Wave Sync Corp. - Annual Report: 2017 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

or

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________________ to ___________________________

Commission file number 001-34113

WAVE SYNC CORP.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 646-512-5855

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, 0.001 per share

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐  No ☒ 

Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections. 

Indicate by check mark whether the registrant (1) 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 ☒  No ☐ 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐ 

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this From 10-K. ☐ 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 Act). Yes ☐  No ☒ 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter approximately $28,631,723 as of June 30, 2017. 

As of April 2, 2018, the registrant has 21,027,713 shares of common stock outstanding.

TABLE OF CONTENTS

EXPLANATORY NOTE

As used in this annual report, the terms “we,” “us,” “our,” and words of like import, and the “Company” refers to Wave Sync Corp. (formerly known as China Bio-Energy Corp.) and all of its subsidiaries unless the context indicates otherwise.

FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K contain “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995, all of which are subject to risks and uncertainties. Forward-looking statements can be identified by the use of words such as “expects,” “plans,” “will,” “forecasts,” “projects,” “intends,” “estimates,” and other words of similar meaning. One can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address our growth strategy, financial results and product and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from our forward looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward looking statement can be guaranteed and actual future results may vary materially.

These risks and uncertainties, many of which are beyond our control, include, and are not limited to:

In addition, factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report on Form 10-K, and in particular, the risks discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as those discussed in other documents we file with the SEC. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

PART I

Item 1. Business

History of the Company

Wave Sync Corp. (the “Company”), formerly known as China Bio-Energy Corp., formerly known as China INSOnline Corp., was initially incorporated on December 23, 1988 as Lifequest Medical, Inc. (“DEXT”) as a Delaware corporation. On December 6, 2010, the Company entered into an Amendment (the “Amendment”) to a certain share exchange agreement dated November 12, 2010 with Ding Neng Holdings, a British Virgin Islands company (“Ding Neng Holdings”). This share exchange agreement and the Amendment provides for an acquisition transaction in which the Company, through the issuance of 25,875,000 shares of its common stock, par value $0.001, representing 90% of the issued and outstanding common stock immediately following the closing of this acquisition, acquired 100% of Ding Neng Holdings.

The closing of this acquisition took place on February 10, 2011, on which date, pursuant to the terms of the share exchange agreement as amended, the Company shall acquire all of the outstanding equity securities of Ding Neng Holdings from the shareholders of Ding Neng Holdings; and the shareholders of Ding Neng Holdings shall transfer and contribute all of their issued and outstanding shares of Ding Neng Holdings to the Company. Accordingly, the Company, via Ding Neng Holdings, held 100% of Ding Neng Bio-technology Co., Limited, a Hong Kong Company, which held 100% of Zhangzhou Fuhua Biomass Energy Technology Co., Ltd., a wholly-foreign owned enterprise in China (“Fuhua Biomass”), which, via a series of variable interest entity (or VIE) arrangements, controlled the operating company Fujian Zhangzhou Ding Neng Bio-technology Co., Ltd. (“Ding Neng Bio-tech”). In connection of this share exchange, the Company changed its fiscal year end from June 30 to December 31.

In or about early October 2011, Mr. Nie Xinfeng, the Company’s former chairman of the Board of Directors, took possession of, among other things, the company seal, financial seal, and original books and records of Ding Neng Bio-tech. Since then, the Company was prevented from obtaining and did not have access to the financial information of Ding Neng Bio-tech.

It is within the Company’s knowledge that from late 2011 to 2014, due to change in law, unfavorable market conditions, and lack of effective management, the business of Ding Neng Bio-tech deteriorated significantly and eventually defaulted on various loan obligations. The Company also believes that Ding Neng Bio-tech guaranteed some of Mr. Nie’s personal debts. From 2011 to 2014, multiple legal proceedings were brought against Ding Neng Bio-tech by creditors, service vendors and former employees of the Company and against Mr. Nie by his creditors. As a result, substantially all of Ding Neng Bio-tech’s assets were seized or disposed of by Ding Neng Bio-tech’s or Mr. Nie’s creditors. Eventually, Ding Neng Bio-tech completely ceased its operations.

On June 4, 2015, Fuhua Biomass filed a civil action in Haicang District People’s Court of Xiamen, Fujian, PRC (the “Court”) against Ding Neng Bio-tech, alleging that the purposes of those certain Consulting Service Agreement, Operating Agreement, Pledge and Security Agreement, Option Agreement, and Voting Rights Proxy Agreement (the “VIE Agreements”) entered into by Fuhua Biomass and Ding Neng Bio-tech on October 28, 2010 had been frustrated, and that these VIE Agreements should be terminated. Fuhua Biomass alleged that Ding Neng Bio-tech did not make any payment of service fees to Fuhua Biomass, and that Ding Neng Bio-tech failed to perfect the security interest in the pledged stock. On July 14, 2015, this case was settled via in-court mediation directed by the Court. As a result, Fuhua Biomass and Ding Neng Bio-tech entered into binding settlement (i) to terminate the VIE Agreements, (ii) that Fuhua Biomass and Ding Neng Bio-tech did not have any other disputes over this case, and (iii) that the litigation fee in the amount of RMB10,000 (approximately $1,610.5) would be borne by Ding Neng Bio-tech.

Given that the Company was unable to exercise effective control over Ding Neng Bio-tech or gain access to Ding Neng Bio-tech’s financial information since 2011, and that the VIE Agreements were terminated, the Company deconsolidated Ding Neng Bio-tech’s financial results.

During a review of the Company’s financial statements by its auditor, the auditor examined the share register and all transactional bought note, sold notes, and instruments of transfer provided by the Secretary of the Company. There was no evidence that ownership of Ding Neng Holdings was ever registered to be transferred and held by the Company. The Company also discovered that Ding Neng Holdings was delinquent and defunct. Accordingly, it was unable to determine whether the Company was registered as the sole shareholder of Ding Neng Holdings pursuant to the share exchange agreement dated November 12, 2010, as amended on December 6, 2010. As a result, the Company excluded the accounts of Ding Neng Holdings and its subsidiaries in the Company’s consolidated financial statements and accompanying notes as contained herein. The Company has written off all investments made in Ding Neng Holdings as loss on investment in subsidiary.

Share Purchase Agreement with EGOOS Mobile Technology Co. Ltd.

On October 19, 2015, the Registrant entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with EGOOS Mobile Technology Company Limited, a British Virgin Islands holding company (“EGOOS BVI”), which owns 100% of EGOOS Mobile Technology Company Limited, a Hong Kong company (“EGOOS HK”), which owns 100% of Move the Purchase Consulting Management (Shenzhen) Co., Ltd. (“WOFE” or “Yigou”), a foreign investment enterprise organized under the laws of the PRC, and which has, through various contractual agreements, management control and the rights to the profits of Guangzhou Yuzhi Information Technology Co., Ltd., a corporation organized under the laws of the PRC as a variable interest entity(“Guangzhou Yuzhi”), which owns 100% of Shenzhen Qianhai Exce-card Technology Co., Ltd., a Chinese corporation (“Shenzhen Exce-card”), which owns 100% of Guangzhou Rongsheng Information Technology Co., Ltd., a Chinese corporation (“Guangzhou Rongsheng”, together with Guangzhou Yuzhi and Shenzhen Exce-card, is collectively referred to herein as “Guangzhou Yuzhi and its Subsidiaries”), and the sole shareholder of EGOOS BVI. Guangzhou Yuzhi and its Subsidiaries engage in research, development, marketing and distribution of inlays/audio chips for audio bank card products.

The Share Purchase Agreement provides for an acquisition transaction (the “Acquisition”) in which the Registrant, through the issuance of a convertible note in the principal sum of Fifteen Million U.S. Dollars ($15,000,000) to EGOOS BVI’s sole shareholder, will acquire 100% of EGOOS BVI.

The closing of the Acquisition (the “Closing”) took place on October 19, 2015 (the “Closing Date”). On the Closing Date, pursuant to the terms of the Share Purchase Agreement, the Registrant acquired all of the outstanding equity securities of EGOOS BVI from the sole shareholder of EGOOS BVI; and the shareholder of EGOOS BVI transferred and contributed all of his issued and outstanding shares of EGOOS BVI to the Registrant. In exchange, the Registrant issued to the sole shareholder of EGOOS BVI a convertible note, which was subsequently converted into an aggregate of 15,000,000 post-Reverse Split (as defined below) Common Shares of the Registrant. There is no material relationship between the sole shareholder of EGOOS BVI and/or EGOOS BVI, on one hand, and the Company and its affiliates or associates, on the other hand. Upon conversion of the note (the “Conversion”), the then existing shareholders of the Registrant collectively own an aggregate of 24.7% of the post-Acquisition entity.

On August 5, 2015, Yigou entered into an Exclusive Service Agreement which entitles Yigou to receive substantially all of the economic benefits of Guangzhou Yuzhi and its Subsidiaries in consideration of services provided by Yigou to Guangzhou Yuzhi and its Subsidiaries. In addition, Yigou entered into certain agreements with each of Wenbin Yang, Ping Li, (collectively, the “Guangzhou Yuzhi shareholders”), as well as Guangzhou Yuzhi and its Subsidiaries, including (i) a Call Option Agreement allowing Yigou to acquire the shares of Guangzhou Yuzhi as permitted by PRC laws, (ii) a Voting Rights Proxy Agreement that provides Yigou with the voting rights of the Guangzhou Yuzhi shareholders and those of Guangzhou Yuzhi, and (iii) an Equity Pledge Agreement that pledges the shares in Guangzhou Yuzhi and its Subsidiaries to Yigou. This VIE structure provides Yigou, a wholly-owned subsidiary of EGOOS HK, with control over the operations and benefits of Guangzhou Yuzhi and its Subsidiaries without having a direct equity ownership in Guangzhou Yuzhi and its Subsidiaries (EGOOS BVI, EGOOS HK, Guangzhou Yuzhi, Shenzhen Exce-card, Guangzhou Rongsheng and Yigou are collectively referred to herein as the “Group”).

EGOOS BVI’s organizational structure was crafted to abide by the laws of the PRC and maintain tax benefits as well as internal organizational efficiencies. EGOOS BVI’s post–Acquisition organization structure is summarized below:

Reverse Stock Split

On October 13, 2015, the Company’s board of directors and stockholders collectively holding approximately 70.5% of the Company’s outstanding common stock executed a joint written consent approving a reverse stock split at a ratio of one-for-twenty (the “Reverse Split”). A Certificate of Amendment to our Certificate of Incorporation effecting the Reverse Split was filed with the Secretary of State of Delaware on December 1, 2015.

Business Overview

EGOOS BVI, a British Virgin Islands business company, acts as a holding company and indirectly controls Guangzhou Yuzhi (a variable interest entity in China) and its Subsidiaries. EGOOS BVI’s sole source of income and operations is through its indirect, contractual control of Guangzhou Yuzhi and its Subsidiaries.

Based in the city of Guangzhou, Guangdong Province, China, Guangzhou Yuzhi and Guangzhou Rongsheng are principally engaged in software and information technology services and share full-time employees with Shenzhen Exce-card.

Shenzhen Exce-card is based in the city of Guangzhou, Guangdong Province, China, with a business development department in New York, NY. Additionally, Shenzhen Exce-card has entered into a partnership agreement with UINT France located in Saint Aubin, France (“UINT”), amended and supplemented by an amendment dated March 27, 2015 (as amended and supplemented, the “Partnership Agreement”), pursuant to which UINT is engaged by Shenzhen Exce-card to conduct product research and development (“R&D”) and other related services in connection with new audio signals, testing and producing new inlays for audio bank card and assisting the card manufacturers with lamination test, new generation of audio card, and assisting the card manufacturers with certification of the new audio card products.

Shenzhen Exce-card is principally engaged in the design and production of inlays composed of flexible circuit boards for active smart cards and other products in the related technological field, which provide a comprehensive solution for mobile payment. As of the date of this annual report, Shenzhen Exce-card has approximately 23 full-time employees.

In February 2015, Shenzhen Exce-card developed an electronic inlay utilizing innovative audio technology and embedded in a specialized IC card product, namely, “audio bank card.” We were granted the patent (expiring in 2023) pertaining to such audio bank cards inlay. The audio bank cards meet innovative product standards set forth by UnionPay, the only domestic bank card organization in China as well as the only interbank network in mainland China. UnionPay has authorized its logo to be displayed on the audio bank cards. However, it should be noted that we have no contractual agreement or arrangement with UnionPay with respect to audio bank cards.

We supply and sell electronic inlays embedded with audio chips and other modules to card manufacturers, such as Hengbao Co., Ltd. (“Hengbao”) and Wuhan Tianyu Information Industry Co., Ltd. (“Tianyu”), which have established relationships with major banks in China. As of December 31, 2015, we generated revenue in the amount of RMB150,000 (approximately $23,602.72), from the aforementioned sales to Tianyu.

Our Business Plan

We believe our growth in the coming years may be supported by the continuing expansion of the market for bank cards and electronic payment in the PRC. According to data compiled by the People’s Bank of China (the “PBOC”), by the end of 2015, the amount of bank cards issued in aggregate reached 5.4 billion in the PRC, with on average 3.99 cards held by each citizen.

We are seeking to develop and maintain long-term relationships with major card issuers in China. Since 2014, we have been actively communicating with China Construction Bank (“CCB”), one of China’s four major banks, in the pursuit of promoting new audio bank cards embedded with our inlays, which communications led to CCB’s desire to launch a pilot audio bank card program to be operated by its Guangdong branch offices (“CCB Guangdong”). Under this proposed program, 500,000 audio cards are expected to be manufactured by Tianyu, with inlays supplied by Shenzhen Exce-card, and issued and distributed by CCB Guangdong to some of its 25 million customers. At a meeting among Shenzhen Exce-card, Tianyu, and CCB Guangdong in Guangzhou, Guangdong Province, PRC held on September 24, 2015, CCB Guangdong indicated that they would report to the individual finance department and procurement department of CCB’s headquarters for approval to start the procurement process regarding these 500,000 audio bank cards. In March 2016, CCB Guangdong started testing the audio cards internally (Phase I of the pilot program), and 500,000 audio bank cards are expected to be gradually introduced to the bank’s customers three to six months from Phase I. We also plan to pursue CCB’s Guangxi branch offices to promote another pilot program in the province of Guangxi, a province to the west of Guangdong, with a population of approximately 47 million. If these two pilot programs are launched and proved to be successful, CCB is expected to issue 4 million audio bank cards in various locations throughout China.

