NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Note 1 PRINCIPAL ACTIVITIES
AND ORGANIZATION
The consolidated financial statements
include the financial statements of Nocera, Inc. (“Nocera”) and its subsidiaries, Grand Smooth Inc Limited (“GSI”)
and Guizhou Grand Smooth Technology Ltd. (“GZ GST” or “WFOE”), and Guizhou Wan Feng Hu Intelligent Aquatic
Technology Co. Limited (“GZ WFH”) that is controlled through contractual arrangements. Nocera, GSI, GZ GST and GZ WFH
are collectively referred to as the “Company”.
Nocera was incorporated in the State
of Nevada on February 1, 2002 and is based in Atlanta, Georgia. It did not engage in any operations and was dormant from its inception
until its reverse merger of GSI on December 31, 2018.
Reverse merger
Effective December 31, 2018, Nocera
completed a reverse merger transaction (the “Transaction”) pursuant to an Agreement and Plan of Merger (the “Agreement”),
with (i) GSI, (ii) GSI’s shareholders, Yin-Chieh Cheng and Bi Zhang, who together owned shares constituting 100% of the issued
and outstanding ordinary shares of GSI (the “GSI Shares”) and (iii) GSI Acquisition Corp. Under the terms of the Agreement,
the GSI Shareholders transferred to Nocera all of the GSI Shares in exchange for the issuance of 10,000,000 shares (the “Shares”)
of Nocera’s common stock (the “Share Exchange”). As a result of the reverse merger, GSI became Nocera’s
wholly-owned subsidiary and Yin-Chieh Cheng and Bi Zhang, the former shareholders of GSI, became Nocera’s controlling shareholders.
The share exchange transaction with GSI was treated as a reverse merger, with GSI as the accounting acquirer and Nocera as the
acquired party.
GSI is a limited company established
under the laws and regulations of Hong Kong on August 1, 2014, and is a holding company without any operation.
GZ WFH was incorporated in Xingyi City,
Guizhou Province, People’s Republic of China (“PRC”) on October 25, 2017, and is engaged in providing fish farming
containers service, which integrates sales, installments, and maintenance of aquaculture equipment. The registered capital of GZ
WFH is RMB5,000,000 (equal to US$733,138).
On November 13, 2018, GSI incorporated
GZ GST in PRC with registered capital of US$15,000.
Reorganization
In anticipation of the reverse merger,
GSI undertook a reorganization and became the ultimate holding company of WFOE and GZ WFH, which were all controlled by the same
shareholders before and after the Reorganization.
Effective on December 31, 2018, shareholders
of GZ WFH and WFOE entered into a series of contractual agreements (“VIE Agreements” which are described below). As
a result, GSI, through WFOE, has been determined to be the primary beneficiary of GZ WFH and GZ WFH became VIE of GSI. Accordingly,
GSI consolidates GZ WFH’s operations, assets, and liabilities.
Immediately before and after reorganization
completed on December 31, 2018 as described above, GSI together with WFOE and its VIE were effectively controlled by the same shareholders,
therefore, the reorganization was accounted for as a recapitalization. The accompanying consolidated financial statements have
been prepared as if the current corporate structure has been in existence throughout the periods presented. The consolidation of
the GSI and its subsidiary and VIE has been accounted for at historical cost as of the beginning of the first period presented
in the accompanying financial statements.
Note 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICY
Basis of Presentation
The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission
(“SEC”) for interim financial information. Accordingly, these financial statements do not include all of the information
and footnotes required for complete financial statements and should be read in conjunction with the audited consolidated financial
statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018
filed with the SEC on April 15, 2019.
In the opinion of management, all adjustments
(which include normal recurring adjustments) necessary to present a fair presentation of the Company’s unaudited condensed
consolidated financial position as of September 30, 2019, its consolidated results of operations for the three and nine months
ended September 30, 2019, cash flows for the nine months ended September 30, 2019 and change in equity for the three months ended
September 30, 2019, as applicable, have been made. Operating results for the three and nine months ended September 30, 2019 are
not necessarily indicative of the operating results that may be expected for the year ending December 31, 2019 or any future periods.
