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
September 30, 2020
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS
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 4).
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 - GOING CONCERN
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. The Company had an accumulated deficit
of $270,108 as of September 30, 2020. The Company incurred loss from operation and did not generate sufficient cash flow from its
operating activities for the three months ended September 30, 2020. These factors, among others, raise substantial doubt about
the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
The Company plans to rely on the proceeds
from loans from both unrelated and related parties to provide the resources necessary to fund the development of the business plan
and operations. The Company is also pursuing other revenue streams which could include strategic acquisitions or possible
joint ventures of other business segments. However, no assurance can be given that the Company will be successful in raising
additional capital.
NOTE 3 – BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The unaudited consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information
and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited consolidated
financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments,
which include only normal recurring adjustments, necessary to present fairly the financial position as of September 30, 2020 and
the results of operations and cash flows for the periods ended September 30, 2020 and 2019. The financial data and other information
disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three
months ended September 30, 2020 are not necessarily indicative of the results to be expected for the entire year ending June 30,
2021 or for any subsequent periods. The balance sheet at June 30, 2020 has been derived from the audited consolidated financial
statements at that date.
Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. These unaudited consolidated
financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the
year ended June 30, 2020 as included in our Annual Report on Form 10-K as filed with the SEC on September 28, 2020.
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 September 30, 2020 and June 30, 2020, the Company has accounts receivable balance from non-related party of $3,043,822
and $3,273,141, net of allowance for doubtful accounts of $145,132 and $139,609, respectively. No bad debt expense was recorded
during the three months ended September 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:
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·
|
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
|
|
·
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recognize revenue as the performance obligation is satisfied.
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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. The control of the products is transferred to the customer upon receipt of goods by the customer. 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 three months ended September 30, 2020 and 2019, respectively:
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|
For the Three Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Sales of LCM and LCD screens - Non-related parties
|
|
$
|
2,957,025
|
|
|
$
|
6,165,966
|
|
Sales of LCM and LCD screens - Related parties
|
|
|
-
|
|
|
|
313,957
|
|
Sales of portable power banks
|
|
|
-
|
|
|
|
627,703
|
|
Service contracts
|
|
|
1,440
|
|
|
|
392,704
|
|
Total
|
|
$
|
2,958,465
|
|
|
$
|
7,500,330
|
|
All the operating entities of the Company
are domiciled in the PRC. All the Company’s revenues are derived in the PRC during the three months ended September 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 September 30, 2020 and June 30, 2020,
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 September
30, 2020 (See Note 6).
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.
During the three months ended September
30, 2020 and 2019, the Company had outstanding convertible notes and warrants which represent 1,096,705 and 287,316 shares of commons
stock respectively. These shares of common stock 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:
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September 30, 2020
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
Balance sheet items, except for equity accounts
|
|
|
6.8101
|
|
|
|
7.0795
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Items in statements of comprehensive income (loss) and cash flows
|
|
|
6.9448
|
|
|
|
7.0115
|
|
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 14).
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.
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 guidance is effective for public entities for fiscal years beginning
after December 15, 2020 and interim periods within those fiscal years and all other entities for fiscal years beginning after December
15, 2021 and interim periods within those fiscal years, with early adoption permitted. 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 three months ended September 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:
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·
|
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.
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|
·
|
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.
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|
·
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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.
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NOTE 4 - VARIABLE INTEREST ENTITY
The VIE contractual arrangements
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).
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.
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.
Assets of Fangguan Electronics that are
collateralized or pledged are not restricted to settle its own obligations. The creditors of Fangguan Electronics do not have recourse
to the primary beneficiary’s general credit.
