0001213900-22-027053.txt : 20220516 0001213900-22-027053.hdr.sgml : 20220516 20220516164615 ACCESSION NUMBER: 0001213900-22-027053 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 72 CONFORMED PERIOD OF REPORT: 20220331 FILED AS OF DATE: 20220516 DATE AS OF CHANGE: 20220516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROALLIANCE GROUP INC. CENTRAL INDEX KEY: 0001309251 STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080] IRS NUMBER: 861098668 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-123774 FILM NUMBER: 22930260 BUSINESS ADDRESS: STREET 1: ROOM 601, BLDG E, NO. 1 HUABAO FUBAO STREET 2: CHINA ST, FUTIAN DIST, SHENZHEN CITY, CITY: GUANGDONG PROVINCE STATE: F4 ZIP: 518000 BUSINESS PHONE: 604-331-1459 MAIL ADDRESS: STREET 1: ROOM 601, BLDG E, NO. 1 HUABAO FUBAO STREET 2: CHINA ST, FUTIAN DIST, SHENZHEN CITY, CITY: GUANGDONG PROVINCE STATE: F4 ZIP: 518000 FORMER COMPANY: FORMER CONFORMED NAME: FOUNTAIN HEALTHY AGING, INC. DATE OF NAME CHANGE: 20081112 FORMER COMPANY: FORMER CONFORMED NAME: IMMUREBOOST, INC. DATE OF NAME CHANGE: 20070824 FORMER COMPANY: FORMER CONFORMED NAME: eSavingsStore.com, Inc. DATE OF NAME CHANGE: 20060821 10-Q 1 f10q0322_microalliance.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: March 31, 2022

 

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: 333-123774

 

Microalliance Group Inc.

(Exact name of registrant as specified in its charter)

 

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

 

Room 601, Bldg. E,

No. 1, Huabao Fubao China Street, Futian District

Shenzhen City, Guangdong Province 518000

(Address of principal executive offices, Zip Code)

 

+86 185 6676 1769

(Registrant’s telephone number, including area code)

 

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

 

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

  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer   Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 609,316,077 shares as of May 16, 2022. 

 

 

 

 

 

  

TABLE OF CONTENTS

 

  Page
  PART I
FINANCIAL INFORMATION
 
Item 1. Financial Statements. F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 2
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 7
Item 4. Controls and Procedures. 7
  PART
II OTHER INFORMATION
 
Item 1. Legal Proceedings. 8
Item 1A. Risk Factors. 8
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 8
Item 3. Defaults Upon Senior Securities. 8
Item 4. Mine Safety Disclosures. 8
Item 5. Other Information. 8
Item 6. Exhibits. 8

 

i

 

 

PART I

FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

MICROALLIANCE GROUP INC.

TABLE OF CONTENTS

  

    Pages
Condensed Consolidated Balance sheets as of March 31, 2022 (Unaudited) and December 31, 2021 (Audited)   F-2
Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2022 and 2021 (Unaudited)   F-3
Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2022 and 2021 (Unaudited)   F-4
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (Unaudited)   F-5
Notes to Condensed Consolidated Financial Statements for the three months ended March 31, 2022 (Unaudited)   F-6-F-13

 

F-1

 

 

MICROALLIANCE GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

AS OF MARCH 31, 2022 (UNAUDITED) AND DECEMBER 31, 2021 (AUDITED)

 

   March 31,
2022
   December 31,
2021
 
   US$   US$ 
ASSETS          
Current assets:          
Cash and cash equivalents   59,171    1,190,465 
Accounts receivable   2,170,843    3,012,256 
Other receivables   261,141    227,359 
Inventories   18,908,148    14,166,929 
Prepayment   596    28,370 
Advance to suppliers   11,650,978    11,676,326 
Amount due from related parties   32,477    81,690 
Total current assets   33,083,354    30,383,395 
           
Non-current assets:          
Leasehold improvements and equipment, net   406,267    429,500 
Intangible assets   97,488    95,461 
Operating lease right-of-use assets   29,687    83,957 
Total non-current assets   533,442    608,918 
Total assets   33,616,796    30,992,313 
           
LIABILITIES AND EQUITY          
Current liabilities:          
Accounts payable   459,603    29,048 
Income tax payables   860,195    1,334,679 
Other payables and accruals   340,798    481,258 
Advance from customers   553,440    737,515 
Amount due to related parties   40,184    79,849 
Current operating lease liabilities   19,818    69,259 
Total current liabilities   2,274,038    2,731,608 
           
Non-current liabilities:          
Non-current operating lease liabilities   9,869    14,698 
Total non-current liabilities   9,869    14,698 
Total liabilities   2,283,907    2,746,306 
           
COMMITMENTS AND CONTINGENCIES   
 
    
 
 
           
EQUITY (DEFICIT)          
Share capital (750,000,000 shares of Common Stock, par value $0.00001 per share, authorized, of which 609,316,077 shares are issued and outstanding; and 100,000,000 shares of Series A Preferred Stock, par value $0.00001 per share, of which all 100,000,000 shares are issued and outstanding)   
 
