ITEM 1. DESCRIPTION OF BUSINESS
Company Background
Oranco is engaged in alcohol wholesale
in China through its operating subsidiary, Fenyang Huaxin Wine Industry Development Co., Ltd. (“Huaxin”), a People’s
Republic of China company located in Shanxi Province, that is 100% held by Fujian Jin’ou Trading Co., Ltd. We maintain our principal executive offices at One Liberty Plaza, Suite 2310 PMB# 21, New York,
NY 10006, United States. Our telephone number is (646) 759-3614.
We currently focus our business on the
sale of Chinese Fenjiu liquor and imported wines. We run a growing alcoholic beverage business guided by a core purpose: to promote
premium alcoholic beverages to China’s population. We aim to achieve this purpose by catering to the ever-evolving tastes
in alcohols through our creative marketing strategies and innovative product designs that target different age groups of China’s
population. To that end, we have hired marketing talents who have decades of experience in effective alcohol brand building. As
a result, we have managed to respond to the demand for Chinese Fenjiu liquor and imported wines in the Chinese marketplace.
The popularity behind Chinese Fenjiu liquor
is its unique combination of light alcohol fragrance and its soft and subtle sweetness. This combination has been one of the predominant
taste preference amongst Chinese drinkers. Our Chinese Fenjiu liquor is a 53-proof clear spirit with a long lasting clean aftertaste. Our strategic partner, Shanxi Xinghuacun Fenjiu Group Alcohol Industry Development Zone Sales Co., Ltd. (“Fenjiu Group”),
produces our Chinese Fenjiu product. Its brewing process is guided by the principle of “clean” and “pure”,
and such standard is achieved by double fermentation and double distillation process in order to increase the yield of ethanol
and expel any unfavorable flavors. The fermented grains, usually sorghum and barley, will be distilled; the distilled grains will
be fermented once more; then the re-fermented grains will be distilled again.
Modern competition among different types
of Chinese hard liquor is largely dependent on brand recognition that was built upon decades of customer goodwill and unique marketing
strategies. Fenjiu liquor is recognized highly amongst Chinese consumers. It has long been a common liquor choice for traditional
Chinese festivities, thus enjoying a deep cultural recognition amongst Chinese drinkers.
We believe that Fenjiu liquor presents
great business opportunities for us to utilize creative product designs and marketing strategies to attract Chinese consumers.
Collaborating with the Fenjiu Group, the sole producer of Fenjiu liquor in China, we have been focusing on product design to try
to convey a modern feel to our Fenjiu products while maintaining Fenjiu liquor’s historical elegance. We believe our designer
packaging stands out from our competitors’, symbolized by its bright coloring and prominently fat-bellied jars. With creative
designs and stylized name, our registered trademarks, such as Dagangjiu (translated as “Big Jar Liquor”), are effective
in capturing young and older Chinese populations’ attention.
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Established in 2017, we believe our imported
wine distribution business has a high growth potential as evidenced from the marked prices of the imported wines from Spain and
New Zealand, countries from where we import our wine products, in the current Chinese market. A great majority of competitive players
have priced their 750mL bottles of wine imported from Spain and New Zealand well above RMB 200. This price falls within the premium
range in the general Chinese wine market. Within the general Chinese wine market, the premium range enjoyed the highest year-on-year
growth compared to other price tiers of wine in 2017. This pricing trend for premium wines is applicable to imported wine from
Spain and New Zealand, which we believe will benefit our growth in 2018. Accordingly, our strategy is to continue pricing our imported
wine products within the premium range levels to generate higher margins. Though marketing and brand identity are still integral
part of wine business in China, wine sales are highly driven by the origin of the wines. Since Spanish and New Zealand are considered
prime origins for wine productions, our wine products will continue grab the attention of Chinese drinkers, ensuring the sustainable
growth of our imported wine business.
