NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED JANUARY 31, 2017
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
NOTE
1 - BASIS OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with both accounting
principles generally accepted in the United States (“GAAP”), and the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Certain information and note disclosures normally included in audited financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes
that the disclosures made are adequate to make the information not misleading.
In
the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation
of the financial information for the interim periods reported have been made. Results of operations for the nine months ended
January 31, 2017 are not necessarily indicative of the results for the year ending April 30, 2017 or any period thereafter.
These
unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s
Discussion and the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year
ended April 30, 2016.
NOTE
2 - ORGANIZATION AND BUSINESS BACKGROUND
Gushen,
Inc. (the “Company”) was incorporated on March 9, 2015 in the state of Nevada. The Company is a development stage
company with nominal operations. The principal activities of the Company are the provision of managerial assistance services including
funding, administrative and IT support services for small and medium enterprises (“SMEs”) and money lending service
in Hong Kong through its wholly-owned subsidiaries, Gushen Holding Limited (“Gushen Holding”), a company incorporated
in the Republic of Seychelles, and Gushen Credit Limited (“Gushen Credit), a company incorporated in Hong Kong. The Company
attempts to assist the SMEs which are recently established and at an early stage of operations, but will not participate in board
of the SMEs or making business decision. The primary purpose behind focusing on providing services to companies at this early
stage of development will be for the Company to establish and nurture long-term relationships with clients during their growth
and development.
On
August 5, 2016, Gushen Holding acquired 100% equity interest of Gushen Credit Limited, a company incorporated in Hong Kong, for
a cash consideration of $0.13. Gushen Credit Limited has obtained a Money Lender License by Hong Kong Licensing Court for a period
of 12 months commencing from December 3, 2015 and is authorized to carry on money lending business in Hong Kong under the Hong
Kong Money Lender Ordinance (Chapter 163 of the Laws of Hong Kong). Mr. Huang Pin Lung, the director of the Company, is the sole
stockholder and director of Gushen Credit. The merger of Gushen Credit into Gushen Holding, which has nominal net assets, is considered
to be acquisition transactions under common control. For accounting purpose, Gushen, Inc., the holding company of Gushen Holding,
presents consolidated financial statements as of the beginning of the period as though the acquisition had occurred at the beginning
of the period. Financial statements of all prior periods are retrospectively adjusted to furnish comparative information. No goodwill
was recognized for these acquisition transactions under common control.
Gushen,
Inc. and its subsidiaries are herein after referred to as the “Company”.
NOTE
3 - GOING CONCERN UNCERTAINTIES
The
accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue
as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business
for the foreseeable future.
As
of January 31, 2017, the Company suffered an accumulated deficit of $711,417 and incurred a continuous net operating loss of $456,705
for the nine months ended January 31, 2017. Although the Company has generated revenues from its money lending services, the Company’s
cash position may not be significant enough to support the Company’s daily operations. The continuation of the Company as
a going concern through April 30, 2017 is dependent upon improving the profitability and the continuing financial support from
its stockholders. Management believes the existing shareholders or external financing will provide the additional cash to meet
the Company’s obligations as they become due.
These
and other factors raise substantial doubt about the Company’s ability to continue as a going concern. These condensed consolidated
financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result in the Company not being able to continue as a going
concern.
GUSHEN
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED JANUARY 31, 2017
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
NOTE
4 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as
described in this note and elsewhere in the accompanying consolidated financial statements and notes.
Basis
of presentation
The
accompanying condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles
in the United States of America (“US GAAP”).
Basis
of consolidation
The
condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company accounts
and transactions have been eliminated in consolidation.
Use
of estimates
Management
uses estimates and assumptions in preparing these condensed consolidated financial statements in accordance with US GAAP. Those
estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities
in the balance sheet, and the reported revenue and expenses during the periods reported. Actual results may differ from these
estimates.
Plant
and equipment
Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is
calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational.
Categories
|
|
Expected
useful life
|
Furniture,
fixtures, and office equipment
|
|
5
years
|
Leasehold
improvement
|
|
5
years
|
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 all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
Loans
receivables
Loans
receivables primarily represent loan amount due from customers. Loans receivables are recorded at unpaid principal balances and
net of an allowance that reflects the Company’s best estimate of the amounts that will not be collected. As of January 31,
2017, the loans receivables portfolio consists of personal loans.
