UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2015

 

or

 

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

 

For the transition period from __________________ to __________________

 

Commission File Number:  333-173172

 

MOXIAN CHINA, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		27-3729742
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

 

 Room 2313-2315 , Block B, Zhongshen Garden, Caitian South Road, Futian District, Shenzhen

Guangdong Province, China 518101

(Address of Principal Executive Offices)

 

                          Tel: +86 (0)755-66803251                           

 (Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

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

 

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

 

	Large accelerated filer	☐	Accelerated filer	☐
	Non-accelerated filer	☐	Smaller reporting company	☒
	(Do not check if smaller reporting company)

 

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

 

As of May 15, 2015, the registrant had 198,300,000 shares of common stock, par value $.001 per share, issued and outstanding.

 

   

TABLE OF CONTENTS

 

		Page No.
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Balance Sheets as of March 31, 2015 (Unaudited) and September 30, 2014	2
	Unaudited Statements of Operations and Comprehensive Income for the Six Months Ended March 31, 2015 and 2014	3
	Unaudited Statements of Stockholders’ Equity as of March 31, 2015	4
	Unaudited Statements of Cash Flows for the Six Months Ended March 31, 2015 and 2014	5
	Notes to Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	24
Item 4.	Controls and Procedures.	24
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings.	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	25
Item 3.	Defaults Upon Senior Securities.	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits.	25
Signatures		26
Certifications

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

MOXIAN CHINA, INC.

(A CORPORATION IN THE DEVELOPMENT STAGE)

 

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED MARCH 31, 2015 AND 2014

 (Stated in US Dollars)

 

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

  

		PAGES
UNAUDITED CONSOLIDATED BALANCE SHEETS		2
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME		3
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY		4
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS		5
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS		6 – 21

 

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

UNAUDITED CONSOLIDATED BALANCE SHEETS

(Stated in US Dollars)

 

		As of
		March 31, 2015				September 30, 2014
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	693,419			$	1,770,196
Prepayments, deposits and other receivables			1,354,346				741,645
Inventory			45,097				-
Total current assets			2,092,862				2,511,841
Property and equipment, net (Note 3)			583,323				348,669
Goodwill (Note 9)			6,782,000				-
TOTAL ASSETS		$	9,458,185			$	2,860,510
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accruals and other payables		$	414,000			$	295,601
Payable for acquisition (Note 9)			7,782,000				1,000,000
Loans from shareholders (Note 4)			4,738,198				4,018,861
Loans from a third party (Note 5)			2,897,214				2,133,071
Total current liabilities			15,831,412				7,447,533
Total liabilities		$	15,831,412			$	7,447,533
STOCKHOLDERS’ EQUITY
Capital stock (Note 6)
Preferred stock, $0.001 par value, authorized: 100,000,000 shares. Nil shares issued and outstanding as of March 31, 2015 and September 30, 2014			-				-
Common stock*, $0.001 par value, authorized: 500,000,000 shares. 198,300,000 shares issued and outstanding as of March 31, 2015 and September 30, 2014			198,300				198,300
Additional paid-in capital			162,914				162,914
Deficit accumulated during the development stage			(6,979,114	)			(5,001,166	)
Accumulated other comprehensive income			244,673				52,929
Total stockholders’ deficit			(6,377,227	)			(4,587,023	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	9,458,185			$	2,860,510

 

*The number of shares of common stock has been retroactively restated to reflect the 60-for-1 forward stock split effected on December 13, 2013.

 

See accompanying notes to unaudited consolidated financial statements

 

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Stated in US Dollars)

 

		For the				For the				For the				For the				For the period from Inception October 12,
		Three Months				Three Months				Six Months				Six Months				2010
		Ended				Ended				Ended				Ended				to
		March 31, 2015				March 31, 2014				March 31, 2015				March 31, 2014				March 31,  2015
Revenues, net		$	22,661			$	-			$	68,166			$	-			$	124,288
Cost and expenses
Cost of sales			11,648				-				11,648				-				35,073
Depreciation and amortization expenses			52,113				15,357				87,194				15,357				165,765
Selling, general and administrative expenses			939,062				351,628				1,936,758				351,628				4,315,634
Impairment of goodwill			-				-				-				-				2,600,315
Loss from operations			(980,162	)			(366,985	)			(1,967,434	)			(366,985	)			(6,992,499	)
Interest expenses			(12,792	)			-				(12,792	)			-				(12,792	)
Interest income			2,267				8				2,278				8				26,177
Loss before income tax			(990,687	)			(366,977	)			(1,977,948	)			(366,977	)			(6,979,114	)
Income tax expenses			-				-				-				-				-
Net loss			(990,687	)			(366,977	)			(1,977,948	)			(366,977	)			(6,979,114	)
Foreign currency translation adjustments			49,395				7,887				191,744				7,887				244,673
Comprehensive loss		$	(941,292	)		$	(359,090	)		$	(1,786,204	)		$	(359,090	)		$	(6,734,441	)
Earnings per share (note 6)
Basic and diluted loss per common share		$	0.00			$	0.00			$	(0.01	)		$	0.00
Basic and diluted weighted average common shares outstanding*			198,300,000				198,300,000				198,300,000				198,300,000

 

*The number of shares of common stock has been retroactively restated to reflect the 60-for-1 forward stock split effected on December 13, 2013.

 

See accompanying notes to unaudited consolidated financial statements

 

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Stated in US Dollars)

 

														Accumulated				Accumulated
										Additional				deficit				other
		Common Stock*								paid-in				development				comprehensive
		Shares				Amount				capital				stage				income				Total
Balance at inception, October 12, 2010
Common shares issued - founder for property and equipment			186,000,000			$	186,000			$	-			$	(182,900	)		$	-			$	3,100
Additional paid in capital by founder			-				-				-				169				-				169
Net loss			-				-				-				(21	)			-				(21	)
Balance, December 31, 2010			186,000,000			$	186,000			$	-			$	(182,752	)		$	-			$	3,248
Additional paid in capital by founder			-				-				-				2,146				-				2,146
Issue of common stock			12,300,000				12,300				-				28,700				-				41,000
Net loss			-				-				-				(12,606	)			-				(12,606	)
Balance, December 31, 2011			198,300,000			$	198,300			$	-			$	(164,512	)		$	-			$	33,788
Net loss			-				-				-				(33,572	)			-				(33,572	)
Balance, December 31, 2012			198,300,000			$	198,300			$	-			$	(198,084	)		$	-			$	216
Additional paid in capital by founder			-				-				-				2,950				-				2,950
Net loss			-				-				-				(14,690	)			-				(14,690	)
Balance, September 30, 2013			198,300,000			$	198,300			$	-			$	(209,824	)		$	-			$	(11,524	)
Inclusion of Moyi (See Note 1)			-				-				162,914				-				-				162,914
Net loss			-				-				-				(4,791,342	)			-				(4,791,342	)
Foreign currency adjustment			-				-				-				-				52,929				52,929
Balance, September 30, 2014			198,300,000			$	198,300			$	162,914			$	(5,001,166	)		$	52,929			$	(4,587,023	)
Net loss			-				-				-				(1,977,948	)			-				(1,977,948	)
Foreign currency adjustment			-				-				-				-				191,744				191,744
Balance, March 31, 2015			198,300,000			$	198,300			$	162,914			$	(6,979,114	)		$	244,673			$	(6,373,227	)

 

*The number of shares of common stock has been retroactively restated to reflect the 60-for-1 forward stock split effected on December 13, 2013.

