UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2021 or

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________to _________

 

001-32522

Commission file number

 

China Foods Holdings Ltd.

(Exact name of registrant as specified in its charter)

 

Delaware		84-1735478
State or other jurisdiction of incorporation or organization		(I.R.S. Employer Identification No.)

 

Suite 3102, Everbright Center, 108 Gloucester Road Wanchai, Hong Kong		0000
(Address of principal executive offices)		(Zip Code)

 

(852) 3618-8608

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. Yes [X] No [  ]

 

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). Yes [X] No [  ]

 

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	[  ]
Non-accelerated filer	[  ]	Smaller reporting company	[X]
		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 [  ] No [X]

 

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 May 15, 2021
Common Stock, with $0.0001 par value		20,252,309 shares

 

 

 

Table of Contents

 

		Page No.
	PART I – FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4.	Controls and Procedures	28
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosure	29
Item 5.	Other Information	29
Item 6.	Exhibits	30
SIGNATURES		31

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

China Foods Holdings Ltd.

Condensed Consolidated Balance Sheets

 

		March 31, 2021				December 31, 2020
		$				$
		(Unaudited)				(Audited)
ASSETS
Current Assets
Cash and cash equivalents			730,390				1,006,394
Trade receivables			164,682				-
Prepayments and other receivables			113,523				121,501
Inventories			167,150				206,272
Right-of-use assets			314,800				-
Total Current Assets			1,490,545				1,334,167
Non-Current Assets
Plant and equipment			171,709				193,621
Intangible assets			4,208				4,353
Total Non-Current Assets			175,917				197,974
TOTAL ASSETS			1,666,462				1,532,141
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable			-				7,827
Accrued liabilities and other payables			43,798				2,316
Customer deposits			360,733				409,924
Lease liabilities			55,412				-
Amount due to a director			106,913				68,953
Amount due to a related company			199,964				199,964
Tax payable			6,513				8,319
Total Current Liabilities			773,333				697,303
Non-Current Liabilities
Lease liabilities			261,502				-
Total Non-Current Liabilities			261,502				-
Total Liabilities			1,034,835				697,303
Shareholders’ Equity
Common stock $0.0001 par value, 100,000,000 shares authorized, 20,252,309 shares issued and outstanding			2,025				2,025
Additional paid-in capital			1,290,355				1,290,355
Accumulated other comprehensive income			7,100				5,244
Accumulated deficit			(667,853	)			(462,786	)
Total Shareholders’ Equity			631,627				834,838
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY			1,666,462				1,532,141

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

 

China Foods Holdings Ltd.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

 

		Three Months Ended				Three Months Ended
		March 31, 2021				March 31, 2020
Revenue, net		$	167,643			$	35,021
Cost of revenue			(153,684	)			(28,235	)
Gross profit			13,959				6,786
Operating expenses
Selling and distribution expenses			11,649				3,401
General and administrative expenses			214,176				136,490
Total operating expenses			225,825				139,891
Loss from Operation			(211,866	)			(133,105	)
Other Income
Interest income			510				557
Sundry income			6,289				1,651
Total other income			6,799				2,208
Loss before income tax			(205,067	)			(130,897	)
Income tax expenses			-				-
Net loss		$	(205,067	)		$	(130,897	)
Other comprehensive loss:
Foreign currency adjustment gain (loss)			1,856				(21,035	)
Comprehensive loss		$	(203,211	)		$	(151,932	)
Net loss per common share
Basic and diluted*		$	(0.01	)		$	(0.01	)
Weighted average number of common share
Basic and diluted			20,252,309				15,000,000

 

*denotes net loss per common share of less than $0.01 per share.

