| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a)
Basis of presentation The
consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”). (b)
Principles of Consolidation The
consolidated financial statements include the financial statements of all the subsidiaries and VIEs of the Company. All transactions
and balances between the Company and its subsidiaries and VIEs have been eliminated upon consolidation (c)
Foreign currency translation and transactions The
functional currency of HUSN, Hudson Capital USA Inc., Hudson Capital Merger Sub I Inc., Hudson Capital Merger Sub II Inc., HKIFS and
HKSQ are in United States dollars (“US$” or “$”). The functional currency of Yingxin Yijia, CIFS (Xiamen) Financial
Leasing, Sheng Ying Xin and its subsidiaries are Renminbi (“RMB”), and the PRC is the primary economic environment in which
the Company operates. Transactions
denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing
at the dates of the transactions. The resulting exchange differences are included in the determination of net income (loss) for the respective
periods. For
financial reporting purposes, the financial statements of the Company’s PRC subsidiary and the financial statements of the VIEs
are prepared using RMB and are translated into the Company’s reporting currency, the US$. Assets and liabilities are translated
using the exchange rate at each balance sheet date. Revenue and expenses are translated using average rates prevailing during each reporting
period, and Shareholders’ equity is translated at historical exchange rates except for the change in retained earnings during the
year which is the result of the net income (loss). The cumulative translation adjustments are recorded in accumulated other comprehensive
income (loss) in the accompanying consolidated statements of shareholders’ equity. The
exchange rates used are as follows: SCHEDULE OF EXCHANGE RATES APPLIED FOR FOREIGN CURRENCY
December 31, 2021 December 31, 2020
RMB exchange rate at balance sheets dates, 6.3757 6.5249
2021 2020 2019
Year Ended December 31,
2021 2020 2019
Average exchange rate for each year 6.4515 6.9010 6.8944 No
representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the rates used in translation.
The source of the exchange rates is generated from the People’s Bank of China. (d)
Use of estimates The
preparation of these consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures of contingent assets and liabilities.
Management makes its estimates based on historical experience and on various other assumptions it believes to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results
could differ from those estimates. Significant accounting estimates reflected in the Company’s consolidated financial statements
mainly include the allowance for doubtful accounts, the valuation allowance of deferred tax assets, the estimated useful lives of long-lived
assets, the impairment assessment of goodwill, intangibles and other long-lived assets, and the fair value of identifiable assets and
liabilities acquired through business combination. (e)
Cash Cash
and cash equivalents consist of cash on hand, cash on deposit and other highly liquid investments which are unrestricted as to withdrawal
or use, and which have original maturities of three months or less when purchased. The Company maintains cash with various financial
institutions mainly in the US and PRC. As of December 31, 2021 and 2020, the Company had no (f)
Accounts receivable and loans to third parties Accounts
receivable and loans to third parties are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible
accounts as needed. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses
in the Company’s existing accounts receivable and loans receivable. The Company determines the allowance based on aging data, historical
collection experience, customer specific facts and economic conditions. Based on management’s assessment of the collectability
of the accounts receivable and loans to third party, allowance for loans to third party was $ 0 41,782,173 39,402,683 7,119,594 0 0 97,287 0.07 (g)
Property and Equipment The
Company records equipment at cost less accumulated depreciation. The Company computes depreciation using the straight-line method over
the estimated useful lives of the assets with a 5 5 0 Estimated
useful lives of property and equipment: SCHEDULE OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT
Useful
Life
Furniture 10
years
Electronic
equipment 3
years
Motor
vehicle 5
years
Leasehold
improvements Shorter
of life of asset or lease The
Company eliminates the cost and related accumulated depreciation of assets sold or otherwise retired from the accounts and includes any
gain or loss in the statement of operations. The Company charges maintenance, repairs and minor renewals directly to expense as incurred. (h)
Intangible Assets Intangible
assets, comprising accounting software and big data platform, which are separable from the property and equipment, are stated at cost
less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the assets. (i)
Impairment of Long-lived Assets The
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset
to the future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment
recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. For the year ended December 31,
2021, the Company did not recognize any impairment loss of its long-lived assets. For the year ended December 31, 2020, the Company did
not recognize any impairment loss of its long-lived assets. For the year ended December 31, 2019, the Company did not recognize any impairment
loss of its long-lived assets. (j)
Statutory Reserve The
Company is required to make appropriations to reserve funds, comprising the statutory surplus reserve and discretionary surplus reserve,
based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”). Appropriations
to the statutory surplus reserve is required to be at least 10 50 (k)
Revenue recognition The
Company adopted ASC Topic 606, “Revenue from Contracts with Customers” effective January 1, 2019, applying the modified retrospective
method. In
accordance with ASC Topic 606, revenues are recognized when control of the promised goods or services is transferred to the Company’s
customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
In determining when and how much revenue is recognized from contracts with customers, the Company performs the following five-step analysis:
(1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction
price; (4) allocate the transaction price to the performance obligations in the contract; (5) recognize revenue when (or as) the entity
satisfies a performance obligation. The
Company’s services include commercial payment advisory services, intermediary bank loan advisory services, international corporate
financing advisory services, technical services and factoring services. For
commercial payment advisory service after signing contracts with the client, the Company starts to identify and select banks and financial
products and coordinates with banks to structure financing solutions for the client. Then the client prepares application materials and
sends them to the bank. When approved by the bank, the client will deposit cash with the bank or purchases wealth management products
sold by the bank. After this step, the bank will issue a letter of guarantee, which the client will pledge as security for the acceptance
bills. The letter of guarantee is a document that the bank provides certifying itself as guarantor. The Company’s service fee is
a percentage of the amount of cash deposited with or wealth management products purchased from the bank by the client. The Company recognizes
revenue after the client receives a credit contract from the bank and when the Company receives a contract completion confirmation from
the client. For
intermediary bank loan advisory services, the Company matches small-to-medium sized enterprises (“SMEs”) with financing sources.
The Company charges borrowers an introduction fee which is calculated at a percentage of the loan. The Company recognizes revenue after
the client receives a bank credit contract from the bank and when the Company receives a contract completion confirmation from the client.
The Company typically receives the contract completion confirmation when the client receives the bank financing and signs off on the
contract completion confirmation. For
international corporate financing advisory services, the Company works with overseas banks to structure and provide clients with financing
solutions to obtain facilities from overseas banks for the clients’ offshore affiliates. After signing the contract with the client,
the Company will identify overseas banks and domestic banks, structure financing solutions and facilitate application processes. After
the client provides security to the domestic bank, the domestic bank will issue a letter of guarantee to the overseas bank. The overseas
bank will provide credit to the affiliate designated by the client. The Company’s service fee is a percentage of credit granted
by the overseas bank to the offshore affiliate. The Company recognizes revenue after the offshore affiliate receives credit approval
notice from the offshore bank and when the Company receives a contract completion confirmation from the client. The Company typically
receives the contract completion confirmation when the affiliate receives the bank financing and the client signs off on the contract
completion confirmation. For
technical services, after signing the contract, the Company provides the clients with the technical services and charges a fee for the
technical service. The Company recognizes revenue when the services are rendered. For
factoring services, generally after we checked the documents such as client information, contracts, invoices supporting the client’s
credit worth, authenticity of the business contracts and the collectability of receivables, we will sign the factoring service contract
with client. Upon signing the contract, we request the client to pay us the management fee which we record as revenue upon receipt. After
signing the factoring contract, we will wire the factored amount to the client’s designated party, generally its suppliers, and
will collect the amount over the contact period. At each month end we will record the factoring service revenue based on the service
fee ratio and the amount we factored. There
is no claw back provisions or other guarantees. Full services fees are due upon the contract completion confirmation from the client. (l)
Taxation The
Company follows the guidance of ASC Topic 740 “Income taxes” and uses the assets and liability method to account for income
taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting
and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected
to reverse. The Company records a valuation allowance to offset deferred tax assets, if based on the weight of available evidence, it
is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a
change in tax rates is recognized in statement of operations and comprehensive income (loss) in the period that includes the enactment
date. The
Company follows a more likely than not threshold and a two-step approach for the measurement of tax positions and financial statement
recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight
of available evidence indicates that it is more likely than not that the position will be sustained, including the resolution of related
appeals or litigation process, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely
of being realized upon settlement. The
Company has elected to classify interest related to an uncertain tax position (if and when required) to interest expense, and classify
penalties related to an uncertain tax position (if and when required) as part of other expense in the consolidated statements of operations
and comprehensive income (loss). The
tax authority of the PRC government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC after
those enterprises had completed their relevant tax filings, hence the Company’s tax filings may not be finalized. It is therefore
uncertain as to whether the PRC tax authority may take different views about the Company’s tax filings which may lead to additional
tax liabilities. The tax returns of the Company’s PRC subsidiaries and VIEs are subject to examination by the relevant tax authorities.
