10-K: Kun Peng International Faces Going Concern Doubt Amidst Revenue Decline

Kun Peng International Ltd. reported a significant net loss and negative working capital for fiscal year 2025, raising substantial doubt about its ability to continue as a going concern.

Summary

• The company is a Nevada holding company operating in China through a Variable Interest Entity (VIE) structure, primarily selling health care and health-related household products via online platforms King Eagle Mall and Kun Zhi Jian Mini Program.
• Reported a net loss of $1,268,913 for the fiscal year ended September 30, 2025, an improvement from the $1,991,747 net loss in FY2024.
• Revenue decreased by 30.8% to $1,438,127 in FY2025 from $2,078,741 in FY2024, primarily due to a sharp decrease in retail sales.
• Cash outflows from operating activities were $208,156 in FY2025, compared to inflows of $17,880 in FY2024.
• Negative working capital increased to $8,495,197 as of September 30, 2025, from $7,997,902 in FY2024.
• The company's independent auditors expressed substantial doubt about its ability to continue as a going concern.
• Two VIE subsidiaries, King Eagle (Huaian) and Kun Zhi Jian (Huaian), were deregistered on August 28, 2025, leading to a gain on disposal of a subsidiary of $147,579 and a waiver of debt of $501,575.
• New VIE Agreements were entered into on June 10, 2025, following a change in ownership of King Eagle (Tianjin).
• The company has 33 full-time employees.

Sentiment

Score: 2

Explanation: The company faces severe financial challenges, evidenced by substantial doubt about its going concern ability, declining revenue, increasing negative working capital, and persistent net losses. While there was a reduction in net loss and operating expenses, this was partly due to one-time gains from debt waiver and subsidiary disposal, and the underlying revenue generation is weak. The regulatory and operational risks in China, coupled with internal control weaknesses, further dampen the outlook.

Positives

• Net loss decreased to $1,268,913 in FY2025 from $1,991,747 in FY2024, indicating an improvement in profitability despite revenue decline.
• Equipment-based service revenue increased, driven by strategic focus and promotional initiatives.
• Other income, net, significantly increased to $510,797 in FY2025 from $11,538 in FY2024, primarily due to a $147,579 gain on disposal of a subsidiary and a $501,575 waiver of debt from deregistered subsidiaries.
• Operating expenses decreased by $735,896 (from $3,473,901 to $2,738,005) in FY2025, mainly due to reduced general and administrative expenses ($267,426 decrease) and selling expenses ($468,470 decrease) following subsidiary deregistration.
• Management is actively addressing environmental and social responsibility as part of its strategy and goals, including sustainable packaging and supporting community welfare.
• The company launched K Messenger in April 2023, an instant messaging tool to enhance communication among stakeholders and customers.

Negatives

• Substantial doubt about the company's ability to continue as a going concern due to cash outflows from operating activities ($208,156), net loss ($1,268,913), and negative working capital ($8,495,197) as of September 30, 2025.
• Total revenue decreased by 30.8% to $1,438,127 in FY2025 from $2,078,741 in FY2024.
• Retail revenue sharply decreased from $1,373,016 in FY2024 to $500,744 in FY2025, attributed to economic uncertainty and a downward trend in consumption.
• Wholesale revenue, technical service revenue, commission revenue, and training revenue were all nil in FY2025, due to the termination of two VIE subsidiaries' businesses and related business streams.
• The company has a limited operating history and faces risks common to development-stage companies.
• Significant reliance on dividends and distributions from PRC subsidiaries, which are subject to PRC government restrictions and interventions on cash transfers.
• Lack of sufficient and adequately trained internal accounting and finance personnel with appropriate understanding of U.S. GAAP and SEC reporting requirements, and a lack of segregation of duties within significant accounts, leading to material weaknesses in internal control over financial reporting.
• No functioning audit committee and a lack of a majority of outside directors on the Board of Directors.
• The company has not paid dividends and does not anticipate doing so in the foreseeable future.