Allowance
for loan losses
Management’s
policy is to maintain the allowance for loan losses at a level sufficient to absorb estimated probable incurred losses in the
loan portfolio. The loan loss allowance is a valuation allowance established to provide for estimated incurred credit losses in
the portfolio of loans at the balance sheet. The Company may incur losses in connection with loans if borrowers fail to pay their
monthly loan payments. The allowance for loan losses is increased by the provision for loan losses and recoveries and is decreased
by charged-off loans. When the loans become uncollectible, a charge-off will be recorded by reducing both loan balance (credit)
and allowance for loan losses (debit).
The
Company provides for incurred losses on loans with an allowance for loan losses in accordance with Accounting Standards Codification
310-10
“Receivables”
(“ASC310-10”). A loan is impaired when, based on current information and events,
it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement.
An
insignificant delay or insignificant shortfall in amount of payments does not require application of this Statement. A loan is
not impaired during a period of delay in payment if the creditor expects to collect all amounts due including interest accrued
at the contractual interest rate for the period of delay.
The
allowance for loan losses, which management evaluates on a periodic basis, represents an estimate of potential credit losses inherent
in the portfolio and is based on a variety of factors, including the composition and quality of the loan portfolio, delinquency
levels and trends, indication of credit deterioration, deterioration of the fair value of the loan collateral and the inability
of the borrower to provide additional collateral to make up for the shortfall.
Determining
the adequacy of the allowance for loan losses is subjective, complex and requires judgment by management about the effect of matters
that are inherently uncertain.
For
the nine months ended January 31, 2017, there was no provision for allowance for loan losses.
GUSHEN
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED JANUARY 31, 2017
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
Revenue
recognition
In
accordance with the Accounting Standard Codification Topic 605 “Revenue Recognition” (“ASC 605”), the
Company recognizes revenue when the following four criteria are met: (1) delivery has occurred or services rendered; (2) persuasive
evidence of an arrangement exists; (3) there are no continuing obligations to the customer; and (4) the collection of related
accounts receivable is probable.
The
Company uses the effective interest method to recognize income on loans. Interest on loans is comprised largely of interest and
late fees on loans. Interest income is recognized based upon the amount of loans outstanding and their contractual interest rate.
Late fees are recognized when billable to the customer. Interest income is accrued and recorded in the consolidated statement
of operations as earned. Loans are placed on non-accrual status when any portion of scheduled loan principal or interest payments
is impaired, or earlier, when concern exists as to the ultimate collectability of outstanding principal or interest. When loans
are placed on non-accrual status, all interest previously accrued but not collected is reversed against current period interest
income. Income on non-accrual loans is subsequently recognized only to the extent cash is received. Loans are written off when
deemed uncollectible. Loans return to accrual status when principal and interest become current and are anticipated to be fully
collectible on a timely basis.
Revenue
from the provision of IT consulting and support service based upon the customer’s specifications. The services are billed
either on a fixed-fee basis or on a time-and-material basis. Generally, the Company recognizes revenue when services are performed
and accepted by the customers.
Cost
of revenues
Cost
of revenues represented the purchase costs of computer hardware for re-sale to customer and subcontractor fee for loans collection
Income
taxes
Income
taxes are determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC Topic 740”).
Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the periods in which
those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date.
ASC
740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements
uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized
in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.
Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant
facts.
The
Company did not have any unrecognized tax positions or benefits and there was no effect on the financial condition or results
of operations for the nine months ended January 31, 2017. The Company and its subsidiary are subject to local and foreign tax
jurisdictions. The Company’s tax returns remain open subject to examination by major tax jurisdictions.
Net
loss per share
The
Company calculates net loss per share in accordance with ASC Topic 260 “Earnings per share”. Basic loss per share
is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss
per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional
common shares were dilutive.
GUSHEN
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED JANUARY 31, 2017
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
Foreign
currencies translation
Transactions
denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates
prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional
currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting
exchange differences are recorded in the statements of operations.
The
reporting currency of the Company is United States Dollars (“US$”) and the accompanying condensed consolidated financial
statements have been expressed in US$. In addition, the Company’s subsidiary in Seychelles and Hong Kong also maintain its
books and record in US$.
Related
parties
Parties,
which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly,
to control the other party or exercise significant influence over the other party in making financial and operating decisions.
