UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
or
For the transition period from ____________ to ____________
Commission
File Number:
| (Exact name of registrant as specified in its charter) |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
No. 2 Ronghua South Road Technological Zone | ||
| (Address of Principal Executive Offices) | (ZIP Code) |
(Registrant’s Telephone Number, Including Area Code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) 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.
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted 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 and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | 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 ☐
As
of August 23, 2021, we have
TABLE OF CONTENTS
i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this report contain or may contain forward-looking statements. These statements, identified by words such as “plan”, “anticipate”, “believe”, “estimate”, “should”, “expect” and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, our ability to secure suitable financing to continue with our existing business or change our business and conclude a merger, acquisition or combination with a business prospect, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Readers should carefully review this report in its entirety, including but not limited to our financial statements. We advise you to carefully review the reports and documents we file from time to time with the Securities and Exchange Commission (the “SEC”), particularly our annual report on Form 10-K, quarterly reports on Form 10-Q and our current reports on Form 8-K. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.
ii
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CX NETWORK GROUP, INC.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| June
30, 2021 | September 30,
2020 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Advance and prepayments | ||||||||
| Other receivables | ||||||||
| Total current assets | ||||||||
| Noncurrent assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Right-of-use assets | ||||||||
| Security deposits | ||||||||
| Total noncurrent assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities | ||||||||
| Current liabilities | ||||||||
| Trade and other payables | ||||||||
| Deferred revenue | ||||||||
| Payroll payable | ||||||||
| Tax payable | ||||||||
| Other payable related party | ||||||||
| Operating lease obligations-current portion | ||||||||
| Total current liabilities | ||||||||
| Noncurrent liabilities | ||||||||
| Operating lease obligations-net | ||||||||
| Total noncurrent liabilities | ||||||||
| Total liabilities | ||||||||
| Commitment and contingencies | ||||||||
| Equity | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Subscription receivable | ( | ) | ( | ) | ||||
| Accumulated deficits | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ( | ) | ( | ) | ||||
| Non-controlling interests | ||||||||
| Total equity | ( | ) | ( | ) | ||||
| Total liabilities and equity | $ | $ | ||||||
| * |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
1
CX NETWORK GROUP, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
| For
the nine months ended June 30, | For
the three months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | $ | $ | - | $ | $ | - | ||||||||||
| Cost of revenue | ( | ) | - | ( | ) | - | ||||||||||
| Gross profit | - | - | ||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Selling expense | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Interest income | - | - | ||||||||||||||
| Other income | ||||||||||||||||
| Total other income | ||||||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | ( | ) | ( | ) | $ | ( | ) | ||||||
| Less: Net loss attributable to noncontrolling interest | ( | ) | - | ( | ) | - | ||||||||||
| Net loss attributable to common stockholders | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Comprehensive loss attributable to noncontrolling interest | ( | ) | - | ( | ) | - | ||||||||||
| Comprehensive loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share attributable to common stockholders | ||||||||||||||||
| Basic and diluted* | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares used to compute net loss per share attributable to common stockholders* | ||||||||||||||||
| * |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
2
CX NETWORK GROUP, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
| Common stock | Additional paid-in | Subscription | Accumulated | Accumulated other comprehensive | Total stockholders’ | Non- Controlling | Total | |||||||||||||||||||||||||||||
| Shares | Amount | capital | Receivable | deficits | loss | equity | Interest | equity | ||||||||||||||||||||||||||||
| Balance, March 31, 2021* | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| Capitalization of non-controlling interest | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Net loss attributable to common stockholders | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss attributable to noncontrolling interest | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Common stock | Additional paid-in | Subscription | Accumulated | Accumulated other comprehensive | Total stockholders’ | Non- Controlling | Total | |||||||||||||||||||||||||||||
| Shares | Amount | capital | Receivable | deficits | loss | equity | Interest | equity | ||||||||||||||||||||||||||||
| Balance, September 30, 2020 * | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Capitalization of non-controlling interest | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Net loss attributable to common stockholders | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss attributable to noncontrolling interest | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Common stock | Additional paid-in | Subscription | Accumulated | Accumulated other comprehensive | Total stockholders’ | Non- Controlling | Total | |||||||||||||||||||||||||||||
| Shares | Amount | capital | Receivable | deficits | loss | equity | Interest | equity | ||||||||||||||||||||||||||||
| Balance, March 31, 2020 * | $ | $ | ( | ) | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||
| Common stock | Additional paid-in | Subscription | Accumulated | Accumulated other comprehensive | Total stockholders’ | Non- Controlling | Total | |||||||||||||||||||||||||||||
| Shares | Amount | capital | Receivable | deficits | loss | equity | Interest | equity | ||||||||||||||||||||||||||||
| Balance, September 30, 2019* | $ | $ | ( | ) | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||
| * |
The accompanying notes are an integral part of these unaudited consolidated financial statements
3
CX NETWORK GROUP, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the nine months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Amortization of right-of-use assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Advance and prepayments | ( | ) | ( | ) | ||||
| Other receivables | ( | ) | ( | ) | ||||
| Security deposit | ||||||||
| Trade and other payables | ||||||||
| Deferred revenue | ||||||||
| Payroll payable | ( | ) | ||||||
| Amount due to a related party | ( | ) | ||||||
| Tax payable | ( | ) | ||||||
| Lease liabilities | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Acquisition of intangible assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Effect of foreign exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents - beginning of period | ||||||||
| Cash and cash equivalents - end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash financing and investing activities: | ||||||||
| Right-of-use assets acquired with operating lease obligation | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements
4
CX NETWORK GROUP, INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND GOING CONCERN
ORGANIZATION
The Company was incorporated in the State of Florida on September 3, 2010 under the name of “mLight Tech, Inc.” (“MLGT”). On July 11, 2017, MLGT merged with and into CX Network Group, Inc. (“the Company”, “CXKJ”, “we”, “us”, “our”), a Nevada corporation, with the Company as the surviving corporation that operates under the name “CX Network Group, Inc.” (the “Name Change”), pursuant to an agreement and plan of merger (the “Merger Agreement”) dated July 3, 2017.