Risks

• Substantial doubt about the ability to continue as a going concern.
• Potential for continued losses and inability to return to profitability, leading to a decline in share price.
• Business plan based on a relatively new model that may not be successful.
• Intense competition in the health care and household products and services market, with low barriers to entry.
• Failure to stay current with new technologies and trends in social e-commerce platforms and preventive health care.
• Heavy dependence on key personnel and risks associated with turnover.
• Inability to manage the expansion of operations effectively.
• Recurrence of COVID-19 causing delays or limiting business expansion.
• Reliance on dividends and other distributions from subsidiaries, with limitations on their ability to make payments due to PRC government interventions or debt restrictions.
• Uncertainty of PRC laws and regulations governing the business and the validity of contractual arrangements (VIE structure), potentially leading to government disallowance, limitations, or severe penalties.
• Risk that contractual arrangements may not be as effective as direct ownership in providing control over the VIE, and VIE shareholders may fail to perform obligations.
• Potential for substantial costs to enforce VIE agreements through arbitration or judicial agencies in China.
• PRC tax authorities scrutinizing related party transactions, potentially leading to additional taxes.
• Impact of the newly enacted Foreign Investment Law on the corporate structure and business operations.
• Changes in international trade or investment policies, barriers to trade, and ongoing geopolitical conflicts (e.g., U.S.-China trade tensions, Russia-Ukraine, Israel-Hamas wars) affecting business and expansion plans, potentially leading to delisting or investment restrictions.
• Chinese government exercising significant oversight and discretion over business operations, potentially limiting or hindering operations or ability to offer shares.
• New Overseas Listing Rules and other relevant rules promulgated by the CSRC may subject the company to additional compliance requirements, potentially limiting future offerings or causing delisting.
• Uncertainties with the PRC legal system, including frequent changes, inconsistent interpretations, and limited law enforcement availability.
• Obstacles from the communist system in the PRC, including difficulties in establishing adequate management, legal, and financial controls.
• Complex and evolving laws and regulations regarding privacy and data protection in China (Cybersecurity Law, Data Security Law, Cybersecurity Review Measures, Personal Information Protection Law), potentially leading to increased compliance costs, penalties, or business disruption.
• Difficulty enforcing U.S. judgments against the company or its officers/directors due to assets and personnel being outside the U.S. and lack of reciprocal enforcement treaties with China.
• Potential classification as a resident enterprise of China under the EIT Law, leading to unfavorable tax consequences (25% tax on worldwide income, 10% withholding tax on dividends to non-PRC shareholders).
• Uncertainty regarding indirect transfers of equity interests in PRC resident enterprises by non-PRC holding companies (SAT Bulletin 7 and 37).
• PRC regulations relating to the establishment of offshore special purpose companies by PRC residents (Circular 37) may subject PRC resident shareholders to penalties and limit capital injection or profit distribution.
• Exposure to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption laws.
• Scrutiny, criticism, and negative publicity involving U.S.-listed Chinese companies, potentially harming business operations, stock price, and reputation.
• Lack of scrutiny by PRC regulatory bodies on SEC disclosures.
• Common stock quoted on the OTC market, which may have an unfavorable impact on stock price and liquidity.
• Subject to penny stock regulations and restrictions, making it difficult to sell shares.
• Failure to maintain proper and effective internal control over financial reporting, impairing ability to produce accurate financial statements.
• No intention to pay dividends for the foreseeable future.
• High costs and time-consuming obligations of being a public company, including Sarbanes-Oxley Act requirements.
• Provisions in charter documents and Nevada law could discourage a takeover.
• Concentration of vendors: two major vendors accounted for 56.4% of total cost of revenues in FY2025.

Future Outlook

The company intends to retain all available funds and future earnings for the operation of its VIE's business. Management estimates that additional capital will be necessary to support operations and growth. The company is focusing on increasing revenue through its online platform, Kun Zhi Jian, promoting its own brand of preventive health care products to wholesalers, streamlining overhead costs, and obtaining financing from stockholders, directors, or bank financing. Chengdu Wenjiang Pengrun Shangyibang Internet Healthcare Co., Ltd. and Kun Yu (Hainan) Technology Co., Ltd. plan to commence operations in late 2026, assuming necessary permits are obtained. The company expects to continue investing in the development of new products, such as mobile applications, and enhancing the efficiency and functionality of existing products and infrastructure. The company will address, identify, and set ESG goals, with further disclosures in future periodic reports.

Management Comments

• "We believe preventive care is the most effective investment in health."
• "Management believes that we are in a new era of e-commerce and that additional characteristics of sharing economy, offline support and social interaction are evolving."
• "We believe the rise of social e-commerce will positively impact the development of our health care business."
• "Our management is actively addressing environmental and social responsibility as part of its strategy and goals for the Company."
• "The directors intend to continue to support the group by providing adequate financial assistance to enable the group to continue its business operations for the foreseeable future."

Industry Context

The health food market in China is experiencing growth driven by changes in age demographics (increasing elderly population), domestic child policy (three-child policy increasing demand in maternal and baby health food), and lifestyle changes (increased health and nutrition consciousness post-COVID-19). China's health food market was the second largest globally in 2021, representing 17.8% of global sales, with projected sales reaching RMB423.7 billion by 2027. E-commerce, particularly social e-commerce, is rapidly developing in China, with Chinese customers highly active on platforms like Weibo, Douyin, and WeChat, valuing personal relationships and brand interaction. This trend is expected to positively impact the company's health care business. The company operates in a highly competitive environment with minimal barriers to entry, competing with large and small companies, including vertically integrated internet portals and specialty-focused media companies like Pinduoduo, Weimeng, Taobao, and JD.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to global benchmarks, making a direct assessment against global industry standards challenging.
• The company's S2B2C business model and focus on integrating health care resources, personal health management, and wealth value through its King Eagle Mall and Kun Zhi Jian platforms are strategies aligned with the evolving Chinese e-commerce and health market trends.
• Competitive advantages cited include experienced management, diverse product offerings (physiotherapy equipment, diet/nutritional advice, health care products), and value-added health care screening and monitoring services through its customer service centers.
• Despite these stated advantages, the company's financial performance, characterized by declining revenue, persistent net losses, and increasing negative working capital, suggests it is underperforming relative to the growth potential of the broader Chinese health food and e-commerce market and established competitors like Pinduoduo, Taobao, and JD.

