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EX-32.02 - EXHIBIT 32.02 - IONIX TECHNOLOGY, INC.ex32_02.htm
EX-32.01 - EXHIBIT 32.01 - IONIX TECHNOLOGY, INC.ex32_01.htm
EX-31.02 - EXHIBIT 31.02 - IONIX TECHNOLOGY, INC.ex31_02.htm
EX-31.01 - EXHIBIT 31.01 - IONIX TECHNOLOGY, INC.ex31_01.htm

 

 

 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, 2020

or

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

 

For the Transition Period from                to               .

 

Commission File Number 000-54485

 

IONIX TECHNOLOGY, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

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

 

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

(Address of Principal Executive Offices) (Zip Code)

 

+86-411-88079120

(Registrant’s Telephone Number, Including Area Code)

 

__Not applicable_

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

 

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

 

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

 

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

 

  Large accelerated filer  ¨ Accelerated filer  ¨
  Non-accelerated filer    x Smaller reporting company  x
  Emerging growth company  ¨  

 

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

 

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

 

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

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 13, 2020, there were 123,644,895  shares of common stock issued and outstanding, par value $0.0001 per share.

 

 

 

  
 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

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

 

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

  

  
 

 

IONIX TECHNOLOGY, INC.

FORM 10-Q

September 30, 2020

  

INDEX

    Page
Part I - Financial Information F-1
     
Item 1. Financial Statements (Unaudited) F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation 28
Item 3. Quantitative and Qualitative Disclosures about Market Risk 31
Item 4. Controls and Procedures 31
     
Part II - Other Information 33
     
Item 1. Legal Proceedings 33
Item 1A. Risk Factors 33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 33
Item 3. Defaults Upon Senior Securities 35
Item 4. Mine Safety Disclosures 35
Item 5. Other Information 35
Item 6. Exhibits 36
     
Signatures 37
     
Certifications  

  

  
 

 

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

 

IONIX TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   September 30, 2020   June 30, 2020 
ASSETS          
Current Assets:          
Cash and cash equivalents  $1,213,329   $1,285,373 
Notes receivable   66,828    125,798 
Accounts receivable   3,043,822    3,273,141 
Inventory   3,253,613    3,263,850 
Advances to suppliers - non-related parties   453,315    540,259 
                                 - related parties   412,619    357,577 
Prepaid expenses and other current assets   342,273    320,296 
Total Current Assets   8,785,799    9,166,294 
           
Property, plant and equipment, net   6,817,296    6,573,937 
Intangible assets, net   1,473,292    1,424,404 
Deferred tax assets   47,035    20,743 
Total Assets  $17,123,422   $17,185,378 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current Liabilities:          
Short-term bank loan  $1,908,929   $2,034,735 
Accounts payable   1,953,904    2,637,792 
Advance from customers   209,868    43,077 
Convertible notes payable, net of debt discount and loan cost   353,890    514,390 
Derivative liability   215,630    276,266 
Due to related parties   2,373,480    1,716,919 
Accrued expenses and other current liabilities   216,123    359,577 
Total Current Liabilities   7,231,824    7,582,756 
Total Liabilities   7,231,824    7,582,756 
           
COMMITMENT AND CONTINGENCIES          
           
Stockholders’ Equity:          
Preferred stock, $.0001 par value, 5,000,000 shares authorized,  
5,000,000 shares issued and outstanding
   500    500 

Common stock, $.0001 par value, 195,000,000 shares authorized,
116,500,917 and 114,174,265 shares issued and outstanding as of September 30, 2020 and June 30,

2020 respectively

   11,650    11,417 
Additional paid in capital   9,634,325    9,243,557 
Retained earnings (accumulated deficit)   (270,108)   262,198 
Accumulated other comprehensive income (loss)   73,270    (357,011)
Total Stockholders' Equity attributable to the Company   9,449,637    9,160,661 
Noncontrolling interest   441,961    441,961 
Total Stockholders’ Equity   9,891,598    9,602,622 
Total Liabilities and Stockholders’ Equity  $17,123,422   $17,185,378 

 

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

 

F-1
 

 

IONIX TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

   For the Three Months Ended 
   September 30, 
   2020   2019 
         
Revenues (See Note 3 and Note 11 for related party amounts)  $2,958,465   $7,500,330 
           
Cost of Revenues (See Note 11 for related party amounts)   2,681,389    6,073,104 
           
  Gross profit   277,076    1,427,226 
           
Operating expenses          
  Selling, general and administrative expense   308,503    381,428 
  Research and development expense   146,185    222,823 
Total operating expenses   454,688    604,251 
           
Income (loss) from operations   (177,612)   822,975 
           
Other income (expense):          
  Interest expense, net of interest income   (174,234)   (56,863)
  Subsidy income   13,164    42,787 
  Change in fair value of derivative liability   (60,652)   15,889 
  Loss on extinguishment of debt   (149,231)   - 
Total other income (expense)   (370,953)   1,813 
           
Income (loss) before income tax provision (benefit)   (548,565)   824,788 
Income tax provision (benefit)   (16,259)   113,512 
Net income (loss)   (532,306)   711,276 
           
Other comprehensive income (loss)          
  Foreign currency translation adjustment   430,281    (416,785)
Comprehensive income (loss)  $(102,025)  $294,491 
           
           
Earnings (Loss) Per Share - Basic and Diluted  $(0.00)  $0.01 
Weighted average number of common shares outstanding - Basic and Diluted   114,787,847    114,003,000 

 

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

 

F-2
 

 

IONIX TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited) 

 

   Preferred Stock   Common Stock   Additional   Retained
Earnings
   Accumulated Other         
   Number of
Shares
   Amount   Number of
Shares
   Amount   Paid-in
Capital
   (Accumulated
Deficit)
   Comprehensive
Income (loss)
   Non-controlling
interest
   Total 
Balance at June 30, 2020   5,000,000   $500    114,174,265   $11,417   $9,243,557   $262,198   $(357,011)  $441,961   $9,602,622 
Issuance of common stock for conversion of
convertible notes
   -    -    2,326,652    233    390,768    -    -    -    391,001 
Net loss   -    -    -    -    -    (532,306)   -    -    (532,306)
Foreign currency translation adjustment   -    -    -    -    -    -    430,281    -    430,281 
Balance at September 30, 2020   5,000,000   $500    116,500,917   $11,650   $9,634,325   $(270,108)  $73,270   $441,961   $9,891,598 

 

   Preferred Stock   Common Stock   Additional       Accumulated Other         
   Number of
Shares
   Amount   Number of
Shares
   Amount   Paid-in
Capital
   Retained
Earnings
   Comprehensive
Income (loss)
   Non-controlling
interest
   Total 
Balance at June 30, 2019   5,000,000   $500    114,003,000   $11,400   $8,829,487   $539,866   $(45,840)  $441,961   $9,777,374 
Stock warrants issued with convertible notes   -    -    -    -    20,022    -    -    -    20,022 
Net income   -    -    -    -    -    711,276    -    -    711,276 
Foreign currency translation adjustment   -    -    -    -    -    -    (416,785)   -    (416,785)
Balance at September 30, 2019   5,000,000   $500    114,003,000   $11,400   $8,849,509   $1,251,142   $(462,625)  $441,961   $10,091,887 

 

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

 

F-3
 

 

IONIX TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

  For the Three Months Ended 
  September 30, 
   2020   2019 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income (loss)  $(532,306)  $711,276 
Adjustments required to reconcile net income (loss) to net cash provided by (used in)
operating activities:
          
  Depreciation and amortization   172,526    208,314 
  Deferred taxes   (24,977)   37,553 
  Change in fair value of derivative liability   60,652    (15,889)
  Loss on extinguishment of debt   149,231    - 
  Non-cash interest   114,214    21,313 
Changes in operating assets and liabilities:          
  Accounts receivable - non-related parties   351,842    (948,146)
  Accounts receivable - related parties   -    228,709 
  Inventory   136,649    334,753 
  Advances to suppliers - non-related parties   106,215    (238,711)
  Advances to suppliers - related parties   (40,103)   13,186 
  Prepaid expenses and other current assets   (9,301)   33,140 
  Accounts payable   (772,948)   682,885 
  Advance from customers   161,885    222,994 
  Accrued expenses and other current liabilities   (132,277)   (73,748)
Net cash provided by (used in) operating activities   (258,698)   1,217,629 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
  Acquisition of property, plant and equipment   (148,835)   (118,198)
Net cash used in investing activities   (148,835)   (118,198)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
  Notes receivable   62,706    109,498 
  Proceeds from bank loans   949,645    - 
  Repayment of bank loans   (1,151,941)   - 
  Proceeds from issuance of convertible notes payable   -    238,340 
  Repayment of convertible notes payable   (167,747)   - 
  Proceeds from (repayment of) loans from related parties   589,989    (13,383)
Net cash provided by financing activities   282,652    334,455 
           
