ZZLL INFORMATION TECHNOLOGY, INC. The discussion and analysis which follows in this Report may contain trend analysis and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to future events and financial results. These include statements regarding our future financial results, projected growth and forecasts, and similar matters which are not historical facts. We remind stockholders that forward-looking statements are merely predictions and therefore are inherently subject to uncertainties and other factors which could cause the actual future events or results to differ materially from those described in the forward-looking statements. These uncertainties and other factors include, among other things, the impact of the spread of the COVID-19 pandemic, business conditions affecting our business and general economic conditions; our ability to generate sufficient revenues to reach profitable operations; and our need to obtain additional financing. The forward-looking statements contained in this Report should be considered in light of these factors. The interim results of operations are not necessarily indicative of the operating results for the fiscal year or any future periods. Business Operations
We currently operate our business through our subsidiaries, HSAL, SAL and Ezekiel.
HSAL's e-Commerce business HSAL is an e-Commerce company operating through its self-developed online application "Bibishengjia". Bibishengjia is a shopping search engine that concurrently searches many shopping sites, preliminarily based inChina , including major shopping sites such as Taobao.com, Tmall.com, JD.com and Pinduoduo.com, and helps customers meet their one-stop online shopping needs. Bibishengjia also runs its own online shopping platforms -Bibi Mall andLianlian Nongyuan Agricultural Products Store . Bibishengjia was launched onAugust 18, 2019 and is currently available for download at theApple APP Store and other major mobile download stores. OnSeptember 26, 2019 , we, through SAL, entered into an agreement (the "Pretech Agreement") withPretech International Co., Limited ("Pretech"), a company incorporated under the laws ofHong Kong ("HK"). Pretech is a software, hardware and digital company that also specializes in the development and manufacture of consumer electronics. Under the terms of the Pretech Agreement, Pretech agreed to act as SAL's sales agent to promote and bring more customers to Bibishengjia and also make sales of its own products through the use of Bibishengjia. Pretech paid$1 million for the use of Bibishengjia, and the Company agreed to pay Pretech 5% of all sales made in the PRC and HK through Bibishengjia. The term of the Pretech Agreement is for 24 months from the date the Pretech Agreement was entered into and is extendable for another 24 months, unless a party decides to cancel at the end of the initial 24-month period. Pretech's use of Bibishengjia is accomplished by a section on the Bibishengjia APP created specifically for Pretech. When users browse the Bibishengjia APP, they are able to click on the Pretech hyperlink and be directed to Pretech's own site where they can make purchases of Pretech's products. Additional features and functions may be added to the APP according to the Pretech's needs, markets conditions and additional requirements upon separate agreement between the parties, either in conjunction with the needs of SAL and HSAL or specifically for Pretech. OnOctober 26, 2020 , the Pretech Agreement was amended and restated whereby Pretech was given the right to use Bibishengjia directly for 7 years. Under the Pretech Agreement, the Bibishengjia APP, its contents and all related intellectual property rights including rights related to the Pretech hyperlink, are the sole property of SAL, including any additional developments or modifications made in the APP, in perpetuity. In addition to our own marketing and promotional efforts and Pretech's sales support, in the third quarter of 2020, we started to promote the Bibishengjia APP through "Momo" by using live streaming. We believe the mobile streaming media will accelerate our growth in the future.
Ezekiel's petroleum- based products distribution business
InOctober 2020 , Ezekiel entered into the business of distribution of petroleum-based products, such as asphalt, heat conduction oil and machine (lubricating) oil. Ezekiel's suppliers include large Chinese state-owned enterprises as well as reputable private Chinese companies. Ezekiel doesn't take possession of the petroleum-based products which are stored in the supplier's designated warehouse and is not responsible for delivery to the customers.
