NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2020 AND 2019
(Currency
expressed in United States Dollars (“US$”), except for number of shares)
1.
ORGANIZATION AND BUSINESS BACKGROUND
Rito
Group Corp. (the “Company”) was incorporated on March 24, 2015 under the laws of the state of Nevada.
The
Company, through its subsidiaries, mainly engages in trading of retail goods such as handmade accessories, necklaces, watches,
cookware, AgriGaia Farming Products, and numerous other products. Our business model remains to be Online to Offline (O2O) business,
and we have been actively expanding our product range.
Details
of the Company’s subsidiaries:
|
Company
name
|
|
Place/date
of incorporation
|
|
Particulars
of issued capital
|
|
Principal
activities
|
|
|
|
|
|
|
|
|
1.
|
Sino
Union International Limited (“Sino Union”)
|
|
Anguilla
January
3, 2014
|
|
84,500
shares of ordinary share of US$1 each
|
|
Investment
holding
|
|
|
|
|
|
|
|
|
2.
|
Rito
International Enterprise Company Limited (“Rito International”)
|
|
Hong
Kong
August
12, 2014
|
|
630,001
shares of ordinary share of HK$1 each
|
|
Trading
of retail goods
|
|
|
|
|
|
|
|
|
3.
|
深圳市汇图贸易有限公司
|
|
Shenzhen,
PRC
June
27, 2017
|
|
500,000
shares of ordinary share of RMB 1 each
|
|
Trading
of retail goods, business and agriculture technology consulting
|
Rito
Group Corp. and its subsidiaries are hereinafter referred to as the “Company”.
2.
GOING CONCERN UNCERTAINTIES
The
acompanying financial statements have been prepared using the going concern basis of accounting, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
As
of June 30, 2020, the Company suffered an accumulated deficit of $4,721,423 and net loss of $747,721. The continuation
of the Company as a going concern through June 30, 2020 is dependent upon improving the profitability and the continuing financial
support from its stockholders. Management believes the existing shareholders or external financing will provide the additional
cash to meet the Company’s obligations as they become due.
These
and other factors raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements
do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result in the Company not being able to continue as a going concern.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
accompanying unaudited condensed consolidated financial statements reflect the application of certain significant accounting policies
as described in this note and elsewhere in the accompanying consolidated financial statements and notes.
These
accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles
in the United States of America (“US GAAP”).
The
condensed consolidated financial statements include the accounts of Rito Group Corp. and its subsidiaries. All significant inter-company
balances and transactions within the Company have been eliminated upon consolidation.
In
preparing these condensed consolidated financial statements, management makes estimates and assumptions that affect the reported
amounts of assets and liabilities in the balance sheets and revenues and expenses during the periods reported. Actual results
may differ from these estimates.
●
|
Cash
and cash equivalents
|
The
company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.
RITO
GROUP CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2020 AND 2019
(Currency
expressed in United States Dollars (“US$”), except for number of shares)
●
|
Impairment
of long-lived assets
|
Long-lived
assets primarily include intangible assets. In accordance with the provision of ASC Topic 360-10-5, “Impairment or Disposal
of Long-Lived Assets”, the Company generally conducts its annual impairment evaluation to its long-lived assets, usually
in the fourth quarter of each year, or more frequently if indicators of impairment exist, such as a significant sustained change
in the business climate. The recoverability of long-lived assets is measured at the reporting unit level. If the total of the
expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference
between the fair value and carrying amount of the asset. For the years ended June 30, 2020 and 2019, the Company recognized an
impairment charge of $Nil and $Nil, respectively for intangible assets.
In
accordance with the Accounting Standard Codification (“ASC”) Topic 605 “Revenue Recognition”, the
Company recognizes revenue when the following four criteria are met: (1) delivery has occurred or services rendered; (2) persuasive
evidence of an arrangement exists; (3) selling price is fixed or determinable; and (4) collectability is reasonably assured.
Revenue
is measured at the fair value of the consideration received or receivable, net of discounts and taxes applicable to the revenue.
