GUSHEN, INC. As used herein and except as otherwise noted, the term "Company", "it(s)",
"our", "us", "we" and "GSHN" shall mean
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 endedSeptember 30, 2021 . 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. , aNevada corporation ("GSHN" or the "Company"), owns 100% ofDyckmanst Limited , aBritish Virgin Islands company ("Dyckmanst"), which owns 100% ofEdeshler Limited , aHong Kong company ("Edeshler"), which in return owns 100% ofBeijing 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 ofBeijing 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 datedFebruary 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 theU.S. Securities and Exchange Commission ("SEC") onAugust 6, 2021 . Zhuoxun Beijing's customers are parentswho 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 ("????") (formerly known as ZhuoXun App). Zhuoxun Beijing's products provide two sets of curricula: "Good Parenting" ("????") and "Wise Parents" ("????"). "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 theWisdom Lighthouse app. Zhuoxun Beijing's online family education mobile platform monetizes through in-app purchases. Zhuoxun Beijing provides one free trial class of each course for all the users. The remaining classes are available for purchase. Users are able to view the first class for free before determining if to purchase the remaining classes. Zhuoxun Beijing's product Zhuoxun Anti-Addiction Cellphone ("Zhuoxun Cellphone") is an intelligent terminal device.Dami Zhilian Information Technology Group Co., Ltd , a technology company that develops and produces smartphones ("Dami Zhilian"), customizes and produces Zhuoxun Cellphone according to the design requirements set by Zhouxun Beijing. Zhuoxun Beijing does not own any intellectual property in connection with Zhuoxun Cellphones. Zhuoxun Beijing sells Zhuoxun Cellphones through regional collaborative education 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. 20 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 OnJuly 31, 2022 , the Company entered into collaboration agreements (the "Collaboration Agreements", each a "Collaboration Agreement") with ZhuoxunBeijing and several service providers (the "Service Providers", each a "Service Provider"), under which the Service Providers will provide certain sales, marketing and promotion services for Zhuoxun Beijing across different regions ofChina , in exchange for certain monetary and securities compensation. The Service Providers includeLuohe Jiusheng Education Technology Co., Ltd. ,Zhumadian Yixun Education Information Consulting Co., Ltd. ,Luohe Zhengxun Education Technology Co., Ltd. ,Xiamen Maishuxiu Education Consulting Co., Ltd. ,Jincheng Outstanding Culture Media Co., Ltd. ,Wuyang Rongxing Culture Communication Co., Ltd. ,Zhengzhou Dingxun Culture Communication Co., Ltd. ,Sanmenxia Lingxun Culture Communication Co., Ltd. ,Xinxiang Chengxun Network Technology Co., Ltd. ,Luoyang Zhengxun Culture Communication Co., Ltd. ,Wuyang County Zhixue Culture Technology Co., Ltd. ,Henan Zhuoxun Culture Communication Co., Ltd. . Each of these Service Providers is an independent company incorporated in the PRC and has no affiliation with either the Company, ZhuoxunBeijing , or any of the Company's or Zhuoxun Beijing's subsidiaries and affiliates. The substance of each Collaboration Agreement is identical, with the exceptions that the name of the Service Provider in each Collaboration Agreement and the definedService Region (defined below) for each Service Provider are different. Pursuant to the terms of each Collaboration Agreement, each Service Provider shall: (i) provide marketing promotions for Zhuoxun Beijing's products and services, including Zhuoxun Beijing's family education online and offline training courses, mobile applications and anti-addiction mobile devices; (ii) collaborate with Zhuoxun Beijing to solicit and facilitate sales of such products and services; (iii) provide logistic support for organizing offline training lectures and courses; and (iv) coordinate customer services with Zhuoxun Beijing. Each Service Provider is only authorized to conduct such activities provided in each Collaboration Agreement in a prescribed region in the PRC (usually limited to particular cities, counties or administrative subdivisions of a particular province) (each a "Service Region "). In exchange for its services under each Collaboration Agreement, each Service Provider will receive 60% of all revenues (the "Revenues") generated under the Collaboration Agreement within eachService Region . OnJuly 31, 2022 , the Board approved the issuance of an aggregate of 42,061,876 shares of the Company's common stock to certain employees (the "Participants") of Zhuoxun Beijing as restricted stock (the "Restricted Stock")under Section 6(c) the Company's Equity Incentive Plan (the "EIP") pursuant to a certain stock award agreement (collectively the "Award Agreements", each an "Award Agreement") with each of the Participants, under. Pursuant to the terms of the EIP and each Award Agreement, the Company will issue 14,301,038, 13,880,419, and 13,880,419 shares of Restricted Stock toHao Wang , Brand Promotion Specialist,Bolei Liu , Marketing Service Specialist, andDeqiang Wen , Research & Development Manager, respectively which shall be vested onOctober 31, 2022 , subject to participant's continued employment with ZhuoxunBeijing until such time and other terms and conditions set forth therein.
