The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020
NOTE 1 - NATURE OF OPERATIONS
Business
Ionix Technology,
Inc. (the “Company” or “Ionix”), formerly known as Cambridge Projects Inc., is a Nevada corporation that
was formed on March 11, 2011. By and through its wholly owned subsidiaries and an entity controlled through VIE agreements
in China, the Company sells the high-end intelligent electronic equipment, which includes the portable power banks for electronic
devices, LCM and LCD screens and provides IT and solution-oriented services in China.
Acquisition
On December 27, 2018, the Company entered into a Share
Purchase Agreement (the “Purchase Agreement”) with Jialin Liang and Xuemei Jiang, each of whom are shareholders (the
“Shareholders”) of Changchun Fangguan Electronics Technology Co., Ltd. (“Fangguan Electronics”). Pursuant
to the terms of the Purchase Agreement, the Shareholders, who together own 95.14% of the ownership rights in Fangguan Electronics,
agreed to execute and deliver the Business Operation Agreement, the Equity Interest Pledge Agreement, the Equity Interest Purchase
Agreement, the Exclusive Technical Support Service Agreement (the “Services Agreement”) and the Power of Attorney,
all together dated December 27, 2018 are referred to the “VIE Agreements”, to the Company in exchange for the issuance
of an aggregate of 15,000,000 shares of the Company’s common stock, par value $.0001 per share, thereby causing Fangguan
Electronics to become the Company’s variable interest entity. Together with VIE agreements, the Shareholders also agreed
to convert shareholder loan of RMB 30 million (approximately $4.4 million) to capital and make cash contribution of RMB 9.7 million
(approximately $1.4 million) to capital. The entirety of the transaction will hereafter be referred to as the “Transaction”.
As a result of the Transaction, the Company is able to exert effective control over Fangguan Electronics and receive 100% of the
net profits or net losses derived from the business operations of Fangguan Electronics. Fangguan Electronics manufactures and sells
Liquid Crystal Module (" LCM") and LCD screens in China based in Changchun City, Jilin Province, People’s Republic
of China. (See Note 3 and Note 9).
The Transaction was accounted for as a business combination
using the acquisition method of accounting. The assets, liabilities and the operations of Fangguan Electronics subsequent to the
Transaction date were included in the Company’s consolidated financial statements.
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Company’s consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Basis of consolidation
The consolidated financial statements include the accounts
of Ionix, its wholly owned subsidiaries and an entity which the Company controls 95.14% and receives 100% of net income or net
loss through VIE agreements. All significant inter-company balances and transactions have been eliminated upon consolidation.
Use of Estimates
The Company’s consolidated financial statements
have been prepared in accordance with US GAAP and this requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and reported amounts of revenue and expenses during the reporting period. The significant areas requiring the use of
management estimates include, but are not limited to, the allowance for doubtful accounts receivable and advance to suppliers,
the valuation of inventory, provision for staff benefit, recognition and measurement of deferred income taxes and valuation allowance
for deferred tax assets. Although these estimates are based on management’s knowledge of current events and actions management
may undertake in the future, actual results may ultimately differ from those estimates and such differences may be material to
our consolidated financial statements.
Cash and cash equivalents
Cash consists of cash on hand and cash in bank. Cash
equivalents represent investment securities that are short-term, have high credit quality and are highly liquid. Cash equivalents
are carried at fair market value and consist primarily of money market funds.
Accounts Receivable
Accounts receivable are recorded at the
invoiced amount and do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from shipment.
Credit is extended based on evaluation of a customer's financial condition, the customer’s credit-worthiness and their payment
history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over
90 days and over a specified amount are reviewed individually for collectability. At the end of each period, the Company specifically
evaluates individual customer’s financial condition, credit history, and the current economic conditions to monitor the progress
of the collection of accounts receivables. The Company will consider the allowance for doubtful accounts for any estimated losses
resulting from the inability of its customers to make required payments. For the receivables that are past due or not being paid
according to payment terms, the appropriate actions may be taken to exhaust all means of collection, including seeking legal resolution
in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and
the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its
customers. As of June 30, 2020 and 2019, the company has accounts receivable balance from non-related party of $3,273,141 and $3,639,030,
net of allowance for doubtful accounts of $139,609 and $143,768, respectively. No bad debt expense was recorded during the years
ended June 30, 2020 and 2019.
Inventories
Inventories consist of raw materials, working-in-process
and finished goods. Inventories are valued at the lower of cost or net realizable value. We determine cost on the basis of the
weighted average method. The Company periodically reviews inventories for obsolescence and any inventories identified as obsolete
are written down or written off. Although we believe that the assumptions we use to estimate inventory write-downs are reasonable,
future changes in these assumptions could provide a significantly different result.
Advances to suppliers
Advances to suppliers represent prepayments for merchandise,
which were purchased but had not been received. The balance of the advances to suppliers is reduced and reclassified to inventories
when the raw materials are received and pass quality inspection.
Property, plant and equipment
Property, plant and equipment are recorded at cost less
accumulated depreciation and any impairment. The cost of an asset comprises its purchase price and any directly attributable costs
of bringing the asset to its present working condition and location for its intended use. Repairs and maintenance costs are normally
expensed as incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the
future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized as an additional cost
of the asset.
When assets are retired or disposed of, the cost and
accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the statement of comprehensive
income (loss) in the reporting period of disposition.
Depreciation is calculated on a straight-line basis over
the estimated useful life of the assets after taking into account their respective estimated residual value. The estimated useful
life of the assets is as follows:
Buildings
|
|
10 – 20 years
|
Machinery and equipment
|
|
5 – 10 years
|
Office equipment
|
|
3 – 5 years
|
Automobiles
|
|
5 years
|
Intangible assets
Land use right is recorded as cost less accumulated amortization.
Land use rights represent the prepayments for the use of the parcels of land in the PRC where the Company’s production facilities
are located, and are charged to expense over their respective lease periods of 50 years. According to the laws of the PRC, the
government owns all of the land in the PRC. Company or individuals are authorized to use the land only through land use rights
granted by the PRC government for a certain period (usually 50 years).
Purchased intangible assets are recognized and measured
at fair value upon acquisition. Intangible assets acquired separately and with finite useful lives are carried at costs less accumulated
amortization and any accumulated impairment losses. Amortization for intangible assets with finite useful lives is provided on
a straight-line basis over their estimated useful lives. Alternatively, intangible assets with indefinite useful lives are carried
at cost less any subsequent accumulated impairment losses. The estimated useful lives of the intangible assets are as follows:
Land use right
|
|
50 years
|
Computer software
|
|
4-5 years
|
Gains or losses arising from derecognition of the intangible
asset are measured at the difference between the net disposal proceeds and the carrying amount of the assets and are recognized
in the statement of comprehensive income (loss) when the asset is disposed.
Impairment of long-lived assets
In accordance with the provisions of ASC Topic 360, “Impairment
or Disposal of Long-Lived Assets”, all long-lived assets such as property, plant and equipment held and used by the Company
are reviewed 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 evaluated by a comparison of the carrying amount of an asset to its
estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the
assets.
Revenue recognition
The Company adopted the new accounting standard, ASC
606, Revenue from Contracts with Customers, and all the related amendments (new revenue standard) to all contracts using the modified
retrospective method beginning on July 1, 2018. The adoption did not result in an adjustment to the retained earnings as of June
30, 2018. The comparative information was not restated and continued to be reported under the accounting standards in effect for
those periods. The adoption of the new revenue standard has no impact on either reported sales to customers or net earnings.
The Company estimates return based on historical results,
taking into consideration the type of customers, the type of transactions and the specifics of each arrangement.
Revenues are recognized when control of the promised
goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive
in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount
of revenue to be recognized as it fulfills its obligations under each of its agreements:
|
•
|
identify the contract with a customer;
|
|
•
|
identify the performance obligations in the contract;
|
|
•
|
determine the transaction price;
|
|
•
|
allocate the transaction price to performance obligations in the contract; and
|
|
•
|
recognize revenue as the performance obligation is satisfied.
|
Under these criteria, for revenues from sale of products,
the Company generally recognizes revenue when its products are delivered to customers in accordance with the written sales terms.
For service revenue, the Company recognizes revenue when services are performed and accepted by customers.
The following table disaggregates our revenue by major
source for the years ended June 30, 2020 and 2019, respectively:
|
|
For the Years Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Sales of LCM and LCD screens - Non-related parties
|
|
$
|
17,470,966
|
|
|
$
|
8,819,979
|
|
Sales of LCM and LCD screens - Related parties
|
|
|
713,008
|
|
|
|
695,478
|
|
Sales of portable power banks
|
|
|
1,709,799
|
|
|
|
2,238,503
|
|
Service contracts
|
|
|
705,455
|
|
|
|
594,532
|
|
Total
|
|
$
|
20,599,228
|
|
|
$
|
12,348,492
|
|
All the operating entities of the Company are domiciled
in the PRC. All the Company’s revenues are derived in the PRC during the years ended June 30, 2020 and 2019.
Cost of revenues
Cost of revenues includes cost of raw materials purchased,
inbound freight cost, cost of direct labor, depreciation expense and other overhead. Write-down of inventory for lower of cost
or net realizable value adjustments is also recorded in cost of revenues.
