UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

(Amendment No. 1)

 

(Mark One)

☒   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2015

 

or

 

☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________________ to __________________

 

Commission File Number:  000-55017

 

MOXIAN, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		27-3729742
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

 

Block A, 9/F, Union Plaza, 5022 Binjiang Avenue,

Futian District, Shenzhen City, Guangdong Province, China

(Address of Principal Executive Offices)

 

Tel: +86 (0)755-66803251

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒    No ☐

 

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

 

	Large accelerated filer	☐	Accelerated filer	☐
	Non-accelerated filer	☐	Smaller reporting company	☒
	(Do not check if smaller reporting company)

 

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

 

As of August 14, 2015, the registrant had 210,775,944 shares of common stock, par value $.001 per share, issued and outstanding.

 

 

 

 

EXPLANATORY NOTE

 

We are filing this Quarterly Report on Form 10-Q/A (the “Amended Filing”) to amend our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, which was filed with the Securities and Exchange Commission (“SEC”) on August 14, 2015 (the “Original Filing”). We are amending the Original Filing to restate our unaudited condensed consolidated financial statements as of June 30, 2015 incorrect application of certain accounting practices and procedures in relation to the acquisition of Moxian Intellectual Property Limited (the “Moxian IP”) which should be accounted for as an asset acquisition, and not a business acquisition, for the six and nine months ended June 30, 2015.

 

In connection with the acquisition of Moxian IP on January 30, 2015, the Company accounted for this transaction as business acquisition and recognized goodwill of USD 6,782,000. The Company identified this transaction should be accounted for assets acquisition and the USD 6,782,000 intangible assets - Intellectual property rights should be recognized. Accordingly, the amortization of the intangible assets would increase by USD 169,550 and USD 339,100 for the three and nine months ended June 30, 2015, respectively. The net loss would increase by the same amounts for each period abovementioned.

An explanation of the impact on our unaudited condensed consolidated financial statements, and a detailed reconciliation of amounts as originally reported to restated amounts are contained in Note 2 to the accompanying restated financial statements contained in Part I — Item 1 of this Amended Filing.

 

For the convenience of the reader, this Amended Filing sets forth the Original Filing, as modified and superseded where necessary to reflect the restatement. The following items have been amended as a result of, and to reflect, the restatement:

 

1.

Part I - Item 1. Financial Statements

2.

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

 

In accordance with applicable SEC rules, this Amended Filing includes new certifications required by Rule 13a-14 under the Securities and Exchange Act of 1934 (“Exchange Act”) from our Chief Executive Officer dated as of the date of filing of this Amended Filing.

 

Except for the items noted above, no other information included in the Original Filing is being amended or updated by this Amended Filing. This Amended Filing continues to describe the conditions as of the date of the Original Filing and, except as contained herein; we have not updated or modified the disclosures contained in the Original Filing. Accordingly, this Amended Filing should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original Filing, including any amendments to those filings.

 

 

TABLE OF CONTENTS

 

		Page No.
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Balance Sheets as of June 30, 2015 (Unaudited) and September 30, 2014	2
	Unaudited Statements of Operations and Comprehensive Income for the Nine Months Ended June 30, 2015 and 2014	3
	Unaudited Statements of Stockholders’ Equity as of June 30, 2015	4
	Unaudited Statements of Cash Flows for the Nine Months Ended June 30, 2015 and 2014	5
	Notes to Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	28
Item 4.	Controls and Procedures.	28
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings.	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	30
Item 3.	Defaults Upon Senior Securities.	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits.	31
Signatures		32
Certifications

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

MOXIAN, INC. (formerly known as Moxian China, Inc.)

(A CORPORATION IN THE DEVELOPMENT STAGE)

 

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JUNE 30, 2015 AND 2014

 

(Stated in US Dollars)

 

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

	PAGES
UNAUDITED CONSOLIDATED BALANCE SHEETS	2
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME	3
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	4
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS	5
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	6 – 25

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

UNAUDITED CONSOLIDATED BALANCE SHEETS

(Stated in US Dollars)

 

		As of
		June 30, 2015				September 30, 2014
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	2,722,177			$	1,770,196
Prepayments, deposits and other receivables			1,073,159				741,645
Inventory			44,034				-
Total current assets			3,839,370				2,511,841
Property and equipment, net (Note 4)			1,840,665				348,669
Intangible assets (Note 11)			6,442,900				-
TOTAL ASSETS		$	12,122,935			$	2,860,510
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accruals and other payables		$	655,397			$	295,601
Subscription deposit			2,475,950				-
Payable for acquisition (Note 10)			7,782,000				1,000,000
Loans from shareholders (Note 5)			5,369,662				4,018,861
Loans from a third party (Note 6)			4,213,841				2,133,071
Total current liabilities			20,496,850				7,447,533
Total liabilities		$	20,496,850			$	7,447,533
STOCKHOLDERS’ EQUITY
Capital stock (Note 7)
Preferred stock, $0.001 par value, authorized: 100,000,000 shares. Nil shares issued and outstanding as of June 30, 2015 and September 30, 2014			-				-
Common stock, $0.001 par value, authorized: 500,000,000 shares. 198,300,000 shares issued and outstanding as of June 30, 2015 and September 30, 2014 respectively			198,300				198,300
Additional paid-in capital			162,914				162,914
Deficit accumulated during the development stage			(9,064,805	)			(5,001,166	)
Accumulated other comprehensive income			329,676				52,929
Total stockholders’ deficit			(8,373,915	)			(4,587,023	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	12,122,935			$	2,860,510

 

See accompanying notes to unaudited consolidated financial statements

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Stated in US Dollars)

 

																		For the period
																		from
		For the Three Months				For the Three Months				For the Nine Months				For the Nine Months				Inception October 12,
		Ended				Ended				Ended				Ended				2010 to
		June 30, 2015				June 30, 2014				June 30, 2015				June 30, 2014				June 30, 2015
Revenues, net		$	18,187			$	15,802			$	86,353			$	15,802			$	142,475
Cost and expenses
Cost of sales			(15,203	)			-				(26,852	)			-				(50,277	)
Depreciation and amortization expenses			(238,048	)			(26,417	)			(494,793	)			(41,774	)			(573,364	)
Selling, general and administrative expenses			(1,661,660	)			(793,125	)			(3,598,417	)			(1,144,753	)			(5,977,293	)
Impairment of goodwill			-				-				-				-				(2,600,315	)
Loss from operations			(1,896,724	)			(803,740	)			(4,033,709	)			(1,170,725	)			(9,058,774	)
Interest expenses			(19,416	)			-				(32,194	)			-				(8,295	)
Interest income			-				51				2,264				59				2,264
Loss before income tax			(1,916,140	)			(803,689	)			(4,063,639	)			(1,170,666	)			(9,064,805	)
Income tax expenses			-				-				-				-				-
Net loss			(1,916,140	)			(803,689	)			(4,063,639	)			(1,170,666	)			(9,064,805	)
Foreign currency translation adjustments			85,003				7,128				276,747				7,128				329,676
Comprehensive loss		$	(1,831,137	)		$	(796,561	)		$	(3,786,892	)		$	(1,163,538	)		$	(8,735,129	)
Earnings per share (note 8)
Basic and diluted loss per common share		$	(0.01	)		$	(0.00	)		$	(0.02	)		$	(0.01	)
Basic and diluted weighted average common shares outstanding			198,300,000				198,300,000				198,300,000				198,300,000

 

See accompanying notes to unaudited consolidated financial statements

 

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Stated in US Dollars)

 

														Accumulated				Accumulated
										Additional				deficit				other
		Common Stock								paid-in				development				comprehensive
		Shares				Amount				capital				stage				income				Total
Balance at inception, October 12, 2010
Common shares issued - founder for property and equipment			186,000,000			$	186,000			$	-			$	(182,900	)		$	-			$	3,100
Additional paid in capital by founder			-				-				-				169				-				169
Net loss			-				-				-				(21	)			-				(21	)
Balance, December 31, 2010			186,000,000			$	186,000			$	-			$	(182,752	)		$	-			$	3,248
Additional paid in capital by founder			-				-				-				2,146				-				2,146
Issue of common stock			12,300,000				12,300				-				28,700				-				41,000
Net loss			-				-				-				(12,606	)			-				(12,606	)
Balance, December 31, 2011			198,300,000			$	198,300			$	-			$	(164,512	)		$	-			$	33,788
Net loss			-				-				-				(33,572	)			-				(33,572	)
Balance, December 31, 2012			198,300,000			$	198,300			$	-			$	(198,084	)		$	-			$	216
Additional paid in capital by founder			-				-				-				2,950				-				2,950
Net loss			-				-				-				(14,690	)			-				(14,690	)
Balance, September 30, 2013			198,300,000			$	198,300			$	-			$	(209,824	)		$	-			$	(11,524	)
Inclusion of Moyi (See Note 1)			-				-				162,914				-				-				162,914
Net loss			-				-				-				(4,791,342	)			-				(4,791,342	)
Foreign currency adjustment			-				-				-				-				52,929				52,929
Balance, September 30, 2014			198,300,000			$	198,300			$	162,914			$	(5,001,166	)		$	52,929			$	(4,587,023	)
Issue of common stock			-				-				-				-				-				-
Net loss			-				-				-				(4,063,639	)			-				(4,063,639	)
Foreign currency adjustment			-				-				-				-				276,747				276,747
Balance, June 30, 2015			198,300,000			$	198,300			$	162,914			$	(9,064,805	)		$	329,676			$	(8,373,915	)

