UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For The Quarterly Period Ended September 30, 2017

 

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 333-206319

 

Rito Group Corp.

(Exact name of registrant issuer as specified in its charter)

 

Nevada		47-3588502
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

Room 6C, 4/F, Block C, Hong Kong Industrial Centre,

489 Castle Peak Road, Lai Chi Kok, Hong Kong

(Address of principal executive offices, including zip code)

 

Registrant’s phone number, including area code (852) 2385-8598

 

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 [X] NO [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section232.405 of this chapter) during the preceding twelve months (or shorter period that the registrant was required to submit and post such files).

 

YES [  ] NO [X]

 

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 Rule12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer [  ]

Accelerated Filer [  ]

Non-accelerated Filer [  ]

Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes [  ] No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class		Outstanding at November 10, 2017
Common Stock, $.0001 par value		54,774,284

 

 

 

TABLE OF CONTENTS

 

		Page
PART I	FINANCIAL INFORMATION	F-1
ITEM 1.	FINANCIAL STATEMENTS:	F-1
	Condensed Consolidated Balance Sheets as of September 30, 2017 (unaudited) and June 30, 2017 (audited)	F-1
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Ended September 30, 2017 and 2016 (unaudited)	F-2
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2017 and 2016 (unaudited)	F-3
	Notes to the Condensed Consolidated Financial Statements	F-4 to F-12
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3 to 5
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	6
ITEM 4.	CONTROLS AND PROCEDURES	6
PART II	OTHER INFORMATION	7
ITEM 1	LEGAL PROCEEDINGS	7
ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	7
ITEM 3	DEFAULTS UPON SENIOR SECURITIES	7
ITEM 4	MINE SAFETY DISCLOSURES	7
ITEM 5	OTHER INFORMATION	7
ITEM 6	EXHIBITS	7
SIGNATURES		8

 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial statements

 

RITO GROUP CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2017, AND JUNE 30, 2017

(Currency expressed in United States Dollars (“US$”))

 

		As of
		September 30, 2017				June 30, 2017
		(Unaudited)				(Audited)
ASSETS
Current assets:
Trade receivables			8,043				9,767
Prepayments, deposits and other receivables			20,517				1,300
Cash and cash equivalents			139,068				80,487
Total current assets			167,628				91,554
Non-current assets
Property, plant and equipment, net			64,504				-
Total non-current assets			64,504				-
TOTAL ASSETS		$	232,132			$	91,554
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term bank loans			7,505				-
Accounts payable		$	-			$	9,109
Other payables and accrued liabilities			319,828				59,898
Convertible notes payable			-				26,910
Total current liabilities			327,333				95,917
Non-current liabilities
Long-term bank loans			36,026				-
TOTAL LIABILITIES		$	363,359			$	95,917
STOCKHOLDERS’ EQUITY
Preferred stock, $0.0001 par value; 200,000,000 shares authorized; None issued and outstanding			-				-
Common stock, $ 0.0001 par value; 600,000,000 shares authorized; 54,774,284 and 54,625,956 shares issued and outstanding as of September 30, 2017 and June 30, 2017, respectively			5,477				5,463
Additional paid-in capital			1,716,334				1,629,267
Accumulated other comprehensive income			19				29
Accumulated deficit			(1,853,057	)			(1,639,122	)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)		$	(131,227	)		$	(4,363	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	232,132			$	91,554

 

See accompanying notes to the condensed consolidated financial statements.

 

 

RITO GROUP CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

 

		Three Months Ended September 30,
		2017				2016
REVENUE
Related party		$	-			$	-
Non-related party			8,751				14,315
			8,751				14,315
COST OF REVENUE			(6,390	)			(13,533	)
GROSS PROFIT			2,361				782
OPERATING EXPENSES
General and administrative			(215,334	)			(247,468	)
LOSS FROM OPERATIONS			(212,973	)			(246,686	)
Interest expense			(963	)			(18,802	)
LOSS BEFORE INCOME TAX			(213,936	)			(265,488	)
Income tax expense			-				-
NET LOSS			(213,936	)			(265,488	)
Other comprehensive loss
Foreign currency translation loss			-				-
COMPREHENSIVE LOSS			(213,936	)			(265,488	)
Net loss per share - Basic and diluted		$	(0.01	)		$	(0.01	)
Weighted average number of common shares outstanding - Basic and diluted			54,659,333				50,742,334

 

See accompanying notes to the condensed consolidated financial statements.

