GUSHEN, INC. The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this filing. 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. Company OverviewGushen, Inc. , or GSHN, owns 100% of the issued and outstanding capital stock ofDyckmanst Limited , which was incorporated onDecember 21, 2018 under the law ofBritish Virgin Islands .Dyckmanst Limited is a holding company holding all of the outstanding equity of 100%Edeshler Limited , or Edeshler HK, sinceJanuary 9, 2019 . Edeshler HK is a holding company holding all of the outstanding equity ofBeijing Fengyuan Zhihui Education Technology Co., Ltd. , or Fengyuan Beijing. Fengyuan Beijing was incorporated onJune 17, 2019 inChina as a wholly foreign owned enterprise. Fengyuan Beijing operates through its subsidiary, ZhuoxunBeijing . Zhuoxun Beijing was incorporated onAugust 22, 2013 inChina and is engaged to provide family education resources to promote all-around education onsite in local communities organized by our regional collaborative education agency and offer parents easy access to a wide variety of courses online through our application. OnDecember 24, 2020 ,Zhuoxun Beijing and Guoxinzhengye Company Management Co., Ltd. ("Guoxinzhengye") entered into a certain join venture agreement to establishBeijing Zhuoxin Education Technology Co., Ltd. (ZhuoxunBeijing : 70% equity interest, Guoxinzhengye: 30% equity interest) ("ZhouxinBeijing "). Zhuoxin Beijing is primarily engaged in establishing facilities to, among the others, provide family education consulting services, sell and rent book, organize book clubs, and sell educational electronic devices. VIE Agreements InFebruary 2021 , Fengyuan Beijing, Zhuoxun Beijing, and the shareholders of Zhuoxun Beijing entered into a series of contractual agreements for ZhuoxunBeijing to qualify as variable interest entity or VIE (the "VIE Agreements"). The VIE Agreements are as follows: Consulting Service Agreement Pursuant to the terms of theExclusive Consulting and Service Agreement datedFebruary 5, 2021 , between Fengyuan Beijing and Zhuoxun Beijing (the "Consulting Service Agreement"), Fengyuan Beijing is the exclusive consulting and service provider to Zhuoxun Beijing to provide business-related software research and development services; design, installation, and testing services; network equipment support, upgrade, maintenance, monitor, and problem-solving services; employees training services; technology development and sublicensing services; public relations services; market investigation, research, and consultation services; short to medium term marketing plan-making services; compliance consultation services; marketing events and membership related activities planning and organizing services; intellectual property permits; equipment and rental services; and business-related management consulting services. Pursuant to the Consulting Service Agreement, the service fee is the remaining amount after Zhuoxun Beijing's profit before tax in the corresponding year deducts Zhuoxun Beijing's losses, if any, in the previous year, the necessary costs, expenses, taxes, and fees incurred in the corresponding year, and the withdraws of the statutory provident fund. Zhuoxun Beijing agreed not to transfer its rights and obligations under the Consulting Service Agreement to any third party without prior written consent from Fengyuan Beijing. In addition, FengyuanBeijing may transfer its rights and obligations under the Consulting Service Agreement to Fengyuan Beijing's affiliates without Zhuoxun Beijing's consent, but Fengyuan Beijing shall notify Zhuoxun Beijing of such transfer. This Agreement is valid for a term of 10 years subject to any extension requested by Fengyuan Beijing unless terminated by Fengyuan Beijing unilaterally prior to the expiration. 19
The foregoing summary of the Consulting Service Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the Consulting Service Agreement, which was filed as Exhibit 10.1 to the Form 8-K/A filed
onAugust 6, 2021 . Business Operation Agreement
Pursuant to the terms of the Business Operation Agreement datedFebruary 5, 2021 , among Fengyuan Beijing, Zhuoxun Beijing and the shareholders of ZhuoxunBeijing (the "Business Operation Agreement"), Zhuoxun Beijing has agreed to subject the operations and management of its business to the control of FengyuanBeijing . According to the Business Operation Agreement, Zhuoxun Beijing is not allowed to conduct any transactions that has substantial impact upon its operations, assets, rights, obligations and personnel without the FengyuanBeijing's written approval. The shareholders of Zhuoxun Beijing and ZhuoxunBeijing will take Fengyuan Beijing's advice on appointment or dismissal of directors, employment of Zhuoxun Beijing's employees, regular operation, and financial management of Zhuoxun Beijing. The shareholders of Zhuoxun Beijing have agreed to transfer any dividends, distributions or any other profits that they receive as the shareholders of Zhuoxun Beijing to Fengyuan Beijing without consideration. The Business Operation Agreement is valid for a term of 10 years or longer upon the request of Fengyuan Beijing prior to the expiration thereof. The Business Operation Agreement might be terminated earlier by Fengyuan Beijing with a 30-day written notice.
