UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

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

 

For the quarterly period ended June 30, 2019March 31, 2020

 

☐   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: 333-202948

 

FUSE GROUP HOLDING INC.INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

47-1017473

(State or other jurisdiction of 
incorporation or organization)

 

(I.R.S. Employer 
Identification No.)

 

805 W. Duarte Rd., Suite 102
Arcadia, CA 9100691007
(Address of principal executive offices including zip code)

 

(626) 210-0000
(Registrant’s telephone number, including area code)

 

N/A

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

 

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

 

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

 

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

 

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☒

Emerging growth company 

 

 

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

None

 

N/A

 

N/A

 

The number of shares outstanding of each of the issuer’s classes of common stock, as of August 8, 2019May 21, 2020 is as follows:

 

Class

 

Share Outstanding

Common Stock, $0.001 par value per share

 

64,778,050

 


Table of Contents

 

TABLE OF CONTENTS

 

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

34

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

1820

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

2224

Item 4.

Controls and Procedures

2224

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

2325

Item 1A.

Risk Factors

2325

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

2325

Item 3.

Defaults upon Senior Securities

2325

Item 4.

Mine Safety Disclosure

2325

Item 5.

Other Information

2325

Item 6.

Exhibits

2325

SIGNATURES

2426

  

 

SPECIAL NOTE REGARDING RELIANCE ON RELIEF ORDER.

On May 12, 2020 we filed a Current Report on Form 8-K (“Form 8-K”) in compliance with and in reliance upon the SEC Order issued pursuant to Section 36 of the Securities Exchange Act of 1934, as amended, granting Exemptions from Specified Provisions of the Exchange Act and Certain Rules thereunder (SEC Release No. 34-88465 on March 25, 2020) (the “Relief Order”). By way of filing the Form 8-K, we, among other things, extended the time of filing of our quarterly report on Form 10-Q for the quarter ended March 31, 2020 (“Form 10-Q”), until no later than June 29, 2020 in reliance on the Relief Order. The Form 8-K disclosed the reasons that the Form 10-Q could not be timely filed.

Fuse Group Holding Inc. (the “Company”) is relying on the SEC Order to delay the filing of its quarterly report on Form 10-Q, due to circumstances related to the COVID-19 pandemic. The state of California, where the Company is headquartered, has been affected by COVID-19. The Governor of California has issued a stay-at-home order, which took effect on March 19, 2020. Substantially all of the Company’s workforce is currently working from home either all or substantially all of the time, including the Company’s limited number of general administrative and accounting personnel. These safety measures have restricted access to the Company’s facilities and books and records, and have disrupted routine interactions among the Company’s staff, advisors and third parties involved in the preparation of the Form 10-Q. Due to these disruptions, the Company is unable to timely file its Quarterly Report, originally due on May 15, 2020. The Company expects to file the Quarterly Report on or before June 29, 2020, which is 45 days after the original filing deadline of the Form 10-Q.

3

 

PART I.  FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

FUSE GROUP HOLDING INC.INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2019 (UNAUDITED) AND SEPTEMBER 30, 2018

 

JUNE 30,

2019

 

SEPTEMBER 30,

2018

  

MARCH 31, 2020

  

SEPTEMBER 30, 2019

 
 

(UNAUDITED)

      

(UNAUDITED)

     
         

ASSETS

                
         

CURRENT ASSETS

             

Cash and equivalents

 $39,837  $103,364  $41,860  $102,205 

Accounts receivable

 50,000  - 

Prepaid expenses

  -   75,263   24,561   - 
         

Total current assets

 89,837  178,627   66,421   102,205 
         

NON-CURRENT ASSETS

             

Prepaid expense

 1,000,000  1,000,000   1,000,000   1,000,000 

Property and equipment, net

  9,120   10,764   7,477   8,572 

Right-of-use asset

  42,067   - 
         

Total non-current assets

 1,009,120  1,010,764   1,049,544   1,008,572 
         

TOTAL ASSETS

 $1,098,957  $1,189,391  $1,115,965  $1,110,777 
         

LIABILITIES AND STOCKHOLDERS' EQUITY

                
         

CURRENT LIABILITIES

             

Other payables

 $1,631  $9,633  $8,879  $10,675 

Lease liability - current

  25,144   - 
         

Total current liabilities

 1,631  9,633   34,023   10,675 
        

NON-CURRENT LIABILITIES

        

Lease liability - noncurrent

  17,684   - 
        

Total non-current liabilities

  17,684   - 
        

TOTAL LIABILITIES

  51,707   10,675 
         

CONTINGENCIES AND COMMITMENTS

             
         

STOCKHOLDERS' EQUITY

             

Common stock, par value $0.001 per share, 375,000,000 shares

authorized; 64,778,050 shares issued and outstanding

 64,778  64,778   64,778   64,778 

Additional paid-in capital

 6,949,717  6,949,717   6,949,717   6,949,717 

Accumulated deficit

  (5,917,168)  (5,834,737)  (5,950,237

)

  (5,914,393

)

         

Total stockholders' equity

 1,097,327  1,179,758   1,064,258   1,100,102 
         

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 $1,098,957  $1,189,391  $1,115,965  $1,110,777 

 

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

 

3
4

 

FUSE GROUP HOLDING INC.INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED) 

 

  

FOR THE NINE MONTHS

ENDED JUNE 30,

  

FOR THE THREE MONTHS

ENDED JUNE 30,

 
  

2019

  

2018

  

2019

  

2018

 
                 

Revenue

 $1,016,000  $-  $250,000  $- 
                 

Cost of revenue

  234,465   -   56,946   - 
                 

Gross profit

  781,535   -   193,054   - 
                 

Operating expenses

                

      General and administrative

  468,881   460,411   144,735   167,231 

      Consulting

  393,452   2,677,748   18,667   2,435,257 
                 

      Total operating expenses

  862,334   3,138,159   163,403   2,602,488 
                 

Income (loss) from operations

  (80,798)  (3,138,159)  29,652   (2,602,488)
                 

Non-operating expenses

                

      Interest income

  9   41,410   3   - 

      Interest expense

  -   (157,433)  -   (60,110)

      Financial expense

  (842)  (994)  (170)  (443)
                 

      Total non-operating expenses, net

  (833)  (117,017)  (167)  (60,553)
                 

Income (loss) before income tax

  (81,631)  (3,255,176)  29,485   (2,663,041)

Income tax

  800   800   -   800 
                 

Net income (loss)

 $(82,431) $(3,255,976) $29,485  $(2,663,841)
                 

Basic and diluted weighted average shares outstanding

  64,778,050   45,150,000   64,778,050   45,150,000 
                 

Basic and diluted net income (loss) per share

 $(0.00) $(0.07) $0.00  $(0.06)

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

4

Table of Contents

FUSE GROUP HOLDING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED) 

  

FOR THE NINE MONTHS

ENDED JUNE 30,

 
  

2019

  

2018

 
         

CASH FLOWS FROM OPERATING ACTIVITIES:

        

             Net loss

 $(82,431) $(3,255,976)

             Adjustments to reconcile net loss to net cash used in operating activities:

        

                          Depreciation

  1,644   1,644 

                          Amortization

  75,262   - 

             Changes in assets and liabilities:

        

                          Accounts receivable

  (50,000)  - 

                          Prepaid expenses

  -   (261,621)

                          Other payables

  (8,003)  47,600 
         

             Net cash used in operating activities

  (63,527)  (3,468,353)
         

CASH FLOWS FROM INVESTING ACTIVITIES:

        

                          Collection of note receivable

  -   3,925,000 
         

             Net cash provided by investing activities

  -   3,925,000 
         

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS

  (63,527)  456,647 
         

CASH AND EQUIVALENTS, BEGINNING OF PERIOD

  103,364   419,093 
         

CASH AND EQUIVALENTS, END OF PERIOD

 $39,837  $875,740 
         

Supplemental cash flow data:

        

    Income tax paid

 $800  $800 

    Interest paid

 $-  $- 
  

FOR THE SIX MONTHS ENDED MARCH 31,

 
  

2020

  

2019

 
         

Revenue

 $450,000  $766,000 

Cost of revenue

  180,401   177,519 
         

Gross profit

  269,599   588,481 
         

Operating expenses

        

      General and administrative

  263,960   324,146 

      Consulting

  36,748   374,785 
         

      Total operating expenses

  300,708   698,931 
         

Loss from operations

  (31,109

)

  (110,450

)

         

Non-operating expenses

        

      Interest income

  -   6 

      Financial expense

  (535

)

  (672

)

      Other expense

  (200

)

  - 
         

      Total non-operating expenses, net

  (735

)

  (666

)

         

Loss before income tax

  (31,844

)

  (111,116

)