On April 22, 2016, Guangdong Branch (“CCB Guangdong”) of China Construction Bank, one of China’s four major banks, launched a pilot program to issue new audio bank cards embedded with our inlays. Under this pilot program, the audio cards with our inlays, once applied for by the end-users, will be issued and distributed by CCB Guangdong to its selected customers from its pool of 25 million customers.

On August 22, 2016, we announced that Guangdong Qilong Internet Technology Co., Ltd. (“Qilong”), a high technology company based in Guangzhou, China, and one of the Company’s subsidiaries, Shenzhen Exce-card, entered into a strategic agreement to jointly develop the next generation of audio bank cards within the China Union Pay network. It is expected that the end users of the audio bank cards to be developed under this strategic agreement will have the ability to use various services, including the ability to connect their savings accounts thereto, purchase items on credit, transfer among their accounts, take advantage of discounts on certain purchases and travel arrangements and manage their capital.

On February 15, 2017, we, through Shenzhen Exce-card, entered into a card supply agreement (the “SD Card Supply Agreement”) with SmartDisplayer Technology, Co. Ltd. (“SmartDisplayer”), a company incorporated under the law of Taiwan, Republic of China, pursuant to which SmartDisplayer agrees to supply audio bank cards in compliance with Shenzhen Exce-card’s specifications and the ISO 7810 standard and in amounts requested by Shenzhen Exce-card from time to time for a term of two years commencing from the execution date of the SD Card Supply Agreement.

Other than the research, development, marketing and distribution of inlays for audio bank cards, we are developing and expanding our product and services to other fields, which may include providing business consulting services, solutions and software products, and system development services to card issuing banks, third party payment entities, and other card issuing entities, and may also include entering into cooperation agreements with banks to issue co-branded cards in order to share annual fees and transaction fees generated by these co-branded cards, and developing customers and commercial users via the operation of audio payment platform.

Our Market

The Chinese Bank Card Market

According to a report published by the PBOC, in 2015, an aggregate of 5.442 billion bank cards were issued in China, an increase of 10.25% over 2014; national cardholding per capita was 4.39 as of the end of the third fiscal quarter of 2016. In terms of number of cards in circulation, the Chinese payment cards market is expected to grow at a CAGR of 4.9% over the period 2015-2020. Respecting the markets outside China, 68 million UnionPay cards have been issued in over 40 countries and regions by the end of November 2016.

The Chinese Contactless Bank Card Market

Audio bank cards enable a direct communication between bank cards and electronic devices (including telephones, cell phones, tablets, and computers), allowing electronic payment by bank cards. Audio bank cards can be used in swiped transactions (including point of sale payment and ATM deposit, withdrawal and transfer) as a regular bank card as well as transactions via electronic payment which, according to the Payment and Settlement System Report published by the PBOC in April 2014, is a combined market of potentially up to 1.85 quadrillion RMB.

Supportive Government Policies and Legislation in the PRC

In April 2005, the PBOC and other state departments jointly promulgated Certain Opinions on Promoting the Development of Bank Card Industry, which encouraged and promoted work emphasis of related government authorities on, among other things, meeting the demand and improving the varieties and functions of bank cards, promoting a fast and sound development of bank card handling market, enhancing the risk management of bank cards, and implementing industrial incentive policies to support the bank card industry.

On January 1, 2008, the National People’s Congress of China passed “the Enterprise Income Tax Law of the People’s Republic of China.” Accordingly, “the enterprise income tax on important high- and new-tech enterprises that are necessary to be supported by the state shall be levied at the reduced tax rate of 15%”, which applies to Guangzhou Yuzhi and its Subsidiaries. The regular enterprise income tax rate is 25% in China.

On July 18, 2015, the PBOC, the Ministry of Industry and Information Technology, the Ministry of Finance and seven other state government authorities jointly issued the Guideline Opinions on Promoting the Healthy Development of Internet Finance (the “Guidelines”), which aim to encourage innovation and support the steady development of internet finance.

Our Customers

Our inlays and relevant technology support are expected to be sold to bank card manufacturers. Audio bank cards embedded with our inlays are then expected to be sold to CCB Guangdong via its pilot program. In addition, we expect to develop and maintain our relationships with other banks throughout China.

Shenzhen Exce-card has entered into cooperation agreements on July 23, 2014 and July 7, 2014, respectively, to partner with two bank card manufacturers in China, Hengbao and Tianyu, both of which are publicly traded on China’s Shenzhen Stock Exchange and have established relationships with major commercial banks in China as their bank card providers, including Bank of China, Bank of Communications, CCB, Agricultural Bank of China, and Industrial and Commercial Bank of China.

Additionally, Shenzhen Exce-card and Tianyu signed a more detailed audio bank card production preparation service agreement (the “Service Agreement”), according to which, from May 1, 2015 to May 1, 2016, Shenzhen Exce-card is to provide inlays for testing, technology and support to Tianyu for the manufacturing of the audio bank card end product, and in return, Tianyu pays RMB150,000 (approximately $23,630.61) for Shenzhen Exce-card’s services. Tianyu, headquartered at Huazhong University of Science and Technology Science Park in Wuhan City, Hubei Province, China, is a high-tech enterprise focusing on the research and development, manufacturing, and sale of products and services related to data security, mobile internet, and payment services. It has an annual production capacity of 500 million IC cards, and an estimated annual production capacity of 10 million audio bank cards. At present, Tianyu is testing and digesting the technics for the lamination of audio bank cards, and thus, is manufacturing a portion of the 10,000 beta testing audio bank cards for Guangzhou Yuzhi and its Subsidiaries.

A second cooperation agreement was entered into between Shenzhen Exce-card and Tianyu on September 16, 2015, with a 10-year term, confirming terms of services and cooperation between the parties detailed in the Service Agreement.

Shenzhen Exce-card has also entered into a cooperation agreement with Hengbao on September 28, 2015, according to which, for 10 years from the date of this agreement, Shenzhen Exce-card is to provide inlays, technology and support to Hengbao for the manufacturing of the audio card end product, and in return, Hengbao pays RMB200,000 (approximately $31,507.48) for Shenzhen Exce-card’s services. Shenzhen Exce-card and Hengbao also agree to cooperate and develop the market application and to gradually increase the market shares of audio bank cards. Hengbao, headquartered in Beijing, China, with a manufacturing facility in Danyang City, Jiangsu Province, China, is one of the largest card manufacturers and providers in China. Hengbao has recently started to test and adjust the technics for the lamination of audio bank cards according to the cooperation agreement between Shenzhen Exce-card and Hengbao.

Through the strategic partnership with Qilong, we are exploring the possibility of selling our next generation audio bank cards to customers or members of Qilong, which is a joint developer of such said cards.

Change of Management and Directors of the Company

On January 6, 2015, the Board elected Ms. Mei Yang as a director and the chairman of board of directors of the Company.

On March 9, 2015, the Board elected Ms. Hongxiao Zhao as the director of the Company. On March 9, 2015, the Board elected Mr. Xiaoqiang Zuo as the director of the Company.

On March 9, 2015, Mr. Jianjun Xu, Mr. Mingyong Hu, Mr. Bin Zhao submitted to the Board their resignations as directors of the Company, which became effective on March 9, 2015.

On October 16, 2015, the Board elected Mr. Zuyue Xiang as CEO and director of the Company. On October 16, 2015, the Board elected Ms. Xinqian Zhang as Director and Secretary.

On July 24, 2017, Mr. Zuyue Xiang resigned as the CEO of the Company effective immediately, but remains a member of the Board of the Company and the president of one of the Company’s subsidiaries in Guangzhou, China. Mr. Xiang resigned from the CEO of the Company for personal reasons and not as a result of any disputes or disagreements between Mr. Xiang and the Company on any matter relating to the Company’s operations, policies or practices.

On July 24, 2017, Ms. Xinqian Zhang resigned as the Company’s Secretary and a member of the Board, effective immediately. Ms. Zhang resigned from her position as the Secretary and a member of the Board for her personal reasons and not as a result of any disputes or disagreements between Ms. Zhang and the Company on any matter relating to the Company’s operations, policies or practices.

On July 24, 2017, the Board appointed Mr. Yang Liu, 38 years old, as the new CEO of the Company and a member of the Board. Mr. Liu has more than ten years of experience in software development and business management.

On September 27, 2017, Mr. Pok Kam Li resigned as a member of the Board of the Company. On October 19, 2017, the Board appointed Ms. Minqin Tang to the Board to fill the vacancy created by Mr. Li’s resignation.

Marketing

Since we supply audio chips/inlays for bank cards, we have not engaged in direct advertising efforts for marketing our products to the mass bank card end users.

Our marketing strategy is to develop relationships with major banks and strategic business partners in China, starting with the pilot program in March of 2016 when CCB started testing internally the audio bank cards embedded with our flexible circuit board with the audio chips. Upon a consistent positive response from the market and relying on the success of this pilot program, we may seek to further develop relationships with other card issuers including banks, such as China Industrial and Commercial Bank, Bank of China, Agricultural Bank of China, and Bank of Communications. Issuance of audio bank cards by these card issuers and large banks may in turn encourage other smaller banks and card issuers in China to work with us and market our products to their customers. In addition, we are exploring co-development opportunities with non-bank businesses. On August 22, 2016, we entered into a strategic agreement with Qilong to jointly develop the next generation of audio bank cards within the China Union Pay network. We hope that we can leverage Qilong’s customer base to market the next generation of our audio bank cards.

Pricing

At present, there are no similar products on the market. Taking into account the level of acceptance by the market and the negotiation with issuing banks, we suggest that the unit price of the audio bank cards with our inlays to be set at per unit RMB 55, approximately $8.65, and inlay audio chips at per unit RMB 45, approximately $7.08. Price will be adjusted downwards upon the increase of volume issued and the amounts of competitive offers.

Research and Development

Pursuant to the Partnership Agreement between Shenzhen Exce-card and UINT, for the period from May 1, 2014 to April 30, 2016, Shenzhen Exce-card paid UINT €120,000 for R&D services, €20,000 of which was for developing new audio signals of new audio card product, €30,000 of which was for the testing of new Inlay and assisting the card manufacturers with lamination test, €50,000 of which was for the conception of new generation audio cards, and the last €20,000 of which was for assisting the card manufacturers with certification of the new audio card product. Another €60,000 was loaned to UINT to cover its operation costs. We plan to continue our cooperation relationship with UINT after the expiration of the Partnership Agreement, and plan to engage UINT for R&D and other related services for next generations of our audio card products in the future.

UINT currently have 12 employees for R&D. We expect to invest resources to retain more qualified employees and update our R&D equipment in China for our second generation audio bank cards with one chip of a combined function of audio chip and financial chip, and third generation audio bank cards with fingerprint sensor chips and other personalized functions.

Seasonality

We do not expect our operating results and operating cash flows to be subject to seasonal variations.

Employees

A substantial part of our employees are located in China. As of the date of this annual report, Guangzhou Yuzhi and its subsidiaries have nine employees in China and seven employees are located in the U.S. There are no collective bargaining contracts covering any of our employees. We believe our relationship with our employees is satisfactory.

We are required to contribute a portion of our employees’ total salaries to the Chinese government’s social insurance funds, including medical insurance, unemployment insurance and workers’ compensation insurance, and a housing assistance fund, in accordance with relevant regulations. Guangzhou Yuzhi and its Subsidiaries are currently paying social insurance for all of their twenty (20) full-time employees through a third party agent. We expect the amount of contribution to the government’s social insurance funds to increase in the future as we expand our workforce and operations.

Insurance companies in China offer limited business insurance products. While business interruption insurance is available to a limited extent in China, we have determined that the risks of interruption, cost of such insurance and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. As a result, we could face liability from the interruption of our business.

Intellectual Property

Currently we have five valid patents that were granted by the State Intellectual Property Office of the P.R.C. (“SIPO”) and the terms of which are ten years from the dates of grant of the patent applications. The five patents relate to the audio bank card technology and designs and its transaction system, such as the design of the circuit board embedded in the audio card, the transaction platform processing the audio data and the design of the audio chip. Two of the five patents were granted on May 4, 2016 and the rest were granted respectively on January 22, 2014, September 9, 2015 and December 23, 2015. We obtained one trademark of the Company’s logo from SIPO on August 21, 2016, which remains valid until August 20, 2026. In addition, we have two other pending trademark applications in P.R.C. On April 23, 2015, the Company through one of its subsidiaries obtained the copyright on its software of Zhuozhi Changtian bank audio card application for micro and small businesses

Pursuant to the Partnership Agreement, any background information and know-how used in connection with the agreement remain the property of the party introducing such background information. UINT’s know-how relating to the services it provides under this agreement remains the exclusive property of UINT and it may use such know-how for other clients. Additionally, the costs and rights of any patent related to the new audio bank card product arises during the Term are borne by and shared equally by both parties.

Government Approval and Regulation

We believe that we have been compliant to date with all requirements required by the applicable governing authorities in China for the research, development, production and distribution of audio bank cards embedded with our inlays, and that such laws, rules and regulations do not currently have a material impact on our operations. However, it is possible that more stringent rules or regulations could be adopted, which may increase our operating costs and expenses.

Additionally, since 1997, the PBOC has issued several versions of Financial IC Card Specifications. On November 3, 2014, PBOC published a Notice on Further Application of Financial IC Card, proposing a time frame, i.e., from April 1, 2015, new financial IC cards issued by any issuing banks should comply with the PBOC Financial IC Card Specifications version 3.0. We believe that we are in compliance with these requirements by the PBOC.

