UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

  

Form 10-Q

  

☒   Quarterly Report PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

or

☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from                to               .

 

Commission File Number 000-54485

 

IONIX TECHNOLOGY, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada   45-0713638
(State or other jurisdiction of
incorporation or organization) 		  (I.R.S. Employer
Identification No.)

 

Rm 608, Block B, Times Square, No.50 People Road, Zhongshan District, Dalian City, Liaoning Province, China 116001

(Address of Principal Executive Offices) (Zip Code)

 

+86-411-88079120

(Registrant’s Telephone Number, Including Area Code)

 

__Not applicable_

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer  ☐ Accelerated filer  ☐
  Non-accelerated filer    ☒ Smaller reporting company  ☒
  Emerging growth company  ☐  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒.

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of each class Trading Symbol(s) Name of the principal U.S. market
Common Stock, par value $0.0001
per share 		IINX OTCQB marketplace of OTC Markets, Inc.

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of May 15, 2020, there were 114,193,057 shares of common stock issued and outstanding, par value $0.0001 per share.

 

 

 

     
 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain information included in this Quarterly Report on Form 10-Q and other filings of the Registrant under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as information communicated orally or in writing between the dates of such filings, contains or may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements in this Quarterly Report on Form 10-Q, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from expected results. Among these risks, trends and uncertainties are the availability of working capital to fund our operations, the competitive market in which we operate, the efficient and uninterrupted operation of our computer and communications systems, our ability to generate a profit and execute our business plan, the retention of key personnel, our ability to protect and defend our intellectual property, the effects of governmental regulation, and other risks identified in the Registrant’s filings with the Securities and Exchange Commission from time to time.

 

In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology. Although the Registrant believes that the expectations reflected in the forward-looking statements contained herein are reasonable, the Registrant cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the Registrant, nor any other person, assumes responsibility for the accuracy and completeness of such statements. The Registrant is under no duty to update any of the forward-looking statements contained herein after the date of this Quarterly Report on Form 10-Q.

 

     
 

 

IONIX TECHNOLOGY, INC.

FORM 10-Q

March 31, 2020

  

INDEX

    Page
Part I – Financial Information F-1
     
Item 1. Financial Statements (Unaudited) F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation 25
Item 3. Quantitative and Qualitative Disclosures about Market Risk 28
Item 4. Controls and Procedures 28
     
Part II – Other Information 29
     
Item 1. Legal Proceedings 29
Item 1A. Risk Factors 29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 29
Item 3. Defaults Upon Senior Securities 30
Item 4. Mine Safety Disclosures 30
Item 5. Other Information 30
Item 6. Exhibits 30
     
Signatures 31
     
Certifications  

 

     
 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

IONIX TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

    March 31, 2020     June 30, 2019  
ASSETS                
Current Assets:                
Cash and cash equivalents (Note 3 at VIE)   $ 1,834,763     $ 509,615  
Notes receivable (Note 3 at VIE)     23,721       120,182  
Accounts receivable - non-related parties (Note 3 at VIE)     3,494,207       3,639,030  
- related parties     420,906       340,026  
Inventory (Note 3 at VIE)     3,045,127       3,379,146  
Advances to suppliers - non-related parties (Note 3 at VIE)     354,820       129,423  
- related parties     264,797       269,498  
Prepaid expenses and other current assets (Note 3 at VIE)     593,122       269,495  
Total Current Assets (Note 3 at VIE)     10,031,463       8,656,415  
                 
Property, plant and equipment, net (Note 3 at VIE)     6,812,910       7,508,637  
Right-of-use assets – operating leases     20,825       -  
Intangible assets, net (Note 3 at VIE)     1,430,449       1,496,399  
Deferred tax assets (Note 3 at VIE)     51,460       54,361  
Total Assets (Note 3 at VIE)   $ 18,347,107     $ 17,715,812  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current Liabilities:                
Short-term bank loan (Note 3 at VIE)   $ 2,540,543     $ 2,618,296  
Accounts payable (Note 3 at VIE)     2,569,420       2,732,327  
Advance from customers (Note 3 at VIE)     59,165       114,158  
Convertible notes payable, net of debt discount and loan cost     347,427       -  
Derivative liability     446,852       -  
Due to related parties (Note 3 at VIE)     2,032,723       2,105,338  
Operating lease liabilities – current portion     7,646       -  
Accrued expenses and other current liabilities (Note 3 at VIE)     199,015       368,319  
Total Current Liabilities (Note 3 at VIE)     8,202,791       7,938,438  
                 
Operating lease liabilities     12,462       -  
Total Liabilities (Note 3 at VIE)     8,215,253       7,938,438  
                 
COMMITMENT AND CONTINGENCIES                
                 
Stockholders’ Equity:                
Preferred stock, $.0001 par value, 5,000,000 shares authorized,  
5,000,000 shares issued and outstanding 		    500       500  
Common stock, $.0001 par value, 195,000,000 shares
authorized, 114,193,057 and 114,003,000 shares issued and
outstanding as of March 31, 2020 and June 30, 2019,
respectively 		    11,419       11,400  
Additional paid in capital     9,299,825       8,829,487  
Retained earnings     750,578       539,866  
Accumulated other comprehensive loss     (372,429 )     (45,840 )
Total Stockholders' Equity attributable to the Company     9,689,893       9,335,413  
Noncontrolling interest     441,961       441,961  
Total Stockholders’ Equity     10,131,854       9,777,374  
Total Liabilities and Stockholders’ Equity   $ 18,347,107     $ 17,715,812  

  

The accompanying notes are an integral part of these consolidated financial statements.

 

  F-1  
 

 

IONIX TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

    For the Three Months Ended     For the Nine Months Ended  
    March 31,     March 31,  
    2020     2019     2020     2019  
                         
Revenues (See Note 2 and Note 9 for
related party amounts) 		  $ 2,752,170     $ 2,894,802     $ 17,585,468     $ 7,841,437  
                                 
Cost of Revenues (See Note 9 for related
party amounts) 		    2,506,518       2,271,380       14,850,194       6,618,015  
                                 
Gross profit     245,652       623,422       2,735,274       1,223,422  
                                 
Operating expenses                                
Selling, general and administrative expense     499,616       392,367       1,378,241       686,132  
Research and development expense     139,029       158,562       645,880       158,562  
Total operating expenses     638,645       550,929       2,024,121       844,694  
                                 
Income (loss) from operations     (392,993 )     72,493       711,153       378,728  
                                 
Other income (expense):                                
Interest expense, net of interest income     (213,267 )     (34,412 )     (470,500 )     (34,412 )
Subsidy income     -       -       50,018       -  
Change in fair value of derivative liability     (44,850 )     -       86,602       -  
Loss on extinguishment of debt     (15,074 )     -       (15,074 )     -  
Total other expense     (273,191 )     (34,412 )     (348,954 )     (34,412 )
                                 
Income (loss) before income tax provision     (666,184 )     38,081       362,199       344,316  
                                 
Income tax provision (benefit)     (29,962 )     17,017       151,487       139,245  
Net income (loss)     (636,222 )     21,064       210,712       205,071  
                                 
Other comprehensive income (loss)                                
Foreign currency translation adjustment     (165,507 )     56,484       (326,589 )     28,523  
Comprehensive income (loss)   $ (801,729 )   $ 77,548     $ (115,877 )   $ 233,594  
                                 
                                 
Earnings (Loss) Per Share - Basic   $ (0.01 )   $ 0.00     $ 0.00     $ 0.00  
Weighted average number of common
shares outstanding - Basic 		    114,104,735       114,003,000       114,036,665       104,148,985  
                                 
Earnings (Loss) Per Share - Diluted   $ (0.01 )   $ 0.00     $ 0.00     $ 0.00  
Weighted average number of common
shares outstanding - Diluted 		    113,913,240       114,003,000       114,036,665       104,148,985  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  F-2  
 

  

IONIX TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

 

    Preferred Stock     Common Stock     Additional           Accumulated Other              
    Number of Shares     Amount     Number of Shares     Amount     Paid-in
Capital 		    Retained
Earnings 		    Comprehensive Income
(loss) 		    Non-controlling
interest 		    Total  
Balance at June 30, 2019     5,000,000     $ 500       114,003,000     $ 11,400     $ 8,829,487     $ 539,866     $ (45,840 )   $ 441,961     $ 9,777,374  
                                                                         
Stock warrants issued with convertible notes     -       -       -       -       20,022       -       -       -       20,022  
                                                                         
Net income     -       -       -       -       -       711,276       -       -       711,276  
                                                                         
Foreign currency translation adjustment     -       -       -       -       -       -       (416,785 )     -       (416,785 )
                                                                         
Balance at September 30, 2019     5,000,000       500       114,003,000       11,400       8,849,509       1,251,142       (462,625 )     441,961       10,091,887  
                                                                         
Stock warrants issued with convertible notes     -       -       -       -       84,613       -       -       -       84,613  
                                                                         
Net income     -       -       -       -       -       135,658       -       -       135,658  
                                                                         
Foreign currency translation adjustment     -       -       -       -       -       -       255,703       -       255,703  
                                                                         
Balance at December 31, 2019     5,000,000       500       114,003,000       11,400       8,934,122       1,386,800       (206,922 )     441,961       10,567,861  
                                                                         
Issuance of common stock for advisory services     -       -       150,000       15       262,485       -       -       -       262,500  
                                                                         
Issuance of common stock for conversion of convertible notes     -       -       40,057       4       60,361       -       -       -       60,365  
                                                                         
Stock warrants issued with convertible notes     -       -       -       -       42,857       -       -       -       42,857  
                                                                         
Net loss     -       -       -       -       -       (636,222 )     -       -       (636,222 )
                                                                         
Foreign currency translation adjustment     -       -       -       -       -       -       (165,507 )     -       (165,507 )
                                                                         
Balance at March 31, 2020     5,000,000     $ 500       114,193,057     $ 11,419     $ 9,299,825     $ 750,578     $ (372,429 )   $ 441,961     $ 10,131,854  
                                           