Pursuant to
The Name Change, Domicile Change, and Reverse Stock Split went effective on June 12, 2017. Subsequently, the Company’s trading symbol for its common stock was changed to “CXKJ”.
On March 20, 2018, CXKJ entered
into a share exchange agreement (the “Share Exchange”) with Chuangxiang Holdings Inc. (“CX Cayman”).
CX Cayman was incorporated on February 4, 2016 under the laws of Cayman Islands.
Preceding our business combination with CX Cayman, our business focused on development and operation of online dating and mobile gaming products either developed and operated by us or developed by us but co-operated by third parties; or developed by third parties but co-operated by us.
On March 30, 2021, certain
of our shareholders (the “Sellers”) entered into a Stock Purchase Agreement (the “SPA”), with Wenhai Xia (“Purchaser”)
On May 17, 2021, the Company entered into the Share Cancellation Agreement with
a stockholder, Wenhai Xia, to cancel an aggregate of
5
On May 17, 2021, the Company entered
into the Share Exchange Agreement with KP International and holders of all outstanding capital stock of KP International, we acquired
Kun Peng International Holding Limited
Kun Peng International Holding
Limited (“KP International”) was incorporated in the British Virgin Islands on April 20, 2021. KP International is a holding
company and entered into a Bought and Sold Note with Kunpeng (China) Industrial Development Company Limited (“KP Industrial”),
incorporated in Hong Kong on August 11, 2017, at a cash consideration of $
Kunpeng (China) Industrial Development Company Limited
Kunpeng (China) Industrial
Development Company Limited (“KP Industrial”) 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.
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 $
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 $
On March 26, 2021, Guoxin
Ruilian Group Co., Ltd entered into equity transfer agreements with KP Industrial 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 agreed to transfer its
Some of the business engaged in by King Eagle (Tianjin) is restricted or prohibited for foreign investment under PRC regulations. As such, King Eagle (China) has entered into the VIE Agreements with King Eagle (Tianjin) and their shareholders. We do not own any equity interests in King Eagle (Tianjin), but control and receive the economic benefits of their respective 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.
6
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, and such SAFE registration was effected on May 14, 2021. These shareholders of King Eagle (Tianjin) will have to register their equity pledge arrangement as required under the Equity Pledge Agreement with King Eagle (China). 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.
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 $
The following diagram illustrates our corporate structure as of the date of this Report:
Going Concern
The accompanying 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 basis. 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 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. As of June 30, 2021, the Company’s
accumulated deficit was approximately $
These conditions raise substantial doubt about our ability to continue as a going concern. 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.
7
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant Accounting Policies
Basis of Presentation
The unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) applicable to interim 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. Interim 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 interim periods have been included.
These interim condensed consolidated financial statements should be read in conjunction with the audited and pro forma financial statements included with the Amendment to the Form 8-K filed with the SEC on May 19,2021, and the Company’s audited consolidated financial statements and notes thereto for the year ended September 30, 2020 included in the Form 10-K filed with the SEC on January 13, 2021.
The interim 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 consolidated financial statements are expressed in U.S. dollars.
Principles of Consolidation
The interim condensed consolidated financial statements include the financial statements of the Company, its subsidiaries and variable interest entity (“VIE”).
Use of Estimates and Assumptions
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimate 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, 2021 and 2020 include the collectability of receivables, the useful lives of long-lived assets and intangibles, assumptions used in assessing impairment of long-lived assets, valuation of accruals for expenses and tax due.
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. Revenue was recorded 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 from customers.
Revenue is measured based on the amount of consideration that we expect to receive, reduced by estimates for return allowances, promotional discounts, and rebates. Revenue also excludes any amounts collected on behalf of third parties, including sales and indirect taxes.
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.
Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued Accounting Standards Update No. 2016-13,“Financial Instruments - Credit Losses (Topic 326)” (“ASU 2016-13”). ASU 2016-13 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. Originally, ASU 2016-13 was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. In November 2019, FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842).” This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is planning to adopt this standard in the first quarter of fiscal 2023. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-13 on its consolidated financial statements, particularly its recognition of allowances for accounts receivable.
Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have material impact on the interim condensed consolidated financial position, statements of operations and cash flows.
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”.
VIEs are entities that have 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 through voting rights, right to receive the expected residual returns of the entity or 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 activities at King Eagle (Tianjin) that most significantly impact such entity’s economic performance, and |
| (2) | The obligation to absorb losses of, and the right to receive benefits from, King Eagle (Tianjin) that could potentially be significant to such entity. |
Pursuant to the Contractual Arrangements, King Eagle (Tianjin) pays service fees equal to all of its net profit after tax payments to King Eagle (China). At the same time, to King Eagle (China) is obligated to absorb all of their losses. The Contractual Arrangements are designed so that King Eagle (Tianjin) operates for the benefit of to King Eagle (China) and ultimately the Company.