Income tax

  4,000   800 
         

Net loss

 $(35,844

)

 $(111,916

)

         

Basic weighted average shares outstanding

  64,778,050   64,778,050 
         

Basic net loss per share

 $(0.00

)

 $(0.00

)

 

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

 

5

 

FUSE GROUP HOLDING INC. AND SUBSIDIARIES

FUSE GROUP HOLDING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED) (CON’T)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE NINE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

 

  

Common Stock

             
  

Shares

  

Amount

  

Additional Paid-in Capital

  

Accumulated Deficit

  

Total

 

Balance at September 30, 2018

  64,778,050  $64,778  $6,949,717  $(5,834,737) $1,179,758 
                     

Net loss for the quarter

  -   -   -   (62,330)  (62,330)
                     

Balance at December 31, 2018

  64,778,050   64,778   6,949,717   (5,897,067)  1,117,428 
                     

Net loss for the quarter

  -   -   -   (49,586)  (49,586)
                     

Balance at March 31, 2019

  64,778,050   64,778   6,949,717   (5,946,653)  1,067,842 
                     

Net loss for the quarter

  -   -   -   29,485   29,485 
                     

Balance at June 30, 2019

  64,778,050  $64,778  $6,949,717  $(5,917,168) $1,097,327 

  

Common Stock

             
  

Shares

  

Amount

  

Additional Paid-in Capital

  

Accumulated Deficit

  

Total

 
                     

Balance at September 30, 2017

  45,150,000  $45,150  $47,432  $(1,614,817) $(1,522,235)
                     

Net loss for the quarter

  -   -   -   (239,389)  (239,389)
                     

Balance at December 31, 2017

  45,150,000   45,150   47,432   (1,854,206)  (1,761,624)
                     

Net loss for the quarter

  -   -   -   (352,746)  (352,746)
                     

Balance at March 31, 2018

  45,150,000   45,150   47,432   (2,206,952)  (2,114,370)
                     

Net loss for the quarter

  -   -   -   (2,663,841)  (2,663,841)
                     

Balance at June 30, 2018

  45,150,000  $45,150  $47,432  $(4,870,793) $(4,778,211)
  

FOR THE THREE MONTHS ENDED MARCH 31,

 
  

2020

  

2019

 
         

Revenue

 $200,000  $250,000 

Cost of revenue

  48,063   88,759 
         

Gross profit

  151,937   161,241 
         

Operating expenses

        

      General and administrative

  131,315   181,236 

      Consulting

  24,415   28,584 
         

      Total operating expenses

  155,730   209,820 
         

Loss from operations

  (3,793

)

  (48,579

)

         

Non-operating expenses

        

      Interest income

  -   3 

      Financial expense

  (240

)

  (210

)

      Other expense

  -   - 
         

      Total non-operating expenses, net

  (240

)

  (207

)

         

Loss before income tax

  (4,033

)

  (48,786

)

Income tax

  2,400   800 
         

Net loss

 $(6,433

)

 $(49,586

)

         

Basic weighted average shares outstanding

  64,778,050   64,778,050 
         

Basic net loss per share

 $(0.00

)

 $(0.00

)

 

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

 

6

FUSE GROUP HOLDING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED) 

  

 FOR THE SIX MONTHS  ENDED MARCH 31,

 
  

2020

  

2019

 
         

 CASH FLOWS FROM OPERATING ACTIVITIES:

        

             Net loss

 $(35,844

)

 $(111,916

)

             Adjustments to reconcile net loss to net cash used in operating activities:

        

                          Depreciation

  1,096   1,096 

                          Amortization  

  4,912   75,262 

                          Interest expense on lease liability

  997   - 

                          Amortization of right-of-use asset

  12,708   - 

             Changes in assets and liabilities:

        

                          Prepaid expense  

  (29,474

)

  - 

                          Other payables  

  (1,796

)

  (3,854

)

                          Payment of Lease liability

  (12,944

)

  - 
         

             Net cash used in operating activities

  (60,345

)

  (39,412

)

         

 NET DECREASE IN CASH AND EQUIVALENTS

  (60,345

)

  (39,412

)

         

 CASH AND EQUIVALENTS, BEGINNING OF PERIOD

  102,205   103,364 
         

 CASH AND EQUIVALENTS, END OF PERIOD

 $41,860  $63,952 
         

 Supplemental cash flow data:

        

    Income tax paid

 $4,000  $800 

    Interest paid

 $-  $- 

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

7

FUSE GROUP HOLDING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE SIX MONTHS ENDED MARCH 31, 2020 AND 2019

(UNAUDITED)

  

 Common Shares

  

Amount at Par 

  

Additional Paid-in Capital

  

Accumulated Deficit

  

Total

 
                     

Balance at September 30, 2019

  64,778,050  $64,778  $6,949,717  $(5,914,393) $1,100,102 
                     

Net loss

  -   -   -   (29,411)  (29,411)
                     

Balance at December 31, 2019

  64,778,050   64,778   6,949,717   (5,943,804)  1,070,691 
                     

Net loss

  -   -   -   (6,433)  (6,433)
                     

Balance at March 31, 2020

  64,778,050  $64,778  $6,949,717  $(5,950,237) $1,064,258 

  

 Common Shares

  

Amount at Par

  

Additional Paid-in Capital

  

Accumulated Deficit

  

Total

 
                     

Balance at September 30, 2018

  64,778,050  $64,778  $6,949,717  $(5,834,737) $1,179,758 
                     

Net loss

  -   -   -   (62,330)  (62,330)
                     

Balance at December 31, 2018

  64,778,050   64,778   6,949,717   (5,897,067)  1,117,428 
                     

Net loss

  -   -   -   (49,586)  (49,586)
                     

Balance at March 31, 2019

  64,778,050  $64,778  $6,949,717  $(5,946,653) $1,067,842 

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

8

 

FUSE GROUP HOLDING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019MARCH 31, 2020 (UNAUDITED) AND SEPTEMBER 30, 20182019

 

Note 1 – Organization and Operations

 

Fuse Group Holding Inc. (the “Company” or “Fuse Group” or “We”) was incorporated under the laws of the State of Nevada on December 24, 2013.  Fuse Group currently explores opportunities in the mining industry.mining. On December 6, 2016, the Company incorporated Fuse Processing, Inc. (“Processing”) in the State of California. Processing seeks business opportunities in the mining industry and is currently investigating potential mining targets in Asia and North America.  Fuse Group is the sole shareholder of Processing. 

 

Fuse Group and Processing provide consulting services to mining industry clients to find mine acquisition targets within the parameters set by the clients, in circumstances in which the mine owner is considering selling its mining rights.  The services of Fuse Group and Processing include due diligence on the potential mine seller and the mine, such as the ownership of the mine and whether the mine meets all operation requirements and/or is currently in operation.

  

In March 2017, Processing acquired 100% ownership of Fuse Trading Limited (“Trading”) for HKD1 (US$($0.13). Trading had no operations prior to the acquisition by Processing. Trading seeks mining-related business opportunities in Asia.

On May 26, 2017, the Company filed a Certificate of Change with the State of Nevada to (i) increase its authorized shares of common stock from 75,000,000 to 375,000,000 and (ii) effect a corresponding 5-for-1 forward stock split of the issued and outstanding shares of the Company’s common stock (the “Stock Split”).  The consolidated financial statements (“CFS”) were retroactively restated to reflect the Stock Split for the periods presented.

 

On May 3, 2018, the Company incorporated Fuse Technology Inc. (“Technology”) in the State of Nevada.  Fuse Group is the sole shareholder of Technology. Technology iswas mainly engaged in IMETAL system development. The IMETAL software will allow the Company originally planned to operate IMETAL as a platform which the Company plans to use to facilitate investment and trade in raw metals, find specialized minerals, and exploit these opportunities and issue tokens to be used on the platform, subject to compliance with applicable laws and regulations.  Considering recent development of laws and regulations on token issuance and trading, management discussed its function and compliance issues with the designer of the platform and concluded that the project had more issues and costs for compliance than originally expected. On December 23, 2019, the Board decided to terminate the IMETAL project.

 

On April 29, 2019, the Board of Directors of the Company approved an amendment to the Company’s Articles of Incorporation (“Amendment”) to change its name from Fuse Enterprises Inc. to Fuse Group Holding Inc. Also on April 29, 2019, stockholders holding a majority of the Company’s outstanding capital stock approved the Amendment. The Amendment was filed with the Secretary of State for the State of Nevada on April 30, 2019, and became effective on May 13, 2019.  On May 29, 2019, the Company changed its trading symbol on OTC Markets from FNST to FUST.

