10-Q 1 form10-q.htm
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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

Mark One

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______ to _______

 

Commission File No. 333-169805

 

KUN PENG INTERNATIONAL LTD.

(Exact name of registrant as specified in its charter)

 

CX NETWORK GROUP, INC.

(Formerly Known As)

 

Nevada   EIN 32-0538640
(State or Other Jurisdiction of   (IRS Employer
Incorporation or Organization)   Identification Number)

 

1F, Building 3, No. 1001, Huihe South Street

Banbidian Village

Gaobeidian Town, Chaoyang District

Beijing, PRC 100025

(Address of principal executive offices)

 

+86 -1087227012

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Indicate by check mark whether the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer ☐ Accelerated filer ☐
  Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

 

Yes ☐ No

 

As of May 16, 2022, the registrant had 40,000,000 shares of common stock issued and outstanding.

 

 

 

 

 

 

FORM 10-Q

KUN PENG INTERNATIONAL LTD.

INDEX

 

    Page
PART I. Financial Information 3
     
  Item 1. Condensed Consolidated Financial Statements (Unaudited) 3
     
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation. 24
     
  Item 3. Quantitative and Qualitative Disclosures About Market Risk. 35
     
  Item 4. Controls and Procedures. 35
     
PART II. Other Information 37
     
  Item 6. Exhibits. 37
     
  Signatures 38

 

2

 

 

PART I

 

Item 1. Financial statements.

 

KUN PENG INTERNATIONAL LTD

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

(In U.S. Dollars, except share data or otherwise stated)

 

   Note   March 31, 2022   September 30, 2021 
           (Audited) 
Assets               
Current assets               
Cash and cash equivalents       $1,160,123   $2,059,685 
Advance and prepayments   4    630,108    687,648 
Other receivables   5    152,343    123,824 
Total current assets        1,942,574    2,871,157 
                
Noncurrent assets               
Property, plant and equipment, net   6    41,599    68,725 
Intangible assets, net   7    2,473    2,568 
Security deposits        44,682    - 
Right-of-use assets   12    684,162    282,466 
Total noncurrent assets        772,916    353,759 
                
Total assets       $2,715,490   $3,224,916 
                
Liabilities               
Current liabilities               
Trade and other payables        820,988    1,430,576 
Deferred revenue   8    2,800,070    3,122,705 
Payroll payable        88,532    105,923 
Tax payable        148,566    261,771 
Amounts due to related parties   9    615,035    39,629 
Operating lease obligations-current portion   12    234,611    229,337 
Total current liabilities        4,707,802    5,189,941 
                
Noncurrent liabilities               
Operating lease obligations-net of current portion   12    336,743    53,129 
Total noncurrent liabilities        336,743    53,129 
                
Total liabilities        5,044,545    5,243,070 
                
Commitment and contingencies        -     -  
                
Equity               
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued and outstanding as of March 31, 2022 and September 30, 2021   1    -    - 
Common stock, $0.0001 par value, 200,000,000 shares authorized; 40,000,000 shares issued and outstanding as of March 31, 2022 and September 30, 2021   10    4,000    4,000 
Additional paid-in capital   10    (4,000)   (4,000)
Accumulated deficits        (2,083,925)   (1,821,105)
Accumulated other comprehensive loss        (63,758)   (32,016)
Total stockholders’ equity        (2,147,683)   (1,853,121)
Non-controlling interests        (181,372)   (165,033)
Total equity        (2,329,055)   (2,018,154)
                
Total liabilities and equity       $2,715,490   $3,224,916 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

3

 

 

KUN PENG INTERNATIONAL LTD

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(UNAUDITED)

 

(In U.S. Dollars, except share data or otherwise stated)

 

   Note   2022   2021   2022   2021 
      

For the three months ended

March 31,

  

For the six months ended

March 31,

 
   Note   2022   2021   2022   2021 
                     
Revenue, net       $2,018,764   $1,627,633   $6,688,172   $2,173,594 
Cost of revenue        (337,465)   (222,033)   (1,046,674)   (315,883)
Gross profit        1,681,299    1,405,600    5,641,498    1,857,711 
                          
Operating expenses                         
General and administrative expenses        436,295    466,671    818,196    901,089 
Selling expense        1,868,233    1,213,657    5,133,686    1,602,121 
Total operating expenses        2,304,528    1,680,328    5,951,882    2,503,210 
                          
Loss from operations        (623,229)   (274,728)   (310,384)   (645,499)
                          
Other (expenses) income:                         
Interest income        155    153    1,715    206 
Other income        8,397    215    31,850    215 
Total other income, net        8,552    368    33,565    421 
                          
Loss before income taxes        (614,677)   (274,360)   (276,819)   (645,078)
                          