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

China Foods Holdings Ltd.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

 

		Common Stock								Additional paid-in				Accumulated				Accumulated other comprehensive				Total shareholders’
		Share				Amount				capital				deficit				income				Equity
						$				$				$				$				$
Balance at January 1, 2021 (audited)			20,252,309				2,025				1,290,355				(462,786	)			5,244				834,838
Net loss for the period			-				-				-				(205,067	)			-				(205,067	)
Foreign currency translation adjustment			-				-				-				-				1,856				1,856
Balance at March 31, 2021			20,252,309				2,025				1,290,355				(667,853	)			7,100				631,627

 

		Common Stock								Additional paid-in				Retained				Accumulated other comprehensive				Total shareholders’
		Share				Amount				capital				earnings				loss				Equity
						$				$				$				$				$
Balances at January 1, 2020 (restated)			15,000,000				1,500				1,290,355				159,441				(54,001	)			1,397,295
Net loss for the period			-				-								(130,897	)			-				(130,897	)
Foreign currency translation adjustment			-				-								-				(21,035	)			(21,035	)
Balances at March 31, 2020			15,000,000				1,500				1,290,355				28,544				(75,036	)			1,245,363

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

China Foods Holdings Ltd.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

		Three months ended March 31,
		2021				2020
Cash flow from operating activities:
Net loss		$	(205,067	)		$	(130,897	)
Adjustments to reconcile net loss to net cash (used in) generated from operating activities
Depreciation			21,430				16,126
Amortization			130				120
Non-cash lease expense			19,238				20,523
			(164,269	)			(94,128	)
Change in operating assets and liabilities:
Accounts receivables			(164,682	)			337,006
Prepayments and other receivables			7,978				57,741
Inventories			39,122				(19,265	)
Accrued liabilities and other payables			41,482				28,340
Accounts payable			(7,827	)			-
Tax payable			(1,806	)			-
Customer deposits			(49,191	)			(16,188	)
Lease liabilities			225				(21,816	)
Net cash (used in) generated from operating activities			(298,968	)			271,690
Cash flow from investing activities
Addition of plant and equipment			-				(27,088	)
Net cash used in investing activities			-				(27,088	)
Cash flow from financing activities:
Repayment of lease liabilities			(17,349	)			-
Advances from a director			37,960				-
Advances from a related company			-				14
Net cash generated from financing activities			20,611				14
Foreign currency translation adjustment			2,353				(18,090	)
Net change in cash and cash equivalents			(276,004	)			226,526
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			1,006,394				634,492
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	730,390			$	861,018
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest		$	-			$	-
Cash paid for income taxes		$	-			$	-

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

China Foods Holdings Ltd.

Notes to the Condensed Consolidated Financial Statements

For the Three Months end March 31, 2021

(Unaudited)

 

NOTE 1 – ORGANIZATION AND BUSINESS BACKGROUND

 

China Foods Holdings Ltd. (the “Company”) was incorporated in Delaware on January 10, 2019. On July 9, 2020, the Company consummated the Share Exchange Agreement (“the “Share Exchange Agreement”) with Elite Creation Group Limited, a private limited company organized under the laws of British Virgin Islands (“ECGL”). As a result of the acquisition of ECGL, the Company entered into the healthcare product distributing and marketing industry, pursuing a new strategy of developing and distributing health related products, including supplements, across the globe with a focus on mainland China, Europe and Australia.

 

Effective July 9, 2020, we consummated the acquisition of ECGL, and its wholly owned subsidiary Guangzhou Xiao Xiang Health Industry Company Limited, a limited liability company organized under the laws of China on March 8, 2017. Alpha Wellness (HK) Limited, a limited liability company organized under the laws of Hong Kong on April 24, 2019, is a holding company.

 

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. 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.

 

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.

 

Our Products and Services

 

Our health products are designed to help enhance immunity and improve general wellbeing. We provide the following categories of healthcare products and customized healthcare consultation services in China: (i) Nutrition Catering (ii) Special Health Food (iii) Health Supplement and (iv) Skincare. The products target all age groups with different needs.

 

 

Product category		Representative Products		Description
Nutrition Catering Series		Jasmine Beauty		Meal replacement and healthy snacks
Special Health Food Series		Power Centinent		Products that support a healthy active lifestyle and enhance Immunity
Health Supplement Series		Fuli Fruit Juice		Functional fruit beverages and dietary and nutritional supplements containing resveratrol, anthocyanin, superoxide enzyme
Skincare Series		Tightness		Facial skin care and recovery

 

Our products are taken as healthcare supplements in accordance with the principles of traditional Chinese medicine including the principle complementary medicine and ideal ratios and combinations of ingredients.

