KUN PENG INTERNATIONAL LTD. Overview of the Business
Due to global health issues and the pandemic, people have increased their health and nutrition consciousness. We believe preventive care is the most effective investment in health. To promote the awareness of preventive care to the people in the PRC, we have developed and launched our mobile (King Eagle Mall ). We also started establishing physical (Smart Kiosk) platforms with the cooperation withGuoxin Star Network Co., Ltd. King Eagle Mall King Eagle Mall is a mobile social e-commerce platform which was launched inJuly 2020 and promotes preventive health care products and services as our core business. It adopts the S2B2C business model and integrates many major health care products and services. We focus on health-related products and services.King Eagle Mall is designed to enable health-related products to be sold by us and by third parties.King Eagle Mall's products are divided into two sectors: self-operated products and selected products which promote preventive health care. Our team screens and examines products that are and will be offered both by us and affiliated merchants. Our major products include health care products such as dietary supplements, nutritional health foods, beauty cosmeceuticals, and other categories (for instance, milk powder, dried fruits) health foods for supporting the cardiovascular system, and bone joint health. We offer collagen peptides, probiotics, and health foods for improving blood circulation and vein health, as well as household products which can promote and improve a healthier lifestyle of our members. We receive customer orders and may arrange fulfillment with our merchantswho are responsible for delivery arrangement or fulfill customer orders through our outsourced networks. 49
At the same time, we operate customer service centers with whom our members can directly communicate for any assistance related to product purchases, suggestions for health care products and services, and delivery logistics.
Smart Kiosk
We introduced "Smart Kiosk" with the support from the previous stakeholder ofKing Eagle (China ),Guoxin Ruilian Group Co., Ltd ("Guoxin Ruilian"), which is a wholly owned subsidiary ofCITIC Group Corporation Ltd and a related party of Guoxin Zhengye. The construction of Smart kiosk was initiated and administered byGuoxin Ruilian Group Co., Ltd. After the completion of the construction of Smart Kiosk,Guoxin Ruilian Group Co., Ltd assigned its wholly-owned subsidiary,Guoxin Star Network Co., Ltd to cooperate withKing Eagle (Tianjin ) in development of Smart Kiosk. The Smart Kiosk is a physical platform which focuses on developing a "small shop economy". It is integrated with theKing Eagle Mall which creates a "social, health and physical store" to provide people with a more professional and comprehensive preventive health care products and services. Smart Kiosk is a principal component of our business. The smart service kiosk functions as a physical customer service center and community marketing for attracting customers, providing customer services, promoting our 500+ preventive health care and health related household products and introducing concepts of maintaining a healthy life. 5G internet connection is also available for our customers to connect to our online application,King Eagle Mall , so that our customers can access toKing Eagle Mall and place orders of our products. Recent Developments COVID-19
InMarch 2020 theWorld Health Organization declared coronavirus COVID-19 a global pandemic. The ongoing and evolving COVID-19 pandemic continues to spread throughout the world and outbreak caused a widespread of quarantines, lockdowns, site closures. It has negatively impacted the global economy, workforces, customers, and created significant volatility and disruption of economic activities. Due to restrictions, quarantines and closures in certain affected areas and government agencies in the PRC, the approval process of our applications for the construction permits of smart kiosks was delayed by the local governmental agencies and the construction project of smart kiosks was also postponed. The Company continues to focus its business through its online platform,King Eagle Mall , to mitigate the adverse impacts by COVID-19 and follows up closely with the local governmental agencies for the application for the construction permits of smart kiosks. In fact, the pandemic arose the overall public health consciousness in the PRC, the Company experienced a growth in its average monthly online sale revenue by$0.19 million or 70.5% from$0.27 million for the year endedSeptember 30, 2020 to$0.46 million for the year endedSeptember 30, 2021 . While there is a delay in the opening of our smart kiosks due to the pandemic, the Company does not expect that the coronavirus COVID-19 will have a material adverse effect on its online business or financial results at this time. Still, it is not possible to predict the unanticipated consequence of the pandemic on our future business performance and liquidity due to the severity of global situation of COVID-19. The Company continues to monitor and assess the evolving situation closely and evaluate its potential exposure.
