FUSE GROUP HOLDING INC. - Quarter Report: 2017 June (Form 10-Q)

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FUSE ENTERPRISES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017 (UNAUDITED) AND SEPTEMBER 30, 2016

Note 1 – Organization and Operations

Fuse Enterprises Inc. (the “Company” or “Enterprises”) was incorporated under the laws of the State of Nevada on December 24, 2013.  Fuse Enterprises Inc. is a full service online marketing agency. On December 6, 2016, the Company incorporated Fuse Processing, Inc. (“Processing”) in the State of California. Processing seeks opportunities in the mining business and is currently investigating potential mining targets in Asia and North America.  The Company is the sole shareholder of Processing.  On November 28, 2016, 5,500,000 shares of the common stock of Enterprises, or 60.91% of the Company’s issued and outstanding shares of common stock, were sold by Pavel Mikhalkov and Aleksandr Kriukov in a series of private transactions to a new shareholder for $55,000 (collectively, the “Stock Sales”). In connection with the Stock Sales, Messrs. Mikhalkov and Kriukov released the Company from certain liabilities and obligations arising out of their service as directors and officers of the Company. In March 2017, Processing acquired 100% ownership of Fuse Trading Limited (“Trading”) for HKD1 (US$0.13). Trading had no operations prior to the acquisition by Processing, and Trading expects to be engaged in mining-related businesses. 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”).  The consolidated financial statements were retroactively stated to reflect the Stock Split for the periods presented.

Note 2 – Summary of Significant Accounting Policies

The Company’s unaudited consolidated financial statements (“CFS”) were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The CFS include the financial statements of the Company and its subsidiary. All significant inter-company transactions and balances have been eliminated in consolidation.

The interim CFS as of June 30, 2017, and for the nine-month and three-month periods ended June 30, 2017 and 2016 were prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in CFS prepared in accordance with U.S. GAAP were not included. The interim consolidated financial information should be read in conjunction with the Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2016, previously filed with the SEC.

In the opinion of management, all adjustments (which include all significant normal and recurring adjustments) necessary to present a fair statement of the Company’s interim consolidated financial position as of June 30, 2017, its interim consolidated results of operations and cash flows for the nine and three month periods ended June 30, 2017 and 2016, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Enterprises is a development stage company as defined by section 915-10-20 of the FASB Accounting Standards Codification ("ASC").  Although the Company has recognized nominal amounts of revenue, it is still devoting substantially all of its efforts on establishing the business.  All losses accumulated since its inception on December 24, 2013 were considered part of the Company's development stage activities.

In June 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation.

The amendments in this Update remove the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.

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For public business entities, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Fuse Enterprises adopted ASU No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the Company to remove the inception to date information and all references to the development stage.

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:

These significant accounting estimates or assumptions bear the risk of change due to the fact that 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.

The Company follows paragraph 825-10-50-10 of the 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. 

To increase consistency and comparability in FV measurements and related disclosures, Paragraph 820-10-35-37 establishes a FV hierarchy which prioritizes the inputs to valuation techniques used to measure FV into three (3) 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:

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.

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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 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.

The Company considers all highly liquid investments with a maturity of three months or less to be cash and cash equivalents.

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 accounts receivable or bad debt allowances at June 30, 2017.

Plant, property and equipment are stated at cost, net of accumulated depreciation and impairment losses, if any. Expenditures for maintenance and repairs are expensed as incurred; while additions, renewals and improvements are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation is removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets and estimated lives as follows:

Depreciation of plant, property and equipment attributable to manufacturing activities is capitalized as part of inventories, and expensed to cost of goods sold when inventories are sold.

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 Fair Value 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 that are eliminated in the preparation of financial statements is not required in those statements.

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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.

The Company follows subtopic 450-20 of the FASB ASC to report accounting 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 that are 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 that it is probable that a material loss has been incurred and the amount of the liability can be 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.

