NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2022
(UNAUDITED)
NOTE
1. DESCRIPTION OF THE BUSINESS AND ORGANIZATION
Kun
Peng International Limited (“the Company,” “KPIL,” “CXKJ,” “we,” “us,” “our”),
a Nevada corporation (formerly known as CX Network Group, Inc.), through its subsidiaries and VIE, currently engages in the sale of health
care and health related household products through its online platforms, King Eagle Mall and Kun Zhi Jian.
SCHEDULE
OF COMPANY INFORMATION AND ORGANIZATIONAL ACTIVITIES
Name |
|
Background |
|
Ownership |
|
Registered
capital / Authorized shares |
|
Principal
activities |
Kun
Peng International Limited |
|
● A U.S. company
● Incorporated on June 28, 2017 |
|
|
|
Authorized shares:
● Common stock: 1,000,000,000 with par value $0.0001 per share
● 400,000,000 shares issued and outstanding as of December 31, 2022
Preferred stock:
● 10,000,000 with par value $0.0001 per share
● no shares issued and outstanding as of December 31, 2022 |
|
Investment
holding |
|
|
|
|
|
|
|
|
|
Kun
Peng International Holding Limited |
|
● A BVI company
● Incorporated on April 20, 2021 |
|
100%
owned by Kun Peng International Limited |
|
Paid
capital: 400 ordinary shares at par value of $0.01 per share |
|
Investment
holding |
|
|
|
|
|
|
|
|
|
Kunpeng
(China) Industrial Development Company Limited |
|
● A Hong Kong company
● Incorporated on August 11, 2017 |
|
100%
owned by Kun Peng International Holding Limited |
|
Paid
share capital: 10,000 ordinary shares at $1,292 (HKD10,000) |
|
Investment
holding |
|
|
|
|
|
|
|
|
|
Kun
Peng (Hong Kong) Industrial Development Limited |
|
● A Hong Kong company
● Incorporated on June 21, 2021 |
|
100%
owned by Kun Peng International Holding Limited |
|
Paid
share capital: 1 ordinary share at $0.13 (HK$1) |
|
Investment
holding |
|
|
|
|
|
|
|
|
|
King
Eagle (China) Co., Ltd |
|
● a limited liability company incorporated in the People’s Republic of China
● Incorporated on March 20, 2019 |
|
100%
owned by Kun Peng (Hong Kong) Industrial Development Limited
|
|
Registered
capital: approximately $15 million (RMB100 million) |
|
Providing
technical and management support to King Eagle VIE |
|
|
|
|
|
|
|
|
|
King
Eagle (Tianjin) Technology Co., Ltd. |
|
● a limited liability company incorporated in the People’s Republic of China
● Incorporated on September 2, 2020
● Became a variable interest entity (VIE) of King Eagle (China) Co., Ltd on May 15, 2021 |
|
Owned
by multiple individuals:
Chengyuan
Li (approximately 45.5%), Xiujin Wang (approximately 10.5%), Yuanyuan Zhang (approximately 10%), Jinjing Zhang, Wanfeng Hu, Cuilian
Liu, and Zhizhong Wang (each of whom owns approximately 6%), Zhandong Fan and Hui Teng (each of whom owns approximately 5%) |
|
Registered
capital of approximately $1.5 million (RMB 10 million) |
|
Operating
King Eagle Mall and new online platform , Kun Zhi Jian, until December 31, 2022 |
|
|
|
|
|
|
|
|
|
Kun
Peng Tian Yu Health Technology (Tianjin) Co., Ltd. |
|
● a limited liability company incorporated in the People’s Republic of China
● Incorporated on August 10, 2021 |
|
100%
owned by Kun Peng (Hong Kong) Industrial Development Limited
|
|
Registered
capital of RMB 5 million (US$0.7 million) |
|
Exploring
future business opportunities |
|
|
|
|
|
|
|
|
|
King
Eagle (Beijing) Technology Co., Ltd |
|
● a limited liability company incorporated in the People’s Republic of China
● Incorporated on December 1, 2022 |
|
100%
owned by King Eagle (Tianjin) Technology Co., Ltd. |
|
Registered
capital of RMB 5 million (US$0.7 million) |
|
Operation
commenced in January 2023 and the new online platform , Kun Zhi Jian, will be transferred from its immediate holding company, King Eagle (Tianjin) Technology
Co., Ltd., and operated under this entity. |
Reverse
Merger
On
May 17, 2021, the Company entered into a share exchange agreement (“Share Exchange Agreement”) with (i) Kun Peng
International Holding Limited (“KP International”), a limited liability company incorporated in the British Virgin
Islands on April 20, 2021, and (ii) the five members of KP International to acquire all of the issued and outstanding capital stock
of KP International in exchange for the issuance to those members of an aggregate of 34,158,391
shares of our common stock (“Reverse Acquisition”). Pursuant to the terms of the Share Exchange Agreement, and as a
condition to the completion of the transactions contemplated by the Share Exchange Agreement, the Company also agreed to enter into
an agreement with Wenhai Xia (“the Stockholder”), to cancel an aggregate of 15,535,309
shares of the Company’s common stock owned by the Stockholder. The Reverse Acquisition was closed on May 17, 2021 (“Closing Date”).
For
accounting purpose, the transaction with KP International was treated as a reverse acquisition and KP International is deemed to be
the acquirer and the Company as the acquired party. Consequently, the assets and liabilities and the historical operations that will
be reflected in the accompanying consolidated financial statements prior to the Reverse Acquisition will be those of KP
International and its consolidated subsidiaries and will be recorded at the historical cost basis of KP International, and the
accompanying consolidated financial statements after consummation of the Reverse Acquisition will include the assets and liabilities
of KP International and its subsidiaries and VIE, historical operations of KP International and its subsidiaries and VIE, and
operations of the Company from the Closing Date of the Reverse Acquisition. The accompanying consolidated financial
statements’ share and per share information has been retroactively adjusted to reflect the exchanged shares in the Reverse
Acquisition. The equity structure of the Company was retrospectively adjusted under ASC Topic 805-40. As of December 31, 2022 and
December 31, 2021, there were 400,000,000
and 40,000,000
shares issued and outstanding, respectively.
Authorized
Shares and Name Change
Effective
as of September 9, 2021, the Company’s Articles of Incorporation were amended to increase the Company’s authorized capital to 210,000,000
authorized shares of Capital Stock with 200,000,000 designated as $0.0001 par value common stock, and 10,000,000 designated as $0.0001
par value preferred stock.
Effective
October 12, 2022, we increased our authorized common stock from 200,000,000 shares, par value $0.0001, to 1,000,000,000 shares, par value
$0.0001, and on October 18, 2022, we effected a 10:1 forward stock split after which we have 400,000,000 shares of common stock issued
and outstanding.
On
November 8, 2022, the Company changed its name from CX Network Group, Inc. to Kun Peng International Ltd. and its trading symbol was
changed to “KPEA.”
On
November 11, 2022, the Company received an electronic notice that OTC Markets had approved its application for uplisting from OTC Pink
to the OTCQB Venture Market (OTCQB). The Company’s securities commenced trading on the OTCQB at the market open on November 14,
2022. The Company’s shares trade on the OTCQB under the current ticker symbol, “KPEA.”
Kun
Peng International Holding Limited
Kun
Peng International Holding Limited (“KP International Holding”) was incorporated in the British Virgin Islands on April 20,
2021. On May 3, 2021, KP International Holding purchased all of the issued and outstanding equity securities of Kunpeng (China)
Industrial Development Company Limited (“KP Industrial”), incorporated in Hong Kong on August 11, 2017, at a cash
consideration of $0.129
(HK$1).
After the ownership transfer, KP International Holding became the sole shareholder of KP Industrial. KP International Holding is a
holding company.
Kunpeng
(China) Industrial Development Company Limited
Kunpeng
(China) Industrial Development Company Limited (“KP Industrial”) was incorporated as a limited liability company in Hong
Kong under the name of Jing Jin Ji Investment Group Co., Limited (“Jing Jin Ji”) on August 11, 2017. The share capital
of KP Industrial is 10,000
ordinary shares at $1,292
(HKD10,000)
and was wholly owned by an individual. On November 9, 2018, Jing Jin Ji changed its name to “Kunpeng (China) Industrial
Development Company Limited” and it filed a Certificate of Change of Name with the Hong Kong Company Registry on the same day.
Although it was incorporated in 2017, it did not commence operations until July 2020 as it focused on exploring business
opportunities in its initial phase and on developing our online mobile application, King Eagle Mall, through its subsidiary, King
Eagle (China) Co., Ltd. It became a wholly owned subsidiary of KP International on May 3, 2021.
