U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended:
OR
For the transition period from _______to _______
Commission File Number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of Incorporation or organization) | (IRS Employer Identification No.) |
(Address of principal executive offices)
(Issuer’s telephone number including area code)
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Check whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). ☐ Yes ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Accelerated filer ☐ | |
| Non-accelerated filer ☐ | Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No
State the number of shares outstanding of each
of the issuer’s classes of common equity as of the latest practicable date. As of May 24, 2024, there are
GUSHEN, INC.
CONTENTS
i
PART I: FINANCIAL INFORMATION
Item 1. - Financial Statements
GUSHEN, INC.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(In U.S. dollars except Number of Shares)
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Other monetary funds | ||||||||
| Prepayment | ||||||||
| Other receivables | ||||||||
| Due from related parties | ||||||||
| Inventory | ||||||||
| Total Current Assets | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Other long-term assets | ||||||||
| Right of use assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible Assets | ||||||||
| Total non-Current Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Lease liability - current | ||||||||
| Contract liability | ||||||||
| Amount due to related parties | ||||||||
| Payroll payable | ||||||||
| Tax payable | ||||||||
| Other payable | ||||||||
| Accrued liabilities | ||||||||
| Total Current Liabilities | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Lease liability - non-current | ||||||||
| Total non-Current Liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||
| Preferred stock, par value $ |
||||||||
| Common stock, Par Value $ |
||||||||
| Additional paid-in capital | ||||||||
| Statutory reserve | ||||||||
| Accumulated deficits | ( |
) | ( |
) | ||||
| Accumulated other comprehensive gain | ||||||||
| Non-controlling interest | ( |
) | ( |
) | ||||
| Total Stockholders’ Deficit | ( |
) | ( |
) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
| * |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
1
GUSHEN, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In U.S. dollars except Number of Shares)
(UNAUDITED)
| For The Three Months Ended | For The Nine Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| REVENUE | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUE | ||||||||||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE), NET | ||||||||||||||||
| Interest income | ||||||||||||||||
| Other income | ||||||||||||||||
| Other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Other Income (Expense), net | ( | ) | ( | ) | ||||||||||||
| NET LOSS BEFORE TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit (expense) | ||||||||||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Net income (loss) attributable to non-controlling interests | ||||||||||||||||
| NET LOSS ATTRIBUTE TO THE COMPANY’S SHAREHOLDERS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
| Foreign currency translation adjustment | ||||||||||||||||
| COMPREHENSIVE INCOME (LOSS) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| * |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
2
GUSHEN, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED JUNE 30, 2023 AND 2022
(In U.S. dollars except Number of Shares)
(UNAUDITED)
| Preferred Stock | Common Stock | Additional Paid-in | Statutory | Accumulated | Accumulated other comprehensive | Non- controlling | Total Stockholders’ | |||||||||||||||||||||||||||||||||
| Shares | Value | Shares | Value | Capital | reserves | Deficits | income (loss) | interests | Deficits | |||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | ||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Statutory | Accumulated | Accumulated other comprehensive | Non- controlling | Total Stockholders’ | |||||||||||||||||||||||||||||||||
| Shares | Value | Shares | Value | Capital | reserves | Deficits | income (loss) | interests | Deficits | |||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Issuance of restricted shares | ||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | ||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| * | Outstanding and issued shares retrospectively reflected the effect of recapitalization due to reverse acquisition |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
3
GUSHEN, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. dollars)
(UNAUDITED)
| For The Nine Months Ended | ||||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Provision for expected credit losses | ||||||||
| Stock based compensation | ||||||||
| Loss from the disposal of property and equipment | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of prepaid expenses | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Other receivables | ( | ) | ||||||
| Advances to suppliers | ( | ) | ( | ) | ||||
| Due from related party | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Right of use assets | ||||||||
| Accounts payable | ( | ) | ||||||
| Contract liability | ( | ) | ( | ) | ||||
| Payroll payable | ( | ) | ||||||
| Tax payables | ||||||||
| Accrued liabilities | ||||||||
| Other payables | ( | ) | ||||||
| Lease liabilities- current & non-current | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Due to related parties | ||||||||
| Net cash provided by financing activities | ||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | ( | ) | ( | ) | ||||
| EFFECT OF EXCHANGE RATE ON CASH | ( | ) | ||||||
| CASH AT BEGINNING OF YEAR | $ | |||||||
| CASH AT END OF YEAR | $ | |||||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Cash paid during the years for: | ||||||||
| Income taxes | $ | |||||||
| Interest | $ | |||||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
4
GUSHEN, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars except Number of Shares)
| 1. | ORGANIZATION AND BUSINESS |
Gushen, Inc. (the “Company”) was incorporated on March 9, 2015, in the state of Nevada.
On July 30, 2021, the Company, and Dyckmanst Limited,
a company organized under the laws of the British Virgin Islands (“Dyckmanst Limited”), and all shareholders of Dyckmanst
Limited immediately prior to the closing (collectively, the “Dyckmanst Limited Shareholders”, each, a “Dyckmanst Limited
Shareholder”) entered into a share exchange agreement (the “Share Exchange Agreement”), pursuant to which the Company
acquired
Dyckmanst Limited, via Beijing Zhuoxun Century Culture Communication Co., Ltd. (“Zhuoxun Beijing”), an affiliated entity incorporated in the People’s Republic of China (“PRC”), engages in providing family education resources to promote all-around education onsite in local communities organized by its regional collaborative education agencies and offering parents easy access to a wide variety of courses online through mobile applications.
In February 2021, Beijing Fengyuan Zhihui Education Technology Co., Ltd. (“Fengyuan Beijing”), a wholly foreign-owned enterprise under PRC law and subsidiary of Dyckmanst Limited, entered into a series of contractual agreements with Zhuoxun Beijing, and the shareholders of Zhuoxun Beijing for Zhuoxun Beijing to qualify as a variable interest entity or VIE (the “VIE Agreements”), which are summarized below. The following summary of the VIE Agreements does not purport to be complete and is subject to, and qualified in its entirety by, the VIE Agreement filed as exhibits to a Current Report on Form 8-K/A filed on August 6, 2021.
