Item 1.Business
Corporate Background
Ionix Technology, Inc. (the “Company”), formerly known as Cambridge Projects Inc., is a Nevada corporation that was formed on March 11, 2011. The Company was originally formed to pursue a business combination through the acquisition of, or merger with, an operating business. The Company filed a registration statement on Form 10 with the U.S. Securities and Exchange Commission (the “SEC”) on August 23, 2011, and focused its efforts to identify a possible business combination.
On November 20, 2015, the Company’s former majority shareholder and chief executive offer, Locksley Samuels (“Seller”), completed a private common stock purchase agreement (the “SPA”) to sell his entire 21,600,000 shares of the Company’s common stock to Shining Glory Investments Limited (“Purchaser”). In connection with the SPA, the Board appointed Ms. Doris Zhou as the Company’s Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer, and director on November 20, 2015, and Seller concurrently resigned from all positions with the Company. As a result of the SPA, a change in control occurred as (i) Purchaser acquired approximately 65.45% of the Company’s common stock, and (ii) the Company’s sole officer and director after the SPA was Ms. Zhou, who has since resigned.
On November 30, 2015, the Company’s board of directors (the “Board”) and the majority of its shareholders approved that (i) the Company change its name from “Cambridge Projects Inc.” to “Ionix Technology, Inc.”, (ii) the Company voluntarily changed its ticker symbol in connection with the name change, and (iii) the Company execute a 3:1 forward stock split, which will increase the Company’s issued and outstanding shares of common stock from 33,001,000 to 99,003,000 (the “Corporate Actions). The Company filed an application with the Financial Industry Regulatory Authority (“FINRA”) to effectuate the Corporate Actions and filed a Form 8-K on December 10, 2015, in regards to the Corporate Actions. On February 3, 2016, FINRA approved the Corporate Actions, which took effect on the market on February 4, 2016. As a result, (i) the Company’s name is now “Ionix Technology, Inc.”, (ii) its new trading symbol is “IINX”, (iii) the 3:1 forward stock split is effective, payable upon surrender, and (iv) the Company’s new CUSIP number is 46222Q107.
On February 17, 2016, the Board ratified, approved, and authorized the Company’s acquisition of a wholly-owned subsidiary, Well Best International Investment Limited, a limited liability company formed under the laws of Hong Kong Special Administrative Region (“Well Best”) on September 14, 2015. Well Best was acquired by Qingchun Yang, its current director, on November 10, 2015. One hundred percent interest in Well Best was transferred to Ionix Technology on February 15, 2016.Well Best's purpose is to act as an investment holding company and pursue new business ventures conducted in the Asia Pacific region excluding China. Well Best has had no activities since inception.
On November 7, 2016, the Company's Board of Directors approved and ratified the incorporation of Lisite Science Technology (Shenzhen) Co., Ltd ("Lisite Science"), a limited liability company formed under the laws of China on June 20, 2016. Well Best is the sole shareholder of Lisite Science. As a result, Lisite Science is an indirect, wholly-owned subsidiary of the Company. Lisite Science acts as a manufacturing base for the Company and shall focus on developing and producing high-end intelligent electronic equipment, specifically a power bank which is a 5 volt 2 amp, 20000mAh lithium ion battery powered portable device offering charging time of 12-18 hours that is intended to be utilized as a power source for electronic devices such as the iphone, ipad, mp3/mp4 players, PSP gaming systems, and cameras. Lisite Science commenced operations in September of 2016.
On November 7, 2016, the Company's Board of Directors approved and ratified the incorporation of Shenzhen Baileqi Electronic Technology Co., Ltd. ("Baileqi Electronic"), a limited liability company formed under the laws of China on August 8, 2016. Well Best is the sole shareholder of Baileqi Electronic. As a result, Baileqi Electronic is an indirect, wholly-owned subsidiary of the Company. Baileqi Electronic acts as a manufacturing base for the Company and shall focus on development and production of the LCD and module for civil electronic products. The module of new energy power system refers to an LCD screen that is manufactured for small devices such as video capable baby monitors, electronic devices such as tablets and cell phones, and for use in televisions or computer monitors. Baileqi Electronics commenced operations in September of 2016.On September 1, 2016, Baileqi Electronics entered into a manufacturing agreement with Shenzhen Baileqi Science and Technology Co., Ltd. ("Shenzhen Baileqi S&T") to manufacture products for Baileqi Electronics.
On December 29, 2016, the Company’s Board of Directors approved and ratified the acquisition of 99.9% of the issued and outstanding stock of Welly Surplus International Limited, a limited company formed under the laws of Hong Kong on January 18, 2016, in exchange for 99,999 HK dollars (the “Acquisition”). As a result of the Acquisition, the Company became the majority shareholder of Welly Surplus, owning 99.99% of the issued and outstanding stock of Welly Surplus, and Welly Surplus is now a majority owned subsidiary of the Company. As the closing of the Acquisition, Ms. Zhou was appointed as a member of the board of directors of Welly Surplus. Welly Surplus will act as the accounting and financial base for the Company and shall focus on assisting the Company with all of the Company’s financial affairs. Welly surplus had no activities since inception.
On April 7, 2017, Ben William Wong (“Wong”) and Yubao Liu, an individual (“Liu”) entered into a Stock Purchase Agreement (the “Agreement”) whereby Wong agreed to sell and Liu agreed to purchase 5,000,000 shares of the Company’s restricted preferred stock, representing 100% of the total issued and outstanding preferred stock (“Company Preferred Stock”). In consideration for the Company Preferred Stock, Liu agreed to pay to Wong a total of 5,000,000 RMB on or before April 30, 2017. The Agreement closed on April 20, 2017 (the “Closing”). Additionally, on April 5, 2017, Liu and Shining Glory Investments Limited, a British Virgin Islands company (“Shining Glory”), of which Wong is the sole officer and director, entered into a purchase agreement whereby Liu acquired 1 ordinary common stock share (the “Shining Glory Share”) representing approximately 100% of Shining Glory’s outstanding shares of common stock. In consideration for the Shining Glory Share, Liu paid to Wong a total of $1 USD and Wong resigned as a Director of Shining Glory. Concurrently, Liu was appointed as the sole director of Shining Glory. The agreement between Shining Glory and Liu closed on April 20, 2017.
On February 20, 2018, the Company ratified and approved the appointment of Jialin Liang as President and a member of the board of directors of Changchun Fangguan Photoelectric Display Technology Co. Ltd ("Fangguan Photoelectric"). On February 20, 2018, the Company's Board of Directors approved and ratified the incorporation of Fangguan Photoelectric. Fangguan Photoelectric is a wholly owned subsidiary of Well Best International Investment Limited and an indirect wholly-owned subsidiary of Ionix Technology, Inc. (the “Company”). Fangguan Photoelectric will act as a manufacturing base for the Company .
On June 28, 2018, the Board of Directors of Ionix Technology, Inc. (the “Company”) approved and ratified the incorporation of Dalian Shizhe New Energy Technology Co., Ltd. And the Company ratified and approved the appointment of Mr. Liang Zhang as President and a member of the board of directors of Dalian Shizhe New Energy Technology Co., Ltd . Dalian Shizhe New Energy Technology Co., Ltd is a wholly owned subsidiary of Well Best International Investment Limited and an indirect wholly-owned subsidiary of Ionix Technology, Inc.
Prior Operations and Agreements
On August 19, 2016, the Board ratified, approved, and authorized the Company, as the sole member of Well Best, on the formation of Xinyu Ionix Technology Company Limited (“Xinyu Ionix”), a company formed under the laws of China on May 19, 2016. As a result Xinyu Ionix is a wholly-owned subsidiary of Well Best and an indirect wholly-owned subsidiary of the Company. The initial plan of Xinyu Ionix was about to focus on developing and designing lithium batteries as well as to act as an investment company that may acquire other businesses located in China. However, due to the high cost and low efficiency, since the approval date of May 19, 2016, Xinyu Ionix conducted no business.
On April 30, 2017, Well Best International Investment Limited (“Well Best”), a wholly-owned subsidiary of the Company, transferred all of its rights, title and interest to all 100% of the issued and outstanding common stock of Xinyu Ionix Technology Company Limited (“Xinyu Ionix”) to Zhengfu Nan for RMB 100($14.49 USD) pursuant to a Share Transfer Agreement dated April 30, 2017 (the “Agreement”). Following the execution of the Agreement, Mr. Nan owns 100% of Xinyu Ionix and assumes all liabilities of Xinyu Ionix. As a result Xinyu Ionix is no longer a wholly-owned subsidiary of Well Best or an indirect wholly-owned subsidiary of the Company.
Business Summary
Since January 2016, the Company has shifted its focus to becoming an aggregator of energy cooperatives to achieve optimum price and efficiency in creating and producing technology and products that emphasize long life, high output, high energy density, and high reliability. By and through its wholly owned subsidiary, Well Best and the indirect subsidiaries, Baileqi Electronics, Lisite Science, Welly Surplus, Fangguan Photoelectric and Shizhe New Energy, the Company has commenced its main operations of high-end intelligent electronic equipment and photoelectric display products in China, which are in the new-type rising industries.
The Company believes that owning and operating its own manufacturing plant would be too costly and the technologies would be decentralized. However, by outsourcing manufacturing, the Company can devote its resources to research and development, design, and marketing of electronic control technologies, automotive battery technologies, and material and component technologies, including lithium-ion battery products for use in electric cars and the terminal technology control of liquid crystal display.
The Company, Well Best, Welly Surplus, Baileqi Electronics, Lisite Science, Fangguan Photoelectric and Shizhe New Energy are actively seeking additional new prospects for technology enhancements, design, manufacturing and production of the Company’s operation of high-end intelligent electronic equipment and more cutting-edge LCD technologies , such as portable power banks and TFT products and future product development.
Products and Projects
Civil Electronics
With the high-speed development in the new energy industry, the high-tech and relevant key accessories an essential role in the energy industry supply chain. LCD displays are widely used in the end products of the new energy industry.
Since the beginning of 2017, the Company has expanded its focus to development and production of LCD’s and modules for civil electronic products and portable power packs. By and through its wholly owned subsidiary, Well Best and the indirect wholly owned subsidiary, Baileqi Electronics and Fangguan Photoelectric, the Company has commenced its operations in China. Baileqi is working on an upgrade to traditional LCD screens with display modules that use the crystal method (“TCM”) and control muddle system integration for professional manufacturing. Today, TCM is widely used in many areas, including electronic operation data displays for renewable energy vehicles, BMS information feedback, HD projectors, communication equipment, and particularly in intelligent robots.
The LCD screens are manufactured for small devices such as video capable baby monitors, electronic devices such as tablets and cell phones, and for use in televisions or computer monitors.
The Company is also manufacturing “new energy power systems” or power banks a through the Company’s indirect wholly-owned subsidiaries. The power banks range in size and capacity and are lithium ion battery powered, portable devices offering charging time of 12-18 hours that is intended to be utilized as a power source for electronic devices such as the iphone, ipad, mp3/mp4 players, PSP gaming systems, and cameras. The module of new energy power system refers to an LCD screen that is manufactured for small devices such as video capable baby monitors, electronic devices such as tablets and cell phones, and for use in televisions or computer monitors.
