NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
Organization
and Corporate Developments
|
Organization
of the Group
Moxian,
Inc. (formerly known as Moxian China, Inc., hereinafter referred as “Moxian,” together with its subsidiaries and variable
interest entity, the “Company”), was incorporated under the laws of the State of Nevada on October 12, 2010. The Company,
through its subsidiaries and variable interest entity, engages in the business of operating a social network platform that integrates
social media and business into one single platform. The Company has devoted its efforts to develop a mobile application and online
platform that facilitate the small to medium size businesses to attract more clients. The Company’s ability to generate
sufficient funds to meet its working capital requirements is dependent upon its ability to develop additional sources of capital,
develop apps and websites, generate servicing income, and ultimately, achieve profitable operations (see Note 2).
On
February 17, 2014, the Company incorporated Moxian CN Group Limited (“Moxian CN Samoa”) under the laws of Samoa.
On
February 21, 2014, Moxian acquired Moxian Group Limited (“Moxian BVI”), together with its subsidiaries, Moxian (Hong
Kong) Limted (“Moxian HK”), Moxian Technology (Shenzhen) Co., Ltd. (“Moxian Shenzhen”), and Moxian Malaysia
Sdn. Bhd.(“Moxian Malaysia”) through our wholly owned subsidiary, Moxian CN Samoa from Rebel Group, Inc. (“REBL”),
a company incorporated in the State of Florida and of which our previous Chief Executive Officer, Tan Meng Dong, is a promoter
as the term is defined under Rule 405 of Regulation C promulgated under the Securities Act, by entering into a License and Acquisition
Agreement (the “License and Acquisition Agreement”) in consideration of $1,000,000 (“Moxian BVI Purchase Price”).
As a result, Moxian BVI, together with its subsidiaries, Moxian HK, Moxian Shenzhen, and Moxian Malaysia, became the Company’s
subsidiaries. Under the License and Acquisition Agreement, REBL also agreed to grant us the exclusive right to use REBL’s
intellectual property rights (collectively, the “IP Rights”) in Mainland China, Malaysia, and other countries and
regions where REBL conducts its business (the “Licensed Territory”), and the exclusive right to solicit, promote,
distribute and sell REBL products and services in the Licensed Territory for five years (the “License,”) and in consideration
of such License, the Company agreed to pay to REBL (i) $1,000,000 as license maintenance royalty each year commencing on the first
anniversary of the date of the License Agreement; and (ii) 3% of the gross profits resulting from the distribution and sale
of the products and services on behalf of the Company as an earned royalty.
On January 30, 2015, the Company entered
into an Equity Transfer Agreement (such transaction, the “Equity Transfer Transaction”) with REBL, to acquire from
REBL, 100% of the equity interests of Moxian Intellectual Property Limited, a company incorporated under the laws of Samoa and
a wholly-owned subsidiary of REBL (“Moxian IP Samoa”) for $6,782,000. Moxian IP Samoa owns all the intellectual
property rights relating to the operation, use and marketing of the Moxian Platform, including all of the trademarks, patents
and copyrights that are used in the Company’s business. As a result of the Equity Transfer Transaction, Moxian IP
Samoa became a wholly-owned subsidiary of the Company.
Moxian
BVI was incorporated on July 3, 2012 under the laws of British Virgin Islands. REBL owned 100% equity interests of Moxian BVI
prior to the closing of the License and Acquisition Agreement, among the Company, Moxian BVI and REBL.
Moxian
Technologies (Beijing) Co., Ltd. (“Moxian Beijing”) was incorporated on December 10, 2015 under the laws of
the People’s Republic of China and is a wholly owned subsidiary of Moxian Shenzhen. Moxian Shenzhen made an investment of
RMB 10 million (approximately USD $1.5 million) to Moxian Beijing during the year ended September 30, 2017.
Moxian
HK was incorporated on January 18, 2013 and became Moxian BVI’s subsidiary on February 14, 2013. Moxian HK is currently
engaged in the business of online social media. Moxian HK operates through two wholly owned subsidiaries: Moxian Shenzhen and
Moxian Malaysia.
Moxian
Shenzhen is wholly owned by Moxian HK. Moxian Shenzhen was incorporated on April 8, 2013 and is engaged in the business of internet
technology, computer software, commercial information consulting.