 

See accompanying notes to unaudited consolidated financial statements

 

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in US Dollars)

 

										For the period
										from Inception
		Six Months				Six Months				October 12, 2010
		Ended				Ended				to
		March 31, 2015				March 31, 2014				March 31, 2015
OPERATING ACTIVITIES
Net loss		$	(1,977,948	)		$	(366,977	)		$	(6,979,114	)
Depreciation and amortization expense			87,194				15,357				165,765
Impairment of goodwill			-				-				2,600,315
Changes in operating assets and liabilities:
Increase in deposits, prepayments and other receivables			(612,701	)			(6,642	)			(1,055,920	)
Increase in inventories			(45,097	)			(1,007	)			(43,967	)
Increase in accruals and other payables			118,399				82,679				368,210
Net cash used in operating activities			(2,430,153)				(276,590)				(4,944,711)
INVESTING ACTIVITIES
Purchases of property, plant and equipment			(34,288	)			(96,923	)			(78,217	)
Net cash inflow on acquisition of subsidiaries (Note 9)			-				897,453				897,453
Net cash (used in) provided by investing activities			(34,288)				800,530				819,236
FINANCING ACTIVITIES
Loan borrowings			719,337				445,552				4,105,269
Loan from a third party			764,143				-				641,573
Capital stock issued for cash			-				-				49,365
Net cash provided by financing activities			1,483,480				445,552				4,796,207
Effect of foreign currency translation			(95,816	)			8,955				22,687
Net (decrease) increase in cash and cash equivalents			(980,961	)			969,492				670,732
Cash and cash equivalents, beginning of year			1,770,196				28				-
Cash and cash equivalents, end of year		$	693,419			$	978,475			$	693,419
Supplemental cash flow disclosures:
Cash paid for interest expense		$	-			$	-			$	-
Cash paid for income taxes		$	-			$	-			$	-
Major items for non-cash transaction:
Acquisition by issuing convertible note		$	6,782,000			$	-			$	6,782,000

 

See accompanying notes to unaudited consolidated financial statements

 

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

1.

Organization and nature of operations

 

Moxian China, Inc. (“Moxian,” together with its subsidiaries, “the Company”), was incorporated under the laws of the State of Nevada on October 12, 2010. The Company, through its subsidiaries and variable interest entity, engages in the business of operating a social network platform that integrates social media and business into one single platform.

 

On February 17, 2014, the Company incorporated Moxian CN Group Limited (“Moxian CN Samoa”) under the laws of Independent State of Samoa.

 

On February 21, 2014, the Company completed the acquisition of Moxian Group Limited (“Moxian BVI”) and its subsidiaries from Rebel Group, Inc., a Florida Corporation (“REBL”) pursuant to a License and Acquisition Agreement (the “License and Acquisition Agreement”).

 

Moxian BVI was incorporated on July 3, 2012 under the laws of British Virgin Islands.

 

Moxian (Hong Kong) Limited (“Moxian HK”) was incorporated on January 18, 2013 and became Moxian BVI’s subsidiary since February 14, 2013. Moxian HK is currently engaged in the business of online social media. Moxian HK operates through two wholly-owned subsidiaries: Moxian Technologies (Shenzhen) Co., Ltd. (“Moxian Shenzhen”) and Moxian Malaysia SDN BHD (“Moxian Malaysia”).

 

Moxian Shenzhen was wholly owned by Moxian HK. Moxian Shenzhen was incorporated on April 8, 2013 under the laws of People’s Republic of China and was engaged in the business of internet technology, computer software, commercial information consulting, etc.

 

Moxian Malaysia was incorporated on March 1, 2013 under the laws of Malaysia and became Moxian HK’s subsidiary since April 2, 2013. Moxian Malaysia is conducting its business in IT services and media advertising industry.

 

Shenzhen Moyi Technologies Co., Ltd (“Moyi”) was incorporated on July 19, 2013 under the laws of People’s Republic of China and became a variable interest entity (“VIE”) of Moxian Shenzhen since July 15, 2014 through a series of contracts. Moxian Shenzhen controls Moyi through arrangement that absorbs operations risk, as if Moyi were a wholly-owned subsidiary of Moxian Shenzhen.

 

On January 30, 2015, the Company entered into an Equity Transfer Agreement (the “Equity Transfer Agreement,” such transaction, the “Equity Transfer Transaction”) with REBL, to acquire from REBL 100% of the equity interests of Moxian Intellectual Property Limited, a company incorporated under the laws of Samoa and a wholly-owned subsidiary of REBL (“Moxian IP”) for $6,782,000 (the “Moxian IP Purchase Price”). Moxian IP owns all the intellectual property rights relating to the operation, use and marketing of the MO-Promo Platform, including all of the trademarks, patents and copyrights that are used in the Company’s business. As a result of the Equity Transfer Transaction, Moxian IP became a wholly-owned subsidiary of the Company.

 

The Company is in the development stage as defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915. Among the disclosures required by FASB ASC 915 are that the Company’s unaudited consolidated financial statements be identified as those of a development stage company, and that the statements of earnings, retained earnings and stockholders’ equity and cash flows disclose activity since the date of the Company’s inception. The fiscal year end is September 30.

 

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

1.

Organization and nature of operations (Continued)

 

The Company's unaudited consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated significant revenue since inception and has never paid any dividends and is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. Since October 12, 2010 (inception), the Company has generated revenue of $124,288 and has incurred an accumulated deficit of $6,979,114.

 

The Company is currently devoting its efforts to developing social networking website and through which to generate servicing income.  The Company’s ability to continue as a going concern is dependent upon its ability to develop additional sources of capital, develop websites, generate servicing income, and ultimately, achieve profitable operations. The accompanying unaudited consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

2.

Summary of principal accounting policies

 

Basis of presentation

 

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and reflect the activities of the following subsidiaries and VIE. All material intercompany transactions and balances have been eliminated in the consolidation.

 

In accordance with the interpretation of Generally Accepted Accounting Principles (GAAP), variable interest entities (VIEs) are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. All VIEs with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.

