UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

  

Form 10-Q

  

    Quarterly Report PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

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 000-54485

 

IONIX TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   45-0713638
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

No. 279 Zhongnan Road, Zhongshan District, Dalian City, Liaoning Province, China 116000

(Address of principal executive offices) (Zip Code)

 

+86-138 8954 0873

(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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

 

  Large accelerated filer  ☐ Accelerated filer  ☐
  Non-accelerated filer  ☐ Smaller reporting company  ☒
  Emerging growth company  ☐  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒.

 

Securities registered pursuant to Section 12(b) of the Act : None

 

Title of each class Trading Symbol(s) Name of the principal U.S. market
Common Stock, par value $0.0001 per
share
IINX OTCQB marketplace of OTC Markets, Inc.

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of May 14, 2019, there were 114,003,000 shares of common stock issued and outstanding, par value $0.0001 per share.

 

 

     
 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain information included in this Quarterly Report on Form 10-Q and other filings of the Registrant under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as information communicated orally or in writing between the dates of such filings, contains or may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements in this Quarterly Report on Form 10-Q, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from expected results. Among these risks, trends and uncertainties are the availability of working capital to fund our operations, the competitive market in which we operate, the efficient and uninterrupted operation of our computer and communications systems, our ability to generate a profit and execute our business plan, the retention of key personnel, our ability to protect and defend our intellectual property, the effects of governmental regulation, and other risks identified in the Registrant’s filings with the Securities and Exchange Commission from time to time.

 

In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology. Although the Registrant believes that the expectations reflected in the forward-looking statements contained herein are reasonable, the Registrant cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the Registrant, nor any other person, assumes responsibility for the accuracy and completeness of such statements. The Registrant is under no duty to update any of the forward-looking statements contained herein after the date of this Quarterly Report on Form 10-Q.

 

     
 

 

IONIX TECHNOLOGY, INC.

FORM 10-Q

March 31, 2019

  

INDEX

    Page
Part I – Financial Information F-1
     
Item 1. Financial Statements (Unaudited) F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Item 4. Controls and Procedures 18
     
Part II – Other Information 19
     
Item 1. Legal Proceedings 19
Item 1A. Risk Factors 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 20
     
Signatures 22
     
Certifications  

 

     
 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements .

 

 

INDEX F-1
Consolidated Balance Sheets as of March 31, 2019 and June 30, 2018 (Unaudited) F-2
Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended March 31, 2019 and
2018 (Unaudited)
F-3

Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended March 31, 2019 and 2018 (Unaudited)

F-4
Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2019 and 2018 (Unaudited) F-5
Notes to Consolidated Financial Statements (Unaudited) F-6

 

  F- 1    
 

 

IONIX TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS 

(Unaudited)

 

    March 31, 2019     June 30, 2018  
ASSETS                
Current Assets:                
Cash   $ 494,820     $ 111,462  
Notes receivable     14,900       -  
Accounts receivable - non-related parties     2,849,694       636,413  
- related parties     140,306       119,543  
Inventory     3,965,274       226,839  
Advances to suppliers - non-related parties     158,965       3,164  
- related parties     317,280       206,194  
Prepaid expenses and other current assets     158,689       20,592  
Total Current Assets     8,099,928       1,324,207  
                 
Property, plant and equipment, net     6,644,070       -  
Intangible assets, net     4,537,698       -  
Deferred tax assets     59,980       -  
Total Assets   $ 19,341,676     $ 1,324,207  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current Liabilities:                
Short-term bank loan   $ 2,682,084     $ -  
Accounts payable - non-related parties     3,419,426       264,171  
- related parties     -       248,543  
Advance from customers     22,312       59,546  
Due to related parties     2,793,610       212,557  
Accrued expenses and other current liabilities     288,111       125,733  
Total Current Liabilities     9,205,543       910,550  
                 
Deferred tax liability     -       15,242  
Total Liabilities     9,205,543       925,792  
                 
COMMITMENT AND CONTINGENCIES                
                 
Stockholders’ Equity:                
Preferred stock, $.0001 par value, 5,000,000 shares authorized,  
5,000,000 shares issued and outstanding
    500       500  

Common stock, $.0001 par value, 195,000,000 shares authorized,
114,003,000 and 99,003,000 shares issued and outstanding as of March 31, 2019

and June 30, 2018, respectively

    11,400       9,900  
Additional paid in capital     9,707,485       237,246  
Retained earnings     347,890       142,819  
Accumulated other comprehensive income     36,473       7,950  
Total Stockholders' Equity attributable to the Company     10,103,748       398,415  
Noncontrolling interest     32,385       -  
Total Stockholders’ Equity     10,136,133       398,415  
Total Liabilities and Stockholders’ Equity   $ 19,341,676     $ 1,324,207  

 

The accompanying notes are an integral part of these consolidated financial statements. 

 

  F- 2    
 

 

IONIX TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) 

 

    For the Three Months Ended     For the Nine Months Ended  
    March 31,     March 31,  
    2019     2018     2019     2018  
                         
Revenues - Non-related parties   $ 2,597,052     $ 1,054,933     $ 7,301,591     $ 2,187,418  
Revenues - Related parties     -       -       115,897       -  
Total Revenues     2,597,052       1,054,933       7,417,488       2,187,418  
                                 
  Cost of revenues - Non-related parties     1,913,214       38,725       2,955,038       152,628  
                           - Related parties     111,116       906,924       3,305,275       1,785,595  
  Total Cost of Revenues     2,024,330       945,649       6,260,313       1,938,223  
                                 
  Gross profit     572,722       109,284       1,157,175       249,195  
                                 
Operating expenses                                
  Selling, general and administrative expense     550,965       57,927       846,871       188,955  
Total operating expenses     550,965       57,927       846,871       188,955  
                                 
Income from operations     21,757       51,357       310,304       60,240  
                                 
Other income (expense):                                
  Other income     50,736       -       68,424       -  
  Interest expense, net of interest income     (34,412 )     -       (34,412 )     -  
Total other income     16,324       -       34,012       -  
                                 
Income before income tax provision     38,081       51,357       344,316       60,240  
Income tax provision     17,017       6,197       139,245       15,570  
Net income     21,064       45,160       205,071       44,670  
                                 
Other comprehensive income                                
  Foreign currency translation adjustment     56,484       10,758       28,523       19,377  
Comprehensive income   $ 77,548     $ 55,918     $ 233,594     $ 64,047  
                                 
                                 
Income Per Share - Basic and Diluted   $ 0.00     $ 0.00     $ 0.00     $ 0.00  
Weighted average number of common shares outstanding - Basic and Diluted     114,003,000       99,003,000       104,148,985       99,003,000  

 

The accompanying notes are an integral part of these consolidated financial statements. 

