ZZLL INFORMATION TECHNOLOGY, INC. The discussion and analysis which follows in this Annual Report may contain trend analysis and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to future events and financial results. These include statements regarding our future financial results, projected growth and forecasts, and similar matters which are not historical facts. We remind stockholders that forward-looking statements are merely predictions and therefore are inherently subject to uncertainties and other factors which could cause the actual future events or results to differ materially from those described in the forward-looking statements. These uncertainties and other factors include, among other things, the impact of the spread of the COVID-19 pandemic, business conditions affecting our business and general economic conditions; our ability to generate sufficient revenues to reach profitable operations; and our need to obtain additional financing. The forward-looking statements contained in this Annual Report and made elsewhere by or on our behalf should be considered in light of these factors.
We currently operate our business through our subsidiaries, HSAL, SAL and Ezekiel.
HSAL's e-Commerce business
HSAL is an e-Commerce company operating through its self-developed online
application "Bibishengjia". Bibishengjia is a shopping search engine that
concurrently searches many shopping sites, preliminarily based in
On
In addition to our own marketing and promotional efforts and Pretech's sales support, in the third quarter of 2020, we started to promote the Bibishengjia APP through "Momo" by using live streaming. We believe the mobile streaming media will accelerate our growth in the future.
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Ezekiel's petroleum based products distribution business
In
Ezekiel's multi-function lottery tickets machine business
In late 2020, Ezekiel started a new business where it purchases custom-made
multi-function lottery ticket machines and re-sells them to third parties. The
machines are designed and manufactured by third parties with third party
technologies. Ezekiel doesn't own any intellectual property rights relating to
the machines. Besides dispensing lottery tickets for which the machine owner
retains 7-8% of the ticket sales price, the machines also function as a
cellphone charging station for about
Going Concern Uncertainties
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
The Company, which had an accumulated deficit of
Management plans to support the Company in operation and to maintain its business strategy to raise funds through public and private offerings and to rely on officers and directors to perform essential functions with minimal compensation. If we do not raise all of the money we need from such offerings, we will have to find alternative sources including, loans from our officers, directors or others. Management has actively taken steps to revise its operating and financial requirements, which they believe will allow the Company to continue its operations for the next 12 months.
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Critical Accounting Policies
Our financial statements have been prepared in accordance with accounting
principles generally accepted in
Revenue Recognition.
We adopted Accounting Standard Codification ("ASC") Topic 606, Revenues from Contract with Customers ("ASC 606") for all periods presented. Under ASC 606, revenue is recognized when control of the promised goods and services is transferred to the Company's customers, in an amount that reflects the consideration that we expect to be entitled to in exchange for those goods and services, net of value-added tax. We determine revenue recognition through the following steps:
? Identify the contract with a customer;
? Identify the performance obligations in the contract;
? Determine the transaction price;
? Allocate the transaction price to the performance obligations in the contract;
and
? Recognize revenue when (or as) the entity satisfies a performance obligation.
The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied by the control of the promised goods and services is transferred to the customers, which at a point in time or over time as appropriate.
Our revenues are net of value added tax ("VAT") collected on behalf of PRC tax authorities in respect to the sales of merchandise. VAT collected from customers, net of VAT paid for purchases, is recorded as a liability in the accompanying consolidated balance sheets until it is paid to the relevant PRC tax authorities
Ezekiel's petroleum-based product distribution business generates revenue from its sales. Ezekiel's multi-function lottery ticket machine business generates revenue from the sale of machines to third parties and from its retention of a percentage of all lottery ticket sales made by the machines.
Cost of sales. Cost of sales includes the cost of direct labor, merchandise and materials.
Selling expenses. Selling expenses include advertising, depreciation and amortization, and certain expenses associated with operating the Company's corporate headquarters.
General and administrative expenses. General and administrative expenses include rent, salaries, business registration fees, telephone and utilities costs, and office miscellaneous expenses.
Accounts Receivable. We don't have any accounts receivable in this period. For our e-commence segment, our customers are required to pay while placing their orders per our policy, and therefore we don't record any accounts receivable. The payment under the Pretech Agreement was paid in full upon signing. Lump sum payments are required to be made for our petroleum based products and our multi-function lottery machines per our sales policy, and therefore we don't incur any material accounts receivable.
