UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2020
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 333-228130
WISEMAN GLOBAL LIMITED
(Exact name of registrant issuer as specified in its charter)
| Nevada | 5731 | 32-0576335 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Number) | (IRS Employer Identification Number) |
Building 2, Duoli Hi Tech Industrial Park, No.9, Jinlong 1st Road, Baolong Street, Longgang District, Shenzhen City, Guangdong, People’s Republic of China, 518116
(Address of principal executive offices, including zip code)
+ (86) 755 8489 9169
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding twelve months (or shorter period that the registrant was required to submit and post such files).
YES [X] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large Accelerated Filer [ ] | Accelerated Filer [ ] | Non-accelerated Filer [ ] | Smaller reporting company [X] |
| Emerging growth company [X] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
N/A
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name on each exchange on which registered | ||
| N/A | N/A | N/A |
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at August 14, 2020 | |
| Common Stock, $0.0001 par value | 102,400,000 |
TABLE OF CONTENTS
| -2- |
PART I — FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2020 AND DECEMBER 31, 2019
(In U.S. Dollars, except share data or otherwise stated)
As of June 30, 2020 | As of December 31, 2019 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 87,585 | $ | 362,771 | ||||
| Accounts receivable | 592,566 | 1,216,773 | ||||||
| Inventories | 484,600 | 143,559 | ||||||
| Deposits paid, prepayments and other receivables | 585,016 | 207,781 | ||||||
| TOTAL CURRENT ASSETS | $ | 1,749,767 | $ | 1,930,884 | ||||
| NON-CURRENT ASSETS | ||||||||
| Right of use asset, net | 1,039,519 | 982,682 | ||||||
| Property, plant and equipment, net | 201,337 | 226,094 | ||||||
| TOTAL NON-CURRENT ASSETS | 1,240,856 | 1,208,776 | ||||||
| TOTAL ASSETS | $ | 2,990,623 | $ | 3,139,660 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | - | $ | 31,181 | ||||
| Other payables and accrued liabilities | 288,583 | 296,430 | ||||||
| Income tax payable | 293,266 | 294,503 | ||||||
| Lease liability | 321,462 | 195,205 | ||||||
| Amount due to related parties | 1,218 | 518 | ||||||
| Advance from a director | 16,928 | 2,872 | ||||||
| CURRENT LIABILITIES | 921,457 | 820,709 | ||||||
| NON-CURRENT LIABILITIES | ||||||||
| Lease liability | $ | 718,100 | $ | 787,477 | ||||
| TOTAL NON-CURRENT LIABILITIES | 718,100 | 787,477 | ||||||
| TOTAL LIABILITIES | $ | 1,639,557 | $ | 1,608,186 | ||||
| COMMITMENTS AND CONTINGENCIES | - | - | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock – Par value $0.0001; Authorized: 200,000,000 None issued and outstanding | - | - | ||||||
| Common stock – Par value $ 0.0001; Authorized: 800,000,000 Issued and outstanding: 102,400,000 shares as of June 30, 2020 and 102,400,000 shares as of December 31, 2019 | 10,240 | 10,240 | ||||||
| Additional paid-in capital | 726,760 | 726,760 | ||||||
| Accumulated other comprehensive loss | (23,836 | ) | (9,464 | ) | ||||
| Accumulated profits | 637,902 | 803,938 | ||||||
| TOTAL STOCKHOLDERS’ EQUITY | 1,351,066 | 1,531,474 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 2,990,623 | $ | 3,139,660 | ||||
The accompanying notes are an integral part of these unaudited financial statements.
| F-1 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (UNAUDITED)
(In U.S. Dollars, except share data or otherwise stated)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| REVENUE | $ | 34,551 | $ | 437,669 | $ | 136,231 | $ | 513,796 | ||||||||
| COST OF REVENUE | (17,728 | ) | (336,608 | ) | (74,826 | ) | (392,350 | ) | ||||||||
| GROSS PROFIT | 16,823 | 101,061 | 61,405 | 121,446 | ||||||||||||
| OTHER INCOME, NET | 128,179 | 10,781 | 201,650 | 10,781 | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative | (228,707 | ) | (126,609 | ) | (426,146 | ) | (142,362 | ) | ||||||||
| LOSS FROM OPERATION BEFORE INCOME TAX | (83,705 | ) | (14,767 | ) | (163,091 | ) | (10,135 | ) | ||||||||
| INTEREST INCOME | 35 | 33 | 69 | 62 | ||||||||||||
| LOSS BEFORE INCOME TAX | (83,670 | ) | (14,734 | ) | (163,022 | ) | (10,073 | ) | ||||||||
| INCOME TAX EXPENSES | (3,014 | ) | - | (3,014 | ) | - | ||||||||||
| NET LOSS | (86,684 | ) | (14,734 | ) | (166,036 | ) | (10,073 | ) | ||||||||
| Other comprehensive income/(loss): | ||||||||||||||||
| - Foreign currency translation income (loss) | 2,450 | (119 | ) | (14,369 | ) | (119 | ) | |||||||||
| COMPREHENSIVE LOSS | (84,234 | ) | (14,853 | ) | (180,405 | ) | (10,192 | ) | ||||||||
| NET LOSS PER SHARE, BASIC AND DILUTED | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED | 102,400,000 | 74,909,890 | 102,400,000 | 64,077,347 | ||||||||||||
See accompanying notes to the unaudited financial statements.