Consulting Service Agreement
Pursuant to the terms of an Exclusive Consulting
and Service Agreement dated February 5, 2021, between Fengyuan Beijing and Zhuoxun Beijing (the “Consulting Service Agreement”),
Fengyuan Beijing is the exclusive consulting and service provider to Zhuoxun Beijing to provide business-related software research and
development services; design, installation, and testing services; network equipment support, upgrade, maintenance, monitor, and problem-solving
services; employees training services; technology development and sublicensing services; public relations services; market investigation,
research, and consultation services; short to medium term marketing plan-making services; compliance consultation services; marketing
events and membership related activities planning and organizing services; intellectual property permits; equipment and rental services;
and business-related management consulting services. Pursuant to the Consulting Service Agreement, the service fee is the remaining amount
after Zhuoxun Beijing’s profit before tax in the corresponding year deducts Zhuoxun Beijing’s losses, if any, in the previous
year, the necessary costs, expenses, taxes, and fees incurred in the corresponding year, and the withdraws of the statutory provident
fund. Zhuoxun Beijing agreed not to transfer its rights and obligations under the Consulting Service Agreement to any third party without
prior written consent from Fengyuan Beijing. In addition, Fengyuan Beijing may transfer its rights and obligations under the Consulting
Service Agreement to Fengyuan Beijing’s affiliates without Zhuoxun Beijing’s consent, but Fengyuan Beijing shall notify Zhuoxun
Beijing of such transfer. This Agreement is valid for a term of
Business Operation Agreement
Pursuant to the terms of a Business Operation
Agreement dated February 5, 2021, among Fengyuan Beijing, Zhuoxun Beijing and the shareholders of Zhuoxun Beijing (the “Business
Operation Agreement”), Zhuoxun Beijing has agreed to subject the operations and management of its business to the control of Fengyuan
Beijing. According to the Business Operation Agreement, Zhuoxun Beijing is not allowed to conduct any transactions that has substantial
impact upon its operations, assets, rights, obligations and personnel without the Fengyuan Beijing’s written approval. The shareholders
of Zhuoxun Beijing and Zhuoxun Beijing will take Fengyuan Beijing’s advice on appointment or dismissal of directors, employment
of Zhuoxun Beijing’s employees, regular operation, and financial management of Zhuoxun Beijing. The shareholders of Zhuoxun Beijing
have agreed to transfer any dividends, distributions or any other profits that they receive as the shareholders of Zhuoxun Beijing to
Fengyuan Beijing without consideration. The Business Operation Agreement is valid for a term of
5
Proxy Agreement
Pursuant to the terms of a Proxy Agreements dated
February 5, 2021, among Fengyuan Beijing, and the shareholders of Zhuoxun Beijing (each, the “Proxy Agreement”, collectively,
the “Proxy Agreements”), each shareholder of Zhuoxun Beijing has irrevocably entrusted his/her shareholder rights as Zhuoxun
Beijing’s shareholder to Fengyuan Beijing, including but not limited to, proposing the shareholder meeting, accepting any notices
with regard to the convening of shareholder meeting and any other procedures, conducting voting rights, and selling or transferring the
shares held by such shareholder, for
Equity Disposal Agreement
Pursuant to the terms of an Equity Disposal Agreement
dated February 5, 2021, among Fengyuan Beijing, Zhuoxun Beijing, and the shareholders of Zhuoxun Beijing (the “Equity Disposal Agreement”),
the shareholders of Zhuoxun Beijing granted Fengyuan Beijing or its designees an irrevocable and exclusive purchase option (the “Option”)
to purchase Zhuoxun Beijing’s all or partial equity interests and/or assets at the lowest purchase price permitted by PRC laws and
regulations. The option is exercisable at any time at Fengyuan Beijing’s discretion in full or in part, to the extent permitted
by PRC law. The shareholders of Zhuoxun Beijing agreed to give Zhuoxun Beijing the total amount of the exercise price as a gift, or in
other methods upon Fengyuan Beijing’s written consent to transfer the exercise price to Zhuoxun Beijing. The Equity Disposal Agreement
is valid for a term of
Equity Pledge Agreement
Pursuant to the terms of an Equity Pledge Agreement dated February 5, 2021, among Fengyuan Beijing and the shareholders of Zhuoxun Beijing (the “Pledge Agreement”), the shareholders of Zhuoxun Beijing pledged all of their equity interests in Zhuoxun Beijing to Fengyuan Beijing, including the proceeds thereof, to guarantee Zhuoxun Beijing’s performance of its obligations under the Business Operation Agreement, the Consulting Service Agreement and the Equity Disposal Agreement (each, a “Agreement”, collectively, the “Agreements”). If Zhuoxun Beijing or its shareholders breach its respective contractual obligations under any Agreements, or cause to occur one of the events regards as an event of default under any Agreements, Fengyuan Beijing, as pledgee, will be entitled to certain rights, including the right to dispose of the pledged equity interest in Zhuoxun Beijing. During the term of the Pledge Agreement, the pledged equity interests cannot be transferred without Fengyuan Beijing’s prior written consent. The Pledge Agreements is valid until all the obligations due under the Agreements have been fulfilled.
Based on these contractual arrangements, the Company consolidates the VIE in accordance with SEC Regulation S-X Rule 3A-02 and Accounting Standards Codification (“ASC”) topic 810 (“ASC 810”), Consolidation.
| Name | Background | Ownership | |||
| Dyckmanst Limited | ● | ||||
| ● | |||||
| · | |||||
| Edeshler Limited | ● | ||||
| ● | |||||
| Beijing Fengyuan Zhihui Education Technology Co., Ltd. | ● | ||||
| ● | |||||
| Beijing Zhuoxun Century Culture Communication Co., Ltd. | ● | ||||
| ● | |||||
| ● | |||||
| Beijing Zhuoxun Education Technology Co., Ltd. | ● | ||||
| ● | |||||
6
| At
June 30, | At
September 30, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Other monetary funds | ||||||||
| Prepayment | ||||||||
| Other receivables | ||||||||
| Intercompany receivables | ||||||||
| Due from related parties | ||||||||
| Inventory | ||||||||
| Total Current Assets | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Other long-term assets | ||||||||
| Right of use assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets | ||||||||
| Total non-Current Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Lease Liability - current | ||||||||
| Contract liability | ||||||||
| Intercompany payables | ||||||||
| Amount due to related parties | ||||||||
| Payroll payable | ||||||||
| Tax payable | ||||||||
| Other payable | ||||||||
| Accrued liabilities | ||||||||
| Total Current Liabilities | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Lease Liability - non-current | ||||||||
| Total Non -current Liabilities | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
7
| For The Three Months Ended | For The Nine Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| REVENUE | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUE | ( | ) | ( | ) | ( | ) | ||||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE), NET | ||||||||||||||||
| Interest income | ||||||||||||||||
| Other income | ||||||||||||||||
| Other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Other Income (Expense), net | ( | ) | ( | ) | ||||||||||||
| NET LOSS BEFORE TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit (expense) | ||||||||||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| For The Nine Months Ended | ||||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Net cash used in operating activities | $ | ( | ) | $ | ( | ) | ||
| Net cash used in investing activities | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
8
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
Principles of Consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries and consolidated VIE, including the VIE’ subsidiaries, for which the Gushen Inc, is the primary beneficiary.
All transactions and balances among the Company, its subsidiaries, the VIE and the VIE’ subsidiaries have been eliminated upon consolidation.
Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to operate profitably, to generate cash flows from operations, and to pursue financing arrangements to support its working capital requirements.
In assessing
the Company’s liquidity, the Company monitors and analyzes its cash and cash equivalents and its operating and capital expenditure
commitments. The Company’s liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure
obligations. As of June 30, 2023, the Company’s current liabilities exceeded the current assets by $
In evaluating if there is substantial doubt about the ability to continue as a going concern, the Company are trying to alleviate the going concern risk through (1) increasing cash generated from operations by controlling operating expenses and increasing more online and offline training sessions to bring in more training revenue, (2) financing from domestic banks and other financial institutions, and (3) equity or debt financing. The Company has certain plans to mitigate these adverse conditions and to increase the liquidity.
On an on-going basis, the Company will also receive financial support commitments from the Company’s related parties.
These conditions raise substantial doubt about our ability to continue as a going concern. The 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 classifications of liabilities that may result should the Company be unable to continue as a going concern.
Use of Estimates
The preparation of these unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management of the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an on-going basis, the Company evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Identified below are the accounting policies that reflect the Company’s most significant estimates and judgments, and those that the Company believes are the most critical to fully understanding and evaluating its unaudited interim condensed consolidated financial statements.