Moxian
Malaysia was incorporated on March 1, 2013 and became Moxian HK’s subsidiary since April 2, 2013. Moxian Malaysia was previously
in the business of IT services and media advertising but have ceased operations since June 2015.
Shenzhen
Moyi Technologies Co., Ltd. (“Moyi”) was incorporated on July 19, 2013 under the laws of the People’s Republic
of China and became a variable interest entity (“VIE”) of Moxian Shenzhen on July 15, 2014. Moxian Shenzhen controls
Moyi through arrangement that absorbs operations risk, as if Moyi is a wholly owned subsidiary of Moxian Shenzhen.
On
December 18, 2017, the Company entered into a Tripartite Agreement with the original shareholders of Moyi and the new shareholders
of Moyi wherein the Company agrees to the transfer of the equity interests of Moyi and all related rights, liabilities and obligations
under the Moyi Agreements such that the new shareholders stand in place of the old shareholders in all aspects of the Moyi Agreements.
On
January 30, 2018, a wholly-owned subsidiary of Moxian Shenzhen, Moxian Information Technologies (Shanghai) Co. Ltd. (“Moxian
Shanghai”) was incorporated under the laws of the People’s Republic of China.
Corporate
Developments
On
November 14, 2016 the Company announced the completion of a public offering of 2,501,250 shares of its common stock at a public
offering price of $4.00 per share. The gross proceeds from its offering were approximately $10,005,000 before deducting agents’
commissions and other offering expenses, resulting in net proceeds of approximately, $8.5 million. In connection with the offering,
the Company’s common stock began trading on the NASDAQ Capital Market beginning on November 15, 2016 under the symbol
“MOXC”
On April 22, 2019, the Company
implemented a 1-for-5 reverse share split and concurrently reduced its authorized shares of common stock from 250,000,000
to 50,000,000 (See Note 8 (c) Reverse Share Split).
On May 2, 2019, the Company reached an
agreement with each of its three loan creditors as of September 30, 2018 regarding settlement of their loans to the Company.
Under the agreements, all three loan creditors, which are unrelated parties as of the date of the agreements, would write off
a total of $6,243,439 of the loans due from the Company and would accept a total of 720,000 shares of Common Stock in settlement
of the remaining balances of the loans. The 720,000 new shares of Common Stock were issued on September, 30, 2019.
On
June 21, 2019, the Company entered into an Agreement (“the Agreement”) with Joyful Corporation Limited (the “Investor”)
whereby the Investor (a) purchased from the Company 2,000,000 shares of the Company’s common stock at a price
of $1.25 per share for aggregate gross proceeds of $2,500,000 and (b) acquired from the Company a call option to
purchase up to 690,000 shares of the Company’s common stock at a price per share of $1.25; the option expired
on September 30, 2019.
The
Company has two main divisions of business. It is in the O2O (“Online-to-Offline”) business with the development of
an online platform for small and medium sized enterprises (“SMEs”) with physical stores to conduct business online,
interact with existing customers and obtain new customers. It also operates pursuant to an exclusive agreement, the Games Channel
of the state-owned Xinhua News Agency App and is a general agent for all advertisements on this mobile application.
However,
due to the highly competitive nature of the O2O market, and the slow development of its products, the Company has incurred losses
since inception. By September 30, 2018, the Company had run out of funds and some of the major shareholders of the Company were
not prepared to give further financial support. The Company decided to continue its operations in the digital advertising business
but temporarily halt the operation of its App until its financial situation improved.
2.
|
Summary
of principal accounting policies
|
Basis
of presentation
The
accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally
accepted accounting principles in the United States of America (“US GAAP”) and reflect the activities of the following
subsidiaries and VIE: Moxian CN Samoa, Moxian BVI, Moxian HK, Moxian Beijing, and Moxian IP Samoa. All inter-company transactions
and balances have been eliminated in the consolidation. All other subsidiary companies and the sole VIE, Moyi, have been
inactive since September 30, 2018.
