UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended September 30, 20172020
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Transition Period from _________to _________
Commission File Number 333-202948
FUSE ENTERPRISESGROUP HOLDING INC.
(Exact name of registrant as specified in its charter)
Nevada | 47-1017473 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification Number) | |
805 W. Duarte Rd., Suite | ||
Arcadia, CA | 91007 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s Telephone Number: (626) 210-0000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
None | N/A | N/A |
Securities registered pursuant to Section 12(g) of the Act:
None | ||
(Title of class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☒☐ No ☐☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o ☒ No ☒☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.Act:
Large accelerated filer ☐ | Accelerated filer | ☐ | |
Non-accelerated filer ☒ | Smaller reporting company | ☒ | |
Emerging growth company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes o ☐ No ☒
The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant based upon the closing price of the Registrant’s Common Stock as of March 31, 20172020, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $17,650,000$1,588,500 (based on 17,650,000 shares of common stock outstanding held by non-affiliates on such date $1.00at $0.09 per share). Shares of the Registrant’s Common Stock held by each executive officer and director and by each entity or person that, to the Registrant’s knowledge, owned 5% or more of the Registrant’s outstanding Common Stock as of March 31, 2017 have been excluded in that such persons may be deemed to be affiliates of the Registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
The number of outstanding shares of Registrant’s Common Stock, $0.001 par value, was 45,150,00064,778,050 shares as of December 26, 2017.
14, 2020.
FUSE ENTERPRISESGROUP HOLDING INC.
Annual Report on Form 10-K for Fiscal Year Ended September 30, 20172020
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PART II | |
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PART III | |
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PART IV | |
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NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the fiscal year ended September 30, 20172020 (“Annual Report”) of Fuse EnterprisesGroup Holding Inc. (together with our direct or indirect subsidiaries, “we,” “us,” “our” or “the Company”) includes forward-looking statements that involve risks and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995. Other than statements of historical fact, all statements made in this Annual Report are forward-looking, including, but not limited to (a) our projected sales, profitability, and cash flows, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans and (e) our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology. Forward-looking statements involve risks and uncertainties that are inherently difficult to predict, which could cause actual outcomes and results to differ materially from our expectations, forecasts and assumptions. The following important factors, among others, could affect our future results and could cause those results to differ materially from those expressed in such forward-looking statements:
● | the uncertainty of profitability based upon our history of losses; |
● | risks related to failure to obtain adequate financing on a timely basis and on acceptable terms to continue as going concern; |
● | risks related to our international operations and currency exchange fluctuations; |
| ● | COVID-19 and actions by the government to contain the spread of the pandemic; and |
● | other risks and uncertainties related to our business plan and business strategy. |
Any or all of our forward-looking statements in this report may turn out to be inaccurate. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially as a result of various factors, including, without limitation, the risks outlined under “Item 1A. Risk Factors” in this Annual Report. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.
Our financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. All references to “common stock” refer to the common shares in our capital stock.
We undertake no obligation to update forward-looking statements to reflect subsequent events, changed circumstances or the occurrence of unanticipated events.
PART I
ITEM 1 – BUSINESS
Overview and History
Fuse EnterprisesGroup Holding Inc. (the “Company” or “Enterprises”“Fuse Group” or “We”“we”) was incorporated under the laws of the State of Nevada on December 24, 2013. Enterprises isFuse Group currently a full service online marketing agency, but is exploringexplores opportunities in the mining industry.mining. On December 6, 2016, the Company incorporated Fuse Processing, Inc. (“Processing”) in the State of California. Processing seeks business opportunities in the mining industry and is currently investigating potential mining targets in Asia and North America. EnterprisesFuse Group is the sole shareholder of Processing. On November 28, 2016, 5,500,000 shares of the common stock of Enterprises, or 60.91% of the Company’s issued and outstanding shares of common stock, were sold by Pavel Mikhalkov and Aleksandr Kriukov in a series of private transactions to a new shareholder for an aggregate purchase price of $55,000 (collectively, the “Stock Sales”). In connection with the Stock Sales, Messrs. Mikhalkov and Kriukov released the Company from certain liabilities and obligations arising out of their service as directors and officers of the Company. In March 2017, Processing acquired 100% ownership of Fuse Trading Limited (“Trading”) for HKD1 (US$($0.13). Trading had no operations prior to the acquisition by Processing, and Trading expects to be engaged in mining-related businesses. On May 26, 2017,3, 2018, the Company filed a Certificate of Change withincorporated Fuse Technology Inc. in the State of Nevada, which changed its name to (i) increase its authorized sharesFuse Biotech Inc. on November 30, 2020. Fuse Group is the sole shareholder of common stock from 75,000,000Fuse Biotech Inc. ("Fuse Biotech”). Fuse Biotech was mainly engaged in IMETAL system development. The Company originally planned to 375,000,000operate IMETAL as a platform to facilitate investment and (ii) effect a corresponding 5-for-1 forward stock splittrade in raw metals, find specialized minerals, exploit these opportunities and issue tokens to be used on the platform, subject to compliance with applicable laws and regulations. Due to the recent development of laws and regulations on token issuance and trading, management discussed with the designer of the issuedplatform its function and outstanding sharescompliance issues and believed the project has more issues and costs for compliance than originally expected. On December 23, 2019, the Board decided to terminate the IMETAL project. Currently, Fuse Biotech is seeking business opportunities in the biotech area.
Fuse Group and Processing provide consulting services to mining industry clients to find acquisition targets within the parameters set by the clients, when the mine owner is considering selling its mining rights. The services of Fuse Group and Processing include due diligence on the potential mine seller and the mine, such as ownership of the mine and whether the mine meets all operation requirements and/or is currently in operation.
On January 4, 2017, Processing entered into a Consulting and Strategist Agreement with a consulting company for a six-month term. On July 3, 2017, the Company and the consulting company extended the Consulting and Strategist Agreement until January 3, 2018 at no additional cost, and the Agreement was subsequently extended to July 3, 2018. The consultant provides Processing with market research findings, exploration and advice on business development opportunities in certain countries, and other general business advisory services. Processing paid a deposit of $1,325,000 for the consulting fee, of which, $325,000 was expensed as a consulting fee based on the agreement, and the remaining $1,000,000 of which would have been refunded to the Company if the Company had not made an investment and/or entered into a business relationship in Mexico. The consulting company found acquisition targets for the Company, and on June 22, 2018, the Company entered into a Memorandum of Understanding (“MOU”) with a seller for the purchase of five mines located in different areas of Mexico for $1,000,000. Upon the execution of the MOU, the Company acquired the exclusive right to purchase the mines from the seller until September 30, 2018. The parties entered into an oral agreement pursuant to which the Company will pay the $1,000,000 purchase price upon receiving approvals from the Mexican government allowing for the transfer of the mining concession. The transfer request was submitted to, and is being processed by, the Mexican government, but that processing was originally delayed due to elections and new administration and then COVID-19 in Mexico, the Company was not able to provide an estimate time for the approval at this report date.
On April 29, 2019, the Board of Directors of the Company approved an amendment to the Company’s Articles of Incorporation (the “Amendment”) to change its name from Fuse Enterprises Inc. to Fuse Group Holding Inc. Also on April 29, 2019, stockholders holding a majority of the Company’s commonoutstanding capital stock (the “Stock Split”).approved the Amendment. The Amendment was filed with the Secretary of State for the State of Nevada on April 30, 2019, and became effective on May 13, 2019. On May 29, 2019, the Company changed its trading symbol on OTC Markets from FNST to FUST.
Research and Development Activities
Other than time spent researching our proposed business, we have not spent any funds on research and development activities to date. We do not currently plan to spend any funds on research and development activities in the near future.
We are not aware of any environmental laws that have been enacted, nor are we aware of any such laws being contemplated for the future, that affect our current operations.
Employees
As of the date of this Annual Report we have four employees, all of which are full-time employees.full-time. Our officers and directors are responsible for planning, developing and operational duties, and will continue to do so throughout the early stages of our growth.
Reports to Securities Holders
We provide an annual report that includes audited financial information to our shareholders. We will make our financial information equally available to any interested parties or investors through compliance with the disclosure rules for a small business issuer under the Securities Exchange Act of 1934. We are subject to disclosure filing requirements including filing Form 10-K annually and Form 10-Q quarterly. In addition, we will file Form 8KForms 8-K from time to time as required. We do not intend to voluntarily file the above reports in the event thatif our obligation to file such reports is suspended under the Exchange Act. The public may read and copy any materials that we file with the Securities and Exchange Commission, (“SEC” or “Commission”), at the SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549.
The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
ITEM 1A – RISK FACTORS
An investment in the Company’s common stock involves a high degree of risk. In addition to the following risk factors, you should carefully consider the risks, uncertainties and assumptions discussed herein, and in other documents that the Company subsequently files with the SEC, that update, supplement or supersede such information for which documents are incorporated by reference into this Report. Additional risks not presently known to the Company, or which the Company considers immaterial based on information currently available, may also materially adversely affect the Company’s business. If any of the events anticipated by the risks described herein occur, the Company’s business, cash flow, results of operations and financial condition could be adversely affected, which could result in a decline in the market price of the Company’s common stock, causing you to lose all or part of your investment.
We are an “emerging growth company” under the Jumpstart Our Business Startups Act. We cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our shares of common stock less attractive to investors.
We are and will remain an “emerging growth company” until the earliest to occur of (a) the last day of the fiscal year during which its total annual revenues equal or exceed $1$1.07 billion (subject to adjustment for inflation), (b) the last day of the fiscal year following the fifth anniversary of its initial public offering, (c) the date on which Enterprisesthe Company has, during the previous three-year period, issued more than $1 billion in non-convertible debt securities, or (d) the date on which Enterprises is deemed a “large accelerated filer” (with at least $700 million in public float) under the Securities and Exchange Act of 1934 (the “Exchange Act”).
For so long as we remain an “emerging growth company” as defined in the JOBS Act, itwe may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” as described in further detail in the risk factors below. We cannot predict if investors will find itsour shares of common stock less attractive because Enterprisesthe Company will rely on some or all of these exemptions. If some investors find our shares of common stock to be less attractive as a result, there may be a less active trading market for its shares of common stock and its stock price may be more volatile.
If we availsavail ourselves of certain exemptions from various reporting requirements, such reduced disclosure may make it more difficult for investors and securities analysts to evaluate us and may result in less investor confidence.
The recently enacted JOBS Act is intended to reduce the regulatory burden on “emerging growth companies”. We meetsmeet the definition of an “emerging growth company” and so long as we qualifiesqualify as an “emerging growth company,” we will not be required to:
● have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
● comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
● submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and
● disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage ofuse the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to “opt out” of such extended transition period, and as a result, Enterprisesthe Company will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that its decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
Notwithstanding the above, we are also currently a “smaller reporting company”, meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $75$250 million and annual revenues of less than $50$100 million during the most recently completed fiscal year. In the event that we are still considered a “smaller reporting company”, at such time areas we cease being an “emerging growth company”, we will be required to provide additional disclosure in our SEC filings. However, similar to “emerging growth companies”, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; are not required to conduct say-on-pay and frequency votes until annual meetings occurring on or after January 21, 2013; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports.
Decreased disclosures in our SEC filings due to our status as an “emerging growth company” or “smaller reporting company” may make it harder for investors to analyze the Company’s results of operations and financial prospects.
We lack an operating history. There is no assurance our future operations will result in profitable revenues. If we cannot generate sufficient revenues to operate profitably, our business will fail.
We were incorporated on December 24, 2013, and have generated $53,775 in revenues from sales and incurred $1,652,899 in operating costs since inception. Asas of September 30, 2017,2020, we had accumulated a deficit of $1,614,816.$5,965,804. We have a limited operating history upon which an evaluation of our future success or failure can be made. Based upon current plans, we expect to continue generating revenues. However, our revenues may not be sufficient to cover our operating costs. We cannot guarantee that we will be successful in generating significant revenues in the future. Failure to achieve a sustainable sales level will cause us to go out of business.
Our success depends substantially on the continued retention of certain key personnel and our ability to hire and retain qualified personnel in the future to support our growth.
If one or more of our senior executives or other key personnel are unable or unwilling to continue in their present positions, our business may be disrupted and our financial condition and results of operations may be materially and adversely affected. We are dependent upon Mr. Umesh Patel, our chief executive officer (“CEO”) and a director; and Mr. Umesh Patel,Michael Viotto, our chief financial officer (“CFO”) and a director. The loss of the services of Messrs. Patel or Viotto for any reason could significantly adversely impact our business and results of operations. Competition for senior management in the United StatesU.S. is intense and the pool of qualified candidates is very limited. Accordingly, we cannot guarantee that the services of our senior executives and other key personnel will continue to be available to us, or that we will be able to find a suitable replacement for them if they were to leave.
We face intense competition in our industry. If we are unable to compete successfully, our business will be seriously harmed.
The market for online marketingmining consulting services is highly competitive and has low barriers to entry. Our competitors vary in size and in the variety of services they offer. Many of our current and potential competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, and an established client base. These competitors may be able to adapt more quickly to new or emerging online marketing technologies and changes in customer requirements. They may also be able to devote greater resources to the promotion and sales of their services than we can, or may adopt more aggressive pricing policies. If we fail to compete successfully against our competitors, our revenue could decline and our business could be harmed.
