UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2015
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission File Number: 000-55017
MOXIAN, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 27-3729742 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
Block A, 9/F, Union Plaza, 5022 Binjiang Avenue, Futian District Shenzhen City, Guangdong Province, China
Tel: +86 (0)755-66803251
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |
| (Do not check if smaller reporting company) | ||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒
As of February 22, 2016, the registrant had 220,943,275 shares of common stock, par value $.001 per share, issued and outstanding.
TABLE OF CONTENTS
| Page No. | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 1 |
| Balance Sheets as of December 31, 2015 (Unaudited) and September 30, 2015 | 1 | |
| Unaudited Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended December 31, 2015 and 2014 | 2 | |
| Unaudited Consolidated Statements of Stockholders’ Equity as of December 31, 2015 | 3 | |
| Unaudited Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2015 and 2014 | 4 | |
| Notes to Financial Statements (unaudited) | 5 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 15 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 17 |
| Item 4. | Controls and Procedures. | 17 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings. | 19 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 19 |
| Item 3. | Defaults Upon Senior Securities. | 19 |
| Item 4. | Mine Safety Disclosures | 19 |
| Item 5. | Other Information | 19 |
| Item 6. | Exhibits. | 19 |
| Signatures | 20 | |
| Certifications | ||
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOXIAN, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(Stated in US Dollars)
| December 31, 2015 | September 30, 2015 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 1,249,611 | $ | 2,398,713 | ||||
| Prepayments, deposits and other receivables | 752,530 | 1,042,727 | ||||||
| Inventories | 36,546 | 38,310 | ||||||
| Total current assets | 2,038,687 | 3,479,750 | ||||||
| Deferred tax assets (Note 8) | 54,390 | 52,609 | ||||||
| Property and equipment, net (Note 3) | 2,189,212 | 2,941,562 | ||||||
| Intangible assets, net (Note 4) | 7,313,357 | 6,600,285 | ||||||
| TOTAL ASSETS | $ | 11,595,646 | $ | 13,074,206 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| LIABILITIES | ||||||||
| Accruals and other payables | $ | 422,332 | $ | 600,675 | ||||
| Loans from shareholders (Note 5) | 2,205,299 | 1,462,525 | ||||||
| Subscription payment | 6,161,714 | 5,505,915 | ||||||
| Total current liabilities | 8,789,345 | 7,569,115 | ||||||
| Total liabilities | $ | 8,789,345 | $ | 7,569,115 | ||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, $0.001 par value, authorized: 100,000,000 shares. 0 shares issued and outstanding as of December 31, 2015 and September 30, 2015, respectively | - | - | ||||||
| Common stock, $0.001 par value, authorized: 500,000,000 shares. 214,666,944 shares issued and outstanding as of December 31, 2015 and September 30, 2015, respectively (Note 6) | 214,667 | 214,667 | ||||||
| Additional paid-in capital | 16,350,577 | 16,350,577 | ||||||
| Deficit accumulated during the development stage | (13,979,040 | ) | (11,174,812 | ) | ||||
| Accumulated other comprehensive income | 220,097 | 114,659 | ||||||
| Total stockholders’ equity | 2,806,301 | 5,505,091 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 11,595,646 | $ | 13,074,206 | ||||
See accompanying notes tounaudited consolidated financial statements
| 1 |
MOXIAN, INC.
UNAUDITEDCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Stated in US Dollars)
| For Three Months Ended December 31 | ||||||||
| 2015 | 2014 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenues, net | $ | 5,584 | $ | 45,505 | ||||
| Cost of revenue | (1,306 | ) | (7,911 | ) | ||||
| Gross Profit | 4,278 | 37,594 | ||||||
| Depreciation and amortization expenses | (443,444 | ) | (35,081 | ) | ||||
| Selling, general and administrative expenses | (2,370,366 | ) | (989,785 | ) | ||||
| Loss from operations | (2,809,532 | ) | (987,272 | ) | ||||
| Interest income | 884 | 11 | ||||||
| Other income | 1,501 | - | ||||||
| Loss before income tax | (2,807,147 | ) | (987,261 | ) | ||||
| Income tax expenses-deferred tax benefit (Note 8) | 2,919 | - | ||||||
| Net loss | (2,804,228 | ) | (987,261 | ) | ||||
| Foreign currency translation adjustments | 105,438 | 142,349 | ||||||
| Comprehensive loss | $ | (2,698,790 | ) | $ | (844,912 | ) | ||
| Basic and diluted loss per common share | $ | (0.01 | ) | $ | (0.00 | ) | ||
| Basic and diluted weighted average common shares outstanding | 214,666,944 | 198,300,000 | ||||||
See accompanying notes to unaudited consolidated financial statements
| 2 |
MOXIAN, INC.