The Company applies paragraph 605-10-S99-1 of the FASB ASC for revenue recognition.  The Company recognizes revenue when it is realized or realizable and earned.  The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

The Company derives its revenues from sales contracts with its customer with revenues being generated upon rendering of services.  Persuasive evidence of an arrangement is demonstrated via invoice; service is considered provided when the service is delivered to the customers; and the sales price to the customer is fixed upon acceptance of the purchase order and there is no separate sales rebate, discount, or volume incentive.

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 have been 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.

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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 fifty percent (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 June 30, 2017 and September 30, 2016.  The tax years 2014-2016 remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which the Company is subject.

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).

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.

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Note 3 – Going Concern

The accompanying CFS have been prepared assuming that 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 financial statements, the Company had an accumulated deficit of $1,128,534 at June 30, 2017, working capital deficit of $1,049,455 and net loss of $1,071,542 for the nine months ended June 30, 2017, which raise substantial doubt about the Company's ability to continue as a going concern.

 

Management intends to raise additional funds by way of a private or public offering, or obtaining loans from banks or others.  While the Company believes in the viability of its strategy to commence operations and 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 financial statements 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

Property and equipment at June 30, 2017 and September 30, 2016 consisted of the following:

Depreciation expense for the nine months ended June 30, 2017 and 2016 was $1,284 and $947, respectively.  Depreciation expense for the three months ended June 30, 2017 and 2016 was $548 and $316, respectively.

Note 5 – Related Party Transactions

Consulting services provided by the President, Chief Executive Officer, Secretary and Treasurer and Chief Financial Officer for the nine months ended June 30, 2017 and 2016 were as follows:

As of June 30, 2017 and September 30, 2016, the Company owed its directors and officers $0 and $27,405 respectively.

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Note 6 – Deposit and prepaid expenses

As of June 30, 2017 and September 30, 2016, the Company had deposit and prepaid expenses of $1,006,221 and $8,532, respectively.  On January 4, 2017, Processing entered into a Consulting and Strategist Agreement with a consulting company for a six-month service term.  On July 3, 2017, the Company and the consulting company agreed to extend the Consulting and Strategist Agreement until January 3, 2018 at no additional cost. The consultant will provide Processing market research findings, 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. If Processing does not make any investment or enter into a business relationship with a target located in Mexico by the end of the service term, the consultant will refund Processing $1,000,000 of the consulting fee. During the nine and three months ended June 30, 2017, the Company expensed $319,613 and $163,398 prepaid consulting expense, respectively, which was amortized over six months per the terms of the original agreement.

 

Note 7 – Notes receivable and interest receivable

As of June 30, 2017 and September 30, 2016, the Company had notes receivable of $3,925,000 and $0, respectively.

The following table sets forth information as to each borrower that accounted for 10% or more of the Company’s loan receivable at June 30, 2017.

 

		2017
Borrower A			1,925,000
Borrower B			1,000,000
Borrower C			1,000,000
		$	3,925,000

Note 8 – Other payables

As of June 30, 2017 and September 30, 2016, the Company had other payables of $5,306 and $0, respectively. As of June 30, 2017, other payables consisted of salary and payroll tax payables.

Note 9 – Note payable

On December 19, 2016, the Company entered into a Convertible Promissory Note Purchase Agreement (the “Original Agreement”) with one of its major shareholders (“Purchaser”). Under the Agreement, the Company sold a Convertible Promissory Note to the lender of $6,869,818 and interest of 6% (the “Original Note”). The Original Note was to mature on the date that is 24 months from the original issue date, and any outstanding principal and interest on the Original Note could be converted at any time prior to maturity at the lender’s option at a conversion price of $1.50 per share of the Company’s common stock.  There was no beneficial conversion feature for the Original Note due to the conversion price being higher than the stock price at the time of the issuance of the Original Note.

