| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Note 2 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES Basis of consolidation The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). Accordingly, they do not
include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six months ended March 31, 2023 and 2022 are not necessarily indicative of the results that
may be expected for the full year. The information included in this interim report should be read in conjunction with Management’s
Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in Golden
Sun’s annual financial statements for the fiscal year ended September 30, 2022 filed with the SEC on February 15, 2023. Principles of consolidation The unaudited condensed consolidated financial
statements include the financial statements of the Company and its subsidiaries. All intercompany transactions and balances are eliminated
upon consolidation. Non-controlling interests Non-controlling interest represents the portion
of the net assets of subsidiaries attributable to interests that are not owned or controlled by the Company. The non-controlling interest
is presented in the consolidated balance sheets, separately from equity attributable to the shareholders of the Company. Non-controlling
interest’s operating results are presented on the face of the consolidated statements of income and comprehensive income as an allocation
of the total income for the year between non-controlling shareholders and the shareholders of the Company. As of March 31, 2023 and September
30, 2022, non-controlling interests represent non-controlling shareholders’ proportionate share of equity interests in Hongkou School,
Xianjin Technology and Fuyouyuan. Uses of estimates In preparing the unaudited condensed consolidated
financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. These estimates are based on information as of the date of the consolidated financial
statements. Significant estimates required to be made by management include, but are not limited to, determinations of the useful lives
and valuation of long-lived assets, estimates of allowances for doubtful accounts, refund liabilities, revenue recognition, and valuation
allowance for deferred tax assets. Cash Cash comprise cash at banks and on hand, which are unrestricted as to withdrawal and use. Fair value of financial instruments ASC 825-10 requires certain disclosures regarding
the fair value of financial instruments. 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. A three-level fair value hierarchy prioritizes
the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of
unobservable inputs. The three levels of inputs used to measure fair value 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, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or corroborated by observable market data.
● Level 3 — inputs to the valuation methodology are unobservable. Unless otherwise disclosed, the fair value of
the Company’s financial instruments, including cash, Accounts receivable, prepayments and other current assets, accounts payable,
deferred revenue, accrued liabilities, due to related parties, short term bank loans and taxes payable, approximates their recorded values
due to their short-term maturities. The Company determined that the carrying value of the long-term liabilities approximated their present
value as the interest rates applied reflect the current quoted market yield for comparable financial instruments. Accounts receivable, net Accounts receivable are recognized and carried
at original invoiced amount less an estimated allowance for uncollectible accounts. The Company determines the adequacy of reserves for
doubtful accounts based on individual account analysis and historical collection trends. In June 2016, the FASB issued ASU No. 2016-13,
“Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires
the Company to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through net
income. The Company adopted this guidance effective October 1, 2022.The Company establishes a provision for doubtful receivables based
on management’s best estimates of specific losses on individual exposures, as well as a provision on historical trends of collections.
The provision is recorded against accounts receivables balances, with a corresponding charge recorded in the consolidated statements of
income and comprehensive income. Delinquent account balances are written-off against the allowance for doubtful accounts after management
has determined that the likelihood of collection is not probable. For the six months ended March 31, 2023 and 2022, $13,901 and $11,571
was written off against accounts receivables, respectively. Allowance for uncollectible balances amounted to $29,903 and $92,086 as of
March 31, 2023 and September 30, 2022, respectively. Prepayment and other assets Prepayment and other assets primarily consist
of prepaid rents, prepaid service fee, advances to vendors for purchasing goods or services that have not been received or provided, loans
to third-parties, security deposits made to customers and advances to employees. Prepayment and other assets are classified as either
current or non-current based on the terms of the respective agreements. These advances are unsecured and are reviewed periodically to
determine whether their carrying value has become impaired. The Company considers the assets to be impaired if the collectability of the