 

ASC 810 (Financial Accounting Standards Board (“FASB”) Interpretation Number (“FIN”) 46 (revised December 2003), “Consolidation of Variable Interest Entities, and Interpretation of ARB No. 51” (“FIN 46R”), addresses whether certain types of entities referred to as variable interest entities (“VIEs”), should be unaudited consolidated in a company’s unaudited consolidated financial statements. Pursuant to an Exclusive Business Cooperation Agreement by and between Moxian Shenzhen and Moyi, dated July 15, 2014, Moxian Shenzhen has the exclusive right to provide to Moyi technical and systems support, marketing consulting services, training for technical personnel and technical consulting services. As payment for these services, Moyi has agreed to pay Moxian Shenzhen a service fee equal to 100% Moyi’s pre-tax profit. In accordance with the provisions of ASC 810, the Company has determined that Moyi is a VIE and that the Company is the primary beneficiary, and accordingly, the financial statements of Moyi are unaudited consolidated into the financial statements of the Company.

 

Revenue recognition

 

Revenue are recognized when persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the price is fixed or determinable; and collectability is reasonably assured.

 

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

2.

Summary of principal accounting policies (Continued)

 

Use of estimates

 

The preparation of the unaudited consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Income taxes

 

The Company utilizes FASB Accounting Standard Codification Topic 740 (“ASC 740”) “Income taxes” (formerly known as SFAS No. 109, "Accounting for Income Taxes"), which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the unaudited consolidated financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

ASC 740 “Income taxes” (formerly known as Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of Statement of Financial Accounting Standards No. 109 (“FIN 48”)) clarifies the accounting for uncertainty in tax positions. This interpretation requires that an entity recognizes in the unaudited consolidated financial statements the impact of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company has elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of income tax expense in the statements of operations. The adoption of ASC 740 did not have a significant effect on the unaudited consolidated financial statements.

 

Cash and cash equivalents

 

The Company considers all short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less to be cash equivalents.

 

Fair value of financial instruments

 

The carrying values of the Company’s financial instruments, including cash and cash equivalents, trade and other receivables, deposits, trade and other payables approximate their fair values due to the short-term maturity of such instruments. The carrying amounts of borrowings approximate their fair values because the applicable interest rates approximate current market rates.

 

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

2.

Summary of principal accounting policies (Continued)

 

Earnings per share

 

Basic earnings per share is based on the weighted average number of common shares outstanding during the period while the effects of potential common shares outstanding during the period are included in diluted earnings per share.  The average market price during the year is used to compute equivalent shares.

 

FASB Accounting Standard Codification Topic 260 (“ASC 260”), “Earnings Per Share,” requires that employee equity share options, non-vested shares and similar equity instruments granted to employees be treated as potential common shares in computing diluted earnings per share. Diluted earnings per share should be based on the actual number of options or shares granted and not yet forfeited, unless doing so would be anti-dilutive. The Company uses the “treasury stock” method for equity instruments granted in share-based payment transactions provided in ASC 260 to determine diluted earnings per share.

 

Website development costs

 

The Company recognized the costs associated with developing a website in accordance with ASC 350-50 “Website Development Cost” that codified the American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) NO. 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”. Relating to website development costs the Company follows the guidance pursuant to the Emerging Issues Task Force (EITF) NO. 00-2, “Accounting for Website Development Costs”. The website development costs are divided into three stages, planning, development and production. The development stage can further be classified as application and infrastructure development, graphics development and content development. In short, website development cost for internal use should be capitalized except content input and data conversion costs in content development stage.

 

Costs associated with the website consist primarily of website development costs paid to third parties. These capitalized costs will be amortized based on their estimated useful life over three years upon the website becoming operational. Internal costs related to the development of website content will be charged to operations as incurred. Web-site development costs related to the customers are charged to cost of sales.

 

Plant and Equipment

 

Plant and equipment are recorded at cost. Significant additions or improvements extending useful lives of assets are capitalized. Maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives as follows:

 

	Computers	3 years
	Office equipment	3 years
	Furniture and fixtures	3 years
	Leasehold improvements	Shorter of estimated useful life or term of lease

 

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

2.

Summary of principal accounting policies (Continued)

 

Goodwill

 

Goodwill represents the excess of purchase price over fair value of net assets acquired. Under ASC 350, Intangibles — Goodwill and Other, goodwill is not amortized but evaluated for impairment annually or whenever events or changes in circumstances indicate that the value may not be recoverable.

 

The Company performed an annual impairment test as of the end of each fiscal year, and determined that there should be no impairment loss recorded for the six months ended March 31, 2015 and 2014 respectively.

  

Comprehensive income

 

The Company has adopted FASB Accounting Standard Codification Topic 220 (“ASC 220”) “Comprehensive income” (formerly known as SFAS No. 130, “Reporting Comprehensive Income”), which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Accumulated other comprehensive income represents the accumulated balance of foreign currency translation adjustments of the Company.

 

Recently issued accounting pronouncements

 

The FASB has issued Accounting Standards Update (ASU) No. 2014-06, Technical Corrections and Improvements Related to Glossary Terms. The amendments in this ASU relate to glossary terms and cover a wide range of Topics in the FASB’s Accounting Standards Codification™ (Codification). These amendments are presented in four sections:

 

1. Deletion of Master Glossary Terms (Section A) arising because of terms that were carried forward from source literature (e.g., FASB Statements, EITF Issues, and so forth) to the Codification but were not utilized in the Codification.

 

2. Addition of Master Glossary Term Links (Section B) arising from Master Glossary terms whose links did not carry forward to the Codification.

 

3. Duplicate Master Glossary Terms (Section C) arising from Master Glossary terms that appear multiple times in the Master Glossary with similar, but not identical, definitions.

 

4. Other Technical Corrections Related to Glossary Terms (Section D) arising from miscellaneous changes to update Master Glossary terms.

 

The amendments do not have transition guidance and are effective upon issuance for both public entities and nonpublic entities.

 

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

  

2.

Summary of principal accounting policies (Continued)

 

Recently issued accounting pronouncements (Continued)

 

The FASB has issued Accounting Standards Update (ASU) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in the ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in U.S. GAAP.

 

Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment.

 

In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations.

 

The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This disclosure will provide users with information about the ongoing trends in a reporting organization’s results from continuing operations.

 

The amendments in this ASU enhance convergence between U.S. GAAP and International Financial Reporting Standards (IFRS). Part of the new definition of discontinued operation is based on elements of the definition of discontinued operations in IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations.

 

The amendments in the ASU are effective in the first quarter of 2015 for public organizations with calendar year ends. For most nonpublic organizations, it is effective for annual financial statements with fiscal years beginning on or after December 15, 2014. Early adoption is permitted.

 

The FASB has issued Accounting Standards Update (ASU) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The issue is the result of a consensus of the FASB Emerging Issues Task Force.

 

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

2.

Summary of principal accounting policies (Continued)

 

Recently issued accounting pronouncements (Continued)

 

The amendments in the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718, Compensation – Stock Compensation, as it relates to awards with performance conditions that affect vesting to account for such awards. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved.