Related parties and transactions
The Company identifies related parties, and accounts
for, discloses related party transactions in accordance with ASC 850, "Related Party Disclosures" and other relevant
ASC standards.
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 operational decisions. Companies are also considered to be related if they
are subject to common control or common significant influence.
Transactions between related parties commonly occurring
in the normal course of business are considered to be related party transactions. Transactions between related parties are also
considered to be related party transactions even though they may not be given accounting recognition. While ASC does not provide
accounting or measurement guidance for such transactions, it requires their disclosure nonetheless.
Income taxes
Income taxes are determined in accordance with the provisions
of ASC Topic 740, “Income Taxes” (“ASC 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 years 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 740 prescribes a comprehensive model for how companies
should recognize, measure, present, and discloses in their financial statements uncertain tax positions taken or expected to be
taken on a tax return. Under ASC 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.
As of June 30, 2020 and 2019, the Company did not have
any significant unrecognized uncertain tax positions.
Comprehensive income (loss)
Comprehensive income (loss) is defined as the change
in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from
investments from owners and distributions to owners. Comprehensive income (loss) for the periods presented includes net income
(loss), change in unrealized gains (losses) on marketable securities classified as available-for-sale (net of tax), foreign currency
translation adjustments, and share of change in other comprehensive income of equity investments one quarter in arrears.
Leases
In February 2016, the FASB established Topic 842, Leases,
by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on balance sheet and disclose
key information about the leasing arrangements. The new standard establishes a right-of-use model (“ROU”) that requires
a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.
The new standard is effective for us on July 1, 2019,
with early adoption permitted. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative
period presented in the financial statements as its date of initial application. The Company adopted the new standard on July 1,
2019 and use the effective date as our date of initial application. Consequently, financial information is not provided for the
dates and periods before July 1, 2019. The new standard provides a number of optional expedients in transition. The Company elected
the package of practical expedients which permits us not to reassess under the new standard our prior conclusions about lease identification,
lease classification and initial direct costs.
The new standard has no material effect
on our consolidated financial statements as the Company does not have a lease with a term longer than 12 months as of June 30,
2020 (See Note 5).
Earnings (losses) per share
Basic earnings (losses) per share is computed by dividing
net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (losses) per
share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential
common shares consist of incremental shares issuable upon exercise of stock options and warrants and conversion of convertible
debt. Such potentially dilutive shares are excluded when the effect would be to reduce a net loss per share or increase a net income
per share.
The reconciliation of our basic to diluted weighted average
common shares follows:
|
|
For the Years Ended
June 30
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Basic weighted average common shares
|
|
|
114,077,157
|
|
|
|
106,605,740
|
|
Effect of potentially dilutive securities
|
|
|
|
|
|
|
|
|
- Warrants
|
|
|
(148,680
|
)
|
|
|
-
|
|
- Convertible notes
|
|
|
-
|
|
|
|
-
|
|
Diluted weighted average common shares
|
|
|
113,928,477
|
|
|
|
106,605,740
|
|
During the year ended June 30, 2020, the Company had
outstanding convertible notes and warrants which represent 899,753 shares of commons stock, among which 670,587 shares of common
stock for convertible notes were excluded from the computation of diluted earnings per share since their effect would have been
antidilutive.
Foreign currencies translation
The reporting currency of the Company is the United States
Dollar (“US$”). The Company’s subsidiaries in the People’s Republic of China (“PRC”) maintain
their books and records in their local currency, the Renminbi Yuan (“RMB”), which is the functional currency as being
the primary currency of the economic environment in which these entities operate.
In general, for consolidation purposes, assets and liabilities
of its subsidiaries whose functional currency is not the US$ 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. Stockholders’ equity is translated at historical rates. The gains and losses resulting
from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive
income within the statements of stockholders’ equity.
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 comprehensive income (loss).
The exchange rates used to translate amounts in RMB into
U.S. Dollars for the purposes of preparing the consolidated financial statements are as follows:
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
Balance sheet items, except for equity accounts
|
|
|
7.0795
|
|
|
|
6.8747
|
|
|
|
Years Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Items in statements of comprehensive income (loss) and cash flows
|
|
|
7.0307
|
|
|
|
6.7457
|
|
Fair Value of Financial Instruments
The carrying value of the Company’s financial instruments:
cash and cash equivalents, accounts receivable, inventory, prepayments and other receivables, accounts payable, income tax payable,
other payables and accrued liabilities approximate at their fair values because of the short-term nature of these financial instruments.
The Company also follows the guidance of the ASC Topic
820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), with respect to financial assets and
liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs
used in measuring fair value as follows:
Level 1: Inputs are based upon unadjusted quoted prices
for identical instruments traded in active markets;
Level 2: Inputs are based upon quoted prices for similar
instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based
valuation techniques (e.g. Black-Scholes Option-Pricing model) for which all significant inputs are observable in the market or
can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these
models project future cash flows and discount the future amounts to a present value using market-based observable inputs; and
Level 3: Inputs are generally unobservable and typically
reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair
values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.
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.
The Company has the derivative liabilities measured at
fair value on a recurring basis which are valued at level 3 measurement (See Note 13).
Convertible Instruments
The Company evaluates and accounts for conversion options
embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”.
Applicable GAAP requires companies to bifurcate conversion
options from their host instruments and account for them as free standing derivative financial instruments according to certain
criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument
are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that
embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes
in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument
would be considered a derivative instrument.
The Company accounts for convertible instruments (when
it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The
Company records when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments
based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction
and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of
the related debt to their stated date of redemption.
The Company accounts for the conversion of convertible
debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives
are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any difference
recorded as a gain or loss on extinguishment of the two separate accounting liabilities.
Common Stock Purchase Warrants
The Company classifies as equity any contracts that require
physical settlement or net-share settlement or provide a choice of net-cash settlement or settlement in the Company’s own
shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC
815-40 ("Contracts in Entity's Own Equity"). The Company classifies as assets or liabilities any contracts that require
net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our
control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).
Recent accounting pronouncements
The Company considers the applicability and impact of
all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.
In February 2018, FASB issued ASU 2018-02, Income Statement
– Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income. ASU 2018-02 provides entities the option to reclassify certain “stranded tax effects” resulting from the recent
US tax reform from accumulated other comprehensive income (“AOCI”) to retained earnings. Under the ASU, reporting entities
will select an accounting policy to either reclassify all stranded tax effects caused by tax reform from AOCI to retained earnings,
or continue recycling stranded effects (including those caused by tax reform) through earnings in future periods. Further, disclosure
of either policy is required in all cases. The reclassification from AOCI to retained earnings is presented in the statement of
shareholders equity. The ASU is effective for all entities in fiscal years beginning after December 15, 2018, and interim periods
within those fiscal years. Early adoption is permitted for public business entities for which financial statements have not yet
been issued, and for all other entities for which financial statements have not yet been made available for issuance. Entities
have the option to record the reclassification either retrospectively to each period in which the income tax effects of tax reform
are recognized, or at the beginning of the annual or interim period in which the amendments are adopted. The Company determined
that the adoption of this new standard has no material impact on its consolidated statements and related disclosures.
Compensation—Stock Compensation. In June 2018,
the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvement to Nonemployee Share-based Payment
Accounting to amend the accounting for share-based payment awards issued to nonemployees. Under the revised guidance, the accounting
for awards issued to nonemployees will be similar to the model for employee awards. The update is effective for public business
entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company adopted
this new standard effective on January 1, 2019. The adoption of ASU 2018-07 did not have a material impact on the Company’s
consolidated financial statements.
Fair Value Measurement. In August 2018, the FASB issued
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value
Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Under the guidance,
public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for
Level 3 fair value measurements. The guidance is effective for all entities for fiscal years beginning after December 15, 2019
and for interim periods within those fiscal years, but entities are permitted to early adopt either the entire standard or only
the provisions that eliminate or modify the requirements. The Company is currently in the process of evaluating the impact of the
adoption of this guidance on its consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, Investments
- Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic
815) (“ASU 2020-01”), which is intended to clarify the interaction of the accounting for equity securities under Topic
321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts
and purchased options accounted for under Topic 815. The Company is currently evaluating the effect of adopting this ASU on the
Company’s consolidated financial statements.