In December 2019, a novel strain of coronavirus, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to multiple countries, including the United States. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the U.S. government imposed travel restrictions on travel between the United States, China and certain other countries. The state of California, where the Company is headquartered, has been affected by COVID-19. The Governor of California has issued a stay-at-home order, which took effect on March 19, 2020.

The Company’s business and services and results of operations have been adversely affected and could continue to be adversely affected by the COVID-19 pandemic. Substantially all of the Company’s workforce is now working from home either all or substantially all of the time. The effects of the Stay-at-Home order have negatively impacted the Company’s business development, and disrupted or delayed the Company’s current mine projects and services to its clients, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on the Company’s ability to conduct its business in the ordinary course. Quarantines, travel restrictions, shelter-in-place and other restrictions related to COVID-19 have impacted the Company’s abilities to visit mines in Mexico and in Asian counties as well as to meet with potential clients and mine owners for the Company’s consulting business and for the Company’s own investment in mine projects. The Company’s clients that are negatively impacted by the outbreak of COVID-19 may cancel or suspend their mine acquisition projects, which in turn will reduce their demands for the Company’s services and materially adversely impact the Company’s revenue.

The global economy has also been materially negatively affected by COVID-19 and there is continued severe uncertainty about the duration and intensity of its impacts. The U.S. and global growth forecast is extremely uncertain, which could seriously affect people’s investment desires in mines in Mexico, Asia and internationally. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing the Company’s ability to access capital, which could negatively affect the Company’s liquidity.

9

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements (“CFS”) included herein were prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) that are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with US GAAP were omitted pursuant to such rules and regulations. The interim consolidated financial information should be read in conjunction with the Financial Statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018, previously filed with the SEC. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s consolidated financial position as of June 30, 2019, results of operations for the nine and three months ended June 30, 2019 and 2018, and cash flows for the nine months ended June 30, 2019 and 2018, as applicable, were made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

 

Basis of Consolidation 

 

The CFS include the accounts of Fuse Group and its subsidiaries, Processing, Trading and Technology. All significant inter-company accounts and transactions and balances were eliminated in consolidation.

7

Table of Contents

 

Cash

 

For purposes of the statement of cash flows, the Company considers cash, money market funds, investments in interest bearing demand deposit accounts, time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents.    

 

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions 

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).

 

Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were:

 

(i)

Assumption as a going concern: Management assumes the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

 

 

(ii)

Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company having incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors.

 

These significant accounting estimates or assumptions bear the risk of change because there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.  Actual results could differ from those estimates. 

 

Fair Value of Financial Instruments

 

The Company follows paragraph 825-10-50-10 of the Financial Accounting Standards Board - Accounting Standards Codification (“FASB ASC”) for disclosures about fair value (“FV”) of its financial instruments and paragraph 820-10-35-37 of the FASB ASC (“Paragraph 820-10-35-37”) to measure the FV of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring FV in U.S. GAAP, and expands disclosures about FV measurements. 

 

10

Paragraph 820-10-35-37 establishes a FV hierarchy which prioritizes the inputs to valuation techniques used to measure FV into three broad levels.  The FV hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The three levels of FV hierarchy defined by Paragraph 820-10-35-37 are described below:

 

Level 1

 

Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

 

Level 2

 

Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

 

Level 3

 

Pricing inputs that are generally unobservable inputs and not corroborated by market data.

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Financial assets are considered Level 3 when their FVs are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

 

The FV hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the FV measurement of the instrument.

 

The carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses, accounts receivable, accounts payable and accrued expenses, approximate their FV because of the short maturity of those instruments. 

 

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.

 

Accounts Receivable

 

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.  The Company had no outstanding accounts receivable of $50,000 at June 30, 2019. The Company had no bad debt allowances at JuneMarch 31, 2020 or September 30, 2019.

 

Property and Equipment 

 

Property and equipment are stated at cost, net of accumulated depreciation and impairment losses, if any. Expenditures for maintenance and repairs are expensed as incurred; while additions, renewals and improvements are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation is removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets and estimated lives as follows:

 

Computer and office equipment

5 years

Office furniture

7 years 

Leasehold decoration and renovation

10 years

Production machinery

10 years

Autos

5 years

  

Related Parties

 

The Company follows subtopic 850-10 of the FASB ASC for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20 the related parties include: (a) affiliates of the Company; (b) entities for which investments in their equity securities would be required, absent the election of the FV option under the Fair ValueFV Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

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The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of financial statements is not required in those statements.

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The disclosures shall include: (a) the nature of the relationship(s) involved; (b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement. 

 

Commitments and Contingencies

 

The Company follows subtopicASC 450-20 of the FASB ASC to report accountingaccount for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur.  The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.

 

In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. 

  

If the assessment of a contingency indicates it is probable that a material loss has beenwas incurred and the amount of the liability can be reasonably estimated, then the estimated liability would be accrued in the Company’s financial statements.  If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.  Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

 

Revenue Recognition

 

In May 2014 the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration the company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective and transition dates: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.

 

The new revenue standards became effective for the Company on October 1, 2018, and were adopted using the modified retrospective method. The adoption of the new revenue standards as of October 1, 2018 did not change the Company’s revenue recognition as the Company did not have any revenue prior to October 1, 2018. As the Company willdid not identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues, no adjustment to retained earnings was required upon adoption.

 

Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation. For the Company’s mine information service, revenue is recognized when the mine information is forwarded to the client.

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Income Tax Provision

 

The Company accounts for income taxes under Section 740-10-30 of the FASB ASC, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that was included in the financial statements or tax returns.  

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Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date. 

 

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary.

 

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary. 

 

Uncertain Tax Positions

 

The Company follows paragraph 740-10-25 of the FASB ASC. Paragraph 740-10-25-13 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.  Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.  The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits are classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income.

 

The Company did not take any uncertain tax positions and had no unrecognized tax liabilities or benefits in accordance with the provisions of Section 740-10-25 at June 30, 2019 andMarch 31, 2020 or September 30, 2018.2019.  The tax years 20152016 - 20172018 remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which the Company is subject. 

 

Earnings (Loss) per Share

 

Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similar to basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if all the potential common shares, warrants and stock options had been issued and if the additional common shares were dilutive. Diluted EPS is based on the assumption that all dilutive convertible shares and stock options and warrants were converted or exercised. Dilution is computed by applying the treasury stock method for the outstanding options and warrants, and the if-converted method for the outstanding convertible instruments. Under the treasury stock method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later) and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, outstanding convertible instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later). 

 

13

Cash Flows Reporting 

 

The Company follows paragraph  230-10-45-24 of the FASB ASC for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect Method”) as defined by paragraph 230-10-45-25 of the FASB ASC to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.  The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB ASC. 

 

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Software Development Costs

 

The Company incurs costs to develop software programs to be used primarily to meet its internal needs and to market to others. In accordance with ASC 350-40, Internal-Use Software, the Company capitalizes development costs for these software applications once the preliminary project stage is complete and it is probable that the project will be completed, the software will be used to perform the function intended, and the value will be recoverable. In accordance with ASC 985-20-25, costs incurred before product feasibility is established and all design and coding is completed are expensed. Reengineering costs and minor modifications and enhancements that do not significantly improve the overall functionality of the software are expensed as incurred. AsAfter considering recent developments of June 30,laws and regulations on token issuance and trading that would apply to the platform that the Company has been designing, management discussed its function and compliance issues with the designer of the software platform and concluded that the project had more issues and costs for compliance than originally expected. On December 23, 2019, the Board decided to terminate the project.

Leases

On October 1, 2019, the Company hadadopted ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which superseded the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use (“ROU”) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. For information regarding the impact of Topic 842 adoption, see Significant Accounting Policies - Leases and Note 9 – Commitments.

The Company adopted Topic 842 using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after October 1, 2019 are presented under Topic 842, while prior period amounts have not completedbeen adjusted and continue to be reported in accordance with its historical accounting under Topic 840.

The Company elected the preliminary project stagepackage of practical expedients permitted under the transition guidance, which allowed it to carry forward its historical lease classification, its assessment on whether a contract was or contains a lease, and its initial direct costs for any leases that existed prior to October 1, 2019. The Company also elected to combine its lease and non-lease components and to keep leases with an initial term of 12 months or less off the design stage,balance sheet and accordingly,recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.

Upon adoption, the Company hasrecognized total ROU assets of $54,775, with corresponding lease liabilities of $54,775 on its consolidated balance sheets. The ROU assets include adjustments for prepayments and accrued lease payments. The adoption did not capitalizedimpact our beginning retained earnings, or prior year consolidated statements of operations and statements of cash flows.  At March 31, 2020, the ROU was $42,067.

Under Topic 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of its leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The ROU asset also includes any costs.lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options.

