Overview

For an overview of the business of the Company, please refer within this Annual Report on Form 10-K to Part I, Item 1 ("Business").

Critical Accounting Policies and Use of Estimates

We prepare our financial statements in conformity with U.S. GAAP, which requires management to make certain estimates and to apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our condensed financial statements. Actual results could differ from those estimates made by management.

We believe that of our significant accounting policies, which are described in Note 2 to our consolidated financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.





Revenue Recognition

We recognize revenue from the sale of "coffee tea" products, net of value-added taxes, upon delivery at such time title passes to the customer. Customers are required to pay in advance before making sales orders and the advance is initially recorded as advance from customers. During the year ended December 31, 2020 and 2019, product revenue was amounting to $1,194,427 and $2,107,465, respectively.

In addition, we provide pre-opening assistance to retail partners to operate coffee stores, revenue is recognized upon the completion of services. During the year ended December 31, 2020 and 2019, service revenue was amounting to $66,022 and $nil, respectively.

Our revenue recognition policy is in compliance with ASU No. 2014-09, Revenue from Contracts with Customers that revenue is recognized when a customer obtains control of promised goods and is recognized in an amount that reflects the consideration that we expect to receive in exchange for those goods. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that we expect to receive in exchange for those goods. We apply the following five-step model in order to determine this amount:





  (i)   identification of the services in the contract;

  (ii)  determination of whether the services are performance obligations,
        including whether they are distinct in the context of the contract;

  (iii) measurement of the transaction price, including the constraint on variable
        consideration;

  (iv)  allocation of the transaction price to the performance obligations; and

  (v)   recognition of revenue when (or as) the Company satisfies each performance
        obligation.

We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, we review the contract to determine which performance obligations we must deliver and which of these performance obligations are distinct. We recognize as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, our performance obligations are transferred to customers at a point in time, typically upon delivery or service being rendered.





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For all reporting periods, we have not disclosed the value of unsatisfied performance obligations for all product revenue contracts with an original expected length of one year or less, which is an optional exemption that is permitted under the adopted rules.





Concentrations of Credit Risk

Financial instruments that potentially expose us to significant concentration of credit risk consist primarily of cash and cash equivalents. As of December 31, 2020 and 2019, substantially all of the Company's cash and cash equivalents were deposited with financial institutions with high-credit ratings and quality. We did not have any customers constituting 10% or more of the net revenues in the fiscal years 2020 and 2019.

Recently Issued and Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements. This ASU requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. This Accounting Standards Update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual rights to receive cash. For smaller public business entities, the amendments in this Update are effective for fiscal years beginning after January 1, 2023, including interim periods within those fiscal years. All entities may adopt the amendments in this Update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). We are in the process of evaluating the impact of the adoption of this pronouncement on its consolidated financial statements.

We review new accounting standards as issued. We have not identified any other new standards that we believe will have a significant impact on our financial statements.





Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements of Fountain Healthy Aging, Inc. attached hereto for the year ended December 31, 2020 and 2019.





Revenue

We generated $1,194,427 in revenue for the year ended December 31, 2020 compared to $2,107,465 for the year ended December 31, 2019. During the year ended December 31, 2020 and 2019, product revenue was amounting to $1,128,405 and $2,107,465, respectively. In addition, we provide pre-opening assistance to retail partners to operate coffee stores, revenue is recognized upon the completion of services. During the year ended December 31, 2020 and 2019, service revenue was amounting to $66,022 and $nil, respectively.

The COVID-19 pandemic has developed rapidly in 2020. The resulting impact of the virus on the operations and measures taken by the Chinese government to contain the virus have negatively affected our results in 2020, which lead to a decline in revenues of $913,038 or 43.3% compared with the fiscal year 2019.





Cost of Revenue

Cost of revenue was $176,393 for the year ended December 31, 2020 compared to $275,916 for the year ended December 31, 2019. The decrease of cost of revenue by $99,523 or 36.1% was a result of the negative impact from the COVID-19 pandemic. The cost of revenue consists of the cost of raw materials and cost of manufactured goods sold to customers, including labor cost, rental expense, research and development costs, etc. The decrease in cost of raw materials is relatively in line with the decrease of revenue, whereas the decrease in cost of manufactured goods to customers is lower than the decrease of revenue because of the fixed costs in nature.





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Gross profit

Gross profit for the year ended December 31, 2020 was $1,018,034 compared with $1,831,549 for the year ended December 31, 2019. Gross profit margin was 79.3% for the year ended December 31, 2020 compared to 86.9% for the year ended December 31, 2019. The decrease in gross profit was primarily attributable to the fact that our revenue dropped by 43.3% whereas the decrease in cost were steadily incurred and lower than the decrease of revenue because of fixed costs.





