we will have to find alternative
sources, such as loans or advances from our officers, directors or others. Such additional financing may not become available
on acceptable terms and there can be no assurance that any additional financing that the Company does obtain will be sufficient
to meet its needs in the long term. Even if the Company is able to obtain additional financing, it may contain undue restrictions
on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.
If we require additional cash and cannot raise it, we will either have to suspend operations or cease business entirely.
The
accompanying financial statements do not include any adjustments related to the recoverability and classification of assets or
the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
WAVE SYNC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 AND 2017
(Stated in US Dollars)
|
12.
|
CONCENTRATION
OF RISKS
|
The
Company has certain customers who represented 10% or more of the Company’s total sales. For the year ended December 31,
2018, the Company generated service revenue from one customer which represented 100% of the revenue. For the year ended December
31, 2017, the Company generated service revenue from three customers which represented 33%, 30%, and 35% of the revenue. The Company
is unable to forecast if re-occurring services revenue will be generated from these customers.
|
B.
|
Major
Vendors and Accounts Payable
|
The
Company has certain vendors who represented 10% or more of the Company’s total cost of sales or expenses, or whose accounts
payable balances individually represented 10% or more of the Company’s total accounts payable. For the year ended December
31, 2018, there was no concentration in any specific vendor. For the year ended December 31, 2017, two vendors accounted for 20%
and 80% of accounts payable, respectively.
The
Company maintains cash balances at several financial institutions located in the United States and the PRC. Accounts located in
the United States are insured by the Federal Deposit Insurance Corporation up to $100,000. Accounts located outside of the United
States are not insured and may be subject to such risk.
The
Company evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued.
There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions
that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements,
and (2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance
sheet but arose subsequent to that date.
F-
19