U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Mark One
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File No. 333-169805
KUN PENG INTERNATIONAL LTD.
(Exact name of registrant as specified in its charter)
| Nevada | | EIN 32-0538640 |
| (State or Other Jurisdiction of | | (IRS Employer |
| Incorporation or Organization) | | Identification Number) |
1F, Building 3, No 1001 Huihe South Street
Banbidian Village
Gaobeidian Town, Chaoyang District
Beijing, PRC 100025
(Address of principal executive offices)
+86 -1087227012
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Non-accelerated filer ☒ | Smaller reporting company ☒ |
| | Emerging growth company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes ☐ No ☒
As of August 14, 2024, the registrant had 400,000,000 shares of common stock issued and outstanding.
FORM 10-Q
KUN PENG INTERNATIONAL LTD.
INDEX
PART I
Item 1. FINANCIAL STATEMENTS
KUN PENG INTERNATIONAL LTD
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In U.S. Dollars, except share data or otherwise stated)
| | | Note | | June 30, 2024 | | | September 30, 2023 | |
| | | | | Unaudited | | | Audited | |
| Assets | | | | | | | | | | |
| Current assets | | | | | | | | | | |
| Cash and cash equivalents | | | | $ | 294,675 | | | $ | 457,580 | |
| Trade receivable, net | | 4 | | | - | | | | - | |
| Advance and prepayments | | 5 | | | 130,015 | | | | 74,044 | |
| Other receivables | | 6 | | | 309,370 | | | | 23,060 | |
| Amount due from related parties | | | | | 13,760 | | | | - | |
| Inventory | | 7 | | | 17,644 | | | | 107,263 | |
| Total current assets | | | | | 765,464 | | | | 661,947 | |
| | | | | | | | | | | |
| Noncurrent assets | | | | | | | | | | |
| Property and equipment, net | | 8 | | | 578,972 | | | | 72,552 | |
| Intangible assets, net | | 9 | | | 2,550 | | | | 2,806 | |
| Security deposits | | | | | 40,790 | | | | 41,999 | |
| Right-of-use assets | | 15 | | | 240,743 | | | | 479,427 | |
| Others | | | | | 69,694 | | | | 3,245 | |
| Total noncurrent assets | | | | | 932,749 | | | | 600,029 | |
| | | | | | | | | | | |
| Total assets | | | | $ | 1,698,213 | | | $ | 1,261,976 | |
| | | | | | | | | | | |
| Liabilities | | | | | | | | | | |
| Current liabilities | | | | | | | | | | |
| Trade and other payables | | | | | 3,131,150 | | | | 2,151,900 | |
| Deferred revenue | | 10 | | | 1,242,358 | | | | 2,149,238 | |
| Payroll payable | | | | | 90,470 | | | | 63,653 | |
| Tax payable | | | | | 195,897 | | | | 184,357 | |
| Amounts due to related parties | | 11 | | | 2,844,011 | | | | 1,318,120 | |
| Operating lease obligations, current portion | | 15 | | | 248,405 | | | | 318,422 | |
| Total current liabilities | | | | | 7,752,291 | | | | 6,185,690 | |
| | | | | | | | | | | |
| Noncurrent liabilities | | | | | | | | | | |
| Operating lease obligations, net of current portion | | 15 | | | 410,846 | | | | 95,907 | |
| Total noncurrent liabilities | | | | | 410,846 | | | | 95,907 | |
| | | | | | | | | | | |
| Total liabilities | | | | | 8,163,137 | | | | 6,281,597 | |
| | | | | | | | | | | |
| Commitment and contingencies | | | | | - | | | | - | |
| | | | | | | | | | | |
| Equity | | | | | | | | | | |
| Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued and outstanding as of June 30, 2024 and September 30, 2023 | | 12 | | | - | | | | - | |
| Common stock, $0.0001 par value, 1,000,000,000 shares authorized; 400,000,000 shares issued and outstanding as of June 30, 2024 and September 30, 2023 | | 12 | | | 40,000 | | | | 40,000 | |
| Additional paid-in capital | | 12 | | | 597,801 | | | | 597,801 | |
| Accumulated deficits | | | | | (7,193,211 | ) | | | (5,803,162 | ) |
| Accumulated other comprehensive income | | | | | 401,292 | | | | 426,741 | |
| Total stockholders’ equity | | | | | (6,154,118 | ) | | | (4,738,620 | ) |
| Non-controlling interests | | | | | (310,806 | ) | | | (281,001 | ) |
| Total equity | | | | | (6,464,924 | ) | | | (5,019,621 | ) |
| | | | | | | | | | | |
| Total liabilities and equity | | | | $ | 1,698,213 | | | $ | 1,261,976 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
KUN PENG INTERNATIONAL LTD
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(UNAUDITED)
(In U.S. Dollars, except share data or otherwise stated)
| | | Note | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | | | | For the three months ended June 30, | | | For the nine months ended June 30, | |
| | | Note | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | | | | | | | | | | | | | | |
| Revenue, net | | | | $ | 672,062 | | | $ | 460,643 | | | $ | 1,598,728 | | | $ | 1,231,712 | |
| Cost of revenue | | | | | (180,265 | ) | | | (64,878 | ) | | | (428,648 | ) | | | (246,102 | ) |
| Gross profit | | | | | 491,797 | | | | 395,765 | | | | 1,170,080 | | | | 985,610 | |
| | | | | | | | | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | | | | | | | |
| General and administrative expenses | | | | | 353,669 | | | | 423,757 | | | | 1,429,945 | | | | 1,383,119 | |
| Selling expense | | | | | 422,612 | | | | 1,231,189 | | | | 1,174,826 | | | | 2,323,347 | |
| Total operating expenses | | | | | 776,281 | | | | 1,654,946 | | | | 2,604,771 | | | | 3,706,466 | |
| | | | | | | | | | | | | | | | | | | |
| Loss from operations | | | | | (284,484 | ) | | | (1,259,181 | ) | | | (1,434,690 | ) | | | (2,720,856 | ) |
| | | | | | | | | | | | | | | | | | | |
| Other (expenses) income: | | | | | | | | | | | | | | | | | | |
| Interest income | | | | | 23 | | | | 122 | | | | 402 | | | | 218 | |
| Other income | | | | | (1,110 | ) | | | (10,352 | ) | | | 30,261 | | | | 98,893 | |
| Total other (expenses) income, net | | | | | (1,087 | ) | | | (10,230 | ) | | | 30,663 | | | | 99,111 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Income tax expense | | 11 | | | 2,665 | | | | - | | | | 16,029 | | | | - | |
| | | | | | | | | | | | | | | | | | | |
| Net loss | | | | | (288,326 | ) | | | (1,269,411 | ) | | | (1,420,056 | ) | | | (2,621,745 | ) |
| Less: Net loss attributable to non-controlling interest | | | | | 4,297 | | | | - | | | | (30,009 | ) | | | - | |
| Net loss attributable to Kun Peng International Ltd | | | | | (292,533 | ) | | | (1,269,411 | ) | | | (1,390,047 | ) | | | (2,621,745 | ) |
| Foreign currency translation adjustment | | | | | 22,608 | | | | 239,743 | | | | (25,449 | ) | | | 152,425 | |
| Comprehensive loss | | | | | (265,628 | ) | | | (1,029,668 | ) | | | (1,445,505 | ) | | | (2,469,320 | ) |
| Less: Comprehensive loss attributable to non-controlling interest | | | | | 4,297 | | | | - | | | | (30,009 | ) | | | - | |
| Comprehensive loss attributable to Kun Peng International Ltd | | | | $ | (269,925 | ) | | $ | (1,029,668 | ) | | $ | (1,415,496 | ) | | $ | (2,469,320 | ) |
| | | | | | | | | | | | | | | | | | | |
| Net loss per share attributable to common stockholders | | | | | | | | | | | | | | | | | | |
| Basic and diluted | | | | $ | (0.0007 | ) | | $ | (0.0032 | ) | | $ | (0.0035 | ) | | $ | (0.007 | ) |
| | | | | | | | | | | | | | | | | | | |
| Weighted average shares used to compute net loss per share attributable to common stockholders | | | | | 400,000,000 | | | | 400,000,000 | | | | 400,000,000 | | | | 400,000,000 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements
KUN PENG INTERNATIONAL LTD
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
(In U.S. Dollars, except share data or otherwise stated)
| | | Shares | | | Amount | | | capital | | | deficits | | | income | | | equity | | | interest | | | equity | |
| | | Common stock | | | Additional paid-in | | | Accumulated | | | Accumulated
other
comprehensive | | | Total stockholders’ | | | Non- controlling | | | Total | |
| | | Shares | | | Amount | | | capital | | | deficits | | | income | | | equity | | | interest | | | equity | |
| Balance, September 30, 2023 | | | 400,000,000 | | | $ | 40,000 | | | $ | 597,801 | | | $ | (5,803,162 | ) | | $ | 426,741 | | | $ | (4,738,620 | ) | | $ | (281,001 | ) | | $ | (5,019,621 | ) |
| Capital contribution | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Net loss attributable to common stockholders | | | - | | | | - | | | | - | | | | (1,390,047 | ) | | | - | | | | (1,390,047 | ) | | | - | | | | (1,390,047 | ) |
| Net loss attributable to noncontrolling interest | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (30,009 | ) | | | (30,009 | ) |
| Foreign currency translation adjustment | | | - | | | | - | | | | - | | | | - | | | | (25,449 | ) | | | (25,449 | ) | | | 204 | | | | (25,245 | ) |
| Balance, June 30,2024 | | | 400,000,000 | | | $ | 40,000 | | | $ | 597,801 | | | $ | (7,193,209 | ) | | $ | 401,292 | | | $ | (6,154,116 | ) | | $ | (310,806 | ) | | $ | (6,464,924 | ) |
| | | Common Stock | | | Additional Paid-In | | | Accumulated | | | Accumulated
Other
Comprehensive | | | Total
Stockholders’ | | | Non-
Controlling | | | Total | |
| | | Shares | | | Amount | | | Capital | | | Deficits | | | Loss | | | Equity | | | Interest | | | Equity | |
| Balance, September 30, 2022* | | | 400,000,000 | | | $ | 40,000 | | | $ | (40,000 | ) | | $ | (3,653,996 | ) | | $ | 279,367 | | | $ | (3,374,629 | ) | | $ | (280,954 | ) | | $ | (3,655,583 | ) |
| Balance | | | 400,000,000 | | | $ | 40,000 | | | $ | (40,000 | ) | | $ | (3,653,996 | ) | | $ | 279,367 | | | $ | (3,374,629 | ) | | $ | (280,954 | ) | | $ | (3,655,583 | ) |
| Net loss attributable to common stockholders | | | - | | | | - | | | | - | | | | (2,621,745 | ) | | | - | | | | (2,621,745 | ) | | | - | | | | (2,621,745 | ) |
| Capital contribution | | | - | | | | - | | | | 204,085 | | | | - | | | | - | | | | 204,085 | | | | - | | | | 204,085 | |
| Foreign currency translation adjustment | | | - | | | | - | | | | - | | | | - | | | | 152,425 | | | | 152,425 | | | | - | | | | 152,425 | |
| Balance, June 30, 2023 | | | 400,000,000 | | | $ | 40,000 | | | $ | 164,085 | | | $ | (6,275,741 | ) | | $ | 431,792 | | | $ | (5,639,865 | ) | | $ | (280,954 | ) | | $ | (5,920,818 | ) |
| Balance | | | 400,000,000 | | | $ | 40,000 | | | $ | 164,085 | | | $ | (6,275,741 | ) | | $ | 431,792 | | | $ | (5,639,865 | ) | | $ | (280,954 | ) | | $ | (5,920,818 | ) |
| * | Outstanding and issued shares retrospectively reflect the 10:1 forward stock split effected on October 18, 2022 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
KUN PENG INTERNATIONAL LTD
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In U.S. Dollars, except share data or otherwise stated)
| | | 2024 | | | 2023 | |
| | | Nine Months Ended June 30, | |
| | | 2024 | | | 2023 | |
| | | | | | | |
| Cash flows from operating activities | | | | | | | | |
| Net loss | | $ | (1,404,027 | ) | | $ | (2,621,745 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities | | | | | | | | |
| Depreciation and amortization | | | 87,880 | | | | 46,525 | |
| Amortization of right-of-use assets | | | 242,219 | | | | 237,538 | |
| | | | | | | | | |
| Changes in operating assets and liabilities | | | | | | | | |
| Advance and prepayments | | | (113,014 | ) | | | (44,048 | ) |
| Trade receivables | | | - | | | | - | |
| Other receivables | | | (256,820 | ) | | | 4,582 | |
| Security deposits | | | (1,385 | ) | | | - | |
| Inventory | | | 93,253 | | | | - | |
| Trade payables | | | 175,126 | | | | 1,052,509 | |
| Other payables and accrual | | | 520,387 | | | | 161,547 | |
| Deferred revenue | | | (955,853 | ) | | | 1,370,302 | |
| Payroll payable | | | 26,746 | | | | 10,930 | |
| Amounts due to related parties | | | 1,531,003 | | | | (12,020 | ) |
| Tax payable | | | (14,670 | ) | | | 124,620 | |
| Lease liabilities | | | (111,502 | ) | | | (187,951 | ) |
| Net cash used in operating activities | | | (206,462 | ) | | | 142,789 | ) |
| | | | | | | | | |
| Cash flows from investing activities | | | | | | | | |
| Acquisition of property and equipment | | | - | | | | - | |
| Acquisition of trademarks | | | - | | | | (1,177 | ) |
| Net cash used in investing activities | | | - | | | | (1,177 | ) |
| | | | | | | | | |
| Cash flows from financing activities | | | | | | | | |
| Capital contribution | | | - | | | | 200,327 | |
| Net cash provided by financing activities | | | - | | | | 200,327 | |
| | | | | | | | | |
| Effect of exchange rate changes on cash | | | 43,557 | | | | (33,281 | ) |
| | | | | | | | | |
| Net change in cash and cash equivalents | | | (162,905 | ) | | | 308,658 | |
| | | | | | | | | |
| Cash and cash equivalents, beginning balance | | | 457,580 | | | | 267,131 | |
| | | | | | | | | |
| Cash and cash equivalents, ending balance | | $ | 294,675 | | | $ | 575,789 | |
| | | | | | | | | |
| Supplementary cash flows information: | | | | | | | | |
| Cash paid for interest | | $ | - | | | $ | - | |
| Cash paid for income tax | | $ | - | | | $ | - | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
KUN PENG INTERNATIONAL LTD
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(UNAUDITED)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Kun Peng International Limited (“the Company,” “KPIL,” “KPEA,” “we,” “us,” “our”), a Nevada corporation (formerly known as CX Network Group, Inc.), through its subsidiaries and VIE, is currently engaged in the sale of health care and health-related household products through its online platforms, King Eagle Mall and Kun Zhi Jian.
SCHEDULE OF COMPANY INFORMATION AND ORGANIZATIONAL ACTIVITIES
| Name | | Background | | Ownership | | Registered capital / Authorized shares | | Principal activities |
| Kun Peng International Limited | | ● A U.S. Company ● Incorporated on June 28, 2017 | | | | Authorized shares: ● Common stock: 1,000,000,000 with par value $0.0001 per share ● 400,000,000 shares issued and outstanding as of June 30, 2024 Preferred stock: ● 10,000,000 with par value $0.0001 per share ● no shares issued and outstanding as of June 30, 2024 | | Investment holding |
| | | | | | | | | |
| Kun Peng International Holding Limited | | ● A BVI company ● Incorporated on April 20, 2021 | | 100% owned by Kun Peng International Limited | | Paid capital: 400 ordinary shares at par value of $0.01 per share | | Investment holding |
| | | | | | | | | |
| Kunpeng (China) Industrial Development Company Limited | | ● A Hong Kong company ● Incorporated on August 11, 2017 ● Deregistration from Hong Kong Inland Revenue Department and Hong Kong Company Registry approved on February 2, 2024 | | 100% owned by Kun Peng International Holding Limited | | Paid share capital: 10,000 ordinary shares at $1,292 (HKD10,000) | | Investment holding |
| | | | | | | | | |
| Kun Peng (Hong Kong) Industrial Development Limited | | ● A Hong Kong company ● Incorporated on June 21, 2021 | | 100% owned by Kun Peng International Holding Limited | | Paid share capital: 1 ordinary share at $0.13 (HK$1) | | Investment holding |
| | |
Kun Peng Tian Yu Health Technology (Tianjin) Co., Ltd. | | ● a limited liability company incorporated in the People’s Republic of China and a wholly foreign owned enterprise (“WFOE”) since March 3, 2023 ● Incorporated on August 10, 2021 | | 100% owned by Kun Peng (Hong Kong) Industrial Development Limited | | Registered capital of RMB 5 million (US$0.7 million) | | Exploring future business opportunities |
| | | | | | | | | |
| King Eagle (China) Co., Ltd | | ● a wholly foreign owned enterprise (“WFOE”) until March 3, 2023 and a limited liability company incorporated in the People’s Republic of China ● Incorporated on March 20, 2019 | | Wholly owned by Kun Peng (China) Industrial Development Company Limited until March 3, 2023 Starting March 3, 2023, 49% owned by Kun Peng (Hong Kong) Industrial Development Limited and 51% owned by Kun Peng Tian Yu Health Technology (Tianjin) Co., Ltd. | | Registered capital: approximately $15 million (RMB100 million) | | Providing technical and management support to King Eagle (Tianjin) Technology Co., Ltd. |
King Eagle (Tianjin) Technology Co., Ltd. | | ● a limited liability company incorporated in the People’s Republic of China ● Incorporated on September 2, 2020 ● Became a variable interest entity (VIE) of King Eagle (China) Co., Ltd on May 15, 2021 | | Owned by multiple individuals: Chengyuan Li (approximately 45.5%), Xiujin Wang (approximately 10.5%), Yuanyuan Zhang (approximately 10%), Jinjing Zhang, Wanfeng Hu, Cuilian Liu, and Zhizhong Wang (each of whom owns approximately 6%), Zhandong Fan and Hui Teng (each of whom owns approximately 5%) | | Registered capital of approximately $1.5 million (RMB 10 million) Paid-in capital approximately $0.2 million (RMB 1.4 million) | | Operating King Eagle Mall |
| | | | | | | | | |
| King Eagle (Beijing) Technology Co., Ltd | | ● a limited liability company incorporated in the People’s Republic of China ● Incorporated on December 1, 2022 | | 100% owned by King Eagle (Tianjin) Technology Co., Ltd. | | Registered capital of $0.7 million (RMB 5 million) Paid-in capital approximately $0.7 million (RMB 5 million) | | Operates the new online platform, Kun Zhi Jian |
| | | | | | | | | |
| King Eagle (Huai’an) Health Management Co., Ltd. | | ● a limited liability company incorporated in the People’s Republic of China ● Incorporated on September 19, 2023 | | 95% owned by King Eagle (Tianjin) Technology Co., Ltd. | | Registered capital of $0.7 million (RMB 5 million) Paid-in capital approximately $10K (RMB 70,000) | | Coordinates with local health care service providers to offer health screening and monitoring |
| | | | | | | | | |
| Kun Zhi Jian (Huai’an) Technology Co., Ltd. | | ● a limited liability company incorporated in the People’s Republic of China ● Incorporated on October 26, 2023 | | 100% owned by King Eagle (Tianjin) Technology Co., Ltd. | | Registered capital of $0.1 million (RMB 1 million) | | Primarily focuses on marketing and selling physiotherapy equipment products |
| | | | | | | | | |
| Chengdu Wenjiang Pengrun Internet Healthcare Co., Ltd | | ● a limited liability company incorporated in the People’s Republic of China ● Incorporated on February 1, 2024 | | 100% owned by King Eagle (Tianjin) Technology Co., Ltd. | | Registered capital of $0.1 million (RMB 1 million) | | Plans to commence operations in late 2024, assuming permits to provide online health care services are obtained |
| | | | | | | | | |
| Kun Pin Hui (Shandong) Trading Co., Ltd | | ● a limited liability company incorporated in the People’s Republic of China ● Incorporated on November 23, 2023 ● Acquired on April 10, 2024
| | 100% owned by King Eagle (Tianjin) Technology Co., Ltd. | | Registered capital of $0.4 million (RMB 3 million) | | Operates online platform |
Authorized Shares and Name Change
Effective as of September 9, 2021, the Company’s Articles of Incorporation were amended to change the name of the Company from CX Network Group, Inc. to Kun Peng International Limited. (“KPIL”) and to increase the Company’s authorized capital to 210,000,000 authorized shares of Capital Stock with 200,000,000 designated as $0.0001 par value Common Stock, and 10,000,000 designated as $0.0001 par value Preferred Stock.