    Preferred Stock     Common Stock     Additional           Accumulated Other              
    Number of Shares     Amount     Number of Shares     Amount     Paid-in
Capital 		    Retained
Earnings 		    Comprehensive Income
(loss) 		    Non-controlling
interest 		    Total  
Balance at June 30, 2018     5,000,000     $ 500       99,003,000     $ 9,900     $ 237,246     $ 142,819     $ 7,950     $ -     $ 398,415  
                                                                         
Net income     -       -       -       -       -       177,153       -       -       177,153  
                                                                         
Foreign currency translation adjustment     -       -       -       -       -       -       (7,922 )     -       (7,922 )
                                                                         
Balance at September 30, 2018     5,000,000       500       99,003,000       9,900     $ 237,246       319,972       28       -       567,646  
                                                                         
Issuance of 15,000,000 shares of common stock in
exchange for 95.14% ownership rights of a variable
interest entity 		    -       -       15,000,000       1,500       8,650,396       -       -       441,961       9,093,857  
                                                                         
Net income     -       -       -       -       -       6,854       -       -       6,854  
                                                                         
Foreign currency translation adjustment     -       -       -       -       -       -       (20,039 )     -       (20,039 )
                                                                         
Balance at December 31, 2018     5,000,000       500       114,003,000       11,400       8,887,642       326,826       (20,011 )     441,961       9,648,318  
                                                                         
Return of capital     -       -       -       -       (58,155 )     -       -       -       (58,155 )
                                                                         
Net income     -       -       -       -       -       21,064       -       -       21,064  
                                                                         
Foreign currency translation adjustment     -       -       -       -       -       -       56,484       -       56,484  
                                                                         
Balance at March 31, 2019     5,000,000     $ 500       114,003,000     $ 11,400     $ 8,829,487     $ 347,890     $ 36,473     $ 441,961     $ 9,667,711  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  F-3  
 

 

IONIX TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    For the Nine Months Ended  
    March 31,  
    2020     2019  
CASH FLOWS FROM OPERATING ACTIVITIES                
Net income   $ 210,712     $ 205,071  
Adjustments required to reconcile net income to net cash provided by
(used in) operating activities: 		               
Depreciation and amortization     580,625       184,172  
Deferred taxes     1,306       (15,732 )
Stock compensation for advisory services     79,891       -  
Change in fair value of derivative liability     (86,602 )     -  
Loss on extinguishment of debt     15,074       -  
Non-cash interest     351,474       -  
Gain on disposal of property and equipment     (7,018 )     -  
Changes in operating assets and liabilities:                
Accounts receivable - non-related parties     37,312       593,935  
Accounts receivable - related parties     (92,348 )     (22,607 )
Inventory     237,193       (774,776 )
Advances to suppliers - non-related parties     (232,695 )     13,826  
Advances to suppliers - related parties     (3,352 )     (114,802 )
Prepaid expenses and other current assets     (150,496 )     (75,559 )
Accounts payable - non-related parties     (83,000 )     (645,258 )
Accounts payable - related parties     -       (198,782 )
Advance from customers     (52,380 )     (61,014 )
Accrued expenses and other current liabilities     (164,326 )     10,938  
Net cash provided by (used in) operating activities     641,370       (900,588 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Acquisition of property, plant and equipment     (193,610 )     (38,375 )
Proceeds received from sale of equipment     121,715       -  
Cash received from acquisition     -       687,591  
Net cash provided by (used in) investing activities     (71,895 )     649,216  
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Notes receivable     94,292       54,451  
Proceeds from issuance of convertible notes payable     722,190       -  
Return of capital to non-controlling interests     -       (58,155 )
Proceeds from (repayment of) loans from related parties     (28,979 )     591,766  
Net cash provided by financing activities     787,503       588,062  
                 
Effect of exchange rate changes on cash     (31,830 )     46,668  
                 
Net increase in cash and cash equivalents     1,325,148       383,358  
                 
Cash and cash equivalents, beginning of period     509,615       111,462  
                 
Cash and cash equivalents, end of period   $ 1,834,763     $ 494,820  
                 
Supplemental disclosure of cash flow information                
Cash paid for income tax   $ 154,538     $ 144,124  
Cash paid for interests   $ 102,457     $ 35,250  
                 
Non-cash investing and financing activities                
Issuance of 15,000,000 shares of common stock in exchange for
95.14% ownership rights of a variable interest entity 		  $ -     $ 8,651,896  
Issuance of common stock for advisory services   $ 262,500     $ -  
Issuance of 40,057 shares of common stock for conversion of
convertible notes 		  $ 60,365     $ -  

  

The accompanying notes are an integral part of these consolidated financial statements.

 

  F-4  
 

 

IONIX TECHNOLOGY, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(UNAUDITED)

 

NOTE 1 - NATURE OF OPERATIONS

 

Ionix Technology, Inc. (the “Company” or “Ionix”), formerly known as Cambridge Projects Inc., is a Nevada corporation that was formed on March 11, 2011. By and through its wholly owned subsidiaries and an entity controlled through VIE agreements in China, the Company sells the high-end intelligent electronic equipment, which includes the portable power banks for electronic devices, LCM and LCD screens and provides IT and solution-oriented services in China.

 

NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

 

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of March 31, 2020 and the results of operations and cash flows for the periods ended March 31, 2020 and 2019. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three and nine months ended March 31, 2020 are not necessarily indicative of the results to be expected for the entire year ending June 30, 2020 or for any subsequent periods. The balance sheet at June 30, 2019 has been derived from the audited consolidated financial statements at that date.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended June 30, 2019 as included in our Annual Report on Form 10-K as filed with the SEC on September 30, 2019.

 

Basis of consolidation

 

The consolidated financial statements include the accounts of Ionix, its wholly owned subsidiaries and an entity which the Company controls 95.14% and receives 100% of net income or net loss through VIE agreements. All significant inter-company balances and transactions have been eliminated upon consolidation.

 

Certain amounts have been reclassified to conform with current year presentation.

 

Use of Estimates

 

The Company’s consolidated financial statements have been prepared in accordance with US GAAP and this requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting period. The significant areas requiring the use of management estimates include, but are not limited to, the allowance for doubtful accounts receivable and advance to suppliers, the valuation of inventory, provision for staff benefit, recognition and measurement of deferred income taxes and valuation allowance for deferred tax assets. Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ from those estimates and such differences may be material to our consolidated financial statements.

 

Revenue recognition

 

The Company adopted the new accounting standard, ASC 606, Revenue from Contracts with Customers, and all the related amendments (new revenue standard) to all contracts using the modified retrospective method beginning on July 1, 2018. The adoption did not result in an adjustment to the retained earnings as of June 30, 2018. The comparative information was not restated and continued to be reported under the accounting standards in effect for those periods. The adoption of the new revenue standard has no impact on either reported sales to customers or net earnings.

 

  F-5  
 

 

The Company estimates return based on historical results, taking into consideration the type of customers, the type of transactions and the specifics of each arrangement.

 

Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

 

· identify the contract with a customer;

· identify the performance obligations in the contract;

· determine the transaction price;

· allocate the transaction price to performance obligations in the contract; and

· recognize revenue as the performance obligation is satisfied.

 

Under these criteria, for revenues from sale of products, the Company generally recognizes revenue when its products are delivered to customers in accordance with the written sales terms. For service revenue, the Company recognizes revenue when services are performed and accepted by customers.

 

The following table disaggregates our revenue by major source for the three and nine months ended March 31, 2020 and 2019, respectively:

 

    For the Nine Months Ended March 31,  
    2020     2019  
             
Sales of LCM and LCD screens - Non-related parties   $ 14,518,376     $ 5,634,086  
Sales of LCM and LCD screens - Related parties     718,194       115,897  
Sales of portable power banks     1,719,127       1,831,387  
Service contracts     629,771       260,067  
Total   $ 17,585,468     $ 7,841,437  

 

    For the Three Months Ended March 31,  
    2020     2019  
             
Sales of LCM and LCD screens - Non-related parties   $ 2,487,465     $ 2,760,934  
Sales of LCM and LCD screens - Related parties     73,802       -  
Sales of portable power banks     181,033       -  
Service contracts     9,870       133,868  
Total   $ 2,752,170     $ 2,894,802  

 

All the operating entities of the Company are domiciled in the PRC. All the Company’s revenues are derived in the PRC during the three and nine months ended March 31, 2020 and 2019.

 

Leases

 

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on balance sheet and disclose key information about the leasing arrangements. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.

 

  F-6  
 

 

The new standard is effective for us on July 1, 2019, with early adoption permitted. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. The Company adopted the new standard on July 1, 2019 and use the effective date as our date of initial application. Consequently, financial information is not provided for the dates and periods before July 1, 2019. The new standard provides a number of optional expedients in transition. The Company elected the package of practical expedients which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.

 

The new standard has a material effect on our financial statements. The most significant effects are related to the recognition of new ROU assets and lease liabilities on our balance sheet for our real estate operating leases. The Company has entered into an office lease arrangement in China with a lease term longer than 12 months under which we are the lessee. (See Note 5)

 

Earnings Per Share

 

Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental shares issuable upon exercise of stock options and warrants and conversion of convertible debt. Such potentially dilutive shares are excluded when the effect would be to reduce a net loss per share or increase a net income per share.

 

The reconciliation of our basic to diluted weighted average common shares follows:

 

    Three Months Ended
March 31 		    Nine Months Ended
March 31 		 
    2020     2019     2020     2019  
                         
Basic weighted average common shares     114,104,735       114,003,000       114,036,665       104,148,985  
Effect of potentially dilutive securities                                
- Warrants     (191,495 )     -       -       -  
- Convertible notes     -       -       -       -  
Diluted weighted average common shares     113,913,240       114,003,000       114,036,665       104,148,985  

 

During the nine months ended March 31, 2020, the Company had outstanding convertible notes and warrants which represent 899,753 shares of commons stock. These shares of common stock were excluded from the computation of diluted earnings per share since their effect would have been antidilutive.

 

During the three months ended March 31, 2020, the Company had outstanding convertible notes and warrants which represent 842,313 shares of commons stock, among which 613,147 shares of common stock for convertible notes were excluded from the computation of diluted earnings per share since their effect would have been antidilutive.

