The following discussion should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this Form 10-Q.
DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS
The following discussion and analysis of the consolidated financial condition
and results of operations should be read in conjunction with our consolidated
financial statements and related notes appearing elsewhere in this report. This
discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results could differ materially from
the results described in or implied by these forward-looking statements as a
result of various factors, including those discussed below and elsewhere in the
Annual Report on Form 10-K, particularly under the heading "Risk Factors." and
those set forth from time to time in our other filings with the SEC.
Overview
Fuse Group Holding Inc. (the "Company" or "Fuse Group" or "we") was incorporated
under the laws of the State of Nevada on December 24, 2013. Fuse Group
currently explores opportunities in mining and biotech areas. On December 6,
2016, the Company incorporated Fuse Processing, Inc. ("Processing") in the State
of California. Processing seeks business opportunities in mining and is
currently investigating potential mining targets in Asia and North America.
Fuse Group is the sole shareholder of Processing. In March 2017, Processing
acquired 100% ownership of Fuse Trading Limited ("Trading") for HKD1 ($0.13).
Trading had no operations prior to the acquisition by Processing, and Trading
expects to be engaged in mining-related businesses. On May 3, 2018, the Company
incorporated Fuse Technology Inc. in the State of Nevada, which changed its name
to Fuse Biotech Inc. on November 30, 2020. Fuse Group is the sole shareholder
of Fuse Biotech Inc. ("Biotech"). Fuse Biotech mainly engaged in IMETAL system
development. The Company originally planned to operate IMETAL as a platform to
facilitate investment and trade in raw metals, find specialized minerals,
exploit these opportunities and issue tokens to be used on the platform, subject
to compliance with applicable laws and regulations. Due to the recent
development of laws and regulations on token issuance and trading, management
discussed its function and compliance issues with the designer of the platform
and concluded the project had more issues and costs for compliance than
originally expected, on December 23, 2019, the Board decided to terminate the
IMETAL project. Currently, Biotech is seeking business opportunities in the
biotech area.
Fuse Group and Processing provide consulting services to mining industry clients
to find acquisition targets within the parameters set by the clients, when the
mine owner is considering selling its mining rights. The services of Fuse Group
and Processing include due diligence on the potential mine seller and the mine,
such as ownership of the mine and whether the mine meets all operation
requirements and/or is currently in operation.
On January 4, 2017, Processing entered into a Consulting and Strategist
Agreement with a consulting company for a six-month term. On July 3, 2017,
Processing and the consulting company extended the Consulting and Strategist
Agreement until January 3, 2018 at no additional cost, and the Agreement was
subsequently extended to July 3, 2018. The consultant provides Processing with
market research, exploration and advise on business development opportunities in
certain countries, and other general business advisory services. Processing paid
a deposit of $1,325,000 for the consulting fee, of which, $325,000 was expensed
as a consulting fee based on the agreement, and the remaining $1,000,000 of
which would have been refunded to the Company if the Company had not made an
investment and/or entered into a business relationship in Mexico. The consulting
company found acquisition targets for the Company, and on June 22, 2018, the
Company entered into a Memorandum of Understanding ("MOU") with a seller to
purchase the concessions rights to five mineral locations located in different
areas of Mexico for $1,000,000. Upon execution of the MOU, the Company acquired
the exclusive right to purchase the concessions from the seller until September
30, 2018. The parties entered into an oral agreement that the Company would pay
$1,000,000 to purchase the concessions rights to five mineral locations that
would be consolidated into a local company in Mexico upon the approval from the
Mexican government allowing the transfer of all mining concession to a Mexican
company. On February 9, 2021, the Company, Processing entered into a Share
Exchange Agreement (the "Agreement") with Choo Keam Hui, Goh Hau Guan, Lim Hui
Sing, Teh Boon Nee and Tia Chai Teck (collectively as the "Sellers"). Pursuant
to the Agreement, the Company agreed to issue to the Sellers in aggregate of
14,285,715 shares of common stock of the Company (the "Fuse Shares") in exchange
of all the outstanding shares of Portafolio en Investigacion Ambiental S.A. de
C.V., a Mexican company that owns the concessions rights to five mineral
locations. The five mines have not been explored and have no operations, no
existing contracts for the sale of output, no permits or licenses to conduct
mining operations. Portafolio only has five concessions to explore for minerals
and owns no facilities or equipment. There is no assurance that we will be able
to obtain the surface rights and permits that are necessary to extract the
minerals from the areas covered by the concessions. As of this report date, the
Company is waiting for the Sellers to complete the transfer process for the
equity interest of Portafolio to the Processing to complete the transaction.