Based on the foregoing VIE
Agreements, King Eagle (China) has effective
Accordingly, the accounts of the King Eagle (Tianjin) 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.
8
The Company consolidated its VIE as of June 30, 2021 and September 30, 2020. The carrying amounts and classification of the VIE’s assets and liabilities included in the consolidated balance sheets are as follows:
| June 30, 2021 | September 30, 2020 | |||||||
| Current assets | $ | $ | ||||||
| Noncurrent assets | ||||||||
| Total assets | ||||||||
| Total liabilities | ||||||||
| Net liabilities | $ | ( | ) | $ | ( | ) | ||
The VIE’s liabilities consisted of the following as of June 30, 2021 and September 30, 2020:
| June 30, 2021 | September 30, 2020 | |||||||
| Current liabilities | $ | $ | ||||||
| Trade and other payable | ||||||||
| Advance from customers | ||||||||
| Payroll payable | - | |||||||
| Tax payable | ||||||||
| Operating lease obligations, currents | ||||||||
| Total current liabilities | ||||||||
| Total noncurrent liabilities | ||||||||
| Operating lease obligations, net of current portion | ||||||||
| Total noncurrent liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
9
The operating results of the VIE were as follows:
| Nine months ended June 30 | Three months ended June 30 | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Gross profit | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ||||||||||||
| Other income | ||||||||||||||||
| Net loss | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
NOTE 4 - PREPAYMENTS
Prepayments consisted of the following:
| June 30, 2021 | September 30, 2020 | |||||||
| Prepaid service fee (1) | $ | $ | ||||||
| Prepaid rent and building management and utilities | ||||||||
| Prepaid supplies | ||||||||
| Prepaid system maintenance services | ||||||||
| Prepaid income tax | ||||||||
| Prepaid professional services | ||||||||
| Prepaid others | ||||||||
| Total prepayments | $ | $ | ||||||
| (1) | Amount paid to Guoxin Star Network Co., Ltd by our VIE, King Eagle (Tianjin) for the construction and development of Smart Kiosk. |
NOTE 5 - OTHER RECEIVABLES
Other receivables included the following:
| June 30, 2021 | September 30, 2020 | |||||||
| Rental deposits | $ | $ | ||||||
| Advance to employees | ||||||||
| Others | ||||||||
| Total other receivables, net | $ | $ | ||||||
Advance to employees represents funds provided to our officers and employees for the business expenses, such as travel, parking, gasoline, membership, meals, that are anticipated to be incurred by our officers and employees on behalf of the Company. Advances to employees are required to repay within a year. As of June 30, 2021, the ending balance of the advance to employees is due in December 2021.
10
NOTE 6 - PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
| June 30, 2021 | September 30, 2020 | |||||||
| Leasehold improvements | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Computer equipment | ||||||||
| Office equipment | ||||||||
| Computer software | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
The depreciation expense
was $
NOTE 7 – INTANGIBLE ASSETS
Intangible assets consist
of the Company’s trademarks of King Eagle Mall with the useful life of
NOTE 8 - RELATED PARTY TRANSACTIONS
Other payables-related party is nontrade payable arising from transactions between the Company and a related party, such as operating loans from such related party. The loans owed to the related parties are interest free, unsecured and repayable on demand.
.
Other payables-related party consisted of the following:
| Name of related party | Relationship | Nature of transactions | June 30, 2021 | September 30, 2020 | ||||||||
| Mr. Yihe Pang | $ | $ | ||||||||||
| Total | $ | $ | ||||||||||
NOTE 9 - EQUITY
Share capital:
On September 1, 2020, KP
Industrial entered into a sales and purchase agreement with Guoxin Ruilian Group Co., Ltd. KP Industrial transferred
On March 26, 2021, Guoxin
Ruilian Group Co., Ltd entered into equity transfer agreements with KP Industrial 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 agreed to transfer its
11
On March 30, 2021, the controlling
shareholders of the Company (the “Sellers”), and investors (the “Purchaser”) entered into a Stock Purchase Agreement
(the “SPA”), pursuant to which the Purchasers acquired
On May 3, 2021, KP International
entered into a Bought and Sold Note with Kunpeng (China) Industrial Development Company Limited (“KP Industrial”), incorporated
in Hong Kong on August 11, 2017 at a cash consideration of $
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”.
On May 17, 2021, KP International
completed a share exchange agreement with CX Network Group, Inc. (“CXKJ”) and the shareholders of KP International on May
17, 2021 to acquire all the issued and outstanding capital of KP International in exchange for the shares of CX Network Group Inc. to
the shareholders of KP International (“Reverse Acquisition”). CX Network Group, Inc issued an aggregate
of
The equity structure of the Company
was retrospectively adjusted under ASC Topic 805-40. As of June 30, 2021 and September 30, 2020, there were
King Eagle (China) has a subscribed capital of approximately $14.94 million (RMB100 million). The $13.88 million (RMB92 million) or 92% of its subscribed capital is receivable from King Eagle (Hong Kong) due by March 1, 2039, while the $1.06 million (RMB 8 million) or 8% of its subscribed capital is receivable from Guoxin Ruilian Group Co., Ltd. due by March 1, 2031.
King Eagle (Tianjin) has a subscribed
capital of approximately $
Restricted net assets:
Our ability to pay dividends
is primarily dependent on us receiving distributions of funds from its subsidiary or VIE. Relevant PRC statutory laws and regulations
permit payments of dividends by only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and
regulations and after it has met the PRC requirements for appropriation to statutory reserves. Share capital of the PRC subsidiary 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 King Eagle (China), the foreign-invested enterprise, and King Eagle (Tianjin), the VIE. The Company
is required to set aside at least
As a result of the foregoing
restrictions, King Eagle (China) and King Eagle (Tianjin) are restricted in their ability to transfer their net assets to the Company.