Risk factor
Due to the outbreak of the Coronavirus Disease 2019 (COVID-19)
in the PRC, the Company’s operational and financial performance, has been affected by the epidemic during the year ended
June 30, 2020. The Company has been keeping continuous attention on the situation of the COVID-19, assessing and reacting actively
to its impacts on the financial position and operating results of the Company as below:
|
·
|
During PRC national economic shutdown that was imposed to limit the spread of COVID-19 from this
early February to mid-March, our financial condition and results of operations were adversely affected. Since the restarting of
our operation near the end of this March, our financial performances have been recovering continuously.
|
|
·
|
As the outbreak in China has been subsiding recently and the Chinese government responded with
the package of support including tax-cut and financial assistance, we keep our continuous attention on the situation of the COVID-19,
assess and react actively to its impacts on our future operating results or near-and-long-term financial condition. Up to the date
of this report, the assessment is still in progress.
|
|
·
|
Since we restored our operation near the end of this March after signs that COVID-19 was under
control, we assessed that 1) COVID-19-related impacts on our cost of capital or access to capital and funding sources and our sources
or uses of cash have been insignificant; 2) There is no material uncertainty about our ongoing ability to meet the covenants of
our credit agreements; 3) No any material liquidity deficiency has been identified and we do not expect to disclose or incur any
material COVID-19-related contingencies;4) COVID-19-related impacts on the assets on our balance sheet or our ability to timely
account for those assets have been insignificant; and 5) The possibilities for COVID-19 to trigger any material impairments, increases
in allowances for credit losses, restructuring charges, other expenses, or changes in accounting judgments that have had or are
reasonably likely to have a material impact on our financial statements are low. Looking forward, we keep our continuous attention
on the situation of the COVID-19, assess and react actively to its impacts on issues mentioned above.
|
|
·
|
During PRC national economic shutdown that was imposed to limit the spread of COVID-19 from this
early February to mid-March, COVID-19-related circumstances such as remote work arrangements adversely affected our ability to
maintain operations. Since the lifting of the national shutdown order near the end of this March, our operations including financial
reporting systems, internal control over financial reporting and disclosure controls and procedures have already resumed. Currently
we keep our continuous attention on the situation of the COVID-19, assess and react actively to its impacts on our future business
continuity plans or whether material resource constraints in implementing these plans. Up to the date of this report, the assessment
is still in progress.
|
|
·
|
During PRC national economic shutdown that was imposed to limit the spread of COVID-19 from this
early February to mid-March, the demands for our products or services were severely affected. Since the restarting of our operation
near the end of this March, the demands have been rebounding continuously. And we are optimistic about an eventual recovery in
demand to pre-pandemic levels.
|
|
·
|
During PRC national economic shutdown that was imposed to limit the spread of COVID-19 from this
early February to mid-March, our supply chain or the methods used to distribute our products or services were severely affected.
Since the lift of the national shutdown order near the end of this March, we expect all of our supply chains or the methods would
return to normal gradually.
|
NOTE 3 – ACQUISITION AND VARIABLE INTEREST ENTITY
On December 27, 2018, the Company entered into VIE agreements
with two shareholders of Fangguan Electronics to control 95.14% of the ownership rights and receive 100% of the net profit or net
losses derived from the business operations of Fangguan Electronics. In exchange for VIE agreements and additional capital contribution,
the Company issued 15 million shares of common stock to two shareholders of Fangguan Electronics. (See Note 1 and Note 9).
The transaction was accounted for as a business combination
using the acquisition method of accounting. The assets, liabilities and the operations of Fangguan Electronics subsequent to the
acquisition date were included in the Company’s consolidated financial statements.
The purchase price was allocated to the fair value of
the tangible and intangible assets acquired and liabilities assumed. The Company recorded the fair value of the assets acquired
and liabilities assumed as of the acquisition date based on the appraisal report. The purchase price allocated to assets acquired
and liabilities assumed as of the acquisition was as follows:
|
|
Amounts
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
687,591
|
|
Notes receivable
|
|
|
67,441
|
|
Accounts receivable, net
|
|
|
2,926,786
|
|
Accounts receivable from related parties
|
|
|
46,603
|
|
Inventories, net
|
|
|
2,753,359
|
|
Advances to suppliers, net
|
|
|
165,819
|
|
Other receivables
|
|
|
61,900
|
|
Property, plant and equipment, net
|
|
|
7,832,750
|
|
Intangible assets, net
|
|
|
1,512,104
|
|
Deferred tax assets
|
|
|
54,632
|
|
Short-term bank loan
|
|
|
(2,622,683
|
)
|
Accounts payable
|
|
|
(3,715,537
|
)
|
Advance from customers
|
|
|
(23,654
|
)
|
Due to related parties
|
|
|
(1,917,747
|
)
|
Accrued expenses and other current liabilities
|
|
|
(150,517
|
)
|
Subscription receivable
|
|
|
1,415,010
|
|
Noncontrolling interest
|
|
|
(441,961
|
)
|
Total consideration
|
|
$
|
8,651,896
|
|
The subscription receivable was received in full in April
2019.
Following unaudited pro forma combined statement of operations
are based upon the historical financial statements of the Company and Fangguan Electronics for the year ended June 30, 2019 and
are presented as if the acquisition had occurred at the beginning of the period.
|
|
For the Year Ended June 30, 2019
|
|
|
|
Fangguan
Electronics
|
|
|
Ionix
Technology
|
|
|
Pro Forma
Adjustments
|
|
|
Pro Forma
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
7,628,845
|
|
|
$
|
12,348,492
|
|
|
$
|
(1,586,656
|
)
|
|
$
|
18,390,681
|
|
Cost of revenues
|
|
|
6,522,437
|
|
|
|
10,153,217
|
|
|
|
(1,158,933
|
)
|
|
|
15,516,721
|
|
Gross profit
|
|
|
1,106,408
|
|
|
|
2,195,275
|
|
|
|
(427,723
|
)
|
|
|
2,873,960
|
|
Operating expenses
|
|
|
914,791
|
|
|
|
1,578,832
|
|
|
|
-
|
|
|
|
2,493,623
|
|
Income (loss) from operations
|
|
|
191,617
|
|
|
|
616,443
|
|
|
|
(427,723
|
)
|
|
|
380,337
|
|
Other income (expense)
|
|
|
5,092
|
|
|
|
(69,371
|
)
|
|
|
-
|
|
|
|
(64,279
|
)
|
Income tax provision
|
|
|
29,609
|
|
|
|
150,025
|
|
|
|
-
|
|
|
|
179,634
|
|
Net income (loss)
|
|
$
|
167,100
|
|
|
$
|
397,047
|
|
|
$
|
(427,723
|
)
|
|
$
|
136,424
|
|
Through power of attorney, equity interest purchase agreement,
and equity interest pledge agreement, 95.14% of the voting rights of Fangguan Electronics’ shareholders have been transferred
to the Company so that the Company has effective control over Fangguan Electronics and have the power to direct the activities
of Fangguan Electronics that most significantly impact its economic performance.
Through business operation agreement with the shareholders
of VIE, the Company shall direct the business operations of Fangguan Electronics, including, but not limited to, adopting corporate
policy regarding daily operations, financial management, and employment, and appointment of directors and senior officers.
Through the exclusive technical support service agreement
with the shareholders of VIE, the Company shall provide VIE with necessary technical support and assistance as the exclusive provider.
And at the request of the Company, VIE shall pay the performance fee, the depreciation and the service fee to the Company. The
performance fee shall be equivalent to 5% of the total revenue of VIE in any fiscal year. The depreciation amount on equipment
shall be determined by accounting rules of China. The Company has the right to set and revise annually this service fee unilaterally
with reference to the performance of VIE.
The service fee that the Company is entitled to earn shall be the total business
incomes of the whole year minus performance fee and equipment depreciation. This agreement allows the Company to collect 100% of
the net profits of the VIE. Except for technical support, the Company did not provide, nor does it intend to provide, any financial
or other support either explicitly or implicitly during the periods presented to its variable interest entity.
If facts and circumstances change such that the conclusion
to consolidate the VIE has changed, the Company shall disclose the primary factors that caused the change and the effect on the
Company’s financial statements in the periods when the change occurs.
There are no restrictions on the consolidated VIE’s
assets and on the settlement of its liabilities and all carrying amounts of VIE’s assets and liabilities are consolidated
with the Company’s financial statements. In addition, the net income of Fangguan Electronics after Fangguan Electronics became
the VIE of the Company is free of restrictions for payment of dividends to the shareholders of the Company.
Risks associated with the VIE structure
The Company believes that the contractual arrangements
with its VIE and respective shareholders are in compliance with PRC laws and regulations and are legally enforceable. However,
uncertainties in the PRC legal system could limit the Company’s ability to enforce the contractual arrangements. If the legal
structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:
|
·
|
revoke the business and operating licenses of the Company’s PRC subsidiary and its VIE;
|
|
·
|
discontinue or restrict the operations of any related-party transactions between the Company’s
PRC subsidiary and its VIE;
|
|
·
|
limit the Company’s business expansion in China by way of entering into contractual arrangements;
|
|
·
|
impose fines or other requirements with which the Company’s PRC subsidiary and its VIE may
not be able to comply;
|
|
·
|
require the Company or the Company’s PRC subsidiary and its VIE to restructure the relevant
ownership structure or operations; or
|
|
·
|
restrict or prohibit the Company’s use of the proceeds from public offering to finance the
Company’s business and operations in China.