Effect of exchange rate changes on cash   52,837    (42,716)
           
Net increase (decrease) in cash and cash equivalents   (72,044)   1,391,170 
           
Cash and cash equivalents, beginning of period   1,285,373    509,615 
           
Cash and cash equivalents, end of period  $1,213,329   $1,900,785 
           
Supplemental disclosure of cash flow information          
  Cash paid for income tax  $2,003   $35,312 
  Cash paid for interests  $51,347   $34,247 
           
Non-cash investing and financing activities          
  Issuance of 2,326,652 shares of common stock for conversion of convertible notes  $391,001   $- 

 

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

 

F-4
 

 

 

IONIX TECHNOLOGY, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

 

NOTE 1 - NATURE OF OPERATIONS

  

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

 

Acquisition

 

On December 27, 2018, the Company entered into a Share Purchase Agreement (the “Purchase Agreement”) with Jialin Liang and Xuemei Jiang, each of whom are shareholders (the “Shareholders”) of Changchun Fangguan Electronics Technology Co., Ltd. (“Fangguan Electronics”). Pursuant to the terms of the Purchase Agreement, the Shareholders, who together own 95.14% of the ownership rights in Fangguan Electronics, agreed to execute and deliver the Business Operation Agreement, the Equity Interest Pledge Agreement, the Equity Interest Purchase Agreement, the Exclusive Technical Support Service Agreement (the “Services Agreement”) and the Power of Attorney, all together dated December 27, 2018 are referred to the “VIE Agreements”, to the Company in exchange for the issuance of an aggregate of 15,000,000 shares of the Company’s common stock, par value $.0001 per share, thereby causing Fangguan Electronics to become the Company’s variable interest entity. Together with VIE agreements, the Shareholders also agreed to convert shareholder loan of RMB 30 million (approximately $4.4 million) to capital and make cash contribution of RMB 9.7 million (approximately $1.4 million) to capital. The entirety of the transaction will hereafter be referred to as the “Transaction”. As a result of the Transaction, the Company is able to exert effective control over Fangguan Electronics and receive 100% of the net profits or net losses derived from the business operations of Fangguan Electronics. Fangguan Electronics manufactures and sells Liquid Crystal Module (" LCM") and LCD screens in China based in Changchun City, Jilin Province, People’s Republic of China. (See Note 4).

 

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

 

NOTE 2 - GOING CONCERN

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company had an accumulated deficit of $270,108 as of September 30, 2020. The Company incurred loss from operation and did not generate sufficient cash flow from its operating activities for the three months ended September 30, 2020. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The Company plans to rely on the proceeds from loans from both unrelated and related parties to provide the resources necessary to fund the development of the business plan and operations. The Company is also pursuing other revenue streams which could include strategic acquisitions or possible joint ventures of other business segments. However, no assurance can be given that the Company will be successful in raising additional capital.

 

NOTE 3 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

 

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of September 30, 2020 and the results of operations and cash flows for the periods ended September 30, 2020 and 2019. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three months ended September 30, 2020 are not necessarily indicative of the results to be expected for the entire year ending June 30, 2021 or for any subsequent periods. The balance sheet at June 30, 2020 has been derived from the audited consolidated financial statements at that date.

 

F-5
 

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended June 30, 2020 as included in our Annual Report on Form 10-K as filed with the SEC on September 28, 2020.

 

Basis of consolidation

 

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

 

Use of Estimates

 

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

 

Cash and cash equivalents

 

Cash consists of cash on hand and cash in bank. Cash equivalents represent investment securities that are short-term, have high credit quality and are highly liquid. Cash equivalents are carried at fair market value and consist primarily of money market funds.

 

Accounts Receivable

 

Accounts receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from shipment. Credit is extended based on evaluation of a customer's financial condition, the customer’s credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. At the end of each period, the Company specifically evaluates individual customer’s financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables. The Company will consider the allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions may be taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. As of September 30, 2020 and June 30, 2020, the Company has accounts receivable balance from non-related party of $3,043,822 and $3,273,141, net of allowance for doubtful accounts of $145,132 and $139,609, respectively. No bad debt expense was recorded during the three months ended September 30, 2020 and 2019.

 

F-6
 

 

Inventories

 

Inventories consist of raw materials, working-in-process and finished goods. Inventories are valued at the lower of cost or net realizable value. We determine cost on the basis of the weighted average method. The Company periodically reviews inventories for obsolescence and any inventories identified as obsolete are written down or written off. Although we believe that the assumptions we use to estimate inventory write-downs are reasonable, future changes in these assumptions could provide a significantly different result.

 

Advances to suppliers

 

Advances to suppliers represent prepayments for merchandise, which were purchased but had not been received. The balance of the advances to suppliers is reduced and reclassified to inventories when the raw materials are received and pass quality inspection.

 

Property, plant and equipment

 

Property, plant and equipment are recorded at cost less accumulated depreciation and any impairment. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Repairs and maintenance costs are normally expensed as incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized as an additional cost of the asset.

 

When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the statement of comprehensive income (loss) in the reporting period of disposition.

 

Depreciation is calculated on a straight-line basis over the estimated useful life of the assets after taking into account their respective estimated residual value. The estimated useful life of the assets is as follows:

 

Buildings   10 – 20 years
Machinery and equipment   5 – 10 years
Office equipment   3 – 5 years
Automobiles   5 years

 

Intangible assets

 

Land use right is recorded as cost less accumulated amortization. Land use rights represent the prepayments for the use of the parcels of land in the PRC where the Company’s production facilities are located, and are charged to expense over their respective lease periods of 50 years. According to the laws of the PRC, the government owns all of the land in the PRC. Company or individuals are authorized to use the land only through land use rights granted by the PRC government for a certain period (usually 50 years).

 

Purchased intangible assets are recognized and measured at fair value upon acquisition. Intangible assets acquired separately and with finite useful lives are carried at costs less accumulated amortization and any accumulated impairment losses. Amortization for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives. Alternatively, intangible assets with indefinite useful lives are carried at cost less any subsequent accumulated impairment losses. The estimated useful lives of the intangible assets are as follows:

 

Land use right   50 years
Computer software   4-5 years

 

Gains or losses arising from derecognition of the intangible asset are measured at the difference between the net disposal proceeds and the carrying amount of the assets and are recognized in the statement of comprehensive income (loss) when the asset is disposed.

 

F-7
 

 

Impairment of long-lived assets

 

In accordance with the provisions of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as property, plant and equipment held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.

 

Revenue recognition

 

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

 

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

 

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

 

·identify the contract with a customer;
·identify the performance obligations in the contract;
·determine the transaction price;
·allocate the transaction price to performance obligations in the contract; and
·recognize revenue as the performance obligation is satisfied.

 

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

 

The following table disaggregates our revenue by major source for the three months ended September 30, 2020 and 2019, respectively:

 

    For the Three Months Ended September 30,  
    2020     2019  
Sales of LCM and LCD screens - Non-related parties   $ 2,957,025     $ 6,165,966  
Sales of LCM and LCD screens - Related parties     -       313,957  
Sales of portable power banks     -       627,703  
Service contracts     1,440       392,704  
Total   $ 2,958,465     $ 7,500,330  

 

All the operating entities of the Company are domiciled in the PRC. All the Company’s revenues are derived in the PRC during the three months ended September 30, 2020 and 2019.

 

Cost of revenues

 

Cost of revenues includes cost of raw materials purchased, inbound freight cost, cost of direct labor, depreciation expense and other overhead. Write-down of inventory for lower of cost or net realizable value adjustments is also recorded in cost of revenues.

 

F-8
 

 

Related parties and transactions

 

The Company identifies related parties, and accounts for, discloses related party transactions in accordance with ASC 850, "Related Party Disclosures" and other relevant ASC standards.

 

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

 

Transactions between related parties commonly occurring in the normal course of business are considered to be related party transactions. Transactions between related parties are also considered to be related party transactions even though they may not be given accounting recognition. While ASC does not provide accounting or measurement guidance for such transactions, it requires their disclosure nonetheless.

 

Income taxes

 

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

 

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

 

As of September 30, 2020 and June 30, 2020, the Company did not have any significant unrecognized uncertain tax positions.

 

Comprehensive income (loss)

 

Comprehensive income (loss) is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. Comprehensive income (loss) for the periods presented includes net income (loss), change in unrealized gains (losses) on marketable securities classified as available-for-sale (net of tax), foreign currency translation adjustments, and share of change in other comprehensive income of equity investments one quarter in arrears.