Revenue from trading of retail goods is recognized when title and risk of loss are transferred and there are no continuing obligations
to the customer. Title and the risks and rewards of ownership transferred to and accepted by the customer when the products are
collected by the customer at the Company’s office. Revenue is recorded net of sales discounts, returns, allowances, and
other adjustments that are based upon management’s best estimates and historical experience and are provided for in the
same period as the related revenues are recorded. Based on limited operating history, management estimates that there were no
sales return for the period reported.
The
Company derives its revenue from sales of goods to individuals. Generally, the Company recognizes revenue when products are sold
and accepted by the customers and there are no continuing obligations to the customer.
Cost
of revenue includes the purchase cost of retail goods for re-sale to the customers.
The
provision of income taxes is determined in accordance with the provisions of ASC Topic 740, “Income Taxes”
(“ASC Topic 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income
in the periods in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC
Topic 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial
statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC Topic 740, tax positions must initially
be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the
tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has
a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the
position and relevant facts.
The
Company conducts much of its businesses activities in Hong Kong and is subject to tax in this jurisdiction. As a result of its
business activities, the Company will file separate tax returns that are subject to examination by the foreign tax authorities.
The
Company calculates net loss per share in accordance with ASC Topic 260 “Earnings per share”. Basic loss per
share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted
loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional
common shares were dilutive.
RITO
GROUP CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2020 AND 2019
(Currency
expressed in United States Dollars (“US$”), except for number of shares)
●
|
Foreign
currencies translation
|
Transactions
denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates
prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional
currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting
exchange differences are recorded in the statements of operations.
The
reporting currency of the Company and its subsidiary in Anguilla is United States Dollars (“US$”). The Company’s
subsidiary in Hong Kong maintains its books and record in Hong Kong Dollars (“HK$”), which is functional currency
as being the primary currency of the economic environment in which the entity operates.
In
general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not US$ are translated
into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate
on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses
resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other
comprehensive income within the statement of stockholders’ equity.
Translation
of amounts from HK$ into US$1 and from RMB into US$1 has been made at the following exchange rates for the respective periods:
|
|
As
of and for the year ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Period-end
HK$ : US$1 exchange rate
|
|
|
7.75
|
|
|
|
7.75
|
|
Average
HK$ : US$1 exchange rate
|
|
|
7.75
|
|
|
|
7.75
|
|
Period-end
CNY¥: US$1 exchange rate
|
|
|
7.07
|
|
|
|
6.86
|
|
Average
CNY¥: US$1 exchange rate
|
|
|
7.09
|
|
|
|
6.86
|
|
Parties,
which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly,
to control the other party or exercise significant influence over the other party in making financial and operating decisions.
Companies are also considered to be related if they are subject to common control or common significant influence.
In
February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases, which
was subsequently amended in 2018 by ASU 2018-10, ASU 2018-11 and ASU 2018-20 (collectively, Topic 842). Topic 842 will require
the recognition of a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease
payments, for all leases with terms longer than 12 months. For operating leases, the asset and liability will be expensed over
the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows.
For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset
in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified
as a financing activity while the interest component will be included in the operating section of the statement of cash flows.
Topic 842 is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted.
Upon adoption, leases will be recognized and measured at the beginning of the earliest period presented using a modified retrospective
approach. Topic 842 allows for a cumulative-effect adjustment in the period the new lease standard is adopted and will not require
restatement of prior periods.
Prior
to January 1, 2019, the Company accounted for leases under ASC 840, Accounting for Leases. Effective July 1, 2019, the
Company adopted the guidance of ASC 842, Leases, which requires an entity to recognize a right-of-use asset and a lease liability
for virtually all leases. The Company adopted ASC 842 using a modified retrospective approach. As a result, the comparative financial
information has not been updated and the required disclosures prior to the date of adoption have not been updated and continue
to be reported under the accounting standards in effect for those periods. The adoption of ASC 842 on July 1, 2019 resulted
in the recognition of operating lease right-of-use assets of $80,185, lease liabilities for operating leases of $80,185,
and $0 cumulative-effect adjustment to accumulated deficit. After the adoption, $256,720 of operating lease right-of-use
asset and $255,756 of operating lease liabilities and $964 adjustment to accumulated deficit were retroactively reflected
to June 30, 2020 financial statements. See Note 13 for further information regarding the impact of the adoption of ASC
842 on the Company’s financial statements.