 

The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The effective date is the same for both public business entities and all other entities.

 

Entities may apply the amendments in this ASU either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this ASU as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. In addition, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost.

 

The FASB has issued Accounting Standards Update (ASU) No. 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity. The amendments in this ASU will apply to a reporting entity that is required to consolidate a collateralized financing entity under the Variable Interest Entities guidance when: (1) the reporting entity measures all of the financial assets and the financial liabilities of that unaudited consolidated collateralized financing entity at fair value in the unaudited consolidated financial statements based on other Codification Topics; and (2) the changes in the fair values of those financial assets and financial liabilities are reflected in earnings.

 

The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. For entities other than public business entities, the amendments are effective for annual periods ending after December 15, 2016, and interim periods beginning after December 15, 2016. Early adoption is permitted as of the beginning of an annual period.

 

The fair value of the financial assets of a collateralized financing entity, as determined under GAAP, may differ from the fair value of its financial liabilities even when the financial liabilities have recourse only to the financial assets. Before this ASU, there was no specific guidance in GAAP on how a reporting entity should account for that difference.

 

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

2.

Summary of principal accounting policies (Continued)

 

Recently issued accounting pronouncements (Continued)

 

The amendments in this ASU provide an alternative to Topic 820 Fair Value Measurement for measuring the financial assets and the financial liabilities of a unaudited consolidated collateralized financing entity to eliminate that difference. When the measurement alternative is not elected for a unaudited consolidated collateralized financing entity within the scope of this ASU, the amendments clarify that: (1) the fair value of the financial assets and the fair value of the financial liabilities of the unaudited consolidated collateralized financing entity should be measured using the requirements of Topic 820; and (2) any differences in the fair value of the financial assets and the fair value of the financial liabilities of that unaudited consolidated collateralized financing entity should be reflected in earnings and attributed to the reporting entity in the unaudited consolidated statement of income (loss).

 

The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.

 

Under Generally Accepted Accounting Principles (GAAP), financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities.

 

Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures.

 

This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes.

 

The amendments are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued.

 

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

3.	Property and equipment, net

 

			As of
			March 31, 2015				September 30, 2014
	Computers		$	547,518			$	213,600
	Office equipment			34,288				68,623
	Furniture and fixtures			3,055				32,011
	Leasehold improvements			208,284				156,101
	Total property and equipment			793,145				470,335
	Less:  Accumulated depreciation and amortization			(209,822)				(121,666	)
	Total property and equipment, net		$	583,323			$	348,669

 

The depreciation expenses for the six months ended March 31, 2015 and 2014 were $87,194 and $15,357, respectively.

  

4.	Loans from shareholders

 

As of March 31, 2015, loans made to Moxian HK, Moxian Shenzhen, Moyi, and Moxian Malaysia by our shareholders are unsecured, interest free and have remaining maturities between 3 and 12 months. Details of the loans are set forth below:

 

			As of
	Repayable		March 31, 2015				September 30, 2014
	Within 1 month		$	-			$	-
	1 to 3 months			-				-
	More than 3 months but less than 12 months			4,738,198				4,018,861
			$	4,738,198			$	4,018,861

 

Moxian HK

 

On September 28, 2014, Moxian HK entered into loan agreements with three entities: Moxian China Limited (“MCL”), Ace Keen Limited (“Ace Keen”) and Jet Key Limited (“Jet Key,” together with MCL, Ace Keen, the “Creditors”). Pursuant to the loan agreements, Moxian HK obtained loans in the aggregate amount of $908,048.

 

On November 30, 2014, Moxian HK received HKD $500,000 (approximately $64,437) as a loan from MCL (“Moxian HK Loan”). The term of the loan is twelve months and it bears no interest. On December 31, 2014, the Company, MCL and Moxian HK entered into a loan agreement, pursuant to which the Company agreed to issue a convertible promissory note (“Moxian HK Note”) to MCL for the repayment of the Moxian HK Loan. The Moxian HK Note has a term of one year and bears no interest. Upon consummation of a financing which results in at least $5,000,000 in proceeds to the Company (“Qualified Financing”), the Moxian HK Note will automatically convert into shares of the Company’s Common Stock at a conversion price equal to the price of the Company’s securities sold in the Qualified Financing. If no Qualified Financing is consummated prior to the maturity date of Notes and as long as there remains any outstanding principal or interest on the Moxian HK Note, the Company shall have the option to convert the Note within 30 days after the maturity date at a conversion price that is equal to the volume weighted average price of Common Stock during a 20-trading day period prior to the conversion of the Note.

 

On January 15, 2015, Moxian HK received additional HKD500,000 (approximately US$64,506) as a loan from MCL. The loan has a twelve month term and it bears no interest.

 

On February 10, 2015, Moxian HK received additional HKD1,200,000 (approximately US$1,548,157) as a loan from Ace Keen. The loan has a twelve month term and it bears no interest.

 

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

4.	Loans from shareholders (Continued)

 

MCL owns 33.8% of total outstanding shares of the Company. Ace Keen is controlled by Mr. Zhang Guo Hui, who is the holder of 70% of the equity interests in Moyi, our variable interest entity in China. Jet Key is owned and controlled by Ms. Zhang Ying, who is Mr. Zhang Guo Hui’s sister.

 

Moxian Shenzhen

 

Also on September 28, 2014, Moxian Shenzhen entered into three loan agreements with the Creditors, and borrowed an aggregate of $2,961,460.

 

On October 31, 2014 and November 30, 2014, Moxian Shenzhen received RMB 630,000 (approximately $102,942) and RMB 90,000 (approximately $14,486), respectively, as loans from MCL (“Moxian Shenzhen Loans”). The term of such loans is twelve months and they bear no interest. On December 31, 2014, the Company, MCL and Moxian Shenzhen entered into a Loan Agreement, where the Company agreed to issue a convertible promissory note to MCL for the repayment of the Moxian Shenzhen Loans (“Moxian Shenzhen Note”). The Moxian Shenzhen Note has similar terms to the Moxian HK Note. It has a one year term and bears no interest. Upon consummation of a Qualified Financing, the note will automatically convert into shares of the Company’s Common Stock at a conversion price equal to the price of the Company’s securities sold in the Qualified Financing. If no Qualified Financing is consummated prior to the maturity date of note and as long as there remains any outstanding principal or interest of the note, the Company shall have the option to convert the note within 30 days after the maturity date at a conversion price that is equal to the volume weighted average price of Common Stock during a 20-day trading period prior to the conversion of the note.

 

On December 31, 2014, Jet Key transferred its rights under a loan agreement in the amount of RMB 2,876,257 (approximately $461,678) with Moxian Shenzhen to Shenzhen Bayi Consulting Co Ltd (“Bayi”), an independent third party.

 

On December 31, 2014, Ace Keen transferred its rights under the loan agreement with Moxian Shenzhen to Bayi for the amount of RMB 797,603 (approximately $128,026).

