Business Context and Reporting Period
The filing is a Form 8-K dated May 12, 2020 for WeTrade Group Inc., although the request metadata identifies Next Technology Holding Inc. The filing reports that WeTrade ceased to be a shell company after its wholly owned PRC subsidiary, Yue Shang Information Technology (Beijing) Co., Ltd., commenced revenue-generating operations. The reported financial information covers the three months ended March 31, 2020, with comparison to the period from March 28, 2019, inception, through March 31, 2019.
The company provides social e-commerce technical and auto-billing services through its WePay System. In January 2020, it commissioned the system for RMB400,000, or approximately $57,143. On March 1, 2020, the subsidiary entered into a Technical Entrust (Agency) Agreement with Global Joy Trip Technology (Beijing) Co., Ltd., a related company in which CEO and director Dai Zheng is a majority shareholder.
Key Financial Metrics
| Metric | Three Months Ended March 31, 2020 | Comparable 2019 Period |
|---|---|---|
| Revenue | $21,070 | $0 |
| General and administrative expense | $25,070 | $4,000 |
| Other revenue | $3,539 | $0 |
| Net loss | $461 | $4,000 |
| Total comprehensive loss | $56,599 | $4,000 |
| Cash and cash equivalents at period-end | $5,192,095 | Not provided |
| Net cash used in operating activities | $1,419,973 | $0 |
Revenue was generated entirely from the related-party technical services agreement. The agreement provides for a fee equal to 2% of Global Joy’s actual gross merchandise volume, although the notes also refer to a 0.5% rate during a trial period. The reported net loss implies an approximate net margin of negative 2.2%; the filing does not provide a clear operating-margin presentation.
At March 31, 2020, total assets were $5,261,817, including $56,191 of net software intangible assets and $13,531 of prepaid expenses. Total liabilities were $436,725, including $416,515 owed to related parties. The related-party balance consisted of a $140,000 interest-free, unsecured loan and $276,515 of advances and expenses paid by directors or related entities.
Cash declined from $6,591,128 at December 31, 2019 to $5,192,095 at March 31, 2020. The company stated that it repaid related-party loans of $650,000 on January 21, 2020 and $710,000 on March 2, 2020. Cash provided by financing activities was $78,000, associated with shares to be issued. The company reported no off-balance-sheet arrangements and no cash interest or income-tax payments.
Material Changes Versus the Prior Comparable Period
- The company generated $21,070 of revenue versus no revenue in the comparable 2019 period.
- Net loss narrowed to $461 from $4,000, primarily because of the new related-party service revenue and $3,539 of other revenue.
- General and administrative expense increased to $25,070 from $4,000, driven primarily by software maintenance, audit fees and legal review costs.
- The company recorded a $57,060 foreign-currency translation loss, resulting in total comprehensive loss of $56,599.
- Cash decreased by $1,399,033 during the quarter, primarily reflecting related-party loan repayments and operating uses.
- Shares outstanding increased from 100,074,000 at December 31, 2019 to 101,740,666 at March 31, 2020. An additional 26,000 shares were described as issuable at $3 per share in July 2020.
- The WePay System was recognized as an intangible asset and is amortized over five years; reported amortization expense was $952 for the quarter.
Guidance, Outlook, Risks and Unusual Items
Management stated that revenue going into the third quarter of 2020 was expected to equal or exceed second-quarter revenue if business conditions remained unchanged. No quantified longer-term guidance was provided.
The company disclosed substantial doubt regarding its ability to continue as a going concern in its risk discussion and stated that it may rely on related-party advances for capital needs. It also reported limited public-company reporting experience, no independent directors or board committees, no audit committee financial expert, and weaknesses or risks relating to internal controls and SEC compliance.
Significant risks include dependence on a single related-party customer for reported revenue, conflicts arising from the CEO’s ownership of that customer, PRC regulatory and foreign-exchange restrictions, cybersecurity and privacy exposure, limited insurance coverage, reliance on third-party technology providers, possible need for additional capital, currency fluctuations, and the COVID-19 pandemic. The filing states that cash held in China and Singapore is not protected by FDIC or similar insurance.
The filing contains inconsistent or unclear information, including a reference to a 0.5% trial-period fee versus the stated 2% fee, differing descriptions of the company’s travel and e-commerce activities, and a Form 8-K dated May 12, 2020 that bears signatures dated July 7, 2020.
Facts Investors Should Verify
- Confirm the correct registrant name, because the filing identifies WeTrade Group Inc. while the request metadata identifies Next Technology Holding Inc.
- Verify the actual revenue amount and the applicable service-fee rate under the Global Joy agreement, including whether the initial rate was 0.5% or 2%.
- Assess the collectability, sustainability and independence of the $21,070 of related-party revenue.
- Review the going-concern language, sources of future funding and the company’s ability to meet obligations without additional related-party financing.
- Reconcile the cash-flow presentation, particularly the classification of approximately $1.3 million of related-party loan repayments within operating activities.
- Confirm the capitalization table, including shares issued in February 2020 and the 26,000 shares described as issuable in July 2020.
- Evaluate the valuation, useful life and amortization schedule of the WePay System intangible asset.
- Review PRC regulatory compliance, foreign-exchange controls, related-party disclosures and the potential effects of COVID-19 on operations.