Item
2.01 Completion of Acquisition or Disposition of Assets.
EQUITY
INTEREST TRANSFER AGREEMENT
As
previously disclosed on the Current Report on Form 8-K, on June 22, 2020, FVTI, along with Qianhai DaXingHuaShang Investment (Shenzhen)
Co., Ltd., a company incorporated in China and a wholly-owned subsidiary of FVTI (“QHDX”), entered into the Original
Agreement with Dongguan Xixingdao Technology Co., Ltd. (“Xixingdao”), a company incorporated in China, and the two
shareholders of Xixingdao, who collectively own 100% equity interest of Xixingdao (the “Sellers”). Xixingdao is engaged
in the business of drinking water distribution and delivery in Dongguan City, Guangdong Province, China.
Pursuant
to the Original Agreement, QHDX agreed to purchase 90% of Xixingdao’s equity interest (the “Equity Transfer”)
from the Sellers in consideration of shares of FVTI’s common stock (“Issuable Shares”). The completion of the
registration of the Equity Transfer with local government authorities (the “Closing”) is subject to satisfaction of
all the closing conditions (unless waived), including, but not limited to, (a) completion of due diligence review of Xixingdao
to the satisfaction of QHDX, (b) completion of the initial draft of the audited financial statements of Xixingdao
for the fiscal year ended December 31, 2019, and (c) execution of non-competition agreements and confidentiality agreements with
the senior management members of Xixingdao.
According
to the Original Agreement, the total number of Issuable Shares will be determined according to the following formula:
Number
of Issuable Shares = A x 15 ÷ B ÷ C
For
the purpose of the foregoing formula:
A
= Audited net profit of Xixingdao during the period from June 1, 2020 to May 31, 2021.
B
= The average of the closing prices of FVTI’s common stock for the 30 business days before the date the Issuable Shares
are issued.
C
= The central parity rate of Chinese Yuan against U.S. Dollars on the date the Issuable Shares are issued as reported by China
Foreign Exchange Trading Center.
Xixingdao
and Sellers have agreed to achieve certain operation objectives of Xixingdao, including a net profit of RMB 4 million (approximately
$565,155) for the period from January 1, 2020 to December 31, 2020. Pursuant to the Original Agreement, as long as Yuwen Li, one
of the Sellers, continues to serve as the general manager and legal representative of Xixingdao, Xixingdao and Sellers shall ensure
Xixingdao achieves an increase in annual net profit of no less than 10% during its fiscal years between 2022 to 2025.
To
ensure the continuous operations of Xixingdao, the parties agreed that Xixingdao will retain their existing employees and will
enter into non-competition and employment agreements with the management team of Xixingdao.
Pursuant
to the Original Agreement, Xixingdao will establish a board of directors consisting of three individuals, two of which will be
designated by QHDX and one by the Sellers, and appoint a person designated by the Sellers as general manager.
The
parties further agreed that Xixingdao will not make any profit distribution within four years after the execution of the Original
Agreement. In the event of a late payment of the consideration by QHDX or any delay in the registration of the Equity Transfer
with local government caused by the Sellers, a daily penalty of 0.01% of the outstanding payment is assessed.
On
August 31, 2020, Xixingdao registered the Equity Transfer with local government authorities in China. The closing of the Equity
Transfer remains subject to additional closing conditions, including the issuance of shares by FVTI to the Sellers.
On
December 18, 2020, parties to the Original Agreement entered into an Amendment, pursuant to which, the total number of
Issuable Shares will be determined according to the revised formula as follows:
Number
of Issuable Shares = X x 15 ÷ Y ÷ Z
For
the purpose of the foregoing formula:
X
= RMB 4 million
Y
= The average of the closing prices of FVTI’s common stock for the 30 business days before the date the Issuable Shares
are issued.
Z
= The central parity rate of Chinese Yuan against U.S. Dollars on the date the Issuable Shares are issued as reported by China
Foreign Exchange Trading Center.
In
addition, parties have agreed that the Issuable Shares are to be held in an escrow account and released within 30 days to the
Sellers upon the satisfaction of (a) a net profit of Xixingdao of RMB 4 million (approximately $565,155) for the period from January
1, 2020 to December 31, 2020, and (b) the completion of audit of Xixingdao by the independent registered accounting firm. In the
event those operation objectives are achieved, FVTI is entitled to repurchase at no cost the number of Issuable Shares that is
equivalent to the amount of unachieved net profit according to the formula below:
Number
of Issuable Shares Subject to Repurchase = Total Number of Issuable Shares x (1 – The Achieved Net Profit in RMB ÷
RMB 4 million)
Parties
have agreed to waive the operation objective of an increase in annual net profit of no less than 10% during its fiscal years between
2022 to 2025, which was contemplated in the Original Agreement.
