IONIX TECHNOLOGY, INC. - Quarter Report: 2018 March (Form 10-Q)

 

IONIX TECHNOLOGY, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

MARCH 31, 2018

 

(UNAUDITED)

 

NOTE 1 - NATURE OF OPERATIONS

 

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

 

 

 

On November 7, 2016, the Company’s Board of Directors approved and ratified the incorporation of Lisite Science Technology (Shenzhen) Co., Ltd (“Lisite Science”), a limited liability company formed in China on June 20, 2016. Well Best is the sole shareholder of Lisite Science. As a result, Lisite Science is an indirect, wholly-owned subsidiary of the Company. Lisite Science will act as a manufacturing base for the Company and has been focused on developing, producing and selling high-end intelligent electronic equipment, such as portable power banks.

 

On November 7, 2016, the Company’s Board of Directors approved and ratified the incorporation of Shenzhen Baileqi Electronic Technology Co., Ltd. (“Baileqi Electronic”), a limited liability company formed in China on August 8, 2016. Well Best is the sole shareholder of Baileqi Electronic. As a result, Baileqi Electronic is an indirect, wholly-owned subsidiary of the Company. Baileqi Electronic will act as a manufacturing base for the Company and has been focused on development and production of the LCD monitors.

 

On December 29, 2016, the Company’s Board of Directors approved and ratified to invest 99,999 HK dollars for 99.999% of the issued and outstanding stock of Welly Surplus International Limited (“Welly Surplus”), a limited company formed under the laws of Hong Kong on January 18, 2016. As a result of the investment, the Company became the majority shareholder of Welly Surplus, owning 99.999% of the outstanding stock of Welly Surplus, Mr. Xin Sui, a director, owns 0.001% of the outstanding stock of Welly Surplus. Welly Surplus will act as the accounting and financial base for the Company and shall focus on assisting the Company with all of the Company’s financial affairs. Welly Surplus had no operating activities from inception until the date of acquisition.

 

 

On February 20, 2018, the Company’s Board of Directors approved and ratified the incorporation of Changchun Fangguan Photoelectric Display Technology Co. Ltd. (“Changchun”), a limited liability company formed in China on February 1, 2018. Well Best is the sole shareholder of Changchun. As a result, Changchun is an indirect, wholly-owned subsidiary of the Company. Changchun will act as a manufacturing base for the Company and shall focus on developing and producing high-end intelligent electronic equipment, such as LCD screens.

 

NOTE 2 - GOING CONCERN

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company had an accumulated deficit of $138,771 at March 31, 2018 and has not generated sufficient cash flow from its continuing operations for the past two years. These circumstances, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The Company may need to raise additional capital from external sources or obtain loans from officers and shareholders in order to continue the long-term efforts contemplated under its business plan. The Company is pursuing other revenue streams which could include strategic acquisitions or possible joint ventures of other business segments.

 

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

 

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of March 31, 2018 and the results of operations and cash flows for the periods ended March 31, 2018 and 2017. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three and nine months ended March 31, 2018 are not necessarily indicative of the results to be expected for any subsequent periods or for the entire year ending June 30, 2018 or for any subsequent periods. The balance sheet at June 30, 2017 has been derived from the audited financial statements at that date.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended June 30, 2017 as included in our Annual Report on Form 10-K as filed with the SEC on October 13, 2017.

 

Certain amounts have been reclassified to conform to current year presentation

 

 

 

The consolidated financial statements include the accounts of Ionix Technology Inc. and its subsidiaries. All significant inter-company balances and transactions have been eliminated upon consolidation.

 

 

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

 

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

 

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

 

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

 

NOTE 4 - DISCONTINUED OPERATIONS

 

The following table shows the result of operations of Taizhou Ionix for the period from July 1 to August 19, 2016 which are included in the income (loss) from discontinued operations:

 

 

 

 

On April 30, 2017, Well Best, a wholly-owned subsidiary of the Company, sold 100% of its equity interest in Xinyu Ionix to Zhengfu Nan for RMB 100 (approximately $14USD) pursuant to a Share Transfer Agreement dated April 30, 2017 (the “Agreement”). The Company believed that the manufacturing contract between Xinyu Ionix and Jiangxi Huanming Technology Co., Ltd. regarding the production of lithium batteries was not beneficial to the Company. As a result, (i) Xinyu Ionix is no longer an indirect, wholly-owned subsidiary of the Company, and (ii) Mr. Nan is no longer affiliated with the Company. Well Best recorded a loss of $31,115 on disposal of Xinyu Ionix at the date of sale.

 

The following table shows the results of operations of Xinyu Ionix for the three and nine months ended March 31, 2017, which are included in the income (loss) from discontinued operations:

 

 

 

NOTE 5 - INVENTORIES

 

Inventories are stated at the lower of cost (determined using the weighted average cost) or net realizable value and are composed of the raw materials and finished goods.