UNAUDITEDCONSOLIDATED STATEMENTS OF STOCKHOLDERS’EQUITY
(Stated in US Dollars)
| Accumulated | Accumulated | |||||||||||||||||||||||
| Additional | deficit | other | ||||||||||||||||||||||
| Common Stock* | paid-in | development | comprehensive | |||||||||||||||||||||
| Shares | Amount | Capital | Stage | income | Total | |||||||||||||||||||
| Balance at inception, October 12, 2010 | ||||||||||||||||||||||||
| Common shares issued - Founder for property and equipment | 186,000,000 | $ | 186,000 | $ | - | $ | (182,900 | ) | $ | - | $ | 3,100 | ||||||||||||
| Additional paid in capital by founder | - | - | - | 169 | - | 169 | ||||||||||||||||||
| Net loss | - | - | - | (21 | ) | - | (21 | ) | ||||||||||||||||
| Balance, December 31, 2010 | 186,000,000 | $ | 186,000 | $ | - | $ | (182,752 | ) | $ | - | $ | 3,248 | ||||||||||||
| Additional paid in capital by founder | - | - | - | 2,146 | - | 2,146 | ||||||||||||||||||
| Issue of common stock | 12,300,000 | 12,300 | - | 28,700 | - | 41,000 | ||||||||||||||||||
| Net loss | - | - | - | (12,606 | ) | - | (12,606 | ) | ||||||||||||||||
| Balance, December 31, 2011 | 198,300,000 | $ | 198,300 | $ | - | $ | (164,512 | ) | $ | - | $ | 33,788 | ||||||||||||
| Net loss | - | - | - | (33,572 | ) | - | (33,572 | ) | ||||||||||||||||
| Balance, December 31, 2012 | 198,300,000 | $ | 198,300 | $ | - | $ | (198,084 | ) | $ | - | $ | 216 | ||||||||||||
| Additional paid in capital by founder | - | - | - | 2,950 | - | 2,950 | ||||||||||||||||||
| Net loss | - | - | - | (14,690 | ) | - | (14,690 | ) | ||||||||||||||||
| Balance, September 30, 2013 | 198,300,000 | $ | 198,300 | $ | - | $ | (209,824 | ) | $ | - | $ | (11,524 | ) | |||||||||||
| Inclusion of Moyi (SeeNote 1) | - | - | 162,914 | - | - | 162,914 | ||||||||||||||||||
| Net loss | - | - | - | (4,791,342 | ) | - | (4,791,342 | ) | ||||||||||||||||
| Foreign currency adjustment | - | - | - | - | 52,929 | 52,929 | ||||||||||||||||||
| Balance, September 30, 2014 | 198,300,000 | $ | 198,300 | $ | 162,914 | $ | (5,001,166 | ) | $ | 52,929 | $ | (4,587,023 | ) | |||||||||||
| Issuance of shares | 16,366,944 | 16,367 | 16,350,577 | - | - | 16,366,944 | ||||||||||||||||||
| Inclusion of Moyi (SeeNote 1) | - | - | (162,914 | ) | - | - | (162,914 | ) | ||||||||||||||||
| Net loss | - | - | - | (6,173,646 | ) | - | (6,173,646 | ) | ||||||||||||||||
| Foreign currency adjustment | - | - | - | - | 61,730 | 61,730 | ||||||||||||||||||
| Balance, September 30, 2015 | 214,666,944 | $ | 214,667 | $ | 16,350,577 | $ | (11,174,812 | ) | $ | 114,659 | $ | 5,505,091 | ||||||||||||
| Net loss | - | - | - | (2,804,228 | ) | - | (2,804,228 | ) | ||||||||||||||||
| Foreign currency adjustment | - | - | - | - | 105,438 | 105,438 | ||||||||||||||||||
| Balance, December 31, 2015 | 214,666,944 | $ | 214,667 | $ | 16,350,577 | $ | (13,979,040 | ) | $ | 220,097 | $ | 2,806,301 | ||||||||||||
*The number of shares of common stock has been retroactively restated to reflect the 60-for-1 forward stock split effected on December 13, 2013.
See accompanying notes to unaudited consolidated financial statements
| 3 |
MOXIAN, INC.
UNAUDITEDCONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in US Dollars)
| For Three Months Ended December 31, | ||||||||
| 2015 | 2014 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (2,804,228 | ) | $ | (987,261 | ) | ||
| Depreciation and amortization expense | 443,444 | 35,081 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Inventories | 1,067 | (35,687 | ) | |||||
| Prepayments, deposits and other receivables | 276,554 | (147,812 | ) | |||||
| Deferred tax assets | (2,919 | ) | - | |||||
| Accruals and other payables | 612,347 | (111,127 | ) | |||||
| Net cash used in operating activities | (1,473,735 | ) | (1,246,806 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | (303,821 | ) | (20,109 | ) | ||||
| Purchase of intangible asset | (124,484 | ) | - | |||||
| Net cash used in investing activities | (428,305 | ) | (20,109 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Loan from shareholders borrowings | 775,883 | 418,931 | ||||||
| Net cash provided by financing activities | 775,883 | 418,931 | ||||||
| Effect of foreign currency translation | (22,944 | ) | 142,349 | |||||
| Net decrease in cash and cash equivalents | (1,149,101 | ) | (705,635 | ) | ||||
| Cash and cash equivalents, beginning of year | 2,398,712 | 1,770,196 | ||||||
| Cash and cash equivalents, end of year | $ | 1,249,611 | $ | 1,064,561 | ||||
| Supplemental cash flow disclosures: | ||||||||
| Cash paid for interest expense | $ | - | $ | - | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
See accompanying notes to unaudited consolidated financial statements
| 4 |
MOXIAN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Organization and nature of operations |
Moxian, Inc. (formerly known as Moxian China, Inc., hereinafter referred as “Moxian,” together with its subsidiaries, the “Company”), was incorporated under the laws of the State of Nevada on October 12, 2010. The Company, through its subsidiaries and variable interest entity, engages in the business of operating a social network platform that integrates social media and business into one single platform.
On February 17, 2014, the Company incorporated Moxian CN Group Limited (“Moxian CN Samoa”) under the laws of Independent State of Samoa.
On February 21, 2014, the Company completed the acquisition of Moxian Group Limited (“Moxian BVI”) and its subsidiaries from Rebel Group, Inc., a Florida Corporation (“REBL”) pursuant to a License and Acquisition Agreement (the “License and Acquisition Agreement”), whereby the Company (i) acquired all the equity interests of Moxian BVI, and (ii) obtained the license to use the intellectual property rights (as define below) of REBL. Pursuant to the License and Acquisition Agreement, REBL agreed to sell, convey, and transfer 100% of the equity interests of Moxian BVI to Moxian CN Samoa, a newly incorporated wholly-owned subsidiary of the Company, in cash consideration of an aggregate of $1,000,000. As a result, The Company began to consolidate Moxian BVI, together with its subsidiaries, Moxian HK, Moxian Shenzhen, and Moxian Malaysia’s financial statement on February 21, 2014.
Under the License and Acquisition Agreement, REBL also agreed to grant us the exclusive right to use REBL’s IP Rights in Mainland China, Malaysia, and other countries and regions where REBL conducts its business (the “Licensed Territory”), and the exclusive right to solicit, promote, distribute and sell REBL products and services in the Licensed Territory for five years (the “License”). In exchange for such License, the Company agreed to pay to REBL: (i) $1,000,000 as a license maintenance royalty each year commencing from the second year from the date of the agreement; and (ii) 3% of the gross profit of distribution and sale of REBL products and services as an earned royalty. Pursuant to the License and Acquisition Agreement, the Company has the right to acquire the new IP Rights that are developed by REBL and sub-license such rights to a third party. The Company also has the obligation to develop the social media market in the Licensed Territory of REBL products and services.