 

  F- 3    
 

 

IONIX TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

 

  Preferred Stock     Common Stock     Additional           Accumulated Other              
   

Number of

Shares

    Amount    

Number of

Shares

    Amount     Paid in
Capital
    Retained
Earnings
   

Comprehensive

Income (loss)

   

Non-controlling

Interest

    Total  
Balance at June 30, 2018     5,000,000     $ 500       99,003,000     $ 9,900     $ 237,246     $ 142,819     $ 7,950     $ -     $ 398,415  
Net income     -       -       -       -       -       177,153       -       -       177,153  
Foreign currency translation adjustment     -       -       -       -       -       -       (7,922 )     -       (7,922 )
Balance at September 30, 2018     5,000,000       500       99,003,000       9,900       237,246       319,972       28       -       567,646  

Issuance of 15,000,000 shares of common stock in

exchange for 95.14% ownership rights of a variable interest

entity

    -       -       15,000,000       1,500       4,998,500       -       -       90,540       5,090,540  
Net income     -       -       -       -       -       6,854       -       -       6,854  
Foreign currency translation adjustment     -       -       -       -       -       -       (20,039 )     -       (20,039 )
Balance at December 31, 2018     5,000,000       500       114,003,000       11,400       5,235,746       326,826       (20,011 )     90,540       5,645,001  
Forgiveness of related party loan     -       -       -       -       4,471,739       -       -       -       4,471,739  
Return of capital     -       -       -       -       -       -       -       (58,155 )     (58,155 )
Net income     -       -       -       -       -       21,064       -       -       21,064  
Foreign currency translation adjustment     -       -       -       -       -       -       56,484       -       56,484  
Balance at March 31, 2019     5,000,000     $ 500       114,003,000     $ 11,400     $ 9,707,485     $ 347,890     $ 36,473     $ 32,385     $ 10,136,133  

 

  Preferred Stock     Common Stock     Additional     Retained Earnings     Accumulated Other              
   

Number of

Shares

    Amount    

Number of

Shares

    Amount     Paid in
Capital
   

(Accumulated

Deficit)

   

Comprehensive

Income (loss)

   

Non-controlling

Interest

    Total  
Balance at June 30, 2017     5,000,000     $ 500       99,003,000     $ 9,900     $ 237,246     $ (183,441 )   $ (2,151 )   $            -     $ 62,054  
Net loss     -       -       -       -       -       (10,204 )     -       -       (10,204 )
Foreign currency translation adjustment     -       -       -       -       -       -       3,688       -       3,688  
Balance at September 30, 2017     5,000,000       500       99,003,000       9,900       237,246       (193,645 )     1,537       -       55,538  
Net income     -       -       -       -       -       9,714       -       -       9,714  
Foreign currency translation adjustment     -       -       -       -       -       -       4,931       -       4,931  
Balance at December 31, 2017     5,000,000       500       99,003,000       9,900       237,246       (183,931 )     6,468       -       70,183  
Net income     -       -       -       -       -       45,160       -       -       45,160  
Foreign currency translation adjustment     -       -       -       -       -       -       10,758       -       10,758  
Balance at March 31, 2018     5,000,000     $ 500       99,003,000     $ 9,900     $ 237,246     $ (138,771 )   $ 17,226     $ -     $ 126,101  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  F- 4    
 

 

IONIX TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    For the Nine Months Ended  
    March 31,  
    2019     2018  
CASH FLOWS FROM OPERATING ACTIVITIES                
Net income   $ 205,071     $ 44,670  

Adjustments required to reconcile net income to net cash provided by (used

in) operating activities:

               
  Depreciation and amortization     184,172       -  
  Deferred taxes     (15,732 )     -  
Changes in operating assets and liabilities:                
  Accounts receivable - non related parties     593,935       250,770  
  Accounts receivable - related parties     (22,607 )     -  
  Inventory     (774,776 )     (96,298 )
  Advances to suppliers - non-related parties     13,826       122,315  
  Advances to suppliers - related parties     (114,802 )     (234,503 )
  Prepaid expenses and other current assets     (75,559 )     (10,570 )
  Accounts payable - non-related parties     (645,258 )     113,062  
  Accounts payable - related parties     (198,782 )     (67,397 )
  Advance from customers     (61,014 )     29,477  
  Accrued expenses and other current liabilities     10,938       (44,979 )
Net cash provided by (used in) operating activities     (900,588 )     106,547  
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
  Other receivables     -       153,292  
  Acquisition of property, plant and equipment     (38,375 )     -  
  Cash received from acquisition     687,591       -  
Net cash provided by investing activities     649,216       153,292  
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
  Notes receivable     54,451       -  
  Return of capital to non-controlling interests     (58,155 )     -  
  Proceeds from (repayment of) loans from related parties     591,766       (94,920 )
Net cash provided by (used in) financing activities     588,062       (94,920 )
                 
Effect of exchange rate changes on cash     46,668       18,676  
                 
Net increase in cash     383,358       183,595  
                 
Cash, beginning of period     111,462       186,767  
                 
Cash, end of period   $ 494,820     $ 370,362  
                 
Supplemental disclosure of cash flow information:                
  Cash paid for income tax   $ 144,124     $ 10,484  
  Cash paid for interests   $ 35,250     $ -  
                 
Non-cash investing activities                

  Issuance of 15,000,000 shares of common stock in exchange for 95.14%

ownership rights of a variable interest entity

  $ 5,000,000     $ -  
  Forgiveness of related party loan which converted to capital   $ 4,471,739     $ -  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  F- 5    
 

 

IONIX TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 42, 2019

(Unaudited)

 

NOTE 1 - NATURE OF OPERATIONS

 

Ionix Technology, Inc. (the “Company” or “Ionix”) is a Nevada corporation that was formed on March 11, 2011. By and through its wholly owned subsidiaries and an entity controlled through VIE agreements in China, the Company sells the high-end intelligent electronic equipment, which includes portable power banks for electronic devices and LCD screens in China.

 

Acquisition

 

On December 27, 2018, Ionix Technology, Inc. (the “Company”) entered into a Share Purchase Agreement (the “Purchase Agreement”) with Jialin Liang and Xuemei Jiang, each of whom are shareholders (the “Shareholders”) of Changchun Fangguan Electronics Technology Co., Ltd. (“Fangguan Electronics”). Pursuant to the terms of the Purchase Agreement, the Shareholders, who together own 95.14% of the ownership rights in Fangguan Electronics, agreed to execute and deliver the Business Operation Agreement dated December 27, 2018, the Equity Interest Pledge Agreement dated December 27, 2018, the Equity Interest Purchase Agreement dated December 27, 2018, the Exclusive Technical Support Service Agreement dated December 27, 2018 (the “Services Agreement”) and the Power of Attorney dated December 27, 2018, all together are referred to the “VIE Transaction Documents”, to the Company in exchange for the issuance of an aggregate of 15,000,000 shares of the Company’s common stock, par value $.0001 per share (the “Common Stock”), thereby causing Fangguan Electronics to become the Company’s variable interest entity. The entirety of the transaction will hereafter be referred to as the “Transaction”. As a result of the Transaction, the Company are able to exert effective control over Fangguan Electronics and receive 100% of the net profits or net losses derived from the business operations of Fangguan Electronics. Fangguan Electronics manufactures and sells LCD screens in China based in Changchun City, Jilin Province, People’s Republic of China. (See Note 4).