    
 
 
Series A Preferred Stock   1,000    1,000 
Common Stock   6,093    6,093 
Additional paid in capital   10,215,427    10,215,427 
Foreign currency translation reserves   291,237    225,508 
Statutory reserves   3,041,397    3,041,397 
Retained earnings   17,777,735    14,756,582 
Total equity   31,332,889    28,246,007 
Total liabilities and equity   33,616,796    30,992,313 

 

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

 

F-2

 

 

MICROALLIANCE GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

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

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021 (UNAUDITED)

 

   2022   2021 
   US$   US$ 
         
Revenue   6,598,289    4,411,258 
Cost of revenue   (1,830,697)   (935,165)
Gross profit   4,767,592    3,476,093 
           
Selling and marketing expenses   (187,614)   (36,479)
General and administrative expense   (516,945)   (267,800)
Total operating expenses   (704,559)   (304,279)
Operating profit   4,063,033    3,171,814 
           
Other (expenses) income, net   (6,777)   (179)
Profit before income taxes   4,056,256    3,171,635 
           
Income taxes   (1,035,103)   (779,372)
Net profit for the year   3,021,153    2,392,263 
           
Foreign currency translation differences   65,729    (21,529)
Total comprehensive income for the year   3,086,882    2,370,734 
           
Earnings per share:          
-  Basic   0.005    0.004 
-  Diluted   0.005    0.004 
           
Weighted average number of shares used in computation:          
-  Basic   609,316,077    600,034,500 
-  Diluted   609,316,077    600,034,500 

 

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

 

F-3

 

 

MICROALLIANCE GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021 (UNAUDITED)

 

   Share Capital       Foreign  

(Accumulated Deficit)

Retain Earnings

     
   Series A
preferred
Stock
   Common
Stock
   Additional
paid in
Capital
   Currency
Translation
Reserve
   Unrestricted   Statutory
Reserve
   Total
Equity
(Deficit)
 
   US$   US$   US$   US$   US$   US$   US$ 
Balance at January 1, 2022 (Audited)   1,000    6,093    10,215,427    225,508    14,756,582    3,041,397    28,246,007 
Profit for the period   
-
    
 
    
-
    
-
    3,021,153    
-
    3,021,153 
Other comprehensive income   
-
    
 
    
-
    65,729    
-
    
-
    65,729 
Balance at March 31, 2022 (Unaudited)   1,000    6,093    10,215,427    291,237    17,777,735    3,041,397    31,332,889 
                                    
Balance at January 1, 2021 (Audited)   1,000    6,000    (15,146)   (54,091)   (980,262)   6,894    (1,035,605)
Profit for the period   
-
    
 
    
-
    
-
    2,392,263    
-
    2,392,263 
Other comprehensive income   
-
    
 
    
-
    (21,529)   
-
    
-
    (21,529)
Balance at March 31, 2021 (Unaudited)   1,000    6,000    (15,146)   (75,620)   1,412,001    6,894    1,335,129 

 

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

 

F-4

 

 

MICROALLIANCE GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021 (UNAUDITED)

 

   2022   2021 
   US$   US$ 
Cash flows from operating activities:        
Net profit   3,021,153    2,392,263 
           
Adjustments for:          
Depreciation and amortization   38,306    14,266 
Changes in:          
Accounts receivable   847,091    (3,546,989)
Other receivables and prepayment   (5,437)   (10,359)
Advance to suppliers   51,038    
-
 
Inventories   (4,704,622)   (1,855)
Accounts payable, other payables and accruals   288,641    941,940 
Income tax payables   (476,884)   774,671 
Advance from customers   (185,490)   (18,777)
Amount due from/to related parties   9,541    (508,965)
Net cash (used in) provided by operating activities   (1,116,663)   36,195 
           
Cash flows from investing activities:          
Additions to leasehold improvements and equipment   (12,549)   (15,424)
Additions to intangible assets   (3,418)   (33,597)
Net cash used in investing activities   (15,967)   (49,021)
           
Effect of exchange rate changes on cash and cash equivalents   1,336    (92)
           
Net decrease in cash and cash equivalents   (1,131,294)   (12,918)
Cash and cash equivalents at the beginning of year   1,190,465    61,517 
Cash and cash equivalents at the end of the year   59,171    48,599 
           
Supplemental disclosure of non-cash investing and financing activities:          
Right-of-use assets obtained in exchange for operating lease obligations   23,180    301,093 

 

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

 

F-5

 

 

MICROALLIANCE GROUP INC.

CONDENSED CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS

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

 

1.DESCRIPTION OF BUSINESS

 

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

 

2.BASIS OF PRESENTATION

  

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

 

The Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on March 31, 2022 (“2021 Form 10-K”).

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a)Use of estimates

 

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

 

There is no change on the accounting policies from the year ended December 31, 2021.