 

Foreign currencies translation

 

The reporting currency of the Company is the United States Dollar (“US$”). The Company’s subsidiaries in the People’s Republic of China (“PRC”) maintain their books and records in their local currency, the Renminbi Yuan (“RMB”), which is the functional currency as being the primary currency of the economic environment in which these entities operate.

 

In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. Stockholders’ equity is translated at historical rates. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statements of stockholders’ equity.

 

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction.

 

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:

 

  F-7  
 

 

    March 31, 2020     June 30, 2019  
                 
Balance sheet items, except for equity accounts     7.0851       6.8747  

 

 

    Nine Months Ended March 31,  
      2020       2019  
                 
Items in statements of comprehensive income (loss) and cash flows     6.9799       6.6639  

 

Fair Value of Financial Instruments

 

The carrying value of the Company’s financial instruments: cash and cash equivalents, accounts receivable, inventory, prepayments and other receivables, accounts payable, income tax payable, other payables and accrued liabilities approximate at their fair values because of the short-term nature of these financial instruments.

 

The Company also follows the guidance of the ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

 

Level 1: Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;

 

Level 2: Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. Black-Scholes Option-Pricing model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs; and

 

Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.

 

Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

 

The Company has the derivative liabilities measured at fair value on a recurring basis which are valued at level 3 measurement (See Note 12).

 

Convertible Instruments

 

The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”.

 

Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

 

The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.

 

  F-8  
 

 

The Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities.

 

Common Stock Purchase Warrants

 

The Company classifies as equity any contracts that require physical settlement or net-share settlement or provide a choice of net-cash settlement or settlement in the Company’s own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC 815-40 ("Contracts in Entity's Own Equity"). The Company classifies as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).

 

Recent accounting pronouncements

 

From time to time, new accounting pronouncements are issues by the Financial Accounting Standards Board or other standard bodies that may have an impact on the Company’s accounting and reporting. The Company believes that any recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flows when implemented.

 

Risk factor

 

Due to the outbreak of the Coronavirus Disease 2019 (COVID-19) in the PRC, the Company’s operational and financial performance has been affected by the epidemic during the three months period ended March 31, 2020. The Company has been keeping continuous attention on the situation of the COVID-19, assessing and reacting actively to its impacts on the financial position and operating results of the Company as below:

 

· During PRC national economic shutdown that was imposed to limit the spread of COVID-19 from this early February to mid-March, our financial condition and results of operations were adversely affected. Since the restarting of our operation near the end of this March, our financial performances have been recovering continuously.

 

· As the outbreak in China has been subsiding recently and the Chinese government responded with the package of support including tax-cut and financial assistance, we keep our continuous attention on the situation of the COVID-19, assess and react actively to its impacts on our future operating results or near-and-long-term financial condition. Up to the date of this report, the assessment is still in progress.

 

· Since we restored our operation near the end of this March after signs that COVID-19 was under control, we assessed that 1) COVID-19-related impacts on our cost of capital or access to capital and funding sources and our sources or uses of cash have been insignificant; 2) There is no material uncertainty about our ongoing ability to meet the covenants of our credit agreements; 3) No any material liquidity deficiency has been identified and we do not expect to disclose or incur any material COVID-19-related contingencies;4) COVID-19-related impacts on the assets on our balance sheet or our ability to timely account for those assets have been insignificant; and 5) The possibilities for COVID-19 to trigger any material impairments, increases in allowances for credit losses, restructuring charges, other expenses, or changes in accounting judgments that have had or are reasonably likely to have a material impact on our financial statements are low. Looking forward, we keep our continuous attention on the situation of the COVID-19, assess and react actively to its impacts on issues mentioned above.

 

· During PRC national economic shutdown that was imposed to limit the spread of COVID-19 from this early February to mid-March, COVID-19-related circumstances such as remote work arrangements adversely affected our ability to maintain operations. Since the lifting of the national shutdown order near the end of this March, our operations including financial reporting systems, internal control over financial reporting and disclosure controls and procedures have already resumed. Currently we keep our continuous attention on the situation of the COVID-19, assess and react actively to its impacts on our future business continuity plans or whether material resource constraints in implementing these plans. Up to the date of this report, the assessment is still in progress.

 

  F-9  
 

 

· During PRC national economic shutdown that was imposed to limit the spread of COVID-19 from this early February to mid-March, the demands for our products or services were severely affected. Since the restarting of our operation near the end of this March, the demands have been rebounding continuously.

 

· During PRC national economic shutdown that was imposed to limit the spread of COVID-19 from this early February to mid-March, our supply chain or the methods used to distribute our products or services were severely affected. Since the lift of the national shutdown order near the end of this March, we expect all of our supply chains or the methods would return to normal gradually.

 

NOTE 3 – VARIABLE INTEREST ENTITY

 

On December 27, 2018, the Company entered into VIE agreements with two shareholders of Changchun Fangguan Electronics Technology Co., Ltd. (PRC) (“Fangguan Electronics”) to control 95.14% of the ownership rights and receive 100% of the net profit or net losses derived from the business operations of Fangguan Electronics. In exchange for VIE agreements and additional capital contribution, the Company issued 15 million shares of common stock to two shareholders of Fangguan Electronics.

 

The transaction was accounted for as a business combination using the acquisition method of accounting. The assets, liabilities and the operations of Fangguan Electronics subsequent to the acquisition date were included in the Company’s consolidated financial statements.

 

Following unaudited pro forma combined statement of operations are based upon the historical financial statements of the Company and Fangguan Electronics for the nine months ended March 31, 2019 and are presented as if the acquisition had occurred at the beginning of the period.

 

    For the Nine Months Ended March 31, 2019  
    Fangguan
Electronics 		    Ionix
Technology 		    Pro Forma
 Adjustments 		    Pro Forma
Combined 		 
                         
Revenues   $ 7,722,432     $ 7,841,437     $ (1,606,120 )   $ 13,957,749  
Cost of revenues     6,602,451       6,618,015       (1,173,150 )     12,047,316  
Gross profit     1,119,981       1,223,422       (432,970 )     1,910,433  
Operating expenses     926,013       844,694       -       1,770,707  
Income (loss) from operations     193,968       378,728       (432,970 )     139,726  
Other income (expense)     5,155       (34,412 )     -       (29,257 )
Income tax provision     29,972       139,245       -       169,217  
Net income (loss)   $ 169,151     $ 205,071     $ (432,970 )   $ (58,748 )

 

Through power of attorney, equity interest purchase agreement, and equity interest pledge agreement, 95.14% of the voting rights of Fangguan Electronics’ shareholders have been transferred to the Company so that the Company has effective control over Fangguan Electronics and have the power to direct the activities of Fangguan Electronics that most significantly impact its economic performance.

 

Through business operation agreement with the shareholders of VIE, the Company shall direct the business operations of Fangguan Electronics, including, but not limited to, adopting corporate policy regarding daily operations, financial management, and employment, and appointment of directors and senior officers.

 

Through the exclusive technical support service agreement with the shareholders of VIE, the Company shall provide VIE with necessary technical support and assistance as the exclusive provider. And at the request of the Company, VIE shall pay the performance fee, the depreciation and the service fee to the Company. The performance fee shall be equivalent to 5% of the total revenue of VIE in any fiscal year. The depreciation amount on equipment shall be determined by accounting rules of China. The Company has the right to set and revise annually this service fee unilaterally with reference to the performance of VIE.

 

  F-10  
 

 

The service fee that the Company is entitled to earn shall be the total business incomes of the whole year minus performance fee and equipment depreciation. This agreement allows the Company to collect 100% of the net profits of the VIE. Except for technical support, the Company did not provide, nor does it intend to provide, any financial or other support either explicitly or implicitly during the periods presented to its variable interest entity.

 

 If facts and circumstances change such that the conclusion to consolidate the VIE has changed, the Company shall disclose the primary factors that caused the change and the effect on the Company’s financial statements in the periods when the change occurs.

 

There are no restrictions on the consolidated VIE’s assets and on the settlement of its liabilities and all carrying amounts of VIE’s assets and liabilities are consolidated with the Company’s financial statements. In addition, the net income of Fangguan Electronics after Fangguan Electronics became the VIE of the Company is free of restrictions for payment of dividends to the shareholders of the Company.

 

Risks associated with the VIE structure

 

The Company believes that the contractual arrangements with its VIE and respective shareholders are in compliance with PRC laws and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:

 

· revoke the business and operating licenses of the Company’s PRC subsidiary and its VIE;
· discontinue or restrict the operations of any related-party transactions between the Company’s PRC subsidiary and its VIE;
· limit the Company’s business expansion in China by way of entering into contractual arrangements;
· impose fines or other requirements with which the Company’s PRC subsidiary and its VIE may not be able to comply;
· require the Company or the Company’s PRC subsidiary and its VIE to restructure the relevant ownership structure or operations; or
· restrict or prohibit the Company’s use of the proceeds from public offering to finance the Company’s business and operations in China.

 

The Company’s ability to conduct its business through its VIE may be negatively affected if the PRC government were to carry out of any of the aforementioned actions. As a result, the Company may not be able to consolidate its VIE in its consolidated financial statements as it may lose the ability to exert effective control over its VIE and its respective shareholders and it may lose the ability to receive economic benefits from its VIE. The Company, however, does not believe such actions would result in the liquidation or dissolution of the Company, its PRC subsidiary and its VIE. The following financial statement amounts and balances of its VIE were included in the accompanying consolidated financial statements after elimination of intercompany transactions and balances:

 

    Balance as of
 March 31, 2020 		    Balance as of
June 30, 2019 		 
             
Cash and cash equivalents   $ 1,665,104     $ 361,849  
Notes receivable     23,721       120,182  
Accounts receivable - non-related parties     3,226,121       3,402,986  
Inventory     2,432,916       2,916,515  
Advances to suppliers - non-related parties     346,160       106,146  
Prepaid expenses and other current assets     49,655       63,756  
Total Current Assets     7,743,677       6,971,434  
                 
Property, plant and equipment, net     6,807,436       7,506,849  
Intangible assets, net     1,430,449       1,496,399  
Deferred tax assets     45,854       54,361  
Total Assets   $ 16,027,416     $ 16,029,043  
                 
Short-term bank loan   $ 2,540,543     $ 2,618,296  
Accounts payable     2,528,657       2,637,039  
Advance from customers     31,346       32,372  
Due to related parties     1,406,033       1,449,064  
Accrued expenses and other current liabilities     89,803       148,287  
Total Current Liabilities     6,596,382       6,885,058  
Total Liabilities   $ 6,596,382     $ 6,885,058  

 

  F-11  
 

 

NOTE 4 - INVENTORIES

 

Inventories are stated at the lower of cost (determined using the weighted average cost) or net realizable value. Inventories consist of the following:

 

    March 31, 2020     June 30, 2019  
Raw materials   $ 626,393     $ 471,189  
Work-in-process     436,945       1,719,426  
Finished goods     1,981,789       1,188,531  
Total Inventories   $ 3,045,127     $ 3,379,146  

 

The Company recorded no inventory markdown for the three and nine months ended March 31, 2020 and 2019.

