The accompanying notes are an integral part
of these unaudited consolidated financial statements
The accompanying notes are an integral part
of these unaudited consolidated financial statements
The accompanying notes are an integral part
of these unaudited consolidated financial statements
The accompanying notes are an integral part
of these unaudited consolidated financial statements
Notes to the Consolidated
Financial Statements (Unaudited)
NOTE 1 – ORGANIZATION AND GOING
CONCERN
ORGANIZATION
The Company was incorporated in the State
of Florida on September 3, 2010 under the name of “mLight Tech, Inc.” (“MLGT”). On July 11, 2017, MLGT
merged with and into CX Network Group, Inc. (“CXKJ”), a Nevada corporation, with CXKJ as the surviving corporation
that operates under the name “CX Network Group, Inc.” (the “Name Change”), pursuant to an agreement and
plan of merger (the “Merger Agreement”) dated July 3, 2017.
Pursuant to the Merger Agreement, immediately
after the effective time of the Merger, the Company’s corporate existence is governed by the laws of the State of Nevada
and the Articles of Incorporation and bylaws of CXKJ (the “Domicile Change”), and each outstanding share of MLGT’s
common stock, par value $0.0001 per share was converted into 0.0667 outstanding share of common stock of CXKJ, par value $0.0001
per share at a one-for-fifteen reverse split ratio (the “Reverse Stock Split”) which resulted in reclassification
of capital from par value to capital in excess of par value. Immediately prior to the effectiveness of the reverse stock split,
we had 217,300,000 shares of common stock of MLGT issued and outstanding. Immediately upon the effectiveness of the reverse stock
split, we had 14,486,670 shares of common stock of CXKJ issued and outstanding.
The Name Change, Domicile Change, and
Reverse Stock Split went effective on June 12, 2017. Subsequently, the Company’s trading symbol for its common stock was
changed to “CXKJ”.
On March
20, 2018, CXKJ entered into a share exchange agreement (the “Share Exchange”) with Chuangxiang Holdings Inc. (“CX
Cayman”). Under the Share Exchange, CX Network Group, Inc. issued an aggregate of 5,350,000 shares of common stock, par
value $0.0001 per share to the shareholders of CX Cayman in exchange for 100% of the issued and outstanding equity securities
of CX Cayman. The Share Exchange was closed on March 20, 2018. As a result of the Share Exchange, CX Cayman became the Company’s
wholly-owned subsidiary.
CX Cayman was incorporated on February
4, 2016 under the laws of Cayman Islands.
Chuangxiang (Hong Kong) Holdings Limited
(“CX HK”) was incorporated on February 23, 2016 and became CX Cayman’s wholly owned subsidiary on December 1,
2016. CX HK operates through its subsidiary, Shenzhen Chuangxiang Network Technology (Shenzhen) Limited (“CX Network”).
CX Network was incorporated by CX HK on April 12, 2016 under the laws of People’s Republic of China (“PRC”)
as a wholly foreign owned enterprise.
Shenzhen Chuangxiang Network Technology
Limited (“Shenzhen CX”) is a limited liability company formed under the laws of PRC on August 14, 2015. Shenzhen CX
became a variable interest entity (“VIE”) of CX Network through a series of contractual arrangements entered into
on April 20, 2017. CX Network controls Shenzhen CX through agreements and arrangements that absorbs operating risk, as if Shenzhen
CX is a wholly owned subsidiary of CX Network. Shenzhen CX is engaged in the business of developing and operating membership-based
social network, dating and mobile gaming, and interactive live broadcast platforms.
The transaction has been treated as a
recapitalization of CX Cayman and its subsidiaries, with CXKJ (the legal acquirer of CX Cayman and its subsidiaries) considered
the accounting acquiree, and CX Cayman (the legal acquiree) considered the accounting acquirer. Accordingly, CX Cayman’s
assets, liabilities and results of operations will become the historical financial statements of the registrant, and CXKJ’s
assets, liabilities and results of operations will be consolidated with CX Cayman effective as of the date of the closing of the
Share Exchange (March 20, 2018). The Company did not recognize goodwill or any intangible assets in connection with the transaction.
All costs related to the transaction are being charged to operations as incurred. CX Cayman received cash of $145 and assumed
$249,966 liabilities upon execution of the Share Exchange. The 5,350,000 shares of common stock issued in conjunction with the
Share Exchange have been presented as outstanding for all periods.
As used in this report, unless otherwise
indicated, the terms “we” and “us” refer to CX Network Group, Inc., a Nevada corporation (previously known
as “mLight Tech, Inc.”, a Florida corporation,), its owned subsidiaries CX Cayman, CX HK, CX Network and Shenzhen
CX, which is controlled by us via various contracts.
