The following discussion of our financial condition and results of operations
should be read in conjunction with our audited consolidated financial statements
and the notes to those financial statements appearing elsewhere in this Report.
Certain statements in this Report constitute forward-looking statements. These
forward-looking statements include statements, which involve risks and
uncertainties, regarding, among other things, (a) our projected sales,
profitability, and cash flows, (b) our growth strategy, (c) anticipated trends
in our industry, (d) our future financing plans, and (e) our anticipated needs
for, and use of, working capital. They are generally identifiable by use of the
words "may," "will," "should," "anticipate," "estimate," "plan," "potential,"
"project," "continuing," "ongoing," "expects," "management believes," "we
believe," "we intend," or the negative of these words or other variations on
these words or comparable terminology. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this filing will in fact occur. You should not place undue reliance
on these forward-looking statements.
The forward-looking statements speak only as of the date on which they are made,
and, except to the extent required by federal securities laws, we undertake no
obligation to update any forward-looking statements to reflect events or
circumstances after the date on which the statements are made or to reflect the
occurrence of unanticipated events.
Overview
Rito Group Corp is a company that operates through its wholly owned subsidiary,
Sino Union International Limited, a Company organized under the laws of the
British Colony, Anguilla. It should be noted that our wholly owned subsidiary,
Sino Union International Limited. owns 100% of Rito International Enterprise
Company Limited, a Hong Kong Company. We are a development stage Company. During
the development stage, we have been searching for varieties of products to list
under "Rito Online Mall". We found out that customers tend to buy products,
which could improve their living quality. These products are more likely to be
healthy to the customers. One of our best-selling products are AgriGaia
Biomimicry Farming products. The "Rito Online Mall" provides a platform for
merchants and customers to facilitate transactions and take advantage of the
growth opportunity we have identified in Hong Kong's E-Commerce Industry. We
also maintain our store-based physical location for display pieces of the items
available on our platform for consumers to look and test before purchasing the
products online. Since our target for this strategy are middle-class individuals
of all age who want to improve life quality, the online shop mainly lists high
quality products with international brand recognition. Rito plans to open
numerous showrooms in Asia, not strictly limited to Hong Kong, so that we can
reach an even larger market should our initial model within Hong Kong prove to
public offering be as successful as we project.
We have incorporated a new company namely ??????????? in China, with 100% equity
interest owned by Rito International Enterprise Company Limited. At this time,
we operate exclusively through our wholly owned subsidiary and share the same
business plan of our subsidiary which is the sale of miscellaneous retail goods.
To date the goods sold have been sold through the individual efforts of our
management by selling to personal contacts. Sino Union International Limited
also shares the same business plan of Rito International Enterprise Company
Limited.
As of June 30, 2020, and 2019, our accumulated deficits were $4,721,423 and
$3,973,702 respectively. Our stockholders' equity was $92,844 as of June 30,
2020 and stockholders' equity was $539,327 as of June 30, 2019. We have so far
generated $438,845 in revenue for the fiscal year ended 30 June 2020. Our net
losses were principally attributed to general and administrative expenses.
Results of Operations
For the year ended June 30, 2020 compared with the year ended June 30, 2019
Revenue
The Company generated revenue of $438,845 for the year ended June 30, 2020 as
compared to revenue of $425,252 for the year ended June 30, 2019. The revenue
mainly represented the direct sales to Ambitious Gateway Limited.
General and Administrative Expenses
General and administrative expenses for the year ended June 30, 2020 amounted to
$945,293 as compared to $1,639,979 for the year ended June 30, 2019, an decrease
of $694,686. The expenses for the year ended June 30, 2020 were primarily
consisted of payroll expense, rental expenses, marketing fee, advertising and
promotion, entertainment expenses, IT expenses and depreciation. For the year
ended June 30, 2019, all general and administrative expenses were mainly related
to payroll expense, marketing fee, advertising and promotion, entertainment
expenses, IT expenses and rental expenses.
Net Loss
The net loss for the year was $747,721 for the year ended June 30, 2020 as
compared to $$1,512,428 for the year ended June 30, 2019. The net loss mainly
derived from the increase in payroll.
