UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from __________to _________
Commission file number
(Exact name of registrant as specified in its charter)
| State or other jurisdiction of incorporation or organization | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(
Registrant’s telephone number, including area code
(Former name, former address and former fiscal year, if changed since last report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically on its corporate Web site, if any, every Interactive Data File required
to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☐ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.
| Class | Outstanding November 10, 2023 | |
| Common Stock, with $0.0001 par value | shares |
NOTES REGARDING OUR COMPANY
Forward Looking Statements
This periodic report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities for existing products, plans and objectives of management. Statements in this periodic report that are not historical facts are hereby identified as forward-looking statements. Our Company and our representatives may from time to time make written or oral statements that are “forward-looking,” including statements contained in this Quarterly Report and other filings with the Securities and Exchange Commission and in reports to our Company’s stockholders. Management believes that all statements that express expectations and projections with respect to future matters, as well as from developments beyond our Company’s control including changes in global economic conditions are forward-looking statements within the meaning of the Act. These statements are made on the basis of management’s views and assumptions, as of the time the statements are made, regarding future events and business performance. There can be no assurance, however, that management’s expectations will necessarily come to pass. Factors that may affect forward-looking statements include a wide range of factors that could materially affect future developments and performance, including the following:
Changes in Company-wide strategies, which may result in changes in the types or mix of businesses in which our Company is involved or chooses to invest; changes in U.S., global or regional economic conditions; changes in U.S. and global financial and equity markets, including significant interest rate fluctuations, which may impede our Company’s access to, or increase the cost of, external financing for our operations and investments; increased competitive pressures, both domestically and internationally; legal and regulatory developments, such as regulatory actions affecting environmental activities; the imposition by foreign countries of trade restrictions and changes in international tax laws or currency controls; adverse weather conditions or natural disasters, such as hurricanes and earthquakes; and labor disputes, which may lead to increased costs or disruption of operations.
This list of factors that may affect future performance and the accuracy of forward-looking statements are illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.
Disclosures Related to Our Chinese Operations
China Foods Holdings Ltd. (the “Company”, “CFOO”, or “we”) was incorporated in Delaware on January 10, 2019. The Company is a Delaware holding company and we conduct our primary operations in China through our wholly owned subsidiary Guangzhou Xiao Xiang Health Industry Company Limited, a limited liability company organized under the laws of China on March 8, 2017 (“GXXHIC”). GXXHIC is wholly owned by Alpha Wellness (HK) Limited, a limited liability company organized under the laws of Hong Kong on April 24, 2019, which is in turn wholly owned by Elite Creation Group, a limited liability company formed under the laws of the British Virgin Islands formed on September 5, 2018. Alpha Wellness (HK) Limited and Elite Creation Group are holding companies without operations and are wholly owned by the Company.
Substantially all of our operations are conducted in China, and are governed by Chinese laws, rules and regulations. Our subsidiary, GXXHIC, is subject to Chinese laws, rules, and regulations. Uncertainties with respect to the interpretation and enforcement of Chinese laws, rules and regulations could have a material adverse effect on us. Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding that the rules and regulations in China can change quickly with little advance notice and that the Chinese government may intervene or influence our operations at any time, could result in a material adverse change in our operations and the value of our securities.
We do not believe there GXXHIC is in violation of any laws, rules or regulations but since these newly enacted rules are still evolving, we cannot assure you that our business operations comply with such regulations and authorities’ requirements in all respects during the development of these new rules. However, in terms of business operation, GXXHIC expects to adapt to the newly issued rules and take dependent measures to comply with the laws and regulations of the Chinese authorities. The People’s Republic of China (the “PRC”) government’s authority in regulating our operations and its oversight and control over offerings and listings conducted overseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. Implementation of industry-wide regulations in this nature may cause the value of such securities to significantly decline or be worthless. Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our securities. But so far, the current operation and securities value of CFOO are stable, and we believe that its risks are to the Company are manageable.
GXXHIC has received a Business License from the relevant department of the State Administration for Market Regulation. Apart from the Business License, GXXHIC may be subject to additional licensing requirements for our business operation due to the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities.
For more information on these risks and other risks relating to our company, please see our 2022 Annual Report on Form 10-K for the year ended December 31, 2022.
The Holding Foreign Companies Accountable Act
The Holding Foreign Companies Accountable Act (the “HFCAA”), was enacted on December 18, 2020. The HFCAA requires that the Public Company Accounting Oversight Board (the “PCAOB”) determine whether it is unable to inspect or investigate completely registered public accounting firms located in a non-U.S. jurisdiction because of a position taken by one or more authorities in that jurisdiction. Our auditor, ARK Pro CPA & Co (formerly HKCM & CPA Co.), is based in Hong Kong and is subject to the determinations announced by the PCOAB on December 16, 2021 and the HFCAA. On December 16, 2021, the PCAOB reported its determination that it was unable to inspect or investigate completely registered public accounting firms headquartered in the PRC and Hong Kong, because of positions taken by PRC authorities in those jurisdictions. On March 30, 2022, based on this determination, the Company was transferred to the SEC’s “Conclusive list of issuers identified under the HFCA.” Since our auditor is located in Hong Kong, a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities, our auditor is not currently inspected by the PCAOB. The HFCAA states that if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for two consecutive years beginning in 2021, the SEC shall prohibit our shares from being traded on a national securities exchange or in the over-the-counter trading market in the United States. The related risks and uncertainties could cause the value of our shares to significantly decline or be worthless.