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. There has been no change in facts and circumstances to consolidate the 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
September 30,
2020
|
|
|
Balance as of
June 30, 2020
|
|
Cash and cash equivalents
|
|
$
|
1,163,414
|
|
|
$
|
1,266,426
|
|
Notes receivable
|
|
|
66,828
|
|
|
|
125,798
|
|
Accounts receivable - non-related parties
|
|
|
2,870,857
|
|
|
|
3,069,629
|
|
Inventory
|
|
|
2,716,677
|
|
|
|
2,639,839
|
|
Advances to suppliers - non-related parties
|
|
|
453,030
|
|
|
|
530,670
|
|
Prepaid expenses and other current assets
|
|
|
61,753
|
|
|
|
58,103
|
|
Total Current Assets
|
|
|
7,332,559
|
|
|
|
7,690,465
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
6,812,464
|
|
|
|
6,568,874
|
|
Intangible assets, net
|
|
|
1,473,292
|
|
|
|
1,424,404
|
|
Deferred tax assets
|
|
|
47,035
|
|
|
|
20,743
|
|
Total Assets
|
|
$
|
15,665,350
|
|
|
$
|
15,704,486
|
|
|
|
|
|
|
|
|
|
|
Short-term bank loan
|
|
$
|
1,908,929
|
|
|
$
|
2,034,735
|
|
Accounts payable
|
|
|
1,953,909
|
|
|
|
2,637,792
|
|
Advance from customers
|
|
|
36,849
|
|
|
|
27,501
|
|
Due to related parties
|
|
|
1,903,332
|
|
|
|
1,407,145
|
|
Accrued expenses and other current liabilities
|
|
|
43,616
|
|
|
|
61,856
|
|
Total Current Liabilities
|
|
|
5,846,635
|
|
|
|
6,169,029
|
|
Total Liabilities
|
|
$
|
5,846,635
|
|
|
$
|
6,169,029
|
|
NOTE 5 - INVENTORIES
Inventories are stated at the lower of
cost (determined using the weighted average cost) or net realizable value. Inventories consist of the following:
|
|
September 30, 2020
|
|
|
June 30, 2020
|
|
Raw materials
|
|
$
|
543,654
|
|
|
$
|
666,981
|
|
Work-in-process
|
|
|
773,188
|
|
|
|
500,331
|
|
Finished goods
|
|
|
1,936,771
|
|
|
|
2,096,538
|
|
Total Inventories
|
|
$
|
3,253,613
|
|
|
$
|
3,263,850
|
|
The Company recorded no inventory markdown
for the three months ended September 30, 2020 and 2019.
NOTE 6 - OPERATING LEASE
For the three months ended September 30,
2020, the Company had two real estate operating leases for office, warehouses and manufacturing facilities under the terms of one
year.
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 11).
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 11).
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.
NOTE 7 – PROPERTY, PLANT AND EQUIPMENT,
NET
The components of property, plant and equipment
were as follows:
|
|
September 30, 2020
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
Buildings
|
|
$
|
4,783,723
|
|
|
$
|
4,601,685
|
|
Machinery and equipment
|
|
|
3,086,127
|
|
|
|
2,822,686
|
|
Office equipment
|
|
|
69,745
|
|
|
|
67,091
|
|
Automobiles
|
|
|
102,758
|
|
|
|
98,848
|
|
Subtotal
|
|
|
8,042,353
|
|
|
|
7,590,310
|
|
Less: Accumulated depreciation
|
|
|
(1,225,057
|
)
|
|
|
(1,016,373
|
)
|
Property, plant and equipment, net
|
|
$
|
6,817,296
|
|
|
$
|
6,573,937
|
|
Depreciation expense related to property,
plant and equipment was $165,210 and $201,068 for the three months ended September 30, 2020 and 2019, respectively.
As of September 30, 2020 and June 30, 2020,
buildings were pledged as collateral for bank loans (See Note 9).
NOTE 8 – INTANGIBLE ASSETS, NET
Intangible assets consist of the following:
|
|
September 30, 2020
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
Land use right
|
|
$
|
1,499,518
|
|
|
$
|
1,442,456
|
|
Computer software
|
|
|
26,030
|
|
|
|
25,039
|
|
Subtotal
|
|
|
1,525,548
|
|
|
|
1,467,495
|
|
Less: Accumulated amortization
|
|
|
(52,256
|
)
|
|
|
(43,091
|
)
|
Intangible assets, net
|
|
$
|
1,473,292
|
|
|
$
|
1,424,404
|
|
Amortization expense related to intangible
assets was $7,316 and $7,246 for the three months ended September 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 September 30, 2020 and June 30, 2020,
land use right was pledged as collateral for bank loans (See Note 9).