The issuance of shares of the Restricted Stock will be made pursuant to the exemption from registration pursuant to Section 4(a)(2) of the Securities Act.
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
Use of Estimates The preparation of these consolidated financial statements in conformity withU.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
InMarch 2020 , theWorld 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. SinceMarch 2020 , as different variants and subvariants of COVID-19 developed and spread in various regions acrossChina , 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 inShenzhen ,Guangdong Province ,Changchun ,Jilin Province andCity of Shanghai in March toMay 2022 . Zhuoxun Beijing's main business would continue to be affected byChina's anti-epidemic measures such as restrictions on public gatherings during the COVID-19 pandemic. It is not possible for us to predict the duration or magnitude of the adverse results of the outbreak and its effects on Zhuoxun Beijing's business or results of operations at this time. 21 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 participantswho 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. 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 nine months endedJune 30, 2022 and 2021.
Practical expedients and exemption
Zhuoxun Beijing has not occurred any costs to obtain contracts, and does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
Other service income is earned when services have been rendered.
Income Taxes
We account for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. We apply ASC 740, Accounting for Income Taxes, to account for uncertainty in income taxes and the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.
Foreign Currency and Foreign Currency Translation
The functional currency of the Company isthe 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. 22 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 inU.S. dollars. Assets and liabilities are translated intoU.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.
Translation of amounts from RMB into
Balance sheet items, except for equity accountsJune 30, 2022 RMB 6.6981 to$1 September 30, 2021RMB 6.4567 to$1
Income statement and cash flows items
For the three months ended
RMB 6.4504 to$1 For the nine months endedJune 30, 2021 RMB 6.5204 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 ofJune 30, 2022 andSeptember 30, 2021 . Credit risk
Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents. As ofJune 30, 2022 andSeptember 30, 2021 , substantially all of the Company's cash and cash equivalents were held by major financial institutions located in the PRC, which management believes are of high credit quality. For the credit risk related to trade accounts receivable, the Company performs ongoing credit evaluations of its customers and, if necessary, maintains reserves for potential credit losses. Historically, such losses have been within management's expectations.
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 ofJune 30, 2022 andSeptember 30, 2021 , the Company had no investments in financial instruments. 23 Results of Operations
Comparison of Three Months Ended
The following table sets forth key components of our results of operations during the three months endedJune 30, 2022 and 2021, both in dollars and as a percentage of our revenue. Three Months Ended June 30, 2022 2021 % % Amount of Revenue Amount of Revenue Revenue$ 965,542 100.00$ 33,369 100.00 Cost of revenue (549,970 ) (56.96 ) (13,122 ) (39.32 ) Gross profit 415,572 43.04 20,247 60.68 Selling expenses (613,971 ) (63.59 ) (1,746,126 ) (5,232.78 ) General and administrative expenses (285,562 ) (29.58 ) (363,517 ) (1,089.39 ) Loss from operations (483,961 ) (50.12 ) (2,089,396 ) (6,261.49 ) Other income 1,118 0.12 5,748 17.23 Net loss before income taxes (482,843 ) (50.01 ) (2,083,648 ) (6,244.26 ) Income tax benefit 0 0.00
408,431 1,223.98
Net loss $ (482,843 ) (50.01 ) $ (1,675,217 ) (5,020.28 )
Revenue.
