IONIX TECHNOLOGY, INC. - Annual Report: 2021 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

x   Annual Report PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2021

or

¨   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from                to               .

Commission File Number 000-54485

IONIX TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)

Rm 608. Block B, Times Square, No. 50 People Road, Zhongshan District, Dalian City,

Liaoning Province, China 116001

(Address of principal executive offices) (Zip Code)

+86-411 8807912 0

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Indicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ¨  No x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨  No x

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. Yes x  No o 

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). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company”, in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ No x.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of September 29, 2021, there were 165,383,058 shares of common stock issued and outstanding, par value $0.0001 per share.

As of September 29, 2021, there were 5,000,000 shares of preferred stock issued and outstanding, par value $0.0001 per share. 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $9,130,731 based upon the price ($0.152) at which the common stock was last sold as of December 31, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, multiplied by the approximate number of shares of common stock held by persons other than executive officers, directors and five percent stockholders of the registrant without conceding that any such person is an “affiliate” of the registrant for purposes of the federal securities laws.

DOCUMENTS INCORPORATED BY REFERENCE: None

TABLE OF CONTENTS

PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted. These risks and uncertainties include the following:

This report should be read completely and with the understanding that actual future results may be materially different from what we expect. The forward looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this Report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Use of Term

Except as otherwise indicated by the context, references in this Annual Report to the words "we,""our,""us," the "Company,""IINX," or “Ionix” refers to Ionix Technology, Inc. All references to “USD” or United States Dollars refer to the legal currency of the United States of America.

Corporate Background

Ionix Technology, Inc. (the “Company”, formerly known as Cambridge Projects Inc.), a Nevada corporation, was formed on March 11, 2011. The Company was originally formed to pursue a business combination through the acquisition of, or merger with, an operating business. The Company filed a registration statement on Form 10 with the U.S. Securities and Exchange Commission (the “SEC”) on August 23, 2011, and focused on identifying a potential business combination opportunity.

On November 20, 2015, the Company’s former majority shareholder and chief executive offer, Locksley Samuels (“Seller”), completed a private common stock purchase agreement (the “SPA”) to sell his entire 21,600,000 shares of the Company’s common stock to Shining Glory Investments Limited (“Purchaser”). In connection with the SPA, the Board appointed Ms. Doris Zhou as the Company’s Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer, and director on November 20, 2015, and Seller concurrently resigned from all positions with the Company. As a result of the SPA, a change in control occurred as (i) Purchaser acquired approximately 65.45% of the Company’s common stock, and (ii) the Company’s sole officer and director after the SPA was Ms. Zhou, who has since resigned.

On November 30, 2015, the Company’s board of directors (the “Board”) and the majority of its shareholders approved that (i) the Company change its name from “Cambridge Projects Inc.” to “Ionix Technology, Inc.”, (ii) the Company voluntarily changed its ticker symbol in connection with the name change, and (iii) the Company execute a 3:1 forward stock split, which will increase the Company’s issued and outstanding shares of common stock from 33,001,000 to 99,003,000 (the “Corporate Actions). The Company filed an application with the Financial Industry Regulatory Authority (“FINRA”) to effectuate the Corporate Actions and filed a Form 8-K on December 10, 2015, in regards to the Corporate Actions. On February 3, 2016, FINRA approved the Corporate Actions, which took effect on the market on February 4, 2016. As a result, (i) the Company’s name is now “Ionix Technology, Inc.”, (ii) its new trading symbol is “IINX”, (iii) the 3:1 forward stock split is effective, payable upon surrender, and (iv) the Company’s new CUSIP number is 46222Q107.

On February 17, 2016, the Board ratified, approved, and authorized the Company’s acquisition of a wholly-owned subsidiary, Well Best International Investment Limited, a limited liability company formed under the laws of Hong Kong Special Administrative Region (“Well Best”) on September 14, 2015. Well Best was acquired by Qingchun Yang, its current director, on November 10, 2015. One hundred percent interest in Well Best was transferred to Ionix Technology on February 15, 2016.Well Best’s purpose is to act as an investment holding company and pursue new business ventures conducted in the Asia Pacific region excluding China. Well Best has had no activities since inception.

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 under the laws of 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 focused on marketing the high-end intelligent electronic equipment, specifically a power bank which is a 5 volt 2 amp, 20000mAh lithium ion battery powered portable device offering charging time of 12-18 hours that is intended to be utilized as a power source for electronic devices such as the iphone, ipad, mp3/mp4 players, PSP gaming systems, and cameras. Lisite Science commenced operations in September of 2016.

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 under the laws of 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 focused on marketing the LCD and module for civil electronic products. The module of new energy power system refers to an LCD screen that is manufactured for small devices such as video capable baby monitors, electronic devices such as tablets and cell phones, and for use in televisions or computer monitors. Baileqi Electronics commenced operations in September of 2016.On September 1, 2016, Baileqi Electronics entered into a manufacturing agreement with Shenzhen Baileqi Science and Technology Co., Ltd. ("Shenzhen Baileqi S&T") to manufacture products for Baileqi Electronics.

On December 29, 2016, the Company’s Board of Directors approved and ratified the acquisition of 99.9% of the issued and outstanding stock of Welly Surplus International Limited, a limited company formed under the laws of Hong Kong on January 18, 2016, in exchange for 99,999 HK dollars (the “Acquisition”). As a result of the Acquisition, the Company became the majority shareholder of Welly Surplus, owning 99.99% of the issued and outstanding stock of Welly Surplus, and Welly Surplus is now a majority owned subsidiary of the Company. As the closing of the Acquisition, Ms. Zhou was appointed as a member of the board of directors 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 activities since inception.

On April 7, 2017, Ben William Wong (“Wong”) and Yubao Liu, an individual (“Liu”) entered into a Stock Purchase Agreement (the “Agreement”) whereby Wong agreed to sell and Liu agreed to purchase 5,000,000 shares of the Company’s restricted preferred stock, representing 100% of the total issued and outstanding preferred stock (“Company Preferred Stock”). In consideration for the Company Preferred Stock, Liu agreed to pay to Wong a total of 5,000,000 RMB on or before April 30, 2017. The Agreement closed on April 20, 2017 (the “Closing”). Additionally, on April 5, 2017, Liu and Shining Glory Investments Limited, a British Virgin Islands company (“Shining Glory”), of which Wong is the sole officer and director, entered into a purchase agreement whereby Liu acquired 1 ordinary common stock share (the “Shining Glory Share”) representing approximately 100% of Shining Glory’s outstanding shares of common stock.  In consideration for the Shining Glory Share, Liu paid to Wong a total of $1 USD and Wong resigned as a Director of Shining Glory. Concurrently, Liu was appointed as the sole director of Shining Glory. The agreement between Shining Glory and Liu closed on April 20, 2017.

On February 20, 2018, the Company ratified and approveda the appointment of Jialin Liang as President and a member of the board of directors of Changchun Fangguan Photoelectric Display Technology Co. Ltd ("Fangguan Photoelectric"). On February 20, 2018, the Company’s Board of Directors approved and ratified the incorporation of Fangguan Photoelectric. Fangguan Photoelectric is a wholly owned subsidiary of Well Best International Investment Limited and an indirect wholly-owned subsidiary of the Company. Fangguan Photoelectric focused on marketing LCDs for the Company. In October 2018, Jialin Liang resigned as President and Director of Fangguan Photoelectric. Mr Biao Shang became his successor.

On June 28, 2018, the Board of Directors of Ionix Technology, Inc. (the “Company”) approved and ratified the incorporation of Dalian Shizhe New Energy Technology Co., Ltd. (“Shizhe New Energy”) and the Company ratified and approved the appointment of Mr. Liang Zhang as President and a member of the board of directors of  Shizhe New Energy . Shizhe New Energy is a wholly owned subsidiary of Well Best International Investment Limited and an indirect wholly-owned subsidiary of Ionix Technology, Inc. In May 2019, Liang Zhang resigned as President and Director of Shizhe New ENERGY. Mr Shikui Zhang became his successor.

On December 27, 2018, the Company entered into a Share Purchase Agreement (the “Purchase Agreement”) with Jialin Liang and Xuemei Jiang, each of whom is shareholder (the “Shareholders”) of Changchun Fangguan Electronics Technology Co., Ltd. (PRC) (“Fangguan Electronics”). Pursuant to the terms of the Purchase Agreement, the Shareholders, who together own 95.14% of the ownership rights in Fangguan Electronics, agreed to execute and deliver the Business Operation Agreement dated December 27, 2018 (the “Business Operation Agreement”), the Equity Interest Pledge Agreement dated December 27, 2018 (the “Equity Interest Pledge Agreement”), the Equity Interest Purchase Agreement dated December 27, 2018 (the “Equity Interest Purchase Agreement”), the Exclusive Technical Support Service Agreement dated December 27, 2018 (the “Services Agreement”) and the Power of Attorney dated December 27, 2018 (the “Power of Attorney” and together with the Business Operation Agreement, the Equity Interest Pledge Agreement, the Equity Interest Pledge Agreement and the Services Agreement, the “VIE Transaction Documents”) to the Company in exchange for the issuance of an aggregate of 15,000,000 shares of the Company’s common stock, par value $.0001 per share (the “Common Stock”), thereby causing Fangguan Electronics to become the Company’s variable interest entity. Together with Purchase Agreement, in exchange of 15 million shares of the Company’s common stock, the Shareholders also agreed to convert shareholder loan of RMB 30 million (approximately $4.4 million) to capital and make cash contribution of RMB 9.7 million (approximately $1.4 million) to capital. The entirety of the transaction will hereafter be referred to as the “Transaction.”

On February 7, 2021, the Board of Directors of the Company approved and ratified the incorporation of Shijirun (Yixing) Technology Co., Ltd. (“Shijirun”), a limited liability company formed under the laws of the Peoples Republic of China (PRC) on February 7, 2021. Well Best International Investment Limited is the sole shareholder of Shijirun. As a result, Shijirun is an indirect, wholly-owned subsidiary of the Company. Shijirun focuses on developing and producing high-end intelligent new energy equipment in Yixing City, Jiangsu Province, China.

On March 30, 2021, the Board of Directors of Ionix Technology, Inc. approved and ratified the incorporation of Huixiang Energy Technology (Suzhou) Co., Ltd. (“Huixiang Energy”), a limited liability company formed under the laws of the Peoples Republic of China (PRC) on March 18, 2021. Well Best is the sole shareholder of Huixiang Energy. As a result, Huixiang Energy is an indirect, wholly-owned subsidiary of the Company. Huixiang Energy shall conduct research and development of next generation advanced battery technologies, manufacture and sales of relevant battery products, including the solid-state rechargeable lithium ion battery for next generation EV and energy storage systems. Huixiang Energy also focuses on the operation of battery packs, battery systems and electric vehicles sharing business with its own internet sharing platform relating to the electric vehicles (online EV hailing services) and its relevant batteries and battery systems. Huixiang Energy operates in Suzhou City, Jiangsu Province, China.

On May 6, 2021, the Board of Directors and the holders of the majority of issued and outstanding voting securities of the Company approved an amendment (the “Amendment”) to our Articles of Incorporation to increase the authorized number of shares of common stock from 200,000,000 to 400,000,000 shares consisting of: (i) 395,000,000 shares of common stock, par value $0.0001 per share (“Common Stock”); and (ii) 5,000,000 shares of preferred stock par value $0.0001 per share (“Preferred Stock”) (the “Authorized Share Increase”) and related Certificate of Amendment to Articles of Incorporation. The approval was made in accordance with Sections 78.320 and 78.390 of the Nevada Revised Statues, which provide that a corporation’s articles may be amended by written consent of the stockholders representing at least a majority of the voting power. The Amendment was filed with the Nevada Secretary of State on June 7, 2021.

