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MICROALLIANCE GROUP INC. - Quarter Report: 2021 March (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

☒ 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 UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File Number 333-123774

 

Fountain Healthy Aging, Inc.
(Exact name of registrant as specified in its charter)

 

Nevada   86-1098668
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

Room 601, Bldg. E,

No. 1, Huabao Fubao China Street,
Futian District

Shenzhen City, Guangdong Province

  518000
(Address of principal executive offices)   (Zip Code)

 

+86 185 6676 1769

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   N/A   N/A

 

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 last 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically 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 registration statement was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth 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
    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 Act). Yes ☐ No ☒

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date: 600,034,500 shares as of May 24, 2021.

 

 

 

 

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION 1
     
Item 1. Financial Statements 1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 11
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
     
Item 4. Controls and Procedures 16
     
PART II - OTHER INFORMATION 17
     
Item 1. Legal Proceedings 17
     
Item 1A. Risk Factors 17
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
     
Item 3. Defaults Upon Senior Securities 17
     
Item 4. Mine Safety Disclosures 17
     
Item 5. Other Information 17
     
Item 6. Exhibits 18
     
SIGNATURES 19

 

i

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

FOUNTAIN HEALTHY AGING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In U.S. Dollars, except share data or otherwise stated)

AS OF MARCH 31, 2021 (UNAUDITED) AND DECEMBER 31, 2020 (AUDITED)

 

    March 31,
2021
    December 31,
2020
 
    US$     US$  
ASSETS            
Current assets:                
Cash and cash equivalents     48,599       61,517  
Accounts receivable     3,509,406       -  
Other receivables     104,013       101,432  
Inventory     67,629       66,037  
Prepayment     140,446       133,646  
Amount due from related parties     57,453       142,450  
Total current assets     3,927,546       505,082  
                 
Non-current assets:                
Leasehold improvements and equipment, net     88,434       87,333  
Intangible assets     32,964       -  
Operating lease right-of-use assets     305,041       383,203  
Total non-current assets     426,439       470,536  
Total assets     4,353,985       975,618  
                 
LIABILITIES AND EQUITY                
Current liabilities:                
Accounts payable     896,561       134,842  
Income tax payables     798,120       31,774  
Other payables and accruals     505,105       336,604  
Advance from customers     8,967       27,648  
Amount due to related parties     505,062       1,097,152  
Current operating lease liabilities     273,700       319,697  
Total current liabilities     2,987,515       1,947,717  
                 
Non-current liabilities:                
Non-current operating lease liabilities     31,341       63,506  
Total non-current liabilities     31,341       63,506  
Total liabilities     3,018,856       2,011,223  
                 
COMMITMENTS AND CONTINGENCIES                
                 
EQUITY (DEFICIT)                
Share capital (750,000,000 shares of Common Stock, par value $0.00001 per share, authorized, of which 600,034,500 shares are issued and outstanding; and 100,000,000 shares of Series A Preferred Stock, par value $0.00001 per share, of which all 100,000,000 shares are issued and outstanding)                
Series A Preferred Stock     1,000       1,000  
Common Stock     6,000       6,000  
Additional paid in capital     (15,146 )     (15,146 )
Foreign currency translation reserves     (75,620 )     (54,091
Retained earnings (Accumulated deficit)     1,418,895       (973,368 )
Total equity (deficit)     1,335,129       (1,035,605 )
Total liabilities and equity     4,353,985       975,618  

 

The accompanying notes are an integral part of the financial statements.

