China Foods Holdings Ltd 10-K for FY2023
China Foods Holdings Ltd. (CFOO)
About this 10-K
China Foods Holdings Ltd filed this 10-K on April 16, 2024, covering the fiscal year ended December 31, 2023 (FY2023).
Headline figures
Fiscal year ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $158.48K
- down 55.2% from $354.1K a year earlier
- Net loss
- $403.7K
- compared with a net loss of $354.08K a year earlier
- Diluted EPS
- -$0.02
- compared with -$0.02 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For
the fiscal year ended |
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to |
Commission
file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
| (Address of Principal Executive Offices) | (Zip Code) |
(
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
| None | Not Applicable |
Securities registered pursuant to Section 12(g) of the Act:
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. ☐ Yes ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ☒
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 past 90 days. ☒
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.406 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
| Large accelerated filer ☐ | 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. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements
of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
State
the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which
the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s
most recently completed second fiscal quarter. The Registrant’s shares were last sold at a price of $1.01 per share. Although the
Registrant’s stock has very few trades and limited volume, based on the last sales price of $1.01 shares held by non-affiliates
would have a market value of $
As of April 15, 2024, the Registrant had shares of common stock issued and outstanding.
No documents are incorporated into the text by reference.
Table of Contents
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PART I
ITEM 1. BUSINESS
China Foods Holdings Ltd. (the “Company”, “CFOO”, or “we”) was incorporated in Delaware on January 10, 2019. On January 23, 2019, the Company entered into an Agreement and Plan of Merger (the “Agreement”) with Trafalgar Resources, Inc., a Utah corporation (“Trafalgar”). Pursuant to the Agreement, the Company merged with Trafalgar (the “Merger”) with the Company as the surviving entity. Prior to the Merger, Trafalgar had not commenced operations for several years that had resulted in significant revenue and Trafalgar’s efforts had been devoted primarily to activities related to raising capital and attempting to acquire an operating entity.
The Company is a Delaware holding company and we conduct our business through our wholly owned subsidiary Guangzhou Xiao Xiang Health Industry Company Limited, a limited liability company organized under the laws of China on March 8, 2017 (“GXXHIC”). GXXHIC is wholly owned by Alpha Wellness (HK) Limited, a limited liability company organized under the laws of Hong Kong on April 24, 2019, which is in turn wholly owned by Elite Creation Group, a limited liability company formed under the laws of the British Virgin Islands formed on September 5, 2018. Alpha Wellness (HK) Limited and Elite Creation Group are holding companies without operations and are wholly owned by the Company.
Substantially all of our operations are conducted in China, and are governed by Chinese laws, rules and regulations. Our subsidiary, GXXHIC, is subject to Chinese laws, rules, and regulations. Uncertainties with respect to the interpretation and enforcement of Chinese laws, rules and regulations could have a material adverse effect on us. Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding that the rules and regulations in China can change quickly with little advance notice and that the Chinese government may intervene or influence our operations at any time, could result in a material adverse change in our operations and the value of our securities.
Our History
Prior to the Merger, Trafalgar’s majority stockholder who owned 5,000,000 shares (approximately 95.2%) of the 5,251,309 outstanding shares of Trafalgar’s common stock, par value $0.0001, signed a written consent approving the Merger and the related transactions. Such approval and consent were sufficient under Utah law and Trafalgar’s Bylaws to approve the Merger. The boards of directors and shareholders of the Company and Trafalgar approved the Merger.
Pursuant to the Merger, each share of Trafalgar’s common stock was converted into one share of the Company’s common stock. After the Merger, HY (HK) Financial Investments Co., Ltd. owns 5,001,000 shares of common stock of the Company.
The Merger was effective on March 13, 2019.
On December 11, 2019, the Board of Directors approved a change to its fiscal year-end from September 30 to December 31. As a result of this change, the fiscal year is a 3 month transition period beginning October 1, 2019 through December 31, 2020. In these statements, including the notes thereto, financial results for fiscal 2019 are for a 3-month period. Corresponding results for the years ended September 30, 2019 and 2018 are both for 12-month periods.
On July 9, 2020, the Company consummated the Share Exchange Agreement (“the “Share Exchange Agreement”) with Elite Creation Group Limited, a private limited company organized under the laws of British Virgin Islands (“ECGL”). As a result of the acquisition of ECGL, the Company entered into the healthcare product distributing and marketing industry, pursuing a new strategy of developing and distributing health related products, including supplements, across the globe with a focus on mainland China, Europe and Australia.
ECGL will comprise the ongoing operations of the combined entity and its senior management will serve as the senior management of the combined entity, ECGL is deemed to be the accounting acquirer for accounting purposes. The transaction will be treated as a recapitalization of the Company. Accordingly, the consolidated assets, liabilities and results of operations of the Company will become the historical financial statements of ECGL, and the Company’s assets, liabilities and results of operations will be consolidated with ECGL beginning on the acquisition date. ECGL was the legal acquiree but deemed to be the accounting acquirer. The Company was the legal acquirer but deemed to be the accounting acquiree in the reverse merger. The historical financial statements prior to the acquisition are those of the accounting acquirer (ECGL). After completion of the Share Exchange Transaction, the Company’s consolidated financial statements include the assets and liabilities, the operations and cash flow of the accounting acquirer.
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Effective July 9, 2020, we consummated the acquisition of ECGL, and its wholly owned subsidiary GXXHIC, a limited liability company organized under the laws of China on March 8, 2017. Alpha Wellness (HK) Limited, a limited liability company organized under the laws of Hong Kong on April 24, 2019, is a holding company without operations.
Corporate Organization Chart
Our Products
Our health products are designed to help enhance immunity and improve general wellbeing. We provide the following categories of healthcare products and customized healthcare consultation services in China: (i) Nutrition Catering (ii) Special Health Food (iii) Health Supplement and (iv) Skincare. The products target all age groups with different needs.
Our products are taken as healthcare supplements in accordance with the principles of traditional Chinese medicine including the principle complementary medicine and ideal ratios and combinations of ingredients.
Due to the impact of the COVID-19 pandemic in the healthcare industry, we have also offered a new line of high-end wine products in our online and offline sales platform, to diversify the market demand and customer needs.
Our services
We also extend our service scope to provide the personalized health consulting services to our clients, as well as consultancy services such as tailor-made natural food supplement solutions.
Markets and Regions
The Great Health Industry refers to production, operation, service and information dissemination, maintenance, restoration, and promotions linked to health. It covers medical products, health supplements, nutritional foods, medical devices, health appliances, fitness, health management, health consulting and many other production and service areas closely related to human health. The Great Health Industry is an emerging industry with huge market potential, especially in China.
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According to the “China Great Health Industry Strategic Planning and Enterprise Strategy Consulting Report” published by Qianzhan Industry Institute (前瞻產業研究院), the scale of the Great Health Industry in 2017 was USD 947.42 billion, which increased to over USD 1,069.66 billion in 2018. The report predicted USD 1,341.66 billion volume for 2019 and forecast over USD 1,528.09 billion for 2020. In the years till 2023, the average annual compound growth rate will be approximately 12.55%, and with the Great Health Industry reaching approximately USD 2,153.08 billion in 2023.
Our Strategies
We are focused on achieving long-term growth in revenues, cash flow and profit. We believe that we can achieve this by developing multiple distribution channels and strengthening our marketing and promotions, leading to better product turnover and revenue. We also expect to broaden our product range as well as product differentiation in the future. Based on the business experience accumulated over the years, we believe we can improve the efficiency of our supply chain with time-saving and cost-saving supply chain management and marketing planning for the target customer base with our one-stop service.
Our primary aims are (i) to strengthen our product salability; (ii) to cut logistics cost and time spent and (iii) to further expand the market share in China. Toward this end, we plan to pursue the following business strategies:
| ● | Collaborate with third-party e-commerce platforms to boost product exposure, e.g. Tmall, Jingdong mall | |
| ● | Deliver healthcare knowledge and consultation service via social media and We-media | |
| ● | Build brand image and reputation through customer experience and word of mouth | |
| ● | Increase the number of downstream distributors and wholesalers | |
| ● | Strengthen the relationship with manufacturers, suppliers, drug agents and distributors | |
| ● | Pursue strategic acquisitions and partnerships |
We intend to develop both online and offline distribution channels to increase sales volume and revenue. We expect to partner with third party e-commerce platforms, social media and We-media such as Wechat, TikTok and Xiaohongshu to build our online presence. We believe that online channels will allow us to provide real-time nutrition and healthcare consultation services as well as increase customer engagement and retention. Starting from the second half of 2020, we have launched our “nutrition consulting” support services using a major social media software to allow customer groups to receive pre-purchase consultation and after-sales service for products anytime and anywhere.
Our current offline sales channel relies on distributors and sales agents. To enhance the visibility and marketability of our products and services and to improve brand recognition and awareness, we hope to develop store-in-shop and counter experiences. We also intend to partner with high-end gyms to form nutrition clubs and hold weight-loss training camps, health assessment and fitness training camps and other activities.
We intend to create a ‘one-stop’ solution for our customers by creating a multi-channel health product supply and retail system. We not only provide personalized consultation service to our customers, but also summarize and analyze our customer feedback and experiences through our consultation service and after-sales service. We intend to share this data with our manufacturers and supply chain partners to develop products and services that better meet the demands of our customers. By pooling and addressing the needs of downstream businesses and combining it with the Consumer to Manufacturer model for upstream transformation, we anticipate establishing a close relationship between manufacturers and suppliers. We believe this model can also reduce circulation costs and improve the efficiency of our supply chain.
We are a Delaware corporation and we conduct our primary operations in China through our subsidiary GXXHIC. We face various risks and uncertainties related to doing business in China. Our subsidiary GXXHIC is subject to complex and evolving PRC laws and regulations. Recently, the PRC enacted rules and regulations governing offshore offerings, anti-monopoly actions, and additional oversight on cybersecurity and data privacy.
We do not believe that GXXHIC is in violation of any laws, rules or regulations but since these newly enacted rules are still evolving, we cannot assure you that our business operations comply with such regulations and authorities’ requirements in all respects during the development of these new rules. However, in terms of business operation, GXXHIC expects to adapt to the newly issued rules and take dependent measures to comply with the laws and regulations of the Chinese authorities.
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The PRC government’s authority in regulating our operations and its oversight and control over offerings and listings conducted overseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. Implementation of industry-wide regulations in this nature may cause the value of such securities to significantly decline or be worthless. Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our securities. But so far, the current operation and securities value of the Company are stable, and we believe that its risks are to the Company are manageable.
For example, the recently promulgated PRC Data Security Law and the PRC Personal Information Protection Law in 2021 posed additional challenges to our cybersecurity and data privacy compliance. The Cybersecurity Review Measures issued by the Cyberspace Administration of China, or the CAC and several other PRC governmental authorities in December 2021, as well as the Administration Regulations on Cyber Data Security (Draft for Comments) published by the CAC for public comments in November 2021, exposes uncertainties and potential additional restrictions on China-based overseas-listed companies like us. If the detailed rules, implementations, or the enacted version of the draft measures mandate clearance of cybersecurity review and other specific actions to be completed by us, we face uncertainties as to whether such clearance can be timely obtained, the failure of which may subject us to penalties, which could materially and adversely affect our business and results of operations and the price of our securities. However, as the Company operates in a traditional food industry, we believe the promulgation of the above laws will have a low impact on the Company and CFOO believes it is in compliance with the above laws.
In addition, on December 24, 2021, the China Securities Regulatory Commission, or the CSRC, published the draft Regulations of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), or the Administrative Provisions, and the draft Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) for public comments. Pursuant to these drafts, PRC domestic companies that directly or indirectly seek to offer or list their securities on an overseas stock exchange, including a PRC company limited by shares and an offshore company whose main business operations are in China and intends to offer securities or be listed on an overseas stock exchange based on its onshore equities, assets, incomes or similar interests, are required to file with the CSRC within three business days after submitting their application documents to the regulator in the place of intended listing or offering. Particularly, as for the PRC domestic companies that have directly or indirectly listed securities in overseas markets intend to conduct follow-on offerings in overseas markets, such companies are required to submit the filing with respect to the follow-on offering within three business days after completion of the follow-on offering.
Furthermore, the PRC anti-monopoly regulators have promulgated new anti-monopoly and competition laws and regulations and strengthened the enforcement under these laws and regulations. There remain uncertainties as to how the laws, regulations and guidelines recently promulgated will be implemented and whether these laws, regulations and guidelines will have a material impact on our business, financial condition, results of operations and prospects. We do not believe there GXXHIC is in violation of any laws, rules or regulations related to monopolies or competition but we cannot assure you that our business operations comply with such regulations and authorities’ requirements in all respects. If any non-compliance is raised by relevant authorities and determined against us, we may be subject to fines and other penalties. These risks could result in a material adverse change in our operations and the value of our securities, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline or be worthless.
