UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________________ to __________________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
(Address of Principal Executive Offices)
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Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐
As of August 6, 2021, the registrant had shares of common stock, par value $0.001 per share, issued and outstanding.
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOXIAN, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| As of | ||||||||
June 30, 2021 | September 30, 2020 | |||||||
| Current Assets | - | |||||||
| Cash and Cash equivalents | $ | $ | ||||||
| Account Receivable (Note 3) | - | |||||||
| Share Subscription Receivable (Note 4) | - | |||||||
| $ | $ | |||||||
| Accruals and other payables (Note 6) | $ | $ | ||||||
| Loans Payable (Note 7) | - | |||||||
| Total current liabilities | ||||||||
| Net Assets | ||||||||
| Shareholders’ Equity | ||||||||
| Common stock, $ par value, authorized: shares. shares issued and outstanding as of June 30, 2021 (September 30, 2020: shares issued and outstanding) | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficiency | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Net Shareholders’ Equity | ||||||||
See accompanying notes to the unaudited condensed consolidated financial statements
| 1 |
MOXIAN, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For Three Months Ended June 30, | For Nine Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Selling, general and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for doubtful debts | - | - | ( | ) | - | |||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (Note 3) | - | - | ||||||||||||||
| Interest expense (Note 7) | ( | ) | - | ( | ) | - | ||||||||||
| Net profit/(loss) | ( | ) | ( | ) | ( | ) | ||||||||||
Foreign currency translation adjustments | - | - | ||||||||||||||
| Comprehensive income/(loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Basic and diluted profit/(loss) per common share | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Basic and diluted weighted average common shares outstanding | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements
| 2 |
MOXIAN, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the periods ended June 30, 2021 and 2020
| Common Stock | Additional paid-in | Accumulated | Accumulated other comprehensive | |||||||||||||||||||||
| Shares | Amount | Capital | deficit | income | Total | |||||||||||||||||||
| Balance, September 30, 2020 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Net loss | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | ||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | ) | |||||||||||||||||||
| Issuance of shares | - | - | ||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Balance, March 31, 2021 | ( | ) | ||||||||||||||||||||||
| Net profit | - | - | - | - | ||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ||||||||||||||||||||
| Balance, June 30, 2021 | ( | ) | ||||||||||||||||||||||
Balance, September 30, 2019 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Net loss | - | - | - | - | ||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | ( | ) | |||||||||||||||||||
| Net loss | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Balance, March 31, 2020 | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
See accompanying notes to consolidated financial statements
| 3 |
MOXIAN, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For Nine Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FROM OPERATING ACTIVITIES | ||||||||
| Net loss from operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile to net cash used in operating activities: | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Other receivables | - | |||||||
| Accruals and other payables | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Repayment of third party loans | ( | ) | ( | ) | ||||
| Proceeds from issuance of new shares | ||||||||
| Cash from financing activities | ||||||||
| Effect of exchange rates on translation of opening liabilities | ||||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements
| 4 |
MOXIAN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Corporate Developments
Organization of the Group
Moxian, Inc. (formerly known as Moxian China, Inc., hereinafter referred as “Moxian,” together with its subsidiaries and variable interest entity, the “Company”), was incorporated under the laws of the State of Nevada on October 12, 2010. The Company, through its subsidiaries and variable interest entity, engages in the business of operating a social network platform that integrates social media and business into one single platform. The Company has devoted its efforts to develop a mobile application and online platform that facilitate the small to medium size businesses to attract more clients. The Company’s ability to generate sufficient funds to meet its working capital requirements is dependent upon its ability to develop additional sources of capital, develop apps and websites, generate servicing income, and ultimately, achieve profitable operations (see Note 2).
On February 17, 2014, the Company incorporated Moxian CN Group Limited (“Moxian CN Samoa”) under the laws of Samoa.
On
January 30, 2015, the Company entered into an Equity Transfer Agreement (such transaction, the “Equity Transfer Transaction”)
with REBL, to acquire from REBL,
Moxian
GL was incorporated on July 3, 2012 under the laws of British Virgin Islands. REBL owned
Moxian
Technologies (Beijing) Co., Ltd. (“Moxian Beijing”) was incorporated on December 10, 2015 under the laws of the People’s
Republic of China and is a wholly owned subsidiary of Moxian Shenzhen. Moxian Shenzhen made an investment of RMB
Moxian HK was incorporated on January 18, 2013 and became Moxian BVI’s subsidiary on February 14, 2013. Moxian HK is currently engaged in the business of online social media. Moxian HK operates through two wholly owned subsidiaries: Moxian Shenzhen and Moxian Malaysia.
Moxian Shenzhen is wholly owned by Moxian HK. Moxian Shenzhen was incorporated on April 8, 2013 and is engaged in the business of internet technology, computer software, commercial information consulting.
| 5 |
MOXIAN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Corporate Developments (Continued)
Organization of the Group (continued)
Moxian Malaysia was incorporated on March 1, 2013 and became Moxian HK’s subsidiary since April 2, 2013. Moxian Malaysia was previously in the business of IT services and media advertising but have ceased operations since June 2015.
Shenzhen Moyi Technologies Co., Ltd. (“Moyi”) was incorporated on July 19, 2013 under the laws of the People’s Republic of China and became a variable interest entity (“VIE”) of Moxian Shenzhen on July 15, 2014. Moxian Shenzhen controls Moyi through arrangement that absorbs operations risk, as if Moyi is a wholly owned subsidiary of Moxian Shenzhen.