Recent Regulatory Developments in
Under current Chinese laws and regulations, the Company believes that the VIE Agreements are not subject to any government approval. The shareholders ofKing Eagle (Tianjin ) were required to register with SAFE when they established offshore vehicles to holdKP International , and such SAFE registration was affected onMay 14, 2021 . These shareholders ofKing Eagle (Tianjin ) will have to register their equity pledge arrangement as required under the Equity Pledge Agreement withKing Eagle (China ). The Company faces uncertainty with respect to future actions by the PRC government that could significantly affectKing Eagle (Tianjin )'s financial performance and the enforceability of the VIE Agreements. 50 OnJuly 6, 2021 , the PRC government issued the Opinions on Strictly Cracking Down on Illegal Securities Activities, calling for: (i) tightening oversight of data security, cross-border data flow and administration of classified information, as well as amendments to relevant regulation to specify responsibilities of overseas listed Chinese companies with respect to data security and information security; (ii) enhanced oversight of overseas listed companies as well as overseas equity fundraising and listing by Chinese companies; and (iii) extraterritorial application ofChina's securities laws. As the Opinions on Strictly Cracking Down on Illegal Securities Activities were recently issued, there are great uncertainties with respect to the interpretation and implementation thereof. We will closely monitor further developments. In addition, onJuly 10, 2021 , theCyberspace Administration of China issued the Measures for Cybersecurity Review (Revision Draft for Comments), or the Measures, for public comments, which propose to authorize the relevant government authorities to conduct cybersecurity review on a range of activities that affect or may affect national security, including listings in foreign countries by companies that possess the personal data of more than one million users. The Measures are soliciting comments and subject to change. As we have less than one million users, we believe that the Measures are not applicable to us even after they take effect in current form. The PRC government is increasingly focused on data security, recently launching cybersecurity review against a number of mobile apps operated by several US-listed Chinese companies and prohibiting these apps from registering new users during the review period. There are great uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations regarding data and privacy security. We may be required to change our data and other business practices and be subject to regulatory investigations, penalties, increased cost of operations, or declines in issuer growth or engagement as a result of these laws and policies. Further, our consulting business with respect to overseas listing and capital raising may be adversely affected.
Financial Operations Overview
Results of Operations for the years ended
September 30
2021 2020
% of % of
Amount revenue Amount revenue
Revenues $ 5,587,446 100.0 % $ 819,130 100.0 %
Cost of revenues 1,001,777 17.9 122,783 15.0
Gross profit 4,585,669 82.1 696,347 85.0
Operating expenses:
General and administrative expenses 2,619,588 46.9 380,777 46.5
Selling expense 3,741,389 67.0 524,443 64.0
Total operating expenses 6,360,977 113.9 905,220 110.5
Loss from operations (1,775,308 ) (31.8 ) (208,873 ) (25.5 )
Other income 574 (0.0 ) 102 0.0
Loss before income taxes (1,774,734 ) (31.8 ) (208,771 ) (25.5 )
Income tax expense - - - -
Net loss $ (1,774,734 ) (31.8 )% $ (208,771 ) (25.5 )%
Revenues
For the years ended September 30, 2021 , and 2020, revenues amounted to
$5,587,446 and $819,130 , respectively. Our revenue primarily included the sale
of health care and health related household products to our customers via our
mobile application, King Eagle Mall , which was launched in July 2020 . We
recognized our revenue on a gross basis, net of sub-charges and value-added
tax
("VAT") of gross sales.
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Cost of revenue
Our cost of revenue for the years ended September 30, 2021 , and 2020 were
$1,001,777 and $122,783 , respectively. This primarily included the purchase of
health care and health related household products from our suppliers. The higher
cost of revenue for the year ended September 30, 2021 , compared to that in the
same period 2020 because our mobile application, King Eagle Mall , was placed in
service in July 2020 .