 

Inventories consist of the following:

 

 

NOTE 6 - OTHER RECEIVABLES

 

Other receivables represent short term advances to third parties. They are interest free, unsecured and repayable on demand. The balance of the other receivables as of June 30, 2017 was repaid in full in September 2017.

 

NOTE 7 - DUE TO RELATED PARTIES

 

 

On September 1, 2016, Baileqi entered into a manufacturing agreement with Shenzhen Baileqi Science and Technology Co., Ltd. (“Shenzhen Baileqi S&T”) to manufacture products for Baileqi. The owner of Shenzhen Baileqi S&T is also a shareholder of the Company who owns approximately 1.5% of the Company’s outstanding common stock as of March 31, 2018.  The manufacturing costs incurred with Shenzhen Baileqi S&T was $276,043 and $152,560 for the nine months ended March 31, 2018 and 2017, respectively, and the amount of $233,970 and $141,170 respectively were included in cost of revenue.

 

The manufacturing costs incurred with Shenzhen Baileqi S&T was zero and $44,342 for the three months ended March 31, 2018 and 2017, respectively, and the amount of $110,935 and $66,721 respectively were included in cost of revenue. 

 

During the nine months ended March 31, 2018, the Company purchased $949,941 and $504,144 from Keenest and Shenzhen Baileqi S&T which were owned by the Company’s shareholders who own approximately 2% and 1.5% respectively of the Company’s outstanding common stock as of March 31, 2018. The amount of $949,941 and $504,108 were included in the cost of revenue. 

 

During the nine months ended March 31, 2017, the Company purchased $2,668,927 and $251,344 from Keenest and Shenzhen Baileqi S&T. The amount of $2,610,793 and $226,452 were included in the cost of revenue. 

 

 

During the three months ended March 31, 2018, the Company purchased $558,137 and $93,168 from Keenest and Shenzhen Baileqi S&T. The amount of $558,137 and $140,276 were included in the cost of revenue.

 

During the three months ended March 31, 2017, the Company purchased $1,235,962 and $143,747 from Keenest and Shenzhen Baileqi S&T. The amount of $1,235,800 and $180,375 were included in the cost of revenue.

 

During the three and nine months ended March 31, 2018, the Company also purchased $97,576 from Changchun Fangguan Electronic Science and Technology Co., Ltd. (“Fangguan S&T”).  The legal representative of Fangguan S&T is the president and a member of the board of directors of Changchun.  The amount of $97,576 was included in the cost of revenue.

 

The Company made advances of $243,883 to Keenest for future purchases as of March 31, 2018.  The trade balance payable to Shenzhen Baileqi S&T were $102,557 and $159,861 respectively as of March 31, 2018 and June 30, 2017.

 

 

 

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

 

Due to related parties consists of the following:

 

  

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

 

(2) Changyong Yang is a stockholder of the Company, who owns approximately 2% of the Company’s outstanding common stock, and the owner of Keenest.

 

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

 

(4) Baozhen Deng is a stockholder of the Company, who owns approximately 1.5% of the Company’s outstanding common stock, and the owner of Shenzhen Baileqi S&T.

 

(5) Shenzhen Baileqi S&T is a company established in China and 100% owned by Baozhen Deng, a stockholder of the Company.

 

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

 

(7) Jialin Liang is the president and a member of the board of directors of Changchun.

 

 

During the nine months ended March 31, 2018, Welly Surplus refunded $5,000 to Xin Sui.  Baileqi Electronic refunded $9,274 and $4,599 to Shenzhen Baileqi S&T and Baozhen Deng.  Lisite Science refunded $122,820 to Changyong Yang.

 

During the nine months ended March 31, 2018, Yubao Liu advanced $49,966 to Well Best.

 

During the nine months ended March 31, 2018, Jialin Liang advanced $1,594 to Changchun.

 

During the nine months ended March 31, 2017, Ben Wong advanced $59,874 to Well Best and he received the proceeds of $5,000 from sales of Taizhou Ionix on behalf of the Company.  Changyong Yang, a stockholder of the Company, advanced $898,546 to Lisite Science.  Xin Sui, a member of the board of directors of Welly Surplus, advanced $6,992 to Welly Surplus.     

 

NOTE 8 - CONCENTRATION

 

 

Customers who accounted for 10% or more of the Company’s revenues for the nine months ended March 31, 2018 and 2017 respectively and its outstanding balance of accounts receivable as of March 31, 2018 and 2017 respectively are presented as follows:

 

  

 

 

 

 

 

 

 

All customers are located in the PRC.

 

 

The suppliers who accounted for 10% or more of the Company’s total purchases (materials and services) for the nine months ended March 31, 2018 and 2017 respectively and its outstanding balance of accounts payable as of March 31, 2018 and 2017 respectively are presented as follows:

 

 

 

 

 

 

 

All suppliers of the Company are located in the PRC.

 

NOTE 9 - INCOME TAXES

 

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

 

 

The Company is registered in the State of Nevada and is subject to the tax laws of United States of America.

