EXHIBIT 99.2
Published on September 28, 2022
Exhibit 99.2
ZK International Group Co., Ltd. and Subsidiaries
Consolidated Balance Sheets
As of March 31, 2022 and September 30, 2021
(IN U.S. DOLLARS, EXCEPT SHARE DATA)
2022 (Unaudited) |
2021 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 5,244,796 | $ | 13,525,298 | ||||
Restricted cash | 79,170 | 77,906 | ||||||
Short-term Investment | 236,619 | 2,560,760 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $2,258,356 and $2,221,870, respectively | 29,545,643 | 27,124,959 | ||||||
Notes receivable | 368,214 | — | ||||||
Other receivables | 5,229,288 | 2,158,120 | ||||||
Inventories | 26,784,418 | 20,689,252 | ||||||
Advance to suppliers | 4,602,336 | 12,567,368 | ||||||
Total current assets | 72,090,484 | 78,703,663 | ||||||
Property, plant and equipment, net | 7,896,620 | 8,004,855 | ||||||
Right-of use asset | 123,042 | 54,166 | ||||||
Intangible assets, net | 9,563,588 | 8,749,987 | ||||||
Deferred tax assets | 359,265 | 353,460 | ||||||
Long-term deposit | 12,677,668 | 12,472,847 | ||||||
Long-term investment | 25,328,632 | 25,323,323 | ||||||
TOTAL ASSETS | $ | 128,039,299 | $ | 133,662,301 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 3,323,532 | $ | 2,159,731 | ||||
Accrued expenses and other current liabilities | 5,629,919 | 6,875,769 | ||||||
Lease liability - current portion | - | 26,332 | ||||||
Accrued payroll and welfare | 1,776,071 | 1,853,019 | ||||||
Advance from customers | 2,492,270 | 5,666,214 | ||||||
Due to related parties | 441,359 | 1,072,335 | ||||||
Convertible debentures | 2,823,364 | 2,823,364 | ||||||
Short-term bank borrowings | 18,912,183 | 21,394,761 | ||||||
Other borrowing - short term portion | 288,418 | 283,758 | ||||||
Income tax payable | 2,354,910 | 2,354,832 | ||||||
Total current liabilities | 38,042,025 | 44,510,115 | ||||||
Lease liability - long term portion | - | 27,834 | ||||||
TOTAL LIABILITIES | $ | 38,042,025 | $ | 44,537,949 | ||||
Equity | ||||||||
Common stock, no par value, 50,000,000 shares authorized, 28,918,177 and 16,558,037 shares issued and outstanding, respectively | ||||||||
Additional paid-in capital | 63,374,085 | 63,374,085 | ||||||
Statutory surplus reserve | 2,916,539 | 2,914,602 | ||||||
Subscription receivable | (125,000 | ) | (125,000 | ) | ||||
Retained earnings | 19,727,213 | 19,737,504 | ||||||
Accumulated other comprehensive income (loss) | 3,764,433 | 2,898,594 | ||||||
Total equity attributable to ZK International Group Co., Ltd. | 89,657,270 | 88,799,785 | ||||||
Equity attributable to non-controlling interests | 340,004 | 324,567 | ||||||
Total equity | 89,997,274 | 89,124,352 | ||||||
TOTAL LIABILITIES AND EQUITY | $ | 128,039,299 | $ | 133,662,301 |
ZK International Group Co., Ltd. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income (Loss)
For the Six Months Ended March 31, 2022 and 2021 (Unaudited)
(IN U.S. DOLLARS, EXCEPT SHARE DATA)
For the Six Months Ended March 31, |
||||||||
2022 | 2021 | |||||||
Revenues | 42,890,657 | $ | 42,168,823 | |||||
Cost of sales | 38,923,548 | 37,461,065 | ||||||
Gross profit | 3,967,109 | 4,707,758 | ||||||
Operating expenses: | ||||||||
Selling and marketing expenses | 930,052 | 2,769,264 | ||||||
General and administrative expenses | 2,232,863 | 1,166,210 | ||||||
Research and development costs | 560,216 | 2,419,355 | ||||||
Total operating expenses | 3,723,132 | 6,354,829 | ||||||
Operating Income (loss) | 243,977 | (1,647,071 | ) | |||||
Other income (expenses): | ||||||||
Interest expenses | (465,466 | ) | (528,598 | ) | ||||
Interest income | 4,493 | 9,543 | ||||||
Other income (expenses), net | 218,277 | 325,539 | ||||||
