UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: December 27, 2018
IONIX TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Nevada | 000- 54485 | 45-0713638 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
4F, Tea Tree B Building, Guwu Sanwei Industrial Park, Xixiang Street
Baoan District
Shenzhen, Guangdong Province, China 518000
(Address of principal executive offices)
+(86) 138 8954 0873
(Registrant’s telephone number, including area code) |
|
|
(Former Name and Address)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Current Report on Form 8-K contains forward-looking statements that involve significant risks and uncertainties, principally in the sections entitled “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical fact contained in this Current Report on Form 8-K, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Important factors that could cause such differences include, but are not limited to:
| · | We may face heightened competition from existing mature competitors as well as new entrants into the industries in which we compete within the PRC. If we are unable to compete effectively, we may lose customers and our financial results will be adversely affected. |
| · | We conduct our business through our PRC operating entity by means of VIE contractual arrangements. If the PRC courts or administrative authorities determine that these contractual arrangements do not comply with applicable regulations, we could be subject to severe penalties and our business could be adversely affected. |
Moreover, new risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.
Except as required by applicable law, we do not intend to update any of the forward-looking statements to conform them to actual results.
EXPLANATORY NOTES
On December 27, 2018, Ionix Technology, Inc. (“Ionix” or the “Company”) filed a Current Report on Form 8-K (the “Initial Form 8-K”) to report that 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. (PRC) (“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 dated December 27, 2018 (the “Business Operation Agreement”), the Equity Interest Pledge Agreement dated December 27, 2018 (the “Equity Interest Pledge Agreement”), the Equity Interest Purchase Agreement dated December 27, 2018 (the “Equity Interest Purchase Agreement”), the Exclusive Technical Support Service Agreement dated December 27, 2018 (the “Services Agreement”) and the Power of Attorney dated December 27, 2018 (the “Power of Attorney” and together with the Business Operation Agreement, the Equity Interest Pledge Agreement, the Equity Interest Pledge Agreement and the Services Agreement, the “VIE Transaction Documents”) 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 (the “Common Stock”), thereby causing Fangguan Electronics to become the Company’s variable interest entity.
The Initial Form 8-K omitted the financial statements of Fangguan Electronics and the pro forma financial information of Fangguan Electronics permitted by Item 9.01(a)(4) and Item 9.01(b)(2) of Form 8-K. This amendment to the Initial Form 8-K is being filed to provide the financial statements and pro forma financial information required by Item 9.01 of Form 8-K. Except as otherwise noted, all other information in the Initial Form 8-K remains unchanged.
ITEM 9.01 – FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial statements of Fangguan Electronics are attached hereto as Exhibit 99.1 and 99.2, and incorporated herein by reference:
| · | Financial statements as of and for the years ended June 30, 2018 and 2017. |
| · | Unaudited financial statements as of and for the three months ended September 30, 2018 and 2017. |
| (b) | Pro Forma financial Information |
The following unaudited pro forma combined financial statements of the Company are attached hereto as Exhibit 99.3 and incorporated herein by reference:
| · | Unaudited Pro Forma Combined Balance Sheet as of September 30, 2018. |
| · | Unaudited Pro Forma Combined Balance Sheet as of June 30, 2018. |
| · | Unaudited Pro Forma Combined Statements of Income for the three months ended September 30, 2018. |
| · | Unaudited Pro Forma Combined Statements of Income for the year ended June 30, 2018 |
(d) Exhibits.
The exhibits listed in the following Exhibit Index are filed as part of this Current Report on Form 8-K.
Exhibit No. | Description |
|
|
2.1 | 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.* |
|
|
10.1 | 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.* |
|
|
10.2 | 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.* |
|
|
10.3 | Power of Attorney dated December 27, 2018 by Jialin Liang.* |
|
|
10.4 | Power of Attorney dated December 27, 2018 by Xuemei Jiang.* |
|
|
10.5 | 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.* |
|
|
10.6 | Equity Interest Pledge Agreement dated December 27, 2018 by and between Changchun Fangguan Photoelectric Display Technology Co., Jialin Liang and Xuemei Jiang* |
*previously filed on Form 8-K on December 27, 2018
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Ionix Technology, Inc.
Date: March 8, 2019
/s/ Yubao Liu
---------------------------------
By: | Yubao Liu |
|
| Duly Authorized officer, Chief Executive Officer |
|
-5 -
Exhibit 99.1
CHANGCHUN FANGGUAN ELECTRONICS TECHNOLOGY CO., LTD.
BALANCE SHEETS
(Unaudited)
|
| September 30, 2018 |
|
| June 30, 2018 |
|
ASSETS |
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
Cash |
| $ | 461,782 |
|
| $ | 49,809 |
|
Notes receivable |
|
| 9,932 |
|
|
| 11,258 |
|
Accounts receivables - non-related parties, net |
|
| 2,269,081 |
|
|
| 2,713,161 |
|
- related parties |
|
| 459,072 |
|
|
| 190,027 |
|
Inventory, net |
|
| 2,789,868 |
|
|
| 2,867,824 |
|
Advances to suppliers, net |
|
| 300,349 |
|
|
| 214,325 |
|
Other receivables |
|
| 91,310 |
|
|
| 88,067 |
|
Total Current Assets |
|
| 6,381,394 |
|
|
| 6,134,471 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| 6,925,689 |
|
|
| 7,162,538 |
|
Intangible assets, net |
|
| 1,331,119 |
|
|
| 1,354,311 |
|
Deferred tax assets |
|
| 60,122 |
|
|
| 62,694 |
|
Total Assets |
| $ | 14,698,324 |
|
| $ | 14,714,014 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Short-term bank loan |
| $ | 2,990,475 |
|
| $ | 3,022,700 |
|
Accounts payables |
|
| 3,695,274 |
|
|
| 4,273,967 |
|
Advance from customers |
|
| 38,392 |
|
|
| 67,042 |
|
Due to related parties |
|
| 6,069,882 |
|
|
| 5,520,926 |
|
Accrued expenses and other current liabilities |
|
| 130,274 |
|
|
| 47,140 |
|
Total Current Liabilities |
|
| 12,924,297 |
|
|
| 12,931,775 |
|
|
|
|
|
|
|
|
|
|
COMMITMENT AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity: |
|
|
|
|
|
|
|
|
Capital |
|
| 2,173,465 |
|
|
| 2,173,465 |
|
Accumulated deficit |
|
| (347,605 | ) |
|
| (358,451 | ) |
Accumulated other comprehensive loss |
|
| (51,833 | ) |
|
| (32,775 | ) |
Total Shareholders’ Equity |
|
| 1,774,027 |
|
|
| 1,782,239 |
|
Total Liabilities and Shareholders’ Equity |
| $ | 14,698,324 |
|
| $ | 14,714,014 |
|
The accompanying notes are an integral part of these financial statements.
CHANGCHUN FANGGUAN ELECTRONICS TECHNOLOGY CO., LTD.
STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
|
| For the Three Months Ended |
|
|
| September 30, |
|
|
| 2018 |
|
| 2017 |
|
|
|
|
|
|
|
|
Revenues - Non-related parties |
| $ | 1,735,252 |
|
| $ | 2,908,176 |
|
- Related parties |
|
| 942,260 |
|
|
| - |
|
Total Revenues |
|
| 2,677,512 |
|
|
| 2,908,176 |
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
| 2,283,545 |
|
|
| 2,584,924 |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 393,967 |
|
|
| 323,252 |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
Selling expenses |
|
| 46,725 |
|
|
| 56,844 |
|
General and administrative expenses |
|
| 242,268 |
|
|
| 236,315 |
|
Research and development expenses |
|
| 166,470 |
|
|
| 174,588 |
|
Total operating expenses |
|
| 455,463 |
|
|
| 467,747 |
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (61,496 | ) |
|
| (144,495 | ) |
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
Other income |
|
| 34,122 |
|
|
| 20,387 |
|
Interest expense, net of interest income |
|
| (35,028 | ) |
|
| (49,551 | ) |
Subsidy income |
|
| 75,162 |
|
|
| - |
|
Total other income (expense) |
|
| 74,256 |
|
|
| (29,164 | ) |
|
|
|
|
|
|
|
|
|
Income (loss) before income tax provision (benefit) |
|
| 12,760 |
|
|
| (173,659 | ) |
|
|
|
|
|
|
|
|
|
Income tax provision (benefit) |
|
| 1,914 |
|
|
| (26,049 | ) |
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
| 10,846 |
|
|
| (147,610 | ) |
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| (19,058 | ) |
|
| 29,893 |
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
| $ | (8,212 | ) |
| $ | (117,717 | ) |
The accompanying notes are an integral part of these financial statements.