Operating Expenses



By far the most significant component of our operating expenses for both the
year ended December 31, 2020 and 2019 was general and administrative expenses of
$1,519,552 and $1,963,728, respectively. The following table sets forth the main
components of our general and administrative expenses for the years ended
December 31, 2020 and 2019.



                                                     For the year ended December 31,
                                                     2020                       2019
                                              Amount         % of        Amount         % of
                                               (US$)        Total         (US$)        Total
General and administrative expense:
Consultancy fee                             $   626,885       41.3 %   $   758,237       38.6 %
Salary and welfare                              355,914       23.4 %       500,380       25.5 %
Rental expenses                                 270,657       17.8 %       208,949       10.6 %
Research and development costs                   98,892        6.5 %        99,687        5.1 %
Exhibition costs                                 30,561        2.0 %        65,045        3.3 %
Office expenses                                  27,640        1.8 %        52,000        2.6 %
Travel and accommodations                        40,781        2.7 %        38,833        2.0 %
Entertainment                                    25,480        1.7 %        38,786        2.0 %
Others                                           42,742        2.8 %       201,811       10.3 %

Total general and administrative expenses $ 1,519,552 100 % $ 1,963,728 100 %

Decrease in general and administrative expenses by $444,176 or 22.6% from $1,963,728 for the year ended December 31, 2019 to $1,519,552 for the year ended December 31, 2020 was mainly due to the decrease of manpower and number of exhibitions held.





Net Loss

We incurred a net loss of $627,870 for the year ended December 31, 2020 compared to a net loss of $351,546 for the year ended December 31, 2019, an increase of $276,324 or 78.6%. The increase was primarily attributable to the fact that our gross profit has dropped significantly. In addition, we incurred less administrative expenses during the COVID-19 pandemic.

Liquidity and Capital Resources





Working capital:                 2020             2019

Total current assets $ 505,082 $ 358,274 Total current liabilities (1,947,717 ) (1,132,308 ) Working capital deficiency $ (1,442,635 ) $ (774,034 )






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As of December 31, 2020, we had cash and cash equivalents of $61,517. To date, we have financed our operations primarily through advance from related parties. The following table provides detailed information about our net cash flows for the year ended December 31, 2020 and 2019:





Cash flows:                                                      2020           2019
Net cash provided by operating activities                      $  37,755     $  211,725
Net cash used in investing activities                             (2,800 )     (190,895 )
Effect of exchange rate changes on cash and cash equivalents       3,516           (203 )
Net increase (decrease) in cash and cash equivalents              38,471         20,627
Cash and cash equivalents at the beginning of year                23,046          2,419
Cash and cash equivalents at the end of year                   $  61,517     $   23,046




Operating Activities

Net cash provided by operating activities was $37,755 for the year ended December 31, 2020, as compared to net cash provided by operating activities of $211,725 for the year ended December 31, 2019. The decrease in net cash provided by operating activities was mainly attributable to the increase in prepayment by $135,599 and the increase in amounts due to related parties by $815,535 from $864,845 during fiscal year of 2020 as compared to $49,310 during fiscal year of 2019, in which the advance obtained was mainly used for our operations. These increases were offset by the decrease in advance from customers by $898,355.





Investing Activities

Net cash used in investing activities for the year ended December 31, 2020 was $2,800, as compared to $190,895 for the year ended December 31, 2019. The decrease in net cash used in investing activities was mainly attributable to less acquisition of leasehold improvements, equipment and intangible assets during the fiscal year of 2020.





Capital Expenditures

Capital expenditures for the year ended December 31, 2020 and 2019 were $2,800 and $190,895, respectively. The decrease in capital expenditures was due to less acquisition of leasehold improvements, equipment and intangible assets. We will evaluate and assess the COVID-19 pandemic impact to our business to determine the plan for increasing our capital expenditures in the 2021 fiscal year.

Contractual Obligations and Commercial Commitments





We had the following contractual obligations and commercial commitments as of
December 31, 2020:



                                    Less than                       More than
                        Total         1 year        1-5 years        5 years

Operating lease $ 428,453 $ 332,867 $ 95,586 $ - Consultancy service 120,000 120,000

               -               -
                        548,453        452,867          95,586               -

For the years ended December 31, 2020 and 2019, we entered into various operating lease agreement commencing in the fiscal year 2020 and 2019, and expiring on variance dates through September 2023. The average monthly lease expense is approximately $25,856. The outstanding lease commitment as of December 31, 2020 was $428,453.

During 2019, we entered into a non-cancelable consultancy service agreement with a third-party for the provision of services related to the US listing with the contract amount of $1,200,000. The outstanding commitment as of December 31, 2020 was $120,000.





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