 

On December 31, 2014, MCL transferred its rights under the loan agreement and the Moxian Shenzhen Note with Moxian Shenzhen to Bayi for the amount of RMB 9,435,994.00 (approximately $1,514,605). 

 

Moxian Malaysia

 

On September 28, 2014, Moxian Malaysia also signed three loan agreements with the Creditors, pursuant to which Moxian Malaysia borrowed an aggregate of $2,020,221.

 

On October 31, 2014 and November 30, 2014, Moxian Malaysia received a loan in the amount of RM 118,800 (approximately $34,032) and RM 23,100 (approximately $6,605), respectively, from MCL (the “Moxian Malaysia Loans”). The Moxian Malaysia Loans have a twelve month term and bear no interest. On December 31, 2014, the Company, MCL and Moxian Malaysia entered into a Loan Agreement, whereby the Company agreed to issue a convertible promissory note to MCL for the repayment of the Moxian Malaysia Loans. The note has a one year term and bears no interest. Upon consummation of a Qualified Financing, the note will automatically convert into shares of the Company’s Common Stock at a conversion price equal to the price of the Company’s securities sold in the Qualified Financing. If no Qualified Financing is consummated prior to the maturity date of note and as long as there remains any outstanding principal or interest of the note, the Company shall have the option to convert the note within 30 days after the maturity date at a conversion price that is equal to the volume weighted average price of Common Stock during a 20-day trading period prior to the conversion of the note.

 

On January 31, 2015, Moxian Malaysia received RM 1,445,165 (approximately $404,646) as a loan from MCL. The term of such loan is twelve months and it bears no interest.

 

On February 28, 2015, Moxian Malaysia entered into a loan agreement with MCL for the amount of RM 122,370 (approximately $29,369). The term of such loan is twelve months and it bears no interest.

 

Moyi

 

On March 28, 2014, Moyi signed a loan agreement with Ace Keen and borrowed an aggregate of RMB 150,000 (approximately $24,193). The term of the loan is for thirty-six months with no interest

 

On September 10, 2013 and October 9, 2013, Moyi signed a loan agreement with Jet Key and borrowed an aggregate of RMB 10,000 and RMB 1,000,000 respectively (approximately $162,118).

 

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

5.	Loans from third parties

 

Loans to Moxian Shenzhen are unsecured, interest free and have a 12 month term. Details of the loans are set forth below:

 

			As of
	Repayable		March 31, 2015				September 30, 2014
	Within 1 month		$	-			$	-
	1 to 3 months			-				-
	More than 3 months but less than 12 months			2,897,214				2,133,071
			$	2,897,214			$	2,133,071

 

On December 31, 2014, Jet Key transfer the rights under loan agreement in the amount of RMB 2,876,257 (approximately $461,678) with Moxian Shenzhen to Bayi. Bayi has extended the term of such loan to be twelve months from the date of transfer with no interest.

 

On December 31, 2014, Ace Keen transfer the rights under loan agreement with Moxian Shenzhen to Bayi for the amount of RMB 797,603 (approximately $128,026). Bayi has extended the term of such loan to be twelve months from the date of transfer with no interest.

 

On December 31, 2014, MCL transfer the rights under loan agreement and Note with Moxian Shenzhen to Bayi for the amount of RMB 9,435,994.00 (approximately $1,514,605). Bayi has extended the term of such loan to be twelve months from the date of transfer with no interest.

 

On February 10, 2015, March 13, 2015 and March 17, 2015, Moxian Shenzhen received additional loans from Bayi in the amounts of RMB 1,000,000, RMB 1,000,000 and RMB 2,000,0000 respectively (together approximately $642,054). The term of such loans is twelve months and they bear no interest.

 

6.	Shareholders’ equity

 

Prior to November 14, 2013, the authorized capital stock of the Company consisted of 425,000,000 shares of Common Stock with a par value of $0.001. The Company issued *186,000,000 shares of our Common Stock to Brandi DeFoor (“DeFoor”), our former CEO and former Director, on October 2010 (inception) for cash in the amount of $100 and property valued at $3,169. During the year ended December 31, 2011, the Company’s founder contributed $2,146 in additional capital.

 

In August 2011, the Company issued *12,300,000 shares of common stock to investors for the value of $41,000, in exchange for subscription receivables.

 

During the three months ended December 31, 2013, the Company’s founder contributed $2,950 in additional capital.

 

On November 14, 2013, DeFoor, entered into a Securities Purchase Agreement with three investors (the “Purchasers”), pursuant to which DeFoor sold to the Purchasers her 186,000,000 shares of common stock, par value $.001 per share of the Company (the “Majority Interests”) for the consideration in the aggregate amount of $264,500. As a result of the transaction, the Purchasers aggregately own approximately 93.8% of the total outstanding shares of the Company’s Common Stock on a fully-diluted basis.

 

Effective December 13, 2013, the Company amended its Articles of Incorporation to implement a 60-for-1 forward stock split of its issued and outstanding Common Stock (“Forward Split”). As a result of the Forward Split, the common stock issued and outstanding increased to 198,300,000 shares.

 

Also effective on December 13, 2013, the Company increased the number of shares that it is authorized to issue to a total of 600,000,0000 shares, including 500,000,000 shares of Common Stock and 100,000,000 shares of preferred stock, par value $0.001 per share.

 

As of March 31, 2015, the number of total issued and outstanding shares of common stock of the Company is 198,300,000.

 

There are no warrants or options outstanding to acquire any additional shares of common stock of the Company.

 

*The number of shares of common stock has been retroactively restated to reflect the 60-for-1 forward stock split effected on December 13, 2013.

 

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

7.	Earnings per share

 

			For the six months ended March 31,
			2015				2014
	Net loss attributable to ordinary shareholders for computing basic net loss per ordinary share		$	(1,965,156	)		$	(366,977	)
	Weighted-average shares of common stock outstanding in computing net loss per common stock*
	Basic			198,300,000				198,300,000
	Dilutive shares – convertible promissory note			5,188,000				-
	Diluted			203,488,000				198,300,000
	Basic earnings per share		$	(0.01	)			(0.00	)
	Diluted earnings per share		$	(0.01	)			(0.00	)

 

*The number of shares of common stock has been retroactively restated to reflect the 60-for-1 forward stock split effected on December 13, 2013.

 

8.	Income taxes

 

The Company has not recognized an income tax benefit for its operating losses generated based on uncertainties concerning its ability to generate taxable income in future periods. The tax benefit for the periods presented is offset by a valuation allowance established against deferred tax assets arising from the net operating losses and other temporary differences, the realization of which could not be considered more likely than not. In future periods, tax benefits and related deferred tax assets will be recognized when management considers realization of such amounts to be more likely than not. For the period October 12, 2010 (date of inception) through March 31, 2015, the Company incurred losses, resulting from operating activities, which result in deferred tax assets at the effective statutory rates. The deferred tax asset has been off-set by an equal valuation allowance.