 

Leases

 

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

 

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

 

F-9
 

 

The new standard has no material effect on our consolidated financial statements as the Company does not have a lease with a term longer than 12 months as of September 30, 2020 (See Note 6).

 

Earnings (losses) per share

 

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

 

During the three months ended September 30, 2020 and 2019, the Company had outstanding convertible notes and warrants which represent 1,096,705 and 287,316 shares of commons stock respectively. These shares of common stock were excluded from the computation of diluted earnings per share since their effect would have been antidilutive.

 

Foreign currencies translation

 

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

 

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

 

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

 

The exchange rates used to translate amounts in RMB into U.S. Dollars for the purposes of preparing the consolidated financial statements are as follows:

 

    September 30, 2020     June 30, 2020  
             
Balance sheet items, except for equity accounts     6.8101       7.0795  

 

    Three Months Ended September 30,  
    2020     2019  
             
Items in statements of comprehensive income (loss) and cash flows     6.9448       7.0115  

 

Fair Value of Financial Instruments

 

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

 

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

 

F-10
 

 

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

 

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

 

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

 

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

 

The Company has the derivative liabilities measured at fair value on a recurring basis which are valued at level 3 measurement (See Note 14).

 

Convertible Instruments

 

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

 

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

 

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

 

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

 

Common Stock Purchase Warrants

 

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

 

F-11
 

 

Recent accounting pronouncements

 

The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.

 

Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Under the guidance, public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance is effective for all entities for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, but entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Company is currently in the process of evaluating the impact of the adoption of this guidance on its consolidated financial statements.

 

In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”), which is intended to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The guidance is effective for public entities for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years and all other entities for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the effect of adopting this ASU on the Company’s consolidated financial statements.

 

Risk factor

 

Due to the outbreak of the Coronavirus Disease 2019 (COVID-19) in the PRC, the Company’s operational and financial performance, has been affected by the epidemic during the three months ended September 30, 2020. The Company has been keeping continuous attention on the situation of the COVID-19, assessing and reacting actively to its impacts on the financial position and operating results of the Company as below:

 

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

 

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

 

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

 

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

 

F-12
 

 

·During PRC national economic shutdown that was imposed to limit the spread of COVID-19 from this early February to mid-March, the demands for our products or services were severely affected. Since the restarting of our operation near the end of this March, the demands have been rebounding continuously. And we are optimistic about an eventual recovery in demand to pre-pandemic levels.

 

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

 

NOTE 4 - VARIABLE INTEREST ENTITY

 

The VIE contractual arrangements

 

On December 27, 2018, the Company entered into VIE agreements with two shareholders of Fangguan Electronics to control 95.14% of the ownership rights and receive 100% of the net profit or net losses derived from the business operations of Fangguan Electronics. In exchange for VIE agreements and additional capital contribution, the Company issued 15 million shares of common stock to two shareholders of Fangguan Electronics. (See Note 1).

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

F-13
 

 

Assets of Fangguan Electronics that are collateralized or pledged are not restricted to settle its own obligations. The creditors of Fangguan Electronics do not have recourse to the primary beneficiary’s general credit.

 

Risks associated with the VIE structure

 

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

 

·revoke the business and operating licenses of the Company’s PRC subsidiary and its VIE;

·discontinue or restrict the operations of any related-party transactions between the Company’s PRC subsidiary and its VIE;

·limit the Company’s business expansion in China by way of entering into contractual arrangements;

·impose fines or other requirements with which the Company’s PRC subsidiary and its VIE may not be able to comply;

·require the Company or the Company’s PRC subsidiary and its VIE to restructure the relevant ownership structure or operations; or

·restrict or prohibit the Company’s use of the proceeds from public offering to finance the Company’s business and operations in China.

 

The Company’s ability to conduct its business through its VIE may be negatively affected if the PRC government were to carry out of any of the aforementioned actions. As a result, the Company may not be able to consolidate its VIE in its consolidated financial statements as it may lose the ability to exert effective control over its VIE and its respective shareholders and it may lose the ability to receive economic benefits from its VIE. The Company, however, does not believe such actions would result in the liquidation or dissolution of the Company, its PRC subsidiary and its VIE. There has been no change in facts and circumstances to consolidate the VIE. The following financial statement amounts and balances of its VIE were included in the accompanying consolidated financial statements after elimination of intercompany transactions and balances:

 

  Balance as of
September 30,
2020
   Balance as of
June 30, 2020
 
Cash and cash equivalents  $1,163,414   $1,266,426 
Notes receivable   66,828    125,798 
Accounts receivable - non-related parties   2,870,857    3,069,629 
Inventory   2,716,677    2,639,839 
Advances to suppliers - non-related parties   453,030    530,670 
Prepaid expenses and other current assets   61,753    58,103 
Total Current Assets   7,332,559    7,690,465 
           
Property, plant and equipment, net   6,812,464    6,568,874 
Intangible assets, net   1,473,292    1,424,404 
Deferred tax assets   47,035    20,743 
Total Assets  $15,665,350   $15,704,486 
           
Short-term bank loan  $1,908,929   $2,034,735 
Accounts payable   1,953,909    2,637,792 
Advance from customers   36,849    27,501 
Due to related parties   1,903,332    1,407,145 
Accrued expenses and other current liabilities   43,616    61,856 
Total Current Liabilities   5,846,635    6,169,029 
Total Liabilities  $5,846,635   $6,169,029 

 

F-14
 

 

NOTE 5 - INVENTORIES

 

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

 

    September 30, 2020     June 30, 2020  
Raw materials   $ 543,654     $ 666,981  
Work-in-process     773,188       500,331  
Finished goods     1,936,771       2,096,538  
Total Inventories   $ 3,253,613     $ 3,263,850  

 

The Company recorded no inventory markdown for the three months ended September 30, 2020 and 2019. 

 

NOTE 6 - OPERATING LEASE

 

For the three months ended September 30, 2020, the Company had two real estate operating leases for office, warehouses and manufacturing facilities under the terms of one year.

 

Lisite Science Technology (Shenzhen) Co., Ltd ("Lisite Science") leases office and warehouse space from Shenzhen Keenest Technology Co., Ltd. (“Keenest”), a related party, with annual rent of approximately $1,500 (RMB10,000) for one year until July 20, 2020. On July 20, 2020, Lisite Science further extended the lease with Keenest for one more year until July 20, 2021 with annual rent of approximately $1,500 (RMB10,000). (See Note 11).

 

Shenzhen Baileqi Electronic Technology Co., Ltd. ("Baileqi Electronic") leases office and warehouse space from Shenzhen Baileqi Science and Technology Co., Ltd. (“Shenzhen Baileqi S&T”), a related party, with monthly rent of approximately $2,500 (RMB17,525) and the lease period is from June 1, 2019 to May 31, 2020. On June 5, 2020, Baileqi Electronic further extended the lease with Shenzhen Baileqi S&T for one more year until May 31, 2021 with monthly rent of approximately $2,500 (RMB17,525). (See Note 11).

 

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

 

NOTE 7 – PROPERTY, PLANT AND EQUIPMENT, NET

 

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

 

    September 30, 2020     June 30, 2020  
             
Buildings   $ 4,783,723     $ 4,601,685  
Machinery and equipment     3,086,127       2,822,686  
Office equipment     69,745       67,091  
Automobiles     102,758       98,848  
Subtotal     8,042,353       7,590,310  
Less: Accumulated depreciation     (1,225,057 )     (1,016,373 )
Property, plant and equipment, net   $ 6,817,296     $ 6,573,937  

 

Depreciation expense related to property, plant and equipment was $165,210 and $201,068 for the three months ended September 30, 2020 and 2019, respectively.

 

As of September 30, 2020 and June 30, 2020, buildings were pledged as collateral for bank loans (See Note 9).

 

F-15
 

 

NOTE 8 – INTANGIBLE ASSETS, NET

 

Intangible assets consist of the following:

 

    September 30, 2020     June 30, 2019  
             
Land use right   $ 1,499,518     $ 1,442,456  
Computer software     26,030       25,039  
Subtotal     1,525,548       1,467,495  
Less: Accumulated amortization     (52,256 )     (43,091 )
Intangible assets, net   $ 1,473,292     $ 1,424,404  

 

Amortization expense related to intangible assets was $7,316 and $7,246 for the three months ended September 30, 2020 and 2019, respectively.

 

Fangguan Electronics acquired the land use right from the local government in August 2012 which expires on August 15, 2062. As of September 30, 2020 and June 30, 2020, land use right was pledged as collateral for bank loans (See Note 9).