The Company's revenue was increased from $33,369 to $965,542 during the three
months ended June 30, 2022 compared with the same period in 2021. Due to the
COVID-19 pandemic and restriction policy imposed by the government, the Company
stopped offering the offline training since earlier 2021, which resumed during
second half of 2021. Although the offline training resumed during second half of
2021 but the classes were limited due to the impact from the ongoing COVID-19
pandemic. The offline training was offered in larger scale in current period. In
addition, in order to better serve the students, from April 2022 on, 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.
Consequently, the revenue during the nine months ended June 30, 2022 was more
than the same period in 2021.
Cost of revenue.
Our cost of revenue was
Gross profit and gross margin.
Our gross profit was$415,572 for the three months endedJune 30, 2022 , compared with a gross profit of$20,247 for the same period in 2021. Gross profit as a percentage of revenue (gross margin) was 43.04% for the three months endedJune 30, 2022 , compared to a gross margin of 60.68% for the same period in 2021.
Selling expenses.
Our selling expenses consist primarily of compensation and benefits to our expense related to the revenue, such as advertising fee, marketing fees. Our selling expenses decreased by$1,132,155 to$613,971 for the three months endedJune 30, 2022 , compared to$1,746,126 for the same period in 2021. 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 cannot carry out normal business, the Company has adjusted its market layout since late 2021, so the input expenditure of marketing fees and service fees have been reduced. Consequently, the selling expenses during the three months endedJune 30, 2022 was significantly less than the same period in 2021. Three Months ended June 30, 2022 2021 Fluctuation Amount % Amount % Amount % Salary and welfare 151,680 24.70 267,956 15.35 (116,276 ) (43.39 ) Advertising Fees - - 58,033 3.32 (58,033 ) (100.00 ) Conference Fees 336 0.05 40,868 2.34 (40,532 ) (99.18 ) Marketing fee 168,529 27.45 560,282 32.09 (391,753 ) (69.92 ) Service fee 840,772 136.94 761,628 43.62 79,144 10.39 Others (547,346 ) (89.15 ) 57,359
3.28 (604,705 ) (1,054.25 )
Total Selling Expense
24
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$77,955 to$285,562 for the three months endedJune 30, 2022 , compared to$363,517 for the same period in 2021. The company focused on controlling general and administrative expenses. Three Months ended June 30, 2022 2021 Fluctuation Amount % Amount % Amount % Salary and welfare 131,973 46.22 228,578 62.88 (96,605 ) (42.26 ) Depreciation and amortization 21,934 7.68 27,735 7.63 (5,801 ) (20.92 ) Rent 108,784 38.09 22,097 6.08 86,687 392.30 Profession fee 100,468 35.18 60,329 16.60 40,139 66.53 Others (77,597 ) (27.17 ) 24,778 6.82 (102,375 ) (413.17 ) Total G&A Expenses$ 285,562 100.00$ 363,517 100.00$ (77,955 ) (21.44 ) Income tax benefit.