 

(b)Revenue Recognition

 

The Company’s revenues primarily include Company sales, franchise fees and income and revenues from transactions with franchisees.

 

Product sales

 

Product sales represents the sale of “coffee tea” and “spirit” products. Such revenue is recognized net of value-added taxes, upon delivery at such time that title passes to the customers.

 

Franchise fees and income

 

Franchise fees and income primarily include upfront franchise fees, such as initial fees, pre-opening assistance to operate spirit stores, subsequent training provided to franchisees and renewal fees. The Company has determined that the services provided in exchange for upfront franchise fees are highly interrelated with the franchise rights. The franchise rights are accounted for as rights to access the Company’s symbolic intellectual property in accordance with ASC 606, and the Company recognizes upfront franchise fees received from a franchisee as revenue when performance obligations are satisfied in accordance with the franchise agreement or the renewal agreement. The franchise agreement term is typically 3 years.

 

F-6

 

 

Revenues from transactions with franchisees

 

Revenues from transactions with franchisees consist primarily of sales of spirit products. The Company sells and delivers spirit products to the franchisees. The performance obligations arising from such transactions are considered distinct from the franchise agreement as they are not highly dependent on the franchise agreement and the customer can benefit from the procurement service on its own. Revenue is recognized upon transfer of control over ordered items, generally upon delivery to the franchisees.

 

In determining the amount and timing of revenue from contracts with customers, the Company exercises significant judgment with respect to collectability of the amount; however, the timing of recognition does not require significant judgment, as it is based on either the franchise term or the date of product shipment, none of which require estimation.

 

The Company does not incur a significant amount of contract acquisition costs in conducting its franchising activities. The Company believes its franchising arrangements do not contain a significant financing component.

 

The Company’s revenue recognition policy is compliant with ASC 606, Revenue from Contracts with Customers, and revenue is recognized when a customer obtains control of promised goods and is recognized in an amount that reflects the consideration that the Company expects 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 the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount:

 

(i)identification of the goods and services in the contract;

 

(ii)determination of whether the goods and 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.

 

The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes 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, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery or service being rendered.

 

For all reporting periods, the Company has 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.

   

(c)Accounts Receivable

 

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

 

F-7

 

 

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

 

Accounts receivable are recognized and carried at the original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful accounts receivable is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. No allowance for doubtful accounts was made for the three months ended March 31, 2022 and 2021.

 

The following customers had an accounts receivable balance greater than 10% of total accounts receivable at March 31, 2022.

 

   March 31, 2022   December 31, 2021 
   Amount   %   Amount   % 
Customer A  $
-
    -%  $1,540,197    51%
Customer B   
-
    -%   1,472,059    49%
Customer C   1,330,653    61%   
-
    -%
Customer D   840,190    39%   
-
    -%
   $2,170,843    100%  $3,012,256    100%

  

(c)Recently issued accounting pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements. This ASU 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 Accounting Standards Update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual rights to receive cash. For smaller public business entities, the amendments in this Update are effective for fiscal years beginning after January 1, 2023, including interim periods within those fiscal years. All entities may adopt the amendments in this Update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). The Company is in the process of evaluating the impact of the adoption of this pronouncement on its consolidated financial statements.

 

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

 

F-8

 

 

4.RISKS AND UNCERTAINTIES

  

(a)Economic and Political Risks

 

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

 

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

 

(b)Foreign Currency Translation

 

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

 

(c)Concentration of credit risk

 

Financial instruments that potentially expose the Company to significant concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable, other receivables and advance to suppliers. As of March 31, 2022 and December 31, 2021, substantially all of the Company’s cash and cash equivalents were deposited with financial institutions with high-credit ratings and quality. The Company did not have any customers constituting 10% or more of the net revenue in the three months ended March 31, 2022. The Company had two customers constituting 10% or more of the net revenues in the three months ended March 31, 2021 as follows:

 

   2022   2021 
   Amount   %   Amount   % 
Customer A  $
-
    
-
%  $867,850    20%
Customer B   
-
    
-
%   435,070    10%
   $
-
    
-
%  $1,302,920    30%

 

5.REVENUE

 

   For the
three months ended
March 31,
 
Revenue  2022   2021 
Product sales  $2,432,537   $4,363,917 
Franchise fees and income   458,626    47,341 
Revenues from transactions with franchisees   3,707,126    
-
 
   $6,598,289   $4,411,258 

 

Contract liabilities  As of
March 31,
2022
   As of
December 31,
2021
 
Deferred revenue related to prepaid coffee and liquor products  $4,013   $20,881 
Deferred revenue related to upfront franchise fees   549,427    716,634 
   $553,440   $737,515 

 

F-9

 

 

Contract liabilities primarily consist of deferred revenue related to prepaid coffee and spirit products and upfront franchise fees. Deferred revenue related to prepaid spirit products represents advance from franchisees for future supply of products which is expected to recognize as revenue in the next 12 months. Deferred revenue related to upfront franchise fees represents the training service to be delivered over the term of franchise agreement that as of December 31, 2021, the Company expects to recognize as revenue of $221,085 within the next 12 months.