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Ezekiel's multi-function lottery tickets machine business
In late 2020, Ezekiel started a new business where it purchases custom-made multi-function lottery ticket machines and re-sells them to third parties. The machines are designed and manufactured by third parties with third party technologies. Ezekiel doesn't own any intellectual property rights relating to the machines. Besides dispensing lottery tickets for which the machine owner retains 7-8% of the ticket sales price, the machines also function as a cellphone charging station for about$0.45 per hour and a disinfectant wipes dispenser at cost. The machine has a LED screen which allows a customer to browse the Bibishengjia APP and make purchases there. Ezekiel has obtained licenses from several second and third-tier cities in the PRC where competition for lottery tickets sales and lottery tickets machines is manageable. The licenses allow its machines to dispense lottery tickets in these cities. Besides selling the machines to third parties, Ezekiel also plans to install, as the owner and operator, machines at locations in cities where they already received licenses to sell lottery tickets. Going Concern Uncertainties The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. The Company, which had an accumulated deficit of$2,649,419 and a working capital deficit of$446,938 as ofJune 30, 2021 , first reported an operating profit in the second quarter of 2021. The recoverability of a major portion of the recorded asset amounts and realization of the portion of current liabilities into revenue shown in the accompanying balance sheets are dependent upon continued operations of the Company, which in turn are dependent upon the Company's ability to raise additional financing and to succeed in its future operations. The Company will need additional cash resources to operate during the upcoming 12 months, and the continuation of the Company may be dependent upon the continuing financial support of investors, directors and/or shareholders of the Company. However, there is no assurance that efforts to raise equity or debt will be successful in raising sufficient funds to assure the eventual profitability of the Company. These conditions raise substantial doubt about the Company's ability to continue as a going concern. These accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Management plans to support the Company in operation and to maintain its business strategy to raise funds through public and private offerings and to rely on officers and directors to perform essential functions with minimal compensation. If we do not raise all of the money we need from such offerings, we will have to find alternative sources including, loans from our officers, directors or others. Management has actively taken steps to revise its operating and financial requirements, which they believe will allow the Company to continue its operations for the next 12 months.
Critical Accounting Policies
Our financial statements have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The policies discussed below are considered by management to be critical to an understanding of our financial statements because their application places the most significant demands on management's judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. 19 Revenue Recognition. We adopted Accounting Standard Codification ("ASC") Topic 606, Revenues from Contract with Customers ("ASC 606") for all periods presented. Under ASC 606, revenue is recognized when control of the promised goods and services is transferred to the Company's customers, in an amount that reflects the consideration that we expect to be entitled to in exchange for those goods and services, net of value-added tax. We determine revenue recognition through the following steps: ? Identify the contract with a customer; ? Identify the performance obligations in the contract; ? Determine the transaction price;
? Allocate the transaction price to the performance obligations in
the
contract; and
? Recognize revenue when (or as) the entity satisfies a performance obligation.
The transaction price is allocated to each performance obligation on a relative
standalone selling price basis. The transaction price allocated to each
performance obligation is recognized when that performance obligation is
satisfied by the control of the promised goods and services is transferred to
the customers, which at a point in time or over time as appropriate.
Our revenues are net of value added tax ("VAT") collected on behalf of PRC tax
authorities in respect to the sales of merchandise. VAT collected from
customers, net of VAT paid for purchases, is recorded as a liability in the
accompanying consolidated balance sheets until it is paid to the relevant PRC
tax authorities
Ezekiel's petroleum-based product distribution business generates revenue from
its sales. Ezekiel's multi-function lottery ticket machine business generates
revenue from the sale of machines to third parties and from its retention of a
percentage of all lottery ticket sales made by the machines.
Cost of sales. Cost of sales includes the cost of direct labor, merchandise and materials.
Selling expenses. Selling expenses include advertising, depreciation and amortization, and certain expenses associated with operating the Company's corporate headquarters.