| F-2 |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(In U.S. Dollars, except share data or otherwise stated)
Six months ended June 30, 2020 (Unaudited)
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Additional | Accumulated | other | Total | ||||||||||||||||||||
| NUMBER OF | Paid-in | (DEFICIT)/ | comprehensive | STOCKHOLDERS’ | ||||||||||||||||||||
| Shares | Amount | Capital | PROFIT | loss | EQUITY | |||||||||||||||||||
| Balance as of December 31, 2019 | 102,400,000 | $ | 10,240 | $ | 726,760 | $ | 803,938 | $ | (9,464 | ) | $ | 1,531,474 | ||||||||||||
| Net loss for the period | - | $ | - | $ | - | $ | (79,352 | ) | $ | - | $ | (79,352 | ) | |||||||||||
| Foreign currency translation | - | $ | - | $ | - | $ | - | $ | (16,822 | ) | $ | (16,822 | ) | |||||||||||
| Balance as of March 31, 2020 | 102,400,000 | $ | 10,240 | $ | 726,760 | $ | 724,586 | $ | (26,286 | ) | $ | 1,435,300 | ||||||||||||
| Net loss for the period | - | $ | - | $ | - | $ | (86,684 | ) | $ | - | $ | (86,684 | ) | |||||||||||
| Foreign currency translation | - | $ | - | $ | - | $ | - | $ | 2,450 | $ | 2,450 | |||||||||||||
| Balance as of June 30, 2020 | 102,400,000 | $ | 10,240 | $ | 726,760 | $ | 637,902 | $ | (23,836 | ) | $ | 1,351,066 | ||||||||||||
Six months ended June 30, 2019 (Unaudited)
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Additional | Accumulated | other | Total | ||||||||||||||||||||
| NUMBER OF | Paid-in | (DEFICIT)/ | comprehensive | STOCKHOLDERS’ | ||||||||||||||||||||
| Shares | Amount | Capital | PROFIT | loss | EQUITY | |||||||||||||||||||
| Balance as of December 31, 2018 | 50,000,000 | $ | 5,000 | $ | - | $ | (51,551 | ) | $ | - | $ | (46,551 | ) | |||||||||||
| Issuance of share in initial public offering | 5,200,000 | $ | 520 | $ | 259,480 | $ | - | $ | - | $ | 260,000 | |||||||||||||
| Net profit for the period | - | $ | - | $ | - | $ | 4,661 | $ | - | $ | 4,661 | |||||||||||||
| Balance as of March 31, 2019 | 55,200,000 | $ | 5,520 | $ | 259,480 | $ | (46,890 | ) | $ | - | $ | 218,110 | ||||||||||||
| Issuance of private placement shares | 47,200,000 | $ | 4,720 | $ | 467,280 | $ | - | $ | - | $ | 472,000 | |||||||||||||
| Net loss for the period | - | - | $ | - | $ | (14,734 | ) | $ | - | $ | (14,734 | ) | ||||||||||||
| Foreign currency translation | - | $ | - | $ | - | $ | - | $ | (119 | ) | $ | (119 | ) | |||||||||||
| Balance as of June 30, 2019 | 102,400,000 | $ | 10,240 | $ | 726,760 | $ | (61,624 | ) | $ | (119 | ) | $ | 675,257 | |||||||||||
The accompanying notes are an integral part of these unaudited financial statements.
| F-3 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (UNAUDITED)
(In U.S. Dollars, except share data or otherwise stated)
For six months ended June 30, | ||||||||
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (166,036 | ) | $ | (10,073 | ) | ||
| Adjustments to reconcile net profit to net cash used in operating activities: | ||||||||
| Depreciation | 24,614 | 432 | ||||||
| Amortization of ROU asset | 135,187 | - | ||||||
| Change in lease liability | (135,144 | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 608,327 | (12,494 | ) | |||||
| Inventories | (343,756 | ) | (39,490 | ) | ||||
| Deposits paid, prepayments and other receivables | (379,494 | ) | (360,300 | ) | ||||
| Accounts payable | (30,817 | ) | 65,850 | |||||
| Other payables and accrued liabilities | (382 | ) | 62,665 | |||||
| Net cash used in operating activities | $ | (287,501 | ) | $ | (293,410 | ) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from sale of common stock | $ | - | $ | 732,000 | ||||
| Advance from / (Repayment to) a director | $ | 14,097 | (59,212 | ) | ||||
| Net cash provided by financing activities | $ | 14,097 | $ | 672,788 | ||||
| Effect of exchange rate changes in cash and cash equivalents | $ | (1,782 | ) | $ | (349 | ) | ||
| Net (decrease)/increase in cash and cash equivalents | (275,186 | ) | 379,029 | |||||
| Cash and cash equivalents, beginning of period | 362,771 | 16,987 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 87,585 | $ | 396,016 | ||||
| SUPPLEMENTAL CASH FLOWS INFORMATION | ||||||||
| Income taxes paid | $ | - | $ | - | ||||
| Right-of-use assets obtained in exchange for operating lease obligations | $ | 191,915 | $ | - | ||||
The accompanying notes are an integral part of these unaudited financial statements.
| F-4 |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2020 (UNAUDITED)
(In U.S. Dollars, except share data or otherwise stated)
1. ORGANIZATION AND BUSINESS ACQUISITIONS
Wiseman Global Limited (“WISM”) was incorporated in Nevada on July 17, 2018, and before the transaction described below, WISM is engaged distributing a full line of major household appliances and related products in PRC region including Shenzhen and Hong Kong.
| Name | Place/date of incorporation | Principal activities | |||
| Wisdom Global Group Co., Limited | Seychelles / May 17, 2018 | Investment holding | |||
| Wiseman Global Limited (“Wiseman HK”) | Hong Kong / July 31, 2018 | Distributing a full line of major household appliances and related products | |||
Shenzhen Wiseman Smart Industrial Co., Limited (“SWSICL”)
| PRC / March 18, 2019
| Distributing a full line of major household appliances and related products | |||
| Shenzhen Wiseman Industrial Development Co., Limited (“SWIDCL”) | PRC / December 29, 2017 (Acquired on August 12, 2019) | Distributing a full line of major household appliances and related products |
Wiseman Global Limited is a company that operates through its wholly owned subsidiary, Wisdom Global Group Co., Limited, a Company incorporated in Seychelles. It should be noted that our wholly owned subsidiary, Wisdom Global Group Co., Limited owns 100% of Wiseman HK, a Hong Kong Company. At this time, we operate exclusively through our wholly owned subsidiaries and share the same business plan with our subsidiaries.
On September 7, 2018, Wisdom Global Group Co., Limited acquired 100% of the equity interests of Wiseman HK, from our chief executive officer, Mr. Lai Jinpeng. On September 12, 2018, Wiseman Global Limited, a Nevada corporation, acquired 100% of the equity interests of Wisdom Global Group Co., Limited, from our chief executive officer, Mr. Lai Jinpeng.