We don’t have an audit committee financial experts.committee. If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results. As a result, current and potential shareholders could lose confidence in our financial reporting, which would harm our business and the trading price of our stock.
Members of our Board of Directors are inexperienced(“BOD”) do not have significant experience with U.S. GAAP and the related internal control procedures required of U.S. public companies. Management has determined that our internal audit function is also significantly deficient due to insufficient qualified resources to perform internal audit functions.audits. Finally, we have not established an Audit Committee of our Board of Directors.
We are a development stage company with limited resources. Therefore, we cannot assure investors that we will be able to maintain effective internal controls over financial reporting based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. For these reasons, we are considering the costs and benefits associated with improving and documenting our disclosure controls and procedures and internal controls and procedures, which includes (i) hiring additional personnel with sufficient U.S. GAAP experience and (ii) implementing ongoing training in U.S. GAAP requirements for our CFO and accounting and other finance personnel. If the result of these efforts are not successful, or if material weaknesses are identified in our internal control over financial reporting, our management will be unable to report favorably as to the effectiveness of our internal control over financial reporting and/or our disclosure controls and procedures, and we could be required to further implement expensive and time-consuming remedial measures and potentially lose investor confidence in the accuracy and completeness of our financial reports which could have an adverse effect on our stock price and potentially subject us to litigation.
We do not have a majority of independent directors on our Board and the Company has not voluntarily implemented various corporate governance measures, in the absence of which shareholders may have more limited protections against interested director transactions, conflicts of interest and similar matters.
Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or the NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges are those that address board of directors’ independence, audit committee oversight, and the adoption of a code of ethics. We have not yet adopted any of these other corporate governance measures and since our securities are not yet listed on a national securities exchange, we are not required to do so.
Our Board of DirectorsBOD is comprised of two individuals, both of whom are also our executive officers. As a result, we do not have independent directors on our Board of Directors. BOD.
We have not adopted corporate governance measures such as an audit or other independent committee of our Board, as we presently do not have independent directors on our Board. If we expand our Board membership in future periods to include additional independent directors, we may seek to establish an audit and other committees of our Board. It is possible that if our Board of DirectorsBOD included independent directors and if we were to adopt some or all of these corporate governance measures, shareholders would benefit from somewhat greater assurance that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct.
For example, at present in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages or employment contracts to our senior officers are made by a majority of directors who have an interest in the outcome of the matters being decided. However, as a general rule, the Board, in making its decisions, determines first that the terms of such transaction are no less favorable to us that those that would be available to us with respect to such a transaction from unaffiliated third parties. The companyCompany executes the transaction between executive officers and the companyCompany once it was approved by the Board of Directors.BOD.
Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.
Landbond Home Limited, our largest shareholder, will have control over key decision making as a result of its control of a substantial amount of our voting stock.
As of December 19, 2017,14, 2020, Landbond Home Limited (“Landbond”), and its sole director, Mr. Yong Zhang, directly and indirectly owned 27,500,000 shares, or 60.9%42.45%, of our then outstanding common stock. Landbond’s beneficial ownership of 60.9%42.45% of our issued and outstanding common stock will give it the ability to control the outcome of matters submitted to shareholders for approval in the future, including the election of directors and any merger, consolidation, or sale of all or substantially all of their respective assets. This concentrated control could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of their respective assets that other shareholders support, or conversely this concentrated control could result in the consummation of such a transaction that other shareholders do not support. This concentrated control could also discourage a potential investor from acquiring our common stock, due to the limited voting power of such shares. As a shareholder, even a controlling shareholder, Landbond is entitled to vote its shares in its own interests, which may not always be in the interests of our shareholders generally.
The Company is subject to the 15(d) reporting requirements under the Securities Exchange Act of 1934 which does not require a company to file all the same reports and information as fully reporting company.
Pursuant to Section 15(d), we are required to file periodic reports with the SEC, such as annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, once our registration statement is declared effective, including the annual report on Form 10-K for the fiscal year during which the registration statement is declared effective.8-K. That filing obligation will generally apply even if our reporting obligations have been suspended automatically under section 15(d) of the Exchange Act prior to the due date for the Form 10-K.
On the first day of any fiscal year after fiscal year 2016 and provided the Company has lessfewer than 300 shareholders, the Company is not required to file these reports. If the reports are not filed, the investors will have reduced visibility as to the Company and its financial condition. In addition, as a filer subject to Section 15(d) of the Exchange Act, the Company is not required to prepare proxy or information statements; our common stock will not be subject to the protection of the going private regulations; the company will be subject to only limited portions of the tender offer rules; our officers, directors, and more than ten (10%) percent shareholders are not required to file beneficial ownership reports about their holdings in our company; that these persons will not be subject to the short-swing profit recovery provisions of the Exchange Act; and that more than five percent (5%) holders of classes of your equity securities will not be required to report information about their ownership positions in the securities.
An occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations and financial results.
In December 2019, a novel strain of coronavirus, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to multiple countries, including the United States. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The relative lackpandemic has resulted in quarantines, travel restrictions, and the temporary closure of public company experienceoffice buildings and facilities in the US.
Our business and services and results of operations have been adversely affected and could continue to be adversely affected by the COVID-19 pandemic. The effects of quarantines, travel restrictions, and the temporary closure of office buildings have negatively impacted our management team may put us at a competitive disadvantage.
Quarantines, travel restrictions, shelter-in-place and other restrictions related to COVID-19 have impacted our abilities to visit mines in Mexico and Asian counties as well as meeting with legalpotential clients and regulatory requirements such as those imposedminer owners for our consulting business and our own investment in mine projects. Our clients that are negatively impacted by the Sarbanes-Oxley Actoutbreak of 2002, (“Sarbanes-Oxley”). Our senior management doesCOVID-19 may cancel or suspend their mine acquisition projects, which in turn will reduce their demands for our services and materially adversely impact our revenue.
The global economy has also been materially negatively affected by COVID-19 and there is continued severe uncertainty about the duration and intensity of its impacts. The U.S. and global growth forecast is extremely uncertain, which would seriously affect people’s investment desires in mines in Mexico, Asia and internationally.
While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.
Further, as we do not have significant experience managingaccess to a publicly traded company. Such responsibilities include complying with federalrevolving credit facility, there can be no assurance that we would be able to secure commercial debt financing in the future in the event that we require additional capital. We currently believe that our financial resources will be adequate to see us through the outbreak. However, in the event that we do need to raise capital in the future, the outbreak-related instability in the securities lawsmarkets could adversely affect our ability to raise additional capital.
In general, our business could be adversely affected by the effects of epidemics, including, but not limited to, COVID-19, avian influenza, severe acute respiratory syndrome (SARS), the influenza A virus, the Ebola virus, or other outbreaks. In response to an epidemic or other outbreaks, government and making required disclosures on a timely basis. Our senior managementother organizations may be unable to implement programsadopt regulations and policies in an effective and timely manner or that adequately respond to the increased legal, regulatory and reporting requirements associated with being a publicly traded company. Our failure to comply with all applicable requirements could lead to the imposition of fines and penalties, distractsevere disruption to our management from attending to the management and growthdaily operations, including temporary closure of our offices and other facilities. These severe conditions may cause us and/or our business resultpartners to make internal adjustments, including but not limited to, temporarily closing down business, limiting business hours, and setting restrictions on travel and/or visits with clients and partners for a prolonged period of time. Various impacts arising from severe conditions may cause business disruption, resulting in a loss of investor confidence inmaterial adverse effects to our financial reportscondition and have an adverse effect on our business and stock price.results of operations.
If our costs and demands upon management increase disproportionately to the growth of our business and revenue as a result of complying with the laws and regulations affecting public companies, our operating results could be harmed.
As a public company, we do and will continue to incur significant legal, accounting, and other expenses, including costs associated with public company reporting requirements. We also have incurred and will incur costs associated with current corporate governance requirements, including requirements under Section 404 and other provisions of Sarbanes-Oxley, as well as rules implemented by the SEC and the stock exchange on which our common stock is traded. The expenses incurred by public companies for reporting and corporate governance purposes have increased dramatically over the past several years. These rules and regulations have increased our legal and financial compliance costs substantially and make some activities more time consuming and costly. If our costs and demands upon management increase disproportionately to the growth of our business and revenue, our operating results could be harmed.
We do not intend to pay dividends and there may be fewer ways in which you can make a gain on any investment in Enterprises.the Company.
We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. To the extent that we require additional funding currently not provided for in our financing plan, our funding sources may likely prohibit the payment of a dividend. Because we do not intend to declare dividends, any gain on an investment in Enterprisesthe Company will need to come through appreciation of the stock’s price.
We may engage in future acquisitions involving significant expenditures of cash, the incurrence of debt or the issuance of stock, all of which could have a materially adverse effect on our operating results.
As part of our business strategy, we review acquisition and strategic investment prospects that we believe would offer strategic growth opportunities. From time to time, we review investments in new businesses and we expect to make investments in, and to acquire, businesses, products or technologies in the future. In the event of any future acquisitions, we may expend significant cash, incur substantial debt and/or issue equity securities and dilute the percentage ownership of current shareholders, all of which could have a material adverse effect on our operating results and the price of our common stock. We cannot guarantee that we will be able to successfully integrate any businesses, products, technologies or personnel that we may acquire in the future, and our failure to do so could have a material adverse effect on our business, operating results and financial condition.
There is a very limited public market for our common stock and;and therefore, our investors may not be able to sell their shares.
Our common stock is listed on the over-the-counter exchange, and is thinly traded. As a result, shareholders may be unable to liquidate their investments, or may encounter considerable delay in selling shares of our common stock. If an active trading market does develop, the market price of our common stock is likely to be highly volatile due to, among other things, the nature of our business and because we are a new public company with a limited operating history. Further, even if a public market develops, the volume of trading in our common stock will presumably be limited and likely be dominated by a few individual shareholders. The limited volume, if any, will make the price of our common stock subject to manipulation by one or more shareholders and will significantly limit the number of shares that one can purchase or sell in a short period of time. The market price of our common stock may also fluctuate significantly in response to the following factors, most of which are beyond our control:
- variations in our quarterly operating results;
- changes in general economic conditions;
- price competition or pricing changes by us or our competitors;
- new services offerings or other actions by our competitors;
- loss of a major customer, partner or joint venture participant; and
- the addition or loss of key managerial and collaborative personnel.
The equity markets have, on occasion, experienced significant price and volume fluctuations that have affected the market prices for many companies’ securities and that have often been unrelated to the operating performance of these companies.
Any such fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance. As a result, shareholders may be unable to sell their shares, or may be forced to sell them at a loss.
Our common stock was accepted for quotation on the OTC Bulletin Board and OTC Link during the year ended September 30, 2016. AsOTCQB, as a result, the application of the “Penny Stock” rules could adversely affect the market price of our common shares and increase your transaction costs to sell those shares. The SEC has adopted Rule 3A51-1, which establishes the definition of a “Penny Stock,” for the purposes relevant to us, as any equity security that has market price of less than $5.00 per share or within an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15G-9 require:
- that a broker or dealer approve a person’s account for transactions in penny stocks; and
- the broker or dealer receive from the investor a written agreement to the transaction, setting forth the
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
- obtain financial information and investment experience objectives of the person; and
- make a reasonable determination that the transactions in penny stocks are suitable for that person and the
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:
- sets forth the basis on which the broker or dealer made the suitability determination; and
- that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
ITEM 2 – PROPERTIES
We lease office space in Arcadia, California for monthly rent of approximately $1,896$2,200 pursuant to a lease agreement with a term from January 1, 2017 to December 31, 2018.2018 to November 30, 2021.
ITEM 3 – LEGAL PROCEEDINGS
We may from time to time be party to litigation and subject to claims incident to the ordinary course of business. As we grow and gain prominence in the marketplace we may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of these matters could materially affect our future results of operations, cash flows or financial position. We are not currently a party to any legal proceedings.
PART II
ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
On August 8, 2016, our common stock was verifiedapproved for trading on OTCQB under the trading symbol FSNT. Prior to that time, there was no public market for our stock. On May 29, 2019, the Company changed its trading symbol on OTC Markets from FNST to FUST. The following table sets forth for the indicated periods the high and low intra-day sales price per share for our common stock on the OTCQB for the years ended September 30, 20172020 and 2016.2019.
| 2017 | High | Low | ||||||||||||||
2020 | High | Low | ||||||||||||||
| First quarter | $ | 1.00 | $ | 0.30 | $ | 0.25 | $ | 0.09 | ||||||||
| Second quarter | $ | 1.00 | $ | 0.30 | $ | 0.2 | $ | 0.09 | ||||||||
| Third quarter | $ | 1.00 | $ | 0.63 | $ | 0.11 | $ | 0.09 | ||||||||
| Fourth quarter | $ | 1.11 | $ | 0.39 | $ | 0.11 | $ | 0.09 | ||||||||
| 2016 | High | Low | ||||||
| First quarter | $ | N/A | $ | N/A | ||||
| Second quarter | $ | N/A | $ | N/A | ||||
| Third quarter | $ | 0.00 | $ | 0.00 | ||||
| Fourth quarter | $ | 1.25 | $ | 1.01 | ||||
2019 | High | Low | ||||||
First quarter | $ | 0.29 | $ | 0.21 | ||||
Second quarter | $ | 0.21 | $ | 0.15 | ||||
Third quarter | $ | 0.18 | $ | 0.10 | ||||
Fourth quarter | $ | 0.25 | $ | 0.10 | ||||
Holders.