●
|
Fair
value of financial instruments
|
The
carrying value of the Company’s financial instruments: cash and cash equivalents, subscription receivables, prepayment and
deposits, accounts payable, and other payables and accrued liabilities approximate at their fair values because of the short-term
nature of these financial instruments.
The
Company also follows the guidance of the ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC
820-10”), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier
fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
|
Level
1 : Observable inputs such as quoted prices in active markets;
|
|
|
|
Level
2 : Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
|
|
|
Level
3 : Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its
own assumptions
|
Fair
value estimates are made at a specific point in time based on relevant market information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined
with precision. Changes in assumptions could significantly affect the estimates.
RITO
GROUP CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2020 AND 2019
(Currency
expressed in United States Dollars (“US$”), except for number of shares)
●
|
Recent
accounting pronouncements
|
The
Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption
of such any pronouncements may be expected to cause a material impact on its financial condition or the results of its operations,
as follow:
In
May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (“ASU
2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”,
and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective
for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early
adoption is not permitted.
In
August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements - Going Concern, Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”), which establishes management’s
responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and,
if so, to provide related footnote disclosures. ASU 2014-15 provides a definition of the term “substantial doubt”
and requires an assessment for a period of one year after the date that the financial statements are issued or available to be
issued. Management will also be required to evaluate and disclose whether its plans alleviate that doubt. The guidance is effective
for the annual periods ending after December 15, 2016 and interim periods thereafter with early adoption permitted. The Company
is currently evaluating the impact the adoption of ASU 2014-15 on the Company’s financial statement presentation and disclosures.
In
August 2015, the FASB issued an Accounting Standards Update to defer by one year the effective dates of its new revenue recognition
standard until annual reporting periods beginning after December 15, 2017 (2018 for calendar-year public entities) and interim
periods therein. Management is currently assessing the impact of the adoption of ASU 2014-09 and has not determined the effect
of the standard on our ongoing financial reporting.
In
February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required recognize the following for all leases (with
the exception of short-term leases) at the commencement date: 1) A lease liability, which is a lessee’s obligation to make
lease payments arising from a lease, measured on a discounted basis; and 2) A right-of-use asset, which is an asset that represents
the lessee’s right to use, or control the use of, a specified asset for the lease term. The new lease guidance simplified
the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities.
Lessees will no longer be provided with a source of off-balance sheet financing. The amendments in this ASU are effective for
fiscal years beginning after December 15, 2019, including interim periods within those years. The Company is evaluating this ASU
and has not determined the effect of this standard on its ongoing financial reporting.
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 require the measurement of all expected credit
losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and
supportable forecasts. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities
and purchased financial assets with credit deterioration. The amendment is effective for public entities for annual reporting
periods beginning after December 15, 2019, however early application is permitted for reporting periods beginning after December
15, 2018. The Company does not anticipate ASU 2016-13 to have a material impact to the consolidated financial statements.
In
January 2017, the FASB issued ASU 2017-01, “Clarifying the Definition of a Business.” ASU 2017-01 changes the definition
of a business to assist entities with evaluating when a set of transferred assets and activities is a business. If substantially
all of the fair value is concentrated in a single asset or a group of similar assets, the acquired set is not a business. If this
is not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and
a substantive process that together significantly contribute to the ability to create outputs. Determining whether a set constitutes
a business is critical because the accounting for a business combination differs significantly from that of an asset acquisition.
We early adopted ASU 2017-01 on January 1, 2017 on a prospective basis, and it has not had a material impact to our consolidated
financial statements.