Shenzhen Wiseman Smart Industrial Co., Limited, a wholly-owned subsidiary of Wiseman HK, was incorporated in the PRC on March 18, 2019.
On August 12, 2019, SWSICL acquired 100% of the equity interests of Wiseman Industrial Development Co., Limited from Ms. Wu Wenzhi.
Wiseman Global Limited and its subsidiaries are hereinafter referred to as the “Company”.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company are prepared pursuant to the rules and regulations of the U.S. Securities and Exchanges Commission (“SEC”) and in conformity with generally accepted accounting principles in the U.S. (“US GAAP”). All material inter-company accounts and transactions have been eliminated in consolidation. The Company has adopted December 31 as its fiscal year end.
| F-5 |
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts 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 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. The Chinese Renminbi is not freely convertible into foreign currencies. Under the PRC Foreign Exchange Control Regulations and Administration of Settlement, Sales and Payment of Foreign Exchange Regulations, the Company is permitted to exchange Chinese Renminbi for foreign currencies through banks that are authorized to conduct foreign exchange business.
Accounts Receivable
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. The Company extends credit to its customers in the normal course of business and generally does not require collateral. The Company’s credit terms are dependent upon the segment, and the customer. The Company assesses the probability of collection from each customer at the outset of the arrangement based on a number of factors, including the customer’s payment history and its current creditworthiness. If in management’s judgment collection is not probable, the Company does not record revenue until the uncertainty is removed.
Management performs ongoing credit evaluations, and the Company maintains an allowance for potential credit losses based upon its loss history and its aging analysis. The allowance for doubtful accounts is the Company’s best estimate of the amount of credit losses in existing accounts receivable. Management reviews the allowance for doubtful accounts each reporting period based on a detailed analysis of trade receivables. In the analysis, management primarily considers the age of the customer’s receivable, and also considers the creditworthiness of the customer, the economic conditions of the customer’s industry, general economic conditions and trends, and the business relationship and history with its customers, among other factors. If any of these factors change, the Company may also change its original estimates, which could impact the level of the Company’s future allowance for doubtful accounts. If judgments regarding the collectability of receivables were incorrect, adjustments to the allowance may be required, which would reduce profitability.
Accounts receivable are recognized and carried at the original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful accounts receivable is made when collection of the full amount is no longer probable. Bad debts are written off as identified. No allowance for doubtful accounts was made for the period ended June 30, 2020.
| F-6 |
Revenue Recognition
Revenue is generated through sale of goods, consultancy, integration and installation services. Revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods and services. The Company applies the following five-step model in order to determine this amount:
(i) identification of the promised goods and services in the contract;
(ii) determination of whether the promised goods and services are performance obligations, including whether they are distinct in the context of the contract;
(iii) measurement of the transaction price, including the constraint on variable consideration;
(iv) allocation of the transaction price to the performance obligations; and
(v) recognition of revenue when (or as) the Company satisfies each performance obligation.
The Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under Topic 606, the Company records revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is probable. The Company records revenue from the sale of product upon shipment or delivery of the products to the customer. The Company allows for 12-month warranties to be purchased on the products. Our warranty includes the repair works for the unfunctional products, and the costs of the spare parts are not included in our warranty. In management’s opinion, there is no provision made for warranty provided.
The revenue that generated through sale of goods are $124,845. Revenue generated through integration and installation services are $11,386.
Other Income
For the six months ended June 30, 2020, we recorded an amount of $201,650 as other income, net as compared to $10,781 other income, net for the six months ended June 30, 2019.
The net other income incurred during the six months ended June 30, 2020 is derived from rental income, income from face mask trading, and distribution income. The net other income that generated through rental income is $120,000. Net other income generated through face mask trading is $54,869. Net other income generated through distribution income is $26,781.
The face mask trading is the temporary business, which the Company expects to discontinue the face mask trading on the fiscal year ended 2020. The discontinue is due to the low profit margin due to the highly competitive market in face mask trading.
The net other income incurred during the six months ended June 30, 2019 of $10,781 is generated from the service rendered.
Shipping and handling costs
Costs for shipping and handling activities, including those activities that occur subsequent to transfer of control to the customer, are recorded as cost of sales and are expensed as incurred. The Company accrues costs for shipping and handling activities that occur after control of the promised good has transferred to the customer.
Earnings Per Share
The Company reports earnings per share in accordance with ASC 260 “Earnings Per Share”, which requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. Further, if the number of common shares outstanding increases as a result of a stock dividend or stock split or decreases as a result of a reverse stock split, the computations of a basic and diluted earnings per share shall be adjusted retroactively for all periods presented to reflect that change in capital structure.
The Company’s basic earnings per share is computed by dividing the net income available to holders by the weighted average number of the Company’s ordinary shares outstanding. Diluted earnings per share reflects the amount of net income available to each ordinary share outstanding during the period plus the number of additional shares that would have been outstanding if potentially dilutive securities had been issued.
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.
| F-7 |
Income Taxes
The Company accounts for income taxes using the asset and liability method prescribed by ASC 740 “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the years in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
New U.S. federal tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “U.S. Tax Reform”), was signed into law on December 22, 2017. The U.S. Tax Reform modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transaction tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers may elect to pay the one-time transition tax over eight years, or in a single lump-sum payment.
Foreign Currency 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.
The reporting currency of the Company is United States Dollars (“US$”). The Company’s subsidiary in Seychelles, Hong Kong and PRC maintains its books and record in United States Dollars (“US$”), Hong Kong Dollars (“HK$”) and Chinese Renminbi (“CNY¥”) respectively.
In general, for consolidation purposes, assets and liabilities of its subsidiary whose functional currency is not the US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.