advance becomes doubtful. The Company uses the aging method to estimate the allowance for uncollectible balances. The allowance
is also based on management’s best estimate of specific losses on individual exposures, as well as a provision on historical trends
of collections and utilizations. Actual amounts received or utilized may differ from management’s estimate of credit worthiness
and the economic environment. Other receivables are written off against the allowances only after exhaustive collection efforts. For the
six months ended March 31, 2023 and 2022, there was no written off against other receivables, respectively. No allowance for doubtful
accounts was recorded as of March 31, 2023 and September 30, 2022, respectively. Long-term investments Long-term investments primarily consist of equity
investments in privately held entities without readily determinable fair value. The Company elects to record equity investments in a privately
held company without readily determinable fair value, over which the Company does not have control or exercise significant influence,
using the measurement alternative at cost, less impairment, with subsequent adjustments for observable price changes, in accordance with
ASC 321, “Investments – Equity Securities”. Under this measurement alternative, changes in the carrying value of the
equity investments are required to be made whenever there are observable price changes in orderly transactions for identical or similar
investments of the same issuer. Equity investment in a privately held company accounted for using the measurement alternative is subject
to periodic impairment reviews. The Company’s impairment analysis considers both qualitative and quantitative factors that may have
a significant effect on the fair value of these equity securities. Management regularly evaluates the impairment of these investments
based on performance and financial position of the investee as well as other evidence of market value. Such evaluation includes, but is
not limited to, reviewing the investee’s cash position, recent financing, historical financial performance, financing needs, and
industry environment. An impairment loss recognized equals to the excess of the investment cost over its fair value at the end of each
reporting period for which the assessment is made. The fair value would then become the new cost basis of investment. As of March 31,
2023, the Company did not record any impairment loss against the long-term investments. Revenue recognition The Company generates revenues primarily from
tuitions fees and other fees collected from services provided. Revenue is recognized when the price is fixed or determinable, persuasive
evidence of the arrangement exists, the service is performed or the product is delivered and collectability of the resulting receivable
is reasonably assured. The Company has adopted ASC 606, “Revenue
from Contracts with Customers” and all subsequent ASUs that modified ASC 606, using the modified retrospective approach for the
year ended September 30, 2019 and has elected to apply it retrospectively for the year ended September 30, 2018. ASC 606 establishes principles
for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts
to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods
or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those
goods or services recognized as performance obligations are satisfied. This new guidance provides a five-step analysis in determining
when and how revenue is recognized. Under the new guidance, revenue is recognized when a customer obtains control of promised goods or
services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods
or services. In addition, the new guidance requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows
arising from contracts with customers. The Company’s continuing operations currently
generated its revenue from the following main sources: Tutorial services The Company offers various off-campus small-group
foreign language tutoring programs. Each contract of tutorial service programs represents a series of distinct services, which is delivery
of various courses. The services have substantially the same pattern of transfer to the students, as such, they are considered as a single
performance obligation, which is satisfied proportionately based on a straight-line basis over the program term as students simultaneously
receive and consume the benefits of these services throughout the program term. The Company is the principal in providing tutorial services
as it controls such services before the services are transferred to the customer. The program fees are generally collected in advance
and are initially recorded as deferred revenue. Generally, the Company approves refunds for any remaining classes to students who decide
to withdraw from a course within the predetermined period in the contract. The refund is equal to and limited to the amount related to
the undelivered classes. The Company estimates and records refund liability for the portion the Company does not expect to be entitled
based on historical refund ratio on a portfolio basis using the expected value method. Logistic, consulting services and others The Company provides services to schools, including
