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FUST Fuse Group Holding

Filed: 11 May 21, 4:31pm


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 March 31, 2021

 

☐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.

(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 91007
(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)

 

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

 

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. ☐

 

The number of shares outstanding of each of the issuer’s classes of common stock, as of May 7, 2021 is as follows:

 

Class

 

Share Outstanding

Common Stock, $0.001 par value per share

 

79,063,765

 

 

 

 

TABLE OF CONTENTS

 

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

3

Item 2.

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

19

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

23

Item 4.

Controls and Procedures

23

   

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 3.

Defaults upon Senior Securities

25

Item 4.

Mine Safety Disclosure

25

Item 5.

Other Information

25

Item 6.

Exhibits

25

SIGNATURES

26

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

FUSE GROUP HOLDING INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

  

MARCH 31, 2021

(UNAUDITED)

  

SEPTEMBER 30, 2020

 
         

 ASSETS

        
         

 CURRENT ASSETS

        

      Cash and equivalents

 $144,279  $194,470 

      Prepaid expense

  28,040   9,825 
         

         Total current assets

  172,319   204,295 
         

 NON-CURRENT ASSETS

        

      Prepayment for acquisition of mining rights

  1,000,000   0 

      Prepaid expense

  1,000,000   1,000,000 

      Property and equipment, net

  5,285   6,381 

      Right-of-use asset, net

  15,917   29,117 
         

         Total non-current assets

  2,021,202   1,035,498 
         

 TOTAL ASSETS

 $2,193,521  $1,239,793 
         

 LIABILITIES AND STOCKHOLDERS' EQUITY

        
         

 CURRENT LIABILITIES

        

      Other payables

 $2,616  $4,499 

      Loans payable - current portion

  51,363   50,298 

      Lease liability

  17,684   26,046 
         

          Total current liabilities

  71,663   80,843 
         

 NON-CURRENT LIABILITIES

        

      Lease liability - noncurrent

  0   4,465 

      Loans payable

  106,742   105,794 
         

         Total non-current liabilities

  106,742   110,259 
         

 TOTAL LIABILITIES

  178,405   191,102 
         

 CONTINGENCIES AND COMMITMENTS

        
         

 STOCKHOLDERS' EQUITY

        

Common stock, par value $0.001 per share, 375,000,000 shares authorized; 79,063,765 and 64,778,050 shares issued and outstanding as of March 31, 2021 and September 30, 2020, respectively

  79,064   64,778 

Additional paid-in capital

  7,935,431   6,949,717 

Accumulated deficit

  (5,999,379)  (5,965,804)
         

          Total stockholders' equity

  2,015,116   1,048,691 
         

 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 $2,193,521  $1,239,793 

 

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

 

 

FUSE GROUP HOLDING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED) 

 

  

 FOR THE SIX MONTHS ENDED MARCH 31,

  

 FOR THE THREE MONTHS ENDED MARCH 31,

 
  

2021

  

2020

  

2021

  

2020

 
                 

 Revenue

 $350,000  $450,000  $250,000  $200,000 

 Cost of revenue

  33,570   180,401   23,535   48,063 
                 

 Gross profit

  316,430   269,599   226,465   151,937 
                 

 Operating expenses

                

      General and administrative

  298,612   263,960   162,527   131,315 

      Consulting

  46,262   36,748   13,825   24,415 
                 

      Total operating expenses

  344,874   300,708   176,352   155,730 
                 

 Income (loss) from operations

  (28,444)  (31,109)  50,113   (3,793)
                 

 Non-operating expenses

                

      Interest expense

  (2,012)  0   (1,011)  0 

      Other expense

  (719)  (735)  (335)  (240)
                 

      Total non-operating expenses, net

  (2,731)  (735)  (1,346)  (240)
                 

 Loss before income tax

  (31,175)  (31,844)  48,767   (4,033)

 Income tax

  2,400   4,000   2,400   2,400 
                 

 Net Income (loss)

 $(33,575) $(35,844) $46,367  $(6,433)
                 

 Basic weighted average shares outstanding

  67,603,796   64,778,050   70,492,336   64,778,050 
                 

 Basic net loss per share

 $(0.00) $(0.00) $0.00  $(0.00)

 

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

 

 

FUSE GROUP HOLDING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED) 

 

  

 FOR THE SIX MONTHS ENDED MARCH 31,

 
  