As of September 30, 2017,December 14, 2020, there were 3576 record holders of 45,150,00064,778,050 shares of the Company’s common stock.
Dividends.
The Company has not paid any cash dividends to date and does not anticipate or contemplate paying dividends in the foreseeable future. It is the present intention of management to utilize all available funds for the development of the Company’s business.
Securities Authorized for Issuance Under Equity Compensation Plans
None.
Recent Sales of Unregistered Securities and Use of Proceeds
The Company did not make any sales of unregistered securities during the fiscal year ended September 30, 20172020 that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K.
ITEM 6 – SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS
The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report on Form 10-K, particularly under the heading “Risk Factors.”
Overview
Fuse EnterprisesGroup Holding Inc. (the “Company” or “Enterprises”“Fuse Group” or “We”“we”) was incorporated under the laws of the State of Nevada on December 24, 2013. Enterprises isFuse Group currently a full service online marketing agency, but is exploringexplores opportunities in the mining industry.mining. On December 6, 2016, the Company incorporated Fuse Processing, Inc. (“Processing”) in the State of California. Processing seeks business opportunities in the mining industry and is currently investigating potential mining targets in Asia and North America. EnterprisesFuse Group is the sole shareholder of Processing. On November 28, 2016, 5,500,000 shares of the common stock of Enterprises, or 60.91% of the Company’s issued and outstanding shares of common stock, were sold by Pavel Mikhalkov and Aleksandr Kriukov in a series of private transactions to a new shareholder for an aggregate purchase price of $55,000 (collectively, the “Stock Sales”). In connection with the Stock Sales, Messrs. Mikhalkov and Kriukov released the Company from certain liabilities and obligations arising out of their service as directors and officers of the Company. In March 2017, Processing acquired 100% ownership of Fuse Trading Limited (“Trading”) for HKD1 (US$($0.13). Trading had no operations prior to the acquisition by Processing, and Trading expects to be engaged in mining-related businesses. On May 3, 2018, the Company incorporated Fuse Technology Inc. in the State of Nevada, which changed its name to Fuse Biotech Inc. on November 30, 2020. Fuse Group is the sole shareholder of Fuse Biotech Inc. ("Fuse Biotech”). Fuse Biotech was mainly engaged in IMETAL system development. The Company originally planned to operate IMETAL as a platform to facilitate investment and trade in raw metals, find specialized minerals, exploit these opportunities and issue tokens to be used on the platform, subject to compliance with applicable laws and regulations. Due to the recent development of laws and regulations on token issuance and trading, management discussed its function and compliance issues with the designer of the platform and concluded the project had more issues and costs for compliance than originally expected, on December 23, 2019, the Board decided to terminate the IMETAL project. Currently, Fuse Biotech is seeking business opportunities in the biotech area.
Fuse Group and Processing provide consulting services to mining industry clients to find acquisition targets within the parameters set by the clients, when the mine owner is considering selling its mining rights. The services of Fuse Group and Processing include due diligence on the potential mine seller and the mine, such as ownership of the mine and whether the mine meets all operation requirements and/or is currently in operation.
On January 4, 2017, Processing entered into a Consulting and Strategist Agreement with a consulting company for a six-month term. On July 3, 2017, Processing and the consulting company extended the Consulting and Strategist Agreement until January 3, 2018 at no additional cost, and the Agreement was subsequently extended to July 3, 2018. The consultant provides Processing with market research, exploration and advise on business development opportunities in certain countries, and other general business advisory services. Processing paid a deposit of $1,325,000 for the consulting fee, of which, $325,000 was expensed as a consulting fee based on the agreement, and the remaining $1,000,000 of which would have been refunded to the Company if the Company had not made an investment and/or entered into a business relationship in Mexico. The consulting company found acquisition targets for the Company, and on June 22, 2018, the Company entered into a Memorandum of Understanding (“MOU”) with a seller to purchase five mines located in different areas of Mexico for $1,000,000. Upon the execution of the MOU, the Company acquired the exclusive right to purchase the mines from the seller until September 30, 2018. The parties entered into an oral agreement pursuant to which the Company will pay the $1,000,000 purchase price upon receiving approvals from the Mexican government allowing for the transfer of the mining concession. The transfer request was submitted to, and is being processed by, the Mexican government, but that processing was originally delayed due to elections and new administration then COVID-19 in Mexico and the COVID-19 pandemic, such that the Company was not able to provide an estimated time for the approval at this report date.
On May 26, 2017, the Company filed a Certificate of Change with the State of Nevada to (i) increase its authorized shares of common stock from 75,000,000 to 375,000,000 and (ii) effect a corresponding 5-for-1 forward stock split of the issued and outstanding shares of the Company’s common stock (the “Stock Split”).
On April 29, 2019, the Board of Directors (“BOD”) of the Company approved an amendment to the Company’s Articles of Incorporation (the “Amendment”) to change its name from Fuse Enterprises Inc. to Fuse Group Holding Inc. Also on April 29, 2019, stockholders holding a majority of the Company’s outstanding capital stock approved the Amendment. The Amendment was filed with the Secretary of State for the State of Nevada on April 30, 2019, and became effective on May 13, 2019. On May 29, 2019, the Company changed its trading symbol on OTC Markets from FNST to FUST.
In December 2019, a novel strain of coronavirus, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to multiple countries, including the United States. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the pandemic has resulted in quarantines, travel restrictions, and the temporary closure of office buildings and facilities in the US. The state of California, where the Company is headquartered, has been affected by COVID-19.
Our business and services and results of operations have been adversely affected and could continue to be adversely affected by the COVID-19 pandemic. The pandemic negatively impacted our business development, and disrupted or delayed our current mine projects and services to our clients, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition.
Quarantines, travel restrictions, shelter-in-place and other restrictions related to COVID-19 have impacted our abilities to visit mines in Mexico and Asian counties as well as to meet with potential clients and mine owners for our consulting business and our own investment in mine projects. Our clients that are negatively impacted by the outbreak of COVID-19 may cancel or suspend their mine acquisition projects, which in turn will reduce their demands for our services and materially adversely impact our revenue.
The global economy has also been materially negatively affected by COVID-19 and there is continued severe uncertainty about the duration and intensity of its impacts. The U.S. and global growth forecast is extremely uncertain, which would seriously affect people’s investment desires in mines in Mexico, Asia and internationally.
While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.
We received a $49,600 Paycheck Protection Program loan (“PPP loan”) and a $105,500 Economic Injury Disaster Loan (“EIDL loan”) from US Small Business Administration (“ the SBA”) during the year ended September 30, 2020.
We currently believe our financial resources will be adequate to see us through the outbreak. However, in the event that we do need to raise capital in the future, the outbreak-related instability in the securities markets could adversely affect our ability to raise additional capital.
Results of operations for the years ended September 30, 20172020 and 20162019
Revenueand Cost of Revenue
We have historically generated revenue from sales ofdevelop our marketingbusiness in mining and web development services directly to small and medium-sized business. We have acquired customers through direct telemarketing and referrals. We are currently seeking business opportunities in the mining industry and are investigatinginvestigate potential mining targets in Asia and North America.
For the year ended September 30, 2017 and 20162020, we provided seven potential mine opportunities in Mexico to a client. For the year ended September 30, 2020, the Company recorded revenue of $750,000 for the services provided. Our revenue for the year ended September 30, 2019 was $0 and $25,175, respectively.$1,216,000. Our cost of revenues for the years ended September 30, 20172020 and 20162019 was $0$201,483 and $7,027,$277,415, respectively, mainly for the management’s travel expenses to visit these mines and consulting expenses paid for mine expertise during the mine due diligence period, resulting in a gross profit of $0$548,517 and $18,148$938,585 for the years ended September 30, 20172020 and 2016,2019, respectively. The Company did not generate any revenue during the year ended September 30, 2017 due to the fact the Company did not receive any new orders for our consulting and website development services. The Company is also in the process
Costs and Expenses
The major components of our expenses for the years ended September 30, 20172020 and 20162019 are outlined in the table below:
2020 | 2019 | Increase (Decrease) | ||||||||||
General and administrative | $ | 523,113 | $ | 450,396 | $ | 72,717 | ||||||
Consulting fees | 70,716 | 565,952 | (495,236 | ) | ||||||||
Total operating expenses | $ | 593,829 | $ | 1,016,348 | $ | (422,519 | ) | |||||
| 2017 | 2016 | Increase (Decrease) | ||||||||||
| General and administrative | $ | 1,519,295 | $ | 61,288 | $ | 1,447,231 | ||||||
| $ | 1,519,295 | $ | 61,288 | $ | 1,447,231 | |||||||
The increasedecrease in our operating costsexpenses for the year ended September 30, 2017,2020, compared to the year ended September 30, 2016, mainly included increased: salary expenses of $201,845, travel expenses of $367,138, legal fees of $78,203 and2019, was due to a decrease in consulting fees of $657,929, as$495,236 which was partly offset by increased auditing fee of $36,030, increased accounting fee of $9,075, increased payroll expense of $8,334 and other G&A expenses of $19,278. During the year ended September 30, 2020, the Company had a resultfew outstanding consulting agreements for advisory services on business development strategy in the Far East, including in Hong Kong and Russia, and acquisition opportunities in Mexico and North America. Most of the Company recruiting experienced personnel, advisors and consultants, and becoming more aggressiveconsulting agreements entered in seeking business opportunities for its development and expansion. In addition toprior periods expired during the online marketing and consulting business, the Company is actively seeking opportunities in the mining industries in Asia and North America.
Non-operating expenses, net
Net non-operating expenses were $38,529$2,099 for the year ended September 30, 2017,2020, compared to $0$1,093 for the year ended September 30, 2016. The increase in2019. For the year ended September 30, 2020, non-operating expenses was mainly due to increasedconsist of interest expense of $162,586$992 and financial expensebank service charge of $1,800, which was partially offset by increased interest income of $105,686, net other income of $170 and consulting income of $20,000.
Liquidity and Capital Resources
The table below provides selected working capital information foras of September 30, 2020 and September 30, 2019:
September 30, 2020 | September 30, 2019 | |||||||
Total current assets | $ | 204,295 | $ | 102,205 | ||||
Total current liabilities | 80,843 | 10,675 | ||||||
Working capital | $ | 123,452 | $ | 91,530 | ||||
Liquidity
During the periods indicated:
| As of | As of | |||||||
| September 30, | September 30, | |||||||
| 2017 | 2016 | |||||||
| Total current assets | $ | 5,344,093 | $ | 16,697 | ||||
| Total current liabilities | (6,879,283 | ) | (35,147 | ) | ||||
| Working capital deficiency | $ | (1,535,189 | ) | $ | (18,450 | ) | ||
If we are not successful in expanding our clientele basedeveloping the mining business and establishing profitability and positive cash flow, additional capital may be required to maintain ongoing operations. We have explored and are continuingcontinue to explore options to provide additional financing to fund future operations as well as other possible courses of action. Such actions may include, but are not limited to, securing lines of credit, sales of debt or equity securities (which may result in dilution to existing shareholders), loans and cash advances from other third parties or banks, and other similar actions. There can be no assurance that we will be able to obtain additional funding (if needed), on acceptable terms or at all, through a sale of our common stock, loans from financial institutions, or other third parties, or any of the actions discussed above. If we cannot sustain profitable operations, and additional capital is unavailable, lack of liquidity could have a material adverse effect on our business viability, financial position, results of operations and cash flows.
15
For the Year Ended September 30, 2017 | For the Year Ended September 30, 2016 | |||||||
| Net cash used in operating activities | $ | (2,521,329 | ) | $ | (40,716 | ) | ||
| Net cash used in investing activities | (3,939,598 | ) | - | |||||
| Net cash provided by financing activities | 6,871,855 | 35,300 | ||||||
| Net increase (decrease) in cash | $ | 410,928 | $ | (5,416 | ) | |||
Cash Flows
The table below, for the periods indicated, provides selected cash flow information for the years ended September 30, 2020 and 2019:
2020 | 2019 | |||||||
Net cash used in operating activities | $ | (62,835 | ) | $ | (1,159 | ) | ||
Net cash provided by financing activities | 155,100 | - | ||||||
Net increase (decrease) in cash | $ | 92,265 | $ | (1,159 | ) | |||
Cash Flows from Operating Activities
Our cash used in operating activities for the years ended September 30, 20172020 and 20162019 was $2,521,329$62,835 and $40,716,$1,159, respectively. The increase in net cash used in operating activitiesoutflow during the year ended September 30, 2020 was mainly due to increased net losscash outflow of $1,557,825prepaid expense by $29,474 and increased cash outflow for prepaid consulting expenses of $1,325,000, which was partially offsetother payables by a capital contribution from an officer’s salary of $16,667.$6,228.
