NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
Organization and nature of operations
|
Moxian,
Inc. (formerly known as Moxian China, Inc., hereinafter referred as “Moxian,” together with its subsidiaries, the
“Company”), was incorporated under the laws of the State of Nevada on October 12, 2010. The Company, through its subsidiaries
and variable interest entity, engages in the business of operating a social network platform that integrates social media and
business into one single platform.
The
Company is currently devoting its efforts to develop mobile application and online platform that facilitate the small to medium
size businesses to attract more clients. The Company’s ability to continue as a going concern is dependent upon its ability
to develop additional sources of capital, develop apps and websites, generate servicing income, and ultimately, achieve profitable
operations. The accompanying unaudited consolidated financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
2.
|
Summary
of principal accounting policies
|
Basis
of presentation
The
accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally
accepted accounting principles in the United States of America and reflect the activities of the following subsidiaries and VIE:
Moxian CN Samoa, Moxian BVI, Moxian HK, Moxian Shenzhen, Moxian Malaysia, Moyi, Moxian Beijing and Moxian IP Samoa. All material
intercompany transactions and balances have been eliminated in the consolidation.
The interim condensed consolidated
financial information as of March 31, 2016 and for the three and six months ended March 31, 2016 and 2015 have been prepared, pursuant
to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote
disclosures, which are normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP, have
been omitted pursuant to those 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 Form 10-K/A for the fiscal year
ended September 30, 2015, previously filed with the SEC.
In
the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement
of the Company’s consolidated financial position as of March 31, 2016 and its condensed consolidated results of operations
for three and six months ended March 31, 2016 and 2015, and its condensed consolidated cash flows for the six months ended March
31, 2016 and 2015, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating
results for the full fiscal year or any future periods.
In
accordance with the Generally Accepted Accounting Principles of the United States of America (US GAAP), variable interest entities
(VIEs) are generally entities that lack sufficient equity to finance their activities without additional financial support from
other parties or whose equity holders lack adequate decision making ability. All VIEs with which the Company is involved must
be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to
consolidate the VIE for financial reporting purposes.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary
of principal accounting policies (Continued)
|
Basis
of presentation (continued)
ASC 810-10 (Financial Accounting
Standards Board (“FASB”) “Consolidation” addresses whether certain types of entities referred to as variable
interest entities (“VIEs”), should be consolidated in a company’s consolidated financial statements. Pursuant
to an Exclusive Business Cooperation Agreement by and between
Moxian
Shenzhen and Moyi, dated July 15, 2014, Moxian Shenzhen
has the exclusive right to provide to Moyi technical and systems support, marketing consulting services, training for technical
personnel and technical consulting services. As payment for these services, Moyi has agreed to pay Moxian Shenzhen a service fee
equal to 100% Moyi’s pre-tax profit. In addition, Moxian Shenzhen will also absorb losses from Moyi, if any, based on the
service agreement. In accordance with the provisions of ASC 810, the Company has determined that Moyi is a VIE of Moxian Shenzhen
and that the Company is the primary beneficiary, and accordingly, the financial statements of Moyi are consolidated into the financial
statements of the Company.
Reclassification
Certain
prior year amounts have been reclassified to conform to the current year presentation
Liquidity
and Capital Resources
As
of March 31, 2016, the Company’s current liabilities exceeded the current assets by approximately $0.9 million and our accumulated
deficits were $16.7 million and the Company has incurred losses since inception, which raise substantial doubt about the ability
to continue as a going concern. Given the expected capital expenditure in the foreseeable future, we have comprehensively considered
the available sources of funds as follows:
|
●
|
Financial support from related parties; and
|
|
|
|
|
●
|
Issuance of shares for private placement and public
offering
|
The
Company does not currently have sufficient cash or commitments for financing to sustain its operations for the next twelve months.
The Company plans to increase the cash flows from initial public offering (“IPO”) and other private placements. If
the Company’s IPO and private placements do not reach the level anticipated in our plan and the Company may not be able
to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all, the Company may be unable to implement
its current plans for expansion, repay our debt obligations or respond to competitive pressures, any of which would have a material
adverse effect on its business, prospects, financial condition and results of operations. The accompanying unaudited condensed
consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
MOXIAN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
2.
|
Summary of principal accounting policies (Continued)
|
Risks
and Uncertainties
The
Company’s operations are substantially carried out in the PRC. Accordingly, the Company’s business, financial condition
and results of operations maybe substantially influenced by the political, economic and legal environments in the PRC, and by
the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations
and significant risks not typically associated with companies in North America and Western Europe. These include risks associated
with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results
may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures,
currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Fair
value of financial instruments
The
Company follows the provisions of Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and
Disclosures.” ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes
a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level
1-Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement
date.