Permissions Required from the PRC Authorities for Our Operations
GXXHIC has received a Business License from the relevant department of the State Administration for Market Regulation. Apart from the Business License, GXXHIC may be subject to additional licensing requirements for our business operation due to the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities.
Furthermore, in connection with the operations of GXXHIC, as of the date of this report, neither GXXHIC nor the Company are required to obtain any approval or permission from the CSRC, CAC or any other PRC governmental authorities, nor has the Company or GXXHIC received any formal inquiry, notice, warning or sanction from any PRC governmental authorities in connection with requirements of obtaining such approval or permission, under any currently effective PRC laws, regulations and regulatory rules.
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However, the PRC government has recently indicated an intent to exert more oversight over offerings that are conducted overseas and/or foreign investment in China-based issuers like us, and published a series of proposed rules for public comments in this regard, the enaction timetable, final content, interpretation and implementation of which remains uncertain. Therefore, there are substantial uncertainties as to how PRC governmental authorities will regulate overseas listing in general and whether we are required to complete filing or obtain any specific regulatory approvals from the CSRC, CAC or any other PRC governmental authorities for our future offshore offerings. If we had inadvertently concluded that such approvals were not required, or if applicable laws, regulations or interpretations change in a way that requires us to obtain such approval in the future, we may be unable to obtain such necessary approvals in a timely manner, or at all, and such approvals may be rescinded even if obtained. Any such circumstance could subject us to penalties, including fines, suspension of business and revocation of required licenses, significantly limit or completely hinder our ability to continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
Our Subsidiary, GXXHIC, is Subject to Chinese Laws, Rules, And Regulations
Our subsidiary, GXXHIC, is subject to Chinese laws, rules, and regulations. Uncertainties with respect to the interpretation and enforcement of Chinese laws, rules and regulations could have a material adverse effect on us. We believe that GXXHIC will continue to manage any adverse effects on the premise of complying with Chinese laws, rules, and regulations. Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding that the rules and regulations in China can change quickly with little advance notice and that the Chinese government may intervene or influence our operations at any time, could result in a material adverse change in our operations and the value of our securities.
Substantially all of our operations are conducted in China, and are governed by Chinese laws, rules and regulations. The Chinese legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which legal cases may be cited for reference but have limited value as precedents. In the late 1970s, the Chinese government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past four decades has significantly increased the protections afforded to various forms of foreign or private-sector investment in China. However, since these laws and regulations are relatively new and the Chinese legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties.
From time to time, we may have to resort to administrative and court proceedings to interpret and/or enforce our legal rights. However, since Chinese administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings, and the level of legal protection we enjoy, than in more developed legal systems. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Furthermore, the Chinese legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at all) that may have retroactive effect.
As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could affect our business and our ability to continue our operations.
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Changes in Chinese political policies and economic and social policies or conditions may affect and fluctuate our business, results of operations and financial condition and may affect our growth and expansion strategies.
Substantially all of our assets and business operations are located in China. Accordingly, our business, results of operations, financial condition and prospects may be influenced to a significant degree by political, economic and social conditions in China generally, by continued economic growth in China as a whole, and by geopolitical stability in the region.
The Chinese economy, markets and levels of consumer spending are influenced by many factors beyond our control, including current and future economic conditions, political uncertainty, unemployment rates, inflation, fluctuations in the level of disposable income, taxation, foreign exchange control, and changes in interest and currency exchange rates. The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, foreign exchange control and fiscal measures and allocation of resources. Although the Chinese government has implemented measures since the late 1970s emphasizing the utilization of market forces for economic reform, the restructuring of state assets and state-owned enterprises, and the establishment of improved corporate governance in business enterprises, a significant portion of productive assets in China is still owned or controlled by the Chinese government. The Chinese government also exercises significant control or influence over Chinese economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary and fiscal policies, regulating financial services and institutions and providing preferential treatment to particular industries or companies.
While the Chinese economy has experienced significant growth in recent decades, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall Chinese economy but may also have an effect on us. Our results of operations and financial condition could be affected by government control over capital investments or changes in tax regulations that are applicable to us. In addition, the Chinese government has implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity in China.
Transfers of Cash to and from Our Subsidiaries
China Foods Holdings Ltd is a Delaware holding company with no operations of its own. We conduct our operations in Hong Kong through our subsidiary in Hong Kong, while our operations in PRC are conducted through our subsidiary in PRC. We may rely on dividends to be paid by our Hong Kong subsidiary to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. There is a possibility that the PRC could prevent our cash maintained in Hong Kong from leaving or the PRC could restrict the deployment of the cash into our business or for the payment of dividends. Any such controls or restrictions may adversely affect our ability to finance our cash requirements, service debt or declare a dividend or other distributions to our shareholders. If our Hong Kong subsidiary incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. To date, our subsidiaries have not made any transfers, dividends or distributions to China Foods Holdings Ltd. and China Foods Holdings Ltd. has not made any transfers, dividends or distributions to our subsidiaries.
China Foods Holdings Ltd. is permitted under the Delaware laws to provide funding to our subsidiaries in Hong Kong through loans or capital contributions without restrictions on the amount of the funds, subject to satisfaction of applicable government registration, approval and filing requirements. Our Hong Kong subsidiary s also permitted under the laws of Hong Kong to provide funding China Foods Holdings Ltd. through dividend distribution without restrictions on the amount of the funds. As of the date of this report, there has been no dividends or distributions among the holding company or the subsidiaries nor do we expect such dividends or distributions to occur in the foreseeable future among the holding company and its subsidiaries.
We currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements, contractual requirements, business prospects and other factors the board of directors deems relevant, and subject to the restrictions contained in any future financing instruments.
Subject to the Delaware Statutes and our bylaws, our board of directors may authorize and declare a dividend to shareholders at such time and of such an amount as they think fit if they are satisfied, on reasonable grounds, that immediately following the dividend the value of our assets will exceed our liabilities and we will be able to pay our debts as they become due. There is no further Delaware statutory restriction on the amount of funds which may be distributed by us by dividend.
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Under the current practice of the Inland Revenue Department of Hong Kong, no tax is payable in Hong Kong in respect of dividends paid by us. The laws and regulations of the PRC do not currently have any material impact on transfer of cash from China Foods Holdings Ltd. to our Hong Kong subsidiaries or from our Hong Kong subsidiaries to China Foods Holdings Ltd. There are no restrictions or limitation under the laws of Hong Kong imposed on the conversion of HK dollar into foreign currencies and the remittance of currencies out of Hong Kong or across borders and to U.S investors.
Current PRC regulations permit PRC subsidiaries to pay dividends to Hong Kong subsidiaries only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation. As of the date of this prospectus, we do not have any PRC subsidiaries.
The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from our operations, we may be unable to pay dividends on our common stock.
Cash dividends, if any, on our common stock will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10.0%.
In order for us to pay dividends to our shareholders, we will rely on payments made from our Hong Kong subsidiary to China Foods. Certain payments from PRC subsidiaries to Hong Kong subsidiaries will be subject to PRC taxes, including business taxes and VAT. As of the date of this report, our Hong Kong subsidiary has not made any transfers or distributions.
Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC entity. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including, without limitation, that (a) the Hong Kong entity must be the beneficial owner of the relevant dividends; and (b) the Hong Kong entity must directly hold no less than 25% share ownership in the PRC entity during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong entity must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends to be paid by a PRC subsidiary to its immediate holding company. As of the date of this prospectus, we do not have a PRC subsidiary. In the event that we acquire or form a PRC subsidiary in the future and such PRC subsidiary desires to declare and pay dividends to our Hong Kong subsidiary, our Hong Kong subsidiary will be required to apply for the tax resident certificate from the relevant Hong Kong tax authority. In such event, we plan to inform the investors through SEC filings, such as a current report on Form 8-K, prior to such actions.
The Holding Foreign Companies Accountable Act
The Holding Foreign Companies Accountable Act (the “HFCAA”), was enacted on December 18, 2020. The HFCAA requires that the Public Company Accounting Oversight Board (the “PCAOB”) determine whether it is unable to inspect or investigate completely registered public accounting firms located in a non-U.S. jurisdiction because of a position taken by one or more authorities in that jurisdiction. Our auditor through April 9, 2024, HKCM & CPA Co., is based in Hong Kong and is subject to the determinations announced by the PCOAB on December 16, 2021 and the HFCAA. On April 9, 2024, the Company engaged a new auditor, Olayinka Oyebola and Co., a PCAOB approved auditing firm based in Lagos, Nigeria. On December 16, 2021, the PCAOB reported its determination that it was unable to inspect or investigate completely registered public accounting firms headquartered in the PRC and Hong Kong, because of positions taken by PRC authorities in those jurisdictions. On March 30, 2022, based on this determination, the Company was transferred to the SEC’s “Conclusive list of issuers identified under the HFCA.” Since our auditor at the time was located in Hong Kong, a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities, our auditor was not currently inspected by the PCAOB. The HFCAA states that if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for two consecutive years beginning in 2021, the SEC shall prohibit our shares from being traded on a national securities exchange or in the over-the-counter trading market in the United States. The related risks and uncertainties could cause the value of our shares to significantly decline or be worthless.
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On August 26, 2022, the CSRC, the Ministry of Finance of the PRC (the “MOF”), and the PCAOB signed a Statement of Protocol (the “Protocol”), governing inspections and investigations of audit firms based in Mainland China and Hong Kong, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in Mainland China and Hong Kong. Pursuant to the fact sheet with respect to the Protocol disclosed by the SEC, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the SEC. On December 15, 2022, the PCAOB Board determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in Mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB Board will consider the need to issue a new determination. In the event it is later determined that the PCAOB is unable to inspect or investigate completely our auditor, then such lack of inspection could cause trading in our securities to be prohibited under the HFCAA, and ultimately result in a determination by a securities exchange to delist our securities.
In December 2022, the PCAOB vacated its determination that it was unable to inspect and investigate PCAOB-registered public accounting firms in mainland China. Until a new determination is reached by the PCAOB, the SEC has determined that there are no issuers currently at risk of having their securities subject to a trading prohibition under the HFCAA. Although we are committed to complying with the rules and regulations applicable to listed companies in the United States, if the PCAOB were to issue a new determination regarding limitations on its ability to inspect or investigate our independent auditor and we were to fail to meet the audit requirements of the HFCAA for two consecutive years, we may be prohibited from listing our securities on a national securities exchange and be delisted from the OTC Market. Delisting of our securities would force holders of our securities to sell their securities or convert them into our ordinary shares. The market price of our securities could be adversely affected as a result of anticipated negative impacts of these executive or legislative actions upon, as well as negative investor sentiment towards, companies with significant operations in China that are listed in the United States, regardless of whether these executive or legislative actions are implemented and regardless of our actual operating performance. The related risks and uncertainties could cause the value of our shares to significantly decline or be worthless.
ITEM 1C. CYBERSECURITY
Given the size of our company and the nature of our operations, we do not believe that we face significant cybersecurity risk.
We have not adopted any cybersecurity risk management program or formal processes for assessing cybersecurity risk. We utilize standard commercial software for business operations, which includes basic security features such as password protection and data encryption. Our management is generally responsible for assessing and managing any cybersecurity threats.
To date, we have not experienced any material cybersecurity incidents, and there has been no known unauthorized access to our systems. Should any reportable cybersecurity incident arise, our management shall promptly report such matters to our Board of Directors for further actions, including regarding the appropriate disclosure in accordance with SEC regulations, mitigation, and other response or actions that the Board of Directors deems appropriate to take.
ITEM 2. PROPERTIES
The Company’s operating office is located at No. 11, Qingbo Road, Ersha Island, Yuexiu District, Guangzhuou, China, with the area of 250 square meters.
The Company also entered a lease of corporate office located at Room 2301A, China Resources Building, 26 Harbour Road, Wanchai, Hong Kong with a monthly rent of HK$36,603 (approximately US$4,700). The lease will expire on May 16, 2024.
ITEM 3. LEGAL PROCEEDINGS
We may be subject to litigation from time to time as a result of our normal business operations. Presently, there are no material pending legal proceedings to which we are a party or as to which any of our property is subject, and no such proceedings are known to be threatened or contemplated against us.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
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PART II
ITEM 5. MARKET FOR COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock is quoted on the OTC Markets under the symbol “CFOO” (former symbol “TFLG”). Set forth below are the high and low bid prices for the Company’s Common Stock for the respective quarters. Although the Company’s common stock is quoted on the OTC Markets it has traded sporadically with no real volume and there is currently no ask price. Consequently, the information provided below may not be indicative of the Company’s common stock price under different conditions.