NOTE 9 – SHORT-TERM BANK LOAN
The Company’s short-term bank loans
consist of the following:
|
|
|
September 30, 2020
|
|
|
June 30, 2020
|
|
Loan payable to Industrial Bank, due November 2020
|
(1)
|
|
$
|
734,204
|
|
|
$
|
1,836,288
|
|
Loan payable to Industrial Bank, due May 2021
|
(2)
|
|
|
160,459
|
|
|
|
154,353
|
|
Loan payable to Industrial Bank, due June 2021
|
(2)
|
|
|
45,838
|
|
|
|
44,094
|
|
Loan payable to Industrial Bank, due August 2021
|
(3)
|
|
|
527,906
|
|
|
|
-
|
|
Loan payable to Industrial Bank, due March 2021
|
(3)
|
|
|
440,522
|
|
|
|
-
|
|
Total
|
|
|
$
|
1,908,929
|
|
|
$
|
2,034,735
|
|
|
(1)
|
On November 19, 2019, Fangguan Electronics entered into a short-term
loan agreement with Industrial Bank to borrow approximately US$2.6 million (RMB 18 million) for a year until November 18, 2020
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. On May 20, 2020, Fangguan Electronics partially repaid this bank loan of approximately US$706,000 (RMB5,000,000).
On August 28, 2020 and September 21, 2020, Fangguan Electronics further partially repaid this bank loan of approximately US$441,000
(RMB3,000,000) and US$734,000 (RMB5,000,000) respectively.
|
|
(2)
|
During May and Jun 2020, Fangguan Electronics issued two one-year
commercial acceptance bills with amounts of approximately US$160,000 (RMB1,092,743) and US$46,000 (RMB312,161) and maturity dates
at May 21, 2021 and June 11, 2021 respectively. 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.
|
|
(3)
|
During August 2020, Fangguan Electronics issued a one-year commercial acceptance bill with amount
of approximately US$528,000 (RMB3,595,096) and maturity date at August 6, 2021. During September 2020, Fangguan Electronics issued
a six-month commercial acceptance bill with amount of approximately US$441,000 (RMB3,000,000) and maturity date at March 9, 2021.
On August 11, 2020 and September 10, 2020, the two commercial acceptance bills were discounted with Industrial Bank at an interest
rate of 3.80% 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 10 - STOCKHOLDERS' EQUITY
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 of accrued and unpaid interest, totaling $23,916 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 $37,504 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.
On September 24, 2020, the Company
issued a total of 400,000 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $6,065
together with $4,495 of accrued and unpaid interest, totaling $10,560 according to the conditions of the convertible note dated
as January 10, 2020.
The remaining principal balance
due under this convertible note after these three conversions is $49,101.
|
(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.
|
All above conversions resulted in a total loss on extinguishment
of debt of $149,231 for the three months ended September 30, 2020.
NOTE 11 - RELATED PARTY TRANSACTIONS AND BALANCES
Purchase from related party
During the three months ended September
30, 2019, the Company purchased $583,764 and $37,495 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 September 30,
2019. The amount of $583,764 and $37,495 were included in the cost of revenue.
Advances to suppliers - related parties
Lisite Science made advances of $412,619
and $357,577 to Keenest for future purchases as of September 30, 2020 and June 30, 2020, respectively.
Sales to related party
During the three months ended September
30, 2020 and 2019, Baileqi Electronic sold materials of $0 and $313,957 respectively to Shenzhen Baileqi S&T.
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 6).
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 6).