Level
2-Inputs other than quoted prices that are observable for the asset or liability in active markets, quoted prices for identical
or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs
derived from or corroborated by observable market data.
Level
3-Inputs are unobservable inputs which reflect management’s assumptions based on the best available information.
The
carrying value of deposits and other receivables, accruals and other payables and loans from related parties approximate their
fair values because of the short-term nature of these instruments.
Use of estimates
The preparation of the unaudited
condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the accompanying unaudited condensed consolidated financial statements, and the reported amounts
of revenues and expenses during the reporting period. Significant estimates required to be made by management include but not limited
to, use lives of property and equipment, intangible assets, inventory valuation and deferred tax assets. Actual results could differ
from those estimates.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary
of principal accounting policies (Continued)
|
Cash
and cash equivalents
The
Company considers all short-term highly liquid investments that are readily convertible to known amounts of cash and have original
maturities of three months or less to be cash equivalents.
Plant
and Equipment, net
Plant
and equipment are recorded at cost less accumulated depreciation and impairment. Significant additions or improvements extending
useful lives of assets are capitalized. Maintenance and repairs are charged to expense as incurred. Depreciation is computed using
the straight-line method over the estimated useful lives as follows:
|
Computers
|
3
years
|
|
Office
equipment
|
3
years
|
|
Furniture
and fixtures
|
3
years
|
|
Leasehold
improvements
|
Shorter
of estimated useful life or term of lease
|
Intangible
assets
Intangible
assets, comprising Intellectual property rights (“IP rights”), which are separable from the fixed assets, are stated
at cost less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives
of 3- 10 years.
Impairment
of long-lived assets
Long-lived assets are evaluated
for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will
impact the future use of the assets) indicate that the carrying value of an asset may not be fully recoverable or that the useful
life is shorter than the Company had originally estimated. When these events occur, the Company evaluates the impairment for the
long-lived assets by comparing the carrying value of the assets to an estimate of future undiscounted cash flows expected to be
generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows
is less than the carrying value of the assets, the Company recognizes an impairment loss based on the excess of the carrying value
of the assets over the fair value of the assets. As of March 31, 2016, management believes there was no
impairment.
Revenue
recognition
Revenue
are recognized when persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the price
is fixed or determinable; and collectability is reasonably assured.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary
of principal accounting policies (Continued)
|
Income
taxes
The
Company utilizes Accounting Standard Codification Topic 740 (“ASC 740”) “Income taxes”, which requires
the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included
in the unaudited consolidated financial statements or tax returns. Under this method, deferred income taxes are recognized for
the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting
amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to
the amount expected to be realized.
ASC
740 “Income taxes” clarifies the accounting for uncertainty in tax positions. This interpretation requires that an
entity recognizes in the unaudited condensed consolidated financial statements the impact of a tax position, if that position
is more likely than not of being sustained upon examination, based on the technical merits of the position. Recognized income
tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or
measurement are reflected in the period in which the change in judgment occurs. The Company has elected to classify interest and
penalties related to unrecognized tax benefits, if and when required, as part of income tax expense in the statements of operations.
The adoption of ASC 740 did not have a significant effect on the unaudited consolidated financial statements.
Foreign
currency transactions and translation
The
reporting currency of the Company is United States Dollars (the “USD”) and the functional currency of Moxian Shenzhen,
Moyi and Moxian Beijing is Renminbi (the “RMB”) as China is the primary economic environment in which they operate,
the functional currency of Moxian HK is Hong Kong Dollar (the “HKD”), and the functional currency of Moxian Malaysia
is Malaysia Ringgit (the “MYR”).
For
financial reporting purposes, the financial statements of Moxian Shenzhen, Moyi, Moxian Beijing, Moxian HK and Moxian Malaysia,
which are prepared using their respective functional currencies, are translated into the reporting currency, United States dollar
("U.S. dollar") so to be consolidated with the Company’s. Monetary assets and liabilities denominated in currencies
other than the reporting currency are translated into the reporting currency at the rates of exchange ruling at the balance sheet
date. Revenues and expenses are translated using average rates prevailing during the reporting period. Adjustments resulting from
the translation are recorded as a separate component of accumulated other comprehensive income in owners’ deficit. Transaction
gains and losses are recognized in the statements of operations and comprehensive income.
