Notes to the Consolidated Financial
Statements
June 30, 2019
(Unaudited)
Note 1 – Organization and Basis
of presentation
Organization
Sino United Worldwide Consolidated Ltd.
(the “Company”), through its wholly owned subsidiary in Taiwan, Jinchih International Limited (“Jinchih”),
engaged in design, marketing and distributing of hardware and software technologies, including new cell phone apps, as well as
solutions and technology in fleet management, the driving record management system (DMS) that provide total solution and management
mechanism for vehicles and driver behavior control and analysis, which increase driving safety and efficiency.
On September 30, 2017, pursuant
to agreements with one of the Company’s directors, Li-An Chu, the Company transferred the 100% ownership in Jinchih, to Li-An
Chu in exchange for cancellation of debt $379,254 and cancellation of total 25,503,333 shares of the Company’s common stock
owned by a group of stockholders, including Ms Li-An Chu. As a result of these transactions, Jinchih is no longer a wholly owned
subsidiary of the Company as of September 30, 2017.
The Company is working new businesses
in various fields through careful review and critical selection of new growth businesses. The Company is working to strengthen
our core competencies in high technology and blockchain related businesses, such as blockchain dapps technology, fintech services,
professional consultancy for ICO’s, and other high potential critical blockchain projects.
Basis of presentation and consolidation
The accompanying consolidated financial
statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of
America (“US GAAP”) and include the accounts of the Company and its wholly owned subsidiary. All inter-company transactions
and balances are eliminated in consolidation.
Certain amounts in last year’s
financial statements have been reclassified to conform to current year presentation.
Interim Financial Statements
These interim unaudited financial statements
have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information.
They do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated
financial statements. Therefore, these consolidated financial statements should be read in conjunction with the Company's audited
financial statements and notes thereto contained in its report on Form 10-K for the years ended December 31, 2018
The consolidated financial statements
included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management,
are necessary to present fairly the Company's financial position at June 30, 2019, and the results of its operations and cash flows
for the three months ended June 30, 2019. The results of operations for the period ended June 30, 2019 are not necessarily indicative
of the results to be expected for future quarters or the full year.
Note 2 – Going Concern
The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern. The Company had a working
capital deficit of $119,426, an accumulated deficit of $1,750,661 and stockholders’ deficiency was $69,426 as of June
30, 2019. The Company did not generate cash or income from its continuing operation. These factors, among others, raise
substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do
not include any adjustments that might result from the outcome of this uncertainty.
The company is developing new businesses
in various fields. There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to
generate sufficient cash flow from operations; or (2) obtain additional financing through either private placement, public offerings
and/or bank financing necessary to support the Company’s working capital requirements. To the extent that funds generated
from any private placements, public offering and/or bank financing are insufficient to support the Company’s working capital
requirements, the Company will have to raise additional working capital from additional financing. No assurance can be given that
additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital
is not available, the Company may not be able continue its operations.
NOTE 3 – Summary of Significant
Accounting Policies
Use of Estimates
The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the amount of revenues and expenses during the reporting periods. Management
makes these estimates using the best information available at the time the estimates are made. However, actual results could differ
materially from those results. Significant accounting estimates reflected in the Company’s consolidated financial statements
included the valuation of accounts receivable, the estimated useful lives of long-term assets, the valuation of short term investment
and the valuation of deferred tax assets.
Cash and cash equivalents
Cash and cash equivalents include cash
on hand and deposits placed with banks or other financial institutions, which are unrestricted as to withdrawal and use and with
an original maturity of three months or less. The Company maintains its cash in bank deposit accounts. Cash accounts are guaranteed
by the Federal Deposit Insurance Corporation up to $250,000. The Company has not experienced any losses in such accounts and believes
it is not exposed to any significant credit risk on such cash.
Accounts Receivable and Allowance
for Doubtful Accounts
Accounts receivable are recorded at
the invoiced amount, net of an allowance for doubtful accounts. The Company follows paragraph 310-10-50-9 of the FASB Accounting
Standards Codification to estimate the allowance for doubtful accounts. The Company performs on-going credit evaluations of its
customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined
by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off
experience, customer specific facts and economic conditions.
Outstanding account balances are reviewed
individually for collectability. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable
credit losses in the Company’s existing accounts receivable. Bad debt expense is included in general and administrative expenses,
if any. Pursuant to paragraph 310-10-50-2 of the FASB Accounting Standards Codification account balances are charged off against
the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company
has adopted paragraph 310-10-50-6 of the FASB Accounting Standards Codification and determine when receivables are past due or
delinquent based on how recently payments have been received.
Inventories
Inventories consists of products purchased
and are valued at the lower of cost or net realizable value. Cost is determined on the weighted average cost method. The Company
reduces inventories for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability,
equal to the difference between the cost of the inventory and its estimated net realizable value. Factors utilized in the determination
of estimated net realizable value include (i) current sales data and historical return rates, (ii) estimates of future demand,
(iii) competitive pricing pressures, (iv) new product introductions, (v) product expiration dates, and (vi) component and packaging
obsolescence.