Foreign exchange and other regulation in the PRC may further restrict these two entities from transferring funds to the Company in the
form of dividends, loans and advances. As of June 30, 2021 and September 30, 2020, the Company had negative net assets which included
common stock, additional paid-in capital, subscription receivable, accumulated deficit and foreign exchange translation adjustment of
its subsidiaries in BVI, Hong Kong and the PRC and the VIE that are included in the Company’s consolidated financial statements.
Due to the net operating loss, as of June 30, 2021, King Eagle (China) and King Eagle (Tianjin) incurred negative net assets which amounted
to $
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NOTE 10- INCOME TAXES
The Company accounts for income taxes pursuant to the accounting standards that requires 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
CXKJ is incorporated in the State of Nevada and is subject to the 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 and three months ended June 30, 2021 and 2020.
British Virgin Islands
KP International is a holding corporation 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
KP Industrial and KP (Hong
Kong) were incorporated in Hong Kong and Hong Kong’s profits tax rate is
PRC
The PRC’s statutory
income tax rate is
The income tax expense rate for the three months ended June 30, 2021 and 2020 was nil and for the nine months ended June 30, 2021 and 2020 was nil. Our PRC subsidiary and VIE entity incurred tax loss. At this time, the Company considered it is more likely than not that King Eagle (China) and King Eagle (Tianjin) do not have sufficient taxable income in the near future that will allow them to realize these DTAs. Therefore, the Company recorded a full valuation allowance against all of its deferred tax assets as of June 30, 2021 and September 30, 2020. The Company intends to continue maintaining a full valuation allowance on its deferred tax assets until there is sufficient evidence to support the reversal of all or portion of these allowance.
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NOTE 11 - 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, 2021 and September 30, 2020:
| Assets/liabilities | Classification | June 30, 2021 | September 30, 2020 | |||||||
| Assets | ||||||||||
| Operating lease right-of-use assets | Operating lease assets | $ | $ | |||||||
| Liabilities | ||||||||||
| Current | ||||||||||
| Operating lease liability - current | Current operating lease liabilities | $ | $ | |||||||
| Long-term | ||||||||||
| Operating lease liability – net of current portion | Long-term operating lease liabilities | $ | $ | |||||||
| Total lease liabilities | $ | $ | ||||||||
The operating lease expense for the nine months ended June 30, 2021 and 2020 and three months ended June 30, 2021 and 2020 was as follows:
| For the nine months ended June 30 | For the three months ended June 30 | |||||||||||||||||
| Lease Cost | Classification | 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Operating lease cost | General and administrative | $ | $ | $ | $ | |||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||||
Maturities of operating lease liabilities as of June 30, 2021 were as follow:
| Maturity of Lease Liabilities | Operating Leases | |||
| The remaining 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total lease payments | $ | |||
| Less: interest | ( | ) | ||
| Present value of lease payments | $ | |||
Maturities of operating lease liabilities as of September 30, 2020 were as follow:
| Maturity of Lease Liabilities | Operating Leases | |||
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total lease payments | $ | |||
| Less: interest | ( | ) | ||
| Present value of lease payments | $ | |||
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Supplemental information related to operating leases was as follows:
| For the nine months ended June 30 | ||||||||
| 2021 | 2020 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | $ | ||||||
| New operating lease assets obtained in exchange for operating lease liabilities | $ | $ | ||||||
| Weighted average remaining lease term | ||||||||
| Weighted average discount rate | % | % | ||||||
NOTE 12 - COMMITMENTS AND CONTINGENCIES
On March 31, 2021, King Eagle
(Tianjin) entered into a Cooperation Agreement with Guoxin Star Network Co., Ltd who assigned and franchised the operation of 50 Smart
Kiosks to King Eagle (Tianjin) for
NOTE 13 - SUBSEQUENT EVENT
Effective as of July 20,
2021, a Certificate of Amendment was approved by unanimous written consent of the board of directors of the Company and by written consent
of
| 1. | change the name of the Company from CX Network Group, Inc. to Kun Peng International Ltd. and |
| 2. | increase the authorized number of shares of the Company’s $ |
| 3. | provide that the existing |
| 4. | provide that upon filing of the Articles of Amendment to the Articles of Incorporation, the Corporation shall have |
On August 10, 2021, the Company established a subsidiary Kun Peng Tian Yu Health Technology (Tianjin) Co., Ltd as a wholly owned subsidiary of Kun Peng (Hong Kong) Industrial Development Limited.
The Company evaluated and concluded that there are no other subsequent events have occurred that would require recognition or disclosure in the financial statements other than ones disclosed above.
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used herein and except as otherwise noted, the term “Company”, “it(s)”, “our”, “us”, “we”, “CX” and “CXKJ” shall mean CX Network Group, Inc., a Nevada corporation (previously known as “mLight Tech Inc.” or “MLGT”, a Florida corporation), its owned subsidiaries KP International, KP Industrial, King Eagle (China), King Eagle (Tianjin), which is controlled by us via various contracts.
This Form 10-Q contains forward-looking statements. Our actual results could differ materially from those set forth as a result of general economic conditions and changes in the assumptions used in making such forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read together with the audited financial statements and accompanying notes and the other financial information appearing in the 2020 Annual Report filed with the Securities and Exchange Commission on January 13, 2021, and in the Amended Form 8-K filed with the SEC on May 19, 2021, and elsewhere in this quarterly report. The analysis set forth below is provided pursuant to applicable Securities and Exchange Commission regulations and is not intended to serve as a basis for projections of future events.
