VARIABLE INTEREST ENTITIES “VIE” ARRANGEMENTS | NOTE 3 - VARIABLE INTEREST ENTITIES “VIE” ARRANGEMENTS 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 10 45.5 10.5 10 6 5 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 certain Exclusive Consulting Service Agreement dated May 15, 2021, between King Eagle (China) and King Eagle (Tianjin) (the “ Consulting Service Agreement Business Operation Agreement Pursuant to the terms of certain Business Operation Agreement dated on May 15, 2021, among King Eagle (China), King Eagle (Tianjin)and the shareholders of King Eagle (Tianjin) (the “ Business Operation Agreement 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 Equity Disposal Agreement Pursuant to the terms of the Equity Disposal Agreement dated on May 15, 2021, among King Eagle (China), King Eagle (Tianjin), and the shareholders of King Eagle (Tianjin) (the “ Equity Disposal Agreement Equity Pledge Agreement Pursuant to the terms of certain Equity Pledge Agreement dated on May 15, 2021, among King Eagle (China) and the shareholders of King Eagle (Tianjin) (the “ Pledge Agreement Agreement Agreements 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 Annual Report, King Eagle (Tianjin) has established six subsidiaries: King Eagle (Beijing) Technology Co., Ltd, King Eagle (Huai’an) Health Management Co., Ltd., Kun Zhi Jian (Huai’an) Technology Co., Ltd . 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.” VIE Financial Information Set forth below is the consolidated balance sheet information as of September 30, 2024 and September 30, 2023 and the consolidated statements of operations and cash flows for the years 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”) Kun Pin Hui (Shandong) Trading Co., Ltd (“Kun Pin Hui (Shandong)”) and King Eagle (Hangzhou) Health Technology Co., Ltd (“King Eagle (Hangzhou)”). Consolidated Balance Sheet As of September 30, 2024 SCHEDULE OF VIE OF BALANCE SHEET Parent Only Non-VIE and WFOE VIE and VIE’s Elimination Entries and Reclassification Entries Consolidated Cash and cash equivalent $ - $ 981 $ 71 $ 81,132 $ - $ 82,184 Advance and Prepayments Other receivable - third party Inventory Intercompany receivables-current - 531,169 (2) - 2,316,724 (1) (2,847,893 ) - Total current assets - 564,532 71 2,831,808 (2,847,893 ) 548,518 Property and equipment, net Intangible Assets, net Security deposits and prepayments, noncurrent Prepayments, noncurrent ROU assets Intercompany receivables-noncurrent - 4 - - (4 ) - Investment in subsidiary Total non-current assets 34,160 145,641 - 785,031 (34,164 ) 930,668 Total assets 34,160 710,173 71 3,616,839 (2,882,057 ) 1,479,186 Trade payable Other payables and accrual Advances from customers Intercompany payables 970,159 1,846,491 (1) 969 (1) 51,757 (2,869,376 ) - Salary payable Provision for taxation Operating lease obligations-current Amount due to related parties Total current liabilities 994,159 2,071,841 1,033 8,344,402 (2,865,015 ) 8,546,420 Total non-current liabilities - - - 121,484 - 121,484 Total liabilities 994,159 2,071,841 1,033 8,465,886 (2,865,015 ) 8,667,904 Total shareholders’ equity (959,999 ) (1,239,530 ) (962 ) (4,967,444 ) (16,941 ) (7,184,876 ) Non-controlling interests - (122,138 ) - 118,397 (101 ) (3,842 ) Total equity (959,999 ) (1,361,668 ) (962 ) (4,849,047 ) (17,042 ) (7,188,718 ) Total liabilities and equity $ 34,160 $ 710,173 $ 71 $ 3,616,839 $ (2,882,057 ) $ 1,479,186 As of September 30, 2023 Parent Non-VIE and WFOE VIE and Elimination Consolidated Cash and cash equivalent $ - $ 10,457 $ 6 $ 447,117 $ - $ 457,580 Advance and Prepayments - 32,721 - 41,323 - 74,044 Other receivable - 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 1,909,747 (1) 617 (1) 34,370 (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 (3) 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. Consolidated Statements of Operations Data SCHEDULE OF VIE DATA OF OPERATION For the fiscal year ended September 30, 2024 Parent Only Non-VIE and Non-WFOE WFOE VIE and VIE’s Subsidiaries Eliminating Adjustments Consolidated Totals Revenue $ - $ - $ - $ 2,078,741 $ - $ 2,078,741 Intercompany revenue - 700,576 - - (700,576 ) - Cost of revenue and related tax - 21,378 - 584,260 - 605,638 Gross profit - 679,198 - 1,494,481 (700,576 ) 1,473,103 Total operating expenses 203,479 760,968 319 3,201,495 (692,360 ) 3,473,901 Intercompany operating expenses - - - 630,162 (630,162 ) - (Loss) income from operations (203,479 ) (81,770 ) (319 ) (1,695,514 ) (8,216 ) (1,989,260 ) Other (expenses) income - 38 - 11,500 - 11,538 (Loss) income before income taxes (203,479 ) (81,732 ) (319 ) (1,695,514 ) (8,216 ) (1,989,260 ) Income tax expense - - - 2,487 - 2,487 Net (loss) income $ (203,479 ) $ (81,732 ) $ (319 ) $ (1,698,001 ) $ (8,216 ) $ (1,991,747 ) For the fiscal year ended September 30, 2023 Parent Non-VIE and WFOE VIE and Eliminating Consolidated Revenue $ - $ - $ - $ 3,917,335 $ - $ 3,917,335 Intercompany revenue - 442,382 519,296 - (961,678 ) - Cost of revenue and related tax - 779 1,006 431,436 - 433,221 Gross profit - 441,603 518,290 3,485,899 (961,678 ) 3,484,114 Total operating expenses 274,917 438,906 604,656 4,414,524 - 5,733,003 Intercompany operating expenses - - - 961,678 (961,678 ) - (Loss) income from operations (274,917 ) 2,697 (86,366 ) (1,890,303 ) - (2,248,889 ) Other (expenses) income - (1,183 ) 461 100,398 - 99,676 (Loss) income before income taxes (274,917 ) 1,514 (85,905 ) (1,789,905 ) - (2,149,213 ) Income tax expense - - - - - - Net (loss) income $ (274,917 ) $ 1,514 $ (85,905 ) $ (1,789,905 ) $ - $ (2,149,213 ) Consolidation Schedule of Cash Flows SCHEDULE OF VIE DATA OF CASH FLOWS For the fiscal year ended September 30, 2024 Parent Only Non-VIE WFOE VIE and VIE’s Subsidiaries Eliminating Consolidated Net (loss) income $ (203,479 ) $ (81,732 ) $ (319 ) $ (1,698,001 ) $ (8,216 ) $ (1,991,747 ) Intercompany receivables - (16,942 ) - (943,773 ) 960,715 - Intercompany payables 245,479 (148,973 ) 319 851,289 (948,114 ) - Net cash provided by (used in) operating activities - (10,029 ) 62 23,462 4,385 17,880 Net cash used in investing activities - - - (554,861 ) 205,863 (348,998 ) Net cash provided by financing activities - - - 149,974 (204,743 ) (54,769 ) Effect of exchange rate fluctuation on cash $ - $ 553 $ 3 $ 15,440 $ (5,505 ) $ 10,491 For the fiscal year ended September 30, 2023 Parent Only Non-VIE WFOE VIE and VIE’s Subsidiaries Eliminating Consolidated Net (loss) income $ (274,917 ) $ 1,514 $ (85,905 ) $ (1,789,905 ) $ - $ (2,149,213 ) Intercompany receivables - (333,732 ) - (927,079 ) 1,260,811 - Intercompany payables 272,917 329,657 191,152 453,740 (1,247,466 ) - Net cash provided by (used in) operating activities - 12,739 (13,007 ) (440,107 ) 13,345 (427,030 ) Net cash used in investing activities - - (606 ) - - (606 ) Net cash provided by financing activities - - - 644,803 - 644,803 Effect of exchange rate fluctuation on cash $ - $ (10,828 ) $ 10,570 $ (13,115 ) $ (13,345 ) $ (26,718 ) The Company consolidated its VIE as of September 30, 2024, and 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 September 30, September 30, Assets Current assets Cash and cash equivalents $ 81,132 $ 447,117 Trade receivable – intercompany 2,316,724 2,119,294 Advance and prepayments 147,091 41,323 Other receivables – third parties 251,069 19,431 Inventory 15,700 107,263 Amount due from related parties 20,092 - Total current assets 2,831,808 2,734,428 Noncurrent assets Property and equipment, net 265,141 - Investment in associate held for sale 15,743 - Right-of-use assets 