Moxian BVI was incorporated on July 3, 2012 under the laws of British Virgin Islands. REBL owned 100% equity interests of Moxian BVI prior to the closing of the License and Acquisition Agreement, among the Company, Moxian BVI and REBL.
Moxian (Hong Kong) Limited (“Moxian HK”) was incorporated on January 18, 2013 and became Moxian BVI’s subsidiary since February 14, 2013. Moxian HK is currently engaged in the business of online social media. Moxian HK operates through two wholly-owned subsidiaries: Moxian Technologies (Shenzhen) Co., Ltd. (“Moxian Shenzhen”) and Moxian Malaysia SDN BHD (“Moxian Malaysia”).
Moxian Shenzhen was invested and wholly owned by Moxian HK. Moxian Shenzhen was incorporated on April 8, 2013 and was engaged in the business of internet technology, computer software, commercial information consulting
Moxian Malaysia was incorporated on March 1, 2013 and became Moxian HK’s subsidiary since April 2, 2013. Moxian Malaysia is conducting its business in IT services and media advertising industry.
Shenzhen Moyi Technologies Co., Ltd. (“Moyi”) was incorporated on July 19, 2013 under the laws of the People’s Republic of China (the “PRC”) and became a variable interest entity (“VIE”) of Moxian Shenzhen since July 15, 2014. Moxian Shenzhen controls Moyi through arrangement that absorbs operations risk, as if Moyi were a wholly-owned subsidiary of Moxian Shenzhen.
On January 30, 2015, the Company entered into an Equity Transfer Agreement (the “Equity Transfer Agreement,” such transaction, the “Equity Transfer Transaction”) with REBL, to acquire from REBL 100% of the equity interests of Moxian Intellectual Property Limited, a company incorporated under the laws of Samoa and a wholly-owned subsidiary of REBL (“Moxian IP Samoa”) for $6,782,000 (the “Moxian IP Samoa Purchase Price”), meanwhile terminated the License and Acquisition Agreement. Moxian IP Samoa owns all the intellectual property rights relating to the operation, use and marketing of the Moxian Platform, including all of the trademarks, patents and copyrights that are used in the Company’s business. As a result of the Equity Transfer Transaction, Moxian IP Samoa became a wholly-owned subsidiary of the Company.
Moxian Technology (Beijing) Company Limited (“Moxian Beijing”) was incorporated on December 10, 2015 under the laws of PRC by Moxian Shenzhen.
The Company is currently devoting its efforts to develop mobile application and online platform that facilitate the small to medium size businesses to attract more clients. The Company’s ability to continue as a going concern is dependent upon its ability to develop additional sources of capital, develop apps and websites, generate servicing income, and ultimately, achieve profitable operations. The accompanying unaudited consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
| 5 |
MOXIAN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of principal accounting policies |
Basis of presentation
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and reflect the activities of the following subsidiaries and VIE: Moxian CN Samoa, Moxian BVI, Moxian HK, Moxian Shenzhen, Moxian Malaysia, Moyi, Moxian Beijing and Moxian IP Samoa. All material intercompany transactions and balances have been eliminated in the consolidation.
The interim consolidated financial information as of December 31, 2015 and for the three months ended December 31, 2015 and 2014 have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The interim consolidated financial information should be read in conjunction with the financial statements and the notes thereto, included in the Company’s Form 10-K for the fiscal year ended September 30, 2015, previously filed with the SEC.
In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s consolidated financial position as of December 31, 2015, its consolidated results of operations for three months ended December 31, 2015 and 2014, and its consolidated cash flows for the three months ended December 31, 2015 and 2014, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.
In accordance with the interpretation of Generally Accepted Accounting Principles (GAAP), variable interest entities (VIEs) are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. All VIEs with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.
ASC 810 (Financial Accounting Standards Board (“FASB”) Interpretation Number (“FIN”) 46 (revised December 2003), “Consolidation of Variable Interest Entities, and Interpretation of ARB No. 51” (“FIN 46R”), addresses whether certain types of entities referred to as variable interest entities (“VIEs”), should be consolidated in a company’s audited consolidated financial statements. Pursuant to an Exclusive Business Cooperation Agreement by and between Moxian Shenzhen and Moyi, dated July 15, 2014, Moxian Shenzhen has the exclusive right to provide to Moyi technical and systems support, marketing consulting services, training for technical personnel and technical consulting services. As payment for these services, Moyi has agreed to pay Moxian Shenzhen a service fee equal to 100% Moyi’s pre-tax profit. In accordance with the provisions of ASC 810, the Company has determined that Moyi is a VIE of Moxian Shenzhen and that the Company is the primary beneficiary, and accordingly, the financial statements of Moyi are consolidated into the financial statements of the Company.
Use of estimates
The preparation of the unaudited consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the audited consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
| 6 |
MOXIAN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of principal accounting policies (Continued) |
Foreign currency transactions and translation
The reporting currency of the Company is United States Dollars (the “USD”) and the functional currency of Moxian Shenzhen, Moyi and Moxian Beijing is Renminbi (the “RMB”) as China is the primary economic environment in which they operate, the functional currency of Moxian HK is Hong Kong Dollar (the “HKD”), and the functional currency of Moxian Malaysia is Malaysia Ringgit (the “MYR”).
For financial reporting purposes, the financial statements of Moxian Shenzhen, Moyi, Moxian Beijing, Moxian HK and Moxian Malaysia, which are prepared using their respective functional currencies, are translated into the reporting currency, United States dollar ("U.S. dollar") so to be consolidated with the Company’s. Monetary assets and liabilities denominated in currencies other than the reporting currency are translated into the reporting currency at the rates of exchange ruling at the balance sheet date. Revenues and expenses are translated using average rates prevailing during the reporting period. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income in owners’ deficit. Transaction gains and losses are recognized in the statements of operations and comprehensive income.