On March 20, 2017, the Company entered into an Amended and Restated Promissory Note Purchase Agreement with the major shareholder and Trading (the “Amended Agreement”).  The Amended Agreement amends and restates the Original Agreement.  Under the terms of the Amended Agreement, the existing Original Note issued under the Original Agreement was cancelled and Trading issued a Promissory Note to the Purchaser of $6,869,818, with a term of 12 months, renewable for up to an additional 12 months at the Purchaser’s option, and at an interest rate of 3% (the “New Note”).  The Purchaser does not have conversion option under the New Note. The principal amount of the New Note and any unpaid interest accrued thereon may become due and payable immediately upon the occurrence of certain events of default, including but not limited to Trading’s insolvency or the institution of bankruptcy proceedings against Trading.

As of June 30, 2017, the Company had an outstanding balance of $6,869,818 on the New Note.  During the nine and three months ended June 30, 2017, the Company incurred interest expense of $109,917 and $52,096, respectively, and had interest payable of $0 as of June 30, 2017.

 

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Note 10 – Stockholders’ Equity

Upon formation, the total number of shares of all classes of stock which the Company was authorized to issue was 75,000,000 shares of common stock, par value $0.001 per share. 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”).  The CFS were retroactively stated to reflect the Stock Split for the periods presented.

 

During the fiscal year ended September 30, 2016, the Company sold 3,530,000 common shares (prior to 5-for-1 stock split) at $0.01 per share for aggregate proceeds of $35,300.

 

During the nine months ended June 30, 2017, a former shareholder paid certain expenses and liabilities for the Company of $35,115, and a former CEO (Mr. Yong Zhang) contributed his salary of $16,667 earned during his service term to the Company, which were both recorded as an increase of paid in capital.

Note 11 – Income Tax

At June 30, 2017 and September 30, 2016, the Company had net operating loss (“NOL”) carry–forwards for Federal income tax purposes of $1,007,640 and $56,992, respectively, which may be offset against future taxable income through 2034.  No tax benefit has been reported with respect to these net operating loss carry-forwards in the accompanying financial statements because the Company believes that the realization of the Company’s net deferred tax assets of approximately $222,578 as of June 30, 2017, was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are fully offset by a full valuation allowance.

Components of deferred tax assets are as follows:

		June 30, 2017				June 30, 2016
Federal statutory income tax expense (benefit) rate			(34.00	)%			(34.00	)%
Federal income tax rate difference			19.00	%			19.00	%
State statutory income tax (benefit) rate, net of effect of state income tax deductible to federal income tax			(7.51	)%			-	%
Change in valuation allowance on net operating loss carry-forwards			22.51	%			15.00	%
Effective income tax rate			0.00	%			0.00	%

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Note 12 – Commitments

Effective on January 1, 2017, Processing, as a sublessee, entered into a sublease rental agreement for office space with a sublessor for a term of two years. The monthly rent is $1,897. The Company recorded rental expense of $11,380 and $0 for the nine months ended June 30, 2017 and 2016, respectively. The Company recorded rental expense of $5,689 and $0 for the three months ended June 30, 2017 and 2016, respectively.  The future annual minimum lease payment from June 30, 2017 is $22,764 for 2017 and $11,382 for 2018.

On April 1, 2017, the Company entered a strategist consulting agreement with a consulting company for a service term of one year. The compensation to the consulting company will be $50,000 per year, payable monthly at the end of each month.

Note 13 – Concentrations

The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenue for the nine months ended June 30, 2017 and 2016.

Note 14 – 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 that the Company did not have any material subsequent events to disclose in its CFS other than the events discussed above.