 

NOTE 9 – SHORT-TERM BANK LOAN

 

The Company’s short-term bank loans consist of the following:

    September 30, 2020   June 30, 2020 
Loan payable to Industrial Bank, due November 2020 (1)   $734,204   $1,836,288 
Loan payable to Industrial Bank, due May 2021 (2)    160,459    154,353 
Loan payable to Industrial Bank, due June 2021 (2)    45,838    44,094 
Loan payable to Industrial Bank, due August 2021 (3)    527,906    - 
Loan payable to Industrial Bank, due March 2021 (3)    440,522    - 
Total     $1,908,929   $2,034,735 

 

(1)On November 19, 2019, Fangguan Electronics entered into a short-term loan agreement with Industrial Bank to borrow approximately US$2.6 million (RMB 18 million) for a year until November 18, 2020 with annual interest rate of 5.22%. The borrowing was collateralized by the Company’s buildings and land use right. In addition, the borrowing was guaranteed by the Company’s shareholder and CEO of Fangguan Electronics, Mr. Jialin Liang, and his wife Ms. Dongjiao Su. On May 20, 2020, Fangguan Electronics partially repaid this bank loan of approximately US$706,000 (RMB5,000,000). On August 28, 2020 and September 21, 2020, Fangguan Electronics further partially repaid this bank loan of approximately US$441,000 (RMB3,000,000) and US$734,000 (RMB5,000,000) respectively.

 

(2)During May and Jun 2020, Fangguan Electronics issued two one-year commercial acceptance bills with amounts of approximately US$160,000 (RMB1,092,743) and US$46,000 (RMB312,161) and maturity dates at May 21, 2021 and June 11, 2021 respectively. On May 22, 2020 and June 16, 2020, the two commercial acceptance bills were discounted with Industrial Bank at an interest rate of 3.85% and the balance of the two commercial acceptance bills converted to bank loans with Industrial Bank based on a mutual agreement from both parties. This loan was also secured by the same collateral as the above RMB18 million loan under the same bank.

 

(3)During August 2020, Fangguan Electronics issued a one-year commercial acceptance bill with amount of approximately US$528,000 (RMB3,595,096) and maturity date at August 6, 2021. During September 2020, Fangguan Electronics issued a six-month commercial acceptance bill with amount of approximately US$441,000 (RMB3,000,000) and maturity date at March 9, 2021. On August 11, 2020 and September 10, 2020, the two commercial acceptance bills were discounted with Industrial Bank at an interest rate of 3.80% and the balance of the two commercial acceptance bills converted to bank loans with Industrial Bank based on a mutual agreement from both parties. This loan was also secured by the same collateral as the above RMB18 million loan under the same bank.

 

F-16
 

 

NOTE 10 - STOCKHOLDERS' EQUITY

 

Stock Issued for Conversion of Convertible Debt

 

(1)On July 9, 2020, the Company issued a total of 42,079 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $20,000 according to the conditions of the convertible note dated as July 25, 2019.

 

On August 19, 2020, the Company issued a total of 222,891 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $19,000 together with $4,916 of accrued and unpaid interest, totaling $23,916 according to the conditions of the convertible note dated as July 25, 2019.

 

The remaining principal balance due under this convertible note after these two conversions is zero.

 

(2)On July 13, 2020, the Company issued a total of 68,500 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $37,504 according to the conditions of the convertible note dated as January 10, 2020.

 

On August 20, 2020, the Company issued a total of 600,000 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $54,180 according to the conditions of the convertible note dated as January 10, 2020.

 

On September 24, 2020, the Company issued a total of 400,000 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $6,065 together with $4,495 of accrued and unpaid interest, totaling $10,560 according to the conditions of the convertible note dated as January 10, 2020.

 

The remaining principal balance due under this convertible note after these three conversions is $49,101.

 

(3)On September 1, 2020, the Company issued a total of 75,000 shares of common stock to Firstfire Global Opportunities Fund LLC for the conversion of debt in the principal amount of $10,200 according to the conditions of the convertible note dated as September 11, 2019.

 

On September 14, 2020, the Company issued a total of 350,000 shares of common stock to Firstfire Global Opportunities Fund LLC for the conversion of debt in the principal amount of $13,550 according to the conditions of the convertible note dated as September 11, 2019.

 

The remaining principal balance due under this convertible note after these two conversions is $141,250.

 

(4)On September 24, 2020, the Company issued a total of 568,182 shares of common stock to Morningview Financial, LLC for the conversion of debt in the principal amount of $15,000 according to the conditions of the convertible note dated as November 20, 2019. The remaining principal balance due under this convertible note after this conversion is $150,000.

 

All above conversions resulted in a total loss on extinguishment of debt of $149,231 for the three months ended September 30, 2020.

 

NOTE 11 - RELATED PARTY TRANSACTIONS AND BALANCES

 

Purchase from related party

 

During the three months ended September 30, 2019, the Company purchased $583,764 and $37,495 from Keenest and Shenzhen Baileqi S&T which were owned by the Company’s stockholders who own approximately 1.9% and 1.1% respectively of the Company’s outstanding common stock as of September 30, 2019. The amount of $583,764 and $37,495 were included in the cost of revenue. 

 

F-17
 

 

Advances to suppliers - related parties

 

Lisite Science made advances of $412,619 and $357,577 to Keenest for future purchases as of September 30, 2020 and June 30, 2020, respectively.

 

Sales to related party

 

During the three months ended September 30, 2020 and 2019, Baileqi Electronic sold materials of $0 and $313,957 respectively to Shenzhen Baileqi S&T.

 

Lease from related party

 

Lisite Science leases office and warehouse space from Keenest, a related party, with annual rent of approximately $1,500 (RMB10,000) for one year until July 20, 2020. On July 20, 2020, Lisite Science further extended the lease with Keenest for one more year until July 20, 2021 with annual rent of approximately $1,500 (RMB10,000). (See Note 6).

 

Baileqi Electronic leases office and warehouse space from Shenzhen Baileqi S&T, a related party, with monthly rent of approximately $2,500 (RMB17,525) and the lease period is from June 1, 2019 to May 31, 2020. On June 5, 2020, Baileqi Electronic further extended the lease with Shenzhen Baileqi S&T for one more year until May 31, 2021 with monthly rent of approximately $2,500 (RMB17,525). (See Note 6).

 

Due to related parties

 

Due to related parties represents certain advances to the Company or its subsidiaries by related parties. The amounts are non-interest bearing, unsecured and due on demand.

 

        September 30, 2020     June 30, 2020  
                 
Ben Wong (1 )   $ 143,792     $ 143,792  
Yubao Liu (2 )     263,551       102,938  
Xin Sui (3 )     2,016       2,016  
Baozhen Deng (4 )     (469)       9,437  
Jialin Liang (5 )(10)     1,377,643       901,460  
Xuemei Jiang (6 )(9)     525,690       505,685  
Shikui Zhang (7 )     36,107       28,528  
Changyong Yang (8 )     25,150       23,063  
        $ 2,373,480     $ 1,716,919  

 

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

 

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

 

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

 

(4) Baozhen Deng is a stockholder of the Company, who owns approximately 1.1% of the Company’s outstanding common stock, and the owner of Shenzhen Baileqi S&T.

 

(5) Jialin Liang is a stockholder of the Company and the president, CEO, and director of Fangguan Electronics.

 

(6) Xuemei Jiang is a stockholder of the Company and the vice president and director of Fangguan Electronics.

 

(7) Shikui Zhang is a stockholder of the Company and serves as the legal representative and general manager of Shizhe New Energy since May 2019.

 

F-18
 

 

(8) Changyong Yang is a stockholder of the Company, who owns approximately 1.9% of the Company’s outstanding common stock, and the owner of Keenest.

 

(9) The liability was assumed from the acquisition of Fangguan Electronics.

 

(10) The Company assumed liability of approximately $5.8 million (RMB39,581,883) from Jialin Liang during the acquisition of Fangguan Electronics. During the year ended June 30, 2019, approximately $4.4 million (RMB30,000,000) liability assumed was forgiven and converted to capital.

 

During the three months ended September 30, 2020, Yubao Liu advanced $395,558 to Well Best after netting off the refund paid to him. In addition, Yubao Liu agreed to decrease his advances to Well Best of $234,945 (RMB1,600,000) to pay off the loan receivables due from Shenzhen Baileqi S&T to Baileqi Electronic on behalf of Shenzhen Baileqi S&T.

 

During the three months ended September 30, 2020, Baileqi Electronic refunded $9,906 to Baozhen Deng. Shikui Zhang advanced approximately $6,300 to Shizhe New Energy. Changyong Yang, a stockholder of the Company, advanced approximately $1,200 to Lisite Science.

 

On September 23, 2020, Jialin Liang entered into a short-term loan agreement with Bank of Communications to borrow an individual loan of approximately US$441,000 (RMB 3 million) for one year with annual interest rate of 3.85%. The borrowing was guaranteed by Fangguan Electronics. Pursuant to the loan agreement, the proceed from the bank loan could only be used in the operation of Fangguan Electronics. On September 23, 2020, Jialin Liang advanced all of the proceeds from this bank loan to Fangguan Electronics.