In
January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” ASU 2017-04 removes Step
2 of the goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment will be the
amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
ASU 2017-04 provides a more stream-lined approach to evaluating goodwill impairment and we early adopted on January 1, 2017 on
a prospective basis as a change in accounting principle. See Note 4 to the consolidated financial statements for an update on
goodwill impairment.
On
September 29, 2017 the FASB issued “ASU 2017-13—Revenue recognition (Topic 605), Revenue from contracts with customers
(Topic 606), Leases (Topic 840), and Leases (Topic 842)”. This update addresses Transition Related to Accounting Standards
Updates No. 2014-09, Revenue from Contracts with Customers (Topic 606), and No. 2016-02, Leases (Topic 842). This Update also
supersedes SEC paragraphs pursuant the rescission of SEC Staff Announcement, “Accounting for Management Fees Based on a
Formula”, effective upon the initial adoption of Topic 606, Revenue from Contracts with Customers, and SEC Staff Announcement,
“Lessor Consideration of Third-Party Value Guarantees,” effective upon the initial adoption of Topic 842, Leases.
The adoption of this standard is not expected to have a material impact on the Company´s financial statements.
RITO
GROUP CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2020 AND 2019
(Currency
expressed in United States Dollars (“US$”), except for number of shares)
●
|
Recent
accounting pronouncements-continued
|
In
February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02), which allows companies to reclassify stranded
tax effects resulting from the Tax Act, from accumulated other comprehensive income to retained earnings. The guidance also requires
certain new disclosures regardless of the election. ASU 2018-02 is effective for us in the first quarter of fiscal 2020, and earlier
adoption is permitted. We are currently evaluating the impact of our pending adoption of ASU 2018-02 on our consolidated financial
statements.
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” (“ASU 2018-13”). ASU 2018-13 removes, modifies and adds
certain disclosure requirements in Topic 820 “Fair Value Measurement”. ASU 2018-13 eliminates certain disclosures
related to transfers and the valuations process, modifies disclosures for investments that are valued based on net asset value,
clarifies the measurement uncertainty disclosure, and requires additional disclosures for Level 3 fair value measurements. ASU
2018-13 is effective for the Company for annual and interim reporting periods beginning July 1, 2020. The Company is currently
evaluating the impact ASU 2018-13 will have on its consolidated financial statements.
The
Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption
of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
4.
SHAREHOLDERS’ EQUITY
For
the year ended June 30, 2020, the Company issued an aggregate of 150,000 of its common stock at $2 per share, for aggregate gross
proceeds of $300,000.
For
the year ended June 30, 2019, the Company issued an aggregate of 30,000 and 568,205 of its common stock at $1.5 and $2 per share,
for aggregate gross proceeds of $45,000 and $1,136,410.
As
of June 30, 2020, and 2019, the Company had a total of 56,596,489 and 56,446,489 shares of its common stock issued
and outstanding. There are no shares of preferred stock issued and outstanding.
5
- PROPERTY, PLANT AND EQUIPMENT
|
|
As
of June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(audited)
|
|
|
(audited)
|
|
Leasehold
improvement
|
|
$
|
236,630
|
|
|
$
|
236,630
|
|
Equipment
|
|
|
32,570
|
|
|
|
32,570
|
|
Motor
Vehicle
|
|
|
-
|
|
|
|
18,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
269,200
|
|
|
|
287,265
|
|
Less:
Accumulated depreciation
|
|
|
129,689
|
|
|
|
97,615
|
|
Total
|
|
$
|
139,511
|
|
|
$
|
189,650
|
|
Depreciation
expense, classified as operating expenses, was $40,539 and $95,397 for the twelve months ended June 30, 2020 and
June 30, 2019, respectively.
6.
DUE TO A CORPORATE SHAREHOLDER
As
of June 30, 2020 and June 30, 2019, a corporate shareholder, Rito Group Holding Limited advanced $12,902 and $0 to the Company,
which is unsecured, interest-free with no fixed payment term, for working capital purpose. Imputed interest is considered insignificant.
7.
DUE TO A DIRECTOR
As
of June 30, 2020 and June 30, 2019, a director of the Company advanced $90,772 and $10,255 to the Company, which is unsecured,
interest-free with no fixed payment term, for working capital purpose. Imputed interest is considered insignificant.
