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ZZLL ZZLL Information Technology

Filed: 16 Aug 21, 4:31pm

 

 

U.S. 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, 2021

 

OR

 

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

 

For the transition period from ______________ to ______________

  

Commission File Number: 333-134991

 

ZZLL INFORMATION TECHNOLOGY, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada 37-1847396
(State of Incorporation) (IRS Employer Identification No.)

 

Unit 1504, 15/F., Carnival Commercial Building,
18 Java Road, North Point Hong Kong
  
(Address of Principal Executive Offices) (Zip Code)

 

(+852) 3705 1571

(Registrant’s Telephone Number, Including Country Code)

 

Securities registered under Section 12(b) of the Exchange Act:

None

 

Securities registered under Section 12(g) of the Exchange Act:

 

Title of Each Class Trading Symbol Name of Each Exchange on Which Registered
Common stock, $0.0001 par value ZZLL None

 

Indicate by check mark whether the issuer (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) 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 and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No

 

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

 

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

 

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

 

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

 

The aggregate market value of the voting common stock of the issuer held by non-affiliates computed by reference to the price of the registrant as of June 30, 2021 was approximately $247,154.23 based upon the closing price of $0.1205 of the registrant’s common stock on the OTC Bulletin Board.

 

As of August 13, 2021, the Registrant had 20,277,448 shares of common stock issued and outstanding.

 

 

 

 

 

 

ZZLL INFORMATION TECHNOLOGY, INC.

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION 
  
Item 1.Financial Statement (Unaudited) 
 Unaudited Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 20201
 Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three-Month Periods Ended June 30, 2021 and 20202
 Unaudited Condensed Consolidated Statements of Stockholders’ Deficit for the Six Months Ended June 30, 2021 and 20203
 Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 20204
 Notes to Unaudited Condensed Consolidated Financial Statements5
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations18
Item 3.Quantitative and Qualitative Disclosures About Market Risks25
Item 4.Controls and Procedures25
  
PART II – OTHER INFORMATION 
   
Item 1.Legal Proceedings26
Item 1A.Risk Factors26
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds26
Item 3.Default upon Senior Securities26
Item 4.Mine Safety Disclosures26
Item 5.Other Information26
Item 6.Exhibits26
SIGNATURES27

 

  i 

 

 

 ZZLL INFORMATION TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amount in U.S. Dollars)  

 

  Note  As of
June 30,
2021
  As of
December 31,
2020
 
          
ASSETS            
Current assets:            
Cash and cash equivalents     $74,131  $932,102 
Amounts due from related parties  6   361,566   779,768 
Other receivables      67,250   34,982 
Inventory      4,844,437   42,617 
Deposit and prepaid expenses      -   7,752 
Prepaid taxes      629,649   - 
Total current assets      5,977,033   1,797,221 
             
Long-term assets:            
Property, plant and equipment, net     $19,370   17,325 
Operating leases right-of-use assets, net      234,971   291,550 
Other assets      2,060   16,219 
Total non-current assets      256,401   325,094 
TOTAL ASSETS     $6,233,434  $2,122,315 
             
LIABILITIES AND DEFICIT            
Current liabilities:            
Other payables     $814,877  $65,648 
Accounts Payable      -   - 
Amounts due to related parties  6   1,065,333   1,157,601 
Accrued liabilities  4   204,322   201,815 
Deferred income - current      4,221,566   823,337 
Lease liabilities - current      104,618   105,419 
Income taxes payable      13,255   4,219 
Total current liabilities      6,423,971   2,358,039 
             
Long-term liabilities:            
Lease liabilities – non-current      146,441   197,224 
Deferred income– long-term      609,838   682,730 
TOTAL LIABILITIES     $7,180,250  $3,237,993 
             
Stockholders’ deficit:            
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; 0 shares issued and outstanding, as of June 30, 2021 and June 30, 2020.          - 
Common stock, $0.0001 par value, 300,000,000 shares authorized; 20,277,448 and 20,277,448 shares issued and outstanding, as of June 30, 2021 and June 30, 2020, respectively      2,028   2,028 
Additional paid-in capital      1,671,847   1,671,847 
Accumulated other comprehensive income      28,728   17,224 
Accumulated deficit      (2,649,419)  (2,806,777)
TOTAL STOCKHOLDERS’ DEFICIT      (946,816)  (1,115,678)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT     $6,233,434  $2,122,315 

 

See accompanying notes to consolidated financial statements.

 

 1 

 

 

ZZLL INFORMATION TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(Amounts in U.S. Dollars)

 

  Note  

Three Months

Ended

June 30,

2021

  

Three Months

Ended
June 30,

2020

  

Six Months

Ended
June 30,
2021

  

Six Months

Ended
June 30,
2020

 
                
Net revenue    $19,739,374  $52,754  $20,119,750  $203,142 
Cost of sales      (19,490,994)  (147,891)  (19,500,237)  (168,133)
Gross profit      248,380   (95,137)  619,513   35,009 
                     
Operating expenses                    
                     
General and administrative expenses      (206,248)  (105,567)  (451,685)  (192,385)
Income/(loss) from operations      42,132   (200,704)  167,828   (157,376)
Non-operating income (expense)                  - 
Other income      3,241   (15,391)  3,566   71,676 
Other expense      (27)  -   (7,740)  - 
Interest income      -   -   2   4 
Interest expenses      (3,124)  1,980   (6,298)  30 
                     
Income (loss) before income taxes      42,222   (214,115)  157,358   (85,666)
                     
Income taxes      5   72   -   72 
Net  income      42,222   (214,187)  157,358   (85,738)
                     
Foreign currency translation adjustment      (11,069)  777   (11,504)  (2,417)
Comprehensive income     $31,153  $(213,410) $145,854  $(88,155)
                     
Basic and diluted earnings per share of common stock     $0.00  $(0.01) $0.01  $(0.00)
                     
Weighted average number of shares of common stock outstanding - Basic and diluted      20,277,448   20,277,448   20,277,448   20,277,448 

 

See accompanying notes to consolidated financial statements.

 

 2 

 

 

ZZLL INFORMATION TECHNOLOGY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’DEFICIT

(Amounts in U.S. Dollars)

 

  Shares    paid-in  Comprehensive  development  stockholders’ 
  Outstanding*  Amount  capital  Income(loss)  stage  (deficit)/equity 
     $  $  $  $  $ 
Balance Jan 1, 2020  20,277,448  $2,028  $1,671,847  $4,397  $(2,419,950) $(741,678)
                         
Issuance of common stock  -   -   -   -   -   - 
Currency translation adjustment  -   -   -   (2,417)  -   (2,417)
Net (loss) Profit  -   -   -   -   (85,738)  (85,738)
Balance June 30, 2020  20,277,448   2,028   1,671,847   1,980   (2,505,688)  (829,833)
                         
Balance Jan 1, 2021  20,277,448   2,028   1,671,847   17,224   (2,806,777)  (1,115,678)
                         
Issuance of common stock  -   -   -   -   -   - 
Currency translation adjustment  -   -   -   11,504   -   11,504 
Net  profit  -   -   -   -   157,358   157,358 
Balance June 30, 2021  20,277,448   2,028   1,671,847   28,728   (2,649,419)  (946,816)

 

See accompanying notes to consolidated financial statements.