 

Markets and Regions

 

The Great Health Industry refers to production, operation, service and information dissemination, maintenance, restoration, and promotions linked to health. It covers medical products, health supplements, nutritional foods, medical devices, health appliances, fitness, health management, health consulting and many other production and service areas closely related to human health. The Great Health Industry is an emerging industry with huge market potential, especially in China.

 

According to the “China Great Health Industry Strategic Planning and Enterprise Strategy Consulting Report” published by Qianzhan Industry Institute (前瞻產業研究院), the scale of the Great Health Industry in 2017 was USD 947.42 billion, which increased to over USD 1,069.66 billion in 2018. The report predicted USD 1,341.66 billion volume for 2019 and forecast over USD 1,528.09 billion for 2020. In the years till 2023, the average annual compound growth rate will be approximately 12.55%, and with the Great Health Industry reaching approximately USD 2,153.08 billion in 2023.

 

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 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 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, 2020.

 

 

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. The results of subsidiaries acquired or disposed of during the years are included in the consolidated statements of operations from the effective date of acquisition or up to the effective date of disposal.

 

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		BVI, a limited liability company		Investment holding		50,000 issued shares of US$1each			100	%
Alpha Wellness (HK) Limited		Hong Kong, a limited liability company		Investment holding		300,000 issued shares of HK$1 each			100	%
Guangzhou Xiao Xiang Health Industry Company Limited		The PRC, a limited liability company		Sales of healthcare products		RMB 8,300,000			100	%

 

The Company and its subsidiaries are hereinafter referred to as (the “Company”).

 

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 collectibility. 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 March 31, 2021 and December 31, 2020, there was no allowance for doubtful accounts.

 

 

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 March 31, 2021 and December 31, 2020, the Company did not record an allowance for obsolete inventories, nor have there been any write-offs.

 

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		3 years			5	%
Motor vehicle		3.33 to 4 years			5	%

 

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 months ended March 31, 2021 and 2020 were $21,430 and $16,126, respectively.

 

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 10 years and will expire in 2028.

 

Amortization expense for the three months ended March 31, 2021 and 2020 were $130 and $120, respectively.

 

Impairment of long-lived assets

 

In accordance with the provisions of 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 Accounting Standards Codification (“ASC”) 606 – Revenue from Contracts with Customers” (“ASC 606”). Under ASC 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 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.

 

The Company recognizes revenue 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”). The Company is subject to VAT which is levied on the majority of the products at the rate of 17% on the invoiced value of sales. The Company experienced no product returns and recorded no reserve for sales returns for the three months ended March 31, 2021 and 2020.

 

Income taxes

 

The Company adopted the ASC 740 Income tax 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 greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Paragraph 740-10-25-13 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of paragraph 740-10-25-13.

 

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 740 provisions of Section 740-10-25 for the three months ended March 31, 2021 and 2020.

 

 

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 condensed consolidated statement of operations.

 

The reporting currency of the Company is United States Dollar (“US$”) and the accompanying financial statements have been expressed in US$. In addition, the Company is operating in Hong Kong SAR and the People’s Republic of China 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 three months ended March 31, 2021 and 2020:

 

		2021				2020
Period-end HK$:US$ exchange rate			0.12863				0.12899
Period average HK$:US$ exchange rate			0.12891				0.12869
Period-end RMB:US$ exchange rate			0.15248				0.14109
Period average RMB:US$ exchange rate			0.15431				0.14327

 

Comprehensive income

 

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 Topic 842, Leases (“ASC 842”), using the modified retrospective approach through a cumulative-effect adjustment and utilizing the effective date of January 1, 2019 as its date of initial application, with prior periods unchanged and presented in accordance with the previous guidance in Topic 840, Leases (“ASC 840”).