 

NOTE 5 - OPERATING LEASE

 

For the nine months ended March 31, 2020, the Company had three real estate operating leases for office, warehouses, manufacturing facilities and two boat operating leases under the terms from four months to three years.

 

Lisite Science Technology (Shenzhen) Co., Ltd ("Lisite Science") leases office and warehouse space from Shenzhen Keenest Technology Co., Ltd. (“Keenest”), a related party, with annual rent of approximately $1,500 (RMB10,000) for one year until July 20, 2020. (See Note 9)

 

Shenzhen Baileqi Electronic Technology Co., Ltd. ("Baileqi Electronic") leases office and warehouse space from Shenzhen Baileqi Science and Technology Co., Ltd. (“Shenzhen Baileqi S&T”), a related party, with monthly rent of approximately $2,500 (RMB17,525) and the lease period is from June 1, 2019 to May 31, 2020. (See Note 9)

 

Dalian Shizhe New Energy Technology Co., Ltd. (“Shizhe New Energy”) leases a boat from a non-related party with monthly rent of approximately $7,200 (RMB50,000) for one year from March 1, 2019 to February 28, 2020. On July 1, 2019, Shizhe New Energy leased another boat from the same non-related party with monthly rent of approximately $7,200 (RMB50,000) for four months from July 10, 2019 to November 10, 2019.

 

The Company made an accounting policy election not to recognize lease assets and liabilities for the leases listed above as all lease terms are 12 months or shorter.

 

On November 1, 2019, the Company leased an office space located in Dalian, China as its principal executive office under non-cancelable operating lease agreement for three years, which expires through October 31, 2022. The monthly rent is approximately $715 (RMB5,000). The Company adopted the new standard to recognize lease asset and liability for this lease after examining the criteria established.

 

For the nine months ended March 31, 2020, the Company made $99,604 of fixed cash payments related to operating leases. Non-cash activities involving ROU assets obtained in exchange for lease liabilities were $19,711 for the nine months ended March 31, 2020, including the impact of adopting the new leases standard.

 

  F-12  
 

 

As of March 31, 2020, the Company recognized operating lease liabilities of $20,108, among which $7,646 is classified as current portion and $12,462 is classified as non-current portion, and Right-of-use assets of $20,825 based on the present value of the remaining minimum rental payments under the current leasing standards for existing operating leases.  

 

    March 31, 2020     June 30, 2019  
             
Operating lease Right-of-use assets   $ 20,825     $ -  
                 
Operating lease liabilities                
   Current portion of long-term debt   $ 7,646   $ -  
   Long-term debt     12,462       -  
Total operating lease liabilities   $ 20,108     $ -  

 

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET

 

The components of property, plant and equipment were as follows:

 

    March 31, 2020     June 30, 2019  
             
Buildings   $ 4,598,048     $ 4,661,535  
Machinery and equipment     2,934,748       3,036,339  
Office equipment     64,853       60,052  
Automobiles     98,769       101,793  
Subtotal     7,696,418       7,859,719  
Less: Accumulated depreciation     (883,508 )     (351,082 )
Property, plant and equipment, net   $ 6,812,910     $ 7,508,637  

 

Depreciation expense related to property, plant and equipment was $558,789 and $176,458 for the nine months ended March 31, 2020 and 2019, respectively.

 

Depreciation expense related to property, plant and equipment was $174,381 and $176,458 for the three months ended March 31, 2020 and 2019, respectively.

 

As of March 31, 2020, buildings were pledged as collateral for bank loans (See Note 8).

 

NOTE 7 – INTANGIBLE ASSETS, NET

 

Intangible assets consist of the following:

 

    March 31, 2020     June 30, 2019  
             
Land use right   $ 1,441,316     $ 1,485,428  
Computer software     25,019       25,785  
Subtotal     1,466,335       1,511,213  
Less: Accumulated amortization     (35,886 )     (14,814 )
Intangible assets, net   $ 1,430,449     $ 1,496,399  

 

Amortization expense related to intangible assets was $21,836 and $7,714 for the nine months ended March 31, 2020 and 2019, respectively.

 

  F-13  
 

 

Amortization expense related to intangible assets was $7,164 and $7,714 for the three months ended March 31, 2020 and 2019, respectively.

 

Fangguan Electronics acquired the land use right from the local government in August 2012 which expires on August 15, 2062. As of March 31, 2020, land use right was pledged as collateral for bank loans (See Note 8).

 

NOTE 8 – SHORT-TERM BANK LOAN

 

On November 12, 2018, Fangguan Electronics entered into a short-term loan agreement with Industrial Bank to borrow approximately US$2.5 million (RMB 18 million) for a year with annual interest rate of 5.22%. The borrowing was collateralized by the Company’s buildings and land use right. In addition, the borrowing was guaranteed by the Company’s shareholder and CEO of Fangguan Electronics, Mr. Jialin Liang, and his wife Ms. Dongjiao Su. The loan was renewed for one year from November 19, 2019 to November 18, 2020.

 

NOTE 9 - RELATED PARTY TRANSACTIONS AND BALANCES

 

Purchase from related party

 

During the nine months ended March 31, 2020, the Company purchased $1,642,532 and $37,495 from Keenest and Shenzhen Baileqi S&T which were owned by the Company’s stockholders who own approximately 1.7% and 1.3% respectively of the Company’s outstanding common stock as of March 31, 2020. The amounts of $1,642,532 and $37,495 were included in the cost of revenue for the nine months ended March 31, 2020.

 

During the nine months ended March 31, 2019, the Company’s subsidiaries, Lisite Science and Baileqi Electronic, purchased $1,610,058 and $629,438 from Keenest and Shenzhen Baileqi S&T which were owned by the Company’s stockholders who own approximately 1.7% and 1.3% respectively of the Company’s outstanding common stock as of March 31, 2019. The amounts of $1,610,058 and $565,165 were included in the cost of revenue for the nine months ended March 31, 2019.

 

During the three months ended March 31, 2020, the Company purchased $177,995 and $0 from Keenest and Shenzhen Baileqi S&T which were owned by the Company’s stockholders who own approximately 1.7% and 1.3% respectively of the Company’s outstanding common stock as of March 31, 2020. The amounts of $177,995 and $0 were included in the cost of revenue for the three months ended March 31, 2020. 

 

During the three months ended March 31, 2019, Lisite Science and Baileqi Electronic purchased $0 and $112,176 from Keenest and Shenzhen Baileqi S&T which were owned by the Company’s stockholders who own approximately 1.7% and 1.3% respectively of the Company’s outstanding common stock as of March 31, 2019. The amounts of $0 and $111,116 were included in the cost of revenue for the three months ended March 31, 2019.

 

During the three and nine months ended March 31, 2019, the Company’s subsidiary, Changchun Fangguan Photoelectric Display Technology Co. Ltd ("Fangguan Photoelectric"), purchased $0 and $1,498,744 from Fangguan Electronics before Fangguan Electronics became a variable interest entity of the Company on December 27, 2018 (See Note 3). The president of Fangguan Electronics was the president and a member of the board of directors of Fangguan Photoelectric before he resigned and left Fangguan Photoelectric in October 2018. The amounts of $0 and $1,130,052 were included in the cost of revenue for the three and nine months ended March 31, 2019.

 

Advances to suppliers - related parties

 

Lisite Science made advances of $264,797 and $269,498 to Keenest for future purchases as of March 31, 2020 and June 30, 2019, respectively.

 

Sales to related party and accounts receivable from related party

 

During the nine months ended March 31, 2020 and 2019, Baileqi Electronic sold materials of $718,194 and $93,838 respectively to Shenzhen Baileqi S&T. During the three months ended March 31, 2020 and 2019, Baileqi Electronic sold materials of $73,802 and $0 respectively to Shenzhen Baileqi S&T. The trade-related balance receivable from Shenzhen Baileqi S&T was $420,906 and $340,026 as of March 31, 2020 and June 30, 2019, respectively.

 

  F-14  
 

 

During the three and nine months ended March 31, 2019, Fangguan Photoelectric sold products of $0 and $22,059 to Fangguan Electronics before Fangguan Electronics became a variable interest entity of the Company on December 27, 2018 (See Note 3).

 

Lease from related party

 

Lisite Science leases office and warehouse space from Keenest, a related party, with annual rent of approximately $1,500 (RMB10,000) for one year until July 20, 2020.

 

Baileqi Electronic leases office and warehouse space from Shenzhen Baileqi S&T, a related party, with monthly rent of approximately $2,500 (RMB17,525) and the lease period is from June 1, 2019 to May 31, 2020.

 

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.

 

          March 31, 2020     June 30, 2019  
                   
Ben Wong     (1 )   $ 143,792     $ 143,792  
Yubao Liu     (2 )     452,544       498,769  
Xin Sui     (3 )     2,016       2,016  
Baozhen Deng     (4 )     6,606       3,900  
Baozhu Deng     (5 )     -       5,303  
Jialin Liang     (6 )     900,747       928,314  
Xuemei Jiang     (7 )     505,286       520,750  
Liang Zhang     (8 )     -       625  
Zijian Yang     (9 )     -       1,869  
Shikui Zhang     (10 )     21,732       -  
            $ 2,032,723     $ 2,105,338  

 

(1) Ben Wong was the controlling shareholder of Shinning Glory until April 20, 2017, which holds majority shares in Ionix Technology, Inc.