According to the PRC Tax Administration Law on the Levying and Collection of Taxes, the statute of limitations is three years if the
underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended
to five years under special circumstances, where the underpayment of taxes is more than RMB 100,000 no (m)
Cost of revenues The
Company’s cost of revenues mainly consists of revenue-generating staff costs. (n)
Research and development expenses The
Company accounts for expenses for the enhancement, maintenance and technical support for the Company’s Internet platforms and intellectual
property that are used in its daily operations as research and development expenses. Research and development costs are charged to expense
when incurred. No (o)
Comprehensive income (loss) The
Company presents comprehensive income (loss) in accordance with ASC 220, “Comprehensive Income” (p)
Earnings (loss) per Share Earnings
(loss) per share (“EPS”) are calculated in accordance with ASC Topic 260, “Earnings Per Share”. Basic earnings
(loss) per share is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of shares
of common stock outstanding during the period. Diluted earnings per share reflect the potential dilution that could occur if securities
or other contracts to issue common shares were exercised or converted into common stock. The dilutive effect of outstanding common share
warrants and options are reflected in the diluted earnings per share by application of the treasury stock method when the impact is dilutive.
Potential common shares that have an anti-dilutive effect are excluded from the calculation of diluted EPS. There is no (q)
Fair Value of Financial Instruments The
carrying value of cash and cash equivalents, accounts receivable, other receivable and short term loans approximate their fair values
because of the short-term nature of these instruments. (r)
Goodwill Goodwill
is the excess of the consideration transferred over the fair value of the acquired assets and assumed liabilities in a business combination. The
Company tests goodwill for impairment at the reporting unit level on an annual basis and between annual tests when an event occurs or
circumstances change that could indicate that the asset might be impaired. The Company first has the option to assess qualitative factors
to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the company
decides, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than
its carrying amount, the quantitative impairment test is mandatory. Otherwise, no further testing is required. (s)
Jobs Act accounting election The
Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).
Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment
of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use the extended transition
period for complying with new or revised accounting standards under Section 102(b)(2) of the Jobs Act, that allows the Company to delay
the adoption of new or revised accounting standards that have different effective dates for public and private companies until those
standards apply to private companies. As a result of this election, the financial statements may not be comparable to companies that
comply with public company effective dates. (t)
Recently issued accounting standards In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses
on Financial Instruments”, which will be effective for fiscal years beginning after December 15, 2019, including interim periods
within those fiscal years. The guidance replaces the incurred loss impairment methodology with an expected credit loss model for which
a company recognizes an allowance based on the estimate of expected credit loss. The standard did not have a material impact on our consolidated
financial statements. In
January 2017, the FASB issued ASU 2017-04, “Intangibles — Goodwill and Other (Topic 350): simplifying the test for goodwill
impairment”, the guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation.
Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not the difference
between the fair value and carrying amount of goodwill which was the step 2 test before. The ASU should be adopted on a prospective basis
for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or
annual goodwill impairment tests performed on testing dates after January 1, 2017. The standard did not have a material impact on our
consolidated financial statements. In
August 2018, the FASB issued ASU 2018-13, “Changes to the Disclosure Requirements for Fair Value Measurement.” This standard
eliminates the current requirement to disclose the amount or reason for transfers between level 1 and level 2 of the fair value hierarchy
and the requirement to disclose the valuation methodology for level 3 fair value measurements. The standard includes additional disclosure
requirements for level 3 fair value measurements, including the requirement to disclose the changes in unrealized gains and losses in
other comprehensive income during the period and permits the disclosure of other relevant quantitative information for certain unobservable
inputs. The new guidance is effective for interim and annual periods beginning after December 15, 2019. The standard did not have a material
impact on our consolidated financial statements. In
August 2018, the FASB issued ASU 2018-15, “Internal-Use Software — Customer’s Accounting for Implementation Costs Incurred
in a Cloud Computing Arrangement.” This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting
arrangement service contract with the guidance to capitalize implementation costs of internal use software. The ASU also requires that
the costs for implementation activities during the application development phase be capitalized in a hosting arrangement service contract,
and costs during the preliminary and post implementation phase are expensed. The new guidance is effective for interim and annual periods
beginning after December 15, 2019. The standard did not have a material impact on our consolidated financial statements. In
October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest
Entities, (“ASU 2018-17”). ASU 2018-17 requires reporting entities to consider indirect interests held through related parties
under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety for determining whether
a decision-making fee is a variable interest. The standard is effective for all entities for financial statements issued for fiscal years
beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. Entities are required
to apply the amendments in ASU 2018-17 retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the
earliest period presented. The standard did not have a material impact on our consolidated financial statements In
April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives
and Hedging, and Topic 825, Financial Instruments, (“ASU 2019-04”). ASU 2019-04 clarifies and improves areas of guidance
related to the recently issued standards on credit losses (ASU 2016-13), hedging (ASU 2017-12), and recognition and measurement of financial
instruments (ASU 2016-01). The amendments generally have the same effective dates as their related standards. If already adopted, the
amendments of ASU 2016-01 and ASU 2016-13 are effective for fiscal years beginning after December 15, 2019 and the amendments of ASU
2017-12 are effective as of the beginning of the Company’s next annual reporting period; early adoption is permitted. The standard
did not have a material impact on our consolidated financial statements. In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 will
simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve
consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business
entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2020. ASU 2019-12 will be effective for the Company in the first quarter of 2021. The Company does not expect the adoption
of the new accounting rules to have a material impact on the Company’s financial condition, results of operations, cash flows or
disclosures. In
March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments, (“ASU 2020-03”). ASU 2020-03
improves various financial instruments topics, including the CECL Standard. ASU 2020-03 includes seven different issues that describe
the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating
inconsistencies and providing clarifications. The amendments related to Issue 1, Issue 2, Issue 4 and Issue 5 were effective upon issuance
of ASU 2020-03. The amendments related to Issue 3, Issue 6 and Issue 7 were effective for the Company beginning on January 1, 2020. The
Company does not anticipate that the adoption of the new standard will have a material effect on its consolidated financial statements. In
March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform
on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships,
and other transactions affected by reference rate reform. The amendments in this standard can be applied anytime between the first quarter
of 2020 and the fourth quarter of 2022. The Company is currently in the process of evaluating the impact of adoption of the new rules
on the Company’s financial condition, results of operations, cash flows and disclosures. Other
than the above, management does not believe that any of the recently issued, but not yet effective, accounting standards, if currently
adopted, would have a material effect on the Company’s consolidated financial statements. (u)
Going Concern The
Company has suffered from losses from operation and significant accumulated deficits. It’s net loss for the year ended December
31, 2021, 2020 and 2019 were $ 2,145,530 ,
$ 9,075,353 and
$ 61,995,758 ,
respectively, and turned the retained earnings as of December 31, 2018 to 2019 from $ 36,653,460
to ( 25,379,698 ).
As of December 31, 2021 and 2020, the Company has cash and cash equivalents of $ 221,312
and $ 3,274,287 ,
respectively and net cash used in operating activities during the year ended December 31, 2021 and 2020 were $ 4,854,519
and $ 3,818,665 ,
respectively. As of December 31, 2020 and 2019, the Company has cash and cash equivalents of $ 3,274,287
and $ 13,567 ,
respectively and net cash used in operating activities during the year ended December 31, 2020 and 2019 were $ 3,818,665
and $ 1,071,379 ,
respectively. The Company comes to have insufficient cash flows generated from operations and provided for development. In addition,
the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company’s
ability to continue as a going concern. The management determines that additional effort will be required to improve the operation so
that the Company may generate more profits to sustain its continuous. The Company may explore the channels to raise additional capital
or any opportunities to improve the cash flow in the years to come. The Company had raised $ 3,599,502
and $ 4,278,000
from share placement to improve the financial
position and cash flow as of December 31 2021 and 2020, respectively. |