Competition

We currently are not aware of any other companies in or outside of China which is producing or marketing the similar products as our audio bank cards.

However, upon the introduction of our products and technology into the market, our potential competitors worldwide may include NagraID Security SA, a Switzerland-based technology and security services supplier for governments, enterprises, the banking industry and online electronic transactions; SmartPlayer Technology Co., Ltd., a Taiwan-based developer of viable display module for smart card applications; Suzhou HierStar System Limited, a PRC-based company that focuses on display cards embedded with one-time password (OTP) and public key infrastructure (PKI) technologies; and UINT.

Going Concern

As reflected in the accompanying financial statements, as of December 31, 2017, the Company had accumulated deficits of $21,452,071 and working capital deficit of current liabilities exceeding current assets by $897,516 due to the substantial losses in operation in previous periods. Management’s plan to support the Company in operations and to maintain its business strategy is to raise funds through public and private offerings and to rely on officers and directors to perform essential functions with minimal compensation. If we do not raise all of the money we need from public or private offerings, we will have to find alternative sources, such as loans or advances from our officers, directors or others. Such additional financing may not become available on acceptable terms and there can be no assurance that any additional financing that the Company does obtain will be sufficient to meet its needs in the long term. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing. If we require additional cash and cannot raise it, we will either have to suspend operations or cease business entirely. The accompanying financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

ITEM 1A. RISK FACTORS

Our business, operations and financial condition are subject to various risks. Some of these risks are described below and you should take these risks into account in making a decision to invest in our common Stock. If any of the following risks actually occurs, we may not be able to conduct our business as currently planned and our financial condition and operating results could be seriously harmed. In that case, the market price of our common Stock could decline and you could lose all or part of your investment in our common Stock.

Risks Related to the Business and Operations of Guangzhou Yuzhi and its Subsidiaries

Risks Related to the Overall Business of Guangzhou Yuzhi and its Subsidiaries

Guangzhou Yuzhi and its Subsidiaries have a limited operating history, which makes it difficult to evaluate their financial position and future success.

Guangzhou Yuzhi and its Subsidiaries have had a limited prior operating history by which to evaluate the likelihood of success or their ability to continue as a going concern. Although Guangzhou Yuzhi and its Subsidiaries have been developing technology for and producing inlays for audio bank cards, and are participating in a pilot program with CCB Guangdong, there is no assurance our production capacity and sales will keep increasing in a profitable manner.

Guangzhou Yuzhi and its Subsidiaries heavily depend on sales of one key product, namely, inlays for audio bank cards.

Since the beginning of 2017, Guangzhou Yuzhi and its Subsidiaries began generating revenue from the sales of inlays for audio bank cards, and are expected to derive a significant portion of their future revenue from such sales.

Audio bank cards embedded with our inlays are sold in the People’s Republic of China as a new generation of bank cards, seeking to substitute the traditional magnetic stripe bank cards. Because we have a very limited sales history of the inlays of our bank audio cards, it is difficult for us to estimate the market and sales of our products. Demand for audio bank cards may not meet our expectation if audio bank cards do not gain broad market acceptance and build consumer confidence in their quality, security and availability, or if the technology in audio bank cards is replaced by a more innovative alternate, our prospects will be negatively impacted.

The results of operations, financial position and business outlook of Guangzhou Yuzhi and its Subsidiaries will be highly dependent on the market’s response.

Although the audio bank card meets the international standards such as those established by Mastercard for active smart bank cards and the innovative product standards set forth by UnionPay, CCB will only be testing the market’s response in Guangdong Province, China with the first 500,000 cards. In addition, bank cards with IC chips have just been popularized in China since January 1, 2015. The market may not respond immediately to another new bank card technology. Further, the market may perceive the traditional cash payment method or the cardless payment method (e.g., mobile wallet) to be more convenient or secured. If the market does not respond to the product as quickly or does not accept the product as widely as expected, the results of operations, financial position and business outlook of Guangzhou Yuzhi and its Subsidiaries will be negatively affected.

The results of operations, financial position and business outlook of Guangzhou Yuzhi and its Subsidiaries will be highly dependent on Shenzhen Exce-card being and remaining the exclusive distributor of audio chips and audio bank card products in the Greater China Area.

According to the Partnership Agreement with UINT, Shenzhen Exce-card will be the exclusive distributor in the Greater China Area for five years from the date on which the first audio bank card is officially deployed by any commercial banks in China, and to keep its exclusivity status, Shenzhen Exec-card has to order 1 million audio card products from UINT annually. In the event that Shenzhen Exce-card does not meet this annual quota, it will lose its status of exclusive distributor in the Greater China Area, which may have an adverse effect on our results of operations, financial position and business outlook.

EGOOS BVI is a holding company and there are significant limitations on its ability to receive distributions from its subsidiaries.

EGOOS BVI conducts substantially all of its operations through subsidiaries and through contractual arrangements with Guangzhou Yuzhi, an affiliated variable interest entity (“VIE”) and Guangzhou Yuzhi’s subsidiaries Shenzhen Exce-card and Guangzhou Rongsheng, and is dependent on dividends and other intercompany transfers of funds from its subsidiaries and affiliated VIE to meet its financial obligations. EGOOS BVI’s subsidiaries have not made significant distributions to it and may not have funds legally available for dividends or distributions in the future. In addition, EGOOS BVI may enter into credit or other agreements that would contractually restrict its subsidiaries or affiliated VIE from paying dividends or making distributions. Any inability of EGOOS BVI to receive funds from its subsidiaries including Guangzhou Yuzhi can be expected to impair its ability to pay dividends on the Common Stock and may otherwise have an adverse effect on our future operating or growth prospects.

The research and development of audio chip/inlay is entirely dependent on the partnership relationship between Guangzhou Yuzhi and UINT.

Shenzhen Exce-card engaged UINT pursuant to the Partnership Agreement with a term from May 1, 2014 to April 30, 2016 to research and develop audio bank card technology. Although Guangzhou Yuzhi and its Subsidiaries intend to continue to cooperate with UINT, and to eventually acquire UINT, there is no assurance that the merger transaction will be consummated, or that UINT will continue to develop any audio bank card technology for Guangzhou Yuzhi. In addition, pursuant to the Partnership Agreement, the know-how relating to the services provided by UINT will remain the exclusive property of UINT, and UINT may use such know-how for its other clients. Competitors of Guangzhou Yuzhi and its Subsidiaries may engage UINT to develop new technology and potentially compete with the audio bank card product of Guangzhou Yuzhi and its Subsidiaries. Any such incidents may harm the financial condition, results of operations and future growth prospects of Guangzhou Yuzhi and its Subsidiaries.

We depend on third-party suppliers for the manufacturing of a substantial portion of our products, which subjects the Company to risks, including unanticipated increases in expenses, decreases in revenues and disruptions in the supply chain.

We are dependent on SmartDisplayer”), a third-party supplier, for the manufacturing of all bank audio cards as of the date of this report. Currently, we rely on the testing workshop in Shenzhen, China and the operations of UINT in Limoges, France to manufacture inlays, a type of key components of our audio bank cards. We only have commercial contracts with UINT and SmartDisplayer. Our ability to select reliable suppliers who provide timely deliveries of quality products will impact our success in meeting customer demand. Any inability of our suppliers to timely deliver products that meet our specifications or any unanticipated changes in suppliers could be disruptive and costly to the Company.

Shenzhen Exce-card leases the workshop from Shenzhen Tianshi Qiancheng Co., Ltd. (“Shenzhen Tianshi Qiancheng”) to manufacture the inlays on a small scale and owns the furniture, equipment and relating properties in the workshop. We anticipate that our manufacturing capacity might be negatively affected or disrupted if the lease agreement with Shenzhen Tianshi Qiancheng is terminated unexpectedly and a new lease for a similar space with appropriate accommodations at a reasonable price is not available in a timely manner or at all.

A significant portion of EGOOS BVI’s revenues are derived from the sale of inlays for audio bank cards, the manufacture of some of which is in Limoges, France. Although the Company and its Subsidiaries plan to expand the testing workshop to a full-service factory in China in the near future, we cannot assure that we will be successful on constructing such a factory to produce the inlays or the bank audio cards in a timely and cost-efficient manner.

Manufacturing operations, both domestic and international, are subject to inherent risks, all of which could have a material adverse effect on its financial condition or results of operations. Risks affecting operations include:

Some of these hazards may cause severe damage to, or destruction of, property and equipment or environmental damages, and may result in suspension of operations and the imposition of civil or criminal penalties. Any such delay or disruption can be expected to harm EGOOS BVI’s financial condition, results of operations and future growth prospects.

Guangzhou Yuzhi and its Subsidiaries have not entered into and may not be able to enter into any enforceable agreement with CCB in connection with the pilot program in which CCB will distribute 500,000 of audio bank cards with our inlays.

Although Guangzhou Yuzhi and its Subsidiaries have negotiated with CCB and have obtained an oral agreement from CCB Guangdong for CCB to issue 500,000 audio bank cards with our inlays through its Guangdong branches, and CCB has started an internal testing since March 2016, in the event that CCB partially or completely fails to implement the rest of the pilot program, such oral agreement is not enforceable against CCB or CCB Guangdong. Moreover, there is no assurance that an enforceable agreement in writing between CCB and Guangzhou Yuzhi or its Subsidiaries will be entered into regarding this pilot program. Our future operating results and financial condition could be significantly disrupted if the pilot program is not implemented as planned.

In the near future, the distribution of audio bank cards embedded with our inlays may be entirely dependent on one pilot program of the Guangdong branches of CCB in China.

In the near future, CCB may remain the only distributor of the audio bank cards with our inlays in China. In the event that the CCB’s pilot program in Guangdong Province, China fails to gain positive market response as expected, CCB may elect to discontinue the distribution of audio bank card products. Although Guangzhou Yuzhi and its Subsidiaries are actively developing relationships with other potential issuers and other major banks in China for the distribution of the audio bank cards with our inlays, there is no assurance such efforts will be successful or will result in steady income cash flow for the Company. Therefore, the financial condition, results of operations and future growth prospects may be materially negatively affected in the event that CCB discontinues the distribution of the audio bank cards with our inlays.

Currently, our revenues are primarily dependent on two customers that are engaged in the mass production of audio bank cards.

We cooperate with our two customers, Hengbao and Tianyu, based on cooperation agreements with each of them, and there is no assurance that these agreements will not be terminated earlier, and Guangzhou Yuzhi and its Subsidiaries may not be able to secure orders from other card manufacturers. Any such incidents may harm the financial condition, results of operations and future growth prospects of Guangzhou Yuzhi and its Subsidiaries.

Gross margins are principally dependent on the spread between development and production cost and sale price. If the cost of development and production increases and sale price does not increase or if the sale price decreases and the cost of development and production does not decrease, gross margins will decrease and EGOOS BVI’s results of operations could be harmed should the sales volume of the product does not increase.

EGOOS BVI’s gross margins depend principally on the spread between development and production cost and sale price.

While moving the production from France to China could potentially decrease the cost of production, the sale price of audio chips/inlays may decrease as well, as potential competitors start developing and producing like products, which may narrow the gross margins should the sales volume does not increase. Any event that tends to negatively impact the sales volume of audio chips of Guangzhou Yuzhi and its Subsidiaries will potentially harm its financial condition and results of operation.

Consumer acceptance or rejection of audio bank cards will have a material impact on EGOOS BVI’s future prospects.

The market in China for audio bank cards has not developed. Therefore, widespread acceptance of audio bank cards is not assured and depends on market acceptance of audio bank cards as an addition, or an alternative, to traditional bank cards or other channels to bank or make payment. Because this market is new, it is difficult to predict its potential size or future growth rate. In addition, a long-term customer base has not been adequately defined. The success of Guangzhou Yuzhi and its Subsidiaries in generating revenue in this emerging market will depend, among other things, on its ability to educate potential customers and end-users about the practical benefits of audio bank cards. In the event a substantial market for audio bank cards fails to materialize, or if we fail to properly capitalize on such market, our growth and future operating prospects will be materially harmed.

Unanticipated problems or delays with product quality or product performance could result in a decrease in customers and revenue, unexpected expenses and loss of market share.

EGOOS BVI’s cash flow depends on the timely and economical operations of and its partnership with the R&D and production centers in France, and potentially other production facilities in China.

The development and production of audio chips are complex, and the audio chips must meet detailed quality requirements in order to ensure the safety and efficiency of use. Concerns about audio chips quality may impact the ability of Guangzhou Yuzhi and its Subsidiaries to successfully market their audio chips and audio bank cards embedded with our inlays to a larger market. If the product does not meet its promised and marketed quality standards, its credibility and the market acceptance and sales volume could be negatively affected. In addition, actual or perceived problems with protection of user’s information in the industry generally may lead to a lack of consumer confidence in bank cards encrypted with chips of new technology. Prolonged problems may threaten the commercial viability of audio bank cards generally or the production and sale of the product specifically.

Guangzhou Yuzhi and its Subsidiaries plan to primarily sell their audio chips/inlays and relevant technology to card manufacturers, which are expected to sell audio bank cards through banks in China and if their relationships with one or more of these card manufacturers or banks were to end, their operating results could be harmed.

Guangzhou Yuzhi and its Subsidiaries are expected to market and distribute a substantial portion of its audio chips/inlays and relevant technology to card manufacturers, which are expected to sell audio bank cards through major banks in China. Their future operating results and financial condition could be significantly disrupted by the loss of one or more of these card manufacturers or banks with current or future relationships, order cancellations or the failure of the card manufacturers or banks to successfully sell the products.

Financial instability in the Chinese financial markets could materially and adversely affect our results of operations and financial condition.