 

(2) Yubao Liu is the controlling shareholder of Shinning Glory since April 20, 2017, which holds majority shares in Ionix Technology, Inc.

 

(3) Xin Sui is a member of the board of directors of Welly Surplus.

 

(4) Baozhen Deng is a stockholder of the Company, who owns approximately 1.3% of the Company’s outstanding common stock, and the owner of Shenzhen Baileqi S&T.

 

(5) Baozhu Deng is a relative of Baozhen Deng, a stockholder of the Company.

 

(6) Jialin Liang is the president, CEO, and director of Fangguan Electronics.

 

(7) Xuemei Jiang is the vice president and director of Fangguan Electronics.

 

(8) Liang Zhang is the legal representative of Shizhe New Energy until May 2019.

 

(9) Zijian Yang is the supervisor of Shizhe New Energy.

 

(10) Shikui Zhang serves as the legal representative and general manager of Shizhe New Energy since May 2019.

 

During the nine months ended March 31, 2020, Yubao Liu was refunded $46,225 by Welly Surplus and Well Best after netting off his advances to Well Best. Baileqi Electronic refunded $5,303 to Baozhu Deng and Baozhen Deng advanced $2,706 to Baileqi Electronic. Shizhe New Energy refunded $625 and $1,869 to Liang Zhang and Zijian Yang respectively. Shikui Zhang advanced $21,732 to Shizhe New Energy.

 

  F-15  
 

 

During the nine months ended March 31, 2019, Yubao Liu advanced $327,286 to Well Best. Baileqi Electronic borrowed $4,470 from Baozhu Deng. In addition, Baozhen Deng refunded $7,680 to Baileqi Electronic. Liang Zhang and Zijian Yang advanced $7,370 and $4,856 to Shizhe New Energy, respectively. Jialin Liang advanced $270,112 (RMB 1.8 million) to Fangguan Electronics.

 

NOTE 10 – CONCENTRATION

 

Major customers

 

Customers who accounted for 10% or more of the Company’s revenues (goods sold and services) and its outstanding balance of accounts receivable are presented as follows: 

 

    For the Nine Months Ended
 March 31, 2020 		    As of March 31, 2020  
                         
      Revenue       Percentage of
 revenue 		      Accounts
 receivable 		      Percentage of
 accounts
 receivable 		 
                                 
Customer A   $ 2,047,553       12 %   $ 24,960       1 %
Customer B     2,009,817       11 %     376,704       10 %
Total   $ 4,057,370       23 %   $ 401,664       11 %

 

    For the Nine Months Ended
 March 31, 2019 		    As of March 31, 2019  
                         
      Revenue       Percentage of
 total revenue 		      Accounts
 receivable 		      Percentage of
 total accounts
 receivable 		 
                                 
Customer A   $ 1,497,073       19 %   $ -       -%  
Customer B     2,603,631       33 %     205,266       7 %
Total   $ 4,100,704       52 %   $ 205,266       7 %

 

    For the Three Months Ended
 March 31, 2020 		    As of March 31, 2020  
                         
      Revenue       Percentage of
 revenue 		      Accounts
 receivable 		      Percentage of
 accounts
 receivable 		 
                                 
Customer A   $ 315,541       11 %   $ 24,960       1 %
Customer B     748,422       27 %     376,704       10 %
Total   $ 1,063,963       38 %   $ 401,664       11 %

 

  F-16  
 

 

    For the Three Months Ended
 March 31, 2019 		    As of March 31, 2019  
                         
      Revenue       Percentage of
 total revenue 		      Accounts
 receivable 		      Percentage of
 total accounts
 receivable 		 
                                 
Customer A   $ 654,209       23 %   $ 205,266       7 %
Customer B     320,756       11 %     149,798       5 %
Total   $ 974,965       34 %   $ 355,064       12 %

 

Primarily all customers are located in the PRC.

 

Major suppliers

 

The suppliers who accounted for 10% or more of the Company’s total purchases (materials and services) and its outstanding balance of accounts payable are presented as follows:

 

  For the Nine Months Ended
March 31, 2020 		    As of March 31, 2020  
  Total Purchase     Percentage of
 total purchase 		    Accounts
 payable 		    Percentage of
 total accounts
 payable 		 
                         
Supplier A - related party   $ 1,642,532       12 %   $  -       - %
Supplier B     2,582,034       19 %     -       - %
Total   $ 4,224,566       31 %   $ -       - %

 

  For the Nine Months Ended
March 31, 2019 		    As of March 31, 2019  
  Total Purchase     Percentage of
 total purchase 		    Accounts
 payable 		    Percentage of
 total accounts
 payable 		 
                         
Supplier A - related party   $ 1,610,058       23 %   $ -       - %
Supplier B - related party     1,498,744       21 %     -       - %
Supplier C     1,165,459       16 %     79,965       2 %
Total   $ 4,274,261       60 %   $ 79,965       2 %

 

  For the Three Months Ended
March 31, 2020 		    As of March 31, 2020  
  Total Purchase     Percentage of
 total purchase 		    Accounts
 payable 		    Percentage of
 total accounts
 payable 		 
                         
Supplier A   $ 413,924       18 %   $ -       - %
Total   $ 413,924       18 %   $ -       - %

 

  F-17  
 

 

    For the Three Months Ended March 31, 2019     As of March 31, 2019  
    Total Purchase     Percentage of
 total purchase 		    Accounts
 payable 		    Percentage of
 total accounts
 payable 		 
                         
Supplier A   $     366,985                  15 %   $                   79,965              2 %
Supplier B     231,080       9 %     347,047       10 %
Total   $ 598,065       24 %   $ 427,012       12 %

 

All suppliers of the Company are located in the PRC.

 

NOTE 11 - INCOME TAXES

 

The effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rate. The Company operates in United States of America, Hong Kong and the PRC that are subject to taxes in the jurisdictions in which they operate.

 

United States of America

 

The Company is registered in the State of Nevada and is subject to the tax laws of United States of America.

 

For the three and nine months ended March 31, 2020 and 2019, there is no assessable income chargeable to profit tax in United States of America. Under normal circumstances, the Internal Revenue Service is authorized to audit income tax returns during a three-year period after the returns are filed.  In unusual circumstances, the period may be longer.  Tax returns for the years ended June 30, 2016 and after were still open to audit as of March 31, 2020.

 

Hong Kong

 

The Company’s subsidiaries, Well Best and Welly Surplus, are registered in Hong Kong and subject to income tax rate of 16.5%. For the three and nine months ended March 31, 2020 and 2019, there is no assessable income chargeable to profit tax in Hong Kong.

 

The PRC

 

The Company’s subsidiaries in China are subject to a unified income tax rate of 25%. Fangguan Electronics was certified as high-tech enterprises for three years from November 2016 to November 2019 and is taxed at a unified income tax rate of 15%. Fangguan Electronics has renewed the high-tech enterprise certificate which granted it the tax rate of 15% for the three whole calendar years of 2019 to 2021.

 

The reconciliation of income tax expense at the U.S. statutory rate of 21% to the Company's effective tax rate is as follows:

 

    For the Nine Months Ended March 31,  
    2020     2019  
             
Tax at U.S. statutory rate   $ 76,062     $ 72,306  
Tax rate difference between foreign operations and U.S.     (88,730 )     21,437  
Change in valuation allowance     168,429       36,163  
Permanent difference     (4,274 )     9,339  
Effective tax   $ 151,487     $ 139,245  

 

  F-18  
 

 

The provisions for income taxes are summarized as follows:

    For the Nine Months Ended March 31,  
    2020     2019  
Current   $ 150,181     $ 154,977  
Deferred     1,306       (15,732 )
Total   $ 151,487     $ 139,245  

 

As of March 31, 2020, the Company has approximately $1,959,000 net operating loss carryforwards available in the U.S., Hong Kong and China to reduce future taxable income which will begin to expire from 2035. Except for the net operating loss carryforwards of $209,542 from Fangguan Electronics and Shizhe New Energy incurred in the three months ended March 31, 2020, 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 entities which generated the net operating loss. Therefore, the Company recorded a full valuation allowance on its deferred tax assets except for the deferred tax assets of Fangguan Electronics and Shizhe New Energy of $51,460 as of March 31, 2020.

 

In accordance with the current tax laws in the U.S., the Company is subject to a corporate tax rate of 21% on its taxable income. No provision for taxes is made for U.S. income tax for the nine months ended March 31, 2020 and 2019 as it has no taxable income in the U.S.

 

On December 22, 2017, the “Tax Cuts and Jobs Act” (“The 2017 Tax Act”) was enacted in the United States. Under the provisions of the Act, the U.S. corporate tax rate decreased from 34% to 21%. Accordingly, the Company has re-measured its deferred tax assets on net operating loss carry forwards in the U.S at the lower enacted cooperated tax rate of 21%. However, this re-measurement has no effect on the Company’s income tax expenses as the Company has provided a 100% valuation allowance on its deferred tax assets previously.

 

Additionally, the 2017 Tax Act implemented a modified territorial tax system and imposing a tax on previously untaxed accumulated earnings and profits (“E&P”) of foreign subsidiaries (the “Toll Charge”). The Toll Charge is based in part on the amount of E&P held in cash and other specific assets as of December 31, 2017. The Toll Charge can be paid over an eight-year period, starting in 2018, and will not accrue interest. The 2017 Tax Act also imposed a global intangible low-taxed income tax (“GILTI”), which is a new tax on certain off-shore earnings at an effective rate of 10.5% for tax years beginning after December 31, 2017 (increasing to 13.125% for tax years beginning after December 31, 2025) with a partial offset for foreign tax credits.

 

The Company has determined that this one-time Toll Charge has no effect on the Company’s income tax expenses as the Company has no undistributed foreign earnings at either of the two testing dates of November 2, 2017 and December 31, 2017.

 

For purposes of the inclusion of GILTI, the Company has determined that the Company has no taxable off-shore earnings as of March 31, 2020 and 2019, respectively. Therefore, this is no accrual of US income tax for GILTI as of March 31, 2020.

 

The extent of the Company’s operations involves dealing with uncertainties and judgments in the application of complex tax regulations in a multitude of jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state and international tax audits. The Company recognizes potential liabilities and records tax liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on its estimate of whether, and the extent to which, additional taxes will be due.

