ITEM 2. MANAGEMENT DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used herein and except
as otherwise noted, the term “Company”, “it(s)”, “our”, “us”, “we”,
“CX” and “CXKJ” shall mean CX Network Group, Inc., a Nevada corporation (previously known as “mLight
Tech Inc.” or “MLGT”, a Florida corporation), its owned subsidiaries Chuangxiang Holdings Inc.(“CX Cayman”),
Chuangxiang (Hong Kong) Holdings Limited (“CX HK”), Chuangxiang Network Technology (Shenzhen) Limited (“CX Network”)
and Shenzhen Chuangxiang Network Technology Limited (“Shenzhen CX”), which is controlled by us via various contracts.
This Form 10-Q contains
forward-looking statements. Our actual results could differ materially from those set forth as a result of general economic conditions
and changes in the assumptions used in making such forward-looking statements. The following discussion and analysis of our financial
condition and results of operations should be read together with the audited financial statements and accompanying notes and the
other financial information appearing in the 2019 Annual Report filed with the Securities and Exchange Commission on December
30, 2019 and elsewhere in this quarterly report. The analysis set forth below is provided pursuant to applicable Securities and
Exchange Commission regulations and is not intended to serve as a basis for projections of future events.
Overview of the Business
Our business focuses on development and
operation of online dating and mobile gaming products either developed and operated by us, or developed by us but co-operated
by third parties; or developed by third parties but co-operated by us.
Our self-developed and self-operated online
dating product Little Love (“小恋爱”)
and Hotchat (“热聊”) are mobile applications
geared towards Chinese singles designed to increase a user’s likelihood of finding a romantic connection. Our mission is
to help individuals forge life-long relationships with others that share their interests and values. Through these mobile applications,
our users can search for and communicate with other like-minded individuals. Our product creates a virtual community where users
can meet, chat and message. We operate location-based social networks for meeting new people on mobile platforms, including on
iPhone, Android, iPad and other tablets that facilitate interactions among users and encourage users to connect and chat with
each other.
Our online dating mobile platforms monetize
through advertising, in-app purchases, and paid subscriptions. The Company offers online marketing capabilities, which enable
marketers to display their advertisements in different formats and in different locations. In the near future, we plan to offer
sophisticated data science for highly effective hyper-targeting. The Company is actively seeking the opportunities to work with
its advertisers to maximize the effectiveness of their campaigns by optimizing advertisement formats and placements. We temporarily
suspended our operation of Hotchat at the end of year 2019 due to the revenue from in-app purchase was insufficient to support
the cost of the operation. And we temporarily suspended the operation of Little Love since April 2020, as the Company is working
internally to develop E-commerce business in app of Little Love. The company currently has no plan to resume the advertisement
and operation of Little Love until the E-commerce business is launched.
Our self-developed mobile gaming application
is Eternal Tribe (“永恒部落”)
which was launched by us in January 2018. For Eternal Tribe, our users can deposit fund on as needed basis for the in-app purchases.
Eternal Tribe is Android-based mobile games developed solely by us to diversify our product portfolio. We updated Eternal Tribe
based on the collected user experiences and market feedbacks and launched an upgraded version of Eternal Tribe in July 2018 and
engaged third party to co-market and co-operate Eternal Tribe on different platforms and channels. However, based on the market
responses, we suspended Eternal Tribe in November 2018 and dismissed the development team for Eternal Tribe.
Coronavirus (“COVID-19”)
Updates
The COVID-19 pandemic has caused disruptions
to our operations starting in January 2020. Our operations were closed in early February due to China’s government mandates.
In late February 2020, substantially all of our employees were back to work in our offices. The ongoing COVID-19 pandemic not
only adversely impacted our operations but the business of our customers. We experienced and are continually experiencing delayed
customer payments and rescheduled customer orders, which adversely impacted the Company’s results of operations, cash flows
and financial position.
