Kun Peng International Ltd. - Quarter Report: 2022 March (Form 10-Q)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Mark One

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to _______

Commission File No. 333-169805

KUN PENG INTERNATIONAL LTD.

(Exact name of registrant as specified in its charter)

CX NETWORK GROUP, INC.

(Formerly Known As)

Nevada		EIN 32-0538640
(State or Other Jurisdiction of		(IRS Employer
Incorporation or Organization)		Identification Number)

1F, Building 3, No. 1001, Huihe South Street

Banbidian Village

Gaobeidian Town, Chaoyang District

Beijing, PRC 100025

(Address of principal executive offices)

+86 -1087227012

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer ☐	Accelerated filer ☐
	Non-accelerated filer ☒	Smaller reporting company ☒
		Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes ☐ No ☒

As of May 16, 2022, the registrant had 40,000,000 shares of common stock issued and outstanding.

FORM 10-Q

KUN PENG INTERNATIONAL LTD.

INDEX

		Page
PART I.	Financial Information	3

	Item 1. Condensed Consolidated Financial Statements (Unaudited)	3

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.	24

	Item 3. Quantitative and Qualitative Disclosures About Market Risk.	35

	Item 4. Controls and Procedures.	35

PART II.	Other Information	37

	Item 6. Exhibits.	37

	Signatures	38

PART I

Item 1. Financial statements.

KUN PENG INTERNATIONAL LTD

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In U.S. Dollars, except share data or otherwise stated)

	Note		March 31, 2022			September 30, 2021
						(Audited)
Assets
Current assets
Cash and cash equivalents			$	1,160,123		$	2,059,685
Advance and prepayments		4		630,108			687,648
Other receivables		5		152,343			123,824
Total current assets				1,942,574			2,871,157

Noncurrent assets
Property, plant and equipment, net		6		41,599			68,725
Intangible assets, net		7		2,473			2,568
Security deposits				44,682			-
Right-of-use assets		12		684,162			282,466
Total noncurrent assets				772,916			353,759

Total assets			$	2,715,490		$	3,224,916

Liabilities
Current liabilities
Trade and other payables				820,988			1,430,576
Deferred revenue		8		2,800,070			3,122,705
Payroll payable				88,532			105,923
Tax payable				148,566			261,771
Amounts due to related parties		9		615,035			39,629
Operating lease obligations-current portion		12		234,611			229,337
Total current liabilities				4,707,802			5,189,941

Noncurrent liabilities
Operating lease obligations-net of current portion		12		336,743			53,129
Total noncurrent liabilities				336,743			53,129

Total liabilities				5,044,545			5,243,070

Commitment and contingencies				-			-

Equity
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued and outstanding as of March 31, 2022 and September 30, 2021		1		-			-
Common stock, $0.0001 par value, 200,000,000 shares authorized; 40,000,000 shares issued and outstanding as of March 31, 2022 and September 30, 2021		10		4,000			4,000
Additional paid-in capital		10		(4,000	)		(4,000	)
Accumulated deficits				(2,083,925	)		(1,821,105	)
Accumulated other comprehensive loss				(63,758	)		(32,016	)
Total stockholders’ equity				(2,147,683	)		(1,853,121	)
Non-controlling interests				(181,372	)		(165,033	)
Total equity				(2,329,055	)		(2,018,154	)

Total liabilities and equity			$	2,715,490		$	3,224,916

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

KUN PENG INTERNATIONAL LTD

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(UNAUDITED)

(In U.S. Dollars, except share data or otherwise stated)

	Note		2022			2021			2022			2021
			For the three months ended March 31,						For the six months ended March 31,
	Note		2022			2021			2022			2021

Revenue, net			$	2,018,764		$	1,627,633		$	6,688,172		$	2,173,594
Cost of revenue				(337,465	)		(222,033	)		(1,046,674	)		(315,883	)
Gross profit				1,681,299			1,405,600			5,641,498			1,857,711

Operating expenses
General and administrative expenses				436,295			466,671			818,196			901,089
Selling expense				1,868,233			1,213,657			5,133,686			1,602,121
Total operating expenses				2,304,528			1,680,328			5,951,882			2,503,210

Loss from operations				(623,229	)		(274,728	)		(310,384	)		(645,499	)

Other (expenses) income:
Interest income				155			153			1,715			206
Other income				8,397			215			31,850			215
Total other income, net				8,552			368			33,565			421

Loss before income taxes				(614,677	)		(274,360	)		(276,819	)		(645,078	)

Income tax expense		11		-			-			-			-

Net loss				(614,677	)		(274,360	)		(276,819	)		(645,078	)
Less: Net loss attributable to non-controlling interest				(45,041	)		(41,154	)		(13,999	)		(96,762	)
Net loss attributable to Kun Peng International Ltd				(569,636	)		(233,206	)		(262,820	)		(548,316	)
Foreign currency translation adjustment				(47,086	)		6,154			(34,082	)		(7,985	)
Comprehensive loss				(661,763	)		(268,206	)		(310,901	)		(653,063	)
Less: Comprehensive loss attributable to non-controlling interest				(48,463	)		(40,230	)		(16,339	)		(97,959	)
Comprehensive loss attributable to Kun Peng International Ltd			$	(613,300	)	$	(227,976	)		(294,562	)		(555,104	)

Net loss per share attributable to common stockholders
Basic and diluted			$	(0.014	)	$	(0.011	)		(0.007	)		(0.026	)

Weighted average shares used to compute net loss per share attributable to common stockholders				40,000,000			21,376,918			40,000,000			21,376,918

The accompanying notes are an integral part of these unaudited consolidated financial statements

KUN PENG INTERNATIONAL LTD

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the Six Months Ended March 31, 2022

(UNAUDITED)

	Shares		Amount		capital			Deficits			loss			equity			Interest			Equity
	Common stock				Additional paid-in			Accumulated			Accumulated other comprehensive			Total stockholders’			Non- Controlling			Total
	Shares		Amount		capital			Deficits			loss			equity			Interest			Equity
Balance, September 30, 2020		21,376,918	$	2,138	$	(2,134	)	$	(208,771	)	$	(6,888	)	$	(215,655	)	$	-		$	(215,655	)
Net loss attributable to common stockholders		-		-		-			(548,316	)		-			(548,316	)		-			(548,316	)
Net loss attributable to noncontrolling interest		-		-		-			-			-			-			(96,762	)		(96,762	)
Foreign currency translation adjustment		-		-		-			-			(6,788	)		(6,788	)		(1,197	)		(7,985	)
Balance, March 31, 2021		21,376,918	$	2,138	$	(2,134	)	$	(757,087	)	$	(13,676	)	$	(770,759	)	$	(97,959	)	$	(868,718	)

	Common stock				Additional paid-in			Accumulated			Accumulated other comprehensive			Total stockholders’			Non- Controlling			Total
	Shares		Amount		capital			Deficits			loss			equity			Interest			Equity
Balance, December 31, 2020		21,376,918	$	2,138	$	(2,134	)	$	(523,881	)	$	(18,906	)	$	(542,783	)	$	(57,729	)	$	(600,512	)
Net loss attributable to common stockholders		-		-		-			(233,206	)		-			(233,206	)		-			(233,206	)
Net loss attributable to noncontrolling interest		-		-		-			-			-			-			(41,154	)		(41,154	)
Foreign currency translation adjustment		-		-		-			-			5,230			5,230			924			6,154
Balance, March 31, 2021		21,376,918	$	2,138	$	(2,134	)	$	(757,087	)	$	(13,676	)	$	(770,759	)	$	(97,959	)	$	(868,718	)

	Common stock				Additional paid-in			Accumulated			Accumulated other comprehensive			Total stockholders’			Non- Controlling			Total
	Shares		Amount		capital			Deficits			loss			equity			Interest			Equity
Balance, September 30, 2021		40,000,000	$	4,000	$	(4,000	)	$	(1,821,105	)	$	(32,016	)	$	(1,853,121	)	$	(165,033	)	$	(2,018,154	)
Net loss attributable to common stockholders		-		-		-			(262,820	)		-			(262,820	)		-			(262,820	)
Net loss attributable to noncontrolling interest		-		-		-			-			-			-			(13,999	)		(13,999	)
Foreign currency translation adjustment		-		-		-			-			(31,742	)		(31,742	)		(2,340	)		(34,082	)
Balance, March 31, 2022		40,000,000	$	4,000	$	(4,000	)	$	(2,083,925	)	$	(63,758	)	$	(2,147,683	)	$	(181,372	)	$	(2,329,055	)

	Common stock				Additional paid-in			Accumulated			Accumulated other comprehensive			Total stockholders’			Non- Controlling			Total
	Shares		Amount		capital			Deficits			loss			equity			Interest			Equity
Balance, December 31, 2021		40,000,000	$	4,000	$	(4,000	)	$	(1,514,289	)	$	(20,094	)	$	(1,534,383	)	$	(132,909	)	$	(1,667,292	)
Net loss attributable to common stockholders		-		-		-			(569,636	)		-			(569,636	)		-			(569,636	)
Net loss attributable to noncontrolling interest		-		-		-			-			-			-			(45,041	)		(45,041	)
Foreign currency translation adjustment		-		-		-			-			(43,664	)		(43,664	)		(3,422	)		(47,086	)
Balance, March 31, 2022		40,000,000	$	4,000	$	(4,000	)	$	(2,083,925	)	$	(63,758	)	$	(2,147,683	)	$	(181,372	)	$	(2,329,055	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