 

 3 

 

 

ZZLL INFORMATION TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in U.S. Dollars)

 

  Six Months Ended
June 30,
2021
  Six Months Ended
June 30,
2020
 
Cash Flow from Operating Activities      
Net Income $157,358  $(85,738)
Adjustments to reconcile net income (loss) to net cash used in operating activities:        
Depreciation and amortization  37   2,993 
Interest expense  -     
Change in fair value of the warrants of  -     
Interest income  -     
Changes in assets and liabilities:        
Deposit and prepayments  7,752   (2,870)
Other receivables  (32,267)  (15,938)
Other payables and accrued liabilities  751,736   (8,975)
Notes payable  -   - 
Deferred revenue  3,325,337   643,213 
Inventory  (4,801,821)    
Income tax payable  (620,613)  3,427 
Cash provided by (used for) operating activities  (1,212,481)  536,112 
Cash Flow from Investing Activities        
Interest received  -     
Purchase of property, plant and equipment  68,656   (24,320)
Cash provided by investing activities  68,656   (24,320)
         
Cash Flows from Financing Activities        
Payment of lease liabilities – current  (802)  (101,811)
Payment of lease liabilities – long term  (50,783)  - 
Amounts due from related parties  418,202   (654,335)
Amounts due to related parties  (92,267)  216,566 
Cash provided by financing activities  274,350   (539,580)
         
Net increase (decrease) in cash  (869,475)  (27,788)
Currency translation adjustment  11,504   (2,417)
Cash at Beginning of Period  932,102   873,192 
Cash at End of Period $74,131  $842,987 
         
Supplemental Disclosures of Cash Flow Information:        
Interest received  2   - 
Interest paid  6,298   - 
Income taxes  -   - 

 

See accompanying notes to the consolidated financial statements.

 

 4 

 

 

ZZLL INFORMATION TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

 

We were incorporated under the laws of the State of Nevada on September 9, 2005 under the name of JML Holdings, Inc. and we subsequently merged with Baoshinn International Express, Inc. and changed our name to Baoshinn Corporation on January 10, 2006. We changed our name to Green Standard Technologies, Inc. on June 17, 2015 and on May 19, 2016, we changed our name to ZZLL Information Technology, Inc. (the “Company”). 

 

On April 23, 2013, we formed a wholly owned subsidiary, Syndicore Asia Limited (“SAL”) under the laws of Hong Kong. SAL has had limited operating activities since incorporation except for holding our ownership interest in Hunan Syndicore Asia Limited (“HSAL”), an e-Commerce company organized under the laws of the People’s Republic of China (the “PRC”).

 

On August 18, 2016, we entered into a joint venture agreement with Network Service Management Limited (“NSML”) to form Z-Line International E-Commerce Company Limited (“Z-Line”) under the laws of Hong Kong. We initially owned 55% and NSML owned 45% of the equity interest in Z-Line, which was formed to provide consumer-to-consumer, business-to-consumer and business-to-business-sales services via web portals. On October 8, 2019, we acquired the remaining 45% equity interest in Z-Line from NSML and Z Line became a wholly owned subsidiary of our company. Z-Line has had limited operating activities since incorporation.

 

On May 23, 2020, we formed a wholly owned subsidiary, Shenzhen Ezekiel Technology Co. Limited (“Ezekiel”) under the laws of the PRC.

 

We currently operate our business through our subsidiaries, SAL, HSAL and Ezekiel. SAL and HSAL’s businesses constitute our e-commerce business segment and Ezekiel’s business belongs to our trading business segment.

 

NOTE 2. DESCRIPTION OF BUSINESS

 

HSAL’s e-Commerce business

 

HSAL is an e-Commerce company that developed an online application “Bibishengjia”. Bibishengjia is a shopping search engine that concurrently searches many shopping sites, primarily based in China, including major shopping sites such as Taobao.com, Tmall.com, JD.com and Pinduoduo.com, and helps customers meet their one-stop online shopping needs. The shopping sites included in the Bibishengjia search engine pay us commissions for directing customers to their sites. Additionally, if a seller on a shopping site offers a rebate to the shopping site for purchases made from such seller, the shopping site typically shares such rebates with the search engine that directed the customer to the shopping site. Besides directing traffic to shopping sites, Bibishengjia also runs its own online shopping platforms - Bibi Mall and Lianlian Nongyuan Agricultural Products Store, and sources and resells agricultural and other goods on Bibishengjia. Bibi Mall and Lianlian Nongyuan Agricultural Products Store do not take possession of the products and use third party delivery services to pick up the products sold from vendors and deliver the goods to customers directly. Bibishengjia was launched on August 18, 2019 and is currently available for download at the Apple APP Store and other major mobile download stores.

 

Ezekiel’s petroleum-based products distribution business

 

In October 2020, Ezekiel entered into the business of distribution of petroleum-based products, such as asphalt, heat conduction oil and machine (lubricating) oil. Ezekiel’s suppliers include large Chinese state-owned enterprises as well as reputable private Chinese companies. Ezekiel doesn’t take possession of the petroleum-based products sold to third parties which are stored in the supplier’s designated warehouse and is not responsible for delivery to the customers.

 

 5 

 

 

Ezekiel’s multi-function lottery ticket machine business

 

In late 2020, Ezekiel started a new business where it purchases custom-made multi-function lottery ticket machines and re-sells them to third parties. The machines are designed and manufactured by third parties with third party technologies. Ezekiel doesn’t own any intellectual property rights relating to the machines. Besides dispensing lottery tickets for which the machine owner retains 7-8% of the ticket sales price, the machines also function as a cellphone charging station for about $0.45 per hour and a disinfectant wipes dispenser at cost. The machine has a LED screen which allows a customer to browse the Bibishengjia APP and make purchases there. Ezekiel has obtained licenses from several second and third-tier cities in the PRC where competition for lottery tickets sales and lottery tickets machines is manageable. The licenses allow Ezekiel’s machines to dispense lottery tickets in these cities. Besides selling the machines to third parties, Ezekiel also plans to install, as the owner and operator, machines at locations in cities where they already received licenses to sell lottery tickets.

 

The cost of each machine is approximately $950 and we sell these machines to third parties for about $1375. We currently generate revenue from sales of our machines to third parties. If, and when, we are able to install machines, as the owner and operator, we will generate revenue from the fees Ezekiel retains on all lottery ticket sales made by the machines, and fees collected from the cellphone charging station.

 

NOTE 3. GOING CONCERN

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. The Company, which had an accumulated deficit of $2,649,419 and a working capital deficit of $446,938 as of June 30, 2021, incurred losses from inception until March 30, 2021 and reported its first profit in the second quarter of 2021. The recoverability of a major portion of the recorded asset amounts and realization of the portion of current liabilities into revenue shown in the accompanying balance sheets are dependent upon continued operations of the Company, which in turn are dependent upon the Company’s ability to raise additional financing and to succeed in its future operations. The Company will need additional cash resources to operate during the upcoming 12 months, and the continuation of the Company may be dependent upon the continuing financial support of investors, directors and/or shareholders of the Company. However, there is no assurance that efforts to raise equity or debt will be successful in raising sufficient funds to assure the eventual profitability of the Company. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Management plans to support the Company in operation and to maintain its business strategy to raise funds through public and private offerings and to rely on officers and directors to perform essential functions with minimal compensation. If we do not raise all of the money we need from such offerings, we will have to find alternative sources including, loans from our officers, directors or others. Management has actively taken steps to revise its operating and financial requirements, which they believe will allow the Company to continue its operations for the next 12 months.

 

NOTE 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation and consolidation

 

The consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

The consolidated financial statements are presented in US Dollars and include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. The results of subsidiaries acquired or disposed of during the years are included in the consolidated statements of operations from the effective date of acquisition or up to the effective date of disposal. The interim results of operations are not necessarily indicative of the operating results for the fiscal year or any future periods.