All prices listed herein reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions. There is no established public trading market for our securities and a regular trading market may not develop, or if developed, may not be sustained.
The following table sets forth, for the fiscal quarters indicated, the high and low bid information for our common stock, as reported on the OTC Markets “Pink”. The following quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
| Quarter Ended | High Bid | Low Bid | ||||||
| December 2023 | $ | 2.50 | $ | 2.50 | ||||
| September 2023 | $ | 2.50 | $ | 2.50 | ||||
| June 2023 | $ | 2.50 | $ | 2.50 | ||||
| March 2023 | $ | 2.50 | $ | 2.50 | ||||
| December 2022 | $ | 1.27 | $ | 1.27 | ||||
| September 2022 | $ | 1.27 | $ | 1.26 | ||||
| June 2022 | $ | 1.26 | $ | 1.25 | ||||
| March 2022 | $ | 1.25 | $ | 1.25 | ||||
Holders
At March 29, 2024, the Company had approximately 231 shareholders of record of our common stock. Such number does not include any shareholders holding shares in nominee or “street name”.
Dividends
Holders of our common stock are entitled to receive such dividends as may be declared by our board of directors. We paid no dividends during the periods reported herein, nor do we anticipate paying any dividends in the foreseeable future.
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Recent Sales of Unregistered Securities
The Company had no sales of securities in 2023 and 2022.
Securities authorized for issuance under equity compensation plans
The Company does not have securities authorized for issuance under any equity compensation plans.
Performance graph
Not applicable to smaller reporting companies.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The Company did not repurchase any shares of the Company’s common stock during 2023.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable to a smaller reporting company.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Note Regarding Forward-Looking Statements
This Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may”, “will”, “expect”, “believe”, “anticipate”, “estimate” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include by are not limited to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological advances and failure to successfully develop business relationships.
Plan of Operation
We are a health company that develops, markets, promotes and distributes a variety of customized health care products and services, including supplements, healthy snacks, meal replacements, and nutritional consultation services to consumers in China. We work with certain licensed healthcare food factories to develop and manufacture products and services that are distributed conventionally through sales agents and also through a network of e-commerce and social media platforms.
In addition to products, we are committed to providing customized science based wellness consultation and service programs to customers. Our diverse products and services target health conscious customers and differentiate based upon age and gender and seek to manage different conditions. We reach out to customers fitting certain health and lifestyle profiles through our offline and online consultation services, and track eating habits and health indicators to provide customized products such as supplements. We believe this will facilitate the ability of customers to monitor, understand and adjust their health practices and lifestyle anytime and anywhere for increased customer engagement and retention.
We conduct our business through our wholly owned subsidiary Guangzhou Xiao Xiang Health Industry Company Limited, a limited liability company organized under the laws of China on March 8, 2017. Alpha Wellness (HK) Limited, a limited liability company organized under the laws of Hong Kong on April 24, 2019, and Elite Creation Group, a limited liability company formed under the laws of the British Virgin Islands formed on September 5, 2018, are holding companies without operations.
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Our Products and Services
Our health products are designed to help enhance immunity and improve general wellbeing. We provide the following categories of healthcare products and customized healthcare consultation services in China: (i) Nutrition Catering (ii) Special Health Food (iii) Health Supplement and (iv) Skincare. The products target all age groups with different needs.
| Product category | Representative Products | Description | ||
| Nutrition Catering Series | Jasmine Beauty | Meal replacement and healthy snacks | ||
| Special Health Food Series | Power Centinent | Products that support a healthy active lifestyle and enhance Immunity | ||
| Health Supplement Series | Fuli Fruit Juice | Functional fruit beverages and dietary and nutritional supplements containing resveratrol, anthocyanin, superoxide enzyme | ||
| Skincare Series | Tightness | Facial skin care and recovery | ||
| Wine | Ame de Purete | Bordeaux wine from France |
Our products are taken as healthcare supplements in accordance with the principles of traditional Chinese medicine including the principle complementary medicine and ideal ratios and combinations of ingredients.
Our wine business is customized production and procurement through establishing cooperative relationships with wine suppliers. Among them, high-quality wine is directly packaged and labeled in the country of origin and then imported through supply chain agents. At present, the main product of Alpha Wellness’s high-end wine business is a Puerto Rican red wine from France. The deep, strong and full-bodied Puerto Rico is a wine with rich tannins and fruit. We source this wine through a distribution agreement with Shenzhen Guisheng Supply Chain Co., Ltd.
Markets and Regions
The Great Health Industry refers to production, operation, service and information dissemination, maintenance, restoration, and promotions linked to health. It covers medical products, health supplements, nutritional foods, medical devices, health appliances, fitness, health management, health consulting and many other production and service areas closely related to human health. The Great Health Industry is an emerging industry with huge market potential, especially in China. The marketing and competitive strategy of our alcohol business is consistent with our health care product business. The market and customers of our liquor business are mainly mainland China and Hong Kong.
According to the “China Great Health Industry Strategic Planning and Enterprise Strategy Consulting Report” published by Qianzhan Industry Institute (前瞻產業研究院), the scale of the Great Health Industry in 2017 was USD 947.42 billion, which increased to over USD 1,069.66 billion in 2018. The report predicted USD 1,341.66 billion volume for 2019 and forecast over USD 1,528.09 billion for 2020. In the years till 2023, the average annual compound growth rate will be approximately 12.55%, and with the Great Health Industry reaching approximately USD 2,153.08 billion in 2023.
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Our Strategies
We are focused on achieving long-term growth in revenues, cash flow and profit. We believe that we can achieve this by developing multiple distribution channels and strengthening our marketing and promotions, leading to better product turnover and revenue. We also expect to broaden our product range as well as product differentiation in the future. Based on the business experience accumulated over the years, we believe we can improve the efficiency of our supply chain with time-saving and cost-saving supply chain management and marketing planning for the target customer base with our one-stop service.
Our primary aims are (i) to strengthen our product saleability; (ii) to cut logistics cost and time spent and (iii) to further expand the market share in China. Toward this end, we plan to pursue the following business strategies:
| ● | Collaborate with third-party e-commerce platforms to boost product exposure, e.g. Tmall, Jingdong mall | |
| ● | Deliver healthcare knowledge and consultation service via social media and We-media | |
| ● | Build brand image and reputation through customer experience and word of mouth | |
| ● | Increase the number of downstream distributors and wholesalers | |
| ● | Strengthen the relationship with manufacturers, suppliers, drug agents and distributors | |
| ● | Pursue strategic acquisitions and partnerships |
We intend to develop both online and offline distribution channels to increase sales volume and revenue. We expect to partner with third party e-commerce platforms, social media and We-media such as Wechat, TikTok and Xiaohongshu to build our online presence. We believe that online channels will allow us to provide real-time nutrition and healthcare consultation services as well as increase customer engagement and retention. Starting from the second half of 2020, we have launched our “nutrition consulting” support services using a major social media software to allow customer groups to receive pre-purchase consultation and after-sales service for products anytime and anywhere.
Our current offline sales channel relies on distributors and sales agents. To enhance the visibility and marketability of our products and services and to improve brand recognition and awareness, we hope to develop store-in-shop and counter experiences. We also intend to partner with high-end gyms to form nutrition clubs and hold weight-loss training camps, health assessment and fitness training camps and other activities.
We intend to create a ‘one-stop’ solution for our customers by creating a multi-channel health product supply and retail system. We not only provide personalized consultation service to our customers, but also summarize and analyze our customer feedback and experiences through our consultation service and after-sales service. We intend to share this data with our manufacturers and supply chain partners to develop products and services that better meet the demands of our customers. By pooling and addressing the needs of downstream businesses and combining it with the Consumer to Manufacturer model for upstream transformation, we anticipate establishing a close relationship between manufacturers and suppliers. We believe this model can also reduce circulation costs and improve the efficiency of our supply chain.
The main sales model of wine business is to develop online and offline distribution channels to increase sales and revenue. In terms of online sales, we hope to cooperate with third-party e-commerce platforms, social media, WeChat, Tiktok, Xiaohongshu and other We Media to build our online image. For example, we have built the official flagship store of Xiao Xiang Health on the Tmall e-commerce platform. The offline sales channel mainly cooperates with dealers for sales, mainly relying on distributors and sales agents.
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Competition
We operate in a highly competitive and fragmented industry that is sensitive to price and service. We compete with leading e-commerce companies such as Alibaba (China) which may offer substantially the same or similar product offerings as us. We also compete with businesses that focus on particular merchant categories or markets such as UNI HEALTH (HK stock code: 02211) and ALI HEALTH (HK stock code:0241). We also compete with traditional cash payments and other popular online shopping websites and apps, and other traditional media companies that provide discounts on products and services. We believe the principal competitive factors in our market include the following:
| ● | Breadth of member base and the products and services featured. | |
| ● | Close and fast pre-sales and after-sales service response. | |
| ● | Ability to reduce the product turnover time and inventory cost. | |
| ● | Relationship and bargaining power with supplier and manufacturer. | |
| ● | Healthcare product effectiveness and acceptance from customer. | |
| ● | Local presence and understanding of local business trends. | |
| ● | Ability to deliver a high volume of relevant services and information to consumers. | |
| ● | Ability to produce high purchase rates for products and services among members. | |
| ● | Strength and recognition of our brand. |
Although we believe we compete favorably on the factors described above, many of our current and potential competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, larger product and services offerings, larger customer base and greater brand recognition. These factors may allow our competitors to benefit from their existing customer base with lower development costs or to respond more quickly than we can to new or emerging technologies and changes in customer requirements. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies, which may allow them to build a larger customer base more effectively than us. Our competitors may develop products or services that are similar to our products and services or that achieve greater market acceptance than our products and services. In addition, although we do not believe that customer payment terms are a principal competitive factor in our market, they may become such a factor, and we may be unable to compete on such terms.
Government and Industry Regulations
We are subject to the general laws in China governing businesses including labor, occupational safety and health, general corporations, intellectual property and other similar laws.
Product Liability and Consumers Protection
Product liability claims may arise if any of our healthcare products have a harmful effect on a consumer, who may make a claim for damages or compensation as an injured party. The General Principles of the Civil Law of the PRC, which became effective in January 1987, state that manufacturers and sellers of defective products causing property damage or injury shall incur civil liabilities for such damage or injuries.
The Product Quality Law of the PRC was enacted in 1993 and amended in 2000 to strengthen the quality control of products and protect consumers’ rights and interests. Under this law, manufacturers and distributors who produce or sell defective products may be subject to confiscation of earnings from such sales, revocation of business licenses and imposition of fines, and in severe circumstances, may be subject to criminal liability.
The Law of the PRC on the Protection of the Rights and Interests of Consumers was promulgated on October 31, 1993 and became effective on January 1, 1994 to protect consumers when they purchase or use goods or services. All business operators must comply with this law when they manufacture or sell goods and/or provide services to customers. In extreme situations, product manufacturers and distributors may be subject to criminal liability if their goods or services lead to the death or injuries of customers or other third parties.
Summary of Financial Information
We have been significantly impacted by COVID-19 global pandemic. In addition to the devastating effects on human life, the pandemic is having a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial markets. China and many other countries have issued policies intended to stop or slow the further spread of the disease.
COVID-19 and China’s response to the pandemic are significantly affecting the economy. There are no comparable events that provide guidance as to the effect the COVID-19 pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business or our operations.
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The following table sets forth certain operational data for the years ended December 31, 2023 and 2022:
STATEMENT OF OPERATIONS DATA:
| For the Year Ended December 31, 2023 | For the Year Ended December 31, 2022 | |||||||
| Revenues | $ | 158,475 | $ | 354,096 | ||||
| Cost of revenue | (94,331 | ) | (243,034 | ) | ||||
| Gross profit | 64,144 | 111,062 | ||||||
| Total operating expenses | (468,781 | ) | (503,795 | ) | ||||
| Total other income | 937 | 39,483 | ||||||
| Loss before income taxes | (403,700 | ) | (353,250 | ) | ||||
| Income tax expense | - | (828 | ) | |||||
| Net loss | (403,700 | ) | (354,078 | ) | ||||
Revenue. We generated revenues of $158,475 and $354,096 for the fiscal years ended December 31, 2023 and 2022. All of our major customers are located in the PRC and Hong Kong. Our revenue continued to decrease, due to the after-impact of COVID-19 and sluggish demand in the wine market .