 Description of VIE Transaction Documents

The material contractual agreements between Changchun Fangguan Photoelectric Display Technology Co. Ltd. (PRC) (“Fangguan Photoelectric”), Fangguan Electronics and its shareholders consist of the following agreements:

Business Operation Agreement – This agreement allows Fangguan Photoelectric to manage and operate Fangguan Electronics. Under the terms of the Business Operation Agreement, Fangguan Photoelectric may direct the business operations of Fangguan Electronics, including, but not limited to, borrowing money from any third party, distributing dividends or profits to shareholders, adopting corporate policy regarding daily operations, financial management, and employment, and appointment of directors and senior officers.

Exclusive Technical Support Service Agreement – This agreement allows Fangguan Photoelectric to collect 100% of the net profits of Fangguan Electronics. Under the terms of the Service Agreement, Fangguan Photoelectric is the exclusive provider of equipment, advice and consultancy to Fangguan Electronics related to its general business operations, among other things. Fangguan Photoelectric owns all intellectual property rights arising from its performance under the Service Agreement.

Power of Attorney – The Shareholders have each executed and delivered to Fangguan Photoelectric a Power of Attorney pursuant to which Fangguan Photoelectric has been granted the Shareholders’ voting power in Fangguan Electronics. Each Power of Attorney is irrevocable and does not have an expiration date.

Equity Interest Purchase Agreement – Fangguan Photoelectric and the Shareholders entered into an exclusive option agreement pursuant to which the Shareholders have granted Fangguan Photoelectric or its designee(s) the irrevocable right and option to acquire all or a portion of such Shareholders’ equity interests in Fangguan Electronics. Pursuant to the terms of the agreement, Fangguan Photoelectric and the Shareholders have agreed to certain restrictive covenants to safeguard the rights of Fangguan Photoelectric under the Equity Interest Purchase Agreement. Fangguan Photoelectric may terminate the Equity Interest Purchase Agreement upon prior written notice. The Option Agreement is valid for a period of five (5) years from the effective date, which may be extended by Fangguan Photoelectric.

Equity Interest Pledge Agreement – Fangguan Photoelectric and the Shareholders entered into an agreement pursuant to which the Shareholders have pledged all of their equity interests in Fangguan Electronics to Fangguan Photoelectric. The Equity Interest Pledge Agreement serves to guarantee the performance by Fangguan Electronics of its obligations under the VIE Transaction Documents. Pursuant to the terms of the Equity Interest Pledge Agreement, the Shareholders have agreed to certain restrictive covenants to safeguard the rights of Fangguan Photoelectric. Upon an event of default under the agreement, Fangguan Photoelectric may foreclose on the pledged equity interests.

As a result of the Transaction, the Company, through its subsidiaries and variable interest entity, is now engaged in the business of the research and development, manufacturing, and marketing of liquid crystal materials, displays and modules in the PRC. All business operations are conducted through our wholly-owned subsidiaries, including Fangguan Photoelectric, and through Fangguan Electronics, our variable interest entity. Fangguan Electronics is considered to be a variable interest entity because we do not have any direct ownership interest in it, but, as a result of a series of contractual agreements between Fangguan Photoelectric, our wholly-owned subsidiary, and Fangguan Electronics and its shareholders, we are able to exert effective control over Fangguan Electronics and receive 100% of the net profits or net losses derived from the business operations of Fangguan Electronics.

Prior Operations and Agreements

On August 19, 2016, the Board ratified, approved, and authorized the Company, as the sole member of Well Best, on the formation of Xinyu Ionix Technology Company Limited (“Xinyu Ionix”), a company formed under the laws of China on May 19, 2016. As a result Xinyu Ionix is a wholly-owned subsidiary of Well Best and an indirect wholly-owned subsidiary of the Company. The initial plan of Xinyu Ionix was about to focus on developing and designing lithium batteries as well as to act as an investment company that may acquire other businesses located in China. However, due to the high cost and low efficiency, since the approval date of May 19, 2016, Xinyu Ionix conducted no business.

On April 30, 2017, Well Best International Investment Limited (“Well Best”), a wholly-owned subsidiary of the Company, transferred all of its rights, title and interest to all 100% of the issued and outstanding common stock of Xinyu Ionix Technology Company Limited (“Xinyu Ionix”) to Zhengfu Nan for RMB 100($14.49) pursuant to a Share Transfer Agreement dated April 30, 2017 (the “Agreement”). Following the execution of the Agreement, Mr. Nan owns 100% of Xinyu Ionix and assumes all liabilities of Xinyu Ionix. As a result Xinyu Ionix is no longer a wholly-owned subsidiary of Well Best or an indirect wholly-owned subsidiary of the Company.

Business Summary

Since January 2016, the Company has shifted its focus to becoming an aggregator of energy cooperatives to achieve optimum price and efficiency in creating and producing technology and products that emphasize long life, high output, high energy density, and high reliability. By and through its wholly owned subsidiary, Well Best and the indirect subsidiaries, Baileqi Electronics, Lisite Science, Welly Surplus, Fangguan Photoelectric, Fangguan Electronics,Huixiang Energy, Shijirun and Shizhe New Energy, the Company has commenced its main operations of high-end intelligent electronic equipment and photoelectric display products, became the New energy service provider and IT solution provider, which are in the new-type rising industries.

The Company applied various operating approacehs. Baileqi Electronics, Lisite Science, Fangguan Photoelectric, Huixiang Energy, Shijirun and Shizhe New Energy focus on the sales of goods and the rendering of service while Fangguan Electronics has been engaged in the business of the research and development, manufacturing, and marketing of liquid crystal materials, displays and modules in the PRC. 

The Company, Well Best, Welly Surplus, Baileqi Electronics, Lisite Science, Fangguan Photoelectric, Fangguan Electronics, Huixiang Energy, Shijirun and Shizhe New Energy are actively seeking additional new prospects for technology enhancements, design, manufacturing and production of the Company’s operation of high-end intelligent electronic equipment and more cutting-edge LCD technologies, such as Liquid Crystal Module (“LCM“), the portable power banks, the battery packs and the electric furnace used in firing for lithium battery.

We are engaged in the business of research and development, manufacturing, and marketing of liquid crystal materials, displays and modules, the battery packs and the electric furnace used in firing for lithium battery in the PRC. The Company operates through a corporate structure consisting of subsidiaries, variable interest entities (“VIE”), and contractual arrangements. A VIE is a term used by the U.S. Financial Accounting Standards Board to describe a legal business structure whose financial support comes from another corporation which exerts control over the VIE. All of the Company’s business operations are structured around a series of contractual agreements, the VIE Transaction Documents, including the ones between Fangguan Photoelectric, our wholly-owned subsidiary, and Fangguan Electronics and its shareholders. Through the VIE Transaction Documents, we are able to exert effective control over Fangguan Electronics and receive 100% of the net profits derived from the business operations of Fangguan Electronics.

Products and Projects

Civil Electronics

With the high-speed development in the new energy industry, the high-tech and relevant key accessories still play an essential role in the energy industry supply chain. LCD displays and lithium battery packs are widely used in the end products of the new energy industry.

Since the beginning of 2017, the Company has expanded its focus to development and production of LCD’s and modules for civil electronic products, lithium battery packs. By and through its wholly owned subsidiary, Well Best and the indirect wholly owned subsidiary, Baileqi Electronics and Fangguan Photoelectric, the Company has commenced its operations in China. Baileqi is working on an upgrade to traditional LCD screens with display modules that use the crystal method (“TCM”) and control muddle system integration for professional manufacturing. Today, TCM is widely used in many areas, including electronic operation data displays for renewable energy vehicles, BMS information feedback, HD projectors, communication equipment, and particularly in intelligent robots.

The LCD screens are manufactured for small devices such as video capable baby monitors, electronic devices such as tablets and cell phones, and for use in televisions or computer monitors.

Since the beginning of 2021, we has explored the business opportunities in lithium battery -related industry and have formulated a vertically integrated business model that will cover all important aspects of the value chain including deep processing of upstream Lithium Compounds, production and installation of midstream kun furnaces used in firing the lithium battery, and production of downstream LFP battery packs

The lithium battery packs and the electric furnace used in firing for lithium battery have been supplied by the subsidiaries of the Company.

The Company also provides service and IT solution for new energy industry.

1. Fanguguan Electronic

Products of Fanguguan Electronic
Product Model: FG814B- 001034B   Resolution: Segment LCD LCD Active Area: 44*67 Outline Dimensions: 50.0*81.0*5.9   Display Colors: Black and White View Direction: 6 O’clock

Product Model: FG12832B- 002161A   Resolution: 128*32 LCD Active Area: 42.22*11.50 Outline Dimensions:47.85*21.0*3.3   Display Colors: Black and White View Direction: 12 O’clock
Product Model: FG160100J- 000039P   Resolution: 160*100 LCD Active Area: 39.98*28.96 Outline Dimensions: 50.0*44.0*4.5   Display Colors: Black and White View Direction: 6 O’clock

2. Fangguan Photoelectric

3. Lisite Science

4.Shijirun

5.Huixiang Energy

Product Model: lithium iron phosphate ("LFP") battery packs   Specification:：16S1P General Use type   Unit： NH-33138-HE_15Ah_LFP

6.Baileqi Electronic:

Industry Overview

 Synergies throughout the lithium battery Industry Value Chain

In China, the current explosive growth in the new energy vehicle industry has led to a significant increase in demand for lithium iron phosphate batteries and the corresponding increase in demand for lithium compounds, with the industry gradually shifting from a balanced supply and demand to a tight supply situation. Under the dual stimulation of the gradually weakening impact of policies and the rising industry demand, the price of lithium compound is gradually rebounding. As a "rising star" start-up player in the lithium battery-related business, we endeavor to capitalize on the opportunities arising from industry reshuffle, continue to enhance our competitiveness and further improve our industrial position.

We have a vertically integrated business model that will cover all important aspects of the value chain including deep processing of upstream Lithium Compounds, production and installation of midstream kun furnaces used in firing the lithium battery, and production of downstream LFP battery packs. We started as a supplier of the midstream kun furnaces used in firing the lithium battery and has been striving for expanding to the upstream and downstream of the industrial value chain to obtain a competitive supply of LFP battery packs, thereby ensuring cost and operational efficiency, synergy among multiple business lines, and access to the latest market information and development of cutting-edge technologies.

We adhere to the development strategy of “upstream and downstream integration of the LFP battery-related industry” given the features of LFP (higher value for money and safer than other kinds of lithium batteries)

Our products as below are expected to be widely used in the manufacturing of electric vehicles, aerospace products, and functional materials in the future. And we will focus on developing the major players in their respective industries aforementioned as our customers.

We strive for offering our customers the comprehensive suite of product as below to effectively address the unique and diverse needs of our customers.

Furnace used in firing for lithium battery: At the core of our "throughout value chain" business model is the furnace used in firing for lithium battery, mainly including (1) large atmosphere kun furnace for firing lithium batteries (2) Atmosphere kun furnace for firing lithium batteries(3) Push plate furnace used in ferrite firing. Such furnaces are widely used in manufacturing lithium battery fields. Our customers are expected to be primarily global lithium battery manufacturers.

Lithium compounds: Our lithium compounds are expected to be mainly including (1) battery-grade lithium hydroxide; (2) battery-grade lithium carbonate; (3)lithium nickel cobalt manganate. Such lithium compounds are widely used as lithium battery materials for electric vehicles, portable electronics, as well as in chemical and pharmaceutical fields. Our customers are expected to primarily consist of global battery cathode materials manufacturers, battery suppliers.