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Operating leases are included in operating lease ROU assets and operating lease liabilities (current and non-current), on the consolidated balance sheets. 

 

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of adoption of this ASU on its CFS.

 

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its FV, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of adopting this standard on its CFS.

 

In June 2018, the FASB issued ASU 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. An entity should apply the requirements of ASC 718 to non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specify that ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The new guidance is effective for SEC filers for fiscal years, and interim reporting periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). Early adoption is permitted. The Company is evaluating the effects of the adoption of this guidance.

 

SEC Disclosure Update and Simplification

In August 2018, the SEC issued Securities Act Release No. 33-10532 that amends certain disclosure requirements, including extending to interim periods the annual requirement to disclose changes in stockholders’ equity. Under the new requirements, registrants must now analyze changes in stockholders’ equity, in the form of a reconciliation, for the current and comparative year-to-date interim periods, with subtotals for each interim period. The final rule was effective in November 2018. The Company adopted the final rule and included a reconciliation of the changes in stockholders’ equity in its Form 10-Q starting from the quarter ending December 31, 2018.

Note 3 – Going Concern

 

The accompanying CFS were prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

 

As reflected in the accompanying CFS, the Company had an accumulated deficit of $5.92$5.95 million at June 30, 2019,March 31, 2020, and net loss of $82,431$35,844 and $111,916 for the ninesix months ended June 30,March 31, 2020 and 2019, net loss of $6,433 and $49,586 for the three months ended March 31, 2020 and 2019, respectively, which raise substantial doubt about the Company’s ability to continue as a going concern. Also see the discussion of COVID-19 in Note 1.

 

Management intends to raise additional funds by way of a private or public offering, or by obtaining loans from banks or others.  While the Company believes in the viability of its strategy to generate sufficient revenue and in its ability to raise additional funds on reasonable terms and conditions, there can be no assurances to that effect.  The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.

 

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The CFS do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.  

 

Note 4 – Property and Equipment 

 

Property and equipment at June 30, 2019March 31, 2020 and September 30, 20182019 consisted of the following:

 

 

June 30, 2019

  

September 30, 2018

  

2020

  

2019

 
         

Computer equipment

 $1,852  $1,852  $1,852  $1,852 

Less accumulated depreciation

  (926

)

  (648

)

  (1,204

)

  (1,019

)

Computer equipment, net

 926  1,204   648   833 
         

Office furniture

 12,746  12,746   12,746   12,746 

Less accumulated depreciation

  (4,552

)

  (3,186

)

  (5,917

)

  (5,007

)

Office furniture, net

  8,194   9,560   6,829   7,739 

Total property and equipment, net

 $9,120  $10,764  $7,477  $8,572 

 

Depreciation for the ninesix months ended June 30,March 31, 2020 and 2019 was $1,096 and 2018 was $1,644 and $1,644,$1,096, respectively. 

Depreciation for the three months ended June 30,March 31, 2020 and 2019 and 2018 was $548 and $548, respectively.

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Note 5 – Prepaid expenses (current and noncurrent)

 

As of DecemberMarch 31, 2018,2020, the Company had current prepaid D&ODirector & Officer insurance and prepaid consulting expenses to Risun Intelligent Technology Co., Limited (“Risun”) of $75,263. $24,561.

 

On August 1, 2018, the Company entered into a Consultant Agreement Service Contract with Risun. Pursuant to the terms of the Contract, Risun shall provide services to the Company for market research, business strategy, business developmentAt March 31, 2020 and other business advisory services related to the iMetal project. The Company paid Risun the full service fee of $103,508 in August 2018. The service term began on August 1, 2018 and expired on February 1, 2019. For the nine and three months ended JuneSeptember 30, 2019, the Company recorded consulting expense to Risun of $69,005 and $0, respectively. 

In addition, as of June 30, 2019 and September 30, 2018, the Company had anothernoncurrent prepaid expense of $1,000,000.  On January 4, 2017, Processing entered into a Consulting and Strategist Agreement with a consulting company for a six-month term.  On July 3, 2017, the CompanyProcessing and the consulting company extended the Consulting and Strategist Agreement to January 3, 2018 at no additional cost, and the Agreement was subsequently further extended to July 3, 2018. The consultant provided Processing with market research findings, exploration and advice on business development opportunities in certain countries, and other general business advisory services. Processing paid a deposit of $1,325,000 for the consulting fee, of which $325,000 was expensed as a consulting fee based on the agreement, and the remaining $1,000,000 of which would have been refunded to the Company if the Company had not made an investment and/or entered into a business relationship in Mexico. The consulting company found acquisition targets for the Company, and on June 22, 2018, the Company entered into a Memorandum of Understanding (“MOU”) with a seller for the purchase of five5 mines located in different areas of Mexico for an aggregate purchase price of $1,000,000. Upon the execution of the MOU, the Company acquired the exclusive right to purchase the mines from the seller, effective until September 30, 2018. The parties have entered into an oral agreement pursuant to which the Company will pay the $1,000,000 purchase price upon receiving approvals from the Mexican government allowing for the transfer of the mining concession. The transfer request has been submitted to, and is being processed by, the Mexican government, but that processing was delayed due to elections and new administration in Mexico.Mexico and the COVID-19 pandemic. The Company expectswas not able to receiveprovide an estimated time for the government approval in October 2019. Following the signingat this report date. The remaining $1,000,000 of the MOU, this prepaid itemconsulting fees, which relates to the acquisition of assets in Mexico, will be part of the asset acquisition cost and, now that an agreement to purchasecosts upon completion of the mines has been entered into, was classified as a non-current asset.asset acquisition in accordance with ASC 805-5-30-1.

  

Note 6 – Other payables 

 

As of June 30, 2019March 31, 2020, and September 30, 2018,2019, the Company had other payables of $1,631$8,879 and $9,633,$10,675, respectively. Other payables mainly consisted of salary and payroll tax payables.

 

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Note 7 – Notes payable (related party)

On December 19, 2016, the Company entered into a Convertible Promissory Note Purchase Agreement (the “Original Agreement”) with one of its major shareholders (“Purchaser”). Under the Agreement, the Company sold a Convertible Promissory Note of $6,869,818 with interest of 6% (the “Original Note”). The Original Note was to mature on December 18, 2018, and any outstanding principal and interest on the Original Note could be converted at any time prior to maturity at the lender’s option at $1.50 per share of the Company’s common stock.  The Original Note was not converted due to the conversion price being higher than the market price of the Company’s common stock at the time of the issuance of the Original Note.

On March 20, 2017, the Company entered into an Amended and Restated Promissory Note Purchase Agreement with the major shareholder and Trading (the “Amended Agreement”).  The Amended Agreement amended and restated the Original Agreement.  Under the terms of the Amended Agreement, the Original Note issued under the Original Agreement was cancelled and Trading issued a Promissory Note to the Purchaser of $6,869,818, with a term of 12 months, renewable for up to an additional 12 months at the Purchaser’s option, with interest of 3% (the “New Note”).  The Purchaser did not have a conversion option under the New Note. The principal amount of the New Note and any unpaid interest accrued thereon may become due and payable immediately upon the occurrence of certain events of default, including but not limited to Trading’s insolvency or the institution of bankruptcy proceedings against Trading. The Amended Agreement was renewed on March 20, 2018 with a new maturity date of July 2, 2018. 

On June 28, 2018, the Company entered into a Share Purchase Agreement with Trading and the Purchaser, pursuant to which the Company sold the Purchaser in a private placement 19,628,050 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share, at $0.35 per Share for $6,869,818 (the “Purchase Price”). The Purchaser paid the Purchase Price through cancellation of the New Note. There is no gain or loss arising from the note conversion due to the conversion price being the market price and there is no substantial change in the cash flows. The Private Placement was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended, and the Company issued the Shares to the Purchaser on July 6, 2018. 

Note 8 – Shareholders’ Equity

Shares Authorized

Upon formation, the number of shares of all classes of stock which the Company was authorized to issue was 75,000,000 shares of common stock, par value $0.001 per share. On May 26, 2017, the Company filed a Certificate of Change with the State of Nevada to (i) increase its authorized shares of common stock from 75,000,000 to 375,000,000 and (ii) effect a corresponding 5-for-1 forward stock split of the issued and outstanding shares of the Company’s common stock (the “Stock Split”).  The CFS were retroactively restated to reflect the Stock Split for the periods presented. 

On July 6, 2018, the Company issued 19,628,050 shares for repayment of the note payable of $6,869,818 (See Note 7 – Notes payable (related party)).