The
unaudited interim condensed consolidated financial information as of December 31, 2019 and for the three months ended December
31, 2019 and 2018 have been prepared, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
Certain information and footnote disclosures, which are normally included in annual consolidated financial statements prepared
in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited interim condensed consolidated
financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included
in the Company’s Form 10-K for the fiscal year ended September 30, 2019, previously filed with the SEC on January 14,
2020.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary
of principal accounting policies (Continued)
|
In
the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement
of the Company’s unaudited condensed consolidated financial position as of December 31, 2019 and of its unaudited condensed
consolidated results of operations for the three months ended December 31, 2019 and 2018, and of its unaudited condensed consolidated
cash flows for the three months ended December 31, 2019 and 2018, as applicable, have been made. The interim results of operations
are not necessarily indicative of the operating results for the full fiscal year or any future periods.
The
following assets and liabilities of the VIE, which has been dormant since September 30, 2018, are included in the accompanying
consolidated financial statements of the Company as of December 31, 2019 and September 30, 2019:
|
|
December
31, 2019
|
|
|
September
30, 2019
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-current assets
|
|
|
-
|
|
|
|
-
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
2,043,779
|
|
|
$
|
2,043,779
|
|
Non-current liabilities
|
|
|
-
|
|
|
|
-
|
|
Total liabilities
|
|
$
|
2,043,779
|
|
|
$
|
2,043,779
|
|
Reclassification
Certain
prior period amounts have been reclassified to conform to the current period presentation.
Going
Concern
As explained in Note 1, the Company has been restricted to a
single line of business since September 30, 2018.
In
assessing the Company’s liquidity and its ability to continue as a going concern, the Company monitors and analyzes its
cash and cash equivalents and its operating and capital expenditure commitments. The Company’s liquidity needs are to meet
its working capital requirements, operating expenses and capital expenditure obligations.
If
the Company is unable to obtain the necessary additional capital on a timely basis and on acceptable terms, it will be unable
to implement its current plans for expansion, repay debt obligations or respond to competitive pressures. Any of these factors
would have a material adverse effect on its business, prospects, financial condition and results of operations and raise substantial
doubts about the ability of the Company to continue as a going concern. The consolidated financial statements for the period ended
December 31, 2019 and September 30, 2019 have been prepared on a going concern basis and do not include any adjustments
to reflect the possible future effects on the recoverability and classifications of assets or the amounts and classifications
of liabilities that may result from the inability of the Company to continue as a going concern.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary
of principal accounting policies (Continued)
|
Risks
and Uncertainties
The
Company’s operations are substantially carried out in the People’s Republic of China (“PRC”). Accordingly,
the Company’s business, financial condition and results of operations may be substantially influenced by the political,
economic and legal environments in the PRC, and by the general state of the PRC’s economy. The Company’s operations
in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America
and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign
currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws
and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among
other things.
Since September 30, 2018 the
Company’s operations have been carried out in its Beijing subsidiary, Moxian Beijing, whereas the intermediate company
in Hong Kong, Moxian HK, provides support for the treasury and corporate functions. All other companies of the Group are
dormant and have no business operations.
Fair
value of financial instruments
The
Company follows the provisions of Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and
Disclosures.” ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes
a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level
1-Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement
date.
Level
2-Inputs other than quoted prices that are observable for the asset or liability in active markets, quoted prices for identical
or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs
derived from or corroborated by observable market data.
Level
3-Inputs are unobservable inputs which reflect management’s assumptions based on the best available information.
The
carrying value of cash and cash equivalents, restricted cash, prepayments, deposits and other receivables, Value added tax recoverable,
accruals and other payables, loans from related parties and stock subscription payable approximate their fair values because of
the short-term nature of these instruments.
Use
of estimates
The
preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the accompanying unaudited condensed consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting period. Significant estimates required to be made by management include but not limited
to, useful lives of property and equipment, intangible assets valuation, inventory valuation and deferred tax assets. Actual results
could differ from those estimates.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary
of principal accounting policies (Continued)
|
Property
and Equipment, net
Property
and equipment are recorded at cost less accumulated depreciation and impairment. Significant additions or improvements extending
useful lives of assets are capitalized. Maintenance and repairs are charged to expense as incurred. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives as follows:
|
Electronic
equipment
|
3-6
years
|
|
|
|
|
Furniture
and fixtures
|
3-6
years
|
|
|
|
|
Leasehold
improvements
|
Shorter
of estimated useful life or term of lease
|
Impairment
of long-lived assets
The
Company classifies its long-lived assets into: (i) computer and office equipment; (ii) furniture and fixtures, (iii) leasehold
improvements, and (iv) finite – lived intangible assets.