 

The Company has elected, as a practical expedient, not to disclose the value of remaining performance obligations associated with the franchise agreement in exchange for franchise right and related training services. The remaining duration of the performance obligation is the remaining contractual term of each franchise agreement. Revenue from training services provided to franchisees is recognized upon the conduct and delivery of training.

 

6.OTHER RECEIVABLES

 

As of March 31, 2022 and December 31, 2021, other receivables mainly consist of employees advance to be spent for company purposes and refundable rental deposits. The balances are unsecured, non-interest bearing and repayable on demand.

 

7.INVENTORY

 

   March 31,   December 31, 
   2022   2021 
Raw materials (1)  $18,200,736   $14,000,162 
Finished goods   652,795    61,684 
Goods in transit   54,617    105,083 
   $18,908,148   $14,166,929 

 

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

  

8.ADVANCE TO SUPPLIERS

 

The suppliers require the Company to pay in advance for the purchase of liquor products. Such advance is appropriated against future purchase orders. These advances are interest free, unsecured and short-term in nature.

 

9.LEASEHOLD IMPROVEMENT AND EQUIPMENT, NET

 

   March 31,   December 31, 
   2022   2021 
Leasehold improvement  $66,089   $65,944 
Equipment   32,611    21,079 
Machinery   34,162    34,087 
Computer equipment and software   47,888    46,228 
Motor vehicle   492,705    469,114 
   $673,455   $636,452 
Less: accumulated depreciation   (267,188)   (206,952)
   $406,267   $429,500 

 

Depreciation expense for the three months ended March 31, 2022 and 2021 was $36,703 and $13,986 respectively.

 

F-10

 

 

10.INTANGIBLE ASSETS

 

   March 31,   December 31, 
   2022   2021 
APP Platform  $110,391   $110,148 
Trademarks   3,422    - 
Less: accumulated amortization   (16,325)   (14,687)
   $97,488   $95,461 

 

Amortization expense for the three months ended March 31, 2022 and 2021 was $1,603 and $280, respectively.

 

As of March 31, 2022 and December 31, 2021, cost of intangible assets included an APP platform amounting to approximately $16,000 (RMB100,000) acquired by the Company during the year which was in the testing phase, no amortization was recorded until that platform was fully operational in 2022.

 

11.OTHER PAYABLES AND ACCRUALS

 

   March 31,   December 31, 
   2022   2021 
Accrued payroll and welfare payable  $71,423   $178,706 
VAT and other taxes payable   241,121    192,563 
Others (1)   28,254    109,989 
   $340,798   $481,258 

 

(1)As of March 31, 2022 and December 31, 2021, others mainly consist of the outstanding refundable balance upon termination of the cooperative agreement with one customer and payables for rental expenses.

 

12.ADVANCE FROM CUSTOMERS

 

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

 

13.INCOME TAXES

 

FHAI was incorporated in the State of Nevada. FHAI is an U.S. entity and is subject to the United States federal income tax. No provision for income taxes in the United States has been made as FHAI had no United States taxable income for the years ended December 31, 2021 and 2020.

 

WLJM Cayman was incorporated in Cayman Islands. Under the current tax laws of Cayman Islands, WLJM Cayman is not subject to tax on their income or capital gains. In addition, upon of dividends by WLJM Cayman to its shareholders, no Cayman Islands withholding tax will be imposed.

 

WLJM HK was incorporated in Hong Kong and is subject to an income tax rate of 16.5% for taxable income generated from operations in Hong Kong.

 

JYWM WFOE, Shenzhen Wei Lian, Dongguan Dishi, Shenzhen Nainiang and Nainiang Liquor were incorporated in the PRC and they are subject to profits tax rate at 25% for income generated and operation in the country.

 

F-11

 

 

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

 

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

 

The Company did not record deferred tax assets as of March 31, 2022 and December 31, 2021.

  

A reconciliation of tax expense from 25% statutory tax rates for the three months ended March 31, 2022 and 2021 is as follows:

 

   For the
three months ended
March 31,
 
   2022   2021 
Profit before tax  $4,056,256   $3,171,635 
Tax benefit calculated at statutory tax rate   25%   25%
Computed expected tax expense   1,014,064    792,909 
Others   21,039    (13,537)
   $1,035,103   $779,372 

 

14.LEASES

 

The Company has leases for the office, factory and warehouse in the PRC, under operating leases expiring on various dates through September 2023, which is classified as operating leases. There are no residual value guarantees and no restrictions or covenants imposed by the leases. Lease liabilities are measured at present value of the sum of remaining rental payments as of March 31, 2022, with discounted rate of 4.75%. A single lease cost is recognized over the lease term on a generally straight-line basis. All cash payments of operating lease cost are classified within operating activities in the statement of cash flows. Rent expense for the three months ended March 31, 2022 and 2021 were $70,267 and $78,596, respectively.