 

The Company has shown losses since inception.  As a result it has incurred no income tax. Under normal circumstances, the Internal Revenue Service is authorized to audit income tax returns during a three year period after the returns are filed.  In unusual circumstances, the period may be longer.  Tax returns for the years ended June 30, 2011 and after were still open to audit as of March 31, 2018.

 

The Company received a penalty assessment from the IRS in the amount of $10,000 for failure to provide information with respect to certain foreign owned US Corporations on Form 5472 - Information Return of a 25% Foreign Owned US Corporation for the tax period ended June 30, 2013. The Company disputed this claim and is working to reverse the penalty. The Company believes that the payment of this penalty is remote and did not accrue this liability as of March 31, 2018.

 

 

 

The Well Best and Welly Surplus are registered in Hong Kong and subject to income tax rate of 16.5%. For the nine months ended March 31, 2018 and 2017, there is no assessable income chargeable to profit tax in Hong Kong.

 

 

Lisite Science , Changchun and Baileqi Electronic are operating in the PRC and is subject to the Corporate Income Tax Law of the People’s Republic of China at a unified income tax rate of 25%.

 

The reconciliation of income tax expense at the U.S. statutory rates of 21% and 35% to the Company’s effective tax rate is as follows:

 

 

The provisions for income taxes are summarized as follows:

 

 

As of March 31, 2018, the Company has approximately $318,000 net operating loss carryforwards available in the U.S. and Hong Kong to reduce future taxable income which will begin to expire from 2035. It is more likely than not that the deferred tax assets cannot be utilized in the future because there will not be significant future earnings from the entity which generated the net operating loss. Therefore, the Company recorded a full valuation allowance on its deferred tax assets.

 

The Company has not provided deferred taxes on unremitted earnings attributable to international companies that have been considered to be reinvested indefinitely. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the income tax liability that would be payable if such earnings were not indefinitely reinvested. In accordance with ASC Topic 740, interest associated with unrecognized tax benefits is classified as income tax and penalties are classified in selling, general and administrative expenses in the statements of operations.

 

 

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

 

The U.S. Tax Cuts and Jobs Act (Tax Act) was enacted on December 22, 2017 and introduces significant changes to U.S. income tax law. Effective in 2018, the Tax Act reduces the U.S. statutory tax rate from 35% to 21% and creates new taxes on certain foreign-sourced earnings and certain related-party payments, which are referred to as the global intangible low-taxed income tax and the base erosion tax, respectively. The Tax Act requires the Company to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company has not recorded any adjustments according to Tax Act. As the Company collects and prepares necessary data, and interprets the Tax Act and any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, the Company may make adjustments to the provisional amounts. Those adjustments may materially impact the provision for income taxes and effective tax rate in the period in which the adjustments are made. The accounting for the tax effects of the Tax Act will be completed in 2018.

 

NOTE 10 - SUBSEQUENT EVENTS

 

The Company has evaluated the existence of significant events subsequent to the balance sheet date through the date the financial statements were issued and has determined that there were no subsequent events or transactions which would require recognition or disclosure in the financial statements.

 

 

The following Management's Discussion and Analysis should be read in conjunction with Ionix Technology, Inc.’s. financial statements and the related notes thereto. The Management's Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Report on Form 10-Q. The Company’s actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Report on Form 10-Q.

 

The following discussion should be read in conjunction with our unaudited consolidated financial statements and related notes and other financial data included elsewhere in this report. See also the notes to our consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended June 30, 2017, filed with the Commission on October 13, 2017.

During the nine months ended March 31, 2018, the Company used $94,920 in cash for financing activities, which was all due to repayment of related party loans. In comparison, during the nine months ended March 31, 2017, the Company received $1,032,060 in cash  from financing activities, $974,778 of which was attributable to proceeds from related party loans and $57,282 from discontinued operations.

 

 Critical Accounting Policies

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

 

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

 

Recently Issued Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

Contractual Obligations

 

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

 

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2018.

 

Changes in Internal Control over Financial Reporting

 

 

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

Limitations of the Effectiveness of Disclosure Controls and Internal Controls

 

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

 

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

 

 

ITEM 1.

LEGAL PROCEEDINGS

 

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

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

 

 

    

On February 20, 2018, the Company’s Board of Directors approved and ratified the incorporation of Changchun Fangguan Photoelectric Display Technology Co. Ltd. (“Changchun”), a limited liability company formed under the laws of China on February 1, 2018. Well Best is the sole shareholder of Changchun. As a result, Changchun is an indirect, wholly-owned subsidiary of the Company. Changchun will act as a manufacturing base for the Company and shall focus on developing and producing high-end intelligent electronic equipment. Additionally, on February 20, 2018, the Company ratified and approved the appointment of Jialin Liang as President and a member of the board of directors of Changchun.

 

 

ITEM 6.

EXHIBITS

 

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

 

SIGNATURES

 

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

 

 

 

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