RITO
GROUP CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2020 AND 2019
(Currency
expressed in United States Dollars (“US$”), except for number of shares)
8.
BANK LOANS
|
|
As
of June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(audited)
|
|
|
(audited)
|
|
Bank
loan from financial institution in Hong Kong
|
|
|
|
|
|
|
|
|
The
Hongkong and Shanghai Banking Corporation Limited
|
|
$
|
23,284
|
|
|
$
|
32,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,284
|
|
|
|
32,166
|
|
Less:
Current portion
|
|
|
(10,370
|
)
|
|
|
(8,882
|
)
|
Long-term
portion
|
|
$
|
12,914
|
|
|
$
|
23,284
|
|
In
July 2017, the Company obtained a loan in the principal amount of HKD349,000 (approximately $45,032) from The Hongkong and Shanghai
Banking Corporation Limited, a financial institution in Hongkong which bears interest at the base lending rate less 0.7% flat
rate per month with 60 monthly installments of HKD8,260 (approximately $1,066) each and will mature in July 2022.
9.
ACCRUED EXPENSES AND OTHER PAYABLES
|
|
As
of June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(audited)
|
|
|
(audited)
|
|
Accrued
audit fee
|
|
|
24,000
|
|
|
|
22,000
|
|
Accrued
accounting fee
|
|
|
8,088
|
|
|
|
3,473
|
|
Accrued
other expenses
|
|
|
5,700
|
|
|
|
-
|
|
Other
payables
|
|
|
104,982
|
|
|
|
86,148
|
|
Loan
from third party A
|
|
|
78,205
|
|
|
|
-
|
|
Loan
interest payable
|
|
|
482
|
|
|
|
-
|
|
|
|
$
|
221,457
|
|
|
$
|
111,621
|
|
As
of June 30, 2020 and 2019, other payables were $104,982 and $86,148, respectively. Other payables were included the farm expenses
(direct labor / property management fee etc.), marketing expenses, payroll expenses and MPF.
In
17 May 2020, the Company obtained a loan in the principal amount of HKD610,000 (approximately $78,205) from Chow Yuen Kuen, Tina,
an investor which bears 5% interest rate per year with 1 year of HKD30,500 (approximately $3,910) and will mature in 16 May 2021.
The Company will pay the lender 41,058 shares would be paid in lieu of cash HKD640,500 ($82,115) ($2 per share*41,057 shares)
on 16 May 2021.
10.
INCOME TAXES
For
the years ended June 30, 2020 and 2019 the local (United States) and foreign components of loss before income taxes were comprised
of the following:
|
|
For
the year ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(audited)
|
|
|
(audited)
|
|
Tax
jurisdictions from:
|
|
|
|
|
|
|
|
|
–
Local
|
|
$
|
(81,017
|
)
|
|
$
|
(73,850
|
)
|
–
Foreign, representing
|
|
|
|
|
|
|
|
|
Anguilla
|
|
|
(8,966
|
)
|
|
|
(4,719
|
)
|
Hong
Kong
|
|
|
(655,888
|
)
|
|
|
(1,431,941
|
)
|
PRC
|
|
|
(1,850
|
)
|
|
|
(1,918
|
)
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(747,721
|
)
|
|
|
(1,512,428
|
)
|
Provision
for income taxes consisted of the following:
|
|
For
the year ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(audited)
|
|
|
(audited)
|
|
Current:
|
|
|
|
|
|
|
|
|
–
Local
|
|
$
|
-
|
|
|
$
|
-
|
|
–
Foreign (Hong Kong)
|
|
|
-
|
|
|
|
-
|
|
–
Foreign (PRC)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
– Local
|
|
|
-
|
|
|
|
-
|
|
–
Foreign (Hong Kong)
|
|
|
-
|
|
|
|
-
|
|
–
Foreign (PRC)
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
RITO
GROUP CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2020 AND 2019
(Currency
expressed in United States Dollars (“US$”), except for number of shares)
10.