2021

  

2020

 
         

 CASH FLOWS FROM OPERATING ACTIVITIES:

        

             Net loss

 $(33,575) $(35,844)

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

        

                          Depreciation

  1,096   1,096 

                          Amortization of prepaid expense

  15,433   4,912 

                          Amortization of right-of-use asset

  13,200   12,708 

                          Interest on lease liability

  570   997 

             Changes in assets and liabilities:

        

                          Prepaid expense

  (33,648)  (29,474)

                          Other payables

  130   (1,796)

                          Payment of lease liability

  (13,397)  (12,944)
         

             Net cash used in operating activities

  (50,191)  (60,345)
         

 NET DECREASE IN CASH AND EQUIVALENTS

  (50,191)  (60,345)
         

 CASH AND EQUIVALENTS, BEGINNING OF PERIOD

  194,470   102,205 
         

 CASH AND EQUIVALENTS, END OF PERIOD

 $144,279  $41,860 
         

 Supplemental cash flow data:

        

    Income tax paid

 $2,400  $4,000 

    Interest paid

 $0  $0 
         

 Supplemental disclosure of non-cash investing activities:

 $-  $- 

    Prepayment for acquisition of mining rights

 $1,000,000  $0 

 

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

 

 

FUSE GROUP HOLDING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE SIX MONTHS ENDED MARCH 31, 2021 AND 2020

(UNAUDITED)

 

  

 Common Stock

  Additional  Accumulated     
  

 Shares

  

 Amount

  

Paid-in Capital

  

 Deficit

  

 Total

 
                     

 Balance at October 1, 2020

  64,778,050  $64,778  $6,949,717  $(5,965,804) $1,048,691 
                     

 Net loss

  -   -   -   (79,942)  (79,942)
                     

 Balance at December 31, 2020

  64,778,050   64,778   6,949,717   (6,045,746)  968,749 
                     

 Shares issued for acquisition of mining rights

  14,285,715   14,286   985,714   -   1,000,000 
                     

 Net income (loss)

  -   -   -   46,367   46,367 
                     

 Balance at March 31, 2021

  79,063,765  $79,064  $7,935,431  $(5,999,379) $2,015,116 

 

  

 Common Stock

  Additional  Accumulated     
  

 Shares

  

 Amount

  

Paid-in Capital

  

 Deficit

  

 Total

 
                     

 Balance at October 1, 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 

 

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

 

 

FUSE GROUP HOLDING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021 (UNAUDITED) AND SEPTEMBER 30, 2020

 

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 mining and biotech areas. On December 6, 2016, the Company incorporated Fuse Processing, Inc. (“Processing”) in the State of California. Processing seeks business opportunities in mining 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, when the mine owner is considering selling his mining rights.  The services of Fuse Group and Processing include due diligence on the potential mine seller and the mine, such as ownership and whether the mine meets all operational requirements and/or is currently in operation.

 

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. Trading seeks mining-related business opportunities in Asia.

 

On May 3, 2018, the Company incorporated Fuse Technology Inc. in the State of Nevada, which changed its name to Fuse Biotech Inc. on November 30, 2020.  Fuse Group is the sole shareholder of Fuse Biotech Inc. (“Biotech”). Biotech was mainly engaged in IMETAL system development. The Company originally planned to operate IMETAL as a platform 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.  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. Currently, Biotech is seeking business opportunities in the biotech area.

 

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 May 13, 2019.  On May 29, 2019, the Company changed its trading symbol on OTC Markets from FNST to FUST.

 

On February 9, 2021, Fuse Group and Processing entered into a Share Exchange Agreement with 5 individuals who own Portafolio en Investigacion Ambiental S.A. de C.V., a Mexican company (“Portafolio”). Pursuant to the agreement, the Company issued 14,285,715 shares of common stock of the Company for all the outstanding shares of Portafolio owned by these five sellers. The Company has issued the shares but has not delivered them to the sellers. Portafolio owns five mines in Mexico. These mines are not operating. The transfer of shares of Portafolio to Processing are subject to the Mexican government approval, which has not happened yet. The Company recorded cost of mining rights of $1,000,000 which was the fair value of 14,285,715 shares at $ 0.07 per share on the date of the Share Exchange Agreement, which is February 9, 2021 (also see Note 5).