Note 9 – Income Tax

 

The President of the United States signed into law H.R. 1 (the “Tax Reform Law”). The Tax Reform Law, effective for tax years beginning on or after January 1, 2018, except for certain provisions, resulted in significant changes to existing United States tax law, including various provisions that are expected to impact the Company. The Tax Reform Law reduced the federal corporate tax rate from 34% to 21% effective October 1, 2018 for the Company. The Company will continue to analyze the provisions of the Tax Reform Law to assess the impact on the Company’s CFS.

 

For most taxpayers, NOLs arising in tax years ending after 2017 can only be carried forward. At June 30, 2019March 31, 2020 and September 30, 2018,2019, the Company had net operating loss (“NOL”) carryforward for income tax purposes; for federal income tax purposes, the NOL arising in tax years beginning after 2017 may only reduce 80% of a taxpayer’s taxable income, and may be carried forward indefinitely; for California income tax purposes, the entire NOL can be carried forward up to 20 years. The Company has estimated NOL carry-forwards for Federal and California income tax purposes of $5.71$4.13 million and $5.63$4.07 million at June 30, 2019March 31, 2020 and September 30, 2018,2019, respectively. No tax benefit was reported with respect to these NOL carry-forwards in the accompanying CFS because the Company believes the realization of the Company’s net deferred tax assets for the NOL for both federal and California State of approximately $1.57$1.22 million as of June 30, 2019,March 31, 2020, was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are fully offset by a full valuation allowance.

 

14

Table of Contents

Components of deferred tax assets as of June 30, 2019March 31, 2020 and September 30, 20182019 are as follows:

 

 

June 30, 2019

  

September 30, 2018

 

Net deferred tax assets – Non-current:

             

Expected income tax benefit from NOL carry-forwards

 $1,568,400  $1,571,957  $1,215,966  $1,207,488 

Less valuation allowance

  (1,568,400

)

  (1,571,957

)

  (1,215,966

)

  (1,207,488

)

Deferred tax assets, net of valuation allowance

 $-  $-  $-  $- 

16

The recently issued Coronavirus Aid, Relief and Economic Security Act (the CARES Act or the Act), provides four relief provisions for corporate taxpayers as follows:

1.

Five-year net operating loss (NOL) carryback provision: the Act allows for the carryback of losses arising in a taxable year beginning after December 31, 2017, and before January 1, 2021, to each of the five taxable years preceding the taxable year of the loss.

2.

Fiscal year NOL carryback fix from the Tax Cuts and Jobs Act (TCJA) of 2017: the Act corrects the language to provide fiscal year taxpayers who had NOLs arising in years that began prior to December 31, 2017 and ended after December 31, 2017 with the ability to carry back those NOLs.

3.

Deferral of 80% income limitation on post-2017 NOLs to 2021: the Act suspends this 80% limitation for taxable years beginning before January 1, 2021, and instead allows the full offset of taxable income. For tax years beginning after December 31, 2020, the Act reinstates the 80% limitation.

4.

Immediate Alternative Minimum Tax (“AMT”) tax credit refunds: the Act accelerates availability of AMT credits. The full remaining refundable AMT credit amount will be available for a corporation’s first taxable year beginning in 2019. Alternatively, a corporation may elect to use 100% of its AMT credits for its first taxable year beginning in 2018. 

 

Income Tax Provision in the Statements of Operations

 

A reconciliation of the consolidated federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes for the ninesix months ended June 30,March 31, 2020 and 2019 and 2018 is as follows:

 

 

2019

  

2018

  

2020

  

2019

 
         

Federal statutory income tax expense (benefit) rate

 (21.00

)%

 (34.00

)%

  (21.00

)%

  (21.00

)%

Federal income tax rate difference

 -

%

 19.00

%

  0.00

%

  0.01

%

State statutory income tax (benefit) rate, net of effect of state income tax deductible to federal income tax

 5.50

%

 (7.51

)%

  (6.98

)%

  (0.61

)%

Change in valuation allowance on net operating loss carry-forwards

  16.50

%

  22.53

%

  40.54

%

  22.32

%

Effective income tax rate

  1.00

%

  0.02

%

  12.56

%

  0.72

%

 

A reconciliation of the consolidated federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes for the three months ended June 30,March 31, 2020 and 2019 and 2018 is as follows:

 

 

2019

  

2018

  

2020

  

2019

 
         

Federal statutory income tax expense (benefit) rate

 21.00

%

 (34.00

)%

  (21.00

)%

  (21.00

)%

Federal income tax rate difference

 -

%

 19.00

%

  0.00

%

  0.03

%

State statutory income tax (benefit) rate, net of effect of state income tax deductible to federal income tax

 17.40

%

 (7.51

)%

  (6.98

)%

  0.40

%

Change in valuation allowance on net operating loss carry-forwards (utilization of NOL)

  (38.40

)%

  22.54

%

Change in valuation allowance on net operating loss carry-forwards

  87.50

%

  22.21

%

Effective income tax rate

  0.00

%

  0.03

%

  59.52

%

  1.64

%

 

Note 108 – Revenue, Cost of Revenue and Major Customers

 

Fuse Group and Processing provide consulting services to mining industry clients to find mine acquisition targets within the parameters set by the clients, in circumstances in which the mine owner is considering selling its mining rights.  The services of Fuse Group and Processing include due diligence on the potential mine seller and the mine, such as ownership of the mine and whether the mine meets all operation requirements and/or is currently in operation.

 

Cost of revenue mainly consisted of the management’s travel expenses to visit these mines and consulting expenses paid for mine expertise during the mine due diligence period.

 

Currently the Company has provided three potential mine acquisition opportunities to its clients, with one mine located in Asia and two mines located in North America.  For the ninesix months ended June 30,March 31, 2020 and 2019, the Company recorded revenue of $1,016,000$450,000 and $766,000 for the services provided. provided, respectively.

For the three months ended June 30,March 31, 2020 and 2019, the Company recorded revenue of $200,000 and $250,000 for the services provided.provided, respectively.

17

 

For the nine months ended June 30, 2019, the Company had one customer which accounted for 96% of the Company’s total revenue. For thesix and three months ended June 30, 2019,March 31, 2020, the Company had one customer which accounted for 100% of the Company’s total revenue.

15

TableFor the six and three months ended March 31, 2019, the Company had one customer which accounted for 95% and 100% of Contents
the Company’s total revenue. 

 

Note 119 – Commitments

 

Acquisition commitment

 

On January 4, 2017, Processing entered into a Consulting and Strategist Agreement with a consulting company for a six-month term.  On July 3, 2017, the CompanyProcessing and the consulting company extended the Consulting and Strategist Agreement until January 3, 2018 at no additional cost, and the Agreement was subsequently further extended to July 3, 2018. The consultant provided Processing with market research findings, exploration and advice on business development opportunities in certain countries, and other general business advisory services. The consulting company found acquisition targets for the Company, and on June 22, 2018, the Company entered into a Memorandum of Understanding (“MOU”)MOU with a seller for the purchase of five5 mines located in different areas of Mexico for an aggregate purchase price of $1,000,000. Upon the execution of the MOU, the Company acquired the exclusive right to purchase the mines from the seller, effective until September 30, 2018. The parties entered into an oral agreement pursuant to which the Company will pay the $1,000,000 purchase price upon receiving approvals from the Mexican government allowing for the transfer of the mining concession. The transfer request was submitted to, and is being processed by, the Mexican government, but that processing was delayed due to elections and new administration in Mexico and the COVID-19 pandemic (see Note 5), the Company expectswas not able to receiveprovide an estimated time for the government approval in October 2019.at this report date. 

 

Lease Commitment

Effective January 1, 2017, Processing, as a sublessee, entered into a sublease agreement for office space with a sublessor for a term of two years. The monthly rent was $1,897, and increased to $1,949 starting in January 2018. The lease expired on December 31, 2018.

 

Effective April 16, 2018, the Company entered a one-year lease agreement to leasefor an office in the City of Diamond Bar, California. The monthly rent iswas approximately $1,500.  The Company did not renew the lease at expiration.

 

Effective December 1, 2018, the Company entered a three-year lease agreement to leasefor an office in the city of Arcadia, California. The monthly base rent is $2,115 payable on the first day of each month, with a 3% increase each year.

 

The Company recorded rental expensecost of $34,498$13,705 and $24,248$27,718 for the ninesix months ended June 30,March 31, 2020 and 2019, and 2018, respectively. 

The Company recorded rental expensecost of $6,780$6,853 and $12,710$10,903 for the three months ended June 30,March 31, 2020 and 2019, respectively. 

The components of lease costs, lease term and 2018. Asdiscount rate with respect to the office lease with an initial term of June 30, 2019,more than 12 months are as follows:

  

Six Months Ended

 
  

March 31, 2020

 
     

Operating lease cost

 $13,705 

Weighted Average Remaining Lease Term - Operating leases

 

1.75 years

 

Weighted Average Discount Rate - Operating leases

  4

%

The operating lease cost for the future annual minimumthree months ended March 31, 20202 was $6,853.