 

The Transaction was accounted for as a business combination using the acquisition method of accounting. The assets, liabilities and the operations of Fangguan Electronics subsequent to the Transaction date were included in the Company’s consolidated financial statements.

 

NOTE 2 - GOING CONCERN

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company had a working capital deficiency of $1,105,615 at March 31, 2019 and did not generate cash from operations for past two years and did not have enough cash to support future operating plan. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The unaudited consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The Company plans to rely on the proceeds from loans from both unrelated and related parties to provide the resources necessary to fund the development of the business plan and operations. However, no assurance can be given that the Company will be successful in raising additional capital.

 

NOTE 3 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

 

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of March 31, 2019 and the results of operations and cash flows for the periods ended March 31, 2019 and 2018. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three and nine months ended March 31, 2019 are not necessarily indicative of the results to be expected for any subsequent periods or for the entire year ending June 30, 2019 or for any subsequent periods. The balance sheet at June 30, 2018 has been derived from the audited financial statements at that date.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. These unaudited consolidated financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended June 30, 2018 as included in our Annual Report on Form 10-K as filed with the SEC on October 11, 2018.

 

  F- 6    
 

 

Basis of consolidation

 

The consolidated financial statements include the accounts of Ionix, its wholly owned subsidiaries and an entity which the Company controls 95.14% through VIE agreements. All significant inter-company balances and transactions have been eliminated upon consolidation.

 

Use of Estimates

 

The Company’s financial statements have been prepared in accordance with US GAAP and this 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 consolidated financial statements and reported amounts of revenue and expenses during the reporting period. The significant areas requiring the use of management estimates include, but are not limited to, the allowance for doubtful accounts receivable, provision for staff benefit, recognition and measurement of deferred income taxes and 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 consolidated financial statements.

 

Property, plant and equipment

 

Property, plant and equipment are recorded at cost less accumulated depreciation and any impairment. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Repairs and maintenance costs are normally expensed as incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized as an additional cost of the asset.

 

When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the statement of comprehensive income (loss) in the reporting period of disposition.

 

Depreciation is calculated on a straight-line basis over the estimated useful life of the assets after taking into account their respective estimated residual value. The estimated useful life of the assets is as follows:

 

Buildings 10 – 20  years
Machinery and equipment 5 – 10  years
Office equipment 5 years
Automobiles 5 years

 

Intangible assets

 

Land use right is recorded as cost less accumulated amortization. Land use rights represent the prepayments for the use of the parcels of land in the PRC where the Company’s production facilities are located, and are charged to expense over their respective lease periods of 50 years. According to the laws of the PRC, the government owns all of the land in the PRC. Company or individuals are authorized to use the land only through land use rights granted by the PRC government for a certain period (usually 50 years).

 

Purchased intangible assets are recognized and measured at fair value upon acquisition. Intangible assets acquired separately and with finite useful lives are carried at costs less accumulated amortization and any accumulated impairment losses. Amortization for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives. Alternatively, intangible assets with indefinite useful lives are carried at cost less any subsequent accumulated impairment losses. The estimated useful lives of the intangible assets are as follows:

 

Land use right 50 years
Computer software    5 years

 

Gains or losses arising from derecognition of the intangible asset are measured at the difference between the net disposal proceeds and the carrying amount of the assets and are recognized in the statement of comprehensive income (loss) when the asset is disposed.

 

Impairment of long-lived assets

 

In accordance with the provisions of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as property, plant and equipment held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.

 

  F- 7    
 

 

Revenue recognition

 

The Company adopted the new accounting standard, ASC 606, Revenue from Contracts with Customers, and all the related amendments (new revenue standard) to all contracts using the modified retrospective method beginning on July 1, 2018. The adoption did not result in an adjustment to the retained earnings as of June 30, 2018. The comparative information was not restated and continued to be reported under the accounting standards in effect for those periods. The adoption of the new revenue standard has no impact on either reported sales to customers or net earnings. The Company will continue to recognize revenue from product sales as goods are shipped or delivered to the customer, as control of goods occurs at the same time.

 

Foreign currencies translation

 

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of comprehensive income (loss).

 

The reporting currency of the Company is the United States Dollar (“US$”). The Company’s subsidiaries in the People’s Republic of China (“PRC”) maintain their books and records in their local currency, the Renminbi Yuan (“RMB”), which is the functional currency as being the primary currency of the economic environment in which these entities operate.

 

In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. Stockholders’ equity is translated at historical rates. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statements of stockholders’ equity.

 

The exchange rates used to translate amounts in RMB into U.S. Dollars for the purposes of preparing the consolidated financial statements are as follows:

 

    March 31, 2019   June 30, 2018
         
Balance sheet items, except for equity accounts   6.7112   6.6166
         
    Nine months ended March 31,
    2019   2018
         
Items in statements of comprehensive income (loss) and cash
flows
  6.6639   6.5235

  

Recent accounting pronouncements

 

From time to time, new accounting pronouncements are issues by the Financial Accounting Standards Board or other standard bodies that may have an impact on the Company’s accounting and reporting. The Company believes that any recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flows when implemented.

 

NOTE 4 – ACQUISITION

 

On December 27, 2018, the Company entered into VIE agreements with two shareholders of Fangguan Electronics to control 95.14% of the ownership rights and receive 100% of the net profit or net losses derived from the business operations of Fangguan Electronis. In exchange for VIE agreements, the Company issued 15 million shares of common stock to two shareholders of Fangguan Electronics. (See Note 1).

 

The Transaction was accounted for as a business combination using the acquisition method of accounting. The assets, liabilities and the operations of Fangguan Electronics subsequent to the Transaction date were included in the Company’s consolidated financial statements.

 

  F- 8    
 

 

The purchase price was allocated to the fair value of the tangible and intangible assets acquired and liabilities assumed. The Company has estimated the fair value of the assets acquired and liabilities assumed as of the acquisition date and will adjust these estimates accordingly within the one year measurement period once the appraisal report is completed. The purchase price allocated to assets acquired and liabilities assumed as of the acquisition was as follows:

 

    Amounts  
       
Cash   $ 687,591  
Notes receivable     67,441  
Accounts receivable     2,749,723  
Accounts receivable from related parties     46,603  
Inventories     2,906,489  
Advances to suppliers     165,819  
Other receivables     61,900  
Property, plant and equipment, net     6,630,997  
Intangible assets, net     4,516,173  
Deferred tax assets     58,071  
Short-term bank loan     (2,622,683 )
Accounts payable     (3,715,537 )
Advance from customers     (23,654 )
Due to related parties     (6,288,886 )
Accrued expenses and other current liabilities     (149,507 )
Noncontrolling interest     (90,540 )
Total consideration   $ 5,000,000  

 

Following unaudited pro forma combined statement of operations are based upon the historical financial statements of Ionix and Fangguan Electronics for the three and nine months ended March 31, 2018 and are presented as if the acquisition had occurred at the beginning of the period.