Income tax expense   11    -    -    -    - 
                          
Net loss        (614,677)   (274,360)   (276,819)   (645,078)
Less: Net loss attributable to non-controlling interest        (45,041)   (41,154)   (13,999)   (96,762)
Net loss attributable to Kun Peng International Ltd        (569,636)   (233,206)   (262,820)   (548,316)
Foreign currency translation adjustment        (47,086)   6,154    (34,082)   (7,985)
Comprehensive loss        (661,763)   (268,206)   (310,901)   (653,063)
Less: Comprehensive loss attributable to non-controlling interest        (48,463)   (40,230)   (16,339)   (97,959)
Comprehensive loss attributable to Kun Peng International Ltd       $(613,300)  $(227,976)   (294,562)   (555,104)
                          
Net loss per share attributable to common stockholders                         
Basic and diluted       $(0.014)  $(0.011)   (0.007)   (0.026)
                          
Weighted average shares used to compute net loss per share attributable to common stockholders        40,000,000    21,376,918    40,000,000    21,376,918 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements

 

4

 

 

KUN PENG INTERNATIONAL LTD

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the Six Months Ended March 31, 2022

(UNAUDITED)

 

   Shares   Amount   capital   Deficits   loss   equity   Interest   Equity 
   Common stock   Additional
paid-in
   Accumulated   Accumulated
other
comprehensive
   Total
stockholders’
   Non-
Controlling
   Total 
   Shares   Amount   capital   Deficits   loss   equity   Interest   Equity 
Balance, September 30, 2020   21,376,918   $2,138   $(2,134)  $(208,771)  $(6,888)  $(215,655)  $-   $(215,655)
Net loss attributable to common stockholders   -    -    -    (548,316)   -    (548,316)   -    (548,316)
Net loss attributable to noncontrolling interest   -    -    -    -    -    -    (96,762)   (96,762)
Foreign currency translation adjustment   -    -    -    -    (6,788)   (6,788)   (1,197)   (7,985)
Balance, March 31, 2021   21,376,918   $2,138   $(2,134)  $(757,087)  $(13,676)  $(770,759)  $(97,959)  $(868,718)

 

   Common stock   Additional
paid-in
   Accumulated   Accumulated
other
comprehensive
   Total
stockholders’
   Non-
Controlling
   Total 
   Shares   Amount   capital   Deficits   loss   equity   Interest   Equity 
Balance, December 31, 2020   21,376,918   $2,138   $(2,134)  $(523,881)  $(18,906)  $(542,783)  $(57,729)  $(600,512)
Net loss attributable to common stockholders   -    -    -    (233,206)   -    (233,206)   -    (233,206)
Net loss attributable to noncontrolling interest   -    -    -    -    -    -    (41,154)   (41,154)
Foreign currency translation adjustment   -    -    -    -    5,230    5,230    924    6,154 
Balance, March 31, 2021   21,376,918   $2,138   $(2,134)  $(757,087)  $(13,676)  $(770,759)  $(97,959)  $(868,718)

 

5

 

 

   Common stock   Additional
paid-in
   Accumulated   Accumulated
other
comprehensive
   Total
stockholders’
   Non-
Controlling
   Total 
   Shares   Amount   capital   Deficits   loss   equity   Interest   Equity 
Balance, September 30, 2021   40,000,000   $4,000   $(4,000)  $(1,821,105)  $(32,016)  $(1,853,121)  $(165,033)  $(2,018,154)
Net loss attributable to common stockholders   -    -    -    (262,820)   -    (262,820)   -    (262,820)
Net loss attributable to noncontrolling interest   -    -    -    -    -    -    (13,999)   (13,999)
Foreign currency translation adjustment   -    -    -    -    (31,742)   (31,742)   (2,340)   (34,082)
Balance, March 31, 2022   40,000,000   $4,000   $(4,000)  $(2,083,925)  $(63,758)  $(2,147,683)  $(181,372)  $(2,329,055)

 

   Common stock   Additional
paid-in
   Accumulated   Accumulated
other
comprehensive
   Total
stockholders’
   Non-
Controlling
   Total 
   Shares   Amount   capital   Deficits   loss   equity   Interest   Equity 
Balance, December 31, 2021   40,000,000   $4,000   $(4,000)  $(1,514,289)  $(20,094)  $(1,534,383)  $(132,909)  $(1,667,292)
Net loss attributable to common stockholders   -    -    -    (569,636)   -    (569,636)   -    (569,636)
Net loss attributable to noncontrolling interest   -    -    -    -    -    -    (45,041)   (45,041)
Foreign currency translation adjustment   -    -    -    -    (43,664)   (43,664)   (3,422)   (47,086)
Balance, March 31, 2022   40,000,000   $4,000   $(4,000)  $(2,083,925)  $(63,758)  $(2,147,683)  $(181,372)  $(2,329,055)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

