UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from ____ to ____
Commission file number:
(Exact name of registrant as specified in its charter)
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| (I.R.S. Employer |
(Address of principal executive offices including zip code)
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(Registrant’s telephone number, including area code)
N/A
(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 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 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 |
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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.
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
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| N/A |
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The number of shares outstanding of each of the issuer’s classes of common stock, as of May 21, 2020 is as follows:
| Class |
| Share Outstanding |
| Common Stock, $0.001 par value per share |
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TABLE OF CONTENTS
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PART I. |
FINANCIAL INFORMATION |
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Item 1. |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. |
OTHER INFORMATION |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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SPECIAL NOTE REGARDING RELIANCE ON RELIEF ORDER.
On May 12, 2020 we filed a Current Report on Form 8-K (“Form 8-K”) in compliance with and in reliance upon the SEC Order issued pursuant to Section 36 of the Securities Exchange Act of 1934, as amended, granting Exemptions from Specified Provisions of the Exchange Act and Certain Rules thereunder (SEC Release No. 34-88465 on March 25, 2020) (the “Relief Order”). By way of filing the Form 8-K, we, among other things, extended the time of filing of our quarterly report on Form 10-Q for the quarter ended March 31, 2020 (“Form 10-Q”), until no later than June 29, 2020 in reliance on the Relief Order. The Form 8-K disclosed the reasons that the Form 10-Q could not be timely filed.
Fuse Group Holding Inc. (the “Company”) is relying on the SEC Order to delay the filing of its quarterly report on Form 10-Q, due to circumstances related to the COVID-19 pandemic. The state of California, where the Company is headquartered, has been affected by COVID-19. The Governor of California has issued a stay-at-home order, which took effect on March 19, 2020. Substantially all of the Company’s workforce is currently working from home either all or substantially all of the time, including the Company’s limited number of general administrative and accounting personnel. These safety measures have restricted access to the Company’s facilities and books and records, and have disrupted routine interactions among the Company’s staff, advisors and third parties involved in the preparation of the Form 10-Q. Due to these disruptions, the Company is unable to timely file its Quarterly Report, originally due on May 15, 2020. The Company expects to file the Quarterly Report on or before June 29, 2020, which is 45 days after the original filing deadline of the Form 10-Q.
PART I. FINANCIAL INFORMATION
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Item 1. |
Financial Statements |
FUSE GROUP HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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MARCH 31, 2020 |
SEPTEMBER 30, 2019 |
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(UNAUDITED) |
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ASSETS |
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CURRENT ASSETS |
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Cash and equivalents |
$ | $ | ||||||
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Prepaid expenses |
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Total current assets |
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NON-CURRENT ASSETS |
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Prepaid expense |
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Property and equipment, net |
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Right-of-use asset |
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Total non-current assets |
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TOTAL ASSETS |
$ | $ | ||||||
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES |
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Other payables |
$ | $ | ||||||
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Lease liability - current |
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Total current liabilities |
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NON-CURRENT LIABILITIES |
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Lease liability - noncurrent |
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Total non-current liabilities |
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TOTAL LIABILITIES |
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CONTINGENCIES AND COMMITMENTS |
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STOCKHOLDERS' EQUITY |
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| Common stock, par value $ authorized; |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders' equity |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
FUSE GROUP HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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FOR THE SIX MONTHS ENDED MARCH 31, |
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2020 |
2019 |
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Revenue |
$ | $ | ||||||
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Cost of revenue |
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Gross profit |
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Operating expenses |
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General and administrative |
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Consulting |
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Total operating expenses |
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Loss from operations |
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Non-operating expenses |
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Interest income |
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Financial expense |
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Other expense |
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Total non-operating expenses, net |
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Loss before income tax |
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Income tax |
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Net loss |
$ | ( |
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$ | ( |
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Basic weighted average shares outstanding |
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Basic net loss per share |
$ | ( |
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$ | ( |
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The accompanying notes are an integral part of these consolidated financial statements.
FUSE GROUP HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) (CON’T)
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FOR THE THREE MONTHS ENDED MARCH 31, |
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2020 |
2019 |
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Revenue |
$ | $ | ||||||
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Cost of revenue |
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Gross profit |
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Operating expenses |
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General and administrative |
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Consulting |
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Total operating expenses |
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Loss from operations |
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Non-operating expenses |
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Interest income |
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Financial expense |
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Other expense |
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Total non-operating expenses, net |
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Loss before income tax |
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Income tax |
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Net loss |
$ | ( |
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$ | ( |
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Basic weighted average shares outstanding |
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Basic net loss per share |
$ | ( |
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$ | ( |
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The accompanying notes are an integral part of these consolidated financial statements.
FUSE GROUP HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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FOR THE SIX MONTHS ENDED MARCH 31, |
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2020 |
2019 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
$ | ( |
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$ | ( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation |
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Amortization |
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Interest expense on lease liability |
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Amortization of right-of-use asset |
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Changes in assets and liabilities: |
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Prepaid expense |
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Other payables |
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Payment of Lease liability |
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Net cash used in operating activities |
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NET DECREASE IN CASH AND EQUIVALENTS |
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CASH AND EQUIVALENTS, BEGINNING OF PERIOD |
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CASH AND EQUIVALENTS, END OF PERIOD |
$ | $ | ||||||
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Supplemental cash flow data: |
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Income tax paid |
$ | $ | ||||||
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Interest paid |
$ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
FUSE GROUP HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 2020 AND 2019
(UNAUDITED)
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Common Shares |
Amount at Par |
Additional Paid-in Capital |
Accumulated Deficit |
Total |
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Balance at September 30, 2019 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
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Net loss |
- | - | - | ( |
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Balance at December 31, 2019 |
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Net loss |
- | - | - | ( |
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Balance at March 31, 2020 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
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Common Shares |
Amount at Par |
Additional Paid-in Capital |
Accumulated Deficit |
Total |
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Balance at September 30, 2018 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
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Net loss |
- | - | - | ( |
) | ( |
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Balance at December 31, 2018 |
( |
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Net loss |
- | - | - | ( |
) | ( |
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Balance at March 31, 2019 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
FUSE GROUP HOLDING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2020 (UNAUDITED) AND SEPTEMBER 30, 2019
Note 1 – Organization and Operations
Fuse Group Holding Inc. (the “Company” or “Fuse Group” or “We”) was incorporated under the laws of the State of Nevada on December 24, 2013. Fuse Group currently explores opportunities in mining. On December 6, 2016, the Company incorporated Fuse Processing, Inc. (“Processing”) in the State of California. Processing seeks business opportunities in mining and is currently investigating potential mining targets in Asia and North America. Fuse Group is the sole shareholder of Processing.