We have strategically organized our
wholesale and marketing channels. We sell directly to our six major distributors who then retail our products to over 300
storefronts and outlets. Even though we do not retail our products online, we believe the internet is a great way to
market our products. Aside from promoting our products through traditional TV platforms, we have established our reputation
on existing major Chinese e-commerce platforms such as Taobao.com and further enhanced our business goodwill through our
marketing on online-to-offline (“O2O”), business-to-business (“B2B”) and business-to-consumer
(“B2C”) platforms. We promote our Fenjiu liquors and imported wine through WeChat and other social media apps to
strengthen our marketing efforts and to educate the general public on Chinese liquor tasting and history of Chinese Fenjiu
liquors.
We believe that effective marketing strategies
and creative product designs are two major contributing factors to our success. To improve and maintain the effectiveness of our
marketing strategies, we have established integrated and collaborative processes to drive coordinated operations across our marketing
efforts and sales. Our marketing strategies enable us to promote multiple sales concepts across two major alcohol categories, effectively
attracting different age and cultural groups of Chinese populations. Our marketing plans are strategically designed to be efficiently
executed and are tailored to meet unique taste and evolving demands of Chinese people. As a result, we believe that the Company’s
innovative and highly-customized designs draw considerable public attention, which in turns is a factor in maximizing sales. As
an example, in May 2015, we introduced a new line of product, “Qishierbian” (translated as “72 Earthly Transformations”),
which brings modern visuals, ancient stories and new interpretations of Chinese culture to traditional Fenjiu liquor. This has
helped creating acceptance of Fenjiu liquor from younger generations and its success reflects the changing needs and preferences
of the Chinese populations. Over the past three years, we have generated approximately RMB 15,413,175 in revenue under “Qishierbian”.
We believe it is essential to improve the overall business sustainability through focusing on marketing strategies and creative
product designs to support our success.
For the year ended June 30, 2018, we generated
revenue of approximately 84.9% from Fenjiu liquor wholesale and approximately 15.1% from imported wine wholesale. For the year
ended June 30, 2017, we generated revenue of approximately 89.9% from Fenjiu liquor wholesale and approximately 10.1% from imported
wine wholesale. We have not experienced any seasonality in our business.
Industry Overview
Chinese Fenjiu Liquor Market
We believe that the long-term demand
for Chinese hard liquor, especially Fenjiu liquor, will continue to grow in China. The overall business environment has been
optimistic, due to the continuous economic growth evidenced by the significant growth of Chinese nominal gross domestic
product (“GDP”). This has led to an ever-increasing growth in China’s per capita expenditures on food,
tobacco, and alcoholic beverages, indicating increased consumers’ disposable income and willingness to spend money on
alcoholic beverages in general. According to the National Bureau of Statistics of China, the sales volumes of Chinese liquor
in China has remained relatively flat between 2012 and 2016. Given the increasing purchasing power and improving living
standards, the sales volume of Chinese liquor increased from 11,267.0 million liters in 2012 to 13,057.1 million liters in
2016, with a compound annual growth rate (“CAGR”) of 3.8%. Overall, we believe consumers are increasingly
interested in drinking better quality liquor. We expect that with the Chinese consumers’ increasing purchasing power
the consumption of Chinese liquor will shift to higher quality products and therefore the Chinese liquor market is expected
to experience growth in the near future.
A
ccording to the
China Insights Consultancy (“CIC”) report, there are approximately 1,578 Chinese liquor producers in China with
annual revenue above RMB 20 million in 2016. These producers are mainly located in the southwest, northeast and central
China. Given the Chinese government’s implementation of policies designed to control and limit spending on “the
three public consumptions”, namely overseas travel, receptions, and official cars, the high-end Chinese liquor market
in China has undergone extensive restructuring since 2012.