Kun
Peng (Hong Kong) Industrial Development Limited
Kun
Peng (Hong Kong) Industrial Development Limited (“KP (Hong Kong)”) was incorporated as a limited liability company in Hong
Kong on June 21, 2021. It is a holding company and is wholly owned by Kun Peng International Holding Limited. The share capital of this
entity upon formation is $0.13 (HK$1).
King
Eagle (China) Co., Ltd.
King
Eagle (China) Co., Ltd. (“King Eagle (China)”) was incorporated as a limited liability company in Beijing Economic Technological
Development Zone in the People’s Republic of China (“the PRC”) on March 20, 2019 with a registered capital of approximately
$15 million (RMB100 million). King Eagle (China) was a wholly owned subsidiary of KP Industrial at the time of establishment. KP Industrial
transferred its approximately $2.2 million (RMB 15 million) or 15% to Guoxin Ruilian Group Co., Ltd, a limited liability company incorporated
in Beijing, the PRC, on November 2, 2020.
On
March 26, 2021, Guoxin Ruilian Group Co., Ltd entered into equity transfer agreements with KP Industrial and Guoxin Zhengye. Both Guoxin
Ruilian Group Co., Ltd and Guoxin Zhengye are wholly owned by a common shareholder, Guoxin United Holdings Group Co., Ltd. Under the
agreements, Guoxin Ruilian Group Co., Ltd agreed to transfer its 8% ownership in King Eagle (China) to Guoxin Zhengye and the
remaining 7% ownership in King Eagle (China) to KP Industrial on April 20, 2021. After the transfer, KP Industrial and Guoxin Zhengye, respectively,
became the 92% and 8% shareholders of King Eagle (China). Guoxin Zhengye agreed to transfer its 8% ownership interest in
King Eagle (China) to KP Industrial on August 26, 2022. As a result of the transfer, KP Industrial is the sole shareholder of King Eagle
(China).
Some of the business engaged in by King Eagle (Tianjin) is restricted or
prohibited for foreign investment under PRC regulations. Therefore, King Eagle (China) has entered into VIE Agreements with King Eagle
(Tianjin) and its shareholders. We do not own any equity interests in King Eagle (Tianjin), but control and receive the economic benefits
of its business operations through the VIE Agreements. The VIE Agreements enable us to provide King Eagle (Tianjin) with consulting services
on an exclusive basis in exchange for all of its annual profits, if any. In addition, we are able to appoint its senior executives and
approve all matters requiring approval of its shareholders. The VIE Agreements are comprised of a Consulting Service Agreement, Business
Operation Agreement, Proxy Agreement, Equity Disposal Agreement, and Equity Pledge Agreement.
Under
current Chinese laws and regulations, the Company believes that the VIE Agreements are not subject to any government approval. The shareholders
of King Eagle (Tianjin) were required to register with SAFE when they established offshore vehicles to hold KP International; such
SAFE registration was effected on May 14, 2021. These shareholders of King Eagle (Tianjin) will have to register their equity pledge
arrangement as required under the Equity Pledge Agreement with King Eagle (China). The Company faces uncertainty with respect to future
actions by the PRC government that could significantly affect King Eagle (Tianjin)’s financial performance and the enforceability
of the VIE Agreements.
King
Eagle (Tianjin) Technology Co., Ltd.
King
Eagle (Tianjin) Technology Co., Ltd. (“King Eagle (Tianjin)”) was incorporated as a limited liability company in Tianjin
Pilot Free Trade Zone in the People’s Republic of China on September 2, 2020, with a registered capital of approximately
$1.5
million (RMB 10
million). We do not own any of the equity of King Eagle (Tianjin). It is owned by multiple individuals: Chengyuan Li (approximately 45.5%),
Xiujin Wang (approximately 10.5%),
Yuanyuan Zhang (approximately 10%),
Jinjing Zhang, Wanfeng Hu, Cuilian Liu, and Zhizhong Wang (each of whom owns approximately 6%),
and Zhandong Fan and Hui Teng (each of whom owns approximately 5%).
Those shareholders also indirectly owned KP International Holding prior to its acquisition by the Company through two British Virgin
Islands entities: Kunpeng Tech Limited and Kunpeng TJ Limited. Additionally, Chengyuan Li is a director and Yuanyuan Zhang is Chief
Financial Officer of the Company.
Kun
Peng Tian Yu Health Technology (Tianjin) Co., Ltd.
Kun
Peng Tian Yu Health Technology Co., Ltd. (“KP Tian Yu”) was incorporated as a limited liability company in Tianjin Pilot
Free Trade Zone in the People’s Republic of China on August 10, 2021 with a registered capital of $5
million. It is wholly owned by KP (Hong Kong).
King
Eagle (Beijing) Technology Co. Ltd.
King
Eagle (Beijing) Technology Co., Ltd (“King Eagle (Beijing)”) was incorporated as a limited liability company in Beijing
in the People’s Republic of China on December 1, 2022 with a registered capital of RMB 5
million (US$0.7
million). It is wholly owned by King Eagle (Tianjin). Beginning January 2023, the operation of our new online platform, Kun Zhi
Jian, was transferred to King Eagle (Beijing) from King Eagle (Tianjin).
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) applicable
to quarterly financial information and the requirements of Form 10-Q and Rule 8-03 of Regulation S-X of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and disclosure required by accounting principles generally accepted in the United
States of America for complete financial statements. Quarterly results are not necessarily indicative of results for a full year. In
the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of
operations and cash flows for the quarterly periods have been included.
These
condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements
and notes thereto for the year ended September 30, 2022 included in the Form 10-K filed with the SEC on December 29, 2022.
The
condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United
States of America. This basis of accounting involves the application of accrual accounting and, consequently, revenues and gains are recognized
when earned and expenses and losses are recognized when incurred. The condensed consolidated financial statements are expressed in U.S.
dollars.
Basis
of Consolidation
The
condensed consolidated financial statements include the financial statements of the Company, its subsidiaries and its variable
interest entity (“VIE”). All significant intercompany transactions and balances within the Company have been eliminated
upon consolidation.
Use
of Estimates and Assumptions
The
preparation of the condensed consolidated financial statements in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that impact the presented amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the presented amounts of revenues and expenses during the period. Actual results
may differ from those estimates. Significant estimates during the three months ended December 31, 2022 and 2021 include the collectability
of receivables, the useful lives of long-lived assets and intangibles, assumptions used in assessing impairment of long-lived assets,
valuation of accruals for expenses and tax due.
Reclassification
Certain
amounts in the prior period financial statements have been reclassified to conform to the current period presentation. Such reclassifications had no effect on the prior period net income, accumulated
deficit, net assets, or total shareholders’ deficit.
Going
Concern
The accompanying condensed
consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America which contemplate continuation of the Company on a going concern basis. The going-concern basis assures that
assets are realized and liabilities are extinguished in the ordinary course of business at amounts disclosed on the financial
statements. The Company’s ability to continue as a going concern depends on the liquidation of its current assets and business
developments. In assessing the Company’s liquidity, the Company monitors and analyzes its cash and cash equivalents and its
operating and capital expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements,
operating expenses and capital expenditure obligations. For the three months ended December 31, 2022, the Company incurred cash
outflows from operating activities of $242,912,
a net loss of $760,313 and a
negative working capital of $5,086,513.
Although the businesses and markets in mainland China have reopened as mainland China has relaxed its COVID-19 policies and
controls, cases of COVID-19 have increased significantly, particularly in the metropolitan areas, which
may cause restrictions on our service agents to travel and launch face-to-face marketing activities. In addition, our online
sales during the first quarter of 2023 were slack, and there is a delay in the approval process for our permit for the construction
of Smart Kiosks due to the closure of government agencies in the affected areas in the PRC. These conditions raise substantial doubt
about the ability of the Company to continue as a going concern.
The Company continues to monitor its operations
to help refine the Company’s financial liquidity. Options under consideration in the review process include, but are not limited
to, increasing sales through the Company’s online business, reducing
overhead costs, obtaining advances of funds from the Company’s stockholders and directors, or financing through the issuance of
shares. Since the first quarter of 2022, the Company has been focusing on increasing its revenue through its new online platform, Kun
Zhi Jian, to explore wholesale markets. This online platform focuses on promoting and selling our own brand of preventive health care
products to wholesalers. The Company also launched advertising campaigns to promote its own brand. The Company streamlined its administrative
overhead costs. For example, we reduced the compensation and benefits of our executives and decreased office supplies expense.
