NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization and nature of operations
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) Limited (“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.
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
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.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
On
January 30, 2015, the Company entered into an Equity Transfer Agreement (the “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 (the “Moxian IP Samoa Purchase Price”) (see Note 9). 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.
As
of September 30, 2018. only Moxian Shenzhen, Moyi and Moxian Beijing have business operations. The other companies are all dormant.
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 the offering were approximately $10,005,000 before deducting placement
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
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.
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 Shenzhen, Moxian Malaysia, Moyi, Moxian Beijing, Moxian Shanghai
and Moxian IP Samoa. All intercompany transactions and balances have been eliminated in the consolidation.
The
unaudited interim condensed consolidated financial information as of March 31, 2019 and for the six months ended March 31, 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, 2018, previously filed with the SEC on January 15, 2019.
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 March 31, 2019 and its unaudited condensed consolidated
results of operations for the six months ended March 31, 2019 and 2018 , and its unaudited condensed consolidated cash flows for
the six months ended March 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 are included in the accompanying consolidated financial statements of the Company
as of March 31, 2019 and September 30, 2018:
|
|
|
March
31, 2019
|
|
|
September
30, 2018
|
|
|
|
|
|
|
|
|
|
|
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
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. As of March 31, 2019, the Company’s
current liabilities exceeded the current assets by approximately $8.9 million, its accumulated deficit was approximately
$45.8 million and the Company has incurred losses since inception.
On
November 10, 2017, the Company and Ms. Liu Shu Juan, a director of the Company, entered into a convertible loan agreement of $1,000,000
or its RMB equivalent. Pursuant to the loan agreement, the Company issued an unsecured convertible promissory note, carrying an
interest rate of 4.75% per annum and due in one year. On May 8, 2018, Liu converted the total outstanding of $1,008,068 into 350,023
shares of the Company’s common stock at a price of $2.88 per share. The conversion price was calculated using the price
of daily volume weighted average price per share for the 20 consecutive business days prior to the conversion.
On
May 11, 2018, the Company and Ms. Liu entered into a loan agreement for a line of credit of $4,000,000 or its RMB equivalent,
bearing interest of 4.75% per annum and due in two years. As of December 31, 2018, the line has been fully drawn down and the
total outstanding to Ms. Liu is $ 5,032,760. This amount exceeded the agreed loan of $4,000,000 and is not covered by any agreement.
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, 2018 and September 30, 2018 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.
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.
Restricted
cash
Restricted
cash represents cash held in an indemnification escrow account pursuant to the financing agreement signed with the placement agents.
Under
the terms of the placement agreement, $500,000 in cash funded an escrow account for a period of two years after the completion
of the IPO; this amount was recorded as restricted cash, long-term as of September 30, 2018. On November 9, 2017, $330,000 was
released from this escrow account. On January 2, 2019, the remaining $170,000 was released from this escrow account with the approval
of the placement agents and the escrow agents.
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 March 31, 2019 and September 30, 2018 , 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 March 31, 2019, the tax years ended December 31, 2011 through December 31, 2017 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 Shenzhen,
Moyi and Moxian Beijing is Renminbi (the “RMB”) as China is the primary economic environment in which they operate,
the functional currency of Moxian HK is Hong Kong Dollar (the “HKD”), and the functional currency of Moxian Malaysia
is Malaysia Ringgit (the “RM”).
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 Shenzhen, Moyi, Moxian Beijing, Moxian HK and Moxian Malaysia,
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
|
|
March
31, 2019
|
|
|
September
30, 2018
|
|
|
RMB:USD
|
|
|
6.7113
|
|
|
|
6.8686
|
|
|
HKD:USD
|
|
|
7.8494
|
|
|
|
7.8259
|
|
|
RM:USD
|
|
|
4.0827
|
|
|
|
4.1370
|
|
Items
in the unaudited condensed consolidated statements of operations and comprehensive loss, and unaudited condensed consolidated
statements of cash flows
|
|
|
Six
Months Ended March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
RMB:USD
|
|
|
6.7498
|
|
|
|
6.6133
|
|
|
HKD:USD
|
|
|
7.8449
|
|
|
|
7.8081
|
|
|
RM:USD
|
|
|
4.0911
|
|
|
|
4.1591
|
|
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
On
October 2, 2017, The FASB has issued Accounting Standards Update (ASU) No. 2017-13, “Revenue Recognition (Topic 605), Revenue
from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to
the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.”
