WAVE SYNC CORP. Critical Accounting Policies Method of Accounting The Company maintains its general ledger and journals with the accrual method of accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles inthe United States of America and have been consistently applied in the presentation of financial
statements. Basis of presentation
The consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in
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 ofMarch 31, 2022 , the detailed identities of the consolidating subsidiaries were as follows: Attributable Place of equity Registered Name of Company incorporation interest % capital
New York Link Capital Inc. ("NY Link") New York 100 % $ 100
New York Tech Capital Inc. ("NY Tech") New York 100 % 100
Center Florence, Inc. Delaware 100 % 1
Center St. Louis LLC ("St. Louis") Delaware 100 % 1,000
Royal Park, LLC ("Royal Park") South Carolina 100 % 1,000
Florence Development, LLC. ("Florence") Delaware 100 % 1,000
Time Capital Inc. ("Time Capital") New York 100 % 100
Time Capital Management Inc. ("Time Capital Management") New York 100 % 100
Hudson Capital USA Inc. ("NY Link") New York 100 % 100
Hongkong Internet Financial Services Limited ("HKIFS") Hong Kong
100 % 0.14
As of December 31, 2021 , the detailed identities of the consolidating
subsidiaries were as follows:
Attributable
Place of equity Registered
Name of Company incorporation interest % capital
New York Link Capital Inc. ("NY Link") New York 100 % $ 100
New York Tech Capital Inc. ("NY Tech") New York 100 % 100
Center Florence, Inc. Delaware 100 % 1
Center St. Louis LLC ("St. Louis") Delaware 100 % 1,000
Royal Park, LLC ("Royal Park") South Carolina 100 % 1,000
Florence Development, LLC. ("Florence") Delaware
100 % 1,000
2
Unaudited Interim Financial Information
These unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial reporting and the rules and regulations of theSecurities and Exchange Commission that permit reduced disclosure for interim periods. Therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been made. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the year endingDecember 31, 2022 . The consolidated balance sheets and certain comparative information as ofDecember 31, 2021 are derived from the audited consolidated financial statements and related notes for the year endedDecember 31, 2021 ("2021 Annual Financial Statements"), included in the Company's 2021 Annual Report on Form 10-K. These unaudited interim condensed consolidated financial statements should be read in conjunction with the 2021 Annual Financial Statements. Use of estimates The preparation of the financial statements in conformity withU.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.
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Property, plant and equipment
Lands are carried at cost and no depreciation is provided.
Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method with a salvage value from 0% - 10%. Estimated useful lives of the plant and equipment are as follows:
Building and improvement 15-40 years Furniture and equipment 5-28 years Digital mining machine 5 years Office equipment 3 years Office furniture 5 years Motor vehicle 5 years The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized. Intangible Assets Intangible assets, comprising digital assets, accounting software and big data platform, which are separable from the property and equipment, are stated at cost less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the assets. Digital assets
Digital assets (including Bitcoin and USDT) are included in current assets in the accompanying consolidated balance sheets. Digital assets purchased are recorded at cost and digital assets awarded to the Company through its mining activities are accounted for in connection with the Company's revenue recognition policy disclosed below. Digital assets held are accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the cryptocurrency at the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
For the periods ended
Purchases of digital assets by the Company, if any, will be included within investing activities in the accompanying consolidated statements of cash flows, while digital assets awarded to the Company through its mining activities are included within operating activities on the accompanying consolidated statements of cash flows. The sales of digital assets are included within investing activities in the accompanying consolidated statements of cash flows and any realized gains or losses from such sales are included in "realized gain (loss) on exchange of digital assets" in the consolidated statements of operations and comprehensive income (loss). The Company accounts for its gains or losses in accordance with the first-in first-out method of accounting.
Separable Intangible Asset - Customer-related intangible assets
Customer-related intangible assets arising from the acquisition of subsidiary which has been separated from goodwill by complying with ASC 805-20-55 which meets the contractual-legal criterion for recognition separately from goodwill even though the Company cannot sell or otherwise transfer these lease contracts.
Customer-related intangible assets are accounted for as intangible assets with useful lives of five years. It would be amortized for the useful lives on monthly basis.