Fuse Group and Processing provide consulting services to mining industry clients to find mine acquisition targets within the parameters set by the clients, in circumstances in which the mine owner is considering selling its mining rights. The services of Fuse Group and Processing include due diligence on the potential mine seller and the mine, such as ownership and whether the mine meets all operation requirements and/or is currently in operation.
In March 2017, Processing acquired
On May 3, 2018, the Company incorporated Fuse Technology Inc. (“Technology”) in the State of Nevada. Fuse Group is the sole shareholder of Technology. Technology was mainly engaged in IMETAL system development. The Company originally planned to operate IMETAL as a platform to facilitate investment and trade in raw metals, find specialized minerals, exploit these opportunities and issue tokens to be used on the platform, subject to compliance with applicable laws and regulations. Considering recent development of laws and regulations on token issuance and trading, management discussed its function and compliance issues with the designer of the platform and concluded that the project had more issues and costs for compliance than originally expected. On December 23, 2019, the Board decided to terminate the IMETAL project.
On April 29, 2019, the Board of Directors of the Company approved an amendment to the Company’s Articles of Incorporation (“Amendment”) to change its name from Fuse Enterprises Inc. to Fuse Group Holding Inc. Also on April 29, 2019, stockholders holding a majority of the Company’s outstanding capital stock approved the Amendment. The Amendment was filed with the Secretary of State for the State of Nevada on April 30, 2019, and became effective May 13, 2019. On May 29, 2019, the Company changed its trading symbol on OTC Markets from FNST to FUST.
In December 2019, a novel strain of coronavirus, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to multiple countries, including the United States. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the U.S. government imposed travel restrictions on travel between the United States, China and certain other countries. The state of California, where the Company is headquartered, has been affected by COVID-19. The Governor of California has issued a stay-at-home order, which took effect on March 19, 2020.
The Company’s business and services and results of operations have been adversely affected and could continue to be adversely affected by the COVID-19 pandemic. Substantially all of the Company’s workforce is now working from home either all or substantially all of the time. The effects of the Stay-at-Home order have negatively impacted the Company’s business development, and disrupted or delayed the Company’s current mine projects and services to its clients, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on the Company’s ability to conduct its business in the ordinary course. Quarantines, travel restrictions, shelter-in-place and other restrictions related to COVID-19 have impacted the Company’s abilities to visit mines in Mexico and in Asian counties as well as to meet with potential clients and mine owners for the Company’s consulting business and for the Company’s own investment in mine projects. The Company’s clients that are negatively impacted by the outbreak of COVID-19 may cancel or suspend their mine acquisition projects, which in turn will reduce their demands for the Company’s services and materially adversely impact the Company’s revenue.
The global economy has also been materially negatively affected by COVID-19 and there is continued severe uncertainty about the duration and intensity of its impacts. The U.S. and global growth forecast is extremely uncertain, which could seriously affect people’s investment desires in mines in Mexico, Asia and internationally. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing the Company’s ability to access capital, which could negatively affect the Company’s liquidity.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements (“CFS”) were prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
Basis of Consolidation
The CFS include the accounts of Fuse Group and its subsidiaries, Processing, Trading and Technology. All significant inter-company accounts and transactions and balances were eliminated in consolidation.
Cash
For purposes of the statement of cash flows, the Company considers cash, money market funds, investments in interest bearing demand deposit accounts, time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions
The preparation of 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 disclosure of contingent assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).
Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were:
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(i) |
Assumption as a going concern: Management assumes the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. |
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(ii) |
Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company having incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors. |
These significant accounting estimates or assumptions bear the risk of change because there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10 of the Financial Accounting Standards Board - Accounting Standards Codification (“FASB ASC”) for disclosures about fair value (“FV”) of its financial instruments and paragraph 820-10-35-37 of the FASB ASC (“Paragraph 820-10-35-37”) to measure the FV of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring FV in U.S. GAAP, and expands disclosures about FV measurements.
Paragraph 820-10-35-37 establishes a FV hierarchy which prioritizes the inputs to valuation techniques used to measure FV into three broad levels. The FV hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of FV hierarchy defined by Paragraph 820-10-35-37 are described below:
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Level 1 |
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Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
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Level 2 |
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Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
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Level 3 |
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Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their FVs are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The FV hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the FV measurement of the instrument.
The carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses, accounts receivable, accounts payable and accrued expenses, approximate their FV because of the short maturity of those instruments.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
Accounts Receivable
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. The Company had no outstanding accounts receivable at March 31, 2020 or September 30, 2019.
Property and Equipment
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Computer and office equipment |
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Office furniture |
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Leasehold decoration and renovation |
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Production machinery |
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Autos |
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Related Parties
The Company follows subtopic 850-10 of the FASB ASC for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20 the related parties include: (a) affiliates of the Company; (b) entities for which investments in their equity securities would be required, absent the election of the FV option under the FV Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions eliminated in the preparation of financial statements is not required in those statements.
The disclosures shall include: (a) the nature of the relationship(s) involved; (b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Commitments and Contingencies
The Company follows ASC 450-20 to account for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.
In assessing loss contingencies related to legal proceedings pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates it is probable that a material loss was incurred and the amount of the liability can be reasonably estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Revenue Recognition
In May 2014 the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration the company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective and transition dates: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.
The new revenue standards became effective for the Company October 1, 2018, and were adopted using the modified retrospective method. The adoption of the new revenue standards as of October 1, 2018 did not change the Company’s revenue recognition as the Company did not have any revenue prior to October 1, 2018. As the Company did not identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues, no adjustment to retained earnings was required upon adoption.
Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. For the Company’s mine information service, revenue is recognized when the mine information is forwarded to the client.
Income Tax Provision
The Company accounts for income taxes under Section 740-10-30 of the FASB ASC, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that was included in the financial statements or tax returns.
Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary.
Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Uncertain Tax Positions
The Company follows paragraph 740-10-25 of the FASB ASC. Paragraph 740-10-25-13 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits are classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income.
The Company did not take any uncertain tax positions and had no unrecognized tax liabilities or benefits in accordance with the provisions of Section 740-10-25 at March 31, 2020 or September 30, 2019. The tax years 2016 - 2018 remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which the Company is subject.
Earnings (Loss) per Share
Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similar to basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if all the potential common shares, warrants and stock options had been issued and if the additional common shares were dilutive. Diluted EPS is based on the assumption that all dilutive convertible shares and stock options and warrants were converted or exercised. Dilution is computed by applying the treasury stock method for the outstanding options and warrants, and the if-converted method for the outstanding convertible instruments. Under the treasury stock method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later) and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, outstanding convertible instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later).
Cash Flows Reporting
The Company follows paragraph 230-10-45-24 of the FASB ASC for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect Method”) as defined by paragraph 230-10-45-25 of the FASB ASC to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB ASC.
Software Development Costs
Leases
On October 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which superseded the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use (“ROU”) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. For information regarding the impact of Topic 842 adoption, see Significant Accounting Policies - Leases and Note 9 – Commitments.
The Company adopted Topic 842 using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after October 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with its historical accounting under Topic 840.
The Company elected the package of practical expedients permitted under the transition guidance, which allowed it to carry forward its historical lease classification, its assessment on whether a contract was or contains a lease, and its initial direct costs for any leases that existed prior to October 1, 2019. The Company also elected to combine its lease and non-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.
Upon adoption, the Company recognized total ROU assets of $
Under Topic 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of its leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options.
Operating leases are included in operating lease ROU assets and operating lease liabilities (current and non-current), on the consolidated balance sheets.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its FV, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of adopting this standard on its CFS.
In June 2018, the FASB issued ASU 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. An entity should apply the requirements of ASC 718 to non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specify that ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The new guidance is effective for SEC filers for fiscal years, and interim reporting periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). Early adoption is permitted. The Company is evaluating the effects of the adoption of this guidance.
Note 3 – Going Concern
The accompanying CFS were prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the accompanying CFS, the Company had an accumulated deficit of $
Management intends to raise additional funds by way of a private or public offering, or by obtaining loans from banks or others. While the Company believes in the viability of its strategy to generate sufficient revenue and in its ability to raise additional funds on reasonable terms and conditions, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.
The CFS do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.
Note 4 – Property and Equipment
|
2020 |
2019 |
|||||||
|
Computer equipment |
$ | $ | ||||||
|
Less accumulated depreciation |
( |
) |
( |
) |
||||
|
Computer equipment, net |
||||||||
|
Office furniture |
||||||||
|
Less accumulated depreciation |
( |
) |
( |
) |
||||
|
Office furniture, net |
||||||||
|
Total property and equipment, net |
$ | $ | ||||||
Depreciation for the six months ended March 31, 2020 and 2019 was $
Depreciation for the three months ended March 31, 2020 and 2019 was $
Note 5 – Prepaid expenses
As of March 31, 2020, the Company had current prepaid Director & Officer insurance of $
At March 31, 2020 and September 30, 2019, the Company had noncurrent prepaid expense of $
Note 6 – Other payables
As of March 31, 2020, and September 30, 2019, the Company had other payables of $
Note 7 – Income Tax
The President of the United States signed into law H.R. 1 (the “Tax Reform Law”). The Tax Reform Law, effective for tax years beginning on or after January 1, 2018, except for certain provisions, resulted in significant changes to existing United States tax law, including various provisions that are expected to impact the Company. The Tax Reform Law reduced the federal corporate tax rate from
For most taxpayers, NOLs arising in tax years ending after 2017 can only be carried forward. At March 31, 2020 and September 30, 2019, the Company had net operating loss (“NOL”) carryforward for income tax purposes; for federal income tax purposes, the NOL arising in tax years beginning after 2017 may only reduce 80% of a taxpayer’s taxable income, and may be carried forward indefinitely; for California income tax purposes, the entire NOL can be carried forward up to 20 years. The Company has estimated NOL carry-forwards for Federal and California income tax purposes of $
|
Net deferred tax assets – Non-current: |
||||||||
|
Expected income tax benefit from NOL carry-forwards |
$ | $ | ||||||
|
Less valuation allowance |
( |
) |
( |
) |
||||
|
Deferred tax assets, net of valuation allowance |
$ | $ |
The recently issued Coronavirus Aid, Relief and Economic Security Act (the CARES Act or the Act), provides four relief provisions for corporate taxpayers as follows:
|
1. |
Five-year net operating loss (NOL) carryback provision: the Act allows for the carryback of losses arising in a taxable year beginning after December 31, 2017, and before January 1, 2021, to each of the five taxable years preceding the taxable year of the loss. |
|
2. |
Fiscal year NOL carryback fix from the Tax Cuts and Jobs Act (TCJA) of 2017: the Act corrects the language to provide fiscal year taxpayers who had NOLs arising in years that began prior to December 31, 2017 and ended after December 31, 2017 with the ability to carry back those NOLs. |
|
3. |
Deferral of 80% income limitation on post-2017 NOLs to 2021: the Act suspends this 80% limitation for taxable years beginning before January 1, 2021, and instead allows the full offset of taxable income. For tax years beginning after December 31, 2020, the Act reinstates the 80% limitation. |
|
4. |
Immediate Alternative Minimum Tax (“AMT”) tax credit refunds: the Act accelerates availability of AMT credits. The full remaining refundable AMT credit amount will be available for a corporation’s first taxable year beginning in 2019. Alternatively, a corporation may elect to use 100% of its AMT credits for its first taxable year beginning in 2018. |
Income Tax Provision in the Statements of Operations
A reconciliation of the consolidated federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes for the six months ended March 31, 2020 and 2019 is as follows:
|
2020 |
2019 |
|||||||
|
Federal statutory income tax expense (benefit) rate |
( |
)% |
( |
)% |
||||
|
Federal income tax rate difference |
% |
% |
||||||
|
State statutory income tax (benefit) rate, net of effect of state income tax deductible to federal income tax |
( |
)% |
( |
)% |
||||
|
Change in valuation allowance on net operating loss carry-forwards |
% |
% |
||||||
|
Effective income tax rate |
% |
% |
||||||
A reconciliation of the consolidated federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes for the three months ended March 31, 2020 and 2019 is as follows:
|
2020 |
2019 |
|||||||
|
Federal statutory income tax expense (benefit) rate |
( |
)% |
( |
)% |
||||
|
Federal income tax rate difference |
% |
% |
||||||
|
State statutory income tax (benefit) rate, net of effect of state income tax deductible to federal income tax |
( |
)% |
% |
|||||
|
Change in valuation allowance on net operating loss carry-forwards |
% |
% |
||||||
|
Effective income tax rate |
% |
% |
||||||
Note 8 – Revenue, Cost of Revenue and Major Customers
Fuse Group and Processing provide consulting services to mining industry clients to find mine acquisition targets within the parameters set by the clients, in circumstances in which the mine owner is considering selling its mining rights. The services of Fuse Group and Processing include due diligence on the potential mine seller and the mine, such as ownership of the mine and whether the mine meets all operation requirements and/or is currently in operation.