Translation of amounts from the local currencies of the Company into US$ has been made at the following exchange rates for the respective periods:
| As of and for the period ended | ||||
| June 30, 2020 | ||||
| Period-end HK$ : US$1 exchange rate | 7.75 | |||
| Period-average HK$ : US$1 exchange rate | 7.75 | |||
| Period-end CNY¥ : US$1 exchange rate | 7.07 | |||
| Period-average CNY¥ : US$1 exchange rate | 7.05 | |||
Fair Value Measurement
Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures”, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The statement clarifies that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the asset or liability. It also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and that market participant assumptions include assumptions about risk and effect of a restriction on the sale or use of an asset.
| F-8 |
This ASC establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
Recently issued and adopted accounting pronouncements
In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required recognize the following for all leases (with the exception of short-term leases) at the commencement date: 1) A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and 2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those years. This standard takes effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. According to this new standard, the Company records both right-of-use asset and lease liability of $1,039,519 on its consolidated financial statements for the period ended June 30, 2020.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326). ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company beginning January 1, 2023, and early adoption is permitted.
The Company reviews new accounting standards as issued. Management has not identified any other new standards that it believes will have a significant impact on the Company’s consolidated financial statements.
4. ACCOUNTS RECEIVABLE
The receivable and allowance balances as of June 30, 2020 and December 31, 2019 are as follows:
| June 30, 2020 | December 31, 2019 | |||||||
| (unaudited) | (audited) | |||||||
| Accounts receivable | $ | 592,566 | $ | 1,216,773 | ||||
| Less: allowance for doubtful accounts | - | - | ||||||
| Accounts receivable, net | $ | 592,566 | $ | 1,216,773 | ||||
| F-9 |
5. INVENTORIES
Inventories consisted of the following as of June 30, 2020 and December 31, 2019:
| June 30, 2020 | December 31, 2019 | |||||||
| (unaudited) | (audited) | |||||||
| Finished goods | $ | 484,600 | $ | 143,559 | ||||
| Inventories | $ | 484,600 | $ | 143,559 | ||||
There is no inventory allowance for the six months ended June 30, 2020.
6. DEPOSITS PAID, PREPAYMENTS AND OTHER RECEIVABLES
Deposits paid, prepayments and other receivables consisted of the following as of June 30, 2020 and December 31, 2019:
| June 30, 2020 | December 31, 2019 | |||||||
| (unaudited) | (audited) | |||||||
| Deposits paid | $ | 100,000 | $ | 100,000 | ||||
| Prepayments | 385,012 | 61,779 | ||||||
| Other receivables | 100,004 | 46,002 | ||||||
| Total deposits paid, prepayments and other receivables | $ | 585,016 | $ | 207,781 | ||||
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of June 30, 2020 and December 31, 2019:
| June 30, 2020 | December 31, 2019 | |||||||
| (unaudited) | (audited) | |||||||
| Office equipment | $ | 14,415 | $ | 14,563 | ||||
| Furniture and fixtures | 68,788 | 68,788 | ||||||
| Leasehold improvement | 159,212 | 159,212 | ||||||
| Less: accumulated depreciation | (41,078 | ) | (16,469 | ) | ||||
| Property, plant and equipment, net | $ | 201,337 | $ | 226,094 | ||||
Depreciation expense for the six months ended June 30, 2020 and June 30, 2019 was $24,614 and $432, respectively.
8. OTHER PAYABLES AND ACCRUED LIABILITIES
Other payables and accrued liabilities consisted of the following as of June 30, 2020 and December 31, 2019:
| June 30, 2020 | December 31, 2019 | |||||||
| (unaudited) | (audited) | |||||||
| Other payables | $ | 172,096 | $ | 258,398 | ||||
| Accrued other expenses | 30,146 | 38,032 | ||||||
| Receipt in advance | 86,341 | - | ||||||
| Total other payables and accrued liabilities | $ | 288,583 | $ | 296,430 | ||||
| F-10 |
9. SHAREHOLDERS’ EQUITY
As of June 30, 2020, the Company had a total of 102,400,000 shares of its common stock issued and outstanding.
There are no shares of preferred stock issued and outstanding.
10. ADVANCE FROM A DIRECTOR
As of June 30, 2020 and December 31, 2019, there is an advance from a director of $16,928 and $2,872, respectively.
11. RELATED PARTY TRANSACTIONS
| Name of Related Parties | Relationship with the Company | |
| SHENZHEN WISEMAN SMART TECHNOLOGY GROUP CO., LIMITED | A company which is owned 66% by our CEO. | |
| XUZHI WU | The family member of the CEO and the Director of the Company. | |
| WENZHI WU | The family member of the CEO and the Director of the Company. | |
| JINPENG LAI | The CEO and the Director of the Company. |
Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | |||||||
| Revenue: | ||||||||
| - SHENZHEN WISEMAN SMART TECHNOLOGY GROUP CO., LIMITED | $ | 377 | $ | - | ||||
| - XUZHI WU | $ | - | $ | 37,124 | ||||
| Cost of revenue: | ||||||||
| - SHENZHEN WISEMAN SMART TECHNOLOGY GROUP CO., LIMITED | $ | - | $ | 219,424 | ||||
| Other income (cost): | ||||||||
| - SHENZHEN WISEMAN SMART TECHNOLOGY GROUP CO., LIMITED | $ | (135,562 | ) | $ | - | |||
| Inventories: | ||||||||
| - SHENZHEN WISEMAN SMART TECHNOLOGY GROUP CO., LIMITED | $ | 107,475 | $ | 4,569 | ||||
| Prepayment, other receivables and deposit: | ||||||||
| - SHENZHEN WISEMAN SMART TECHNOLOGY GROUP CO., LIMITED | $ | 103,414 | $ | - | ||||
| Accounts payable: | ||||||||
| - SHENZHEN WISEMAN SMART TECHNOLOGY GROUP CO., LIMITED | $ | - | $ | 63,032 | ||||
| Other payables and accrued liabilities: | ||||||||
| - SHENZHEN WISEMAN SMART TECHNOLOGY GROUP CO., LIMITED | $ | 23,355 | $ | - | ||||
| Amount due to related parties: | ||||||||
| - WENZHI WU | $ | 1,218 | $ | - | ||||
| Advance from a director: | ||||||||
| - JINPENG LAI | $ | 16,928 | $ | 2,872 | ||||
| F-11 |
12. INCOME TAX
The Company is an U.S. entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as the Company had no United States taxable income for the three months ended June 30, 2020.