 

NOTE 12 - CONVERTIBLE DEBT

 

Convertible notes

 

As of March 31, 2020, convertible notes payable consists of:

          Note Balance     Debt discount     Carrying Value  
                         
Power Up Lending Group Ltd     (1 )   $ 69,000     $ (16,031 )   $ 52,969  
Firstfire Global Opportunities Fund LLC     (2 )     165,000       (73,934 )     91,066  
Power Up Lending Group Ltd     (3 )     53,000       (24,036 )     28,964  
Crown Bridge Partners     (4 )     55,000       (27,056 )     27,944  
Morningview Financial LLC     (5 )     165,000       (105,441 )     59,559  
BHP Capital NY     (6 )     102,900       (61,069 )     41,831  
Labrys Fund, LP     (7 )     146,850       (101,756 )     45,094  
  Total           $ 756,750     $ (409,323 )   $ 347,427  

 

  F-19  
 

 

(1) On July 25, 2019, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd to issue and sell, upon the terms and conditions set forth in the agreement a convertible note of the Company, in the aggregate principal amount of $103,000 and received $94,840 in cash on August 1, 2019 after deducting legal fees and other costs. The convertible note bears interest rate at 6% per annum and due on July 25, 2020. The convertible note can be converted into shares of the Company’s common stock at 65% of the average of the two lowest trading prices during the fifteen trading day prior to the conversion date.

 

During the three months ended March 31, 2020, Power Up Lending Group Ltd elected to convert $34,000 of the principal amount of the convertible notes into 40,057 shares of the Company’s common stock. The conversion resulted in a loss on extinguishment of debt of $15,074. (See Note 13)

 

(2) On September 11, 2019, the Company entered into a Securities Purchase Agreement with Firstfire Global Opportunities Fund LLC to issue and sell, upon the terms and conditions set forth in the agreement a convertible note of the Company, in the aggregate principal amount of $165,000 and received $143,500 in cash on September 18, 2019 after deducting an original issue discount in the amount of $15,000 (the “OID”), legal fees and other costs. The convertible note bears interest rate at 5% per annum and payable in one year. Conversion price shall be equal to the lower of (i) $2.00 or (ii) 75% multiplied by the lowest traded price of the common stock during the twenty consecutive trading day period immediately preceding the date of the respective conversion.

 

(3) On November 4, 2019, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd to issue and sell, upon the terms and conditions set forth in the agreement a convertible note of the Company, in the aggregate principal amount of $53,000 and received $47,350 in cash on November 12, 2019 after deducting legal fees and other costs. The convertible note bears interest rate at 6% per annum and due on November 4, 2020. The convertible note can be converted into shares of the Company’s common stock at 65% of the average of the two lowest trading prices during the fifteen trading day prior to the conversion date.

 

(4) On November 12, 2019, the Company entered into a Securities Purchase Agreement with Crown Bridge Partners, LLC to issue and sell, upon the terms and conditions set forth in the agreement a convertible note of the Company, in the aggregate principal amount sum up to $165,000 with a purchase price sum up to $156,750. During November 2019, First Tranche of the agreement was executed in the principal amount of $55,000 and the Company received $50,750 in cash on November 15, 2019 after deducting an OID in the amount of $2,750, legal fees and other costs. The convertible note bears interest rate at 5% per annum and due on November 12, 2020. The convertible note can be converted into shares of the Company’s common stock at 75% multiplied by the lowest traded price of the common stock during the twenty consecutive trading day period immediately preceding the date of the respective conversion.

 

(5) On November 20, 2019, the Company entered into a Securities Purchase Agreement with Morningview Financial, LLC to issue and sell, upon the terms and conditions set forth in the agreement a convertible note of the Company, in the aggregate principal amount of $165,000 and received $153,250 in cash on November 22, 2019 after deducting an OID in the amount of $8,250, legal fees and other costs. The convertible note bears interest rate at 5% per annum and due on November 20, 2020. Conversion price shall be equal to the lower of (i) $2.00 or (ii) 75% multiplied by the lowest traded price of the common stock during the twenty consecutive trading day period immediately preceding the date of the respective conversion.

 

(6) On December 3, 2019, the Company entered into a Securities Purchase Agreement with BHP Capital NY, Inc to issue and sell, upon the terms and conditions set forth in the agreement a convertible note of the Company, in the aggregate principal amount of $102,900 and received $95,500 in cash on December 13, 2019 after deducting and OID in the amount of $4,900, legal fees and other costs. The convertible note bears interest rate at 5% per annum and due on December 3, 2020. The convertible note can be converted into shares of the Company’s common stock at 75% of the average of the two lowest trading prices during the fifteen trading day prior to the conversion date.

 

(7) On January 10, 2020, the Company entered into a convertible promissory note with Labrys Fund, LP to issue and sell, upon the terms and conditions set forth in the agreement a convertible note of the Company, in the aggregate principal amount of $146,850 and received $137,000 in cash on January 13, 2020 after deducting an OID in the amount of $7,350, legal fees and other costs. The note is due on January 10, 2021 and bears interest at 5% per annum. The conversion price shall be equal to 75% multiplied by the lesser of the lowest closing bid price or lowest traded price of the Common Stock during the twenty (20) consecutive trading day period immediately preceding the date of the respective conversion.

 

  F-20  
 

 

For the three and nine months ended March 31, 2020, the Company recorded the amortization of debt discount of $170,138 and $351,474 for the convertible notes issued, which were included in other income and expenses in the consolidated statement of comprehensive income (loss).

 

Derivative liability

 

Upon issuing of the convertible notes, the Company determined that the conversion feature embedded in the notes referred to above that contain a potential variable conversion amount constitutes a derivative which has been bifurcated from the note and accounted for as a derivative liability, with a corresponding discount recorded to the associated debt. The excess of the derivative value over the face amount of the note, if any, is recorded immediately to interest expense at inception.

 

The derivative liability in connection with the conversion feature of the convertible debt is the only financial liability measured at fair value on a recurring basis.

 

The change of derivative liabilities is as follows:

 

Issued during the nine months ended March 31, 2020   $ 555,696  
Converted     (22,242 )
Change in fair value recognized in operations     (86,602 )
  Balance at March 31, 2020   $ 446,852  

 

The estimated fair value of the derivative instruments was valued using the Black-Scholes option pricing model at issuance date and March 31, 2020, using the following assumptions:

 

Estimated dividends     None  
Expected volatility     55.87% to 75.76%  
Risk free interest rate     0.70% to 2.08%  
Expected term     3.8 to 12 months  

 

Warrants

 

In connection with the issuance of the $165,000 convertible promissory note on September 11, 2019, FirstFire Global Opportunities Fund, LLC is entitled, upon the terms and subject to the limitations on exercise and the conditions set forth in the agreement, at any time on or after the date of issuance hereof to purchase from the Company up to 68,750 shares of common stock. Exercise price shall be $2.40, and the warrants can be exercised within 5 years which is before September 11, 2024.

 

In connection with the issuance of the $55,000 convertible promissory note on November 12, 2019, Crown Bridge Partners, LLC is entitled, upon the terms and subject to the limitations on exercise and the conditions set forth in the agreement, at any time on or after the date of issuance hereof to purchase from the Company up to 22,916 shares of common stock. Exercise price shall be $2.80, and the warrants can be exercised within 5 years which is before November 12, 2024.

 

In connection with the issuance of the $165,000 convertible promissory note on November 20, 2019, Morningview Financial LLC is entitled, upon the terms and subject to the limitations on exercise and the conditions set forth in the agreement, at any time on or after the date of issuance hereof to purchase from the Company up to 68,750 shares of common stock. Exercise price shall be $2.80, and the warrants can be exercised within 5 years which is before November 20, 2024.

 

In connection with the issuance of the $146,850 convertible promissory note on January 10, 2020, Labrys Fund, LP is entitled, upon the terms and subject to the limitations on exercise and the conditions set forth in the agreement, at any time on or after the date of issuance hereof to purchase from the Company up to 68,750 shares of common stock. Exercise price shall be $2.80, and the warrants can be exercised within 5 years which is before January 10, 2025.

 

  F-21  
 

 

The estimated fair value of the warrants was valued using the Black-Scholes option pricing model at grant date, using the following assumptions:

 

Estimated dividends     None  
Expected volatility     56.23% to 71.08%  
Risk free interest rate     1.73% to 1.92%  
Expected term     5 years  

 

Since the warrants can be exercised at $2.4 or $2.8 and are not liabilities, the face value of convertible notes was allocated between convertible note and warrant based on the fair values of the conversion debt and warrants. Accordingly, $147,492 was allocated to warrants and recorded in additional paid in capital account during the nine months ended March 31, 2020.

 

The details of the outstanding warrants are as follows:

 

   

Number of

shares

   

Weighted Average

Exercise Price

   

Remaining

Contractual Term
(years)

 
                   
Outstanding at July 1, 2019     -     $ -       -  
Granted     229,166       2.68       5  
Exercised     -       -       -  
Cancelled or expired     -       -       -  
Outstanding at March 31, 2020     229,166     $ 2.68                   4.45 to 4.78  

 

NOTE 13 – STOCKHOLDER’S EQUITY

 

Stock Issued for Services

 

The Company engaged Maxim Group LLC as its financial advisor to assist the Company in articulating its growth strategy to the investment community and up-list its securities to a National Securities Exchange. On February 10, 2020, the Company issued 150,000 shares of common stock valued at $262,500 to Maxim Group LLC as a part of its compensation. The share-based compensation is amortized over service period from December 16, 2019 to November 30, 2020 and the amortization expense was $79,891 for the three and nine months ended March 31, 2020.

 

Stock Issued for Conversion of Convertible Debt

 

On January 31, 2020, the Company issued a total of 12,775 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $12,000 according to the conditions of the convertible note dated as July 25, 2019. The conversion resulted in a loss on extinguishment of debt of $7,813.

 

On February 18, 2020, the Company issued a total of 11,834 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $10,000 according to the conditions of the convertible note dated as July 25, 2019. The conversion resulted in a loss on extinguishment of debt of $2,901.