 

During the three months ended September 30, 2019, Yubao Liu was refunded of $15,978 by Well Best and Welly Surplus. Baileqi Electronic refunded $5,303 to Baozhu Deng, a relative of the stockholder Baozhen Deng. Shizhe New Energy refunded $625 and $1,869 to Liang Zhang and Zijian Yang respectively, who were the officers of Shizhe New Energy at the time. Shikui Zhang advanced $10,045 to Shizhe New Energy.

 

NOTE 12 – CONCENTRATION

 

Major customers

 

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

 

    For the Three Months Ended
 September 30, 2020
    As of September 30, 2020  
      Revenue       Percentage of
 revenue
      Accounts
 receivable
      Percentage of
 accounts
 receivable
 
                                 
Customer A   $ 633,987       21 %   $ 229,358       8 %
Customer B     320,329       11 %     581,857       19 %
Total   $ 954,316       32 %   $ 811,215       27 %

 

    For the Three Months Ended
 September 30, 2019
    As of September 30, 2019  
      Revenue       Percentage of
 revenue
      Accounts
 receivable
      Percentage of
 accounts
 receivable
 
                                 
Customer A   $ 1,072,827       14 %   $ -       - %
Customer B     860,874       11 %     866,724       19 %
Customer C     993,547       13 %     1,043,352       23 %
Total   $ 2,927,248       38 %   $ 1,910,076       42 %

 

Primarily all customers are located in the PRC.

 

F-19
 

 

Major suppliers

 

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

 

    For the Three Months Ended
 September 30, 2020
    As of September 30, 2020  
    Total Purchase     Percentage of
 total purchase
    Accounts
 payable
    Percentage of
 total accounts
 payable
 
                         
Supplier A   $ 295,598       12 %   $  -       - %
Supplier B     289,746       12 %     161,945       8 %
Supplier C     287,297       12 %     145,338       7 %
Total   $ 872,641       36 %   $ 307,283       15 %

 

    For the Three Months Ended
 September 30, 2019
    As of September 30, 2019  
    Total Purchase     Percentage of
 total purchase
    Accounts
 payable
    Percentage of
 total accounts
 payable
 
                         
Supplier A - related party   $ 583,764       19 %   $  -       - %
Supplier B     497,229       16 %     117,461       4 %
Total   $ 1,080,993       35 %   $ 117,461       4 %

 

All suppliers of the Company are located in the PRC.

 

NOTE 13 - INCOME TAXES

 

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

 

United States of America

 

The Company is registered in the State of Nevada and is subject to the tax laws of United States of America and subject to the corporate tax rate of 21% on its taxable income.

 

For the three months ended September 30, 2020 and 2019, the Company did not generate income in United States of America and no provision for income tax was made. Under normal circumstances, the Internal Revenue Service is authorized to audit income tax returns during a three-year period after the returns are filed.  In unusual circumstances, the period may be longer.  Tax returns for the years ended June 30, 2016 and after were still open to audit as of September 30, 2020.

 

Hong Kong

 

The Company’s subsidiaries, Well Best and Welly Surplus, are registered in Hong Kong and subject to income tax rate of 16.5%. For the three months ended September 30, 2020 and 2019, there is no assessable income chargeable to profit tax in Hong Kong.

 

F-20
 

 

The PRC

 

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

 

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

 

    For the Three Months Ended September 30,  
    2020     2019  
             
Tax at U.S. statutory rate   $   (115,199)     $ 173,205  
Tax rate difference between foreign operations and U.S.     12,766       (77,502)  
Change in valuation allowance     41,924       17,133  
Permanent difference     44,250       676  
Effective tax   $ (16,259)     $ 113,512  

 

The provisions for income taxes are summarized as follows:

 

    For the Three Months Ended September 30,  
    2020     2019  
Current   $ 8,718     $ 75,959  
Deferred     (24,977)       37,553  
Total   $ (16,259)     $ 113,512  

 

As of September 30, 2020, the Company has approximately $2,715,000 net operating loss carryforwards available in the U.S., Hong Kong and China to reduce future taxable income which will begin to expire from 2035. It is more likely than not that the deferred tax assets resulted from net operating loss carryforward cannot be utilized in the future because there will not be significant future earnings from the entities which generated the net operating loss. Therefore, the Company recorded a full valuation allowance on its deferred tax assets resulted from net operating loss carryforward as of September 30, 2020.

 

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

 

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

 

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

 

For purposes of the inclusion of GILTI, the Company determined that the Company did not have tax liabilities resulting from GILTI for the three months ended September 30, 2020 and 2019 due to net operating loss carryforwards available in the U.S. Therefore, there was no accrual of GILTI liability as of September 30, 2020 and June 30, 2020.

 

F-21
 

 

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

 

NOTE 14 - CONVERTIBLE DEBT

 

Convertible notes

 

As of September 30, 2020, convertible notes payable consists of:

 

          Note Balance     Debt discount     Carrying Value  
                         
Power Up Lending Group Ltd     (1 )   $ -     $ -     $ -  
Firstfire Global Opportunities Fund LLC     (2 )     141,250       -       141,250  
Power Up Lending Group Ltd     (3 )     -       -       -  
Crown Bridge Partners     (4 )     51,384       (4,808 )     46,576  
Morningview Financial LLC     (5 )     150,000       (20,860 )     129,140  
BHP Capital NY     (6 )     -       -       -  
Labrys Fund, LP     (7 )     49,101       (12,177 )     36,924  
  Total           $ 391,735     $ (37,845 )   $ 353,890  

 

As of June 30, 2020, convertible notes payable consists of:

 

          Note Balance     Debt discount     Carrying Value  
                         
Power Up Lending Group Ltd     (1 )   $ 39,000     $ (1,953 )   $ 37,047  
Firstfire Global Opportunities Fund LLC     (2 )     165,000       (32,909 )     132,091  
Power Up Lending Group Ltd     (3 )     53,000       (13,995 )     39,005  
Crown Bridge Partners     (4 )     51,384       (15,095 )     36,289  
Morningview Financial LLC     (5 )     165,000       (64,416 )     100,584  
BHP Capital NY     (6 )     91,789       -       91,789  
Labrys Fund, LP     (7 )     146,850       (69,265 )     77,585  
  Total           $ 712,023     $ (197,633 )   $ 514,390  

 

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

 

During the three months ended September 30, 2020, Power Up Lending Group Ltd elected to convert $39,000 of the principal amount together with $4,916 of accrued and unpaid interest of the convertible notes into 264,970 shares of the Company’s common stock. The conversion resulted in a loss on extinguishment of debt of $32,778. (See Note 10)

 

The remaining principal balance due under this convertible note after all conversions is zero as of September 30, 2020.

 

F-22
 

 

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


During the three months ended September 30, 2020, Firstfire Global Opportunities Fund LLC elected to convert $23,750 of the principal amount of the convertible notes into 425,000 shares of the Company’s common stock. The conversion resulted in a loss on extinguishment of debt of $14,420. (See Note 10)

 

The remaining principal balance due under this convertible note after conversions is $141,250, which was at default as of September 30, 2020.

 

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

 

On September 16, 2020, the Company entered into a Note Settlement Agreement with Power Up Lending Group Ltd., the holder of the Company’s convertible debt. The Note Settlement Agreement terminated their convertible note dated November 4, 2019 after the Company paid an aggregate of $75,000 on September 16, 2020. The debt settlement resulted in a gain on extinguishment of debt of $15,346.

 

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

 

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

 

During the three months ended September 30, 2020, Morningview Financial, LLC elected to convert $15,000 of the principal amount of the convertible notes into 568,182 shares of the Company’s common stock. The conversion resulted in a loss on extinguishment of debt of $5,907. The remaining principal balance due under this convertible note after this conversion is $150,000 as of September 30, 2020. (See Note 10)

 

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

 

On April 14, 2020, the Company entered into an Amendment to Securities Purchase Agreement with BHP Capital NY, Inc dated on December 3, 2019. The Company agreed to pay off this note holder in 6 installments of $23,186.79 each, with an aggregate amount of $139,121 (including principal of $137,114 and interest of $2,007). The repayment resulted in a loss on extinguishment of debt of $4,703, which was included in other income and expense in the consolidated statement of comprehensive income (loss) for the year ended June 30, 2020.

 

F-23
 

 

In May and June 2020, the Company paid two installments totaling $46,373 (including principal of $45,325 and interest of $1,048) and note payable balance decreased to $91,789 as of June 30, 2020. During the period from July to September 2020, the Company continued to pay 4 installments of an aggregate amount of $92,748 (including principal of $91,789 and interest of $959).