 

 

RITO GROUP CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

 

		Three Months Ended September 30,
		2017				2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(213,936	)		$	(265,488	)
Adjustments to reconcile net loss to net cash used in operating activities
Interest expenses			801				18,802
Changes in operating assets and liabilities:
Accounts receivable			1,368				(14,315	)
Subscription receivables			-				30,000
Prepayments, deposits & other receivables			(18,861	)			-
Trade payable			-				(383	)
Accounts payable			(9,109	)			-
Other payables and accrued liabilities			259,930				21,287
Net cash provided by/(used in) operating activities			20,194				(210,097	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment			(64,504	)			-
Net cash used in investing activities			(64,504	)			-
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of shares in Initial Public Offering			60,000				63,900
Interest paid for convertible notes			-				(1,041	)
Drawdown of bank borrowings			45,032				-
Repayment of bank borrowings			(2,131	)			-
Net cash provided by financing activities			102,901				62,859
Effect of exchange rate changes on cash and cash equivalents			(10	)			-
Net increase/(decrease) in cash and cash equivalents			58,581				(147,238	)
Cash and cash equivalents, beginning of period			80,487				449,328
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	139,068			$	302,090
SUPPLEMENTAL CASH FLOWS INFORMATION
Cash paid for income taxes		$	-			$	-
Cash paid for interest paid		$	630			$	1,041

 

See accompanying notes to the condensed consolidated financial statements.

 

 

RITO GROUP CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

 

NOTE 1 - BASIS OF PREPARATION

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and the rules and regulations of the Securities and Exchange Commission that permit reduced disclosure for interim periods. Therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted.

 

In the opinion of management, the consolidated balance sheet as of September 30, 2017 which has been derived from audited financial statements and these unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the three months ended September 30, 2017 are not necessarily indicative of the results to be expected for the entire fiscal year ending June 30, 2018 or for any future period.

 

These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2017.

 

NOTE 2 - ORGANIZATION AND BUSINESS BACKGROUND

 

Rito Group Corp. (the “Company”) was incorporated on March 24, 2015 under the laws of the state of Nevada.

 

The Company, through its subsidiaries, mainly engages in trading of retail goods such as cookware, jewelry and watches, and numerous other products.

 

Details of the Company’s subsidiaries:

 

	Company name		Place/date of incorporation		Particulars of issued capital		Principal activities
1.	Sino Union International Limited (“Sino Union”)		Anguilla January 3, 2014		84,500 shares of ordinary share of US$1 each		Investment holding
2.	Rito International Enterprise Company Limited (“Rito International”)		Hong Kong August 12, 2014		630,001 shares of ordinary share of HK$1 each		Trading of retail goods

 

Rito Group Corp. and its subsidiaries are hereinafter referred to as the “Company”.

 

NOTE 3 - GOING CONCERN UNCERTAINTIES

 

The accompanying financial statements have been prepared using the going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

 

As of September 30, 2017, the Company suffered an accumulated deficit of $1,853,057 and continuously incurred a net operating loss of $213,936 for the three months ended September 30, 2017. The continuation of the Company as a going concern through June 30, 2018 is dependent upon improving the profitability and the continuing financial support from its stockholders. Management believes the existing shareholders or external financing will provide the additional cash to meet the Company’s obligations as they become due.

 

 

RITO GROUP CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

 

These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result in the Company not being able to continue as a going concern.

 

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited condensed consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying consolidated financial statements and notes.

 

●	Basis of presentation

 

The accompanying condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).

 

●	Basis of consolidation

 

The condensed consolidated financial statements include the accounts of Rito Group Corp. and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.

 

●	Use of estimates

 

In preparing these condensed consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the periods reported. Actual results may differ from these estimates.

 

●	Cash and cash equivalents

 

Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.

 

●	Plant and equipment

 

Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational:

 

Categories		Estimated useful life		Residual value
Leasehold improvement		Over the shorter of estimated useful life or term of lease		-

 

Expenditures for maintenance and repairs are expensed as incurred. The gain or loss on the disposal of plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the statement of operations.

