NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2023
(UNAUDITED)
NOTE
1. DESCRIPTION OF THE BUSINESS AND ORGANIZATION
Kun
Peng International Limited (“the Company,” “KPIL,” “CXKJ,” “we,” “us,” “our”),
a Nevada corporation (formerly known as CX Network Group, Inc.), through its subsidiaries and VIE, currently engages in the sale of health
care and health related household products through its online platforms, King Eagle Mall and Kun Zhi Jian.
SCHEDULE
OF COMPANY INFORMATION AND ORGANIZATIONAL ACTIVITIES
Name |
|
Background |
|
Ownership |
|
Registered
capital / Authorized shares |
|
Principal
activities |
Kun
Peng International Limited |
|
●
A U.S. company
●
Incorporated on June 28, 2017 |
|
|
|
Authorized
shares:
●
Common stock: 1,000,000,000 with par value $0.0001 per share
●
400,000,000 shares issued and outstanding as of December 31, 2022
Preferred
stock:
●
10,000,000 with par value $0.0001 per share
●
no shares issued and outstanding as of December 31, 2022 |
|
Investment
holding |
|
|
|
|
|
|
|
|
|
Kun
Peng International Holding Limited |
|
●
A BVI company
●
Incorporated on April 20, 2021 |
|
100%
owned by Kun Peng International Limited |
|
Paid
capital: 400 ordinary shares at par value of $0.01 per share |
|
Investment
holding |
|
|
|
|
|
|
|
|
|
Kunpeng
(China) Industrial Development Company Limited |
|
●
A Hong Kong company
●
Incorporated on August 11, 2017 |
|
100%
owned by Kun Peng International Holding Limited |
|
Paid
share capital: 10,000 ordinary shares at $1,292 (HKD10,000) |
|
Investment
holding |
|
|
|
|
|
|
|
|
|
Kun
Peng (Hong Kong) Industrial Development Limited |
|
●
A Hong Kong company
●
Incorporated on June 21, 2021 |
|
100%
owned by Kun Peng International Holding Limited |
|
Paid
share capital: 1 ordinary share at $0.13 (HK$1) |
|
Investment
holding |
|
|
|
|
|
|
|
|
|
King
Eagle (China) Co., Ltd |
|
●
a limited liability company incorporated in the People’s Republic of China
●
Incorporated on March 20, 2019 |
|
100%
owned by Kun Peng (Hong Kong) Industrial Development Limited
|
|
Registered
capital: approximately $15 million (RMB100 million) |
|
Providing
technical and management support to King Eagle VIE |
|
|
|
|
|
|
|
|
|
King
Eagle (Tianjin) Technology Co., Ltd. |
|
●
a limited liability company incorporated in the People’s Republic of China
●
Incorporated on September 2, 2020
●
Became a variable interest entity (VIE) of King Eagle (China) Co., Ltd on May 15, 2021 |
|
Owned
by multiple individuals:
Chengyuan
Li (approximately 45.5%), Xiujin Wang (approximately 10.5%), Yuanyuan Zhang (approximately 10%), Jinjing Zhang, Wanfeng Hu, Cuilian
Liu, and Zhizhong Wang (each of whom owns approximately 6%), Zhandong Fan and Hui Teng (each of whom owns approximately 5%) |
|
Registered
capital of approximately $1.5 million (RMB 10 million) |
|
Operating
King Eagle Mall and new online platform |
|
|
|
|
|
|
|
|
|
Kun
Peng Tian Yu Health Technology (Tianjin) Co., Ltd. |
|
●
a limited liability company incorporated in the People’s Republic of China
●
Incorporated on August 10, 2021 |
|
100%
owned by Kun Peng (Hong Kong) Industrial Development Limited
|
|
Registered
capital of RMB 5 million (US$0.7 million) |
|
Exploring
future business opportunities |
|
|
|
|
|
|
|
|
|
King
Eagle (Beijing) Technology Co., Ltd |
|
●
a limited liability company incorporated in the People’s Republic of China
●
Incorporated on December 1, 2022 |
|
100%
owned by King Eagle (Tianjin) Technology Co., Ltd. |
|
Registered
capital of RMB 5 million (US$0.7 million) |
|
Operation
commenced in January 2023 and operating the new online platform |
Reverse
Merger
On
May 17, 2021, the Company entered into a share exchange agreement (“Share Exchange Agreement”) with (i) Kun Peng International
Holding Limited (“KP International”), a limited liability company incorporated in the British Virgin Islands on April 20,
2021, and (ii) the five members of KP International to acquire all of 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 Share 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 (“Closing Date”).
For
accounting purposes, the transaction with KP International was treated as a reverse acquisition and KP International is deemed to be
the acquirer and the Company as the acquired party. Consequently, the assets and liabilities and the historical operations that will
be reflected in the accompanying consolidated financial statements prior to the Reverse Acquisition will be those of KP International
and its consolidated subsidiaries and will be recorded at the historical cost basis of KP International, and the accompanying consolidated
financial statements after consummation of the Reverse Acquisition will include the assets and liabilities of KP International and its
subsidiaries and VIE, historical operations of KP International and its subsidiaries and VIE, and operations of the Company from the
Closing Date of the Reverse Acquisition. The accompanying consolidated financial statements’ share and per share information has
been retroactively adjusted to reflect the exchanged shares in the Reverse Acquisition. The equity structure of the Company was retrospectively
adjusted under ASC Topic 805-40. As of March 31, 2023 and March 31, 2022, there were 400,000,000 and 40,000,000 shares issued and outstanding,
respectively.
Authorized
Shares and Name Change
Effective
as of September 9, 2021, the Company’s Articles of Incorporation were amended to increase the Company’s authorized capital
to 210,000,000 authorized shares of Capital Stock with 200,000,000 designated as $0.0001 par value common stock, and 10,000,000 designated
as $0.0001 par value preferred stock.
Effective
October 12, 2022, we increased our authorized common stock from 200,000,000 shares, par value $0.0001, to 1,000,000,000 shares, par value
$0.0001, and on October 18, 2022, we effected a 10:1 forward stock split after which we have 400,000,000 shares of common stock issued
and outstanding.
On
November 8, 2022, the Company changed its name from CX Network Group, Inc. to Kun Peng International Ltd. and its trading symbol was
changed to “KPEA.”
On
November 11, 2022, the Company received an electronic notice that OTC Markets had approved its application for uplisting from OTC Pink
to the OTCQB Venture Market (OTCQB). The Company’s securities commenced trading on the OTCQB at the market open on November 14,
2022. The Company’s shares trade on the OTCQB under the current ticker symbol, “KPEA.”
Kun
Peng International Holding Limited
Kun
Peng International Holding Limited (“KP International Holding”) was incorporated in the British Virgin Islands on April 20,
2021. On May 3, 2021, KP International Holding purchased all of the issued and outstanding equity securities of Kunpeng (China) Industrial
Development Company Limited (“KP Industrial”), incorporated in Hong Kong on August 11, 2017, at a cash consideration of $0.129
(HK$1). After the ownership transfer, KP International Holding became the sole shareholder of KP Industrial. KP International Holding
is a holding company.
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. The share capital of
KP Industrial is 10,000 ordinary shares at $1,292 (HKD10,000) and was wholly owned by an individual. On November 9, 2018, Jing Jin Ji
changed its name to “Kunpeng (China) Industrial Development Company Limited” and it filed a Certificate of Change of Name
with the Hong Kong Company Registry on the same day. Although it was incorporated in 2017, it did not commence operations until July
2020 as it focused on exploring business opportunities in its initial phase and on developing our online mobile application, King Eagle
Mall, through its subsidiary, King Eagle (China) Co., Ltd. It became a wholly owned subsidiary of KP International on May 3, 2021.
Kun
Peng (Hong Kong) Industrial Development Limited
Kun
Peng (Hong Kong) Industrial Development Limited (“KP (Hong Kong)”) was incorporated as a limited liability company in Hong
Kong on June 21, 2021. It is a holding company and is wholly owned by Kun Peng International Holding Limited. The share capital of this
entity upon formation is $0.13 (HK$1).
King
Eagle (China) Co., Ltd.
King
Eagle (China) Co., Ltd. (“King Eagle (China)”) was incorporated as a limited liability company in Beijing Economic Technological
Development Zone in the People’s Republic of China (“the PRC”) on March 20, 2019 with a registered capital of approximately
$15 million (RMB100 million). King Eagle (China) was a wholly owned subsidiary of KP Industrial at the time of establishment. KP Industrial
transferred its approximately $2.2 million (RMB 15 million) or 15% to Guoxin Ruilian Group Co., Ltd, a limited liability company incorporated
in Beijing, the PRC, on November 2, 2020.
On
March 26, 2021, Guoxin Ruilian Group Co., Ltd entered into equity transfer agreements with KP 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 8% ownership in King Eagle (China) to Guoxin Zhengye and the remaining
7% ownership in King Eagle (China) to KP Industrial on April 20, 2021. After the transfer, KP Industrial and Guoxin Zhengye, respectively,
became the 92% and 8% shareholders of King Eagle (China). Guoxin Zhengye agreed to transfer its 8% ownership interest in King Eagle (China)
to KP Industrial on August 26, 2022. As a result of the transfer, KP Industrial is the sole shareholder of King Eagle (China).
Some
of the business engaged in by King Eagle (Tianjin) is restricted or prohibited for foreign investment under PRC regulations. Therefore,
King Eagle (China) has entered into VIE Agreements with King Eagle (Tianjin) and its shareholders. We do not own any equity interests
in King Eagle (Tianjin), but control and receive the economic benefits of its business operations through the VIE Agreements. The VIE
Agreements enable us to provide King Eagle (Tianjin) with consulting services on an exclusive basis in exchange for all of its annual
profits, if any. In addition, we are able to appoint its senior executives and approve all matters requiring approval of its shareholders.
The VIE Agreements are comprised of a Consulting Service Agreement, Business Operation Agreement, Proxy Agreement, Equity Disposal Agreement,
and Equity Pledge Agreement.