Concentrations of Credit Risk
Financial instruments that potentially
expose the Company to concentrations of credit risk consist primarily of accounts receivable. The Company conducts credit evaluations
of its customers and suppliers, and generally does not require collateral or other security from them. The Company evaluates its
collection experience and long outstanding balances to determine the need for an allowance for doubtful accounts. The Company conducts
periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.
There was one customer who represents
96.74% and 98.92% of the Company's total revenue for three months and nine months ended September 30, 2019, respectively. There
was no customer who represents 10% or more of the Company's total revenue for three months or nine months ended September 30, 2018.
The following table sets forth a
summary of single customers who represent 10% or more of the Company’s total accounts receivable:
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
|
|
|
Percentage of the Company’s accounts receivable
|
|
|
|
|
|
|
|
|
Customer A
|
|
|
16.17
|
%
|
|
|
33.47
|
%
|
Customer B
|
|
|
22.61
|
%
|
|
|
21.46
|
%
|
Customer C
|
|
|
60.54
|
%
|
|
|
44.36
|
%
|
|
|
|
99.32
|
%
|
|
|
99.29
|
%
|
The following table sets forth a
summary of single suppliers who represent 10% or more of the Company’s total purchase:
|
|
Nine months ended September 30,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Percentage of the Company’s purchase
|
|
|
|
|
|
|
|
|
Supplier A
|
|
|
71.61
|
%
|
|
|
—
|
|
Supplier B
|
|
|
15.75
|
%
|
|
|
—
|
|
Supplier C
|
|
|
—
|
|
|
|
26.86
|
%
|
Supplier D
|
|
|
—
|
|
|
|
25.43
|
%
|
|
|
|
87.36
|
%
|
|
|
52.29
|
%
|
|
|
Three months ended September 30,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Percentage of the Company’s purchase
|
|
|
|
|
|
|
|
|
Supplier D
|
|
|
—
|
|
|
|
15.56
|
%
|
Supplier E
|
|
|
—
|
|
|
|
12.26
|
%
|
Supplier F
|
|
|
—
|
|
|
|
11.99
|
%
|
Supplier G
|
|
|
—
|
|
|
|
10.63
|
%
|
Supplier H
|
|
|
33.81
|
%
|
|
|
—
|
|
|
|
|
33.81
|
%
|
|
|
50.44
|
%
|
Revenue Recognition
The Company has early adopted ASU 2014-09,
Revenue from Contracts with Customers (Topic 606) and all subsequent ASUs that modified ASC 606 on January 1, 2017.
The core principle of the guidance is
that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle,
the Company applies the following steps:
|
|
Step 1: Identify the contract (s) with a customer
|
|
|
Step 2: Identify the performance obligations in the contract
|
|
|
Step 3: Determine the transaction price
|
|
|
Step 4: Allocate the transaction price to the performance obligation in the contract
|
|
|
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
|
The Company considered revenue is recognized
when (or as) the Company satisfies performance obligations by transferring promised goods or services to its customers. Revenue
is measured at the transaction price which is based on the amount of consideration that the Company expects to receive in exchange
for transferring the promised goods or services to its customers. Contracts with customers are comprised of invoices and written
contracts.
The Company does not have arrangements
for returns from customers and does not have any future obligations directly or indirectly related to services resale by customers.
The Company has no sales incentive programs.
The Company provides goods, maintenance
service warranties for the goods sold with a period vary from 18 months to 72 months, which majority are 18 months, and exclusive
sales agency license to its customers. For performance obligation related to providing products, the Company expects to recognize
the revenue according to the delivery of products. For performance obligation related to maintenance service warranties, the Company
expects to recognize the revenue on a ratable basis using a time-based output method. The performance obligations are typically
satisfied as services are rendered on a straight-line basis over the contract term, which is generally for 18 months as majority
of the maintenance service warranties periods provided are 18 months. For performance obligation related to exclusive agency license,
the Company expects to recognize the revenue when the control has transferred and upon the collection of the consideration. Controls
transfers upon the license is granted.