 

 6 

 

  

The following table depicts the identity of the Company’s subsidiaries:

 

Name of Subsidiary Place of
Incorporation
 Attributable
Equity
Interest %
  Registered
Capital
 
Syndicore Asia Limited (1) Hong Kong     100   HKD        1 
Z-Line International E-Commerce Limited (2) Hong Kong  100   HKD8,000,000 
Hunan Syndicore Asia Limited (3) PRC  100   HKD10,000,000 
Shenzhen Ezekiel Technology Co. Limited (3) PRC  100   HKD10,000,000 

 

(1)A wholly owned subsidiary of ZZLL.
  
(2)A wholly owned subsidiary of Syndicore Asia Limited since October 8, 2019 (previously 55% owned).
  
(3)A wholly owned subsidiary of Syndicore Asia Limited.

  

Use of estimates

 

In preparing financial statements in conformity with accounting principles generally accepted in the United States management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting year.  These accounts and estimates include, but are not limited to, the valuation of accounts receivable, deferred income taxes and the estimation on useful lives of plant and equipment. Actual results could differ from those estimates.

 

Concentrations of credit risk

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of accounts receivable. In respect of accounts receivable, the Company extends credit based on an evaluation of the customer’s financial condition, generally without requiring collateral or other security. In order to minimize the credit risk, the management of the Company has delegated a team responsibility for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. Further, the Company reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Company’s credit risk is significantly reduced.

 

Cash and cash equivalents

 

Cash and cash equivalents include all cash, deposits in banks and other highly liquid investments with initial maturities of three months or less. The Company currently maintains bank accounts in HK and the PRC only.

 

Accounts receivable

 

Accounts receivable are stated at original amount less allowance made for doubtful receivables, if any, based on a review of all outstanding amounts at the year end. An allowance is also made when there is objective evidence that the Company will not be able to collect all amounts due according to original terms of receivables. Bad debts are written off when identified. The Company extends unsecured credit to customers in the normal course of business and believes all accounts receivable in excess of the allowances for doubtful receivables to be fully collectible. The Company does not accrue interest on trade accounts receivable. Pursuant to the Company’s credit policy exposure to credit risk is monitored on an on-going-basis where management performs credit evaluations on all customers that are sold services or products on account. The Company did not experience any bad debts during the six months ended June 30, 2021 and 2020.

 

 7 

 

 

Inventories

 

Inventories consisting of lottery machines, are stated at the lower of cost or market value. The Company used the weighted average cost method of accounting for inventory. Inventories on hand are evaluated on an on-going basis to determine if any items are obsolete, spoiled, or in excess of future demand. The Company reviews its inventories for impairment and provides, if required, for an impairment charge that is charged directly to cost of sales when it has been determined the product is obsolete or spoiled, and the Company will not be able to sell it at a normal profit above its carrying cost. The Company’s primary inventories are multi-function lottery ticket machines. The Company did not experience any inventory impairment during six month ended June 30, 2021.

 

Property, Plant and Equipment

 

Plant and equipment are stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to physical properties are capitalized.

 

Depreciation of plant and equipment is provided using the straight-line method over their estimated useful lives at the following annual rates:

 

Furniture and fixtures  20% - 50%
Office equipment  20%

 

Plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated.

 

Customer advances and deposits

 

SAL received prepayment of the full consideration of $1,000,000 under the Pretech Agreement in two installments in 2019 and 2020. The Company is recognizing such prepayment in a straight line 7-year schedule. Of the full consideration of the Pretech Agreement, an aggregate amount of $179,666 was recognized as revenue in 2019 and 2020 and $826,463 is outstanding and yet to be recognized.

 

Ezekiel received a series of prepayments in the aggregate amount of $4,078,044 from Qingdao Jiuzhou Xintong Industry and Trade Co., Ltd. for the purchase of petroleum-based products. The Company recognized such prepayment as a current customer advance. The Company recorded an aggregate of $4,221,566 as current customer advances and $609,838 as long-term customer advances as of June 30, 2021

 

HSAL received prepayments from customers for eggs and other various products. The Company records these receipts as customer advances and deposits until it has met all the criteria for recognition of revenue including the passing possession of the products to its customer, at such point Company will reduce the customer and deposits balance and credit the Company’s revenue.

 

Revenue recognition

 

The Company adopted ASC Topic 606, Revenue from Contracts with Customers, and all subsequent ASUs that modified ASC 606 on April 1, 2017 using the full retrospective method which requires the Company to present the financial statements for all periods as if Topic 606 had been applied to all prior periods. Revenue from contracts with customers is recognized using the following five steps:

 

 1.Identify the contract(s) with a customer;
   
 2.Identify the performance obligations in the contract;
   
 3.Determine the transaction price;
   
 4.Allocate the transaction price to the performance obligations in the contract; and
   
 5.Recognize revenue when (or as) the entity satisfies a performance obligation.

 

 8 

 

 

In applying ASC 606, the Company recognizes revenue when the Company has negotiated the terms of the transaction, set forth the sales price, transferred of possession of the product to the customer, determined that the customer does not have the right to return the product, determined that the customer is able to further sell or transfer the product onto others for economic benefit without any other obligation to be fulfilled by the Company, and the Company is reasonably assured that funds have been or will be collected from the customer.

 

Cost of Sales

 

Cost of sales is mainly comprised of costs of multi-function lottery tickets machines, petroleum-based products, and various agriculture products.

 

Selling Expense

 

Selling expense is mainly comprised of advertising and promotion cost on the Company’s online application “Bibishengjia”.

 

General and administrative expense is mainly comprised of rent, salary, business registration fees, telephone and utilities costs, and office miscellaneous expenses.

 

Income taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. 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 income in the period that includes the enactment date.

 

Comprehensive income (loss)

 

The Company has adopted FASB Accounting Standard Codification Topic 220 (“ASC 220”) “Comprehensive income”, which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Accumulated other comprehensive income (loss) represents the accumulated balance of foreign currency translation adjustments of the Company.

 

Leases

 

The Company’s executive offices are located in the Carnival Commercial Building, 18 Java Road, North Point Hong Kong. Our current lease is from August 28, 2019 to August 27, 2021 at a monthly charge of HK$8,000 per month (approximately US$1,031 per month). The Company has successfully renewed its lease in the past and does not expect any difficulty in renewing it again.

 

HSAL leases 682.5 square meters of office space at Tower E1, Li Gu Yu Yuan, No. 27 Wen Xuan Road, Chang Sha, Hunan Province, China at a monthly charge of RMB 22,523 per month (approximately $3,264 per month). The term of the lease is from May 15, 2019 to May 14, 2024. The lease may be renewed upon three months prior written notice.

 

Ezekiel leases 296.93 square meters of office space at Xin Li Kang Tower, Suite 22C, Nanshan District, Shenzhen, Guangdong Province, China at a monthly charge of RMB 36,440 per month (approximately $5,281 per month). The term of the lease is from April 1, 2020 to April 9, 2023. The lease may be renewed upon six months prior written notice.

 

 9 

 

 

Under Topic 842, operating lease expense is generally recognized evenly over the term of the lease. The Company has operating leases primarily consisting of facilities with remaining lease terms of approximately two to four years. The Company does not have the option to terminate the leases early.

 

Leases with an initial term of twelve months or less are not recorded on the balance sheet. For lease agreements entered into or reassessed after the adoption of Topic 842, the Company has combined the lease and non-lease components in determining the lease liabilities and ROU assets.

 

The Company’s lease agreements generally do not provide an implicit borrowing rate; therefore, an internal incremental borrowing rate is determined based on information available at lease commencement date for purposes of determining the present value of lease payments. The Company used the incremental borrowing rate on December 29, 2018 of 4.5% for all leases that commenced prior to that date.