Under
current Chinese laws and regulations, the Company believes that the VIE Agreements are not subject to any government approval. The shareholders
of King Eagle (Tianjin) were required to register with SAFE when they established offshore vehicles to hold KP International; such SAFE
registration was effected on May 14, 2021. These shareholders of King Eagle (Tianjin) 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 $1.5 million
(RMB 10 million). We do not own any of the equity of King Eagle (Tianjin). It is owned by multiple individuals: Chengyuan Li (approximately
45.5%), Xiujin Wang (approximately 10.5%), Yuanyuan Zhang (approximately 10%), Jinjing Zhang, Wanfeng Hu, Cuilian Liu, and Zhizhong Wang
(each of whom owns approximately 6%), and Zhandong Fan and Hui Teng (each of whom owns approximately 5%). Those shareholders also indirectly
owned KP International Holding prior to its acquisition by the Company through two British Virgin Islands entities: Kunpeng Tech Limited
and Kunpeng TJ Limited. Additionally, Chengyuan Li is a director and Yuanyuan Zhang is Chief Financial Officer of the Company.
Kun
Peng Tian Yu Health Technology (Tianjin) Co., Ltd.
Kun
Peng Tian Yu Health Technology Co., Ltd. (“KP Tian Yu”) was incorporated as a limited liability company in Tianjin Pilot
Free Trade Zone in the People’s Republic of China on August 10, 2021 with a registered capital of $5 million. It is wholly owned
by KP (Hong Kong).
King
Eagle (Beijing) Technology Co. Ltd.
King
Eagle (Beijing) Technology Co., Ltd (“King Eagle (Beijing)”) was incorporated as a limited liability company in Beijing in
the People’s Republic of China on December 1, 2022 with a registered capital of RMB 5 million (US$0.7 million). It is wholly owned
by King Eagle (Tianjin). King Eagle (Beijing) commenced its operation of the new online platform called “Kun Zhi Jian in January
2023.”
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”)
applicable to quarterly financial information and the requirements of Form 10-Q and Rule 8-03 of Regulation S-X of the Securities and
Exchange Commission. Accordingly, they do not include all of the information and disclosure required by accounting principles generally
accepted in the United States of America for complete financial statements. Quarterly results are not necessarily indicative of results
for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position
and the results of operations and cash flows for the quarterly periods have been included.
These
condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements
and notes thereto for the year ended September 30, 2022 included in the Form 10-K filed with the SEC on December 29, 2022.
The
condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United
States of America. This basis of accounting involves the application of accrual accounting and, consequently, revenues and gains are
recognized when earned and expenses and losses are recognized when incurred. The condensed consolidated financial statements are expressed
in U.S. dollars.
Basis
of Consolidation
The
condensed consolidated financial statements include the financial statements of the Company, its subsidiaries and its variable interest
entity (“VIE”). All significant intercompany transactions and balances within the Company have been eliminated upon consolidation.
Use
of Estimates and Assumptions
The
preparation of the condensed consolidated financial statements in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that impact the presented amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the presented amounts of revenues and expenses during the period. Actual results
may differ from those estimates. Significant estimates during the six months ended March 31, 2023 and 2022 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.
Reclassification
Certain
amounts in the prior period financial statements have been reclassified to conform to the current period presentation. Such reclassifications
had no effect on the prior period net income, accumulated deficit, net assets, or total shareholders’ deficit.
Going
Concern
The
accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted
in the United States of America which contemplate continuation of the Company on a going concern basis. The going-concern basis assures
that assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed on the financial statements.
The Company’s ability to continue as a going concern depends on the liquidation of its current assets and business developments.
In assessing the Company’s liquidity, the Company monitors and analyzes its cash and cash equivalents and its operating and capital
expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements, operating expenses and capital
expenditure obligations. For the six months ended March 31, 2023, the Company incurred cash outflows from operating activities of $463,322,
a net loss of $1,352,334 and a negative working capital of $5,462,374. Although the businesses and markets in mainland China have reopened
as mainland China has relaxed its zero-tolerance COVID-19 policies and controls, it will take time for the country to recover from the
impact of COVID-19 and the effects of the governmental restrictive policies and controls. In January 2023, there was a resurgence in
some cities in the number of COVID-19 cases. Therefore, our online sales during the first quarter of 2023 were slack. In addition, there
remains a delay in the approval process for our permit for the construction of Smart Kiosks due to the impact of prior closures of government
agencies in the affected areas in the PRC. These conditions raise substantial doubt about the ability of the Company to continue as a
going concern.
The
Company continues to monitor its operations to help refine the Company’s financial liquidity. Options under consideration in the
review process include, but are not limited to, increasing sales through the Company’s online business, reducing overhead
costs, obtaining advances of funds from the Company’s stockholders and directors, or financing through the issuance of shares.
Since the first quarter of 2022, the Company has been focusing on increasing its revenue through its new online platform, Kun Zhi Jian,
to explore wholesale markets. This online platform focuses on promoting and selling our own brand of preventive health care products
to wholesalers. The Company also launched advertising campaigns to promote its own brand. The Company streamlined its administrative
overhead costs. For example, we reduced the compensation and benefits of our executives and decreased office supplies, which continues
into 2023.
In
order to continue as a going concern for the next 12 months, the Company continues to focus on increasing its revenue through its online
platforms and streamlining its overhead costs or obtaining financing from its stockholders or directors. As we expect the COVID-19 pandemic
and restrictive governmental controls in the PRC will be gradually softened, each of our service agents plans to launch three marketing
campaigns every week to promote our own brand products, particularly thermal therapy cabins. However, the Company cannot provide any
assurance that it will be able to increase revenue, that it will be able to successfully implement its business plan, or that financing
will be available to it on commercially acceptable terms, if at all. The financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that
may result should the Company be unable to continue as a going concern. The directors will continue to support the group by providing
adequate financial assistance to enable the group to continue its business operations for the foreseeable future.
COVID-19
Outbreak
Businesses
and markets in mainland China have reopened and mainland China relaxed its policies and controls relating to COVID-19 in early
December 2022. However, during the first quarter of 2023, a number of major metropolitan areas in the PT, such as Shanghai, Beijing,
Shenzhen, Chengdu, Dalian and Guiyang, experienced a COVID-19 resurgence, which caused continuing restrictions on our service agents
to travel and launch face-to-face marketing activities in those areas. Although the peak of COVID-19 has passed and COVID-19
policies and controls have been relaxed, it will take time for the country to recover from the impact of COVID-19 and the effects of
the restrictive governmental policies and controls. In addition, a shortage of logistics and delivery capacity in affected
communities precluded our customers from placing orders online. Due to prior closures and access restriction in certain affected
areas and government agencies, the approval process of our applications for the construction of our Smart Kiosks has been delayed,
which impacts our plan of enhancing our face-to-face customer services and increasing our market share.
The
Company continues to focus its business on its online platform, King Eagle Mall, and to promote its own brand of consumer health care
and health related household products on its new online platform, Kun Zhi Jian, which was introduced and implemented in October 2022
to mitigate the adverse impacts of COVID-19. The Company also follows up closely with the local governmental agencies regarding its applications
for construction permits for Smart Kiosks. The Company expects to obtain government approval by December 2023.
While
we do not expect that the virus will continue to 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. The Company
continues to monitor and assess the evolving situation closely and evaluate its potential exposure.
Earnings
(loss) Per Share
Basic
income (loss) per share is computed by dividing net income (loss) attributable to the holders of our common stock by the weighted average
number of shares of common stock outstanding during the year. Diluted income (loss) per share is calculated by dividing net income (loss)
attributable to the holders of our common stock, as adjusted for the effect of dilutive common stock equivalents, if any, by the weighted
average number of shares of common stock and dilutive common stock equivalents outstanding during the period. However, common stock equivalents
are not included in the denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive,
such as in a period in which a net loss is recorded.
Foreign
Currency Translation
The
reporting currency of the Company is the U.S. Dollar. Our entity in the British Virgin Islands uses the U.S. dollar. Our entities in
the PRC and Hong Kong use the local currencies, Renminbi (RMB) and Hong Kong Dollar (HKD), as their respective functional currencies
as determined based on the criteria of ASC 830, “Foreign Currency Translation.”
Assets
and liabilities are translated at the unified exchange rate at the end of the period. Income and expense accounts are translated at the
average translation rates and equity accounts are translated at historical rates. Translation adjustments resulting from this process
are included in accumulated other comprehensive income in the statement of equity. Transaction gains and losses that arise from exchange
rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations
as incurred.
Translation
adjustments included in accumulated other comprehensive loss amounted to $87,318 and $34,082 for the six month periods ended March 31,
2023 and 2022, respectively.
The
following table shows the foreign exchange rates used for translation:
SCHEDULE
OF FOREIGN EXCHANGE RATES
the exchange
rates set forth on the www.xe.com | |
Hong
Kong
Dollar
(HKD) | | |
Chinese
Renminbi
(RMB) | |
For the six-month period
ended March 31, 2023 (Average Rate) | |
| | | |
| | |
United States
dollar ($1) | |
| 7.8303 | | |
| 6.9761 | |
| |
| | | |
| | |
As of March 31, 2023 (Closing
Rate) | |
| | | |
| | |
United States dollar ($1) | |
| 7.8499 | | |
| 6.8676 | |
the exchange
rates set forth in the H.10 statistical release of the Federal Reserve Board | |
Hong
Kong
Dollar
(HKD) | | |
Chinese
Renminbi
(RMB) | |
For the six-month period
ended March 31, 2022 (Average Rate) | |
| | | |
| | |
United States
dollar ($1) | |
| 7.7971 | | |
| 6.3717 | |
| |
| | | |
| | |
As of March 31, 2022 (Closing
Rate) | |
| | | |
| | |
United States dollar ($1) | |
| 7.8325 | | |
| 6.3411 | |
Cash
and Cash Equivalents
Cash
and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions
and a certain amount of cash kept in electronic wallets, “e-wallets.”
We
consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. We maintain
accounts with various financial institutions in the PRC and in e-wallets. As of March 31, 2023 and September 30, 2022, cash balances
held in PRC banks are uninsured. Monies that are held in e-wallets are deemed equivalent to cash, are highly liquid, and are relatively
unsafe compared to cash in banks. We have not experienced any losses in bank accounts or e-wallets and believe we are not exposed
to significant risks with respect to our cash in bank accounts and low risk with respect to our cash kept in e-wallets.
Financial
Instrument
The
carrying amount reported in the balance sheet for cash, other receivables, accrued liabilities and other payables approximate fair value
because of the immediate or short-term maturity of these financial instruments.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and impairment losses. Gains and losses on dispositions of property and
equipment are included in operating income (loss). Major additions, renewals, and improvements are capitalized, while maintenance and
repairs are recognized as expense as incurred.
