NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 in China, the Company sells the high-end intelligent electronic equipment, which includes portable power banks for electronic devices and LCD screens in China.
On February 17, 2016, the Board ratified, approved, and authorized the Company, as the sole member of Well Best International Investment Limited (“Well Best”), on the formation of Taizhou Ionix Technology Company Limited (“Taizhou Ionix”), a company formed under the laws of China on December 17, 2015, and a wholly-owned subsidiary of Well Best. As a result, Taizhou Ionix is an indirect wholly-owned subsidiary of the Company. Taizhou Ionix conducted no business between its date of incorporation and date approved by the Board. Taizhou Ionix was formed to (i) develop, design, and manufacture lithium-ion batteries for electric vehicles, and (ii) act as an investment holding company that may acquire other businesses located in China. On August 19, 2016, Well Best sold 100% ownership of Taizhou Ionix to one of its directors. (See Note 4)
On May 19, 2016, the Company, as the sole member of 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. Xinyu Ionix started operation in August 2016 and focused on developing and designing lithium batteries as well as to act as an investment company that may acquire other businesses located in China. On April 30, 2017, Well Best sold 100% ownership of Xinyu Ionix to one of its directors. ( See Note 4)
On November 7, 2016, the Company’s Board of Directors approved and ratified the incorporation of Lisite Science Technology (Shenzhen) Co., Ltd (“Lisite Science”), a limited liability company formed in China on June 20, 2016. Well Best is the sole shareholder of Lisite Science. As a result, Lisite Science is an indirect, wholly-owned subsidiary of the Company. Lisite Science will act as a manufacturing base for the Company and has been focused on developing, producing and selling high-end intelligent electronic equipment, such as portable power banks.
On November 7, 2016, the Company’s Board of Directors approved and ratified the incorporation of Shenzhen Baileqi Electronic Technology Co., Ltd. (“Baileqi Electronic”), a limited liability company formed in China on August 8, 2016. Well Best is the sole shareholder of Baileqi Electronic. As a result, Baileqi Electronic is an indirect, wholly-owned subsidiary of the Company. Baileqi Electronic will act as a manufacturing base for the Company and has been focused on development and production of the LCD monitors.
On December 29, 2016, the Company’s Board of Directors approved and ratified to invest 99,999 HK dollars for 99.999% of the issued and outstanding stock of Welly Surplus International Limited (“Welly Surplus”), a limited company formed under the laws of Hong Kong on January 18, 2016. As a result of the investment, the Company became the majority shareholder of Welly Surplus, owning 99.999% of the outstanding stock of Welly Surplus, Mr Xin Sui, a director, owns 0.001% of the outstanding stock of Welly Surplus. Welly Surplus will act as the accounting and financial base for the Company and shall focus on assisting the Company with all of the Company’s financial affairs. Welly Surplus had no operating activities from inception until the date of acquisition.
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 $183,441 at June 30, 2017 and has not generated sufficient cash flow from its operations for the past two years. 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 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 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 Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Certain amounts have been reclassified to conform to current year presentation
Basis of consolidation
The consolidated financial statements include the accounts of Ionix Technology Inc. and its subsidiaries. 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, estimated useful life and residual value of property, plant and equipment, 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.
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 are 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. Based on the evaluation, the Company has determined that no allowance for doubtful accounts is required as of June 30, 2017 and 2016, respectively for the continuing operation. The allowance of $71,318 for doubtful accounts was recorded as of June 30, 2016 which was included in the current assets from discontinued operation.
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.
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.
Income taxes
Income taxes are determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and discloses in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
As of June 30, 2017 and 2016, 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.
Earnings (losses) per share
Basic earnings (losses) per ordinary share is based on the weighted effect of ordinary shares issued and outstanding, and is calculated by dividing net profit by the weighted average shares outstanding during period. Diluted earnings per ordinary share is calculated by dividing net profit by the weighted average number of ordinary shares used in the basic earnings per share calculation plus the number ordinary shares that would be issued assuming exercise or conversion of all potentially dilutive ordinary shares outstanding.
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 comprehensive income (loss).
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:
|
|
June 30, 2017
|
|
June 30, 2016
|
|
|
|
|
|
|
|
Balance sheet items, except for equity accounts
|
|
|
6.7744
|
|
|
|
6.6312
|
|
|
|
|
|
|
|
|
|
|
Items in statements of comprehensive income (loss)
and cash flows
|
|
|
6.7028
|
|
|
|
6.3120
|
|
Fair Value of Financial Instruments
The carrying value of the Company’s financial instruments: cash and cash equivalents, accounts and retention 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.
