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 this
Annual Report on Form 10-K, particularly under the heading "Risk Factors."
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. 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. ("Technology") in the State of Nevada. Fuse Group is the sole
shareholder of Technology. Technology was 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 with the designer of the platform on its function and compliance
issues and believed the project has more issues and costs for compliance than
originally expected, on December 23, 2019, the Board decided to terminate the
IMETAL project.
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, the
Company 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 findings, 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 for the purchase of five mines located in different areas of
Mexico for $1,000,000. Upon the execution of the MOU, the Company acquired the
exclusive right to purchase the mines from the seller until September 30, 2018.
The parties entered into an oral agreement pursuant to which the Company will
pay the $1,000,000 purchase price upon receiving approvals from the Mexican
government allowing for the transfer of the mining concession. The transfer
request was submitted to, and is being processed by, the Mexican government, but
that processing was delayed due to elections and new administration in Mexico,
the Company was not able to provide an estimate time for the approval at this
report date.
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.
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Results of operations for the years ended September 30, 2019 and 2018
Revenue and Cost of Revenue
We have historically generated revenue from sales of our marketing and web
development services directly to small and medium-sized businesses. We have
acquired customers through direct telemarketing and referrals. We currently seek
business opportunities 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.
Currently we have provided three potential mine acquisition opportunities to
clients, with one mine located in Asia and two mines located in North America.
For the year ended September 30, 2019, the Company recorded revenue of
$1,216,000 for the services provided. Our revenue for the year ended September
30, 2018 was $0. Our cost of revenues for the years ended September 30, 2019 and
2018 was $277,415 and $0, 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 $938,585
and $0 for the years ended September 30, 2019 and 2018, respectively.
Costs and Expenses
The major components of our expenses for the years ended September 30, 2019 and
2018 are outlined in the table below:
Increase
2019 2018 (Decrease)
General and administrative $ 450,936 $ 632,647 $ (182,251 )
Software development costs - 1,500,000 (1,500,000 )
Consulting fees 565,952 1,968,923 (1,402,971 )
Total operating expenses $ 1,016,348 $ 4,101,570 $ (3,085,222 )The decrease in our operating costs for the year ended September 30, 2019,
compared to the year ended September 30, 2018, was due to a decrease in
consulting fees of $1,402,971 and decreased software development of $1,500,000.
During the years ended September 30, 2019 and 2018, the Company had a few
outstanding consulting agreements for advisory services on business development
strategy in the Far East, including in Hong Kong and Russia, and acquisition
opportunities in Mexico and North America. Some of the consulting agreements
entered in prior periods expired during the year ended September 30, 2019.
The Company also had a consulting agreement for developing software programs to
allow the Company to operate a platform called IMETAL for 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, and the management discussed with the designer of the
platform on its function and compliance issues and believed the project has more
issues and costs for compliance than originally expected, the BOD of the Company
decided to terminate the IMETAL project. For the year ended September 30, 2018,
the Company paid $1.5 million, which was recorded as software development costs.
The Company did not pay anything for the year ended September 30, 2019.
Non-operating expenses, net
Net non-operating expense was $1,093 for the year ended September 30, 2019,
compared to $117,550 for the year ended September 30, 2018. The decrease in
non-operating expense was mainly due to a decrease in interest expense by
$157,433 resulting from repayment of the loan through issuance of shares in June
2018, which was partly offset by decreased interest income by $41,400.
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Liquidity and Capital Resources
The table below provides selected working capital information as of September
30, 2019 and 2018:
2019 2018
Total current assets $ 102,205 $ 178,627
Total current liabilities (10,675 ) (9,633 )
Working capital $ 91,530 $ 168,994
Liquidity
During the years ended September 30, 2019 and 2018, the Company reported net
loss of $79,656 and $4,219,920, respectively.
If we are not successful in transitioning into 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 that 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 period indicated, provides selected cash flow
information for the years ended September 30, 2019 and 2018:
2019 2018
Net cash used in operating activities $ (1,159 ) $ (4,240,729 )
Net cash provided by investing activities - 3,925,000
Net decrease in cash
$ (1,159 ) $ (315,729 )
Cash Flows from Operating Activities
Our cash used in operating activities for the years ended September 30, 2019 and
2018 was $1,159 and $4,240,729, respectively. The decrease in net cash used in
operating activities was mainly due to decreased net loss by $4,140,264
resulting from increased revenue of $1,216,000 from the Company's provision of
mine scouting services to clients, and decreased prepaid consulting expense by
$124,964 for the year ended September 30, 2019.
Cash Flows from Investing Activities
Our cash provided by investing activities for the years ended September 30, 2019
and 2018 was $0 and $3,925,000, respectively. The cash inflow for year ended
September 30, 2018 was from the collection of outstanding notes receivable of
$3,925,000.
Cash Flows from Financing Activities
During the years ended September 30, 2019 and 2018, we did not have any
financing activities.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements.
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Off Balance Sheet Arrangements
As of September 30, 2019, we did not have any off-balance-sheet arrangements, as
defined in Item 303(a)(4)(ii) of Regulation S-K.
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FUSE GROUP HOLDING INC. 