On May 26, 2017, the Company filed a Certificate of Change with the State of
Nevada to (i) increase its authorized shares of common stock from 75,000,000 to
375,000,000 and (ii) effect a corresponding 5-for-1 forward stock split of the
issued and outstanding shares of the Company's common stock (the "Stock
Split").
19
--------------------------------------------------------------------------------
Table of Contents
On April 29, 2019, the Board of Directors ("BOD") of the Company approved an
amendment to the Company's Articles of Incorporation (the "Amendment") to change
its name from Fuse Enterprises Inc. to Fuse Group Holding Inc. Also on April 29,
2019, stockholders holding a majority of the Company's outstanding capital stock
approved the Amendment. The Amendment was filed with the Secretary of State for
the State of Nevada on April 30, 2019, and became effective on May 13, 2019. On
May 29, 2019, the Company changed its trading symbol on OTC Markets from FNST to
FUST.
In December 2019, the COVID-19 outbreak began to impact the population in China
and since January 2020, the COVID-19 outbreak has spread around the world.,
including the United States. In March 2020, the World Health Organization
declared the COVID-19 outbreak a pandemic, and the pandemic has resulted in
quarantines, travel restrictions, and the temporary closure of office buildings
and facilities in the US. The state of California, where the Company is
headquartered, has been affected by COVID-19.
Our business and services and results of operations have been adversely affected
and could continue to be adversely affected by the COVID-19 pandemic. The
pandemic negatively impacted our business development, and disrupted or delayed
our current mine projects and services to our clients, the magnitude of which
will depend, in part, on the length and severity of the restrictions and other
limitations on our ability to conduct our business in the ordinary course. These
and similar, and perhaps more severe, disruptions in our operations could
negatively impact our business, operating results and financial condition.
Quarantines, travel restrictions, shelter-in-place and other restrictions
related to COVID-19 have impacted our abilities to visit mines in Mexico and
Asian counties as well as to meet with potential clients and mine owners for our
consulting business and our own investment in mine projects. Our clients that
are negatively impacted by the outbreak of COVID-19 may cancel or suspend their
mine acquisition projects, which in turn will reduce their demands for our
services and materially adversely impact our revenue. Potential impact to our
results of operations will also depend on future developments and new
information that may emerge regarding COVID-19, the efficacy and distribution of
COVID-19 vaccines and the actions taken by governmental authorities and other
entities to contain COVID-19 and/or mitigate its impact, almost all of which are
beyond our control.
The global economy has also been materially negatively affected by COVID-19 and
there is continued severe uncertainty about the duration and intensity of its
impacts. The U.S. and global growth forecast is extremely uncertain, which would
seriously affect people's investment desires in mines in Mexico, Asia and
internationally.
While the potential economic impact brought by, and the duration of, COVID-19
may be difficult to assess or predict, a widespread pandemic could result in
significant disruption of global financial markets, reducing our ability to
access capital, which could negatively affect our liquidity. In addition, a
recession or market correction resulting from the spread of COVID-19 could
materially affect our business and the value of our common stock.
We received a $49,600 Paycheck Protection Program loan ("PPP loan") and a
$105,500 Economic Injury Disaster Loan ("EIDL loan") from US Small Business
Administration (" the SBA") during the year ended September 30, 2020.
We currently believe our financial resources will be adequate to see us through
the outbreak. However, in the event that we do need to raise capital in the
future, the outbreak-related instability in the securities markets could
adversely affect our ability to raise additional capital.
