VARIABLE INTEREST ENTITIES “VIE” ARRANGEMENTS

3 Months Ended

Dec. 31, 2024

Organization, Consolidation and Presentation of Financial Statements [Abstract]

VARIABLE INTEREST ENTITIES “VIE” ARRANGEMENTS

NOTE 3 - VARIABLE INTEREST ENTITIES “VIE” ARRANGEMENTS

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

King Eagle (Tianjin) Technology Co., Ltd. (“King Eagle (Tianjin)”) was incorporated as a limited liability company in Tianjin Pilot Free Trade Zone in the People’s Republic of China on September 2, 2020, with a registered capital of approximately $1.5 million (RMB 10 million). It is owned by multiple individuals: Chengyuan Li (approximately 45.5%), Xiujin Wang (approximately 10.5%), Yuanyuan Zhang (approximately 10%), Jinjing Zhang, Wanfeng Hu, Cuilian Liu, and Zhizhong Wang (each of whom owns approximately 6%), Zhandong Fan, and Hui Teng (each of whom owns approximately 5%). Those shareholders also indirectly owned KP International Holding prior to its acquisition by the Company through two British Virgin Islands entities: Kunpeng Tech Limited and Kunpeng TJ Limited. Additionally, Chengyuan Li is a director and Yuanyuan Zhang is Chief Financial Officer of the Company.

The VIE Agreements are as follows:

(1)	Consulting Service Agreement
(2)	Business Operation Agreement
(3)	Proxy Agreement
(4)	Equity Disposal Agreement
(5)	Equity Pledge Agreement

Consulting Service Agreement

Pursuant to the terms of a certain Exclusive Consulting Service Agreement dated May 15, 2021, between King Eagle (China) and King Eagle (Tianjin) (the “Consulting Service Agreement”), King Eagle (China) is the exclusive consulting service provider to King Eagle (Tianjin) to provide business-related software research and development services; design, installation, and testing services; network equipment support, upgrade, maintenance, monitor, and problem-solving services; employees technical training services; technology development and sublicensing services; public relations services; market investigation, research, and consultation services; short to medium term marketing plan-making services; compliance consultation services; marketing events and membership related activities organizing services; intellectual property permits; equipment and rental services; and business-related management consulting services. Pursuant to the Consulting Service Agreement, the service fee is the remaining amount after King Eagle (Tianjin)’s profit before tax in the corresponding year deducts King Eagle (Tianjin)’s losses, if any, in the previous year, the necessary costs, expenses, taxes, and fees incurred in the corresponding year, and the withdraws of the statutory provident fund. King Eagle (Tianjin)agreed not to transfer its rights and obligations under the Consulting Service Agreement to any third party without prior written consent from King Eagle (China). In addition, King Eagle (China) may transfer its rights and obligations under the Consulting Service Agreement to King Eagle (China)’s affiliates without King Eagle (Tianjin)’s consent, but King Eagle (China) shall notify King Eagle (Tianjin) of such transfer. This Agreement is valid for a term of 10 years subject to any extension requested by King Eagle (China) unless terminated by King Eagle (China) unilaterally prior to the expiration.

Business Operation Agreement

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

Proxy Agreement

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

Equity Disposal Agreement

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

Equity Pledge Agreement

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

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

(1)	The power to direct the activities of King Eagle (Tianjin) that most significantly impact such entity’s economic performance, and
(2)	The obligation to absorb losses of, or the right to receive benefits from, King Eagle (Tianjin) that could potentially be significant to such entity.

