As used herein and except as otherwise noted, the term "Company", "it(s)",
"our", "us", "we", "CX" and "CXKJ" shall mean CX Network Group, Inc., a Nevada
corporation (previously known as "mLight Tech Inc." or "MLGT", a Florida
corporation), its owned subsidiaries KP International, KP Industrial, King Eagle
(China), King Eagle (Tianjin), which is controlled by us via various contracts.
This Form 10-Q contains forward-looking statements. Our actual results could
differ materially from those set forth as a result of general economic
conditions and changes in the assumptions used in making such forward-looking
statements. The following discussion and analysis of our financial condition and
results of operations should be read together with the audited financial
statements and accompanying notes and the other financial information appearing
in the 2020 Annual Report filed with the Securities and Exchange Commission on
January 13, 2021, and in the Amended Form 8-K filed with the SEC on May 19,
2021, and elsewhere in this quarterly report. The analysis set forth below is
provided pursuant to applicable Securities and Exchange Commission regulations
and is not intended to serve as a basis for projections of future events.
Overview of the Business
Due to global health issues and the pandemic, people have increased their health
and nutrition consciousness. We believe preventive care is the most effective
investment in health.
To promote the awareness of preventive care to the people in the PRC, we have
developed and launched our mobile (King Eagle Mall). We also started
establishing physical (Smart Kiosk) platforms with the cooperation with Guoxin
Star Network Co., Ltd.
King Eagle Mall
King Eagle Mall is a mobile social e-commerce platform which was launched in
July 2020 and promotes preventive health care products and services as our core
business. It adopts the S2B2C business model and integrates many major health
care products and services. We focus on health-related products and services.
King Eagle Mall is designed to enable health-related products to be sold by us
and by third parties. King Eagle Mall's products are divided into two sectors:
self-operated products and selected products which promote preventive health
care. Our team screens and examines products that are and will be offered both
by us and affiliated merchants. Our major products include health care products
such as dietary supplements, nutritional health foods, beauty cosmeceuticals,
and other categories (for instance, milk powder, dried fruits) health foods for
supporting the cardiovascular system, and bone joint health. We offer collagen
peptides, probiotics and health foods for improving blood circulation and vein
health, as well as household products which can promote and improve a healthier
lifestyle of our members. We receive customer orders and may arrange fulfillment
with our merchants who are responsible for delivery arrangement or fulfill
customer orders through our outsourced networks.
At the same time, we operate customer service centers with whom our members can
directly communicate for any assistance related to product purchases,
suggestions for health care products and services, and delivery logistics.
Smart Kiosk
We introduced "Smart Kiosk" with the support from the previous stakeholder of
King Eagle (China), Guoxin Ruilian Group Co., Ltd ("Guoxin Ruilian"), which is a
wholly owned subsidiary of CITIC Group Corporation Ltd and a related party of
Guoxin Zhengye. The construction of Smart kiosk was initiated and administered
by Guoxin Ruilian Group Co., Ltd. After the completion of the construction of
Smart Kiosk, Guoxin Ruilian Group Co., Ltd assigned its wholly-owned subsidiary,
Guoxin Star Network Co., Ltd to cooperate with King Eagle (Tianjin) in
development of Smart Kiosk. The Smart Kiosk is a physical platform which focuses
on developing a "small shop economy". It is integrated with the King Eagle Mall
which creates a "social, health and physical store" to provide people with a
more professional and comprehensive preventive health care products and
services. Smart Kiosk is a principal component of our business.
The smart service kiosk functions as a physical customer service center and
community marketing for attracting customers, providing customer services,
promoting our 500+ preventive health care and health related household products
and introducing concepts of maintaining a healthy life. 5G internet connection
is also available for our customers to connect to our online application, King
Eagle Mall, so that our customers can access to King Eagle Mall and place orders
of our products. We planned our first phase of construction of the Smart Kiosk
in Puyang City, Henan Province and Jingmen City, Hubei Province. As of June 30,
2021, we obtained construction permits for 7 smart kiosks in Hunan province and
1 smart kiosk in Puyang City, Henan province was still under construction.