The
exchange rates applied are as follows:
|
Balance sheet items, except for equity accounts
|
|
March 31,
2016
|
|
|
September 30,
2015
|
|
|
RMB:USD
|
|
|
6.4494
|
|
|
|
6.3568
|
|
|
HKD:USD
|
|
|
7.7548
|
|
|
|
7.7501
|
|
|
MYR:USD
|
|
|
3.9104
|
|
|
|
4.4124
|
|
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary
of principal accounting policies (Continued)
|
Foreign
currency transactions and translation (continued)
Items
in the statements of operations and comprehensive loss, and statements cash flows
|
|
|
Six Months Ended
March 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
RMB:USD
|
|
|
6.4652
|
|
|
|
6.1444
|
|
|
HKD:USD
|
|
|
7.7622
|
|
|
|
7.7556
|
|
|
MYR:USD
|
|
|
4.2377
|
|
|
|
3.6177
|
|
Research
and Development
Research
and development expenses include payroll, employee benefits, stock-based compensation expense, and other related expenses associated
with product development. Research and development expenses also include third-party development, programming costs, and localization
costs incurred to translate software for local markets. Such costs related to software development are included in research and
development expense until the point that technological feasibility is reached. Once technological feasibility is reached, such
costs are capitalized and amortized to the cost of revenue over the estimated lives of the products.
Recent
accounting pronouncements
In
January 2016, the FASB has issued Accounting Standards Update (ASU) No. 2016-01, Financial Instruments – Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance is intended to improve the
recognition and measurement of financial instruments. The new guidance makes targeted improvements to existing U.S. GAAP by: (1)
requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation
of the investee) to be measured at fair value with changes in fair value recognized in net income. Requiring public business entities
to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (2) Requiring separate
presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities
or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; (3) Eliminating the requirement
for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required
to be disclosed for financial instruments measured at amortized cost on the balance sheet; and. (4) Requiring a reporting organization
to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting
from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has
elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The new guidance
is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal
years. The Company is evaluating the effect, if any, this update will have on the Company's condensed consolidated financial position,
results of operations and cash flows.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary
of principal accounting policies (Continued)
|
Recent
accounting pronouncements (continued)
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases
(Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged.
The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal
years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases
existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief.
The Company is currently evaluating the impact of this new standard on its condensed consolidated financial statements.
In April 2016, the FASB released
ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU includes
multiple provisions intended to simplify various aspects of the accounting for share-based payments. While aimed at reducing the
cost and complexity of the accounting for share-based payments, the amendments are expected to significantly impact net income,
EPS, and the statement of cash flows. Implementation and administration may present challenges for companies with significant share-based
payment activities. The ASU is effective for public companies in annual periods beginning after December 15, 2016, and interim
periods within those years. The Company is currently evaluating the impact of this new standard on its condensed consolidated financial
statements.
In April 2016, FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing. The amendments clarify the following two aspects of Topic 606: (a) identifying performance
obligations; and (b) the licensing implementation guidance. The amendments do not change the core principle of the guidance in
Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition
requirements in Topic 606. Public entities should apply the amendments for annual reporting periods beginning after December 15,
2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). Early application for public
entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods
within that reporting period. The Company is currently evaluating the impact of this new standard on its condensed consolidated
financial statements.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3.
|
Property
and equipment, net
|
|
|
|
March 31, 2016
|
|
|
September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
Electronic equipment
|
|
$
|
2,361,083
|
|
|
$
|
2,357,085
|
|
|
Furniture and fixtures
|
|
|
88,233
|
|
|
|
22,752
|
|
|
Construction in progress
|
|
|
-
|
|
|
|
796,996
|
|
|
Leasehold improvements
|
|
|
402,771
|
|
|
|
193,225
|
|
|
Total property and equipment
|
|
|
2,852,087
|
|
|
|
3,370,058
|
|
|
Less: Accumulated depreciation
|
|
|
(868,927
|
)
|
|
|
(428,496
|
)
|
|
Total property and equipment, net
|
|
$
|
1,983,160
|
|
|
$
|
2,941,562
|
|
The
depreciation expense for the three and six months ended March 31, 2016 were $226,642 and $450,066, respectively. The depreciation
expenses for the three and six months ended March 31, 2015 were $52,113 and $87,194, respectively.