The exchange rates applied are as follows:
| Balance sheet items, except for equity accounts | December 31, 2015 | September 30, 2015 | |||||||
| RMB:USD | 6.4917 | 6.3568 | |||||||
| HKD:USD | 7.7510 | 7.7501 | |||||||
| MYR:USD | 4.3026 | 4.4124 | |||||||
Items in the statements of operations and comprehensive loss, and statements cash flows
| Three Months Ended December 31, | |||||||||
| 2015 | 2014 | ||||||||
| RMB:USD | 6.3907 | 6.1389 | |||||||
| HKD:USD | 7.7506 | 7.7559 | |||||||
| MYR:USD | 4.2821 | 3.3643 | |||||||
Recent accounting pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, that introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements.
In June 2014 Accounting Standards Update 2014-10 removed the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. This ASU is effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The Company has elected to adopt this ASU effective from the first quarterly report on Form 10-Q of the fiscal year ending September 30, 2016 and its adoption resulted in the removal of previously required development stage financial information.
| 7 |
MOXIAN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| 2. | Summary of principal accounting policies (Continued) |
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This update codifies management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The guidance is effective for interim and annual periods ending after December 15, 2016 and early adoption is permitted. The amendments in this ASU will not impact the Company's financial position or results of operations. The new guidance will require a formal assessment of going concern by management based on criteria prescribed in the new guidance. The Company is reviewing its policies and processes to ensure compliance with this new guidance.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 340): Simplifying the Measurement of Inventory. Under this guidance, entities utilizing the FIFO or average cost method should measure inventory at the lower of cost or net realizable value, whereas net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU should be applied prospectively and will be effective for the Company beginning January 1, 2017 with early adoption permitted. The Company is currently evaluating the new guidance; however, it does not anticipate that the impact to its consolidated financial statements will be significant.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, to simplify the presentation of deferred income taxes. The amendments in this update require that deferred tax assets and liabilities be entirely classified as noncurrent within the statement of financial position, and is effective for public business entities for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The amendments may be applied prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company has not adopted this guidance as of December 31, 2015.
| 3. | Property and equipment, net |
| December 31, 2015 | September 30, 2015 | ||||||||
| (Unaudited) | |||||||||
| Electronic equipment | $ | 2,341,915 | $ | 2,357,085 | |||||
| Furniture and fixtures | 87,412 | 22,752 | |||||||
| Construction in progress | - | 796,996 | |||||||
| Leasehold improvements | 392,389 | 193,225 | |||||||
| Total property and equipment | 2,821,716 | 3,370,058 | |||||||
| Less: Accumulated depreciation | (632,504 | ) | (428,496 | ) | |||||
| Total property and equipment, net | $ | 2,189,212 | $ | 2,941,562 | |||||
The depreciation expenses for the three months ended December 31, 2015 and 2014 were $223,424 and $35,081, respectively.
| 4. | Intangible assets |
As of December 31, 2015 and September 30, 2015, the Company has the following amounts related to intangible assets:
| December 31, 2015 | September 30, 2015 | ||||||||
| (Unaudited) | |||||||||
| IP rights | $ | 6,782,000 | $ | 6,782,000 | |||||
| Other intangible assets | 1,287,265 | 354,755 | |||||||
| 8,069,265 | $ | 7,136,755 | |||||||
| Less: accumulated amortization | (755,908 | ) | (536,470 | ) | |||||
| Net intangible assets | $ | 7,313,357 | $ | 6,600,285 | |||||
No significant residual value is estimated for these intangible assets. Aggregate amortization expense for the three months ended December 31, 2015 and 2014, totaled $220,020 and $0, respectively. The following table represents the total estimated amortization of intangible assets for the five succeeding fiscal years subsequent to December 31, 2015:
| For the Fiscal Year Ending September 30 | Estimated Amortization Expense | ||||
| (Unaudited) | |||||
| 2016 | $ | 687,293 | |||
| 2017 | 916,390 | ||||
| 2018 | 893,950 | ||||
| 2019 | 764,773 | ||||
| 2020 and thereafter | $ | 4,050,951 | |||
| 8 |
MOXIAN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| 5. | Related party transactions and balances |
The table below sets forth related parties having transactions for the three months ended December 31, 2015 and 2014, or balances as of December 31, 2015 and September 30, 2015 with the Group.
| Name | Relationship with the Company | ||
| Jet Key Limited (“Jet Key”) | A below 1% shareholder of the Company | ||
| Shenzhen Bayi Consulting Co. Ltd. (“Bayi”) | A below 5% shareholder of the Company | ||
| Ace Keen Limited (“Ace Keen”) | A below 1% shareholder of the Company | ||
| Moxian China Limited | A 32.8% shareholder of the Company | ||
| Zhang Xin | A below 5% shareholder of the Company |
Details of major related party balances as of December 31, 2015 and September 30, 2015 and main transactions for the three months ended December 31, 2015 and 2014 are as follows:
| (1) | Amount dueto shareholders |
| Nature and Company | December 31, 2015 | September 30, 2015 | |||||||
| (Unaudited) | |||||||||
| Bayi | $ | 1,642,233 | $ | 1,286,811 | |||||
| Moxian China Limited | 161,087 | (50,256) | |||||||
| Jet Key | 203,823 | 202,373 | |||||||
| Ace Keen | 99,133 | 23,597 | |||||||
| Zhang Xin | 99,023 | - | |||||||
| $ | 2,205,299 | $ | 1,462,525 | ||||||
| (2) | Main transactions with shareholders |
| Nature and Company | Three Months Ended December 31 | ||||||||
| 2015 | 2014 | ||||||||
| (Unaudited) | (Unaudited) | ||||||||
| Loan from /(repayment to) Bayi | $ | 388,202 | $ | (23,436) | |||||
| Loan from Moxian China Limited | 212,629 | 411,714 | |||||||
| Loan from Zhang Xin | 99,025 | - | |||||||
| Loan from Ace Keen | 76,028 | 7,333 | |||||||
The loans were made by shareholders to Moxian HK, Moxian Shenzhen, Moyi, and Moxian Malaysia and are unsecured, interest free and will be due and payable in 12 months.