KUN PENG INTERNATIONAL LTD

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In U.S. Dollars, except share data or otherwise stated)

	2022			2021

	For the six months ended March 31,
	2022			2021

Cash flows from operating activities
Net loss	$	(276,819	)	$	(645,078	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation and amortization		35,757			11,711
Amortization of right-of-use assets		177,685			147,649

Changes in operating assets and liabilities
Advance and prepayments		68,649			(105,342	)
Other receivables		(26,331	)		14,345
Security deposits		(44,467	)
Trade and other payables		(629,413	)		1,348,657
Deferred revenue		(372,786	)		(206,831	)
Payroll payable		(19,061	)		(11,870	)
Amounts due to related parties		571,983			(70,158	)
Tax payable		(116,995	)		54,186
Lease liabilities		(289,950	)		(147,649	)
Net cash (used in) provided by operating activities		(921,748	)		389,620

Cash flows from investing activities
Purchase of property and equipment		(7,487	)		(15,844	)
Net cash used in investing activities		(7,487	)		(15,844	)

Effect of exchange rate changes on cash		29,673			5,217

Net (decrease) increase in cash and cash equivalents		(899,562	)		378,993

Cash and cash equivalents, beginning balance		2,059,685			141,166

Cash and cash equivalents, ending balance	$	1,160,123		$	520,159

Supplementary cash flows information:
Cash paid for interest	$	-		$	-
Cash paid for income tax	$	-		$	-

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

KUN PENG INTERNATIONAL LTD

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

NOTE 1. DESCRIPTION OF THE BUSINESS AND ORGANIZATION

Kun Peng International Limited (“the Company,” “KPIL,” “CXKJ,” “we,” “us,” “our”), a Nevada corporation (formerly known as CX Network Group, Inc.), through its subsidiaries and VIE, currently engages in the sale of health care and health related household products through its online platform, King Eagle Mall.

Reverse Merger

On May 17, 2021, the Company entered into a share exchange agreement (“Share Exchange Agreement”) with (i) Kun Peng International Holding Limited (“KP International”), a limited liability company incorporated in British Virgin Islands on April 20, 2021, and (ii) the five members of KP International to acquire all the issued and outstanding capital stock of KP International in exchange for the issuance to those members of an aggregate of 34,158,391 shares of our common stock (“Reverse Acquisition”). Pursuant to the terms of the Exchange Agreement, and as a condition to the completion of the transactions contemplated by the Share Exchange Agreement, the Company also agreed to enter into an agreement with Wenhai Xia (“the Stockholder”), to cancel an aggregate of 15,535,309 shares of the Company’s Common Stock owned by the Stockholder. The Reverse Acquisition was closed on May 17, 2021.

For accounting purpose, the transaction with KP International was treated as a reverse acquisition and KP International is deemed to be the acquirer and the Company as the acquired party. Consequently, the assets and liabilities and the historical operations that will be reflected in the accompanying consolidated financial statements prior to the Reverse Acquisition will be those of KP International and its consolidated subsidiaries and will be recorded at the historical cost basis of KP International, and the accompanying consolidated financial statements after consummation of the reverse acquisition will include the assets and liabilities of KP International and its subsidiaries and VIE, historical operations of KP International and its subsidiaries and VIE, and operations of the Company from the Closing Date of the Reverse Acquisition. The accompanying consolidated financial statements share and per share information has been retroactively adjusted to reflect the exchanged shares in the Acquisition. The equity structure of the Company was retrospectively adjusted under ASC Topic 805-40. As of December 31, 2021, there were 40,000,000 shares issued and outstanding.

Authorized Shares and Name Change

Effective as of September 9, 2021, the Company’s Articles of Incorporation were amended to change the name of the Company from CX Network Group, Inc. to Kun Peng International Ltd. (“KPIL”) and to increase the Company’s authorized capital to 210,000,000 authorized shares of Capital Stock with 200,000,000 designated as $0.0001 par value Common Stock, and 10,000,000 designated as $0.0001 par value Preferred Stock.

Kun Peng International Holding Limited

Kun Peng International Holding Limited (“KP International”) was incorporated in the British Virgin Islands on April 20, 2021. KP International is a holding company and entered into a Bought and Sold Note with Kunpeng (China) Industrial Development Company Limited (“KP Industrial”), incorporated in Hong Kong on August 11, 2017, at a cash consideration of $0.129 (HK$1) on May 3, 2021. After the ownership transfer, it became a sole shareholder of KP Industrial.

Kunpeng (China) Industrial Development Company Limited

Kunpeng (China) Industrial Development Company Limited (“KP Industrial”) was incorporated as a limited liability company in Hong Kong under the name of Jing Jin Ji Investment Group Co., Limited (“Jing Jin Ji”) on August 11, 2017. The share capital of KP Industrial is 10,000 ordinary shares at $1,292 (HKD10,000) and was wholly owned by an individual. On November 9, 2018, Jing Jin Ji changed its name to “Kunpeng (China) Industrial Development Company Limited” and filed a Certificate of Change of Name with the Hong Kong Company Registry on the same day. Although it was incorporated in 2017, it did not commence operations until July 2020 as it focused on exploring business opportunities in its initial phrase and developing our online mobile application, King Eagle Mall, through its subsidiary, King Eagle (China) Co., Ltd. It became a wholly owned subsidiary of KP International on May 3, 2021.

Kun Peng (Hong Kong) Industrial Development Limited

Kun Peng (Hong Kong) Industrial Development Limited (“KP (Hong Kong)”) was incorporated as a limited liability company in Hong Kong on June 21, 2021. It is a holding company and is wholly owned by Kun Peng International Holding Limited. The share capital of this entity upon formation is $0.13 (HK$1).

King Eagle (China) Co., Ltd.

King Eagle (China) Co., Ltd. (“King Eagle (China)”) was incorporated as a limited liability company in Beijing Economic Technological Development Zone in the People’s Republic of China (“the PRC”) on March 20, 2019 with a registered capital of approximately $15 million (RMB100 million). King Eagle (China) was a wholly owned subsidiary of KP Industrial at the time of establishment. KP Industrial transferred its approximately $2.2 million (RMB 15 million) or 15% to Guoxin Ruilian Group Co., Ltd., a limited liability company incorporated in Beijing, the PRC, on November 2, 2020.

On March 26, 2021, Guoxin Ruilian Group Co., Ltd entered into equity transfer agreements with KP Industrial and Guoxin Zhengye. Both Guoxin Ruilian Group Co., Ltd and Guoxin Zhengye are wholly owned by a common shareholder, Guoxin United Holdings Group Co., Ltd. Under the agreements, Guoxin Ruilian Group Co., Ltd agreed to transfer its 8% of its ownership in King Eagle (China) to Guoxin Zhengye and the remaining 7% ownership in King Eagle (China) to KP Industrial on April 20, 2021. After the transfer, KP Industrial and Guoxin Zhengye became the 92% and 8% shareholders of King Eagle (China), respectively.

Some of the business engaged in by King Eagle (Tianjin) is restricted or prohibited for foreign investment under PRC regulations. As such, King Eagle (China) has entered into the VIE Agreements with King Eagle (Tianjin) and their shareholders. We do not own any equity interests in King Eagle (Tianjin), but control and receive the economic benefits of their respective business operations through the VIE Agreements. The VIE Agreements enable us to provide King Eagle (Tianjin) with consulting services on an exclusive basis, in exchange for all of its annual profits, if any. In addition, we are able to appoint its senior executives and approve all matters requiring approval of its shareholders. The VIE Agreements are comprised of a Consulting Service Agreement, Business Operation Agreement, Proxy Agreement, Equity Disposal Agreement, and Equity Pledge Agreement.

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.

King Eagle (Tianjin) Technology Co., Ltd.

King Eagle (Tianjin) Technology Co., Ltd. (“King Eagle (Tianjin)”) was incorporated as a limited liability company in Tianjin Pilot Free Trade Zone in the People’s Republic of China on September 2, 2020, with a registered capital of approximately $1.5 million (RMB 10 million). It is owned by multiple individuals: (i) Chengyuan Li, 40.5%, (ii) Xiujin Wang, 10.5%, (iii) Jinjing Zhang, 6%,(iv) Wanfeng Hu, 6%, (v) Cuilian Liu, 6%. (vi) Zhizhong Wang. 6%. (vii) Zhandong Fan, 5%, (viii) Yanlu Li, 5%, (ix) Yuanyuan Zhang, 10%, and (x) Hui Teng, 5%). Those shareholders also indirectly own KP International through three British Virgin Islands entities: Kunpeng Tech Limited, Kunpeng TJ Limited, and Kun Peng XJ Limited. Additionally, out of these stakeholders, three of them are currently directors and executives of KP International, which includes: Chengyuan Li, Director, Yuanyuan Zhang, Chief Financial Officer, and Yanlu Li, Vice President, and a former executive Xiangyi Mao.