The extent of the impact on our fiscal
2020 results will be dependent on future developments such as the length and severity of the crisis, the potential resurgence
of the crisis, future government actions in response to the crisis and the overall impact of the COVID-19 pandemic on the global
economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable. The Company continues
taking actions to help mitigate, as best we can, the impact of the COVID-19 pandemic on the health and well-being of our employees,
the communities in which we operate and our partners, as well as the impact on our operations and business as a whole.
Foreign Operations
Substantially all of our business operations
are conducted in Mainland China. Accordingly, our results of operations, financial condition and prospects are subject to a significant
degree to economic, political and legal developments in the PRC. We also have operations in Hong Kong. Operating in foreign countries
involves substantial risk. For example, our business activities subject us to a number of Chinese laws and regulations, such as
anti-corruption laws, tax laws, foreign exchange controls and cash repatriation restrictions, data privacy and security requirements,
labor laws, intellectual property laws, privacy laws, and anti-competition regulations, which have uncertainties. Any failure
to comply with the PRC laws and regulations could subject us to fines and penalties, make it more difficult or impossible to do
business in China and harm our reputation.
Operating in foreign countries also subjects
us to risk from currency fluctuations. Our primary exposure to movements in foreign currency exchange rates relates to non-U.S.
dollar denominated sales and operating expenses. The weakening of foreign currencies relative to the U.S. dollar adversely affects
the U.S. dollar value of our foreign currency-denominated sales and earnings. This could either reduce the U.S. dollar value of
our prices or, if we raise prices in the local currency, it could reduce the overall demand for our offerings. Either could adversely
affect our revenue. Conversely, a rise in the price of local currencies relative to the U.S. dollar could adversely impact our
profitability because it would increase our costs denominated in those currencies, thus adversely affecting gross margins.
Financial Operations Overview
Results of Operations for the three months ended
June 30, 2020 and 2019
Revenues
For
the three months ended June 30, 2020, we had total revenues of $0 as compared to $18,943 for the three months ended June 30, 2019.
There was no revenues generated during the three months ended June 30, 2020. The decrease of $18,943 or 100% during the three
months ended June 30, 2020 was primarily due to the Company temporarily suspended its operation from April 2020 and has not resume
to its normal level of operation as of the filing date.
Cost of Revenues
For
the three months ended June 30, 2020 and 2019, cost of revenues amounted to $65 and $767, respectively. The decrease of cost of
revenues during the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was primarily attributable
to the Company temporarily suspended its operation from April 2020 and has not resume to its normal level of operation as of the
filing date.
Gross Profit (Loss)
For
the three months ended June 30, 2020 and 2019, gross profit (loss) amounted to $(65) and $18,176, respectively. The decrease of
gross profit during the three months ended June 30, 2020 compared to the comparative period in 2019 was primarily attributable
to the reason above.
General and Administrative Expenses
For
the three months ended June 30, 2020 and 2019, general and administrative expenses amounted to $35,522 and $78,194, respectively.
The decrease of general and administrative expenses in the amount of $42,672 or 55% was primarily attributable to the COVID-19
pandemic surfaced in China has significantly affected the Company’s operation from January 2020 and the Company temporarily
suspended all of its operation from April 2020.
Research and Development Expenses
For the three months ended June 30, 2020
and 2019, research and development expenses amounted to $0 and $1,501, respectively.
Other Expense
For the three months ended June 30, 2020,
total other expense was $419 as compared to $311 for the three months ended June 30, 2019. The increase in other expense is primarily
attributable to the increased bank charge.
Net loss
For
the three months ended June 30, 2020 and 2019, net loss amounted to $36,006 and $61,830, respectively. The decrease of net loss
in the amounts of $25,824 or 42% for the three months ended June 30, 2020 was a result of the factors described above.