The ASU adds SEC paragraphs to the new revenue and leases sections of the Codification on the announcement the SEC Observer made
at the 20 July 2017 Emerging Issues Task Force (EITF) meeting. The SEC Observer said that the SEC staff would not object if entities
that are considered public business entities only because their financial statements or financial information is required to be
included in another entity’s SEC filing use the effective dates for private companies when they adopt ASC 606, Revenue from
Contracts with Customers, and ASC 842, Leases. This would include entities whose financial statements are included in another
entity’s SEC filing because they are significant acquirees under Rule 3-05 of Regulation S-X, significant equity method
investees under Rule 3-09 of Regulation S-X and equity method investees whose summarized financial information is included in
a registrant’s financial statement notes under Rule 4-08(g) of Regulation S-X. The ASU also supersedes certain SEC paragraphs
in the Codification related to previous SEC staff announcements and moves other paragraphs, upon adoption of ASC 606 or ASC 842.
The Company does not expect that the adoption of this guidance will have a material impact on its unaudited condensed consolidated
financial statements.
On
November 22, 2017, the FASB ASU No. 2017-14, “Income Statement—Reporting Comprehensive Income (Topic 220), Revenue
Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606): Amendments to SEC Paragraphs Pursuant to Staff
Accounting Bulletin No. 116 and SEC Release 33-10403.” The ASU amends various paragraphs in ASC 220, Income Statement —
Reporting Comprehensive Income; ASC 605, Revenue Recognition; and ASC 606, Revenue From Contracts With Customers, that contain
SEC guidance. The amendments include superseding ASC 605-10-S25-1 (SAB Topic 13) as a result of SEC Staff Accounting Bulletin
No. 116 and adding ASC 606-10-S25-1 as a result of SEC Release No. 33-10403. The Company does not expect that the adoption of
this guidance will have a material impact on its unaudited condensed consolidated financial statements.
In
February 2018, the FASB issued ASU No. 2018-02, “Reclassification of Certain Tax Effects From Accumulated Other Comprehensive
Income.” The ASU amends ASC 220,
Income Statement — Reporting Comprehensive Income
, to “allow a reclassification
from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs
Act.” In addition, under the ASU, an entity will be required to provide certain disclosures regarding stranded tax effects.
The ASU is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal
years. The Company does not expect that the adoption of this guidance will have a material impact on its unaudited condensed consolidated
financial statements.
In
March 2018, the FASB issued ASU 2018-05 — Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting
Bulletin No. 118 (“ASU 2018-05”), which amends the FASB Accounting Standards Codification and XBRL Taxonomy based
on the Tax Cuts and Jobs Act (the “Act”) that was signed into law on December 22, 2017 and Staff Accounting Bulletin
No. 118 (“SAB 118”) that was released by the Securities and Exchange Commission. The Act changes numerous provisions
that impact U.S. corporate tax rates, business-related exclusions, and deductions and credits and may additionally have international
tax consequences for many companies that operate internationally. The Company does not believe this guidance will have a material
impact on its unaudited condensed consolidated financial statements.
In
July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases.” The ASU addresses 16 separate
issues which include, for example, a correction to a cross reference regarding residual value guarantees, a clarification regarding
rates implicit in lease contracts, and a consolidation of the requirements about lease classification reassessments. The guidance
also addresses lessor reassessments of lease terms and purchase options, variable lease payments that depend on an index or a
rate, investment tax credits, lease terms and purchase options, transition guidance for amounts previously recognized in business
combinations, and certain transition adjustments, among others. For entities that early adopted Topic 842, the amendments are
effective upon issuance of this Update, and the transition requirements are the same as those in Topic 842. For entities that
have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition
requirements in Topic 842. The Company does not believe this guidance will have a material impact on its unaudited condensed consolidated
financial statements.
