The accompanying notes are an integral part of
these consolidated financial statements.
The accompanying notes are an integral part of
these consolidated financial statements.
The accompanying notes are an integral part of
these consolidated financial statements.
The accompanying notes are an integral part of
these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,2022
(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. The
Company,together with its wholly owned subsidiaries and an entity controlled through VIE agreements in China ( collectively referred to
as the " Group") are principally engaged in the business of the high-end intelligent electronic equipment, which includes the
furnace used in firing for lithium battery , the lithium battery packs,the portable power banks for electronic devices, LCM and LCD screens
,and in the provision of IT and solution-oriented services in China.
New subsidiaries
On February 7, 2021, the Board
of Directors of the Company approved and ratified the incorporation of Shijirun (Yixing) Technology Co., Ltd. (“Shijirun”),
a limited liability company formed under the laws of the Peoples Republic of China (PRC) on February 7, 2021. Well Best International
Investment Limited, a limited liability company formed under the laws of Hong Kong Special Administrative Region (“Well Best”),
and a wholly owned subsidiary of the Company, is the sole shareholder of Shijirun. As a result, Shijirun is an indirect, wholly-owned
subsidiary of the Company. Shijirun will head up the Company’s advance into the new energy industry focusing on developing and producing
high-end intelligent new energy equipment from Yixing City, Jiangsu Province, China.
On March 30, 2021, the Board of
Directors of the Company approved and ratified the incorporation of Huixiang Energy Technology (Suzhou) Co., Ltd. (“Huixiang Energy”),
a limited liability company formed under the laws of the Peoples Republic of China (PRC) on March 18, 2021. Well Best is the sole shareholder
of Huixiang Energy. As a result, Huixiang Energy is an indirect, wholly-owned subsidiary of the Company. Huixiang Energy conducts research
and development of next generation advanced battery technologies, manufacture and sales of relevant battery products, including the solid-state
rechargeable lithium ion battery for next generation energy storage systems. Huixiang Energy also on the operation of battery packs, battery
systems and electric vehicles sharing business with its own internet sharing platform relating to the electric vehicles (online EV hailing
services) and its relevant batteries and battery systems. Huixiang Energy will operate in Suzhou City, Jiangsu Province, China.
Authorized share increase
On May 6, 2021, the Board of Directors
of the Company and the holders of the majority of issued and outstanding voting securities of the Company approved an amendment (the “Amendment”)
to the Articles of Incorporation of the Company to increase the authorized number of shares of common stock of the Company from 200,000,000
to 400,000,000 shares consisting of: (i) 395,000,000 shares of common stock, par value $0.0001 per share (“Common Stock”);
and (ii) 5,000,000 shares of preferred stock par value $0.0001 per share (“Preferred Stock”) (the “Authorized Share
Increase”) and related Certificate of Amendment to Articles of Incorporation of the Company. The approval was made in accordance
with Sections 78.320 and 78.390 of the Nevada Revised Statues, which provide that a corporation’s articles may be amended by written
consent of the stockholders of the Company representing at least a majority of the voting power of the Company. The Amendment was filed
with the Nevada Secretary of State on June 7, 2021.
Acquisition
On December 27, 2018, the Company
entered into a Share Purchase Agreement (the “Purchase Agreement”) with Jialin Liang and Xuemei Jiang, each of whom are shareholders
of Changchun Fangguan Electronics Technology Co., Ltd. (“Fangguan Electronics”or the "VIE"). Pursuant to the terms
of the Purchase Agreement, the Shareholders of the VIE, who together own 95.14% of the ownership rights in Fangguan Electronics, agreed
to execute and deliver the Business Operation Agreement, the Equity Interest Pledge Agreement, the Equity Interest Purchase Agreement,
the Exclusive Technical Support Service Agreement (the “Services Agreement”) and the Power of Attorney, all together dated
December 27, 2018 are referred to the “VIE Agreements”, to the Company in exchange for the issuance of an aggregate of 15,000,000
shares of the Company’s common stock, par value $.0001 per share, thereby causing Fangguan Electronics to become the Company’s
variable interest entity. Together with VIE agreements, the Shareholders of the VIE also agreed to convert shareholder ( of the VIE) loan
of RMB 30 million (approximately $4.4 million) to capital of the VIE and make cash contribution of RMB 9.7 million (approximately $1.4
million) to capital of the VIE. The entirety of the transaction will hereafter be referred to as the “Transaction”. As a result
of the Transaction, the Company is able to exert effective control over Fangguan Electronics and receive 100% of the net profits or net
losses derived from the business operations of Fangguan Electronics. Fangguan Electronics manufactures and sells Liquid Crystal Module
(" LCM") and LCD screens in China based in Changchun City, Jilin Province, People’s Republic of China. (See Note 3).
On December 24, 2021,
the Board of Directors of Fangguan Electronics and the holders of the majority of issued and outstanding voting securities of Fangguan
Electronics approved an amendment (the “Amendment”) to the Articles of Incorporation of Fangguan Electronics to increase the
registered capital (the “Registered Capital Increase”)of the VIE from RMB50 million (approximately $7.2 million) to RMB55
million(approximately $8.0 million). Fangguan Electronics's new institutional shareholder , namely Changchun Lingguan Investment Partnership
("Lingguan"), whose ultimate beneficial owners and controlling shareholders are Jialin Liang and Xuemei Jiang as both of whom
own 63% of the ownership rights of Lingguan ( while all of the other sharehders are employee of the VIE), made cash contribution of RMB
5.0 million (approximately $0.78 million) and RMB 1.0 million (approximately $0.16 million) to
the registered capital and the additional paid in capital respectively of Fangguan Electronics on December 28,2021. .
Lingguan is limited partnership by structure and private equity fund by nature. And Lingguan was established for the sole purpose
of the Registered Capital Increase of Fangguan Electronics.Xuemei Jiang,has acted as the the executive
partner of Lingguan to represent Lingguan and has been in charge with the daily operation of Lingguan.She is the internal decision-maker
of Lingguan and has the right to decide all the investment and divestment of the relevant investment of Lingguan.
Accordingly,Jialin Liang, Xuemei
Jiang and Lingguan are deemed to be parties acting in concert and collectively own 94.55% of the ownership rights in Fangguan Electronics
( prior to the Registered Capital Increase, Jialin Liang ever transferred his ownship right at the amount of RMB 2.5 million (approximately
$0.4 million)) of Fangguan Electronics to a third party individual ). Therefore all of the Board of Directors of the Company , Jialin
Liang and Xuemei Jiang have concluded that all of the VIE Agreements remain valid.
NOTE 2– BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Group’s audited consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”).
Basis of consolidation
The consolidated financial statements include
the accounts of Ionix, its wholly owned subsidiaries and an entity which the Company controls 94.55% of the ownership rights in the VIE
and receives 100% of net income or net loss through VIE agreements. All significant inter-company balances and transactions (if any) have
been eliminated upon consolidation.
The subsidiaries of ionix are as follows:
Well Best International Investment Limited (the
wholly-owned subsidiary)
Welly Surplus International Limited (the wholly-owned
subsidiary)
Shijirun (Yixing) Technology Co., Ltd (the wholly-owned
subsidiary)
Huixiang Energy Technology (Suzhou) Co., Ltd (the
wholly-owned subsidiary)
Changchun Fangguan Photoelectric Display Technology
Co. Ltd (the wholly-owned subsidiary)
Dalian Shizhe New Energy Technology Co., Ltd (the
wholly-owned subsidiary)
Shenzhen Baileqi Electronic Technology Co., Ltd
(the wholly-owned subsidiary)
Lisite Science Technology (Shenzhen) Co., Ltd
(the wholly-owned subsidiary)
Changchun Fangguan Electronics Technology Co.,
Ltd ( the VIE)
Noncontrolling Interests
The Group follows FASB ASC Topic 810, “Consolidation,”
governing the accounting for and reporting of noncontrolling interests (“NCIs”) in partially owned consolidated subsidiaries
and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs (previously referred
to as minority interests) be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s
ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses,
and that losses of a partially-owned consolidated subsidiary be allocated to NCIs even when such allocation might result in a deficit
balance.
The net income (loss) attributed to NCIs was separately
designated in the accompanying statements of comprehensive income (loss). Losses attributable to NCIs in a subsidiary may exceed an NCI’s
interests in the subsidiary’s equity. The excess attributable to NCIs is attributed to those interests. NCIs shall continue to be
attributed their share of losses even if that attribution results in a deficit NCI balance. The primary beneficiary receives 100% of the
income and losses of the VIE as disclosed in Note 3, therefore no income or loss is allocated to NCI.
Use of Estimates
The Group’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, the useful lives of property and equipment and intangible assets, the impairment of long-lived assets, recognition
and measurement of deferred income taxes and valuation allowance for deferred tax assets. Although these estimates are based on management’s
knowledge of current events and actions management may undertake in the future, actual results may ultimately differ from those estimates
and such differences may be material to our consolidated financial statements.
Cash and cash equivalents
Cash consists of cash on hand and cash in bank.
Cash equivalents represent investment securities that are short-term, have high credit quality and are highly liquid. Cash equivalents
are carried at fair market value and consist primarily of money market funds.
Accounts Receivable
Accounts receivable are recorded at the invoiced
amount and do not bear interest, which are due within contractual payment terms, generally 90 to 180 days from shipment. Credit is extended
based on evaluation of a customer's financial condition, the customer’s credit-worthiness and their payment history. Accounts receivable
outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and over a specified amount
are reviewed individually for collectability. At the end of each period, the Group specifically evaluates individual customer’s
financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables.
The Group will consider the allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to
make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions may
be taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against
the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Group does not
have any off-balance-sheet credit exposure related to its customers. As of March 31,2022 and June 30, 2021, the Company has accounts receivable
balance from non-related party of $4,340,702 and $4,936,974, net of allowance for doubtful accounts of $155,691 and $152,995, respectively.