 

See accompanying notes to unaudited consolidated financial statements

 

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in US Dollars)

 

										For the period from Inception
		Nine Months				Nine Months				October 12, 2010
		Ended				Ended				to
		June 30, 2015				June 30, 2014				June 30, 2015
OPERATING ACTIVITIES
Net loss		$	(4,063,639	)		$	(1,170,666	)		$	(9,064,805	)
Depreciation and amortization expense			494,793				41,774				573,364
Impairment of goodwill			-				-				2,600,315
Changes in operating assets and liabilities:
Increase in deposits, prepayments and other receivables			(331,514	)			32,650				(774,733	)
Increase in inventories			(44,034	)			(4,017	)			(42,905	)
Increase in accruals and other payables			359,795				115,679				609,607
Net cash used in operating activities			(3,584,599	)			(984,580	)			(6,099,157	)
INVESTING ACTIVITIES
Purchases of property, plant and equipment			(1,331,774	)			(147,339	)			(1,375,703	)
Net cash inflow on acquisition of subsidiaries (Note 10)			-				897,453				897,453
Net cash (used in) provided by investing activities			(1,331,774	)			750,114				(478,250	)
FINANCING ACTIVITIES
Issuance of common shares			-				-				-
Addition of paid-in-capital			-				-				-
Subscription deposit			2,475,950				-				2,475,950
(Repayment)/ Loan borrowings			1,350,801				2,025,072				4,736,733
Loan to a third party			2,080,770				-				2,080,770
Capital stock issued for cash			-				-				49,365
Net cash provided by financing activities			5,907,521				2,025,072				9,342,818
Effect of foreign currency translation			(39,167	)			7,128				(43,234	)
Net increase in cash and cash equivalents			951,981				1,797,734				2,722,177
Cash and cash equivalents, beginning of year			1,770,196				28				-
Cash and cash equivalents, end of year		$	2,722,177			$	1,797,762			$	2,722,177
Supplemental cash flow disclosures:
Cash paid for interest expense		$	-			$	-			$	-
Cash paid for income taxes		$	-			$	-			$	-
Major items for non-cash transaction:
Acquisition by issuing convertible note		$	6,782,000			$	-			$	6,782,000

  

See accompanying notes to unaudited consolidated financial statements

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

1.	Organization and nature of operations

  

Moxian, Inc. (formerly known as Moxian China, Inc., hereinafter referred as Moxian,” together with its subsidiaries, the “Company”), was incorporated under the laws of the State of Nevada on October 12, 2010. The Company, through its subsidiaries and variable interest entity, engages in the business of operating a social network platform that integrates social media and business into one single platform.

 

On February 17, 2014, the Company incorporated Moxian CN Group Limited (“Moxian CN Samoa”) under the laws of Independent State of Samoa.

 

On February 21, 2014, the Company completed the acquisition of Moxian Group Limited (“Moxian BVI”) and its subsidiaries from Rebel Group, Inc., a Florida Corporation (“REBL”) pursuant to a License and Acquisition Agreement (the “License and Acquisition Agreement”).

 

Moxian BVI was incorporated on July 3, 2012 under the laws of British Virgin Islands. REBL owned 100% equity interests of Moxian BVI prior to the closing of the License and Acquisition Agreement, among the Company, Moxian BVI and REBL.

 

Moxian (Hong Kong) Limited (“Moxian HK”) was incorporated on January 18, 2013 and became Moxian BVI’s subsidiary since February 14, 2013. Moxian HK is currently engaged in the business of online social media. Moxian HK operates through two wholly-owned subsidiaries: Moxian Technologies (Shenzhen) Co., Ltd. (“Moxian Shenzhen”) and Moxian Malaysia SDN BHD (“Moxian Malaysia”).

 

Moxian Shenzhen was invested and wholly owned by Moxian HK. Moxian Shenzhen was incorporated on April 8, 2013 and was engaged in the business of internet technology, computer software, commercial information consulting, etc.

 

Moxian Malaysia was incorporated on March 1, 2013 and became Moxian HK’s subsidiary since April 2, 2013. Moxian Malaysia is conducting its business in IT services and media advertising industry.

 

Shenzhen Moyi Technologies Co., Ltd (“Moyi”) was incorporated on July 19, 2013 and became a variable interest entity (“VIE”) of Moxian Shenzhen since July 15, 2014. Moxian Shenzhen controls Moyi through arrangement that absorbs operations risk, as if Moyi were a wholly-owned subsidiary of Moxian Shenzhen.

 

On January 30, 2015, the Company entered into an Equity Transfer Agreement (the “Equity Transfer Agreement,” such transaction, the “Equity Transfer Transaction”) with REBL, to acquire from REBL 100% of the equity interests of Moxian Intellectual Property Limited, a company incorporated under the laws of Samoa and a wholly-owned subsidiary of REBL (“Moxian IP”) for $6,782,000 (the “Moxian IP Purchase Price”). Moxian IP owns all the intellectual property rights relating to the operation, use and marketing of the MO-Promo Platform, including all of the trademarks, patents and copyrights that are used in the Company’s business. As a result of the Equity Transfer Transaction, Moxian IP became a wholly-owned subsidiary of the Company.

 

The Company is in the development stage as defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915. Among the disclosures required by FASB ASC 915 are that the Company’s unaudited consolidated financial statements be identified as those of a development stage company, and that the statements of earnings, retained earnings and stockholders’ equity and cash flows disclose activity since the date of the Company’s inception. The fiscal year end is September 30.

 

The Company's unaudited consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated significant revenue since inception and has never paid any dividends and is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. Since October 12, 2010 (inception), the Company has generated revenue of $142,475 and has incurred an accumulated deficit of $9,064,805.

 

The Company is currently devoting its efforts to develop social networking website and through which to generate servicing income.  The Company’s ability to continue as a going concern is dependent upon its ability to develop additional sources of capital, develop websites, generate servicing income, and ultimately, achieve profitable operations. The accompanying unaudited consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

  

2.	Restatement of June 30, 2015 consolidated financial statements

 

This financial statements contain restatement related to the acquisition of Moxian IP for the three and nine months ended June 30, 2015.

 

In connection with the acquisition of Moxian IP on January 30, 2015 (see note 10), the Company accounted for this transaction as business acquisition and recognized goodwill of USD 6,782,000. The Company identified this transaction should be accounted for assets acquisition and the USD 6,782,000 intangible assets - Intellectual Property Rights should be recognized. Accordingly, the amortization of the intangible assets would increase by USD 169,550 and USD 339,100 for the three and nine months ended March 31, 2015, respectively. The net loss would increase by the same amounts for each period abovementioned.