The following is a schedule of maturities of lease payments would be $25,761 for 2020; $26,522 for 2021; and $11,210 for 2022. liabilities as of March 31, 2020:

For the 12 months ended

 

Operating Leases

 

March 31, 2021

 $26,403 

March 31, 2022

  17,950 

Total undiscounted cash flows

  44,353 

Less: imputed interest

  (1,525

)

Present value of lease liabilities

 $42,828 

18

 

Consulting and Service Agreements

 

 

1)

On April 1, 2017, the Company entered into a strategic consulting agreement with a consulting company with a term of one year. The consulting company provides the Company the strategic advices on business development and marketing. The compensation to the consulting company is $50,000 per year, payable in equal installments at the end of each month. The agreement was extended to March 31, 20202021 with the same terms.

  

 

2)

On May 4, 2018, the Company entered into a Mineral Mining Interactive Technology and Related Application Software Development Service Contract (the “Contract”) with Prime King Investment Limited (“Prime King”) described as below:

  

Pursuant to the terms of the Contract, Prime King is providing services to the Company relating to the development, installation and debugging of a software system called IMETAL. The IMETAL software will allow the Company originally planned to operate IMETAL as a platform which the Company plans to use to facilitate investment and trade in raw metals, find specialized minerals, exploit these opportunities and issue tokens to be used on the platform, subject to compliance with applicable laws and regulations.regulations (the “Project”).

 

IMETAL is a platform which we committed to build and through which we plan to provide not only institutional clients, but also individual investors, with a chance to invest in raw metals, find specialized minerals, and exploit these opportunities, subject to compliance with applicable laws and regulations. Prime King shall also provide training to the Company’s staff per the Company’s request as well as maintenance for the Project for one year after the completion of the Project, in each case free of charge.

 

Under the Contract, the Company shall pay Prime King $3,000,000, of which 50% was paid within 10 days of the execution of the Contract, and the remaining 50% was to be paid within 10 days of the completion of the Project after inspection and approval by the Company. The service was required to be completed in three months, however, on July 17, 2018, the deadline was extended until October 17, 2018, and the Company agreed to extend the deadline further, due to changes in technical requirements requested by the Company. Up to September 30, 2018, the Company paid Prime King $1.50$1.5 million, which was recorded as software development costs. The Company didhas not paypaid anything to Prime King for the nine and three months ended Junesince September 30, 2019.2018. The Company previously expected the project to be completed by March 31, 2019. However, the process has been furtherwas delayed because the Company is currently evaluatingwanted to evaluate certain functions of this platform and regulatory compliance requirements for such functions before it can determinedetermining whether to include them in the platform. The Company expectsAfter considering the recent development of laws and regulations on token issuance and trading, management discussed its function and compliance issues with the designer of the platform and concluded that the project will be completed soon afterhas more issues and costs for compliance than originally expected. On December 23, 2019, the Company completes its evaluation ofBoard decided to terminate the platform’s regulatory issues.IMETAL project.

16

Table of Contents

 

 

3)

Effective April 1, 2018, the Company entered another Consulting & Strategist Agreement with a consulting company in Hong Kong for a term of one year. The consulting services mainly include business strategy and business development advisory for the Company’s potential new ventures in the Far East, mainly in Hong Kong and Russia. The consulting fee is $40,000 per month, payable monthly on or about the first day of each month. The Company did not renew the agreement upon expiration.

4)

Exploratory Drilling Agreement and Related Costs. On April 1, 2018, the Company entered into a contract with an individual owner of a mining concession in Mexico.  The mine is located in Mexico, in the state of Sinaloa, Badiraguato municipality, Nocoriba village. The latitude is 25.2520000 and the longitude is -107.225500. The Company started drilling within the concession 10HAAS. For the ninesix and three months ended June 30,March 31, 2020, the Company spent $0; for the six and three months ended March 31, 2019, the Company spent $238,750; for the three months ended June 30, 2019, the Company spent$238,750 and $0, respectively, which was recorded as consulting expense, and theexpense. The Company expects to spend an additional $1.56 million on this project.project as of March 31, 2020. If the project is successful, the Company will receive 3% equity in the mine (which percentage will be paid upon successful completion of exploration and drilling of the mine). The mine owner is currently in discussion with a potential buyer to purchase this mine and the buyer is analyzing the minerals of this mine. The mine owner and Fuse Group have agreed to put exploration on hold until this buyer completes its analysis in preparation for making the acquisition decision. The project is currently on hold due to the COVID-19 pandemic. Negotiations will resume once the analysis of minerals of the mine is completed and accepted by the potential buyer.

 

Employment Agreement

 

The Company currently has an employment agreement with Michael Viotto, the Company’s CFO.  Pursuant to the terms of his employment agreement, dated August 20, 2018,21, 2019, Mr. Viotto receives annual compensation of $50,000, and the agreement has a term of one year.  Mr. Viotto’s employment agreement includes typical clauses relating to noncompetition, nonsolicitation and indemnification of Mr. Viotto in connection with his service as the Company’s CFO.

 

Note 1210 – Subsequent Events

 

The Company follows the guidance in FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated subsequent events through the date the financial statements were issued and determined the Company did not have any material subsequent events to disclose in its CFS.

 

 

17
19

 

Item 2.

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

 

The following discussion should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q.

DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS

The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with theour consolidated financial statements and related notes appearing elsewhere in Item I above and with the audited consolidated financial statements and notes, and with the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K.this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report and those discussed in our most recentthe Annual Report on Form 10-K.10-K, particularly under the heading “Risk Factors.” and those set forth from time to time in our other filings with the SEC.

 

Overview

 

Fuse Group Holding Inc. (the “Company” or “Fuse Group” or “we”) was incorporated under the laws of the State of Nevada on December 24, 2013.  Fuse Group currently explores opportunities in the mining industry.mining. On December 6, 2016, the Company incorporated Fuse Processing, Inc. (“Processing”) in the State of California. Processing seeks business opportunities in the mining industry and is currently investigating potential mining targets in Asia and North America.  Fuse Group is the sole shareholder of Processing.  In March 2017, Processing acquired 100% ownership of Fuse Trading Limited (“Trading”) for HKD1 ($0.13). Trading had no operations prior to the acquisition by Processing, and Trading expects to be engaged in mining-related businesses. On May 3, 2018, the Company incorporated Fuse Technology Inc. (“Technology”) in the State of Nevada.  Fuse Group is the sole shareholder of Technology. Technology iswas mainly engaged in IMETAL system development. The IMETAL software will allow the Company originally planned to operate IMETAL as a platform which the Company plans to use to facilitate investment and trade in raw metals, find specialized minerals, and exploit these opportunities and issue tokens to be used on the platform, subject to compliance with applicable laws and regulations. Due to the recent development of laws and regulations on token issuance and trading, management discussed its function and compliance issues with the designer of the platform and concluded that the project had more issues and costs for compliance than originally expected, on December 23, 2019, the Board decided to terminate the IMETAL project.

 

Fuse Group and Processing provide consulting services to mining industry clients to find acquisition targets within the parameters set by the clients, when the mine owner is considering selling its mining rights.  The services of Fuse Group and Processing include due diligence on the potential mine seller and the mine, such as ownership of the mine and whether the mine meets all operation requirements and/or is currently in operation.

 

On January 4, 2017, Processing entered into a Consulting and Strategist Agreement with a consulting company for a six-month term.  On July 3, 2017, the CompanyProcessing and the consulting company extended the Consulting and Strategist Agreement until January 3, 2018 at no additional cost, and the Agreement was subsequently further extended to July 3, 2018. The consultant provides Processing with market research, findings, exploration and advise on business development opportunities in certain countries, and other general business advisory services. Processing paid a deposit of $1,325,000 for the consulting fee, of which, $325,000 was expensed as a consulting fee based on the agreement, and the remaining $1,000,000 of which would have been refunded to the Company if the Company had not made an investment and/or entered into a business relationship in Mexico. The consulting company found acquisition targets for the Company, and on June 22, 2018, the Company entered into a Memorandum of Understanding (“MOU”) with a seller for theto purchase of five mines located in different areas of Mexico for $1,000,000. Upon the execution of the MOU, the Company acquired the exclusive right to purchase the mines from the seller until September 30, 2018. The parties entered into an oral agreement pursuant to which the Company will pay the $1,000,000 purchase price upon receiving approvals from the Mexican government allowing for the transfer of the mining concession. The transfer request was submitted to, and is being processed by, the Mexican government, but that processing was delayed due to elections and new administration in Mexico and the COVID-19 pandemic, such that the Company expectedwas not able to receiveprovide an estimated time for the government approval in October 2019. at this report date.  