No bad debt expense was recorded during the three and nine months ended March 31,2022 and 2021.
Inventories
Inventories consist of raw materials, working-in-process
and finished goods. Inventories are valued at the lower of cost or net realizable value. The Group does determine cost on the basis of
the weighted average method. The Group periodically reviews inventories for obsolescence and any inventories identified as obsolete are
written down or written off. Although the Group does believe that the assumptions the Group uses to estimate inventory write-downs are
reasonable, future changes in these assumptions could provide a significantly different result.
Advances to suppliers
Advances to suppliers represent prepayments for
merchandise, which were purchased but had not been received. The balance of the advances to suppliers is reduced and reclassified to inventories
when the raw materials are received and pass quality inspection.
Property, plant and equipment
Property, plant and equipment are recorded at
cost less accumulated depreciation and any impairment. The cost of an asset comprises its purchase price and any directly attributable
costs of bringing the asset to its present working condition and location for its intended use. Repairs and maintenance costs are normally
expensed as incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future
economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized as an additional cost of the asset.
When assets are retired or disposed of, the cost
and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the statement of comprehensive
income (loss) in the reporting period of disposition.
Depreciation is calculated on a straight-line
basis over the estimated useful life of the assets after taking into account their respective estimated residual value. The estimated
useful life of the assets is as follows:
| Buildings |
10 – 20 years |
| Machinery and equipment |
5 – 10 years |
| Office equipment |
3 – 5 years |
| Automobiles |
5 years |
Intangible assets
Land use right is recorded as cost less accumulated
amortization. Land use rights represent the prepayments for the use of the parcels of land in the PRC where the Group’s production
facilities are located, and are charged to expense over their respective lease periods of 50 years. According to the laws of the PRC,
the government owns all of the land in the PRC. Enterprises or individuals are authorized to use the land only through land use rights
granted by the PRC government for a certain period (usually 50 years).
Purchased intangible assets are recognized and measured at fair value
upon acquisition. Intangible assets acquired separately and with finite useful lives are carried at costs less accumulated amortization
and any accumulated impairment losses. Amortization for intangible assets with finite useful lives is provided on a straight-line basis
over their estimated useful lives. Alternatively, intangible assets with indefinite useful lives are carried at cost less any subsequent
accumulated impairment losses. The estimated useful lives of the intangible assets are as follows:
| Land use right |
50 years |
| Computer software |
2-5 years |
Gains or losses arising from derecognition of
the intangible asset are measured at the difference between the net disposal proceeds and the carrying amount of the assets and are recognized
in the statement of comprehensive income (loss) when the asset is disposed.
Impairment of long-lived assets
In accordance with the provisions of ASC Topic
360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as property, plant and equipment held and used
by the Group are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its
estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.
Revenue recognition
The Group adopted the new accounting standard,
ASC 606, Revenue from Contracts with Customers, and all the related amendments (new revenue standard) to all contracts using the modified
retrospective method beginning on July 1, 2018. The adoption did not result in an adjustment to the retained earnings as of June 30, 2018.
The comparative information was not restated and continued to be reported under the accounting standards in effect for those periods.
The adoption of the new revenue standard has no impact on either reported sales to customers or net earnings.
The Group 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 Group expects to receive in exchange
for those goods or services. The Group 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 Group generally recognizes revenue when its products are delivered to customers in accordance with the written sales terms.
The control of the products is transferred to the customer upon receipt of goods by the customer. For service revenue, the Group recognizes
revenue when services are performed and accepted by customers.
The following tables disaggregate the Revenue
of the Group by major source for the three and nine months ended March 31,2022 and 2021, respectively:
| |
For the nine months ended March 31, |
| |
2022 |
2021 |
Sales of LCM and LCD
screens - Non-related
parties |
$10,547,390 |
$9,100,076 |
Sales of LCM and LCD
screens - Related parties |
- |
- |
|
Sales of Lithume
battery-related |
4,477 |
- |
| Service contracts |
- |
2,018 |
| Total |
$10,551,867 |
$9,102,094 |
| |
For the Three Months ended March 31, |
| |
2022 |
2021 |
Sales of LCM and LCD
screens - Non-related
parties |
$2,058,179 |
$3,160,474 |
Sales of LCM and LCD
screens - Related parties |
- |
- |
|
Sales of Lithume
battery-related |
- |
- |
| Service contracts |
- |
272 |
| Total |
$2,058,179 |
$3,160,746 |
All the operating entities of the Group are domiciled
in the PRC. All the Group’s revenues are derived in the PRC during the three and nine months ended March 31,2022 and 2021
Cost of revenues
Cost of revenues includes cost of raw materials
purchased, inbound freight cost, cost of direct labor, depreciation expense and other overhead. Write-down of inventory for lower of cost
or net realizable value adjustments is also recorded in cost of revenues.
Related parties and transactions
The Group identifies related parties, and accounts
for, discloses related party transactions in accordance with ASC 850, "Related Party Disclosures" and other relevant ASC standards.
Parties, which can be a corporation or individual,
are considered to be related if the Group has the ability, directly or indirectly, to control the other party or exercise significant
influence over the other party in making financial and operational decisions. Corporations are also considered to be related if they are
subject to common control or common significant influence.
Transactions between related parties commonly
occurring in the normal course of business are considered to be related party transactions. Transactions between related parties are also
considered to be related party transactions even though they may not be given accounting recognition. While ASC does not provide accounting
or measurement guidance for such transactions, it requires their disclosure nonetheless.
Income taxes
Income taxes are determined in accordance with
the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model for how
companies should recognize, measure, present, and discloses in their financial statements uncertain tax positions taken or expected to
be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely
than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be
measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the
tax authority assuming full knowledge of the position and relevant facts.
As of March 31,2022 and June 30,
2021, the Group did not have any significant unrecognized uncertain tax positions.
Comprehensive income (loss)
Comprehensive income (loss) is defined as the
change in equity of a corporation during a period from transactions and other events and circumstances excluding transactions resulting
from investments from owners and distributions to owners. Comprehensive income (loss) for the periods presented includes net income (loss),
change in unrealized gains (losses) on marketable securities classified as available-for-sale (net of tax), foreign currency translation
adjustments, and share of change in other comprehensive income of equity investments one quarter in arrears.
Leases
In February 2016, the FASB established Topic 842,
Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on balance sheet and disclose
key information about the leasing arrangements. The new standard establishes a right-of-use model (“ROU”) that requires a
lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.
The new standard is effective for us on July 1,
2019, with early adoption permitted. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative
period presented in the financial statements as its date of initial application. The Group 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 Group elected the package of practical
expedients which permits us not to reassess under the new standard the Group's prior conclusions about lease identification, lease classification
and initial direct costs.
The new standard has no material effect on the
consolidated financial statements of the Group as the Group does not have a lease with a term longer than 12 months as of June 30, 2021
(See Note 5).
Earnings (losses) per share
Basic earnings (losses) per share is computed
by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (losses)
per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential
common shares consist of incremental shares issuable upon exercise of stock options and warrants and conversion of convertible debt. Such
potentially dilutive shares are excluded when the effect would be to reduce a net loss per share or increase a net income per share.
During the nine months ended March 31,2022
and 2021,the Company had outstanding convertible notes and warrants which represent 68,750 and 1,096,705 shares of commons stock
respectively. These shares of common stock were excluded from the computation of diluted earnings per share since their effect would have
been antidilutive.
During the three months ended March 31,2022 and
2021, the Company had outstanding convertible notes and warrants which represent 68,750 and 68,750 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.
Foreign currencies translation
The reporting currency of the Company is the United
States Dollar (“US$”). The Company’s subsidiaries in the People’s Republic of China (“PRC”) maintain
their books and records in their local currency, the Renminbi Yuan (“RMB”), which is the functional currency as being the
primary currency of the economic environment in which these entities operate.
In general, for consolidation purposes, assets
and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with ASC Topic 830-30,
“Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated
at average rates prevailing during the period. Stockholders’ equity is translated at historical rates. The gains and losses resulting
from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive
income within the statements of stockholders’ equity.
Transactions denominated in currencies other than
the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction.
Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency
using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of comprehensive
income (loss).
The exchange rates used to translate amounts in
RMB into U.S. Dollars for the purposes of preparing the consolidated financial statements are as follows:
| |
|
March 31,2022 |
|
|
June 30, 2021 |
|
| |
|
|
|
|
|
|
| Balance sheet items, except for equity accounts |
|
|
6.3482 |
|
|
|
6.4601 |
|
| |
|
Nine months ended March 31, |
|
| |
|
2022 |
|
|
2021 |
|
| |
|
|
|
|
|
|
| Items in statements of comprehensive income (loss) and cash flows |
|
|
6.4042 |
|
|
|
6.8254 |
|
Fair Value of Financial Instruments
The carrying value of the Group’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 Group 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 Group has the derivative liabilities measured
at fair value on a recurring basis which are valued at level 3 measurement (See Note 13).
Convertible Instruments
The Group 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 Group 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
Group records when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments
based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the
effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt
to their stated date of redemption.
The Group 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 Group 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 the Company's own stock as defined in
ASC 815-40 ("Contracts in Entity's Own Equity"). The Group classifies as assets or liabilities any contracts that require net-cash
settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or give
the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).
Recent accounting pronouncements
The Group considers the applicability and impact
of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.
Fair Value Measurement. In August 2018, the FASB
issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value
Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Under the guidance, public
companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair
value measurements. The guidance is effective for all entities for Calendar years beginning after December 15, 2019 and for interim periods
within those Calendar years, but entities are permitted to early adopt either the entire standard or only the provisions that eliminate
or modify the requirements. The Group is currently in the process of evaluating the impact of the adoption of this guidance on its consolidated
financial statements.
