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Going Concern

6 Months Ended

Dec. 31, 2019

Note 2 – Going Concern

In assessing the Company's liquidity, the Company monitors and analyzes its cash on-hand and its operating and capital expenditure commitments. The Company's liquidity needs are to meet its working capital requirements, operating expenses, capital expenditure obligations and repayments of bank loans.

The Company engages in the production of advanced construction materials for large-scale infrastructure, commercial and residential developments. The Company's business is capital intensive and the Company is highly leveraged. Debt financing in the form of short term bank loans, loans from related parties and bank acceptance notes have been utilized to finance the working capital requirements and the capital expenditures of the Company. The Company's working deficit was approximately $6.3 million as of December 31, 2019. As of December 31, 2019, the Company had cash on-hand of approximately $0.4 million, with remaining current assets mainly composed of accounts receivable and prepayments and advances.

Although the Company believes that it can realize its current assets in the normal course of business, the Company's ability to repay its current obligations will depend on the future realization of its current assets. Management has considered its historical experience, the economic environment, trends in the construction industry in the PRC, the expected collectability of its accounts receivable and other receivables and the realization of the prepayments on inventory and provided an allowance for doubtful accounts as of December 31, 2019. The Company expects to realize the balance of its current assets, net of the allowance for doubtful accounts within the normal operating cycle of twelve months.

The Company is involved in various lawsuits, claims and disputes related to its operations and the personal guarantees of its officers to affiliated entities owned by them. It is actively defending these actions and attempting to mitigate the Company's exposure to any liability in excess of the current provision of approximately $6.8 million, (see Note 15 in the accompanying notes to the unaudited condensed consolidated financial statements). The ultimate outcome of these pending actions cannot presently be determined, but currently management is of the opinion that any potential additional liability would not have a material impact on the Company's consolidated financial position. Nevertheless, due to the uncertainties with litigation, the PRC legal system, claims and disputes, it is at least reasonably possible that management's view of the outcome could change in the near term.

Furthermore, as of December 31, 2019, the Company's VIE, Xin Ao, was subject to several civil lawsuits with potential judgments in the amount of approximately $26.2 million (see Note 15 in the accompanying notes to the unaudited condensed consolidated financial statements) and the likelihood of the outcome of these lawsuits cannot presently be determined. These lawsuits involve the Company principally due to the personal guarantees by Mr. Xianfu Han, and Mr. Weili He, the Company's shareholders and former officers. Because Mr. Han and Mr. He were the controlling shareholders of Xin Ao, the plaintiffs included Xin Ao in their joint complaints. Xin Ao was not involved in most of the lawsuits but named as a joint defendant in the lawsuits. As a result, Xin Ao might have exposure to any judgements in the future under PRC laws. Mr. Han and Mr. He have agreed to indemnify the Company for any amounts Xin Ao may have to pay. Should the outcome of these lawsuits require Xin Ao to pay because the other co-defendants of the lawsuits and Mr. Han and Mr. He were unable to liquidate their personal assets or their ownership interest in their privately held companies timely to pay for the judgements, the Company's working deficit as of December 31, 2019 could be increased from approximately $6.3 million to approximately $32.5 million.

In addition, the Company is in payment and technical default under its bank loan agreement for which the bank has filed with the PRC courts which has issued a demand notice in May 2019 for the immediate repayment of the outstanding loans. No repayments have been made and the outstanding balance at December 31, 2019 is approximately $24.3 million.

The management of the Company has considered whether there is a going concern issue due to the Company's recurring losses from operations, the default of the Company's bank loans, the estimated claims charges and the possible additional exposure for pending actions against Company which is presently unknown. Management has determined there is substantial doubt about our ability to continue as a going concern. If the Company is unable to generate significant revenue, secure the continued forbearance of its bank and/or additional financing or resolve any pending estimated claim charges, the Company may be required to cease or curtail its operations. The Company's financial statements do not include adjustments that might result from the outcome of this uncertainty.

Management is trying to alleviate the going concern risk through equity financing, obtaining additional financial support and credit guarantee commitments and debt restructuring for most litigation liabilities. The Company has completed the following events to alleviate, to certain extent, the going concern risk:

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On January 15, 2020, Hou Sing International Business Limited ("Hou Sing"), the Company's shareholder, entered into certain loan assignment agreements with Ms. Na Wang and Ms. Wei Zhang, employees of the Company who previously loaned money to Beijing Xin Ao Concrete Group Co., Ltd. ("Beijing Xin Ao"), the Company's variable interest entity, in the aggregate amount of RMB29,429,627 (approximately $4,264,000) (the "Debt") and delivered the full payment to the two employees. On January 15, 2020, the board of directors of the Company approved the conversion of the Debt as well as the conversion of debt in the aggregate amount of $976,255 that Beijing Xin Ao owed to Mr. Xianfu Han, the former Chief Executive Officer of the Company, Ms. Weili He, the former Chief Financial Officer of the Company, and Ms. Wei Zhang, an employee of the Company, at a per share conversion price of $1.54. On March 6, 2020, upon Nasdaq's approval, the Company issued an aggregate of 3,403,037 ordinary shares of the Company to Hou Sing, Mr. Xianfu Han, Ms. Weili He and Ms. Wei Zhang.

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On January 23, 2020, HHT entered into a certain securities purchase agreement (the "SPA") with Hou Sing International Business Limited ("Hou Sing") pursuant to which the Company agreed to sell an aggregate of 2,000,000 ordinary shares at a per share purchase price of $1.00 (the "Shares"). On March 12, 2020, the transaction contemplated by the SPA was consummated after all closing conditions were met and the Company issued the Shares to Hou Sing (the "Private Placement"). The Company received gross proceeds of $2,000,000.

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On March 31, 2020, the Company and certain institutional investors (the "Purchasers") entered into certain securities purchase agreement (the "Purchase Agreement"), pursuant to which the Company agreed to sell to such Purchasers an aggregate of 2,727,274 ordinary shares, par value $0.001 per share (the "Shares") in a registered direct offering and warrants to purchase up to 2,727,274 ordinary shares, par value $0.001 per share (the "Ordinary Shares") in a concurrent private placement, for total proceeds of approximately $1.5 million (the "Offering"). The Offering was completed on April 2, 2020.

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On May 6, 2020, the Company closed the sale of BVI-ACM for consideration of $600,000. The Purchasers became the sole shareholders of BVI-ACM and as a result, assumed all of the assets and liabilities of BVI-ACM and its subsidiaries and VIE entities. As of December 31, 2019, the carrying value of BVI-ACM was a net deficiency of approximately $4.1.

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On May 11, 2020, the Company and certain institutional investors (the "Purchasers") entered into certain securities purchase agreement (the "Purchase Agreement"), pursuant to which the Company agreed to sell to such Purchasers an aggregate of 2,600,000 ordinary shares, par value $0.001 per share (the "Shares") in a registered direct offering and warrants to purchase up to 2,600,000 ordinary shares, par value $0.001 per share (the "Ordinary Shares") in a concurrent private placement, for total proceeds of approximately $1.4 million (the "Offering"). The Offering was completed on May 13, 2020.