On November 9, 2015, Moxian HK and Zhang Xin entered into a loan agreement whereby Zhang Xin agreed to provide a loan to Moxian HK in aggregate of HKD767,500 (approximately $99,025) without any interests and with a term of repayment of 12 months.
On November 12, 2015, Moxian HK and Moxian China Limited entered into a loan agreement whereby Moxian China Limited agreed to provide a loan to Moxian HK in aggregate of HKD348,000 (approximately $44,900) without any interests and with a term of repayment of 12 months.
| 9 |
MOXIAN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| 5. | Related party transactions and balances (Continued) |
| (2) | Main transactions with shareholders (Continued) |
On November 20, 2015, Moxian HK and Ace Keen entered into a loan agreement whereby Ace Keen agreed to provide a loan to Moxian HK in aggregate of HKD589,258.80 (approximately $76,028) without any interests and with a term of repayment of 12 months.
On December 25, 2015, Moxian Shenzhen and Bayi entered into a loan agreement whereby Bayi agreed to provide a loan to Moxian Shenzhen in aggregate of RMB4,560,883.40 (approximately $713,675) without any interests and with a term of repayment of 12 months.
On October 31, 2014 and November 30, 2014, Moxian Shenzhen received RMB 630,000 (approximately $102,942) and RMB 90,000 (approximately $14,486), respectively, as loans (the “MCL Shenzhen Loans”) from Moxian China Limited. The term of such loans is twelve months and they bear no interest. On December 31, 2014, the Company, Moxian China Limited and Moxian Shenzhen entered into a Loan Agreement, where the Company agreed to issue a convertible promissory note (the “Note”) to Moxian China Limited for the repayment of the MCL Shenzhen Loans.
On October 31, 2014 and November 30, 2014, Moxian Malaysia received a loan in the amount of MYR 118,800 (approximately $34,032) and MYR 23,100 (approximately $6,605), respectively, from Moxian China Limited (the “MCL Malaysia Loans”). The term of such loans is twelve months and they bear no interest. On December 31, 2014, the Company, Moxian China Limited and Moxian Malaysia entered into a Loan Agreement, where the Company agreed to issue a Note to Moxian China Limited for the repayment of the MCL Malaysia Loans.
On November 30, 2014, Moxian HK received HKD $500,000 (approximately $64,437) as a loan from Moxian China Limited (the “MCL HK Loan”). The term of such loan is twelve months and it bears no interest. On December 31, 2014, the Company, Moxian China Limited and Moxian HK entered into a Loan Agreement, where the Company agreed to issue a Note to Moxian China Limited for the repayment of the MCL HK Loan.
The Notes issued to Moxian China Limited by the Company in consideration of the MCL Shenzhen Loans, the MCL Malaysia Loans and the MCL HK Loan are of substantially similar terms. The Notes will be due and payable in one year and bears no interest. Upon consummation of a financing that generates at least $5,000,000 by the Company (“Qualified Financing”), the Notes shall automatically convert into shares of the Company’s Common Stock at a conversion price equal to the price of the Company’s securities sold in the Qualified Financing. If no Qualified Financing is consummated prior to the maturity date of Notes and as long as there remains any outstanding principal or interest of the Notes, holders of the Notes shall have the option to convert the Notes within 30 days after the maturity date at a conversion price that is equal to the volume weighted average price of Common Stock during a 20-day trading period prior to the conversion of the Notes.
On August 14, 2015, the Company issued 8,584,944shares of Common Stock to Moxian China Limited, Jet Key Limited, Ace Keen Limited, Morolling International HK Limited and Shenzhen Bayi Consulting Co Ltd as a result of the conversion of $8,584,944 of convertible promissory notes held by Moxian China Limited, Jet Key Limited, Ace Keen Limited, Morolling International HK Limited and Shenzhen Bayi Consulting Co Ltd at that moment at $1.00 per share.
| 6. | Capital stocks |
The Company entered into a subscription agreement (“Zhongtou Subscription Agreement”) with Zhongtou Huifeng Investment Management (Beijing) Co. Ltd. (“Zhongtou”) on April 24, 2015, whereby we agreed to sell an aggregate of 8,169,000 shares of the Company’s Common Stock at a per share price of $1.00 for gross proceeds of $8,190,000 (approximately RMB50,000,000) and to issue to Zhongtou for no additional consideration a warrant (the “Warrant”) to purchase in the aggregate of 32,000,000 shares (“Warrant Shares”) of Common Stock at an exercise price of $2.00 per share, exercisable on or prior to July 31, 2015. On June 4, 2015, the Company and Zhongtou entered into a Termination Agreement to terminate the Zhongtou Subscription Agreement as Zhongtou’s principals have determined to make the investment described in the Zhongtou Subscription Agreement through a different entity, Beijing Xinhua Huifeng Equity Investment Center (Limited Partnership) (“Xinhua”).
On June 4, 2015, the Company and Xinhua entered into a new Subscription Agreement (“Xinhua Subscription Agreement”) on substantially the same terms as the Zhongtou Subscription Agreement (the “Transaction”). Pursuant to the Xinhua Subscription Agreement, if the Company fails to contract with 25,000 new paying merchants by September 30, 2016, the Company shall issue an additional number of shares of Common Stock to Xinhua, equal to 50% of the accumulated number of Warrant Shares exercised and acquired by Xinhua as of September 30, 2016, for no additional consideration (“Make Good Provision”). The Make Good Provision will be available only if Xinhua has exercised the Warrant and acquired more than 16,000,000 Warrant Shares (the “Condition”). Further, the Company shall issue 4,000,000 shares of Common Stock to Xinhua for no additional consideration if the Company fails to publish its full working version of the Moxian mobile application version 2.0 by September 30, 2015, or if the Company fails to uplist to a national securities exchange in the U.S. by June 30, 2017. Xinhua shall also have the right to nominate (i) one member of the Company’s accounting department; and (ii) one member of the board of directors provided that the Condition has been met.
| 10 |
MOXIAN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| 6. | Capital stock (continued) |
On August 13, 2015, Xinhua and the Company entered into an Amendment Agreement (the “Amendment Agreement”) to amend certain terms under the Xinhua Subscription Agreement between the Company and Xinhua dated June 4, 2015 to September 30, 2015. Pursuant to the Xinhua Subscription Agreement, the Company will issue 8,190,000 shares of the Company’s Common Stock to Xinhua for $8,190,000 and grant the warrant (the “Warrant”) to purchase up to 32,000,000 shares of the Company’s Common Stock on or before July 31, 2015 (the “Expiration Date”) (such transaction, the “Transaction”). Pursuant to the Amendment Agreement (the “First Amendment Agreement”), the closing date of the Transaction was extended to September 30, 2015 and the Expiration Date of the Warrant was extended to September 30, 2015. As of the date of 2015 Annual Report, the Transaction has not closed yet and there are no shares or warrants issued to Xinhua.