The Company tests intangible assets for impairment at the reporting unit level
on an annual basis and between annual tests when an event occurs or
circumstances change that could indicate that the asset might be impaired. The
Company first has the option to assess qualitative factors to determine whether
it is more likely than not that the fair value of a reporting unit is less than
its carrying amount. If the Company decides, as a result of its qualitative
assessment, that it is more-likely-than-not that the fair value of a reporting
unit is less than its carrying amount, the quantitative impairment test is
mandatory. Otherwise, no further testing is required.
4
Business combinations
Business combinations are recorded using the acquisition method of accounting.
The assets acquired, the liabilities assumed and any non-controlling interests
of the acquiree at the acquisition date, if any, are measured at their fair
values as of the acquisition date. Goodwill is recognized and measured as the
excess of the total consideration transferred plus the fair value of any
non-controlling interests of the acquiree and fair value of previously held
equity interest in the acquiree, if any, at the acquisition date over the fair
values of the identifiable net assets acquired. Common forms of the
consideration made in acquisitions include cash and common equity instruments.
Consideration transferred in a business acquisition is measured at the fair
value as of the date of acquisition.
Goodwill The Company tests goodwill for impairment at the reporting unit level on an annual basis and between annual tests when an event occurs or circumstances change that could indicate that the asset might be impaired. The Company first has the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company decides, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is mandatory. Otherwise, no further testing is required.
Impairment of Long-lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. For the periods endedMarch 31, 2022 and 2021, the Company did not recognize any impairment loss of its
long-lived assets. Long term investment
The Company's long-term investments include equity securities without readily determinable fair values and available-for-sale investments.
Equity securities without readily determinable fair values
As of
Equity securities not accounted for using the equity method are carried at fair value with unrealized gains and losses recorded in the consolidated income statements, according to ASC 321, Investments -Equity Securities . The Company elected to record the equity investments in privately held companies using the measurement alternative at cost, less impairment, with subsequent adjustments for observable price changes resulting from orderly transactions for identical or similar investments of the same issuer. Equity investments in privately held companies accounted for using the measurement alternative are subject to periodic impairment reviews. The Company's impairment analysis considers both qualitative and quantitative factors that may have a significant effect on the fair value of these equity securities, including consideration of the impact of the COVID-19 pandemic. In computing realized gains and losses on equity securities, the Company determines cost based on amounts paid using the average cost method. Dividend income is recognized when the right to receive the payment is established.
Available-for-sale investments
For investments in investees' shares which are determined to be debt securities, the Group accounts for them as available-for-sale investments when they are not classified as either trading or held-to-maturity investments. Available-for-sale investments are reported at fair value, with unrealized gains and losses recorded in accumulated other comprehensive income as a component of shareholders' equity. Declines in the fair value of individual available-for-sale investments below their amortized cost due to credit-related factors are recognized as an allowance for credit losses, whereas if declines in the fair value is not due to credit-related factors, the loss is recorded in other comprehensive income / (loss).
Accounting for the Impairment of Long-lived assets
The long-lived assets held by the Company are reviewed in accordance withFinancial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Subtopic 360-10-35, "Accounting for the Impairment or Disposal of Long-Lived Assets," for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Impairment is present if carrying amount of an asset is less than its undiscounted cash flows to be generated. 5 If an asset is considered impaired, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company believes no impairment has occurred to its
assets during 2021 and 2020. Income taxes
The Company uses the accrual method of accounting to determine income taxes for the year. The Company has implemented FASB ASC 740 Accounting for Income Taxes. Income tax liabilities computed according tothe United States ,People's Republic of China (PRC), andHong Kong tax laws provide for the tax effects of transactions reported in the financial statements and consists of taxes currently due, plus deferred taxes, related primarily to differences arising from the recognition of expenses related to the depreciation of plant and equipment, amortization of intangible assets, and provisions for doubtful accounts between financial and tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will be either taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses that are available to offset future income taxes. A valuation allowance is recognized for deferred tax assets if it is more likely than not, that the deferred tax assets will either expire before the Company is able to realize that tax benefit, or that future realization is uncertain.
Stock-based compensation
The Company has elected to use the Black-Scholes-Merton ("BSM") pricing model to
determine the fair value of stock options on the dates of grant. Also, the
Company recognizes stock-based compensation using the straight-line method over
the requisite service period.
The Company values stock awards using the market price on or around the date the shares were awarded and includes the amount of compensation as a period compensation expense over the requisite service period.