 

The impact of the restatement on the June 30, 2015 financial statements is reflected in the following tables:

 

	CONSOLIDATED BALANCE SHEETS
			March 31, 2015
			As Previously Reported				As Restated
	Goodwill (note 10)			6,782,000				-
	Intangible assets (note 11)			-				6,442,900
	Total Assets			12,462,035				12,122,935
	Deficit accumulated during the development stage			(8,725,705	)			(9,064,805	)
	Total stockholders’ deficit			(8,034,815	)			(8,373,915	)
	Total liabilities and stockholders’ equity			12,462,035				12,122,935

  

	CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
			For the Three Months								For the nine Months								For the period from Inception
			Ended June 30, 2015								Ended June 30, 2015								October 12, 2010 to June 30, 2015
			As Previously Reported				As Restated				As Previously Reported				As Restated				As Previously Reported				As Restated
	Depreciation and Amortization expenses			(68,498	)			(238,048	)			(155,693	)			(494,793	)			(234,264	)			(573,364	)
	Loss from operations			(1,727,174	)			(1,896,274	)			(3,694,609	)			(4,033,709	)			(8,719,674	)			(9,058,774	)
	Loss before income tax			(19,416	)			(1,916,140	)			(29,930	)			(4,063,639	)			(6,031	)			(9,064,805	)
	Net Loss			(1,746,590	)			(1,916,140	)			(3,724,539	)			(4,063,639	)			(8,725,705	)			(9,064,805	)
	Comprehensive loss			(1,661,587	)			(1,831,137	)			(3,447,792	)			(3,786,892	)			(8,396,029	)			(8,735,129	)

  

CONSOLIDATED STATEMENTS OF CASH FLOW

For the period from Inception

Six Months Ended June 30, 2015

October 12, 2010 to June 30, 2015

As Previously Reported

As Restated

As Previously Reported

As Restated

Depreciation and Amortization expenses

155,693

494,793

234,264

573,364

  

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

3.	Summary of principal accounting policies

 

Basis of presentation

 

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and reflect the activities of the following subsidiaries and VIE. All material intercompany transactions and balances have been eliminated in the consolidation.

 

In accordance with the interpretation of Generally Accepted Accounting Principles (GAAP), variable interest entities (VIEs) are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. All VIEs with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.

 

ASC 810 (Financial Accounting Standards Board (“FASB”) Interpretation Number (“FIN”) 46 (revised December 2003), “Consolidation of Variable Interest Entities, and Interpretation of ARB No. 51” (“FIN 46R”), addresses whether certain types of entities referred to as variable interest entities (“VIEs”), should be unaudited consolidated in a company’s unaudited consolidated financial statements. Pursuant to an Exclusive Business Cooperation Agreement by and between Moxian Shenzhen and Moyi, dated July 15, 2014, Moxian Shenzhen has the exclusive right to provide to Moyi technical and systems support, marketing consulting services, training for technical personnel and technical consulting services. As payment for these services, Moyi has agreed to pay Moxian Shenzhen a service fee equal to 100% Moyi’s pre-tax profit. In accordance with the provisions of ASC 810, the Company has determined that Moyi is a VIE and that the Company is the primary beneficiary, and accordingly, the financial statements of Moyi are unaudited consolidated into the financial statements of the Company.

 

Revenue recognition

 

Revenue are 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.

  

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

3.	Summary of principal accounting policies (Continued)

 

Use of estimates

 

The preparation of the unaudited consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Income taxes

 

The Company utilizes FASB Accounting Standard Codification Topic 740 (“ASC 740”) “Income taxes” (formerly known as SFAS No. 109, "Accounting for Income Taxes"), which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the unaudited consolidated financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

ASC 740 “Income taxes” (formerly known as Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of Statement of Financial Accounting Standards No. 109 (“FIN 48”)) clarifies the accounting for uncertainty in tax positions. This interpretation requires that an entity recognizes in the unaudited consolidated financial statements the impact of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company has elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of income tax expense in the statements of operations. The adoption of ASC 740 did not have a significant effect on the unaudited consolidated financial statements.

 

Cash and cash equivalents

 

The Company considers all short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less to be cash equivalents.

 

Fair value of financial instruments

 

The carrying values of the Company’s financial instruments, including cash and cash equivalents, trade and other receivables, deposits, trade and other payables approximate their fair values due to the short-term maturity of such instruments. The carrying amounts of borrowings approximate their fair values because the applicable interest rates approximate current market rates.

  

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

3.	Summary of principal accounting policies (Continued)

 

Earnings per share

 

Basic earnings per share is based on the weighted average number of common shares outstanding during the period while the effects of potential common shares outstanding during the period are included in diluted earnings per share.  The average market price during the year is used to compute equivalent shares.

 

FASB Accounting Standard Codification Topic 260 (“ASC 260”), “Earnings Per Share,” requires that employee equity share options, non-vested shares and similar equity instruments granted to employees be treated as potential common shares in computing diluted earnings per share. Diluted earnings per share should be based on the actual number of options or shares granted and not yet forfeited, unless doing so would be anti-dilutive. The Company uses the “treasury stock” method for equity instruments granted in share-based payment transactions provided in ASC 260 to determine diluted earnings per share.

 

Website development costs

 

The Company recognized the costs associated with developing a website in accordance with ASC 350-50 “Website Development Cost” that codified the American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) NO. 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”. Relating to website development costs the Company follows the guidance pursuant to the Emerging Issues Task Force (EITF) NO. 00-2, “Accounting for Website Development Costs”. The website development costs are divided into three stages, planning, development and production. The development stage can further be classified as application and infrastructure development, graphics development and content development. In short, website development cost for internal use should be capitalized except content input and data conversion costs in content development stage.

 

Costs associated with the website consist primarily of website development costs paid to third parties. These capitalized costs will be amortized based on their estimated useful life over three years upon the website becoming operational. Internal costs related to the development of website content will be charged to operations as incurred. Web-site development costs related to the customers are charged to cost of sales.

 

Plant and Equipment, net

 

Plant and equipment are recorded at cost. Significant additions or improvements extending useful lives of assets are capitalized. Maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives as follows:

 

	Computers	3 years
	Office equipment	3 years
	Furniture and fixtures	3 years
	Leasehold improvements	Shorter of estimated useful life or term of lease

 

  

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

3.	Summary of principal accounting policies (Continued)

 

Business Combinations

 

The Company accounts for its business combinations using the purchase method of accounting in accordance with ASC 805: Business Combinations. The purchase method accounting requires that the consideration transferred to be allocated to the assets, including separately identifiable assets and liabilities the Company acquired based on their estimated fair values. The consideration transferred of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the acquisition date. The costs directly attributable to the acquisition are expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total of cost of acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree, is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statements of comprehensive income.

 

The determination and allocation of fair values to the identifiable assets acquired, liabilities assumed and non-controlling interests is based on various assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. The Company determines discount rates to be used based on the risks inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of assets, forecasted life cycle and forecasted cash flows over that period.

 

In a business combination achieved in stages, the Company re-measures its previously held equity interest in the acquiree at its acquisition-date fair value and recognizes the resulting gain or loss in earnings.

 

Goodwill

 

Goodwill represents the excess of purchase price over fair value of net assets acquired. Under ASC 350, Intangibles — Goodwill and Other, goodwill is not amortized but evaluated for impairment annually or whenever events or changes in circumstances indicate that the value may not be recoverable.

 

The Company tests goodwill for impairment at the reporting unit level on an annual basis as of the fiscal year end, and between annual tests when an event occurs or circumstances change that could indicate that the asset might be impaired. Commencing in September 2011, in accordance with the FASB revised guidance on “Testing of Goodwill for Impairment,” a company first has the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the company decides, as a result of its qualitative assessment, that it is more-likely-than- not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is mandatory. Otherwise, no further testing is required. The quantitative impairment test consists of a two-step goodwill impairment test. The first step compares the fair value of each reporting unit to its carrying amount. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting unit’s goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill.

 

Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. The judgment in estimating the fair value of reporting units includes estimating future cash flows, determining appropriate discount rates and making other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit.

 

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

3.	Summary of principal accounting policies (Continued)

 

Intangible assets

 

Intangible assets, comprising Intellectual property rights (“IP rights”), which are separable from the fixed assets, are stated at cost less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of 10 years.

 

Comprehensive income

 

The Company has adopted FASB Accounting Standard Codification Topic 220 (“ASC 220”) “Comprehensive income” (formerly known as SFAS No. 130, “Reporting Comprehensive Income”), which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Accumulated other comprehensive income represents the accumulated balance of foreign currency translation adjustments of the Company.

 

Recently issued accounting pronouncements

 

The FASB has issued Accounting Standards Update (ASU) No. 2014-06, Technical Corrections and Improvements Related to Glossary Terms. The amendments in this ASU relate to glossary terms and cover a wide range of Topics in the FASB’s Accounting Standards Codification™ (Codification). These amendments are presented in four sections:

 

1. Deletion of Master Glossary Terms (Section A) arising because of terms that were carried forward from source literature (e.g., FASB Statements, EITF Issues, and so forth) to the Codification but were not utilized in the Codification.

 

2. Addition of Master Glossary Term Links (Section B) arising from Master Glossary terms whose links did not carry forward to the Codification.

 

3. Duplicate Master Glossary Terms (Section C) arising from Master Glossary terms that appear multiple times in the Master Glossary with similar, but not identical, definitions.