General and administrative expenses. General and administrative expenses include rent, salaries, business registration fees, telephone and utilities costs, and office miscellaneous expenses. Accounts Receivable. We don't have any accounts receivable in this period. For our e-commence segment, our customers are required to pay while placing their orders per our policy, and therefore we don't record any accounts receivable. Lump sum payments are required to be made for our petroleum-based products and our multi-function lottery machines per our sales policy, and therefore we don't incur any material accounts receivable. Plant and equipment. Plant and equipment are stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to physical properties are capitalized. Depreciation of plant and equipment is provided using the straight-line method over their estimated useful lives at the following annual rates. Income Taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date. 20
Recent accounting pronouncements
Our company considers the applicability and impact of all Accounting Standard
Updates ("ASUs"). ASUs not discussed below were assessed and determined to be
either not applicable or are expected to have minimal impact on our balance
sheets or statements of operations.
On January 1, 2020 , the Company adopted Accounting Standards Update ("ASU") No.
2016-13, "Financial Instruments - Credit Losses on Financial Instruments," which
requires that expected credit losses relating to financial assets be measured on
an amortized cost basis and available-for-sale debt securities be recorded
through an allowance for credit losses. ASU 2016-13 limits the amount of credit
losses to be recognized for available-for-sale debt securities to the amount by
which carrying value exceeds fair value and also requires the reversal of
previously recognized credit losses if fair value increases. Also, for
available-for-sale debt securities with unrealized losses, the standard
eliminates the concept of other-than-temporary impairments and requires
allowances to be recorded instead of reducing the amortized cost of the
investment. The adoption by the Company of the new guidance did not have a
material impact on the Company's consolidated financial statements.
Our condensed consolidated financial statements for six months ended June 30,
2021 are presented under the new standard, while comparative periods presented
are not adjusted and continue to be reported in accordance with the Company's
historical accounting policy.
In February 2016 , the Financial Accounting Standard Board ("FASB") issued ASU
No. 2016-02, Leases (Topic 842). The standard requires lessees to recognize
almost all leases on the balance sheet as a right-of-use asset and a lease
liability and requires leases to be classified as either an operating or a
finance type lease. The standard excludes leases of intangible assets or
inventory. In July 2018 , the FASB issued amendments in ASU 2018-11, which
provide another transition method in addition to the existing transition method,
by allowing entities to initially apply the new leases standard at the adoption
date and recognize a cumulative-effect adjustment to the opening balance of
retained earnings in the period of adoption, and to not apply the new guidance
in the comparative periods they present in the financial statements.
Other pronouncements issued by the FASB or other authoritative accounting standards with future effective dates are either not applicable or not significant to the condensed consolidated financial statements of the Company.
Recent Developments The COVID-19 outbreak has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, layoffs, defaults and other significant economic impacts, as well as general concern and uncertainty. The current severity of the pandemic and the uncertainty regarding the length of its effects could have negative consequences for our company.
Most of our administrative functions are being performed remotely. A small crew maintains each of our three offices for those functions that cannot be handled remotely. Our ability to collect money, pay bills, handle customer and consumer communications, schedule production, and order ingredients necessary for our production has not been impacted. To date, the pandemic has had minimal impact on our sales. We experienced a slight decline in sales at the beginning of the imposition of restrictions to mitigate the spread of COVID-19. To date we have not experienced a significant change in the timeliness of payments of our invoices and our cash position remains stable with approximately$74,131 of cash and cash equivalents as ofJune 30, 2021 . 21 Segment Reporting Since the fourth quarter of 2020 we have been engaged in two business segments, the e-commerce business, consisting of HSAL and SAL's e-commerce operation, and sales business covering Ezekiel's sales of petroleum-based products and multi-function lottery machines. In 2019 we operated in one segment, our e-Commerce segment. Result of Operations Three Months EndedJune 30, 2021 Compared with Three Months EndedJune 30, 2020 Three Months Ended Variance June 30, June 30, 2021 2020 Amount % Net sales$ 19,739,374 $ 52,754 19,686,620 37318 % Cost of Revenue (19,490,994 ) (147,891 ) (19,343,103 ) 13079 % Gross profit 248,380 (95,137 ) 343,517 -361 % General and administrative and other operating expenses (206,248 ) (105,567 )
(100,681 ) 95 %
Income (loss) from operations 42,132 (200,704 )
242,836 -121 %
Other non-operating income 3,241 (15,391 )
18,632 -121 %
Other expenses (27 ) - (27 ) NA
Interest income - - -
Interest expense (3,124 ) 1,980 (5,104 ) -258 %
Income (loss) before income taxes 42,222 (214,115 )
256,337 -120 %
Income taxes - 72.00 (72 ) -100 %
Net income (loss) 42,222 (214,187 ) 256,409 -120 %
Net sales for the three months ended June 30, 2021 was $19,739,374 , an increase
of $ 19,686 ,620from net revenue of $52,754 for the three months ended June 30,
2020. The increase is attributable to the operations of Ezekiel, which were
initiated in October 2020 .