COVID-19
The Group’s operations are affected by the
recent and ongoing outbreak of the coronavirus disease 2019 (COVID-19) which in March 2020, was declared a pandemic by the World Health
Organization. The COVID-19 outbreak is causing lockdowns, travel restrictions, and closures of businesses. The Group’s business
has been negatively impacted by the COVID-19 coronavirus outbreak to certain extent.
NOTE 3 - VARIABLE INTEREST ENTITY
The VIE contractual arrangements
On December 27, 2018, the Company entered into
VIE agreements with two shareholders of Fangguan Electronics to control 95.14% of the ownership rights and receive 100% of the net profit
or net losses derived from the business operations of Fangguan Electronics. In exchange for VIE agreements and additional capital contribution,
the Company issued 15 million shares of common stock to two shareholders of Fangguan Electronics. (See Note 1).
The transaction was accounted for as a business
combination using the acquisition method of accounting. The assets, liabilities and the operations of Fangguan Electronics subsequent
to the acquisition date were included in the Group’s consolidated financial statements.
Through power of attorney, equity interest purchase
agreement, and equity interest pledge agreement, 95.14% of the voting rights of Fangguan Electronics’ shareholders have been transferred
to the Company so that the Company has effective control over Fangguan Electronics and has the power to direct the activities of Fangguan
Electronics that most significantly impacts the Group's economic performance.
Through business operation agreement with the
Shareholders of Fangguan Electronics, 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 of Fangguan Electronics.
Through the exclusive technical support service
agreement with the shareholders of Fangguan Electronics, the Company together with the relevant subsidiaries, shall provide Fangguan Electronics
with necessary technical support and assistance as the exclusive provider. And at the request of the Company, Fangguan Electronics 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 Fangguan Electronicsin any Calendar 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 Fangguan Electronics.
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 Fangguan Electronics. Except for technical support, the Company and its subsidiaries 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 Fangguan Electronics has changed, the Group shall disclose the primary factors that caused the change and
the effect on the Group’s financial statements in the periods when the change occurs.
There are no restrictions on the consolidated
Fangguan Electronics’s assets and on the settlement of its liabilities and all carrying amounts of Fangguan Electronics’s
assets and liabilities are consolidated with the the financial statements of the Company and its subsidiaries. In addition, the net income
of Fangguan Electronics after it became the VIE of the Company is free of restrictions for payment of dividends to the shareholders of
the Company.
On December 24, 2021,
the Board of Directors of Fangguan Electronics and the holders of the majority of issued and outstanding voting securities of Fangguan
Electronics approved an amendment (the “Amendment”) to the Articles of Incorporation of Fangguan Electronics to increase the
registered capital (the “Registered Capital Increase”)of the VIE from RMB50 million (approximately $7.2 million) to RMB55
million(approximately $8.0 million). Fangguan Electronics's new institutional shareholder , namely Changchun Lingguan Investment Partnership
("Lingguan"), whose ultimate beneficial owners and controlling shareholders are Jialin Liang and Xuemei Jiang as both of whom
own 63% of the ownership rights of Lingguan ( while all of the other sharehders are employee of the VIE), made cash contribution of RMB
6.0 million (approximately $0.78 million) and RMB 1.0 million (approximately $0.16 million )
to the registered capital and the additional paid in capital respectively of Fangguan Electronics on December 28,2021. Lingguan
is limited partnership by structure and private equity fund by nature. And Lingguan was established for the sole purpose of the
Registered Capital Increase of Fangguan Electronics.Xuemei Jiang,has acted as the the executive partner of Lingguan to represent
Lingguan and has been in charge with the daily operation of Lingguan.She is the internal decision-maker of Lingguan and has the right
to decide all the investment and divestment of the relevant investment of Lingguan.
Accordingly,Jialin Liang, Xuemei
Jiang and Lingguan are deemed to be parties acting in concert and collectively own 94.55% of the ownership rights in Fangguan Electronics
( prior to the Registered Capital Increase, Jialin Liang ever transferred his ownship right at the amount of RMB 2.5 million (approximately
$0.4 million)) of Fangguan Electronics to a third party individual ). Therefore all of the Board of Directors of the Company , Jialin
Liang and Xuemei Jiang have concluded that all of the VIE Agreements remain valid.
Assets of Fangguan Electronics that are collateralized
or pledged are not restricted to settle Fangguan Electronics' own obligations. The creditors of Fangguan Electronics do not have recourse
to the general credit of the Company and its subsidiaries.
Risks associated with the VIE structure
The Company believes that the contractual arrangements
with the VIE and the Shareholders of VIE 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:
| · | discontinue or restrict the operations of any related-party transactions between the Company’s PRC
subsidiary and its VIE; |
| · | limit the Group’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 Group’s use of the proceeds from public offering to finance the Group’s
business and operations in China. |
The Group’s ability to conduct its business
through its VIE may be negatively affected if the PRC government were to carry out 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 subsidiaries and its VIE.
There has been no change in facts and circumstances to consolidate the VIE. The following financial statement amounts and balances of
its VIE were included in the accompanying consolidated financial statements after elimination of intercompany transactions and balances:
| | |
Balance as of
March 31,2022 | | |
Balance as of
June 30, 2021 | |
| Cash and cash equivalents | |
$ | 1,133,938 | | |
$ | 702,979 | |
| Notes receivable | |
| 196,091 | | |
| 76,743 | |
| Accounts receivable - non-related parties | |
| 2,984,905 | | |
| 3,638,354 | |
| Inventory | |
| 4,487,946 | | |
| 4,899,831 | |
| Advances to suppliers - non-related parties | |
| - | | |
| 749,975 | |
| Prepaid expenses and other current assets | |
| 378,955 | | |
| 62,251 | |
| Total Current Assets | |
| 9,181,835 | | |
| 10,130,133 | |
| | |
| | | |
| | |
| Property, plant and equipment, net | |
| 6,523,977 | | |
| 6,787,525 | |
| Intangible assets, net | |
| 1,510,225 | | |
| 1, 508,583 | |
| Deferred tax assets | |
| 50,988 | | |
| 50,105 | |
| Total Assets | |
$ | 17,267,025 | | |
$ | 18,476,346 | |
| | |
| | | |
| | |
| Short-term bank loan | |
$ | 1,575,250 | | |
$ | 904,832 | |
| Accounts payable | |
| 1,404,463 | | |
| 3,960,792 | |
| Advance from customers | |
| 252,216 | | |
| 150,110 | |
| Due to related parties | |
| 1,918,358 | | |
| 2,349,518 | |
| Accrued expenses and other current liabilities | |
| 100,134 | | |
| 49,968 | |
| Total Current Liabilities | |
| 5,250,421 | | |
| 7,415,220 | |
| Total Liabilities | |
$ | 5,250,421 | | |
$ | 7,415,220 | |
Schedule of condensed income statement and cash flow statement of its
VIE are as follows:
| |
|
|
| |
For the nine months ended March 31 , |
| |
2022 |
2021 |
| Revenue (*) |
$10,547,390 |
$8,941,662 |
| Net (loss) income |
（182,642） |
(107,417) |
Net cash provided by
(used in) operating
activities |
(432,992) |
(581,315) |
Net cash used in
investing activities |
(153,659) |
(192,524) |
Net cash provided by
financing activities |
1,472,853 |
（224,301） |
| |
(*) |
|
Revenue generated by the VIE are primarily from manufacturing and trading LCM and LCD screens. |
During the three and nine months ended March 31,2022 and
2021, the VIE did not have any material related party transactions with other subsidiaries of the Company.
Under the contractual arrangements with the VIE, the Company has the
power to direct activities of the VIE and can have assets transferred out of the VIE under its control. Therefore, the Company considers
that there is no asset in any of the VIE that can be used only to settle obligations of the VIE, except for registered capital and PRC
statutory reserves. As all VIE are incorporated as limited liability companies under the Company Law of the PRC, creditors of the VIE
do not have recourse to the general credit of the Company or its subsidiaries for any of the liabilities of the VIE.
Currently, there is no contractual arrangement which requires the
Company or its subsidiaries to provide additional financial support to the VIE.
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:
| | |
Balance as of March 31,2022 | | |
Balance as of June 30, 2021 | |
| Raw materials | |
$ | 2,020,439 | | |
$ | 1,314,020 | |
| Work-in-process | |
| 2,152,242 | | |
| 3,367,716 | |
| Finished goods | |
| 879,579 | | |
| 772,635 | |
| Total Inventories | |
$ | 5,052,260 | | |
$ | 5,454,371 | |
The Group recorded no inventory markdown for the
nine months ended March 31,2022 and 2021.
NOTE 5- OPERATING LEASE
For the nine months ended March 31,2022, the Group
had one real estate operating leases for office and warehouse under the terms of one year.
Lisite Science Technology (Shenzhen) Co., Ltd
("Lisite Science") leases office and warehouse space from Shenzhen Keenest Technology Co., Ltd. (“Keenest”), a related
party, with annual rent of approximately $1,500 (RMB10,000) for one year until July 20, 2020. On July 20, 2020, Lisite Science further
extended the lease with Keenest for one more year until July 20, 2021 with annual rent of approximately $1,500 (RMB10,000). (See Note
10).On July 20, 2021, Lisite Science further extended the lease with Keenest for one more year until July 20, 2022 with annual rent of
approximately $295 (RMB2,000).
The Group made an accounting policy election not
to recognize lease assets and liabilities for the leases listed above as all lease terms are 12 months or shorter.
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT,
NET
The components of property, plant and equipment were as follows:
| | |
March 31,2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Buildings | |
$ | 5,162,763 | | |
$ | 5,073,335 | |
| Machinery and equipment | |
| 3,419,353 | | |
| 3,216,474 | |
| Office equipment | |
| 83,372 | | |
| 75,374 | |
| Automobiles | |
| 177,365 | | |
| 173,090 | |
| Subtotal | |
| 8,842,853 | | |
| 8,538,273 | |
| Less: Accumulated depreciation | |
| (2,314,001 | ) | |
| (1,745,958 | ) |
| Property, plant and equipment, net | |
$ | 6,528,852 | | |
$ | 6,792,315 | |
Depreciation expenses related to property, plant
and equipment were $531,811 and $468,186 for the nine months ended March 31,2022 and 2021, respectively.