 

 

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 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 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.

 

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 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 of financial instruments

 

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. 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. The three (3) levels of fair value hierarchy defined by paragraph 820-10-35-37 of the FASB Accounting Standards Codification are described below:

 

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, approximate their fair values because of the short maturity of these instruments.

 

Recent accounting pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

 

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020, with early adoption permitted. Adoption of the standard requires certain changes to be made prospectively, with some changes to be made retrospectively. The Company does not expect the adoption of this standard to have a material impact on its financial position, results of operations or cash flows.

 

NOTE 3 - PREPAYMENTS AND OTHER RECEIVABLES

 

Prepayments and other receivables consisted of the following:

 

		March 31, 2021				December 31, 2020
						(Audited)
Prepayments		$	2,343			$	7,712
Other deposits			67				119
Supplier deposits			111,113				113,670
		$	$113,523			$	121,501

 

Other receivables represented deposit payments made to suppliers for routine procurement, which are interest-free, unsecured and recoverable when the Company received the goods from the suppliers.

 

 

NOTE 4 - INVENTORIES

 

Inventories consisted of the following:

 

		March 31, 2021				December 31, 2020
						(Audited)
Packing materials		$	12,121			$	21,527
Finished goods			155,029				184,745
		$	167,150			$	206,272

 

For the three months ended March 31, 2021 and 2020, no allowance for obsolete inventories was recorded by the Company.

 

NOTE 5 - LEASE

 

The Company leased office and warehouse facilities under various non-cancelable operating leases expiring at the term of 5 years, through March 31, 2026.

 

Right of use assets and lease liability – right of use are as follows:

 

		March 31, 2021				December 31, 2020
							(Audited)
Right-of-use assets		$	314,800			$	-

 

The lease liability – right of use is as follows:

 

		March 31, 2021				December 31, 2020
						(Audited)
Current portion			55,412				-
Non-current portion			261,502				-
Total		$	316,914			$	-

 

For the three months ended March 31, 2021 and 2020, the Company charges its lease expense $19,238 and $20,523, respectively.

 

NOTE 6 - PLANT AND EQUIPMENT

 

		March 31, 2021				December 31, 2020
						(Audited)
Motor vehicle		$	311,343			$	311,343
Furniture, fixture and equipment		$	15,465			$	15,465
Foreign translation adjustment		$	9,246			$	10,471
		$	336,054			$	337,279
Less: accumulated depreciation			(158,976	)			(137,546	)
Foreign translation adjustment		$	(5,369	)		$	(6,112	)
Plant and equipment, net		$	171,709			$	193,621

 

Depreciation expense for the three months period ended March 31, 2021 and 2020 were $21,430 and $16,126, respectively.

 

 

NOTE - 7 AMOUNTS DUE TO A DIRECTOR AND A RELATED COMPANY

 

As of March 31, 2021 and December 31, 2020, the amounts represented temporary advances to the Company by its director and its related company which were unsecured, interest-free and have no fixed terms of repayments.

 

NOTE 8 – SHAREHOLDERS’ EQUITY

 

Common Stock

 

The Company is authorized, subject to limitations prescribed by Delaware law, to issue up to 100,000,000 shares of common stock with a nominal par value of $0.0001.

 

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.

 

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.

 

On July 9, 2020, the Company consummated the Share Exchange Agreement (“the “Share Exchange Agreement”) with Elite Creation Group Limited, a private limited company organized under the laws of British Virgin Islands (“ECGL”), and the shareholders of ECGL. Pursuant to the Share Exchange Agreement, we purchased Fifty Thousand (50,000) shares of ECGL (the “ECGL Shares”), representing all of the issued and outstanding shares of common stock of ECGL. As consideration, the Company agreed to issue to the shareholders of ECGL Fifteen Million (15,000,000) shares of its common stock, at a value of US $0.32 per share, for an aggregate value of $4,800,000.

 

As of March 31, 2021 and December 31, 2020, a total of 20,252,309 outstanding shares of common stock were issued.