Our cost of sales increased to $19,490,994 for the three months ended June 30,
2021, an increase of $ 19,343,103 from the cost of sales of $147 , 891 for the
three months ended June 30, 2020 . The increase is primarily attributable to the
operating costs of Ezekiel, which first began operations in October 2020 .
We incurred a gross profit of $ 248,380 for the three months ended June 30, 2021
as compared to a loss of $95,137 for the three months ended June 30, 2020 . Such
increase was attributable to the increase of sales attributable to the
Bibishengjia platform and the operations of Ezekiel.
Selling, general and administrative expenses increased by $100,681 , or 95%, to
$206,248 for the three months ended June 30, 2021 , from $105,567 for the three
months ended June 30, 2020 . The increase is mainly attributable to HSAL's
increased rent and increased employee salary expenses, and legal and other costs
relating to the formation of Ezekiel. We anticipate that our selling, general
and administrative expenses will continue at the same level for the remaining of
2021.
As a result of the foregoing, our income from operations increased to $42,132
for the three months ended June 30, 2021 , from loss of $200,704 for the three
months ended June 30, 2020 .
We recorded net income of
22
Six Months EndedJune 30, 2021 Compared With Six Months EndedJune 30, 2021
The following table sets forth a summary of our consolidated statements of operations for the periods indicated.
Six Months Ended Variance
June 30, June 30,
2021 2020 Amount %
Net sales $ 20,119,750 $ 203,142 19,916,608 9804 %
Cost of revenues (19,500,237 ) (168,133 ) (19,332,104 ) 11498 %
Gross profit 619,513 35,009 584,504 1670 %
General and administrative and other
operating expenses (451,685 ) (192,385 ) (259,300 ) 135 %
Income from operations 167,828 (157,376 ) 325,204 207 %
Other non-operating income 3,566 71,676
(68,110 ) -95 %
Other expenses (7,740 ) - (7,740 ) %
Interest income 2 34 (32 ) -94 %
Interest expenses (6,298 ) (6,98 ) %
Income before income taxes 157,358 (85,666 )
243,024 284 %
Income taxes - 72 (72 ) -100 %
Net income 157,358 (85,738 ) 243,096 284 %
Net sales for six months ended June 30, 2021 was $20,119,750 , an increase of
$19,916,608 or 9804%, from net revenue of $203,142 for six months ended June 30,
2020 . The increase is primarily attributable to the operations of Ezekiel, which
were initiated in October 2020 .
Our cost of revenues increased to $19,500,237 for six months ended June 30,
2021 , an increase of $19,332,104 , or 11498%, from $168,133 for six months ended
June 30, 2020 . The increase is attributable to the operations of Ezekiel, which
were initiated in October 2020 .
Our gross profit increased by $584,504 or 1670%, to $619,513 in six months ended
June 30, 2021 from $35,009 in six months ended June 30, 2020 . Such increase was
attributable to the increase of sales attributable to the Bibishengjia platform
and to the operations of Ezekiel.