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Liquidity and Capital Resources
As of June 30, 2020, we had working capital deficit of $88,341 consisting of
cash and cash equivalents of $64,528 as compared to working capital surplus of
$372,961 consisting of cash and cash equivalents of $349,080 respectively as of
June 30, 2019.
Net cash used in operating activities for the year ended June 30, 2020 was
$668,356 as compared to net cash used in operating activities of $1,682,156 for
the year ended June 30, 2019. The net cash used in operating activities for the
year ended June 30, 2020 were mainly for payroll expense, rental expenses,
marketing fee, advertising and promotion, entertainment expenses, IT expenses
and depreciation. For the year ended June 30, 2019, the net cash used in
operating activities were related to payroll expense, marketing fee, advertising
and promotion, entertainment expenses, IT expenses and rental expenses.
Net cash used in investing activities for the year ended June 30, 2020 and 2019
was $1,936 and $62,873, respectively. The net cash used in investing activities
for the year ended June 30, 2020 were mainly related to sale of motor vehicle.
Net cash provided by financing activities for the year ended June 30, 2020 was
$380,630 as compared to $1,027,385 for the year ended June 30, 2019. The net
cash provided by financing activities for the year ended June 30, 2020 were
mainly attributed from proceeds from private placements, advance from holding
company and directors. The net cash provided by financing activities for the
year ended June 30, 2019 were mainly attributed from proceeds from private
placements, and repayment to directors.
The revenues, if any, generated from our current business operations alone may
not be sufficient to fund our operations or planned growth. We will likely
require additional capital to continue to operate our business, and to further
expand our business. Sources of additional capital through various financing
transactions or arrangements with third parties may include equity or debt
financing, bank loans or revolving credit facilities. We may not be successful
in locating suitable financing transactions in the time period required or at
all, and we may not obtain the capital we require by other means. Our inability
to raise additional funds when required may have a negative impact on our
operations, business development and financial results.
Critical Accounting Policies and Estimates
Use of estimates
In preparing these consolidated financial statements, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities in
the balance sheets, and revenues and expenses during the periods reported.
Actual results may differ from these estimates.
Cash and cash equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand
deposits placed with banks or other financial institutions and all highly liquid
investments with an original maturity of three months or less as of the purchase
date of such investments.
Impairment of long-lived assets
Long-lived assets primarily include intangible assets. In accordance with the
provision of ASC Topic 360-10-5, "Impairment or Disposal of Long-Lived Assets",
the Company generally conducts its annual impairment evaluation to its
long-lived assets, usually in the fourth quarter of each year, or more
frequently if indicators of impairment exist, such as a significant sustained
change in the business climate. The recoverability of long-lived assets is
measured at the reporting unit level. If the total of the expected undiscounted
future net cash flows is less than the carrying amount of the asset, a loss is
recognized for the difference between the fair value and carrying amount of the
asset. For the years ended June 30, 2020 and 2019, the Company recognized an
impairment charge of $nil and $nil, respectively for intangible assets.
Revenue recognition
In accordance with the Accounting Standard Codification Topic 605 "Revenue
Recognition" ("ASC 605"), the Company recognizes revenue when the following four
criteria are met: (1) delivery has occurred or services rendered; (2) persuasive
evidence of an arrangement exists; (3) there are no continuing obligations to
the customer; and (4) the collection of related accounts receivable is probable.
Revenue is measured at the fair value of the consideration received or
receivable, net of discounts and taxes applicable to the revenue. Revenue from
trading of retail goods is recognized when title and risk of loss are
transferred and there are no continuing obligations to the customer. Title and
the risks and rewards of ownership transfer to and accepted by the customer when
the products are collected by the customer at the Company's office. Revenue is
recorded net of sales discounts, returns, allowances, and other adjustments that
are based upon management's best estimates and historical experience and are
provided for in the same period as the related revenues are recorded. Based on
limited operating history, management estimates that there was no sales return
for the period reported.
The Company derives its revenue from direct sales to individuals and online
sales business. Generally, the Company recognizes revenue when products are sold
and accepted by the customers and there are no continuing obligations to the
customer.
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Cost of revenue
Cost of revenue includes the purchase cost of retail goods for re-sale to the
customers.
Income taxes
The provision of income taxes is determined in accordance with the provisions of
ASC Topic 740, "Income Taxes" ("ASC 740"). Under this 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 basis. Deferred tax
assets and liabilities are measured using enacted income tax rates expected to
apply to taxable income in the periods in which those temporary differences are
expected to be recovered or settled. Any 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.