On May 26, 2017, the Company filed a Certificate of Change with the State of Nevada to (i) increase its authorized shares of common stock from 75,000,000 to 375,000,000 and (ii) effect a corresponding 5-for-1 forward stock split of the issued and outstanding shares of the Company’s common stock (the “Stock Split”).

 

On April 29, 2019, the Board of Directors (“BOD”) of the Company approved an amendment to the Company’s Articles of Incorporation (the “Amendment”) to change its name from Fuse Enterprises Inc. to Fuse Group Holding Inc. Also on April 29, 2019, stockholders holding a majority of the Company’s outstanding capital stock approved the Amendment. The Amendment was filed with the Secretary of State for the State of Nevada on April 30, 2019, and became effective on May 13, 2019.  On May 29, 2019, the Company changed its trading symbol on OTC Markets from FNST to FUST.

 

18
20

In December 2019, a novel strain of coronavirus, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to multiple countries, including the United States. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the U.S. government imposed travel restrictions on travel between the United States, China, and certain other countries. The state of California, where the Company is headquartered, has been affected by COVID-19. The Governor of California has issued a stay-at-home order, which took effect on March 19, 2020.

Our business and services and results of operations have been adversely affected and could continue to be adversely affected by the COVID-19 pandemic. Substantially all of our workforce is now working from home either all or substantially all of the time. The effects of the stay-at-home order and our work-from-home policies have negatively impacted our business development, and disrupted or delayed our current mine projects and services to our clients, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition.

Quarantines, travel restrictions, shelter-in-place and other restrictions related to COVID-19 have impacted our abilities to visit mines in Mexico and Asian counties as well as to meet with potential clients and mine owners for our consulting business and our own investment in mine projects. Our clients that are negatively impacted by the outbreak of COVID-19 may cancel or suspend their mine acquisition projects, which in turn will reduce their demands for our services and materially adversely impact our revenue.

The global economy has also been materially negatively affected by COVID-19 and there is continued severe uncertainty about the duration and intensity of its impacts. The U.S. and global growth forecast is extremely uncertain, which would seriously affect people’s investment desires in mines in Mexico, Asia and internationally.

While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.

Further, as we do not have access to a revolving credit facility, there can be no assurance that we would be able to secure commercial debt financing in the future in the event that we require additional capital. We currently believe that our financial resources will be adequate to see us through the outbreak. However, in the event that we do need to raise capital in the future, the outbreak-related instability in the securities markets could adversely affect our ability to raise additional capital. 

 

Results of operations for the three months ended June 30,March 31, 2020 and 2019 and 2018

 

Revenue and Cost of Revenue

 

We have historically generated revenue from sales ofdevelop our marketingbusiness in mining and web development services directly to small and medium-sized businesses. We have acquired customers through direct telemarketing and referrals. We currently seek business opportunities in the mining industry and are investigatinginvestigate potential mining targets in Asia and North America. In addition to our own investment in mining businesses, we also provide consulting services to clients which are mining business investors with potential mine acquisition targets within the specific parameters set by those clients, where the mine owner is considering selling its mining rights. Our services include due diligence on the potential mine seller and the mine, such as ownership of the mine and whether the mine meets all operation requirements and/or is currently in operation.

 

Currently we have provided three potential mine acquisition opportunities to clients, with one mine located in Asia and two mines located in North America. For the three months ended June 30, 2019,March 31, 2020, we provided two potential mine acquisition opportunities in Mexico to a client, For the three months ended March 31, 2020, the Company recorded revenue of $250,000$200,000 for the services provided. Our revenue for the three months ended June 30, 2018March 31, 2019 was $0.$250,000. Our cost of revenues for the three months ended June 30,March 31, 2020 and 2019 was $48,063 and 2018 was $56,946 and $0,$88,759, respectively, mainly for the management’s travel expenses to visit these mines and consulting expenses paid for mine expertise during the mine due diligence period, resulting in a gross profit of $193,054$151,937 and $0$161,241 for the three months ended June 30,March 31, 2020 and 2019, and 2018, respectively. 

 

Costs and Expenses

 

The major components of our expenses for the three months ended June 30,March 31, 2020 and 2019 and 2018 are outlined in the table below:

 

 

2019

  

2018

  

Increase

(Decrease)

  

2020

  

2019

  

Increase

(Decrease)

 
             

General and administrative

 $144,735  $167,231  $(22,496) $131,315  $181,236  $(49,921

)

Consulting fees

  18,667   2,435,257   (2,416,590

)

  24,415   28,584   (4,169

)

Total operating expenses

 $163,403  $2,602,488  $(2,439,085

)

 $155,730  $209,820  $(54,090

)

21

 

The decrease in our operating costs for the three months ended June 30, 2019,March 31, 2020, compared to the three months ended June 30, 2018,March 31, 2019, was due to a decrease in consulting feesdecreased insurance expense of $2,416,590.$18,286 and decreased travel expense of $38,567, which was partly offset by increased payroll expense of $8,300. During the three months ended June 30, 2019 and 2018,March 31, 2020, the Company had a few outstanding consulting agreements for advisory services on business development strategy in the Far East, including in Hong Kong and Russia, and acquisition opportunities in Mexico and North America. SomeMost of the consulting agreements entered in prior periods expired induring the quarteryear ended JuneSeptember 30, 2019.

The Company also had a consulting agreement for developing software programs to allow the Company to operate a platform called IMENTAL for investment in raw metals. This platform would be used primarily to meet the Company’s internal needs, and may in the future be made available to external users for a fee. In the quarter ended June 30, 2018, the Company paid $1.50 million, which was recorded as software development costs. The Company did not pay anything for the three months ended June 30, 2019. The Company previously expected the project to be completed by March 31, 2019. However, the process has been further delayed because the Company is currently evaluating certain functions of this platform and regulatory compliance requirements for such functions before it can determine whether to include them in the platform.  The Company expects the project will be completed soon after the Company completes its evaluation of the platform’s regulatory issues.

 

Non-operating expenses, net

 

Net non-operating expense was $167$240 for the three months ended June 30, 2019,March 31, 2020, compared to $60,553$207 for the three months ended June 30, 2018.  The decrease in non-operating expense was mainly due to a decrease in interest expense by $60,110 resulting from repayment of the loan through issuance of shares in June 2018.March 31, 2019. 

19

Table of Contents

 

Results of operations for the ninesix months ended June 30,March 31, 2020 and 2019 and 2018 

 

Revenueand Cost of Revenue

 

CurrentlyWe develop our business in mining and investigate potential mining targets in Asia and North America. In addition to our own investment in mining businesses, we haveprovide consulting services to clients which are mining business investors with potential mine acquisition targets within the specific parameters set by those clients, where the mine owner is considering selling its mining rights. Our services include due diligence on the potential mine seller and the mine, such as ownership of the mine and whether the mine meets all operation requirements and/or is currently in operation.

For the six months ended March 31, 2020, we provided threefive potential mine acquisition opportunities to clients,a client, with one mine located in Asia and twofour mines located in North America. For the ninesix months ended June 30, 2019,March 31, 2020, the Company recorded revenue of $1,016,000$450,000 for the services provided. Our revenue for the ninesix months ended June 30, 2018March 31, 2019 was $0.$766,000. Our cost of revenues for the ninesix months ended June 30,March 31, 2020 and 2019 was $180,401 and 2018 was $234,465 and $0,$177,519, respectively, mainly for the management’s travel expenses to visit these mines and consulting expenses paid for mine expertise during the mine due diligence period, resulting in a gross profit of $781,535$269,599 and $0$588,481 for the ninesix months ended June 30,March 31, 2020 and 2019, and 2018, respectively. 

 

Costs and Expenses

 

The major components of our expenses for the ninesix months ended June 30,March 31, 2020 and 2019 and 2018 are outlined in the table below:

  

2019

  

2018

  

Increase

(Decrease)

 
             

General and administrative

 $468,881  $460,411  $8,470 

Consulting fees

  393,452   2,677,748   (2,284,296)

Total operating expenses

 $862,334  $3,138,159  $(2,275,825)

  

2020

  

2019

  

Increase

(Decrease)

 
             

General and administrative

 $263,960  $324,146  $(60,186

)

Consulting fees

  36,748   374,785   (338,037

)

Total operating expenses

 $300,708  $698,931  $(398,223

)

 

The decrease in our operating costs for the ninesix months ended June 30, 2019,March 31, 2020, compared to the ninesix months ended June 30, 2018,March 31, 2019, was due to a decrease in consulting fees of $2,284,296.$338,037, decreased office rent of $14,014 and decreased profession fee of $40,448 of Processing. During the ninesix months ended June 30, 2019 and 2018,March 31, 2020, the Company had a few outstanding consulting agreements for advisory services on business development strategy in the Far East, including in Hong Kong and Russia, and acquisition opportunities in Mexico and North America. SomeMost of the consulting agreements entered in prior yearsperiods expired induring the nine monthsyear ended JuneSeptember 30, 2019.