Overview of the Business
Due to global health issues and the pandemic, people have increased their health and nutrition consciousness. We believe preventive care is the most effective investment in health.
To promote the awareness of preventive care to the people in the PRC, we have developed and launched our mobile (King Eagle Mall). We also started establishing physical (Smart Kiosk) platforms with the cooperation with Guoxin Star Network Co., Ltd.
King Eagle Mall
King Eagle Mall is a mobile social e-commerce platform which was launched in July 2020 and promotes preventive health care products and services as our core business. It adopts the S2B2C business model and integrates many major health care products and services. We focus on health-related products and services. King Eagle Mall is designed to enable health-related products to be sold by us and by third parties. King Eagle Mall’s products are divided into two sectors: self-operated products and selected products which promote preventive health care. Our team screens and examines products that are and will be offered both by us and affiliated merchants. Our major products include health care products such as dietary supplements, nutritional health foods, beauty cosmeceuticals, and other categories (for instance, milk powder, dried fruits) health foods for supporting the cardiovascular system, and bone joint health. We offer collagen peptides, probiotics and health foods for improving blood circulation and vein health, as well as household products which can promote and improve a healthier lifestyle of our members. We receive customer orders and may arrange fulfillment with our merchants who are responsible for delivery arrangement or fulfill customer orders through our outsourced networks.
At the same time, we operate customer service centers with whom our members can directly communicate for any assistance related to product purchases, suggestions for health care products and services, and delivery logistics.
Smart Kiosk
We introduced “Smart Kiosk” with the support from the previous stakeholder of King Eagle (China), Guoxin Ruilian Group Co., Ltd (“Guoxin Ruilian”), which is a wholly owned subsidiary of CITIC Group Corporation Ltd and a related party of Guoxin Zhengye. The construction of Smart kiosk was initiated and administered by Guoxin Ruilian Group Co., Ltd. After the completion of the construction of Smart Kiosk, Guoxin Ruilian Group Co., Ltd assigned its wholly-owned subsidiary, Guoxin Star Network Co., Ltd to cooperate with King Eagle (Tianjin) in development of Smart Kiosk. The Smart Kiosk is a physical platform which focuses on developing a “small shop economy”. It is integrated with the King Eagle Mall which creates a “social, health and physical store” to provide people with a more professional and comprehensive preventive health care products and services. Smart Kiosk is a principal component of our business.
The smart service kiosk functions as a physical customer service center and community marketing for attracting customers, providing customer services, promoting our 500+ preventive health care and health related household products and introducing concepts of maintaining a healthy life. 5G internet connection is also available for our customers to connect to our online application, King Eagle Mall, so that our customers can access to King Eagle Mall and place orders of our products. We planned our first phase of construction of the Smart Kiosk in Puyang City, Henan Province and Jingmen City, Hubei Province. As of June 30, 2021, we obtained construction permits for 7 smart kiosks in Hunan province and 1 smart kiosk in Puyang City, Henan province was still under construction.
Recent Developments
COVID-19
The ongoing coronavirus pandemic as well as the newer Delta variant has had and will continue to spread nearly all areas around the world. The spread of coronavirus impacted the operation of business and caused delays in the development or construction of business properties due to shutdown in the affected areas. Since the shutdown of several areas in the PRC, the approval process of our applications for the construction permits of smart kiosks was delayed by the local governmental agencies and the construction project of smart kiosks was also postponed. As of June 30, 2021, we obtained construction permits for 7 smart kiosks in Hunan province and 1 smart kiosk in Puyang City, Henan province was under construction. We continue to focus our business through our online platform, King Eagle Mall, to mitigate the adverse impacts by COVID-19 and follow up closely with the local governmental agencies for the application for the construction permits of smart kiosks. Although we do not expect that the virus will have a material adverse effect on our business or financial results at this time, it is not possible to predict the unanticipated consequence of the pandemic on our future business performance and liquidity due to the severity of global situation of COVID-19 and we may take actions as may be required by local government authorities or that we determine are in the best interests of our employees, partners and community.
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Recent Regulatory Developments in China
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, and such SAFE registration was effected on May 14, 2021. These shareholders of King Eagle (Tianjin) will have to register their equity pledge arrangement as required under the Equity Pledge Agreement with King Eagle (China). 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.
On July 6, 2021, the PRC government issued the Opinions on Strictly Cracking Down on Illegal Securities Activities, calling for: (i) tightening oversight of data security, cross-border data flow and administration of classified information, as well as amendments to relevant regulation to specify responsibilities of overseas listed Chinese companies with respect to data security and information security; (ii) enhanced oversight of overseas listed companies as well as overseas equity fundraising and listing by Chinese companies; and (iii) extraterritorial application of China’s securities laws. As the Opinions on Strictly Cracking Down on Illegal Securities Activities were recently issued, there are great uncertainties with respect to the interpretation and implementation thereof. We will closely monitor further developments.