 

4. Other Technical Corrections Related to Glossary Terms (Section D) arising from miscellaneous changes to update Master Glossary terms.

 

The amendments do not have transition guidance and are effective upon issuance for both public entities and nonpublic entities.

 

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

3.	Summary of principal accounting policies (Continued)

 

Recently issued accounting pronouncements (Continued)

 

The FASB has issued Accounting Standards Update (ASU) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in the ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in U.S. GAAP.

 

Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment.

 

In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations.

 

The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This disclosure will provide users with information about the ongoing trends in a reporting organization’s results from continuing operations.

 

The amendments in this ASU enhance convergence between U.S. GAAP and International Financial Reporting Standards (IFRS). Part of the new definition of discontinued operation is based on elements of the definition of discontinued operations in IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations.

 

The amendments in the ASU are effective in the first quarter of 2015 for public organizations with calendar year ends. For most nonpublic organizations, it is effective for annual financial statements with fiscal years beginning on or after December 15, 2014. Early adoption is permitted.

 

The FASB has issued Accounting Standards Update (ASU) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The issue is the result of a consensus of the FASB Emerging Issues Task Force.

 

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

3.	Summary of principal accounting policies (Continued)

 

Recently issued accounting pronouncements (Continued)

 

The amendments in the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718, Compensation – Stock Compensation, as it relates to awards with performance conditions that affect vesting to account for such awards. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved.

 

The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The effective date is the same for both public business entities and all other entities.

 

Entities may apply the amendments in this ASU either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this ASU as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. In addition, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost.

 

The FASB has issued Accounting Standards Update (ASU) No. 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity. The amendments in this ASU will apply to a reporting entity that is required to consolidate a collateralized financing entity under the Variable Interest Entities guidance when: (1) the reporting entity measures all of the financial assets and the financial liabilities of that unaudited consolidated collateralized financing entity at fair value in the unaudited consolidated financial statements based on other Codification Topics; and (2) the changes in the fair values of those financial assets and financial liabilities are reflected in earnings.

 

The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. For entities other than public business entities, the amendments are effective for annual periods ending after December 15, 2016, and interim periods beginning after December 15, 2016. Early adoption is permitted as of the beginning of an annual period.

 

The fair value of the financial assets of a collateralized financing entity, as determined under GAAP, may differ from the fair value of its financial liabilities even when the financial liabilities have recourse only to the financial assets. Before this ASU, there was no specific guidance in GAAP on how a reporting entity should account for that difference.

 

  

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

3.	Summary of principal accounting policies (Continued)

 

Recently issued accounting pronouncements (Continued)

 

The amendments in this ASU provide an alternative to Topic 820 Fair Value Measurement for measuring the financial assets and the financial liabilities of a unaudited consolidated collateralized financing entity to eliminate that difference. When the measurement alternative is not elected for a unaudited consolidated collateralized financing entity within the scope of this ASU, the amendments clarify that: (1) the fair value of the financial assets and the fair value of the financial liabilities of the unaudited consolidated collateralized financing entity should be measured using the requirements of Topic 820; and (2) any differences in the fair value of the financial assets and the fair value of the financial liabilities of that unaudited consolidated collateralized financing entity should be reflected in earnings and attributed to the reporting entity in the unaudited consolidated statement of income (loss).

 

The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.

 

Under Generally Accepted Accounting Principles (GAAP), financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities.

 

Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures.

 

This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes.

 

The amendments are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued.

 

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

4.	Property and equipment, net

  

			As of
			June 30, 2015				September 30, 2014
	Computers		$	1,876,056			$	213,600
	Office equipment			33,338				68,623
	Furniture and fixtures			3,000				32,011
	Leasehold improvements			143,147				156,101
	Total property and equipment			2,055,541				470,335
	Less:  Accumulated depreciation and amortization			(214,876)				(121,666	)
	Total property and equipment, net		$	1,840,665			$	348,669

  

The depreciation expenses for the nine months ended June 30, 2015 and 2014 were $155,693 and $41,774, respectively.

 

5.	Loans from shareholders

  

The loans are made to Moxian HK, Moxian Shenzhen, and Moxian Malaysia are unsecured, interest free and will be due and payable in 12 months. Details of the loans are analyzed as follows:

 

			As of
	Repayable		June 30, 2015				September 30, 2014
	Within 1 month		$	-			$	-
	1 to 3 months			-				-
	More than 3 months but less than 12 months			5,369,662				4,018,861
			$	5,369,662			$	4,018,861

 

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

  

5.	Loans from shareholders (Continued)

  

Moxian Hong Kong Loan

 

On May 30, 2015, the Company, Moxian HK, and Ace Keen entered into an Amended and Restated Loan Agreement (“Moxian HK-Ace Keen Loan Agreement”) to document the total loan of $761,379 that Ace Keen has advanced to Moxian HK in different tranches by May 30, 2015, and in exchange, the Company agreed to issue a 12-month convertible interest free promissory note of $761,379 (“Moxian HK-Ace Keen Note”) to Ace Keen. Under the Moxian HK-Ace Keen Note, all or any portion of the Moxian HK-Ace Keen Note is convertible into Company’s Common Stock at a price equal to the purchase price of the securities sold in a qualified financing for gross proceeds of more than $5,000,000 (a “Qualified Financing”). If no Qualified Financing is consummated before the maturity date, Ace Keen shall have the right to convert any and all of the Moxian HK-Ace Keen Note into shares of Common Stock at the 20 day trading Volume Weighted Average Price (“VWAP”) as reported by Bloomberg, L.P.

 

On May 30, 2015, the Company, Moxian HK, and Jet Key entered into an Amended and Restated Loan Agreement (“Moxian HK- Jet Key Loan Agreement”) to document the total loan of $223,416 that Jet Key has advanced to Moxian HK in different tranches by May 30, 2015, and in exchange, the Company agreed to issue a 12-month convertible interest free promissory note of $223,416 (“Moxian HK-Jet Key Note”) to Jet Key. Under the Moxian HK-Jet Key Note, all or any portion of the Moxian HK-Jet Key Note is convertible into shares of Common Stock of the Company at the conversion price equal to the purchase price of the securities sold in the Qualified Financing. If no Qualified Financing is consummated before the maturity date, Jet Key shall have the right to convert any and all of the Moxian HK-Jet Key Note into shares of Common Stock of the Company at the 20 day trading VWAP as reported by Bloomberg, L.P.

 

On May 30, 2015, the Company, Moxian HK, and Moxian China Limited (“MCL”) entered into an Amended and Restated Loan Agreement (“Moxian HK-MCL Loan Agreement”) to document the total loan of $709,941 that MCL has advanced to Moxian HK in different tranches by May 30, 2015, and in exchange, the Company agreed to issue a 12-month convertible interest free promissory note of $709,941 (“Moxian HK-MCL Note”) to MCL. Under the Moxian HK-MCL Note, all or any portion of the Moxian HK-MCL Note is convertible into shares of Common Stock of the Company at the conversion price equal to the purchase price of the securities sold in the Qualified Financing. If no Qualified Financing is consummated before the maturity date, MCL shall have the right to convert any and all of the Moxian HK-MCL Note into shares of Common Stock of the Company at the 20 day trading VWAP as reported by Bloomberg, L.P.

 

Moxian Malaysia Loan

 

On May 30, 2015, the Company, Moxian Malaysia, and Ace Keen entered into an Amended and Restated Loan Agreement (“Moxian Malaysia-Ace Keen Loan Agreement”) to document the total loan of $228,937 that Ace Keen has advanced to Moxian Malaysia in different tranches by May 30, 2015, and in exchange, the Company agreed to issue a 12-month convertible interest free promissory note of $228,937 (“Moxian Malaysia-Ace Keen Note”) to Ace Keen. Under the Moxian Malaysia-Ace Keen Note, all or any portion of the Moxian Malaysia-Ace Keen Note is convertible into Common Stock of the Company at the conversion price equal to the purchase price of the securities sold in the Qualified Financing. If no Qualified Financing is consummated before the maturity date, Ace Keen shall have the right to convert any and all of the Moxian Malaysia-Ace Keen Note into shares of Common Stock of the Company at the 20 day trading VWAP as reported by Bloomberg, L.P.