 

    For the nine months ended
March 31
             
    Fangguan
Electronics
    Ionix
Technology
    Pro Forma
Adjustments
    Pro Forma
Combined
 
Revenues   $ 9,217,033     $ 2,187,418     $ -     $ 11,404,451  
Cost of revenues     7,594,413       1,938,223       -       9,532,636  
Gross profit     1,622,620       249,195       -       1,871,815  
Operating expenses     1,537,514       188,955       -       1,726,470  
Income (loss) from operations     85,105       60,240       -       145,345  
Income tax provision     11,560       15,570       -       27,130  
Net income   $ 73,545     $ 44,670     $ -     $ 118,215  

 

 

    For the three months ended
March 31, 2018
             
    Fangguan
Electronics
    Ionix
Technology
    Pro Forma
Adjustments
    Pro Forma
Combined
 
Revenues   $ 2,991,577     $ 1,054,933     $ -     $ 4,046,510  
Cost of revenues     2,550,777       945,649       -       3,496,426  
Gross profit     440,800       109,284       -       550,084  
Operating expenses     530,500       57,927       -       588,427  
Income (loss) from operations     (89,700 )     51,357       -       (38,343 )
Other income     47,145       -       53,342       47,145  
Income tax provision     -       6,197       -       6,197  
Net income   $ (42,555 )   $ 45,160     $ -     $ 2,605  

 

  F- 9    
 

 

NOTE 5 – INVENTORIES

 

Inventories are stated at the lower of cost (determined using the weighted average cost method) or net realizable value.

 

    March 31, 2019     June 30, 2018  
Raw materials   $ 643,685     $ 105,879  
Work-in-process     1,459,250       -  
Finished goods     1,862,339       120,960  
Total Inventories   $ 3,965,274     $ 226,839  

 

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET

 

The components of property, plant and equipment were as follows:

 

    March 31, 2019     June 30, 2018  
Buildings   $ 4,361,393     $ -  
Machinery and equipment     2,362,399       -  
Office equipment     38,375       -  
Automobiles     60,938       -  
Subtotal     6,823,105       -  
Less: Accumulated depreciation     (179,035 )     -  
Property, plant and equipment, net   $ 6,644,070     $           -  

 

Depreciation expense related to property, plant and equipment was $176,458 for the three and nine months ended March 31, 2019.

 

As of March 31, 2019, buildings were pledged as collateral for bank loans (See Note 8).

 

NOTE 7 – INTANGIBLE ASSETS, NET

 

Intangible assets consist of the following:

 

    March 31, 2019     June 30, 2018  
Land use right   $ 4,545,184     $           -  
Computer software     174       -  
Subtotal     4,545,358       -  
Less: Accumulated amortization     (7,660 )     -  
Intangible assets, net   $ 4,537,698     $ -  

 

Amortization expense related to intangible assets was $7,714 for the three and nine months ended March 31, 2019.

 

Fangguan Electronics acquired the land use right from the local government in August 2012 which expires on August 15, 2062. As of March 31, 2019, land use right was pledged as collateral for bank loans (See Note 8).

 

NOTE 8 – SHORT-TERM BANK LOAN

 

On November 12, 2018, Fangguan Electronics entered into a short-term loan agreement with Industrial Bank to borrow approximately US$2.68 million (RMB 18 million) for a year with annual interest rate of 5.27%. The borrowing was collateralized by the Company’s buildings and land use right. In addition, the borrowing was guaranteed by the Company’s shareholder and CEO of Fangguan Electronics, Mr. Jialin Liang, and his wife Ms. Dongjiao Su.

 

NOTE 9 - RELATED PARTY TRANSACTIONS AND BALANCES

 

Manufacture – related party

 

On September 1, 2016, the Company’s subsidiary, Baileqi Electronic, entered into a manufacturing agreement with Shenzhen Baileqi Science and Technology Co., Ltd. (“Shenzhen Baileqi S&T”) to manufacture products. The owner of Shenzhen Baileqi S&T is also a stockholder of the Company who owns approximately 1.5% of the Company’s outstanding common stock as of March 31, 2019.  The manufacturing costs incurred with Shenzhen Baileqi S&T was $0 and $276,043 for the nine months ended March 31, 2019 and 2018, respectively, and the amount of $0 and $233,970 respectively were included in cost of revenue. The manufacturing costs incurred with Shenzhen Baileqi S&T was $0 and $0 for the three months ended March 31, 2019 and 2018, respectively, and the amount of $0 and $110,935 respectively were included in cost of revenue.

 

  F- 10    
 

 

Purchase from related party

 

During the nine months ended March 31, 2019, the Company’s subsidiaries, Lisite Science and Baileqi Electronic, purchased $1,610,058 and $629,438 from Keenest and Shenzhen Baileqi S&T which were owned by the Company’s stockholders who own approximately 2% and 1.5% respectively of the Company’s outstanding common stock as of March 31, 2019. The amount of $1,610,058 and $565,165 were included in the cost of revenue for the nine months ended March 31, 2019.

 

During the nine months ended March 31, 2018, Lisite Science and Baileqi Electronic purchased $949,941 and $504,144 from Keenest and Shenzhen Baileqi S&T which were owned by the Company’s shareholders who own approximately 2% and 1.5% respectively of the Company’s outstanding common stock. The amount of $949,941 and $504,108 were included in the cost of revenue for the nine months ended March 31, 2018.

 

During the three months ended March 31, 2019, Lisite Science and Baileqi Electronic purchased $0 and $112,176 from Keenest and Shenzhen Baileqi S&T which were owned by the Company’s stockholders who own approximately 2% and 1.5% respectively of the Company’s outstanding common stock as of March 31, 2019. The amount of $0 and $111,116 were included in the cost of revenue for the three months ended March 31, 2019. 

 

During the three months ended March 31, 2018, Lisite Science and Baileqi Electronic purchased $558,137 and $93,168 from Keenest and Shenzhen Baileqi S&T which were owned by the Company’s stockholders who own approximately 2% and 1.5% respectively of the Company’s outstanding common stock. The amount of $558,137 and $140,276 were included in the cost of revenue for the three months ended March 31, 2018.

