Introduction
The following discussion of our financial condition and results of operations
should be read in conjunction with our audited consolidated financial statements
and the notes to those consolidated financial statements appearing elsewhere in
this report.
Certain statements in this report constitute forward-looking statements. These
forward-looking statements include statements, which involve risks and
uncertainties, regarding, among other things, (a) our projected sales,
profitability, and cash flows, (b) our growth strategy, (c) anticipated trends
in our industry, (d) our future financing plans, and (e) our anticipated needs
for, and use of, working capital. They are generally identifiable by use of the
words "may," "will," "should," "anticipate," "estimate," "plan," "potential,"
"project," "continuing," "ongoing," "expects," "management believes," "we
believe," "we intend," or the negative of these words or other variations on
these words or comparable terminology. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this filing will in fact occur. You should not place undue reliance
on these forward-looking statements.
The forward-looking statements speak only as of the date on which they are made,
and, except to the extent required by federal securities laws, we undertake no
obligation to update any forward-looking statements to reflect events or
circumstances after the date on which the statements are made or to reflect the
occurrence of unanticipated events.
The "Company," "we," "us," "our" or "Moxian" are references to the combined
business of the (i) Moxian, Inc., a company incorporated under the laws of
Nevada? (ii) Moxian CN Group Limited, a company incorporated under the laws of
Independent State of Samoa ("Moxian CN Samoa"), (iii) Moxian Intellectual
Property Limited, a company incorporated under the laws of Independent State of
Samoa ("Moxian IP Samoa")? (iv) Moxian Group Limited, a company incorporated
under the laws of British Virgin Islands ("Moxian BVI"), (v) Moxian (Hong Kong)
Limited, a limited liability company incorporated under the laws of Hong Kong
("Moxian HK"), (vi) Moxian Technologies (Shenzhen) Co., Ltd., a company
incorporated under the laws of People's Republic of China ("Moxian Shenzhen"),
(vii) Moxian Malaysia Sdn.Bhd. ("Moxian Malaysia"), a company incorporated under
the laws of Malaysia ("Moxian Malaysia"), (viii) Moxian Technologies (Beijing)
Co., Ltd., a company incorporated under the laws of People's Republic of China
("Moxian Beijing"), (ix) Moxian Technologies (Shanghai) Co. Ltd., ("Moxian
Shanghai"), (x) Shenzhen Moyi Technologies Co. Ltd., a contractually controlled
affiliate of Moxian Shenzhen formed under the laws of People's Republic of China
("Moyi"), and (xi) Woodland Corporation Limited, a company incorporated under
the laws of Hong Kong ("Woodland").
14
Financial Condition
As of September 30, 2019, and September 30, 2018, our accumulated deficiency was
approximately $38.8 million and $47.3 million, respectively. The consolidated
financial statements for the years ended September 30, 2019 and 2018 have been
prepared on a going concern basis. They do not include any adjustments to
reflect the possible future effects on the recoverability and classifications of
assets, or the amounts and classifications of liabilities that may result from
the inability of the Company to continue as a going concern.
Results of Operations
For the year ended September 30, 2019 compared with the year ended September 30,
2018
Overview
The results for the year ended September 30, 2019 are not strictly comparable to
that of the year ended September 30, 2018. This is because from the first
quarter of the year, the Company began to cease the part of its operations
relating to its mobile applications whilst its advertising business continued.
This is primarily because the Company was in shortage of funds to support the
mobile applications business and its co-operation with a strategic partner, the
Shanghai Shewn Wine Company Limited ("Shanghai entity") terminated. During the
year ended September 30, 2018 the Company relied on the funding provided by this
Shanghai entity to conduct its business and managed to develop a lite version of
its App by the last quarter of that financial year. However, due to the
termination of the co-operation agreement with the Shanghai entity, there were
insufficient funds for the Company to go beyond the beta testing of this new
product. It was previously hoped that the lite version of its App will achieve
more commercial success.