 

On May 30, 2015, the Company, Moxian Malaysia, and Morolling entered into an Amended and Restated Loan Agreement (“Moxian Malaysia-Morolling Loan Agreement”) to document the total loan of $765,768 that Morolling has advanced to Moxian Malaysia in different tranches by May 30, 2015, and in exchange, the Company agreed to issue a 12-month convertible interest free promissory note of $765,768 (“Moxian Malaysia-Morolling Note”) to Morolling with no interest and a term of repayment of 12 months. Under the Moxian Malaysia-Morolling Note, all or any portion of the Moxian Malaysia-Morolling Note is convertible into shares of Common Stock of the Company at the conversion price equal to the purchase price of the securities sold in the Qualified Financing. If no Qualified Financing is consummated before the maturity date, Morolling shall have the right to convert any and all of the Moxian Malaysia-Morolling Note into shares of Common Stock of the Company at the 20 day trading VWAP as reported by Bloomberg, L.P.

 

On May 30, 2015, the Company, Moxian Malaysia, and MCL entered into an Amended and Restated Loan Agreement (“Moxian Malaysia-MCL Loan Agreement”) to document the total loan of $2,680,221 that MCL has advanced to Moxian Malaysia in different tranches by May 30, 2015, and in exchange, the Company agreed to issue a 12-month convertible interest free promissory note of $2,680,221 (“Moxian Malaysia-MCL Note”). Under the Moxian Malaysia-MCL Note, all or any portion of the Moxian Malaysia-MCL Note is convertible into shares of Common Stock of the Company at the conversion price equal to the purchase price of the securities sold in the Qualified Financing. If no Qualified Financing is consummated before the maturity date, MCL shall have the right to convert any and all of the Moxian Malaysia-MCL Note into shares of Common Stock of the Company at the 20 day trading VWAP as reported by Bloomberg, L.P.

 

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

6.	Loans from a third party

 

The loans are made to Moxian Shenzhen are unsecured, interest free and will be due and payable in 12 months. Details of the loans are analyzed as follows:

 

			As of
	Repayable		June 30, 2015				September 30, 2014
	Within 1 month		$	-			$	-
	1 to 3 months			-				-
	More than 3 months but less than 12 months			4,213,841				2,133,071
			$	4,213,841			$	2,133,071

  

On June 30, 2015, the Company, Moxian Shenzhen, and Shenzhen Bayi Consulting Co., Ltd (“Bayi”) entered into an Amended and Restated Loan Agreement to document the loan of $3,215,282 that Bayi has advanced to Moxian Shenzhen by May 30, 2015, and in exchange, the Company agreed to issue a 12-month convertible interest free promissory note of $3,215,282 (“Moxian Shenzhen-Bayi Note”). Under the Moxian Shenzhen-Bayi Note, all or any portion of the Moxian Shenzhen-Bayi Note is convertible into shares of Common Stock of the Company at the conversion price equal to the purchase price of the securities in the Qualified Financing. If no Qualified Financing is consummated before the maturity date, Bayi shall have the right to convert any and all of the Moxian Shenzhen-Bayi Note into shares of Common Stock of the Company at the 20 day trading VWAP as reported by Bloomberg, L.P.

 

Also on June 30, 2015, Moxian Shenzhen and Bayi entered into a loan agreement whereby Bayi agreed to provide a loan to Moxian Shenzhen of $998,559.46 without any interests and with a term of repayment of 12 months.

 

7.	Shareholders’ equity

 

As of the date of this quarterly report, there were 210,775,944 shares of Common Stock issued and outstanding, and 0 share of preferred stock issued and outstanding.

 

As previously disclosed in the Quarterly Report on Form 10-Q for the period ended March 31, 2015 filed with the Securities and Exchange Commission on May 15, 2015, the Company entered into a subscription agreement (“Zhongtou Subscription Agreement”) with Zhongtou Huifeng Investment Management (Beijing) Co. Ltd. (“Zhongtou”) on April 24, 2015, whereby we agreed to sell an aggregate of 8,169,000 shares of the Company’s common stock par value $.001 per share (“Common Stock”) at a per share price of $1.00 for gross proceeds of $8,190,000 (approximately RMB50,000,000) and to issue to Zhongtou for no additional consideration a warrant (the “Warrant”) to purchase in the aggregate of 32,000,000 shares (“Warrant Shares”) of Common Stock at an exercise price of $2.00 per share, exercisable on or prior to July 31, 2015. On June 4, 2015, the Company and Zhongtou entered into a Termination Agreement to terminate the Zhongtou Subscription Agreement as Zhongtou’s principals have determined to make the investment described in the Zhongtou Subscription Agreement through a different entity, Beijing Xinhua Huifeng Equity Investment Center (Limited Partnership) (“Xinhua”).

 

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

7.	Shareholders’ equity (Continued)

 

Also on June 4, 2015, the Company and Xinhua entered into a new Subscription Agreement (“Xinhua Subscription Agreement”) on substantially the same terms as the Zhongtou Subscription Agreement (the “Transaction”). Pursuant to the Xinhua Subscription Agreement, if the Company fails to contract with 25,000 new paying merchants by September 30, 2016, the Company shall issue an additional number of shares of Common Stock to Xinhua, equal to 50% of the accumulated number of Warrant Shares exercised and acquired by Xinhua as of September 30, 2016, for no additional consideration (“Make Good Provision”). The Make Good Provision will be available only if Xinhua has exercised the Warrant and acquired more than 16,000,000 Warrant Shares (the “Condition”). Further, the Company shall issue 4,000,000 shares of Common Stock to Xinhua for no additional consideration if the Company fails to publish its full working version of the Moxian mobile application version 2.0 by September 30, 2015, or if the Company fails to uplist to a national securities exchange in the U.S. by June 30, 2017. Xinhua shall also have the right to nominate (i) one member of the Company’s accounting department; and (ii) one member of the board of directors provided that the Condition has been met. The closing date of the Transaction has been extended to September 30, 2015.

 

There are no other warrants or options outstanding except above-mentioned to acquire any additional shares of common stock of the Company.

  

8.	Earnings per share

  

			For the nine months ended June 30,
			2015				2014
	Net loss attributable to ordinary shareholders for computing basic net loss per ordinary share		$	(4,063,639	)		$	(1,170,666	)
	Weighted average number of common shares outstanding - Basic			198,300,000				198,300,000
	Dilutive shares
	– convertible promissory note			4,914,072				-
	– anti-dilutive effect of convertible promissory notes			(4,914,072	)			-
	Diluted			198,300,000				198,300,000
	Basic earnings per share		$	(0.02	)		$	(0.01	)
	Diluted earnings per share		$	(0.02	)		$	(0.01	)

 

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

9.	Income taxes

  

The Company and its subsidiaries file separate income tax returns.

 

The United States of America

 

Moxian is incorporated in the State of Nevada in the U.S., and is subject to a gradual U.S. federal corporate income tax of 15% to 35%. The State of Nevada does not impose any corporate state income tax.

 

British Virgin Islands

 

Moxian BVI is incorporated in the British Virgin Islands. Under the current laws of the British Virgin Islands, Moxian BVI is not subject to tax on income or capital gains. In addition, upon payments of dividends by Moxian BVI, no British Virgin Islands withholding tax is imposed.

 

Hong Kong

 

Moxian HK is incorporated in Hong Kong and Hong Kong’s profits tax rate is 16.5%. Moxian HK did not earn any income that was derived in Hong Kong for the nine months ended June 30, 2015 and 2014, and therefore, Moxian HK was not subject to Hong Kong Profits Tax. The payments of dividends by Hong Kong companies are not subject to any Hong Kong withholding tax.

 

Malaysia

 

Moxian Malaysia was incorporated in Malaysia. Moxian Malaysia did not generate taxable income in Malaysia for the period from March 1, 2013 (date of inception) to June 30, 2015. The management estimated that Moxian Malaysia will not generate any taxable income in the future.

 

Samoa

 

Moxian IP Samoa was incorporated in Samoa. Moxian IP Samoa did not generate taxable income or loss in Samoa for the period from January 30, 2015 (date of acquisition) to June 30, 2015.

 

Moxian CN Samoa was incorporated in Samoa. Moxian CN Samoa did not generate taxable income or loss in Samoa for the period from February 17, 2014 (date of inception) to June 30, 2015.

 

PRC

 

Effective from January 1, 2008, the PRC’s statutory income tax rate is 25%. The Company’s PRC subsidiaries are subject to income tax rate of 25%, unless otherwise specified.

 

Moxian Shenzhen was incorporated in the People’s Republic of China (the “PRC”). Moxian Shenzhen did not generate taxable income in the People’s Republic of China for the period from April 8, 2013 (date of inception) to June 30, 2015. The management estimated that Moxian Shenzhen will not generate any taxable income in the future.

 

Moyi was incorporated in the People’s Republic of China. Moyi did not generate taxable income in the People’s Republic of China for the period from July 19, 2013 (date of inception) to June 30, 2015.