Gross profit
For the years endedSeptember 30, 2021 , and 2020, our gross profit amounted to$4,585,669 or 82.1%, and$696,347 or 85%, respectively. Our gross profit margin for the year endedSeptember 30, 2021 , was comparable to the same period in
2020. Operating Expenses Our operating expenses consist of general and administrative expenses and selling expense. For the years endedSeptember 30, 2021 , and 2020, our total operating expenses were$6,360,977 and$905,220 , respectively. Since ourKing Eagle Mall was placed in service in last quarter of the fiscal year 2020, we experienced a higher amount of operating expenses in the year endedSeptember 30, 2021 , compared to the same period in 2020.
General and administrative expenses
General and administrative expenses for the years endedSeptember 30, 2021 , and 2020 were$2,619,588 and$380,777 , respectively. The significant spike in general and administrative expenses by$2,238,810 was triggered by an increase in the following items: professional service fee by$931,681 due to additional legal, audit and financial consulting fees for interim periods for the year endedSeptember 30, 2021 , employee compensation by$604,139 due to additional headcount, office rent and building management by$320,493 due to longer period of operations during the year endedSeptember 30, 2021 , in office supplies by$34,754 , travel and transportation by$45,032 , meals and entertainment by$26,946 , depreciation and amortization by$16,976 , repair and maintenance by$249,832 and others by$24,279 . Our operation ofKing Eagle Mall was initiated inJuly 2020 ; thus, our general and administrative expenses for the year endedSeptember 30, 2020 , was significantly lower compared to the year endedSeptember 30, 2021 .
Our general and administrative expenses for the years ended
September 30 2021 2020
Employee compensation and benefit
66,289 31,535
Professional services fee 990,889 59,208
Business registration 3,496 18,818
Travel, transportation and gasoline 63,252 18,220 Meals and entertainment
35,911 8,965
Depreciation and amortization 19,546 2,569
Repair and maintenance 257,881 8,049
Others 27,287 3,008
Total $ 2,619,588 $ 380,777
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Selling expense
Our selling expense, which was primarily incurred by our sales and marketing
department, for the years ended September 30, 2021 , and 2020, were $3,741,389
and $524,443 , respectively. Compared to the year ended September 30, 2020 , our
selling expense for the year ended September 30, 2021 , increased by $3,216,946 .
The operation of our King Eagle Mall was placed in service in July 2020 ;
accordingly, our selling expense for the year ended September 30, 2020 , was
comparatively lower than that for the year ended September 30, 2021 . Besides,
during the year ended September 30, 2021 , we had paid service fees to agents who
assisted us in the planning and development of Smart Kiosk and marketing of our
products. Our selling expense included the following:
September 30,
2021 2020
Service agents $ 2,929,080 $ 321,575 Employee compensation and benefit 484,825 168,785 Office supplies and meeting
206,940 20,892
Customer services 14,905 3,522
Travel, transportation and gasoline 36,469 1,538
Meals and entertainment 14,877 7,718
Depreciation and amortization 4,982 295
Advertising 3,123 -
Others 46,188 118
Total $ 3,741.389 $ 524,443
Other income
Other income primarily included bank interest income and foreign exchange gain
or loss. Our other income for the years ended September 30, 2021 , and 2020were$574 and 102, respectively. Income tax expense
For the years endedSeptember 30, 2021 , and 2020, the income tax expense of the Company was nil. Due to the net loss before income tax, the Company recognized a full valuation recognition against its deferred tax assets, which included net operating loss carryforwards, as management believes it is more likely than not that the Company will not realize its net operating loss carryforwards in a
near future or before it expires. Net Loss
As a result of the factors discussed above, for the years ended
Foreign currency translation adjustment
The functional currency of our operation in PRC is Chinese Yuan or Renminbi
("RMB") and while our operation in Hong Kong is Hong Kong Dollars ("HKD"). The
financial statements are translated to U.S. dollars using the period end rates
of exchange for assets and liabilities, equity is translated at historical
exchange rates, and average rates of exchange (for the period) are used for
revenues and expenses and cash flows. Transaction gains and or losses that arise
from exchange rate fluctuations on transactions denominated in a currency other
than the functional currency are included in the results of operations as
incurred. As a result of foreign currency translation, which is a noncash
adjustment, we reported a foreign currency translation loss of $27,761 and
$6,888 for the years ended September 30, 2021 , and 2020, respectively. This
non-cash loss had an effect of increasing our reported comprehensive loss.Comprehensive loss
As a result of our net loss after income taxes, we had comprehensive loss for
the years ended
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Liquidity and Capital Resources
As of
For the year endedSeptember 30, 2021 , net cash provided by operating activities totaled to$1,913,858 . Operating cash inflow was mainly attributable to an increase in trade and other payable,$1,404,380 , an increase in provision in tax,$212,862 , and deferred revenue,$2,879,891 , offset by the net loss,$1,774,734 , prepayments to vendors and lessors,$556,585 and operating lease obligation payments,$294,658 . Net cash used in investing activities totaled to$21,983 was primarily related to the purchase of office and computer equipment,$19,306 and intangible assets,$2,677 .
