UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of October
Commission File Number:
No. 26 Culture Road, Tianshan District
Urumqi, Xinjiang, China
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F ☒ Form 40-F ☐
Explanatory Note
Chanson International Holding (the “Company”) is filing this current report on Form 6-K to report its financial results for the six months ended June 30, 2023 and to discuss its recent corporate developments.
Attached as exhibits to this current report on Form 6-K are:
| (1) | the unaudited condensed interim consolidated financial statements and related notes as Exhibit 99.1; | |
| (2) | Management’s Discussion and Analysis of Financial Condition and Results of Operations as Exhibit 99.2; | |
| (3) | a press release dated October 6, 2023, titled “Chanson International Holding Announces First Half of Fiscal Year 2023 Financial Results” as Exhibit 99.3; and | |
| (4) | Interactive Data File disclosure as Exhibit 101 in accordance with Rule 405 of Regulation S-T. |
1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this current report with respect to the Company’s current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of the Company. Forward-looking statements include, but are not limited to, those statements using words such as “believe,” “expect,” “plans,” “strategy,” “prospects,” “forecast,” “estimate,” “project,” “anticipate,” “aim,” “intend,” “seek,” “may,” “might,” “could” or “should,” and words of similar meaning in connection with a discussion of future operations, financial performance, events or conditions. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management’s assumptions, judgments and beliefs in light of the information currently available to it. The Company cautions investors that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements, including but not limited to, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition and pricing, government regulation, and other risks contained in reports filed by the Company with the U.S. Securities and Exchange Commission. Therefore, investors should not place undue reliance on such forward-looking statements. Actual results may differ significantly from those set forth in the forward-looking statements.
All such forward-looking statements, whether written or oral, and whether made by or on behalf of the Company, are expressly qualified by the cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, the Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.
2
EXHIBIT INDEX
|
Exhibit No. |
Description | |
| 99.1 | Unaudited Consolidated Financial Statements and Related Notes As of June 30, 2023 and for the Six Months Ended June 30, 2023 and 2022 | |
| 99.2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| 99.3 | Press release titled “Chanson International Holding Announces First Half of Fiscal Year 2023 Financial Results” | |
| 101.INS | Inline 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). | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
3
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.
| Chanson International Holding | ||
| Date: October 6, 2023 | By: | /s/ Gang Li |
| Name: | Gang Li | |
| Title: | Chief Executive Officer | |
4
Exhibit 99.1
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CHANSON INTERNATIONAL HOLDING AND SUBSIDIARIES
TABLE OF CONTENTS
F-1
CHANSON INTERNATIONAL HOLDING AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Deferred offering costs | ||||||||
| Prepaid expenses and other current assets | ||||||||
| | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Operating lease right-of-use assets | ||||||||
| Property and equipment, net | ||||||||
| Long term security deposits | ||||||||
| Prepayment for the software, equipment and product development | ||||||||
| Long term debt investment | ||||||||
| Long term loan to a third-party | ||||||||
| Long term prepaid expenses | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Short-term bank loan | $ | $ | ||||||
| Accounts payable | ||||||||
| Due to a related party | ||||||||
| Taxes payable | ||||||||
| Deferred revenue | ||||||||
| Operating lease liabilities, current | ||||||||
| Other current liabilities | ||||||||
| | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Operating lease liabilities, non-current | ||||||||
| TOTAL LIABILITIES | | |||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Ordinary shares, $ | ||||||||
| Class A ordinary share, $ | ||||||||
| Class B ordinary share, $ | ||||||||
| Additional paid-in capital | ||||||||
| Statutory reserve | ||||||||
| Retained earnings (Accumulated deficit) | ( | ) | ||||||
| Accumulated other comprehensive (loss) income | ( | |||||||
| TOTAL SHAREHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-2
CHANSON INTERNATIONAL HOLDING AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| REVENUE | $ | $ | ||||||
| COST OF REVENUE | ||||||||
| GROSS PROFIT | ||||||||
| OPERATING EXPENSES | ||||||||
| Selling expenses | ||||||||
| General and administrative expenses | ||||||||
| Total operating expenses | ||||||||
| INCOME FROM OPERATIONS | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest income (expense), net | ( | ) | ||||||
| Other (expense) income, net | ( | ) | ||||||
| Income from long term debt investment | ||||||||
| Total other income, net | ||||||||
| INCOME BEFORE INCOME TAX PROVISION | ||||||||
| PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ||||
| NET INCOME | ||||||||
| Foreign currency translation loss | ( | ) | ( | ) | ||||
| TOTAL COMPREHENSIVE LOSS | $ | ( | ) | $ | ( | ) | ||
| $ | $ | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-3
CHANSON INTERNATIONAL HOLDING AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
| Ordinary Shares | Additional | Retained
Earnings | Accumulated Other Comprehensive | Total | ||||||||||||||||||||||||||||||||
| Class A Shares | Amount | Class B Shares | Amount | Paid-in Capital | Statutory Reserve | (Accumulated Deficit) | Income (Loss) | Shareholders’ Equity | ||||||||||||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||
| Issuance of ordinary shares in initial public offerings, gross | ||||||||||||||||||||||||||||||||||||
| Cost directly related to the initial public offering | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-4
CHANSON INTERNATIONAL HOLDING AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Depreciation | ||||||||
| Property and equipment written down | ||||||||
| Interest income from long term debt investment | ( | ) | ||||||
| Interest income from loan to a third-party | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Long term security deposits | ( | ) | ||||||
| Long term prepaid expenses | ||||||||
| Accounts payable | ( | ) | ||||||
| Taxes payable | ( | ) | ||||||
| Deferred revenue | ||||||||
| Other current liabilities | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Payment made for long term debt investment | ( | ) | ||||||
| Advance of loans to third parties | ( | ) | ||||||
| Prepayment for the software, equipment and product development | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Gross proceeds from initial public offerings | ||||||||
| Direct costs disbursed from initial public offerings proceeds | ( | ) | ||||||
| Repayments of short-term bank loans | ( | ) | ||||||
| Payments made to a related party | ( | ) | ( | ) | ||||
| Payments made for deferred offering costs | ( | ) | ||||||
| Prepayment for the related service after listing | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Effect of exchange rate fluctuation on cash and cash equivalents | ( | ) | ( | ) | ||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental cash flow information | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Non-cash operating, investing and financing activities | ||||||||
| Payable for purchase of property and equipment | $ | $ | ||||||
| Right of use assets obtained in exchange for operating lease liabilities | $ | $ | ||||||
| Deferred IPO cost offset with additional paid-in capital | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-5
NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION
Chanson International Holding (“Chanson
International,” or the “Company”), formerly known as RON Holding Limited, was established under the laws of the Cayman
Islands on July 26, 2019 as a holding company. Chanson International owns
Chanson International, Deen Global, and Jenyd are currently not engaging in any active business operations and merely acting as holding companies.
