As used herein and unless otherwise specified, the term “Company”, “this(ies)”, “our”, “we”, “us” and “GSHN” means
The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the notes to those consolidated financial statements appearing elsewhere in this report. Certain statements in this report constitute forward-looking statements. 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 On
July 30, 2021, Gushen, Inc., a Nevadacorporation ("GSHN" or the "Company"), Dyckmanst Limited, a company organized under the laws of the British Virgin Islands(" Dyckmanst Limited"), and all shareholders of Dyckmanst Limitedimmediately prior to the closing (collectively, the " Dyckmanst LimitedShareholders", each, a "Dyckmanst Limited Shareholder") entered into a share exchange agreement (the "Share Exchange Agreement"), pursuant to which the Company acquired 100% of the issued and outstanding equity securities of Dyckmanst Limitedin exchange for 381,600,000 shares of common stock, par value $0.0001per share (the "Common Stock") of the Company (the "Share Exchange"). Immediately prior to the closing of the Share Exchange, two existing holders of aggregated 30,000,000 shares of Series A preferred stock of the Company, par value $0.0001per share (the "Preferred Stock") delivered 29,000,000 shares of Preferred Stock to the Company for cancellation ("the "Cancellation of Certain Preferred Stock"), each Preferred Stock is convertible into 10 shares of Common Stock. As a result, immediately following the closing of the Share Exchange, there are 410,618,750 shares of Common Stock issued and outstanding and 1,000,000 shares of Preferred Stock issued and outstanding. Dyckmanst LimitedShareholders collectively control 90.72% voting power of the Company on as converted basis, with respect to all of the shares of Common Stock and Preferred Stock, voting as a single class, with each share of Common Stock entitles to 1 vote and each share of Preferred Stock entitles to 10 votes. The Share Exchange Agreement is incorporated by reference from the Current Report on Form 8-K/A filed with the Securities and Exchange Commission(the "SEC") on August 6, 2021. Immediately prior to entering into the Share Exchange Agreement with Dyckmanst Limitedand shareholders of Dyckmanst Limited, we were a shell company with no significant asset or operation, we have never generated any revenue, and during the period from November 2017through March 2020, we were dormant. As a result of the Share Exchange, we operate through a PRC affiliated entity, Beijing Zhuoxun Century Culture Communication Co., Ltd.("Zhuoxun Beijing"), located in Beijing, China. Dyckmanst Limiteddoes not have any substantive operations other than holding Edeshler Limited, a Hong Kongcompany, which in return holding Beijing Fengyuan Zhihui Education Technology Co., Ltd.(Fengyuan Beijing), which controls Zhuoxun Beijing through certain contractual arrangements. 18 As a holding company with no material operations of our own, we have reached contractual arrangements dated February 5, 2021, which also known as VIE Agreements, with Zhuoxun Beijing, a variable interest entity, or "VIE", and its subsidiaries. Neither we nor our subsidiaries own any equity interests in VIE. The VIE Agreements are designed to provide Fengyuan Beijing, our wholly-owned subsidiary, with the power, rights, and obligations equivalent in all material respects to those it would possess as the principal equity holder of Zhuoxun Beijing, including absolute control rights and the rights to the assets, property, and revenue of Zhuoxun Beijing. This VIE structure is used to replicate foreign investment in Chinese-based companies where Chinese law prohibits direct foreign investment in the telecommunications sector. As a result of the direct ownership in Fengyuan Beijing and the VIE Agreements, we are regarded as the primary beneficiary of the VIE. The VIE Agreements are incorporated by reference from the Current Report on Form 8-K filed with the SECon August 6, 2021. Zhuoxun Beijing provides family education resources to promote all-around education onsite in local communities organized by their regional collaborative education agency and offer parents easy access to a wide variety of courses online through Zhouxun Beijing's application. Zhuoxun Beijing delivers onsite educational services through its nationwide physical network of regional collaborative education agency. Zhuoxun Beijing 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 around 18 regional education agencies around the country, whom Zhuoxun Beijing provides systematic training and management for to ensure to deliver high-quality and uniformed educational service system. Zhuoxun Beijing provides online education through their mobile application, Wisdom Lighthouse("????") (formerly known as ZhuoXun App) , which is geared towards Chinese parents designed to help them acquire different family education resources. Zhuoxun Beijing's products provide two sets of curricula: "Good Parenting" ("????") and "Wise Parents" ("????"). "Good Parenting", focused on child development, provides courses including EQ training, learning habits, learning ability, parents-children communication, stages of puberty, etc. to promote children's mental and psychological health. "Wise Parents" introduces general strategies of family education to parents to help them better understand and support children's growth and needs, whereby courses such as traditional family values, improvement of parents' qualifications, 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 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 40,000 active users on the Wisdom Lighthouseapp. 