 

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 9 - INCOME TAXES

 

The Company is subject to taxes in the governing jurisdictions in which it operates. The effective tax rate in the periods 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:

 

United States of America

 

CFOO is registered in the State of Delaware and is subject to US federal corporate income tax. The U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018. The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits in its income tax provision. The Company has not accrued or paid interest or penalties which were not material to its results of operations for the periods presented.

 

BVI

 

Under the current BVI law, the Company is not subject to tax on income.

 

The PRC

 

The Company’s subsidiary operating in the PRC is subject to the Corporate Income Tax Law of the People’s Republic of China at a unified income tax rate of 25%. The reconciliation of income tax rate to the effective income tax rate for the three months ended March 31, 2021 and 2020 is as follows:

 

		Three months ended March 31,
		2021				2020
Loss before income taxes		$	(170,229	)		$	(121,337	)
Statutory income tax rate			25	%			25	%
Income tax expense at statutory rate			(42,557	)			(30,334	)
Net operating loss			42,557				30,334
Income tax expense		$	-			$	-

 

Hong Kong

 

The Company’s subsidiary operating in Hong Kong is subject to the Hong Kong Profits Tax at the two-tiered profits tax rates from 8.25% to 16.5% on the estimated assessable profits arising in Hong Kong during the current year, after deducting a tax concession for the tax year. The reconciliation of income tax rate to the effective income tax rate for the three months ended March 31, 2021 and 2020 is as follows:

 

		Three months ended March 31,
		2021				2020
Loss before income taxes		$	(31,621	)		$	(9,560	)
Statutory income tax rate			8.25	%			8.25	%
Income tax expense at statutory rate			(2,608	)			(788	)
Net operating loss			2,608				788
Income tax expense		$	-			$	-

 

 

The following table sets forth the significant components of the deferred tax assets of the Company as of March 31, 2021 and December 31, 2020:

 

		March 31, 2021				December 31, 2020
						(Audited)
Deferred tax assets:
Net operating loss carryforwards
- United States		$	31,905				31,454
- Hong Kong			2,608				-
- PRC			163,060				120,503
			197,573				151,957
Less: valuation allowance			(197,573	)			(151,957	)
Deferred tax assets, net		$	-			$	-

 

NOTE 10 - 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 have no fixed terms of repayment.

 

The Company has been provided free office space by its stockholder. The management determined that such cost is nominal and did not recognize the rent expense in its condensed consolidated financial statements.

 

Apart from the transactions and balances detailed elsewhere in these accompanying consolidated financial statements, the Company has no other significant or material related party transactions during the periods presented.

 

NOTE 11 - CONCENTRATIONS OF RISK

 

The Company is exposed to the following concentrations of risk:

 

(a)

Major customers

 

For the three months ended March 31, 2020, a single customer represented more than 10% of the Company’s revenues. This customer accounted for 99% of the Company’s revenues amounting to $34,930 with $193,190 of accounts receivable.

 

For the three months ended March 31, 2021, a single customer represented more than 10% of the Company’s revenues. This customer accounted for 100% of the Company’s revenues amounting to $167,643 with $164,682 of accounts receivable.

 

All of the Company’s customers are located in the People’s Republic of China.

 

(b)

Major vendors

 

For the three months ended March 31, 2021, a single vendor represented more than 10% of the Company’s purchases. This vendor accounted for 100% of the Company’s purchases amounting to $123,742 with $0 of accounts payable.

 

For the three months ended March 31, 2020, a single vendor represented more than 10% of the Company’s purchases. This vendor accounted for 100% of the Company’s purchases amounting to $48,695 with $0 of accounts payable.

 

All of the Company’s vendors are located in the People’s Republic of China.

 

 

(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 People’s Republic of China. Accordingly, the political, economic, and legal environments in PRC, as well as the general state of 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 HKD and RMB converted to US$ on that date. The exchange rate could fluctuate depending on changes in political and economic environments without notice.

 

NOTE 12 COMMITMENTS AND CONTINGENCIES

 

As of March 31, 2021, the Company has no material commitments or contingencies.