Cost of revenue mainly consisted of the management’s travel expenses to visit these mines and consulting expenses paid for mine expertise during the mine due diligence period.
For the six months ended March 31, 2020 and 2019, the Company recorded revenue of $
For the three months ended March 31, 2020 and 2019, the Company recorded revenue of $
For the six and three months ended March 31, 2020, the Company had one customer which accounted for
Note 9 – Commitments
Acquisition commitment
On January 4, 2017, Processing entered into a Consulting and Strategist Agreement with a consulting company for a six-month term. On July 3, 2017, Processing and the consulting company extended the Consulting and Strategist Agreement until January 3, 2018 at no additional cost, and the Agreement was subsequently extended to July 3, 2018. The consultant provided Processing with market research findings, exploration and advice on business development opportunities in certain countries, and other general business advisory services. The consulting company found acquisition targets for the Company, and on June 22, 2018, the Company entered into a MOU with a seller for the purchase of
Lease Commitment
Effective January 1, 2017, Processing, as a sublessee, entered into a sublease agreement for office space with a sublessor for a term of
Effective April 16, 2018, the Company entered a one-year lease for an office in the City of Diamond Bar, California. The monthly rent was approximately $
Effective December 1, 2018, the Company entered a three-year lease for an office in the city of Arcadia, California. The monthly base rent is $
The Company recorded rental cost of $
The Company recorded rental cost of $
|
Six Months Ended |
||||
|
March 31, 2020 |
||||
|
Operating lease cost |
$ | |||
|
Weighted Average Remaining Lease Term - Operating leases |
|
|||
|
Weighted Average Discount Rate - Operating leases |
% |
|||
The operating lease cost for the three months ended March 31, 20202 was $
|
For the 12 months ended |
Operating Leases |
|||
|
March 31, 2021 |
$ | |||
|
March 31, 2022 |
||||
|
Total undiscounted cash flows |
||||
|
Less: imputed interest |
( |
) |
||
|
Present value of lease liabilities |
$ | |||
Consulting and Service Agreements
|
| 1) | On April 1, 2017, the Company entered into a strategic consulting agreement with a consulting company with a term of one year. The consulting company provides the Company the strategic advices on business development and marketing. The compensation to the consulting company is $ |
|
|
2) |
On May 4, 2018, the Company entered into a Mineral Mining Interactive Technology and Related Application Software Development Service Contract (the “Contract”) with Prime King Investment Limited (“Prime King”) described as below: |
Pursuant to the terms of the Contract, Prime King is providing services to the Company relating to the development, installation and debugging of a software system called IMETAL. The Company originally planned to operate IMETAL as a platform to facilitate investment and trade in raw metals, find specialized minerals, exploit these opportunities and issue tokens to be used on the platform, subject to compliance with applicable laws and regulations (the “Project”).
Prime King shall also provide training to the Company’s staff per the Company’s request as well as maintenance for the Project for
|
| 3) | Exploratory Drilling Agreement and Related Costs. On April 1, 2018, the Company entered into a contract with an individual owner of a mining concession in Mexico. The mine is located in Mexico, in the state of Sinaloa, Badiraguato municipality, Nocoriba village. The latitude is 25.2520000 and the longitude is -107.225500. The Company started drilling within the concession 10HAAS. For the six and three months ended March 31, 2020, the Company spent $ |
Employment Agreement
The Company currently has an employment agreement with Michael Viotto, the Company’s CFO. Pursuant to the terms of his employment agreement, dated August 21, 2019, Mr. Viotto receives annual compensation of $
Note 10 – Subsequent Events
The Company follows the guidance in FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated subsequent events through the date the financial statements were issued and determined the Company did not have any material subsequent events to disclose in its CFS.
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q.
DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS
The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed below and elsewhere in the Annual Report on Form 10-K, particularly under the heading “Risk Factors.” and those set forth from time to time in our other filings with the SEC.