Depreciation expenses related to property, plant
and equipment were $177,489 and $167,245 for the three months ended March 31,2022 and 2021, respectively.
As of March 31,2022 and June 30, 2021, buildings
were pledged as collateral for bank loans (See Note 8).
NOTE 7– INTANGIBLE ASSETS, NET
Intangible assets consist of the following:
| | |
March 31,2022 | | |
June 30, 2021 | |
| | |
| | |
| |
| Land use right | |
$ | 1,608,625 | | |
$ | 1,580,761 | |
| Computer software | |
| 30,432 | | |
| 29,905 | |
| Subtotal | |
| 1,639,057 | | |
| 1,610,666 | |
| Less: Accumulated amortization | |
| (128,832 | ) | |
| (102,083 | ) |
| Intangible assets, net | |
$ | 1,510,225 | | |
$ | 1,508,583 | |
Amortization expenses related to intangible assets
were $24,697 and $44,189 for the nine months ended March 31,2022 and 2021, respectively.
Amortization expenses related to intangible assets
were $8,244 and $10,063 for the three months ended March 31,2022 and 2021, respectively.
Fangguan Electronics acquired the land use right
from the local government in August 2012 which expires on August 15, 2062. As of March 31,2022 and June 30, 2021, land use right was pledged
as collateral for bank loans (See Note 8).
NOTE 8 – SHORT-TERM BANK LOAN
The Company’s short-term bank loans consist
of the following:
| | |
| | |
March 31,2022 | | |
June 30, 2021 | |
| Loan payable to Industrial Bank, due October 2021 | |
| (2 | ) | |
$ | - | | |
$ | 348,324 | |
| Loan payable to Industrial Bank, due July 2022 | |
| (3 | ) | |
| 566,317 | | |
| - | |
| Loan payable to Industrial Bank, due July 2022 | |
| (4 | ) | |
| 654,468 | | |
| - | |
| Loan payable to Industrial Bank, due August 2021 | |
| (1 | ) | |
| - | | |
| 556,508 | |
| oan payable to Industrial Bank, due October 2022 | |
| (5 | ) | |
| 354,465 | | |
| - | |
| Total | |
| | | |
$ | 1,575,250 | | |
$ | 904,832 | |
| (1) | During August 2020, Fangguan Electronics issued a one-year commercial acceptance bill with amount of approximately
US$556,508 (RMB3,595,096) and maturity date at August 6, 2021. |
During September 2020, Fangguan Electronics
issued a six-month commercial acceptance bill with amount of approximately US$464,389 (RMB3,000,000) and maturity date at March 9, 2021.
On August 11, 2020 and September 10, 2020, the two commercial acceptance bills were discounted with Industrial Bank at an interest rate
of 3.80% and the balance of the two commercial acceptance bills converted to bank loans with Industrial Bank based on a mutual agreement
from both parties. The borrowing was collateralized by the Fangguan Electronics’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. In March 2021, Fangguan Electronics repaid the commercial acceptance bill of approximately US$464,389 (RMB3,000,000) in full upon
maturity. In August 2021, Fangguan Electronics repaid the commercial acceptance bill of approximately US$553,987 (RMB3,595,096) in full
upon maturity.
| (2) | During April 2021, Fangguan Electronics issued a six-month commercial acceptance bill with amount of approximately
US$346,966 (RMB2,250,212) and maturity date at October 13, 2021. On April 13, 2021, the commercial acceptance bill was discounted with
Industrial Bank at an interest rate of 3.85% and the balance of the commercial acceptance bill converted to bank loan with Industrial
Bank based on a mutual agreement from both parties. The borrowing was collateralized by the Fangguan Electronics’s buildings and
land use right. In addition, the borrowing was guaranteed by the Company’s shareholder and CEO of Fangguan Electronics, Mr. Jialin
Liang, and his wife Ms. Dongjiao Su. On October 13, 2021, Fangguan Electronics repaid the commercial acceptance bill of approximately
US$346,966 (RMB2,250,212) in full upon maturity. |
| (3) | On July 28, 2021, Fangguan Electronics entered into a short-term loan agreement with Industrial Bank to
borrow approximately US$566,317 (RMB3,595,096) for a year until July 27, 2022 with annual interest rate of 3.85%. The borrowing was collateralized
by the Fangguan Electronics’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. |
| (4) | On July 28, 2021, Fangguan Electronics entered into a short-term loan agreement with Industrial Bank to
borrow approximately US$654,468(RMB4,154,692) for a year until July 27, 2022 with annual interest rate of 3.85%. The borrowing was collateralized
by the Fangguan Electronics’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. |
| (5) | On October 21, 2021, Fangguan Electronics entered into a short-term loan agreement with Industrial Bank
to borrow approximately US$354,465(RMB2,250,212) for 9 months until July 27, 2022 with annual interest rate of 3.85%. The borrowing was
collateralized by the Fangguan Electronics’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. |
NOTE 9 - STOCKHOLDERS' EQUITY
Stock Issued as Commitment Shares for
Promissory Note
On July 5, 2021, the Company issued a self-amortization
promissory note to FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC in the aggregate principal amount of $500,000. The promissory note is due
on or before July 6, 2022 and bears an interest rate of five percent (5%) per annum. The note is not convertible unless in default, as
defined in the agreement. The Company agreed to reserve 6,562,500 shares of its common stock for issuance if any debt is converted. The
Company executed and closed the transaction on July 15,2021 and received $437,500 in cash after deducting an OID in the amount of $50,000
and other costs of $12,500. The self-amortization promissory note has an amortization schedule of $58,333.33 payment at each month beginning
November 9, 2021 through July 6, 2022.In connection with the issuance of promissory note, on July 8 , 2021, the Company issued 300,000
shares of common stock (the “First Commitment Shares”) and 1,042,000 shares of common stock (the “Second Commitment
Shares”) related to the promissory note as a commitment fee. The Second Commitment Shares must be returned to the Company’s
treasury if the promissory note is fully repaid and satisfied on or prior to the maturity date. The Company records the First Commitment
Shares as debt discount valued at $51,000 based on the quoted market price at issue date and amortized over the term of the promissory
note and the Second Commitment Shares at par for the nine months ended March 31,2022.(See Note 14)
On December 29, 2021, the Company issued
a self-amortization promissory note to Talos Victory Fund, LLC,in the aggregate principal amount of $250,000.
The promissory note is due on or before December 29, 2022 and bears an interest rate of five percent (5%)
per annum. The note is not convertible unless in default, as defined in the agreement. The Company agreed to reserve 7,875,000
shares of its common stock for issuance if any debt is converted. The Company executed and closed the transaction on January 6,2022
and received $211,250
in cash after deducting an OID in the amount of $25,000 and other costs of $13,750.
The self-amortization promissory note has an amortization schedule of $29,166.66
payment at each month beginning May 3, 2022 through January 3, 2023.In connection with the issuance of promissory note, on December
30 , 2021, the Company issued 625,000
shares of common stock (the “First Commitment Shares”) and 1,562,500
shares of common stock (the “Second Commitment Shares”) related to the promissory note as a commitment fee. The Second
Commitment Shares must be returned to the Company’s treasury if the promissory note is fully repaid and satisfied on or prior to
the maturity date. The Company records the First Commitment Shares as debt discount valued at $53,125
based on the quoted market price at issue date and amortized over the term of the promissory note and the Second Commitment Shares
at par for the nine months ended March 31, 2022.(See Note 14).
On January 3, 2022, the Company issued a self-amortization
promissory note to Mast Hill Fund, L.P.,in the aggregate principal amount of $250,000. The promissory note is due on or before January
3, 2023 and bears an interest rate of five percent (5%) per annum. The note is not convertible unless in default, as defined in the agreement.
The Company agreed to reserve 7,875,000 shares of its common stock for issuance if any debt is converted. The Company executed and closed
the transaction on January 7,2022 and received $211,250 in cash after deducting an OID in the amount of $25,000 and other costs of $13,750.
The self-amortization promissory note has an amortization schedule of $29,166.66 payment at each month beginning May 3, 2022 through January
3, 2023.In connection with the issuance of promissory note, on January 3 , 2022, the Company issued 625,000 shares of common stock (the
“First Commitment Shares”) and 1,562,500 shares of common stock (the “Second Commitment Shares”) related to the
promissory note as a commitment fee. The Second Commitment Shares must be returned to the Company’s treasury if the promissory note
is fully repaid and satisfied on or prior to the maturity date. The Company records the First Commitment Shares as debt discount valued
at $55,000 based on the quoted market price at issue date and amortized over the term of the promissory note and the Second Commitment
Shares at par for the nine months ended March 31, 2022.(See Note 14)
On February 17, 2022, the Company issued a self-amortization promissory
note to Blue Lake Partners, LLC in the aggregate principal amount of $500,000. The promissory note is due on or before February 17, 2023
and bears an interest rate of five percent (5%) per annum. The note is not convertible unless in default, as defined in the agreement.
The Company agreed to reserve 15,750,000 shares of its common stock for issuance if any debt is converted. The Company executed and closed
the transaction on February 17,2022 and received $422,500 in cash after deducting an OID in the amount of $50,000 and other costs of $27,500.