9
COVID-19 Outbreak
In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, workforces, customers, and created significant volatility and disruption of financial markets. It has also disrupted the normal operations of many businesses, including ours and Zhuoxun Beijing’s. This outbreak could decrease spending, adversely affect demand for Zhuoxun Beijing’s services and harm Zhuoxun Beijing’s business and results of operations. Since March 2020, as different variants and subvariants of COVID-19 developed and spread in various regions across China, PRC provincial and local governments have imposed various forms of strict lockdowns, mass testing and extensive contact tracing measures for extended periods of time. Recent examples include lockdown measures put in place by the local governments in Shenzhen, Guangdong Province, Changchun, Jilin Province and City of Shanghai in March to May 2022. Zhuoxun Beijing’s main business was affected by China’s anti-epidemic measures such as restrictions on public gatherings during the COVID-19 pandemic until January 2023, when most government restrictions were lifted.
Revenue Recognition
The Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) the Company satisfies the performance obligation.
Revenues are recognized when control of the promised goods or services is transferred to our customers, which may occur at a point in time or over time depending on the terms and conditions of the agreement, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
The Company identified the following performance obligations for each type of contract:
Training Revenue
The Company’s offline training course service primarily includes assigning instructors, providing offline classes and presenting training materials to the course participants who attend the classes. The series of tasks as discussed above are interrelated and are not separable or distinct as the clients cannot benefit from the standalone task.
The Company’s online training course service primarily includes courseware or videos which are already published on the website. Other than providing the access, there are no bundle or multiple separable and distinct tasks.
According to ASC 606-10-25-19, there is one performance obligation for the training course service.
Charge for use of brand
The Company authorized other enterprises or individuals to use the Company’s brand, providing services to customers at their location, with a brand usage fee. Revenue was recognized when such events using the Company’s brand are completed.
Online sales
The Company sells goods through live streaming to customers, and arranging for their suppliers to provide goods directly to customers. Revenue is recognized on a net basis, revenue is generated from sales less the cost of goods purchased.
Other revenues include sales of anti-addiction mobile phone device and other revenues. The amount was immaterial compared to total revenue during the nine months ended June 30, 2023 and 2022.
Practical expedients and exemption
The Company has not incurred any costs to obtain contracts, and does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
Other service income is earned when services have been rendered.
Contract liability
The contract liabilities consist of advances from
customers, which relate to unsatisfied performance obligations at the end of each reporting period and consists of cash payments received
in advance from customers in sales of training course and brand usage fee. As of June 30, 2023 September 30, 2022, the Company’s
advances from customer unearned training fee and brand usage fee amounted to $
The Company reports revenues net of applicable sales taxes and related surcharges.
10
| For The Three Months Ended | For The Nine Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Training Revenue | $ | $ | $ | $ | ||||||||||||
| Online sales | ||||||||||||||||
| Charge for use of brand | ||||||||||||||||
| Other Revenue | ||||||||||||||||
| Total Revenue | $ | $ | $ | $ | ||||||||||||
Income Taxes
We account for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
We apply ASC 740, Accounting for Income Taxes,
to account for uncertainty in income taxes and the evaluation of a tax position is a two-step process. The first step is to determine
whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals
or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not
threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount
of benefit that is greater than
Foreign Currency and Foreign Currency Translation
The functional currency of the Company is the United States dollar (“US dollar”). Fengyuan Beijing and Zhuoxun Beijing, which are based in PRC, the local currency, the Chinese Yuan (“RMB”), as their functional currencies. An entity’s functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements.
Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are re-measured at the applicable rates of exchange in effect at that date. Gains and losses resulting from foreign currency re-measurement are included in the statements of comprehensive loss.
The unaudited interim condensed consolidated financial statements are presented in U.S. dollars. Assets and liabilities are translated into U.S. dollars at the current exchange rate in effect at the balance sheet date, and revenues and expenses are translated at the average of the exchange rates in effect during the reporting period. Stockholders’ equity accounts are translated using the historical exchange rates at the date the entry to stockholders’ equity was recorded, except for the change in retained earnings during the period, which is translated using the historical exchange rates used to translate each period’s income statement. Differences resulting from translating functional currencies to the reporting currency are recorded in accumulated other comprehensive income in the interim condensed consolidated balance sheets.
11
Translation of amounts from RMB into U.S. dollars has been made at the following exchange rates:
| June 30, 2023 | RMB | |
| September 30, 2022 | RMB | |
| Income statement and cash flows items | ||
| For the nine months ended June 30, 2023 | RMB | |
| For the nine months ended June 30, 2022 | RMB |
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and at banks and highly liquid investments, which are unrestricted from withdrawal or use, and which have original maturities of three months or less when purchased.
Other monetary funds
Other monetary funds consist of cash deposited in financial institutions other than banks.
Long-Lived Assets
Long-lived assets consist primarily of property, plant and equipment and intangible assets.
Property, plant and equipment
| Estimated useful lives (years) | |||
| Office and computer equipment | |||
| Lease improvement | |||
| Transportation equipment |
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Expenditure for maintenance and repairs is expensed as incurred.
The gain or loss on the disposal of property, plant and equipment is the difference between the net sales proceeds and the lower of the carrying value or fair value less cost to sell the relevant assets and is recognized in general and administrative expenses in the interim condensed consolidated statements of comprehensive loss.
Intangible Assets
Intangible assets mainly comprise domain names and trademarks. Intangible assets are recorded at cost less accumulated amortization with no residual value. Amortization of intangible assets o is computed using the straight-line method over their estimated useful lives.
| Estimated useful lives (years) | |||
| Software |
Impairment of Long-lived Assets
In accordance with ASC 360-10-35, the Company reviews the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Based on the existence of one or more indicators of impairment, the Company measures any impairment of long-lived assets using the projected discounted cash flow method at the asset group level. The estimation of future cash flows requires significant management judgment based on the Company’s historical results and anticipated results and is subject to many factors. The discount rate that is commensurate with the risk inherent in the Company’s business model is determined by its management. An impairment loss would be recorded if the Company determined that the carrying value of long-lived assets may not be recoverable. The impairment to be recognized is measured by the amount by which the carrying values of the assets exceed the fair value of the assets. No impairment has been recorded by the Company as of June 30, 2023 and September 30, 2022.
Credit risk
Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents. As of June 30, 2023 and September 30, 2022, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in the PRC, which management believes are of high credit quality.
For the credit risk related to trade accounts receivable, the Company performs ongoing credit evaluations of its customers and, if necessary, maintains reserves for potential credit losses. Historically, such losses have been within management’s expectations.
Concentrations
For the nine months ended June 30, 2023 and 2022,
no single customer accounted for more than
For the nine months ended June 30, 2023, one supplier
accounted for
As of June 30, 2023, one supplier accounted for
Segments
The Company evaluates a reporting unit by first identifying its operating segments, and then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meets the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated. The Company has only one major reportable segment in the periods presented.
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Fair Value of Financial Instruments
U.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financial instruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three-tier fair value hierarchy is:
Level 1 – observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – include other inputs that are directly or indirectly observable in the market place.
Level 3 – unobservable inputs which are supported by little or no market activity.