Lithium batteries: The Company produces lithium battery. Such batteries are mainly used in electric vehicles, a variety of energy storage equipment and all kinds of consumer electronic devices, such as mobile phones, tablets, and laptops. Meanwhile, we will also proactively carries forward the research, development, production and commercial application of solid-state lithium batteries. As per the electric vehicles, our most important end- users, the monthly sales in China’s electric vehicle market has continued to show a significant year-on-year growth since July 2020. In 2020, the production and sales amounted to 1.366 million and 1.367 million respectively, representing a year-on-year increase of 7.5% and 10.9% respectively, and hitting a record high. With reference to the target of 20% sales of new electric vehicles as mentioned in the Electric Vehicle Industry Development Plan (2021–2035), there still exists broad development space for the electric vehicle industry, and remains high certainty on the long-term growth trend of the electric vehicle industry chain.

Our vertically integrated business model contributes to the constant launches of new products and services, which allows us to solidify the strategic relationships with our customers and end-users.

Development trend of photoelectric display products:

IINX is active in promoting the worldwide application of green energy solutions. We are always pursuing more optimized green energy solutions together with our customers. Recently, we confronted the rapid growth of the new energy industry, however, high and new technology and its relevant accessories still play pivotal roles in the existing industrial chain. In the meantime, we have also chosen a more extensive applied terminal product in new energy industry- the Liquid Crystal Displays (LCD), as an important composition part of our business.

LCD-From Global Perspective

The global demand of LCD panels is continually increasing. The output area of global LCD panels achieved 181 million square meters in 2017, this figure was tripled compared to 2007, and the average annual growth is approximately 13 million square meters. According to the prediction, the global demand of LCD panels will be 215 million square meters in 2021.From 2017 to 2021, the compound average growth rate (CAGR) of such demand will be about 4.37%, though the growth seems to slow down compared with the CAGR of 5% for the most recent 3 years, however, without considering base effect, the demand will maintain an average increase of approximately 8.5 million square meters per annum.

The demand of twisted nematic (TN) and supper twisted nematic (STN) liquid crystal materials remains generally stable. Due to their characteristics such as low cost, wide range of applications, the low-end TN and STN liquid crystal materials will still take a certain portion of market for terminal products which require a relatively low level of display. Basically, since 2004, the market demand of TN and STN liquid crystal materials has been stable, with the annual quantity demand maintaining at approximately between 60 and 70 tons, to compute based on the average price of about 5000 Yuan/kg for TN and STN liquid crystal materials, the predicted market scale for TN and STN liquid crystal materials would be approximately 300 million to 350 million Yuan.

There is a strong demand of thin film transistor (TFT) liquid crystal materials in the global market as well. TFT liquid crystal materials account for over 80% of total output value in the global liquid crystal materials market. With the rapid development of LCD television, laptop, desktop display and mobile communication, the demand of TFT liquid crystal panel keeps increasing. To measure and calculate on the basis of 80% of effective display area, a liquid crystal material usage of 4.5kg per square meter area of panel and an average price of 15,000 Yuan per kilogram for mixed liquid crystal materials, the quantity demand of global TFT mixed liquid crystals in 2016 was about 617 tons and market scale was around 9.3 billion Yuan. The global quantity of TFT mixed liquid crystals is estimated to be about 666 tons and the market scale will be about 10 billion Yuan in 2021.

LCD-From China’s Perspective

China is one of the largest display panel producers in the world, according to the data provided by China Optics and Optoelectronics Industry Association LCB. Recently, the liquid crystal panels in mainland China reached the top rank in the world in terms of both revenue and output area. China is and has been a big display manufacturing country, however, China is now at a crucial time for change and attempting to evolve from a big country to a powerful display manufacturing country. China is developing out of a “catch up” position into a phase of advance or equal footing with other competing countries and has an opportunity to become an industrial leader in the near future. It is understood that in the past year, there were multiple panel manufacturing lines have been put into production or started construction in China, especially the Gen 10.5/11 panel manufacturing lines and many Gen 6 AMOLED manufacturing lines were under construction, which just brings China closer and closer to the position of being one of, if not the largest production regions for display panels in the world. China has a number of OLED panel lines put into production or expansion. The scale of investment in OLED is expected to reach $30 billion to $50 billion over the next 3-5 years. BOE, CSOT, Visionox, Tianma and many other manufacturers have launched products such as flexible display, full-screen display, special-shaped display and so on, the domestic high-end displays in China are developing rapidly. The capacity of display panels of China is expected to become the first among all the countries in 2022.

LCD-From Industrial Perspective

At present, the OLED panel Market for mobile phones is almost monopolized by South Korea, with Samsung display accounting for 93.5% and LGD accounting for 2.1%. The influence of Chinese manufacturers is very small, with 2.0% of VINSIONOX, 1.4% of EverDisplay Optronics (EDO) and 0.6% of BOE, which together are less than 5%. From 2019, China began to exert influence on the OLED market. It is estimated that BOE's shipment will reach 50 million pieces (with an annual increase of 1900%), EDO 30 million (with an annual increase of 417%), Vinsionox's 20 million pieces (with an annual increase of 150%), and Tianma's 10 million pieces (with an annual increase of 1011%).

Distribution Methods of Products

The Company’s products are currently directly shipped from the manufacturers to the distributors and retailers. Marketing and sales departments were established through the Company’s indirect subsidiaries to cope with the growth of the Company. We explore the potential customer bases using internal resources. Currently, we have both the long-term contracts with our customers and manufacture according to the purchase orders received. In the future, we will continue to seek additional channels of distribution for our products to include wholesale stores and mass retailers. The Company plans to focus primarily on distributing its products regionally, starting in Greater China, and will then seek to expand its distribution channels across the U.S. and internationally.

Suppliers of Materials

The elements necessary for our products are and will be sourced from several different suppliers located primarily in China on an order-by-order basis. These materials include ITO coated conductive glasses, liquid crystals, lithium material for battery, integrated circuits and etc. Some of the materials in our products are not readily available in large quantities or are available on a limited basis only. Further, the limited availability of some of these materials could cause significant fluctuations in their costs.

The Company, Baileqi Electronics, Fangguan Electronics, Huixiang Energy and Shijirun acquire materials from the following list of principal suppliers, dependent on availability and price points:

*This list of suppliers is subject to change at any time.

Our management researches and develops our sources of materials used in the manufacturing of our products. The materials that we source are and will be sent to our manufacturer in China to create our products. The Company does not have any long-term contracts with our suppliers and we cannot be assured that they will be able to meet our demands.

Intellectual Property

As part of our business, we will seek to protect our intellectual property rights in various ways, including through trademarks, copyrights, trade secrets, including know-how, patents, patent applications, employee and third-party nondisclosure agreements, intellectual property licenses and other contractual rights. 

Government Regulations Affecting Our Business

At this stage in our business, we are unaware of any government regulations that are directly affecting our business, however, as we grow our business activities may become subject to various governmental regulations in different countries in which we operates, including regulations relating to: various business/investment approvals; trade affairs, including customs, import and export control; competition and antitrust; anti-bribery; advertising and promotion; intellectual property; broadcasting, consumer and business taxation; foreign exchange controls; personal information protection; product safety; labor; human rights; conflict; occupational health and safety; environmental; and recycling requirements.

Employees of the Company

The Company has no significant employees other than our officers and directors. As of June 30, 2021, the Company has no employees, however, our indirect subsidiary Baileqi Electronic has four employees, Lisite Science has three employees, Fangguan Photoelectric has 2 employees, Shijirun has 6 employees, Fangguan Electronics has about 207 employees and Dalian Shizhe New Energy has 6 employees. We intend to increase the size of our management team and hire additional employees in the future to manage the continued growth of our company and to increase our sales force and marketing efforts.

WHERE YOU CAN GET ADDITIONAL INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy our reports or other filings made with the SEC at the SEC’s Public Reference Room, located at 100 F Street, N.E., Washington, DC 20549. You can obtain information on the operations of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also access these reports and other filings electronically on the SEC’s web site, www.sec.gov.

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.

None.

Our mailing address in the US is that of our registered agent, at 3773 Howard Hughes Pkwy, Suite 500S, Las Vegas, NV 89169. Our address in China is Rm 608, Block B, Times Square, No. 50 People Road Zhongshan District, Dalian City, Liaoning Province, China.

Lisite Science，one of our subsidiaries’leases office and warehouse space from Keenest, a related party, with annual rent of approximately $1,500 (RMB10,000) for one year until July 20, 2021.On July 20, 2021, Lisite Science further extended the lease with Keenest for one more year until July 20, 2022 with annual rent of approximately $295 (RMB2,000).

We believe that this space is adequate for our current and immediately foreseeable operating needs. 

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. 

Not applicable.

PART II

Market Information

Our common stock is currently quoted on OTCQB. Our common stock commenced quotation on the OTCQB under the trading symbol “CPJT”. On February 4, 2016, our symbol was changed to “IINX” to reflect the Company’s name change to Ionix Technology, Inc. Our common stock began trading in April 2015. Because we are quoted on the OTCQB, our common stock may be less liquid, receive less coverage by security analysts and news media, and generate lower prices than might otherwise be obtained if it were listed on a national securities exchange.

The following table sets forth the high and low bid prices for our Common Stock per quarter as reported by the OTCQB for the quarterly periods indicated below based on our fiscal year end June 30. These prices represent quotations between dealers without adjustment for retail mark-up, markdown or commission and may not represent actual transactions.

Record Holders

As of June 30, 2021, the approximate number of registered holders of our common stock was 214. As of June 30, 2021, there were 164,041,058 shares of common stock issued and outstanding and there were 5,000,000 shares of preferred stock issued and outstanding. There were no shares of common stock subject to outstanding warrants, and there were no shares of common stock subject to outstanding stock options.

Dividends

On November 30, 2015, the Company’s board of directors and majority of its shareholders approved a 3:1 forward stock split which increased the Company’s issued and outstanding shares of common stock from 33,001,000 to 99,003,000 (the “Forward Split”). The Forward Split was approved by FINRA and took effect on the market on February 4, 2016. The Forward Split shares were payable upon surrender of certificates to the Company’s transfer agent.

We have not declared or paid any cash dividends on our common stock nor do we anticipate paying any in the foreseeable future. Furthermore, we expect to retain any future earnings to finance our operations and expansion. The payment of cash dividends in the future will be at the discretion of our Board of Directors and will depend upon our earnings levels, capital requirements, any restrictive loan covenants and other factors the Board considers relevant.

Securities Authorized for Issuance under Equity Compensation Plans

None.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities 

The following sets forth certain information concerning securities which were sold or issued by us without the registration of the securities under the Securities Act of 1933 in reliance on exemptions from such registration requirements within the past three years:

On February 17, 2016, the Company entered into a subscription agreement to sell 5,000,000 preferred shares (the “Preferred Shares”) for $50,000 in cash ($0.01 per share). No commissions were paid to any broker or third party for this transaction.

On January 31, 2020, the Company issued a total of 12,775 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $12,000 according to the conditions of the convertible note dated as July 25, 2019.

In December 2019, the Company engaged Maxim Group LLC (“Maxim”) for financial advisory and investment banking services to assist the Company in articulating its growth strategy to the investment community and up-list its securities to a National Securities Exchange. On February 10, 2020, the Company issued 150,000 shares of common stock valued at $262,500 to Maxim Group LLC as a part of its compensation for the services. On May 19, 2020, the Company and Maxim mutually agreed to terminate all rights and obligations under their agreements and in May 2020, Maxim returned 75,000 shares of common stock shares to the Company for cancellation.