Table of Contents
| Page | ||
| No. | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Unaudited Condensed Consolidated Financial Statements | 3 |
| Notes to Unaudited Condensed Consolidated Financial Statements | 7 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 28 |
| Item 4. | Controls and Procedures | 28 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 28 |
| Item 1A. | Risk Factors | 28 |
| Item 2. | Unregistered Sales of Equity Securities and Proceeds | 28 |
| Item 3. | Defaults Upon Senior Securities | 29 |
| Item 4. | Mine Safety Disclosure | 29 |
| Item 5. | Other Information | 29 |
| Item 6. | Exhibits | 29 |
| SIGNATURES | 30 | |
| 2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
China Foods Holdings Ltd.
Condensed Consolidated Balance Sheets
September 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Deposits and other receivables | ||||||||
| Inventories, net | ||||||||
| Total Current Assets | ||||||||
| Non-Current Assets | ||||||||
| Plant and equipment, net | ||||||||
| Right-of-use assets, net | ||||||||
| Intangible assets, net | ||||||||
| Total Non-Current Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities and other payables | ||||||||
| Customer deposits | ||||||||
| Lease liabilities | ||||||||
| Amount due to a director | ||||||||
| Amount due to a related company | ||||||||
| Income tax payable | ||||||||
| Total Current Liabilities | ||||||||
| Stockholders’ (Deficit) Equity | ||||||||
| Common stock $ par value, shares authorized, and shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ (Deficit) Equity | ( | ) | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
China Foods Holdings Ltd.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||
| Revenue, net | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross profit (loss) | ( | ) | ||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and distribution expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income: | ||||||||||||||||
| Interest income | ||||||||||||||||
| Sundry income | ||||||||||||||||
| Total other income | ||||||||||||||||
| Loss before income tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expenses | ( | ) | ||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency adjustment gain (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share | ||||||||||||||||
| Basic and diluted* | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average number of common stock | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
| * |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
China Foods Holdings Ltd.
Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity
(Unaudited)
| Three and nine months ended September 30, 2023 | ||||||||||||||||||||||||
| Common Stock | Additional paid-in | Accumulated | Accumulated other comprehensive | Total stockholders’ | ||||||||||||||||||||
| Share | Amount | capital | deficit | loss | deficit | |||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2023 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2023 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Three and nine months ended September 30, 2022 | ||||||||||||||||||||||||
| Common Stock | Additional paid-in | Accumulated | Accumulated other comprehensive | Total shareholders’ | ||||||||||||||||||||
| Share | Amount | capital | deficit | income (loss) | equity | |||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | ( | ) | $ | |||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2022 | ( | ) | ||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2022 | ( | ) | ||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
China Foods Holdings Ltd.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine months ended | ||||||||
September 30, 2023 | September 30, 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation of plant and equipment | ||||||||
| Gain from sale of plant and equipment | ( | ) | ||||||
| Amortization of intangible assets | ||||||||
| Non-cash lease expense | ||||||||
| ( | ) | ( | ) | |||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivables | ||||||||
| Deposits and other receivables | ||||||||
| Inventories | ||||||||
| Accrued liabilities and other payables | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Income tax recoverable | ||||||||
| Income tax payable | ( | ) | ||||||
| Customer deposits | ( | ) | ( | ) | ||||
| Lease liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of plant and equipment | ( | ) | ||||||
| Proceeds from sale of plant and equipment | ||||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Repayment of lease liabilities | ( | ) | ||||||
| Advances from (repayment to) a director | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Net change in cash and cash equivalents | ( | ) | ( | ) | ||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
China Foods Holdings Ltd.
Notes to Unaudited Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2023
NOTE 1 – NATURE OF OPERATIONS
China Foods Holdings Ltd. (the “Company” or “CFOO”) was incorporated in Delaware on January 10, 2019.
The Company is a health and wellness company that develops, markets, promotes and distributes a variety of customized health and wellness care products and services, including supplements, healthy snacks, meal replacements, skincare products, and nutritional consultation services to consumers in China. The Company works with certain licensed healthcare food factories to develop and manufacture products and services that are distributed conventionally through sales agents and also through a network of e-commerce and social media platforms.
Due to the impact of the COVID-19 pandemic in the healthcare industry, the Company also offered a new line of high-end wine products in our online and offline sales platform, to diversify the market demand and customer needs.
The following table depicts the description of the Company’s subsidiaries:
| Name | Place of incorporation and kind of legal entity | Principal activities | Particulars of registered/ paid up share capital | Effective interest held | ||||||
| Elite Creation Group Limited | issued shares of US$ | % | ||||||||
| Alpha Wellness (HK) Limited | issued shares for HK$ | % | ||||||||
| Guangzhou Xiao Xiang Health Industry Company Limited | RMB | % | ||||||||
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and consolidation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial reporting, and in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements contained in this report reflect all adjustments that are normal and recurring in nature and considered necessary for a fair presentation of the financial position and the results of operations for the interim periods presented. The year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The results of operations for the interim period are not necessarily indicative of the results expected for the full year. These unaudited condensed consolidated financial statements, footnote disclosures and other information should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed on March 31, 2023.
| 7 |
The unaudited condensed consolidated financial statements are presented in US Dollars and include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Significant areas for which management uses estimates include:
| ● | revenue recognition at point in time and over time; |
| ● | sales returns at point in time and allowances; |
| ● | inventory; |
| ● | estimated lives for tangible and intangible assets; and |
| ● | income tax valuation allowances |
These estimates require the use of judgment as future events and the effect of these events cannot be predicted with certainty. The estimates will change as new events occur, as more experience is acquired and as more information is obtained. We evaluate and update our assumptions and estimates on an ongoing basis and we may consult outside experts to assist as considered necessary.
Cash and cash equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
Accounts receivable
Accounts
receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms, generally 30
to 90 days from completion of service. Credit is extended based on evaluation of a customer’s financial condition, the customer
credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered
past due. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. At the end of fiscal
year, the Company specifically evaluates individual customer’s financial condition, credit history, and the current economic conditions
to monitor the progress of the collection of accounts receivables. The Company will consider the allowance for doubtful accounts for
any estimated losses resulting from the inability of its customers to make required payments. For the receivables that are past due or
not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal
resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted
and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.