Overview
Fuse Group Holding Inc. (the “Company” or “Fuse Group” or “we”) was incorporated under the laws of the State of Nevada on December 24, 2013. Fuse Group currently explores opportunities in mining. On December 6, 2016, the Company incorporated Fuse Processing, Inc. (“Processing”) in the State of California. Processing seeks business opportunities in mining and is currently investigating potential mining targets in Asia and North America. Fuse Group is the sole shareholder of Processing. In March 2017, Processing acquired 100% ownership of Fuse Trading Limited (“Trading”) for HKD1 ($0.13). Trading had no operations prior to the acquisition by Processing, and Trading expects to be engaged in mining-related businesses. On May 3, 2018, the Company incorporated Fuse Technology Inc. (“Technology”) in the State of Nevada. Fuse Group is the sole shareholder of Technology. Technology was mainly engaged in IMETAL system development. The Company originally planned to operate IMETAL as a platform to facilitate investment and trade in raw metals, find specialized minerals, exploit these opportunities and issue tokens to be used on the platform, subject to compliance with applicable laws and regulations. Due to the recent development of laws and regulations on token issuance and trading, management discussed its function and compliance issues with the designer of the platform and concluded that the project had more issues and costs for compliance than originally expected, on December 23, 2019, the Board decided to terminate the IMETAL project.
Fuse Group and Processing provide consulting services to mining industry clients to find acquisition targets within the parameters set by the clients, when the mine owner is considering selling its mining rights. The services of Fuse Group and Processing include due diligence on the potential mine seller and the mine, such as ownership of the mine and whether the mine meets all operation requirements and/or is currently in operation.
On January 4, 2017, Processing entered into a Consulting and Strategist Agreement with a consulting company for a six-month term. On July 3, 2017, Processing and the consulting company extended the Consulting and Strategist Agreement until January 3, 2018 at no additional cost, and the Agreement was subsequently extended to July 3, 2018. The consultant provides Processing with market research, exploration and advise on business development opportunities in certain countries, and other general business advisory services. Processing paid a deposit of $1,325,000 for the consulting fee, of which, $325,000 was expensed as a consulting fee based on the agreement, and the remaining $1,000,000 of which would have been refunded to the Company if the Company had not made an investment and/or entered into a business relationship in Mexico. The consulting company found acquisition targets for the Company, and on June 22, 2018, the Company entered into a Memorandum of Understanding (“MOU”) with a seller to purchase five mines located in different areas of Mexico for $1,000,000. Upon the execution of the MOU, the Company acquired the exclusive right to purchase the mines from the seller until September 30, 2018. The parties entered into an oral agreement pursuant to which the Company will pay the $1,000,000 purchase price upon receiving approvals from the Mexican government allowing for the transfer of the mining concession. The transfer request was submitted to, and is being processed by, the Mexican government, but that processing was delayed due to elections and new administration in Mexico and the COVID-19 pandemic, such that the Company was not able to provide an estimated time for the approval at this report date.
On May 26, 2017, the Company filed a Certificate of Change with the State of Nevada to (i) increase its authorized shares of common stock from 75,000,000 to 375,000,000 and (ii) effect a corresponding 5-for-1 forward stock split of the issued and outstanding shares of the Company’s common stock (the “Stock Split”).
On April 29, 2019, the Board of Directors (“BOD”) of the Company approved an amendment to the Company’s Articles of Incorporation (the “Amendment”) to change its name from Fuse Enterprises Inc. to Fuse Group Holding Inc. Also on April 29, 2019, stockholders holding a majority of the Company’s outstanding capital stock approved the Amendment. The Amendment was filed with the Secretary of State for the State of Nevada on April 30, 2019, and became effective on May 13, 2019. On May 29, 2019, the Company changed its trading symbol on OTC Markets from FNST to FUST.
In December 2019, a novel strain of coronavirus, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to multiple countries, including the United States. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the U.S. government imposed travel restrictions on travel between the United States, China, and certain other countries. The state of California, where the Company is headquartered, has been affected by COVID-19. The Governor of California has issued a stay-at-home order, which took effect on March 19, 2020.
Our business and services and results of operations have been adversely affected and could continue to be adversely affected by the COVID-19 pandemic. Substantially all of our workforce is now working from home either all or substantially all of the time. The effects of the stay-at-home order and our work-from-home policies have negatively impacted our business development, and disrupted or delayed our current mine projects and services to our clients, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition.
Quarantines, travel restrictions, shelter-in-place and other restrictions related to COVID-19 have impacted our abilities to visit mines in Mexico and Asian counties as well as to meet with potential clients and mine owners for our consulting business and our own investment in mine projects. Our clients that are negatively impacted by the outbreak of COVID-19 may cancel or suspend their mine acquisition projects, which in turn will reduce their demands for our services and materially adversely impact our revenue.
The global economy has also been materially negatively affected by COVID-19 and there is continued severe uncertainty about the duration and intensity of its impacts. The U.S. and global growth forecast is extremely uncertain, which would seriously affect people’s investment desires in mines in Mexico, Asia and internationally.
While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.
Further, as we do not have access to a revolving credit facility, there can be no assurance that we would be able to secure commercial debt financing in the future in the event that we require additional capital. We currently believe that our financial resources will be adequate to see us through the outbreak. However, in the event that we do need to raise capital in the future, the outbreak-related instability in the securities markets could adversely affect our ability to raise additional capital.
Results of operations for the three months ended March 31, 2020 and 2019
Revenue and Cost of Revenue
We develop our business in mining and investigate potential mining targets in Asia and North America. In addition to our own investment in mining businesses, we provide consulting services to clients which are mining business investors with potential mine acquisition targets within the specific parameters set by those clients, where the mine owner is considering selling its mining rights. Our services include due diligence on the potential mine seller and the mine, such as ownership of the mine and whether the mine meets all operation requirements and/or is currently in operation.
For the three months ended March 31, 2020, we provided two potential mine acquisition opportunities in Mexico to a client, For the three months ended March 31, 2020, the Company recorded revenue of $200,000 for the services provided. Our revenue for the three months ended March 31, 2019 was $250,000. Our cost of revenues for the three months ended March 31, 2020 and 2019 was $48,063 and $88,759, respectively, mainly for the management’s travel expenses to visit these mines and consulting expenses paid for mine expertise during the mine due diligence period, resulting in a gross profit of $151,937 and $161,241 for the three months ended March 31, 2020 and 2019, respectively.
