| Summary of significant accounting policies | Note
2 — Summary of significant accounting policies Basis
of presentation The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America ("U.S. GAAP") and pursuant to the rules and regulations of the Securities Exchange
Commission ("SEC"). Principles
of consolidation The
consolidated financial statements include the financial statements of the Company and its subsidiaries. All intercompany transactions
and balances are eliminated upon consolidation. All significant intercompany transactions and balances between the Company and
its subsidiaries are eliminated upon consolidation.
Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power;
or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board
of directors, or to cast a majority of votes at the meeting of directors. Non-controlling
interest represents the portion of the net assets of a subsidiaries attributable to interests that are not owned by the Company.
The non-controlling interest is presented in the consolidated balance sheets, separately from equity attributable to the shareholders
of the Company. Non-controlling interest's operating result is presented on the face of the consolidated statements of income
and comprehensive income as an allocation of the total income for the year between non-controlling shareholders and the shareholders
of the Company. Use
of estimates The
preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date
of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant
accounting estimates reflected in the Company's consolidated financial statements include but not limited to the useful
lives of property and equipment and capitalized development cost, impairment of long-lived assets, valuation of accounts receivables,
revenue recognition, provision for contingent liabilities, and realization of deferred tax assets and uncertain tax positions.
Actual results could differ from these estimates. Foreign
currency translation The
functional currencies of the Company are the local currency of the county in which the subsidiaries operates. The Company's
financial statements are reported using U.S. Dollars. The results of operations and the consolidated statements of cash flows
denominated in foreign currencies are translated at the average rates of exchange during the reporting period. Assets and liabilities
denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that
date. The equity denominated in the functional currencies is translated at the historical rates of exchange at the time of capital
contributions. Because cash flows are translated based on the average translation rates, amounts related to assets and liabilities
reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on
the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period
are included as a separate component of accumulated other comprehensive income included in consolidated statements of changes
in equity. Gains and losses from foreign currency transactions are included in the consolidated statement of income and comprehensive
income. Fair
value measurement ASC
825-10 requires certain disclosures regarding the fair value of financial instruments. Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires
entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used
to measure fair value are as follows:
● Level
1 — inputs to the valuation methodology are quoted prices (unadjusted) 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,
quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that
are observable and inputs derived from or corroborated by observable market data.
● Level
3 — inputs to the valuation methodology are unobservable. Unless
otherwise disclosed, the fair value of the Company's financial instruments including cash, accounts receivable, prepayments,
deposits and other current assets, accounts payable, customer deposits, salaries and benefits payables, and taxes payable approximates
their recorded values due to their short-term maturities. The fair value of the long term prepayments, deposits and other assets
approximate their carrying amounts because the deposits were paid in cash. Cash
Cash
comprise cash at banks and on hand, which includes deposits with original maturities of three months or less with commercial banks
in PRC. As of December 31, 2018 and 2017, cash balances were $4,348,635 and $2,958,674. The Company maintains bank accounts in
the PRC. Cash balances in bank accounts in PRC are not insured by the Federal Deposit Insurance Corporation or other programs. Restricted
cash Restricted
cash mainly represents security deposits as required by certain customers on the Company's projects. The deposits in restricted
bank accounts cannot be withdrawn until the Company completes the related projects. Restricted cash is classified as either current
or non-current based on when the funds will be released in accordance with the terms of the respective agreements. As of December
31, 2018 and 2017, the restricted cash balance related to security deposits required by customers was $92,636 and $97,876, respectively.
In addition, restricted cash also consists of cash equivalents of $467,806 and $109,083 used as collateral to secure short-term
bank notes payable (Note 7) and bank borrowings (Note 8), respectively. The Company is required to keep certain amounts on deposit
that are subject to withdrawal restrictions. Upon the maturity of the bank acceptance notes and bank borrowings, the Company is
required to deposit the remainder to the escrow account to settle the bank notes payable and bank borrowings. The bank notes payable
and bank borrowings are generally short term in nature due to their short maturity period of three months to one year; thus, the
related restricted cash is classified as a current asset. In
November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (230): Restricted Cash. The amendments in this Update
require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash equivalents. For public business entities, the amendments in this update
are effective for fiscal years beginning after December 15, 2017, and interim periods within those annual periods. Earlier adoption
is permitted. The amendments in this Update should be applied using a retrospective transition method to each period presented.
