GLOBAL SEED CORPORATION The following discussion and analysis should be read in conjunction with our financial statements and related notes thereto.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain statements that may be deemed "forward-looking statements" within the meaning ofUnited States of America securities laws. All statements, other than statements of historical fact, that address activities, events or developments that we intend, expect, project, believe or anticipate and similar expressions or future conditional verbs such as will, should, would, could or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to
be appropriate. These statements include, without limitation, statements about our anticipated expenditures, including those related to general and administrative expenses; the potential size of the market for our services, future development and/or expansion of our services in our markets, our ability to generate revenues, our ability to obtain regulatory clearance and expectations as to our future financial performance. Our actual results will likely differ, perhaps materially, from those anticipated in these forward-looking statements as a result of various factors, including: our need and ability to raise additional cash. The forward-looking statements included in this report are subject to a number of additional material risks and uncertainties, including but not limited to the risks described in our filings with theSecurities and Exchange Commission . You should review this section with our financial statements and the related notes to those statements included in this filing. In addition to historical financial information, this discussion may contain forward-looking statements reflecting our current plans, estimates, beliefs and expectations that involve risks and uncertainties. As a result of many important factors, our actual results and the timing of events may differ materially from those anticipated in these forward-looking statements. OverviewGlobal Seed Corporation (the "Company") was incorporated in theState of Texas onJuly 13, 2010 . We had been engaged principally in the distribution of a monthly journal prior to our change in control consummated onJune 2, 2018 . OnOctober 1, 2019 , the Company entered into a share exchange agreement (the "Share Exchange Agreement") by and amongWell Benefit International Limited ("Well Benefit") and its shareholders (the "Shareholders"), whereby the Company newly issued 252,874,025 shares of its common stock to the Shareholders in exchange for all the outstanding ordinary shares of Well Benefit. OnOctober 30, 2019 , the reverse merger transactions contemplated under the Share Exchange Agreement closed and we acquired all of the issued and outstanding shares of Well Benefit (the transaction, the "Reverse Merger").Dongguan Zhenghao Industrial Investment Company Limited ("Zhenghao"), a company formed under the laws ofthe People's Republic of China ("PRC"), is a wholly-owned subsidiary of Well Benefit. Zhenghao provides healthy coffee and beverage products to customers inChina . 13 As a result of the Reverse Merger, Zhenghao became our wholly-owned subsidiary, and we transitioned our business focus to providing healthy coffee and beverage products to customers inChina through Zhenghao under its established brand, "Ka Su Le". Our business comprises of three segments: (i) wholesale business, including wholesaling coffee and healthy drinks capsules, coffee brewing machines and health supplements and skin care products; (ii) retail selling coffee products and (iii) retail selling of coffee brewing machines. Starting fromFebruary 1, 2020 , in an effort to control our cost and maximize our interest, we have shifted our business focus to the wholesale business only. As a result, we are no longer involved in the retailing business of selling coffee products and coffee brew machines. We have also stopped selling health supplements and skin care products. The global pandemic has posted significant challenges to us. Due to the lockdown policy and the economic downturn inChina , many smaller businesses have ceased their operations, including those stores that used to work with us. As of the date of this report, all of our Brand Stores and approximately two thirds of our Cooperation Stores are closed. We are now shifting our business focus to wholesale business only and continue to provide our products to our clients that remain in operations. The management will continue to adjust our operating strategies to better fit the current economy situations and we believe our current priority is to seek new development opportunities while maintaining
a low cost of operations. Economic and Political Risks
The outbreak of the novel coronavirus, commonly referred to as "COVID-19", first found in mainlandChina , then inAsia and eventually throughout the world, has significantly affected business and manufacturing activities withinChina , including travel restrictions, widespread mandatory quarantines, and suspension of business activities withinChina . These government mandates may cause severe business disruptions to our customers and suppliers, and may also lead to postponement of payment from these parties. Our business operation was suspended until early March of 2020. Further, our manufacturing and branding business activities depend on reliable sources of raw materials such as bulk packaged Fenjiu liquor fromShanxi Province and bulk packaged imported wines from foreign countries. We have experienced substantive diminutions in raw material supplies due to the COVID-19 outbreak and ensuing lockdowns, which have negatively impacted our business. Accordingly, our business, results of operations and financial condition were adversely affected. In light of the current situation, our revenues and net income for the first three fiscal quarters in 2020 decreased due to the COVID-19 outbreak. As of the date of this report,China has shown signs of COVID-19 slowdown and Chinese industries have partially resumed businesses as government officials started to ease the restrictive measures. We believe that the impact of the COVID-19 outbreak on our business is both temporary and limited.
Critical Accounting Policies and Estimates
Management's discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with US GAAP. Our financial statements reflect the
selection and application of accounting policies that require management to make
significant estimates and judgments. The discussion of our critical accounting
policies contained in Note 2 to our consolidated financial statements, "Summary
of Significant Accounting Policies", is incorporated herein by reference.
Results of Operations
The following table sets forth a breakdown of revenue for the periods indicated,
both in absolute amount and as a percentage of total revenues. The information
should be read together with our consolidated financial statements and related
notes included elsewhere in this report.
