Maitong Sunshine Cultural Development Co., Ltd 10-K

Item 7. 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 consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K, 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. The analysis set forth below is provided pursuant to applicable SEC regulations and is not intended to serve as a basis for projections of future events. See “Cautionary Statement Regarding Forward Looking Statements” above. Results of Operations for the Year Ended September 30, 2024 and Period Ended September 30, 2023 The following table shows key components of the results of operations during the year ended September 30, 2024 and the period from September 7 to September 30, 2023: For the Periods Ended September 30, 2024 2023 Revenue $ 804,887 $ 10,981 Cost of revenue 439,260 6,411 Gross Profit 365,627 4,570 Selling, general and administrative expenses 388,580 45,182 loss from operations (22,953 ) (40,612 ) Other income (expense) (108 ) 110 Loss before provision for loss taxes (23,061 ) (40,502 ) Provision for income taxes 7,749 - Net loss $ (30,810 ) $ (40,502 ) The Company initiated operations on September 7, 2023 and, accordingly, reported only $10,981 for the period ended September 30, 2023. For the fiscal year ended September 30, 2024, our first full fiscal year of operations, our revenue was $804,887. All our revenue was generated by our subsidiary Tongzhilian, which provided its cultural tourism services throughout the year and added product sales operations during the fourth quarter of the 2024 fiscal year. Tongzhilian sells tours both directly and through sales agents, with 49% of our revenue during fiscal year 2024 being derived from two primary sales agents.The cost of revenue, $439,260 for the fiscal year ended September 30, 2024, was mostly attributable to the cost of tours charged by cooperating travel agencies. In addition, commencing in the fourth quarter of fiscal 2024, cost of revenue included the procurement cost for products sold. We realized a gross profit of 45% in fiscal 2024, primarily attributable to a cultural feature tour developed by Tongzhilian in concert with our suppliers, Hainan Jintongyuan and Heibei Bailu. 27 Operating expenses for the 2024 fiscal year consisted primarily of salaries and benefits, office expenses, professional fees and rentals and leases. The $388,580 and $45,182 in operating expenses during fiscal year 2024 and the three weeks period ended September 30, 2023 were primarily attributable to: ● $142,401 and $30,000 in professional fees and related expenses incurred in the fiscal year 2024 and the period ended September 30, 2023 respectively, as a result of our status as a reporting company in the United States; and ● $155,533 and $567 in salaries and benefits incurred in fiscal year 2024 and the period ended September 30, 2023 respectively; and ● $53,559 and $11,547 in office expenses incurred in fiscal year 2024 and the period ended September 30, 2023 respectively; and ● $35,330 and $2,947 in rentals and lease fees incurred in fiscal year 2024 and the period ended September 30, 2023. Our net loss for the fiscal year 2024 was $30,810, compared to a net loss of $40,502 in the period from September 7, 2023 to September 30, 2023. Liquidity and Capital Resources On September 7, 2023 our shareholders purchased the authorized shares of MGSD Samoa for $60,000. Our CEO, Huang Fang, funded the purchase by giving MGSD Samoa her personal promissory note in the amount of $60,000. Primarily as a result of that transaction, as of September 30, 2023, after incurring a loss of $40,502 since it was organized, the Company had $Nil in cash and cash equivalents and a working capital deficit of $75,344. The principal liabilities were $30,000 in accrued expenses payable to the Company’s auditor in connection with the Company’s preparation for registration as a reporting company in the United States and $34,830 representing the current portion of the Company’s operating lease obligation. On September 30, 2024, the Company had $698,307 in cash and cash equivalents. During the year ended September 30, 2024, Ms. Huang satisfied her note by contributing $60,000 cash to the Company and loaned an additional $190,855. As of September 30, 2024, the Company had received during the 2024 fiscal year advance payments by customers totalling $461,946, which allowed the Company to accumulate a cash balance of $698,307 as of September 30, 2024. All these factors led to an increase in the Company’s working capital by $58,633 to a deficit of $16,711. We anticipate that our future liquidity requirements will arise from the need to fund our growth, pay current obligations and future capital expenditures. The primary sources of funding for such requirements are expected to be cash generated from operations plus additional funds sourced from a public offering and/or debt financing. In the near term, we expect Huang Fang, our President, to provide support, if needed. We do not, however, have any formal agreement with Ms. Huang requiring her to provide financing to the Company nor any method of enforcing our expectation. Therefore, we can provide no assurances that we will be able to generate sufficient cash flows from operations and/or obtain additional financing on terms satisfactory to us, if at all. 28 Cash Flows The following table summarizes our cash flows for the year ended September 30, 2024 and the period from September 7, 2023 to September 30, 2023. For the Years Ended September 30, 2024 2023 Net cash provided by operating activities $ 436,701 $ - Net cash (used in) investing activities (3,724 ) - Net cash provided by financing activities 248,400 - Effect of exchange rate fluctuation on cash and cash equivalents 16,930 - Net increase in cash and cash equivalents 698,307 - Cash and cash equivalents, beginning of year - - Cash and cash equivalents, end of year $ 698,307 $ - For the fiscal year ended September 30, 2024, our operations provided net cash of $436,701. The primary factor contributing to this increase in cash was a membership program we initiated during the year, in which we offered members discounts on tours in exchange for their deposit of funds to be applied to future tours. The result of this program was our accumulation of $461,946 in customer prepayments during the fiscal year. For the fiscal year ended September 30, 2024, our investing activities resulted in a net cash outflow of $3,724. primarily due to the acquisition of fixed assets. Our financing activities for the fiscal year ended September 30, 2024, generated $248,400, consisting of $60,000 contributed by Huang Fang to fund our shareholders’ subscriptions and a $188,400 interest-free loan from Huang Fang and her affiliate entity. Trends, Events and Uncertainties 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. 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 annual report. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. Not applicable. 29