Foreign Currency Translation Adjustment
The reporting currency of the Company
is the U.S. Dollar. The functional currency of Shenzhen CX and CX Network operating in the PRC is the Chinese Yuan or Renminbi
(“RMB”). The financial statements of entities in PRC are translated to U.S. dollars using period end rates of exchange
for assets and liabilities, historical rates of exchange for equity, and average rates of exchange during the period for results
of operations. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of
operations and comprehensive loss.
As a result of these translations, which
are a non-cash adjustment, we reported a foreign currency translation loss of $443 for the three months ended June 30, 2020 as
compared to a foreign currency translation gain of $2,623 for the three months ended June 30, 2019. This non-cash gain or loss
had an effect of decreasing or increasing our reported comprehensive loss.
Comprehensive Loss
For the three months ended June 30, 2020,
comprehensive loss of $36,449 is derived from our net loss of $36,006. For the three months ended June 30, 2019, comprehensive
loss of $59,207 is derived from our net loss of $61,830.
Results of Operations for the nine
months ended June 30, 2020 and 2019
Revenues
For
the nine months ended June 30, 2020, we had total revenues of $4,172, as compared to $67,589 for nine months ended June 30, 2019.
The revenues were mainly generated through the in-app purchase of Little Love. The decrease of $63,417, or 94%, during the nine
months ended June 30, 2019 was primarily attributable to that the Company temporarily suspended the operation, the number of active
users of Hotchat and Little Love decreased. The influence of COVID-19 pandemic has also resulted in a significant drop in revenue.
Cost of Revenues
For
the nine months ended June 30, 2020 and 2019, cost of revenues amounted to $670 and $12,289, respectively. The decrease of cost
of revenues in 2020 was primarily attributable to decrease of labor cost associated with maintenance of mobile platform, suspension
of operation from February 2020 and the influence of the COVID-19 pandemic.
Gross Profit
For
the nine months ended June 30, 2020 and 2019, gross profit amounted to $3,502 and $55,300, respectively. The decrease of gross
profit for the nine months ended at June 30, 2020 was primarily attributable to the reason above.
General and Administrative
Expenses
For
the nine months ended June 30, 2020 and 2019, general and administrative expenses amounted to $143,257 and $278,761, respectively.
The decrease of general and administrative expenses of $135,504 or 49% during the nine months ended June 30, 2020 was primarily
attributable to the decrease of salary expense, professional fees, and lease expense and the influence of the COVID-19 pandemic.
Research and Development
Expenses
For the nine months ended June 30, 2020
and 2019, research and development expenses amounted to $5,835 and $2,001, respectively. The increase of research and development
expenses in the amount of $3,834 or 192% was primarily attributable to the fact that the Company adjusted the strategy to develop
E-commerce business in the nine months ended June 30, 2020.
Other Income (Expenses)
For the nine months ended June
30, 2020, total other expenses was $(2,059) as compared to total other income of $44,864 for the nine months June 30, 2019. The
decrease in other income is primarily attributable to the security deposit for the Company’s office forfeited during the
nine months ended June 30, 2020 and government subsidy received by the Company during the nine months ended June 30, 2019.
Net loss
For
the nine months ended June 30, 2020 and 2019, net loss amounted to $147,649 and $180,598, respectively. The decrease of net loss
in the amounts of $32,949 was a result of the factors described above.
Foreign Currency Translation Adjustment
The functional currency of our VIE entity
operating in the PRC is the Chinese Yuan or RMB. The financial statements of our VIE are translated to U.S. dollars using period
end rates of exchange for assets and liabilities, and average rates of exchange (for the period) for revenues, costs, and expenses.
Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations.
As a result of these translations, which
are a non-cash adjustment, we reported a foreign currency translation loss of $908 for the nine months ended June 30, 2020 as
compared to a foreign currency translation loss $74 for the nine months ended June 30, 2019. This non-cash loss had the effect
of increasing our reported comprehensive loss.
Comprehensive Loss
For the nine months ended June 30, 2020,
comprehensive loss of $148,557 is derived from the sum of our net loss of $147,649 and foreign currency translation loss of $908.