504,147 127,674 Total noncurrent assets 785,031 127,674 Total assets $ 3,616,839 $ 2,862,102 Liabilities Current liabilities Trade payables $ 1,952,026 $ 2,067,831 Other payables and accrual 1,194,683 8,029 Deferred revenue 584,116 2,149,238 Intercompany payables 51,757 34,370 Payroll payable 93,391 37,440 Tax payable 119,291 180,505 Amounts due to related parties 3,998,164 1,318,120 Operating lease obligations-current portion 154,095 85,446 Finance lease obligations-current portion 196,879 - Total current liabilities 8,344,402 5,880,979 Noncurrent liabilities Operating lease obligations-net of current portion 44,622 35,381 Finance lease obligations-net of current portion 76,862 - Total noncurrent liabilities 121,484 35,381 Total liabilities 8,465,886 5,916,360 Commitment and contingencies - - - - Equity Additional paid-in capital 389,356 637,801 Accumulated deficits (5,466,201 ) (3,788,510 ) Accumulated other comprehensive income 109,401 255,314 Total stockholders’ equity (4,967,444 ) (2,895,395 ) Non-controlling interests 118,397 (158,863 ) Total equity (4,849,047 ) (3,054,258 ) Total liabilities and equity $ 3,616,839 $ 2,862,102 The operating results of the VIE were as follows: 2024 2023 For the years ended September 30, 2024 2023 Revenue, net $ 2,078,741 $ 3,917,335 Cost of revenue (584,260 ) (431,436 ) Gross profit 1,494,481 3,485,899 Operating expenses General and administrative expenses 995,430 1,308,648 Selling expense 2,206,065 4,067,554 Total operating expenses 3,201,495 5,376,202 Loss from operations (1,707,014 ) (1,890,303 ) Other income: Interest income 426 990 Other income 11,074 99,408 Total other income, net 11,500 100,398 Loss before income taxes (1,695,514 ) (1,789,905 ) Income tax expense 2,487 - Net loss (1,698,001 ) (1,789,905 ) Less: Net loss attributable to non-controlling interest (20,309 ) (47 ) Net loss attributable to Kun Peng International Ltd $ (1,677,692 ) $ (1,789,858 ) The cash flows of the VIE were as follows: 2024 2023 For the years ended September 30, 2024 2023 Cash flows from operating activities Net loss $ (1,698,001 ) $ (1,789,905 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities Impairment losses 8,412 318,999 Amortization of right-of-use assets 62,490 98,939 Loss on investment of cooperative enterprise 12,426 - Depreciation and amortization 185,192 - Changes in operating assets and liabilities Advance and prepayments (101,429 ) 173,345 Trade receivable – intercompany (92,827 ) (432,747 ) Other receivable – related party (40,492 ) - Other receivables – third parties (203,963 ) 40,544 Other receivables – intercompany (850,946 ) (494,332 ) Inventory 93,335 (110,954 ) Trade payable – third parties (1,837,412 ) 1,367,773 Trade payable – intercompany 239,325 439,836 Other payables and accrual – third parties 130,859 (485,039 ) Other payables and accrual – intercompany 611,964 13,904 Deferred revenue (1,607,612 ) (763,453 ) Payroll payable 53,055 34,377 Amounts due to related parties 5,229,075 1,094,095 Tax payable (68,559 ) 145,004 Operating lease liabilities (101,431 ) (90,493 ) Net cash provided by (used in) operating activities 23,462 (440,107 ) Cash flows from investing activities: Purchase of property, plant and equipment (320,498 ) - Long-term investment on stocks (28,500 ) - Investment in subsidiary (205,873 ) - Net cash used in operating activities (554,861 ) - Cash flows from financing activities Capital contribution 275,265 644,803 Pa yment of finance lease liabilities (125,291 ) - Net cash provided by financing activities 149,974 644,803 Effect of exchange rate changes on cash 15,440 (13,115 ) Net decrease in cash and cash equivalents (365,985 ) 191,581 Cash and cash equivalents, beginning balance 447,117 255,536 Cash and cash equivalents, ending balance $ 81,132 $ 447,117 |