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Comparison of the Years Ended
Years Ended
December 31, Variance
2019 2018 Amount %
Revenue $ 195,917 16,493 179,424 1,088 %
Cost of sales 125,572 11,807 113,765 964 %
Gross profit 70,345 4,686 65,659 1,401 %
Operating expensesSelling and marketing expenses 69,732 12,575 57,157 455 % General and administrative expenses 1,116,473 410,170
706,303 172 % Total operating expenses 1,186,205 422,745 763,460 181 % Operating loss (1,115,860 ) (418,059 ) (697,801 ) 167 % Other income (expenses) Interest income 44 11 33 300 % Interest Expense (1,190 ) (9 ) (1,181 ) 13,122 % Other Income 339 321 18 6 % Other expenses (678 ) - (678 ) N/A
Total other income and (expenses) (1,485 ) 323
(1,808 ) 360 %
Loss before taxes from operations (1,117,345 ) (417,736 )
(699,609 ) 167 % Provision for income taxes 27 123 (96 ) (78 )% Net loss (1,117,372 ) (417,859 ) (699,513 ) 167 % Non-controlling interest (3,204 ) - (3,204 ) N/A
Net loss attributable to stockholder (1,114,168 ) (417,859 )
(696,309 ) 167 % Other comprehensive income: Foreign currency translation income 10,989 10,393
596 6 %
Comprehensive loss $ (1,103,179 ) $ (407,466 ) $ (695,713 ) $ 171 %
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(a) Revenue
As ofDecember 31, 2019 , our main revenue stream was derived from wholesale business, retail outlets, coffee capsules and coffee brewing machines. Our business commenced in 2017. Starting fromFebruary 1, 2020 , we are no longer involved in the retailing business of selling coffee products and coffee brew machines. We have also stopped selling health supplements and skin care products.
For the year ended
(b) Cost of Sales For the year endedDecember 31, 2019 and 2018, cost of sales from our coffee wholesale business were$125,572 and$11,807 , respectively. The increase of cost of sales was mainly due to the increased sales volume of our coffee capsules. (c) Gross Profit Gross profit from our coffee wholesale business increased by$65,659 for the year endedDecember 31, 2019 from the gross profit of$4,686 for the year endedDecember 31, 2018 . The increase of gross profit was due to the Company's adoption of a strategy to sell products with stable profit margins.
(d) Selling and Marketing Expenses
For the year endedDecember 31, 2019 , our selling and marketing expenses were$69,732 , representing an increase of$57,157 , as compared to$12,575 for the year endedDecember 31, 2018 . The increase was primarily due to the increased advertising and marketing expenses during the year.
(e) General and Administrative Expenses
For the year endedDecember 31, 2019 , our administrative expenses were$1,116,473 , representing an increase of$706,303 from those in the year 2018. The increase was primarily due to the increase in salaries and wages from$154,985 to$481,880 and professional service fees from$28,311 to$312,449
in
2019.
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(f) Other Income
For the year ended December 31, 2019 , our other income was $339 , representing an
increase of $18 as compared to $321 for the same year-ended date of 2018. The
increase in other income was primarily due to increased interest income from
bank deposits.
(g) Interest and Other Financial Charges
For the year endedDecember 31, 2019 , our interest and other financial charges were$1,190 as compared to$9 for the same year-ended date of 2018. The increase in interest and other financial charges was primarily due to the bank fees
and convertible notes. (h) Income Taxes
The Company's income taxes decreased by$96 for the year endedDecember 31, 2019 from$123 for the same year-ended date of 2018. The decrease in the Company's income taxes was primarily due to decreased taxable income of the Company for the period indicated. (i) Net Loss For the year endedDecember 31, 2019 , our net loss was$1,117,372 , representing an increase of$699,513 , as compared to$417,859 for the same year-ended date of 2018. Our comprehensive loss was$1,103,179 , representing an increase of$695,713 , as compared to$407,466 for the same year-ended date of 2018.
Liquidity and Capital Resources
For the year endedDecember 31, 2019 , the Company had a net cash outflow from its operating activities$1,046,604 which represented salaries and wages$481,880 and professional service fees$312,449 and increased in inventory$201,671 . The Company had a net cash outflow$191,359 from investing activities mainly used in purchase coffee brewing machines and other equipment. The net cash inflows from financing activities is primarily related to$280,000 in net proceeds from the issuance of our convertible notes and$1,262,738 financial support from directors. For the year endedDecember 31, 2018 , the Company had a net cash outflow from its operating activities$356,222 which represented salaries and wages$154,985 , professional service fees$28,311 and increased in inventory$25,775 . The Company had a net cash outflow$26,151 from investing activities used in purchase the equipment. The net cash inflows from financing activities is related to$391,166 financial support from directors. 17 Management believes that our current cash, cash flows from current and future operations, and access to loans may or may not be sufficient to meet our working capital needs for at least the next 12 months. We intend to continue to carefully execute our growth plans and manage market risk. Going Concern We currently had recurring losses since the Company's inception and had a negative working capital of$1,349,774 as ofDecember 31, 2019 . Accordingly, there is substantial doubt the Company will continue as a going concern. The Company's management intends to raise working capital through the sale of stock via private placements.
Off-balance Sheet Arrangements
The Company has no material transactions, arrangements, obligations or other relationships with entities or other persons that have or are reasonably likely to have material current or future impacts on its financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses, other than those disclosed above.
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