In
order to continue as a going concern for the next 12 months, the Company continues to focus on increasing its revenue through its online
platforms and streamlining its overhead costs or obtaining financing from its stockholders or directors. As we expect the COVID-19
pandemic and restrictive governmental controls in the PRC will be gradually softened, each of our service agents plans to launch three
marketing campaigns every week to promote our own brand products, particularly thermal therapy cabins. However, the Company cannot provide
any assurance that it will be able to increase revenue, that it will be able to successfully implement its business plan, or that financing will be available to it on commercially acceptable terms, if at all. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities
that may result should the Company be unable to continue as a going concern. The directors will continue to support the group by providing
adequate financial assistance to enable the group to continue its business operations for the foreseeable future.
COVID-19
Outbreak
Businesses and markets in mainland China have reopened and mainland China
relaxed its policies and controls relating to COVID-19 in early December 2022. However, a number of major metropolitan areas in the PRC,
such as Shanghai, Beijing, Shenzhen, Chengdu, Dalian, and Guiyang, experienced a COVID-19 resurgence, which caused restrictions on our
service agents to travel and launch face-to-face marketing activities. Shortage of logistics and delivery capacity in those affected communities
precluded our customers from placing orders online. Due to closures and access restriction in certain affected areas and government agencies,
the approval process of our applications for the construction of Smart Kiosks was postponed, which impacts our plan of enhancing our face-to-face
customer services and increasing our market share.
The
Company continues to focus its business on its online platform, King Eagle Mall, and to promote its own brand of consumer health care
and health related household products on its new online platform, Kun Zhi Jian, which was introduced and implemented in October 2022,
to mitigate the adverse impacts of COVID-19. The Company also follows up closely with the local governmental agencies regarding its applications
for construction permits for Smart Kiosks.
While
we do not expect that the virus will continue to have a material adverse effect on our business or financial results at this time, it
is not possible to predict the unanticipated consequence of the pandemic on our future business performance and liquidity due to the
severity of the situation with COVID-19 in the PRC. The Company continues to monitor and assess the evolving situation closely and evaluate
its potential exposure.
Earnings
(Loss) Per Share
Basic income (loss) per share is computed by dividing net income (loss)
attributable to the holders of our common stock by the weighted average number of shares of common stock outstanding during the year.
Diluted income (loss) per share is calculated by dividing net income (loss) attributable to the holders of our common stock, as adjusted
for the effect of dilutive common stock equivalents, if any, by the weighted average number of shares of common stock and dilutive common
stock equivalents outstanding during the period. However, common stock equivalents are not included in the denominator of the diluted
earnings per share calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.
Foreign
Currency Translation
The
reporting currency of the Company is the U.S. Dollar. Our entity in the British Virgin Islands uses the U.S. dollar. Our entities in
the PRC and Hong Kong use the local currencies, Renminbi (RMB) and Hong Kong Dollar (HKD), as their respective functional currencies
as determined based on the criteria of ASC 830, “Foreign Currency Translation.”
Assets
and liabilities are translated at the unified exchange rate at the end of the period. Income and expense accounts are translated at the
average translation rates and equity accounts are translated at historical rates. Translation adjustments resulting from this process
are included in accumulated other comprehensive income in the statement of equity. Transaction gains and losses that arise from exchange
rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations
as incurred.
Translation
adjustments included in accumulated other comprehensive income amounted to $140,757
and $279,367,
as of December 31, 2022 and September 30, 2022, respectively.
The following table shows the foreign exchange rates used for translation:
SCHEDULE OF FOREIGN EXCHANGE RATES
the exchange rates set forth on the www.xe.com | |
Hong Kong Dollar (HKD) | | |
Chinese Renminbi (RMB) | |
As of September 30, 2022 (Closing Rate) | |
| | | |
| | |
United States dollar ($1) | |
| 7.8500 | | |
| 7.1159 | |
| |
| | | |
| | |
For the three-month period ended December 31, 2021 (Average Rate) | |
| | | |
| | |
United States dollar ($1) | |
| 7.7897 | | |
| 6.3952 | |
the exchange rates set forth in the H.10 statistical release of the Federal Reserve Board | |
Hong Kong Dollar (HKD) | | |
Chinese Renminbi (RMB) | |
As of December 31, 2022 (Closing Rate) | |
| | | |
| | |
United States dollar ($1) | |
| 7.8015 | | |
| 6.8972 | |
| |
| | | |
| | |
For the three-month period ended December 31, 2022 (Average Rate) | |
| | | |
| | |
United States dollar ($1) | |
| 7.8214 | | |
| 7.1120 | |
Cash
and Cash Equivalents
Cash
and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions
and a certain amount of cash kept in electronic wallets, “e-wallets.”
We consider all highly liquid investments
with an original maturity of three months or less when purchased to be cash equivalents. We maintain accounts with various financial institutions
in the PRC and in e-wallets. As of December 31, 2022 and September 30, 2022, cash balances held in PRC banks are uninsured. Monies that
are held in e-wallets are deemed equivalent to cash, are highly liquid, and are relatively unsafe compared to cash in banks.
We have not experienced any losses in bank accounts or e-wallets and believe we are not exposed to significant
risks with respect to our cash in bank accounts and low risk with respect to our cash kept in e-wallets.
Financial
Instrument
The
carrying amount reported in the balance sheet for cash, other receivables, accrued liabilities and other payables approximate fair value
because of the immediate or short-term maturity of these financial instruments.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and impairment losses. Gains and losses on dispositions of property and
equipment are included in operating income (loss). Major additions, renewals, and improvements are capitalized, while maintenance and
repairs are recognized as expense as incurred.
Depreciation
is provided over the estimated useful life of each class of depreciable assets and is computed using the straight-line method over the
useful lives of the assets as follows:
SCHEDULE OF PROPERTY PLANT AND EQUIPMENT USEFUL LIVES
Classification |
|
Estimated
useful life |
Leasehold
improvements |
|
5
years |
Office
equipment |
|
3
years |
Computer
equipment |
|
3
years |
Computer
software |
|
5
years |
Fair
Value Measurements
The
Company applies the provisions of ASC Subtopic 820-10, “Fair Value Measurements,”, for fair value measurements of financial
assets and financial liabilities and for fair value measurements of non-financial items that are recognized or disclosed at fair value
in the financial statements. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted
to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers
assumptions that market participants would use when pricing the asset or liability.
ASC
820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value
hierarchy are as follows:
|
● |
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
|
|
|
|
● |
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that
are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. |
|
|
|
|
● |
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value. |
The
Company’s financial assets and liabilities include cash, receivables, accounts payable, and accrued expenses.
Related
Party Transactions
The
Company follows the ASC 850-10, “Related Party Disclosures” for the identification of related parties and disclosure of related
party transactions.
Pursuant
to section 850-10-20, related parties include a) affiliates of the Company; b) entities for which investments in their equity securities
would be required, absent the election of the fair value option under the Fair Value Option Subsection of section 825–10–15,
to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and income-sharing
trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company;
f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies
of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and
g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership
interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting
parties might be prevented from fully pursuing its own separate interests.
The
condensed consolidated financial statements shall include disclosures of material related party transactions, other than compensation
arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that
are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures
shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no
amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented; and c) such other information
deemed necessary to an understanding of the nature of the related party transactions.
Comprehensive
(Loss) Income
Other
comprehensive (loss) income refers to revenues, expenses, gains, and losses that under generally accepted accounting principles are included
in comprehensive income but are excluded from net (loss) income as these amounts are recorded directly as an adjustment to stockholders’
equity. Our other comprehensive (loss) income for the three months ended December 31, 2022 and 2021 was comprised of foreign currency
translation adjustments.
Revenue
Recognition
Revenue
is comprised of sales of goods and represents the amount of consideration the Company is entitled to upon the transfer of goods. Revenue
was recorded on a gross basis, net of surcharges and value added tax (“VAT”) of gross sales. The Company recorded revenue
on a gross basis because the Company is the primary obligor of the sales arrangements, has latitude in establishing prices, has discretion
in suppliers’ selection, and assumes credit risks on receivables on gross sales from customers.
The
Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU
2014-09”) using the full retrospective transition method. The Company’s adoption of ASU 2014-09 did not have a material impact
on the amount and timing of revenue recognized in its consolidated financial statements.
The
Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its
obligations under each of its agreements:
●
identify the contract with a customer;
●
identify the performance obligations in the contract;
●
determine the transaction price;
●
allocate the transaction price to performance obligations in the contract; and
●
recognize revenue as the performance obligation is satisfied.
Consistent
with the criteria of ASC 606 “Revenue from Contracts with Customers,” we recognize revenue when performance obligations are
satisfied by transferring control of a promised good or service to a customer. For performance obligations that are satisfied at a point
in time, we also consider the following indicators to assess whether control of a promised good or service is transferred to the customer:
(i) right to payment; (ii) legal title; (iii) physical possession; (iv) significant risks and rewards of ownership; and (v) acceptance
of the good or service. For performance obligations satisfied over time, we recognize revenue over time by measuring the progress toward
complete satisfaction of a performance obligation.