 

ROU lease assets and lease liabilities for our operating leases were recorded in the balance sheet as follows:

 

Supplemental balance sheet information related to the operating lease for office was as follows:

 

  The Six Months
Ended
 
  June 30, 
  2021 
Right-of-use assets $234,971 
Lease payment liability-current  104,617 
Lease payment liability-non-current  146,442 
Total lease payment liability $251,059 

 

The remaining lease term and discount rate for the operating lease for office were as follows as of June 30, 2021:

 

Remaining lease term (years)  4 
Discount rate  4.50%

 

For the quarter ended June 30, 2021, the lease expense was as follows:

 

  Six Months Ended
June 30,
2021
 
Operating lease cost $61,138 
Short-term lease cost    
Total $61,138 

 

Cash payment for operating lease under ASC 842 in the year of 2020 was $94,134. 

 

For the six months ended June 30, 2021, rental expenses based on ASC 840 were $61,138 .

 

The following is a schedule, by fiscal years, of the maturities of lease liabilities as of June 30, 2021:

 

2021 Remaining $56,859 
2022  116,552 
2023 and thereafter  92,048 
Total lease payments  265,459 
Less: imputed interest  (14,400)
Present value of lease liabilities $251,059 

 

 10 

 

 

Foreign currency translation

 

For financial reporting purposes, the financial statements of the Company which are prepared using the functional currency have been translated into United States Dollars (“US$”). The functional currencies of the Company’s two business segments based in the PRC is Chinese Renminbi (“RMB”) and Hong Kong dollars (“HKD”), respectively. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of operations. Monetary assets and liabilities denominated in foreign currency are translated at the functional currency rate of exchange ruling at the balance sheet date. Any differences are taken to profit or loss as a gain or loss on foreign currency translation in the consolidated statements of operations.

 

In accordance with ASC 830, Foreign Currency Matters, the Company translated the assets and liabilities into US$ using the rate of exchange prevailing at the applicable balance sheet date and the consolidated statements of operations and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation are recorded in shareholders’ equity as part of accumulated other comprehensive income. The average rate used in translation of RMB to US$ is a ratio of US$1.00 = RMB 6.459589. The average rate used in translation of HKD to US$ is a ratio of US$1.00 = HKD 7.765524.

 

Below is a table with foreign exchange rates used for translation:

 

  

As of

June 30,
2021

  

Six month
ended

June 30,

2020

 
Period Average(average rate)      
Chinese Renminbi (RMB) RMB6.459589  RMB7.08567 
United States dollar ($) $1.00  $1.00 

 

  

June 30,
2021

  

June 30,

2020

 
Period End (Closing rate)      
Chinese Renminbi (RMB) RMB6.457854  RMB7.06564 
United States dollar ($) $1.00  $1.00 

 

Period Average (average rate) 

June 30,
2021

  

June 30,

2020

 
Hong Kong dollar (HKD) HKD7.765524  HKD7.75191 
United States dollar ($) $1.00  $1.00 

 

  

June 30,
2021

  

June 30,

2020

 
Period End (Closing rate)      
Hong Kong dollar (HKD) HKD7.765206  HKD7.75074 
United States dollar ($) $1.00  $1.00 

 

 11 

 

 

Stock-based compensation

 

The Company does not provide any stock-based compensation.

 

Basic and diluted earnings (loss) per share

 

Basic and diluted earnings (loss) per common share has been computed by dividing net income (loss) by the weighted average number of common shares outstanding.

 

The following table sets forth the computation of basic and diluted (loss) earnings per share:

 

  

Six Months Ended

June 30,
2021

  

Six Months Ended

June 30,
2020

 
Numerator        
Net income (loss) - $157,358  $(85,738)
         
Denominator        
Weighted average common shares-basic  20,277,448   20,277,448 
Earnings (loss) per common share-basic $0.01  $(0.00)

 

Commitments and contingencies

 

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

 

Recently issued accounting pronouncements adopted

 

On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments – Credit Losses on Financial Instruments,” which requires that expected credit losses relating to financial assets be measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. Also, for available-for-sale debt securities with unrealized losses, the standard eliminates the concept of other-than-temporary impairments and requires allowances to be recorded instead of reducing the amortized cost of the investment. The adoption by the Company of the new guidance did not have a material impact on the Company’s consolidated financial statements.

 

Our condensed consolidated financial statements for six months ended June 30, 2021 are presented under the new standard, while comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy.

 

In February 2016, the Financial Accounting Standard Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842). The standard requires lessees to recognize almost all leases on the balance sheet as a right-of-use asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. In July 2018, the FASB issued amendments in ASU 2018-11, which provide another transition method in addition to the existing transition method, by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, and to not apply the new guidance in the comparative periods they present in the financial statements.

 

Other pronouncements issued by the FASB or other authoritative accounting standards with future effective dates are either not applicable or not significant to the condensed consolidated financial statements of the Company.

 

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NOTE 5. INCOME TAXES

 

The Company and its subsidiaries file separate income tax returns. The Company was incorporated in Delaware and is subject to United States federal and state income taxes. The Company did not generate taxable income in the United States for the six-month periods ended June 30, 2021 and 2020.

 

Two subsidiaries are incorporated in Hong Kong and are subject to Hong Kong Profits Tax at 16.5% for six months ended June 30, 2021 and 2020. Provision for Hong Kong profits tax has not been made for the periods presented as the subsidiaries had no assessable profits during the periods. Two subsidiaries are incorporated in the PRC and are subject to PRC Income Tax at 25% for six months ended June 30, 2021 and 2020.  Provision for PRC Income Tax has not been made for the year presented as the subsidiary had no assessable profits during the year.

 

Deferred taxes are determined based on the temporary differences between the financial statement and income tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. For six months ended June 30, 2021 and 2020, the Company has tax loss carrying-forwards, which does not recognize deferred tax assets as it is not probable that future taxable profits against which the losses can be utilized will be available in the relevant tax jurisdiction and entity.

  

NOTE 6. OTHER PAYABLES AND ACCRUED LIABILITIES

 

The other payables and accrued liabilities were comprised of the following:

 

  As of
June 30,
2021
  

As of

December 31,

2020

 
Accrued liabilities $204,322  $201,815 
Other payables  814,877   65,648 
  $1,019,199  $267,463 

  

NOTE 7. AMOUNT DUE FROM/TO RELATED PARTIES

 

A related party is generally defined as (i) any person and their immediate families that holds 10% or more of the Company’s securities, (ii) the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

 

As of June 30, 2021, the Company had lent $361,566 in the normal course of business to businesses owned by related parties for their operating expenses as shown in the table below.

 

As of June 30, 2021, the Company had received net advances of $1,065,333 from certain major shareholders and related parties for use in its operations as shown in the table below. These advances bear no interest, are not collateralized and do not have specified repayment terms.

 

 13 

 

 

Amounts due from related parties are as follows:

 

  

June 30,

2021

  December 31,
2020
 
Amount due from related parties:        
Hunan Zhong Zong Hong Fu Culture Industry Company Limited (b)(d) $   $90,093 
Hunan Zhong Zong Lianlian Information Technology Limited Company (b)(e) 361,566   689,675 
Changsha Gengtong Property Management Co., Ltd. (b)      - 
Shen Tian        
  $361,566  $779,768 
         
Amount due to related parties:        
Sean Webster $   $- 
Wei Zhu (a) 233,220   233,603 
Hunan Longitudinal Uned Information Technology Co., Ltd. (b)      - 
Shenzhen Zong Wang Internet Information Limited Company (b)      18,843 
Zhong He Lian Chuang (b)      15,319 
Shen Tian (c)  389,513   496,814 
Loan from Harry Cheung  40,823     
Various other shareholders and directors  401,777   393,022 
  $1,065,333  $1,157,601 

 

(a)Major shareholder of the Company.