|
The Company’s ability to conduct its business through
its VIE may be negatively affected if the PRC government were to carry out of any of the aforementioned actions. As a result, the
Company may not be able to consolidate its VIE in its consolidated financial statements as it may lose the ability to exert effective
control over its VIE and its respective shareholders and it may lose the ability to receive economic benefits from its VIE. The
Company, however, does not believe such actions would result in the liquidation or dissolution of the Company, its PRC subsidiary
and its VIE. The following financial statement amounts and balances of its VIE were included in the accompanying consolidated financial
statements after elimination of intercompany transactions and balances:
|
|
Balance as of
June 30, 2020
|
|
|
Balance as of
June 30, 2019
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,266,426
|
|
|
$
|
361,849
|
|
Notes receivable
|
|
|
125,798
|
|
|
|
120,182
|
|
Accounts receivable - non-related parties
|
|
|
3,069,629
|
|
|
|
3,402,986
|
|
Inventory
|
|
|
2,639,839
|
|
|
|
2,916,515
|
|
Advances to suppliers - non-related parties
|
|
|
530,670
|
|
|
|
106,146
|
|
Prepaid expenses and other current assets
|
|
|
58,103
|
|
|
|
63,756
|
|
Total Current Assets
|
|
|
7,690,465
|
|
|
|
6,971,434
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
6,568,874
|
|
|
|
7,506,849
|
|
Intangible assets, net
|
|
|
1,424,404
|
|
|
|
1,496,399
|
|
Deferred tax assets
|
|
|
20,743
|
|
|
|
54,361
|
|
Total Assets
|
|
$
|
15,704,486
|
|
|
$
|
16,029,043
|
|
|
|
|
|
|
|
|
|
|
Short-term bank loan
|
|
$
|
2,034,735
|
|
|
$
|
2,618,296
|
|
Accounts payable
|
|
|
2,637,792
|
|
|
|
2,637,039
|
|
Advance from customers
|
|
|
27,501
|
|
|
|
32,372
|
|
Due to related parties
|
|
|
1,407,145
|
|
|
|
1,449,064
|
|
Accrued expenses and other current liabilities
|
|
|
61,856
|
|
|
|
148,287
|
|
Total Current Liabilities
|
|
|
6,169,029
|
|
|
|
6,885,058
|
|
Total Liabilities
|
|
$
|
6,169,029
|
|
|
$
|
6,885,058
|
|
NOTE 4 - INVENTORIES
Inventories are stated at the lower of cost (determined
using the weighted average cost) or net realizable value. Inventories consist of the following:
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
Raw materials
|
|
$
|
666,981
|
|
|
$
|
471,189
|
|
Work-in-process
|
|
|
500,331
|
|
|
|
1,719,426
|
|
Finished goods
|
|
|
2,096,538
|
|
|
|
1,188,531
|
|
Total Inventories
|
|
$
|
3,263,850
|
|
|
$
|
3,379,146
|
|
The Company recorded no inventory markdown for the years
ended June 30, 2020 and 2019.
NOTE 5 - OPERATING LEASE
For the year ended June 30, 2020, the Company had three
real estate operating leases for office, warehouses, manufacturing facilities and two boat operating leases under the terms from
four months to three years.
Lisite Science Technology (Shenzhen) Co., Ltd ("Lisite
Science") leases office and warehouse space from Shenzhen Keenest Technology Co., Ltd. (“Keenest”), a related
party, with annual rent of approximately $1,500 (RMB10,000) for one year until July 20, 2020. On July 20, 2020, Lisite Science
further extended the lease with Keenest for one more year until July 20, 2021 with annual rent of approximately $1,500 (RMB10,000).
(See Note 10).
Shenzhen Baileqi Electronic Technology Co., Ltd. ("Baileqi
Electronic") leases office and warehouse space from Shenzhen Baileqi Science and Technology Co., Ltd. (“Shenzhen Baileqi
S&T”), a related party, with monthly rent of approximately $2,500 (RMB17,525) and the lease period is from June 1, 2019
to May 31, 2020. On June 5, 2020, Baileqi Electronic further extended the lease with Shenzhen Baileqi S&T for one more year
until May 31, 2021 with monthly rent of approximately $2,500 (RMB17,525). (See Note 10).
Dalian Shizhe New Energy Technology Co.,
Ltd. (“Shizhe New Energy”) leases a boat from a non-related party with monthly rent of approximately $7,200 (RMB50,000)
for one year from March 1, 2019 to February 28, 2020. On July 1, 2019, Shizhe New Energy leased another boat from the same non-related
party with monthly rent of approximately $7,200 (RMB50,000) for four months from July 10, 2019 to November 10, 2019.
The Company made an accounting policy election
not to recognize lease assets and liabilities for the leases listed above as all lease terms are 12 months or shorter.
On November 1, 2019, the Company leased
an office space located in Dalian, China as its principal executive office under non-cancelable operating lease agreement for three
years, which expires through October 31, 2022. The monthly rent is approximately $715 (RMB5,000). The Company adopted the new standard
to recognize lease asset and liability for this lease after examining the criteria established. For the year ended June 30, 2020,
the Company made $109,563 of fixed cash payments related to operating leases. Non-cash activities involving ROU assets obtained
in exchange for lease liabilities were $19,711 for the year ended June 30, 2020, including the impact of adopting the new leases
standard.
On June 30, 2020, this lease agreement
was early terminated on a mutually agreed basis between the Company and the landlord. The Company paid the lessor a termination
fee of approximately $1,400 (RMB10,000). The lease asset and liability were extinguished accordingly and decreased to zero as of
June 30, 2020.
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT,
NET
The components of property, plant and equipment
were as follows:
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
Buildings
|
|
$
|
4,601,685
|
|
|
$
|
4,661,535
|
|
Machinery and equipment
|
|
|
2,822,686
|
|
|
|
3,036,339
|
|
Office equipment
|
|
|
67,091
|
|
|
|
60,052
|
|
Automobiles
|
|
|
98,848
|
|
|
|
101,793
|
|
Subtotal
|
|
|
7,590,310
|
|
|
|
7,859,719
|
|
Less: Accumulated depreciation
|
|
|
(1,016,373
|
)
|
|
|
(351,082
|
)
|
Property, plant and equipment, net
|
|
$
|
6,573,937
|
|
|
$
|
7,508,637
|
|
Depreciation expense related to property,
plant and equipment was $723,346 and $357,799 for the years ended June 30, 2020 and 2019, respectively.
As of June 30, 2020 and 2019, buildings
were pledged as collateral for bank loans (See Note 8).
NOTE 7 – INTANGIBLE ASSETS, NET
Intangible assets consist of the following:
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
Land use right
|
|
$
|
1,442,456
|
|
|
$
|
1,485,428
|
|
Computer software
|
|
|
25,039
|
|
|
|
25,785
|
|
Subtotal
|
|
|
1,467,495
|
|
|
|
1,511,213
|
|
Less: Accumulated amortization
|
|
|
(43,091
|
)
|
|
|
(14,814
|
)
|
Intangible assets, net
|
|
$
|
1,424,404
|
|
|
$
|
1,496,399
|
|
Amortization expense related to intangible
assets was $28,905 and $15,097 for the years ended June 30, 2020 and 2019, respectively.
Fangguan Electronics acquired the land
use right from the local government in August 2012 which expires on August 15, 2062. As of June 30, 2020 and 2019, land use right
was pledged as collateral for bank loans (See Note 8).
NOTE 8 – SHORT-TERM BANK LOAN
On November 12, 2018, Fangguan Electronics
entered into a short-term loan agreement with Industrial Bank to borrow approximately US$2.62 million (RMB 18 million) for a year
with annual interest rate of 5.22%. The borrowing was collateralized by the Company’s buildings and land use right. In addition,
the borrowing was guaranteed by the Company’s shareholder and CEO of Fangguan Electronics, Mr. Jialin Liang, and his wife
Ms. Dongjiao Su. The loan was renewed for one year from November 19, 2019 to November 18, 2020. On May 20,2020, Fangguan Electronics
partially repaid this bank loan of approximately US$706,000 (RMB5,000,000).
In addition, during May and Jun 2020, Fangguan
Electronics issued two one-year commercial acceptance bills with amount of approximately US$198,000 (RMB1,404,904) and maturity
date at May 21, 2021 and June 11, 2021. On May 22, 2020 and June 16, 2020, the two commercial acceptance bills were discounted
with Industrial Bank at an interest rate of 3.85% and the balance of the two commercial acceptance bills converted to bank loans
with Industrial Bank based on a mutual agreement from both parties. This loan was also secured by the same collateral as the above
RMB18 million loan under the same bank.
NOTE 9 - STOCKHOLDERS' EQUITY
Issuance of new shares for acquisition
of VIE
On December 27, 2018, the Company entered
into VIE agreements with two shareholders of Fangguan Electronics to control 95.14% of the ownership rights and receive 100% of
the net profit or net losses derived from the business operations of Fangguan Electronics. In exchange for VIE agreements, the
Company issued 15 million shares of common stock to two shareholders of Fangguan Electronics (See Note 1 and Note 3).
Forgiveness of related party loan and
capital contribution in relation to acquisition
In connection with the acquisition of Fangguan
Electronics, Fangguan Electronics completed a capital increase of approximately USD 5.8 million (RMB39,711,500) to invest in its
OLED flexible screen business. The capital increase of Fangguan Electronics is a personal investment of approximately USD 5.8 million
(RMB39,711,500) from Jialin Liang and Xuemei Jiang, members of the Company's board of directors. Among them, Jialin Liang increased
capital of about USD 4.7 million (RMB32,211,500), including USD 4.4 million (RMB30,000,000) from conversion of debt to equity and
USD 0.3 million (RMB2,211,500) of cash contribution; and Xuemei Jiang increased capital of USD 1.1 million (RMB7,500,000) of cash
contribution.