In addition, on July 10, 2021, the Cyberspace Administration of China issued the Measures for Cybersecurity Review (Revision Draft for Comments), or the Measures, for public comments, which propose to authorize the relevant government authorities to conduct cybersecurity review on a range of activities that affect or may affect national security, including listings in foreign countries by companies that possess the personal data of more than one million users. The Measures are soliciting comments and subject to change. As we have less than one million users, we believe that the Measures are not applicable to us even after they take effect in current form. The PRC government is increasingly focused on data security, recently launching cybersecurity review against a number of mobile apps operated by several US-listed Chinese companies and prohibiting these apps from registering new users during the review period. There are great uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations regarding data and privacy security. We may be required to change our data and other business practices and be subject to regulatory investigations, penalties, increased cost of operations, or declines in issuer growth or engagement as a result of these laws and policies. Further, our consulting business with respect to overseas listing and capital raising may be adversely affected.
Financial Operations Overview
Results of Operations for the three months ended June 30, 2021 and 2020
Revenues
For the three months ended June 30, 2021 and 2020, revenues amounted to $452,027 and nil, respectively. Our revenue primarily included the sale of health care and health related household products to our customers via our mobile application, King Eagle Mall, which was launched in July 2020. We recognized our revenue on a gross basis, net of sub-charges and value-added tax (“VAT”) of gross sales.
Cost of Revenues
For the three months ended June 30, 2021 and 2020, cost of revenues amounted to $205,595 and nil, respectively. This primarily included the purchase of health care and health related household products from our suppliers.
Gross Profit
For the three months ended June 30, 2021 and 2020, gross profit amounted to $246,432 and nil, respectively. Gross profit for the three months ended at June 30, 2021 increased compared to that for the same period in 2020 since there was no operation in comparable period in the prior year.
General and Administrative Expenses
For the three months ended June 30, 2021 and 2020, general and administrative expenses amounted to $1,154,502 and $34,635 respectively. The increase in the general and administrative expenses by $1,119,867 was primarily driven by higher professional service fee which included audit and legal fees for reverse acquisition, higher headcount and office lease and employee accommodation for our subsidiary in Beijing and its VIE during the three months ended June 30, 2021. General and administrative expenses for the three months ended June 30, 2021 and 2020 consisted of the following:
| Three months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Employee compensation and benefit | $ | 143,765 | $ | 22,744 | ||||
| Office rent and building management | 115,635 | - | ||||||
| Office supplies and meeting | 10,646 | 4,699 | ||||||
| Professional services fee | 735,455 | 7,124 | ||||||
| Travel, transportation and gasoline | 11,656 | 45 | ||||||
| Meals and entertainment | 9,935 | - | ||||||
| Depreciation and amortization | 2,926 | - | ||||||
| Others | 124,484 | 23 | ||||||
| Total | $ | 1,154,502 | $ | 34,635 | ||||
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Selling Expense
For the three months ended June 30, 2021 and 2020, selling expense amounted to $719,561 and $7,311, respectively. Our selling expense for the three months ended June 30, 2021 increased by $712,250 compared to that for the same period in 2020 as we launched the online platform in July 2020 which resulted in higher headcount for our sales and marketing department, office supplies and meeting and service fees paid to our agents. Our selling expense, which was primarily incurred by our sales and marketing department, for the three months ended June 30, 2021 and 2020 included the following:
| Three months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Service agents | $ | 405,098 | $ | - | ||||
| Employee compensation and benefit | 139,399 | 6,970 | ||||||
| Office supplies and meeting | 102,047 | - | ||||||
| Travel, transportation and gasoline | 13,430 | - | ||||||
| Meals and entertainment | 10,020 | 341 | ||||||
| Depreciation and amortization | 1,475 | - | ||||||
| Advertising | 3,681 | |||||||
| Others | 44,411 | - | ||||||
| Total | $ | 719,561 | $ | 7,311 | ||||
Other Income
For the three months ended June 30, 2021, total other income was $444 as compared to $10 for the three months ended June 30, 2020. Other income was mainly related to interest income from our bank deposits.
Net loss
As a result of the factors discussed above, for the three months ended June 30, 2021 and 2020, net loss amounted to $1,627,187 and $41,936, respectively.
Net loss attributable to noncontrolling interest
For the three months ended June 30, 2021 and 2020, net loss attributable to noncontrolling interest was $114,635 and nil, respectively.
Foreign Currency Translation Adjustment
The reporting currency of the Company is the U.S. Dollar. The functional currency of King Eagle (China) and King Eagle (Tianjin) operating in the PRC is the Chinese Yuan or Renminbi (“RMB”). The financial statements of entities in PRC are translated to U.S. dollars using period end rates of exchange for assets and liabilities, historical rates of exchange for equity, and average rates of exchange during the period for results of operations. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations and comprehensive loss.
As a result of these translations, which are a non-cash adjustment, we reported a foreign currency translation loss of $24,731 for the three months ended June 30, 2021, as compared to a foreign currency translation gain of $167 for the three months ended June 30, 2020. This non-cash loss had an effect of increasing our reported comprehensive loss for the three months ended June 30, 2021 while reducing our reported comprehensive loss for the three months ended June 30, 2020.
Comprehensive Loss
For the three months ended June 30, 2021, comprehensive loss of $1,651,918 was derived from our net loss of $1,627,187 and foreign currency translation loss of $24,731. For the three months ended June 30, 2020, comprehensive loss was $41,769 which included net loss of $41,936, offset by foreign currency translation gain of $167.
Comprehensive loss attributable to noncontrolling interest
For the three months ended June 30, 2021, comprehensive loss attributable to noncontrolling interest of $116,546 was derived from the net loss attributable to noncontrolling interest of $114,635 and foreign currency translation loss attributable to noncontrolling interest, $1,911. For the three months ended June 30, 2020, comprehensive loss attributable to noncontrolling interest was nil.