Companies are also considered to be related if they are subject to common control or common significant influence.
Fair
value of financial instruments:
The
carrying value of the Company’s financial instruments: cash and cash equivalents, loans receivables, prepayment, deposits,
accounts payable and accrued liabilities and amount due to a director approximate at their fair values because of the short-term
nature of these financial instruments.
The
Company also follows the guidance of the ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”),
with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value
hierarchy that prioritizes the inputs used in measuring fair value as follows:
|
Level
1: Observable inputs such as quoted prices in active markets;
|
|
|
|
Level
2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
|
|
|
Level
3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
Recent
accounting pronouncements
The
Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption
of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
NOTE
5 - LOANS RECEIVABLE
During the nine months ended January 31, 2017,
the Company acquired loans receivable of $41,719 through its acquisition of Gushen Credit with interest bearing ranged from 36%
to 51.443% per annum and receivables in the next twelve months. As of January 31, 2017 and April 30, 2016, the total loans receivables
balance was $29,917 and $41,719, respectively.
For
the three months ended January 31, 2017 and 2016, the Company generated loan interest income of $3,781 and $0, respectively.
For
the nine months ended January 31, 2017 and 2016, the Company generated loan interest income of $17,915 and $0, respectively.
NOTE
6 - PLANT AND EQUIPMENT
|
|
As
of
|
|
|
|
January
31,
2017
|
|
|
April
30,
2016
|
|
|
|
|
|
|
|
|
Furniture,
fixtures, and office equipment
|
|
$
|
3,045
|
|
|
$
|
385
|
|
Leasehold
improvement
|
|
|
154,147
|
|
|
|
-
|
|
|
|
|
157,192
|
|
|
|
385
|
|
Less:
Accumulated depreciation
|
|
|
(23,656
|
)
|
|
|
(77
|
)
|
Total
|
|
$
|
133,536
|
|
|
$
|
308
|
|
Depreciation
expense was $7,859 and $19 for the three months ended January 31, 2017 and 2016, respectively.
Depreciation
expense was $23,579 and $58 for the nine months ended January 31, 2017 and 2016, respectively.
NOTE
7 - AMOUNT DUE TO A DIRECTOR
As
of January 31, 2017 and April 30, 2016, the director of the Company advanced $826,845 and $1,911,576, respectively to the Company,
which is unsecured, interest-free and is payable upon demand, for working capital purpose. Imputed interest is considered insignificant.
GUSHEN
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE NINE MONTHS ENDED JANUARY 31, 2017
(Currency expressed in United States Dollars
(“US$”))
(Unaudited)
NOTE
8 - INCOME TAXES
For
the nine months ended January 31, 2017 and 2016, the local (United States) and foreign components of loss before income taxes
were comprised of the following:
|
|
For
The Nine Months
ended January 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Tax
jurisdictions from:
|
|
|
|
|
|
|
-
Local
|
|
$
|
(14,545
|
)
|
|
$
|
(14,178
|
)
|
-
Foreign, representing
|
|
|
|
|
|
|
|
|
Seychelles
|
|
|
(337
|
)
|
|
|
738
|
|
Hong
Kong
|
|
|
(441,823
|
)
|
|
|
(125,344
|
)
|
|
|
|
|
|
|
|
|
|
Loss
before income tax
|
|
$
|
(456,705
|
)
|
|
$
|
(138,784
|
)
|
The
provision for income taxes consisted of the following:
|
|
|
For
The Nine Months
ended January 31,
|
|
|
|
|
2017
|
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
|
|
-
Local
|
|
$
|
-
|
|
|
$
|
-
|
|
-
Foreign
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
-
Local
|
|
|
-
|
|
|
|
-
|
|
-
Foreign
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
The
effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply
a broad range of income tax rates. The Company and its subsidiary that operate in various countries: United States, Seychelles
and Hong Kong that are subject to taxes in the jurisdictions in which they operate, as follows:
United
States of America
The
Company is registered in the State of Nevada and is subject to the tax laws of the United States of America. As of January 31,
2017, the operations in the United States of America incurred $48,320 of cumulative net operating losses which can be carried
forward to offset future taxable income. The net operating loss carryforwards begin to expire in 2037, if unutilized. The Company
has provided for a full valuation allowance of $16,912 against the deferred tax assets on the expected future tax benefits from
the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized
in the future.