The carrying value of the Company’s financial instruments, including cash and cash equivalents, other monetary funds, accounts and other receivables, other current assets, accounts and other payables, payroll payables, tax payables, accrued liability, and other short-term liabilities approximate their fair value due to their short maturities.
In accordance with ASC 825, for investments in financial instruments with a variable interest rate indexed to performance of underlying assets, the Company elected the fair value method at the date of initial recognition and carried these investments at fair value. Changes in the fair value are reflected in the accompanying interim condensed statements of operations and comprehensive loss as other income (expense). To estimate fair value, the Company refers to the quoted rate of return provided by banks at the end of each period using the discounted cash flow method. The Company classifies the valuation techniques that use these inputs as Level 2 of fair value measurements.
As of June 30, 2023 and September 30, 2022, the Company had no investments in financial instruments.
Restricted assets
Fengyuan Beijing and Zhuoxun Beijing are restricted
in their ability to transfer a portion of their net assets to the Company. The payment of dividends by entities organized in China is
subject to limitations, procedures and formalities. Regulations in the PRC currently permit payment of dividends only out of accumulated
profits as determined in accordance with accounting standards and regulations in China. Fengyuan Beijing and Zhuoxun Beijing are also
required to set aside at least
In addition, the Company’s operations are conducted and revenues are generated in China, and all of the Company’s revenues earned and currency received are denominated in RMB. RMB is subject to the foreign exchange control regulation in China, and, as a result, the Company may be unable to distribute any dividends outside of China due to PRC foreign exchange control regulations that restrict the Company’s ability to convert RMB into U.S. dollars.
Financial Statement Reclassification
Certain balances in the prior year consolidated financial statements have been reclassified for comparison purposes to conform to the presentation in the current year consolidated financial statements. These reclassifications had no effect on the reported results of operations or financial position
Recent Accounting Pronouncements
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The new amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments, with early adoption permitted. The Company is currently evaluating the impact of the new guidance on the consolidated financial statements.
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June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. This guidance also requires certain disclosures for equity securities subject to contractual sale restrictions. The new guidance is required to be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. This guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect that the adoption of this guidance will have a material impact on the financial position, results of operations and cash flows.
The Company, its wholly-owned subsidiaries, VIE and VIE’s subsidiaries does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position, statements of income and cash flows.
| 3. | PREPAYMENTS |
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Prepaid marketing fee | $ | $ | ||||||
| Prepaid service fee | ||||||||
| Prepaid rent | ||||||||
| Totals | $ | $ | ||||||
| 4. | OTHER RECEIVABLES |
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Amount due from third parties | ||||||||
| Amount due from employees | ||||||||
| Deposit & guarantee | ||||||||
| Others | ||||||||
| Less: allowance for expected credit losses | ( | ) | ( | ) | ||||
| Other receivables, net | $ | $ | ||||||
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Beginning | $ | $ | ||||||
| Additions | ||||||||
| Exchange rate difference | ( | ) | ( | ) | ||||
| Balance | $ | $ | ||||||
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| 5. | INVENTORY |
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Cost | $ | $ | ||||||
| Less: provision for inventory | ( | ) | ( | ) | ||||
| Totals | $ | $ | ||||||
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Beginning | $ | $ | ||||||
| Additions | ||||||||
| Charge-offs | ||||||||
| Exchange rate difference | ( | ) | ( | ) | ||||
| Balance | $ | $ | ||||||
| 6. | OTHER LONG-TERM ASSETS |
Other long-term assets consist of the following:
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Prepaid service fee | ||||||||
| Totals | $ | $ | ||||||
| 7. | PROPERTY, PLANT AND EQUIPMENT, NET |
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Office and computer equipment | $ | $ | ||||||
| Lease improvement | ||||||||
| Transportation equipment | ||||||||
| Less: Accumulated depreciation | $ | ( | ) | $ | ( | ) | ||
| Totals | $ | $ | ||||||
Depreciation expenses charged to the statements
of operations for the three months ended June 30, 2023 and 2022 were $
16
| 8. | INTANGIBLE ASSETS, NET |
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Software | $ | $ | ||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Totals | $ | $ | ||||||
Amortization charged to the statements of operations
for the three months ended June 30, 2023 and 2022 were $
| 9. | LEASE |
With the adoption of the new leasing standard,
the Company has recorded a right-of-use asset and corresponding lease liability, by calculating the present value of future lease payments,
discounted at
| June 30, | September 30, | |||||||
| 2022 | 2022 | |||||||
| Right-of-use assets | $ | $ | ||||||
| Operating lease | ||||||||
| Lease liabilities - current | ||||||||
| Operating lease | ||||||||
| Lease liabilities – non-current | ||||||||
| Operating lease | ||||||||
| Total lease liabilities | $ | $ | ||||||
| Operating Leases | ||||
| 1st year | $ | |||
| Total lease payments | ||||
| Less: Imputed interest | ||||
| Present value of lease liabilities | ||||
| Less: Current lease liabilities | ||||
| Long-term lease liabilities | ||||
17
| 10. | ACCOUNTS PAYABLE |
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Amount due to agents | $ | $ | ||||||
| Amount due to other service providers | ||||||||
| Totals | $ | $ | ||||||
| 11. | CONTRACT LIABILITY |
| June 30, 2023 | September 30, 2022 | |||||||
| Advance from customers | $ | $ | ||||||
| Totals | $ | $ | ||||||
| 12. | BALANCES WITH RELATED PARTIES |
| Note | June 30, 2023 | September 30, 2022 | |||||||||
| Due from related parties | |||||||||||
| Yulong Yi | (a) | $ | $ | ||||||||
| Ru Zhang | (b) | ||||||||||
| Shaowei Peng | (c) | ||||||||||
| Totals | $ | $ | |||||||||
| Due to related parties | |||||||||||
| Yulong Yi | (a) | $ | $ | ||||||||
| Shaowei Peng | (c) | ||||||||||
| Totals | $ | $ | |||||||||
| (a) | |
| (b) | |
| (c) |
Amount due from related parties are mainly cash in advance provided to the related parties by the Company. Amount due to related parties are mainly the out-of-pocket expenses incurred by the related parties for working purpose which are to be reimbursed by the Company.
All the above balances are due on demand, interest-free, unsecured and expected to be settled within one operating period.
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| 13. | TAXES |
Income tax
The Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled.
PRC Tax
| For The Three Months Ended | For The Nine Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| PRC | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Total income (loss) before income taxes | $ | ( | ) | $ | ( | ) | $ | ( | $ | ( | ) | |||||
Taxes payable
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| VAT tax payable | $ | $ | ||||||
| Company income tax payable | ||||||||
| Individual income tax payable | ||||||||
| Other taxes payable | ||||||||
| Totals | $ | $ | ||||||
| 14. | CHINA CONTRIBUTION PLAN |
The Company participates in a government-mandated
multi-employer defined contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees.
Chinese labor regulations require the Company to pay to the local labor bureau a monthly contribution at a stated contribution rate based
on the monthly compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit
obligations; the Company has no further commitments beyond their monthly contributions. For the nine months ended June 30, 2023 and 2022,
the Company contributed a total of $
| 15. | SUBSEQUENT EVENT |
The Company has analyzed its operations subsequent to June 30, 2023 to the date these condensed consolidation financial statements were issued. There is not material subsequent event to disclose in these condensed consolidated financial statements.
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Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations.