 

●	Accounts receivable

 

Accounts receivable are recorded at the invoiced amount and do not bear interest. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s financial condition, credit history, and the current economic conditions to make adjustments in the allowance when it is considered necessary. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

 

 

RITO GROUP CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

 

●	Revenue recognition

 

In accordance with the Accounting Standard Codification (“ASC”) Topic 605 “Revenue Recognition”, the Company recognizes revenue when the following four criteria are met: (1) delivery has occurred or services rendered; (2) persuasive evidence of an arrangement exists; (3) selling price is fixed or determinable; and (4) collectability is reasonably assured.

 

Revenue is measured at the fair value of the consideration received or receivable, net of discounts and taxes applicable to the revenue. Revenue from trading of retail goods is recognized when title and risk of loss are transferred and there are no continuing obligations to the customer. Title and the risks and rewards of ownership transferred to and accepted by the customer when the products are collected by the customer at the Company’s office. Revenue is recorded net of sales discounts, returns, allowances, and other adjustments that are based upon management’s best estimates and historical experience and are provided for in the same period as the related revenues are recorded. Based on limited operating history, management estimates that there were no sales return for the period reported.

 

The Company derives its revenue from sales of goods to individuals. Generally, the Company recognizes revenue when products are sold and accepted by the customers and there are no continuing obligations to the customer.

 

●	Cost of revenues

 

Cost of revenue includes the purchase cost of retail goods for re-sale to the customers.

 

●	Income taxes

 

The provision of income taxes is determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC Topic 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

ASC Topic 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC Topic 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

 

The Company did not have any unrecognized tax positions or benefits and there was no effect on the financial conditions or results of operations for the three months ended September 30, 2017. The Company conducts major businesses in Hong Kong and is subject to tax in this jurisdiction. As a result of its business activities, the Company will file tax returns that are subject to examination by the foreign tax authority.

 

 

RITO GROUP CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

 

●	Net loss per share

 

The Company calculates net loss per share in accordance with ASC Topic 260 “Earnings per share”. Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive.

 

●	Foreign currencies translation

 

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of operations.

 

The reporting currency of the Company and its subsidiary in Anguilla is United States Dollars (“US$”). The Company’s subsidiary in Hong Kong maintains its books and record in Hong Kong Dollars (“HK$”), which is functional currency as being the primary currency of the economic environment in which the entity operates.

 

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

 

Translation of amounts from the local currencies of the Company into US$ has been made at the following exchange rates for the respective periods:

 

		As of and for the three months ended September 30,
		2017				2016
Period-end / average HK$ : US$1 exchange rate			7.75				7.75

 

●	Related parties

 

Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

 

●	Fair value of financial instruments

 

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

 

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

 

 

RITO GROUP CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

 

	Level 1 : Observable inputs such as quoted prices in active markets;
	Level 2 : Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
	Level 3 : Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions

 

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

 

●	Recent accounting pronouncements

 

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

 

NOTE 5 - STOCKHOLDERS’ EQUITY

 

For the three months ended September 30, 2017, the Company issued an aggregated of 40,000 shares of its common stock at $1.5 per share for aggregate gross proceeds of $60,000.

 

As of September 30, 2017, and June 30, 2017, the Company has a total of 54,774,284 and 54,625,956 shares, respectively of its common stock issued and outstanding. There are no shares of preferred stock issued and outstanding.

 

NOTE 6 - CONVERTIBLE NOTES PAYABLE

 

During August 2015 to April 2016, the Company issued a number of convertible promissory notes (collectively the “Convertible Notes”) to investors in an aggregated principal amount of $888,410. The Convertible Notes bear interest at a rate of 8% per annum with a maturity of two years, due in 2017 and 2018. The principal and accrued interest are payable in a lump sum at the maturity. The notes are convertible into shares of the Company’s common stock at a conversion price ranged from $0.15 to $0.25 per share at the note holders’ sole and exclusive option.

 

For the three months ended September 30, 2017, the Company issued an aggregate of 108,328 shares of its common stock to various investors in conversion of outstanding convertible notes payable in aggregated principal and accrued interest of $25,000 and $2,082 respectively. The conversion price is $0.25 per share.