1. Fangguan Photoelectric
2.Lisite Science
Product Model：AG06
Color(s)：White\Black
Fire Rating: V0
Battery Type：18650-2000mAh*5
Battery Capacity：10000mAh/3.7V
Rated Energy：37Wh（TYP）
Rated Output：5V / 2.1A(Max)
Input：Micro-USB/TYPE-C(USB-C）
Output：USB-A
Input Parameter：MAX10W
Micro-USB : DC5V/2A
TYPE-C（USB-C）：DC5V/2A
Output Parameter : MAX10.5W
USB-A:DC5V/2.1A
Size：147*63*23.3MM
Weight：437g
Product Model：T100CC
Color(s)：White
Fire Rating: V0
Battery Type：18650-2000mAh*5
Battery Capacity：10000mAh/3.7V
Rated Energy：37Wh（TYP）
Rated Output：5V / 2.1A(Max)
Input：Micro-USB
Output：USB-A*2
Input Parameter：MAX10W
Micro-USB : DC5V/2A
Output Parameter : MAX10.5W
USB-A-1 : DC5V/2.1AUSB-A-1:DC5V/1A
USB-A-2 : DC5V/2.1A Shared 2.1A
Size：142.6*63*22MM
Weight：265g
Product Model：T100CY
Color(s)：White
Fire Rating: V0
Battery Type：18650-2000mAh*5
Battery Capacity：10000mAh/3.7V
Rated Energy：37Wh（TYP）
Rated Output：5V / 2.1A(Max)
Input：Micro-USB
Output：USB-A*2
Input Parameter：MAX10W
Micro-USB : DC5V/2A
Output Parameter : MAX10.5W
USB-A-1 : DC5V/2.1
USB-A-2 : DC5V/2.1A Shared 2.1A
Size：141.4*61.6*23.5MM
Weight：274.8g
Product Model：TD19
Color(s)：White
Fire Rating: V0
Battery Type：18650-2000mAh*5
Battery Capacity：10000mAh/3.7V
Rated Energy：37Wh（TYP）
Rated Output：5V / 2.1A(Max)
Input：Micro-USB
Output：USB-A*2
Input Parameter：MAX10W
Micro-USB : DC5V/2A
Output Parameter : MAX10.5W
USB-A-1 : DC5V/2.1
USB-A-2 : DC5V/2.1A Shared 2.1A
Size：145*65*23MM
Weight：285g
Product Model：T200CF
Color(s)：Ivory, Dreamy Pink, Serene Blue
Fire Rating: V0
Battery Type：18650-2500mAh*8
Battery Capacity：20000mAh/3.7V
Rated Energy：74Wh（TYP）
Rated Output：5V / 2.1A(Max)
Input：Micro-USB/Lightning
Output：USB-A*2
Input Parameter：MAX10W
Micro-USB : DC5V/2A
LightningDC5V/1.2A
Output Parameter : MAX10.5W
USB-A-1 : DC5V/2.1
USB-A-2 : DC5V/2.1A Shared 2.1A
Size：160.3*80*23.7MM
Weight：437g
Product Model：T100UF
Color(s)：Ivory, Dreamy Pink, Serene Blue
Fire Rating: V0
Battery Type：Polymer 1160110-10000mAh
Battery Capacity：10000mAh/3.7V
Rated Energy：37Wh（TYP）
Rated Output：5V / 2.1A(Max)
Input：Micro-USB/Lightning
Output：USB-A*2
Input Parameter：MAX10W
Micro-USB : DC5V/2A
LightningDC5V/1.2A
Output Parameter : MAX10.5W
USB-A-1 : DC5V/2.1
USB-A-2 : DC5V/2.1A Shared 2.1A
Size：142*69*15.5MM
Weight：205g　
Product Model：T200CG
Color(s)：White
Fire Rating: V0
Battery Type：18650-2500mAh*8
Battery Capacity：20000mAh/3.7V
Rated Energy：74Wh（TYP）
Rated Output：5V / 2.1A(Max)
Input：Micro-USB/Lightning
Output：USB-A*2
Input Parameter：MAX10W
Micro-USB : DC5V/2A
LightningDC5V/1.2A
Output Parameter : MAX10.5W
USB-A-1 : DC5V/2.1
USB-A-2 : DC5V/2.1A Shared 2.1A
Size：165*78.47*22.1MM
Weight：451g
3.Baileqi Electronic:
Industry Overview
New energy Lithium Battery industry:
The first lithium-ion battery was commercialized by Japan’s Sony in 1991. Since then, the LIB has become the most popular and advanced battery with its reach expanding more and more every day. Lithium-ion batteries are used in and influence nearly every aspect of our lives daily, both at home and at work, and innovation is sprinting forward at a rapid pace. The push for clean and renewable energy, from wind power to solar power, is a driving force in business today and a major reason why Lithium-batteries are and have been a major contender in storing renewable energy.
The global market for lithium-ion batteries has grown significantly and is expected to continue to grow as the need for high power and high capacity battery cells increase its penetration into broader forms of use. The power density, safety, recharge time, cost, and other aspects of its technology are expected to continue to improve with future developments in technology.
According to a report published by Allied Market Research titled, "Lithium-Ion Battery Market" the global lithium-ion battery market is expected to generate revenue of $46.21 billion by 2022, with a CAGR of 10.8% during the forecast period (2016-2022). 1 As reported by Allied, the market for these batteries is expected to experience significant growth because of their increasing application in the automotive sector. Other key factors that may affect the growth of this market are the growing demand for smartphones, tablets, and other electronic devices; stringent government regulations aimed at reducing the increasing pollution levels; and enhanced efficiency of lithium-ion batteries.
Currently, the electronics industry has the highest demand for lithium-ion batteries, however, the automotive sector is forecast to have the highest rising demand for LIB for use in electric and plug-in hybrid vehicles. The number of electric/hybrid vehicles is expected to increase at an exponential rate in the coming years, which would further increase the demand for lithium ion batteries. For instance, in 2014, Tesla announced its plans to manufacture around 500,000 electric cars every year by around 2018, which would require a huge supply of lithium ion batteries.
Development trend of photoelectric display products:
IINX is active in promoting the worldwide application of green energy solutions. We are always pursuing more optimized green energy solutions together with our customers. In 2019, we will confront the rapid growth of the new energy industry, however, high and new technology and its relevant accessories still play pivotal roles in the existing industrial chain. In the meantime, we have also chosen a more extensive applied terminal product in new energy industry- the Liquid Crystal Displays (LCD), as an important composition part of our business.
LCD-From Global Perspective
The global demand of LCD panels is continually increasing. The output area of global LCD panels achieved 181 million square meters in 2017, this figure was tripled compared to 2007, and the average annual growth is approximately 13 million square meters. According to the prediction, the global demand of LCD panels will be 215 million square meters in 2021.From 2017 to 2021, the compound average growth rate (CAGR) of such demand will be about 4.37%, though the growth seems to slow down compared with the CAGR of 5% for the most recent 3 years, however, without considering base effect, the demand will maintain an average increase of approximately 8.5 million square meters per annum.
The demand of twisted nematic (TN) and supper twisted nematic (STN) liquid crystal materials remains generally stable. Due to their characteristics such as low cost, wide range of applications, the low-end TN and STN liquid crystal materials will still take a certain portion of market for terminal products which require a relatively low level of display. Basically, since 2004, the market demand of TN and STN liquid crystal materials has been stable, with the annual quantity demand maintaining at approximately between 60 and 70 tons, to compute based on the average price of about 5000 Yuan/kg for TN and STN liquid crystal materials, the predicted market scale for TN and STN liquid crystal materials would be approximately 300 million to 350 million Yuan.
There is a strong demand of thin film transistor (TFT) liquid crystal materials in the global market as well. TFT liquid crystal materials account for over 80% of total output value in the global liquid crystal materials market. With the rapid development of LCD television, laptop, desktop display and mobile communication, the demand of TFT liquid crystal panel keeps increasing. The global demand area of TFT liquid crystal panels was 171 million square meters in 2016. According to the prediction, in 2019, the output area of global TFT-LCD panels will achieve 185 million square meters. To measure and calculate on the basis of 80% of effective display area, a liquid crystal material usage of 4.5kg per square meter area of panel and an average price of 15,000 Yuan per kilogram for mixed liquid crystal materials, the quantity demand of global TFT mixed liquid crystals in 2016 was about 617 tons and market scale was around 9.3 billion Yuan. The global quantity of TFT mixed liquid crystals is estimated to be about 666 tons and the market scale will be about 10 billion Yuan in 2019.
LCD-From China's Perspective
China is one of the largest display panel producers in the world, according to the data provided by China Optics and Optoelectronics Industry Association LCB.In 2017, the liquid crystal panels in mainland China reached the top rank in the world in terms of both revenue and output area. China is and has been a big display manufacturing country, however, China is now at a crucial time for change and attempting to evolve from a big country to a powerful display manufacturing country.China is developing out of a “catch up” position intoa phase of advance or qual footing with other competing countriesand has an opportunity to become an industrial leader in the near future. It is understood that in the past year, there were multiple panel manufacturing lines have been put into production or started construction in China, especially the Gen 10.5/11 panel manufacturing lines and many Gen 6 AMOLED manufacturing lines were under construction, which just brings China closer and closer to the position of being one of, if not the largest production regionsfor display panels in the world. In 2018, China will also have a number of OLED panel lines put into production or expansion. The scale of investment in OLED is expected to reach $30 billion to $50 billion over the next 3-5 years. BOE, CSOT, Visionox, Tianma and many other manufacturers have launched products such as flexible display, full-screen display, special-shaped display and so on, the domestic high-end displays in China are developing rapidly. The capacity of display panels of China is expected to become the first among all the countries in 2019.
LCD-From Industrial Perspective
Between 2017 to 2019 is anticipated to be the peak period of LCD panel investment in China and the investment is mainly focused on high generation panel production lines. So far, there have been 11 panel production lines for the Gen 8.5 in mainland China, and the total production capacity is 965,000 pieces per month, of which 3 lines have been put into production in 2017, with a total production capacity of 300,000 pieces per months. It is estimated that from 2018 to 2019, there will be 4 more Gen 8.5 and over production lines put into production; if all of those production lines are converted into Gen 8.5, then there will be 7 production lines in total (every Gen 10.5 or 11 production line is equivalent to 2 Gen 8.5 lines), and there will be an additional production capacity of 880,000 pieces per month (equivalent to Gen 8.5 production lines), and a cumulative capacity increase of 177% compared with 2016. Considering that there is still about one year of rise period expected from putting into production to achieving the production, the output of liquid crystal panels in China is expected to peak from 2018 to 2020.
Distribution Methods of Products
The Company’s products are currently directly shipped from the manufacturers to the distributors and retailers. Marketing and sales departments were established in through the Company’s indirect subsidiaries during the year ended June 30, 2018 to cope with the growth of the Company. We explore potential customer bases using internal resources. Currently, we do not have any long-term contracts with our customers and will manufacture according to the purchase orders received. In the future, we will continue to seek additional channels of distribution for our products to include wholesale stores and mass retailers. The Company plans to focus primarily on distributing its products regionally, starting in Greater China, and will then seek to expand its distribution channels across the U.S. and internationally. Currently, some of the products have entered into the global market, such as American Liantai Group, British Telecom (BT) and other well-known enterprises.
Manufacturing
The Company does not have its own factory and outsources the manufacturing and packaging of its products or purchases finished products from related or non-related parties. Baileqi Electronics entered into a manufacturing contract with Shenzhen Baileqi S&T to manufacture products for Baileqi Electronics on an order-by-order basis.
The Company and Lisite Science are actively seeking new prospects for the manufacturing and production of the Company’s products. Further, when we do identify and engage a manufacturer we expect that that manufacturer would not work exclusively for the Company and may be limited in their ability to meet our production needs, however, we are considering this a top priority while trying to identify prospects.