The foregoing summary of the Business Operation Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the Business Operation Agreement, which was filed as Exhibit 10.2 to the Form 8-K/A filed onAugust 6, 2021 . Proxy Agreement
Pursuant to the terms of the Proxy Agreements datedFebruary 5, 2021 , among Fengyuan Beijing, and the shareholders of Zhuoxun Beijing (each, the "Proxy Agreement", collectively, the "Proxy Agreements"), each shareholder of ZhuoxunBeijing has irrevocably entrusted his/her shareholder rights as ZhuoxunBeijing's shareholder to Fengyuan Beijing , including but not limited to, proposing the shareholder meeting, accepting any notices with regard to the convening of shareholder meeting and any other procedures, conducting voting rights, and selling or transferring the shares held by such shareholder, for 10 years or earlier if the Business Operation Agreement was terminated for any reasons. The foregoing summary of the Proxy Agreements does not purport to be complete and is subject to, and qualified in its entirety by, the Proxy Agreements, which were filed as Exhibit 10.3 to the Form 8-K/A filed onAugust 6, 2021 .
Equity Disposal Agreement
Pursuant to the terms of the Equity Disposal Agreement datedFebruary 5, 2021 , among Fengyuan Beijing, Zhuoxun Beijing, and the shareholders of Zhuoxun Beijing (the "Equity Disposal Agreement"), the shareholders of Zhuoxun Beijing granted Fengyuan Beijing or its designees an irrevocable and exclusive purchase option (the "Option") to purchase Zhuoxun Beijing's all or partial equity interests and/or assets at the lowest purchase price permitted by PRC laws and regulations. The option is exercisable at any time at Fengyuan Beijing's discretion in full or in part, to the extent permitted by PRC law. The shareholders of Zhuoxun Beijing agreed to give Zhuoxun Beijing the total amount of the exercise price as a gift, or in other methods upon Fengyuan Beijing's written consent to transfer the exercise price to Zhuoxun Beijing. The Equity Disposal Agreement is valid for a term of 10 years or longer upon the request of Fengyuan Beijing.