Return of capital
On March 19, 2019, Fangguan Electronics
returned capital of $58,155 to its non-controlling shareholder.
Stock Issued for Services
The Company engaged Maxim Group LLC (“Maxim”)
as its financial advisor to assist the Company in articulating its growth strategy to the investment community and up-list its
securities to a National Securities Exchange. On February 10, 2020, the Company issued 150,000 shares of common stock valued at
$262,500 based on the quoted market price to Maxim Group LLC as a part of its compensation.
On May 19, 2020, the Company and Maxim
mutually agreed to terminate all rights and obligations. Pursuant to the Settlement Agreement dated May 19, 2020, Maxim returned
75,000 shares of common stock valued at $131,250 to the Company for cancellation. The net cost of $131,250 was amortized in full
during the year ended June 30, 2020.
Stock Issued for Conversion of Convertible
Debt
On January 31, 2020, the Company issued
a total of 12,775 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $12,000
according to the conditions of the convertible note dated as July 25, 2019. The conversion resulted in a loss on extinguishment
of debt of $7,813.
On February 18, 2020, the Company issued
a total of 11,834 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $10,000
according to the conditions of the convertible note dated as July 25, 2019. The conversion resulted in a loss on extinguishment
of debt of $2,901.
On February 28, 2020, the Company issued
a total of 15,448 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $12,000
according to the conditions of the convertible note dated as July 25, 2019. The conversion resulted in a loss on extinguishment
of debt of $4,360.
On May 19, 2020, the Company issued a total
of 16,484 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $15,000 according
to the conditions of the convertible note dated as July 25, 2019. The conversion resulted in a loss on extinguishment of debt of
$7,868.
On May 29, 2020, the Company issued a total
of 19,724 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $15,000 according
to the conditions of the convertible note dated as July 25, 2019. The conversion resulted in a loss on extinguishment of debt of
$2,840.
The remaining principal balance due under
this convertible note after these conversions is $39,000.
On June 18, 2020, the Company issued a
total of 20,000 shares of common stock to Crown Bridge Partners, LLC for the conversion of debt in the principal amount of $3,615.6
according to the conditions of the convertible note dated as November 12, 2019. The conversion resulted in a loss on extinguishment
of debt of $15,473. The remaining principal balance due under this convertible note after this conversion is $51,384.
NOTE 10 - RELATED PARTY TRANSACTIONS
AND BALANCES
Purchase from related party
During the year ended June 30, 2020, the
Company’s subsidiaries, Lisite Science and Baileqi Electronic, purchased $1,630,684 and $37,393 from Keenest and Shenzhen
Baileqi S&T which were owned by the Company’s stockholders who own approximately 1.9% and 1.1% respectively of the Company’s
outstanding common stock as of June 30, 2020. The amounts of $1,630,684 and $37,393 were included in the cost of revenue for the
year ended June 30, 2020.
During the year ended June 30, 2019, the
Company’s subsidiaries, Lisite Science and Baileqi Electronic, purchased $1,993,512 and $911,121 from Keenest and Shenzhen
Baileqi S&T which were owned by the Company’s stockholders who own approximately 1.9% and 1.1% respectively of the Company’s
outstanding common stock. The amounts of $1,993,512 and $911,156 were included in the cost of revenue for the year ended June 30,
2019.
During the years ended June 30, 2020 and
2019, the Company’s subsidiary, Changchun Fangguan Photoelectric Display Technology Co. Ltd ("Fangguan Photoelectric"),
purchased $0 and $1,505,387 from Fangguan Electronics before Fangguan Electronics became a variable interest entity of the Company
on December 27, 2018 (See Note 1 and Note 3). The president of Fangguan Electronics was the president and a member of the board
of directors of Fangguan Photoelectric before he resigned and left Fangguan Photoelectric in October 2018. The amounts of $0 and
$1,135,061 were included in the cost of revenue for the years ended June 30, 2020 and 2019.
Advances to suppliers - related parties
Lisite Science made advances of $357,577
and $269,498 to Keenest for future purchases as of June 30, 2020 and 2019, respectively.
Sales to related party and accounts
receivable from related party
During the years ended June 30, 2020 and
2019, Baileqi Electronic sold materials of $713,008 and $671,606 respectively to Shenzhen Baileqi S&T. The trade-related balance
receivable from Shenzhen Baileqi S&T was $0 and $340,026 as of June 30, 2020 and 2019, respectively.
During the year ended June 30, 2019, Fangguan
Photoelectric sold products of $23,872 to Fangguan Electronics before Fangguan Electronics became a variable interest entity of
the Company on December 27, 2018 (See Note 1 and Note 3).
Lease from related party
Lisite Science leases office and warehouse
space from Keenest, a related party, with annual rent of approximately $1,500 (RMB10,000) for one year until July 20, 2020. On
July 20, 2020, Lisite Science further extended the lease with Keenest for one more year until July 20, 2021 with annual rent of
approximately $1,500 (RMB10,000). (See Note 5).
Baileqi Electronic leases office and warehouse
space from Shenzhen Baileqi S&T, a related party, with monthly rent of approximately $2,500 (RMB17,525) and the lease period
is from June 1, 2019 to May 31, 2020. On June 5, 2020, Baileqi Electronic further extended the lease with Shenzhen Baileqi S&T
for one more year until May 31,2021 with monthly rent of approximately $2,500 (RMB17,525). (See Note 5).
Due to related parties
Due to related parties represents certain
advances to the Company or its subsidiaries by related parties. The amounts are non-interest bearing, unsecured and due on demand.
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
Ben Wong
|
(1)
|
|
|
$
|
143,792
|
|
|
$
|
143,792
|
|
Yubao Liu
|
(2)
|
|
|
|
102,938
|
|
|
|
498,769
|
|
Xin Sui
|
(3)
|
|
|
|
2,016
|
|
|
|
2,016
|
|
Baozhen Deng
|
(4)
|
|
|
|
9,437
|
|
|
|
3,900
|
|
Baozhu Deng
|
(5)
|
|
|
|
-
|
|
|
|
5,303
|
|
Jialin Liang
|
(6)
|
(13)
|
|
|
901,460
|
|
|
|
928,314
|
|
Xuemei Jiang
|
(7)
|
(12)
|
|
|
505,685
|
|
|
|
520,750
|
|
Liang Zhang
|
(8)
|
|
|
|
-
|
|
|
|
625
|
|
Zijian Yang
|
(9)
|
|
|
|
-
|
|
|
|
1,869
|
|
Shikui Zhang
|
(10)
|
|
|
|
28,528
|
|
|
|
-
|
|
Changyong Yang
|
(11)
|
|
|
|
23,063
|
|
|
|
-
|
|
|
|
|
|
$
|
1,716,919
|
|
|
$
|
2,105,338
|
|
(1) Ben Wong was the controlling shareholder
of Shinning Glory until April 20, 2017, which holds majority shares in Ionix Technology, Inc.
(2) Yubao Liu is the controlling shareholder
of Shinning Glory since April 20, 2017, which holds majority shares in Ionix Technology, Inc.
(3) Xin Sui is a member of the board of
directors of Welly Surplus.
(4) Baozhen Deng is a stockholder of the
Company, who owns approximately 1.1% of the Company’s outstanding common stock, and the owner of Shenzhen Baileqi S&T.
(5) Baozhu Deng is a relative of Baozhen
Deng and director of Baileqi Electronic.
(6) Jialin Liang is a stockholder of the
Company and the president, CEO, and director of Fangguan Electronics.
(7) Xuemei Jiang is a stockholder of the
Company and the vice president and director of Fangguan Electronics.
(8) Liang Zhang is the legal representative
of Shizhe New Energy until May 2019.
(9) Zijian Yang is the supervisor of Shizhe
New Energy.
(10) Shikui Zhang is a stockholder of the
Company and serves as the legal representative and general manager of Shizhe New Energy since May 2019.
(11) Changyong Yang is a stockholder of the Company, who owns
approximately 1.9% of the Company’s outstanding common stock, and the owner of Keenest.
(12) The liability was assumed from the acquisition of Fangguan
Electronics.
(13) The Company assumed liability of approximately $5.8 million
(RMB39,581,883) from Jialin Liang during the acquisition of Fangguan Electronics. During the year ended June 30, 2019, approximately
$4.4 million (RMB30,000,000) liability assumed was forgiven and converted to capital.
During the year ended June 30, 2020, Yubao
Liu was refunded $46,312 by Welly Surplus and Well Best after netting off his advances to Well Best. In addition, Yubao Liu agreed
to decrease his advances to Well Best of $349,519 (RMB2,474,417) to pay off the trade receivables due from Shenzhen Baileqi S&T
to Baileqi Electronic on behalf of Shenzhen Baileqi S&T.
During the year ended June 30, 2020, Baileqi
Electronic refunded $5,303 to Baozhu Deng and Baozhen Deng advanced $5,537 to Baileqi Electronic. Shizhe New Energy refunded $625
and $1,869 to Liang Zhang and Zijian Yang respectively. Shikui Zhang advanced $28,528 to Shizhe New Energy. Changyong Yang, a stockholder
of the Company, advanced $23,063 to Lisite Science.