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. Zhuoxun Beijing's cooperate with Dami Zhilian Information Technology Group Co., Ltd, a technology company that develops and produces smartphones ("Dami Zhilian"). Zhuoxun Beijing's gives their design requirements to Dami Zhilian, whocustomizes and produces Zhuoxun Cellphone for us. Zhuoxun Beijing doesnot own any intellectual property in connection with Zhuoxun Cellphones. Zhuoxun Beijing sell Zhuoxun Cellphones through regional collaborative education agency. 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 children's use of Zhuoxun Cellphone by setting screen auto-lock, monitoring internet surfing, monitoring mobile application usage, monitoring physical locations, etc. 19
Significant Accounting Policies and Estimates
Basis of Presentation
The Company’s financial statements have been prepared in accordance with generally accepted accounting principles.
Use of Estimates The preparation of these consolidated financial statements in conformity with
U.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
March 2020, the World Health Organizationdeclared 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 or Zhuoxun Beijing's. This outbreak could decrease spending, adversely affect demand for our or Zhuoxun Beijing's services and harm our or Zhuoxun Beijing's business and results of operations. Zhuoxun Beijing'smain business would continue to be affected by China'santi-epidemic measures such as restrictions on public gatherings in 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. 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 has 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 participants
whoattend 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 an obligation of result for the training course service.
20 Mobile Phone Revenue Zhuoxun Beijing's sales contracts of anti-addiction mobile phone device provide that it provides multiple delivery of the product specified in the contracts. The contacts identify the quantity, product model, product type and unit price of the product that will be sold to Zhuoxun Beijing's customers. The contracts allow the customers to place separate orders within the credit limit as specified in the contracts. The delivery is based on the quantity of customers' order. Zhuoxun Beijing's customers can benefit from the mobile phone devices every time it delivers to them. Therefore, the delivery of the products is separately identifiable and distinct.
Thus, there are multiple performance obligations in each of the anti-addiction mobile telephone device sales contracts.
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 the services have been rendered.
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 conversion
The functional currency of the Company is
the United Statesdollar ("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. 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 in U.S.dollars. Assets and liabilities are translated into U.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. 21
Converting amounts from RMB to
Balance sheet items, except for equity accounts
December 31, 2021 RMB6.3726to $1September 30, 2021 RMB6.4567to $1
Income statement and cash flow items For the three months ended
For the three months ended
Cash and Cash Equivalents
Cash and cash equivalents include cash in hand and at the bank and highly liquid investments, which are not subject to any restriction on withdrawal or use and whose initial maturities are less than or equal to one year at the time of the ‘purchase.
Accounts Receivable, Net The carrying value of accounts receivable is reduced by an allowance that reflects the Company's best estimate of the amounts that will not be collected. The Company makes estimations of the collectability of accounts receivable. Many factors are considered in estimating the general allowance, including reviewing delinquent accounts receivable, performing an aging analysis and a customer credit analysis, and analyzing historical bad debt records and current economic trends.
The adoption of the new revenue standards has not changed the Company’s historical accounting policies for its accounts receivable.
Long-lived assets mainly consist of property, plant and equipment and intangible assets.
Property, plant and equipment are recorded at cost less accumulated depreciation and accumulated impairment. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives (years) Office and computer equipment 5 Lease improvement 3
Maintenance and repair expenditures are expensed as incurred.