6

 

 

KUN PENG INTERNATIONAL LTD

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In U.S. Dollars, except share data or otherwise stated)

 

   2022   2021 
     
  

For the six months ended

March 31,

 
   2022   2021 
         
Cash flows from operating activities          
Net loss  $(276,819)  $(645,078)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities          
Depreciation and amortization   35,757    11,711 
Amortization of right-of-use assets   177,685    147,649 
           
Changes in operating assets and liabilities          
Advance and prepayments   68,649    (105,342)
Other receivables   (26,331)   14,345 
Security deposits   (44,467)     
Trade and other payables   (629,413)   1,348,657 
Deferred revenue   (372,786)   (206,831)
Payroll payable   (19,061)   (11,870)
Amounts due to related parties   571,983    (70,158)
Tax payable   (116,995)   54,186 
Lease liabilities   (289,950)   (147,649)
Net cash (used in) provided by operating activities   (921,748)   389,620 
           
Cash flows from investing activities          
Purchase of property and equipment   (7,487)   (15,844)
Net cash used in investing activities   (7,487)   (15,844)
           
Effect of exchange rate changes on cash   29,673    5,217 
           
Net (decrease) increase in cash and cash equivalents   (899,562)   378,993 
           
Cash and cash equivalents, beginning balance   2,059,685    141,166 
           
Cash and cash equivalents, ending balance  $1,160,123   $520,159 
           
Supplementary cash flows information:          
Cash paid for interest  $-   $- 
Cash paid for income tax  $-   $- 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

7

 

 

KUN PENG INTERNATIONAL LTD

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(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 platform, King Eagle Mall.

 

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 British Virgin Islands on April 20, 2021, and (ii) the five members of KP International to acquire all the issued and outstanding capital stock of KP International in exchange for the issuance to those members of an aggregate of 34,158,391 shares of our common stock (“Reverse Acquisition”). Pursuant to the terms of the Exchange Agreement, and as a condition to the completion of the transactions contemplated by the Share Exchange Agreement, the Company also agreed to enter into an agreement with Wenhai Xia (“the Stockholder”), to cancel an aggregate of 15,535,309 shares of the Company’s Common Stock owned by the Stockholder. The Reverse Acquisition was closed on May 17, 2021.

 

For accounting purpose, 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 Acquisition. The equity structure of the Company was retrospectively adjusted under ASC Topic 805-40. As of December 31, 2021, there were 40,000,000 shares issued and outstanding.

 

8

 

 

Authorized Shares and Name Change

 

Effective as of September 9, 2021, the Company’s Articles of Incorporation were amended to change the name of the Company from CX Network Group, Inc. to Kun Peng International Ltd. (“KPIL”) and to increase the Company’s authorized capital to 210,000,000 authorized shares of Capital Stock with 200,000,000 designated as $0.0001 par value Common Stock, and 10,000,000 designated as $0.0001 par value Preferred Stock.

 

Kun Peng International Holding Limited

 

Kun Peng International Holding Limited (“KP International”) was incorporated in the British Virgin Islands on April 20, 2021. KP International is a holding company and entered into a Bought and Sold Note with Kunpeng (China) Industrial Development Company Limited (“KP Industrial”), incorporated in Hong Kong on August 11, 2017, at a cash consideration of $0.129 (HK$1) on May 3, 2021. After the ownership transfer, it became a sole shareholder of KP Industrial.

 

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 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 phrase and developing our online mobile application, King Eagle Mall, through its subsidiary, King Eagle (China) Co., Ltd. It became a wholly owned subsidiary of KP International 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.

 

9

 

 

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% of its 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 became the 92% and 8% shareholders of King Eagle (China), respectively.

 

Some of the business engaged in by King Eagle (Tianjin) is restricted or prohibited for foreign investment under PRC regulations. As such, King Eagle (China) has entered into the VIE Agreements with King Eagle (Tianjin) and their shareholders. We do not own any equity interests in King Eagle (Tianjin), but control and receive the economic benefits of their respective business operations through the VIE Agreements. The VIE Agreements enable us to provide King Eagle (Tianjin) with consulting services on an exclusive basis, in exchange for all of its annual profits, if any. In addition, we are able to appoint its senior executives and approve all matters requiring approval of its shareholders. The VIE Agreements are comprised of a Consulting Service Agreement, Business Operation Agreement, Proxy Agreement, Equity Disposal Agreement, and Equity Pledge Agreement.

 

Under current Chinese laws and regulations, the Company believes that the VIE Agreements are not subject to any government approval. The shareholders of King Eagle (Tianjin) were required to register with SAFE when they established offshore vehicles to hold KP International, and such SAFE registration was effected on May 14, 2021. These shareholders of King Eagle (Tianjin) will have to register their equity pledge arrangement as required under the Equity Pledge Agreement with King Eagle (China). The Company faces uncertainty with respect to future actions by the PRC government that could significantly affect King Eagle (Tianjin)’s financial performance and the enforceability of the VIE Agreements.