Cash Flows from Investing Activities
During the years ended September 30, 20172020 and 2016,2019, we received proceedsdid not have any investing activities.
Cash Flows from Financing Activities
During the year ended September 30, 2020, our cash provided by financing activities was $155,100, consisting of $0 and $35,300, respectively,$49,600 from the issuance of the company’s common stock; we had an increase in paid in capital of $2,038PPP loan and $0, respectively, through the payment for certain payables made by our management as capital contributions; and $6,869,818 and $0, respectively,$105,500 from the issuance of a note to one of our major shareholders.EIDL loan. We did not have any financing activities during the year ended September 30, 2019.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements.
Off Balance Sheet Arrangements
As of September 30, 2017,2020, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is included in the Company’s consolidated financial statements (“CFS”) beginning on page F-1 of this Annual Report on Form 10-K.
ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Changes in Registrant’s Certifying Accountant
On April 20, 2017,July 15, 2019, the BoardBOD of Directors of the CompanyFuse Group Holding Inc. (the “Company”) approved and ratified the dismissal of KLJ &MJF and Associates, LLPAPC (“KLJ”MJF”) as the Company’s independent registered public accounting firm for the fiscal year ended September 30, 2017,2019, effective as of February 13, 2017.immediately.
MJF’s audit reports on the Company’s consolidated financial statementsCFS as of and for the fiscal years ended September 30, 20162018 and 20152017 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.principles, except that the audit reports on the CFS of the Company for the fiscal years ended September 30, 2018 and 2017 contained an uncertainty about the Company’s ability to continue as a going concern.
During the fiscal years ended September 30, 20162018 and 2015,2017, and in the subsequent interim period through February 13, 2017,July 14, 2019, there were (i) no disagreements between the Company and KLJMJF on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KLJ,MJF, would have caused KLJMJF to make reference to the subject matter of the disagreement in their reports on the financial statements for such years, and (ii) no “reportable events” as that term is defined in Item 304(a)(1)(v) of Regulation S-K.S-K, except as noted in the following paragraph:
During the fiscal years ended September 30, 2018 and 2017, and through the interim period ended July 14, 2019, there were the following “reportable events” (as such term is defined in Item 304 of Regulation S-K). As disclosed in Part I, Item 4 of the Company’s BoardForm 10-Q for the quarter ended March 31, 2019, the Company’s management determined the Company’s internal controls over financial reporting were not effective as of Directorsthe end of such period due to the existence of material weaknesses related to the following:
1. We do not have an Audit Committee. While we are not legally obligated to have an audit committee, it is the management’s view that such a committee, including a financial expert member, is of the utmost importance for entity-level control over the Company’s financial statements. Currently, the BOD acts in the capacity of an audit committee.
2. We did not implement appropriate information technology controls. As of March 31, 2019, the Company was retaining copies of all financial data and material agreements; however there is no formal procedure or evidence of normal backup of the Company’s data or off-site storage of the data in the event of theft, misplacement, or loss due to unmitigated factors.
3. We currently lack sufficient accounting personnel with the appropriate level of knowledge, experience and training in U.S. GAAP and SEC reporting requirements.
These material weaknesses were not remediated as of the date of the dismissal of MJF.
On July 15, 2019, the Company’s BOD approved and ratified the engagement of MJF & Associates, APC (“MJF”Prager Metis CPAs, LLP ("Prager Metis"), as the Company’s independent registered public accounting firm, effective as of February 13, 2017.July 15, 2019. The Board of DirectorsBOD also approved MJFPrager Metis to act as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2017.2019.
In deciding to approve and ratify the engagement of MJF,Prager Metis, the Board of DirectorsBOD reviewed auditor independence and existing commercial relationships with MJF,Prager Metis, and concluded that MJFPrager Metis has no commercial relationship with the Company that would impair its independence. During the fiscal years ended September 30, 20162018 and 2015,2017, respectively, and in the subsequent interim period through February 13, 2017,July 14, 2019, neither the Company nor anyone acting on its behalf has consulted with MJFPrager Metis on any of the matters or events set forth in Item 304(a)(2) of Regulation S-K.
ITEM 9A – CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls
In connection with the preparation of this annual report, an evaluation was carried out by the Company’s management, with the participation of the principal executive officer and the principal financial officer, of the effectiveness of ourthe Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act (“Exchange Act”) as of the end of the 20172020 fiscal year. This evaluation was conducted with the participation of our chief executive officer (“CEO”) and our principal accounting officer.chief financial officer (“CFO”).
Disclosure controls are controls and other procedures that are designed to ensure that information that we are required to be disclosed in the reports we file pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported.
Conclusion Regarding the EffectiveEffectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, does not expectincluding the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.
With the participation of management, our CEO and CFO evaluated the effectiveness of the design and operation of our disclosure controls and procedures at the conclusion of the period ended September 30, 2020. Based upon this evaluation, the CEO and CFO concluded that our disclosure controls or ourand procedures were ineffective in ensuring that material information required to be disclosed is included in the reports that we file with the SEC.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal controlscontrol over financial reporting will prevent all error(“ICFR”) for the Company. ICFR is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the U.S. ICFR includes maintaining records that in reasonable detail accurately and fraud. A control system, no matter how well conceived and operated, can provide onlyfairly reflect our transactions; providing reasonable but no absolute, assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of the objectivesinherent limitations of ICFR, misstatements may not be prevented or detected on a control systemtimely basis. Also, projections of any evaluation of the effectiveness of the ICFR to future periods are met. Further, any control system reflects limitations on resources, andsubject to the benefits of a control system must be considered relative to its costs. These limitations also includerisk that the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of a control. A design of a control system is also based upon certain assumptions about potential future conditions; over time, controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Because
Management, with the participation of the inherent limitationsCEO and CFO, assessed the effectiveness of our ICFR as of September 30, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in a cost-effectiveInternal Control—Integrated Framework. Based on this assessment, management, with the participation of the CEO and CFO, believes that, as of September 30, 2020, our ICFR reporting is not effective based on those criteria. If we are unable to remediate the material weakness, or other control system, misstatements due to error or fraud may occur anddeficiencies are identified, we may not be detected.able to report our financial results accurately, prevent fraud or file our periodic reports as a public company in a timely manner.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of ICFR as of September 30, 2020, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.
1. We do not have an Audit Committee. While we are not legally obligated to have an audit committee, it is the management’s view that such a committee, including a financial expert member, is of the utmost importance for entity-level control over the Company’s financial statements. Currently, the BOD acts in the capacity of an audit committee.
2. We did not implement appropriate information technology controls. As of September 30, 2020, the Company was retaining copies of all financial data and material agreements; however there is no formal procedure or evidence of normal backup of the Company’s data or off-site storage of the data in the event of theft, misplacement, or loss due to unmitigated factors.
3. We currently lack sufficient accounting personnel with the appropriate level of knowledge, experience and training in U.S. GAAP and SEC reporting requirements.
As a result of the material weaknesses described above, management concluded the Company did not maintain effective ICFR as of September 30, 2020 based on criteria established in Internal Control—Integrated Framework issued by COSO (2013 framework).
We have taken certain actions to remediate the material weakness related to our lack of U.S. GAAP experience. We engaged an outside CPA with U.S. GAAP knowledge and experience to supplement our current internal accounting personnel and assist us in the preparation of our controls,financial statements to ensure that our financial statements are prepared in accordance with U.S. GAAP. The Company’s operations are relatively uncomplicated; the chief executive officerCompany had limited sales and principalexpenses. The Company maintains adequate policies and procedures for ensuring that receipts and expenditures of Company assets are made in accordance with management authorization; and any investing and financing activities are made with both management and Board authorization, and any unauthorized expenses or usage of the Company’s assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. The Company also keeps accounting officer have concludedrecords for each of the Company’s transactions including expenses, assets purchase, prepayments, notes receivable and payable that subject toin reasonable detail accurately and fairly reflect the limitations noted above, the disclosure controls are effectivetransaction; and for providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements.
We have limited capital resources and have given priority in the use of those resources to the development of our business. As our operations grow and become more complex, we intend to hire additional personnel in financial reporting and other areas. However, there can be no assurance of when, if ever, we will be able to remediate the identified material information relating to us is made known to management on a timely basis during the period when our reports are being prepared. weaknesses.
Changes in Internal Control over Financial Reporting
There were no changes in ourthe Company’s internal controlscontrol over financial reporting that occurred during the yearperiod covered by this reportAnnual Report that have materially affected, or are reasonably likely to materially affect, our internal controls. control over financial reporting.
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding ICFR. As a smaller reporting company, the management’s report is not subject to attestation by the Company’s registered public accounting firm.
PART III
ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following table sets forth as of December 19, 201714, 2020 the names, positions and ages of our current executive officers and directors. Our directors serve until the next annual meeting of shareholders or until their successors are elected and qualified. Our officers are elected by the Board and their terms of office are, except to the extent governed by an employment contract, at the discretion of the Board.
Name of Current Director and/or Executive Officer | Age | Position(s) | ||
Umesh Patel (1) | 64 | Director, Chief Executive Officer | ||
Michael Viotto (2) | 69 | Director, Chief Financial Officer |
(1) | Mr. Patel |
(2) | Mr. Viotto |
Umesh Patel
Mr. Patel has served as a director and a member of audit committee, compensation committee and nominating and corporate governance committee of the Board of Nova Lifestyle, Inc. (NASDAQ: NVFY), a furniture manufacturerdistributor of contemporary styled residential and retailer,commercial furniture, since October 2016. Mr. Patel became the Chairman of the audit committee of Nova Lifestyle, Inc. since July 2020. Mr. Patel has also served as a managing partner of DviBri LLC, a California-based consulting company providing services to private companies interested in conducting initial public offerings, along with other associated securities and investment services, since December 2009. Mr. Patel has been a consultant and coordinator for Eos-Petro Inc., an international and domestic petroleum exploration and production company based in Southern California sincefrom March 2013.2013 to December 2019. Mr. Patel received his Bachelor of Commerce degree specializing in audits and accounts, and an Associate degree in hotel management and catering from Maharaja Sayaji Rao University in Baroda, India in 1978. The Board believes that Mr. Patel is well qualified to serve as a member of the Board and as the Company’s Chief Executive OfficerCEO due to his extensive business, regulatory and investment experience.
Michael Viotto
Mr. Viotto has served as an independent director, chairman of compensation committee and a member of audit committee and corporate governance and nominating committee of the board of directors of China Eco-Materials Group Co. Limited since January 20, 2020. Mr. Viotto has served as an Independent Director and Chairman of the Compensation Committee of the Board of Dunxin Financial Holding LTD. (NYSE AMERICAN: DXF) since December 2017. Mr. Viotto served as Non-Executive Independent Director, Chairman of the Nomination and Remuneration Committee and Member of the Audit Committee of Future World Financial Holdings, Inc. (Hong Kong Stock Exchange: 0572) from September 2016 to January 2017. Mr. Viotto served as President of MJV Consulting Inc. from October 2014 to August 2017. From May 2013 to January 2017, Mr. Viotto served as a member of the Board of Directors to Nova Lifestyle, Inc. (NASDAQ: NVFY); and as Chairman of its Nominating and Corporate Governance Committee, and as a member of the Compensation and Audit Committees. From May 2009 to September 2014, Mr. Viotto was the President of MJV Financial Inc. and was appointed as exclusive agent for Coface North America, an internationally recognized leader in the Trade Finance Industry.
Given the Company’s limited operations, it has not adopted a code of ethics applicable to its principal executive officer and principal financial officer. Our Board will revisit this issue in the future to determine if, and when, adoption of a code of ethics is appropriate. In the meantime, our management intends to promote honest and ethical conduct, full and fair disclosure in our reports to the SEC, and comply with applicable governmental laws and regulations.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company’s officers and directors are not subject to Section 16(a).
ITEM 11 – EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
We currently have two executive officers: our Chief Executive OfficerCEO and Chief Financial Officer.CFO. These executives, along with other individuals who served in those positions during the last fiscal year, comprise our “Named Executive Officers” (NEOs) for purposes of applicable SEC disclosure regulations.
Compensation Objectives
We operate in a highly competitive and rapidly changing industry. The key objectives of our executive compensation programs are to:
● | attract, motivate and retain executives who drive our success and industry leadership; and provide each executive, from |
● | the individual’s demonstrated ability to perform that role. |
Employment Agreements
We currently have an employment agreement with Michael Viotto, our CFO. Pursuant to the terms of his employment agreement, dated August 16, 2017,September 1, 2020, Mr. Viotto receives annual compensation in the amount of $50,000, and the agreement has a term of one year.year from August 22, 2020. Mr. Viotto’s employment agreement includes typical clauses relating to noncompetition, nonsolicitation and indemnification of Mr. Viotto in connection with his service as the Company’s CFO.