Suppliers of Materials
The elements necessary for our products are and will be sourced from several different suppliers located primarily in China on an order-by-order basis. These materials include ITO coated conductive glasses, liquid crystals, integrated circuits and etc. Some of the materials in our products are not readily available in large quantities or are available on a limited basis only. Further, the limited availability of some of these materials could cause significant fluctuations in their costs.
The Company, Baileqi Electronics, Fangguan Photoelectric and Lisite Science acquire materials from the following list of principal suppliers, dependent on availability and price points:
·Anhui Kinshow Display Glass Co., Ltd
·Shijiazhuang Chengzhi Yonghua Display Material Co., Ltd
·Anhui Aland New Energy Materials Co., Ltd	
·Xinxiang Zhongtian Luminous Materials Co., Ltd
·Guangzhou Guanggang New Energy Technology Co., Ltd
·Xinxiang Jinrun Science and Technology Co., Ltd
·Zhejiang New Era Haichuang Lithium Battery Technology Co., Ltd
·Jiaozuo Banlv Na-No Material Engineering Company Limited
·Long Power Systems (Suzhou) Co., Ltd
·Shijiazhuang Xiangyang Electronic Equipment Co., Ltd
*This list of suppliers is subject to change at any time.
Our management researches and develops our sources of materials used in the manufacturing of our products. The materials that we source are and will be sent to our manufacturer in China to create our products. The Company does not have any long-term contracts with our suppliers and we cannot be assured that they will be able to meet our demands.
Intellectual Property
As part of our business, we will seek to protect our intellectual property rights in various ways, including through trademarks, copyrights, trade secrets, including know-how, patents, patent applications, employee and third-party nondisclosure agreements, intellectual property licenses and other contractual rights. We currently hold no intellectual property rights.
Government Regulations Affecting Our Business
At this stage in our business, we are unaware of any government regulations that are directly affecting our business, however, as we grow our business activities may become subject to various governmental regulations in different countries in which we operates, including regulations relating to: various business/investment approvals; trade affairs, including customs, import and export control; competition and antitrust; anti-bribery; advertising and promotion; intellectual property; broadcasting, consumer and business taxation; foreign exchange controls; personal information protection; product safety; labor; human rights; conflict; occupational health and safety; environmental; and recycling requirements.
Employees of the Company
The Company has no significant employees other than our officers and directors. As of June 30, 2018, the Company has no employees, however, our indirect subsidiary Baileqi Electronic has fifteen employees, Lisite Science has three employees, Fangguan Photoelectric has 27 employees and Dalian Shizhe New Energy has 5 employees. We intend to increase the size of our management team and hire additional employees in the future to manage the continued growth of our company and to increase our sales force and marketing efforts.
WHERE YOU CAN GET ADDITIONAL INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy our reports or other filings made with the SEC at the SEC’s Public Reference Room, located at 100 F Street, N.E., Washington, DC 20549. You can obtain information on the operations of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also access these reports and other filings electronically on the SEC’s web site, www.sec.gov.
Item 1A.
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 1B.
Item 1B.Unresolved Staff Comments
None.
Item 2.
Item 2.Properties
Our mailing address in the US is that of our registered agent, at 3773 Howard Hughes Pkwy, Suite 500S, Las Vegas, NV 89169. Our principal office in China consists of 15,091 square feet (1,402 square meters) of office and warehouse space located at 4F, Tea Tree B Building, Guwu Sanwei Industrial Park, Xixiang Street, Baoan District, Shenzhen, Guangdong Province, China 518000. This office is leased by Baileqi Electronic, our indirect subsidiary, for approximately $62,800 (RMB420,600) annually. This lease expires on May 31, 2019. Baileqi Electronic subleases 7,546 square feet (701 square meters) to a non-related party for approximately $31,000 (RMB207,024) annually. This sublease expires on May 31, 2019. We believe that this space is adequate for our current and immediately foreseeable operating needs.
Item 3.
Item 3.Legal Proceedings
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 4.
Item 4.Mine Safety Disclosure
Not applicable.
PART II
Item 5.
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities
Market Information
Our common stock is currently quoted on OTCQB. Our common stock commenced quotation on the OTCQB under the trading symbol “CPJT”. On February 4, 2016, our symbol was changed to “IINX” to reflect the Company’s name change to Ionix Technology, Inc. Our common stock began trading in April 2015. Because we are quoted on the OTCQB, our common stock may be less liquid, receive less coverage by security analysts and news media, and generate lower prices than might otherwise be obtained if it were listed on a national securities exchange.
The following table sets forth the high and low bid prices for our Common Stock per quarter as reported by the OTCQB for the quarterly periods indicated below based on our fiscal year end June 30. These prices represent quotations between dealers without adjustment for retail mark-up, markdown or commission and may not represent actual transactions.
Record Holders
As of June 30, 2018, the approximate number of registered holders of our common stock was 154. As of June 30, 2018, there were 99,003,000 shares of common stock issued and outstanding and there were 5,000,000 shares of preferred stock issued and outstanding. There were no shares of common stock subject to outstanding warrants, and there were no shares of common stock subject to outstanding stock options.
Dividends
On November 30, 2015, the Company’s board of directors and majority of its shareholders approved a 3:1forward stock split which increased the Company’s issued and outstanding shares of common stock from 33,001,000 to 99,003,000 (the “Forward Split”). The Forward Split was approved by FINRA and took effect on the market on February 4, 2016. The Forward Split shares were payable upon surrender of certificates to the Company’s transfer agent.
We have not declared or paid any cash dividends on our common stock nor do we anticipate paying any in the foreseeable future. Furthermore, we expect to retain any future earnings to finance our operations and expansion. The payment of cash dividends in the future will be at the discretion of our Board of Directors and will depend upon our earnings levels, capital requirements, any restrictive loan covenants and other factors the Board considers relevant.
Securities Authorized for Issuance under Equity Compensation Plans
None.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
The following sets forth certain information concerning securities which were sold or issued by us without the registration of the securities under the Securities Act of 1933 in reliance on exemptions from such registration requirements within the past three years:
On February 17, 2016, the Company entered into a subscription agreement to sell 5,000,000 preferred shares (the “Preferred Shares”) for $50,000 in cash ($0.01 per share). No commissions were paid to any broker or third party for this transaction.
Exemption From Registration. The shares of Common Stock and Preferred Stock referenced herein were issued in reliance upon one of the following exemptions:
(a)The shares of Common Stock referenced herein were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(2) of the Securities Act of 1933, as amended, ("Securities Act"), based upon the following: (a) each of the persons to whom the shares of Common Stock were issued (each such person, an "Investor") confirmed to the Company that it or he is an "accredited investor," as defined in Rule 501 of Regulation D promulgated under the Securities Act and has such background, education and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities, (b) there was no public offering or general solicitation with respect to the offering of such shares, (c) each Investor was provided with certain disclosure materials and all other information requested with respect to the Company, (d) each Investor acknowledged that all securities being purchased were being purchased for investment intent and were "restricted securities" for purposes of the Securities Act, and agreed to transfer such securities only in a transaction registered under the Securities Act or exempt from registration under the Securities Act and (e) a legend has been, or will be, placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequently registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act.
(b)The shares of common stock referenced herein were issued pursuant to and in accordance with Rule 506 of Regulation D and Section 4(2) of the Securities Act. We made this determination in part based on the representations of the Investor(s), which included, in pertinent part, that such Investor(s) was an “accredited investor” as defined in Rule 501(a) under the Securities Act, and upon such further representations from the Investor(s) that (a) the Investor is acquiring the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (b) the Investor agrees not to sell or otherwise transfer the purchased securities unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (c) the Investor either alone or together with its representatives has knowledge and experience in financial and business matters such that he, she or it is capable of evaluating the merits and risks of an investment in us, and (d) the Investor has no need for the liquidity in its investment in us and could afford the complete loss of such investment. Our determination is made based further upon our action of (a) making written disclosure to each Investor prior to the closing of sale that the securities have not been registered under the Securities Act and therefore cannot be resold unless they are registered or unless an exemption from registration is available, (b) making written descriptions of the securities being offered, the use of the proceeds from the offering and any material changes in the Company’s affairs that are not disclosed in the documents furnished, and (c) placement of a legend on the certificate that evidences the securities stating that the securities have not been registered under the Securities Act and setting forth the restrictions on transferability and sale of the securities, and upon such inaction of the Company of any general solicitation or advertising for securities herein issued in reliance upon Rule 506 of Regulation D and Section 4(2) of the Securities Act.
(c) The shares of Common Stock referenced herein were issued pursuant to and in accordance with Rule 903 of Regulation S of the Act. We completed the offering of the shares pursuant to Rule 903 of Regulation S of the Act on the basis that the sale of the shares was completed in an "offshore transaction", as defined in Rule 902(h) of Regulation S. We did not engage in any directed selling efforts, as defined in Regulation S, in the United States in connection with the sale of the shares. Each investor represented to us that the investor was not a "U.S. person", as defined in Regulation S, and was not acquiring the shares for the account or benefit of a U.S. person. The agreement executed between us and each investor included statements that the securities had not been registered pursuant to the Act and that the securities may not be offered or sold in the United States unless the securities are registered under the Act or pursuant to an exemption from the Act. Each investor agreed by execution of the agreement for the shares: (i) to resell the securities purchased only in accordance with the provisions of Regulation S, pursuant to registration under the Act or pursuant to an exemption from registration under the Act; (ii) that we are required to refuse to register any sale of the securities purchased unless the transfer is in accordance with the provisions of Regulation S, pursuant to registration under the Act or pursuant to an exemption from registration under the Act; and (iii) not to engage in hedging transactions with regards to the securities purchased unless in compliance with the Act. All certificates representing the shares were or upon issuance will be endorsed with a restrictive legend confirming that the securities had been issued pursuant to Regulation S of the Act and could not be resold without registration under the Act or an applicable exemption from the registration requirements of the Act.
Purchases of Equity Securities by the Small Business Issuer and Affiliated Purchasers
None.
Item 6.
Item 6.Selected Financial Data
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 7.
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operation
The following discussion should be read in conjunction with our audited financial statements and notes thereto included herein. We caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or our behalf. We disclaim any obligation to update forward-looking statements.
Results of Operations for the Years Ended June 30, 2018 and 2017
Revenue
During the year ended June 30, 2018 and 2017, revenue stayed stable at $6,422,807 and $6,816,908 respectively.
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 year ended June 30, 2018, cost of revenue was $1,357,807 for non-related parties, and $4,324,105 for related parties.
During the year ended June 30, 2017, cost of revenue was $2,720,295 for non-related parties, and $3,762,550 for related parties.
The total cost of revenues decreased by 12% from the year ended June 30, 2017 to the year ended June 30, 2018.
The decrease can be attributed to a transformation in the Company’s portable power bank operations (including the arrangement to stop manufacturing the portable power banks with low margin and switching the focus to the ones with much higher gross margins).
Gross Profit
During the years ended June 30, 2018 and 2017, gross profit was $740,895 and $334,063, respectively. Our gross profit margin maintained at 11.5% during the year ended June 30, 2018 as compared to 5% for the year ended June 30, 2017. The increase can be attributed to a transformation in the Company’s portable power bank operations (including the arrangement to stop manufacturing the portable power banks with low margin and switching the focus to the ones with much higher gross margins).
Selling, General and Administrative Expenses
During the years ended June 30, 2018 and 2017, selling, general and administrative expenses were $270,074, and $312,792, respectively.