As
of March 31, 2016 and September 30, 2015, the Company has the following amounts related to intangible assets:
|
|
|
March 31, 2016
|
|
|
September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
IP rights
|
|
$
|
6,782,000
|
|
|
$
|
6,782,000
|
|
|
Other intangible assets
|
|
|
1,400,546
|
|
|
|
354,755
|
|
|
|
|
|
8,182,546
|
|
|
$
|
7,136,755
|
|
|
Less: accumulated amortization
|
|
|
(990,202
|
)
|
|
|
(536,470
|
)
|
|
Net intangible assets
|
|
$
|
7,192,344
|
|
|
$
|
6,600,285
|
|
No significant residual value is estimated for these intangible assets. Aggregate amortization expense for
the three and six months ended March 31, 2016 totaled $230,467 and $450,487, respectively. Amortization expense for the three and
six months ended March 31, 2015 totaled $169,550 and $169,550, respectively. The following table represents the total estimated
amortization of intangible assets for the five succeeding fiscal years subsequent to March 31, 2016:
|
For the Twelve Months Ending March 31,
|
|
Estimated Amortization Expense
|
|
|
|
|
|
|
|
2017
|
|
$
|
993,564
|
|
|
2018
|
|
|
988,288
|
|
|
2019
|
|
|
901,593
|
|
|
2020
|
|
|
826,898
|
|
|
2021 and thereafter
|
|
|
3,482,001
|
|
|
Total
|
|
$
|
7,192,344
|
|
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5.
|
Related
party transactions and balances
|
The
table below sets forth related parties having transactions during the six months ended March 31, 2016 and balances as of March
31, 2016 and September 30, 2015.
|
Name
|
|
Relationship
with the Company
|
|
Jet
Key Limited (“Jet Key”)
|
|
A
below 1% shareholder of the Company
|
|
Shenzhen
Bayi Consulting Co. Ltd. (“Bayi”)
|
|
A
below 5% shareholder of the Company
|
|
Ace
Keen Limited (“Ace Keen”)
|
|
A
below 1% shareholder of the Company
|
|
Moxian
China Limited
|
|
A
27.5% shareholder of the Company
|
|
Zhang
Xin
|
|
A
below 5% shareholder of the Company
|
|
Beijing
Xinhua Huifeng Equity Investment Center (“Xinhua”)
|
|
A
Shareholder of the Company (see note 6)
|
|
Zhongtou
Huifeng Investment Management (Beijing) Co. Ltd
|
|
Affiliated
company of Xinhua
|
|
Morolling
International HK Limited (Morolling)
|
|
A
below 5% shareholder of the Company
|
Details of loans payable –
related parties as of March 31, 2016 and September 30, 2015 are as follows:
|
Nature and Company
|
|
March 31,
2016
|
|
|
September 30, 2015
|
|
|
Loan payable – related parties
|
|
|
|
|
|
|
|
Bayi
|
|
$
|
435,582
|
|
|
$
|
1,286,811
|
|
|
Moxian China Limited
|
|
|
388,355
|
|
|
|
(50,256
|
)
|
|
Jet Key
|
|
|
216,905
|
|
|
|
202,373
|
|
|
Ace Keen
|
|
|
99,245
|
|
|
|
23,597
|
|
|
Zhang Xin
|
|
|
98,971
|
|
|
|
-
|
|
|
Zhongtou
|
|
|
15,505
|
|
|
|
-
|
|
|
Xinhua
|
|
|
13,955
|
|
|
|
-
|
|
|
|
|
$
|
1,268,518
|
|
|
$
|
1,462,525
|
|
For the six months ended March
31, 2016, the Company repaid of $832,762 to Bayi and further borrowed $445,818, $98,971, $75,648, $15,505 and $13,955 from Moxian
China Limited, Zhang Xin, Ace Keen, Zhongtou and Xinhua, respectively.
For the six months ended March
31, 2015, the Company further borrowed $2,897,214 from Bayi and made loan repayment of $74,905, $468,198, $107,848 and $762,783
to Ace Keen, Jet Key, Moroling and Moxian China, respectively. The loans and advance were made by shareholders to Moxian HK, Moxian
Shenzhen, Moyi and Moxian Malaysia and are unsecured, interest free and will be due on demand.