 

1

 

FOUNTAIN HEALTHY AGING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(In U.S. Dollars, except share data or otherwise stated)

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 (UNAUDITED)

 

    2021     2020  
    US$     US$  
             
Revenue     4,411,258       319,530  
Cost of revenue     (935,165 )     (48,390 )
Gross profit     3,476,093       271,140  
                 
Selling and marketing expenses     (36,479 )     (22,280 )
General and administrative expense     (267,800 )     (193,749 )
Total operating expenses     (304,279 )     (216,029 )
Operating profit     3,171,814       53,111  
                 
Other (expenses) income, net     (179 )     154  
Profit before income taxes     3,171,635       53,265  
                 
Income taxes     (779,372 )     (17,615 )
Net profit for the year     2,392,263       35,650  
                 
Foreign currency translation differences     (21,529 )     5,189  
Total comprehensive loss for the year     2,370,734       40,839  
                 
Earnings per share:                
-  Basic     0.004       0.000  
-  Diluted     0.004       0.000  
                 
Weighted average number of shares used in computation:                
-  Basic     600,034,500       600,034,500  
-  Diluted     600,034,500       600,034,500  

 

The accompanying notes are an integral part of the financial statements.

 

2

 

FOUNTAIN HEALTHY AGING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)

(In U.S. Dollars, except share data or otherwise stated)

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 (UNAUDITED)

 

    Share Capital           Foreign    

(Accumulated Deficit)

Retain Earnings

       
    Series A
preferred
Stock
    Common
Stock
    Additional
paid in
Capital
    Currency
Translation
Reserve
    Unrestricted     Statutory
Reserve
    Total
Equity
(Deficit)
 
    US$     US$     US$     US$     US$     US$     US$  
Balance at January 1, 2020 (Audited)     1,000       6,000       (15,146 )     4,547       (352,392 )     6,894       (349,097 )
Profit for the period     -               -       -       37,650       -       37,650  
Other comprehensive income     -               -       5,189       -       -       5,189  
Balance at March 31, 2020 (Unaudited)     1,000       6,000       (15,146 )     9,736       (314,742 )     6,894       306,258  
                                                         
Balance at January 1, 2021 (Audited)     1,000       6,000       (15,146 )     (54,091 )     (980,262 )     6,894       (1,035,605 )
Profit for the period     -               -       -       2,392,263       -       2,392,263  
Other comprehensive income     -               -       (21,529 )     -       -       (21,529 )
Balance at March 31, 2021 (Unaudited)     1,000       6,000       (15,146 )     (75,620 )     1,412,001       6,894       1,355,129  

 

The accompanying notes are an integral part of the financial statements.

 

3

 

FOUNTAIN HEALTHY AGING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In U.S. Dollars, except share data or otherwise stated)

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 (UNAUDITED)

 

    2021     2020  
    US$     US$  
Cash flows from operating activities:            
Net profit     2,392,263       37,650  
                 
Adjustments for:                
Depreciation and amortization     14,266       8,296  
Impairment of intangible assets     -       76,365  
Changes in:                
Accounts receivable     (3,546,989 )     -  
Other receivables and prepayment     (10,359 )     (133,766 )
Inventory     (1,855 )     18,870  
Accounts payable, other payables and accruals     941,940       173,427  
Income tax payables     774,671       22,183  
Advance from customers     (18,777 )     (244,836
Amount due from/to related parties     (508,965 )     57,333  
Net cash provided by operating activities     36,195       15,522  
                 
Cash flows from investing activities:                
Additions to leasehold improvements and equipment     (15,424 )     (26,715 )
Additions to intangible assets     (33,597 )     -  
Net cash used in investing activities     (49,021 )     (26,715 )
                 
Effect of exchange rate changes on cash and cash equivalents     (92 )     (222 )
                 
Net decrease in cash and cash equivalents     (12,918 )     (11,415
Cash and cash equivalents at the beginning of year     61,517       23,046  
Cash and cash equivalents at the end of the year     48,599       11,631  
                 
Supplemental disclosure of non-cash investing and financing activities:                
Right-of-use assets obtained in exchange for operating lease obligations     301,093       302,725  

 

The accompanying notes are an integral part of the financial statements.

 

4

 

FOUNTAIN HEALTHY AGING, INC.

CONDENSED CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2021 (UNAUDITED)

 

1. DESCRIPTION OF BUSINESS

 

Fountain Healthy Aging, Inc. and its subsidiaries (the “Company” or “FHAI”) are engaged in the business of wholesale distribution of “coffee tea” products to retail partners and corporate customers, selling “coffee tea” products to individual consumers and providing pre-opening assistance to retail partners to operate coffee stores in the People’s Public of China (“PRC” or “China”).