On December 28, 2020,
the parties closed the Equity Interest Transfer Agreement.
DESCRIPTION
OF BUSINESS
Overview
Xixingdao
is a drinking water delivery company with an extensive city-wide distribution network in Dongguan City, Guangdong Province, China.
Xixingdao provides refreshing water choices for home and office and delivers bottled water directly to an estimated five million
customers in Dongguan. In addition to the principal business of bottled water delivery, Xixingdao has also expanded its delivery
services for groceries. Demand for bottled water during the warmer months is generally greater than during cooler months.
Xixingdao
has a total of 13 full-time employees as of the date of this report. Its management team comprises of members
with over 15 years of experience in delivery and logistics industries.
Xixingdao’s
headquarters are located in Dongguan, where it leased one principal executive office of 500 square meters.
Xixingdao
has a registered trademark of “Shuiyijia,” which is well recognized in the Dongguan market.
As
the date of this report, Xixingdao is not a party to, and it is not aware of any threat of, any legal proceeding that, in the
opinion of its management, is likely to have a material adverse effect on its business, financial condition or operations.
Regulations
Water
delivery businesses are subject to the following laws and regulations:
Food
Safety
According
to the Food Safety Law of the People’s Republic of China (the “PRC “) (the “Food Safety Law”), as
promulgated by the Standing Committee of the National People’s Congress (the “NPCSC”) on February 28, 2009,
took effective on June 1, 2009 and amended on April 24, 2015, December 29, 2018, and Implementing Regulations of the Food Safety
Law of the PRC (“Implementing Regulations of the Food Safety Law”), passed by the State Council on July 20, 2009 and
amended on February 6, 2016 and December 1, 2019, food producers and business operators shall, in accordance with laws, regulations
and food safety standards, engage in production and business operation activities, establish a sound food safety management system,
and take effective measures to prevent and control food safety risks, thus ensuring food safety.
According
to the Food Safety Law and the Implementing Regulations of the Food Safety Law, food safety standards are mandatory standards,
other than food safety standards, no food mandatory standard shall be formulated. The health administrative department under the
State Council shall, in concert with the food safety administration under the State Council, be responsible for the formulation
and release of national food safety standards. The standardization administrative department under the State Council shall provide
the reference codes for these national standards. The health administrative department of the State Council shall, in collaboration
with the food safety supervision and management department and the agriculture administrative department, etc. of the State Council,
develop a national standard plan on food safety and an annual plan for the implementation thereof. For local special foods without
national food safety standards, the health administrative departments of the people’s governments of provinces, autonomous
regions and municipalities directly under the Central Government may formulate and publish local food safety standards and submit
the same to the health administrative department under the State Council for filing. After the national food safety standards
are formulated, such local standards shall be nullified immediately.
The
State encourages food producers to formulate corporate standards that are stricter than the national or local food safety standards.
Such corporate standards apply to such producers and shall be reported to the health administrative department of the people’s
governments of provinces, autonomous regions and municipalities directly under the Central Government for filing. The health administrative
departments of the people’s governments at the provincial level or above shall promulgate on their respective websites the
national and local food safety standards and corporate standards formulated and filed for inquiry and downloading by the public
free of charge.
The
State has established a food recall system according to the Food Safety Law and the Implementing Regulations of the Food Safety
Law. Upon discovery of food produced not conforming to food safety standards or if there is any evidence proving that the foods
produced may harm human health, food producers and operators shall (i) immediately cease production, recall foods in the market,
notify the relevant food producers, operators and consumers thereof, and keep records of the recall and notification status; (ii)
immediately cease operation, notify the relevant food producers, operators and consumers thereof, and keep records of the cessation
and notification status. If a food producer considers a recall as necessary, then foods in the market shall be recalled immediately.
Food
Production and Trading License
According
to the Food Safety Law and the Implementing Regulations of the Food Safety Law as amended, the State implements a licensing system
for the food production and trading. However, no license is required for the sale of edible agricultural products. For packaging
materials with direct contact with food and other food-related products with higher risks, the production licensing shall be implemented
in accordance with the relevant administrative provisions of the State on production licenses for industrial products.