 

On March 11, 2021, Fuse Group and Biotech entered into a Share Exchange Agreement with E-Mo Biotech Holding Inc., a company incorporated under the laws of Nevada (the “E-Mo Biotech”), Qiyi Xie, a resident of California (“Xie”), Quan Qinghua, a citizen and resident of China (“Quan”), Jing Li, a citizen and resident of China (“Li”) and HWG Capital Sdn Bhd, a company incorporated under laws of Malaysia (“HWG” and hereinafter collectively with Xie, Quan and Li, the “Sellers”). Pursuant to the Agreement, the Company will issue to the Sellers 100,000,000 shares of common stock of the Company (the “Fuse Shares”) for all the issued and outstanding shares of E-Mo (the “E-Mo Shares”) owned by the Sellers. E-Mo Biotech engages in biology research and development business. The acquisition has not been completed yet and the shares have not been issued as of this reporting date.

 

In December 2019, the COVID-19 outbreak began to impact the population in China and since January 2020, the COVID-19 outbreak has spread around the world, including the United States (U.S.). In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the pandemic has resulted in quarantines, travel restrictions, and the temporary closure of office buildings and facilities in the US. The state of California, where the Company is headquartered, has been affected by COVID-19.

 

 

Our business and services and results of operations have been adversely affected and could continue to be adversely affected by the COVID-19 pandemic.  The pandemic 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. Potential impact to our results of operations will also depend on future developments and new information that may emerge regarding COVID-19, the efficacy and distribution of COVID-19 vaccines and the actions taken by governmental authorities and other entities to contain COVID-19 and/or mitigate its impact, almost all of which are beyond our control. 

 

The global economy has also been negatively affected by COVID-19 and there is continued 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.  

 

Note 2 Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements (“CFS”) 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 interim consolidated financial information as of March 31, 2021 and for the six and three-month periods ended March 31, 2021 and 2020 was prepared without audit. Certain information and footnote disclosures, which are normally included in CFS prepared in accordance with U.S. GAAP were not included. 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, 2020, previously filed with the SEC on December 16, 2020.

 

In the opinion of management, all adjustments (which include all significant normal and recurring adjustments) necessary to present a fair statement of the Company’s consolidated financial position as of March 31, 2021, its consolidated results of operations and cash flows for the six months ended March 31, 2021 and 2020, as applicable, were made. 

 

Basis of Consolidation 

 

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

 

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

 

The preparation of CFS in conformity with US 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 of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The significant areas requiring the use of management estimates include, but are not limited to, the estimated useful life and residual value of property, plant and equipment, recognition and measurement of deferred income taxes and the valuation allowance for deferred tax assets. Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ from those estimates and such differences may be material to the consolidated financial statements.

 

 

Fair Value of Financial Instruments

 

The carrying amounts of certain of the Company’s financial instruments, including cash and equivalents, accrued liabilities and accounts payable, approximate their fair value ( “FV” ) due to their short maturities. FASB ASC Topic 825, “Financial Instruments,” requires disclosure of the FV of financial instruments held by the Company. The carrying amounts reported in the balance sheets for current liabilities qualify as financial instruments and are a reasonable estimate of their FV because of the short period of time between the origination of such instruments and their expected realization and the current market rate of interest.

 

Fair Value Measurements and Disclosures

 

FASB ASC Topic 820, “Fair Value Measurements,” defines FV, and establishes a three-level valuation hierarchy for disclosures that enhances disclosure requirements for fair value measures. The three levels are defined as follows:

 

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

Level 2 inputs to the valuation methodology include other than those in level 1 quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

Level 3 inputs to the valuation methodology are unobservable and significant to the FV measurement.

 

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.

 

As of March 31, 2021, and September 30, 2020, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at FV on a recurring basis. 

 

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 $0  accounts receivable at March 31, 2021 and September 30, 2020.

 

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, 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 FV 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.  

 

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 eliminated in the preparation of financial statements is not required in those statements. 

 

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. 

 

Contingencies

 

The Company follows FASB ASC 450-20 to account 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 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 was 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

 

The Company follows Accounting Standards Update (“ASU”) 2014-09 (and related amendments subsequently issued in 2016), Revenue from Contracts with Customers (ASC 606).

 

The core principle underlying FASB ASC 606 is that the Company recognizes revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This requires the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s revenue streams are recognized when control of goods and services transfers to a customer, in an amount that reflects the consideration it expects to receive 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.  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.

