MICROALLIANCE GROUP INC. Overview
The Company's business primarily consists of two types of products: coffee and liquor. The Company, through its PRC subsidiaries, develops, produces, markets and sells flagship "coffee tea" products, which are innovative specialty coffee products with Chinese black tea's taste, as well as black coffee products and other coffee products. We sell our coffee products wholesale to retail partners and corporate customers, and we also sell directly to consumers in the PRC via our e-commerce channels. We commit to build the first brand of "coffee tea" culture in the PRC. As of the date of this report, we have entered into franchise agreements with a large number of franchisees relating to the distribution, marketing and sale of our coffee products, and we are offering five different coffee products.
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Our liquor products are sold across
Our coffee factory in
Critical Accounting Policies and Use of Estimates
We prepare our consolidated financial statements in conformity with
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
Our revenues primarily include product sales, franchise fees and income and revenues from transactions with franchisees.
Product sales
Product sales represent the sale of "coffee tea," other coffee products, "coffee spirit" and other liquor products. Such revenue is recognized net of value-added taxes, upon delivery at such time that title passes to the customers.
Franchise fees and income
Franchise fees and income primarily include upfront franchise fees, such as initial fees, pre-opening assistance to operate wine stores, subsequent training provided to franchisees and renewal fees. We have determined that the services provided in exchange for upfront franchise fees are highly interrelated with the franchise rights. The franchise rights are accounted for as rights to access our symbolic intellectual property in accordance with ASC 606, and we recognize upfront franchise fees received from a franchisee as revenue when performance obligations are satisfied in accordance with the franchise agreement or the renewal agreement. The franchise agreement term is typically 3 years.
Revenues from transactions with franchisees
Revenues from transactions with franchisees consist primarily of sales of wine and liquor products. We sell and deliver wine and liquor products to the franchisees. The performance obligations arising from such transactions are considered distinct from the franchise agreement as they are not highly dependent on the franchise agreement and the customer can benefit from the procurement service on its own. Revenue is recognized upon transfer of control over ordered items, generally upon delivery to the franchisees.
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In determining the amount and timing of revenue from contracts with customers, we exercise significant judgment with respect to collectability of the amount; however, the timing of recognition does not require significant judgment, as it is based on either the franchise term or the date of product shipment, none of which require estimation.
We do not incur a significant amount of contract acquisition costs in conducting the franchising activities. We believe the franchising arrangements do not contain a significant financing component.
Our revenue recognition policy is compliant with ASC 606, Revenue from Contracts with Customers, and 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 goods and services in the contract;
(ii) determination of whether the goods and 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 it is entitled to in exchange for the goods or services it transfers 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.
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.
For the years ended
December 31,
Revenue 2021 2020
Product sales $ 11,381,616 $ 1,194,427
Franchise fees and income 848,429 -
Revenues from transactions with franchisees 25,163,757 -
$ 37,393,802 $ 1,194,427
As of
December 31,
Contract liabilities 2021 2020
Deferred revenue related to prepaid coffee and wine products
716,634 -
$ 737,515 $ 27,648
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Contract liabilities primarily consist of deferred revenue related to prepaid
wine products and upfront franchise fees. Deferred revenue related to prepaid
wine products represents advance from franchisees for future supply of products
which is expected to be recognized as revenue in the next 12 months. Deferred
revenue related to upfront franchise fees represents the training service to be
delivered over the term of franchise agreement that as of
We have elected, as a practical expedient, not to disclose the value of remaining performance obligations associated with the franchise agreement in exchange for franchise right and related training services. The remaining duration of the performance obligation is the remaining contractual term of each franchise agreement. Revenue from training services provided to franchisees is recognized upon the conduct and delivery of training.
Concentrations of Credit Risk
Financial instruments that potentially expose us to significant concentration of
credit risk consist primarily of cash and cash equivalents, accounts receivable,
other receivables, inventory and advance to suppliers. As of
Amount %
Customer A $ 1,540,197 51 %
Customer B 1,472,059 49 %
$ 3,012,256 100 %
We did not have customers constituting 10% or more of the net revenues for the
years ended
Recently Issued and Adopted Accounting Pronouncements
In
We review new accounting standards as issued. We have not identified any other new standards that it believes will have a significant impact on our consolidated financial statements.
Results of Operations
The following discussion should be read in conjunction with the consolidated
financial statements of
Revenue
We generated
Our business is gradually recovering from the COVID-19 pandemic, which was less
severe in 2021 as compared to 2020. The measures taken by the Chinese government
to contain the virus have been effective, business has returned to normal and
the market has substantially regained confidence. The recovery of the economy
has positively affected our results, and we earned a significant portion of
revenue from our new liquor products that was launched in
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Cost of Revenue
Cost of revenue was
Gross profit
Gross profit for the year ended
Operating Expenses
Selling and marketing expenses
Our selling expenses for the years ended
General and administrative expense
By far the most significant component of our operating expenses for both the years endedDecember 31, 2021 and 2020 was general and administrative expenses of$1,525,321 and$1,519,552 , respectively. The following table sets forth the main components of our general and administrative expenses for the years endedDecember 31, 2021 and 2020. For the years ended December 31, 2021 2020 Amount % of Amount % of (US$) Total (US$) Total General and administrative expense: Consultancy fee$ 574,202 37.7 %$ 626,885 41.3 % Salary and welfare 381,454 25.0 % 355,914 23.4 % Rental expenses 296,090 19.4 % 270,657 17.8 % Research and development costs 44,396 2.9 % 98,892 6.5 % Office expenses 47,278 3.1 % 27,640 1.8 % Travel and accommodations 39,698 2.6 % 40,781 2.7 % Entertainment 24,235 1.6 % 25,480 1.7 % Others 117,968 7.7 % 73,303 4.8 %
Total general and administrative expenses
Slight increase in general and administrative expenses by
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Net Profit
We reported a net profit of
Liquidity and Capital Resources
As of
December 31,
2021 2020
Working capital:
Total current assets $ 30,383,395 $ 505,082
Total current liabilities (2,731,608 ) (1,947,717 )
Working capital surplus (deficiency)
As of
As of
December 31,
2021 2020
Cash flows:
Net cash provided by operating activities $ 1,288,533 37,755
Net cash used in investing activities (177,613 ) (2,800 )
Net cash provided by financing activities - -
Effect of exchange rate changes on cash and cash equivalents 18,028 3,516 Net increase in cash and cash equivalents
1,128,948 38,471
Cash and cash equivalents at the beginning of year 61,517 23,046
Cash and cash equivalents at the end of the year $ 1,190,465 61,517
Operating Activities
Net cash provided by operating activities was
Investing Activities
Net cash used in investing activities for the year ended
Financing Activities
There were no cash flows movements from financing activities during the year
ended
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