Pursuant
to the Administrative Measures of Food Production Licensing promulgated by the State Administration for Market Regulation on January
2, 2020 and took effect on March 1, 2020, the food production license is valid for five years and is subject to the “one
entity, one license” principle. Pursuant to the Administrative Measures for Food Operation Licensing, which was promulgated
by the China Food and Drug Administration (the “CFDA”) on August 31, 2015, took effect on October 1, 2015 and was
latest amended on November 17, 2017, entities engaging in food selling and catering services in the PRC shall obtain a food operation
license. The principle of one license for one site shall apply to the food operation license. Food and drug administrative authorities
shall implement classified licensing for food operation according to food operators’ types and the degree of risk of their
operation projects. The food operation license is valid for five years.
The
food safety supervision and management department under the State Council is responsible for the inspection and guiding the management
of national food production and business operation licensing. The food safety supervision and management department of each local
people’s government at or above the county level is responsible for the inspection and guiding the management of food production
and business operation licensing within the respective administrative area. They shall impose penalties for the violations of
regulatory requirements.
Food
Labelling Management
According
to the Food Safety Law, packaged food shall be labeled. The labels shall include the following items: (1) name, specification,
net weight, and production date; (2) content or ingredient table;(3) name, address, and contact information of the producer; (4)
best before date; (5) the standards code of the product; (6) storage conditions; (7) generic names of food additives used under
the national standards; (8) the production license number; and (9) other items that are required by laws, regulations and food
safety standards. Major nutrition facts and contents shall be specified on the labels of staple foods and supplementary foods
exclusively for infants and other designated groups. Where national food safety standards have otherwise provisions on label matters,
those provisions shall prevail. Food operators shall sell food in accordance with warning marks, warning specifications or cautions
stated on labels thereof. According to the provisions of the Food Safety Law, The health administrative department under the State
Council issued on April 20, 2011, and implemented on April 20, 2012, the General Principles of Prepackaged Food Labeling of GB
7718- 2011 National Food Safety Standard (GB 7718-2011).
Drinking
Water Management
According
to the Standards for Drinking Water Quality (GB5749-2006) as promulgated by the Ministry of Health of the PRC (National Health
Commission of the PRC) and Standardization Administration on December 29, 2006, took effective on July 1, 2007, all drinking water
must meet this standard. The standard contains 13 national standards for sanitary inspection of drinking water. The water quality
indexes increase to 106 items from 35 items of GB5749-1985, up 71 items, 8 of previous items have been revised.
The
Packaged Drinking Water (GB19298-2014) was promulgated by National Health and Family Planning Commission of PRC (the National
Health Commission of the PRC) on December 24, 2014, took effective on May 24, 2015.This standard specifies the product scope,
requirements, inspection methods, label identification and name of packaged drinking water.
According
to the Drinking Natural Mineral Water (GB8537-2018), as promulgated by the National Health Commission of the PRC on June 21, 2018,
took effective on June 21, 2019, the standard is a mandatory national standard, which specifies the product classification, requirements,
inspection methods, inspection rules, marks, packaging, transportation and storage of drinking natural mineral water.
Product
Quality and Product Liability
Product
Quality
In
accordance with the Product Quality Law of the PRC (the “Product Quality Law”), as promulgated by the NPCSC on February
22, 1993, took effective on September 1, 1993 and last amended on December 29, 2018, producers and sellers are liable for the
quality of the products they produce or sell. Where anyone produces or sells products that do not comply with the relevant national
or industrial standards and requirements safeguarding the health and safety of persons and property, they shall be ordered by
the relevant authorities to stop production and/or sale of the products; the products illegally produced and/or sold shall be
confiscated; a fine not less than the equivalent of, but not more than three times, the value of the products illegally produced
or sold (including those already sold and those not yet sold, hereinafter the same)shall be imposed concurrently; if there are
illegal proceeds, such proceeds shall be confiscated concurrently; if the circumstances are serious, the business license shall
be revoked. If the case constitutes a crime, criminal liability shall be investigated in accordance with the law.
According
to the Measure for the Supervision and Administration of the Sanitation of Drinking Water, as promulgated by the National Health
Commission of the PRC on April 17, 2016, took effective on June 1, 2016, all units and individuals within the territory of the
PRC shall abide by the measures. The measure is to ensure the safety of drinking water, protect human health, and strengthen supervision
and management.