Our Income tax benefit was nil for the three months ended
Net loss. As a result of the cumulative effect of the factors described above, our net loss was$482,843 and$1,675,217 for the three months endedJune 30, 2022 and 2021, respectively. 25
Comparison of Nine Months Ended
The following table sets forth key components of our results of operations during the nine months endedJune 30, 2022 and 2021, both in dollars and as a percentage of our revenue. Nine Months Ended June 30, 2022 2021 % % Amount of Revenue Amount of Revenue Revenue$ 1,506,988 100.00$ 1,314,172 100.00 Cost of revenue (897,261 ) (59.54 ) (856,255 ) (65.16 ) Gross profit 609,727 40.46 457,917 34.84 Selling expenses (2,044,152 ) (135.64 ) (5,752,580 ) (437.73 )
General and administrative expenses (1,023,776 ) (67.94 )
(1,452,230 ) (110.51 ) Loss from operations (2,458,201 ) (163.12 ) (6,746,893 ) (513.39 ) Other income 5,127 0.34 25,955 1.98
Net loss before income taxes (2,453,074 ) (162.78 )
(6,720,938 ) (511.42 ) Income tax benefit - - 483,283 36.77 Net loss$ (2,453,074 ) (162.78 )$ (6,237,655 ) (474.65 ) Revenue. The Company's revenue was increased from$1,314,172 to$1,506,988 during the nine months endedJune 30, 2022 compared with the same period in 2021. Although the offline training resumed during second half of 2021 but the classes were limited due to the impact from the ongoing COVID-19 pandemic. The offline training was offered in larger scale in current period. In addition, in order to better serve the students, fromApril 2022 on, 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. Consequently, the revenue during the nine months endedJune 30, 2022 was more than the same period in
2021. Cost of revenue.
Our cost of revenue was
Gross profit and gross margin.
Our gross profit was$194,155 for the nine months endedJune 30, 2022 , compared with a gross profit of$437,671 for the same period in 2021. Gross profit as a percentage of revenue (gross margin) was 35.86% for the nine months endedJune 30, 2022 , compared to a gross profit of 34.17% for the same period in 2021.
26
Selling expenses.
Our selling expenses consist primarily of compensation and benefits to our expense related to the revenue, such as advertising fee, marketing fees. Our selling expenses decreased by$3,708,428 to$2,044,152 for the nine months endedJune 30, 2022 , compared to$5,752,580 for the same period in 2021. 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 cannot carry out normal business, the Company has adjusted its market layout since late 2021, so the input expenditure of marketing fees and service fees have been reduced. Consequently, the selling expenses during the nine months endedJune 30, 2022 was significantly less than the same period in 2021. Nine Months ended June 30, 2022 2021 Fluctuation Amount % Amount % Amount % Salary and welfare 484,586 23.71 1,082,666 18.82 (598,080 ) (55.24 ) Advertising Fees 0 0.00 166,157 2.89 (166,157 ) (100.00 ) Conference Fees 1,725 0.08 93,188 1.62 (91,463 ) (98.15 ) Marketing fee 438,565 21.45 1,419,594 24.68 (981,029 ) (69.11 ) Service fee 840,772 41.13 2,625,111 45.63 (1,784,339 ) (67.97 ) Others 278,504 13.62 365,864
6.36 (87,360 ) (23.88 )
Total Selling Expense
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$428,454 to$1,023,776 for the nine months endedJune 30, 2022 , compared to$1,452,230 for the same period in 2021. The company focused on controlling general and administrative expenses. Nine Months ended June 30, 2022 2021 Fluctuation Amount % Amount % Amount % Salary and welfare 490,057 47.87 729,380 50.22 (239,323 ) (32.81 ) Depreciation and amortization 51,350 5.02 82,729 5.70 (31,379 ) (37.93 ) Rent 228,609 22.33 83,418 5.74 145,191 174.05 Profession fee 164,400 16.06 320,122 22.04 (155,722 ) (48.64 ) Others 89,360 8.73 236,581
16.29 (147,221 ) (62.23 )
Total G&A Expenses
Income tax benefit.
Our Income tax benefit were nil for the nine months ended
Net loss. As a result of the cumulative effect of the factors described above, our net loss was$2,453,074 and$6,237,655 for the nine months endedJune 30, 2022
and
2021, respectively.
27
Liquidity and Capital Resources
The following table sets forth a summary of our cash flows for the periods
indicated:
Nine Months Ended
June 30,
2022 2021Net cash used in operating activities$ (1,523,911 ) $ (3,488,115 ) Net cash used in investing activities (10,820 ) (79,289 ) Net (decrease) increase in cash and cash equivalents (1,534,731 ) (3,567,404 ) Effect of exchange rate changes on cash and cash equivalents (39,104 ) 346,602 Cash and cash equivalents at the beginning of period 2,659,622
7,134,106
Cash and cash equivalents at the end of period$ 1,085,787
$ 3,913,303 As ofJune 30, 2022 , we had cash and cash equivalents of$1,085,787 . To date, we have financed our operations primarily through borrowings from our stockholders, related and unrelated parties. Going Concern Uncertainties
The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern.