We recognize revenue when control of the promised goods is transferred
to customers of King Eagle Mall and our new online platform. Revenue is measured at the transaction price, which is based on the amount
of consideration that we expect to receive in exchange for transferring the promised goods to our customers. The revenue mainly includes
two customer types: retail (“King Eagle Mall” online platform) and wholesale (“Kun Zhi Jian,” our new online platform).
The revenue is recognized at a point in time when control of the promised goods is transferred to our customers.
Deferred
Revenue
Deferred
revenue results from transactions where the Company has received the payments from the customers but revenue recognition criteria under
the five-step model of ASC Topic 606 have yet to be met. Once all revenue recognition criteria have been satisfied, the revenues will
be recognized upon the transfer of risk and rewards to the customers in the consolidated statement of operations. We anticipated the
majority of the revenue will be recognized in the fiscal year 2023. Management agreed that the amount received is non-refundable; however,
this term is not bound by any agreement. Thus, customers may have the right to challenge and demand the advances to be refunded
under relevant Commercial Laws or regulations.
Accrued
Product Liability
The Company records accruals for product liability when deemed probable
and estimable based on facts and circumstances and prior claims experience. Accruals for product credit are valued based upon the Company’s
prior claims experience, including defective goods and goods lost in transit. As we have experienced insignificant amounts of goods returned
and claims from goods lost in transit in the past, our product liability is insignificant; therefore, management believes product liability
accrual as at December 31, 2022 and September 30, 2022 is negligible.
Discount
allowed - Accrued Store-Credit
We provide store-credit, “Golden Beans,” to our customers after
sales of goods to them. The Golden Beans can be utilized against their future purchases with restrictions and expiry date. The amount
utilized will be recognized as direct discount as and when the sales arise, and the price net of this discount has been controlled and
set by management to ensure that the sales will always result in a gross profit. As such, we do not accrue any liability from this store-credit
as there is no present obligation arising from Golden Beans as of December 31, 2022 and September 30, 2022, and the utilization of these
Golden Beans is not expected to result in an outflow from the Company’s resources embodying economic benefits.
Lease
Under
ASC Topic 842, the Company determines if an arrangement is a lease at inception. Lease assets and liabilities are recognized at the present
value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future
lease payments is the Company’s incremental borrowing rate based on the information available at the lease commencement date. The
Company generally uses the base, non-cancelable lease term in calculating the right-of-use assets and lease liabilities.
The
Company may recognize the lease payments in the condensed consolidated statements of operation on a straight-line basis over the lease
terms and variable lease payments in the periods in which the obligations for those payments are incurred, if any. The lease payments
under the lease arrangements are fixed.
The
Company elected the package of practical expedients, which allows the Company to carry-forward its historical lease classification, its
assessment on whether a contract is or contains a lease, and its initial direct costs for any lease that exists prior to adoption of
the new standard.
The
Company also elected to apply the short-term lease exception for lease arrangements with a lease term of 12 months or less at commencement.
Lease terms used to compute the present value of lease payments do not include any option to extend, renew, or terminate the lease that
the Company is not reasonably certain to exercise upon the lease inception. Accordingly, operating lease right-of-use assets and liabilities
do not include leases with a lease term of 12 months or less.
Research
and Development Expenses
Research
and development (R&D) expenses are all costs associated with the original development and design of the product as well as any intellectual
property (IP) generated during the development phase, including patents and copyrights. Research and development expenses are included
in the overall operating expenses and reflected as a separate line item on the consolidated statement of operations.
We purchase the consumer preventive health food and health related household
products sold on our platforms from our suppliers and we did not develop, design, or manufacture those products. Moreover, although we
have built our online platform and mobile commerce in-house, the compensation costs for our in-house technology team were not significant.
Accordingly, instead of capitalizing the compensation costs of our in-house technology team as research and development on the Balance
Sheet or presenting them as research and development expenses, we included these amounts in employee compensation and benefit expenses
within general and administrative expenses for the three months ended December 31, 2022 and 2021.
Selling
Expenses
Selling expenses consist primarily of marketing and promotional service
fees to service agents and other costs incurred by our sales and marketing department, such as staff costs, office supplies, and other
incidental expenses that are incurred directly to attract or retain consumers.
Our
selling expenses for the three months ended December 31, 2022 and 2021 were $728,792
and $3,265,453, respectively. We
recognized the marketing and promotional service expense when our service agents performed marketing activities, promotions, and
exhibitions for our business and products. For the three months ended December 31, 2022 and 2021, we recorded marketing and
promotional service fees to our service agents in an amount of $546,660
and $3,020,635,
respectively.
Recently
Adopted Accounting Standards
Income
Taxes. In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic
740): Simplifying the Accounting for Income Taxes,” which modifies and eliminates certain exceptions to the general principles of
ASC 740, “Income Taxes.” This standard was effective for KPIL after September 30, 2021. The Company evaluated that this new
guidance does not have a significant impact on its condensed consolidated financial statements.
Financial
Instruments. In June 2016, the FASB issued Accounting Standards Update No. 2016-13,”Financial Instruments - Credit Losses
(Topic 326)” (“ASU 2016-13”). ASU 2016-13 revises the methodology for measuring credit losses on financial
instruments and the timing of when such losses are recorded. Originally, ASU 2016-13 was effective for fiscal years, and for interim
periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. In November 2019, FASB issued
ASU 2019-10, “Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic
842).” This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies
as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The
Company adopted this standard in the first quarter of fiscal 2023 and evaluated that this new guidance does not have a significant
impact on its condensed consolidated financial statements.
In
the period from December 2022 through January 2023, the FASB has not issued additional accounting standards updates.
NOTE
3 - VARIABLE INTEREST ENTITIES “VIE” ARRANGEMENTS
On
May 15, 2021, King Eagle (China) entered into a series of contractual arrangements with King Eagle (Tianjin) and its shareholders. As
a result of the contractual arrangements, the Company classified King Eagle (Tianjin) as a Variable Interest Entity “VIE.”
King
Eagle (Tianjin) was incorporated as a limited liability company in Tianjin Pilot Free Trade Zone in the People’s Republic of
China on September 2, 2020, with a registered capital of approximately $1.5
million (RMB 10
million). It is owned by multiple individuals: (i) Chengyuan Li, 45.5%,
(ii) Xiujin Wang, 10.5%,
(iii) Jinjing Zhang, 6%,
(iv) Wanfeng Hu, 6%,
(v) Cuilian Liu, 6%,
(vi) Zhizhong Wang, 6%,
(vii) Zhandong Fan, 5%,
(viii) Yuanyuan Zhang, 10%,
and (ix) Hui Teng, 5%.
Those shareholders also indirectly owned KP International Holding prior to its acquisition by the Company through two British Virgin
Islands entities: Kunpeng Tech Limited and Kunpeng TJ Limited. Additionally, Chengyuan Li is a director and Yuanyuan Zhang is Chief
Financial Officer of the Company.
The
VIE Agreements are as follows:
(1) |
Consulting
Service Agreement |
(2) |
Business
Operation Agreement |
(3) |
Proxy
Agreement |
(4) |
Equity
Disposal Agreement |
(5) |
Equity
Pledge Agreement |
Consulting
Service Agreement
Pursuant
to the terms of the Consulting Service Agreement dated May 15, 2021 between King Eagle (China) and King Eagle (Tianjin) (the “Consulting
Service Agreement”), King Eagle (China) is the exclusive consulting service provider for King Eagle (Tianjin) to provide business-related
software research and development services; design, installation, and testing services; network equipment support, upgrade, maintenance,
monitoring, and problem-solving services; employee technical training services; technology development and sublicensing services; public
relations services; market investigation, research, and consultation services; short to medium term marketing plan-making services; compliance
consultation services; marketing events and membership related activities organizing services; intellectual property permits; equipment
and rental services; and business-related management consulting services. Pursuant to the Consulting Service Agreement, the service fee
is the remaining amount of King Eagle (Tianjin)’s profit before tax in the corresponding year after deducting King Eagle (Tianjin)’s
losses, if any, in the previous year, the necessary costs, expenses, taxes, and fees incurred in the corresponding year, and the withdrawals
of the statutory provident fund. King Eagle (Tianjin) agreed not to transfer its rights and obligations under the Consulting Service
Agreement to any third party without prior written consent from King Eagle (China). In addition, King Eagle (China) may transfer its
rights and obligations under the Consulting Service Agreement to King Eagle (China)’s affiliates without King Eagle (Tianjin)’s
consent, but King Eagle (China) shall notify King Eagle (Tianjin) of such transfer. The Consulting Service Agreement is valid for a term
of 10 years subject to any extension requested by King Eagle (China) unless terminated by King Eagle (China) unilaterally prior to the
expiration.