For the nine months ended June 30, 2019, comprehensive loss of $180,672 is derived from the sum of our net loss of $180,598 and
foreign currency translation loss of $74.
Liquidity and Capital Resources
In assessing the Company’s
liquidity, the Company monitors and analyzes its cash and cash equivalents and its operating and capital expenditure commitments.
The Company’s liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations.
As of June 30, 2020, the Company’s working capital deficit was approximately $737,000 as compared to working capital deficit
of approximately $596,000 as of September 30, 2019. As of June 30, 2020 and September 30, 2019, the Company’s accumulated
deficit was approximately $2,449,000 and $2,301,000, respectively, and the Company has incurred losses since inception. None of
the Company’s stockholders, officers or directors, or third parties, are under any obligation to advance the Company funds,
or to invest in it. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise
additional capital, the Company may be required to take additional measures to conserve liquidity, which could include, but not
necessarily be limited to, curtailing operations, suspending the pursuit of its business plan, and reducing overhead expenses.
The Company cannot provide any assurance that new financing will be available to us on commercially acceptable terms, if at all.
Cash flows from the Company’s operations
are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and
liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the
balance sheets.
The following summarizes the key components
of the Company’s cash flows for the nine months ended June 30, 2020 and 2019:
|
|
Nine months Ended
June
30,
|
|
|
|
2020
|
|
|
2019
|
|
Net cash used in operating activities
|
|
$
|
(119,327
|
)
|
|
$
|
(157,317
|
)
|
Cash flows used in investing activities
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash flows provided by financing activities
|
|
$
|
117,228
|
|
|
$
|
143,915
|
|
Effect of exchange rate on cash and cash equivalent
|
|
$
|
51
|
|
|
$
|
(17
|
)
|
Net decrease in cash and cash equivalents
|
|
$
|
(2,048
|
)
|
|
$
|
(13,419
|
)
|
Operating Activities.
Net cash used in operating activities
totaled $119,327 for the nine months ended June 30, 2020, which was attributable to the net loss of approximately $147,649, partially
offset by the depreciation expense of around $8,040, the operating lease expense of around $4,879 and the increase of accrued
liability and other payable around $16,244, as compared to net cash used in operating activities of $157,317 for the nine months
ended June 30, 2019.
Financing Activities.
Net
cash provided by financing activities for the nine months ended June 30, 2020 was $117,228 as compared to $143,915 for the nine
months ended June 30, 2019. The decrease in cash provided by financing activities for the nine months ended June 30, 2020 was
mainly due to the decrease of proceeds from stock issuance around $48,000 and offset by the decrease in repayments to related
party.
Going Concern
In assessing the Company’s liquidity,
the Company monitors and analyzes its cash and cash equivalents and its operating and capital expenditure commitments. The Company’s
liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations. As of June
30, 2020, the Company’s current liabilities exceeded the current assets, its accumulated deficit was approximately $2,449,000
and the Company has incurred losses since inception. None of the Company’s stockholders, officers or directors, or third
parties, are under any obligation to advance us funds, or to invest in us. Accordingly, we may not be able to obtain additional
financing. If we are unable to raise additional capital, we may be required to take additional measures to conserve liquidity,
which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of our business plan, and
reducing overhead expenses. In the coming years, the Company plans to develop business in oversea markets to increase its revenues
to meet its future cash flow requirements. However, the Company cannot provide any assurance on the successful development of
the Company’s contemplated plan of operations or the financing that will be available to us on commercially acceptable terms,
if at all.
These conditions raise substantial doubt
about our ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result
should the Company be unable to continue as a going concern.
Off-Balance
Sheet Arrangements
As of June 30, 2020 and September 30,
2019, there are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have,
a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to our investors.
Recent Accounting Pronouncements
See Note 2 of our Financial Statements
included in this quarterly report for discussion of recent accounting pronouncements.