The Chinese financial markets and the Chinese economy are influenced by economic and market conditions in other countries, including other Asian emerging countries and the United States. Financial turmoil in Asia, Russia and elsewhere in the world in recent years has affected the Chinese economy. Although economic conditions are different in each country, investors’ reactions to developments in one country can have adverse effects on the securities of companies operating in other countries, including China. A loss in investor confidence in the financial systems of other countries may cause increased volatility in Chinese financial markets and, indirectly, in the Chinese economy in general. Financial disruptions could harm Guangzhou Yuzhi’s operation or its stock price, results of operations and financial condition.

Natural calamities could have a negative impact on the Chinese economy and harm the business of Guangzhou Yuzhi and its Subsidiaries.

China has experienced natural calamities such as earthquakes, floods, droughts and a tsunami in recent years. The extent and severity of these natural disasters determines their impact on the economies in the local communities that experience these calamities. Natural disasters could have an adverse impact on the economies in the geographic regions in which Guangzhou Yuzhi and its Subsidiaries operate, which could adversely affect their operating and growth prospects.

Growth may impose a significant burden on the administrative and operational resources of Guangzhou Yuzhi and its Subsidiaries which, if not effectively managed, could impair their growth.

The strategy of Guangzhou Yuzhi and its Subsidiaries envisions a period of rapid growth that may impose a significant burden on their administrative and operational resources. The growth of their business will require significant investments of capital and management’s close attention. Their ability to effectively manage their growth will require them to substantially expand the capabilities of their administrative and operational resources and to attract, train, manage and retain qualified management, technicians and other personnel. Failure to successfully manage their growth could result in their sales not increasing commensurately with capital investments. If Guangzhou Yuzhi and its Subsidiaries are unable to successfully manage their growth, they may be unable to achieve their growth goals.

Guangzhou Yuzhi and its Subsidiaries may be unable to protect their intellectual property, which could negatively affect its ability to compete.

Guangzhou Yuzhi and its Subsidiaries rely on a combination of patent, registered trademark, confidentiality agreements, and other contractual restrictions on disclosure to protect their intellectual property rights. They also enter into confidentiality agreements with their employees, consultants, and corporate partners, and control access to and distribution of their confidential information. These measures may not preclude the disclosure of their confidential or proprietary information. Despite efforts to protect their proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use their proprietary technologies and information. Monitoring unauthorized use of confidential information is difficult, and Guangzhou Yuzhi and its Subsidiaries cannot be certain that the steps they takes to prevent unauthorized use of its proprietary technologies and confidential information, particularly in foreign countries where the laws may not protect proprietary rights as fully as in the U.S., will be effective. Failure to protect our intellectual property rights can be expected to have a material, adverse impact on our competitive advantage and potentially on our financial condition, stock price and future growth prospects.

Guangzhou Yuzhi and its Subsidiaries will be required to hire and retain skilled technical and managerial personnel.

Personnel qualified to continue researching and developing, and to operate and manage production center and other facilities are in demand. The success of Guangzhou Yuzhi and its Subsidiaries depends in large part on their ability to attract, train, motivate and retain qualified management and highly-skilled employees, particularly managerial, technical, sales and marketing personnel, technicians, and other critical personnel. Any failure to attract and retain such personnel may have a negative impact on the operations of Guangzhou Yuzhi and its Subsidiaries, which would have a negative impact on revenues.

Guangzhou Yuzhi and its Subsidiaries are dependent upon their officers and directors for management and direction and the loss of any of these persons could adversely affect their operations and results.

Guangzhou Yuzhi and its Subsidiaries are dependent upon their officers and directors for implementation and execution of their business plan. The loss of any of their officers or directors could have a material adverse effect upon their results of operations and financial position. Guangzhou Yuzhi and its Subsidiaries do not maintain “key person” life insurance for any of their officers. The loss of any of their officers or directors could delay or prevent the achievement of their business objectives.

EGOOS BVI’s lack of business diversification could result in the devaluation of its securities if it does not generate revenue from its primary products, or such revenues decrease.

The current business of Guangzhou Yuzhi and its Subsidiaries consists solely of the research and development, production and sale of audio chips in China. Currently, sales of the products account for almost 100% of EGOOS BVI’s revenues. The lack of business diversification could cause you to lose all or some of your investment, since EGOOS BVI does not have any other lines of business or alternative revenue sources.

Failure to fully comply with PRC labor laws, including laws relating to social insurance, may expose Guangzhou Yuzhi and its Subsidiaries to potential liability and increased costs.

Companies operating in China must comply with a variety of labor laws, including certain pension, health insurance, unemployment insurance and other welfare-oriented payment obligations. Guangzhou Yuzhi and its Subsidiaries are currently paying social insurance for all of their twenty full-time employees through a third party agent. If the PRC regulatory authorities take the view that payment of social insurance through a third party agent is invalid, the failure to comply may be in violation of applicable PRC labor laws and we cannot assure you that PRC governmental authorities will not impose penalties on Guangzhou Yuzhi and its Subsidiaries therefor, which could have a material adverse effect on the financial condition and results of operations of Guangzhou Yuzhi and its Subsidiaries.

In addition, the new PRC Labor Contract Law took effect January 1, 2008 and governs standard terms and conditions for employment, including termination and lay-off rights, contract requirements, compensation levels and consultation with labor unions, among other topics. In addition, the law limits non-competition agreements with senior management and other employees who have access to confidential information to two years and imposes restrictions or geographical limits. This new labor contract law will increase the labor costs of Guangzhou Yuzhi and its Subsidiaries, which could adversely impact the results of operations.

EGOOS BVI may have difficulty establishing adequate management, governance, legal and financial controls in the PRC.

The PRC historically has been deficient in western style management, governance and financial reporting concepts and practices, as well as in modern banking and other control systems. Our current management has little experience with western style management, governance and financial reporting concepts and practices, and we may have difficulty in hiring and retaining a sufficient number of qualified employees to work in the PRC. As a result of these factors, and especially given that we expect to be a publicly listed company in the U.S. and subject to regulation as such, we may experience difficulty in establishing management, governance legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet western standards. We may have difficulty establishing adequate management, governance, legal and financial controls in the PRC. Therefore, we may, in turn, experience difficulties in implementing and maintaining adequate internal controls as required under applicable U.S. laws, rules and regulations. This may result in significant deficiencies or material weaknesses in our internal controls which could impact the reliability of our financial statements and prevent us from complying with SEC rules and regulations. Any such deficiencies, weaknesses or lack of compliance could have a materially adverse effect on our business and the public announcement of such deficiencies could adversely impact our stock price.

The Company has not yet developed comprehensive independent corporate governance.

The Company has not formed audit, compensation and nominating committees of its board of directors and it is inexperienced in formal U.S. corporate governance procedures. A lack of functioning independent controls over the Company’s corporate affairs may result in potential or actual conflicts of interest between controlling shareholders and other shareholders. It presently has no policy to resolve such conflicts. The absence of customary standards of corporate governance may leave its shareholders without protections against interested director transactions, conflicts of interest, if any, and similar matters and any potential investors may be reluctant to provide the Company with funds necessary to expand its operations.

Although our financial statements have been prepared on a going concern basis, we must raise additional capital to fund our operations in order to continue as a going concern.

WWC, P.C., our independent registered public accounting firm for the fiscal year ended December 31, 2017 and 2016, has included an explanatory paragraph in their opinion that accompanies our audited consolidated financial statements as of and for the year ended December 31, 2017, indicating that our current liquidity position raises substantial doubt about our ability to continue as a going concern. If we do not raise all of the money we need from public or private offerings, we will have to find alternative sources, such as loans or advances from our officers, directors or others. Such additional financing may not become available on acceptable terms and there can be no assurance that any additional financing that the Company does obtain will be sufficient to meet its needs in the long term. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing. If we require additional cash and cannot raise it, we will either have to suspend operations or cease business entirely, which could cause investors to suffer the loss of all or a substantial portion of their investment.

Risks Related to the VIE Agreements

The PRC government may determine that the VIE Agreements are not in compliance with applicable PRC laws, rules and regulations.

EGOOS BVI manages and operates the business of Guangzhou Yuzhi and its Subsidiaries through Yigou pursuant to the rights it holds under the VIE Agreements. Almost all economic benefits and risks arising from the operations of Guangzhou Yuzhi and its Subsidiaries are transferred to EGOOS BVI under these agreements.

There are risks involved with the operation of the business of Guangzhou Yuzhi and its Subsidiaries in reliance on the VIE Agreements, including the risk that the VIE Agreements may be determined by PRC regulators or courts to be unenforceable. If the VIE Agreements were for any reason determined to be in breach of any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such breach, including:

Any of these actions could adversely affect EGOOS BVI’s ability to manage, operate and gain the financial benefits of Guangzhou Yuzhi and its Subsidiaries, which represents its sole operations, which would have a material adverse impact on its business, financial condition and results of operations.

EGOOS BVI’s ability to manage and operate Guangzhou Yuzhi and its Subsidiaries under the VIE Agreements may not be as effective as direct ownership.

EGOOS BVI’s plans for future growth are based substantially on growing the operations of Guangzhou Yuzhi and its Subsidiaries. However, the VIE Agreements may not be as effective in providing EGOOS BVI with control over Guangzhou Yuzhi and its Subsidiaries as direct ownership. Under the current VIE arrangements, as a legal matter, if Guangzhou Yuzhi and its Subsidiaries fail to perform their obligations, EGOOS BVI may have to (i) incur substantial costs and resources to enforce such arrangements, and (ii) rely on legal remedies under PRC law, which it cannot be sure would be effective. Therefore, if EGOOS BVI is unable to effectively control Guangzhou Yuzhi and its Subsidiaries, it may have an adverse effect on its ability to achieve its business objectives and grow its revenues.

Risks Related to Doing Business in the PRC

The Chinese government exerts substantial influence over the manner in which Guangzhou Yuzhi and its Subsidiaries must conduct their business activities.

Guangzhou Yuzhi and its Subsidiaries are dependent on its relationship with the local government in Guangdong province where they operate. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. The ability of Guangzhou Yuzhi and its Subsidiaries to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. The central or local governments of the PRC may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on Guangzhou Yuzhi and its Subsidiaries’ part to ensure compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy, or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require EGOOS BVI to divest itself of any interest it then holds in Chinese properties.

Future inflation in China may inhibit the ability of Guangzhou Yuzhi and its Subsidiaries to conduct business in China. In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation. Rapid economic growth can lead to growth in the money supply and rising inflation. If prices for the products of Guangzhou Yuzhi and its Subsidiaries rise at a rate or unchanged or even decrease so that they are insufficient to compensate for the rise in the costs of development and production, it may have an adverse effect on profitability. These factors have led to the adoption by the Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation may in the future cause Chinese government to impose controls on credit and/or prices, or to take other action which could inhibit economic activity in China, and thereby harm the market for audio chips and audio bank cards products.

The operations and assets of Guangzhou Yuzhi and its Subsidiaries in China are subject to significant political and economic uncertainties and EGOOS BVI may lose all of their assets and operations if the Chinese government alters its policies to further restrict foreign participation in business operating in the PRC.

Changes in PRC laws and regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, imports and sources of supply, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on the business, results of operations and financial condition of. Under its current leadership, the Chinese government has been pursuing economic reform policies that encourage private economic activities and greater economic decentralization. There is no assurance, however, that the Chinese government will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice. EGOOS BVI may lose all of its assets and operations if the Chinese government alters its policies to further restrict foreign participation in business operating in the PRC.

EGOOS BVI derives all of its sales in China and a slowdown or other adverse development in the PRC economy may materially and adversely affect the customers and end-users of Guangzhou Yuzhi and its Subsidiaries, demand for their products and their business.

All of the sales of Guangzhou Yuzhi and its Subsidiaries are generated in China and they anticipate that sales of their audio bank cards and audio chips in China will continue to represent all of their total sales in the near future. Although the PRC economy has grown significantly in recent years, no assurances can be given that such growth will continue. The industry in which Guangzhou Yuzhi and its Subsidiaries is involved in the PRC is new and growing, but Guangzhou Yuzhi and its Subsidiaries do not know how sensitive this industry is to a slowdown in economic growth or other adverse changes in the PRC economy which may affect demand for audio chips and audio bank cards products. In addition, the Chinese government also exercises significant control over Chinese economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Efforts by the Chinese government to slow the pace of growth of the Chinese economy could result in reduced demand for biodiesel products. A slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in the PRC may materially reduce the demand for bank cards in general or audio bank cards in particular and materially and adversely affect the business, results of operations and future operating prospects of Guangzhou Yuzhi and its Subsidiaries.

Currency fluctuations and restrictions on currency exchange may adversely affect the business of Guangzhou Yuzhi and its Subsidiaries, including limiting the ability to convert Chinese Renminbi into foreign currencies and, if Chinese Renminbi were to decline in value, reducing EGOOS BVI’s financial results in U.S. dollar terms.

EGOOS BVI’s reporting currency is the U.S. dollar and the operations of Guangzhou Yuzhi and its Subsidiaries in China use China’s local currency as their functional currency. Substantially all of EGOOS BVI’s revenues and expenses are in the Chinese currency, the Renminbi, or RMB. EGOOS BVI is subject to the effects of exchange rate fluctuations with respect to both of these currencies. For example, the value of the Renminbi depends to a large extent on Chinese government policies and China’s domestic and international economic and political developments, as well as supply and demand in the local market. Since 1994, the official exchange rate for the conversion of the Renminbi to the U.S. dollar had generally been stable and the Renminbi had appreciated slightly against the U.S. dollar. In July 2005, the Chinese government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under this policy, which was halted in 2008 due to the worldwide financial crisis, the Renminbi was permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. In June 2010, the Chinese government announced its intention to again allow the Renminbi to fluctuate within the 2005 parameters. It is possible that the Chinese government could adopt an even more flexible currency policy, which could result in more significant fluctuation of Renminbi against the U.S. dollar, or it could adopt a more restrictive policy. Thus, no assurance can be given that the Renminbi will remain stable against the U.S. dollar or any other foreign currency.