During the years ended December 31, 2023, and 2022, the nature of businesses and segment was shown as below:
Currently, the Company has two reportable business segments:
| (i) | Healthcare Segment, mainly provides health consulting advisory services and healthcare and wellness products to the customers; and |
| (ii) | Wine Segment, mainly provides wine products to the customers. |
In the following table, revenue is disaggregated by primary major product line, including a reconciliation of the disaggregated revenue with the reportable segments.
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| Year Ended December 31, 2023 | ||||||||||||
| Healthcare Segment | Wine Segment | Total | ||||||||||
| Revenue from external customers: | ||||||||||||
| Consulting service income | $ | 15,968 | $ | - | $ | 15,968 | ||||||
| Sale of healthcare products | 3,344 | - | 3,344 | |||||||||
| Sale of wine products | - | 139,163 | 139,163 | |||||||||
| Total revenue | 19,312 | 139,163 | 158,475 | |||||||||
| Cost of sales: | ||||||||||||
| Consulting service income | - | - | - | |||||||||
| Sale of healthcare products | (1,419 | ) | - | (1,419 | ) | |||||||
| Sale of wine products | - | (92,912 | ) | (92,912 | ) | |||||||
| Total cost of revenue | (1,419 | ) | (92,912 | ) | (94,331 | ) | ||||||
| Gross profit | 17,893 | 46,251 | 64,144 | |||||||||
| Operating expenses: | ||||||||||||
| Selling and distribution | - | (3,547 | ) | (3,547 | ) | |||||||
| General and administrative | (93,047 | ) | (372,187 | ) | (465,234 | ) | ||||||
| Total operating expenses | (93,047 | ) | (372,187 | ) | (468,781 | ) | ||||||
| Segment loss | $ | (75,154 | ) | $ | (329,483 | ) | $ | (404,637 | ) | |||
| Year Ended December 31, 2022 | ||||||||||||
| Healthcare Segment | Wine Segment | Total | ||||||||||
| Revenue from external customers: | ||||||||||||
| Consulting service income | $ | 141,053 | $ | - | $ | 141,053 | ||||||
| Sale of healthcare products | 39,599 | - | 39,599 | |||||||||
| Sale of wine products | - | 173,444 | 173,444 | |||||||||
| Total revenue | 180,652 | 173,444 | 354,096 | |||||||||
| Cost of sales: | ||||||||||||
| Consulting service income | (59,747 | ) | - | (59,747 | ) | |||||||
| Sale of healthcare products | (14,888 | ) | - | (14,888 | ) | |||||||
| Sale of wine products | - | (168,399 | ) | (168,399 | ) | |||||||
| Total cost of revenue | (74,635 | ) | (168,399 | ) | (243,034 | ) | ||||||
| Gross profit | 106,017 | 5,045 | 111,062 | |||||||||
| Operating expenses: | ||||||||||||
| Selling and distribution | - | (2,988 | ) | (2,988 | ) | |||||||
| General and administrative | (416,939 | ) | (88,579 | ) | (505,518 | ) | ||||||
| Total operating expenses | (416,939 | ) | (91,567 | ) | (508,506 | ) | ||||||
| Segment loss | $ | (310,922 | ) | $ | (86,522 | ) | $ | (397,444 | ) | |||
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The below revenues are based on the countries in which the customer is located. Summarized financial information concerning the geographic segments is shown in the following tables:
| Years ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Hong Kong | $ | 15,968 | $ | 140,477 | ||||
| China | 142,507 | 213,619 | ||||||
| $ | 158,475 | $ | 354,096 | |||||
During the years ended December 31, 2023, and 2022, the following customers accounted for 10% or more of our total net revenues:
| Year ended December 31, 2023 | December 31, 2023 | |||||||||||||||
| Revenues | Percentage of revenues | Accounts receivable | ||||||||||||||
| Qianhai International Liaison Services and Investment Co., Ltd | $ | 83,433 | 53 | % | $ | 38,831 | ||||||||||
| Huaye Xiaoxiang Health Industry Co., Ltd. | 42,827 | 27 | % | - | ||||||||||||
| Tang Fung Limited | 15,968 | 10 | % | - | ||||||||||||
| TOTAL | $ | 142,228 | 90 | % | Total | $ | 38,831 | |||||||||
| Year ended December 31, 2022 | December 31, 2022 | |||||||||||||||
| Revenues | Percentage of revenues | Accounts receivable | ||||||||||||||
| Guangzhou Dexin Huamao Trading Co., Ltd. | $ | 164,566 | 46 | % | $ | - | ||||||||||
| Tang Fung Limited | 140,477 | 40 | % | 5,120 | ||||||||||||
| TOTAL | $ | 305,043 | 86 | % | Total | $ | 5,120 | |||||||||
Cost of Revenue. Cost of revenue as a percentage of net revenue was approximately 59.52% for the fiscal year ended December 31, 2023. Cost of revenue as a percentage of net revenue was approximately 68.64% for the fiscal year ended December 31, 2022. The decrease in cost of revenue as a percentage of net revenue is attributable to a decrease in sales of healthcare product. During the years ended December 31, 2023 and 2022, the following vendors accounted for 10% or more of our purchases:
| Year ended December 31, 2023 | December 31, 2023 | |||||||||||||||
| Vendor | Purchases | Percentage of purchases | Accounts payable | |||||||||||||
| Heilongjiang Hengyuan Food Co., Ltd.: | $ | 7,961 | 100 | % | Total: | $ | - | |||||||||
| Year ended December 31, 2022 | December 31, 2022 | |||||||||||||||
| Vendor | Purchases | Percentage of purchases | Accounts payable | |||||||||||||
| Heilongjiang Hengyuan Food Co., Ltd.: | $ | 17,943 | 100 | % | Total: | $ | 8,013 | |||||||||
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Gross Profit. We achieved a gross profit of $64,144 and $111,062 for the fiscal years ended December 31, 2023, and 2022, respectively. The decrease in gross profit is primarily attributable to the decrease in sales of healthcare products.
General and Administrative Expenses (“G&A”). We incurred G&A expenses of $465,234 and $503,795 for the fiscal years ended December 31, 2023, and 2022, respectively.
Other Income. We incurred other income of $937 for the fiscal year ended December 31, 2023, as compared to other income of $39,483 for the fiscal year ended December 31, 2022. Our other income for the year ended December 31, 2023 solely consisted of the bank interest income.
Income Tax Expense. We recorded income tax expenses of $0 and $828 for the fiscal years ended December 31, 2023 and 2022.
Net Loss. During the year ended December 31, 2023, we incurred a net loss of $403,700, as compared to a net loss of $354,078 for the year ended December 31, 2022. The increase in net loss is due to a decrease in the net income.
Liquidity And Capital Resources
As of December 31, 2023, we had cash and cash equivalents of $174,877, inventories of $48,282, operating right of use assets of $20,796, accounts receivable of $38,831 and prepayments, deposits and other receivables of $66,817.
As of December 31, 2022, we had cash and cash equivalents of $381,709, inventories of $138,582, operating right of use assets of $20,341, accounts receivable of $5,120 and prepayments, deposits and other receivables of $74,813.
We believe that our current cash and other sources of liquidity discussed below are adequate to support general operations for at least the next 12 months.
| Years Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (297,169 | ) | $ | (171,598 | ) | ||
| Net cash (used in) provided by investing activities | (746 | ) | 22,930 | |||||
| Net cash provided by (used in) financing activities | 94,523 | (52,688 | ) | |||||
Net Cash Used In Operating Activities.
For the year ended December 31, 2023, net cash used in operating activities was $297,169 which consisted primarily of a net loss of $403,700, depreciation of plant and equipment of $42,390, amortization of intangible asset of $433, non-cash lease expense of $50,991, increase in accounts receivable of $33,711, decrease in prepayment, deposits and other receivables of $7,996, decrease in inventories of $90,300, increase in lease liabilities of $14,170, increase in tax payable of $4,297, decrease in accounts payable of $8,013, decrease in accrued liabilities and other payables of $29,265 and decrease in customer deposit of $4,717.
For the year ended December 31, 2022, net cash used in operating activities was $171,598 which consisted primarily of a net loss of $354,078, the increase in depreciation of plant and equipment of $65,165, increase in the amortization of intangible asset of $500, decrease in gain from sale of plant and equipment of $16,277, decrease in gain from termination of lease of $8,038, increase in non-cash lease expense of $55,916, increase in accrued liabilities and other payables of $71,460, decrease in customer deposit of $267,181, decrease in prepayment and other receivables of $64,441, decrease in inventories of $188,969, increase in accounts payable of $8,013, increase in accounts receivable of $5,120 and increase in tax payable of $24,632.
We expect to continue to rely on cash generated through financing from our existing shareholders and private placements of our securities, however, to finance our operations and future acquisitions.
Net Cash Provided By (Used In) Investing Activities.
For the year ended December 31, 2023, net cash provided by investing activities was $746 which solely consisted primarily of purchase of plant and equipment.
For the year ended December 31, 2022, net cash provided by investing activities was $22,930, consisted primarily of proceeds from sale of motor vehicle.
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Net Cash (Used In) Provided By Financing Activities.
For the year ended December 31, 2023, net cash used in financing activities was $94,523, consisting primarily of advance from a related parties of $131,901 and repayment of lease liabilities of $37,378.
For the year ended December 31, 2022, net cash used in financing activities was $52,688, consisting primarily of advance from a related company of $1,333 and repayment of lease liabilities of $54,021.
Material Commitments
As of the date of this Annual Report, we do not have any material commitments.
Material Cash Requirements
We have not achieved profitability since our inception and we expect to continue to incur net losses for the foreseeable future. We expect net cash expended in 2024 to be higher than 2023. As of December 31, 2023, we had an accumulated deficit of $1,675,973. Our material cash requirements are highly dependent upon the additional financial support from our major shareholders in the next 12 - 18 months.
We had the following contractual obligations and commercial commitments as of December 31, 2023:
| Less | More | |||||||||||||||||||
| than | than 5 | |||||||||||||||||||
| Contractual Obligations | Total | 1 year | 1-3 Years | 3-5 Years | Years | |||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| Operating lease obligations | 21,038 | 21,038 | - | - | - | |||||||||||||||
| Total obligations | 21,038 | 21,038 | - | - | - | |||||||||||||||
Off-Balance Sheet Arrangements.
As of December 31, 2023, the Company does not have any off-balance sheet arrangements and it is not anticipated that the Company will enter into any off-balance sheet arrangements.
Summary of Critical Accounting Policies
The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB). All adjustments considered necessary for a fair presentation have been included. These adjustments consist of normal and recurring accruals, as well as non-recurring charges.
The consolidated financial statements are presented in US Dollars and include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. The results of subsidiaries acquired or disposed of during the periods are included in the consolidated statements of operations from the effective date of acquisition or up to the effective date of disposal.
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Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Significant areas for which management uses estimates include:
| ● | revenue recognition, |
| ● | sales returns and allowances; |
| ● | inventory; |
| ● | estimated lives for tangible and intangible assets; |
| ● | income tax valuation allowances; and |
These estimates require the use of judgment as future events and the effect of these events cannot be predicted with certainty. The estimates will change as new events occur, as more experience is acquired and as more information is obtained. We evaluate and update our assumptions and estimates on an ongoing basis and we may consult outside experts to assist as considered necessary.
Accounts receivable
Accounts receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from completion of service. Credit is extended based on evaluation of a customer’s financial condition, the customer credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. At the end of fiscal year, the Company specifically evaluates individual customer’s financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables. The Company will consider the allowance for expected credit losses resulting from the inability of its customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.
Allowance for Expected Credit Losses
In accordance with ASC Topic 326, “Credit Losses – Measurement of Credit Losses on Financial Instruments” (ASC 326), the Company utilizes the current expected credit losses (“CECL”) model to determine an allowance that reflects its best estimate of the expected credit losses on accounts receivable, prepayments, deposits and other receivables which is recorded as a liability to offset the receivables. The CECL model is prepared after considering historical experience, current conditions, and reasonable and supportable economic forecasts to estimate expected credit losses. Accounts receivable, prepayments, deposits and other receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded as a reduction of bad debt expense.
As of December 31, 2023 and 2022, there was no allowance for expected credit losses.
Inventories
Inventories are stated at the lower of cost or market value (net realizable value), cost being determined on a first-in-first-out method. The Company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand.
