COVID-19 Update
In early January of 2020, a novel coronavirus ("COVID-19") outbreak took place
in Wuhan, China. Subsequently, it has spread rapidly to Asia and other parts of
the world. The COVID-19 outbreak has resulted in widespread economic disruptions
in China, as well as stringent government measures by the Chinese government to
contain its transmissions including quarantines, travel restrictions, and
temporary closures of non-essential businesses in China and elsewhere. The
outbreak in China mainly occurred in the first quarter of 2020, and it gradually
stabilized and business activities started to resume under the guidance and
support of the government since late second quarter of 2020.
As of December 31, 2020, the COVID-19 outbreak in China appears to be generally
under control and business activities have recovered on the whole. In addition,
we resumed contacting potential customers as of June 2020, and the
aforementioned negative impact has been further mitigated since the third
quarter of 2020, when the outbreak became more stabilized in China and other
regions in the world. However, sporadic cases continue to be found during the
first half year of 2021 in China. For example, a new Delta variant of COVID-19
had been found in certain cities in China in the second quarter of 2021, which
may cause another outbreak, thus increasing risks and possible further
disruption to businesses. Therefore, certain of our consulting services were
suspended from April 2021 to August 2021. We have resumed these consulting
businesses from August 2021 in order to maintain diversified services for our
customers.
As of December 31, 2021 and June 30, 2022, the COVID-19 pandemic continues to be
dynamic, and near-term challenges across the economy remain. Although vaccines
are now being distributed and administered across many parts of the world, new
variants of the virus have emerged and may continue to emerge that have shown to
be more contagious. We continue to adhere to applicable governmental and
commercial restrictions and to work to mitigate the impact of COVID-19 on our
employees, customers, communities, liquidity and financial position. The extent
to which the COVID-19 outbreak may impact the company's business, operations and
financial results from this point forward will depend on numerous evolving
factors that the company cannot accurately predict. Those factors include the
following: the duration and scope of the pandemic; governmental, business and
individuals' actions in response to the pandemic in the future; and any other
further development of the COVID-19 outbreak.
Substantially all of our revenues and operations are concentrated in China.
Consequently, our results of operations and financial performances have been
affected since 2020 and into the first half of 2022. Due to the government
measures taken to contain COVID-19, the offline activities of our PRC subsidiary
were restricted from late January to May 2020, resulting in cancellations or
postponements of the marketing efforts of our customers. In addition, due to
widespread economic disruptions during the outbreak, demand for our consulting
services by small and medium-sized enterprises were also adversely affected.
Specifically, as a result of government mandated closures of non-essential
business in China, many of our customers' business were suspended while others
permanently closed their businesses. From December 22, 2021 to January 24, 2022,
Xi'an city, the PRC, went into lockdown following a coronavirus outbreak that
officials attributed to the delta variant. From April 16, 2022 to April 19,
2022, the city was under temporary controls of social activities after reporting
more than 40 infections in half month. This affected mainly our digital
marketing consulting services in 2020, 2021 and early of 2022.
Overview
EUBG is a holding company for its operating subsidiaries. Our PRC subsidiary's
operations in China are the primary operations of the Company. While
substantially all of our operations are located in China, we currently do not,
and we do not plan to use variable interest entities to execute our business
plan or to conduct our China-based operations. However, because our operations
are in China and our major shareholders are located in China, there is always a
risk that the Chinese government may in the future seek to affect operations of
any company with any level of operations in China, including its ability to
offer securities to investors, list its securities on a U.S. or other foreign
exchange, conduct its business or accept foreign investment. If any or all of
the foregoing were to occur, it could, in turn, result in a material change in
the Company's operations and/or the value of its common stock and/or
significantly limit or completely hinder its ability to offer or continue to
offer securities to investors and cause the value of such securities to
significantly decline or be worthless.