Xinjiang United Family Trading Co., Ltd. (“Xinjiang
United Family”), is a company incorporated on August 7, 2009 in the People’s Republic of China (the “PRC”), with
a registered capital of RMB
Xinjiang United Family operates a bakery chain in China’s Xinjiang autonomous region under the brand name of “George●Chanson.” The chain currently consists of five directly-owned high-end bakery stores in the City of Urumqi and 34 bakery stores organized as individually-owned businesses known as the United Family Group (each a “UFG entity” and, collectively, the “UFG entities”) in Xinjiang region. The UFG entities are owned by the original shareholders of Xinjiang United Family but operated under a series of contractual agreements signed between the owners of these UFG entities and Xinjiang United Family.
On April 17, 2015, Xinjiang United Family incorporated a wholly-owned subsidiary, George Chanson (NY) Corp. (“Chanson NY”), in the State of New York, which owns and operates Chanson 23rd Street LLC (“Chanson 23rd Street”), a modern European-style café and eatery that specializes in the art of making French-style viennoiseries and pastries in the heart of Manhattan’s Flatiron District. On February 20, 2020, the Company’s Chairman, Mr. Gang Li, formed Chanson 355 Greenwich LLC (“Chanson Greenwich”), a New York limited liability company, and subsequently assigned his membership interests in Chanson Greenwich to Chanson NY on September 28, 2020. After the transfer, Chanson Greenwich became a wholly owned subsidiary of Chanson NY. Chanson Greenwich is another boutique café in Manhattan opened in December 2021. On April 21, 2021, Chanson NY formed a wholly owned subsidiary, Chanson Management LLC, a Delaware limited liability company. On August 5, 2021, Chanson NY formed a wholly owned subsidiary, Chanson 1293 3rd Ave LLC (“Chanson 3rd Ave”), a New York limited liability company. On March 21, 2022, Chanson NY formed a wholly owned subsidiary, Chanson 2040 Broadway LLC (“Chanson Broadway”), a New York limited liability company. Chanson 3rd Ave and Chanson Broadway are another two boutique cafés opened in March 2023 and July 2023, respectively.
Reorganization
In connection with its initial public offering, the Company has undertaken a reorganization of its legal structure (the “Reorganization”). The Reorganization involved the incorporation of Chanson International, Deen Global, and Jenyd, the entry into a Share Transfer Agreement to transfer the ownership interest in Xinjiang United Family from its original shareholders to Jenyd, and the signing of a series of contractual agreements between Xinjiang United Family and the owners of the UFG entities. After the Reorganization, Chanson International became the ultimate holding company of Xinjiang United Family and Xinjiang United Family became the primary beneficiary of the UFG entities through the VIE Agreements, as further discussed below.
Xinjiang United Family entered into a series of contractual arrangements with the owners of the 22 UFG entities on May 2, 2020, and with the owners of three newly established UFG entities in fiscal year 2020, five newly established UFG entities in fiscal year 2021, one newly established UFG entity in fiscal year 2022, and eight newly established UFG entity in fiscal year 2023, respectively. Three of these UFG entities were closed in fiscal year 2021 and two of these UFG entities were closed in fiscal year 2023. These agreements include Exclusive Service Agreements, Pledge Agreements, Call Option Agreements, Operating Rights Proxy and Powers of Attorney Agreements and Spousal Consents (collectively, the “VIE Agreements”). Pursuant to the above VIE Agreements, Xinjiang United Family has the exclusive right to provide the UFG entities with consulting services related to business operations including operational and management consulting services. The VIE Agreements obligate Xinjiang United Family to absorb all of the risk of loss from business activities of these UFG entities and entitle Xinjiang United Family to receive all of their residual returns. In essence, Xinjiang United Family has gained the power to direct activities of the UFG entities that most significantly impact their economic performance, and the right to receive benefits from the UFG entities that could potentially be significant to them. Therefore, the Company believes that Xinjiang United Family has a controlling financial interest in and is the primary beneficiary of the UFG entities and these UFG entities should be considered as Variable Interest Entities (“VIEs”) under the Statement of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810 Consolidation. Hereinafter, the four bakery stores directly owned by Xinjiang United Family and the UFG entities controlled through the VIE Agreements are collectively referred to as the “PRC Stores.”
The Company, together with its wholly-owned subsidiaries are under common control by the same shareholders before and after the Reorganization and therefore the consolidation of the Company and its subsidiaries has been accounted for at historical cost.
F-6
| Name of Entity | Date
of Incorporation |
Place
of Incorporation |
%
of Ownership |
Principal Activities | |||||||
| Chanson International | |||||||||||
| Deen Global | |||||||||||
| Jenyd | |||||||||||
| Xinjiang United Family | |||||||||||
| 34 UFG entities | |||||||||||
| Chanson NY | |||||||||||
| Chanson 23rd Street | |||||||||||
| Chanson Greenwich | |||||||||||
| Chanson Management LLC | |||||||||||
| Chanson 3rd Ave | |||||||||||
| Chanson Broadway | |||||||||||
The VIE contractual arrangements
The UFG entities are controlled by the Company through contractual arrangements in lieu of direct equity ownership by the Company or any of its subsidiaries.
A VIE is an entity that either has a total equity investment that is insufficient to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive the expected residual returns of the entity, or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary of, and must consolidate, the VIE.
Xinjiang United Family is deemed to have a controlling financial interest in and be the primary beneficiary of the UFG entities because it has both of the following characteristics:
| ● | The power to direct activities at the UFG entities that most significantly impact such entities’ economic performance, and |
| ● | The obligation to absorb losses of, and the right to receive benefits from, the UFG entities that could potentially be significant to such entities. |
F-7
Pursuant to the contractual arrangements with the UFG entities, the UFG entities pay service fees equal to all of their net profit after tax payments to Xinjiang United Family. At the same time, Xinjiang United Family is obligated to absorb all of their losses. Such contractual arrangements are designed so that the operation of the UFG entities is for the benefit of Xinjiang United Family and, ultimately, the Company.