 

Income Tax

 

The Company uses the asset and liability method of accounting for income taxes in accordance with FASB ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current period and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets also include the prior years’ net operating losses carried forward. 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 results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

The Company follows FASB ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.

 

Under the provisions of FASB ASC Topic 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. 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 is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statement of operations.  As of March 31, 2021, the Company had no unrecognized tax benefits and there was no charges during the six months ended March 31, 2021, and accordingly, the Company did not recognize any interest or penalties related to unrecognized tax benefits. There was no accrual for uncertain tax position as of March 31, 2021. The Company files a U.S. income tax return. With few exceptions, the U.S. income tax returns filed for the years ending on September 30, 2017 and thereafter are subject to examination by the relevant taxing authorities.

 

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).  

 

 

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.  

 

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 FASB 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 FASB 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. After considering recent developments of 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 adopted 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 11 – 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 were not adjusted and continue to be reported in accordance with its historical accounting under Topic 840.

 

The Company elected the package 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 balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.

 

Upon adoption, the Company recognized 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 impact our beginning retained earnings, or prior year consolidated statements of operations and statements of cash flows. 

 

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 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. 

 

 

Operating leases are included in operating lease ROU assets and operating lease liabilities (current and non-current), on the consolidated balance sheets.  As of March 31, 2021, the Company had ROU of $15,917 and current lease liability of $17,684.

 

Recently Issued Accounting Pronouncements 

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its CFS.

 

In January 2017, the FASB issued ASU No. 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 fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis. As a smaller reporting company, the standard will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its CFS.

 

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent application among reporting entities. The guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is evaluating the impact of this on its CFS.

 

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company continues to evaluate the impact of the guidance and may apply the elections as applicable as changes in the market occur.

 

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period.  The Company is currently evaluating the impact that ASU 2020-06 may have on its consolidated financial statements and related disclosures.

 

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 $6.00 million at March 31, 2021, the Company had net loss of $33,575 and $35,844 for the six months ended March 31, 2021 and 2020, respectively, the Company had net income of $46,367 and net loss of $6,433 for the three months ended March 31, 2021 and 2020, respectively. In addition, the Company’s business and services and results of operations have been adversely affected and continue to be adversely affect by the COVID-19 (also see the discussion of COVID-19 in Note 1), these raise substantial doubt about the Company’s ability to continue as a going concern.

 

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 or loans from banks or others.

 

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 March 31, 2021 and September 30, 2020 consisted of the following:

 

  

March 31, 2021

  

September 30, 2020

 
         

Computer equipment

 $1,852  $1,852 

Less accumulated depreciation

  (1,575

)

  (1,389

)

Computer equipment, net

  277   463 
         

Office furniture

  12,746   12,746 

Less accumulated depreciation

  (7,738

)

  (6,828

)

Office furniture, net

  5,008   5,918 

Total property and equipment, net

 $5,285  $6,381 

 

Depreciation for the six months ended March 31, 2021 and 2020 was $1,096 and $1,096, respectively. 

 

Depreciation for the three months ended March 31, 2021 and 2020 was $548 and $548, respectively. 

 

Note 5 – Prepayment for Acquisition of Mining Rights

 

On February 9, 2021, Fuse Group and Processing entered into a Share Exchange Agreement with 5 individuals who owned Portafolio en Investigacion Ambiental S.A. de C.V., a Mexican company (“Portafolio”). Pursuant to the agreement, the Company issued 14,285,715 shares of common stock of the Company for all the outstanding shares of Portafolio (the “Mexican Shares”) owned by these five sellers. The Company have issued the Fuse Shares but have not delivered them to the Sellers. Portafolio owns five mines in Mexico. There are no operations for Portafolio nor the five mines owned by Portafolio. This acquisition will be accounted for as the purchase of the assets, the FV of the Company’s shares on February 9, 2021 was $0.07; accordingly, the cost for the purchase of five mines’ rights were $1,000,000. However, the acquisition has not been completed yet as of March 31, 2021 as the Company was waiting for the completion of the transfer of Mexican Shares from the sellers to the Processing, and the $1,000,000 was recorded as prepayment for acquisition of mining rights.

 

Note 6 – Prepaid Expenses (Current and Non-current)

 

As of March 31, 2021, the Company had current prepaid Director & Officer insurance of $28,040.