 

The tax benefit for the periods presented is offset by a valuation allowance established against deferred tax assets arising from the net operating losses and other temporary differences, the realization of which could not be considered more likely than not. In future periods, tax benefits and related deferred tax assets will be recognized when management considers realization of such amounts to be more likely than not. For the period October 12, 2010 (date of inception) through June 30, 2015, the Company incurred losses, resulting from operating activities, which result in deferred tax assets at the effective statutory rates. The deferred tax asset has been off-set by an equal valuation allowance.

 

The Company evaluates the level of authority for each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. For the nine months ended June 30, 2015 and 2014, the Company had no unrecognized tax benefits.

 

The Company does not anticipate any significant increase to its liability for unrecognized tax benefit within the next 12 months. The Company will classify interest and penalties related to income tax matters, if any, in income tax expense.

 

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

10.	Acquisitions

 

Acquisition of Moxian BVI

 

On February 21, 2014, the Company entered into a License and Acquisition Agreement (“License and Acquisition Agreement”) with REBL, whereby the Company (i) acquired all the equity interests of Moxian BVI, and (ii) obtained the license to use the intellectual property rights (as define below) of REBL. Pursuant to the License and Acquisition Agreement, REBL agreed to sell, convey, and transfer 100% of the equity interests of Moxian BVI to Moxian CN Samoa, a newly incorporated wholly-owned subsidiary of the Company, in cash consideration of an aggregate of $1,000,000. As a result, The Company began to consolidate Moxian BVI, together with its subsidiaries, Moxian HK, Moxian Shenzhen, and Moxian Malaysia’s financial statement on February 21, 2014.

 

Under the License and Acquisition Agreement, REBL also agreed to grant us the exclusive right to use REBL’s IP Rights in Mainland China, Malaysia, and other countries and regions where REBL conducts its business (the “Licensed Territory”), and the exclusive right to solicit, promote, distribute and sell REBL products and services in the Licensed Territory for five years (the “License”). In exchange for such License, the Company agreed to pay to REBL: (i) $1,000,000 as a license maintenance royalty each year commencing from the second year from the date of the agreement; and (ii) 3% of the gross profit of distribution and sale of REBL products and services as an earned royalty. Pursuant to the License and Acquisition Agreement, the Company has the right to acquire the new IP Rights that are developed by REBL and sub-license such rights to a third party. The Company also has the obligation to develop the social media market in the Licensed Territory of REBL products and services.

 

The Company accounted for the acquisition of Moxian BVI as business acquisition in accordance with ASC 805.

 

The valuations used in the purchase price allocation were determined by the Company with the assistance of an independent third party valuation firm with the income approach applied. The allocation of the consideration for assets acquired and liability assumed based on their fair value was as follows:

 

	Current assets
	Cash and bank balances		$	897,453
	Prepayments, deposits and other receivables			264,729
	Inventory			1,129
	Non-current assets
	Property and equipment, net			176,116
	Current liabilities
	Other payables and accruals			(51,172	)
	Loans			(2,888,570	)
			$	(1,600,315	)
	Goodwill arising on acquisition:
	Consideration transferred		$	1,000,000
	Less: fair value of identifiable net assets acquired			(1,600,315	)
			$	2,600,315
	Net cash inflow on acquisition of subsidiaries:
	Consideration paid in cash		$	-
	Less: cash and cash equivalent balances acquired			897,453
			$	897,453

 

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

10.	Acquisitions (Continued)

 

The excess of the purchase price over the assets acquired and liabilities assumed was recorded as goodwill. Goodwill primarily represents the expected synergies from combining operations of Moxian BVI with those of the Company, which are complementary to each other, and intangible assets that do not qualify for separate recognition. In accordance with ASC350, goodwill is not amortized but is tested for impairment and is not deductible for tax purposes.

 

Prior to the acquisition, Moxian BVI did not prepare its financial statements in accordance with US GAAP. The Company determined that the cost of reconstructing the financial statement of Moxian BVI for the periods prior to the acquisition outweighed the benefits. Based on a comparison of Moxian BVI’s and the Company’s financial performance for the fiscal year prior to the acquisition, the Company did not consider Moxian BVI on its own to be material to the Company. Thus the Company’s management believes that the presentation of pro forma financial information with respect to the results of operations of the Company for the business combination is impractical.

 

A summary of changes in the Company’s goodwill is as follows:

 

			June 30, 2015
	Balance
	Goodwill		$	2,600,315
	Accumulated impairment charges			(2,600,315	)
				-

  

No impairment loss was recorded for the nine months ended June 30, 2015 and 2014 respectively.

 

Acquisition of Moxian IP

 

On January 30, 2015, Company entered into an Equity Transfer Agreement (the “Equity Transfer Agreement,” such transaction, the “Equity Transfer Transaction”) with REBL to acquire from REBL 100% of the equity interests of Moxian IP for $6,782,000 (the “Moxian IP Purchase Price”) promissory convertible notes (See Note 12). Moxian IP owns all the intellectual property rights IP Rights relating to the operation, use and marketing of the MO-Promo Platform, including all of the trademarks, patents and copyrights that are used in the Company’s business. As a result of the Equity Transfer Transaction, Moxian IP became a wholly-owned subsidiary of the Company.

 

According to ASC 805-10-55, the relevant definition of business, the Company believes that the acquisition of Moxian IP is an asset acquisition and the estimated useful lives of the IP rights is 10 years.

 

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

11.	Intangible assets

 

As of June 30, 2015 and September 30, 2014, the Company has the following amounts related to intangible assets:

  

			June 30, 2015								September 30, 2014
			Gross  Carrying Amount				Accumulated Amortization				Gross Carrying Amount				Accumulated Amortization
	Amortized intangible assets:
	IP rights		$	6,782,000			$	(339,100	)		$	-			$	-

 

No significant residual value is estimated for these intangible assets. Aggregate amortization expense for the nine months ended June 30, 2015 and 2014, totaled $339,100 and nil, respectively.   The following table represents the total estimated amortization of intangible assets for the five succeeding years:

 

	For the Year Ending September 30		Estimated Amortization Expense
	2015		$	169,550
	2016			678,200
	2017			678,200
	2018			678,200
	2019 and thereafter			4,238,750

 

Intangible assets consist of the following as of June 30, 2015 and September 30, 2014:

 

			June 30, 2015				September 30, 2014
	IP rights		$	6,782,000			$	-
	Less: accumulated amortization			(339,100	)			-
	Net intangible assets		$	6,442,900			$	-

 

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

12.	Convertible Promissory Note

  

Under the Equity Transfer Agreement described in Note 1, the Company issued to REBL a convertible promissory note for $7,782,000 (the “Rebel Note”). The Note will become due and payable on October 30, 2015 and accrues interest at 1% per annum. The Company has the option to convert any and all amounts due under the Note into the Company’s common stock at the conversion price of $1.00 per share, if the VWAP of the Company’s common stock for a period of thirty (30) trading days immediately prior to the date of conversion is higher than $1.00. The Company also has a right of first refusal to purchase the shares issuable upon conversion of the Note at the price of 80% of the VWAP for 30 trading days immediately prior to the date of the proposed repurchase by the Company.

 

The interest expenses for the nine months period ended June 30, 2015 and 2014 were $32,194 and nil, respectively.

  

13.	Commitments and contingencies

 

Operating Lease

 

The Company leases a number of properties under operating leases. Rental expenses under operating leases for the nine months ended June 30, 2015 and 2014 were $164,209 and $51,308 respectively.

 

As of June 30, 2015, the Company was obligated under non-cancellable operating leases minimum rentals as follows:

 

	Twelve months ended June 30, 2015,
	2016		$	74,139
	2017			169,195
	2018			-
	Thereafter			-
	Total minimum lease payments		$	243,334

   

Legal Proceeding

 

There has been no legal proceeding in which the Company is a party for the nine months ended June 30, 2015.

 

 

MOXIAN, INC.

(A DEVELOPMENT STAGE COMPANY)

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

 

14.	Subsequent events

 

As mentioned in Note 6 above, on June 4, 2015, the Company entered into the Xinhua Subscription Agreement with Xinhua, whereby the Company agreed to issue 8,190,000 shares of Common Stock of the Company for gross proceeds of $8,190,000 and warrant to purchase 32,000,000 shares of the Company’s Common Stock at $2.00 per share (the “Transaction”). Xinhua has advanced the first tranche of fund to the Company. On August 13, 2015, Xinhua and the Company entered into an Amendment Agreement to extend the closing date of the Transaction to September 30, 2015 and the expiration date of the Warrant to September 30, 2015.