On February 18, 2020, the Company issued a total of 11,834 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $10,000 according to the conditions of the convertible note dated as July 25, 2019.

On February 28, 2020, the Company issued a total of 15,448 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $12,000 according to conditions of the convertible note dated as July 25, 2019.

On May 19, 2020, the Company issued a total of 16,484 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $15,000 according to the conditions of the convertible note dated as July 25, 2019.

On May 29 2020, the Company issued a total of 19,724 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $15,000 according to the conditions of the convertible note dated as July 25, 2019.

On June 18, 2020, the Company issued a total of 20,000 shares of common stock to Crown Bridge Partners, LLC for the conversion of debt in the principal amount of $3,615.6 according to the conditions of the convertible note dated as November 12, 2019.

On July 9, 2020, the Company issued a total of 42,079 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in the principal amount of $20,000 according to the conditions of the convertible note dated as July 25, 2019.

On July 13, 2020, the Company issued a total of 68,500 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $37,503.75 according to the conditions of the convertible note dated as January 10, 2020.

On August 19, 2020, the Company issued a total of 222,891 shares of common stock to Power Up Lending Group Ltd for the conversion of debt in $19,000.00 of the principal amount of the Note together with $4,916.22 of accrued and unpaid interest thereto, totaling $23,916.22 according to the conditions of the convertible note dated as July 25, 2019.

On August 20,2020, the Company issued a total of 600,000 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $54,180 according to the conditions of the convertible note dated as January 10, 2020. The remaining principal balance due under this convertible note after these conversions is $55,166.

On September 1, 2020, the Company issued a total of 75,000 shares of common stock to Firstfire Global Opportunities Fund LLC for the conversion of debt in the principal amount of $10,200 according to the conditions of the convertible note dated as September 11, 2019.

On September 14, 2020, the Company issued a total of 350,000 shares of common stock to Firstfire Global Opportunities Fund LLC for the conversion of debt in the principal amount of $13,550 according to the conditions of the convertible note dated as September 11, 2019.The remaining principal balance due under this convertible note after these conversions is $141,250.

On September 24, 2020, the Company issued a total of 568,182 shares of common stock to Morningview Financial, LLC for the conversion of debt in the principal amount of $15,000 according to the conditions of the convertible note dated as November 20, 2019.The remaining principal balance due under this convertible note after these conversions is $150,000.

On September 24, 2020, the Company issued a total of 400,000 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $6,065.11 according to the conditions of the convertible note dated as January 10, 2020.

On October 12, 2020, the Company issued a total of 650,000 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $14,844.39 according to the conditions of the convertible note dated as January 10, 2020.

On October 16, 2020, the Company issued a total of 181,500 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $2,722.5 according to the conditions of the convertible note dated as January 10, 2020.

On October 16, 2020, the Company issued a total of 1,200,000 shares of common stock to Firstfire Global Opportunities Fund LLC for the conversion of debt in the principal amount of $14,100 according to the conditions of the convertible note dated as September 11, 2019.

On October 16, 2020, the Company issued a total of 500,000 shares of common stock to Crown Bridge Partners, LLC for the conversion of debt in the principal amount of $3,500 according to the conditions of the convertible note dated as November 12, 2019.

On October 19, 2020, the Company issued a total of 2,112,478 shares of common stock to Labrys Fund, LP for the conversion of debt in the principal amount of $31,674.16 according to the conditions of the convertible note dated as January 10, 2020.

On October 29, 2020, the Company issued a total of 2,500,000 shares of common stock to Firstfire Global Opportunities Fund LLC for the conversion of debt in the principal amount of $31,000 according to the conditions of the convertible note dated as September 11, 2019.

On December 5, 2020, the Company issued a total of 20,370,000 shares of common stock to five Chinese citizen subscribers for an aggregate purchase price of $305,500 at $0.015 per share, according to the conditions of the five subscription agreements dated as November 20, 2020 signed by the between the Company and the subscribers.

On December 21, 2020, the Company issued a total of 1,500,000 shares of common stock to FirstFire Global Opportunities Fund, LLC for the full exercise of the warrants, according to the conditions of the convertible note dated as September 11, 2019.

On December 29, 2020, the Company issued a total of 8,499,999 shares of common stock to four Chinese citizen subscribers for an aggregate purchase price of $127,500 at $0.015 per share, according to the conditions of the four subscription agreements dated as December 9, 2020 and December 28, 2020 signed by the between the Company and the subscribers.

On December 31, 2020, the Company issued a total of 447,762 shares of common stock (the “First Commitment Shares”) and 1,119,402 shares of common stock (the “Second Commitment Shares”) to Labrys Fund, LLP related to the promissory note as a commitment fee. The Second Commitment Shares must be returned to the Company’s treasury if the promissory note is fully repaid and satisfied on or prior to the maturity date.

On January 13, 2021, the Company issued a total of 7,000,000 shares of common stock to a Chinese citizen subscriber for an aggregate purchase price of $105,000 at $0.015 per share, according to the conditions of the subscription agreement dated as January 13, 2021 between the Company and the subscriber.

On March 10, 2021, the Company issued 417,000 shares of common stock (the “First Commitment Shares”) and 1,042,000 shares of common stock (the “Second Commitment Shares”) to Labrys Fund, LLP related to the promissory note as a commitment fee. The Second Commitment Shares must be returned to the Company’s treasury if the promissory note is fully repaid and satisfied on or prior to the maturity date.

On July 8, 2021, the Company issued 300,000 shares of common stock (the “First Commitment Shares”) and 1,042,000 shares of common stock (the “Second Commitment Shares”) to FirstFire Global Opportunities Fund, LLC related to the promissory note as a commitment fee. The Second Commitment Shares must be returned to the Company’s treasury if the promissory note is fully repaid and satisfied on or prior to the maturity date.

The sales of the above securities were exempt from registration under the Securities Act of 1933, as amended (Securities Act), in reliance upon Section 4(2) of the Securities Act, or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.

Exemption From Registration. The shares of Common Stock and Preferred Stock referenced herein were issued in reliance upon one of the following exemptions:

(a)The shares of Common Stock referenced herein were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(2) of the Securities Act of 1933, as amended, ("Securities Act"), based upon the following: (a) each of the persons to whom the shares of Common Stock were issued (each such person, an "Investor") confirmed to the Company that it or he is an "accredited investor," as defined in Rule 501 of Regulation D promulgated under the Securities Act and has such background, education and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities, (b) there was no public offering or general solicitation with respect to the offering of such shares, (c) each Investor was provided with certain disclosure materials and all other information requested with respect to the Company, (d) each Investor acknowledged that all securities being purchased were being purchased for investment intent and were "restricted securities" for purposes of the Securities Act, and agreed to transfer such securities only in a transaction registered under the Securities Act or exempt from registration under the Securities Act and (e) a legend has been, or will be, placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequently registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act.

(b)The shares of common stock referenced herein were issued pursuant to and in accordance with Rule 506 of Regulation D and Section 4(2) of the Securities Act. We made this determination in part based on the representations of the Investor(s), which included, in pertinent part, that such Investor(s) was an “accredited investor” as defined in Rule 501(a) under the Securities Act, and upon such further representations from the Investor(s) that (a) the Investor is acquiring the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (b) the Investor agrees not to sell or otherwise transfer the purchased securities unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (c) the Investor either alone or together with its representatives has knowledge and experience in financial and business matters such that he, she or it is capable of evaluating the merits and risks of an investment in us, and (d) the Investor has no need for the liquidity in its investment in us and could afford the complete loss of such investment.  Our determination is made based further upon our action of (a) making written disclosure to each Investor prior to the closing of sale that the securities have not been registered under the Securities Act and therefore cannot be resold unless they are registered or unless an exemption from registration is available, (b) making written descriptions of the securities being offered, the use of the proceeds from the offering and any material changes in the Company’s affairs that are not disclosed in the documents furnished, and (c) placement of a legend on the certificate that evidences the securities stating that the securities have not been registered under the Securities Act and setting forth the restrictions on transferability and sale of the securities, and upon such inaction of  the Company of any general solicitation or advertising for securities herein issued in reliance upon Rule 506 of Regulation D and Section 4(2) of the Securities Act. 

(c) The shares of Common Stock referenced herein were issued pursuant to and in accordance with Rule 903 of Regulation S of the Act. We completed the offering of the shares pursuant to Rule 903 of Regulation S of the Act on the basis that the sale of the shares was completed in an "offshore transaction", as defined in Rule 902(h) of Regulation S. We did not engage in any directed selling efforts, as defined in Regulation S, in the United States in connection with the sale of the shares. Each investor represented to us that the investor was not a "U.S. person", as defined in Regulation S, and was not acquiring the shares for the account or benefit of a U.S. person. The agreement executed between us and each investor included statements that the securities had not been registered pursuant to the Act and that the securities may not be offered or sold in the United States unless the securities are registered under the Act or pursuant to an exemption from the Act. Each investor agreed by execution of the agreement for the shares: (i) to resell the securities purchased only in accordance with the provisions of Regulation S, pursuant to registration under the Act or pursuant to an exemption from registration under the Act; (ii) that we are required to refuse to register any sale of the securities purchased unless the transfer is in accordance with the provisions of Regulation S, pursuant to registration under the Act or pursuant to an exemption from registration under the Act; and (iii) not to engage in hedging transactions with regards to the securities purchased unless in compliance with the Act. All certificates representing the shares were or upon issuance will be endorsed with a restrictive legend confirming that the securities had been issued pursuant to Regulation S of the Act and could not be resold without registration under the Act or an applicable exemption from the registration requirements of the Act. 

Purchases of Equity Securities by the Small Business Issuer and Affiliated Purchasers

None.

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.

The following discussion should be read in conjunction with our audited financial statements and notes thereto included herein. We caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or our behalf. We disclaim any obligation to update forward-looking statements.

Results of Operation for the Years Ended June 30, 2021 and 2020

Calendar year 2020 and the first half of 2021 was challenging and disruptive for the world, with the COVID-19 pandemic adding to the headwind of an already challenging global economy. Almost no industry was unaffected by the pandemic. The unprecedentedly adverse global operating environment had a major impact on our business and reversed the Company's continuous growth. 

The operations of the Company During the year ended June 30, 2021 experienced some minor delays and were adversely affected by the COVID-19 travel restrictions and lockdowns implemented nationwide. Decreases in revenue and operating profits during the year ended June 30, 2021 were a result of the unprecedented adverse market condition caused by the outbreak of COVID-19 pandemic since January 2020.

During the year ended June 30, 2021, the significant decrease in sales revenue is mainly attributable to the adverse impact of COVID-19 in various ways, from the continuous weakening demand in the PRC consumer market and continuous competition from other brands against the goods which the Company has been trading coupled with the unfavorable and ongoing adverse trading environment and the disruptions caused by COVID-19, limitation of marketing efforts, disruptions of product delivery to the Company’s customers due to certain customers 's reducing their budgets or delaying their procurement plans, leading to a decrease in the new orders placed with the Company. The Company believes that such effect is temporary and will not have major impact on the long-term performance of the Company.

During the year ended June 30, 2021, the gross profit decreases were mainly attributable to: (1) the drop in production volume of the Company as a result of the adverse impact of the COVID-19; (2) in certain areas in Northeast of China, the PRC government, as a preventive measure in response to the COVID-19, had implemented the movement control order which involved prohibition of movement of people which adversely affected the Company’s supply chain in raw materials. And the poor market sentiment has led to the significant drop in demand and selling prices of the Company’s products, while the prices of glass, which is the raw material for the Company's production, have increased substantially due to tightened supply of glass from the supply chain reform in the PRC; and (3) in addition to the economic contraction caused by prolonged outbreak of COVID-19, the fact that Changchun City where Fangguan Electronics was located had endured dozens of blizzards in November and December 2020, also led to the slow-down of the businesses of the Company. 