There was no financing activity for the year ended
Effect of exchange rate change on cash totaled
For the year endedSeptember 30, 2020 , net cash provided by operating activities totaled to$207,407 . Operating cash inflow was primarily attributable to an increase in deferred revenue,$197,085 and an increase in an amount due to our director,$244,539 ,who paid rent deposit and payments to our lessors on behalf ofKing Eagle (China ), offset by the net loss,$208,771 .
Net cash used in investing activities totaled to
There was no financing activity for the period for the year ended
Effect of exchange rate change on cash totaled
September 30, 2021 2020
Net cash provided by operating activities
(21,983 ) (70,748 )
Effect of exchange rate change on cash 26,644 4,507
Total net change in cash and cash equivalents
The following table sets forth a summary of changes in our working capital as of
September 30,
2021 2020
Current Assets $ 2,871,157 $ 239,535
Current Liabilities 5,189,941 856,606
$ (2,318,784 ) $ (617,071 ) We require cash of approximately$2.0 million within the next twelve months which primarily relates to third party vendors payables. In an effort to support and maintain our financial positions and operations, the Company focused on increasing its revenue through its online platform and slimming its overhead costs. We had engaged service agents to promote our products and planned to reduce our overhead costs such as negotiating rental fees or service fees with our counterparties. Simultaneously, our directors and stakeholders continue to support our operation financially. We believe that such measures will improve our liquidity in the next twelve months. If we are not able to increase revenue or obtain any financing, we may be unable to continue as a going concern. 54 Going Concern Consideration
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted inthe United States of America which contemplate continuation of the Company as a going concern basis. The going-concern basis assumes that assets are realized, and liabilities are extinguished in the ordinary course of business at amounts disclosed on the financial statements. The Company's ability to continue as a going concern depends on the liquidation of its current assets. As ofSeptember 30, 2021 , although the Company generated cash inflows from operating activities,$1,913,858 , the Company incurred a net loss of$1,774,734 and a negative working capital of$2,318,784 . These conditions raise substantial doubt about the ability of the Company to continue as a going concern. During the fiscal year, the Company has reviewed its operations to help refine the Company's financial liquidity. Options under consideration in the review process include, but not limited to, increase of sales on its online business, reduction of overhead costs, fund advance from the Company's stockholders and directors, or financing through issuance of shares. In order to continue as a going concern for the next 12 months, the Company will focus on increasing its revenue through the sale of health care products on its online platform,King Eagle Mall , streamlining its overhead costs or obtaining a financing from its stockholders or directors. However, the Company cannot provide any assurance that it will be able to increase revenue, that it will be able to successfully implement its business plan, or that financing that will be available to it on commercially acceptable terms, if at all. The 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. The directors will continue to support the group by providing adequate financial assistance to enable the group to continue its business operations for the foreseeable future.