Management believes, based on the current market prices or interest rates for similar debt instruments, the fair value of 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.
The Company has no financial assets or liabilities measured at fair value on a recurring basis.
Recent accounting pronouncements
Recent accounting pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued, ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The guidance substantially converges final standards on revenue recognition between the FASB and the International Accounting Standards Board providing a framework on addressing revenue recognition issues and, upon its effective date, replaces almost all exiting revenue recognition guidance, including industry-specific guidance, in current U.S. generally accepted accounting principles. In April 2015, the FASB proposed a one-year delay in the effective date and companies will be allowed to early adopt as of the original effective date. Accordingly, this guidance will be effective for the Company beginning the first quarter of fiscal year 2018. The Company plans to adopt the new revenue guidance in the fiscal year of 2018 and is currently in the process of evaluating the impact on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. The amendments in this ASU clarify and include specific guidance to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments will be effective beginning the first quarter of fiscal year 2018. Early adoption of the amendments is permitted. The amendments in this ASU should be applied using a retrospective transition method to each period presented. The Company will adopt the amendments in the fiscal year of 2018. No significant impacts on the consolidated financial statements from the amendments were expected.
In November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
. The amendments in this ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash. Therefore, amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments will be effective beginning the first quarter of fiscal year 2018. Early adoption of the amendments is permitted. The amendments should be applied using a retrospective transition method to each period presented. The Company plans to adopt the amendments in the first quarter of fiscal year 2018. Since then, the changes in restricted cash in the consolidated cash flow are no longer presented within investing activities and will be retrospectively included in the changes of cash, cash equivalents and restricted cash as required.
In January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
. The amendments in this ASU clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amendments will be effective beginning the first quarter of fiscal year 2018. Early application is permitted. The amendments should be applied prospectively on or after the effective date. No disclosures are required at transition. The Company is currently evaluating the impact the amendments will have on the consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04,
Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
. The amendments in this ASU simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the amendments, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying value, which eliminates the current requirement to calculate a goodwill impairment charge by comparing the implied fair value of goodwill with its carrying amount. The amendments will be effective beginning the first quarter of fiscal year 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The amendments should be applied on a prospective basis. The Company is currently evaluating the impact the amendments will have on the consolidated financial statements.
In February 2017, the FASB issued ASU No. 2017-05,
Derecognition and Partial Sales of Nonfinancial Assets
. The amendments in this ASU clarify the scope of guidance on nonfinancial asset derecognition (ASC 610-20) as well as the accounting for partial sales of nonfinancial assets. The amendments will be effective beginning the first quarter of fiscal year 2018. Early adoption is permitted but is conditioned upon the early adoption of the new revenue standard (ASC 606). The amendments should be applied on a full or modified retrospective basis. The Company is currently evaluating the impact the amendments will have on the consolidated financial statements.
NOTE 4– DISCONTINUED OPERATIONS
QI System
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 years ended June 30, 2017 and 2016 which are included in the loss from discontinued operations for the termination of QI System:
|
|
For the years ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost of revenue
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
-
|
|
|
|
6,539
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
-
|
|
|
|
(6,539
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
$
|
-
|
|
|
$
|
(6,539
|
)
|
Taizhou Ionix
On August 19, 2016, Well Best entered into a share transfer agreement whereby Well Best sold 100% of its equity interest in 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 Ionix 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 loss of $18,890 on disposal of Taizhou Ionix which was included in the loss from disposal of discontinued operations on statements of comprehensive income (loss)
.
The following table shows the results of operations of Taizhou Ionix for the years ended June 30, 2017 and 2016 which are included in the income from discontinued operations:
|
|
For the period from
July 1 to August 19,
2016
|
|
|
For the year ended
June 30,2016
|
|
Revenue
|
|
$
|
173,005
|
|
|
$
|
1,972,473
|
|
Cost of revenue
|
|
|
(152,465
|
)
|
|
|
(1,846,598
|
)
|
Gross profit
|
|
|
20,540
|
|
|
|
125,875
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
8,917
|
|
|
|
105,245
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
11,623
|
|
|
|
20,630
|
|
Provision for income taxes
|
|
|
(2,906
|
)
|
|
|
(5,158
|
)
|
Net income
|
|
|
8,717
|
|
|
|
15,472
|
|
Xinyu Ionix
On April 30, 2017, Well Best, a wholly-owned subsidiary of the Company, sold 100% of its equity interest in Xinyu Ionix to Zhengfu Nan for RMB 100 ( approximately $14USD) pursuant to a Share Transfer Agreement dated April 30, 2017 (the “Agreement”). The Company believed that the manufacturing contract between Xinyu Ionix and Jiangxi Huanming Technology Co., Ltd. regarding the production of lithium batteries was not beneficial to the Company. As a result, (i) Xinyu Ionix is no longer an indirect, wholly-owned subsidiary of the Company, and (ii) Mr. Nan is no longer affiliated with the Company. Well Best recorded a loss of $31,115 on disposal of Xinyu Ionix which was included in the loss from disposal of discontinued operations on statements of comprehensive income (loss).
