CHINA FOODS HOLDINGS LTD. Special Note Regarding Forward-Looking Statements
This Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may", "will", "expect", "believe", "anticipate", "estimate" or "continue" or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include by are not limited to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological advances and failure to successfully develop business relationships. Plan of Operation
We are a health company that develops, markets, promotes and distributes a variety of customized health care products and services, including supplements, healthy snacks, meal replacements, and nutritional consultation services to consumers inChina . 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 subsidiaryGuangzhou Xiao Xiang Health Industry Company Limited , a limited liability company organized under the laws ofChina onMarch 8, 2017 .Alpha Wellness (HK) Limited , a limited liability company organized under the laws ofHong Kong onApril 24, 2019 , andElite Creation Group , a limited liability company formed under the laws of theBritish Virgin Islands formed onSeptember 5, 2018 , are holding companies without operations. 12 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 inChina : (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 Jasmine Beauty Meal replacement and healthy snacks Series Special Health Food Power Centinent Products that support a healthy active Series lifestyle and enhance Immunity Health Supplement Fuli Fruit Juice Functional fruit beverages and dietary Series and nutritional supplements containing resveratrol, anthocyanin, superoxide enzyme Skincare Series Tightness Facial skin care and recovery Wine Ame de Purete Bordeaux wine from France [[Image Removed]]
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.
Our wine business is customized production and procurement through establishing cooperative relationships with wine suppliers. Among them, high-quality wine is directly packaged and labeled in the country of origin and then imported through supply chain agents. At present, the main product of Alpha Wellness's high-end wine business is a Puerto Rican red wine fromFrance . The deep, strong and full-bodiedPuerto Rico is a wine with rich tannins and fruit. We source this wine through a distribution agreement withShenzhen Guisheng Supply Chain Co., Ltd. [[Image Removed]] 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 inChina . The marketing and competitive strategy of our alcohol business is consistent with our health care product business. The market and customers of our liquor business are mainly mainlandChina andHong Kong . According to the "China Great Health Industry Strategic Planning and Enterprise Strategy Consulting Report" published byQianzhan Industry Institute (???????), the scale of the Great Health Industry in 2017 wasUSD 947.42 billion , which increased to overUSD 1,069.66 billion in 2018. The report predictedUSD 1,341.66 billion volume for 2019 and forecast overUSD 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 approximatelyUSD 2,153.08 billion in 2023. 13 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
? 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.
The main sales model of wine business is to develop online and offline
distribution channels to increase sales and revenue. In terms of online sales,
we hope to cooperate with third-party e-commerce platforms, social media,
WeChat, Tiktok , Xiaohongshu and other We Media to build our online image. For
example, we have built the official flagship store of Xiao Xiang Health on the
Tmall e-commerce platform. The offline sales channel mainly cooperates with
dealers for sales, mainly relying on distributors and sales agents.
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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 competeon such terms.
Government and Industry Regulations
We are subject to the general laws in
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 inJanuary 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 onOctober 31, 1993 and became effective onJanuary 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.
Summary of Financial Information
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 andChina'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 years ended
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STATEMENT OF OPERATIONS DATA:
For the Year For the Year
Ended December Ended December
31, 2022 31, 2021
Revenues $ 354,096 $ 361,116
Cost of revenue (243,034 ) (121,690 )
Gross profit 111,062 239,426
Total operating expenses (503,795 ) (695,856 )
Total other income 39,483 7,692
Loss before income taxes (353,250 ) (448,738 )
Income tax expense (828 ) (6,671 )
Net loss (354,078 ) (455,409 )
Revenue. We generated revenues of $354,096 and $361,116 for the fiscal years
ended December 31, 2022 and 2021. All of our major customers are located in the
PRC and Hong Kong . Our revenue continued to decrease, due to the impact of
COVID-19. We expect that the revenue would be gradually increased or returned to
the levels previously recorded prior to the pandemic period, after the
re-opening of the market in the first quarter of 2023.
During the years ended
Currently, the Company has two reportable business segments:
(i) Healthcare Segment, mainly provides health consulting advisory services and
healthcare and wellness products to the customers; and (ii) Wine Segment, mainly provides wine products to the customers.
In the following table, revenue is disaggregated by primary major product line,
including a reconciliation of the disaggregated revenue with the reportable
segments.