 

The consummation of the Transaction triggered the conversion of the notes mentioned in Note 4 above. On August 13, 2015, Moxian HK-Ace Keen Note was converted into 761,379 shares of Company’s Common Stock at the conversion price of $1.00 per share.

 

On August 14, 2015, Moxian HK-Jet Key Note was converted into 223,416 shares of the Company’s Common Stock at the conversion price of $1.00.

 

On August 14, 2015, Moxian HK-MCL Note was converted into 709,941 shares of the Company’s Common Stock at the conversion price of $1.00.

 

On August 14, 2015, Moxian Malaysia-Ace Keen Note was converted into 228,937 shares of the Company’s Common Stock at the conversion price of $1.00.

 

On August 14, 2015, Moxian Malaysia-Morolling Note was converted into 765,768 shares of the Company’s Common Stock at the conversion price of $1.00.

 

On August 14, 2015, Moxian Malaysia-MCL Note was converted into 2,680,221 shares of the Company’s Common Stock at the conversion price of $1.00.

 

On August 14, 2015, Moxian Shenzhen-Bayi Note was converted into 3,215,282 shares of the Company’s Common Stock at the conversion price of $1.00.

 

On August 14, 2015, due to the VWAP of 30 trading day prior to August 14, 2015 is higher than $1.00, which triggered the clause of conversion under the Rebel Note, the Company provided a notice of conversion to REBL and elected to convert the amount of $3,891,000 under the Rebel Note into 3,891,000 shares of the Company’s Common Stock at the conversion price of $1.00.

 

Except above mentioned, there were no events or transactions other than those disclosed in this report, if any, that would require recognition or disclosure in our Financial Statements for the nine months ended June 30, 2015.  

 

Except as set forth above, there were no events or transactions other than those disclosed in this report, if any, that would require recognition or disclosure in our Financial Statements for the nine months ended June 30, 2015.

 

 

ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those financial statements appearing elsewhere in this Report.

 

Certain statements in this Report constitute forward-looking statements. These forward-looking statements include statements, which involve risks and uncertainties, regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “project,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” or the negative of these words or other variations on these words or comparable terminology. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.

 

The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

 

The "Company", "we," "us," and "our," refer to (i) Moxian, Inc., a Nevada corporation, (ii) Moxian CN Group Limited, a Samoa company, (iii) Moxian Group Limited, a British Virgin Islands company (“Moxian BVI”), (iv) Moxian (Hong Kong) Limited, a limited liability company incorporated under the laws of Hong Kong (“Moxian HK”), (v) Moxian Technologies (Shenzhen) Co., Ltd. (“Moxian Shenzhen”), (vi) Moxian Malaysia SDN BHD (“Moxian Malaysia”), and (vii) Shenzhen Moyi Technologies Co. Ltd., a contractually controlled affiliate of Moxian Shenzhen formed under the laws of People’s Republic of China (“Moyi”).

 

Overview

 

Moxian, Inc. engages in the business of providing a social marketing and promotion platform to merchants who desire to promote their businesses through online social media. Our products and services aim to enhance the interaction between users and merchant clients by allowing merchant clients to study consumer behavior through data compiled from our database of users’ activities. We design our products and services to allow our merchant clients to run advertising campaigns and promotions to target their customers. Our platform is also designed and built to entice users to return and to encourage new consumer users to subscribe.

 

We launched our marketing platform in Malaysia and China in June 2013 and July 2014, respectively through our website and mobile app which is available for Android and Apple phones. In addition to our main mobile app, we now have one App for merchants to track customers and purchases.

 

We have generated limited revenues and we have incurred substantially more losses than our revenues to date.

 

As of June 30, 2015 and September 30, 2014, our accumulated deficits were ($9,064,805) and ($5,001,166), respectively. Our stockholders’ deficiency were ($8,373,915) and ($4,587,023), respectively. We generated $86,353 in revenue for the nine months ended June 30, 2015. Our net loss for the nine months ended June 30, 2015 was ($4,063,639). Our losses have principally been attributed to operating expenses, administrative and other operating expenses.

 

Recent Developments

 

On August 5, 2015, the sole shareholder of Stellar Elite Limited (“Stellar”), a Samoa company which owns 40% of the total issued and outstanding shares of the Company’s Common Stock, transferred all of its equity to Amazing Wave Limited (“Amazing”), a Samoa company (the “Share Transfer”). The sole shareholder and officer of Amazing is James Mengdong Tan, the Company’s Chief Executive Officer and member of its Board of Directors. Mr. Tan is also the sole shareholder and director of Good Eastern Investment Holdings Limited (“Good Eastern”), a Company shareholder which owns 20.2% of the total issued and outstanding shares of the Company’s Common Stock. As a result of this Share Transfer, Mr. Tan became the majority beneficial owner of the Company and owns, individually, or through the entities mentioned above, 60.2% of the Company’s Common Stock.

 

On August 12, 2015, Beijing Xinhua Huifeng Equity Investment Center (Limited Partnership) (“Xinhua”) and the Company entered into an Amendment Agreement (the “Amendment Agreement”) to amend certain terms under the subscription agreement (“Xinhua Subscription Agreement”) between the Company and Xinhua dated June 4, 2015 to September 30, 2015. Pursuant to the Xinhua Subscription Agreement, the Company will issue 8,190,000 shares of the Company’s Common Stock to Xinhua for $8,190,000 and grant the warrant (the “Warrant”) to purchase up to 32,000,000 shares of the Company’s Common Stock on or before July 31, 2015 (the “Expiration Date”) (such transaction, the “Transaction”). Pursuant to the Amendment Agreement, the closing date of the Transaction was extended to September 30, 2015 and the Expiration Date of the Warrant was extended to September 30, 2015.

 

On August 14, 2015, the Company issued 8,584,944 shares of Common Stock to Ace Keen Limited, Jet Key Limited, Morolling International HK Limited, and Shenzhen Bayi Consulting Co., Ltd (the “Noteholders”) as a result of the conversion of $8,584,944 of convertible promissory notes at $1.00 per share.

 

On August 14, 2015, due to the VWAP of 30 trading day prior to August 14, 2015 is higher than $1.00, which triggered the clause of conversion under the convertible promissory note (the “Rebel Note”) in the principal amount of $7,782,000 issued to Rebel Group, Inc. (“REBL”) dated January 30, 2015, the Company provided a notice of conversion to REBL and elected to convert the amount of $3,891,000 under the Rebel Note into 3,891,000 shares of the Company’s Common Stock at the conversion price of $1.00.

 

 

Results of Operations

 

For the three months ended June 30, 2015 compared with the three months ended June 30, 2014

 

Gross Revenues

 

The Company received sales revenues of $18,187 in the three months ended June 30, 2015 com-pared to $15,802 being generated in the three months ended June 30, 2014.

 

Operating Expenses

 

Operating expenses for the three months ended June 30, 2015 and three months ended June 30, 2014 were $1,661,659 and $793,125, respectively. The expenses consisted of filing fees, professional fees, payroll and benefits and other general expenses.

 

We expect that our general and administrative expenses will continue to increase as we incur additional costs to support the growth of our business.

 

Net Profit (Loss)

 

Net loss for the three months ended June 30, 2015 and three months ended June 30, 2014, were ($1,916,140) and ($803,689), respectively. Basic and diluted net income (loss) per share amounted to ($0.01) and ($0.00) respectively for the three months ended June 30, 2015 and three months ended June 30, 2014.

 

The increase in net loss for the three months ended June 30, 2015 and three months ended June 30, 2014 was due to an increase in general and administrative expenses.

 

For the nine months ended June 30, 2015 compared with the nine months ended June 30, 2014

 

Gross Revenues

 

The Company received sales revenues of $86,353 in the nine months ended June 30, 2015 compared to $15,802 being generated in the nine months ended June 30, 2014.

 

Operating Expenses

 

Operating expenses for the nine months ended June 30, 2015 and nine months ended June 30, 2014 were $3,598,418 and $1,144,753, respectively. The expenses consisted of filing fees, professional fees, payroll and benefits and other general expenses.

 

We expect that our general and administrative expenses will continue to increase as we incur additional costs to support the growth of our business.

 

Net Profit (Loss)

 

Net loss for the nine months ended June 30, 2015 and nine months ended June 30, 2014, were ($4,063,639) and ($1,170,666), respectively. Basic and diluted net income (loss) per share amounted ($0.02) and ($0.01) respectively for the nine months ended June 30, 2015 and nine months ended June 30, 2014.