 

King Eagle (Tianjin) Technology Co., Ltd.

 

King Eagle (Tianjin) Technology Co., Ltd. (“King Eagle (Tianjin)”) was incorporated as a limited liability company in Tianjin Pilot Free Trade Zone in the People’s Republic of China on September 2, 2020, with a registered capital of approximately $1.5 million (RMB 10 million). It is owned by multiple individuals: (i) Chengyuan Li, 40.5%, (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) Yanlu Li, 5%, (ix) Yuanyuan Zhang, 10%, and (x) Hui Teng, 5%). Those shareholders also indirectly own KP International through three British Virgin Islands entities: Kunpeng Tech Limited, Kunpeng TJ Limited, and Kun Peng XJ Limited. Additionally, out of these stakeholders, three of them are currently directors and executives of KP International, which includes: Chengyuan Li, Director, Yuanyuan Zhang, Chief Financial Officer, and Yanlu Li, Vice President, and a former executive Xiangyi Mao.

 

On March 23, 2022, the board of directors of King Eagle (Tianjin) approved that Xiangyi Mao transferred her entire ownership (5%) in King Eagle (Tianjin) to Yuanyuan Zhang. After the transfer, Yuanyuan Zhang became a 10% shareholder of King Eagle (Tianjin). The ownership percentage of other King Eagle (Tianjin)’s shareholders remained identical. The ownership transfer was completed on March 29, 2022.

 

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, and is wholly owned by KP (Hong Kong).

 

10

 

 

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, 2021 included in the Form 10-K/A filed with the SEC on February 8, 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 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 estimate and assumptions that impact the presented amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the presented amounts of revenues and expenses during the period. Actual results may differ from those estimates. Significant estimates during the six months ended March 31, 2022 and 2021 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.

 

11

 

 

Going Concern

 

The accompanying interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which contemplate continuation of the Company as a going concern 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, 2022, the Company incurred cash outflows from operating activities of $921,748, a net loss of $276,819, and a negative working capital of $2,765,228. Moreover, as the COVID-19 outbreak continues, there is a delay in the progress of construction and approval for the construction permit of smart kiosk. While some areas in the PRC have opened up recently, majority of the areas in the PRC are still under the tighten control and lockdown and the government agencies in those affected areas in the PRC still remain closed. 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 not limited to, increase of sales on its online business, reduction of overhead costs, fund advance from the Company’s stockholders and directors, or financing through issuance of shares. The Company continues to focus on increasing its revenue through its online platform and slimming its administrative costs. For example, we reduced the compensation and benefits of our executives, decreased office supplies expense and trimmed executive travel expenses. Additionally, our director will provide financing to meet our working capital requirements.

 

In order to continue as a going concern for the next 12 months, the Company continues to focus on increasing its revenue through the sale of health care products on its online platform, King Eagle Mall, streamlining its overhead costs or obtaining a financing from its stockholders or directors. However, the Company cannot provide any assurance that it will be able to increase revenue, that it will be able to successfully implement its business plan, or that financing that will be available to it on commercially acceptable terms, if at all. 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

 

Since the second quarter of 2022, the situation of COVID-19 in the PRC intensified, the PRC central and local government continued to maintain restrictions, quarantines, and closures in certain affected areas. The approval process of our applications for the construction permits of smart kiosks was delayed by the local governmental agencies and the construction project of smart kiosks was also postponed. The Company continues to focus its business through its online platform, King Eagle Mall, to mitigate the adverse impacts by COVID-19 and follows up closely with the local governmental agencies for the application for the construction permits of smart kiosks. In fact, the pandemic increased the overall public health consciousness in the PRC and the Company continued to incur a significant growth in its average monthly online sale revenue by $0.8 million or 207.7% from $0.4 million for the six months ended March 31, 2021 to $1.1 million for the six months ended March 31, 2022, and by $0.1 million or 24.0% from $0.5 million for the three months ended March 31, 2021 to $0.6 million for the three months ended March 31, 2022.

 

The Company does not expect that the coronavirus COVID-19 will have a material adverse effect on its online business or financial results at this time. Still, it is not possible to predict the unanticipated consequence of the pandemic on our future business performance and liquidity due to the severity of the situation of COVID-19 in the PRC. 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 ordinary shares by the weighted average number of ordinary shares outstanding during the year. Diluted income (loss) per share is calculated by dividing net income (loss) attributable to the holders of ordinary shares as adjusted for the effect of dilutive ordinary share equivalents, if any, by the weighted average number of ordinary shares and dilutive ordinary share equivalents outstanding during the period. However, ordinary share equivalents are not included in the denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.

 

12

 

 

Cash and Cash Equivalents

 

We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. We maintain with various financial institutions in PRC. As of March 31, 2022 and September 30, 2021, cash balances held in PRC banks are uninsured. We have not experienced any losses in bank accounts and believes we are not exposed to any risks on our cash in bank accounts.

 

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.

 

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.

 

Lease

 

The Company adopted ASC Topic 842 using the modified retrospective transition method on July 1, 2020. There was no cumulative effect of initially applying ASC Topic 842 that required an adjustment to the opening retained earnings on the adoption date nor revision of the balances in comparative periods. As a result of the adoption, the Company recognized a lease liability and right-of-use asset for each of the existing lease arrangement.

 

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 significant impact on its unaudited condensed consolidated financial statements.

 

Accounting Pronouncements Issued But Not Yet Adopted

 

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 is planning to adopt this standard in the first quarter of fiscal 2023. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-13 on its consolidated financial statements.

 

During the period from April 2022 through May 2022, the FASB has not issued additional accounting standards updates.

 

13

 

 

NOTE 3 - VARIABLE INTEREST ENTITIES “VIE” ARRANGEMENTS

 

On May 15, 2021, King Eagle (China) entered into a series of contractual arrangements with King Eagle (Tianjin) and its shareholders. As a result of the contractual arrangements, the Company classified King Eagle (Tianjin) as a Variable Interest Entity “VIE.”

 

King Eagle (Tianjin) Technology Co., Ltd. (“King Eagle (Tianjin)”) was incorporated as a limited liability company in Tianjin Pilot Free Trade Zone in the People’s Republic of China on September 2, 2020, with a registered capital of approximately $1.5 million (RMB 10 million). It is owned by multiple individuals: (i) Chengyuan Li, 40.5%, (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) Yanlu Li, 5%, (ix) Yuanyuan Zhang, 10%, and (x) Hui Teng, 5%). Those shareholders also indirectly own KP International through three British Virgin Islands entities: Kunpeng Tech Limited, Kunpeng TJ Limited, and Kun Peng XJ Limited. Additionally, out of these stakeholders, three of them are currently directors and executives of KP International, which includes: Chengyuan Li, Director, Yuanyuan Zhang, Chief Financial Officer, and Yanlu Li, Vice President, and a former executive Xiangyi Mao.

 

On March 23, 2022, the board of directors of King Eagle (Tianjin) approved that Xiangyi Mao transferred her entire ownership (5%) in King Eagle (Tianjin) to Yuanyuan Zhang. After the transfer, Yuanyuan Zhang became a 10% shareholder of King Eagle (Tianjin). The ownership percentage of other King Eagle (Tianjin)’s shareholders remained identical. The ownership transfer was completed on March 29, 2022.

 

The VIE Agreements are as follows:

 

(1) Consulting Service Agreement
   
(2) Business Operation Agreement
   
(3) Proxy Agreement
   
(4) Equity Disposal Agreement
   
(5) Equity Pledge Agreement

 

Consulting Service Agreement

 

Pursuant to the terms of certain Exclusive Consulting Service Agreement dated May 15, 2021, between King Eagle (China) and King Eagle (Tianjin) (the “Consulting Service Agreement”), King Eagle (China) is the exclusive consulting service provider to King Eagle (Tianjin) to provide business-related software research and development services; design, installation, and testing services; network equipment support, upgrade, maintenance, monitor, and problem-solving services; employees technical training services; technology development and sublicensing services; public relations services; market investigation, research, and consultation services; short to medium term marketing plan-making services; compliance consultation services; marketing events and membership related activities organizing services; intellectual property permits; equipment and rental services; and business-related management consulting services. Pursuant to the Consulting Service Agreement, the service fee is the remaining amount after King Eagle (Tianjin)’s profit before tax in the corresponding year deducts King Eagle (Tianjin)’s losses, if any, in the previous year, the necessary costs, expenses, taxes, and fees incurred in the corresponding year, and the withdraws of the statutory provident fund. King Eagle (Tianjin)agreed not to transfer its rights and obligations under the Consulting Service Agreement to any third party without prior written consent from King Eagle (China). In addition, King Eagle (China) may transfer its rights and obligations under the Consulting Service Agreement to King Eagle (China)’s affiliates without King Eagle (Tianjin)’s consent, but King Eagle (China) shall notify King Eagle (Tianjin) of such transfer. This Agreement is valid for a term of 10 years subject to any extension requested by King Eagle (China) unless terminated by King Eagle (China) unilaterally prior to the expiration.

 

Business Operation Agreement

 

Pursuant to the terms of certain Business Operation Agreement dated on May 15, 2021, among King Eagle (China), King Eagle (Tianjin)and the shareholders of King Eagle (Tianjin) (the “Business Operation Agreement”), 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 transactions that has substantial impact upon its operations, assets, rights, obligations, and personnel without the King Eagle (China)’s written approval. The shareholders of King Eagle (Tianjin) and King Eagle (Tianjin) will take King Eagle (China) ‘s advice on appointment or dismissal of directors, employment of King Eagle (Tianjin)’s employees, regular operation, and financial management of King Eagle (Tianjin). The shareholders of King Eagle (Tianjin) have agreed to transfer any dividends, distributions, or 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.

 

14

 

 

Proxy Agreement

 

Pursuant to the terms of the Proxy Agreement dated on May 15, 2021, among King Eagle (China), and the shareholders of King Eagle (Tianjin) (the “Proxy Agreement”), the shareholders of King Eagle (Tianjin) have entrusted their vote 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 consents of King Eagle (Tianjin) Shareholders and King Eagle (China) or upon a 30-day notice of King Eagle (China).

 

Equity Disposal Agreement

 

Pursuant to the terms of the Equity Disposal Agreement dated on 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 King Eagle (Tianjin)’s all or partial 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 in other methods 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 certain Equity Pledge Agreement dated on 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 Equity Disposal Agreement (each, a “Agreement”, collectively, the “Agreements”). If King Eagle (Tianjin) or its shareholders breach its respective contractual obligations under any Agreement, or cause to occur one of the events regards 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 Agreements 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.

 

15

 

 

Based on the foregoing VIE Agreements, King Eagle (China) has effective 100% fully control of King Eagle (Tianjin), which enables King Eagle (China) to receive all of their expected residual returns and absorb the expected losses of the VIE. 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 the King Eagle (Tianjin) are consolidated in the accompanying financial statements pursuant to ASC 810-10, Consolidation. In addition, their financial positions and results of operations are included in the Company’s financial statements.

 

The Company consolidated its VIE as of March 31, 2022 and September 30, 2021. The carrying amounts and classification of the VIE’s assets and liabilities included in the consolidated balance sheets are as follows:

 

   March 31,   September 30, 
   2022   2021 
         
Current assets  $3,789,832   $3,712,560 
Noncurrent assets   96,126    145,935 
Total assets   3,885,958    3,858,495 
Total liabilities   4,204,657    4,525,808 
Net liabilities  $(318,699)  $(667,313)

 

The VIE’s liabilities consisted of the following as of March 31, 2022 and September 30, 2021:

 

   March 31,   September 30, 
   2022   2021 
         
Current liabilities          
Trade and other payable  $535,525   $1,024,064 
Amount due to a related party   615,035    - 
Deferred revenue   2,800,070    3,122,705 
Payroll payable   4,817    14,802 
Tax payable   153,085    218,301 
Operating lease obligations-current portion   74,264    92,807 
Total current liabilities   4,182,796    4,472,679 
Total noncurrent liabilities        - 
Operating lease obligations-net of current portion   21,861    53,129 
Total noncurrent liabilities   21,861    53,129 
Total liabilities  $4,204,657   $4,525,808 

 

The operating results of the VIE were as follows:

 

   2022   2021   2022   2021 
  

For the three months ended

March 31,

  

For the six months ended

March 31,

 
   2022   2021   2022   2021 
                 
Revenue  $2,018,764   $1,627,633   $6,688,127   $2,173,594 
Gross profit   1,681,879    1,406,095    5,644,609    1,858,207 
Loss (income) from operations   (106,301)   180,512    331,555    (52)
Other income   7,395    96    26,429    117 
Net (loss) income  $(98,906)  $180,608   $357,984   $65 

 

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NOTE 4 - ADVANCE AND PREPAYMENTS

 

Prepayments consisted of the following:

 

   March 31,   September 30, 
   2022   2021 
Prepaid service fee(1)  $354,828   $349,019 
Prepaid rent and building management and utilities   51,409    85,474 
Prepaid supplies(2)   175,584    78,248 
Prepaid system maintenance services   -    5,209 
Prepaid income tax   5,784    5,689 
Prepaid professional services(3)   30,592    148,708 
Prepaid others   11,911    15,301 
Total prepayments  $630,108   $687,648 

 

  (1) Prepaid service fee was paid to Guoxin Star Network Co., Ltd (“Guoxin”) by our VIE, King Eagle (Tianjin). It represents prepayments for operation fee and the usage of the Smart Kiosk which are still under construction and development. Both parties are entitled to exercise the Force Majeure Clause of the contract signed between both parties. As such, this prepaid service fee may or may not be recoverable. Nevertheless, an impairment of this prepayment is not necessary because both parties have expressed the intention to progress with the construction of the Smart Kiosks, and thereafter, with the operation of the same as soon as the circumstances allow.
     
  (2) As of March 31, 2022, and September 30, 2021, the Company had prepared the supplies of $175,584 and $78,248, respectively. The prepayment will be recognized in cost of goods sold in its unaudited condensed consolidated statement of operations and comprehensive loss when the corresponding deferred revenue is recognized.
     
  (3)

As of March 31, 2022, the ending balance of prepaid professional services included two prepayments, $10,513, for the legal service fee for our PRC entities and $20,079 for the promotional and marketing fee. The legal service fee will be amortized to general and administrative expenses using the straight-line method, over the service periods of April and May 2022. The promotional and marketing fee will be amortized to selling expense using a straight-line method over the service periods from April 2022 through August 2022.

 

As of September 30, 2021, the ending balance of our prepaid professional service fee was $148,708. We amortized the legal service fee, $10,341, to general and administrative expenses by a straight-line method in October and November 2021. The remaining amount, $138,367, related to a prepayment for a planned marketing campaign but cancelled, was fully refunded to us on December 14, 2021.

 

These amounts are expected to be recoverable within twelve (12) months.

 

NOTE 5 - OTHER RECEIVABLES

 

Other receivables included the following:

 

   March 31,   September 30, 
   2022   2021 
Rental deposits  $94,935   $93,583 
Advance to employees   57,246    30,241 
Others   162    - 
Total other receivables, net  $152,343   $123,824 

 

Advance to employees represents funds provided to our officers and employees for the business expenses, such as travel, parking, gasoline, membership, meals, that are anticipated to be incurred by our officers and employees on behalf of the Company. Advances to employees are required to be repaid by cash within a year or employees are required to submit expense receipts for business expenses within three months.

 

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NOTE 6 - PROPERTY AND EQUIPMENT, NET

 

Property and equipment consisted of the following:

 

   March 31,   September 30, 
   2022   2021 
Leasehold improvements  $30,383   $29,886 
Furniture and fixtures   9,692    9,534 
Computer equipment   44,999    43,452 
Office equipment   1,661    1,633 
Computer software   18,869    11,971 
Subtotal   105,604    96,476 
Less: accumulated depreciation   (64,005)   (27,751)
Total property and equipment, net  $41,599   $68,725 

 

Depreciation expense was $26,156 and $6,238 for the three months ended March 31, 2022 and 2021, and $35,620 and $11,711 for the six months ended March 31, 2022 and 2021, respectively. On February 28, 2022, we entered into a lease agreement for our new office in Beijing. As we planned to move to a new office premise in May 2022, the estimated useful life of the leasehold improvements of our current office in Beijing changed from 60 months to 22 months. Accordingly, an additional amount of depreciation expense of the relative leasehold improvements, $15,118, was recognized in the three months ended March 31, 2022.

 

NOTE 7 – INTANGIBLE ASSETS

   March 31,   September 30, 
   2022   2021 
Trademarks  $2,748   $2,703 
Subtotal   2,748    2,703 
Less: accumulated amortization   (275)   (135)
Total intangible assets, net  $2,473   $2,568 

 

Intangible assets consist of the Company’s trademarks of King Eagle Mall with the useful life of ten years.

 

Amortization expense was $69 and nil for the three months ended March 31, 2022 and 2021, and $137 and nil for the six months ended March 31, 2022 and 2021, respectively.

 

NOTE 8 – DEFERRED REVENUE

 

   March 31,   September 30, 
   2022   2021 
Advance payments from customers  $2,800,070   $3,122,705 
Total deferred revenue  $2,800,070   $3,122,705 

 

Deferred revenue resulted from transactions where the Company received the advanced payments from the customers but revenue recognition criteria under the five-step model have yet to be met. As of March 31, 2022 and September 30, 2021, the Company had a total deferred revenue of $2,800,070 and $3,122,705, respectively. Once the five-step model criteria have been satisfied, revenues will be recognized upon satisfaction of the performance obligations and transfer of control to the customers.

 

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NOTE 9 - RELATED PARTY BALANCES AND TRANSACTIONS

 

Amounts due to related parties are payables arising from transactions between the Company and related parties, such as payments of operating expenses by such related parties on behalf of our entities in 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:

 

         March 31,   September 30, 
Name of related party  Relationship  Nature of transactions  2022   2021 
               
Mr. Yihe Pang  Director  Payments made to the lessors on behalf of King Eagle (China). The balance was paid off in December 2021.  $-   $39,629 
Ms. Xiujin Wang  One of the shareholders of King Eagle (Tianjin)  Operational support to King Eagle (Tianjin) to meet its working capital requirement.   615,035    - 
                 
Total        $615,035   $39,629 

 

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.

 

Preferred stock

 

The Company’s authorized shares of preferred stock were 10,000,000 shares, with a par value of $0.0001, 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 shall remain authorized. No shares of preferred stock were issued and outstanding as of March 31, 2022 and September 30, 2021.