Nevertheless, the Company survived and thrived against all odds: besides carrying out a more stringent cost control through the Company’s persistent effort in cost reduction, the Company implemented the workplace safety measures as per government guidelines, including work from home arrangements whenever appropriate, and protected the client relationships by maintaining communication and working with them to deal with the delaying or canceling orders. With the gradual stabilization of the domestic photoelectric display industry, the Company would anticipate a steady increase in the sales of LCM and LCD.

Based on the Company’s well-established reputation in the market, management of the Company believes that the demand for the Company's products would increase during the economic rebounding and the overall financial and business positions of the Company would remain sound, and the Company is well positioned to take advantage of any upturn in the market.

Considering that such effects of COVID-19 is temporary and will not have major impact on the long-term performance of the Company, the Company believes that the increase in turnover and gross profit margin of the Company as caused by the gradual recovery of the economy of PRC would maintain in the future. As such, the Company remains cautiously optimistic about its sustainable development.

During the first half of calendar year 2021, the anticipated recovery in the economy of PRC realized gradually while the negative impact of COVID-19 remains. The Company maintains optimistic cautious and is paying close attention to the evolving development of, and the disruption to business and economic activities caused by the COVID-19 outbreak and evaluates its impact on the financial position, cash flows and operating results of the Company. Given the dynamic nature of the COVID-19 outbreak, it is not practicable to provide a reasonable estimate of its impacts on the Company’s financial position, cash flows and operating results at the present.

Revenues

During the year ended June 30, 2021, COVID-19 continued to affect the operational and financial performance of the Company. However, the gradual recovery of revenue that was ever expected previously already realized.

During the year ended June 30, 2021 and 2020, total revenues were $14,328,326 and $20,599,228 respectively. The total revenues decreased by $6,270,902 or 30% from the year ended June 30, 2020 to the year ended June 30, 2021.

Among the significant decrease of $6,270,902 in total revenues for the year ended June 30, 2021, the decrease of $3,998,841 came from the decrease in revenue of Fangguan Electronics which was acquired on December 27, 2018 The decrease during the year ended June 30, 2021 can be directly attributed to the fact that in certain cities and provinces the continuous outbreak of COVID-19 induced the numerous shutdowns and commercial activities suspensions which have made the significantly adverse effects on the business of the Company. In addition, the decrease in total revenues during the year ended June 30, 2021 was partially attributed to the decreases of $2,374,200 in service contract and smart energy segments as compared with the year ended June 30, 2020.as under the negative impact of COVID-19 on service contract business, none of any new contracts were signed while majority of the existing contracts in this business segment had been completed.

The decrease in total revenues during the year ended June 30, 2021 was partially offset by the increase in revenues of $1,084,083 sourced from lithium battery - related business which was the new business segment established by the Company in 2021.

Cost of Revenue

Cost of revenues included the cost of raw materials, labor, depreciation, overhead and finished products purchased.

During the year ended June 30, 2021 and 2020, the total cost of revenues was $12,050,402 and $17,506,433 respectively. The total cost of revenues decreased by $5,456,031 or 31% from the year ended June 30, 2020 to the year ended June 30, 2021.

Among the significant decrease of $5,456,031 in total cost of revenues for the year ended June 30, 2021, the decrease of $3,649,199 came from the decrease in cost of revenue of Fangguan Electronics which was acquired on December 27, 2018. In addition, the decrease in total cost of revenues during the year ended June 30, 2021 was partially attributed to the decreases of $2,065,078 in cost of revenue of service contract and smart energy segments as compared with the year ended June 30, 2020.

The decrease in cost of revenues can be directly attributed to the decrease of revenues. 

The decrease in total cost of revenues during the year ended June 30, 2021 was partially offset by the increase in cost of revenues of $982,814 sourced from lithium battery - related business which was the new business segment established by the Company in 2021.

Gross Profit

During the year ended June 30, 2021 and 2020, the gross profit was $2,277,924 and $3,092,795, respectively.

The gross profit decreased by 26% from the year ended June 30, 2020 to the year ended June 30, 2021. Our gross profit margin maintained stable as it was 15.9% during the year ended June 30, 2021 as compared to 15.0% for the year ended June 30, 2020. 

Selling, General and Administrative Expenses

Our selling, general and administrative expenses are mainly comprised of payroll expenses, transportation, office expense, professional fees, freight and shipping costs, rent, and other miscellaneous expenses.

During the year ended June 30, 2021 and 2020, selling, general and administrative expenses were $1,372,589 and $1,937,054 respectively.

The decrease in selling, general and administrative expenses can be attributed to the stricter cost control during the year ended June 30, 2021.

Research and Development Expenses

Our research and development expenses are mainly comprised of payroll expenses of research staff, costs of materials used for research and other miscellaneous expenses.

During the year ended June 30, 2021 and 2020, research and development expenses were $598,338 and $805,570 respectively. All research and development expenses were incurred by Fangguan Electronics (a variable interest entity of the Company since December 27, 2018).

The decrease in research and development expenses during the year ended June 30, 2021 can be attributed to the decrease of materials expenditures used for research during the year ended June 30, 2021.

Other Incomes (Expenses)

Other expenses consisted of interest expense, net of interest income. Other incomes consisted primarily of subsidy income and gain on extinguishment of debt, net of loss on extinguishment of debt. Change in fair value of derivative liability was an expense for the year ended June 30, 2021 and an income for the year ended June 30, 2020.

During the year ended June 30, 2021 and 2020, other incomes (expenses) were $(731,080) and $(455,040) respectively. The other expenses increased by $276,040 or 61% from the year ended June 30, 2020 to the year ended June 30, 2021.

The difference of interest expense was mainly due to the decrease of debt discount as the convertible notes either approached the maturity date or were settled during the year ended June 30, 2021 as compared with the corresponding period of 2020.

The subsidy income was government subsidies received by Fangguan Electronics and Baileqi Electronic during the year ended June 30, 2021 and 2020.

The change in fair value of derivative liability can be attributed to the fact that stock price of the Company were more volatile during the year ended June 30, 2021 as compared with corresponding period of 2020.

The gain on extinguishment of debt of $202,588 during the year ended June 30, 2021 can be primarily attributed to the gain of $459,227 from settlement of four convertible notes (including warrants and all accrued and unpaid interests), offset by loss of $256,639 from the conversion of convertible notes to 9,470,630 common shares in the principal amount of $273,200 for the year ended June 30, 2021. The loss on extinguishment of debt can be attributed to the conversion of convertible notes in the principal amount of $170,516 during the year ended June 30, 2020.

Net Income (Loss)

During the year ended June 30, 2021 and 2020, our net income (loss) was $(406,607) and $(277,668), respectively. The total net loss increased by $128,939 or 46% from the year ended June 30, 2020 to the year ended June 30, 2021.

The significant increase in net loss from the year ended June 30, 2020 to the year ended June 30, 2021 is primarily attributed to: (1) a decrease in the Company’s revenue by approximately 30% resulting from the disruption of the Company’s business operations caused by the COVID-19; (2) a significant increase in non-recurring other expenses such as change in fair value of derivative liability; and offset by (3) a decrease in the Company’s operating expenses by approximately 28% resulting from cost saving measures including the reduction in salary, rent and R&D expenditures etc. Excluding the aforementioned non-recurring change in fair value of derivative liability, the increase (decrease) of the net income from the year ended June 30, 2020 to the year ended June 30, 2021 would be changed from ($ 0.1) million into approximately $0.7 million instead.

Liquidity and Capital Resources

Cash Flow from Operating Activities

During the year ended June 30, 2021, net cash used in operating activities was $578,073 compared to the cash provided by operating activities of $936,479 for the year ended June 30, 2020. The change was mainly due to a decrease of $128,939 in net income and an increase of $1,496,437 in cash outflow from changes in operating assets and liabilities in the year ended June 30, 2021 compared to the year ended June 30, 2020.

Cash Flow from Investing Activities

During the year ended June 30, 2021, net cash used in investing activities was $189,974 compared to net cash provided by investing activities of $50,492 during the year ended June 30, 2020. The change was primarily due to the fact that there were proceeds from sale of equipment at the amount of $244,189 during the year ended June 30, 2020 while proceeds from sale of equipment was merely $15,687 during the year ended June 30, 2021.

Cash Flow from Financing Activities

During the year ended June 30, 2021, cash provided by financing activities was $38,557 compared to net cash used in financing activities of $190,591 during the year ended June 30, 2020. The change was primarily due to the further advances from the major shareholders of the Company, the proceeds from issuance of promissory notes ,and the proceeds from issuance of common stock for private placement during the year ended June 30, 2021.

As of June 30, 2021, we have a working capital of $3,009,020.

Our total current liabilities as of June 30, 2021 were $9,886,398 and mainly consisted of $904,832 for short-term bank loans, $4,942,881 in accounts payable, the amount due to related parties of $3,053,818 advance from customers of $334,101 and the self-amortized promissory notes of $533,316. The Company’s major shareholder is committed to providing for our minimum working capital needs for the next 12 months, and we do not expect the previous related party loan be payable for the next 12 months. However, we do not have a formal agreement that states any of these facts. The remaining balance of our current liabilities relates to audit and consulting fees and such payments are due on demand and we expect to settle such amounts on a timely basis based upon shareholder loans to be granted to us in the next 12 months.

Future Financings

We consider taking on long-term or short-term debt from financial institutions in the immediate future. Besides for the bank funding, we are dependent upon our director and the major shareholder to provide continued funding and capital resources. If continued funding and capital resources are unavailable at reasonable terms, we may not be able to implement our plan of operations. The financial statements do not include any adjustments related to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.

We will require approximately $430,000 to fund our working capital needs as follows:

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Critical Accounting Policies

While our significant accounting policies are more fully described in Note 2 to our financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis

Revenue recognition

The Company adopted the new accounting standard, ASC 606, Revenue from Contracts with Customers, and all the related amendments (new revenue standard) to all contracts using the modified retrospective method beginning on July 1, 2018. The adoption did not result in an adjustment to the retained earnings as of June 30, 2018. The comparative information was not restated and continued to be reported under the accounting standards in effect for those periods. The adoption of the new revenue standard has no impact on either reported sales to customers or net earnings.

The Company bases its estimates of return on historical results, taking into consideration the type of customers, the type of transactions and the specifics of each arrangement.

Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

Under these criteria, for revenues from sale of products, the Company generally recognizes revenue when its products are delivered to customers in accordance with the written sales terms. For service revenue, the Company recognizes revenue when services are performed and accepted by customers.

Comprehensive income

ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying consolidated statement of stockholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.

Accounts receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from shipment. Credit is extended based on evaluation of a customer’s financial condition, the customer’s credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. At the end of each period, the Company specifically evaluates individual customer’s financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables. The Company will consider the allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.

Use of Estimates

The Company’s consolidated financial statements have been prepared in accordance with US GAAP. This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting period. The significant areas requiring the use of management estimates include, but are not limited to, the allowance for doubtful accounts receivable, estimated useful life of intangible assets, provision for staff benefits, recognition and measurement of deferred income taxes and valuation allowance for deferred tax assets. Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ from those estimates and such differences may be material to our consolidated financial statements.