 

Moxian BVI is incorporated in the British Virgin Islands. Moxian BVI did not generate taxable income in the British Virgin Islands for the period from July 3, 2012 (date of inception) to March 31, 2015.

 

Moxian HK was incorporated in Hong Kong and is subject to Hong Kong profits tax at 16.5%. No provision for Hong Kong income or profit tax has been made as the Company has no assessable profit for the period from January 18, 2013 (date of inception) to March 31, 2015. The cumulative tax losses will represent a deferred tax asset.

 

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

8.	Income taxes (Continued)

 

Moxian Shenzhen was incorporated in the People’s Republic of China. Moxian Shenzhen did not generate taxable income in the People’s Republic of China for the period from April 8, 2013 (date of inception) to March 31, 2015.

 

Moxian Malaysia was incorporated in Malaysia. Moxian Malaysia did not generate taxable income in Malaysia for the period from March 1, 2013 (date of inception) to March 31, 2015.

 

Moyi was incorporated in the People’s Republic of China. Moyi did not generate taxable income in the People’s Republic of China for the period from July 19, 2013 (date of inception) to March 31, 2015.

 

The Company will provide a valuation allowance for all of its subsidiaries in full amount of the deferred tax asset since there is no assurance of future taxable income.

 

9.	Acquisition

 

On February 21, 2014, the Company entered into a License and Acquisition Agreement with REBL, whereby the Company (i) acquired all the equity interests of Moxian BVI, and (ii) obtained the license to use the intellectual property rights (as define below) of REBL. Pursuant to the License and Acquisition Agreement, REBL agreed to sell, convey, and transfer 100% of the equity interests of Moxian BVI to Moxian CN Samoa, a newly incorporated wholly-owned subsidiary of the Company, in consideration of an aggregate of $1,000,000. As a result, Moxian BVI, together with its subsidiaries, Moxian HK, Moxian Shenzhen, and Moxian Malaysia, became the Company’s subsidiaries. Under the License and Acquisition Agreement, REBL also agreed to grant us the exclusive right to use REBL’s IP Rights in Mainland China, Malaysia, and other countries and regions where REBL conducts its business (the “Licensed Territory”), and the exclusive right to solicit, promote, distribute and sell REBL products and services in the Licensed Territory for five years (the “License”). In exchange for such License, the Company agreed to pay to REBL: (i) $1,000,000 as a license maintenance royalty each year commencing from the second year from the date of the agreement; and (ii) 3% of the gross profit of distribution and sale of REBL products and services as an earned royalty. Pursuant to the License and Acquisition Agreement, the Company has the right to acquire the new IP Rights that are developed by REBL and sub-license such rights to a third party. The Company also has the obligation to develop the social media market in the Licensed Territory of REBL products and services.

 

A summary of changes in the Company’s goodwill is as follows:

 

			2015
	Balance –beginning of period:
	Goodwill		$	2,600,315
	Accumulated impairment charges			(2,600,315	)
				-
	Activity during the period:
	Additions			6,782,000
	Impairment charges			-
				6,782,000
	Balance –end of year:
	Goodwill			9,782,315
	Accumulated impairment charges			(2,600,315	)
			$	6,782,000

 

No impairment loss was recorded for the six months ended March 31, 2015 and 2014 respectively.

 

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

9.	Acquisition (Continued)

 

Assets acquired and liabilities assumed at the date of acquisition:

 

	Current assets
	Cash and bank balances		$	897,453
	Prepayments, deposits and other receivables			264,729
	Inventory			1,129
	Non-current assets
	Property and equipment, net			176,116
	Current liabilities
	Other payables and accruals			(51,172	)
	Loans			(2,888,570	)
			$	(1,600,315	)
	Goodwill arising on acquisition:
	Consideration transferred		$	1,000,000
	Less: fair value of identifiable net assets acquired			(1,600,315	)
			$	2,600,315
	Net cash inflow on acquisition of subsidiaries:
	Consideration paid in cash		$	-
	Less: cash and cash equivalent balances acquired			897,453
			$	897,453

 

On January 30, 2015, Company entered into an Equity Transfer Agreement (the “Equity Transfer Agreement,” such transaction, the “Equity Transfer Transaction”) with REBL to acquire from REBL 100% of the equity interests of Moxian IP for $6,782,000 (the “Moxian IP Purchase Price”). Moxian IP owns all the intellectual property rights IP Rights relating to the operation, use and marketing of the MO-Promo Platform, including all of the trademarks, patents and copyrights that are used in the Company’s business. As a result of the Equity Transfer Transaction, Moxian IP became a wholly-owned subsidiary of the Company.

 

Assets acquired and liabilities assumed at the date of acquisition:

 

	Goodwill arising on acquisition:
	Consideration transferred		$	6,782,000
	Less: fair value of identifiable net assets acquired			-
			$	6,782,000

  

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

10.	Convertible Promissory Note

 

Under the Equity Transfer Agreement described in Note No.1, the Company and REBL agreed to terminate the License and Acquisition Agreement, dated February 19, 2014, whereby the Company was granted the exclusive right by REBL to use the intellectual property rights owned by Moxian IP, REBL’s subsidiary. In addition, we acquired all of the equity interests of Moxian BVI in consideration of $1,000,000 (the “Moxian BVI Purchase Price”). Immediately prior to the execution of the Equity Transfer Agreement, the Moxian BVI Purchase Price was not yet paid and no license maintenance royalty or earned royalty under the License and Acquisition Agreement had accrued.

 

Under the Equity Transfer Agreement, the Company and REBL agreed to terminate the License and Acquisition Agreement and all of the Company’s liabilities owed to REBL thereunder, other than the Moxian BVI Purchase Price, were released and discharged.

 

The Company agreed to issue to REBL a convertible promissory note for $7,782,000 (the “Note”), representing the sum of the Moxian IP Purchase Price and the Moxian BVI Purchase Price. The Note will become due and payable on October 30, 2015 and accrues interest at 1% per annum. The Company has the option to convert any and all amounts due under the Note into the Company’s common stock at the conversion price of $1.00 per share (“Conversion Price”), if the volume weighted average price (“VWAP”) of the Company’s common stock for a period of thirty (30) trading days immediately prior to the date of conversion is higher than the Conversion Price. The Company also has a right of first refusal to purchase the shares issuable upon conversion of the Note at the price of 80% of the VWAP for 30 trading days immediately prior to the date of the proposed repurchase by the Company.

 

The interest expenses for the six months period ended March 31, 2015 and 2014 were $12,792 and nil, respectively.

 

11.	Commitments and contingencies

 

Operating Lease

 

The Company leases a number of properties under operating leases. Rental expenses under operating leases for the six months ended March 31, 2015 and 2014 were $70,815 and $15,512 respectively.