Long-lived
assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be fully recoverable. It is possible that these assets could become impaired as a result
of technology, economy or other industry changes. If circumstances require a long-lived asset or asset group to be tested for
possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group
to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash
flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through
various valuation techniques, including discounted cash flow models, relief from royalty income approach, quoted market values
and third-party independent appraisals, as considered necessary.
The
Company makes various assumptions and estimates regarding estimated future cash flows and other factors in determining the fair
values of the respective assets. The assumptions and estimates used to determine future values and remaining useful lives of long-lived
assets are complex and subjective. They can be affected by various factors, including external factors such as industry and economic
trends, and internal factors such as the Company’s business strategy and its forecasts for specific market expansion.
Due
to the continuing losses from operations with minimal revenues, the Company recorded a valuation reserve against its remaining
intangible assets in 2018.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary
of principal accounting policies (Continued)
|
Revenue
recognition
The
Company currently recognizes revenue from the sale of merchandise through its online platforms. Revenue is recognized when persuasive
evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and
collectability is reasonably assured. Revenue is recorded on a gross basis, net of surcharges and value added tax (“VAT”).
The Company recorded revenue on a gross basis because the Company has the following indicators for gross reporting: it is the
primary obligor of the sales arrangements, is subject to inventory risks of physical loss, has latitude in establishing prices,
has discretion in suppliers’ selection and assumes credit risks on receivables from customers.
Revenue
from advertising is recognized as advertisements are displayed. Revenue from software development services comprises revenue from
time and material and fixed price contracts. Revenue from time and material contracts are recognized as related services are performed.
Revenue on fixed price contracts is recognized in accordance with percentage of completion method of accounting.
Income
taxes
The
Company utilizes ASC Topic 740 (“ASC 740”) “Income taxes”, which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events that have been included in the unaudited condensed
consolidated financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences
in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period
end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to
be realized.
ASC
740 “Income taxes” clarifies the accounting for uncertainty in tax positions. This interpretation requires that an
entity recognizes in the unaudited condensed consolidated financial statements the impact of a tax position, if that position
is more likely than not of being sustained upon examination, based on the technical merits of the position. Recognized income
tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or
measurement are reflected in the period in which the change in judgment occurs. The Company has elected to classify interest and
penalties related to unrecognized tax benefits, if and when required, as part of income tax expense in the unaudited consolidated
statements of operations and comprehensive losses. The Company evaluates the level of authority for each uncertain tax position
(including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits
associated with the tax positions. As of December 31, 2019 and September 30, 2019, the Company did not have any
unrecognized tax benefits. The Company does not anticipate any significant increase to its liability for unrecognized tax benefit
within the next 12 months.
As
of December 31, 2019, the tax years ended December 31, 2011 through December 31, 2018 for the Company’s PRC
entities remain open for statutory examination by the PRC tax authorities.
Foreign
currency transactions and translation
The
reporting currency of the Company is United States Dollars (the “USD”) and the functional currency of Moxian Beijing
is Renminbi (the “RMB”) as China is the primary economic environment in which they operate. The functional
currency of Moxian HK is the Hong Kong Dollar (the “HKD”).
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary
of principal accounting policies (Continued)
|
Foreign
currency transactions and translation (continued)
For
financial reporting purposes, the financial statements of Moxian Beijing and Moxian HK, which are
prepared using their respective functional currencies, are translated into the reporting currency, USD, so to be consolidated
with the Company’s. Monetary assets and liabilities denominated in currencies other than the reporting currency are
translated into the reporting currency at the rates of exchange ruling at the balance sheet date. Revenues and expenses are
translated using average rates prevailing during the reporting period. Adjustments resulting from the translation are
recorded as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity (deficiency).
Transaction gains and losses are recognized in the unaudited consolidated condensed statements of operations and
comprehensive loss.