 

NOTE 13 SUBSEQUENT EVENT

 

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 financial statements are issued, the Company has evaluated all events or transactions that occurred after March 31, 2021 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.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

  

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. 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.

 

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.

 

 

Our Products and Services

 

Our health products are designed to help enhance immunity and improve general wellbeing. We provide the following categories of healthcare products and customized healthcare consultation services in China: (i) Nutrition Catering (ii) Special Health Food (iii) Health Supplement and (iv) Skincare. The products target all age groups with different needs.

 

Product category		Representative Products		Description
Nutrition Catering Series		Jasmine Beauty		Meal replacement and healthy snacks
Special Health Food Series		Power Centinent		Products that support a healthy active lifestyle and enhance Immunity
Health Supplement Series		Fuli Fruit Juice		Functional fruit beverages and dietary and nutritional supplements containing resveratrol, anthocyanin, superoxide enzyme
Skincare Series		Tightness		Facial skin care and recovery

 

Our products are taken as healthcare supplements in accordance with the principles of traditional Chinese medicine including the principle complementary medicine and ideal ratios and combinations of ingredients.

 

Markets and Regions

 

The Great Health Industry refers to production, operation, service and information dissemination, maintenance, restoration, and promotions linked to health. It covers medical products, health supplements, nutritional foods, medical devices, health appliances, fitness, health management, health consulting and many other production and service areas closely related to human health. The Great Health Industry is an emerging industry with huge market potential, especially in China.

 

According to the “China Great Health Industry Strategic Planning and Enterprise Strategy Consulting Report” published by Qianzhan Industry Institute (前瞻產業研究院), the scale of the Great Health Industry in 2017 was USD 947.42 billion, which increased to over USD 1,069.66 billion in 2018. The report predicted USD 1,341.66 billion volume for 2019 and forecast over USD 1,528.09 billion for 2020. In the years till 2023, the average annual compound growth rate will be approximately 12.55%, and with the Great Health Industry reaching approximately USD 2,153.08 billion in 2023.

 

 

Our Strategies

 

We are focused on achieving long-term growth in revenues, cash flow and profit. We believe that we can achieve this by developing multiple distribution channels and strengthening our marketing and promotions, leading to better product turnover and revenue. We also expect to broaden our product range as well as product differentiation in the future. Based on the business experience accumulated over the years, we believe we can improve the efficiency of our supply chain with time-saving and cost-saving supply chain management and marketing planning for the target customer base with our one-stop service.

 

Our primary aims are (i) to strengthen our product saleability; (ii) to cut logistics cost and time spent and (iii) to further expand the market share in China. Toward this end, we plan to pursue the following business strategies:

 

●	Collaborate with third-party e-commerce platforms to boost product exposure, e.g. Tmall, Jingdong mall
●	Deliver healthcare knowledge and consultation service via social media and We-media
●	Build brand image and reputation through customer experience and word of mouth
●	Increase the number of downstream distributors and wholesalers
●	Strengthen the relationship with manufacturers, suppliers, drug agents and distributors
●	Pursue strategic acquisitions and partnerships

 

We intend to develop both online and offline distribution channels to increase sales volume and revenue. We expect to partner with third party e-commerce platforms, social media and We-media such as Wechat, TikTok and Xiaohongshu to build our online presence. We believe that online channels will allow us to provide real-time nutrition and healthcare consultation services as well as increase customer engagement and retention. Starting from the second half of 2020, we have launched our “nutrition consulting” support services using a major social media software to allow customer groups to receive pre-purchase consultation and after-sales service for products anytime and anywhere.

 

Our current offline sales channel relies on distributors and sales agents. To enhance the visibility and marketability of our products and services and to improve brand recognition and awareness, we hope to develop store-in-shop and counter experiences. We also intend to partner with high-end gyms to form nutrition clubs and hold weight-loss training camps, health assessment and fitness training camps and other activities.