Total other income (expenses), net | (242,696 | ) | (193,516 | ) | ||||
Income (Loss) before income taxes | 1,281 | (1,840,587 | ) | |||||
Income tax provision | - | (76,306 | ) | |||||
Net income (loss) | 1,281 | $ | (1,916,893 | ) | ||||
Net income (loss) attributable to non-controlling interests | (9,635 | ) | (1,334,346 | ) | ||||
Net income (loss) attributable to ZK International Group Co., Ltd. | (8,354 | ) | $ | (582,547 | ) | |||
Net income (loss) | 1,281 | $ | (1,916,893 | ) | ||||
Other comprehensive income: | ||||||||
Foreign currency translation adjustment | 871,641 | 1,863,153 | ||||||
Total comprehensive income (loss) | 872,922 | (53,740 | ) | |||||
Comprehensive income (loss) attributable to non-controlling interests | (15,437 | ) | (1,315,874 | ) | ||||
Comprehensive income attributable to ZK International Group Co., Ltd. | 857,485 | 1,262,134 | ||||||
Basic and diluted earnings per share | ||||||||
Basic | - | (0.03 | ) | |||||
Diluted | - | (0.03 | ) | |||||
Weighted average number of shares outstanding | ||||||||
Basic | 19,243,252 | |||||||
Diluted | 21,743,252 |
ZK International Group Co., Ltd. and Subsidiaries
Consolidated Statements of Changes in Equity
For Six Months Ended March 31, 2022
(UNAUDITED, IN U.S. DOLLARS, EXCEPT SHARE DATA)
Accumulated | ||||||||||||||||||||||||||||||||
Additional | other | Non- | ||||||||||||||||||||||||||||||
paid-in | Subscription | Statutory | Retained | comprehensive | controlling | Total | ||||||||||||||||||||||||||
Shares | capital | Receivable | surplus reserve | earnings | income (loss) | interests | equity | |||||||||||||||||||||||||
Balance at September 30, 2020 | 16,558,037 | 18,049,630 | — | 2,904,699 | 23,546,921 | 492,685 | 309,794 | 45,303,729 | ||||||||||||||||||||||||
Issuance of common stock, net of offering costs | 7,080,762 | 24,884,560 | (125,000 | ) | 24,759,560 | |||||||||||||||||||||||||||
Common stock issued in connection with conversion of convertible notes | 4,374,176 | 11,443,067 | 11,443,067 | |||||||||||||||||||||||||||||
Issuance of common stock related to exercise of warrants | 355,202 | 1,345,056 | 1,345,056 | |||||||||||||||||||||||||||||
Stock-based compensation | 550,000 | 9,542,783 | 9,542,783 | |||||||||||||||||||||||||||||
Unearned Compensation | (1,891,011 | ) | (1,891,011 | ) | ||||||||||||||||||||||||||||
Foreign currency translations | 2,405,909 | 17,530 | 2,423,439 | |||||||||||||||||||||||||||||
Net income | 9,903 | (3,809,417 | ) | (2,757 | ) | (3,802,271 | ) | |||||||||||||||||||||||||
Balance at September 30, 2021 | 28,918,177 | 63,374,085 | (125,000 | ) | 2,914,602 | 19,737,504 | 2,898,594 | 324,567 | 89,124,352 | |||||||||||||||||||||||
Foreign currency translations | 865,839 | 5,802 | 871,641 | |||||||||||||||||||||||||||||
Net income | 1,937 | (10,291 | ) | 9,635 | 1,281 | |||||||||||||||||||||||||||
Balance at March 31, 2022 | 28,918,177 | 63,374,085 | (125,000 | ) | 2,916,539 | 19,727,213 | 3,764,433 | 340,004 | 89,997,274 |
ZK International Group Co., Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended March 31, 2022 and 2021 (Unaudited)
(IN U.S. DOLLARS)
For the Six Months Ended March 31, |
||||||||
2022 | 2021 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net income | $ | 1,281 | $ | (1,916,893 | ) | |||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Depreciation expense | 340,666 | 264,887 | ||||||
Amortization expense | (938 | ) | 6,605 | |||||
Non-cash expenses | 166,907 | 894,167 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (1,965,921 | ) | 6,755,242 | |||||
Other receivables | (3,021,383 | ) | 2,420,300 | |||||
Notes receivable | (366,474 | ) | 38,197 | |||||
