SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Dec. 31, 2022

Accounting Policies [Abstract]

Basis of Presentation

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, 2022 included in the Form 10-K filed with the SEC on December 29, 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

Basis of Consolidation

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

Use of Estimates and Assumptions

Use of Estimates and Assumptions

The preparation of the condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates 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 three months ended December 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.

Reclassification

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. Such reclassifications had no effect on the prior period net income, accumulated deficit, net assets, or total shareholders’ deficit.

Going Concern

Going Concern

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 on 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 three months ended December 31, 2022, the Company incurred cash outflows from operating activities of $242,912, a net loss of $760,313 and a negative working capital of $5,086,513. Although the businesses and markets in mainland China have reopened as mainland China has relaxed its COVID-19 policies and controls, cases of COVID-19 have increased significantly, particularly in the metropolitan areas, which may cause restrictions on our service agents to travel and launch face-to-face marketing activities. In addition, our online sales during the first quarter of 2023 were slack, and there is a delay in the approval process for our permit for the construction of Smart Kiosks due to the closure of government agencies in the affected areas in the PRC. 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 are not limited to, increasing sales through the Company’s online business, reducing overhead costs, obtaining advances of funds from the Company’s stockholders and directors, or financing through the issuance of shares. Since the first quarter of 2022, the Company has been focusing on increasing its revenue through its new online platform, Kun Zhi Jian, to explore wholesale markets. This online platform focuses on promoting and selling our own brand of preventive health care products to wholesalers. The Company also launched advertising campaigns to promote its own brand. The Company streamlined its administrative overhead costs. For example, we reduced the compensation and benefits of our executives and decreased office supplies expense.

In order to continue as a going concern for the next 12 months, the Company continues to focus on increasing its revenue through its online platforms and streamlining its overhead costs or obtaining financing from its stockholders or directors. As we expect the COVID-19 pandemic and restrictive governmental controls in the PRC will be gradually softened, each of our service agents plans to launch three marketing campaigns every week to promote our own brand products, particularly thermal therapy cabins. 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 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

COVID-19 Outbreak

Businesses and markets in mainland China have reopened and mainland China relaxed its policies and controls relating to COVID-19 in early December 2022. However, a number of major metropolitan areas in the PRC, such as Shanghai, Beijing, Shenzhen, Chengdu, Dalian, and Guiyang, experienced a COVID-19 resurgence, which caused restrictions on our service agents to travel and launch face-to-face marketing activities. Shortage of logistics and delivery capacity in those affected communities precluded our customers from placing orders online. Due to closures and access restriction in certain affected areas and government agencies, the approval process of our applications for the construction of Smart Kiosks was postponed, which impacts our plan of enhancing our face-to-face customer services and increasing our market share.

The Company continues to focus its business on its online platform, King Eagle Mall, and to promote its own brand of consumer health care and health related household products on its new online platform, Kun Zhi Jian, which was introduced and implemented in October 2022, to mitigate the adverse impacts of COVID-19. The Company also follows up closely with the local governmental agencies regarding its applications for construction permits for Smart Kiosks.

While we do not expect that the virus will continue to have a material adverse effect on our business or financial results at this time, it is not possible to predict the unanticipated consequence of the pandemic on our future business performance and liquidity due to the severity of the situation with 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

Earnings (Loss) Per Share

Basic income (loss) per share is computed by dividing net income (loss) attributable to the holders of our common stock by the weighted average number of shares of common stock outstanding during the year. Diluted income (loss) per share is calculated by dividing net income (loss) attributable to the holders of our common stock, as adjusted for the effect of dilutive common stock equivalents, if any, by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the period. However, common stock 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.

Foreign Currency Translation

Foreign Currency Translation

The reporting currency of the Company is the U.S. Dollar. Our entity in the British Virgin Islands uses the U.S. dollar. Our entities in the PRC and Hong Kong use the local currencies, Renminbi (RMB) and Hong Kong Dollar (HKD), as their respective functional currencies as determined based on the criteria of ASC 830, “Foreign Currency Translation.”

Assets and liabilities are translated at the unified exchange rate at the end of the period. Income and expense accounts are translated at the average translation rates and equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of equity. Transaction gains and 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.

Translation adjustments included in accumulated other comprehensive income amounted to $140,757 and $279,367, as of December 31, 2022 and September 30, 2022, respectively.