Effective October 12, 2022, we increased our authorized common stock from 200,000,000 shares, par value $0.0001, to 1,000,000,000 shares, par value $0.0001, and on October 18, 2022, we effected a 10:1 forward stock split after which we have 400,000,000 shares of common stock issued and outstanding.
On November 8, 2022, the Company changed its name from CX Network Group, Inc. to Kun Peng International Ltd. and its trading symbol was changed to “KPEA.”
On November 11, 2022, the Company received an electronic notice that OTC Markets had approved its application for uplisting from OTC Pink to the OTCQB Venture Market (OTCQB). The Company’s securities commenced trading on the OTCQB at the market open on November 14, 2022. The Company’s shares trade on the OTCQB under the current ticker symbol, “KPEA.”
Kun Peng International Holding Limited
Kun Peng International Holding Limited (“KP International Holding”) was incorporated in the British Virgin Islands on April 20, 2021. On May 3, 2021, KP International Holding purchased all of the issued and outstanding equity securities of Kun Peng (China) Industrial Development Company Limited (“KP (China)”), which was incorporated in Hong Kong on August 11, 2017, at a cash consideration of approximately $0.129 (HK$1). After the ownership transfer, KP International Holding became the sole shareholder of KP (China). KP International Holding is a holding company.
Kun Peng (China) Industrial Development Company Limited
Kun Peng (China) Industrial Development Company Limited (“KP (China)”) was incorporated as a limited liability company in Hong Kong under the name of Jing Jin Ji Investment Group Co., Limited (“Jing Jin Ji”) on August 11, 2017. The share capital of KP (China) is 10,000 ordinary shares at $1,292 (HKD10,000) and was wholly owned by an individual. On November 9, 2018, Jing Jin Ji changed its name to “Kun Peng (China) Industrial Development Company Limited” and filed a Certificate of Change of Name with the Hong Kong Company Registry on the same day. Although it was incorporated in 2017, it did not commence operations until July 2020 as it focused on exploring business opportunities in its initial phase and developing our online mobile application, King Eagle Mall, through its subsidiary, King Eagle (China) Co., Ltd. It became a wholly owned subsidiary of KP International Holding on May 3, 2021.
On August 24, 2023, we filed an application with the Companies Registry of Hong Kong for deregistration and dissolution of KP (China). And the application for deregistration was approved on February 2, 2024 by Hong Kong Company Registry.
Kun Peng (Hong Kong) Industrial Development Limited
Kun Peng (Hong Kong) Industrial Development Limited (“KP (Hong Kong)”) was incorporated as a limited liability company in Hong Kong on June 21, 2021. It is a holding company and is wholly owned by Kun Peng International Holding Limited. The share capital of this entity upon formation is $0.13 (HK$1).
King Eagle (China) Co., Ltd.
King Eagle (China) Co., Ltd. (“King Eagle (China)”) was incorporated as a limited liability company in Beijing Economic Technological Development Zone in the People’s Republic of China (“the PRC”) on March 20, 2019 with a registered capital of approximately $15 million (RMB100 million). King Eagle (China) was a wholly owned subsidiary of KP (China) at the time of establishment. KP (China) transferred its approximately $2.2 million (RMB 15 million), or 15%, interest in King Eagle (China) to Guoxin Ruilian Group Co., Ltd., a limited liability company incorporated in Beijing, the PRC, on November 2, 2020.
On March 26, 2021, Guoxin Ruilian Group Co., Ltd entered into equity transfer agreements with KP (China) and Guoxin Zhengye. Both Guoxin Ruilian Group Co., Ltd and Guoxin Zhengye are wholly owned by a common shareholder, Guoxin United Holdings Group Co., Ltd. Under the agreements, Guoxin Ruilian Group Co., Ltd transferred an 8% ownership interest in King Eagle (China) to Guoxin Zhengye and its remaining 7% ownership in King Eagle (China) to KP (China) on April 20, 2021. After the transfer, KP (China) and Guoxin Zhengye became the 92% and 8% shareholders of King Eagle (China), respectively. Guoxin Zhengye transferred its 8% ownership interest in King Eagle (China) to KP (China) on August 26, 2022. As a result of the transfer, KP (China) is the sole shareholder of King Eagle (China).
On November 1, 2022, KP (China) entered into ownership transfer agreements with Kun Peng (Hong Kong) Industrial Development Limited and Kun Peng Tian Yu Health Technology Co., Ltd. The agreements provided that KP (China) would transfer 49% and 51% of its ownership in King Eagle (China) to Kun Peng (Hong Kong) Industrial Development Limited and Kun Peng Tian Yu Health Technology Co., Ltd., respectively. The ownership transfer was completed on March 3, 2023. King Eagle (China) is no longer a WFOE after the ownership transfer.
As discussed below, King Eagle (China) has entered into agreements (the “VIE Agreements”) with King Eagle (Tianjin) Technology Co., Ltd. and its shareholders through which King Eagle (China) controls and receives the economic benefits of King Eagle (Tianjin) Technology Co., Ltd.’s business operations.
King Eagle (Tianjin) Technology Co., Ltd.
King Eagle (Tianjin) Technology Co., Ltd. (“King Eagle (Tianjin)”) was incorporated as a limited liability company in Tianjin Pilot Free Trade Zone in the People’s Republic of China on September 2, 2020, with a registered capital of approximately $1.5 million (RMB 10 million). We do not own any of the equity of King Eagle (Tianjin). It is owned by multiple individuals: Chengyuan Li (approximately 45.5%), Xiujin Wang (approximately 10.5%), Yuanyuan Zhang (approximately 10%), Jinjing Zhang, Wanfeng Hu, Cuilian Liu, and Zhizhong Wang (each of whom owns approximately 6%), and Zhandong Fan and Hui Teng (each of whom owns approximately 5%). Those shareholders also indirectly owned KP International Holding prior to its acquisition by the Company through two British Virgin Islands entities: Kunpeng Tech Limited and Kunpeng TJ Limited. Additionally, Chengyuan Li is a director and Yuanyuan Zhang is Chief Financial Officer of the Company.
Some of the business engaged in by King Eagle (Tianjin) is restricted or prohibited for foreign investment under PRC regulations. Therefore, King Eagle (China) has entered into VIE Agreements with King Eagle (Tianjin) and its shareholders. We do not own any equity interests in King Eagle (Tianjin), but control and receive the economic benefits of its business operations through the VIE Agreements. The VIE Agreements enable us to provide King Eagle (Tianjin) with consulting services on an exclusive basis in exchange for all of its annual profits, if any. In addition, we are able to appoint its senior executives and approve all matters requiring approval of its shareholders. The VIE Agreements are comprised of a Consulting Service Agreement, Business Operation Agreement, Proxy Agreement, Equity Disposal Agreement, and Equity Pledge Agreement.
Under current Chinese laws and regulations, the Company believes that the VIE Agreements are not subject to any government approval. The shareholders of King Eagle (Tianjin) were required to register with SAFE when they established offshore vehicles to hold KP International; such SAFE registration was effected on May 14, 2021. These shareholders of King Eagle (Tianjin) were required to register their equity pledge arrangement as required under the Equity Pledge Agreement with King Eagle (China). The binding rights over the VIE’s subsidiaries in the contractual arrangements between King Eagle (China) and King Eagle (Tianjin) are implicit and indirect and the company laws and regulations in the PRC governing the business operations of the VIE’s subsidiaries are uncertain. The Company faces uncertainty with respect to future actions by the PRC government that could significantly affect King Eagle (Tianjin)’s financial performance and the enforceability of the VIE Agreements.
Kun Peng Tian Yu Health Technology (Tianjin) Co., Ltd.
Kun Peng Tian Yu Health Technology Co., Ltd. (“KP Tian Yu”) was incorporated as a limited liability company in Tianjin Pilot Free Trade Zone in the People’s Republic of China on August 10, 2021 with a registered capital of approximately $0.7 million (RMB 5 million). It is wholly owned by KP (Hong Kong). On November 1, 2022, KP (China) entered into ownership transfer agreements with Kun Peng (Hong Kong) Industrial Development Limited and Kun Peng Tian Yu Health Technology Co., Ltd. The agreements provided that KP (China) would transfer 49% and 51% of its ownership in King Eagle (China) to Kun Peng (Hong Kong) Industrial Development Limited and Kun Peng Tian Yu Health Technology Co., Ltd., respectively. The ownership transfer was completed on March 3, 2023. (“KP Tian Yu”) became a WFOE beginning March 3, 2023.
King Eagle (Beijing) Technology Co., Ltd
King Eagle (Beijing) Technology Co., Ltd (“King Eagle (Beijing)”) was incorporated as a limited liability company in Beijing in the People’s Republic of China on December 1, 2022 with a registered capital of $0.7 million (RMB 5 million). It is wholly owned by King Eagle (Tianjin). King Eagle (Beijing) commenced its operation of the new online platform called “Kun Zhi Jian” in January 2023. This platform became one of the components in our Kun Zhi Jian Mini Program in November 2023. Since then, King Eagle (Beijing) focuses on wholesaling of health care related products and dietary supplements.
King Eagle (Huai’an) Health Management Co., Ltd.
King Eagle (Huai’an) Health Management Co., Ltd. (“King Eagle (Huai’an)”) was established on September 19, 2023 under the laws of the People’s Republic of China. with a registered capital of approximately $0.69 million (RMB 5 million). It is owned 95% by King Eagle VIE and 5% by Hunan Ant Doctor Health Service Co., Ltd. This entity became fully operational in October 2023 and focuses on coordinating with local health care service providers to offer health screening and monitoring to the Company’s customers and members.
Kun Zhi Jian (Huai’an) Technology Co., Ltd.
Kun Zhi Jian (Huai’an) Technology Co., Ltd. (“Kun Zhi Jian (Huai’an)”) was established on October 26, 2023 under the laws of the People’s Republic of China. with a registered capital of approximately $0.14 million (RMB 1 million). The entity is located in Jiangsu province, PRC. It is a wholly-owned subsidiary of King Eagle VIE. This entity commenced its operations in November 2023 and primarily focuses on marketing and selling physiotherapy equipment products.
Kun Zhi Jian (Shandong) Health Management Co., Ltd
Kun Zhi Jian (Shandong) Health Management Co., Ltd (“Kun Zhi Jian (Shangdong)”) was established on January 30, 2024 under the laws of the People’s Republic of China. with a registered capital of approximately $0.14 million (RMB 1 million). The entity is located in Shangdong province, PRC. It is a wholly-owned subsidiary of King Eagle VIE. This entity commenced its operations in February 2024 and focuses on promoting and selling health screening devices.
Chengdu Wenjiang Pengrun Internet Healthcare Co., Ltd
Chengdu Wenjiang Pengrun Internet Healthcare Co., Ltd (“Chengdu Wenjiang”) was established on February 1, 2024 under the laws of the People’s Republic of China with a registered capital of approximately $0.14 million (RMB 1 million). The entity is located in Sichuan province, PRC. It is a wholly-owned subsidiary of King Eagle VIE. This entity has not commenced its operations as of the date of this report and is applying for online health care and medical services permits from the relevant authorities. There can be no assurance that such permits will be obtained.
Kun Pin Hui (Shandong) Trading Co., Ltd.
Kun Pin Hui (Shandong) Trading Co., Ltd (“Kun Pin Hui (Shandong)”) was established on November 23, 2023 under the laws of the People’s Republic of China with a registered capital of approximately $0.4 million (RMB 3 million). The entity is located in Shandong province, PRC. It is a wholly-owned subsidiary of King Eagle VIE since its acquisition on April 10, 2024. This entity has not commenced its operations as of the date of this report and is applying for online trading services.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) applicable to quarterly financial information and the requirements of Form 10-Q and Rule 8-03 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosure required by accounting principles generally accepted in the United States of America for complete financial statements. Quarterly results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the quarterly periods have been included.
These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended September 30, 2023 included in the Form 10-K filed with the SEC on January 16, 2024.
The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America. This basis of accounting involves the application of accrual accounting and, consequently, revenues and gains are recognized when earned and expenses and losses are recognized when incurred. The condensed consolidated financial statements are expressed in U.S. dollars.
Principles of Consolidation
The condensed consolidated financial statements include the financial statements of the Company, its subsidiaries and its variable interest entity (“VIE”). All significant intercompany transactions and balances within the Company have been eliminated upon consolidation.
Use of Estimates and Assumptions
The preparation of the condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that impact the presented amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the presented amounts of revenues and expenses during the period. Actual results may differ from those estimates. Significant estimates during the nine months ended June 30, 2024 and 2023 include the collectability of receivables, the valuation of inventory, the useful lives of long-lived assets and intangibles, the assumptions used in assessing impairment of long-lived assets, the valuation of accruals for expenses and tax due.
Going Concern
The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which contemplate continuation of the Company as a going concern. The going-concern basis assures that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed on the financial statements. The Company’s ability to continue as a going concern depends on the liquidation of its current assets and business developments. In assessing the Company’s liquidity, the Company monitors and analyzes its cash and cash equivalents and its operating and capital expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements, operating expenses, and capital expenditure obligations. For the nine months ended June 30, 2024, the Company experienced cash outflows from operating activities of $206,462, incurred a net loss of $1,131,821, and had negative working capital of $6,986,827. These conditions raise substantial doubt about the ability of the Company to continue as a going concern.
The Company continues to monitor its operations to help refine its financial liquidity. Options under consideration in the review process include, but are not limited to, increase of sales through the Company’s online business, reduction of operating costs, fund advance from the Company’s stockholders and directors, or financing through the issuance of shares. The Company has been focusing on increasing its revenue through its online platform and trimming its operating costs. For example, it explored additional revenue streams and reduced service agent service fee. Additionally, the Company obtained capital funding of approximately $1.5 million from our director to meet its working capital requirements. In order to continue as a going concern for the next 12 months, through Kun Zhi Jian Mini Program, the Company continues to explore additional revenue streams, leverage the health care expertise and technology with local health care service providers, promote and sell preventive health care dietary supplements and products, and offer health care equipment services at the Kun Zhi Jian Customer Service Center. However, the Company cannot provide any assurance that it will be able to increase revenue, that it will be able to successfully implement its business plan, or that financing will be available to it on commercially acceptable terms, if at all. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern. The directors intend to continue to support the group by providing adequate financial assistance to enable the group to continue its business operations for the foreseeable future.
Earnings (loss) Per Share
Basic income (loss) per share is computed by dividing net income (loss) attributable to the holders of ordinary shares by the weighted average number of ordinary shares outstanding during the year. Diluted income (loss) per share is calculated by dividing net income (loss) attributable to the holders of ordinary shares as adjusted for the effect of dilutive ordinary share equivalents, if any, by the weighted average number of ordinary shares and dilutive ordinary share equivalents outstanding during the period. However, ordinary share equivalents are not included in the denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.
Foreign Currency Translation
The reporting currency of the Company is the U.S. Dollar. Our entity in the British Virgin Islands uses the U.S. dollar. Our entities in the PRC and Hong Kong use the local currencies, Renminbi (RMB) and Hong Kong Dollar (HKD), as their respective functional currencies as determined based on the criteria of ASC 830, “Foreign Currency Translation.”