 

2. BASIS OF PRESENTATION

  

In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. All significant intercompany transactions and balances are eliminated in consolidation. However, the results of operations included in such financial statements may not necessarily be indicative of annual results.

 

The Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on April 15, 2021 (“2020 Form 10-K”).

 

The Company incurred net profit of $2,413,216 and $37,650 for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021 and December 31, 2020, the Company had net current assets (liabilities) of $960,763 and $(1,442,635), respectively, and a surplus (deficit) on total equity of $1,355,861 and $(1,035,605), respectively. The accompanying unaudited condensed consolidated financial statements are presented on the basis that the Company is a going concern. The going concern assumption contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a) Use of estimates

 

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.

 

There is no change on the accounting policies from the year ended December 31, 2020.

 

5

  

(b) Accounts Receivable

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. The Company assesses the probability of collection from each customer at the outset of the arrangement based on a number of factors, including the customer’s payment history and its current creditworthiness. If in management’s judgment collection is not probable, the Company does not record revenue until the uncertainty is removed.

 

Management performs ongoing credit evaluations, and the Company maintains an allowance for potential credit losses based upon its loss history and its aging analysis. The allowance for doubtful accounts is the Company’s best estimate of the amount of credit losses in existing accounts receivable. Management reviews the allowance for doubtful accounts each reporting period based on a detailed analysis of trade receivables. In the analysis, management primarily considers the age of the customer’s receivable and also considers the creditworthiness of the customer, the economic conditions of the customer’s industry, general economic conditions and trends, and the business relationship and history with its customers, among other factors. If any of these factors change, the Company may also change its original estimates, which could impact the level of the Company’s future allowance for doubtful accounts. If judgments regarding the collectability of receivables were incorrect, adjustments to the allowance may be required, which would reduce profitability.

 

Accounts receivable are recognized and carried at the original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful accounts receivable is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. No allowance for doubtful accounts was made for the three months ended March 31, 2021.

 

The following customers had an accounts receivable balance greater than 10% of total accounts receivable at March 31, 2021.

 

    Amount     %  
Customer A   $ 723,412       21%  
Customer B     365,189       10%  
    $ 1,088,601       31%  

 

(c) Recently issued accounting pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard 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 standard will be effective for the Company on April 1, 2023. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.

 

The Company reviews new accounting standards as issued. Management has not identified any other new standards that it believes will have a significant impact on the Company’s consolidated financial statements.

 

4. RISKS AND UNCERTAINTIES

  

(a) Economic and Political Risks

 

The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

 

6

 

The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.

 

(b) Foreign Currency Translation

 

The Company’s reporting currency is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries is the Chinese Renminbi (“RMB”). For the subsidiaries whose functional currencies are the RMB, all assets and liabilities are translated at exchange rates at the balance sheet date and revenue and expenses are translated at the average yearly exchange rates and equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustments to other comprehensive loss, a component of equity.

 

(c) Concentration of credit risk

 

Financial instruments that potentially expose the Company to significant concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable, other receivables and amounts due from related parties. As of March 31, 2021 and December 31, 2020, substantially all of the Company’s cash and cash equivalents were deposited with financial institutions with high-credit ratings and quality. The Company did not have any customers constituting 10% or more of the net revenue in the three months ended March 31, 2020. The Company had two customers constituting 10% or more of the net revenues in the three months ended March 31, 2021as follows:

 

    Amount     %  
Customer A   $ 867,850       20%  
Customer B     435,070       10%  
    $ 1,302,920       30%  

 

5. OTHER RECEIVABLES

 

As of March 31, 2021 and December 31, 2020, other receivables mainly consist of employees advance to be spent for company purposes and refundable rental deposits. The balances are unsecured, non-interest bearing and repayable on demand.

 

6. INVENTORY

 

    March 31,     December 31,  
    2021     2020  
Raw materials (1)   $ 50,126     $ 51,521  
Finished goods     17,503       14,516  
    $ 67,629     $ 66,037  

 

(1) Raw materials mainly consist of unprocessed coffee tea beans and packaging materials

  

7. PREPAYMENT

 

As of March 31, 2021 and December 31, 2020, prepayment mainly consists of prepaid administrative expenses that have been utilized subsequently.

