| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GOING
CONCERN The
accompanying unaudited condensed consolidated financial statements were prepared assuming 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. For the nine months ended March 31, 2020 and 2019, the Company had a net loss of $1.71 million and $1.28 million,
respectively. The Company has an accumulated deficit of $7.26 million as of March 31, 2020. This raise substantial doubt about
the Company's ability to continue as a going concern. There can be no assurance that the Company will become profitable
or obtain necessary financing for its business or that it will be able to continue in business. The Company is currently seeking to modify its products and software
to assist schools and communities in addressing the coronavirus outbreak, providing possible remedy and prevention for the future
outbreak after school resumes and public community reverts to social activities by promoting Epidemic Prevention and Control Systems. Management
also intends to raise additional funds by way of a private or public offering, or by obtaining loans from banks or others which
are planned to be used altogether with operating turnover to support Company's R&D, procurement, marketing and daily
operation , while the Company believes in the viability of its strategy to 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
unaudited condensed consolidated financial statements 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. BASIS
OF PRESENTATION AND CONSOLIDATION The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP") and applicable rules and regulations of the Securities
and Exchange Commission ("SEC") regarding interim financial reporting. The accompanying unaudited condensed consolidated
financial statements include the financial statements of the Company and its 100% owned subsidiaries of Shuhai Skill (HK), Tianjin
Information and its VIE, Shuhai Beijing, and its subsidiaries – Xunrui and Guozhong Times. All significant inter-company
transactions and balances have been eliminated in consolidation. The
accompanying unaudited interim condensed consolidated financial statements ("CFS") have been prepared pursuant to
the rules and regulations of the SEC. The information furnished herein reflects all adjustments (consisting of normal recurring
accruals and adjustments and elimination of intercompany transactions upon consolidation) which are, in the opinion of management,
necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally
present in the annual consolidated financial statements prepared in accordance with US GAAP have been omitted pursuant to such
rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes for the year ended June 30, 2019. The results for the three and nine months ended
March 31, 2020 are not necessarily indicative of the results to be expected for the full year ending June 30, 2020. VARIABLE
INTEREST ENTITY Pursuant
to Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Section
810, "Consolidation" ("ASC 810"), the Company is required to include in its consolidated financial
statements, the financial statements of Shuhai Beijing, its VIE. ASC 810 requires a VIE to be consolidated if the company is
subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE's residual
returns. A VIE is an entity in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards
normally associated with ownership of the entity, and therefore the company is the primary beneficiary of the
entity. Under
ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the reporting entity
has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affect the
VIE's economic performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially
be significant to the VIE. The reporting entity's determination of whether it has this power is not affected by the existence
of kick-out rights or participating rights, unless a single enterprise, including its related parties and de - facto agents, have
the unilateral ability to exercise those rights. Shuhai Beijing's actual stockholders do not hold any kick-out rights that
affect the consolidation determination. Through
the VIE agreements, the Company is deemed the primary beneficiary of Shuhai Beijing and its subsidiaries. Accordingly, the results
of Shuhai Beijing and its subsidiaries have been included in the accompanying unaudited condensed consolidated financial statements.
Shuhai Beijing has no assets that are collateral for or restricted solely to settle their obligations. The creditors of Shuhai
Beijing do not have recourse to the Company's general credit. VIE
Agreements Operation
and Intellectual Property Service Agreement Shareholders'
Voting Rights Entrustment Agreement Equity
Option Agreement Information
or its designee(s) the irrevocable right and option to acquire all or a portion of Shuhai Beijing Shareholders' equity interests
in Shuhai Beijing for an option price of RMB 0.001 for each capital contribution of RMB1.00. Pursuant to the terms of the Option
Agreement, Tianjin Information and the Shuhai Beijing shareholders have agreed to certain restrictive covenants to safeguard
the rights of Tianjin Information under the option Agreement. Tianjin Information agreed to pay RMB1.00 annually to Shuhai Beijing
Shareholders to maintain the option rights. Tianjin Information may terminate the Option Agreement upon prior written notice.