EGOOS BVI’s financial statements are translated into U.S. dollars at the average exchange rates in each applicable period. To the extent the U.S. dollar strengthens against the RMB, the translation of RMB-denominated transactions will result in reduced revenue, operating expenses and net income. Similarly, to the extent the U.S. dollar weakens against the RMB, the translation of RMB-denominated transactions will result in increased revenue, operating expenses and net income. EGOOS BVI is also exposed to foreign exchange rate fluctuations as it converts the financial statements of its foreign consolidated subsidiaries into U.S. dollars in consolidation. If there is a change in RMB exchange rates, such conversion into U.S. dollars will lead to a translation gain or loss which is recorded as a component of other comprehensive income. EGOOS BVI has not entered into agreements or purchased instruments to hedge its exchange rate risks, although it may do so in the future. The availability and effectiveness of any hedging transaction may be limited and EGOOS BVI may not be able to effectively hedge its exchange rate risks.

The State Administration of Foreign Exchange (“SAFE”) restrictions on currency exchange may limit EGOOS BVI’s ability to receive and use its funds effectively and to pay dividends.

All of EGOOS BVI’s sales revenue and expenses are denominated in RMB. Under PRC law, the Renminbi is currently convertible under the “current account,” which includes dividends and trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans. Currently, Guangzhou Yuzhi and its Subsidiaries may purchase foreign currencies for settlement of current account transactions, including distributions in the form of consulting fees and payments of dividends to EGOOS BVI, without the approval of SAFE, by complying with certain procedural requirements. However, the relevant PRC government authorities may limit or eliminate their ability to purchase foreign currencies in the future.

All of EGOOS BVI’s income is derived from the consulting fees it receives from Guangzhou Yuzhi and its Subsidiaries through the VIE Agreements. SAFE restrictions may delay the payment of dividends, since Guangzhou Yuzhi and its Subsidiaries have to comply with certain procedural requirements and they may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the distribution of consulting fees or payment of dividends.

Foreign exchange transactions by PRC operating subsidiaries under the capital account continue to be subject to significant foreign exchange controls and require the approval of or need to register with PRC government authorities, including SAFE. In particular, if Guangzhou Yuzhi and its Subsidiaries borrow foreign currency through loans from EGOOS BVI or other foreign lenders, these loans must be registered with SAFE, and if Guangzhou Yuzhi and its Subsidiaries refinance by means of additional capital contributions, these capital contributions must be approved by certain PRC government authorities, including the PRC Ministry of Commerce, or their respective local counterparts. These limitations could affect the ability of Guangzhou Yuzhi and its Subsidiaries to conduct foreign exchange through debt or equity financing.

In the future, SAFE may make more restrictive policies or implement its policies in a tightened manner to control the foreign currency exchange. The PRC government also may at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents Guangzhou Yuzhi and its Subsidiaries from obtaining foreign currency, they may be unable to pay dividends or meet obligations that may be incurred in the future that require payment in foreign currency.

PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability transfer capital among our PRC subsidiaries and us.

SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls. According to the Notice on Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment released on February 13, 2015 by SAFE, local banks will examine and handle foreign exchange registration for overseas direct investment, including the initial foreign exchange registration and amendment registration, under SAFE Circular 37 from June 1, 2015.

The Company is the sole shareholder of EGOOS BVI. If we fail to comply with SAFE Circular 37 and related rules, we may be subject to PRC fines and legal sanctions as described above. Furthermore, since SAFE Circular 37 was recently promulgated and it is unclear how this regulation, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant PRC government authorities, we cannot predict how these regulations will affect our business operations or future strategy. Failure to register or comply with relevant requirements may also limit our ability to transfer capital among us and our PRC subsidiaries. These risks may have a material adverse effect on our business, financial condition and operations.

Because all of EGOOS BVI’s assets are located outside of the United States and its sole director resides outside of the United States, and because all of Guangzhou Yuzhi and its Subsidiaries’ officers reside outside of the United States, it may be difficult for you to enforce your rights against EGOOS BVI based on United States federal securities laws or against these persons in the United States or to enforce judgments of United States courts against EGOOS BVI or the officers or directors of EGOOS BVI in the PRC.

Mr. Jie Yang, the sole director of EGOOS BVI, and all of Guangzhou Yuzhi and its Subsidiaries’ officers reside outside of the United States. Furthermore, the operating subsidiaries, Guangzhou Yuzhi and its Subsidiaries, are located in the PRC. All of their assets are located primarily in China. China does not have a treaty with United States providing for the reciprocal recognition and enforcement of judicial judgments. It may therefore be difficult for investors in the United States to enforce their legal rights based on the civil liability provisions of the United States federal securities laws against EGOOS BVI in the courts of either the United States or the PRC or France and, even if civil judgments are obtained in courts of the United States, to enforce such judgments in the PRC courts or French courts.

EGOOS BVI may have limited legal recourse under PRC laws if disputes arise under contracts with third parties.

The Chinese government has enacted laws and regulations dealing with matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, their experience in implementing, interpreting and enforcing these laws and regulations is limited, and EGOOS BVI’s ability to enforce commercial claims or to resolve commercial disputes is unpredictable. The resolution of these matters may be subject to the exercise of considerable discretion by agencies of the Chinese government, and forces unrelated to the legal merits of a particular matter or dispute may influence their determination. Any rights Guangzhou Yuzhi and its Subsidiaries may have to specific performance, or to seek an injunction under PRC laws, in either of these cases, are severely limited, and without a means of recourse by virtue of the Chinese legal system, Guangzhou Yuzhi and its Subsidiaries may be unable to prevent these situations from occurring. The occurrence of any such events could have a material adverse effect on EGOOS BVI’s business, financial condition and results of operations. Although legislation in China has significantly improved the protection afforded to various forms of foreign investment and contractual arrangements in China, these laws, regulations and legal requirements are relatively new and their interpretation and enforcement involve uncertainties, which could limit the legal protection available to Guangzhou Yuzhi and its Subsidiaries as well as foreign investors. The inability to enforce or obtain a remedy under any of the future agreements of Guangzhou Yuzhi and its Subsidiaries could result in a significant loss of business, business opportunities or capital and could have a material adverse impact on EGOOS BVI’s results of operations and future business prospects.

Failure to comply with the registration requirements for employee share option plans may subject our PRC equity incentive plan participants or us to fines and other legal or administrative sanctions.

On February 15, 2012, SAFE promulgated the Circular of the SAFE on Relevant Issues Concerning the Foreign Exchange Administration for Domestic Individuals’ Participating in the Share Incentive Schemes of Overseas-Listed Companies, or SAFE Circular 7, to replace the previous Operating Procedures for Administration of Domestic Individuals Participating in the Employee Stock Ownership Plan or Stock Option Plan of Offshore Listed Companies issued by SAFE in March 2007, also known as “SAFE Circular 8.” SAFE Circular 7 regulates foreign exchange matters associated with employee stock option incentives or similar incentives permitted under applicable laws and regulations granted to PRC residents by companies whose shares are listed on offshore stock exchanges.

In accordance with SAFE Circular 7, all PRC residents who participate in share incentive plans of an overseas publicly-listed company are required, through the PRC subsidiary of the overseas publicly-listed company, to jointly entrust a PRC agent to handle foreign exchange registration with SAFE or its local office and complete procedures relating to the share incentive schemes such as opening accounts and capital transfers. PRC residents include PRC nationals or foreign citizens having been consecutively residing in PRC for not less than one year, acting as directors, supervisors, senior management personnel or other employees of PRC companies affiliated with such offshore listed company. A PRC agent can be one of the PRC subsidiaries of the offshore listed company participating in the share incentive scheme or another PRC institution qualified for asset trusteeship s as designated by the PRC subsidiary and in accordance with PRC laws. The foreign exchange proceeds received by the PRC residents from sale of shares under share incentive plans granted by offshore listed companies must be remitted to bank accounts in China opened by the PRC agents. Further, a Notice Concerning Individual Income Tax on Earnings from Employee Stock Options, jointly issued by the Ministry of Finance and the State Administration of Taxation provides that domestic companies that implement employee share option programs must file the employee share option plans and other relevant documents with local tax authorities having jurisdiction over the companies before implementing such plans, and must file share option exercise notices and other relevant documents with local tax authorities before their employees exercise any share options.

We may adopt an equity incentive plan and make numerous stock option grants under the plan to its officers, directors and employees, some of whom are PRC citizens and may be required to complete the relevant foreign exchange registration procedures in accordance with SAFE Circular 7. We plan to advise our employees to complete these procedures in connection with our future share incentive plans. However, we cannot assure you that registration procedures with SAFE or its local counterparts in full compliance with SAFE Circular 7 will be completed on a timely basis, if at all. The failure to complete these procedures may subject us or our PRC employees holding restricted shares or share options under our share incentive plans to fines and other legal or administrative sanctions.

Due to various restrictions under PRC laws on the distribution of dividends by PRC operating subsidiaries and VIE affiliates, EGOOS BVI may not be able to pay dividends to its stockholders.

The Wholly-Foreign Owned Enterprise Law (1986), as amended, and the Wholly-Foreign Owned Enterprise Law Implementing Rules (1990), as amended, and the Company Law of the PRC (2006) contain the principal regulations governing dividend distributions by wholly foreign owned enterprises. Under these regulations, wholly foreign owned enterprises, such as Yigou, may pay dividends only out of their accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. Additionally, Yigou is required to set aside a certain amount of their accumulated profits each year, if any, to fund certain reserve funds. These reserves are not distributable as cash dividends except in the event of liquidation and cannot be used for working capital purposes.

Furthermore, if the consolidated subsidiaries incur debt on their own in the future, the instruments governing the debt may restrict EGOOS BVI’s ability to pay dividends or make other payments. If EGOOS BVI or its consolidated subsidiaries and VIE affiliates are unable to receive all of the revenues from operations due to these contractual or dividend arrangements, EGOOS BVI may be unable to pay dividends.

EGOOS BVI may have difficulty establishing adequate management, governance, legal and financial controls in the PRC.

The PRC historically has been deficient in western style management, governance and financial reporting concepts and practices, as well as in modern banking, and other control systems. EGOOS BVI’s current management has little experience with western style management, governance and financial reporting concepts and practices, and it may have difficulty in hiring and retaining a sufficient number of qualified employees to work in the PRC. As a result of these factors, and especially given that EGOOS BVI expects to be a publicly listed company in the U.S. and subject to regulation as such, it may experience difficulty in establishing management, governance legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet western standards. EGOOS BVI may have difficulty establishing adequate management, governance, legal and financial controls in the PRC. Therefore, it may, in turn, experience difficulties in implementing and maintaining adequate internal controls as required under applicable U.S. laws, rules and regulations. This may result in significant deficiencies or material weaknesses in its internal controls which could impact the reliability of its financial statements and prevent it from complying with SEC rules and regulations. Any such deficiencies, weaknesses or lack of compliance could have a materially adverse effect on EGOOS BVI’s business and the public announcement of such deficiencies could adversely impact its stock price.

Risks Related to Our Common Stock

Trading in our common stock over the last 12 months has been very limited, so investors may not be able to sell as many of their shares as they want at prevailing prices.

Shares of our common stock are quoted on the OTCQB Market under the symbol “WAYS”. If limited trading in the Common Stock continues, it may be difficult for investors to sell such shares in the public market at any given time at prevailing prices. Also, the sale of a large block of Common Stock could depress the market price of the Common Stock to a greater degree than a company that has a higher volume of trading of its securities.

An active and visible trading market for our Common Stock may not develop.

We cannot predict whether an active market for our Common Stock will develop in the future. In the absence of an active trading market:

The OTCQB market is an over-the-counter market that provides significantly less liquidity than NASDAQ or the NYSE MKT. The trading price of the Common Stock is expected to be subject to significant fluctuations in response to variations in quarterly operating results, changes in analysts’ earnings estimates, announcements of innovations by us or our competitors, general conditions in the industry in which we operate and other factors. These fluctuations, as well as general economic and market conditions, may have a material or adverse effect on the market price of our Common Stock.

The Company may be subject to the risks relating to penny stocks.

Trading in our common stock may, from time to time, be subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934. These rules require additional disclosure by broker–dealers in connection with any trades involving a stock defined as a “penny stock” and impose various sales practice requirements on broker–dealers who sell penny stocks to persons other than established customers and accredited investors, generally institutions. These additional requirements may discourage broker–dealers from effecting transactions in securities that are classified as penny stocks, which could severely limit the market price and liquidity of such securities and the ability of purchasers to sell such securities in the secondary market. A penny stock is defined generally as any non–exchange listed equity security that has a market price of less than $5.00 per share, subject to certain exceptions.

The market price for our stock may be volatile.

The market price for our stock may be volatile and subject to wide fluctuations in response to factors including the following:

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our stock.

Compliance with changing regulation of corporate governance and public disclosure, and our management’s inexperience with such regulations will result in additional expenses and creates a risk of non-compliance.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting. Our management team will need to invest significant management time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities. In addition, our management located in the PRC has little experience with compliance with U.S. laws (including securities laws). This inexperience may cause us to fall out of compliance with applicable regulatory requirements, which could lead to enforcement action against us and a negative impact on our stock price.

We do not foresee paying cash dividends in the foreseeable future and, as a result, our investors’ sole source of gain, if any, will depend on capital appreciation, if any.

We do not plan to declare or pay any cash dividends on our shares of Common Stock in the foreseeable future and currently intend to retain any future earnings for funding growth. As a result, investors should not rely on an investment in our securities if they require the investment to produce dividend income. Capital appreciation, if any, of our shares may be investors’ sole source of gain for the foreseeable future. Moreover, investors may not be able to resell their Common Stock at or above the price they paid for them.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable because we are a smaller reporting company.

ITEM 2. PROPERTIES

Guangzhou Yuzhi’s office is located at 67 Dongpu Erma Road, Suite 5-109, Tianhe District, Guangzhou City, Guangdong Province, China. We lease a total of approximately 81 square meters (approximately 872 square feet) of office space at the aforementioned address pursuant to the lease agreement (the “Yuzhi Lease Agreement”) entered by and between Guangzhou Rijian Enterprise Management Co. Ltd. and Zuyue Xiang, the President of Shenzhen Exce-card, on September 1, 2016. Pursuant to this Yuzhi Lease Agreement, the monthly rent is on a progressive schedule commencing from RMB 6,075 (approximately $883). The Yuzhi Lease Agreement is expected to expire on August 31, 2019.