As of December 16, 2015, the Company entered into a Second Amendment Agreement to the Subscription Agreement (the “Second Amendment Agreement”) with Xinhua. Under the Second Amendment Agreement, the closing date of the transaction was extended to December 31, 2015 and the Expiration Date of the Warrant was extended to December 31, 2015 as well. As of the date of this Report, the transaction has not closed yet. On January 8, 2016, the Company issued 6,276,311 of Common Stock of the Company to Xinhua, the issuance of shares to Xinhua was pursuant to the Subscription Agreement entered between the Company and Xinhua onJune 4, 2015, at the purchase price of $1.00.
On August 14, 2015, the Company issued an aggregate of 8,584,944 shares of Common Stock to Ace Keen Limited, Jet Key Limited, Morolling International HK Limited, and Shenzhen Bayi Consulting Co., Ltd (the “Noteholders”) as a result of the conversion of $8,584,944 of convertible promissory notes held by the Noteholders at $1.00 per share.
On August 14, 2015, due to the VWAP of 30 trading day prior to August 14, 2015 is higher than $1.00, which triggered the clause of conversion under the convertible promissory note (the “Rebel Note”) in the principal amount of $7,782,000 issued to REBL dated January 30, 2015, the Company provided a notice of conversion to REBL and elected to convert the amount of $3,891,000 under the Rebel Note into 3,891,000 shares of the Company’s Common Stock at the conversion price of $1.00.
On September 30, 2015, the Company notified REBL that it elected to cause it to convert the remainder of the Rebel Note into 3,891,000 shares of Common Stock (“September Conversion”). After the August Conversion and September Conversion, the entire Rebel Note was converted into the total of 7,782,000 shares of the Common Stock without any balance outstanding.
As of December 31, 2015 and September 30, 2015, there were no warrants or options outstanding to acquire any additional shares of Common Stock of the Company.
| 7. | Net loss per share |
The following table sets forth the computation of basic and diluted loss per share for the periods indicated:
| For the Three Months Ended December 31, | |||||||||
| 2015 | 2014 | ||||||||
| (Unaudited) | (Unaudited) | ||||||||
| Net loss attributable to ordinary shareholders for computing basic and diluted net loss per ordinary share | $ | 2,807,147 | $ | 987,261 | |||||
| Weighted average number of common shares outstanding – Basic and diluted | 214,666,944 | 198,300,000 | |||||||
| Basic net loss per share | $ | (0.01 | ) | $ | (0.00 | ) | |||
| Diluted net loss per share | $ | (0.01 | ) | $ | (0.00 | ) | |||
As of December 31, 2015, the Company had no ordinary shares equivalents outstanding that could potentially dilute basic income per share in the future.
| 11 |
MOXIAN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| 8. | Income taxes |
The Company and its subsidiaries file separate income tax returns.
The United States of America
Moxian is incorporated in the State of Nevada in the U.S., and is subject to a gradual U.S. federal corporate income tax of 15% to 35%. The State of Nevada does not impose any corporate state income tax.
British Virgin Islands
Moxian BVI is incorporated in the British Virgin Islands. Under the current laws of the British Virgin Islands, Moxian BVI is not subject to tax on income or capital gains. In addition, upon payments of dividends by Moxian BVI, no British Virgin Islands withholding tax is imposed.
Hong Kong
Moxian HK is incorporated in Hong Kong and Hong Kong’s profits tax rate is 16.5%. Moxian HK did not earn any income that was derived in Hong Kong for the three months ended December 31, 2015 and 2014, and therefore, Moxian HK was not subject to Hong Kong Profits Tax. The payments of dividends by Hong Kong companies are not subject to any Hong Kong withholding tax.
Malaysia
The management estimated that Moxian Malaysia will not generate any taxable income in the future.
Samoa
Moxian IP Samoa was incorporated in Samoa. Moxian IP Samoa did not generate taxable income or loss in Samoa for the period from January 30, 2015 (date of acquisition) to December 31, 2015.
Moxian CN Samoa was incorporated in Samoa. Moxian CN Samoa did not generate taxable income or loss in Samoa for the period from February 17, 2014 (date of inception) to December 31, 2015.
PRC
Effective from January 1, 2008, the PRC’s statutory income tax rate is 25%. The Company’s PRC subsidiaries are subject to income tax rate of 25%, unless otherwise specified.
Moxian Shenzhen was incorporated in the People’s Republic of China. Moxian Shenzhen did not generate taxable income in the People’s Republic of China for the period from April 8, 2013 (date of inception) to December 31, 2015. The management estimated that Moxian Shenzhen will not generate any taxable income in the future.
Moyi was incorporated in the People’s Republic of China. Moyi did not generate taxable income in the People’s Republic of China for the period from July 19, 2013 (date of inception) to December 31, 2015.
Moxian Beijing was incorporated in the People’s Republic of China. Moxian Beijing did not generate taxable income in the People’s Republic of China for the period from December 10, 2015 (date of inception) to December 31, 2015.
The Company’s effective income tax rates were 0.10% and 0% for the three-month period ended December 31, 2015 and 2014, respectively. Income tax expense mainly consists of foreign income tax at statutory rates and the effects of permanent and temporary differences.