On January 1, 2018, the Company adopted this guidance on a retrospective basis and have applied the changes to the consolidated
statement of cash flows starting from the year ended December 31, 2016. Accounts
receivable, net Accounts
receivable, net, is stated at the original invoiced amount net of write-offs and allowance for doubtful accounts. The Company
reviews the accounts receivable on a periodic basis and makes allowances when there is doubt as to the collectability of individual
balances. Past-due balances over 90 days are reviewed individually for collectability. In evaluating the collectability of individual
accounts receivable balances, the Company considers several factors, including the age of the balance, the customer's payment
history, current credit-worthiness, and current economic trends. Accounts receivable balances are written off after all collection
efforts have been exhausted. Typically, the Company includes unbilled receivables in accounts receivable for contracts on which
revenue has been recognized, but for which the customer has not yet been billed. Unbilled receivables, substantially all of which
are expected to be billed within one year are stated at their estimated realizable value and consist of costs and fees billable
on contract completion or the occurrence of contractual payment phase. Prepayments,
deposits and other assets, net Prepayment,
deposit and other assets, net, primarily consists of advances to suppliers for purchasing goods or services that have not been
received or provided; security deposits made to our customers; advances to employees and loan receivables from business partners.
Prepayment, deposit and other assets are classified as either current or non-current based on the terms of the respective agreements.
These advances are unsecured and are reviewed periodically to determine whether their carrying value has become impaired. Property
and equipment, net Property
and equipment, net, mainly comprise furniture and furniture, vehicles, computer and equipment are stated at cost less accumulated
depreciation and impairment. Property and equipment are depreciated over the estimated useful lives of the assets on a straight-line
basis, after considering the estimated residual value. The
estimated useful lives are as follows:
Useful Life
Office equipment, fixtures and furniture 3-10 years
Automobiles 5-8 years
Capitalized development costs 5 years
Computer equipment 5 years Expenditures
for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred.
Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost
and the related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss
is charged to the statement of income Capitalized
development costs The
Company follows the provisions of Accounting Standards Codification ("ASC") 350-40, "Internal Use Software."
ASC 350-40 provides guidance on capitalization of the costs incurred for computer software developed or obtained for internal
use. The Company expenses all costs incurred during the preliminary project stage of its development, and capitalizes costs incurred
during the application development stage. Costs incurred relating to upgrades and enhancements to the application are capitalized
if it is determined that these upgrades or enhancements add additional functionality to the application. The capitalized development
cost is amortized on a straight-line basis over the estimated useful life, which is generally five years. Management evaluates
the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur
that could impact the recoverability of these assets. Impairment
for long-lived assets Long-lived
assets, including property, equipment, furniture and fixtures and intangible assets with finite lives are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. When these events
occur, the Company measures impairment by comparing the carrying values of the long-lived assets to the estimated undiscounted
future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted
cash flows is less than the carrying amounts of the assets, the Company would recognize an impairment loss based on the excess
of the carrying value over the assessed discounted cash flow amount. For the years ended December 31, 2018, 2017 and 2016, the
Company recognized nil impairment for the long-lived assets. Revenue
recognition The
Company derives its revenues from three sources: (1) revenue from application development services, (2) revenue from consulting
and technical support services, and (3) revenue from subscription services. The
Company recognizes revenues when persuasive evidence of an arrangement exists, delivery of goods and services have occurred, the
sales price is fixed or determinable, and collectability is reasonably assured. All of the Company's contracts with customer
do not contain cancelable and refund-type provisions. (1)
Revenue from application development service The
Company's application development service contracts are primarily on a fixed-price basis, which require the Company to perform
services including project planning, project design, application development and system integration based on customers'
specific needs. These services also require significant production and customization. Upon delivery of the services, customer
acceptance is generally required. In the same contract, the Company is generally required to provide post-contract customer support
("PCS') for a period from three months to three years ("PCS period") after the customized application
development services are delivered. The type of services for PCS clause is generally not specified in the contracts or as stand-ready
services on when-and-if-available basis. Multiple
Deliverable Arrangements The
Company generally enters into arrangements with multiple deliverables for customized application development services contracts.
