NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2017
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
NOTE
1 - BASIS OF PREPARATION
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States (“GAAP”) for interim financial reporting and the rules and regulations of
the Securities and Exchange Commission that permit reduced disclosure for interim periods. Therefore, certain information and
footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted.
In
the opinion of management, the consolidated balance sheet as of June 30, 2016 which has been derived from audited financial statements
and these unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary
to state fairly the results for the periods presented. The results for the nine months ended March 31, 2017 are not necessarily
indicative of the results to be expected for the entire fiscal year ending June 30, 2017 or for any future period.
These
unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s
Discussion and the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year
ended June 30, 2016.
NOTE
2 - ORGANIZATION AND BUSINESS BACKGROUND
Rito
Group Corp. (the “Company”) was incorporated on March 24, 2015 under the laws of the state of Nevada.
The
Company, through its subsidiaries, mainly engages in trading of retail goods such as cookware, jewelry and watches, and numerous
other products.
Details
of the Company’s subsidiaries:
|
Company
name
|
|
Place/date
of incorporation
|
|
Particulars
of issued capital
|
|
Principal
activities
|
|
|
|
|
|
|
|
|
1.
|
Sino
Union International Limited (“Sino Union”)
|
|
Anguilla
January
3, 2014
|
|
84,500
shares of ordinary share of US$1 each
|
|
Investment
holding
|
|
|
|
|
|
|
|
|
2.
|
Rito
International Enterprise Company Limited (“Rito International”)
|
|
Hong
Kong
August
12, 2014
|
|
630,001
shares of ordinary share of HK$1 each
|
|
Trading
of retail goods
|
Rito
Group Corp. and its subsidiaries are hereinafter referred to as the “Company”.
NOTE
3 - GOING CONCERN UNCERTAINTIES
The
accompanying financial statements have been prepared using the going concern basis of accounting, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
As
of March 31, 2017, the Company suffered an accumulated deficit of $1,522,551 and continuously incurred a net operating loss of
$587,739 for the nine months ended March 31, 2017. The continuation of the Company as a going concern through June 30, 2017 is
dependent upon improving the profitability and the continuing financial support from its stockholders. Management believes the
existing shareholders or external financing will provide the additional cash to meet the Company’s obligations as they become
due.
RITO
GROUP CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINEMONTHS ENDED MARCH 31, 2017
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
These
and other factors raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements
do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result in the Company not being able to continue as a going concern.
NOTE
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
accompanying unaudited condensed consolidated financial statements reflect the application of certain significant accounting policies
as described in this note and elsewhere in the accompanying consolidated financial statements and notes.
The
accompanying condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles
in the United States of America (“US GAAP”).
The
condensed consolidated financial statements include the accounts of Rito Group Corp. and its subsidiaries. All significant inter-company
balances and transactions within the Company have been eliminated upon consolidation.
In
preparing these condensed consolidated financial statements, management makes estimates and assumptions that affect the reported
amounts of assets and liabilities in the balance sheets and revenues and expenses during the periods reported. Actual results
may differ from these estimates.
●
|
Cash
and cash equivalents
|
Cash
and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions
and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
Accounts
receivable are recorded at the invoiced amount and do not bear interest. Management reviews the adequacy of the allowance for
doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically
evaluates individual customer’s financial condition, credit history, and the current economic conditions to make adjustments
in the allowance when it is considered necessary. Account balances are charged off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered remote.
●
|
Subscriptions
receivable
|
There
was no subscriptions receivable as of March 31, 2017.
RITO
GROUP CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2017
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
In
accordance with the Accounting Standard Codification (“ASC”) Topic 605
“Revenue Recognition”
, the
Company recognizes revenue when the following four criteria are met: (1) delivery has occurred or services rendered; (2) persuasive
evidence of an arrangement exists; (3) selling price is fixed or determinable; and (4) collectability is reasonably assured.
Revenue
is measured at the fair value of the consideration received or receivable, net of discounts and taxes applicable to the revenue.
Revenue from trading of retail goods is recognized when title and risk of loss are transferred and there are no continuing obligations
to the customer. Title and the risks and rewards of ownership transfer to and accepted by the customer when the products are collected
by the customer at the Company’s office. Revenue is recorded net of sales discounts, returns, allowances, and other adjustments
that are based upon management’s best estimates and historical experience and are provided for in the same period as the
related revenues are recorded. Based on limited operating history, management estimates that there were no sales return for the
period reported.
The
Company derives its revenue from sales of goods to individuals. Generally, the Company recognizes revenue when products are sold
and accepted by the customers and there are no continuing obligations to the customer.