Costs and Expenses
The major components of our expenses for the three months ended March 31, 2020 and 2019 are outlined in the table below:
|
2020 |
2019 |
Increase (Decrease) |
||||||||||
|
General and administrative |
$ | 131,315 | $ | 181,236 | $ | (49,921 |
) |
|||||
|
Consulting fees |
24,415 | 28,584 | (4,169 |
) |
||||||||
|
Total operating expenses |
$ | 155,730 | $ | 209,820 | $ | (54,090 |
) |
|||||
The decrease in our operating costs for the three months ended March 31, 2020, compared to the three months ended March 31, 2019, was due to decreased insurance expense of $18,286 and decreased travel expense of $38,567, which was partly offset by increased payroll expense of $8,300. During the three months ended March 31, 2020, the Company had a few outstanding consulting agreements for advisory services on business development strategy in the Far East, including in Hong Kong and Russia, and acquisition opportunities in Mexico and North America. Most of the consulting agreements entered in prior periods expired during the year ended September 30, 2019.
Non-operating expenses, net
Net non-operating expense was $240 for the three months ended March 31, 2020, compared to $207 for the three months ended March 31, 2019.
Results of operations for the six months ended March 31, 2020 and 2019
Revenue and Cost of Revenue
We develop our business in mining and investigate potential mining targets in Asia and North America. In addition to our own investment in mining businesses, we provide consulting services to clients which are mining business investors with potential mine acquisition targets within the specific parameters set by those clients, where the mine owner is considering selling its mining rights. Our services include due diligence on the potential mine seller and the mine, such as ownership of the mine and whether the mine meets all operation requirements and/or is currently in operation.
For the six months ended March 31, 2020, we provided five potential mine acquisition opportunities to a client, with one mine located in Asia and four mines located in North America. For the six months ended March 31, 2020, the Company recorded revenue of $450,000 for the services provided. Our revenue for the six months ended March 31, 2019 was $766,000. Our cost of revenues for the six months ended March 31, 2020 and 2019 was $180,401 and $177,519, respectively, mainly for the management’s travel expenses to visit these mines and consulting expenses paid for mine expertise during the mine due diligence period, resulting in a gross profit of $269,599 and $588,481 for the six months ended March 31, 2020 and 2019, respectively.
Costs and Expenses
The major components of our expenses for the six months ended March 31, 2020 and 2019 are outlined in the table below:
|
2020 |
2019 |
Increase (Decrease) |
||||||||||
|
General and administrative |
$ | 263,960 | $ | 324,146 | $ | (60,186 |
) |
|||||
|
Consulting fees |
36,748 | 374,785 | (338,037 |
) |
||||||||
|
Total operating expenses |
$ | 300,708 | $ | 698,931 | $ | (398,223 |
) |
|||||
The decrease in our operating costs for the six months ended March 31, 2020, compared to the six months ended March 31, 2019, was due to a decrease in consulting fees of $338,037, decreased office rent of $14,014 and decreased profession fee of $40,448 of Processing. During the six months ended March 31, 2020, the Company had a few outstanding consulting agreements for advisory services on business development strategy in the Far East, including in Hong Kong and Russia, and acquisition opportunities in Mexico and North America. Most of the consulting agreements entered in prior periods expired during the year ended September 30, 2019.
Non-operating expenses, net
Net non-operating expense was $735 for the six months ended March 31, 2020, compared to $666 for the six months ended March 31, 2019.
Liquidity and Capital Resources
The table below provides selected working capital information as of March 31, 2020 and September 30, 2019:
|
Total current assets |
$ | 66,421 | $ | 102,205 | ||||
|
Total current liabilities |
(34,023 |
) |
(10,675 |
) |
||||
|
Working capital |
$ | 32,398 | $ | 91,530 |
Liquidity
During the six months ended March 31, 2020 and 2019, the Company reported net loss of $35,844 and $111,916, respectively. During the three months ended March 31, 2020 and 2019, the Company reported net loss of $6,433 and $49,586, respectively.
If we are not successful in developing the mining business and establishing profitability and positive cash flow, additional capital may be required to maintain ongoing operations. We have explored and continue to explore options to provide additional financing to fund future operations as well as other possible courses of action. Such actions may include, but are not limited to, securing lines of credit, sales of debt or equity securities (which may result in dilution to existing shareholders), loans and cash advances from other third parties or banks, and other similar actions. There can be no assurance we will be able to obtain additional funding (if needed), on acceptable terms or at all, through a sale of our common stock, loans from financial institutions, or other third parties, or any of the actions discussed above. If we cannot sustain profitable operations, and additional capital is unavailable, lack of liquidity could have a material adverse effect on our business viability, financial position, results of operations and cash flows.
Cash Flows
The table below, for the periods indicated, provides selected cash flow information for the six months ended March 31, 2020 and 2019:
|
2020 |
2019 |
|||||||
|
Net cash used in operating activities |
$ | (60,345 |
) |
$ | (39,412 |
) |
||
|
Net decrease in cash |
$ | (60,345 |
) |
$ | (39,412 |
) |
||
Cash Flows from Operating Activities
Our cash used in operating activities for the six months ended March 31, 2020 and 2019 was $60,345 and $39,412, respectively. During the six months ended March 31, 2019, we had a loss of $111,916, which was partially offset by non-cash amortization expense of $75,262. During the six months ended March 31, 2020, even though we had a decreased net loss of $35,844, we had increased cash outflow on prepaid expense of $29,474, and accordingly increased cash outflow in operating activities.
Cash Flows from Investing Activities
During the six months ended March 31, 2020 and 2019, we did not have any investing activities.
Cash Flows from Financing Activities
During the six months ended March 31, 2020 and 2019, we did not have any financing activities.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements.
Off Balance Sheet Arrangements
As of March 31, 2020, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
|
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
Not applicable.
|
Item 4. |
Evaluation of Disclosure Controls and Procedures |
As of the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the end of the period covered by this report that our disclosure controls and procedures were not effective due to material weaknesses. The control deficiencies that constituted material weaknesses are as described below.
1. We do not have an Audit Committee. While we are not legally obligated to have an audit committee, it is the management’s view that such a committee, including a financial expert member, is of the utmost importance for entity-level control over the Company’s financial statements. Currently, the Board of Directors acts in the capacity of an audit committee.