CHANGCHUN FANGGUAN ELECTRONICS TECHNOLOGY CO., LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
|
| For the Three Months Ended |
|
|
| September 30, |
|
|
| 2018 |
|
| 2017 |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
Net income (loss) |
| $ | 10,846 |
|
| $ | (147,610 | ) |
Adjustments required to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
| 173,167 |
|
|
| 165,691 |
|
Amortization |
|
| 8,800 |
|
|
| 8,720 |
|
Deferred tax |
|
| 1,914 |
|
|
| (26,049 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable - non-related parties |
|
| 417,377 |
|
|
| 27,289 |
|
Accounts receivable - related parties |
|
| (272,522 | ) |
|
| - |
|
Inventory |
|
| 47,636 |
|
|
| 145,742 |
|
Advances to suppliers |
|
| (88,782 | ) |
|
| (122,308 | ) |
Other receivable |
|
| (4,204 | ) |
|
| 7,277 |
|
Accounts payable |
|
| (535,982 | ) |
|
| (202,078 | ) |
Advance from customers |
|
| (28,085 | ) |
|
| 35,476 |
|
Accrued expenses and other current liabilities |
|
| 84,085 |
|
|
| (14,785 | ) |
Net cash used in operating activities |
|
| (185,750 | ) |
|
| (122,635 | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment |
|
| (11,818 | ) |
|
| (33,992 | ) |
Net cash used in investing activities |
|
| (11,818 | ) |
|
| (33,992 | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Notes receivable |
|
| 1,213 |
|
|
| 214,604 |
|
Bank acceptance notes payable |
|
| - |
|
|
| (860,913 | ) |
Repayment of bank loans |
|
| - |
|
|
| (297,894 | ) |
Proceeds from related parties loans |
|
| 611,067 |
|
|
| 184,694 |
|
Net cash provided by (used in) financing activities |
|
| 612,280 |
|
|
| (759,509 | ) |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and restricted cash |
|
| (2,739 | ) |
|
| 9,279 |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and restricted cash |
|
| 411,973 |
|
|
| (906,857 | ) |
|
|
|
|
|
|
|
|
|
Cash and restricted cash, beginning of period |
|
| 49,809 |
|
|
| 967,440 |
|
|
|
|
|
|
|
|
|
|
Cash and restricted cash, end of period |
| $ | 461,782 |
|
| $ | 60,583 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for income tax |
| $ | 1,498 |
|
| $ | - |
|
Cash paid for interest |
| $ | 35,093 |
|
| $ | 50,268 |
|
The accompanying notes are an integral part of these financial statements.
CHANGCHUN FANGGUAN ELECTRONICS TECHNOLOGY CO., LTD.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS
Changchun Fangguan Electronics Technology Co., Ltd (“Fangguan Electronics” or "the company") was incorporated in the People’s Republic of China (“the PRC”) on June 28, 2006 with its principal place of business in Changchun City, Jilin Province, the PRC. Fangguan Electronics manufactures and sells LCD screens in China.
NOTE 2 – GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company had a working capital deficiency of $6,542,903 at September 30, 2018 and did not generate cash from operations for the three months ended September 30, 2018 and 2017. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The 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. However, no assurance can be given that the Company will be successful in raising additional capital.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Use of Estimates
The Company’s 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 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, 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 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.
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 are 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. Based on the evaluation, the Company recorded allowance for doubtful accounts of $147,784 and $149,376 as of September 30, 2018 and June 30, 2018, respectively.
Inventories
Inventories consist of raw materials 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 advance to suppliers is reduced and reclassified to inventories when the raw materials are received and pass quality inspection. The Company reviews its advances to suppliers on a periodic basis and makes general and specific allowances when there is doubt as to the ability of a supplier to refund an advance or provide merchandise to the Company. Based on the evaluation, the Company recorded allowance for advances to suppliers of $169,075 and $170,897 as of September 30, 2018 and June 30, 2018, respectively.
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 | 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 | 5 years |
Gains or losses arising from derecognition of the intangible asset are measured at the difference between the net disposal proceeds and the carrying amount of the assets and are recognized in the statement of comprehensive income (loss) when the asset is disposed.
Impairment of long-lived assets
In accordance with the provisions of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as property, plant and equipment held and used by the 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
In accordance with the ASC Topic 605, “Revenue Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.
The Company recognizes revenue from the sale of finished products upon delivery to the customer, whereas the title and risk of loss are fully transferred to the customers. The Company records its revenues, net of value added taxes (“VAT”). The Company is subject to VAT which is levied on the majority of the products at the rate of 16% on the invoiced value of sales.
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 three monthss 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 and June 30, 2018, 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.
Foreign currencies translation
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of comprehensive income (loss).
The reporting currency of the Company is the United States Dollar (“US$”). The Company which is located in the People’s Republic of China (“PRC”), maintains 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.
The exchange rates used to translate amounts in RMB into U.S. Dollars for the purposes of preparing the financial statements are as follows:
|
|
| September 30, 2018 |
|
|
| June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
Balance sheet items, except for equity accounts |
|
| 6.6879 |
|
|
| 6.6166 |
|
|
|
|
|
|
|
|
|
|
|
| Three Months ended September 30, |
|
|
| 2018 |
|
| 2017 |
|
|
|
|
|
|
|
|
|
|
Items in statements of comprehensive income (loss) and cash flows |
|
| 6.6523 |
|
|
| 6.7138 |
|
Fair Value of Financial Instruments
The carrying value of the Company’s financial instruments: cash and cash equivalents, accounts receivable, inventory, prepayments and other receivables, accounts payable, income tax payable, other payables and accrued liabilities approximate at their fair values because of the short-term nature of these financial instruments.
The Company also follows the guidance of the ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
Level 1: Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;
Level 2: Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. Black-Scholes Option-Pricing model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs; and
Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.
Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The Company has no financial assets or liabilities measured at fair value on a recurring basis.
Recent accounting pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under this guidance, lessees will be required to recognize on the balance sheet a lease liability and a right-of-use asset for all leases, with the exception of short-term leases. The lease liability represents the lessee's obligation to make lease payments arising from a lease, and will be measured as the present value of the lease payments. The right-of-use asset represents the lessee's right to use a specified asset for the lease term, and will be measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee's initial direct costs. The standard also requires a lessee to recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The new guidance is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 is required to be applied using the modified retrospective approach for all leases existing as of the effective date and provides for certain practical expedients. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this new standard on its statements and related disclosures.
In May 2016, FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients”. The update is to address certain issues identified by the FASB/IASB Joint Transition Resource Group for Revenue Recognition (TRG) in the guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition, the Board decided to add a project to its technical agenda to improve Topic 606, Revenue from Contracts with Customers, by reducing: 1) the potential for diversity in practice at initial application and 2) the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. The amendments in this Update affect entities with transactions included within the scope of Topic 606. The scope of that Topic includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments to the recognition and measurement provisions of Topic 606 also affect entities with transactions included within the scope of Topic 610, Other Income. The amendments in this Update affect the guidance in Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the potential impact of adopting this new standard on its statements and related disclosures.
In September 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This guidance clarifies the presentation requirements of eight specific issues within the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements, as the Company’s treatment of the relevant affected items within its statement of cash flows is consistent with the requirements of this guidance.
NOTE 4 - INVENTORIES
Inventories consist of the following:
|
| September 30, 2018 |
|
| June 30, 2018 |
|
Raw materials |
| $ | 664,534 |
|
| $ | 980,417 |
|
Work-in-process |
|
| 789,768 |
|
|
| 645,994 |
|
Finished goods |
|
| 1,335,566 |
|
|
| 1,241,413 |
|
Total Inventories |
| $ | 2,789,868 |
|
| $ | 2,867,824 |
|
NOTE 5 – PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were as follows:
|
| September 30, 2018 |
|
| June 30, 2018 |
|
Buildings |
| $ | 5,525,888 |
|
| $ | 5,585,435 |
|
Machinery and equipment |
|
| 4,180,396 |
|
|
| 4,213,978 |
|
Office equipment |
|
| 143,700 |
|
|
| 144,832 |
|
Automobiles |
|
| 135,944 |
|
|
| 137,408 |
|
Subtotal |
|
| 9,985,928 |
|
|
| 10,081,653 |
|
Less: Accumulated depreciation |
|
| (3,060,239 | ) |
|
| (2,919,115 | ) |
Property, plant and equipment, net |
| $ | 6,925,689 |
|
| $ | 7,162,538 |
|
Depreciation expense was $173,167 and $165,691 for the three months ended September 30, 2018 and 2017, respectively. As of September 30, 2018 and June 30, 2018, buildings were pledged as collateral for bank loans (See Note 7).