 

7
   
8. LEASEHOLD IMPROVEMENT AND EQUIPMENT, NET

 

    March 31,     December 31,  
    2021     2020  
Leasehold improvement   $ 63,954     $ 64,191  
Equipment     16,591       16,653  
Machinery     32,443       32,563  
Computer equipment and software     35,541       20,355  
Motor vehicle     7,218       7,245  
    $ 155,747     $ 141,007  
Less: accumulated depreciation     (67,313 )     (53,673 )
    $ 88,434     $ 87,333  

 

Depreciation expense for the three months ended March 31, 2021 and 2020 was $13,986 and $8,296 respectively.

 

9. INTANGIBLE ASSETS

 

    March 31,     December 31,  
    2021     2020  
APP Platform   $ 33,241     $       -  
Less: accumulated amortization     (277     -  
    $ 32,964     $ -  

 

Amortization expense for the three months ended March 31, 2021 and 2020 was $280 and $nil, respectively. The Company recorded an impairment loss on intangible assets of $76,365 to write off the old APP Platform during the year ended December 31, 2020.

 

10. OTHER PAYABLES AND ACCRUALS

 

    March 31,     December 31,  
    2021     2020  
Accrued payroll and welfare payable   $ 210,700     $ 180,878  
VAT and other taxes payable     238,318       92,608  
Others (1)     56,087       63,118  
    $ 505,105     $ 336,604  

 

(1) As of March 31, 2021 and December 31, 2020, others mainly consist of the outstanding refundable balance upon termination of the cooperative agreement with one customer and payables for rental expenses.

 

11. ADVANCE FROM CUSTOMERS

 

The Company requires retail partners to sign cooperative agreement and to pay in advance for the supply of goods. Such advance is appropriated against future sales orders. These advances are interest free, unsecured and short-term in nature.

 

8

 

12. INCOME TAXES

 

Fountain Healthy Aging, Inc. (“FHAI”) was incorporated in the State of Nevada. FHAI is an U.S. entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as FHAI had no United States taxable income for the three months ended March 31, 2021 and 2020.

 

Wei Lian Jin Meng Group Limited (“WLJM Cayman”) was incorporated in Cayman Islands. Under the current tax laws of Cayman Islands, WLJM Cayman is not subject to tax on their income or capital gains. In addition, upon of dividends by WLJM Cayman to its shareholders, no Cayman Islands withholding tax will be imposed.

 

Wei Lian Jin Meng (Hong Kong) Co., Ltd. (“WLJM HK”) was incorporated in Hong Kong and is subject to an income tax rate of 16.5% for taxable income generated from operations in Hong Kong.

 

Jin You Wei Meng (Shenzhen) Consulting Co., Ltd. (“JYWM WFOE”), Shenzhen Wei Lian Jin Meng Electronic Commerce Limited (“Shenzhen Wei Lian”), Dongguan Dishi Coffee Limited (“Dongguan Dishi”) and Shenzhen Nainiang Coffee Art Museum Limited (“Shenzhen Nainiang”) were incorporated in the PRC and they are subject to profits tax rate at 25% for income generated and operation in the country.

 

The full realization of the tax benefit associated with the losses carried forward depends predominantly upon the Company’s ability to generate taxable income during the carry forward period.

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.

 

The Company did not record deferred tax assets as of March 31, 2021 and December 31, 2020.

  

A reconciliation of tax expense from 25% statutory tax rates for the three months ended March 31, 2021 and 2020 is as follows:

 

    For the three months ended
March 31,
 
    2021     2020  
Profit before tax   $ 3,171,635     $ 55,265  
Tax benefit calculated at statutory tax rate     25 %     25 %
Computed expected tax expense     792,909       13,816  
Others     (13,537     3,799  
    $ 779,372     $ 17,615  

 

13. LEASES

 

The Company has leases for the office, factory and warehouse in the PRC, under operating leases expiring on various dates through September 2023, which is classified as operating leases. There are no residual value guarantees and no restrictions or covenants imposed by the leases. Lease liabilities are measured at present value of the sum of remaining rental payments as of March 31, 2021, with discounted rate of 4.75%. A single lease cost is recognized over the lease term on a generally straight-line basis. All cash payments of operating lease cost are classified within operating activities in the statement of cash flows. Rent expense for the three months ended March 31, 2021 and 2020 were $78,596 and $62,121, respectively.