18
Results of operations for the nine months ended June 30, 2021 and 2020
Revenues
For the nine months ended June 30, 2021, we had total revenues of $2,625,621, as compared to nil for nine months ended June 30, 2020. Our revenue primarily included the sale of health care and health related household products to our customers via our mobile application, King Eagle Mall, which was launched in July 2020. We recognized our revenue on a gross basis, net of sub-charges and value-added tax (“VAT”) of gross sales.
Cost of Revenues
For the nine months ended June 30, 2021 and 2020, cost of revenues amounted to $521,478 and nil, respectively. This primarily included the purchase of health care and health related household products from our suppliers.
Gross Profit
For the nine months ended June 30, 2021 and 2020, gross profit amounted to $2,104,143 and $nil, respectively. Gross profit for the nine months ended at June 30, 2021 increased compared to that for the same period in 2020 since there was no operation in comparable period in prior year.
General and Administrative Expenses
For the nine months ended June 30, 2021 and 2010, general and administrative expenses amounted to $2,055,591 and $34,635, respectively. A significant surge in general and administrative expenses by $2,020,956 for the nine months ended June 30, 2021 compared to the same period in 2020 was primarily driven by higher professional service fee which included audit and legal fees for reverse acquisition, higher headcount and office lease and employee accommodation for our subsidiary in Beijing and its VIE. General and administrative expenses for the nine months ended June 30, 2021 and 2020 consisted of the following:
| Nine months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Employee compensation and benefit | $ | 513,340 | $ | 22,744 | ||||
| Office rent and building management | 318,073 | - | ||||||
| Office supplies and meeting | 57,858 | 4,699 | ||||||
| Professional services fee | 928,547 | 7,124 | ||||||
| Travel, transportation and gasoline | 42,880 | 45 | ||||||
| Meals and entertainment | 26,569 | - | ||||||
| Depreciation and amortization | 8,562 | - | ||||||
| Others | 159,762 | 23 | ||||||
| Total | $ | 2,055,591 | $ | 34,635 | ||||
Selling Expense
For the nine months ended June 30, 2021 and 2020, selling expense amounted to $2,321,682 and $7,311, respectively. Our selling expense for the nine months ended June 30, 2021 increased by $2,314,371 compared to that for the same period in 2020 as we launched the online platform in July 2020 which resulted in higher headcount for our sales and marketing department, office supplies and meeting and service fees paid to our agents. Our selling expense, which was primarily incurred by our sales and marketing department, for the nine months ended June 30, 2021 and 2020 included the following:
| Nine months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Service agents | $ | 1,714,337 | $ | - | ||||
| Employee compensation and benefit | 347,706 | 6,970 | ||||||
| Office supplies and meeting | 151,561 | - | ||||||
| Travel, transportation and gasoline | 20,916 | - | ||||||
| Meals and entertainment | 14,111 | 341 | ||||||
| Depreciation and amortization | 3,433 | - | ||||||
| Advertising | 6,261 | - | ||||||
| Others | 63,357 | - | ||||||
| Total | $ | 2,321,682 | $ | 7,311 | ||||
Other Income
For the nine months ended June 30, 2021, total other income was $865 as compared to total other income of $10 for the nine months ended June 30, 2020. Other income included bank interest income, $592 and other income, $273.
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Net loss
As a result of the factors discussed above, for the nine months ended June 30, 2021 and 2020, net loss amounted to $2,272,265 and $41,936, respectively.
Net loss attributable to noncontrolling interest
For the nine months ended June 30, 2021 and 2020, net loss attributable to noncontrolling interest amounted to $211,397 and nil, respectively.
Foreign Currency Translation Adjustment
The functional currency of our VIE entity operating in the PRC is the Chinese Yuan or RMB. The financial statements of our VIE are translated to U.S. dollars using period end rates of exchange for assets and liabilities, and average rates of exchange (for the period) for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations.
As a result of these translations, which are a non-cash adjustment, we reported a foreign currency translation loss of $32,716 for the nine months ended June 30, 2021 as compared to a foreign currency translation gain $167 for the nine months ended June 30, 2020. This non-cash loss had the effect of increasing our reported comprehensive loss for the nine months ended June 30, 2021 while reducing our reported comprehensive loss for the same period in 2020.
Comprehensive Loss
For the nine months ended June 30, 2021, comprehensive loss of $2,304,981 was derived from the sum of our net loss of $2,272,265 and foreign currency translation loss of $32,716. For the nine months ended June 30, 2020, comprehensive loss was $41,769 which included net loss of $41,936, offset by foreign currency translation gain of $167.
Comprehensive loss attributable to controlling interest
For the nine months ended June 30, 2021, comprehensive loss attributable to noncontrolling interest of $214,505 was derived from the net loss attributable to noncontrolling interest of $211,397 and foreign currency translation loss attributable to noncontrolling interest of $3,108. For the nine months ended June 30, 2020, comprehensive loss attributable to noncontrolling interest was nil.
Liquidity and Capital Resources
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. As of June 30, 2021, the Company’s working capital deficit was approximately $2,859,345 as compared to working capital deficit of approximately $617,071 as of September 30, 2020. As of June 30, 2021 and September 30, 2020, the Company’s accumulated deficit was approximately $2,269,639 and $208,771, respectively, and the Company has incurred losses since inception. None of the Company’s stockholders, officers or directors, or third parties, are under any obligation to advance the Company funds, or to invest in it. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, the Company may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of its business plan, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to us on commercially acceptable terms, if at all.
Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
The following summarizes the key components of the Company’s cash flows for the nine months ended June 30, 2021 and 2020:
| Nine months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net cash provided by operating activities | $ | 55,079 | $ | 46,921 | ||||
| Net cash used in investing activities | (10,108 | ) | (2,095 | ) | ||||
| Effect of exchange rate change on cash | 8,367 | (182 | ) | |||||
| Total net change in cash and cash equivalents | $ | 53,338 | $ | 44,644 | ||||
20
Net cash provided by operating activities totaled $55,079 for the nine months ended June 30, 2021. The increase in net cash provided by operating activities for the nine months ended June 30, 2021 was attributable to an increase in trade and other payable, $1,341,656 and advance from customers, $1,551,753 as well as receipt of deposit refund, $76,364, offset by net loss of $2,272,265, repayment to our related party, $232,296, prepayment to our vendors and counter party for construction and development of smart kiosks, $368,285, and a decrease in other receivables, $48,643.
Net cash provided by operating activities totaled $46,921 for the nine months ended June 30, 2020. The increase in net cash provided by operating activities for the nine months ended June 30, 2020 was attributable to an increase in payroll payable, $28,038, payment made to vendors on behalf of the Company by our related party, $135,005, tax payable, $1,098, offset by the net loss, $41,936, prepaid expenses, $68,421 and deposit payment to vendors, $6,863.
Net cash used in investing activities amounted to $10,108 for the nine months ended June 30, 2021. The decrease in net cash provided by investing activities was triggered by the purchase of equipment, $7,437 and acquisition of trademarks, $2,671.
Net cash used in investing activities amounted to $2,095 for the nine months ended June 30, 2020 which was related to the purchase of computer equipment.
There was no financing activity for the nine months ended June 30, 2021 and 2020.
Going Concern
The accompanying 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 basis. 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 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. As of June 30, 2021, the Company’s accumulated deficit was approximately $2,269,639 and the Company has incurred losses since inception. The Company had negative working capital of $2,859,345 as of June 30, 2021. None of the Company’s stockholders, officers or directors, or third parties, are under any obligation to advance us funds, or to invest in the Company. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, the Company may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of our business plan, and reducing overhead expenses. Management is optimistic about the Company’s ability to increase revenues to meet its future cash flow requirements. 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 that will be available to it on commercially acceptable terms, if at all.
These conditions raise substantial doubt about our ability to continue as a going concern. 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.
Off-Balance Sheet Arrangements
As of June 30, 2021 and September 30, 2020, there are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.
Recent Accounting Pronouncements
See Note 2 of our Financial Statements included in this quarterly report for discussion of recent accounting pronouncements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. 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 her evaluation as of the end of the nine months ended June 30, 2021, our chief financial officer, who serves as both 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 (“SEC”) 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 appropriated understanding of U.S. GAAP and SEC reporting requirement; |
| ● | 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 director. |
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 Exchange Act) during the first fiscal quarter covered by this quarterly report that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting other than the facts disclosed above.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
As of the date of this quarterly report, there have been no material changes to the risk factors disclosed in the Amended Form 8-K filed with the SEC on May 19, 2021 and set forth in our annual report on Form 10-K for the fiscal year ended September 30, 2020 filed with the SEC on January 13, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On May 17, 2021, we entered into a share exchange agreement (“Share Exchange Agreement”) with (i) KP International, a limited liability company incorporated in British Virgin Islands on April 20, 2021, and (ii) the five members of KP International to acquire all the issued and outstanding capital stock of KP International in exchange for the issuance to those members of an aggregate of 34,158,391 shares of our common stock (“Reverse Acquisition”). Pursuant to the terms of the Exchange Agreement, and as a condition to the completion of the transactions contemplated by the Share Exchange Agreement, the Company also agreed to enter into an agreement with Wenhai Xia (“the Stockholder”), to cancel an aggregate of 15,535,309 shares of the Company’s Common Stock owned by the Stockholder. The Reverse Acquisition was closed on May 17, 2021.
None of the KP International’s Stockholders is a U.S. Person (as that term is defined in Regulation S of the Securities Act of 1933) and KP International acquired our shares in the Reverse Merger outside of the United States.
In issuing these securities to KP International’s Stockholders, we relied upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) provided by Section 4(a)(2) of the Securities Act, which exempts transactions by an issuer not involving any public offering, and/or Regulation S promulgated by the U.S. Securities and Exchange Commission (the “SEC”). Among other things, the offer or sale was made in an offshore transaction and no directed selling efforts were made in the United States by the issuer, a distributor, any of their respective affiliates, or any person acting on behalf of any of the foregoing. In addition, each of the recipients of the shares certified that he/she/it is not a U.S. person and is not acquiring the securities for the account or benefit of any U.S. person and agreed to resell such securities only in accordance with the provisions of Regulation S, pursuant to registration under the Act, or pursuant to an available exemption from registration; and agreed not to engage in hedging transactions with regard to such securities unless in compliance with the Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
| 31.1* | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer | |
| 31.2* | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial and accounting officer | |
| 32.1* | Section 1350 Certification of principal executive officer | |
| 32.2* | Section 1350 Certification of principal financial and accounting officer | |
| 101.INS* | Inline XBRL Instance Document. | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Filed herewith |
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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.
CX NETWORK GROUP, INC.
| Date: August 23, 2021 | By: | /s/ Xiangyi Mao |
| Xiangyi Mao | ||
| Chief Executive Officer |
| Date: August 23, 2021 | By: | /s/ Yuanyuan Zhang |
| Yuanyuan Zhang | ||
| Chief Financial Officer |
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