The
exchange rates applied are as follows:
Balance
sheet items, except for equity accounts
|
|
December
31, 2019
|
|
|
September
30, 2019
|
|
RMB:USD
|
|
|
6.9633
|
|
|
|
7.1484
|
|
HKD:USD
|
|
|
7.7886
|
|
|
|
7.8391
|
|
Items
in the unaudited condensed consolidated statements of operations and comprehensive loss, and unaudited condensed consolidated
statements of cash flows
|
|
Three
Months Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
RMB:USD
|
|
|
7.0427
|
|
|
|
6.9165
|
|
HKD:USD
|
|
|
7.8249
|
|
|
|
7.7503
|
|
Research
and Development
Research
and development expenses include payroll, employee benefits, stock-based compensation expense, and other related expenses associated
with product development. Research and development expenses also include third-party development, programming costs, and localization
costs incurred to translate software for local markets. Such costs related to software development are included in research and
development expense until the point that technological feasibility is reached. Once technological feasibility is reached, such
costs are capitalized and amortized as part of the cost of revenue over the estimated lives of the product.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary
of principal accounting policies (Continued)
|
Recent
accounting pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers
(Topic 606),” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in ASC 605 - Revenue
Recognition (“ASC 605”) and most industry-specific guidance throughout ASC 605. The FASB has issued numerous updates
that provide clarification on a number of specific issues as well as requiring additional disclosures. The core principle of ASC
606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines
a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required
within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in
the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction
price to each separate performance obligation.
The
guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising
from an entity’s contracts with customers. The guidance may be adopted through either retrospective application to all periods
presented in the financial statements (full retrospective approach) or through a cumulative effect adjustment to retained earnings
at the effective date (modified retrospective approach). The guidance was revised in July 2015 to be effective for private companies
and emerging growth public companies for annual and interim periods beginning on or after December 15, 2018. These new standards
became effective for AESE on January 1, 2019 and were adopted using the modified retrospective method. The adoption of ASC Topic
606 did not have a material impact on our consolidated financial statements as of the date of adoption, and therefore a cumulative-effect
adjustment was not required.
In
February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842).” ASU
2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize
in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing
its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to
make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition,
lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified
retrospective approach. This amendment will be effective for private companies and emerging growth companies for fiscal years
beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The FASB issued
ASU No. 2018-10 “Codification Improvements to Topic 842, Leases” and ASU No. 2018-11 “Leases (Topic 842) Targeted
Improvements” in July 2018, and ASU No. 2018-20 “Leases (Topic 842) - Narrow Scope Improvements for Lessors”
in December 2018. ASU 2018-10 and ASU 2018-20 provide certain amendments that affect narrow aspects of the guidance issued in
ASU 2016-02. ASU 2018-11 allows all entities adopting ASU 2016-02 to choose an additional (and optional) transition method of
adoption, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect
adjustment to the opening balance of retained earnings in the period of adoption. We are currently evaluating the impact that
this guidance will have on our consolidated financial statements.
In
June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326)” and also issued subsequent
amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively Topic 326). Topic 326 requires
the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing
incurred loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates.
We will be required to adopt the provisions of this ASU effective on January 1, 2023, with early adoption permitted for certain
amendments. Topic 326 must be adopted by applying a cumulative effect adjustment to retained earnings. The adoption of Topic 326
is not expected to have a material impact on our consolidated financial statements or disclosures.
In
August 2016, the FASB issued Accounting Standards Update (“ASU”)
ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments”
(“ASU 2016-15”). The new standard will make eight targeted changes to how cash receipts and cash payments are presented
and classified in the statement of cash flows. The new standard for private companies and emerging growth public companies is
effective for fiscal years beginning after December 15, 2018. We adopted this new standard on January 1, 2019. The adoption of
ASU 2016-15 did not have a material impact on our consolidated financial statements or disclosures.
In
January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment. The new guidance simplifies the accounting for goodwill impairment by eliminating Step 2 of the goodwill impairment
test. Under current guidance, Step 2 of the goodwill impairment test requires entities to calculate the implied fair value of
goodwill in the same manner as the amount of goodwill recognized in a business combination by assigning the fair value of a reporting
unit to all of the assets and liabilities of the reporting unit. The carrying value in excess of the implied fair value is recognized
as goodwill impairment. Under the new standard, goodwill impairment is recognized based on Step 1 of the current guidance, which
calculates the carrying value in excess of the reporting unit’s fair value. The new standard is effective beginning in January
2020, with early adoption permitted. We do not expect the impact of adopting this guidance to be material to our consolidated
financial statements.
