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, 2016
(UNAUDITED)
NOTE 1- NATURE OF OPERATIONS
Ionix Technology, Inc. (the “Company”), formerly known as Cambridge Projects Inc., is a Nevada corporation that was formed on March 11, 2011.
By and through its wholly owned subsidiaries, the Company develops, designs, manufactures and sells lithium batteries for electric vehicles in China.
On May 19, 2016, the Company, as the sole member of Well Best International Investment Limited (“Well Best”), formed Xinyu Ionix Technology Company Limited (“Xinyu Ionix”), a company formed under the laws of China. As a result Xinyu Ionix is a wholly-owned subsidiary of Well Best and an indirect wholly-owned subsidiary of the Company. Between May 19, 2016 and August 19, 2016, the date the Board ratified the incorporation, Xinyu Ionix conducted no business. Xinyu Ionix will focus on developing and designing lithium batteries as well as to act as an investment company that may acquire other businesses located in China
NOTE 2 –GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has not generated income from its operations and had an accumulated deficit of $243,082 at September30, 2016. These circumstances, 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 expects to continue incurring losses for the foreseeable future and may need to raise additional capital from external sources or obtain loans from officers and shareholders in order to continue the long-term efforts contemplated under its business plan. The Company is in the process of reevaluating its current marketing strategy as it relates to the sale of its current product line. In addition, the Company is pursuing other revenue streams which could include strategic acquisitions or possible joint ventures of other business segments.
NOTE 3 –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 financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of September 30, 2016 and the results of operations and cash flows for the periods ended September 30, 2016 and 2015. 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, 2016 are not necessarily indicative of the results to be expected for any subsequent periods or for the entire year ending June 30, 2017 or for any subsequent periods. The balance sheet at June 30, 2016 has been derived from the audited 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 financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended June 30, 2016 as included in our Annual Report on Form 10-K as filed with the SEC on October 11, 2016.
Certain amounts have been reclassified to conform to current year presentation
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
In accordance with the ASC Topic 605, “Revenue Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.
The Company recognizes revenue from the sale of finished products upon delivery to the customer, whereas the title and risk of loss are fully transferred to the customers. The Company records its revenues, net of value added taxes (“VAT”). The Company is subject to VAT which is levied on the majority of the products at the rate of 17% on the invoiced value of sales.
Foreign currencies translation
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statement of operations.
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 statement of stockholders’ equity.
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:
|
|
September 30,
2016
|
|
|
|
|
Balance sheet items, except for equity accounts
|
|
|
6.6700
|
|
|
|
|
|
|
Items in statements of income and cash flows
|
|
|
6.6506
|
|
There were no foreign operations during the three months ended September 30, 2015.
Fair Value of Financial Instruments
The carrying value of the Company’s financial instruments: cash and cash equivalents, accounts and retention receivable, 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.
Management believes, based on the current market prices or interest rates for similar debt instruments, the fair value of short-term bank borrowings and note payable approximate the carrying amount.
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.
NOTE 4– DISCONTINUED OPERATIONS
On February 8, 2012, the Company obtained exclusive licensing rights of the QI System from Quadra International Inc. (“Quadra”), the manufacturer of the QI System, to sub-license, establish joint ventures to commercialize, use and process organic waste, and sell related by-products in the states of Johore and Selangor, Malaysia for a period of 25 years. The QI System processes organic waste to marketable by-products and is proprietary technology. This business was terminated on November 15, 2015.The Company has excluded results of QI system operations from its continuing operations to present this business in discontinued operations.