NOTE 6 – INTANGIBLE ASSETS
Intangible assets consist of the following:
|
| September 30, 2018 |
|
| June 30, 2018 |
|
Land use right |
| $ | 1,502,490 |
|
| $ | 1,518,680 |
|
Computer software |
|
| 24,821 |
|
|
| 25,088 |
|
Subtotal |
|
| 1,527,311 |
|
|
| 1,543,768 |
|
Less: Accumulated amortization |
|
| (196,192 | ) |
|
| (189,457 | ) |
Intangible assets, net |
| $ | 1,331,119 |
|
| $ | 1,354,311 |
|
The Company acquired the land use right from the local government in August 2012 which expires on August 15, 2062. As of September 30, 2018 and June 30, 2018, land use right was pledged as collateral for bank loans (See Note 7). Amortization expense for the three months ended September 30, 2018 and 2017 were $8,800 and $8,720, respectively.
NOTE 7 – SHORT-TERM BANK LOAN
On October 9, 2017, the Company entered into a line of credit agreement with Industrial Bank to borrow up to a maximum amount of approximately US$ 3.8 million (RMB 25 million) for one year with a maturity date of October 8, 2018. The line of credit was collateralized by the Company’s buildings and land use right. In addition, the line of credit was guaranteed by the Company’s shareholder Mr. Jialin Liang and his wife Ms. Dongjiao Su.
Under the line of credit, on October 9, 2017, the Company borrowed approximately US$3 million (RMB 20 million) for a year with annual interest rate of 4.5675%. The funds were received by the Company on November 22, 2017 and the maturity date was extended to November 21, 2018. The loan was repaid in full upon maturity in November 2018.
To repay this loan, the Company entered into a short-term loan agreement on November 12, 2018 with Industrial Bank to borrow approximately US$2.7 million (RMB 18 million) for a year with annual interest rate of 5.27%. The new borrowing was collateralized by the Company’s buildings and land use right. In addition, the new borrowing was guaranteed by the Company’s shareholder Mr. Jialin Liang and his wife Ms. Dongjiao Su.
NOTE 8- RELATED PARTY TRANSACTIONS AND BALANCES
Sales to related party
During the three months ended September 30, 2018, the Company sold products in the amount of $942,260 to Changchun Fangguan Photoelectric Display Technology Co. Ltd. (“Fangguan Photoelectric”). The trade-related balance receivable from Fangguan Photoelectric was $459,072 and $190,027 as of September 30, 2018 and June 30, 2018, respectively. The president, CEO, shareholder and director of the Company, Mr. Jialin Liang, was also the president of Fangguan Photoelectric until October 2018.
Due to related parties
Due to related parties represents certain advances to the Company by related parties. The amounts are non-interest bearing, unsecured and due on demand.
Due to related parties consists of the following:
|
|
|
|
| September 30, 2018 |
|
| June 30, 2018 |
|
Jialin Liang |
|
| (a) |
|
| $ | 5,489,729 |
|
| $ | 4,934,522 |
|
Xuemei Jiang |
|
| (b) |
|
|
| 580,153 |
|
|
| 586,404 |
|
Total Due to related parties |
|
|
|
|
| $ | 6,069,882 |
|
| $ | 5,520,926 |
|
| (a) | Jialin Liang is the president, CEO, shareholder and director of the Company. |
| (b) | Xuemei Jiang is the vice president, shareholder and director of the Company. |
During the three months ended September 30, 2018 and 2017, Jialin Liang advanced $611,071 and $117,668 to the Company, respectively.
During the three months ended September 30, 2018 and 2017, Xuemei Jiang advanced $nil and $67,026 to the Company, respectively.
NOTE 9 - CONCENTRATION
Major customers
Customers who accounted for 10% or more of the Company’s revenues for the three months ended September 30, 2018 and 2017, respectively, and its outstanding balance of accounts receivable as of September 30, 2018 and 2017, respectively, are presented as follows:
|
| For the three months ended September 30, 2018 |
|
| As of September 30, 2018 |
|
|
| Revenue |
|
| Percentage of total Revenue |
|
| Accounts receivable |
|
| Percentage of total accounts receivable |
|
Customer A |
| $ | 653,900 |
|
|
| 24 | % |
| $ | - |
|
|
| - | % |
Customer B - Related party |
|
| 942,260 |
|
|
| 35 | % |
|
| 459,072 |
|
|
| 16 | % |
Total |
| $ | 1,596,160 |
|
|
| 59 | % |
| $ | 459,072 |
|
|
| 16 | % |
|
| For the three months ended September 30, 2017 |
|
| As of September 30, 2017 |
|
|
| Revenue |
|
| Percentage of total Revenue |
|
| Accounts receivable |
|
| Percentage of total accounts receivable |
|
Customer A |
| $ | 1,075,501 |
|
|
| 37 | % |
| $ | 468,782 |
|
|
| 18 | % |
Customer B |
|
| 417,586 |
|
|
| 14 | % |
|
| 669,859 |
|
|
| 26 | % |
Customer C |
|
| 357,353 |
|
|
| 12 | % |
|
| - |
|
|
| - | % |
Total |
| $ | 1,850,440 |
|
|
| 63 | % |
| $ | 1,138,641 |
|
|
| 44 | % |
NOTE 10 - INCOME TAXES
The Company is operating in the PRC and is subject to the Corporate Income Tax Law of the People’s Republic of China. The Company was certified as high-tech enterprises and is taxed at a unified income tax rate of 15% for three years from 2016 to 2018.
The reconciliation of income tax expense at income tax rate of 15% to the Company’s effective tax rate is as follows:
|
| For the three months ended September 30, |
|
|
| 2018 |
|
| 2017 |
|
|
|
|
|
|
|
|
Tax at 15% |
| $ | 1,914 |
|
| $ | (26,049 | ) |
Permanent difference |
|
| - |
|
|
| - |
|
Effective tax |
| $ | 1,914 |
|
| $ | (26,049 | ) |
The provisions for income taxes are summarized as follows:
|
| For the three months ended September 30, |
|
|
| 2018 |
|
| 2017 |
|
Current |
| $ | - |
|
| $ | - |
|
Deferred |
|
| 1,914 |
|
|
| (26,049 | ) |
Total |
| $ | 1,914 |
|
| $ | (26,049 | ) |
NOTE 11 - SUBSEQUENT EVENTS
The Company has evaluated the existence of material events subsequent to the balance sheet date through February 15, 2019, the date the financial statements were issued and determined that there were no subsequent events or transactions which would require recognition or disclosure in the financial statements.
Exhibit 99.2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANT
To the Shareholders and Board of Directors of
Changchun Fangguan Electronics Technology Co., Ltd
Changchun, P. R. of China
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Changchun Fangguan Electronics Technology Co., Ltd. ("the Company") as of June 30, 2018 and 2017, and the related statements of comprehensive income, shareholders' equity and cash flows for each of the years in the two-year period ended June 30, 2018 and related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2018, in conformity with accounting principles generally accepted in the United States of America.
Going concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, The Company had limited cash and a working capital deficiency of $6,797,304 at June 30, 2018. These circumstances, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Prager Metis CPAs, LLC
Hackensack, New Jersey
February 15, 2019
CHANGCHUN FANGGUAN ELECTRONICS TECHNOLOGY CO., LTD.