but not limited to catering and logistic service. Logistic revenue is recognized on a straight-line basis over the period, as customers
simultaneously receive and consume the benefits of the services. Catering revenue is recognized at point of sale. The Company also provides consulting services
to related-party kindergartens. According to the contracts signed with each of the three kindergartens, the Company will provide a range
of educational management and consulting services, including branding, safety management, teacher training, supervision and evaluation
on teachers, rating guidance services to the kindergartens during the contract period. The intended contractual benefit to the kindergartens
of the management and consulting services is to enable the kindergartens’ smooth and effective operations. The promised services
in the consulting service contract are combined and accounted as a single performance obligation, as the promised services are considered
as a significant integrated service. The consulting services were continuously provided and the kindergartens simultaneously receive and
consume the benefits of these services throughout the service period each month. The revenue is recognized over time during the service
period. Practical expedient As a practical expedient, the Company elects to
record the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity
otherwise would have recognized is one year or less. The Company has applied the new revenue standard requirements to a portfolio of contracts
(or performance obligations) with similar characteristics for transactions where it is expected that the effects on the financial statements
of applying the revenue recognition guidance to the portfolio would not differ materially from applying this guidance to the individual
contracts (or performance obligations) within that portfolio. Therefore, the Company elects the portfolio approach in applying the new
revenue guidance. Disaggregation of revenue Revenues from tutorial service and logistic and
consulting services are recognized over time, based on a straight-line basis as the Company’s customers including students and schools
as well as kindergartens simultaneously receive the Company’s services throughout the service period. Revenues attributable to educational
materials and canteen foods are recognized at point in time when control of the promised goods are transferred to the customers. As the
Company’s long-lived assets are all located in Yangtze River Delta, which is a triangle-shaped megalopolis comprising areas of Shanghai,
southern Jiangsu province and northern Zhejiang province and substantially all of the Company’s revenues are derived from this area,
no geographical disaggregation is presented. For the six months ended March 31, 2023 and 2022, the disaggregation of revenue by major
revenue stream and time of the revenue recognition is as follows:
For the six months ended
2023 2022
Category of Revenue:
Tutorial service revenue $ 3,017,545 $ 6,383,764
Logistic, consulting services and others 509,053 821,804
Total $ 3,526,598 $ 7,205,568
For
the six months ended
2023 2022
Timing of Revenue Recognition:
Services transferred over time $ 3,317,594 $ 6,910,842
Goods transferred at a point in time 209,004 294,726
Total $ 3,526,598 $ 7,205,568 Contract assets In accordance with ASC340-40-25-1, an entity shall
recognize as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs. Entities
sometimes incur costs to obtain a contract that otherwise would not have been incurred. Entities also may incur costs to fulfill a contract
before a good or service is provided to a customer. The revenue standard provides guidance on costs to obtain and fulfill a contract that
should be recognized as assets. Costs that are recognized as assets are amortized over the period that the related goods or services transfer
to the customer, and are periodically reviewed for impairment. Only incremental costs should be recognized as assets. Incremental costs
of obtaining a contract are those costs that the entity would not have incurred if the contract had not been obtained. As of March 31, 2023, in order to develop non-English
foreign language tutorial service for middle school students, the Company incurred a total of approximately $2.5 million (RMB17.0 million)
commission type fee and administration costs paid to agents to facilitate the related contracts with students for the tutorial service
period, generally from 3 to 30 months tutorial service periods. The Company will not incur such costs if the Company had not entered into
the tutorial service contracts with the students, and as a result, the cost of approximately $2.5 million (RMB17.0 million) is considered
as the incremental costs of obtaining contracts and shall be capitalized and amortize over tutorial service period. For the six months
ended March 31, 2023 and 2022, the Company amortized related amount of $408,490 and $660,322 into selling expenses, respectively. As of
March 31, 2023 and September 30, 2022, the contract assets amounted to $613,081and $333,314, respectively. Contract liability Contract liabilities are presented as deferred
revenue in the consolidated balance sheets, which represent service fee payment received from students in advance of completion of performance
obligations under a contract. The balance of deferred revenue is recognized as revenue upon the completion of performance obligations.
