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 GL”), 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 GL, 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
GL was incorporated on July 3, 2012 under the laws of British Virgin Islands. REBL owned 100%
equity interests of Moxian GL prior to the closing of the License and Acquisition Agreement, among the Company, Moxian GL
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) in 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,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization and Corporate Developments (Continued)
Organization
of the Group (continued)
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.
On
December 20, 2019, 369 Technologies (Beijing) Co. Ltd., was incorporated under the laws of the People’s Republic of China as a
wholly-owned subsidiary of Woodland Corporation. It has not commenced operations as of June 30, 2021. On March 18, 2021, 369 Technologies
(Beijing) Co. Ltd. changed its name to Beijing Bit Matrix Technology Co. Ltd.
On July 19, 2021, at the Company’s annual
meeting, stockholders of the Company approved the adoption of the Agreement and Plan of Merger entered into on May 28, 2021 by and between
the Company and Moxian (BVI) Inc, a British Virgin Islands company and a wholly owned subsidiary of the Company (“Moxian BVI”),
that will effectively change the Company’s place of incorporation from Nevada to the British Virgin Islands. Pursuant to the approval
of the stockholders, the Company is proceeding with the completion of the redomicile merger and expects the transaction to become effective
in August 2021. At the effective date, the Company will merge with and into Moxian BVI, with Moxian BVI surviving the merger. Each issued
and outstanding share of the Company’s common stock will be converted into the right to receive one ordinary share in Moxian BVI,
which shares will be issued by Moxian BVI in connection with the merger, and stockholders’ relative economic ownership and voting
rights will remain unchanged. Moxian BVI will own and continue to conduct our business in substantially the same manner as it is currently
being conducted by the Company and its subsidiaries. We expect that, at the effective time, Moxian BVI’s ordinary shares will be
authorized for listing on NASDAQ and traded on the exchange under the same symbol “MOXC”. Moxian BVI is expected to qualify
as a “foreign private issuer” under the rules and regulations of the SEC.
The
Company had 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 operated pursuant to an exclusive agreement, the Games Channel of the
state-owned Xinhua News Agency App and was 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 June 30, 2021 and for the nine months ended June 30, 2021 and 2020
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, 2020, previously filed with the SEC on January 14, 2021.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.
Summary of principal accounting policies (Continued)
Basis
of presentation (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 June 30, 2021 and of its unaudited condensed consolidated results
of operations for the nine months ended June 30, 2021 and 2020, and of its unaudited condensed consolidated cash flows for the nine months
ended June 30, 2021 and 2020, 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 June 30, 2021 and September 30, 2020:
Schedule of Assets and Liabilities of VIE
|
|
|
June
30,
2021
|
|
|
|
September
30,
2020
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-current assets
|
|
|
-
|
|
|
|
-
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-current liabilities
|
|
|
-
|
|
|
|
-
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
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 had only a single line of business since September 30, 2018 due to a lack of working capital.
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 June 30, 2021 and September
30, 2020 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:
Schedule of Straight-line Method Over Estimated Useful Lives
|
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 June 30, 2021 and September
30, 2020, 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 June 30, 2021, the tax years ended December 31, 2021 through December 31, 2020 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:
Summary of Exchange Rates of Balance Sheet Items, Except for Equity Accounts
Balance
sheet items, except for equity accounts
|
|
June
30,
2021
|
|
|
September
30, 2020
|
|
RMB:USD
|
|
|
6.4572
|
|
|
|
6.8141
|
|
HKD:USD
|
|
|
7.7663
|
|
|
|
7.7502
|
|
Items
in the unaudited condensed consolidated statements of operations and comprehensive loss, and unaudited condensed consolidated statements
of cash flows
Summary of Statements of Operations, Comprehensive Loss and Cash Flows
|
|
Nine
Months Ended
June 30,
|
|
|
Three Months Ended
June 30,
|
|
|
2021
|
|
|
2020
|
|
|
|
2021
|
|
|
|
2020
|
|
RMB:USD
|
|
|
6.5218
|
|
|
|
7.0489
|
|
|
|
6.4581
|
|
|
|
7.0853
|
|
HKD:USD
|
|
|
7.7572
|
|
|
|
7.7740
|
|
|
|
7.7653
|
|
|
|
7.7520
|
|
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.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.
Summary of principal accounting policies (Continued)
Recent
accounting pronouncements (continued)
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.
Account Receivable
The
Company had a major account receivable, that of Beijing Bi Er Culture Communication Limited, (“Bi Er”) a limited company
based in Beijing, for which the Company provided advertising and other support services under a Strategic Co-operative Agreement signed
in August 2019. The balance as of March 31, 2021 was $1,345,080.
However, following a breach in a separate Debt Assignment Agreement (see Note 7) in January, 2021, the Company considers the recoverability
of this debtor doubtful and has made a full provision for this amount as of March 31, 2021. In the period ended June 30, 2021, the Company
has recovered $291,984 of
this amount and this is reflected in the income statement as other income.
4.