The foregoing summary of the Equity Disposal Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the Equity Disposal Agreement, which was filed as Exhibit 10.4 to the Form 8-K/A filed
onAugust 6, 2021 . 20 Equity Pledge Agreement Pursuant to the terms of the Equity Pledge Agreement datedFebruary 5, 2021 , among Fengyuan Beijing and the shareholders of Zhuoxun Beijing (the "Pledge Agreement"), the shareholders of Zhuoxun Beijing pledged all of their equity interests in Zhuoxun Beijing to Fengyuan Beijing, including the proceeds thereof, to guarantee Zhuoxun Beijing's performance of its obligations under the Business Operation Agreement, the Consulting Service Agreement and the Equity Disposal Agreement (each, a "Agreement", collectively, the "Agreements"). If Zhuoxun Beijing or its shareholders breach its respective contractual obligations under any Agreements, or cause to occur one of the events regards as an event of default under any Agreements, Fengyuan Beijing, as pledgee, will be entitled to certain rights, including the right to dispose of the pledged equity interest in Zhuoxun Beijing. During the term of the Pledge Agreement, the pledged equity interests cannot be transferred without Fengyuan Beijing's prior written consent. The Pledge Agreements is valid until all the obligations due under the Agreements have been fulfilled. The foregoing summary of the Equity Pledge Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the Equity Pledge Agreement, which was filed as Exhibit 10.5 to the Form 8-K/A filed onAugust 6, 2021 . Pursuant to the Share Exchange Agreement signed onJuly 30, 2021 , GSHN acquired 100% of the issued and outstanding securities ofDyckmanst Limited in exchange for 381,600,000 shares of Common Stock, par value$0.0001 per share of GSHN. As a result of the Share Exchange, the business ofDyckmanst Limited becomes our business. As such, the following results of operations are focused on the operations ofDyckmanst Limited and exclude the operation of the Company prior to the Share Exchange. Foreign Operations All of Zhuoxun Beijing's business operations are conducted in Mainland China as a VIE. Accordingly, its results of operations, financial condition and prospects are subject to a significant degree to economic, political and legal developments in the PRC. Operating in foreign countries involves substantial risk. For example, its business activities subject it to a number of Chinese laws and regulations, such as anti-corruption laws, tax laws, foreign exchange controls and cash repatriation restrictions, data privacy and security requirements, labor laws, intellectual property laws, privacy laws, and anti-competition regulations, which have uncertainties. Any failure to comply with the PRC laws and regulations could subject it to fines and penalties, make it more difficult or impossible to do business inChina and harm our reputation. Operating in foreign countries also subjects us to risk from currency fluctuations. Our primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar denominated sales and operating expenses. The weakening of foreign currencies relative to theU.S. dollar adversely affects theU.S. dollar value of its foreign currency-denominated sales and earnings. This could either reduce theU.S. dollar value of Zhuoxun Beijing's prices or, if it raises prices in the local currency, it could reduce the overall demand for its offerings. Either could adversely affect its revenue. Conversely, a rise in the price of local currencies relative to theU.S. dollar could adversely impact Zhuoxun Beijing's profitability because increase its costs denominated in those currencies would increase, thus adversely affecting gross margins.
Critical Accounting Policies and Estimates
Basis of Presentation
The financial statements of the Company have been prepared in accordance with
accounting principles generally accepted in
Use of Estimates The preparation of these consolidated financial statements in conformity withU.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. 21 COVID-19 Outbreak
InMarch 2020 theWorld Health Organization declared 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. This outbreak could decrease spending, adversely affect demand for our services and harm our business and results of operations. Our Main business would continue to be affected byChina's anti-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 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 participantswho attend 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 one performance obligation for the training course service.
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 our 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. ZhuoxunBeijing'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.
Hence, there are multiple performance obligations in each of the sale contracts of anti-addiction mobile phone device.
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 services have been rendered.
22
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. 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 Translation
The functional currency of the Company isthe United States dollar ("US dollar"). The Company's subsidiary and VIEs with operations in PRC uses 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 inU.S. dollars. Assets and liabilities are translated intoU.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.
Translation of amounts from RMB into
Balance sheet items, except for equity accountsSeptember 30, 2021 RMB6.4567 to$1 September 30, 2020RMB6.8013 to$1 Income statement and cash flows items For the year endedSeptember 30, 2021 RMB6.5074 to$1 For the year endedSeptember 30, 2020 RMB7.0061 to$1 Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and at banks and highly liquid investments, which are unrestricted from withdrawal or use, and which have original maturities of year or less when purchased.
23
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 did not change the Company's historical accounting methods for its accounts receivable.
Long-Lived Assets
Long-lived assets consist primarily of property, plant and equipment and intangible assets.
Property, plant and equipment
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
Expenditure for maintenance and repairs is 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 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
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 ofSeptember 30, 2021 and 2020. 24 Credit risk
Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents. As ofSeptember 30, 2021 and 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 inputs that are directly or indirectly observable in the market place
Level 3 - unobservable inputs which 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.