Assets and liabilities are translated at the unified exchange rate at the end of the period. Income and expense accounts are translated at the average translation rates and equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
Translation adjustments included in accumulated other comprehensive income amounted to $401,292 and $426,741 as of June 30, 2024 and September 30, 2023, respectively.
The following table shows the foreign exchange rates set forth in the H.10 statistical release of the Federal Reserve Board used for translation:
SCHEDULE OF FOREIGN EXCHANGE RATES
| | | Hong Kong Dollar (HKD) | | | Chinese Renminbi (RMB) | |
| As of June 30, 2024 (Closing Rate) | | | | | | | | |
| United States dollar ($1) | | | 7.8083 | | | | 7.2672 | |
| | | | | | | | | |
| For the nine months ended June 30, 2024 (Average Rate) | | | 7.8174 | | | | 7.2181 | |
| United States dollar ($1) | | | | | | | | |
| | | Hong Kong Dollar (HKD) | | | Chinese Renminbi (RMB) | |
| | | | | | | |
| As of September 30, 2023 (Closing Rate) | | | | | | | | |
| United States dollar ($1) | | | 7.8308 | | | | 7.2960 | |
| | | Hong Kong Dollar (HKD) | | | Chinese Renminbi (RMB) | |
| | | | | | | |
| For the nine months period ended June 30, 2023 (Average Rate) | | | | | | | | |
| United States dollar ($1) | | | 7.8335 | | | | 6.9886 | |
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 a certain amount of cash kept in electronic wallets, “e-wallets.”
We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. We maintain accounts with various financial institutions in the PRC, and also e-wallets. As of June 30, 2024 and September 30, 2023, cash balances held in PRC banks are uninsured. Monies that are held in e-wallets are deemed equivalent to cash, they are highly liquid, and are relatively unsafe compared to cash in banks. We have not experienced any losses in bank accounts or e-wallets and believe that we are not exposed to significant risks with respect to our cash in bank accounts and we are exposed to low risk with respect to our cash kept in e-wallets.
Trade Receivable
Trade receivable represents the commission revenue earned from selling health care equipment on behalf of third parties but have not yet collected. Trade receivable is recorded at net realizable value. We establish allowance for credit losses when there is objective evidence that we may not be able to collect amounts due. Management reviews the adequacy of the allowance for credit losses on an ongoing basis, using historical collection trends and individual account analysis. The allowance is based on management’s best estimates of specific losses on individual party exposures, as well as historical trends of collections. Account balances are charged off against the allowance after all means of collection have been exhausted and the likelihood of collection is remote.
We incurred commission revenue and the related trade receivable in the first, second and third quarter of 2024. We did not expect and did not have any objective evidence or historical trend that the balance incurred as of June 30, 2024 deemed uncollectable. Accordingly, as of June 30, 2024, management believed it was not necessary to accrue an allowance for credit losses. Management continues to monitor the collectability of the balance due and estimates the allowance for credit losses on an individual basis when there is any objective evidence that it may not be able to collect the outstanding balance.
Inventory
Inventory consists of finished goods, which include beverages, distilled water dispensers, water filters and bathroom accessories. Inventory is measured at the lower of cost or net realizable value on a first-in, first-out basis. When evidence exists that the net realizable value of inventory is lower than its cost, provisions shall be made to write inventory down and a loss shall be recognized in earnings in the period in which it occurs. That loss may be required, for example, due to damage, physical deterioration, obsolescence, changes in price levels, or other reasons. As of June 30, 2024, there was an amount of $17,644 located at third-party’s premises.
Financial Instrument
The carrying amounts reported in the balance sheet for cash, other receivables, accrued liabilities and other payables approximate fair value because of the immediate or short-term maturities of these financial instruments.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and impairment losses. Gains and losses on dispositions of property and equipment are included in operating income (loss). Major additions, renewals and improvements are capitalized, while maintenance and repairs are recognized as expense as incurred.
Depreciation is provided over the estimated useful life of each class of depreciable assets and is computed using the straight-line method over the useful lives of the assets are as follows:
SCHEDULE OF PROPERTY PLANT AND EQUIPMENT USEFUL LIVES
| Classification | | Estimated useful life |
| Leasehold improvements | | 5 years |
| Office equipment | | 3 years |
| Computer equipment | | 3 years |
| Service equipment | | 3 years |
| Computer software | | 5 years |
Intangible Assets
Intangible assets represent the licensing cost for the trademark registration. For intangible assets with indefinite lives, the Company evaluates intangible assets for impairment at least annually and more often whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. For intangible assets with definite lives, they are amortized over estimated useful lives, and are reviewed annually for impairment. The Company has not recorded impairment of intangible assets as of June 30, 2024 and September 30, 2023.
Impairment of Long-lived Assets
Long-lived assets, including buildings and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. We assess the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated discounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When we identify an impairment, we reduce the carrying amount of the asset to the estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of June 30, 2024 and September 30, 2023, management determined that there was no impairment.
Fair Value Measurements
The Company applies the provisions of ASC Subtopic 820-10, “Fair Value Measurements,” for fair value measurements of financial assets and financial liabilities and for fair value measurements of non-financial items that are recognized or disclosed at fair value in the financial statements. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| | |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. |
| | |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. |
The Company’s financial assets and liabilities include cash, receivables, accounts payable and accrued expenses.
Related Party Transactions
The Company follows the ASC 850-10, “Related Party Disclosures” for the identification of related parties and disclosure of related party transactions.
Pursuant to section 850-10-20 the related parties include a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of section 825-10-15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and income-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The condensed consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented; and c) such other information deemed necessary to an understanding of the nature of the related party transactions.
Comprehensive Income (Loss)
Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income but are excluded from net income (loss) as these amounts are recorded directly as an adjustment to stockholders’ equity. Our other comprehensive loss for the nine months ended June 30, 2024 and 2023 was comprised of foreign currency translation adjustments.
Revenue Recognition
Revenue is comprised of sales of goods and represents the amount of consideration the Company is entitled to upon the transfer of goods. Pursuant to FASB ASU No. 2016-08, Revenue from Contracts with Customers (TOPIC 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), the Company recorded revenue on a gross basis, net of surcharges and value added tax (“VAT”) of gross sales. The Company recorded revenue on a gross basis because the Company is the primary obligor of the sales arrangements has latitude in establishing prices, has discretion in suppliers’ selection and assumes credit risks on receivables on gross sales from customers.
The Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”) using the full retrospective transition method. The Company’s adoption of ASU 2014-09 did not have a material impact on the amount and timing of revenue recognized in its consolidated financial statements.
The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
| | ● | identify the contract with a customer; |
| | | |
| | ● | identify the performance obligations in the contract; |
| | | |
| | ● | determine the transaction price; |
| | | |
| | ● | allocate the transaction price to performance obligations in the contract; and |
| | | |
| | ● | recognize revenue as the performance obligation is satisfied. |
Consistent with the criteria of ASC 606 “Revenue from Contracts with Customers,” we recognize revenue when performance obligations are satisfied by transferring control of a promised good or service to a customer. For performance obligations that are satisfied at a point in time, we also consider the following indicators to assess whether control of a promised good or service is transferred to the customer: (i) right to payment, (ii) legal title, (iii) physical possession, (iv) significant risks and rewards of ownership, and (v) acceptance of the good or service. For performance obligations satisfied over time, we recognize revenue over time by measuring the progress toward complete satisfaction of a performance obligation.
Deferred Revenue
Deferred revenue results from transactions where the Company has received the payments from the customers but revenue recognition criteria under the five-step model of ASC Topic 606 have yet to be met. Once all revenue recognition criteria have been satisfied, the revenues will be recognized upon the transfer of risk and rewards to the customers in the consolidated statement of operations. We anticipated the majority of the revenue will be recognized in the fiscal year 2024. Management agreed that the amount received is non-refundable; however, this term is not bound by any agreement. Thus, the customers may have the rights to challenge and demand the advances to be refunded under relevant Commercial Laws or regulations.
Accrued Product Liability
The Company records accruals for product liability when deemed probable and estimable based on facts and circumstances and prior claims experience. Accruals for product credit are valued based upon the Company’s prior claims experience, including defective goods and goods lost in transit. As we have experienced insignificant amounts of goods returned and claims from goods lost in transit in the past, our product liability is insignificant; therefore, management believes product liability accrual as at June 30, 2024 and September 30, 2023 is negligible.
Lease
Under ASC Topic 842, the Company determines if an arrangement is a lease at inception. Lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate based on the information available at the lease commencement date. The Company generally uses the base, non-cancelable lease term in calculating the right-of-use assets and lease liabilities.
The Company may recognize the lease payments in the condensed consolidated statements of operation on a straight-line basis over the lease terms and variable lease payments in the periods in which the obligations for those payments are incurred, if any. The lease payments under the lease arrangements are fixed.
The Company elected the package of practical expedients which allow the Company to carryforward its historical lease classification, its assessment on whether a contract is or contains a lease, and its initial direct costs for any lease that exists prior to adoption of the new standard.
The Company also elected to apply the short-term lease exception for lease arrangements with a lease term of 12 months or less at commencement. Lease terms used to compute the present value of lease payments do not include any option to extend, renew, or terminate the lease that the Company is not reasonably certain to exercise upon the lease inception. Accordingly, operating lease right-of-use assets and liabilities do not include leases with a lease term of 12 months or less.
Research and Development Expenses
Research and development (R&D) expenses are all costs associated with the original development and design of the product as well as any intellectual property (IP) generated during the development phase, including patents and copyrights. Research and development expenses are included in the overall operating expenses and reflected as a separate line item on the condensed consolidated statements of operations.
We purchase the consumer preventive health food and health related household products sold on our platforms from our suppliers and we did not develop, design or manufacture those products. Although we built our online platform and mobile commerce in-house, the compensation costs for our in-house technology team were not significant. Accordingly, instead of capitalizing the compensation costs of our in-house technology team as Research and Development on the Balance Sheet or presenting it as Research and Development expenses, we included these amounts in Employee Compensation and Benefit expenses within General and Administrative expenses for the nine months ended June 30, 2024 and 2023.
Selling Expenses
Selling expenses consist primarily of marketing and promotional service fees to service agents and other costs incurred by our sales and marketing department such as staff costs, office supplies, and other incidental expenses that are incurred directly to attract or retain customers.
Our selling expenses for the nine months ended June 30, 2024 and 2023 were $1,174,826 and $2,323,347, respectively. We recognized marketing and promotional service expenses when our service agents performed marketing activities, promotions, and exhibitions for our business and products. For the nine months ended June 30, 2024 and 2023, we recorded marketing and promotional service fees to our service agents in an amount of $791,232 and $1,506,180, respectively.
Concentration of Risk
Credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and other receivables. As of June 30, 2024 and September 30, 2023, $604,045 (RMB4,389,715) and $449,946 (RMB 3,123,333), respectively, were deposited with various major financial institutions located in the PRC. While management believes that these financial institutions are of high credit quality, it also continually monitors their credit worthiness.
Historically, deposits in Chinese banks are secure due to state policy to protect depositor interests. However, China promulgated a Bankruptcy Law in August 2006 that came into effect on June 1, 2007, which contains a separate article expressly stating that the State Council may promulgate implementation measures to provide for the bankruptcy of Chinese banks based on the Bankruptcy Law. Under the current Bankruptcy Law, a Chinese bank may file bankruptcy if it deems itself to be insolvent. In addition, since China’s concession to the World Trade Organization, foreign banks have been gradually permitted to operate in China and have intensified competition in many aspects, especially since the opening of the Renminbi business to foreign banks in late 2006. Therefore, the risk of bankruptcy at the institutions that the Company maintains deposits has increased. In the event of bankruptcy, the Company is unlikely to reclaim its deposits in full since it is unlikely to be classified as a secured creditor under PRC laws.
Risks of variable interest entity structure
As of the date of this report, King Eagle (Tianjin) has established five subsidiaries, King Eagle (Beijing) Technology Co., Ltd, King Eagle (Huai’an) Health Management Co., Ltd., Kun Zhi Jian (Huai’an) Technology Co., Ltd., Kun Zhi Jian (Shandong) Health Management Co., Ltd, and Chengdu Wenjiang Pengrun Internet Healthcare Co., Ltd on December 1, 2022, September 19, 2023, October 26, 2023, January 31, 2024, and February 1, 2024, respectively, in the PRC. King Eagle (Tianjin) is the controlling shareholder under the company laws of the PRC. The binding rights over the VIE’s subsidiaries in the contractual arrangements between King Eagle (China) and King Eagle (Tianjin) are implicit and indirect and the company laws and regulations in the PRC governing the business operations of the VIE’s subsidiaries are uncertain.
In the opinion of management, (i) the corporate structure of the Company is in compliance with existing PRC laws and regulations; (ii) the VIE Agreements are valid and binding and do not result in any violation of PRC laws or regulations currently in effect; and (iii) the business operations of the foreign-invested enterprise and the VIE are in compliance with existing PRC laws and regulations in all material respects.
However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, the Company cannot be assured that PRC regulatory authorities will not ultimately take a contrary view to the foregoing opinion of its management. If the current corporate structure of the Company or the VIE Agreements is found to be in violation of any existing or future PRC laws and regulations, the Company may be required to restructure its corporate structure and operations in the PRC to comply with changing and new PRC laws and regulations. In the opinion of management, the likelihood of loss in respect of the Company’s current corporate structure or the VIE Agreements is remote based on current facts and circumstances.
Foreign currency exchange risk
The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions and the foreign exchange policy adopted by the PRC government. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in greater fluctuation of the RMB against the U.S. dollar. The Company is a holding company and it relies on dividends paid by the Company’s operating subsidiaries in China for its cash needs. Any significant revaluation of the RMB may materially and adversely affect its liquidity and cash flows. To the extent that the Company needs to convert U.S. dollars into RMB for its operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount the Company would receive. Conversely, if the Company decides to convert RMB into U.S. dollars for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount the Company would receive.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty raising liquid funds to meet commitments as they fall due. See our commitments and contingencies in Note 16, Financial Statements and Supplementary Data. In meeting its liquidity requirements, the Company continues to focus on increasing its revenue through the sale of consumer health care products through its Kun Zhi Jian Mini Program and promoting its own brand of preventive health care related products on its new online platform to reduce its costs of goods sold, streamlining its overhead costs, or obtaining financing from its stockholders or directors.
Concentration of customers and vendors
There was no revenue from customers that individually represent greater than 10% of the total revenues for the nine months ended June 30, 2024 and 2023.
For the nine months ended June 30, 2024, one major vendor accounted for 10.7% of the Company’s total cost of sales.
For the nine months ended June 30, 2023, one major vendor accounted for 30.9% of the Company’s total cost of sales.
Income Taxes
We account for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
We apply ASC 740, Accounting for Income Taxes, to account for uncertainty in income taxes and the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.
Commitments and Contingencies
The Company follows the ASC 450-20, “Contingencies” to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Recent Accounting Pronouncement
Accounting Standards to Be Adopted
In March 2024, the FASB issued ASU 2024-01, Compensation – Stock Compensation. This ASU clarifies how to determine whether profits interest and similar awards should be accounted for as share-based payment arrangements. The ASU is effective in reporting periods beginning after December 15, 2024, including interim periods within the fiscal year, on a prospective or retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact that adoption of this accounting standard will have on its consolidated financial statements and disclosures.
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures. This ASU requires annual and interim disclosure of significant segment expenses that are provided to the CODM as well as interim disclosures for all reportable segment’s profit or loss and assets. This guidance also requires disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. This guidance is expected to improve financial reporting by providing additional information about a public company’s significant segment expenses and more timely and detailed segment information reporting throughout the fiscal period. The ASU is effective for the Company’s fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact that adoption of this accounting standard will have on its consolidated financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. This ASU requires greater disaggregation of information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. This ASU applies to all entities subject to income taxes and is intended to help investors better understand an entity’s exposure to potential changes in jurisdictional tax legislation and assess income tax information that affects cash flow forecasts and capital allocation decisions. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. This ASU should be applied on a prospective basis although retrospective application is permitted. The Company is currently evaluating the impact that adoption of this accounting standard will have on its consolidated financial statements and disclosures.
There were other updates recently issued. The management does not believe that other than the disclosed above, accounting pronouncements the recently issued but not yet adopted will have a material impact on its financial position results of operations or cash flows.
NOTE 3 - VARIABLE INTEREST ENTITIES - “VIE” AGREEMENTS
On May 15, 2021, King Eagle (China) entered into a series of contractual arrangements with King Eagle (Tianjin) and its shareholders. As a result of the contractual arrangements, the Company classified King Eagle (Tianjin) as a Variable Interest Entity “VIE.”
King Eagle (Tianjin) Technology Co., Ltd. (“King Eagle (Tianjin)”) was incorporated as a limited liability company in Tianjin Pilot Free Trade Zone in the People’s Republic of China on September 2, 2020, with a registered capital of approximately $1.5 million (RMB 10 million). It is owned by multiple individuals: Chengyuan Li (approximately 45.5%), Xiujin Wang (approximately 10.5%), Yuanyuan Zhang (approximately 10%), Jinjing Zhang, Wanfeng Hu, Cuilian Liu, and Zhizhong Wang (each of whom owns approximately 6%), Zhandong Fan, and Hui Teng (each of whom owns approximately 5%). Those shareholders also indirectly owned KP International Holding prior to its acquisition by the Company through two British Virgin Islands entities: Kunpeng Tech Limited and Kunpeng TJ Limited. Additionally, Chengyuan Li is a director and Yuanyuan Zhang is Chief Financial Officer of the Company.