In
July 2018, the FASB issued ASU 2018-11 - Leases (Topic 842): Targeted Improvements. The ASU simplifies transition requirements
and, for lessors, provides a practical expedient for the separation of nonlease components from lease components. Specifically,
the ASU provides: (1) an optional transition method that entities can use when adopting ASC 842 and (2) a practical expedient
that permits lessors to not separate nonlease components from the associated lease component if certain conditions are met. For
entities that have not adopted Topic 842 before the issuance of this Update, the effective date and transition requirements for
the amendments in this Update are the same as the effective date and transition requirements in Update 2016-02. For entities that
have adopted Topic 842 before the issuance of this Update, the transition and effective date of the amendments in this Update
are as follows: 1) The practical expedient may be elected either in the first reporting period following the issuance of this
Update or at the original effective date of Topic 842 for that entity. 2) The practical expedient may be applied either retrospectively
or prospectively. All entities, including early adopters, that elect the practical expedient related to separating components
of a contract in this Update must apply the expedient, by class of underlying asset, to all existing lease transactions that qualify
for the expedient at the date elected. The Company does not believe this guidance will have a material impact on its unaudited
condensed consolidated financial statements.
In October 2018, the FASB issued ASU 2018-17
– Consolidation (Topic 810): Targeted Improvements to Related {arty Guidance for Variable Interest Entities. The amendments
in this Update affect reporting entities that are required to determine whether they should consolidate a legal entity under the
guidance within the Variable Interest Entities Subsections of Subtropic 810-10, Consolidation. Overall, including private companies
that have elected the accounting alternative for leasing arrangements under common control. The amendments for the private company
accounting alternative apply to all entities except for public business entities and not-for-profit entities are defined in the
Master Glossary of the FASB Accounting Standards Codification” and employee benefit plans within the scope of Topics 960,962
and 965 on plan accounting. The Company does not believe this guidance will have a material impact on its unaudited condensed
consolidated financial statements.
All other recent accounting pronouncements, up to and including ASU 2018-04 are either
concerned with special interest entities such as financial institutions or specific topics that do not relate to the Company.
The Company does not believe the on these topics will have any impact on its unaudited condensed consolidated financial statements.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3.
Prepayments, deposits and other receivables, net
|
|
|
March
31, 2019
|
|
|
September
30, 2018
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
-
|
|
|
$
|
-
|
|
There
was no bad debt provision for the six months ended March 31, 2019 and 2018.
4.
Property and equipment, net
|
|
|
March
31, 2019
|
|
|
September
30, 2018
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
-
|
|
|
$
|
-
|
|
5.
Intangible assets
|
|
|
March
31, 2019
|
|
|
September
30, 2018
|
|
|
|
|
|
|
|
|
|
|
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.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6.
Accruals and other payables
|
|
|
March
31, 2019
|
|
|
September
30, 2018
|
|
|
|
|
|
|
|
|
|
|
Salary payable
|
|
$
|
79,000
|
|
|
$
|
403,926
|
|
|
Accrued expenses
|
|
|
1,054,000
|
|
|
|
2,691,684
|
|
|
Other payables
|
|
|
111,751
|
|
|
|
285,482
|
|
|
Total
|
|
$
|
1,244,751
|
|
|
$
|
3,381,152
|
|
Following negotiations with service suppliers,
several contracts for services previously entered into during the year ended September 30, 2018 were terminated, thus accrued
expenses related to such services totaling $1,522,292 made in the year ended September 30, 2018 were reversed in the quarter ended
March 31, 2019.
7.