BALANCE SHEETS
|
| June 30, 2018 |
|
| June 30, 2017 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash |
| $ | 49,809 |
|
| $ | 540,834 |
|
Restricted cash |
|
| - |
|
|
| 426,606 |
|
Notes receivable |
|
| 11,258 |
|
|
| 212,684 |
|
Accounts receivables - non-related parties, net |
|
| 2,713,161 |
|
|
| 2,454,229 |
|
- related parties |
|
| 190,027 |
|
|
| - |
|
Inventory, net |
|
| 2,867,824 |
|
|
| 2,588,321 |
|
Advances to suppliers, net |
|
| 214,325 |
|
|
| 240,619 |
|
Other receivables |
|
| 88,067 |
|
|
| 167,619 |
|
Total Current Assets |
|
| 6,134,471 |
|
|
| 6,630,912 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| 7,162,538 |
|
|
| 7,127,492 |
|
Intangible assets, net |
|
| 1,354,311 |
|
|
| 1,357,331 |
|
Deferred tax assets |
|
| 62,694 |
|
|
| 54,021 |
|
Total Assets |
| $ | 14,714,014 |
|
| $ | 15,169,756 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Short-term bank loan |
| $ | 3,022,700 |
|
| $ | 3,247,520 |
|
Bank acceptance notes payable |
|
| - |
|
|
| 853,212 |
|
Accounts payable |
|
| 4,273,967 |
|
|
| 3,980,636 |
|
Advance from customers |
|
| 67,042 |
|
|
| 91,156 |
|
Due to related parties |
|
| 5,520,926 |
|
|
| 5,162,046 |
|
Accrued expenses and other current liabilities |
|
| 47,140 |
|
|
| 120,431 |
|
Total Current Liabilities |
|
| 12,931,775 |
|
|
| 13,455,001 |
|
|
|
|
|
|
|
|
|
|
COMMITMENT AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity: |
|
|
|
|
|
|
|
|
Capital |
|
| 2,173,465 |
|
|
| 2,173,465 |
|
Accumulated deficit |
|
| (358,451 | ) |
|
| (384,727 | ) |
Accumulated other comprehensive loss |
|
| (32,775 | ) |
|
| (73,983 | ) |
Total Shareholders’ Equity |
|
| 1,782,239 |
|
|
| 1,714,755 |
|
Total Liabilities and Shareholders’ Equity |
| $ | 14,714,014 |
|
| $ | 15,169,756 |
|
The accompanying notes are an integral part of these financial statements.
CHANGCHUN FANGGUAN ELECTRONICS TECHNOLOGY CO., LTD.
STATEMENTS OF COMPREHENSIVE INCOME
|
| For the Years Ended |
|
|
| June 30, |
|
|
| 2018 |
|
| 2017 |
|
|
|
|
|
|
|
|
Revenues - Non-related parties |
| $ | 11,089,192 |
|
| $ | 12,673,664 |
|
- Related parties |
|
| 1,465,943 |
|
|
| - |
|
Total Revenues |
|
| 12,555,135 |
|
|
| 12,673,664 |
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
| 10,426,800 |
|
|
| 10,981,963 |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 2,128,335 |
|
|
| 1,691,701 |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
Selling expenses |
|
| 227,734 |
|
|
| 262,530 |
|
General and administrative expenses |
|
| 1,116,146 |
|
|
| 1,142,633 |
|
Research and development expenses |
|
| 744,264 |
|
|
| 327,243 |
|
Total operating expenses |
|
| 2,088,144 |
|
|
| 1,732,406 |
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
| 40,191 |
|
|
| (40,705 | ) |
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
Other income |
|
| 106,883 |
|
|
| 47,161 |
|
Interest expense, net of interest income |
|
| (161,312 | ) |
|
| (138,963 | ) |
Subsidy income |
|
| 51,399 |
|
|
| 376,813 |
|
Total other income (expense) |
|
| (3,030 | ) |
|
| 285,011 |
|
|
|
|
|
|
|
|
|
|
Income before income tax provision |
|
| 37,161 |
|
|
| 244,306 |
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
| 10,885 |
|
|
| 37,569 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
| 26,276 |
|
|
| 206,737 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| 41,208 |
|
|
| (34,798 | ) |
|
|
|
|
|
|
|
|
|
Comprehensive income |
| $ | 67,484 |
|
| $ | 171,939 |
|
The accompanying notes are an integral part of these financial statements.
CHANGCHUN FANGGUAN ELECTRONICS TECHNOLOGY CO., LTD.
STATEMENTS OF SHAREHOLDERS' EQUITY
|
| Capital |
|
| Accumulated Deficit |
|
| Accumulated Other Comprehensive loss |
|
| Total |
|
Balance at June 30, 2016 |
| $ | 2,173,465 |
|
| $ | (591,464 | ) |
| $ | (39,185 | ) |
| $ | 1,542,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| - |
|
|
| 206,737 |
|
|
| - |
|
|
| 206,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| - |
|
|
| - |
|
|
| (34,798 | ) |
|
| (34,798 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2017 |
|
| 2,173,465 |
|
|
| (384,727 | ) |
|
| (73,983 | ) |
|
| 1,714,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| - |
|
|
| 26,276 |
|
|
| - |
|
|
| 26,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| - |
|
|
| - |
|
|
| 41,208 |
|
|
| 41,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018 |
| $ | 2,173,465 |
|
| $ | (358,451 | ) |
| $ | (32,775 | ) |
| $ | 1,782,239 |
|
The accompanying notes are an integral part of these financial statements.
CHANGCHUN FANGGUAN ELECTRONICS TECHNOLOGY CO., LTD.
STATEMENTS OF CASH FLOWS
|
| For the Years Ended |
|
|
| June 30, |
|
|
| 2018 |
|
| 2017 |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net income |
| $ | 26,276 |
|
| $ | 206,737 |
|
Adjustments required to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Bad debt provision |
|
| 59,742 |
|
|
| 33,102 |
|
Inventory markdown |
|
| - |
|
|
| 98,482 |
|
Depreciation |
|
| 674,109 |
|
|
| 657,295 |
|
Amortization |
|
| 34,974 |
|
|
| 34,936 |
|
Deferred tax |
|
| (7,298 | ) |
|
| 21,788 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable - non-related parties |
|
| (257,781 | ) |
|
| 1,044,681 |
|
Accounts receivable - related parties |
|
| (187,787 | ) |
|
| - |
|
Inventory |
|
| (215,208 | ) |
|
| (666,339 | ) |
Advances to suppliers |
|
| 31,655 |
|
|
| 15,772 |
|
Other receivable |
|
| 82,565 |
|
|
| (77,631 | ) |
Accounts payable |
|
| 196,058 |
|
|
| (935,304 | ) |
Advance from customers |
|
| (25,978 | ) |
|
| (62,131 | ) |
Accrued expenses and other current liabilities |
|
| (75,267 | ) |
|
| (166,172 | ) |
Net cash provided by operating activities |
|
| 336,060 |
|
|
| 205,216 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment |
|
| (540,761 | ) |
|
| (176,124 | ) |
Net cash used in investing activities |
|
| (540,761 | ) |
|
| (176,124 | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Notes receivable |
|
| 204,064 |
|
|
| (197,053 | ) |
Bank acceptance notes payable |
|
| (863,266 | ) |
|
| 862,326 |
|
Proceeds from bank loans |
|
| 2,987,081 |
|
|
| 3,282,210 |
|
Repayment of bank loans |
|
| (3,285,789 | ) |
|
| (2,184,443 | ) |
Proceeds from (repayment of) related parties loans |
|
| 232,992 |
|
|
| (1,390,464 | ) |
Net cash provided by (used in) financing activities |
|
| (724,918 | ) |
|
| 372,576 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and restricted cash |
|
| 11,988 |
|
|
| (16,554 | ) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and restricted cash |
|
| (917,631 | ) |
|
| 385,114 |
|
|
|
|
|
|
|
|
|
|
Cash and restricted cash, beginning of year |
|
| 967,440 |
|
|
| 582,326 |
|
|
|
|
|
|
|
|
|
|
Cash and restricted cash, end of year |
| $ | 49,809 |
|
| $ | 967,440 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for income tax |
| $ | 16,694 |
|
| $ | 23,330 |
|
Cash paid for interests |
| $ | 162,454 |
|
| $ | 140,058 |
|
The accompanying notes are an integral part of these financial statements.
CHANGCHUN FANGGUAN ELECTRONICS TECHNOLOGY CO., LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
Changchun Fangguan Electronics Technology Co., Ltd. (“Fangguan Electronics” or "the Company") was incorporated in the People’s Republic of China (“the PRC”) on June 28, 2006 with its principal place of business in Changchun City, Jilin Province, the PRC. Fangguan Electronics manufactures and sells high-end LCD screens in China.