Recent Developments
COVID-19
The ongoing coronavirus pandemic as well as the newer Delta variant has had and
will continue to spread nearly all areas around the world. The spread of
coronavirus impacted the operation of business and caused delays in the
development or construction of business properties due to shutdown in the
affected areas. Since the shutdown of several areas in the PRC, the approval
process of our applications for the construction permits of smart kiosks was
delayed by the local governmental agencies and the construction project of smart
kiosks was also postponed. As of June 30, 2021, we obtained construction permits
for 7 smart kiosks in Hunan province and 1 smart kiosk in Puyang City, Henan
province was under construction. We continue to focus our business through our
online platform, King Eagle Mall, to mitigate the adverse impacts by COVID-19
and follow up closely with the local governmental agencies for the application
for the construction permits of smart kiosks. Although we do not expect that the
virus will have a material adverse effect on our business or financial results
at this time, it is not possible to predict the unanticipated consequence of the
pandemic on our future business performance and liquidity due to the severity of
global situation of COVID-19 and we may take actions as may be required by local
government authorities or that we determine are in the best interests of our
employees, partners and community.
16
Recent Regulatory Developments in China
Under current Chinese laws and regulations, the Company believes that the VIE
Agreements are not subject to any government approval. The shareholders of King
Eagle (Tianjin) were required to register with SAFE when they established
offshore vehicles to hold KP International, and such SAFE registration was
effected on May 14, 2021. These shareholders of King Eagle (Tianjin) will have
to register their equity pledge arrangement as required under the Equity Pledge
Agreement with King Eagle (China). The Company faces uncertainty with respect to
future actions by the PRC government that could significantly affect King Eagle
(Tianjin)'s financial performance and the enforceability of the VIE Agreements.
On July 6, 2021, the PRC government issued the Opinions on Strictly Cracking
Down on Illegal Securities Activities, calling for: (i) tightening oversight of
data security, cross-border data flow and administration of classified
information, as well as amendments to relevant regulation to specify
responsibilities of overseas listed Chinese companies with respect to data
security and information security; (ii) enhanced oversight of overseas listed
companies as well as overseas equity fundraising and listing by Chinese
companies; and (iii) extraterritorial application of China's securities laws. As
the Opinions on Strictly Cracking Down on Illegal Securities Activities were
recently issued, there are great uncertainties with respect to the
interpretation and implementation thereof. We will closely monitor further
developments.
In addition, on July 10, 2021, the Cyberspace Administration of China issued the
Measures for Cybersecurity Review (Revision Draft for Comments), or the
Measures, for public comments, which propose to authorize the relevant
government authorities to conduct cybersecurity review on a range of activities
that affect or may affect national security, including listings in foreign
countries by companies that possess the personal data of more than one million
users. The Measures are soliciting comments and subject to change. As we have
less than one million users, we believe that the Measures are not applicable to
us even after they take effect in current form. The PRC government is
increasingly focused on data security, recently launching cybersecurity review
against a number of mobile apps operated by several US-listed Chinese companies
and prohibiting these apps from registering new users during the review period.
There are great uncertainties regarding the interpretation and enforcement of
PRC laws, rules and regulations regarding data and privacy security. We may be
required to change our data and other business practices and be subject to
regulatory investigations, penalties, increased cost of operations, or declines
in issuer growth or engagement as a result of these laws and policies. Further,
our consulting business with respect to overseas listing and capital raising may
be adversely affected.
Financial Operations Overview
Results of Operations for the three months ended June 30, 2021 and 2020
Revenues
For the three months ended June 30, 2021 and 2020, revenues amounted to $452,027
and nil, respectively. Our revenue primarily included the sale of health care
and health related household products to our customers via our mobile
application, King Eagle Mall, which was launched in July 2020. We recognized our
revenue on a gross basis, net of sub-charges and value-added tax ("VAT") of
gross sales.
Cost of Revenues
For the three months ended June 30, 2021 and 2020, cost of revenues amounted to
$205,595 and nil, respectively. This primarily included the purchase of health
care and health related household products from our suppliers.
Gross Profit
For the three months ended June 30, 2021 and 2020, gross profit amounted to
$246,432 and nil, respectively. Gross profit for the three months ended at June
30, 2021 increased compared to that for the same period in 2020 since there was
no operation in comparable period in the prior year.