Management Changes

Corporate Governance

Legal Proceedings

• No material, existing, or pending legal proceedings against the company.
• Not involved as a plaintiff in any material proceeding or pending litigation.
• No proceedings in which any directors, officers, affiliates, or stockholders are adverse parties or have a material adverse interest.

Related Party Transactions

• Acquisition of Kun Pin Hui (Shandong) Trading Co. Ltd. by King Eagle VIE from Zhandong Fan (95%) and Yuanyuan Zhang (5%) for $0.14 (RMB 1) on April 7, 2024.
• Amounts due from related parties as of September 30, 2025, totaled $331,619, including advances to officers/employees (Ms. Jinjing Zhang, Ms. Xiujin Wang), input VAT (Beijing Paiyue Technology Co., LTD), advances for operating expenses (King Eagle (Hangzhou) Health Technology Co., Ltd), and account receivable (Chongbao (Beijing) Auction Co., Ltd.).
• Amounts due to related parties as of September 30, 2025, totaled $4,537,914, including operational support to King Eagle (Tianjin) from Ms. Chengyuan Li ($2,647,984), Ms. Xiujin Wang ($252,845), Mr. Richun Zhuang ($424,108), Ms. Jinjing Zhang ($2,388), Mr. Zhandong Fan ($3,793), Mr. Jianxin Niu ($34,097). Also includes payments of agency service charges to Tianjin Qianying Technology Co., Ltd. ($828,644), Beijing Paiyue Technology Co., LTD ($165,959), and Chongbao (Beijing) Auction Co., Ltd. ($178,096).
• Related party transactions for FY2025 included revenue of $233,039 from Chongbao (Beijing) Auction Co., Ltd., selling expenses of $50,380 to Chongbao (Beijing) Auction Co., Ltd. and $145,488 to Tianjin Qianying Technology Co., Ltd., and general administration expenses (rental) of $48,046 to Beijing Paiyue Technology Co., LTD.

Stakeholder Impact

• Shareholders face significant risk of value decline or worthlessness due to going concern doubt, declining revenue, and regulatory uncertainties in China. No dividends are expected, and there is a dilution risk from future equity raises.
• Employees (33 full-time) may be impacted by cost streamlining and business restructuring. Management changes include a new independent director.
• Customers continue to be served through online platforms with an expansion of equipment-based services, but face potential service disruption if business operations are severely affected.
• Suppliers/Vendors face concentration risk, with two major vendors accounting for 56.4% of cost of revenues in FY2025, potentially impacting relationships if financial difficulties persist.
• Creditors face heightened risk due to negative working capital and going concern doubt. While there was a one-time waiver of debt in FY2025 from deregistered subsidiaries, overall liabilities remain high.

Next Steps

• Focus on promoting and selling its own brand of preventive health care products to wholesalers through Kun Zhi Jian.
• Streamline overhead costs.
• Obtain financing or capital funding from stockholders, directors, or through bank financing.
• Hire an experienced controller and build an internal accounting team with US GAAP expertise (contingent on cash position improvement).
• Chengdu Wenjiang Pengrun Shangyibang Internet Healthcare Co., Ltd. and Kun Yu (Hainan) Technology Co., Ltd. are applying for online health care and medical services permits and plan to commence operations in late 2026.
• The Board of Directors will authorize the creation of an audit committee comprised of three independent non-executive directors and adopt an audit committee charter, which will include provisions for cybersecurity oversight.
• The company will continue to invest in the development of new products and enhance existing platforms.
• The company will address, identify, and set ESG goals, with future disclosures in periodic reports.

Key Dates

Recommendation

The company faces severe financial challenges, including substantial doubt about its ability to continue as a going concern, a significant decline in revenue, and persistent negative working capital. The operational environment in China, particularly with the complex and uncertain VIE structure and evolving regulatory landscape, presents considerable risks that could materially and adversely affect the business. Internal control weaknesses further compound these issues. While there was a reduction in net loss, this was partly due to one-time gains, and the core business performance is deteriorating. Given the high level of uncertainty, significant financial risks, and lack of clear path to sustainable profitability, a strong sell recommendation is warranted for investors.

Keywords

Health care products, e-commerce, China, VIE, SEC filing, 10-K, financial results, going concern, regulatory risk, data privacy, corporate governance, OTCQB, Kun Peng International, King Eagle Mall, Kun Zhi Jian