The following discussion should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this Form 10-Q.
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 the
Annual Report on Form 10-K, particularly under the heading "Risk Factors." and
those set forth from time to time in our other filings with the SEC.
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 and biotech areas. On December 6,
2016, the Company incorporated Fuse Processing, Inc. ("Processing") in the State
of California. Processing seeks business opportunities in mining and is
currently investigating potential mining targets in Asia and North America.
Fuse Group is the sole shareholder of Processing. In March 2017, Processing
acquired 100% ownership of Fuse Trading Limited ("Trading") for HKD1 ($0.13).
Trading had no operations prior to the acquisition by Processing, and Trading
expects to be engaged in mining-related businesses. On May 3, 2018, the Company
incorporated Fuse Technology Inc. in the State of Nevada, which changed its name
to Fuse Biotech Inc. on November 30, 2020. Fuse Group is the sole shareholder
of Fuse Biotech Inc. ("Biotech"). Fuse Biotech originally engaged in IMETAL
system development. The Company originally planned to operate IMETAL as a
platform to facilitate investment and trade in raw metals, find specialized
minerals, exploit these opportunities and issue tokens to be used on the
platform, subject to compliance with applicable laws and regulations. Due to the
recent development of laws and regulations on token issuance and trading,
management discussed its function and compliance issues with the designer of the
platform and concluded the project had more issues and costs for compliance than
originally expected, on December 23, 2019, the Board decided to terminate the
IMETAL project. Currently, Biotech seeks business opportunities in the biotech
area.
Fuse Group and Processing provide consulting services to mining industry clients
to find acquisition targets within the parameters set by the clients, when the
mine owner is considering selling its mining rights. The services of Fuse Group
and Processing include due diligence on the potential mine seller and the mine,
such as ownership of the mine and whether the mine meets all operation
requirements and/or is currently in operation.
On January 4, 2017, Processing entered into a Consulting and Strategist
Agreement with a consulting company for a six-month term. On July 3, 2017,
Processing and the consulting company extended the Consulting and Strategist
Agreement until January 3, 2018 at no additional cost, and the Agreement was
subsequently extended to July 3, 2018. The consultant provides Processing with
market research, exploration and advise on business development opportunities in
certain countries, and other general business advisory services. Processing paid
a deposit of $1,325,000 for the consulting fee, of which, $325,000 was expensed
as a consulting fee based on the agreement, and the remaining $1,000,000 of
which would have been refunded to the Company if the Company had not made an
investment and/or entered into a business relationship in Mexico. The consulting
company found acquisition targets for the Company, and on June 22, 2018, the
Company entered into a Memorandum of Understanding ("MOU") with a seller to
purchase five mines located in different areas of Mexico for $1,000,000. Upon
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 that the Company would pay $1,000,000 to purchase all five mines that
would be consolidated into a local company in Mexico upon the approval from the
Mexican government allowing the transfer of all mining concession to a Mexican
company. On February 9, 2021, the Company, Processing entered into a Share
Exchange Agreement (the "Agreement") with Choo Keam Hui, Goh Hau Guan, Lim Hui
Sing, Teh Boon Nee and Tia Chai Teck (collectively as the "Sellers"). Pursuant
to the Agreement, the Company agreed to issue to the Sellers in aggregate of
14,285,715 shares of common stock of the Company (the "Fuse Shares") in exchange
of all the outstanding shares of Portafolio en Investigacion Ambiental S.A. de
C.V., a Mexican company that owns five mines and owned by the Sellers. The
Company have issued the Fuse Shares but have not delivered them to the Sellers.
The five mines have not been explored and have no operations, no existing
contracts for the sale of output, no permits or licenses to conduct mining
operations. Portafolio only has five concessions to explore for minerals and
owns no facilities or equipment. There is no assurance that we will be able to
obtain the surface rights and permits that are necessary to extract the minerals
from the areas covered by the concessions. The Company is waiting for the
Sellers to complete the transfer process for the equity interest of Portafolio
to the Processing to complete the transaction.
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On April 29, 2019, the Board of Directors ("BOD") of the Company approved an
amendment to the Company's Articles of Incorporation (the "Amendment") to change
its name from Fuse Enterprises Inc. to Fuse Group Holding Inc. Also on April 29,
2019, stockholders holding a majority of the Company's outstanding capital stock
approved the Amendment. The Amendment was filed with the Secretary of State for
the State of Nevada on April 30, 2019, and became effective on May 13, 2019. On
May 29, 2019, the Company changed its trading symbol on OTC Markets from FNST to
FUST.
In March 2020, the World Health Organization declared the COVID-19 outbreak a
pandemic, and the pandemic has resulted in quarantines, travel restrictions, and
the temporary closure of office buildings and facilities in the US. The state of
California, where the Company is headquartered, has been affected by COVID-19.