 

We intend to create a ‘one-stop’ solution for our customers by creating a multi-channel health product supply and retail system. We not only provide personalized consultation service to our customers, but also summarize and analyze our customer feedback and experiences through our consultation service and after-sales service. We intend to share this data with our manufacturers and supply chain partners to develop products and services that better meet the demands of our customers. By pooling and addressing the needs of downstream businesses and combining it with the Consumer to Manufacturer model for upstream transformation, we anticipate establishing a close relationship between manufacturers and suppliers. We believe this model can also reduce circulation costs and improve the efficiency of our supply chain.

 

 

Competition

 

We operate in a highly competitive and fragmented industry that is sensitive to price and service. We compete with leading e-commerce companies such as Alibaba (China) which may offer substantially the same or similar product offerings as us. We also compete with businesses that focus on particular merchant categories or markets such as UNI HEALTH (HK stock code: 02211) and ALI HEALTH (HK stock code:0241). We also compete with traditional cash payments and other popular online shopping websites and apps, and other traditional media companies that provide discounts on products and services. We believe the principal competitive factors in our market include the following:

 

●	Breadth of member base and the products and services featured.

 

●	Close and fast pre-sales and after-sales service response.

 

●	Ability to reduce the product turnover time and inventory cost.

 

●	Relationship and bargaining power with supplier and manufacturer.

 

●	Healthcare product effectiveness and acceptance from customer.

 

●	Local presence and understanding of local business trends.

 

●	Ability to deliver a high volume of relevant services and information to consumers.

 

●	Ability to produce high purchase rates for products and services among members.

 

●	Strength and recognition of our brand.

 

Although we believe we compete favorably on the factors described above, many of our current and potential competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, larger product and services offerings, larger customer base and greater brand recognition. These factors may allow our competitors to benefit from their existing customer base with lower development costs or to respond more quickly than we can to new or emerging technologies and changes in customer requirements. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies, which may allow them to build a larger customer base more effectively than us. Our competitors may develop products or services that are similar to our products and services or that achieve greater market acceptance than our products and services. In addition, although we do not believe that customer payment terms are a principal competitive factor in our market, they may become such a factor, and we may be unable to compete on such terms.

 

Government and Industry Regulations

 

We are subject to the general laws in China governing businesses including labor, occupational safety and health, general corporations, intellectual property and other similar laws.

 

Product Liability and Consumers Protection

 

Product liability claims may arise if any of our healthcare products have a harmful effect on a consumer, who may make a claim for damages or compensation as an injured party. The General Principles of the Civil Law of the PRC, which became effective in January 1987, state that manufacturers and sellers of defective products causing property damage or injury shall incur civil liabilities for such damage or injuries.

 

 

The Product Quality Law of the PRC was enacted in 1993 and amended in 2000 to strengthen the quality control of products and protect consumers’ rights and interests. Under this law, manufacturers and distributors who produce or sell defective products may be subject to confiscation of earnings from such sales, revocation of business licenses and imposition of fines, and in severe circumstances, may be subject to criminal liability.

 

The Law of the PRC on the Protection of the Rights and Interests of Consumers was promulgated on October 31, 1993 and became effective on January 1, 1994 to protect consumers when they purchase or use goods or services. All business operators must comply with this law when they manufacture or sell goods and/or provide services to customers. In extreme situations, product manufacturers and distributors may be subject to criminal liability if their goods or services lead to the death or injuries of customers or other third parties.

 

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 1 and 2 of the condensed consolidated financial statements. As discussed in Note 1 and 2, the preparation of the 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 condensed consolidated 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 periods 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.

 

 

Discussion and Analysis of Financial Condition and Results of Operations

 

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. There are no comparable events that provide guidance as to the effect the COVID-19 pandemic may have, and, as a result, 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 months ended March 31, 2021 and 2020:

 

		Three Months Ended				Three Months Ended
		March 31, 2021				March 31, 2020
Revenue, net		$	167,643			$	35,021
Cost of revenue			(153,684	)			(28,235	)
Gross profit			13,959				6,786
Total operating expenses			(225,825	)			(139,891	)
Total other income			6,799				2,208
Loss before income tax			(205,067	)			(130,897	)
Income tax expenses			-				-
Net loss			(205,067	)			(130,897	)

 

Revenue. For the three months ended March 31, 2021, we generated revenues of $167,643 and for the three months ended March 31, 2020, we generated revenues of $35,021 from our current business operations, respectively. The significant increase is due to acquisition of new subsidiaries. All the major customers are located in the PRC.