Depreciation
is provided over the estimated useful life of each class of depreciable assets and is computed using the straight-line method over the
useful lives of the assets as follows:
SCHEDULE
OF PROPERTY PLANT AND EQUIPMENT USEFUL LIVES
Classification | |
Estimated
useful
life |
Leasehold improvements | |
5 years |
Office equipment | |
3 years |
Computer equipment | |
3 years |
Computer software | |
5 years |
Fair
Value Measurements
The
Company applies the provisions of ASC Subtopic 820-10, “Fair Value Measurements,”, for fair value measurements of financial
assets and financial liabilities and for fair value measurements of non-financial items that are recognized or disclosed at fair value
in the financial statements. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted
to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers
assumptions that market participants would use when pricing the asset or liability.
ASC
820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value
hierarchy are as follows:
|
● |
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
|
|
|
|
● |
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that
are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. |
|
|
|
|
● |
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value. |
The
Company’s financial assets and liabilities include cash, receivables, accounts payable, and accrued expenses.
Related
Party Transactions
The
Company follows the ASC 850-10, “Related Party Disclosures” for the identification of related parties and disclosure of related
party transactions.
Pursuant
to section 850-10-20, related parties include a) affiliates of the Company; b) entities for which investments in their equity securities
would be required, absent the election of the fair value option under the Fair Value Option Subsection of section 825–10–15,
to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and income-sharing
trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company;
f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies
of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and
g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership
interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting
parties might be prevented from fully pursuing its own separate interests.
The
condensed consolidated financial statements shall include disclosures of material related party transactions, other than compensation
arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that
are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures
shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no
amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented; and c) such other information
deemed necessary to an understanding of the nature of the related party transactions.
Comprehensive
(Loss) Income
Other
comprehensive (loss) income refers to revenues, expenses, gains, and losses that under generally accepted accounting principles are included
in comprehensive income but are excluded from net (loss) income as these amounts are recorded directly as an adjustment to stockholders’
equity. Our other comprehensive (loss) income for the six months ended March 31, 2023 and 2022 was comprised of foreign currency translation
adjustments.
Revenue
Recognition
Revenue
is comprised of sales of goods and represents the amount of consideration the Company is entitled to upon the transfer of goods. 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 on gross sales from customers.
The
Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU
2014-09”) using the full retrospective transition method. The Company’s adoption of ASU 2014-09 did not have a material impact
on the amount and timing of revenue recognized in its consolidated financial statements.
The
Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its
obligations under each of its agreements:
●
identify the contract with a customer;
●
identify the performance obligations in the contract;
●
determine the transaction price;
●
allocate the transaction price to performance obligations in the contract; and
●
recognize revenue as the performance obligation is satisfied.
Consistent
with the criteria of ASC 606 “Revenue from Contracts with Customers,” we recognize revenue when performance obligations are
satisfied by transferring control of a promised good or service to a customer. For performance obligations that are satisfied at a point
in time, we also consider the following indicators to assess whether control of a promised good or service is transferred to the customer:
(i) right to payment; (ii) legal title; (iii) physical possession; (iv) significant risks and rewards of ownership; and (v) acceptance
of the good or service. For performance obligations satisfied over time, we recognize revenue over time by measuring the progress toward
complete satisfaction of a performance obligation.
We
recognize revenue when control of the promised goods is transferred to customers of King Eagle Mall and our new online platform. Revenue
is measured at the transaction price, which is based on the amount of consideration that we expect to receive in exchange for transferring
the promised goods to our customers. The revenue mainly includes two customer types: retail (“King Eagle Mall” online platform)
and wholesale (“Kun Zhi Jian,” our new online platform). The revenue is recognized at a point in time when control of the
promised goods is transferred to our customers.
Deferred
Revenue
Deferred
revenue results from transactions where the Company has received the payments from the customers but revenue recognition criteria under
the five-step model of ASC Topic 606 have yet to be met. Once all revenue recognition criteria have been satisfied, the revenues will
be recognized upon the transfer of risk and rewards to the customers in the consolidated statement of operations. We anticipated the
majority of the revenue will be recognized in the fiscal year 2023. Management agreed that the amount received is non-refundable; however,
this term is not bound by any agreement. Thus, customers may have the right to challenge and demand the advances to be refunded under
relevant Commercial Laws or regulations.
Accrued
Product Liability
The
Company records accruals for product liability when deemed probable and estimable based on facts and circumstances and prior claims experience.
Accruals for product credit are valued based upon the Company’s prior claims experience, including defective goods and goods lost
in transit. As we have experienced insignificant amounts of goods returned and claims from goods lost in transit in the past, our product
liability is insignificant; therefore, management believes product liability accrual as at March 31, 2023 and September 30, 2022 is de
minimis.
Discount
allowed - Accrued Store-Credit
We
provide store-credit, “Golden Beans,” to our customers after sales of goods to them. The Golden Beans can be utilized against
their future purchases with restrictions and expiry date. The amount utilized will be recognized as direct discount as and when the sales
arise, and the price net of this discount has been controlled and set by management to ensure that the sales will always result in a
gross profit. As such, we do not accrue any liability from this store-credit as there is no present obligation arising from Golden Beans
as of March 31, 2023 and September 30, 2022, and the utilization of these Golden Beans is not expected to result in an outflow from the
Company’s resources embodying economic benefits.
Lease
Under
ASC Topic 842, the Company determines if an arrangement is a lease at inception. Lease assets and liabilities are recognized at the present
value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future
lease payments is the Company’s incremental borrowing rate based on the information available at the lease commencement date. The
Company generally uses the base, non-cancelable lease term in calculating the right-of-use assets and lease liabilities.
The
Company may recognize the lease payments in the condensed consolidated statements of operation on a straight-line basis over the lease
terms and variable lease payments in the periods in which the obligations for those payments are incurred, if any. The lease payments
under the lease arrangements are fixed.
The
Company elected the package of practical expedients, which allows the Company to carry-forward its historical lease classification, its
assessment on whether a contract is or contains a lease, and its initial direct costs for any lease that exists prior to adoption of
the new standard.
The
Company also elected to apply the short-term lease exception for lease arrangements with a lease term of 12 months or less at commencement.
Lease terms used to compute the present value of lease payments do not include any option to extend, renew, or terminate the lease that
the Company is not reasonably certain to exercise upon the lease inception. Accordingly, operating lease right-of-use assets and liabilities
do not include leases with a lease term of 12 months or less.
Research
and Development Expenses
Research
and development (R&D) expenses are all costs associated with the original development and design of the product as well as any intellectual
property (IP) generated during the development phase, including patents and copyrights. Research and development expenses are included
in the overall operating expenses and reflected as a separate line item on the consolidated statement of operations.
We
purchase the consumer preventive health food and health related household products sold on our platforms from our suppliers and we did
not develop, design, or manufacture those products. Moreover, although we have built our online platform and mobile commerce in-house,
the compensation costs for our in-house technology team were not significant. Accordingly, instead of capitalizing the compensation costs
of our in-house technology team as research and development on the Balance Sheet or presenting them as research and development expenses,
we included these amounts in employee compensation and benefit expenses within general and administrative expenses for the six months
ended March 31, 2023 and 2022.
Selling
Expenses
Selling
expenses consist primarily of marketing and promotional service fees to service agents and other costs incurred by our sales and marketing
department, such as staff costs, office supplies, and other incidental expenses that are incurred directly to attract or retain consumers.
Our
selling expenses for the six months ended March 31, 2023 and 2022 were $1,092,158 and $5,133,686, respectively. We recognized the marketing
and promotional service expense when our service agents performed marketing activities, promotions, and exhibitions for our business
and products. For the six months ended March 31, 2023 and 2022, we recorded marketing and promotional service fees to our service agents
in an amount of $631,509 and $4,655,679, respectively.
Recently
Adopted Accounting Standards
Income
Taxes. In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,”
which modifies and eliminates certain exceptions to the general principles of ASC 740, “Income Taxes.” This standard was
effective for KPIL after September 30, 2021. The Company evaluated that this new guidance does not have a significant impact on its condensed
consolidated financial statements.
Financial
Instruments. 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 adopted this standard in the first quarter
of fiscal 2023 and evaluated that this new guidance does not have a significant impact on its condensed consolidated financial statements.
In
the period from December 2022 through January 2023, the FASB has not issued additional accounting standards updates.
NOTE
3 - VARIABLE INTEREST ENTITIES “VIE” ARRANGEMENTS
On
May 15, 2021, King Eagle (China) entered into a series of contractual arrangements with King Eagle (Tianjin) and its shareholders. As
a result of the contractual arrangements, the Company classified King Eagle (Tianjin) as a Variable Interest Entity “VIE.”
King
Eagle (Tianjin) was incorporated as a limited liability company in Tianjin Pilot Free Trade Zone in the People’s Republic of China
on September 2, 2020, with a registered capital of approximately $1.5 million (RMB 10 million). It is owned by multiple individuals:
(i) Chengyuan Li, 45.5%, (ii) Xiujin Wang, 10.5%, (iii) Jinjing Zhang, 6%, (iv) Wanfeng Hu, 6%, (v) Cuilian Liu, 6%, (vi) Zhizhong Wang,
6%, (vii) Zhandong Fan, 5%, (viii) Yuanyuan Zhang, 10%, and (ix) Hui Teng, 5%. Those shareholders also indirectly owned KP International
Holding prior to its acquisition by the Company through two British Virgin Islands entities: Kunpeng Tech Limited and Kunpeng TJ Limited.
Additionally, Chengyuan Li is a director and Yuanyuan Zhang is Chief Financial Officer of the Company.