Contractual Obligations and Other Commitments
We had the following contractual obligations and commercial commitments as ofSeptember 30, 2021 : Payments Due by Period Less Than 1 More Than 5 Year 1 to 3 Years 3 to 5 Years Years Total Contractual Obligations: Operating lease obligations $ -$ 290,798 $ - $ -$ 290,798 Purchase agreement 93,383 93,383 Cooperation Agreement of Smart Kiosk - 814,383 - - 814,383 Total contractual obligations$ 93,383 $ 1,105,181 $
- $ -$ 1,198,564
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, including arrangements that would affect our liquidity, capital resources, market risk support, and credit risk support or other benefits. Future Financings We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities, or if we are able, there is no guarantee that existing shareholders will not be substantially
diluted. 55 Critical Accounting Policies Basis of Presentation
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles inthe United States of America . This basis of accounting involves the application of accrual accounting and consequently, revenues and gains are recognized when earned, and expenses and losses are recognized when incurred. The consolidated financial statements
are expressed inU.S. dollars. Principles of Consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries and variable interest entity ("VIE").
Use of Estimates and Assumptions
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimate and assumptions that impact the presented amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the presented amounts of revenues and expenses during the period. Actual results may differ from those estimates. Significant estimates during the year endedSeptember 30, 2021 , and 2020 include the collectability of receivables, the useful lives of long-lived assets and intangibles, assumptions used in assessing impairment of long-lived assets, valuation of accruals for expenses and tax due. Going Concern
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted inthe United States of America which contemplate continuation of the Company as a going concern basis. The going-concern basis assumes that assets are realized, and liabilities are extinguished in the ordinary course of business at amounts disclosed on the financial statements. The Company's ability to continue as a going concern depends on the liquidation of its current assets and business developments. 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 ofSeptember 30, 2021 , although the Company generated cash inflows from operating activities,$1,913,858 , the Company incurred a net loss of$1,774,734 and a negative working capital of$2,318,784 . These conditions raise substantial doubt about the ability of the Company to continue as a going concern. During the fiscal year, the Company has reviewed its operations to help refine the Company's financial liquidity. Options under consideration in the review process include, but not limited to, increase of sales on its online business, reduction of overhead costs, fund advance from the Company's stockholders and directors, or financing through issuance of shares. In order to continue as a going concern for the next 12 months, the Company will focus on increasing its revenue through the sale of health care products on its online platform,King Eagle Mall , streamlining its overhead costs or obtaining a financing from its stockholders or directors. However, the Company cannot provide any assurance that it will be able to increase revenue, that it will be able to successfully implement its business plan, or that financing that will be available to it on commercially acceptable terms, if at all. The 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. 56 COVID-19 Outbreak
InMarch 2020 theWorld Health Organization declared coronavirus COVID-19 a global pandemic. The ongoing and evolving COVID-19 pandemic continues to spread throughout the world and outbreak caused a widespread of quarantines, lockdowns, site closures. It has negatively impacted the global economy, workforces, customers, and created significant volatility and disruption of economic activities. Due to restrictions, quarantines and closures in certain affected areas and government agencies in the PRC, the approval process of our applications for the construction permits of smart kiosks was delayed by the local governmental agencies and the construction project of smart kiosks was also postponed. The Company continues to focus its business through its online platform,King Eagle Mall , to mitigate the adverse impacts by COVID-19 and follows up closely with the local governmental agencies for the application for the construction permits of smart kiosks. In fact, the pandemic arose the overall public health consciousness in the PRC, the Company experienced a growth in its average monthly online sale revenue by$0.19 million or 70.5% from$0.27 million for the year endedSeptember 30, 2020 to$0.46 million for the year endedSeptember 30, 2021 . Although it does not expect that the virus will have a material adverse effect on its online business or financial results at this time, it is not possible to predict the unanticipated consequence of the pandemic on our future business performance and liquidity due to the severity of global situation of COVID-19. The Company continues to monitor and assess the evolving situation closely and evaluate its potential exposure. Earnings (loss) Per Share Basic income (loss) per share is computed by dividing net income (loss) attributable to the holders of ordinary shares by the weighted average number of ordinary shares outstanding during the year. Diluted income (loss) per share is calculated by dividing net income (loss) attributable to the holders of ordinary shares as adjusted for the effect of dilutive ordinary share equivalents, if any, by the weighted average number of ordinary shares and dilutive ordinary share equivalents outstanding during the period. However, ordinary share equivalents are not included in the denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.