Our selling, general and administrative expenses mainly comprised of payroll expenses, transportation, office expense, professional fees, freight and shipping costs, rent, and other miscellaneous expenses. The difference can be attributed to the stricter practices for cost control in operating expenses during the year ended June 30, 2018.
Loss from Discontinued Operations
The Company disposed of the ownership in Taizhou Ionix and Xinyu Ionix in August 2016 and April 2017 respectively.
Hence the Company has presented results of Taizhou Ionix and Xinyu Ionix operations as the discontinued operations in the consolidated statements of comprehensive income.
During the years ended June 30, 2018 and 2017, loss from discontinued operation was $Nil and $10,158, respectively, all of which were loss from disposal of discontinued operations offset by income from discontinued operations.
Net Income
During the years ended June 30, 2018 and 2017, net income was $326,260 and $51,462, respectively. The difference can be attributed to the increase in gross profit and the strict cost control in operating expenses during the year ended June 30, 2018.
Liquidity and Capital Resources
Cash Flow from Operating Activities
During the years ended June 30, 2018 and 2017, the Company used cash of $114,613 in operating activities compared with cash received in operating activities of $445, respectively. The change was mainly due to an increase in cash outflows of $394,760 from change of operating assets and liabilities, offset by the increase in cash inflows of $279,702 from net income and non-cash items.
Cash Flow from Investing Activities
During the years ended June 30, 2018 and 2017, net cash provided by investing activities in 2018 was $149,354 as compare to $144,191 used in cash for investing activities during 2017, respectively.
During the year ended June 30, 2017, the Company’s subsidiary, Baileqi Electronic, made short-term advance to a third party for $149,191, which was repaid in full in September 2017. The advance was non-interest bearing and due on demand.
Cash Flow from Financing Activities
During the year ended June 30, 2018, the Company used $113,036 in cash in financing activities, which was all due to repayment of related party loans.
In comparison, during the year ended June 30, 2017, the Company received $271,936 in cash from financing activities, which was all due to proceeds received from related party loans.
As of June 30, 2018, we have a working capital of $413,657.
Our total current liabilities for the year ended June 30, 2018 was $910,550 and consists primarily of accounts payable to non-related parties of $264,171, accounts payable to related parties of $248,543 and amount due to related parties of $212,557. 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 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.
We will require approximately $180,000 to fund our working capital needs as follows:
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
While our significant accounting policies are more fully described in Note 3 to our financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis
Revenue recognition
In accordance with the ASC Topic 605, “Revenue Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.
The Company recognizes revenue from the sale of finished products upon delivery to the customer, whereas the title and risk of loss are fully transferred to the customers. The Company records its revenues, net of value added taxes (“VAT”). The Company is subject to VAT which is levied on the majority of the products at the rate of 17% on the invoiced value of sales.
Comprehensive income
ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying consolidated statement of stockholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
Accounts receivable
Accounts receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from shipment. Credit is extended based on evaluation of a customer's financial condition, the customer’s credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. At the end of each period, the Company specifically evaluates individual customer’s financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables. The Company will consider the allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. Based on the evaluation, the Company has determined that no allowance for doubtful accounts is required as of June 30, 2018 and 2017 respectively.
Use of Estimates
The Company’s consolidated financial statements have been prepared in accordance with US GAAP. 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, estimated useful life of intangible assets, provision for staff benefits, 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.
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 statement of operations.
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 statement 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:
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under this guidance, lessees will be required to recognize on the balance sheet a lease liability and a right-of-use asset for all leases, with the exception of short-term leases. The lease liability represents the lessee's obligation to make lease payments arising from a lease, and will be measured as the present value of the lease payments. The right-of-use asset represents the lessee's right to use a specified asset for the lease term, and will be measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee's initial direct costs. The standard also requires a lessee to recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The new guidance is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 is required to be applied using the modified retrospective approach for all leases existing as of the effective date and provides for certain practical expedients. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this new standard on its consolidated statements and related disclosures.
In May 2016, FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients”. The update is to address certain issues identified by the FASB/IASB Joint Transition Resource Group for Revenue Recognition (TRG) in the guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition, the Board decided to add a project to its technical agenda to improve Topic 606, Revenue from Contracts with Customers, by reducing: 1) the potential for diversity in practice at initial application and 2) the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. The amendments in this Update affect entities with transactions included within the scope of Topic 606. The scope of that Topic includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments to the recognition and measurement provisions of Topic 606 also affect entities with transactions included within the scope of Topic 610, Other Income. The amendments in this Update affect the guidance in Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the potential impact of adopting this new standard on its consolidated statements and related disclosures.
In September 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This guidance clarifies the presentation requirements of eight specific issues within the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements, as the Company’s treatment of the relevant affected items within its consolidated statement of cash flows is consistent with the requirements of this guidance.
In February 2018, FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 provides entities the option to reclassify certain "stranded tax effects" resulting from the recent US tax reform from accumulated other comprehensive income ("AOCI") to retained earnings. Under the ASU, reporting entities will select an accounting policy to either reclassify all stranded tax effects caused by tax reform from AOCI to retained earnings, or continue recycling stranded effects (including those caused by tax reform) through earnings in future periods. Further, disclosure of either policy is required in all cases. The reclassification from AOCI to retained earnings is presented in the statement of shareholders equity. The ASU is effective for all entities in fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted for public business entities for which financial statements have not yet been issued, and for all other entities for which financial statements have not yet been made available for issuance. Entities have the option to record the reclassification either retrospectively to each period in which the income tax effects of tax reform are recognized, or at the beginning of the annual or interim period in which the amendments are adopted. The Company determined that the adoption of this new standard will have no material impact on its consolidated statements and related disclosures.
In March 2018, FASB issued ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. ASU 2018-05 amends SEC paragraphs in ASC 740 to reflect SEC Staff Accounting Bulletin (SAB) No.118. When the 2017 Tax Cuts and Jobs Act (the "Act") was signed into law, the SEC staff released SAB 118 for applying Topic 740 as it relates to the Act. SAB 118 outlines the approach companies may take if they determine that the necessary information is not available (in reasonable detail) to evaluate, compute, and prepare accounting entries to recognize the effect(s) of the Act by the time the financial statements are required to be filed. Companies may use this approach when the timely determination of some or all of the income tax effect(s) from the Act is incomplete by the due date of the financial statements. SAB 118 also prescribes disclosures that reporting entities must provide in these circumstances. The amendments to the Accounting Standards Codification became effective upon issuance. The Company has conducted a preliminary assessment of its income tax effects of the Act. Additional analysis of the law and the impact to the Company may be performed, if needed, and any impact will be finalized in 2018.
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 7A.
Item 7A.Quantitative and Qualitative Disclosure 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 8.
Item 8.Financial Statements and Supplementary Data
IONIX TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANT
To the Stockholders and Board of Directors of
Ionix Technology, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ionix Technology, Inc. ("the Company") as of June 30, 2018 and 2017, and the related consolidated statements of comprehensive income, stockholders' equity and cash flows for each of the years in the two-year period ended June 30, 2018 and related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2018, in conformity with accounting principles generally accepted in the United States of America.
Going concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has not generated sufficient cash flow from its operating activities for the past three years and did not have enough cash to support future operating plan. These circumstances, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Paritz & Company, P.A.
We have served as the Company's auditor since 2016.
Hackensack, New Jersey
October 11, 2018
IONIX TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements.
IONIX TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
The accompanying notes are an integral part of these consolidated financial statements.
IONIX TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
The accompanying notes are an integral part of these consolidated financial statements.
IONIX TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these consolidated financial statements.
IONIX TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
Ionix Technology, Inc. (the “Company” or “Ionix”), formerly known as Cambridge Projects Inc., is a Nevada corporation that was formed on March 11, 2011. By and through its wholly owned subsidiaries in China, the Company sells the high-end intelligent electronic equipment, which includes portable power banks for electronic devices and LCD screens in China.
On February 17, 2016, the Board ratified, approved, and authorized the Company, as the sole member of Well Best International Investment Limited (“Well Best”), on the formation of Taizhou Ionix Technology Company Limited (“Taizhou Ionix”), a company formed under the laws of China on December 17, 2015, and a wholly-owned subsidiary of Well Best. As a result, Taizhou Ionix is an indirect wholly-owned subsidiary of the Company. Taizhou Ionix conducted no business between its date of incorporation and date approved by the Board. Taizhou Ionix was formed to (i) develop, design, and manufacture lithium-ion batteries for electric vehicles, and (ii) act as an investment holding company that may acquire other businesses located in China. On August 19, 2016, Well Best sold 100% ownership of Taizhou Ionix to one of its directors. (See Note 4)
On May 19, 2016, the Company, as the sole member of Well Best, formed Xinyu Ionix Technology Company Limited (“Xinyu Ionix”), a company formed under the laws of China. As a result, Xinyu Ionix is a wholly-owned subsidiary of Well Best and an indirect wholly-owned subsidiary of the Company. Xinyu Ionix started operation in August 2016 and focused on developing and designing lithium batteries as well as to act as an investment company that may acquire other businesses located in China. On April 30, 2017, Well Best sold 100% ownership of Xinyu Ionix to one of its directors. (See Note 4)
On November 7, 2016, the Company’s Board of Directors approved and ratified the incorporation of Lisite Science Technology (Shenzhen) Co., Ltd (“Lisite Science”), a limited liability company formed in China on June 20, 2016. Well Best is the sole shareholder of Lisite Science. As a result, Lisite Science is an indirect, wholly-owned subsidiary of the Company. Lisite Science will act as a manufacturing base for the Company and has been focused on developing, producing and selling high-end intelligent electronic equipment, such as portable power banks.
On November 7, 2016, the Company’s Board of Directors approved and ratified the incorporation of Shenzhen Baileqi Electronic Technology Co., Ltd. (“Baileqi Electronic”), a limited liability company formed in China on August 8, 2016. Well Best is the sole shareholder of Baileqi Electronic. As a result, Baileqi Electronic is an indirect, wholly-owned subsidiary of the Company. Baileqi Electronic will act as a manufacturing base for the Company and has been focused on development and production of the LCD monitors.
On December 29, 2016, the Company’s Board of Directors approved and ratified to invest 99,999 HK dollars for 99.999% of the issued and outstanding stock of Welly Surplus International Limited (“Welly Surplus”), a limited company formed under the laws of Hong Kong on January 18, 2016. As a result of the investment, the Company became the majority shareholder of Welly Surplus, owning 99.999% of the outstanding stock of Welly Surplus, Mr. Xin Sui, a director, owns 0.001% of the outstanding stock of Welly Surplus. Welly Surplus will act as the accounting and financial base for the Company and shall focus on assisting the Company with all of the Company’s financial affairs. Welly Surplus had no operating activities from inception until the date of acquisition.
On February 20, 2018, the Company’s Board of Directors approved and ratified the incorporation of Changchun Fangguan Photoelectric Display Technology Co. Ltd. (“Fangguan Photoelectric”), a limited liability company formed in China on February 1, 2018. Well Best is the sole shareholder of Fangguan Photoelectric. As a result, Fangguan Photoelectric is an indirect, wholly-owned subsidiary of the Company. Fangguan Photoelectric will act as a manufacturing base for the Company and shall focus on developing and producing high-end intelligent electronic equipment, such as LCD screens.