On March 23, 2022, the board of directors of King Eagle (Tianjin) approved that Xiangyi Mao transferred her entire ownership (5%) in King Eagle (Tianjin) to Yuanyuan Zhang. After the transfer, Yuanyuan Zhang became a 10% shareholder of King Eagle (Tianjin). The ownership percentage of other King Eagle (Tianjin)’s shareholders remained identical. The ownership transfer was completed on March 29, 2022.

Kun Peng Tian Yu Health Technology (Tianjin) Co., Ltd.

Kun Peng Tian Yu Health Technology Co., Ltd. (“KP Tian Yu”) was incorporated as a limited liability company in Tianjin Pilot Free Trade Zone in the People’s Republic of China on August 10, 2021 with a registered capital of $5 million, and is wholly owned by KP (Hong Kong).

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) applicable to quarterly financial information and the requirements of Form 10-Q and Rule 8-03 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosure required by accounting principles generally accepted in the United States of America for complete financial statements. Quarterly results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the quarterly periods have been included.

These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended September 30, 2021 included in the Form 10-K/A filed with the SEC on February 8, 2022.

The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America. This basis of accounting involves the application of accrual accounting and consequently, revenues and gains are recognized when earned, and expenses and losses are recognized when incurred. The condensed consolidated financial statements are expressed in U.S. dollars.

Basis of Consolidation

The condensed consolidated financial statements include the financial statements of the Company, its subsidiaries and variable interest entity (“VIE”). All significant intercompany transactions and balances within the Company have been eliminated upon consolidation.

Use of Estimates and Assumptions

The preparation of the condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimate and assumptions that impact the presented amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the presented amounts of revenues and expenses during the period. Actual results may differ from those estimates. Significant estimates during the six months ended March 31, 2022 and 2021 include the collectability of receivables, the useful lives of long-lived assets and intangibles, assumptions used in assessing impairment of long-lived assets, valuation of accruals for expenses and tax due.

Going Concern

The accompanying interim condensed consolidated 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 assures 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. For the six months ended March 31, 2022, the Company incurred cash outflows from operating activities of $921,748, a net loss of $276,819, and a negative working capital of $2,765,228. Moreover, as the COVID-19 outbreak continues, there is a delay in the progress of construction and approval for the construction permit of smart kiosk. While some areas in the PRC have opened up recently, majority of the areas in the PRC are still under the tighten control and lockdown and the government agencies in those affected areas in the PRC still remain closed. These conditions raise substantial doubt about the ability of the Company to continue as a going concern.

The Company continues to monitor its operations to help refine the Company’s financial liquidity. Options under consideration in the review process include, but not limited to, increase of sales on its online business, reduction of overhead costs, fund advance from the Company’s stockholders and directors, or financing through issuance of shares. The Company continues to focus on increasing its revenue through its online platform and slimming its administrative costs. For example, we reduced the compensation and benefits of our executives, decreased office supplies expense and trimmed executive travel expenses. Additionally, our director will provide financing to meet our working capital requirements.

In order to continue as a going concern for the next 12 months, the Company continues to focus on increasing its revenue through the sale of health care products on its online platform, King Eagle Mall, streamlining its overhead costs or obtaining a financing from its stockholders or directors. However, the Company cannot provide any assurance that it will be able to increase revenue, that it will be able to successfully implement its business plan, or that financing that will be available to it on commercially acceptable terms, if at all. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern. The directors will continue to support the group by providing adequate financial assistance to enable the group to continue its business operations for the foreseeable future.

COVID-19 Outbreak

Since the second quarter of 2022, the situation of COVID-19 in the PRC intensified, the PRC central and local government continued to maintain restrictions, quarantines, and closures in certain affected areas. The approval process of our applications for the construction permits of smart kiosks was delayed by the local governmental agencies and the construction project of smart kiosks was also postponed. The Company continues to focus its business through its online platform, King Eagle Mall, to mitigate the adverse impacts by COVID-19 and follows up closely with the local governmental agencies for the application for the construction permits of smart kiosks. In fact, the pandemic increased the overall public health consciousness in the PRC and the Company continued to incur a significant growth in its average monthly online sale revenue by $0.8 million or 207.7% from $0.4 million for the six months ended March 31, 2021 to $1.1 million for the six months ended March 31, 2022, and by $0.1 million or 24.0% from $0.5 million for the three months ended March 31, 2021 to $0.6 million for the three months ended March 31, 2022.

The Company does not expect that the coronavirus COVID-19 will have a material adverse effect on its online business or financial results at this time. Still, it is not possible to predict the unanticipated consequence of the pandemic on our future business performance and liquidity due to the severity of the situation of COVID-19 in the PRC. The Company continues to monitor and assess the evolving situation closely and evaluate its potential exposure.

Earnings (loss) Per Share

Basic income (loss) per share is computed by dividing net income (loss) attributable to the holders of ordinary shares by the weighted average number of ordinary shares outstanding during the year. Diluted income (loss) per share is calculated by dividing net income (loss) attributable to the holders of ordinary shares as adjusted for the effect of dilutive ordinary share equivalents, if any, by the weighted average number of ordinary shares and dilutive ordinary share equivalents outstanding during the period. However, ordinary share equivalents are not included in the denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.

Cash and Cash Equivalents

We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. We maintain with various financial institutions in PRC. As of March 31, 2022 and September 30, 2021, cash balances held in PRC banks are uninsured. We have not experienced any losses in bank accounts and believes we are not exposed to any risks on our cash in bank accounts.

Revenue Recognition

Revenue is comprised of sales of goods and represents the amount of consideration the Company is entitled to upon the transfer of goods. Revenue was recorded on a gross basis, net of surcharges and value added tax (“VAT”) of gross sales. The Company recorded revenue on a gross basis because the Company is the primary obligor of the sales arrangements has latitude in establishing prices, has discretion in suppliers’ selection and assumes credit risks on receivables on gross sales from customers.

Deferred Revenue

Deferred revenue results from transactions where the Company has received the payments from the customers but revenue recognition criteria under the five-step model of ASC Topic 606 have yet to be met. Once all revenue recognition criteria have been satisfied, the revenues will be recognized upon the transfer of risk and rewards to the customers in the consolidated statement of operations.

Lease

The Company adopted ASC Topic 842 using the modified retrospective transition method on July 1, 2020. There was no cumulative effect of initially applying ASC Topic 842 that required an adjustment to the opening retained earnings on the adoption date nor revision of the balances in comparative periods. As a result of the adoption, the Company recognized a lease liability and right-of-use asset for each of the existing lease arrangement.

Recently Adopted Accounting Standards

Income Taxes. In December 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 was effective for KPIL after September 30, 2021. The Company evaluated that this new guidance does not have significant impact on its unaudited condensed consolidated financial statements.

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 SEC to 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.

During the period from April 2022 through May 2022, the FASB has not issued additional accounting standards updates.

NOTE 3 - VARIABLE INTEREST ENTITIES “VIE” ARRANGEMENTS

On May 15, 2021, King Eagle (China) entered into a series of contractual arrangements with King Eagle (Tianjin) and its shareholders. As a result of the contractual arrangements, the Company classified King Eagle (Tianjin) as a Variable Interest Entity “VIE.”

The VIE Agreements are as follows:

(1)	Consulting Service Agreement

(2)	Business Operation Agreement

(3)	Proxy Agreement

(4)	Equity Disposal Agreement

(5)	Equity Pledge Agreement

Consulting Service Agreement

Pursuant to the terms of certain Exclusive Consulting Service Agreement dated May 15, 2021, between King Eagle (China) and King Eagle (Tianjin) (the “Consulting Service Agreement”), King Eagle (China) is the exclusive consulting service provider to King Eagle (Tianjin) 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 technical 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 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 King Eagle (Tianjin)’s profit before tax in the corresponding year deducts King Eagle (Tianjin)’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. King Eagle (Tianjin)agreed not to transfer its rights and obligations under the Consulting Service Agreement to any third party without prior written consent from King Eagle (China). In addition, King Eagle (China) may transfer its rights and obligations under the Consulting Service Agreement to King Eagle (China)’s affiliates without King Eagle (Tianjin)’s consent, but King Eagle (China) shall notify King Eagle (Tianjin) of such transfer. This Agreement is valid for a term of 10 years subject to any extension requested by King Eagle (China) unless terminated by King Eagle (China) unilaterally prior to the expiration.

Business Operation Agreement

Pursuant to the terms of certain Business Operation Agreement dated on May 15, 2021, among King Eagle (China), King Eagle (Tianjin)and the shareholders of King Eagle (Tianjin) (the “Business Operation Agreement”), King Eagle (Tianjin) has agreed to subject the operations and management of its business to the control of King Eagle (China). According to the Business Operation Agreement, King Eagle (Tianjin) is not allowed to conduct any transactions that has substantial impact upon its operations, assets, rights, obligations, and personnel without the King Eagle (China)’s written approval. The shareholders of King Eagle (Tianjin) and King Eagle (Tianjin) will take King Eagle (China) ‘s advice on appointment or dismissal of directors, employment of King Eagle (Tianjin)’s employees, regular operation, and financial management of King Eagle (Tianjin). The shareholders of King Eagle (Tianjin) have agreed to transfer any dividends, distributions, or any other profits that they receive as the shareholders of King Eagle (Tianjin) to King Eagle (China) without consideration. The Business Operation Agreement is valid for a term of 10 years or longer upon the request of King Eagle (China) prior to the expiration thereof. The Business Operation Agreement might be terminated earlier by King Eagle (China) with a 30-day written notice.

Proxy Agreement

Pursuant to the terms of the Proxy Agreement dated on May 15, 2021, among King Eagle (China), and the shareholders of King Eagle (Tianjin) (the “Proxy Agreement”), the shareholders of King Eagle (Tianjin) have entrusted their vote rights as King Eagle (Tianjin)’s shareholders to King Eagle (China) for the longest duration permitted by PRC law. The Proxy Agreement can be terminated by mutual consents of King Eagle (Tianjin) Shareholders and King Eagle (China) or upon a 30-day notice of King Eagle (China).

Equity Disposal Agreement

Pursuant to the terms of the Equity Disposal Agreement dated on May 15, 2021, among King Eagle (China), King Eagle (Tianjin), and the shareholders of King Eagle (Tianjin) (the “Equity Disposal Agreement”), the shareholders of King Eagle (Tianjin) granted King Eagle (China) or its designees an irrevocable and exclusive purchase option (the “Option”) to purchase King Eagle (Tianjin)’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 King Eagle (China)’s discretion in full or in part, to the extent permitted by PRC law. The shareholders of King Eagle (Tianjin) agreed to give King Eagle (Tianjin) the total amount of the exercise price as a gift, or in other methods upon King Eagle (China)’s written consent to transfer the exercise price to King Eagle (Tianjin). The Equity Disposal Agreement is valid for a term of 10 years or longer upon the request of King Eagle (China).

Equity Pledge Agreement

Pursuant to the terms of certain Equity Pledge Agreement dated on May 15, 2021, among King Eagle (China) and the shareholders of King Eagle (Tianjin) (the “Pledge Agreement”), the shareholders of King Eagle (Tianjin) pledged all of their equity interests in King Eagle (Tianjin)to King Eagle (China), including the proceeds thereof, to guarantee King Eagle (Tianjin)’s performance of its obligations under the Business Operation Agreement, the Consulting Service Agreement and Equity Disposal Agreement (each, a “Agreement”, collectively, the “Agreements”). If King Eagle (Tianjin) or its shareholders breach its respective contractual obligations under any Agreement, or cause to occur one of the events regards as an event of default under any Agreement, King Eagle (China), as pledgee, will be entitled to certain rights, including the right to dispose of the pledged equity interest in King Eagle (Tianjin). During the term of the Pledge Agreement, the pledged equity interests cannot be transferred without King Eagle (China)’s prior written consent. The Pledge Agreements is valid until all the obligations due under the Agreements have been fulfilled.

A VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. King Eagle (China) is deemed to have a controlling financial interest and be the primary beneficiary of King Eagle (Tianjin) because it has both of the following characteristics:

	(1)	The power to direct activities at King Eagle (Tianjin) that most significantly impact such entity’s economic performance, and

	(2)	The obligation to absorb losses of, and the right to receive benefits from, King Eagle (Tianjin) that could potentially be significant to such entity.

Pursuant to the Contractual Arrangements, King Eagle (Tianjin) pays service fees equal to all of its net profit after tax payments to King Eagle (China). At the same time, to King Eagle (China) is obligated to absorb all of their losses. The Contractual Arrangements are designed so that King Eagle (Tianjin) operates to the benefit of King Eagle (China) and ultimately the Company.

Based on the foregoing VIE Agreements, King Eagle (China) has effective 100% fully control of King Eagle (Tianjin), which enables King Eagle (China) to receive all of their expected residual returns and absorb the expected losses of the VIE. Accordingly, the Company consolidates the accounts of King Eagle (Tianjin) and its subsidiaries for the periods presented herein, in accordance with Accounting Standards Codification, or ASC, 810-10, Consolidation.

Accordingly, the accounts of the King Eagle (Tianjin) are consolidated in the accompanying financial statements pursuant to ASC 810-10, Consolidation. In addition, their financial positions and results of operations are included in the Company’s financial statements.

The Company consolidated its VIE as of March 31, 2022 and September 30, 2021. The carrying amounts and classification of the VIE’s assets and liabilities included in the consolidated balance sheets are as follows:

	March 31,			September 30,
	2022			2021

Current assets	$	3,789,832		$	3,712,560
Noncurrent assets		96,126			145,935
Total assets		3,885,958			3,858,495
Total liabilities		4,204,657			4,525,808
Net liabilities	$	(318,699	)	$	(667,313	)

The VIE’s liabilities consisted of the following as of March 31, 2022 and September 30, 2021:

	March 31,		September 30,
	2022		2021

Current liabilities
Trade and other payable	$	535,525	$	1,024,064
Amount due to a related party		615,035		-
Deferred revenue		2,800,070		3,122,705
Payroll payable		4,817		14,802
Tax payable		153,085		218,301
Operating lease obligations-current portion		74,264		92,807
Total current liabilities		4,182,796		4,472,679
Total noncurrent liabilities				-
Operating lease obligations-net of current portion		21,861		53,129
Total noncurrent liabilities		21,861		53,129
Total liabilities	$	4,204,657	$	4,525,808

The operating results of the VIE were as follows:

	2022			2021		2022		2021
	For the three months ended March 31,					For the six months ended March 31,
	2022			2021		2022		2021

Revenue	$	2,018,764		$	1,627,633	$	6,688,127	$	2,173,594
Gross profit		1,681,879			1,406,095		5,644,609		1,858,207
Loss (income) from operations		(106,301	)		180,512		331,555		(52	)
Other income		7,395			96		26,429		117
Net (loss) income	$	(98,906	)	$	180,608	$	357,984	$	65

NOTE 4 - ADVANCE AND PREPAYMENTS

Prepayments consisted of the following:

SCHEDULE OF PREPAYMENTS

	March 31,		September 30,
	2022		2021
Prepaid service fee⁽¹⁾	$	354,828	$	349,019
Prepaid rent and building management and utilities		51,409		85,474
Prepaid supplies⁽²⁾		175,584		78,248
Prepaid system maintenance services		-		5,209
Prepaid income tax		5,784		5,689
Prepaid professional services⁽³⁾		30,592		148,708
Prepaid others		11,911		15,301
Total prepayments	$	630,108	$	687,648

	⁽¹⁾	Prepaid service fee was paid to Guoxin Star Network Co., Ltd (“Guoxin”) by our VIE, King Eagle (Tianjin). It represents prepayments for operation fee and the usage of the Smart Kiosk which are still under construction and development. Both parties are entitled to exercise the Force Majeure Clause of the contract signed between both parties. As such, this prepaid service fee may or may not be recoverable. Nevertheless, an impairment of this prepayment is not necessary because both parties have expressed the intention to progress with the construction of the Smart Kiosks, and thereafter, with the operation of the same as soon as the circumstances allow.

	⁽²⁾	As of March 31, 2022, and September 30, 2021, the Company had prepared the supplies of $175,584 and $78,248, respectively. The prepayment will be recognized in cost of goods sold in its unaudited condensed consolidated statement of operations and comprehensive loss when the corresponding deferred revenue is recognized.

	⁽³⁾	As of March 31, 2022, the ending balance of prepaid professional services included two prepayments, $10,513, for the legal service fee for our PRC entities and $20,079 for the promotional and marketing fee. The legal service fee will be amortized to general and administrative expenses using the straight-line method, over the service periods of April and May 2022. The promotional and marketing fee will be amortized to selling expense using a straight-line method over the service periods from April 2022 through August 2022. As of September 30, 2021, the ending balance of our prepaid professional service fee was $148,708. We amortized the legal service fee, $10,341, to general and administrative expenses by a straight-line method in October and November 2021. The remaining amount, $138,367, related to a prepayment for a planned marketing campaign but cancelled, was fully refunded to us on December 14, 2021.

These amounts are expected to be recoverable within twelve (12) months.

NOTE 5 - OTHER RECEIVABLES

Other receivables included the following:

SCHEDULE OF OTHER RECEIVABLES

	March 31,		September 30,
	2022		2021
Rental deposits	$	94,935	$	93,583
Advance to employees		57,246		30,241
Others		162		-
Total other receivables, net	$	152,343	$	123,824

Advance to employees represents funds provided to our officers and employees for the business expenses, such as travel, parking, gasoline, membership, meals, that are anticipated to be incurred by our officers and employees on behalf of the Company. Advances to employees are required to be repaid by cash within a year or employees are required to submit expense receipts for business expenses within three months.

NOTE 6 - PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following:

SCHEDULE OF PROPERTY AND EQUIPMENT

	March 31,			September 30,
	2022			2021
Leasehold improvements	$	30,383		$	29,886
Furniture and fixtures		9,692			9,534
Computer equipment		44,999			43,452
Office equipment		1,661			1,633
Computer software		18,869			11,971
Subtotal		105,604			96,476
Less: accumulated depreciation		(64,005	)		(27,751	)
Total property and equipment, net	$	41,599		$	68,725

Depreciation expense was $26,156 and $6,238 for the three months ended March 31, 2022 and 2021, and $35,620 and $11,711 for the six months ended March 31, 2022 and 2021, respectively. On February 28, 2022, we entered into a lease agreement for our new office in Beijing. As we planned to move to a new office premise in May 2022, the estimated useful life of the leasehold improvements of our current office in Beijing changed from 60 months to 22 months. Accordingly, an additional amount of depreciation expense of the relative leasehold improvements, $15,118, was recognized in the three months ended March 31, 2022.

NOTE 7 – INTANGIBLE ASSETS

SCHEDULE OF INTANGIBLE ASSET

	March 31,			September 30,
	2022			2021
Trademarks	$	2,748		$	2,703
Subtotal		2,748			2,703
Less: accumulated amortization		(275	)		(135	)
Total intangible assets, net	$	2,473		$	2,568

Intangible assets consist of the Company’s trademarks of King Eagle Mall with the useful life of ten years.

Amortization expense was $69 and nil for the three months ended March 31, 2022 and 2021, and $137 and nil for the six months ended March 31, 2022 and 2021, respectively.

NOTE 8 – DEFERRED REVENUE

SCHEDULE OF DEFERRED REVENUE

	March 31,		September 30,
	2022		2021
Advance payments from customers	$	2,800,070	$	3,122,705
Total deferred revenue	$	2,800,070	$	3,122,705

Deferred revenue resulted from transactions where the Company received the advanced payments from the customers but revenue recognition criteria under the five-step model have yet to be met. As of March 31, 2022 and September 30, 2021, the Company had a total deferred revenue of $2,800,070 and $3,122,705, respectively. Once the five-step model criteria have been satisfied, revenues will be recognized upon satisfaction of the performance obligations and transfer of control to the customers.

NOTE 9 - RELATED PARTY BALANCES AND TRANSACTIONS

Amounts due to related parties are payables arising from transactions between the Company and related parties, such as payments of operating expenses by such related parties on behalf of our entities in PRC and funding to meet working capital requirements. The payables owed to the related parties are interest free, unsecured, and repayable on demand.

Amounts due to related parties consisted of the following:

			March 31,		September 30,
Name of related party	Relationship	Nature of transactions	2022		2021

Mr. Yihe Pang	Director	Payments made to the lessors on behalf of King Eagle (China). The balance was paid off in December 2021.	$	-	$	39,629
Ms. Xiujin Wang	One of the shareholders of King Eagle (Tianjin)	Operational support to King Eagle (Tianjin) to meet its working capital requirement.		615,035		-

Total			$	615,035	$	39,629

NOTE 10 - EQUITY

Effective as of September 9, 2021, the Company’s Articles of Incorporation were amended to increase the Company’s authorized capital to 210,000,000 authorized shares of Capital Stock with 200,000,000 designated as $0.0001 par value Common Stock, and 10,000,000 designated as $0.0001 par value Preferred Stock.

Preferred stock

The Company’s authorized shares of preferred stock were 10,000,000 shares, with a par value of $0.0001, which may be issued in series and with such voting powers, designations, preferences, limitations, restrictions, and relative rights as the Board of Directors shall determine in its sole discretion shall remain authorized. No shares of preferred stock were issued and outstanding as of March 31, 2022 and September 30, 2021.

Common stock

The Company’s authorized shares of common stock were 200,000,000 shares, with a par value of $0.0001. The issued and outstanding shares of common stock were 40,000,000 as of March 31, 2022 and September 30, 2021, respectively.

Reverse acquisition

For accounting purpose, the transaction with KP International was treated as a reverse acquisition and KP International is deemed to be the acquirer and the Company as the acquired party. Consequently, the assets and liabilities and the historical operations that will be reflected in the accompanying consolidated financial statements prior to the Reverse Acquisition will be those of KP International and its consolidated subsidiaries and will be recorded at the historical cost basis of KP International, and the accompanying unaudited condensed consolidated financial statements after consummation of the reverse acquisition will include the assets and liabilities of KP International and its subsidiaries and VIE, historical operations of KP International and its subsidiaries and VIE, and operations of the Company from the Closing Date of the Reverse Acquisition. The accompanying unaudited condensed consolidated financial statements share and per share information has been retroactively adjusted to reflect the exchanged shares in the Acquisition. The equity structure of the Company was retrospectively adjusted under ASC Topic 805-40.

As of March 31, 2022, there were 40,000,000 shares of common stock issued and outstanding.

Restricted net assets:

Our ability to pay dividends is primarily dependent on us receiving distributions of funds from its subsidiary or VIE. Relevant PRC statutory laws and regulations permit payments of dividends by only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations and after it has met the PRC requirements for appropriation to statutory reserves. Share capital of the PRC subsidiary and VIE included in the Company’s consolidated net assets are also non-distributable for dividend purposes. The results of operations reflected in the accompanying consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of King Eagle (China), the foreign-invested enterprise, King Eagle (Tianjin), the VIE and KP Tian Yu. The Company is required to set aside at least 10% of their after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, the Company may allocate a portion of its after-tax profits based on PRC accounting standards to enterprise expansion fund and staff bonus and welfare fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends.

As a result of the foregoing restrictions, King Eagle (China), King Eagle (Tianjin) and KP Tian Yu are restricted in their ability to transfer their net assets to the Company. Foreign exchange and other regulation in the PRC may further restrict these two entities from transferring funds to the Company in the form of dividends, loans, and advances. As of March 31, 2022 and September 30, 2021, the Company had negative net assets which included common stock, additional paid-in capital, accumulated deficit, and foreign exchange translation adjustment of its subsidiaries in BVI, Hong Kong and the PRC and the VIE that are included in the Company’s consolidated financial statements. As of March 31, 2022, King Eagle (China), King Eagle (Tianjin) and KP Tian Yu incurred negative net assets which amounted to $1,592,689, $318,699 and $nil, respectively. As of September 30, 2021, King Eagle (China), King Eagle (Tianjin) and KP Tian Yu incurred negative net assets which amounted to $1,039,840, $667,313 and nil, respectively. Accordingly, the Company did not accrue statutory reserve funds as of March 31, 2022 and September 30, 2021.

NOTE 11- INCOME TAXES

The Company accounts for income taxes pursuant to the accounting standards that requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carryforwards. Additionally, the accounting standards require the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. The Company and its subsidiaries file separate income tax returns.

United States

Kun Peng International Ltd is incorporated in the State of Nevada and is subject to the United States federal corporate income. No provision for income taxes in the U.S. has been made as the Company has no U.S. taxable income for the three months ended March 31, 2022 and 2021 and for the six months ended March 31, 2022 and 2021.

British Virgin Islands

KP International is a holding corporation organized as an International Business Company under the laws of the British Virgin Islands (“BVI”), and its principal operating subsidiaries are organized under the laws of Hong Kong and the laws of the PRC. KP International and its subsidiaries are not subject to income taxes in the BVI.

Hong Kong

The two-tier profits tax rates system was introduced under the Inland Revenue (Amendment)(No.3) Ordinance 2018 (“the Ordinance”) of Hong Kong became effective for the assessment year 2018/2019. Under the two-tier profit tax rates regime, the profits tax rate for the first $0.26 million (HKD 2 million) of assessable profits of a corporation will be subject to the lowered tax rate, 8.25% while the remaining assessable profits will be subject to the legacy tax rate, 16.5%. The Ordinance only allows one entity within a group of “connected entities” is eligible for the two-tier tax rate benefit. An entity is a connected entity of another entity if (1) one of them has control over the other; (2) both of them are under the control (more than 50% of the issued share capital) of the same entity; (3) in the case of the first entity being a natural person carrying on a sole proprietorship business-the other entity is the same person carrying on another sole proprietorship business.

Since KP Industrial and KP (Hong Kong) are wholly owned and under the control of KP International, these entities are connected entities. Under the Ordinance, it is an entity’s election to nominate the entity that will be subject to the two-tier profits tax rates on its profits tax return. The election is irrevocable. The Company elected KP (Hong Kong) to be subject to the two-tier profits tax rates. KP Industrial and KP (Hong Kong) did not earn any income that was derived in Hong Kong for three months ended March 31, 2022 and 2021 and for the six months ended March 31, 2022 and 2021; therefore, KP Industrial and KP (Hong Kong) were not subject to Hong Kong profits tax for the periods reported.

Since the two-tier profit tax rates regime is tentative, we applied the original profits tax rate, 16.5%, for the calculation of deferred taxes for our subsidiaries in Hong Kong.

PRC

The PRC’s statutory income tax rate is 25%. The Company’s subsidiary and VIE registered in PRC are subject to income tax rate of 25%, unless otherwise specified.

Income tax expense was comprised of the following:

	2022		2021		2022		2021
	For the three months ended March 31				For the six months ended March 31
	2022		2021		2022		2021
Current	$		$		$		$
Federal		-		-		-		-
State		-		-		-		-
Foreign		-		-		-		-
Total current		-		-		-		-

Deferred
Federal		-		-		-		-
State		-		-		-		-
Foreign		-		-		-		-
Total deferred		-		-		-		-

Total income tax expense	$	-	$	-	$	-	$	-

A reconciliation between the Company’s actual provision for income taxes and the provision at the statutory rate is as follow:

	2022			2021			2022			2021
	For the three months ended March 31,						For the six months ended March 31,
	2022			2021			2022			2021
Loss before income tax expense	$	(614,677	)	$	(274,360	)	$	(276,819	)	$	(645,078	)
Computed tax expense (benefit) with statutory tax rate		21.0	%		25.0	%		21.0	%		25.0	%
Impact of different tax rates in other jurisdictions		3.7	%		0.0	%		2.5	%		0.0	%
Tax effect of non-deductible expenses		(0.6	)%		(0.2	)%		(1.9	)%		(0.6	)%
Change in valuation allowance		(24.1	)%		(24.8	)%		(21.6	)%		(24.4	)%
Effective tax rate		0.0	%		0.0	%		0.0	%		0.0	%

Uncertain tax positions

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by the respective jurisdictions, where applicable. The statute of limitations for the tax returns varies by jurisdictions.

The statute of limitations for the Internal Revenue Services to assess the income tax returns on a taxpayer expires three years from the due date of the income tax return or the date on which it was filed, whichever is later.

In accordance with the Hong Kong profits tax regulations, a tax assessment by the IRD may be initiated within six years after the relevant year of assessment, but extendable to 10 years in the case of potential willful underpayment or evasion.

In accordance with PRC Tax Administration Law on the Levying and Collection of Taxes, the PRC tax authorities generally have up to five years to assess underpaid tax plus penalties and interest for PRC entities’ tax filings. In the case of tax evasion, which is not clearly defined in the law, there is no limitation on the tax years open for investigation. Accordingly, the PRC entities remain subject to examination by the tax authorities based on the above.

As of March 31, 2022 and September 30, 2021, the Company did not accrue any liability, interest or penalties related to uncertain tax positions in the provision for income taxes in its consolidated financial statements. The Company does not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months.

NOTE 12 - RIGHT-OF-USE ASSETS AND LEASE

The Company has operating leases for its office facilities and employee accommodation. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

The following table provides a summary of leases as of March 31, 2022, and September 30, 3021:

Assets/liabilities	Classification	March 31, 2022		September 30, 2021
Assets
Operating lease right-of-use assets	Operating lease assets	$	684,162	$	282,466

Liabilities
Current
Operating lease liabilities - current	Current operating lease liabilities	$	234,611	$	229,337

Long-term
Operating lease liabilities – net of current portion	Long-term operating lease liabilities	$	336,743	$	53,129

Total lease liabilities		$	571,354	$	282,466

The operating lease expense for the three months ended March 31, 2022 and 2021 and for the six months ended March 31, 2022 and 2021 was as follows:

SUMMARY OF OPERATING LEASE EXPENSE

		For the three months ended March 31,				For the six months ended March 31,
Lease Cost	Classification	2022		2021		2022		2021
Operating lease cost	General and administrative	$	111,789	$	61,166	$	192,704	$	147,649
Total lease cost		$	111,789	$	61,166	$	192,704	$	147,649

Maturities of operating lease liabilities as of March 31, 2022 were as follow:

Maturity of Lease Liabilities	Operating Leases
2022 (remaining)	$	198,215
2023		323,287
2024		281,497
Thereafter		-
Total lease payments	$	802,999
Less: interest		(231,645	)
Present value of lease payments	$	571,354

Supplemental cash flow information related to operating leases was as follows:

SCHEDULE OF OPERATING LEASES

	2022		2021		2022		2021
	For the three months ended March 31,				For the six months ended March 31,
	2022		2021		2022		2021
Cash paid for amounts included in the measurement of lease liabilities	$	188,884	$	78,129	$	274,488	$	147,649
New operating lease assets obtained in exchange for operating lease liabilities	$	575,541	$	70,024	$	575,541	$	70,024

Supplemental balance sheet information related to leases was as follows:

	March 31, 2022			September 30, 2021
Weighted average remaining lease term		2.6 years			1.1 years
Weighted average discount rate		4.75	%		4.75	%

The amortization expense was $93,414 and $83,501 for the three months ended March 31, 2022 and 2021 and $177,685 and $147,649 for the six months ended March 31, 2022 and 2021, respectively.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

On March 31, 2021, King Eagle (Tianjin) entered into a Cooperation Agreement with Guoxin Star Network Co., Ltd who assigned and franchised the operation of 50 Smart Kiosks to King Eagle (Tianjin) for five years. Total franchise fee payable by King Eagle (Tianjin) to Guoxin Star Network Co., Ltd is approximately $1.14 million (RMB 7,500,000). In April 2021, King Eagle (Tianjin) paid approximately $0.34 million (RMB2,250,000) to Guoxin Star Network Co. Ltd. The remaining balance, approximately $0.8 million (RMB5,250,000), is payable upon the completion of the implementation of Smart Kiosks. King Eagle (Tianjin) estimated that the implementation will be completed by the beginning of the calendar year 2023.

NOTE 14 - SUBSEQUENT EVENT

As of March 31, 2022, the Company evaluated and concluded that there were no subsequent events that have occurred that would require recognition or disclosure in the interim condensed consolidated financial statements.

Item 2. Management’s discussion and analysis of financial condition and results of operations

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 social e-commerce platform (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) of 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 for 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 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 King Eagle Mall and place orders for our products.

Recent Developments

COVID-19 Update

Recent Regulatory Developments in China

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 March 31, 2022 and 2021

	For the three months ended March 31,
	2022						2021
	Amount			% of revenue			Amount			% of revenue

Revenues	$	2,018,764			100.0	%	$	1,627,633			100.0	%
Cost of revenues		337,465			16.7			222,033			(13.6
Gross profit		1,681,299			83.3			1,405,600			86.4
Operating expenses:
General and administrative expenses		436,295			21.6			466,671			28.7
Selling expense		1,868,233			92.5			1,213,657			74.6
Total operating expenses		2,304,528			114.1			1,680,328			103.3
Loss from operations		(623,229	)		(30.8	)		(274,728	)		(16.9	)
Other income		8,552			0.4			368			0.0
Loss before income taxes		(614,677	)		(30.4	)		(274,360	)		(16.9	)
Income tax expense		-			-			-			-
Net loss	$	(614,677	)		(30.4	)	$	(274,360	)		(16.9	)

Revenues

For the three months ended March 31, 2022 and 2021, revenues amounted to $2,018,764 and $1,627,633, respectively. Our revenues 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. Compared to the three months ended March 31, 2021, we generated a higher revenue amount during the three months ended March 31, 2022 as our service agents initiated more marketing and promotional activities for our online platform and products during the three months ended March 31, 2022. We recognized our revenue on a gross basis, net of sub-charges and value-added tax (“VAT”) of gross sales.

Cost of revenue

Our cost of revenue for the three months ended March 31, 2022 and 2021 were $337,465 and $222,033, respectively. This primarily included the purchase of health care and health related household products from our suppliers. We incurred a higher cost of revenue for the three months ended March 31, 2022, compared to that in the same period in 2021, because we generated a higher revenue amount during the three months ended March 31, 2022 as discussed above.

Gross profit

For the three months ended March 31, 2022, and 2021, our gross profit amounted to $1,681,299 or 83.3%, and $1,405,600 or 86.4%, respectively. While our gross profit amount for the three months ended March 31, 2022 was slightly lower than that for the same period in 2021, our gross profit margin for the three months ended March 31, 2022 remained comparable to the same period in 2021.

Operating Expenses

Our operating expenses consist of general and administrative expenses and selling expense. For the three months ended March 31, 2022 and 2021, our total operating expenses were $2,304,528 and $1,680,328, respectively. We experienced a higher amount of operating expenses in the three months ended March 31, 2022, compared to the same period in 2021 primarily due to the higher selling expense.

General and administrative expenses

General and administrative expenses for the three months ended March 31, 2022 and 2021 were $436,295 and $466,671, respectively. The decrease in general and administrative expenses during the three months ended March 31, 2022 by $30,376 was triggered by a shrinkage in employee compensation and benefits by $16,049, office supplies by $9,178, professional fees by $22,445, travel, transportation, and gasoline by $12,532 and others by $20,279, offset by an increase in lease and building management expenses by $15,591, meals and entertainment, $10,714, and depreciation and amortization, $23,802. During the three months ended March 31, 2022, the basic salary amounts of our new executives and consultant of King Eagle (Tianjin) were reduced after our former CEO of the Company resigned on December 1, 2021. Our office supplies and meeting expenses for the three months ended March 31, 2022 also decreased compared to the same period in 2021. During the three months ended March 31, 2021, we continued to incur additional office supplies and decoration expense as we started our operations in July 2020. Compared to the same period in 2022, we incurred higher professional fees in the three months ended March 31, 2021 as we recruited more consultants to assist our reverse acquisition that was completed in May 2021. Our travel, transportation and gasoline expense in the three months ended March 31, 2022 was reduced as we strike to minimize the travel of our executives in order to reduce overhead costs. On the contrary, our lease and building management expenses were higher in the three months ended March 31, 2022 as we moved to new office location and incurred additional rent payment for the new office in Beijing. During the three months ended March 31, 2022, we incurred additional meals and entertainment expense for our executives, staff and business partners for appreciating for their efforts to increase sales volume and we recognized an additional depreciation amount, $15,118, for the relative leasehold improvements as the estimated useful life of leasehold improvements of the former office location in Beijing was adjusted.

