Analysis of
Financial
Condition and
Results of
Operations.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, or the
Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. 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. We have based these forward-looking
statements on our current expectations and projections about future events.
These forward-looking statements are subject to known and unknown risks,
uncertainties and assumptions about us that may cause our actual results, levels
of activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements. Words such as "may," "will,"
"should," "could," "would," "expect," "plan," "anticipate," "believe,"
"estimate," "continue," the negatives of such terms and other terms of similar
meaning typically identify forward-looking statements. Factors that might cause
or contribute to such a discrepancy include, but are not limited to, those
listed under the heading "Risk Factors" and those listed in our Annual Report on
Form 10-K for the year ended September 30, 2022 (the "2022 Form 10K) and those
set forth from time to time in our other filings with the SEC. The following
discussion should be read in conjunction with our Financial Statements and
related Notes thereto included elsewhere in this report and in our 2022 Form
10-K..
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
develops 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 expected to be
engaged in mining-related businesses. On April 22, 2022, Processing transferred
100% ownership of Trading to an unrelated third party for HKD1. 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. ("Fuse Biotech"). Fuse Biotech originally
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 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, Fuse Biotech seeks 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 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 rights to mines from the seller
until September 30, 2018. The parties entered into an oral agreement that the
Company would pay a purchase price of $1,000,000 to purchase 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 and 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 ("Portafolio") owned by the Sellers. Portafolio owns concessions
rights to five mineral locations and 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. 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.
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Stock certificates for 14,285,715 shares were prepared by the Company for the
closing of the transaction contemplated in the Agreement but were not delivered
to the Sellers. After reevaluation of the Agreement, the Company determined that
the transaction was incorrectly recorded, as such stock certificates remained in
the custody of the Company and not delivered (i.e. provided as consideration) to
the Sellers. On October 20, 2021, the Company cancelled these stock
certificates.
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 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 and new variants, 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. The
forgiveness of $49,600 PPP loan was approved in June 2021.
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 Fuse Biotech 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 Company's common stock (the "Fuse Shares") for all the
issued and outstanding shares of E-Mo Biotech (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 has no commercial sales of vaccines, treatments, or
diagnostic products. The acquisition was not completed and the Fuse Shares were
not issued. On September 30, 2021, the Company and Fuse Biotech entered into a
Termination Agreement with E-Mo Biotech, 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, Fuse Biotech, the Sellers and E-Mo Biotech on March 11, 2021.
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Results of operations for the three months ended December 31, 2022 and 2021
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.
Our revenue for the three months ended December 31, 2022 was nil. For the three
months ended December 31, 2021, we provided two potential mine opportunities in
Mexico to a client. For the three months ended December 31, 2021, the Company
recorded revenue of $200,000 for the services provided. Our cost of revenues for
the three months ended December 31, 2022 and 2021 was nil and $10,015,
respectively, which was mainly for the consulting expenses paid for mine
expertise during the mine due diligence period for the three months ended
December 31, 2021, resulting in a gross profit of nil and $189,985 for the three
months ended December 31, 2022 and 2021, respectively.
Costs and Expenses
The major components of our expenses for the three months ended December 31,
2022 and 2021 are in the table below:
Increase
2022 2021 (Decrease)
General and administrative $ 99,701 $ 161,438 $ (61,737 )
Consulting fees 15,500 18,384 (2,884 )
Total operating expenses $ 115,201 $ 179,822 $ (64,621 )The decrease in our operating expenses for the three months ended December 31,
2022, compared to the three months ended December 31, 2021, was mainly due to
decreased auditing fee by $22,000, decreased insurance expense by approximately
$8,410, decreased lawyer fee by approximately $6,180, decreased payroll expenses
by approximately $12,780, and decreased professional fee by approximately
$7,040.
Non-operating income (expenses), net
Net non-operating expense was $4,278 for the three months ended December 31,
2022, compared to non-operating expense of $1,859 for the three months ended
December 31, 2021. For the three months ended December 31, 2022, non-operating
expense mainly consist of interest expense on EIDL of $995, interest expense on
convertible note of $3,283. For the three months ended December 31, 2021,
non-operating expense mainly consist of interest expense on EIDL of $1,015 and
bank service charge of $352 and other expenses of $492.
Liquidity and Capital Resources
The table below provides selected working capital information as of December 31,
2022 and September 30, 2022:
December 31, 2022 September 30, 2022
Total current assets $ 75,876 $ 45,014
Total current liabilities 40,933 37,573
Working capital $ 34,943 $ 7,441
Liquidity
During the three months ended December 31, 2022 and 2021, we had net loss of
$121,879 and net income of $5,904, respectively.
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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 three months ended December 31, 2022 and 2021:
2022 2021
Net cash used in operating activities $ (114,865 ) $ (53,978 )
Net cash provided by (used in) financing activities 149,450 (530 )
Net increase (decrease) in cash
$ 34,585 $ (54,508 )
Cash Flows from Operating Activities
Our cash used in operating activities for the three months ended December 31,
2022 and 2021 was $114,865 and $53,978, respectively. The increase in cash
outflow during the three months ended December 31, 2022 was mainly due to
increased cash outflow resulted from net loss after noncash adjustment by
$123,161, but was partly offset by decreased cash outflow on accounts receivable
by $50,000, and decreased cash outflow on other payable by $19,594.
Cash Flows from Investing Activities
During the three months ended December 31, 2022 and 2021, we did not have any
investing activities.
Cash Flows from Financing Activities
Our cash provided by financing activities for the three months ended December
31, 2022 was $149,450 compared to cash used in financing activities for the
three months ended December 31, 2021 was $530. For the three months ended
December 31, 2022, cash provided by financing activities mainly consisted of
proceeding from convertible notes of $150,000 but was partly offset by repayment
to EIDL loan of $550. For the three months ended December 31, 2021, cash used in
financing activities mainly consisted of repayment to EIDL loan of $530.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements.
Off Balance Sheet Arrangements
As of December 31, 2022, we did not have any off-balance-sheet arrangements.
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FUSE GROUP HOLDING INC. 