Business
Operation Agreement
Pursuant
to the terms of the Business Operation Agreement dated May 15, 2021, among King Eagle (China), King Eagle (Tianjin) and the shareholders
of King Eagle (Tianjin) (the “Business Operation Agreement”), King Eagle (Tianjin) has agreed to subject the operations and
management of its business to the control of King Eagle (China). According to the Business Operation Agreement, King Eagle (Tianjin)
is not allowed to conduct any transaction that has substantial impact upon its operations, assets, rights, obligations, and personnel
without King Eagle (China)’s written approval. The shareholders of King Eagle (Tianjin) and King Eagle (Tianjin) will take King
Eagle (China)’s advice on the appointment or dismissal of directors, employment of King Eagle (Tianjin)’s employees, regular
operation, and financial management. The shareholders of King Eagle (Tianjin) have agreed to transfer any dividends, distributions, or
any other profits that they receive as the shareholders of King Eagle (Tianjin) to King Eagle (China) without consideration. The Business
Operation Agreement is valid for a term of 10 years or longer upon the request of King Eagle (China) prior to the expiration thereof.
The Business Operation Agreement might be terminated earlier by King Eagle (China) with a 30-day written notice.
Proxy
Agreement
Pursuant
to the terms of the Proxy Agreement dated May 15, 2021 among King Eagle (China) and the shareholders of King Eagle (Tianjin) (the “Proxy
Agreement”), the shareholders of King Eagle (Tianjin) have entrusted their voting rights as King Eagle (Tianjin)’s shareholders
to King Eagle (China) for the longest duration permitted by PRC law. The Proxy Agreement can be terminated by mutual consent of the King
Eagle (Tianjin) shareholders and King Eagle (China) or upon 30-day notice by King Eagle (China).
Equity
Disposal Agreement
Pursuant
to the terms of the Equity Disposal Agreement dated May 15, 2021 among King Eagle (China), King Eagle (Tianjin), and the shareholders
of King Eagle (Tianjin) (the “Equity Disposal Agreement”), the shareholders of King Eagle (Tianjin) granted King Eagle (China)
or its designees an irrevocable and exclusive purchase option (the “Option”) to purchase all or part of King Eagle (Tianjin)’s
equity interests and/or assets at the lowest purchase price permitted by PRC laws and regulations. The Option is exercisable at any time
at King Eagle (China)’s discretion in full or in part, to the extent permitted by PRC law. The shareholders of King Eagle (Tianjin)
agreed to give King Eagle (Tianjin) the total amount of the exercise price as a gift, or other method, upon King Eagle (China)’s
written consent to transfer the exercise price to King Eagle (Tianjin). The Equity Disposal Agreement is valid for a term of 10 years
or longer upon the request of King Eagle (China).
Equity
Pledge Agreement
Pursuant
to the terms of the Equity Pledge Agreement dated May 15, 2021 among King Eagle (China) and the shareholders of King Eagle (Tianjin)
(the “Pledge Agreement”), the shareholders of King Eagle (Tianjin) pledged all of their equity interests in King Eagle (Tianjin)
to King Eagle (China), including the proceeds thereof, to guarantee King Eagle (Tianjin)’s performance of its obligations under
the Business Operation Agreement, the Consulting Service Agreement, and the Equity Disposal Agreement (each, an “Agreement”
and, collectively, the “Agreements”). If King Eagle (Tianjin) or its shareholders breach their respective contractual obligations
under any Agreement, or cause to occur one of the events regarded as an event of default under any Agreement, King Eagle (China), as
pledgee, will be entitled to certain rights, including the right to dispose of the pledged equity interest in King Eagle (Tianjin). During
the term of the Pledge Agreement, the pledged equity interests cannot be transferred without King Eagle (China)’s prior written
consent. The Pledge Agreement is valid until all the obligations due under the Agreements have been fulfilled.
A
VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without
additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such
as through voting rights, right to receive the expected residual returns of the entity or obligation to absorb the expected losses of
the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary
and must consolidate the VIE. King Eagle (China) is deemed to have a controlling financial interest and be the primary beneficiary of
King Eagle (Tianjin) because it has both of the following characteristics:
|
(1) |
The
power to direct activities at King Eagle (Tianjin) that most significantly impact such entity’s economic performance, and |
|
|
|
|
(2) |
The
obligation to absorb losses of, and the right to receive benefits from, King Eagle (Tianjin) that could potentially be significant
to such entity. |
Pursuant
to the Contractual Arrangements, King Eagle (Tianjin) pays service fees equal to all of its net profit after tax payments to King Eagle
(China). At the same time, to King Eagle (China) is obligated to absorb all of their losses. The Contractual Arrangements are designed
so that King Eagle (Tianjin) operates to the benefit of King Eagle (China) and ultimately the Company.
Based on the foregoing VIE Agreements,
King Eagle (China) has effective 100% full control of King Eagle (Tianjin), which enables King Eagle (China) to receive all of King Eagle
(Tianjin)’s expected residual returns and absorb its expected losses. Accordingly, the Company consolidates the accounts of King
Eagle (Tianjin) and its subsidiaries for the periods presented herein, in accordance with Accounting Standards Codification, or ASC 810-10,
“Consolidation.”
Accordingly, the accounts of King Eagle (Tianjin) are consolidated in the
accompanying financial statements pursuant to ASC 810-10, “Consolidation.” In addition, the financial positions and results
of operations of the Company’s subsidiaries are included in the Company’s financial statements.
The
Company consolidated its VIE as of December 31, 2022 and September 30, 2022. The carrying amounts and classification of the VIE’s
assets and liabilities included in the consolidated balance sheets are as follows:
SCHEDULE
OF VIE’S ASSETS AND LIABILITIES INCLUDED IN THE CONSOLIDATED BALANCE SHEETS
| |
December 31, | | |
September 30, | |
| |
2022 | | |
2022 | |
| |
| | |
| |
Current assets | |
$ | 2,101,195 | | |
$ | 2,214,289 | |
Noncurrent assets | |
| 414,837 | | |
| 107,774 | |
Total assets | |
| 2,516,032 | | |
| 2,322,063 | |
Total liabilities | |
| 5,236,181 | | |
| 4,633,855 | |
Net liabilities | |
$ | (2,720,149 | ) | |
$ | (2,311,792 | ) |
The
VIE’s liabilities consisted of the following as of December 31, 2022 and September 30, 2022:
| |
December 31, | | |
September 30, | |
| |
2022 | | |
2022 | |
| |
| | |
| |
Current liabilities | |
| | | |
| | |
Trade payable | |
$ | 1,375,877 | | |
$ | 764,418 | |
Other payables and accrual | |
| 549,775 | | |
| 489,003 | |
Amount due to related parties | |
| 292,293 | | |
| 267,006 | |
Deferred revenue | |
| 2,876,005 | | |
| 2,960,357 | |
Payroll payable | |
| 3,140 | | |
| 4,312 | |
Tax payable | |
| 46,382 | | |
| 41,345 | |
Operating lease obligations, current | |
| 78,908 | | |
| 85,390 | |
Total current liabilities | |
| 5,222,380 | | |
| 4,611,831 | |
Total noncurrent liabilities | |
| | | |
| | |
Operating lease obligations, net of current portion | |
| 13,801 | | |
| 22,024 | |
Total noncurrent liabilities | |
| 13,801 | | |
| 22,024 | |
Total liabilities | |
$ | 5,236,181 | | |
$ | 4,633,855 | |
The
operating results of the VIE were as follows:
| |
2022 | | |
2021 | |
| |
For the three months ended December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Revenue | |
$ | 452,118 | | |
$ | 4,669,408 | |
Gross profit | |
| 343,580 | | |
| 3,962,730 | |
(Loss) income from operations | |
| (641,621 | ) | |
| 437,856 | |
Other income | |
| 41 | | |
| 19,034 | |
Net (loss) income | |
$ | (641,580 | ) | |
$ | 456,890 | |
NOTE
4 - ADVANCE AND PREPAYMENTS
Prepayments
consisted of the following:
SCHEDULE OF PREPAYMENTS
| |
December 31, | | |
September 30, | |
| |
2022 | | |
2022 | |
| |
| | |
| |
Prepaid rent and building management and utilities | |
$ | 25,304 | | |
$ | 23,324 | |
Prepaid supplies(1) | |
| 157,857 | | |
| 202,150 | |
Prepaid income tax | |
| 5,317 | | |
| 5,154 | |
Prepaid professional services(2) | |
| 6,839 | | |
| 25,941 | |
Prepaid others | |
| 12,455 | | |
| 11,737 | |
Total prepayments | |
$ | 207,772 | | |
$ | 268,306 | |
(1) |
As
of December 31, 2022 and September 30, 2022, the Company had prepaid supplies of $157,857 and $202,150, respectively. The prepayment
will be recognized in cost of goods sold in its consolidated statement of operations and comprehensive loss when the corresponding
deferred revenue is recognized. |
(2) |
As
of December 31, 2022, the ending balance of prepaid services included the prepaid legal fee for
our PRC entities. The legal fee will be amortized to general and administrative expenses
using the straight-line method over the service periods of January and February 2023.