On December 18, 2017, the Company entered into a Tripartite Agreement with the original shareholders of Moyi and the new shareholders of Moyi wherein the Company agrees to the transfer of the equity interests of Moyi and all related rights, liabilities and obligations under the Moyi Agreements such that the new shareholders stand in place of the old shareholders in all aspects of the Moyi Agreements.
On January 30, 2018, a wholly-owned subsidiary of Moxian Shenzhen, Moxian Information Technologies (Shanghai) Co. Ltd. (“Moxian Shanghai”), was incorporated under the laws of the People’s Republic of China.
Corporate Developments
On
November 14, 2016 the Company announced the completion of a public offering of shares of its common stock at a public offering
price of $per share. The gross proceeds from its offering
were approximately $
On
April 22, 2019, the Company implemented a
On
May 2, 2019, the Company reached an agreement with each of its three loan creditors as of September 30, 2018 regarding settlement of
their loans to the Company. Under the agreements, all three loan creditors, which are unrelated parties as of the date of the agreements,
would write off a total of $
On
June 21, 2019, the Company entered into an Agreement (“the Agreement”) with Joyful Corporation Limited (the “Investor”)
whereby the Investor (a) purchased from the Company shares of the Company’s common stock at a price of $ per share
for aggregate gross proceeds of $
On December 20, 2019, 369 Technologies (Beijing) Co. Ltd., was incorporated under the laws of the People’s Republic of China as a wholly-owned subsidiary of Woodland Corporation. It has not commenced operations as of June 30, 2021. On March 18, 2021, 369 Technologies (Beijing) Co. Ltd. changed its name to Beijing Bit Matrix Technology Co. Ltd.
On July 19, 2021, at the Company’s annual meeting, stockholders of the Company approved the adoption of the Agreement and Plan of Merger entered into on May 28, 2021 by and between the Company and Moxian (BVI) Inc, a British Virgin Islands company and a wholly owned subsidiary of the Company (“Moxian BVI”), that will effectively change the Company’s place of incorporation from Nevada to the British Virgin Islands. Pursuant to the approval of the stockholders, the Company is proceeding with the completion of the redomicile merger and expects the transaction to become effective in August 2021. At the effective date, the Company will merge with and into Moxian BVI, with Moxian BVI surviving the merger. Each issued and outstanding share of the Company’s common stock will be converted into the right to receive one ordinary share in Moxian BVI, which shares will be issued by Moxian BVI in connection with the merger, and stockholders’ relative economic ownership and voting rights will remain unchanged. Moxian BVI will own and continue to conduct our business in substantially the same manner as it is currently being conducted by the Company and its subsidiaries. We expect that, at the effective time, Moxian BVI’s ordinary shares will be authorized for listing on NASDAQ and traded on the exchange under the same symbol “MOXC”. Moxian BVI is expected to qualify as a “foreign private issuer” under the rules and regulations of the SEC.
The Company had two main divisions of business. It is in the O2O (“Online-to-Offline”) business with the development of an online platform for small and medium sized enterprises (“SMEs”) with physical stores to conduct business online, interact with existing customers and obtain new customers. It also operated pursuant to an exclusive agreement, the Games Channel of the state-owned Xinhua News Agency App and was a general agent for all advertisements on this mobile application.
However, due to the highly competitive nature of the O2O market, and the slow development of its products, the Company has incurred losses since inception. By September 30, 2018, the Company had run out of funds and some of the major shareholders of the Company were not prepared to give further financial support. The Company decided to continue its operations in the digital advertising business but temporarily halt the operation of its App until its financial situation improved.
2. Summary of principal accounting policies
Basis of presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and reflect the activities of the following subsidiaries and VIE: Moxian CN Samoa, Moxian BVI, Moxian HK, Moxian Beijing, and Moxian IP Samoa. All inter-company transactions and balances have been eliminated in the consolidation. All other subsidiary companies and the sole VIE, Moyi, have been inactive since September 30, 2018.
The unaudited interim condensed consolidated financial information as of June 30, 2021 and for the nine months ended June 30, 2021 and 2020 have been prepared, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited interim condensed consolidated financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s Form 10-K for the fiscal year ended September 30, 2020, previously filed with the SEC on January 14, 2021.
| 6 |
MOXIAN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of principal accounting policies (Continued)
Basis of presentation (continued)
In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s unaudited condensed consolidated financial position as of June 30, 2021 and of its unaudited condensed consolidated results of operations for the nine months ended June 30, 2021 and 2020, and of its unaudited condensed consolidated cash flows for the nine months ended June 30, 2021 and 2020, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.
The following assets and liabilities of the VIE, which has been dormant since September 30, 2018, are included in the accompanying consolidated financial statements of the Company as of June 30, 2021 and September 30, 2020:
| June
30, 2021 | September
30, 2020 | |||||||
| Current assets | $ | $ | ||||||
| Non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Current liabilities | $ | $ | ||||||
| Non-current liabilities | ||||||||
| Total liabilities | $ | $ |
Reclassification
Certain prior period amounts have been reclassified to conform to the current period presentation.
Going Concern
As explained in Note 1, the Company has had only a single line of business since September 30, 2018 due to a lack of working capital.
In assessing the Company’s liquidity and its ability to continue as a going concern, the Company monitors and analyzes its cash and cash equivalents and its operating and capital expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations.