The VIE Agreements are as follows:
| (1) | Consulting Service Agreement |
| | |
| (2) | Business Operation Agreement |
| | |
| (3) | Proxy Agreement |
| | |
| (4) | Equity Disposal Agreement |
| | |
| (5) | Equity Pledge Agreement |
Consulting Service Agreement
Pursuant to the terms of the Exclusive Consulting Service Agreement dated May 15, 2021, between King Eagle (China) and King Eagle (Tianjin) (the “Consulting Service Agreement”), King Eagle (China) is the exclusive consulting service provider to King Eagle (Tianjin) to provide business-related software research and development services; design, installation, and testing services; network equipment support, upgrade, maintenance, monitor, and problem-solving services; employees technical training services; technology development and sublicensing services; public relations services; market investigation, research, and consultation services; short to medium term marketing plan-making services; compliance consultation services; marketing events and membership related activities organizing services; intellectual property permits; equipment and rental services; and business-related management consulting services. Pursuant to the Consulting Service Agreement, the service fee is the remaining amount after King Eagle (Tianjin)’s profit before tax in the corresponding year deducts King Eagle (Tianjin)’s losses, if any, in the previous year, the necessary costs, expenses, taxes, and fees incurred in the corresponding year, and the withdraws of the statutory provident fund. King Eagle (Tianjin)agreed not to transfer its rights and obligations under the Consulting Service Agreement to any third party without prior written consent from King Eagle (China). In addition, King Eagle (China) may transfer its rights and obligations under the Consulting Service Agreement to King Eagle (China)’s affiliates without King Eagle (Tianjin)’s consent, but King Eagle (China) shall notify King Eagle (Tianjin) of such transfer. This Agreement is valid for a term of 10 years subject to any extension requested by King Eagle (China) unless terminated by King Eagle (China) unilaterally prior to the expiration.
Business Operation Agreement
Pursuant to the terms of the Business Operation Agreement dated May 15, 2021, among King Eagle (China), King Eagle (Tianjin) and the shareholders of King Eagle (Tianjin) (the “Business Operation Agreement”), King Eagle (Tianjin) has agreed to subject the operations and management of its business to the control of King Eagle (China). According to the Business Operation Agreement, King Eagle (Tianjin) is not allowed to conduct any transaction that has substantial impact upon its operations, assets, rights, obligations, and personnel without King Eagle (China)’s written approval. The shareholders of King Eagle (Tianjin) and King Eagle (Tianjin) will take King Eagle (China)’s advice on the appointment or dismissal of directors, employment of King Eagle (Tianjin)’s employees, regular operation, and financial management of King Eagle (Tianjin). The shareholders of King Eagle (Tianjin) have agreed to transfer any dividends, distributions, or other profits that they receive as the shareholders of King Eagle (Tianjin) to King Eagle (China) without consideration. The Business Operation Agreement is valid for a term of 10 years or longer upon the request of King Eagle (China) prior to the expiration thereof. The Business Operation Agreement might be terminated earlier by King Eagle (China) with a 30-day written notice.
Proxy Agreement
Pursuant to the terms of the Proxy Agreement dated on May 15, 2021, among King Eagle (China) and the shareholders of King Eagle (Tianjin) (the “Proxy Agreement”), the shareholders of King Eagle (Tianjin) have entrusted their voting rights as King Eagle (Tianjin)’s shareholders to King Eagle (China) for the longest duration permitted by PRC law. The Proxy Agreement can be terminated by mutual consent of King Eagle (Tianjin)’s shareholders and King Eagle (China) or upon a 30-day notice of King Eagle (China).
Equity Disposal Agreement
Pursuant to the terms of the Equity Disposal Agreement dated May 15, 2021, among King Eagle (China), King Eagle (Tianjin), and the shareholders of King Eagle (Tianjin) (the “Equity Disposal Agreement”), the shareholders of King Eagle (Tianjin) granted King Eagle (China) or its designees an irrevocable and exclusive purchase option (the “Option”) to purchase all or part of the equity interests in and/or assets of King Eagle (Tianjin) at the lowest purchase price permitted by PRC laws and regulations. The Option is exercisable at any time at King Eagle (China)’s discretion in full or in part, to the extent permitted by PRC law. The shareholders of King Eagle (Tianjin) agreed to give King Eagle (China) the total amount of the exercise price as a gift, or other method, upon King Eagle (China)’s written consent to transfer the exercise price to King Eagle (Tianjin). The Equity Disposal Agreement is valid for a term of 10 years or longer upon the request of King Eagle (China).
Equity Pledge Agreement
Pursuant to the terms of the Equity Pledge Agreement dated May 15, 2021, among King Eagle (China) and the shareholders of King Eagle (Tianjin) (the “Pledge Agreement”), the shareholders of King Eagle (Tianjin) pledged all of their equity interests in King Eagle (Tianjin)to King Eagle (China), including the proceeds thereof, to guarantee King Eagle (Tianjin)’s performance of its obligations under the Business Operation Agreement, the Consulting Service Agreement, and the Equity Disposal Agreement (each, an “Agreement” and, collectively, the “Agreements”). If King Eagle (Tianjin) or its shareholders breach their respective contractual obligations under any Agreement, or cause to occur one of the events regarded as an event of default under any Agreement, King Eagle (China), as pledgee, will be entitled to certain rights, including the right to dispose of the pledged equity interest in King Eagle (Tianjin). During the term of the Pledge Agreement, the pledged equity interests cannot be transferred without King Eagle (China)’s prior written consent. The Pledge Agreement is valid until all the obligations due under the Agreement have been fulfilled.
A VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as voting rights and the right to receive the expected residual returns of the entity or the obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. King Eagle (China) is deemed to have a controlling financial interest and be the primary beneficiary of King Eagle (Tianjin) because it has both of the following characteristics:
| (1) | The power to direct the activities of King Eagle (Tianjin) that most significantly impact such entity’s economic performance, and |
| | |
| (2) | The obligation to absorb losses of, or the right to receive benefits from, King Eagle (Tianjin) that could potentially be significant to such entity. |
As of the date of this Quarterly Report, King Eagle (Tianjin) has established five subsidiaries: King Eagle (Beijing) Technology Co., Ltd, King Eagle (Huai’an) Health Management Co., Ltd., Kun Zhi Jian (Huai’an) Technology Co., Ltd., Kun Zhi Jian (Shandong) Health Management Co., Ltd, and Chengdu Wenjiang Pengrun Internet Healthcare Co., Ltd on December 1, 2022, September 19, 2023, October 26, 2023, January 31, 2024, and February 1, 2024, respectively, in the PRC. King Eagle (Tianjin) is the controlling shareholder under the company laws of the PRC. The binding rights over the VIE’s subsidiaries in the contractual arrangements between King Eagle (China) and King Eagle (Tianjin) are implicit and indirect and the company laws and regulations in the PRC governing the business operations of the VIE’s subsidiaries are uncertain.
Pursuant to the VIE Agreements, the shareholders of King Eagle (Tianjin) have agreed to transfer any dividends, distributions, or other profits that they receive to King Eagle (China). King Eagle (Tianjin) pays service fees equal to all of its net profit after tax to King Eagle (China). The VIE Agreements are designed so that King Eagle (Tianjin) operates for the benefit of King Eagle (China) and ultimately the Company.
Moreover, King Eagle (Tianjin) has agreed to subject the operations and management of its business to the full control under King Eagle (China) and King Eagle (Tianjin) will take King Eagle (China)’s advice on the appointment or dismissal of directors and employment, regular operation, and financial management. Accordingly, the Company consolidates the accounts of King Eagle (Tianjin) and its subsidiaries for the periods presented herein, in accordance with Accounting Standards Codification, or ASC, 810-10, “Consolidation.”
Accordingly, the accounts of King Eagle (Tianjin) and its subsidiaries are consolidated in the accompanying financial statements pursuant to ASC 810-10, “Consolidation.” In addition, their financial positions and results of operations are included in the Company’s financial statements.
VIE Financial Information
Set forth below is the consolidated balance sheet information as of June 30, 2024 and September 30, 2023 and the consolidated statements of operations and cash flows for the nine months ended June 30, 2024 and 2023, showing financial information for the parent company, Kun Peng International Limited, the non-VIE subsidiaries (as defined below), and the VIE (as defined below), eliminating entries, and consolidated information (in dollars). In the tables below, the column headings correspond to the following entities:
“Parent entity” refers to Kun Peng International Limited;
“Non-VIE and Non-WFOE subsidiaries” refers to the following entities:
| ● | Kun Peng International Holding Limited (“KP International Holding”) |
| ● | Kun Peng (China) Industrial Development Company Limited (“KP (China)”) |
| ● | Kun Peng (Hong Kong) Industrial Development Limited (“KP (Hong Kong)”) |
| ● | Kun Peng Tian Yu Health Technology Co., Ltd. (“KP Tian Yu”) until March 3, 2023 |
| ● | King Eagle (China) Co., Ltd. (“King Eagle (China)”) commencing March 3, 2023 |
“WFOE” refers to King Eagle (China) Co., Ltd. (“King Eagle (China)”) until March 3, 2023 and KP Tian Yu commencing March 3, 2023;
“VIE” refers to King Eagle (Tianjin) Technology Co., Ltd. (“King Eagle (Tianjin)”), King Eagle (Beijing) Technology Co., Ltd (“King Eagle (Beijing)”), King Eagle (Huai’an) Health Management Co., Ltd. (“King Eagle (Huai’an)”), Kun Zhi Jian (Huai’an) Technology Co., Ltd. (“Kun Zhi Jian (Huai’an)”), Kun Zhi Jian (Shandong) Health Management Co., Ltd (“Kun Zhi Jian (Shangdong)”), Chengdu Wenjiang Pengrun Internet Healthcare Co., Ltd (“Chengdu Wenjiang”) and Kun Pin Hui (Shandong) Trading Co., Ltd (“Kun Pin Hui (Shandong)”).
Condensed Consolidated Balance Sheets
As of June 30, 2024
SCHEDULE OF VIE OF BALANCE SHEET
| | | Parent
Only | | | Non-VIE and
Non-WFOE
Subsidiaries
Consolidated | | | WFOE | | | VIE and
VIE’s
Subsidiaries
Consolidated | | | Elimination
Entries and
Reclassification
Entries | | | Consolidated | |
| | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalent | | $ | - | | | $ | 1,020 | | | $ | 68 | | | $ | 293,587 | | | $ | - | | | $ | 294,675 | |
| Advance and Prepayments | | | - | | | | 25,307 | | | | - | | | | 104,708 | | | | - | | | | 130,015 | |
| Accounts receivable | | | - | | | | | | | | - | | | | - | | | | - | | | | - | |
| Other receivables - third party | | | - | | | | 20,414 | | | | - | | | | 288,956 | | | | - | | | | 309,370 | |
| Amount due from a related party | | | - | | | | - | | | | - | | | | 13,760 | | | | - | | | | 13,760 | |
| Inventory | | | - | | | | - | | | | - | | | | 17,644 | | | | - | | | | 17,644 | |
| Intercompany receivables-current | | | - | | | | 666,687 | (2) | | | - | | | | 2,316,194 | (1) | | | (2,982,881 | ) | | | - | |
| Total current Assets | | | - | | | | 713,428 | | | | 68 | | | | 3,034,849 | | | | (2,982,881 | ) | | | 765,464 | |
| Property and equipment, net | | | - | | | | 37,519 | | | | - | | | | 541,452 | | | | - | | | | 578,971 | |
| Intangible Assets, net | | | - | | | | 2,550 | | | | - | | | | - | | | | - | | | | 2,550 | |
| Security deposits and prepayments, noncurrent | | | - | | | | 40,790 | | | | - | | | | - | | | | - | | | | 40,790 | |
| Prepayments, noncurrent | | | - | | | | 71,153 | | | | - | | | | (1,459 | ) | | | - | | | | 69,694 | |
| ROU assets | | | - | | | | 178,744 | | | | - | | | | 61,999 | | | | - | | | | 240,743 | |
| Intercompany receivables-noncurrent | | | - | | | | 4 | | | | - | | | | - | | | | (4 | ) | | | - | |
| Investment in subsidiary | | | 34,160 | | | | - | | | | - | | | | - | | | | (34,160 | ) | | | - | |
| Total non-current Assets | | | 34,160 | | | | 330,760 | | | | - | | | | 601,992 | | | | (34,164 | ) | | | 932,748 | |
| Total assets | | | 34,160 | | | | 1,044,188 | | | | 68 | | | | 3,636,841 | | | | (3,017,045 | ) | | | 1,698,212 | |
| Trade payable | | | - | | | | 52,599 | | | | - | | | | 2,413,857 | | | | - | | | | 2,466,458 | |
| Other payables and accrual | | | 16,000 | | | | 61,772 | | | | - | | | | 586,920 | | | | - | | | | 664,692 | |
| Advances from customers | | | - | | | | - | | | | - | | | | 1,242,359 | | | | - | | | | 1,242,359 | |
| Intercompany payables | | | 945,736 | (3) | | | 1,887,361 | (1) | | | 688 | (1) | | | 193,525 | | | | (3,027,310 | ) | | | - | |
| Salary payable | | | - | | | | 28,278 | | | | - | | | | 62,194 | | | | - | | | | 90,472 | |
| Provision for taxation | | | - | | | | 10,078 | | | | - | | | | 185,818 | | | | - | | | | 195,896 | |
| Operating lease obligations-current | | | - | | | | 181,668 | | | | - | | | | 66,736 | | | | - | | | | 248,404 | |
| Amount due to related parties | | | - | | | | - | | | | - | | | | 2,844,011 | | | | - | | | | 2,844,011 | |
| Total current liabilities | | | 961,736 | | | | 2,221,756 | | | | 688 | | | | 7,595,420 | | | | (3,027,310 | ) | | | 7,752,290 | |
| Total noncurrent liabilities | | | - | | | | 61,406 | | | | - | | | | 349,440 | | | | - | | | | 410,846 | |
| Total liabilities | | | 961,736 | | | | 2,283,162 | | | | 688 | | | | 7,944,860 | | | | (3,027,310 | ) | | | 8,163,136 | |
| Total shareholders’ Equity | | | (927,576 | ) | | | (1,116,836 | ) | | | (620 | ) | | | (4,119,351 | ) | | | 10,265 | | | | (6,154,118 | ) |
| Non-controlling interests | | | - | | | | (122,138 | ) | | | - | | | | (188,668 | ) | | | - | | | | (310,806 | ) |
| Total equity | | | (927,576 | ) | | | (1,238,974 | ) | | | (620 | ) | | | (4,308,019 | ) | | | 10,265 | | | | (6,464,924 | ) |
| Total liabilities and equity | | $ | 34,160 | | | $ | 1,044,188 | | | $ | 68 | | | $ | 3,636,841 | | | $ | (3,017,045 | ) | | $ | 1,698,212 | |
| (1) | Intercompany receivables from non-VIE entities, WFOE, and parent entity and intercompany payables to VIE represent loans to non-VIE entities, WFOE, and parent entity for working capital purposes. |
| | |
| (2) | Intercompany receivables from the parent entity represent loans from King Eagle (China) to the parent entity for working capital purposes. |
| | |
| (3) | Intercompany payables to King Eagle (China) and VIE represent loans from King Eagle (China) and VIE to the parent entity for working capital purposes. |
| | |
| (4) | Intercompany payable to King Eagle (China) represents loan to King Eagle (Tianjin) for working capital purposes. |
As of September 30, 2023
| | | Parent
Only | | | Non-VIE and
Non-WFOE
Subsidiaries
Consolidated | | | WFOE | | | VIE and
VIE’s
Subsidiaries
Consolidated | | | Elimination
Entries and
Reclassification
Entries | | | Consolidated | |
| | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalent | | $ | - | | | $ | 10,457 | | | $ | 6 | | | $ | 447,117 | | | $ | - | | | $ | 457,580 | |
| Advance and Prepayments | | | - | | | | 32,721 | | | | - | | | | 41,323 | | | | - | | | | 74,044 | |
| Other receivables - third party | | | - | | | | 3,629 | | | | - | | | | 19,431 | | | | - | | | | 23,060 | |
| Inventory | | | - | | | | - | | | | - | | | | 107,263 | | | | - | | | | 107,263 | |
| Intercompany receivables-current | | | - | | | | 494,197 | (2) | | | - | | | | 2,119,294 | (1) | | | (2,613,491 | ) | | | - | |
| Total current Assets | | | - | | | | 541,004 | | | | 6 | | | | 2,734,428 | | | | (2,613,491 | ) | | | 661,947 | |
| Property and equipment, net | | | - | | | | 72,552 | | | | - | | | | - | | | | - | | | | 72,552 | |
| Intangible Assets, net | | | - | | | | 2,806 | | | | - | | | | - | | | | - | | | | 2,806 | |
| Security deposits and prepayments, noncurrent | | | - | | | | 41,999 | | | | - | | | | - | | | | - | | | | 41,999 | |
| Prepayments, noncurrent | | | - | | | | 3,245 | | | | - | | | | - | | | | - | | | | 3,245 | |
| ROU assets | | | - | | | | 351,753 | | | | - | | | | 127,674 | | | | - | | | | 479,427 | |
| Intercompany receivables-noncurrent | | | - | | | | 4 | | | | - | | | | - | | | | (4 | ) | | | - | |
| Investment in subsidiary | | | 34,160 | | | | - | | | | - | | | | - | | | | (34,160 | ) | | | - | |
| Total non-current Assets | | | 34,160 | | | | 472,359 | | | | - | | | | 127,674 | | | | (34,164 | ) | | | 600,029 | |
| Total assets | | | 34,160 | | | | 1,013,363 | | | | 6 | | | | 2,862,102 | | | | (2,647,655 | ) | | | 1,261,976 | |
| Trade payable | | | - | | | | - | | | | - | | | | 2,067,831 | | | | - | | | | 2,067,831 | |