As of September 30, 2023 and December 31, 2022, there was
Credit Losses – Measurement of Credit Losses on Financial Instruments
In March 2022, the FASB issued Accounting Standards Update (“ASU”) 2022-02, “Credit Losses – Measurement of Credit Losses on Financial Instruments (ASC Topic 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures,” which eliminates the accounting guidance for TDRs, now requiring an entity to determine whether a modification results in a new loan or a continuation of an existing loan, as well as expanding disclosures related to modifications and requires disclosure of current period gross write-offs of financing receivables within the vintage disclosures table. The Company adopted this guidance effective January 1, 2023, and the adoption of this standard did not have a material impact on its unaudited condensed consolidated financial statements.
Inventories
Inventories are stated at the lower of cost or market value (net realizable value), cost being determined on a first-in-first-out method. Costs include material and manufacturing overhead costs. The Company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand. As of September 30, 2023 and December 31, 2022, the Company did not record an allowance for obsolete inventories, nor have there been any write-offs.
| 8 |
Plant and equipment
Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:
| Expected useful lives | Residual value | |||||
| Furniture, fixture and equipment | % | |||||
| Motor vehicle | % | |||||
| Leasehold improvement | % | |||||
Expenditures for repairs and maintenance are expensed as incurred. When assets have been retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.
Depreciation
expense for the three and nine months ended September 30, 2023 were $
Intangible assets
Intangible
assets represented trademarks of their products and are stated at cost less accumulated amortization and any recognized impairment loss.
Amortization is provided over the term of their registrations on a straight-line basis, which is
Amortization
expense for the three and nine months ended September 30, 2023 were $
Amortization
expense for the three and nine months ended September 30, 2022 were $
Impairment of long-lived assets
In accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as plant and equipment, as well as intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. There has been no impairment charge for the periods presented.
Revenue recognition
The Company adopted ASC 606 – “Revenue from Contracts with Customers” (“ASC Topic 606”). Under ASC Topic 606, a performance obligation is a promise within a contract to transfer a distinct good or service, or a series of distinct goods and services, to a customer. Revenue is recognized when performance obligations are satisfied and the customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for goods or services. Under the standard, a contract’s transaction price is allocated to each distinct performance obligation. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC Topic 606, the Company performs the following five steps:
| ● | identify the contract with a customer; | |
| ● | identify the performance obligations in the contract; | |
| ● | determine the transaction price; | |
| ● | allocate the transaction price to performance obligations in the contract; and | |
| ● | recognize revenue as the performance obligation is satisfied. |
| 9 |
Currently, the Company operates two business segments.
Healthcare Business mainly provides health consulting advisory services and healthcare and wellness products to the customers.
Revenue is earned from the rendering of health consulting advisory services to the customers. The Company recognizes services revenue over the period in which such services are performed. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.
The
sale and distribution of the healthcare products, such as (i) Nutrition Catering (ii) Special Health Food (iii) Health Supplement and
(iv) Skincare, is the only performance obligation under the fixed-fee arrangements. Revenue is recognized from the sale of their healthcare
products upon delivery to the customers, whereas the title and risk of loss are fully transferred to the customers. The Company records
its revenues, net of value added taxes (“VAT”) on the majority of the products at the rate of
Wine
Business mainly provides wine products to the customers, with a right to return. The Company acts as the principal in substantially
all of its customer arrangements and as such, generally records revenues on a gross basis. Revenues exclude any taxes that the Company
collects from customers and remits to tax authorities. Revenue is recognized from the sale of wine products upon delivery to the customers,
whereas the title and risk of loss are fully transferred to the customers. The Company records its revenues, net of value added taxes
(“VAT”) on the majority of the products at the rate of
Disaggregation of Revenue
The following table provides information about disaggregated revenue from customers into the nature of the products and services, and geographic regions, and includes a reconciliation of the disaggregated revenue with reportable segments.
Three September 30, | Three September
30, | |||||||
| Sale of wine products | $ | $ | ||||||
| Sales of healthcare products | ||||||||
| TOTAL | $ | $ | ||||||
Nine September
30, | Nine September
30, | |||||||
| Consultancy service fee income | $ | $ | ||||||
| Sale of wine products | ||||||||
| Sales of healthcare products | ||||||||
| TOTAL | $ | $ | ||||||
The below revenues are based on the countries in which the customers are located. Summarized financial information concerning the geographic segments is shown in the following tables:
Three September 30, | Three September 30, | |||||||
| Hong Kong | $ | $ | ||||||
| PRC | ||||||||
| TOTAL | $ | $ | ||||||
Nine September 30, | Nine September 30, | |||||||
| Hong Kong | $ | $ | ||||||
| PRC | ||||||||
| TOTAL | $ | $ | ||||||
| 10 |
Income taxes
The
Company adopted the ASC Topic 740, “Income Taxes” (“ASC Topic 740”) provisions of paragraph 740-10-25-13,
which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the
condensed consolidated financial statements. Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain
tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based
on the technical merits of the position. The tax benefits recognized in the condensed consolidated financial statements from such a position
should be measured based on the largest benefit that has a
The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary.
Uncertain tax positions
The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the ASC Topic 740 provisions of Section 740-10-25 for the nine months ended September 30, 2023 and 2022.
Foreign currencies translation
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the unaudited condensed consolidated statement of operations.
The reporting currency of the Company is United States Dollar (“US$”) and the accompanying unaudited condensed consolidated financial statements have been expressed in US$. In addition, the Company is operating in Hong Kong SAR and the PRC and maintain its books and record in its local currency, Hong Kong Dollars (“HK$”) and Renminbi (“RMB”), which is a functional currency as being the primary currency of the economic environment in which their operations are conducted. In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the year. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statements of changes in shareholders’ equity.