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Recent Developments
For our digital training related services, we worked with Beida Jade Bird
Vocational Education ("Jade Bird") which was an authorized licensee of China
National Personal Talent Training Network ("CNPTTN"), a PRC regulatory agency
for the talent training. Jade Bird was in charge of its training courses, and
the Company was authorised by Jade Bird as its sole training related
administrator of the training courses, limited to coordinate the digital
training related services to individual clients who were interested in
conducting live-broadcasting business through social medias. The Company
provided training related services, to these individual clients who subscribed
courses, in arranging the examination, following up certificate issuance
processes, addressing clients' concerns, etc. On March 22, 2022, the PRC
subsidiary learned that Jade Bird suspended its service after receiving a notice
from CNPTTN that until further notice CNPTTN has suspended all recruitment
services using its CNPTTN's name. As a result of CNPTTN's suspension, the PRC
subsidiary has also suspended its digital training related services with Jade
Bird from March 22, 2022 until further notice. For the six months ended June 30,
2022 and 2021, the digital training related services with Jade Bird represented
13% and 0% of our total revenue, or $272,962 and $0, respectively. For the three
months ended June 30, 2022 and 2021, the digital training related services with
Jade Bird were nil. As of the date of this filing, there is no further notice
from CNPTTN and the service is still being suspended.
Segment and Related Information
We operate as a single reportable segment "provision of consulting, sourcing and
marketing services in China".
Results of Operations and Financial Condition
Results of Operations for the three months ended June 30, 2022 as compared to
the three months ended June 30, 2021
The following table represents our unaudited condensed consolidated statement of
operations for the three months ended June 30, 2022 and 2021.
Three months ended
June 30,
2022 2021
Revenue $ 840,868 $ 873,084
Cost of revenue (113,332 ) (199,451 )
Gross profit 727,536 673,633
Selling expenses (8,319 ) (85,760 )
General and administrative expenses (331,385 ) (351,935 )
Total other income, net 58,099 32,392
Income before income tax 445,931 268,330
Income tax expense (180,081 ) (146,289 )
Net income $ 265,850 $ 122,041
Revenue and cost of revenue
During the three months ended June 30, 2022, we generated revenue of $840,868
compared to $873,084 for the three months ended June 30, 2021, representing a
decrease of $32,216 or 3.7% as compared with the prior period. For the three
months ended June 30, 2022, our revenue from consultancy services and sourcing
and marketing services were $680,606 and $160,262, respectively; while revenue
for the three months ended June 30, 2021 was wholly generated from our
consultancy services. Cost of revenue was $113,332 for the three months ended
June 30, 2022 compared to $199,451 for the three months ended June 30, 2021. The
decrease of cost of revenue for the three months ended June 30, 2022 was mainly
due to our senior management no longer directly involved in performing the
services but focused on management work. Therefore, less direct senior
management costs were incurred in the consultancy services and souring and
marketing service.
3
Selling expenses
During the three months ended June 30, 2022, we incurred $8,319 selling expenses
compared to $85,760 for the three months ended June 30, 2021, representing a
decrease of $77,441 or 90.3% as compared with the prior period. The decrease of
selling expenses was mainly due to the tightening of entertainment policies
during the period and the staff costs incurred in selling activities were
dropped by $42,974 or 90.5% for the three months ended June 30, 2022.
General and administrative expenses
During the three months ended June 30, 2022, we incurred $331,385 general and
administrative expenses compared to $351,935 for the three months ended June 30,
2021, representing a decrease of $20,550 or 5.8% as compared with the prior
period. The slight decrease for the three months ended June 30, 2022 was mainly
due to less audit fees and professional fees charged by the professional
parties. Our general and administrative expenses consisted mainly of audit fees,
professional fees, payroll expenses and consultancy fees.
Total other income, net
During the three months ended June 30, 2022, we generated net other income of
$58,099 compared to $32,392 for the three months ended June 30, 2021,
representing an increase of $25,707 or 79.4% as compared with the prior period.
Our other income mainly consisted of bank interest income, exchange rate
differences and certain sundry incomes.
Income tax expense
During the three months ended June 30, 2022, we incurred income tax expense of
$180,081 compared to $146,289 for the three months ended June 30, 2021,
representing an increase of $33,792 or 23.1% as compared with the prior period.
The income tax expenses were charged in China.
For the three months ended June 30, 2022, our income tax expenses comprised of
current tax and deferred tax expenses of $131,409 and $48,672, respectively,
compared to $122,745 and $23,544 for the three months ended June 30, 2021.
Net income
As a result of the above, we generated a net income of $265,850 and $122,041 for
the three months ended June 30, 2022 and 2021, respectively.
Results of Operations for the six months ended June 30, 2022 as compared to the
six months ended June 30, 2021
The following table represents our unaudited condensed consolidated statement of
operations for the six months ended June 30, 2022 and 2021.