The Company does not have amounts of
contract assets since revenue is recognized as control of goods is transferred. The contract liabilities consist of advance payments
from customers and deferred revenue. Advance payments from customer is expected to be recognized as revenue within 12 months. Deferred
revenue are expected to be recognized as revenue within 18 months.
Recently Issued Accounting Pronouncements
Recently Adopted Accounting Standards
ASU No. 2016-02. In February 2016,
the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, “Lease (Topic 842)”, a new
lease standard requiring lessees to recognize lease assets and lease liabilities for most leases classified as operating leases
under previous U.S. GAAP. A lessee should recognize in the statement of financial position a liability to make lease payments (the
lease liability) and a right-of-use asset (“ROU” asset) representing its right to use the underlying asset for the
lease term. The guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company
has adopted this standard effective January 1, 2019. The Company elected the optional transition method that permits adoption of
the new standard prospectively, as of the effective date, without adjusting comparative periods presented. Adoption of the standard
resulted in the recognition of $123,769 of ROU assets and $8,226 of lease liabilities on the condensed consolidated balance sheet
as of September 30, 2019 at adoption related to office space, and fish farming facilities.
See Note 7 for disclosure required by
ASC 842.
Except for the ASUs issued but not yet
adopted disclosed in Note 3 to the financial statements on Form 10-K for the fiscal year ended December 31, 2018, previously filed
with the SEC, there is no ASU issued by the FASB that is expected to have a material impact on the condensed consolidated financial
statements upon adoption.
Note 3 INVENTORIES
As of September 30, 2019 and December
31, 2018, inventory consisted of the following:
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
(Unaudited)
|
|
|
|
|
$
|
|
$
|
Raw materials
|
|
|
156,214
|
|
|
|
63,401
|
|
Total
|
|
|
156,214
|
|
|
|
63,401
|
|
Note 4 PREPAID EXPENSES
AND OTHER ASSETS, NET
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
(Unaudited)
|
|
|
|
|
$
|
|
$
|
Receivable from a third party (1)
|
|
|
—
|
|
|
|
551,464
|
|
Other receivables from third party
|
|
|
15,428
|
|
|
|
15,565
|
|
Prepaid rent expense
|
|
|
—
|
|
|
|
3,895
|
|
Others
|
|
|
9,307
|
|
|
|
2,214
|
|
|
|
|
24,735
|
|
|
|
573,138
|
|
Allowance for doubtful accounts (1)
|
|
|
—
|
|
|
|
(82,720
|
)
|
Prepaid expenses and other assets, net
|
|
|
24,735
|
|
|
|
490,418
|
|
(1)
|
The balance as of December 31, 2018
represented the receivable from a concert host. The Company invested a concert which was held in Taiwan in November 2018. As of
December 31, 2018, the Company provided bad debt provision amounting to $82,720.
The balance was nil as of September
30, 2019, because the chairman of the Company, Mr. Cheng Yin Chieh took over the receivable amount of the concert host and assumed
the liabilities related to such receivable to the Company. Please refer to Note 10 Below
|
Note 5 PROPERTY AND EQUIPMENT,
NET
As of September 30, 2019 and December 31,
2018, property and equipment consisted of the following:
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
(Unaudited)
|
|
|
|
|
$
|
|
$
|
Furniture and fixtures
|
|
|
3,672
|
|
|
|
3,793
|
|
Equipment
|
|
|
178,929
|
|
|
|
12,612
|
|
Leasehold improvement
|
|
|
9,746
|
|
|
|
10,066
|
|
Vehicle
|
|
|
40,342
|
|
|
|
41,665
|
|
|
|
|
232,689
|
|
|
|
68,136
|
|
Accumulated depreciation
|
|
|
(29,181
|
)
|
|
|
(9,434
|
)
|
Property and equipment, net
|
|
|
203,508
|
|
|
|
58,702
|
|
The Company recorded depreciation expenses
of $20,691 and $6,064 for the nine months ended September 30, 2019 and 2018, respectively, and $12,764 and $3,684 for the three
months ended September 30, 2019 and 2018, respectively.