 

 

At March 31, 2021 and September 30, 2020, the Company had noncurrent 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, Processing 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 5 mines located in different areas of Mexico for an aggregate purchase price of $1,000,000. Upon 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 that the Company would pay $1,000,000 to purchase all five mines that would be consolidated into a local company in Mexico upon  the approval from the Mexican government allowing the transfer of all mining concession to the Mexican company. The Company paid $1,000,000 through the issuance of 14,285,715 shares of the Company in the names of the shareholders of the Mexican company as discussed in Note 5 for the ownership of the Mexican company, which holds the mining rights of five mines in February 2021. However, the acquisition has not been completed yet, the remaining $1,000,000 of consulting fees, which arises from the acquisition of assets in Mexico, will be part of the asset acquisition costs upon completion of the asset acquisition in accordance with FASB ASC 805-50-30-1.

 

Note 7 – Other Payables 

 

As of March 31, 2021, and September 30, 2020, the Company had other payables of $2,616 and $4,499, respectively. Other payables mainly consisted of salary and payroll tax payables.   

 

Note 8 – Loans Payable

 

On May 14, 2020, Processing received $49,600 from the Paycheck Protection Program loan (“PPP loan”) from U.S. Small Business Administration (“the SBA”). The loan will be forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (at least 60% of the forgiven amount must have been used for payroll). The loan amount not forgiven, will have annual interest of 1%. Loan payments will be deferred to either (1) the date that SBA remits the borrower’s loan forgiveness amount to the lender or (2) if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period. Loans issued prior to June 5, 2020 have a maturity of two years, loans issued after June 5, 2020 have a maturity of five years. No collateral or personal guarantees are required. A borrower may apply for loan forgiveness any time on or before the maturity date of the loan, including before the end of the Covered Period (either (1) the 24-week (168-day) period beginning on the PPP Loan Disbursement Date, or (2) if the Borrower received its PPP loan before June 5, 2020, the Borrower may elect to use an eight-week (56-day) Covered Period); provided such application for loan forgiveness is made within 10 months after the last day of the covered period, otherwise the loan is no longer deferred and the borrower must begin paying principal and interest. Just recently, the U.S. Treasury and SBA announced a streamlined PPP forgiveness application for loans of $50,000 or less (unless those borrowers together with their affiliates received loans totaling $2 million or more). It requires fewer calculations and may call for less documentation. It does not require borrowers to reduce their loan forgiveness calculations if they have reduced full-time equivalent (“FTE”) or salaries. The forgiveness application processing time may also be shorter. Fuse Processing applied PPP loan forgiveness in March 2021, and is waiting for the approval as of this report date. 

 

On June 24, 2020, Fuse Biotech received $105,400 from the Economic Injury Disaster Loan (“EIDL loan”) from the SBA after deducting $100 Uniform Commercial Code (“UCC”) handling charge and filing fee. This is a low-interest federal disaster loan for working capital to small businesses and non-profit organizations of any size suffering substantial economic injury as a result of the Coronavirus (COVID-19), to help the businesses to meet financial obligations and operating expenses that could have been met had the disaster not occurred.  This loan has annual interest of 3.75% and is not forgivable. The maturity of the loan is 30 years, installment payments including principal and interest of $515 monthly will begin 12 months from the date of the promissory note. As of March 31, 2020, the future minimum principal amount of loan payments to be paid by year are as follows:

 

Year Ending

 

Amount

 

03/31/2022

 $51,363 

03/31/2023

  2,189 

03/31/2024

  2,273 

03/31/2025

  2,359 

03/31/2026

  2,449 

Thereafter

  97,472 

Total

 $158,105 

 

 

Note 9 – Income Tax

 

At March 31, 2021 and September 30, 2020, the Company had accumulated net operating loss (“NOL”) carryforwards for income tax purposes. For federal income tax purposes, the NOLs 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. However, the coronavirus Aid, Relief and Economic Security Act (“the CARES Act”) issued in March 2020, provides tax relief to both corporate and noncorporate taxpayers by adding a five-year carryback period and temporarily repealing the 80% limitation for NOLs arising in 2018, 2019 and 2020. The Company estimated NOL carry-forwards for Federal and California income tax purposes of $4.39 million and $4.36 million at March 31, 2021 and September 30, 2020, 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 $1.23 million as of March 31, 2021, 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. 