The following table shows the results of operations of Xinyu Ionix for the years ended June 30, 2017 and 2016 which are included in the income from discontinued operations:
|
|
For the period from
July 1,2016 to
April 30, 2017
|
|
|
For the year ended
June 30,2016
|
|
Revenue
|
|
$
|
858,357
|
|
|
$
|
-
|
|
Cost of revenue
|
|
|
(769,418
|
)
|
|
|
-
|
|
Gross profit
|
|
|
88,939
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
34,427
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
54,512
|
|
|
|
-
|
|
Provision for income taxes
|
|
|
(23,382
|
)
|
|
|
-
|
|
Net income
|
|
$
|
31,130
|
|
|
$
|
-
|
|
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 raw materials of $53,163 and $0 for the years ended June 30, 2017 and 2016, respectively.
NOTE6- OTHER RECEIVABLES
Other receivables represent short term advances to third parties. They are interest free, unsecured and repayable on demand. The balance of the other receivables as of June 30, 2017 was repaid in full in September 2017.
NOTE 7 -DUE FROM/TO RELATED PARTIES
Manufacture – related party
On September 1, 2016, Baileqi entered into a manufacturing agreement with Shenzhen Baileqi Science and Technology Co., Ltd. (“Shenzhen Baileqi S&T”) to manufacture products for Baileqi. The owner of Shenzhen Baileqi S&T is also a shareholder of the Company who owns approximately 1.5% of the Company’s outstanding common stock as of June 30, 2017. Baileqi made payments to Shenzhen Baileqi S&T for manufacturing cost. The manufacturing costs incurred with Shenzhen Baileqi S&T was $153,718 for the year ended June 30, 2017 and was included in cost of revenue.
Purchase from related party
During the year ended June 30, 2017, the Company purchased $3,303,081 and $305,750 from Keenest and Shenzhen Baileqi S&T which were owned by the Company’s shareholders who own approximately 2% and 1.5% respectively of the Company’s outstanding common stock as of June 30, 2017. The amount of $3,303,081 and $305,750 were included in the cost of revenue. The balance payable to these two related parties were zero and $159,861 respectively as of June 30, 2017.
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.
Due to related parties consists of the following:
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
Ben Wong
|
|
$
|
143,792
|
|
|
$
|
53,510
|
|
|
|
|
|
|
|
|
|
|
Changyong Yang
|
|
|
122,820
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Xin Sui
|
|
|
6,992
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Shenzhen Baileqi S&T
|
|
|
41,405
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Baozhen Deng
|
|
|
8,590
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
323,599
|
|
|
$
|
53,510
|
|
During the year ended June 30, 2016, Ben Wong, the controlling shareholder of Shinning Glory until April 20, 2017, which holds majority shares in Ionix Technology, Inc., advanced $15,770 to the Company, and $37,740 to Well Best.
During the year ended June 30, 2017, Ben Wong advanced $90,282 to Well Best. Changyong Yang, a shareholder of the Company, advanced $122,820 to Lisite Science. Baozhen Deng, a shareholder of the Company and the owner of Shenzhen Baileqi S&T, advanced $8,590 to Baileqi Electronic. Shenzhen Baileqi S&T, a company 100% owned by Baozhen Deng, advanced $41,405 to Baileqi Electronic. Xin Sui, a member of the board of directors of Welly Surplus, advanced $6,992 to Welly Surplus.