In
July 2018, the FASB issued ASU No. 2018-09, “Codification Improvements” (“ASU 2018-09”). These amendments
provide clarifications and corrections to certain ASC subtopics including the following: Income Statement - Reporting Comprehensive
Income – Overall (Topic 220-10), Debt - Modifications and Extinguishments (Topic 470-50), Distinguishing Liabilities from
Equity – Overall (Topic 480-10), Compensation - Stock Compensation - Income Taxes (Topic 718-740), Business Combinations
- Income Taxes (Topic 805-740), Derivatives and Hedging – Overall (Topic 815-10), and Fair Value Measurement – Overall
(Topic 820-10). The majority of the amendments in ASU 2018-09 will be effective in annual periods beginning after December 15,
2019. The adoption of ASU 2018-09 is not expected to have a material impact on our consolidated financial statements or disclosures.
In
August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to
the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in ASU 2018-13 modify the disclosure
requirements associated with fair value measurements based on the concepts in the Concepts Statement, including the consideration
of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant
unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty
should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.
All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are
effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.
Early adoption is permitted, including adoption in an interim period. The adoption of ASU 2018-13 it not expected to have a material
impact our consolidated financial statements.
In
March 2019, the FASB issued ASU 2019-02, which aligns the accounting for production costs of episodic television series with the
accounting for production costs of films. In addition, ASU 2019-02 modifies certain aspects of the capitalization, impairment,
presentation and disclosure requirements in Accounting Standards Codification (“ASC”) 926-20 and the impairment, presentation
and disclosure requirements in ASC 920-350. This ASU must be adopted on a prospective basis and is effective for annual periods
beginning after December 15, 2020, including interim periods within those years, with early adoption permitted. We are currently
evaluating the impact that this pronouncement will have on our consolidated financial statements.
In
December 2019, the FASB issued ASU 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes. The new
guidance simplifies the accounting for income taxes by removing several exceptions in the current standard and adding guidance
to reduce complexity in certain areas, such as requiring that an entity reflect the effect of an enacted change in tax laws or
rates in the annual effective tax rate computation in the interim period that includes the enactment date. The new standard is
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption
permitted. We are currently assessing the impact that adopting this guidance will have on our consolidated financial statements.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3.
|
Prepayments,
deposits and other receivables, net
|
|
|
December
31, 2019
|
|
|
September
30, 2019
|
|
|
|
|
|
|
|
|
Prepayments to suppliers
|
|
$
|
567,934
|
|
|
$
|
567,934
|
|
Rental and other deposits
|
|
|
341,674
|
|
|
|
341,674
|
|
Employee advances
and others
|
|
|
32,240
|
|
|
|
32,240
|
|
Sub total
|
|
|
941,848
|
|
|
|
941,848
|
|
Less: allowance
for doubtful accounts
|
|
|
(941,848
|
)
|
|
|
(941.848
|
)
|
Prepayments,
deposits and other receivables, net
|
|
$
|
-
|
|
|
$
|
-
|
|
Other Receivable –
Share Subscription Proceeds
|
|
|
1,321,756
|
|
|
|
2,100,000
|
|
On September 30, 2019, the Company issued 2,000,000 new shares of
common stock of $0.001 at a price of $1.25 per share to Joyful Corporation Limited, of which $400,000 had been paid at the signing
of this Share Subscription Agreement. See also Note 9 on Subsequent Events.
4.
|
Property
and equipment, net
|
|
|
December
31, 2019
|
|
|
September
30, 2019
|
|
|
|
|
|
|
|
|
Electronic equipment
|
|
$
|
2,319,545
|
|
|
$
|
2,319,545
|
|
Furniture and fixtures
|
|
|
70,596
|
|
|
|
70,596
|
|
Leasehold improvements
|
|
|
263,609
|
|
|
|
263,609
|
|
Total property and equipment
|
|
|
2,653,750
|
|
|
|
2,653,750
|
|
Less: Accumulated
depreciation and amortization
|
|
|
(2,653,750
|
)
|
|
|
(2,653,750
|
)
|
Total property
and equipment, net
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
December
31, 2019
|
|
|
September
30, 2019
|
|
|
|
|
|
|
|
|
IP rights
|
|
$
|
1,410,335
|
|
|
$
|
1,410,335
|
|
Other intangible
assets
|
|
|
394,883
|
|
|
|
394,883
|
|
|
|
|
1,805,218
|
|
|
$
|
1,805,218
|
|
Less: accumulated
amortization
|
|
|
(1,805,218
|
)
|
|
|
(1,805,218
|
)
|
Net intangible
assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Due
to continuing losses from operations, the Company impaired the remaining intangible assets in 2017, hence there were no amortization
expenses for the ensuing periods.