Six months ended
June 30,
2022 2021
Revenue $ 2,049,872 $ 2,856,944
Cost of revenue (425,811 ) (418,772 )
Gross profit 1,624,061 2,438,172
Selling expenses (24,914 ) (170,014 )
General and administrative expenses (642,673 ) (579,301 )
Total other income, net 159,921 70,094
Income before income tax 1,116,395 1,758,951
Income tax expense (459,372 ) (670,274 )
Net income $ 657,023 $ 1,088,677
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Revenue and cost of revenue
During the six months ended June 30, 2022, we generated revenue of $2,049,872
compared to $2,856,944 for the six months ended June 30, 2021, representing a
decrease of $807,072 or 28.2% as compared with the prior period. The decrease
was mainly due to our consultancy services income, generated from clients who
engaged in online courses business, dropped by $1,950,347 as compared with last
period. This was because the end customers became more patience and cautious in
choosing online courses. We continued to seek for different business
opportunities to stabilize our income streams. During the six months ended June
30, 2022, we generated $272,962 from our new digital training related services
and $576,582 from our consultancy services to a customer who engaged in live
streaming business. However, these new income streams only compensated a part of
the revenue reduction in current period. As of the date of this filing, the
digital training related services with Jade Bird remain suspended. Therefore, we
expected the new revenue will not be available to compensate the revenue
reduction until further notice. Cost of revenue was $425,811 for the six months
ended June 30, 2022 compared to $418,772 for the six months ended June 30, 2021.
For the six months ended June 30, 2022, the cost of revenue mainly represented
the staff costs for our consulting services and the agency fees for our digital
training related services.
Selling expenses
During the six months ended June 30, 2022, we incurred $24,914 selling expenses
compared to $170,014 for the six months ended June 30, 2021, representing a
decrease of $145,100 or 85.3% as compared with the prior period. The decrease of
selling expenses was mainly due to the tightening of entertainment policies
during the period and the staff costs incurred in selling activities were
dropped by $70,200 or 80.0% for the six months ended June 30, 2022.
General and administrative expenses
During the six months ended June 30, 2022, we incurred $642,673 general and
administrative expenses compared to $579,301 for the six months ended June 30,
2021, representing an increase of $63,372 or 10.9% as compared with the prior
period. The increase for the six months ended June 30, 2022 was mainly due
certain senior management no longer directly involved in performing the services
but focused on management work. Therefore, more senior management costs were
incurred during the period. Our general and administrative expenses consisted
mainly of audit fees, professional fees, payroll expenses and consultancy fees.
Total other income, net
During the six months ended June 30, 2022, we generated net other income of
$159,921 compared to $70,094 for the six months ended June 30, 2021,
representing an increase of $89,827 or 128.2% as compared with the prior period.
Our other income mainly consisted of bank interest income, exchange rate
differences and certain sundry incomes.
Income tax expense
During the six months ended June 30, 2022, we incurred income tax expense of
$459,372 compared to $670,274 for the six months ended June 30, 2021,
representing a decrease of $210,902 or 31.5% as compared with the prior period.
The income tax expenses were charged in China.
For the six months ended June 30, 2022, our income tax expenses comprised of
current tax and deferred tax expenses of $335,479 and $123,893, respectively,
compared to $521,510 and $148,764 for the six months ended June 30, 2021. The
decrease of the current tax and deferred tax was mainly aligned with the
reduction of revenue and gross profit during the period.
Net income
As a result of the above, we generated a net income of $657,023 and $1,088,677
for the six months ended June 30, 2022 and 2021, respectively.