If the deliverables have standalone value at contract inception, the Company accounts for each deliverable separately. The Company
determines application development service, PCS or specific service, if applicable, as separated deliverables in the fixed-fee
application development service contract. The Company allocates contract revenue to the identified separate units based on their
relative selling prices. In accordance with ASC 605-25-30, the Company uses a hierarchy to determine the selling price to be used
for allocating revenue to the deliverables: (i) vendor-specific objective evidence of fair value ("VSOE"), (ii) third-party
evidence of the selling price ("TPE") and (iii) best estimate of the selling price ("BESP". The Company
uses VSOE of selling price in the selling price allocation in all instances where it exists. VSOE of selling price for products
and services is determined when a substantial majority of the selling prices fall within a reasonable range when sold separately.
The Company has not established VSOE for application development service and PCS due to lack of pricing consistency and variety
of different service provided. In addition, the Company's customized application differs substantially from that of competitors,
it is difficult to obtain the reliable standalone competitive pricing necessary to establish TPE. Accordingly, the Company uses
its BESP of application development services, hardware, consulting and technical support services and subscription services, if
applicable, as the basis of revenue allocation. The Company determines BESP by considering its overall pricing objectives and
market conditions. Significant pricing practices taken into consideration include the size and volume of the transactions, the
geographic area where services are sold, historical standalone sales and contract prices. Revenue
allocated to customized application development services is recognized as the service is performed using the percentage of completion
method of accounting, under which the total value of revenue is recognized on the basis of the percentage that total cost to date
bears to the total expected costs. The Company considers labor costs and related material costs for the input measurement as the
best available indicator of the progress, pattern and timing in which contract obligations are fulfilled. The Company has a long
history of providing these services resulting in its ability to reasonably estimate the labor costs and related material costs
expected to be incurred and the progress toward completion on each fixed-price customized contract based on the proportion of
labor costs and related material costs incurred to date relative to total estimated labor costs and related material costs at
completion. Estimated contract costs are based on the budgeted labor costs and related material costs, which are updated based
on the progress toward completion on a monthly basis. In
certain application development service arrangements, the Company sells and delivers IT equipment on standalone basis prior to
the delivery of the services. Since sale of equipment can be distinguished, and is separately identifiable from other promises
in the contract and it is distinct within the context of the contract, the sale of equipment is considered a separate unit of
accounting. Accordingly, the revenue from the related IT equipment based on its relative standalone selling price is recognized
upon customer acceptance after delivery. The
Company's application development service revenues are generated primarily from contracts with PRC government or related
agencies and state-owned enterprises. The contracts contain negotiated billing terms which generally include multiple payment
phases throughout the contract term and a significant portion of contract amount usually is billed upon the completion of the
related projects. Pursuant to the contract terms, the Company has enforceable right on payments for the work performed. Provisions
for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on
the current contract estimates. In instances where substantive acceptance provisions are specified in customer contracts, revenues
are deferred until all acceptance criteria have been met. To date, the Company has not incurred a material loss on any contracts.
However, as a policy, provisions for estimated losses on such engagements will be made during the period in which a loss becomes
probable and can be reasonably estimated. The fixed-priced application development contracts provide customers with rights to
specified PCS or to unspecified PCS that is if and when available. The
unspecified PCS is stand-ready service on when-and-if-available basis. It grants the customers on line and telephone access to
technical support personnel during the term of the service. Specified PCS includes specified service term in the contract such
as training. Revenue allocated to specified PCS or other services is recognized as the related services are rendered. Revenue
allocated to unspecified PCS component is deferred and recognized on a straight-line basis over the PCS period. (2)
Revenue from consulting and technical support services Revenue
from consulting and technical support services is primarily comprised of fixed-fee contracts, which require the Company to provide
professional consulting and technical support services over contract terms beginning on the commencement date of each contract,
which is the date our service is made available to customers. Revenue is recognized on a straight-line basis as earned over the
terms of the respective contracts, which is typically 12 to 24 months. (3)
Revenue from subscription services Revenue
from subscription services is comprised of subscription fees from customers accessing the Company's software-as-a-service
applications. The Company's monthly or quarterly billing to customer is on the basis of number of uses by the customers.