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.
|
|
|
|
September 30, 2020
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
Ben Wong
|
(1
|
)
|
|
$
|
143,792
|
|
|
$
|
143,792
|
|
Yubao Liu
|
(2
|
)
|
|
|
263,551
|
|
|
|
102,938
|
|
Xin Sui
|
(3
|
)
|
|
|
2,016
|
|
|
|
2,016
|
|
Baozhen Deng
|
(4
|
)
|
|
|
(469)
|
|
|
|
9,437
|
|
Jialin Liang
|
(5
|
)(10)
|
|
|
1,377,643
|
|
|
|
901,460
|
|
Xuemei Jiang
|
(6
|
)(9)
|
|
|
525,690
|
|
|
|
505,685
|
|
Shikui Zhang
|
(7
|
)
|
|
|
36,107
|
|
|
|
28,528
|
|
Changyong Yang
|
(8
|
)
|
|
|
25,150
|
|
|
|
23,063
|
|
|
|
|
|
$
|
2,373,480
|
|
|
$
|
1,716,919
|
|
(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) Jialin Liang is a stockholder of the
Company and the president, CEO, and director of Fangguan Electronics.
(6) Xuemei Jiang is a stockholder of the
Company and the vice president and director of Fangguan Electronics.
(7) Shikui Zhang is a stockholder of the
Company and serves as the legal representative and general manager of Shizhe New Energy since May 2019.
(8) 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.
(9) The liability was assumed from the
acquisition of Fangguan Electronics.
(10) 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 three months ended September
30, 2020, Yubao Liu advanced $395,558 to Well Best after netting off the refund paid to him. In addition, Yubao Liu agreed to decrease
his advances to Well Best of $234,945 (RMB1,600,000) to pay off the loan receivables due from Shenzhen Baileqi S&T to Baileqi
Electronic on behalf of Shenzhen Baileqi S&T.
During the three months ended September
30, 2020, Baileqi Electronic refunded $9,906 to Baozhen Deng. Shikui Zhang advanced approximately $6,300 to Shizhe New Energy.
Changyong Yang, a stockholder of the Company, advanced approximately $1,200 to Lisite Science.
On September 23, 2020, Jialin Liang entered
into a short-term loan agreement with Bank of Communications to borrow an individual loan of approximately US$441,000 (RMB 3 million)
for one year with annual interest rate of 3.85%. The borrowing was guaranteed by Fangguan Electronics. Pursuant to the loan agreement,
the proceed from the bank loan could only be used in the operation of Fangguan Electronics. On September 23, 2020, Jialin Liang
advanced all of the proceeds from this bank loan to Fangguan Electronics.
During the three months ended September
30, 2019, Yubao Liu was refunded of $15,978 by Well Best and Welly Surplus. Baileqi Electronic refunded $5,303 to Baozhu Deng,
a relative of the stockholder Baozhen Deng. Shizhe New Energy refunded $625 and $1,869 to Liang Zhang and Zijian Yang respectively,
who were the officers of Shizhe New Energy at the time. Shikui Zhang advanced $10,045 to Shizhe New Energy.
NOTE 12 – 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 Three Months Ended
September 30, 2020
|
|
|
As of September 30, 2020
|
|
|
|
|
Revenue
|
|
|
|
Percentage of
revenue
|
|
|
|
Accounts
receivable
|
|
|
|
Percentage of
accounts
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
$
|
633,987
|
|
|
|
21
|
%
|
|
$
|
229,358
|
|
|
|
8
|
%
|
Customer B
|
|
|
320,329
|
|
|
|
11
|
%
|
|
|
581,857
|
|
|
|
19
|
%
|
Total
|
|
$
|
954,316
|
|
|
|
32
|
%
|
|
$
|
811,215
|
|
|
|
27
|
%
|
|
|
For the Three Months Ended
September 30, 2019
|
|
|
As of September 30, 2019
|
|
|
|
|
Revenue
|
|
|
|
Percentage of
revenue
|
|
|
|
Accounts
receivable
|
|
|
|
Percentage of
accounts
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
$
|
1,072,827
|
|
|
|
14
|
%
|
|
$
|
-
|
|
|
|
-
|
%
|
Customer B
|
|
|
860,874
|
|
|
|
11
|
%
|
|
|
866,724
|
|
|
|
19
|
%
|
Customer C
|
|
|
993,547
|
|
|
|
13
|
%
|
|
|
1,043,352
|
|
|
|
23
|
%
|
Total
|
|
$
|
2,927,248
|
|
|
|
38
|
%
|
|
$
|
1,910,076
|
|
|
|
42
|
%
|