Wisdom Global Group Co., Limited was incorporated in the Republic of Seychelles and, under the laws of Seychelles, is not subject to income taxes.
The Company operates in Hong Kong and files tax returns in the Hong Kong jurisdiction. Wiseman Global Limited was incorporated in Hong Kong and is subject to Hong Kong income tax at a tax rate of 16.5%. (the first HK$ 2 million (equivalent US$ 258,000) of profits earned by the company will be taxed at half the current tax rate (i.e., 8.25%) whilst the remaining profits will continue to be taxed at the existing 16.5% tax rate.)
SWISCL and SWIDCL were incorporated in the PRC and with the enterprise income tax rate of 25%.
No deferred taxes were recognized for the three months ended June 30, 2020.
Provision for income tax expense will be projected at year end date.
Effective and Statutory Rate Reconciliation
The effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates.
The following table summarizes a reconciliation of the Company’s income taxes expenses:
| Six months ended | ||||||||
| June 30, | ||||||||
| 2020 | 2019 | |||||||
| (unaudited) | (unaudited) | |||||||
| Computed expected benefits | (25 | )% | (25 | )% | ||||
| Effect of foreign tax rate difference | 3 | % | (53 | )% | ||||
| Tax losses not recognized | 23 | % | 142 | % | ||||
| Temporary difference not recognized | (1 | )% | (64 | )% | ||||
| Income tax expense | 0 | % | 0 | % | ||||
| Six months ended | ||||||||
| June 30, | ||||||||
| 2020 | 2019 | |||||||
| (unaudited) | (unaudited) | |||||||
| PRC statutory tax rate | 25 | % | 25 | % | ||||
| Computed expected benefits | $ | (41,509 | ) | $ | (2,519 | ) | ||
| Effect of foreign tax rate difference | 5,159 | (5,343 | ) | |||||
| Tax losses not recognized | 38,213 | 14,309 | ||||||
| Temporary difference not recognized | (1,863 | ) | (6,447 | ) | ||||
| Income tax expense | $ | 0 | $ | 0 | ||||
| F-12 |
The following table sets forth the significant components of the aggregate deferred tax assets of the Company as of June 30, 2020:
| Six months ended | ||||||||
| June 30, | ||||||||
| 2020 | 2019 | |||||||
| (unaudited) | (unaudited) | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry forwards | ||||||||
| - United States of America | $ | 53,470 | $ | 24,740 | ||||
| - Hong Kong | - | - | ||||||
| - PRC | 8,079 | - | ||||||
| Less: valuation allowance | (61,549 | ) | (24,740 | ) | ||||
| Deferred tax assets | $ | - | $ | - | ||||
Value Added Tax (“VAT”)
In accordance with the relevant taxation laws in the PRC, the normal VAT rate for domestic sales is 17%, which is levied on the invoiced value of sales and is payable by the purchaser. SWSICL and SWIDCL enjoyed preferential VAT rate of 13%. The Company is required to remit the VAT it collects to the tax authority. A credit is available whereby VAT paid on purchases can be used to offset the VAT due on sales.
13. LEASE RIGHT-OF-USE ASSET AND LEASE LIABILITIES
The Company implemented new accounting policy according to the ASC 842, Leases, on August 1, 2019 on a modified retrospective basis and did not restate comparative periods. Under the new policy, the Company recognized approximately US$1,138,274 lease liability as well as right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. Lease liabilities are measured at present value of the sum of remaining rental payments as of June 30, 2020, with discounted rate of 5.0697%. A single lease cost is recognized over the lease term on a generally straight-line basis. All cash payments of operating lease cost are classified within operating activities in the statement of cash flows.
As of June 30, 2020 and December 31, 2019, the right-of use asset and lease liabilities are as follows:
| June 30, 2020 | December 31, 2019 | |||||||
| (unaudited) | (audited) | |||||||
| Within 1 year | $ | 182,683 | $ | 240,000 | ||||
| After 1 year but within 5 years | 954,935 | 860,000 | ||||||
| Total lease payments | $ | 1,137,618 | $ | 1,100,000 | ||||
| Less: imputed interest | (98,056 | ) | (117,318 | ) | ||||
| Total lease obligations | 1,039,562 | 982,682 | ||||||
| Less: current obligations | (321,462 | ) | (195,205 | ) | ||||
| Long-term lease obligations | $ | 718,100 | $ | 787,477 | ||||
Other information:
| Six months ended June 30, | ||||||||
| 2020 | 2019 | |||||||
| (unaudited) | (unaudited) | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | - | |||||||
| Operating cash flow from operating lease | $ | 80,220 | $ | - | ||||
| Right-of-use assets obtained in exchange for operating lease liabilities | 191,915 | - | ||||||
| Remaining lease term for operating lease (years) | 4.83 | - | ||||||
| Weighted average discount rate for operating lease | 5.0697 | % | - | |||||
14. SUBSEQUENT EVENTS
The Company has evaluated subsequent events from the balance sheet date through August 14, 2019, the date the Company issued unaudited consolidated financial statements in accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. During this period, there was no subsequent event that required recognition or disclosure.
COVID-19
On March 11, 2020, the World Health Organization or WHO declared the corona virus or COVID-19 a pandemic. Due to the outbreak first reported on December 31, 2019 and in response to the outbreak, the municipal government of Guangdong Province has taken strict control measures to prevent the further outbreak of the disease since January 28, 2020. As a result, a notice issued by the municipal government of Guangdong Province that most of the business entities, including commercial banks, hotels, public transportation and express delivery companies, except for those related to epidemic prevention supply, utility supply, supermarkets, etc., in Shenzhen City were not allowed to resume operations before February 9, 2020, and all of our employees (including staff in our accounting department) were not able to come back to the office. The Company resumed its operation from February 10 to February 13, 2020. However, on February 14, 2020, the Company decided to temporarily shut down its operations as new infected cases dramatically increased on or around that same time. The Company fully resumed its operations on March 2, 2020.