Shenzhen Exce-card’s principal office is located at 67 Dongpu Erma Road, Suites 8-225, 8-227, 8-228 and 8-230, Tianhe District, Guangzhou City, Guangdong Province, China. We lease an aggregate of approximately 274 square meters (approximately 2,949 square feet) of office space at the aforementioned address pursuant to the lease agreement (the “Exce-card Lease Agreement”) entered by and between Guangzhou Rijian Enterprise Management Co. Ltd. and Shenzhen Exce-card on June 2, 2016. Pursuant to the Exce-card Lease Agreement, which will expire on May 31, 2019, the monthly rent is on a progressive schedule commencing from RMB 18,632 (approximately $2,710).

Wave Sync Corp. is located at 11 Middlebury Blvd, Unit 3, Randolph, NJ. Our office space is approximately 800 square feet. The total monthly rent for the office is approximately $833.

In 2017, we maintained our testing workshop in Shenzhen to produce inlays of our audio bank cards on a small scale. Shenzhen Exce-card has a current lease with Shenzhen Tianshi Qiancheng relating to the use of part of Shenzhen Tianshi Qiancheng’s real property as the testing workshop to manufacture inlays on a small scale. Shenzhen Exce-card owns the equipment and furniture therein.

For more details please refer to the section titled “Risks Related to the Overall Business of Guangzhou Yuzhi and its Subsidiaries” included in “Item 1A Risk Factors” above. 

ITEM 3. LEGAL PROCEEDINGS

To the best knowledge of the Company, we are not a party to any legal proceedings as of the date of this annual report. We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business. 

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our common stock is quoted on the OTCQB Market under the trading symbol “WAYS.” The OTCQB is a quotation service that displays real time quotes, last sale prices, and volume information in over the counter (“OTC”) equity securities. An OTC equity security generally is any equity that is not listed or traded on a national securities exchange.

Price Range of Common Stock

The following table shows, for the periods indicated, the high and low bid prices per share of our common stock as reported by the OTC quotation service. These bid prices represent prices quoted by broker-dealers on the OTC quotation service. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not represent actual transactions.

On December 29, 2017, the closing price for our common stock, as reported by the OTC Market, was $3.00 per share. As of April 2, 2018, the Company had an aggregate of 21,027,713 shares of common stock issued and outstanding and 137 shareholders of record.

Stockholders of Record

As of April 2, 2018, we had 137 record holders of our common stock. Corporate Stock Transfer, Inc., 3200 Cherry Creek Drive S #430, Denver, CO 80209 is the transfer agent for our common stock.

Dividends

Holders of our common stock are entitled to receive dividends if, as and when declared by the Board of Directors out of funds legally available therefore. We have never declared or paid any dividends on our common stock. We intend to retain any future earnings for use in the operation and expansion of our business. Consequently, we do not anticipate paying any cash dividends on our common stock to our stockholders for the foreseeable future.

Securities Authorized for Issuance under Equity Compensation Agreements

We do not have in effect any compensation plans under which our equity securities are authorized for issuance.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable because we are a smaller reporting company.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our results of operations and financial condition since the Company’s inception should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Prospectus. All statements, other than statements of historical facts, included in this report are forward-looking statements. When used in this report, the words “may,” “will,” “should,” “would,” “anticipate,” “estimate,” “possible,” “expect,” “plan,” “project,” “continuing,” “ongoing,” “could,” “believe,” “predict,” “potential,” “intend,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, availability of additional equity or debt financing, changes in sales or industry trends, competition, retention of senior management and other key personnel, availability of materials or components, ability to make continued product innovations, casualty or work stoppages at our facilities, adverse results of lawsuits against us and currency exchange rates. Forward-looking statements are based on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Readers of this report are cautioned not to place undue reliance on these forward-looking statements, as there can be no assurance that these forward-looking statements will prove to be accurate and speak only as of the date hereof. Management undertakes no obligation to publicly release any revisions to these forward-looking statements that may reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. This cautionary statement is applicable to all forward-looking statements contained in this report.

Overview of Business

The Company is a development stage in the business of design, development, and proliferation of next generation debit and credit cards for financial institutions employing innovative secured encryption technology transmitted via audio wave technology; the Company has partnered with China Union Pay and China Construction Bank under a pilot program to develop and market to the to end using bank customers and business operators to adopt these next generation of cards by developing point of sale and commercial interfaces via software and other solutions to generate demand for these cards as a value-added alternative to current generation debit and credit cards.  

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with GAAP, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the consolidated financial statements are prepared. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions. On a regular basis, we review our critical accounting policies and how they are applied in the preparation of our consolidated financial statements.

While we believe that the historical experience, current trends and other factors considered support the preparation of our consolidated financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.

Results of Operations

We are a development stage company and have generated minimal revenues from operations since our inception on November 11, 2013 to December 31, 2017.  As of December 31, 2017, we had total assets of $4,086,466 and total liabilities of $964,653. We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.

We are in the process of developing our products and services. Consequently, we generated minimal revenues as of the date of this report. We have an accumulated deficit and have incurred operating losses since our inception and expect losses to continue during 2018.

Revenue

Revenues for the year ended December 31, 2017 were $230,805 compared to $30,691 for the period to December 31, 2016, reflecting an increase of $200,114. The increase of revenue during such period was primarily attributed to our services provided to two audio bank card manufacturers in connection with establishing and maintaining the audio bank card platforms at the manufacturers’ facilities during the year ended December 31, 2017.  

Expenses

General and administrative and professional fee expenses were related to corporate overhead, financial and administrative contracted services, such as legal and accounting, developmental costs, and marketing expenses. General and administrative expenses and professional fees for the year ended December 31, 2017 were $1,448,488 as compared to $1,262,731 for the period to December 31, 2016, which represented an increase of $185,757 or approximately 13%. Such increase was primarily attributed to stock option compensation expense for the years ended December 31, 2017 compared to December 31, 2016.

LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity and capital resource needs are to finance the costs of our operations, to make capital expenditures and to service our debt. We continue to be dependent on our ability to generate revenues, positive cash flows and additional financing.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Recent Accounting Pronouncements

Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ (“ASC”) is the sole source of authoritative GAAP literature recognized by the FASB and applicable to our company. Management has reviewed the aforementioned rules and releases and believes any effect will not have a material impact on our company's present or future consolidated financial statements.

Quantitative and Qualitative Disclosures about Market Risk

As a “smaller reporting company”, we are not required to provide the information required by this Item.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable because we are a smaller reporting company.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The audited financial statements of the Company for the fiscal year ended December 31, 2017 and the notes thereto are set forth on page F- 1 through F-21 of this Annual Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this annual report, our Chief Executive Officer and Principal Accounting Officer (the “Certifying Officers”), conducted an evaluation of our disclosure controls and procedures. Based on this evaluation, the Certifying Officers have concluded that our disclosure controls and procedures were, due to certain factors, not effective to ensure that material information is recorded, processed, summarized and reported by our management on a timely basis in order to comply with our disclosure obligations under the Exchange Act and the rules and regulations promulgated thereunder.

Our management is also responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s 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.

Our internal control over financial reporting includes those policies and procedures that:

As of December 31, 2017, we carried out an assessment of the effectiveness of our internal control over financial reporting based on the framework in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, our management concluded that our internal control over financial reporting was not effective as of December 31, 2017. Management has specifically observed that our accounting systems and current staffing resources in our finance department are currently insufficient to support the complexity of our financial reporting requirements. We currently do not have adequate staff members in our accounting and finance department who have experience or specialized training in preparing financial statements in the form and format required by the SEC. We have also experienced difficulty in applying complex accounting and financial reporting disclosure rules as required under various aspects of GAAP and SEC reporting regulations including those relating to accounting for business combinations, intangible assets, derivatives and income taxes.

We have instituted certain procedures to mitigate our internal control risks. Our Chief Executive Officer and our Controller based in China review and approve substantially all of our major transactions to ensure the completeness and fair presentation of our consolidated financial statements. We have, when needed, hired outside experts to assist us with implementing complex accounting principles. Management and the Board of Directors believe that the Company must allocate additional human and financial resources to address these matters.

Changes in Internal Control over Financial Reporting.

During the period ended December 31, 2017, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

Issuance of Shares

The Company’s common stock issued within the past two years were summarized as follows:

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The Board and executive officers of the Company as of the date of this annual report are as follows:

Ms. Hongxia Zhao has more than 10 years of experience in information technology and more than 5 years of experience in financial consulting. He has served as the director of the Company since March 2015. She has also served as manager of Wall Street Standard Capital Inc., a financial consulting company since January 2010, and as the president of Huayuan Kaituo Limited Company, an information technology company since January 2004. Ms. Zhao holds a B.S. in renewable resources engineering from Anhui Finance and Economics University.

Mr. Yang Liu has more than ten years of experience in software development and business management. In connection with his services as the CEO, the Company will pay Mr. Liu a salary of $72,000 annually. Prior to joining the Company, Mr. Liu worked as manager, technology consultant and software engineer for a number of technology companies and financial institution. From 2005 to 2007, Mr. Liu served as a software engineer at UQM Technologies, Inc. and from 2007 to 2008 he was a software developer at FlexTrade System, Inc. Then Mr. Liu moved to work for Murex North America as a senior derivative software consultant for seven years and became Murex Regional Manager at UBS in 2015. He holds a bachelor degree in Electronic Engineering from Tsinghua University in China and masters of Science in Electrical Engineering (MSEE) and in Mathematical Science from New Mexico State University in the United States.

Ms. Minqin Tang, since July 2014 has served as an Executive Producer at Premier Event Management in New York. From June 2013 to the date hereof, Minqin serves as the Chief Executive Officer for Excelture Group LLC in New York. Ms. Tang is a founding member of the US China Federal Association of Business Councils, which began in September 2011. From 2012 to 2015, Ms. Tang was a partner in Tutami Learnings LLC and from 2011 to 2014 Ms. Tang was a consultant at Weiming Education. Ms. Tang started her career as a Tax Associate at PriceWaterhouseCoopers, LLP in 2008. She received a bachelor degree in accounting from University of International Business and Economics in China in 2007 and a master in accountancy science from University of Illinois at Urbana-Champaign in 2008. Ms. Tang has been a chartered certified accountant from 2004. 

Mr. Ming Yi has years of experience in accounting. He served as the chief financial officer and director of the Company since June 2011, overseeing the issuance of the Company’s financial information, reviewing and approving the Company’s quarterly and annual reports, its budgets and tax returns. From September 2009 to April 2011, he served as a senior manager in Qi He Certified Public Accountants Co. Ltd., a PRC-based accounting firm, responsible for client acquisition and project management, and managed different aspects of business operation such as staffing, budgeting, and global resource coordination. Mr. Yi holds a B.S. in Accounting from School of Business Administrations of Liaoning University, and an M.S. in Accounting and Finance from Victory University, Australia. Mr.Yi is a Certified Public Account in Australia.

Ms. Mei Yang has ample managerial experience in businesses in the field of bank card technology solution. She has served as the chairman of the Board of the Company since January 2015. She has also served as the vice president of Shenzhen Exce-card since December 2013. From June 2009 to November 2013, Ms. Yang served as the chief financial officer of Beijing Yuxin ShangFang Technology Company, a PRC-based debit card technology solution company. Ms. Yang holds a B.S. in economic information management from Xinjiang Agricultural University.

Mr. Zuyue Xiang has served as the chief executive officer and director of the Company since October 16, 2015. Mr. Xiang commenced his employment with Shenzhen Exce-card as managing staff in July 2014, and since April 2015, he served as the president of Shenzhen Exce-card overseeing the company’s software product and IT solution business, including its financial IC card business, as well as the research and development of its financial IC card technology. From March 2007 to March 2015, Mr. Xiang served as the general manager of Beijing Yuxin Shangfang Technology Company Limited, a PRC-based technology company, responsible for and oversaw the operation and development of the company’s business, the human resources and coordination with government agencies. Mr. Xiang holds a B.S. in management from South China University of Technology.

Xiaoqiang Zuo has more than 20 years of experience in the engineering and technology in banking and clearing systems. Mr. Zuo has served as the director of the Company since March 2015. He has also served as the president of Shenzhen Tianshi Future Electronic Technology Company, a PRC-based company specializing in surface mounted technology and manufacturing electronics since June 2010, and as the president of Huayuan Runtong (Beijing) Technology Company, a PRC-based software development company since December 2004. Mr. Zuo holds a B.S. in electronics and information system from Mongolia University.

Committees and Meetings

We do not have a standing audit committee of the Board of Directors. We do not have a financial expert serving on the Board of Directors or employed as an officer based on management’s belief that the cost of obtaining the services of a person who meets the criteria for a financial expert under Item 407(d) of Regulation S-K is beyond its limited financial resources and the financial skills of such an expert are simply not required or necessary for us to maintain effective internal controls and procedures for financial reporting in light of the limited scope and simplicity of accounting issues raised in its financial statements at this stage of its development.

Code of Ethics

We have not yet adopted a code of ethics that applies to our principal executive officers, principal financial officer, principal accounting officer or controller, or persons performing similar functions, since we have been focusing our efforts on developing our business. We expect to adopt a code as we develop our business.

Family Relationships

None.

Committees of the Board of Directors

We do not have any committees of our board of directors.

Involvement in Certain Legal Proceedings

To the best of our knowledge, none of our directors or executive officers has, during the past ten years:

None of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the Commission.

Term of Office

Our directors are appointed to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.

Corporate Governance

The business and affairs of the company are managed under the direction of our board. In addition to the contact information in this annual report, each stockholder will be given specific information on how he/she can direct communications to the officers and directors of the corporation at our annual stockholders meetings. All communications from stockholders are relayed to the members of the board of directors.