Loans payable
|
|
|
March
31 2019
|
|
|
September
30 2018
|
|
|
Shenzhen Bayi Consulting
Co. Ltd. (Note 7.1)
|
|
$
|
1,310,772
|
|
|
$
|
1,310,772
|
|
|
Vertical Venture Capital Group Limited
(Note 7.2)
|
|
|
979,907
|
|
|
|
979,907
|
|
|
Liu
Shu Juan (Note 7.3)
|
|
|
5,032,760
|
|
|
|
5,032,760
|
|
|
Tang Junsheng (Note 7.4)
|
|
|
372,500
|
|
|
|
-
|
|
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7.1
Shenzhen Bayi Consulting Co. Ltd.(“Bayi”)
On
May 15, 2017, the Company and Bayi entered into a line of credit agreement. Pursuant to the agreement, Bayi agreed to provide
a line of credit in the maximum amount of $3 million to the Company. This line of credit was interest-free, repayable
on demand and matured on May 15, 2018. As of March 31, 2019, the loan has not been repaid. On May 2, 2019
the Company reached an agreement with Bayi regarding the repayment of this loan (See Note 10 on Subsequent Events)
7.2
Vertical Venture Capital Group Limited (“Vertical Venture”)
On August 1, 2017,
Vertical Venture extended an interest-free loan of $979,907 to the Company. As of March 31, 2019 and September 30, 2018, this
loan remained outstanding. Vertical Venture was previously considered to be a related party in previously reporting periods because
it was a significant shareholder of the Company but ceased to be such as of March 31, 2019.
On
May 2, 2019, the Company reached an agreement with Vertical Venture regarding the repayment of this loan (See Note 10 on Subsequent
Events).
7.3
Liu Shu Juan (“Ms Liu”)
On
November 10, 2017, the Company and Ms. Liu, then a director of the Company, entered into a convertible loan agreement
of $1,000,000 or its RMB equivalent. Pursuant to the loan agreement, the Company issued an unsecured convertible promissory note,
carrying an interest rate of 4.75% per annum and due in one year. On May 8, 2018, Liu converted the total outstanding of $1,008,068
into 350,023 shares of the Company’s common stock at a price of $2.88 per share. The conversion price was calculated using
the price of daily volume weighted average price per share for the 20 consecutive business days prior to the conversion.
On May 11, 2018, the Company and
Ms. Liu entered into a loan agreement for a line of credit of $4,000,000 or its RMB equivalent, bearing interest of 4.75% per
annum and due in two years. As of September 30, 2018, the line has been fully drawn down and the total outstanding due to Ms.
Liu was $5,032,760. This amount exceeded the agreed loan of $4,000,000 and is not covered by any agreement. On May 2,
2019, the Company reached an agreement with Ms Liu regarding the repayment of the loan. (See Note 10 on Subsequent Events).
As of September 30, 2018, Ms
Liu was regarded as a related party because in the year then ended, she was a director of the Company. Ms Liu resigned as a director
on September 30, 2018.
7.4
Tang Junsheng
On
January 29, 2019, the Company entered into a convertible loan agreement with Mr. Junsheng Tang, an unrelated party, and
Moxian Beijing, a wholly-owned subsidiary. Under the Agreement, Mr. Tang agrees to provide for a loan of RMB 6.77 million
(approximately USD 1.01 million) by June 30, 2019 to Moxian Beijing in three installments. The Company agrees to issue an
interest-free unsecured promissory note (the “Note”) in the amount of RMB 6.77 million to Mr. Tang, within 7
business days from the date of the third installment. Mr. Tang has the right to convert the whole RMB 6.77 million of the
Note into the Company’s restricted ordinary shares at the price of USD 1.00 per share, within six months from the date
of the Note. Upon conversion of the Note, Mr. Tang has the right to designate a third party as the Company’s
shareholder.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 March 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 “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 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 March 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, 2018 and 2017 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, 2018 and 2017. 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 six months ended March 31, 2019 and 2018 Income
tax mainly consists of foreign income tax at statutory rates and the effects of permanent and temporary differences.
|
|
|
March
31, 2019
|
|
|
March
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 March 31, 2019
and September 30, 2018, respectively.