Summary Compensation of Named Executive Officers
The following table summarizes the compensation earned by, awarded to or paid to our NEOsnamed executive officers in the years ended September 30, 20172020 and 2016:2019:
Name and Principal | Year | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Non-Qualified Deferred Compensation Earnings | All Other Compensation | Total | |||||||||||||||||||||||||
Umesh Patel (1) | 2020 | 88,000 | - | - | - | - | - | - | 88,000 | |||||||||||||||||||||||||
2019 | 88,000 | - | - | - | - | - | - | 88,000 | ||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||
Michael Viotto (2) | 2020 | 50,000 | - | - | - | - | - | - | 50,000 | |||||||||||||||||||||||||
2019 | 50,000 | - | - | - | - | - | - | 50,000 | ||||||||||||||||||||||||||
Name and Principal Position | Year Ended | Salary ($) | Bonus ($) | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation ($) | Non-Qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||
| Aleksandr Kriukov (1) | 2017 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||
| 2016 | 6,000 | - | - | - | - | - | - | 6,000 | ||||||||||||||||||||||||||
| Pavel Mikhalkov (2) | 2017 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||
| 2016 | 6,000 | - | - | - | - | - | - | 6,000 | ||||||||||||||||||||||||||
| Yong Zhang(3) | 2017 | 16,667 | - | - | - | - | - | - | 16,667 | |||||||||||||||||||||||||
| 2016 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Choon Kang Roy Tan (4) | 2017 | 40,000 | - | - | - | - | - | - | 40,000 | |||||||||||||||||||||||||
| 2016 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Umesh Patel (5) | 2017 | 41,596 | - | - | - | - | - | - | 41,596 | |||||||||||||||||||||||||
| 2016 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Michael Viotto (6) | 2017 | 5,133 | - | - | - | - | - | - | 5,133 | |||||||||||||||||||||||||
| 2016 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||
(1) | |
Mr. Patel was appointed as | |
(2) | Mr. Viotto was appointed as |
Outstanding Equity Awards at September 30, 20172020
There were no outstanding stock options and stock awards held by our NEOs as of September 30, 2017.2020.
Compensation of Directors
Our directors did not receive compensation for their service on the board of directorsBOD for the fiscal years ended September 30, 20172020 and 2016.2019.
ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
Security Ownership of Certain Beneficial Owners and Management
The following table provides information concerning beneficial ownership of our capital stock as of December 26, 201714, 2020 by:
● | each shareholder or group of affiliated shareholders who owns more than 5% of our outstanding capital stock; | |
● | each of our named executive officers; | |
● | each of our directors; and | |
● | all of our directors and | |
| executive officers as a group. |
The following table lists the number of shares and percentage of shares beneficially owned based on 45,150,00064,778,050 shares of our Common Stock outstanding as of December 26, 2017.14, 2020.
Beneficial ownership is determined in accordance with the SEC rules, and generally includes voting power and/or investment power with respect to the securities held. Shares of Common Stock subject to options and warrants currently exercisable or exercisable within 60 days of December 26, 201714, 2020 or issuable upon conversion of convertible securities which are currently convertible or convertible within 60 days of December 26, 201714, 2020 are deemed outstanding and beneficially owned by the person holding those options, warrants or convertible securities for purposes of computing the number of shares and percentage of shares beneficially owned by that person, but are not deemed outstanding for purposes of computing the percentage beneficially owned by any other person. Except as indicated in the footnotes to this table, and subject to applicable community property laws, the persons or entities named have sole voting and investment power with respect to all shares of our Common Stock shown as beneficially owned by them.
Unless otherwise indicated in the footnotes, the principal address of each of the shareholders below is c/o Fuse EnterprisesGroup Holding Inc., 444 E. Huntington Dr.805 W. Duarte Rd., Suite 105,102, Arcadia, CA 91006.91007.
| Shares Beneficially Owned | ||||||||
| Name of Beneficial Owner | Number | Percent | ||||||
| Directors, Named Executive Officers and 5% Shareholders | ||||||||
| Aleksandr Kriukov | — | — | ||||||
| Pavel Mikhalkov | — | — | ||||||
| Yong Zhang | — | — | ||||||
| Choon Kang Roy Tan | — | — | ||||||
| Umesh Patel | — | — | ||||||
| Michael Viotto | — | — | ||||||
| All current directors and executive officers as a group (6 persons) | — | — | % | |||||
| Landbond Home Limited (1) | 27,500,000 | 60.9 | % | |||||
Shares Beneficially Owned | ||||||||
Name of Beneficial Owner | Number | Percent | ||||||
Directors, Named Executive Officers and 5% Shareholders | ||||||||
Landbond Home Limited (1) | 27,500,000 | 42.45 | % | |||||
E Zhao | 6,542,683 | 10.1 | % | |||||
| Chau-Ho Chen | 6,542,683 | 10.1 | % | |||||
Cuixia Sun | 6,542,684 | 10.1 | % | |||||
Umesh Patel, CEO and director | — | — | % | |||||
Michael Viotto, CFO and director | — | — | % | |||||
All current directors and executive officers as a group (2 persons) | — | — | % | |||||
(1) Mr. Yong Zhang is the sole director and beneficial owner of the securities held of record by Landbond Home Limited.
ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Transactions
During the fiscal year of 2020, we did not enter into any transactions with our directors, officers, persons who own more than five percent of our common stock and any other related party transactions, see Note 5 “Related Party Transaction” to our consolidated financial statements.parties, or with their relatives and entities they control.
Director Independence
Under NASDAQ rule 4200(a)(15), a director is not considered to be independent if he or she is also an executive officer or employee of the corporation.
Our directors, Umesh Patel and Michael Viotto, serve as our CEO and CFO, respectively. As a result, we do not have independent directors on our Board of Directors. BOD.
ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table shows the fees that we paid or accrued for audit and other services for fiscal years ended September 30, 20172020 and 2016.2019. All of the services described in the following fee table were approved in conformity with the audit committee’sBOD’s pre-approval process.
2020 | 2019 | |||||||
Audit Fees | $ | 55,500 | $ | 48,500 | ||||
Tax Fees | - | |||||||
All Other Fees | - | - | ||||||
Total | $ | 55,500 | $ | 48,500 | ||||
| 2017 | 2016 | |||||||
| Audit Fees | $ | 16,000 | $ | 6,750 | ||||
| Tax Fees | 0 | 565 | ||||||
| All Other Fees | 0 | 1,000 | ||||||
| Total | $ | 16,000 | $ | 8,315 | ||||
Audit Fees
The amounts set forth opposite “Audit Fees” above reflect the aggregate fees billed or billable by KLJ & Associates, LLP (“KLJ”)Prager Metis and MJF & Associates, APC (“MJF”).MJF.
Prager Metis provided professional services for the audit of our fiscal year 20162020 and reviews of our quarterly financial statements.
Our policy is to pre-approve all audit and permissible non-audit services performed by the independent accountants. These services may include audit services, audit-related services, tax services and other services. Under our audit committee’s policy, pre-approval is generally provided for particular services or categories of services, including planned services, project based services and routine consultations. In addition, the audit committeeBOD may also pre-approve particular services on a case-by-case basis. Our audit committeeBOD approved all services that our independent accountants provided to us in the past two fiscal years.
PART IV
ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) FINANCIAL STATEMENTS:
The following financial statements, including notes thereto and the independent auditors’ report with respect thereto, are filed as part of this Annual Report on Form 10-K, starting on page F-1 hereof:hereof.
(b) EXHIBITS:
Exhibit Index
Exhibit Number | Description |
3.1 | |
3.2 | |
3.3 | |
3.4 | |
3.5 | |
10.1 | |
10.2 | |
10.3 | |
10.4 | |
10.5 | |
10.6† | Employment Agreement by and between the Company and Mr. Michael Viotto, dated August |
31.1 | Rule 13a-14(a) Certification of Principal Executive Officer of Registrant* |
31.2 | |
32.1 | |
32.2 | |
101.INS | XBRL Instance Document* |
101.SCH | XBRL Taxonomy Extension Schema Document* |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document* |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document* |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document* |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document* |
*Filed herewith
† Management agreement.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
| To the Shareholders, Board of Directors and Management Fuse Group Holding Inc. and Subsidiaries Opinion on the financial statements | |
 | We audited the accompanying consolidated balance sheets of Fuse Group Holding, Inc. and Subsidiaries (“the Company”) as of September 30, 2020 and 2019 and the related consolidated statements of operations, stockholders’ equity, and cash flows for years then ended and the related notes (collectively referred to as “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. |
Going Concern The accompanying consolidated financial statements were prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the financial statements, as of September 30, 2020, the Company had recurring losses from operations and an accumulated deficit. These conditions, among others, raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty Basis of Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. We have served as the Company’s auditor since 2019.
Prager Metis, CPA’s LLP El Segundo, California December 16, 2020 |
| An affiliate of Prager Metis International | north america europe asia |
F-1
FUSE ENTERPRISESGROUP HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| AS OF SEPTEMBER 30, | SEPTEMBER 30, | |||||||||||||||
| 2017 | 2016 | 2020 | 2019 | |||||||||||||
| ASSETS | ||||||||||||||||
| CURRENT ASSETS | ||||||||||||||||
| Cash and equivalents | $ | 419,093 | $ | 8,165 | $ | 194,470 | $ | 102,205 | ||||||||
| Prepaid expenses | 1,000,000 | 8,532 | ||||||||||||||
| Notes receivable | 3,925,000 | - | ||||||||||||||
Prepaid expense | 9,825 | 0 | ||||||||||||||
| Total current assets | 5,344,093 | 16,697 | 204,295 | 102,205 | ||||||||||||
| NON-CURRENT ASSETS | ||||||||||||||||
Prepaid expense | 1,000,000 | 1,000,000 | ||||||||||||||
| Property and equipment, net | 12,955 | 2,258 | 6,381 | 8,572 | ||||||||||||
Right-of-use asset, net | 29,117 | 0 | ||||||||||||||
| Total non-current assets | 12,955 | 2,258 | 1,035,498 | 1,008,572 | ||||||||||||
| TOTAL ASSETS | $ | 5,357,048 | $ | 18,955 | $ | 1,239,793 | $ | 1,110,777 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||||
| Accounts payable and accrued liabilities | $ | - | $ | 7,742 | ||||||||||||
| Accounts payable - related parties | - | 27,405 | ||||||||||||||
| Other payables | 9,465 | - | $ | 4,499 | $ | 10,675 | ||||||||||
| Note payable | 6,869,818 | - | ||||||||||||||
Loan payables - current | 50,298 | 0 | ||||||||||||||
Lease liability - current | 26,046 | 0 | ||||||||||||||
| Total current liabilities | 6,879,283 | 35,147 | 80,843 | 10,675 | ||||||||||||
NON-CURRENT LIABILITIES | ||||||||||||||||
Lease liability | 4,465 | 0 | ||||||||||||||
Loans payable | 105,794 | 0 | ||||||||||||||
Total non-current liabilities | 110,259 | 0 | ||||||||||||||
TOTAL LIABILITIES | 191,102 | 10,675 | ||||||||||||||
| CONTINGENCIES AND COMMITMENTS | ||||||||||||||||
| SHAREHOLDERS’ DEFICIT | ||||||||||||||||
Common stock, par value $0.001 per share, 375,000,000 shares authorized; 45,150,000 shares issued and outstanding | 45,150 | 45,150 | ||||||||||||||
| Additional paid in capital (deficit) | 47,432 | (4,350 | ) | |||||||||||||
STOCKHOLDERS' EQUITY | ||||||||||||||||
Common stock, par value $0.001 per share, 375,000,000 shares authorized; 64,778,050 shares issued and outstanding | 64,778 | 64,778 | ||||||||||||||
Additional paid-in capital | 6,949,717 | 6,949,717 | ||||||||||||||
| Accumulated deficit | (1,614,817 | ) | (56,992 | ) | (5,965,804 | ) | (5,914,393 | ) | ||||||||
| Total shareholders’ deficit | (1,522,235 | ) | (16,192 | ) | ||||||||||||
Total stockholders' equity | 1,048,691 | 1,100,102 | ||||||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT | $ | 5,357,048 | $ | 18,955 | ||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,239,793 | $ | 1,110,777 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
FUSE ENTERPRISESGROUP HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| YEARS ENDED SEPTEMBER 30, | FOR THE YEARS ENDED SEPTEMBER 30, | |||||||||||||||
| 2017 | 2016 | 2020 | 2019 | |||||||||||||
| Revenue | $ | - | $ | 25,175 | $ | 750,000 | $ | 1,216,000 | ||||||||
| Cost of revenue | - | 7,027 | 201,483 | 277,415 | ||||||||||||
| Gross profit | - | 18,148 | 548,517 | 938,585 | ||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | 1,519,295 | 61,288 | 523,113 | 450,396 | ||||||||||||
Consulting | 70,716 | 565,952 | ||||||||||||||
| Total operating expenses | 1,519,295 | 61,288 | 593,829 | 1,016,348 | ||||||||||||
| Loss from operations | (1,519,295 | ) | (43,140 | ) | (45,312 | ) | (77,763 | ) | ||||||||
| Non-operating expenses | ||||||||||||||||
| Interest income | 105,686 | - | 0 | 13 | ||||||||||||
| Interest expense | (162,586 | ) | - | (992 | ) | 0 | ||||||||||
| Consulting income | 20,000 | - | ||||||||||||||
| Financial expense | (1,800 | ) | - | (907 | ) | (1,106 | ) | |||||||||
| Other income, net | 170 | - | ||||||||||||||
Other expense | (200 | ) | 0 | |||||||||||||
| Total non-operating loss, net | (38,530 | ) | - | |||||||||||||
Total non-operating expenses, net | (2,099 | ) | (1,093 | ) | ||||||||||||