On June 28, 2018, the Company’s Board of Directors approved and ratified the incorporation of Dalian Shizhe New Energy Technology Co., Ltd, a limited liability company formed under the laws of the PRC on June 28, 2018. Well Best is the sole shareholder of Dalian. As a result, Dalian is an indirect, wholly-owned subsidiary of the Company. Dalian will focus on promotion, services, and technical consulting for new energy, power supply technology development, solar photovoltaic system construction, energy performance contracting, energy-saving technology detection, and energy-saving construction technology consulting.
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has not generated sufficient cash flow from its operating activities for the past three years and did not have enough cash to support future operating plans. These circumstances, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company may need to raise additional capital from external sources or obtain loans from officers and shareholders in order to continue the long-term efforts contemplated under its business plan. The Company is pursuing other revenue streams which could include strategic acquisitions or possible joint ventures of other business segments.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Basis of consolidation
The consolidated financial statements include the accounts of Ionix Technology Inc. and its subsidiaries. All significant inter-company balances and transactions have been eliminated upon consolidation.
Use of Estimates
The Company’s consolidated 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.
Cash and cash equivalents
Cash consists of cash on hand and cash in bank. Cash equivalents represent investment securities that are short-term, have high credit quality and are highly liquid.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from shipment. Credit is extended based on evaluation of a customer's financial condition, the customer’s credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. At the end of each period, the Company specifically evaluates individual customer’s financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables. The Company will consider the allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. Based on the evaluation, the Company has determined that no allowance for doubtful accounts is required as of June 30, 2018 and 2017.
Inventories
Inventories consist of raw materials and finished goods. Inventories are valued at the lower of cost or net realizable value. We determine cost on the basis of the weighted average method. The Company periodically reviews inventories for obsolescence and any inventories identified as obsolete are written down or written off. Although we believe that the assumptions we use to estimate inventory write-downs are reasonable, future changes in these assumptions could provide a significantly different result.
Advances to suppliers
Advances to suppliers represent prepayments for merchandise, which were purchased but had not been received. The balance of the advances to suppliers is reduced and reclassified to inventories when the raw materials are received and pass quality inspection.
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.
Revenue recognition
In accordance with the ASC Topic 605, “Revenue Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.
The Company recognizes revenue from the sale of finished products upon delivery to the customer, whereas the title and risk of loss are fully transferred to the customers. The Company records its revenues, net of value added taxes (“VAT”). The Company is subject to VAT which is levied on the majority of the products at the rate of 16% on the invoiced value of sales.
Related parties and transactions
The Company identifies related parties, and accounts for, discloses related party transactions in accordance with ASC 850, "Related Party Disclosures" and other relevant ASC standards.
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
Transactions between related parties commonly occurring in the normal course of business are considered to be related party transactions. Transactions between related parties are also considered to be related party transactions even though they may not be given accounting recognition. While ASC does not provide accounting or measurement guidance for such transactions, it requires their disclosure nonetheless.
Income taxes
Income taxes are determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and discloses in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
As of June 30, 2018 and 2017, the Company did not have any significant unrecognized uncertain tax positions.
Comprehensive income (loss)
Comprehensive income (loss) is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. Comprehensive income (loss) for the periods presented includes net income (loss), change in unrealized gains (losses) on marketable securities classified as available-for-sale (net of tax), foreign currency translation adjustments, and share of change in other comprehensive income of equity investments one quarter in arrears.
Earnings (losses) per share
Basic earnings (losses) per ordinary share is based on the weighted effect of ordinary shares issued and outstanding, and is calculated by dividing net profit by the weighted average shares outstanding during period. Diluted earnings per ordinary share is calculated by dividing net profit by the weighted average number of ordinary shares used in the basic earnings per share calculation plus the number ordinary shares that would be issued assuming exercise or conversion of all potentially dilutive ordinary shares outstanding.
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:
Fair Value of Financial Instruments
The carrying value of the Company’s financial instruments: cash and cash equivalents, accounts receivable, inventory, prepayments and other receivables, accounts payable, income tax payable, other payables and accrued liabilities approximate at their fair values because of the short-term nature of these financial instruments.
The Company also follows the guidance of the ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
Level 1: Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;
Level 2: Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. Black-Scholes Option-Pricing model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs; and
Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.
Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The Company has no financial assets or liabilities measured at fair value on a recurring basis.
Recent accounting pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under this guidance, lessees will be required to recognize on the balance sheet a lease liability and a right-of-use asset for all leases, with the exception of short-term leases. The lease liability represents the lessee's obligation to make lease payments arising from a lease, and will be measured as the present value of the lease payments. The right-of-use asset represents the lessee's right to use a specified asset for the lease term, and will be measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee's initial direct costs. The standard also requires a lessee to recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The new guidance is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 is required to be applied using the modified retrospective approach for all leases existing as of the effective date and provides for certain practical expedients. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this new standard on its consolidated statements and related disclosures.
In May 2016, FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients”. The update is to address certain issues identified by the FASB/IASB Joint Transition Resource Group for Revenue Recognition (TRG) in the guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition, the Board decided to add a project to its technical agenda to improve Topic 606, Revenue from Contracts with Customers, by reducing: 1) the potential for diversity in practice at initial application and 2) the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. The amendments in this Update affect entities with transactions included within the scope of Topic 606. The scope of that Topic includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments to the recognition and measurement provisions of Topic 606 also affect entities with transactions included within the scope of Topic 610, Other Income. The amendments in this Update affect the guidance in Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the potential impact of adopting this new standard on its consolidated statements and related disclosures.
In September 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This guidance clarifies the presentation requirements of eight specific issues within the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements, as the Company’s treatment of the relevant affected items within its consolidated statement of cash flows is consistent with the requirements of this guidance.
In February 2018, FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 provides entities the option to reclassify certain "stranded tax effects" resulting from the recent US tax reform from accumulated other comprehensive income ("AOCI") to retained earnings. Under the ASU, reporting entities will select an accounting policy to either reclassify all stranded tax effects caused by tax reform from AOCI to retained earnings, or continue recycling stranded effects (including those caused by tax reform) through earnings in future periods. Further, disclosure of either policy is required in all cases. The reclassification from AOCI to retained earnings is presented in the statement of shareholders equity. The ASU is effective for all entities in fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted for public business entities for which financial statements have not yet been issued, and for all other entities for which financial statements have not yet been made available for issuance. Entities have the option to record the reclassification either retrospectively to each period in which the income tax effects of tax reform are recognized, or at the beginning of the annual or interim period in which the amendments are adopted. The Company determined that the adoption of this new standard will have no material impact on its consolidated statements and related disclosures.
In March 2018, FASB issued ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. ASU 2018-05 amends SEC paragraphs in ASC 740 to reflect SEC Staff Accounting Bulletin (SAB) No.118. When the 2017 Tax Cuts and Jobs Act (the "Act") was signed into law, the SEC staff released SAB 118 for applying Topic 740 as it relates to the Act. SAB 118 outlines the approach companies may take if they determine that the necessary information is not available (in reasonable detail) to evaluate, compute, and prepare accounting entries to recognize the effect(s) of the Act by the time the financial statements are required to be filed. Companies may use this approach when the timely determination of some or all of the income tax effect(s) from the Act is incomplete by the due date of the financial statements. SAB 118 also prescribes disclosures that reporting entities must provide in these circumstances. The amendments to the Accounting Standards Codification became effective upon issuance. The Company has conducted a preliminary assessment of its income tax effects of the Act. Additional analysis of the law and the impact to the Company may be performed, if needed, and any impact will be finalized in 2018.
NOTE 4 - DISCONTINUED OPERATIONS
Taizhou Ionix
On August 19, 2016, Well Best entered into a share transfer agreement whereby Well Best sold 100% of its equity interest in Taizhou Ionix to Mr. GuoEn Li, the sole director and officer of Taizhou Ionix for approximately RMB 30,000 (approximately $5,000USD). Well Best was the sole shareholder of Taizhou Ionix. The Company believed that the manufacturing contract between Taizhou Ionix and Taizhou Jiunuojie Electronic Technology Limited regarding the production of lithium batteries was not beneficial to the Company. As a result, (i) Taizhou Ionix is no longer an indirect, wholly-owned subsidiary of the Company, and (ii) Mr. Li is no longer affiliated with the Company. Well Best recorded a loss of $18,890 on disposal of Taizhou Ionix which was included in the loss from disposal of discontinued operations on statements of comprehensive income.
The following table shows the result of operations of Taizhou Ionix for the period from July 1 to August 19, 2016 which are included in the income from discontinued operations:
Xinyu Ionix
On April 30, 2017, Well Best, a wholly-owned subsidiary of the Company, sold 100% of its equity interest in Xinyu Ionix to Zhengfu Nan for RMB 100 (approximately $14USD) pursuant to a Share Transfer Agreement dated April 30, 2017 (the “Agreement”). The Company believed that the manufacturing contract between Xinyu Ionix and Jiangxi Huanming Technology Co., Ltd. regarding the production of lithium batteries was not beneficial to the Company. As a result, (i) Xinyu Ionix is no longer an indirect, wholly-owned subsidiary of the Company, and (ii) Mr. Nan is no longer affiliated with the Company. Well Best recorded a loss of $31,115 on disposal of Xinyu Ionix which was included in the loss from disposal of discontinued operations on statements of comprehensive income.
The following table shows the results of operations of Xinyu Ionix for the period from July 1, 2016 to April 30, 2017 which are included in the income from discontinued operations:
NOTE 5 - INVENTORIES
Inventories are stated at the lower of cost (determined using the weighted average cost) or net realizable value and are composed of the raw materials and finished goods.
Inventories consist of the following:
NOTE 6 - OTHER RECEIVABLES
Other receivables represent short term advances to third parties. They are interest free, unsecured and repayable on demand. The balance of the other receivables as of June 30, 2017 was repaid in full in September 2017.
NOTE 7 - DUE TO RELATED PARTIES
Manufacture - related party
On September 1, 2016, Baileqi Electronic entered into a manufacturing agreement with Shenzhen Baileqi Science and Technology Co., Ltd. (“Shenzhen Baileqi S&T”) to manufacture products for Baileqi Electronic. 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 June 30, 2018. The manufacturing costs incurred with Shenzhen Baileqi S&T was $268,952 and $153,718 for the years ended June 30, 2018 and 2017, respectively, and the amount of $268,952 and $153,718 respectively were included in cost of revenue.
Purchase from related party
During the year ended June 30, 2018, the Company purchased $1,916,551 and $653,494 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 June 30, 2018. The amount of $1,916,551 and $653,458 were included in the cost of revenue.
During the year ended June 30, 2017, the Company purchased $3,303,081 and $305,750 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 $3,303,081 and $305,750 were included in the cost of revenue.
During the year ended June 30, 2018, the Company purchased $1,523,770 from Changchun Fangguan Electronic Science and Technology Co., Ltd. (“Fangguan S&T”). The president of Fangguan S&T is the president and a member of the board of directors of Fangguan Photoelectric. The amount of $1,485,144 was included in the cost of revenue.
The Company made advances of $206,194 to Keenest for future purchases as of June 30, 2018. The trade balance payable to Fangguan S&T was $248,543 as of June 30, 2018. The trade balance payable to Shenzhen Baileqi S&T were $159,861 as of June 30, 2017.
Sales to related party
During the year ended June 30, 2018, Baileqi Electronic sold materials of $493,439 to Shenzhen Baileqi S&T. The trade-related balance receivable from Shenzhen Baileqi S&T was $119,543 as of June 30, 2018.
During the year ended June 30, 2017, Lisite Science sold materials of $1,493,090 to Keenest. The sales-related balance receivable from Keenest was zero as of June 30, 2017.