 

Components of deferred tax assets as of March 31, 2021 and September 30, 2020 are as follows:

 

  

March 31, 2021

  

September 30, 2020

 

Net deferred tax assets:

        

Expected income tax benefit from NOL carry-forwards

 $1,228,139  $1,218,780 

Lease expense under ASU 842

  495   390 

Less valuation allowance

  (1,228,634

)

  (1,219,170

)

Deferred tax assets, net of valuation allowance

 $0  $0 

 

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 six months ended March 31, 2021 and 2020 is as follows:

 

  

2021

  

2020

 
         

Federal statutory income tax expense (benefit) rate

  (21.00

)%

  (21.00

)%

Federal income tax rate difference

  0.00

%

  0.00

%

Permanent difference

  0.99

%

  0.00

%

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

  (6.97

)%

  (6.98

)%

Change in valuation allowance on net operating loss carry-forwards

  34.68

%

  40.54

%

Effective income tax rate

  7.70

%

  12.56

%

 

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 three months ended March 31, 2021 and 2020 is as follows:

 

  

2021

  

2020

 
         

Federal statutory income tax expense (benefit) rate

  21.00

%

  (21.00

)%

Federal income tax rate difference

  0.00

%

  0.00

%

Permanent difference

  0.36

%

  0.00

%

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

  6.98

%

  (6.98

)%

Change in valuation allowance on net operating loss carry-forwards

  (23.42

)%

  87.50

%

Effective income tax rate

  4.92

%

  59.52

%

 

 

Note 10 – 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.

 

For the six months ended March 31, 2021 and 2020, the Company recorded revenue of $350,000 and $450,000 for the services provided, respectively. For the three months ended March 31, 2021 and 2020, the Company recorded revenue of $250,000 and $200,000 for the services provided, respectively. 

 

For the six months ended March 31, 2021, the Company had two customers which accounted for 71% and 29% of the Company’s total revenue. For the six months ended March 31, 2020, the Company had one customer which accounted for 100% of the Company’s total revenue.

 

For the three months ended March 31, 2021 and 2020, the Company had one customer which accounted for 100% and 100% of the Company’s total revenue.

 

Note 11 – Commitments 

 

Lease Commitment 

 

Effective December 1, 2018, the Company entered a three-year lease for 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 cost of $13,770 and $13,705 for the six months ended March 31, 2021 and 2020, respectively. The Company recorded rental cost of $6,918 and $6,853 for the three months ended March 31, 2021 and 2020, respectively. 

 

The components of lease costs, lease term and discount rate with respect to the office lease with an initial term of more than 12 months are as follows:  

 

  

Six Months Ended March 31,

 
  

2021

  

2020

 

Operating Lease costs

 $13,770  $13,705 

Weighted Average Remaining Lease Term

  0.75   1.75 

Weighted Average Discount Rate

  4%  4%

 

  

Three Months Ended March 31,

 
  

2021

  

2020

 

Operating Lease costs

 $6,918  $6,853 

Weighted Average Discount Rate

  4%  4%

 

The following is a schedule of maturities of lease liabilities as of March 31, 2021:

 

For the 12 months ended

 

Operating Leases

 

March 31, 2022

 $17,950 

Less: imputed interest

  (266

)

Present value of lease liabilities

 $17,684 

 

 

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, 2022 with the same terms.

 

 

2)

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 six and three months ended March 31, 2021 and 2020, the Company spent $0 expense on this mine. The Company expects to spend an additional $1.56 million on this project as of March 31, 2021. 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 September 1, 2020, Mr. Viotto receives annual compensation of $50,000, and the agreement has a term of one year, from August 22, 2020.  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 12 – 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. 

 

 

 

Item 2.

Managements 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 our consolidated financial statements and related notes appearing elsewhere in 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 the Annual Report on Form 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 mining and biotech areas. On December 6, 2016, the Company incorporated Fuse Processing, Inc. (“Processing”) in the State of California. Processing seeks business opportunities in mining 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. in the State of Nevada, which changed its name to Fuse Biotech Inc. on November 30, 2020.  Fuse Group is the sole shareholder of Fuse Biotech Inc. ("Biotech”). Fuse Biotech mainly engaged in IMETAL system development. The Company originally planned to operate IMETAL as a platform 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. 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 the project had more issues and costs for compliance than originally expected, on December 23, 2019, the Board decided to terminate the IMETAL project. Currently, Biotech is seeking business opportunities in the biotech area.