| Loss before income tax | (1,557,825 | ) | (43,140 | ) | (47,411 | ) | (78,856 | ) | ||||||||
| Income tax provision | - | - | ||||||||||||||
Income tax | 4,000 | 800 | ||||||||||||||
| Net loss | $ | (1,557,825 | ) | $ | (43,140 | ) | $ | (51,411 | ) | $ | (79,656 | ) | ||||
| Basic and diluted weighted average shares outstanding | 45,150,000 | 35,130,000 | ||||||||||||||
Basic weighted average shares outstanding | 64,778,050 | 64,778,050 | ||||||||||||||
| Basic and diluted net loss per share | $ | (0.03 | ) | $ | (0.00 | ) | ||||||||||
Basic net loss per share | $ | (0.00 | ) | $ | (0.00 | ) | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
FUSE ENTERPRISESGROUP HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT)EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 2020 AND 2019
| Common Stock | ||||||||||||||||||||
| Shares | Amount | Addition Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||
| Balance at September 30, 2015 | 27,500,000 | $ | 27,500 | $ | (22,000 | ) | $ | (13,852 | ) | $ | (8,352 | ) | ||||||||
| Common stock issued for cash at $0.001 per share | 17,650,000 | 17,650 | 17,650 | - | 35,300 | |||||||||||||||
| Net loss | - | - | - | (43,140 | ) | (43,140 | ) | |||||||||||||
| Balance at September 30, 2016 | 45,150,000 | 45,150 | (4,350 | ) | (56,992 | ) | (16,192 | ) | ||||||||||||
| Capital contribution | - | - | 51,782 | - | 51,782 | |||||||||||||||
| Net loss | - | - | - | (1,557,825 | ) | (1,557,825 | ) | |||||||||||||
| Balance at September 30, 2017 | 45,150,000 | $ | 45,150 | $ | 47,432 | $ | (1,614,817 | ) | $ | (1,522,235 | ) | |||||||||
Common Stock | Additional Paid-in Capital | Accumulated Deficit | ||||||||||||||||||
Shares | Amount | Total | ||||||||||||||||||
Balance at October 1, 2018 | 64,778,050 | $ | 64,778 | $ | 6,949,717 | $ | (5,834,737 | ) | $ | 1,179,758 | ||||||||||
Net loss | - | - | - | (79,656 | ) | (79,656 | ) | |||||||||||||
Balance at September 30, 2019 | 64,778,050 | 64,778 | 6,949,717 | (5,914,393 | ) | 1,100,102 | ||||||||||||||
Net loss | - | - | - | (51,411 | ) | (51,411 | ) | |||||||||||||
Balance at September 30, 2020 | 64,778,050 | $ | 64,778 | $ | 6,949,717 | $ | (5,965,804 | ) | $ | 1,048,691 | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
FUSE ENTERPRISESGROUP HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| YEARS ENDED SEPTEMBER 30, | ||||||||
| 2017 | 2016 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (1,557,825 | ) | $ | (43,140 | ) | ||
Adjustments to reconcile income including noncontrolling interest to net cash used in operating activities: | ||||||||
| Depreciation | 1,832 | 1,262 | ||||||
| Capital contribution from officer’s salary | 16,667 | - | ||||||
| Changes in assets and liabilities: | ||||||||
| Amortization of prepaid expense | 333,532 | - | ||||||
| Prepaid expenses | (1,325,000 | ) | (8,333 | ) | ||||
| Accounts payable and accrued liabilities | - | (2,910 | ) | |||||
| Accounts payable - related party | - | 12,405 | ||||||
| Other payables | 9,464 | - | ||||||
| Net cash used in operating activities | (2,521,330 | ) | (40,716 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Notes receivable | (3,925,000 | ) | - | |||||
| Acquisition of fixed assets | (14,598 | ) | - | |||||
| Net cash used in investing activities | (3,939,598 | ) | - | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of common stock | - | 35,300 | ||||||
| Increase in paid in capital | 2,038 | - | ||||||
| Proceeds from note | 6,869,818 | - | ||||||
| Net cash provided by financing activities | 6,871,856 | 35,300 | ||||||
| NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS | 410,928 | (5,416 | ) | |||||
| CASH AND EQUIVALENTS, BEGINNING OF YEAR | 8,165 | 13,581 | ||||||
| CASH AND EQUIVALENTS, END OF YEAR | $ | 419,093 | $ | 8,165 | ||||
| Supplemental cash flow data: | ||||||||
| Income tax paid | $ | - | $ | - | ||||
| Interest paid | $ | 162,586 | $ | - | ||||
| Supplemental disclosure of non-cash financing activities: | ||||||||
| Expenses paid by a former shareholder as capital contribution | $ | 35,115 | $ | - | ||||
FOR THE YEARS ENDED SEPTEMBER 30, | ||||||||
2020 | 2019 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (51,411 | ) | $ | (79,656 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 2,191 | 2,191 | ||||||
Amortization | 19,649 | 75,262 | ||||||
Amortization of right-of-use asset | 25,658 | 0 | ||||||
Interest on lease liability | 1,751 | 0 | ||||||
Changes in assets and liabilities: | ||||||||
Prepaid expense | (29,474 | ) | 0 | |||||
Other payables | (5,184 | ) | 1,044 | |||||
Payment of lease liability | (26,015 | ) | 0 | |||||
Net cash used in operating activities | (62,835 | ) | (1,159 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from loans | 155,100 | 0 | ||||||
Net cash provided by financing activities | 155,100 | 0 | ||||||
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS | 92,265 | (1,159 | ) | |||||
CASH AND EQUIVALENTS, BEGINNING OF YEAR | 102,205 | 103,364 | ||||||
CASH AND EQUIVALENTS, END OF YEAR | $ | 194,470 | $ | 102,205 | ||||
Supplemental cash flow data: | ||||||||
Income tax paid | $ | 4,000 | $ | 800 | ||||
Interest paid | $ | 0 | $ | 0 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
FUSE ENTERPRISESGROUP HOLDING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017 and 20162020 AND 2019
Note 1 – Organization and Operations
Fuse EnterprisesGroup Holding Inc. (the “Company” or “Enterprises”“Fuse Group” or “We”) was incorporated under the laws of the State of Nevada on December 24, 2013. Enterprises isFuse Group currently a full service online marketing agency, but is exploringexplores opportunities in the mining industry.mining. On December 6, 2016, the Company incorporated Fuse Processing, Inc. (“Processing”) in the State of California. Processing seeks business opportunities in the mining industry and is currently investigating potential mining targets in Asia and North America. EnterprisesFuse Group is the sole shareholder of Processing. On November 28, 2016, 5,500,000 shares
Fuse Group and Processing provide consulting services to mining industry clients to find mine acquisition targets within the parameters set by the clients, when the mine owner is considering selling his mining rights. The services of Fuse Group and Processing include due diligence on the common stock of Enterprises, potential mine seller and the mine, such as ownership and whether the mine meets all operational requirements and/or 60.91% of the Company’s issued and outstanding shares of common stock, were sold by Pavel Mikhalkov and Aleksandr Kriukovis currently in a series of private transactions to a new shareholder for an aggregate purchase price of $55,000 (collectively, the “Stock Sales”). In connection with the Stock Sales, Messrs. Mikhalkov and Kriukov released the Company from certain liabilities and obligations arising out of their service as directors and officers of the Company. operation.
In March 2017, Processing acquired 100% ownership of Fuse Trading Limited (“Trading”) for HKD1 (US$($0.13). Trading had no operations prior to the acquisition by Processing, andProcessing. Trading expects to be engagedseeks mining-related business opportunities in mining-related businesses. Asia.
On May 26, 2017,3, 2018, the Company filed a Certificate of Change withincorporated Fuse Technology Inc. in the State of Nevada, which changed its name to (i) increaseFuse Biotech Inc. on November 30, 2020. Fuse Group is the sole shareholder of Fuse Biotech Inc. ("Fuse Biotech”). Fuse Biotech was mainly engaged in IMETAL system development. The Company originally planned to operate IMETAL as a platform to facilitate investment and trade in raw metals, find specialized minerals, exploit these opportunities and issue tokens to be used on the platform, subject to compliance with applicable laws and regulations. Considering recent development of laws and regulations on token issuance and trading, management discussed its authorized shares of common stock from 75,000,000 to 375,000,000function and (ii) effect a corresponding 5-for-1 forward stock splitcompliance issues with the designer of the issuedplatform and outstanding sharesconcluded that the project had more issues and costs for compliance than originally expected. On December 23, 2019, the Board decided to terminate the IMETAL project. Currently, Fuse Biotech is seeking business opportunities in the biotech area.
On April 29, 2019, the Board of Directors of the Company approved an amendment to the Company’s Articles of Incorporation (“Amendment”) to change its name from Fuse Enterprises Inc. to Fuse Group Holding Inc. Also on April 29, 2019, stockholders holding a majority of the Company’s commonoutstanding capital stock (the “Stock Split”).approved the Amendment. The consolidated financial statements (“CFS”) were retroactively stated to reflectAmendment was filed with the Stock SplitSecretary of State for the periods presented.State of Nevada on April 30, 2019, and became effective May 13, 2019. On May 29, 2019, the Company changed its trading symbol on OTC Markets from FNST to FUST.
In December 2019, a novel strain of coronavirus, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to multiple countries, including the United States (U.S.). In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the pandemic has resulted in quarantines, travel restrictions, and the temporary closure of office buildings and facilities in the US.. The state of California, where the Company is headquartered, has been affected by COVID-19.
Our business and services and results of operations have been adversely affected and could continue to be adversely affected by the COVID-19 pandemic. The pandemic impacted the Company’s business development, and disrupted or delayed the Company’s current mine projects and services to its clients, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on the Company’s ability to conduct its business in the ordinary course. Quarantines, travel restrictions, shelter-in-place and other restrictions related to COVID-19 have impacted the Company’s abilities to visit mines in Mexico and in Asian counties as well as to meet with potential clients and mine owners for the Company’s consulting business and for the Company’s own investment in mine projects. The Company’s clients that are negatively impacted by the outbreak of COVID-19 may cancel or suspend their mine acquisition projects, which in turn will reduce their demands for the Company’s services and materially adversely impact the Company’s revenue.
The global economy has also been negatively affected by COVID-19 and there is continued uncertainty about the duration and intensity of its impacts. The U.S. and global growth forecast is extremely uncertain, which could seriously affect people’s investment desires in mines in Mexico, Asia and internationally. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing the Company’s ability to access capital, which could negatively affect the Company’s liquidity.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The Company’s CFSaccompanying consolidated financial statements (“CFS”) were prepared in accordanceconformity with accounting principles generally accepted in the United States of America (“U.S.US GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
Basis of Consolidation
The CFS include the financial statementsaccounts of the CompanyFuse Group and its subsidiaries.subsidiaries, Processing, Trading and Fuse Biotech. All significant inter-company accounts and transactions and balances were eliminated in consolidation.
Cash
For purposes of the FASB Accounting Standards Codification (“ASC”). Althoughstatement of cash flows, the Company has recognized nominal amounts of revenue, it is still devoting substantially all of its efforts on establishing the business. All losses accumulated since its inception on December 24, 2013 were considered part of the Company’s development stage activities.
Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions
The preparation of consolidated financial statements in conformity with U.S.US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date(s)date of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10carrying amounts of certain of the Company’s financial instruments, including cash and equivalents, accrued liabilities and accounts payable, approximate their Fair Value ( “FV” ) due to their short maturities. FASB ASC Topic 825, “Financial Instruments,” requires disclosure of the FV of financial instruments held by the Company. The carrying amounts reported in the balance sheets for disclosures about fair value (“FV”) of itscurrent liabilities qualify as financial instruments and paragraph 820-10-35-37are a reasonable estimate of their FV because of the short period of time between the origination of such instruments and their expected realization and the current market rate of interest.
Fair Value Measurements and Disclosures
FASB ASC (“Paragraph 820-10-35-37”) to measure the FV of its financial instruments. Paragraph 820-10-35-37Topic 820, “Fair Value Measurements,” defines fair value, and establishes a frameworkthree-level valuation hierarchy for measuring FV in U.S. GAAP, and expands disclosures about FV measurements.
● | Level 1 |
● | Level 2 inputs to the | |
● | Level 3 |
Financial assets are considered Level 3 when their FVs are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The FV hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the FV measurement of the instrument.
The carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses, accounts receivable, accounts payable and accrued expenses, approximate their FV because of the short maturity of those instruments.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
As of September 30, 2020 and 2019, the Company considers all highly liquid investments with a maturity of three months or lessdid not identify any assets and liabilities that are required to be cash and cash equivalents.presented on the balance sheet at fair value on a recurring basis.