 

During the three and nine months ended March 31, 2019, the Company’s subsidiary, Fangguan Photoelectric, purchased $0 and $1,498,744 from Fangguan Electronics before Fangguan Electronics became a variable interest entity of the Company as of December 27, 2018 (See Note 1 and Note 4). The president of Fangguan Electronics was the president and a member of the board of directors of Fangguan Photoelectric before he resigned and left Fangguan Photoelectric in October 2018. The amount of $0 and $1,130,052 was included in the cost of revenue for the three and nine months ended March 31, 2019.

 

During the three and nine months ended March 31, 2018, the Company’s subsidiary, Fangguan Photoelectric, purchased $97,576 from Fangguan Electronics before Fangguan Electronics became a variable interest entity of the Company as of December 27, 2018 (See Note 1 and Note 4). The amount of $97,576 was included in the cost of revenue for the three and nine months ended March 31, 2018.

 

Advances to suppliers - related parties

 

Lisite Science made advances of $317,280 and $206,194 to Keenest for future purchases as of March 31, 2019 and June 30, 2018, respectively. 

 

Accounts payable - related parties

 

The trade balance payable to Fangguan Electronics was $0 and $248,543 as of March 31, 2019 and June 30, 2018, respectively.

 

Sales to related party

 

During the three and nine months ended March 31, 2019, Baileqi Electronic sold materials of $0 and $93,838 to Shenzhen Baileqi S&T, respectively.

 

During the three and nine months ended March 31, 2019, Fangguan Photoelectric sold products of $0 and $22,059 to Fangguan Electronics.

 

Accounts receivable - related parties

 

The balance of trade accounts receivable from Shenzhen Baileqi S&T were $140,306 and $119,543 as of March 31, 2019 and June 30, 2018, respectively.

 

  F- 11    
 

 

Due to related parties

 

Due to related parties represents certain advances to the Company or its subsidiaries by related parties. The amounts are non-interest bearing, unsecured and due on demand.

 

Due to related parties consists of the following:

    March 31,
2019
    June 30,
2018
 
Ben Wong                        (1)   $ 143,792     $ 143,792  
Yubao Liu                        (2)     397,744       70,458  
Xin Sui                             (3)     1,992       1,992  
Baozhen Deng                (4)     3,995       (3,685 )
Baozhu Deng                  (5)     4,470       -  
Jialin Liang                      (6)(11)     1,695,954       -  
Xuemei Jiang                  (7)(10)     533,437       -  
Liang Zhang                    (8)     7,370       -  
Zijian Yang                      (9)     4,856       -  
    $ 2,793,610     $ 212,557  

 

(1) Ben Wong was the controlling shareholder of Shinning Glory until April 20, 2017, which holds majority shares in Ionix Technology, Inc.

 

(2) Yubao Liu is the controlling shareholder of Shinning Glory since April 20, 2017, which holds majority shares in Ionix Technology, Inc.

 

(3) Xin Sui is a member of the board of directors of Welly Surplus.

 

(4) Baozhen Deng is a stockholder of the Company, who owns approximately 1.5% of the Company’s outstanding common stock, and the owner of Shenzhen Baileqi S&T.

 

(5) Baozhu Deng is a relative of Baozhen Deng, a stockholder of the Company.

 

(6) Jialin Liang is the president, CEO, and director of Fangguan Electronics.

 

(7) Xuemei Jiang is the vice president and director of Fangguan Electronics.

 

(8) Liang Zhang is the legal representative of Shizhe New Energy.

 

(9) Zijian Yang is the General Manager of Shizhe New Energy.

 

(10) The liability was assumed from the acquisition of Fangguan Electronics.

 

(11) The Company assumed liability of approximately $5.9 million (RMB39,581,883) from Jialin Liang during the acquisition of Fangguan Electronics. During the three months ended March 31, 2019, approximately $4.47 million (RMB30,000,000) liability assumed was forgiven and converted to capital.

 

During the nine months ended March 31, 2019, Yubao Liu advanced $327,286 to Well Best. Baileqi Electronic borrowed $4,470 from Baozhu Deng. In addition, Baozhen Deng refunded $7,680 to Baileqi Electronic. Liang Zhang and Zijian Yang advanced $7,370 and $4,856 to Shizhe New Energy, respectively. Jialin Liang advanced $270,112 (RMB1.8 million) to Fangguan Electronics.

 

During the nine months ended March 31, 2018, Welly Surplus refunded $5,000 to Xin Sui.  Baileqi Electronic refunded $9,274 and $4,599 to Shenzhen Baileqi S&T and Baozhen Deng.  Lisite Science refunded $122,820 to Changyong Yang. In addition, Yubao Liu advanced $49,966 to Well Best and Jialin Liang advanced $1,594 to Fangguan Photoelectric.

 

NOTE 10 – CONCENTRATION

 

Major customers

 

Customers who accounted for 10% or more of the Company’s revenues for the three and nine months ended March 31, 2019 and 2018, respectively, and its outstanding balance of accounts receivable as of March 31, 2019 and 2018, respectively, are presented as follows:

 

  F- 12    
 

 

 

    For the nine months ended
March 31, 2019
    As of March 31, 2019  
    Revenue     Percentage
of total
revenue
    Accounts
receivable
    Percentage of
total
 accounts
 receivable
 
Customer A   $ 1,497,073       20 %   $ -       - %
Customer B     2,603,631       35 %     205,266       7 %
Total   $ 4,100,704       55 %   $ 205,266       7 %

 

 

    For the nine months ended
March 31, 2018
    As of March 31, 2018  
    Revenue     Percentage of total
revenue
    Accounts
receivable
    Percentage of total
 accounts
 receivable
 
Customer A   $ 712,129       33 %   $ -       - %
Customer B     298,513       14 %                   -       - %
Total   $ 1,010,642       47 %   $ -                     - %

 

 

    For the three months ended
March 31, 2019
    As of March 31, 2019  
    Revenue     Percentage
of total
revenue
    Accounts
receivable
    Percentage of
total
 accounts
 receivable
 
Customer A   $ 654,209       26 %   $ 205,266       7 %
Customer B     320,756       13 %     149,798       5 %
Total   $ 974,965       39 %   $ 355,064       12 %

 

 

    For the three months ended
March 31, 2018
    As of March 31, 2018  
    Revenue     Percentage
of total
revenue
    Accounts
receivable
      Percentage of
total
 accounts
 receivable
 
Customer A   $ 606,122       58 %   $ -       - %
Customer B     196,528       19 %            -       - %
Total   $ 802,650       77 %   $ -            - %

 

All customers are located in the PRC.