 

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, Processing and the consulting company extended the Consulting and Strategist Agreement until January 3, 2018 at no additional cost, and the Agreement was subsequently extended to July 3, 2018. The consultant provides Processing with market research, 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 to purchase five mines located in different areas of Mexico for $1,000,000. Upon 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 that the Company would pay $1,000,000 to purchase all five mines that would be consolidated into a local company in Mexico upon  the approval from the Mexican government allowing the transfer of all mining concession to a Mexican company. On February 9, 2021, the Company, Processing entered into a Share Exchange Agreement (the “Agreement”) with Choo Keam Hui, Goh Hau Guan, Lim Hui Sing, Teh Boon Nee and Tia Chai Teck (collectively as the “Sellers”). Pursuant to the Agreement, the Company agreed to issue to the Sellers in aggregate of 14,285,715 shares of common stock of the Company (the “Fuse Shares”) in exchange of all the outstanding shares of Portafolio en Investigacion Ambiental S.A. de C.V., a Mexican company that owns five mines and owned by the Sellers. The Company have issued the Fuse Shares but have not delivered them to the Sellers. The Company is waiting for the Sellers to complete the transfer process for the equity interest of Portafolio to the Processing to complete the transaction..  

 

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. 

 

In December 2019, the COVID-19 outbreak began to impact the population in China and since January 2020, the COVID-19 outbreak has spread around the world., including the United States. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the pandemic has resulted in quarantines, travel restrictions, and the temporary closure of office buildings and facilities in the US. The state of California, where the Company is headquartered, has been affected by COVID-19.

 

Our business and services and results of operations have been adversely affected and could continue to be adversely affected by the COVID-19 pandemic. The pandemic 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. Potential impact to our results of operations will also depend on future developments and new information that may emerge regarding COVID-19, the efficacy and distribution of COVID-19 vaccines and the actions taken by governmental authorities and other entities to contain COVID-19 and/or mitigate its impact, almost all of which are beyond our control. 

 

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.

 

We received a $49,600 Paycheck Protection Program loan (“PPP loan”) and a $105,500 Economic Injury Disaster Loan (“EIDL loan”) from US Small Business Administration (“ the SBA”) during the year ended September 30, 2020.

 

We currently believe 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.  

 

On March 11, 2021, Fuse Group and Biotech entered into a Share Exchange Agreement with E-Mo Biotech Holding Inc., a company incorporated under the laws of Nevada (the “E-Mo Biotech”), Qiyi Xie, a resident of California (“Xie”), Quan Qinghua, a citizen and resident of China (“Quan”), Jing Li, a citizen and resident of China (“Li”) and HWG Capital Sdn Bhd, a company incorporated under laws of Malaysia (“HWG” and hereinafter collectively with Xie, Quan and Li, the “Sellers”). Pursuant to the Agreement, the Company will issue the Sellers 100,000,000 shares of common stock of the Company (the “Fuse Shares”) for all the issued and outstanding shares of E-Mo (the “E-Mo Shares”) owned by the Sellers. E-Mo Biotech engages in biology research and development business. The acquisition has not been completed yet and the Fuse Shares have not been issued as of this reporting date.

 

Results of operations for the six months ended March 31, 2021 and 2020 

 

Revenue and Cost of Revenue

 

We 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 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.

 

 

For the six months ended March 31, 2021, we provided four potential mine opportunities in Mexico to a client. For the six months ended March 31, 2021, the Company recorded revenue of $350,000 for the services provided. Our revenue for the six months ended March 31, 2020 was $450,000. Our cost of revenues for the six months ended March 31, 2021 and 2020 was $33,570 and $180,401, 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 $316,430 and $269,599 for the six months ended March 31, 2021 and 2020, respectively. 

 

Costs and Expenses

 

The major components of our expenses for the six months ended March 31, 2021 and 2020 are outlined in the table below:

 

  

2021

  

2020

  

Increase

(Decrease)

 
             

General and administrative

 $298,612  $263,960  $34,652 

Consulting fees

  46,262   36,748   9,514 

Total operating expenses

 $344,874  $300,708  $44,166 

 

The increase in our operating expenses for the six months ended March 31, 2021, compared to the six months ended March 31, 2020, was mainly due to an increase in consulting fees of $9,514, and increased professional fee of $40,340 which was partly offset by decreased payroll expense by $7,430.