During the year ended June 30, 2019, Yubao
Liu advanced $428,311 to Well Best. Baileqi Electronic borrowed $5,303 from Baozhu Deng. In addition, Baozhen Deng refunded $7,585
to Baileqi Electronic. Liang Zhang and Zijian Yang advanced $625 and $1,869 to Shizhe New Energy, respectively. Fangguan Electronics
refunded approximately $0.47 million (RMB3.2 million) to Jialin Liang.
NOTE 11 – CONCENTRATION
Major customers
Customers who accounted for 10% or more
of the Company’s revenues (goods sold and services) and its outstanding balance of accounts receivable are presented as follows:
|
|
For the Year Ended
June 30, 2020
|
|
|
As of June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
Percentage of
revenue
|
|
|
Accounts
receivable
|
|
|
Percentage of
accounts
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
$
|
3,235,320
|
|
|
|
16
|
%
|
|
$
|
648,786
|
|
|
|
20
|
%
|
Customer B
|
|
|
2,168,387
|
|
|
|
11
|
%
|
|
|
-
|
|
|
|
-
|
%
|
Total
|
|
$
|
5,403,707
|
|
|
|
27
|
%
|
|
$
|
648,786
|
|
|
|
20
|
%
|
|
|
For the Year Ended
June 30, 2019
|
|
|
As of June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
Percentage of
total revenue
|
|
|
Accounts
receivable
|
|
|
Percentage of
total accounts
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
$
|
1,796,854
|
|
|
|
15
|
%
|
|
$
|
107,414
|
|
|
|
3
|
%
|
Customer B
|
|
|
2,935,278
|
|
|
|
24
|
%
|
|
|
270,301
|
|
|
|
7
|
%
|
Total
|
|
$
|
4,732,132
|
|
|
|
39
|
%
|
|
$
|
377,715
|
|
|
|
10
|
%
|
Primarily all customers are located in
the PRC.
Major suppliers
The suppliers who accounted for 10% or
more of the Company’s total purchases (materials and services) and its outstanding balance of accounts payable are presented
as follows:
|
|
For the Year Ended
June 30, 2020
|
|
|
As of June 30, 2020
|
|
|
|
Total Purchase
|
|
|
Percentage of
total purchase
|
|
|
Accounts
payable
|
|
|
Percentage of
total accounts
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplier A - related party
|
|
$
|
1,630,684
|
|
|
|
10
|
%
|
|
$
|
-
|
|
|
|
-
|
%
|
Supplier B
|
|
|
3,053,591
|
|
|
|
18
|
%
|
|
|
218,709
|
|
|
|
8
|
%
|
Total
|
|
$
|
4,684,275
|
|
|
|
28
|
%
|
|
$
|
218,709
|
|
|
|
8
|
%
|
|
|
For the Year Ended
June 30, 2019
|
|
|
As of June 30, 2019
|
|
|
|
Total Purchase
|
|
|
Percentage of
total purchase
|
|
|
Accounts
payable
|
|
|
Percentage of
total accounts
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplier A - related party
|
|
$
|
1,993,512
|
|
|
|
20
|
%
|
|
$
|
-
|
|
|
|
-
|
%
|
Supplier B - related party
|
|
|
1,505,387
|
|
|
|
15
|
%
|
|
|
-
|
|
|
|
-
|
%
|
Supplier C
|
|
|
1,731,235
|
|
|
|
17
|
%
|
|
|
-
|
|
|
|
-
|
%
|
Total
|
|
$
|
5,230,134
|
|
|
|
52
|
%
|
|
$
|
-
|
|
|
|
-
|
%
|
All suppliers of the Company are located
in the PRC.
NOTE 12 - INCOME TAXES
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 rate. The Company
operates in United States of America, Hong Kong and the PRC that are subject to taxes in the jurisdictions in which they operate.
United States of America
The Company is registered in the State
of Nevada and is subject to the tax laws of United States of America and subject to the corporate tax rate of 21% on its taxable
income.
For the years ended June 30, 2020 and 2019,
the Company did not generate income in United States of America and no provision for income tax was made. Under normal circumstances,
the Internal Revenue Service is authorized to audit income tax returns during a three-year period after the returns are filed.
In unusual circumstances, the period may be longer. Tax returns for the years ended June 30, 2016 and after were still open
to audit as of June 30, 2020.
Hong Kong
The Company’s subsidiaries, Well
Best and Welly Surplus, are registered in Hong Kong and subject to income tax rate of 16.5%. For the years ended June 30, 2020
and 2019, there is no assessable income chargeable to profit tax in Hong Kong.
The PRC
The Company’s subsidiaries in China
are subject to a unified income tax rate of 25%. Fangguan Electronics was certified as high-tech enterprises for three years from
November 2016 to November 2019 and is taxed at a unified income tax rate of 15%. Fangguan Electronics has renewed the high-tech
enterprise certificate which granted it the tax rate of 15% for the three whole calendar years of 2019 to 2021.
The reconciliation of income tax expense
at the U.S. statutory rate of 21% to the Company's effective tax rate is as follows:
|
|
For the Years Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Tax at U.S. statutory rate
|
|
$
|
(22,023
|
)
|
|
$
|
114,885
|
|
Tax rate difference between foreign operations and U.S.
|
|
|
(73,374
|
)
|
|
|
(25,627
|
)
|
Change in valuation allowance
|
|
|
287,447
|
|
|
|
82,139
|
|
Permanent difference
|
|
|
(19,251
|
)
|
|
|
(21,372
|
)
|
Effective tax
|
|
$
|
172,799
|
|
|
$
|
150,025
|
|
The provisions for income taxes are summarized
as follows:
|
|
For the Years Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Current
|
|
$
|
140,531
|
|
|
$
|
164,792
|
|
Deferred
|
|
|
32,268
|
|
|
|
(14,767
|
)
|
Total
|
|
$
|
172,799
|
|
|
$
|
150,025
|
|
The tax effects of temporary differences
that give rise to the Company’s net deferred tax assets are as follows:
|
|
As of June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
439,831
|
|
|
$
|
152,476
|
|
Allowance for doubtful accounts
|
|
|
44,900
|
|
|
|
46,237
|
|
Others
|
|
|
9,087
|
|
|
|
16,058
|
|
|
|
|
493,818
|
|
|
|
214,771
|
|
Less valuation allowance
|
|
|
(439,831
|
)
|
|
|
(152,476
|
)
|
Total Deferred tax assets
|
|
$
|
53,987
|
|
|
$
|
62,295
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability:
|
|
|
|
|
|
|
|
|
Revenue cutoff
|
|
$
|
33,244
|
|
|
$
|
7,934
|
|
Total Deferred tax liability
|
|
$
|
33,244
|
|
|
$
|
7,934
|
|
|
|
|
|
|
|
|
|
|
Net Deferred tax assets
|
|
$
|
20,743
|
|
|
$
|
54,361
|
|
As of June 30, 2020, the Company has approximately
$2,488,000 net operating loss carryforwards available in the U.S., Hong Kong and China to reduce future taxable income which will
begin to expire from 2035. It is more likely than not that the deferred tax assets resulted from net operating loss carryforward
cannot be utilized in the future because there will not be significant future earnings from the entities which generated the net
operating loss. Therefore, the Company recorded a full valuation allowance on its deferred tax assets resulted from net operating
loss carryforward as of June 30, 2020.
On December 22, 2017, the “Tax Cuts
and Jobs Act” (“The 2017 Tax Act”) was enacted in the United States. Under the provisions of the Act, the U.S.
corporate tax rate decreased from 34% to 21%. Accordingly, the Company has re-measured its deferred tax assets on net operating
loss carry forwards in the U.S at the lower enacted cooperated tax rate of 21%. However, this re-measurement has no effect on the
Company’s income tax expenses as the Company has provided a 100% valuation allowance on its deferred tax assets previously.
Additionally, the 2017 Tax Act implemented
a modified territorial tax system and imposing a tax on previously untaxed accumulated earnings and profits (“E&P”)
of foreign subsidiaries (the “Toll Charge”). The Toll Charge is based in part on the amount of E&P held in cash
and other specific assets as of December 31, 2017. The Toll Charge can be paid over an eight-year period, starting in 2018, and
will not accrue interest. The 2017 Tax Act also imposed a global intangible low-taxed income tax (“GILTI”), which is
a new tax on certain off-shore earnings at an effective rate of 10.5% for tax years beginning after December 31, 2017 (increasing
to 13.125% for tax years beginning after December 31, 2025) with a partial offset for foreign tax credits.
The Company has determined that this one-time
Toll Charge has no effect on the Company’s income tax expenses as the Company has no undistributed foreign earnings at either
of the two testing dates of November 2, 2017 and December 31, 2017.
For purposes of the inclusion of GILTI,
the Company determined that the Company did not have tax liabilities resulting from GILTI for the years ended June 30, 2020 and
2019 due to net operating loss carryforwards available in the U.S. Therefore, there was no accrual of GILTI liability as of June
30, 2020 and 2019.