On February 1, 2016, Moxian Shenzhen
and Shenzhen Bayi entered into a loan agreement whereby Shenzhen Bayi agreed to provide a loan to Moxian Shenzhen in aggregate
of $46,516 (RMB300,000) without interest and due in one year.
MOXIAN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
5.
|
Related
party transactions and balances (Continued)
|
On February 2, 2016, Moxian Shenzhen
and Shenzhen Bayi entered into a loan agreement whereby Shenzhen Bayi agreed to provide a loan to Moxian Shenzhen in aggregate
of $38,763 (RMB250,000) without interest and due in one year.
On February 26, 2016, Shenzhen Moyi
and Shenzhen Bayi entered into a loan agreement whereby Shenzhen Bayi agreed to provide a loan to Shenzhen Moyi in aggregate of
$33,854 (RMB218,340) without interest and due in one year.
From January 29, 2016 through
March 15, 2016, Moxian Shenzhen and Shenzhen Bayi entered into four loan agreements whereby Shenzhen Bayi agreed to provide
loans to Moxian Shenzhen in aggregate of $387,636 (RMB 2,500,000) without interest and due in one year.
On February 1, 2016, Moxian HK and
Moxian China Limited entered into a loan agreement whereby Moxian China Limited agreed to provide a loan to Moxian HK in aggregate
of $64,476 (HKD500,000) without interest and due in one year.
On February 2, 2016, Moxian HK and
Moxian China Limited entered into a loan agreement whereby Moxian China Limited agreed to provide a loan to Moxian HK in aggregate
of $25,790 (HKD200,000) without interest and due in one year.
On March 7, 2016, Moxian HK and Moxian
China Limited entered into a loan agreement whereby Moxian China Limited agreed to provide a loan to Moxian HK in aggregate of
$38,686 (HKD300,000) without interest and due in one year.
On March 14, 2016, Moxian HK and
Moxian China Limited entered into a loan agreement whereby Moxian China Limited agreed to provide a loan to Moxian HK in aggregate
of $77,371 (HKD600,000) without interest and due in one year.
On March 21, 2016, Moxian HK and
Moxian China Limited entered into a loan agreement whereby Moxian China Limited agreed to provide a loan to Moxian HK in aggregate
of $77,371 (HKD600,000) without interest and due in one year.
On March 10, 2016, Moxian BJ and
Xinhua Huifeng entered into a loan agreement whereby Xinhua Huifeng agreed to provide a loan to Moxian BJ in aggregate of $13,955
(RMB90,000) without interest and due in one year.
On
November 9, 2015, Moxian HK and Zhang Xin entered into a loan agreement whereby Zhang Xin agreed to provide a loan to Moxian HK
in aggregate of $98,971 (HKD 767,500) without interest and due in one year.
On
November 20, 2015, Moxian HK and Ace Keen entered into a loan agreement whereby Ace Keen agreed to provide a loan to Moxian HK
in aggregate of $75,648 (HKD 589,259) without interest and due in one year.
On
November 25, 2015 and December 24, 2015, respectively, Moxian HK and Moxian China Limited entered into two loan agreements whereby
Moxian China Limited agreed to provide loans to Moxian HK in aggregate of $167,639 (HKD 1,300,000) without interest and due in one year.
On
February 26, 2016, Moxian Beijing and Zhongtou entered into a loan agreement whereby Zhongtou agreed to provide a loan to Moxian
Bejing in aggregate of $15,505 (RMB 100,000) without interest and due in one year.
On March 28, 2015, Moyi and
Ace Keen entered into a loan agreement whereby Ace Keen agreed to provide a loan to Moyi in aggregate of $23,258 (RMB150,000)
without interest and due in two years.
On November 30, 2014, Moyi
and Jet Key entered into a loan agreement whereby Jet Key agreed to provide a loan to Moyi in aggregate of $79,078 (RMB510,000)
without interest and due in three years.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Xinhua
Subscription
The
Company entered into a subscription agreement (“Zhongtou Subscription Agreement”) with Zhongtou Huifeng Investment
Management (Beijing) Co. Ltd. (“Zhongtou”) on April 24, 2015, whereby we agreed to sell an aggregate of 8,169,000
shares of the Company’s Common Stock at a per share price of $1.00 for gross proceeds of $8,190,000 (approximately RMB50,000,000)
and to issue to Zhongtou for no additional consideration a warrant (the “Warrant”) to purchase in the aggregate 32,000,000
shares (“Warrant Shares”) of Common Stock at an exercise price of $2.00 per share, exercisable on or prior to July
31, 2015. On June 4, 2015, the Company and Zhongtou entered into a Termination Agreement to terminate the Zhongtou Subscription
Agreement as Zhongtou’s principals have determined to make the investment described in the Zhongtou Subscription Agreement
through a different entity, Beijing Xinhua Huifeng Equity Investment Center (Limited Partnership) (“Xinhua”).