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 Three Months Ended
September 30, 2020
|
|
|
As of September 30, 2020
|
|
|
|
Total Purchase
|
|
|
Percentage of
total purchase
|
|
|
Accounts
payable
|
|
|
Percentage of
total accounts
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplier A
|
|
$
|
295,598
|
|
|
|
12
|
%
|
|
$
|
-
|
|
|
|
-
|
%
|
Supplier B
|
|
|
289,746
|
|
|
|
12
|
%
|
|
|
161,945
|
|
|
|
8
|
%
|
Supplier C
|
|
|
287,297
|
|
|
|
12
|
%
|
|
|
145,338
|
|
|
|
7
|
%
|
Total
|
|
$
|
872,641
|
|
|
|
36
|
%
|
|
$
|
307,283
|
|
|
|
15
|
%
|
|
|
For the Three Months Ended
September 30, 2019
|
|
|
As of September 30, 2019
|
|
|
|
Total Purchase
|
|
|
Percentage of
total purchase
|
|
|
Accounts
payable
|
|
|
Percentage of
total accounts
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplier A - related party
|
|
$
|
583,764
|
|
|
|
19
|
%
|
|
$
|
-
|
|
|
|
-
|
%
|
Supplier B
|
|
|
497,229
|
|
|
|
16
|
%
|
|
|
117,461
|
|
|
|
4
|
%
|
Total
|
|
$
|
1,080,993
|
|
|
|
35
|
%
|
|
$
|
117,461
|
|
|
|
4
|
%
|
All suppliers of the Company are located
in the PRC.
NOTE 13 - 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 three months ended September 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 September 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 three months ended September
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 Three Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Tax at U.S. statutory rate
|
|
$
|
(115,199)
|
|
|
$
|
173,205
|
|
Tax rate difference between foreign operations and U.S.
|
|
|
12,766
|
|
|
|
(77,502)
|
|
Change in valuation allowance
|
|
|
41,924
|
|
|
|
17,133
|
|
Permanent difference
|
|
|
44,250
|
|
|
|
676
|
|
Effective tax
|
|
$
|
(16,259)
|
|
|
$
|
113,512
|
|
The provisions for income taxes are summarized
as follows:
|
|
For the Three Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Current
|
|
$
|
8,718
|
|
|
$
|
75,959
|
|
Deferred
|
|
|
(24,977)
|
|
|
|
37,553
|
|
Total
|
|
$
|
(16,259)
|
|
|
$
|
113,512
|
|
As of September 30, 2020, the Company has
approximately $2,715,000 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 September 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 three months ended September
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 September 30, 2020 and June 30, 2020.
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 14 - CONVERTIBLE DEBT
Convertible notes
As of September 30, 2020, convertible notes
payable consists of:
|
|
|
|
|
Note Balance
|
|
|
Debt discount
|
|
|
Carrying Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power Up Lending Group Ltd
|
|
|
(1
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Firstfire Global Opportunities Fund LLC
|
|
|
(2
|
)
|
|
|
141,250
|
|
|
|
-
|
|
|
|
141,250
|
|
Power Up Lending Group Ltd
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Crown Bridge Partners
|
|
|
(4
|
)
|
|
|
51,384
|
|
|
|
(4,808
|
)
|
|
|
46,576
|
|
Morningview Financial LLC
|
|
|
(5
|
)
|
|
|
150,000
|
|
|
|
(20,860
|
)
|
|
|
129,140
|
|
BHP Capital NY
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Labrys Fund, LP
|
|
|
(7
|
)
|
|
|
49,101
|
|
|
|
(12,177
|
)
|
|
|
36,924
|
|
Total
|
|
|
|
|
|
$
|
391,735
|
|
|
$
|
(37,845
|
)
|
|
$
|
353,890
|
|
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 three months ended
September 30, 2020, Power Up Lending Group Ltd elected to convert $39,000 of the principal amount together with $4,916 of accrued
and unpaid interest of the convertible notes into 264,970 shares of the Company’s common stock. The conversion resulted in
a loss on extinguishment of debt of $32,778. (See Note 10)
The remaining principal balance
due under this convertible note after all conversions is zero as of September 30, 2020.