Plant and equipment
Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:
| Expected useful lives | Residual value | |||||
| Furniture, fixture and equipment | 3 years | 5 | % | |||
| Motor vehicle | 3.33 to 4 years | 5 | % | |||
| Leasehold improvement | 2 years | 5 | % | |||
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Expenditures for repairs and maintenance are expensed as incurred. When assets have been retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.
Intangible assets
Intangible assets represented trademarks of their products and are stated at cost less accumulated amortization and any recognized impairment loss. Amortization is provided over the term of their registrations on a straight-line basis, which is 10 years and will expire in 2028.
Impairment of long-lived assets
In accordance with the provisions of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as plant and equipment, as well as intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. There has been no impairment charge for the periods presented.
Revenue recognition
The Company adopted Accounting Standards Codification (“ASC”) 606 – Revenue from Contracts with Customers” (“ASC 606”). Under ASC 606, a performance obligation is a promise within a contract to transfer a distinct good or service, or a series of distinct goods and services, to a customer. Revenue is recognized when performance obligations are satisfied and the customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for goods or services. Under the standard, a contract’s transaction price is allocated to each distinct performance obligation. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps:
| ● | identify the contract with a customer; | |
| ● | identify the performance obligations in the contract; | |
| ● | determine the transaction price; | |
| ● | allocate the transaction price to performance obligations in the contract; and | |
| ● | recognize revenue as the performance obligation is satisfied. |
Currently, the Company operates two business segments.
Healthcare Business mainly provides health consulting advisory services and healthcare and wellness products to the customers.
Revenue is earned from the rendering of health consulting advisory services to the customers. The Company recognizes services revenue over the period in which such services are performed. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.
The sale and distribution of the healthcare products, such as (i) Nutrition Catering (ii) Special Health Food (iii) Health Supplement and (iv) Skincare, is the only performance obligation under the fixed-fee arrangements. Revenue is recognized from the sale of their healthcare products upon delivery to the customers, whereas the title and risk of loss are fully transferred to the customers. The Company records its revenues, net of value added taxes (“VAT”) on the majority of the products at the rate of 17% on the invoiced value of sales. The cost, such as shipping cost and material cost, is recognized when the product delivered to the customers. The Company records its cost including taxes.
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Wine Business mainly provides the wine products to the customers. Revenue is recognized from the sale of wine products upon delivery to the customers, whereas the title and risk of loss are fully transferred to the customers. The Company records its revenues, net of value added taxes (“VAT”) on the majority of the products at the rate of 17% on the invoiced value of sales. The cost, such as shipping cost and material cost, is recognized when the product delivered to the customers. The Company records its cost including taxes.
Income taxes
The Company adopted the ASC 740 Income tax provisions of paragraph 740-10-25-13, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Paragraph 740-10-25-13 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of paragraph 740-10-25-13.
The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary.
Leases
The Company adopts the FASB Accounting Standards Update (“ASU”) 2016-02 “Leases (Topic 842).” for all periods presented. This standard requires lessees to recognize lease assets (“right of use”) and related lease obligations (“lease liabilities”) on the balance sheet for leases with terms in excess of 12 months.
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance sheets. Finance leases are included in finance lease ROU assets and finance lease liabilities in the consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease and finance lease ROU assets and liabilities are recognized at January 1, 2019 based on the present value of lease payments over the lease term discounted using the rate implicit in the lease. In cases where the implicit rate is not readily determinable, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
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Commitments and contingencies
The Company follows the ASC 450-20, Commitments to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Fair value of financial instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by paragraph 820-10-35-37 of the FASB Accounting Standards Codification are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | |
| Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data. |
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Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
Accounting Standards Recently Adopted
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related earnings per share guidance. This standard became effective for the Company beginning on January 1, 2022. Adoption is either a modified retrospective method or a fully retrospective method of transition. The Company adopted this guidance effective January 1, 2022, and the adoption of this standard did not have a material impact on its consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This ASU clarifies the accounting for modifications or exchanges of freestanding equity-classified written call options (i.e. warrants) so that the transaction should be treated as an exchange of the original instrument for a new instrument. This standard is effective for fiscal years beginning after December 15, 2021 on a prospective basis, with early adoption permitted. The Company adopted this guidance effective January 1, 2022 , and the adoption of this standard did not have a material impact on its consolidated financial statements.
In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. This ASU defers the sunset date of Topic 848, which provides relief to entities affected by reference rate reform. The ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2025. The standard is effective immediately and the Company adopted the standard in December 2022 with no financial impact. The Company is currently assessing the impact ASU 2020-04, for which this ASU 2022-06 relates, will have on its consolidated financial statements.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
China Foods Holdings Ltd
Index to
Consolidated Financial Statements
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the board of directors of
China Foods Holdings Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of China Foods Holdings Limited (the “Company”) as of December 31, 2023 and the related consolidated statements of operations and comprehensive (loss) income, shareholders’ equity, and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial report. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinions.
Critical Audit Matters
Critical audit matters are matters arising from the current year audit of the financial statements that were communicated or are required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements, and (2) involved especially challenging, subjective, or complex judgements. We determined that there are no critical audit matters.
OLAYINKA OYEBOLA & CO.
(Chartered Accountants)
We have served as the Company’s auditor since 2024.
April 15th, 2024.
Lagos, Nigeria
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To the stockholders and the board of directors of
China Foods Holdings Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of China Foods Holdings Limited (the “Company”) as of December 31, 2022 and the related consolidated statements of operations and comprehensive (loss) income, shareholders’ equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinions.
Critical Audit Matters
Critical audit matters are matters arising from the current year audit of the financial statements that were communicated or are required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements, and (2) involved especially challenging, subjective, or complex judgements. We determined that there are no critical audit matters.
/s/
(Formerly HKCM CPA& Co.)
Certified Public Accountants
Firm ID : 3299
We have served as the Company’s auditor since 2020.
March 31, 2022
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China Foods Holdings Ltd.
Consolidated Balance Sheets
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| December 31, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | ||||||||
| Accounts receivable, net | ||||||||
| Prepayments, deposits and other receivables | ||||||||
| Right-of-use assets, net | ||||||||
| Inventories, net | ||||||||
| Total Current Assets | ||||||||
| Non-Current Assets | ||||||||
| Plant and equipment, net | ||||||||
| Right-of-use assets, net | ||||||||
| Intangible assets, net | ||||||||
| Total Non-Current Assets | ||||||||
| TOTAL ASSETS | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | ||||||||
| Accrued liabilities and other payables | ||||||||
| Customer deposits | ||||||||
| Lease liabilities | ||||||||
| Amount due to a director | ||||||||
| Amount due to a related company | ||||||||
| Amount due to a related party | ||||||||
| Income tax payable | ||||||||
| Total Current-Liabilities | ||||||||
| Commitment and contingents | ||||||||
| Shareholders’ (Deficit) Equity | ||||||||
| Common stock $ par value, shares authorized, and shares issued and outstanding as of December 31, 2023 and 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Shareholders’ (Deficit) Equity | ( | ) | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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China Foods Holdings Ltd.
Consolidated Statements of Operations and Comprehensive Loss
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| 2023 | 2022 | |||||||
| Years ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue, net | $ | $ | ||||||
| Cost of revenue | ( | ) | ( | ) | ||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Selling and distribution expenses | ||||||||
| General and administrative expenses | ||||||||
| Total operating expenses | ||||||||
| Loss from operation | ( | ) | ( | ) | ||||
| Other income: | ||||||||
| Interest income | ||||||||
| Sundry income | ||||||||
| Total other income | ||||||||
| Loss before income tax | ( | ) | ( | ) | ||||
| Income tax expenses | ( | ) | ||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive loss | ||||||||
| Foreign currency adjustment loss | ( | ) | ( | ) | ||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share | ||||||||
| Basic and diluted | $ | ) | $ | ) | ||||
| Weighted average number of common share | ||||||||
| Basic and diluted | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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CHINA FOODS HOLDINGS LTD.
Consolidated Statements of Changes in Shareholders’ Equity
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| Share | Amount | capital | deficit | (loss) income | equity | |||||||||||||||||||
| Common Stock | Additional paid-in | Accumulated | Accumulated other comprehensive | Total shareholders’ | ||||||||||||||||||||
| Share | Amount | capital | deficit | (loss) income | equity | |||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss for the year | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at December 31, 2022 | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||
| Balance | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss for the year | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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China Foods Holdings Ltd
Consolidated Statements of Cash Flows
(Currency expressed in United States Dollars (“US$”))
| 2022 | 2022 | |||||||
| Years ended December 31, | ||||||||
| 2022 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation of plant and equipment | ||||||||
| Amortization | ||||||||
| Gain from sale of plant and equipment | ( | ) | ||||||
| Gain from termination of lease | ( | ) | ||||||
| Non-cash lease expense | ||||||||
| Adjustments to reconcile net loss to net cash used in operating activities, Total | ( | ) | ( | ) | ||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepayments, deposits and other receivables | ||||||||
| Inventories | ||||||||
| Lease liabilities | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities and other payables | ( | ) | ||||||
| Customer deposits | ( | ) | ( | ) | ||||
| Tax payable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of plant and equipment | ( | ) | ||||||
| Proceeds from sale of plant and equipment | ||||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Payment of lease liabilities | ( | ) | ( | ) | ||||
| Advance from related parties | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Net change in cash and cash equivalents | ( | ) | ( | ) | ||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | ||||||||
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
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China Foods Holdings Ltd
Notes to Consolidated Financial Statements
(Currency expressed in United States Dollars (“US$”), except for number of shares)
NOTE 1: ORGANIZATION AND BUSINESS BACKGROUND
China Foods Holdings Ltd. (the “Company” or “CFOO”) was incorporated in Delaware on January 10, 2019.
The Company is a health and wellness company that develops, markets, promotes and distributes a variety of customized health and wellness care products and services, including supplements, healthy snacks, meal replacements, skincare products, and nutritional consultation services to consumers in China. The Company works with certain licensed healthcare food factories to develop and manufacture products and services that are distributed conventionally through sales agents and also through a network of e-commerce and social media platforms.
Due to the impact of the COVID-19 pandemic in the healthcare industry, the Company also offered a new line of high-end wine products in our online and offline sales platform, to diversify the market demand and customer needs.
The following table depicts the description of the Company’s subsidiaries:
SCHEDULE OF SUBSIDIARIES INFORMATION
| Name | Place of incorporation and kind of legal entity | Principal activities | Particulars of registered/ paid up share capital | Effective interest held | ||||||
| Elite Creation Group Limited (“ECGL”) | issued shares of US$1each | % | ||||||||
| Alpha Wellness (HK) Limited (“AWL”) | issued shares of HK$ | % | ||||||||
| Guangzhou Xiao Xiang Health Industry Company Limited (“GXXHIC”) | RMB | % | ||||||||
The Company and its subsidiaries are hereinafter referred to as (the “Company”).
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NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). All adjustments considered necessary for a fair presentation have been included. These adjustments consist of normal and recurring accruals, as well as non-recurring charges.
The consolidated financial statements are presented in US Dollars and include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. The results of subsidiaries acquired or disposed of during the periods are included in the consolidated statements of operations from the effective date of acquisition or up to the effective date of disposal.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Significant areas for which management uses estimates include:
| ● | revenue recognition at point in time and over time; |
| ● | sales returns at point in time and allowances; |
| ● | inventory; |
| ● | estimated lives for tangible and intangible assets; and |
| ● | income tax valuation allowances |
These estimates require the use of judgment as future events and the effect of these events cannot be predicted with certainty. The estimates will change as new events occur, as more experience is acquired and as more information is obtained. We evaluate and update our assumptions and estimates on an ongoing basis and we may consult outside experts to assist as considered necessary.
Segment Reporting
Accounting Standards Codification (“ASC”) Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in consolidated financial statements. Currently, the Company operates in two reportable operating segments in Hong Kong and China.
Cash and Cash Equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
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Accounts Receivable
Accounts receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from completion of service. Credit is extended based on evaluation of a customer’s financial condition, the customer credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. At the end of fiscal year, the Company specifically evaluates individual customer’s financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables. The Company will consider the allowance for expected credit losses resulting from the inability of its customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.
Allowance for Expected Credit Losses
In accordance with ASC Topic 326, “Credit Losses – Measurement of Credit Losses on Financial Instruments” (ASC 326), the Company utilizes the current expected credit losses (“CECL”) model to determine an allowance that reflects its best estimate of the expected credit losses on accounts receivable, prepayments, deposits and other receivables which is recorded as a liability to offset the receivables. The CECL model is prepared after considering historical experience, current conditions, and reasonable and supportable economic forecasts to estimate expected credit losses. Accounts receivable, prepayments, deposits and other receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded as a reduction of bad debt expense.