Foreign currencies translation

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

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:

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under this guidance, lessees will be required to recognize on the balance sheet a lease liability and a right-of-use asset for all leases, with the exception of short-term leases. The lease liability represents the lessee’s obligation to make lease payments arising from a lease, and will be measured as the present value of the lease payments. The right-of-use asset represents the lessee’s right to use a specified asset for the lease term, and will be measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee’s initial direct costs. The standard also requires a lessee to recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The new guidance is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 is required to be applied using the modified retrospective approach for all leases existing as of the effective date and provides for certain practical expedients. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this new standard on its consolidated statements and related disclosures.

In February 2018, FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 provides entities the option to reclassify certain "stranded tax effects" resulting from the recent US tax reform from accumulated other comprehensive income ("AOCI") to retained earnings. Under the ASU, reporting entities will select an accounting policy to either reclassify all stranded tax effects caused by tax reform from AOCI to retained earnings, or continue recycling stranded effects (including those caused by tax reform) through earnings in future periods. Further, disclosure of either policy is required in all cases. The reclassification from AOCI to retained earnings is presented in the statement of shareholders equity. The ASU is effective for all entities in fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted for public business entities for which financial statements have not yet been issued, and for all other entities for which financial statements have not yet been made available for issuance. Entities have the option to record the reclassification either retrospectively to each period in which the income tax effects of tax reform are recognized, or at the beginning of the annual or interim period in which the amendments are adopted. The Company determined that the adoption of this new standard has no material impact on its consolidated statements and related disclosures.

Compensation—Stock Compensation. In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvement to Nonemployee Share-based Payment Accounting to amend the accounting for share-based payment awards issued to nonemployees. Under the revised guidance, the accounting for awards issued to nonemployees will be similar to the model for employee awards. The update is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company adopted this new standard effective on January 1, 2019. The adoption of ASU 2018-07 did not have a material impact on the Group’s consolidated financial statements.

Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Under the guidance, public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance is effective for all entities for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, but entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Company is currently in the process of evaluating the impact of the adoption of this guidance on its consolidated financial statements.

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.

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.

IONIX TECHNOLOGY, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANT

To the Stockholders and Board of Directors of

Ionix Technology, Inc.

Opinion on the Consolidated Financial Statements 

We have audited the accompanying consolidated balance sheets of Ionix Technology, Inc. and subsidiaries ("the Company") as of June 30, 2021 and the related consolidated statements of comprehensive income (loss), stockholders' equity and cash flows for each of the year ended June 30, 2021 and related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2021, and the results of its operations and its cash flows for the year ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Derivative Liabilities for Conversion Features in Convertible Debt

Description of the Matter: At June 30, 2021, the Company’s derivative liability was $nil. As described in Note 2 to the consolidated financial statements, the Company records a derivative liability for embedded conversion features by performing a valuation of the conversion features using the Black-Scholes model. The use of the Black-Scholes model requires the Company to determine appropriate inputs to put into the model. Auditing the valuation of the derivative liability requires testing and analysis of the underlying estimates and assumptions the Company used as inputs in the Black-Scholes model.

How We Addressed the Matter: Our audit procedures consisted of testing the key inputs that were used in the Black-Scholes model by calculating our own internal valuation of the derivative liability and comparing to what was recorded by the Company.

/s/ TAAD, LLP.

We have served as the Company's auditor since 2021.

Diamond Bar, California

September 29, 2021 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of

Ionix Technology, Inc.

Opinion on the Financial Statements 

We have audited the accompanying consolidated balance sheet of Ionix Technology, Inc. and subsidiaries ("the Company") as of June 30, 2020, and the related consolidated statements of comprehensive loss, stockholders' equity and cash flows for the year ended June 30, 2020 and related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2020, and the results of its operations and its cash flows for the year ended June 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Prager Metis CPAs, LLC

We have served as the Company's auditor since 2018.

Hackensack, New Jersey

September 29, 2020

IONIX TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements.

IONIX TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

The accompanying notes are an integral part of these consolidated financial statements.

IONIX TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of these consolidated financial statements.

IONIX TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated financial statements.

IONIX TECHNOLOGY, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

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 and an entity controlled through VIE agreements in China, the Company sells the high-end intelligent electronic equipment, which includes the furnace used in firing for lithium battery , the lithium battery packs,the portable power banks for electronic devices, LCM and LCD screens and provides IT and solution-oriented services in China.

New subsidiaries

On February 7, 2021, the Board of Directors of the Company approved and ratified the incorporation of Shijirun (Yixing) Technology Co., Ltd. (“Shijirun”), a limited liability company formed under the laws of the Peoples Republic of China (PRC) on February 7, 2021. Well Best International Investment Limited, a limited liability company formed under the laws of Hong Kong Special Administrative Region (“Well Best”), and a wholly owned subsidiary of the Company, is the sole shareholder of Shijirun. As a result, Shijirun is an indirect, wholly-owned subsidiary of the Company. Shijirun will head up the Company’s advance into the new energy industry focusing on developing and producing high-end intelligent new energy equipment from Yixing City, Jiangsu Province, China.

On March 30, 2021, the Board of Directors of Ionix Technology, Inc. approved and ratified the incorporation of Huixiang Energy Technology (Suzhou) Co., Ltd. (“Huixiang Energy”), a limited liability company formed under the laws of the Peoples Republic of China (PRC) on March 18, 2021. Well Best is the sole shareholder of Huixiang Energy. As a result, Huixiang Energy is an indirect, wholly-owned subsidiary of the Company. Huixiang Energy conducts research and development of next generation advanced battery technologies, manufacture and sales of relevant battery products, including the solid-state rechargeable lithium ion battery for next generation energy storage systems. Huixiang Energy also on the operation of battery packs, battery systems and electric vehicles sharing business with its own internet sharing platform relating to the electric vehicles (online EV hailing services) and its relevant batteries and battery systems. Huixiang Energy will operate in Suzhou City, Jiangsu Province, China.

Authorized share increase

On May 6, 2021, the Board of Directors and the holders of the majority of issued and outstanding voting securities of the Company approved an amendment (the “Amendment”) to our Articles of Incorporation to increase the authorized number of shares of common stock from 200,000,000 to 400,000,000 shares consisting of: (i) 395,000,000 shares of common stock, par value $0.0001 per share (“Common Stock”); and (ii) 5,000,000 shares of preferred stock par value $0.0001 per share (“Preferred Stock”) (the “Authorized Share Increase”) and related Certificate of Amendment to Articles of Incorporation. The approval was made in accordance with Sections 78.320 and 78.390 of the Nevada Revised Statues, which provide that a corporation’s articles may be amended by written consent of the stockholders representing at least a majority of the voting power. The Amendment was filed with the Nevada Secretary of State on June 7, 2021.

Acquisition

On December 27, 2018, the Company entered into a Share Purchase Agreement (the “Purchase Agreement”) with Jialin Liang and Xuemei Jiang, each of whom are shareholders (the “Shareholders”) of Changchun Fangguan Electronics Technology Co., Ltd. (“Fangguan Electronics”). Pursuant to the terms of the Purchase Agreement, the Shareholders, who together own 95.14% of the ownership rights in Fangguan Electronics, agreed to execute and deliver the Business Operation Agreement, the Equity Interest Pledge Agreement, the Equity Interest Purchase Agreement, the Exclusive Technical Support Service Agreement (the “Services Agreement”) and the Power of Attorney, all together dated December 27, 2018 are referred to the “VIE Agreements”, to the Company in exchange for the issuance of an aggregate of 15,000,000 shares of the Company’s common stock, par value $.0001 per share, thereby causing Fangguan Electronics to become the Company’s variable interest entity. Together with VIE agreements, the Shareholders also agreed to convert shareholder loan of RMB 30 million (approximately $4.4 million) to capital and make cash contribution of RMB 9.7 million (approximately $1.4 million) to capital. The entirety of the transaction will hereafter be referred to as the “Transaction”. As a result of the Transaction, the Company is able to exert effective control over Fangguan Electronics and receive 100% of the net profits or net losses derived from the business operations of Fangguan Electronics. Fangguan Electronics manufactures and sells Liquid Crystal Module (" LCM") and LCD screens in China based in Changchun City, Jilin Province, People’s Republic of China. (See Note 4).

The Transaction was accounted for as a business combination using the acquisition method of accounting. The assets, liabilities and the operations of Fangguan Electronics subsequent to the Transaction date were included in the Company’s consolidated financial statements.

NOTE 2– BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The Company’s audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Basis of consolidation

The consolidated financial statements include the accounts of Ionix, its wholly owned subsidiaries and an entity which the Company controls 95.14% and receives 100% of net income or net loss through VIE agreements. All significant inter-company balances and transactions have been eliminated upon consolidation.

The subsidiaries of ionix are as follows:

Well Best International Investment Limited

Welly Surplus International Limite

Shijirun (Yixing) Technology Co., Ltd

Huixiang Energy Technology (Suzhou) Co., Ltd

Changchun Fangguan Photoelectric Display Technology Co. Ltd

Dalian Shizhe New Energy Technology Co., Ltd

Shenzhen Baileqi Electronic Technology Co., Ltd

Lisite Science Technology (Shenzhen) Co., Ltd

Changchun Fangguan Electronics Technology Co., Ltd(VIE)

Noncontrolling Interests

The Company follows FASB ASC Topic 810, “Consolidation,” governing the accounting for and reporting of noncontrolling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs (previously referred to as minority interests) be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially-owned consolidated subsidiary be allocated to NCIs even when such allocation might result in a deficit balance.

The net income (loss) attributed to NCIs was separately designated in the accompanying statements of comprehensive income (loss). Losses attributable to NCIs in a subsidiary may exceed an NCI’s interests in the subsidiary’s equity. The excess attributable to NCIs is attributed to those interests. NCIs shall continue to be attributed their share of losses even if that attribution results in a deficit NCI balance. The primary beneficiary receives 100% of the income and losses of the VIE as disclosed in Note 4, therefore no income or loss is allocated to NCI.

Use of Estimates

The Company’s consolidated financial statements have been prepared in accordance with US GAAP and this requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting period. The significant areas requiring the use of management estimates include, but are not limited to, the allowance for doubtful accounts receivable and advance to suppliers, the valuation of inventory, provision for staff benefit, the useful lives of property and equipment and intangible assets, the impairment of long-lived assets, recognition and measurement of deferred income taxes and valuation allowance for deferred tax assets. Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ from those estimates and such differences may be material to our consolidated financial statements.

Cash and cash equivalents

Cash consists of cash on hand and cash in bank. Cash equivalents represent investment securities that are short-term, have high credit quality and are highly liquid. Cash equivalents are carried at fair market value and consist primarily of money market funds.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from shipment. Credit is extended based on evaluation of a customer's financial condition, the customer’s credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. At the end of each period, the Company specifically evaluates individual customer’s financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables. The Company will consider the allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions may be taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. As of June 30, 2021 and June 30, 2020, the Company has accounts receivable balance from non-related party of $4,936,974 and $3,273,141, net of allowance for doubtful accounts of $152,995 and $139,609, respectively. No bad debt expense was recorded during the year ended June 30, 2021 and 2020.

Inventories

Inventories consist of raw materials, working-in-process and finished goods. Inventories are valued at the lower of cost or net realizable value. We determine cost on the basis of the weighted average method. The Company periodically reviews inventories for obsolescence and any inventories identified as obsolete are written down or written off. Although we believe that the assumptions we use to estimate inventory write-downs are reasonable, future changes in these assumptions could provide a significantly different result.

Advances to suppliers

Advances to suppliers represent prepayments for merchandise, which were purchased but had not been received. The balance of the advances to suppliers is reduced and reclassified to inventories when the raw materials are received and pass quality inspection.