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:
(1) Ben Wong was the controlling shareholder of Shinning Glory until April 20, 2017, which holds majority shares in Ionix Technology, Inc.
(2) Changyong Yang is a stockholder of the Company, who owns approximately 2% of the Company’s outstanding common stock, and the owner of Keenest.
(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) Shenzhen Baileqi S&T is a company established in China and 100% owned by Baozhen Deng, a stockholder of the Company.
(6) Yubao Liu is the controlling shareholder of Shinning Glory since April 20, 2017, which holds majority shares in Ionix Technology, Inc.
During the year ended June 30, 2018, Welly Surplus refunded $5,000 to Xin Sui. Baileqi Electronic refunded $41,405 and $8,590 to Shenzhen Baileqi S&T and Baozhen Deng. In addition, Baileqi Electronic further advanced $3,685 to Baozhen Deng and the advance was repaid in full from Baozhen Deng in September 2018. Lisite Science refunded $122,820 to Changyong Yang.
During the year ended June 30, 2018, Yubao Liu advanced $70,458 to Well Best.
During the year ended June 30, 2017, Ben Wong advanced $95,282 to Well Best and he received the proceeds of $5,000 from sales of Taizhou Ionix on behalf of the Company. Changyong Yang, a stockholder of the Company, advanced $122,820 to Lisite Science. Baozhen Deng, a stockholder of the Company and the owner of Shenzhen Baileqi S&T, advanced $8,590 to Baileqi Electronic. Shenzhen Baileqi S&T, a company 100% owned by Baozhen Deng, advanced $41,405 to Baileqi Electronic. Xin Sui, a member of the board of directors of Welly Surplus, advanced $6,992 to Welly Surplus.
NOTE 8 - CONCENTRATION
Major customers
Customers who accounted for 10% or more of the Company’s revenues for the years ended June 30, 2018 and 2017 respectively and its outstanding balance of accounts receivable as of June 30, 2018 and 2017 respectively are presented as follows:
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 years ended June 30, 2018 and 2017 respectively and its outstanding balance of accounts payable as of June 30, 2018 and 2017 respectively are presented as follows:
All suppliers of the Company are located in the PRC.
NOTE 9 - 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 years ended June 30, 2011 and after were still open to audit as of June 30, 2018.
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 June 30, 2018.
Hong Kong
The Well Best and Welly Surplus are registered in Hong Kong and subject to income tax rate of 16.5%. For the years ended June 30, 2018 and 2017, there is no assessable income chargeable to profit tax in Hong Kong.
The PRC
Lisite Science, Fangguan Photoelectric and Baileqi Electronic are operating in the PRC and is subject to the Corporate Income Tax Law of the People’s Republic of China at a unified income tax rate of 25%.
The reconciliation of income tax expense at the U.S. statutory rates of 35% to the Company’s effective tax rate is as follows:
The provisions for income taxes are summarized as follows:
The tax effects of temporary differences that give rise to the Company’s net deferred tax assets are as follows:
As of June 30, 2018, the Company has approximately $374,000 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 operations.
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. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company has not recorded any adjustments according to Tax Act. As the Company collects and prepares necessary data, and interprets the Tax Act and any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, the Company may make adjustments to the provisional amounts. Those adjustments may materially impact the provision for income taxes and effective tax rate in the period in which the adjustments are made. The accounting for the tax effects of the Tax Act will be completed in 2018.
NOTE 10 - 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.
Item 9.
Item 9.Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
On July 18, 2016, the Company (“Registrant”) dismissed Michael F. Albanese, CPA (“Albanese”) as its independent registered public accounting firm. The decision was approved by the Company’s Board of Directors.
The reports of Albanese on the Registrant’s financial statements for the fiscal years ended June 30, 2015, and 2014, did not contain an adverse opinion or disclaimer of opinion and were not modified as to uncertainty, audit scope, or accounting principles. During the Registrant’s fiscal years ended June 30, 2015, and 2014, and the subsequent period through the date of this report, there were (i) no disagreements with Albanese on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Albanese would have caused Albanese to make reference to the subject matter of the disagreements in connection with its report, and (ii) no “reportable events” as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
On July 18, 2016, the Registrant engaged Paritz & Company, P.A. (“P&C”) as the Registrant’s new independent registered public accounting firm. The appointment of P&C was approved by the Registrant’s Board of Directors effective July 18, 2016.
During the fiscal years ended June 30, 2015, and 2014, and the subsequent interim period through July 18, 2016, neither the Registrant nor anyone acting on its behalf consulted with P&C regarding either (1) the application of accounting principles to any specific completed or proposed transaction, or the type of audit opinion that might be rendered on the Registrant’s financial statements, nor did P&C provide written or oral advice to the Registrant that P&C concluded was an important factor considered by the Registrant in reaching a decision as to the accounting, auditing or financial reporting issue; or (2) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the instructions thereto) or a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).
The Registrant provided Albanese with a copy of the disclosures made in the Current Report on Form 8-K filed with the SEC on July 18, 2016 and requested that Albanese furnish it with a letter addressed to the Securities and Exchange Commission stating whether or not he agrees with the Registrant’s statements contained therein. Albanese reviewed the disclosures made in the Current Report on Form 8-K filed on July 18, 2016, and a copy of the letter furnished by Albanese was furnished as Exhibit 16.1 to the 8-K, and is incorporated by reference herein.
Item 9A.
Item 9A.Controls and Procedures
As of June 30, 2018, our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as required by Exchange Act Rule 13a-15.Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted 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 in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed by, or under the supervision of, our chief executive officer and chief financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (GAAP). Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2018. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 Internal Control-Integrated Framework. Based on its evaluation, management has concluded that the Company’s internal control over financial reporting was not effective as of June 30, 2018.
During the year ended June 30, 2018, management identified the following weaknesses, which were deemed to be material weaknesses in internal controls:
1. Due to the size of the Company and available resources, there are limited personnel to assist with the accounting and financial reporting function, which results in a lack of segregation of duties.
2. Audit Committee - As of June 30, 2018, our Board of Directors has not established an Audit Committee or adopted an Audit Committee Charter.
3. We did not implement appropriate information technology controls - As at June 30, 2018, the Company retains copies of all financial data and material agreements; however there is no formal procedure or evidence of normal backup of the Company's data or off-site storage of data in the event of theft, misplacement, or loss due to unmitigated factors.
Pursuant to Regulation S-K Item 308(b), this Annual Report on Form 10-K does not include an attestation report of our company’s registered public accounting firm regarding internal control over financial reporting.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. A control system, no matter how well designed and operated can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met. 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 cost.
Changes in Internal Control and Financial Reporting
There have been no changes in our internal control over financial reporting in 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.
Item 9B.
Item 9B.Other Information
None.
PART III
Item 10.
Item 10.Directors, Executive Officers and Corporate Governance
Identification of Directors and Executive Officers and Term of Office
The following table sets forth the names and ages of our current directors and executive officers and those of our wholly owned direct subsidiary and indirect wholly owned subsidiaries. Our Board of Directors appoints our executive officers. Each director of the Company serves for a term of one year or until the successor is elected at the Company's annual shareholders' meeting and is qualified, subject to removal by the Company's shareholders. Each officer serves, at the pleasure of the Board of Directors, for a term of one year and until the successor is elected at the annual meeting of the Board of Directors and is qualified. There are no family relationships among our directors or executive officers. None of our directors or officers has been affiliated with any company that has filed for bankruptcy within the last five years. The Company is not aware of any proceedings to which any of the Company’s officers or directors, or any associate of any such officer or director, is a party adverse to the Company or any of the Company’s subsidiaries or has a material interest adverse to it or any of its subsidiaries.
Ionix Technology, Inc.
Subsidiaries:
Welly Surplus International Limited
The following table sets forth the names and ages of Welly Surplus’s directors and executive officers as of June 30, 2018.
Well Best International Investment Limited
The following table sets forth the names and ages of Well Best’s directors and executive officers as of June 30, 2018.
Lisite Science Technology (Shenzhen) Co., Ltd.
The following table sets forth the names and ages of Lisite Science’s directors and executive officers as of June 30, 2018.
Shenzhen Baileqi Electronic Technology Co., Ltd
The following table sets forth the names and ages of Baileqi Electronic’s directors and executive officers as of June 30, 2018.
Changchun Fangguan Photoelectric Display Technology Co. Ltd
The following table sets forth the names and ages of Fangguan Photoelectric’s directors and executive officers as of June 30, 2018.
Dalian Shizhe New Energy Technology Co., Ltd
The following table sets forth the names and ages of Dalian’s directors and executive officers as of June 30, 2018.
Background and Business Experience
The business experience during the past five years of the person presently listed above as an Officer or Director of the Company is as follows:
Yubao Liu - Mr. Liu graduated and acquired a Bachelor degree from Harbin University of Science and Technology in 1996, where he majored in Economic Management, and was honorably entitled as a National Economist in 2002. From 2004 to June of 2012, Mr. Liu was employed by Dalian Carbon Fiber Technology Limited (China), where he served in the position of vice managing director. During this period, Mr. Liu was awarded as an International Enterprise (IEM) Senior Management Specialist. With multiple years of working practice, Mr. Liu has published many papers and participated in the development and testing of national new energy Lithium battery and pure electromobiles, and was also involved in formulating related standards.
From July of 2012 to April of 2018, Mr. Liu was employed by Dalian Yinlong Accounting & Law Firm, where he was assigned to take charge of operational control, internal auditing, and recapitalization among other things. Mr. Liu possesses both intelligence and virtue, persists in exploiting great causes with enthusiasm, and has made a remarkable contribution to the resource reorganization of enterprise. Mr. Liu is considered to be an expert of his field and a valuable asset to the business, which we believe will ensure rapid company growth and enhance the level of business management.
Chunde Song - Mr. Song graduated from Dongbei University of Finance and Economics in 1998. Once he finished the tertiary education, Mr. Song was employed by Dalian Finance and Taxation Auditing Firm, and started to get involved with business consulting services, finance and tax auditing where he acquired proficiency in business economic operation accounting and relevant laws and regulations control. In 2010, Mr. Song joined Dalian Huanyu Venture Capital Investment Technology Ltd, which focused on capital operation, business acquisition and restructuring fields among other things, and provided optimal grade of solutions to the company. Mr. Song is considered to be an expert in financial control and auditing, and has experience as a senior level manager.
Yue Kou- Ms. Kou is a member of the Hong Kong Institute of Certified Public Accountants, the Association of Chartered Certified Accountants, and the Chinese Institute of Certified Public Accountants. Ms. Kou has 20 years of solid experience in statutory auditing, international accounting, and publicly listed companies. Ms. Kou started her career as Chief Accountant (1996-1999) with Xinmao Tech Holding Limited, a company in China. From 1999-2002, she was employed as a staff accountant in the Ernst & Young, Beijing Branch focusing on external audit and international accounting conversions. From 2002-2006, she worked as an account manager with China Data Broadcasting Holding Ltd, a publicly listed company on the Hong Kong Stock Exchange. From 2006 to present, Ms. Kou worked as an auditor and financial controller for three different audit firms: (i) Zhongyi（HK）CPA Limited, (ii) Thomas Lee and Partners, and (iii) GDT CPA Limited. Since May 27, 2016, Ms. Kouhas worked for Ionix Technology Inc., as the Chief Financial Officer.
