The following discussion of our financial condition and results of operations
should be read in conjunction with our audited consolidated financial statements
and the notes to those financial statements appearing elsewhere in this Report.
Certain statements in this Report constitute forward-looking statements. These
forward-looking statements include statements, which involve risks and
uncertainties, regarding, among other things, (a) our projected sales,
profitability, and cash flows, (b) our growth strategy, (c) anticipated trends
in our industry, (d) our future financing plans, and (e) our anticipated needs
for, and use of, working capital. They are generally identifiable by use of the
words "may," "will," "should," "anticipate," "estimate," "plan," "potential,"
"project," "continuing," "ongoing," "expects," "management believes," "we
believe," "we intend," or the negative of these words or other variations on
these words or comparable terminology. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this filing will in fact occur. You should not place undue reliance
on these forward-looking statements.
The forward-looking statements speak only as of the date on which they are made,
and, except to the extent required by federal securities laws, we undertake no
obligation to update any forward-looking statements to reflect events or
circumstances after the date on which the statements are made or to reflect the
occurrence of unanticipated events.
Results of Operations
For the year ended December 31, 2020 compared with the year ended December 31,
2019
Revenue
The Company generated revenue of $234,674 for the year ended December 31, 2020
as compared to revenue of $200,380 for the year ended December 31, 2019. Related
party revenue was $33,755 in 2020, whereas 2019 had $162,832 related party
revenue. The revenue mainly represented the direct sales of bus advertising
service and short video to individuals and businesses. We expect revenue from
our business services segment to increase as we continue to grow our business
and expand into new territories.
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2020
amounted to $775,288, as compared to $847,069 for the year ended December 31,
2019, a decrease of $71,781. The expenses for the year ended December 31, 2020
were primarily consisted of payroll expense, rent expense, office expense, audit
expense, and consulting expense. The decrease of $65,781 in general and
administrative expense is due to decrease in salaries for sales staffs, the
exemption of the Company's parts of social insurance because of the Covid 19,
and the sales' maintenance service. We expect our general and administrative
expense to increase as we expand our business.
Net Loss
The net loss for the year was $683,841 for the year ended December 31, 2020 as
compared to $849,695 for the year ended December 31, 2019. The decrease of net
loss mainly derived from the increase in revenue and decrease in general and
administrative expenses.
Liquidity and Capital Resources
As of December 31, 2020, we had working capital deficit of $1,596,236 consisting
of cash and cash equivalents of $824,733 as compared to working capital deficit
of $853,110 consisting of cash and cash equivalents of $1,106,420 respectively
as of December 31, 2019.
Net cash generated from operating activities for the year ended December 31,
2020 was $996,945 as compared to net cash used in operating activities of
$297,627 for the year ended December 31, 2019. The cash generated from operating
activities was mainly driven by deferred revenue. Due to the increase of revenue
and receipts in advance, the Company has a significant increase of operating
activities cash inflow.
Net cash used in investing activities for the year ended December 31, 2020 and
2019 was $1,355 and $37,464, respectively. The net cash used in investing
activities for the year ended December 31, 2020 were mainly related to purchase
of property, plant and equipment.
Net cash used in financing activities for the year ended December 31, 2020 was
$1,158,844 as compared to net cash provided by financing activities of $650,204
for the year ended December 31, 2019. The net cash provided by financing
activities for the year ended December 31, 2020 were mainly the loan advanced
from related parties and the accrual interest.
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The revenues, if any, generated from our current business operations alone may
not be sufficient to fund our operations or planned growth. We will likely
require additional capital to continue to operate our business, and to further
expand our business. Sources of additional capital through various financing
transactions or arrangements with third parties may include equity or debt
financing, bank loans or revolving credit facilities. We may not be successful
in locating suitable financing transactions in the time period required or at
all, and we may not obtain the capital we require by other means. Our inability
to raise additional funds when required may have a negative impact on our
operations, business development and financial results.
Accounting Policies and Estimates
Use of estimates
In preparing these consolidated financial statements, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities in
the balance sheets, and revenues and expenses during the periods reported.
Actual results may differ from these estimates.
Cash and cash equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand
deposits placed with banks or other financial institutions and all highly liquid
investments with an original maturity of three months or less as of the purchase
date of such investments.