During the quarter ended December 31, 2019,
the Company outsourced the procurement of 2019 software for a mobile game to a company incorporated in Zhuhai and made payments for
research and development under the agreement, totaling $502,635. The development of this mobile game is still in progress and
should be completed in the second half of the fiscal year 2020.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6.
Accruals and other payables
|
|
December 31, 2019
|
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
Salaries payable
|
|
$
|
29,000
|
|
|
$
|
40,510
|
|
Agency fees
|
|
|
-
|
|
|
|
391,700
|
|
Directors’ fees
|
|
|
28,500
|
|
|
|
258,000
|
|
Accrued expenses
|
|
|
171,964
|
|
|
|
189,932
|
|
Other payables and provisions
|
|
|
865,122
|
|
|
|
999,510
|
|
|
|
$
|
1,094,586
|
|
|
$
|
1,879,652
|
|
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Loans
As of December 31, 2019, the Company had
an outstanding loan from a third party, Tang Junsheng of $301,581.
8.
Income taxes
The
Company and its subsidiaries file separate income tax returns.
The
United States of America
Moxian
is incorporated in the State of Nevada in the U.S. and is subject to U.S. federal corporate income taxes. The State of Nevada
does not impose any state corporate income tax. As of December 31, 2019, future net operation losses of approximately $8.9
million are available to offset future operating income through 2036.
On
December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) was signed into law making significant
changes to the Internal Revenue Code. Changes include, but are not limited to, a U.S. corporate tax rate decrease from 35% to
21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax
system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings
as of December 31, 2017. As the Company has a September 30 fiscal year-end, the lower corporate income tax rate will be phased
in, resulting in a U.S. statutory federal rate of approximately 24.5% for our fiscal year ending September 30, 2018, and 21% for
subsequent fiscal years. Accordingly, we have to remeasure our deferred tax assets on net operating loss carryforward in the U.S
at the lower enacted cooperated tax rate of 21%. However, this remeasurement has no effect on the Company’s income tax expenses
as the Company has provided a 100% valuation allowance on its deferred tax assets previously.
Additionally,
the 2017 Tax Act imposes a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries,
and future foreign earnings are subject to U.S. taxation. The change in rate has caused us to remeasure all U.S. deferred income
tax assets and liabilities for temporary differences and NOL carryforwards and recorded one-time income tax payable to
be paid in 8 years. However, this one-time transition tax has no effect on the Company’s income tax expenses as the Company
has no undistributed foreign earnings prior to December 31, 2017, as the Company has cumulative foreign losses as of December
31, 2019.
British
Virgin Islands
Moxian
BVI is incorporated in the British Virgin Islands. Under the current laws of the British Virgin Islands, Moxian BVI is not subject
to tax on income or capital gains. In addition, upon payments of dividends by Moxian BVI, no British Virgin Islands withholding
tax is imposed.
Hong
Kong
Moxian
HK is incorporated in Hong Kong and Hong Kong’s profits tax rate is 16.5%. Moxian HK did not earn any income that was derived
in Hong Kong for the years ended December 31, 2019 and 2018 and therefore, Moxian HK was not subject to Hong Kong
profits tax.
Malaysia
Moxian
Malaysia did not have taxable income for the years ended December 31, 2019 and 2018. The management estimated that
Moxian Malaysia will not generate any taxable income in the future.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8.
Income taxes (continued)
PRC
Effective
from January 1, 2008, the PRC’s statutory income tax rate is 25%. The Company’s PRC subsidiaries are subject to income
tax rate of 25%, unless otherwise specified.
As
of September 30, 2018, the Company had net operating loss carry forwards of approximately of $20.2 million in the PRC tax jurisdiction,
which expires in the years 2018 through 2022.
Moxian
Shenzhen was incorporated in the People’s Republic of China. Moxian Shenzhen did not generate taxable income in the People’s
Republic of China for the period from April 8, 2013 (date of inception) to September 30, 2018. Management estimated that Moxian
Shenzhen will not generate any taxable income in the future.