2. We did not implement appropriate information technology controls. As of March 31, 2020, the Company was retaining copies of all financial data and material agreements; however there is no formal procedure or evidence of normal backup of the Company’s data or off-site storage of the data in the event of theft, misplacement, or loss due to unmitigated factors.
3. We currently lack sufficient accounting personnel with the appropriate level of knowledge, experience and training in U.S. GAAP and SEC reporting requirements. We have one employee assigned to a position that involves processing financial information, resulting in a lack of segregation of duties so that all journal entries and account reconciliations are reviewed by someone other than the preparer, heightening the risk of error or fraud.
We have taken certain actions to remediate the material weakness related to our lack of U.S. GAAP experience. We have engaged an outside CPA with U.S. GAAP knowledge and experience to supplement our current internal accounting personnel and assist us in the preparation of our financial statements to ensure that our financial statements are prepared in accordance with U.S. GAAP.
If we are unable to remediate the material weakness, or other control deficiencies are identified, we may not be able to report our financial results accurately, prevent fraud or file our periodic reports as a public company in a timely manner. Due to our small size and the early stage of our business, segregation of duties may not always be possible and may not be economically feasible. We have limited capital resources and have given priority in the use of those resources to our business development efforts. As a result, we have not been able to take steps to improve our internal controls over financial reporting during the quarter ended March 31, 2020. However, we continue to evaluate the effectiveness of internal controls and procedures on an on-going basis. As our operations grow and become more complex, we intend to hire additional personnel in financial reporting and other areas. However, there can be no assurance of when, if ever, we will be able to remediate the identified material weaknesses.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
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Item 1. |
Legal Proceedings |
We may from time to time be party to litigation and subject to claims incident to the ordinary course of business. As we grow and gain prominence in the marketplace we may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of these matters could materially affect our future results of operations, cash flows or financial position. We are not currently a party to any legal proceedings.
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Item 1A. |
Risk Factors |
Not applicable.
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
None.
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Item 3. |
Defaults upon Senior Securities |
None.
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Item 4. |
Mine Safety Disclosure |
Not applicable.
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Item 5. |
Other Information |
None.
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Item 6. |
Exhibits |
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Exhibit No. |
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Description |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101.INS |
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XBRL Instance Document* |
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101.SCH |
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XBRL Schema Document* |
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101.CAL |
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XBRL Calculation Linkbase Document* |
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101.DEF |
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XBRL Definition Linkbase Document* |
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101.LAB |
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XBRL Label Linkbase Document* |
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101.PRE |
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XBRL Presentation Linkbase Document* |
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* |
filed herewith |
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.
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FUSE GROUP HOLDING INC. |
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By: |
/s/ Umesh Patel |
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Umesh Patel |
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Chief Executive Officer |
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(Principal Executive Officer) |
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May 22, 2020 |
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By: |
/s/ Michael Viotto |
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Michael Viotto |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
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May 22, 2020 |
Exhibit 31.1
RULE 13a-14(a) CERTIFICATION FOR FORM 10-Q (CEO) CERTIFICATION
I, Umesh Patel, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Fuse Group Holding Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to the Company by others within those entities, particularly during the period in which this report is being prepared; |
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b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
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Date: May 22, 2020 |
By: |
/s/ Umesh Patel |
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Umesh Patel |
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Chief Executive Officer |
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Exhibit 31.2
RULE 13a-14(a) CERTIFICATION FOR FORM 10-Q (CFO) CERTIFICATION
I, Michael Viotto, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Fuse Group Holding Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to the Company by others within those entities, particularly during the period in which this report is being prepared; |
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b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
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Date: May 22, 2020 |
By: |
/s/ Michael Viotto |
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Michael Viotto |
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Chief Financial Officer |
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Exhibit 32.1
SECTION 1350 CERTIFICATION (CEO) 1350
FUSE GROUP HOLDING INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Fuse Group Holding Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Umesh Patel, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: May 22, 2020 |
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/s/ Umesh Patel |
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Umesh Patel |
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Chief Executive Officer |
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Exhibit 32.2
SECTION 1350 CERTIFICATION (CFO) 1350
FUSE GROUP HOLDING INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Fuse Group Holding Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof, the “Report”, I, Michael Viotto, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: May 22, 2020 |
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/s/ Michael Viotto |
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Michael Viotto |
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Chief Financial Officer |
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Property and Equipment (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment (Tables) [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Table Text Block] | Property and equipment at March 31, 2020 and September 30, 2019 consisted of the following:
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Commitments |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disclosure Text Block [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lessee, Operating Leases [Text Block] | Note 9 – Commitments
Acquisition commitment
On January 4, 2017, Processing entered into a Consulting and Strategist Agreement with a consulting company for a six-month term. On July 3, 2017, Processing and the consulting company extended the Consulting and Strategist Agreement until January 3, 2018 at no additional cost, and the Agreement was subsequently extended to July 3, 2018. The consultant provided Processing with market research findings, exploration and advice on business development opportunities in certain countries, and other general business advisory services. The consulting company found acquisition targets for the Company, and on June 22, 2018, the Company entered into a MOU with a seller for the purchase of five mines located in different areas of Mexico for an aggregate purchase price of $1,000,000. Upon the execution of the MOU, the Company acquired the exclusive right to purchase the mines from the seller, effective until September 30, 2018. The parties entered into an oral agreement pursuant to which the Company will pay the $1,000,000 purchase price upon receiving approvals from the Mexican government allowing for the transfer of the mining concession. The transfer request was submitted to, and is being processed by, the Mexican government, but that processing was delayed due to elections and new administration in Mexico and the COVID-19 pandemic (see Note 5), the Company was not able to provide an estimated time for the approval at this report date.
Lease Commitment
Effective January 1, 2017, Processing, as a sublessee, entered into a sublease agreement for office space with a sublessor for a term of two years. The monthly rent was $1,897, and increased to $1,949 starting in January 2018. The lease expired on December 31, 2018.
Effective April 16, 2018, the Company entered a one-year lease for an office in the City of Diamond Bar, California. The monthly rent was approximately $1,500. The Company did not renew the lease at expiration.