The Company has a deferred tax asset on net operating losses of approximately $54,390 as of December 31, 2015. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those net operating losses are available. The Company considers projected future taxable income and tax planning strategies in making its assessment. At present, the Company does not have a sufficient operation in the Moxian Shenzhen, Moxian Malaysia and Moxian Beijing to conclude that it is more-likely-than-not that the Company will be able to realize all of its tax benefits in the near future and therefore a valuation allowance of $2,419,022 was established for the full value of the deferred tax asset.
A valuation allowance will be maintained until sufficient positive evidence exists to support the reversal of any portion or all of the valuation allowance. Should Moxian Shenzhen, Moxian Malaysia and Moxian Beijing start to have sufficient operation in future periods with supportable trend, the valuation allowance will be reversed accordingly.
| 12 |
MOXIAN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| 9. | Convertible Promissory Note |
Under the Equity Transfer Agreement described in Note 1, the Company and REBL agreed to terminate the License and Acquisition Agreement, dated February 21, 2014, whereby the Company was granted the exclusive right by REBL to use the intellectual property rights owned by Moxian IP, REBL’s subsidiary. In addition, we acquired all of the equity interests of Moxian BVI in consideration of $1,000,000 (the “Moxian BVI Purchase Price”). Immediately prior to the execution of the Equity Transfer Agreement, the Moxian BVI Purchase Price was not yet paid and no license maintenance royalty or earned royalty under the License and Acquisition Agreement had accrued.
Under the Equity Transfer Agreement, the Company and REBL agreed to terminate the License and Acquisition Agreement and all of the Company’s liabilities owed to REBL thereunder, other than the Moxian BVI Purchase Price, were released and discharged.
The Company agreed to issue to REBL a convertible promissory note for $7,782,000 (the “Note”), representing the sum of the Moxian IP Purchase Price and the Moxian BVI Purchase Price. The Note will become due and payable on October 30, 2015 and accrues interest at 1% per annum. The Company has the option to convert any and all amounts due under the Note into the Company’s common stock at the conversion price of $1.00 per share (“Conversion Price”), if the volume weighted average price (“VWAP”) of the Company’s common stock for a period of thirty (30) trading days immediately prior to the date of conversion is higher than the Conversion Price. The Company also has a right of first refusal to purchase the shares issuable upon conversion of the Note at the price of 80% of the VWAP for 30 trading days immediately prior to the date of the proposed repurchase by the Company. As of December 31, 2015, all convertible promissory note was converted into common stocks. (See Note 6)
The interest expenses for the three months ended December 31, 2015 and 2014 were $0, respectively.
| 13 |
MOXIAN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| 10. | Commitments and contingencies |
Operating Lease
The Company leases a number of properties under operating leases. Rental expenses under operating leases for the three months ended December 31, 2015 and 2014 were $181,409 and $55,248 respectively.
As of December 31, 2015, the Company was obligated under non-cancellable operating leases minimum rentals as follows:
| For the Fiscal Year Ending September 30 | (Unaudited) | ||||
| 2016 | $ | 503,159 | |||
| 2017 | 624,573 | ||||
| 2018 | 288,593 | ||||
| Thereafter | - | ||||
| Total minimum lease payments | $ | 1,416,325 | |||
Legal Proceeding
There has been no legal proceeding in which the Company is a party as of December 31, 2015.
| 11. | Subsequent events |
On January 8, 2016, the Company issued 6,276,311 of Common Stock of the Company to Beijing Xinhua Huifeng Equity Investment Centre (Limited Partnership) (“Xinhua”), the issuance of shares to Xinhua was pursuant to the Subscription Agreement entered between the Company and Xinhua on June 4, 2015.
The issuance of the Company’s securities described herein was effectuated pursuant to the exemption provided under Regulation S promulgated under the Securities Act of 1933, as amended.
| 14 |
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those financial statements appearing elsewhere in this Report.
Certain statements in this Report constitute forward-looking statements. These forward-looking statements include statements, which involve risks and uncertainties, regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “project,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” or the negative of these words or other variations on these words or comparable terminology. 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.
The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.
The "Company", "we," "us," and "our," refer to (i) Moxian, Inc., a Nevada corporation, (ii) Moxian CN Group Limited, a Samoa company, (iii) Moxian Group Limited, a British Virgin Islands company (“Moxian BVI”), (iv) Moxian Intellectual Property Limited, a Samoa company (“Moxian IP”), (v) Moxian (Hong Kong) Limited, a limited liability company incorporated under the laws of Hong Kong (“Moxian HK”), (vi) Moxian Technologies (Shenzhen) Co., Ltd. (“Moxian Shenzhen”), (vii) Moxian Malaysia SDN BHD (“Moxian Malaysia”), and (viii) Shenzhen Moyi Technologies Co. Ltd., a contractually controlled affiliate of Moxian Shenzhen formed under the laws of People’s Republic of China (“Moyi”) (ix) Moxian Technology (Beijing) Co., Ltd (“Moxian Beijing”).
Introduction
Overview
We are in the O2O (”Online-to-Offline”) business. While there are many definitions of O2O, with respect to our business, O2O means providing an online platform for small and medium sized enterprises (“SMEs”) with physical stores to conduct business online, interact with existing customers and obtain new customers. We refer to our customers as “Merchant Clients” and the users of our platform that are their existing and potential customers as “Users.” Through our platform and the products and services offered through it, we seek to create interaction between our Users and Merchant Clients by allowing Merchant Clients to study consumer behavior. Our products and services are designed to allow Merchant Client to conduct targeted advertising campaigns and promotions which we believe are more effective because they are geared for the customers that a Merchant Client wishes to reach. Our platform is also designed and built to encourage Users to return and obtain new Users, each of which is a potential customer for our Merchant Clients.
| 15 |
Where we believe we are different from other companies in that our plan is to sign up merchants first and build our user base utilizing their customers. Many companies utilize a different strategy of building up a user base and then signing up paying merchants and other clients to access that user base.
The current version of our platform is called “Moxian+” which consists of our user mobile application (“App”) called the Moxian+ User App and a separate App for our Merchant Clients called the Moxian+ Business App. Both versions of the App are currently available in the Google Play Store and the Apple App Store. There is no charge to download either App. We also have a website that can be accessed at www.moxian.com where either App can also be downloaded.