Chinese government officials had a long history of using high-end liquors at
reception events. However, in 2012, the Chinese governments implemented policies designed to control and limit spending on
“the three public consumptions”, namely overseas travel, receptions, and use of government vehicles. Ripples of
this anti-corruption campaign are felt beyond the high-end liquor industry, in sectors that heavily rely on China’s
gifting culture and the lavish lifestyle of the privileged for growth. This extensive restructuring of Chinese liquor market
caused by the anti-corruption campaign from Chinese government lasted for several years. As a result, the overall spending on
high-end liquor market in China was limited and the sales volumes of Chinese high-end liquor has remained relatively flat
till 2016. Nowadays, the structure of Chinese liquor market is stable again and has a steady growth supported by constant
economic growth in China. Chinese consumers are expected to spend more on purchasing high-end liquors led by their increasing
purchasing power.
Fenjiu Group and its subsidiaries are
the sole suppliers of Fenjiu liquor in China. Fenjiu liquor has a relatively long history and is one of the world-famous Chinese
liquor brands. Due to the Chinese government’s implementation of policies meant to control and limit spending on “the
three public consumptions”, sales revenue in the Fenjiu liquor market have followed a downward trend since 2012. However,
with increasing per capita incomes and rising demand for mid- to high-range products, the Fenjiu liquor market started to rebound
in 2015, the market has expanded in terms of sales revenue to reach RMB5,117.9 million in 2016. Shanxi Province is the main market
of Fenjiu liquor. Approximately 55% of Fenjiu liquor sales revenue was achieved in Shanxi in 2016. It is expected that the sales
revenue of Fenjiu liquor will reach a further RMB10,532.0 million in China by 2022, increasing at a CAGR of 12.8% between 2016
and 2022.
According to the CIC report, at the
end of 2016, the total number of Fenjiu liquor distributors reached 987 in China. The Fenjiu liquor distribution market is
highly competitive with no single distributor occupying a major share of the market.
There are relatively high entry barriers
for new competitors in the Fenjiu liquor distribution market. Firstly, it is important for new entrants to get an authorization
from Fenjiu Group, which is the sole provider of Fenjiu liquor products in China, to distribute Fenjiu Group’s products.
Fenjiu Group started placing stricter requirements on its distributors, including, for example, new sales target, rich experience
in the industry, good past performance in cooperation with the Group, etc. Thus, it has become increasingly difficult for new players
to enter the market. Fenjiu liquor enjoys widespread popularity in and around Shanxi Province, with markets in other parts of China
being significantly smaller. It is therefore important for new entrants to have a pre-existing distribution network in certain
regions of China in order to be successful. It remains risky for new entrants to enter into new areas where Fenjiu liquor is not
yet fully established and where the distribution market is already saturated. Distributors range from mom-and-pop stores in Shanxi
Province to larger companies with years of experience in the Fenjiu liquor industry, each competing for a fair share of the market.
Intense competition arises between distributors within the same region, selling the same or different Fenjiu brands. Fenjiu liquor
includes a variety of products, differing in terms of ABV, vintage, recipe, etc. Although there are no dominant varieties in the
market, some are preferred by end consumers more than others. However, almost all of these popular varieties have already been
taken up by exclusive distributors. Thus, new entrants might find it difficult to source popular products directly from Fenjiu
Group or will be left to source them from existing distributors, which entails lower profit margins.
Chinese Wine Market
According to the International Organization of Vine and
Wine, or OIV, the per capita wine consumption in China is much lower than the US average level between 2012 and 2016. After the
reduction of “three public consumptions” in 2013, China’s per capita consumption showed a further decrease.
However, the consumption pattern has changed and the wine consumption has grown into a mass consumption accompanied by a decrease
in wine price. Compared with the world average consumption, China’s per capita wine consumption has been around one-third
of the world’s average since 2010. The relatively low per capita wine consumption in China indicates great growth potential
for China’s wine market in the future.
According to the CIC report, Chinese consumers
should, between 2017 and 2022, develop the habit of drinking wine rather than other alcoholic beverages, wine consumption is
considered a healthier option. In addition, the development of O2O platforms selling wine will most certainly facilitate the purchase
of wine in China.