 

Major suppliers

 

The suppliers who accounted for 10% or more of the Company’s total purchases (materials and services) for the three and nine months ended March 31, 2019 and 2018, respectively, and its outstanding balance of accounts payable as of March 31, 2019 and 2018, respectively, are presented as follows:

 

    For the nine months ended
March 31, 2019
    As of March 31, 2019  
    Total Purchase     Percentage
of total
purchase
    Accounts
payable
    Percentage of
total
 accounts
 payable
 
Supplier A – related party   $ 1,610,058       23 %   $ -       -%  
Supplier B – related party     1,498,744       21 %     -       -%  
Supplier C     1,165,459       16 %     79,965       2 %
Total   $ 4,274,261       60 %   $ 79,965       2 %

 

  F- 13    
 

 

 

    For the nine months ended
March 31, 2018
    As of March 31, 2018  
    Total Purchase     Percentage of total
purchase
    Accounts
payable
    Percentage of total
 accounts
 payable
 
Supplier A – related party   $ 780,187       38 %   $ 102,557       32 %
Supplier B – related party     949,941       47 %     -       -%  
Total   $ 1,730,128       85 %   $ 102,557       32 %

 

 

    For the three months ended
March 31, 2019
    As of March 31, 2019  
    Total Purchase     Percentage of total
purchase
    Accounts
payable
    Percentage of total
 accounts
 payable
 
Supplier A   $ 366,985       15 %   $ 79,965       2 %
Supplier B     231,080       9 %     347,047       10 %
Total   $ 598,065       24 %   $ 427,012       12 %

 

 

    For the three months ended
March 31, 2018
    As of March 31, 2018  
    Total Purchase     Percentage of total
purchase
    Accounts
payable
    Percentage of total
 accounts
 payable
 
Supplier A – related party   $ 558,137       66 %   $ -       -%  
Supplier B – related party     93,168       12 %     102,557       32 %
Supplier C– related party     97,576       12 %     -       -%  
Total   $ 748,881       90 %   $ 102,557       32 %

 

All suppliers of the Company are located in the PRC.

 

NOTE 11 - INCOME TAXES

 

The effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rate. The Company operates in various countries: United States of America, Hong Kong and the PRC that are subject to taxes in the jurisdictions in which they operate, as follows:

 

United States of America

 

The Company is registered in the State of Nevada and is subject to the tax laws of United States of America.

 

The Company has shown losses since inception.  As a result, it has incurred no income tax. Under normal circumstances, the Internal Revenue Service is authorized to audit income tax returns during a three year period after the returns are filed.  In unusual circumstances, the period may be longer.  Tax returns for the year ended June 30, 2011 and after were still open to audit as of March 31, 2019.

 

The Company received a penalty assessment from the IRS in the amount of $10,000 for failure to provide information with respect to certain foreign owned US Corporations on Form 5472 - Information Return of a 25% Foreign Owned US Corporation for the tax period ended June 30, 2013. The Company disputed this claim and is working to reverse the penalty. The Company believes that the payment of this penalty is remote and did not accrue this liability as of March 31, 2019.

 

  F- 14    
 

 

Hong Kong

 

The Company’s subsidiaries in Hong Kong are subject to income tax rate of 16.5%. For the nine months ended March 31, 2019 and 2018, there is no assessable income chargeable to profit tax in Hong Kong.

 

The PRC

 

The Company’s subsidiaries in China are subject to a unified income tax rate of 25%. Fangguan Electronics was certified as high-tech enterprises for three years from November 2016 to November 2019 and is taxed at a unified income tax rate of 15%.

 

The reconciliation of income tax expense at the U.S. statutory rates of 21% and 35% to the Company’s effective tax rate is as follows:

    For the nine months ended March 31,  
    2019     2018  
    21%     35%  
Tax at U.S. statutory rate   $ 72,306     $ 12,650  
Tax rate difference between
foreign operations and U.S.
    21,437       (8,114 )
Change in valuation allowance     36,163       10,703  
Permanent difference     9,339       331  
Effective tax   $ 139,245     $ 15,570  

 

The provisions for income taxes are summarized as follows:

    For the nine months ended March 31,  
    2019     2018  
Current   $ 154,977     $ 15,570  
Deferred     (15,732 )     -  
Total   $ 139,245     $ 15,570  

 

As of March 31, 2019, the Company has approximately $593,000 net operating loss carryforwards available in the U.S. and Hong Kong to reduce future taxable income which will begin to expire from 2035. It is more likely than not that the deferred tax assets cannot be utilized in the future because there will not be significant future earnings from the entity which generated the net operating loss. Therefore, the Company recorded a full valuation allowance on its deferred tax assets.

 

The Company has not provided deferred taxes on unremitted earnings attributable to international companies that have been considered to be reinvested indefinitely. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the income tax liability that would be payable if such earnings were not indefinitely reinvested. In accordance with ASC Topic 740, interest associated with unrecognized tax benefits is classified as income tax and penalties are classified in selling, general and administrative expenses in the statements of comprehensive income (loss).

 

The extent of the Company’s operations involves dealing with uncertainties and judgments in the application of complex tax regulations in a multitude of jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state and international tax audits. The Company recognizes potential liabilities and records tax liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on its estimate of whether, and the extent to which, additional taxes will be due.

 

The U.S. Tax Cuts and Jobs Act (Tax Act) was enacted on December 22, 2017 and introduces significant changes to U.S. income tax law. Effective in 2018, the Tax Act reduces the U.S. statutory tax rate from 35% to 21% and creates new taxes on certain foreign-sourced earnings and certain related-party payments, which are referred to as the global intangible low-taxed income tax and the base erosion tax, respectively. The Tax Act requires the Company to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings. Since the Company’s foreign subsidiaries have not generated accumulated earnings as of December 31, 2017, the Company determined that Tax Act did not have significant impact on the Company’s consolidated financial statements.

 

NOTE 12 - SUBSEQUENT EVENTS

 

The Company has evaluated the existence of significant events subsequent to the balance sheet date through the date the financial statements were issued and has determined that there were no subsequent events or transactions which would require recognition or disclosure in the financial statements.

 

END NOTES TO FINANCIAL STATEMENTS

 

  F- 15    
 

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following Management's Discussion and Analysis should be read in conjunction with Ionix Technology, Inc.’s. financial statements and the related notes thereto. The Management's Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Report on Form 10-Q. The Company’s actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Report on Form 10-Q.

 

The following discussion should be read in conjunction with our unaudited consolidated financial statements and related notes and other financial data included elsewhere in this report. See also the notes to our consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended June 30, 2018, filed with the Commission on October 11, 2018.

 

Results of Operations for the three and nine months ended March 31, 2019 and 2018

 

Revenue

 

During the three months ended March 31, 2019 and 2018, total revenue was $2,597,052 and $1,054,933, respectively. The total revenues increased by 146% from the three months ended March 31, 2018 to three months ended March 31, 2019.

 

During the nine months ended March 31,2019 and 2018, revenue was $7,417,488 and $2,187,418 respectively. The total revenues increased by 239% from the nine months ended March 31, 2018 to the nine months ended March 31,2019.

 

The increase in revenue for the three and nine months ended March 31,2019 compared to 2018 can be attributed to to our expanded operations in the fields of LCD screens in the PRC by the acquisition of Fangguan Electronics in December 27, 2018.