The accompanying unaudited consolidated
financial statements are prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”). The consolidated financial statements include the accounts of CXKJ, its wholly owned subsidiaries,
CX Cayman, CX HK, CX Network, and its VIE, Shenzhen CX. All intercompany transactions and balances have been eliminated in the
consolidation. Certain information and footnote disclosures normally included in financial statements prepared in conjunction
with U.S. GAAP have been condensed or omitted as permitted by the rules and regulations of the United States Securities and Exchange
Commission (“SEC”). In the opinion of management, the accompanying unaudited consolidated financial statements reflect
all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation. Interim operating results
for the three months ended December 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal
year ending September 30, 2020, or for any subsequent period. These interim 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, 2019 included in the Form 10-K filed with the SEC on December 30, 2019.
Going Concern
In assessing the Company’s liquidity,
the Company monitors and analyzes its cash and cash equivalents and its operating and capital expenditure commitments. The Company’s
liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations. As of December
31, 2019, the Company’s current liabilities exceeded the current assets, its accumulated deficit was approximately $2,380,000
and the Company has incurred losses since inception. None of the Company’s stockholders, officers or directors, or third
parties, are under any obligation to advance us funds, or to invest in the Company. Accordingly, the Company may not be able to
obtain additional financing. If the Company is unable to raise additional capital, the Company may be required to take additional
measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the
pursuit of our business plan, and reducing overhead expenses. In the coming years, the Company plans to develop E-commerce business
in the app of Little Love to increase revenues to meet its future cash flow requirements. However, the Company cannot provide
any assurance on the successful development of the Company’s contemplated plan of operations or the financing that will
be available to us on commercially acceptable terms, if at all.
These conditions raise substantial doubt
about our ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result
should the Company be unable to continue as a going concern.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Recently adopted accounting pronouncements
On October 1, 2019, the Company adopted
Accounting Standards Update (ASU) 2016-02, Leases (as amended by ASU 2017-13, 2018-01, 2018-10 & 11, 2018-20, and 2019-01,
collectively ASC Topic 842), using the modified retrospective method. The Company elected the transition method which allows entities
to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings
in the period of adoption. As a result of electing this transition method, previously reported financial information has not been
restated to reflect the application of the new standard to the comparative periods presented. The Company elected the package
of practical expedients permitted under the transition guidance within ASC 842, which among other things, allows the Company to
carry forward certain historical conclusions reached under ASC Topic 840 regarding lease identification, classification, and the
accounting treatment of initial direct costs. The Company elected not to record assets and liabilities on its consolidated balance
sheet for new or existing lease arrangements with terms of 12 months or less. The Company recognizes lease expenses for such lease
on a straight-line basis over the lease term.
The
primary impact of applying ASC Topic 842 is the initial recognition of approximately $15,000 of lease liability and right-of-use
asset on the Company’s consolidated balance sheet as
of October 1, 2019, for lease classified as operating lease under ASC Topic 840, as well as enhanced disclosure of the Company’s
leasing arrangement. There is no cumulative effect to accumulated deficit or other components of equity recognized as of October
1, 2019 and the adoption of this standard did not impact the consolidated statement of operations and comprehensive loss or consolidated
statement of cash flows of the Company. The Company does not have finance lease arrangements as of December 31, 2019. See Note
8 for further discussion.
NOTE 3 – ACCOUNTS RECEIVABLE
At December 31, 2019 and September 30,
2019, accounts receivable consisted of the following:
|
|
December 31,
2019
|
|
|
September 30,
2019
|
|
Accounts receivable
|
|
$
|
254
|
|
|
$
|
453
|
|
Allowance for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
254
|
|
|
$
|
453
|
|
NOTE 4 – PROPERTY AND EQUIPMENT,
NET
At December 31, 2019 and September 30,
2019, property and equipment consisted of the following:
|
|
December 31,
2019
|
|
|
September 30,
2019
|
|
Office equipment
|
|
$
|
30,344
|
|
|
$
|
29,625
|
|
Furniture and fixtures
|
|
|
17,922
|
|
|
|
17,497
|
|
Sub-total
|
|
|
48,266
|
|
|
|
47,122
|
|
Less: accumulated depreciation
|
|
|
(36,511
|
)
|
|
|
(32,742
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
11,755
|
|
|
$
|
14,380
|
|
For the three months ended December 31,
2019 and 2018, depreciation expense amounted to $2,942 and $5,635, respectively, which is included in general and administrative
expenses, research and development expenses and cost of revenues.
NOTE 5 – SHORT-TERM LOANS
As of December 31, 2019 and September
30, 2019, the balance of the short-term loans was $57,497. The amount represents loans borrowed from an individual and a company
that are unsecured, no interest bearing and due on demand.
NOTE 6 – 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
CXKJ is incorporated in the State of Nevada
and is subject to the United States federal income tax. 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 December 31, 2019 and 2018.
Cayman Islands
CX Cayman is incorporated in the Cayman
Islands. Under the current laws of the Cayman Islands, CX Cayman is not subject to tax on income or capital gains. In addition,
upon payments of dividends by CX Cayman, no Cayman Islands withholding tax is imposed.
Hong Kong
CX HK is incorporated in Hong Kong and
Hong Kong’s profits tax rate is 8.25% for the first $0.26 million (HK$2 million), the excess part will be taxed at 16.5%.
CX HK did not earn any income that was derived in Hong Kong for the three months ended December 31, 2019 and 2018 and therefore,
CX HK was not subject to Hong Kong profits tax for the periods reported.
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.
CX Network did not generate taxable income
in the PRC for the three months ended December 31, 2019 and 2018. Management estimated that CX Network will not generate any taxable
income in the future.
Shenzhen CX was incorporated in the PRC.
For the three months ended December 31, 2019 and 2018, Shenzhen CX incurred net operating losses and no provision for income taxes
has been recorded. In addition, a full valuation allowance has been provided against Shenzhen CX’s deferred income tax assets
due to the uncertainty of the realization of any tax assets.
NOTE 7 – RELATED PARTY TRANSACTIONS
The related parties consist of the following:
Name
of Related Party
|
|
Nature
of Relationship
|
Jiyin Li
|
|
Chairman
|
Huibin Su
|
|
Chief Executive Officer and Chief Financial
Officer
|
Chaoran Zhang
|
|
Significant Shareholder of Shenzhen CX
|
Zizhong Huang
|
|
Chief Operating Officer
|
Due to related parties
Due to related parties consist of the
following:
|
|
December 31,
2019
|
|
|
September 30,
2019
|
|
Jiyin Li
|
|
$
|
1,279
|
|
|
$
|
1,279
|
|
Huibin Su
|
|
|
495,152
|
|
|
|
445,607
|
|
Chaoran Zhang
|
|
|
14,354
|
|
|
|
14,013
|
|
Total
|
|
$
|
510,785
|
|
|
$
|
460,899
|
|
The balance of due to related parties
represents expense paid by related parties on behalf of the Company and the loans the Company obtained from related parties for
working capital purpose. The loans owed to the related parties are interest free, unsecured and repayable on demand.
During the three months ended December
31, 2019 and 2018, the Company obtained loans from the above related parties in the amount of $46,369 and $40,834, respectively,
and made repayment to them in the amount of $1,562 and $14,105, respectively.
During the three months ended December
31, 2019 and 2018, Huibin Su paid expenses on behalf of the Company in the amount of $1,840 and $3,870, respectively.
In addition, during the three months ended
December 31, 2019 and 2018, Dongguan FirstWisdom Listing Services Co., Ltd, a company controlled by Chaoran Zhang and Huibin Su,
was allowed to share the office space leased by Shenzhen CX at no cost. During the three months ended December 31, 2019 and 2018,
friends of Huibin Su provided office spaces to CX HK and Shenzhen CX free of charge. Yi Zhang, a friend of Huibin Su, also provided
non-compensated accounting services to the Company during the three months ended December 31, 2019 and 2018.
NOTE 8 – OPERATING LEASE
On May 10, 2018, the Company entered into
a lease agreement for its office with a monthly rent of RMB15,000 (approximately $2,130) and a term of two years. Effective October
1, 2019, the Company initially recognized operating lease liability of $14,714 and corresponding right-of-use asset of $15,332
based on the present value of the remaining minimum rental payments under current lease standards for existing operating lease.
The discount rate utilized in such present value calculation was 4.80% based on an estimate of the Company’s incremental
borrowing rate. In December 2019, the Company has terminated the lease.
During the three months ended December
31, 2019, the Company had operating lease expense of $4,879, and cash paid for amounts included in the measurement of operating
lease liability is $2,130. Operating lease right-of-use asset and operating lease liability in the amount of $10,566 has been
extinguished due to the lease termination in December 2019. The loss related to termination was $2,130 which is included in other
expenses. As of December 31, 2019, there is no operating lease right-of-use asset and operating lease liability in the consolidated
balance sheet.