As
of December 31, 2023 and 2022, there was
Inventories
Inventories are stated at the lower of cost or market value (net realizable value), cost being determined on a first-in-first-out method. The Company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand. As of December 31, 2023 and 2022, the Company did not record an allowance for obsolete inventories, nor have there been any write-offs.
Plant and Equipment
Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:
SCHEDULE OF ESTIMATED USEFUL LIVES
| Expected useful lives | Residual value | |||||
| Furniture, fixture and equipment | | % | ||||
| Motor vehicle | % | |||||
| Leasehold improvement | % | |||||
Expenditures for repairs and maintenance are expensed as incurred. When assets have been retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.
Intangible Assets
Intangible
assets represented trademarks of their products and are stated at cost less accumulated amortization and any recognized impairment loss.
Amortization is provided over the term of their registrations on a straight-line basis, which is
Amortization
expense for the years ended December 31, 2023 and 2022 was $
Impairment of Long-Lived Assets
In accordance with the provisions of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as plant and equipment, as well as intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. There has been no impairment charge for the years presented.
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Revenue Recognition
The Company adopted Accounting Standards Codification (“ASC”) 606 – Revenue from Contracts with Customers” (“ASC 606”). Under ASC 606, a performance obligation is a promise within a contract to transfer a distinct good or service, or a series of distinct goods and services, to a customer. Revenue is recognized when performance obligations are satisfied and the customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for goods or services. Under the standard, a contract’s transaction price is allocated to each distinct performance obligation. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps:
| ● | identify the contract with a customer; | |
| ● | identify the performance obligations in the contract; | |
| ● | determine the transaction price; | |
| ● | allocate the transaction price to performance obligations in the contract; and | |
| ● | recognize revenue as the performance obligation is satisfied. |
Currently, the Company operates two business segments.
Healthcare Business mainly provides health consulting advisory services and healthcare and wellness products to the customers.
Revenue is earned from the rendering of health consulting advisory services to the customers. The Company recognizes services revenue over the period in which such services are performed. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.
The
sale and distribution of the healthcare products, such as (i) Nutrition Catering (ii) Special Health Food (iii) Health Supplement and
(iv) Skincare, is the only performance obligation under the fixed-fee arrangements. Revenue is recognized from the sale of their healthcare
products upon delivery to the customers, whereas the title and risk of loss are fully transferred to the customers. The Company records
its revenues, net of value added taxes (“VAT”) on the majority of the products at the rate of
Wine
Business mainly provides the wine products to the customers.
Revenue is recognized from the sale of wine products upon delivery to the customers, whereas the title and risk of loss are fully
transferred to the customers. The Company records its revenues, net of value added taxes (“VAT”) on the majority of the products
at the rate of
Disaggregation of Revenue
The following table provides information about disaggregated revenue from customers into the nature of the products and services, and the related timing of revenue recognition:
SCHEDULE OF DISAGGREGATED REVENUE WITH REPORTABLE SEGMENTS
| Type of products or services | Timing of revenue recognition | For the Year Ended December 31, 2023 | For the Year Ended December 31, 2022 | |||||||
| Consultancy service fee income | $ | $ | ||||||||
| Sales of healthcare products | ||||||||||
| Sales of wine products | ||||||||||
| TOTAL | $ | $ | ||||||||
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Income Taxes
The
Company adopted the ASC 740 Income tax provisions of paragraph 740-10-25-13, which addresses the determination of whether tax benefits
claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. Under paragraph 740-10-25-13,
the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will
be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in
the consolidated financial statements from such a position should be measured based on the largest benefit that has a
The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary.
Foreign Currencies Translation
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the consolidated statement of operations.
The reporting currency of the Company is United States Dollar (“US$”) and the accompanying financial statements have been expressed in US$. In addition, the Company is operating in Hong Kong SAR and the People’s Republic of China and maintain its books and record in its local currency, Hong Kong Dollars (“HK$”) and Renminbi (“RMB”), which is a functional currency as being the primary currency of the economic environment in which their operations are conducted. In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the year. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statements of changes in shareholder’s equity.
Translation of amounts from HK$ and RMB into US$ have been made at the following exchange rates for the years ended December 31, 2023 and 2022.
SCHEDULE OF FOREIGN CURRENCIES TRANSLATION EXCHANGE RATES
| 2023 | 2022 | |||||||
| Year-end HK$:US$ exchange rate | ||||||||
| Annual average HK$:US$ exchange rate | ||||||||
| Year-end RMB:US$ exchange rate | ||||||||
| Annual average RMB:US$ exchange rate | ||||||||
The Company calculates net loss per share in accordance with ASC Topic 260, “Earnings per Share.” Basic income per share is computed by dividing the net income by the weighted-average number of common shares outstanding during the period. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive.
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Comprehensive income
ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying consolidated statements of changes in shareholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
Retirement plan costs
Contributions to retirement plans (which are defined contribution plans) are charged to general and administrative expenses in the accompanying statements of operation as the related employee service are provided.
Leases
The Company adopts the FASB Accounting Standards Update (“ASU”) 2016-02 “Leases (Topic 842).” for all periods presented. This standard requires lessees to recognize lease assets (“right of use”) and related lease obligations (“lease liabilities”) on the balance sheet for leases with terms in excess of 12 months.
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance sheets. Finance leases are included in finance lease ROU assets and finance lease liabilities in the consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease and finance lease ROU assets and liabilities are recognized, based on the present value of lease payments over the lease term discounted using the rate implicit in the lease. In cases where the implicit rate is not readily determinable, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Related Parties
The Company follows the ASC 850-10, “Related Party” for the identification of related parties and disclosure of related party transactions.
Pursuant to section 850-10-20 the related parties include: a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and Income-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amount due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
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Commitments and Contingencies
The Company follows the ASC 450-20, “Commitments” to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Fair value of Financial Instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by paragraph 820-10-35-37 of the FASB Accounting Standards Codification are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | |
| Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial assets and liabilities, such as cash and cash equivalents, approximate their fair values because of the short maturity of these instruments.
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Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
Accounting Standards Recently Adopted
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related earnings per share guidance. This standard became effective for the Company beginning on January 1, 2022. Adoption is either a modified retrospective method or a fully retrospective method of transition. The Company adopted this guidance effective January 1, 2022, and the adoption of this standard did not have a material impact on its consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This ASU clarifies the accounting for modifications or exchanges of freestanding equity-classified written call options (i.e. warrants) so that the transaction should be treated as an exchange of the original instrument for a new instrument. This standard is effective for fiscal years beginning after December 15, 2021 on a prospective basis, with early adoption permitted. The Company adopted this guidance effective January 1, 2022, and the adoption of this standard did not have a material impact on its consolidated financial statements.
In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. This ASU defers the sunset date of Topic 848, which provides relief to entities affected by reference rate reform. The ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2025. The standard is effective immediately and the Company adopted the standard in December 2022 with no financial impact. The Company is currently assessing the impact ASU 2020-04, for which this ASU 2022-06 relates, will have on its consolidated financial statements.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
NOTE 3: LIQUIDITY AND CAPITAL RESOURCES
The
Company’s cash balance as of December 31, 2023, was $
The Company’s ability to continue as a going concern is dependent upon improving its profitability and the continuing financial support from its major shareholders. Management believes the existing shareholders or external financing will provide additional cash to meet the Company’s obligations as they become due.
Despite the amount of funds that the Company has raised, no assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company can obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its shareholders, in the case of equity financing.
NOTE 4: SEGMENT REPORTING
Currently, the Company has two reportable business segments:
| (i) | Healthcare Segment, mainly provides health consulting advisory services and healthcare and wellness products to the customers; and |
| (ii) | Wine Segment, mainly provides the wine products to the customers. |
| 40 |
In the following table, revenue is disaggregated by primary major product line, including a reconciliation of the disaggregated revenue with the reportable segments.
SUMMARY OF REPORTABLE SEGMENTS
Healthcare Segment | Wine Segment | Total | ||||||||||
| Year Ended December 31, 2023 | ||||||||||||
Healthcare Segment | Wine Segment | Total | ||||||||||
| Revenue from external customers: | ||||||||||||
| Consulting service income | $ | $ | $ | |||||||||
| Sale of healthcare products | ||||||||||||
| Sale of wine products | ||||||||||||
| Total revenue | ||||||||||||
| Cost of sales: | ||||||||||||
| Consulting service income | ||||||||||||
| Sale of healthcare products | ( | ) | ( | ) | ||||||||
| Sale of wine products | ( | ) | ( | ) | ||||||||
| Total cost of revenue | ( | ) | ( | ) | ( | ) | ||||||
| Gross profit | ||||||||||||
| Operating Expenses | ||||||||||||
| Selling and distribution | ( | ) | ( | ) | ||||||||
| General and administrative | ( | ) | ( | ) | ( | ) | ||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| Segment loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Healthcare Segment | Wine Segment | Total | ||||||||||
| Year Ended December 31, 2022 | ||||||||||||
Healthcare Segment | Wine Segment | Total | ||||||||||
| Revenue from external customers: | ||||||||||||
| Consulting service income | $ | $ | $ | |||||||||
| Sale of healthcare products | ||||||||||||
| Sale of wine products | ||||||||||||
| Total revenue | ||||||||||||
| Cost of sales: | ||||||||||||
| Consulting service income | ( | ) | ( | ) | ||||||||
| Sale of healthcare products | ( | ) | ( | ) | ||||||||
| Sale of wine products | ( | ) | ( | ) | ||||||||
| Total cost of revenue | ( | ) | ( | ) | ( | ) | ||||||
| Gross profit | ||||||||||||
| Operating Expenses | ||||||||||||
| Selling and distribution | ( | ) | ( | ) | ||||||||
| General and administrative | ( | ) | ( | ) | ( | ) | ||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| Segment loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
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The below revenues are based on the countries in which the customer is located. Summarized financial information concerning the geographic segments is shown in the following tables:
SUMMARY OF GEOGRAPHIC SEGMENTS
| 2023 | 2022 | |||||||
| Years ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Hong Kong | $ | $ | ||||||
| China | ||||||||
| Total revenue | $ | $ | ||||||
NOTE 5: PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES
Prepayments and other receivable consisted of the following:
SCHEDULE OF PREPAYMENTS AND OTHER RECEIVABLE
| December 31, 2023 | December 31, 2022 | |||||||
| Purchase deposits | $ | $ | ||||||
| Rental and utility deposits | ||||||||
| Other receivables | ||||||||
| Prepayments and other receivable | $ | $ | ||||||
Purchase deposits represented deposit payments made to vendors for procurement, which are interest-free, unsecured and relieved against accounts payable when goods are received by the Company.
NOTE 6: INVENTORIES
Inventories consisted of the following:
SCHEDULE OF INVENTORIES
| December 31, 2023 | December 31, 2022 | |||||||
| Finished goods - wine products | $ | $ | ||||||
For
the years ended December 31, 2023 and 2022,
NOTE 7: PLANT AND EQUIPMENT
SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT
| December 31, 2023 | December 31, 2022 | |||||||
| Motor vehicle | $ | $ | ||||||
| Furniture, fixture and equipment | ||||||||
| Leasehold improvement | ||||||||
| Foreign translation difference, net | ( | ) | ( | ) | ||||
| Plant and equipment, gross | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Foreign translation difference, net | ( | ) | ||||||
| Plant and equipment. net | $ | $ | ||||||
Depreciation
expenses for the years ended December 31, 2023 and 2022 were $
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NOTE 8: CUSTOMER DEPOSITS
Customer deposits represented cash paid to the Company from the customers, for which the Company has an obligation to deliver the orders to satisfy with the customers, or to return the funds, within twelve months.
As
of December 31, 2023 and 2022, the deposit received from customers was $
NOTE 9: AMOUNTS DUE TO A DIRECTOR AND A RELATED COMPANY
The amounts represented temporary advances to the Company by its director and its related company which were unsecured, interest-free and had no fixed terms of repayments.
NOTE 10: LEASE
Right of use assets and lease liability – right of use are as follows:
SCHEDULE OF RIGHT OF USE ASSETS AND LEASE LIABILITY
| December 31, 2023 | December 31, 2022 | |||||||
| Right-of-use assets | $ | $ | ||||||
The lease liability is as follows:
| December 31, 2023 | December 31, 2022 | |||||||
| Current portion | $ | $ | ||||||
| Non-current portion | ||||||||
| Total | $ | $ | ||||||
NOTE 11: SHAREHOLDERS’ EQUITY
Common Stock
The Company is authorized, subject to limitations prescribed by Delaware law, to issue up to shares of common stock with a par value of $.