The Option Agreement is valid for a period of 10 years from the effective date and renewable at Tianjin Information's option. Equity
Pledge Agreement The
following financial statement amounts and balances of the VIE were included in the accompanying condensed consolidated financial
statements as of March 31, 2020 and June 30, 2019 and for the nine and three months ended March 31, 2020 and 2019, respectively:
March 31, June 30,
Current assets $ 546,373 $ 1,573,413
Non-current assets 990,548 96,927
Total assets $ 1,536,921 $ 1,670,340
Current liabilities $ 1,863,810 $ 6,232,836
Non-current liabilities 421,558 -
Total liabilities $ 2,285,368 $ 6,232,836
For the For the
Revenues $ - $ -
Gross profit $ - $ -
Net loss $ 235,541 $ 944,617
For the For the
Revenues $ - $ -
Gross profit $ - $ -
Net loss $ 291,011 $ 1,107,119 USE
OF ESTIMATES The
preparation of unaudited condensed consolidated financial statements in conformity with US GAPP 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 of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates. The significant areas requiring the use of management estimates include, but are not
limited to, the estimated useful life and residual value of property, plant and equipment, provision for staff benefits, recognition
and measurement of deferred income taxes and the valuation allowance for deferred tax assets. Although these estimates are based
on management's knowledge of current events and actions management may undertake in the future, actual results may ultimately
differ from those estimates and such differences may be material to our unaudited condensed consolidated financial statements. CONTINGENCIES Certain
conditions may exist as of the date the unaudited condensed consolidated 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's
management and legal counsel assess 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's legal counsel 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. If the assessment of a contingency
indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated
liability would be accrued in the Company's unaudited condensed consolidated 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, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable
and material, would be disclosed. As of March 31, 2020 and June 30, 2019, the Company has no such contingencies. CASH
AND CASH EQUIVALENTS Cash
and cash equivalents include cash on hand, demand deposits and short-term cash investments that are highly liquid in nature and
have original maturities of three months or less. RESTRICTED
CASH Restricted
cash represents cash held in an indemnification escrow account related to requirements of the financing agreement signed with
the underwriter of the Company's initial public offering for a period of 18 months or longer subsequent to the closing of
the initial public offering on December 21, 2018, but in no event it shall be held in escrow for longer than 24 months. INVENTORY Inventory
comprised principally of smart student identification cards related to the Company's "Safe Campus" security
products, as well as products associated therewith comprised of routers to be used in installations, is valued at the lower of
cost or net realizable value. The value of inventory is determined using the first-in, first-out method. The Company periodically
estimates an inventory allowance for estimated unmarketable inventories when necessary. Inventory amounts are reported net of
such allowances. There were no allowances for inventory as of March 31, 2020 and June 30, 2019 . PROPERTY
AND EQUIPMENT Property
and equipment are stated at cost, less accumulated depreciation. Major repairs and improvements that significantly extend original
useful lives or improve productivity are capitalized and depreciated over the period benefited. Maintenance and repairs are expensed
as incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are
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 over estimated useful lives as follows:
Furniture and fixtures 5-10 years
Office equipment 3-5 years
Vehicles 5 years
Lease improvement 3 years Leasehold
improvements are depreciated utilizing the straight-line method over the shorter of their estimated useful lives or remaining
lease term. INTANGIBLE
ASSETS Intangible
assets with finite lives are amortized using the straight-line method over their estimated period of benefit. Evaluation of the
recoverability of intangible assets is made to take into account events or circumstances that warrant revised estimates of useful
lives or that indicate that impairment exists. All of the Company's intangible assets are subject to amortization. No impairment
of intangible assets has been identified as of the balance sheet date. Intangible
assets include licenses, certificates, patents and other technology and are amortized over their useful life of five to ten years. FAIR
VALUE ("FV") OF FINANCIAL INSTRUMENTS Certain
of the Company's financial instruments, including cash and equivalents, accrued liabilities and accounts payable, carrying
amounts approximate their 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 current
liabilities each qualify as financial instruments and are 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 Topic 820, "Fair Value Measurements," defines fair value, and establishes a three-level valuation hierarchy for
disclosures that enhances disclosure requirements for fair value measures. The three levels are defined as follows:
● Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
● Level
2 inputs to the valuation methodology include other than those in level 1 quoted prices for similar assets and liabilities
in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially
the full term of the financial instrument.