There are three market drivers
for China’s wine market. Firstly, China’s per capita disposable income has been increasing rapidly mainly due
to increasing wages. Rising disposable income translates into increasing purchasing power for Chinese people; it also means
that Chinese people tend to focus more on their quality of life. As wine is considered in China as a premium product with
some beneficial health effect, we believe that increasing purchasing power will stimulate the further growth of wine
consumption. In addition, the characteristics associated with drinking wine, such as beautification and antioxidation, play
an important role in contributing to its consumption, especially for female customers. Secondly, China’s urbanization
rate has been improving greatly during the past decades and the Chinese government sets up the goal that the urbanization
rate of China is set to reach 60% by 2020. With the further improvement of the urbanization rate in China, the retail sales
market is experiencing a rapid growth in urban regions in China. Thirdly, there are favorable national and international
policies for imported wine. According to bilateral trade agreements signed by the PRC government with New Zealand, Chile and
Australia, imported goods from the three countries will benefit from low tariff rates, effective from 2019. According to
those agreements, by 2019, these tariffs will be totally eliminated. This favorable policy should reduce the wine retailing
price and hence contribute to a growth in sales.
Our Strengths
Our Company has a high brand recognition
in the Chinese Fenjiu liquor market
Our “Dagangjiu” brand Fenjiu
liquor is one of the Chinese Fenjiu liquor market’s popular brands. We believe that we have built a reputation among Chinese
drinkers as a reliable Fenjiu liquor brand. Our customers choose our Fenjiu products for personal enjoyment, gifts for loved ones
or superior quality alcohol for special occasions such as weddings and other traditional Chinese festivities. We have also leveraged
the strength of the Fenjiu Group to become one of the leading Fenjiu brands in international alcohol festivals such as the World
Wine Culture Expo held in Shanxi, China in 2017. We believe our high brand recognition anchors our packaging and distribution
business with strong customer goodwill in Shanxi province and beyond, providing us with a competitive advantage.
Our Marketing Experts’ Extensive
Experience and Superior Reputation in our Industry
We believe that our competitors’
marketing team cannot match our marketing experts’ extensive industry experience and their superior reputation. We believe
our commercial campaigns build strong credibility with consumers and potential liquor distribution partners and shape the market
trends of consumer preferences and business evolutions in the industry.
Additionally, we believe our marketing
expertise and design proficiency required to successfully attract new customers combined with our ability to generate a range of
business concepts and capability to customize each sales opportunity according to customers’ need are advantages when competing
in the Chinese Fenjiu market. Our expertise also allows us to successfully manage the numerous regional and cultural complexities
involved in operating a traditional liquor business in China.
A Flexible Business Model
Our current business model is flexible.
It can be diversified in terms of the product flavors we serve and producers we sign commissions with. While operating a mix of
marketing campaigns and business concepts under our own registered trademarks “Dagangjiu” and “Dagang Jiufang”,
we entrust the liquor production to reputed large-scale producers. Currently, we are in a strategic partnership with Fenjiu Group.
Although our current business strategy
emphasizes on the marketing, packaging and distribution of Fenjiu liquor and imported wines, should we want to change our business
strategy to cater to more popular product types such as Luzhou-flavor liquor and Maotai-flavor liquor, we can quickly adjust our
marketing concepts and product packaging to meet customers’ evolving needs and preferences. Since our bard is well recognized
and the intellectual property used for our brand is owned by us, we can change our strategic partnerships to address new product
preferences while maintaining our accumulated goodwill. This approach enables us to update marketing concepts and product mix any
time and allows us to be flexible in our marketing approach.
This reliable and flexible business model has contributed to
the marketing resilience of our business performance.