Dividend Rights
Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and only then at the times and in the amounts that our board of directors may determine.
Voting Rights
Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Under our Certificate of Incorporation, stockholders do not have the right to cumulate votes for the election of directors.
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No Preemptive or Similar Rights
Our common stock is not entitled to preemptive rights and is not subject to conversion, redemption or sinking fund provisions.
Right to Receive Liquidation Distributions
Upon our dissolution, liquidation or winding-up, the assets legally available for distribution to our stockholders are distributable ratably among the holders of our common stock, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights and payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
As of December 31, 2023 and 2022, a total of shares of common stock were issued and outstanding.
Preferred Stock
The Company is not currently authorized to issue shares of preferred stock. The Certificate of Incorporation, however, allows the board of directors to authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock in the event that shares of preferred stock are authorized in the future. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of our company and may adversely affect the market price of our common stock and the voting and other rights of the holders of common stock. The Company has no current plans to issue any shares of preferred stock.
Basic net loss per share is computed using the weighted average number of common shares outstanding during the year. The dilutive effect of potential common shares outstanding is included in diluted net loss per share. The following table sets forth the computation of basic and diluted net loss per share for the years ended December 31, 2023 and 2022:
| 2023 | 2022 | |||||||
| Years ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding – Basic and diluted | ||||||||
| Net loss per share – Basic and diluted | $ | ) | $ | ) | ||||
For the years ended December 31, 2023 and 2022, diluted weighted-average common shares outstanding is equal to basic weighted-average common shares, due to the Company’s net loss position. Hence, no common stock equivalents were included in the computation of diluted net loss per share since such inclusion would have been antidilutive.
NOTE 13: INCOME TAXES
The provision for income taxes consisted of the following:
SCHEDULE OF COMPONENTS OF INCOME TAX EXPENSE
| 2023 | 2022 | |||||||
| Years ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Current tax | $ | $ | ||||||
| Deferred tax | ||||||||
| Income tax expense | $ | $ | ||||||
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The effective tax rate in the years presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rate. The Company operates in various countries: United States of America, Hong Kong and the PRC that are subject to taxes in the jurisdictions in which they operate, as follows:
United States of America
CFOO
is registered in the State of Delaware and is subject to US federal corporate income tax. The U.S. Tax Cuts and Jobs Act (the “Tax
Reform Act”) was signed into law.
For the years ended December 31, 2023 and 2022, the Company did not have any interest and penalties associated with tax positions. As of December 31, 2023 and 2022, the Company has not accrued any penalties on uncertain tax positions.
As
of December 31, 2023, the operation in the United States incurred $
BVI
ECGL is incorporated in the British Virgin Islands and is not subject to taxation. In addition, upon payments of dividends by these entities to their shareholder, no British Virgin Islands withholding tax will be imposed.
Hong Kong
SCHEDULE OF RECONCILIATION TAX RATE TO EFFECTIVE INCOME TAX RATE
| 2023 | 2022 | |||||||
| Years ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | ||
| Statutory income tax rate | % | % | ||||||
| Income tax expense at statutory rate | ( | ) | ( | ) | ||||
| Tax adjustments | ||||||||
| Net operating loss | ||||||||
| Income tax expense | $ | $ | ||||||
The PRC
SCHEDULE OF RECONCILIATION TAX RATE TO EFFECTIVE INCOME TAX RATE
| 2023 | 2022 | |||||||
| Years ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | ||
| Statutory income tax rate | % | % | ||||||
| Income tax expense at statutory rate | ( | ) | ( | ) | ||||
| Net operating loss | ||||||||
| Income tax expense | $ | $ | ||||||
| 45 |
The following table sets forth the significant components of the deferred tax assets of the Company as of December 31, 2023 and 2022:
SCHEDULE OF DEFERRED TAX ASSETS
| 2023 | 2022 | |||||||
| As of December 31, | ||||||||
| 2023 | 2022 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforwards | ||||||||
| - United States | $ | $ | ||||||
| - Hong Kong | ||||||||
| - PRC | ||||||||
| Net operating loss carryforwards | ||||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax assets, net | $ | $ | ||||||
The Company recognizes interest and penalties, if applicable, related to uncertain tax positions in the income tax provision. There were no reserves for unrecognized tax benefits and no accrued interest related to uncertain tax positions as of December 31, 2023 and 2022.
The Company files income tax returns in U.S. federal, U.S. state and foreign jurisdictions. With some exceptions, most tax years remain open to examination by the taxing authorities due to the Company’s NOL carryforwards.
NOTE 14: PENSION COSTS
The
Company is required to make contributions to their employees under a government-mandated defined contribution pension scheme for its
eligible full-times employees in the People’s Republic of China and mandatory provident funds for its eligible full-times employees
in the Hong Kong. The Company is required to contribute a specified percentage of the participants’ relevant income based on their
ages and wages level. During the years ended December 31, 2023 and 2022, $
NOTE 15: RELATED PARTY TRANSACTIONS
From
time to time, the Company’s director and related company advanced funds to the Company for working capital purpose. Those advances
are unsecured, non-interest bearing and due on demand. As of December 31, 2023 and 2022, the Company owed the balance of $
Apart from the transactions and balances detailed elsewhere in these accompanying consolidated financial statements, the Company has no other significant or material related party transactions during the years presented.
NOTE 16: CONCENTRATIONS OF RISK
The Company is exposed to the following concentrations of risk:
(a) Major customers
For the years ended December 31, 2023 and 2022, the customers who accounts for 10% or more of the Company’s revenues and its outstanding receivable balances as at year-end dates, are presented as follows:
SCHEDULE OF CONCENTRATIONS OF RISK
| Year ended December 31, 2023 | December 31, 2023 | |||||||||||||||
| Revenues | Percentage of revenues | Accounts receivable | ||||||||||||||
| Customer A | $ | % | $ | |||||||||||||
| Customer E | % | |||||||||||||||
| Customer C | | % | ||||||||||||||
| TOTAL | $ | % | Total | $ | ||||||||||||
| Year ended December 31, 2022 | December 31, 2022 | |||||||||||||||
| Revenues | Percentage of revenues | Accounts receivable | ||||||||||||||
| Customer B | $ | % | $ | |||||||||||||
| Customer C | | % | ||||||||||||||
| TOTAL | $ | % | Total | $ | ||||||||||||
The Company’s major customers are located in the People’s Republic of China and Hong Kong.
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(b) Major vendors
For the years ended December 31, 2022 and 2022, the vendor who accounts for 10% or more of the Company’s purchases and its outstanding payable balances as at year-end dates, are presented as follows:
| Year ended December 31, 2023 | December 31, 2023 | |||||||||||||||
| Vendor | Purchases | Percentage | Accounts payable | |||||||||||||
| Vendor A | $ | | % | Total: | $ | |||||||||||
| Year ended December 31, 2022 | December 31, 2022 | |||||||||||||||
| Vendor | Purchases | Percentage of purchases | Accounts payable | |||||||||||||
| Vendor A | $ | | % | Total: | $ | |||||||||||
All of the Company’s vendors are located in the People’s Republic of China.
(c) Credit risk
Financial instruments that are potentially subject to credit risk consist principally of accounts receivable. The Company believes the concentration of credit risk in its trade receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for expected credit losses based upon factors surrounding the credit risk of specific customers, historical trends and other information.
(d) Economic and political risk
The Company’s major operations are conducted in the People’s Republic of China. Accordingly, the political, economic, and legal environments in PRC, as well as the general state of PRC’s economy may influence the Company’s business, financial condition, and results of operations.
(e) Exchange rate risk
The Company cannot guarantee that the current exchange rate will remain steady; therefore there is a possibility that the Company could post the same amount of profit for two comparable periods and because of the fluctuating exchange rate actually post higher or lower profit depending on exchange rate of HKD and RMB converted to US$ on that date. The exchange rate could fluctuate depending on changes in political and economic environments without notice.
(f) Risk from COVID
As a result of COVID-19, the Company has been unable to satisfy certain customer orders for the products. As a result, the customers have experienced delays in receiving the products. There is uncertainty around the duration and breadth of the COVID-19 pandemic, and other actions taken to contain or treat the impact of COVID-19, and the extent of such impact will depend on future developments, which are highly uncertain and cannot be predicted.
NOTE 17: COMMITMENTS AND CONTINGENCIES
As of December 31, 2023 and 2022, the Company has no material commitments or contingencies.
NOTE 18: SUBSEQUENT EVENTS
In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or transactions that occurred after December 31, 2023, up through the date the Company issued the audited consolidated financial statements. During the period, the Company did not have any material recognizable subsequent events.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has had no disagreements with its principal independent accountants with respect to accounting practices or procedures or financial disclosure.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, including our CEO and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our CEO and Principal Financial Officer concluded that due to the small size of the Company and lack of segregation of duties our disclosure controls and procedures as of the end of the period covered by this report was not as effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. However, management believes the controls and procedures provide a reasonable basis for the conclusions.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Our management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO - 2013”) in Internal Control - Integrated Framework. Further, our management considered the lack of operations and revenue, the limited cash on hand and the limited transactions which occur on a monthly basis. Based on this evaluation, our management concluded that, as of December 31, 2023, our internal control over financial reporting was not effective.
Management believes that the material weakness set forth above did not have an effect on our financial results.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm since the Company is not an accelerated or larger accelerated filer.
Evaluation of Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting that occurred during the last fiscal quarter ended December 31, 2023, that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth as of December 31, 2023, the name, age, and position of each executive officer and director and the term of office of each director of the Company.
| Name | Age | Position | ||
| Kong Xiao Jun | 52 | Chief Executive Officer, Chief Financial Officer and Director | ||
| Liu Yang | 38 | Director | ||
| Cheng Ni Hu | 33 | Director | ||
| Yunsi Liu | 36 | Director |
Set forth below is a brief description of the background and business experience of our sole executive officer and director:
Xiao Jun Kong, age 52, has served as our Chief Executive Officer, Chief Financial Officer and Director since July 13, 2019. He currently serves as the Chief Executive Officer of Guangdong HY Capital Management CO., LTD and has served in that role since 2011. From 2007 to 2011, Mr. Kong was the Executive Director of the Asia Aluminum Group. Mr. Kong has experience in leading large-scale M&A and investment projects in different industries such as agriculture, film and media, and cultural tourism. Mr. Kong holds a bachelor degree in accounting from Southwestern University of Finance and Economics in Chengdu, Sichuan, China. He is also qualified as Chinese Certified Public Accountant, Certified Tax Agent, US Chartered Financial Analyst, and Fellow of the Institute of Financial Accountants UK. Mr. Kong brings to our board his experience in business development, strategic planning, and management.
Liu Yang, age 38, has been a director to hold office since May 13, 2019. She currently serves as the Investment Director of Guangdong HY Capital Management Co., Ltd and has served in that role since 2015. Ms. Liu has experience in M&A and investment projects in different industries such as consumer goods, agriculture, cultural tourism, and education. Ms. Liu holds a bachelor degree in Economics from Southern China University of Technology in Guangzhou, Guangdong, China.
Cheng Ni Hu, age 33, was appointed to serve as our director since July 9, 2020. She currently serves as the Marketing director of KangHuaGuoYao (GuangDong) Tech Pty. Ltd. for formulating the company’s strategy in marketing, branding and producing, and has served in that role since December 2018. From 2016 to 2018, she served as restore and relocate project manager in North Sydney Railway. Ms. Hu graduated from the University of Sydney with a Bachelor degrees in Commerce and Combined Commerce (Marketing) and Public Affair from Southern California University. Ms. Hu brings to the Board her experience in marketing and operations.