As used herein and except as otherwise noted, the term “Company”, “it(s)”, “our”, “us”, “we” and “GSHN” shall mean Gushen, Inc., a Nevada corporation, and its consolidated subsidiary, as applicable.
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements appearing elsewhere in this report, as well as the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022.
Certain statements in this report constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements, which involve risks and uncertainties, regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “project,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” or the negative of these words or other variations on these words or comparable terminology. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.
The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.
Overview
Gushen, Inc., a Nevada corporation (“GSHN” or the “Company”), owns 100% of Dyckmanst Limited, a British Virgin Islands company (“Dyckmanst”), which owns 100% of Edeshler Limited, a Hong Kong company (“Edeshler”), which in return owns 100% of Beijing Fengyuan Zhihui Education Technology Co., Ltd., a PRC company (“Fengyuan Beijing”). The Company, Dyckmanst and Edeshler are holding companies with no substantive operations.
As a holding company with no material operations of our own, we consolidate financial results of Beijing Zhuoxun Century Culture Communication Co., Ltd., a PRC company (“Zhuoxun Beijing”), which is a variable interest entity (the “VIE”), through a series of contractual arrangements dated February 5, 2021, by and among our wholly-owned subsidiary Fengyuan Beijing, Zhuoxun Beijing and the shareholders of Zhuoxun Beijing (the “VIE Agreements”). Neither we nor our subsidiaries own any equity interests in the VIE or its subsidiary. A description of the VIE Agreements and forms of such agreements are incorporated by reference from the Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (“SEC”) on August 6, 2021.
Zhuoxun Beijing’s customers are parents who desire to acquire various family education resources. Zhuoxun Beijing delivers onsite educational services to parents through its nationwide physical network of regional collaborative education agencies. Zhuoxun Beijing’s onsite educational services include programs such as individual development, youth leadership development, and parenting schools, enabling in-person guidance and interactions in classes. Zhuoxun Beijing has developed long-term business relationships with 18 regional education agencies around the country, whom Zhuoxun Beijing provides systematic training and management for to ensure the delivery of high-quality and uniformed educational services to the customers.
In addition, Zhuoxun Beijing also provides online education to parents through their mobile application, Wisdom Lighthouse (“睿智灯塔”) (formerly known as ZhuoXun App). Zhuoxun Beijing’s products provide two sets of curricula: “Good Parenting” (“教子有方”) and “Wise Parents” (“智慧父母”). “Good Parenting”, focused on child development, provides courses including emotional intelligence (EQ) training, learning habits, learning ability, parents-children communication, stages of puberty, etc. to help parents promote children’s mental and psychological health. “Wise Parents” introduces general strategies of family education to parents to help them better understand and support their children’s growth and needs, whereby courses such as traditional family values, improvement of parents’ qualifications, and psychological analysis are provided. Through Zhuoxun Beijing’s mobile application, Zhuoxun Beijing’s users can, based on their own interest and needs, select courses that are suitable for them and obtain valuable knowledge and skills provided by Zhuoxun Beijing’s courses. Zhuoxun Beijing’s users on mobile platform can use iPhone, Android, iPad and other tablets to review the courses anywhere and anytime. As of the date hereof, Zhuoxun Beijing has around 52,000 active users on the Wisdom Lighthouse app.
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Zhuoxun Beijing’s online family education mobile platform monetizes through in-app purchases. Zhuoxun Beijing provides one free trial class of each course for all the users. The remaining classes are available for purchase. Users are able to view the first class for free before determining if to purchase the remaining classes.
Zhuoxun Beijing’s product Zhuoxun Anti-Addiction Cellphone (“Zhuoxun Cellphone”) is an intelligent terminal device. Dami Zhilian Information Technology Group Co., Ltd, a technology company that develops and produces smartphones (“Dami Zhilian”), customizes and produces Zhuoxun Cellphone according to the design requirements set by Zhouxun Beijing. Zhuoxun Beijing does not own any intellectual property in connection with Zhuoxun Cellphones. Zhuoxun Beijing sells Zhuoxun Cellphones through regional collaborative education agencies. Zhuoxun Cellphone has primarily four functions including anti-addiction, myopia prevention, security, and study assistance, for the purpose of managing elementary and middle school students. Parents are able to personalize and monitor their children’s use of Zhuoxun Cellphone by setting screen auto-lock, monitoring internet surfing, monitoring mobile application usage, monitoring physical locations, etc.
Starting in the third quarter of fiscal year 2022, the Company sells household products via the Company’s app in a small scale, and the amount of sales was immaterial compared to the total revenue of the corresponding period.
Recent Development
Transfer of Quotation to OTC Expert Market
On April 19, 2023, our common stock was transferred to the OTC Expert Market by OTC Market Group Inc. from OTC Pink pursuant to Rule 15c2-11 of the Exchange Act which generally prohibits broker-dealers from publishing or submitting securities of private issuers in a quotation medium other than a national securities exchange, unless the issuer has made current financial and other information publicly available as specified by the rule. Quotations in Expert Market securities are restricted from public viewing and only broker-dealers and professional or sophisticated investors are permitted to view quotations in Expert Market securities. Our securities could be particularly illiquid due to being quoted on this market.
Critical Accounting Policies and Estimates
Basis of Presentation
The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
21
Use of Estimates
The preparation of these consolidated financial statements in conformity with U.S. GAAP requires management of the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an on-going basis, the Company evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Identified below are the accounting policies that reflect the Company’s most significant estimates and judgments, and those that the Company believes are the most critical to fully understanding and evaluating its consolidated financial statements.
COVID-19 Outbreak
In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, workforces, customers, and created significant volatility and disruption of financial markets. It has also disrupted the normal operations of many businesses, including ours and Zhuoxun Beijing’s. This outbreak could decrease spending, adversely affect demand for Zhuoxun Beijing’s services and harm Zhuoxun Beijing’s business and results of operations. Since March 2020, as different variants and subvariants of COVID-19 developed and spread in various regions across China, PRC provincial and local governments have imposed various forms of strict lockdowns, mass testing and extensive contact tracing measures for extended periods of time. Recent examples include lockdown measures put in place by the local governments in Shenzhen, Guangdong Province, Changchun, Jilin Province and City of Shanghai in March to May 2022. Zhuoxun Beijing’s main business was affected by China’s anti-epidemic measures such as restrictions on public gatherings during the COVID-19 pandemic until January 2023, when most government restrictions were lifted.
Revenue Recognition
Zhuoxun Beijing recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which Zhuoxun Beijing expects to receive in exchange for those goods or services. Zhuoxun Beijing recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) it satisfies the performance obligation.
Revenues are recognized when control of the promised goods or services is transferred to its customers, which may occur at a point in time or over time depending on the terms and conditions of the agreement, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
Zhuoxun Beijing identified the following performance obligations for each type of contract:
Training revenue
Zhuoxun Beijing’s onsite training course service primarily includes assigning instructors, providing onsite classes and presenting training materials to the course participants who attend the classes. The series of tasks as discussed above are interrelated and are not separable or distinct as the customers cannot benefit from the standalone task.
Zhuoxun Beijing’s online training course service primarily includes courseware or videos which are already published on the website. Other than providing the access, there are no bundle or multiple separable and distinct tasks.
According to ASC 606-10-25-19, there is one performance obligation for the training course service.