 

(b)Under common control.

 

(c)Ezekiel’s general manager.

 

(d)Hunan Zhong Zong Hong Fu Culture Industry Company Limited (“Hong Fu”): 100% of the equity interest in Hong Fu are owned by Wei Liang and Wei Zhu, the two majority shareholders of the Company. Hong Fu provides services to the cultural and entertainment industries and related marketing services to other industries. Hong Fu has been servicing the Company by making available more than a dozen of online live promoters/influencers trained by Hong Fu to HSAL on a continuous basis in the Bibishengjia APP. The Company lent RMB 600,000 (approximately $88,203) to Hong Fu when Hong Fu needed funds to improve its recruitment and training of online live promoters/influencers. This loan is from July 1, 2019 to March 31, 2021, free of interests.

 

(e)Hunan Zhong Zong Lianlian Information Technology Limited Company (“Lianlian”): 100% of  the equity interest in Lianlian are owned by Wei Liang and Wei Zhu, the two majority shareholders of the Company. Lianlian is engaged in technology and online-to-offline marketing services. Lianlian served the Company by utilizing its local connections and local marketing resources to help the Company secure a partnerships in March 2020 with the government of Hunan province to help to market local products on the Bibishengjia APP that are otherwise hard to sell due to transportation and other logistics limitations, and an opportunity to promote the Bibishengjia APP in local TV programs and host community gatherings to share shopping experience in Hunan province. The Company lent RMB 4,500,000 (approximately $ 689,675) to Lianlian when Lianlian needed additional funds to cover operating costs and office renovation costs. This loan is from January 1, 2020 to December 31, 2021, bearing no interest. The Company lent $13,018 to Lianlian in 2019 to help cover Lianlian’s operating costs, free of interest and due on demand.

  

NOTE 8. STOCK OPTIONS

 

During the quarters ended June 30, 2021 and 2020, the Company did not issue any stock options and there were no stock options issued or outstanding.

 

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NOTE 9. FAIR VALUE MEASUREMENTS

 

FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures provides a single definition of fair value, a hierarchy for measuring fair value and expanded disclosures about fair value adjustments. Various inputs are used in determining the fair value of assets and liabilities. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). These inputs are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting purposes. The level of a value determined for an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are as follows:

 

 Level 1 –Unadjusted quoted prices in active markets for identical assets or liabilities;

 

 Level 2 –Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not considered to be active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means; and

 

 Level 3 –Inputs that are unobservable for the asset or liability, including the Trust’s assumptions used in determining the fair value of investments

 

There were no transfers between Level 1 and other Levels during the six-months ended June 30, 2021 and 2020.

 

NOTE 10 SEGMENT INFORMATION

 

FASB Accounting Standard Codification Topic 280 (ASC 280) “Segment Reporting” establishes standards for reporting information about operating segments in financial statements. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, (“CODM”), who is the CEO of the Company in deciding how to allocate resources and in assessing performance.

 

General Information of Reportable Segments:

 

Since the fourth quarter of 2020, the Company has been operating in 2 reportable segments: e-commerce and trading. The e-commerce segment operates a shopping search engine Bibishengjia that concurrently searches many shopping sites, primarily based in China and helps customers meet their one-stop online shopping needs. Bibishengjia also runs its own online shopping platforms - Bibi Mall and Lianlian Nongyuan Agricultural Products Store, and sources and resells agricultural and other goods on Bibishengjia. The trading segment sells petroleum-based products and multi-function lottery machines. To date, there were no inter-segment revenues between our two segments. The segments’ accounting policies are the same as those described in the summary of significant accounting policies. The Company’s CODM evaluates performance of each of the segments based on profit or loss from continuing operations net of income tax.

 

The Company’s reportable business segments are strategic business units that offer different products. Each segment is managed independently because they require different operations and markets to distinct classes of customers.

 

 15 

 

 

Information about Reported Segment Profit or Loss and Segment Assets

 

Six months ended June 30, 2021 E-Commerce  Trading  All Other  Total 
Revenue $417,403  $19,702,347  $-  $20,119,750 
Cost of revenues $(9,216) $(19,491,021) $-  $(19,500,237)
Gross Profit (Loss) $408,187  $211,326  $-  $619,513 
Selling and Marketing $57,704  $-  $-  $57,704 
General and administrative $71,647  $267,730  $54,604  $393,981 
Operating income (loss) $278,836  $(56,404) $(54,604) $167,828 

 

Six months ended June 30, 2020 E-Commerce  Total 
Revenue $203,142  $203,142 
Cost of revenues $(168,133) $(168,133)
Gross profit (loss) $35,009  $35,009 
Operating income (loss) $(157,376) $(157,376)

 

Reconciliations of Reportable Segment Revenues, Profit or Loss, and Assets, to the Consolidated Totals as of the Six Months Ended June 30, 2021.

 

  Six Months
Ended
 
  June 30, 
Revenue 2021 
Total revenues from reportable segments $20,119,750 
Elimination of inter segments revenues $- 
Total consolidated revenues $20,119,750 
     
Profit or Loss    
Total income (loss) from reportable segments $619,513 
Elimination of inter segments profit or loss    
Unallocated amount:    
Other corporation expense $(462,155)
Total consolidated net loss $157,358 
     
Assets    
Total assets from reportable segments $6,230,165 
Unallocated amount:    
Other unallocated assets –  Holding Company $3,269 
Other unallocated assets –    
Other unallocated assets –    
Other unallocated assets –    
Total consolidated assets $6,233,434 

 

 16 

 

 

NOTE 11 CONCENTRATION AND RISK

 

Credit risk

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, and other receivables. The Company maintains certain bank accounts in the PRC and in Hong Kong. As of June30, 2021 and December 31, 2020, $74,131 and $932,102, respectively, were deposited in major financial institutions located in Mainland China, and Hong Kong Special Administration. Management believes that these financial institutions are of high credit quality and continually monitor the credit worthiness of these financial institutions.

 

Currency convertibility risk

 

A significant part of the Company’s businesses is transacted in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices and signed contracts. These exchange control measures imposed by the PRC government authorities may restrict the ability of the Company’s PRC subsidiary to transfer its net assets, to the Company through loans, advances or cash dividends.

 

Major customers

 

The Company engages in e-commerce and sales businesses in the PRC. All revenues were generated from customers located in the PRC. The customer who accounted for 10% or more of total revenues for six months ended June 30, 2021 and its outstanding accounts receivable balances as at year-end dates, are presented as follows:

 

    

Six Months Ended

 
    June 30, 2021 
Customer Segment Sales  Percentage of
total Sales
 
Customer A Trading $19,702,343   97.93%

 

For six months ended June 30, 2020, there were no customers who accounted for 10% or more of the Company’s sales.

 

Major vendors  

 

For six months ended June 30, 2021, the vendor who accounted for 10% or more of the Company’s purchases and its outstanding accounts payable balances as at year-end dates, are presented as follows:

 

    

Six Months Ended

 
    June 30, 2021 
Supplier Segment Purchases  Percentage of
total Purchases
 
Supplier A Trading $19,478,962   99.89%

 

For six months ended June 30, 2020, there were no vendors who accounted for 10% or more of the Company’s purchases.

 

NOTE 12. SUBSEQUENT EVENTS

 

The Company’s management has performed subsequent events procedures through the date the consolidated financial statements are issued. There were no subsequent events requiring adjustment or disclosure in the consolidated financial statements. 