INCOME TAXES-continued
The
effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply
a broad range of income tax rates. The Company has subsidiaries that operate in various countries: United States, Anguilla, Hong
Kong and People’s Republic of China that are subject to taxes in the jurisdictions in which they operate, as follows:
United
States of America
Rito
Group Corp. is registered in the State of Nevada and is subject to the tax laws of the United States of America. As of June 30,
2020 and 2019, the operations in the United States of America incurred $404,091 and $323,074 of cumulative net operating losses,
respectively, which can be carried forward to offset future taxable income. The net operating loss carryforwards begin to expire
in 2035, if unutilized. The Company has provided for a full valuation allowance of $84,859 against the deferred tax assets on
the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not
that these assets will not be realized in the future.
Anguilla
Under
the current laws of the Republic of Anguilla (“Anguilla”), Sino Union International Limited is registered as an international
business company which governs by the International Business Companies Act of Anguilla. A company is subject to Anguilla income
tax if it does business in Anguilla. A company that incorporated in Anguilla, but does not do business in Anguilla, is not subject
to income tax there. Sino Union International Limited did not do business in Anguilla for the year ended June 30, 2020, and it
does not intend to do business in Anguilla in the future. For the years ended June 30, 2020 and 2019, Sino Union International
Limited had a net operating loss of $132,848 and $123,882, respectively.
Hong
Kong
Rito
International Enterprise Company Limited is subject to Hong Kong Profits Tax, which is charged at the statutory income tax rate
of 16.5% on its assessable income. For the year ended June 30, 2020 and 2019, Rito International incurred a cumulative operating
loss of $4,179,592 and $3,523,705, respectively for income tax purposes which can be carried forward to offset future taxable
income at no expiration. The Company has provided for a full valuation allowance against the deferred tax assets of $689,633
on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely
than not that these assets will not be realized in the future.
People’s
Republic of China
深圳市汇图贸易有限公司
is operating in the People’s Republic of China (“PRC”) subject to the Corporate Income Tax governed by the Income
Tax Law of the People’s Republic of China with a unified statutory income tax rate of 25%.
For
the year ended June 30, 2020 and June 30, 2019, no provision for income tax is required due to operating loss incurred. As of
June 30, 2020 and June 30, 2019 深圳市汇图贸易有限公司 incurred
$4,892 and $3,042 of cumulative net operating losses which can be carried forward to offset future taxable income at no expiration.
The Company has provided for a full valuation allowance against the deferred tax assets of $1,223 on the expected future tax benefits
from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be
realized in the future.
The
following table sets forth the significant components of the aggregate deferred tax assets of the Company as of June 30, 2020
and 2019:
|
|
As
of
|
|
|
|
June
30, 2020
|
|
|
June
30, 2019
|
|
|
|
(audited)
|
|
|
(audited)
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
|
|
|
|
|
|
|
–
United States of America
|
|
$
|
84,859
|
|
|
$
|
67,845
|
|
–
Hong Kong
|
|
|
689,633
|
|
|
|
581,411
|
|
–
PRC
|
|
|
1,223
|
|
|
|
761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
775,715
|
|
|
|
650,017
|
|
Less:
valuation allowance
|
|
|
(775,715
|
)
|
|
|
(650,017
|
)
|
Deferred
tax assets
|
|
|
-
|
|
|
|
-
|
|
Management
believes that it is more likely than not that the deferred tax assets will not be fully realizable in the future. Accordingly,
the Company provided for a full valuation allowance against its deferred tax assets of $775,715 as of June 30, 2020. During
the year ended June 30, 2020, the valuation allowance increased by $125,698, primarily relating to net operating loss carry
forwards from the various tax regime.
RITO
GROUP CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2020 AND 2019
(Currency
expressed in United States Dollars (“US$”), except for number of shares)
11.