Cost
of revenue includes the purchase cost of retail goods for re-sale to the customers.
The
provision of income taxes is determined in accordance with the provisions of ASC Topic 740,
“Income Taxes”
(“ASC Topic 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income
in the periods in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC
Topic 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial
statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC Topic 740, tax positions must initially
be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the
tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has
a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the
position and relevant facts.
The
Company did not have any unrecognized tax positions or benefits and there was no effect on the financial conditions or results
of operations for the nine months ended March 31, 2017. The Company conducts major businesses in Hong Kong and is subject to tax
in this jurisdiction. As a result of its business activities, the Company will file tax returns that are subject to examination
by the foreign tax authority.
RITO
GROUP CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2017
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
The
Company calculates net loss per share in accordance with ASC Topic 260
“Earnings per share”
. Basic loss per
share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted
loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional
common shares were dilutive.
●
|
Foreign
currencies translation
|
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 transaction. Monetary assets and liabilities denominated in currencies other than the functional
currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting
exchange differences are recorded in the statements of operations.
The
reporting currency of the Company and its subsidiary in Anguilla is United States Dollars (“US$”). The Company’s
subsidiary in Hong Kong maintains its books and record in Hong Kong Dollars (“HK$”), which is functional currency
as being the primary currency of the economic environment in which the entity operates.
In
general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not US$ are translated
into US$, in accordance with ASC Topic 830-30,
“Translation of Financial Statement”
, using the exchange rate
on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses
resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other
comprehensive income within the statement of stockholders’ equity.
Translation
of amounts from the local currencies of the Company into US$ has been made at the following exchange rates for the respective
periods:
|
|
As of and for the
nine months ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Period-end / average HK$ : US$1 exchange rate
|
|
|
7.75
|
|
|
|
7.75
|
|
Parties,
which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly,
to control the other party or exercise significant influence over the other party in making financial and operating decisions.
Companies are also considered to be related if they are subject to common control or common significant influence.
●
|
Fair
value of financial instruments
|
The
carrying value of the Company’s financial instruments: cash and cash equivalents, accounts receivable, prepayments, deposits
and other receivables, accounts payable, other payables and accrued liabilities approximate at their fair values because of the
short-term nature of these financial instruments.
The
Company follows the guidance of the ASC Topic 820-10,
“Fair Value Measurements and Disclosures”
(“ASC
Topic 820-10”), with respect to financial assets and liabilities that are measured at fair value. ASC Topic 820-10 establishes
a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
RITO
GROUP CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2017
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
|
Level
1
: Observable inputs such as quoted prices in active markets;
|
|
|
|
Level
2
: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
|
|
|
Level
3
: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its
own assumptions
|
Fair
value estimates are made at a specific point in time based on relevant market information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined
with precision. Changes in assumptions could significantly affect the estimates.
●
|
Recent
accounting pronouncements
|
The
Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption
of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
NOTE
5 - STOCKHOLDERS’ EQUITY
In
July and August 2016, the Company entered into a number of Subscription Agreement with various investors relating to an initial
public offering of a total of 42,600 shares of common stocks at a subscription price of $1.5 per share, for an aggregate gross
proceeds of $63,900.
On
December 1, 2016, the Company entered into a number of Subscription Agreements with various investors relating to the private
placement of a total of 60,000 shares of common stocks at a subscription price of $1.5 per share, for an aggregate gross proceeds
of $90,000.
On
December 1, 2016, the Company issued an aggregate of 3,740,476 shares of its common stock to various investors in conversion of
outstanding convertible notes payable in aggregated principal and accrued interest of $863,248 and $76,133, respectively. The
conversion price is ranged from $0.15 to $0.25 per share.
On
January 23, 2017, the Company entered into a Subscription Agreement with an investor relating to the private placement of a total
of 10,000 shares of common stocks at a subscription price of $1.5 per share, for an aggregate gross proceeds of $15,000.
During
March 2017, the Company entered into a number of Subscription Agreements with various investors relating to the private placement
of a total of 60,000 shares of common stocks at a subscription price of $1.5 per share, for an aggregate gross proceeds of $90,000.
As
of March 31, 2017, and June 30, 2016, the Company has a total of 54,625,956 and 50,712,880 shares, respectively of its common
stock issued and outstanding. There are no shares of preferred stock issued and outstanding.
NOTE
6 - CONVERTIBLE NOTES PAYABLE
During
August 2015 to April 2016, the Company issued a number of convertible promissory notes (collectively the “Convertible Notes”)
to investors in an aggregated principal of $888,410. The Convertible Notes bear interest at a rate of 8% per annum with a maturity
of two years, due in 2017 and 2018. The principal and accrued interest are payable in a lump sum at the maturity. The notes are
convertible into shares of the Company’s common stock at a conversion price ranged from $0.15 to $0.25 per share at the
note holders’ sole and exclusive option.