 

9

 

The Company’s future minimum payments under long-term non-cancelable operating leases are as follows:

 

    March 31,
2021
 
Within 1 year   $ 320,584  
After 1 year but within 5 years     35,731  
Total lease payments   $ 356,315  
Less: imputed interest     (51,274 )
Total lease obligations     305,041  
Less: current obligations     (273,700 )
Long-term lease obligations   $ 31,341  

 

Other information:

 

    For the three months ended
March 31,
 
    2021     2020  
Cash paid for amounts included in the measurement of lease liabilities:            
Operating cash flow from operating leases   $ 78,596     $ 62,121  
Right-of-use assets obtained in exchange for operating lease liabilities     301,093       302,725  
Remaining lease term for operating leases (years)     2.5       3.5  
Weighted average discount rate for operating leases     4.75 %     4.75 %

 

14. RELATED PARTIES TRANSACTIONS

 

The Company had the following balances with related parties:

 

  (a) Amount due from related parties

 

        March 31,     December 31,  
    Relationship   2021     2020  
Ye Aiyun   Shareholder of the Company     57,453       142,450  
Total       $ 57,453     $ 142,450  

 

Amount due from related parties represents cash advance to Ye Aiyun, shareholder of the Company. The balance is unsecured, non-interest bearing and repayable on demand.

 

  (b) Amount due to related parties

 

        March 31,     December 31,  
    Relationship   2021     2020  
Zhu Hong   Shareholder of the Company     450,705       1,059,853  
Zhu Jian Yong   Shareholder of the Company     1,724       1,731  
Shenzhen Weilian Jin Meng Culture Spreading Limited   Zhu Hong is the shareholder     23,323       24,800  
Shenzhen Nainiang Wine Limited   Zhu Hong is the shareholder     29,310       10,768  
Total       $ 505,062     $ 1,097,152  

 

The balances represent cash advances to related parties, which were offset with the Company’s assets and expenses paid on behalf by the related parties. The balances with a related party are unsecured, non-interest bearing and repayable on demand.

 

15. COMMITMENTS AND CONTINGENCIES

 

Commitments consist of a non-cancelable consultancy service agreement entered into with a third-party for the provision of services related to the US listing with a contract sum of $1,200,000. The outstanding committed contract amount is $120,000. The terms of the agreement are for various milestones stages to be completed within two years through 2021. Future commitments within one year as of March 31, 2021 was $120,000. No future commitments more than one year as of March 31, 2021.

 

Except the above commitments and the operating lease commitment as disclosed at Note 13, there are no material commitments.

 

16. SUBSEQUENT EVENTS

 

There is no subsequent events have occurred that would require recognition or disclosure in the financial statements.

 

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

 

FORWARD-LOOKING STATEMENTS

 

Cautionary Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “pursue,” “expect,” “predict,” “project,” “goals,” “strategy,” “future,” “likely,” “forecast,” “potential,” “continue,” negatives thereof or similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding future acquisition or merger targets, business strategies, macro-economic and sector-specific trends, future cash flows, financing plans, plans and objectives of management and any other statements which are not statements of historical facts.

 

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual future results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, inability to successfully conclude acquisitions of target companies or assets which are reasonably capable of generating positive cash flow in the near future, legal and regulatory changes in the jurisdictions in which we operate, volatility or decline in our stock price, potential fluctuation of our quarterly and annual financial and operational results, rapid adverse changes in markets, decline in demand for our goods and services, insufficient revenues to cover our operating costs and such other factors as discussed throughout this section.