The self-amortization promissory note has an amortization schedule of $58,333.33 payment at each month beginning June 17, 2022 through
February 17, 2023.In connection with the issuance of promissory note, on February 17 , 2022, the Company issued 1,250,000 shares of common
stock (the “First Commitment Shares”) and 1,562,500 shares of common stock (the “Second Commitment Shares”).(See
Note 14)
Commitment Shares returned to the Company
On December 21 2021,the total of 1,119,402 shares
of common stock which were previously recorded at par as the Second Commitment Shares related to the promissory note issued to Labrys
Fund, L.P on December 21, 2020, were returned to the Company’s treasury because this promissory note was already fully repaid and
satisfied prior to the maturity date.(See Note 14)
On January 10, 2022, a total of 1,042,000 shares
of common stock which were previously recorded at par as the Second Commitment Shares related to the promissory note issued to Labrys
Fund, L.P on March 10, 2021, were returned to the Company’s treasury because this promissory note was already fully repaid and satisfied
prior to the maturity date.(See Note 14)
Stock Issued for Private Placement
On October 4, 2021, the Company issued a total
of 29,106,000 restricted shares of common stock to 12 individual subscribers for an aggregate purchase price of $3,492,720 at $0.12 per
share, according to the conditions of the subscription agreements signed between the Company and subscribers.
On November 13, 2021, the Company and individual
subscribers agreed to a voluntary unwinding of the forementioned transaction related to the subscription and purchase of an aggregate
29,106,000 shares. The Company entered into cancellation agreements with each individual pursuant to which all funds were returned to
the investors and all shares were returned to our transfer agent for cancellation. Immediately prior to the decision, the Registration
Statement related to the shares was voluntarily withdrawn by the Company.
On December 15, 2021, the Company issued a total
of 6,580 ,000 restricted shares of common stock to a Chinese citizen subscriber for an aggregate purchase price of $394,800 at $0.06 per
share, according to the conditions of the subscription agreement signed between the Company and subscriber.
NOTE 10 - RELATED PARTY TRANSACTIONS AND BALANCES
Purchase from related party
During the three and nine months ended March 31,2022 and 2021, the
Group did not purchase from any related party.
Advances to suppliers - related parties
Lisite Science made advances of $441,538 and $434,200
to Keenest for future purchases as of March 31,2022 and June 30, 2021,respectively.
Sales to related party
During the three and nine months ended March 31,2022
and 2021, the Group did not sell to any related party.
Lease from related party
Lisite Science leases office and warehouse space
from Keenest, a related party, with annual rent of approximately $1,500 (RMB10,000) for one year until July 20, 2020. On July 20, 2020,
Lisite Science further extended the lease with Keenest for one more year until July 20, 2021 with annual rent of approximately $1,500
(RMB10,000). (See Note 5). On July 20, 2021, Lisite Science further extended the lease with Keenest for one more year until July 20, 2022
with annual rent of approximately $295 (RMB2,000).
Baileqi Electronic leases office and warehouse
space from Shenzhen Baileqi S&T, a related party, with monthly rent of approximately $2,500 (RMB17,525) and the lease period is from
June 1, 2019 to May 31, 2020. On June 5, 2020, Baileqi Electronic further extended the lease with Shenzhen Baileqi S&T for one more
year until May 31, 2021 with monthly rent of approximately $2,500 (RMB17,525). This lease was not extended when it expired in May 2021.
Due to related parties
Due to related parties represents the certain
advances to the Group by related parties. The amounts are non-interest bearing, unsecured and due on demand.
| | |
| | |
|
March 31,2022 | | |
June 30, 2021 | |
| | |
| | |
|
| | |
| |
| Ben Wong | |
| (1 | ) | |
|
$ | 143,792 | | |
$ | 143,792 | |
| Yubao Liu | |
| (2 | ) | |
|
| 294,163 | | |
| 352,236 | |
| Xin Sui | |
| (3 | ) | |
|
| 2,016 | | |
| 2,016 | |
| Baozhen Deng | |
| (4 | ) | |
|
| 53,375 | | |
| 45,276 | |
| Yunqiang Xie | |
| | (13) | |
|
| 35,758 | | |
| - | |
| Jialin Liang | |
| (6 | )(11) | |
|
| 1,404,801 | | |
| 1,844,857 | |
| Xuemei Jiang | |
| (7 | )(10) | |
|
| 563,939 | | |
| 554,171 | |
| Kou Yue | |
| | (12) | |
|
| 20,000 | | |
| - | |
| Shikui Zhang | |
| (8 | ) | |
|
| 72,760 | | |
| 58,961 | |
| Biao Shang | |
| (5 | ) | |
|
| 20,153 | | |
| 19,804 | |
| Changyong Yang | |
| (9 | ) | |
|
| 40,055 | | |
| 32,705 | |
| | |
| | | |
|
$ | 2,650,812 | | |
$ | 3,053,818 | |
| (1) | Ben Wong was the former controlling shareholder (before April 20, 2017) of Shinning Glory, which holds
majority shares in the Company. |
| (2) | Yubao Liu has been the controlling shareholder of Shinning Glory since April 20, 2017, which holds majority
shares in the Company. He also serves as director of the Company. |
| (3) | Xin Sui serves as director of Welly Surplus. |
| (4) | Baozhen Deng is a stockholder of the Company, who owns approximately 0.7% of the Company’s outstanding
common stock, and the owner of Shenzhen Baileqi S&T. |
| (5) | Biao Shang is a stockholder of the Company and serves as director of Fangguan Photoelectric. |
| (6) | Jialin Liang is a stockholder of the Company, serves as the president, CEO, and director of Fangguan Electronics
and director of the Company. |
| (7) | Xuemei Jiang is a stockholder of the Company and serves as director of both Fangguan Electronics and the
Company. |
| (8) | Shikui Zhang is a stockholder of the Company and serves as the general manager of Shizhe New Energy since
May 2019. |
| (9) | Changyong Yang is a stockholder of the Company,who owns approximately 1.3% of the Company’s outstanding
common stock,and the owner of Keenest. |
| (10) | The liability represents the advances to Fangguan Electronics by Xuemei Jiang at the acquisition date
of Fangguan Electronics (December 27, 2018). Thereafter Ms.Jiang neither made any further advance nor was refunded. |
| (11) | At the acquisition date of Fangguan Electronics (December 27, 2018), the advances to Fangguan Electronics
by Jialin Liang amounted to be approximately $5.8 million (RMB39,581,883), among which approximately $4.4 million (RMB30,000,000) was
used for debt for equity swap by Mr.Liang during the capital increase of Fangguan Electronics occurred in March 2019. Thereafter Mr.Liang
continued making advances to Fangguan Electronics. |
| (12) | Ms. Yue Kou is the CFO of the Company. During the nine months ended March 31,2022, Ms.Kou advanced $20,000
to Well Best after netting off the refund paid to her. |
| (13) | Mr
Yunqiang Xie is a stockholder of the Company and serves as director of Shijirun. |
During the nine months ended March 31,2022, the refund to Mr. Jialin
Liang by Fangguan Electronics was $440,056(RMB3,000,000)
During the nine months ended March 31,2022, setting
off the further advance to the Company by Mr Liu, the net refund by the Company to Mr Liu was approximately $58,073 .
During the nine months ended March 31,2022,
Baozhen Deng advanced approximately $8,099 to Baileqi Electronic. Shikui Zhang advanced approximately $13,799 to Shizhe New Energy.
Changyong Yang, a stockholder of the Company, advanced approximately $7,350 to Lisite Science. Mr Yunqiang Xie advanced approximately $35,758 to Shijirun. Ms.Yue
Kou advanced $20,000 to Well Best after netting off the refund paid to her.
During the nine months ended March 31, 2021,
Yubao Liu advanced $295,928 to Well Best after netting off the refund paid to him.
During the nine months ended March 31, 2021,
Baileqi Electronic refunded $3,836 to Baozhen Deng and Shenzhen Baileqi S&T advanced $23,937 to Baileqi Electronic. Shikui Zhang advanced
approximately $23,000 to Shizhe New Energy. Changyong Yang, a stockholder of the Company, advanced approximately $9,000 to Lisite Science.
On September 23, 2020, Jialin Liang entered into
a short-term loan agreement with Bank of Communications to borrow an individual loan of approximately US$441,000 (RMB 3 million) for one
year with annual interest rate of 3.85%. The borrowing was guaranteed by Fangguan Electronics. Pursuant to the loan agreement, the proceed
from the bank loan could only be used in the operation of Fangguan Electronics. On September 23, 2020, Jialin Liang advanced all of the
proceeds from this bank loan to Fangguan Electronics
NOTE 11– CONCENTRATION
Major customers
Customers who accounted for 10% or more of the
Group’s revenues (goods sold and services) and its outstanding balance of accounts receivable are presented as follows:
| | |
For the nine months ended
March 31,2022 | | |
As of March 31,2022 | |
| | |
Revenue | | |
Percentage of
total revenue | | |
Accounts
receivable | | |
Percentage of
total accounts
receivable | |
| | |
| | |
| | |
| | |
| |
| Customer A | |
$ | 2,407,785 | | |
| 23 | % | |
$ | 167,005 | | |
| 4 | % |
| Customer B | |
| 1,153,277 | | |
| 11 | % | |
| 68,320 | | |
| 2 | % |
| Total | |
$ | 3,561,062 | | |
| 34 | % | |
$ | 235,325 | | |
| 6 | % |
| | |
For the nine months ended
March 31,2021 | | |
As of March 31,2021 | |
| | |
Revenue | | |
Percentage of
revenue | | |
Accounts
receivable | | |
Percentage of
accounts
receivable | |
| | |
| | |
| | |
| | |
| |
| Customer A | |
$ | 1,666,368 | | |
| 18 | % | |
$ | 229,336 | | |
| 7 | % |
| Customer B | |
| 1,352,195 | | |
| 15 | % | |
| - | | |
| - | % |
| Customer C | |
| 950,501 | | |
| 10 | % | |
| 184,584 | | |
| 5 | % |
| Total | |
$ | 3,969,064 | | |
| 43 | % | |
$ | 413,920 | | |
| 12 | % |
| | |
For the three months ended
March 31,2022 | | |
As of March 31,2022 | |
| | |
Revenue | | |
Percentage of
total revenue | | |
Accounts
receivable | | |
Percentage of
total accounts
receivable | |
| | |
| | |
| | |
| | |
| |
| Customer A | |
$ | 804,981 | | |
| 39 | % | |
$ | 167,005 | | |
| 4 | % |
| | |
| | | |
| | | |
| | | |
| | |
| Total | |
$ | 804,981 | | |
| 39 | % | |
$ | 167,005 | | |
| 4 | % |
| | |
For the three months ended
March 31,2021 | | |
As of March 31,2021 | |
| | |
Revenue | | |
Percentage of
revenue | | |
Accounts
receivable | | |
Percentage of
accounts
receivable | |
| | |
| | |
| | |
| | |
| |
| Customer A | |
$ | 612,781 | | |
| 19 | % | |
$ | 229,336 | | |
| 7 | % |
| Customer B | |
| 484,802 | | |
| 15 | % | |
| - | | |
| - | % |
| Customer C | |
| 441, 260 | | |
| 14 | % | |
| 184,584 | | |
| 5 | % |
| Total | |
$ | 1,538,843 | | |
| 48 | % | |
$ | 413,920 | | |
| 12 | % |
All customers of the Group are located in the
PRC.