 

Upon expiration of the terms of leases, the Company has not entered into new lease agreements or extended the existing lease agreements as of March 31, 2022 and December 31, 2021.

 

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

 

   March 31,
2022
 
Within 1 year  $25,634 
After 1 year but within 5 years   11,290 
Total lease payments  $36,924 
Less: imputed interest   (7,237)
Total lease obligations   29,687 
Less: current obligations   (19,818)
Long-term lease obligations  $9,869 

 

F-12

 

 

Other information:

 

   For the
three months ended
March 31,
 
   2022   2021 
Cash paid for amounts included in the measurement of lease liabilities:        
Operating cash flow from operating leases  $70,267   $78,596 
Right-of-use assets obtained in exchange for operating lease liabilities   23,180    301,093 
Remaining lease term for operating leases (years)   1.5    2.5 
Weighted average discount rate for operating leases   4.75%   4.75%

 

15.RELATED PARTIES TRANSACTIONS

 

The Company had the following balances with related parties:

 

(a)Amount due from related parties

 

      March 31,   December 31, 
   Relationship  2022   2021 
Shenzhen Weilian Jin Meng Culture Spreading Limited  Zhu Hong is the shareholder  $32,477   $81,690 
Total     $32,477   $81,690 

 

The balances represent cash advance to a related party. The balances are unsecured, non-interest bearing and repayable on demand.

 

(b)Amount due to related parties

 

      March 31,   December 31, 
   Relationship  2022   2021 
Zhu Hong  Majority shareholder of the Company  $40,184   $79,849 
Total     $40,184   $79,849 

 

The balances represent Company’s expenses paid on behalf by a related party. The balances are unsecured, non-interest bearing and repayable on demand.

 

16. COMMITMENTS AND CONTINGENCIES

 

Commitments consist of a non-cancelable consultancy service agreement entered into with a third-party for the provision of services related to the US listing with a contract sum of $1,200,000. The outstanding committed contract amount is $120,000. The terms of the agreement are for various milestones stages to be completed within two years through 2021 which has extended to 2022. Future commitments within one year as of December 31, 2021 was $120,000. No future commitments more than one year as of March 31, 2022.

 

Except the above commitments and the operating lease commitment as disclosed at Note 14, there are no material commitments.

 

17. SUBSEQUENT EVENTS

 

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

 

F-13

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following management’s discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report. Our financial statements are prepared in U.S. dollars and in accordance with U.S. GAAP.

 

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 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, 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 identified in “Item 1A. Risk Factors” described in our most recent annual report on Form 10-K.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

 

Unless otherwise indicated by the context, references to the “Company, “we,” “us,” “our” in this report are to the combined business of Microalliance Group Inc., a Nevada corporation, and its consolidated subsidiaries.

 

Overview

 

The Company is primarily engaged in offering two types of products: coffee and liquor. The Company, through its subsidiaries in China, develops, produces, markets and sells flagship “coffee tea” products, which are innovative specialty coffee products with Chinese black tea’s taste, as well as black coffee products and other coffee products. We sell our coffee products wholesale to retail partners and corporate customers, and we also sell directly to consumers in the PRC via our e-commerce channels. We commit to build the first brand of “coffee tea” culture in the PRC. As of the date of this report, we have entered into franchise agreements with a large number of franchisees relating to the distribution, marketing and sale of our coffee products. Our coffee product offerings consist of five different coffee products.

 

Our liquor products are sold across China through sales agents, distributors and franchisees. Our licensed “Nainiang Liquor” retail stores have opened in a dozen of cities in China, such as Beijing, Shanghai, Shenzhen, Xiamen, Chongqing, Chengdu, Kunming, Foshan, Zhaoqing, Huangshan, Jingzhou and Baoding, to mainly market and sell our proprietary brand liquor products to consumers. We supply the licensed retail stores with our liquor products and maintain quality and uniformity throughout the licensed stores by requiring uniform retail prices, providing continual trainings, periodic field visits by our marketing personnel and holding annual and special meetings of franchisees. Such retail stores launch marketing initiatives like tasting events to increase our brand awareness and promote sales. We currently sell six liquor products, including featured “coffee spirit” products and vintage “Baijiu” products. Our “coffee spirit” products are independently innovated by us and unique in China, with premium quality, good taste and large profit margin. Our “Baijiu” (a type of Chinese liquor made from whole grain with alcohol content from 40-60%) products have excellent quality and we own a large stock of vintage Baijiu whose value grows as they age. As of March 31, 2022, we had RMB114,774,000 (approximately $18.1 million) of such vintage Baijiu in stock based on the historical purchase cost. The liquor market size is massive which generates more revenues than the coffee business.

 

COVID-19 Impact

 

Our coffee factory in Dongguan as well as offices, contracted liquor producers and licensed “Nainiang Liquor” retail stores in Shenzhen were temporarily closed due to COVID-19 resurgences and local containment measures in the first quarter of 2022. Consumer demand for liquor products has dropped during lockdown periods as a result of social distancing policies and reduced gatherings. In addition, our plan to expand internationally has largely stalled due to the COVID-19 pandemic. It remains difficult to predict the full impact of the COVID-19 pandemic on the broader economy and our coffee and liquor business in particular.