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Year Ended December 31, 2022
Wine
Healthcare Segment Segment Total
Revenue from external customers:
Consulting service income $ 141,053 $ - $ 141,053
Sale of healthcare products 39,599 - 39,599
Sale of wine products - 173,444 173,444
Total revenue 180,652 173,444 354,096
Cost of sales:
Consulting service income (59,747 ) - (59,747 )
Sale of healthcare products (14,888 ) - (14,888 )
Sale of wine products - (168,399 ) (168,399 )
Total cost of revenue (74,635 ) (168,399 ) (243,034 )
Gross profit 106,017 5,045 111,062
Operating Expenses
Selling and distribution - (2,988 ) (2,988 )
General and administrative (416,939 ) (88,579 ) (505,518 )
Total operating expenses (416,939 ) (91,567 ) (508,506 )
Segment loss $ (310,922 ) $ (86,522 ) $ (397,444 )
Year Ended December 31, 2021
Wine
Healthcare Segment Segment Total
Revenue from external customers:
Consulting service income $ 216,850 $ - $ 216,850
Sale of healthcare products 39,996 - 39,996
Sale of wine products - 104,270 104,270
Total revenue 256,846 104,270 361,116
Cost of sales:
Consulting service income (31,315 ) - (31,315 )
Sale of healthcare products (32,064 ) - (32,064 )
Sale of wine products - (58,311 ) (58,311 )
Total cost of revenue (63,379 ) (58,311 ) (121,690 )
Gross profit 193,467 45,959 239,426
Operating Expenses
Selling and distribution - (5,076 ) (5,076 )
General and administrative (690,780 ) - (690,780 )
Total operating expenses (690,780 ) (5,076 ) (695,856 )
Segment (loss) income $ (497,313 ) $ 40,883 $ (456,430 )
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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:
Years ended December 31,
2022 2021
Hong Kong $ 140,477 $ 216,850
China 213,619 144,266
$ 354,096 $ 361,116 During the years ended
Year ended December
December 31, 2022 31, 2022
Percentage of Accounts
Revenues revenues receivable
Guangzhou Dexin Huamao Trading
Co., Ltd. $ 164,566 46 % $ -
Tang Fung Limited 140,477 40 % 5,120
TOTAL $ 305,043 86 % Total $ 5,120
Year ended December
December 31, 2021 31, 2021
Percentage of Accounts
Revenues revenues receivable
Simmax Supply Chian Limited $ 165,391 46 % $ -
Guangzhou Dexin Huamao Trading
Co., Ltd. 103,072 29 % -
Tang Fung Limited 51,460 14 % -
TOTAL $ 319,923 89 % Total $ -
Cost of Revenue. Cost of revenue as a percentage of net revenue was
approximately 68.64% for the fiscal year ended December 31, 2022 . Cost of
revenue as a percentage of net revenue was approximately 33.70% for the fiscal
year ended December 31, 2021 . The increase of cost of revenue as a percentage of
net revenue is attributable to a increase in sale of wine product. During the
years ended December 31, 2022 and 2021, the following vendors accounted for
10%
or more of our purchases:
Year ended December
December 31, 2022 31, 2022
Percentage of Accounts
Vendor Purchases purchases payableHeilongjiang Hengyuan Food Co., Ltd.:$ 7,981 100 %
Total:$ 8,013 Year ended December December 31, 2021 31, 2021 Percentage of Accounts Vendor Purchases purchases payable
Heilongjiang Hengyuan Food Co., Ltd.:$ 195,152 99 %
Total: $ - 18 Gross Profit. We achieved a gross profit of$111,062 and$239,426 for the fiscal years endedDecember 31, 2022 , and 2021, respectively. The decrease in gross profit is primarily attributable to the increase in cost of sales.
General and Administrative Expenses ("G&A"). We incurred G&A expenses of
Other Income. We incurred other income of$39,483 for the fiscal year endedDecember 31, 2022 , as compared to a other income of$7,692 for the fiscal year endedDecember 31, 2021 . Our other income for the year endedDecember 31, 2022 consisted of the subsidy funds from Government and gain on termination of tenancy agreement.
Income Tax Expense. We recorded income tax expense of
Net Loss. During the year endedDecember 31, 2022 , we incurred a net loss of$354,078 , as compared to a net loss$445,409 for the year endedDecember 31, 2021 . The significant decreases due to a decrease in the general and administrative expenses.
Liquidity And Capital Resources
As of
As of
We believe that our current cash and other sources of liquidity discussed below are adequate to support general operations for at least the next 12 months.
Years Ended December 31,
2022 2021Net cash (used in) operating activities$ (171,598 ) $ (438,624 ) Net cash provided by (used in) investing activities 22,930 (27,358 ) Net cash (used in) provided by financing activities (52,688 )
50,319
For the year endedDecember 31, 2022 , net cash used in operating activities was$171,598 which consisted primarily of a net loss of$354,078 , the increase in depreciation of plant and equipment of$65,165 , increase in the amortization of intangible asset of$500 , decrease in gain from sale of plant and equipment of$16,277 , decrease in gain from termination of lease of$8,038 , increase in non-cash lease expense of$55,916 , increase in accrued liabilities and other payables of$71,460 , decrease in customer deposit of$267,181 , decrease in prepayment and other receivables of$64,441 , decrease in inventories of$188,969 , increase in accounts payable of$8,013 , increase in accounts receivable of$5,120 and increase in tax payable of$24,632 . For the year endedDecember 31, 2021 , net cash used in operating activities was$438,620 which consisted primarily of a net loss of$455,409 , the increase in depreciation of plant and equipment of$90,961 , increase in the amortization of intangible asset of$521 , increase in non-cash lease expense of$109,652 , increase in accrued liabilities and other payables of$48,884 , increase in prepayment and other receivables of$17,753 , decrease in accounts payables of$7,827 , decrease in tax payables of$17,229 , increase in inventories of$121,279 , and decrease in customer deposit of$69,141 .