The extent of the Company’s operations
involves dealing with uncertainties and judgments in the application of complex tax regulations in a multitude of jurisdictions.
The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and
resolution of disputes arising from federal, state and international tax audits. The Company recognizes potential liabilities and
records tax liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on its estimate
of whether, and the extent to which, additional taxes will be due.
NOTE 13 - CONVERTIBLE DEBT
Convertible notes
As of June 30, 2020, convertible notes
payable consists of:
|
|
|
Note Balance
|
|
|
Debt discount
|
|
|
Carrying Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Power Up Lending Group Ltd
|
(1)
|
|
$
|
39,000
|
|
|
$
|
(1,953
|
)
|
|
$
|
37,047
|
|
Firstfire Global Opportunities Fund LLC
|
(2)
|
|
|
165,000
|
|
|
|
(32,909
|
)
|
|
|
132,091
|
|
Power Up Lending Group Ltd
|
(3)
|
|
|
53,000
|
|
|
|
(13,995
|
)
|
|
|
39,005
|
|
Crown Bridge Partners
|
(4)
|
|
|
51,384
|
|
|
|
(15,095
|
)
|
|
|
36,289
|
|
Morningview Financial LLC
|
(5)
|
|
|
165,000
|
|
|
|
(64,416
|
)
|
|
|
100,584
|
|
BHP Capital NY
|
(6)
|
|
|
91,789
|
|
|
|
-
|
|
|
|
91,789
|
|
Labrys Fund, LP
|
(7)
|
|
|
146,850
|
|
|
|
(69,265
|
)
|
|
|
77,585
|
|
Total
|
|
|
$
|
712,023
|
|
|
$
|
(197,633
|
)
|
|
$
|
514,390
|
|
|
(1)
|
On July 25, 2019, the Company entered into a Securities Purchase Agreement with Power Up Lending
Group Ltd to issue and sell, upon the terms and conditions set forth in the agreement a convertible note of the Company, in the
aggregate principal amount of $103,000 and received $94,840 in cash on August 1, 2019 after deducting legal fees and other costs.
The convertible note bears interest rate at 6% per annum and due on July 25, 2020. The convertible note can be converted into shares
of the Company’s common stock at 65% of the average of the two lowest trading prices during the fifteen trading day prior
to the conversion date.
|
During the year ended June 30,
2020, Power Up Lending Group Ltd elected to convert $64,000 of the principal amount of the convertible notes into 76,265 shares
of the Company’s common stock. The conversion resulted in a loss on extinguishment of debt of $25,782. (See Note 9)
|
(2)
|
On September 11, 2019, the Company entered into a Securities Purchase Agreement with Firstfire
Global Opportunities Fund LLC to issue and sell, upon the terms and conditions set forth in the agreement a convertible note of
the Company, in the aggregate principal amount of $165,000 and received $143,500 in cash on September 18, 2019 after deducting
an original issue discount in the amount of $15,000 (the “OID”), legal fees and other costs. The convertible note bears
interest rate at 5% per annum and payable in one year. Conversion price shall be equal to the lower of (i) $2.00 or (ii) 75% multiplied
by the lowest traded price of the common stock during the twenty consecutive trading day period immediately preceding the date
of the respective conversion.
|
|
(3)
|
On November 4, 2019, the Company entered into a Securities Purchase Agreement with Power Up Lending
Group Ltd to issue and sell, upon the terms and conditions set forth in the agreement a convertible note of the Company, in the
aggregate principal amount of $53,000 and received $47,350 in cash on November 12, 2019 after deducting legal fees and other costs.
The convertible note bears interest rate at 6% per annum and due on November 4, 2020. The convertible note can be converted into
shares of the Company’s common stock at 65% of the average of the two lowest trading prices during the fifteen trading day
prior to the conversion date.
|
|
(4)
|
On November 12, 2019, the Company entered into a Securities Purchase Agreement with Crown Bridge
Partners, LLC to issue and sell, upon the terms and conditions set forth in the agreement a convertible note of the Company, in
the aggregate principal amount sum up to $165,000 with a purchase price sum up to $156,750. During November 2019, First Tranche
of the agreement was executed in the principal amount of $55,000 and the Company received $50,750 in cash on November 15, 2019
after deducting an OID in the amount of $2,750, legal fees and other costs. The convertible note bears interest rate at 5% per
annum and due on November 12, 2020. The convertible note can be converted into shares of the Company’s common stock at 75%
multiplied by the lowest traded price of the common stock during the twenty consecutive trading day period immediately preceding
the date of the respective conversion.
|
During the year ended June 30,
2020, Crown Bridge Partners, LLC elected to convert $3,615.6 of the principal amount of the convertible notes into 20,000 shares
of the Company’s common stock. The conversion resulted in a loss on extinguishment of debt of $15,473. (See Note 9)
|
(5)
|
On November 20, 2019, the Company entered into a Securities Purchase Agreement with Morningview
Financial, LLC to issue and sell, upon the terms and conditions set forth in the agreement a convertible note of the Company, in
the aggregate principal amount of $165,000 and received $153,250 in cash on November 22, 2019 after deducting an OID in the amount
of $8,250, legal fees and other costs. The convertible note bears interest rate at 5% per annum and due on November 20, 2020. Conversion
price shall be equal to the lower of (i) $2.00 or (ii) 75% multiplied by the lowest traded price of the common stock during the
twenty consecutive trading day period immediately preceding the date of the respective conversion.
|
|
(6)
|
On December 3, 2019, the Company entered into a Securities Purchase Agreement with BHP Capital
NY, Inc to issue and sell, upon the terms and conditions set forth in the agreement a convertible note of the Company, in the aggregate
principal amount of $102,900 and received $95,500 in cash on December 13, 2019 after deducting and OID in the amount of $4,900,
legal fees and other costs. The convertible note bears interest rate at 5% per annum and due on December 3, 2020. The convertible
note can be converted into shares of the Company’s common stock at 75% of the average of the two lowest trading prices during
the fifteen trading day prior to the conversion date.
|
On April 14, 2020, the Company
entered into an Amendment to Securities Purchase Agreement with BHP Capital NY, Inc dated on December 3, 2019. The Company agreed
to pay off this note holder in 6 installments of $23,186.79 each, with an aggregate amount of $139,120.76 (including principal
of $137,114.25 and interest of $2,006.51). The repayment resulted in a loss on extinguishment of debt of $4,703.
In May and June 2020, the Company
paid two installments totaling $46,373 (including principal of $45,325 and interest of $1,048) and note payable balance decreased
to $91,789 as of June 30, 2020. During the period from July to September 2020, the Company continued to pay 3 installments of an
aggregate amount of $69,561 (including principal of $68,699 and interest of $862). As of the date of this report, the Company has
made total five installments payment of an aggregate amount of $115,934 (including principal of $114,024 and interest of $1,910).
The Company will pay the last installment of $23,186.79 in October 2020.
|
(7)
|
On January 10, 2020, the Company entered into a convertible promissory note with Labrys Fund, LP
to issue and sell, upon the terms and conditions set forth in the agreement a convertible note of the Company, in the aggregate
principal amount of $146,850 and received $137,000 in cash on January 13, 2020 after deducting an OID in the amount of $7,350,
legal fees and other costs. The note is due on January 10, 2021 and bears interest at 5% per annum. The conversion price shall
be equal to 75% multiplied by the lesser of the lowest closing bid price or lowest traded price of the Common Stock during the
twenty (20) consecutive trading day period immediately preceding the date of the respective conversion.
|
For the year ended June 30, 2020, the Company
recorded the amortization of debt discount of $500,675 for the convertible notes issued, which were included in other income and
expenses in the consolidated statement of comprehensive income (loss).
Derivative liability
Upon issuing of the convertible notes,
the Company determined that the conversion feature embedded in the notes referred to above that contain a potential variable conversion
amount constitutes a derivative which has been bifurcated from the note and accounted for as a derivative liability, with a corresponding
discount recorded to the associated debt. The excess of the derivative value over the face amount of the note, if any, is recorded
immediately to interest expense at inception.
The derivative liability in connection
with the conversion feature of the convertible debt is the only financial liability measured at fair value on a recurring basis.
The change of derivative liabilities is
as follows:
Issued during the year ended June 30, 2020
|
|
$
|
555,696
|
|
Converted
|
|
|
(42,308
|
)
|
Debt settlement
|
|
|
(85,223
|
)
|
Change in fair value recognized in operations
|
|
|
(151,899
|
)
|
Balance at June 30, 2020
|
|
$
|
276,266
|
|
The estimated fair value of the derivative
instruments was valued using the Black-Scholes option pricing model at issuance date and June 30, 2020, using the following assumptions:
Estimated dividends
|
|
|
None
|
|
Expected volatility
|
|
|
55.87% to 78.46%
|
|
Risk free interest rate
|
|
|
0.66% to 2.08%
|
|
Expected term
|
|
|
0 to 12 months
|
|
Warrants
In connection with the issuance of the
$165,000 convertible promissory note on September 11, 2019, FirstFire Global Opportunities Fund, LLC is entitled, upon the terms
and subject to the limitations on exercise and the conditions set forth in the agreement, at any time on or after the date of issuance
hereof to purchase from the Company up to 68,750 shares of common stock. Exercise price shall be $2.40, and the warrants can be
exercised within 5 years which is before September 11, 2024.