If the Company is unable to obtain the necessary additional capital on a timely basis and on acceptable terms, it will be unable to implement its current plans for expansion, repay debt obligations or respond to competitive pressures. Any of these factors would have a material adverse effect on its business, prospects, financial condition and results of operations and raise substantial doubts about the ability of the Company to continue as a going concern. The consolidated financial statements for the period ended June 30, 2021 and September 30, 2020 have been prepared on a going concern basis and do not include any adjustments to reflect the possible future effects on the recoverability and classifications of assets or the amounts and classifications of liabilities that may result from the inability of the Company to continue as a going concern.
| 7 |
MOXIAN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of principal accounting policies (Continued)
Risks and Uncertainties
The Company’s operations are substantially carried out in the People’s Republic of China (“PRC”). Accordingly, the Company’s business, financial condition and results of operations may be substantially influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Since September 30, 2018 the Company’s operations have been carried out in its Beijing subsidiary, Moxian Beijing, whereas the intermediate company in Hong Kong, Moxian HK, provides support for the treasury and corporate functions. All other companies of the Group are dormant and have no business operations.
Fair value of financial instruments
The Company follows the provisions of Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures.” ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1-Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs other than quoted prices that are observable for the asset or liability in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3-Inputs are unobservable inputs which reflect management’s assumptions based on the best available information.
The carrying value of cash and cash equivalents, restricted cash, prepayments, deposits and other receivables, Value added tax recoverable, accruals and other payables, loans from related parties and stock subscription payable approximate their fair values because of the short-term nature of these instruments.
Use of estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the accompanying unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates required to be made by management include but not limited to, useful lives of property and equipment, intangible assets valuation, inventory valuation and deferred tax assets. Actual results could differ from those estimates.
| 8 |
MOXIAN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of principal accounting policies (Continued)
Property and Equipment, net
Property and equipment are recorded at cost less accumulated depreciation and impairment. Significant additions or improvements extending useful lives of assets are capitalized. Maintenance and repairs are charged to expense as incurred. Depreciation and amortization are computed using the straight-line method over the estimated useful lives as follows:
| Electronic equipment | ||
| Furniture and fixtures | ||
| Leasehold improvements |
Impairment of long-lived assets
The Company classifies its long-lived assets into: (i) computer and office equipment; (ii) furniture and fixtures, (iii) leasehold improvements, and (iv) finite – lived intangible assets.
Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be fully recoverable. It is possible that these assets could become impaired as a result of technology, economy or other industry changes. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, relief from royalty income approach, quoted market values and third-party independent appraisals, as considered necessary.
The Company makes various assumptions and estimates regarding estimated future cash flows and other factors in determining the fair values of the respective assets. The assumptions and estimates used to determine future values and remaining useful lives of long-lived assets are complex and subjective. They can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as the Company’s business strategy and its forecasts for specific market expansion.
Due to the continuing losses from operations with minimal revenues, the Company recorded a valuation reserve against its remaining intangible assets in 2018.
| 9 |
MOXIAN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of principal accounting policies (Continued)
Revenue recognition
The Company currently recognizes revenue from the sale of merchandise through its online platforms. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. Revenue is recorded on a gross basis, net of surcharges and value added tax (“VAT”). The Company recorded revenue on a gross basis because the Company has the following indicators for gross reporting: it is the primary obligor of the sales arrangements, is subject to inventory risks of physical loss, has latitude in establishing prices, has discretion in suppliers’ selection and assumes credit risks on receivables from customers.
Revenue from advertising is recognized as advertisements are displayed. Revenue from software development services comprises revenue from time and material and fixed price contracts. Revenue from time and material contracts are recognized as related services are performed. Revenue on fixed price contracts is recognized in accordance with percentage of completion method of accounting.
Income taxes
The Company utilizes ASC Topic 740 (“ASC 740”) “Income taxes”, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the unaudited condensed consolidated financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC
740 “Income taxes” clarifies the accounting for uncertainty in tax positions. This interpretation requires that an entity
recognizes in the unaudited condensed consolidated financial statements the impact of a tax position, if that position is more likely
than not of being sustained upon examination, based on the technical merits of the position.
As of June 30, 2021, the tax years ended December 31, 2021 through December 31, 2020 for the Company’s PRC entities remain open for statutory examination by the PRC tax authorities.
Foreign currency transactions and translation
The reporting currency of the Company is United States Dollars (the “USD”) and the functional currency of Moxian Beijing is Renminbi (the “RMB”) as China is the primary economic environment in which they operate. The functional currency of Moxian HK is the Hong Kong Dollar (the “HKD”).
| 10 |
MOXIAN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of principal accounting policies (Continued)
Foreign currency transactions and translation (continued)
For financial reporting purposes, the financial statements of Moxian Beijing and Moxian HK, which are prepared using their respective functional currencies, are translated into the reporting currency, USD, so to be consolidated with the Company’s. Monetary assets and liabilities denominated in currencies other than the reporting currency are translated into the reporting currency at the rates of exchange ruling at the balance sheet date. Revenues and expenses are translated using average rates prevailing during the reporting period. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity (deficiency). Transaction gains and losses are recognized in the unaudited consolidated condensed statements of operations and comprehensive loss.