Major suppliers
The suppliers who accounted for 10% or more of
the Group’s total purchases (materials and services) and its outstanding balance of accounts payable are presented as follows:
| | |
For the nine months ended
March 31,2022 | | |
As of March 31,2022 | |
| | |
Purchase | | |
Percentage of
total purchase | | |
Accounts
payable | | |
Percentage of
total accounts
payable | |
| | |
| | |
| | |
| | |
| |
| Supplier A | |
$ | 1,881,357 | | |
| 23 | % | |
$ | 89,333 | | |
| 4 | % |
| | |
| | | |
| | | |
| | | |
| | |
| Total | |
$ | 1,881,357 | | |
| 23 | % | |
$ | 89,333 | | |
| 4 | % |
| | |
For the nine months ended
March 31,2021 | | |
As of March 31,2021 | |
| | |
Total Purchase | | |
Percentage of
total purchase | | |
Accounts
payable | | |
Percentage of
total accounts
payable | |
| | |
| | |
| | |
| | |
| |
| Supplier A | |
$ | 1,148,322 | | |
| 14 | % | |
$ | 65,123 | | |
| 2 | % |
| Supplier B | |
| 796,553 | | |
| 10 | % | |
| 364,146 | | |
| 14 | % |
| | |
| | | |
| | | |
| | | |
| | |
| Total | |
$ | 1,944,875 | | |
| 24 | % | |
$ | 429,269 | | |
| 16 | % |
| | |
For the Three Months ended
March 31,2022 | | |
As of March 31,2022 | |
| | |
Purchase | | |
Percentage of
total purchase | | |
Accounts
payable | | |
Percentage of
total accounts
payable | |
| | |
| | |
| | |
| | |
| |
| Supplier A | |
$ | 257,421 | | |
| 15 | % | |
$ | 89,333 | | |
| 4 | % |
| Supplier B | |
| 181,509 | | |
| 11 | | |
| 146,204 | | |
| 6 | |
| Total | |
$ | 438,930 | | |
| 26 | % | |
$ | 235,537 | | |
| 10 | % |
| | |
For the Three Months ended
March 31,2021 | | |
As of March 31,2021 | |
| | |
Purchase | | |
Percentage of
total purchase | | |
Accounts
payable | | |
Percentage of
total accounts
payable | |
| | |
| | |
| | |
| | |
| |
| Supplier A | |
$ | 404,404 | | |
| 13 | % | |
$ | 65,123 | | |
| 2 | % |
| | |
| 371,731 | | |
| 12 | % | |
| - | | |
| - | % |
| Total | |
$ | 776,135 | | |
| 25 | % | |
$ | 65,123 | | |
| 2 | % |
All suppliers of the Group are located in the PRC.
NOTE 12- 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 Group operates
in United States of America, Hong Kong and the PRC that are subject to taxes in the jurisdictions in which they operate.
United States of America
The Company is registered in the State of Nevada
and is subject to the tax laws of United States of America and subject to the corporate tax rate of 21% on its taxable income.
For the nine months ended March 31,2022 and 2021,
the Company did not generate income in United States of America and no provision for income tax was made. Under normal circumstances,
the Internal Revenue Service is authorized to audit income tax returns during a three-year period after the returns are filed. In
unusual circumstances, the period may be longer. Tax returns for the years ended June 30, 2016 and after were still open to audit
as of March 31,2022.
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 nine months ended March 31,2022 and 2021,
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 calendar years from
2016 to 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 2022 to 2024.
The reconciliation of income tax expense (benefit)
at the U.S. statutory rate of 21% to the Group's effective tax rate is as follows:
| | |
|
|
|
|
|
| |
| | |
For the nine months ended March 31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| Tax (benefit) at U.S. statutory rate | |
$ | (211,659 | ) | |
$ | (215,790 | ) |
| Tax rate difference between foreign operations and U.S. | |
| 556 | | |
| 26,511 | |
| Change in valuation allowance | |
| 64,836 | | |
| 155,922 | |
| Permanent difference | |
| 214,108 | | |
| 9,802 | |
| Effective tax (benefit) | |
$ | 67,841 | | |
$ | (23,555 | ) |
The provisions for income taxes (benefits) are
summarized as follows:
| | |
| | |
| |
| | |
For the nine months ended March 31, | |
| | |
2022 | | |
2021 | |
| Current | |
$ | 67,841 | | |
$ | 2,353 | |
| Deferred | |
| - | | |
| (25,908 | ) |
| Total | |
$ | 67,841 | | |
$ | (23,555 | ) |
As of March 31,2022, the Group has approximately
$4,147,768 net operating loss carryforwards available in the U.S and Hong Kong to reduce future taxable income which will begin to expire
from 2035. It is more likely than not that the deferred tax assets resulted from net operating loss carryforward cannot be utilized in
the future because there will not be significant future earnings from the entities which generated the net operating loss. Therefore,
the Group recorded a full valuation allowance on its deferred tax assets resulted from net operating loss carryforward as of March 31,2022.
On December 22, 2017, the “Tax Cuts and
Jobs Act” (“The 2017 Tax Act”) was enacted in the United States. Under the provisions of the Act, the U.S. corporate
tax rate decreased from 34% to 21%. Accordingly, the Company has re-measured its deferred tax assets on net operating loss carry forwards
in the U.S at the lower enacted cooperated tax rate of 21%. However, this re-measurement has no effect on the Company’s income tax
expenses as the Company has provided a 100% valuation allowance on its deferred tax assets previously.
Additionally, the 2017 Tax Act implemented a modified
territorial tax system and imposing a tax on previously untaxed accumulated earnings and profits (“E&P”) of foreign subsidiaries
(the “Toll Charge”). The Toll Charge is based in part on the amount of E&P held in cash and other specific assets as of
December 31, 2017. The Toll Charge can be paid over an eight-year period, starting in 2018, and will not accrue interest. The 2017 Tax
Act also imposed a global intangible low-taxed income tax (“GILTI”), which is a new tax on certain off-shore earnings at an
effective rate of 10.5% for tax years beginning after December 31, 2017 (increasing to 13.125% for tax years beginning after December
31, 2025) with a partial offset for foreign tax credits.
The Company has determined that this one-time
Toll Charge has no effect on the Company’s income tax expenses as the Company has no undistributed foreign earnings at either of
the two testing dates of November 2, 2017 and December 31, 2017.
For purposes of the inclusion of GILTI, the Company
determined that the Company did not have tax liabilities resulting from GILTI For the nine months ended March 31,2022 and 2021 due to
net operating loss carryforwards available in the U.S. Therefore, there was no accrual of GILTI liability as of March 31,2022 and June
30, 2021.
The extent of the Group’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 Group 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 13 - CONVERTIBLE DEBT
Convertible notes
Convertible notes payable balance was zero as
of March 31,2022 and June 30, 2021.
There was none of the amortization of debt discount
during the three and nine months ended March 31,2022.
For the nine months ended March 31,2021, the Company recorded the amortization
of debt discount of $138,399 for the convertible notes issued, which were included in other income and expense in the consolidated statement
of comprehensive income (loss).
For the three months ended March 31,2021, the Company recorded the
amortization of debt discount of $24,185 for the convertible notes issued, which were included in other income and expense in the consolidated
statement of comprehensive income (loss).
Derivative liability
Upon issuing of the convertible notes, the Company
determined that the conversion feature embedded in the notes referred to above that contain a potential variable conversion amount constitutes
a derivative which has been bifurcated from the note and accounted for as a derivative liability, with a corresponding discount recorded
to the associated debt. The excess of the derivative value over the face amount of the note, if any, is recorded immediately to interest
expense at inception.
The derivative liability in connection with the
conversion feature of the convertible debt is the only financial liability measured at fair value on a recurring basis.
The change of derivative liabilities is as follows:
| | |
| | |
| Balance at July 1, 2020 | |
$ | 276,266 | |
| Converted | |
| (357,868 | ) |
| Debt settlement | |
| (566,030 | ) |
| Change in fair value recognized in operations | |
| 647,632 | |
| Balance at March 31,2021 | |
$ | - | |
There was no any movement for the change of derivative
liabilities during the three and nine months ended March 31,2022, and the balance of derivative liabilities was $0 at March 31,2022
The estimated fair value of the derivative instruments
was valued using the Black-Scholes option pricing model during the nine months ended March 31,2021, using the following assumptions:
| Estimated dividends |
|
None |
| Expected volatility |
|
78.55% to 253.30% |
| Risk free interest rate |
|
0.61% to 0.93% |
| Expected term |
|
0 to 6 months |
Warrants
In connection with the issuance of the $165,000
convertible promissory note on September 11, 2019, FirstFire Global Opportunities Fund, LLC is entitled, upon the terms and subject to
the limitations on exercise and the conditions set forth in the agreement, at any time on or after the date of issuance hereof to purchase
from the Company up to 68,750 shares of common stock. Exercise price shall be $2.40, and the warrants can be exercised within 5 years
which is before September 11, 2024.
