FORWARD-LOOKING STATEMENTS
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of the safe harbor provisions of the U.S. Private Securities
Litigation Reform Act of 1995. Because they discuss future events or conditions,
forward-looking statements may include words such as "anticipate," "believe,"
"estimate," "intend," "could," "should," "would," "may," "seek," "plan,"
"might," "will," "pursue," "expect," "predict," "project," "goals," "strategy,"
"future," "likely," "forecast," "potential," "continue," negatives thereof or
similar references to future periods. Examples of forward-looking statements
include, among others, statements we make regarding future acquisition or merger
targets, business strategies, macro-economic and sector-specific trends, future
cash flows, financing plans, plans and objectives of management and any other
statements which are not statements of historical facts.
Forward-looking statements are neither historical facts nor assurances of future
performance. Instead, they are based only on our current beliefs, expectations
and assumptions regarding the future of our business, future plans and
strategies, projections, anticipated events and trends, the economy and other
future conditions. Because forward-looking statements relate to the future, they
are subject to inherent uncertainties, risks and changes in circumstances that
are difficult to predict and many of which are outside of our control. Our
actual future results and financial condition may differ materially from those
indicated in the forward-looking statements. Therefore, you should not rely on
any of these forward-looking statements. Important factors that could cause our
actual results and financial condition to differ materially from those indicated
in the forward-looking statements include, among others, inability to
successfully conclude acquisitions of target companies or assets which are
reasonably capable of generating positive cash flow in the near future, legal
and regulatory changes in the jurisdictions in which we operate, volatility or
decline in our stock price, potential fluctuation of our quarterly and annual
financial and operational results, rapid adverse changes in markets, decline in
demand for our goods and services, insufficient revenues to cover our operating
costs and such other factors as discussed throughout this section.
Except as required by applicable law, including the securities laws of the
United States, we do not intend to update any of the forward-looking statements
to conform these statements to actual results.
You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our consolidated financial
statements and the related notes included elsewhere in this report. Our
consolidated financial statements have been prepared in accordance with U.S.
GAAP. In addition, our consolidated financial statements and the financial data
included in this Quarterly Report on Form 10-Q reflect our reorganization and
have been prepared as if our current corporate structure had been in place
throughout the relevant periods. The following discussion and analysis contain
forward-looking statements that involve risks and uncertainties. Actual results
could differ materially from those projected in the forward-looking statements.
For additional information regarding these risks and uncertainties, please see
this Part I, Item 2 ("Management's Discussion and Analysis of Financial
Condition and Results of Operations") of this Quarterly Report on Form 10-Q.
Overview
The Company is a U.S. holding company incorporated in Nevada on February 25,
2004, and operating through the Company's wholly owned subsidiary WLJM Cayman, a
company incorporated under the laws of the Cayman Islands on June 30, 2020. The
Company's entire business, including operations, employees, sales and marketing
and research and development, are all conducted through its subsidiaries located
within the People's Republic of China ("PRC").
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The following is the organization structure of the Company along with ownership
detail of all companies:
WLJM Cayman was incorporated in the Cayman Islands on June 30, 2020. It is 100%
owned by Fountain Healthy Aging, Inc. Refer to Item 1.01 "Entry into a Material
Definitive Agreement" of this Current Report on Form 8-K for a full description
of the acquisition of WLJM Cayman by Fountain Healthy Aging, Inc.
Wei Lian Jin Meng (Hong Kong) Company Limited ("WLJM HK"), was established in
the Hong Kong Special Administrative Region ("HKSAR") of the PRC on August 5,
2020. It is 100% owned by WLJM Cayman.
Jin You Wei Meng (Shenzhen) Consulting Company Limited ("JYWM WFOE") was
established as a wholly foreign-owned enterprise on November 24, 2020, under the
laws of the PRC. It is 100% owned by WLJM HK.
Shenzhen Wei Lian Jin Meng Electronic Commerce Limited ("Shenzhen Wei Lian") was
incorporated on October 17, 2017, under the laws of the PRC. It is 100% owned by
JYWM WFOE.
Dongguan Dishi Coffee Limited ("Dongguan Dishi") was incorporated on October 25,
2018, under the laws of the PRC. It is 100% owned by Shenzhen Wei Lian.
Shenzhen Nainiang Coffee Art Museum Limited ("Shenzhen Nainiang") was
incorporated on June 20, 2019, under the laws of the PRC. It is 100% owned by
Shenzhen Wei Lian.