Translation of amounts from HK$ and RMB into US$ has been made at the following exchange rates for the nine months ended September 30, 2023 and 2022:
| 2023 | 2022 | |||||||
| Period-end HK$:US$ exchange rate | ||||||||
| Period average HK$:US$ exchange rate | ||||||||
| Period-end RMB:US$ exchange rate | ||||||||
| Period average RMB:US$ exchange rate | ||||||||
The Company calculates net loss per share in accordance with ASC Topic 260, “Earnings per Share”. Basic (loss) income per share is computed by dividing the net (loss) income by the weighted-average number of common shares outstanding during the period. Diluted (loss) income per share is computed similar to basic (loss) income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive. Potential common stocks that have an anti-dilutive effect (i.e. those that increase income per share or decrease loss per share) are excluded from the calculation of diluted earnings per share.
| 11 |
Comprehensive loss
ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying condensed consolidated statements of changes in stockholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
Leases
The Company adopted ASC Topic 842, “Leases” (“ASC Topic 842”). At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Leases with a term greater than one year are recognized on the balance sheet as right-of-use (“ROU”) assets, lease liabilities and long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. However, certain adjustments to the right-of-use asset may be required for items such as prepaid or accrued lease payments. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
In accordance with the guidance in ASC Topic 842, components of a lease should be split into three categories: lease components (e.g. land, building, etc.), non-lease components (e.g. common area maintenance, consumables, etc.), and non-components (e.g. property taxes, insurance, etc.). Subsequently, the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on the respective relative fair values to the lease components and non-lease components.
Lease expense is recognized on a straight-line basis over the lease terms. Lease expense includes amortization of the ROU assets and accretion of the lease liabilities. Amortization of ROU assets is calculated as the periodic lease cost less accretion of the lease liability. The amortized period for ROU assets is limited to the expected lease term.
The Company has elected a practical expedient to combine the lease and non-lease components into a single lease component. The Company also elected the short-term lease measurement and recognition exemption and does not establish ROU assets or lease liabilities for operating leases with terms of 12 months or less.
Related parties
The Company follows the ASC Topic 850-10, “Related Party” for the identification of related parties and disclosure of related party transactions.
Pursuant to section 850-10-20 the related parties include a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and Income-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
| 12 |
The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amount due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Commitments and contingencies
The Company follows the ASC Topic 450-20, “Commitments” to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Fair value Measurement
The Company follows the guidance of the ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC Topic 820-10”), with respect to financial assets and liabilities that are measured at fair value. ASC Topic 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | |
| Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial assets and liabilities, such as cash and cash equivalents, accounts receivable, deposits and other receivables, accounts payable, accrued liabilities and other payables, customer deposits, amount due to a director, and amount due to a related company approximate their fair values because of the short maturity of these instruments.
| 13 |
Segment Reporting
ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in consolidated financial statements. Currently, the Company operates in two reportable operating segments in Hong Kong and China.
Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company has evaluated that the impact of all recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
NOTE 3 – LIQUIDITY AND GOING CONCERN
The accompanying unaudited condensed consolidated financial statements have been prepared using going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
For
the nine months ended September 30, 2023, the Company incurred a net loss of $
These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. These unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result in the Company not being able to continue as a going concern.
NOTE 4 – SEGMENT REPORTING
Currently,
the Company has
| (i) | Healthcare Segment, mainly provides health consulting advisory services and healthcare and wellness products to the customers; and |
| (ii) | Wine Segment, mainly provides the wine products to the customers. |
| 14 |
In the following table, revenue is disaggregated by primary major product line, including a reconciliation of the disaggregated revenue with the reportable segments.
| Three months ended September 30, 2023 | ||||||||||||
| Healthcare Segment | Wine Segment | Total | ||||||||||
| Revenue from external customers: | ||||||||||||
| Consulting service income | $ | $ | $ | |||||||||
| Sale of wine products | ||||||||||||
| Sale of healthcare products | ||||||||||||
| Total revenue | ||||||||||||
| Cost of revenue: | ||||||||||||
| Consulting service income | ||||||||||||
| Sale of wine products | ( | ) | ( | ) | ||||||||
| Sale of healthcare products | ( | ) | ( | ) | ||||||||
| Total cost of revenue | ( | ) | ( | ) | ( | ) | ||||||
| Gross profit | ||||||||||||
| Operating expenses: | ||||||||||||
| Selling and distribution | ( | ) | ( | ) | ||||||||
| General and administrative | ( | ) | ( | ) | ( | ) | ||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| Segment loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Three months ended September 30, 2022 | ||||||||||||
| Healthcare Segment | Wine Segment | Total | ||||||||||
| Revenue from external customers: | ||||||||||||
| Consulting service income | $ | $ | $ | |||||||||
| Sale of wine products | ||||||||||||