On
December 1, 2016, various note holders converted $863,248 in principal and $76,133 in accrued interest into 3,740,476 shares of
common stock. The conversion price is ranged from $0.15 to $0.25 per share.
As
of March 31, 2017, the outstanding convertible notes payable is $25,161 and $1,132 in principal and accrued interest, respectively.
For
the three months ended March 31, 2017 and 2016, the interest expense of $518 and $12,420, respectively are recognized in the condensed
consolidated statements of operations. The Company does not pay interest to convertible notes holders during the three months
ended March 31, 2017.
For
the nine months ended March 31, 2017 and 2016, the interest expense of $31,970 and $28,019, respectively are recognized in the
condensed consolidated statements of operations. The Company paid interest of $3,420 to convertible notes holders during the nine
months ended March 31, 2017.
RITO
GROUP CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2017
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
NOTE
7 - INCOME TAXES
For
the nine months ended March 31, 2017 and 2016, the local (United States) and foreign components of loss before income taxes were
comprised of the following:
|
|
For
the nine months ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Tax
jurisdictions from:
|
|
|
|
|
|
|
|
|
–
Local
|
|
$
|
(67,723
|
)
|
|
$
|
(27,926
|
)
|
–
Foreign, representing
|
|
|
|
|
|
|
|
|
Anguilla
|
|
|
(24,547
|
)
|
|
|
(31,381
|
)
|
Hong
Kong
|
|
|
(495,469
|
)
|
|
|
(490,101
|
)
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(587,739
|
)
|
|
|
(549,408
|
)
|
Provision
for income taxes consisted of the following:
|
|
|
For
the nine months ended
March 31,
|
|
|
|
|
2017
|
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
|
|
–
Local
|
|
$
|
-
|
|
|
$
|
-
|
|
–
Foreign (Hong Kong)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
–
Local
|
|
|
-
|
|
|
|
-
|
|
–
Foreign (Hong Kong)
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply
a broad range of income tax rates. The Company has subsidiaries that operate in various countries: United States, Anguilla and
Hong Kong that are subject to taxes in the jurisdictions in which they operate, as follows:
United
States of America
The
Company is registered in the State of Nevada and is subject to the tax laws of the United States of America. As of March 31, 2017,
the operations in the United States of America incurred $140,206 of cumulative net operating losses which can be carried forward
to offset future taxable income. The net operating loss carryforwards begin to expire in 2036, if unutilized. The Company has
provided for a full valuation allowance of $49,072 against the deferred tax assets on the expected future tax benefits from the
net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized
in the future.
RITO
GROUP CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2017
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
Anguilla
Under
the current laws of the Anguilla, Sino Union is registered as an international business company which is governed by the International
Business Companies Act of Anguilla and there is no income tax charged in Anguilla.
Hong
Kong
Rito
International is subject to Hong Kong Profits Tax, which is charged at the statutory income tax rate of 16.5% on its assessable
income. For the nine months ended March 31, 2017, no provision for income tax is required due to operating loss incurred. As of
March 31, 2017, Rito International incurred $1,269,687 of cumulative net operating losses which can be carried forward to offset
future taxable income at no expiration. The Company has provided for a full valuation allowance against the deferred tax assets
of $209,498 on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more
likely than not that these assets will not be realized in the future.
The
following table sets forth the significant components of the aggregate deferred tax assets of the Company as of March 31, 2017
and June 30, 2016:
|
|
As
of
|
|
|
|
March
31, 2016
|
|
|
June
30, 2016
|
|
|
|
|
|
|
(audited)
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
|
|
|
|
|
|
|
–
United States of America
|
|
$
|
49,072
|
|
|
$
|
25,369
|
|
–
Hong Kong
|
|
|
209,498
|
|
|
|
115,505
|
|
|
|
|
258,570
|
|
|
|
140,874
|
|
Less:
valuation allowance
|
|
|
(258,570
|
)
|
|
|
(140,874
|
)
|
Deferred
tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Management
believes that it is more likely than not that the deferred tax assets will not be fully realizable in the future. Accordingly,
the Company provided for a full valuation allowance against its deferred tax assets of $258,570 as of March 31, 2017. During the
nine months ended March 31, 2017, the valuation allowance increased by $117,696, primarily relating to net operating loss carryforwards
from the various tax regime.