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Liquidity and Capital Resources
Working Capital
June 30, December 31,
2022 2021
Cash and cash equivalents $ 7,637,260 $ 7,649,129
Total current assets 7,943,568 7,772,994
Total assets 8,290,445 $ 8,201,140
Total liabilities 1,108,724 1,439,526
Retained earnings (accumulated deficit) 299,620 (357,403 )
Total equity 7,181,721 6,761,614
Cash flow
The following table sets forth a summary of our cash flows for the periods
indicated:
Six months ended
June 30,
2022 2021
Net cash generated from operating activities $ 252,137 $ 7,404
Net cash (used in) generated from investing activities (8,381 ) 2,624,728
Net cash used in financing activities - (59,310 )
Effect of exchange rate changes on cash and cash equivalents (255,625 ) 38,660
Cash and cash equivalents, beginning of period
7,649,129 3,846,470
Cash and cash equivalents, end of period $ 7,637,260 $ 6,457,952Cash generated from operating activities
Net cash generated from operating activities for the six months ended June 30,
2022 was $252,137, as compared to net cash generated from operating activities
of $7,404 for the six months ended June 30, 2021, representing an increase of
$244,733 or 33 times as compared with the prior period. The increase of
operating cash flows was mainly resulted from a combination of below operating
activities changes:
Net income was $657,023 for the six months ended June 30, 2022, as compared to
$1,088,677 for the six months ended June 30, 2021. The decrease of net income of
$431,654 or 39.6% was mainly due to the reduction of certain performance-based
arrangement consultancy services during the period which directly reduced our
operating cash inflow.
Cash inflow of deferred tax was $123,894 for the six months ended June 30, 2022,
as compared to cash outflow of $367,854 for the six months ended June 30, 2021.
The cash inflow of $123,894 for the six months ended June 30, 2022 was mainly
resulted from the recognition of withholding tax arising from the undistributed
profits of our PRC subsidiary, while the cash outflow of $367,854 for the six
months ended June 30, 2021 was mainly due to our PRC subsidiary distributed
dividends to our Hong Kong subsidiary during the period.
Cash outflow of trade receivables was $213,535 for the six months ended June 30,
2022, as compared to cash inflow of $118,772 for the six months ended June 30,
2021. The cash outflow of $213,535 for the six months ended June 30, 2022 was
due to certain consultancy services income were not settled by the customers
before the end of period.
Cash outflow of trade payables was $113,645 for the six months ended June 30,
2022 because all the account payables were settled before June 30, 2022. Due to
the suspension of the digital training related services with Jade Bird, the
service fees charged by our service vendors sharply decreased during the period.
Cash outflow of other payables and accrued liabilities was $170,904 for the six
months ended June 30, 2022, as compared to cash outflow of $303,307 for the six
months ended June 30, 2021. The cash outflow for the six months ended June 30,
2022 and 2021 were due to the settlement of the accrued audit fee, consultancy
fee and professional fee during the periods. Larger cash outflow was resulted in
the six months ended June 30, 2021 because the Company filed a registration
document during the period and settled the service fees with the professional
parties.
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Cash inflow of tax payables was $125,057 for the six months ended June 30, 2022,
as compared to cash outflow of $460,122 for the six months ended June 30, 2021.
The cash inflow of $125,057 for the six months ended June 30, 2022 was mainly
due to the business reduction during the period and we provided current income
tax of $335,479 netting off with $224,055 income tax paid during the period. The
cash outflow of $460,122 for the six months ended June 30, 2021 was mainly due
to the current income tax provision of $521,510, netting off with $981,886
income tax paid during the prior period.
Cash outflow of contract liabilities was $212,060 for the six months ended June
30, 2022 because the digital training related services will Jade Bird was
suspended since March 2022 and all the outstanding contract liabilities were
refunded to the customers before June 30, 2022.
As we are continually to explore new business opportunities and new customers,
we expect to generate more cash inflows in the coming years. We continue to
monitor our level of operating expenses in order to maintain a positive cash
flow position.
Cash (used in) generated from investing activities
Net cash used in investing activities for the six months ended June 30, 2022 was
$8,381 as compared net cash of $2,624,728 generated from investing activities
for the six months ended June 30, 2021. The net cash used in investing
activities for the six months ended June 30, 2022 were mainly due to the
purchase of property, plant and equipment during the period; while the net cash
generated from investing activities was mainly due to the redemption of debt
products of $5,717,211 offset by the acquisition of debt products of $2,781,346.
Cash used in financing activities
The net cash used in financing activities for the six months ended June 30, 2021
was mainly due to the repayment of borrowings of $128,842 offsetting by the
advance from a director of $69,532 during the period. No cash was incurred in
financing activities during the six months ended June 30, 2022.
Future Capital Requirements
We believe that our ability to generate cash from operations are adequate to
fund working capital, capital spending and other cash needs for at least the
next 12 months. Our ability to generate adequate cash from operations in the
future, however, will depend on, among other things, our ability to successfully
implement our business strategies while continuing to tightly control our
expenses, and to manage the impact of changes to the PRC regulatory environment.