NOTE 2 – GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company had limited cash and a working capital deficiency of $6,797,304 at June 30, 2018. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The 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. However, no assurance can be given that the Company will be successful in raising additional capital.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Use of Estimates
The Company’s 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 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 inventories, the useful lives of property and equipment, 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 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. All cash balances are in bank accounts in PRC are not insured by the Federal Deposit Insurance Corporation or other programs.
Restricted Cash
Restricted cash represents required cash deposits as a part of collateral for bank acceptance notes payable and letters of credit. The Company is required to maintain 50% to 100% of the balance of the bank acceptance notes payable in restricted cash to ensure future credit availability. The Company earns interest at a variable rate per month on this restricted cash.
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 are 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. Based on the evaluation, the Company recorded allowance for doubtful accounts receivable of $149,376 and $86,851 as of June 30, 2018 and 2017, respectively.
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. The Company reviews its advances to suppliers on a periodic basis and makes general and specific allowances when there is doubt as to the ability of a supplier to refund an advance or provide merchandise to the Company. Based on the evaluation, the Company recorded allowance for advances to suppliers of $170,897 and $166,916 as of June 30, 2018 and 2017, respectively.
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 lives of the assets after taking into account their respective estimated residual value. The estimated useful lives of the assets are as follows:
Buildings | 10 – 20 years |
Machinery and equipment | 5 – 10 years |
Office equipment | 5 years |
Automobiles | 5 years |
Intangible assets
Land use right is recorded at 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 | 5 years |
Gains or losses arising from derecognition of the intangible asset are measured at the difference between the net disposal proceeds and the carrying amount of the assets and are recognized in the statement of comprehensive income (loss) when the asset is disposed.
Impairment of long-lived assets
In accordance with the provisions of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as property, plant and equipment held and used by the 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
In accordance with the ASC Topic 605, “Revenue Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.
The Company recognizes revenue from the sale of finished products upon delivery to the customer, whereas the title and risk of loss are fully transferred to the customers. The Company records its revenues, net of value added taxes (“VAT”). The Company is subject to VAT which is levied on the majority of the products at the rate of 16% (for period after May 2018) or 17% (for period before and until April 2018) on the invoiced value of sales.
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.
Subsidy Income
The Company periodically receives various government grants. There is no guarantee the Company will continue to receive such grants in the future.
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 the statement of comprehensive income (loss) 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 June 30, 2018 and 2017, 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.
Foreign currencies translation
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of comprehensive income.
The reporting currency of the Company is the United States Dollar (“USD”). The Company which is located in the People’s Republic of China (“PRC”), maintains its books and records in the 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, assets and liabilities of the Company whose functional currency is not the USD are translated into USD, 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. Shareholders’ equity is translated at historical rates. The gains and losses resulting from translation of financial statements of foreign currency are recorded as a separate component of accumulated other comprehensive income within the statements of shareholders’ equity.
The exchange rates used to translate amounts in RMB into USD for the purposes of preparing the financial statements are as follows:
|
|
| June 30, 2018 |
|
| June 30, 2017 |
|
|
|
|
|
|
|
|
Balance sheet items, except for equity accounts |
|
| 6.6166 |
|
|
| 6.7744 |
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended June 30, |
|
|
|
| 2018 |
|
|
| 2017 |
|
|
|
|
|
|
|
|
|
|
Items in statements of comprehensive income and cash flows |
|
| 6.6955 |
|
|
| 6.7028 |
|
Fair Value of Financial Instruments
The carrying value of the Company’s financial instruments, cash and cash equivalents, restricted cash, notes receivable, accounts receivable, inventory, prepayments and other receivables, short-term bank loans, bank acceptance notes payable, accounts payable, advance from customers, income tax payable, other payables and accrued liabilities, are approximate at their fair values because of the short-term mature of these financial instruments.
The Company follows the guidance of the ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
Level 1: Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;
Level 2: Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. Black-Scholes Option-Pricing model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs; and
Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.
Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The Company has no financial assets or liabilities measured at fair value on a recurring basis.
Recent accounting pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under this guidance, lessees will be required to recognize on the balance sheet a lease liability and a right-of-use asset for all leases, with the exception of short-term leases. The lease liability represents the lessee's obligation to make lease payments arising from a lease, and will be measured as the present value of the lease payments. The right-of-use asset represents the lessee's right to use a specified asset for the lease term, and will be measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee's initial direct costs. The standard also requires a lessee to recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The new guidance is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 is required to be applied using the modified retrospective approach for all leases existing as of the effective date and provides for certain practical expedients. Early adoption is permitted. The Company determined that the adoption of this new standard will have no material impact on its statements and related disclosures .
In May 2016, FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients”. The update is to address certain issues identified by the FASB/IASB Joint Transition Resource Group for Revenue Recognition (TRG) in the guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition, the Board decided to add a project to its technical agenda to improve Topic 606, Revenue from Contracts with Customers, by reducing: 1) the potential for diversity in practice at initial application and 2) the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. The amendments in this Update affect entities with transactions included within the scope of Topic 606. The scope of that Topic includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments to the recognition and measurement provisions of Topic 606 also affect entities with transactions included within the scope of Topic 610, Other Income. The amendments in this Update affect the guidance in Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the potential impact of adopting this new standard on its statements and related disclosures.
In September 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This guidance clarifies the presentation requirements of eight specific issues within the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements, as the Company’s treatment of the relevant affected items within its statement of cash flows is consistent with the requirements of this guidance.
NOTE 4 - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
|
| June 30, 2018 |
|
| June 30, 2017 |
|
Accounts receivable – non-related parties |
| $ | 2,862,537 |
|
| $ | 2,541,080 |
|
Accounts receivable – related parties (See Note 9) |
|
| 190,027 |
|
|
| - |
|
Subtotal |
|
| 3,052,564 |
|
|
| 2,541,080 |
|
Less: Allowance for doubtful accounts |
|
| (149,376 | ) |
|
| (86,851 | ) |
Accounts receivable, net |
| $ | 2,903,188 |
|
| $ | 2,454,229 |
|
An analysis of the allowance for doubtful accounts for the years ended June 30, 2018 and 2017 is as follows:
|
| Years ended June 30, |
|
|
| 2018 |
|
| 2017 |
|
Balance at beginning of year |
| $ | 86,851 |
|
| $ | 61,817 |
|
Addition |
|
| 59,742 |
|
|
| 26,623 |
|
Write-offs |
|
| - |
|
|
| - |
|
Translation adjustments |
|
| 2,783 |
|
|
| (1,589 | ) |
Balance at end of year |
| $ | 149,376 |
|
| $ | 86,851 |
|
NOTE 5 - INVENTORIES
Inventories consist of the following:
|
| June 30, 2018 |
|
| June 30, 2017 |
|
Raw materials |
| $ | 980,417 |
|
| $ | 889,466 |
|
Work-in-process |
|
| 645,994 |
|
|
| 531,641 |
|
Finished goods |
|
| 1,241,413 |
|
|
| 1,167,214 |
|
Total Inventories |
| $ | 2,867,824 |
|
| $ | 2,588,321 |
|
The Company recorded inventory markdown of $nil and $98,482 for the years ended June 30, 2018 and 2017, respectively.
NOTE 6 – ADVANCES TO SUPPLIERS
Advances to suppliers consist of the following:
|
| June 30, 2018 |
|
| June 30, 2017 |
|
Advances to suppliers |
| $ | 385,222 |
|
| $ | 407,535 |
|
Less: Allowance for doubtful accounts |
|
| (170,897 | ) |
|
| (166,916 | ) |
Advances to suppliers, net |
| $ | 214,325 |
|
| $ | 240,619 |
|
An analysis of the allowance for doubtful accounts for the years ended June 30, 2018 and 2017 is as follows:
|
| Years ended June 30, |
|
|
| 2018 |
|
| 2017 |
|
Balance at beginning of year |
| $ | 166,916 |
|
| $ | 163,971 |
|
Addition |
|
| - |
|
|
| 6,479 |
|
Deduction |
|
| - |
|
|
| - |
|
Translation adjustments |
|
| 3,981 |
|
|
| (3,534 | ) |
Balance at end of year |
| $ | 170,897 |
|
| $ | 166,916 |
|
NOTE 7 – PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were as follows:
|
| June 30, 2018 |
|
| June 30, 2017 |
|
Buildings |
| $ | 5,585,435 |
|
| $ | 5,455,330 |
|
Machinery and equipment |
|
| 4,213,978 |
|
|
| 3,586,395 |
|
Office equipment |
|
| 144,832 |
|
|
| 136,419 |
|
Automobiles |
|
| 137,408 |
|
|
| 134,209 |
|
Subtotal |
|
| 10,081,653 |
|
|
| 9,312,353 |
|
Less: Accumulated depreciation |
|
| (2,919,115 | ) |
|
| (2,184,861 | ) |
Property, plant and equipment, net |
| $ | 7,162,538 |
|
| $ | 7,127,492 |
|
Depreciation expense was $674,109 and $657,295 for the years ended June 30, 2018 and 2017 respectively. As of June 30, 2018, and 2017, buildings were pledged as collateral for bank loans (See Note 9).