Property, plant and equipment

Property, plant and equipment are recorded at cost less accumulated depreciation and any impairment. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Repairs and maintenance costs are normally expensed as incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized as an additional cost of the asset.

When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the statement of comprehensive income (loss) in the reporting period of disposition.

Depreciation is calculated on a straight-line basis over the estimated useful life of the assets after taking into account their respective estimated residual value. The estimated useful life of the assets is as follows:

Intangible assets

Land use right is recorded as cost less accumulated amortization. Land use rights represent the prepayments for the use of the parcels of land in the PRC where the Company’s production facilities are located, and are charged to expense over their respective lease periods of 50 years. According to the laws of the PRC, the government owns all of the land in the PRC. Company or individuals are authorized to use the land only through land use rights granted by the PRC government for a certain period (usually 50 years).

Purchased intangible assets are recognized and measured at fair value upon acquisition. Intangible assets acquired separately and with finite useful lives are carried at costs less accumulated amortization and any accumulated impairment losses. Amortization for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives. Alternatively, intangible assets with indefinite useful lives are carried at cost less any subsequent accumulated impairment losses. The estimated useful lives of the intangible assets are as follows:

Gains or losses arising from derecognition of the intangible asset are measured at the difference between the net disposal proceeds and the carrying amount of the assets and are recognized in the statement of comprehensive income (loss) when the asset is disposed.

Impairment of long-lived assets

In accordance with the provisions of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as property, plant and equipment held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.

Revenue recognition

The Company adopted the new accounting standard, ASC 606, Revenue from Contracts with Customers, and all the related amendments (new revenue standard) to all contracts using the modified retrospective method beginning on July 1, 2018. The adoption did not result in an adjustment to the retained earnings as of June 30, 2018. The comparative information was not restated and continued to be reported under the accounting standards in effect for those periods. The adoption of the new revenue standard has no impact on either reported sales to customers or net earnings.

The Company estimates return based on historical results, taking into consideration the type of customers, the type of transactions and the specifics of each arrangement.

Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

Under these criteria, for revenues from sale of products, the Company generally recognizes revenue when its products are delivered to customers in accordance with the written sales terms. The control of the products is transferred to the customer upon receipt of goods by the customer. For service revenue, the Company recognizes revenue when services are performed and accepted by customers.

The following tables disaggregate our revenue by major source for the year ended June 30, 2021 and 2020, respectively:

All the operating entities of the Company are domiciled in the PRC. All the Company’s revenues are derived in the PRC during the year ended June 30, 2021 and 2020.

Cost of revenues

Cost of revenues includes cost of raw materials purchased, inbound freight cost, cost of direct labor, depreciation expense and other overhead. Write-down of inventory for lower of cost or net realizable value adjustments is also recorded in cost of revenues.

Related parties and transactions

The Company identifies related parties, and accounts for, discloses related party transactions in accordance with ASC 850, "Related Party Disclosures" and other relevant ASC standards.

Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

Transactions between related parties commonly occurring in the normal course of business are considered to be related party transactions. Transactions between related parties are also considered to be related party transactions even though they may not be given accounting recognition. While ASC does not provide accounting or measurement guidance for such transactions, it requires their disclosure nonetheless.

Income taxes

Income taxes are determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and discloses in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

As of June 30, 2021 and June 30, 2020, the Company did not have any significant unrecognized uncertain tax positions.

Comprehensive income (loss)

Comprehensive income (loss) is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. Comprehensive income (loss) for the periods presented includes net income (loss), change in unrealized gains (losses) on marketable securities classified as available-for-sale (net of tax), foreign currency translation adjustments, and share of change in other comprehensive income of equity investments one quarter in arrears.

Leases

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on balance sheet and disclose key information about the leasing arrangements. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.

The new standard is effective for us on July 1, 2019, with early adoption permitted. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. The Company adopted the new standard on July 1, 2019 and use the effective date as our date of initial application. Consequently, financial information is not provided for the dates and periods before July 1, 2019. The new standard provides a number of optional expedients in transition. The Company elected the package of practical expedients which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. 

The new standard has no material effect on our consolidated financial statements as the Company does not have a lease with a term longer than 12 months as of June 30, 2021 (See Note 5).

Earnings (losses) per share

Basic earnings (losses) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (losses) per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental shares issuable upon exercise of stock options and warrants and conversion of convertible debt. Such potentially dilutive shares are excluded when the effect would be to reduce a net loss per share or increase a net income per share.

The reconciliation of our basic to diluted weighted average common shares follows:

 During the year ended June 30, 2021,the Company had outstanding convertible notes and warrants which represent 1,096,705 shares of commons stock respectively. These shares of common stock were excluded from the computation of diluted earnings per share since their effect would have been antidilutive.

During the year ended June 30, 2020, the Company had outstanding convertible notes and warrants which represent 899,753 shares of commons stock, among which 670,587 shares of common stock for convertible notes were excluded from the computation of diluted earnings per share since their effect would have been antidilutive.

Foreign currencies translation

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 statements of stockholders’ equity.

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

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

Fair Value of Financial Instruments

The carrying value of the Company’s financial instruments: cash and cash equivalents, accounts receivable, inventory, prepayments and other receivables, accounts payable, income tax payable, other payables and accrued liabilities approximate at their fair values because of the short-term nature of these financial instruments.

The Company also follows the guidance of the ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

Level 1: Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;

Level 2: Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. Black-Scholes Option-Pricing model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs; and

Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.

Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The Company has the derivative liabilities measured at fair value on a recurring basis which are valued at level 3 measurement (See Note 13).

Convertible Instruments

The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”.

Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.

The Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities.

Common Stock Purchase Warrants

The Company classifies as equity any contracts that require physical settlement or net-share settlement or provide a choice of net-cash settlement or settlement in the Company’s own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC 815-40 ("Contracts in Entity's Own Equity"). The Company classifies as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).

Recent accounting pronouncements

The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.

Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Under the guidance, public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance is effective for all entities for Calendar years beginning after December 15, 2019 and for interim periods within those Calendar years, but entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Company is currently in the process of evaluating the impact of the adoption of this guidance on its consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”), which is intended to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The guidance is effective for public entities for Calendar years beginning after December 15, 2020 and interim periods within those Calendar years and all other entities for Calendar years beginning after December 15, 2021 and interim periods within those Calendar years, with early adoption permitted. The Company is currently evaluating the effect of adopting this ASU on the Company’s consolidated financial statements.

COVID-19

The Company’s operations are affected by the recent and ongoing outbreak of the coronavirus disease 2019 (COVID-19) which in March 2020, was declared a pandemic by the World Health Organization. The COVID-19 outbreak is causing lockdowns, travel restrictions, and closures of businesses. The Company’s business has been negatively impacted by the COVID-19 coronavirus outbreak to certain extent.

From late January 2020 to the middle of March 2020, the Company had to temporarily suspend our manufacturing activities due to government restrictions. During the temporary business closure period, our employees had very limited access to our manufacturing facilities and the shipping companies were not available and as a result, the Company experienced difficulty delivering our products to the customers on a timely basis. In addition, due to the COVID-19 outbreak, some of the customers or suppliers may experience financial distress, delay or default on their payments, reduce the scale of their business, or suffer disruptions in their business due to the outbreak.

As of the date of this filing, the COVID-19 coronavirus outbreak in China appears to have slowed down and most provinces and cities have resumed business activities under the guidance and support of the government. However, there is still significant uncertainty regarding the possibility of a second wave of infections, and the breadth and duration of business disruptions related to COVID-19, which could continue to have material impact to the Company’s operations. Moreover, the COVID-19 resurgence which occurred early May 2021 would cause one and off traffic restrictions and lockdowns and put numerous business negotiations and sales contracts signing on hold. It would also have adverse impacts on our supply chains. Currently we keep our continuous attention on the situation of the COVID-19, assess and react actively to its impacts on our future business continuity plans or whether material resource constraints in implementing these plans. Up to the date of this report, the assessment is still in progress.

NOTE 3 - VARIABLE INTEREST ENTITY

The VIE contractual arrangements

On December 27, 2018, the Company entered into VIE agreements with two shareholders of Fangguan Electronics to control 95.14% of the ownership rights and receive 100% of the net profit or net losses derived from the business operations of Fangguan Electronics. In exchange for VIE agreements and additional capital contribution, the Company issued 15 million shares of common stock to two shareholders of Fangguan Electronics. (See Note 1).

The transaction was accounted for as a business combination using the acquisition method of accounting. The assets, liabilities and the operations of Fangguan Electronics subsequent to the acquisition date were included in the Company’s consolidated financial statements.

Through power of attorney, equity interest purchase agreement, and equity interest pledge agreement, 95.14% of the voting rights of Fangguan Electronics’ shareholders have been transferred to the Company so that the Company has effective control over Fangguan Electronics and have the power to direct the activities of Fangguan Electronics that most significantly impact its economic performance.

Through business operation agreement with the shareholders of VIE, the Company shall direct the business operations of Fangguan Electronics, including, but not limited to, adopting corporate policy regarding daily operations, financial management, and employment, and appointment of directors and senior officers.

Through the exclusive technical support service agreement with the shareholders of VIE, the Company shall provide VIE with necessary technical support and assistance as the exclusive provider. And at the request of the Company, VIE shall pay the performance fee, the depreciation and the service fee to the Company. The performance fee shall be equivalent to 5% of the total revenue of VIE in any Calendar year. The depreciation amount on equipment shall be determined by accounting rules of China. The Company has the right to set and revise annually this service fee unilaterally with reference to the performance of VIE.

The service fee that the Company is entitled to earn shall be the total business incomes of the whole year minus performance fee and equipment depreciation. This agreement allows the Company to collect 100% of the net profits of the VIE. Except for technical support, the Company did not provide, nor does it intend to provide, any financial or other support either explicitly or implicitly during the periods presented to its variable interest entity.

If facts and circumstances change such that the conclusion to consolidate the VIE has changed, the Company shall disclose the primary factors that caused the change and the effect on the Company’s financial statements in the periods when the change occurs.

There are no restrictions on the consolidated VIE’s assets and on the settlement of its liabilities and all carrying amounts of VIE’s assets and liabilities are consolidated with the Company’s financial statements. In addition, the net income of Fangguan Electronics after Fangguan Electronics became the VIE of the Company is free of restrictions for payment of dividends to the shareholders of the Company.

Assets of Fangguan Electronics that are collateralized or pledged are not restricted to settle its own obligations. The creditors of Fangguan Electronics do not have recourse to the primary beneficiary’s general credit.

Risks associated with the VIE structure

The Company believes that the contractual arrangements with its VIE and respective shareholders are in compliance with PRC laws and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:

The Company’s ability to conduct its business through its VIE may be negatively affected if the PRC government were to carry out of any of the aforementioned actions. As a result, the Company may not be able to consolidate its VIE in its consolidated financial statements as it may lose the ability to exert effective control over its VIE and its respective shareholders and it may lose the ability to receive economic benefits from its VIE. The Company, however, does not believe such actions would result in the liquidation or dissolution of the Company, its PRC subsidiary and its VIE. There has been no change in facts and circumstances to consolidate the VIE. The following financial statement amounts and balances of its VIE were included in the accompanying consolidated financial statements after elimination of intercompany transactions and balances:

NOTE 4 - INVENTORIES

Inventories are stated at the lower of cost (determined using the weighted average cost) or net realizable value. Inventories consist of the following:

The Company recorded no inventory markdown for the years ended June 30, 2021 and 2020. 

NOTE 5- OPERATING LEASE

For the year ended June 30, 2021, the Company had two real estate operating leases for office and warehouse under the terms of one year. For the year ended June 30, 2020, the Company had three real estate operating leases for office, warehouses, manufacturing facilities and two boat operating leases under the terms from four months to three years.