As of the date of this Quarterly Report, King Eagle (Tianjin) has established six subsidiaries: King Eagle (Beijing) Technology Co., Ltd, King Eagle (Huai’an) Health Management Co., Ltd., Kun Zhi Jian (Huai’an) Technology Co., Ltd., Kun Zhi Jian (Shandong) Health Management Co., Ltd., Chengdu Wenjiang Pengrun Internet Healthcare Co., Ltd and King Eagle (Hangzhou) Health Technology Co., Ltd., on December 1, 2022, September 19, 2023, October 26, 2023, January 31, 2024, February 1, 2024 and July 18, 2024, respectively, in the PRC. King Eagle (Tianjin) is the controlling shareholder under the company laws of the PRC. The binding rights over the VIE’s subsidiaries in the contractual arrangements between King Eagle (China) and King Eagle (Tianjin) are implicit and indirect and the company laws and regulations in the PRC governing the business operations of the VIE’s subsidiaries are uncertain.

Pursuant to the VIE Agreements, the shareholders of King Eagle (Tianjin) have agreed to transfer any dividends, distributions, or other profits that they receive to King Eagle (China). King Eagle (Tianjin) pays service fees equal to all of its net profit after tax to King Eagle (China). The VIE Agreements are designed so that King Eagle (Tianjin) operates for the benefit of King Eagle (China) and ultimately the Company.

Moreover, King Eagle (Tianjin) has agreed to subject the operations and management of its business to the full control of King Eagle (China) and King Eagle (Tianjin) will take King Eagle (China)’s advice on the appointment or dismissal of directors and employment, regular operation, and financial management. Accordingly, the Company consolidates the accounts of King Eagle (Tianjin) and its subsidiaries for the periods presented herein, in accordance with Accounting Standards Codification, or ASC, 810-10, “Consolidation.”

VIE Financial Information

Set forth below is the consolidated balance sheet information as of December 31, 2024 and September 30, 2024, and the consolidated statements of operations and cash flows for the three month periods ended December 31, 2024 and 2023, showing financial information for the parent company, Kun Peng International Limited, the non-VIE subsidiaries (as defined below), and the VIE (as defined below), eliminating entries, and consolidated information (in dollars). In the tables below, the column headings correspond to the following entities:

“Parent entity” refers to Kun Peng International Limited;

“Non-VIE and Non-WFOE subsidiaries” refers to the following entities:

● Kun Peng International Holding Limited (“KP International Holding”)

● Kun Peng (Hong Kong) Industrial Development Limited (“KP (Hong Kong)”)

● Kun Peng Tian Yu Health Technology Co., Ltd. (“KP Tian Yu”) until March 3, 2023

● King Eagle (China) Co., Ltd. (“King Eagle (China)”) commencing March 3, 2023

“WFOE” refers to King Eagle (China) until March 3, 2023 and KP Tian Yu commencing March 3, 2023;

“VIE” refers to King Eagle (Tianjin) Technology Co., Ltd. (“King Eagle (Tianjin)”), King Eagle (Beijing) Technology Co., Ltd (“King Eagle (Beijing)”), King Eagle (Huai’an) Health Management Co., Ltd. (“King Eagle (Huai’an)”), Kun Zhi Jian (Huai’an) Technology Co., Ltd. (“Kun Zhi Jian (Huai’an)”), Kun Zhi Jian (Shandong) Health Management Co., Ltd (“Kun Zhi Jian (Shangdong)”), Chengdu Wenjiang Pengrun Internet Healthcare Co., Ltd (“Chengdu Wenjiang”), Kun Pin Hui (Shandong) Trading Co., Ltd (“Kun Pin Hui (Shandong)”), and King Eagle (Hangzhou) Health Technology Co., Ltd (“King Eagle (Hangzhou)”).