Qingchun Yang- Qingchun Yang was born in Dalian, Liaoning Province. Mr. Yang majored in Economic Management and graduated as an Economist in 1987. From 2007 to 2011, Mr. Yang worked as the senior executive in Dalian Huanyu Venture Capital Co. where he was involved in wealth management experiences and high ability of resources integration. In 2012, Mr. Yang co-founded Jiamusi Huanqiu New Energy Company Limited, where he was in charge of drafting strategic plans and operating plan of the company, including the overall human recourse strategy plan, which is suitable for the short-term and long-term development of companies. Since February 17, 2016, Mr. Yanghas worked as the president and director of Well Best.
Xin Sui- Mr. Sui was born in Jiamusi, Heilongjiang Province. He received a bachelor degree in Finance from Jiamusi University in 2002. Mr. Sui worked as assistant to the Chairman for Dalian Great Wall Economic and Trade Company from 2007 to 2015 where he assisted in the drafting of regulations and laws of the company, ensured the Company was achieving its business goals, and attended business negotiations on behalf of the Chairman. Mr. Sui incorporated Welly Surplus in 2016 to serve as an investment holding company. Mr. Sui is dedicated to seeking financial resources for Welly Surplus.
Yun Yang - Mr. Yang served as the Chief Technology Officer of Shenzhen Jinlisite Science and Technology Corporation Ltd. from July 2007 until May of 2016. Mr. Yang was employed as an assistant to the Chief Engineer of the Shenzhen Jinsiwei Technology Co., Ltd. from 2004 to 2007.From 2016 to present, Mr. Yang has worked as the president and director of Lisite Science Technology(Shenzhen) Co. Ltd. Mr. Yang graduated from Hebei University of Science and Technology wheree majored in Electronic Information Science and Technology and received a bachelor of science degree upon graduation.
Baozhu Deng - Ms Baozhu Deng, 32 , graduated from Shenzhen University with a bachelor degree in International Trade and English. From March 2010 to October 2014, she worked for Shenzhen Baileqi Science and Technology Co., Ltd.as a Marketing Manager. From October 2014 to March 2016, she worked for Shenzhen Guoxian Technology Co., Ltd. as a Purchasing Manager. She has been working for Shenzhen Baileqi Electronic Technology Co., Ltd. since March 2016, firstly as manager. Then on November 15, 2017, she was promoted as the new president and director of Baileqi Electronic.
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Jialin Liang - Mr. Liang, 33, graduated from Nankai University in 1985 with a major in Microelectronics. Mr. Liang served as vice general manager of Jilin Zijing Electronics Co., Ltd. from 1997 to 2007, and has served as general manager of Changchun Fangguan Electronic Technology Co., Ltd. since 2007.
Liang Zhang-Mr. Zhang, 40, graduated and acquired a Bachelor’s degree from Ludong University (formerly known as Yantai Normal College) in 2000, where he majored in Law. He is an overseas Chinese national who holds a permanent residency in the Republic of Chile. Mr. Zhang first arrived in Chile in 2005, where he was later appointed as the Deputy Secretary-General of the Chinese Chamber of Commerce in 2009. Over the course of nearly ten years, Mr. Zhang engaged in various business and diplomatic ventures in Chile, and traveled extensively throughout South America. Mr. Zhang founded the first wedding etiquette company in the history of Chinese nationals residing in Chile, and also founded the Shandong Flour-food Processing and Distribution Factory in Santiago, Chile’s capital. He engaged in various cultural and non-governmental exchanges between Chile and China, and was interviewed and recognized by several national leaders. In 2014, Mr. Zhang returned to China upon the birth of his child, and currently lives in Dalian. Mr. Zhang previously acted as the general manager of Minghu Ranch which belongs to the Grand World Associated Business Organizations of Dalian Jinguang Group. Mr. Zhang currently serves as the legal liaison and general manager of Dalian Shizhe New Energy Technology Co., Ltd., and is also the Vice Chairman of the Dalian Xigang District Non-Governmental Artist Association.
Committees
We do not have a standing audit, compensation or nominating committee, but our entire board of directors acts in such capacities. We believe that our members of our board of directors are capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The board of directors of our company does not believe that it is necessary to have an audit committee because we believe that the functions of an audit committee can be adequately performed by the board of directors.
Identification of Significant Employees
We have no significant employees other than our officers and directors.
Family Relationship
We currently do not have any officers or directors of our Company who are related to each other.
Potential Conflicts of Interest
The Board of Directors has not established a nominating committee. The Board is of the opinion that such committee is not necessary since the Company has only two directors, and to date, such directors have been performing the functions of such committee. Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning management compensation and nominations. We are not aware of any other conflicts of interest with any of our executive officers or directors.
Involvement in Certain Legal Proceedings
During the past ten years no director, executive officer, promoter or control person of the Company has been involved in the following:
(1)A petition under the Federal bankruptcy laws or any state insolvency law which was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
(2)Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3)Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
i. Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
ii. Engaging in any type of business practice; or
iii. Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
(4)Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;
(5)Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
(6)Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
(7)Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
i. Any Federal or State securities or commodities law or regulation; or
ii. Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
iii. Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
(8)Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Code of Ethics
The Company has not adopted a code of ethics that applies to its principal executive officers, principal financial officers, principal accounting officers or controller, or persons performing similar functions. We anticipate that we will adopt a code of ethics when we increase the number of our directors and officers, or the number of employees.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(e) during the year ended June 30, 2018, Forms 5 and any amendments thereto furnished to us with respect to the year ended June 30, 2018, and the representations made by the reporting persons to us, we believe that during the year ended June 30, 2018, our executive officers and directors and all persons who own more than ten percent of a registered class of our equity securities have complied with all Section 16(a) filing requirements, except as follows:
Person Filing Type Transaction Date Required File Date Actual File Date
Chunde Song 3 (1) May 16, 2018 May 26, 2018 August 8, 2018
Doris Zhou 4(2) May 16, 2018 May 21, 2018 May 24, 2018
Yubao Liu 4(3) March 28, 2018 April 2, 2018 May 8, 2018
Yubao Liu 5(4) June 30, 2017 August 15, 2017 September 22, 2017
Yubao Liu 4(5) June 28, 2018 August 2, 2018 September 21,2018
(1) On May 16, 2018, Mr. Song was appointed as a director of the Company. Mr. Song filed a Form 5 on August 8, 2018 reporting Form 3 holdings. Mr. Song owns 0 shares of the Company’s stock. The Form 5 was filed timely.
(2) On May 16, 2018, Doris Zhou resigned as Chief Executive Officer, President, Secretary, Treasurer and as a member of the Board of Directors of Ionix Technology, Inc. and is therefore no longer subject to Section 16 beneficial ownership reporting requirements. The delinquent Form 4 merely reported her exit. Ms. Zhou owns 0 shares.
(3) On March 28, 2018, Yubao Liu, indirectly through Shining Glory Investments, made a gift to three parties of an aggregate 417,000 shares at a cost basis of $NIL per share. The gift should have been reported on April 2, 2018.
(4) On April 22, 2017, Yubao Liu, indirectly through Shining Glory Investments, sold 550,000 shares which was reported on Form 5.
(5) On June 28, 2018, Yubao Liu, indirectly through Shining Glory Investmets sold 100,000 which should have been reported on Form 4 on August 2, 2018.
Item 11.
Item 11.Executive Compensation
Summary Compensation Table
The following table sets forth the compensation paid to our executive officers, and those of Well Best and its subsidiaries, and Welly Surplus for the fiscal years ended June 30, 2018 and 2017. Unless otherwise specified, the term of each executive officer is that as set forth under that section entitled, “Directors, Executive Officers, Promoters and Control Persons -- Term of Office”.
Notes to Summary Compensation Table:
(1) Mr. Liu was appointed to serve as the Company’s Chief Executive Officer, President, Secretary, Treasurer and as Chairman of the Board of Directors of the Company on May 16, 2018. Mr. Liu’s salary is $0 USD (equal to 0 RMB).
(2) Ms. Kou was appointed as Chief Financial Officer of the Company on May 27, 2016. Ms. Kou’s salary is $19,342 USD (equals to 132,520 RMB).
(3) Mr. Song was appointed to serve as a member of the Board of Directors of the Company on May 16, 2018. Mr. Song’s salary is $0 USD (equal to 0 RMB).
(4) Mr. Xui was appointed as President of Welly Surplus on December 29, 2016. Mr. Xui’s salary is $0 USD (equal to 0 RMB).
(5) Mr. Q. Yang was appointed as a director of Well Best, a wholly owned subsidiary of the Company, on February 17, 2016. His annual salary package is $0.
(6) Mr. Yun Yang was appointed as President and a director of Lisite Science on November 7, 2016. His annual salary package is $6,273 (equal to 42,000RMB).
(7)Mr. Deng was appointed as President and a director of Baileqi Electronics on November 7, 2016. On Novembe 15, 2017 he resigned as President and director. He obtained salary $2,266(equal to 15,172RMB) for the period from July 1，2017 to November 15，2017.
(8)On November 15, 2017, Ms. Baozhu Deng was appointed as President and a director of Baileqi Electronics. She obtained salary $4,202(equal to 28,133RMB) for the period from November 15，2017 to June 30，2018.
(9)Mr. Zhang was appointed as President and a member of the board of directors of Dalian on June 28, 2018. Dalian is a wholly owned subsidiary of Well Best and an indirect wholly-owned subsidiary of the Company. Zhang’s salary is $0 USD (equal to 0 RMB).
(10) Mr. Liang was appointed as President and a member of the board of directors of Fangguan Photoelectric on February 20, 2018. Fangguan Photoelectric is a wholly owned subsidiary of Well Best and an indirect wholly-owned subsidiary of the Company. Mr. Liang’s salary is $0 USD (equal to 0 RMB).
(11) Ms. Zhou was appointed as Chief Executive Officer and a Director on November 20, 2015. Ms. Zhou’s salary was Nil during year ended June 30, 2018. Ms. Zhou was appointed as director of Welly Surplus on December 29, 2016. Ms. Zhou’s salary as director of Welly Surplus is $0 USD (equal to 0 RMB). On May 16, 2018, Ms. Doris Zhou resigned as Chief Executive Officer, President, Secretary, Treasurer and as a member of the Board of Directors of the Company, and as Director of Welly Surplus.
Narrative Disclosure to Summary Compensation Table
As of June 30, 2018 and 2017, none of Ionix Technology, Welly Surplus, and Well Best or its subsidiaries, had any compensatory plans or arrangements, including payments to be received from Ionix, Welly Surplus, Well Best or its subsidiaries with respect to any executive officer, that would result in payments to such person because of his or her resignation, retirement or other termination of employment with the Company, Well Best, or its subsidiaries, any change in control, or a change in the person’s responsibilities following a change in control of the Company, Well Best, or its subsidiaries.
Outstanding Equity Awards
There are no equity awards outstanding as of the year ended June 30, 2018 for Ionix Technology, Welly Surplus, Well Best or its subsidiaries.
Stock Options/SAR Grants
During our fiscal year ended June 30, 2018 there were no options granted to our named officers or directors.
Option Exercises
During our Fiscal year ended June 30, 2018 there were no options exercised by our named officers.
Compensation of Directors
As of June 30, 2018, there is no cash compensation paid to directors for their service on our board of directors. We do not have any agreements for compensating our directors for their services in their capacity as directors, although such directors are expected in the future to receive stock options to purchase shares of our common stock as awarded by our board of directors.
We have determined that none of our directors are independent directors, as that term is used in Item 7(d)(3)(iv)(B) of Schedule 14A under the Securities Exchange Act of 1934, as amended, and as defined by Rule 4200(a)(15) of the NASDAQ Marketplace Rules.
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the board of directors or a committee thereof.