NOTE 8 – INTANGIBLE ASSETS
Intangible assets consist of the following:
|
| June 30, 2018 |
|
| June 30, 2017 |
|
Land use right |
| $ | 1,518,680 |
|
| $ | 1,483,305 |
|
Computer software |
|
| 25,088 |
|
|
| 24,504 |
|
Subtotal |
|
| 1,543,768 |
|
|
| 1,507,809 |
|
Less: Accumulated amortization |
|
| (189,457 | ) |
|
| (150,478 | ) |
Intangible assets, net |
| $ | 1,354,311 |
|
| $ | 1,357,331 |
|
The Company acquired the land use right from the local government in August 2012 which expires on August 15, 2062. As of June 30, 2018, and 2017, land use right was pledged as collateral for bank loans (See Note 8). Amortization expense for intangible assets for the years ended June 30, 2018 and 2017 totaled $34,974 and $34,936, respectively.
NOTE 9 – SHORT-TERM BANK LOANS
The Company’s short-term bank loans consist of the following:
|
|
|
|
| June 30, 2018 |
|
| June 30, 2017 |
|
Loan payable to Bank of Jilin |
|
| (a) |
|
| $ | - |
|
| $ | 295,229 |
|
Loan payable to Huaxia Bank |
|
| (b) |
|
|
| - |
|
|
| 2,509,447 |
|
Loan payable to Changchun Nanguan Huimin Credit Union |
|
| (c) |
|
|
| - |
|
|
| 442,844 |
|
Loan payable to Industrial Bank |
|
| (d) |
|
|
| 3,022,700 |
|
|
| - |
|
Total Short-term bank loans |
|
|
|
|
| $ | 3,022,700 |
|
| $ | 3,247,520 |
|
(a) | On August 2, 2016, the Company entered into a short-term loan agreement with Bank of Jilin to borrow $295,229 (RMB 2 million) for a year with annual interest rate of 6.525%. The loan was guaranteed by the Company’s shareholder Mr. Jialin Liang and his wife Ms. Dongjiao Su, as well by the Company’s shareholder Ms. Xuemei Jiang and her husband Mr. Wei Sun, and a third party, Changchun Small & Medium Enterprises Credit Guarantee Co. Ltd. The loan was repaid in full upon maturity in July 2017. |
(b) | On December 23, 2016, the Company entered into a line of credit agreement with Huaxia Bank to borrow up to a maximum amount of approximately US$ 3 million (RMB 20 million) for a period of three years until December 23, 2019. The line of credit was collateralized by the Company’s buildings and land use right. In addition, the line of credit was guaranteed by the Company’s shareholder Mr. Jialin Liang and his wife Ms. Dongjiao Su. Under the line of credit, on December 23, 2016, the Company borrowed $2,509,447 (RMB 17 million) for a year with annual interest rate of 6.5%. The loan was repaid in full upon maturity in November 2017. |
(c) | On March 9, 2017, the Company entered into a short-term loan agreement with Changchun Nanguan Huimin Credit Union to borrow $442,844 (RMB 3 million) for period until December 30, 2017 with annual interest rate of 5.4375%. The loan was guaranteed by the Company’s shareholder Mr. Jialin Liang and his wife Ms. Dongjiao Su, as well by the Company’s shareholder Ms. Xuemei Jiang and her husband Mr. Wei Sun. In addition, the loan was collateralized by the personal property of the shareholder, Mr. Jialin Liang. The loan was repaid in full upon maturity in December 2017. |
(d) | On October 9, 2017, the Company entered into a line of credit agreement with Industrial Bank to borrow up to a maximum amount of approximately US$ 3.8 million (RMB 25 million) for one year with a materity date of October 8, 2018. The line of credit was collateralized by the Company’s buildings and land use right. In addition, the line of credit was guaranteed by the Company’s shareholder Mr. Jialin Liang and his wife Ms. Dongjiao Su. Under the line of credit, on October 9, 2017, the Company borrowed $3,022,700 (RMB 20 million) for a year with annual interest rate of 4.5675%. The fund was received by the Company on November 22, 2017 and the maturity date was extended to November 21, 2018. The loan was repaid in full upon maturity in November 2018.
|
|
| To repay this loan, the Company entered into a short-term loan agreement on November 12, 2018 with Industrial Bank to borrow approximately US$2.7 million (RMB 18 million) for a year with annual interest rate of 5.27%. The new borrowing was collateralized by the Company’s buildings and land use right. In addition, the new borrowing was guaranteed by the Company’s shareholder Mr. Jialin Liang and his wife Ms. Dongjiao Su. |
NOTE 10 - RELATED PARTY TRANSACTIONS AND BALANCES
Sales to related party
During the year ended June 30, 2018, the Company sold products for the amount of $1,465,943 to Changchun Fangguan Photoelectric Display Technology Co. Ltd. (“Fangguan Photoelectric”). The trade-related balance receivable from Fangguan Photoelectric was $190,027 as of June 30, 2018. The president, CEO, shareholder and director of the Company, Mr. Jialin Liang, was also the president of Fangguan Photoelectric until October 2018.
Due to related parties
Due to related parties represents certain advances to the Company by related parties. The amounts are non-interest bearing, unsecured and due on demand.
Due to related parties consists of the following:
|
|
|
|
| June 30, 2018 |
|
| June 30, 2017 |
|
Jialin Liang |
|
| (a) |
|
| $ | 4,934,522 |
|
| $ | 4,220,265 |
|
Xuemei Jiang |
|
| (b) |
|
|
| 586,404 |
|
|
| 941,781 |
|
Total Due to related parties |
|
|
|
|
| $ | 5,520,926 |
|
| $ | 5,162,046 |
|
| (a) | Jialin Liang is the president, CEO, shareholder and director of the Company. |
| (b) | Xuemei Jiang is the vice president, shareholder and director of the Company. |
During the years ended June 30, 2018 and 2017, Jialin Liang advanced $606,377 and $358,059 to the Company, respectively.
During the years ended June 30, 2018 and 2017, the Company repaid $373,385 and $1,748,523 to Xuemei Jiang, respectively.
NOTE 11 - CAPITAL
Fangguan Electronics is a limited liability company established On June 28,2006
Mr Jialin Liang, Ms Xuemei Jiang and Changchun Emerging Industry Equity Investment Fund Co., Ltd. hold 75.701%, 19.4392% and 4.8598%, respectively, of the equity interest of the Company.
NOTE 12 – CONCENTRATION
Major customers
Customers who accounted for 10% or more of the Company’s revenues for the years ended June 30, 2018 and 2017 respectively and its outstanding balance of accounts receivable as of June 30, 2018 and 2017 respectively are presented as follows:
|
| For the year ended June 30, 2018 |
|
| As of June 30, 2018 |
|
|
| Revenue |
|
| Percentage of total Revenue |
|
| Accounts receivable |
|
| Percentage of total accounts receivable |
|
Customer A |
| $ | 3,866,988 |
|
|
| 31 | % |
| $ | 133,210 |
|
|
| 5 | % |
Customer B |
|
| 1,513,210 |
|
|
| 12 | % |
|
| 129,890 |
|
|
| 4 | % |
Customer C - Related party |
|
| 1,462,678 |
|
|
| 12 | % |
|
| 190,027 |
|
|
| 7 | % |
Total |
| $ | 6,842,876 |
|
|
| 55 | % |
| $ | 453,127 |
|
|
| 16 | % |
|
| For the year ended June 30, 2017 |
|
| As of June 30, 2017 |
|
|
| Revenue |
|
| Percentage of total Revenue |
|
| Accounts receivable |
|
| Percentage of total accounts receivable |
|
Customer A |
| $ | 4,710,866 |
|
|
| 37 | % |
| $ | 481,523 |
|
|
| 20 | % |
Customer B |
|
| 1,366,152 |
|
|
| 11 | % |
|
| 369,454 |
|
|
| 15 | % |
Total |
| $ | 6,077,018 |
|
|
| 48 | % |
| $ | 850,977 |
|
|
| 35 | % |
NOTE 13 - INCOME TAXES
The Company is operating in the PRC and is subject to the Corporate Income Tax Law of the People’s Republic of China. The Company was certified as high-tech enterprises and is taxed at a unified income tax rate of 15% for three years from 2016 to 2018.