The gain or loss on the disposal of property, plant and equipment is the difference between the net sales proceeds and the lower of the carrying value or fair value less cost to the relevant assets and is recognized in general and administrative expenses in the consolidated statements of comprehensive loss. Intangible Assets Intangible assets mainly comprise domain names and trademarks. Intangible assets are recorded at cost less accumulated amortization with no residual value. Amortization of intangible assets o is computed using the straight-line method over their estimated useful lives. The estimated useful lives of the Company's intangible assets are listed below: Estimated useful lives (years) Software 10 22
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 of
December 31, 2021and September 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 of
December 31, 2021and 2020, 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. Segments The Company evaluates a reporting unit by first identifying its operating segments, and then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meets the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated. The Company has only one major reportable segment in the periods presented.
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 directly or indirectly observable market inputs
Level 3 – unobservable entries that 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.
Restricted assets Fengyuan Beijing, Zhuoxun Beijing and Zhuoxun Beijing's subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company. The payment of dividends by entities organized in
Chinais subject to limitations, procedures and formalities. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. Fengyuan Beijing, Zhuoxun Beijingand Zhuoxun Beijing's subsidiaries are also required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its statutory reserves account until the accumulative amount of such reserves reaches 50% of its respective registered capital. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. In addition, the Company's operations are conducted and revenues are generated in China, and all of the Company's revenues earned and currency received are denominated in RMB. RMB is subject to the foreign exchange control regulation in China, and, as a result, the Company may be unable to distribute any dividends outside of Chinadue to PRC foreign exchange control regulations that restrict the Company's ability to convert RMB into U.S.dollars. 23
Recent accounting pronouncements
Recently Adopted Accounting Standards
Adoption of ASC Topic 606, “Customer Contract Revenue”
May 2014, the Financial 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 CSA Topic 842, “Leases”
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. In
June 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 after December 15, 2019, with early adoption permitted. In November 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 the SECto fiscal years beginning after December 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. In October 2020, the FASB issued ASU 2020-10, Codification Improvements. This update ensures all disclosure guidance that requires or provides an option for an entity to provide notes to the financial statements is included in the Disclosure Section (Section 50) of the Codification. This update also provides various codification improvements in which the original guidance was unclear. This update becomes effective for annual periods beginning after December 15, 2020and early adoption is permitted for any annual or interim period for which financial statements have not been issued. The Company does not expect the adoption of this new standard will have a material impact on its financial condition or results of operations. Results of Operations
Comparison of the three months ended
The following table shows the key elements of our operating results during the three months ended
Three Months Ended December 31, 2021 2020 % % Amount of Revenue Amount of Revenue Revenue
$ 96,178100.00 $ 1,261,472100.00 Cost of revenue (61,293 ) (63.73 ) (761,279 ) (60.35 ) Gross profit 34,885 36.27 500,193 39.65 Selling expenses (1,004,444 ) (1,044.36 ) (2,082,843 ) (165.11 )
General and administrative expenses (392,175 ) (407.76 )
(502,006 ) (39.80 ) Loss from operations (1,361,734 ) (1,415.85 ) (2,084,656 ) (165.26 ) Other income 1,280 1.33 12,231 0.97
Net loss before income taxes (1,360,454 ) (1,414.52 )
(2,072,425 ) (164.29 ) Income tax benefit - - - - Net loss
$ (1,360,454 )(1,414.52 ) $ (2,072,425 )(164.29 ) Revenue. The Company's revenue was decreased $1,165,294from $1,261,472to $96,178during the three months ended December 31, 2021compared with the same period in 2020. Due to the COVID-19 pandemic and restriction policy imposed by the government, the Company stopped offering the offline training since the months ended March 31, 2021. The offline training resumed during second half of 2021 but the classes were limited due to the impact from the ongoing COVID-19 pandemic. Consequently, the revenue during the three months ended December 31, 2021was significantly less than the same period in 2020. 24 Cost of revenue. Our cost of revenue was $61,293and $761,279for the three months ended December 31, 2021and 2020, respectively. The decrease was in line with the decrease
Gross profit and gross margin.