 

2

 

 

Critical Accounting Policies and Use of Estimates

 

We prepare our consolidated 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 consolidated 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

 

The Company’s revenues primarily include Company sales, franchise fees and income and revenues from transactions with franchisees.

 

Product sales

 

Product sales represent the sale of “coffee tea” and “spirit” products. Such revenue is recognized net of value-added taxes, upon delivery at such time that title passes to the customers.

 

Franchise fees and income

 

Franchise fees and income primarily include upfront franchise fees, such as initial fees, pre-opening assistance to operate spirit stores, subsequent training provided to franchisees and renewal fees. The Company has determined that the services provided in exchange for upfront franchise fees are highly interrelated with the franchise rights. The franchise rights are accounted for as rights to access the Company’s symbolic intellectual property in accordance with ASC 606, and the Company recognizes upfront franchise fees received from a franchisee as revenue when performance obligations are satisfied in accordance with the franchise agreement or the renewal agreement. The franchise agreement term is typically 3 years.

 

Revenues from transactions with franchisees

 

Revenues from transactions with franchisees consist primarily of sales of spirit products. The Company sells and delivers spirit products to the franchisees. The performance obligations arising from such transactions are considered distinct from the franchise agreement as they are not highly dependent on the franchise agreement and the customer can benefit from the procurement service on its own. Revenue is recognized upon transfer of control over ordered items, generally upon delivery to the franchisees.

 

In determining the amount and timing of revenue from contracts with customers, the Company exercises significant judgment with respect to collectability of the amount; however, the timing of recognition does not require significant judgment, as it is based on either the franchise term or the date of product shipment, none of which require estimation.

 

The Company does not incur a significant amount of contract acquisition costs in conducting its franchising activities. The Company believes its franchising arrangements do not contain a significant financing component.

 

The Company’s revenue recognition policy is compliant with ASC 606, Revenue from Contracts with Customers, and revenue is recognized when a customer obtains control of promised goods and is recognized in an amount that reflects the consideration that the Company expects 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 the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount:

 

(i)identification of the goods and services in the contract;

 

(ii)determination of whether the goods and 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.

 

3

 

 

The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes 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, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery or service being rendered.

 

For all reporting periods, the Company has 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.

 

   For the
three months ended
March 31,
 
Revenue  2022   2021 
Product sales  $2,432,537   $4,363,917 
Franchise fees and income   458,626    47,341 
Revenues from transactions with franchisees   3,707,126    - 
   $6,598,289   $4,411,258 

 

Contract liabilities  As of
March 31,
2022
   As of
December 31,
2021
 
Deferred revenue related to prepaid coffee and liquor products  $4,013   $20,881 
Deferred revenue related to upfront franchise fees   549,427    716,634 
   $553,440   $737,515 

 

Contract liabilities primarily consist of deferred revenue related to prepaid spirit products and upfront franchise fees. Deferred revenue related to prepaid spirit products represents advance from franchisees for future supply of products which is expected to be recognized as revenue in the next 12 months. Deferred revenue related to upfront franchise fees represents the training service to be delivered over the term of franchise agreement that as of March 31, 2022, we expect to recognize revenue of $221,085 within the next 12 months.

 

We have elected, as a practical expedient, not to disclose the value of remaining performance obligations associated with the franchise agreement in exchange for franchise right and related training services. The remaining duration of the performance obligation is the remaining contractual term of each franchise agreement. Revenue from training services provided to franchisees is recognized upon the conduct and delivery of training.

 

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, 2021, 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, 2022 and December 31, 2021.

 

   March 31, 2022   December 31, 2021 
   Amount   %   Amount   % 
Customer A  $-    -%  $1,540,197    51%
Customer B   -    -%   1,472,059    49%
Customer C   1,330,653    61%   -    -%
Customer D   840,190    39%   -    -%
   $2,170,843    100%  $3,012,256    100%

 

We did not have customers constituting 10% or more of the net revenues in the three months ended March 31, 2022. We had two customers constituting 10% or more of the net revenues in the three months ended March 31, 2021 as follows:

 

   2022   2021 
   Amount   %   Amount   % 
Customer A  $-    -%  $867,850    20%
Customer B   -    -%   435,070    10%
   $-    -%  $1,302,920    30%

 

4

 

 

Recently Issued and Adopted Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements. This ASU 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 Accounting Standards Update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual rights to receive cash. For smaller public business entities, the amendments in this Update are effective for fiscal years beginning after January 1, 2023, including interim periods within those fiscal years. All entities may adopt the amendments in this Update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). We are currently evaluating the impact of the adoption of this pronouncement on its 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.

 

Results of Operations

 

The following discussion should be read in conjunction with the condensed consolidated financial statements of Microalliance Group Inc. attached hereto for the three months ended March 31, 2022 and 2021.