General and Administrative Expenses
For the three months ended June 30, 2021 and 2020, general and administrative
expenses amounted to $1,154,502 and $34,635 respectively. The increase in the
general and administrative expenses by $1,119,867 was primarily driven by higher
professional service fee which included audit and legal fees for reverse
acquisition, higher headcount and office lease and employee accommodation for
our subsidiary in Beijing and its VIE during the three months ended June 30,
2021. General and administrative expenses for the three months ended June 30,
2021 and 2020 consisted of the following:
Three months ended
June 30,
2021 2020
Employee compensation and benefit $ 143,765 $ 22,744
Office rent and building management 115,635
-
Office supplies and meeting 10,646 4,699
Professional services fee 735,455 7,124
Travel, transportation and gasoline 11,656 45
Meals and entertainment 9,935 -
Depreciation and amortization 2,926 -
Others 124,484 23
Total $ 1,154,502 $ 34,635
17
Selling Expense
For the three months ended June 30, 2021 and 2020, selling expense amounted to
$719,561 and $7,311, respectively. Our selling expense for the three months
ended June 30, 2021 increased by $712,250 compared to that for the same period
in 2020 as we launched the online platform in July 2020 which resulted in higher
headcount for our sales and marketing department, office supplies and meeting
and service fees paid to our agents. Our selling expense, which was primarily
incurred by our sales and marketing department, for the three months ended June
30, 2021 and 2020 included the following:
Three months ended
June 30,
2021 2020
Service agents $ 405,098 $ -
Employee compensation and benefit 139,399 6,970
Office supplies and meeting 102,047 -
Travel, transportation and gasoline 13,430 -
Meals and entertainment 10,020 341
Depreciation and amortization 1,475 -
Advertising 3,681
Others 44,411 -
Total $ 719,561 $ 7,311
Other Income
For the three months ended June 30, 2021, total other income was $444 as
compared to $10 for the three months ended June 30, 2020. Other income was
mainly related to interest income from our bank deposits.
Net loss
As a result of the factors discussed above, for the three months ended June 30,
2021 and 2020, net loss amounted to $1,627,187 and $41,936, respectively.
Net loss attributable to noncontrolling interest
For the three months ended June 30, 2021 and 2020, net loss attributable to
noncontrolling interest was $114,635 and nil, respectively.
Foreign Currency Translation Adjustment
The reporting currency of the Company is the U.S. Dollar. The functional
currency of King Eagle (China) and King Eagle (Tianjin) operating in the PRC is
the Chinese Yuan or Renminbi ("RMB"). The financial statements of entities in
PRC are translated to U.S. dollars using period end rates of exchange for assets
and liabilities, historical rates of exchange for equity, and average rates of
exchange during the period for results of operations. Net gains and losses
resulting from foreign exchange transactions are included in the consolidated
statements of operations and comprehensive loss.
As a result of these translations, which are a non-cash adjustment, we reported
a foreign currency translation loss of $24,731 for the three months ended June
30, 2021, as compared to a foreign currency translation gain of $167 for the
three months ended June 30, 2020. This non-cash loss had an effect of increasing
our reported comprehensive loss for the three months ended June 30, 2021 while
reducing our reported comprehensive loss for the three months ended June 30,
2020.
Comprehensive Loss
For the three months ended June 30, 2021, comprehensive loss of $1,651,918 was
derived from our net loss of $1,627,187 and foreign currency translation loss of
$24,731. For the three months ended June 30, 2020, comprehensive loss was
$41,769 which included net loss of $41,936, offset by foreign currency
translation gain of $167.
Comprehensive loss attributable to noncontrolling interest
For the three months ended June 30, 2021, comprehensive loss attributable to
noncontrolling interest of $116,546 was derived from the net loss attributable
to noncontrolling interest of $114,635 and foreign currency translation loss
attributable to noncontrolling interest, $1,911. For the three months ended June
30, 2020, comprehensive loss attributable to noncontrolling interest was nil.
18
Results of operations for the nine months ended June 30, 2021 and 2020
Revenues
For the nine months ended June 30, 2021, we had total revenues of $2,625,621, as
compared to nil for nine months ended June 30, 2020. Our revenue primarily
included the sale of health care and health related household products to our
customers via our mobile application, King Eagle Mall, which was launched in
July 2020. We recognized our revenue on a gross basis, net of sub-charges and
value-added tax ("VAT") of gross sales.
Cost of Revenues
For the nine months ended June 30, 2021 and 2020, cost of revenues amounted to
$521,478 and nil, respectively. This primarily included the purchase of health
care and health related household products from our suppliers.
Gross Profit
For the nine months ended June 30, 2021 and 2020, gross profit amounted to
$2,104,143 and $nil, respectively. Gross profit for the nine months ended at
June 30, 2021 increased compared to that for the same period in 2020 since there
was no operation in comparable period in prior year.
General and Administrative Expenses
For the nine months ended June 30, 2021 and 2010, general and administrative
expenses amounted to $2,055,591 and $34,635, respectively. A significant surge
in general and administrative expenses by $2,020,956 for the nine months ended
June 30, 2021 compared to the same period in 2020 was primarily driven by higher
professional service fee which included audit and legal fees for reverse
acquisition, higher headcount and office lease and employee accommodation for
our subsidiary in Beijing and its VIE. General and administrative expenses for
the nine months ended June 30, 2021 and 2020 consisted of the following:
Nine months ended
June 30,
2021 2020
Employee compensation and benefit $ 513,340 $ 22,744
Office rent and building management 318,073
-
Office supplies and meeting 57,858 4,699
Professional services fee 928,547 7,124
Travel, transportation and gasoline 42,880 45
Meals and entertainment 26,569 -
Depreciation and amortization 8,562 -
Others 159,762 23
Total $ 2,055,591 $ 34,635
Selling Expense
For the nine months ended June 30, 2021 and 2020, selling expense amounted to
$2,321,682 and $7,311, respectively. Our selling expense for the nine months
ended June 30, 2021 increased by $2,314,371 compared to that for the same period
in 2020 as we launched the online platform in July 2020 which resulted in higher
headcount for our sales and marketing department, office supplies and meeting
and service fees paid to our agents. Our selling expense, which was primarily
incurred by our sales and marketing department, for the nine months ended June
30, 2021 and 2020 included the following:
Nine months ended
June 30,
2021 2020
Service agents $ 1,714,337 $ -
Employee compensation and benefit 347,706 6,970
Office supplies and meeting 151,561 -
Travel, transportation and gasoline 20,916 -
Meals and entertainment 14,111 341
Depreciation and amortization 3,433 -
Advertising 6,261 -
Others 63,357 -
Total $ 2,321,682 $ 7,311
Other Income
For the nine months ended June 30, 2021, total other income was $865 as compared
to total other income of $10 for the nine months ended June 30, 2020. Other
income included bank interest income, $592 and other income, $273.
19
Net loss
As a result of the factors discussed above, for the nine months ended June 30,
2021 and 2020, net loss amounted to $2,272,265 and $41,936, respectively.
Net loss attributable to noncontrolling interest
For the nine months ended June 30, 2021 and 2020, net loss attributable to
noncontrolling interest amounted to $211,397 and nil, respectively.
Foreign Currency Translation Adjustment
The functional currency of our VIE entity operating in the PRC is the Chinese
Yuan or RMB. The financial statements of our VIE are translated to U.S. dollars
using period end rates of exchange for assets and liabilities, and average rates
of exchange (for the period) for revenues, costs, and expenses. Net gains and
losses resulting from foreign exchange transactions are included in the
consolidated statements of operations.
As a result of these translations, which are a non-cash adjustment, we reported
a foreign currency translation loss of $32,716 for the nine months ended June
30, 2021 as compared to a foreign currency translation gain $167 for the nine
months ended June 30, 2020. This non-cash loss had the effect of increasing our
reported comprehensive loss for the nine months ended June 30, 2021 while
reducing our reported comprehensive loss for the same period in 2020.
Comprehensive Loss
For the nine months ended June 30, 2021, comprehensive loss of $2,304,981 was
derived from the sum of our net loss of $2,272,265 and foreign currency
translation loss of $32,716. For the nine months ended June 30, 2020,
comprehensive loss was $41,769 which included net loss of $41,936, offset by
foreign currency translation gain of $167.
Comprehensive loss attributable to controlling interest
For the nine months ended June 30, 2021, comprehensive loss attributable to
noncontrolling interest of $214,505 was derived from the net loss attributable
to noncontrolling interest of $211,397 and foreign currency translation loss
attributable to noncontrolling interest of $3,108. For the nine months ended
June 30, 2020, comprehensive loss attributable to noncontrolling interest was
nil.