Risks associated with the VIE structure
The Company believes that the contractual arrangements with the UFG entities and their respective owners are in compliance with PRC laws and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce such contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:
| ● | revoke the business and operating licenses of the Company’s PRC subsidiary and the UFG entities; |
| ● | discontinue or restrict the operations of any related-party transactions between the Company’s PRC subsidiary and the UFG entities; |
| ● | limit the Company’s business expansion in China by way of entering into contractual arrangements; |
| ● | impose fines or other requirements with which the Company’s PRC subsidiary and the UFG entities may not be able to comply; |
| ● | require the Company or the Company’s PRC subsidiary and the UFG entities to restructure the relevant ownership structure or operations; or |
| ● | restrict or prohibit the Company’s use of the proceeds from its public offering to finance the Company’s business and operations in China. |
The Company’s ability to conduct its consulting
services business may be negatively affected if the PRC government were to carry out of any of the aforementioned actions. As a result,
the Company may not be able to consolidate the UFG entities in its unaudited condensed consolidated financial statements as it may lose
the ability to direct activities of the UFG entities and receive economic benefits from the UFG entities. The Company, however, does
not believe such actions would result in the liquidation or dissolution of the Company and its PRC subsidiary and the UFG entities. The
financial position, operation, and cash flow of the UFG entities are material to total assets and liabilities presented on the unaudited
condensed consolidated balance sheets and revenue, expenses, and net income presented on the unaudited condensed consolidated statements
of operations and other comprehensive loss as well as the cash flows from operating, investing, and financing activities presented on
the unaudited condensed consolidated statements of cash flows. The Company did not provide any financial support to the UFG entities
for the six months ended June 30, 2023 and 2022. The Company had no contractual obligation to provide financial support to the VIEs
as of June 30, 2023 and December 31, 2022. The amount of the recognized and unrecognized revenue-producing assets held by the VIEs was
$
June
30, | December 31, 2022 | |||||||
| Current assets | $ | $ | ||||||
| Non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Current liabilities | $ | $ | ||||||
| Non-current liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
F-8
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Net revenue | $ | $ | ||||||
| Net income | $ | $ | ||||||
Initial Public Offering
On April 3, 2023, the Company closed its initial
public offering (the “IPO”) of
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles of consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities Exchange Commission and have been consistently applied. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal years ended December 31, 2022 and 2021. Operating results for the six-month period ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
The accompanying unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries and the VIEs. All intercompany balances and transactions are eliminated upon consolidation.
Uses of estimates
In preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates are based on information as of the date of the unaudited condensed consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the valuation of accounts receivable and inventories, useful lives of property and equipment, the recoverability of long-lived assets, provision necessary for contingent liabilities, realization of deferred tax assets and revenue recognition. Actual results could differ from those estimates.
Cash and cash equivalents
Cash includes currency on hand and deposits held by banks that can be added or withdrawn without limitation. The Company maintains a significant amount of its bank accounts in the PRC. The Company considers all highly liquid investment instruments with an original maturity of three months or less from the date of purchase to be cash equivalents.
F-9
Accounts receivable
Accounts receivable are recognized and carried at original invoiced amount less an estimated allowance for uncollectible accounts.
The Company determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trend. The Company establishes a provision for doubtful receivables when there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s best estimate of specific losses on individual exposures, as well as a provision on historical trends of collections. The provision is recorded against accounts receivable balances, with a corresponding charge recorded in the unaudited condensed consolidated statements of operations and comprehensive loss. Actual amounts received may differ from management’s estimate of credit worthiness and the economic environment. Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. As of June 30, 2023 and December 31, 2022, there was no allowance recorded as the Company considers all of the accounts receivable fully collectible.
Leases
The Company follows FASB ASC No. 842, Leases (“Topic 842”). The Company leases office spaces, bakery store facilities, employee dormitories, and a vehicle, which are classified as operating leases in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases (with the exception of short-term leases, usually with initial term of 12 months or less) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
At the commencement date, the Company recognizes the lease liability at the present value of the lease payments not yet paid, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate for the same term as the underlying lease. The ROU asset is recognized initially at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All ROU assets are reviewed for impairment annually. There was no impairment for ROU lease assets as of June 30, 2023 and December 31, 2022.
In response to the large volume of anticipated lease concessions to be granted related to the effects of the COVID-19 pandemic, and the resultant expected cost and complexity of applying the lease modification requirements in Topic 842, the FASB issued Staff Q&A—Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic in April 2020 as interpretive guidance to provide clarity in response to the crisis. The FASB staff indicated that it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how they would be accounted for as though enforceable rights and obligations for those concessions existed in the original contract. Consequently, for such lease concessions, an entity will not need to reassess each existing contract to determine whether enforceable rights and obligations for concessions exist and an entity can elect to apply or not to apply the lease modification guidance in Topic 842 to those contracts. The election is available for concessions related to the effects of the COVID-19 pandemic that result in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract.
Due to the COVID-19 pandemic, the Company renegotiated
the leases for some of its PRC stores and New York stores. Based on the nature of the agreements reached with the landlords, the Company
has accounted for rent concessions as if they were part of the enforceable rights and obligations of the existing lease contracts and
did not account for the concessions as lease modifications. As of the date of this report, the Company has received a total of lease
concessions amounting to $
F-10
Inventories
Inventories of the Company consist of ingredient materials, finished goods, packaging materials, and other materials. Inventories are stated at the lower of cost or net realizable value, on a weighted average basis. Costs include the cost of ingredient materials, direct labor, and related production overhead. Any excess of the cost over the net realizable value of each item of inventories is recognized as a provision for diminution in the value of inventories. Net realizable value is the estimated selling price in the normal course of business less any costs to complete and sell products. The Company periodically evaluates inventories for their net realizable value adjustments, and reduces the carrying value of those inventories that are obsolete or in excess of the forecasted usage to their estimated net realizable value based on various factors including aging and expiration dates, as applicable, taking into consideration historical and expected future product sales. For the six months ended June 30, 2023 and 2022, no inventory reserve was recorded because no slow-moving, obsolete, or damaged inventory was identified.
Property and equipment
Property and equipment are stated at cost less
accumulated depreciation and amortization.
| Useful life | ||
| Bakery production equipment | ||
| Office equipment and furniture | ||
| Transportation vehicles | ||
| Leasehold improvement | Lesser of useful life and lease term |
Expenditures for repair and maintenance, which do not materially extend the useful lives of the assets, are charged to expenses as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the unaudited condensed consolidated statements of operations and comprehensive loss in other income or expenses.
Impairment of long-lived assets
Long-lived assets with finite lives, primarily property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value. There were no impairments of these assets as of June 30, 2023 and December 31, 2022.
Revenue recognition
The Company follows ASC 606, Revenue from Contracts with Customers (“ASC 606”), for revenue recognition. ASC 606 establishes principles for reporting information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized, as performance obligations are satisfied.
The Company currently generates its revenue through its bakery/café stores as well as through online sales. The Company recognizes revenue from bakery/café sales upon delivery of the related food and other products to the customer and fulfillment of all performance obligations. Revenue is recognized net of any discounts, sales incentives, sales taxes, and value added taxes that are collected from customers and remitted to tax authorities.