The advertising part of the Company's business which continued during the year
ended September 30, 2019 required less manpower and the Company achieved limited
success, working with industry players introduced through the auspices of its
business associate, the Xinhua New Media Culture Communication Limited
("Xinhua"). Mr. Hao Qinghu, the CEO of the Company, is also a partner in Beijing
Huifeng Xinhua Equity Partnership, an affiliate of Xinhua.
The difference in the business nature of the operations for the two fiscal years
explained why operating expenses in the year ended September 30, 2019 were
substantially lower compared to that of the previous year, particularly as there
were no further research and development expenditure.
15
Critical Accounting Policies and Estimates
Fair value of financial instruments
The Company follows the provisions of ASC 820, "Fair Value Measurements and
Disclosures." ASC 820 clarifies the definition of fair value, prescribes methods
for measuring fair value, and establishes a fair value hierarchy to classify the
inputs used in measuring fair value as follows:
Level 1-Observable inputs such as unadjusted quoted prices in active markets for
identical assets or liabilities available at the measurement date.
Level 2-Inputs other than quoted prices that are observable for the asset or
liability in active markets, quoted prices for identical or similar assets and
liabilities in markets that are not active, inputs other than quoted prices that
are observable, and inputs derived from or corroborated by observable market
data.
Level 3-Inputs are unobservable inputs that reflect management's assumptions
based on the best available information.
The carrying value of cash and cash equivalents, prepayments, deposits and other
receivables, accruals and other payables, loans from related parties and
unrelated party approximate their fair values because of the short-term nature
of these instruments.
Use of estimates
The preparation of the consolidated financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the accompanying consolidated financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Significant estimates required to be made by management
include but not limited to, useful lives of property and equipment, intangible
assets valuation, inventory valuation and deferred tax assets. Actual results
could differ from those estimates.
Deferred offering costs
Deferred offering costs consisted principally of legal, underwriting and
registration costs in connection with the IPO of the Company's ordinary shares.
Such costs are deferred until the closing of the offering, at which time the
deferred costs are offset against the offering proceeds.
Impairment of long-lived Assets
The Company classifies its long-lived assets into: (i) computer and office
equipment; (ii) furniture and fixtures, (iii) leasehold improvements, and (iv)
finite - lived intangible assets.
Long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying value of
such assets may not be fully recoverable. It is possible that these assets could
become impaired as a result of technology, economy or other industry changes. If
circumstances require a long-lived asset or asset group to be tested for
possible impairment, the Company first compares undiscounted cash flows expected
to be generated by that asset or asset group to its carrying value. If the
carrying value of the long-lived asset or asset group is not recoverable on an
undiscounted cash flow basis, an impairment is recognized to the extent that the
carrying value exceeds its fair value. Fair value is determined through various
valuation techniques, including discounted cash flow models, relief from royalty
income approach, quoted market values and third-party independent appraisals, as
considered necessary.
The Company makes various assumptions and estimates regarding estimated future
cash flows and other factors in determining the fair values of the respective
assets. The assumptions and estimates used to determine future values and
remaining useful lives of long-lived assets are complex and subjective. They can
be affected by various factors, including external factors such as industry and
economic trends, and internal factors such as the Company's business strategy
and its forecasts for specific market expansion.
16
Revenue recognition
On January 1, 2019, the Company adopted ASC Topic 606, "Revenue from Contracts
with Customers" ("ASC 606"). The core principle of ASC 606 requires that an
entity recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the company
expects to be entitled in exchange for those goods or services. ASC 606 defines
a five-step process to achieve this core principle and, in doing so, it is
possible more judgment and estimates may be required within the revenue
recognition process than required under U.S. GAAP, including identifying
performance obligations in the contract, estimating the amount of variable
consideration to include in the transaction price and allocating the transaction
price to each separate performance obligation.