 

As of the date of this report, the Company has made total six installments payment of an aggregate amount of $139,121 (including principal of $137,114 and interest of $2,007). The note payable balance decreased to zero as of September 30, 2020.

 

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

 

During the three months ended September 30, 2020, Labrys Fund, LP elected to convert $97,749 of the principal amount together with $4,495 of accrued and unpaid interest of the convertible notes into 1,068,500 shares of the Company’s common stock. The conversion resulted in a loss on extinguishment of debt of $111,472. The remaining principal balance due under this convertible note after conversions is $49,101 as of September 30, 2020. (See Note 10)

 

For the three months ended September 30, 2020 and 2019, the Company recorded the amortization of debt discount of $114,214 and 21,313 for the convertible notes issued, which were included in other income and expense in the consolidated statement of comprehensive income (loss).

 

Derivative liability

 

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

 

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

 

The change of derivative liabilities is as follows:

 

Balance at July 1, 2020   $ 276,266  
Converted     (81,315 )
Debt settlement     (39,973 )
Change in fair value recognized in operations     60,652  
  Balance at September 30, 2020   $ 215,630  

 

The estimated fair value of the derivative instruments was valued using the Black-Scholes option pricing model during the three months ended September 30, 2020, using the following assumptions:

 

Estimated dividends     None  
Expected volatility     78.55% to 148.59%  
Risk free interest rate     0.61% to 0.69%  
Expected term     0 to 6 months  

 

F-24
 

 

Warrants

 

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

 

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

 

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

 

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

 

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

 

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

 

Since the warrants can be exercised at $2.4 or $2.8 and are not liabilities, the face value of convertible notes was allocated between convertible note and warrant based on the fair values of the conversion feature and warrants. Accordingly, $147,492 was allocated to warrants and recorded in additional paid in capital account during the year ended June 30, 2020.

 

The details of the outstanding warrants are as follows:

   

Number of

shares

   

Weighted Average

Exercise Price

   

Remaining

Contractual Term
(years)

 
                   
Outstanding at July 1, 2020     229,166     $ 2.68       4.2 to 4.53  
Granted     -       -       -  
Exercised     -       -       -  
Cancelled or expired     -       -       -  
Outstanding at September 30, 2020     229,166     $ 2.68                   3.95 to 4.28  

 

NOTE 15 – SEGMENT INFORMATION

 

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

 

F-25
 

 

Although all of the Company’s revenue is generated from Mainland China, the Company is organizationally structured along business segments. The accounting policies of each operating segments are same and are described in Note 3, “Summary of Significant Accounting Policies”.

 

The following tables provide the business segment information for the three months ended September 30, 2020 and 2019.

 

    For the Three Months Ended September 30, 2020  
    Smart
energy
   

Photoelectric

display

   

Service

contracts

   

Unallocated

items

    Total  
                               
Revenues   $ -     $ 2,957,025     $ 1,440     $ -     $ 2,958,465  
Cost of Revenues     -       2,671,405       9,984       -       2,681,389  
Gross profit (loss)     -       285,620       (8,544)       -       277,076  
Operating expenses     2,685       352,277       9,625       90,101       454,688  
Loss from operations     (2,685)       (66,657)       (18,169)       (90,101 )     (177,612)  
Net loss   $ (2,684)     $ (88,484)     $ (18,168)     $ (422,970 )   $ (532,306)  

 

    For the Three Months Ended September 30, 2019  
    Smart
energy
   

Photoelectric

display

   

Service

contracts

   

Unallocated

items

    Total  
                               
Revenues   $ 627,703     $ 6,479,923     $ 392,704     $ -     $ 7,500,330  
Cost of Revenues     583,764       5,356,904       132,436       -       6,073,104  
Gross profit     43,939       1,123,019       260,268       -       1,427,226  
Operating expenses     4,112       518,494       11,481       70,164       604,251  
Income (loss) from operations     39,827       604,525       248,787       (70,164 )     822,975  
Net income (loss)   $ 37,841     $ 524,476     $ 226,107     $ (77,148 )   $ 711,276  

 

NOTE 16 - SUBSEQUENT EVENTS

 

Stock Issued for Conversion of Convertible Debt

 

(1)On October 16, 2020, the Company issued a total of 1,200,000 shares of common stock to Firstfire Global Opportunities Fund LLC for the conversion of debt in the principal amount of $14,100 according to the conditions of the convertible note dated as September 11, 2019.

 

On October 29, 2020, the Company issued a total of 2,500,000 shares of common stock to Firstfire Global Opportunities Fund LLC for the conversion of debt in the principal amount of $31,000 according to the conditions of the convertible note dated as September 11, 2019.

 

The remaining principal balance due under this convertible note after these two conversions is $96,150.

 

(2)On October 12, 2020, the Company issued a total of 650,000 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $14,844.39 together with $121.07 of accrued and unpaid interest according to the conditions of the convertible note dated as January 10, 2020.

 

On October 16, 2020, the Company issued a total of 181,500 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $2,722.5 together with $18.84 of accrued and unpaid interest according to the conditions of the convertible note dated as January 10, 2020. 

 

F-26
 

 

On October 19, 2020, the Company issued a total of 2,112,478 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $31,674.16 together with $13.02 of accrued and unpaid interest according to the conditions of the convertible note dated as January 10, 2020.

 

The remaining principal balance due under this convertible note after these three conversions is $0.

 

(3)On October 16, 2020, the Company issued a total of 500,000 shares of common stock to Crown Bridge Partners, LLC for the conversion of debt in the principal amount of $3,500 according to the conditions of the convertible note dated as November 12, 2019. The remaining principal balance due under this convertible note after this conversion is $47,884.4.

 

Payments to Settle Convertible Notes

 

On November 12, 2020, the Company paid Firstfire Global Opportunities Fund LLC, the holder of the Company’s convertible debt an aggregate of $130,500 in order to terminate their convertible note dated September 11, 2019. The payment was made by Yubao Liu on behalf of the Company and the holder confirmed this full settlement on November 13, 2020.

 

On November 12, 2020, the Company paid Morningview Financial, LLC, the holder of the Company’s convertible debt an aggregate of $175,000 in order to terminate their convertible note dated November 20, 2019. The payment was made by Yubao Liu on behalf of the Company and the holder confirmed this full settlement on November 14, 2020.

 

 

 

END NOTES TO FINANCIAL STATEMENTS

 

F-27
 

 

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

 

The following discussion should be read in conjunction with our audited financial statements and notes thereto included herein. We caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or our behalf. We disclaim any obligation to update forward-looking statements.

 

Results of Operation for the Three Months Ended September 30, 2020 and 2019

 

Revenues

 

During the three months ended September 30, 2020, COVID-19 continued to affect the operational and financial performance of the Company.

  

During the three months ended September 30, 2020 and 2019, total revenues were $2,958,465 and $7,500,330 respectively. The total revenues decreased by $4,541,865 or 61% from the three months ended September 30, 2019 to the three months ended September 30, 2020.

  

Among the significant decrease of $4,541,865 in total revenues for the three months ended September 30, 2020, $3,212,565 decrease was due to the revenue decrease from Fangguan Electronics which was acquired on December 27, 2018. The decrease can be directly attributed to the fact that the continuous outbreak of COVID-19 induced the numerous shutdowns and suspensions of commercial activities in certain cities and provinces which have caused the significantly adverse effects on the business of the Company.

 

The decrease in total revenues was partially attributed to the significant decreases of $1,018,967 in service contract and smart energy revenues from the three months ended September 30, 2019 to the three months ended September 30, 2020. The decrease in smart energy revenue was due to the fact that the global economy is on track to contract in 2020 as a result of the COVID-19 pandemic and the overseas enterprises ceased placing orders from our major customers in smart energy segment. Then our business was hit by the chain reaction. As for the service contract business, mainly due to COVID-19, all old contracts were completed while new contracts have not been signed.

 

Cost of Revenue

 

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

 

During the three months ended September 30, 2020 and 2019, the total cost of revenues was $2,681,389 and $6,073,104, respectively. The total cost of revenues decreased by $3,391,715 or 56% from the three months ended September 30, 2019 to the three months ended September 30, 2020.

 

Among the significant decrease of $3,391,715 in total cost of revenues for the three months ended September 30, 2020, $2,471,833 decrease was due to the decrease of the cost of revenues from Fangguan Electronics which was acquired on December 27, 2018.

The decrease in cost of revenues can be directly attributed to the decrease of revenues.

 

Gross Profit

 

During the three months ended September 30, 2020 and 2019, the gross profit was $277,076 and $1,427,226 respectively.

 

28
 

 

Our gross profit margin was at 9% during the three months ended September 30, 2020 as compared to 19% during the three months ended September 30, 2019.