 

The increase in net loss for the nine months ended June 30, 2015 and nine months ended June 30, 2014 was due to an increase in general and administrative expenses.

 

Liquidity and Capital Resources

 

As of June 30, 2015, we had working capital deficit of ($16,657,480) consisting of cash on hand of $2,722,177 as compared to working capital of ($4,935,692) and cash on hand of $1,770,196 as of September 30, 2014.

 

Net cash provided by (used in) operating activities for the nine months ended June 30, 2015 was ($3,584,599) as compared to net cash used in operating activities of ($984,580) for the nine months ended June 30, 2014. The cash used in operating activities are mainly for filing fees, professional fees, payroll and benefits and general expenses.

 

Net cash provided by (used in) investing activities for the nine months ended June 30, 2015 was ($1,331,774) as compared to $750,114 for the nine months ended June 30, 2014.

 

 

Net cash provided by financing activities for the nine months ended June 30, 2015 was $5,907,521 as compared to $2,025,072 for the nine months ended June 30, 2014.

 

The Company’s average monthly burn rate is approximately $400,000. Due to the strategic expansion plan the company expects to execute in the coming fiscal year, management expects the monthly cash burn rate to increase to $600,000, mainly as a result of an increase in marketing expenditures. The Company is in the view that the cash and cash equivalent of $2,722,177 is sufficient for the next quarter. The management is also in the working to obtain additional capital to continue to operate, and expand our business. 

 

Sources of additional capital through various financing transactions or arrangements with third parties may include equity or debt financing, bank loans or revolving credit facilities. We may not be successful in locating suitable financing transactions in the time period required or at all, and we may not obtain the capital we require by other means. Our inability to raise additional funds when required may have a negative impact on our operations, business development and financial results.

 

Critical Accounting Policies and Estimates

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at dates of the financial statements and the reported amounts of revenue and expenses during the periods. Actual results could differ from these estimates. Our significant estimates and assumptions include depreciation and the fair value of our stock, stock-based compensation, debt discount and the valuation allowance relating to the Company’s deferred tax assets.

 

Recently Issued Accounting Pronouncements

 

Reference is made to the “Recent Accounting Pronouncements” in Note 2 to the Financial Statements included in this Report for information related to new accounting pronouncement, none of which had a material impact on our consolidated financial statements, and the future adoption of recently issued accounting pronouncements, which we do not expect will have a material impact on our consolidated financial statements.

 

Off-Balance Sheet Arrangements

 

As of June 30, 2015, we did not have any off-balance sheet arrangements.

  

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1). 

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosures Control and Procedures

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

 

●

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

 

 

●

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

 

●

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

As of June 30, 2015, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this Report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

 

The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of June 30, 2015.

 

Management believes that the material weaknesses set forth in items (2) and (3) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.

 

Management’s Remediation Initiatives

 

In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:

 

We have appointed an outside director, Liew Kwong Yeow, who has more than 25 years of experience in several multi-national organizations, to our board of directors to undertake the oversight in the establishment and monitoring of required internal controls and procedures of the Company. We also plan to appoint more outside directors to an audit committee resulting in a fully functioning audit committee. We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us.

 

We anticipate that these initiatives will be at least partially, if not fully, implemented by the end of fiscal year 2015. Additionally, we plan to test our updated controls and remediate our deficiencies in year 2015.

 

Changes in internal controls over financial reporting

 

There was no change in our internal controls over financial reporting that occurred during the period covered by this Report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

 

PART II - OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS.

 

None.

 

ITEM 1A. RISK FACTORS.

 

Not applicable to a smaller reporting company.

 

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

 

On August 14, 2015, the Company issued a total number of 8,584,944 shares of Common Stock to Ace Keen Limited, Jet Key Limited, Morolling International HK Limited, and Shenzhen Bayi Consulting Co., Ltd (the “Noteholders”) as a result of the conversion of the convertible promissory notes in the aggregate amounts of $8,584,944 at the conversion price of $1.00.

 

On August 14, 2015, due to the VWAP of 30 trading day prior to August 14, 2015 is higher than $1.00, which triggered the clause of conversion under the convertible promissory note (the “Rebel Note”) in the principal amount of $7,782,000 issued to Rebel Group, Inc. (“REBL”) dated January 30, 2015, the Company provided a notice of conversion to REBL and elected to convert the amount of $3,891,000 under the Rebel Note into 3,891,000 shares of the Company’s Common Stock at the conversion price of $1.00.

 

The issuance of the Company’s securities described herein was effectuated pursuant to the exemption provided under Section 3(a)(9) of the Securities Act of 1933.

 

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4.  MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5.  OTHER INFORMATION.

 

On August 5, 2015, the sole shareholder of Stellar Elite Limited (“Stellar”), a Samoa company which owns 40% of the then total issued and outstanding shares of the Company’s Common Stock, transferred all of its equity to Amazing Wave Limited (“Amazing”), a Samoa company (the “Share Transfer”). The sole shareholder and officer of Amazing is James Mengdong Tan, the Company’s Chief Executive Officer and member of its Board of Directors. Mr. Tan is also the sole shareholder and director of Good Eastern Investment Holdings Limited (“Good Eastern”), a Company shareholder which owns 20.2% of the then total issued and outstanding shares of the Company’s Common Stock. As a result of this Share Transfer, Mr. Tan became the majority beneficial owner of the Company and owns, individually, or through the entities mentioned above, 56.59% of the total outstanding shares of Company’s Common Stock as of the date of this quarterly report.

 

 

ITEM 6.  EXHIBITS.

 

	4.1**			Convertible Promissory Note issued by the Company to Rebel Group, Inc. dated January 30, 2015 (incorporated by reference herein to Exhibit 4.1 to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on February 2, 2015).
	10.1**			Amended and Restated Loan Agreement by and between the Company, Moxian (Hong Kong) Limited, and Ace Keen Limited dated May 30, 2015.
	10.2**			Amended and Restated Loan Agreement by and between the Company, Moxian (Hong Kong) Limited, and Jet Key Limited dated May 30, 2015.
	10.3**			Amended and Restated Loan Agreement by and between the Company, Moxian (Hong Kong) Limited, and Moxian China Limited dated May 30, 2015.
	10.4**			Amended and Restated Loan Agreement by and between the Company, Moxian Malaysia SDN BHD, and Ace Keen Limited dated May 30, 2015.
	10.5**			Amended and Restated Loan Agreement by and between the Company, Moxian Malaysia SDN BHD, and Morolling International HK Limited dated May 30, 2015.
	10.6**			Amended and Restated Amended and Restated Loan Agreement by and between the Company, Moxian Malaysia SDN BHD, and Moxian China Limited dated May 30, 2015.
	10.7**			Amended and Restated Loan Agreement by and between the Company, Moxian Technologies (Shenzhen) Co., Ltd., and Shenzhen Bayi Consulting Co. Ltd. dated June 30, 2015.
	10.8**			Loan Agreement by and between the Company, Moxian Technologies (Shenzhen) Co., Ltd., and Shenzhen Bayi Consulting Co. Ltd. dated June 30, 2015.
	10.9**			Subscription Agreement dated as of April 24, 2015 by and between the Company and Zhongtou Huifeng Investment Management (Beijing) Co. Ltd. (incorporated by reference herein to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 15, 2015).
	10.10**			Form of Termination Agreement dated as of May 30, 2015 by and between the Company and Zhongtou Huifeng Investment Management (Beijing) Co. Ltd. (incorporated by reference herein to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 14, 2015).
	10.11**			Form of Subscription Agreement dated as of May 30, 2015 by and between the Company and Xinhua Huifeng Investment Center Co., Ltd. (Beijing) Co. Ltd. (incorporated by reference herein to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 14, 2015).
	10.12**			Form of Amendment Agreement dated as of August 14, 2015 by and between the Company and Xinhua Huifeng Investment Center Co., Ltd. (Beijing) Co. Ltd.
	31.1			Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive and financial officer
	32.1			Section 1350 Certification of principal executive officer and principal financial and accounting officer
	101*			XBRL data files of Financial Statements and Notes contained in this Quarterly Report on Form 10-Q/A

  

* In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed.”

 

** Previously filed as an exhibit to our Form 10-Q with the SEC on August 15, 2015

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	Moxian, Inc.
Date: February 17, 2016	BY:	/s/ James Mengdong Tan
		Name: James Mengdong Tan
		Title: Chief Executive Officer, President, Treasurer, Secretary, Director
		(Principal Executive and Financial Officer)

 

 

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