Liquidity and Capital Resources
In assessing the Company's liquidity, the Company monitors and analyzes its cash
and cash equivalents and its operating and capital expenditure commitments. The
Company's liquidity needs are to meet its working capital requirements,
operating expenses and capital expenditure obligations. As of June 30, 2021, the
Company's working capital deficit was approximately $2,859,345 as compared to
working capital deficit of approximately $617,071 as of September 30, 2020. As
of June 30, 2021 and September 30, 2020, the Company's accumulated deficit was
approximately $2,269,639 and $208,771, respectively, and the Company has
incurred losses since inception. None of the Company's stockholders, officers or
directors, or third parties, are under any obligation to advance the Company
funds, or to invest in it. Accordingly, the Company may not be able to obtain
additional financing. If the Company is unable to raise additional capital, the
Company may be required to take additional measures to conserve liquidity, which
could include, but not necessarily be limited to, curtailing operations,
suspending the pursuit of its business plan, and reducing overhead expenses. The
Company cannot provide any assurance that new financing will be available to us
on commercially acceptable terms, if at all.
Cash flows from the Company's operations are calculated based upon the local
currencies using the average translation rate. As a result, amounts related to
assets and liabilities reported on the statement of cash flows will not
necessarily agree with changes in the corresponding balances on the balance
sheets.
The following summarizes the key components of the Company's cash flows for the
nine months ended June 30, 2021 and 2020:
Nine months ended
June 30,
2021 2020
Net cash provided by operating activities $ 55,079 $ 46,921
Net cash used in investing activities
(10,108 ) (2,095 )
Effect of exchange rate change on cash 8,367 (182 )
Total net change in cash and cash equivalents $ 53,338 $ 44,644
20
Net cash provided by operating activities totaled $55,079 for the nine months
ended June 30, 2021. The increase in net cash provided by operating activities
for the nine months ended June 30, 2021 was attributable to an increase in trade
and other payable, $1,341,656 and advance from customers, $1,551,753 as well as
receipt of deposit refund, $76,364, offset by net loss of $2,272,265, repayment
to our related party, $232,296, prepayment to our vendors and counter party for
construction and development of smart kiosks, $368,285, and a decrease in other
receivables, $48,643.
Net cash provided by operating activities totaled $46,921 for the nine months
ended June 30, 2020. The increase in net cash provided by operating activities
for the nine months ended June 30, 2020 was attributable to an increase in
payroll payable, $28,038, payment made to vendors on behalf of the Company by
our related party, $135,005, tax payable, $1,098, offset by the net loss,
$41,936, prepaid expenses, $68,421 and deposit payment to vendors, $6,863.
Net cash used in investing activities amounted to $10,108 for the nine months
ended June 30, 2021. The decrease in net cash provided by investing activities
was triggered by the purchase of equipment, $7,437 and acquisition of
trademarks, $2,671.
Net cash used in investing activities amounted to $2,095 for the nine months
ended June 30, 2020 which was related to the purchase of computer equipment.
There was no financing activity for the nine months ended June 30, 2021 and
2020.
Going Concern
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America which
contemplate continuation of the Company as a going concern basis. The
going-concern basis assumes that assets are realized, and liabilities are
extinguished in the ordinary course of business at amounts disclosed on the
financial statements. The Company's ability to continue as a going concern
depends on the liquidation of its current assets and business developments. In
assessing the Company's liquidity, the Company monitors and analyzes its cash
and cash equivalents and its operating and capital expenditure commitments. The
Company's liquidity needs are to meet its working capital requirements,
operating expenses and capital expenditure obligations. As of June 30, 2021, the
Company's accumulated deficit was approximately $2,269,639 and the Company has
incurred losses since inception. The Company had negative working capital of
$2,859,345 as of June 30, 2021. None of the Company's stockholders, officers or
directors, or third parties, are under any obligation to advance us funds, or to
invest in the Company. Accordingly, the Company may not be able to obtain
additional financing. If the Company is unable to raise additional capital, the
Company may be required to take additional measures to conserve liquidity, which
could include, but not necessarily be limited to, curtailing operations,
suspending the pursuit of our business plan, and reducing overhead expenses.
Management is optimistic about the Company's ability to increase revenues to
meet its future cash flow requirements. However, the Company cannot provide any
assurance that it will be able to increase revenue, that it will be able to
successfully implement its business plan, or that financing that will be
available to it on commercially acceptable terms, if at all.
These conditions raise substantial doubt about our ability to continue as a
going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classifications of liabilities that may result should
the Company be unable to continue as a going concern.
Off-Balance Sheet Arrangements
As of June 30, 2021 and September 30, 2020, there are no off-balance sheet
arrangements between us and any other entity 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 are material to our investors.
Recent Accounting Pronouncements
See Note 2 of our Financial Statements included in this quarterly report for
discussion of recent accounting pronouncements.
21© Edgar Online, source Glimpses
KUN PENG INTERNATIONAL LTD. 