Moyi
was incorporated in the People’s Republic of China. Moyi did not generate taxable income in the People’s Republic
of China for the period from July 19, 2013 (date of inception) to December 31, 2018.
Moxian
Beijing was incorporated in the People’s Republic of China. Moxian Beijing did not generate taxable income in the People’s
Republic of China for the period from December 10, 2015 (date of inception) to December 31, 2018.
The
Company’s effective income tax rates were 0% for the three months ended December 31, 2019 and 2018 Income tax mainly
consists of foreign income tax at statutory rates and the effects of permanent and temporary differences.
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
U.S. statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
Foreign income not registered in the
U.S.
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
PRC statutory rate
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
Changes in valuation
allowance and others
|
|
|
(25.0
|
)%
|
|
|
(25.0
|
)%
|
Effective tax
rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Because
of the uncertainty regarding the Company’s ability to realize its deferred tax assets, a 100% valuation allowance has been
established as of December 31, 2019 and September 30, 2019, respectively.
As
of December 31, 2019 and September 30, 2019, the valuation allowance was approximately $9.0 million. For the three
months ended December 31, 2019 and 2018, there were no increase in the valuation allowance.
|
|
December
31, 2019
|
|
|
September
30, 2019
|
|
Deferred tax asset from
net operating loss and carry-forwards
|
|
$
|
9,032,129
|
|
|
$
|
9,032,129
|
|
Valuation
allowance
|
|
|
(9,032,129
|
)
|
|
|
(9,032,129
|
)
|
Deferred tax
asset, net
|
|
$
|
-
|
|
|
$
|
-
|
|
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9.
Commitments and contingencies
Operating
Lease
The
Company currently leases its office premises for RMB150,000 (approximately equivalent to $21,000) per month, inclusive of management
fees on a tenancy agreement which will expire in November 2020, if not terminated earlier by mutual consent.
Arrangement
with Xinhua New Media Co., Ltd
In 2015, the Company signed a 5- year agreement
with Xinhua New Media Co. Ltd. pursuant to which the Company had exclusive right to operate the Games Channel of the Xinhua app
and act as a general agent for all digital advertising on the mobile application. This agreement expires in December 2020.
Legal
Proceeding
As
of December 31, 2019, the Company is not aware of any material outstanding claim and litigation against them.
10.
Subsequent events
The Company has been in continued discussions
with Joyful Corporation Limited over the balance of the proceeds from the issue of the 2 million new shares at the end of September,
2019. As at the date of this Report, a further RMB 5 million (equivalent to approximately $710,000) has been received by Joyful
and Joyful has agreed that the remaining balance will be settled by May 31, 2020.
On February 20, 2020,
the Company received a letter from the Nasdaq Stock Market (“Nasdaq”) notifying the Company
that it had violated Nasdaq Listing Rule 5250(c)(1) because the Company had not yet filed its Quarterly Report on Form 10-Q for
the period ended December 31, 2019. As previously disclosed, the Form 10-Q could not be filed by its February 17, 2020 deadline
without unreasonable effort and expenses because the Company’s personnel have been unable to return to work due to travel
restrictions and related complications arising from the COVID-19 coronavirus.
As of the date of this
Report, the COVID-19 outbreak in China, which originated in Wuhan in December 2019, is substantially under control. Travel restrictions
remain in place for in-bound traffic and there are quarantine measures at various ports of entry as the economy slowly re-opens.
The Company has not had to retrench any staff and resumed normal operations, which beginning in January were materially disrupted,
on April 1, 2020.
On March 20, 2020, the Company received a notice from Nasdaq notifying
the Company that for the last 30 consecutive business days prior to the date of the Notice, the market value of the Company’s
listed securities was less than $35 million, which does not meet the requirement for continued listing on The Nasdaq Capital Market,
as required by the Market Value Rule. In accordance with Nasdaq Listing Rule 5810(c)(3)(C), Nasdaq has provided the Company with
180 calendar days, or until September 16, 2020, to regain compliance with the Market Value Rule. If the Company regains compliance
with the Market Value Rule, Nasdaq will provide written confirmation to the Company and close the matter. If the Company does not
regain compliance with this requirement by September 16, 2020, the Company will receive written notification from the Staff that
its securities are subject to delisting. At that time, the Company may appeal the delisting determination to a Hearing Panel.