 

Comparison of Three Months Ended March 31, 2022 and 2021

 

Revenue

 

We generated $6,598,289 in revenue for the three months ended March 31, 2022 compared to $4,411,258 for the three months ended March 31, 2022. There was an increase in total revenues of $2,187,031 or 49.6% compared with the three months ended March 31, 2021, because of acquiring 99% of the equity interests of Shenzhen Nainiang Liquor Industrial Co., Ltd., a company formed under the laws of China (“Nainiang Liquor”), on June 3, 2021, which contributed $4,771,156 to our consolidated revenue for the three months ended March 31, 2022.

 

Apart from the results consolidated from the acquisition of Nainiang Liquor, revenue for the three months ended March 31, 2022 decreased compared to the same business operations for the three months ended March 31, 2021. Outbreaks of additional variants of COVID-19 which are more transmissible (like the Omicron variant) or result in more severe sickness (like the Delta variant) have caused negative impacts to our business since January 2022. The Chinese government has been taking actions to contain COVID-19 such as re-imposing previously lifted measures or putting in place additional restrictions including the Shenzhen and Shanghai lockdowns to slow the spread of COVID-19. We expect our business will be gradually recovering from recent surges of COVID-19 cases beginning near the end of 2021.

 

Cost of Revenue

 

Cost of revenue was $1,830,697 for the three months ended March 31, 2022 compared to $935,165 for the three months ended March 31, 2021, an increase in cost of revenue by $895,532 or 95.8%. 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. The acquisition of Nainiang Liquor contributed $1,584,866 to our consolidated cost of revenue for the three months ended March 31, 2022.

 

Gross profit

 

Gross profit for the three months ended December 31, 2021 was $4,767,592 compared with $3,476,093 for the three months ended March 31, 2021. The gross profit margin was 72.3% for the three months ended March 31, 2022 compared to 78.8% for the three months ended March 31, 2021, which decrease was due to a lower margin for the new liquor products from the acquisition of Nainiang Liquor. The gross profit margin of Nainiang Liquor for the three months ended March 31, 2022 was 66.8%.

  

Operating Expenses

 

Selling and marketing expenses

 

Our selling expenses for the three months ended March 31, 2022 and 2021 were $187,614 and $36,479, respectively. The selling and marketing expenses increased by $151,135 or 414.3%. Selling expenses consist primarily of salary and welfare for sales staff, advertising expense and exhibition expense. The acquisition of Nainiang Liquor contributed $127,658 to our consolidated selling and marketing expenses for the three months ended March 31, 2022.

 

5

 

 

General and administrative expenses

 

By far the most significant component of our operating expenses for both the three months ended March 31, 2022 and 2021 was general and administrative expenses of $516,945 and $267,800, respectively. The following table sets forth the main components of our general and administrative expenses for the three months ended March 31, 2022 and 2021.

 

   2022   2021 
   Amount
(US$)
   % of
Total
   Amount
(US$)
   % of
Total
 
General and administrative expense:                
Consultancy fee  $253,108    49.0%  $91,730    34.3%
Salary and welfare   100,557    19.5%   50,484    18.9%
Rental expenses   104,399    20.2%   78,596    29.3%
Research and development costs   -    0.0%   21,996    8.2%
Office expenses   6,468    1.3%   8,875    3.3%
Travel and accommodations   13,105    2.5%   5,218    1.9%
Entertainment   3,579    0.7%   4,585    1.7%
Others   35,729    6.8%   6,316    2.4%
Total general and administrative expenses  $516,945    100%  $267,800    100%

 

General and administrative expenses increased by $249,145 or 93.0% from $267,800 for the three months ended March 31, 2021 to $516,945 for the three months ended March 31, 2022. The increase was mainly due to the increase in legal and professional fees. The acquisition of Nainiang Liquor contributed $115,542 to our consolidated general and administrative expenses for the three months ended March 31, 2022. 

 

Net Profit

 

We reported a net profit of $3,021,153 for the three months ended March 31, 2021 compared to a net profit of $2,392,263 for the three months ended March 31, 2021, an increase of $628,890 or 26.3%. 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. In addition, the acquisition of Nainiang Liquor contributed $2,208,275 to our consolidated net profit for the three months ended March 31, 2022.