F-11
In the PRC Stores, the Company sells membership cards that do not have an expiration date and from which the Company does not deduct non-usage fees from outstanding card balances. Membership cards are reloadable and redeemable at any of the Company’s store locations. Amounts loaded into these cards are initially recorded as deferred revenue. When membership cards are redeemed at stores, the Company recognizes revenue and reduces the deferred revenue. While the Company continues to honor all membership cards presented for payments, management determines the likelihood of redemption to be remote for certain cards with long periods of inactivity (“breakage”), which is five years after the last usage, based upon the Company’s historical redemption patterns. Membership card breakage is recorded as revenue in the unaudited condensed consolidated statements of operations and comprehensive loss. Membership card breakage was immaterial for the six months ended June 30, 2023 and 2022.
In the PRC Stores, the Company maintains a customer loyalty program in which customers earn free cash vouchers when purchasing or reloading membership cards at certain amount. These cash vouchers typically do not expire, except for certain vouchers given out at special occasions, which usually state an expiration date and can only be exchanged for certain seasonal products or specialty cakes. The Company establishes corresponding liabilities in deferred revenue for the membership cards and the free cash vouchers upon issuance. The Company allocates the consideration received proportionately between the membership cards and cash vouchers based on their face values. Revenue is recognized at the allocated amount upon redemption of membership cards and cash vouchers, at which point, the Company delivers products to customers and reduces the deferred revenue. Unredeemed cash vouchers will be recognized as revenue upon their expiration dates, if any, or five years after their issuance if there are no stated expiration dates, when management determines the likelihood of redemption to be remote.
Contract balances and remaining performance obligations
Contract balances typically arise when a difference
in timing between the transfer of control to the customer and receipt of consideration occurs. The Company did not have contract assets
as of June 30, 2023 and December 31, 2022. The Company’s contract liabilities, which are reflected in its unaudited condensed consolidated
balance sheets as deferred revenue of $
Disaggregation of revenue
The Company disaggregates its revenue by geographic areas, as the Company believes it best depicts how the nature, amount, timing, and uncertainty of the revenue and cash flows are affected by economic factors. The Company’s disaggregation of revenue for the six months ended June 30, 2023 and 2022 is disclosed in Note 17 of the unaudited condensed consolidated financial statements.
F-12
Fair value of financial instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
| ● | Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ● | Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. |
| ● | Level 3 — inputs to the valuation methodology are unobservable. |
Unless otherwise disclosed, the fair value of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, loans to third parties, short-term bank loan, accounts payable, due to a related party, taxes payable, current portion of operating lease liabilities, current and other current liabilities, approximates the fair value of the respective assets and liabilities as of June 30, 2023 and December 31, 2022 based upon the short-term nature of the assets and liabilities. The fair value of longer-term debt investment and loan to a third party, as well as non-current portion of operating lease liabilities approximates their recorded values as their stated interest rates approximate the rates currently available.
Foreign currency translation
The functional currency of the Company’s PRC subsidiary and the UFG entities is the Chinese Yuan (“RMB”) and the functional currency of the Company’s U.S. subsidiaries is the U.S. Dollars (“US$”). RMB amounts in the Company’s unaudited condensed consolidated financial statements have been translated into the reporting currency US$. Assets and liabilities of the Company are translated at the exchange rate at each reporting period end date. Equity is translated at historical rates. Income and expense accounts are translated at the average rate of exchange during the reporting period. The resulting translation adjustments are reported under other comprehensive loss. Because cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets. Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the results of operations.
RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.
| For the Six Months Ended June 30, | For the Year Ended December 31, | |||||
| 2023 | 2022 | 2022 | ||||
| Period/Year-end spot rate | US$ | US$ | US$ | |||
| Average rate | US$ | US$ | US$ | |||
F-13
Income taxes
The Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the unaudited condensed consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
An uncertain tax position is recognized as a
benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized
is the largest amount of tax benefit that is greater than
The Company’s operating subsidiary in China is subject to the income tax laws of the PRC. The Company’s operating subsidiary in United States is subject to the tax law of the United States. As of June 30, 2023, for the tax years ended December 31, 2018 through December 31, 2022, the Company’s PRC subsidiaries remained open for statutory examination by PRC tax authorities, and for the tax years ended December 31, 2020 through December 31, 2022, the Company’s United States subsidiaries remained open for statutory examination by U.S. tax authorities.
Value added tax (“VAT”)
The Company’s subsidiary Xinjiang United
Family and its three branch offices are general tax payers. The applicable VAT rate is
Warrant accounting
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent interim period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations and comprehensive loss.
As the warrants issued upon the initial public offering meet the criteria for equity classification under ASC 815, therefore, the warrants are classified as equity.
F-14
Earnings per share
The Company computes earnings per share (“EPS”) in accordance with ASC 260, Earnings per Share (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average ordinary shares outstanding for the period. Diluted presents the dilutive effect on a per share basis of potential ordinary shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential ordinary shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. As of June 30, 2023 and December 31, 2022, there were no dilutive shares.
Comprehensive loss
Comprehensive loss consists of two components, net income and other comprehensive loss. The foreign currency translation loss resulting from the translation of the financial statements expressed in RMB to US$ is reported in other comprehensive loss in the unaudited condensed consolidated statements of operations and comprehensive loss.
Risks and uncertainties
Political and economic risk
The operations of the Company are located in the PRC and United States. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by political, economic, and legal environments in the PRC and United States, as well as by the general state of the PRC and United States economy. The Company’s results may be adversely affected by changes in the political, regulatory, and social conditions in the PRC and United States. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note 1, such experience may not be indicative of future results.
Foreign currency exchange risk
A majority of the Company’s revenue and expense transactions are denominated in RMB and most of the Company and its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to effect the remittance.
Credit risk
As of June 30, 2023 and December 31, 2022, $
For the six months ended June 30, 2023 and 2022, the Company’s substantial assets were located in the PRC and the U.S. and the Company’s substantial revenue was derived from its subsidiaries and the UFG entities located in the PRC and the U.S.
Accounts receivable are typically unsecured and derived from revenue earned from customers, thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.
F-15
Concentrations
No single customer accounted for more than
As of June 30, 2023, no customer accounted for
more than
For the six months ended June 30, 2023, two suppliers
accounted for
Recent accounting pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses,” which will require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Further, the FASB issued ASU No. 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, and ASU 2020-02 to provide additional guidance on the credit losses standard. The new effective date for SEC filers that are eligible to be smaller reporting companies under the SEC’s definition, as well as private companies and not-for-profit entities is for annual and interim periods in fiscal years beginning after December 15, 2022. Adoption of the ASUs is on a modified retrospective basis. The Company adopted ASU 2016-13 on January 1, 2023, and the adoption of this ASU did not have a material impact on its unaudited condensed consolidated financial statements.