The
VIE Agreements are as follows:
(1) |
Consulting
Service Agreement |
(2) |
Business
Operation Agreement |
(3) |
Proxy
Agreement |
(4) |
Equity
Disposal Agreement |
(5) |
Equity
Pledge Agreement |
Consulting
Service Agreement
Pursuant
to the terms of the Consulting Service Agreement dated May 15, 2021 between King Eagle (China) and King Eagle (Tianjin) (the “Consulting
Service Agreement”), King Eagle (China) is the exclusive consulting service provider for King Eagle (Tianjin) to provide business-related
software research and development services; design, installation, and testing services; network equipment support, upgrade, maintenance,
monitoring, and problem-solving services; employee technical training services; technology development and sublicensing services; public
relations services; market investigation, research, and consultation services; short to medium term marketing plan-making services; compliance
consultation services; marketing events and membership related activities organizing services; intellectual property permits; equipment
and rental services; and business-related management consulting services. Pursuant to the Consulting Service Agreement, the service fee
is the remaining amount of King Eagle (Tianjin)’s profit before tax in the corresponding year after deducting King Eagle (Tianjin)’s
losses, if any, in the previous year, the necessary costs, expenses, taxes, and fees incurred in the corresponding year, and the withdrawals
of the statutory provident fund. King Eagle (Tianjin) agreed not to transfer its rights and obligations under the Consulting Service
Agreement to any third party without prior written consent from King Eagle (China). In addition, King Eagle (China) may transfer its
rights and obligations under the Consulting Service Agreement to King Eagle (China)’s affiliates without King Eagle (Tianjin)’s
consent, but King Eagle (China) shall notify King Eagle (Tianjin) of such transfer. The Consulting Service Agreement is valid for a term
of 10 years subject to any extension requested by King Eagle (China) unless terminated by King Eagle (China) unilaterally prior to the
expiration.
Business
Operation Agreement
Pursuant
to the terms of the Business Operation Agreement dated May 15, 2021, among King Eagle (China), King Eagle (Tianjin) and the shareholders
of King Eagle (Tianjin) (the “Business Operation Agreement”), King Eagle (Tianjin) has agreed to subject the operations and
management of its business to the control of King Eagle (China). According to the Business Operation Agreement, King Eagle (Tianjin)
is not allowed to conduct any transaction that has substantial impact upon its operations, assets, rights, obligations, and personnel
without King Eagle (China)’s written approval. The shareholders of King Eagle (Tianjin) and King Eagle (Tianjin) will take King
Eagle (China)’s advice on the appointment or dismissal of directors, employment of King Eagle (Tianjin)’s employees, regular
operation, and financial management. The shareholders of King Eagle (Tianjin) have agreed to transfer any dividends, distributions, or
any other profits that they receive as the shareholders of King Eagle (Tianjin) to King Eagle (China) without consideration. The Business
Operation Agreement is valid for a term of 10 years or longer upon the request of King Eagle (China) prior to the expiration thereof.
The Business Operation Agreement might be terminated earlier by King Eagle (China) with a 30-day written notice.
Proxy
Agreement
Pursuant
to the terms of the Proxy Agreement dated May 15, 2021 among King Eagle (China) and the shareholders of King Eagle (Tianjin) (the “Proxy
Agreement”), the shareholders of King Eagle (Tianjin) have entrusted their voting rights as King Eagle (Tianjin)’s shareholders
to King Eagle (China) for the longest duration permitted by PRC law. The Proxy Agreement can be terminated by mutual consent of the King
Eagle (Tianjin) shareholders and King Eagle (China) or upon 30-day notice by King Eagle (China).
Equity
Disposal Agreement
Pursuant
to the terms of the Equity Disposal Agreement dated May 15, 2021 among King Eagle (China), King Eagle (Tianjin), and the shareholders
of King Eagle (Tianjin) (the “Equity Disposal Agreement”), the shareholders of King Eagle (Tianjin) granted King Eagle (China)
or its designees an irrevocable and exclusive purchase option (the “Option”) to purchase all or part of King Eagle (Tianjin)’s
equity interests and/or assets at the lowest purchase price permitted by PRC laws and regulations. The Option is exercisable at any time
at King Eagle (China)’s discretion in full or in part, to the extent permitted by PRC law. The shareholders of King Eagle (Tianjin)
agreed to give King Eagle (Tianjin) the total amount of the exercise price as a gift, or other method, upon King Eagle (China)’s
written consent to transfer the exercise price to King Eagle (Tianjin). The Equity Disposal Agreement is valid for a term of 10 years
or longer upon the request of King Eagle (China).
Equity
Pledge Agreement
Pursuant
to the terms of the Equity Pledge Agreement dated May 15, 2021 among King Eagle (China) and the shareholders of King Eagle (Tianjin)
(the “Pledge Agreement”), the shareholders of King Eagle (Tianjin) pledged all of their equity interests in King Eagle (Tianjin)
to King Eagle (China), including the proceeds thereof, to guarantee King Eagle (Tianjin)’s performance of its obligations under
the Business Operation Agreement, the Consulting Service Agreement, and the Equity Disposal Agreement (each, an “Agreement”
and, collectively, the “Agreements”). If King Eagle (Tianjin) or its shareholders breach their respective contractual obligations
under any Agreement, or cause to occur one of the events regarded as an event of default under any Agreement, King Eagle (China), as
pledgee, will be entitled to certain rights, including the right to dispose of the pledged equity interest in King Eagle (Tianjin). During
the term of the Pledge Agreement, the pledged equity interests cannot be transferred without King Eagle (China)’s prior written
consent. The Pledge Agreement is valid until all the obligations due under the Agreements have been fulfilled.
A
VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without
additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such
as 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 to the benefit of King Eagle (China) and ultimately the Company.
Based
on the foregoing VIE Agreements, King Eagle (China) has effective 100% full control of King Eagle (Tianjin), which enables King Eagle
(China) to receive all of King Eagle (Tianjin)’s expected residual returns and absorb its expected losses. Accordingly, the Company
consolidates the accounts of King Eagle (Tianjin) and its subsidiaries for the periods presented herein, in accordance with Accounting
Standards Codification, or ASC 810-10, “Consolidation.”
Accordingly,
the accounts of King Eagle (Tianjin) are consolidated in the accompanying financial statements pursuant to ASC 810-10, “Consolidation.”
In addition, the financial positions and results of operations of the Company’s subsidiaries are included in the Company’s
financial statements.
VIE
Financial Information
Set
forth below is the condensed consolidated balance sheets information as of September 30, 2022 and 2021, condensed consolidated statements
of operations and cash flows for the fiscal years ended September 30, 2022 and 2021, and showing financial information for the parent
company Kun Peng International Limited, the non-VIE subsidiaries (as defined below) and VIE (as defined below), eliminating entries and
consolidated information (in dollars). In the tables below, the column headings correspond to the following entities in the organizational
diagram on page 9.
For
the purpose of this section:
“Parent
entity” refers to Kun Peng International Limited;
“Non-VIE
subsidiaries” refer to the following entities:
| ● | Kun
Peng International Holding Limited (“KP International Holding”) |
| ● | Kunpeng
(China) Industrial Development Company Limited (“KP Industrial”) |
| ● | Kun
Peng (Hong Kong) Industrial Development Limited (“KP (Hong Kong)”) |
| ● | King
Eagle (China) Co., Ltd. (“King Eagle (China)”) |
| ● | Kun
Peng Tian Yu Health Technology Co., Ltd. (“KP Tian Yu”) |
“VIE”
refers to King Eagle (Tianjin) Technology Co., Ltd. (“King Eagle (Tianjin)”) and King Eagle (Beijing) Technology Co., Ltd
(“King Eagle (Beijing)”)
Condensed
Consolidated Balance Sheet
As
of March 31, 2023
SCHEDULE
OF VIE OF BALANCE SHEET
| |
Parent | | |
Non-VIE
Subsidiaries Consolidated | | |
VIE | | |
Elimination
Entries and Reclassification Entries | | |
Consolidated | |
Cash
and cash equivalent | |
$ | - | | |
$ | 8,544 | | |
$ | 50,928 | | |
$ | - | | |
$ | 59,472 | |
Intercompany
receivables-current | |
| - | | |
| 181,076 | | |
| 2,145,222 | | |
| (2,326,298 | ) | |
| - | |
Total Current
Assets | |
| - | | |
| 281,020 | | |
| 2,771,421 | | |
| (2,326,298 | ) | |
| 726,143 | |
Intercompany
receivables-noncurrent | |
| - | | |
| 4 | | |
| - | | |
| (4 | ) | |
| - | |
Total Non-current
Assets | |
| 34,160 | | |
| 643,544 | | |
| 39,808 | | |
| (34,164 | ) | |
| 683,348 | |
Total assets | |
| 34,160 | | |
| 924,564 | | |
| 2,811,229 | | |
| (2,360,462 | ) | |
| 1,409,491 | |
Intercompany
payables | |
| 701,425 | | |
| 1,686,694 | | |
| - | | |
| (2,388,119 | ) | |
| - | |
Total current
liabilities | |
| 719,425 | | |
| 2,104,693 | | |
| 5,768,842 | | |
| (2,404,443 | ) | |
| 6,188,517 | |
Total noncurrent
liabilities | |
| - | | |
| 126,914 | | |
| - | | |
| - | | |
| 126,914 | |
Total Liabilities | |
| 719,425 | | |
| 2,231,607 | | |
| 5,768,842 | | |
| (2,404,443 | ) | |
| 6,315,431 | |
Total Shareholders’
Equity | |
| (685,265 | ) | |
| (1,184,905 | ) | |
| (2,798,797 | ) | |
| 43,981 | | |
| (4,624,986 | ) |
Non-controlling
interests | |
| - | | |
| (122,138 | ) | |
| (158,816 | ) | |
| - | | |
| (280,954 | ) |
Total equity | |
| (685,265 | ) | |
| (1,307,043 | ) | |
| (2,957,613 | ) | |
| 43,981 | | |
| (4,905,940 | ) |
Intercompany
receivables from non-VIE entities and intercompany payables to VIE represented the loan to non-VIE entities for working capital purpose.