Substantially all of the Company’s revenues are concentrated in the PRC. Consequently, its results of operations will likely be adversely, and may be materially, affected, to the extent that the COVID-19 or any other epidemic harms the PRC and global economy in general. Any potential impact to its results will depend on, to a large extent, future developments and new information that may emerge regarding the duration and severity of the COVID-19 and the actions taken by government authorities and other entities to contain the COVID-19 or treat its impact, almost all of which are beyond its control. Potential impacts include, but are not limited to, the following:
| ● | temporary closure of offices, travel restrictions, financial impact of the Company’s customers or suspension supplies may negatively affected, and could continue to negatively affect, the demand for the Company’s product; | |
| ● | the Company may have to provide significant sales incentives to its customers during the outbreak, which may in turn materially adversely affect its financial condition and operating results; and |
any disruption of the Company’s supply chain, logistics providers or customers could adversely impact its business and results of operations, including causing the Company or its suppliers to cease manufacturing for a period of time or materially delay delivery to its customers, which may also lead to loss of its customers.
Because of the uncertainty surrounding the COVID-19 outbreak, the financial impact related to the outbreak of and response to the COVID-19 cannot be reasonably estimated at this time. There is no guarantee that the Company’s total revenues will grow or remain at the similar level year over year in the remaining period of 2020.
| F-13 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this quarter report on Form 10-Q is intended to update the information contained in our Form 10-K dated May 12, 2020, for the year ended December 31, 2019 and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Form 10-Q.
The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarter report. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the factors described in our Form S-1/A registration statement, filed on December 12, 2018, in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this quarter report on Form 10-Q. The following should also be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto that appear elsewhere in this report.
Company Overview
We are a household appliances and related domestic appliances products company in the PRC. Our principal business activity is the provision of household appliances products and related domestic appliances products. Our products improve the home lifestyle and living solutions experience, predominately through power savings, resources efficiencies and functionalities of products. We sell our products to corporate customers, retail customers and independent distributors predominately in the PRC and intend to expand our business in other countries around the world. Our products are typically used in a home setting of consumers of all demographics on a daily basis and meet the convenience-oriented preferences of today’s consumer across a broad range of household activities. We help make daily life easier through a broad range of products that offer multi-purpose functions. Our diverse product portfolio includes televisions, air-conditioners, laundry appliances, refrigerators and freezers, cooking appliances, dishwashers, mixers and other small domestic appliances. Our products are known for their quality, which is recognized by our consumers, retail customers, and corporate customers alike. We believe our customers know they can depend on our trusted brand. These factors generate loyalty which empowers us to develop and launch new products that expand application scenarios and transforms our product portfolio into the smart household appliances category.
Our business has three main divisions and revenue streams, namely, (i) sales of household appliances and related domestic appliances products; (ii) consultancy; and (iii) integration and installation services. Virtually all of our products are manufactured by independent original equipment manufacturers (“OEMs”) in the PRC. For the three months ended June 30, 2020, our revenue was $34,551, and our gross profit was approximately $16,823. For the three months ended June 30, 2019, our revenue was $136,231, and our gross profit was approximately $61,405. We conduct our business through Shenzhen Wiseman Smart Industrial Co., Limited and its subsidiaries which are founded in the PRC and our Hong Kong subsidiary, Wiseman Global Limited (“Wiseman HK”).
| -3- |
Results of operations for the three months ended June 30, 2020
| Three Months Ended June 30, | Increase (decrease) in 2020 | |||||||||||||||||||||||
| 2020 | 2019 | compared to 2019 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Revenue | $ | 34,551 | 100.0 | % | $ | 437,669 | 100.0 | % | $ | (403,118 | ) | (92.1 | )% | |||||||||||
| Cost of revenues | (17,728 | ) | (51.3 | )% | (336,608 | ) | (76.9 | )% | 318,880 | 94.7 | % | |||||||||||||
| Gross profit | 16,823 | 48.7 | % | 101,061 | 23.1 | % | (84,238 | ) | (83.4 | )% | ||||||||||||||
| Operating expenses | (228,707 | ) | (661.9 | )% | (126,609 | ) | (28.9 | )% | (102,098 | ) | (80.6 | )% | ||||||||||||
Other income, net | 128,179 | 371.0 | % | 10,781 | 2.5 | % | 117,398 | 1,088.9 | % | |||||||||||||||
| Income (Loss) from operations | (83,705 | ) | (242.3 | )% | (14,767 | ) | (3.3 | )% | (68,938 | ) | (466.8 | )% | ||||||||||||
| Net finance income | 35 | 0.0 | % | 33 | 0.0 | % | 2 | 0.0 | % | |||||||||||||||
| Income tax expense | (3,014 | ) | (8.7 | )% | - | - | % | (3,014 | ) | - | % | |||||||||||||
| Net profit (loss) | $ | (86,684 | ) | (250.9 | )% | $ | (14,734 | ) | (3.3 | )% | $ | (71,950 | ) | (488.3 | )% | |||||||||
Revenues
For the three months ended June 30, 2020 and 2019, the Company generated revenue in the amount of $34,551 and $437,669, representing a significant decrease of approximately 92.1%. The revenue is generated from the sales of household appliances and related products, and integration and installation services in China. The significant decrease of revenue was a result of the overall decline of our business due to the impact of COVID-19 to our business.
Cost of Revenue
Cost of revenue for the three months ended June 30, 2020 amounted to approximately $17,728 as compared to $336,608 for the three months ended June 30, 2019, representing a significant decrease of approximately 94.7%. The significant decrease of cost of revenue was the result of the overall decline of our business due to the impact of COVID-19 to our business. The cost of revenue was predominantly the cost of manufactured goods sold to customers.
Gross profit
Our gross profit decreased from $101,061 for three months ended June 30, 2019 to approximately $16,823 for three months ended June 30, 2020, representing a significant decrease of approximately 83.4%. The significant decrease was primarily attributable to our sales decrease.
Operating Expenses
For the three months ended June 30, 2020 and 2019, we had operating expenses in the amount of $228,707 and $126,609, respectively, representing a significant increase of approximately 80.6%. The significant increase was primarily attributable to the increase in leases expense, salary, other professional fees and advertising and promotion.