| Other payables and accrual | | | 66,000 | | | | 10,040 | | | | - | | | | 8,029 | | | | - | | | | 84,069 | |
| Advances from customers | | | - | | | | - | | | | - | | | | 2,149,238 | | | | - | | | | 2,149,238 | |
| Intercompany payables | | | 724,680 | (3) | | | 1,909,747 | (1) | | | 617 | (1) | | | 34,370 | (4) | | | (2,669,414 | ) | | | - | |
| Salary payable | | | - | | | | 26,213 | | | | - | | | | 37,440 | | | | - | | | | 63,653 | |
| Provision for taxation | | | - | | | | 3,852 | | | | - | | | | 180,505 | | | | - | | | | 184,357 | |
| Operating lease obligations-current | | | - | | | | 232,976 | | | | - | | | | 85,446 | | | | - | | | | 318,422 | |
| Amount due to related parties | | | - | | | | - | | | | - | | | | 1,318,120 | | | | - | | | | 1,318,120 | |
| Total current liabilities | | | 790,680 | | | | 2,182,828 | | | | 617 | | | | 5,880,979 | | | | (2,669,414 | ) | | | 6,185,690 | |
| Total noncurrent liabilities | | | - | | | | 60,526 | | | | - | | | | 35,381 | | | | - | | | | 95,907 | |
| Total liabilities | | | 790,680 | | | | 2,243,354 | | | | 617 | | | | 5,916,360 | | | | (2,669,414 | ) | | | 6,281,597 | |
| Total shareholders’ Equity | | | (756,520 | ) | | | (1,107,853 | ) | | | (611 | ) | | | (2,895,395 | ) | | | 21,759 | | | | (4,738,620 | ) |
| Non-controlling interests | | | - | | | | (122,138 | ) | | | - | | | | (158,863 | ) | | | - | | | | (281,001 | ) |
| Total equity | | | (756,520 | ) | | | (1,229,991 | ) | | | (611 | ) | | | (3,054,258 | ) | | | 21,759 | | | | (5,019,621 | ) |
| Total liabilities and equity | | $ | 34,160 | | | $ | 1,013,363 | | | $ | 6 | | | $ | 2,862,102 | | | $ | (2,647,655 | ) | | $ | 1,261,976 | |
| (1) | Intercompany receivables from non-VIE entities, WFOE, and parent entity and intercompany payables to VIE represent loans to non-VIE entities, WFOE, and parent entity for working capital purposes. |
| | |
| (2) | Intercompany receivables from the parent entity represent loans from King Eagle (China) to the parent entity for working capital purposes. |
| | |
| (3) | Intercompany payables to King Eagle (China) and VIE represent loans from King Eagle (China) and VIE to the parent entity for working capital purposes. |
| | |
| (4) | Intercompany payable to King Eagle (China) represents loan to King Eagle (Tianjin) for working capital purposes. |
Condensed Consolidated Statements of Operations Data
SCHEDULE OF VIE DATA OF OPERATION
| | | Parent
Only | | | Non-VIE and
Non-WFOE
Subsidiaries
Consolidated | | | WFOE | | | VIE and
VIE’s
Subsidiaries
Consolidated | | | Eliminating
Adjustments | | | Consolidated
Totals | |
| | | For the nine months ended June 30, 2024 | |
| | | Parent
Only | | | Non-VIE and
Non-WFOE
Subsidiaries
Consolidated | | | WFOE | | | VIE and
VIE’s
Subsidiaries
Consolidated | | | Eliminating
Adjustments | | | Consolidated
Totals | |
| | | | | | | | | | | | | | | | | | | |
| Revenue | | $ | - | | | $ | - | | | $ | - | | | $ | 1,598,728 | | | $ | - | | | $ | 1,598,728 | |
| Intercompany revenue | | | | | | | 601,210 | | | | - | | | | | | | | (601,210 | ) | | | - | |
| Cost of revenue and related tax | | | - | | | | 748 | | | | - | | | | 427,900 | | | | - | | | | 428,648 | |
| Gross profit | | | - | | | | 600,462 | | | | - | | | | 1,170,829 | | | | (601,210 | ) | | | 1,170,080 | |
| Total operating expenses | | | 171,056 | | | | 604,712 | | | | 7 | | | | 995,516 | | | | - | | | | 2,604,771 | |
| Intercompany operating expenses | | | - | | | | - | | | | - | | | | 392,094 | | | | (392,094 | ) | | | - | |
| Loss from operations | | | (171,056 | ) | | | (4,250 | ) | | | (7 | ) | | | (1,259,377 | ) | | | - | | | | (1,434,690 | ) |
| Other income | | | - | | | | 37 | | | | - | | | | 30,626 | | | | - | | | | 30,663 | |
| Income tax expense | | | - | | | | - | | | | - | | | | 16,029 | | | | - | | | | 16,029 | |
| Net loss | | $ | (171,056 | ) | | $ | (4,213 | ) | | $ | (7 | ) | | $ | (1,244,780 | ) | | $ | - | | | $ | (1,420,056 | ) |
| | | Parent Only | | | Non-VIE and Non-WFOE Subsidiaries Consolidated | | | WFOE | | | VIE and VIE’s Subsidiaries Consolidated | | | Eliminating Adjustments | | | Consolidated Totals | |
| | | For the nine months ended June 30, 2023 | |
| | | Parent Only | | | Non-VIE and Non-WFOE Subsidiaries Consolidated | | | WFOE | | | VIE and VIE’s Subsidiaries Consolidated | | | Eliminating Adjustments | | | Consolidated Totals | |
| | | | | | | | | | | | | | | | | | | |
| Revenue | | $ | - | | | $ | - | | | $ | - | | | $ | 1,231,712 | | | $ | - | | | $ | 1,231,712 | |
| Intercompany revenue | | | | | | | 248,805 | | | | 519,296 | | | | - | | | | (768,101 | ) | | | - | |
| Cost of revenue and related tax | | | - | | | | 562 | | | | 1,006 | | | | 244,534 | | | | - | | | | 246,102 | |
| Gross profit | | | - | | | | 248,243 | | | | 518,290 | | | | 987,178 | | | | (768,101 | ) | | | 985,610 | |
| Total operating expenses | | | 175,724 | | | | 239,092 | | | | 604,401 | | | | 2,687,249 | | | | - | | | | 3,706,466 | |
| Intercompany operating expenses | | | - | | | | - | | | | - | | | | 768,101 | | | | (768,101 | ) | | | - | |
| Loss from operations | | | (175,724 | ) | | | 9,151 | | | | (86,111 | ) | | | (2,468,172 | ) | | | - | | | | (2,720,856 | ) |
| Other income | | | - | | | | (1,299 | ) | | | 461 | | | | 99,949 | | | | - | | | | 99,111 | |
| Income tax expense | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Net loss | | $ | (175,724 | ) | | $ | 7,852 | | | $ | (85,650 | ) | | $ | (2,368,223 | ) | | $ | - | | | $ | (2,621,745 | ) |
Condensed Consolidated Schedules of Cash Flows
SCHEDULE OF VIE DATA OF CASH FLOWS
| | | Parent
Only | | | Non-VIE and
Non-WFOE
Subsidiaries
Consolidated | | | WFOE | | | VIE and
VIE’s
Subsidiary
Consolidated | | | Eliminating
Adjustments | | | Consolidated | |
| | | For the nine months ended June 30, 2024 | |
| | | Parent
Only | | | Non-VIE and
Non-WFOE
Subsidiaries
Consolidated | | | WFOE | | | VIE and
VIE’s
Subsidiary
Consolidated | | | Eliminating
Adjustments | | | Consolidated | |
| | | | | | | | | | | | | | | | | | | |
| Net loss | | $ | (171,056 | ) | | $ | (4,214 | ) | | $ | (7 | ) | | $ | (1,012,630 | ) | | $ | - | | | $ | (1,187,907 | ) |
| Intercompany receivables | | | - | | | | (148,614 | ) | | | - | | | | (641,868 | ) | | | 790,482 | | | | - | |
| Intercompany payables | | | 221,056 | | | | (38,430 | ) | | | 69 | | | | 663,147 | | | | (845,842 | ) | | | - | |
| Net cash (used in) provided by operating activities | | | - | | | | (11,594 | ) | | | 62 | | | | (474,637 | ) | | | (55,360 | ) | | | (518,341 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash used in investing activities | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Effect of exchange rate fluctuation on cash | | $ | - | | | $ | (29,378 | ) | | $ | 1 | | | $ | 9,227 | | | $ | 55,360 | | | $ | 43,556 | |
| | | Parent
Only | | | Non-VIE and
Non-WFOE
Subsidiaries
Consolidated | | | WFOE | | | VIE and
VIE’s
Subsidiary
Consolidated | | | Eliminating
Adjustments | | | Consolidated | |
| | | For the nine months ended June 30, 2023 | |
| | | Parent
Only | | | Non-VIE and
Non-WFOE
Subsidiaries
Consolidated | | | WFOE | | | VIE and
VIE’s
Subsidiary
Consolidated | | | Eliminating
Adjustments | | | Consolidated | |
| | | | | | | | | | | | | | | | | | | |
| Net loss | | $ | (175,724 | ) | | $ | 7,852 | | | $ | (85,650 | ) | | $ | (2,368,223 | ) | | $ | - | | | $ | (2,621,745 | ) |
| Intercompany receivables | | | - | | | | (329,669 | ) | | | - | | | | (881,574 | ) | | | 1,211,243 | | | | - | |
| Intercompany payables | | | 224,724 | | | | 335,344 | | | | 190,896 | | | | 443,776 | | | | (1,194,740 | ) | | | - | |
| Net cash (used in) provided by operating activities | | | - | | | | 9,821 | | | | (13,007 | ) | | | 129,472 | | | | 16,503 | | | | 142,789 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash used in investing activities | | | - | | | | (571 | ) | | | (606 | ) | | | - | | | | - | | | | (1,177 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by financing activities | | | - | | | | - | | | | - | | | | 200,327 | | | | - | | | | 200,327 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Effect of exchange rate fluctuation on cash | | $ | - | | | $ | (10,629 | ) | | $ | (10,570 | ) | | $ | (16,719 | ) | | $ | (16,503 | ) | | $ | (33,281 | ) |
The Company consolidated its VIE as of June 30, 2024 and September 30, 2023. The carrying amounts and classification of the VIE’s assets and liabilities included in the consolidated balance sheets are as follows:
SCHEDULE OF VIE CONSOLIDATED BALANCE SHEETS, OPERATING RESULTS AND CASH FLOWS
| | | June 30, 2024 | | | September 30, 2023 | |
| | | | | | | |
| Assets | | | | | | | | |
| Current assets | | | | | | | | |
| Cash and cash equivalents | | $ | 293,587 | | | $ | 447,117 | |
| Trade receivable – third parties | | | - | | | | - | |
| Trade receivable - intercompany | | | - | | | | 2,119,294 | |
| Advance and prepayments | | | 104,708 | | | | 41,323 | |
| Other receivables - third parties | | | 288,956 | | | | 19,431 | |
| Other receivables - intercompany | | | 2,316,194 | | | | - | |
| Amount due from a related party | | | 13,760 | | | | - | |
| Inventory | | | 17,644 | | | | 107,263 | |
| Total current assets | | | 3,034,849 | | | | 2,734,428 | |
| | | | | | | | | |
| Noncurrent assets | | | | | | | | |
| Property and equipment, net | | $ | 541,452 | | | $ | - | |
| Prepayment, noncurrent | | | (1,459 | ) | | | - | |
| Right-of-use assets | | | 61,999 | | | | 127,674 | |
| Total noncurrent assets | | | 601,992 | | | | 127,674 | |
| | | | | | | | | |
| Total assets | | $ | 3,636,841 | | | $ | 2,862,102 | |
| | | | | | | | | |
| Liabilities | | | | | | | | |
| Current liabilities | | | | | | | | |
| Trade payables - third parties | | $ | 2,413,857 | | | $ | 2,067,831 | |
| Other payables and accrual | | | 586,920 | | | | 8,029 | |
| Deferred revenue | | | 1,242,359 | | | | 2,149,238 | |
| Intercompany payables | | | 193,525 | | | | 34,370 | |
| Payroll payable | | | 62,194 | | | | 37,440 | |
| Tax payable | | | 185,818 | | | | 180,505 | |
| Amounts due to related parties | | | 2,844,011 | | | | 1,318,120 | |
| Operating lease obligations-current portion | | | 66,736 | | | | 85,446 | |
| Total current liabilities | | | 7,595,420 | | | | 5,880,979 | |
| | | | | | | | | |
| Noncurrent liabilities | | | | | | | | |
| Operating lease obligations-net of current portion | | | 349,440 | | | | 35,381 | |
| Total noncurrent liabilities | | | 349,440 | | | | 35,381 | |
| | | | | | | | | |
| Total liabilities | | | 7,944,860 | | | | 5,916,360 | |
| | | | | | | | | |
| Commitment and contingencies | | | - | | | | | |
| | | | | | | | | |
| Equity | | | | | | | | |
| Additional paid-in capital | | | 637,801 | | | | 637,801 | |
| Accumulated deficits | | | (4,984,788 | ) | | | (3,788,510 | ) |
| Accumulated other comprehensive income | | | 227,636 | | | | 255,314 | |
| Total stockholders’ equity | | | (4,119,351 | ) | | | (2,895,395 | ) |
| Non-controlling interests | | | (188,668 | ) | | | (158,863 | ) |
| Total equity | | | (4,308,019 | ) | | | (3,054,258 | ) |
| | | | | | | | | |
| Total liabilities and equity | | $ | 3,636,841 | | | $ | 2,862,102 | |
The operating results of the VIE were as follows:
| | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | | For the three months ended June 30, | | | For the nine months ended June 30, | |
| | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | | | | | | | | | | | | |
| Revenue, net | | $ | 672,062 | | | | 337,031 | | | $ | 1,598,728 | | | | 1,231,712 | |
| Cost of revenue | | | 181,014 | | | | (66,912 | ) | | | 428,648 | | | | (244,534 | ) |
| Gross profit | | | 491,048 | | | | 270,119 | | | | 1,170,080 | | | | 987,178 | |
| | | | | | | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | | | | | |
| General and administrative expenses | | | 665,195 | | | | 242,687 | | | | 1,258,889 | | | | 557,152 | |
| Selling expense | | | 62,521 | | | | 1,324,034 | | | | 1,174,826 | | | | 2,898,198 | |
| Total operating expenses | | | 727,716 | | | | 1,566,721 | | | | 2,433,715 | | | | 3,455,350 | |
| | | | | | | | | | | | | | | | | |
| Loss from operations | | | (236,668 | ) | | | (1,296,6012 | ) | | | (1,263,635 | ) | | | (2,468,172 | ) |
| | | | | | | | | | | | | | | | | |
| Other (expenses) income: | | | | | | | | | | | | | | | | |
| Interest income | | | 27 | | | | 119 | | | | 402 | | | | 203 | |
| Other income | | | (1,081 | ) | | | (9,072 | ) | | | 30,261 | | | | 99,746 | |
| Total other (expenses) income, net | | | (1,054 | ) | | | (8,953 | ) | | | 30,663 | | | | 99,949 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Income tax expense | | | 2,665 | | | | - | | | | 16,029 | | | | - | |
| | | | | | | | | | | | | | | | | |
| Net loss | | | (235,057 | ) | | | (1,305,555 | ) | | | (1,216,943 | ) | | | (2,368,223 | ) |
| Less: Net income (loss) attributable to non-controlling interest | | | - | | | | - | | | | (47 | ) | | | - | |
| Net loss attributable to Kun Peng International Ltd | | | (235,057 | ) | | | (1,305,555 | ) | | | (1,216,990 | ) | | | (2,368,223 | ) |
The cash flows of the VIE were as follows:
| | | 2024 | | | 2023 | |
| | | For the nine months ended June 30, | |
| | | 2024 | | | 2023 | |
| | | | | | | |
| Cash flows from operating activities | | | | | | | | |
| Net loss | | $ | (1,254,553 | ) | | | (2,368,223 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities | | | | | | | | |
| Depreciation and amortization | | | 35,932 | | | | - | |
| Amortization of right-of-use assets | | | 66,631 | | | | 64,101 | |
| | | | | | | | | |
| Changes in operating assets and liabilities | | | | | | | | |
| Advance and prepayments | | | (52,252 | ) | | | (67,159 | ) |
| Other receivable- related parties | | | (13,854 | ) | | | - | |
| Trade receivable- intercompany | | | (113,820 | ) | | | (443,092 | ) |
| Other receivables- third parties | | | (226,082 | ) | | | 2,063 | |
| Other receivables- intercompany | | | (528,048 | ) | | | (438,482 | ) |
| Inventory | | | 93,253 | | | | - | |
| Amount due from a related party | | | - | | | | - | |
| Trade payable- third parties | | | - | | | | 1,088,282 | |
| Trade payable- intercompany | | | 149,953 | | | | 442,263 | |
| Other payables and accrual- third parties | | | 518,345 | | | | 399,992 | |
| Other payables and accrual- intercompany | | | 513,194 | | | | 1,513 | |
| Deferred revenue | | | (955,853 | ) | | | 1,370,302 | |
| Payroll payable | | | 24,772 | | | | 31,898 | |
| Amounts due to related parties | | | 1,531,003 | | | | (12,020 | ) |
| Tax payable | | | (20,923 | ) | | | 124,358 | |
| Lease liabilities | | | (52,623 | ) | | | (66,324 | ) |
| Net cash used in operating activities | | | (162,756 | ) | | | 129,472 | |
| | | | | | | | | |
| Cash flows from investing activities | | | | | | | | |
| Purchase of property, plant and equipment | | | - | | | | - | |
| Net cash used in investing activities | | | - | | | | - | |
| | | | | | | | | |
| Cash flows from financing activities | | | | | | | | |
| Capital contribution | | | - | | | | 200,327 | |
| Net cash provided by financing activities | | | - | | | | 200,327 | |
| | | | | | | | | |
| Effect of exchange rate changes on cash | | | 9,227 | | | | (16,719 | ) |
| | | | | | | | | |
| Net change in cash and cash equivalents | | | (153,529 | ) | | | 313,080 | |
| | | | | | | | | |
| Cash and cash equivalents, beginning balance | | | 447,117 | | | | 255,536 | |
| | | | | | | | | |
| Cash and cash equivalents, ending balance | | $ | 20,054 | | | | 568,616 | |
NOTE 4- ADVANCE AND PREPAYMENTS
Prepayments consisted of the following:
SCHEDULE OF PREPAYMENTS
| | | June 30, 2024 | | | September 30, 2023 | |
| | | | | | | |
| Prepaid rent and building management and utilities | | $ | 18,404 | | | $ | 19,211 | |
| Prepaid supplies(1) | | | 36,790 | | | | 32,195 | |
| Prepaid income tax | | | 5,047 | | | | 5,027 | |
| Prepaid professional services(2) | | | 62,305 | | | | 9,137 | |
| Prepaid others | | | 7,469 | | | | 8,474 | |
| Total prepayments | | $ | 130,015 | | | $ | 74,044 | |
| (1) | As of June 30, 2024 and September 30, 2023, the Company had prepaid supplies of $36,790 and $32,195, respectively. The prepayment will be recognized in cost of goods sold in its consolidated statement of operations and comprehensive loss when the corresponding deferred revenue is recognized. |
| | |
| (2) | As of September 30, 2023, the ending balance of prepaid professional services represented $9,137 for the legal service fee for our PRC entities. The legal service fee will be amortized to general and administrative expenses using the straight-line method, over the service periods of October and November 2023. As of June 30, 2024, the ending balance of prepaid professional services included $62,305 for the consulting fee, bookkeeping fee, and technical support fee for our PRC entities. The consulting fee is related to Chengdu Wenjiang for applying online health care and medical services permits from the relevant authorities. The bookkeeping fee will amortized to general and administrative expenses using the straight-line period over the service periods of April and May 2024. The technical support fee will be recognized in cost of goods sold in its consolidated statement of operations and comprehensive loss when the related revenue is recognized. |
These amounts are expected to be recoverable within twelve (12) months.