Selling, general and administrative expenses increased by $259,300 , or 135%, to
$451,685 in six months ended June 30, 2021 , from $192,385 in six months ended
June 30, 2020 . The increase is mainly attributable to increased rent expenses
and increased employee salaries.
Our income from operations was
We had non-operating income of$3,566 in six months endedJune 30, 2021 compared to non-operating income of$71,676 in six months endedJune 30, 2020 . In 2020. we recorded$82,000 of non-operating income related to the reversal of a warrant issuance expense incurred in 2018.
We recorded net income of
Liquidity and Capital Resources
As ofJune 30, 2021 , we had$74,131 in cash and cash equivalents and a working capital deficit of$446,938 compared with$932,102 in cash and cash equivalents and a working capital deficit of$560,818 onDecember 31, 2020 . Our accumulated deficit onJune 30, 2021 was$2,649,419 . To date the Company has funded its operations from advances from related parties which are interest free, unsecured, and have no fixed repayment terms and from cash provided from operations including the prepayment made under the Pretech Agreement and from a$4,078,044 prepayment fromQingdao Jiuzhou Xintong Industry andTrade Co., Ltd. for the purchase of petroleum-based products. As ofJune 30, 2021 , andDecember 31, 2020 , we had received net advances of$1,065,333 and$1,157,601 from shareholders and related parties for operating expenses. These advances bear no interest, no collateral and have no repayment term. 23 Management has continued to support our company's operations and we have relied on our officers and directors to perform essential functions with minimal compensation. If we are unable to raise the funds that we require from third parties we will have to find alternative sources, such as loans from our officers and directors. As ofJune 30, 2021 , we had related party receivables in the aggregate amount of$361,566 , due entirely fromHunan Zhong Zong Lianlian Information Technology Limited Company ("Lianlian"). 100% of equity interest inHong Fu and Lianlian are owned byWei Liang andWei Zhu , the two majority shareholders of our company. The amount due fromHong Fu , is a loan in the principal amount ofRMB 600,000 (approximately$88,203 ) for a two-year term beginning onJuly 1, 2019 and free of interest. The amount due from Lianlian is a loan in the principal amount ofRMB 4,500,000 (approximately$ 689,675 ) for a two-year term beginning onJanuary 1, 2020 and free of interest. The$13,018 due from Lianlian is free of interest and due on demand. All of these loans were made in the ordinary course of business.
Management has actively taken steps to monitor its operating and financial requirements and believes that its current and available capital resources will allow our company to continue its operations throughout this fiscal year.
The following table summarizes our cash flows for the periods presented:
six months
six months ended ended
June 30, June 30,
2021 2020
Net cash provided by (used for) operating activities (1,212,481 ) $ 536,112
Net cash provided by (used for) investing activities 68,656 (24,320 )
Net cash provided by (used for) financing activities 274,350 (539,580 )
Net increase (decrease) in cash and cash equivalents (869,475 ) $ (27,788 )
Net cash used for operating activities during six months ended June 30, 2021 ,
was $1,212,481 compared to net cash provided by operation of $536,112 in six
months ended June 30, 2020 . During the 2021 period Ezekiel received a prepayment
of $4,078,044 from customer with respect to a petroleum-based product sale and
subsequently made a prepayment of $ 4,844,437 to the supplier, Yanchang
Petroleum (Zhejiang Free Trade Zone ) Co ., Ltd. The difference between the
customer prepayment and the prepayment to the supplier accounted for the
majority of the net cash used for operating activities.
Net cash provided by investing activities during six months ended June 30, 2021 ,
was $68,656 compared to net cash used for investing activities of $24,320 in the
six months ended June 30, 2020 . The cash provided by investing activities relate
to the purchase of fixed assets, consisting of right of use asset (rent),
furniture and lottery machines in 2021.
Net cash provided by financing activities was $274,350 for six months ended June
30, 2021 compared to net cash used for financing activities of $539,580 in the
six months ended June 30, 2020 . This change was primarily due to advances of $
418,202 from related parties.
We believe our existing cash and cash equivalents on hand at
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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