For the periods ended
Foreign currency translation
The accompanying financial statements are presented in
For the period ended
For the period endedMarch 31, 2021 , the functional currency of the Company is the USD and Renminbi (RMB). The financial statements are translated into USD from RMB at period-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. March 31, December 31, Exchange rates 2021 2021 Year-end/period-end RMB : US$ exchange rate 6.5713
6.4515
Average annual/period RMB : US$ exchange rate 6.4844 6.3757
The RMB is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into US
Dollar at the rates used in translation.
6
Revenue recognition
The Company recognizes services revenue when the following criteria have been
met: 1) it has agreed and entered into a contract for service with it customers
which the Company identifies the contract and determines the transactions price
with customers, 2) the contract has set forth a fixed fee for the services to be
rendered which the Company has determined the transactions price and the
allocation of such price to performance obligations with the customers, 3) the
Company has fully rendered service to its customers, and there are no additional
obligations that exist that under the terms of the contract that the Company has
not fulfilled that the Company recognizes revenue when the performance
obligation is satisfied, and 4) the Company has either received payment, or
reasonably expects payment from the customer in accordance to the payment terms
set forth in the contract.
Cryptocurrency
When the cryptocurrency is sold in the exchange, which time revenue is recognized. There is no significant financing component in these transactions.
Fair value of the cryptocurrency award received is determined using the quoted price of the related cryptocurrency at the time of receipt.
There is currently no specific definitive guidance under GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company's consolidated financial position and results from operations. Rental income
Rental income from letting the Company's of investment properties is recognised on a straight-line basis over the lease term.
Clubhouse services
Clubhouse income is recognised when services are rendered.
Cost of revenue Cryptocurrency
The cost of revenue of cryptocurrency is the corresponding amount of intangible assets.
Clubhouse services
The cost of revenue of clubhouse services is mainly the labour costs and cost of food and beverage.
Earnings per share Basic earnings per share is computed on the basis of the weighted average number of common stock outstanding during the period. Diluted earnings per share is computed on the basis of the weighted average number of common stock and common stock equivalents outstanding. Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation. Dilution is computed by applying the treasury stock method for options and warrants. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Comprehensive loss Comprehensive income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The Company presents components of comprehensive income with equal prominence to other financial statements. The Company's current component of other comprehensive income is the foreign currency translation adjustment. Subsequent events The Company evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (2) non recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose
subsequent to that date.
7
Fair Value of Financial Instruments
ASC 825, Financial Instruments, requires that the Company discloses estimated fair values of financial instruments. The carrying amounts reported in the balance sheets for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.
The Company applies the provisions of ASC 820-10, Fair Value Measurements and Disclosures. ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. For certain financial instruments, including cash and cash equivalents, loan receivables and short-term bank loans, the carrying amounts approximate fair value due to their relatively short maturities. The three levels of valuation hierarchy are defined as follows:
? Level 1 inputs to the valuation methodology are quoted prices for identical
assets or liabilities in active markets.
? Level 2 inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable for
the asset or liability, either directly or indirectly, for substantially the
full term of the financial instrument.
? Level 3 inputs to the valuation methodology are unobservable and significant to
the fair value measurement.
The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, "Distinguishing Liabilities from Equity," and ASC 815.