The Company evaluates its current level
of inventories considering historical sales and other factors and, based on this evaluation, classify inventory markdowns in the
income statement as a component of cost of goods sold pursuant to Paragraph 420-10-S99 of the FASB Accounting Standards Codification
to adjust inventories to net realizable value. These markdowns are estimates, which could vary significantly from actual requirements
if future economic conditions, customer demand or competition differ from expectations.
Revenue Recognition
The Company’s revenue recognition
policies are in compliance with ASC 605 (Originally issued as Staff Accounting Bulletin (SAB) 104). Revenue is recognized at the
date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed,
no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of
the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. Discounts provided
to customers by the Company at the time of sale are recognized as a reduction in sales as the products are sold. Sales taxes are
not recorded as a component of sales.
The Company derives its revenues from
sales contracts with customers with revenues being generated upon the shipment of merchandise. Persuasive evidence of an arrangement
is demonstrated via sales invoice or contract; product delivery is evidenced by warehouse shipping log as well as a signed acknowledgement
of receipt from the customers or a signed bill of lading from the third party trucking company and title transfers upon shipment,
based on free on board (“FOB”) warehouse terms; the sales price to the customer is fixed upon acceptance of the signed
purchase order or contract and there is no separate sales rebate, discount, or volume incentive. When the Company recognizes revenue,
no provisions are made for returns because, historically, there have been very few sales returns and adjustments that have impacted
the ultimate collection of revenues.
Net sales of products represent
the invoiced value of goods, net of value added taxes (“VAT”). The Company is subject to VAT which is levied on all
of the Company’s products at the rate of 5% on the invoiced value of sales. Sales or Output VAT is borne by customers in
addition to the invoiced value of sales and Purchase or Input VAT is borne by the Company in addition to the invoiced value of
purchases to the extent not refunded for export sales.
Property and Equipment
Property and equipment are stated at
cost, less accumulated depreciation and amortization. Property and equipment are depreciated using the straight-line method over
the estimated useful lives of the assets. Leasehold and tenant improvements are amortized over the shorter of the lease term or
the estimated useful lives of the assets. The Company periodically reviews assets’ estimated useful lives based upon actual
experience and expected future utilization. A change in useful life is treated as a change in accounting estimate and is applied
prospectively.
Upon retirement or disposition
of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is
reflected in selling, general and administrative expenses for that period. Major additions and betterments are capitalized to the
asset accounts while maintenance and repairs, which do not improve or extend the lives of assets, are expensed as incurred.
Investments in Non-consolidated Entities
Investments in non-consolidated
entities are accounted for using the equity method or cost basis depending upon the level of ownership and/or the Company's ability
to exercise significant influence over the operating and financial policies of the investee. When the equity method is used, investments
are recorded at original cost and adjusted periodically to recognize the Company's proportionate share of the investees' net income
or losses after the date of investment. When net losses from an investment are accounted for under the equity method exceed its
carrying amount, the investment balance is reduced to zero and additional losses are not provided for. The Company resumes accounting
for the investment under the equity method if the entity subsequently reports net income and the Company's share of that net income
exceeds the share of net losses not recognized during the period the equity method was suspended. Investments are written down
only when there is clear evidence that a decline in value that is other than temporary has occurred.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement
and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. This topic also establishes a fair value hierarchy that requires classification based on observable and
unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data
(observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
-
Level one - Quoted market prices in active
markets for identical assets or liabilities;
-
Level two - Inputs other than level one inputs that are
either directly or indirectly observable; and
-
Level three - Unobservable inputs
developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market
participant would use.
Determining which category an
asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each
quarter.
The fair values of the Company’s
cash, accounts receivable, accrued expenses and other current liabilities approximate their carrying values due to the relatively
short maturities of these instruments. The carrying value of the Company’s short term and long-term debt approximates fair
value based on management’s best estimate of the interest rates that would be available for similar debt obligations having
similar terms at the balance sheet date.
There are no financial instruments measured
at fair value on a recurring basis.
Impairment of Long-Lived Assets
The Company accounts for the impairment
and disposition of long-lived assets in accordance with ASC 360, Property, Plant and Equipment. The Company periodically evaluates
long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not
be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset were less
than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.
The assumptions used by management in
determining the future cash flows are critical. In the event these expected cash flows are not realized, future impairment losses
may be recorded.
Convertible Instruments
The Company evaluates and accounts
for conversion options embedded in convertible instruments in accordance with ASC 815,
Derivatives and Hedging Activities.
Applicable GAAP requires companies
to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments
according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded
derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the
hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value
under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms
as the embedded derivative instrument would be considered a derivative instrument.
The Company accounts for convertible
instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments)
as follows: The Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded
in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of
the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized
over the term of the related debt to their stated date of redemption.
Income Taxes
The Company accounts for income taxes
in accordance with ASC 740, Income Taxes, which requires that the Company recognize deferred tax liabilities and assets based
on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities, using enacted
tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the
change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when, in the opinion of management,
it is more likely than not that some or all of any deferred tax assets will not be realized.