Note 6 INTANGIBLE ASSETS, NET
As of September 30, 2019 and December 31,
2018, intangible assets consisted of the following:
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
(Unaudited)
|
|
|
|
|
$
|
|
$
|
Intangible assets
|
|
|
528,192
|
|
|
|
—
|
|
|
|
|
528,192
|
|
|
|
—
|
|
Accumulated amortization
|
|
|
(44,016
|
)
|
|
|
—
|
|
Intangible assets, net
|
|
|
484,176
|
|
|
|
—
|
|
The intangible assets are a series of
software that are surveillance app connecting smart phones, achieving smart fish farming. It reports a real time data of water
in our fish farming tanks, such as temperature, PH value, and dissolved oxygen, to the smart phones of fish farmers, helping fish
farmers to understand the water condition in a timely manner.
The Company recorded amortization expenses
of $45,431 and nil for the nine months ended September 30, 2019 and 2018, respectively, and $27,041 and nil for the three months
ended September 30, 2019 and 2018, respectively.
Note 7 LEASES
The Company has two non-cancelable lease
agreements for certain of the office and accommodation as well as fish farming containers for research and develop advanced technology
for water circulation applying in fishery with original lease periods expiring between 2022 and 2023. The lease terms may include
options to extend or terminate the lease when it is reasonably certain the Company will exercise that option. The Company recognizes
rental expense on a straight-line basis over the lease term.
The following table provides a summary of leases by balance
sheet location as of September 30, 2019:
|
|
Balance Sheet Location
|
|
September 30, 2019
|
|
|
|
|
(Unaudited)
|
|
|
|
|
$
|
Assets
|
|
|
|
|
|
|
Operating- noncurrent
|
|
Operating lease right-of-use assets
|
|
|
123,769
|
|
Total leased assets
|
|
|
|
|
123,769
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Operating – current
|
|
Operating lease liabilities-current
|
|
|
8,226
|
|
Total lease liabilities
|
|
|
|
|
8,226
|
|
The components of lease expenses for the nine and three months
ended September 30, 2019 were as follows:
|
|
Statement of Income Location
|
|
Nine months ended
September 30, 2019
|
|
Three months ended September 30, 2019
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
$
|
|
$
|
Lease Costs
|
|
|
|
|
|
|
|
|
|
|
Operating lease expense
|
|
General and administrative expenses
|
|
|
30,564
|
|
|
|
12,678
|
|
Total net lease costs
|
|
|
|
|
30,564
|
|
|
|
12,678
|
|
Maturity of lease liabilities under our non-cancelable operating
leases as of September 30, 2019 are as follows:
|
|
Operating
|
|
|
(Unaudited)
|
|
|
$
|
|
Remaining 2019
|
|
|
|
—
|
|
|
2020
|
|
|
|
8,483
|
|
|
2021
|
|
|
|
—
|
|
|
2022
|
|
|
|
—
|
|
|
2023
|
|
|
|
—
|
|
|
Total lease payments
|
|
|
|
8,483
|
|
|
Less: interest
|
|
|
|
(257
|
)
|
|
Present value of lease liabilities
|
|
|
|
8,226
|
|
Future minimum rental payments under
our non-cancelable operating leases as of December 31, 2018 were as follows:
|
|
Leases (1)
|
|
|
$
|
|
2019
|
|
|
|
—
|
|
|
2020
|
|
|
|
8,761
|
|
|
2021
|
|
|
|
—
|
|
|
2022
|
|
|
|
—
|
|
|
2023
|
|
|
|
—
|
|
|
Total
|
|
|
|
8,761
|
|
(1) Amounts are based on ASC 840, Leases that was superseded
upon our adoption of ASC 842, Leases on January 1, 2019.
Following table provides a summary of the lease terms and
discount rates for the nine months ended September 30, 2019:
|
|
September 30, 2019
|
Weighted Average Remaining Lease Term
|
|
|
|
|
Operating leases
|
|
|
3 years
|
|
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
|
|
Operating leases
|
|
|
6.18
|
%
|
As most of the leases do not provide
an implicit rate, the Company use the incremental borrowing rate based on the information available at the lease commencement date
to determine the present value of lease payments.