 

Cost of Revenue

 

Cost of revenue included the cost of raw materials and finished products purchased and the sub-contracting processing fee paid to the processing factories which were owned by our shareholders, pursuant to the manufacturing agreement between the Company’s subsidiaries in PRC and processing factories.

  

During the three months ended March 31, 2019, cost of revenue was $1,913,214 for non-related parties and $111,116 for related parties. In comparison, during the three months ended March 31, 2018, the cost of revenues was $38,725 for non-related parties and $906,924 for related parties. The total cost of revenues increased by 114% from the three months ended March 31, 2018 to three months ended March 31, 2019.

 

During the nine months ended March 31,2019, cost of revenue was $2,955,038 for non-related parties and $3,305,275 for related parties. In comparison, during the nine months ended March 31, 2018, cost of revenue was $152,628 for non-related parties and $1,785,595 for related parties. The total cost of revenues increased by 223% from the nine months ended March 31,2019 ended March 31, 2018 to nine months ended March 31,2019 .

 

The increase in cost of revenue for the three and nine months ended March 31,2019 compared to 2018 was attributed to add additional revenue from operations in the fields of LCD screens in the PRC by the acquisition of Fangguan Electronics in December 27, 2018.

 

  Gross Profit

 

During the three months ended March 31, 2019 and 2018, gross profit was $572,722 and $109,284, respectively. Our gross profit margin maintained at 22% during the three months ended March 31, 2019 as compared to 11% for the three months ended March 31, 2018. During the nine months ended March 31,2019 and 2018, gross profit was $1,157,175 and $249,195, respectively.  Our gross profit margin maintained at 16% for the nine months ended March 31,2019 as compared to 11% `for the nine months ended March 31, 2018.

 

  16  
 

 

The difference can be attributed to the fact that the LCD screen products manufactured and sold by Fangguan Electronics (which became a variable interest entity of the Company on December 27, 2018) hold the higher gross margin (around 22%).

 

Selling, General and Administrative Expenses

 

Our general and administrative expenses mainly comprised of professional fees, payroll expenses, transportation, office expense, professional fees, freight and shipping costs, rent, and other miscellaneous expenses.

 

During the three months ended March 31, 2019, and 2018, general and administrative expenses were $550,965, and $57,927, respectively.  

 

During the nine months ended March 31,2019, and 2018, general and administrative expenses were $846,871 and $188,955, respectively. 

 

The difference can be attributed to the depreciation and amortization expenses that incurred after Fangguan Electronics became a variable interest entity of the Company as of December 27, 2018 during the three months and the nine months ended March 31,2019 .

 

Net Income

 

During the three months ended March 31, 2019 and 2018, our net income was $21,064 compared with $45,160, respectively.

 

The difference can be attributed to more expenses incurred in connection with the acquisition of Fangguan Electronics on December 27, 2018.

 

During the nine months ended March 31, 2019 and 2018, our net income was $205,071 compared with $44,670, respectively.

 

The difference can be attributed to increase in gross profits during the nine months ended March 31, 2019.

 

  Liquidity and Capital Resources

 

Cash Flow from Operating Activities

During the nine months ended March 31,2019 and 2018, net cash provided by( used in )operating activities was ($900,588 )and $106,547, respectively. The change was mainly due to increase in inventory and decrease in accounts payable-non-related parties and accounts payable - related parties outflows which were partially offset by an increase in net income and a decrease accounts receivable-inflows.

 

Cash Flow from Investing Activities

During the nine months ended March 31,2019 and 2018, net cash provided by investing activities was $649,216 and $153,292 respectively. The change was mainly due to the cash provided by Fangguan Electronics whose acquisition was completed on December 27, 2018 which was partially offset by the decrease in other receivable inflows.

 

Cash Flow from Financing Activities

During the nine months ended March 31,2019 , the Company received $588,062 in cash for financing activities, which was nearly all due to proceeds from related party loans. In comparison, during the nine months ended March 31, 2018, the Company used $94,920 in cash for financing activities, all of which was attributable to repayment of the related party loans.

 

As of March 31, 2019, we have a working capital of $( 1,105,615).

 

Our total current liabilities as of March 31, 2019 was $9,205,543 and consists of $2,682,084 for a short-term bank loan, $3,419,426 in accounts payables for non-related parties, amount due to related parties $2,793,610, advances from customers of $22,312, and accrued expenses and other current liabilities of $288,111. Our Company’s President is committed to providing for our minimum working capital needs for the next 12 months, and we do not expect previous related party loan amounts to be payable for the next 12 months. However, we do not have a formal agreement that states any of these facts.  The remaining balance of our current liabilities relates to audit and consulting fees and such payments are due on demand and we expect to settle such amounts on a timely basis based upon shareholder loans to be granted to us in the next 12 months.

 

  17  
 

 

  Future Financings

 

We will not consider taking on any long-term or short-term debt from financial institutions in the immediate future.  We are dependent upon our director and the major shareholder to provide continued funding and capital resources. If continued funding and capital resources are unavailable at reasonable terms, we may not be able to implement our plan of operations. The financial statements do not include any adjustments related to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.  

 

Critical Accounting Policies

 

 Our critical accounting policies are disclosed Note 3 to the consolidated financial statements.

     

Recently Issued Accounting Pronouncements

 

There were no recent accounting pronouncements that have or will have a material effect on the Company’s financial position or results of operations.

 

Contractual Obligations

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

  ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of December 31, 2018.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting subsequent to the fiscal year ended June 30, 2018, which were identified in connection with our management’s evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

The Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's reports on the Company's internal control over financial reporting.

 

  18  
 

 

Limitations of the Effectiveness of Disclosure Controls and Internal Controls

 Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

 

The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

  

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, the Company may become subject to various legal proceedings that are incidental to the ordinary conduct of its business. Although the Company cannot accurately predict the amount of any liability that may ultimately arise with respect to any of these matters, it makes provision for potential liabilities when it deems them probable and reasonably estimable. These provisions are based on current information and legal advice and may be adjusted from time to time according to developments.

 

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest. 

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

 None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

N/A.

 

ITEM 5. OTHER INFORMATION

 

None.