The exchange rates applied are as follows:
| Balance sheet items, except for equity accounts | June 30, 2021 | September 30, 2020 | ||||||
| RMB:USD | ||||||||
| HKD:USD | ||||||||
Items in the unaudited condensed consolidated statements of operations and comprehensive loss, and unaudited condensed consolidated statements of cash flows
| Nine
Months Ended June 30, |
Three Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| RMB:USD | ||||||||||||||||
| HKD:USD | ||||||||||||||||
Research and Development
Research and development expenses include payroll, employee benefits, stock-based compensation expense, and other related expenses associated with product development. Research and development expenses also include third-party development, programming costs, and localization costs incurred to translate software for local markets. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached. Once technological feasibility is reached, such costs are capitalized and amortized as part of the cost of revenue over the estimated lives of the product.
| 11 |
MOXIAN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of principal accounting policies (Continued)
Recent accounting pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in ASC 605 - Revenue Recognition (“ASC 605”) and most industry-specific guidance throughout ASC 605. The FASB has issued numerous updates that provide clarification on a number of specific issues as well as requiring additional disclosures. The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.
The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The guidance may be adopted through either retrospective application to all periods presented in the financial statements (full retrospective approach) or through a cumulative effect adjustment to retained earnings at the effective date (modified retrospective approach). The guidance was revised in July 2015 to be effective for private companies and emerging growth public companies for annual and interim periods beginning on or after December 15, 2018. These new standards became effective for AESE on January 1, 2019 and were adopted using the modified retrospective method. The adoption of ASC Topic 606 did not have a material impact on our consolidated financial statements as of the date of adoption, and therefore a cumulative-effect adjustment was not required.
In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842).” ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. This amendment will be effective for private companies and emerging growth companies for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The FASB issued ASU No. 2018-10 “Codification Improvements to Topic 842, Leases” and ASU No. 2018-11 “Leases (Topic 842) Targeted Improvements” in July 2018, and ASU No. 2018-20 “Leases (Topic 842) - Narrow Scope Improvements for Lessors” in December 2018. ASU 2018-10 and ASU 2018-20 provide certain amendments that affect narrow aspects of the guidance issued in ASU 2016-02. ASU 2018-11 allows all entities adopting ASU 2016-02 to choose an additional (and optional) transition method of adoption, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We are currently evaluating the impact that this guidance will have on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326)” and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively Topic 326). Topic 326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing incurred loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates. We will be required to adopt the provisions of this ASU effective on January 1, 2023, with early adoption permitted for certain amendments. Topic 326 must be adopted by applying a cumulative effect adjustment to retained earnings. The adoption of Topic 326 is not expected to have a material impact on our consolidated financial statements or disclosures.
| 12 |
MOXIAN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of principal accounting policies (Continued)
Recent accounting pronouncements (continued)
In August 2016, the FASB issued Accounting Standards Update (“ASU”) ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). The new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard for private companies and emerging growth public companies is effective for fiscal years beginning after December 15, 2018. We adopted this new standard on January 1, 2019. The adoption of ASU 2016-15 did not have a material impact on our consolidated financial statements or disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new guidance simplifies the accounting for goodwill impairment by eliminating Step 2 of the goodwill impairment test. Under current guidance, Step 2 of the goodwill impairment test requires entities to calculate the implied fair value of goodwill in the same manner as the amount of goodwill recognized in a business combination by assigning the fair value of a reporting unit to all of the assets and liabilities of the reporting unit. The carrying value in excess of the implied fair value is recognized as goodwill impairment. Under the new standard, goodwill impairment is recognized based on Step 1 of the current guidance, which calculates the carrying value in excess of the reporting unit’s fair value. The new standard is effective beginning in January 2020, with early adoption permitted. We do not expect the impact of adopting this guidance to be material to our consolidated financial statements.
In July 2018, the FASB issued ASU No. 2018-09, “Codification Improvements” (“ASU 2018-09”). These amendments provide clarifications and corrections to certain ASC subtopics including the following: Income Statement - Reporting Comprehensive Income – Overall (Topic 220-10), Debt - Modifications and Extinguishments (Topic 470-50), Distinguishing Liabilities from Equity – Overall (Topic 480-10), Compensation - Stock Compensation - Income Taxes (Topic 718-740), Business Combinations - Income Taxes (Topic 805-740), Derivatives and Hedging – Overall (Topic 815-10), and Fair Value Measurement – Overall (Topic 820-10). The majority of the amendments in ASU 2018-09 will be effective in annual periods beginning after December 15, 2019. The adoption of ASU 2018-09 is not expected to have a material impact on our consolidated financial statements or disclosures.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in ASU 2018-13 modify the disclosure requirements associated with fair value measurements based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The adoption of ASU 2018-13 it not expected to have a material impact our consolidated financial statements.
In March 2019, the FASB issued ASU 2019-02, which aligns the accounting for production costs of episodic television series with the accounting for production costs of films. In addition, ASU 2019-02 modifies certain aspects of the capitalization, impairment, presentation and disclosure requirements in Accounting Standards Codification (“ASC”) 926-20 and the impairment, presentation and disclosure requirements in ASC 920-350. This ASU must be adopted on a prospective basis and is effective for annual periods beginning after December 15, 2020, including interim periods within those years, with early adoption permitted. We are currently evaluating the impact that this pronouncement will have on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes. The new guidance simplifies the accounting for income taxes by removing several exceptions in the current standard and adding guidance to reduce complexity in certain areas, such as requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We are currently assessing the impact that adopting this guidance will have on our consolidated financial statements.
| 13 |
MOXIAN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Account Receivable
The
Company had a major account receivable, that of Beijing Bi Er Culture Communication Limited, (“Bi Er”) a limited company
based in Beijing, for which the Company provided advertising and other support services under a Strategic Co-operative Agreement signed
in August 2019. The balance as of March 31, 2021 was $
On
September 30, 2019, the Company issued new shares of Common Stock to Joyful Corporation Limited, (“Joyful”) a Samoa-based
company at a price of $ per share, for cash with total proceeds of $
Over the course of the year to September 30, 2020, various creditors of the Company had agreed to assign their receivables from the Company to Joyful which, in turn offset these amounts against the appropriate share subscription amounts due to the Company for the shares issued. The total amounts agreed to be offset in this manner was $.