| Sale of healthcare products | ||||||||||||
| Total revenue | ||||||||||||
| Cost of revenue: | ||||||||||||
| Consulting service income | ( | ) | ( | ) | ||||||||
| Sale of wine products | ( | ) | ( | ) | ||||||||
| Sale of healthcare products | ||||||||||||
| Total cost of revenue | ( | ) | ( | ) | ( | ) | ||||||
| Gross (loss) profit | ( | ) | ( | ) | ||||||||
| Operating expenses: | ||||||||||||
| Selling and distribution | ||||||||||||
| General and administrative | ( | ) | ( | ) | ( | ) | ||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| Segment loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| 15 |
| Nine months ended September 30, 2023 | ||||||||||||
| Healthcare Segment | Wine Segment | Total | ||||||||||
| Revenue from external customers: | ||||||||||||
| Consulting service income | $ | $ | $ | |||||||||
| Sale of wine products | ||||||||||||
| Sale of healthcare products | ||||||||||||
| Total revenue | ||||||||||||
| Cost of revenue: | ||||||||||||
| Consulting service income | ||||||||||||
| Sale of wine products | ( | ) | ( | ) | ||||||||
| Sale of healthcare products | ( | ) | ( | ) | ||||||||
| Total cost of revenue | ( | ) | ( | ) | ( | ) | ||||||
| Gross profit | ||||||||||||
| Operating expenses: | ||||||||||||
| Selling and distribution | ( | ) | ( | ) | ||||||||
| General and administrative | ( | ) | ( | ) | ( | ) | ||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| Segment loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Nine months ended September 30, 2022 | ||||||||||||
| Healthcare Segment | Wine Segment | Total | ||||||||||
| Revenue from external customers: | ||||||||||||
| Consulting service income | $ | $ | $ | |||||||||
| Sale of wine products | ||||||||||||
| Sale of healthcare products | ||||||||||||
| Total revenue | ||||||||||||
| Cost of sales: | ||||||||||||
| Consulting service income | ( | ) | ( | ) | ||||||||
| Sale of wine products | ( | ) | ( | ) | ||||||||
| Sale of healthcare products | ||||||||||||
| Total cost of revenue | ( | ) | ( | ) | ( | ) | ||||||
| Gross profit | ||||||||||||
| Operating expenses: | ||||||||||||
| Selling and distribution | ( | ) | ( | ) | ||||||||
| General and administrative | ( | ) | ( | ) | ( | ) | ||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| Segment loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| 16 |
The below revenues are based on the countries in which the customer is located. Summarized financial information concerning the geographic segments is shown in the following tables:
Three September
30, | Three September
30, | |||||||
| Hong Kong | $ | $ | ||||||
| China | ||||||||
| TOTAL | $ | $ | ||||||
Nine Months Ended September
30, | Nine Months Ended September 30, | |||||||
| Hong Kong | $ | $ | ||||||
| China | ||||||||
| TOTAL | $ | $ | ||||||
NOTE 5 – DEPOSITS AND OTHER RECEIVABLES
Deposits and other receivables consisted of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| (Audited) | ||||||||
| Rental deposits | $ | $ | ||||||
| Purchase deposits | ||||||||
| Other receivables | ||||||||
| $ | $ | |||||||
NOTE 6 – INVENTORIES
Inventories consisted of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| (Audited) | ||||||||
| Finished goods – Healthcare products | $ | $ | ||||||
| Finished goods – Wine products | ||||||||
| $ | $ | |||||||
For
the three and nine months ended September 30, 2023 and 2022,
NOTE 7 – LEASE
| 17 |
Right of use assets and lease liability – right of use are as follows:
September 30, 2023 | December 31, 2022 | |||||||
| (Audited) | ||||||||
| Right-of-use assets | $ | $ | ||||||
The lease liability – right of use is as follows:
| September 30, 2023 | December 31, 2022 | |||||||
| (Audited) | ||||||||
| Lease liabilities | $ | $ | ||||||
As
of September 30, 2023, the operating lease payment of $
NOTE 8 – PLANT AND EQUIPMENT
September 30, 2023 | December 31, 2022 | |||||||
| (Audited) | ||||||||
| Motor vehicle | $ | $ | ||||||
| Furniture, fixture and equipment | ||||||||
| Leasehold improvement | ||||||||
| Foreign translation adjustment | ( | ) | ( | ) | ||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Foreign translation adjustment | ( | ) | ||||||
| Plant and equipment, net | $ | $ | ||||||
Depreciation
expense for the three and nine months ended September 30, 2023 were $
Depreciation
expense for the three and nine months ended September 30, 2022 were $
NOTE 9 – AMOUNTS DUE TO A DIRECTOR AND A RELATED COMPANY
As of September 30, 2023 and December 31, 2022, the amounts represented temporary advances to the Company by its director and a related company which were unsecured, interest-free and have no fixed terms of repayments.
NOTE 10 – STOCKHOLDERS’ (DEFICIT) EQUITY
Common Stock
The Company is authorized, subject to limitations prescribed by Delaware law, to issue up to shares of common stock with a par value of $.
Dividend Rights
Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and only then at the times and in the amounts that our board of directors may determine.
| 18 |
Voting Rights
Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Under our Certificate of Incorporation, stockholders do not have the right to cumulate votes for the election of directors.
No Preemptive or Similar Rights
Our common stock is not entitled to preemptive rights and is not subject to conversion, redemption or sinking fund provisions.
Right to Receive Liquidation Distributions
Upon our dissolution, liquidation or winding-up, the assets legally available for distribution to our stockholders are distributable ratably among the holders of our common stock, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights and payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
As of September 30, 2023, and December 31, 2022, a total of and outstanding shares of common stock were issued, respectively.
Preferred Stock
The Company is not currently authorized to issue shares of preferred stock. The Certificate of Incorporation however, allows the board of directors to authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock in the event that shares of preferred stock are authorized in the future. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of our company and may adversely affect the market price of our common stock and the voting and other rights of the holders of common stock. The Company has no current plans to issue any shares of preferred stock.