On
June 4, 2015, the Company and Xinhua entered into a new Subscription Agreement (“Xinhua Subscription Agreement”) on
substantially the same terms as the Zhongtou Subscription Agreement (the “Transaction”). Pursuant to the Xinhua Subscription
Agreement, if the Company fails to contract with 25,000 new paying merchants by September 30, 2016, the Company shall issue an
additional number of shares of Common Stock to Xinhua, equal to 50% of the accumulated number of Warrant Shares exercised and
acquired by Xinhua as of September 30, 2016, for no additional consideration (“Make Good Provision”). The Make Good
Provision will be available only if Xinhua has exercised the Warrant and acquired more than 16,000,000 Warrant Shares (the “Condition”).
Further, the Company shall issue 4,000,000 shares of Common Stock to Xinhua for no additional consideration if the Company fails
to publish its full working version of the Moxian mobile application version 2.0 by September 30, 2015, or if the Company fails
to uplist to a national securities exchange in the U.S. by June 30, 2017. Xinhua shall also have the right to nominate (i) one
member of the Company’s accounting department; and (ii) one member of the board of directors provided that the Condition
has been met.
On
August 13, 2015, Xinhua and the Company entered into an Amendment Agreement (the “Amendment Agreement”) to amend certain
terms under the Xinhua Subscription Agreement between the Company and Xinhua dated June 4, 2015 to September 30, 2015. Pursuant
to the Xinhua Subscription Agreement, the Company will issue 8,190,000 shares of the Company’s Common Stock to Xinhua for
$8,190,000 and grant the warrant (the “Warrant”) to purchase up to 32,000,000 shares of the Company’s Common
Stock on or before July 31, 2015 (the “Expiration Date”) (such transaction, the “Transaction”). Pursuant
to the Amendment Agreement (the “First Amendment Agreement”), the closing date of the Transaction was extended to
September 30, 2015 and the Expiration Date of the Warrant was extended to September 30, 2015.
On
December 16, 2015, the Company entered into a Second Amendment Agreement to the Subscription Agreement (the “Second Amendment
Agreement”) with Xinhua. Under the Second Amendment Agreement, the closing date of the transaction was extended again to
December 31, 2015 and the Expiration Date of the Warrant was extended to December 31, 2015 as well.
On
February 28, 2016, the Company closed the transaction and issued 8,190,020 shares of the Company Common Stock to Xinhua for an
aggregate purchase price of $8,190,020, or $1.00 per share, of which $5,505,915 proceeds were received by the Company in fiscal
2015 and included in the subscription payments liability.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6.
|
Capital
stock (Continued)
|
Cancellation of shares
On February 22, 2016, Good
Eastern Investment Limited (‘GEL’), Stellar Elite Limited (‘SEL’) and Moxian China Limited (‘MCL’),
collectively, the Designated Shareholders, entered into a Share Cancellation Agreement (the ‘Agreement’) with the Company.
Pursuant to the Agreement, on February 22, 2016, the Designated Shareholders cancelled 94,845,081 shares of the Company common
stock which represented 42.93% of our issued and outstanding shares for no consideration. The cancelled shares resulted in GEL,
SEL and MCL owning after the share cancellation 19,980,000, 39,660,000 and 35,205,081 shares of common stock or any other securities
of the Company respectively.
As of March 31, 2016 and September
30, 2015, there were no warrants or options outstanding to acquire any additional shares of Common Stock of the Company.
Purchase of Intangible
Asset
On January 30, 2015, we
issued a convertible note in the principal amount of $7,782,000 to REBL for the acquisitions of Moxian IP Samoa and Moxian
BVI.
On August
14, 2015, $3,981,000 of such note was converted into 3,891,000 shares of our common stock.
On September 30. 2015,
we issued an additional 3,891,000 shares of our common stock to REBL upon conversion of the remainder portion of the note.