 

On February 28, 2020, the Company issued a total of 15,448 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $12,000 according to the conditions of the convertible note dated as July 25, 2019. The conversion resulted in a loss on extinguishment of debt of $4,360.

 

  F-22  
 

 

NOTE 14 – SEGMENT INFORMATION

 

The Company’s business is classified by management into three reportable business segments (smart energy, photoelectric display and service contracts) supported by a corporate group which conducts activities that are non-segment specific. The smart energy reportable segment derives revenue from the sales of portable power banks that is intended to be utilized as a power source for electronic devices such as the iphone, ipad, mp3/mp4 players, PSP gaming systems, and cameras. The photoelectric display reportable segment derives revenue from the sales of LCM and LCD screens manufactured for small devices such as video capable baby monitors, electronic devices such as tablets and cell phones, and for use in televisions or computer monitors. The service contracts reportable segment derives revenue from providing IT and solution-oriented services. Unallocated items comprise mainly corporate expenses and corporate assets.

 

Although all of the Company’s revenue is generated from Mainland China, the Company is organizationally structured along business segments. The accounting policies of each operating segments are same and are described in Note 2, “Summary of Significant Accounting Policies.”

 

The following tables provide the business segment information for the three and nine months ended March 31, 2020 and 2019.

 

    For the Nine Months Ended March 31, 2020  
    Smart
energy 		   

Photoelectric

display

   

Service

contracts

   

Unallocated

items

    Total  
                               
Revenues   $ 1,719,127     $ 15,236,570     $ 629,771     $ -     $ 17,585,468  
Cost of Revenues     1,642,532       12,786,020       421,642       -       14,850,194  
Gross profit     76,595       2,450,550       208,129       -       2,735,274  
Operating expenses     10,094       1,491,200       25,326       497,501       2,024,121  
Income (loss) from operations     66,501       959,350       182,803       (497,501 )     711,153  
Net income (loss)   $ 59,915     $ 779,838     $ 165,603     $ (794,644 )   $ 210,712  

 

    For the Nine Months Ended March 31, 2019  
    Smart
energy 		   

Photoelectric

display

   

Service

contracts

   

Unallocated

items

    Total  
                               
Revenues   $ 1,831,387     $ 5,749,983     $ 260,067     $ -     $ 7,841,437  
Cost of Revenues     1,630,188       4,789,880       197,947       -       6,618,015  
Gross profit     201,199       960,103       62,120       -       1,223,422  
Operating expenses     11,728       574,524       39,270       219,172       844,694  
Income (loss) from operations     189,471       385,579       22,850       (219,172 )     378,728  
Net income (loss)   $ 141,214     $ 261,823     $ 21,204     $ (219,170 )   $ 205,071  

 

    For the Three Months Ended March 31, 2020  
    Smart
energy 		   

Photoelectric

display

   

Service

contracts

   

Unallocated

items

    Total  
                               
Revenues   $ 181,033     $ 2,561,267     $ 9,870     $ -     $ 2,752,170  
Cost of Revenues     177,995       2,256,426       72,097       -       2,506,518  
Gross profit (loss)     3,038       304,841       (62,227 )     -       245,652  
Operating expenses     3,960       377,641       8,109       248,935       638,645  
Loss from operations     (922 )     (72,800 )     (70,336 )     (248,935 )     (392,993 )
Net income (loss)   $ 347     $ (83,297 )   $ (64,462 )   $ (488,810 )   $ (636,222 )

 

  F-23  
 

 

    For the Three Months Ended March 31, 2019  
    Smart
energy 		   

Photoelectric

display

   

Service

contracts

   

Unallocated

items

    Total  
                               
Revenues   $ -     $ 2,760,934     $ 133,868     $ -     $ 2,894,802  
Cost of Revenues     -       2,184,085       87,295       -       2,271,380  
Gross profit     -       576,849       46,573       -       623,422  
Total operating expenses     2,882       486,969       26,403       34,675       550,929  
Income (loss) from operations     (2,882 )     89,880       20,170       (34,675 )     72,493  
Net income (loss)   $ (2,866 )   $ 39,811     $ 18,792     $ (34,673 )   $ 21,064  

 

 

NOTE 15 - 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.

 

  F-24  
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Revenues

 

During the three months ended March 31, 2020 and 2019, total revenues were $2,752,170 and $2,894,802 respectively. The total revenues decreased by $142,632 or 5% from the three months ended March 31, 2019 to the three months ended March 31, 2020. During the three months ended March 31, 2020, COVID-19 affected the operational and financial performance of the Company: PRC national economic shutdown that was imposed to limit the spread of COVID-19 from this early February to mid-March. At the same time we temporarily closed all of our factories as transportations in or out of them were suspended, and experienced an unprecedented “supplier chain break”. Since the restarting of our operations near the end of this March, our financial performances have been recovering continuously while transportations have returned to normal, all of the supplier chain restored and all of our factories resumed working.

 

During the nine months ended March 31, 2020 and 2019, total revenues were $17,585,468 and $7,841,437 respectively. The total revenues increased by $9,744,031 or 124% from the nine months ended March 31, 2019 to the nine months ended March 31, 2020.

 

Among the significant increase of $9,744,031 in total revenues for the nine months ended March 31, 2020 compared to 2019, $11,581,460 increase was the revenue from Fangguan Electronics which was acquired on December 27, 2018. The acquisition expanded the Company’s operations in the fields of LCM in the PRC and significantly increased the volume of goods (LCD, etc.) being sold.

 

The increase in total revenues due to acquisition of Fangguan Electronics was partially offset by the decreases of $1,837,429 related to the other business (excluding Fangguan Electronics) for the nine months ended March 31, 2020 compared to 2019. After Fangguan Electronics was acquired, all business of Fangguan Photoelectric was replaced by Fangguan Electronics, which caused total revenues to decrease by $2,407,535 respectively for the nine months ended March 31, 2020.

 

Cost of Revenue

 

Cost of revenues included the cost of raw materials, labor, depreciation, overhead and finished products purchased.

 

During the three months ended March 31, 2020 and 2019, the total cost of revenues was $2,506,518 and $2,271,380, respectively. The total cost of revenues increased by $235,138 or 10% from the three months ended March 31, 2019 to the three months ended March 31, 2020.

 

During the nine months ended March 31, 2020 and 2019, the total cost of revenues was $14,850,194 and $6,618,015 respectively. The total cost of revenues increased by $8,232,179 or 124% from the nine months ended March 31, 2019 to the nine months ended March 31, 2020.

 

Among the significant increase of $8,232,179 in total cost of revenues for the nine months ended March 31, 2020 compared to 2019, $9,991,514 increase can be directly attributed to the acquisition of Fangguan Electronics on December 27, 2018.

 

The increase in total cost of revenues due to acquisition of Fangguan Electronics was partially offset by the decreases of $1,759,335 related to the other business (excluding Fangguan Electronics) for the nine months ended March 31, 2020 compared to 2019. After Fangguan Electronics was acquired, all business of Fangguan Photoelectric was replaced by Fangguan Electronics, which caused total cost of revenues to decrease by $2,076,990 for the nine months ended March 31, 2020.

 

Gross Profit

 

During the three months ended March 31, 2020 and 2019, the gross profit was $245,652 and $623,422, respectively.

 

Our gross profit margin was 9% for the three months ended March 31, 2020 as compared to 22% for the three months ended March 31, 2019.

 

  25  
 

 

The decrease in both gross profit and gross profit margin can be attributed to the fact that starting from second fiscal quarter, the Company adopted the new business strategy to have low gross profits and increase sales volume.

 

During the nine months ended March 31, 2020 and 2019, the gross profit was $2,735,274 and $1,223,422 respectively.

 

Our gross profit margin maintained at 16% during both the nine months ended March 31, 2020 and the nine months ended March 31, 2019.

 

Selling, General and Administrative Expenses

 

Our selling, general and administrative expenses mainly comprised of payroll expenses, transportation, office expense, professional fees, freight and shipping costs, rent, and other miscellaneous expenses.

 

During the three months ended March 31, 2020 and 2019, selling, general and administrative expenses were $499,616 and $392,367, respectively.

 

During the nine months ended March 31, 2020 and 2019, selling, general and administrative expenses were $1,378,241 and $686,132, respectively.

 

The difference can be attributed to the depreciation and amortization expenses, payroll expenses, professional fees and other expenses incurred during the three and nine months ended March 31, 2020 after Fangguan Electronics became a variable interest entity of the Company on December 27, 2018.

 

Research and Development Expenses

 

Our research and development expenses are mainly comprised of payroll expenses of research staff, and other miscellaneous expenses.

 

During the three months ended March 31, 2020 and 2019, research and development expenses were $139,029 and $158,562, respectively.

 

During the nine months ended March 31, 2020 and 2019, research and development expenses were $645,880 and $158,562, respectively. All research and development expenses were incurred by Fangguan Electronics.

 

Other Incomes (Expenses)

 

Other expenses consisted of interest expense, net of interest income and loss on extinguishment of debt. Other incomes consisted primarily of a change in fair value of derivative liability and subsidy income.

 

During the three months ended March 31, 2020 and 2019, other incomes (expenses) were $(273,191) and $(34,412), respectively.

 

During the nine months ended March 31, 2020 and 2019, other incomes (expenses) were $(348,954) and $(34,412), respectively.

 

The difference of interest expense was mainly due to the new issuances of convertible notes during the three and nine months ended March 31, 2020. In addition, the acquisition of Fangguan Electronics on December 27, 2018 also contributed to the increase of interest expense as Fangguan Electronics borrowed short-term bank loan during the three and nine months ended March 31, 2020.

 

The subsidy income was from Fangguan Electronics which received government subsidies in July and December 2019.

 

The change in fair value of derivative liability can be attributed to the new issuances of convertible notes during the three and nine months ended March 31, 2020.

 

The loss on extinguishment of debt can be attributed to the conversion of convertible notes in the principal amount of $34,000 during the three and nine months ended March 31, 2020.

 

  26  
 

 

Net Income (Loss)

 

During the three months ended March 31, 2020 and 2019, our net income (loss) was $(636,222) and $21,064, respectively.

 

The change can be attributed to the decrease in gross profits and the increase of expenses during the three months ended March 31, 2020.