Revenue from subscription services is recognized in the period when services are occurred. Because our customers purchase the
services on a periodic basis and do not have the right to take possession of the software, we consider these arrangements to be
service contracts and are not within the scope of Industry Topic 985, Software. Revenue
includes reimbursements of travel and out-of-pocket expense, with equivalent amounts of expense recorded in cost of revenue. The
Company reports revenues net of value added tax ("VAT"). The Company's subsidiary in PRC are subject to a 6%
to 17% value added tax ("VAT") and related surcharges on the revenues earned from providing services. Deferred
revenue Deferred
revenue primarily consists of payments received from customers in relation to the service to be provided by the Company but for
which not all of the revenue recognition criteria are met. The deferred revenue will be recognized as revenue once the criteria
for revenue recognition have been met. Deferred revenue to be recognized in the succeeding 12 months period is included in the
current deferred revenue with the remaining amounts included in noncurrent deferred revenue. Government
subsidies Government
subsidies mainly represent amounts granted by local government authorities as an incentive for companies to promote development
of the local technology industry. The Company receives government subsidies related to government sponsored projects, and records
such government subsidies as a liability when it is received. The Company records government subsidies as other income when there
is no further performance obligation. Advertising
expenditures Advertising
expenditures are expensed as incurred and such expenses were minimal for the periods presented. Advertising expenditures have
been included as part of selling and marketing expenses. Operating
leases A
lease for which substantially all the benefits and risks incidental to ownership remain with the lessor is classified by the lessee
as an operating lease. All leases of the Company are currently classified as operating leases. The Company records the total expenses
on a straight-line basis over the lease term. Income
taxes The
Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are
recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the
consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. An
uncertain tax position is recognized as a benefit only if it is "more likely than not" that the tax position would
be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely
of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is
recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period
incurred. No significant penalties or interest relating to income taxes have been incurred during the years ended December 31,
2018, 2017 and 2016. All of the tax returns of the Company's subsidiary in China remain subject to examination by the tax
authorities for five years from the date of filing. Value
added tax Revenue
represents the invoiced value of service, net of VAT. The VAT is based on gross sales price and VAT rates range up to 17%, depending
on the type of service provided. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers
against their output VAT liabilities. Net VAT balance between input VAT and output VAT is recorded in taxes payable. All of the
VAT returns filed by the Company's subsidiary in China, have been and remain subject to examination by the tax authorities
for five years from the date of filing. Employee
defined contribution plan Full
time employees of the Company in the PRC participate in a government mandated multi-employer defined contribution plan pursuant
to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are
provided to employees. Chinese labor regulations require that the Company make contributions to the government for these benefits
based on a certain percentage of the employee's salaries. The Company has no legal obligation for the benefits beyond the
contributions. The total amount was expensed as incurred. Earnings
per share The
Company computes earnings per share ("EPS") in accordance with ASC 260, "Earnings per Share". ASC 260
requires companies to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common
share outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of the potential Ordinary Shares
(e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented,
or issuance date, if later. Potential Ordinary Shares that have an anti-dilutive effect (i.e., those that increase income per
share or decrease loss per share) are excluded from the calculation of diluted EPS. Comprehensive
income (loss) Comprehensive
income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income
(loss) refers to revenue, expenses, gains and losses that under U.S. GAAP are recorded as an element of shareholders' equity
but are excluded from net income. Other comprehensive income (loss) consists of a foreign currency translation adjustment resulting
from the Company not using the U.S. dollar as its functional currencies. Statement
of Cash Flows In
accordance with ASC 230, "Statement of Cash Flows," cash flows from the Company's operations are formulated
based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statements of cash flows
will not necessarily agree with changes in the corresponding balances on the balance sheets. Commitments
and Contingencies In
the normal course of business, the Company is subject to contingencies, including legal proceedings and claims arising out of
the business that relate to a wide range of matters, such as government investigations and tax matters. The Company recognizes
a liability for such contingency if it determines it is probable that a loss has occurred and a reasonable estimate of the loss
can be made. The Company may consider many factors in making these assessments including historical and the specific facts and
circumstances of each matter. Segment
reporting The
Company's chief operating decision maker ("CODM") has been identified as its CEO, who reviews the consolidated
results when making decisions about allocating resources and assessing performance of the Company as a whole and hence, the Company
has only one reportable segment. The Company does not distinguish between markets or segments for the purpose of internal reporting.
