10-Q: CXJ Group Faces Deepening Losses, Liquidity Crisis

CXJ Group reports a significant revenue decline and increased net loss, raising substantial doubt about its ability to continue as a going concern amidst severe liquidity issues and internal control weaknesses.

Summary

• Total revenue for the three months ended August 31, 2025, decreased by 20.4% to $91,005 from $114,382 in the prior year period.
• Gross profit fell by 21.1% to $74,961 from $95,009 in the same period last year.
• Net loss attributable to shareholders increased to $46,776, up from $41,567 in the three months ended August 31, 2024.
• The accumulated deficit grew to $7,694,281 as of August 31, 2025.
• Current liabilities of $1,954,022 significantly exceed current assets of $330,929, indicating a severe working capital deficit.
• Cash and cash equivalents increased to $49,246 as of August 31, 2025, from $10,037 as of May 31, 2025, primarily due to a decrease in net cash provided by operating activities.
• All goodwill and intangible assets have been fully impaired, with a nil balance as of August 31, 2025.
• Management identified material weaknesses in internal control over financial reporting and concluded that disclosure controls and procedures were not effective.
• The company operates under a Variable Interest Entity (VIE) structure in China, which carries significant regulatory and legal risks due to foreign ownership restrictions.

Sentiment

Score: 2

Explanation: The company reported significant declines in revenue and gross profit, an increased net loss, and a growing accumulated deficit. It faces severe liquidity challenges, with current liabilities far exceeding current assets, leading to substantial doubt about its ability to continue as a going concern. Furthermore, all goodwill and intangible assets are fully impaired, and management identified material weaknesses in internal controls and ineffective disclosure controls. The rapid growth of EVs in China poses a significant threat to its core motor oil and auto parts business.

Positives

• Cash and cash equivalents increased to $49,246 as of August 31, 2025, from $10,037 as of May 31, 2025.
• Selling and distribution expenses decreased by $13,063 to $43,066, primarily due to lower consultancy, office, transportation, and entertainment expenses.
• General and administrative expenses decreased by $3,988 to $78,559, mainly due to reduced impairment of development costs, rental, travelling expenses, and payroll costs.
• Comprehensive loss decreased to $53,951 from $57,013, primarily due to a lower foreign exchange adjustment loss.

Negatives

• Total revenue decreased by $23,377 (20.4%) to $91,005 for the three months ended August 31, 2025, compared to the prior year.
• Gross profit decreased by $20,048 (21.1%) to $74,961 for the three months ended August 31, 2025.
• Loss from operations increased by $2,997 to $46,664 for the three months ended August 31, 2025.
• Net loss attributable to shareholders increased by $5,209 to $46,776 for the three months ended August 31, 2025.
• Accumulated deficit increased to $7,694,281 as of August 31, 2025, from $7,647,505 as of May 31, 2025.
• Current liabilities of $1,954,022 significantly outweigh current assets of $330,929, indicating severe liquidity challenges.
• Net cash provided by operating activities decreased by $41,089 to $34,787 for the three months ended August 31, 2025.
• Goodwill and intangible assets are fully impaired, reflecting a complete loss of value in these assets.
• Four major customers accounted for 72.1% of total revenue for the three months ended August 31, 2025, indicating high customer concentration risk.
• Two major vendors accounted for 99.6% of total purchase costs for the three months ended August 31, 2025, indicating high vendor concentration risk.

Risks

• PRC laws and regulations prohibit or restrict foreign ownership in certain businesses, requiring the company to operate through a Variable Interest Entity (VIE) structure, which has not been tested in court and faces uncertainty regarding future government actions.
• The Chinese government may exercise significant oversight and discretion over business operations, potentially intervening or influencing operations at any time, which could materially affect the company's business and share value.
• Regulatory authorities in China have implemented stringent privacy and data protection laws, and future regulations or interpretations could significantly impact operations, despite the company's current assessment of not being a 'critical information infrastructure operator' or controlling over one million users' personal information.
• Reliance on dividends and distributions from PRC subsidiaries to fund cash requirements is subject to limitations by the PRC government on cash transfers, capital controls, and statutory reserve requirements, which could materially affect financial position.
• A withholding tax of 10% (potentially reduced to 5% under certain treaties) on dividends from PRC subsidiaries to the Hong Kong subsidiary will reduce the amount of dividends received.
• A downturn in the Chinese or global economy or changes in China's economic and political policies could materially and adversely affect the VIE's business and financial condition.
• The company could be subject to scrutiny, criticism, and negative publicity involving U.S. listed China-based companies, potentially limiting financing and causing securities to decline in value.
• Political risks are associated with conducting business in Hong Kong and China.
• The company's common stock could be delisted under the Holding Foreign Companies Accountable Act (HFCAA) if the PCAOB is unable to inspect its auditors in the future, materially affecting investment value.
• The company's ability to continue as a going concern is in substantial doubt due to an accumulated deficit of $7,694,281, recurring net losses, and insufficient cash to support daily operations.
• Currency risk exists as a majority of transactions are in RMB, which is not freely convertible and subject to PBOC controls, and bank accounts in the PRC are not fully insured.
• Concentration of credit risk exists with cash deposits in Chinese financial institutions, although the company believes these institutions are financially sound.
• The fast growth of electric vehicles (EV) in China, with sales exceeding 50% of total motor vehicle sales in 2025, is expected to harm the motor oil and auto parts market, seriously affecting the company's financial condition and future business expansion.
• Material weaknesses in internal control over financial reporting were identified, including a lack of well-established procedures for related party transactions and inadequate controls for business combination accounting.
• Disclosure controls and procedures were deemed not effective as of August 31, 2025.