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Fuse Enterprises Inc. (the “Company” or “Enterprises” or “We”) was incorporated under the laws of the State of Nevada on December 24, 2013.  Enterprises Inc. is a full service online marketing agency. On December 6, 2016, the Company incorporated Fuse Processing, Inc. (“Processing”) in the State of California. Processing seeks business opportunities in the mining business and is currently investigating potential mining targets in Asia and North America.  Enterprises is the sole shareholder of Processing.  On November 28, 2016, 5,500,000 shares of the common stock of Enterprises, or 60.91% of the Company’s issued and outstanding shares of common stock, were sold by Pavel Mikhalkov and Aleksandr Kriukov in a series of private transactions to a new shareholder for an aggregate purchase price of $55,000 (collectively, the “Stock Sales”). In connection with the Stock Sales, Messrs. Mikhalkov and Kriukov released the Company from certain liabilities and obligations arising out of their service as directors and officers of the Company. In March 2017, Processing acquired 100% ownership of Fuse Trading Limited (“Trading”) for HKD1 (US$0.13). Trading had no operations prior to the acquisition by Processing, and Trading expects to be engaged in mining-related businesses.

Revenue

We generate revenue from sales of our marketing and web development services directly to small and medium-sized business. We acquire customers through direct telemarketing and referrals. We are currently seeking business opportunities in the mining industry and is investigating potential mining targets in Asia and North America.

 

Our gross revenue from consulting services related to website development, SEO consulting and online marketing for the three months ended June 30, 2017 and 2016 was $0 and $3,600, respectively. Our cost of revenues for the three months ended June 30, 2017 and 2016 was $0 and $1,500, respectively, resulting in a gross profit of $0 and $2,100 for the three months ended June 30, 2017 and 2016, respectively.  The Company did not generate any revenue during the three months ended June 30, 2017 due to the fact the Company did not receive any new orders for our consulting and website development services and the Company is also in the process of transforming its business by seeking new business opportunities.

Costs and Expenses

The major components of our expenses for the three months ended June 30, 2017 and 2016 are outlined in the table below:

The increase in our operating costs for the three months ended June 30, 2017, compared to the three months ended June 30, 2016, includes increased salary expenses of $67,833, increased travel expenses of $100,809, increased legal fees of $33,820 and increased consulting fees of $215,077, as a result of the Company recruiting experienced personnel, advisors and consultants, and becoming more aggressive in seeking business opportunities for its development and expansion.  In addition to the online marketing and consulting business, the Company is actively seeking opportunities in the mining industries in Asia and North America.

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Non-operating expenses were $1,855 for the three months ended June 30, 2017, compared to $0 for the same period in 2016.  The increase in non-operating expenses was mainly due to increased interest expense of $52,096 and financial expense of $649, which was partially offset by increased interest income of $37,387, net other income of 170 and consulting income of $13,333.

Revenue

We generate revenue from sales of our marketing and web development services directly to small and medium-sized business. We have historically acquired customers through direct telemarketing and referrals. We are currently seeking business opportunities in the mining industry and are investigating potential mining targets in Asia and North America.

Our gross revenue from consulting services related to website development, SEO consulting and online marketing for the nine months ended June 30, 2017 and 2016 was $0 and $17,925, respectively. Our cost of revenues for the nine months ended June 30, 2017 and 2016 was $0 and $5,526, respectively, resulting in a gross profit of $0 and $12,399 for the nine months ended June 30, 2017 and 2016, respectively.  The Company did not generate any revenue during the nine months ended June 30, 2017 due to the fact the Company did not receive any new orders for our consulting and website development services and the Company is also in the process of transforming its business by seeking new business opportunities.

Costs and Expenses

The major components of our expenses for the nine months ended June 30, 2017 and 2016 are outlined in the table below:

The increase in our operating costs for the nine months ended June 30, 2017, compared to nine months ended June 30, 2016, was due to increased salary expenses of $128,667, increased travel expenses of $209,189, increased legal fees of $64,322 and increased consulting fees of $418,684, as a result of the Company recruiting experienced personnel, advisors and consultants, and becoming more aggressive in seeking new business opportunities for its development and expansion. 