RELATED PARTY TRANSACTIONS
|
|
For
the year ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(audited)
|
|
|
(audited)
|
|
Professional
fee paid to:
|
|
|
|
|
|
|
|
|
-
Related party A
|
|
$
|
19,955
|
|
|
$
|
22,593
|
|
-
Related party B
|
|
|
22,867
|
|
|
|
23,320
|
|
-
Related party C
|
|
|
2,989
|
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
Website
design and maintenance fee paid to:
|
|
|
|
|
|
|
|
|
-
Related party D
|
|
|
597
|
|
|
|
588
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,506
|
|
|
$
|
46,895
|
|
Related
party A, B, C and D are the fellow subsidiaries of a corporate shareholder of the Company.
The
related party transactions are generally transacted in an arm-length basis at the current market value in the normal course of
business.
12
- CONCENTRATIONS OF RISKS
(a)
Major customers
For
the year ended June 30, 2020, the customers who accounted for 10% or more of the Company’s revenues and the accounts receivable
balances at period-end are presented as follows:
|
|
For
the year ended
June 30, 2020
|
|
|
As
of
June 30, 2020
|
|
|
|
Revenues
|
|
|
Percentage
of
revenues
|
|
|
Accounts
receivable
|
|
|
|
(audited)
|
|
|
(audited)
|
|
|
(audited)
|
|
Customer
A
|
|
$
|
438,845
|
|
|
|
100
|
%
|
|
$
|
213,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
438,845
|
|
|
|
100
|
%
|
|
$
|
213,053
|
|
For
the year ended June 30, 2019, the customers who accounted for 10% or more of the Company’s revenues and its accounts receivable
balance at year end are presented as follows:
|
|
For
the year ended
June 30, 2019
|
|
|
As
of
June 30, 2019
|
|
|
|
Revenues
|
|
|
Percentage
of
revenues
|
|
|
Accounts
receivable
|
|
|
|
(audited)
|
|
|
(audited)
|
|
|
(audited)
|
|
Customer
A
|
|
$
|
93,510
|
|
|
|
22
|
%
|
|
$
|
26,515
|
|
Customer
B
|
|
|
234,968
|
|
|
|
55
|
%
|
|
|
-
|
|
Customer
C
|
|
|
96,774
|
|
|
|
23
|
%
|
|
|
96,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
425,252
|
|
|
|
100
|
%
|
|
$
|
123,289
|
|
RITO
GROUP CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED JUNE 30, 2020 AND 2019
(Currency
expressed in United States Dollars (“US$”), except for number of shares)
12
- CONCENTRATIONS OF RISKS-continued
(b)
Major vendors
For
the year ended June 30, 2020, the vendors who accounted for 10% or more of the Company’s purchases and its accounts payable
balance at year-end are presented as follows:
|
|
For
the year ended
June 30, 2020
|
|
|
As
of
June 30, 2020
|
|
|
|
Purchases
|
|
|
Percentage
of
purchases
|
|
|
Accounts
payable
|
|
|
|
(audited)
|
|
|
(audited)
|
|
|
(audited)
|
|
Vendor
A
|
|
$
|
39,136
|
|
|
|
16
|
%
|
|
|
-
|
|
Vendor
B
|
|
|
201,959
|
|
|
|
84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
241,095
|
|
|
|
100
|
%
|
|
|
-
|
|
For
the year ended June 30, 2019, the vendors who accounted for 10% or more of the Company’s purchases and its accounts payable
balance at year-end are presented as follows:
|
|
For
the year ended
June 30, 2019
|
|
|
As
of
June 30, 2019
|
|
|
|
Purchases
|
|
|
Percentage
of
purchases
|
|
|
Accounts
payable
|
|
|
|
(audited)
|
|
|
(audited)
|
|
|
(audited)
|
|
Vendor
A
|
|
$
|
79,986
|
|
|
|
26
|
%
|
|
|
-
|
|
Vendor
B
|
|
|
209,275
|
|
|
|
69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
289,261
|
|
|
|
95
|
%
|
|
|
-
|
|
(c)
Credit risk
Financial
instruments that are potentially subject to credit risk consist principally of accounts receivable. The Company believes the concentration
of credit risk in its trade receivables is substantially mitigated by its ongoing credit evaluation process and relatively short
collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance
for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.