As
of September 30, 2022, the ending balance of prepaid professional services included two types of prepayments, $9,369
for the legal service fee for our PRC entities and $16,572
for the promotional and marketing fee. The legal service fee was amortized to general and administrative expenses using the
straight-line method, over the service periods of October and November 2022. The promotional and marketing fee will be amortized to
selling expense using a straight-line method over the service periods from October 2022 through February 2023. |
These
amounts are expected to be recoverable within twelve (12) months.
NOTE
5 - OTHER RECEIVABLES
Other
receivables included the following:
SCHEDULE OF OTHER RECEIVABLES
| |
December 31, | | |
September 30, | |
| |
2022 | | |
2022 | |
Rental deposits | |
$ | 16,551 | | |
$ | 14,735 | |
Advance to employees | |
| 34,796 | | |
| 45,250 | |
Short-term borrowing to third parties | |
| 13,406 | | |
| 2,188 | |
Others | |
| 6,105 | | |
| 3,677 | |
Total other receivables, net | |
$ | 70,858 | | |
$ | 65,850 | |
Advance to employees represents funds provided to our officers and employees
for the business expenses, such as travel, parking, gasoline, membership, and meals, that are anticipated to be incurred by our officers
and employees on behalf of the Company. Advances to employees are required to be repaid in cash within a year.
Short-term
borrowings to third parties represented capital funding to two third parties. Those loans are interest free and will be repaid to King
Eagle (Tianjin) in 2023.
NOTE
6 - PROPERTY AND EQUIPMENT, NET
Property
and equipment consisted of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
| |
December 31, | | |
September 30, | |
| |
2022 | | |
2022 | |
| |
| | |
| |
Leasehold improvements | |
$ | 131,342 | | |
$ | 127,301 | |
Furniture and fixtures | |
| 1,273 | | |
| 1,235 | |
Computer equipment | |
| 41,370 | | |
| 40,099 | |
Office equipment | |
| 1,527 | | |
| 1,480 | |
Subtotal | |
| 175,512 | | |
| 170,115 | |
Less: accumulated depreciation | |
| (52,860 | ) | |
| (36,092 | ) |
Total property and equipment, net | |
$ | 122,652 | | |
$ | 134,023 | |
The
depreciation expense was $15,149 and $9,464 for the three months ended December 31, 2022 and 2021, respectively.
NOTE
7 - INTANGIBLE ASSETS
SCHEDULE OF INTANGIBLE ASSET
| |
December 31, | | |
September 30, | |
| |
2022 | | |
2022 | |
| |
| | |
| |
Trademarks | |
$ | 3,051 | | |
$ | 2,449 | |
Subtotal | |
| 3,051 | | |
| 2,449 | |
Less: accumulated amortization | |
| (455 | ) | |
| (367 | ) |
Total intangible assets, net | |
$ | 2,596 | | |
$ | 2,082 | |
Intangible
assets consist of the Company’s trademarks of King Eagle Mall with the useful life of ten years. Approximately $1,105, $1,421, and
$525 will expire in July 2031, April 2031, and October 2033, respectively.
Amortization
expense was $74 and $68 for the three months ended December 31, 2022 and 2021, respectively.
NOTE
8 - DEFERRED REVENUE
SCHEDULE OF DEFERRED REVENUE
| |
December 31, | | |
September 30, | |
| |
2022 | | |
2022 | |
| |
| | |
| |
Advance payments from customers | |
$ | 2,876,005 | | |
$ | 2,960,357 | |
Total deferred revenue | |
$ | 2,876,005 | | |
$ | 2,960,357 | |
Deferred
revenue resulted from transactions where the Company received advanced payments from customers but revenue recognition criteria
under the five-step model have yet to be met. As of December 31, 2022 and September 30, 2022, the Company had total deferred revenue
of $2,876,005 and $2,960,357, respectively. Once the five-step model criteria have been satisfied, revenues will be recognized upon the
transfer of risk and rewards to the customers. We anticipated the majority of the revenue will be recognized in the fiscal year 2023.
Management agreed that the amount received is non-refundable. However, this term is not bound by any agreement. Thus, the customers may
have the right to challenge and demand the advances to be refunded under relevant Commercial Laws or regulations.
NOTE
9 – OTHER PAYABLES AND ACCRUAL
Our
payables and accrual were comprised of the following:
SCHEDULE
OF OTHER PAYABLES AND ACCRUAL
| |
December 31, | | |
September 30, | |
| |
2022 | | |
2022 | |
Deposits refundable to customers (1) | |
$ | 427,710 | | |
$ | 423,838 | |
Deposits payable to suppliers (2) | |
| 3,996 | | |
| 8,732 | |
Accrued service fee to service agents | |
| 295,462 | | |
| 238,900 | |
Business expense reimbursement payable to employees | |
| 10,587 | | |
| - | |
Accrued professional fees | |
| 11,852 | | |
| 64,000 | |
Others | |
| 5,041 | | |
| 3,720 | |
Total other payables and accrual | |
$ | 754,648 | | |
$ | 739,190 | |
(1) |
As
of December 31, 2022 and September 30, 2022, the Company received refundable deposits from its customers who have not yet joined
the membership of its online platforms. |
|
|
(2) |
As
we entered into purchase agreements with new suppliers, we are required to pay deposits. These amounts are refundable from our suppliers
upon the termination of the purchase contracts provided that we have settled the outstanding balance. |
NOTE
10 - RELATED PARTY BALANCES AND TRANSACTIONS
Amount
due from a related party represented the prepaid service fee remitted to Guoxin Star Network Co., Ltd. by our VIE, King Eagle (Tianjin).
On March 31, 2021, King Eagle (Tianjin) entered into a Cooperation Agreement with Guoxin Star Network Co., Ltd., which, at that time, was our related party. Guoxin
Star Network Co. Ltd. was formerly our related party due to its being wholly owned by Guoxin Rulian Group Co. Ltd., which also owns Guoxin
Zhengye. Guoxin Zhengye was the 8% shareholder of King Eagle (China) but transferred its entire ownership interest in King Eagle (China)
to KP Industrial on August 26, 2022.
Under
the Cooperation Agreement, King Eagle (Tianjin) is required to pay Guoxin Star Network Co., Ltd. approximately $1.1 million
(RMB 7.5 million) for the franchise of the operation of Smart Kiosks. Both parties are entitled to exercise the Force Majeure Clause
of the contract. In April 2021, King Eagle (Tianjin) remitted $0.33 million (RMB2,250,000) to Guoxin Star Network Co., Ltd. The remaining obligation,
approximately $0.74 million (RMB5.3 million), is payable upon the completion of the construction of Smart Kiosks.
SCHEDULE OF AMOUNTS DUE TO RELATED PARTIES
| |
| |
| |
| | |
| |
Name of related party | |
Relationship | |
Nature of transactions | |
December 31, 2022 | | |
September 30, 2022 | |
| |
| |
| |
| | |
| |
Guoxin Star Network Co., Ltd | |
It is wholly owned by Guoxin Ruilian Group Co., Ltd, the common shareholder of Guoxin Zhengye, which owned an 8% interest in King Eagle (China) until August 2022 | |
Prepaid services for the operation of Smart Kiosks | |
$ | 326,219 | | |
$ | 316,192 | |
| |
| |
| |
| | | |
| | |
Total | |
| |
| |
$ | 326,219 | | |
$ | 316,192 | |
Amounts
due to related parties are payables arising from transactions between the Company and related parties, such as payments of operating
expenses by such related parties on behalf of our entities in the PRC and funding to meet working capital requirements. The payables
owed to the related parties are interest free, unsecured, and repayable on demand.