Other Income, net
For the three months ended June 30, 2020, we recorded an amount of $128,179 as other income, net as compared to $10,781 other income, net for the three months ended June 30, 2019. The increase was primarily attributable to the rental income, income from face mask trading, and distribution income.
The face mask trading is the temporary business, which the Company expects to discontinue the face mask trading on the fiscal year ended 2020. The discontinue is due to the low profit margin due to the highly competitive market in face mask trading.
The net other income incurred during the three months ended June 30, 2019 mainly derived from the service income.
Income tax expenses
For the three months ended June 30, 2020 and 2019, we had an income tax expenses of $3,014 and $0, respectively.
Net Loss
For the three months ended June 30, 2020, we had a net loss of $86,684 while we had a net loss of $14,734 for the three months ended June 30, 2019, representing a significant increase of approximately 488.3%. The significant increase on the net loss was primarily attributable to the significant increase in operating expenses and the overall decline of our business.
| -3- |
Results of operations for the six months ended June 30, 2020
| Six Months Ended June 30, | Increase (decrease) in 2020 | |||||||||||||||||||||||
| 2020 | 2019 | compared to 2019 | ||||||||||||||||||||||
| (In U.S. dollars, except for percentages) | ||||||||||||||||||||||||
| Revenue | $ | 136,231 | 100.0 | % | $ | 513,796 | 100.0 | % | $ | (377,565 | ) | (73.5 | )% | |||||||||||
| Cost of revenues | (74,826 | ) | (54.9 | )% | (392,350 | ) | (76.4 | )% | 317,524 | 80.9 | % | |||||||||||||
| Gross profit | 61,405 | 45.1 | % | 121,446 | 23.6 | % | (60,041 | ) | (49.4 | )% | ||||||||||||||
| Operating expenses | (426,146 | ) | (312.8 | )% | (142,362 | ) | (27.7 | )% | (283,784 | ) | (199.3 | )% | ||||||||||||
| Other income, net | 201,650 | 148.0 | % | 10,781 | 2.1 | % | 190,869 | 1,770.4 | % | |||||||||||||||
| Loss from operations | (163,091 | ) | (119.7 | )% | (10,135 | ) | (2.0 | )% | (152,956 | ) | (1,509.2 | )% | ||||||||||||
| Net finance income | 69 | 0.0 | % | 62 | 0.0 | % | 7 | 11.3 | % | |||||||||||||||
| Income tax expense | (3,014 | ) | (2.2 | )% | - | - | % | (3,014 | ) | - | % | |||||||||||||
| Net loss | $ | (166,036 | ) | (121.9 | )% | $ | (10,073 | ) | (2.0 | )% | $ | (155,963 | ) | (1,548.3 | )% | |||||||||
Revenues
For the six months ended June 30, 2020 and 2019, the Company generated revenue in the amount of $136,231 and $513,796, representing a significant decrease of approximately 73.5%. The revenue is generated from the sales of household appliances and related products, the sales of face mask, and integration and installation services in China. The significant decrease of revenue was a result of the overall decline of our business due to the impact of COVID-19 to our businesses.
Cost of Revenue
Cost of revenue for the six months ended June 30, 2020 amounted to approximately $74,826 as compared to $392,350 for the six months ended June 30, 2019, representing a significant decrease of approximately 80.9%. The significant decrease of cost of revenue was a result of the overall decline of our business due to the impact of COVID-19 to our businesses. The cost of revenue was predominantly the cost of manufactured goods sold to customers.
Gross profit
Our gross profit decreased from $121,446 for six months ended June 30, 2019 to approximately $61,405 for six months ended June 30, 2020, representing a decrease of approximately 49.4%. The decrease was primarily attributable to our sales decline.
Operating Expenses
For the six months ended June 30, 2020 and 2019, we had operating expenses in the amount of $426,146 and $142,362, respectively, representing a significant increase of approximately 199.3%. The significant increase was primarily attributable to the increase in leases expense, salary, other professional fees and advertising and promotion.
Other Income, net
For the six months ended June 30, 2020, we recorded an amount of $201,650 as other income, net as compared to $10,781 other income, net for the six months ended June 30, 2019. The increase was primarily attributable to the rental income, income from face mask trading, and distribution income.
The face mask trading is the temporary business, which the Company expects to discontinue the face mask trading on the fiscal year ended 2020. The discontinue is due to the low profit margin due to the highly competitive market in face mask trading.
The net other income incurred during the six months ended June 30, 2019 mainly derived from the service income.
Income tax expenses
For the six months ended June 30, 2020 and 2019, we had an income tax expenses of $3,014 and $0, respectively.
Net Loss
For the six months ended June 30, 2020, we had a net loss of $166,036 while we had a net loss of $10,073 for the six months ended June 30, 2019, representing a significant increase of approximately 1,548.3%. The significant increase on the net loss was primarily attributable to the significant increase in operating expenses and the overall decline of our business.
Liquidity and Capital Resources
On March 11, 2020, the World Health Organization or WHO declared the corona virus or COVID-19 a pandemic. Due to the outbreak first reported on December 31, 2019 and in response to the outbreak, the municipal government of Guangdong Province has taken strict control measures to prevent the further outbreak of the disease since January 28, 2020. As a result, a notice issued by the municipal government of Guangdong Province that most of the business entities, including commercial banks, hotels, public transportation and express delivery companies, except for those related to epidemic prevention supply, utility supply, supermarkets, etc., in Shenzhen City were not allowed to resume operations before February 9, 2020, and all of our employees (including staff in our accounting department) were not able to come back to the office. The Company resumed its operation from February 10 to February 13, 2020. However, on February 14, 2020, the Company decided to temporarily shut down its operations as new infected cases dramatically increased on or around that same time. The Company fully resumed its operations on March 2, 2020.