 

 17 

 

 

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

 

The discussion and analysis which follows in this Report may contain trend analysis and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to future events and financial results. These include statements regarding our future financial results, projected growth and forecasts, and similar matters which are not historical facts. We remind stockholders that forward-looking statements are merely predictions and therefore are inherently subject to uncertainties and other factors which could cause the actual future events or results to differ materially from those described in the forward-looking statements. These uncertainties and other factors include, among other things, the impact of the spread of the COVID-19 pandemic, business conditions affecting our business and general economic conditions; our ability to generate sufficient revenues to reach profitable operations; and our need to obtain additional financing. The forward-looking statements contained in this Report should be considered in light of these factors. The interim results of operations are not necessarily indicative of the operating results for the fiscal year or any future periods.

 

Business Operations

 

We currently operate our business through our subsidiaries, HSAL, SAL and Ezekiel.

 

HSAL’s e-Commerce business

 

HSAL is an e-Commerce company operating through its self-developed online application “Bibishengjia”. Bibishengjia is a shopping search engine that concurrently searches many shopping sites, preliminarily based in China, including major shopping sites such as Taobao.com, Tmall.com, JD.com and Pinduoduo.com, and helps customers meet their one-stop online shopping needs. Bibishengjia also runs its own online shopping platforms - Bibi Mall and Lianlian Nongyuan Agricultural Products Store. Bibishengjia was launched on August 18, 2019 and is currently available for download at the Apple APP Store and other major mobile download stores.

 

On September 26, 2019, we, through SAL, entered into an agreement (the “Pretech Agreement”) with Pretech International Co., Limited (“Pretech”), a company incorporated under the laws of Hong Kong (“HK”). Pretech is a software, hardware and digital company that also specializes in the development and manufacture of consumer electronics. Under the terms of the Pretech Agreement, Pretech agreed to act as SAL’s sales agent to promote and bring more customers to Bibishengjia and also make sales of its own products through the use of Bibishengjia. Pretech paid $1 million for the use of Bibishengjia, and the Company agreed to pay Pretech 5% of all sales made in the PRC and HK through Bibishengjia. The term of the Pretech Agreement is for 24 months from the date the Pretech Agreement was entered into and is extendable for another 24 months, unless a party decides to cancel at the end of the initial 24-month period. Pretech’s use of Bibishengjia is accomplished by a section on the Bibishengjia APP created specifically for Pretech. When users browse the Bibishengjia APP, they are able to click on the Pretech hyperlink and be directed to Pretech’s own site where they can make purchases of Pretech’s products. Additional features and functions may be added to the APP according to the Pretech’s needs, markets conditions and additional requirements upon separate agreement between the parties, either in conjunction with the needs of SAL and HSAL or specifically for Pretech. On October 26, 2020, the Pretech Agreement was amended and restated whereby Pretech was given the right to use Bibishengjia directly for 7 years. Under the Pretech Agreement, the Bibishengjia APP, its contents and all related intellectual property rights including rights related to the Pretech hyperlink, are the sole property of SAL, including any additional developments or modifications made in the APP, in perpetuity.

 

In addition to our own marketing and promotional efforts and Pretech’s sales support, in the third quarter of 2020, we started to promote the Bibishengjia APP through “Momo” by using live streaming. We believe the mobile streaming media will accelerate our growth in the future.

 

Ezekiel’s petroleum- based products distribution business

 

In October 2020, Ezekiel entered into the business of distribution of petroleum-based products, such as asphalt, heat conduction oil and machine (lubricating) oil. Ezekiel’s suppliers include large Chinese state-owned enterprises as well as reputable private Chinese companies. Ezekiel doesn’t take possession of the petroleum-based products which are stored in the supplier’s designated warehouse and is not responsible for delivery to the customers.

 

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Ezekiel’s multi-function lottery tickets machine business

 

In late 2020, Ezekiel started a new business where it purchases custom-made multi-function lottery ticket machines and re-sells them to third parties. The machines are designed and manufactured by third parties with third party technologies. Ezekiel doesn’t own any intellectual property rights relating to the machines. Besides dispensing lottery tickets for which the machine owner retains 7-8% of the ticket sales price, the machines also function as a cellphone charging station for about $0.45 per hour and a disinfectant wipes dispenser at cost. The machine has a LED screen which allows a customer to browse the Bibishengjia APP and make purchases there. Ezekiel has obtained licenses from several second and third-tier cities in the PRC where competition for lottery tickets sales and lottery tickets machines is manageable. The licenses allow its machines to dispense lottery tickets in these cities. Besides selling the machines to third parties, Ezekiel also plans to install, as the owner and operator, machines at locations in cities where they already received licenses to sell lottery tickets.

 

Going Concern Uncertainties

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.

 

The Company, which had an accumulated deficit of $2,649,419 and a working capital deficit of $446,938 as of June 30, 2021, first reported an operating profit in the second quarter of 2021. The recoverability of a major portion of the recorded asset amounts and realization of the portion of current liabilities into revenue shown in the accompanying balance sheets are dependent upon continued operations of the Company, which in turn are dependent upon the Company’s ability to raise additional financing and to succeed in its future operations. The Company will need additional cash resources to operate during the upcoming 12 months, and the continuation of the Company may be dependent upon the continuing financial support of investors, directors and/or shareholders of the Company. However, there is no assurance that efforts to raise equity or debt will be successful in raising sufficient funds to assure the eventual profitability of the Company. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Management plans to support the Company in operation and to maintain its business strategy to raise funds through public and private offerings and to rely on officers and directors to perform essential functions with minimal compensation. If we do not raise all of the money we need from such offerings, we will have to find alternative sources including, loans from our officers, directors or others. Management has actively taken steps to revise its operating and financial requirements, which they believe will allow the Company to continue its operations for the next 12 months.

 

Critical Accounting Policies

 

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The policies discussed below are considered by management to be critical to an understanding of our financial statements because their application places the most significant demands on management’s judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.

 

 19 

 

 

Revenue Recognition.

 

We adopted Accounting Standard Codification (“ASC”) Topic 606, Revenues from Contract with Customers (“ASC 606”) for all periods presented. Under ASC 606, revenue is recognized when control of the promised goods and services is transferred to the Company’s customers, in an amount that reflects the consideration that we expect to be entitled to in exchange for those goods and services, net of value-added tax. We determine revenue recognition through the following steps:

 

 Identify the contract with a customer;

 

 Identify the performance obligations in the contract;

 

 Determine the transaction price;

 

 Allocate the transaction price to the performance obligations in the contract; and

 

 Recognize revenue when (or as) the entity satisfies a performance obligation.

 

The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied by the control of the promised goods and services is transferred to the customers, which at a point in time or over time as appropriate.

 

Our revenues are net of value added tax (“VAT”) collected on behalf of PRC tax authorities in respect to the sales of merchandise. VAT collected from customers, net of VAT paid for purchases, is recorded as a liability in the accompanying consolidated balance sheets until it is paid to the relevant PRC tax authorities

 

Ezekiel’s petroleum-based product distribution business generates revenue from its sales. Ezekiel’s multi-function lottery ticket machine business generates revenue from the sale of machines to third parties and from its retention of a percentage of all lottery ticket sales made by the machines.

 

Cost of sales. Cost of sales includes the cost of direct labor, merchandise and materials.

 

Selling expenses. Selling expenses include advertising, depreciation and amortization, and certain expenses associated with operating the Company’s corporate headquarters.

 

General and administrative expenses. General and administrative expenses include rent, salaries, business registration fees, telephone and utilities costs, and office miscellaneous expenses.

 

Accounts Receivable. We don’t have any accounts receivable in this period. For our e-commence segment, our customers are required to pay while placing their orders per our policy, and therefore we don’t record any accounts receivable. Lump sum payments are required to be made for our petroleum-based products and our multi-function lottery machines per our sales policy, and therefore we don’t incur any material accounts receivable.