According
to the Notice on urging drinking water production enterprises to strengthen safety management of added substances, as passed by
the General Administration of Quality Supervision, Inspection and Quarantine of the PRC (State Administration for Market Regulation)
on August 3, 2009, took effective on the same day, business operators shall take effective measures to strengthen safety management.
The notice is to protect human health, standardize production, and further strengthen the supervision of drinking water production
enterprises.
The
Notice on further strengthening the supervision and management of the quality and safety of “Big Buckets of Water,”
as passed by the National Medical Products Administration (State Administration for Market Regulation) on March 31, 2014, took
effective on the same day, emphasizes the strict implementation of the main responsibility of production enterprises, the strict
implementation of production license, the strict implementation of supervision and inspection, the strict supervision and random
inspection of products, and the strict investigation and punishment of illegal acts.
Protection
of Consumer Rights and Interests
The
Law of the PRC on the Protection of Consumer Rights and Interests, as passed by the NPCSC on October 31, 1993 and last amended
on October 25, 2013 contains the code of conduct for business operators when dealing with consumers, including but not limited
to: (i) the goods and services shall comply with the Product Quality Law and other relevant laws and regulations; (ii) accurate
information about the goods and services and the quality and use of such goods and services; (iii) issue invoice shopping vouchers
or service documents to consumers in accordance with relevant national regulations, business practices or at the request of consumers;
(iv) ensure that the actual quality and function of the goods or services are consistent with the quality of the goods or services
indicated by advertising data, product descriptions, samples or other means; (v) assume responsibility for repair, replacement,
refund or other liability under national regulations or any agreement with consumers; and (vi) not to create terms that are unreasonable
or unfair to consumers, or exempt themselves from civil liability when they damage consumers’ legitimate rights and interests.
RISK
FACTORS
The
following factors should be considered in evaluating the business and future prospects of Xixingdao. Any of the following risks,
either alone or taken together, could materially harm its business, financial condition, and results of operations. If one or
more of these or other risks or uncertainties materialize, or if its underlying assumptions prove to be incorrect, our business,
financial condition, and results of operations could be materially harmed. Unless otherwise indicated or the context otherwise
requires, references in this report to “we,” “our” “us” and other similar terms refer to Xixingdao.
Our
water deliveries is subject to various contaminants which may result in disruption in our services, additional costs, loss of
revenue, fines, laws and/or regulations, and litigation which could harm our business, reputation, financial condition, and results
of operations.
Our
water delivery is subject to possible contaminants, including those from:
|
|
●
|
naturally
occurring compounds or man-made substances;
|
|
|
●
|
chemicals
and other hazardous materials;
|
|
|
●
|
lead
and other materials; and
|
|
|
●
|
pharmaceuticals
and personal care products.
|
Depending
on the nature of the water contamination, we may have to substitute our water supply, including if practicable, the purchase of
water from other suppliers. We may experience a loss of revenue and incur significant costs, including, but not limited to, costs
for water quality monitoring, the purchase of alternative water supplies, or litigation related matters, including governmental
enforcement actions. If we are unable to adequately substitute a water supply from an uncontaminated water source in a timely
or cost-effective manner, there may be an adverse effect on our business, reputation, financial condition, and results of operations.
We could also be subject to:
|
|
●
|
claims
for consequences arising out of human exposure to contamination and/or hazardous substances in our water supplies, including
toxic torts;
|
|
|
●
|
claims
for customers’ business interruption as a result of an interruption in water service;
|
|
|
●
|
claims
for breach of contract;
|
|
|
●
|
criminal
enforcement actions;
|
|
|
●
|
regulatory
fines; or
|
|
|
●
|
other
claims.
|
We
may incur costs to defend our position and/or incur reputational damage even if we are not liable for consequences arising out
of human exposure to contamination and/or hazardous substances in our water delivery, other environmental damage, or our customer’s
business interruption. Such claims or actions could harm our business, reputation, financial condition, and results of operations.
Our
operations are geographically concentrated in the city of Dongguan, which make us susceptible to risks affecting Dongguan.
Our
operations are concentrated in the city of Dongguan. As a result, our financial results are largely subject to political, resource
supply, labor, utility cost and regulatory risks, economic conditions, natural disasters and other risks affecting Dongguan.
Our
business is impacted by weather conditions and is subject to seasonal fluctuations, which could harm demand for water service
and our business, financial condition, and results of operations.