NOTE 11 – INCOME TAXES
The provision for income taxes consisted of the following:
| Nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Current tax | $ | $ | ||||||
| Deferred tax | ||||||||
| Income tax expense | $ | $ | ||||||
The Company mainly operates in the PRC that is subject to taxes in the governing jurisdictions in which it operates. The effective tax rate in the years presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rate, as follows:
BVI
Under the current BVI law, the Company is not subject to tax on income.
| 19 |
The PRC
| Nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | ||
| Statutory income tax rate | % | % | ||||||
| Income tax expense at statutory rate | ( | ) | ( | ) | ||||
| Net operating loss | ||||||||
| Income tax expense | $ | $ | ||||||
Hong Kong
| Nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| (Loss) income before income tax | $ | ( | ) | $ | ||||
| Statutory income tax rate | % | % | ||||||
| Income tax expense at statutory rate | ( | ) | ||||||
| Tax adjustments | ||||||||
| Net operating loss | ||||||||
| Income tax expense | $ | $ | ||||||
The following table sets forth the significant components of the deferred tax assets of the Company as of September 30, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022 | |||||||
| (Audited) | ||||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforwards | ||||||||
| - United States | $ | |||||||
| - Hong Kong | ||||||||
| - PRC | ||||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax assets, net | $ | $ | ||||||
| 20 |
As
of September 30, 2023, the operations in the United States of America incurred $
Also,
the operations in the PRC incurred $
Uncertain tax positions
The Company evaluates the uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of September 30, 2023 and December 31, 2022, the Company did not have any significant unrecognized uncertain tax positions. The Company did not incur any interest and penalties related to potential underpaid income tax expenses for the nine months ended September 30, 2023 and 2022 and also did not anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months from September 30, 2023.
NOTE 12 – RELATED PARTY TRANSACTIONS
From time to time, the Company’s director advanced funds to the Company for working capital purpose. Those advances are unsecured, non-interest bearing and due on demand.
Apart from the transactions and balances detailed elsewhere in these accompanying unaudited condensed consolidated financial statements, the Company has no other significant or material related party transactions during the periods presented.
NOTE 13 – CONCENTRATIONS OF RISK
The Company is exposed to the following concentrations of risk:
| (a) | Major customers |
For the three and nine months ended September 30, 2023 and 2022, the customers who accounted for 10% or more of the Company’s revenues and its outstanding receivables balance as at period-end dates, are presented as follows:
| 21 |
| Three months ended September 30, 2023 | ||||||||
| Customer | Revenues | Percentage of revenues | ||||||
| Customer A | $ | % | ||||||
| Nine months ended September 30, 2023 | September 30, 2023 | |||||||||||||||||
| Customer | Revenues | Percentage of revenues | Accounts receivable | Percentage of Accounts Receivable | ||||||||||||||
| Customer A | $ | % | - | |||||||||||||||
| Customer C | % | |||||||||||||||||
| Total: | $ | % | Total | |||||||||||||||
| Three months ended September 30, 2022 | ||||||||
| Customer | Revenues | Percentage of revenues | ||||||
| Customer B | $ | % | ||||||
| Nine months ended September 30, 2022 | September 30, 2022 | |||||||||||||||||
| Customer | Revenues | Percentage of revenues | Accounts receivable | Percentage of Accounts Receivable | ||||||||||||||
| Customer A | $ | % | ||||||||||||||||
| Customer B | % | |||||||||||||||||
| Total: | $ | % | Total | |||||||||||||||
The Company’s major customers are located in the PRC and Hong Kong.
(b) Major vendors
For
the three months ended September 30, 2023, there is no single vendor representing more than 10% of the Company’s purchases. For
the nine months ended September 30, 2023, a single vendor represented more than 10% of the Company’s purchases. This vendor
accounted for
For the three and nine months ended September 30, 2022, there is no single vendor representing more than 10% of the Company’s purchases.
All of the Company’s vendors are located in the PRC.
| 22 |
(c) Credit risk
Financial instruments that are potentially subject to credit risk consist principally of trade receivables. The Company believes the concentration of credit risk in its trade receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.
(d) Economic and political risk
The Company’s major operations are conducted in the PRC. Accordingly, the political, economic, and legal environments in the PRC, as well as the general state of the PRC’s economy may influence the Company’s business, financial condition, and results of operations.
(e) Exchange rate risk
The Company cannot guarantee that the current exchange rate will remain steady; therefore there is a possibility that the Company could post the same amount of profit for two comparable periods and because of the fluctuating exchange rate actually post higher or lower profit depending on exchange rate of RMB converted to US$ on that date. The exchange rate could fluctuate depending on changes in political and economic environments without notice.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
As of September 30, 2023, the Company has no material commitments or contingencies.
NOTE 15 - SUBSEQUENT EVENTS
In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before unaudited condensed consolidated financial statements are issued, the Company has evaluated all events or transactions that occurred after September 30, 2023 up through the date the Company issued the unaudited condensed consolidated financial statements. During the period, the Company did not have any material recognizable subsequent events.
| 23 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This periodic report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities for existing products, plans and objectives of management. Statements in this periodic report that are not historical facts are hereby identified as forward-looking statements. Our Company and our representatives may from time to time make written or oral statements that are “forward-looking,” including statements contained in this Quarterly Report and other filings with the Securities and Exchange Commission and in reports to our Company’s stockholders. Management believes that all statements that express expectations and projections with respect to future matters, as well as from developments beyond our Company’s control including changes in global economic conditions are forward-looking statements within the meaning of the Act. These statements are made on the basis of management’s views and assumptions, as of the time the statements are made, regarding future events and business performance. There can be no assurance, however, that management’s expectations will necessarily come to pass. Factors that may affect forward-looking statements include a wide range of factors that could materially affect future developments and performance, including the following:
Changes in Company-wide strategies, which may result in changes in the types or mix of businesses in which our Company is involved or chooses to invest; changes in U.S., global or regional economic conditions; changes in U.S. and global financial and equity markets, including significant interest rate fluctuations, which may impede our Company’s access to, or increase the cost of, external financing for our operations and investments; increased competitive pressures, both domestically and internationally; legal and regulatory developments, such as regulatory actions affecting environmental activities; the imposition by foreign countries of trade restrictions and changes in international tax laws or currency controls; adverse weather conditions or natural disasters, such as hurricanes and earthquakes; and labor disputes, which may lead to increased costs or disruption of operations.
This list of factors that may affect future performance and the accuracy of forward-looking statements are illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.