The reconciliation of income tax expense at income tax rate of 15% to the Company’s effective tax rate is as follows:
|
| For the years ended June 30, |
|
|
| 2018 |
|
| 2017 |
|
|
|
|
|
|
|
|
Tax at 15% |
| $ | 5,574 |
|
| $ | 36,646 |
|
Permanent difference |
|
| 5,311 |
|
|
| 923 |
|
Effective tax |
| $ | 10,885 |
|
| $ | 37,569 |
|
The provisions for income taxes are summarized as follows:
|
|
| For the years ended June 30, |
|
|
|
| 2018 |
|
| 2017 |
|
Current |
|
| $ | 18,182 |
|
| $ | 15,781 |
|
Deferred |
|
|
| (7,297 | ) |
|
| 21,788 |
|
Total |
|
| $ | 10,885 |
|
| $ | 37,569 |
|
The tax effects of temporary differences that give rise to the Company’s net deferred tax assets are as follows:
|
|
| June 30, 2018 |
|
|
| June 30, 2017 |
|
Bad debt provision |
| $ | 48,041 |
|
| $ | 38,065 |
|
Inventory markdown |
|
| 9,722 |
|
|
| 16,522 |
|
Revenue cutoff |
|
| (8,020 | ) |
|
| (5,556 | ) |
Accrued expenses |
|
| 12,095 |
|
|
| 11,167 |
|
Others |
|
| 856 |
|
|
| (6,177 | ) |
Deferred tax assets |
| $ | 62,694 |
|
| $ | 54,021 |
|
NOTE 14 - SUBSEQUENT EVENTS
The Company has evaluated the existence of significant events subsequent to the balance sheet date through February 15, 2019, the date the financial statements were issued and has determined that there were no subsequent events or transactions which would require recognition or disclosure in the financial statements.
Exhibit 99.3
Unaudited Pro Forma Combined Balance Sheet
As of September 30, 2018
|
| Fangguan Electronics |
|
| Ionix Technology |
|
| Pro Forma Adjustments |
|
| Pro Forma Combined |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 461,782 |
|
| $ | 304,583 |
|
|
|
|
|
| $ | 766,365 |
|
Notes receivable |
|
| 9,932 |
|
|
| - |
|
|
|
|
|
|
| 9,932 |
|
Accounts receivables - non-related parties, net |
|
| 2,269,081 |
|
|
| 464,553 |
|
|
|
|
|
|
| 2,733,634 |
|
- related parties |
|
| 459,072 |
|
|
| - |
|
|
|
|
|
|
| 459,072 |
|
Inventory, net |
|
| 2,789,868 |
|
|
| 507,440 |
|
|
|
|
|
|
| 3,297,308 |
|
Advances to suppliers - non-related parties, net |
|
| 300,349 |
|
|
| 2,257 |
|
|
|
|
|
|
| 302,606 |
|
- related parties |
|
|
|
|
|
| 268,388 |
|
|
|
|
|
|
| 268,388 |
|
Other receivables |
|
| 91,310 |
|
|
| 29,981 |
|
|
|
|
|
|
| 121,291 |
|
Total Current Assets |
|
| 6,381,394 |
|
|
| 1,577,202 |
|
|
|
|
|
|
| 7,958,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| 6,925,689 |
|
|
| - |
|
|
|
|
|
|
| 6,925,689 |
|
Intangible assets, net |
|
| 1,331,119 |
|
|
| - |
|
|
| 3,256,469 | (d)(e) |
|
| 4,587,558 |
|
Deferred tax assets |
|
| 60,122 |
|
|
| - |
|
|
|
|
|
|
| 60,122 |
|
Total Assets |
| $ | 14,698,324 |
|
| $ | 1,577,202 |
|
|
|
|
|
| $ | 19,531,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term bank loan |
| $ | 2,990,475 |
|
| $ | - |
|
|
|
|
|
| $ | 2,990,475 |
|
Accounts payable - non-related parties |
|
| 3,695,274 |
|
|
| 110,275 |
|
|
|
|
|
|
| 3,805,549 |
|
- related parties |
|
|
|
|
|
| 399,522 |
|
|
|
|
|
|
| 399,522 |
|
Advance from customers |
|
| 38,392 |
|
|
| 34,117 |
|
|
|
|
|
|
| 72,509 |
|
Due to related parties |
|
| 6,069,882 |
|
|
| 349,829 |
|
|
|
|
|
|
| 6,419,711 |
|
Accrued expenses and other current liabilities |
|
| 130,274 |
|
|
| 105,265 |
|
|
|
|
|
|
| 235,539 |
|
Total Current Liabilities |
|
| 12,924,297 |
|
|
| 999,008 |
|
|
|
|
|
|
| 13,923,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability |
|
| - |
|
|
| 10,548 |
|
|
|
|
|
|
| 10,548 |
|
Total Liabilities |
|
| 12,924,297 |
|
|
| 1,009,556 |
|
|
|
|
|
|
| 13,933,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders’ Equity |
|
| 1,774,027 |
|
|
| 567,646 |
|
|
| 3,170,779 | (a)(c)(e) |
|
| 5,512,452 |
|
Non-controling interest |
|
|
|
|
|
| - |
|
|
| 85,691 | (c) |
|
| 85,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
Total Liabilities and Shareholders’ Equity |
| $ | 14,698,324 |
|
| $ | 1,577,202 |
|
|
|
|
|
| $ | 19,531,995 |
|
Unaudited Pro Forma Combined Statement of Comprehensive Income
For the three months ended September 30, 2018
|
| Fangguan Electronics |
|
| Ionix Technology |
|
| Pro Forma Adjustments |
|
| Pro Forma Combined |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues - Non-related parties |
| $ | 1,735,252 |
|
| $ | 2,475,050 |
|
|
|
|
|
| $ | 4,210,302 |
|
- Related parties |
|
| 942,260 |
|
|
| 93,838 |
|
|
|
|
|
|
| 1,036,098 |
|
Total Revenues |
|
| 2,677,512 |
|
|
| 2,568,888 |
|
|
|
|
|
|
| 5,246,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues - non-relatedf parties |
|
| 2,283,545 |
|
|
| 499,912 |
|
|
|
|
|
|
| 2,783,457 |
|
- related parties |
|
| - |
|
|
| 1,779,811 |
|
|
|
|
|
|
| 1,779,811 |
|
Total Cost of revenue |
|
| 2,283,545 |
|
|
| 2,279,723 |
|
|
|
|
|
|
| 4,563,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 393,967 |
|
|
| 289,165 |
|
|
|
|
|
|
| 683,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| 288,993 |
|
|
| 62,989 |
|
|
| 55,194 | (e) |
|
| 407,176 |
|
Research and development expenses |
|
| 166,470 |
|
|
| - |
|
|
|
|
|
|
| 166,470 |
|
Total operating expenses |
|
| 455,463 |
|
|
| 62,989 |
|
|
|
|
|
|
| 573,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (61,496 | ) |
|
| 226,176 |
|
|
|
|
|
|
| 109,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
| 34,122 |
|
|
| 1,403 |
|
|
|
|
|
|
| 35,525 |
|
Interest expense, net of interest income |
|
| (35,028 | ) |
|
| - |
|
|
|
|
|
|
| (35,028 | ) |
Subsidy income |
|
| 75,162 |
|
|
| - |
|
|
|
|
|
|
| 75,162 |
|
Total other income (expense) |
|
| 74,256 |
|
|
| 1,403 |
|
|
|
|
|
|
| 75,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision |
|
| 12,760 |
|
|
| 227,579 |
|
|
|
|
|
|
| 185,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
| 1,914 |
|
|
| 50,426 |
|
|
|
|
|
|
| 52,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
| 10,846 |
|
|
| 177,153 |
|
|
|
|
|
|
| 132,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| (19,058 | ) |
|
| (7,922 | ) |
|
|
|
|
|
| (26,980 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
| $ | (8,212 | ) |
| $ | 169,231 |
|
|
|
|
|
| $ | 105,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic and diluted |
|
|
|
|
|
| 99,003,000 |
|
|
| 15,000,000 | (b) |
|
| 114,003,000 |
|
Unaudited Pro Forma Combined Balance Sheet
As of June 30, 2018
|
| Fangguan Electronics |
|
| Ionix Technology |
|
| Pro Forma Adjustments |
|
| Pro Forma Combined |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 49,809 |
|
| $ | 111,462 |
|
|
|
|
|
| $ | 161,271 |
|
Notes receivable |
|
| 11,258 |
|
|
| - |
|
|
|
|
|
|
| 11,258 |
|
Accounts receivables - non-related parties, net |
|
| 2,713,161 |
|
|
| 636,413 |