As of March 31, 2023 and September 30, 2022, the balance of deferred revenue amounted to $3,273,580 and $4,435,393, respectively. Substantially
all of which will be recognized as revenue during the Company’s following fiscal year. Refund liability Refund liability mainly relates to the estimated
refunds that are expected to be provided to students if they decide they no longer want to take the course. Refund liability estimates
are based on historical refund ratio on a portfolio basis using the expected value method. As of March 31, 2023 and September 30, 2022,
refund liability amounted to $313,478 and $237,691, respectively. Cost of revenues Cost of revenues mainly consists of salaries to
instructors and tutors, rental expenses for office space and learning centers, depreciation and amortization of properties and equipment
and teaching materials used in the provision of educational services. Government subsidies Government subsidies are recognized when there
is reasonable assurance that the Company will comply with the conditions attached to it and the grant will be received. Government grant
for the purpose of giving immediate financial support to the Company with no future related costs or obligation is recognized in the Company’s
consolidated statements of comprehensive income when the grant becomes receivable. For the six months ended March 31, 2023 and 2022, government
subsidies income amounted to $860,079 and $ nil Advertising expenditures Advertising expenditures are expensed as incurred
for the periods presented. Advertising expenditures have been included as part of selling and marketing expenses. For the six months ended
March 31, 2023 and 2022, the advertising expenses amounted to $149,379 and $257,396, respectively. Operating leases The Company adopted Topic 842 on October 1, 2022
using the modified retrospective transition approach. The Company has operating lease contracts for office space. The Company determines
whether an arrangement constitutes a lease and records lease liabilities and right-of-use assets on its consolidated balance sheets at
lease commencement. The Company measures its lease liabilities based on the present value of the total lease payments not yet paid discounted
based on the more readily determinable of the rate implicit in the lease or its incremental borrowing rate, which is the estimated rate
the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease. The
Company estimates its incremental borrowing rate based on an analysis of weighted average interest rate of its own bank loans. The Company
measures right-of-use assets based on the corresponding lease liability adjusted for payments made to the lessor at or before the commencement
date, and initial direct costs it incurs under the lease. The Company begins recognizing lease expense when the lessor makes the underlying
asset available to the Company. For leases with lease term less than one year
(short-term leases), the Company records operating lease expense in its consolidated statements of operations on a straight-line basis
over the lease term and record variable lease payments as incurred. Value added tax (“VAT”) Revenue represents the invoiced value of goods
and services, net of VAT. The VAT is based on gross sales price and VAT rates range up to 6%, depending on the type of products sold or
service provided. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output
VAT liabilities. Net VAT balance between input VAT and output VAT is recorded in taxes payable. All of the VAT returns filed by the Company’s
subsidiaries in PRC remain subject to examination by the tax authorities for five years from the date of filing. Income taxes The Company accounts for current income taxes
in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between
the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. An uncertain tax position is recognized as a benefit
only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized
is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the
“more likely than not” test, no tax benefit is recorded. As of March 31, 2023 and September 30, 2022, there are $2,848,749
and $2,573,830 respectively of unrecognized tax benefits included in income tax payable that if recognized would impact the effective
tax rate. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred.
No significant penalties or interest relating to income taxes have been incurred for the six months ended March 31, 2023 and 2022. All
of the tax returns of the Company’s subsidiaries in the PRC remain subject to examination by the tax authorities for five years
from the date of filing. Employee benefits Full-time employees of the Company in the PRC
participate in a government-mandated employer contribution social insurance plan pursuant to which certain pension benefits, medical care,
unemployment insurance, employee housing fund and other welfare benefits are provided to eligible full-time employees. Chinese labor regulations
require that the Company make contributions to the government for these benefits based on government prescribed percentage of the employee’s
salaries. The contributions to the plan are expensed as incurred. Obligations for contributions to employer contribution social insurance
plans are recognized as employee benefit expenses in the period during which services are rendered by employees. (Loss) earnings per share The Company computes earnings per share (“EPS”)
in accordance with ASC 260, “Earnings per Share”. ASC 260 requires companies to present basic and diluted EPS. Basic EPS is
measured as net income divided by the weighted average common share outstanding for the period. Diluted EPS presents the dilutive effect
on a per-share basis of the potential Ordinary Shares (e.g., convertible securities, options and warrants) as if they had been converted
at the beginning of the periods presented, or issuance date, if later. Potential Ordinary Shares that have an anti-dilutive effect (i.e.,
those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. Warrants The Company accounts for warrants as either equity-classified
or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance
in Financial Accounting Standards Board (“FASB”) ASC 480 “Distinguishing Liabilities from Equity” (“ASC
480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding
financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants
meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s
own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside
of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional
judgment, is conducted at the time of warrant issuance and as of each subsequent annual period end date while the warrants are outstanding. For issued or modified warrants that meet all
of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance.
For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded
as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair
value of the warrants are recognized as a non-cash gain or loss on the statements of operations. Share-Based
compensation The Company
follows the provisions of ASC 718, “Compensation - Stock Compensation,” which establishes the accounting for employee share-based
awards. For employee share-based awards, share-based compensation cost is measured at the grant date based on the fair value of the award
and is recognized as expense with graded vesting on a straight-line basis over the requisite service period for the entire award. Foreign currency translation The functional currencies of the Company are the
local currency of the county in which the subsidiaries operate. The Company’s financial statements are reported using U.S. Dollars.