 

The decrease in gross profit margin can be attributed to the fact that starting from the end of the last calendar year, the Company adopted the new business strategy to have low gross profits in order to promote sales.

 

Selling, General and Administrative Expenses

 

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

 

During the three months ended September 30, 2020 and 2019, selling, general and administrative expenses were $308,503 and $381,428, respectively.

 

The decrease in selling, general and administrative expenses can be attributed to the stricter cost control in professional fees during the three months ended September 30, 2020.

 

Research and Development Expenses

 

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

 

During the three months ended September 30, 2020 and 2019, research and development expenses were $146,185 and $222,823, respectively.

 

All research and development expenses were incurred by Fangguan Electronics.

 

Other Incomes (Expenses)

  

Other expenses consisted of interest expense, net of interest income and loss on extinguishment of debt. Other incomes consisted primarily of subsidy income. Change in fair value of derivative liability was an expense for the three months ended September 30, 2020 and an income for the three months ended September 30, 2019.

  

During the three months ended September 30, 2020 and 2019, other incomes (expenses) were $(370,953) and $1,813, respectively.

  

The difference of interest expense was mainly due to the fact that there were more convertible notes during the three months ended September 30, 2020 than during the three months ended September 30, 2019.

The subsidy income was from Fangguan Electronics and Baileqi Electronic which received government subsidies during the three months ended September 30, 2020.

 

The change in fair value of derivative liability can be attributed to the fact that there were more convertible notes during the three months ended September 30, 2020 than during the three months ended September 30, 2019.

  

The loss on extinguishment of debt of $149,231 can be attributed to the conversion of convertible notes to 2,326,652 common shares in the principal amount of $175,499 together with $9,411 of accrued and unpaid interest during the three months ended September 30, 2020. No convertible notes were converted during the same period of 2019.

 

Net Income (Loss)

 

During the three months ended September 30, 2020 and 2019, our net income (loss) was $(532,306) and $711,276, respectively.

 

The change can be attributed to the significant decrease of revenues and the loss on extinguishment of debts during the three months ended September 30, 2020.

 

29
 

 

Liquidity and Capital Resource

 

Cash Flow from Operating Activities

 

During the three months ended September 30, 2020, net cash used in operating activities was $258,698 compared to the cash provided by operating activities of $1,217,629 for the three months ended September 30, 2019. The change was mainly due to a decrease of $ 1,243,582 in net income and a decrease of $453,100 in cash inflow from changes in operating assets and liabilities in the three months ended September 30, 2020 compared to the same period in 2019.

 

Cash Flow from Investing Activities

 

During the three months ended September 30, 2020, net cash used in investing activities was $148,835 compared to net cash used in investing activities of $118,198 for the same period in 2019. The change was primarily due to the increase in the acquisition of the equipment by $30,637 during the three months ended September 30, 2020 compared to the same period in 2019.

 

Cash Flow from Financing Activities

  

During the three months ended September 30, 2020, cash provided by financing activities was $282,652 compared to net cash provided by financing activities of $334,455 for the same period in 2019. The change was primarily due to the repayment of bank loans of $1,151,941, repayment of convertible notes payables of $167,747, decrease in notes receivable inflows of $46,792 and decrease in proceeds from issuance of convertible notes payables of $238,340, offset by the proceeds from new bank loans of $949,645 and proceeds from loans from related parties of $589,989 during the three months ended September 30, 2020 compared to same period of 2019.

  

As of September 30, 2020, we have a working capital of $1,553,975.

  

Our total current liabilities as of September 30, 2020 were $7,231,824 and mainly consist of $1,908,929 for short-term bank loans, $1,953,904 in accounts payable, the amount due to related parties of $2,373,480, the convertible notes payable net of debt discount and loan cost of $353,890, the derivative liability of $215,630. The Company’s major shareholder is committed to providing for our minimum working capital needs for the next 12 months, and we do not expect the previous related party loan be payable for the next 12 months. However, we do not have a formal agreement that states any of these facts. The remaining balance of our current liabilities relates to audit and consulting fees and such payments are due on demand and we expect to settle such amounts on a timely basis based upon shareholder loans to be granted to us in the next 12 months.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company had an accumulated deficit of $270,108 as of September 30, 2020. The Company incurred loss from operation and did not generate sufficient cash flow from its operating activities for the three months ended September 30, 2020. These factors, among others, raise substantial doubt about the Companys ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The Company plans to rely on the proceeds from loans from both unrelated and related parties to provide the resources necessary to fund the development of the business plan and operations. The Company is also pursuing other revenue streams which could include strategic acquisitions or possible joint ventures of other business segments. However, no assurance can be given that the Company will be successful in raising additional capital.

 

30
 

 

Future Financings

 

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

 

Off-Balance Sheet Arrangements

 

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

 

Critical Accounting Policies

 

Our critical accounting policies are disclosed Note 3 to the consolidated financial statements.

 

Recently Issued Accounting Pronouncements

 

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

 

Contractual Obligations

 

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

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

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

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of September 30, 2020.

 

31
 

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting subsequent to the fiscal year ended June 30, 2020, which were identified in connection with our management’s evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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

 

Limitations of the Effectiveness of Disclosure Controls and Internal Controls

 

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

 

 

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

 

32
 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

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

 

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

 

Item 1A. Risk Factors.

 

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

 

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

 

(a) Recent Sales of Unregistered Equity Securities 

 

The following sets forth information regarding all unregistered securities issued since July 1, 2020:

 

On July 9, 2020, the Company issued a total of 42,079 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $20,000 according to the conditions of the convertible note dated as July 25, 2019.

 

On July 13, 2020, the Company issued a total of 68,500 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $37,503.75 according to the conditions of the convertible note dated as January 10, 2020.

 

On August 19, 2020, the Company issued a total of 222,891 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in $19,000.00 of the principal amount of the Note together with $4,916.22 of accrued and unpaid interest thereto, totaling $23,916.22 according to the conditions of the convertible note dated as July 25, 2019.

 

On August 20,2020, the Company issued a total of 600,000 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $54,180 according to the conditions of the convertible note dated as January 10, 2020.

 

On September 1, 2020, the Company issued a total of 75,000 shares of common stock to Firstfire Global Opportunities Fund LLC for the conversion of debt in the principal amount of $10,200 according to the conditions of the convertible note dated as September 11, 2019.

 

On September 14, 2020, the Company issued a total of 350,000 shares of common stock to Firstfire Global Opportunities Fund LLC for the conversion of debt in the principal amount of $13,550 according to the conditions of the convertible note dated as September 11, 2019.

  

33
 

 

On September 24, 2020, the Company issued a total of 568,182 shares of common stock to Morningview Financial, LLC for the conversion of debt in the principal amount of $15,000 according to the conditions of the convertible note dated as November 20, 2019.

 

On September 24, 2020, the Company issued a total of 400,000 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $5,944 according to the conditions of the convertible note dated as January 10, 2020.

 

On October 12, 2020, the Company issued a total of 650,000 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $14,844,39 according to the conditions of the convertible note dated as January 10, 2020.

 

On October 16, 2020, the Company issued a total of 181,500 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $2,722.5 according to the conditions of the convertible note dated as January 10, 2020.

 

 On October 16, 2020, the Company issued a total of 1,200,000 shares of common stock to Firstfire Global Opportunities Fund LLC for the conversion of debt in the principal amount of $14,100 according to the conditions of the convertible note dated as September 11, 2019.

 

On October 16, 2020, the Company issued a total of 500,000 shares of common stock to Crown Bridge Partners, LLC for the conversion of debt in the principal amount of $3,500 according to the conditions of the convertible note dated as November 12, 2019.

 

On October 19, 2020, the Company issued a total of 2,112,478 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $31,674.16 according to the conditions of the convertible note dated as January 10, 2020.

 

On October 29, 2020, the Company issued a total of 2,500,000 shares of common stock to Firstfire Global Opportunities Fund LLC for the conversion of debt in the principal amount of $31,000 according to the conditions of the convertible note dated as September 11, 2019.

 

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

 

Exemption From Registration. The shares of Common Stock referenced herein were issued in reliance upon one of the following exemptions:

 

(a)The shares of Common Stock referenced herein were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(2) of the Securities Act of 1933, as amended, ("Securities Act"), based upon the following: (a) each of the persons to whom the shares of Common Stock were issued (each such person, an "Investor") confirmed to the Company that it or he is an "accredited investor," as defined in Rule 501 of Regulation D promulgated under the Securities Act and has such background, education and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities, (b) there was no public offering or general solicitation with respect to the offering of such shares, (c) each Investor was provided with certain disclosure materials and all other information requested with respect to the Company, (d) each Investor acknowledged that all securities being purchased were being purchased for investment intent and were "restricted securities" for purposes of the Securities Act, and agreed to transfer such securities only in a transaction registered under the Securities Act or exempt from registration under the Securities Act and (e) a legend has been, or will be, placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequently registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act.