Charge for use of brand
The Company authorized other enterprises or individuals to use the Company’s brand, providing services to customers at their location, with a brand usage fee. Revenue was recognized when such events using the Company’s brand are completed.
22
Online sales
The company sells goods through live streaming to customers, and arranging for their suppliers to provide goods directly to customers. Revenue is recognized on a net basis, revenue is generated from sales less the cost of goods purchased.
Other revenues include sales of anti-addiction mobile phone device and online sales of household items. The amount was immaterial compared to total revenue during the nine months ended June 30, 2023 and 2022.
Practical expedients and exemption
Zhuoxun Beijing has not incurred any costs to obtain contracts, and does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
Other service income is earned when services have been rendered.
Income Taxes
We account for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
We apply ASC 740, Accounting for Income Taxes, to account for uncertainty in income taxes and the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.
Foreign Currency and Foreign Currency Translation
The functional currency of the Company is the United States dollar (“US dollar”). Fengyuan Beijing, Zhuoxun Beijing and Zhuoxun Beijing’s subsidiaries, all of which are based in PRC, use the local currency, the Chinese Yuan (“RMB”), as their functional currencies. An entity’s functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements.
Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are re-measured at the applicable rates of exchange in effect at that date. Gains and losses resulting from foreign currency re-measurement are included in the statements of comprehensive loss.
The consolidated financial statements are presented in U.S. dollars. Assets and liabilities are translated into U.S. dollars at the current exchange rate in effect at the balance sheet date, and revenues and expenses are translated at the average of the exchange rates in effect during the reporting period. Stockholders’ equity accounts are translated using the historical exchange rates at the date the entry to stockholders’ equity was recorded, except for the change in retained earnings during the period, which is translated using the historical exchange rates used to translate each period’s income statement. Differences resulting from translating functional currencies to the reporting currency are recorded in accumulated other comprehensive income in the consolidated balance sheets.
23
Translation of amounts from RMB into U.S. dollars has been made at the following exchange rates:
| Balance sheet items, except for equity accounts | ||
| June 30, 2023 | RMB7.2542 to $1 | |
| September 30, 2022 | RMB7.1099 to $1 | |
| Income statement and cash flows items | ||
| For the nine months ended June 30, 2023 | RMB6.9868 to $1 | |
| For the nine months ended June 30, 2022 | RMB6.4504 to $1 |
Impairment of Long-lived Assets
In accordance with ASC 360-10-35, the Company reviews the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Based on the existence of one or more indicators of impairment, the Company measures any impairment of long-lived assets using the projected discounted cash flow method at the asset group level. The estimation of future cash flows requires significant management judgment based on the Company’s historical results and anticipated results and is subject to many factors. The discount rate that is commensurate with the risk inherent in the Company’s business model is determined by its management. An impairment loss would be recorded if the Company determined that the carrying value of long-lived assets may not be recoverable. The impairment to be recognized is measured by the amount by which the carrying values of the assets exceed the fair value of the assets. No impairment has been recorded by the Company as of June 30, 2023 and September 30, 2022.
Credit risk
Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents. As of June 30, 2023 and 2022, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in the PRC, which management believes are of high credit quality.
For the credit risk related to trade accounts receivable, the Company performs ongoing credit evaluations of its customers and, if necessary, maintains reserves for potential credit losses. Historically, such losses have been within management’s expectations.
Fair Value of Financial Instruments
U.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financial instruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three-tier fair value hierarchy is:
Level 1 – observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – include other inputs that are directly or indirectly observable in the market place
Level 3 – unobservable inputs which are supported by little or no market activity
The carrying value of the Company’s financial instruments, including cash and cash equivalents, accounts and other receivables, other current assets, accounts and other payables, and other short-term liabilities approximate their fair value due to their short maturities.
In accordance with ASC 825, for investments in financial instruments with a variable interest rate indexed to performance of underlying assets, the Company elected the fair value method at the date of initial recognition and carried these investments at fair value. Changes in the fair value are reflected in the accompanying consolidated statements of operations and comprehensive loss as other income (expense). To estimate fair value, the Company refers to the quoted rate of return provided by banks at the end of each period using the discounted cash flow method. The Company classifies the valuation techniques that use these inputs as Level 2 of fair value measurements.
As of June 30, 2023 and September 30, 2022, the Company had no investments in financial instruments.
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Results of Operations
Comparison of Three Months Ended June 30, 2023 and 2022
The following table sets forth key components of our results of operations during the three months ended June 30, 2023 and 2022, both in dollars and as a percentage of our revenue.
| Three Months Ended June 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Amount | % of Revenue | Amount | % of Revenue | |||||||||||||
| Revenue | $ | 561 | 100.00 | $ | 965,542 | 100 | ||||||||||
| Cost of revenue | (7 | ) | (1.25 | ) | (549,970 | ) | (56.96 | ) | ||||||||
| Gross profit | 554 | 98.75 | 415,572 | 43.04 | ||||||||||||
| Selling expenses | (94,844 | ) | (16,906.24 | ) | (613,971 | ) | (63.59 | ) | ||||||||
| General and administrative expenses | (201,510 | ) | (35,919.79 | ) | (285,562 | ) | (29.58 | ) | ||||||||
| Loss from operations | (295,800 | ) | (52,727.27 | ) | (483,961 | ) | (50.12 | ) | ||||||||
| Other income | (257,516 | ) | (45,903.03 | ) | 1,118 | 0.12 | ||||||||||
| Net loss before income taxes | (553,316 | ) | (98,630.30 | ) | (482,843 | ) | (50.01 | ) | ||||||||
| Income tax benefit | - | - | - | - | ||||||||||||
| Net loss | $ | (553,316 | ) | (98,630.30 | ) | $ | (482,843 | ) | (50.01 | ) | ||||||
Revenue
The Company’s revenue decreased from $965,542 to $561 during the three months ended June 30, 2023 compared with the same period in 2022. Although the Chinese government removed most COVID-19 restrictions in January 2023, the influence of COVID-19 still existed. With the explosion of short videos in China and the proliferation of fragmented knowledge, people’s lifestyle and the way of thinking and learning have changed after the pandemic, resulting in an enormous shock to the Company’s offline courses and thereby a decline in training revenue. People were still worried about the traditional stores and lack of investment confidence, resulting in the actual transformation of use of brand revenue became more difficult, which leads to a dramatic decrease of charge for use of brand revenue. The company is actively in the process of developing new business.
Cost of revenue
Our cost of revenue was $7 and $549,970 for the three months ended June 30, 2023 and 2022, respectively. The decrease was in line with the decrease of revenue.
Gross profit and gross margin
Our gross profit was $554 for the three months ended June 30, 2023, compared with $415,572 for the same period in 2022. Gross profit as a percentage of revenue (gross margin) was 98.75% for the three months ended June 30, 2023, compared to 43.04% for the same period in 2022.