Substantially all of the Company’s revenues are concentrated in the PRC. Consequently, its results of operations will likely be adversely, and may be materially, affected, to the extent that the COVID-19 or any other epidemic harms the PRC and global economy in general. Any potential impact to its results will depend on, to a large extent, future developments and new information that may emerge regarding the duration and severity of the COVID-19 and the actions taken by government authorities and other entities to contain the COVID-19 or treat its impact, almost all of which are beyond its control. Potential impacts include, but are not limited to, the following:
| ● | temporary closure of offices, travel restrictions, financial impact of the Company’s customers or suspension supplies may negatively affected, and could continue to negatively affect, the demand for the Company’s product; | |
| ● | the Company may have to provide significant sales incentives to its customers during the outbreak, which may in turn materially adversely affect its financial condition and operating results; and |
any disruption of the Company’s supply chain, logistics providers or customers could adversely impact its business and results of operations, including causing the Company or its suppliers to cease manufacturing for a period of time or materially delay delivery to its customers, which may also lead to loss of its customers.
Because of the uncertainty surrounding the COVID-19 outbreak, the financial impact related to the outbreak of and response to the COVID-19 cannot be reasonably estimated at this time. There is no guarantee that the Company’s total revenues will grow or remain at the similar level year over year in the remaining period of 2020.
The following summarizes the key components of our cash flows for the six months ended June 30, 2020 and 2019 are as follow:
| 2020 | 2019 | |||||||
| (In U.S. dollars) | ||||||||
| Net cash used in operating activities | $ | (287,501 | ) | $ | (293,410 | ) | ||
| Net cash provided by financing activities | $ | 14,097 | $ | 672,788 | ||||
| -4- |
Cash Used in Operating Activities
For the six months ended June 30, 2020 and 2019, net cash used in operating activities was $287,501 and $293,410, respectively. The cash used in operating activities was attributable to operating expenses which included leases expense, salary, other professional fees and advertising and promotions.
Cash Provided by Financing Activities
For the six months ended June 30, 2020 and 2019, the Company had advances of $14,097 and repaid $59,212 to our sole executive officer and director, Mr. Lai Jinpeng.
For the six months ended June 30, 2020 and 2019, net cash provided by financing activities was $14,907 and $672,788, respectively, which reflected the proceeds from advances from the directors and issuance of common stock.
Off-balance Sheet Arrangements
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 as of June 30, 2020.
Contractual Obligations
As a smaller reporting company, we are not required to provide the aforementioned information.
Critical Accounting Policies
Recent accounting pronouncements
In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required recognize the following for all leases (with the exception of short-term leases) at the commencement date: 1) A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and 2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those years. This standard takes effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. According to this new standard, the Company should record both right-of-use asset and lease liability of $1,039,519 on its consolidated financial statements for the period ended June 30, 2020.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326). ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company beginning January 1, 2023, and early adoption is permitted.
The Company reviews new accounting standards as issued. Management has not identified any other new standards that it believes will have a significant impact on the Company’s consolidated financial statements.
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Item 3 Quantitative and Qualitative Disclosures About Market Risk.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
Item 4 Controls and Procedures.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer, of the effectiveness of our disclosure controls and procedures as of June 30, 2020. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting, our chief executive officer concluded that our disclosure controls and procedures were not effective. The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (i) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (ii) inadequate segregation of duties and effective risk assessment; (iii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines; and (iv) lack of internal audit function due to the fact that the Company lacks qualified resources to perform the internal audit functions properly and that the scope and effectiveness of the internal audit function are yet to be developed. The aforementioned material weaknesses were identified by our chief executive officer in connection with the review of our financial statements as of June 30, 2020.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The internal controls for the Company are provided by executive management’s review and approval of all transactions. Our internal control over financial reporting also includes those policies and procedures that:
| 1. | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; | |
| 2. | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management; and | |
| 3. | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of these controls.
As of June 30, 2020, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 2013 and SEC guidance on conducting such assessments. Based on such evaluation, the Company’s management concluded that, during the period covered by this Report, our internal control over financial reporting were not effective due to the presence of material weaknesses.
Management’s Remediation Initiatives
Since October 18, 2018, we engaged Dude Business Consultants Limited as an external consultant to assist with the identification and address of complex and proper accounting issues.
In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we also plan to initiate the following series of measures to further strengthen the Company’s internal controls going forward:
| 1. | hire a reporting manager (“Internal Finance Manager”) who has the requisite relevant U.S. GAAP and SEC reporting experience and qualifications; |
| 2. | make an overall assessment on the current finance and accounting resources and hire additional accounting members with appropriate levels of accounting knowledge and experience; |
| 3. | streamline our accounting department structure and enhance our staff’s U.S. GAAP and SEC reporting requirements on a continuous basis through internal training provided by the Internal Finance manager; |
| 4. | participate in trainings and seminars provided by professional services firms on a regular basis to gain knowledge on regular U.S. GAAP / SEC reporting requirements updates; and |
| 5. | engage an external “Sarbanes-Oxley 404” consulting firm to help us implement Sarbanes-Oxley 404 internal controls compliance together with the establishment of our internal audit function. |
We anticipate that these initiatives will be at least partially, if not fully, implemented by the end of fiscal year 2020.
Changes in Internal Control over Financial Reporting:
There were no changes in our internal control over financial reporting during the six months ending June 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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We are not subjected to nor engaged in any litigation, arbitration or claim of material importance, and no litigation, arbitration or claim of material importance is known to us to be pending or threatened by or against our Company that would have a material adverse effect on our Company’s results of operations or financial condition. Further, there are no proceedings in which any of our directors, officers or affiliates, or any beneficial shareholder are an adverse party or has a material interest adverse to our Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
| 31.1 | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer | |
| 32.1 | Section 1350 Certification of principal executive officer |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| WISEMAN GLOBAL LIMITED | ||
| (Name of Registrant) | ||
| Date: August 14, 2020 | ||
| By: | /s/ Lai Jinpeng | |
| Title: | Chief Executive Officer, President, Secretary, Treasurer, Director (Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer) | |
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities on the dates indicated.
| Signature | Title | Date | ||
| /s/ Lai Jinpeng | Chief Executive Officer, Director, President, Secretary and Treasurer | August 14, 2020 | ||
| Lai Jinpeng | (Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer) | |||
| /s/ Yang Lin | Director and Chairperson | August 14, 2020 | ||
| Yang Lin |
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