Consolidated Balance Sheet

As of December 31, 2024

	Parent Only			Non-VIE and Non-WFOE Subsidiaries Consolidated			WFOE			VIE and VIE’s Subsidiaries Consolidated			Elimination Entries and Reclassification Entries			Consolidated
Cash and cash equivalent	$	-		$	732		$	61		$	206,598		$	-		$	207,391
Intercompany receivables-current		-			553,064			-			2,415,803			(2,968,867	)		-
Total current assets		-			578,613			61			2,847,298			(2,968,867	)		457,105
Intercompany receivables-noncurrent		-			4			-			-			(4	)		-
Total non-current assets		34,160			89,016			-			659,717			(34,164	)		748,729
Total assets		34,160			667,629			61			3,507,015			(3,003,031	)		1,205,834
Intercompany payables		1,129,508			1,806,395			931			92,490			(3,029,324	)		-
Total current liabilities		1,129,508			2,014,217			993			8,539,850			(3,029,324	)		8,655,244
Total non-current liabilities		-			-			-			37,170			-			37,170
Total liabilities		1,129,508			2,014,217			993			8,577,020			(3,029,324	)		8,692,414
Total shareholders’ equity		(1,095,348	)		(1,346,588	)		(932	)		(5,060,868	)		26,293			(7,477,443	)
Non-controlling interests		-			-			-			(9,137	)		-			(9,137	)
Total equity		(1,095,348	)		(1,346,588	)		(932	)		(5,070,005	)		26,293			(7,486,580	)
Total liabilities and equity	$	34,160		$	667,629		$	61		$	3,507,015		$	(3,003,031	)	$	1,205,834

As of September 30, 2024

	Parent Only			Non-VIE and Non-WFOE Subsidiaries Consolidated			WFOE			VIE and VIE’s Subsidiaries Consolidated			Elimination Entries and Reclassification Entries			Consolidated
Cash and cash equivalent	$	-		$	981		$	71		$	81,132		$	-		$	82,184
Intercompany receivables-current		-			531,169			-			2,316,724			(2,847,893	)		-
Total current assets		-			564,532			71			2,831,808			(2,847,893	)		548,518
Intercompany receivables-noncurrent		-			4			-			-			(4	)		-
Total non-current assets		34,160			145,641			-			785,031			(34,164	)		930,668
Total assets		34,160			710,173			71			3,616,839			(2,882,057	)		1,479,186
Intercompany payables		970,159			1,846,491			969			51,757			(2,869,376	)		-
Total current liabilities		994,159			2,071,841			1,033			8,344,402			(2,865,015	)		8,546,420
Total non-current liabilities		-			-			-			121,484			-			121,484
Total liabilities		994,159			2,071,841			1,033			8,465,886			(2,865,015	)		8,667,904
Total shareholders’ equity		(959,999	)		(1,239,530	)		(962	)		(4,967,444	)		(16,941	)		(7,184,876	)
Non-controlling interests		-			(122,138	)		-			118,397			(101	)		(3,842	)
Total equity		(959,999	)		(1,361,668	)		(962	)		(4,849,047	)		(17,042	)		(7,188,718	)
Total liabilities and equity	$	34,160		$	710,173		$	71		$	3,616,839		$	(2,882,057	)	$	1,479,186

Condensed Consolidated Statements of Operations Data

	Three Months Ended December 31, 2024
	Parent Only			Non-VIE and Non-WFOE Subsidiaries Consolidated			WFOE			VIE and VIE’s Subsidiaries Consolidated			Eliminating Adjustments			Consolidated Totals
Revenue	$	-		$	-		$	-		$	356,519		$	-		$	356,519
Intercompany revenue		-			137,778			-						(137,778	)		-
Cost of revenue and related tax		-			225			-			55,458			-			55,683
Gross profit		-			137,553			-			301,061			(137,778	)		300,836
Total operating expenses		135,349			175,744			7			687,822			-			998,922
Intercompany operating expenses		-			-			-			137,778			(137,778	)		-
Loss from operations		(135,349	)		(38,191	)		(7	)		(524,539	)		-			(698,086	)
Other (expense) income					(362	)					45,407			2,034			47,079
Loss before income taxes		(135,349	)		(38,553	)		(7	)		(479,132	)		2,034			(651,007	)
Income tax expense		-			-			-			-			-			-
Net (loss) income	$	(135,349	)	$	(38,553	)	$	(7	)	$	(479,132	)	$	2,034		$	(651,007	)