Future Outlook

Management believes in the viability of its business strategy plans, including Flash Lion e-commerce and Cloud chain sales models (Wechat, REDnote, Tik Tok short videos). The company plans to expand its market share by acquiring quality businesses in the automotive aftermarket, increasing its customer base and supply channels, and diversifying its product portfolio. The major shareholder has agreed to provide financial support. However, management cannot provide assurances that these plans will be successful. The company intends to retain all available funds and future earnings for the operation of its VIE's business and has no plans to distribute earnings or settle amounts owed under VIE Agreements in the foreseeable future.

Management Comments

• "We believe in the viability of its business strategy plans such as Flash Lion e-commerce sales model, Cloud chain (including Wechat, REDnote and Tik Toks short videos e-commerce sales model), and its ability to raise additional funds, there can be no assurance to that effect."
• "Our business plan is to extend our market share through acquiring quality businesses in the automotive aftermarket industries, in order to increase our customer base and supply channels, as well as to acquire more skilled employees and business connections in the industries."
• "We plan to diversify our existing product portfolio strategically, and thereby provide our customers with a wider range of choices and broaden our existing customer base."
• "Major shareholder agrees to provide financial support to the Company."
• "Management cannot provide any assurances that the Company will be successful in accomplishing any of its plans."
• "Management concluded that the internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles."
• "Our Chief Executive Officer and Chief Financial Officer concluded as of period ended August 31, 2025, that our disclosure controls and procedures were not effective."

Industry Context

The company's business faces significant challenges from the rapid growth of electric vehicles (EV) in China, where EV sales exceeded 50% of total motor vehicle sales in 2025. This trend is expected to negatively impact the company's motor oil and auto parts market, potentially harming its financial condition and future business expansion.

Corporate Governance

Related Party Transactions

• The company paid $300 on behalf of New Charles Technology Group Limited, controlled by CEO Lixin Cai.
• The company advanced a short-term loan of $82,862 to Hangzhou Xieli Internet Technology Co., Ltd, controlled by CFO Cuiyao Luo; this loan is unsecured, interest-free, and repayable on demand.
• Cuiyao Luo (CFO & major shareholder) advanced $363,511 to the company as working capital; this advance is unsecured, interest-free, and payable on demand.
• Rudong Shi (Director) advanced $9,677 to the company as working capital; this advance is unsecured, interest-free, and payable on demand.
• Revenue of $16,424 was generated from Jinan Jieshun Vehicle Service Co., Ltd. and Jinan Jiehuiya Vehicle Service Co., Ltd., controlled by ShenJie Guo (0.015% equity holder), for brand name management fees.
• Revenue of $16,511 was generated from Suzhou Tongxuan Vehicle Service Co., Ltd., controlled by GenRong Zhang (0.015% equity holder), for brand name management fees.
• Revenue of $16,424 was generated from Zhenzhou Maozuo Vehicle Service Co., Ltd., controlled by WenZhen Guo (0.015% equity holder), for brand name management fees.
• Revenue of $16,424 was generated from Changsha Shengqun Vehicle Service Co., Ltd. and Shaoyang Hengchao Vehicle Co., Ltd., controlled by Zhongxin Lei (0.176% equity holder), for brand name management fees.

Stakeholder Impact

• Shareholders face significant risk of further share price decline due to deteriorating financial performance, severe liquidity issues, and substantial doubt about the company's ability to continue as a going concern.
• Shareholders may experience dilution from potential future equity capital raises.
• Creditors face increased risk due to the company's precarious financial position, high current liabilities relative to assets, and going concern uncertainties.
• Employees may face job insecurity or reduced benefits if the company's financial condition continues to worsen, although no direct impact is explicitly stated.
• Customers and suppliers may be affected by the company's declining market activity and high concentration risks with major vendors and customers, potentially impacting service delivery or supply chain stability.

Next Steps

• Implement business strategy plans, including Flash Lion e-commerce sales model and Cloud chain (Wechat, REDnote, Tik Tok short videos e-commerce sales model).
• Extend market share through acquiring quality businesses in the automotive aftermarket industries.
• Increase customer base and supply channels.
• Acquire more skilled employees and business connections in the industries.
• Diversify the existing product portfolio strategically.
• Address material weaknesses in internal control over financial reporting and improve disclosure controls and procedures.
• Major shareholder to provide financial support to the Company.

Key Dates

Recommendation

The company exhibits severe financial distress, marked by a substantial decline in revenue and gross profit, increasing net losses, and an accumulated deficit exceeding $7.6 million. Its current liabilities are six times its current assets, raising significant doubt about its ability to continue as a going concern. All goodwill and intangible assets have been fully impaired, indicating a complete loss of value in past acquisitions. Furthermore, the company operates under a high-risk VIE structure in China, faces significant regulatory uncertainties, and has disclosed material weaknesses in internal controls and ineffective disclosure controls. The rapid growth of electric vehicles poses a fundamental threat to its core business. These factors collectively point to a highly precarious financial position and significant operational risks, making the stock a strong sell.

Keywords

Automotive aftermarket, China VIE structure, SEC 10-Q, Financial results, Liquidity crisis, Going concern, Internal controls, Related party transactions, Motor oil, Auto parts, Brand name management, Electric vehicles impact, Corporate governance