 

  19  
 

 

ITEM 6. EXHIBITS

 

Exhibit      
Number Description of Exhibit    
3.01a Articles of Incorporation, dated March 11, 2011   Filed with the SEC on October 13, 2017 as part of our Annual Report on Form 10-K
3.01b Certificate of Amendment to Articles of Incorporation, dated August 7, 2014   Filed with the SEC on September 3, 2014 as part of our Current Report on Form 8-K
3.01c Certificate of Amendment to Articles of Incorporation, dated December 3, 2015   Filed with the SEC on December 10, 2015 as part of our Current Report on Form 8-K
3.02a Bylaws   Filed with the SEC on August 23, 2011 as an exhibit to our Registration Statement on Form 10.
3.02b Amended Bylaws, dated August 7, 2014   Filed with the SEC on September 3, 2014 as part of our Current Report on Form 8-K
10.01 Stock Purchase Agreement between Locksley Samuels and Shining Glory Investments Limited, dated November 20, 2015   Filed with the SEC on November 23, 2015 as part of our Current Report on Form 8-K
10.02 Manufacturing Agreement, dated as of August 19, 2016, by and between Jiangxi Huanming Technology Limited Company and XinyuIonix Technology Company Limited.   Filed with the SEC on August 24, 2016 as part of our Current Report on Form 8-K
10.03 Share Transfer Agreement, dated as of August 19, 2016, by and between GuoEn Li and Well Best International Investment Limited   Filed with the SEC on August 24, 2016 as part of our Current Report on Form 8-K
10.04 Share Purchase Agreement dated December 27, 2018 by and between Ionix Technology, Inc., Changchun Fangguan Electronics Technology Co., Ltd. and the shareholders of Changchun Fangguan Electronics Technology Co., Ltd.   Filed with the SEC on December 27, 2018 as part of our Current Report on Form 8-K
10.05 Business Operation Agreement dated December 27, 2018 by and between Changchun Fangguan Photoelectric Display Technology Co., Ltd., Changchun Fangguan Electronics Technology Co., Ltd., Jialin Liang and Xuemei Jiang.   Filed with the SEC on December 27, 2018 as part of our Current Report on Form 8-K
10.06 Exclusive Technical Support Service Agreement dated December 27, 2018 by and between Changchun Fangguan Photoelectric Display Technology Co., Ltd. and Changchun Fangguan Electronics Technology Co., Ltd.   Filed with the SEC on December 27, 2018 as part of our Current Report on Form 8-K
10.07 Equity Interest Purchase Agreement dated December 27, 2018 by and between Changchun Fangguan Photoelectric Display Technology Co., Ltd., Changchun Fangguan Electronics Technology Co., Ltd., Jialin Liang and Xuemei Jiang.   Filed with the SEC on December 27, 2018 as part of our Current Report on Form 8-K
10.08

Equity Interest Pledge Agreement dated December 27, 2018 by and between Changchun Fangguan Photoelectric Display Technology Co., Jialin Liang and Xuemei Jiang

 

  Filed with the SEC on December 27, 2018 as part of our Current Report on Form 8-K
21.1 List of Subsidiaries   Filed with the SEC on  May 14, 2018 as part of our Quarterly Report on Form 10-Q

 

  20  
 

 

31.01 Certification of Principal Executive Officer Pursuant to Rule 13a-14   Filed herewith.
31.02 Certification of Principal Financial Officer Pursuant to Rule 13a-14   Filed herewith.
32.01 CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act   Filed herewith.
32.02 CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act   Filed herewith.
 101.INS* XBRL Instance Document   Filed herewith.
101.SCH* XBRL Taxonomy Extension Schema Document   Filed herewith.
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document   Filed herewith.
101.LAB* XBRL Taxonomy Extension Labels Linkbase Document   Filed herewith.
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document   Filed herewith.
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document   Filed herewith.

 

*Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

  21  
 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Ionix Technology, Inc.
   
 Date: May 15, 2019 By: /s/ Yubao Liu  
 

Name:  Yubao Liu

Title:    Chief Executive Officer and Director

(Principal Executive Officer)

 

 Date: May 15, 2019 By: / s/ Yue Kou  
 

Name:  Yue Kou

Title:    Chief Financial Officer

(Principal Financial Officer)

 

 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

   
 Date: May 15, 2019 By: /s/ Yubao Liu  
 

Name:  Yubao Liu

Title:    Chief (Principal) Executive Officer, Secretary, Treasurer and Director

 

 Date: May 15, 2019 By: / s/ Yue Kou  
 

Name:  Yue Kou

Title:    Chief (Principal) Financial Officer

 

 Date: May 15, 2019 By: / s/ Cheng Li  
 

Name:  Cheng Li

Title:    Director (Chairman)

 

 

 Date: May 15, 2019 By: / s/ Chunde Song  
 

Name:  Chunde Song

Title:    Director

 

 Date: May 15, 2019 By: / s/ Jialin Liang  
 

Name:  Jialin Liang

Title:    Director

 

 

 Date: May 15, 2019 By: / s/ Xuemei Jiang  
 

Name:  Xuemei Jiang

Title:    Director

 

 

22

 

 

 

EXHIBIT 31.01

  

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

 

I, Yubao Liu, certify that:

 

1.      I have reviewed this Quarterly Report on Form 10-Q of the Registrant for the period ended March 31, 2019;

 

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

4.      As the Registrant’s certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

 

a.      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.      Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.      Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.      Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

5.      As the Registrant’s certifying officer, I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant auditors and the audit committee of the Registrant’s Board of Directors (or persons performing the equivalent functions):

 

a.      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

 

b.      Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

  Ionix Technology, Inc.
   
 Date: May 15, 2019 By: /s/ Yubao Liu  
  Name: Yubao Liu
  Title: Chief (Principal) Executive Officer 

 

 

 

 

 

 

EXHIBIT 31.02

 

CERTIFICATION OF

PRINCIPAL ACCOUNTING OFFICER

PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

 

I, Yue Kou, certify that:

 

1.      I have reviewed this Quarterly Report on Form 10-Q of the Registrant for the period ended March 31, 2019;

 

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

4.      As the Registrant’s certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

 

a.      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.      Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.      Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.      Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

5.      As the Registrant’s certifying officer, I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant auditors and the audit committee of the Registrant’s Board of Directors (or persons performing the equivalent functions):

 

a.      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

 

b.      Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

  Ionix Technology, Inc.
 Date: May 15, 2019 By: /s/ Yue Kou  
 

Name:  Yue Kou

Title:   Chief (Principal) Accounting and Financial Officer

 

  

 

 

 

 

EXHIBIT 32.01

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Yubao Liu, the Chief Executive Officer of Ionix Technology, Inc., certify, under the standards set forth and solely for the purposes of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Quarterly Report on Form 10-Q of the Registrant for the period ended March 31, 2019, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and  results of operations of the Registrant.

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

  Ionix Technology, Inc .
 Date: May 15, 2019  
  By: /s/ Yubao Liu  
 

Name:  Yubao Liu

Title:    Chief (Principal) Executive Officer

   

 

A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

 

 

 

 

EXHIBIT 32.02

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Yue Kou, the Chief Accounting and Financial Officer of Ionix Technology, Inc., certify, under the standards set forth and solely for the purposes of 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Quarterly Report on Form 10-Q of the Registrant for the period ended March 31, 2019, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and  results of operations of the Registrant.

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

Date: May 15, 2019 Ionix Technology, Inc.
   
  By: /s/  Yue Kou  
 

Name:  Yue Kou

Title:    Chief (Principal) Accounting and Financial Officer

   

 

A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.