Except for the above-mentioned pronouncement, there are no new recently issued accounting standards that will have material impact on the Company’s unaudited condensed consolidated financial position, statements of operations, and cash flows.
NOTE 3 — LIQUIDITY
As reflected in the unaudited condensed consolidated
financial statements, the Company’s cash provided by operating activities was $
In assessing its liquidity, management monitors
and analyzes the Company’s cash on-hand, its ability to generate sufficient revenue sources and ability to obtain additional financial
support in the future, and its operating and capital expenditure commitments. As of June 30, 2023, the Company had cash of approximately
$
F-16
Currently, the Company is working to improve its liquidity and capital sources primarily through cash flows from operation, debt financing, financial support from its principal shareholder, and the proceeds the Company received from the IPO. In order to fully implement its business plan and sustain continued growth, the Company may also seek equity financing from outside investors when necessary. Based on the current operating plan, management believes that the above-mentioned measures collectively will provide sufficient liquidity for the Company to meet its future liquidity and capital requirement for at least 12 months from the date of the unaudited condensed consolidated financial statements.
NOTE 4 — ACCOUNTS RECEIVABLE, NET
The Company’s accounts receivable primarily include balance generated from selling bakery products to local corporate customers, billed but has not been collected as of the balance sheet dates. Accounts receivable consisted of the following:
June
30, | December 31, 2022 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: allowance for doubtful accounts | ||||||||
| Accounts receivable, net | $ | $ | ||||||
As of the date of the unaudited condensed consolidated
financial statements, approximately
NOTE 5 — PREPAID EXPENSES AND OTHER CURRENT ASSETS, NET
June
30, | December 31, 2022 | |||||||
| Advance to suppliers (1) | $ | $ | ||||||
| Prepaid expenses (2) | ||||||||
| Other receivables (3) | ||||||||
| Loans to third parties (4) | ||||||||
| Less: allowance for doubtful accounts | ||||||||
| Prepaid expenses and other current assets, net | $ | $ | ||||||
| (1) |
| (2) |
| (3) |
| (4) |
F-17
NOTE 6 — INVENTORIES
June
30, | December 31, 2022 | |||||||
| Ingredient materials | $ | $ | ||||||
| Package and other materials | ||||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
NOTE 7 — LONG TERM LOAN TO A THIRD-PARTY
On April 3, 2023, the Company entered a loan
agreement with Liberty Asset Management Capital Limited (the “Borrower”) to lend the Borrower $
NOTE 8 — LEASES
The Company leases office spaces, bakery store
facilities, employee dormitories and a vehicle under non-cancelable operating leases, with terms ranging from
The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company discounts lease payments based on an estimate of its incremental borrowing rate.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
June
30, | December 31, 2022 | |||||||
| ROU lease assets | $ | $ | ||||||
| Operating lease liabilities – current | $ | $ | ||||||
| Operating lease liabilities – non-current | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
F-18
June
30, | December 31, 2022 | |||||||
| Remaining lease term and discount rate: | ||||||||
| Weighted average remaining lease term (years) | ||||||||
| Weighted average discount rate * | % | % | ||||||
| * |
During the six months ended June 30, 2023 and
2022, the Company incurred total operating lease expenses of $
| Remainder of 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ |
NOTE 9 — PROPERTY AND EQUIPMENT, NET
June
30, | December 31, 2022 | |||||||
| Bakery production equipment | $ | $ | ||||||
| Automobiles | ||||||||
| Office equipment and furniture | ||||||||
| Leasehold improvements | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expenses were $
F-19
NOTE 10 — PREPAYMENT FOR THE SOFTWARE, EQUIPMENT AND PRODUCT DEVELOPMENT
June
30, | December 31, 2022 | |||||||
| Peblla Inc. (“Peblla”) (a) | $ | $ | ||||||
| Luo and Long General Partner (“Luo and Long”) (b) | ||||||||
| Wisdom Investment Service Inc (“Wisdom”) (c) | ||||||||
| NY West Acupuncture PC (“NY West”) (d) | ||||||||
| Total prepayment for the software, equipment and product development | $ | $ | ||||||
| (a) |
As of June 30, 2023,
|
| Second half of fiscal year 2023 | $ | |||
| First half of fiscal year 2024 | ||||
| Second half of fiscal year 2024 | ||||
| Total | $ |
| (b) |
| (c) |
| (d) |
NOTE 11 — LONG TERM DEBT INVESTMENT
On March 31, 2023, the Company entered into a
five-year agreement with Worthy Credit Limited (“Worthy Credit”), pursuant to which, the Company made payment of $
F-20
NOTE 12 — SHORT-TERM BANK LOANS
On December 23, 2022, Xinjiang United Family
entered into a loan agreement with Huaxia Bank to borrow RMB
The Company incurred interest expenses of $
NOTE 13 — RELATED PARTY TRANSACTIONS
| a. | Due to a related party |
As of June 30, 2023, due to a related party of
$
| b. | Other related party transactions |
Several related parties provided guarantees in connection with the Company’s loan borrowed from Huaxia Bank (see Note 12).
NOTE 14 — TAXES
| (a) | Corporate Income Taxes (“CIT”) |
Cayman Islands
Under the current tax laws of the Cayman Islands, the Company is not subject to tax on its income or capital gains. In addition, no Cayman Islands withholding tax will be imposed upon the payment of dividends by the Company to its shareholders.
British Virgin Islands
Deen Global is incorporated in the BVI as an offshore holding company and is not subject to tax on income or capital gain under the laws of BVI.