Supplemental information related to the leases for the nine
months ended September 30, 2019 is as follows:
|
|
Nine months ended September 30, 2019
|
|
|
(Unaudited)
|
|
|
$
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
|
145,930
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new lease obligations:
|
|
|
|
|
Operating leases
|
|
|
141,385
|
|
Note 8 CONVERTIBLE
NOTE
On September 20, 2018, Nocera, Inc.
entered into a one year $10,000 Convertible Note (“Note”) with Coral Investment Partners, LP. (“CIP”),
an entity controlled by Erik Nelson, the Company’s corporate secretary and director. The Note carries an interest rate of
twenty-four percent (24%), and is convertible into shares of the Company’s common stock at a price of $0.01 per share. As
an inducement to issue the Note, CIP received 150,000 Class A Warrants and 150,000 Class B warrants at strike prices of $0.50 and
$1.00, respectively.
The Company evaluates convertible instruments,
such as the warrants issued in connection with the Note under Accounting Standards Codification (“ASC”) 815 “Derivatives
and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted
for at fair value with changes in fair value recorded in earnings. The Company determined that the conversion features in the warrants
should not be treated as an embedded derivative, and therefore ASC 815 was not applicable.
If the conversion feature does not require
derivative treatment under ASC 815, the instrument is then evaluated under ASC 470-20 “Debt with Conversion and other Options”
for consideration of any beneficial conversion features (“BCF”) requiring separate recognition. The Company determined
that a BCF existed because the conversion price on the Note was lower than the market price of the Company’s common stock.
The intrinsic value of the BCF was determined
to be approximately $330,000. In accordance with ASC 470-20-30-8, the amount of the discount assigned to the BCF equal to the lower
amount of either i) the Intrinsic Value of the BCF or ii) the proceeds realized upon the issuance of the note, therefore the Company
recorded the discount assigned to the BCF of $10,000. Under the guidelines of ASC 470-20-55-11, the Company determined based on
a $10,000 value of the Note and a $7,095 value for the Warrants; that approximately 58.5% of the Note should be allocated to the
BCF, or $5,850. The BCF was recognized as note discount, and amortized through the maturity of the Note, with a corresponding increase
to additional paid-in capital. For the year ended December 31, 2018, the interest accretion of the BCF was $1,635. The remaining
41.5% of the Note or $7,095 should be allocated to the warrants. Since the allocation cannot exceed the Note value, the value of
the warrants was determined to be $4,150, and it was recognized as note discount to be amortized during the period of Note. The
interest accretion of the warrants was $1,160.
As of December 31, 2018, the remaining
principle amount of the Note was $10,000, and the remaining unamortized note discount was $7,205. The aggregate effective interest
rate on the Note is approximately 24%. For the year ended December 31, 2018, the interest accretion and the contractual interest
coupon of the Note was $2,795 and $671, respectively.
The fair value of 150,000 Class A Warrants
and 150,000 Class B warrants issued on September 20, 2018 were measured by the Black-Scholes pricing model with the following assumptions.
|
|
September 20, 2018
|
|
|
|
Dividend yield
|
|
|
—
|
|
Risk-free interest rate
|
|
|
2.96
|
%
|
Expected term (in years)
|
|
|
4.57
|
|
Volatility
|
|
|
25.3
|
%
|
The Company has repaid the Note together
with the interest on January 3, 2019.
Note 9 INCOME TAXES
The Company and its subsidiary, and
the consolidated VIE file tax returns separately.
United States
On December 22, 2017, the Tax Cuts and
Jobs Act (the “Tax Act”) was signed into legislation. The 2017 Tax Act significantly revises the U.S. corporate income
tax by, among other things, lowering the statutory corporate tax rate from 34% to 21%, imposing a mandatory one-time tax on accumulated
earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax.
On December 22, 2017, Staff Accounting
Bulletin No. 118 ("SAB 118") was issued to provide guidance on accounting for the tax effects of the Tax Act. SAB 118
provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete
the accounting under ASC 740. The Company has completed the assessment of the income tax effect of the Tax Act and there were no
adjustments recorded to the provisional amounts. The Company does not have any toll charge income as of December 31, 2017.