 

Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this report. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. In addition, our consolidated financial statements and the financial data included in this Quarterly Report on Form 10-Q reflect our reorganization and have been prepared as if our current corporate structure had been in place throughout the relevant periods. The following discussion and analysis contain forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these risks and uncertainties, please see this Part I, Item 2 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) of this Quarterly Report on Form 10-Q.

 

Overview

 

The Company is a U.S. holding company incorporated in Nevada on February 25, 2004, and operating through the Company’s wholly owned subsidiary WLJM Cayman, a company incorporated under the laws of the Cayman Islands on June 30, 2020. The Company’s entire business, including operations, employees, sales and marketing and research and development, are all conducted through its subsidiaries located within the People’s Republic of China (“PRC”).

 

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The following is the organization structure of the Company along with ownership detail of all companies:

 

WLJM Cayman was incorporated in the Cayman Islands on June 30, 2020. It is 100% owned by Fountain Healthy Aging, Inc. Refer to Item 1.01 “Entry into a Material Definitive Agreement” of this Current Report on Form 8-K for a full description of the acquisition of WLJM Cayman by Fountain Healthy Aging, Inc.

 

Wei Lian Jin Meng (Hong Kong) Company Limited (“WLJM HK”), was established in the Hong Kong Special Administrative Region (“HKSAR”) of the PRC on August 5, 2020. It is 100% owned by WLJM Cayman.

 

Jin You Wei Meng (Shenzhen) Consulting Company Limited (“JYWM WFOE”) was established as a wholly foreign-owned enterprise on November 24, 2020, under the laws of the PRC. It is 100% owned by WLJM HK.

 

Shenzhen Wei Lian Jin Meng Electronic Commerce Limited (“Shenzhen Wei Lian”) was incorporated on October 17, 2017, under the laws of the PRC. It is 100% owned by JYWM WFOE.

 

Dongguan Dishi Coffee Limited (“Dongguan Dishi”) was incorporated on October 25, 2018, under the laws of the PRC. It is 100% owned by Shenzhen Wei Lian.

 

Shenzhen Nainiang Coffee Art Museum Limited (“Shenzhen Nainiang”) was incorporated on June 20, 2019, under the laws of the PRC. It is 100% owned by Shenzhen Wei Lian.

 

The Company, through our subsidiaries, develops, produces, markets and sells coffee, tea, “coffee tea” and wine products. We sell our products wholesale to retail partners and corporate customers, and we also sell directly to consumers in the PRC via our e-commerce channels. We adopted the “online to offline”, or O2O sales mode (i.e. selling products online and delivering products through offline channels), committing to building the first brand of “coffee tea” culture in the PRC. Beginning late 2020, we provide pre-opening assistance to retail partners to operate coffee stores.

 

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 3 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, “coffee tea" and wine 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 three months ended March 31, 2021 and 2020, product revenue from coffee, tea and “coffee tea” products amounted to $2,138,721 and $319,530, respectively, whereas product revenue from wine products amounted to $2,225,196 and nil, 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 three months ended March 31, 2021 and 2020, service revenue amounted to $47,341 and $nil, respectively.

 

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Our revenue recognition policy is compliant 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 goods/services in the contract;
     
  (ii) determination of whether the goods/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.

 

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 and accounts receivable. As of March 31, 2021 and December 31, 2020, substantially all of our cash and cash equivalents were deposited with financial institutions with high-credit ratings and quality. The following customers had an accounts receivable balance greater than 10% of total accounts receivable at March 31, 2021.

 

    Amount     %  
Customer A   $ 723,412       21%  
Customer B     365,189       10%  
    $ 1,088,601       31%  

 

We did not have customers constituting 10% or more of the net revenues in the three months ended March 31, 2020. We had two customers constituting 10% or more of the net revenues in the three months ended March 31, 2021 as follows:

 

    Amount     %  
Customer A   $ 867,850       20%  
Customer B     435,070       10%  
    $ 1,302,920       30%  

 

Recently Issued and Adopted Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard 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 standard will be effective for us on April 1, 2023. We are currently evaluating the impact the adoption of this ASU will have on our 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.