Our gross margin was
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
$1,078,399to $1,004,444for the three months ended December 31, 2021, compared to $2,082,843for the same period in 2020. We adjusted the strategy by reducing our own selling employees. Three Months ended December 31, 2021 2020 Fluctuation Amount % Amount %
Amount % Salary and welfare 163,871 16.31 435,199 43.33 (271,328 ) (62.35 ) Advertising Fees - - 49,312 4.91 (49,312 ) (100.00 ) Conference Fees 1,389 0.14 34,933 3.48 (33,544 ) (96.02 ) Marketing fee 172,577 17.18 536,628 53.43 (364,051 ) (67.84 ) Service fee 575,289 57.27 952,497 94.83 (377,208 ) (39.60 ) Others 91,318 9.09 74,274 7.39 17,044 22.95
Total selling costs
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
$109,831to $392,175for the three months ended December 31, 2021, compared to $502,006for the same period in 2020. The company focused on controlling general and administrative expenses. Three Months ended December 31, 2021 2020 Fluctuation Amount % Amount % Amount % Salary and welfare 218,701 55.77 271,256 54.03 (52,555 ) (19.37 ) Depreciation and amortization 11,968 3.05 27,309 5.44 (15,341 ) (56.18 ) Rent 53,732 13.70 22,882 4.56 30,850 134.82 Profession fee 63,932 16.30 108,806 21.67 (44,874 ) (41.24 ) Others 43,842 11.18 71,753 14.29 (27,911 ) (38.90 ) Total G&A Expenses $ 392,175100.00 $ 502,006100.00 $ (109,831 )(21.88 ) Income tax benefit.
Our 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
$1,360,454and $2,072,425for the three months ended December 31,
2021 and 2020, respectively. 25
Cash and capital resources
The following table sets forth a summary of our cash flows for the periods indicated: Three Months Ended
December 31, 20212020
Net cash used in operating activities
$ (1,199,938 ) $ (686,281 )Net cash used in investing activities (10,971 ) - Net (decrease) increase in cash and cash equivalents (1,210,909 ) (686,281 ) Effect of exchange rate changes on cash and cash equivalents 31,521
Cash and cash equivalents at the beginning of period 2,659,622
Cash and cash equivalents at the end of period
Going Concern Uncertainties
The accompanying consolidated financial statements have been prepared on the assumption that we will continue as a going concern.
December 31, 2021, our cash balance was $1,479,378and our current liabilities exceeded current assets by $6,616,933which 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 reviewed whether there is substantial doubt about our ability to continue as a going concern due to our working capital deficit of $
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 ongoing basis, the Company will also receive commitments of financial support from parties related to the Company.
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. Operating Activities Net cash used in operating activities was
$1,199,938for the three months ended December 31, 2021, as compared to $686,281net cash used in operating activities for the three months ended December 31, 2020. The net cash provided by operating activities for the three months ended December 31, 2021was mainly due to our net loss of $1,360,454, an increase in amortization of prepaid expenses of $150,242, partially offset by the decrease in other receivable of $47,843. The net cash provided by operating activities for the three months ended December 31, 2020was mainly due to our net loss of $2,072,425, an increase in amortization of prepaid expenses of $1,196,043, a decrease in other receivable of $ 753,492, partially offset by payments to suppliers of $432,613. 26 Investing Activities Net cash used in investing activities was $10,971for the three months ended December 31, 2021, as compared to nil for the three months ended December 31, 2020. The net cash used in investing activities for the three months ended December 31, 2021was mainly attributable to purchase of property, plant and equipment.
Off-balance sheet arrangements
December 31, 2021and December 31, 2020, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
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 of
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. If adequate funds are not available, it may be required to delay, scale back or eliminate portions of it or 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 it or Zhuoxun Beijing's continued operations and expansion efforts. During the next 12 months, the Company expect 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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