Inventories | (5,728,222 | ) | 428,946 | |||||
Advance to suppliers | 8,132,790 | (9,053,966 | ) | |||||
Accounts payable | 1,123,002 | (4,379,215 | ) | |||||
Notes payable | - | (45,783 | ) | |||||
Accrued expenses and other current liabilities | (1,185,431 | ) | (2,084,882 | ) | ||||
Accrued payroll and welfare | (106,869 | ) | (466,248 | ) | ||||
Advance from customers | (3,251,552 | ) | 2,907,425 | |||||
Income tax payable | - | (3,111 | ) | |||||
Net cash provided (used in) operating activities | (5,862,144 | ) | (4,234,329 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Proceed from disposal of property, plant and equipment | - | 62,728 | ||||||
Purchases of property, plant and equipment | (165,772 | ) | (4,871 | ) | ||||
Net cash used in investing activities | (165,772 | ) | 57,857 | |||||
Cash Flows from Financing activities: | ||||||||
Net proceeds from stock offering | - | 27,340,977 | ||||||
Net proceeds released from (placed into) bank acceptance notes | 15 | - | ||||||
Net proceeds released from short-term investment | 2,355,010 | 305,222 | ||||||
Net proceeds from (repayment to) short-term bank borrowings | (2,820,517 | ) | 351,006 | |||||
Net repayment of other borrowing | (539,337 | ) | (156,929 | ) | ||||
Repayments of loans of related parties | (645,521 | ) | (1,138,134 | ) | ||||
Cash advance to related parties | - | (2,878,572 | ) | |||||
Net cash provided by (used in) financing activities | (1,650,350 | ) | 23,823,569 | |||||
Effect of exchange rate changes on cash | 87,415 | 386,231 | ||||||
Net change in cash and cash equivalents | (7,590,851 | ) | 20,033,328 | |||||
Cash and cash equivalents at the beginning of year | 12,835,647 | 3,759,535 | ||||||
Cash and cash equivalents at the end of year | $ | 5,244,796 | $ | 23,792,863 | ||||
Supplemental disclosures of cash flows information: | ||||||||
Cash paid for income taxes | $ | - | $ | 167,862 | ||||
Cash paid for interest expenses | $ | 465,465 | $ | 524,217 |
Selected Notes to Consolidated Financial Statements
We prepare our consolidated financial statements in conformity with accounting principles generally accepted by the U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there were no material changes made to the accounting estimates and assumptions in the past three years, we continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates.
We believe that the following accounting policies and notes involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. Accordingly, these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Such estimates include, but are not limited to, allowances for doubtful accounts, inventory valuation, useful lives of property, plant and equipment, intangible assets, and income taxes related to realization of deferred tax assets and uncertain tax position. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents primarily consist of cash and deposits with financial institutions which are unrestricted as to withdrawal and use. Cash equivalents consist of highly liquid investments that are readily convertible to cash generally with original maturities of three months or less when purchased.
Value-added Tax (“VAT”)
Value-added taxes (“VAT”) collected from customers relating to product sales and remitted to governmental authorities are presented on a net basis. VAT collected from customers is excluded from revenue. The Company is subject to a VAT rate of 17% before May 1, 2018, a VAT rate of 16% effective on May 1, 2018, and the most current VAT rate of 13% effective on April 1, 2019. The VAT payable may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing or acquiring its finished products.