 

As of March 31, 2015, the Company was obligated under non-cancellable operating leases minimum rentals as follows:

 

	Twelve months ended March 31, 2015,
	2016		$	242,590
	2017			106,453
	2018			54,653
	Thereafter			-
	Total minimum lease payments		$	403,696

 

Legal Proceeding

 

There has been no legal proceeding in which the Company is a party for the six months ended March 31, 2015.

 

 

MOXIAN CHINA, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

12.	Subsequent events

 

On April 24, 2015, the Company entered into a Subscription Agreement (the “Subscription Agreement”) for a private placement of shares of our common stock, par value $0.001 per share (the “Common Stock”), and warrants (the “Warrants”) with an investor (the “Investor”), whereby we agreed to sell an aggregate of 8,169,000 shares of Common Stock at a per share price of $1.00 for gross proceeds of $8,190,000 (approximately RMB50,000,000, such proceeds, the “Proceeds”) and issue to the Investor for no additional consideration the Warrants to purchase in the aggregate of 32,000,000 shares (the “Warrant Shares”) of the Company’s Common Stock at an exercise price of $2.00 per share, exercisable on or prior to July 31, 2015.

 

Pursuant to the Subscription Agreement, if the Company fails to contract with 25,000 new paying merchants by September 30, 2016, it shall be required to issue an additional number of shares of Common Stock to the Investor, equal to 50% of the accumulated number of Warrant Shares exercised by the Investor by September 30, 2016, at no additional consideration. The premise of this right is that the Investor shall exercise no less than 16,000,000 Warrant Shares. Further, the Company shall issue 4,000,000 shares of Common Stock to the Investor at no additional cost if either of the following conditions is satisfied: (i) the Company fails to publish its full working version of Moxian mobile application version 2.0 by September 30, 2015, or (ii) the Company fails to uplist to a national stock exchange in the U.S. by June 30, 2017. The Investor shall also have the right to nominate (i) one member of the Company’s accounting department; and (ii) one member of the board of directors so long as the Investor exercises no less than 16,000,000 Warrant Shares.

 

 

ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those financial statements appearing elsewhere in this Report.

 

Certain statements in this Report constitute forward-looking statements. These forward-looking statements include statements, which involve risks and uncertainties, regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “project,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” or the negative of these words or other variations on these words or comparable terminology. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.

 

The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

 

The "Company", "we," "us," and "our," refer to the combined business of (i) Moxian China, Inc., a Nevada corporation, (ii) Moxian CN Group Limited, a Samoa company, (iii) Moxian Group Limited, a British Virgin Islands company (“Moxian BVI”), (iv) Moxian (Hong Kong) Limited, a limited liability company incorporated under the laws of Hong Kong (“Moxian HK”), (v) Moxian Technologies (Shenzhen) Co., Ltd. (“Moxian Shenzhen”), a company incorporated under the laws of People’s Republic of China (vi) Moxian Malaysia SDN BHD, a company incorporated under the laws of Malaysia (“Moxian Malaysia”), and (vii) Shenzhen Moyi Technologies Co. Ltd., a contractually controlled affiliate of Moxian Shenzhen formed under the laws of People’s Republic of China (“Moyi”).

 

Overview

 

The Company engages in the business of providing a social marketing and promotion platform to merchants who desire to promote their businesses through online social media. Our products and services aim to enhance the interaction between users and merchant clients by allowing merchant clients to study consumer behavior through data compiled from our database of users’ activities. We design our products and services to allow our merchant clients to run advertisement campaigns and promotions to target their customers. Our platform is also designed and built to entice users to return and to encourage new consumer users to subscribe our website.

 

We launched our marketing platform in Malaysia and China in June 2013 and July 2014, respectively. We have generated limited revenues and we have incurred substantially more losses than our revenues to date.

 

As of March 31, 2015 and September 30, 2014, our accumulated deficits were $6,979,114 and $5,001,166, respectively. Our stockholders’ deficiency was $6,377,227 and $4,587,023, respectively. We have so far generated $68,166 in revenue for the six months ended March 31, 2015. Our net loss for the six months ended March 31, 2015 was $1,977,948. Our losses have principally been attributed to operating expenses, administrative and other operating expenses.

 

Recent Development

 

On April 24, 2015, the Company entered into an Subscription Agreement for a private placement of shares of our Common Stock, and Warrants with an Investor, whereby we agreed to sell an aggregate of 8,169,000 shares of Common Stock at a per share price of $1.00 for gross proceeds of $8,190,000 (approximately RMB50,000,000) and issue to the Investor for no additional consideration the Warrants to purchase in the aggregate of 32,000,000 Warrant Shares of the Company’s Common Stock at an exercise price of $2.00 per share, exercisable on or prior to July 31, 2015.

 

Pursuant to the Subscription Agreement, if the Company fails to contract with 25,000 new paying merchants by September 30, 2016, it shall be required to issue an additional number of shares of Common Stock to the Investor, equal to 50% of the accumulated number of Warrant Shares exercised by the Investor by September 30, 2016, at no additional consideration. The premise of this right is that the Investor shall exercise no less than 16,000,000 Warrant Shares. Further, the Company shall issue 4,000,000 shares of Common Stock to the Investor at no additional cost if either of the following conditions is satisfied: (i) the Company fails to publish its full working version of Moxian mobile application version 2.0 by September 30, 2015, or (ii) the Company fails to uplist to a national stock exchange in the U.S. by June 30, 2017. The Investor shall also have the right to nominate (i) one member of the Company’s accounting department; and (ii) one member of the board of directors so long as the investor exercises no less than 16,000,000 Warrant Shares.

 

Results of Operations

 

For the three months ended March 31, 2015 compared with the three months ended March 31, 2014

 

Gross Revenues

 

The Company received sales revenues of $22,661 in the three months ended March 31, 2015 compared to $0 in the three months ended March 31, 2014. The Company launched its marketing platform by offering it to merchants for free and during the last three months of 2014 started collecting monthly fees from merchants. Of the approximately 30,000 merchants on the platform as of March 31, 2015, approximately 721 were paying as of that date.

 

Operating Expenses

 

Operating expenses for the three months ended March 31, 2015 and three months ended March 31, 2014 were $939,062 and $351,628, respectively. The expenses consisted of filing fees, professional fees, payroll and benefits and other general expenses.

 

We expect that our general and administrative expenses will continue to increase as we incur additional costs to support the growth of our business.

 

Net Loss

 

Net loss for the three months ended March 31, 2015 and three months ended March 31, 2014, were ($990,687) and ($366,977), respectively. Basic and diluted net income (loss) per share amounted to ($0.00) and ($0.00) respectively for the three months ended March 31, 2015 and three months ended March 31, 2014.

 

The increase in net loss for the three months ended March 31, 2015 was due to an increase in general and administrative expenses.