Business Overview
We are a health and wellness company that develops, markets, promotes and distributes a variety of customized health and wellness care products and services, including supplements, healthy snacks, meal replacements, skincare products, and nutritional consultation services to consumers in China and Hong Kong. We work with certain licensed healthcare food factories to develop and manufacture products and services that are distributed conventionally through sales agents and also through a network of e-commerce and social media platforms.
In addition to products, we are committed to providing customized science based wellness consultation and service programs to customers. Our diverse products and services target health conscious customers and differentiate based upon age and gender and seek to manage different conditions. We reach out to customers fitting certain health and lifestyle profiles through our offline and online consultation services, and track eating habits and health indicators to provide customized products such as supplements. We believe this will facilitate the ability of customers to monitor, understand and adjust their health practices and lifestyle anytime and anywhere for increased customer engagement and retention.
Due to the impact of the COVID-19 pandemic in the healthcare industry, we have also offered a new line of high-end wine products in our online and offline sales platform, to diversify the market demand and customer needs.
We conduct our business through our wholly owned subsidiary Guangzhou Xiao Xiang Health Industry Company Limited, a limited liability company organized under the laws of China on March 8, 2017 and Alpha Wellness (HK) Limited, a limited liability company organized under the laws of Hong Kong on April 24, 2019. Elite Creation Group, a limited liability company formed under the laws of the British Virgin Islands formed on September 5, 2018, is holding companies without operations.
| 24 |
RESULTS OF OPERATIONS
We have been significantly impacted by COVID-19 global pandemic. In addition to the devastating effects on human life, the pandemic is having a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial markets. China and many other countries have issued policies intended to stop or slow the further spread of the disease.
COVID-19 and China’s response to the pandemic are significantly affecting the economy. Even the COVID-19 pandemic was ended, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business or our operations.
The following table sets forth certain operational data for the three and nine months ended September 30, 2023 and 2022:
| Three Months Ended | Three Months Ended | |||||||
| September 30, 2023 | September 30, 2022 | |||||||
| Revenue, net | $ | 5,293 | $ | 5,395 | ||||
| Cost of revenue | (1,619 | ) | (22,498 | ) | ||||
| Gross profit (loss) | 3,674 | (17,103 | ) | |||||
| Total operating expenses | (117,238 | ) | (99,309 | ) | ||||
| Total other income | 13 | 19,622 | ||||||
| Loss before income tax | (113,551 | ) | (96,790 | ) | ||||
| Income tax expenses | - | 2,607 | ||||||
| Net loss | (113,551 | ) | (94,183 | ) | ||||
| Nine Months Ended | Nine Months Ended | |||||||
| September 30, 2023 | September 30, 2022 | |||||||
| Revenue, net | $ | 24,338 | $ | 169,029 | ||||
| Cost of revenue | (12,654 | ) | (69,809 | ) | ||||
| Gross profit | 11,684 | 99,220 | ||||||
| Total operating expenses | (367,413 | ) | (334,650 | ) | ||||
| Total other income | 595 | 30,666 | ||||||
| Loss before income tax | (355,134 | ) | (204,764 | ) | ||||
| Income tax expenses | - | (3,966 | ) | |||||
| Net loss | (355,134 | ) | (208,730 | ) | ||||
Revenue. For the three and nine months ended September 30, 2023, we generated revenues of $5,293 and $24,338, respectively. For the comparative three and nine months ended September 30, 2022, we generated revenues of $5,395 and $169,029, respectively. There was a significant decrease in revenue because of a significant decline in sales of $135,452 in the healthcare consulting business in Hong Kong.
Cost of Revenue. For the three and nine months ended September 30, 2023, the cost of revenue was $1,619 and $12,654, respectively, and as a percentage of net revenue, approximately 31% and 52%. Cost of revenue for the three and nine months ended September 30, 2022 was $22,498 and $69,809, respectively, and as a percentage of net revenue, approximately 417% and 41%, respectively. The cost of revenue decreased due to a significant decline in the sales in Hong Kong mentioned above.
Gross Profit (Loss). For the three months ended September 30, 2023 and 2022, the gross profit (loss) was $3,674 and $(17,103), respectively, the gross profit (loss) margin was 69% and (317)%, respectively.
| 25 |
For the nine months ended September 30, 2023 and 2022, the gross profit was $11,684 and $99,220, respectively, the gross profit margin was 48% and 59%, respectively. The gross profit decreased due to a significant decline in the sales in Hong Kong mentioned above.
Operating Expenses. For the three and nine months ended September 30, 2023, the operating cost was $117,238 and $367,413, respectively, and while for the three and nine months ended September 30, 2022, the operating cost was $99,309 and $334,650, respectively. The operating expenses increased due to an increase in administrative expenses.
Other Income. For the three and nine months ended September 30, 2023, the total other income was $13 and $595, respectively and while for the three and nine months ended September 30, 2022, the other income was $19,622 and $30,666, respectively. The total other income decreased due to receipt of government subsidies during the period ended September 30, 2022 while nil during the period ended September 30, 2023.
Net Loss. For the three and nine months ended September 30, 2023, we incurred a net loss of $113,551 and $355,134, respectively and for the three and nine months ended September 30, 2022, we incurred a net loss of $94,183 and $208,730, respectively. The increase in net loss was primarily attributable to the decrease in revenue in the healthcare consulting business in Hong Kong.
Liquidity and Capital Resources
As of September 30, 2023, we had cash and cash equivalents of $157,446.
As of December 31, 2022, we had cash and cash equivalents of $381,709.
The Company’s ability to continue as a going concern is dependent upon improving its profitability and the continuing financial support from its major shareholders. Management believes the existing shareholders or external financing will provide the additional cash to meet the Company’s obligations as they become due. Despite the amount of funds that the Company has raised, no assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company can obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its shareholders, in the case of equity financing.