Our business and services and results of operations have been adversely affected
and could continue to be adversely affected by the COVID-19 pandemic. The
pandemic negatively impacted our business development, and disrupted or delayed
our current mine projects and services to our clients, the magnitude of which
will depend, in part, on the length and severity of the restrictions and other
limitations on our ability to conduct our business in the ordinary course. These
and similar, and perhaps more severe, disruptions in our operations could
negatively impact our business, operating results and financial condition.
Quarantines, travel restrictions, shelter-in-place and other restrictions
related to COVID-19 have impacted our abilities to visit mines in Mexico and
Asian counties as well as to meet with potential clients and mine owners for our
consulting business and our own investment in mine projects. Our clients that
are negatively impacted by the outbreak of COVID-19 may cancel or suspend their
mine acquisition projects, which in turn will reduce their demands for our
services and materially adversely impact our revenue. Potential impact to our
results of operations will also depend on future developments and new
information that may emerge regarding COVID-19 and new variants, the efficacy
and distribution of COVID-19 vaccines and the actions taken by governmental
authorities and other entities to contain COVID-19 and/or mitigate its impact,
almost all of which are beyond our control.
The global economy has also been materially negatively affected by COVID-19 and
there is continued severe uncertainty about the duration and intensity of its
impacts. The U.S. and global growth forecast is extremely uncertain, which would
seriously affect people's investment desires in mines in Mexico, Asia and
internationally.
While the potential economic impact brought by, and the duration of, COVID-19
may be difficult to assess or predict, a widespread pandemic could result in
significant disruption of global financial markets, reducing our ability to
access capital, which could negatively affect our liquidity. In addition, a
recession or market correction resulting from the spread of COVID-19 could
materially affect our business and the value of our common stock.
We received a $49,600 Paycheck Protection Program loan ("PPP loan") and a
$105,500 Economic Injury Disaster Loan ("EIDL loan") from US Small Business
Administration (" the SBA") during the year ended September 30, 2020. The
forgiveness of $49,600 PPP loan was approved in June 2021.
We currently believe our financial resources will be adequate to see us through
the outbreak. However, in the event that we do need to raise capital in the
future, the outbreak-related instability in the securities markets could
adversely affect our ability to raise additional capital.
On March 11, 2021, Fuse Group and Biotech entered into a Share Exchange
Agreement with E-Mo Biotech Holding Inc., a company incorporated under the laws
of Nevada (the "E-Mo Biotech"), Qiyi Xie, a resident of California ("Xie"), Quan
Qinghua, a citizen and resident of China ("Quan"), Jing Li, a citizen and
resident of China ("Li") and HWG Capital Sdn Bhd, a company incorporated under
laws of Malaysia ("HWG" and hereinafter collectively with Xie, Quan and Li, the
"Sellers"). Pursuant to the Agreement, the Company will issue the Sellers
100,000,000 shares of Company's common stock (the "Fuse Shares") for all the
issued and outstanding shares of E-Mo (the "E-Mo Shares") owned by the Sellers.
E-Mo Biotech engages in biology research and development business. The
acquisition has not been completed yet and the Fuse Shares have not been issued
as of this reporting date.
Results of operations for the nine months ended June 30, 2021 and 2020
Revenue and Cost of Revenue
We develop our business in mining and investigate potential mining targets in
Asia and North America. In addition to our own investment in mining businesses,
we provide consulting services to clients which are mining business investors
with potential mine acquisition targets within the specific parameters set by
those clients, where the mine owner is considering selling its mining rights.
Our services include due diligence on the potential mine seller and the mine,
such as ownership of the mine and whether the mine meets all operation
requirements and/or is currently in operation.
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For the nine months ended June 30, 2021, we provided five potential mine
opportunities in Mexico to a client. For the nine months ended June 30, 2021,
the Company recorded revenue of $500,000 for the services provided. Our revenue
for the nine months ended June 30, 2020 was $650,000. Our cost of revenues for
the nine months ended June 30, 2021 and 2020 was $43,575 and $190,416,
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 $456,425 and $459,584 for the nine months
ended June 30, 2021 and 2020, respectively.
Costs and Expenses
The major components of our expenses for the nine months ended June 30, 2021 and
2020 are in the table below:
Increase
2021 2020 (Decrease)
General and administrative $ 452,319 $ 399,492 $ 52,827
Consulting fees 60,852 39,081 21,771
Total operating expenses $ 513,171 $ 438,573 $ 74,598The increase in our operating expenses for the nine months ended June 30, 2021,
compared to the nine months ended June 30, 2020, was mainly due to an increase
in consulting fees of $21,771, and increased professional fee of $66,070 which
was partly offset by decreased auditing and accounting fees by $18,030.
Non-operating income (expenses), net
Net non-operating income was $45,629 for the nine months ended June 30, 2021,
compared to non-operating expense $855 for the nine months ended June 30,
2020. For the nine months ended June 30, 2021, non-operating income mainly
consist of PPP Loan forgiveness of $49,600 which was partly offset by interest
expense on EIDL of $3,033 and bank service charge of $1,000. For the nine months
ended June 30, 2020, non-operating expenses mainly consist of bank service
charge of $655 and other expenses of $200.