The following table shows the foreign exchange rates used for translation:

the exchange rates set forth on the www.xe.com	Hong Kong Dollar (HKD)		Chinese Renminbi (RMB)
As of September 30, 2022 (Closing Rate)
United States dollar ($1)		7.8500		7.1159
For the three-month period ended December 31, 2021 (Average Rate)
United States dollar ($1)		7.7897		6.3952

the exchange rates set forth in the H.10 statistical release of the Federal Reserve Board	Hong Kong Dollar (HKD)		Chinese Renminbi (RMB)
As of December 31, 2022 (Closing Rate)
United States dollar ($1)		7.8015		6.8972
For the three-month period ended December 31, 2022 (Average Rate)
United States dollar ($1)		7.8214		7.1120

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and a certain amount of cash kept in electronic wallets, “e-wallets.”

We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. We maintain accounts with various financial institutions in the PRC and in e-wallets. As of December 31, 2022 and September 30, 2022, cash balances held in PRC banks are uninsured. Monies that are held in e-wallets are deemed equivalent to cash, are highly liquid, and are relatively unsafe compared to cash in banks. We have not experienced any losses in bank accounts or e-wallets and believe we are not exposed to significant risks with respect to our cash in bank accounts and low risk with respect to our cash kept in e-wallets.

Financial Instrument

Financial Instrument

The carrying amount reported in the balance sheet for cash, other receivables, accrued liabilities and other payables approximate fair value because of the immediate or short-term maturity of these financial instruments.

Property and Equipment

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and impairment losses. Gains and losses on dispositions of property and equipment are included in operating income (loss). Major additions, renewals, and improvements are capitalized, while maintenance and repairs are recognized as expense as incurred.

Depreciation is provided over the estimated useful life of each class of depreciable assets and is computed using the straight-line method over the useful lives of the assets as follows:

Classification	Estimated useful life
Leasehold improvements	5 years
Office equipment	3 years
Computer equipment	3 years
Computer software	5 years

Fair Value Measurements

Fair Value Measurements

The Company applies the provisions of ASC Subtopic 820-10, “Fair Value Measurements,”, for fair value measurements of financial assets and financial liabilities and for fair value measurements of non-financial items that are recognized or disclosed at fair value in the financial statements. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

● Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

● Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

● Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

The Company’s financial assets and liabilities include cash, receivables, accounts payable, and accrued expenses.

Related Party Transactions

Related Party Transactions

The Company follows the ASC 850-10, “Related Party Disclosures” for the identification of related parties and disclosure of related party transactions.

Pursuant to section 850-10-20, related parties include a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and income-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

The condensed consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented; and c) such other information deemed necessary to an understanding of the nature of the related party transactions.

Comprehensive (Loss) Income

Comprehensive (Loss) Income

Other comprehensive (loss) income refers to revenues, expenses, gains, and losses that under generally accepted accounting principles are included in comprehensive income but are excluded from net (loss) income as these amounts are recorded directly as an adjustment to stockholders’ equity. Our other comprehensive (loss) income for the three months ended December 31, 2022 and 2021 was comprised of foreign currency translation adjustments.

Revenue Recognition

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.

The Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”) using the full retrospective transition method. The Company’s adoption of ASU 2014-09 did not have a material impact on the amount and timing of revenue recognized in its consolidated financial statements.

The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

● identify the contract with a customer;

● identify the performance obligations in the contract;

● determine the transaction price;

● allocate the transaction price to performance obligations in the contract; and

● recognize revenue as the performance obligation is satisfied.

Consistent with the criteria of ASC 606 “Revenue from Contracts with Customers,” we recognize revenue when performance obligations are satisfied by transferring control of a promised good or service to a customer. For performance obligations that are satisfied at a point in time, we also consider the following indicators to assess whether control of a promised good or service is transferred to the customer: (i) right to payment; (ii) legal title; (iii) physical possession; (iv) significant risks and rewards of ownership; and (v) acceptance of the good or service. For performance obligations satisfied over time, we recognize revenue over time by measuring the progress toward complete satisfaction of a performance obligation.

We recognize revenue when control of the promised goods is transferred to customers of King Eagle Mall and our new online platform. Revenue is measured at the transaction price, which is based on the amount of consideration that we expect to receive in exchange for transferring the promised goods to our customers. The revenue mainly includes two customer types: retail (“King Eagle Mall” online platform) and wholesale (“Kun Zhi Jian,” our new online platform). The revenue is recognized at a point in time when control of the promised goods is transferred to our customers.

Deferred Revenue

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. We anticipated the majority of the revenue will be recognized in the fiscal year 2023. Management agreed that the amount received is non-refundable; however, this term is not bound by any agreement. Thus, customers may have the right to challenge and demand the advances to be refunded under relevant Commercial Laws or regulations.

Accrued Product Liability

Accrued Product Liability

The Company records accruals for product liability when deemed probable and estimable based on facts and circumstances and prior claims experience. Accruals for product credit are valued based upon the Company’s prior claims experience, including defective goods and goods lost in transit. As we have experienced insignificant amounts of goods returned and claims from goods lost in transit in the past, our product liability is insignificant; therefore, management believes product liability accrual as at December 31, 2022 and September 30, 2022 is negligible.

Discount allowed - Accrued Store-Credit

Discount allowed - Accrued Store-Credit

We provide store-credit, “Golden Beans,” to our customers after sales of goods to them. The Golden Beans can be utilized against their future purchases with restrictions and expiry date. The amount utilized will be recognized as direct discount as and when the sales arise, and the price net of this discount has been controlled and set by management to ensure that the sales will always result in a gross profit. As such, we do not accrue any liability from this store-credit as there is no present obligation arising from Golden Beans as of December 31, 2022 and September 30, 2022, and the utilization of these Golden Beans is not expected to result in an outflow from the Company’s resources embodying economic benefits.

Lease

Lease

Under ASC Topic 842, the Company determines if an arrangement is a lease at inception. Lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate based on the information available at the lease commencement date. The Company generally uses the base, non-cancelable lease term in calculating the right-of-use assets and lease liabilities.

The Company may recognize the lease payments in the condensed consolidated statements of operation on a straight-line basis over the lease terms and variable lease payments in the periods in which the obligations for those payments are incurred, if any. The lease payments under the lease arrangements are fixed.

The Company elected the package of practical expedients, which allows the Company to carry-forward its historical lease classification, its assessment on whether a contract is or contains a lease, and its initial direct costs for any lease that exists prior to adoption of the new standard.

The Company also elected to apply the short-term lease exception for lease arrangements with a lease term of 12 months or less at commencement. Lease terms used to compute the present value of lease payments do not include any option to extend, renew, or terminate the lease that the Company is not reasonably certain to exercise upon the lease inception. Accordingly, operating lease right-of-use assets and liabilities do not include leases with a lease term of 12 months or less.

Research and Development Expenses

Research and Development Expenses

Research and development (R&D) expenses are all costs associated with the original development and design of the product as well as any intellectual property (IP) generated during the development phase, including patents and copyrights. Research and development expenses are included in the overall operating expenses and reflected as a separate line item on the consolidated statement of operations.

We purchase the consumer preventive health food and health related household products sold on our platforms from our suppliers and we did not develop, design, or manufacture those products. Moreover, although we have built our online platform and mobile commerce in-house, the compensation costs for our in-house technology team were not significant. Accordingly, instead of capitalizing the compensation costs of our in-house technology team as research and development on the Balance Sheet or presenting them as research and development expenses, we included these amounts in employee compensation and benefit expenses within general and administrative expenses for the three months ended December 31, 2022 and 2021.

Selling Expenses

Selling Expenses

Selling expenses consist primarily of marketing and promotional service fees to service agents and other costs incurred by our sales and marketing department, such as staff costs, office supplies, and other incidental expenses that are incurred directly to attract or retain consumers.

Our selling expenses for the three months ended December 31, 2022 and 2021 were $728,792 and $3,265,453, respectively. We recognized the marketing and promotional service expense when our service agents performed marketing activities, promotions, and exhibitions for our business and products. For the three months ended December 31, 2022 and 2021, we recorded marketing and promotional service fees to our service agents in an amount of $546,660 and $3,020,635, respectively.

Recently Adopted Accounting Standards

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 a significant impact on its condensed consolidated financial statements.

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 adopted this standard in the first quarter of fiscal 2023 and evaluated that this new guidance does not have a significant impact on its condensed consolidated financial statements.

In the period from December 2022 through January 2023, the FASB has not issued additional accounting standards updates.