The following table shows the results of operations for fiscal quarters ended September 30, 2016 and 2015 which are included in the loss from discontinued operations for the termination of QI System:
|
|
For the three months ended on
September 30
|
|
|
|
2016
|
|
|
2015
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost of revenue
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
Selling, general and administrative expenses
|
|
|
-
|
|
|
|
59,217
|
|
Loss before income taxes
|
|
|
-
|
|
|
|
(59,217
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
$
|
-
|
|
|
$
|
(59,217
|
)
|
On August 19, 2016, Well Best entered into a share transfer agreement whereby Well Best sold 100% of its equity interest in Taizhou Ionix Technology Co. Ltd. (“Taizhou Ionix”) to Mr. GuoEn Li, the sole director and officer of Taizhou Ionix for
approximately RMB 30,000 (approximately $5,000USD). Well Best was the sole shareholder of Taizhou Ionix. The Company believed that the manufacturing contract between Taizhou Ionix and Taizhou Jiunuojie Electronic Technology Limited regarding the production of lithium batteries was not beneficial to the Company. As a result, (i) Taizhou is no longer an indirect, wholly-owned subsidiary of the Company, and (ii) Mr. Li is no longer affiliated with the Company. Well Best recorded a gain of $24,364 on disposal of Taizhou Ionix which was recorded in the account of
additional paid in capital.
The following table shows the results of operations for the three months ended September 30, 2016 and 2015 which are included in the loss from discontinued operations for the disposal of Taizhou Ionix:
|
|
For the period from
July 1 to August 19,
2016
|
|
|
For the three months
ended on September
30,2015
|
|
Revenue
|
|
$
|
502,003
|
|
|
$
|
-
|
|
Cost of revenue
|
|
|
(505,401
|
)
|
|
|
-
|
|
Gross profit (Loss)
|
|
|
(3,389
|
)
|
|
|
-
|
|
Selling, general and administrative expenses
|
|
|
31,701
|
|
|
|
-
|
|
Loss before income taxes
|
|
|
(35,099
|
)
|
|
|
-
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
Net Loss
|
|
$
|
( 35,099
|
)
|
|
$
|
-
|
|
NOTE 5-INVENTORIES
Inventories are stated at the lower of cost (determined using the weighted average cost) or market value and are composed of the following:
|
|
September 30
,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Raw materials
|
|
|
40,685
|
|
|
|
-
|
|
|
|
$
|
40,685
|
|
|
$
|
-
|
|
NOTE 6- DUE FROM/TO RELATED PARTIES
Due from related party represents advances to Mr
.
Nan Zhengfu, a director and the general manager of Xinyu Ionix a wholly owned subsidiary. During the three months ended September 30, 2016, Xinyu Ionix advanced $913,380 (RMB 6,092,243) to Mr. Nan
.
There was no formal agreement between the Company and Mr. Nan. The amounts are non-interest bearing, unsecured and due on demand.
From October 1 to November 7, 2016, Mr. Nan made payments to suppliers of Xinyu Ionix for approximately RMB 3,000,000 (approximately $450,000) for settlement of account payable on behalf of Xinyu Ionix. The repayment of the unpaid balance of approximately $460,000 was guarenteed by Mr. Ben Wong, who is the sole owner of the Company’s major shareholder, Shining Glory Investments Limited.
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.
During the three months ended September30, 2016, Ben Wang advanced $577 to Well Best and he received the proceeds of $5,000 from sales of Taizhou Ionix on behalf of the Company.
NOTE 7 – CONCENTRATION OF RISKS
Major customers
For the quarter ended September30, 2016, customer who accounted for 10% or more of the Company’s revenues and its outstanding balance as of September30, 2016 are presented as follows:
|
|
Revenue
|
|
|
Percentage of
revenue
|
|
|
|
|
|
|
|
|
Customer A
|
|
$
|
694,049
|
|
|
|
82
|
%
|
Customer B
|
|
|
150,060
|
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
844,109
|
|
|
$
|
100
|
%
|
All customers are located in the PRC.
Major suppliers
Supplier who accounted for 10% or more of the Company’s total purchases (materials and services) and its outstanding balance as of September30, 2016, are presented as follows:
|
|
Total Purchase
|
|
|
Percentage of
total purchase
|
|
|
Accounts payable
|
|
|
Percentage of
accounts
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplier A
|
|
$
|
417,669
|
|
|
|
53
|
%
|
|
$
|
195,809
|
|
|
|
36
|
%
|
Supplier B
|
|
|
323,761
|
|
|
|
40
|
%
|
|
|
150,759
|
|
|
|
28
|
%
|
Total
|
|
$
|
741,430
|
|
|
|
93
|
%
|
|
$
|
346,568
|
|
|
|
64
|
%
|
All suppliers of the Company are located in the PRC.