The Company adopted ASC 606 for all applicable contracts using the modified
retrospective method, which would have required a cumulative-effect adjustment,
if any, as of the date of adoption. The adoption of ASC 606 did not have a
material impact on the Company's consolidated financial statements as of the
date of adoption. As a result, a cumulative effect adjustment was not required.
The Company currently recognizes revenue from the sale of merchandise through
its online platforms. Revenue is recognized when persuasive evidence of an
arrangement exists; delivery has occurred or services have been rendered; the
price is fixed or determinable; and collectability is reasonably assured.
Revenue was recorded on a gross basis, net of surcharges and value added tax
("VAT") of gross sales. The Company recorded revenue on a gross basis because
the Company has the following indicators for gross reporting: it is the primary
obligor of the sales arrangements, is subject to inventory risks of physical
loss, has latitude in establishing prices, has discretion in suppliers'
selection and assumes credit risks on receivables from customers.
Revenue from advertising is recognized as advertisements are displayed. Revenue
from software development services comprises revenue from time and material and
fixed price contracts. Revenue from time and material contracts are recognized
as related services are performed. Revenue on fixed price contracts is
recognized in accordance with percentage of completion method of accounting.
Foreign currency transactions and translation
The reporting currency of the Company is United States Dollars (the "USD"). The
functional currency of Moxian Shenzhen, Moyi and Moxian Beijing is the Renminbi
(the "RMB"). The functional currency of Moxian HK is Hong Kong Dollar (the
"HKD"), and the functional currency of Moxian Malaysia is Malaysia Ringgit (the
"RM").
For financial reporting purposes, the financial statements of Moxian Shenzhen,
Moyi, Moxian Beijing, Moxian HK and Moxian Malaysia, which are prepared using
their respective functional currencies, are translated into the reporting
currency, United States dollar ("USD") so to be consolidated with the Company's.
Monetary assets and liabilities denominated in currencies other than the
reporting currency are translated into the reporting currency at the rates of
exchange ruling at the balance sheet date. Revenues and expenses are translated
using average rates prevailing during the reporting period. Adjustments
resulting from the translation are recorded as a separate component of
accumulated other comprehensive loss in stockholders' deficiency. A translation
gain of $406,351 and $164,758 are recognized in the statements of operations and
comprehensive loss for the year ended September 30, 2019 and 2018, respectively.
The exchange rates applied are as follows:
Balance sheet items, except for equity accounts September 30, 2019 September 30, 2018
RMB:USD 7.1484 6.8686
HKD:USD 7.8391 7.8259
RM:USD 4.1889 4.1370
Items in the statements of operations and comprehensive loss, and statements
cash flows
Years Ended
September 30,
2019 2018
RMB:USD 6.8766 6.5368
HKD:USD 7.8363 7.8324
17
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU
2016-02"). ASU 2016-02 requires an entity to recognize assets and liabilities
arising from a lease for both financing and operating leases. ASU 2016-02 will
also require new qualitative and quantitative disclosures to help investors and
other financial statement users better understand the amount, timing, and
uncertainty of cash flows arising from leases. ASU 2016-02 is effective for
private companies and emerging growth public companies for fiscal years
beginning after December 15, 2019, and interim periods within fiscal years
beginning after December 15, 2020. Early application is permitted. The Company
is currently evaluating ASU 2016-02 and its impact on its combined financial
statements.
In June 2016, the FASB issued ASU No. 2016-13 "Financial Instruments - Credit
Losses (Topic 326)" and also issued subsequent amendments to the initial
guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively Topic
326). Topic 326 requires the measurement and recognition of expected credit
losses for financial assets held at amortized cost. This replaces the existing
incurred loss model with an expected loss model and requires the use of
forwardlooking information to calculate credit loss estimates. The Company will
be required to adopt the provisions of this ASU on January 1, 2020, with early
adoption permitted for certain amendments. Topic 326 must be adopted by applying
a cumulative effect adjustment to retained earnings. The Company is currently
evaluating Topic 326, including its potential impact to its process and
controls.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic
230) Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15").