|
(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.
|
During the three months ended September 30, 2020, Firstfire Global Opportunities Fund LLC elected to convert $23,750 of the principal
amount of the convertible notes into 425,000 shares of the Company’s common stock. The conversion resulted in a loss on extinguishment
of debt of $14,420. (See Note 10)
The remaining principal balance
due under this convertible note after conversions is $141,250, which was at default as of September 30, 2020.
|
(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.
|
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. The debt settlement resulted in a gain on extinguishment of debt of $15,346.
|
(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.
|
|
(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.
|
During the three months ended
September 30, 2020, Morningview Financial, LLC elected to convert $15,000 of the principal amount of the convertible notes into
568,182 shares of the Company’s common stock. The conversion resulted in a loss on extinguishment of debt of $5,907. The
remaining principal balance due under this convertible note after this conversion is $150,000 as of September 30, 2020. (See Note
10)
|
(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 $139,121 (including principal of
$137,114 and interest of $2,007). The repayment resulted in a loss on extinguishment of debt of $4,703, which was included in other
income and expense in the consolidated statement of comprehensive income (loss) for the year ended June 30, 2020.
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 4 installments of an
aggregate amount of $92,748 (including principal of $91,789 and interest of $959).
As of the date of this report,
the Company has made total six installments payment of an aggregate amount of $139,121 (including principal of $137,114 and interest
of $2,007). The note payable balance decreased to zero as of September 30, 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.
|
During the three months ended
September 30, 2020, Labrys Fund, LP elected to convert $97,749 of the principal amount together with $4,495 of accrued and unpaid
interest of the convertible notes into 1,068,500 shares of the Company’s common stock. The conversion resulted in a loss
on extinguishment of debt of $111,472. The remaining principal balance due under this convertible note after conversions is $49,101
as of September 30, 2020. (See Note 10)
For the three months ended September 30,
2020 and 2019, the Company recorded the amortization of debt discount of $114,214 and 21,313 for the convertible notes issued,
which were included in other income and expense 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:
Balance at July 1, 2020
|
|
$
|
276,266
|
|
Converted
|
|
|
(81,315
|
)
|
Debt settlement
|
|
|
(39,973
|
)
|
Change in fair value recognized in operations
|
|
|
60,652
|
|
Balance at September 30, 2020
|
|
$
|
215,630
|
|
The estimated fair value of the derivative
instruments was valued using the Black-Scholes option pricing model during the three months ended September 30, 2020, using the
following assumptions:
Estimated dividends
|
|
|
None
|
|
Expected volatility
|
|
|
78.55% to 148.59%
|
|
Risk free interest rate
|
|
|
0.61% to 0.69%
|
|
Expected term
|
|
|
0 to 6 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, 2020
|
|
|
229,166
|
|
|
$
|
2.68
|
|
|
|
4.2 to 4.53
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at September 30, 2020
|
|
|
229,166
|
|
|
$
|
2.68
|
|
|
|
3.95 to 4.28
|
|
NOTE 15 – 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 3, “Summary of Significant Accounting Policies”.
The following tables provide the business
segment information for the three months ended September 30, 2020 and 2019.