 

 

For the six months ended March 31, 2015 compared with the six months ended March 31, 2014

 

Gross Revenues

 

The Company received sales revenues of $68,166 in the six months ended March 31, 2015 compared to nil being generated in the six months ended March 31, 2014. The Company launched its marketing platform by offering it to merchants for free and during the last three months of 2014 started collecting monthly fees from merchants. Of the approximately 30,000 merchants on the platform as of March 31, 2015, approximately 721 were paying as of that date.

 

Operating Expenses

 

Operating expenses for the six months ended March 31, 2015 and six months ended March 31, 2014 were $1,936,758 and $351,628, respectively. The expenses consisted of filing fees, professional fees, payroll and benefits and other general expenses.

 

We expect that our general and administrative expenses will continue to increase as we incur additional costs to support the growth of our business.

 

Net Loss

 

Net loss for the six months ended March 31, 2015 and six months ended March 31, 2014, were ($1,977,948) and ($366,977), respectively. Basic and diluted net income (loss) per share amounted ($0.01) and ($0.00) respectively for the six months ended March 31, 2015 and six months ended March 31, 2014.

 

The increase in net loss for the six months ended March 31, 2015 and six months ended March 31, 2014 was due to an increase in general and administrative expenses.

 

Liquidity and Capital Resources

 

As of March 31, 2015, we had working capital deficit of ($13,738,550) consisting of cash on hand of $693,419 as compared to working capital deficit of ($4,935,692) and cash on hand of $1,770,196 as of September 30, 2014.

 

Net cash provided by (used in) operating activities for the six months ended March 31, 2015 was ($2,430,153) as compared to net cash used in operating activities of ($276,590) for the six months ended March 31, 2014. The cash used in operating activities are mainly for filing fees, professional fees, payroll and benefits and general expenses.

 

Net cash provided by (used in) investing activities for the six months ended March 31, 2015 was ($34,288) as compared to $800,530 for the six months ended March 31, 2014.

 

Net cash provided by financing activities for the six months ended March 31, 2015 was $1,483,480 as compared to $445,552 for the six months ended March 31, 2014.

 

On April 24, 2015, the Company entered into the Subscription Agreement for a private placement of shares of our Common Stock, and Warrants with an Investor, whereby we agreed to sell an aggregate of 8,169,000 shares of Common Stock at a per share price of $1.00 for gross proceeds of $8,190,000 (approximately RMB50,000,000) and issue to the Investor for no additional consideration the Warrants to purchase in the aggregate of 32,000,000 Warrant Shares of the Company’s Common Stock at an exercise price of $2.00 per share, exercisable on or prior to July 31, 2015.

 

We will likely require additional capital to continue to operate our business, and to further expand our business. Sources of additional capital through various financing transactions or arrangements with third parties may include equity or debt financing, bank loans or revolving credit facilities. We may not be successful in locating suitable financing transactions in the time period required or at all, and we may not obtain the capital we require by other means. Our inability to raise additional funds when required may have a negative impact on our operations, business development and financial results.

 

Critical Accounting Policies and Estimates

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at dates of the financial statements and the reported amounts of revenue and expenses during the periods. Actual results could differ from these estimates. Our significant estimates and assumptions include depreciation and the fair value of our stock, stock-based compensation, debt discount and the valuation allowance relating to the Company’s deferred tax assets.

 

Recently Issued Accounting Pronouncements

 

Reference is made to the “Recent Accounting Pronouncements” in Note 2 to the Financial Statements included in this Report for information related to new accounting pronouncement, none of which had a material impact on our consolidated financial statements, and the future adoption of recently issued accounting pronouncements, which we do not expect will have a material impact on our consolidated financial statements.

 

Off-Balance Sheet Arrangements

 

As of March 31, 2015, we did not have any off-balance sheet arrangements.

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosures Control and Procedures

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

 

	●	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
	●	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

 

●

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

As of March 31, 2015, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this Report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

 

The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of March 31, 2015.

 

Management believes that the material weaknesses set forth in items (2) and (3) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.

 

Management’s Remediation Initiatives

 

In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:

 

We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. And, we plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.

 

Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.

 

We anticipate that these initiatives will be at least partially, if not fully, implemented by the end of fiscal year 2015. Additionally, we plan to test our updated controls and remediate our deficiencies in year 2015.

 

 

Changes in internal controls over financial reporting

 

Except the following, there was no change in our internal controls over financial reporting that occurred during the period covered by this Report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting:

 

On February 13, 2015, Mr. Ng Kian Yong resigned as Chief Executive Officer, President, Treasurer, Secretary and director of the Company. Also on the same day, Mr. James Mengdong Tan, the current director, was appointed as interim Chief Executive Officer, President, Treasurer, and Secretary of the Company.

 

This annual report does not include an attestation report of the Company’s registered independent public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered independent public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report on Form 10-K.

  

PART II - OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS.

 

None.

 

ITEM 1A. RISK FACTORS.

 

Not applicable to a smaller reporting company.

 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4.  MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5.  OTHER INFORMATION.

 

On April 24, 2015, the Company entered into the Subscription Agreement for a private placement of shares of our Common Stock, and Warrants with an Investor, whereby we agreed to sell an aggregate of 8,169,000 shares of Common Stock at a per share price of $1.00 for gross proceeds of $8,190,000 (approximately RMB50,000,000) and issue to the Investor for no additional consideration the Warrants to purchase in the aggregate of 32,000,000 Warrant Shares of the Company’s Common Stock at an exercise price of $2.00 per share, exercisable on or prior to July 31, 2015.

 

Pursuant to the Subscription Agreement, if the Company fails to contract with 25,000 new paying merchants by September 30, 2016, it shall be required to issue an additional number of shares of Common Stock to the Investor, equal to 50% of the accumulated number of Warrant Shares exercised by the Investor by September 30, 2016, at no additional consideration. The premise of this right is that the Investor shall exercise no less than 16,000,000 Warrant Shares. Further, the Company shall issue 4,000,000 shares of Common Stock to the Investor at no additional cost if either of the following conditions is satisfied: (i) the Company fails to publish its full working version of Moxian mobile application version 2.0 by September 30, 2015, or (ii) the Company fails to uplist to a national stock exchange in the U.S. by June 30, 2017. The Investor shall also have the right to nominate (i) one member of the Company’s accounting department; and (ii) one member of the board of directors so long as the Investor exercises no less than 16,000,000 Warrant Shares.

 

ITEM 6.  EXHIBITS.

 

10.1	Form of Subscription Agreement
31.1	Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive and financial officer
32.1	Section 1350 Certification of principal executive officer and principal financial and accounting officer
101*	XBRL data files of Financial Statements and Notes contained in this Quarterly Report on Form 10-Q.

  

* In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed.”

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	Moxian China, Inc.
Date: May 15, 2015	BY:	/s/ James Mengdong Tan
		Name: James Mengdong Tan
		Title:   Interim Chief Executive Officer, President, Treasurer, Secretary, Director
		(Principal Executive and Financial Officer)

 

 

 

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