Hong Kong
Jenyd is incorporated in Hong Kong and is subject
to profit taxes in Hong Kong at a rate of
F-21
PRC
Under the Enterprise Income Tax (“EIT”)
Law of the PRC, domestic enterprises and Foreign Investment Enterprises (the “FIE”) are usually subject to a unified
The UFG entities are individually-owned businesses,
which are not subject to the EIT Law of the PRC, but the Individual Income Tax. The Measures for Individual Income Tax Calculation of
Individual Industrial and Commercial Households, or the “Measures,” were adopted by the State Administration of Taxation
on December 19, 2014 and promulgated on December 27, 2014, and amended on June 15, 2018. According to Article 7 of the Measures, for
the income from production and operation of individually-owned businesses, the amount of taxable income shall be the balance of the total
income of each tax year after deducting costs, expenses, taxes, losses and other expenditures, and allowable compensation for losses
in previous years. Income tax for an individually-owned business can generally be assessed on an actual basis or a deemed basis, which
the UFG entities apply. Therefore, income tax for the UFG entities is levied as a fixed-rate income tax at
F-22
United States
The Company’s subsidiaries in the U.S.
are subject to a U.S. federal corporate income tax rate of
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Current tax provision | ||||||||
| Cayman Islands | $ | $ | ||||||
| BVI | ||||||||
| Hong Kong | ||||||||
| PRC | ||||||||
| United States | ||||||||
| $ | $ | |||||||
| Deferred tax provision | ||||||||
| Cayman Islands | $ | $ | ||||||
| BVI | ||||||||
| Hong Kong | ||||||||
| PRC | ||||||||
| United States | ||||||||
| Income tax provisions | $ | $ | ||||||
| June 30, 2023 | December 31, 2022 | |||||||
| Net operating loss | $ | $ | ||||||
| Total deferred tax assets | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax assets, net | $ | $ | ||||||
The Company’s operations in the U.S. incurred
a cumulative net operating loss (“NOL”) which may reduce future federal taxable income. As of December 31, 2022, the cumulative
NOL was $
The Company periodically evaluates the likelihood
of the realization of deferred tax assets, and reduces the carrying amount of the deferred tax assets by a valuation allowance to the
extent it believes a portion will not be realized. Management considers new evidence, both positive and negative, that could affect the
Company’s future realization of deferred tax assets including its recent cumulative earnings experience, expectation of future
income, the carry forward periods available for tax reporting purposes and other relevant factors. The Company determined that it is
more likely than not its deferred tax assets could not be realized due to uncertainty on future earnings in the U.S. operations. The
Company provided a
F-23
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cayman Islands | $ | $ | ||||||
| PRC | ||||||||
| US | ( | ) | ( | ) | ||||
| Total income before income taxes | $ | $ | ||||||
Reconciliation of the differences between the income tax provision computed based on PRC statutory income tax rate and the Company’s actual income tax provision for the six months ended June 30, 2023 and 2022 are as follows:
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Income tax expense computed based on PRC statutory rate | $ | $ | ||||||
| Favorable tax rate and tax exemption impact in PRC entities (a) | ( | ) | ( | ) | ||||
| Effect of rate differential for non-PRC entities | ( | ) | ||||||
| Change in valuation allowance | ||||||||
| Actual income tax provision | $ | $ | ||||||
| (a) |
| (b) | Taxes payable |
June 30, 2023 |
December 31, 2022 |
|||||||
| Income tax recoverable | $ | ( |
) | $ | ( |
) | ||
| Value added tax payable | ||||||||
| Other taxes payable | ||||||||
| Total taxes payable | $ | $ | ||||||
NOTE 15 — SHAREHOLDERS’ EQUITY
Ordinary shares
Chanson International was established under the
laws of the Cayman Islands on July 26, 2019.
F-24
On March 27, 2021, the Company’s shareholders
and board of directors approved
Initial Public Offering
On April 3, 2023, the Company closed its IPO
of
As a result, the Company had
Statutory Reserve
The Company’s PRC subsidiary is required
to make appropriations to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus reserve, based
on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”). Appropriations
to the statutory surplus reserve are required to be at least
Restricted net assets
The Company’s PRC subsidiary and the UFG
entities are restricted in their ability to transfer a portion of their net assets, equivalent to their statutory reserves and their
share capital to the Company in the form of loans, advances, or cash dividends. The payment of dividends by entities organized in China
is subject to limitations, procedures, and formalities. Regulations in the PRC currently permit payment of dividends only out of accumulated
profits as determined in accordance with accounting standards and regulations in China. As of June 30, 2023 and December 31, 2022, the
total restricted net assets amounted to $
F-25
NOTE 16 — COMMITMENTS AND CONTINGENCIES
Contingencies
From time to time, the Company is a party to various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. As of June 30, 2023 and December 31, 2022, there were no legal claims and litigation against the Company.
NOTE 17 — SEGMENT REPORTING
In accordance with ASC 280, Segment Reporting, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (the “CODM”), or decision making group, in deciding how to allocate resources and in assessing performance. The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s CODM for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the CODM, reviews operation results by locations. Based on management’s assessment, the Company has determined that it has two operating segments, China and the United States.
For
the Six Months Ended | ||||||||||||
| China | United States | Total | ||||||||||
| Revenue | $ | $ | $ | |||||||||
| Cost of revenue | ||||||||||||
| Gross profit | $ | $ | $ | |||||||||
| Net income (loss) | $ | $ | ( | ) | $ | |||||||
| Interest income (expense), net | $ | ( | ) | $ | $ | |||||||
| Provision for income tax | $ | $ | $ | |||||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Capital expenditures | $ | $ | $ | |||||||||
| For
the Six Months Ended June 30, 2022 |
||||||||||||
| China | United States |
Total | ||||||||||
| Revenue | $ | $ | $ | |||||||||
| Cost of revenue | ||||||||||||
| Gross profit | $ | $ | $ | |||||||||
| Net income (loss) | $ | $ | ( |
) | $ | |||||||
| Interest expense | ( |
) | ( |
) | ||||||||
| Provision for income tax | ||||||||||||
| Depreciation and amortization | $ | $ | $ | |||||||||
| Capital expenditures | $ | $ | $ | |||||||||
F-26
June 30, 2023 | December 31, 2022 | |||||||
| Total assets: | ||||||||
| China | $ | $ | ||||||
| United States | ||||||||
| Total assets | $ | $ | ||||||
| Total liabilities: | ||||||||
| China | $ | $ | ||||||
| United States | ||||||||
| Total liabilities | $ | $ | ||||||
NOTE 18 — SUBSEQUENT EVENTS
The Company evaluated the subsequent events through October 6, 2023, which is the date of the issuance of these unaudited condensed consolidated financial statements, and concluded that there are no additional subsequent events except disclosed above that would have required adjustment or disclosure in the unaudited condensed consolidated financial statements.
NOTE 19 — CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
Pursuant to the requirements of Rules 12-04(a),
5-04(c), and 4-08(e)(3) of Regulation S-X, the condensed financial information of the parent company shall be filed when the restricted
net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal
year. The Company performed a test on the restricted net assets of consolidated subsidiaries in accordance with such requirements and
concluded that it was applicable to the Company as the restricted net assets of the Company’s PRC subsidiary and the UFG entities
exceeded
For purposes of the above test, restricted net assets of consolidated subsidiaries and VIEs shall mean that amount of the Company’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries and VIEs in the form of loans, advances, or cash dividends without the consent of a third party.