Indebtedness of Directors, Senior Officers, Executive Officers and Other Management
None of our directors or executive officers or any associate or affiliate of our company during the last two fiscal years, is or has been indebted to our company by way of guarantee, support agreement, letter of credit or other similar agreement or understanding currently outstanding.
Employment Agreements
The Company has no agreement that provides for payment to executive officers at, following, or in connection with the resignation, retirement or other termination, or a change in control of Company or a change in any executive officer's responsibilities following a change in control.
Item 12.
Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners and Management
The following table lists, as of June 30, 2018, the number of shares of common stock that are beneficially owned by (i) each person or entity known to the Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each officer and director of the Company; and (iii) all officers and directors as a group. Information relating to beneficial ownership of common stock by principal shareholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.
(1) Applicable percentage of ownership is based on 99,003,000 shares of common stock outstanding on June 30, 2018 and 5,000,000 shares of Preferred Stock issued and outstanding on June 30, 2018. Percentage totals are calculated separately based on each class of capital stock. Each share of Preferred Stock entitles the holder to vote 100 shares of common stock; the Preferred Stock is not convertible into common stock. Percentage ownership is determined based on shares owned together with securities exercisable or convertible into shares of common stock within 60 days of June 30, 2018, for each stockholder. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to securities exercisable or convertible into shares of common stock that are currently exercisable or exercisable within 60 days of June 30, 2018, are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. .
(2) Yubao Liu, is the CEO, Secretary, Treasurer, and Director of Ionix Technology. Mr. Liu’s ownership includes 100,000 directly and 28,879,000 indirectly through Shining Glory Investments Limited; additionally Mr. Liu is the beneficial owner of 5,000,000 shares of preferred stock which has the authority to vote a total of 500,000,000 common stock votes. Mr. Liu owns 0 shares issuble upon exercise of stock options. Mr. Liu is the sole officer and director of Shining Glory Investments Limited and has dispositive voting and investment control over the shares held by Shining Glory. Thus, in total, Shining Glory and its sole officer and director collectively owns an aggregate 88.36% of the total outstanding voting securities of the Company.
(3) Yue Kou is the CFO of Ionix Technology. Ms. Kou’s beneficial ownership includes 0 shares of common stock and 0 shares issuable upon the exercise of stock options.
(4) Chunde Song is the Director of the Company. Mr. Song’s beneficial ownership includes 0 shares of common stock and 0 shares issuable upon the exercise of stock options.
(5)Qingchun Yang is the President and Director of Well Best, a wholly owned subsidiary of Ionix Technology. Mr. Yang’s beneficial ownership includes 0 shares of common stock of the Company and 0 shares issuable upon the exercise of stock options.
(6) Zhengfu Nan is the President and Director of XinyuIonix, an indirect wholly owned subsidiary of Ionix Technology. Mr. Nan’s beneficial ownership includes 0 shares of common stock of the Company and 0 shares issuable upon the exercise of stock options.
(7) Yun Yang is the President and Director of Lisite Science Technology, an indirect wholly owned subsidiary of Ionix Technology. Mr. Yang’s beneficial ownership includes 0 shares of common stock of the Company and 0 shares issuable upon the exercise of stock options.
(8)Baozhu Deng is the President and Director of Shenzhen Baileqi Electronic Technology Co., Ltd, an indirect wholly owned subsidiary of Ionix Technology. Ms. Deng’s beneficial ownership includes 0 shares of common stock of the Company and 0 shares issuable upon the exercise of stock options.
(9)Xin Sui is President and Director of Welly Surplus International Limited, a wholly owned subsidiary of IonixTechnoloy. Mr. Sui’s beneficial ownership includes 0 shares of common stock of the Company and 0 shares issuable upon the exercise of stock options.
(10) Jialin Liang is the President and Director of Fangguan Photoelectric. Well Best is the sole shareholder of Fangguan Photoelectric. As a result, Fangguan Photoelectric is an indirect, wholly-owned subsidiary of the Company. Mr. Liang’s beneficial ownership includes 0 shares of common stock of the Company and 0 shares issuable upon the exercise of stock options.
(11) Liang Zhang is the President and Director of Dalian Shizhe New Energy Technology Co., Ltd, a limited liability company formed under the laws of the PRC on June 28, 2018. Well Best is the sole shareholder of Dalian. As a result, Dalian is an indirect, wholly-owned subsidiary of the Company. Mr. Zhang’s beneficial ownership includes 0 shares of common stock of the Company and 0 shares issuable upon the exercise of stock options.
(12))Mr. Yang Kan’s beneficial ownership includes 7,600,000 shares of common stock of the Company and 0 shares issuable upon the exercise of stock options
(13)Mr. Hui’s beneficial ownership includes 5,020,000 shares of common stock of the Company and 0 shares issuable upon the exercise of stock options
Changes in Control
There are no present arrangements or pledges of the Company’s securities which may result in a change in control of the Company.
Item 13.
Item 13.Certain Relationships and Related Transactions and Director Independence
Director Independence
For purposes of determining director independence, we have applied the definitions set out in NASDAQ Rule 5605(a)(2). The OTCBB on which our shares of common stock are quoted does not have any director independence requirements. The NASDAQ definition of “Independent Director” means a person other than an Executive Officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company's Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
According to the NASDAQ definition, Yubao Liu is not independent director because he is also an executive officer of the Company; however, Mr. Chunde Song is an independent director according to the NASDAQ definition of such.
We do not have a standing audit, compensation or nominating committee, but our entire board of directors acts in such capacities. We believe that our members of our board of directors are capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The board of directors of our company does not believe that it is necessary to have an audit committee because we believe that the functions of an audit committee can be adequately performed by the board of directors. In addition, we believe that retaining additional independent directors who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development.
Related Party Transactions
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.
Manufacture - related party
On September 1, 2016, Baileqi Electronic entered into a manufacturing agreement with Shenzhen Baileqi Science and Technology Co., Ltd. (“Shenzhen Baileqi S&T”) to manufacture products for Baileqi Electronic. 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 June 30, 2018. The manufacturing costs incurred with Shenzhen Baileqi S&T was $268,952 and $153,718 for the years ended June 30, 2018 and 2017, respectively, and the amount of $268,952 and $153,718 respectively were included in cost of revenue.
Purchase from related party
During the year ended June 30, 2018, the Company purchased $1,916,551 and $653,494 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 June 30, 2018. The amount of $1,916,551 and $653,458 were included in the cost of revenue.
During the year ended June 30, 2017, the Company purchased $3,303,081 and $305,750 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 $3,303,081 and $305,750 were included in the cost of revenue.
During the year ended June 30, 2018, the Company purchased $1,523,770 from Changchun Fangguan Electronic Science and Technology Co., Ltd. (“Fangguan S&T”). The president of Fangguan S&T is the president and a member of the board of directors of Fangguan Photoelectric. The amount of $1,485,144 was included in the cost of revenue.
The Company made advances of $206,194 to Keenest for future purchases as of June 30, 2018. The trade balance payable to Fangguan S&T was $248,543 as of June 30, 2018. The trade balance payable to Shenzhen Baileqi S&T were $159,861 as of June 30, 2017.
Sales to related party
During the year ended June 30, 2018, Baileqi Electronic sold materials of $493,439 to Shenzhen Baileqi S&T. The trade-related balance receivable from Shenzhen Baileqi S&T was $119,543 as of June 30, 2018.
During the year ended June 30, 2017, Lisite Science sold materials of $1,493,090 to Keenest. The sales-related balance receivable from Keenest was zero as of June 30, 2017.
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:
(1) Ben Wong was the controlling shareholder of Shinning Glory until April 20, 2017, which holds majority shares in Ionix Technology, Inc.
(2) Changyong Yang is a stockholder of the Company, who owns approximately 2% of the Company’s outstanding common stock, and the owner of Keenest.
(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) Shenzhen Baileqi S&T is a company established in China and 100% owned by Baozhen Deng, a stockholder of the Company.
(6) Yubao Liu is the controlling shareholder of Shinning Glory since April 20, 2017, which holds majority shares in Ionix Technology, Inc.
During the year ended June 30, 2018, Welly Surplus refunded $5,000 to Xin Sui. Baileqi Electronic refunded $41,405 and $8,590 to Shenzhen Baileqi S&T and Baozhen Deng. In addition, Baileqi Electronic further advanced $3,685 to Baozhen Deng and the advance was repaid in full from Baozhen Deng in September 2018. Lisite Science refunded $122,820 to Changyong Yang.
During the year ended June 30, 2018, Yubao Liu advanced $70,458 to Well Best.
During the year ended June 30, 2017, Ben Wong advanced $95,282 to Well Best and he received the proceeds of $5,000 from sales of Taizhou Ionix on behalf of the Company. Changyong Yang, a stockholder of the Company, advanced $122,820 to Lisite Science. Baozhen Deng, a stockholder of the Company and the owner of Shenzhen Baileqi S&T, advanced $8,590 to Baileqi Electronic. Shenzhen Baileqi S&T, a company 100% owned by Baozhen Deng, advanced $41,405 to Baileqi Electronic. Xin Sui, a member of the board of directors of Welly Surplus, advanced $6,992 to Welly Surplus.
Other than the foregoing, none of the directors or executive officers of the Company, nor any person who owned of record or was known to own beneficially more than 5% of the Company’s outstanding shares of its Common Stock, nor any associate or affiliate of such persons or companies, has any material interest, direct or indirect, in any transaction that has occurred during the past fiscal year, or in any proposed transaction, which has materially affected or will affect the Company.
With regard to any future related party transaction, we plan to fully disclose any and all related party transactions in the following manner:
·Disclosing such transactions in reports where required;
·Disclosing in any and all filings with the SEC, where required;
·Obtaining disinterested directors consent; and
·Obtaining shareholder consent where required.
Review, Approval or Ratification of Transactions with Related Persons
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 14.
Item 14.Principal Accounting Fees and Services.
On July 18, 2016, the Company appointed Paritz & Company, P.A. as the Company’s registered independent public accounting firm. Our principal independent accountant during the year ended June 30, 2015 was Michael F. Albanese, CPA. Their pre-approved fees billed to the Company are set forth below:
Audit Fees
During the fiscal year ended June 30, 2018, we incurred approximately $59,500 in fees to our principal independent accountants for professional services rendered in connection with the audit and review of our financial statements for fiscal year ended June 30, 2018.
During the fiscal year ended June 30, 2017, we incurred approximately $64,500 in fees to our principal independent accountants for professional services rendered in connection with the audit and review of our financial statements for fiscal year ended June 30, 2017.
Audit-Related Fees
The aggregate fees billed during the fiscal years ended June 30, 2018 and 2017 for assurance and related services by our principal independent accountants that are reasonably related to the performance of the audit or review of our financial statements (and are not reported under Item 9(e)(1) of Schedule 14A) was $NIL and $NIL, respectively.
Tax Fees
The aggregate fees billed during the fiscal years ended June 30, 2018 and 2017 for professional services rendered by our principal accountant tax compliance, tax advice and tax planning were $NIL and $NIL, respectively.
All Other Fees
The aggregate fees billed during the fiscal years ended June 30, 2018 and 2017 for products and services provided by our principal independent accountants (other than the services reported in Items 9(e)(1) through 9(e)(3) of Schedule 14A) was $NIL and $NIL, respectively.
Item 15.
Item 15.Exhibits and Financial Statement Schedules.
*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.
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.
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.
Ionix Technology, Inc.
Date: October 11, 2018, By: /s/ Yubao Liu
Name: Yubao Liu
Title: Chief Executive Officer, Secretary,
Treasurer and Director