As of March 31, 2021, the entire amount of the Share Subscription in respect of the new shares noted above has been fully settled, either in the form of cash, or through an off-set of amounts the Company owed to its directors, other creditors and an unsecured loan from a unrelated third-party, Tang Junsheng (see also Note 7).
5. Cessation of the Mobile Application part of business and the consequential effects on the Balance Sheet
The Company ceased the part of its business associated with its mobile application in the year ended September 30, 2018. As a result, as of that date, it had fully provided for all its related business assets as of September 30, 2018. There has been no movement since as the business had not been re-activated. Therefore, the fully written down value of the assets remain unchanged as of June 30, 2021 and September 30, 2020, and is as follows:
(a) Prepayments, deposits and other receivables
| June
30, 2021 | September
30, 2020 | |||||||
| Prepayments to suppliers | $ | $ | ||||||
| Rental and other deposits | ||||||||
| Employee advances and others | ||||||||
| Sub total | ||||||||
| Less: allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Prepayments, deposits and other receivables, net | $ | $ | ||||||
(b) Property and equipment, net
| June
30, 2021 | September 30, 2020 | |||||||
| Electronic equipment | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Leasehold improvements | ||||||||
| Total property and equipment | ||||||||
| Less: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
(c) Intangible assets
| June
30, 2021 | September 30, 2020 | |||||||
| IP rights | $ | $ | ||||||
| Other intangible assets | ||||||||
| $ | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Net intangible assets | $ | $ | ||||||
| 14 |
MOXIAN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. Accruals and other payables
June 30, 2021 | September 30, 2020 | |||||||
| Salaries payable | $ | $ | ||||||
| Directors’ fees | ||||||||
| Accrued expenses | ||||||||
| Other payables and provisions | ||||||||
| $ | $ | |||||||
7. Loans
June 30, 2021 | September 30, 2020 | |||||||
| Loans Payable: | ||||||||
| Tang Junsheng | ||||||||
| Others | - | |||||||
| - | ||||||||
In
August 2020, Mr. Junsheng Tang (“Mr. Tang”) filed a civil action against Moxian Technologies (Beijing) Co. Ltd. (“Moxian
Beijing”) for the recovery of RMB
On
April 26, 2021, the Audit Committee of the Company’s Board of Directors learned that Bi Er had breached the Assignment Agreement
by failing to pay necessary funds to Mr. Tang by January 19, 2021. However, Mr. Deng Conglin (“Mr. Deng”) remitted a sum
of RMB
8. Income taxes
The Company and its subsidiaries file separate income tax returns.
The United States of America
Moxian
is incorporated in the State of Nevada in the U.S. and is subject to U.S. federal corporate income taxes. The State of Nevada does not
impose any state corporate income tax. As of June 30, 2021, future net operation losses of approximately $
On
December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) was signed into law making significant changes
to the Internal Revenue Code. Changes include, but are not limited to, a U.S. corporate tax rate decrease from
Additionally, the 2017 Tax Act imposes a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries, and future foreign earnings are subject to U.S. taxation. The change in rate has caused us to remeasure all U.S. deferred income tax assets and liabilities for temporary differences and NOL carryforwards and recorded one-time income tax payable to be paid in 8 years. However, this one-time transition tax has no effect on the Company’s income tax expenses as the Company has no undistributed foreign earnings prior to December 31, 2017, as the Company has cumulative foreign losses as of June 30, 2021.
| 15 |
MOXIAN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Income taxes (continued)
British Virgin Islands
Moxian BVI is incorporated in the British Virgin Islands. Under the current laws of the British Virgin Islands, Moxian BVI is not subject to tax on income or capital gains. In addition, upon payments of dividends by Moxian BVI, no British Virgin Islands withholding tax is imposed.
Hong Kong
Moxian
HK is incorporated in Hong Kong and Hong Kong’s profits tax rate is
Malaysia
Moxian Malaysia ceased operation in June 2017.
PRC
Effective
from January 1, 2008, the PRC’s statutory income tax rate is
As
of September 30, 2020, the Company had net operating loss carry forwards of approximately of $
Moxian Shenzhen was incorporated in the People’s Republic of China. Moxian Shenzhen did not generate taxable income in the People’s Republic of China for the period from April 8, 2013 (date of inception) to September 30, 2018 when it ceased operations.
Moyi was incorporated in the People’s Republic of China. Moyi did not generate taxable income in the People’s Republic of China for the period from July 19, 2013 (date of inception) to September 30, 2018 when it ceased operations.
Moxian Beijing was incorporated in the People’s Republic of China. Moxian Beijing did not generate taxable income in the People’s Republic of China for the period from December 10, 2015 (date of inception) to December 31, 2020.