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Selling expenses
Our selling expenses consist primarily of compensation and benefits to our expense related to the revenue, such as service fees. Our selling expenses decreased by $519,127 to $94,844 for the three months ended June 30, 2023, compared to $613,971 for the same period in 2022. We adjusted the strategy by reducing our own selling employees. Due to the COVID-19 epidemic prevention policy control, the Company’s main business source could not carry out normal business. The Company has adjusted its market layout since late 2021, so the input expenditure of marketing and service fees has reduced.
| Three Months ended June 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Fluctuation | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Salary and welfare | 58,965 | 62.17 | 151,680 | 24.70 | (92,715 | ) | (61.13 | ) | ||||||||||||||||
| Conference Fees | 172 | 0.18 | 336 | 0.05 | (164 | ) | (48.81 | ) | ||||||||||||||||
| Marketing fee | 704 | 0.74 | 168,529 | 27.45 | (167,825 | ) | (99.58 | ) | ||||||||||||||||
| Service fee | 24,177 | 25.49 | 101,592 | 16.55 | (77,415 | ) | (76.20 | ) | ||||||||||||||||
| Depreciation and amortization | 3,610 | 3.81 | 3,831 | 0.62 | (221 | ) | (5.77 | ) | ||||||||||||||||
| Others | 7,216 | 7.61 | 188,003 | 30.62 | (180,787 | ) | (96.16 | ) | ||||||||||||||||
| Total Selling Expense | $ | 94,844 | 100 | $ | 613,971 | 100 | $ | (519,127 | ) | (84.55 | ) | |||||||||||||
General and administrative expenses
Our general and administrative expenses consist primarily of compensation and benefits to our general management, finance and administrative staff, professional fees and other expenses incurred in connection with general operations. Our general and administrative expenses decreased by $84,052 to $201,510 for the three months ended June 30, 2023, compared to $285,562 for the same period in 2022. The Company focused on controlling general and administrative expenses.
| Three Months ended June 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Fluctuation | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Salary and welfare | 84,157 | 41.76 | 131,973 | 46.22 | (47,816 | ) | (36.23 | ) | ||||||||||||||||
| Depreciation and amortization | 13,294 | 6.60 | 21,934 | 7.68 | (8,640 | ) | (39.39 | ) | ||||||||||||||||
| Rent | 39,677 | 19.69 | 108,784 | 38.09 | (69,107 | ) | (63.53 | ) | ||||||||||||||||
| Profession fee | 15,026 | 7.46 | 100,468 | 35.18 | (85,442 | ) | (85.04 | ) | ||||||||||||||||
| Others | 49,356 | 24.49 | (77,597 | ) | (27.17 | ) | 126,953 | (163.61 | ) | |||||||||||||||
| Total G&A Expenses | $ | 201,510 | 100 | $ | 285,562 | 100 | $ | (84,052 | ) | (29.43 | ) | |||||||||||||
Income tax benefit
Our Income tax benefit was nil for the three months ended June 30, 2023 and 2022.
Net loss
As a result of the cumulative effect of the factors described above, our net loss was $553,316 and $482,843 for the three months ended June 30, 2023 and 2022, respectively.
Comparison of Nine Months Ended June 30, 2023 and 2022
The following table sets forth key components of our results of operations during the nine months ended June 30, 2023 and 2022, both in dollars and as a percentage of our revenue.
| Nine Months Ended June 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Amount | % of Revenue | Amount | % of Revenue | |||||||||||||
| Revenue | $ | 22,340 | 100.00 | $ | 1,506,988 | 100 | ||||||||||
| Cost of revenue | (13,904 | ) | (62.24 | ) | (897,261 | ) | (59.54 | ) | ||||||||
| Gross profit | 8,436 | 37.76 | 609,727 | 40.46 | ||||||||||||
| Selling expenses | (587,696 | ) | (2,630.69 | ) | (2,044,152 | ) | (135.64 | ) | ||||||||
| General and administrative expenses | (684,902 | ) | (3,065.81 | ) | (1,023,776 | ) | (67.94 | ) | ||||||||
| Loss from operations | (1,264,162 | ) | (5,658.74 | ) | (2,458,201 | ) | (163.12 | ) | ||||||||
| Other income | (784,442 | ) | (3,511.38 | ) | 5,127 | 0.34 | ||||||||||
| Net loss before income taxes | (2,048,604 | ) | (9,170.12 | ) | (2,453,074 | ) | (162.78 | ) | ||||||||
| Income tax benefit | - | - | - | - | ||||||||||||
| Net loss | $ | (2,048,604 | ) | (9,170.12 | ) | $ | (2,453,074 | ) | (162.78 | ) | ||||||
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Revenue
The Company’s revenue decreased from $1,506,988 to $22,340 during the nine months ended June 30, 2023 compared with the same period in 2022. Although the Chinese government removed most COVID-19 restrictions in January 2023, the influence of COVID-19 still existed. With the explosion of short videos in China and the proliferation of fragmented knowledge, people’s lifestyle and the way of thinking and learning have changed after the pandemic, resulting in an enormous shock to the Company’s offline courses and thereby a decline in training revenue. People were still worried about the traditional stores and lack of investment confidence, resulting in the actual transformation of use of brand revenue became more difficult, which leads to a dramatic decrease of charge for use of brand revenue. The company is actively in the process of developing new business.
Cost of revenue
Our cost of revenue was $13,904 and $897,261 for the nine months ended June 30, 2023 and 2022, respectively. The decrease was in line with the decrease of revenue.
Gross profit and gross margin
Our gross profit was $8,436 for the nine months ended June 30, 2023, compared with a gross profit of $609,727 for the same period in 2022. Gross profit as a percentage of revenue (gross margin) was 37.76 % for the nine months ended June 30, 2023, compared to a gross profit of 40.46% for the same period in 2022.
Selling expenses
Our selling expenses consist primarily of compensation and benefits to our expense related to the revenue, such as service fees, marketing fees. Our selling expenses decreased by $1,456,456 to $587,696 for the nine months ended June 30, 2023, compared to $2,044,152 for the same period in 2022. We adjusted the strategy by reducing our own selling employees. Due to the COVID-19 epidemic prevention policy control, the Company’s main business source could not carry out normal business. The Company has adjusted its market layout since late 2021, so the input expenditure of service fees has reduced.
| Nine Months Ended June 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Fluctuation | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Salary and welfare | 280,163 | 47.67 | 484,586 | 23.71 | (204,423 | ) | (42.19 | ) | ||||||||||||||||
| Conference Fees | 1,551 | 0.26 | 1,725 | 0.08 | (174 | ) | (10.09 | ) | ||||||||||||||||
| Marketing fee | 128,338 | 21.84 | 438,565 | 21.45 | (310,227 | ) | (70.74 | ) | ||||||||||||||||
| Service fee | 125,250 | 21.31 | 840,772 | 41.13 | (715,522 | ) | (85.10 | ) | ||||||||||||||||
| Depreciation and amortization | 10,861 | 1.85 | 11,709 | 0.57 | (848 | ) | (7.24 | ) | ||||||||||||||||
| Others | 41,533 | 7.07 | 266,795 | 13.05 | (225,262 | ) | (84.43 | ) | ||||||||||||||||
| Total Selling Expense | $ | 587,696 | 100 | $ | 2,044,152 | 100 | $ | (1,456,456 | ) | (71.25 | ) | |||||||||||||
General and administrative expenses
Our general and administrative expenses consist primarily of compensation and benefits to our general management, finance and administrative staff, professional fees and other expenses incurred in connection with general operations. Our general and administrative expenses decreased by $338,874 to $684,902 for the nine months ended June 30, 2023 compared to $1,023,776 for the same period in 2022. The company focused on controlling general and administrative expenses.
| Nine Months Ended June 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Fluctuation | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Salary and welfare | 288,137 | 42.07 | 490,057 | 47.87 | (201,920 | ) | (41.20 | ) | ||||||||||||||||
| Depreciation and amortization | 44,488 | 6.50 | 51,350 | 5.02 | (6,862 | ) | (13.36 | ) | ||||||||||||||||
| Rent | 131,061 | 19.14 | 228,609 | 22.33 | (97,548 | ) | (42.67 | ) | ||||||||||||||||
| Profession fee | 130,750 | 19.09 | 164,400 | 16.06 | (33,650 | ) | (20.47 | ) | ||||||||||||||||
| Bad debt | 5,993 | 0.88 | - | - | 5,993 | 100.00 | ||||||||||||||||||
| Others | 84,473 | 12.33 | 89,360 | 8.73 | (4,887 | ) | (5.47 | ) | ||||||||||||||||
| Total G&A Expenses | $ | 684,902 | 100 | $ | 1,023,776 | 100 | $ | (338,874 | ) | (33.10 | ) | |||||||||||||
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Income tax benefit
Our Income tax benefit were nil for the nine months ended June 30, 2023 and 2022.