 

Non-operating expenses, net

 

Net non-operating expenses were $2,731 for the six months ended March 31, 2021, compared to $735 for the six months ended March 31, 2020.  For the six months ended March 31, 2021, non-operating expenses mainly consist of interest expense on EIDL of $2,012 and bank service charge of $719. For the six months ended March 31, 2020, non-operating expenses mainly consist of bank service charge of $535 and other expenses of $200.

 

Results of operations for the three months ended March 31, 2021 and 2020 

 

Revenue and Cost of Revenue

 

We 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 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.

 

For the three months ended March 31, 2021, we provided three potential mine opportunities in Mexico to a client. For the three months ended March 31, 2021, the Company recorded revenue of $250,000 for the services provided. Our revenue for the three months ended March 31, 2020 was $200,000. Our cost of revenues for the three months ended March 31, 2021 and 2020 was $23,535 and $48,063, respectively, mainly for the consulting expenses paid for mine expertise for due diligence, resulting in a gross profit of $226,465 and $151,937 for the three months ended March 31, 2021 and 2020, respectively. 

 

Costs and Expenses

 

The major components of our expenses for the three months ended March 31, 2021 and 2020 are outlined in the table below:

 

  

2021

  

2020

  

Increase

(Decrease)

 
             

General and administrative

 $162,527  $131,315  $31,212 

Consulting fees

  13,825   24,415   (10,590

)

Total operating expenses

 $176,352  $155,730  $20,622 

 

 

The increase in our operating expenses for the three months ended March 31, 2021, compared to the three months ended March 31, 2020, was mainly due to an increase in professional expense by $39,320 which was partly offset by decreased payroll expense by $7,430 and decreased consulting fee by $10,590.

 

Non-operating expenses, net

 

Net non-operating expenses were $1,346 for the three months ended March 31, 2021, compared to $240 for the three months ended March 31, 2020.  For the three months ended March 31, 2021, non-operating expenses mainly consist of interest on EIDL loan of $1,011 and bank service charge of $335. For the three months ended March 31, 2020, non-operating expenses mainly consist of bank service charge of $240.

 

Liquidity and Capital Resources

 

The table below provides selected working capital information as of March 31, 2021 and September 30, 2020:

 

  

March 31, 2021

  

September 30, 2020

 
         

Total current assets

 $172,319  $204,295 

Total current liabilities

  71,663   80,843 

Working capital

 $100,656  $123,452 

 

Liquidity

 

During the six months ended March 31, 2021 and 2020, we had net loss of $33,575 and net loss of $35,844, respectively. During the three months ended March 31, 2021 and 2020, the Company reported net income of $46,367 and net loss of $6,433, respectively.  We received $49,600 from the PPP loan and $105,500 from the EIDL loan during the year ended September 30, 2020 for paying the Company’s payroll and other operating expenses during the COVID-19 pandemic.

 

If we are not successful in developing 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 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 periods indicated, provides selected cash flow information for the six months ended March 31, 2021 and 2020: 

 

  

2021

  

2020

 
         

Net cash used in operating activities

 $(50,191

)

 $(60,345

)

Net cash used in investing activities

  -   - 

Net cash used in financing activities

  -   - 

Net increase (decrease) in cash

 $(50,191

)

 $(60,345

)

 

Cash Flows from Operating Activities

 

Our cash used in operating activities for the six months ended March 31, 2021 and 2020 was $50,191 and $60,345, respectively.  The decrease in cash outflow during the six months ended March 31, 2021 was due to adjustment to reconcile net loss to net cash used in operating activities of amortization of prepaid insurance expense by $10,521.

 

 

Cash Flows from Investing Activities  

 

During the six months ended March 31, 2021 and 2020, we did not have any investing activities.

 

Cash Flows from Financing Activities

 

During the six months ended March 31, 2021 and 2020, we did not have any financing activities.

 

Recent Accounting Pronouncements

 

See Note 2 to the Consolidated Financial Statements.

 

Off Balance Sheet Arrangements

 

As of March 31, 2021, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

 

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 March 31, 2021, 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 March 31, 2021. 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 March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 

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

 

 

 

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)

   
  

May 11, 2021

   
 

By:

/s/ Michael Viotto

  

Michael Viotto

  

Chief Financial Officer

  

(Principal Financial and Accounting Officer)

   
  

May 11, 2021

 

 

 

 

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