RITO
GROUP CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2017
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
NOTE
8 - RELATED PARTY TRANSACTIONS
|
|
For
the nine months ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Professional
fee paid to:
|
|
|
|
|
|
|
|
|
-
Related party A
|
|
$
|
11,030
|
|
|
$
|
7,085
|
|
-
Related party B
|
|
|
33,803
|
|
|
|
34,825
|
|
|
|
|
|
|
|
|
|
|
Website
design and maintenance fee paid to:
|
|
|
|
|
|
|
|
|
-
Related party C
|
|
|
843
|
|
|
|
11,432
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45,676
|
|
|
$
|
53,342
|
|
Related
party A, B and C are the fellow subsidiaries of a corporate shareholder of the Company.
The
related party transactions are generally transacted in an arm-length basis at the current market value in the normal course of
business.
NOTE
9 - CONCENTRATIONS OF RISKS
(a)
Major customers
For
the three months ended March 31, 2017, there was one customer who accounted for 10% or more of the Company’s revenues. This
customer accounted for 91% of the Company’s revenue amounting to $43,402, with $11,751 account receivable balance at period-end.
For
the three months ended March 31, 2016, there was no customer who accounted for 100% of the Company’s revenues.
For
the nine months ended March 31, 2017, there was one customer who accounted for 10% or more of the Company’s revenues. This
customer accounted for 93% of the Company’s revenue amounting to $57,717, with $11,751 account receivable balance at period-end.
For
the nine months ended March 31, 2016, the customers who accounted for 10% or more of the Company’s revenues and the accounts
receivable balances at period-end are presented as follows:
|
|
For
the nine months ended
March 31, 2016
|
|
|
As
of
March 31, 2016
|
|
|
|
Revenues
|
|
|
Percentage
of revenues
|
|
|
Accounts
receivable
|
|
Customer
A
|
|
$
|
1,290
|
|
|
|
22
|
%
|
|
$
|
-
|
|
Customer
B
|
|
|
1,290
|
|
|
|
22
|
%
|
|
|
-
|
|
Customer
C
|
|
|
788
|
|
|
|
13
|
%
|
|
|
-
|
|
Total:
|
|
$
|
3,368
|
|
|
|
57
|
%
|
|
$
|
-
|
|
RITO
GROUP CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED MARCH 31, 2017
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
(b)
Major vendors
For
the three months ended March 31, 2017, there was one vendor who accounted for 100% of the Company’s cost of revenues with
no accounts payable balance at period-end.
For
the three months ended March 31, 2016, there was no vendor who accounted for the Company’s cost of revenues.
For
the nine months ended March 31, 2017, the vendors who accounted for 10% or more of the Company’s cost of revenues and its
accounts payable balance at period-end are presented as follows:
|
|
For
the nine months ended
March 31, 2017
|
|
|
As
of
March 31, 2017
|
|
|
|
Purchases
|
|
|
Percentage
of purchases
|
|
|
Accounts
payable
|
|
Vendor
A
|
|
$
|
26,014
|
|
|
|
66
|
%
|
|
$
|
-
|
|
Vendor
B
|
|
|
13,532
|
|
|
|
34
|
%
|
|
|
-
|
|
Total:
|
|
$
|
39,546
|
|
|
|
100
|
%
|
|
$
|
-
|
|
For
the nine months ended March 31, 2016, there was one vendor who accounted for 100% of the Company’s cost of revenues with
accounts payable balance of $4,570 at period-end.
(c)
Credit risk
Financial
instruments that are potentially subject to credit risk consist principally of accounts receivable. The Company believes the concentration
of credit risk in its accounts receivables is substantially mitigated by its ongoing credit evaluation process and relatively
short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an
allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other
information.
NOTE
10 - COMMITMENTS AND CONTINGENCIES
The
Company leases an office premises in Hong Kong under a non-cancellable operating lease that expire on December 2018, with an aggregate
fixed monthly rent of approximately $1,548.
The
aggregate lease expense for the three months ended March 31, 2017 and 2016 were $4,645and $13,121, respectively.
The
aggregate lease expense for the nine months ended March 31, 2017 and 2016 were $12,387 and $33,729, respectively.
As
of March 31, 2017, the Company has the aggregate future minimum rental payments due under a non-cancellable operating lease in
the next two years, as follows:
Period
ending March 31:
|
|
|
|
|
2017
|
|
$
|
18,581
|
|
2018
|
|
|
13,935
|
|
|
|
|
|
|
|
|
$
|
32,516
|
|
NOTE
11 - SUBSEQUENT EVENTS
In
accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events
or transactions that occurred after March 31, 2017 up through the date the Company presented this condensed consolidated financial
statements.
During
the period, the Company did not have any material recognizable subsequent.