The Company adopted ASC 740-10-25, Income
Taxes- Overall-Recognition, on January 1, 2007, which provides criteria for the recognition, measurement, presentation and disclosure
of uncertain tax position. The Company must recognize the tax benefit from an uncertain tax position only if it is more likely
than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit
that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company did not recognize any additional
liabilities for uncertain tax positions as a result of the implementation of ASC 740-10-25.
Earnings per Share
The Company calculates its basic and
diluted earnings per share in accordance with ASC 260. Basic earnings per share are calculated by dividing net income by the weighted
average number of common shares outstanding for the period. Diluted earnings per share are calculated by adjusting the weighted
average outstanding shares to assume conversion. For the six months ended June 30, 2019 and 2018, the difference between numbers
of basic and diluted shares of common stock is due to effect of convertible promissory note.
Recently Issued Accounting Pronouncements
Management does not believe that any
recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying
financial statements.
NOTE 4 – Loan Receivable
On June 7, 2019, the Company entered
into a loan agreement with a principal of $50,000. The loan is without definite expiration date and bears no interest.
NOTE 5 – Convertible Promissory
Note
On December 1, 2018, the Company entered
into a loan agreement with Ms. Shoou Chyn Kan, an related individual.
Pursuant to the loan agreement, Ms.
Shoou Chyn Kan agreed to lend the Company $20,000 of loan with 5% of annual interest rate. On the same date, the Company issued
a promissory note to Ms. Shoou Chyn Kan for the principal amount of $20,000. Pursuant to the terms of the note, the note is convertible
into the Company’s common stock at a conversion price of $0.001 per share. The note began to accrue interest at 6% per annum
when it is past due.
On October 1, 2017, Mr. Tee-Keat Ong,
the Chairmen of the Board of Directors, and the Company entered into a loan agreement pursuant to which Mr. Tee-Keat Ong agreed
to lend the Company $30,000 initially with future loan amount up to $1,000,000. On the same date, the Company issued a promissory
note to Mr. Tee-Keat Ong for the principal amount of $30,000. The promissory note bears interest at five percent (5%) per annum
and is due on demand. Pursuant to the terms of the note, the note is convertible into the Company’s common stock at a conversion
price of $0.001 per share. The note began to accrue interest at 10% per annum when it is past due. The loan was paid off in year
2018.
On October 1, 2017, the Company entered
into a loan agreement with Ms. Shoou Chyn Kan, an unrelated individual. Pursuant to the loan agreement, Ms. Shoou Chyn Kan agreed
to lend the Company $65,000 initially with future loan amount up to $1,000,000. On the same date, the Company issued a promissory
note to Ms. Shoou Chyn Kan for the principal amount of $65,000. The promissory note bears interest at 5% per annum and is due on
demand. Pursuant to the terms of the note, the note is convertible into the Company’s common stock at a conversion price
of $0.001 per share. The note began to accrue interest at 10% per annum when it is past due. In 2019, the Company received $15,000
and $50,000 on January 29, 2019 and June 7, 2019, respectively and the principal of this loan is $130,000 on June 30, 2019.
NOTE 6 – INCOME TAXES
The Company did not provide any current
or deferred U.S. federal income tax provision or benefit for any of the periods presented because the Company has experienced operating
losses for U.S. federal income tax purposes since inception. When it is more likely than not that the deferred tax asset cannot
be realized through future income the Company must set up allowance for this future tax benefit.
As
of June 30, 2019, the Company had approximately $1.8 million net operating loss carryforward available in the U.S. from continuing
operation to reduce future taxable income.
The Company set up 100% valuation allowance for deferred tax assets resulting
from net operating loss carryforward.
A reconciliation of the provision for
income taxes to the Company’s effective income tax rate for is as follows:
|
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
Pre-tax
income(loss)
|
|
$
|
9,397
|
|
|
$
|
(8,332
|
)
|
|
U.S. federal corporate income tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
|
Expected U.S. income tax expense(credit)
|
|
|
1,973
|
|
|
|
(1,750
|
)
|
|
Change of valuation allowance
|
|
|
(1,973
|
)
|
|
|
1,750
|
|
|
Effective tax expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
Pre-tax
income(loss)
|
|
$
|
7,271
|
|
|
$
|
(16,392
|
)
|
|
U.S. federal corporate income tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
|
Expected U.S. income tax expense(credit)
|
|
|
1,527
|
|
|
|
(3,442
|
)
|
|
Change of valuation allowance
|
|
|
(1,527
|
)
|
|
|
3,442
|
|
|
Effective tax expense
|
|
$
|
—
|
|
|
$
|
—
|
|
NOTE 7 –SUBSEQUENT EVENTS
The Company has evaluated the existence
of significant events subsequent to the balance sheet date through the date the financial statements were issued and has determined
that there were no subsequent events or transactions which would require recognition or disclosure in the financial statements.