As
of September 30, 2022
| |
Parent | | |
Non-VIE
Subsidiaries Consolidated | | |
VIE | | |
Elimination
Entries and Reclassification Entries | | |
Consolidated | |
Cash
and cash equivalent | |
$ | - | | |
$ | 11,595 | | |
$ | 255,536 | | |
$ | - | | |
$ | 267,131 | |
Intercompany
receivables-current | |
| - | | |
| 179,211 | | |
| 1,684,751 | | |
| (1,863,962 | ) | |
| - | |
Total Current
Assets | |
| - | | |
| 250,665 | | |
| 2,530,776 | | |
| (1,863,962 | ) | |
| 917,479 | |
Intercompany
receivables-noncurrent | |
| - | | |
| 4 | | |
| - | | |
| (4 | ) | |
| - | |
Total Non-current
Assets | |
| 34,160 | | |
| 755,369 | | |
| 107,774 | | |
| (34,164 | ) | |
| 863,139 | |
Total assets | |
| 34,160 | | |
| 1,006,034 | | |
| 2,638,550 | | |
| (1,898,126 | ) | |
| 1,780,618 | |
Intercompany
payables | |
| 451,763 | | |
| 1,445,393 | | |
| - | | |
| (1,897,156 | ) | |
| - | |
Total current
liabilities | |
| 515,763 | | |
| 1,941,639 | | |
| 4,611,831 | | |
| (1,897,156 | ) | |
| 5,172,077 | |
Total noncurrent
liabilities | |
| - | | |
| 242,100 | | |
| 22,024 | | |
| - | | |
| 264,124 | |
Total Liabilities | |
| 515,763 | | |
| 2,183,739 | | |
| 4,633,855 | | |
| (1,897,156 | ) | |
| 5,436,201 | |
Total Shareholders’
Equity | |
| (481,603 | ) | |
| (1,055,567 | ) | |
| (1,836,489 | ) | |
| (970 | ) | |
| (3,374,629 | ) |
Non-controlling
interest | |
| - | | |
| (122,138 | ) | |
| (158,816 | ) | |
| - | | |
| (280,954 | ) |
Total equity | |
| (481,603 | ) | |
| (1,177,705 | ) | |
| (1,995,305 | ) | |
| (970 | ) | |
| (3,655,583 | ) |
Intercompany
receivables from non-VIE entities and intercompany payables to VIE represented the loan to non-VIE entities for working capital purpose.
Condensed
Consolidated Statements of Operations Data
SCHEDULE
OF VIE DATA OF OPERATION
| |
Parent
Only | | |
Non-VIE
Subsidiaries Consolidated | | |
VIE | | |
Eliminating
adjustments | | |
Consolidated
Totals | |
| |
For
the six months ended March 31, 2023 | |
| |
Parent
Only | | |
Non-VIE
Subsidiaries Consolidated | | |
VIE | | |
Eliminating
adjustments | | |
Consolidated
Totals | |
Revenue | |
$ | - | | |
$ | - | | |
$ | 771,069 | | |
$ | - | | |
$ | 771,069 | |
Intercompany
revenue | |
| - | | |
| 519,296 | | |
| 123,613 | | |
| (642,909 | ) | |
| - | |
Cost of
revenue and related tax | |
| - | | |
| 1,006 | | |
| 180,218 | | |
| - | | |
| 181,224 | |
Intercompany
cost of revenue and related tax | |
| - | | |
| - | | |
| 123,614 | | |
| (123,614 | ) | |
| - | |
Gross profit | |
| - | | |
| 518,290 | | |
| 590,850 | | |
| (519,295 | ) | |
| 589,845 | |
Total operating
expenses | |
| 203,662 | | |
| 604,733 | | |
| 1,762,420 | | |
| (519,295 | ) | |
| 2,051,520 | |
Intercompany
operating expenses | |
| - | | |
| - | | |
| 519,295 | | |
| (519,295 | ) | |
| - | |
Loss from
operations | |
| (203,662 | ) | |
| (86,443 | ) | |
| (1,171,570 | ) | |
| - | | |
| (1,461,675 | ) |
Other income | |
| - | | |
| 439 | | |
| 108,902 | | |
| - | | |
| 109,341 | |
Income
tax expense | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Net loss | |
| (203,662 | ) | |
| (86,004 | ) | |
| (1,062,668 | ) | |
| - | | |
| (1,352,334 | ) |
| |
Parent
Only | | |
Non-VIE
Subsidiaries Consolidated | | |
VIE | | |
Eliminating
adjustments | | |
Consolidated
Totals | |
| |
For
the six months ended March 31, 2022 | |
| |
Parent
Only | | |
Non-VIE
Subsidiaries Consolidated | | |
VIE | | |
Eliminating
adjustments | | |
Consolidated
Totals | |
Revenue | |
$ | - | | |
$ | - | | |
$ | 6,688,172 | | |
$ | - | | |
$ | 6,688,172 | |
Intercompany
revenue | |
| - | | |
| 599,636 | | |
| - | | |
| (599,636 | ) | |
| - | |
Cost of
revenue and related tax | |
| - | | |
| 3,111 | | |
| 1,043,563 | | |
| - | | |
| 1,046,674 | |
Gross profit | |
| - | | |
| 596,525 | | |
| 5,644,609 | | |
| (599,636 | ) | |
| 5,641,498 | |
Total operating
expenses | |
| 101,266 | | |
| 907,682 | | |
| 5,542,570 | | |
| (599,636 | ) | |
| 5,951,882 | |
Intercompany
operating expenses | |
| - | | |
| - | | |
| 599,636 | | |
| (599,636 | ) | |
| - | |
Loss from
operations | |
| (101,266 | ) | |
| (311,157 | ) | |
| 102,039 | | |
| - | | |
| (310,384 | ) |
Other income
(expense) | |
| - | | |
| 7,136 | | |
| 26,429 | | |
| - | | |
| 33,565 | |
Income
tax expense | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Net (loss)
income | |
| (101,266 | ) | |
| (304,021 | ) | |
| 128,468 | | |
| - | | |
| (276,819 | ) |
Condensed
Consolidation Schedule of Cash Flows
SCHEDULE
OF VIE DATA OF CASH FLOWS
| |
Parent
Only | | |
Non-VIE
Subsidiaries Consolidated | | |
VIE | | |
Eliminating
adjustments | | |
Consolidated | |
| |
For
the six months ended March 31, 2023 | |
| |
Parent
Only | | |
Non-VIE
Subsidiaries Consolidated | | |
VIE | | |
Eliminating
adjustments | | |
Consolidated | |
| |
| | |
| | |
| | |
| | |
| |
Net
loss | |
$ | (203,662 | ) | |
| (86,004 | ) | |
| (1,062,668 | ) | |
| - | | |
| (1,352,334 | ) |
Intercompany receivables | |
| - | | |
| - | | |
| (393,337 | ) | |
| 393,337 | | |
| - | |
Intercompany payables | |
| 249,662 | | |
| 191,242 | | |
| - | | |
| (440,904 | ) | |
| - | |
Net cash
provided by (used in) operating activities | |
| - | | |
| (13,013 | ) | |
| (402,741 | ) | |
| (47,567 | ) | |
| (463,322 | ) |
| |
| | | |
| | | |
| | | |
| - | | |
| | |
Net cash
used in investing activities | |
| - | | |
| (606 | ) | |
| - | | |
| - | | |
| (606 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Effect
of exchange rate fluctuation on cash | |
| - | | |
| 10,568 | | |
| 11,781 | | |
| 47,567 | | |
| 69,917 | |
| |
Parent
Only | | |
Non-VIE
Subsidiaries Consolidated | | |
VIE | | |
Eliminating
adjustments | | |
Consolidated | |
| |
For
the six months ended March 31, 2022 | |
| |
Parent
Only | | |
Non-VIE
Subsidiaries Consolidated | | |
VIE | | |
Eliminating
adjustments | | |
Consolidated | |
| |
| | |
| | |
| | |
| | |
| |
Net
loss | |
$ | (101,266 | ) | |
$ | (304,021 | ) | |
$ | 128,468 | | |
$ | - | | |
$ | (276,819 | ) |
Intercompany receivables | |
| - | | |
| (35,291 | ) | |
| (531,344 | ) | |
| 566,635 | | |
| - | |
Intercompany payables | |
| 169,266 | | |
| 397,186 | | |
| - | | |
| (566,452 | ) | |
| - | |
Net cash
provided by (used in) operating activities | |
| - | | |
| (95,799 | ) | |
| (826,132 | ) | |
| 183 | | |
| (921,748 | ) |
| |
| | | |
| | | |
| | | |
| - | | |
| | |
Net cash
used in investing activities | |
| - | | |
| (7,487 | ) | |
| - | | |
| - | | |
| (7,487 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Effect
of exchange rate fluctuation on cash | |
| - | | |
| 1,595 | | |
| 28,261 | | |
| (183 | ) | |
| 29,673 | |
The
Company consolidated its VIE as of March 31, 2023 and September 30, 2022. The carrying amounts and classification of the VIE’s
assets and liabilities included in the consolidated balance sheets are as follows:
SCHEDULE
OF VIE ASSETS AND LIABILITIES INCLUDED IN THE CONSOLIDATED BALANCE SHEETS
| |
March
31, 2023 | | |
September
30, 2022 | |
| |
| | |
(Audited) | |
Assets | |
| | | |
| | |
Current
assets | |
| | | |
| | |
Cash
and cash equivalents | |
$ | 50,928 | | |
$ | 255,536 | |
Trade
receivable-internal company | |
| 1,569,763 | | |
| 1,499,226 | |
Advance
and prepayments | |
| 175,010 | | |
| 214,188 | |
Other
receivables | |
| 72,636 | | |
| 60,109 | |
Other
receivable-internal company | |
| 575,459 | | |
| 185,525 | |
Amount
due from a related party | |
| 327,625 | | |
| 316,192 | |
Total
current assets | |
| 2,771,421 | | |
| 2,530,776 | |
| |
| | | |
| | |
Noncurrent
assets | |
| | | |
| | |
Right-of-use
assets | |
| 39,808 | | |
| 107,774 | |
Total
noncurrent assets | |
| 39,808 | | |
| 107,774 | |
| |
| | | |
| | |
Total
assets | |
| 2,811,229 | | |
| 2,638,550 | |
| |
| | | |
| | |
Liabilities | |
| | | |
| | |
Current
liabilities | |
| | | |
| | |
Trade
payables | |
| 1,470,081 | | |
| 764,418 | |
Other
payables and accrual | |
| 816,851 | | |
| 489,003 | |
Deferred
revenue | |
| 2,986,441 | | |
| 2,960,357 | |
Payroll
payable | |
| 15,433 | | |
| 4,312 | |
Tax payable | |
| 163,689 | | |
| 41,345 | |
Amounts
due to related parties | |
| 278,991 | | |
| 267,006 | |
Operating
lease obligations-current portion | |
| 37,356 | | |
| 85,390 | |
Total
current liabilities | |
| 5,768,842 | | |
| 4,611,831 | |
| |
| | | |
| | |
Noncurrent
liabilities | |
| | | |
| | |
Operating
lease obligations-net of current portion | |
| - | | |
| 22,024 | |
Total
noncurrent liabilities | |
| - | | |
| 22,024 | |
| |
| | | |
| | |
Total
liabilities | |
| 5,768,842 | | |
| 4,633,855 | |
| |
| | | |
| | |
Commitment
and contingencies | |
| | | |
| | |
| |
| | | |
| | |
Equity | |
| | | |
| | |
Additional
paid-in capital | |
| 189,295 | | |
| - | |
Accumulated
deficits | |
| (3,075,421 | ) | |
| (1,998,652 | ) |
Accumulated
other comprehensive income | |
| 87,329 | | |
| 162,163 | |
Total
stockholders’ equity | |
| (2,798,797 | ) | |