Our general and administrative expenses for the three months ended March 31, 2022 and 2021 were comprised of the following:

	For the three months ended March 31,
	2022		2021
Employee compensation and benefit	$	160,214	$	176,263
Lease and building management		124,669		109,078
Office supplies and meeting		9,100		18,278
Professional services fee		95,393		117,838
Travel, transportation, and gasoline		3,051		15,583
Meals and entertainment		14,811		4,097
Depreciation and amortization		24,644		842
Others		4,413		24,692
Total	$	436,295	$	466,671

Selling expense

Our selling expense, which was primarily incurred by our sales and marketing department, for the three months ended March 31, 2022 and 2021, were $1,868,233 and $1,213,657, respectively. Compared to the three months ended March 31, 2021, our selling expense for the three months ended March 31, 2022 increased by $654,576. The increase was primarily driven by a rise in service agent fee by $580,563, as our service agents initiated more marketing and promotional activities for our online platform and products. Compared to the three months ended March 31, 2021, the average monthly revenue from our online sales for the same period in 2022 increased by approximately $0.1 million, from approximately $0.5 million for the three months ended March 31, 2021 to approximately $0.6 million for the same period in 2022. The increase in selling expense also included an increase in office supplies by $15,018, travel and transportation by $12,081, meals and entertainment by $35,400 and advertising by $12,050. During the three months ended March 31, 2022, as we aimed to increase our sales revenue and expand our market share, our sales and marketing department launched marketing activities in various cities which resulted in a higher travel and transportation, meals and entertainment and advertising expenses.

Our selling expense included the following:

	For the three months ended March 31,
	2022		2021
Service agents	$	1,635,044	$	1,054,481
Employee compensation and benefit		134,357		124,729
Office supplies and meeting		31,673		16,655
Customer services		50		4,365
Travel, transportation, and gasoline		14,831		2,750
Meals and entertainment		36,068		668
Depreciation and amortization		1,580		1,280
Advertising		14,630		2,580
Other		-		6,149
Total	$	1,868,233	$	1,213,657

Other income

Other income primarily included bank interest income, foreign exchange gain or loss and other service income. Our other income for the three months ended March 31, 2022 and 2021 were $8,552 and $368, respectively. Since the first quarter of 2022, we incurred an additional source of income related to online technical support services of our supplement products provided to a corporate customer. During the three months ended March 31, 2022, we recognized $8,182 related to the provision of this services in other income.

Income tax expense

For the three months ended March 31, 2022 and 2021, the income tax expense of the Company was nil. During the three months ended March 31, 2022, our entities incurred book loss and tax loss. The Company recognized a full valuation allowance against the deferred tax assets of these entities as it believes that it is more likely than not that these entities will not recognize its deferred tax assets in a near future. During the three months ended March 31, 2021, the Company generated net loss before income tax and the Company recognized a full valuation allowance against its deferred tax assets, which included net operating loss carryforwards, as management believes it is more likely than not that the Company will not recognize its net operating loss carryforwards in a near future or before it expires.

Net loss

As a result of the factors discussed above, the Company posted a net loss in an amount of $614,677 and $274,360 for the three months ended March 31, 2022 and 2021, respectively.

Foreign currency translation adjustment

The functional currency of our operation in PRC is Chinese Yuan or Renminbi (“RMB”) and while our operation in Hong Kong is Hong Kong Dollars (“HKD”). The financial statements are translated to U.S. dollars using the period end rates of exchange for assets and liabilities, equity is translated at historical exchange rates, and average rates of exchange (for the period) are used for revenues and expenses and cash flows. Transaction gains and or losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. As a result of foreign currency translation, which is a noncash adjustment, we reported a foreign currency translation (loss) gain of $(47,086) and $6,154 for the three months ended March 31, 2022, and 2021, respectively.

Comprehensive income (loss)

The Company recognized a comprehensive loss in an amount of $661,763 and $268,206 for the three months ended March 31, 2022 and 2021, respectively.

Results of Operations for the six months ended March 31, 2022 and 2021

	For the six months ended March 31,
	2022						2021
	Amount			% of revenue			Amount			% of revenue

Revenues	$	6,688,172			100.0	%	$	2,173,594			100.0	%
Cost of revenues		1,046,674			15.6			315,883			14.5
Gross profit		5,641,498			84.4			1,857,711			85.5
Operating expenses:
General and administrative expenses		818,196			12.2			901,089			41.5
Selling expense		5,133,686			76.8			1,602,121			73.7
Total operating expenses		5,951,882			89.0			2,503,210			115.2
Loss from operations		(310,384	)		(4.6	)		(645,499	)		(29.7	)
Other income		33,565			0.5			421			(0.02	)
Loss before income taxes		(276,819	)		(4.1	)		(645,078	)		(29.7	)
Income tax expense		-			-			-			-
Net loss	$	(276,819	)		(4.1	)	$	(645,078	)		(29.7	)

Revenues

For the six months ended March 31, 2022 and 2021, revenues amounted to $6,688,172 and $2,173,594, respectively. Our revenues 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. Our revenue amount during the six months ended March 31, 2022 was as three times as much as it was for the six months ended March 31, 2021 as our service agents initiated more marketing and promotional activities for our online platform and products during the six months ended March 31, 2022. We recognized our revenue on a gross basis, net of sub-charges and value-added tax (“VAT”) of gross sales.

Cost of revenue

Our cost of revenue for the three months ended March 31, 2022 and 2021 were $1,046,674 and $315,883, respectively. This primarily included the purchase of health care and health related household products from our suppliers. We incurred a higher cost of revenue for the six months ended March 31, 2022, compared to that in the same period of 2021, because we generated a higher revenue amount during the six months ended March 31, 2022 as discussed above.

Gross profit

For the six months ended March 31, 2022, and 2021, our gross profit amounted to $5,641,498 or 84.4%, and $1,857,711 or 85.5%, respectively. While our gross profit amount for the three months ended March 31, 2022 was slightly lower than that for the same period in 2021, our gross profit margin for the six months ended March 31, 2022 remained comparable to the same period in 2021.

Operating Expenses

Our operating expenses consist of general and administrative expenses and selling expense. For the six months ended March 31, 2022 and 2021, our total operating expenses were $5,951,882 and $2,503,210, respectively. We experienced a higher amount of operating expenses in the six months ended March 31, 2022, compared to the same period in 2021 primarily due to a higher selling expense.

General and administrative expenses

General and administrative expenses for the six months ended March 31, 2022 and 2021 were $818,196 and $901,089, respectively. The decrease in general and administrative expenses during the six months ended March 31, 2022 by $82,893 was triggered by a decline in employee compensation and benefits by $53,036, office supplies and meeting by $30,707, professional fees by $11,940, travel, transportation, and gasoline by $23,617 and others by $15,170, offset by an increase in lease and building management expenses by $18,076, meals and entertainment by $6,530, and depreciation and amortization by $26,971. During the six months ended March 31, 2022, the basic salary amounts of our new executives and consultant of King Eagle (Tianjin) were reduced after our former CEO of the Company resigned on December 1, 2021. Our office supplies and meeting expenses for the six months ended March 31, 2022 also decreased compared to the same period in 2021. During the six months ended March 31, 2021, we continued to incur additional office supplies and decoration expense as we started our operations in July 2020. Compared to the same period in 2022, we incurred higher professional fees in the six months ended March 31, 2021 as we recruited more consultants to assist our reverse acquisitions that was completed in May 2021. Our travel, transportation and gasoline expense in the six months ended March 31, 2022 was reduced as we minimized the travel of our executives in order to reduce overhead costs. On the contrary, our lease and building management expenses were higher in the six months ended March 31, 2022 as we moved to a new office location and incurred additional rent payment for the new office in Beijing. During the six months ended March 31, 2022, we incurred additional meals and entertainment expense for our executives, staff and business partners for appreciating their efforts to increase sales volume. We recognized an additional depreciation amount, $15,118, for the leasehold improvements of the former office location as the estimated useful life of the relative leasehold improvements was adjusted.

Our general and administrative expenses for the six months ended March 31, 2022 and 2021 were comprised of the following:

	For the six months ended March 31,
	2022		2021
Employee compensation and benefit	$	316,539	$	369,575
Lease and building management		220,514		202,438
Office supplies and meeting		16,505		47,212
Professional services fee		181,152		193,092
Travel, transportation, and gasoline		7,607		31,224
Meals and entertainment		23,163		16,633
Depreciation and amortization		32,607		5,636
Others		20,109		35,279
Total	$	818,196	$	901,089

Selling expense

Our selling expense, which was primarily incurred by our sales and marketing department, for the six months ended March 31, 2022 and 2021, were $5,133,686 and $1,602,121, respectively. Compared to the six months ended March 31, 2021, our selling expense for the six months ended March 31, 2022 rose by $3,531,565. Such significant increase was primarily driven by an increase in service agent fee by $3,346,440, as our service agents initiated more marketing and promotional activities for our online platform and products. Compared to the six months ended March 31, 2021, the average monthly revenue from our online sales for the same period in 2021 increased by approximately $0.7 million, from approximately $0.4 million for the six months ended March 31, 2021 to approximately $1.1 million for the same period in 2022. The increase in selling expense also included an increase in employee compensation and benefit by $86,362, travel and transportation by $43,849, meals and entertainment by $46,604 and advertising by $12,050. During the six months ended March 31, 2022, as we aimed to increase our sales revenue and expand our market share, we increased our headcounts of our sales and marketing department in the first quarter of 2022 and our sales and marketing department launched marketing activities in various cities which resulted in a higher travel and transportation, meals and entertainment and advertising expenses.

Our selling expense included the following:

	For the six months ended March 31,
	2022		2021
Service agents	$	4,655,679	$	1,309,239
Employee compensation and benefit		294,669		208,307
Office supplies and meeting		49,932		49,514
Customer services		13,597		12,797
Travel, transportation, and gasoline		51,335		7,486
Meals and entertainment		50,695		4,091
Depreciation and amortization		3,149		1,958
Advertising		14,630		2,580
Other		-		6,149
Total	$	5,133,686	$	1,602,121

Other income

Other income primarily included bank interest income, foreign exchange gain or loss and other service income. Our other income for the six months ended March 31, 2022 and 2021 were $33,565 and $421, respectively. Since the first quarter of 2022, we incurred an additional source of income related to online technical support services of our supplement products provided to a corporate customer. During the six months ended March 31, 2022, we recognized $24,774 related to the provision of this services in other income.

Income tax expense

For the six months ended March 31, 2022 and 2021, the income tax expense of the Company was nil. During the six months ended March 31, 2022, King Eagle (Tianjin) incurred book income before income tax and taxable income and utilized the net operating loss carryforwards to offset its entire taxable income. On the other hand, KPIL, the subsidiaries in Hong Kong and King Eagle (China) incurred book loss and tax loss. The Company recognized a full valuation allowance against the deferred tax assets of these entities as it believes that it is more likely than not that these entities will not recognize its deferred tax assets in a near future. During the six months ended March 31, 2021, the Company generated net loss before income tax and the Company recognized a full valuation allowance against its deferred tax assets, which included net operating loss carryforwards, as management believes it is more likely than not that the Company will not recognize its net operating loss carryforwards in a near future or before it expires.

Net loss

As a result of the factors discussed above, the Company posted a net loss in an amount of $276,819 and $645,078 for the six months ended March 31, 2022 and 2021, respectively.

Foreign currency translation adjustment

The functional currency of our operation in PRC is Chinese Yuan or Renminbi (“RMB”) and while our operation in Hong Kong is Hong Kong Dollars (“HKD”). The financial statements are translated to U.S. dollars using the period end rates of exchange for assets and liabilities, equity is translated at historical exchange rates, and average rates of exchange (for the period) are used for revenues and expenses and cash flows. Transaction gains and or losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. As a result of foreign currency translation, which is a noncash adjustment, we reported a foreign currency translation loss of $34,082 and $7,985 for the six months ended March 31, 2022, and 2021, respectively.

Comprehensive income (loss)

The Company recognized a comprehensive loss in an amount of $310,901 and $653,063 for the six months ended March 31, 2022 and 2021, respectively.

Liquidity and Capital Resources

As of March 31, 2022 and September 30, 2021, we had a cash and cash equivalents balance of $1,160,123 and $2,059,685, respectively.

For the six months ended March 31, 2022, net cash used in operating activities totaled to $921,748. Operating cash outflow was mainly attributable to the net loss, $276,819, an increase in other receivables, $26,331, a security deposit made to the new lessor for our new office in Beijing, $44,467 and payments to our vendors, $629,413, a decrease in advance receipts from customers, $372,786, payroll payment, $19,061, VAT and other indirect tax payments, $116,995 and lease payments to lessors, $289,950. The cash outflow was offset by non-cash items: depreciation and amortization, $35,757 and right-of-assets amortization, $177,685 as well as a decrease in prepayments to vendors, $68,649, and an increase in an amount due to a related party, $571,983.

Net cash used in investing activities totaled to $7,487, was primarily related to the purchase of office and computer equipment.

There was no financing activity for the six months ended March 31, 2022.

Effect of exchange rate change on cash totaled $29,673. The resulting change in cash for the period was a decrease of $899,562.

For the six months ended March 31, 2021, net cash provided by operating activities totaled $389,620. Operating cash inflow was mainly attributable to an increase in trade and other payable, $1,348,657, offset by the net loss, $645,078, prepayments to vendors and lessors, $105,342 and decrease in deferred revenue, $206,831.

Net cash used in investing activities totaled $15,844 primarily related to the purchase of office and computer equipment.

There was no financing activity for the six months ended March 31, 2021.

Effect of exchange rate change on cash totaled $5,217. The resulting change in cash for the period was an increase of $378,993.

The following table sets forth a summary of changes in our working capital as of March 31, 2022 and September 30, 2021:

	March 31,			September 30,
	2022			2021
Current Assets	$	1,942,574			2,871,157
Current Liabilities		4,707,802			5,189,941
	$	(2,765,228	)		(2,318,784	)

We require additional cash of approximately $1.9 million within the next twelve months which primarily relates to third party vendors payables. In an effort to support and maintain our financial positions and operations, the Company focused on increasing its revenue through its online platform and slimming its overhead costs. As aforementioned, since the first quarter of 2022, our average monthly online sales increased. We continue to exert efforts to increase our sales volume and reduce administrative costs. Simultaneously, our director continues to support our operation financially. We believe that such measures will improve our liquidity in the next twelve months. If we are not able to increase revenue or obtain any financing, we may be unable to continue as a going concern.

Going Concern Consideration

The accompanying condensed consolidated 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 assures 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. For the six months ended March 31, 2022, the Company incurred cash outflows from operating activities of $921,748, a net loss of $276,819, and a negative working capital of $2,765,228. Moreover, as the COVID-19 outbreak continues, there is a delay in the progress of construction and approval for the construction permit of smart kiosk. While some areas in the PRC have opened up recently, majority of the areas in the PRC are still under the tighten control and lockdown and the government agencies in those affected areas in the PRC still remain closed. These conditions raise substantial doubt about the ability of the Company to continue as a going concern.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, including arrangements that would affect our liquidity, capital resources, market risk support, and credit risk support or other benefits.

Future Financings

We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities, or if we are able, there is no guarantee that existing shareholders will not be substantially diluted.

Critical Accounting Policies

We regularly evaluate the accounting policies and estimates that we use to make budgetary and financial statement assumptions. A complete summary of these policies is included in the notes to our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

See Note 2 to the financial statements included herewith and Note 2 to the financial statements on Form 10-K/A for the fiscal year ended September 30, 2021, previously filed with the SEC.

Recent Accounting Pronouncements

See Note 2 to the financial statements included herewith and Note 2 to the financial statements on Form 10-K/A for the fiscal year ended September 30, 2021, previously filed with the SEC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As a smaller reporting company, we are not required to respond to this item.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on his evaluation as of the end of the quarter ended March 31, 2022, our chief executive officer and our chief financial officer and principal accounting manager, concluded that our disclosure controls and procedures were not effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer, to allow timely decisions regarding required disclosure as a result of the material weaknesses in our internal control over financial reporting due to the existence of the following material weaknesses:

	●	A lack of sufficient and adequately trained internal accounting and finance personnel with appropriated understanding of U.S. GAAP and SEC reporting requirement;

	●	A lack of segregation of duties within significant accounts;

	●	A lack of a functioning audit committee and a majority of outside directors on the Company’s board of directors.

Management’s Report on Internal Control over Financial Reporting

As of March 31, 2022, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in the 2013 updated Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, management concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that are considered to be material weaknesses as described herein above. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or quarterly financial statements will not be prevented or detected on a timely basis.

Notwithstanding the existence of these material weaknesses in our internal control over financial reporting, our management believes that the financial statements included in its reports fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented. We continue to evaluate the effectiveness of internal controls and procedures on an on-going basis. We are currently hiring additional personnel in financial reporting and accounting, and we are providing trainings to newly hired personnel. In addition, once our cash position improves, we plan to hire an experienced controller and work to build an internal accounting team with sufficient in-house expertise in US GAAP reporting. However, due to the limited cash flow we are currently having, we cannot assure you when we will be able to implement those remediation methods.

Because we are a smaller reporting company, this report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.

(b) Changes in internal controls over financial reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the second fiscal quarter ended March 31, 2022 covered by this report that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting other than the facts disclosed above.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry, or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company, threatened against or affecting our Company, or our common stock, in which an adverse decision could have a material adverse effect.

Item 1A. Risk Factors

As a smaller reporting company, we are not required to respond to this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

Not applicable

Item 6. Exhibits

Exhibit
Number		Description

31.1		Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act
31.2		Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act
32.1		Certification of Chief Executive Officer Under Section 1350 as Adopted Pursuant Section 906 of the Sarbanes-Oxley Act
32.2		Certification of Chief Financial Officer Under Section 1350 as Adopted Pursuant Section 906 of the Sarbanes-Oxley Act
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	KUN PENG INTERNATIONAL LTD

Date: May 16, 2022	By:	/s/ Zhuang Richun
		Zhuang Richun, President

Date: May 16, 2022	By:	/s/ Zhang Yuanyuan
		Zhang Yuanyuan, Chief Financial Officer