On December 21, 2020, the Company issued a total
of 1,500,000 shares of common stock to FirstFire Global Opportunities Fund, LLC for the exercise of warrants in full. The exercise of
warrants resulted in a loss of $67,028 for the nine months ended March 31,2021. After this exercise, FirstFire Global Opportunities Fund,
LLC is not entitled to any warrant to purchase shares.
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 December 2020, the Company paid a total of
$82,500 to fully settle the convertible note dated November 12, 2019 with Crown Bridge Partners, LLC, including all accrued and unpaid
interest and unexercised warrants. After this settlement, Crown Bridge Partners, LLC is not entitled to any warrant to purchase shares.
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 November 2020, the Company paid a total of
$175,000 to fully settle the convertible note dated November 20, 2019 with Morningview Financial LLC, including all accrued and unpaid
interest and unexercised warrants. After this settlement, Morningview Financial LLC is not entitled to any warrant to purchase shares.
In connection with the issuance of the $146,850
convertible promissory note on January 10, 2020, Labrys Fund, LP is entitled, upon the terms and subject to the limitations on exercise
and the conditions set forth in the agreement, at any time on or after the date of issuance hereof to purchase from the Company up to
68,750 shares of common stock. Exercise price shall be $2.80, and the warrants can be exercised within 5 years which is before January
10, 2025.
The estimated fair value of the warrants was valued
using the Black-Scholes option pricing model at grant date, using the following assumptions:
| Estimated dividends |
|
None |
| Expected volatility |
|
56.23% to 71.08% |
| Risk free interest rate |
|
1.73% to 1.92% |
| Expected term |
|
5 years |
Since the warrants can be exercised at $2.4 or
$2.8 and are not liabilities, the face value of convertible notes was allocated between convertible note and warrant based on the fair
values of the conversion feature and warrants. Accordingly, $147,492 was allocated to warrants and recorded in additional paid in
capital account during the year ended June 30, 2020.
The details of the outstanding warrants for the
nine months Ended March 31,2022 and 2021 are as follows:
| | |
Number of
Shares | | |
Weighted
Average
Exercise Price | | |
Remaining
Contractual Term
(years) | |
| Outstanding at July 1, 2021 （Note1） | |
| 68,750 | | |
$ | 2.80 | | |
| 3.53 | |
| Granted | |
| - | | |
| - | | |
| - | |
| Exercised or settled | |
| - | | |
| - | | |
| - | |
| Cancelled or Expired | |
| - | | |
| - | | |
| - | |
| Outstanding at March 31,2022（Note1） | |
| 68,750 | | |
$ | 2.80 | | |
| 2.78 | |
Note1: The herein mentioned warrant of 68,750 shares are entitled
by Labrys Fund, LP in connection with the issuance of the $146,850 convertible promissory note on January 10, 2020.
| | |
| Number of
Shares | | |
| Weighted Average
Exercise Price | | |
| Remaining
Contractual
Term
(years) | |
| Outstanding at July 1, 2020 | |
| 229,166 | | |
$ | 2.68 | | |
| 4.20 to 4.53 | |
| Granted | |
| - | | |
| - | | |
| - | |
| Exercised or settled （Note2） | |
| (160,416 | ) | |
| 2.63 | | |
| 4.05 to 4.16 | |
| Cancelled or expired | |
| - | | |
| - | | |
| - | |
| Outstanding at March 31,2021 （Note 1） | |
| 68,750 | | |
$ | 2.80 | | |
| 3.78 | |
Note2: The herein mentioned exercised or expired warrant of 160,416
shares was composed of （1）the
warrant of 68,750 shares entitled by FirstFire Global Opportunities Fund, LLC in connection with the issuance of the $165,000 convertible
promissory note on September 11, 2019,（2）the
warrant of 22,916 shares entitled by Crown Bridge Partners, LLC in connection with the issuance of the $55,000 convertible promissory
note on November 12, 2019（3）the
warrant of 68,750 shares entitled by Morningview Financial LL in connection with the issuance of the $165,000 convertible promissory note
on November 20, 2019.
NOTE 14– PROMISSORY NOTE
Schedule of promissory note as of March 31,2022 is as follows:
| | |
| | |
Note Balance | | |
Debt Discount | | |
Carrying Value | |
| Labrys Fund, LP | |
| (1 | ) | |
$ | - | | |
$ | - | | |
$ | - | |
| Labrys Fund, LP | |
| (2 | ) | |
| - | | |
| - | | |
| - | |
Firstfire Global Opportunities Fund,
LLC | |
| (3 | ) | |
| 325,000 | | |
| 29,230 | | |
| 295,770 | |
| Talos Victory Fund, LLC | |
| (4 | ) | |
| 250,000 | | |
| 68,819 | | |
| 181,181 | |
| Mast Hill Fund, L.P | |
| (5 | ) | |
| 250,000 | | |
| 71,505 | | |
| 178,495 | |
| Blue Lake Partners, LLC | |
| (6 | ) | |
| 500,000 | | |
| 155,969 | | |
| 344,031 | |
| Total | |
| | | |
$ | 1,325,000 | | |
$ | 325,523 | | |
$ | 999,477 | |
| (1) | On December 21, 2020, the Company issued a self-amortization promissory note to Labrys Fund, L.P in the
aggregate principal amount of $300,000. The promissory note is due on or before December 21, 2021 and bears an interest rate of five percent
(5%) per annum. The note is not convertible unless in default, as defined in the agreement. The Company agreed to reserve 7,052,239 shares
of its common stock for issuance if any debt is converted. The Company executed and closed the transaction on March 31,2021 and received
$253,500 in cash after deducting an OID in the amount of $30,000, legal fees of $3,000 and other costs of $13,500. The self-amortization
promissory note has an amortization schedule of $35,000 payment at each month end beginning on April 23, 2021 through December 21, 2021. |
In connection with the issuance of
promissory note, on December 31,2020, the Company issued 447,762 shares of common stock (the “First Commitment Shares”) and
1,119,402 shares of common stock (the “Second Commitment Shares”) related to the promissory note as a commitment fee. The
Second Commitment Shares must be returned to the Company’s treasury if the promissory note is fully repaid and satisfied on or prior
to the maturity date. The Company recorded the First Commitment Shares as debt discount valued at $68,060 based on the quoted market price
at issue date and amortized over the term of the promissory note. The Company recorded the Second Commitment Shares at par.
On December 21 2021,the total of 1,119,402
shares of common stock which were previously recorded at par as the Second Commitment Shares related to the aforesaid promissory note,
were returned to the Company’s treasury because this promissory note was already fully repaid and satisfied prior to the maturity
date.(See Note 9)
| (2) | On March 10, 2021, the Company issued a self-amortization promissory note to Labrys Fund, L.P in the aggregate
principal amount of $500,000. The promissory note is due on or before March 10, 2022 and bears an interest rate of five percent (5%) per
annum. The note is not convertible unless in default, as defined in the agreement. The Company agreed to reserve 6,562,500 shares of its
common stock for issuance if any debt is converted. The Company executed and closed the transaction on March 19, 2021 and received $434,000
in cash after deducting an OID in the amount of $50,000, legal fees of $2,500 and other costs of $13,500. The self-amortization promissory
note has an amortization schedule of $58,333.33 payment at each month beginning on July 9, 2021 through March 10, 2022. |
In connection with the issuance of
promissory note, on March 10, 2021, the Company issued 417,000 shares of common stock (the “First Commitment Shares”) and
1,042,000 shares of common stock (the “Second Commitment Shares”) related to the promissory note as a commitment fee. The
Second Commitment Shares must be returned to the Company’s treasury if the promissory note is fully repaid and satisfied on or prior
to the maturity date. The Company recorded the First Commitment Shares as debt discount valued at $87,153 based on the quoted market price
at issue date and amortized over the term of the promissory note. The Company recorded the Second Commitment Shares at par. (See Note
9)
The payment as of $58,333.33 originally
scheduled on December 10, 2021 was postponed to January 10,2022 on
which date that the payment of the
total of $233,333.35 was made by the Company to fully refund the remaining balance of this self-amortization promissory note.
On January 10 ,2022, the total of 1,042,000
shares of common stock which were previously recorded at par as the Second Commitment Shares related to the aforesaid promissory note,
were returned to the Company’s treasury because this promissory note was already fully repaid and satisfied prior to the maturity
date.
| (3) | On July 5, 2021, the Company issued a self-amortization promissory note to FIRSTFIRE GLOBAL OPPORTUNITIES
FUND, LLC in the aggregate principal amount of $500,000. The promissory note is due on or before July 6, 2022 and bears an interest rate
of five percent (5%) per annum. The note is not convertible unless in default, as defined in the agreement. The Company agreed to reserve
6,562,500 shares of its common stock for issuance if any debt is converted. The Company executed and closed the transaction on July 15,2021
and received $437,500 in cash after deducting an OID in the amount of $50,000 and other costs of $12,500. The self-amortization promissory
note has an amortization schedule of $58,333.33 payment at each month beginning November 9, 2021 through July 6, 2022. |
In connection with the issuance of
promissory note, on July 8 , 2021, the Company issued 300,000 shares of common stock (the “First Commitment Shares”) and 1,042,000
shares of common stock (the “Second Commitment Shares”) related to the promissory note as a commitment fee. The Second Commitment
Shares must be returned to the Company’s treasury if the promissory note is fully repaid and satisfied on or prior to the maturity
date. The Company records the First Commitment Shares as debt discount valued at $51,000 based on the quoted market price at issue date
and amortized over the term of the promissory note and the Second Commitment Shares at par.(See note9)
The two monthly payments as of $58,333.33
each originally scheduled on November 9, 2021 and December 9, 2021 respectly were postponed to January 7,2022 on which date that the payment
at the total of $175,000 was made by the Company to settle the payments scheduled for the period from November 9,2021 to January 7,2022.
| (4) | On December 29, 2021, the Company issued a
self-amortization promissory note to Talos Victory Fund, LLC,in the aggregate principal amount of $250,000. The promissory note is due
on or before December 29, 2022 and bears an interest rate of five percent (5%) per annum. The note is not convertible unless in default,
as defined in the agreement. The Company agreed to reserve 7,875,000 shares of its common stock for issuance if any debt is converted.