Effective December 1, 2018, the Company entered a three-year lease for an office in the city of Arcadia, California. The monthly base rent is $2,115 payable on the first day of each month, with a 3% increase each year.
The Company recorded rental cost of $13,705 and $27,718 for the six months ended March 31, 2020 and 2019, respectively.
The Company recorded rental cost of $6,853 and $10,903 for the three months ended March 31, 2020 and 2019, respectively.
The components of lease costs, lease term and discount rate with respect to the office lease with an initial term of more than 12 months are as follows:
The operating lease cost for the three months ended March 31, 20202 was $6,853.
The following is a schedule of maturities of lease liabilities as of March 31, 2020:
Consulting and Service Agreements
Pursuant to the terms of the Contract, Prime King is providing services to the Company relating to the development, installation and debugging of a software system called IMETAL. The Company originally planned to operate IMETAL as a platform to facilitate investment and trade in raw metals, find specialized minerals, exploit these opportunities and issue tokens to be used on the platform, subject to compliance with applicable laws and regulations (the “Project”).
Prime King shall also provide training to the Company’s staff per the Company’s request as well as maintenance for the Project for one year after the completion of the Project, in each case free of charge.
Under the Contract, the Company shall pay Prime King $3,000,000, of which 50% was paid within 10 days of the execution of the Contract, and the remaining 50% was to be paid within 10 days of the completion of the Project after inspection and approval by the Company. The service was required to be completed in three months, however, on July 17, 2018, the deadline was extended until October 17, 2018, and the Company agreed to extend the deadline further, due to changes in technical requirements requested by the Company. Up to September 30, 2018, the Company paid Prime King $1.5 million, which was recorded as software development costs. The Company has not paid anything to Prime King since September 30, 2018. The Company previously expected the project to be completed by March 31, 2019. However, the process was delayed because the Company wanted to evaluate certain functions of this platform and regulatory compliance requirements for such functions before determining whether to include them in the platform. After considering the recent development of laws and regulations on token issuance and trading, management discussed its function and compliance issues with the designer of the platform and concluded that the project has more issues and costs for compliance than originally expected. On December 23, 2019, the Board decided to terminate the IMETAL project.
Employment Agreement
The Company currently has an employment agreement with Michael Viotto, the Company’s CFO. Pursuant to the terms of his employment agreement, dated August 21, 2019, Mr. Viotto receives annual compensation of $50,000, and the agreement has a term of one year. Mr. Viotto’s employment agreement includes typical clauses relating to noncompetition, nonsolicitation and indemnification of Mr. Viotto in connection with his service as the Company’s CFO. |
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Prepaid expenses |
6 Months Ended |
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Mar. 31, 2020 | |
| Disclosure Text Block Supplement [Abstract] | |
| Other Assets Disclosure [Text Block] | Note 5 – Prepaid expenses
As of March 31, 2020, the Company had current prepaid Director & Officer insurance of $24,561.
At March 31, 2020 and September 30, 2019, the Company had noncurrent prepaid expense of $1,000,000. On January 4, 2017, Processing entered into a Consulting and Strategist Agreement with a consulting company for a term. On July 3, 2017, Processing and the consulting company extended the Consulting and Strategist Agreement to January 3, 2018 at no additional cost, and the Agreement was subsequently further extended to July 3, 2018. The consultant provided Processing with market research findings, exploration and advice on business development opportunities in certain countries, and other general business advisory services. Processing paid a deposit of $1,325,000 for the consulting fee, of which $325,000 was expensed as a consulting fee based on the agreement, and the remaining $1,000,000 of which would have been refunded to the Company if the Company had not made an investment and/or entered into a business relationship in Mexico. The consulting company found acquisition targets for the Company, and on June 22, 2018, the Company entered into a Memorandum of Understanding (“MOU”) with a seller for the purchase of five mines located in different areas of Mexico for an aggregate purchase price of $1,000,000. Upon the execution of the MOU, the Company acquired the exclusive right to purchase the mines from the seller, effective until September 30, 2018. The parties entered into an oral agreement pursuant to which the Company will pay the $1,000,000 purchase price upon receiving approvals from the Mexican government allowing for the transfer of the mining concession. The transfer request has been submitted to, and is being processed by, the Mexican government, but that processing was delayed due to elections and new administration in Mexico and the COVID-19 pandemic. The Company was not able to provide an estimated time for the approval at this report date. The remaining $1,000,000 of consulting fees, which relates to the acquisition of assets in Mexico, will be part of the asset acquisition costs upon completion of the asset acquisition in accordance with ASC 805-5-30-1. |
Income Tax (Details) - Schedule of Effective Income Tax Rate Reconciliation |
3 Months Ended | 6 Months Ended | 12 Months Ended | |||
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Oct. 01, 2018 |
Mar. 31, 2020 |
Mar. 31, 2019 |
Mar. 31, 2020 |
Mar. 31, 2019 |
Sep. 30, 2018 |
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| Schedule of Effective Income Tax Rate Reconciliation [Abstract] | ||||||
| Federal statutory income tax expense (benefit) rate | (21.00%) | (21.00%) | (21.00%) | (21.00%) | (21.00%) | (34.00%) |
| Federal income tax rate difference | 0.00% | 0.03% | 0.00% | 0.01% | ||
| State statutory income tax (benefit) rate, net of effect of state income tax deductible to federal income tax | (6.98%) | 0.40% | (6.98%) | (0.61%) | ||
| Change in valuation allowance on net operating loss carry-forwards | 87.50% | 22.21% | 40.54% | 22.32% | ||
| Effective income tax rate | 59.52% | 1.64% | 12.56% | 0.72% | ||
Commitments (Details) - Schedule of Future Minimum Rental Payments for Operating Leases - USD ($) |
Mar. 31, 2020 |
Oct. 01, 2019 |
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| Schedule of Future Minimum Rental Payments for Operating Leases [Abstract] | ||
| March 31, 2021 | $ 26,403 | |
| March 31, 2022 | 17,950 | |
| Total undiscounted cash flows | 44,353 | |
| Less: imputed interest | (1,525) | |
| Present value of lease liabilities | $ 42,828 | $ 54,775 |