The new standard will make eight targeted changes to how cash receipts and cash
payments are presented and classified in the statement of cash flows. The new
standard is effective for fiscal years beginning after December 15, 2018. The
Company will require adoption on a retrospective basis unless it is
impracticable to apply, in which case the Company would be required to apply the
amendments prospectively as of the earliest date practicable. The Company will
require adoption on a retrospective basis unless it is impracticable to apply,
in which case the Company would be required to apply the amendments
prospectively as of the earliest date practicable. The adoption of ASU 2016-15
is not expected to have a material impact on the Company's condensed
consolidated financial statements or disclosures.
In July 2018, the FASB issued ASU No. 2018-10, "Codification Improvements to
Topic 842, Leases" ("ASU 2018-10"). The amendments in ASU 2018-10 provide
additional clarification and implementation guidance on certain aspects of the
previously issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02") and have
the same effective and transition requirements as ASU 2016-02. Upon the
effective date, ASU 2018-10 will supersede the current lease guidance in ASC
Topic 840, Leases. Under the new guidance, lessees will be required to recognize
for all leases, with the exception of short-term leases, a lease liability,
which is a lessee's obligation to make lease payments arising from a lease,
measured on a discounted basis. Concurrently, lessees will be required to
recognize a right-of-use asset, which is an asset that represents the lessee's
right to use, or control the use of, a specified asset for the lease term. ASU
2018-10 is effective for private companies and emerging growth public companies
for interim and annual reporting periods beginning after December 15, 2019, with
early adoption permitted. The guidance is required to be applied using a
modified retrospective transition approach for leases existing at, or entered
into after, the beginning of the earliest comparative periods presented in the
financial statements. The Company is currently assessing the impact this
guidance will have on its combined financial statements.
In July 2018, the FASB issued ASU No. 2018-09, "Codification Improvements" ("ASU
2018-09"). These amendments provide clarifications and corrections to certain
ASC subtopics including the following: Income Statement Reporting Comprehensive
Income - Overall (Topic 220-10), Debt - Modifications and Extinguishments (Topic
470-50), Distinguishing Liabilities from Equity - Overall (Topic 480-10),
Compensation - Stock Compensation - Income Taxes (Topic 718-740), Business
Combinations - Income Taxes (Topic 805-740), Derivatives and Hedging - Overall
(Topic 81510), and Fair Value Measurement - Overall (Topic 820-10). The majority
of the amendments in ASU 2018-09 will be effective in annual periods beginning
after December 15, 2019. The Company is currently evaluating and assessing the
impact this guidance will have on its combined financial statements.
In July 2018, the FASB issued ASU No. 2018-11, "Leases (Topic 842): Targeted
Improvements," ("ASU 201811"). The amendments in ASU 2018-11 related to
transition relief on comparative reporting at adoption affect all entities with
lease contracts that choose the additional transition method and separating
components of a contract affect only lessors whose lease contracts qualify for
the practical expedient. The amendments in ASU 2018-11 are effective for private
companies and emerging growth public companies for fiscal years beginning after
December 15, 2019, and interim periods within those fiscal years. The Company is
currently assessing the impact this guidance will have on its combined financial
statements.
In March 2019, the FASB issued ASU 2019-02, which aligns the accounting for
production costs of episodic television series with the accounting for
production costs of films. In addition, ASU 2019-02 modifies certain aspects of
the capitalization, impairment, presentation and disclosure requirements in
Accounting Standards Codification ("ASC") 926-20 and the impairment,
presentation and disclosure requirements in ASC 920-350. This ASU must be
adopted on a prospective basis and is effective for annual periods beginning
after December 15, 2020, including interim periods within those years, with
early adoption permitted. The Company is currently evaluating the impact that
this pronouncement will have on its consolidated financial statements.
Off-Balance Sheet Arrangements
As of September 30, 2019, we did not have any off-balance sheet arrangements.
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