As of March 31, 2019 and September
30, 2018, the valuation allowance was approximately $9.0 million. For the six months ended March 31, 2019 and
2018, there were no increase in the valuation allowance.
|
|
|
March
31, 2019
|
|
|
September
30, 2018
|
|
|
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
Currently, the Company leases one property
as its office. Rental expenses under operating leases for the six months ended March 31, 2019 and March
31, 2018 were $126,000 and $1,304,630 respectively. As of March 31, 2019, the Company was obligated
under a non-cancellable operating lease for a monthly rental of approximately $21,000 until the expiration of the current
lease term in November 2020
Arrangement
with Xinhua New Media Co., Ltd
The
Company entered into an exclusive advertising agency agreement and sponsor agreement with Xinhua New Media Co., Ltd (“Xinhua
New Media”). Pursuant to the agreements, the Company, as an exclusive agent, is authorized to operate and sell advertisements
in the gaming channel of Xinhua New Media’s mobile application and sponsor related advertising events. The exclusive advertising
agency agreement expires on December 31, 2020 and the sponsor agreement expired on December 31, 2017.
The
Company entered into amendments with Xinhua New Media for both the agency agreement and sponsor agreement during the year ended
December 31, 2017 which resulted in a reduction of fees. In April 2018, the Company further negotiated with Xinhua New Media and
obtained a waiver for all future fees on the understanding that past arrears have to be made good.
Legal
Proceedings
As
of March 31, 2019, the Company is not aware of any material outstanding claim and litigation against them.
10.
Subsequent events
On
May 2, 2019, the Company announced it has reached an agreement with three of its loan creditors regarding settlement of their
loans to the Company which totaled $7,323,438 outstanding as of May 2, 2019. Under the agreements as of May 2, each of the loan
creditors, Liu Shu Juan, Shenzhen Bayi Consulting Co. Ltd and Vertical Venture Capital Group Limited, all of which are unrelated
parties, will write off 85% of the amounts due from the Company, and the Company will plan to issue a total of 720,000 new shares
of common stock, par value $0.001, to those creditors as full and complete settlement of the outstanding loans. These new shares
will be restricted securities and shall represent fewer than 6% of the total number of outstanding shares of the Company’s
common stock. When the transactions are completed, the Company will report an improvement in the shareholders’ equity of
$7,323,438 and the total liabilities of the Company will be reduced by the corresponding same amount.
On
April 23, 2019, the Company received a written notice (the “Notice”) from Nasdaq. As described in the Notice,
the Company has not regained compliance with Nasdaq minimum bid price rule, Listing Rule 5550(a)(2) (the “Rule”).
Although the Company implemented a reverse stock split on April 22, 2019, the Company needs to maintain a bid price of
$1 or greater for a minimum of 10 consecutive business in order to regain compliance with the Rule. Additionally, the Notice stated
that the Company does not meet Nasdaq’s initial listing requirements to be eligible for a second grace period. Accordingly,
Nasdaq determined that the Company’s securities will be scheduled for delisting from The Nasdaq Capital Market and will
be suspended at the opening of business on May 2, 2019 and a Form 25-NSE will be filed with the Securities and Exchange Commission
(the “SEC”), which will remove the Company’s securities from listing and registration on The Nasdaq Stock Market.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On April 30, 2019,
the Company requested an oral hearing to appeal the decision of Nasdaq to delist the Company’s securities. Accordingly,
the delisting action referenced in the Notice has been stayed, pending a final written decision by the Nasdaq Hearings Panel.
The hearing has been scheduled for June 6, 2019.
On
April 3, 2019, the Board of Directors approved a 1-for-5 reverse stock split of the Company’s (a) authorized shares of common
stock; and (b) issued and outstanding shares of common stock. The reverse stock split became effective as of the open
of trading on April 22, 2019.