 

During the nine months ended March 31, 2020 and 2019, our net income was $210,712 and $205,071, respectively.

 

The difference can be attributed to increase in gross profits netting off by the increase of expenses during the nine months ended March 31, 2020 due to the acquisition of Fangguan Electronics.

 

Liquidity and Capital Resources

 

Cash Flow from Operating Activities

 

During the nine months ended March 31, 2020, net cash provided by operating activities was $641,370 compared to net cash used in operating activities of $900,588 for the nine months ended March 31, 2019. The change was mainly due to the increase of $5,641 in the net income, an increase of $766,310 resulting from adjustments to net income for non-cash items, and a decrease of $770,007 in cash outflow from changes in operating assets and liabilities in the nine months ended March 31, 2020 compared to same period in 2019.

 

Cash Flow from Investing Activities

 

During the nine months ended March 31, 2020, net cash used in investing activities was $71,895 compared to net cash provided by investing activities of $649,216 for the nine months ended March 31, 2019. Cash used in the acquisition of the equipment increased by $155,235 in the nine months ended March 31, 2020 compared to same period in 2019 due to acquisition of Fangguan Electronics. In addition, the Company also received cash of $687,591 in December 2018 due to the acquisition of Fangguan Electronics.

 

Cash Flow from Financing Activities

 

During the nine months ended March 31, 2020, cash provided by financing activities was $787,503, which was primarily due to the proceeds received from issuance of convertible notes. During the nine months ended March 31, 2019, the Company received $588,062 in cash for financing activities, which was primarily attributable to the proceeds from the related party loans offsetting by the return of capital to non-controlling interests.

 

As of March 31, 2020, we have a working capital of $1,828,672.

 

Our total current liabilities as of March 31, 2020 were $8,202,791 and mainly consist of $2,540,543 for a short-term bank loan, $2,569,420 in accounts payable, the amount due to related parties of $2,032,723, the convertible notes payable net of debt discount and loan cost of $347,427, the derivative liability of $446,852. The Company’s President is committed to providing for our minimum working capital needs for the next 12 months, and we do not expect the previous related party loan be payable for the next 12 months. However, we do not have a formal agreement that states any of these facts. The remaining balance of our current liabilities relates to audit and consulting fees and such payments are due on demand and we expect to settle such amounts on a timely basis based upon shareholder loans to be granted to us in the next 12 months.

 

Future Financings

 

We consider taking on long-term or short-term debt from financial institutions in the immediate future. Besides for the bank funding, we are dependent upon our director and the major shareholder to provide continued funding and capital resources. If continued funding and capital resources are unavailable at reasonable terms, we may not be able to implement our plan of operations. The financial statements do not include any adjustments related to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.

 

  27  
 

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Recently Issued Accounting Pronouncements

 

There were no recent accounting pronouncements that have or will have a material effect on the Company’s financial position or results of operations.

 

Contractual Obligations

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2020.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting subsequent to the fiscal year ended June 30, 2019, which were identified in connection with our management’s evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

The Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's reports on the Company's internal control over financial reporting.

 

Limitations of the Effectiveness of Disclosure Controls and Internal Controls

 

Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

 

  28  
 

 

The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

  

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

From time to time, the Company may become subject to various legal proceedings that are incidental to the ordinary conduct of its business. Although the Company cannot accurately predict the amount of any liability that may ultimately arise with respect to any of these matters, it makes provision for potential liabilities when it deems them probable and reasonably estimable. These provisions are based on current information and legal advice and may be adjusted from time to time according to developments.

 

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest. 

 

Item 1A. Risk Factors.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 

 

(a) Recent Sales of Unregistered Equity Securities 

 

The following sets forth information regarding all unregistered securities sold since January 1, 2020:

 

On February 10, 2020, the Company issued 150,000 shares of common stock to Maxim Group LLC as a part of its compensation, which were valued at $262,500 based on the quoted market price at issuance.

 

On January 31, 2020, the Company issued a total of 12,775 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $12,000 according to the conditions of the convertible note dated as July 25, 2019.

 

On February 18, 2020, the Company issued a total of 11,834 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $10,000 according to the conditions of the convertible note dated as July 25, 2019.


On February 28, 2020, the Company issued a total of 15,448 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $12,000 according to the conditions of the convertible note dated as July 25, 2019.

 

  29  
 

 

The sales of the above securities were exempt from registration under the Securities Act of 1933, as amended (Securities Act), in reliance upon Section 4(2) of the Securities Act, or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.

 

Item 3. Defaults Upon Senior Securities. 

 

None.

 

Item 4. Mine Safety Disclosures.

 

N/A.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

Exhibit      
Number Description of Exhibit    
3.01a Articles of Incorporation, dated March 11, 2011   Filed with the SEC on October 13, 2017 as part of our Annual Report on Form 10-K
3.01b Certificate of Amendment to Articles of Incorporation, dated August 7, 2014   Filed with the SEC on September 3, 2014 as part of our Current Report on Form 8-K
3.01c Certificate of Amendment to Articles of Incorporation, dated December 3, 2015   Filed with the SEC on December 10, 2015 as part of our Current Report on Form 8-K
3.02a Bylaws   Filed with the SEC on August 23, 2011 as an exhibit to our Registration Statement on Form 10.
3.02b Amended Bylaws, dated August 7, 2014   Filed with the SEC on September 3, 2014 as part of our Current Report on Form 8-K
10.01 Stock Purchase Agreement between Locksley Samuels and Shining Glory Investments Limited, dated November 20, 2015   Filed with the SEC on November 23, 2015 as part of our Current Report on Form 8-K
10.02 Manufacturing Agreement, dated as of August 19, 2016, by and between Jiangxi Huanming Technology Limited Company and XinyuIonix Technology Company Limited.   Filed with the SEC on August 24, 2016 as part of our Current Report on Form 8-K
10.03 Share Transfer Agreement, dated as of August 19, 2016, by and between GuoEn Li and Well Best International Investment Limited   Filed with the SEC on August 24, 2016 as part of our Current Report on Form 8-K
10.04 Share Purchase Agreement dated December 27, 2018 by and between Ionix Technology, Inc., Changchun Fangguan Electronics Technology Co., Ltd. and the shareholders of Changchun Fangguan Electronics Technology Co., Ltd.   Filed with the SEC on December 27, 2018 as part of our Current Report on Form 8-K
10.05 Business Operation Agreement dated December 27, 2018 by and between Changchun Fangguan Photoelectric Display Technology Co., Ltd., Changchun Fangguan Electronics Technology Co., Ltd., Jialin Liang and Xuemei Jiang.   Filed with the SEC on December 27, 2018 as part of our Current Report on Form 8-K
10.06 Exclusive Technical Support Service Agreement dated December 27, 2018 by and between Changchun Fangguan Photoelectric Display Technology Co., Ltd. and Changchun Fangguan Electronics Technology Co., Ltd.   Filed with the SEC on December 27, 2018 as part of our Current Report on Form 8-K

 

  30  
 

 

10.07 Equity Interest Purchase Agreement dated December 27, 2018 by and between Changchun Fangguan Photoelectric Display Technology Co., Ltd., Changchun Fangguan Electronics Technology Co., Ltd., Jialin Liang and Xuemei Jiang.   Filed with the SEC on December 27, 2018 as part of our Current Report on Form 8-K
10.08

Equity Interest Pledge Agreement dated December 27, 2018 by and between Changchun Fangguan Photoelectric Display Technology Co., Jialin Liang and Xuemei Jiang

  Filed with the SEC on December 27, 2018 as part of our Current Report on Form 8-K
21.1 List of Subsidiaries   Filed with the SEC on  September 30, 2019 as part of our Annual Report on Form 10-K
31.01 Certification of Principal Executive Officer Pursuant to Rule 13a-14   Filed herewith.
31.02 Certification of Principal Financial Officer Pursuant to Rule 13a-14   Filed herewith.
32.01 CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act   Filed herewith.
32.02 CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act   Filed herewith.
101.INS* XBRL Instance Document   Filed herewith.
101.SCH* XBRL Taxonomy Extension Schema Document   Filed herewith.
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document   Filed herewith.
101.LAB* XBRL Taxonomy Extension Labels Linkbase Document   Filed herewith.
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document   Filed herewith.
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document   Filed herewith.

 

*Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Ionix Technology, Inc.
   
 Date: May 15, 2020 By: /s/ Cheng Li  
 

Name:  Cheng Li

Title:    Chief Executive Officer and Director

(Principal Executive Officer)

 

 Date: May 15, 2020 By: /s/ Yue Kou  
 

Name:  Yue Kou

Title:    Chief Financial Officer

(Principal Financial Officer)

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

  31  
 

 

  Ionix Technology, Inc.
   
 Date: May 15, 2020 By: /s/ Cheng Li  
 

Name:  Cheng Li

Title:    Chief Executive Officer, Director

 

 Date: May 15, 2020 By: /s/ Yue Kou  
 

Name:  Yue Kou

Title:    Chief Financial Officer

 

 Date: May 15, 2020 By: /s/ Yan Yang  
 

Name:  Yan Yang

Title:    President and Treasurer

 

 Date: May 15, 2020 By: /s/ Yubao Liu  
 

Name:  Yubao Liu

Title:    Director

 

 

 Date: May 15, 2020 By: /s/ Jialin Liang  
 

Name:  Jialin Liang

Title:    Director

 

 

 Date: May 15, 2020 By: /s/ Xuemei Jiang  
 

Name:  Xuemei Jiang

Title:    Director

 

 

 Date: May 15, 2020 By: /s/ Anthony Saviano  
 

Name:  Anthony Saviano

Title:    Independent Director

 

 

 Date: May 15, 2020 By: /s/ Hui Zhang  
 

Name:  Hui Zhang

Title:    Independent Director

 

 

 Date: May 15, 2020 By: /s/ Yongsheng Fu  
 

Name:  Yongsheng Fu

Title:    Director

 

 

 Date: May 15, 2020 By: /s/ Zhenyu Wang  
 

Name:  Zhenyu Wang

Title:    Independent Director

 

 

 Date: May 15, 2020 By: /s/ Qinghua Shi  
 

Name:  Qinghua Shi

Title:    Independent Director

 

 

32

 

 

 

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