Demand
for our water during the warmer months is generally greater than during cooler months. Throughout the year, and particularly during
typically warmer months, demand will vary with temperature. In the event that the demand for our water decreases, it will harm
our business, financial condition, and results of operations.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
The
following discussion and analysis should be read in conjunction with our financial statements and related notes thereto. Unless
otherwise indicated or the context otherwise requires, references in this report to “we,” “our” “us”
and other similar terms refer to Xixingdao.
Results
of Operations of period from May 31, 2019 to December 31, 2019
|
|
|
2019
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
585,454
|
|
|
Cost of revenues
|
|
|
291,784
|
|
|
Gross profit
|
|
|
293,670
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
Selling and marketing expenses
|
|
|
12,812
|
|
|
General and administrative expenses
|
|
|
51,044
|
|
|
|
|
|
63,856
|
|
|
Operating income
|
|
|
229,814
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
31
|
|
|
|
|
|
|
|
|
Earnings before tax
|
|
|
229,783
|
|
|
|
|
|
|
|
|
Income tax
|
|
|
16,655
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
213,128
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
Foreign currency translation income
|
|
|
(2,501
|
)
|
|
Comprehensive income
|
|
$
|
210,627
|
|
Revenue
Net revenues totaled $585,454
for the period from May 31, 2019 to December 31, 2019. The reason for the increase was the inception of sales
water and beverages by the Company.
Cost
of revenue
Cost of revenue totaled
$291,784 for the period from May 31, 2019 to December 31, 2019. The reason for the increase in cost of revenue
was the inception of sales and related costs by the Company.
Gross
profit
Gross profit was $293,670
for the period from May 31, 2019 to December 31, 2019. This represents approximately a 50% gross profit margin.
Operating
expenses
General and administrative
expenses totaled $63,856 for the period from May 31, 2019 to December 31, 2019. The main reason was the inception
of regular business activities including sales of water products by the Company.
Net
income
Net income totaled $213,128
for the period from May 31, 2019 to December 31, 2019. This comes as the result of the Company starting business activities.
Liquidity
and Capital Resources as of December 31, 2019
Working
capital
|
|
|
As
of December 31,
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
|
Total current assets
|
|
$
|
32,634
|
|
|
$
|
-
|
|
|
$
|
32,634
|
|
|
Total current liabilities
|
|
|
126,244
|
|
|
|
-
|
|
|
|
126,244
|
|
|
Working capital deficit
|
|
|
(93,610
|
)
|
|
|
-
|
|
|
|
(93,610
|
)
|
As
of December 31, 2019, we had cash and cash equivalents in the amount of $3. We financed our operations primarily though
borrowings from related parties. The change in working capital was primarily from an increase in due from related party of $48,593.
Cash
Flows for the period from May 31, 2019 to December 31, 2019
|
|
|
Period
ended December 31,
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
|
Cash flows generated
in operating activities
|
|
$
|
229,394
|
|
|
$
|
-
|
|
|
$
|
229,394
|
|
|
Cash flows used in investing
activities
|
|
|
(278,559
|
)
|
|
|
-
|
|
|
|
(278,559
|
)
|
|
Cash flows provided by financing activities
|
|
|
49,169
|
|
|
|
-
|
|
|
|
49,169
|
|
|
Net increase in cash
during period
|
|
$
|
4
|
|
|
$
|
-
|
|
|
$
|
4
|
|
Cash
Flow from Operating Activities
Cash flow generated
in operating activities for the period from May 31, 2019 to December 31, 2019 was $229,394. This was the result
of the initial recognition of depreciation and amortization of $1,740, an increase in inventory of $33,019,
an increase in accounts payable of $17,215, and an increase in taxes payable $34,290. These increases
are the result of the Company’s first year of operations.
Cash
Flow in Investing Activities
Cash flow used in investing
activities was $278,559 for the period from May 31, 2019 to December 31, 2019. The increase in net cash flow used was
for the security deposits for bottles as a requirement set forth by the Company’s suppliers.
Cash
Flow from Financing Activities
Cash flow provided by
financing activities was $49,169 for period from May 31, 2019 to December 31, 2019. This increase was the result
of advances from related parties to finance the business.