ASC 740 prescribes a comprehensive model for how companies should recognize,
measure, present, and disclose in their financial statements uncertain tax
positions taken or expected to be taken on a tax return. Under ASC 740, tax
positions must initially be recognized in the financial statements when it is
more likely than not the position will be sustained upon examination by the tax
authorities. Such tax positions must initially and subsequently be measured as
the largest amount of tax benefit that has a greater than 50% likelihood of
being realized upon ultimate settlement with the tax authority assuming full
knowledge of the position and relevant facts.
The Company did not have any unrecognized tax positions or benefits and there
was no effect on the financial conditions or results of operations for the year
ended June 30, 2020 and period ended June 30, 2019. The Company conducts major
businesses in Hong Kong and is subject to tax in this jurisdiction. As a result
of its business activities, the Company will file tax returns that are subject
to examination by the foreign tax authority.
Net loss per share
The Company calculates net loss per share in accordance with ASC Topic 260
"Earnings per share". Basic loss per share is computed by dividing the net loss
by the weighted average number of common shares outstanding during the period.
Diluted loss per share is computed similar to basic loss per share except that
the denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common stock equivalents had
been issued and if the additional common shares were dilutive.
Foreign currencies translation
Transactions denominated in currencies other than the functional currency are
translated into the functional currency at the exchange rates prevailing at the
dates of the transaction. Monetary assets and liabilities denominated in
currencies other than the functional currency are translated into the functional
currency using the applicable exchange rates at the balance sheet dates. The
resulting exchange differences are recorded in the statements of operations.
The reporting currency of the Company and its subsidiary in Anguilla is United
States Dollars ("US$"). The Company's subsidiary in Hong Kong maintains its
books and record in Hong Kong Dollars ("HK$"), which is functional currency as
being the primary currency of the economic environment in which the entity
operates.
In general, for consolidation purposes, assets and liabilities of its subsidiary
whose functional currency is not the US$ are translated into US$, in accordance
with ASC Topic 830-30, "Translation of Financial Statement", using the exchange
rate on the balance sheet date. Revenues and expenses are translated at average
rates prevailing during the period. The gains and losses resulting from
translation of financial statements of foreign subsidiary are recorded as a
separate component of accumulated other comprehensive income within the
statement of changes in stockholders' equity.
Translation of amounts from HK$ into US$1 and from RMB into US$1 has been made
at the following exchange rates for the respective periods:
As of and for the As of and for the
year ended year ended
June 30, 2020 June 30, 2019
Year-end HK$: US$1 exchange rate 7.75 7.75
Average HK$: US$1 exchange rate 7.75 7.75
Year-end CNY¥: US$1 exchange rate 7.07 7.86
Average CNY¥: US$1 exchange rate 7.09 7.86
Related parties
Parties, which can be a corporation or individual, are considered to be related
if the Company has the ability, directly or indirectly, to control the other
party or exercise significant influence over the other party in making financial
and operating decisions. Companies are also considered to be related if they are
subject to common control or common significant influence.
17
Lease:
In February 2016, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) No. 2016-02, Leases, which was subsequently
amended in 2018 by ASU 2018-10, ASU 2018-11 and ASU 2018-20 (collectively, Topic
842). Topic 842 will require the recognition of a right-of-use asset and a
corresponding lease liability, initially measured at the present value of the
lease payments, for all leases with terms longer than 12 months. For operating
leases, the asset and liability will be expensed over the lease term on a
straight-line basis, with all cash flows included in the operating section of
the statement of cash flows. For finance leases, interest on the lease liability
will be recognized separately from the amortization of the right-of-use asset in
the statement of comprehensive income and the repayment of the principal portion
of the lease liability will be classified as a financing activity while the
interest component will be included in the operating section of the statement of
cash flows. Topic 842 is effective for annual and interim reporting periods
beginning after December 15, 2018. Early adoption is permitted. Upon adoption,
leases will be recognized and measured at the beginning of the earliest period
presented using a modified retrospective approach. Topic 842 allows for a
cumulative-effect adjustment in the period the new lease standard is adopted and
will not require restatement of prior periods.