Seychelles
Under
the current laws of the Republic of Seychelles (“Seychelles”), Gushen Holding is registered as an international business
company which governs by the International Business Companies Act of Seychelles. A company is subject to Seychelles income tax
if it does business in Seychelles. A company that is incorporated in Seychelles, but that does not do business in Seychelles,
is not subject to income tax there. Gushen Holding did not do business in Seychelles for the nine months ended January 31, 2017,
and it does not intend to do business in Seychelles in the future. For the nine months ended January 31, 2017 and 2016, Gushen
Holding had a net operating loss of $337 and a net operating income of $738, respectively.
Hong
Kong
Gushen
Credit is subject to Hong Kong Profits Tax, which is charged at the statutory income tax rate of 16.5% on its assessable
income. For the nine months ended January 31, 2017, no provision for income tax is required due to operating loss incurred.
As of January 31, 2017, Gushen Credit incurred $662,030 of cumulative net operating losses which can be carried forward to
offset future taxable income at no expiration. The Company has provided for a full valuation allowance against the deferred
tax assets of $105,332
on the expected future tax benefits from the net operating loss carryforward as the management
believes it is more likely than not that these assets will not be realized in the future.
GUSHEN
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED JANUARY 31, 2017
(Currency
expressed in United States Dollars (“US$”))
(Unaudited)
The
following table sets forth the significant components of the aggregate deferred tax assets of the Company as of January 31, 2017
and April 30, 2016:
|
|
As
of
|
|
|
|
January
31,
2017
|
|
|
April
30,
2016
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
|
|
|
|
|
–
United States of America
|
|
$
|
16,912
|
|
|
$
|
11,821
|
|
–
Hong Kong
|
|
|
105,332
|
|
|
|
36,321
|
|
|
|
|
122,244
|
|
|
|
48,142
|
|
Less:
valuation allowance
|
|
|
(122,244
|
)
|
|
|
(48,142
|
)
|
Deferred
tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Management
believes that it is more likely than not that the deferred tax assets will not be fully realizable in the future. Accordingly,
the Company provided for a full valuation allowance against its deferred tax assets of $122,244 as of January 31, 2017. During
the nine months ended January 31, 2017, the valuation allowance increased by $74,102, primarily relating to net operating loss
carryforwards from the various tax regime.
NOTE
9 - CONCENTRATIONS OF RISKS
(a)
Major customers
For the three months ended January 31, 2017,
there were two customers who accounted for 98% of the Company’s revenues with accounts receivable balance of $18,556 and
loans receivable balance of $29,917 at period-end.
For the nine months ended January 31, 2017, there were two customers who accounted for 98% of the Company’s
revenues with accounts receivable balance of $18,556 and loans receivable balance of $29,917 at period-end.
For
the three months ended January 31, 2016, there were no customers who accounted for 10% or more of the Company’s revenues.
For
the nine months ended January 31, 2016, there was one customer who accounted for 100% of the Company’s revenues with no
receivable balance at period-end.
(b)
Major vendors
For
the three and nine months ended January 31, 2017, there was one vendor who accounted for 100% of the Company’s cost of revenues
with no accounts payable balance at period-end.
For
the three months ended January 31, 2016, there were no vendor who accounted for 10% or more of the Company’s cost of revenues.
For
the nine months ended January 31, 2016, there was one vendor who accounted for 100% of the Company’s cost of revenues with
accounts payable balance of $1,800 at period-end.
NOTE
10 -
COMMITMENTS AND CONTINGENCIES
The
Company leases an office premises in Hong Kong under a non-cancellable operating lease that expire in April 2018 with an aggregate
fixed monthly rent of approximately $20,645. Total rent expense for the nine months ended January 31, 2017 and 2016 were $259,749
and $73,057, respectively.
As
of January 31, 2017, the Company has the aggregate future minimum rental payments due under an operating lease in the next two
years, as follows:
Period
ending January 31:
|
|
|
|
2017
|
|
$
|
247,742
|
|
2018
|
|
|
61,935
|
|
|
|
|
|
|
|
|
$
|
309,677
|
|
NOTE
11 - SUBSEQUENT EVENTS
In
accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events
or transactions that occurred after January 31, 2017 up through the date the Company presented this condensed consolidated financial
statements. During the period, the Company did not have any material recognizable.