The Company's long-lived assets are substantially all located in the PRC and all of the Company's revenues are derived
from the PRC. Therefore, no geographical segments are presented. Concentrations
of Risks
(a) Concentration
of credit risk Assets
that potentially subject the Company to significant concentration of credit risk primarily consist of cash, restricted cash, accounts
receivable and other current assets. The maximum exposure of such assets to credit risk is their carrying amounts as at the balance
sheet dates. As of December 31, 2018 and December 31, 2017, the aggregate amount of cash and restricted cash of $5,006,037 and
$2,905,965, respectively, were held at major financial institutions in PRC, where there currently is no rule or regulation requiring
the financial institutions to maintain insurance to cover bank deposits in the event of bank failure. To limit exposure to credit
risk relating to deposits, the Company primarily place cash deposits with large financial institutions in PRC. The Company conducts
credit evaluations of its customers and suppliers, and generally does not require collateral or other security from them. The
Company establishes an accounting policy for allowance for doubtful accounts on the individual customer's and supplier's
financial condition, credit history, and the current economic conditions.
(b) Foreign
currency risk A
majority of the Company's expense transactions are denominated in RMB and a significant portion of the Company and its subsidiaries'
assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign
exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by
the People's Bank of China ("PBOC"). Remittances in currencies other than RMB by the Company in China must be
processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in
order to affect the remittance. The
Company's functional currency is the RMB, and the Company's financial statements are presented in U.S. dollars. The
RMB depreciated by 1.7% in fiscal year 2017 and further depreciated by 5.7% in fiscal year 2018. It is difficult to predict how
market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.
The change in the value of the RMB relative to the U.S. dollar may affect our financial results reported in the U.S. dollar terms
without giving effect to any underlying changes in our business or results of operations. Currently, our assets, liabilities,
revenues and costs are denominated in RMB. To
the extent that the Company needs to convert U.S. dollars into RMB for capital expenditures and working capital and other business
purposes, appreciation of RMB against U.S. dollar would have an adverse effect on the RMB amount the Company would receive from
the conversion. Conversely, if the Company decides to convert RMB into U.S. dollar for the purpose of making payments for dividends,
strategic acquisition or investments or other business purposes, appreciation of U.S. dollar against RMB would have a negative
effect on the U.S. dollar amount available to the Company.
(c) Significant
customers For
the year ended December 31, 2018, no customer accounted for more than 10% of the Company's total revenues. For the year
ended December 31, 2017, two customers accounted for 17.2% and 13.1% of the Company's total revenues. For the year ended
December 31, 2016, three customers accounted for 16.0%, 12.2%, and 10.0% of the Company's revenues. As of December 31, 2018,
two customers accounted for 12.2% and 10.7% of the Company's accounts receivable. As of December 31, 2017, four customers
accounted for 18.7%, 15.9%, 13.5%, and 10.8% of the Company's accounts receivable.
(d) Significant
suppliers For
the year ended December 31, 2018, three suppliers accounted for 12.9%, 11.2% and 10.3% of the Company's total purchases.
For the year ended December 31, 2017, two suppliers accounted for 16.6% and 12.1% of the Company's total purchases. For
the years ended December 31, 2016, two suppliers accounted for 20.8% and 10.0% of the Company's total purchases. As of December
31, 2018, two suppliers accounted for 10.6% and 10.0% of the Company's total accounts payable. As of December 31, 2017,
four suppliers accounted for 23.0%, 16.9%, 13.4% and 11.4% of the Company's prepayments; and one supplier accounted for
13.5% of the Company's total accounts payable. Recently
issued accounting pronouncements In
May 2014, August 2015, April 2016, May 2016 and December 2016, the FASB issued ASU 2014-09 (ASC Topic 606), Revenue from Contracts
with Customers, ASU 2015-14 (ASC Topic 606) Revenue from Contracts with Customers, Deferral of the Effective Date, ASU 2016-10
(ASC Topic 606) Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing, ASU 2016-12 (ASC Topic
606) Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients, and ASU 2016-20 (ASC Topic 606)
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, respectively. ASC Topic 606 outlines
a single comprehensive model for entities to use in accounting for r |