On March 11, 2021, Fuse Group and Biotech (the "Buyer") entered into a Share
Exchange Agreement with E-Mo Biotech Holding Inc., a company incorporated under
the laws of Nevada (the "E-Mo Biotech"), Qiyi Xie, a resident of California
("Xie"), Quan Qinghua, a citizen and resident of China ("Quan"), Jing Li, a
citizen and resident of China ("Li") and HWG Capital Sdn Bhd, a company
incorporated under laws of Malaysia ("HWG" and hereinafter collectively with
Xie, Quan and Li, the "Sellers"). Pursuant to the Agreement, the Company will
issue the Sellers 100,000,000 shares of common stock of the Company (the "Fuse
Shares") for all the issued and outstanding shares of E-Mo (the "E-Mo Shares")
owned by the Sellers. E-Mo Biotech Holding Inc. is a start-up, development-stage
company involving in vaccine, immunological treatment and diagnostic product
research and development and currently has no commercial sales of vaccines,
treatments, or diagnostic products. The acquisition has not been completed yet
and the Fuse Shares have not been issued. On September 30, 2021, the Company and
Fuse Biotech (a wholly owned subsidiary of the Company) entered into a
Termination Agreement with E-Mo Biotech and the Sellers, , effective on
September 30, 2021. Pursuant to the Termination Agreement, the parties agreed to
terminate the Share Exchange Agreement, which was originally entered into by and
among the Company, the Buyer, the Sellers and E-Mo Biotech on March 11, 2021.
Results of operations for the six months ended March 31, 2021 and 2020
Revenue and Cost of Revenue
We develop our business in mining and investigate potential mining targets in
Asia and North America. In addition to our own investment in mining businesses,
we provide consulting services to clients which are mining business investors
with potential mine acquisition targets within the specific parameters set by
those clients, where the mine owner is considering selling its mining rights.
Our services include due diligence on the potential mine seller and the mine,
such as ownership of the mine and whether the mine meets all operation
requirements and/or is currently in operation.
20
--------------------------------------------------------------------------------
Table of Contents
For the six months ended March 31, 2021, we provided four potential mine
opportunities in Mexico to a client. For the six months ended March 31, 2021,
the Company recorded revenue of $350,000 for the services provided. Our revenue
for the six months ended March 31, 2020 was $450,000. Our cost of revenues for
the six months ended March 31, 2021 and 2020 was $33,570 and $180,401,
respectively, mainly for the management's travel expenses to visit these mines
and consulting expenses paid for mine expertise during the mine due diligence
period, resulting in a gross profit of $316,430 and $269,599 for the six months
ended March 31, 2021 and 2020, respectively.
Costs and Expenses
The major components of our expenses for the six months ended March 31, 2021 and
2020 are outlined in the table below:
Increase
2021 2020 (Decrease)
General and administrative $ 298,612 $ 263,960 $ 34,652
Consulting fees 46,262 36,748 9,514
Total operating expenses $ 344,874 $ 300,708 $ 44,166
The increase in our operating expenses for the six months ended March 31, 2021,
compared to the six months ended March 31, 2020, was mainly due to an increase
in consulting fees of $9,514, and increased professional fee of $40,340 which
was partly offset by decreased payroll expense by $7,430.
Non-operating expenses, net
Net non-operating expenses were $2,731 for the six months ended March 31, 2021,
compared to $735 for the six months ended March 31, 2020. For the six months
ended March 31, 2021, non-operating expenses mainly consist of interest expense
on EIDL of $2,012 and bank service charge of $719. For the six months ended
March 31, 2020, non-operating expenses mainly consist of bank service charge of
$535 and other expenses of $200.
Results of operations for the three months ended March 31, 2021 and 2020
Revenue and Cost of Revenue
We develop our business in mining and investigate potential mining targets in
Asia and North America. In addition to our own investment in mining businesses,
we provide consulting services to clients which are mining business investors
with potential mine acquisition targets within the specific parameters set by
those clients, where the mine owner is considering selling its mining rights.
Our services include due diligence on the potential mine seller and the mine,
such as ownership of the mine and whether the mine meets all operation
requirements and/or is currently in operation.