Accounts Receivable
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. The Company had no$0 outstanding accounts receivable or bad debt allowances at September 30, 2017.2020 or September 30, 2019.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and impairment losses, if any. Expenditures for maintenance and repairs are expensed as incurred; while additions, renewals and improvements are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation is removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets and estimated lives as follows:
Computer and office equipment | 5 years |
Office furniture | 7 years |
Leasehold decoration and renovation | 10 years |
Production machinery | 10 years |
Autos | 5 years |
Related Parties
The Company follows subtopic 850-10 of the FASB ASC for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20, the related parties include: a.(a) affiliates of the Company; b.(b) entities for which investments in their equity securities would be required, absent the election of the FV option under the Fair ValueFV Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c.(c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d.(d) principal owners of the Company; e.(e) management of the Company; f.(f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g.(g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of financial statements is not required in those statements.
The disclosures shall include: a.(a) the nature of the relationship(s) involved; b.(b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c.(c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d.(d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
The Company follows subtopic 450-20 of the FASB ASC 450-20 to report accountingaccount for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.
In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has beenwas incurred and the amount of the liability can be reasonably estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Revenue Recognition
In May 2014 the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration the company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective and transition dates: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.
The new revenue standards became effective for the Company applies paragraph 605-10-S99-1October 1, 2018, and were adopted using the modified retrospective method. The adoption of the FASB ASCnew revenue standards as of October 1, 2018 did not change the Company’s revenue recognition as the Company did not have any revenue prior to October 1, 2018. As the Company did not identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues, no adjustment to accumulated deficit was required upon adoption.
Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration it expects to receive for revenue recognition.those goods. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all ofrevenues following the following criteria are met:five step model prescribed under ASU No. 2014-09: (i) persuasive evidence of an arrangement exists,identify contract(s) with a customer; (ii) identify the product has been shipped orperformance obligations in the services have been rendered tocontract; (iii) determine the customer, (iii)transaction price; (iv) allocate the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
Income Tax Provision
The Company accountsuses the asset and liability method of accounting for income taxes under Section 740-10-30 of thein accordance with FASB ASC which requires recognition of deferredTopic 740, “Income Taxes.” Under this method, income tax assets and liabilitiesexpense is recognized for the expected futureamount of: (i) taxes payable or refundable for the current period and (ii) deferred tax consequences of eventstemporary differences resulting from matters that have been includedrecognized in thean entity’s financial statements or tax returns.
The Company follows paragraph 740-10-25FASB ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of the FASB ASC. Paragraph 740-10-25-13 addresses the determination of whethera tax benefits claimedposition taken or expected to be claimed ontaken in a tax return shouldreturn. FASB ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under the provisions of FASB ASC Topic 740, when tax returns are filed, it is likely that some positions taken would be recordedsustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements. Under paragraph 740-10-25-13,statements in the Company may recognize the tax benefit from an uncertain tax position only ifperiod during which, based on all available evidence, management believes it is more likely than not that the tax position will be sustained onupon examination, byincluding the taxing authorities, based onresolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the technical merits of the position. The tax benefits recognized in the financial statements from such a position should bemore-likely-than-not recognition threshold are measured based onas the largest amount of tax benefit that has a greateris more than fifty50 percent (50%) likelihoodlikely of being realized upon ultimate settlement.settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits areis classified as interest expense and penalties are classified in selling, general and administrative expenses in the statementsstatement of income.
Earnings (Loss) per Share
Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similar to basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if all the potential common shares, warrants and stock options had been issued and if the additional common shares were dilutive. Diluted EPS is based on the assumption that all dilutive convertible shares and stock options and warrants were converted or exercised. Dilution is computed by applying the treasury stock method for the outstanding options and warrants, and the if-converted method for the outstanding convertible instruments. Under the treasury stock method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later) and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, outstanding convertible instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later).
Cash Flows Reporting
The Company follows paragraph 230-10-45-24 of the FASB ASC for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”Method”) as defined by paragraph 230-10-45-25 of the FASB ASC to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB ASC.
Software Development Costs
The Company incurs costs to develop software programs to be used primarily to meet its internal needs and to market to others. In February 2016,accordance with FASB ASC 350-40, Internal-Use Software, the Company capitalizes development costs for these software applications once the preliminary project stage is complete and it is probable that the project will be completed, the software will be used to perform the function intended, and the value will be recoverable. In accordance with FASB issued Accounting Standards Update (“ASU”)ASC 985-20-25, costs incurred before product feasibility is established and all design and coding is completed are expensed. Reengineering costs and minor modifications and enhancements that do not significantly improve the overall functionality of the software are expensed as incurred. After considering recent developments of laws and regulations on token issuance and trading that would apply to the platform that the Company has been designing, management discussed its function and compliance issues with the designer of the software platform and concluded that the project had more issues and costs for compliance than originally expected. On December 23, 2019, the Board decided to terminate the project.
Leases
On October 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842). The guidance in ASU 2016-02 supersedes (ASU 2016-02), as amended, which superseded the lease recognition requirements in ASCaccounting guidance under Topic 840, Leases (FAS 13). ASU 2016-02and generally requires an entitylessees to recognize operating and financing lease liabilities and corresponding right-of-use (“ROU”) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. For information regarding the impact of Topic 842 adoption, see Significant Accounting Policies - Leases and Note 10 – Commitments.
The Company adopted Topic 842 using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after October 1, 2019 are presented under Topic 842, while prior period amounts were not adjusted and continue to be reported in accordance with its historical accounting under Topic 840.
The Company elected the package of practical expedients permitted under the transition guidance, which allowed it to carry forward its historical lease classification, its assessment on whether a contract was or contains a lease, and its initial direct costs for any leases that existed prior to October 1, 2019. The Company also elected to combine its lease and non-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.
Upon adoption, the Company recognized total ROU assets of $54,775, with corresponding lease liabilities of $54,775 on its consolidated balance sheets. The ROU assets include adjustments for prepayments and accrued lease payments. The adoption did not impact our beginning retained earnings, or prior year consolidated statements of operations and statements of cash flows.
Under Topic 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities arising fromare recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of its leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The ROU asset also includes any lease for both financingpayments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options.
Operating leases are included in operating lease ROU assets and operating leases, along with additional qualitativelease liabilities (current and quantitative disclosures.non-current), on the consolidated balance sheets.
Recently Issued Accounting Pronouncements
In June 2018, the FASB issued ASU 2016-022018-07, "Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which expands the scope of FASB ASC 718 to include share-based payments for acquiring goods and services from non-employees. An entity should apply the requirements of FASB ASC 718 to non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specify that FASB ASC 718 applies to all share-based payments in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The new guidance is effective for SEC filers for fiscal years, and interim reporting periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). Early adoption is permitted. The Company evaluated the effects of the adoption of this guidance and believes that it will impact the accounting of the share-based awards granted to non-employees.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for Level 1, Level 2 and Level 3 instruments in the FV hierarchy. The guidance is effective for fiscal years beginning after December 15, 2018,2019, and interim periods within those fiscal years, with early adoption permitted.permitted for any eliminated or modified disclosures. The Company is currently evaluating the effectadoption of this standard willis not expected to have a material impact on its CFS.the Company’s CFS or disclosures.
In August 2016,November 2019, the FASB issued ASU No. 2016-15, Classification2019-08, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606), Codification Improvements – Share-Based Consideration Payable to a Customer. The amendments in this Update require that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. The amount recorded as a reduction of Certain Cash Receiptsthe transaction price is required to be measured on the basis of the grant-date FV of the share-based payment award in accordance with Topic 718. The grant date is the date at which a grantor (supplier) and Cash Payments. ASU 2016-15 clarifiesa grantee (customer) reach a mutual understanding of the presentationkey terms and classificationconditions of certain cash receipts and cash paymentsa share-based payment award. For entities that have not yet adopted the amendments in Update 2018-07, the statement of cash flows. This ASU isamendments in this Update are effective for (1) public business entities forin fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and (2) other than public business entities in fiscal years beginning after December 15, 2017. Early2019, and interim periods within fiscal years beginning after December 15, 2020. The adoption of this standard is permitted. The Company is currently assessingnot expected to have a material impact on the potential impact of ASU 2016-15 on its CFS.
In October 2016,December 2019, the FASB issued ASU No. 2016-16—2019-12, Simplifying the Accounting for Income Taxes, (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This ASU improveswhich simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the income tax consequences of intra-entity transfers of assets other than inventory. For public business entities, the amendments in this update are effective for annualcurrent guidance to promote consistent application among reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company does not anticipate that the adoption of this ASU will have a significant impact on its CFS.
Note 3 – Going Concern
The accompanying CFS were prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the accompanying CFS, the Company had an accumulated deficit of $1,614,817$5.97 million at September 30, 2017, working capital deficit of $1,535,189 and2020, the Company had net loss of $1,557,825$51,411 and $79,656 for the yearyears ended September 30, 2017, which2020 and 2019, respectively. In addition, the Company’s business and services and results of operations have been adversely affected and continue to be adversely affect by the COVID-19 (also see the discussion of COVID-19 in Note 1), these raise substantial doubt about the Company’s ability to continue as a going concern.
Management intends to raise additional funds by way of a private or public offering, or by obtaining loans from banks or others. While the Company believes in the viability of its strategy to commence operations and generate sufficient revenue and in its ability to raise additional funds on reasonable terms and conditions, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.
The financial statementsCFS do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.
Note 4 – Property and Equipment
Property and equipment at September 30, 20172020 and 2016September 30, 2019 consisted of the following:
Estimated Useful Lives (Years) | 2017 | 2016 | 2020 | 2019 | ||||||||||||||||
| Computer equipment | 5 | $ | 1,852 | $ | 3,089 | $ | 1,852 | $ | 1,852 | |||||||||||
| Less accumulated depreciation | (278 | ) | (1,556 | ) | (1,389 | ) | (1,019 | ) | ||||||||||||
| Computer equipment, net | 1,574 | 1,533 | 463 | 833 | ||||||||||||||||
| Office furniture | 7 | 12,746 | 1,289 | 12,746 | 12,746 | |||||||||||||||
| Less accumulated depreciation | (1,365 | ) | (564 | ) | (6,828 | ) | (5,007 | ) | ||||||||||||
| Office furniture, net | 11,381 | 725 | 5,918 | 7,739 | ||||||||||||||||
| Total property and equipment, net | $ | 12,955 | $ | 2,258 | $ | 6,381 | $ | 8,572 | ||||||||||||
Depreciation expense for the years ended September 30, 20172020 and 20162019 was $1,832$2,191 and $1,262,$2,191, respectively.
Note 5 – Related Party TransactionsPrepaid Expenses
| President, Chief Executive Officer | $ | 6,000 | ||
| Chief Financial Officer, Secretary and Treasurer | 6,000 | |||
| $ | 12,000 |
As of September 30, 2017 and 2016, the Company owed its directors and officers $0 and $27,405 respectively.
At September 30, 2020 and 2019, the Company had noncurrent prepaid expensesexpense of $1,000,000 and $8,532, respectively.$1,000,000. On January 4, 2017, Processing entered into a Consulting and Strategist Agreement with a consulting company for a six-month service term. On July 3, 2017, the CompanyProcessing and the consulting company agreed to extendextended the Consulting and Strategist Agreement untilto January 3, 2018 at no additional cost.cost, and the Agreement was subsequently further extended to July 3, 2018. The consultant will provideprovided Processing with market research findings, exploration and adviseadvice on business development opportunities in certain countries, and other general business advisory services. Processing paid a deposit of $1,325,000 for the consulting fee. If Processing doesfee, of which $325,000 was expensed as a consulting fee based on the agreement, and the remaining $1,000,000 of which would have been refunded to the Company if the Company had not make anymade an investment and/or enterentered into a business relationship in Mexico. The consulting company found acquisition targets for the Company, and on June 22, 2018, the Company entered into a Memorandum of Understanding (“MOU”) with a targetseller for the purchase of 5 mines located in different areas of Mexico for an aggregate purchase price of $1,000,000. Upon the execution of the MOU, the Company acquired the exclusive right to purchase the mines from the seller, effective until September 30, 2018. The parties entered into an oral agreement pursuant to which the Company will pay the $1,000,000 purchase price upon receiving approvals from the Mexican government allowing for the transfer of the mining concession. The transfer request was submitted to, and is being processed by, the endMexican government, but that processing was originally delayed due to elections and new administration and then COVID-19 pandemic in Mexico. The Company was not able to provide an estimated time for the approval at this report date. The remaining $1,000,000 of consulting fees, which arises from the acquisition of assets in Mexico, will be part of the service term, the consultant will refund Processing $1,000,000asset acquisition costs upon completion of the consulting fee. During the year ended September 30, 2017, the Company expensed $325,000 prepaid consulting expense, respectively, which was amortized over six months per the terms of the original agreement.asset acquisition in accordance with FASB ASC 805-5-30-1.