Share Subscription Receivable
On
September 30, 2019, the Company issued 2,000,000 new shares of Common Stock to Joyful Corporation Limited, (“Joyful”) a Samoa-based
company at a price of $1.25 per share, for cash with total proceeds of $2.5 million. Of this amount, a sum of $400,000 was deposited
as an advance upon the signing of the Share Subscription Agreement.
Over
the course of the year to September 30, 2020, various creditors of the Company had agreed to assign their receivables from the Company
to Joyful which, in turn offset these amounts against the appropriate share subscription amounts due to the Company for the shares issued.
The total amounts agreed to be offset in this manner was $512,412.
As
of March 31, 2021, the entire amount of the Share Subscription in respect of the 2,000,000 new shares noted above has been fully settled,
either in the form of cash, or through an off-set of amounts the Company owed to its directors, other creditors and an unsecured loan
from a unrelated third-party, Tang Junsheng (see also Note 7).
5.
Cessation of the Mobile Application part of business and the consequential effects on the Balance Sheet
The
Company ceased the part of its business associated with its mobile application in the year ended September 30, 2018. As a result, as
of that date, it had fully provided for all its related business assets as of September 30, 2018. There has been no movement since as
the business had not been re-activated. Therefore, the fully written down value of the assets remain unchanged as of June 30,
2021 and September 30, 2020, and is as follows:
(a)
Prepayments, deposits and other receivables
Schedule of Other Prepayments, Deposits and Receivables
|
|
June
30,
2021
|
|
|
September
30,
2020
|
|
|
|
|
|
|
|
|
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
|
|
$
|
-
|
|
|
$
|
-
|
|
(b)
Property and equipment, net
Schedule of Property and Equipment, Net
|
|
June
30,
2021
|
|
|
September
30, 2020
|
|
|
|
|
|
|
|
|
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
|
|
$
|
-
|
|
|
$
|
-
|
|
(c)
Intangible assets
Schedule of Intangible Assets
|
|
June
30,
2021
|
|
|
September
30, 2020
|
|
|
|
|
|
|
|
|
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
|
|
$
|
-
|
|
|
$
|
-
|
|
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6.
Accruals and other payables
Schedule of Accruals and Other Payables
|
|
June
30,
2021
|
|
|
September
30, 2020
|
|
|
|
|
|
|
|
|
Salaries payable
|
|
$
|
16,397
|
|
|
$
|
61,761
|
|
Directors’ fees
|
|
|
63,000
|
|
|
|
398,250
|
|
Accrued expenses
|
|
|
295,514
|
|
|
|
330,006
|
|
Other payables and provisions
|
|
|
730,000
|
|
|
|
745,318
|
|
Total
|
|
$
|
1,104,911
|
|
|
$
|
1,535,335
|
|
7.
Loans
Schedule of Loans
|
|
June
30,
2021
|
|
|
September
30, 2020
|
|
Loans Payable:
|
|
|
|
|
|
|
|
|
Tang Junsheng
|
|
|
-
|
|
|
|
308,185
|
|
Others
|
|
|
-
|
|
|
|
51,364
|
|
|
|
|
-
|
|
|
|
359,549
|
|
In
August 2020, Mr. Junsheng Tang (“Mr. Tang”) filed a civil action against Moxian Technologies (Beijing) Co. Ltd. (“Moxian
Beijing”) for the recovery of RMB 2,100,000 (approximately $321,096) which was the remaining part of a loan that Mr. Tang advanced
to Moxian Beijing in January 2019. Mr. Tang was awarded judgment by the People’s Court in Fuzhou, China and Moxian Beijing was
ordered to pay Mr. Tang RMB 2,220,000 (approximately $323,000) inclusive of interest and costs. On December 11, 2020, Mr. Tang assigned
his debt from Moxian Beijing to Beijing Bi Er Culture and Communication Co., Ltd. (“Beijing Bi Er”), which undertook to settle
the full amount pursuant to a Debt Assignment Agreement (the “Assignment Agreement”). The Assignment Agreement became effective
in January 2021.
On
April 26, 2021, the Audit Committee of the Company’s Board of Directors learned that Bi Er had breached the Assignment Agreement
by failing to pay necessary funds to Mr. Tang by January 19, 2021. However, Mr. Deng Conglin (“Mr. Deng”) remitted a sum
of RMB 2,400,000 on January 20, 2021 to Moxian Beijing, from which amount, Moxian Beijing fully settled the amount due to Mr. Tang. Following
the repayment to Mr. Tang, Mr. Deng received 269,909 shares of the Company’s common stock from Joyful Corporation Limited (“Joyful”),
which had previously been issued 2,000,000 shares of the Company’s common stock. As previously disclosed, various creditors of
the Company, including Mr. Tang, had agreed to assign their receivables from the Company to Joyful which, in turn, offset these receivables
through the transfer of such shares to those creditors. Per that agreement, Mr. Tang was to have received 269,909 shares; instead, in
consideration for payments by Mr. Deng to Mr. Tang, the 269,909 shares were transferred from Joyful to Mr. Deng.
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 June 30, 2021, 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 ended 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 June 30, 2021.
MOXIAN,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8.