Foreign Currency Translation
The reporting currency of the Company is theU.S. Dollar. Our entity inBritish Virgin Islands useU.S. dollar. Our entities in the PRC andHong Kong use the local currencies, Renminbi (RMB) and Hong Kong Dollar (HKD), as its functional currencies as determined based on the criteria of ASC 830, "Foreign Currency Translation". Assets and liabilities are translated at the unified exchange rate as quoted by www.xe.com at the end of the period. Income and expense accounts are translated at the average translation rates and the equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Translation adjustments included in accumulated other comprehensive loss amounted to$32,578 and$6,888 for the years endedSeptember 30, 2021 , and 2020, respectively.
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Below is a table with foreign exchange rates used for translation:
For the year ended September 30, 2021 Hong Kong Dollar Chinese Renminbi (Average Rate) (HKD) (RMB) United States dollar ($1 ) 7.7631 6.5101 As ofSeptember 30, 2021 (Closing Rate) United States dollar ($1 ) 7.7851 6.4466 For the year ended September 30, 2020 Hong Kong Dollar Chinese Renminbi (Average Rate) (HKD) (RMB) United States dollar ($1 ) 7.7506 7.0145 As ofSeptember 30, 2020 (Closing Rate) United States dollar ($1 ) 7.7500 6.7905 Cash and Cash Equivalents We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. We maintain with various financial institutions in PRC. As ofSeptember 30, 2021 , and 2020, cash balances held in PRC banks are uninsured. We have not experienced any losses in bank accounts and believes we are not exposed to any risks on our cash in bank accounts. Financial Instrument The carrying amount reported in the balance sheet for cash, other receivables, accrued liabilities and other payables approximate fair value because of the immediate or short-term maturity of these financial instruments. Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and impairment losses. Gains and losses on dispositions of property and equipment are included in operating income (loss). Major additions, renewals and improvements are capitalized, while maintenance and repairs are recognized
as expense as incurred.
Depreciation is provided over the estimated useful life of each class of depreciable assets and is computed using the straight-line method over the useful lives of the assets are as follows:
Estimated
Classification useful life
Leasehold improvements 5 years
Office equipment 3 years
Computer equipment 3 years
Computer software 5 years
Intangible Assets
Intangible assets represent the licensing cost for the trademark registration.
For intangible assets with indefinite lives, the Company evaluates intangible
assets for impairment at least annually and more often whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable. Whenever any such impairment exists, an impairment loss will be
recognized for the amount by which the carrying value exceeds the fair value.
For intangible assets with definite lives, they are amortized over estimated
useful lives, and are reviewed annually for impairment. The Company has not
recorded impairment of intangible assets as of September 30, 2021 , and 2020.
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Impairment of Long-lived Assets
Long-lived assets, including buildings and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. We assess the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated discounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When we identify an impairment, reduce the carrying amount of the asset to the estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As ofSeptember 30, 2021 , and 2020, management determined that there was no impairment. Fair Value Measurements The Company applies the provisions of ASC Subtopic 820-10, "Fair Value Measurements", for fair value measurements of financial assets and financial liabilities and for fair value measurements of non-financial items that are recognized or disclosed at fair value in the financial statements. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact, and it considers assumptions that market participants would use when pricing the asset or liability. ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
? Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets.
? Level 2 inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable for
the assets or liability, either directly or indirectly, for substantially the
full term of the financial instruments.
? Level 3 inputs to the valuation methodology are unobservable and significant
to the fair value.
The Company's financial assets and liabilities include cash, receivables, accounts payable and accrued expenses.