 

Plant and equipment. Plant and equipment are stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to physical properties are capitalized. Depreciation of plant and equipment is provided using the straight-line method over their estimated useful lives at the following annual rates.

 

Income Taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. 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 income in the period that includes the enactment date.

 

 20 

 

 

Recent accounting pronouncements

 

Our company considers the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on our balance sheets or statements of operations.

 

On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments – Credit Losses on Financial Instruments,” which requires that expected credit losses relating to financial assets be measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. Also, for available-for-sale debt securities with unrealized losses, the standard eliminates the concept of other-than-temporary impairments and requires allowances to be recorded instead of reducing the amortized cost of the investment. The adoption by the Company of the new guidance did not have a material impact on the Company’s consolidated financial statements.

 

Our condensed consolidated financial statements for six months ended June 30, 2021 are presented under the new standard, while comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy.

 

In February 2016, the Financial Accounting Standard Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842). The standard requires lessees to recognize almost all leases on the balance sheet as a right-of-use asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. In July 2018, the FASB issued amendments in ASU 2018-11, which provide another transition method in addition to the existing transition method, by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, and to not apply the new guidance in the comparative periods they present in the financial statements.

 

Other pronouncements issued by the FASB or other authoritative accounting standards with future effective dates are either not applicable or not significant to the condensed consolidated financial statements of the Company.

 

Recent Developments

 

The COVID-19 outbreak has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, layoffs, defaults and other significant economic impacts, as well as general concern and uncertainty. The current severity of the pandemic and the uncertainty regarding the length of its effects could have negative consequences for our company.

 

Most of our administrative functions are being performed remotely. A small crew maintains each of our three offices for those functions that cannot be handled remotely. Our ability to collect money, pay bills, handle customer and consumer communications, schedule production, and order ingredients necessary for our production has not been impacted.

 

To date, the pandemic has had minimal impact on our sales. We experienced a slight decline in sales at the beginning of the imposition of restrictions to mitigate the spread of COVID-19. To date we have not experienced a significant change in the timeliness of payments of our invoices and our cash position remains stable with approximately $74,131 of cash and cash equivalents as of June 30, 2021.

 

 21 

 

 

Segment Reporting

 

Since the fourth quarter of 2020 we have been engaged in two business segments, the e-commerce business, consisting of HSAL and SAL’s e-commerce operation, and sales business covering Ezekiel’s sales of petroleum-based products and multi-function lottery machines. In 2019 we operated in one segment, our e-Commerce segment.

 

Result of Operations

 

Three Months Ended June 30, 2021 Compared with Three Months Ended June 30, 2020

 

  Three Months Ended  Variance 
  June 30,
2021
  June 30,
2020
  Amount  % 
             
Net sales $19,739,374  $52,754   19,686,620   37318%
                 
Cost of Revenue  (19,490,994)  (147,891)  (19,343,103)  13079%
                 
Gross profit  248,380   (95,137)  343,517   -361%
General and administrative and other operating expenses  (206,248)  (105,567)  (100,681)  95%
                 
Income (loss) from operations  42,132   (200,704)  242,836   -121%
                 
Other non-operating income  3,241   (15,391)  18,632   -121%
                 
Other expenses  (27)  -   (27)  NA 
                 
Interest income  -   -   -     
                 
Interest expense  (3,124)  1,980   (5,104)  -258%
                 
Income (loss) before income taxes  42,222   (214,115)  256,337   -120%
                 
Income taxes  -   72.00   (72)  -100%
                 
Net income (loss)  42,222   (214,187)  256,409   -120%

 

Net sales for the three months ended June 30, 2021 was $19,739,374, an increase of $ 19,686,620from net revenue of $52,754 for the three months ended June 30, 2020. The increase is attributable to the operations of Ezekiel, which were initiated in October 2020.

 

Our cost of sales increased to $19,490,994 for the three months ended June 30, 2021, an increase of $ 19,343,103 from the cost of sales of $147, 891 for the three months ended June 30, 2020. The increase is primarily attributable to the operating costs of Ezekiel, which first began operations in October 2020.

 

We incurred a gross profit of $ 248,380 for the three months ended June 30, 2021 as compared to a loss of $95,137 for the three months ended June 30, 2020. Such increase was attributable to the increase of sales attributable to the Bibishengjia platform and the operations of Ezekiel.

 

Selling, general and administrative expenses increased by $100,681, or 95%, to $206,248 for the three months ended June 30, 2021, from $105,567 for the three months ended June 30, 2020. The increase is mainly attributable to HSAL’s increased rent and increased employee salary expenses, and legal and other costs relating to the formation of Ezekiel. We anticipate that our selling, general and administrative expenses will continue at the same level for the remaining of 2021.

 

As a result of the foregoing, our income from operations increased to $42,132 for the three months ended June 30, 2021, from loss of $200,704 for the three months ended June 30, 2020.

 

We recorded net income of $42,222 for the three months ended June 30, 2021 compared to a net loss of $214,187 for the three months ended June 30, 2020.

 

 22 

 

 

Six Months Ended June 30, 2021 Compared With Six Months Ended June 30, 2021

 

The following table sets forth a summary of our consolidated statements of operations for the periods indicated.

 

  Six Months Ended  Variance 
  June 30,
2021
  June 30,
2020
  Amount  % 
             
Net sales $20,119,750  $203,142   19,916,608   9804%
                 
Cost of revenues  (19,500,237)  (168,133)  (19,332,104)  11498%
                 
Gross profit  619,513   35,009   584,504   1670%
General and administrative and other operating expenses  (451,685)  (192,385)  (259,300)  135%
                 
Income from operations  167,828   (157,376)  325,204   207%
                 
Other non-operating income  3,566   71,676   (68,110)  -95%
                 
Other expenses  (7,740)  -   (7,740)   % 
                 
Interest income  2   34   (32)  -94%
                 
Interest expenses  (6,298)      (6,98)   %
                 
Income before income taxes  157,358   (85,666)  243,024   284%
                 
Income taxes  -   72   (72)  -100%
                 
Net income  157,358   (85,738)  243,096   284%

 

Net sales for six months ended June 30, 2021 was $20,119,750, an increase of $19,916,608 or 9804%, from net revenue of $203,142 for six months ended June 30, 2020. The increase is primarily attributable to the operations of Ezekiel, which were initiated in October 2020.

 

Our cost of revenues increased to $19,500,237 for six months ended June 30, 2021, an increase of $19,332,104, or 11498%, from $168,133 for six months ended June 30, 2020. The increase is attributable to the operations of Ezekiel, which were initiated in October 2020.

 

Our gross profit increased by $584,504 or 1670%, to $619,513 in six months ended June 30, 2021 from $35,009 in six months ended June 30, 2020. Such increase was attributable to the increase of sales attributable to the Bibishengjia platform and to the operations of Ezekiel.

 

Selling, general and administrative expenses increased by $259,300, or 135%, to $451,685 in six months ended June 30, 2021, from $192,385 in six months ended June 30, 2020. The increase is mainly attributable to increased rent expenses and increased employee salaries.

 

Our income from operations was $167,828 for six months ended June 30, 2021 compared to loss from operations of $157,376 for six months ended June 30, 2020.

 

We had non-operating income of $3,566 in six months ended June 30, 2021 compared to non-operating income of $71,676 in six months ended June 30, 2020. In 2020. we recorded $82,000 of non-operating income related to the reversal of a warrant issuance expense incurred in 2018.

 

We recorded net income of $157,358 for the six months ended June 30, 2021 compared to a net loss of $85,738 for the six months ended June 30, 2020.