| (1,836,489 | ) |
Non-controlling
interests | |
| (158,816 | ) | |
| (158,816 | ) |
Total equity | |
| (2,957,613 | ) | |
| (1,995,305 | ) |
| |
| | | |
| | |
Total
liabilities and equity | |
$ | 2,811,229 | | |
$ | 2,638,550 | |
The
operating results of the VIE were as follows:
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
For
the three months ended March
31, | | |
For
the six months ended March
31, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
Revenue,
net | |
$ | 442,564 | | |
$ | 2,018,764 | | |
$ | 894,682 | | |
$ | 6,688,172 | |
Cost
of revenue | |
| (195,294 | ) | |
| (336,885 | ) | |
| (303,832 | ) | |
| (1,043,563 | ) |
Gross
profit | |
| 247,270 | | |
| 1,681,879 | | |
| 590,850 | | |
| 5,644,609 | |
| |
| | | |
| | | |
| | | |
| | |
Operating
expenses | |
| | | |
| | | |
| | | |
| | |
General
and administrative expenses | |
| 213,464 | | |
| 56,310 | | |
| 314,465 | | |
| 124,791 | |
Selling
expense | |
| 563,755 | | |
| 1,961,386 | | |
| 1,447,955 | | |
| 5,417,779 | |
Total
operating expenses | |
| 777,219 | | |
| 2,017,696 | | |
| 1,762,420 | | |
| 5,542,570 | |
| |
| | | |
| | | |
| | | |
| | |
(Loss)
income from operations | |
| (529,949 | ) | |
| (335,817 | ) | |
| (1,171,570 | ) | |
| 102,039 | |
| |
| | | |
| | | |
| | | |
| | |
Other
(expenses) income: | |
| | | |
| | | |
| | | |
| | |
Interest
income | |
| 43 | | |
| 144 | | |
| 84 | | |
| 1,655 | |
Other
income | |
| 108,818 | | |
| 7,251 | | |
| 108,818 | | |
| 24,774 | |
Total
other income, net | |
| 108,861 | | |
| 7,395 | | |
| 108,902 | | |
| 26,429 | |
| |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Income
tax expense | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Net
(loss) profit | |
| (421,088 | ) | |
| (328,422 | ) | |
| (1,062,668 | ) | |
| 128,468 | |
Less:
Net (loss) profit attributable to non-controlling interest | |
| - | | |
| (26,274 | ) | |
| - | | |
| 10,277 | |
Net
(loss) profit attributable to Kun Peng International Ltd | |
| (421,088 | ) | |
| (302,148 | ) | |
| (1,062,668 | ) | |
| 118,191 | |
The
cash flows of the VIE were as follows:
| |
2023 | | |
2022 | |
| |
For
the six months ended March
31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Cash
flows from operating activities | |
| | | |
| | |
Net
(loss) profit | |
$ | (1,062,668 | ) | |
$ | 128,468 | |
Adjustments
to reconcile net loss to net cash provided by (used in) operating activities | |
| | | |
| | |
Amortization
of right-of-use assets | |
| 67,813 | | |
| 55,139 | |
| |
| | | |
| | |
Changes
in operating assets and liabilities | |
| | | |
| | |
Advance
and prepayments | |
| 46,193 | | |
| (314,902 | ) |
Other
receivables | |
| (10,192 | ) | |
| (56,495 | ) |
Other
receivables-internal companies | |
| (393,337 | ) | |
| (531,344 | ) |
Amount
due from a related party | |
| - | | |
| 353,121 | |
Trade
payable | |
| 667,479 | | |
| 77,165 | |
Other
payables and accrual | |
| 305,342 | | |
| (642,736 | ) |
Deferred
revenue | |
| (79,706 | ) | |
| (372,786 | ) |
Payroll
payable | |
| 10,795 | | |
| (10,182 | ) |
Amounts
due to related parties | |
| 2,294 | | |
| 612,077 | |
Tax payable | |
| 118,970 | | |
| (68,516 | ) |
Lease
liabilities | |
| (75,724 | ) | |
| (55,141 | ) |
Net
cash used in operating activities | |
| (402,741 | ) | |
| (826,132 | ) |
| |
| | | |
| | |
Cash
flows from financing activities | |
| | | |
| | |
Capital
contribution | |
| 186,352 | | |
| - | |
Net
cash provided by financing activities | |
| 186,352 | | |
| - | |
| |
| | | |
| | |
Effect
of exchange rate changes on cash | |
| 11,781 | | |
| 28,261 | |
| |
| | | |
| | |
Net
decrease in cash and cash equivalents | |
| (204,608 | ) | |
| (797,871 | ) |
| |
| | | |
| | |
Cash
and cash equivalents, beginning balance | |
| 255,536 | | |
| 1,938,642 | |
| |
| | | |
| | |
Cash
and cash equivalents, ending balance | |
$ | 50,928 | | |
$ | 1,140,771 | |
NOTE
4 - ADVANCE AND PREPAYMENTS
Prepayments
consisted of the following:
SCHEDULE
OF PREPAYMENTS
| |
March
31, | | |
September
30, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Prepaid rent and
building management and utilities | |
$ | 82,562 | | |
$ | 23,324 | |
Prepaid supplies(1) | |
| 162,606 | | |
| 202,150 | |
Prepaid income tax | |
| 5,340 | | |
| 5,154 | |
Prepaid professional services(2) | |
| - | | |
| 25,941 | |
Prepaid
others | |
| 9,172 | | |
| 11,737 | |
Total
prepayments | |
$ | 259,680 | | |
$ | 268,306 | |
(1) |
As
of March 31, 2023 and September 30, 2022, the Company had prepaid supplies of $162,606 and $202,150, respectively. The prepayment
will be recognized in cost of goods sold in its consolidated statement of operations and comprehensive loss when the corresponding
deferred revenue is recognized. |
(2) |
As
of September 30, 2022, the ending balance of prepaid professional services included two types of prepayments, $9,369 for the legal
service fee for our PRC entities and $16,572 for the promotional and marketing fee. The legal service fee was amortized to general
and administrative expenses using the straight-line method, over the service periods of October and November 2022. The promotional
and marketing fee will be amortized to selling expense using a straight-line method over the service periods from October 2022 through
February 2023. |
These
amounts are expected to be recoverable within twelve (12) months.
NOTE
5 - OTHER RECEIVABLES
Other
receivables included the following:
SCHEDULE
OF OTHER RECEIVABLES
| |
March
31, | | |
September
30, | |
| |
2023 | | |
2022 | |
Rental deposits | |
$ | 14,059 | | |
$ | 14,735 | |
Advance to employees | |
| 34,946 | | |
| 45,250 | |
Short-term borrowing to third
parties | |
| 13,464 | | |
| 2,188 | |
Others | |
| 16,897 | | |
| 3,677 | |
Total
other receivables, net | |
$ | 79,366 | | |
$ | 65,850 | |
Advance
to employees represents funds provided to our officers and employees for the business expenses, such as travel, parking, gasoline, membership,
and meals, that are anticipated to be incurred by our officers and employees on behalf of the Company. Advances to employees are required
to be repaid in cash within a year.
Short-term
borrowings to third parties represented capital funding to two third parties. Those loans are interest free and will be repaid to King
Eagle (Tianjin) in 2023.
NOTE
6 - PROPERTY AND EQUIPMENT, NET
Property
and equipment consisted of the following:
SCHEDULE
OF PROPERTY AND EQUIPMENT
| |
March
31, | | |
September
30, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Leasehold improvements | |
$ | 131,906 | | |
$ | 127,301 | |
Furniture and fixtures | |
| 1,280 | | |
| 1,235 | |
Computer equipment | |
| 41,549 | | |
| 40,099 | |
Office
equipment | |
| 1,533 | | |
| 1,480 | |
Subtotal | |
| 176,268 | | |
| 170,115 | |
Less:
accumulated depreciation | |
| (68,775 | ) | |
| (36,092 | ) |
Total
property and equipment, net | |
$ | 107,493 | | |
$ | 134,023 | |
The
depreciation expense was $15,436 and $26,156 for the three months ended March 31, 2023 and 2022, and $30,871 and $35,620 for the six
months ended March 31, 2023 and 2022, respectively
NOTE
7 - INTANGIBLE ASSETS
SCHEDULE
OF INTANGIBLE ASSET
| |
March
31, | | |
September
30, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Trademarks | |
$ | 3,773 | | |
$ | 2,449 | |
Subtotal | |
| 3,773 | | |
| 2,449 | |
Less:
accumulated amortization | |
| (603 | ) | |
| (367 | ) |
Total
intangible assets, net | |
$ | 3,170 | | |
$ | 2,082 | |
Intangible
assets consist of the Company’s trademarks of King Eagle Mall with the useful life of ten years. Approximately $1,110, $1,427,
and $1,235 will expire in July 2031, April 2031, and October 2033, respectively.
Amortization
expense was $91and $69 for the three months ended March 31, 2023 and 2022, and $182 and $137 for the six months ended March 31, 2023
and 2022, respectively
NOTE
8 - DEFERRED REVENUE
SCHEDULE
OF DEFERRED REVENUE
| |
March
31, | | |
September
30, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Advance
payments from customers | |
$ | 2,986,441 | | |
$ | 2,960,357 | |
Total
deferred revenue | |
$ | 2,986,441 | | |
$ | 2,960,357 | |
Deferred
revenue resulted from transactions where the Company received advanced payments from customers but revenue recognition criteria under
the five-step model have yet to be met. As of March 31, 2023 and September 30, 2022, the Company had total deferred revenue of $2,986,441
and $2,960,357, respectively. Once the five-step model criteria have been satisfied, revenues will be recognized upon the transfer of
risk and rewards to the customers. We anticipated the majority of the revenue will be recognized in the fiscal year 2023. Management
agreed that the amount received is non-refundable. However, this term is not bound by any agreement. Thus, the customers may have the
right to challenge and demand the advances to be refunded under relevant Commercial Laws or regulations.
NOTE
9 - RELATED PARTY BALANCES AND TRANSACTIONS
Amount
due from a related party represented the prepaid service fee remitted to Guoxin Star Network Co., Ltd. by our VIE, King Eagle (Tianjin).
On March 31, 2021, King Eagle (Tianjin) entered into a Cooperation Agreement with Guoxin Star Network Co., Ltd., which, at that time,
was our related party. Guoxin Star Network Co. Ltd. was formerly our related party due to its being wholly owned by Guoxin Rulian Group
Co. Ltd., which also owns Guoxin Zhengye. Guoxin Zhengye was the 8% shareholder of King Eagle (China) but transferred its entire ownership
interest in King Eagle (China) to KP Industrial on August 26, 2022.
Under
the Cooperation Agreement, King Eagle (Tianjin) is required to pay Guoxin Star Network Co., Ltd. approximately $1.1 million (RMB 7.5
million) for the franchise of the operation of Smart Kiosks. Both parties are entitled to exercise the Force Majeure Clause of the contract.
In April 2021, King Eagle (Tianjin) remitted $0.33 million (RMB2,250,000) to Guoxin Star Network Co., Ltd. The remaining obligation,
approximately $0.74 million (RMB5.3 million), is payable upon the completion of the construction of Smart Kiosks.
SCHEDULE
OF AMOUNTS DUE TO RELATED PARTIES
Name
of related party | |
Relationship | |
Nature
of transactions | |
March
31, 2023 | | |
September
30, 2022 | |
| |
| |
| |
| | |
| |
Guoxin
Star Network Co., Ltd | |
It
is wholly owned by Guoxin Ruilian Group Co., Ltd, the common shareholder of Guoxin Zhengye, which owned an 8% interest
in King Eagle (China) until August 2022 | |
Prepaid
services for the operation of Smart Kiosks | |
$ | 327,625 | | |
$ | 316,192 | |
| |
| |
| |
| | | |
| | |
Total | |
| |
| |
$ | 327,625 | | |
$ | 316,192 | |
Amounts
due to related parties are payables arising from transactions between the Company and related parties, such as payments of operating
expenses by such related parties on behalf of our entities in the PRC and funding to meet working capital requirements. The payables
owed to the related parties are interest free, unsecured, and repayable on demand.
Amounts
due to related parties consisted of the following:
Name
of related party | |
Relationship | |
Nature
of transactions | |
March
31, 2023 | | |
September
30, 2022 | |
| |
| |
| |
| | |
| |
Ms.
Jinjing Zhang | |
One
of the shareholders of King Eagle (Tianjin) | |
Operational
support to King Eagle (Tianjin) to meet its working capital requirements | |
| 2,330 | | |
| - | |
Ms.
Chengyuan Li | |
One
of the shareholders of King Eagle (Tianjin) | |
Operational
support to King Eagle (Tianjin) to meet its working capital requirements | |
| 14,561 | | |
| - | |
Ms.
Xiujin Wang | |
One
of the shareholders of King Eagle (Tianjin) | |
Operational
support to King Eagle (Tianjin) to meet its working capital requirements | |
$ | 262,100 | | |
$ | 267,006 | |
| |
| |
| |
| | | |
| | |
Total | |
| |
| |
$ | 278,991 | | |
$ | 267,006 | |
NOTE
10 - EQUITY
Effective
as of September 9, 2021, the Company’s Articles of Incorporation were amended to increase the Company’s authorized capital
to 210,000,000 authorized shares of capital stock with 200,000,000 designated as $0.0001 par value common stock, and 10,000,000 designated
as $0.0001 par value preferred stock.
Effective
on October 12, 2022, a Certificate of Amendment was filed with the Nevada Secretary of State to increase the authorized number of shares
of the Company’s $0.0001 par value common stock from 200,000,000 shares to 1,000,000,000 shares of common stock.
The
Company’s board of directors approved and declared a 10:1 forward split of its common stock on September 6, 2022. As a result of
the stock split, holders of pre-split shares of common stock have the right to receive post-split shares of common stock at a ratio of
ten (10) shares of post-split common stock for every one (1) share of pre-split common stock. The stock split had a record date of September
16, 2022 and an effective date of October 18, 2022. No fractional shares are issuable as a result of the forward stock split. After the
forward stock split, there are 400,000,000 shares of common stock of the Company issued and outstanding. The par value per share remained
unchanged at $0.0001 per share after the forward stock split.
Preferred
stock
The
Company’s authorized shares of preferred stock are 10,000,000 shares, with a par value of $0.0001 per share, which may be issued
in series and with such voting powers, designations, preferences, limitations, restrictions, and relative rights as the board of directors
shall determine in its sole discretion. No shares of preferred stock were issued and outstanding as of March 31, 2023 and September 30,
2022.
Common
stock
With
the retrospective effect of the increase in authorized shares of common stock and 10:1 forward stock split, the Company’s authorized
shares of common stock were 1,000,000,000 and 1,000,000,000 shares with a par value of $0.0001, as of March 31, 2023 and September 30,
2022, respectively. The issued and outstanding shares of common stock were 400,000,000 as of March 31, 2023 and September 30, 2022.
Reverse
acquisition
On
May 17, 2021, the Company entered into a share exchange agreement (“Share Exchange Agreement”) with (i) Kun Peng International
Holding Limited (“KP International”), a limited liability company incorporated in the 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 Share 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 completed on May 17, 2021
(“Closing Date”).
For
accounting purposes, the transaction with KP International was treated as a reverse acquisition and KP International is deemed to be
the acquirer with the Company as the acquired party. Consequently, the assets and liabilities and the historical operations that will
be reflected in the accompanying consolidated financial statements prior to the Reverse Acquisition will be those of KP International
and its consolidated subsidiaries and will be recorded at the historical cost basis of KP International, and the accompanying unaudited
condensed consolidated financial statements after consummation of the reverse acquisition will include the assets and liabilities of
KP International and its subsidiaries and VIE, historical operations of KP International and its subsidiaries and VIE, and operations
of the Company from the Closing Date of the Reverse Acquisition. The accompanying unaudited condensed consolidated financial statements
share and per share information has been retroactively adjusted to reflect the exchanged shares in the Reverse Acquisition. The equity
structure of the Company was retrospectively adjusted under ASC Topic 805-40.
As
of March 31, 2023, there were 400,000,000 shares of common stock issued and outstanding.
Restricted
net assets:
Our
ability to pay dividends is primarily dependent on us receiving distributions of funds from our subsidiary or VIE. Relevant PRC statutory
laws and regulations permit payments of dividends only out of a company’s 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, King Eagle
(Tianjin), the VIE, and KP Tian Yu. The Company is required to set aside at least 10% of its after-tax profits each year, if any, to
fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, the Company may allocate
a portion of its after-tax profits based on PRC accounting standards to enterprise expansion fund and staff bonus and welfare fund at
its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends.
As
a result of the foregoing restrictions, King Eagle (China), King Eagle (Tianjin), and KP Tian Yu are restricted in their ability to transfer
their net assets to the Company. Foreign exchange and other regulation in the PRC may further restrict these entities from transferring
funds to the Company in the form of dividends, loans, and advances. As of March 31, 2023 and September 30, 2022, the Company had negative
net assets, which included common stock, additional paid-in capital, accumulated deficit, and foreign exchange translation adjustment
of its subsidiaries in BVI, Hong Kong, and the PRC and of the VIE that are included in the Company’s consolidated financial statements.
As of March 31, 2023, King Eagle (China), King Eagle (Tianjin), KP Tian Yu, and King Eagle (Bejing) incurred negative net assets which
amounted to $1,774,413, $2,552,571, $386, and $79,891, respectively. As of September 30, 2022, King Eagle (China), King Eagle (Tianjin),
and KP Tian Yu had incurred negative assets in an amount of $844,025, $2,311,792, and $351, respectively. Accordingly, the Company did
not accrue statutory reserve funds as of March 31, 2023 and September 30, 2022.
NOTE
11- REVENUE
The
following table presents revenues and the related cost of goods sold disaggregated by customer type for the three and six months ended
March 31, 2023 and 2022:
SCHEDULE
OF DISAGGREGATED REVENUES AND COST OF GOODS SOLD
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
Three
Months Ended Marh 31, | | |
Six
Months Ended March 31, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
Retail | |
$ | 42,352 | | |
$ | 2,018,764 | | |
$ | 63,439 | | |
$ | 6,688,172 | |
Wholesale | |
| 276,599 | | |
| - | | |
| 707,630 | | |
| - | |
Total | |
$ | 318,951 | | |
$ | 2,018,764 | | |
$ | 771,069 | | |
$ | 6,688,172 | |
Revenue | |
$ | 318,951 | | |
$ | 2,018,764 | | |
$ | 771,069 | | |
$ | 6,688,172 | |
Cost
of Revenue
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
Three
Months Ended March 31, | | |
Six
Months Ended March 31, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
Retail | |
$ | 17,312 | | |
$ | 337,465 | | |
$ | 25,877 | | |
$ | 1,046,674 | |
Wholesale | |
| 54,724 | | |
| - | | |
| 155,347 | | |
| - | |
Total | |
$ | 72,036 | | |
$ | 337,465 | | |
$ | 181,224 | | |
$ | 1,046,674 | |
Cost of Revenue | |
$ | 72,036 | | |
$ | 337,465 | | |
$ | 181,224 | | |
$ | 1,046,674 | |
NOTE
12- INCOME TAXES
The
Company accounts for income taxes pursuant to the accounting standards that require the recognition of deferred tax assets and liabilities
for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the
expected future tax benefit to be derived from tax losses and tax credit carryforwards. Additionally, the accounting standards require
the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. The Company and its subsidiaries
file separate income tax returns.
United
States
Kun
Peng International Ltd is incorporated in the State of Nevada and is subject to United States federal income tax. No provision for income
taxes in the U.S. has been made as the Company has no U.S. taxable income for the six ended March 31, 2023 and 2022.