Service-driven and Cohesive Management Team
Our talented and dedicated senior
management team has guided our organization through its expansion and, we believe, positioned us for continued growth. Each
member of our team has an average of 20 years of expertise. Additionally, our management team possesses extensive experience
across a broad range of disciplines, including Chinese liquor marketing, sales, E-Commerce, finance, franchising and business
management. Our management team embraces our core purpose to “promote premium alcoholic beverages to the Chinese
population of all ages” and exemplifies our passionate and customer-oriented culture, which is shared by our employees
throughout our company. We believe this results in a service-driven and cohesive management team focused on long-term
business growth.
Principal Products and Services
For the year ended June 30, 2018, we generated
revenue of approximately 84.9% from Fenjiu liquor wholesale and approximately 15.1% from imported wine wholesale. For the year
ended June 30, 2017, we generated revenue of approximately 89.9% from Fenjiu liquor wholesale and approximately 10.1% from imported
wine wholesale. We have not experienced any seasonality in our business.
Fenjiu Liquor Wholesale
For our Fenjiu liquor wholesale
business, we secure a strategic partnership with dealers based on our market survey data, market positioning data, sales
channels data, sales capabilities data and sales potential evaluation. We further evaluate dealers according to their
geographical and administrative area and categorize them into provincial, municipal and county agents. We establish
cooperative relationships and strategic sales partnership amongst them to further facilitate the sales of our products. We
wholesale our Fenjiu liquor products directly to these dealers.
In addition, we target dealers with sales
access to retail stores and outlets. We sell our Fenjiu products with simple and bulk packaging to these dealers. The main idea
is to achieve profit margins through the reduction of high-end designs and packaging while maintaining a relatively low price
of our Fenjiu liquor products. Through this approach, we believe we can reach a greater number of Chinese customers who are attracted
by the cost-effectiveness of our products. We sell our products to our dealers who then resell these products to retail stores
and outlets.
Revenue generated from our Fenjiu liquor
wholesale business accounted for 89.9% and 84.9%, respectively, of the total revenue derived from our general business in 2017
and 2018.
Imported Wine Wholesale
For our imported wine wholesale business,
we secure strategic partnerships with dealers based on our market survey data, market positioning data, sales channels data, sales
capabilities data and sales potential evaluation. We further evaluate dealers according to their geographical and administrative
area and categorize them into provincial, municipal and county agents. We establish cooperative relationships and strategic sales
partnership amongst them to further facilitate the sales of our products. We wholesale our imported wines directly to these dealers.
Revenue generated from our imported wine
wholesale business accounted for 10.1% of the total revenue derived from our general business in 2017.
Competition
There is intense competition in the Chinese
liquor market. As a result, customers face a tremendous number of choices when deciding which brand or product to choose from.
Fenjiu Group has nearly 1,000 multi-layered
distributors as of the beginning of 2018, with these distributors often serving as Fenjiu brand co-builders. Although the Fenjiu
Group is now widely known as the only producer of Fenjiu throughout the market, intense competition in the wholesale market remains
since Fenjiu liquor distributors will continue working to co-build and enhance their respective brand image alongside Fenjiu Group
to capture additional market share from competitors. By the end of 2016, there were nearly 1,000 distributors of Fenjiu liquor
in China.
Distributors range from mom-and-pop stores in Shanxi
Province to larger companies with years of experience in the Fenjiu liquor industry, each competing for a fair share of the market.
Competition is even more intense amongst the distributors within the same region.
The wine industry in China is also very
competitive. Competitors conduct various marketing activities and pricing strategies in an effort to keep their market shares,
which directly impact our sales, revenues and profitability. We follow the market trend constantly and adjust our own advertising,
promotion, pricing and sourcing strategies accordingly. In addition, competitors in the Chinese wine market compete against us
for regaining highly qualified marketing personnel and staff members.
In response to the intense competition
in the Chinese liquor and wine markets, we have implemented a number of initiatives designed to expand revenues. Our revenue enhancement
initiatives include expanding our marketing efforts, developing new products and working with start-up and bulk-sale customers
to decrease our marketing costs.