NOTE 8- INCOME TAXES
The effective tax rate in the years 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 various countries: United States of America Hong Kong and the PRC that are subject to taxes in the jurisdictions in which they operate, as follows:
United States of America
The Company is registered in the State of Nevada and is subject to the tax laws of United States of America.
The Company has shown losses since inception. As a result it has incurred no income tax. 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, 2011 to 2014 were still exposed to audit as of June 30, 2016.
The Company received a penalty assessment from the IRS in the amount of $10,000 for failure to provide information with respect to certain foreign owned US Corporations on Form 5472 - Information Return of a 25% Foreign Owned US Corporation for the tax period ended June 30, 2013. The Company disputed this claim and is working to reverse the penalty. The Company believes that the payment of this penalty is remote and did not accrue this liability as of September 30, 2016 and 2015.
Hong Kong
The Well Best is registered in Hong Kong and for the three months ended September30, 2016, there is no assessable income chargeable to profit tax in Hong Kong.
The PRC
The Company's subsidiaries, Taizhou Ionix and Xinyu Ionix, are subject to the Corporate Income Tax Law of the People’s Republic of China at a unified income tax rate of 25%.
The reconciliation of income tax expense at the U.S. statutory rate of 35% to the Company's effective tax rate is as follows:
|
|
For the three months ended September30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
U.S. Statutory rate
|
|
$
|
3,755
|
|
|
$
|
(20,726
|
)
|
Tax rate difference between
China and U.S.
|
|
|
4,492
|
|
|
|
-
|
|
Change in Valuation Allowance
|
|
|
10,662
|
|
|
|
20,726
|
|
Effective tax rate
|
|
$
|
18,909
|
|
|
$
|
-
|
|
The provisions for income taxes are summarized as follows:
|
|
For three months ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Current
|
|
$
|
18,909
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
18,909
|
|
|
$
|
-
|
|
The Company has not provided deferred taxes on unremitted earnings attributable to international companies that have been considered to be reinvested indefinitely. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the income tax liability that would be payable if such earnings were not indefinitely reinvested. In accordance with ASC Topic 740, interest associated with unrecognized tax benefits is classified as income tax and penalties are classified in selling, general and administrative expenses in the statements of operations.
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 9– STOCKHOLDERS’ EQUITY
On August 19, 2016, Well Best sold 100% of its ownership in Taizhou Ionix to Mr. GuoEn Li, the sole director and officer of Taizhou Ionix for RMB30,000 (approximately $5,000) and recorded a gain of $24,364 which was recorded in the account of additional paid in capital. See Note 4 for more details.
NOTE 10– RESTATEMENT
The management of the Company has concluded that we should restate our financial statements as of and for the quarter ended September 30, 2015 due to the restatement of the year ended on June 30, 2015.
The effect of the restatement on specific line items in the financial statements for the three months ended September 30, 2015 is set forth in the table below:
|
|
Consolidated Statement of Comprehensive Loss
|
|
|
|
for the three months Ended September30, 2015
|
|
|
|
Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Adjusted
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
$
|
7,491
|
|
|
$
|
51,726
|
|
|
$
|
59,217
|
|
Loss before income tax
|
|
$
|
(7,491
|
)
|
|
$
|
(51,726
|
)
|
|
$
|
(59,217
|
)
|
Net loss
|
|
$
|
(7,491
|
)
|
|
$
|
(51,726
|
)
|
|
$
|
(59,217
|
)
|
NOTE 11- SUBSEQUENT EVENTS
The Company has evaluated subsequent events that have occurred after the date of the balance sheet through the date of issuance of these consolidated financial statements and determined that no subsequent event requires recognition or disclosure to the consolidated financial statements.