 

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Results of Operations

 

The following discussion should be read in conjunction with the condensed consolidated financial statements of Fountain Healthy Aging, Inc. attached hereto for the three months ended March 31, 2021 and 2020.

 

Revenue

 

We generated $4,411,258 in revenue for the three months ended March 31, 2021 compared to $319,530 for the three months ended March 31, 2020. During the three months ended March 31, 2021 and 2020, product revenue from sale of coffee, tea and “coffee tea” products amounted to $2,138,721 and $319,530, respectively, whereas product revenue from sale of wine products amounted to $2,225,196 and nil, respectively. In addition, we provide pre-opening assistance to retail partners to operate coffee stores, and we recognize our revenue upon the completion of services. During the three months ended March 31, 2021 and 2020, service revenue amounted to $47,341 and $nil, respectively. There was an increase in total revenues of $4,091,728 or 1281% compared with the three months ended March 31, 2020.

 

Our business is gradually recovering from the COVID-19 pandemic which has been less severe than in 2020. The measures taken by the Chinese government to contain the virus is effective, business has returned to normal and the market has regained confidence. This has positively affected our results. For example, we earned a significant portion of revenue from our new wine products that was launched in January 2021. Our product revenue increased by $4,044,386 or 1366% compared with the three months ended March 31, 2020 due to the recovery of economy.

 

Cost of Revenue

 

Cost of revenue was $935,165 for the three months ended March 31, 2021 compared to $48,390 for the three months ended March 31, 2020. The increase of cost of revenue by $886,775 or 1833% was relatively in line with the increase in revenue. 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. For the three months ended March 31, 2021 and 2020, cost of revenue for coffee, tea and “coffee tea” products was $292,451 and $48,390, respectively, whereas cost of revenue for wine products was $642,714 and $nil, respectively.

 

Gross profit

 

Gross profit for the three months ended March 31, 2021 was $3,476,093 compared with $271,140 for the three months ended March 31, 2020. The decrease in gross profit margin of 79% for the three months ended March 31, 2021 compared to 85% for the three months ended March 31, 2020 was due to a lower margin for the new wine products. Gross profit for the three months ended March 31, 2021 and 2020 for coffee, tea and “coffee tea” products was $1,846,270 or 85% and $271,140 or 85%, respectively. Gross profit for the three months ended March 31, 2021 and 2020 for wine products was $1,582,582 or 71% and nil, respectively. Gross profit for the three months ended March 31, 2021 and 2020 for service revenue was $47,341 or 100% and nil, respectively.

 

Operating Expenses

 

By far the most significant component of our operating expenses for both the three months ended March 31, 2021 and 2020 was general and administrative expenses of $267,800 and $193,749, respectively. The following table sets forth the main components of our general and administrative expenses for the three months ended March 31, 2021 and 2020.

 

    For the three months ended March 31,  
    2021     2020  
    Amount
(US$)
    % of
Total
    Amount
(US$)
    % of
Total
 
General and administrative expense:                        
Consultancy fee   $ 91,730       34.3 %   $ 19,109       9.9 %
Salary and welfare     50,484       18.9 %     78,119       40.3 %
Rental expenses     78,596       29.3 %     62,121       32.0 %
Research and development costs     21,996       8.2 %     22,258       11.5 %
Office expenses     8,875       3.3 %     2,362       1.2 %
Travel and accommodations     5,218       1.9 %     1,365       0.7 %
Entertainment     4,585       1.7 %     1,920       1.0 %
Others     6,316       2.4 %     6,495       3.4 %
Total general and administrative expenses   $ 267,800       100 %   $ 193,749       100 %

 

Increase in general and administrative expenses by $74,051 or 38% from $193,749 for the three months ended March 31, 2020 to $267,800 for the three months ended March 31, 2021 was mainly due to engagement of consultants to provide consulting services in connection with the reverse acquisition.

 

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Net Profit

 

We incurred a net profit of $2,392,263 for the three months ended March 31, 2021 compared to a net profit of $37,650 for the three months ended March 31, 2020, an increase of $2,354,613 or 6254%. The increase was primarily attributable to the fact that our revenue has increased significantly, whereas the increase in administrative expenses is lower than the increase of revenue because some expenses are fixed costs in nature.