British
Virgin Islands
KP
International is a holding company organized as an International Business Company under the laws of the British Virgin Islands (“BVI”),
and its principal operating subsidiaries are organized under the laws of Hong Kong and the laws of the PRC. KP International and its
subsidiaries are not subject to income taxes in the BVI.
Hong
Kong
The
two-tier profits tax rates system was introduced under the Inland Revenue (Amendment)(No.3) Ordinance 2018 (“the Ordinance”)
of Hong Kong and became effective for the assessment year 2018/2019. Under the two-tier profit tax rates regime, the profits tax rate
for the first $0.26 million (HKD 2 million) of assessable profits of a corporation will be subject to the lowered tax rate, 8.25%, while
the remaining assessable profits will be subject to the legacy tax rate, 16.5%. Pursuant to the Ordinance, only one entity within a group
of “connected entities” is eligible for the two-tier tax rate benefit. An entity is a connected entity of another entity
if (1) one entity has control over the other; (2) both entities are under the control (more than 50% of the issued share capital) of
the same entity; or (3) in the case of the first entity being a natural person carrying on a sole proprietorship business, the other
entity is the same person carrying on another sole proprietorship business.
Since
KP Industrial and KP (Hong Kong) are wholly owned and under the control of KP International, these entities are connected entities. Under
the Ordinance, it is an entity’s election to nominate the entity that will utilize the two-tier profits tax rates on its profits
tax return. The election is irrevocable. The Company elected KP (Hong Kong) to utilize the two-tier profits tax rates. KP Industrial
and KP (Hong Kong) did not earn any income that was derived in Hong Kong for the six months ended March 31, 2023 and 2022 and, therefore,
KP Industrial and KP (Hong Kong) were not subject to Hong Kong profits tax for the periods reported.
Since
the two-tier profit tax rates regime is tentative, we applied the original profits tax rate, 16.5%, for the calculation of deferred taxes
for our subsidiaries in Hong Kong.
PRC
The
PRC’s statutory income tax rate is 25%. The Company’s subsidiary and VIE registered in the PRC are subject to income tax
rate of 25%, unless otherwise specified.
Income
tax expense was comprised of the following:
SCHEDULE OF COMPONENTS OF INCOME TAX EXPENSE BENEFIT
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
For
the three months ended March 31 | | |
For
the six months ended March 31 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Current | |
$ | | | |
$ | | | |
$ | | | |
$ | | |
Federal | |
| - | | |
| - | | |
| - | | |
| - | |
State | |
| - | | |
| - | | |
| - | | |
| - | |
Foreign | |
| - | | |
| - | | |
| - | | |
| - | |
Total current | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Deferred | |
| | | |
| | | |
| | | |
| | |
Federal | |
| - | | |
| - | | |
| - | | |
| - | |
State | |
| - | | |
| - | | |
| - | | |
| - | |
Foreign | |
| - | | |
| - | | |
| - | | |
| - | |
Total deferred | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Total
income tax expense | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
A
reconciliation between the Company’s actual provision for income taxes and the provision at the statutory rate is as follows:
SCHEDULE OF RECONCILIATION OF PROVISION OF INCOME TAX
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
For
the three months ended March
31, | | |
For
the six months ended March
31, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Loss before income
tax expense | |
$ | (592,021 | ) | |
| (614,677 | ) | |
$ | (1,352,334 | ) | |
| (276,819 | ) |
Computed tax expense (benefit)
with statutory tax rate | |
| 21.0 | % | |
| 21.0 | % | |
| 21.0 | % | |
| 21.0 | % |
Impact of different tax rates
in other jurisdictions | |
| 3.0 | % | |
| 3.7 | % | |
| 3.4 | % | |
| 2.5 | % |
Tax effect of non-deductible
expenses | |
| (0.3 | %) | |
| (0.6 | )% | |
| (0.3 | %) | |
| (1.9 | )% |
Change
in valuation allowance | |
| (23.7 | %) | |
| (24.1 | )% | |
| (24.1 | %) | |
| (21.6 | )% |
Effective
tax rate | |
| 0.0 | % | |
| 0.0 | % | |
| 0.0 | % | |
| 0.0 | % |
Uncertain
tax positions
The
Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business,
the Company is subject to examination by the respective jurisdictions, where applicable. The statute of limitations for the tax returns
varies by jurisdiction.
The
statute of limitations for the U.S. Internal Revenue Service to assess the income tax returns of a taxpayer expires three years from
the due date of the income tax return or the date on which it was filed, whichever is later.
In
accordance with the Hong Kong profits tax regulations, a tax assessment by the IRD may be initiated within six years after the relevant
year of assessment, but that period is extendable to 10 years in the case of potential willful underpayment or evasion.
In
accordance with the PRC Tax Administration Law on the Levying and Collection of Taxes, the PRC tax authorities generally have up to five
years to assess underpaid tax plus penalties and interest for PRC entities’ tax filings. In the case of tax evasion, which is not
clearly defined in the law, there is no limitation on the tax years open for investigation. Accordingly, the PRC entities remain subject
to examination by the tax authorities based on the above.
As
of March 31, 2023 and September 30, 2022, the Company did not accrue any liability, interest, or penalties related to uncertain tax positions
in the provision for income taxes in its consolidated financial statements. The Company does not expect that its assessment regarding
unrecognized tax positions will materially change over the next 12 months.
NOTE
13 - RIGHT-OF-USE ASSETS AND LEASE
The
Company has operating leases for its office facilities and employee accommodation. Leases with an initial term of 12 months or less are
not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.
The
following table provides a summary of leases as of March 31, 2023 and September 30, 2022:
SUMMARY
OF OPERATING LEASE ASSETS AND LIABILITIES
Assets/liabilities | |
Classification | |
March
31, 2023 | | |
September
30, 2022 | |
Assets | |
| |
| | | |
| | |
Operating lease
right-of-use assets | |
Operating lease
assets | |
$ | 522,033 | | |
$ | 675,655 | |
| |
| |
| | | |
| | |
Liabilities | |
| |
| | | |
| | |
Current | |
| |
| | | |
| | |
Operating lease liabilities
– current | |
Current operating lease liabilities | |
$ | 276,292 | | |
$ | 304,753 | |
| |
| |
| | | |
| | |
Long-term | |
| |
| | | |
| | |
Operating lease liabilities
- net of current portion | |
Long-term operating lease
liabilities | |
$ | 126,914 | | |
$ | 264,124 | |
| |
| |
| | | |
| | |
Total lease liabilities | |
| |
$ | 403,206 | | |
$ | 568,877 | |
The
operating lease expense for the six months ended March 31, 2023 and 2022 was as follows:
SUMMARY
OF OPERATING LEASE EXPENSE
Lease
cost | |
Classification | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| |
For
the three months ended
March 31, | | |
For
the six months ended March
31, | |
Lease
cost | |
Classification | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Operating lease
cost | |
General and administrative | |
$ | 83,845 | | |
$ | 111,789 | | |
$ | 168,682 | | |
$ | 192,704 | |
Total lease cost | |
| |
$ | 83,845 | | |
$ | 111,789 | | |
$ | 168,682 | | |
$ | 192,704 | |
Maturities
of operating lease liabilities as of March 31, 2023 were as follow:
SCHEDULE
OF MATURITY OF OPERATING LEASE LIABILITIES
| |
| |
Maturity
of lease liabilities | |
Operating
leases | |
Remaining
of 2023 | |
$ | 153,419 | |
2024 | |
| 269,179 | |
2025 | |
| - | |
2026 | |
| - | |
2027 | |
| - | |
Year V | |
| - | |
Thereafter | |
| - | |
Total lease
payments | |
$ | 422,598 | |
Less:
interest | |
| (19,392 | ) |
Present
value of lease payments | |
$ | 403,206 | |
Maturities
of operating lease liabilities as of September 30, 2022, were as follow:
| |
| |
Maturity
of lease liabilities | |
Operating
leases | |
2023 | |
$ | 328,832 | |
Year I | |
$ | 328,832 | |
2024 | |
| 273,520 | |
Year II | |
| 273,520 | |
2025 | |
| - | |
Year III | |
| - | |
2026 | |
| - | |
Year IV | |
| - | |
2027 | |
| - | |
Year V | |
| - | |
Thereafter | |
| - | |
Total lease
payments | |
$ | 602,352 | |
Less:
interest | |
| (33,475 | ) |
Present
value of lease payments | |
$ | 568,877 | |
Supplemental
information related to operating leases was as follows:
SCHEDULE OF OPERATING LEASES
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
For
the three months ended March
31, | | |
For
the six months ended March
31, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Cash paid for
amounts included in the measurement of lease liabilities | |
$ | 19,840 | | |
$ | 188,884 | | |
$ | 39,219 | | |
$ | 274,488 | |
New operating lease assets
obtained in exchange for operating lease liabilities | |
$ | 19,840 | | |
$ | 575,541 | | |
$ | 39,219 | | |
$ | 575,541 | |
The
amortization expense was $109,136 and $93,414 for the three months ended March 31, 2023 and 2022 and $189,510 and $177,685 for the six
months ended March 31, 2023 and 2022, respectively.
NOTE
14 –COMMITMENTS AND CONTINGENCIES
Purchase
and service commitments
King
Eagle (China) and King Eagle (Tianjin) entered into multiple purchase and service commitments. As of March 31, 2023 and September 30,
2022, King Eagle (China) and King Eagle (Tianjin) had purchase and service commitments in the amount of $488,221 and $53,910, respectively.
Cooperation
commitment for Smart Kiosks
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 five years. Total franchise fee payable by King Eagle (Tianjin) to Guoxin
Star Network Co., Ltd is approximately $1.1 million (RMB 7,500,000). In April 2021, King Eagle (Tianjin) had remitted approximately $0.33
million (RMB2,250,000) to Guoxin Star Network Co. Ltd. The remaining balance, approximately $0.76 million (RMB5,250,000), is payable
upon the completion of the implementation of the Smart Kiosks. In early December 2022, the government of the People’s Republic
of China relaxed its COVID-19 measures. The local government agencies are gradually re-opening their offices. King Eagle (Tianjin) estimates
that the project may resume in the middle of calendar year 2023.
NOTE
15 - SUBSEQUENT EVENT
As
of March 31, 2023, the Company evaluated and concluded that there are no subsequent events that have occurred that would require recognition
or disclosure in the financial statements other than as disclosed above.