Net loss
As a result of the cumulative effect of the factors described above, our net loss was $2,048,604 and $2,453,074 for the nine months ended June 30, 2023 and 2022, respectively.
Liquidity and Capital Resources
The following table sets forth a summary of our cash flows for the periods indicated:
| Nine Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (1,468,073 | ) | $ | (1,523,911 | ) | ||
| Net cash used in investing activities | - | (10,820 | ) | |||||
| Net cash provided by financing activities | 642,027 | |||||||
| Net (decrease) increase in cash and cash equivalents | (826,046 | ) | (1,534,731 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | 13,188 | (39,104 | ) | |||||
| Cash and cash equivalents at the beginning of period | 867,619 | 2,659,622 | ||||||
| Cash and cash equivalents at the end of period | $ | 54,761 | $ | 1,085,787 | ||||
As of June 30, 2023, we had cash and cash equivalents of $54,761. To date, we have financed our operations primarily through borrowings from our stockholders, related and unrelated parties.
Operating Activities
Net cash used in operating activities was $1,468,073 for the nine months ended June 30, 2023, as compared to $1,523,911 net cash used in operating activities for the nine months ended June 30, 2022.
The net cash used in operating activities for the nine months ended June 30, 2023 was mainly due to our net loss of $2,048,604, partially offset by adjustments to reconcile net loss of $151,138, and the decrease in advance from clients of $210,798.
The net cash used in operating activities for the nine months ended June 30, 2022 was mainly due to our net loss of $2,453,074, partially offset by the increase in amortization of prepaid expenses of $530,140, the increase in other receivable of $89,819, and the decrease in other payables of $190,772.
Investing Activities
Net cash used in investing activities was nil for the nine months ended June 30, 2023, as compared to $10,820 for the nine months ended June 30, 2022. The net cash used in investing activities for the nine months ended June 30, 2022 was mainly attributable to purchase of property, plant and equipment.
Financing Activities
Net cash provided by financing activities was $642,027 for the nine months ended June 30, 2023, which primarily attributable to the increase of amount due to related parties, as compared to $nil for the nine months ended June 30, 2022
Off-Balance Sheet Arrangements
As of June 30, 2023 and September 30, 2022, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
28
Limited Operating History; Need for Additional Capital
There is limited historical financial information about the Company on which to base an evaluation of its performance. There is no guarantee on the continued success in its business operations. The business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, a narrow client base, limited sources of revenue, and possible cost overruns due to the price and cost increases in supplies and services.
Without additional funding, management believes that the Company will not have sufficient funds to meet its obligations beyond one year after the date our condensed consolidated financial statements are issued. These conditions give rise to substantial doubt as to our ability to continue as a going concern.
The Company has been, and intend to continue, working toward identifying and obtaining new sources of financing. To date it has been dependent on related parties for its source of funding. No assurances can be given that it will be successful in obtaining additional financing in the future. Any future financing that it may obtain may cause significant dilution to existing stockholders. Any debt financing or other financing of securities senior to common stock that it is able to obtain will likely include financial and other covenants that will restrict its flexibility. Any failure to comply with these covenants would have a negative impact on its business, prospects, financial condition, results of operations and cash flows.
If adequate funds are not available, it may be required to delay, scale back or eliminate portions of it or Zhuoxun Beijing’s operations or obtain funds through arrangements with strategic partners or others that may require us to relinquish rights to certain of our assets. Accordingly, the inability to obtain such financing could result in a significant loss of ownership and/or control of our assets and could also adversely affect the Company’s ability to fund it or Zhuoxun Beijing’s continued operations and expansion efforts.
During the next 12 months, the Company expect to incur the same amount of expenses each month. However, as Zhuoxun Beijing works to expand its operations, it expects to incur significant research, marketing and development costs and expenses on Zhuoxun Beijing’s online service platforms that meet the constantly evolving industry standards and consumer demands.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to the Company’s market risk during the nine months ended June 30, 2023. For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of the its annual report on Form 10-K for the year ended September 30, 2022, filed with the SEC on October 4, 2023 (the “10-K”).
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were not effective such that the information relating to us required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Company’s former management abandoned all operations for several years, and only recently did the Company appoint new management to make filings with the SEC on behalf of the Company.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter covered by this report that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We or the VIE are not currently involved in any material legal proceedings other than ordinary routine litigations incidental to the business, to which we, any of our subsidiaries, or the VIE and its subsidiary (Beijing Zhuoxun Education Technology Co., Ltd.) is a party or of which any of our property is the subject. From time-to-time we or the VIE are, and we or the VIE anticipate that we or the VIE will be, involved in legal proceedings, claims, and litigation arising in the ordinary course of our or the VIE’s business and otherwise. The ultimate costs to resolve any such matters could have a material adverse effect on our financial statements. We could be forced to incur material expenses with respect to these legal proceedings, and in the event that there is an outcome in any that is adverse to us, our financial position and prospects could be harmed.
Item 1a. Risk Factors
For a discussion of our risk factors, see Part I, Item 1A. “Risk Factors” of the 10-K. The risks and uncertainties that we face are not limited to those set forth in the 2022 Form 10-K. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our securities. There have been no material changes to the Company’s risk factors since the filing of the 2022 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company has adopted a 2021 Equity Compensation Plan (the “2021 Plan”) on December 9, 2021, which went into effect on February 7, 2022.
On March 31, 2023, the Board approved the issuance under the 2021 Plan of an aggregate of 12,618,523 restricted shares of common stock to certain employees of Edeschler Limited, the Company’s Hong Kong subsidiary, bearing a legend that such Awards shall be vested on June 30, 2023, pursuant to certain stock award agreement with each of such employees.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Item 6. Exhibits
| 31.1* | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer | |
| 31.2* | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial and accounting officer | |
| 32.1* | Section 1350 Certification of principal executive officer | |
| 32.2* | Section 1350 Certification of principal financial and accounting officer | |
| 101.INS* | Inline XBRL Instance Document. | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | filed herewith |
30
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Gushen, Inc. | ||
| (Registrant) | ||
| Date: May 31, 2024 | By: | /s/ Yulong Yi |
| Yulong Yi | ||
| Chairman of the Board of Directors, CEO, President, Treasurer (Principal Executive Officer & Principal Financial Officer & Accounting Officer) | ||
31