The Company and its subsidiaries
file separate income tax returns.
The United States of America
Moxian is incorporated in
the State of Nevada in the U.S., and is subject to a gradual U.S. federal corporate income tax of 15% to 35%. The State of Nevada
does not impose any corporate state income tax.
British Virgin Islands
Moxian BVI is incorporated
in the British Virgin Islands. Under the current laws of the British Virgin Islands, Moxian BVI is not subject to tax on income
or capital gains. In addition, upon payments of dividends by Moxian BVI, no British Virgin Islands withholding tax is imposed.
Hong Kong
Moxian HK is incorporated
in Hong Kong and Hong Kong’s profits tax rate is 16.5%. Moxian HK did not earn any income that was derived in Hong Kong for
the three and six months ended March 31, 2016 and 2015, and therefore, Moxian HK was not subject to Hong Kong Profits Tax.
Malaysia
The management estimated that
Moxian Malaysia will not generate any taxable income in the future.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7.
|
Income
taxes (Continued)
|
PRC
Effective from January 1,
2008, the PRC’s statutory income tax rate is 25%. The Company’s PRC subsidiaries are subject to income tax rate of
25%, unless otherwise specified.
Moxian Shenzhen was incorporated
in the People’s Republic of China. Moxian Shenzhen did not generate taxable income in the People’s Republic of China
for the period from April 8, 2013 (date of inception) to March 31, 2016. The management estimated that Moxian Shenzhen will not
generate any taxable income in the future.
Moyi was incorporated in the
People’s Republic of China. Moyi did not generate taxable income in the People’s Republic of China for the period from
July 19, 2013 (date of inception) to March 31, 2016.
Moxian Beijing was incorporated
in the People’s Republic of China. Moxian Beijing did not generate taxable income in the People’s Republic of China
for the period from December 10, 2015 (date of inception) to March 31, 2016.
The Company’s effective
income tax rates were 0.8% and 0.4% for the three and six month period ended March 31, 2016 ( 2015 – Nil). Income tax mainly
consists of foreign income tax at statutory rates and the effects of permanent and temporary differences.
As of March 31, 2016, the
Company has a deferred tax asset of $76,231 resulting from certain net operating losses in PRC. The ultimate realization of deferred
tax assets depends on the generation of future taxable income during the periods in which those net operating losses are available.
The Company considers projected future taxable income and tax planning strategies in making its assessment. At present, the Company
does not have a sufficient operation in the Moxian Shenzhen, Moxian Malaysia and Moxian Beijing to conclude that it is more-likely-than-not
that the Company will be able to realize all of its tax benefits in the near future and therefore a valuation allowance has been
provided for the full value of the deferred tax asset.
A valuation allowance will
be maintained until sufficient positive evidence exists to support the reversal of any portion or all of the valuation allowance.
Should Moxian Shenzhen, Moxian Malaysia and Moxian Beijing start to have sufficient operation in future periods with supportable
trend, the valuation allowance will be reduced accordingly.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8.
|
Commitments
and contingencies
|
Operating
Lease
The
Company leases a number of properties under operating leases. Rental expenses under operating leases for the three and six months
ended March 31, 2016 were $237,186 and $418,595 respectively. Rental expenses under operating leases for the three and six months
ended March 31, 2015 were $15,567 and $70,815, respectively.
As
of March 31, 2016, the Company was obligated under non-cancellable operating leases for minimum rentals as follows:
|
For the Twelve Months Ending March 31,
|
|
|
|
|
2017
|
|
$
|
762,678
|
|
|
2018
|
|
|
596,125
|
|
|
2019
|
|
|
132,146
|
|
|
Thereafter
|
|
|
-
|
|
|
Total minimum lease payments
|
|
$
|
1,490,949
|
|
Legal
Proceeding
There
has been no legal proceeding in which the Company is a party as of As of March 31, 2016.
9.
|
Subsequent Events
|
|
|
|
On April 11, 2016, Moxian HK and Moxian China Limited
entered into a loan agreement whereby Moxian China Limited agreed to provide a loan to Moxian HK in aggregate of $141,800 (HKD1,100,000)
without interest and due in one year.
|
|
|
|
On April 20, 2016, Moxian HK and Moxian China Limited
entered into a loan agreement whereby Moxian China Limited agreed to provide a loan to Moxian HK in aggregate of $38,680 (HKD300,000)
without interest and due in one year.
|