NOTE 5 - OTHER RECEIVABLES
Other receivables included the following:
SCHEDULE OF OTHER RECEIVABLES
| | | June 30, 2024 | | | September 30, 2023 | |
| | | | | | | |
| Rental and vendor deposits | | $ | 80,859 | | | $ | 14,111 | |
| Advance to employees | | | 76,827 | | | | 2,604 | |
| Others | | | 151,684 | | | | 6,345 | |
| Total other receivables, net | | $ | 309,370 | | | $ | 23,060 | |
Advance to employees represents funds provided to our officers and employees for business expenses, such as travel, parking, gasoline, membership, and meals, that are anticipated to be incurred by our officers and employees on behalf of the Company. Advances to employees are required to be repaid in cash within a year.
NOTE 6 - INVENTORY
Inventory consisted of the following:
SCHEDULE OF INVENTORY
| | | June 30, 2024 | | | September 30, 2023 | |
| | | | | | | |
| Finished goods | | $ | 17,644 | | | $ | 107,263 | |
| Total | | $ | 17,644 | | | $ | 107,263 | |
NOTE 7 - PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
| | | June 30, 2024 | | | September 30, 2023 | |
| | | | | | | |
| Leasehold improvements | | $ | 168,434 | | | $ | 124,161 | |
| Furniture and fixtures | | | 1,217 | | | | 1,205 | |
| Computer equipment | | | 39,520 | | | | 39,110 | |
| Office equipment | | | 1,458 | | | | 1,442 | |
| Service equipment | | | 552,228 | | | | - | |
| Subtotal | | | 762,857 | | | | 165,919 | |
| Property and equipment, gross | | | 762,857 | | | | 165,919 | |
| Less: accumulated depreciation | | | (183,886 | ) | | | (93,367 | ) |
| Total property and equipment, net | | $ | 578,972 | | | $ | 72,552 | |
| Total property and equipment, net | | $ | 578,972 | | | $ | 72,552 | |
Depreciation expense was $21,156 and $15,361 for the three months ended and $54,965 and $46,250 for the nine months ended June 30, 2024 and 2023, respectively.
NOTE 8 - INTANGIBLE ASSETS
SCHEDULE OF INTANGIBLE ASSET
| | | June 30, 2024 | | | September 30, 2023 | |
| | | | | | | |
| Trademarks | | $ | 3,565 | | | $ | 3,551 | |
| Subtotal | | | 3,565 | | | | 3,551 | |
| Less: accumulated amortization | | | (1,015 | ) | | | (745 | ) |
| Total intangible assets, net | | $ | 2,550 | | | $ | 2,806 | |
Intangible assets consist of the Company’s trademarks of King Eagle Mall with a useful life of ten years. Approximately $1,056, $1,358, $554, $35, $502, and $84 will expire in July 2031, April 2031, April 2032, September 2032, October 2032, and October 2033, respectively.
Amortization expense was $89 and $93 for the three months ended and $269 and $275 for the nine months ended June 30, 2024 and 2023, respectively.
NOTE 9 - DEFERRED REVENUE
SCHEDULE OF DEFERRED REVENUE
| | | June 30, 2024 | | | September 30, 2023 | |
| | | | | | | |
| Advance payments from customers | | $ | 1,242,358 | | | $ | 2,149,238 | |
| Total deferred revenue | | $ | 1,242,358 | | | $ | 2,149,238 | |
Deferred revenue resulted from transactions where the Company has received the payments from the customers but revenue recognition criteria under the five-step model have yet to be met. As of June 30, 2024 and September 30, 2023, the Company had total deferred revenue of $1,242,358 and $2,149,238, respectively. Out of the ending balance as of June 30, 2024 of $938,891, $461,072 was the advance payment from our customers for our retail products to be delivered in the subsequent period. Once the five-step model criteria have been satisfied, revenues will be recognized upon the transfer of risk and rewards to the customers. The remaining balance, $477,819, is related to the project of Smart Kiosks abandoned in September 2023. Management has agreed that the amount received is non-refundable. However, this term is not bound by any written agreement. Thus, the customers may have the right to challenge and demand that the advances be refunded under relevant commercial laws and regulations.
NOTE 10 - RELATED PARTY TRANSACTIONS
Amounts due to related parties are payables arising from transactions between the Company and related parties, such as payments of operating expenses by such related parties on behalf of our entities in the PRC and funding to meet working capital requirements. The payables owed to the related parties are interest free, unsecured, and repayable on demand.
Amounts due to related parties consisted of the following:
SCHEDULE OF AMOUNTS DUE TO RELATED PARTIES
| Name of related party | | Relationship | | Nature of transactions | | June 30,
2024 | | | September 30, 2023 | |
| | | | | | | | | | | |
| Ms.Chengyuan Li | | One of the shareholders of King Eagle (Tianjin) | | Operational support to King Eagle (Tianjin) to meet its working capital requirements | | $ | 2,593,984 | | | $ | 1,069,078 | |
| Ms. Jinjing Zhang | | One of the shareholders of King Eagle (Tianjin) | | Operational support to King Eagle (Tianjin) to meet its working capital requirements | | | 2,339 | | | | 2,331 | |
| Ms. Xiujin Wang | | One of the shareholders of King Eagle (Tianjin) | | Operational support to King Eagle (Tianjin) to meet its working capital requirement. | | | 247,688 | | | | 246,711 | |
| | | | | | | | | | | | | |
| Total | | | | | | $ | 2,844,011 | | | $ | 1,318,120 | |
As of June 30, 2024, there was an amount due from related parties, Ms. Jinjing Zhang and Ms. Xiujin Wang who are the shareholders of King Eagle (Tianjin), with $13,760 as the advances for operational purpose. There was no amount due from related party as of September 30, 2023.
NOTE 11 - EQUITY
Effective as of September 9, 2021, the Company’s Articles of Incorporation were amended to increase the Company’s authorized capital to 210,000,000 authorized shares of capital stock with 200,000,000 designated as $0.0001 par value common stock and 10,000,000 designated as $0.0001 par value preferred stock.
Effective on October 12, 2022, a Certificate of Amendment was filed with the Nevada Secretary of State to increase the authorized number of shares of the Company’s $0.0001 par value common stock from 200,000,000 shares to 1,000,000,000 shares of common stock.
The Company’s board of directors approved and declared a 10:1 forward split of its common stock on September 6, 2022. As a result of the stock split, holders of pre-split shares of common stock received post-split shares of common stock at a ratio of ten (10) shares of post-split common stock for every one (1) share of pre-split common stock. The stock split had a record date of September 16, 2022 and an effective date of October 18, 2022. No fractional shares were issuable as a result of the forward stock split. After the forward stock split, the Company has 400,000,000 shares of common stock outstanding. The par value of the common stock remained unchanged at 0.0001 per share after the stock split.
Preferred stock
The Company’s authorized shares of preferred stock are 10,000,000 shares, with a par value of $0.0001. The preferred stock may be issued in series and with such voting powers, designations, preferences, limitations, restrictions, and relative rights as the board of directors shall determine in its sole discretion. No shares of preferred stock were issued and outstanding as of June 30, 2024 and September 30, 2023.
Common stock
The Company’s authorized shares of common stock were 1,000,000,000 and 1,000,000,000 shares with a par value of $0.0001, as of June 30, 2024 and September 30, 2023, respectively. The issued and outstanding shares of common stock were 400,000,000 as of June 30, 2024 and September 30, 2023, respectively.
Restricted net assets
Our ability to pay dividends is primarily dependent on us receiving distributions of funds from our VIE. Relevant PRC statutory laws and regulations permit payments of dividends by our VIE and its subsidiaries only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations and after they have met the PRC requirements for appropriation to statutory reserves. Share capital of our PRC subsidiaries and VIE included in the Company’s consolidated net assets are also non-distributable for dividend purposes. The results of operations reflected in the accompanying consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of KP Tian Yu, the foreign-invested enterprise, King Eagle (China), King Eagle (Tianjin), the VIE, and its subsidiaries. The Company is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, the Company may allocate a portion of its after-tax profits based on PRC accounting standards to an enterprise expansion fund and a staff bonus and welfare fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends.
As a result of the foregoing restrictions, King Eagle (China), King Eagle (Tianjin), and KP Tian Yu are restricted in their ability to transfer their net assets to the Company. Foreign exchange and other regulations in the PRC may further restrict these entities from transferring funds to the Company in the form of dividends, loans, and advances. As of June 30, 2024, King Eagle (China), King Eagle (Tianjin) and KP Tian Yu incurred negative assets in the amount of $1,223,144, $2,509,221 and $623, respectively. As of September 30, 2023, King Eagle (China), King Eagle (Tianjin), and KP Tian Yu incurred negative assets in the amount of $1,080,228, $2,069,494, and $611, respectively. Accordingly, the Company did not accrue statutory reserve funds as of June 30, 2024 and September 30, 2023.
NOTE 12- REVENUE
Revenue:
The following table presents revenues and the related cost of goods sold disaggregated by customer type for the three and nine months ended June 30, 2024 and 2023:
SCHEDULE OF DISAGGREGATED REVENUES AND COST OF GOODS SOLD
| | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | | Three months ended June 30, | | | Nine months ended June 30, | |
| | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | | | | | | | | | | | | |
| Retail | | $ | 440,243 | | | $ | 49,634 | | | $ | 983,694 | | | $ | 113,073 | |
| Wholesale | | | - | | | | 411,009 | | | | 2,160 | | | | 1,118,639 | |
| Equipment service revenue | | | 231,819 | | | | - | | | | 539,630 | | | | - | |
| Technical service revenue | | | - | | | | - | | | | 35,959 | | | | - | |
| Commission revenue | | | - | | | | - | | | | 2,948 | | | | - | |
| Training revenue | | | - | | | | - | | | | 34,337 | | | | - | |
| Total | | $ | 672,062 | | | | 460,643 | | | $ | 1,598,728 | | | | 1,231,712 | |
| | | 2024 | | | 2023 | |
| | | Nine months ended June 30, | |
| | | 2024 | | | 2023 | |
| | | | | | | |
| Performance obligations satisfied at a point in time | | $ | 1,059,098 | | | $ | 1,231,712 | |
| Performance obligations satisfied over time | | | 539,630 | | | | - | |
| Total | | $ | 1,598,728 | | | $ | 1,231,712 | |
| Revenue | | $ | 1,598,728 | | | $ | 1,231,712 | |
Cost of revenue:
We disaggregated our cost of revenue for the three and nine months ended June 30, 2024 and 2023:
| | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | | Three months ended June 30, | | | Nine months ended June 30, | |
| | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | | | | | | | | | | | | |
| Retail | | $ | 116,723 | | | $ | 19,386 | | | $ | 249,007 | | | $ | 45,263 | |
| Wholesale | | | - | | | | 45,492 | | | | 1,150 | | | | 200,839 | |
| Equipment service revenue | | | 63,542 | | | | - | | | | 158,167 | | | | - | |
| Technical service revenue | | | - | | | | - | | | | - | | | | - | |
| Commission revenue | | | - | | | | - | | | | - | | | | - | |
| Training revenue | | | - | | | | - | | | | 20,324 | | | | - | |
| Total | | $ | 180,265 | | | | 64,878 | | | $ | 428,648 | | | | 246,102 | |
| Cost of revenue | | $ | 180,265 | | | | 64,878 | | | $ | 428,648 | | | | 246,102 | |
NOTE 13- INCOME TAXES
The Company accounts for income taxes pursuant to the accounting standards that require the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carryforwards. Additionally, the accounting standards require the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. The Company and its subsidiaries file separate income tax returns.
United States
Kun Peng International Limited is incorporated in the State of Nevada and is subject to United States federal income tax. No provision for income taxes in the U.S. has been made as the Company has no U.S. taxable income for the nine months ended June 30, 2024 and 2023.
British Virgin Islands
KP International Holding is a holding company organized as an International Business Company under the laws of the British Virgin Islands (“BVI”), and its principal operating subsidiaries are organized under the laws of Hong Kong and the laws of the PRC. KP International and its subsidiaries are not subject to income taxes in the BVI.
Hong Kong
The two-tier profits tax rates system was introduced under the Inland Revenue (Amendment)(No.3) Ordinance 2018 (“the Ordinance”) of Hong Kong and became effective for the assessment year 2018/2019. Under the two-tier profits tax rates regime, the profits tax rate for the first $0.26 million (HKD 2 million) of assessable profits of a corporation will be subject to a lowered tax rate of 8.25%, while the remaining assessable profits will be subject to the legacy tax rate of 16.5%. The Ordinance only allows one entity within a group of “connected entities” to be eligible for the two-tier tax rate benefit. An entity is a connected entity of another entity if (1) one of them has control over the other; (2) both of them are under the control (more than 50% of the issued share capital) of the same entity; or (3) in the case of the first entity being a natural person carrying on a sole proprietorship business, the other entity is the same person carrying on another sole proprietorship business.
Since KP (China) and KP (Hong Kong) are wholly owned and under the control of KP International Holding, these entities are connected entities. Under the Ordinance, it is an entity’s election to nominate the entity that will be subject to the two-tier profits tax rates on its profits tax return. The election is irrevocable. The Company elected KP (Hong Kong) to be subject to the two-tier profits tax rates. KP (China) and KP (Hong Kong) did not earn any income that was derived in Hong Kong for the nine months ended June 30, 2024 and 2023, and, therefore, KP (China) and KP (Hong Kong) were not subject to Hong Kong profits tax for the periods reported.
Since the two-tier profit tax rates regime is tentative, we applied the original profits tax rate, 16.5%, for the calculation of deferred taxes for our subsidiaries in Hong Kong.
PRC
The PRC’s statutory income tax rate is 25%. The Company’s subsidiaries and VIE registered in the PRC are subject to the income tax rate of 25%, unless otherwise specified.
Income tax expense was comprised of the following:
SCHEDULE OF COMPONENTS OF INCOME TAX EXPENSE BENEFIT
| | | 2024 | | | 2023 | |
| | | Nine months ended June 30, | |
| | | 2024 | | | 2023 | |
| Current | | | | | | | | |
| Federal | | $ | - | | | $ | - | |
| State | | | - | | | | - | |
| Foreign | | | 16,029 | | | | - | |
| Total current | | | 16,029 | | | | - | |
| | | | | | | | | |
| Deferred | | | | | | | | |
| Federal | | | - | | | | - | |
| State | | | - | | | | - | |
| Foreign | | | - | | | | - | |
| Total deferred | | | - | | | | - | |
| | | | | | | | | |
| Total income tax expense | | $ | 16,029 | | | $ | - | |
A reconciliation between the Company’s actual provision for income taxes and the provision at the statutory rate is as follow:
SCHEDULE OF RECONCILIATION OF PROVISION OF INCOME TAX
| | | 2024 | | | 2023 | |
| | | Nine months ended June 30, | |
| | | 2024 | | | 2023 | |
| Loss before income tax expense | | $ | (1,404,027 | ) | | $ | (534,806 | ) |
| Computed tax expense (benefit) with statutory tax rate | | | 21.0 | % | | | 21.0 | % |
| Impact of different tax rates in other jurisdictions | | | 3.6 | % | | | 3.5 | % |
| Tax effect of non-deductible expenses | | | (2.8 | %) | | | (2.3 | %) |
| Change in valuation allowance | | | (22.9 | %) | | | (22.3 | %) |
| Effective tax rate | | | (1.0 | %) | | | 0.0 | % |
Uncertain tax positions
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by the respective jurisdictions, where applicable. The statute of limitations for the tax returns varies by jurisdiction.
The statute of limitations for the U.S. Internal Revenue Service to assess the income tax returns of a taxpayer expires three years from the due date of the income tax return or the date on which it was filed, whichever is later.
In accordance with the Hong Kong profits tax regulations, a tax assessment by the IRD may be initiated within six years after the relevant year of assessment, but that period is extendable to 10 years in the case of potential willful underpayment or evasion.