As of
Restricted assets The Company's PRC subsidiary and the VIE are restricted in their ability to transfer a portion of their net assets to the Company. The payment of dividends by entities organized inChina is 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 inChina . The Company's PRC subsidiary and the VIE 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. 25 In addition, the Company's operations are conducted and revenues are generated inChina , and all of the Company's revenues earned and currency received are denominated in RMB. RMB is subject to the foreign exchange control regulation inChina , and, as a result, the Company may be unable to distribute any dividends outside ofChina due to PRC foreign exchange control regulations that restrict the Company's ability to convert RMB intoU.S. dollars.
Recent Accounting Pronouncements
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 is effective for beginningSeptember 30, 2021 . We are currently evaluating the impact of the standard on our consolidated financial statements. 26
RESULTS OF OPERATIONS OF DYCKMANST LIMITED
Comparison of Year Ended
The following table sets forth key components of our results of operations during the year endedSeptember 30, 2021 and 2020, both in dollars and as a percentage of our revenue. Year Ended September 30, 2021 2020 of of Amount Revenue Amount Revenue Revenue$ 1,928,456 100.00$ 8,199,277 100.00 Cost of revenue (1,203,532 ) (62.41 ) (4,954,625 ) (60.43 ) Gross profit 724,924 37.59 3,244,652 39.57 Selling expenses (9,032,933 ) (468.40 ) (5,821,605 ) (71.00 )
General and administrative expenses (1,963,374 ) (101.81 )
(1,538,053 ) (18.76 ) Loss from operations (10,271,383 ) (532.62 ) (4,115,006 ) (50.19 ) Other income (403,668 ) (20.93 ) 52,399 0.64
Net (loss) income before income taxes (10,675,051 ) (553.55 ) (4,062,607 ) (49.55 ) Income tax benefit (expenses) 760,013 39.41 1,014,434 12.37 Net loss$ (9,915,038 ) (514.14 )$ (3,048,173 ) (37.18 ) Less: Net loss attributable to non-controlling interests (884 ) (0.05 ) - - Net loss attribute to the company's shareholders$ (9,914,154 ) (514.10 )$ (3,048,173 ) (37.18 ) Revenue. The Company's revenue was decreased$6,270,821 from$8,199,277 to$1,928,456 during the year endedSeptember 30, 2021 compared with the fiscal year endedSeptember 30, 2020 . Due to the COVID-19, the Company forced to reduce the offline training from 2020 and stopped the offline courses fromApril 2021
toJuly 2021 . Cost of revenue. Our cost of revenue was$1,203,532 and$4,954,625 for the year endedSeptember 30, 2021 and 2020, respectively. The decrease was in line with the decrease
of revenue.
Gross profit and gross margin.
Our gross profit was$724,924 for the year endedSeptember 30, 2021 , compared with a gross profit of$3,244,652 for the year endedSeptember 30, 2020 . Gross profit as a percentage of revenue (gross margin) was 37.59% for the year endedSeptember 30, 2021 , compared to a gross profit of 39.57% for the year ended
September 30,2020 . 27 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 increased by$3,211,328 to$9,032,933 for the year endedSeptember 30, 2021 , compared to$5,821,605 for the year endedSeptember 30, 2020 . We adjust the strategy by reducing our own selling employees and raising more marketing fee to local agents for attracting more customers. Year ended September 30, 2021 2020 Fluctuation Amount % Amount % Amount % Salary and welfare 1,333,847 14.77 1,362,968 23.41 (29,121 ) (2.14 ) Advertising Fees 224,116 2.48 238,616 4.10 (14,500 ) (6.08 ) Conference Fees 129,542 1.43 145,824 2.50 (16,282 ) (11.17 ) Marketing fee 4,358,393 48.25 1,003,288 17.23 3,355,105 334.41 Rent 1,076 0.01 119,320 2.05 (118,244 ) (99.10 ) Others 2,985,959 33.06 2,951,589
50.70 34,370 1.16
Total Selling Expense
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 increased by$425,321 to$1,963,374 for the year endedSeptember 30, 2021 , compared to$1,538,053 for the year endedSeptember 30, 2020 . We hired more staff for organization managements and reduce the professional service by third parties during the year endedSeptember 31, 2021 . Year ended September 30, 2021 2020 Fluctuation Amount % Amount % Amount % Salary and welfare 904,625 46.08 554,226 36.03 350,399 63.22 Depreciation and amortization 105,598 5.38 101,434 6.59 4,164 4.11 Rent 142,295 7.25 37,865 2.46 104,430 275.80 Profession fee 443,076 22.57 613,707 39.90 (170,631 ) (27.80 ) Others 367,780 18.73 230,821
15.01 136,959 59.34
Total G&A Expenses
Income tax benefit. Our Income tax benefit was$760,013 forSeptember 30, 2021 , compared to income tax expense of$1,014,434 for the year endedSeptember 30, 2020 . The decrease was mainly due to net loss before income tax for the year endedSeptember 30, 2021 , compared to net income before income tax for the year ended September
30,
2021.
28
Net loss.
As a result of the effect of the cumulative factors described above, our net
loss was $7,730,449 and $3,048,173 for the year ended September 30, 2021 and
2020, respectively.
Liquidity and Capital Resources
The following table sets forth a summary of our cash flows for the periods
indicated:
Year Ended September 30,
2021 2020Net cash used in operating activities$ (4,749,894 ) $ (3,575,235 ) Net cash used in investing activities (67,461 ) (29,260 ) Net cash provided by financing activities - - Net decrease in cash and cash equivalents (4,817,355 ) (3,604,495 ) Effect of exchange rate changes on cash and cash equivalents 342,871
400,168
Cash and cash equivalents at the beginning of period 7,134,106
10,338,433
Cash and cash equivalents at the end of period$ 2,659,622
$ 7,134,106
As of
Going Concern Uncertainties
The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern.
As of
As ofSeptember 30, 2021 , our cash balance was$2,659,622 and our current liabilities exceed current assets by$5,373,363 which 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 considered whether there is substantial doubt about our ability to continue as a going concern due to its working capital deficit of $$5,373,363 , accumulated deficit of$423,276 and net losses incurred during the fiscal year endedSeptember 30, 2021 and 2020. In evaluating if there is substantial doubt about our ability to continue as a going concern, we 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. We have certain plans to mitigate these adverse conditions and to increase the liquidity of the Company.
On an on-going basis, the Company will also receive financial support commitments from the Company's related parties.
We have several actions to implement as mentioned above. However, if we are unable to obtain the necessary additional capital on a timely basis and on acceptable terms, we will be unable to implement our current plans for expansion, repay debt obligations or respond to competitive market pressures, which will have negative influence upon our business, prospects, financial condition and results of operations.
The negative operating results of cash flow and working capital for the year endedSeptember 30, 2021 raise substantial doubt about our ability to continue as a going concern. Our continued operations are highly dependent upon our ability to increase revenues and if needed complete equity and/or debt financing. We believe if we are unable to obtain our resources to fund operations, 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. 29 Operating Activities Net cash used in operating activities was$4,749,894 for the year endedSeptember 30, 2021 , as compared to$3,575,235 net cash used in operating activities for the year endedSeptember 30, 2020 . The net cash provided by operating activities for the year endedSeptember 30, 2021 was mainly due to our net loss of$9,915,038 , an increase in amortization of prepaid expenses and impairment of other long-term assets of$4,791,804 , and an increase in other receivable of$2,153,952 , partially offset by the decrease in advance from customers of$1,098,628 . The net cash provided by operating activities for the year endedSeptember 30, 2020 was mainly due to our net loss of$3,048,173 , an increase in tax payable of$646,229 , partially offset by the increase in other receivable of$3,014,561 and increase in accruals and other payable of$1,120,565 . Investing Activities Net cash used in investing activities was$67,461 for the year endedSeptember 30, 2021 , as compared to$29,260 for the year endedSeptember 30, 2020 . The net cash used in investing activities for the year endedSeptember 30, 2021 and 2020 was mainly attributable to purchase of property, plant and equipment.
Limited Operating History; Need for
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 [increase/decrease]s 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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