The Company’s effective income tax rates were 0% for the nine months ended June 30, 2021 and 2020 because of accumulated tax losses brought forward. The applicable rates of income taxes are as follows:
| June 30, 2021 | June 30, 2020 | |||||||
| U.S. statutory rate | % | % | ||||||
| Foreign income not registered in the U.S. | ( | )% | ( | )% | ||||
| PRC statutory rate | % | % | ||||||
| Changes in valuation allowance and others | ( | )% | ( | )% | ||||
| Effective tax rate | % | % | ||||||
Because
of the uncertainty regarding the Company’s ability to realize its deferred tax assets, a
As of June 30, 2021 and September 30, 2020, the valuation allowance was approximately $9.0 million. For the nine months ended June 30, 2021 and 2020, there were no increase in the valuation allowance.
June 30, 2021 | September 30, 2020 | |||||||
| Deferred tax asset from net operating loss and carry-forwards | $ | $ | ||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax asset, net | $ | $ | ||||||
| 16 |
MOXIAN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Capital Stock
(a) Reverse Share Split
On
April 5, 2019, the Board of Directors approved a
(b) Debt Exchange
On
May 2, 2019, the Company reached an agreement with each of the three loan creditors as of September 30, 2018 regarding settlement of
their loans to the Company. (“Debt Exchange”). Under the agreements, the loan creditors, all three loan creditors, which
were unrelated parties as of the date of the agreements, would write off a total of $
(c) Public Offering Warrants
In
connection with and upon closing of the Public Offering on November 14, 2016, the Company issued warrants equal to four percent (
The
aggregated fair value of the Public Offering Warrants on November 14, 2016 was $
(d) New issuance of shares
In March 2021, the Company issued a total of ordinary shares of common stock to four individuals, at a price of $ per share. The proceeds from these issues will be used for working capital needs of the Company.
10. Commitments and contingencies
Operating Lease
The
Company currently leases its office premises for RMB
Legal Proceedings
As of June 30, 2021, the Company is not aware of any material outstanding claim or litigation against them.
11. Subsequent events
| (a) | Agreement and Plan of Merger |
On July 19, 2021, at the Company’s annual meeting, stockholders of the Company approved the adoption of the Agreement and Plan of Merger entered into on May 28, 2021 by and between the Company and Moxian (BVI) Inc, a British Virgin Islands company and a wholly owned subsidiary of the Company (“Moxian BVI”), that will effectively change the Company’s place of incorporation from Nevada to the British Virgin Islands. Pursuant to the approval of the stockholders, the Company is proceeding with the completion of the redomicile merger and expects the transaction to become effective in August 2021. At the effective time, the Company will merge with and into Moxian BVI, with Moxian BVI surviving the merger. Each issued and outstanding share of the Company’s common stock will be converted into the right to receive one ordinary share in Moxian BVI, which shares will be issued by Moxian BVI in connection with the merger, and stockholders’ relative economic ownership and voting rights will remain unchanged. Moxian BVI will own and continue to conduct our business in substantially the same manner as it is currently being conducted by the Company and its subsidiaries. We expect that, at the effective time, Moxian BVI’s ordinary shares will be authorized for listing on NASDAQ and traded on the exchange under the same symbol “MOXC”. Moxian BVI is expected to qualify as a “foreign private issuer” under the rules and regulations of the SEC.
| (b) | As of the date of this Report, of the warrants previously issued (Note 9c) have been exercised on a caseless basis in July 2021, resulting in a new issue of a total of ordinary shares of common stock. |
| 17 |
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those financial statements appearing elsewhere in this Report.
Certain statements in this Report constitute forward-looking statements. These forward-looking statements include statements, which involve risks and uncertainties, regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “project,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” or the negative of these words or other variations on these words or comparable terminology. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.
The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.
The “Company,” “we,” “us,” “our” or “Moxian” are references to the combined business of
| (i) | Moxian, Inc., a company incorporated under the laws of Nevada; |
| (ii) | Moxian CN Group Limited, a company incorporated under the laws of Independent State of Samoa (“Moxian CN Samoa”), |
| (iii) | Moxian Intellectual Property Limited, a company incorporated under the laws of Independent State of Samoa (“Moxian IP Samoa”); |
| (iv) | Moxian Group Limited, a company incorporated under the laws of British Virgin Islands (“Moxian BVI”), |
| (v) | Moxian (Hong Kong) Limited, a limited liability company incorporated under the laws of Hong Kong (“Moxian HK”), |
| (vi) | Moxian Technologies (Shenzhen) Co., Ltd., a company incorporated under the laws of People’s Republic of China (“Moxian Shenzhen”), |
| (vii) | Moxian Malaysia Sdn.Bhd. (“Moxian Malaysia”), a company incorporated under the laws of Malaysia (“Moxian Malaysia”), |
| (viii) | Moxian Technologies (Beijing) Co., Ltd., a company incorporated under the laws of People’s Republic of China (“Moxian Beijing”) and |
| (ix) | Moxian Technologies (Shanghai) Co. Ltd., a company incorporated under the laws of the Peoples’ Republic of China (“Moxian Shanghai”) and |
| (x) | Shenzhen Moyi Technologies Co. Ltd., a contractually controlled affiliate of Moxian Shenzhen formed under the laws of People’s Republic of China (“Moyi”) |
| (xi) | Woodland Corporation Limited, a company incorporated under the laws of the Special Adminisrative Region of Hong Kong (“Woodland”) |
| (xii) | Beijing Bit Matrix Technology Co. Ltd., a company incorporated under the laws of the Peoples’ Republic of China (“Bit Matrix”) |
Overview
We have been in the O2O (“Online-to-Offline”) business since the inception of the Company until the fiscal year ended September 30, 2018. We developed an online platform for small and medium sized enterprises (“SMEs”) with physical stores to conduct business online, interact with existing customers and obtain new customers. We developed products and services are designed to allow our clients to conduct targeted advertising campaigns and promotions and attract potential customers.