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Plant and equipment. Plant and equipment are stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to physical properties are capitalized. Depreciation of plant and equipment is provided using the straight-line method over their estimated useful lives at the following annual rates.
Income Taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Recent accounting pronouncements
Our company considers the applicability and impact of all Accounting Standard Updates ("ASUs"). ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on our balance sheets or statements of operations.
In
Recent Developments
The COVID-19 outbreak has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, layoffs, defaults and other significant economic impacts, as well as general concern and uncertainty. The current severity of the pandemic and the uncertainty regarding the length of its effects could have negative consequences for our company.
Most of our administrative functions are being performed remotely. A small crew maintains each of our three offices for those functions that cannot be handled remotely. Our ability to collect money, pay bills, handle customer and consumer communications, schedule production, and order ingredients necessary for our production has not been impacted.
To date, the pandemic has had minimal impact on our sales. We experienced a
slight decline in sales at the beginning of the imposition of restrictions to
mitigate the spread of COVID-19. To date we have not experienced a significant
change in the timeliness of payments of our invoices and our cash position,
remains stable with approximately
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Segment Reporting
Since the fourth quarter of 2020 we have been engaged in two business segments, the e-commerce business, consisting of HSAL and SAL's e-commerce operation, and sales business covering Ezekiel's sales of petroleum based products and multi-function lottery machines. In 2019 we operated in one segment, our e-Commerce segment.
Result of Operations
Three Months Ended
The following table sets forth a summary of our consolidated statements of operations for the periods indicated.
Three Months Ended Variance
March 31, March 31,
2021 2020 Amount %
Net sales $ 380,376 $ 150,388 229,988 153 %
Cost of revenues (9,243 ) (20,242 ) 10,999 (54 )%
Gross profit 371,133 130,146 240,987 185 %
General and administrative and other
operating expenses (245,436 ) (86,818 ) (158,618 ) 183 %
Income from operations 125,697 43,328 82,369 190 %
Other non-operating income 325 87,067 (86,742 ) (100 )%
Other expenses (7,714 ) - (7,714 ) N/A %
Interest income 2 4 (2 ) (50 )%
Interest expenses (3,174 ) (1,950 ) (1,224 ) 63 %
Income before income taxes 115,136 128,449 (13,313 ) (10 )%
Income taxes - -
Net income 115,136 128,449 (13,313 ) (10 )%
Net revenue for the three months ended
Our cost of revenues decreased to
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Our gross profit increased by
Selling, general and administrative expenses increased by
Our income from operations was
We had non-operating income of
Liquidity and Capital Resources
As of
To date the Company has funded its operations by advances from related parties
which are interest free, unsecured, and have no fixed repayment terms and in
2020 from cash provided from operations including the prepayment made under the
Pretech Agreement. As of
Management has continued to support the Company's operations and the Company has relied on its officers and directors to perform essential functions with minimal compensation. If the Company is unable to raise the funds it requires from third parties it will have to find alternative sources, such as loans from our officers and directors.
As of
Management has actively taken steps to monitor its operating and financial requirements and believes that its current and available capital resources will allow the Company to continue its operations throughout this fiscal year.
The following table summarizes our cash flows for the periods presented:
Three Months Three Months
Ended Ended
March 31, March 31,
2021 2020
Net cash provided by (used for) operating activities (1,377,145 ) $ 376,363
Net cash provided by (used for) investing activities 45,526 4
Net cash provided by (used for) financing activities 555,537 (235,887 )
Net increase (decrease) in cash and cash equivalents (776,082 ) $ 140,480
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Net cash used for operating activities during the quarter ended
Net cash used for investing activities during the quarter ended
Net cash provided by financing activities was
We believe our existing cash and cash equivalents on hand at
Inflation and Seasonality
We do not believe that our operating results have been materially affected by inflation during the preceding two years. There can be no assurance, however, that our operating results will not be affected by inflation in the future. Our business is subject to minimal seasonal variations.
Off-Balance Sheet Arrangements
The Company did not have any off-balance sheet arrangements as of
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