We can give no assurance that we will be able to successfully implement those
strategies and cost control initiatives, or successfully adjust to any changes
to PRC laws and regulations impacting our business. In addition, changes in our
operating plans, lower than anticipated sales, increased expenses, interest rate
increases, acquisitions or other events may cause us to seek additional debt or
equity financing in future periods. We can give no assurance that financing will
be available on acceptable terms or at all. Additional equity financing could be
dilutive to holders of the Company's common stock; debt financing, if available,
could impose additional cash payment obligations and additional covenants and
operating restrictions.
Contractual Obligations
We had the following contractual obligations and commercial commitments as of
June 30, 2022:
Less than 1-3 3-5 More than
Contractual Obligations Total 1 year years years 5 years
Lease 118,044 59,022 59,022 - -
TOTAL $ 118,044 $ 59,022 $ 59,022 $ - $ -
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Off-Balance Sheet Arrangements
As of June 30, 2022 and December 31, 2021, we did not have any off-balance sheet
arrangements as defined in Item 303(a) (4) (ii) of Regulation S-K promulgated
under the Securities Act of 1934.
Critical Accounting Policies
The preparation of condensed financial statements in conformity with accounting
principles generally accepted in the United States requires our management to
make assumptions, estimates and judgments that affect the amounts reported,
including the notes thereto, and related disclosures of commitments and
contingencies, if any. We have identified certain accounting policies that are
significant to the preparation of our financial statements. These accounting
policies are important for an understanding of our financial condition and
results of operation. Critical accounting policies are those that are most
important to the portrayal of our financial condition and results of operations
and require management's difficult, subjective, or complex judgment, often as a
result of the need to make estimates about the effect of matters that are
inherently uncertain and may change in subsequent periods. Certain accounting
estimates are particularly sensitive because of their significance to financial
statements and because of the possibility that future events affecting the
estimate may differ significantly from management's current judgments. We
believe the following critical accounting policies involve the most significant
estimates and judgments used in the preparation of our financial statements.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with United States of America generally accepted
accounting principles ("U.S. GAAP") and applicable rules and regulations of the
Securities and Exchange Commission ("SEC") regarding interim financial
reporting. The unaudited condensed consolidated financial statements include the
financial statements of the Company and its subsidiaries. All significant
inter-company transactions and balances have been eliminated in consolidation.
The interim condensed consolidated financial information as of June 30, 2022 and
for the three and six month periods ended June 30, 2022 and 2021 have been
prepared without audit, pursuant to the rules and regulations of the SEC.
Certain information and footnote disclosures, which are normally included in
consolidated financial statements prepared in accordance with U.S. GAAP have
been condensed or omitted pursuant to such rules and regulations. The interim
condensed consolidated financial information should be read in conjunction with
the Financial Statements and the notes thereto, included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2021, previously
filed with the SEC on April 15, 2022.
During the six months ended June 30, 2022, the Company experienced (and
continues to experience) adverse impacts of novel coronavirus (COVID-19) and the
related public health orders. The Company expects that the impact of the
COVID-19 outbreak on the United States and world economies will continue to have
a material adverse impact on the demand for the Company's business. Because of
the significant uncertainties surrounding the COVID-19 pandemic, the extent of
the business interruption and the related financial impact cannot be reasonably
estimated at this time.
Use of Estimates
The preparation of these financial statements in conformity with U.S. GAAP
requires management of the Company to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues, costs and expenses, and
related disclosures. On an ongoing basis, the Company evaluates its estimates
based on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. Identified below are
the accounting policies that reflect the Company's most significant estimates
and judgments, and those that the Company believes are the most critical to
fully understanding and evaluating its condensed consolidated financial
statements.
The COVID-19 pandemic has created and may continue to create significant
uncertainty in macroeconomic conditions, which may cause further business
slowdowns or shutdowns, depress demand for the Company's business, and adversely
impact its results of operations. During the six months ended June 30, 2022, the
Company faced increasing uncertainties around its estimates of revenue
collectability and accounts receivable credit losses. The Company expects
uncertainties around its key accounting estimates to continue to evolve
depending on the duration and degree of impact associated with
the COVID-19 pandemic. Its estimates may change as new events occur and
additional information emerges, and such changes are recognized or disclosed in
its condensed consolidated financial statements.
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