Role in Risk Oversight

Our board of directors is primarily responsible for overseeing our risk management processes. The board of directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. The board of directors focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our company are consistent with the board’s appetite for risk. While the board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our board leadership structure supports this approach.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of the our common stock and other equity securities, on Form 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish our company with copies of all Section 16(a) reports they file.

Based solely on our review of the copies of such reports received by us, and on written representations by our officers and directors regarding their compliance with the applicable reporting requirements under Section 16(a) of the Exchange Act, we believe that, with respect to the period ended December 31, 2017, our officers and directors, and all of the persons known to us to own more than 10% of our common stock, have not filed all required reports on a timely basis. Yang Liu, our CEO, did not timely file Form 3 and Form 4 relating to the grant of options to purchase 1,050,000 shares of the Company’s common stock on October 20, 2017. Mei Yang, our chairperson of the Board, did not timely file Form 3 and Form 4 relating to the receipt of 81,837 shares of the Company’s common stock in exchange for the conversion of certain debt owed by the Company to her as set forth in the Note Conversion Exchange Agreement dated March 17, 2017. Zaixian Wang, a shareholder owning more than 10% of our outstanding common stock, did not timely file Form 3 and Form 4 relating to the receipt of 1,025,000 shares of the Company’s common stock in exchange for the conversion of certain debt owed by the Company to him as set forth in the Note Conversion Exchange Agreement dated March 17, 2017. We plan to file such forms required by the Securities and Exchange Commission regulations as soon as practicable.

ITEM 11: EXECUTIVE COMPENSATION.

The following summary compensation table sets forth information concerning compensation for services rendered in all capacities during the period through December 31, 2017, earned by or paid to our executive officers.

Mr. Zuyue Xiang (in his capacity as general manager of Shenzhen Exce-card) has a written employment agreement with Shenzhen Exce-card for a term of 5 years from January 1, 2015 to December 31, 2019. He commenced his employment with Shenzhen Exce-card as managing staff in July 2014, and since April 2015, he served as the President of Shenzhen Exce-card. Mr. Xiang receives an annual salary of RMB 420,000 (approximately $66,667 based on an exchange ratio of 1 U.S. dollars = 6.30 RMB). On July 24, 2017, Mr. Zuyue Xiang resigned as the Chief Executive Officer but has remained a member of the Board of the Company and the president of Shenzhen Exce-card.

None of the officers receives any other compensation or reimbursement from the Company.

Employment Agreements

In addition to the employment agreement with Mr. Zueyue Xiang, we have an employment agreement with Mr. Yang Liu, the CEO of the Company. On October 20, 2017, the Company entered into an employment agreement (the “Employment Agreement”) with Mr. Yang Liu, pursuant to which he serves as the Company’s Chief Executive Officer. In accordance with the Employment Agreement, the Company shall pay Mr. Liu a base salary of $72,000 per year with the regular executive benefits and vacations. In connection with Mr. Liu’s service as the Chief Executive Officer of the Company, Mr. Liu was granted non-qualified stock options (the “Options”) to purchase an aggregate of 1,050,000 shares of the Company’s common stock at an exercise price of $1.00 per share, exercisable for five years. The Options shall vest in three years in equal amounts with 350,000 on October 19, 2018, 350,000 on October 19, 2019 and 350,000 on October 19, 2020. The Employment Agreement has a term of three years and can be renewed automatically for successive one-year periods.

Except with Mr. Zuyue Xiang and Mr. Yang Liu, we do not have any other employment agreements with any other officers or directors.

Outstanding Equity Awards at Fiscal Year-End (December 31, 2017)

The following table summarizes outstanding unexercised options, unvested stocks and equity incentive plan awards held by each of our named executive officers, as of December 31, 2017:

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

Directors’ Compensation

Mei Yang received $60,000 from the Company as remuneration of her services provided to the Company in the capacity of the chairwoman of the Board of Directors. Except for her annual salary, Ms. Yang has not received any other type or amount of compensation from the Company for her service during the year of 2017.

The Company has not compensated any other directors for their services on the Board of Directors. Executive directors are not compensated for their service as directors; however they may receive compensation for their services as employees of the Company. The compensation received by our executive directors is shown in the table above.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information regarding the ownership of our capital stock, as of April 2, 2018, by (i) each person known by us to be the beneficial owner of 5% or more of the outstanding common stock, (ii) each executive officer and director of the Company, and (iii) all of our executive officers and directors as a group. As of April 2, 2018, the Company has 21,027,713 shares of Common Stock outstanding.

Unless otherwise indicated, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Related Transactions

Reorganization Related Transactions

On August 5, 2015, Yigou entered into an Exclusive Service Agreement which entitles Yigou to substantially all of the economic benefits of Guangzhou Yuzhi and its Subsidiaries in consideration of services provided by Yigou to Guangzhou Yuzhi and its Subsidiaries. In addition, Yigou entered into certain agreements with each of Wenbin Yang and Ping Li, (collectively, the “Guangzhou Yuzhi shareholders”), as well as Guangzhou Yuzhi and its Subsidiaries, including (i) a Call Option Agreement allowing Yigou to acquire the shares of Guangzhou Yuzhi as permitted by PRC laws, (ii) a Voting Rights Proxy Agreement that provides Yigou with the voting rights of the Guangzhou Yuzhi shareholders and those of Guangzhou Yuzhi, and (iii) an Equity Pledge Agreement that pledges the shares in Guangzhou Yuzhi and its Subsidiaries to Yigou. This VIE structure provides Yigou, a wholly-owned subsidiary of EGOOS HK, with control over the operations and benefits of Guangzhou Yuzhi and its Subsidiaries without having a direct equity ownership in Guangzhou Yuzhi and its Subsidiaries.

Acquisition

A director and former CEO of the Company, Ms. Mei Yang, has since December 2013 worked as a vice president of Shenzhen Exce-Card, a wholly owned subsidiary of Guangzhou Yuzhi, which is indirectly wholly-controlled by EGOOS BVI. Ms. Yang therefore was on both sides of the Company’s transactions with EGOOS BVI. Ms. Yang does not hold any equity interest in EGOOS BVI or Shenzhen Exce-Card.

Loan to Management

Guangzhou Yuzhi extended a loan to Xiang, Zuyue, our Chief Executive Officer, in the amount of RMB 9,999,998 (approximately $1,541,956), which is unsecured and does not bear interest. Such referenced loan was extended to Mr. Xiang by Guangzhou Yuzhi in May 2014, prior to the consummation of our acquisition of EGOOS BVI (as well as Guangzhou Yuzhi) on October 19, 2015. In addition, there was an additional immaterial increase of the amount due from Mr. Xiang in the amount of RMB 7,918 (approximately $1,285), which was petty cash issued to Mr. Xiang for prepaid travel expenses. As of December 31, 2016, the outstanding balance of the loan is $1,350,714. The Company is aware of the ramifications of Section 13(k) of the Exchange Act, which prohibits any issuer from extending or maintaining any personal loans to or for any director or executive officer of the issuer, and the Company has implemented control procedure to prevent violation of Section 13(k) in the future, which includes, without limitation, that any loan to or for any director or executive officer of the Company (and any other related transaction with an aggregate amount of more than $100,000) will require prior written consent from the Board of Director (with interested directors, if any, excluded from voting on such matter).

Loans to the Company

As of December 31, 2017, the Company has an outstanding balance of an aggregate of $685,180 owed to certain shareholders and directors of the Company and its Subsidiaries.

Director Independence

Each of Ms. Minqin Tang, Mr. Xiaoqiang Zuo and Ms. Hongxia Zhao is an “independent” director as defined by the NASDAQ Marketplace Rules and will meet the independence standards set forth in Rule 10A-3 of the Exchange Act.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

For the year ended December 31, 2017, we engaged, WWC, Professional Corporation as our independent auditor. For the year ended December 31, 2017, the audit fee was in the amount of $30,000 and all other audit related fees was in the amount of $19,500. 

Audit fees consist of fees related to professional services rendered in connection with the audit of our annual financial statements. All other fees relate to professional services rendered in connection with the review of the quarterly financial statements.

Our policy is to pre-approve all audit and permissible non-audit services performed by the independent accountants. These services may include audit services, audit-related services, tax services and other services.

PART IV

ITEM 15. EXHIBITS

(a) The following documents are filed as part of this report:

(1) Audited Financial Statements and Report of Independent Registered Public Accounting Firm, which are set forth in the index to Financial Statements on pages F-1 through F-21 of this report.

(2) Financial Statement Schedule: None.

(3) Exhibits

SIGNATURES

Pursuant to the requirements 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.

Dated: April 13, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each person whose signature appears below hereby authorizes Yang Liu as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities to sign any and all amendments to this report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission.

Wave Sync Corp.

Audited Consolidated Financial Statements

As of December 31, 2017 and 2016

(Stated in US Dollars)

Wave Sync Corp.

INDEX TO FINANCIAL STATEMENTS

Contents

REPORT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM

Wave Sync Corp.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Wave Sync Corp. (the “Company”) as of December 31, 2017 and 2016, and the related statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two year ended December 31, 2017, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017 and 2016, in conformity with accounting principles generally accepted in the United States of America.

Emphasis of Matter

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 11 to the financial statements, the Company had incurred substantial losses in previous years and has a working capital deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 10. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

WAVE SYNC CORP.

AUDITED CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2017 AND 2016

(Stated in US Dollars)

The accompanying notes are an integral part of these financial statements

WAVE SYNC CORP.

AUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(Stated in US Dollars)

The accompanying notes are an integral part of these financial statement

WAVE SYNC CORP.

AUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(Stated in US Dollars)

The accompanying notes are an integral part of these financial statement

WAVE SYNC CORP.

AUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIENCY)/EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(Stated in US Dollars)

The accompanying notes are an integral part of these financial statement

WAVE SYNC CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND DECEMBER 31, 2016

(Stated in US Dollars)

Wave Sync Corp. formerly known as China Bio-Energy Corp. (the “Company”), and prior to that known as China INSOnline Corp., was incorporated on December 23, 1988 as Lifequest Medical, Inc., a Delaware corporation.

In June 2010, the Company ceased all operations conducted by its then subsidiaries: Ever Trend Investment Limited, Run Ze Yong Cheng (Beijing) Technology, San Teng Da Fei Technology, and Guang Hua Insurance Agency (“Ever Trend Group”); on January 27, 2015, the Company announced the completion of the disposition of the aforementioned subsidiaries. Accordingly, the Company has excluded the accounts of Ever Trend Group in these financial statements and the accompanying notes contained herein.

On November 12, 2010, the Company entered into a share exchange agreement with Ding Neng Holdings Ltd, an investment holdings company incorporated in the British Virgin Islands (“Ding Neng Holdings”); the share exchange agreement was amended on December 6, 2010, whereby the Company, under the share exchange agreement and its related amendment, would have contemplated acquiring 100% of Ding Neng Holdings in exchange for the issuance of 26,162,505 shares of the Company’s common stock, par value $0.001. Under the share exchange agreement, the Company would have contemplated owning and operating Ding Neng Holdings and Ding Neng Holdings’ directly, and indirectly held subsidiaries: Ding Neng Bio-technology Co., Ltd. (“Ding Neng HK”), Zhangzhou Fuhua Biomass Energy Technology Co., Ltd. (“WOFE”), and Ding Neng Bio-tech. Ding Neng HK was incorporated under the laws of Hong Kong on September 10, 2010. Ding Neng HK did not have any operations. Ding Neng HK has been delinquent with its annual regulatory filings in Hong Kong, and should be considered dormant and defunct. Ding Neng HK was wholly-owned by Ding Neng Holdings. Zhangzhou Fuhua Biomass Energy Technology Co., Ltd. (“WFOE”) was incorporated as a wholly-foreign owned entity under the laws of the People’s Republic of China (“PRC”), on November 2, 2010. WFOE was wholly-owned by Ding Neng HK. Ding Neng Bio-tech was incorporated under the laws of the PRC on December 8, 2006. It was located in Zhangzhou city Fujian Province of PRC. Ding Neng Bio-tech was engaged in the production, refinement and distribution of bio-diesel fuel in Southern China. Ding Neng Bio-tech operated a biodiesel manufacturing facility in Zhangzhou city. On October 28, 2010, WFOE and Ding Neng Bio-tech entered into a set of variable interest entity agreements that included: (1) a Consulting Service Agreement with Ding Neng Bio-tech, which entitled WFOE to receive substantially all of the economic benefits of Ding Neng Bio-tech in consideration for services provided by WFOE to Ding Neng Bio-tech, (2) an Option Agreement with Xinfeng Nie, Sanfu Huang, and Shunlong Hu (the shareholders of Ding Neng Bio-tech) allowing the WFOE to acquire all the shares of Ding Neng Bio-tech as permitted by PRC laws, (3) a Voting Rights Proxy Agreement that provides WFOE with the all voting rights of the Ding Neng Bio-tech shareholders, and (4) an Equity Pledge Agreement that pledges the shares in Ding Neng Bio-tech to WFOE (VIE Agreements). These VIE Agreements granted effective control of Ding Neng Bio-tech to WFOE. On June 4, 2015, WFOE filed a civil action in Haicang District People’s Court of Xiamen, Fujian, PRC (the “Court”) against Ding Neng Bio-tech, alleging that the purposes of those certain executed VIE Agreements entered into by WFOE and Ding Neng Bio-Tech on October 28, 2010, had been frustrated, and that these VIE Agreements should be terminated. WFOE alleged that Ding Neng Bio-Tech did not make any payment of service fees to WFOE, and that Ding Neng Bio-Tech failed to perfect the security interest in the pledged stocks. On July 14, 2015, this case was settled via in-court mediation directed by the Court. As a result, WFOE and Ding Neng Bio-Tech entered into binding settlement, among other things, (i) to terminate the VIE Agreements, and (ii) that the litigation fee in the amount of RMB10,000 (approximately $1,610.50) would be borne by Ding Neng Bio-Tech. Ding Neng Holdings is delinquent with its regulatory filings and annual fees to the British Virgin Islands; accordingly, the Ding Neng Holdings should be considered dormant and defunct.