  

Liquidity and Capital Resources

 

   March 31,   December 31, 
Working capital:  2022   2021 
Total current assets  $33,083,354   $30,383,395 
Total current liabilities   (2,274,038)   (2,731,608)
Working capital surplus  $30,809,316   $27,651,787 

 

As of March 31, 2022, we had cash and cash equivalents of $59,171. To date, we have financed our operations primarily through our working capital. The following table provides detailed information about our net cash flows for the three months ended March 31, 2022 and 2021:

 

Cash flows:  2022   2021 
Net cash (used in) provided by operating activities  $(1,116,663)   36,195 
Net cash used in investing activities   (15,967)   (49,021)
Net cash provided by financing activities   -    - 
Effect of exchange rate changes on cash and cash equivalents   1,336    (92)
Net decrease in cash and cash equivalents   (1,131,294)   (12,918)
Cash and cash equivalents at the beginning of year   1,190,465    61,517 
Cash and cash equivalents at the end of the three-month period  $59,171    48,599 

 

Operating Activities

 

Net cash used in operating activities was $1,116,663 for the three months ended March 31, 2022. The difference between our net profit of $3,021,153 and net cash used in operating activities was mainly attributable to the depreciation of fixed assets and amortization of intangible assets of $38,306, and the decrease in other operating assets and liabilities of $4,176,122 which was generally due to the increase in purchase of inventories of $4,704,622 and the decrease in income tax payables balance of $476,884.  

 

6

 

 

Investing Activities

 

Cash used in investing activities for the three months ended March 31, 2022 was $15,967, as compared to $49,021 for the three months ended March 31, 2021. The decrease in cash used in investing activities was mainly attributable to less acquisition of equipment and intangible assets during the three months ended March 31, 2022. We will evaluate and assess the COVID-19 pandemic’s impact on our business to determine the plan for increasing our capital expenditures in the future periods.

 

Financing Activities

 

There were no cash flow movements from financing activities during the three months ended March 31, 2022 and 2021.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our senior management, including our Chief Executive and Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of March 31, 2022. Based on this evaluation, our Chief Executive and Financial Officer concluded as of March 31, 2022 that our disclosure controls and procedures were not effective such that the information relating to us required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive and Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Company’s former management abandoned all operations for several years, and only recently (in 2019) did the Company appoint new management to make filings with the SEC on behalf of the Company. Additionally, our Chief Executive and Financial Officer and the Company’s employees do not have deep experience operating companies which are required to make periodic disclosures with the SEC, which we believe negatively impacts our ability to provide timely disclosure.

 

As we disclosed in our most recent Annual Report on Form 10-K, during our assessment of the effectiveness of internal control over financial reporting as of December 31, 2021, management identified the following material weaknesses in our internal control over financial reporting: (1) lack of a functioning audit committee, (2) lack of a majority of outside directors on our Board, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (3) inadequate segregation of duties consistent with control objectives; (4) the management of subsidiary companies who do not possess a mature understanding of U.S. GAAP or U.S. securities laws; and (5) management dominated by a small group of individuals without adequate compensating controls.

 

Our management has hired outside consultants experienced in US GAAP financial reporting to assist us and is committed to taking further action and implementing additional improvements.

 

Our management does not believe that the foregoing material weaknesses had a material effect on our financial condition or results of operations or caused our unaudited condensed consolidated financial statements as of and for the period ended March 31, 2022 to contain a material misstatement.

 

Changes in Internal Control over Financial Reporting

 

Except for the matters described above, there were no changes in our internal controls over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

7

 

 

PART II

OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

  

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. We are currently not aware of any legal proceedings or claims that would require disclosure under Item 103 of Regulation S-K. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

ITEM 1A. RISK FACTORS.

 

There are no material changes from the risk factors previously disclosed in Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

Other than as previously disclosed in current reports on Form 8-K, there were no unregistered sales of equity securities or repurchase of common stock during the period covered by this report. 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS.

 

The following exhibits are filed as part of this report or incorporated by reference:

 

8

 

 

Exhibit No.   Description
     
31.1   Certifications of Principal Executive Officer and Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certifications of Principal Executive Officer and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS     XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
     
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9

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  MICROALLIANCE GROUP INC.
  (Registrant)
     
Dated: May 16, 2022 By: /s/ Hong Zhu
    Hong Zhu
    Chief Executive Officer and Chief Financial Officer

 

 

10

 

 

 

 

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EX-31.1 2 f10q0322ex31-1_microalliance.htm CERTIFICATION

EXHIBIT 31.1

 

CERTIFICATIONS

 

I, Hong Zhu, certify that:

 

1.I have reviewed this quarterly report on Form 10-Q of Microalliance Group Inc.;

 

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.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 Rules 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.The registrant’s other certifying officer and 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 control 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: May 16, 2022

 

/s/ Hong Zhu  
Hong Zhu  
Chief Executive Officer and Chief Financial Officer  
(Principal Executive Officer and Principal Financial Officer)  

 

EX-32.1 3 f10q0322ex32-1_microalliance.htm CERTIFICATION

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

 

The undersigned, Hong Zhu, the Chief Executive and Financial Officer of MICROALLIANCE GROUP INC. (the “Company”), DOES HEREBY CERTIFY that:

 

1.The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2022 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

 

2.Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

 

IN WITNESS WHEREOF, the undersigned has executed this statement this 16th day of May, 2022.

 

  /s/ Hong Zhu
  Hong Zhu
  Chief Executive Officer and Chief Financial Officer
  (Principal Executive Officer and Principal Financial Officer)

  

A signed original of this written statement required by Section 906 has been provided to Microalliance Group Inc. and will be retained by Microalliance Group Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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