 

For the three months ended September 30, 2017 and 2016, the interest expense of $801 and $18,802, respectively are recognized in the condensed consolidated statements of operations. The Company does not pay interest to convertible notes holders during the three months ended September 30, 2017.

 

 

RITO GROUP CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

 

NOTE 7 - PLANT AND EQUIPMENT

 

		As of
		September 30, 2017				June 30, 2017
						(audited)
Leasehold improvement		$	64,504			$	-
			64,504				-
Less: Accumulated depreciation			-				-
Total		$	64,504			$	-

 

Depreciation expense, classified as operating expenses, was $Nil for the three months ended June 30, 2017 because the leasehold improvement is not yet complete and hence no depreciation.

 

NOTE 8 - LONG-TERM BANK LOANS

 

		As of
		September 30, 2017				June 30, 2017
						(audited)
Bank loan from financial institution in Hong Kong
The Hongkong and Shanghai Banking Corporation Limited		$	43,531			$	-
			43,531				-
Less: Current portion			(7,505	)			-
Long-term portion		$	36,026			$	-

 

In July 2017, the Company obtained a loan in the principal amount of HKD349,000 (approximately $45,032) from The Hongkong and Shanghai Banking Corporation Limited, a financial institution in Hongkong which bears interest at the base lending rate less 0.7% flat rate per month with 60 monthly installments of HKD8,260 (approximately $1,066) each and will mature in July 2022.

 

NOTE 9 - INCOME TAXES

 

For the three months ended September 30, 2017 and 2016, the local (United States) and foreign components of loss before income taxes were comprised of the following:

 

		For the three months ended September 30,
		2017				2016
Tax jurisdictions from:
– Local		$	(19,667	)		$	(26,344	)
– Foreign, representing
Anguilla			(1,100	)			(1,055	)
Hong Kong			(193,169	)			(238,089	)
Loss before income taxes			(213,936	)			(265,488	)

 

Provision for income taxes consisted of the following:

 

			For the three months ended September 30,
			2017				2016
Current:
– Local		$	-			$	-
– Foreign (Hong Kong)			-				-
Deferred:
– Local			-				-
– Foreign (Hong Kong)			-				-
		$	-			$	-

 

The effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The Company has subsidiaries that operate in various countries: United States, Anguilla and Hong Kong that are subject to taxes in the jurisdictions in which they operate, as follows:

 

United States of America

 

The Company is registered in the State of Nevada and is subject to the tax laws of the United States of America. As of September 30, 2017, the operations in the United States of America incurred $190,705 of cumulative net operating losses which can be carried forward to offset future taxable income. The net operating loss carryforwards begin to expire in 2036, if unutilized. The Company has provided for a full valuation allowance of $66,746 against the deferred tax assets on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

 

 

RITO GROUP CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

 

Anguilla

 

Under the current laws of the Anguilla, Sino Union is registered as an international business company which is governed by the International Business Companies Act of Anguilla and there is no income tax charged in Anguilla.

 

Hong Kong

 

Rito International is subject to Hong Kong Profits Tax, which is charged at the statutory income tax rate of 16.5% on its assessable income. For the three months ended September 30, 2017, no provision for income tax is required due to operating loss incurred. As of September 30, 2017, Rito International incurred $1,547,632 of cumulative net operating losses which can be carried forward to offset future taxable income at no expiration. The Company has provided for a full valuation allowance against the deferred tax assets of $255,359 on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

 

The following table sets forth the significant components of the aggregate deferred tax assets of the Company as of September 30, 2017 and September 30, 2016:

 

		As of
		September 30, 2017				June 30, 2017
						(audited)
Deferred tax assets:
Net operating loss carryforwards
– United States of America		$	66,746			$	59,863
– Hong Kong			255,359				223,487
			322,105				283,350
Less: valuation allowance			(322,105	)			(283,350	)
Deferred tax assets		$	-			$	-

 

Management believes that it is more likely than not that the deferred tax assets will not be fully realizable in the future. Accordingly, the Company provided for a full valuation allowance against its deferred tax assets of $322,105 as of September 30, 2017. During the three months ended September 30, 2017, the valuation allowance increased by $132,726, primarily relating to net operating loss carryforwards from the various tax regime.