Moxian principally operates in mainland China with its headquarters in Shenzhen, China. We launched Moxian version 1.0 in Malaysia in June 2013 and subsequently in China in July 2014. In 2015, we developed the Apps as part of “Moxian+,” the successor to Moxian version 1.0 which was then officially launched in October, 2015 in China only.
We are currently in the process of expanding our operations to Beijing, Shanghai and Guangzhou.
As of December 31, 2015 and September 30, 2015, our accumulated deficits were $(13,979,040) and $(11,174,812), respectively. Our stockholders’ equity was $2,806,301 and $5,505,091, respectively. We have so far generated $5,584 in revenue in three months ended December 31, 2015. Our losses have principally been attributed to operating expenses, administrative and other operating expenses.
Results of Operations
For the three months ended December 31, 2015 compared with the three months ended December 31, 2014
Gross Revenues
The Company received sales revenues of $5,584 for the three months ended December 31, 2015 compared to $45,505 being generated for the three months ended December 31, 2014.
Operating Expenses
Operating expenses for the three months ended December 31, 2015 and three months ended December 31, 2014 were $2,370,366 and $989,785, respectively. The expenses consisted of filing fees, professional fees,research and development expenses, payroll and benefits and other general expenses.
We expect that our general and administrative expenses will continue to increase as we incur additional costs to support the growth of our business.
Net Profit/(Loss)
Net loss for the three months ended December 31, 2015 and three months ended December 31, 2014, were ($2,804,228) and ($987,261), respectively. Basic and diluted net income (loss) per share amounted ($0.01) and ($0.00) respectively for the three months ended December 31, 2015 and three months ended December 31, 2014.
The increase in net loss for the three months ended December 31, 2015 and three months ended December 31, 2014 was due to an increase in general and administrative expenses.
Liquidity and Capital Resources
At three months ended December 31, 2015, we had working capital deficit of ($6,750,658) consisting of cash on hand of $1,249,611 as compared to working capital of ($4,089,365) and cash on hand of $2,398,713 as of September 30, 2015.
Net cash used in operating activities for the three months ended December 31, 2015 was ($1,473,735) as compared to net cash used in operating activities of ($1,246,806) for the three months ended December 31, 2014. The cash used in operating activities are mainly for filing fees, professional fees, research and development expenses, payroll and benefits and general expenses.
Net cash used in investing activities for the three months ended December 31, 2015 was ($428,305) as compared to ($20,109) for the quarter ended December 31, 2014.
Net cash provided by financing activities for the three months ended December 31, 2015 was $775,883 as compared to $418,931 for the three months ended December 31, 2014.
| 16 |
Critical Accounting Policies and Estimates
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at dates of the financial statements and the reported amounts of revenue and expenses during the periods. Actual results could differ from these estimates. Our significant estimates and assumptions include depreciation and the fair value of our stock, stock-based compensation, debt discount and the valuation allowance relating to the Company’s deferred tax assets.
Recently Issued Accounting Pronouncements
Reference is made to the “Recent Accounting Pronouncements” in Note 2 to the Financial Statements included in this Report for information related to new accounting pronouncement, none of which had a material impact on our consolidated financial statements, and the future adoption of recently issued accounting pronouncements, which we do not expect will have a material impact on our consolidated financial statements.
Off-Balance Sheet Arrangements
As of December 31, 2015, we did not have any off-balance sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).
ITEM 4. CONTROLS AND PROCEDURES
Disclosures Control and Procedures
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
| 17 |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of December 31, 2015, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this Report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; (3) ineffective controls over period end financial disclosure and reporting processes; and (4) lack of written policies and procedures for accounting and financial reporting. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of December 31, 2015.
Management believes that the material weaknesses set forth in items (2) and (3) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee, the lack of a majority of outside directors on our board of directors, and the lack of written policies and procedures for accounting and financial reporting results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
Management’s Remediation Initiatives
In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
| (1) | We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. The accounting personnel is responsible for reviewing the financing activities, facilitate the approval of the financing, record the information regarding the financing, and submit SEC filing related documents to our legal counsel in order to comply with the filing requirements of SEC. | |
| (2) | We plan to appoint additional outside directors to our board of directors who may be appointed to our audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us. | |
| (3) | We will add financial personnel to our management team. These additional staff members will be responsible for making sure that information required to be disclosed in our reports filed and submitted under the Exchange Act is recorded, processed, summarized and reported as and when required and will the staff members will have segregated responsibilities with regard to these responsibilities. | |
| (4) | We plan to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity and debt transactions. |
We anticipate that these initiatives will be at least partially, if not fully, implemented by the end of fiscal year of 2016. Additionally, we plan to test our updated controls and remediate our deficiencies by the end of fiscal year of 2016.
Changes in internal controls over financial reporting
There was no change in our internal controls over financial reporting that occurred during the period covered by this Report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
| 18 |
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS.
Not applicable to a smaller reporting company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On January 8, 2016, the Company issued 6,276,311 of Common Stock of the Company to Beijing Xinhua Huifeng Equity Investment Centre (Limited Partnership) (“Xinhua”), the issuance of shares to Xinhua was pursuant to the Subscription Agreement entered between the Company and Xinhua on June 4, 2015.
The issuance of the Company’s securities described herein was effectuated pursuant to the exemption provided under Section 3(a)(9) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
| Exhibit No. | Description | |
| 31.1 | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive and financial officer | |
| 32.1 | Section 1350 Certification of principal executive officer and principal financial and accounting officer | |
| 101* | XBRL data files of Financial Statements and Notes contained in this Quarterly Report on Form 10-Q. |
* In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed.”
| 19 |
SIGNATURES
Pursuant to the requirements 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.
| Moxian, Inc. | ||
| Date: February 22, 2016 | By: | /s/ James Mengdong Tan |
| Name: | James Mengdong Tan | |
| Title: | Chief Executive Officer, President, Treasurer, Secretary, Director | |
| (Principal Executive and Financial Officer) | ||
20