In accordance with the PRC Tax Administration Law on the Levying and Collection of Taxes, the PRC tax authorities generally have up to five years to assess underpaid tax plus penalties and interest for PRC entities’ tax filings. In the case of tax evasion, which is not clearly defined in the law, there is no limitation on the tax years open for investigation. Accordingly, the PRC entities remain subject to examination by the tax authorities based on the above.
As of June 30, 2024 and September 30, 2023, the Company did not accrue any liability, interest, or penalties related to uncertain tax positions in the provision for income taxes in its consolidated financial statements. The Company does not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months.
NOTE 14 - RIGHT-OF-USE ASSETS AND LEASE
The Company has operating leases for its office facilities and employee accommodation. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.
The following table provides a summary of leases as of June 30, 2024 and September 30, 2023:
SUMMARY OF OPERATING LEASE ASSETS AND LIABILITIES
| Assets/liabilities | | Classification | | June 30, 2024 | | | September 30, 2023 | |
| Assets | | | | | | | | | | |
| Operating lease right-of-use assets | | Operating lease assets | | $ | 240,743 | | | $ | 479,427 | |
| | | | | | | | | | | |
| Liabilities | | | | | | | | | | |
| Current | | | | | | | | | | |
| Operating lease liability - current | | Current operating lease liabilities | | $ | 248,405 | | | $ | 318,422 | |
| | | | | | | | | | | |
| Long-term | | | | | | | | | | |
| Operating lease liability - net of current portion | | Long-term operating lease liabilities | | $ | 410,846 | | | $ | 95,907 | |
| | | | | | | | | | | |
| Total lease liabilities | | | | $ | 659,251 | | | $ | 414,329 | |
The operating lease expense for the nine months ended June 30, 2024 and 2023 was as follows:
SUMMARY OF OPERATING LEASE EXPENSE
| Lease cost | | Classification | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | | | | For the three months ended
June 30, | | | For the nine months ended June 30, | |
| Lease cost | | Classification | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| Operating lease cost | | General and administrative | | $ | 81,064 | | | | 84,830 | | | $ | 246,939 | | | $ | 253,512 | |
| Total lease cost | | | | $ | 81,064 | | | | 84,830 | | | $ | 246,939 | | | $ | 253,512 | |
Maturities of operating lease liabilities as of June 30, 2024 were as follows:
SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITIES
| Maturity of lease liabilities | | Operating leases | |
| Remaining of 2024 | | $ | 175,547 | |
| 2025 | | | 159,896 | |
| 2026 | | | - | |
| 2027 | | | - | |
| 2028 | | | - | |
| Thereafter | | | - | |
| Total lease payments | | $ | 335,443 | |
| Less: interest | | | (6,630 | ) |
| Present value of lease payments | | $ | 328,813 | |
Maturities of operating lease liabilities as of September 30, 2023, were as follows:
| Maturity of Lease Liabilities | | Operating Leases | |
| 2024 | | $ | 93,798 | |
| 2025 | | | 159,896 | |
| 2026 | | | - | |
| 2027 | | | - | |
| 2028 | | | - | |
| Thereafter | | | - | |
| Total lease payments | | $ | 253,694 | |
| Less: interest | | | (3,676 | ) |
| Present value of lease payments | | $ | 250,018 | |
Supplemental information related to operating leases was as follows:
SCHEDULE OF OPERATING LEASES
| | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | | For the three months ended June 30, | | | For the nine months ended June 30, | |
| | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| Cash paid for amounts included in the measurement of lease liabilities | | $ | 14,398 | | | | 133,868 | | | $ | 111,469 | | | | 133,868 | |
| New operating lease assets obtained in exchange for operating lease liabilities | | $ | 14,398 | | | | 110,738 | | | $ | 111,469 | | | | 110,738 | |
The amortization expense was $54,965 and $48,028 for the three months ended June 30, 2024 and 2023 and $216,678 and $237,538 for the nine months ended June 30, 2024 and 2023, respectively.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
Purchase and service commitments
We entered into multiple purchase and service commitments. As of June 30, 2024 and September 30, 2023, we had purchase and service commitments in an amount of $25,044 and $15,327, respectively.
NOTE 16 - SUBSEQUENT EVENT
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Operations Overview
The Company is a Nevada holding company with no operations of its own. It conducts its operations through its PRC subsidiary, King Eagle (China), which conducts its operations through contractual agreements with a variable interest entity (“VIE”), King Eagle (Tianjin), and its subsidiaries (i) King Eagle (Beijing) Technology Co., Ltd., incorporated on December 1, 2022; (ii) King Eagle (Huai’an) Health Management Co., Ltd., incorporated on September 19, 2023; (iii) Kun Zhi Jian (Huai’an) Technology Co., Ltd., incorporated on October 26, 2023; (iv) Kun Zhi Jian (Shandong) Health Management Co., Ltd, incorporated on January 30, 2024; (v) Chengdu Wenjiang Pengrun Internet Healthcare Co., Ltd, incorporated on February 1, 2024; and (vi) Kun Pin Hui (Shandong) Trading Co. Ltd., incorporated on April 10, 2024.
As a result of such contractual arrangements, King Eagle (China) is the primary beneficiary of the VIE for accounting purposes and the VIE is a PRC consolidated entity under U.S. GAAP. The Company consolidates the financial results of the VIE and its subsidiaries in its consolidated financial statements in accordance with U.S. GAAP.
Results of Operations for the three months ended June 30, 2024 and 2023
| | | Three Months Ended June 30, | |
| | | 2024 | | | 2023 | |
| | | Amount | | | % of revenue | | | Amount | | | % of revenue | |
| | | | | | | | | | | | | |
| Revenues | | $ | 672,062 | | | | 100 | % | | | 460,643 | | | | 100.0 | % |
| Cost of revenues | | | 180,265 | | | | 26.8 | | | | 64,878 | | | | 14.1 | |
| Gross profit | | | 491,797 | | | | 73.2 | | | | 395,765 | | | | 85.9 | |
| Operating expenses: | | | | | | | | | | | | | | | | |
| General and administrative expenses | | | 353,669 | | | | 52.6 | | | | 423,757 | | | | 92.0 | |
| Selling expense | | | 422,612 | | | | 62.9 | | | | 1,231,189 | | | | 267.3 | |
| Total operating expenses | | | 776,281 | | | | 115.5 | | | | 1,654,946 | | | | 359.3 | |
| Loss from operations | | | (284,484 | ) | | | (42.3 | ) | | | (1,259,181 | ) | | | (273.4 | ) |
| Other (expenses) income | | | (1,087 | ) | | | (0.2 | ) | | | (10,230 | ) | | | (2.2 | ) |
| Loss before income taxes | | | (285,571 | ) | | | (42.5 | ) | | | (1,269,411 | ) | | | (275.6 | ) |
| Income tax expense | | | 2,665 | | | | 0.4 | | | | - | | | | - | |
| Net loss | | $ | (288,236 | ) | | | (42.9 | ) | | | (1,269,411 | ) | | | (275.6 | )% |
Revenues
For the three months ended June 30, 2024 and 2023, revenues amounted to $672,062 and $460,643, respectively. The following table presents revenues disaggregated by customer type for the three months ended June 30, 2024 and 2023:
| | | Three months ended June 30, | |
| | | 2024 | | | 2023 | |
| | | | | | | |
| Retail | | $ | 440,243 | | | $ | 49,634 | |
| Wholesale | | | - | | | | 411,009 | |
| Equipment service revenue | | | 231,819 | | | | - | |
| Technical service revenue | | | - | | | | - | |
| Commission revenue | | | - | | | | - | |
| Training revenue | | | - | | | | - | |
| Total | | $ | 672,062 | | | $ | 460,643 | |
We recognize our revenue on a gross basis, net of sub-charges and value-added tax (“VAT”) on gross sales.
Our retail revenue primarily included the sale of health care and health related household products to our retail customers via our mobile application, King Eagle Mall, which was launched in July 2020. Our wholesale revenue came from our new online platform, Kun Zhi Jian, which was launched in October 2022. This new online platform focuses on promoting and selling our own brand of preventive health care related products, such as the thermal therapy cabin, to our wholesalers.
Compared to the three months ended June 30, 2023, we generated $211,419 or 31.46% higher revenue during the three months ended June 30, 2024 due to the following additional revenue streams: (i) commission revenue; (ii) equipment service revenue; (iii) training revenue; and (iv) technical service revenue. In addition we continued the sale of preventive health care products on King Eagle Mall and Kun Zhi Jian to our retail and wholesale customers. We launched our Kun Zhi Jian Mini Program (“Mini Program”) in November 2023 to expand our customer services and preventive health care. We generate commission revenue through the Mini Program, by selling health care instruments on behalf of third parties on a commission basis. We also sell prepaid cards to our customers for the use of card-operated health screening equipment located at the Kun Zhi Jian Customer Service Center and we recognize equipment service revenue when our customers consume the prepaid cards. We earn training revenue upon completion of training sessions by our customers. We recognize technical service revenue when vendors promote their products or businesses on our platform.
Cost of revenue
Our cost of revenue for the three months ended June 30, 2024 and 2023 was $180,265 and $64,878, respectively. This primarily included the purchase of health care and health related household products from our suppliers.
We disaggregated our cost of revenue by customer type, retail and wholesale, for the three months ended June 30, 2024 and 2023:
| | | Three months ended June 30, | |
| | | 2024 | | | 2023 | |
| | | | | | | |
| Retail | | $ | 116,723 | | | $ | 19,386 | |
| Wholesale | | | - | | | | 45,492 | |
| Equipment service revenue | | | 63,542 | | | | - | |
| Technical service revenue | | | - | | | | - | |
| Commission revenue | | | - | | | | - | |
| Training revenue | | | - | | | | - | |
| Total | | $ | 180,265 | | | $ | 64,878 | |
Our cost of revenue for the three months ended June 30, 2024 was $180,265, a $115,387 or 64.01% increase over our cost of revenue for the three months ended June 30, 2023 of $64,878. Our cost of revenue primarily consisted of the purchase of health care and health related household products from our suppliers and payments of training fees to our third-party trainers.
During the three months ended June 30, 2024, we made our retail product sales through our King Eagle Mall and Kun Zhi Jian Mini Program. We also offered equipment service and training through the Kun Zhi Jian Mini Program. We pay an equipment service fee that includes a prepaid card activation fee and a technical support fee. Our costs of training revenue consist of training fees, accommodations, and transportation of the third-party trainers.
Gross profit
| | | Three months ended June 30, | |
| | | 2024 | | | 2023 | |
| | | | | | | |
| Retail | | $ | 323,520 | | | | 30,248 | |
| Wholesale | | | - | | | | 365,517 | |
| Equipment service revenue | | | 168,277 | | | | - | |
| Technical service revenue | | | - | | | | - | |
| Commission revenue | | | - | | | | - | |
| Training revenue | | | - | | | | - | |
| Total | | $ | 491,797 | | | | 395,765 | |
For the three months ended June 30, 2024 and 2023, our overall gross profit and margin was $491,797, or 73.2%, and $395,765, or 85.9%, respectively.
For the three months ended June 30, 2024 and 2023, the gross profit and gross profit margin for our retail business of King Eagle Mall amounted to $491,797, or 73.2%, and $30,248 or 60.9%, respectively. The increase in our gross profit or margin for our retail business for the three months ended June 30, 2024 as compared to the same period in 2023 was primarily due to the addition of a variety of products that have a higher profit margin such as dietary supplements, prepaid health screening cards, and the sale of physiotherapy equipment to our retail customers.
The gross profit and margin for our wholesale business of Kun Zhi Jian for the three months ended June 30, 2024 and 2023 was $0, or 0%, and $365,517 or 88.9%, respectively. When our new online platform, Kun Zhi Jian, was launched in October 2022, we refocused on selling dietary supplements, prepaid health screening cards, and physiotherapy equipment to our retail customers. We lowered the selling price of the thermal heat cabin to our wholesale customers.
The gross margins for our commission, equipment service, technical service, and training for the three months ended June 30, 2024 were 0%, 72.6%, 0%, and 0%, respectively. As we introduced these four additional revenue streams in or after November 2023, the gross margins for these four revenue streams were nil for the same period in 2023.
Operating expenses
Our operating expenses consist of general and administrative expenses and selling expenses. For the three months ended June 30, 2024 and 2023, total operating expenses were $776,281 and $1,654,946, respectively. The reduction in operating expenses for the three months ended June 30, 2024 compared to the same period in 2023 was due to reductions in both selling expenses and in general and administrative expenses
General and administrative expenses
General and administrative expenses for the three months ended June 30, 2024 and 2023 were $353,669 and $423,757, respectively. The decrease in general and administrative expenses of $70,088 between the two periods was chiefly due to a significant decrease in professional service fees of $41,399 as a result of the decreased need for professional services after the four additional lines of business were established in November 2023, as well as decreases of $10,888 in employee compensation and benefits, $3,111 for meals and entertainment compared to the same period in 2023 and other expense of $10,640.
Our general and administrative expenses for the three months ended June 30, 2024 and 2023 were comprised of the following:
| | | For the three months ended June 30, | |
| | | 2024 | | | 2023 | |
| Employee compensation and benefits | | $ | 136,450 | | | | 147,338 | |
| Office rent and building management | | | 78,585 | | | | 78,428 | |
| Office supplies and meetings | | | 4,898 | | | | 13,788 | |
| Professional service fees | | | 77,346 | | | | 118,745 | |
| Travel, transportation, and gasoline | | | 24,046 | | | | 24,333 | |
| Meals and entertainment | | | 10,598 | | | | 13,709 | |
| Depreciation and amortization | | | 19,622 | | | | 14,649 | |
| Others | | | 2,127 | | | | 12,767 | |
| Total | | $ | 353,669 | | | | 423,757 | |
Selling expenses
For the three months ended June 30, 2024 and 2023, our selling expenses, which were primarily incurred by our sales and marketing department, were $422,612 and $1,231,189, respectively. The $488,352 decrease in selling expenses for the three months ended June 30, 2024 was primarily due to decreases in:
| | ● | meals and entertainment of $198,478 as our sales and marketing team launched fewer small scale promotional and marketing activities; and |
| | | |
| | ● | office supplies and meetings of $51,112 related to the operation of our new online platform Kun Zhi Jian. |
However, these reductions in selling costs were partially offset by an increase of $397,823 in service agent fees that resulted from the commencement of operations by our three new VIE subsidiaries.
Our selling expenses included the following:
| | | For the three months ended June 30, | |
| | | 2024 | | | 2023 | |
| Service agents | | $ | 291,103 | | | | 874,671 | |
| Employee compensation and benefits | | | 70,412 | | | | 69,703 | |
| Office supplies and meetings | | | 48,800 | | | | 51,570 | |
| Travel, transportation, and gasoline | | | 10,171 | | | | 18,862 | |
| Meals and entertainment | | | 573 | | | | 200,912 | |
| Depreciation and amortization | | | 32,979 | | | | 805 | |
| Customer service | | | (31,578 | ) | | | - | |
| Advertising | | | 151 | | | | 14,666 | |
| Total | | $ | 422,612 | | | | 1,231,189 | |
Other (expenses) income
Other income primarily consisted of bank interest income and foreign exchange gain or loss. Our other (expenses) income for the three months ended June 30, 2024 and 2023 was $(1,087) and $(10,230), respectively.
Income tax expense
For the three months ended June 30, 2024 and 2023, our income tax expense was $2,665 and nil, respectively. During the three months ended June 30, 2024, Kun Zhi Jian (Huai’an) realized income of $10,660 and we recognized an income tax expense in accordance with the PRC’s statutory income tax rate 25%. During the three months ended June 30, 2023, we generated a net loss before income tax and recognized a full valuation allowance against our deferred tax assets, which included net operating loss carry-forwards.
Net loss
As a result of the factors discussed above, we posted a net loss/net income in the amount of $285,571 for the three months ended June 30, 2024 compared to a net loss in the amount of $1,269,411 for the three months ended June 30, 2023.
Foreign currency translation adjustment
The functional currency for our operations in the PRC is the Chinese Yuan or Renminbi (“RMB”); the functional currency for our operations in Hong Kong is the Hong Kong Dollar (“HKD”). Our financial statements are translated to U.S. dollars using the period end rates of exchange for assets and liabilities; equity is translated at historical exchange rates; and average rates of exchange (for the period) are used for revenues and expenses and cash flows. Transaction gains and/or losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. As a result of foreign currency translation, which is a noncash adjustment, we reported foreign currency translation income of $32,380 and $239,743 for the three months ended June 30, 2024 and 2023, respectively.
Comprehensive loss
We recognized a comprehensive loss/income of $(265,628) and $(1,029,668) for the three months ended June 30, 2024 and 2023, respectively.
Results of Operations for the nine months ended June 30, 2024 and 2023
| | | Nine months ended June 30, | |
| | | 2024 | | | 2023 | |
| | | Amount | | | % of revenue | | | Amount | | | % of revenue | |
| | | | | | | | | | | | | |
| Revenues | | $ | 1,598,728 | | | | 100 | % | | | 1,231,712 | | | | 100.0 | % |
| Cost of revenues | | | 428,648 | | | | 28.1 | | | | 246,102 | | | | 20.0 | |
| Gross profit | | | 1,170,081 | | | | 80.0 | | | | 985,610 | | | | 80.0 | |
| Operating expenses: | | | | | | | | | | | | | | | | |
| General and administrative expenses | | | 1,429,945 | | | | 97.5 | | | | 1,383,119 | | | | 112.3 | |
| Selling expense | | | 1,174,826 | | | | 80.1 | | | | 2,323,347 | | | | 188.6 | |
| Total operating expenses | | | 2,604,771 | | | | 177.6 | | | | 3,706,466 | | | | 300.9 | |
| Loss from operations | | | (1,434,690 | ) | | | (112.9 | ) | | | (2,720,856 | ) | | | (220.9 | ) |
| Other income | | | 30,663 | | | | 2.1 | | | | 99,111 | | | | 8.0 | |
| Loss before income taxes | | | (1,404,027 | ) | | | (110.8 | ) | | | (2,621,745 | ) | | | (212.9 | ) |
| Income tax expense | | | 16,029 | | | | 1.1 | | | | - | | | | - | |
| Net loss | | $ | (1,420,056 | ) | | | (111.9 | ) | | | (2,621,745 | ) | | | (212.9 | )% |
Revenues
For the nine months ended June 30, 2024 and 2023, revenues amounted to $1,466,480 and $1,231,712, respectively.