|
|
For the Three Months Ended September 30, 2020
|
|
|
|
Smart
energy
|
|
|
Photoelectric
display
|
|
|
Service
contracts
|
|
|
Unallocated
items
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
2,957,025
|
|
|
$
|
1,440
|
|
|
$
|
-
|
|
|
$
|
2,958,465
|
|
Cost of Revenues
|
|
|
-
|
|
|
|
2,671,405
|
|
|
|
9,984
|
|
|
|
-
|
|
|
|
2,681,389
|
|
Gross profit (loss)
|
|
|
-
|
|
|
|
285,620
|
|
|
|
(8,544)
|
|
|
|
-
|
|
|
|
277,076
|
|
Operating expenses
|
|
|
2,685
|
|
|
|
352,277
|
|
|
|
9,625
|
|
|
|
90,101
|
|
|
|
454,688
|
|
Loss from operations
|
|
|
(2,685)
|
|
|
|
(66,657)
|
|
|
|
(18,169)
|
|
|
|
(90,101
|
)
|
|
|
(177,612)
|
|
Net loss
|
|
$
|
(2,684)
|
|
|
$
|
(88,484)
|
|
|
$
|
(18,168)
|
|
|
$
|
(422,970
|
)
|
|
$
|
(532,306)
|
|
|
|
For the Three Months Ended September 30, 2019
|
|
|
|
Smart
energy
|
|
|
Photoelectric
display
|
|
|
Service
contracts
|
|
|
Unallocated
items
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
627,703
|
|
|
$
|
6,479,923
|
|
|
$
|
392,704
|
|
|
$
|
-
|
|
|
$
|
7,500,330
|
|
Cost of Revenues
|
|
|
583,764
|
|
|
|
5,356,904
|
|
|
|
132,436
|
|
|
|
-
|
|
|
|
6,073,104
|
|
Gross profit
|
|
|
43,939
|
|
|
|
1,123,019
|
|
|
|
260,268
|
|
|
|
-
|
|
|
|
1,427,226
|
|
Operating expenses
|
|
|
4,112
|
|
|
|
518,494
|
|
|
|
11,481
|
|
|
|
70,164
|
|
|
|
604,251
|
|
Income (loss) from operations
|
|
|
39,827
|
|
|
|
604,525
|
|
|
|
248,787
|
|
|
|
(70,164
|
)
|
|
|
822,975
|
|
Net income (loss)
|
|
$
|
37,841
|
|
|
$
|
524,476
|
|
|
$
|
226,107
|
|
|
$
|
(77,148
|
)
|
|
$
|
711,276
|
|
NOTE 16 - SUBSEQUENT EVENTS
Stock Issued for Conversion of Convertible Debt
|
(1)
|
On October 16, 2020, the Company issued a total of 1,200,000 shares of common stock to Firstfire
Global Opportunities Fund LLC for the conversion of debt in the principal amount of $14,100 according to the conditions of the
convertible note dated as September 11, 2019.
|
On October 29, 2020, the Company
issued a total of 2,500,000 shares of common stock to Firstfire Global Opportunities Fund LLC for the conversion of debt in the
principal amount of $31,000 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 $96,150.
|
(2)
|
On October 12, 2020, the Company issued a total of 650,000 shares of common stock to Labrys Fund,
LP for the conversion of debt in the principal amount of $14,844.39 together with $121.07 of accrued and unpaid interest according
to the conditions of the convertible note dated as January 10, 2020.
|
On October 16, 2020, the Company
issued a total of 181,500 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $2,722.5
together with $18.84 of accrued and unpaid interest according to the conditions of the convertible note dated as January 10, 2020.
On October 19, 2020, the Company
issued a total of 2,112,478 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $31,674.16
together with $13.02 of accrued and unpaid interest according to the conditions of the convertible note dated as January 10, 2020.
The remaining principal balance
due under this convertible note after these three conversions is $0.
|
(3)
|
On October 16, 2020, the Company issued a total of 500,000 shares of common stock to Crown Bridge
Partners, LLC for the conversion of debt in the principal amount of $3,500 according to the conditions of the convertible note
dated as November 12, 2019. The remaining principal balance due under this convertible note after this conversion is $47,884.4.
|
Payments to Settle Convertible Notes
On November 12, 2020, the Company paid
Firstfire Global Opportunities Fund LLC, the holder of the Company’s convertible debt an aggregate of $130,500 in order
to terminate their convertible note dated September 11, 2019. The payment was made by Yubao Liu on behalf of the Company and the
holder confirmed this full settlement on November 13, 2020.
On November 12, 2020, the Company paid
Morningview Financial, LLC, the holder of the Company’s convertible debt an aggregate of $175,000 in order to terminate their
convertible note dated November 20, 2019. The payment was made by Yubao Liu on behalf of the Company and the holder confirmed this
full settlement on November 14, 2020.
END NOTES TO FINANCIAL STATEMENTS