Comprehensive Income (Loss)
Other comprehensive income (loss) refers to revenues, expenses, gains, and losses that under generally accepted accounting principles are included in comprehensive income but are excluded from net income (loss) as these amounts are recorded directly as an adjustment to stockholders' equity. Our other comprehensive loss for the years endedSeptember 30, 2021 and 2020 was comprised of foreign currency translation adjustments. Revenue Recognition Revenue is comprised of sales of goods and represents the amount of consideration the Company is entitled to upon the transfer of goods. Revenue was recorded on a gross basis, net of surcharges and value added tax ("VAT") of gross sales. The Company recorded revenue on a gross basis because the Company is the primary obligor of the sales arrangements has latitude in establishing prices, has discretion in suppliers' selection and assumes credit risks on receivables on gross sales from customers. 59
Revenue is measured based on the amount of consideration that we expect to receive, reduced by estimates for allowance, promotional discounts, and rebates, if any. Revenue also excludes any amounts collected on behalf of third parties, including sales and indirect taxes. Consistent with the criteria of ASC 606 "Revenue from Contracts with Customers," we recognize revenue when performance obligations are satisfied by transferring control of a promised good or service to a customer. For performance obligations that are satisfied at a point in time, we also consider the following indicators to assess whether control of a promised good or service is transferred to the customer: (i) right to payment, (ii) legal title, (iii) physical possession, (iv) significant risks and rewards of ownership and (v) acceptance of the good or service. For performance obligations satisfied over time, we recognize revenue over time by measuring the progress toward complete satisfaction of
a performance obligation. Deferred Revenue Deferred revenue results from transactions where the Company has received the payments from the customers but revenue recognition criteria under the five-step model of ASC Topic 606 have yet to be met. Once all revenue recognition criteria have been satisfied, the revenues will be recognized upon the transfer of risk and rewards to the customers in the consolidated statement of operations. Lease InFebruary 2016 , the FASB issued ASU 2016-12, Leases (ASC Topic 842), which amends the leases requirements in ASC Topic 840, Leases. Under the new lease accounting standard, a lessee will be required to recognize a right-of-use asset and lease liability for most leases on the balance sheet. The new standard also modifies the classification criteria and accounting for sales-type and direct financing leases and enhances the disclosure requirements. Leases will continue to be classified as either finance or operating leases. The Company adopted ASC Topic 842 using the modified retrospective transition method onJuly 1, 2020 . There was no cumulative effect of initially applying ASC Topic 842 that required an adjustment to the opening retained earnings on the adoption date nor revision of the balances in comparative periods. As a result of the adoption, the Company recognized a lease liability and right-of-use asset for each of the existing lease arrangement. The adoption of the new lease standard does not have a material impact on the consolidated income statements or the consolidated statements of cash flows. Advertising Expenses Advertising costs are classified as selling expenses and are expensed in the period incurred and represent online marketing, including fees paid to search engines, and online and offline marketing. Advertising expenses were$3,123 and $nil, respectively, for the years endedSeptember 30, 2021 , and 2020, respectively. Concentration of Risk Credit risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and other receivable. AsSeptember 30, 2021 , and 2020,$1,886,622 (RMB12,162,295 ) and$140,430 (RMB 953,588 ), respectively, were deposited with various major financial institutions located in the PRC. While management believes that these financial institutions are of high credit quality, it also continually monitors their credit worthiness. Historically, deposits in Chinese banks are secure due to state policy to protect depositor interests. However,China promulgated a Bankruptcy Law inAugust 2006 that came into effect onJune 1, 2007 , which contains a separate article expressly stating that theState Council may promulgate implementation measures to provide for the bankruptcy of Chinese banks based on the Bankruptcy Law. Under the current Bankruptcy Law, a Chinese bank may file bankruptcy if it deems itself to be insolvent. In addition, sinceChina's concession to theWorld Trade Organization , foreign banks have been gradually permitted to operate inChina and have intensified competition in many aspects, especially since the opening of the Renminbi business to foreign banks in late 2006. Therefore, the risk of bankruptcy at the institutions that the Company maintains deposits has increased. In the event of bankruptcy, the Company is unlikely to reclaim its deposits in full since it is unlikely to be classified as a secured creditor under PRC laws. 60
Risks of variable interest entity structure
In the opinion of management, (i) the corporate structure of the Company is in compliance with existing PRC laws and regulations; (ii) the VIE Arrangements are valid and binding, and do not result in any violation of PRC laws or regulations currently in effect; and (iii) the business operations of the foreign-invested enterprise and the VIE are in compliance with existing PRC laws and regulations in all material respects. However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, the Company cannot be assured that PRC regulatory authorities will not ultimately take a contrary view to the foregoing opinion of its management. If the current corporate structure of the Company or the VIE Arrangements is found to be in violation of any existing or future PRC laws and regulations, the Company may be required to restructure its corporate structure and operations in the PRC to comply with changing and new PRC laws and regulations. In the opinion of management, the likelihood of loss in respect of the Company's current corporate structure or the VIE Arrangements is remote based on current facts and circumstances.