Results of operations for the three months ended June 30, 2021 and 2020
Revenue and Cost of Revenue
We develop our business in mining and investigate potential mining targets in
Asia and North America. In addition to our own investment in mining businesses,
we provide consulting services to clients which are mining business investors
with potential mine acquisition targets within the specific parameters set by
those clients, where the mine owner is considering selling its mining rights.
Our services include due diligence on the potential mine seller and the mine,
such as ownership of the mine and whether the mine meets all operation
requirements and/or is currently in operation.
For the three months ended June 30, 2021, we provided two potential mine
opportunities in Mexico to a client. For the three months ended June 30, 2021,
the Company recorded revenue of $150,000 for the services provided. Our revenue
for the three months ended June 30, 2020 was $200,000. Our cost of revenues for
the three months ended June 30, 2021 and 2020 was $10,005 and $10,015,
respectively, mainly for the consulting expenses paid for mine expertise for due
diligence, resulting in a gross profit of $139,973 and $189,985 for the three
months ended June 30, 2021 and 2020, respectively.
Costs and Expenses
The major components of our expenses for the three months ended June 30, 2021
and 2020 are in the table below:
Increase
2021 2020 (Decrease)
General and administrative $ 153,707 $ 135,532 $ 18,175
Consulting fees 14,590 2,333 12,257
Total operating expenses $ 168,297 $ 137,865 $ 30,432
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The increase in our operating expenses for the three months ended June 30, 2021,
compared to the three months ended June 30, 2020, was mainly due to an increase
in professional expense by $17,130 and increased consulting fee by $12,257.
Non-operating income (expenses), net
Net non-operating income were $48,360 for the three months ended June 30, 2021,
compared to non-operating expense $120 for the three months ended June 30,
2020. For the three months ended June 30, 2021, non-operating income mainly
consist of PPP Loan forgiveness of $49,600 which was partly offset by interest
on EIDL loan of $1,021 and bank service charge of $281. For the three months
ended June 30, 2020, non-operating expenses mainly consist of bank service
charge of $120.
Liquidity and Capital Resources
The table below provides selected working capital information as of June 30,
2021 and September 30, 2020:
June 30, 2021 September 30, 2020
Total current assets $ 146,494 $ 204,295
Total current liabilities 18,394 80,843
Working capital $ 128,100 $ 123,452
Liquidity
During the nine months ended June 30, 2021 and 2020, we had net loss of $13,517
and net income of $16,156, respectively. During the three months ended June 30,
2021 and 2020, the Company reported net income of $20,058 and $52,000,
respectively. We received $49,600 from the PPP loan and $105,500 from the EIDL
loan during the year ended September 30, 2020 for paying the Company's payroll
and other operating expenses during the COVID-19 pandemic. The $49,600 PPP loan
was forgiven in June 2021.
If we are not successful in developing the mining business and establishing
profitability and positive cash flow, additional capital may be required to
maintain ongoing operations. We have explored and continue to explore options to
provide additional financing to fund future operations as well as other possible
courses of action. Such actions may include, but are not limited to, securing
lines of credit, sales of debt or equity securities (which may result in
dilution to existing shareholders), loans and cash advances from other third
parties or banks, and other similar actions. There can be no assurance we will
be able to obtain additional funding (if needed), on acceptable terms or at all,
through a sale of our common stock, loans from financial institutions, or other
third parties, or any of the actions discussed above. If we cannot sustain
profitable operations, and additional capital is unavailable, lack of liquidity
could have a material adverse effect on our business viability, financial
position, results of operations and cash flows.
Cash Flows
The table below, for the periods indicated, provides selected cash flow
information for the nine months ended June 30, 2021 and 2020:
2021 2020
Net cash used in operating activities $ (67,603 ) $ (53,878 )
Net cash provided by financing activities
- 155,000
Net increase (decrease) in cash $ (67,603 ) $ 101,122Cash Flows from Operating Activities
Our cash used in operating activities for the nine months ended June 30, 2021
and 2020 was $67,603 and $53,878, respectively. The increase in cash outflow
during the nine months ended June 30, 2021 was due to increased net loss by
$29,673, but partly offset with cash inflow from other payables by $8,743.
Cash Flows from Investing Activities
During the nine months ended June 30, 2021 and 2020, we did not have any
investing activities.
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Cash Flows from Financing Activities
During the nine months ended June 30, 2021 and 2020, we had cash provided by
financing activities of $0 and $155,000, respectively. For the nine months ended
June 30, 2020, the cash provided by financing activities consisted of proceeds
from SBA loans of $155,000.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements.
Off Balance Sheet Arrangements
As of June 30, 2021, 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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