Prior to January 1, 2019, the Company accounted for leases under ASC 840,
Accounting for Leases. Effective July 1, 2019, the Company adopted the guidance
of ASC 842, Leases, which requires an entity to recognize a right-of-use asset
and a lease liability for virtually all leases. The Company adopted ASC 842
using a modified retrospective approach. As a result, the comparative financial
information has not been updated and the required disclosures prior to the date
of adoption have not been updated and continue to be reported under the
accounting standards in effect for those periods. The adoption of ASC 842 on
July 1, 2019 resulted in the recognition of operating lease right-of-use assets
of $80,185, lease liabilities for operating leases of $80,185, and $0
cumulative-effect adjustment to accumulated deficit. After the adoption,
$256,720 of operating lease right-of-use asset and $255,756 of operating lease
liabilities and $964 adjustment to accumulated deficit were retroactively
reflected to June 30, 2020 financial statements. See Note 14 for further
information regarding the impact of the adoption of ASC 842 on the Company's
financial statements.
Fair value of financial instruments:
The carrying value of the Company's financial instruments: cash and cash
equivalents, accounts payable and accrued liabilities, and amount due to a
director approximate at their fair values because of the short-term nature of
these financial instruments.
The Company also follows the guidance of the ASC Topic 820-10, "Fair Value
Measurements and Disclosures" ("ASC 820-10"), with respect to financial assets
and liabilities that are measured at fair value. ASC 820-10 establishes a
three-tier fair value hierarchy that prioritizes the inputs used in measuring
fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which
require the reporting entity to develop its own assumptions.
Fair value estimates are made at a specific point in time based on relevant
market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Recent accounting pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting
pronouncements and do not believe the future adoption of such any pronouncements
may be expected to cause a material impact on its financial condition or the
results of its operations, as follow:
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, "Revenue
from Contracts with Customers" ("ASU 2014-09"). ASU 2014-09 supersedes the
revenue recognition requirements in "Revenue Recognition (Topic 605)", and
requires entities to recognize revenue when it transfers promised goods or
services to customers in an amount that reflects the consideration to which the
entity expects to be entitled to in exchange for those goods or services. ASU
2014-09 is effective for annual reporting periods beginning after December 15,
2016, including interim periods within that reporting period. Early adoption is
not permitted.
In August 2014, the FASB issued ASU 2014-15, "Presentation of Financial
Statements - Going Concern, Disclosure of Uncertainties about an Entity's
Ability to Continue as a Going Concern" ("ASU 2014-15"), which establishes
management's responsibility to evaluate whether there is substantial doubt about
an entity's ability to continue as a going concern and, if so, to provide
related footnote disclosures. ASU 2014-15 provides a definition of the term
"substantial doubt" and requires an assessment for a period of one year after
the date that the financial statements are issued or available to be issued.
Management will also be required to evaluate and disclose whether its plans
alleviate that doubt. The guidance is effective for the annual periods ending
after December 15, 2016 and interim periods thereafter with early adoption
permitted. The Company is currently evaluating the impact the adoption of ASU
2014-15 on the Company's financial statement presentation and disclosures.
18
In August 2015, the FASB issued an Accounting Standards Update to defer by one
year the effective dates of its new revenue recognition standard until annual
reporting periods beginning after December 15, 2017 (2018 for calendar-year
public entities) and interim periods therein. Management is currently assessing
the impact of the adoption of ASU 2014-09 and has not determined the effect of
the standard on our ongoing financial reporting.
In February 2016, the Financial Accounting Standards Board (the "FASB") issued
Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842). Under the
new guidance, lessees will be required recognize the following for all leases
(with the exception of short-term leases) at the commencement date: 1) A lease
liability, which is a lessee's obligation to make lease payments arising from a
lease, measured on a discounted basis; and 2) A right-of-use asset, which is an
asset that represents the lessee's right to use, or control the use of, a
specified asset for the lease term. The new lease guidance simplified the
accounting for sale and leaseback transactions primarily because lessees must
recognize lease assets and lease liabilities. Lessees will no longer be provided
with a source of off-balance sheet financing. The amendments in this ASU are
effective for fiscal years beginning after December 15, 2019, including interim
periods within those years. The Company is evaluating this ASU and has not
determined the effect of this standard on its ongoing financial reporting.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU
2016-13"). The amendments in ASU 2016-13 require the measurement of all expected
credit losses for financial assets held at the reporting date based on
historical experience, current conditions, and reasonable and supportable
forecasts. In addition, ASU 2016-13 amends the accounting for credit losses on
available-for-sale debt securities and purchased financial assets with credit
deterioration. The amendment is effective for public entities for annual
reporting periods beginning after December 15, 2019, however early application
is permitted for reporting periods beginning after December 15, 2018. The
Company does not anticipate ASU 2016-13 to have a material impact to the
consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, "Clarifying the Definition of a
Business." ASU 2017-01 changes the definition of a business to assist entities
with evaluating when a set of transferred assets and activities is a business.