Regulations
Huaxin is in the alcohol wholesale business,
including Fenjiu liquor wholesale and imported wine wholesale, in China. Huaxin is subject to various existing and probable governmental
regulations on its alcohol wholesale business.
According to the Regulations on Administration
of Liquor of Shanxi Province which came into effect on January 1, 2000, entities or individuals who engage in liquor wholesale
in Shanxi Province shall apply for a License for Liquor Wholesale. Huaxin has obtained the License for Liquor Wholesale and such
license will expire on December 31, 2018. Also, Huaxin is required to obtain the Food Operation License pursuant to the Administrative
Measures for Food Operation Licensing which came into effect on November 17, 2017. Huaxin has obtained Food Operation License
and such license will expire on August 31, 2022. Nevertheless, Huaxin may be subject to penalties by PRC regulatory authorities
if the wholesale license and food operation license is not timely renewed after expiration.
Currently, license for liquor wholesale
is no longer required in nationwide level, but it is still required in some particular Provinces, such as Shanxi Province and Shanghai.
In addition to Shanxi Province, the Company also sell liquor to other Provinces, namely Fujian, Ningxia, Gansu, Xinjiang, Beijing,
Shanghai and Hebei Province. Liquor wholesale business of the Company is operated by its subsidiaries, Huaxin and Fenyang Jinqiang
Wine Co., Ltd. (“Jinqiang”), both of which were established in Shanxi Province and have obtained wholesale licenses
in Shanxi Province. According to our telephone consultation with the competent authorities in Beijing, Shanghai, Ningxia, Gansu
and Hebei, no wholesale license is required for Huaxin or Jinqiang in such Provinces since Huaxin and Jinqiang were established
in Shanxi Province and have already obtained wholesale licenses in Shanxi Province. In conclusion, no further wholesale license
is required in other Provinces where the Company operates its business, unless the Company newly establish operating entity in
such Provinces and license is still required for liquor wholesale business in such Provinces.
Regarding the imported wine business,
pursuant to the Foreign Trade Law of the People’s Republic of China (Revised in 2016), a foreign trade operator engaged
in import and export of goods shall register with competent local regulatory authorities in Shanxi Province that in charge of
foreign trades; and pursuant to the Administrative Provisions of the Customs of the People’s Republic of China on the Registration
of Customs Declaration Entities, consignors and consignees of imported and exported goods shall go through customs declaration
entity registration formalities with their local Customs in accordance with the applicable provisions. Huaxin has completed the
registration for a record as a foreign trade operator and has obtained Certificate of the Customs of the People’s Republic
of China on the Registration of Customs Declaration Entities. The registration for a record as a foreign trade operator has no
time limit; while the validity period for Certificate of the Customs of the PRC on the Registration of Customs Declaration Entities
is two years and such certificate can be renewed before the expiration date. Nevertheless, Huaxin may be subject to penalties
by PRC regulatory authorities if Huaxin fails to go through the modification formalities in the event of a change to any of its
details registered with the competent governmental authorities including its name, nature, domicile and legal representative.
Customers
Our customers are
downstream distributors. We rely upon several of our large customers from whom we generated substantial revenue each year,
and the composition of our largest customers has changed from year to year. For the year ended June 30, 2018, five of our
customers, Beijing Huaxin Rongfa Trading Co., Ltd., Fuqing Jing Hong Trading Co., Ltd., Shanghai Baiwang Trading Co., Ltd.,
New Venus Trade (Fujian) Group Co., Ltd. and Shanxi Moneng Trading Co., Ltd. represented approximately 16.3%, 16.2%, 11.5%,
11.2% and 10.6% of Huaxin’s revenue, respectively. For the year ended June 30, 2017, four of our customers, Fuqing
Jing Hong Trading Co., Ltd., Beijing Huaxin Rongfa Trading Co., Ltd., New Venus Trade (Fujian) Group Co., Ltd. and
Shanghai Baiwang Trading Co., Ltd. represented approximately 27%, 30%, 11% and 15% of Huaxin’s revenue, respectively.