Yunsi Liu, age 36, has been a President and director of China Foods, prior to the Merger, since January 15, 2019. She currently serves as the General Manager of Dray Alliance (a venture-backed, technology startup in the trucking industry) and has served in that role since 2019. Concurrently, she is the Managing Partner of Craft and Swan, LLC. From 2015 to 2020, Ms. Yunsi Liu served in executive capacities for various startups in the Southern California region. Ms. Liu graduated from the University of Pennsylvania with a Bachelor of Science in Economics degree from the Wharton School, and a Bachelor of Arts in Philosophy degree from the College of Arts and Sciences. Ms. Liu brings to the Board her experience in finance, management and operation.
| 49 |
Except as indicated below, to the knowledge of management, during the past five years, no present or former director, or executive officer of the Company:
| (1) | filed a petition under the federal bankruptcy laws or any state insolvency law, nor had a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing; | |
| (2) | was convicted in a criminal proceeding or named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); | |
| (3) | was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting, the following activities: |
| (i) | acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, associated person of any of the foregoing, or as an investment advisor, underwriter, broker or dealer in securities, or as an affiliate person, director or employee of any investment company, or engaging in or continuing any conduct or practice in connection with such activity; | |
| (ii) | engaging in any type of business practice; or | |
| (iii) | engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws; |
| (4) | was the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any federal or state authority barring, suspending, or otherwise limiting for more than 60 days the right of such person to engage in any activity described above under this Item, or to be associated with persons engaged in any such activity; | |
| (5) | was found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission to have violated any federal or state securities law, and the judgment in such civil action or finding by the Securities and Exchange Commission has not been subsequently reversed, suspended, or vacated. | |
| (6) | was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers, and the persons who beneficially own more than 10% of the Common Stock and securities convertible into shares of Common Stock (together with the Common Stock, “Subject Shares”), to file with the SEC initial reports of ownership and reports of changes in ownership of Subject Shares. Directors, officers and greater than 10% beneficial owners of the Subject Shares are required by the SEC’s regulations to furnish us with copies of all forms they file with the SEC pursuant to Section 16(a) of the Exchange Act. Based solely on the reports received by us and on the representations of the reporting persons, we believe that these persons have complied with all applicable filing requirements during the fiscal year ended December 31, 2023.
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Code of Ethics
We have not yet adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. We intend to adopt a code of ethics in the immediate future.
Corporate Governance
There have been no changes in any state law or other procedures by which security holders may recommend nominees to our board of directors. We do not have a nominating committee, however we intend to appoint one in the immediate future.
Audit Committee
Our board of directors has an Audit Committee consisting of Mr. Kong. The Audit Committee does not at the present time have an audit committee financial expert serving on its Audit Committee; however, our board intends to appoint an audit committee financial expert in the immediate future.
Family Relationships
There are no family relationships between any of our directors or executive officers.
Involvement in Certain Legal Proceedings
None of our directors, executive officers and control persons has been involved in any of the following events during the past ten years:
| ● | Any bankruptcy petition filed by or against any business or property of such person, or of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
| ● | Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| ● | Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; |
| ● | Being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
| ● | Being the subject of or a party to any judicial or administrative order, judgment, decree or finding, not subsequently reversed, suspended or vacated relating to an alleged violation of any federal or state securities or commodities law or regulation, or any law or regulation respecting financial institutions or insurance companies, including but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail, fraud, wire fraud or fraud in connection with any business entity; or |
| ● | Being the subject of or a party to any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act, any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Conflicts of Interest
Except as provided for in Article XI of the Company’s By-Laws: Board Director Compensation, no officer, director or security holder of the company may be involved in pecuniary interest in any investment acquired or disposed of by the registrant or in any transaction to which the registrant or any of its subsidiaries is party or has an interest.
None of the directors, officers, security holders or affiliates of the registrant may engage, for their own account, business activities of the types conducted by the registrant and its subsidiaries.
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ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following tables set forth, for each of the last two completed fiscal years of the Company, the total compensation awarded to, earned by or paid to any person who was a principal executive officer during the preceding fiscal year and every other highest compensated executive officers earning more than $100,000 during the last fiscal year (together, the “Named Executive Officers”). The tables set forth below reflect the compensation of the Named Executive Officers.
Summary Compensation Table
| Name and Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards | Non- Equity Incentive Plan Compensation | All Other Compensation | Total | ||||||||||||||||||||||||
| Kong Xiao Jun | 2023 | -0- | -0- | -0- | -0- | -0- | -0- | -0- | ||||||||||||||||||||||||
| Chief Executive Officer, Chief Financial Officer, and director | 2022 | -0- | -0- | -0- | -0- | -0- | -0- | -0- | ||||||||||||||||||||||||
Cash Compensation – No cash compensation was paid to any director or executive officer of the Company during the fiscal years ended December 31, 2023, and 2022. Mr. Kong was paid no compensation for his roles as CEO, CFO and director for the years of 2023 and 2022. Mr. Kong agreed to take no compensation during this time frame to voluntarily reduce the financial obligation of the Company. He currently serves as the Chief Executive Officer of Guangdong HY Capital Management CO. LTD (“GHCMC”), which is not a competitor of the Company or GXXHIC. The CEO of GHCMC is a part-time position, requiring Mr. Kong to attend management meetings and Board of Director meetings, It is estimated that Mr. Kong’s service as CEO of GHCMC is very insignificant compared to his service to the Company, and these roles do not pose any conflict of interest. Mr. Kong does not hold any other positions in any other entities.
Bonuses and Deferred Compensation – None
Compensation Pursuant to Plans – None
Pension Table – None
Other Compensation – None
Compensation of Directors
During our fiscal years ended December 31, 2023 and 2022, we did not provide compensation to any of our employee directors for serving as our director. We currently have no formal plan for compensating our employee directors for their services in their capacity as directors, although we may elect to issue stock options to such persons from time to time. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. Our board of directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director.
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Non-Employee Director Fees
Our Board determines the form and amount of compensation for our non-employee directors based on informal surveys of similar companies and the amount necessary to attract and retain such directors. For the fiscal years ended December 31, 2023 and 2022, we paid each of our non-employee directors as follows:
| Name | Year | Fees earned or paid in cash* ($) | Stock awards ($) | Option awards ($) | Non-equity incentive plan compensation ($) | Change in pension value and nonqualified deferred compensation earnings | All other compensation ($) | Total ($) | ||||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | |||||||||||||||||||||||
| Yunsi Liu | 2023 | - | – | – | – | – | – | - | ||||||||||||||||||||||
| 2022 | - | – | – | – | – | – | - |
* All fees were paid in United States Dollars.
Directors who are residents of China do not receive compensation. Ms. Liu, our director who is a U.S. resident, receives a quarterly retainer in the amount of $2,000 in accordance with the terms of a Director Retainer Agreement effective from January 1, 2020. All directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our Board of Directors. Our Board may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director.
Termination of Employment and Change of Control Arrangement
There are no compensatory plans or arrangements, including payments to be received from the Company, with respect to any person named in Cash Compensation set out above which would in any way result in payments to any such person because of his resignation, retirement, or other termination of such person’s employment with the Company or its subsidiaries, or any change in control of the Company, or a change in the person’s responsibilities following a changing in control of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS
The following table sets forth certain information concerning the number of shares of our common stock owned beneficially as of March 29, 2023 by: (i) each person (including any group) known to us to own more than five percent (5%) of any class of our voting securities, (ii) each of our directors and each of our named executive officers (as defined under Item 402(m)(2) of Regulation S-K), and (iii) officers and directors as a group. Unless otherwise indicated, the shareholders listed possess sole voting and investment power with respect to the shares shown.
| Name of Beneficial Owner (2) | Amount and Nature of Beneficial Ownership (1) | Percent of Class | ||||||
| Officers and Directors | ||||||||
| Xiao Jun Kong (3) | 18,951,000 | 93.57 | % | |||||
| Cheng Ni Hu | 675,000 | 3.33 | % | |||||
| All executive officers and directors as a group (2 persons) | 19,626,000 | 96.90 | % | |||||
| Shareholders Holding In Excess of 5% | ||||||||
| HY (HK) Financial Investments Co., Ltd. (3) | 5,001,000 | 24.69 | % | |||||
| (1) | Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of March 29, 2023. Applicable percentage ownership is based on 20,252,309 shares of common stock outstanding as of March 29, 2023, and any shares that such person or persons has the right to acquire within 60 days of March 29, 2023, is deemed to be outstanding for such person, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership. |
| 53 |
| (2) | Unless otherwise noted, the business address of each beneficial owner listed is 17/F, 80 Gloucester Road, Wanchai, Hong Kong. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse. |
| (3) | Mr. Kong is deemed to be the beneficial owner of these 5,001,000 shares held by HY (HK) Financial Investments Co., Ltd. Mr. Kong is the Chief Executive Officer and majority shareholder of HY (HK) Financial Investments Co., Ltd. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Transactions with management and others
During the year ended December 31, 2023, there were transactions, or series of similar transactions, since the beginning of the Company’s last fiscal year, or any currently proposed transactions, or series of similar transactions, to which the Company was or is to be party, in which the amount involved exceeds $60,000, and in which any director or executive officer, or any security holder who is known by the Company to own of record or beneficially more than 5% of any class of the Company’s common stock, or any member of the immediate family of any of the foregoing persons, has an interest. Please see Note 13 above.
| As of December 31, | ||||||||
| 2023 | 2022 | |||||||
| Amount due (to) from a director | (232,344 | ) | (220,794 | ) | ||||
| Amount due (to) a related company | (320,315 | ) | (199,964 | ) | ||||
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(1) Audit Fees - The aggregate fees billed in each of the last two fiscal years for professional services rendered by the Company’s auditor for the audit of the annual financial statements and review of financial statements included in the Form 10-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are: $44,000 for 2023 and $42,000 for 2022.
(2) Audit-Related Fees - The aggregate fees billed in each of the last two fiscal years for assurance and related services by the Company’s principal accountant that are reasonably related to the performance of the audit or review of the financial statements and are not reported in (1) Audit-related Fees: $0 for 2023 and $0 for 2022.
(3) Tax Fees - The aggregate fees billed in each of the last two fiscal years for professional services rendered by the Company’s principal accountant for tax compliance, tax advice, and tax planning: $0 for 2023 and $0 for 2022.
(4) All Other Fees - The aggregate fees billed in each of the last two fiscal years for products and services provided by the Company’s principal accountant, other than the services reported in (1) Audit Fees; (2) Audit-Related Fees; and (3) Tax Fees: $0 for 2023 and $0 for 2022.
(5) The Company does not have an audit committee.
(6) Not Applicable.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| (a)(1) | List of Financial statements included in Part II hereof | |
| Report of Independent Registered Public Accounting Firm | ||
| Consolidated Balance Sheet: | ||
| December 31, 2023 and 2022 | ||
| Consolidated Statements of Operations and Comprehensive Loss: | ||
| For the years ended December 31, 2023 and 2022 | ||
| Consolidated Statements of Changes in Shareholders’ Equity: | ||
| For the years ended December 31, 2023 and 2022 | ||
| Consolidated Statements of Cash Flows: | ||
| For the years ended December 31, 2023 and 2022 | ||
| Notes to Consolidated Financial Statements: | ||
| For the years ended December 31, 2023 and 2022 | ||
| (a)(2) | List of Financial Statement schedules included in Part IV hereof: None | |
| (a)(3) | Exhibits | |
| The following exhibits are included herewith: |
| Exhibit No. | Description | ||
| 31.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 101.INS* | Inline XBRL Instance Document | ||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | ||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | ||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||
| 104* | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * | XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
Following are a list of exhibits which we previously filed in other reports which we filed with the SEC, including the Exhibit No., description of the exhibit and the identity of the Report where the exhibit was filed.
| (1) | Incorporated by reference to the Exhibits to the Definitive Information Statement on Schedule 14C filed with the Securities and Exchange Commission on February 20, 2019. |
| (2) | Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 8, 2020. |
| (3) | Incorporated by reference to the Current Report on Form 8-K/A filed with the Securities and Exchange Commission previously filed on September 2, 2020. |
| (4) | Incorporated by Reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 9, 2020. |
| (5) | Incorporated by reference to the Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on February 7, 2023. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned duly authorized person.
In accordance with the requirements of the Securities Exchange Act of 1934, as amendment, this report has been signed by the following persons in the capacities and on the dates stated.
| China Foods Holdings Limited | ||
| (Registrant) | ||
| Dated: April 15, 2024 | ||
| By: | /s/ Kong Xiao Jun | |
| Kong Xiao Jun | ||
| Chief Executive Officer, Chief Financial Officer, President and Director | ||
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Exhibit 31.1
Rule 13a-14(a) Certification of the Chief Executive Officer
Pursuant to 18 U.S.C. 1350
(Section 302 of the Sarbanes-Oxley Act of 2002)
I, Kong Xiao Jun, certify that:
1. I have reviewed this report on Form 10-K of China Foods Holdings Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The Registrant other certifying officer(s) and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the Registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: April 15, 2024 | By: | /s/ Kong Xiao Jun |
| Kong Xiao Jun | ||
| Chief Executive Officer & Chief Financial Officer |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
AND PRINCIPAL FINANCIAL OFFICER
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
I, Kong Xiao Jun, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of China Foods Holdings Limited for the period ended December 31, 2023, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of China Foods Holdings Limited.
| Date: April 15, 2024 | By: | /s/ Kong Xiao Jun |
| Kong Xiao Jun | ||
| Chief Executive Officer & Chief Financial Officer |