Note 6 – Other Payables
As of September 30, 20172020, and 2016, the Company had notes receivable of $3,925,000 and $0, respectively.
| 2017 | ||||
| Borrower A | $ | 1,925,000 | ||
| Borrower B | 1,000,000 | |||
| Borrower C | 1,000,000 | |||
| $ | 3,925,000 | |||
Note 7 – Loans Payable
On May 14, 2020, Fuse Processing received $49,600 from the Paycheck Protection Program loan (“PPP loan”) from US Small Business Administration (“the SBA”). The loan will be forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (at least 60% of the forgiven amount must have been used for payroll). The loan amount not forgiven, will have interest of 1%. Loan payments will be deferred for six months. Loans issued prior to June 5, 2020 have a maturity of two years, loans issued after June 5, 2020 have a maturity of five years. No collateral or personal guarantees are required. A borrower may apply for loan forgiveness any time on or before the maturity date of the loan, including before the end of the Covered Period (either (1) the 24-week (168-day) period beginning on the PPP Loan Disbursement Date, or (2) if the Borrower received its PPP loan before June 5, 2020, the Borrower may elect to use an eight-week (56-day) Covered Period); provided such application for loan forgiveness is made within 10 months after the last day of the covered period, otherwise the loan is no longer deferred and the borrower must begin paying principal and interest. The Company will apply for the loan forgiveness with the lender before the maturity. Just recently, the U.S. Treasury and SBA announced a streamlined PPP forgiveness application for loans of $50,000 or less (unless those borrowers together with their affiliates received loans totaling $2 million or more). It requires fewer calculations and may call for less documentation. It does not require borrowers to reduce their loan forgiveness calculations if they have reduced full-time equivalent (“FTE”) or salaries. The forgiveness application processing time may also be shorter.
On June 24, 2020, Fuse Tech received $105,400 from the year endedEconomic Injury Disaster Loan (“EIDL loan”) from the SBA after deducting $100 Uniform Commercial Code (“UCC”) handling charge and filing fee. This is a low-interest federal disaster loan for working capital to small businesses and non-profit organizations of any size suffering substantial economic injury as a result of the Coronavirus (COVID-19), to help the businesses to meet financial obligations and operating expenses that could have been met had the disaster not occurred. This loan has interest of 3.75% and is not forgivable. The maturity of the loan is 30 years, installment payments including principal and interest of $515 monthly will begin 12 months from the date of the promissory note. As of September 30, 2017, a former shareholder2020, the future minimum loan payments to be paid by year are as follows:
Year Ending | Amount | |||
9/30/2021 | $ | 50,298 | ||
9/30/2022 | 2,148 | |||
9/30/2023 | 2,230 | |||
9/30/2024 | 2,316 | |||
9/30/2025 | 2,404 | |||
Thereafter | 96,696 | |||
Total | $ | 156,092 | ||
Note 8 – Income Tax
The President of the U.S. signed into law H.R. 1 (the “Tax Reform Law”). The Tax Reform Law, effective for tax years beginning on or after January 1, 2018, except for certain expenses and liabilitiesprovisions, resulted in significant changes to existing US tax law, including various provisions that are expected to impact the Company. The Tax Reform Law reduced the federal corporate tax rate from 34% to 21% effective October 1, 2018 for the Company of $35,115, and a former CEO (Mr. Yong Zhang) contributed his salary of $16,667 earned during his service term to the Company, which were both recorded as an increase of paid in capital.
At September 30, 20172020 and 2016,2019, the Company had net operating lossNOL carryforwards for income tax purposes; for federal income tax purposes, the NOL arising in tax years beginning after 2017 may only reduce 80% of a taxpayer’s taxable income, and may be carried forward indefinitely; for California income tax purposes, the entire NOL can be carried forward up to 20 years. However, the coronavirus Aid, Relief and Economic Security Act (“NOL”the CARES Act”) carry–forwardsissued in March 2020, provides tax relief to both corporate and noncorporate taxpayers by adding a five-year carryback period and temporarily repealing the 80% limitation for NOLs arising in 2018, 2019 and 2020. The Company estimated NOL carry-forwards for Federal and California income tax purposes of $1,419,393$4.36 million and $56,992, respectively, which may be offset against future taxable income through 2034.$4.07 million at September 30, 2020 and 2019, respectively. No tax benefit was reported with respect to these NOL carry-forwards in the accompanying financial statementsCFS because the Company believes the realization of the Company’s net deferred tax assets for the NOL for both federal and California State of approximately $315,280$1.22 million as of September 30, 2017,2020, was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are fully offset by a full valuation allowance.
Components of deferred tax assets as of September 30, 2020 and September 30, 2019 are as follows:
September 30, 2017 | September 30, 2016 | 2020 | 2019 | |||||||||||||
| Net deferred tax assets – Non-current: | ||||||||||||||||
Net deferred tax assets: | ||||||||||||||||
| Expected income tax benefit from NOL carry-forwards | $ | 315,280 | $ | 8,549 | $ | 1,218,780 | $ | 1,207,488 | ||||||||
Lease expense under ASU 842 | 390 | 0 | ||||||||||||||
| Less valuation allowance | (315,280 | ) | (8,549 | ) | (1,219,170 | ) | (1,207,488 | ) | ||||||||
| Deferred tax assets, net of valuation allowance | $ | - | $ | - | $ | 0 | $ | 0 | ||||||||
Income Tax Provision in the Statements of Operations
A reconciliation of the consolidated federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes for the years ended September 30, 20172020 and 20162019 is as follows:
| 2017 | 2016 | 2020 | 2019 | |||||||||||||
| Federal statutory income tax expense (benefit) rate | (34.00 | )% | (34.00 | )% | (21.00 | )% | (21.00 | )% | ||||||||
| Federal income tax rate difference | 19.00 | % | 19.00 | % | 0.33 | % | 0.08 | % | ||||||||
| State statutory income tax (benefit) rate, net of effect of state income tax deductible to federal income tax | (7.51 | )% | - | % | (6.48 | )% | 7.49 | % | ||||||||
| Change in valuation allowance on net operating loss carry-forwards | 22.51 | % | 15.00 | % | 35.59 | % | 14.44 | % | ||||||||
| Effective income tax rate | 0.00 | % | 0.00 | % | 8.44 | % | 1.01 | % | ||||||||
Note 129 – Revenue, Cost of Revenue and Major Customers
Fuse Group and Processing provide consulting services to mining industry clients to find mine acquisition targets within the parameters set by the clients, in circumstances in which the mine owner is considering selling its mining rights. The services of Fuse Group and Processing include due diligence on the potential mine seller and the mine, such as ownership of the mine and whether the mine meets all operation requirements and/or is currently in operation.
Cost of revenue mainly consisted of the management’s travel expenses to visit these mines and consulting expenses paid for mine expertise during the mine due diligence period.
For the years ended September 30, 2020 and 2019, the Company recorded revenue of $750,000 and $1,216,000 for the services provided, respectively.
For the years ended September 30, 2020 and 2019, the Company had one customer which accounted for 87% and 97% of the Company’s total revenue.
Note 10 – Commitments
Acquisition Commitment
On January 1,4, 2017, Processing as a sublessee, entered into a sublease agreement for office spaceConsulting and Strategist Agreement with a sublessorconsulting company for a termsix-month term. On July 3, 2017, Processing and the consulting company extended the Consulting and Strategist Agreement until January 3, 2018 at no additional cost, and the Agreement was subsequently extended to July 3, 2018. The consultant provided Processing with market research findings, exploration and advice on business development opportunities in certain countries, and other general business advisory services. The consulting company found acquisition targets for the Company, and on June 22, 2018, the Company entered into a MOU with a seller for the purchase of two years.5 mines located in different areas of Mexico for an aggregate purchase price of $1,000,000. Upon the execution of the MOU, the Company acquired the exclusive right to purchase the mines from the seller, effective until September 30, 2018. The parties entered into an oral agreement pursuant to which the Company will pay the $1,000,000 purchase price upon receiving approvals from the Mexican government allowing for the transfer of the mining concession. The transfer request was submitted to, and is being processed by, the Mexican government, but that processing was originally delayed due to elections and new administration then COVID-19 in Mexico (see Note 5), the Company was not able to provide an estimated time for the approval at this report date.
Lease Commitment
Effective April 16, 2018, the Company entered a one-year lease for an office in the City of Diamond Bar, California. The monthly rent was approximately $1,500. The Company did not renew the lease at expiration.
Effective December 1, 2018, the Company entered a three-year lease for an office in the city of Arcadia, California. The monthly base rent is $1,897. $2,115 payable on the first day of each month, with a 3% increase each year.
The Company recorded rental expensecost of $17,073$27,409 and $0$42,958 for the years ended September 30, 20172020 and 2016, 2019, respectively.
The future annual minimumcomponents of lease paymentscosts, lease term and discount rate with respect to the office lease with an initial term of more than 12 months are as follows:
Year Ended September 30, 2020 | ||||
Operating lease cost | $ | 27,409 | ||
Weighted Average Remaining Lease Term - Operating leases | 1.25 years | |||
Weighted Average Discount Rate - Operating leases | 4 | % | ||
The following is a schedule of maturities of lease liabilities as of September 30, 2017 were: $22,7642020:
For the 12 months ended | Operating Leases | |||
September 30, 2021 | $ | 26,795 | ||
September 30, 2022 | 4,487 | |||
Total undiscounted cash flows | 31,282 | |||
Less: imputed interest | (771 | ) | ||
Present value of lease liabilities | $ | 30,511 | ||
Consulting and Service Agreements
1) | On April 1, 2017, the Company entered into a strategic consulting agreement with a consulting company with a term of one year. The consulting company provides the Company the strategic advices on business development and marketing. The compensation to the consulting company is $50,000 per year, payable in equal installments at the end of each month. The agreement was extended to March 31, 2021 with the same terms. |
2) | On May 4, 2018, the Company entered into a Mineral Mining Interactive Technology and Related Application Software Development Service Contract (the “Contract”) with Prime King Investment Limited (“Prime King”) described as below: |
Pursuant to the terms of the Contract, Prime King provides services to the Company relating to the development, installation and debugging of a software system called IMETAL. The Company originally planned to operate IMETAL as a platform to facilitate investment and trade in raw metals, find specialized minerals, exploit these opportunities and issue tokens to be used on the platform, subject to compliance with applicable laws and regulations (the “Project”).
Prime King shall also provide training to the Company’s staff per the Company’s request as well as maintenance for the Project for one year endingafter the completion of the Project, in each case free of charge.
Under the Contract, the Company shall pay Prime King $3,000,000, of which 50% was paid within 10 days of the execution of the Contract, and the remaining 50% was to be paid within 10 days of the completion of the Project after inspection and approval by the Company. The service was required to be completed in three months, however, on July 17, 2018, the deadline was extended until October 17, 2018, and the Company agreed to extend the deadline further, due to changes in technical requirements requested by the Company. Up to September 30, 2018, and $5,691 for the year endingCompany paid Prime King $1.5 million, which was recorded as software development costs. The Company has not paid anything to Prime King since September 30, 2018. The Company previously expected the project to be completed by March 31, 2019.
3) | Exploratory Drilling Agreement and Related Costs. On April 1, 2018, the Company entered into a contract with an individual owner of a mining concession in Mexico. The mine is located in Mexico, in the state of Sinaloa, Badiraguato municipality, Nocoriba village. The latitude is 25.2520000 and the longitude is -107.225500. The Company started drilling within the concession 10HAAS. For the years ended September 30, 2020, the Company spent $0; for the years ended September 30, 2019, the Company spent $238,750 , respectively, which was recorded as consulting expense. The Company expects to spend an additional $1.56 million on this project as of September 30, 2020. If the project is successful, the Company will receive 3% equity in the mine (which percentage will be paid upon successful completion of exploration and drilling of the mine). The mine owner is currently in discussion with a potential buyer to purchase this mine and the buyer is analyzing the minerals of this mine. The mine owner and Fuse Group have agreed to put exploration on hold until this buyer completes its analysis in preparation for making the acquisition decision. The project is currently on hold due to the COVID-19 pandemic. Negotiations will resume once the analysis of minerals of the mine is completed and accepted by the potential buyer. |
Employment AgreementsAgreement
The Company currently has an employment agreement with Michael Viotto, the Company’s CFO. Pursuant to the terms of his employment agreement, dated August 16, 2017,September 1, 2020, Mr. Viotto receives annual compensation in the amount of $50,000, and the agreement has a term of one year.year, from August 22, 2020. Mr. Viotto’s employment agreement includes typical clauses relating to noncompetition, nonsolicitation and indemnification of Mr. Viotto in connection with his service as the Company’s CFO.
Note 1411 – Subsequent Events
The Company follows the guidance in FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated subsequent events through the date the financial statements were issued and determined the Company did not have any material subsequent events to disclose in its CFS other thanCFS.
SIGNATURES
Pursuant to the events discussed above.requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Fuse Group Holding Inc. | ||
By: | /s/ Umesh Patel | |
Umesh Patel | ||
Date: December 16, 2020 | Chief Executive Officer | |
(principal executive officer) | ||
Name and Title | Date | |
/s/ Umesh Patel | ||
Umesh Patel | December 16, 2020 | |
Chief Executive Officer and Director (principal executive officer) | ||
/s/ Michael Viotto | ||
Michael Viotto | December 16, 2020 | |
Chief Financial Officer and Director | ||
(principal financial officer and accounting officer) | ||