Amounts due to related parties consisted of the following:
Name of related party | |
Relationship | |
Nature of transactions | |
December 31, 2022 | | |
September 30, 2022 | |
| |
| |
| |
| | |
| |
Ms. Xiujin Wang | |
One of the shareholders of King Eagle (Tianjin) | |
Operational support to King Eagle (Tianjin) to meet its working capital requirements | |
$ | 275,474 | | |
$ | 267,006 | |
Ms. Chengyuan Li | |
Director | |
Operational support to King Eagle (Tianjin) to meet its working capital
requirement | |
| 14,499 | | |
| - | |
Ms. Jinjing Zheng | |
One of the shareholders of Kunpeng Tech Limited which is a 4.9% shareholder
of the Company | |
Operational support to King Eagle (Tianjin) to meet its working capital
requirement | |
| 2,320 | | |
| - | |
| |
| |
| |
| | | |
| | |
Total | |
| |
| |
$ | 292,293 | | |
$ | 267,006 | |
NOTE
11 - EQUITY
Effective
as of September 9, 2021, the Company’s Articles of Incorporation were amended to increase the Company’s authorized capital
to 210,000,000 authorized shares of capital stock with 200,000,000 designated as $0.0001 par value common stock, and 10,000,000 designated
as $0.0001 par value preferred stock.
Effective
on October 12, 2022, a Certificate of Amendment was filed with the Nevada Secretary of State to increase the authorized number of shares
of the Company’s $0.0001 par value common stock from 200,000,000 shares to 1,000,000,000 shares
of common stock.
The
Company’s board of directors approved and declared a 10:1 forward split of its common stock on September 6, 2022. As a result
of the stock split, holders of pre-split shares of common stock have the right to receive post-split shares of common stock at a
ratio of ten (10) shares of post-split common stock for every one (1) share of pre-split common stock. The stock split had a record
date of September 16, 2022 and an effective date of October 18, 2022. No fractional shares are issuable as a result of the forward
stock split. After the forward stock split, there are 400,000,000
shares of common stock of the Company issued and outstanding. The par value per share remained unchanged at $0.0001
per share after the forward stock split.
Preferred
stock
The
Company’s authorized shares of preferred stock are 10,000,000
shares, with a par value of $0.0001 per share,
which may be issued in series and with such voting powers, designations, preferences, limitations, restrictions, and relative rights
as the board of directors shall determine in its sole discretion. No
shares of preferred stock were issued and outstanding as of December 31, 2022 and September 30, 2022.
Common
stock
With
the retrospective effect of the increase in authorized shares of common stock and 10:1 forward stock split, the Company’s authorized
shares of common stock were 1,000,000,000 and 1,000,000,000 shares with a par value of $0.0001, as of December 31, 2022 and September
30, 2022, respectively. The issued and outstanding shares of common stock were 400,000,000 as of December 31, 2022 and September 30,
2022.
Reverse
acquisition
On
May 17, 2021, the Company entered into a share exchange agreement (“Share Exchange Agreement”) with (i) Kun Peng
International Holding Limited (“KP International”), a limited liability company incorporated in the British Virgin
Islands on April 20, 2021, and (ii) the five members of KP International to acquire all the issued and outstanding capital stock of
KP International in exchange for the issuance to those members of an aggregate of 34,158,391
shares of our common stock (“Reverse Acquisition”). Pursuant to the terms of the Share Exchange Agreement, and as a
condition to the completion of the transactions contemplated by the Share Exchange Agreement, the Company also agreed to enter into
an agreement with Wenhai Xia (“the Stockholder”), to cancel an aggregate of 15,535,309
shares of the Company’s common stock owned by the Stockholder. The Reverse Acquisition was completed on May 17,
2021 (“Closing Date”).
For accounting purposes, the transaction with KP International was treated
as a reverse acquisition and KP International is deemed to be the acquirer with the Company as the acquired party. Consequently, the assets
and liabilities and the historical operations that will be reflected in the accompanying consolidated financial statements prior to the
Reverse Acquisition will be those of KP International and its consolidated subsidiaries and will be recorded at the historical cost basis
of KP International, and the accompanying unaudited condensed consolidated financial statements after consummation of the reverse acquisition
will include the assets and liabilities of KP International and its subsidiaries and VIE, historical operations of KP International and
its subsidiaries and VIE, and operations of the Company from the Closing Date of the Reverse Acquisition. The accompanying unaudited condensed
consolidated financial statements share and per share information has been retroactively adjusted to reflect the exchanged shares in the
Reverse Acquisition. The equity structure of the Company was retrospectively adjusted under ASC Topic 805-40.
As
of December 31, 2022, there were 400,000,000 shares of common stock issued and outstanding.
Restricted
net assets:
Our ability to pay dividends is primarily dependent on us receiving distributions
of funds from our subsidiary or VIE. Relevant PRC statutory laws and regulations permit payments of dividends only out of a company’s
retained earnings, if any, as determined in accordance with PRC accounting standards and regulations and after it has met the PRC requirements
for appropriation to statutory reserves. Share capital of the PRC subsidiary and VIE included in the Company’s consolidated net
assets are also non-distributable for dividend purposes. The results of operations reflected in the accompanying consolidated financial
statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of King Eagle (China),
the foreign-invested enterprise, King Eagle (Tianjin), the VIE, and KP Tian Yu. The Company is required to set aside at least 10% of its
after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital.
In addition, the Company may allocate a portion of its after-tax profits based on PRC accounting standards to enterprise expansion fund
and staff bonus and welfare fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash
dividends.
As
a result of the foregoing restrictions, King Eagle (China), King Eagle (Tianjin), and KP Tian Yu are restricted in their ability to
transfer their net assets to the Company. Foreign exchange and other regulation in the PRC may further restrict these entities from
transferring funds to the Company in the form of dividends, loans, and advances. As of December 31, 2022 and September 30, 2022, the
Company had negative net assets, which included common stock, additional paid-in capital, accumulated deficit, and foreign exchange
translation adjustment of its subsidiaries in BVI, Hong Kong, and the PRC and of the VIE that are included in the Company’s
consolidated financial statements. As of December 31, 2022, King Eagle (China), King Eagle (Tianjin), KP Tian Yu, and King Eagle
(Bejing) incurred negative net assets which amounted to $1,263,636,
$2,720,149,
$384,
and $nil,
respectively. As of September 30, 2022, King Eagle (China), King Eagle (Tianjin), and KP Tian Yu had incurred negative assets in an
amount of $844,025,
$2,311,792,
and $351,
respectively. Accordingly, the Company did not accrue statutory reserve funds as of December 31, 2022 and September 30,
2022.
NOTE
12- REVENUE
The
following table presents revenues and the related cost of goods sold disaggregated by customer type for the three months ended December
31, 2022 and 2021:
SCHEDULE
OF DISAGGREGATED REVENUES AND COST OF GOODS SOLD
| |
2022 | | |
2021 | |
| |
Three Months Ended December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Retail | |
$ | 21,087 | | |
$ | 4,669,408 | |
Wholesale | |
| 431,031 | | |
| - | |
Total | |
$ | 452,118 | | |
$ | 4,669,408 | |
Revenue | |
$ | 452,118 | | |
$ | 4,669,408 | |
Cost
of Revenue
| |
2022 | | |
2021 | |
| |
Three Months Ended December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Retail | |
$ | 8,565 | | |
$ | 709,209 | |
Wholesale | |
| 100,623 | | |
| - | |
Total | |
$ | 109,188 | | |
$ | 709,209 | |
Cost of Revenue | |
$ | 109,188 | | |
$ | 709,209 | |
NOTE
13- INCOME TAXES
The
Company accounts for income taxes pursuant to the accounting standards that require the recognition of deferred tax assets and liabilities
for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the
expected future tax benefit to be derived from tax losses and tax credit carryforwards. Additionally, the accounting standards require
the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. The Company and its subsidiaries
file separate income tax returns.
United
States
Kun
Peng International Ltd is incorporated in the State of Nevada and is subject to United States federal income tax. No provision for
income taxes in the U.S. has been made as the Company has no U.S. taxable income for the three months ended December 31, 2022 and 2021.
British
Virgin Islands
KP
International is a holding company organized as an International Business Company under the laws of the British Virgin Islands (“BVI”),
and its principal operating subsidiaries are organized under the laws of Hong Kong and the laws of the PRC. KP International and its
subsidiaries are not subject to income taxes in the BVI.
Hong
Kong
The
two-tier profits tax rates system was introduced under the Inland Revenue (Amendment)(No.3) Ordinance 2018 (“the
Ordinance”) of Hong Kong and became effective for the assessment year 2018/2019. Under the two-tier profit tax rates regime,
the profits tax rate for the first $0.26
million (HKD 2
million) of assessable profits of a corporation will be subject to the lowered tax rate, 8.25%,
while the remaining assessable profits will be subject to the legacy tax rate, 16.5%.
Pursuant to the Ordinance, only one entity within a group of “connected entities” is eligible for the two-tier tax rate
benefit. An entity is a connected entity of another entity if (1) one entity has control over the other; (2) both entities are under
the control (more than 50% of the issued share capital) of the same entity; or (3) in the case of the first entity being a natural
person carrying on a sole proprietorship business, the other entity is the same person carrying on another sole proprietorship
business.