Foreign currency exchange risk
The value of RMB against theU.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions and the foreign exchange policy adopted by the PRC government. It is difficult to predict how market forces or PRC orU.S. government policy may impact the exchange rate between the RMB and theU.S. dollar in the future. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in greater fluctuation of the RMB against theU.S. dollar. The Company is a holding company and it relies on dividends paid by the Company's operating subsidiaries inChina for its cash needs. Any significant revaluation of the RMB may materially and adversely affect its liquidity and cash flows. To the extent that the Company needs to convertU.S. dollars into RMB for its operations, appreciation of the RMB against theU.S. dollar would have an adverse effect on the RMB amount the Company would receive. Conversely, if the Company decides to convert RMB intoU.S. dollars for other business purposes, appreciation of theU.S. dollar against the RMB would have a negative effect on theU.S. dollar amount the
Company would receive. Liquidity risk Liquidity risk is the risk that the Company may encounter difficulty raising liquid funds to meet commitments as they fall due. In meeting its liquidity requirements, the Company closely monitors its forecasted cash requirements
with expected cash drawdown.
Concentration of customers and vendors
There was no revenue from customers that individually represent greater than 10%
of the total revenues for the years ended
For the year ended
For the year ended
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. 61 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.
Recent Accounting Pronouncement
Recently Adopted Accounting Standards
Adoption of ASC Topic 606, "Revenue from Contracts with Customers"
InMay 2014 , theFinancial Accounting Standards Board (FASB) issued Topic 606, which supersedes the revenue recognition requirements in Topic 605. The Company adopted Topic 606 as of the inception date.
Adoption of ASC Topic 842, "Leases"
In
The Company adopted ASC Topic 842 using the modified retrospective transition method effective the inception date. There was no cumulative effect of initially applying ASC Topic 842 that required an adjustment to the opening retained earnings on the adoption date. See Note 2 "Leases" above for further details.
Accounting Pronouncements Issued But Not Yet Adopted
Financial Instruments. InJune 2016 , the FASB issued Accounting Standards Update No. 2016-13, "Financial Instruments - Credit Losses (Topic 326)" ("ASU 2016-13"). ASU 2016-13 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. Originally, ASU 2016-13 was effective for fiscal years, and for interim periods within those fiscal years, beginning afterDecember 15, 2019 , with early adoption permitted. InNovember 2019 , FASB issued ASU 2019-10, "Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)." This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by theSEC to fiscal years beginning afterDecember 15, 2022 , including interim periods within those fiscal years. The Company is planning to adopt this standard in the first quarter of fiscal 2023.The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-13 on its consolidated financial statements. Income Taxes. InDecember 2019 , the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which modifies and eliminates certain exceptions to the general principles of ASC 740, Income Taxes. This standard will be effective forKing Eagle beginningSeptember 30, 2021 . We are currently evaluating the impact of the standard on our consolidated financial statements.
Except for the ASU above, in the period fromOctober 2021 throughDecember 2021 , the FASB has issued ASU No. 2021-07 through ASU 2021-10, which are not expected to have a material impact on the consolidated financial statements upon adoption.
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