The condensed financial information of the parent company has been prepared using the same accounting policies as set out in the Company’s unaudited condensed consolidated financial statements except that the parent company used the equity method to account for investment in its subsidiaries and VIEs. Such investment is presented on the condensed balance sheets as “Investment in subsidiaries and VIEs” and the respective profit or loss as “Equity in earnings of subsidiaries and VIEs” on the condensed statements of operations and comprehensive loss.
The footnote disclosures contain supplemental information relating to the operations of the Company and, as such, these statements should be read in conjunction with the notes to the consolidated financial statements of the Company. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.
The Company did not pay any dividend for the periods presented. As of June 30, 2023 and December 31, 2022, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except for those which have been separately disclosed in the unaudited condensed consolidated financial statements, if any.
F-27
CHANSON INTERNATIONAL HOLDING
PARENT COMPANY BALANCE SHEETS
June 30, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Intercompany receivable | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Long term debt investment | ||||||||
| Long term loan to a third-party | ||||||||
| Loss from investment in subsidiaries | ( | ) | ( | ) | ||||
| Total non-current assets | ( | ) | ||||||
| Total assets | $ | $ | ( | ) | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||
| LIABILITIES | ||||||||
| Intercompany payable | $ | $ | ||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ DEFICIT | ||||||||
| Ordinary shares, $ | ||||||||
| Class A ordinary share, $ | ||||||||
| Class B ordinary share, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | $ | ( | ) | |||
| Accumulated other comprehensive income | ||||||||
| Total shareholders’ equity (deficit) | $ | ( | ) | |||||
| Total liabilities and shareholders’ equity (deficit) | $ | $ | ( | ) | ||||
F-28
CHANSON INTERNATIONAL HOLDING
PARENT COMPANY STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| OTHER INCOME | ||||||||
| Interest income | $ | $ | ||||||
| Income from long term debt investment | ||||||||
| EQUITY IN EARNINGS OF SUBSIDIARIES AND VIES | ||||||||
| NET INCOME | ||||||||
| FOREIGN CURRENCY TRANSLATION ADJUSTMENTS | ||||||||
| COMPREHENSIVE INCOME | $ | |||||||
CHANSON INTERNATIONAL HOLDING
PARENT COMPANY STATEMENTS OF CASH FLOWS
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | |||||||
| Adjustments to reconcile net cash flows from operating activities: | ||||||||
| Interest income from long term debt investment | ( | ) | ||||||
| Interest income from loan to a third party | ( | ) | ||||||
| Equity in earnings of subsidiaries and VIEs | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Payment made for long term debt investment | ( | ) | ||||||
| Advances of loan to a third party | ( | ) | ||||||
| Cash lent to U.S. subsidiary | ( | ) | ||||||
| Cash used in investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Gross proceeds from initial public offerings | ||||||||
| Direct costs disbursed from initial public offerings proceeds | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| CHANGES IN CASH AND CASH EQUIVALENTS | ||||||||
| CASH AND CASH EQUIVALENTS, beginning of period | ||||||||
| CASH AND CASH EQUIVALENTS, end of period | $ | $ | ||||||
F-29
Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear elsewhere in the report on Form 6-K of which this document is a part. In addition to historical consolidated financial information, the following discussion may contain forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in our annual report on Form 20-F for the fiscal year ended December 31, 2022, particularly under the caption “Item 3. Key Information—D. Risk Factors.”
Key financial performance indicators
We consider a variety of financial and operating measures in assessing the performance of our business. The key financial performance measures we use are revenue, comparable store sales, gross profit and gross margin, selling, general, and administrative expenses (“SG&A expenses”), and operating income.
Revenue
Our revenue is derived primarily from sales of bakery and other products under the operating entities’ “George●Chanson,” “Patisserie Chanson,” and “Chanson” brand names. As of the date of this report, the operating entities manage and operate 39 stores in the PRC (the “PRC Stores”) and four stores in the U.S. (the “U.S. Stores”). The PRC Stores and the U.S. Stores experienced stable growth prior to the COVID-19 pandemic, resulting from their focus on supporting their best-selling items and the introduction of new products. Our revenue is periodically influenced by the efficiency of sales promotions and the introduction and discontinuance of sales and promotion incentives. Growth of our revenue is primarily driven by expansion of the operating entities’ store base in existing and new markets as well as comparable store sales growth, described below under “Comparable Store Sales.” Revenue is impacted by competition, current economic conditions, pricing, inflation, product mix and availability, promotion, and spending habits of the operating entities’ customers. The product offerings of the PRC Stores and the U.S. Stores across diverse product categories support growth in revenue by attracting new customers and encouraging repeat visits from their existing customers.
Comparable Store Sales
Comparable store sales measure the performance of a store during the current reporting period against the performance of the same store in the corresponding period of the previous year. Comparable store sales are important points of analysis for the operating entities, as comparable store sales can be helpful to them in making future decisions regarding existing stores and new locations. The operating entities often drill down into comparable store sales figures to determine the exact cause of changes in revenue. The operating entities also use comparable store sales to evaluate current and likely future performance and as a measure of revenue growth to evaluate how established stores have performed over time compared to new stores.
For simplicity, our comparable store sales consist of revenue from the operating entities’ stores only after they have had two full years of operations, which is when we believe comparability is achieved. Our comparable store definition includes stores that have been remodeled, expanded, or relocated in their existing location or respective geographic areas, but excludes stores that have been closed for an extended period or are planned to be closed or disposed of. Comparable store sales figures are presented as a percentage that indicates the relative amount of revenue increase or decrease, excluding the impact of foreign currency translation.
Opening new stores is a primary component of our growth strategy and, as the operating entities continue to execute on their growth strategy, we expect a significant portion of their revenue growth will be attributable to revenue from new stores. Accordingly, comparable store sales are one of the measures the operating entities use to assess the success of their growth strategy.
A variety of factors affect our comparable store sales, including, among others, consumer trends, competition, current economic conditions, pricing, inflation, changes in the operating entities’ product mix, the success of their marketing programs, and the COVID-19 pandemic. During the six months ended June 30, 2023, the comparable store sales in China (excluding the impact of foreign currency translation) increased by 7.7%, as the PRC Stores have gradually recovered from the COVID-19 pandemic. During the six months ended June 30, 2023, the comparable store sales in the U.S. decreased by 17.0%, as Chanson 23rd Street adjusted and upgraded its menus and customers were adjusting to our new products. The decrease was also due to increased competition from rivals operating in the same area.