As of
As ofJune 30, 2022 , our cash balance was$1,085,787 and our current liabilities exceeded current assets by$6,976,770 which together with continued losses from operations raises substantial doubt about our ability to continue as a going concern. The Company's operating results for future periods are subject to uncertainties and it is uncertain if the management will be able to achieve profitability and continued growth for the foreseeable future. If the management is not able to increase revenue and manage operating expenses in line with revenue forecasts, the Company may not be able to achieve profitability. The Company's actions to improve operation efficiency, cost reduction, and enhance core cash-generating business include the following: seeking advances from the major shareholders, pursuing additional public and/or private issuance of securities, and looking for strategic business partners to optimize our operations. We have considered whether there is substantial doubt about our ability to continue as a going concern due to our working capital deficit of$6,976,770 , accumulated deficit of$5,060,951 and net losses incurred during the nine months endedJune 30, 2022 and 2021. In evaluating if there is substantial doubt about our ability to continue as a going concern, we have certain plans to mitigate these adverse conditions and increase the liquidity of the Company and are trying to alleviate the going concern risk through (1) increasing cash generated from operations by controlling operating expenses and increasing more live steaming e-commerce events to bring up e-commerce revenue, (2) financing from domestic banks and other financial institutions, and (3) equity or debt financing.
On an on-going basis, the Company will also receive financial support commitments from the Company's related parties.
Our continued operations are highly dependent upon our ability to increase
revenues and if needed complete equity and/or debt financing. However, if we are
unable to obtain the necessary additional capital on a timely basis and on
acceptable terms, we may be required to delay, scale back or eliminate some or
all of our planned operations and may be unable to repay debt obligations or
respond to competitive market pressures, which will have a material adverse
effect upon our business, prospects, financial condition and results of
operations. Under such circumstance, we may be required to delay, scale back or
eliminate some or all of our planned operations, which may have a material
adverse effect on our business, results of operations and ability to operate as
a going concern.
28
Operating Activities
Net cash used in operating activities was $1,523,911 for the nine months ended
June 30, 2022 , as compared to $3,488,115 net cash used in operating activities
for the nine months ended June 30, 2021 . The net cash provided by 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 . The net cash provided by operating
activities for the nine months ended June 30, 2021 was mainly due to our net
loss of $6,237,655 , partially offset by the increase in other receivable of
$1,923,731 , the increase in other payables of $1,239,466 .
Investing Activities
Net cash used in investing activities was$10,820 for the nine months endedJune 30, 2022 , as compared to$79,289 for the nine months endedJune 30, 2021 . The net cash used in investing activities for the nine months endedJune 30, 2021 was mainly attributable to purchase of property, plant and equipment.
Off-Balance Sheet Arrangements
As of
Critical Accounting Principles
The preparation of consolidated financial statements in accordance with US GAAP requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results can, and in many cases will, differ from those estimates. We have not identified any critical accounting policies.
Limited Operating History; Need for
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.
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If adequate funds are not available, it may be required to delay, scale back or
eliminate portions of Zhuoxun Beijing's operations or obtain funds through
arrangements with strategic partners or others that may require us to relinquish
rights to certain of our assets. Accordingly, the inability to obtain such
financing could result in a significant loss of ownership and/or control of our
assets and could also adversely affect the Company's ability to fund our
continued operations and expansion efforts.
During the next 12 months, the Company expects to incur the same amount of
expenses each month. However, as Zhuoxun Beijing works to expand its operations,
it expects to incur significant research, marketing and development costs and
expenses on Zhuoxun Beijing's online service platforms that meet the constantly
evolving industry standards and consumer demands.
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