However, due to a highly competitive market, and the slow development of our products, we have continued to incur losses in every fiscal year since inception. By September 30, 2018, we had run out of funds and the shareholders of the Company were not prepared to give further financial support. The Company decided to continue its operations in digital advertising but temporarily halt the operation of its App until its financial situation improved. The Company has since operated as a general agent for the Xinhua App, of which the Company had exclusive agreements to operate the Games Channel on its app. This business requires less manpower and funding levels. The Company currently employs 11 individuals, of which 3 are in marketing and business development and the rest in administration and finance.
| 18 |
Going Concern
In assessing the Company’s liquidity and its ability to continue as a going concern, the Company monitors and analyzes its cash and cash equivalents and its operating and capital expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations.
If the Company is unable to obtain the necessary additional capital on a timely basis and on acceptable terms, it will be unable to implement its current plans for expansion, repay debt obligations or respond to competitive pressures. Any of these factors would have a material adverse effect on its business, prospects, financial condition and results of operations and raise substantial doubts about the ability of the Company to continue as a going concern. The consolidated financial statements for the periods ended June 30, 2021 and 2020 have been prepared on a going concern basis and do not include any adjustments to reflect the possible future effects on the recoverability and classifications of assets or the amounts and classifications of liabilities that may result from the inability of the Company to continue as a going concern.
For the three months ended June 30, 2021 compared with the three months ended June 30, 2020
Revenue for the three months ended June 30, 2021 improved to $194,809, or about 162% higher that of the same period for the previous year, as the Chinese economy gathered further momentum and marketing efforts through higher staff incentives started to yield results. Selling, administrative and general expenses had a modest increase from the corresponding period but higher corporate expenses at the holding company level resulted in total costs of $374,589 more than doubling that of the previous comparable period. The additional corporate expenses largely related to fees associated with the merger of the Company with a wholly-owned subsidiary in the British Virgin Islands.
There was a recovery of about $292,000 for a debt owed by a major client but this was partly off-set by the charge for an interest on a third-party loan, following a settlement on a legal suit brought against the operating subsidiary.
The net result of all the above is a small profit of $50,151 compared with a loss of $82,251 in the third quarter of last year.
For the nine months ended June 30, 2021 compared with the nine months ended June 30, 2020
The results for the nine months ended June 30, 2021 are characterized by the loss of a major client in late 2020 which necessitated a provision of $1,459,892 for doubtful debt, coupled with higher operating and corporate costs which resulted in a loss of $2,244,709. This compared unfavourably with the same period last financial year when the loss was only $5,682 without such one-off items.
Revenue for this period was just about half of that of the previous period following the loss of the major client. The Company has since made renewed efforts to bolster staff productivity and increased marketing efforts.
At the holding company level, there were additional professional fees associated with failed attempts to acquire new businesses to improve revenues of the Company, together with costs the corporate restructuring mentioned above.
Critical Accounting Policies and Estimates
Use of estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the accompanying unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates required to be made by management include but not limited to, useful lives of property and equipment, intangible assets valuation, inventory valuation and deferred tax assets. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements
Reference is made to the “Recent Accounting Pronouncements” in Note 2 to the Unaudited Condensed Consolidated Financial Statements included in this Report for information related to new accounting pronouncements, as well as the related impact of those recent accounting pronouncements.
Off-Balance Sheet Arrangements
As of June 30, 2021, we did not have any off-balance sheet arrangements.
| 19 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of June 30, 2021, the Company carried out an evaluation, under the supervision of and with the participation of management, including our Company’s chief executive officer, of the effectiveness of the design and operation of our Company’s disclosure controls and procedures under the 2013 COSO framework. Based on the foregoing, the chief executive officer concluded that our Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were ineffective in timely alerting management to information required to be included in the Company’s periodic filings to the Securities and Exchange Commission filings.
Based on such evaluation, our CEO and CFO have concluded that as of June 30, 2021, the Company’s disclosure controls and procedures were ineffective due to the Company’s lacks of formal documented controls and procedures applicable to all officers and directors to disclose the required information under the Exchange Act.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act. It is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel. The objective is to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; | |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and | |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by the internal controls over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
| 20 |
As of June 30, 2021, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in by the Committee of Sponsoring Organizations of the Treadway Commission’s 2013 Internal Control Integrated Framework and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules. This was primarily due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls. These deficiencies may be considered to be material weaknesses.
Identified Material Weakness
A material weakness in internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.
Management identified the following material weaknesses during its assessment of internal controls over financial reporting as of June 30, 2021:
| (1) | A lack of understanding of the requirements of NASDAQ, made worse by a poor command of the English language at the senior levels of management. | |
| (2) | Lack of timely communications or selective reporting between the CEO and the Board of Directors | |
| (3) | There are no written policies and procedures covering such operational activities such as sales and procurement due to a lack of staff stability, especially at senior management levels. | |
| (4) | Chinese accounting practices require standard official invoices to be issued and paid before they can be recognized in the accounting records leading to cut-off issues at every period end, so special procedures have to be adopted to ensure proper accounting. | |
| (5) | There have instances where the Company’s CEO has not complied with guidelines on authorization limits for payments and such actions have required subsequent review and ratification by the Board. |
As a result of the material weaknesses described above, management has concluded that the Company did not maintain effective internal control over financial reporting as of June 30, 2021 based on criteria established in Internal Control—Integrated Framework issued by COSO (2013 framework). However, management does not believe that any of our annual or interim financial statements issued to date contain a material misstatement as a result of the aforementioned weaknesses in our internal control over financial reporting.