(d)
Exchange rate risk
The
Company cannot guarantee that the current exchange rate will remain steady; therefore, there is a possibility that the Company
could post the same amount of profit for two comparable periods and because of the fluctuating exchange rate actually post higher
or lower profit depending on exchange rate of HK$ converted to US$ on that date. The exchange rate could fluctuate depending on
changes in political and economic environments without notice.
13.
COMMITMENTS AND CONTINGENCIES
The
Company leases an office premises and a farm premises in Hong Kong under a non-cancellable operating lease that expire
on July 2020 with an aggregate fixed monthly rent of approximately $3,457 and $3,063, respectively; and a storage premises in
Hong Kong under a non-cancellable operating lease that expire on July 2020, with an aggregate fixed monthly rent of approximately
$82.
The
Company leases a farm premises and a warehouse premises in Hong Kong under a non-cancellable operating lease that expire on July
2024 with an aggregate fixed monthly rent of approximately $4,516 and $645, respectively.
The
aggregate lease expense for the years ended June 30, 2020 and 2019 are $83,355 and $9,290, respectively.
As
of June 30, 2020, the Company has aggregate future minimum rental payments of due under those non-cancellable operating lease
in the next one years and coming years, as follows:
Period
ending June 30:
|
|
|
|
2021
|
|
$
|
62,026
|
|
2022
|
|
|
61,932
|
|
2023
|
|
|
73,286
|
|
2024
|
|
|
79,737
|
|
2025
|
|
|
6,192
|
|
|
|
$
|
283,173
|
|
14.
OPERATING LEASE
The
Company has operating lease agreements for three office spaces with remaining lease terms of 1 month to 48 months. Leases with
an initial term of 12 months or less are not recorded on the balance sheet. The Company accounts for the lease and non-lease components
of its leases as a single lease component. Lease expense is recognized on a straight-line basis over the lease term.
Operating
lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of
lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities
represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements
is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease
payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit
rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives.
This
standard did not have a significant impact on our liquidity or on our compliance with our financial covenants associated with
our loans.
The
components of lease expense and supplemental cash flow information related to leases for the period are as follows:
|
|
For
the year ended
June 30,2020
|
|
|
|
|
|
Lease
cost
|
|
|
|
|
Operating
lease cost (included in general and administrative in company’s unaudited condensed statement of operations)
|
|
$
|
74,643
|
|
|
|
|
|
|
Other
information
|
|
|
|
|
Cash
paid for amounts included in the measurement of lease liabilities for the year ended June 30, 2020
|
|
$
|
75,608
|
|
Weighted
average remaining lease term-operating leases (in years)
|
|
|
4.5
|
|
Average
discount rate - operating leases
|
|
|
4
|
%
|
The
supplemental balance sheet information related to leases for the period is as follows:
|
|
As
at
June 30, 2020
|
|
|
|
|
|
Operating
leases
|
|
|
|
|
Long
-term right-of-use assets
|
|
|
256,720
|
|
|
|
|
|
|
Short-term
operating lease liabilities
|
|
|
53,624
|
|
Long-term
operating lease liabilites
|
|
|
202,132
|
|
Total
operating lease liabilities
|
|
|
255,756
|
|
|
|
|
|
|
Maturities
of the Company’s lease liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
Year
ending June 30,
|
|
|
|
|
2021
|
|
|
62,026
|
|
2022
|
|
|
61,932
|
|
2023
|
|
|
73,286
|
|
2024
|
|
|
79,737
|
|
2025
|
|
|
6,192
|
|
Total
lease payments
|
|
|
283,173
|
|
Less:
Imputed interest/present value discount
|
|
|
(27,417
|
)
|
Present
value of lease liabilities
|
|
|
255,756
|
|
15.
SUBSEQUENT EVENTS
In
accordance with ASC 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure
of events that occur after the balance sheet but before financial statements are issued, the Company has analyzed its operations
subsequent to June 30, 2020 to the date these financial statements were issued and has determined that it does not have any material
subsequent events to disclose in these financial statements.