Maitong Sunshine Cultural Development Co., Ltd 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of such financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. On an ongoing basis, we evaluate these estimates, including those related to useful lives of real estate assets, bad debts, impairment, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates. Application of Critical Accounting Policies The discussion and analysis of the Company’s financial condition and results of operations is based upon its condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These items are monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate. In connection with the preparation of our financial statements for the six months ended March 31, 2024, there was no accounting estimate made which was (a) subject to a high degree of uncertainty and (b) material to our results. Results of Operations The following table summarizes our operating results for three and six months ended March 31, 2024. For the Three Months Ended March 31, For the Six Months Ended March 31, 2024 2024 Revenue $ 140,986 $ 264,956 Cost of revenue 85,911 161,750 Gross profit 55,075 103,206 Selling, general and administrative expenses 79,701 180,134 Loss from operations (24,626 ) (76,928 ) Other income(expense) - (107 ) Loss before provision for income taxes (24,626 ) (77,035 ) Provision for income taxes 282 367 Net loss $ (24,908 ) $ (77,402 ) 2 Three Months Ended March 31, 2024 Tongzhilian’s revenue during the three months ended March 31, 2024 was attributable to one tour developed by Tongzhilian in concert with our supplier, Hebei Bailu, and sold directly by Tongzhilian for $140,986. We realized a gross profit of 39% on that tour. Nevertheless, we will not have a predictable gross profit until we have sold a significant number of tours. Operating expenses for the three months ended March 31, 2024 consisted primarily of salaries and benefits, office expenses, professional fees and rentals and leases. Our $79,701 in operating expenses during this period were primarily attributable to: ● $18,187 in professional fees and related expenses incurred in preparing for registration as a reporting company in the United States. ● $43,892 in salaries and benefits, For the reasons described above, our net loss for the three months ended March 31, 2024 was $24,908. Six Months Ended March 31, 2024 Tongzhilian’s revenue during the six months ended March 31, 2024 was attributable to three tours developed by Tongzhilian in concert with our supplier, Hebei Bailu. One of the tours was sold by our sales agent, Beijing Jinguantong, for $41,651, and two were sold directly by Tongzhilian for $223,305. For each tour we functioned as the principal, paying Hebei Bailu a fixed percentage of the settlement price, determining the price to external parties, and carrying responsibility for contract fulfillment. In the case of the tour sold by our agent, we determined that Tongzhilian functioned as the principal in the tour sale because Tongzhilian developed the tour, determined the market price for the tour and the parties agreed on the net settlement price to be paid by Beijing Jiguantong. Although Tongzhilian sold one tour directly and the others through an agent, the gross profit on each sale was 39%. This parity was attributable in part to the control that Tongzhilian exercises over the sale price of tours it develops with Hebei Bailu. But the unexpected parity also reflects the elasticity of the tour market. We will not have a predictable gross profit until we have sold a significant number of tours. Operating expenses for the six months ended March 31, 2024 consisted primarily of salaries and benefits, office expenses, professional fees and rentals and leases. Our $180,134 in operating expenses during this period were primarily attributable to: ● $66,926 in professional fees and related expenses incurred in preparing for registration as a reporting company in the United States. ● $71,774 in salaries and benefits, ● $22,962 in office expenses. For the reasons described above, our net loss for the six months ended March 31, 2024 was $77,402. 3 Liquidity and Capital Resources As of March 31, 2024, we have a working capital deficit of $84,930, attributable primarily to the fact that the Company has operated at a loss since it was organized in September 2023. 70% of our liabilities consist of payables to related parties who will not seek immediate repayment; so our working capital deficit is not an immediate threat. Nevertheless, until we achieve a sufficient level of operations to sustain profitability, it is likely that we will depend on loans from Huang Fang, our CEO, and her affiliated companies to fund our ongoing operations. Cash Flows The following unaudited table summarizes our cash flows for the six months ended March 31, 2024. Six Months Ended March 31, 2024 Net cash (used in) operating activities $ (127,584 ) Net cash (used in) Investing activities (3,729 ) Net cash provided by financing activities 154,056 Effect of exchange rate fluctuation on cash and cash equivalents (64 ) Net increase in cash and cash equivalents 22,679 Cash and cash equivalents, beginning of period - Cash and cash equivalents, end of period $ 22,679 During the six months ended March 31, 2024, our operations used net cash of $127,584. Our use of cash exceeded our net loss of $77,402 during the six months period primarily because we increased Prepayments by $38,982. During the six months ended March 31, 2024, our investing activities used net cash of $3,729. because we purchased fixed assets. Our financing activities during the six months ended March 31, 2024 generated $154,056, consisting of the $60,000 that Huang Fang contributed to fund our shareholders’ subscriptions and $94,056 that we borrowed on an interest-free basis from Huang Fang and her affiliate entity. Trends, Events and Uncertainties There is substantial doubt about our ability to continue as a going concern as a result of our lack of significant revenues and recurring losses. If we are unable to generate significant revenue or secure additional financing, we may be required to cease or curtail our operations. The Company is expanding its product offerings to include more products. In addition, our marketing personnel are developing new customers with the intention of building a stable base of customers. In this manner, the Company hopes to increase sales to support the future operations and development of the Company. There is no guarantee that the Company’s new strategy will be successful. As of March 31, 2024, a stable customer base has not been established yet. The U.S. government, including the SEC, has made statements and taken actions that have led to changes in relations between the U.S. and China, and will impact companies with connections to the United States or China. Those actions by the U.S. government included imposing several rounds of tariffs affecting certain products manufactured in China and imposing sanctions and restrictions in relation to China. Actions by the SEC included issuing statements indicating that it would make enhanced review of companies with significant China-based operations. It is unknown whether and to what extent new legislation, executive orders, tariffs, laws or regulations will be adopted, or the effect that any such actions would have on U.S.-domiciled companies with significant connections to China, our industry or on us. Any unfavorable government policies on cross-border relations, including increased scrutiny on companies with significant China-based operations, capital controls or tariffs, may affect our ability to raise capital and the market price of our shares. If any new legislation, executive orders, tariffs, laws and/or regulations are implemented, if existing trade agreements are renegotiated or if the U.S. or Chinese governments take retaliatory actions due to the recent U.S.-China tensions, such changes could have an adverse effect on our business, financial condition and results of operations, our ability to raise capital and the market price of our shares. Changes in United States and China relations and/or regulations may adversely impact our business, our operating results, our ability to raise capital and the market price of our shares. Other than the factors listed above we do not know of any trends, events or uncertainties that have had or are reasonably expected to have a material impact on our net sales or revenues or income from continuing operations. 4 Recent Accounting Pronouncements There were no recent accounting pronouncements that we expect to have a material effect on the Company’s financial position or results of operations. Please refer to Note 2 of our condensed consolidated financial statements included in this quarterly report. Item 3. Quantitative and Qualitative Disclosures about Market Risk. Not applicable.