The Company evaluated the Global Intangible
Low Taxed Income ("GILTI") inclusion on current earnings and profits of greater than 10% owned foreign controlled corporations.
The Company has evaluated whether it has additional provision amount resulted by the GILTI inclusion on current earnings and profits
of its foreign controlled corporations. The law also provides that corporate taxpayers may benefit from a 50% reduction in the
GILTI inclusion, which effectively reduces the 21% U.S. corporate tax rate on the foreign income to an effective rate of 10.5%.
The GILTI inclusion further provides for
a foreign tax credit in connection with
the foreign taxes paid. In 2019, the Company recorded a GILTI inclusion of $466,319. The Company has elected to treat the financial
statement impact of GILTI as a current period expenses.
Hong Kong
The HK tax reform has introduced two-tiered
profits tax rates for corporations. Under the two-tiered profits tax rates regime, the profits tax rate for the first HKD $2 million
(approximately $255,096) of assessable profits will be lowered to 8.25% (half of the rate specified in Schedule 8 to the Inland
Revenue Ordinance (IRO)) for corporations. Assessable profits above HKD $2 million (approximately $255,096) will continue to be
subject to the rate of 16.5% for corporations. The Company assessed that the HK entity will not earned profit greater than HKD
$2 million (approximately $255,096), it is subject to a corporate income tax rate of 8.25%. The Company does not have assessable
profits in Hong Kong through 2019.
PRC
WFOE and the consolidated VIE established
in the PRC are subject to the PRC statutory income tax rate of 25%, according to the PRC Enterprise Income Tax (“EIT”)
law.
The components of the income tax provision
are:
|
|
Three months ended
September 30,
|
|
Nine months ended
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
$
|
|
$
|
|
$
|
|
$
|
Current
|
|
|
59,491
|
|
|
|
—
|
|
|
|
59,491
|
|
|
|
—
|
|
Deferred
|
|
|
(35,385
|
)
|
|
|
(15,216
|
)
|
|
|
(60,333
|
)
|
|
|
(29,183
|
)
|
Total income tax expense (benefit)
|
|
|
24,106
|
|
|
|
(15,216
|
)
|
|
|
(842
|
)
|
|
|
(29,183
|
)
|
The reconciliation of income taxes expenses
computed at the PRC statutory tax rate applicable to income tax expense is as follows:
|
|
Nine months ended
September 30,
|
|
|
2019
|
|
2018
|
PRC income tax statutory rate
|
|
|
25.00
|
%
|
|
|
25.00
|
%
|
|
|
|
|
|
|
|
|
|
Tax effect of non-deductible expense
|
|
|
1.16
|
%
|
|
|
(1.38
|
%)
|
Tax effect of non-deductible income
|
|
|
(16.98
|
%)
|
|
|
0.00
|
%
|
Tax effect of different tax rates in other jurisdictions
|
|
|
(30.64
|
%)
|
|
|
(0.07
|
%)
|
GILTI Tax impact
|
|
|
20.15
|
%
|
|
|
0.00
|
%
|
Changes in valuation allowance
|
|
|
1.14
|
%
|
|
|
(0.13
|
%)
|
Effective tax rate
|
|
|
(0.17
|
%)
|
|
|
23.42
|
%
|
Note 10 RELATED PARTY BALANCES
AND TRANSACTIONS
Due to related parties
The balance due to related parties was
as following:
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
$
|
|
$
|
Mr. Zhang Bi (1)
|
|
|
430,451
|
|
|
|
245,545
|
|
Mr. Yin-Chieh Cheng (2)
|
|
|
—
|
|
|
|
556,464
|
|
Coral Capital Partners (3)
|
|
|
—
|
|
|
|
10,718
|
|
Mountain Share Transfer, LLC (3)
|
|
|
—
|
|
|
|
6,624
|
|
Total
|
|
|
430,451
|
|
|
|
819,351
|
|
Due from a related party
The balance due from a related party
was as following:
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
$
|
|
$
|
Mr. Yin-Chieh Cheng (2)
|
|
|
767,982
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
767,982
|
|
|
|
—
|
|
Note:
(1)
|
Mr. Zhang Bi is the chief executive officer of GZ WFH, and he holds 38.5% shares of the Company. The balance represented the amount paid by Mr. Zhang on behalf of the Company for the purchase of the raw materials.