 

 

RITO GROUP CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

 

NOTE 10 - RELATED PARTY TRANSACTIONS

 

		For the three months ended September 30,
		2017				2016
Professional fee paid to:
- Related party A		$	3,605			$	4,510
- Related party B			4,000				703
- Related party C			430				-
Website design and maintenance fee paid to:
- Related party D			588				588
		$	8,623			$	5,801

 

Related party A, B, C and D are the fellow subsidiaries of a corporate shareholder of the Company.

 

The related party transactions are generally transacted in an arm-length basis at the current market value in the normal course of business.

 

NOTE 11 - CONCENTRATIONS OF RISKS

 

(a) Major customers

 

For the three months ended September 30, 2017, there was one customer who accounted for 10% or more of the Company’s revenues. This customer accounted for 92% of the Company’s revenue amounting to $8,043, with $8,043 account receivable balance at period-end.

 

For the three months ended September 30, 2016, there was one customer who accounted for 100% of the Company’s revenues with accounts receivable balance of $14,315 at period-end.

 

 

RITO GROUP CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

 

(b) Major vendors

 

For the three months ended September 30, 2017, there was one vendor who accounted for 10% or more of the Company’s cost of revenues with no accounts payable balance at period-end.

 

For the three months ended September 30, 2016, there was one vendor who accounted for 100% of the Company’s cost of revenues with no accounts payable balance at period-end.

 

(c) Credit risk

 

Financial instruments that are potentially subject to credit risk consist principally of accounts receivable. The Company believes the concentration of credit risk in its accounts receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

 

NOTE 12 - COMMITMENTS AND CONTINGENCIES

 

The Company leases an office premises in Hong Kong under a non-cancellable operating lease that expire on December 2018, with an aggregate fixed monthly rent of approximately $1,548.

 

The aggregate lease expense for the three months ended September 30, 2017 and 2016 were $4,645 and $3,871, respectively.

 

As of September 30, 2017, the Company has the aggregate future minimum rental payments due under a non-cancellable operating lease in the next two years, as follows:

 

Period ending September 30:
2018		$	4,645
2019			18,581
		$	23,226

 

NOTE 13 - SUBSEQUENT EVENTS

 

In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or transactions that occurred after September 30, 2017 up through the date the Company presented this condensed consolidated financial statement.

 

During the period, the Company did not have any material recognizable subsequent event.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended June 30, 2017 and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Form 10-Q.

 

The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations. “These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the factors described in our Form S-1 Amendment No.6, dated April 18, 2016, in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this transition report on Form10-Q. The following should also be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto that appear elsewhere in this report.

 

Company Overview

 

Rito Group Corp. (the “Company” or “Rito”) was incorporated under the laws of the State of Nevada on March 24, 2015. Rito Group Corp is a company that operates through its wholly owned subsidiary, Sino Union International Limited, a company organized under the laws of the British Colony, Anguilla. It should be noted that the wholly owned subsidiary, Sino Union International Ltd. owns 100% of Rito International Enterprise Company Limited, a Hong Kong Company.

 

At this time, we operate exclusively through our wholly owned subsidiary and share the same business plan of our subsidiary which is the sale of miscellaneous retail goods. To date the goods sold have been sold through the individual efforts of our management by selling to personal contacts, and the sales have consisted of stainless steel and crystal accessories from Steela + Steelo as well as cookware from Malox. Sino Union International Limited also shares the same business plan of Rito International Enterprise Company Limited.

 

The future business of Rito is the development of “Rito Online mall” which will provide a platform for merchants and customers to facilitate transactions and take advantage of the growth opportunity we have identified in Hong Kong’s E-Commerce Industry. The Rito Online Mall has not yet been developed and is not operational at this time.

 

Results of Operations

 

For the three months ended September 30, 2017 and 2016

 

Revenues

 

For the three months ended September 30, 2017 and 2016, the Company generated revenue in the amount of $8,751 and $14,315 respectively. Our gross profits for the three months ended September 30, 2017 and 2016 was $2,361 and $782 respectively. The gross profit margin for the three months ended September 30, 2017 and 2016 was 27% and 5% respectively. The increase in gross profits is due to reduced cost of sales.