The Company also had a consulting agreement for developing software programs to allow the Company to operate a platform called IMENTAL for investment in raw metals. This platform would be used primarily to meet the Company’s internal needs, and may in the future be made available to external users for a fee. In the nine months ended June 30, 2018, the Company paid $1.50 million, which was recorded as software development costs. The Company did not pay anything for the nine months ended June 30, 2019. The Company previously expected the project to be completed by March 31, 2019. However, the process has been further delayed because the Company is currently evaluating certain functions of this platform and regulatory compliance requirements for such functions before it can determine whether to include them in the platform.  The Company expects the project will be completed soon after the Company completes its evaluation of the platform’s regulatory issues.

 

Non-operating expenses, net

 

Net non-operating expenses were $833expense was $735 for the ninesix months ended June 30, 2019,March 31, 2020, compared to non-operating expenses of $117,017$666 for the ninesix months ended June 30, 2018.  The decrease in non-operating expense was mainly due to a decrease in interest expense by $157,433, which was partly offset by a decrease in interest income by $41,410.March 31, 2019. 

22

 

Liquidity and Capital Resources

 

The table below provides selected working capital information for the periods indicated:as of March 31, 2020 and September 30, 2019:

 

  

As of

  

As of

 
  

June 30,

  

September 30,

 
  

2019

  

2018

 
         

Total current assets

 $89,837  $178,627 

Total current liabilities

  (1,631

)

  (9,633

)

Working capital (deficiency)

 $88,206  $168,994 

20

Table of Contents

Total current assets

 $66,421  $102,205 

Total current liabilities

  (34,023

)

  (10,675

)

Working capital

 $32,398  $91,530 

 

Liquidity

 

During the ninesix months ended June 30,March 31, 2020 and 2019, and 2018, the Company reported net loss of $82,431$35,844 and $3,255,976,$111,916, respectively. During the three months ended March 31, 2020 and 2019, the Company reported net loss of $6,433 and $49,586, respectively. 

 

If we are not successful in transitioning intodeveloping the mining business and establishing profitability and positive cash flow, additional capital may be required to maintain ongoing operations. We have explored and continue to explore options to provide additional financing to fund future operations as well as other possible courses of action. Such actions may include, but are not limited to, securing lines of credit, sales of debt or equity securities (which may result in dilution to existing shareholders), loans and cash advances from other third parties or banks, and other similar actions. There can be no assurance that we will be able to obtain additional funding (if needed), on acceptable terms or at all, through a sale of our common stock, loans from financial institutions, or other third parties, or any of the actions discussed above. If we cannot sustain profitable operations, and additional capital is unavailable, lack of liquidity could have a material adverse effect on our business viability, financial position, results of operations and cash flows.

 

Cash Flows

 

The table below, for the periodperiods indicated, provides selected cash flow information:information for the six months ended March 31, 2020 and 2019: 

 

  

For the Nine Months Ended

June 30, 2019

  

For the Nine Months Ended

June 30, 2018

 
         

Net cash used in operating activities

 $(63,527

)

 $(3,468,353

)

Net cash provided by investing activities

  -   3,925,000 

Net increase (decrease) in cash

 $(63,527

)

 $456,647 
  

2020

  

2019

 
         

Net cash used in operating activities

 $(60,345

)

 $(39,412

)

         

Net decrease in cash

 $(60,345

)

 $(39,412

)

 

Cash Flows from Operating Activities

 

Our cash used in operating activities for the ninesix months ended June 30,March 31, 2020 and 2019 was $60,345 and 2018$39,412, respectively.  During the six months ended March 31, 2019, we had a loss of $111,916, which was $63,527 and $3,468,353, respectively.  The decrease in net cash used in operating activities was mainly due topartially offset by non-cash amortization expense of $75,262. During the six months ended March 31, 2020, even though we had a decreased net loss by $3,173,545, resulting fromof $35,844, we had increased revenue of $1,016,000 from the Company’s provision of mine scouting services to clients and decreasedcash outflow on prepaid expense by $261,621 for the nine months ended June 30, 2019. of $29,474, and accordingly increased cash outflow in operating activities.

 

Cash Flows from Investing Activities  

 

Our cash provided by investing activities forDuring the ninesix months ended June 30,March 31, 2020 and 2019, and 2018 was $0 and $3,925,000, respectively. The cash inflow for the nine months ended June 30, 2018 was from the collection of outstanding notes receivable of $3,925,000.  we did not have any investing activities.

 

Cash Flows from Financing Activities

 

During the ninesix months ended June 30,March 31, 2020 and 2019, and 2018, we did not have any financing activities. 

 

Recent Accounting Pronouncements

 

See Note 2 to the CFS.Consolidated Financial Statements.

 

Off Balance Sheet Arrangements

 

As of June 30, 2019,March 31, 2020, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

 

21
23

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

Item 4.

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

 

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the end of the period covered by this report that our disclosure controls and procedures were not effective due to material weaknesses. The control deficiencies that constituted material weaknesses are as described below.

 

1.  We do not have an Audit Committee. While we are not legally obligated to have an audit committee, it is the management’s view that such a committee, including a financial expert member, is of the utmost importance for entity-level control over the Company’s financial statements. Currently, the Board of Directors acts in the capacity of an audit committee.

  

2.  We did not implement appropriate information technology controls. As of June 30, 2019,March 31, 2020, the Company was retaining copies of all financial data and material agreements; however there is no formal procedure or evidence of normal backup of the Company’s data or off-site storage of the data in the event of theft, misplacement, or loss due to unmitigated factors. 

 

3.   We currently lack sufficient accounting personnel with the appropriate level of knowledge, experience and training in U.S. GAAP and SEC reporting requirements. We have one employee assigned to a position that involves processing financial information, resulting in a lack of segregation of duties so that all journal entries and account reconciliations are reviewed by someone other than the preparer, heightening the risk of error or fraud.

 

We have taken certain actions to remediate the material weakness related to our lack of U.S. GAAP experience. We have engaged an outside CPA with U.S. GAAP knowledge and experience to supplement our current internal accounting personnel and assist us in the preparation of our financial statements to ensure that our financial statements are prepared in accordance with U.S. GAAP.

 

If we are unable to remediate the material weakness, or other control deficiencies are identified, we may not be able to report our financial results accurately, prevent fraud or file our periodic reports as a public company in a timely manner. Due to our small size and the early stage of our business, segregation of duties may not always be possible and may not be economically feasible. We have limited capital resources and have given priority in the use of those resources to our business development efforts. As a result, we have not been able to take steps to improve our internal controls over financial reporting during the quarter ended June 30, 2019.March 31, 2020. However, we continue to evaluate the effectiveness of internal controls and procedures on an on-going basis. As our operations grow and become more complex, we intend to hire additional personnel in financial reporting and other areas. However, there can be no assurance of when, if ever, we will be able to remediate the identified material weaknesses.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended June 30, 2019March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

22
24

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

We may from time to time be party to litigation and subject to claims incident to the ordinary course of business. As we grow and gain prominence in the marketplace we may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of these matters could materially affect our future results of operations, cash flows or financial position. We are not currently a party to any legal proceedings.

   

Item 1A.

Risk Factors

 

Not applicable.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.

Defaults upon Senior Securities

 

None.

 

Item 4.

Mine Safety Disclosure

 

Not applicable.

 

Item 5.

Other Information

 

None.

 

Item 6.

Exhibits

 

Exhibit No.

 

Description

31.1

 

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended*

31.2

 

Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended*

32.1

 

Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.2

 

Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

101.INS

 

XBRL Instance Document*

101.SCH

 

XBRL Schema Document*

101.CAL

 

XBRL Calculation Linkbase Document*

101.DEF

 

XBRL Definition Linkbase Document*

101.LAB

 

XBRL Label Linkbase Document*

101.PRE

 

XBRL Presentation Linkbase Document*

 

*

filed herewith

 

23
25

 

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.

 

 

FUSE GROUP HOLDING INC.

 

 

 

By:

/s/ Umesh Patel

 

 

Umesh Patel

 

 

Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

 

 

August 12, 2019May 22, 2020

 

 

 

 

By:

/s/ Michael Viotto

 

 

Michael Viotto

 

 

Chief Financial Officer

 

 

(Principal Financial and Accounting Officer)

 

 

 

 

 

August 12, 2019May 22, 2020

 

 

24

 

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