 

Liquidity and Capital Resources

 

As of June 30, 2021, we had $74,131 in cash and cash equivalents and a working capital deficit of $446,938 compared with $932,102 in cash and cash equivalents and a working capital deficit of $560,818 on December 31, 2020. Our accumulated deficit on June 30, 2021 was $2,649,419.

 

To date the Company has funded its operations from advances from related parties which are interest free, unsecured, and have no fixed repayment terms and from cash provided from operations including the prepayment made under the Pretech Agreement and from a $4,078,044 prepayment from Qingdao Jiuzhou Xintong Industry and Trade Co., Ltd. for the purchase of petroleum-based products. As of June 30, 2021, and December 31, 2020, we had received net advances of $1,065,333 and $1,157,601 from shareholders and related parties for operating expenses. These advances bear no interest, no collateral and have no repayment term.

 

 23 

 

 

Management has continued to support our company’s operations and we have relied on our officers and directors to perform essential functions with minimal compensation. If we are unable to raise the funds that we require from third parties we will have to find alternative sources, such as loans from our officers and directors.

 

As of June 30, 2021, we had related party receivables in the aggregate amount of $361,566, due entirely from Hunan Zhong Zong Lianlian Information Technology Limited Company (“Lianlian”). 100% of equity interest in Hong Fu and Lianlian are owned by Wei Liang and Wei Zhu, the two majority shareholders of our company. The amount due from Hong Fu, is a loan in the principal amount of RMB 600,000 (approximately $88,203) for a two-year term beginning on July 1, 2019 and free of interest. The amount due from Lianlian is a loan in the principal amount of RMB 4,500,000 (approximately $ 689,675) for a two-year term beginning on January 1, 2020 and free of interest. The $13,018 due from Lianlian is free of interest and due on demand. All of these loans were made in the ordinary course of business.

 

Management has actively taken steps to monitor its operating and financial requirements and believes that its current and available capital resources will allow our company to continue its operations throughout this fiscal year.

 

The following table summarizes our cash flows for the periods presented:

 

  six months ended
June 30,
2021
  six months ended
June 30,
2020
 
Net cash provided by (used for) operating activities  (1,212,481) $536,112 
Net cash provided by (used for) investing activities  68,656   (24,320)
Net cash provided by (used for) financing activities  274,350   (539,580)
Net increase (decrease) in cash and cash equivalents  (869,475) $(27,788)

 

Net cash used for operating activities during six months ended June 30, 2021, was $1,212,481 compared to net cash provided by operation of $536,112 in six months ended June 30, 2020. During the 2021 period Ezekiel received a prepayment of $4,078,044 from customer with respect to a petroleum-based product sale and subsequently made a prepayment of $ 4,844,437 to the supplier, Yanchang Petroleum (Zhejiang Free Trade Zone) Co., Ltd. The difference between the customer prepayment and the prepayment to the supplier accounted for the majority of the net cash used for operating activities.

 

Net cash provided by investing activities during six months ended June 30, 2021, was $68,656 compared to net cash used for investing activities of $24,320 in the six months ended June 30, 2020. The cash provided by investing activities relate to the purchase of fixed assets, consisting of right of use asset (rent), furniture and lottery machines in 2021.

 

Net cash provided by financing activities was $274,350 for six months ended June 30, 2021 compared to net cash used for financing activities of $539,580 in the six months ended June 30, 2020. This change was primarily due to advances of $ 418,202 from related parties.

 

We believe our existing cash and cash equivalents on hand at June 30, 2021 and the cash flows expected from operations, will be sufficient to support our operating and capital requirements during the next twelve months.

 

Inflation and Seasonality

 

We do not believe that our operating results have been materially affected by inflation during the preceding two years. There can be no assurance, however, that our operating results will not be affected by inflation in the future. Our business is subject to minimal seasonal variations.

  

Off-Balance Sheet Arrangements

 

The Company did not have any off-balance sheet arrangements as of June 30, 2021 and 2020.

 

 24 

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), under the supervision of and with the participation of our management, including the Chief Executive and Chief Financial Officer. Based on that evaluation and the identification of a material weakness in internal control over financial reporting described below, our management, including the Chief Executive and Financial Officer, concluded that our disclosure controls and procedures, as of June 30, 2021, and during the period prior were not effective.

 

Internal control over financial reporting is defined in Rule 13a-15(f) under the Exchange Act as a process designed by, or under the supervision of, the company’s principal executive officer and principal financial officer and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

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

 

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with management authorization; and

 

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

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Due to the Company’s limited resources, the Company does not have accounting personnel with extensive experience in maintaining books and records and preparing financial statements in accordance with US GAAP which could lead to untimely identification and resolution of accounting matters inherent in the Company’s financial transactions in accordance with US GAAP.

 

Management’s Remediation plan

 

While management believes that the financial statements we previously filed in our SEC reports have been properly recorded and disclosed in accordance with US GAAP, based on the control deficiencies identified above, management is currently seeking to engage an outside consultant with considerable public company reporting experience and breadth of knowledge of US GAAP to provide additional training to its accounting personnel in connection with the preparation and review of our financial statements. 

 

Changes in Internal Control over Financial Reporting

 

Subject to the foregoing disclosure, there were no changes in our internal control over financial reporting during the six months ended June 30, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 25 

 

 

PART II – OTHER INFORMATION

 

ITEM 1: LEGAL PROCEEDINGS

 

The Company is currently not a party to any material pending legal proceedings.

 

ITEM 1A: RISK FACTORS

 

There are doubts about our company’s ability to continue as a going concern.

 

Our company’s independent auditors have raised doubts about our ability to continue as a going concern. There can be no assurance that sufficient funds will be generated from our operation or that sufficient funds will be available from external sources, such as securities, debt or equity financing or other potential sources, for us to continue in business.

 

We are in the early stages of development of our business and have limited operating history on which you can base an investment decision.

 

We were formed in 2005, but recently refocused our business to e-commerce and trading. As a result, we may encounter many expenses, delays, problems, and difficulties that we have not anticipated and for which we have not planned. There can be no assurance that at this time we will successfully develop or acquire a significant customer base, operate profitably, or that we will have adequate working capital to fund our operations or meet our obligations as they become due.

 

Investors should evaluate an investment in our company in light of the problems and uncertainties frequently encountered by companies attempting to develop new markets. Despite best efforts, we may never overcome these obstacles to achieve financial success. Our business is speculative and dependent upon the implementation of our business plan, as well as our ability to successfully acquire businesses on terms that will be commercially viable for us. There can be no assurance that our efforts will be successful or result in revenue or profit. There is no assurance that we will earn significant revenues or that our investors will not lose their entire investment.

 

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

 

None

 

ITEM 3: DEFAULTS UPON SENIOR SECURITIES.

 

None

 

ITEM 4: MINE SAFETY DISCLOSURES

 

Not applicable

 

ITEM 5: OTHER INFORMATION

 

None

 

ITEM 6: EXHIBITS

 

Exhibits No. 
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS Inline XBRL Instance Document.
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

 26 

 

 

SIGNATURE

 

Pursuant to the requirements of Section 13 or 15(d) 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. 

 

 ZZLL Information Technology Inc.
  
Dated: August 16, 2021By: /s/ Yanfei Tang
  Yanfei Tang
  Chief Executive Officer and Chief Financial Officer

 

 

27

 

 

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 A wholly owned subsidiary of Syndicore Asia Limited. A wholly owned subsidiary of Syndicore Asia Limited since October 8, 2019 (previously 55% owned). A wholly owned subsidiary of ZZLL. 0 0 0 0 0 0 0 0 0 0 0 0 false --12-31 Q2 N/A 0001365357