The results of operations and the consolidated statements of cash flows denominated in foreign currencies are translated at the average
rates of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are
translated at the applicable rates of exchange in effect on that date. The equity denominated in the functional currencies is translated
at the historical rates of exchange at the time of capital contributions. Because cash flows are translated based on the average translation
rates, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with
changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange
rates from period to period are included as a separate component in accumulated other comprehensive income included in consolidated statements
of changes in equity. Gains and losses from foreign currency transactions are included in the consolidated statement of income and comprehensive
income. Since the Company operates primarily in the PRC,
the Company’s functional currency is the Chinese Yuan (“RMB”). The Company’s consolidated financial statements
have been translated into the reporting currency of U.S. Dollars (“US$”). The RMB is not freely convertible into foreign currency
and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts
could have been, or could be, converted into US$ at the rates used in the translation. The following table outlines the currency exchange
rates that were used in creating the consolidated financial statements in this report:
For the six For the six September 30,
Balance sheet items, except for equity accounts US$1=RMB 6.8676 US$1=RMB 6.3431 US$1=RMB 7.1135
Items in the statements of income and cash flows US$1=RMB 6.9761 US$1=RMB 6.3712 US$1=RMB 6.5332 Comprehensive (loss) income Comprehensive income consists of two components,
net income and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains and losses that
under U.S. GAAP are recorded as an element of shareholders’ equity but are excluded from net income. Other comprehensive income
(loss) consists of foreign currency translation adjustment resulting from the Company not using US$ as its functional currency. Risks and uncertainties Beginning in late 2019, an outbreak of a novel
strain of coronavirus (COVID-19) first emerged in China and has spread globally. In March 2020, the World Health Organization (“WHO”)
declared the COVID-19 as a pandemic. Governments in affected countries are imposing travel bans, quarantines and other emergency
public health measures, which have caused material disruption to businesses globally resulting in an economic slowdown. A new COVID-19 subvariant (Omicron) outbreak hit
China in March 2022, spreading more quickly and easily than previous strains. As a result, a new round of lockdowns, quarantines, or travel
restrictions has been imposed to date upon different provinces or cities in China by the relevant local government authorities. The Company
temporarily closed Shanghai office and the related tutorial centers and suspended offline marketing activities starting from April 1,
2022 to June 1, 2022. During the fiscal year ended September 30, 2022, the COVID-19 pandemic had a material negative impact on the Company’s
financial positions and operating results. For the year ended September 30, 2022, the Company’s tutorial service revenue decreased
by $4,238,851 as compared to the year ended September 30, 2021 and the Company incurred net loss of $2,118,349 for the year ended September
30, 2022. On December 7, 2022, China announced 10 new rules that constitute a relaxation of almost all of its stringent COVID-19 pandemic
control measures. Shortly after their announcement, additional mobility restrictions issued by local governments were also scrapped. While
such measures effectively reopened business within China, COVID-19 infection rate reached peak in December 2022. The COVID-19 had a material
negative impact on the Company’s recruitment and class hours, which in turn affected revenue. Revenue decreased by $3,678,970 in
the six months ended March 31, 2023 as compared to the same period of fiscal year 2022 and net income decreased by $4,050,661 in the six
months ended March 31, 2023 as compared to the same period of fiscal year 2022. The extent to which the COVID-19 pandemic may
impact the Company’s future financial results will depend on future developments, such as new information on the effectiveness of
the mitigation strategies, the duration, spread, severity, and recurrence of COVID-19 and any COVID-19 variants, the related travel advisories
and restrictions, the overall impact of the COVID-19 pandemic on the global economy and capital markets, and the efficacy of COVID-19
vaccines, which may also take extended time to be widely and adequately distributed, all of which remain highly uncertain and unpredictable.
Given this uncertainty, the Company is currently unable to quantify the expected impact of the COVID-19 pandemic on future operations,
financial condition, liquidity, and results of operations if the current situation |