|
(2)
|
Mr. Cheng Yin-Chieh (“Mr. Cheng”) is the chairman the Company, and he holds 42.5% shares of the Company. The balance due to Mr. Cheng as of December 31, 2018 mainly represented the amount paid by Mr. Cheng on behalf of the Company. In September 2019, Mr. Cheng took over the receivable amount of the concert the Company invested in November 2018, and assumed the liability of $551,005 related to such receivable to the Company. In September 2019, Mr. Cheng collected the payment of $1,000,000 from JCD, our exclusive sales agent in Asia Pacific, on behalf of the Company. As agreed between Mr. Cheng and the Company, the due from balance was netted off by due to balances.
|
(3)
|
Coral Capital Partners and Mountain Share Transfer, LLC are companies 100% controlled by Erik S. Nelson, the corporate secretary and director of the Company. The balances as of December 31, 2018 had been paid off in 2019 Q1.
|
Related party transactions
The details of the related party transactions
were as follows:
|
|
For three months ended
September 30,
|
|
For nine months ended
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
$
|
|
$
|
|
$
|
|
$
|
Purchase from related party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Zhang Bi (4)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(168,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid on behalf of the Company for its daily operation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Zhang Bi
|
|
|
(1,854
|
)
|
|
|
—
|
|
|
|
(205,021
|
)
|
|
|
—
|
|
Mr. Yin-Chieh Cheng (2)
|
|
|
(26,533
|
)
|
|
|
(551,295
|
)
|
|
|
(246,832
|
)
|
|
|
(552,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Received on behalf of the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Yin-Chieh Cheng (2) (5)
|
|
|
1,000,000
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party assumed payable due to the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Yin-Chieh Cheng (2) (6)
|
|
|
551,006
|
|
|
|
|
|
|
|
551,006
|
|
|
|
|
|
Note:
(4)
|
The transaction represents the inventory sold by Mr. Zhang Bi to the Company at the market value.
|
(5) The number reflects our Chairman Mr. Cheng Yin-Chieh
collected the payment from JCD, our exclusive sales agent in Asia Pacific, on behalf of the Company.
(6) The transaction represents Mr. Cheng Yin-Chieh took over
the receivable amount of the concert the Company invested in November 2018, and assumed the liabilities related to such receivable
to the Company.
Note 11 EARNINGS (LOSSES)
PER SHARE
The following table sets forth the computation
of basic and diluted earnings (losses) per share for the three and nine months ended September 30, 2019 and 2018.
|
|
For three months ended
September 30,
|
|
For nine months ended
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
$
|
|
$
|
|
$
|
|
$
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to the Company
|
|
|
792,404
|
|
|
|
(52,776
|
)
|
|
|
496,730
|
|
|
|
(90,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
12,354,200
|
|
|
|
10,000,000
|
|
|
|
12,352,881
|
|
|
|
10,000,000
|
|
- Diluted
|
|
|
17,496,357
|
|
|
|
10,000,000
|
|
|
|
15,323,673
|
|
|
|
10,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
0.0641
|
|
|
|
(0.0053
|
)
|
|
|
0.0402
|
|
|
|
(0.0091
|
)
|
- Diluted
|
|
|
0.0453
|
|
|
|
(0.0053
|
)
|
|
|
0.0324
|
|
|
|
(0.0091
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (losses) per common share
is computed using the weighted average number of the common shares outstanding during the period. Diluted earnings (losses) per
share is computed using the weighted average number of ordinary shares and ordinary equivalent shares outstanding during the period.
Note 12 SUBSEQUENT EVENT
The Company has evaluated subsequent
events through the issuance of the unaudited condensed consolidated financial statements and no subsequent event is identified
that would have required adjustment or disclosure in the consolidated financial statements.