Condensed Consolidated Statements of Operations Data

	Three Months Ended December 31, 2023
	Parent Only			Non-VIE and Non-WFOE Subsidiaries Consolidated		WFOE			VIE and VIE’s Subsidiaries Consolidated			Eliminating Adjustments			Consolidated Totals
Revenue	$	-		$	-	$	-		$	562,158		$	-		$	562,158
Intercompany revenue		-			235,043		-			-			(235,043	)		-
Cost of revenue and related tax		-			466		-			148,881			-			149,347
Gross profit		-			234,577		-			413,277			-			412,811
Total operating expenses		61,724			210,413		7			707,663			-			979,807
Intercompany operating expenses		-			-		-			235,043			(235,043	)		-
(Loss) income from operations		(61,724	)		24,164		(7	)		(529,429	)		-			(566,996	)
Other income (expense)		-			32		(7	)		32,165			-			32,190
(Loss) income before income taxes		(61,724	)		24,196		(14	)		(497,264	)		-			(534,806	)
Income tax expense		-			-		-			-			-			-
Net (loss) income	$	(61,724	)	$	24,196	$	(14	)	$	(497,264	)	$	-		$	(534,806	)

Condensed Consolidated Schedules of Cash Flows

	Three Months Ended December 31, 2024
	Parent Only			Non-VIE and Non-WFOE Subsidiaries Consolidated			WFOE			VIE and VIE’s Subsidiary Consolidated			Eliminating Adjustments			Consolidated
Net loss	$	(135,349	)	$	(38,553	)	$	(7	)	$	(479,132	)	$	2,034		$	(651,007	)
Intercompany receivables		-			(43,042	)		-			(340,911	)		383,953			-
Intercompany payables		159,349			34,202			-			192,559			(386,110	)		-
Net cash provided by (used in) operating activities		-			1,308			(7	)		44,686			(123	)		45,864
Net cash (used in) provided by investing activities		-			-			-			(53,507	)		42,437			(11,070	)
Net cash provided by (used in) financing activities		-			-			-			153,487			(40,732	)		112,755
Effect of exchange rate fluctuation on cash	$	-		$	(1,557	)	$	(3	)	$	(19,199	)	$	(1,583	)	$	(22,342	)

	Three Months Ended December 31, 2023
	Parent Only			Non-VIE and Non-WFOE Subsidiaries Consolidated			WFOE			VIE and VIE’s Subsidiary Consolidated			Eliminating Adjustments			Consolidated
Net (loss) income	$	(61,724	)	$	24,196		$	(14	)	$	(497,264	)	$	-		$	(534,806	)
Intercompany receivables		-			(6,228	)		-			(239,717	)		245,945			-
Intercompany payables		100,424			13,852			69			132,278			(246,623	)		-
Net cash (used in) provided by operating activities		-			(2,368	)		55			(300,617	)		(678	)		(303,608	)
														-
Net cash used in investing activities		-			-			-			(44,008	)		-			(44,008	)
Effect of exchange rate fluctuation on cash	$	-		$	2,359		$	9		$	7,333		$	678		$	10,379

The Company consolidated its VIE as of December 31, 2024 and September 30, 2024. The carrying amounts and classification of the VIE’s assets and liabilities included in the consolidated balance sheets are as follows:

	December 31, 2024			September 30, 2024
Assets
Current assets
Cash and cash equivalents	$	206,598		$	81,132
Trade receivable – intercompany		2,415,803			2,316,724
Advance and prepayments		23,899			147,091
Other receivables – third parties		180,394			251,069
Inventory		18,138			15,700
Amount due from a related party		2,466			20,092
Total current assets		2,847,298			2,831,808
Noncurrent assets
Property and equipment, net		260,858			265,141
Intangible assets, net		76			-
Investment in associate held for sale		-			15,743
Operating lease right-of-use assets		147,869			504,147
Finance lease right-of-use assets		250,914			-
Total noncurrent assets		659,717			785,031
Total assets	$	3,507,015		$	3,616,839
Liabilities
Current liabilities
Short-term borrowing		97,544			-
Trade payables	$	1,953,544		$	1,952,026
Other payables and accrual		1,204,182			1,194,683
Deferred revenue		593,992			584,116
Intercompany payables		92,490			51,757
Payroll payable		128,369			93,391
Tax payable		110,679			119,291
Amounts due to related parties		4,040,215			3,998,164
Operating lease obligations-current portion		146,633			154,095
Finance lease obligations-current portion		172,202			196,879
Total current liabilities		8,539,850			8,344,402
Noncurrent liabilities
Operating lease obligations-noncurrent portion		-			44,622
Finance lease obligations-noncurrent portion		37,170			76,862
Total noncurrent liabilities		37,170			121,484
Total liabilities		8,577,020			8,465,886
Commitment and contingencies					-
Equity
Additional paid-in capital		762,956			389,356
Accumulated deficits		(5,939,805	)		(5,466,201	)
Accumulated other comprehensive income		115,981			109,401
Total stockholders’ equity		(5,060,868	)		(4,967,444	)
Non-controlling interests		(9,137	)		118,397
Total equity		(5,070,005	)		(4,849,047	)
Total liabilities and equity	$	3,507,015		$	3,616,839

The operating results of the VIE were as follows:

	Three Months Ended December 31,
	2024			2023
Revenue, net	$	356,519		$	562,158
Cost of revenue		(55,458	)		(148,881	)
Gross profit		301,061			413,277
Operating expenses
General and administrative expenses		363,552			293,229
Selling expense		462,048			649,477
Total operating expenses		825,600			942,706
Loss from operations		(524,539	)		(529,429	)
Other income:
Interest income		10			354
Other income		45,397			31,811
Total other income, net		45,407			32,165
Loss before income taxes		(479,132	)		(497,264	)
Income tax expense		-			-
Net loss		(479,132	)		(497,264	)
Less: Net loss attributable to non-controlling interest		(5,529	)		(13,872	)
Net loss attributable to Kun Peng International Ltd	$	(473,603	)	$	(483,392	)

The cash flows of the VIE were as follows:

	Three Months Ended December 31,
	2024			2023
Cash flows from operating activities
Net loss	$	(479,133	)	$	(497,264	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation and amortization		32,774			420
Amortization of right-of-use assets		87,218			21,253
Changes in operating assets and liabilities
Advance and prepayments		119,310			(70,627	)
Trade receivable - third parties		-			(23,118	)
Trade receivable - intercompany		(123,715	)		(65,947	)
Other receivables - third parties		44,664			(123,313	)
Other receivable-related parties		34,362			-
Other receivables - intercompany		(217,196	)		(173,770	)
Inventory		(3,090	)		56,732
Trade payable - third parties		54,231			129,172
Trade payable - intercompany		168,588			72,175
Other payables and accrual - third parties		44,701			176,655
Other payables and accrual - intercompany		23,971			60,103
Deferred revenue		32,913			(1,323,176	)
Payroll payable		39,171			21,502
Amounts due to related parties		234,899			1,508,580
Tax payable		(2,108	)		(45,660	)
Lease liabilities		(46,874	)		(24,334	)
Net cash provided by (used in) operating activities		44,686			(300,617	)
Cash flows from investing activities
Purchase of equipment		(38,811	)		(44,008	)
Acquisition of intangible assets		(77	)		-
Disposal of an associate held for sale		27,818			-
Investment in subsidiary		(42,437	)		-
Net cash used in investing activities		(53,507	)		(44,008	)
Cash flows from financing activities
Capital contribution		111,982			-
Proceeds from bank borrowings		99,033			-
Payment of finance lease liabilities		(57,528	)		-
Net cash provided by financing activities		153,487			-
Effect of exchange rate changes on cash		(19,199	)		7,333
Net change in cash and cash equivalents		125,467			(337,292	)
Cash and cash equivalents, beginning balance		81,132			447,117
Cash and cash equivalents, ending balance	$	206,599		$	109,825