Management’s Remediation Initiatives
To mediate the identified material weaknesses and other deficiencies, we have introduced the following measures:
| (1) | Ensure that the Audit Committee meets regularly and review all related party transactions to ensure that they are in the best interest of the Company. | |
| (2) | Hold monthly board meetings with telephone participation by those directors unable to attend in person. | |
| (3) | Strengthen the Board with members with corporate experience and fluency in English. | |
| (4) | Design and monitor controls over financial reporting, including the introduction of a proper checklist of cut-off procedures to ensure proper accounting of accruals and payables. | |
| (5) | Continue to provide training to financial staff on U.S. GAAP and educate management staff and directors on NASDAQ Listing Rules and SEC Reporting Requirements. | |
| (6) | Further emphasize to Senior Management of subsidiary companies, the importance of timely reporting and the submission of complete returns to the holding company |
Changes in internal controls over financial reporting
There have been no changes in our internal controls over financial reporting that occurred during the period covered by this Report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
| 21 |
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS.
We face risks related to Novel Coronavirus (COVID-19) which could significantly disrupt our operations, sales and financial results.
As of the date of this Report, the COVID-19 outbreak in China, where we operate, is largely under control. Although there are periodic isolated outbreaks in certain cities, the Chinese authorities have managed to control the spread of the disease within a relatively short period. However, Chinese citizens have largely not been immunized so self-imposed safety precautions such as wearing masks and avoiding social gatherings are still observed. These often bring inconveniences but generally, economic activities throughout China have not been seriously affected. However, large gatherings and mass participation events are still not common and this has affected some of the Company’s clients who promote e-sports events. We expect gradual relaxation by the city governments in the hosting of such events over the rest of our fiscal year.
Adverse regulatory developments in China may subject us to additional regulatory review and expose us to government interference, and additional disclosure requirements and regulatory scrutiny to be adopted by the SEC in response to risks related to recent regulatory developments in China may impose additional compliance requirements for companies like us with significant China-based operations, all of which could increase our compliance costs, subject us to additional disclosure requirements, and/or suspend or terminate our future securities offerings, making capital-raising more difficult.
As substantially all of our operations are based in China, we are subject to PRC laws relating to, among others, data security and restriction over foreign investments. The recent regulatory developments in China, in particular with respect to restrictions on China-based companies raising capital offshore, including through the variable interest entities structure, or the VIE structure, and the government-led cybersecurity reviews of certain companies with VIE structures, may lead to additional regulatory review in China over our financing and capital raising activities in the United States. In addition, we may become subject to industry-wide regulations that may be adopted by the relevant PRC authorities, which may have the effect of limiting our product and service offerings, restricting the scope of our operations in China, or causing the suspension or termination of our business operations in China entirely, all of which will materially and adversely affect our business, financial condition and results of operations. We may have to adjust, modify, or completely change our business operations in response to adverse regulatory changes or policy developments, and we cannot assure you that any remedial action adopted by us can be completed in a timely, cost-efficient, or liability-free manner or at all.
On July 30, 2021, in response to the recent regulatory developments in China and actions adopted by the PRC government, the Chairman of the SEC issued a statement asking the SEC staff to seek additional disclosures from offshore issuers associated with China-based operating companies before their registration statements will be declared effective, including detailed disclosure related to VIE structures and whether the VIE and the issuer, when applicable, received or were denied permission from Chinese authorities to list on U.S. exchanges and the risks that such approval could be denied or rescinded. On August 1, 2021, the China Securities Regulatory Commission stated in a statement that it had taken note of the new disclosure requirements announced by the SEC regarding the listings of Chinese companies and the recent regulatory development in China, and that both countries should strengthen communications on regulating China-related issuers. We are subject to a variety of PRC laws, including laws and other obligations regarding cybersecurity and data protection. We also maintain a VIE structure with respect to our operations in China due to restriction over foreign investment. Therefore, we may be subject to tightened regulatory review and exposed to government interference in China. In light of the recent regulatory and policy developments in China and government actions taken by the PRC government, including possible imposition of restrictions and/or approval requirements on China-based companies raising capital offshore, the offering of our securities may be subject to additional disclosure requirements and review that the SEC or other regulatory authorities in the United States may adopt for companies with China-based operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS.
| 31.1 | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer | |
| 31.2 | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial officer | |
| 32.1 | Section 1350 Certification of principal executive officer | |
| 32.2 | Section 1350 Certification of principal financial officer | |
| 101 | XBRL data files of Financial Statements and Notes contained in this Quarterly Report on Form 10-Q. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Moxian, Inc. | ||
| Date: August 13, 2021 | By: | /s/ Hao Qinghu |
| Name: | Hao Qinghu | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Moxian, Inc. | ||
| Date: August 13, 2021 | By: | /s/ Tan Wanhong |
| Name: | Tan Wanhong | |
| Title: | Chief Financial Officer | |
| (Principal Financial Officer) | ||
| 24 |