Huaxin currently engages its major customers with purchase agreements negotiated on an arm’s length basis. These
purchase agreements customarily cover a one-year period and contain material subsections such as targeted customers’
selling goals, representation and warranties of the customers, rights and responsibility of the customers, pricing
adjustment, logistics and shipping, payment methods, downstream management and dispute resolutions. While we believe that one
or more of our major customers could account for a significant portion of our sales for at least the year 2019, we anticipate
that our customer’s base will continue to expand and that in the future we will be less dependent on major
customers.
Suppliers
We primarily rely upon five main suppliers from whom we purchase
materials each year. For the year ended June 30, 2018, five of our suppliers, Shanxi Xinghuacun Liquor Group Wine Industry Development
Zone Sales Co., Ltd., Fuzhou Tongshunda Trading Co., Ltd., Fenyang Xinghua Haokoufu Wine Industry Flagship Store, Shanxi Yuanquan
Drinking Co., Ltd. and Shanxi Xinjin Merchants Wine Group Co., Ltd., accounted for 41%, 17%, 10%, 8% and 8% of our total supply
purchases. For the year ended June 30, 2017, five of our suppliers, Shanxi Yuanquan Drinking Co., Ltd., Shanxi Wanli Wine Industry
Sales Co., Ltd., Fuyang City Xinghua Haokoufu Wine Industry Flagship Store, Shanxi Xinjin Merchants Wine Group Co., Ltd. and Fuzhou
Tongshunda Trading Co., Ltd. represented for 45%, 21%, 13%, 11% and 8% of the total supply purchases. All supplier contracts with
large suppliers were entered from year to year on an arm’s length basis.
In general, we enter into procurement agreements in the ordinary
course of business with our suppliers, pursuant to a form of supply order typically on a “deal by deal” basis. However,
we have a strategic partnership with Fenjiu Group. We entered into a partnership agreement with Fenjiu Group on June 30, 2017,
pursuant to which Fenjiu Group has agreed to supply us $4,379,850 worth of Fenjiu liquor during a three-year period. We are committed
to buy and sell $4,379,850 worth of Fenjiu liquor pursuant to the strategic partnership agreement.
Intellectual Property
Protection of our intellectual property
is a strategic priority for our business. We rely on a combination of patent, copyright, trademark and trade secret laws, as well
as confidentiality agreements, to establish and protect our proprietary rights. We do not rely on third-party licenses of intellectual
property for use in our business.
As of the date of this Annual Report on
Form 10-K, we had obtained two patents for liquor-making devices that can change proofs of various liquors, both of which were
registered in 2015. Our issued PRC patents will expire in 2025. As of the date of this Annual Report on Form 10-K, we had registered
10 trademarks and had submitted 11 additional trademark applications. Our registered PRC trademarks will expire between 2024 and
2028 but can be renewed before the trademarks’ respective expiration date. As of the date of this Annual Report on Form 10-K,
we had obtained two registered domain names.
In addition to the foregoing protections,
we generally control access to and use of our proprietary and other confidential information through the use of internal and external
controls, such as the use of confidentiality agreement with our employees.
Employees
As of the date of this report, we had 54 employees
throughout our operations in 4 offices and 3 warehouses. None of our employees are covered by a collective bargaining agreement.
We have not experienced any work stoppages and we consider our relations with our employees to be good.
WHERE YOU CAN FIND MORE INFORMATION
The registrant is subject to the requirements
of the Exchange Act, and files reports, proxy statements and other information with the SEC. You may read and copy these reports,
proxy statements and other information at the public reference room maintained by the SEC at its Public Reference Room, located
at 100 F Street, N.E. Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling
the SEC at (800) SEC-0330. In addition, we are required to file electronic versions of those materials with the SEC through the
SEC’s EDGAR system. The SEC also maintains a website at http://www.sec.gov, which contains reports, proxy statements and
other information regarding registrants that file electronically with the SEC.