|
|
|
|
|
|
| 3,349,574 |
|
- related parties |
|
| 190,027 |
|
|
| 119,543 |
|
|
|
|
|
|
| 309,570 |
|
Inventory, net |
|
| 2,867,824 |
|
|
| 226,839 |
|
|
|
|
|
|
| 3,094,663 |
|
Advances to suppliers - non-related parties, net |
|
| 214,325 |
|
|
| 3,164 |
|
|
|
|
|
|
| 217,489 |
|
- related parties |
|
| - |
|
|
| 206,194 |
|
|
|
|
|
|
| 206,194 |
|
Other receivables |
|
| 88,067 |
|
|
| 20,592 |
|
|
|
|
|
|
| 108,659 |
|
Total Current Assets |
|
| 6,134,471 |
|
|
| 1,324,207 |
|
|
|
|
|
|
| 7,458,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| 7,162,538 |
|
|
| - |
|
|
|
|
|
|
| 7,162,538 |
|
Intangible assets, net |
|
| 1,354,311 |
|
|
| - |
|
|
| 3,082,894 | (d)(e) |
|
| 4,437,205 |
|
Deferred tax assets |
|
| 62,694 |
|
|
| - |
|
|
|
|
|
|
| 62,694 |
|
Total Assets |
| $ | 14,714,014 |
|
| $ | 1,324,207 |
|
|
|
|
|
| $ | 19,121,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term bank loan |
| $ | 3,022,700 |
|
| $ | - |
|
|
|
|
|
| $ | 3,022,700 |
|
Accounts payable - non-related parties |
|
| 4,273,967 |
|
|
| 264,171 |
|
|
|
|
|
|
| 4,538,138 |
|
- related parties |
|
|
|
|
|
| 248,543 |
|
|
|
|
|
|
| 248,543 |
|
Advance from customers |
|
| 67,042 |
|
|
| 59,546 |
|
|
|
|
|
|
| 126,588 |
|
Due to related parties |
|
| 5,520,926 |
|
|
| 212,557 |
|
|
|
|
|
|
| 5,733,483 |
|
Accrued expenses and other current liabilities |
|
| 47,140 |
|
|
| 125,733 |
|
|
|
|
|
|
| 172,873 |
|
Total Current Liabilities |
|
| 12,931,775 |
|
|
| 910,550 |
|
|
|
|
|
|
| 13,842,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability |
|
| - |
|
|
| 15,242 |
|
|
|
|
|
|
| 15,242 |
|
Total Liabilities |
|
| 12,931,775 |
|
|
| 925,792 |
|
|
|
|
|
|
| 13,857,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders’ Equity |
|
| 1,782,239 |
|
|
| 398,415 |
|
|
| 2,997,554 | (a)(c)(e) |
|
| 5,178,208 |
|
Non-controling interest |
|
| - |
|
|
| - |
|
|
| 85,340 | (c) |
|
| 85,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders’ Equity |
| $ | 14,714,014 |
|
| $ | 1,324,207 |
|
|
|
|
|
| $ | 19,121,115 |
|
Unaudited Pro Forma Combined Statement of Comprehensive Income
For the year ended June 30, 2018
|
| Fangguan Electronics |
|
| Ionix Technology |
|
| Pro Forma Adjustments |
|
| Pro Forma Combined |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues - Non-related parties |
| $ | 11,089,192 |
|
| $ | 5,929,368 |
|
|
|
|
| $ | 17,018,560 |
|
- Related parties |
|
| 1,465,943 |
|
|
| 493,439 |
|
|
|
|
|
| 1,959,382 |
|
Total Revenues |
|
| 12,555,135 |
|
|
| 6,422,807 |
|
|
|
|
|
| 18,977,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues - non-relatedf parties |
|
| 10,426,800 |
|
|
| 1,357,807 |
|
|
|
|
|
| 11,784,607 |
|
- related parties |
|
| - |
|
|
| 4,324,105 |
|
|
|
|
|
| 4,324,105 |
|
Total Cost of revenue |
|
| 10,426,800 |
|
|
| 5,681,912 |
|
|
|
|
|
| 16,108,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 2,128,335 |
|
|
| 740,895 |
|
|
|
|
|
| 2,869,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| 1,343,880 |
|
|
| 270,074 |
|
| 220,207 | (e) |
|
| 1,834,161 |
|
Research and development expenses |
|
| 744,264 |
|
|
| - |
|
|
|
|
|
| 744,264 |
|
Total operating expenses |
|
| 2,088,144 |
|
|
| 270,074 |
|
|
|
|
|
| 2,578,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
| 40,191 |
|
|
| 470,821 |
|
|
|
|
|
| 290,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
| 106,883 |
|
|
| - |
|
|
|
|
|
| 106,883 |
|
Interest expense, net of interest income |
|
| (161,312 | ) |
|
| - |
|
|
|
|
|
| ( 161,312 | ) |
Subsidy income |
|
| 51,399 |
|
|
| - |
|
|
|
|
|
| 51,399 |
|
Total other income (expense) |
|
| (3,030 | ) |
|
| - |
|
|
|
|
|
| (3,030 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision |
|
| 37,161 |
|
|
| 470,821 |
|
|
|
|
|
| 287,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
| 10,885 |
|
|
| 144,561 |
|
|
|
|
|
| 155,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| 26,276 |
|
|
| 326,260 |
|
|
|
|
|
| 132,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| 41,208 |
|
|
| 10,101 |
|
|
|
|
|
| 51,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
| $ | 67,484 |
|
| $ | 336,361 |
|
|
|
|
| $ | 183,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
| $ | 0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic and diluted |
|
|
|
|
|
| 99,003,000 |
|
| 15,000,000 | (b) |
|
| 114,003,000 |
|
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Note 1. Description of Acquisition and Basis of Presentation
On December 27, 2018, Ionix Technology, Inc. (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 dated December 27, 2018, the Equity Interest Pledge Agreement dated December 27, 2018, the Equity Interest Purchase Agreement dated December 27, 2018, the Exclusive Technical Support Service Agreement dated December 27, 2018 (the “Services Agreement”) and the Power of Attorney dated December 27, 2018, all together are referred to the “VIE Transaction Documents”, 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 (the “Common Stock”), thereby causing Fangguan Electronics to become the Company’s variable interest entity. The entirety of the transaction will hereafter be referred to as the “Transaction.”
The unaudited pro forma combined statement of operations is based upon the historical financial statements of Ionix and Fangguan Electronics as of June 30, 2018 and for the year ended June 30, 2018, after giving effect to the acquisition. The unaudited pro forma combined statement of operations is presented as if the acquisition had occurred at the beginning of the period.
Note 2. Pro Forma Adjustments
The pro forma adjustments included in the unaudited pro forma combined statements of income are as follows:
| (a) | Issuance of the 15,000,000 shares of Ionix’s common stock in exchange for 95.14% ownership of Fangguan Electronics. |
| (b) | Increase in the weighted average shares in connection with the issuance of 15,000,000 shares of Ionix’s common stock as the consideration of the acquisition. |
| (c) | Net effect of the elimination of equity and retained earnings of Fangguan Electronics and record non-controlling interest. |
| (d) | Reflects the allocation of the purchase price of $5,000,000 in shares of Ionix to the fair value of the assets and liabilities acquired. The allocation of the purchase price is preliminary and therefore subject to change. The allocation of the purchase price to the fair value of the assets and liabilities acquired is as following: |
Total purchase price | $5,000,000 |
Less: Net assets acquired | 5,000,000 |
Goodwill | $0 |
| (e) | Additional amortization of intangible assets |
5