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 Provided By (Used In) Investing Activities.
For the year ended
For the year ended
19
For the year ended
For the year endedDecember 31, 2021 , net cash provided by financing activities was$50,319 , consisting primarily of advance from a related company of$150,508 and repayment of lease liabilities of$100,189 . Material Commitments
As of the date of this Annual Report, we do not have any material commitments.
Material Cash Requirements We have not achieved profitability since our inception and we expect to continue to incur net losses for the foreseeable future. We expect net cash expended in 2023 to be significantly higher than 2022. As ofDecember 31, 2022 , we had an accumulated deficit of$1,272,273 . Our material cash requirements are highly dependent upon the additional financial support from our major shareholders
in the next 12 - 18 months. We had the following contractual obligations and commercial commitments as ofDecember 31, 2022 : Less More than than 5 Contractual Obligations Total 1 year 1-3 Years 3-5 Years Years $ $ $ $ $ Operating lease obligations 21,024 21,024 - - - Total obligations 21,024 21,024 - - -
Off-Balance Sheet Arrangements.
As of
Summary of Critical Accounting Policies
The Company's consolidated financial statements have been prepared in conformity with accounting principles generally accepted inthe United States (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of theFinancial Accounting Standards Board (FASB). All adjustments considered necessary for a fair presentation have been included. These adjustments consist of normal and recurring accruals, as well as non-recurring charges. The 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 periods are included in the consolidated statements of operations from the effective date of acquisition or up to the effective date of disposal. 20 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 consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Significant areas for which management uses estimates include:
? revenue recognition, ? sales returns and allowances; ? inventory; ? estimated lives for tangible and intangible assets; ? income tax valuation allowances; and 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.
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 ofDecember 31, 2022 and 2021, 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. The Company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand. As ofDecember 31, 2022 and 2021, 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:
Residual
Expected useful lives value
Furniture, fixture and equipment 3 years 5 %
Motor vehicle 3.33 to 4 years 5 %
Leasehold improvement 2 years 5 %
21
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.
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 years ended
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.
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 17% on the invoiced value of sales. The cost, such as shipping cost and material cost, is recognized when the product delivered to the customers. The Company records its cost including
taxes.
22
Wine Business mainly provides the wine products to the customers. 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 17% on the invoiced value of sales. The Company
recorded product sales returns $0 and $148,208 for the years ended December 31,
2022 and 2021, respectively. The cost, such as shipping cost and material cost,
is recognized when the product delivered to the customers. The Company records
its cost including taxes.
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 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 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.
Leases
The Company adopts the FASB Accounting Standards Update ("ASU") 2016-02 "Leases
(Topic 842)." for all periods presented. This standard requires lessees to
recognize lease assets ("right of use") and related lease obligations ("lease
liabilities") on the balance sheet for leases with terms in excess of 12 months.
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets and operating lease liabilities in the consolidated balance sheets. Finance leases are included in finance lease ROU assets and finance lease liabilities in the consolidated balance sheets.
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease and finance lease ROU assets and liabilities are recognized atJanuary 1, 2019 based on the present value of lease payments over the lease term discounted using the rate implicit in the lease. In cases where the implicit rate is not readily determinable, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the
lease term. 23
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 orun -asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings orun -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.
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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.
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.
Accounting Standards Recently Adopted
InAugust 2020 , the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock and amends the guidance for the derivatives scope exception for contracts in an entity's own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related earnings per share guidance. This standard became effective for the Company beginning onJanuary 1, 2022 . Adoption is either a modified retrospective method or a fully retrospective method of transition. The Company adopted this guidance effectiveJanuary 1, 2022 , and the adoption of this standard did not have a material impact on its consolidated financial statements. InMay 2021 , the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This ASU clarifies the accounting for modifications or exchanges of freestanding equity-classified written call options (i.e. warrants) so that the transaction should be treated as an exchange of the original instrument for a new instrument. This standard is effective for fiscal years beginning afterDecember 15, 2021 on a prospective basis, with early adoption permitted. The Company adopted this guidance effectiveJanuary 1, 2022 , and the adoption of this standard did not have a material impact on its consolidated financial statements. InDecember 2022 , the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. This ASU defers the sunset date of Topic 848, which provides relief to entities affected by reference rate reform. The ASU defers the sunset date of Topic 848 fromDecember 31, 2022 , toDecember 31, 2025 . The standard is effective immediately and the Company adopted the standard inDecember 2022 with no financial impact. The Company is currently assessing the impact ASU 2020-04, for which this ASU 2022-06 relates, will have on its consolidated financial statements.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
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