● Level
3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. The
carrying value of the Company's short-term financial instruments, such as accounts payable, approximate their fair values
due to their short maturities. As
of March 31, 2020 and June 30, 2019, the Company did not identify any assets and liabilities that are required to be presented
on the balance sheet at fair value on a recurring basis. IMPAIRMENT
OF LONG-LIVED ASSETS In
accordance with FASB ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets such as
property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value
of an asset may not be recoverable, or it is reasonably possible that these assets could become impaired as a result of technological
or other changes. The determination of recoverability of assets to be held and used is made by comparing the carrying amount of
an asset to future undiscounted cash flows to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount
of the asset exceeds its fair value. Fair value generally is determined using the asset's expected future discounted cash
flows or market value, if readily determinable. Assets to be disposed of are reported at the lower of the carrying amount
or fair value less cost to sell. During the reporting periods there was no impairment loss recognized on long-lived assets. LEASES On
July 1, 2019, 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 July 1, 2019 are presented under Topic 842, while prior period amounts have not been 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 July 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 condensed consolidated statements of income on a straight-line basis over the lease term. The
adoption did not impact its beginning retained earnings, or its prior year consolidated statements of income and statements of
cash flows. Under
Topic 842, the Company determines if an arrangement is a lease at inception. Right of Use Assets ("ROU") and lease
liabilities are 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, it 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 assets include adjustments for prepayments and accrued
lease payments. The ROU asset also includes any lease payments 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 right-of-use assets and operating lease liabilities (current and non-current), on the condensed
consolidated balance sheets. At March 31, 2020, the net ROU was $758,162, and total operating lease liabilities (includes
current and noncurrent) was $769,956. REVENUE
RECOGNITION On
July 1, 2018, the Company adopted Accounting Standards Update ("ASU") 2014-09 (and related amendments subsequently
issued in 2016), Revenue from Contracts with Customers (ASC 606), by using the modified retrospective method for contracts that
were not completed as of July 1, 2018. This did not result in an adjustment to retained earnings upon adoption of this new
guidance, as the Company's revenue was recognized based on the amount of consideration, we expect to receive in exchange
for satisfying the performance obligations. The
core principle underlying the ASC 606 is that the Company will recognize revenue to represent the transfer of goods and services
to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will
require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point
in time or over time, based on when control of goods and services transfers to a customer. The Company's revenue streams
are recognized at a point in time, based on when control of goods and services transfers to a customer. ASC
606 requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that
the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine
the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will
not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue
when (or as) the Company satisfies each performance obligation. The application of the five-step model to the revenue streams
compared to the prior guidance did not result in significant changes in the way the Company records its revenue. Upon adoption,
the Company evaluated its revenue recognition policy for all revenue streams within the scope of the ASC 606 under previous standards
and using the five-step model under the new guidance and confirmed that there were no differences in the pattern of revenue recognition. The
Company is seeking to derive its revenues from professional service contracts with its customers, with revenues being recognized
upon delivery of services and products. Persuasive evidence of an arrangement is demonstrated via professional service contracts
and invoices; and the service price to the customer is fixed upon acceptance of the professional services contract. The Company
will recognize revenue when professional service is rendered to the customer by the Company and collectability of payment is reasonably
assured. These revenues will be recognized at a point in time after all performance obligations are satisfied. INCOME
TAXES The
Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, "Income Taxes."
Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current period
and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity's
financial statements or tax returns. Deferred tax assets also include the prior years' net operating losses carried forward.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance
is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence,
it is more likely than not some portion or all of the deferred tax assets will not be realized. The
Company follows ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. 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 ASC Topic 740, when tax returns are filed, it is highly certain that some positions taken would be sustained
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
in the period during which, based on all available evidence, management believes it is more likely than not that the position
will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are
not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured
as the largest amount of tax benefit that is more than 50 percent likely of being realized upon 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
is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statement
of income. At March 31, 2020 and June 30, 2019, the Company did not take any uncertain positions that would necessitate
recording a tax related liability. RESEARCH
AND DEVELOPMENT EXPENSES Research and development expenses are
expensed in the period when they are incurred. For the three and nine months ended March 31, 2020, the Company incurred research
and development expenses of $229,146 and $799,511, respectively. For the three and nine months ended March 31, 2019, the
Company incurred research and development expenses of $29,218 and $133,103, respectively. CONCENTRATION
OF CREDIT RISK The
Company maintains cash in accounts with state-owned banks within the PRC. Cash in state-owned banks less than RMB500,000 ($71,806)
is covered by insurance. Should any of these institutions holding the Company's cash become insolvent, or if the Company
is unable to withdraw funds for any reason, the Company could lose the cash on deposit with that institution. The Company has
not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in these bank accounts. Cash
denominated in RMB with a U.S. dollar equivalent of $1,584,380 and $1,395,104 at March 31, 2020 and June 30, 2019, respectively,
were held in accounts at financial institutions located in the PRC‚ which is not freely convertible into foreign currencies.
The Company, its subsidiaries and VIE have not experienced any losses in such accounts and do not believe the cash is exposed
to any significant risk. Cash held in accounts at U.S. financial institutions are insured by the Federal Deposit Insurance Corporation
or other programs subject to certain limitations up to $250,000 per depositor. As of March 31, 2020, the cash balance of approximately
$410,138 was maintained at U.S. financial institutions, of which approximately $160,000 was not insured. Cash was maintained at
financial institutions in Hong Kong, and were insured by the Hong Kong Deposit Protection Board up to a limit of HK $500,000 (approximately
$64,000). As of March 31, 2020, the cash balance of approximately $16,293 was maintained at financial institutions in Hong Kong. FOREIGN
CURRENCY TRANSLATION AND COMPREHENSIVE INCOME (LOSS) The
accounts of the Company's Chinese entities are maintained in RMB and the accounts of the U.S. parent company are maintained
in United States dollars("USD") The accounts of the Chinese entities were translated into USD in accordance with ASC
Topic 830 "Foreign Currency Matters." All assets and liabilities were translated at the exchange rate on the balance
sheet date; stockholders' equity is translated at historical rates and the statements of operations and cash flows are translated
at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive
income (loss) in accordance with ASC Topic 220, "Comprehensive Income." Gains and losses resulting from foreign currency
transactions are reflected in the statements of operations. The
Company follows FASB ASC Topic 220-10, "Comprehensive Income (loss)." Comprehensive income(loss) comprises net income(loss)
and all changes to the statements of changes in stockholders' equity, except those due to investments by stockholders, changes
in additional paid-in capital and distributions to stockholders. The
exchange rates used to translate amounts in RMB to USD for the purposes of preparing the consolidated financial statements were
as follows
March 31, March 31, June 30,
2020 2019 2019
Period end USD: RMB exchange rate 7.0851 6.7121 6.8668
Average USD: RMB exchange rate 6.9993 6.8271 6.8263 BASIC
AND DILUTED EARNINGS (LOSS) PER SHARE (EPS) Basic
EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS is computed similarly, except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares
were dilutive. Diluted EPS are based on the assumption that all dilutive convertible shares and stock options were converted or
exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to
have been 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. STATEMENT
OF CASH FLOWS In
accordance with FASB ASC Topic 230, "Statement of Cash Flows," cash flows from the Company's operations
are calculated based upon the local currencies. As a result, amounts shown on the statement of cash flows may not necessarily
agree with changes in the corresponding asset and liability on the balance sheet. RECENT
ACCOUNTING PRONOUNCEMENTS 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 fair value hierarchy. The guidance is effective for fiscal years beginning after December 15, 2019,
and interim periods within those fiscal years, with early adoption permitted for any eliminated or modified disclosures.
The adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements
or disclosures. In
December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting
for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance
to promote consistent application among reporting entities. The guidance is effective for fiscal years beginning after December 15,
2020, and interim periods within those fiscal years, with early adoption permitted. Upon adoption, the Company must apply
certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective
basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company
is evaluating the impact this update will have on its Consolidated Financial Statements. |