The following tables present the Company's financial assets and liabilities at fair value in accordance to ASC 820-10
As ofMarch 31, 2022 : Quoted in Active Markets for Significant Significant Identical Other Observable Unobservable Assets Inputs Inputs (Level 1) (Level 3) (Level 3) Total Financial assets: Cash$ 555,717 $ - $ -$ 555,717
Total financial assets$ 555,717 $ - $ -$ 555,717 As ofDecember 31, 2021 : Quoted in Active Markets for Significant Significant Identical Other Observable Unobservable Assets Inputs Inputs (Level 1) (Level 3) (Level 3) Total Financial assets: Cash$ 2,877,456 $ - $ -$ 2,877,456 Total financial assets$ 2,877,456 $ - $ -$ 2,877,456 8 Results of Operations
Fiscal Quarters Ended
The following table shows the results of operations for the three months endedMarch 31, 2022 and 2021: Three months ended March 31, 2022 2021 Change Percent Revenue$ 789,348 $ -$ 789,348 100.0 % Cost of revenue 228,637 -$ 228,637 100.0 % Gross profit 560,711 -$ 560,711 100.0 % Operating expenses: General and administrative expenses$ 658,031 10,723$ 648,829 6050.8 % Financial expenses$ 49,497 280$ 49,217 17577.5 % Total operating expenses$ 707,528 11,003$ 696,525 6330.3 % Income (loss) from operations$ (146,817 ) (11,003 )$ (135,814 ) 1248.2 % Other income (expenses): Interest income$ 2,644 -$ 2,644 100.0 % Interest expenses$ (18,096 ) -$ (18,096 ) 100.0 % Other income$ 22 -$ 22 (100 )% Total other income (expense), net$ (15,430 ) -$ (15,430 ) 100.0 % Income before income tax (162,247 ) (11,003 ) (151,244 ) 1374.6 % Income tax expense $ - - $ - - % Net income (loss)$ (162,247 ) $ (11,003 ) $ (151,244 ) 1374.6 % Revenue Three months ended Three months ended March 31, March 31, 2022 2021 Revenue $ 789,348 $ - Cost of revenue 228,637 - Gross profit $ 560,711 $ -
There was no revenue for the three months ended
For the three months ended
For the three months ended
Cost of revenue
For the three months ended
For the three months ended
Operating Expenses
The following table sets forth the breakdown of our operating expenses for the
years ended
For the three months ended March 31, Variance
2021 % 2020 % Amount %
General and
administrative
expenses $ 658,031 93.0 % $ 10,723 99.9 % $ 647,308 6036.6 %
Financial expenses 49,497 7.0 % 280 0.1 % 49,217 17577.5 %
Total Amount $ 707,528 100.0 % $ 11,003 100 % $ 696,525 6330.3 %
9
General and administrative and financial expenses were related to corporate overhead, financial and administrative contracted services, such as legal and accounting. General and administrative expenses and financial expenses for the three months endedMarch 31, 2022 were$658,031 as compared to$10,723 for the comparable period endedMarch 31, 2021 , which represented an increase of$647,308 or approximately 60 times. Such increase was primarily attributed to increase of operating expenses of club house and rental business, consulting fee, audit fee, legal and professional fees. Financial expenses for the three months endedMarch 31, 2022 were related to interests on related party loans and a convertible note from the related parties. The increase of interests is contributed by draw down of an unsecured convertible note of$2,000,000 , at an annual interest rate of 10%, onDecember 12, 2021 .
(Loss) Income from Operations and Operating Margin
Loss from operations in the three months ended
Operating margin, or income from operations as a percentage of total revenue was
negative 20% as for the three months ended
Other income (expenses)
The following table sets forth the breakdown of our other income for the three
months ended
For the three months ended March 31, Variance
2022 % 2021 % Amount %Interest income$ 2,644 (17.1 )% $ - - %$ 2,644 100.0 % Interest expenses (18,096 ) 117.3 % - - %
(18,096 ) (100.0 )% Other income 22 (0.2 )% - - % 22 (100.0 )% Total Amount$ (15,430 ) 100.0 % $ - - %$ (15,430 ) 100.0 %
Interest income was
Interest expenses was$18,096 and$0 for the three months endedMarch 31, 2022 and 2021, respectively, showing an increase of 100.0%. This increase is mainly contributed to interest expenses on short term and long term loans obtained by the Company for operation of club house and rental business.
Income tax (benefit) expense
Income tax expense was
Foreign Currency Translation Gain (Loss)
Foreign currency translation gain was
Net (Loss) Income Net loss for the three months endedMarch 31, 2022 and 2021 were$162,247 and$11,003 , respectively. The net loss is mainly due to increase of general and administrative expenses. 10
Liquidity and Capital Resources
Our primary liquidity and capital resource needs are to finance the costs of our operations, to make capital expenditures and to service our debt. We continue to be dependent on our ability to generate revenues, positive cash flows and additional financing. Working Capital Summary
The following table represents a comparison of our working capital for the three
months ended
As of As of
March 31, December 31,
2022 2021
(Unaudited) (Audited)
Current assets $ 946,522 $ 3,049,477
Current liabilities $ 2,612,792 $ 2,672,979
Working capital $ (1,666,270 ) $ 376,498 © Edgar Online, source