In connection with the issuance of the
$55,000 convertible promissory note on November 12, 2019, Crown Bridge Partners, LLC is entitled, upon the terms and subject to
the limitations on exercise and the conditions set forth in the agreement, at any time on or after the date of issuance hereof
to purchase from the Company up to 22,916 shares of common stock. Exercise price shall be $2.80, and the warrants can be exercised
within 5 years which is before November 12, 2024.
In connection with the issuance of the
$165,000 convertible promissory note on November 20, 2019, Morningview Financial LLC is entitled, upon the terms and subject to
the limitations on exercise and the conditions set forth in the agreement, at any time on or after the date of issuance hereof
to purchase from the Company up to 68,750 shares of common stock. Exercise price shall be $2.80, and the warrants can be exercised
within 5 years which is before November 20, 2024.
In connection with the issuance of the
$146,850 convertible promissory note on January 10, 2020, Labrys Fund, LP is entitled, upon the terms and subject to the limitations
on exercise and the conditions set forth in the agreement, at any time on or after the date of issuance hereof to purchase from
the Company up to 68,750 shares of common stock. Exercise price shall be $2.80, and the warrants can be exercised within 5 years
which is before January 10, 2025.
The estimated fair value of the warrants
was valued using the Black-Scholes option pricing model at grant date, using the following assumptions:
Estimated dividends
|
|
|
None
|
|
Expected volatility
|
|
|
56.23% to 71.08%
|
|
Risk free interest rate
|
|
|
1.73% to 1.92%
|
|
Expected term
|
|
|
5 years
|
|
Since the warrants can be exercised at
$2.4 or $2.8 and are not liabilities, the face value of convertible notes was allocated between convertible note and warrant based
on the fair values of the conversion feature and warrants. Accordingly, $147,492 was allocated to warrants and recorded in additional
paid in capital account during the year ended June 30, 2020.
The details of the outstanding warrants
are as follows:
|
|
Number of
shares
|
|
|
Weighted Average
Exercise Price
|
|
|
Remaining
Contractual Term
(years)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 1, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Granted
|
|
|
229,166
|
|
|
|
2.68
|
|
|
|
5
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at June 30, 2020
|
|
|
229,166
|
|
|
$
|
2.68
|
|
|
|
4.2 to 4.53
|
|
NOTE 14 – SEGMENT INFORMATION
The Company’s business is classified
by management into three reportable business segments (smart energy, photoelectric display and service contracts) supported by
a corporate group which conducts activities that are non-segment specific. The smart energy reportable segment derives revenue
from the sales of portable power banks that is intended to be utilized as a power source for electronic devices such as the iphone,
ipad, mp3/mp4 players, PSP gaming systems, and cameras. The photoelectric display reportable segment derives revenue from the sales
of LCM and LCD screens manufactured for small devices such as video capable baby monitors, electronic devices such as tablets and
cell phones, and for use in televisions or computer monitors. The service contracts reportable segment derives revenue from providing
IT and solution-oriented services. Unallocated items comprise mainly corporate expenses and corporate assets.
Although all of the Company’s revenue
is generated from Mainland China, the Company is organizationally structured along business segments. The accounting policies of
each operating segments are same and are described in Note 2, “Summary of Significant Accounting Policies”.
The following tables provide the business
segment information for the years ended June 30, 2020 and 2019.
|
|
For the Year Ended June 30, 2020
|
|
|
|
Smart
energy
|
|
|
Photoelectric
display
|
|
|
Service
contracts
|
|
|
Unallocated
items
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,709,799
|
|
|
$
|
18,183,974
|
|
|
$
|
705,455
|
|
|
$
|
-
|
|
|
$
|
20,599,228
|
|
Cost of Revenues
|
|
|
1,630,684
|
|
|
|
15,431,065
|
|
|
|
444,684
|
|
|
|
-
|
|
|
|
17,506,433
|
|
Gross profit
|
|
|
79,115
|
|
|
|
2,752,909
|
|
|
|
260,771
|
|
|
|
-
|
|
|
|
3,092,795
|
|
Operating expenses
|
|
|
12,708
|
|
|
|
1,743,219
|
|
|
|
33,191
|
|
|
|
953,506
|
|
|
|
2,742,624
|
|
Income (loss) from operations
|
|
|
66,407
|
|
|
|
1,009,690
|
|
|
|
227,580
|
|
|
|
(953,506
|
)
|
|
|
350,171
|
|
Net income (loss)
|
|
$
|
58,151
|
|
|
$
|
834,284
|
|
|
$
|
204,848
|
|
|
$
|
(1,374,951
|
)
|
|
$
|
277,668
|
|
|
|
For the Year Ended June 30, 2019
|
|
|
|
Smart
energy
|
|
|
Photoelectric
display
|
|
|
Service
contracts
|
|
|
Unallocated
items
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,238,503
|
|
|
$
|
9,515,457
|
|
|
$
|
594,532
|
|
|
$
|
-
|
|
|
$
|
12,348,492
|
|
Cost of Revenues
|
|
|
2,016,279
|
|
|
|
7,798,474
|
|
|
|
338,464
|
|
|
|
-
|
|
|
|
10,153,217
|
|
Gross profit
|
|
|
222,224
|
|
|
|
1,716,983
|
|
|
|
256,068
|
|
|
|
-
|
|
|
|
2,195,275
|
|
Operating expenses
|
|
|
13,482
|
|
|
|
1,049,744
|
|
|
|
46,270
|
|
|
|
469,336
|
|
|
|
1,578,832
|
|
Income (loss) from operations
|
|
|
208,742
|
|
|
|
667,239
|
|
|
|
209,798
|
|
|
|
(469,336
|
)
|
|
|
616,443
|
|
Net income (loss)
|
|
$
|
159,520
|
|
|
$
|
510,643
|
|
|
$
|
196,241
|
|
|
$
|
(469,357
|
)
|
|
$
|
397,047
|
|
NOTE 15 - COMMITMENTS AND CONTINGENCIES
Lease commitment
Lisite Science leases office and warehouse
space from Keenest, a related party, with annual rent of approximately $1,500 (RMB10,000) until July 20, 2021. Baileqi Electronic
leases office and warehouse space from Shenzhen Baileqi S&T, a related party, with monthly rent of approximately $2,500 (RMB17,525)
until May 31, 2021.
The future minimum lease payments for non-cancelable
operating leases held by the Company as of June 30, 2020 was $28,643, which will be paid in fiscal year ended June 30, 2021.
NOTE 16- - SUBSEQUENT EVENTS
Stock Issued for Conversion of Convertible Debt
|
(1)
|
On July 9, 2020, the Company issued a total of 42,079 shares of common stock to Power Up Lending
Group Ltd for the conversion of debt in the principal amount of $20,000 according to the conditions of the convertible note dated
as July 25, 2019.
|
On August 19, 2020, the Company
issued a total of 222,891 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount
of $19,000 together with $4,916.22 of accrued and unpaid interest, totaling $23,916.22 according to the conditions of the convertible
note dated as July 25, 2019.
The remaining principal
balance due under this convertible note after these two conversions is zero.
|
(2)
|
On July 13, 2020, the Company issued a total of 68,500 shares of common stock to Labrys Fund, LP
for the conversion of debt in the principal amount of $37,503.75 according to the conditions of the convertible note dated as January
10, 2020.
|
On August 20, 2020, the Company
issued a total of 600,000 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $54,180
according to the conditions of the convertible note dated as January 10, 2020.
The remaining principal
balance due under this convertible note after these two conversions is $55,166.
|
(3)
|
On September 1, 2020, the Company issued a total of 75,000 shares of common stock to Firstfire
Global Opportunities Fund LLC for the conversion of debt in the principal amount of $10,200 according to the conditions of the
convertible note dated as September 11, 2019.
|
On September 14, 2020, the Company
issued a total of 350,000 shares of common stock to Firstfire Global Opportunities Fund LLC for the conversion of debt in the principal
amount of $13,550 according to the conditions of the convertible note dated as September 11, 2019.
The remaining principal balance
due under this convertible note after these two conversions is $141,250.
|
(4)
|
On September 24, 2020, the Company issued a total of 568,182 shares of common stock to Morningview
Financial, LLC for the conversion of debt in the principal amount of $15,000 according to the conditions of the convertible note
dated as November 20, 2019. The remaining principal balance due under this convertible note after this conversion is $150,000.
|
Note Settlement Agreement
On September 16, 2020, the Company entered
into a Note Settlement Agreement with Power Up Lending Group Ltd., the holder of the Company’s convertible debt. The Note
Settlement Agreement terminated their convertible note dated November 4, 2019 after the Company paid an aggregate of $75,000 on
September 16, 2020.
In addition, to comply with the Amendment
agreement signed with BHP Capital NY, Inc on April 14, 2020 regarding its note payable, the Company paid an aggregate of $69,561
(including principal of $68,699 and interest of $862) during July to September 2020. The Company will make the last payment of
$23,186.79 in October 2020 to fulfill its obligation in full (See Note 13).