The following table presents revenues disaggregated by customer type for the nine months ended June 30, 2024 and 2023:
| | | Nine months ended June 30, | |
| | | 2024 | | | 2023 | |
| | | | | | | |
| Retail | | $ | 983,694 | | | $ | 113,073 | |
| Wholesale | | | 2,164 | | | | 1,118,639 | |
| Equipment service revenue | | | 539,630 | | | | - | |
| Technical service revenue | | | 35,959 | | | | - | |
| Commission revenue | | | 2,948 | | | | - | |
| Training revenue | | | 34,337 | | | | - | |
| Total | | $ | 1,598,728 | | | $ | 1,231,712 | |
We recognize our revenue on a gross basis, net of sub-charges and value-added tax (“VAT”) on gross sales.
Our retail revenue primarily included the sale of health care and health related household products to our retail customers via our mobile application, King Eagle Mall, which was launched in July 2020. Our wholesale revenue came from our new online platform, Kun Zhi Jian, which was launched in October 2022. This new online platform focuses on promoting and selling our own brand of preventive health care related products, such as the thermal therapy cabin, to our wholesalers.
Compared to the nine months ended June 30, 2023, we generated $367,016 or 29.8% higher revenue during the nine months ended June 30, 2024 due to the following additional revenue streams: (i) commission revenue; (ii) equipment service revenue; (iii) training revenue; and (iv) technical service revenue. In addition, we continued the sale of preventive health care products on King Eagle Mall and Kun Zhi Jian to our retail and wholesale customers. We launched our Kun Zhi Jian Mini Program (“Mini Program”) in November 2023 to expand our customer services and preventive health care. We generate commission revenue through the Mini Program by selling health care instruments on behalf of third parties on a commission basis. We also sell prepaid cards to our customers for use with card-operated health screening equipment located at the Kun Zhi Jian Customer Service Center and we recognize equipment service revenue when our customers consume the prepaid cards. We earn training revenue upon completion of training sessions by our customers. We recognize technical service revenue when vendors promote their products or businesses on our platform.
Cost of revenue
We disaggregated our cost of revenue for the nine months ended June 30, 2024 and 2023 as follows:
| | | Nine months ended June 30, | |
| | | 2024 | | | 2023 | |
| | | | | | | |
| Retail | | $ | 249,007 | | | $ | 45,263 | |
| Wholesale | | | 1,150 | | | | 200,839 | |
| Equipment service revenue | | | 158,167 | | | | - | |
| Technical service revenue | | | - | | | | - | |
| Commission revenue | | | - | | | | - | |
| Training revenue | | | 20,324 | | | | - | |
| Total | | $ | 428,648 | | | $ | 246,102 | |
Our cost of revenue for the nine months ended June 30, 2024 was $428,648, a $182,546 or 74.17% increase over our cost of revenue for the nine months ended June 30, 2023 of $246,102. Our cost of revenue primarily consisted of the purchase of health care and health related household products from our suppliers and payments of training fees to our third-party trainers.
During the nine months ended June 30, 2024, we made our retail product sales through our King Eagle Mall and Kun Zhi Jian Mini Program. We also offered equipment service and training through the Kun Zhi Jian Mini Program. We pay an equipment service fee that includes a prepaid card activation fee and a technical support fee. Our costs of training revenue consist of training fees, accommodations, and transportation of the third-party trainers.
Gross profit
| | | Nine months ended June 30, | |
| | | 2024 | | | 2023 | |
| | | | | | | |
| Retail | | $ | 734,687 | | | $ | 67,810 | |
| Wholesale | | | 1,010 | | | | 917,800 | |
| Equipment service revenue | | | 381,463 | | | | - | |
| Technical service revenue | | | 35,959 | | | | - | |
| Commission revenue | | | 2,948 | | | | - | |
| Training revenue | | | 14,013 | | | | - | |
| Total | | $ | 1,170,081 | | | $ | 985,610 | |
For the nine months ended June 30, 2024 and 2023, our overall gross profit and margin was $1,170,081 or 73.2%, and $985,610 or 80.0%, respectively.
For the nine months ended June 30, 2024 and 2023, the gross profit and margin for our retail business of King Eagle Mall amounted to $734,867 or 74.7% and $67,810 or 60%, respectively. The increase in our gross profit or margin for our retail business for the nine months ended June 30, 2024 as compared to the same period in 2023 was primarily due to the addition of a variety of products that have a higher profit margin, such as dietary supplements, prepaid health screening cards, and the sale of physiotherapy equipment to our retail customers.
The gross profit and margin for our wholesale business of Kun Zhi Jian for the nine months ended June 30, 2023 and June 30, 2023 was $1,010 or 46.8% and $917,800, or 82%, respectively. When our new online platform, Kun Zhi Jian, was launched in October 2022, we refocused on selling dietary supplements, prepaid health screening cards, and the sale of physiotherapy equipment to our retail customers. We lowered the selling price of the thermal heat cabin to our wholesale customers. Accordingly, the gross margin of our wholesale business line shrank during the nine months ended June 30, 2024.
The gross margins for our commission, equipment service, technical service, and training for the nine months ended June 30, 2024 were 100%, 70.7% 100% and 40.8%, respectively. As we introduced these four additional revenue streams in or after November 2023, the gross margins for these four revenue streams were nil for the same period in 2023.
Operating Expenses
Our operating expenses consist of general and administrative expenses and selling expenses. For the nine months ended June 30, 2024 and 2023, our total operating expenses were $2,604,771 and $3,706,466, respectively. The reduction in operating expenses for the nine months ended June 30, 2024 compared to the same period in 2023 was primarily due to reduced selling expenses.
General and administrative expenses
General and administrative expenses for the nine months ended June 30, 2024 and 2023 were $1,429,945 and $1,383,119, respectively. The increase in general and administrative expenses during the nine months ended June 30, 2024 by 46,826 was due to an increase in employee compensation and benefits of $82,074, an increase in travel, transportation, and gasoline expenses of $54,185, and an increase in meal and entertainment expenses of $108,918.
The increase in employee compensation and benefits for the nine months ended June 30, 2024 is attributable to the hiring in November 2023 and ___________ of an aggregate of ___ additional administrative employees for ____ of our VIE subsidiaries. In addition, one of our VIE’s subsidiaries, King Eagle (Huai’an), engaged consulting services for business development and new business lines. We also incurred a higher auto insurance premium for our leased automobile and car rental expenses, as well as higher entertainment expenses during the nine months ended June 30, 2024. Those increases were partially offset by a decrease of $178,317 for professional service fees as a result of the decreased need for professional services after our additional lines of business were established commencing in November 2023.
Our general and administrative expenses for the nine months ended June 30, 2024 and 2023 were comprised of the following:
| | | Nine months ended June 30, | |
| | | 2024 | | | 2023 | |
| Employee compensation and benefit | | $ | 460,704 | | | $ | 378,630 | |
| Office rent and building management | | | 261,108 | | | | 271,977 | |
| Office supplies and meeting | | | 26,465 | | | | 30,247 | |
| Professional services fee | | | 361,431 | | | | 557,977 | |
| Travel, transportation and gasoline | | | 97,875 | | | | 43,690 | |
| Meals and entertainment | | | 142,640 | | | | 33,722 | |
| Depreciation and amortization | | | 51,349 | | | | 44,102 | |
| Others | | | 20,373 | | | | 22,774 | |
| Total | | $ | 1,429,945 | | | $ | 1,383,119 | |
Selling expenses
Our selling expenses, which were primarily incurred by our sales and marketing department, for the nine months ended June 30, 2024 and 2023, were $1,174,825 and $2,323,347, respectively. The $1,148,521 decrease was primarily due to a decrease in service agent fees of $720,725 and in meals and entertainment of $345,225 as marketing and promotional service fees paid to our service agents declined significantly.
Our selling expenses included the following:
| | | Nine months ended June 30, | |
| | | 2024 | | | 2023 | |
| Service agents | | $ | 785,455 | | | | 1,506,180 | |
| Employee compensation and benefit | | | 206,892 | | | | 193,286 | |
| Office supplies and meeting | | | 138,640 | | | | 162,349 | |
| Travel, transportation and gasoline | | | 30,401 | | | | 49,508 | |
| Meals and entertainment | | | 5,724 | | | | 350,949 | |
| Depreciation and amortization | | | 33,514 | | | | 2,423 | |
| Advertising | | | 5,777 | | | | 58,612 | |
| Others | | | (31,578 | ) | | | 40 | |
| Total | | $ | 1,174,826 | | | | 2,323,347 | |
Other income
Other income primarily consisted of bank interest income, foreign exchange gain or loss, and other service income. Our other income for the nine months ended June 30, 2024 and 2023 was $30,663 and $$99,111, respectively. Government grants, which are also included in other income, amounted to $30,261 and $97,970 for the nine months ended June 30, 2024 and 2023, respectively.
Income tax expense
For the nine months ended June 30, 2024, the income tax expense of the Company was $16,029 as Kun Zhi Jian (Huai’an) incurred book income of $50,560 during that period and we recognized income tax expense in accordance with PRC’s statutory income tax rate of 25%. During the nine months ended June 30, 2023, we generated a net loss before income tax and recognized a full valuation allowance against our deferred tax assets, which included net operating loss carry-forwards.
Net loss
As a result of the factors discussed above, the Company posted net losses in the amounts of $1,404,027 and $2,621,745 for the nine months ended June 30, 2024 and 2023, respectively.
Foreign currency translation adjustment
The functional currency of our operation in the PRC is the Chinese Yuan or Renminbi (“RMB”); for our operations in Hong Kong it is the Hong Kong dollar (“HKD”). Our financial statements are translated to U.S. dollars using the period end rates of exchange for assets and liabilities; equity is translated at historical exchange rates; and average rates of exchange (for the period) are used for revenues and expenses and cash flows. Transaction gains and/ or losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. As a result of foreign currency translation, which is a noncash adjustment, we reported a foreign currency translation loss/income of $25,449 and $(152,425) for the nine months ended June 30, 2024, and 2023, respectively.
Comprehensive loss
The Company recognized comprehensive losses in the amounts of $1,445,505 and $2,469,320 for the nine months ended June 30, 2024 and 2023, respectively.
Liquidity and capital resources
As of June 30, 2024 and September 30, 2023, we had cash and cash equivalents balances of $294,675 and $457,580, respectively.
For the nine months ended June 30, 2024, net cash used in operating activities totaled $206,462. Operating cash outflow was mainly attributable to our net loss of $1,429,831 and a decline in customer advances of $955,853 offset by a decrease in inventory of $93,252.
There was no investing and financial activity during the nine months ended June 30, 2024.
The effect of exchange rate change on cash totaled $43,557. The resulting change in cash for the period was a __decrease of $162,905.
For the nine months ended June 30, 2023, net cash provided by operating activities totaled $142,789. Operating cash inflow was mainly attributable to advance payments from our customers of $1,370,302, an increase in trade creditors of $1,052,509, an increase in other payables of $161,547, an increase in payroll payable of $10,930, tax payable of $124,620, and a non-cash item, depreciation and amortization, of $46,525. The overall cash inflow was offset by the net loss of $2,621,745.
The following table sets forth a summary of changes in our working capital as of June 30, 2024 and September 30, 2023:
| | | June 30, 2024 | | | September 30, 2023 | |
| | | | | | | |
| Current Assets | | $ | 765,464 | | | $ | 661,947 | |
| Current Liabilities | | | 7,752,291 | | | | 6,185,690 | |
| | | $ | (6,986,827 | ) | | $ | (5,523,743 | ) |
We require cash of approximately $5.7 million within the next twelve months, primarily related to third-party vendor payables and related-party payables. As of June 30, 2024, we had received customer advances in the amount of approximately $0.9 million. We anticipate that the majority of the revenue will be recognized in fiscal year 2024. Management has agreed that the amount received is non-refundable. However, this term is not bound by any agreement. Therefore, the customers may have the right to challenge and demand the advances be refunded under relevant Commercial Laws or regulations. Additionally, we had an approximately $0.3 million commitment related to purchase and service agreements as of June 30, 2024.
In an effort to support and maintain our financial position and operations, to fulfill our contractual commitments, and to meet the demands from our customers for refund of their advance payments, the Company focused on increasing its revenue through its online platform. In November 2023, we launched Kun Zhi Jian Mini Program and explored four additional revenue streams. Simultaneously, our directors and stakeholders continue to support our operation financially. We believe that such measures will improve our liquidity in the next twelve months. If we are not able to increase revenue or obtain any financing, we may be unable to continue as a going concern.
Going Concern Consideration
The financial statements included in this interim report have been prepared in conformity with accounting principles generally accepted in the United States of America which contemplate continuation of the Company as a going concern. The going-concern basis assumes that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed on the financial statements. The Company’s ability to continue as a going concern depends on the liquidation of its current assets. For the nine months ended June 30, 2024, the Company experienced cash outflows from operating activities of $206,462, incurred a net loss of $1,420,056 and had negative working capital of $6,986,827. These conditions raise substantial doubt about the ability of the Company to continue as a going concern.
The Company continues to monitor its operations to help refine its financial liquidity. Options under consideration in the review process include, but are not limited to, increase of sales through the Company’s online business, reduction of operating costs, fund advances from the Company’s stockholders and directors, or financing through the issuance of shares. The Company has been focusing on increasing its revenue through its online platform and trimming its operating costs. For example, it explored additional revenue streams and reduced service agent fees. Additionally, the Company obtained capital funding of approximately $1.5 million from our director to meet its working capital requirements. In order to continue as a going concern for the next 12 months, through Kun Zhi Jian Mini Program, the Company continues to explore additional revenue streams, leverage the health care expertise and technology of local health care service providers, promote and sell preventive health care dietary supplements and products, and offer health care equipment services at the Kun Zhi Jian Customer Service Center. However, the Company cannot provide any assurance that it will be able to increase revenue, that it will be able to successfully implement its business plan, or that financing will be available to it on commercially acceptable terms, if at all. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern. Our directors intend to continue to support the group by providing adequate financial assistance to enable the group to continue its business operations for the foreseeable future.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, including arrangements that would affect our liquidity, capital resources, market risk support, credit risk support, or other benefits.
Future Financings
We will continue to rely on loans from our directors and major shareholders and on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of equity securities or arrange for debt or other financing to fund our operations and other activities, or if we are able, there is no guarantee that existing shareholders will not be substantially diluted.
Critical Accounting Policies
We regularly evaluate the accounting policies and estimates that we use to make budgetary and financial statement assumptions. A complete summary of these policies is included in the notes to our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
See Note 2 to the financial statements included herewith and Note 2 to the financial statements in the Company’s Form 10-K for the fiscal year ended September 30, 2023 previously filed with the SEC.
Recent Accounting Pronouncements
See Note 2 to the financial statements included herewith and Note 2 to the financial statements in the Company’s Form 10-K for the fiscal year ended September 30, 2023 previously filed with the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to respond to this item.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15I under the Securities Exchange Act of 1934, as amended. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluation as of the end of the quarter ended June 30, 2024, our chief executive officer and our chief financial officer and principal accounting manager concluded that our disclosure controls and procedures were not effective such that the information relating to our Company required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms; and (ii) is accumulated and communicated to our management, including our chief executive officer, to allow timely decisions regarding required disclosure as a result of the material weaknesses in our internal control over financial reporting due to the existence of the following material weaknesses:
| | ● | A lack of sufficient and adequately trained internal accounting and finance personnel with appropriate understanding of U.S. GAAP and SEC reporting requirements; |
| | | |
| | ● | A lack of segregation of duties within significant accounts; and |
| | | |
| | ● | A lack of a functioning audit committee and a majority of outside directors on the Company’s board of directors. |
Management’s Report on Internal Control over Financial Reporting
As of June 30, 2024, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in the 2013 updated Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, management concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of U.S. GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that are considered to be material weaknesses as described above. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or quarterly financial statements will not be prevented or detected on a timely basis.
Notwithstanding the existence of these material weaknesses in our internal control over financial reporting, our management believes that the financial statements included in its reports fairly present in all material respects the Company’s financial condition, results of operations, and cash flows for the periods presented. We continue to evaluate the effectiveness of our internal controls and procedures on an on-going basis. We are currently hiring additional personnel in financial reporting and accounting, and we are providing training to newly hired personnel . In addition, once our cash position improves, we plan to hire an experienced controller and work to build an internal accounting team with sufficient in-house expertise in U.S. GAAP reporting. However, due to the limited cash flow we are currently having, we cannot assure you when we will be able to implement those remediation methods.
Because we are a smaller reporting company, this report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.
(b) Changes in internal controls over financial reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the fiscal quarter ended June 30, 2024 covered by this report that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting other than the facts disclosed above.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEDINGS.
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry, or investigation before or by any court, public board, government agency, self-regulatory organization, or body pending or, to the knowledge of the executive officers of our Company, threatened against or affecting our Company or our common stock, in which an adverse decision could have a material adverse effect.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we are not required to respond to this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | KUN PENG INTERNATIONAL LTD |
| | | |
| Date: August 19, 2024 | By: | /s/ Zhuang Richun |
| | | Zhuang Richun, President |
| | | |
| Date: August 19, 2024 | By: | /s/ Zhang Yuanyuan |
| | | Zhang Yuanyuan , Chief Financial Officer |