Intangible Assets
March 31, | September 30, |
|||||||
2022 | 2021 | |||||||
Land use rights, cost | $ | 628,042 | $ | 617,895 | ||||
Software, cost | 9,598,743 | 8,803,367 | ||||||
Other intangible assets, cost | 19,919 | 1,732 | ||||||
Less: accumulated amortization | (683,116 | ) | (673,007 | ) | ||||
Intangible assets, net | $ | 9,563,588 | $ | 8,749,987 |
Intangible assets consist primarily of land use rights and software. Under the PRC law, all land in the PRC is owned by the government and cannot be sold to an individual or company. The government grants individuals and companies the right to use parcels of land for specified periods of time. These land use rights are sometimes referred to informally as “ownership.” Land use rights are stated at cost less accumulated amortization. The land use right represents the Company's land use rights in Wenzhou's plant, which had been pledged to secure the Company’s banking facilities granted to the Company as of March 31, 2022 and September 30, 2021.
During the fiscal year ended September 30, 2021, the Company entered into a series of consulting agreements with third-party entity and individuals to develop and implement the following software platforms:
● | The DeFi (decentralized finance) Protocol, a stablecoin DEX (decentralized exchange) and liquidity mining platform, available at https://xsigma.fi. |
● | Two flagship trading platforms, “xSigma Trading” for CFD trading and “xSigma Trader” for Crypto, Crypto Options and Crypto derivatives. |
● |
MaximNFT platform (“MaximNFT”), available at www.maximnft.com, the exclusive NFT (Non-Fungible Token) marketplace partners with Maxim, the iconic men’s lifestyle brand. It will allow customers to create and sell NFTs on various blockchains, including, but not limited to, Ethereum, Binance Smart Chain, and Polkadot. |
The software platforms are intended for internal use which is to provide services to customers and the Company does not have any plan to market the software for sales externally. In exchange of the development services provided, the Company paid consideration in the form of cash, stock and stock warrants, and all the costs incurred during the Application development Stage were capitalized pursuant to ASC 350-40-25.
Stockholders’ Equity
Registered Direct Offerings
On September 25, 2020 and October 16, 2020, the Company closed a registered direct offering pursuant to certain convertible debenture agreements with certain unaffiliated investors identified therein. The convertible debentures, with aggregate principal amount of $1.4 million and 5% annual interest rate, are exercisable for a period of one year at an exercise price of 70% of the average closing price during the seven (7) consecutive Trading Days immediately preceding the Conversion Date, but not lower than the Floor Price of $0.62 per share. The transaction was closed on October 20, 2020 and full proceeds were received. As of February 5, 2021, all of the outstanding principal and interest underlying the Convertible Debentures have been converted into a total of 1,394,253.
On January 8, 2021, the Company closed a registered direct offering pursuant to certain securities purchase agreement with certain unaffiliated investors identified therein, to offer an aggregate of 1,785,000 Company’s ordinary shares, for a total purchase price of $2,499,000.
On February 24, 2021, the Company closed a registered direct offering pursuant to certain securities purchase agreements with several accredited investors providing for an aggregate investment of $4,599,983.50 by the investors for the issuance by the Company to them of (i) 1,295,770 ordinary shares of the Company (the “Shares”); (ii) first registered investor warrants, with a term of five (5) years exercisable immediately upon issuance, to purchase an aggregate of up to 1,295,770 ordinary shares (the “First Registered Warrant Shares”) at an exercise price of $4.00 per share, subject to customary adjustments thereunder (the “First Registered Warrants”); and (iii) second registered investor warrants, with a term of five (5) years exercisable immediately upon issuance, to purchase an aggregate of up to 1,295,770 ordinary shares (the “Second Registered Warrant Shares” and collectively with the First Registered Warrant Shares, the “Warrant Shares”) at an exercise price of $4.50 per share, subject to customary adjustments thereunder (the “Second Registered Warrants” and collectively with the First Registered Warrants, the “Warrants”). Holders of the Warrants may exercise them by paying the applicable cash exercise price or, if there is not an effective registration statement for the sale of the Warrant Shares at the time of exercise, by exercising on a cashless basis pursuant to the formula provided in the Warrants. As of March 31, 2021, 270,696 warrants have been exercised on cash exercise basis, and $964,779 were received.
On March 22, 2021, ZK entered into certain securities purchase agreements (the “Purchase Agreements”) with several accredited investors (the “Investors”) providing for an aggregate investment of $18,000,000 by the Investors for the issuance by the Company to them of 4,000,000 ordinary shares of the Company (the “Shares”) at an offering price of $4.50 per share.