For the three months ended March 31, 2021, we provided three potential mine
opportunities in Mexico to a client. For the three months ended March 31, 2021,
the Company recorded revenue of $250,000 for the services provided. Our revenue
for the three months ended March 31, 2020 was $200,000. Our cost of revenues for
the three months ended March 31, 2021 and 2020 was $23,535 and $48,063,
respectively, mainly for the consulting expenses paid for mine expertise for due
diligence, resulting in a gross profit of $226,465 and $151,937 for the three
months ended March 31, 2021 and 2020, respectively.
Costs and Expenses
The major components of our expenses for the three months ended March 31, 2021
and 2020 are outlined in the table below:
Increase
2021 2020 (Decrease)
General and administrative $ 162,527 $ 131,315 $ 31,212
Consulting fees 13,825 24,415 (10,590 )
Total operating expenses $ 176,352 $ 155,730 $ 20,622
21
--------------------------------------------------------------------------------
Table of Contents
The increase in our operating expenses for the three months ended March 31,
2021, compared to the three months ended March 31, 2020, was mainly due to an
increase in professional expense by $39,320 which was partly offset by decreased
payroll expense by $7,430 and decreased consulting fee by $10,590.
Non-operating expenses, net
Net non-operating expenses were $1,346 for the three months ended March 31,
2021, compared to $240 for the three months ended March 31, 2020. For the three
months ended March 31, 2021, non-operating expenses mainly consist of interest
on EIDL loan of $1,011 and bank service charge of $335. For the three months
ended March 31, 2020, non-operating expenses mainly consist of bank service
charge of $240.
Liquidity and Capital Resources
The table below provides selected working capital information as of March 31,
2021 and September 30, 2020:
March 31, 2021 September 30, 2020
Total current assets $ 172,319 $ 204,295
Total current liabilities 71,663 80,843
Working capital $ 100,656 $ 123,452
Liquidity
During the six months ended March 31, 2021 and 2020, we had net loss of $33,575
and net loss of $35,844, respectively. During the three months ended March 31,
2021 and 2020, the Company reported net income of $46,367 and net loss of
$6,433, respectively. We received $49,600 from the PPP loan and $105,500 from
the EIDL loan during the year ended September 30, 2020 for paying the Company's
payroll and other operating expenses during the COVID-19 pandemic.
If we are not successful in developing the mining business and establishing
profitability and positive cash flow, additional capital may be required to
maintain ongoing operations. We have explored and continue to explore options to
provide additional financing to fund future operations as well as other possible
courses of action. Such actions may include, but are not limited to, securing
lines of credit, sales of debt or equity securities (which may result in
dilution to existing shareholders), loans and cash advances from other third
parties or banks, and other similar actions. There can be no assurance we will
be able to obtain additional funding (if needed), on acceptable terms or at all,
through a sale of our common stock, loans from financial institutions, or other
third parties, or any of the actions discussed above. If we cannot sustain
profitable operations, and additional capital is unavailable, lack of liquidity
could have a material adverse effect on our business viability, financial
position, results of operations and cash flows.
Cash Flows
The table below, for the periods indicated, provides selected cash flow
information for the six months ended March 31, 2021 and 2020:
2021 2020
Net cash used in operating activities $ (50,191 ) $ (60,345 )
Net cash used in investing activities
- -
Net cash used in financing activities - -
Net increase (decrease) in cash $ (50,191 ) $ (60,345 )
Cash Flows from Operating Activities
Our cash used in operating activities for the six months ended March 31, 2021
and 2020 was $50,191 and $60,345, respectively. The decrease in cash outflow
during the six months ended March 31, 2021 was due to adjustment to reconcile
net loss to net cash used in operating activities of amortization of prepaid
insurance expense by $10,521.
22
--------------------------------------------------------------------------------
Table of Contents
Cash Flows from Investing Activities
During the six months ended March 31, 2021 and 2020, we did not have any
investing activities.
Cash Flows from Financing Activities
During the six months ended March 31, 2021 and 2020, we did not have any
financing activities.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements.
Off Balance Sheet Arrangements
As of March 31, 2021, we did not have any off-balance-sheet arrangements, as
defined in Item 303(a)(4)(ii) of Regulation S-K.
© Edgar Online, source Glimpses