The Company executed and closed the transaction on January 6,2022 and received $211,250 in cash after deducting an OID in the amount of
$25,000 and other costs of $13,750. The self-amortization promissory note has an amortization schedule of $29,166.66 payment at each month
beginning May 3, 2022 through January 3, 2023. |
In connection with the issuance of
promissory note, on December 30 , 2021, the Company issued 625,000 shares of common stock (the “First Commitment Shares”)
and 1,562,500 shares of common stock (the “Second Commitment Shares”) related to the promissory note as a commitment fee.
The Second Commitment Shares must be returned to the Company’s treasury if the promissory note is fully repaid and satisfied on
or prior to the maturity date. The Company records the First Commitment Shares as debt discount valued at $53,125 based on the quoted
market price at issue date and amortized over the term of the promissory note and the Second Commitment Shares at par.(See note9)
| (5) | On January 3, 2022, the Company issued a self-amortization promissory note to Mast Hill Fund, L.P.,in the aggregate principal amount
of $250,000. The promissory note is due on or before January 3, 2023 and bears an interest rate of five percent (5%) per annum. The note
is not convertible unless in default, as defined in the agreement. The Company agreed to reserve 7,875,000 shares of its common stock
for issuance if any debt is converted. The Company executed and closed the transaction on January 7,2022 and received $211,250 in cash
after deducting an OID in the amount of $25,000 and other costs of $13,750. The self-amortization promissory note has an amortization
schedule of $29,166.66 payment at each month beginning May 3, 2022 through January 3, 2023. |
In connection with the issuance of promissory
note, on January 3 , 2022, the Company issued 625,000 shares of common stock (the “First Commitment Shares”) and 1,562,500
shares of common stock (the “Second Commitment Shares”) related to the promissory note as a commitment fee. The Second Commitment
Shares must be returned to the Company’s treasury if the promissory note is fully repaid and satisfied on or prior to the maturity
date. The Company records the First Commitment Shares as debt discount valued at $55,000 based on the quoted market price at issue date
and amortized over the term of the promissory note and the Second Commitment Shares at par for the three and nine months ended March 31,
2022.(See note 9)
| (6) | On February 17,
2022, the Company issued a self-amortization promissory note to Blue Lake Partners, LLC in the aggregate principal amount of $500,000.
The promissory note is due on or before February 17, 2023 and bears an interest rate of five percent (5%) per annum. The note is not convertible
unless in default, as defined in the agreement. The Company agreed to reserve 15,750,000 shares of its common stock for issuance if any
debt is converted. The Company executed and closed the transaction on February 17,2022 and received $422,500 in cash after deducting an
OID in the amount of $50,000 and other costs of $27,500. The self-amortization promissory note has an amortization schedule of $58,333.33
payment at each month beginning June 17, 2022 through February 17, 2023. |
In connection with the issuance of
promissory note, on February 17 , 2022, the Company issued 1,250,000 shares of common stock (the “First Commitment Shares”)
and 1,562,500 shares of common stock (the “Second Commitment Shares”) related to the promissory note as a commitment fee.
The Second Commitment Shares must be returned to the Company’s treasury if the promissory note is fully repaid and satisfied on
or prior to the maturity date. The Company records the First Commitment Shares as debt discount valued at $98,750 based on the quoted
market price at issue date and amortized over the term of the promissory note and the Second Commitment Shares at par.(See note9)
For the three and nine months
ended March 31,2022, the Company recorded the amortization of debt discount of $ 122,642 and $311,535 for the self-amortization promissory
notes issued, which was included in other income and expense in the consolidated statement of comprehensive income (loss).
NOTE 15 – SEGMENT INFORMATION
The Group’s business was classified by management
into three reportable business segments (smart energy, photoelectric display and service contracts) before March 31,2021 and into four
segments (smart energy, photoeletric display, service contract and lithium battery-related business )after March 31,2021 supported by
the administrative function 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.The lithium battery -related business reportable segment derives revenue from trading lithium battery packs and furnace used
in firing for lithium battery,etc. Unallocated items comprise of mainly corporate expenses and corporate assets.
Although all of the Group’s revenue is generated from PRC, the
Group 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 31,2022 and 2021.
| | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
For the nine months ended March 31,2022 | |
| | |
Lithume
battery-related | | |
Smart
energy | | |
Photoelectric
display | | |
Service
contracts | | |
Unallocated
items | | |
Total | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Revenues | |
$ | 4,477 | | |
$ | - | | |
$ | 10,547,390 | | |
$ | - | | |
$ | - | | |
$ | 10,551,867 | |
| Cost of Revenues | |
| 4,626 | | |
| - | | |
| 9,523,812 | | |
| - | | |
| - | | |
| 9,528,438 | |
| Gross profit (loss) | |
| （149） | | |
| - | | |
| 1,023,578 | | |
| - | | |
| - | | |
| 1,023,429 | |
| Operating expenses | |
| 46,889 | | |
| 6,262 | | |
| 1,384,217 | | |
| 12,691 | | |
| 322,615 | | |
| 1,772,674 | |
| Income (loss) from operations | |
| (47,038 | ) | |
| (6,262 | ) | |
| (360,639 | ) | |
| (12,691 | ) | |
| (322,615 | ) | |
| (749,245 | ) |
| Net income (loss) | |
$ | (49,359 | ) | |
$ | (6,360 | ) | |
$ | (279,028 | ) | |
$ | (12,579 | ) | |
$ | (728,415 | ) | |
$ | (1,075,741 | ) |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
For the nine months ended March 31,2021 | |
| | |
Smart
energy | | |
Photoelectric
display | | |
Service
contracts | | |
Unallocated
items | | |
Total | |
| | |
| | |
| | |
| | |
| | |
| |
| Revenues | |
$ | - | | |
$ | 9,100,076 | | |
$ | 2,018 | | |
$ | - | | |
$ | 9,102,094 | |
| Cost of Revenues | |
| - | | |
| 8,061,782 | | |
| 10,159 | | |
| - | | |
| 8,071,941 | |
| Gross profit | |
| - | | |
| 1,038,294 | | |
| (8,141 | ) | |
| - | | |
| 1,030,153 | |
| Operating expenses | |
| 8,374 | | |
| 1,202,101 | | |
| 23,641 | | |
| 176,268 | | |
| 1,410,384 | |
| Income (loss) from operations | |
| (8,374 | ) | |
| (163,807 | ) | |
| (31,782 | ) | |
| (176,268 | ) | |
| (380,231 | ) |
| Net income (loss) | |
$ | (8,213 | ) | |
$ | (147,074 | ) | |
$ | (31,781 | ) | |
$ | (816,950 | ) | |
$ | (1,004,018 | ) |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
For the three months ended March 31,2022 | |
| | |
Lithume
battery-related | | |
Smart
energy | | |
Photoelectric
display | |
|
Service
contracts | |
|
Unallocated
items | |
|
Total | |
| | |
| | |
| | |
| |
|
| |
|
| |
|
| |
| Revenues | |
$ | - | | |
$ | - | | |
$ |
2,058,179 |
|
|
$ | - | |
|
$ | - | |
|
$ | 2,058,179 | |
| Cost of Revenues | |
| - | | |
| - | | |
|
1,788,635 |
|
|
| - | |
|
| - | |
|
| 1,788,635 | |
| Gross profit (loss) | |
| - | | |
| - | | |
|
269,544 |
|
|
| - | |
|
| - | |
|
| 269,544 | |
| Operating expenses | |
| 9,887 | | |
| 1,401 | | |
|
533,847 |
|
|
| 138 | |
|
| 33,336 | |
|
| 578,609 | |
| Income (loss) from operations | |
| (9,887 | ) | |
| (1,401 | ) | |
|
(264,303 |
) |
|
| (138 | ) |
|
| (33,336 | ) |
|
| (309,065) | |
| Net income (loss) | |
$ | (10,263 | ) | |
$ | (1,399 | ) | |
$ |
(242,998 |
) |
|
$ | (26 | ) |
|
$ | (183,111 | ) |
|
$ | (437,797 | ) |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
For the three months ended March 31,2021 | |
| | |
Smart
energy | | |
Photoelectric
display | | |
Service
contracts | | |
Unallocated
items | | |
Total | |
| Revenues | |
$ | - | | |
$ | 3,160,474 | | |
$ | 272 | | |
$ | - | | |
$ | 3,160,746 | |
| Cost of Revenues | |
| - | | |
| 2,802,520 | | |
| (23 | ) | |
| - | | |
| 2,802,497 | |
| Gross profit (loss) | |
| - | | |
| 357,954 | | |
| 295 | | |
| - | | |
| 358,249 | |
| Operating expenses | |
| 2,842 | | |
| 428,842 | | |
| 5,893 | | |
| 37,666 | | |
| 475,243 | |
| Income (loss) from operations | |
| (2,842 | ) | |
| (70,888 | ) | |
| (5,598 | ) | |
| (37,666 | ) | |
| (116,994 | ) |
| Net income (loss) | |
$ | (2,841 | ) | |
$ | (26,820 | ) | |
$ | (5,598 | ) | |
$ | (80,335 | ) | |
$ | (115,594 | ) |
NOTE 16- COMMITMENTS AND CONTINGENCIES
Lease commitment
Lisite Science leases office and warehouse space from Keenest, a related
party, with annual rent of approximately $295 (RMB2,000) until July 20, 2022.
The future minimum lease payments for non-cancelable operating leases
held by the Group as of March 31,2022 was $295, which will be paid during June 2022.