 

Cost of Revenue. For the three months ended March 31, 2021, the cost of revenue was $153,684 and as a percentage of net revenue, approximately 91.67%. Cost of revenue for the three months ended March 31, 2020 was $28,235, and as a percentage of net revenue, approximately 80.62%. The cost of revenue increased due to the acquisition of new subsidiaries primarily as a result of the increase in our business volume.

 

Net Loss. In the three months ended March 31, 2021, we incurred a net loss of $205,067, compared for the three months ended March 31, 2020. We incurred a net loss of $130,897. The net loss is primarily attributable to the increase in operating expenses.

 

 

Liquidity and Capital Resources

 

As of March 31, 2021, we had cash and cash equivalents of $730,390, trade receivables of $164,682, inventories of $167,150, right of use assets of $314,800 and prepayments and other receivables of $113,523.

 

As of December 31, 2020, we had cash and cash equivalents of $1,006,394, inventories of $206,272, and prepayments and other receivables of $121,501.

 

We believe that our current cash and other sources of liquidity discussed below are adequate to support general operations for at least the next 12 months.

 

		Three Months Ended March 31,
		2021				2020
Net cash (used in) provided by operating activities		$	(298,968	)		$	271,690
Net cash used in investing activities			-				(27,088	)
Net cash provided by financing activities			20,611				14

 

Net Cash (Used In) Provided By Operating Activities.

 

For the three months ended March 31, 2021, net cash used in operating activities was $298,968, which consisted primarily of the increase in accounts receivables of $164,682, decrease in prepayment and other receivables of $7,978, decrease in inventories of $39,122, increase in accrued liabilities and other payables of $41,482, decrease in accounts payable of $7,827, decrease in income tax payable of $1,806, decrease in customers deposit of $49,191, and increase in lease liabilities of $225.

 

For the three months ended March 31, 2020, net cash provided by operating activities was $271,690, which consisted primarily of the decrease in accounts receivables of $337,006, prepayment and other receivables of $57,741, increase in inventories of $19,265, accrued liabilities and other payables of $28,340, decrease in customers deposit of $16,188, and decrease in lease liabilities of $21,816.

 

We expect to continue to rely on cash generated through financing from our existing shareholders and private placements of our securities, however, to finance our operations and future acquisitions.

 

Net Cash Used In Investing Activities.

 

For the three months ended March 31, 2021, there is no net cash provided by investing activities.

 

For the three months ended March 31, 2020, net cash used in investing activities was $27,088, consisted primarily of purchase of motor vehicle.

 

Net Cash Provided By Financing Activities.

 

For the three months ended March 31, 2021 net cash provided by financing activities was $20,611, which consisted primarily of advance from a director of $37,960 and repayment of lease liabilities of $17,349

 

For the three months ended March 31, 2020, net cash provided by financing activities was $14, consisting primarily of advances from the Company’s related company.

 

 

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.

 

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.

 

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 Use of Proceeds

 

Recent Sales of Unregistered Securities

 

We have not sold any restricted securities during the three months ended March 31, 2021.

 

Use of Proceeds of Registered Securities

 

None; not applicable.

 

Purchases of Equity Securities by Us and Affiliated Purchasers

 

During the three months ended March 31, 2021, 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 Disclosures

 

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*		XBRL Instance Document
	101.SCH*		XBRL Taxonomy Extension Schema Document
	101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
	101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
	101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
	101.PRE*		XBRL Taxonomy Extension Presentation Linkbase 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.

 

 

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: May 17, 2021	By:	/s/ Kong Xiao Jun
		Kong Xiao Jun
		Chief Executive Officer & Chief Financial Officer