Results of Operations for the six months
ended June 30, 2020 compared to the period from May 31, 2019 to June 30, 2019:
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
121,033
|
|
|
$
|
18,755
|
|
|
$
|
102,278
|
|
|
Cost of revenues
|
|
|
88,613
|
|
|
|
17,762
|
|
|
|
70,851
|
|
|
Gross profit
|
|
|
32,420
|
|
|
|
993
|
|
|
|
31,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
89,584
|
|
|
|
8,526
|
|
|
|
81,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(48
|
)
|
|
|
-
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before tax
|
|
|
(57,212
|
)
|
|
|
(7,533
|
)
|
|
|
(49,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(57,212
|
)
|
|
$
|
(7,533
|
)
|
|
$
|
(46,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation income
|
|
|
(2,761
|
)
|
|
|
114
|
|
|
|
(2,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(59,973
|
)
|
|
$
|
(7,419
|
)
|
|
$
|
(52,554
|
)
|
Revenue
Net revenues totaled
$121,033 for the six months ended June 30, 2020 as compared to $18,755 for the period from May 31, 2019 to June 30, 2019, reflecting
an increase of $102,278. The increase is the result of the Company’s continued efforts to increase top line sales of water
and beverages from the Company’s year of inception to its second year of operation.
Cost of revenue
Cost of revenue totaled
$88,613 for the six months end June 30, 2020, as compared to $17,762 for the period from May 31, 2019 to June 30, 2019. The increase
$70,851 is concurrent with the increase top line sale for the same period. The overall increase in cost of revenue was related
to the general increase in sales activity.
Gross profit
Gross profit was $32,420
for the six months ended June 30, 2020 which reflects a 26.7% gross profit margin. Gross profit was $993 for the period from May
31, 2019 to June 30, 2019. Gross profit margins increased when the periods are compared to each other, but they have yet to show
consistency over time, given the amount time measured is still relatively short.
Operating expenses
Selling, general and
administrative expenses totaled $89,584 for the six months ended June 30, 2020 as compared to $8,526 for the period from May 31,
2019 to June 30, 2019. These expenses increased by $81,058, which primarily reflects the Company continuing to ramp up operations
from year one to year two.
Net loss
Net loss totaled $57,212
for the six months ended June 30, 2020 compared to $7,533 for the period from May 31, 2019 to June 30, 2019. The increase loss
comes as the result of the increased business activities not yet reaching economies of scale when covering overhead that is included
in selling, general and administrative expenses.
Liquidity and Capital Resources
Working capital as June 30, 2020
|
|
|
June 30,
2020
|
|
|
December
31, 2019
|
|
|
Change
|
|
|
Total current assets
|
|
$
|
110,048
|
|
|
$
|
32,634
|
|
|
$
|
77,414
|
|
|
Total current liabilities
|
|
|
258,601
|
|
|
|
126,244
|
|
|
|
132,357
|
|
|
Working capital deficit
|
|
|
(148,553
|
)
|
|
|
(93,610
|
)
|
|
|
(54,943
|
)
|
As of June 30, 2020,
we had cash and cash equivalents in the amount of $1,939. We financed our operations primarily though borrowings from related
parties. The change in working capital was primarily from an increase in due from related party of $72,238 for the six months
ended June 30, 2020.
Cash Flows for the six months ended
June 30, 2020 and for the period from May 31, 2019 to June 30, 2019
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
Cash flows generated in operating activities
|
|
$
|
(70,157
|
)
|
|
$
|
(20,112
|
)
|
|
$
|
(50,045
|
)
|
|
Cash flows used in investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Cash flows provided by financing activities
|
|
|
72,238
|
|
|
|
20,557
|
|
|
|
51,681
|
|
|
Net increase in cash during period
|
|
$
|
2,081
|
|
|
$
|
445
|
|
|
$
|
4
|
|
Cash Flow from Operating Activities
Cash flow used in operating
activities for the six months ended June 30, 2020 was $70,157. This is the result of losses in operations, an increase in accounts
receivable of $5,291, an increase in inventory of $15,371, a decrease in accounts payable of $4,495, and an increase in customer
deposits of $8,788. The use of cash reflects the Company efforts to ramp up business by selling on account and holding inventory
to meet the future demand of customers.
Cash Flow from Financing Activities
Cash flow provided
by financing activities was $72,238 for the six months ended June 30, 2020. This increase was the result of advances from related
parties to finance the business.
Critical
Accounting Policy and Estimates
In
the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations
and financial condition in the preparation of our financial statements in conformity with U.S. generally accepted accounting principles.
We base our estimates on historical experience, when available, and on other various assumptions that are believed to be reasonable
under the circumstances. Actual results could differ significantly from those estimates under different assumptions and conditions.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital
resources that is material to investors.