The Company, through our subsidiaries, develops, produces, markets and sells
coffee, tea, "coffee tea" and wine products. We sell our products wholesale to
retail partners and corporate customers, and we also sell directly to consumers
in the PRC via our e-commerce channels. We adopted the "online to offline", or
O2O sales mode (i.e. selling products online and delivering products through
offline channels), committing to building the first brand of "coffee tea"
culture in the PRC. Beginning late 2020, we provide pre-opening assistance to
retail partners to operate coffee stores.
Critical Accounting Policies and Use of Estimates
We prepare our financial statements in conformity with U.S. GAAP, which requires
management to make certain estimates and to apply judgments. We base our
estimates and judgments on historical experience, current trends and other
factors that management believes to be important at the time the financial
statements are prepared. On a regular basis, we review our accounting policies
and how they are applied and disclosed in our condensed financial statements.
Actual results could differ from those estimates made by management.
We believe that of our significant accounting policies, which are described in
Note 3 to our consolidated financial statements, the following accounting
policies involve a greater degree of judgment and complexity. Accordingly, these
are the policies we believe are the most critical to aid in fully understanding
and evaluating our financial condition and results of operations.
Revenue Recognition
We recognize revenue from the sale of coffee, tea, "coffee tea" and wine
products, net of value-added taxes, upon delivery at such time title passes to
the customer. Customers are required to pay in advance before making sales
orders and the advance is initially recorded as advance from customers. During
the three months ended March 31, 2021 and 2020, product revenue from coffee, tea
and "coffee tea" products amounted to $2,138,721 and $319,530, respectively,
whereas product revenue from wine products amounted to $2,225,196 and nil,
respectively.
In addition, we provide pre-opening assistance to retail partners to operate
coffee stores, revenue is recognized upon the completion of services. During the
three months ended March 31, 2021 and 2020, service revenue amounted to $47,341
and $nil, respectively.
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Our revenue recognition policy is compliant with ASU No. 2014-09, Revenue from
Contracts with Customers that revenue is recognized when a customer obtains
control of promised goods and is recognized in an amount that reflects the
consideration that we expect to receive in exchange for those goods. In
addition, the standard requires disclosure of the nature, amount, timing, and
uncertainty of revenue and cash flows arising from contracts with customers. The
amount of revenue that is recorded reflects the consideration that we expect to
receive in exchange for those goods. We apply the following five-step model in
order to determine this amount:
(i) identification of the goods/services in the contract;
(ii) determination of whether the goods/services are performance obligations,
including whether they are distinct in the context of the contract;
(iii) measurement of the transaction price, including the constraint on variable
consideration;
(iv) allocation of the transaction price to the performance obligations; and
(v) recognition of revenue when (or as) the Company satisfies each performance
obligation.
We only apply the five-step model to contracts when it is probable that we will
collect the consideration we are entitled to in exchange for the goods or
services we transfer to the customer. Once a contract is determined to be within
the scope of ASC 606 at contract inception, we review the contract to determine
which performance obligations we must deliver and which of these performance
obligations are distinct. We recognize as revenues the amount of the transaction
price that is allocated to the respective performance obligation when the
performance obligation is satisfied or as it is satisfied. Generally, our
performance obligations are transferred to customers at a point in time,
typically upon delivery or service being rendered.
For all reporting periods, we have not disclosed the value of unsatisfied
performance obligations for all product revenue contracts with an original
expected length of one year or less, which is an optional exemption that is
permitted under the adopted rules.
Concentrations of Credit Risk
Financial instruments that potentially expose us to significant concentration of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. As of March 31, 2021 and December 31, 2020, substantially all of our
cash and cash equivalents were deposited with financial institutions with
high-credit ratings and quality. The following customers had an accounts
receivable balance greater than 10% of total accounts receivable at March 31,
2021.
Amount %
Customer A $ 723,412 21%
Customer B 365,189 10%
$ 1,088,601 31%
We did not have customers constituting 10% or more of the net revenues in the
three months ended March 31, 2020. We had two customers constituting 10% or more
of the net revenues in the three months ended March 31, 2021 as follows:
Amount %
Customer A $ 867,850 20%
Customer B 435,070 10%
$ 1,302,920 30%
Recently Issued and Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit
Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This
standard requires a financial asset (or group of financial assets) measured at
amortized cost basis to be presented at the net amount expected to be collected.
The allowance for credit losses is a valuation account that is deducted from the
amortized cost basis of the financial asset(s) to present the net carrying value
at the amount expected to be collected on the financial asset. This standard
will be effective for us on April 1, 2023. We are currently evaluating the
impact the adoption of this ASU will have on our consolidated financial
statements.
We review new accounting standards as issued. We have not identified any other
new standards that we believe will have a significant impact on our financial
statements.
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Results of Operations
The following discussion should be read in conjunction with the condensed
consolidated financial statements of Fountain Healthy Aging, Inc. attached
hereto for the three months ended March 31, 2021 and 2020.