WAVE SYNC CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND DECEMBER 31, 2016

(Stated in US Dollars)

Given that the Company has not been able to exercise effective control over Ding Neng Bio-Tech or to access Ding Neng Bio-tech’s financial information since 2011, and the VIE Agreements were terminated, the Company has excluded the accounts of Ding Neng Bio-Tech’s in these financial statements and the accompanying notes contained herein; the exclusion of such accounts is considered as a type two material subsequent event that occurred prior to the issuance of the financial statements but after the balance sheets dates that required material adjustments to the financial statements presented. Ding Neng Holdings is delinquent and defunct; the Company has determined that the Company was never registered as the sole shareholder of Ding Neng Holdings pursuant to the share exchange agreement dated November 12, 2010, and amended December 6, 2010; accordingly, the Company has excluded the accounts of Ding Neng and its subsidiaries in these financial statements and the accompanying notes as contained herein; the exclusion of such accounts is considered as a type two material subsequent event that occurred prior to the issuance of the financial statements but after the balance sheets dates that required material adjustments to the financial statements presented. The Company accounted for the issuance of shares to the shareholders of Ding Neng Holdings under the contemplated share exchange transaction as a recapitalization of the Company under reverse take-over accounting; accordingly, the Company’s historical stockholders’ equity has been retroactively restated to the first period presented; as a result of the Company not being updated to Ding Neng Holdings shareholder register, and that Ding Neng Holdings being defunct, the Company has written off all investments made in Ding Neng as loss on investment in subsidiary.

In connection with the share exchange agreement with the shareholders of Ding Neng Holdings that contemplated the acquisition of Ding Neng Holdings and its subsidiaries, the Company elected to adopt the fiscal year used by Ding Neng Holdings, which was a calendar year; accordingly, the Company’s financial statements presented herein have been, and on a go-forward basis, will be prepared using a December 31 year-end date, and each operating period will cover twelve full calendar months.

Share Purchase Agreement

On October 19, 2015, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with EGOOS Mobile Technology Company Limited, a British Virgin Islands holding company (“EGOOS BVI”), which owns 100% of EGOOS Mobile Technology Company Limited, a Hong Kong company (“EGOOS HK”), which owns 100% of Move the Purchase Consulting Management (Shenzhen) Co., Ltd. (“WOFE”), a foreign investment enterprise organized under the laws of the PRC, and which has, through various contractual agreements known as variable interest entity (“VIE”) agreements. These VIE agreements provide the WOFE management control and the rights to the profits of Guangzhou Yuzhi Information Technology Co., Ltd., a corporation organized under the laws of the PRC as a variable interest entity (“GZYZ”), which owns 100% of Shenzhen Qianhai Exce-card Technology Co., Ltd., a Chinese corporation (“SQEC”), which owns 100% of Guangzhou Rongsheng Information Technology Co., Ltd., a Chinese corporation (“GZRS”) and the sole shareholder of EGOOS BVI. The VIE agreements include: (1) an Exclusive Service Agreement between WOFE and GZYZ, which entitles WOFE to receive substantially all of the economic benefits of GZYZ in consideration for services provided by WOFE to GZYZ, (2) a Call Option Agreement with the shareholders of GZYZ, Yang Wenbin and Li Ping, allowing the WOFE to acquire all the shares of GZYZ as permitted by PRC laws, (3) a Voting Rights Proxy Agreement that provides WOFE with the all voting rights of the GZYZ’s shareholders, and (4) an Equity Pledge Agreement that pledges the shares in GZYZ to WOFE. Management has assessed the terms of the VIE agreements and determined that the Company is the primary beneficiary of those agreements based on Management’s ability to direct the use and disposition of GZYZ assets including the payment of future profits to the Company. Management also determined the Company has implicitly provided financial support to GYZY; accordingly, Management believes that GZYZ and its subsidiaries should be consolidated as variable interest entities of the Company.

WAVE SYNC CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND DECEMBER 31, 2016

(Stated in US Dollars)

SQEC was incorporated on November 11, 2013. The Company is in the business of design, development, and proliferation of next generation debit and credit cards for financial institutions employing innovative secured encryption technology transmitted via audio wave technology; the Company intends to work with China Union Pay and China Construction Bank under a potential pilot program to develop and market to end user bank customers and business operators to adopt these next generation of cards by developing point of sale and commercial interfaces via software and other solutions to generate demand for these cards as a value-added alternative to current generation debit and credit cards.

On January 28, 2015, ownership of SQEC’s was transferred from Bao, Shanshan to Xiang, Zuyue for a consideration of approximately $1,629,062 (RMB 10,000,000). Simultaneously, Xiang, Zuyue transferred 40% of ownership to Li, Na for a consideration of $651,625 (RMB 4,000,000). On July 24, 2015, SQEC entire ownership was collectively transferred from Xiang, Zuyue and Li, Na to Guangzhou Yuzhi Information Technology Co. Ltd. (“GZYZ”) for a consideration of approximately $1,629,062 (RMB 10,000,000).

On March 16, 2015, the GZRS was incorporated as a wholly-owned subsidiary of SQEC. GZRS has an authorized capital of RMB 1,000,000. As of the date of this report, GZRS has not been capitalized.

Pursuant to the Share Purchase Agreement the Company issued a convertible note to EGOOS BVI’s sole shareholder for 100% equity interest in EGOOS BVI. The note is convertible into 15,000,000 shares of the Company’s common stock contingent on the following conditions: (i) the Company has effectuated a reverse split of all of the issued and outstanding Common Stock as of the date of the issuance of the note (the “Reverse Split”) and (ii) the average closing price of the common stock for 3 business days within any period of 10 consecutive business days exceeds $1.00 per share (the “Conversion Conditions”). Upon conversion of the note, the existing shareholders of the Registrant will own an aggregate of 24.7% of the post-acquisition entity. The note was issued at Par, it is unsecured, interest free, and is due on the second anniversary of the issuance date of the note. In accounting for the note, the Company has assumed that the note does not carry any discount from face that requires accretion as interest expense to its results of operations, including any potential beneficial conversion features. On January 26, 2016, the reverse split was effectuated, and subsequently, on February 4, 2016, the convertible promissory note was converted into 15 million newly issued shares of the Company’s common stock. The conversion of the promissory note has been recognized retroactively to the first period presented as a component of the reverse takeover transactions detailed below.

The consolidated financial statements were prepared assuming that the Company has controlled EGOOS BVI and its intermediary holding companies, operating subsidiaries, and variable interest entities: EGOOS HK, WOFE, GZYZ, SQEC, and GZRS from the first period presented. The transactions detailed above have been accounted for as reverse takeover transactions and a recapitalization of the Company, including the conversion of the convertible promissory note; accordingly, the Company (the legal acquirer) is considered the accounting acquiree and EGOOS BVI (the legal acquiree) is considered the accounting acquirer. No goodwill has been recorded. As a result of this transaction, the Company is deemed to be a continuation of the business of EGOOS BVI and SQEC.

WAVE SYNC CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND DECEMBER 31, 2016

(Stated in US Dollars)

The Company maintains its general ledger and journals with the accrual method of accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).

The consolidated financial statements include the accounts of the Company, its subsidiaries for which the Company is the primary beneficiary. All significant inter-company accounts and transactions have been eliminated. The consolidated financial statements include 100% of assets, liabilities, and net income or loss of those wholly-owned subsidiaries.

The preparation of the 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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are used for, but not limited to, the accounting for certain items such as allowance for doubtful accounts, depreciation and amortization, impairment, inventory allowance, taxes and contingencies.

WAVE SYNC CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND DECEMBER 31, 2016

(Stated in US Dollars)

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

The Company classifies the following instruments as cash and cash equivalents: cash on hand, unrestricted bank deposits, and all highly liquid investments purchased with original maturities of three months or less.

Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.

Other receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An allowance for doubtful accounts is made when recovery of the full amount is doubtful.

Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method with a salvage value of 10%. Estimated useful lives of the plant and equipment are as follows:

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.

WAVE SYNC CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND DECEMBER 31, 2016

(Stated in US Dollars)

The long-lived assets held by the Company are reviewed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 360-10-35, “Accounting for the Impairment or Disposal of Long-Lived Assets,” for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Impairment is present if carrying amount of an asset is less than its undiscounted cash flows to be generated.

If an asset is considered impaired, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company assessed the carrying value and has taken impairment losses to its assets during 2017.

The Company uses the accrual method of accounting to determine income taxes for the year. The Company has implemented FASB ASC 740 Accounting for Income Taxes. Income tax liabilities computed according to the United States, People’s Republic of China (PRC), and Hong Kong tax laws provide for the tax effects of transactions reported in the financial statements and consists of taxes currently due, plus deferred taxes, related primarily to differences arising from the recognition of expenses related to the depreciation of plant and equipment, amortization of intangible assets, and provisions for doubtful accounts between financial and tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will be either taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses that are available to offset future income taxes.

A valuation allowance is recognized for deferred tax assets if it is more likely than not, that the deferred tax assets will either expire before the Company is able to realize that tax benefit, or that future realization is uncertain.

The Company has elected to use the Black-Scholes-Merton (“BSM”) pricing model to determine the fair value of stock options on the dates of grant. Also, the Company recognizes stock-based compensation using the straight-line method over the requisite service period.

The Company values stock awards using the market price on or around the date the shares were awarded and includes the amount of compensation as a period compensation expense over the requisite service period.

For the years ended December 31, 2017 and 2016, $373,509 and $0 stock-based compensation was recognized.

WAVE SYNC CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND DECEMBER 31, 2016

(Stated in US Dollars)

The accompanying financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB) and Hong Kong dollar (HKD). The financial statements are translated into United States dollars from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US Dollar at the rates used in translation.

The Company recognizes services revenue when the following criteria have been met: 1.) it has agreed and entered into a contract for service with it customers, 2.) the contract has set forth a fixed fee for the services to be rendered, 3.) the Company has fully rendered service to its customers, and there are no additional obligations that exist that under the terms of the contract that the Company has not fulfilled, and 4.) the Company has either received payment, or reasonably expects payment from the customer in accordance to the payment terms set forth in the contract.

Basic earnings per share is computed on the basis of the weighted average number of common stock outstanding during the period. Diluted earnings per share is computed on the basis of the weighted average number of common stock and common stock equivalents outstanding. Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation.

Dilution is computed by applying the treasury stock method for options and warrants. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

Comprehensive income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The Company presents components of comprehensive income with equal prominence to other financial statements. The Company’s current component of other comprehensive income is the foreign currency translation adjustment.

WAVE SYNC CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND DECEMBER 31, 2016

(Stated in US Dollars)

The Company evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date.

In January 2017, the Financial Accounting Standard Board (“FASB”) issued guidance, which simplifies the accounting for goodwill impairment. The updated guidance eliminates Step 2 of the impairment test, which requires entities to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The Company is still assessing the impact of this pronouncement to its financial statements.

In August 2017, the FASB issued guidance, which amends the existing accounting standards for derivatives and hedging. The amendment improves the financial reporting of hedging relationships to better represent the economic results of an entity’s risk management activities in its financial statements and made certain targeted improvements to simplify the application of the hedge accounting guidance in current U.S. GAAP. The Company believes the adoption of this pronouncement to its financial statements will not materially affect its financial statements.

In January 2017, the FASB issued guidance, which amended the existing accounting standards for business combinations. The amendments clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company is still assessing the impact of this pronouncement to its financial statements.

In November 2016, the FASB issued guidance, which addresses the presentation of restricted cash in the statement of cash flows. The guidance requires entities to present the changes in the total of cash, cash equivalents, restricted cash, and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The Company is still assessing the impact of this pronouncement to its financial statements.

In October 2016, the FASB issued guidance, which amends the existing accounting for Intra-Entity Transfers of Assets Other Than Inventory. The guidance requires an entity to recognize the income tax consequences of intra-entity transfers, other than inventory, when the transfer occurs. It also requires modified retrospective transition with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. The Company believes the adoption of this pronouncement to its financial statements will not materially affect its financial statements.

In August 2016, the FASB issued guidance, which amends the existing accounting standards for the classification of certain cash receipts and cash payments on the statement of cash flows. The Company early adopted this pronouncement.

In June 2016, the FASB issued guidance, which requires credit losses on financial assets measured at amortized cost basis to be presented at the net amount expected to be collected, not based on incurred losses. Further, credit losses on available-for-sale debt securities should be recorded through an allowance for credit losses limited to the amount by which fair value is below amortized cost. The Company is still assessing the impact of this pronouncement to its financial statements.

In February 2016, the FASB issued guidance, which amends the existing accounting standards for leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification. Under the new guidance, a lessee will be required to recognize assets and liabilities for all leases with lease terms of more than twelve months. The Company is still assessing the impact of this pronouncement to its financial statements.

In January 2016, the FASB issued guidance, which amends the existing accounting standards for the recognition and measurement of financial assets and financial liabilities. The guidance primarily addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The Company is still assessing the impact of this pronouncement to its financial statements.

ASC 825, Financial Instruments, requires that the Company discloses estimated fair values of financial instruments. The carrying amounts reported in the balance sheets for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.

WAVE SYNC CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND DECEMBER 31, 2016

(Stated in US Dollars)

The Company applies the provisions of ASC 820-10, Fair Value Measurements and Disclosures. ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. For certain financial instruments, including cash and cash equivalents, loan receivables and short-term bank loans, the carrying amounts approximate fair value due to their relatively short maturities. The three levels of valuation hierarchy are defined as follows:

The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815.

The following tables present the Company’s financial assets and liabilities at fair value in accordance to ASC 820-10

Related party receivable consisted of the following:

The amounts are unsecured, interest-free and due on demand.

WAVE SYNC CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND DECEMBER 31, 2016

(Stated in US Dollars)

Related party payable consisted of the following: