10-Q 1 f10q0322_gusheninc.htm QUARTERLY REPORT

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended: March 31, 2022

 

OR

 

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

 

For the transition period from _______to _______

 

Commission File Number 000-55666

 

Gushen, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada   47-3413138
(State or other jurisdiction of
Incorporation or organization)
  (IRS Employer
Identification No.)

 

Room 513, 5th Floor, No. 5 Haiying Road

Fengtai District, Beijing, China

(Address of principal executive offices)

 

+ 86-139-4977-8662

(Issuer’s telephone number including area code)

 

(Former name, former address, and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   N/A   N/A

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 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. (Check one):

 

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 

 

State the number of shares outstanding of each of the issuer’s classes of common equity as of the latest practicable date. As of the date hereof, there are 410,618,750 shares of common stock issued and outstanding.   

 

 

 

 

 

 

GUSHEN, INC.

 

CONTENTS

 

PART 1 – FINANCIAL INFORMATION 1
   
Item 1. – Financial Statements 1
   
Condensed Consolidated Balance Sheets 1
   
Condensed Consolidated Statements of Operations (unaudited) 2
   
Condensed Consolidated Statements of Stockholders’ Deficit (unaudited) 3
   
Condensed Consolidated Statements of Cash Flows (unaudited) 4
   
Notes to Condensed Consolidated Financial Statements (unaudited) 5
   
Item 2. – Management’s Discussion and Analysis of Financial Condition And Results of Operations 19
   
Item 3. – Quantitative and Qualitative Disclosures about Market Risk 31
   
Item 4. – Controls and Procedures 31
   
PART II – OTHER INFORMATION 32
   
Item 1. – Legal Proceedings 32
   
Item 1A. – Risk Factors 32
   
Item 2. – Unregistered Sales of Equity Securities and Use of Proceeds 32
   
Item 3. – Defaults Upon Senior Securities 32
   
Item 4. – Mine Safety Disclosures 32
   
Item 5. – Other Information 32
   
Item 6. – Exhibits 33
   
SIGNATURES 34

 

i

 

 

PART I: FINANCIAL INFORMATION

 

Item 1. - Financial Statements  

 

GUSHEN, INC.

 

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS 

 

(In U.S. dollars except Number of Shares)

 

   March 31,   September 30, 
   2022   2021 
   (Unaudited)     
ASSETS        
CURRENT ASSETS        
Cash and cash equivalents  $1,285,126   $2,659,116 
Other monetary funds   511    506 
Prepayment   678,187    618,325 
Other receivables   100,688    198,656 
Due from related parties   65,920    51,276 
Inventory   423,551    414,063 
Total Current Assets   2,553,983    3,941,942 
           
NON-CURRENT ASSETS          
Other long-term assets   445,657    798,518 
Property, plant and equipment, net   199,226    217,365 
Intangible assets   68,757    73,183 
Deferred tax asset   1,947,476    1,922,113 
Total non-Current Assets   2,661,116    3,011,179 
           
TOTAL ASSETS  $5,215,099   $6,953,121 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
CURRENT LIABILITIES          
Accounts payable  $2,420,074   $2,368,900 
Contract liability   273,509    170,430 
Amount due to related parties   565    543 
Payroll payable   852,523    843,237 
Tax payable   6,010,728    5,918,303 
Other payable   27,098    13,892 
Total Current Liabilities   9,584,497    9,315,305 
           
TOTAL LIABILITIES   9,584,497    9,315,305 
           
COMMITMENTS AND CONTINGENCIES   
 
    
 
 
           
STOCKHOLDERS’ (DEFICIT) EQUITY          
Preferred stock, par value $0.0001, 1,000,000 shares authorized, 1,000,000 shares issued and outstanding as of March 31, 2022 and 1,000,000 shares issued and outstanding as of September 30, 2021*   100    100 
Common stock, Par Value $0.0001, 600,000,000 shares authorized, 410,618,750 shares issued and outstanding as of March 31, 2022 and 410,618,750 shares issued and outstanding as of September 30, 2021*   41,062    41,062 
Additional paid-in capital   40,498    40,498 
Statutory reserve   1,545    1,545 
(Accumulated deficits) retained earnings   (4,578,091)   (2,607,865)
Accumulated other comprehensive gain (loss)   126,377    163,360 
           
Non-controlling interest   (889)   (884)
Total Stockholders’ (Deficit) Equity   (4,369,398)   (2,362,184)
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $5,215,099   $6,953,121 

 

*Outstanding and issued shares retrospectively reflected the effect of recapitalization due to reverse acquisition

 

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

 

1

 

  

GUSHEN, INC. 

 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

 (In U.S. dollars except Number of Shares)

 

(UNAUDITED)

 

   For The Three Months Ended   For The Six Months Ended 
   March 31,   March 31, 
   2022   2021   2022   2021 
                 
REVENUE  $445,268   $19,331   $541,446   $1,280,803 
                     
COST OF REVENUE   285,998    81,854    347,291    843,133 
                     
GROSS PROFIT   159,270    (62,523)   194,155    437,670 
                     
OPERATING EXPENSES                    
Selling expenses   425,737    1,923,611    1,430,181    4,006,454 
General and administrative expenses   346,039    506,707    738,214    1,008,713 
Total Operating Expenses, net   771,776    2,430,318    2,168,395    5,095,167 
                     
LOSS FROM OPERATIONS   (612,506)   (2,492,841)   (1,974,240)   (5,423,875)
                     
OTHER INCOME (EXPENSE), NET                    
Interest income   951    9,828    2,646    14,971 
Other income   1,903    5,846    4,023    15,083 
Other expense   (125)   (7,698)   (2,660)   (9,847)
Total Other Income (Expense), net   2,729    7,976    4,009    20,207 
                     
NET (LOSS) INCOME BEFORE TAXES   (609,777)   (2,484,865)   (1,970,231)   (4,637,290)
                     
Income tax benefit (expense)   
-
    74,852    
-
    74,852 
                     
NET (LOSS) INCOME   (609,777)   (2,410,013)   (1,970,231)   (4,562,438)
                     
Less: Net income attributable to non-controlling interests   12    (87)   (5)   (87)
                     
NET LOSS ATTRIBUTE TO THE COMPANY’S SHAREHOLDERS   (609,789)   (2,409,926)   (1,970,226)   (4,562,351)
                     
OTHER COMPREHENSIVE INCOME (LOSS)                    
Foreign currency translation adjustment   (1,817)   (507)   (36,983)   274,924 
                     
COMPREHENSIVE LOSS  $(611,606)  $(2,410,433)  $(2,007,209)  $(4,287,427)
                     
Basic and diluted loss per share*  $(0.001)  $(0.006)  $(0.005)  $(0.010)
                     
Weighted average number of common shares outstanding – basic and diluted*   410,618,750    410,618,750    410,618,750    410,618,750 

 

*Outstanding and issued shares retrospectively reflected the effect of recapitalization due to reverse acquisition

 

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

 

2

 

 

GUSHEN, INC.

 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

FOR THE SIX MONTHS ENDED march 31, 2022 and 2021

 

(In U.S. dollars except Number of Shares)

 

(UNAUDITED)

 

   Preferred Stock   Common Stock     Additional Paid-in       Statutory       Retained   Accumulated other comprehensive     Non- controlling     Total Stockholders’ 
   Shares   Value   Shares   Value   Capital   reserves   Earnings   income (loss)   interests   Equity 
Balance at September 30, 2020*   1,000,000   $100    410,618,750   $41,062   $40,498   $1,545   $7,306,289   $(145,325)  $
-
   $7,244,169 
                                                   
Net income (loss)        
 
         
 
    
 
    
 
    (4,562,351)   
 
    (87)   (4,562,438)
                                                   
Foreign currency translation adjustment        
 
         
 
    
 
    
 
    
 
    274,924    
 
    274,924 
                                                   
Balance at March 31, 2021   1,000,000   $100    410,618,750   $41,062   $40,498   $1,545   $2,743,938   $129,599   $(87)  $2,956,655 

 

   Preferred Stock   Common Stock     Additional Paid-in       Statutory       Retained   Accumulated other comprehensive     Non- controlling     Total Stockholders’ 
   Shares   Value   Shares   Value   Capital   reserves   Earnings   income (loss)   interests   Equity 
Balance at September 30, 2021   1,000,000   $100    410,618,750   $41,062   $40,498   $1,545   $(2,607,865)  $163,360   $(884)  $(2,362,184)
                                                   
Net income (loss)        
 
         
 
    
 
    
 
    (1,970,226)   
 
    (5)   (1,970,231)
                                                   
Foreign currency translation adjustment        
 
         
 
    
 
    
 
    
 
    (36,983)        (36,983)
                                                   
Balance at March 31, 2022   1,000,000   $100    410,618,750   $41,062   $40,498   $1,545   $(4,578,091)  $126,377   $(889)  $(4,369,398)

 

  * Outstanding and issued shares retrospectively reflected the effect of recapitalization due to reverse acquisition

 

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

 

3

 

 

GUSHEN, INC.

 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(In U.S. dollars)

 

(UNAUDITED)

 

   For The Six Months Ended 
   March 31, 
   2022   2021 
         
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net (loss) income  $(1,970,231)  $(4,562,438)
Adjustments to reconcile net income (loss) to net cash used in operating activities:          
(Recovery) provision for doubtful accounts   
 
    
 
 
Inventory impairment   
-
    (2,681)
Depreciation   37,294    54,994 
Amortization of prepaid expenses   320,141    1,320,944 
Changes in operating assets and liabilities:          
Other receivables   100,292    1,939,092 
Advances to suppliers   (9,366)   (156,763)
Due from related party   (13,927)   96,006 
Due to related parties   16    
-
 
Inventory   (4,012)   61,632 
Deferred tax asset   
-
    (74,852)
Tax payables   14,289    (15,505)
Other payables   12,985    3,526 
Accounts payable   19,856    (174,121)
Contract liability   100,535    (1,047,413)
Payroll payable   (1,835)   94,470 
Net cash used in operating activities   (1,393,963)   (2,463,109)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchase of property and equipment   (10,971)   (92,797)
Net cash used in investing activities   (10,971)   (92,797)
           
EFFECT OF EXCHANGE RATE ON CASH   30,949    195,428 
           
NET CHANGE IN CASH AND CASH EQUIVALENTS   (1,373,985)   (2,360,478)
           
CASH AT BEGINNING OF YEAR  $2,659,622    7,134,106 
           
CASH AT END OF YEAR  $1,285,637    4,773,628 
           
SUPPLEMENTAL CASH FLOW INFORMATION          
Cash paid during the years for:          
Income taxes  $
-
    
-
 
Interest  $
-
    
-
 

 

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

 

4

 

 

GUSHEN, INC.

 

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(In U.S. dollars except Number of Shares)

 

1. ORGANIZATION AND BUSINESS

 

Gushen, Inc. (the “Company”) was incorporated on March 9, 2015, in the state of Nevada.

 

On July 30, 2021, the Company, and Dyckmanst Limited, a company organized under the laws of the British Virgin Islands (“Dyckmanst Limited”), and all shareholders of Dyckmanst Limited immediately prior to the closing (collectively, the “Dyckmanst Limited Shareholders”, each, a “Dyckmanst Limited Shareholder”) entered into a share exchange agreement (the “Share Exchange Agreement”), pursuant to which the Company acquired 100% of the issued and outstanding equity securities of Dyckmanst Limited in exchange for 381,600,000 shares of common stock, par value $0.0001 per share (the “Common Stock”) of the Company (the “Share Exchange”). Immediately prior to the closing of the Share Exchange, two existing holders of aggregated 30,000,000 shares of Series A preferred stock of the Company, par value $0.0001 per share (the “Preferred Stock”) delivered 29,000,000 shares of Preferred Stock to the Company for cancellation (“the “Cancellation of Certain Preferred Stock”), each share of Preferred Stock is convertible into 10 shares of Common Stock. Prior to the Share Exchange, there were 29,018,750 shares of Common Stock issued and outstanding. Immediately following the closing of the Share Exchange, there are 410,618,750 shares of Common Stock issued and outstanding  and 1,000,000 shares of Preferred Stock issued and outstanding. Dyckmanst Limited Shareholders collectively control 90.72% voting power of the Company on as converted basis, with respect to all of the shares of common stock and preferred stock, voting as a single class, with each share of common stock entitles to 1 vote and each share of preferred stock entitles to 10 votes. 

 

Dyckmanst Limited, via Beijing Zhuoxun Century Culture Communication Co., Ltd. (“Zhuoxun Beijing”), an affiliated entity incorporated in the People’s Republic of China (“PRC”), engages in providing family education resources to promote all-around education onsite in local communities organized by its regional collaborative education agencies and offering parents easy access to a wide variety of courses online through mobile applications.

 

In February 2021, Beijing Fengyuan Zhihui Education Technology Co., Ltd. (“Fengyuan Beijing”), a wholly foreign-owned enterprise under PRC law and subsidiary of Dyckmanst Limited, entered into a series of contractual agreements with Zhuoxun Beijing, and the shareholders of Zhuoxun Beijing for Zhuoxun Beijing to qualify as a variable interest entity or VIE (the “VIE Agreements”), which are summarized below. The following summary of the VIE Agreements does not purport to be complete and is subject to, and qualified in its entirety by, the VIE Agreement filed as exhibits to a Current Report on Form 8-K/A filed on August 6, 2021.

 

Consulting Service Agreement

 

Pursuant to the terms of an Exclusive Consulting and Service Agreement dated February 5, 2021, between Fengyuan Beijing and Zhuoxun Beijing (the “Consulting Service Agreement”), Fengyuan Beijing is the exclusive consulting and service provider to Zhuoxun Beijing 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 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 planning and 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 Zhuoxun Beijing’s profit before tax in the corresponding year deducts Zhuoxun Beijing’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. Zhuoxun Beijing agreed not to transfer its rights and obligations under the Consulting Service Agreement to any third party without prior written consent from Fengyuan Beijing. In addition, Fengyuan Beijing may transfer its rights and obligations under the Consulting Service Agreement to Fengyuan Beijing’s affiliates without Zhuoxun Beijing’s consent, but Fengyuan Beijing shall notify Zhuoxun Beijing of such transfer. This Agreement is valid for a term of 10 years subject to any extension requested by Fengyuan Beijing unless terminated by Fengyuan Beijing unilaterally prior to the expiration.

 

Business Operation Agreement

 

Pursuant to the terms of a Business Operation Agreement dated February 5, 2021, among Fengyuan Beijing, Zhuoxun Beijing and the shareholders of Zhuoxun Beijing (the “Business Operation Agreement”), Zhuoxun Beijing has agreed to subject the operations and management of its business to the control of Fengyuan Beijing. According to the Business Operation Agreement, Zhuoxun Beijing is not allowed to conduct any transactions that has substantial impact upon its operations, assets, rights, obligations and personnel without the Fengyuan Beijing’s written approval. The shareholders of Zhuoxun Beijing and Zhuoxun Beijing will take Fengyuan Beijing’s advice on appointment or dismissal of directors, employment of Zhuoxun Beijing’s employees, regular operation, and financial management of Zhuoxun Beijing. The shareholders of Zhuoxun Beijing have agreed to transfer any dividends, distributions or any other profits that they receive as the shareholders of Zhuoxun Beijing to Fengyuan Beijing without consideration. The Business Operation Agreement is valid for a term of 10 years or longer upon the request of Fengyuan Beijing prior to the expiration thereof. The Business Operation Agreement might be terminated earlier by Fengyuan Beijing with a 30-day written notice. 

 

5

 

 

Proxy Agreement

 

Pursuant to the terms of a Proxy Agreements dated February 5, 2021, among Fengyuan Beijing, and the shareholders of Zhuoxun Beijing (each, the “Proxy Agreement”, collectively, the “Proxy Agreements”), each shareholder of Zhuoxun Beijing has irrevocably entrusted his/her shareholder rights as Zhuoxun Beijing’s shareholder to Fengyuan Beijing, including but not limited to, proposing the shareholder meeting, accepting any notices with regard to the convening of shareholder meeting and any other procedures, conducting voting rights, and selling or transferring the shares held by such shareholder, for 10 years or earlier if the Business Operation Agreement was terminated for any reasons.

 

Equity Disposal Agreement

 

Pursuant to the terms of an Equity Disposal Agreement dated February 5, 2021, among Fengyuan Beijing, Zhuoxun Beijing, and the shareholders of Zhuoxun Beijing (the “Equity Disposal Agreement”), the shareholders of Zhuoxun Beijing granted Fengyuan Beijing or its designees an irrevocable and exclusive purchase option (the “Option”) to purchase Zhuoxun Beijing’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 Fengyuan Beijing’s discretion in full or in part, to the extent permitted by PRC law. The shareholders of Zhuoxun Beijing agreed to give Zhuoxun Beijing the total amount of the exercise price as a gift, or in other methods upon Fengyuan Beijing’s written consent to transfer the exercise price to Zhuoxun Beijing. The Equity Disposal Agreement is valid for a term of 10 years or longer upon the request of Fengyuan Beijing.

 

Equity Pledge Agreement

 

Pursuant to the terms of an Equity Pledge Agreement dated February 5, 2021, among Fengyuan Beijing and the shareholders of Zhuoxun Beijing (the “Pledge Agreement”), the shareholders of Zhuoxun Beijing pledged all of their equity interests in Zhuoxun Beijing to Fengyuan Beijing, including the proceeds thereof, to guarantee Zhuoxun Beijing’s performance of its obligations under the Business Operation Agreement, the Consulting Service Agreement and the Equity Disposal Agreement (each, a “Agreement”, collectively, the “Agreements”). If Zhuoxun Beijing or its shareholders breach its respective contractual obligations under any Agreements, or cause to occur one of the events regards as an event of default under any Agreements, Fengyuan Beijing, as pledgee, will be entitled to certain rights, including the right to dispose of the pledged equity interest in Zhuoxun Beijing. During the term of the Pledge Agreement, the pledged equity interests cannot be transferred without Fengyuan Beijing’s prior written consent. The Pledge Agreements is valid until all the obligations due under the Agreements have been fulfilled.

 

Based on these contractual arrangements, the Company consolidates the VIE in accordance with SEC Regulation S-X Rule 3A-02 and Accounting Standards Codification (“ASC”) topic 810 (“ASC 810”), Consolidation.

 

The accompanying interim condensed consolidated financial statements reflect the activities of each of the following entities:

 

Name     Background   Ownership
Dyckmanst Limited       A British Virgin Islands company   Holding Entity
             
      Principal activities: Investment holding    
    ·        
Edeshler Limited       A Hong Kong company   100%
             
      Principal activities: Investment holding    
             
Beijing Fengyuan Zhihui Education Technology Co., Ltd.       A PRC limited liability company and deemed a wholly foreign-invested enterprise   100%
             
      Principal activities: Consultancy and information technology support    
             
Beijing Zhuoxun Century Culture Communication Co., Ltd.       A PRC limited liability company   VIE by contractual arrangements
             
      Incorporated on September 2, 2020  
             
      Principal activities: family education services via online and onsite classes    
             
Beijing Zhuoxun Education Technology Co., Ltd.       A PRC limited liability company   70% owned by VIE
             
      Principal activities: promotion and support    

 

6

 

 

The following combined financial information of the VIE  as of March 31, 2022 and September 30, 2021 and for the six months ended March 31, 2022 and 2021 included in the accompanying consolidated financial statements of the Company  was as follows:

 

   At
March 31,
   At
September 30,
 
   2022   2021 
   (Unaudited)     
CURRENT ASSETS        
Cash and cash equivalents  $1,199,047   $2,559,546 
Other monetary funds   511    506 
Prepayment   678,187    618,325 
Other receivables   85,739    183,900 
Intercompany receivables   191,515    189,021 
Due from related parties   65,920    51,276 
Inventory   423,551    414,063 
Total Current Assets   2,644,470    4,016,637 
           
NON-CURRENT ASSETS          
Other long-term assets   445,657    798,518 
Property, plant and equipment, net   199,226    217,365 
Intangible assets   68,757    73,183 
Deferred tax asset   1,947,476    1,922,113 
Total non-Current Assets   2,661,116    3,011,179 
           
TOTAL ASSETS  $5,305,586   $7,027,816 
           
CURRENT LIABILITIES          
Accounts payable  $2,420,074   $2,368,900 
Contract liability   273,509    170,430 
Amount due to related parties   16    1 
Payroll payable   852,523    843,237 
Tax payable   6,010,728    5,918,303 
Other payable   16,216    13,892 
Total Current Liabilities   9,573,066    9,314,763 
           
TOTAL LIABILITIES  $9,573,066   $9,314,763 

 

   For The Three Months Ended   For The Six Months Ended 
   March 31,   March 31, 
   2022   2021   2022   2021 
                 
REVENUE                
Training Revenue  $426,840   $19,220   $521,995   $1,279,820 
Mobile Phone Revenue   
-
    
-
    
-
    
-
 
Other Revenue   18,428    111    19,451    983 
Total revenues   445,268    19,331    541,446    1,280,803 
                     
NET (LOSS) INCOME  $(609,777)  $(2,459,331)  $(1,970,231)  $(4,531,756)

 

   For The Six Months Ended 
   March 31, 
   2022   2021 
   (Unaudited)   (Unaudited) 
Net cash used in operating activities  $(1,393,963)  $(2,434,293)
Net cash provided by (used in) investing activities   (10,971)   (92,797)
Net cash provided by financing activities   
-
    
-
 

 

7

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

 

Going Concern

 

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to operate profitably, to generate cash flows from operations, and to pursue financing arrangements to support its working capital requirements.

 

In assessing the Company’s liquidity, the Company monitors and analyzes its cash and cash equivalents and its operating and capital expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations. As of March 31, 2022, the Company’s current liabilities exceeded the current assets by $7,030,514, its accumulated deficit was $4,578,091 and the Company has incurred losses during the six months ended March 31, 2022 and 2021. None of the Company’s stockholders, officers or directors, or third parties, are under any obligation to advance us funds, or to invest in us. Accordingly, we may not be able to obtain additional financing. If we are unable to raise additional capital, we may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of our business plan, and reducing overhead expenses. We cannot provide any assurance that new financing will be available to us on commercially acceptable terms, if at all.

 

In evaluating if there is substantial doubt about the ability to continue as a going concern, the Company are trying to alleviate the going concern risk through (1) increasing cash generated from operations by controlling operating expenses and increasing more online and offline training sessions to bring in more training revenue, (2) financing from domestic banks and other financial institutions, and (3) equity or debt financing. The Company has certain plans to mitigate these adverse conditions and to increase the liquidity.

 

On an on-going basis, the Company will also receive financial support commitments from the Company’s related parties.

 

These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

 

Use of Estimates

 

The preparation of these interim condensed consolidated financial statements in conformity with U.S. GAAP requires management of the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an on-going basis, the Company evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Identified below are the accounting policies that reflect the Company’s most significant estimates and judgments, and those that the Company believes are the most critical to fully understanding and evaluating its interim condensed consolidated financial statements.

 

COVID-19 Outbreak

 

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, workforces, customers, and created significant volatility and disruption of financial markets. It has also disrupted the normal operations of many businesses, including ours and Zhuoxun Beijing’s. This outbreak could decrease spending, adversely affect demand for Zhuoxun Beijing’s services and harm Zhuoxun Beijing’s business and results of operations. Since March 2020, as different variants and subvariants of COVID-19 developed and spread in various regions across China, PRC provincial and local governments have imposed various forms of strict lockdowns, mass testing and extensive contact tracing measures for extended periods of time. Recent examples  include lockdown measures put in place by the local governments in Shenzhen, Guangdong Province, Changchun, Jilin Province and City of Shanghai in March - May 2022. Zhuoxun Beijing’s main business would continue to be affected by China’s anti-epidemic measures such as restrictions on public gatherings during the COVID-19 pandemic. It is not possible for us to predict the duration or magnitude of the adverse results of the outbreak and its effects on Zhuoxun Beijing’s business or results of operations at this time.

 

8

 

 

Revenue Recognition

 

The Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) the Company satisfies the performance obligation.

 

Revenues are recognized when control of the promised goods or services is transferred to our customers, which may occur at a point in time or over time depending on the terms and conditions of the agreement, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

 

The Company identified the following performance obligations for each type of contract:

 

Training Revenue

 

The Company’s offline training course service primarily includes assigning instructors, providing offline classes and presenting training materials to the course participants who attend the classes. The series of tasks as discussed above are interrelated and are not separable or distinct as the clients cannot benefit from the standalone task.

 

The Company’s online training course service primarily includes coursewares or videos which are already published on the website. Other than providing the access, there are no bundle or multiple separable and distinct tasks.

 

According to ASC 606-10-25-19, there is one performance obligation for the training course service.

 

Mobile Phone Revenue

 

The Company’s sales contracts of anti-addiction mobile phone device provide that the Company provides multiple delivery of the product specified in the contracts. The contacts identify the quantity, product model, product type and unit price of the product that will be sold to our customers. The contracts allow the customers to place separate orders within the credit limit as specified in the contracts. The delivery is based on the quantity the customers order. The Company’s customers can benefit from the mobile phone devices every time it delivers to them. Therefore, the delivery of the products is separately identifiable and distinct.

 

Hence, there are multiple performance obligations in each of the sale contracts of anti-addiction mobile phone device. 

 

Practical expedients and exemption

 

The Company has not occurred any costs to obtain contracts, and does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

 

Other service income is earned when services have been rendered.

 

9

 

 

Revenue by major product line

 

   For The Three Months Ended   For The Six Months Ended 
   March 31,   March 31, 
   2022   2021   2022   2021 
                 
Training Revenue  $426,840   $19,220   $521,995   $1,279,820 
Mobile Phone Revenue   
 -
    
-
    
-
    
-
 
Other Revenue    18,428    111    19,451    983 
Total Revenue  $18,428   $19,331   $541,446   $1,280,803 

 

Income Taxes

 

We account for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

 

We apply ASC 740, Accounting for Income Taxes, to account for uncertainty in income taxes and the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.

 

Foreign Currency and Foreign Currency Translation

 

The functional currency of the Company is the United States dollar (“US dollar”). Fengyuan Beijing and Zhuoxun Beijing, which are based in PRC, use the local currency, the Chinese Yuan (“RMB”), as their functional currencies. An entity’s functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements.

 

Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are re-measured at the applicable rates of exchange in effect at that date. Gains and losses resulting from foreign currency re-measurement are included in the statements of comprehensive loss.

 

The interim condensed consolidated financial statements are presented in U.S. dollars. Assets and liabilities are translated into U.S. dollars at the current exchange rate in effect at the balance sheet date, and revenues and expenses are translated at the average of the exchange rates in effect during the reporting period. Stockholders’ equity accounts are translated using the historical exchange rates at the date the entry to stockholders’ equity was recorded, except for the change in retained earnings during the period, which is translated using the historical exchange rates used to translate each period’s income statement. Differences resulting from translating functional currencies to the reporting currency are recorded in accumulated other comprehensive income in the interim condensed consolidated balance sheets.

 

10

 

 

Translation of amounts from RMB into U.S. dollars has been made at the following exchange rates:

 

Balance sheet items, except for equity accounts     
March 31, 2022  RMB6.3393 to $1 
September 30, 2021  RMB6.4567 to $1 
      
Income statement and cash flows items     
For the six months ended March 31, 2022  RMB 6.3694 to $1 
For the six months ended March 31, 2021  RMB6.5519 to $1 

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist of cash on hand and at banks and highly liquid investments, which are unrestricted from withdrawal or use, and which have original maturities of three months or less when purchased.

 

Other monetary funds

 

Other monetary funds consist of cash deposited in financial institutions other than banks.

 

Accounts Receivable, Net

 

The carrying value of accounts receivable is reduced by an allowance that reflects the Company’s best estimate of the amounts that will not be collected. The Company makes estimations of the collectability of accounts receivable. Many factors are considered in estimating the general allowance, including reviewing delinquent accounts receivable, performing an aging analysis and a customer credit analysis, and analyzing historical bad debt records and current economic trends.

 

The adoption of the new revenue standards did not change the Company’s historical accounting methods for its accounts receivable.

 

Long-Lived Assets

 

Long-lived assets consist primarily of property, plant and equipment and intangible assets.

 

Property, plant and equipment

 

Property, plant and equipment are recorded at cost less accumulated depreciation and accumulated impairment. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

 

   Estimated useful lives (years)
Office and computer equipment  5
Lease improvement  3
Transportation equipment  5

 

Expenditure for maintenance and repairs is expensed as incurred.

 

The gain or loss on the disposal of property, plant and equipment is the difference between the net sales proceeds and the lower of the carrying value or fair value less cost to sell the relevant assets and is recognized in general and administrative expenses in the interim condensed consolidated statements of comprehensive loss.

 

11

 

 

Intangible Assets

 

Intangible assets mainly comprise domain names and trademarks. Intangible assets are recorded at cost less accumulated amortization with no residual value. Amortization of intangible assets o is computed using the straight-line method over their estimated useful lives.

 

The estimated useful lives of the Company’s intangible assets are listed below:

 

   Estimated useful lives (years)
Software  10

 

Impairment of Long-lived Assets

 

In accordance with ASC 360-10-35, the Company reviews the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Based on the existence of one or more indicators of impairment, the Company measures any impairment of long-lived assets using the projected discounted cash flow method at the asset group level. The estimation of future cash flows requires significant management judgment based on the Company’s historical results and anticipated results and is subject to many factors. The discount rate that is commensurate with the risk inherent in the Company’s business model is determined by its management. An impairment loss would be recorded if the Company determined that the carrying value of long-lived assets may not be recoverable. The impairment to be recognized is measured by the amount by which the carrying values of the assets exceed the fair value of the assets. No impairment has been recorded by the Company as of March 31, 2022 and September 30, 2021.

 

Credit risk

 

Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents. As of March 31, 2022 and September 30, 2021, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in the PRC, which management believes are of high credit quality.

 

For the credit risk related to trade accounts receivable, the Company performs ongoing credit evaluations of its customers and, if necessary, maintains reserves for potential credit losses. Historically, such losses have been within management’s expectations.

 

Segments

 

The Company evaluates a reporting unit by first identifying its operating segments, and then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meets the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated. The Company has only one major reportable segment in the periods presented.

 

12

 

 

Fair Value of Financial Instruments

 

U.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financial instruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three-tier fair value hierarchy is:

 

Level 1 – observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

Level 2 – include other inputs that are directly or indirectly observable in the market place.

 

Level 3 – unobservable inputs which are supported by little or no market activity.

 

The carrying value of the Company’s financial instruments, including cash and cash equivalents, accounts and other receivables, other current assets, accounts and other payables, and other short-term liabilities approximate their fair value due to their short maturities.

 

In accordance with ASC 825, for investments in financial instruments with a variable interest rate indexed to performance of underlying assets, the Company elected the fair value method at the date of initial recognition and carried these investments at fair value. Changes in the fair value are reflected in the accompanying interim condensed statements of operations and comprehensive loss as other income (expense). To estimate fair value, the Company refers to the quoted rate of return provided by banks at the end of each period using the discounted cash flow method. The Company classifies the valuation techniques that use these inputs as Level 2 of fair value measurements.

 

As of March 31, 2022 and September 30, 2021, the Company had no investments in financial instruments.

 

Restricted assets

 

Fengyuan Beijing and Zhuoxun Beijing are restricted in their ability to transfer a portion of their net assets to the Company. The payment of dividends by entities organized in China is subject to limitations, procedures and formalities. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. Fengyuan Beijing and Zhuoxun Beijing are also required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its statutory reserves account until the accumulative amount of such reserves reaches 50% of its respective registered capital. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.

 

In addition, the Company’s operations are conducted and revenues are generated in China, and all of the Company’s revenues earned and currency received are denominated in RMB. RMB is subject to the foreign exchange control regulation in China, and, as a result, the Company may be unable to distribute any dividends outside of China due to PRC foreign exchange control regulations that restrict the Company’s ability to convert RMB into U.S. dollars.

 

Recent Accounting Pronouncements

 

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.

 

In October 2020, the FASB issued ASU 2020-10, Codification Improvements. This update ensures all disclosure guidance that requires or provides an option for an entity to provide notes to the financial statements is included in the Disclosure Section (Section 50) of the Codification. This update also provides various codification improvements in which the original guidance was unclear. This update becomes effective for annual periods beginning after December 15, 2020 and early adoption is permitted for any annual or interim period for which financial statements have not been issued. The Company does not expect the adoption of this new standard will have a material impact on its financial condition or results of operations.

 

Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have material impact on the consolidated financial position, statements of operations and cash flows. 

 

13

 

 

3. PREPAYMENTS

 

Prepayments consist of the following:

 

   March 31,   September 30, 
   2022   2021 
         
Prepaid marketing fee  $202,586   $193,443 
Prepaid service fee   396,699    388,125 
Prepaid rent   63,369    36,757 
Prepaid other expense   15,533    
-
 
   $678,187   $618,325 

 

4. OTHER RECEIVABLES

 

Other receivables consist of the following:

 

Amount due from agents is mainly the payment collected by the agents from the trainees on behalf of the Company. Agents provide various services to facilitate the in-person training seminars scheduled by the Company.

 

   March 31,   September 30, 
   2022   2021 
         
Amount due from third parties   16,355    140,996 
Amount due from employees   29,458    38,107 
Deposit & guarantee   68,475    30,388 
Others   17,602    19,961 
   $131,890   $229,452 
Less: allowance for doubtful accounts   (31,202)   (30,796)
   $100,688   $198,656 

 

The following table sets forth the movement of allowance for doubtful accounts:

 

   March 31,   September 30, 
   2022   2021 
         
Beginning  $30,796   $294,063 
Additions   
-
    30,556 
Write off bad debt   
-
    (307,441)
Exchange rate difference   406    13,618 
Balance  $31,202   $30,796 

 

14

 

 

5. INVENTORY

 

The company’s sole inventory is the anti-addiction cell phone which has primarily four functions including anti-addiction, myopia prevention, security, and study assistance, for the purpose of managing elementary and middle school students.

 

   March 31,   September 30, 
   2022   2021 
         
Cost  $426,808   $417,278 
Less: provision for inventory   (3,257)   (3,215)
Net amount  $423,551   $414,063

 

 

The following table sets forth the movement of provision for the inventory:

 

   March 31,   September 30, 
   2022   2021 
         
Beginning  $3,215   $19,881 
Additions   
-
    
-
 
Charge-offs   
-
    (17,589)
Exchange rate difference   42    923 
Balance  $3,257   $3,215 

 

6. OTHER LONG-TERM ASSETS

 

Other long-term assets consist of the following:

 

The prepaid marketing fees are mainly for the two-year marketing service provided by different agents which the Company has signed contracts with.

 

   March 31,   September 30, 
   2022   2021 
         
Prepaid marketing fee  $346,172   $733,665 
Prepaid service fee   99,485    64,853 
   $445,657   $798,518 

 

15

 

 

7. PROPERTY, PLANT AND EQUIPMENT, NET

 

Property, plant and equipment, net consist of the following:

 

   March 31,   September 30, 
   2022   2021 
         
Office and computer equipment  $311,652   $378,818 
Lease improvement   134,168    132,421 
Transportation equipment   83,169    
-
 
Less: Accumulated depreciation  $(329,763)  $(293,874)
   $199,226   $217,365 

 

Depreciation expenses charged to the statements of operations for the three months ended March 31, 2022 and 2021 were $18,754 and $36,531, and for the six months ended March 31, 2022 and 2021 were $35,889 and $49,749, respectively.

 

8. INTANGIBLE ASSETS, NET

 

Intangible assets, net, consist of the following:

 

   March 31,   September 30, 
   2022   2021 
         
Software  $107,852   $106,448 
Less: Accumulated amortization   (39,095)   (33,265)
   $68,757   $73,183 

 

Amortization charged to the statements of operations for the three months ended March 31, 2022 and 2021 were $2,695 and $3,685, and for the six months March 31, 2022 and 2021 were $5,830 and $5,245, respectively.

 

9. ACCOUNTS PAYABLE

 

Accounts payable consist of the following: 

 

   March 31,   September 30, 
   2022   2021 
Amount due to agents  $1,388,025   $1,350,292 
Amount due to other service providers   1,032,049    1,018,608 
   $2,420,074   $2,368,900 

 

16

 

 

10. BALANCES WITH RELATED PARTIES

 

   Note   March 31,   September 30, 
       2022   2021 
Due from related parties            
Yulong Yi   (a)   $42,568   $32,727 
Ru Zhang   (b)    6,571    6,486 
Shaowei Peng   (c)    16,781    12,063 
        $65,920   $51,276 
                
Due to related parties               
Yulong Yi   (a)   $549   $542 
Ru Zhang   (b)    
-
    1 
Shaowei Peng   (c)    16    
-
 
        $565   $543 

 

(a) Chairman of Beijing ZhuoXun Century Culture Communication Co., Ltd. and Chairman and legal representative of Beijing Fengyuan Zhihui Education Technology Co., Ltd., and holds 46% voting rights of Beijing ZhuoXun Century Culture Communication Co., Ltd.
   
(b) Holder of 11%  registered capital of Beijing ZhuoXun Century Culture Communication Co., Ltd.
   
(c) CTO of Beijing ZhuoXun Century Culture Communication Co., Ltd. and Director of Beijing Fengyuan Zhihui Education Technology Co., Ltd.

 

Amount due from related parties are mainly cash in advance provided to the related parties by the Company. Amount due to related parties are mainly the out-of-pocket expenses incurred by the related parties for working purpose which are to be reimbursed by the Company.

 

All the above balances are due on demand, interest-free, unsecured and expected to be settled within one operating period.

 

11. TAXES

 

Income tax

 

The Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled.

 

PRC Tax 

 

The Company is subject to corporate income tax (“CIT”) at 25% for the three months ended March 31, 2022 and 2021.

 

   For The Three Months Ended   For The Six Months Ended 
   March 31,   March 31, 
   2022   2021   2022   2021 
PRC  $(609,777)  $(2,489,606)  $(1,970,231)  $(4,637,290)
Total income (loss) before income taxes  $(609,777)  $(2,489,606)  $(1,970,231)  $(4,637,290)

 

17

 

 

Deferred tax assets

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax asset and liability as of March 31, 2022 and September 30, 2021 are presented below:

 

   March 31,   September 30, 
   2022   2021 
         
Deferred tax asset:          
Bad debt provision   7,801    7,699 
Inventory provision   814    804 
Tax loss carryforward  $1,938,861   $1,916,369 
    1,947,476    1,924,872 
Deferred tax liability:          
Depreciation  $
-
   $2,759 
           
Net amount   1,947,476    1,922,113 

 

Management believes that it is more likely than not that the Company will not realize these potential tax benefits as these operations will not generate any operating profits in the foreseeable future. As a result, a valuation allowance was provided against the full amount of the potential tax benefits.

 

Taxes payable

 

Taxes payable consisted of the following: 

 

   March 31,   September 30, 
   2022   2021 
         
VAT tax payable  $1,441,294   $1,408,729 
Company income tax payable   2,137,937    2,110,094 
Individual income tax payable   2,251,562    2,223,544 
Other taxes payable   179,935    175,936 
Totals  $6,010,728   $5,918,303 

 

12. CHINA CONTRIBUTION PLAN

 

The Company participates in a government-mandated multi-employer defined contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees. Chinese labor regulations require the Company to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations; the Company has no further commitments beyond their monthly contributions. For the six months ended March 31, 2022 and 2021, the Company contributed a total of $145,945 and $227,432, respectively, to these funds.

 

13. SUBSEQUENT EVENT

 

The Company has analyzed its operations subsequent to March 31, 2022 to the date these condensed consolidation financial statements were issued. There is not material subsequent event to disclose in these condensed consolidated financial statements.

 

18

 

 

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

As used herein and except as otherwise noted, the term “Company”, “it(s)”, “our”, “us”, “we” and “GSHN” shall mean Gushen, Inc., a Nevada corporation, and its consolidated subsidiary, as applicable.

 

 The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the notes to those consolidated financial statements appearing elsewhere in this report.

 

Certain statements in this report constitute forward-looking statements. These forward-looking statements include statements, which involve risks and uncertainties, regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “project,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” or the negative of these words or other variations on these words or comparable terminology. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.

 

The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events. 

 

Overview

 

On July 30, 2021, Gushen, Inc., a Nevada corporation (“GSHN” or the “Company”), Dyckmanst Limited, a company organized under the laws of the British Virgin Islands (“Dyckmanst Limited”), and all shareholders of Dyckmanst Limited immediately prior to the closing (collectively, the “Dyckmanst Limited Shareholders”, each, a “Dyckmanst Limited Shareholder”) entered into a share exchange agreement (the “Share Exchange Agreement”), pursuant to which the Company acquired 100% of the issued and outstanding equity securities of Dyckmanst Limited in exchange for 381,600,000 shares of common stock, par value $0.0001 per share (the “Common Stock”) of the Company (the “Share Exchange”). Immediately prior to the closing of the Share Exchange, two existing holders of aggregated 30,000,000 shares of Series A preferred stock of the Company, par value $0.0001 per share (the “Preferred Stock”) delivered 29,000,000 shares of Preferred Stock to the Company for cancellation (“the “Cancellation of Certain Preferred Stock”), each Preferred Stock is convertible into 10 shares of Common Stock. Prior to the Share Exchange, there were 29,018,750 shares of Common Stock issued and outstanding. Immediately following the closing of the Share Exchange, there are 410,618,750 shares  of Common Stock issued and outstanding and 1,000,000 shares of Preferred Stock issued and outstanding. Dyckmanst Limited Shareholders collectively control 90.72% voting power of the Company on as converted basis, with respect to all of the shares of Common Stock and Preferred Stock, voting as a single class, with each share of Common Stock entitles to 1 vote and each share of Preferred Stock entitles to 10 votes. The Share Exchange Agreement is incorporated by reference from the Current Report on Form 8-K/A filed with the Securities and Exchange Commission (the “SEC”) on August 6, 2021.

 

Immediately prior to entering into the Share Exchange Agreement with Dyckmanst Limited and shareholders of Dyckmanst Limited, we were a shell company with no significant asset or operation, we have never generated any revenue, and during the period from November 2017 through March 2020, we were dormant. As a result of the Share Exchange, we operate through a PRC affiliated entity, Beijing Zhuoxun Century Culture Communication Co., Ltd. (“Zhuoxun Beijing”), located in Beijing, China. Dyckmanst Limited does not have any substantive operations other than holding Edeshler Limited, a Hong Kong company, which in return holding Beijing Fengyuan Zhihui Education Technology Co., Ltd. (“Fengyuan Beijing”), which controls Zhuoxun Beijing through certain contractual arrangements. 

 

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As a holding company with no material operations of our own, we have reached contractual arrangements dated February 5, 2021, which also known as VIE Agreements, with Zhuoxun Beijing, a variable interest entity, or “VIE”, and its subsidiary (Beijing Zhuoxun Education Technology Co., Ltd.). Neither we nor our subsidiary own any equity interests in the VIE. The VIE Agreements are designed to provide Fengyuan Beijing, our wholly-owned subsidiary, with the power, rights, and obligations equivalent in all material respects to those it would possess as the principal equity holder of Zhuoxun Beijing, including absolute control rights and the rights to the assets, property, and revenue of Zhuoxun Beijing. This VIE structure is used to replicate foreign investment in Chinese-based companies where Chinese law prohibits direct foreign investment in the telecommunications sector. As a result of the direct ownership in Fengyuan Beijing and the VIE Agreements, we are regarded as the primary beneficiary of the VIE. The VIE Agreements are incorporated by reference from the Current Report on Form 8-K filed with the SEC on August 6, 2021.

 

Zhuoxun Beijing provides family education resources to promote all-around education onsite in local communities organized by their regional collaborative education agency and offer parents easy access to a wide variety of courses online through Zhouxun Beijing’s application.

 

Zhuoxun Beijing delivers onsite educational services through its nationwide physical network of regional collaborative education agency. Zhuoxun Beijing onsite educational services include programs such as individual development, youth leadership development, and parenting schools, enabling in-person guidance and interactions in classes. Zhuoxun Beijing has developed long-term business relationships with around 18 regional education agencies around the country, whom Zhuoxun Beijing provides systematic training and management for to ensure to deliver high-quality and uniformed educational service system.

 

Zhuoxun Beijing provides online education through their mobile application, Wisdom Lighthouse (“睿智灯塔”) (formerly known as ZhuoXun App), which is geared towards Chinese parents designed to help them acquire different family education resources. Zhuoxun Beijing’s products provide two sets of curricula: “Good Parenting” (“教子有方”) and “Wise Parents” (“智慧父母”). “Good Parenting”, focused on child development, provides courses including EQ training, learning habits, learning ability, parents-children communication, stages of puberty, etc. to promote children’s mental and psychological health. “Wise Parents” introduces general strategies of family education to parents to help them better understand and support children’s growth and needs, whereby courses such as traditional family values, improvement of parents’ qualifications, and psychological analysis are provided. Through Zhuoxun Beijing’s mobile application, Zhuoxun Beijing’s users can, based on their own interest and needs, select courses that suitable for them and obtain valuable knowledge and skills provided by Zhuoxun Beijing’s courses. Zhuoxun Beijing’s users on mobile platform can use iPhone, Android, iPad and other tablets to review the courses anywhere and anytime. As of the date hereof, Zhuoxun Beijing has around 40,000 active users   on the Wisdom Lighthouse app.

 

Zhuoxun Beijing’s online family education mobile platform monetizes through in-app purchases. Zhuoxun Beijing provides one free trial class of each course for all the users. The remaining classes are available for purchase. Users are able to view the first class for free before determining if to purchase the remaining classes.

 

Zhuoxun Beijing’s product Zhuoxun Anti-Addiction Cellphone (“Zhuoxun Cellphone”) is an intelligent terminal device. Dami Zhilian Information Technology Group Co., Ltd, a technology company that develops and produces smartphones (“Dami Zhilian”), customizes and produces Zhuoxun Cellphone according to the design requirements set by Zhouxun Beijing. Zhuoxun Beijing does not own any intellectual property in connection with Zhuoxun Cellphones. Zhuoxun Beijing sells Zhuoxun Cellphones through regional collaborative education agency. Zhuoxun Cellphone has primarily four functions including anti-addiction, myopia prevention, security, and study assistance, for the purpose of managing elementary and middle school students. Parents are able to personalize and monitor their children’s use of Zhuoxun Cellphone by setting screen auto-lock, monitoring internet surfing, monitoring mobile application usage, monitoring physical locations, etc.

 

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Critical Accounting Policies and Estimates

 

Basis of Presentation

 

The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). 

 

Use of Estimates

 

The preparation of these consolidated financial statements in conformity with U.S. GAAP requires management of the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an on-going basis, the Company evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Identified below are the accounting policies that reflect the Company’s most significant estimates and judgments, and those that the Company believes are the most critical to fully understanding and evaluating its consolidated financial statements.

 

COVID-19 Outbreak

 

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, workforces, customers, and created significant volatility and disruption of financial markets. It has also disrupted the normal operations of many businesses, including ours and Zhuoxun Beijing’s. This outbreak could decrease spending, adversely affect demand for Zhuoxun Beijing’s services and harm Zhuoxun Beijing’s business and results of operations. Since March 2020, as different variants and subvariants of COVID-19 developed and spread in various regions across China, PRC provincial and local governments have imposed various forms of strict lockdowns, mass testing and extensive contact tracing measures for extended periods of time. Recent examples  include lockdown measures put in place by the local governments in Shenzhen, Guangdong Province, Changchun, Jilin Province and City of Shanghai in March – May 2022. Zhuoxun Beijing’s main business would continue to be affected by China’s anti-epidemic measures such as restrictions on public gatherings during the COVID-19 pandemic. It is not possible for us to predict the duration or magnitude of the adverse results of the outbreak and its effects on Zhuoxun Beijing’s business or results of operations at this time.

 

Revenue Recognition

 

Zhuoxun Beijing recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which Zhuoxun Beijing expects to receive in exchange for those goods or services. Zhuoxun Beijing recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) it satisfies the performance obligation.

 

Revenues are recognized when control of the promised goods or services is transferred to its customers, which may occur at a point in time or over time depending on the terms and conditions of the agreement, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

 

Zhuoxun Beijing identified the following performance obligations for each type of contract:

 

Training Revenue

 

Zhuoxun Beijing’s onsite training course service primarily includes assigning instructors, providing onsite classes and presenting training materials to the course participants who attend the classes. The series of tasks as discussed above are interrelated and are not separable or distinct as the customers cannot benefit from the standalone task.

 

Zhuoxun Beijing’s online training course service primarily includes courseware or videos which are already published on the website. Other than providing the access, there are no bundle or multiple separable and distinct tasks.

 

According to ASC 606-10-25-19, there is one performance obligation for the training course service.

 

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Mobile Phone Revenue

 

Zhuoxun Beijing’s sales contracts of anti-addiction mobile phone device provide that it provides multiple delivery of the product specified in the contracts. The contacts identify the quantity, product model, product type and unit price of the product that will be sold to Zhuoxun Beijing’s customers. The contracts allow the customers to place separate orders within the credit limit as specified in the contracts. The delivery is based on the quantity of customers’ order. Zhuoxun Beijing’s customers can benefit from the mobile phone devices every time it delivers to them. Therefore, the delivery of the products is separately identifiable and distinct.

 

Hence, there are multiple performance obligations in each of the sale contracts of anti-addiction mobile phone device.

 

Practical expedients and exemption

 

Zhuoxun Beijing has not occurred any costs to obtain contracts, and does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

 

Other service income is earned when services have been rendered.

 

Income Taxes

 

We account for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

 

We apply ASC 740, Accounting for Income Taxes, to account for uncertainty in income taxes and the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.

 

Foreign Currency and Foreign Currency Translation

 

The functional currency of the Company is the United States dollar (“US dollar”). Fengyuan Beijing, Zhuoxun Beijing and Zhuoxun Beijing’s subsidiaries, all of which are based in PRC, use the local currency, the Chinese Yuan (“RMB”), as their functional currencies. An entity’s functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements.

 

Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are re-measured at the applicable rates of exchange in effect at that date. Gains and losses resulting from foreign currency re-measurement are included in the statements of comprehensive loss.

 

The consolidated financial statements are presented in U.S. dollars. Assets and liabilities are translated into U.S. dollars at the current exchange rate in effect at the balance sheet date, and revenues and expenses are translated at the average of the exchange rates in effect during the reporting period. Stockholders’ equity accounts are translated using the historical exchange rates at the date the entry to stockholders’ equity was recorded, except for the change in retained earnings during the period, which is translated using the historical exchange rates used to translate each period’s income statement. Differences resulting from translating functional currencies to the reporting currency are recorded in accumulated other comprehensive income in the consolidated balance sheets.

 

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Translation of amounts from RMB into U.S. dollars has been made at the following exchange rates:

 

Balance sheet items, except for equity accounts     
March 31, 2022  RMB6.3393 to $1 
December 31, 2021  RMB6.3726 to $1 
      
Income statement and cash flows items     
For the three months ended March 31, 2022  RMB6.3478 to $1 
For the three months ended March 31, 2021  RMB6.4817 to $1 
For the six months ended March 31, 2022  RMB6.3694 to $1 
For the six months ended March 31, 2021  RMB 6.5526 to $1 

 

Impairment of Long-lived Assets

 

In accordance with ASC 360-10-35, the Company reviews the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Based on the existence of one or more indicators of impairment, the Company measures any impairment of long-lived assets using the projected discounted cash flow method at the asset group level. The estimation of future cash flows requires significant management judgment based on the Company’s historical results and anticipated results and is subject to many factors. The discount rate that is commensurate with the risk inherent in the Company’s business model is determined by its management. An impairment loss would be recorded if the Company determined that the carrying value of long-lived assets may not be recoverable. The impairment to be recognized is measured by the amount by which the carrying values of the assets exceed the fair value of the assets. No impairment has been recorded by the Company as of December 31, 2021 and September 30, 2021. 

 

Credit risk

 

Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents. As of December 31, 2021 and 2020, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in the PRC, which management believes are of high credit quality.

 

For the credit risk related to trade accounts receivable, the Company performs ongoing credit evaluations of its customers and, if necessary, maintains reserves for potential credit losses. Historically, such losses have been within management’s expectations.

 

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Fair Value of Financial Instruments

 

U.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financial instruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three-tier fair value hierarchy is:

 

Level 1 – observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

Level 2 – include other inputs that are directly or indirectly observable in the market place

 

Level 3 – unobservable inputs which are supported by little or no market activity

 

The carrying value of the Company’s financial instruments, including cash and cash equivalents, accounts and other receivables, other current assets, accounts and other payables, and other short-term liabilities approximate their fair value due to their short maturities.

 

In accordance with ASC 825, for investments in financial instruments with a variable interest rate indexed to performance of underlying assets, the Company elected the fair value method at the date of initial recognition and carried these investments at fair value. Changes in the fair value are reflected in the accompanying consolidated statements of operations and comprehensive loss as other income (expense). To estimate fair value, the Company refers to the quoted rate of return provided by banks at the end of each period using the discounted cash flow method. The Company classifies the valuation techniques that use these inputs as Level 2 of fair value measurements.

 

As of December 31, 2021 and 2020, the Company had no investments in financial instruments.

 

Results of Operations  

 

Comparison of Three Months Ended March 31, 2022 and 2021

 

The following table sets forth key components of our results of operations during the three months ended March 31, 2022 and 2021, both in dollars and as a percentage of our revenue.

 

  Three Months Ended March 31, 
  2022   2021 
  Amount   %
of Revenue
   Amount   %
of Revenue
 
Revenue  $445,268    100.00   $19,331    100.00 
Cost of revenue   (285,998)   (64.23)   (81,854)   (423.43)
Gross profit   159,270    35.77    (62,523)   (323.43)
Selling expenses   (425,737)   (95.61)   (1,923,611)   (9,950.91)
General and administrative expenses   (346,039)   (77.71)   (586,707)   (3,035.06)
Loss from operations   (612,506)   (137.56)   (2,572,841)   (13,309.40)
Other income   2,729    0.61    7,976    41.26 
Net loss before income taxes   (609,777)   (136.95)   (2,564,865)   (13,268.14)
Income tax benefit   -    -    74,852    387.21 
Net loss  $(609,777)   (136.95)  $(2,490,013)   (12,880.93)

 

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Revenue.

 

The Company’s revenue was increased from $19,331 to $609,777 during the three months ended March 31, 2022 compared with the same period in 2021. Due to the COVID-19 pandemic and restriction policy imposed by the government, the Company stopped offering the offline training since earlier 2021. During the second half of 2021, the offline training resumed with limited availability due to the impact from the ongoing COVID-19 pandemic. Consequently, the revenue during the three months ended March 31, 2022 was significantly more than the same period in 2021.

 

Cost of revenue

 

Our cost of revenue was $285,998 and $81,854 for the three months ended March 31, 2022 and 2021, respectively. The increase was in line with the increase of revenue.

 

Gross profit and gross margin.

 

Our gross profit was $159,270 for the three months ended March 31, 2022, compared with a gross loss of $62,522 for the same period in 2021. Gross profit as a percentage of revenue (gross margin) was 35.77% for the three months ended March 31, 2022, compared to a gross loss of 323.43% for the same period in 2021.

 

Selling expenses

 

Our selling expenses consist primarily of compensation and benefits to our expense related to the revenue, such as advertising fee, marketing fees. Our selling expenses decreased by $1,497,874 to $425,737 for the three months ended March 31, 2022, compared to $1,923,611 for the same period in 2021. We adjusted the strategy by reducing our own sales employees. The effect of the COVID-19 pandemic hampered the Company’s main business operations and led to adjustment by the Company of its market layout since late 2021, resulting in the reduction of expenditure from marketing and service fees. Consequently, the selling expenses during the three months ended March 31, 2022 was significantly less than the same period in 2021.

 

  Three Months ended March 31, 
  2022       2021   Fluctuation 
  Amount   %   Amount   %   Amount   % 
Salary and welfare   169,035    39.70    379,511    19.73    (210,476)   (55.46)
Advertising Fees   -    -    58,812    3.06    (58,812)   (100.00)
Conference Fees   -    -    17,387    0.90    (17,387)   (100.00)
Marketing fee   97,459    22.89    322,684    16.77    (225,225)   (69.80)
Others   159,243    37.40    1,145,217    59.53    (985,974)   (86.09)
Total Selling Expense  $425,737    100.00   $1,923,611    100.00   $(1,497,874)   (77.87)

 

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General and administrative expenses

 

Our general and administrative expenses consist primarily of compensation and benefits to our general management, finance and administrative staff, professional fees and other expenses incurred in connection with general operations. Our general and administrative expenses decreased by $240,668 to $346,039 for the three months ended March 31, 2022, compared to $586,707 for the same period in 2021.

 

  Three Months ended March 31, 
  2022       2021   Fluctuation 
  Amount   %   Amount   %   Amount   % 
Salary and welfare   139,383    40.28    229,546    39.12    (90,163)   (39.28)
Depreciation and amortization   17,448    5.04    27,685    4.72    (10,237)   (36.98)
Rent   66,093    19.10    38,439    6.55    27,654    71.94 
Profession fee   -    -    150,987    25.73    (150,987)   (100.00)
Others   123,115    35.58    140,050    23.87    (16,935)   (12.09)
Total G&A Expenses  $346,039    100.00   $586,707    100.00   $(240,668)   (41.02)

 

Income tax benefit. 

 

Our Income tax benefit was nil for the three months ended March 31, 2022 and $74,852 for the same period in 2021.

 

Net loss.

 

As a result of the cumulative effect of the factors described above, our net loss was $609,777 and $2,490,013 for the three months ended March 31, 2022 and 2021, respectively.

 

Comparison of Six Months Ended March 31, 2022 and 2021

 

The following table sets forth key components of our results of operations during the six months ended March 31, 2022 and 2021, both in dollars and as a percentage of our revenue.

 

  Six Months Ended March 31, 
  2022   2021 
  Amount  

%

of Revenue

   Amount  

%

of Revenue

 
Revenue  $541,446    100.00   $1,280,803    100.00 
Cost of revenue   (347,291)   (64.14)   (843,133)   (65.83)
Gross profit   194,155    35.86    437,670    34.17 
Selling expenses   (1,430,181)   (264.14)   (4,006,454)   (312.81)
General and administrative expenses   (738,214)   (136.34)   (1,088,713)   (85.00)
Loss from operations   (1,974,240)   (364.62)   (4,657,497)   (363.64)
Other income   4,009    0.74    20,207    1.58 
Net loss before income taxes   (1,970,231)   (363.88)   (4,637,290)   (362.06)
Income tax benefit   -    -    74,852    5.84 
Net loss  $(1,970,231)   (363.88)  $(4,562,438)   (356.22)

 

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Revenue.

 

The Company’s revenue decreased from $1,280,803 to $541,446 during the six months ended March 31, 2022, compared with the same period in 2021. Due to the COVID-19 pandemic and restriction policy imposed by the government, the Company stopped offering the offline training since earlier 2021. During the second half of 2021, the offline training resumed with limited availability due to the impact from the ongoing COVID-19 pandemic. Consequently, the revenue during the six months ended March 31, 2022 was significantly less than the same period in 2021 as the Company was in full scale operation during the period from October 2020 to December 2020 before the offline training was stopped due to the restriction policy.

 

Cost of revenue

 

Our cost of revenue was $347,291 and $843,133 for the six months ended March 31, 2022 and 2021, respectively. The decrease was in line with the decrease of revenue.

 

Gross profit and gross margin.

 

Our gross profit was $194,155 for the six months ended March 31, 2022, compared with a gross profit of $437,671 for the same period in 2021. Gross profit as a percentage of revenue (gross margin) was 35.86% for the six months ended March 31, 2022, compared to a gross profit of 34.17% for the same period in 2021.

 

Selling expenses

 

Our selling expenses consist primarily of compensation and benefits to our expense related to the revenue, such as advertising fee, marketing fees. Our selling expenses decreased by $2,576,273 to $1,430,181 for the six months ended March 31, 2022, compared to $4,006,454 for the same period in 2021. We adjusted the strategy by reducing our own sales employees. The effect of the COVID-19 pandemic hampered the Company’s main business operations   and led to adjustment by the Company of its market layout since late 2021, resulting in the reduction of expenditure  from marketing and service fees. Consequently, the selling expenses during the six months ended March 31, 2022 was significantly less than the same period in 2021.

 

  Six Months ended March 31, 
  2022       2021   Fluctuation 
  Amount   %   Amount   %   Amount   % 
Salary and welfare   332,906    23.28    814,710    42.35    (481,804)   (59.14)
Advertising Fees   -    -    108,124    5.62    (108,124)   (100.00)
Conference Fees   1,389    0.10    52,320    2.72    (50,931)   (97.35)
Marketing fee   270,036    18.88    859,312    44.67    (589,276)   (68.58)
Others   825,850    57.74    2,171,988    112.91    (1,346,138)   (61.98)
Total Selling Expense  $1,430,181    100.00   $4,006,454    208.28   $(2,576,273)   (64.30)

 

General and administrative expenses

 

Our general and administrative expenses consist primarily of compensation and benefits to our general management, finance and administrative staff, professional fees and other expenses incurred in connection with general operations. Our general and administrative expenses decreased by $350,499 to $738,214 for the six months ended March 31, 2022, compared to $1,088,713 for the same period in 2021.

 

  Six Months ended March 31, 
  2022       2021   Fluctuation 
  Amount   %   Amount   %   Amount   % 
Salary and welfare   358,084    103.48    500,802    85.36    (142,718)   (28.50)
Depreciation and amortization   29,416    8.50    54,994    9.37    (25,578)   (46.51)
Rent   119,825    34.63    61,321    10.45    58,504    95.41 
Profession fee   63,932    18.48    259,793    44.28    (195,861)   (75.39)
Others   166,957    48.25    211,803    36.10    (44,846)   (21.17)
Total G&A Expenses  $738,214    213.33   $1,088,713    185.56   $(350,499)   (32.19)

 

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Income tax benefit. 

 

Our Income tax benefit were nil for the six months ended March 31, 2022 and $74,852 for the same period in 2021.

 

Net loss.

 

As a result of the cumulative effect of the factors described above, our net loss was $1,970,231 and $4,562,438 for the six months ended March 31, 2022 and 2021, respectively.

 

 Liquidity and Capital Resources

 

The following table sets forth a summary of our cash flows for the periods indicated:

 

  Six Months Ended
March 31,
 
   2022   2021 
Net cash used in operating activities  $(1,393,963)  $(2,463,109)
Net cash used in investing activities   (10,971)   (92,797)
Net (decrease) increase in cash and cash equivalents   (1,404,934)   (2,555,906)
Effect of exchange rate changes on cash and cash equivalents   30,949    195,428 
Cash and cash equivalents at the beginning of period   2,659,622    7,134,106 
Cash and cash equivalents at the end of period  $1,285,637   $4,773,628 

 

As of March 31, 2022, we had cash and cash equivalents of $1,285,637. To date, we have financed our operations primarily through borrowings from our stockholders, related and unrelated parties.

 

Going Concern Uncertainties

 

The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern.

 

As of March 31, 2022, we had working capital deficit of $ $7,030,514.

 

As of March 31, 2022, our cash balance was $1,285,126 and our current liabilities exceeded current assets by $7,030,514 which together with continued losses from operations raises substantial doubt about our ability to continue as a going concern. The Company’s operating results for future periods are subject to uncertainties and it is uncertain if the management will be able to achieve profitability and continued growth for the foreseeable future. If the management is not able to increase revenue and manage operating expenses in line with revenue forecasts, the Company may not be able to achieve profitability.

 

The Company’s actions to improve operation efficiency, cost reduction, and enhance core cash-generating business include the following: seeking advances from the major shareholders, pursuing additional public and/or private issuance of securities, and looking for strategic business partners to optimize our operations.

 

28

 

 

We have considered whether there is substantial doubt about our ability to continue as a going concern due to our working capital deficit of $7,030,514, accumulated deficit of $4,578,091 and net losses incurred during the six months ended March 31, 2022 and 2021.

 

In evaluating if there is substantial doubt about our ability to continue as a going concern, we have certain plans to mitigate these adverse conditions and increase the liquidity of the Company and are trying to alleviate the going concern risk through (1) increasing cash generated from operations by controlling operating expenses and increasing more live steaming e-commerce events to bring up e-commerce revenue, (2) financing from domestic banks and other financial institutions, and (3) equity or debt financing.

 

On an on-going basis, the Company will also receive financial support commitments from the Company’s related parties.

 

Our continued operations are highly dependent upon our ability to increase revenues and if needed complete equity and/or debt financing. However, if we are unable to obtain the necessary additional capital on a timely basis and on acceptable terms, we may be required to delay, scale back or eliminate some or all of our planned operations and may be unable to repay debt obligations or respond to competitive market pressures, which will have a material adverse effect upon our business, prospects, financial condition and results of operations. Under such circumstance, we may be required to delay, scale back or eliminate some or all of our planned operations, which may have a material adverse effect on our business, results of operations and ability to operate as a going concern.

 

Operating Activities

 

Net cash used in operating activities was $1,393,963 for the six months ended March 31, 2022, as compared to $2,463,109 net cash used in operating activities for the six months ended March 31, 2021. The net cash provided by operating activities for the six months ended March 31, 2022 was mainly due to our net loss of $1,970,231, partially offset by the increase in amortization of prepaid expenses of $320,141, the increase in other receivable of $100,292, and the increase in advance from clients of $1,047,413. The net cash provided by operating activities for the six months ended March 31, 2021 was mainly due to our net loss of $4,562,438, partially offset by the increase in amortization of prepaid expenses of $1,320,944, the increase in other receivable of $ 1,939,092, and the decrease in advance from clients of $1,047,413.

 

29

 

 

Investing Activities

 

Net cash used in investing activities was $10,971 for the six months ended March 31, 2022, as compared to $92,797 for the six months ended March 31, 2021. The net cash used in investing activities for the six months ended March 31, 2021 was mainly attributable to purchase of property, plant and equipment. 

 

Off-Balance Sheet Arrangements

 

As of March 31, 2022 and December 31, 2021, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Critical Accounting Principles

 

The preparation of consolidated financial statements in accordance with US GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results can, and in many cases will, differ from those estimates. We have not identified any critical accounting policies.

 

Limited Operating History; Need for Additional Capital

 

There is limited historical financial information about the Company on which to base an evaluation of its performance. There is no guarantee on the continued success in its business operations. The business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, a narrow client base, limited sources of revenue, and possible cost overruns due to the price and cost increases in supplies and services.

 

Without additional funding, management believes that the Company will not have sufficient funds to meet its obligations beyond one year after the date our condensed consolidated financial statements are issued. These conditions give rise to substantial doubt as to our ability to continue as a going concern.

 

The Company has been, and intend to continue, working toward identifying and obtaining new sources of financing. To date it has been dependent on related parties for its source of funding. No assurances can be given that it will be successful in obtaining additional financing in the future. Any future financing that it may obtain may cause significant dilution to existing stockholders. Any debt financing or other financing of securities senior to Common Stock that it is able to obtain will likely include financial and other covenants that will restrict its flexibility. Any failure to comply with these covenants would have a negative impact on its business, prospects, financial condition, results of operations and cash flows.

 

If adequate funds are not available, it may be required to delay, scale back or eliminate portions of Zhuoxun Beijing’s operations or obtain funds through arrangements with strategic partners or others that may require us to relinquish rights to certain of our assets. Accordingly, the inability to obtain such financing could result in a significant loss of ownership and/or control of our assets and could also adversely affect the Company’s ability to fund our continued operations and expansion efforts.

 

During the next 12 months, the Company expects to incur the same amount of expenses each month. However, as Zhuoxun Beijing works to expand its operations, it expects to incur significant research, marketing and development costs and expenses on Zhuoxun Beijing’s online service platforms that meet the constantly evolving industry standards and consumer demands.

 

30

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable to a smaller reporting company. 

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were not effective such that the information relating to us required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Company’s former management abandoned all operations for several years, and only recently did the Company appoint new management to make filings with the SEC on behalf of the Company.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter covered by this report that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

 

31

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We or the VIE are not currently involved in any material legal proceedings other than ordinary routine litigations incidental to the business, to which we, any of our subsidiaries, or the VIE and its subsidiary (Beijing Zhuoxun Education Technology Co., Ltd.)  is a party or of which any of our property is the subject. From time-to-time we or the VIE are, and we or the VIE anticipate that we or the VIE will be, involved in legal proceedings, claims, and litigation arising in the ordinary course of our or the VIE’s business and otherwise. The ultimate costs to resolve any such matters could have a material adverse effect on our financial statements. We could be forced to incur material expenses with respect to these legal proceedings, and in the event that there is an outcome in any that is adverse to us, our financial position and prospects could be harmed.

 

Item 1a. Risk Factors

 

We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

None.

 

32

 

 

Item 6. Exhibits

 

31.1*   Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer
31.2*   Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial and accounting officer
32.1*   Section 1350 Certification of principal executive officer
32.2*   Section 1350 Certification of principal financial and accounting officer
101.INS*   Inline XBRL Instance Document.
101.SCH*   Inline XBRL Taxonomy Extension Schema Document.
101.CAL*   Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*   Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*   Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*   Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

* filed herewith

 

33

 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Gushen, Inc.
  (Registrant)
   
Date: May 16, 2022 By: /s/ Yulong Yi
    Yulong Yi
   

President, Chief Executive Officer,
Chief Financial Officer,
Treasurer, Secretary, and Chairman

(Principal Executive Officer and Principal Financial and Accounting Officer)

 

 

34

 

 

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