Since KP Industrial and KP (Hong Kong) are wholly owned and under the control
of KP International, these entities are connected entities. Under the Ordinance, it is an entity’s election to nominate the entity
that will utilize the two-tier profits tax rates on its profits tax return. The election is irrevocable. The Company elected KP (Hong
Kong) to utilize the two-tier profits tax rates. KP Industrial and KP (Hong Kong) did not earn any income that was derived in Hong Kong
for the three months ended December 31, 2021 and 2022 and, therefore, KP Industrial and KP (Hong Kong) were not subject to Hong Kong profits
tax for the periods reported.
Since
the two-tier profit tax rates regime is tentative, we applied the original profits tax rate, 16.5%, for the calculation of deferred taxes
for our subsidiaries in Hong Kong.
PRC
The
PRC’s statutory income tax rate is 25%.
The Company’s subsidiary and VIE registered in the PRC are subject to income tax rate of 25%,
unless otherwise specified.
Income
tax expense was comprised of the following:
SCHEDULE OF COMPONENTS OF INCOME TAX EXPENSE BENEFIT
| |
2022 | | |
2021 | |
| |
For the three months ended
December 31 | |
| |
2022 | | |
2021 | |
Current | |
$ | | | |
$ | | |
Federal | |
| - | | |
| - | |
State | |
| - | | |
| - | |
Foreign | |
| - | | |
| - | |
Total current | |
| - | | |
| - | |
| |
| | | |
| | |
Deferred | |
| | | |
| | |
Federal | |
| - | | |
| - | |
State | |
| - | | |
| - | |
Foreign | |
| - | | |
| - | |
Total deferred | |
| - | | |
| - | |
| |
| | | |
| | |
Total income tax expense | |
$ | - | | |
$ | - | |
A
reconciliation between the Company’s actual provision for income taxes and the provision at the statutory rate is as follow:
SCHEDULE OF RECONCILIATION OF PROVISION OF INCOME TAX
| |
2022 | | |
2021 | |
| |
For the three months ended
December 31, | |
| |
2022 | | |
2021 | |
Income (loss) before income tax expense | |
$ | (760,313 | ) | |
$ | 337,858 | |
Computed tax expense (benefit) with statutory tax rate | |
| 21.0 | % | |
| 21.0 | % |
Impact of different tax rates in other jurisdictions | |
| 3.7 | % | |
| 4.6 | % |
Tax effect of non-deductible expenses | |
| (0.3 | )% | |
| 0.5 | % |
Change in valuation allowance | |
| (24.4 | )% | |
| (26.1 | )% |
Effective tax rate | |
| 0.0 | % | |
| 0.0 | % |
Uncertain
tax positions
The
Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business,
the Company is subject to examination by the respective jurisdictions, where applicable. The statute of limitations for the tax returns
varies by jurisdiction.
The statute of limitations for
the U.S. Internal Revenue Service to assess the income tax returns of a taxpayer expires three years from the due date of the income tax
return or the date on which it was filed, whichever is later.
In accordance with the Hong Kong
profits tax regulations, a tax assessment by the IRD may be initiated within six years after the relevant year of assessment, but that
period is extendable to 10 years in the case of potential willful underpayment or evasion.
In accordance with the PRC Tax Administration Law on the Levying and Collection
of Taxes, the PRC tax authorities generally have up to five years to assess underpaid tax plus penalties and interest for PRC entities’
tax filings. In the case of tax evasion, which is not clearly defined in the law, there is no limitation on the tax years open for investigation.
Accordingly, the PRC entities remain subject to examination by the tax authorities based on the above.
As
of December 31, 2022 and September 30, 2022, the Company did not accrue any liability, interest, or penalties related to uncertain tax
positions in the provision for income taxes in its consolidated financial statements. The Company does not expect that its assessment
regarding unrecognized tax positions will materially change over the next 12 months.
NOTE
14 - RIGHT-OF-USE ASSETS AND LEASE
The
Company has operating leases for its office facilities and employee accommodation. Leases with an initial term of 12 months or less are
not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.
The
following table provides a summary of leases as of December 31, 2022, and September 30, 2022:
SUMMARY OF OPERATING LEASE ASSETS AND LIABILITIES
Assets/liabilities | |
Classification | |
December 31, 2022 | | |
September 30, 2022 | |
Assets | |
| |
| | |
| |
Operating lease right-of-use assets | |
Operating lease assets | |
$ | 621,594 | | |
$ | 675,655 | |
| |
| |
| | | |
| | |
Liabilities | |
| |
| | | |
| | |
Current | |
| |
| | | |
| | |
Operating lease liabilities – current | |
Current operating lease liabilities | |
$ | 307,926 | | |
$ | 304,753 | |
| |
| |
| | | |
| | |
Long-term | |
| |
| | | |
| | |
Operating lease liabilities - net of current portion | |
Long-term operating lease liabilities | |
$ | 266,557 | | |
$ | 264,124 | |
| |
| |
| | | |
| | |
Total lease liabilities | |
| |
$ | 574,483 | | |
$ | 568,877 | |
The
operating lease expense for the three months ended December 31, 2022 and 2021 was as follows:
SUMMARY OF OPERATING LEASE EXPENSE
Lease Cost | |
Classification | |
2022 | | |
2021 | |
| |
| |
For the three months ended
December 31, | |
Lease cost | |
Classification | |
2022 | | |
2021 | |
Operating lease cost | |
General and administrative | |
$ | 84,837 | | |
$ | 80,915 | |
Total lease cost | |
| |
$ | 84,837 | | |
$ | 80,915 | |
Maturities
of operating lease liabilities as of December 31, 2022 were as follow:
SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITIES
Maturity of lease liabilities | |
Operating leases | |
Remaining of 2023 | |
$ | 319,439 | |
2024 | |
| 282,195 | |
2025 | |
| - | |
2026 | |
| - | |
2027 | |
| - | |
Thereafter | |
| - | |
Total lease payments | |
$ | 601,634 | |
Less: interest | |
| (27,151 | ) |
Present value of lease payments | |
$ | 574,483 | |
Maturities
of operating lease liabilities as of September 30, 2022, were as follow:
Maturity of lease liabilities | |
Operating leases | |
2023 | |
$ | 328,832 | |
2024 | |
| 273,520 | |
2025 | |
| - | |
2026 | |
| - | |
2027 | |
| - | |
Thereafter | |
| - | |
Total lease payments | |
$ | 602,352 | |
Less: interest | |
| (33,475 | ) |
Present value of lease payments | |
$ | 568,877 | |
Supplemental
information related to operating leases was as follows:
SCHEDULE OF OPERATING LEASES
| |
2022 | | |
2021 | |
| |
For the three months ended
December 31, | |
| |
2022 | | |
2021 | |
Cash paid for amounts included in the measurement of lease liabilities | |
$ | 19,224 | | |
$ | 85,604 | |
New operating lease assets obtained in exchange for operating lease liabilities | |
$ | - | | |
$ | - | |
Weighted average remaining lease term | |
| 2.1 years | | |
| 0.95 year | |
Weighted average discount rate | |
| 4.72 | % | |
| 4.75 | % |
Amortization expense was $80,374 and $84,273 for the three months ended December 31, 2022 and 2021, respectively.
NOTE
15 - COMMITMENTS AND CONTINGENCIES
Purchase
and service commitments
King
Eagle (China) and King Eagle (Tianjin) entered into multiple purchase and service commitments. As of December 31, 2022 and September
30, 2022, King Eagle (China) and King Eagle (Tianjin) had purchase and service commitments in the amount of $31,330 and $53,910, respectively.
Cooperation
commitment for Smart Kiosks
On
March 31, 2021, King Eagle (Tianjin) entered into a Cooperation Agreement with Guoxin Star Network Co., Ltd who assigned and
franchised the operation of 50 Smart Kiosks to King Eagle (Tianjin) for five
years. Total franchise fee payable by King Eagle (Tianjin) to Guoxin Star Network Co., Ltd is approximately $1.1
million (RMB 7,500,000).
In April 2021, King Eagle (Tianjin) had remitted approximately $0.33
million (RMB2,250,000)
to Guoxin Star Network Co. Ltd. The remaining balance, approximately $0.76
million (RMB5,250,000),
is payable upon the completion of the implementation of the Smart Kiosks. In early December 2022, the government of the
People’s Republic of China relaxed the COVID-19 measures. The local government agencies may reopen their offices gradually.
King Eagle (Tianjin) estimates that the project may resume in the middle of calendar year 2023.
NOTE
16 - SUBSEQUENT EVENT
As
of December 31, 2022, the Company evaluated and concluded that there are no subsequent events that have occurred that would require recognition
or disclosure in the financial statements other than as disclosed above.