Non-operating expenses

Non-operating expenses were $35,326 for the nine months ended June 30, 2017, compared to $0 for the same period in 2016.  The increase in non-operating expenses was mainly due to increased interest expense of $109,917 and financial expense of $1,112, which was partially offset by increased interest income of $55,533, net other income of $170 and consulting income of $20,000, which is from the consulting service Fuse Processing provided to a Hong Kong company seeking to invest in certain projects in the United States.

As of June 30, 2017 and September 30, 2016, the Company owed its directors and officers $0 and $27,405 respectively.

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Liquidity and Capital Resources

During the nine months ended June 30, 2017 and 2016, the Company reported net loss of $1,071,542 and $30,344 respectively.  During the three months ended June 30, 2017 and 2016, the Company reported net loss of $515,951 and $22,211, respectively.

If we are not successful in expanding our clientele base and establishing profitability and positive cash flow, additional capital may be required to maintain ongoing operations. We have explored and are continuing 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 that 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.

The table below, for the period indicated, provides selected cash flow information:

We have generated revenues of $0 and $17,925 during the nine months ended June 30, 2017 and 2016, respectively.

Cash Flows from Operating Activities

Our cash used in operating activities for the nine months ended June 30, 2017 and 2016 was $2,045,974 and $20,996, respectively.   The increase in net cash used in operating activities was mainly due to increased net loss of $1,071,542 and increased cash outflow for prepaid consulting expenses of $1,325,000, which was partially offset by a capital contribution from an officer’s salary of $16,667.

Cash Flows from Investing Activities

Our cash used in investing activities for the nine months ended June 30, 2017 and 2016 was $3,939,598 and $0, respectively. The increase in net cash used in investing activities was mainly due to cash outflow for a series of notes receivable of $3,925,000 and cash outflow for acquisition of fixed assets of $14,598.  

Cash Flows from Financing Activities

During the nine months ended June 30, 2017 and 2016, we received proceeds of $2,038 and $35,300, respectively, through the payment for certain payables made by our management as capital contributions, and $6,869,818 and $0, respectively, from issuing a note to one of our major shareholders.

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Recent Accounting Pronouncements 

See Note 2 to the Unaudited Consolidated Financial Statements.

Off Balance Sheet Arrangements

As of June 30, 2017, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

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On December 19, 2016, the Company entered into a Convertible Promissory Note Purchase Agreement (the “Agreement”) with Landbond Home Limited, a corporation organized under the laws of Samoa (the “Purchaser”). Under the Agreement, the Company sold a Convertible Promissory Note to the Purchaser with a principal amount of $6,869,818 and 6% interest (the “Note”). The Note was to mature on the date that was 24 months from the original issue date, and any outstanding principal and interest on the Note could be converted at any time prior to maturity at the lender’s option at a conversion price of $1.50 per share of the Company’s common stock.  The Agreement was executed pursuant to an exemption from registration under Regulation S.  The purchaser of the Note held 60.9% of the issued and outstanding shares of the Company’s common stock, and the execution of the Amended Agreement and New Note (as defined below) constitutes a related-party transaction under Item 404(a) of Regulation S-K.

On March 20, 2017, the Company entered into an Amended and Restated Promissory Note Purchase Agreement (the “Amended Agreement”) with the Purchaser and Fuse Trading Limited, an indirect wholly-owned subsidiary of the Company organized under the laws of Hong Kong (“Trading”).  Under the terms of the Amended Agreement, the existing Note issued under the Agreement was cancelled and Trading issued a Promissory Note (the “New Note”) to the Purchaser in the principal amount of the Note, $6,869,818, with a term of 12 months, renewable for up to an additional 12 months at the Purchaser’s option, and interest of 3%.  The Purchaser does not have conversion rights under the New Note issued by Trading.  The principal amount of the New Note and any unpaid interest accrued thereon may become due and payable immediately upon the occurrence of certain events of default, including but not limited to Trading’s insolvency or the institution of bankruptcy proceedings against Trading. The Company intends to use the proceeds from the sale of the New Note for operating expenses and the expansion of its business.

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