NOTE 8– CONCENTRATION
Major customers
Customers who accounted for 10% or more of the Company’s revenues for the years ended June 30, 2017 and 2016 and its outstanding balance of accounts receivable as of June 30, 2017 and 2016 are presented as follows:
|
|
For the year ended
June 30, 2017
|
|
|
As of June 30, 2017
|
|
|
|
Revenue
|
|
|
Percentage of
revenue
|
|
|
Accounts
receivable
|
|
|
Percentage of
accounts
receivable
|
|
Customer A
|
|
$
|
3,084,370
|
|
|
|
45
|
%
|
|
$
|
-
|
|
|
|
-
|
%
|
Customer B- related party
|
|
|
1,493,090
|
|
|
|
22
|
%
|
|
|
-
|
|
|
|
-
|
%
|
Total
|
|
$
|
4,577,460
|
|
|
|
67
|
%
|
|
$
|
-
|
|
|
|
-
|
%
|
|
|
For the year ended
June 30, 2016
|
|
|
As of June 30, 2016
|
|
|
|
Revenue
|
|
|
Percentage of
revenue
|
|
|
Accounts
receivable
|
|
|
Percentage of
accounts receivable
|
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
$
|
1,480,073
|
|
|
|
75
|
%
|
|
$
|
1,267,274
|
|
|
|
86
|
%
|
Customer B
|
|
|
368,162
|
|
|
|
19
|
%
|
|
|
214,221
|
|
|
|
14
|
%
|
Total
|
|
$
|
1,848,235
|
|
|
$
|
94
|
%
|
|
$
|
1,481,495
|
|
|
|
100
|
%
|
All customers are located in the PRC.
Major suppliers
The supplier who accounted for 10% or more of the Company’s total purchases (materials and services) for the years ended June 30, 2017 and 2016 and its outstanding balance of accounts payable as of June 30, 2017 and 2016 are presented as follows:
|
|
For the year ended
June 30, 2017
|
|
|
As of June 30, 2017
|
|
|
|
Total Purchase
|
|
|
Percentage of
total purchase
|
|
|
Accounts
payable
|
|
|
Percentage of
accounts
payable
|
|
Supplier A- related party
|
|
$
|
3,303,081
|
|
|
|
51
|
%
|
|
$
|
-
|
|
|
|
-
|
%
|
Total
|
|
$
|
3,303,081
|
|
|
|
51
|
%
|
|
$
|
-
|
|
|
|
-
|
%
|
|
|
For the year ended
June 30, 2016
|
|
|
As of June 30, 2016
|
|
|
|
Total Purchase
|
|
|
Percentage of
total purchase
|
|
|
Accounts
payable/Due to
related parties
|
|
|
Percentage of
accounts
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplier A-related party
|
|
$
|
720,078
|
|
|
|
34
|
%
|
|
$
|
528,720
|
|
|
|
N/A
|
|
Supplier B
|
|
|
452,807
|
|
|
|
22
|
%
|
|
|
416,810
|
|
|
|
54
|
%
|
Total
|
|
$
|
1,172,885
|
|
|
|
56
|
%
|
|
$
|
945,530
|
|
|
|
54
|
%
|
All suppliers of the Company are located in the PRC.
NOTE 9- 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 and after were still open to audit as of June 30, 2017.
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 June 30, 2017.
Hong Kong
The Well Best and Welly Surplus are registered in Hong Kong
.
For the years ended June 3
0
, 2017, there is no assessable income chargeable to profit tax in Hong Kong.
The PRC
Lisite Science and Baileqi Electronic are operating in the PRC and is 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 years ended June 30
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
U.S. Statutory rate
|
|
$
|
31,933
|
|
|
$
|
(18,677
|
)
|
Tax rate difference between foreign operation and U.S.
|
|
|
(18,474
|
)
|
|
|
6,108
|
|
Change in valuation allowance
|
|
|
34,977
|
|
|
|
12,569
|
|
Permanent difference
|
|
|
(18,818
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
$
|
29,618
|
|
|
$
|
-
|
|
The provisions for income taxes are summarized as follows:
|
|
For the years ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Current
|
|
$
|
29,618
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,618
|
|
|
$
|
-
|
|
The tax effects of temporary differences that give rise to the Company’s net deferred tax assets are as follows:
|
|
As of June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net operating loss carryforward
|
|
$
|
42,830
|
|
|
$
|
12,569
|
|
Others
|
|
|
4,716
|
|
|
|
-
|
|
|
|
|
47,546
|
|
|
|
12,569
|
|
Less valuation allowance
|
|
|
(47,546
|
)
|
|
|
(12,569
|
)
|
Deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
As of June 30, 2017, the Company has approximately $240,000 net operating loss carryforwards available in the U.S. and Hong Kong to reduce future taxable income which will begin to expire from 2035. It is more likely than not that the deferred tax assets cannot be utilized in the future because there will not be significant future earnings from the entity which generated the net operating loss. Therefore, the Company recorded a full valuation allowance on its deferred tax assets for the years ended June 30, 2017 and 2016.
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 10- SUBSEQUENT EVENTS
The Company has evaluated the existence of significant events subsequent to the balance sheet date through the date the financial statements were issued and has determined that there were no subsequent events or transactions which would require recognition or disclosure in the financial statements.