Income taxes (continued)
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 June 30, 2021 and 2020 and therefore,
Moxian HK was not subject to Hong Kong profits tax.
Malaysia
Moxian
Malaysia ceased operation in June 2017.
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, 2020, 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 when it ceased operations.
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 September 30, 2018 when it ceased operations.
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, 2020.
The
Company’s effective income tax rates were 0%
for the nine months ended June 30, 2021 and 2020 because of accumulated tax losses brought forward. The applicable rates
of income taxes are as follows:
Schedule of Effective Income Tax Rates
|
|
June
30, 2021
|
|
|
June
30, 2020
|
|
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 June 30, 2021 and September 30, 2020, respectively.
As
of June 30, 2021 and September 30, 2020, the valuation allowance was approximately $9.0 million.
For the nine months ended June 30, 2021 and 2020, there were no increase
in the valuation allowance.
Schedule of Valuation Allowance
|
|
June
30,
2021
|
|
|
September
30,
2020
|
|
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.
Capital Stock
(a)
Reverse Share Split
On
April 5, 2019, the Board of Directors approved a Split of 1 for 5 which became effective on April 22, 2019. As a result of this reverse
stock split, the number of outstanding shares of Common Stock of the Company was reduced from 67,357,222 to 13,471,529. Concurrently,
the authorized share capital of the Company was reduced to 50,000,000 shares of Common Stock from 250,000,000 shares.
(b)
Debt Exchange
On
May 2, 2019, the Company reached an agreement with each of the three loan creditors as of September 30, 2018 regarding settlement of
their loans to the Company. (“Debt Exchange”). Under the agreements, the loan creditors, all three loan creditors, which
were 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 at a price of $1.50
per share, in settlement of the remaining balances of the loans. The 720,000
new shares of Common Stock were issued on September 30, 2019.
(c)
Public Offering Warrants
In
connection with and upon closing of the Public Offering on November 14, 2016, the Company issued warrants equal to four percent (4%)
of the shares issued in the Public Offering, totaling 100,050 units to the placement agents for the offering. The warrants carry a term
of five years and shall be exercisable at a price equal to $4.60 per share. Management determined that these warrants meet the definition
of a derivative under ASC 815-40, however, they fall under the scope exception which states that contracts issued that are both (a) indexed
to its own stock; and (b) classified in stockholders’ equity are not considered derivatives. The warrants were recorded at their
fair value on the date of grant as a component of stockholders’ deficiency.
The
aggregated fair value of the Public Offering Warrants on November 14, 2016 was $280,042.
The fair value has been estimated using the Black-Scholes pricing model with the following weighted-average assumptions: market value
of underlying stock of $4.09;
risk free rate of 1.66%;
expected term of 5
years; exercise price of the warrants of $4.60;
volatility of 90.7%;
and expected future dividends of Nil.
As of June 30, 2021 100,060 shares of warrants were issued and outstanding; and none of the warrants has been exercised (see
also Note 11).
(d)
New issuance of shares
In
March 2021, the Company issued a total of 3,150,000 ordinary shares of common stock to four individuals, at a price of $1.25 per share.
The proceeds from these issues will be used for working capital needs of the Company.
10.
Commitments and contingencies
Operating
Lease
The
Company currently leases its office premises for RMB150,000 (approximately equivalent to $23,000) per month, inclusive of management
fees on a tenancy agreement which will expire in November 2021, if not terminated earlier by mutual consent.
Legal
Proceedings
As
of June 30, 2021, the Company is not aware of any material outstanding claim or litigation against them.
11.
Subsequent events
(a)
|
Agreement and Plan of Merger
|
On July 19, 2021, at
the Company’s annual meeting, stockholders of the Company approved the adoption of the Agreement and Plan of Merger entered into
on May 28, 2021 by and between the Company and Moxian (BVI) Inc, a British Virgin Islands company and a wholly owned subsidiary of the
Company (“Moxian BVI”), that will effectively change the Company’s place of incorporation from Nevada to the British
Virgin Islands. Pursuant to the approval of the stockholders, the Company is proceeding with the completion of the redomicile merger
and expects the transaction to become effective in August 2021. At the effective time, the Company will merge with and into Moxian BVI,
with Moxian BVI surviving the merger. Each issued and outstanding share of the Company’s common stock will be converted into the
right to receive one ordinary share in Moxian BVI, which shares will be issued by Moxian BVI in connection with the merger, and stockholders’
relative economic ownership and voting rights will remain unchanged. Moxian BVI will own and continue to conduct our business in substantially
the same manner as it is currently being conducted by the Company and its subsidiaries. We expect that, at the effective time, Moxian
BVI’s ordinary shares will be authorized for listing on NASDAQ and traded on the exchange under the same symbol “MOXC”.
Moxian BVI is expected to qualify as a “foreign private issuer” under the rules and regulations of the SEC.
(b)
|
As of
the date of this Report, 79,181 of the warrants previously issued (Note 9c) have been exercised on a caseless basis in July 2021,
resulting in a new issue of a total of 3,148 ordinary shares of common stock.
|