Revenue recognition
Effective January 1, 2018, the Company adopted the guidance of Accounting
Standards Codification (ASC) 606, Revenue from Contracts. The implementation of
ASC 606 did not have a material impact on the Company's consolidated financial
statements. ASC 606 creates a five-step model that requires entities to exercise
judgment when considering the terms of contracts, which includes (1) identifying
the contracts or agreements with a customer, (2) identifying our performance
obligations in the contract or agreement, (3) determining the transaction price,
(4) allocating the transaction price to the separate performance obligations,
and (5) recognizing revenue as each performance obligation is satisfied. The
Company only applies the five-step model to contracts when it is probable that
the Company will collect the consideration it is entitled to in exchange for the
services it transfers to its clients.
The Company's revenue mainly from providing advertising services ("service
revenue").
Cost of revenue
Cost of revenue includes bus media terminal rental fees, bus monitors
maintenance fees, bus screen installation fees and internet data fees.
Income taxes
The provision of income taxes is determined in accordance with the provisions of
ASC Topic 740, "Income Taxes" ("ASC 740"). Under this method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted income tax rates expected to
apply to taxable income in the periods in which those temporary differences are
expected to be recovered or settled. Any effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
ASC 740 prescribes a comprehensive model for how companies should recognize,
measure, present, and disclose in their financial statements uncertain tax
positions taken or expected to be taken on a tax return. Under ASC 740, tax
positions must initially be recognized in the financial statements when it is
more likely than not the position will be sustained upon examination by the tax
authorities. Such tax positions must initially and subsequently be measured as
the largest amount of tax benefit that has a greater than 50% likelihood of
being realized upon ultimate settlement with the tax authority assuming full
knowledge of the position and relevant facts.
The Company did not have any unrecognized tax positions or benefits and there
was no effect on the financial conditions or results of operations for the year
ended December 31, 2019 and period ended December 31, 2018. The Company conducts
major businesses in Mainland China and is subject to tax in this jurisdiction.
As a result of its business activities, the Company will file tax returns that
are subject to examination by the foreign tax authority.
Net loss per share
The Company calculates net loss per share in accordance with ASC Topic 260
"Earnings per share". Basic loss per share is computed by dividing the net loss
by the weighted average number of common shares outstanding during the period.
Diluted loss per share is computed similar to basic loss per share except that
the denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common stock equivalents had
been issued and if the additional common shares were dilutive.
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Foreign currencies translation
Transactions denominated in currencies other than the functional currency are
translated into the functional currency at the exchange rates prevailing at the
dates of the transaction. Monetary assets and liabilities denominated in
currencies other than the functional currency are translated into the functional
currency using the applicable exchange rates at the balance sheet dates. The
resulting exchange differences are recorded in the statements of operations and
comprehensive income.
The reporting currency of the Company is United States Dollars ("US$") and the
accompanying financial statements have been expressed in US$. In addition, the
Company's subsidiary in People's Republic of China maintains its books and
record in its local currency, Chinese Yuan ("CNY"), which is functional currency
as being the primary currency of the economic environment in which the entity
operates.
In general, for consolidation purposes, assets and liabilities of its
subsidiaries whose functional currency is not US$ are translated into US$, in
accordance with ASC Topic 830-30, "Translation of Financial Statement", using
the exchange rate on the balance sheet date. Revenues and expenses are
translated at average rates prevailing during the period. The gains and losses
resulting from translation of financial statements of foreign subsidiary are
recorded as a separate component of accumulated other comprehensive income
within the statements of stockholders' equity.
Translation of amounts from HK$ into US$1 and from RMB into US$1 has been made
at the following exchange rates for the respective periods:
As of and for the
year ended
December 31,
2020 2019
Period-end CNY: US$1 exchange rate 6.53 6.97
Period-average CNY: US$1 exchange rate 6.90 7.01
Period-end HK$: US$1 exchange rate
7.75 7.75
Period-average HK$: US$1 exchange rate 7.75 7.75
Related parties
Parties, which can be a corporation or individual, are considered to be related
if the Company has the ability, directly or indirectly, to control the other
party or exercise significant influence over the other party in making financial
and operating decisions. Companies are also considered to be related if they are
subject to common control or common significant influence.
Fair value of financial instruments:
The carrying value of the Company's financial instruments: cash and cash
equivalents, accounts payable and accrued liabilities, and amount due to a
director approximate at their fair values because of the short-term nature of
these financial instruments.
The Company also follows the guidance of the ASC Topic 820-10, "Fair Value
Measurements and Disclosures" ("ASC 820-10"), with respect to financial assets
and liabilities that are measured at fair value. ASC 820-10 establishes a
three-tier fair value hierarchy that prioritizes the inputs used in measuring
fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which
require the reporting entity to develop its own assumptions.