If substantially all of the fair value is concentrated in a single asset or a
group of similar assets, the acquired set is not a business. If this is not met,
the entity then evaluates whether the set meets the requirement that a business
include, at a minimum, an input and a substantive process that together
significantly contribute to the ability to create outputs. Determining whether a
set constitutes a business is critical because the accounting for a business
combination differs significantly from that of an asset acquisition. We early
adopted ASU 2017-01 on January 1, 2017 on a prospective basis, and it has not
had a material impact to our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill
Impairment." ASU 2017-04 removes Step 2 of the goodwill impairment test, which
required a hypothetical purchase price allocation. A goodwill impairment will be
the amount by which a reporting unit's carrying value exceeds its fair value,
not to exceed the carrying amount of goodwill. ASU 2017-04 provides a more
stream-lined approach to evaluating goodwill impairment and we early adopted on
January 1, 2017 on a prospective basis as a change in accounting principle. See
Note 4 to the consolidated financial statements for an update on goodwill
impairment.
On September 29, 2017 the FASB issued "ASU 2017-13-Revenue recognition (Topic
605), Revenue from contracts with customers (Topic 606), Leases (Topic 840), and
Leases (Topic 842)". This update addresses Transition Related to Accounting
Standards Updates No. 2014-09, Revenue from Contracts with Customers (Topic
606), and No. 2016-02, Leases (Topic 842). This Update also supersedes SEC
paragraphs pursuant the rescission of SEC Staff Announcement, "Accounting for
Management Fees Based on a Formula", effective upon the initial adoption of
Topic 606, Revenue from Contracts with Customers, and SEC Staff Announcement,
"Lessor Consideration of Third-Party Value Guarantees," effective upon the
initial adoption of Topic 842, Leases. The adoption of this standard is not
expected to have a material impact on the Company's financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting
Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income (ASU 2018-02), which allows companies to
reclassify stranded tax effects resulting from the Tax Act, from accumulated
other comprehensive income to retained earnings. The guidance also requires
certain new disclosures regardless of the election. ASU 2018-02 is effective for
us in the first quarter of fiscal 2020, and earlier adoption is permitted. We
are currently evaluating the impact of our pending adoption of ASU 2018-02 on
our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic
820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value
Measurement" ("ASU 2018-13"). ASU 2018-13 removes, modifies and adds certain
disclosure requirements in Topic 820 "Fair Value Measurement". ASU 2018-13
eliminates certain disclosures related to transfers and the valuations process,
modifies disclosures for investments that are valued based on net asset value,
clarifies the measurement uncertainty disclosure, and requires additional
disclosures for Level 3 fair value measurements. ASU 2018-13 is effective for
the Company for annual and interim reporting periods beginning July 1, 2020. The
Company is currently evaluating the impact ASU 2018-13 will have on its
consolidated financial statements.
19
Going Concern
The accompanying financial statements have been prepared using the going concern
basis of accounting, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
As of June 30, 2020, the Company suffered an accumulated deficit of $4,721,423
and net loss of $747,721. The continuation of the Company as a going concern
through June 30, 2020 is dependent upon improving the profitability and the
continuing financial support from its stockholders. Management believes the
existing shareholders or external financing will provide the additional cash to
meet the Company's obligations as they become due.
These and other factors raise substantial doubt about the Company's ability to
continue as a going concern. These financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result in the Company not being able to continue as a going concern.
Off-Balance Sheet Arrangements
As of June 30, 2020, we have no significant off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on our
financial condition, changes in our financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to our stockholders.
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