 

Liquidity and Capital Resources

 

    March 31,     December 31,  
Working capital:   2021     2020  
Total current assets   $ 3,927,546     $ 505,082  
Total current liabilities     (2,987,515 )     (1,947,717 )
Working capital surplus (deficiency)   $ 940,031     $ (1,442,635 )

 

As of March 31, 2021, we had cash and cash equivalents of $48,599. 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 three months ended March 31, 2021 and 2020:

 

Cash flows:   2021     2020  
Net cash provided by operating activities   $ 36,195       15,522  
Net cash used in investing activities     (49,021 )     (26,715 )
Effect of exchange rate changes on cash and cash equivalents     (92 )     (222 )
Net decrease in cash and cash equivalents     (12,918 )     (11,415
Cash and cash equivalents at the beginning of year     61,517       23,046  
Cash and cash equivalents at the end of the three-month period   $ 48,599       11,631  

 

Operating Activities

 

Net cash provided by operating activities was $36,195 for the three months ended March 31, 2021. The difference between our net profit of $2,392,263 and net cash provided by operating activities was mainly attributable to the depreciation of fixed assets and amortization of intangible assets of $14,266, and the increase in other operating assets and liabilities of $2,412,240 which was generally due to the increase in accounts receivables, accounts payable, income tax payables and amount due from/to related parties.  

 

Investing Activities

 

Cash used in investing activities for the three months ended March 31, 2021 was $49,021, as compared to $26,715 for the three months ended March 31, 2020. The increase in cash used in investing activities was mainly attributable to acquisition of intangible assets during the three months ended March 31, 2021. We will evaluate and assess the COVID-19 pandemic impact to our business to determine the plan for increasing our capital expenditures in the future periods.

 

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Contractual Obligations and Commercial Commitments

 

We had the following contractual obligations and commercial commitments as of March 31, 2021:

 

    Total     Less than
1 year
    1-5 years     More than
5 years
 
Operating lease   $ 356,315     $ 320,584     $ 35,731     $ -  
Consultancy service     120,000       120,000       -       -  
      476,315       440,584       35,731       -  

 

For the three months ended March 31, 2021 and 2020, we entered into various operating lease agreement during the fiscal year 2018 and 2019, and expiring on variance dates through September 2023. The average monthly lease expense is approximately $26,199. The outstanding lease commitment as of March 31, 2021 was $356,315.

 

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 March 31, 2021 was $120,000.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

As a “smaller reporting company,” we are not required to provide the information required by this Item.

 

Item 4. Controls and Procedures

 

Management’s Report on Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our president (our principal executive officer and principal financial officer) to allow for timely decisions regarding required disclosure.

 

As of the end of the quarter covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our president (our principal executive officer, principal financial officer and principle accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Our management’s relative inexperience with the reporting requirements of public companies under the Exchange Act is a source of substantial concern and risk, and considering all components of our assessment, our president (our principal executive officer and principal financial officer) concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

 

Changes in Internal Controls

 

There have been no changes in our internal controls over financial reporting that occurred during the quarter ended March 31, 2021, that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

 

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

Item 1A. Risk Factors

As a “smaller reporting company,” we are not required to provide the information required by this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On February 2, 2021, the Company issued 600,000,000 shares of the Company’s common stock to the owners (the “Sellers”) of Wei Lian Jin Meng Group Limited, a limited liability company incorporated in the Cayman Islands (“WLJM”), in exchange for the transfer by the Sellers of 100% of the equity ownership interests in WLJM (the “Acquisition”). The Company reported the Acquisition in its Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 3, 2021.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit
Number

  Description
31.1*   Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*   Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**   Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**   Certification of the Principal 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

 

* Filed herewith.
** Deemed furnished and not filed.
   
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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  Fountain healthy aging, inc.
  (Registrant)
   
Dated: May 24, 2021 /s/ Zhu Hong
  Zhu Hong
  President, Chief Executive Officer and Director
  (Principal Executive Officer)
   
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