Fair value estimates are made at a specific point in time based on relevant
market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Lease
In February 2016, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) No. 2016-02, Leases, which was subsequently
amended in 2018 by ASU 2018-10, ASU 2018-11 and ASU 2018-20 (collectively, Topic
842). Topic 842 will require the recognition of a right-of-use asset and a
corresponding lease liability, initially measured at the present value of the
lease payments, for all leases with terms longer than 12 months. For operating
leases, the asset and liability will be expense over the lease term on a
straight-line basis, with all cash flows included in the operating section of
the statement of cash flows. For finance leases, interest on the lease liability
will be recognized separately from the amortization of the right-of-use asset in
the statement of comprehensive income and the repayment of the principal portion
of the lease liability will be classified as a financing activity while the
interest component will be included in the operating section of the statement of
cash flows. Topic 842 is effective for annual and interim reporting periods
beginning after December 15, 2018. Early adoption is permitted. Upon adoption,
leases will be recognized and measured at the beginning of the earliest period
presented using a modified retrospective approach. Topic 842 allows for a
cumulative-effect adjustment in the period the new lease standard is adopted and
will not require restatement of prior periods.
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Prior to January 1, 2019, the Company accounted for leases under ASC 840,
Accounting for Leases. Effective January 1, 2019, the Company adopted the
guidance of ASC 842, Leases, which requires an entity to recognize a
right-of-use asset and a lease liability for virtually all leases. The Company
adopted ASC 842 using a modified retrospective approach. As a result, the
comparative financial information has not been updated and the required
disclosures prior to the date of adoption have not been updated and continue to
be reported under the accounting standards in effect for those periods. The
adoption of ASC 842 on January 1, 2019 resulted in the recognition of operating
lease right-of-use assets of $91,694, lease liabilities for operating leases of
$102,320, and $10,626 adjustment to accumulated deficit. After the adoption, $0
of operating lease right-of-use assets and $0 of lease liabilities for operating
leases, and $0 of adjustment to accumulated deficit were reflected to December
31, 2020 financial statements. See Note 15 for further information regarding the
impact of the adoption of ASC 842 on the Company's financial statements.
Risks and uncertainties
Substantially all the Company's services are conducted in Changsha City, China.
The Company's operations are subject to adverse impact of the coronavirus
outbreak. The lock-down of the whole China in February 2020 severely reduced our
revenue generated from bus advertising business. The extent to which the
COVID-19 impacts our results will depend on future developments, which are
highly uncertain and cannot be predicted, including new information which may
emerge concerning the severity of the coronavirus and the actions taken globally
to contain the coronavirus or treat its impact, among others. Existing insurance
coverage may not provide protection for all costs that may arise from all such
possible events. We are still assessing our business operations and the impact
COVID-19 may have on our results and financial condition, but there can be no
assurance that this analysis will enable us to avoid part or all of any impact
from the spread of COVID-19 or its consequences, including downturns in business
sentiment generally or in our sector in particular.
Recent accounting pronouncements
In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill Impairment," which simplifies how
an entity is required to test goodwill for impairment by eliminating step two
from the goodwill impairment test. Step two of the goodwill impairment test
measures a goodwill impairment loss by comparing the implied fair value of a
reporting unit's goodwill with its carrying amount. The new guidance is
effective prospectively for us for the year ending December 31, 2020 and interim
reporting periods during the year ending December 31, 2020. Early adoption is
permitted for interim or annual goodwill impairment tests performed on testing
dates after January 1, 2017. We are evaluating the effects, if any, of the
adoption of this guidance on our financial position, results of operations and
cash flows.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement. The new
guidance modifies disclosure requirements related to fair value measurement. The
amendments in this ASU are effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2019. Implementation on
a prospective or retrospective basis varies by specific disclosure requirement.
Early adoption is permitted. The standard also allows for early adoption of any
removed or modified disclosures upon issuance of this ASU while delaying
adoption of the additional disclosures until their effective date.
Going Concern
The accompanying financial statements have been prepared using the going concern
basis of accounting, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
As of December 31, 2020, the Company suffered an accumulated deficit of
$2,832,820 and net loss of $683,841. The continuation of the Company as a going
concern through December 31, 2021 is dependent upon improving the profitability
and the continuing financial support from its stockholders. Management believes
the existing shareholders or external financing will provide the additional cash
to meet the Company's obligations as they become due.
These and other factors raise substantial doubt about the Company's ability to
continue as a going concern. These financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result in the Company not being able to continue as a going concern.
Off-Balance Sheet Arrangements
As of December 31, 2020, we have no significant off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our
financial condition, changes in our financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to our stockholders.
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