Lisite Science Technology (Shenzhen) Co., Ltd ("Lisite Science") leases office and warehouse space from Shenzhen Keenest Technology Co., Ltd. (“Keenest”), a related party, with annual rent of approximately $1,500 (RMB10,000) for one year until July 20, 2020. On July 20, 2020, Lisite Science further extended the lease with Keenest for one more year until July 20, 2021 with annual rent of approximately $1,500 (RMB10,000). (See Note 10).On July 20, 2021, Lisite Science further extended the lease with Keenest for one more year until July 20, 2022 with annual rent of approximately $295 (RMB2,000).

Shenzhen Baileqi Electronic Technology Co., Ltd. ("Baileqi Electronic") leases office and warehouse space from Shenzhen Baileqi Science and Technology Co., Ltd. (“Shenzhen Baileqi S&T”), a related party, with monthly rent of approximately $2,500 (RMB17,525) and the lease period is from June 1, 2019 to May 31, 2020. On June 5, 2020, Baileqi Electronic extended the lease with Shenzhen Baileqi S&T for one more year until May 31, 2021 with monthly rent of approximately $2,500 (RMB17,525). (See Note 10).This lease was not extended when it expired in May 2021.

Dalian Shizhe New Energy Technology Co., Ltd. (“Shizhe New Energy”) leases a boat from a non-related party with monthly rent of approximately $7,200 (RMB50,000) for one year from March 1, 2019 to February 28, 2020. On July 1, 2019, Shizhe New Energy leased another boat from the same non-related party with monthly rent of approximately $7,200 (RMB50,000) for four months from July 10, 2019 to November 10, 2019.

On November 1, 2019, the Company leased an office space located in Dalian, China as its principal executive office under non-cancelable operating lease agreement for three years, which expires through October 31, 2022. The monthly rent is approximately $715 (RMB5,000). The Company adopted the new standard to recognize lease asset and liability for this lease after examining the criteria established. For the year ended June 30, 2020, the Company made $109,563 of fixed cash payments related to operating leases. Non-cash activities involving ROU assets obtained in exchange for lease liabilities were $19,711 for the year ended June 30, 2020, including the impact of adopting the new leases standard.

On June 30, 2020, this lease agreement was early terminated on a mutually agreed basis between the Company and the landlord. The Company paid the lessor a termination fee of approximately $1,400 (RMB10,000). The lease asset and liability were extinguished accordingly and decreased to zero as of June 30, 2020.

The Company made an accounting policy election not to recognize lease assets and liabilities for the leases listed above as all lease terms are 12 months or shorter.

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET

The components of property, plant and equipment were as follows:

Depreciation expense related to property, plant and equipment was $676,191 and $723,346 for the year ended June 30, 2021 and 2020, respectively.

As of June 30, 2021 and June 30, 2020, buildings were pledged as collateral for bank loans (See Note 8).

NOTE 7– INTANGIBLE ASSETS, NET

Intangible assets consist of the following:

Amortization expense related to intangible assets was $30,705 and $28,905 for the year ended June 30, 2021 and 2020, respectively.

Fangguan Electronics acquired the land use right from the local government in August 2012 which expires on August 15, 2062. As of June 30, 2021 and June 30, 2020, land use right was pledged as collateral for bank loans (See Note 8).

NOTE 8 – SHORT-TERM BANK LOAN

The Company’s short-term bank loans consist of the following:

NOTE 9 - STOCKHOLDERS' EQUITY

Stock Issued for Services

The Company engaged Maxim Group LLC (“Maxim”) as its financial advisor to assist the Company in articulating its growth strategy to the investment community and up-list its securities to a National Securities Exchange. On February 10, 2020, the Company issued 150,000 shares of common stock valued at $262,500 based on the quoted market price to Maxim Group LLC as a part of its compensation.

On May 19, 2020, the Company and Maxim mutually agreed to terminate all rights and obligations. Pursuant to the Settlement Agreement dated May 19, 2020, Maxim returned 75,000 shares of common stock valued at $131,250 to the Company for cancellation. The net cost of $131,250 was amortized in full during the year ended June 30, 2020.

Stock Issued for Conversion of Convertible Debt

During the year ended June 30, 2021, the Company issued a total of 9,470,630 shares of common stock for the conversion of debt in the principal amount of $273,200 together with all accrued and unpaid interest, according to the conditions of the convertible notes. All these conversions resulted in a total gain on extinguishment of debt of $202,588 for the year ended June 30, 2021. The remaining principal balance due under convertible notes after these conversions and other debt settlements (See Note 13) is zero.

During the year ended June 30, 2020, the Company issued a total of 96,265 shares of common stock for the conversion of debt in the principal amount of $67,615.6 together with all accrued and unpaid interest, according to the conditions of the convertible notes. All these conversions resulted in a total loss on extinguishment of debt of $41,255 for the year ended June 30, 2020.

Stock Issued for Exercise of Warrants

On December 21, 2020, the Company issued a total of 1,500,000 shares of common stock to FirstFire Global Opportunities Fund, LLC for the exercise of warrants in full, according to the conditions of the convertible note dated as September 11, 2019. The exercise of warrants resulted in a loss of $67,028 for the Year ended June 30, 2021. (See Note 13)

Stock Issued for Private Placement

In December 2020, the Company issued a total of 28,869,999 shares of common stock to nine individual subscribers for an aggregate purchase price of $433,000 at $0.015 per share, according to the conditions of the subscription agreements signed between the Company and subscribers.

On January 13, 2021, the Company issued a total of 7,000,000 shares of common stock to one individual subscriber for purchase price of $105,000 at $0.015 per share, according to the conditions of the subscription agreement signed by both parties.

Stock Issued as Commitment Shares for Promissory Note

On December 21, 2020, the Company issued a self-amortization promissory note to Labrys Fund, L.P in the aggregate principal amount of $300,000. The promissory note is due on or before December 21, 2021 and bears an interest rate of five percent (5%) per annum. The note is not convertible unless in default, as defined in the agreement. The Company agreed to reserve 7,052,239 shares of its common stock for issuance if any debt is converted.

On December 31, 2020, the Company issued 447,762 shares of common stock (the “First Commitment Shares”) and 1,119,402 shares of common stock (the “Second Commitment Shares”) related to the promissory note as a commitment fee. The Second Commitment Shares must be returned to the Company’s treasury if the promissory note is fully repaid and satisfied on or prior to the maturity date. The Company recorded the First Commitment Shares as debt discount valued at $68,060 based on the quoted market price at issue date and amortized over the term of the promissory note. The Company recorded the Second Commitment Shares at par for the year ended June 30, 2021. (See Note 14) 

On March 10, 2021, the Company issued a self-amortization promissory note to Labrys Fund, L.P in the aggregate principal amount of $500,000. The promissory note is due on or before March 10, 2022 and bears an interest rate of five percent (5%) per annum. The note is not convertible unless in default, as defined in the agreement. The Company agreed to reserve 6,562,500 shares of its common stock for issuance if any debt is converted.

On March 10, 2021, the Company issued 417,000 shares of common stock (the “First Commitment Shares”) and 1,042,000 shares of common stock (the “Second Commitment Shares”) related to the promissory note as a commitment fee. The Second Commitment Shares must be returned to the Company’s treasury if the promissory note is fully repaid and satisfied on or prior to the maturity date. The Company recorded the First Commitment Shares as debt discount valued at $87,153 based on the quoted market price at issue date and amortized over the term of the promissory note. The Company recorded the Second Commitment Shares at par for the year ended June 30, 2021. (See Note 14)

NOTE 10 - RELATED PARTY TRANSACTIONS AND BALANCES

Purchase from related party

During the year ended June 30, 2021, the Company did not purchase from any related party.

During the year ended June 30, 2020, the Company purchased $1,630,684 and $37,393 from Keenest and Shenzhen Baileqi S&T which were owned by the Company’s stockholders who own approximately 1.3% and 0.7% respectively of the Company’s outstanding common stock. The amounts of $1,630,684 (Lisite Science) and $37,393 (Baileqi Electronic) were included in the cost of Revenue for the year ended June 30, 2020.

Advances to suppliers - related parties

Lisite Science made advances of $434,200 and $357,577 to Keenest for future purchases as of June 30, 2021 and June 30, 2020, respectively.

Sales to related party

During the year ended June 30, 2021 and 2020, Baileqi Electronic sold materials of $0 and $713,008 respectively to Shenzhen Baileqi S&T.

Lease from related party

Lisite Science leases office and warehouse space from Keenest, a related party, with annual rent of approximately $1,500 (RMB10,000) for one year until July 20, 2020. On July 20, 2020, Lisite Science further extended the lease with Keenest for one more year until July 20, 2021 with annual rent of approximately $1,500 (RMB10,000). (See Note 5). On July 20, 2021, Lisite Science further extended the lease with Keenest for one more year until July 20, 2022 with annual rent of approximately $295 (RMB2,000).

Baileqi Electronic leases office and warehouse space from Shenzhen Baileqi S&T, a related party, with monthly rent of approximately $2,500 (RMB17,525) and the lease period is from June 1, 2019 to May 31, 2020. On June 5, 2020, Baileqi Electronic further extended the lease with Shenzhen Baileqi S&T for one more year until May 31, 2021 with monthly rent of approximately $2,500 (RMB17,525). (See Note 5). This lease was not extended when it expired in May 2021.

Due to related parties

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.

During the year ended June 30, 2021, after netting off the refund by Fangguan Electronics, Mr Liang 's advance to Fangguan amounted to $983,397, among which $464,000 (RMB 3 million) was the proceeds from a one -year term bank loan that Mr.Liang borrowed in his own name . The loan is guaranteeed by Fangguan Electronics and can solely be used for supplementing the working capital of Fangguan Electronics. Mr. Liang himself bears the interest at 3.85% annually.

During the year ended June 30, 2021, Shenzhen Baileqi S&T paid back Baileqi Electronic directly for the amount of $383,031 (RMB2,474,417). Therefore the equivalent amount of due to Yubao Liu previously offered by Mr.Liu to settle the liability on behalf of Baileqi S&T, was reversed to the current account with Mr.Liu. Considering this reversal,and setting off the further advance by Mr Liu, the net refund to Mr Liu was approximately $133,733 during  the year ended June 30, 2021. 

During the year ended June 30, 2021, Baozhen Deng advanced $35,839 to Baileqi Electronic. Shikui Zhang advanced approximately $30,433 to Shizhe New Energy. Changyong Yang, a stockholder of the Company, advanced approximately $9,642 to Lisite Science. Biao Shang advanced $19,804 to Fangguan Photoelectric.

During the year ended June 30, 2020, Yubao Liu was refunded $46,312 by Welly Surplus and Well Best after netting off his advances to Well Best. In addition, Yubao Liu agreed to decrease his advances to Well Best of $349,519 (RMB2,474,417) to pay off the trade receivables due from Shenzhen Baileqi S&T to Baileqi Electronic on behalf of Shenzhen Baileqi S&T.

During the year ended June 30, 2020, Baileqi Electronic refunded $5,303 to Baozhu Deng and Baozhen Deng advanced $5,537 to Baileqi Electronic. Shizhe New Energy refunded $625 and $1,869 to Liang Zhang and Zijian Yang respectively. Shikui Zhang advanced $28,528 to Shizhe New Energy. Changyong Yang, a stockholder of the Company, advanced $23,063 to Lisite Science.

NOTE 11– CONCENTRATION

Major customers

Customers who accounted for 10% or more of the Company’s revenues (goods sold and services) and its outstanding balance of accounts receivable are presented as follows: