UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
THE SECURITIES EXCHANGE ACT OF 1934
For
the quarter ended
For the transition period from ____________to ____________
Commission
File Number :
(Exact name of registrant as specified in its charter)
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(I.R.S. Employer incorporation or organization) |
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Indicate by check mark whether the registrant (1) 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.
☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding twelve months (or shorter period that the registrant was required to submit and post such files).
☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” or an “emerging growth company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at July 10, 2024 | |
| Common Stock, $0.001 par value |
CXJ GROUP CO LIMITED.
TABLE OF CONTENTS
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SPECIAL NOTE REGARDING FORWARD—LOOKING STATEMENTS
Statements made in this Form 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the “Act”) and Section 21E of the Securities Exchange Act of 1934. These statements often can be identified by the use of terms such as “may”, “will”, “expect”, “believe”, “anticipate”, “estimate”, “approximate” or “continue”, or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
Financial information contained in this quarterly report and in our unaudited interim financial statements is stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
The accompanying interim financial statements of CXJ GROUP CO., Limited (“the Company”, “we”, “us” or “our”), have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted principles have been condensed or omitted pursuant to such rules and regulations.
The interim financial statements are condensed and should be read in conjunction with the Company’s latest annual financial statements.
In the opinion of management, the financial statements contain all material adjustments, consisting only of normal adjustments considered necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented.
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CXJ GROUP CO., LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF August 31, 2023 and May 31, 2023
(Currency Expressed In United States Dollars (“US$”), Except For Number Of Shares)
| August 31, 2023 | May 31, 2023 | |||||||
| Unaudited | Audited | |||||||
| $ | $ | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | ||||||||
| Accounts receivable | ||||||||
| Prepayments, deposits and other receivables | ||||||||
| Due from related party | ||||||||
| Inventories | ||||||||
| Total Current Assets | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use assets | ||||||||
| Total Non-current Assets | ||||||||
| TOTAL ASSETS | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | ||||||||
| Advanced received, accrued expenses and other payables | ||||||||
| Due to related party | ||||||||
| Amount due to directors | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Total Current Liabilities | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Operating lease liabilities, non-current portion | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock, $ par value, and shares authorized, and shares issued and outstanding as of August 31, 2023 and May 31, 2023 respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income (loss) | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total CXJ Group Stockholders’ Equity | ||||||||
| Non-controlling interest | ||||||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
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CXJ GROUP CO., LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME / (LOSS)
FOR THE THREE MONTHS ENDED AUGUST 31, 2023
and AUGUST 31, 2022
(Currency Expressed In United States Dollars (“US$”), Except For Number Of Shares)
| For The Three Months Ended | ||||||||
| August 31, 2023 | August 31, 2022 | |||||||
| Unaudited | Unaudited | |||||||
| $ | $ | |||||||
| REVENUE | ||||||||
| COST OF REVENUE | ( | ) | ( | ) | ||||
| GROSS PROFIT | ||||||||
| OTHER INCOME | ||||||||
| SELLING AND DISTRIBUTION EXPENSES | ( | ) | ( | ) | ||||
| GENERAL AND ADMINISTRATIVE EXPENSES | ( | ) | ( | ) | ||||
| (LOSS)/PROFIT FROM OPERATIONS | ( | ) | ||||||
| INTEREST INCOME | ||||||||
| (LOSS)/PROFIT BEFORE INCOME TAX | ( | ) | ||||||
| INCOME TAXES EXPENSE | ( | ) | ||||||
| (LOSS)/PROFIT AFTER TAXATION | ( | ) | ||||||
| Less: Non-controlling Interest | ( | ) | ||||||
| (LOSS)/PROFIT ATTRIBUTABLE TO SHAREHOLDERS | ( | ) | ||||||
| Other comprehensive income/(loss): | ||||||||
| - Foreign exchange adjustment income | ( | ) | ||||||
| COMPREHENSIVE (LOSS)/PROFIT | ( | ) | ||||||
| Net loss per share - Basic and diluted | ) | |||||||
| Weighted average number of common shares outstanding – Basic and diluted | ||||||||
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CXJ GROUP CO., LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED AUGUST 31, 2023 AND 2022
(Currency Expressed In United States Dollars (“US$”), Except For Number Of Shares)
(Unaudited)
For the three months ended August 31, 2023
| Common Stock | Additional | Accumulated Other | Non- | Total | ||||||||||||||||||||||||
Number of Shares | Amount | Paid-In Capital | Comprehensive Income | Accumulated Deficit | Controlling Interest | Stockholders’ Equity | ||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Balance as of May 31, 2023 | ( | ) | ||||||||||||||||||||||||||
| Common Stock issued | ||||||||||||||||||||||||||||
| Disposal of Subsidiary | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Accumulated other Comprehensive Income | - | ( | ) | |||||||||||||||||||||||||
| Net (loss)/profit | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Non-controlling interest | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of August 31, 2023 | ( | ) | ||||||||||||||||||||||||||
For the three months ended August 31, 2022
| Common Stock | Additional | Accumulated Other | Non- | Total | ||||||||||||||||||||||||
Number of Shares | Amount | Paid-In Capital | Comprehensive Income | Accumulated Deficit | Controlling Interest | Stockholders’ Equity | ||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Balance as of May 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Common Stock issued | ||||||||||||||||||||||||||||
| Accumulated other Comprehensive Income | - | |||||||||||||||||||||||||||
| Net (loss)/profit | - | |||||||||||||||||||||||||||
| Non-controlling interest | - | |||||||||||||||||||||||||||
| Balance as of August 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
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CXJ GROUP CO., LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 2023 and 2022
(Currency Expressed In United States Dollars (“US$”), Except For Number Of Shares)
(Unaudited)
| For The Three Months Ended | ||||||||
| August 31, 2023 | August 31, 2022 | |||||||
| $ | $ | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (Loss)/Profit | ( | ) | ||||||
| Adjustments to reconcile net (loss)/profit to net cash provided by/(used in) operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of right-of-use assets | ||||||||
| Amortization of intangible assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivables | ( | ) | ( | ) | ||||
| Prepayments, deposits and other receivables | ||||||||
| Inventories | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Advanced received, accrued liabilities and other payable | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITY: | ||||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ||||
| Purchase of intangible assets | ( | ) | ||||||
| Disposal of subsidiary, net of cash disposed | ( | ) | ||||||
| Net cash used in investing activity | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from share issuance | ||||||||
| Repayment from related party | ( | ) | ( | ) | ||||
| Advances (from)/to directors | ( | ) | ||||||
| Net cash (used in)/provided by financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | ||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of year | ||||||||
| CASH AND CASH EQUIVALENTS, END OF YEAR | ||||||||
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CXJ GROUP CO., LIMITED
NOTES TO CONSOLIDATED STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2023 and year ended may 31, 2023
EXPRESS IN UNITED STATES DOLLARS
(Unaudited)
Note 1. Company Overview
CXJ Group Co., Limited (“we”, “us”, the “Company” or “ECXJ”) was originally incorporated in State of Nevada on August 20, 1998 under the name Global II, Inc and underwent several name changes prior to its current name. Until August 2019, the Company was known as Global Entertainment Corp., which was a dormant company.
On
March 04, 2019, the eight judicial District Court of Nevada appointed Custodian Ventures, LLC as custodian for the Company, proper notice
having been given to the officers and directors of Global Entertainment Corporation. There was no opposition. On June 18, 2019, control
of the Company was transferred by the entity controlled by Custodian Ventures, LLC to Xinrui Wang, our director, by selling him
shares of Series A Preferred stock and shares of common stock for a purchase price of $
On June 21, 2019, Lixin Cai was appointed act as the new President, CEO, Secretary and Chairman of the Board of Directors of the Company. On June 21, 2019, Cuiyao Luo was appointed act as the new CFO, Treasurer and Member of the Board of Directors of the Company. On September 30, 2019, the Company appointed three more members to the Board of Directors of the Company, and they are Xinrui Wang, Wenbin Mao and Baiwan Niu.
Effective
July 9, 2019 we changed our name from Global Entertainment Corp to CXJ Group Co., Limited. On July 12, 2019, the Company effectuated
a
On
October 4, 2019, Xinrui Wang (the “Seller”), entered into a Stock Purchase Agreement to pursuant to which the Seller agreed
to sell to Wenbin Mao and Baiwan Niu (the “Purchasers”), totaling preferred stock of the Company (“Shares”)
owned by the Seller, for an amount of $
On May 28, 2020, we consummated the transactions contemplated by the Share Exchange Agreement among the Company, CXJ Investment Group Company Limited, a British Virgin Islands Corporation (“CXJ”) and the shareholder of CXJ, pursuant to which we acquired all the ordinary shares of CXJ in exchange for the issuance to the shareholder of CXJ of an aggregate of shares of the Company. The shareholder is the selling security holder in this prospectus and are all affiliates. As a result of the transactions contemplated by the Share Exchange, CXJ became a wholly-owned subsidiary of the Company.
Effective May 13, 2022, we have appointed Messrs. Tianbing Yang and Rudong Shi as members of our Board of Directors.
On
June 14, 2022, CXJ Group Co., Limited (“Company”) completed the issuance and sales of an aggregate of shares at a
price of $ per shares with each share consisting of one share of the Company’s common stock, par value $ per share (the
“Common Stock”) in a private placement to Minggang Qian (the “Purchaser”), pursuant to the Subscription Agreement
dated as of June 9, 2022 between the Company and the Purchaser. The net proceeds to the Company amounted to $
On 15 July, 2022, Mr. Wenbin Mao, Mr. Baiwan Niu, Mr. Tianbing Yang and Ms. Cuiyao Luo tendered their resignation for personal reasons and resigned as a member of the Board of the Company with effective from 28 July, 2022. The Board accepted the resignation of Mr. Wenbin Mao, Mr. Baiwan Niu, Mr. Tianbing Yang and Ms. Cuiyao Luo, and expressed sincere gratitude for their service term as a member of the Board.
On
August 1, 2023, CXJ Technology (Hangzhou) Co., Ltd, a Chinese corporation and a subsidiary of CXJ Group Co., Limited (“the Company”),
signed an equity transfer agreement (the “Agreement”) with Mr. Qing Wang. Under this agreement, the Company will dispose
On August 14, 2023, the Board approved the appointment of Zhen Hui Certified Public Accountant (“Zhen Hui”) as the Company’s new independent registered public accounting firm for the fiscal year ending May 31, 2022 and May 31, 2023 with effective immediately.
On May 3, 2024, the Board approved the resignation of Zhen Hui Certified Public Accountant (“Zhen Hui”) as the Company’s independent registered public accounting firm with immediate effective.
On May 3, 2024, the Board approved the appointment of J & S Associate Plt (“J & S”) as the Company’s new independent registered public accounting firm for the fiscal year ending May 31, 2024 with effective immediately.
ECXJ, through its wholly owned subsidiary, CXJ and its subsidiaries and the VIE own and operate an active automobiles products trading and services business in the People’s Republic of China.
| 8 |
Note 2. Summary of Significant Accounting Policies
(a) Basis of presentation and liquidation
The condensed consolidated balance Sheets as of August 31, 2023 and May 31, 2023 and the condensed consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flow for the three months ended August 31, 2023 and 2022 have been prepared by the Company is in conformity with generally accepted accounting principles in the United States (“US GAAP”).
The
Company incurred net loss of $
As
of August 31, 2023 and May 31, 2023, the Company had cash and cash equivalents of $
The company is currently seeking to restructure the terms of our liabilities by raising funds to pay off liabilities. Our ability to continue as a going concern is dependant upon obtaining the necessary financing and negotiating the terms of the existing borrowing to meet our current and future liquidity needs.
(b) Going Concern Uncertainties
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has an accumulated
deficit of $
The Company’s cash position is not significant to support the Company’s daily operation. While the Company believes in the viability of its business strategy plans such as cloud chain, wechat’s sales model and duoyin e-commerce sales model, and in its ability to raise additional funds, there can be no assurance to that effect. The Company’s ability to continue as a going concern is dependent upon its ability to improve profitability and the ability to acquire financial support from its major shareholder.
These and other factors raise substantial doubts about the Company’s ability to continue as a going concern within one year after the date that financial statements are issued. These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classification of liabilities that may result in the Company not being able to continue as a going concern.
(c) Principles of Consolidation
The accompanying consolidated financial statements include the financial statements of the Company, its subsidiaries and the VIE. All significant inter-company transactions and balances between the Company, its subsidiaries and the VIE have been eliminated upon consolidation.
To comply with PRC laws and regulations, the Company provides trading of motor oil, auto parts, exhaust gas cleaners and brand name management services in China via its VIE, which hold critical operating licenses that enable the Company to do business in China. Substantially all of the Company’s revenues, costs and net income (loss) in China are directly or indirectly generated through this VIE. The Company has signed various agreements with its VIE and legal shareholders of the VIE to allow the transfer of economic benefits from the VIE to the Company and to direct the activities of the VIE.
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The Company believes that the contractual arrangements among its subsidiaries, the VIE and its shareholders are in compliance with the current PRC laws and legally enforceable. However, uncertainties in the interpretation and enforcement of the PRC laws, regulations and policies could limit the Company’s ability to enforce these contractual arrangements. As a result, the Company may be unable to consolidate the VIE and its subsidiary in the consolidated financial statements. The Company’s ability to control its VIE also depends on the authorization by the shareholders of the VIE to exercise voting rights on all matters requiring shareholders’ approval in the VIE. The Company believes that the agreements on authorization to exercise shareholder’s voting power are legally enforceable. In addition, if the legal structure and contractual arrangements with its VIE were found to be in violation of any future PRC laws and regulations, the Company may be subject to fines or other actions. The Company believes the possibility that it will no longer be able to control and consolidate its VIE as a result of the aforementioned risks and uncertainties is remote.
The following table sets forth its subsidiaries and the VIE, including their country of incorporation or residence and our ownership interest in such subsidiaries. Please see “Note 4 VIE Structure and Arrangements”.
| Entity Name | Date of Incorporation | Parent Entity | Interest % |
Nature of Operation | Place of Incorporation | |||||
CXJ Investment Group Company Ltd (BVI CXJ) |
US CXJ | |||||||||
CXJ (HK) Technology Group Company Ltd (HK CXJ) |
BVI CXJ | |||||||||
CXJ (Shenzhen) Technology Co., Ltd (SZ CXJ) |
HK CXJ | |||||||||
| VIE: | ||||||||||
CXJ Technology (Hangzhou) Co., Ltd (HZ CXJ) |
SZ CXJ | |||||||||
Qingdao Hong Run Kuo Ye Network Technology Co., Ltd (QD CXJ) |
HZ CXJ | |||||||||
Xishijie Automobile Industry Ecology Technology Co., Ltd (formerly known as Shenzhen Lanbei Ecological Technology Co., Ltd) (SZ Lanbei) |
HZ CXJ | |||||||||
Longkou Xianganfu Trading Co., Ltd. (Longkou CXJ) |
SZ CXJ |
The
Company disposed
(d) Use of Estimates
The accompanying consolidated financial statements have been prepared in conformity with US GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet date and revenues and expenses during the reporting periods. Significant accounting estimates reflected in the Company’s consolidated financial statements include, but not limited to economic lives and impairment of long-lived assets, valuation allowance for deferred tax assets, and uncertain tax position. Changes in facts and circumstances may result in revised estimates. Actual results could differ from those estimates, and as such, differences may be material to the consolidated financial statements.
| 10 |
(e) Foreign Currency
The functional currency of the Company, CXJ Group Co., Ltd, CXJ Investment Group Company Ltd and CXJ (HK) Technology Group Company Ltd is US Dollar. The VIE determined their functional currency to be Chinese Renminbi, or RMB based on the criteria of ASC 830, Foreign Currency Matters. The Company uses USD as its reporting currency.
The Company uses the average exchange rate for the year and the exchange rate at the balance sheet date to translate the operating results and financial position, respectively. The Company also uses the historical exchange rate at the initial transaction date to translate the capital and various reserve items. Translation differences are recorded in accumulated other comprehensive income (loss), a component of shareholders’ deficits.
Translation of amounts from RMB into US$1 has been made at the following exchange rates for the respective periods:
| As of and for the three months ended August 31, | ||||||||
| 2023 | 2022 | |||||||
| Period-end RMB: US$1 exchange rate | ||||||||
| Period-average RMB: US$1 exchange rate | ||||||||
(f) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, demand deposits placed with banks or other financial institutions and have original maturities of less than three months.
(g) Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated at the historical carrying amount net of allowance for doubtful accounts.
The Company maintains an allowance for doubtful accounts which reflects its best estimate of amounts that potentially will not be collected. The Company determines the allowance for doubtful accounts taking into consideration various factors including but not limited to historical collection experience and credit-worthiness of the debtors as well as the age of the individual receivables balance. Additionally, the Company makes specific bad debt provisions based on any specific knowledge the Company has acquired that might indicate that an account is uncollectible. The facts and circumstances of each account may require the Company to use substantial judgment in assessing its collectability.
(h) Inventories, Net
Inventories, consist of finished goods, work in process, and raw materials. Inventories are stated at the lower of cost and net realizable value. Cost of inventory is determined using the weighted average cost method. Adjustments are recorded to write down the cost of inventory to the estimated net realizable value due to slow-moving and obsolete inventory, which is dependent upon factors such as historical and forecasted consumer demand, and promotional environment. The Company takes ownership, risks and rewards of the products purchased.
(i) Prepayments
Prepayments are mainly consisted of prepaid income tax, rental, prepayments for consulting fee and advances to supplies.
| 11 |
(j) Intangible Assets, Net
The Company’s intangible assets with definite useful lives primarily consist of software, non-patent technology and land use right. The Company typically amortizes its purchased software, non-patent technology and land use right with definite useful lives on a straight-line basis over the shorter of the contractual terms or the estimated useful Lives. The Company’s policy is to write off 100% of the in-house developed software expenses during the year incurred.
According to the law of PRC, the government owns all the land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the Chinese government for a specified period of time. The Company amortizes its land use rights using the straight-line method over the periods the rights are granted.
The estimated useful lives of purchased software and non-patent technology are as follow:
(k) Impairment of Long-lived Assets Other Than Goodwill
The Company evaluates its long-lived assets, including fixed assets and intangible assets with finite lives, for impairment whenever events or changes in circumstances, such as a significant adverse change to market conditions that will impact the future use of the assets, indicate that the carrying amount of an asset may not be fully recoverable. When these events occur, the Company evaluates the recoverability of long-lived assets by comparing the carrying amount of the assets to the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, the Company recognizes an impairment loss based on the excess of the carrying amount of the assets over their fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets, when the market prices are not readily available.
(l) Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. In accordance with FASB ASC Topic 350, “Intangibles-Goodwill and Others”, goodwill is subject to at least an annual assessment for impairment or more frequently if events or changes in circumstances indicate that an impairment may exist, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04), which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for annual and interim reporting periods beginning after December 15, 2022 for smaller reporting companies. The Company has early adopted ASU 2017-04 on January 1, 2020.
(m) Fair Value of Financial Instruments
The Company’s financial instruments include cash and cash equivalents, amount due from/to related parties, merchant deposits, payables to merchants. The carrying values of these financial instruments approximate their fair values due to their short-term maturities.
The Company applies ASC 820, Fair Value Measurements and Disclosures, (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 requires disclosures to be provided on fair value measurement.
| 12 |
ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2—Other inputs that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs which are supported by little or no market activity.
ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach; and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.
(n) Revenue Recognition
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients.
Revenues are recognized when the promised products have been confirmed of delivery or services have been transferred to the consumers in amounts that reflect the consideration the customer expects to be entitled to in exchange for those services. The Company presents value added taxes (“VAT”) as reductions of revenues. The Company recognizes revenues net of value added taxes (“VAT”) and relevant charges.
Product Revenue
We generate revenue primarily from the sales of motor oil, auto parts and automobile exhaust cleaners directly to customers. We recognize product revenue at a point in time when the control of the products has been transferred to customers. The transfer of control is considered complete when products have been picked up by or shipped to our customers. Our sales arrangements for automobile exhaust cleaners and auto parts usually require a full prepayment before the delivery of products.
We also generate revenue from the sales of auto parts directly to the customers, such as a business or individual engaged in auto parts businesses. We recognize revenue at a point in time when products are delivered and customer acceptance is made. For the sales arrangements of auto parts products, we generally require payment upon issuance of invoices.
Service Revenue
We also generate revenue from brand name authorization fee and brand name management service under separate contracts. Revenue from brand name authorization and management services include service fees for provision of brand name “teenage hero car” to our customers, and provision of management service. Revenue from the maintenance service to the customers is recognized at a point in time when services are provided. Revenue from the management service to the customer is recognized as the performance obligation is satisfied over time over the contracting period.
(o) Sales and Distribution Expense
Selling
and distribution expenses amounted to $
| 13 |
(p) General and Administrative Expenses
General
and administrative expenses amounted to $
(q) Operating Leases
Prior to the adoption of ASC 842 on January 1, 2019:
Leases, mainly leases of factory buildings, offices and employee dormitories, where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases are recognized as an expense on a straight-line basis over the lease term. The Company had no finance leases for any of the periods stated herein.
Upon and hereafter the adoption of ASC 842 on January 1, 2019:
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liability, and operating lease liability, non-current in the Company’s consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option, if any. As the Company’s leases do not provide an implicit rate, the Company used an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company has elected to adopt the following lease policies in conjunction with the adoption of ASU 2016-02: (i) for leases that have lease terms of 12 months or less and does not include a purchase option that is reasonably certain to exercise, the Company elected not to apply ASC 842 recognition requirements; and (ii) the Company elected to apply the package of practical expedients for existing arrangements entered into prior to January 1, 2019 to not reassess (a) whether an arrangement is or contains a lease, (b) the lease classification applied to existing leases, and(c) initial direct costs.
(r) Value-added Taxes
Revenue
is recognized net of value-added taxes (“VAT”).
(s) Income Taxes
The Company followed the liability method of accounting for income taxes in accordance with ASC 740, Income Taxes, or ASC 740. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company recorded a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in tax expense in the period that includes the enactment date of the change in tax rate.
| 14 |
The Company accounted for uncertainties in income taxes in accordance with ASC 740. Interest and penalties related to unrecognized tax benefit recognized in accordance with ASC 740 are classified in the consolidated statements of comprehensive loss as income tax expense.
British Virgin Island
Under the current tax laws of British Virgin Island, the Company and its subsidiaries are not subject to tax on their income or capital gains. In addition, upon of dividends by the Company to its shareholders, no British Virgin Island withholding tax will be imposed.
United States
Under the current tax laws of United States, the Company and its subsidiaries are not subject to tax on their income or capital gains. In addition, upon of dividends by the Company to its shareholders, no United States withholding tax will be imposed.
P.R.C China
The
China Corporate Income Tax Law (“CIT Law”) became effective on January 1, 2008. Under the CIT Law, China’s dual tax
system for domestic enterprises and foreign investment enterprises (“FIEs”) was effectively replaced by a unified system.
The new law establishes a tax rate of
The following table reconciles the PRC statutory rates to the Company’s effective tax rate for the three months ended August 31, 2023 and August 31, 2022, respectively:
| For the three months ended August 31, 2023 | For the three months ended August 31, 2022 | |||||||
| PRC statutory rate | % | % | ||||||
| Net operating losses for which no deferred tax assets was recognized | ( | )% | ( | )% | ||||
| The Company’s expense is out of limit than that of PRC statutory tax policy allowed | % | % | ||||||
| Effective income tax rate | % | % | ||||||
Income tax expense for the three months ended August 31, 2023 and August 31, 2022, respectively are as follows:
| For the three months ended | ||||||||
| August 31, 2023 | August 31, 2022 | |||||||
| Current | ( | ) | ||||||
| Deferred | ||||||||
| Income tax expense/(income) | ( | ) | ||||||
(t) Employee Benefit Expenses
As stipulated by the regulations of the PRC, full-time employees of the Company are entitled to various government statutory employee benefit plans, including medical insurance, maternity insurance, workplace injury insurance, unemployment insurance and pension benefits through a PRC government-mandated multi-employer defined contribution plan. The Company is required to make contributions to the plan and accrues for these benefits based on certain percentages of the qualified employees’ salaries.
| 15 |
(u) Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the changes in equity of the Company during a period from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. Among other disclosures, ASC 220, Comprehensive Income, requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. For each of the periods presented, the Company’s comprehensive income (loss) includes net loss and foreign currency translation adjustment and is presented in the consolidated statements of operations and comprehensive income (loss).
Basic loss per share is computed by dividing net loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period using the two-class method. Under the two-class method, net loss is allocated between ordinary shares and other participating securities based on their participating rights. Diluted loss per share is calculated by dividing net loss attributable to ordinary shareholders by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares consist of shares issuable upon the exercise of share options using the treasury stock method. Ordinary equivalent shares are not included in the denominator of the diluted loss per share calculation when inclusion of such shares would be anti-dilutive.
(w) Segment Reporting
The
Company follows ASC 280, Segment Reporting. The Company’s Chief Executive Officer as the chief operating decision-maker reviews
the consolidated financial results when making decisions about allocating resources and assessing the performance of the Company as a
whole and hence, the Company has only
(x) Recently Issued Accounting Standards
Recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
Note 3. Acquisition
On
March 28, 2019, Mr. Cai, Lixin (Mr. Cai), the Company’s Chairman of the Board and Chief Executive Officer and Chief Financial Officer,
incorporated CXJ Technology (Hangzhou) Co., Ltd (“HZ CXJ”) in Hangzhou, China. Mr. Cai in turn incorporated CXJ Investment
Group Company Ltd (“CXJ”), CXJ (HK) Technology Group Company Ltd (“HK CXJ”), and CXJ (Shenzhen) Technology Co.,
Ltd (“SZ CXJ”) and reorganized these entities with CXJ being a holding entity with the solely shareholder. As a result of
the reorganization, CXJ owns
On June 18, 2019, the Company underwent a change of control as a result of the transfer of shares of Series A Preferred stock (which voted on a 10 for one basis at the time of the change of control) from Custodian Ventures, LLC and shares of common stock to Xinrui Wang.
| 16 |
On May 28, 2020, we consummated the transactions contemplated by the Share Exchange Agreement among the Company, CXJ Investment Group Company Limited (“CXJ”), a British Virgin Islands Corporation and the shareholder of CXJ, pursuant to which we acquired all the ordinary shares of CXJ in exchange for the issuance to the shareholder of CXJ of an aggregate of shares of the Company. The shareholder is the selling security holder in this prospectus and are all affiliates. As a result of the transactions contemplated by the Share Exchange, CXJ became a wholly-owned subsidiary of the Company.
The Company accounted for above transaction as a reverse acquisition under ASC Subtopic 805-40, based on the fact that the CXJ is an accounting acquirer and the Company is the accounting acquiree. Meanwhile, the CXJ retrospectively consolidates the Company and as if it had been owned by CXJ since May 28, 2020, the date the Company was acquired by Mr. Lixin Cai, in accordance with ASC Subtopic 805-50.
On
August 19, 2021, CXJ Technology (Hangzhou) Co., Ltd acquired
On
June 14, 2022, CXJ Group Co., Limited (“Company”) completed the issuance and sales of an aggregate of shares at a
price of $ per shares with each share consisting of one share of the Company’s common stock, par value $ per share (the
“Common Stock”) in a private placement to Minggang Qian (the “Purchaser”), pursuant to the Subscription Agreement
dated as of June 9, 2022 between the Company and the Purchaser. The net proceeds to the Company amounted to $
On
November 4, 2022, CXJ (Shenzhen) Technology Co., Ltd acquired
On
August 1, 2023, CXJ Technology (Hangzhou) Co., Ltd, a Chinese corporation and a subsidiary of CXJ Group Co., Limited and signed an equity
transfer agreement (the “Agreement”) with Mr. Qing Wang. Under this agreement, the Company will dispose
Note 4. VIE Structure and Arrangements
The Company consolidates VIE in which it holds a variable interest and is the primary beneficiary through contractual agreements. The Company is the primary beneficiary because it has the power to direct activities that most significantly affect their economic performance and have the obligation to absorb the majority of their losses or benefits. The results of operations and financial position of the VIE are included in the Company’s consolidated financial statements.
In order to operate its business in PRC and to comply with PRC laws and regulations that prohibit or restrict foreign ownership of companies that provides value-added services, the Company entered into a series of contractual agreements with the VIE: CXJ Technology (Hangzhou) Co., Ltd. (“HZ CXJ”). These contractual agreements may not be terminated by the VIE, except with the consent of, or a material breach by us. Currently, the Company is still evaluating the overall operating strategy for business and does not have plan to provide any funding to the VIE.
The key terms of the VIE Agreements are summarized as follows:
(a) Exclusive Consulting and Services Agreement
The wholly foreign owned enterprise (“WFOE”) has the exclusive right to provide technical service, marketing and management consulting service, financial support service and human resource support services to the VIE, and the VIE is required to take all commercially reasonable efforts to permit and facilitate the provision of the services by WFOE. As compensation for providing the services, WFOE is entitled to receive service fees from the VIE equivalent to the WFOE’s cost plus certain percentage of such costs as calculated on accounting policies generally accepted in the PRC. The WFOE and the VIE agree to periodically review the service fee and make adjustments as deemed appropriate. The term of the Technical Services Agreement is perpetual, and may only be terminated upon written consent of both parties.
(b) Equity Pledge Agreement
The VIE’s shareholders pledged all of their equity interests in VIE (the “Collateral”) to WFOE, our wholly owned subsidiary in PRC, as security for the performance of the obligations to make all the required technical service fee payments pursuant to the Technical Services Agreement and for performance of the VIEs’ Shareholders’ obligation under the Call Option Agreement. The terms of the Equity Pledge Agreement expire upon satisfaction of all obligations under the Technical Services Agreement and Call Option Agreement.
| 17 |
(c) Exclusive Option Agreement
The VIEs’ Shareholders granted an exclusive option to WFOE, or its designee, to purchase, at any time and from time to time, to the extent permitted under PRC law, all or any portion of the VIE’s shareholders’ equity in the VIE. The exercise price of the option shall be determined by WFOE at its sole discretion, subject to any restrictions imposed by PRC law. The term of the agreement is until all of the equity interest in the VIE held by the VIEs’. Shareholders are transferred to WFOE, or its designee and may not be terminated by any part to the agreement without consent of the other parties.
(d) Power of Attorney
The VIE’s shareholders granted WFOE the irrevocable right, for the maximum period permitted by law, all of its voting rights as shareholders of the VIE. The VIE’s shareholders may not transfer any of its equity interest in the VIE to any party other than WFOE. The Power of Attorney agreements may not be terminated except until all of the equity in VIEs has been transferred to WFOE or its designee.
Note 5. Shareholders’ Equity
The Company has shares of common stock authorized with a par value of $ per share as of August 31,2023 and May 31, 2023.
Effective
July 9,2019 we changed our name from Global Entertainment Corp to CXJ Group Co., Limited. On July 12, 2019, the Company effectuated a
On
October 4, 2019, Xinrui Wang (the “Seller”), entered into a Stock Purchase Agreement pursuant to which the Seller agreed
to sell to Wenbin Mao and Baiwan Niu (the “Purchasers”), totaling preferred stock of the Company (“Shares”)
owned by the Seller, for an amount of $
On May 28, 2020, we consummated the transactions contemplated by the Share Exchange Agreement among the Company, CXJ Investment Group Company Limited, a British Virgin Islands Corporation (“CXJ”) and the shareholder of CXJ, pursuant to which we acquired all the ordinary shares of CXJ in exchange for the issuance to the shareholder of CXJ of an aggregate of shares of the Company. The shareholder is the selling security holder in this prospectus and are all affiliates. As a result of the transactions contemplated by the Share Exchange, CXJ became a wholly-owned subsidiary of the Company.
Note 6. Concentration of Risk
(a) Major Customers
For the three months ended August 31, 2023 and 2022, there was no customers who accounted for % or more of the Company’s revenue nor with significant outstanding receivables.
| 18 |
(b) Major Suppliers
For the three months ended August 31, 2023 and 2022, the vendors who accounted for % or more of the Company’s cost of revenue are presented as follows:
For The Three Months Ended August 31, | For The Three Months Ended August 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| $ | $ | % | % | |||||||||||||
| Foshanshi Yuansheng Blue Sea Automobile Technology Service Co., Ltd | % | % | ||||||||||||||
| Nanjing Western Oil Co., Ltd | % | |||||||||||||||
| Linyi Niubang International Trading Co., Ltd | % | |||||||||||||||
| Wuxi Anruichi Technology Co., Ltd | % | |||||||||||||||
| Guangzhou Kashide Car Accessories Co., Ltd | % | % | ||||||||||||||
| Hubei Shuqi New Technology Co., Ltd | % | |||||||||||||||
| Total | % | % | ||||||||||||||
Note 7. Account Receivables, Net
As
of August 31, 2023 and May 31, 2023. our account receivables are $
Note 8. Prepayment, Deposits and Other Receivables
Prepaid expenses and other receivables consisted of the following at August 31, 2023 and May 31, 2023:
| As of | Increase/ | |||||||||||
| August 31, 2023 | May 31, 2023 |
(Decrease) | ||||||||||
| (unaudited) | (audited) | |||||||||||
| $ | $ | $ | ||||||||||
| Prepayments | ( | ) | ||||||||||
| Deposits paid | ( | ) | ||||||||||
| Other receivables | ( | ) | ||||||||||
| Total | ( | ) | ||||||||||
As
of August 31, 2023, the prepayment balance $
As
of August 31, 2023 and May 31, 2023, the prepayments, deposits and other receivables are $
| 19 |
Note 9. Property, Plant and Equipment, Net
Property,
plant and equipment are recorded at cost. Depreciation is computed using the straight-line method over estimated useful lives of
Property, plant and equipment consisted of the following:
| As of | As of | |||||||
| August 31, 2023 | May 31, 2023 | |||||||
| (unaudited) | audited | |||||||
| $ | $ | |||||||
| Property, Plant and Equipment | ||||||||
| Less: Accumulated Depreciation | ( | ) | ( | ) | ||||
| Foreign translation difference | ( | ) | ( | ) | ||||
| Total property, plant and equipment, net | ||||||||
Note 10. Intangible Assets
The
intangible assets consist of costs incurred to develop the software and purchase costs of copyrights for business operations The in house
developed software costs are written off during the year incurred, and the purchase copyrights are amortization over its estimated useful
life. During the year, Lixin Cai increased the share capital of HZ CXJ to $
For
the period ended August 31, 2023 and May 31, 2023, the intangible assets balance are $
Intangible assets and related accumulated amortization are as followed:
| As of | As of | |||||||
| August 31, 2023 | May 31, 2023 | |||||||
| (unaudited) | audited | |||||||
| $ | $ | |||||||
| Purchased copyrights and software | ||||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Foreign translation difference | ( | ) | ||||||
| Total purchased copyrights and software, net | ||||||||
Note 11 – Business Combination and Goodwill
On
May 28, 2020, ECXJ completed the acquisition of
| 20 |
The determination of fair values involves the use of significant judgment and estimates and in the case of HZ CXJ, this is with specific reference to acquired intangible asset. The judgments used to determine the estimated fair value assigned to assets acquired and liabilities assumed, as well as the intangible asset life and the expected future cash flows and related discount rate, can materially impact the Company’s consolidated financial statements. Significant inputs and assumptions used for the model included the amount and timing of expected future cash flows and discount rate. The Company utilized the assistance of a third-party valuation appraiser to determine the fair value as of the date of acquisition.
The purchase price was allocated on the acquisition date of HZ CXJ as follows:
| As of May 28, 2020 | ||||
| $ | ||||
| Cash at banks and in hand | ||||
| Trade receivables | ||||
| Inventory on hand | ||||
| Prepayments, other receivables and deposits | ||||
| Due from a related party | ||||
| Due to directors | ||||
| Due from a shareholder | ||||
| Operating lease right-of-use assets | ||||
| Total assets | ||||
| $ | ||||
| Account Payable | ( | ) | ||
| Advanced Receipts | ( | ) | ||
| Accrued liabilities, other payable and deposits received | ( | ) | ||
| Due to a related company | ( | ) | ||
| Due to related parties | ( | ) | ||
| Due to directors | ( | ) | ||
| Operating lease liabilities, net of current portion | ( | ) | ||
| Operating lease liabilities, non current portion | ( | ) | ||
| Total liabilities | ( | ) | ||
| Net tangible liabilities | ( | ) | ||
| Goodwill | ||||
| Total purchase price | ||||
| $ | ||||
| Consideration in form of shares | ||||
| Total consideration | ||||
| 21 |
The Company’s policy is to perform its annual impairment testing on goodwill for its reporting unit on May 31, of each fiscal year or more frequently if events or changes in circumstances indicate that an impairment may exist. The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of CXJHZ to its carrying value. The Company used the income approach with the discounted cash flow valuation method with the assistance of a third-party valuation appraiser to estimate fair value, which requires management to make significant estimates and assumptions related to forecasted revenues and cash flows and the discount rate.
The
goodwill value $
| $ | ||||
| Goodwill as of May 31, 2020 | ||||
| Impaired goodwill written off - May 31, 2021 | ( | ) | ||
| Goodwill as of May 31, 2021 | ||||
| Impaired goodwill written off - May 31, 2022 | ( | ) | ||
| Goodwill as of May 31, 2022 | ||||
| Impaired goodwill written off - May 31, 2023 | ( | ) | ||
| Goodwill as of May 31, 2023 | ||||
On
August 1, 2023, CXJHZ disposed
The purchase price was allocated on the disposal date of Shenzhen Lanbei Ecological Technology Co., Ltd as follow:
| As of August 1, 2023 | ||||
| $ | ||||
| Cash at banks and in hand | ||||
| Trade receivables | ||||
| Inventory on hand | ||||
| Prepayments, other receivables and deposits | ||||
| Operating lease right-of-use assets | ||||
| Total assets | ||||
| $ | ||||
| Account Payables | ( | ) | ||
| Accrued liabilities, other payables and deposits received | ( | ) | ||
| Due to a related company | ( | ) | ||
| Operating lease liabilities, net of current portion | ( | ) | ||
| Total liabilities | ( | ) | ||
| Net tangible liabilities | ||||
| Share of 49% of non-controlling interest | ||||
| 51% of equity interest | ||||
| Goodwill | ( | ) | ||
| Total purchase price | ||||
The
negative goodwill value $
Note 12. Accounts Payable
Accounts payable consists of the following:
| As of | ||||||||||||
| August 31, 2023 | May 31, 2023 | Increase/(Decrease) | ||||||||||
| (unaudited) | (audited) | |||||||||||
| $ | $ | $ | ||||||||||
| Accounts Payable | ( | ) | ||||||||||
The
account payable balance of $
Note 13. Advanced Received, Accrued Expenses and Other Payable
| As of | Increase/ | |||||||||||
| August 31, 2023 | May 31, 2023 | (Decrease) | ||||||||||
| (unaudited) | (audited) | |||||||||||
| $ | $ | $ | ||||||||||
| Advanced Received | ||||||||||||
| Accrued Expenses | ||||||||||||
| Deposit Received | ( | ) | ||||||||||
| Other Payable | ( | ) | ||||||||||
| Total | ||||||||||||
Advanced
received balance $
As
of August 31, 2023 and May 31, 2023, the advanced received, accrued expenses and other payable balances are $
| 22 |
Advanced Received
| Description | Amount ($) | Remark | ||||
| Brand name management fees | Amortized brand name management fee as per contracts’ term and period. | |||||
| Sales of goods and services | Delivery the goods and services as requested by customers. | |||||
| Total | ||||||
Advanced
received $
Note 14. Related Party Transaction
Amounts due from related parties as of August 31, 2023 and May 31, 2023 (as restated) are as follows:
Amounts due to related parties
| As of | ||||||||||
| Relationship with the | August 31,2023 | May 31,2023 | ||||||||
| Company | (unaudited) | (audited) | ||||||||
| $ | $ | |||||||||
| Cuiyao Luo | CFO & Director | |||||||||
| Rudong Shi | Director | |||||||||
| Shenzhen BaiWen Enterprise Management Consultancy Co., Ltd | Controlled by Directors | |||||||||
| Total | ||||||||||
Amounts due from related parties
| As of | ||||||||||
| Relationship with the | August 31,2023 | May 31,2023 | ||||||||
| Company | (unaudited) | (audited) | ||||||||
| $ | $ | |||||||||
| New Charles Technology Group Limited | Controlled by Director | |||||||||
As
of August 31, 2023 Cuiyao Luo advanced $
Note 15. Operating Lease
The Company has operating leases for its office facilities and warehouse. 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 August 31, 2023 and May 31, 2023:
| Assets/liabilities | Classification | August 31, 2023 $ | May 31, 2023 $ | |||||||
| Assets | ||||||||||
| Operating lease right-of-use assets | Operating lease assets | |||||||||
| Liabilities | ||||||||||
| Current | ||||||||||
| Operating lease liability - current | Current operating lease liabilities | |||||||||
| Long-term | ||||||||||
| Operating lease liability – net of current portion | Long-term operating lease liabilities | |||||||||
| Total lease liabilities | ||||||||||
| 23 |
The operating lease expense for the three months ended August 31, 2023 and 2022 were as follows:
| Three Months Ended August 31, | ||||||||||
| Lease cost | Classification | 2023 | 2022 | |||||||
| $ | $ | |||||||||
| Operating lease cost | General and administrative | |||||||||
Maturities of operating lease liabilities as of August 31, 2023 were as follows:
| Maturity of lease liabilities | Operating leases | |||
| Remaining of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total lease payments | $ | |||
| Less: interest | ( | ) | ||
| Present value of lease payments | $ | |||
Maturities of operating lease liabilities as of May 31, 2023, were as follows:
| Maturity of Lease Liabilities | Operating Leases | |||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total lease payments | $ | |||
| Less: interest | ( | ) | ||
| Present value of lease payments | $ | |||
| 24 |
Supplemental information related to operating leases was as follows:
| Three Months Ended August 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | $ | ||||||
| New operating lease assets obtained in exchange for operating lease liabilities | $ | $ | ||||||
| Weighted average remaining lease term | ||||||||
| Weighted average discount rate | % | % | ||||||
Amortization
expense was $
Note 16: Contingent Liabilities
A
provision of $
Note 17: Subsequent Event
In accordance with ASC 855-10, the Company has analyzed its operations subsequent to the August 31, 2023 to the date these financial statements were issued and has determined that it does not have any material subsequent events to disclose in these financial statements.