 

Common stock

 

The Company’s authorized shares of common stock were 200,000,000 shares, with a par value of $0.0001. The issued and outstanding shares of common stock were 40,000,000 as of March 31, 2022 and September 30, 2021, respectively.

 

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 British Virgin Islands on April 20, 2021, and (ii) the five members of KP International to acquire all the issued and outstanding capital stock of KP International in exchange for the issuance to those members of an aggregate of 34,158,391 shares of our common stock (“Reverse Acquisition”). Pursuant to the terms of the Exchange Agreement, and as a condition to the completion of the transactions contemplated by the Share Exchange Agreement, the Company also agreed to enter into an agreement with Wenhai Xia (“the Stockholder”), to cancel an aggregate of 15,535,309 shares of the Company’s Common Stock owned by the Stockholder. The Reverse Acquisition was completed on May 17, 2021.

 

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For accounting purpose, 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 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 Acquisition. The equity structure of the Company was retrospectively adjusted under ASC Topic 805-40.

 

As of March 31, 2022, there were 40,000,000 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 its subsidiary or VIE. Relevant PRC statutory laws and regulations permit payments of dividends by only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations and after it has met the PRC requirements for appropriation to statutory reserves. Share capital of the PRC subsidiary and VIE included in the Company’s consolidated net assets are also non-distributable for dividend purposes. The results of operations reflected in the accompanying consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of King Eagle (China), the foreign-invested enterprise, King Eagle (Tianjin), the VIE and KP Tian Yu. The Company is required to set aside at least 10% of their 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 two entities from transferring funds to the Company in the form of dividends, loans, and advances. As of March 31, 2022 and September 30, 2021, 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 the VIE that are included in the Company’s consolidated financial statements. As of March 31, 2022, King Eagle (China), King Eagle (Tianjin) and KP Tian Yu incurred negative net assets which amounted to $1,592,689, $318,699 and $nil, respectively. As of September 30, 2021, King Eagle (China), King Eagle (Tianjin) and KP Tian Yu incurred negative net assets which amounted to $1,039,840, $667,313 and nil, respectively. Accordingly, the Company did not accrue statutory reserve funds as of March 31, 2022 and September 30, 2021.

 

NOTE 11- INCOME TAXES

 

The Company accounts for income taxes pursuant to the accounting standards that requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carryforwards. Additionally, the accounting standards require the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. The Company and its subsidiaries file separate income tax returns.

 

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United States

 

Kun Peng International Ltd is incorporated in the State of Nevada and is subject to the United States federal corporate income. No provision for income taxes in the U.S. has been made as the Company has no U.S. taxable income for the three months ended March 31, 2022 and 2021 and for the six months ended March 31, 2022 and 2021.

 

British Virgin Islands

 

KP International is a holding corporation organized as an International Business Company under the laws of the British Virgin Islands (“BVI”), and its principal operating subsidiaries are organized under the laws of Hong Kong and the laws of the PRC. KP International and its subsidiaries are not subject to income taxes in the BVI.

 

Hong Kong

 

The two-tier profits tax rates system was introduced under the Inland Revenue (Amendment)(No.3) Ordinance 2018 (“the Ordinance”) of Hong Kong 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%. The Ordinance only allows 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 of them has control over the other; (2) both of them are under the control (more than 50% of the issued share capital) of the same entity; (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 be subject to the two-tier profits tax rates on its profits tax return. The election is irrevocable. The Company elected KP (Hong Kong) to be subject to the two-tier profits tax rates. KP Industrial and KP (Hong Kong) did not earn any income that was derived in Hong Kong for three months ended March 31, 2022 and 2021 and for the six months ended March 31, 2022 and 2021; 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 PRC are subject to income tax rate of 25%, unless otherwise specified.

 

Income tax expense was comprised of the following:

 

   2022   2021    2022    2021 
   For the three months ended March 31   For the six months ended March 31 
   2022   2021    2022    2021 
Current  $   $    $    $ 
Federal   -    -     -     - 
State   -    -     -     - 
Foreign   -    -     -     - 
Total current      -    -     -     - 
                                   
Deferred                      
Federal   -    -     -     - 
State   -    -     -     - 
Foreign   -    -     -     - 
Total deferred   -    -     -     - 
                       
Total income tax expense  $-   $-    $-    $- 

 

 

21

 

 

A reconciliation between the Company’s actual provision for income taxes and the provision at the statutory rate is as follow:

 

   2022   2021   2022   2021 
  

For the three months ended

March 31,

  

For the six months ended

March 31,

 
   2022   2021   2022   2021 
Loss before income tax expense  $(614,677)  $(274,360)  $(276,819)  $(645,078)
Computed tax expense (benefit) with statutory tax rate   21.0%   25.0%   21.0%