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (235,515 | ) | $ | (113,647 | ) | ||
| Net cash (used in) provided by investing activities | (743 | ) | 22,930 | ) | ||||
| Net cash provided by (used in) financing activities | 14,606 | (77,990 | ||||||
Net Cash Used In Operating Activities.
For the nine months ended September 30, 2023, net cash used in operating activities was $235,515, which primarily consisted of a net loss of $355,134, non-cash adjustments of depreciation of plant and equipment of $37,341, amortization of intangible asset of $359, non-cash lease expense of $36,910, increase in accrued liabilities and other payables of $63,664, decrease in accounts receivable of $13, decrease in deposits and other receivables of $12,917, decrease in inventories of $19,350, and offset by decrease in accounts payable of $6,615, decrease in customer deposits of $6,854, decrease in income tax payable of $39, and decrease in lease liabilities of $37,427 .
For the nine months ended September 30, 2022, net cash used in operating activities was $113,647, which primarily consisted of a net loss of $208,730, non-cash adjustments of depreciation of plant and equipment of $51,134, amortization of intangible asset of $386, non-cash lease expense of $70,986, gain from sale of plant and equipment of $16,277, decrease in deposits and other receivables of $41,567, decrease in inventories of $49,364, decrease in income tax recoverable of $7,889, and offset by decrease in accrued liabilities and other payables of $1,701, and decrease in customers deposits of $108,265.
We expect to continue to rely on cash generated through financing from our existing stockholders and private placements of our securities, however, to finance our operations and future acquisitions.
Net Cash (Used In) Provided By Investing Activities.
For the nine months ended September 30, 2023, net cash used in investing activities was $743, which consisted of purchase of plant and equipment.
For the nine months ended September 30, 2022, net cash provided by investing activities was $22,930, which consisted of proceeds from sale of motor vehicle.
Net Cash Used In Financing Activities.
For the nine months ended September 30, 2023, net cash provided by financing activities was $14,606, which consisted of advances from a director of $14,606.
| 26 |
For the nine months ended September 30, 2022, net cash used in financing activities was $77,990, which primarily consisted of repayment to a director of $1,974 and repayment of lease liabilities of $76,016.
Off Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and it is not anticipated that the Company will enter into any off-balance sheet arrangements.
Critical Accounting Policies, Judgments and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the presentation of our financial condition and results of operations and require management’s subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following accounting policies are critical in the preparation of our financial statements.
The Company’s accounting policies are more fully described in Note 2 of the unaudited condensed consolidated financial statements. As discussed in Note 2, the preparation of the unaudited condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about the future events that affect the amounts reported in the financial statements and the accompanying notes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual differences could differ from these estimates under different assumptions or conditions. The Company believes that the following addresses the Company’s most critical accounting policies.
Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets will be reflected on the balance sheet when it is determined that it is more likely than not that the asset will be realized. A valuation allowance has currently been recorded to reduce our deferred tax asset to $0.
Forward-looking Statements
The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a safe harbor for forward-looking statements made by or on behalf of our Company. Our Company and our representatives may from time to time make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the Securities and Exchange Commission and in reports to our Company’s stockholders. Management believes that all statements that express expectations and projections with respect to future matters, as well as from developments beyond our Company’s control including changes in global economic conditions are forward-looking statements within the meaning of the Act. These statements are made on the basis of management’s views and assumptions, as of the time the statements are made, regarding future events and business performance. There can be no assurance, however, that management’s expectations will necessarily come to pass. Factors that may affect forward-looking statements include a wide range of factors that could materially affect future developments and performance, including the following:
Changes in Company-wide strategies, which may result in changes in the types or mix of businesses in which our Company is involved or chooses to invest; changes in U.S., global or regional economic conditions; changes in U.S. and global financial and equity markets, including significant interest rate fluctuations, which may impede our Company’s access to, or increase the cost of, external financing for our operations and investments; increased competitive pressures, both domestically and internationally; legal and regulatory developments, such as regulatory actions affecting environmental activities; the imposition by foreign countries of trade restrictions and changes in international tax laws or currency controls; adverse weather conditions or natural disasters, such as hurricanes and earthquakes; and labor disputes, which may lead to increased costs or disruption of operations.
| 27 |
This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for the Company.
(a) Evaluation of Disclosure Controls and Procedures
Our management evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our President and Principal Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected but we believe the controls and procedures do provide a reasonable assurance.
(b) Changes in the Company’s Internal Controls Over Financial Reporting
There have been no changes in internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.
Part II - Other Information
Item 1. Legal Proceedings
There are no legal proceedings, which are pending or have been threatened against us or any of our officers, directors or control persons of which management is aware.
Item 1A. Risk Factors
Not applicable to smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Proceeds
Recent Sales of Unregistered Securities
We have not sold any restricted securities during the three and nine months ended September 30, 2023.
Use of Proceeds of Registered Securities
None; not applicable.
| 28 |
Purchases of Equity Securities by Us and Affiliated Purchasers
During the three and nine months ended September 30, 2023, we have not purchased any equity securities nor have any officers or directors of the Company.
Item 3. Defaults Upon Senior Securities
We are not aware of any defaults upon senior securities. Management has indicated they do not, at this time, intend to pursue the defaults.
Item 4. Mine Safety Disclosure
None; not applicable.
Item 5. Other Information
None; not applicable.
Item 6. Exhibits
| Exhibits No. | |||
| 31.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 101.INS* | Inline XBRL Instance Document | ||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | ||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | ||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * | These interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections. |
| 29 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| China Foods Holdings Ltd. | ||
| Dated: November 14, 2023 | By: | /s/ Kong Xiao Jun |
| Kong Xiao Jun | ||
| Chief Executive Officer & Chief Financial Officer | ||
| 30 |