 

General and administrative expenses

 

For the three months ended September 30, 2017 and 2016, we have had general and administrative expenses in the amount of $215,334 and $247,468 respectively, a decrease of $32,134 or 13%. These expenses are comprised of IT development expense of $11,363, advertising and promotion expenses of $13,831, marketing expenses of $83,258, and entertainment of $6,642 for the three months ended September 30, 2017.

 

 

Net loss

 

Our net loss for the three months ended September 30, 2017 and 2016 was $213,936 and $265,488 respectively. The net loss mainly derived from the general and administrative expenses incurred.

 

Liquidity and Capital Resources

 

Cash Used in Operating Activities

 

Net cash provided from operating activities was $20,194 for the three months ended September 30, 2017 as compared to net cash used in operating activities of $210,097 for the three months ended September 30, 2016. The cash provided in operating activities was a result of our increased other payables and accrued liabilities.

 

Cash Used in Investing Activities

 

Net cash used in investing activities was $64,504 and $0 for the three months ended September 30, 2017 and 2016, respectively. The cash used in investing activities for the three months ended September 30, 2017 was resulted from the renovation of plant and equipment.

 

Cash Provided by Financing Activities

 

Net cash provided by financing activities were $102,901 and $62,859 for the three months ended September 30, 2017 and 2016 respectively. The cash provided by financing activities was contributed from the aggregate proceeds of $60,000 from the issuance of shares in initial public offering and private placement, and the aggregate proceeds of $45,032 from bank borrowings during the three months ended September 30, 2017 and offset by the repayment of bank borrowings of $2,131.

 

 

There were no advances from directors and related company as of September 30, 2017 and September 30, 2016.

 

In regards to all of the above transactions we claim an exemption from registration afforded by Section 4(a)(2) and/or Regulation S of the Securities Act of 1933, as amended (“Regulation S”) for the above sales of the stock since the sales of the stock were made to non-U.S. persons (as defined under Rule 902 section (k)(2)(i) of Regulation S), pursuant to offshore transactions, and no directed selling efforts were made in the United States by the issuer, a distributor, any of their respective affiliates, or any person acting on behalf of any of the foregoing.

 

Going Concern

 

As of September 30, 2017, the Company suffered an accumulated deficit of $1,853,057 and incurred a continuous net operating loss of $213,936 for the three months ended September 30, 2017. These matters raise substantial doubt about our ability to continue as a going concern. Our unaudited condensed consolidated financial statements included elsewhere in this report have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate our continuation as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the condensed consolidated financial statements do not necessarily purport to represent realizable or settlement values. The condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.

 

Off-balance Sheet Arrangements

 

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders as of September 30, 2017.

 

 

Contractual Obligations

 

As of September 30, 2017, the Company has no contractual obligations involved.

 

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

 

ITEM 4 CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures:

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2017. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2017, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of September 30, 2017, our disclosure controls and procedures were not effective: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

 

Changes in Internal Control Over Financial Reporting:

 

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We know of no materials, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any beneficial shareholder are an adverse party or has a material interest adverse to us.

 

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.

 

None.

 

ITEM 6. Exhibits

 

31.1		Rule 13(a)-14(a) / 15(d)-14(a) Certification of principal executive office
31.2		Rule 13(a)-14(a) / 15(d)-14(a) Certification of principal financial officer
32.1		Section 1350 Certification of principal executive officer
32.2		Section 1350 Certification of principal financial officer

 

 

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.

 

	RITO GROUP CORP.
	(Name of Registrant)
Date: November 13, 2017
	By:	/s/ Choi Tak Yin Addy
	Title:	Chief Executive Officer, President, Director (Principal Executive Officer)
Date: November 13, 2017
	By:	/s/ Choy Wing Fai
	Title:	Chief Financial Officer, Chief Accounting Officer, Treasurer and Director
		(Principal Financial Officer and Principal Accounting Officer)
Date: November 13, 2017
	By:	/s/ Or Ka Ming
	Title:	Chief Operating Officer, Secretary, Director
Date: November 13, 2017
	By:	/s/ Kao Pun Yiu Philip
	Title:	Chief Technical Officer, Director