Revenue
We generated $4,411,258 in revenue for the three months ended March 31, 2021
compared to $319,530 for the three months ended March 31, 2020. During the three
months ended March 31, 2021 and 2020, product revenue from sale of coffee, tea
and "coffee tea" products amounted to $2,138,721 and $319,530, respectively,
whereas product revenue from sale of wine products amounted to $2,225,196 and
nil, respectively. In addition, we provide pre-opening assistance to retail
partners to operate coffee stores, and we recognize our revenue upon the
completion of services. During the three months ended March 31, 2021 and 2020,
service revenue amounted to $47,341 and $nil, respectively. There was an
increase in total revenues of $4,091,728 or 1281% compared with the three months
ended March 31, 2020.
Our business is gradually recovering from the COVID-19 pandemic which has been
less severe than in 2020. The measures taken by the Chinese government to
contain the virus is effective, business has returned to normal and the market
has regained confidence. This has positively affected our results. For example,
we earned a significant portion of revenue from our new wine products that was
launched in January 2021. Our product revenue increased by $4,044,386 or 1366%
compared with the three months ended March 31, 2020 due to the recovery of
economy.
Cost of Revenue
Cost of revenue was $935,165 for the three months ended March 31, 2021 compared
to $48,390 for the three months ended March 31, 2020. The increase of cost of
revenue by $886,775 or 1833% was relatively in line with the increase in
revenue. The cost of revenue consists of the cost of raw materials and cost of
manufactured goods sold to customers, including labor cost, rental expense,
research, and development costs, etc. For the three months ended March 31, 2021
and 2020, cost of revenue for coffee, tea and "coffee tea" products was $292,451
and $48,390, respectively, whereas cost of revenue for wine products was
$642,714 and $nil, respectively.
Gross profit
Gross profit for the three months ended March 31, 2021 was $3,476,093 compared
with $271,140 for the three months ended March 31, 2020. The decrease in gross
profit margin of 79% for the three months ended March 31, 2021 compared to 85%
for the three months ended March 31, 2020 was due to a lower margin for the new
wine products. Gross profit for the three months ended March 31, 2021 and 2020
for coffee, tea and "coffee tea" products was $1,846,270 or 85% and $271,140 or
85%, respectively. Gross profit for the three months ended March 31, 2021 and
2020 for wine products was $1,582,582 or 71% and nil, respectively. Gross profit
for the three months ended March 31, 2021 and 2020 for service revenue was
$47,341 or 100% and nil, respectively.
Operating Expenses
By far the most significant component of our operating expenses for both the
three months ended March 31, 2021 and 2020 was general and administrative
expenses of $267,800 and $193,749, respectively. The following table sets forth
the main components of our general and administrative expenses for the three
months ended March 31, 2021 and 2020.
For the three months ended March 31,
2021 2020
Amount % of Amount % of
(US$) Total (US$) Total
General and administrative expense:
Consultancy fee $ 91,730 34.3 % $ 19,109 9.9 %
Salary and welfare 50,484 18.9 % 78,119 40.3 %
Rental expenses 78,596 29.3 % 62,121 32.0 %
Research and development costs 21,996 8.2 % 22,258 11.5 %
Office expenses 8,875 3.3 % 2,362 1.2 %
Travel and accommodations 5,218 1.9 % 1,365 0.7 %
Entertainment 4,585 1.7 % 1,920 1.0 %
Others 6,316 2.4 % 6,495 3.4 %
Total general and administrative expenses $ 267,800 100 % $ 193,749 100 %
Increase in general and administrative expenses by $74,051 or 38% from $193,749
for the three months ended March 31, 2020 to $267,800 for the three months ended
March 31, 2021 was mainly due to engagement of consultants to provide consulting
services in connection with the reverse acquisition.
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Net Profit
We incurred a net profit of $2,392,263 for the three months ended March 31, 2021
compared to a net profit of $37,650 for the three months ended March 31, 2020,
an increase of $2,354,613 or 6254%. The increase was primarily attributable to
the fact that our revenue has increased significantly, whereas the increase in
administrative expenses is lower than the increase of revenue because some
expenses are fixed costs in nature.
Liquidity and Capital Resources
March 31, December 31,
Working capital: 2021 2020
Total current assets $ 3,927,546 $ 505,082
Total current liabilities (2,987,515 ) (1,947,717 )
Working capital surplus (deficiency) $ 940,031 $ (1,442,635 )
As of March 31, 2021, we had cash and cash equivalents of $48,599. To date, we
have financed our operations primarily through advance from related parties. The
following table provides detailed information about our net cash flows for the
three months ended March 31, 2021 and 2020:
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