| 25 |
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Information included in this Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are not statements of historical facts, but rather reflect our current expectations concerning future events and results. We generally use the words “believes,” “expects,” “intends,” “plans,” “anticipates,” “likely,” “will” and similar expressions to identify forward-looking statements. Such forward-looking statements, including those concerning our expectations, involve risks, uncertainties and other factors, some of which are beyond our control, which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks, uncertainties and factors include, but are not limited to, those factors set forth in our Prospectus on Form S-1 for the period ended August 31, 2022 and the condensed consolidated financial statements included in this Report. Except as required by applicable law, including the securities laws of the United States, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this Report.
Results of Operations
The following table sets forth a summary of our consolidated results of operations and comprehensive loss for the periods presented, both in absolute amount and as a percentage of our revenues for the periods presented. This information should be read together with our audited consolidated financial statements and related notes as well as unaudited interim consolidated financial statements and related notes included elsewhere in this prospectus. The results of operations in any period are not necessarily indicative of our future trends.
| For the Three Months Ended August 31, | Quarter to Quarter Comparison | |||||||||||
| 2023 | 2022 | Increase/ (Decrease) | ||||||||||
| $ | $ | $ | ||||||||||
| (unaudited) | (unaudited) | |||||||||||
| Revenue | 504,517 | 982,097 | (477,580 | ) | ||||||||
| Cost of Revenue | (223,930 | ) | (484,712 | ) | 260,782 | |||||||
| Gross Profit | 280,587 | 497,385 | (216,798 | ) | ||||||||
| Other Income | 4,582 | 5,350 | (768 | ) | ||||||||
| Selling and Distribution Expenses | (156,563 | ) | (223,543 | ) | 66,980 | |||||||
| General and Administrative Expenses | (634,930 | ) | (227,369 | ) | (407,561 | ) | ||||||
| Profit/(Loss) from Operation | (506,324 | ) | 51,823 | (558,147 | ) | |||||||
| Interest Income/(Expense) | 115 | 351 | (236 | ) | ||||||||
| Profit/(Loss) before Income Taxes | (506,209 | ) | 52,174 | (558,383 | ) | |||||||
| Income Taxes | - | (3,898 | ) | 3,898 | ||||||||
| Net Profit/(Loss) before Non-controlling Interest | (506,209 | ) | 48,276 | (554,485 | ) | |||||||
| Non-controlling Interest | (3,265 | ) | 14,263 | (17,528 | ) | |||||||
| Profit/(Loss) Attributable to Shareholders | (502,944 | ) | 34,013 | (536,957 | ) | |||||||
Revenues
For the three months period ended August 31, 2023, we generated total revenue of $504,517 that included brand name administrative fee $183,081, exhaust gas cleaner, motor oil and auto parts $321,126 and others $310.
| For the Three Months Ended August 31, | ||||||||||||||||||||
| 2023 | % of Net | 2022 | % of Net | Change | ||||||||||||||||
| $ | Sales | $ | Sales | $ | ||||||||||||||||
| Administrative fee of brand name | 183,081 | 36.3 | % | 177,095 | 18.0 | % | 5,986 | |||||||||||||
| Exhaust gas cleaner, motor oil and auto parts | 321,126 | 63.7 | % | 800,235 | 81.5 | % | (479,109 | ) | ||||||||||||
| Others | 310 | 0.1 | % | 4,767 | 0.5 | % | (4,457 | ) | ||||||||||||
| Total | 504,517 | 100 | % | 982,097 | 100 | % | (477,580 | ) | ||||||||||||
Total revenues for three months ended August 31, 2023 were $504,517 compared to $982,097 for the three months ended August 31, 2022, which decreased by $477,580, mainly due to decrease of sales $203,156 from SZ Lanbei, whereas no sales revenue from SZ Lanbei for the three months ended August 31, 2023, and the increased of sales $214,126 from sales cut off adjustments for the three months ended August 31, 2022.
The Company are engaging in trading of exhaust gas cleaner, auto parts and motor oil to their third-party agents in China. Revenues from services consist of administrative of brand name and training fees. Payments of services are generally received before delivery the services.
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Sales of Exhaust Gas Cleaner, Auto Parts and Motor Oil
Revenues related to sales of exhaust gas cleaner, auto parts and motor oil are recognized in the consolidated statements of operations and comprehensive income/(loss) at the time when the goods are delivered and the ownership transfer to the customers.
Administrative Fee of Brand Name
We earned the brand name administrative fees from our customers, who pay one-time fixed fee RMB100,000, RMB200,000 and RMB300,000 for one year, RMB90,000 for one to three years and RMB200,000 for one to five years for exchange of (1) the right to use the brand name “Chejiangling / Teenage Hero Car” and “ECXJ”, (2) the right to receive 10% of other new shops’ brand name permission fee, (3) the right to receive 5% of other new shops’ selling, and (4) the right to receive 20% of other new shops’ administrative fee. The fee is not be refundable.
Cost of Revenue
Cost of revenue consist primarily of costs associated with the purchase of goods. For three months ended August 31, 2023 compared to three months ended August 31, 2022
| For the Three Months Ended August 31, | ||||||||||||
| 2023 | 2022 | Change | ||||||||||
| $ | $ | $ | ||||||||||
| Exhaust gas cleaner, motor oil and auto parts | 223,549 | 478,714 | (255,165 | ) | ||||||||
| Others | 381 | 5,998 | (5,617 | ) | ||||||||
| Total | 223,930 | 484,712 | (260,782 | ) | ||||||||
Cost of revenue for the three months ended August 31, 2023 were $223,930 compared to $484,712 as of ended August 31, 2022, a decrement of $260,782 is mainly due to the mainly due to decrease of cost of revenue $111,401 from SZ Lanbei, whereas no sales revenue from SZ Lanbei for the three months ended August 31, 2023, and the increased of cost of revenue $139,738 from sales cut off adjustments for the three months ended August 31, 2022.
Gross Profit
Gross profit for the three months ended August 31, 2023 were $280,587 compared to $497,385 as of August 31, 2022, a decrement of $216,798 is mainly due to the decrease sales of motor oil and auto parts.
Selling and Distribution Expenses
Selling and Distribution expenses include payroll costs, sales-related consultancy fee, travelling expenses, transportation costs, conference and function expenses and other operating expenses associated with sales and marketing.
For three months ended August 31, 2023 compared to three months ended August 31, 2022:
| For The Three Months Ended August 31, | ||||||||||||||||||||
| 2023 | % of Net | 2022 | % of Net | Change | ||||||||||||||||
| $ | Sales | $ | Sales | $ | ||||||||||||||||
| Selling and Distribution Expenses | 156,563 | 31.4 | % | 223,543 | 22.8 | % | (66,980 | ) | ||||||||||||
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Sales and marketing expenses for the three months ended August 31, 2023 were $156,563 compared to $223,543 as of August 31, 2022, a decrease of $66,980 is due to decrease in payroll costs $40,937, transportation costs $40,933, conference expenses $30,826 and offset increased in advertisement and exhibition expenses $48,212.
General and Administrative Expenses
General and Administrative (G&A) expenses consist primarily of salary, employee benefits, facility cost, rental fee and other related expenses.
For three months ended August 31, 2023 compared to three months ended August 31, 2022:
| For the Three Months Ended August 31, | ||||||||||||||||||||
| 2023 | % of Net | 2022 | % of Net | Change | ||||||||||||||||
| $ | Sales | $ | Sales | $ | ||||||||||||||||
| General and Administrative Expenses | 634,930 | 23.2 | % | 227,369 | 32.8 | % | 407,561 | |||||||||||||
G&A expenses for the three months ended August 31, 2023 were $634,930 compared to $227,369 as of August 31, 2022, an increase of $407,561 was primarily due to the increase of consultancy fee $388,930, amortization of intangible assets $51,266 and offset decrease in payroll costs $29,155.
Taxation
We recorded $0 and $3,898 income tax expenses for the period ended August 31, 2023 and August 31, 2022, respectively.
The Company, incorporated in the PRC, was governed by the income tax law of the PRC, and is subject to PRC enterprise income tax (“EIT”), The EIT rate of PRC is 25%.
Generally, our PRC subsidiaries, VIEs and their subsidiaries are subject to enterprise income tax on their taxable income in China at a statutory rate of 25%. The enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards.
We are subject to value-added tax at a rate of 13% on sales of motor oil and auto parts and 6% on the services (brand name management services), in each case less any deductible value-added tax we have already paid or borne. We are also subject to surcharges on value-added tax payments in accordance with PRC law.
Net Profit/(Loss)
Net loss $502,944 and net profit $34,013 occurred for the three months ended August 31, 2023 and 2022 respectively, due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Since commencing operations, our primary uses of cash have been to finance working capital needs for have financed these requirements primarily from cash generated from operations and related party advances.
We are in start-up stage operations and have generated limited revenues. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and possible cost overruns due to price and cost increases in services and products.
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We expect that we will be able to meet our needs to fund operations, capital expenditures and other commitments in the next 12 months primarily with our cash and cash equivalents, operating cash flows.
We may, however, require additional cash resources due to changes in business conditions or other future developments. If these sources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or equity-linked securities could contractually result in additional dilution to stockholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financial covenants that would restrict operations. Financing may not be available in amounts or on terms acceptable to us, or at all.
The following table sets forth a summary of our cash flows for the periods indicated.
| For the Three Months Ended August 31, | Quarter to Quarter | |||||||||||
| 2023 | 2022 | Comparison | ||||||||||
| $ | $ | $ | ||||||||||
| Cash Flows provided by/(used in) operating activities | 100,463 | (863,432 | ) | 963,895 | ||||||||
| Cash Flows used in investing activities | (21,600 | ) | (2,969 | ) | (18,631 | ) | ||||||
| Cash Flows (used in)/provided by financing activities. | (14,204 | ) | 130,255 | (144,459 | ) | |||||||
| Effects on change in foreign exchange rate | (13,225 | ) | (10,145 | ) | (3,080 | ) | ||||||
| Net Change in cash during period | 51,434 | (746,291 | ) | 797,725 | ||||||||
Operating Activities
Cash flow provided by operating activities for the three months ended August 31, 2023 is $100,463 as compared to cash flow used in operating activities for the three months ended August 31, 2023 is $863,432, reflecting an increase of $963,895. The increase in net cash used in operating activities is mainly due to increase cash flow of advanced, accrued liabilities and other payable $1,635,520, amortization of intangible assets $51,266, and offset net cash outflow net loss $554,485 and inventory $188,586.
Investing Activities
Cash flow used in investing activities is $21,600 for the three months ended August 31, 2023, as compared to $2,969 for the three months ended August 31, 2022, reflecting an increase of $18,631. The increase is due to increase of development expenses.
Financing Activities
Cash flow used in financing activities is $14,204 for the three months ended August 31, 2023, compared to provide by financing activities $130,255 for the three months ended August 31, 2022, reflecting a decrease of $144,459. The decrease in net cash provided by financing activities was mainly due to proceeds from share issuance $147.510, advance from directors $18,904 and offset increase repayment to related party and directors $21,955.
The majority of the Company’s revenues and expenses were denominated primarily in Renminbi (“RMB”), the currency of the People’s Republic of China. There is no assurance that exchange rates between the RMB and the U.S. Dollar will remain stable. Inflation has not had a material impact on the Company’s business.
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COMMITMENTS AND CONTINGENCIES
Contractual Obligations
Our contractual obligations as of August 31, 2023 are as follows:
| Payments Due by period | ||||||||||||||||||||
| Operating leases | Total | Less than 1 year | 1-3 year | 3-5 years | More than 5 years | |||||||||||||||
| Total | 126,435 | 71,953 | 54,482 | - | - | |||||||||||||||
Other than as shown above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of August 31, 2023.
Off-Balance Sheet Commitments and Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements.
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
ITEM 4 Controls and Procedures.
Management’s Evaluation of Disclosure Controls and Procedures:
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of August 31, 2023. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered in this Report, our disclosure controls and procedures were ineffective and no material weaknesses in our internal control over financial reporting.
Changes in Internal Control over Financial Reporting:
There were no changes in our internal control over financial reporting during our most recent quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
As of the date of this Quarterly Report, there have been no material changes with respect to those risk factors previously disclosed in our Registration Statement filed with the SEC. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
There is no other information required to be disclosed under this item that has not previously been reported.
Item 6. Exhibits
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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.
| CXJ Group Co., Ltd. | ||
| (Name of Registrant) | ||
| Date: July 12, 2024 | ||
| By: | /s/ Lixin Cai | |
| Title: | Chairman and Chief Executive Officer and Director (Principal Executive Officer) | |
| By: | /s/ Cuiyao Luo | |
| Title: | Chief Financial Officer | |
| Date: July 12, 2024 | ||
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