 

34
 

 

(b)The shares of common stock referenced herein were issued pursuant to and in accordance with Rule 506 of Regulation D and Section 4(2) of the Securities Act. We made this determination in part based on the representations of the Investor(s), which included, in pertinent part, that such Investor(s) was an “accredited investor” as defined in Rule 501(a) under the Securities Act, and upon such further representations from the Investor(s) that (a) the Investor is acquiring the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (b) the Investor agrees not to sell or otherwise transfer the purchased securities unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (c) the Investor either alone or together with its representatives has knowledge and experience in financial and business matters such that he, she or it is capable of evaluating the merits and risks of an investment in us, and (d) the Investor has no need for the liquidity in its investment in us and could afford the complete loss of such investment.  Our determination is made based further upon our action of (a) making written disclosure to each Investor prior to the closing of sale that the securities have not been registered under the Securities Act and therefore cannot be resold unless they are registered or unless an exemption from registration is available, (b) making written descriptions of the securities being offered, the use of the proceeds from the offering and any material changes in the Company’s affairs that are not disclosed in the documents furnished, and (c) placement of a legend on the certificate that evidences the securities stating that the securities have not been registered under the Securities Act and setting forth the restrictions on transferability and sale of the securities, and upon such inaction of  the Company of any general solicitation or advertising for securities herein issued in reliance upon Rule 506 of Regulation D and Section 4(2) of the Securities Act

 

(c) The shares of Common Stock referenced herein were issued pursuant to and in accordance with Rule 903 of Regulation S of the Act. We completed the offering of the shares pursuant to Rule 903 of Regulation S of the Act on the basis that the sale of the shares was completed in an "offshore transaction", as defined in Rule 902(h) of Regulation S. We did not engage in any directed selling efforts, as defined in Regulation S, in the United States in connection with the sale of the shares. Each investor represented to us that the investor was not a "U.S. person", as defined in Regulation S, and was not acquiring the shares for the account or benefit of a U.S. person. The agreement executed between us and each investor included statements that the securities had not been registered pursuant to the Act and that the securities may not be offered or sold in the United States unless the securities are registered under the Act or pursuant to an exemption from the Act. Each investor agreed by execution of the agreement for the shares: (i) to resell the securities purchased only in accordance with the provisions of Regulation S, pursuant to registration under the Act or pursuant to an exemption from registration under the Act; (ii) that we are required to refuse to register any sale of the securities purchased unless the transfer is in accordance with the provisions of Regulation S, pursuant to registration under the Act or pursuant to an exemption from registration under the Act; and (iii) not to engage in hedging transactions with regards to the securities purchased unless in compliance with the Act. All certificates representing the shares were or upon issuance will be endorsed with a restrictive legend confirming that the securities had been issued pursuant to Regulation S of the Act and could not be resold without registration under the Act or an applicable exemption from the registration requirements of the Act. 

 

Item 3. Defaults Upon Senior Securities. 

 

None.

 

Item 4. Mine Safety Disclosures.

 

N/A.

 

Item 5. Other Information.

 

None.

 

35
 

 

Item 6. Exhibits.

 

Exhibit      
Number Description of Exhibit    
3.01a Articles of Incorporation, dated March 11, 2011   Filed with the SEC on October 13, 2017 as part of our Annual Report on Form 10-K
3.01b Certificate of Amendment to Articles of Incorporation, dated August 7, 2014   Filed with the SEC on September 3, 2014 as part of our Current Report on Form 8-K
3.01c Certificate of Amendment to Articles of Incorporation, dated December 3, 2015   Filed with the SEC on December 10, 2015 as part of our Current Report on Form 8-K
3.02a Bylaws   Filed with the SEC on August 23, 2011 as an exhibit to our Registration Statement on Form 10.
3.02b Amended Bylaws, dated August 7, 2014   Filed with the SEC on September 3, 2014 as part of our Current Report on Form 8-K
4.06 Description of Registrant’s Securities   Filed with the SEC on September 30, 2019 as part of our Annual Report on Form 10-K
10.01 Manufacturing Agreement, dated as of August 19, 2016, by and between Jiangxi Huanming Technology Limited Company and XinyuIonix Technology Company Limited.   Filed with the SEC on August 24, 2016 as part of our Current Report on Form 8-K
10.02 Share Transfer Agreement, dated as of August 19, 2016, by and between GuoEn Li and Well Best International Investment Limited   Filed with the SEC on August 24, 2016 as part of our Current Report on Form 8-K
10.03 Share Purchase Agreement dated December 27, 2018 by and between Ionix Technology, Inc., Changchun Fangguan Electronics Technology Co., Ltd. and the shareholders of Changchun Fangguan Electronics Technology Co., Ltd.   Filed with the SEC on December 27, 2018 as part of our Current Report on Form 8-K
10.04 Business Operation Agreement dated December 27, 2018 by and between Changchun Fangguan Photoelectric Display Technology Co., Ltd., Changchun Fangguan Electronics Technology Co., Ltd., Jialin Liang and Xuemei Jiang.   Filed with the SEC on December 27, 2018 as part of our Current Report on Form 8-K
10.05 Exclusive Technical Support Service Agreement dated December 27, 2018 by and between Changchun Fangguan Photoelectric Display Technology Co., Ltd. and Changchun Fangguan Electronics Technology Co., Ltd.   Filed with the SEC on December 27, 2018 as part of our Current Report on Form 8-K
10.06 Equity Interest Purchase Agreement dated December 27, 2018 by and between Changchun Fangguan Photoelectric Display Technology Co., Ltd., Changchun Fangguan Electronics Technology Co., Ltd., Jialin Liang and Xuemei Jiang.   Filed with the SEC on December 27, 2018 as part of our Current Report on Form 8-K
10.07

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

  Filed with the SEC on December 27, 2018 as part of our Current Report on Form 8-K
21.1 List of Subsidiaries   Filed with the SEC on  September 30, 2020 as part of our Annual Report on Form 10-K
31.01 Certification of Principal Executive Officer Pursuant to Rule 13a-14   Filed herewith.
31.02 Certification of Principal Financial Officer Pursuant to Rule 13a-14   Filed herewith.
32.01 CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act   Filed herewith.
32.02 CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act   Filed herewith.
 101.INS* XBRL Instance Document   Filed herewith.
101.SCH* XBRL Taxonomy Extension Schema Document   Filed herewith.
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document   Filed herewith.
101.LAB* XBRL Taxonomy Extension Labels Linkbase Document   Filed herewith.
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document   Filed herewith.
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document   Filed herewith.

 

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

 

36
 

 

SIGNATURES

 

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

 

  Ionix Technology, Inc.
   
 Date: November 16, 2020 By: /s/ Cheng Li  
  Name: Cheng Li  
  Title: Chief Executive Officer and Director
  (Principal Executive Officer)

 

 Date: November 16, 2020 By: /s/ Yue Kou  
  Name: Yue Kou  
  Title: Chief Financial Officer
  (Principal Financial and Principal Accounting Officer)

 

 

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

 

  Ionix Technology, Inc.
   
 Date: November 16, 2020 By: /s/ Cheng Li  
  Name: Cheng Li  
  Title: Chief Executive Officer, Director
  (Principal Executive Officer)

 

 Date: November 16, 2020 By: /s/ Yue Kou  
  Name: Yue Kou  
  Title: Chief Financial Officer (Principal
  Financial and Principal Accounting Officer)

 

 Date: November 16, 2020 By: /s/  Yang Yan  
  Name: Yang Yan  
  Title: President and Treasurer

 

 Date: November 16, 2020 By:

/s/ Yubao Liu

 
  Name:

Yubao Liu

 
  Title: Director

 

 Date: November 16, 2020 By: /s/ Jialin Liang  
  Name: Jialin Liang  
  Title: Director

 

37
 

 

 Date: November 16, 2020 By: /s/ Xuemei Jiang  
  Name: Xuemei Jiang  
  Title: Director

 

 Date: November 16, 2020 By: /s/ Yongping Wang  
  Name: Yongping Wang  
  Title: Independent Director

 

 Date: November 16, 2020 By: /s/ Yongsheng Fu  
  Name: Yongsheng Fu  
  Title: Director

 

 Date: November 16, 2020 By: /s/ Zhenyu Wang  
  Name: Zhenyu Wang  
  Title:  Independent Director

 

 Date: November 16, 2020 By: /s/ Xiaolin Wei  
  Name: Xiaolin Wei  
  Title:  Independent Director

 

 Date: November 16, 2020 By: /s/ Liyan Wang  
  Name: LiyanWang  
  Title:  Independent Director

 

 

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