Gross Profit and Gross Margin
Gross profit is the difference between revenue and cost of revenue. Our cost of revenue consists of labor costs, costs of ingredients used to prepare the operating entities’ bakery products, inventory write-off due to discarded bakery products, packaging costs, freight charges, utility costs, rent expenses of manufacturing space, depreciation of production equipment, and other overhead costs. Ingredients costs account for the largest portion of our cost of revenue. Supplies and prices of the operating entities’ various ingredients can be affected by a variety of factors, such as weather, seasonal fluctuations, demand, political environment, and economic conditions. An increase in the price of any ingredients used in the operating entities’ bakery products could result in an increase in costs from their suppliers, and the operating entities may not be able to increase prices to cover increased costs, which would have an adverse effect on their operating results and profitability. In order to negotiate more favorable prices on ingredients, the operating entities have been and will continue to be directly involved in sourcing ingredients from qualified suppliers and try to lock in ingredient prices for typically six to 12 months through non-cancelable purchase commitments, when they expect the price to increase. Over the past years, the operating entities have invested significant time and energy to achieve cost reduction and productivity improvement in their supply chain. The operating entities have focused on reducing ingredient and packaging costs through increased volume buying, direct purchasing, and price negotiations, as well as strengthening inventory management from raw materials to finished goods to reduce the spoilage and wastage. On the other hand, labor is a primary component in the cost of operating the operating entities’ business. Increased labor costs due to competition, increased minimum wage or employee benefits costs, or otherwise, would adversely impact the operating entities’ operating expenses. In addition, the operating entities’ success depends on their ability to attract, motivate, and retain qualified employees, including store managers and staff, to keep pace with their growth strategy.
Gross margin is gross profit divided by revenue. Gross margin is a measure used by management to indicate whether the operating entities are selling their products at an appropriate gross profit. Our gross margin is impacted by the operating entities’ product mix and availability, as some products provide higher gross margins, and by their merchandise costs, which may vary. Gross margin is also impacted by prices of the operating entities’ products. The operating entities typically evaluate the profitability of their products annually or semi-annually. The operating entities consider many factors such as cost of revenue fluctuations and competitive pricing strategies. The operating entities have historically been able to replace less profitable products with similar new products, and refine their product formulas to enhance existing products with higher prices to cover higher ingredient costs. In addition, the operating entities have a dedicated and highly-experienced product development team that constantly creates brand new products that reflect market trends and are attractive to customers.
SG&A Expenses
Our SG&A expenses are comprised of both store-related expenses and corporate expenses. Store-related expenses include payroll and employee benefit expenses and sales commissions paid to sales personnel, store rent, occupancy and maintenance costs, the cost of opening new stores, and marketing and advertising expenses. Corporate expenses include payroll and benefits for corporate and field support, legal, professional, and other consulting fees, travel expenses, and other facility related costs, such as rent and depreciation.
SG&A expenses generally increase as the operating entities grow their store base and invest in corporate infrastructure. The operating entities have made significant investments in talent retention and storefront upgrades over the past years which have resulted in higher SG&A expenses. Our SG&A expenses are expected to continue increasing in the future as the operating entities invest to open new stores, launch new products, increase brand awareness, attract new customers, and increase their market penetration. To support their growth, the operating entities will continue to increase headcount, particularly in the sales and marketing departments. This increase in headcount will drive higher payroll and employee-related expenses. Our operating entities also continue to invest in product innovation and promote sales growth. We expect our SG&A expenses to continue to increase in absolute dollars as we incur increased costs related to the growth of our business and our operation as a public company.
2
Operating Income
Operating income is the difference between gross profit and SG&A expenses. Operating income excludes interest income (expenses), other income (expenses), and income tax expenses. We use operating income as an indicator of the productivity of our business and our ability to manage expenses.
A. Operating Results
Comparison of Results of Operations for the Six Months Ended June 30, 2023 and 2022
The following table summarizes the results of our operations during the six months ended June 30, 2023 and 2022, respectively, and provides information regarding the dollar and percentage increase or decrease during such periods.
| For the six months ended June 30, | Variance | |||||||||||||||
| 2023 | 2022 | Amount | % | |||||||||||||
| Revenue | $ | 8,811,287 | $ | 8,543,803 | $ | 267,484 | 3.1 | % | ||||||||
| Cost of revenue | 4,478,716 | 4,396,715 | 82,001 | 1.9 | % | |||||||||||
| Gross profit | 4,332,571 | 4,147,088 | 185,483 | 4.5 | % | |||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Selling expenses | 2,444,292 | 2,195,394 | 248,898 | 11.3 | % | |||||||||||
| General and administrative expenses | 1,774,419 | 1,887,285 | (112,866 | ) | (6.0 | )% | ||||||||||
| Total operating expenses | 4,218,711 | 4,082,679 | 136,032 | 3.3 | % | |||||||||||
| INCOME FROM OPERATIONS | 113,860 | 64,409 | 49,451 | 76.8 | % | |||||||||||
| OTHER INCOME (EXPENSES) | ||||||||||||||||
| Interest income (expense), net | 14,007 | (37,186 | ) | 51,193 | 137.7 | % | ||||||||||
| Other income (expense), net | (11,843 | ) | 197,268 | (209,111 | ) | (106.0 | )% | |||||||||
| Income from long term debt investment | 171,616 | - | 171,616 | 100.0 | % | |||||||||||
| Total other income, net | 173,780 | 160,082 | 13,698 | 8.6 | % | |||||||||||
| INCOME BEFORE INCOME TAX PROVISION | 287,640 | 224,491 | 63,149 | 28.1 | % | |||||||||||
| INCOME TAX PROVISION | 2,880 | 3,698 | (818 | ) | (22.1 | )% | ||||||||||
| NET INCOME | $ | 284,760 | $ | 220,793 | $ | 63,967 | 29.0 | % | ||||||||
Revenue
We generate revenue primarily from bakery products and other products sold in China and the U.S. In the PRC Stores, bakery products consist of packaged bakery products (cakes, bread, and snacks), birthday cakes, and made-in-store pastries, and other products consist of seasonal products (mooncakes and zongzi) and beverage products. In the U.S. Stores, bakery products consist of cakes, bread, sweets, birthday cakes, and pastries, and other products consist of eat-in menu items (sandwiches, salads, toasts, croissants, soups, and desserts) and beverage products.
Our total revenue increased by $267,484, or 3.1%, from $8,543,803 for the six months ended June 30, 2022 to $8,811,287 for the six months ended June 30, 2023. The increase in our revenue was due to increased revenue from the PRC Stores, which was partially offset by the slightly decreased revenue from the U.S. Stores, as discussed in greater details below.
3
The following table sets forth the breakdown of our revenue for the six months ended June 30, 2023 and 2022, respectively:
| For the Six Months Ended June 30, | Variance | |||||||||||||||||||||||
| 2023 | % | 2022 | % | Amount | % | |||||||||||||||||||
| China | ||||||||||||||||||||||||
| Bakery products | $ | 6,386,294 | 72.4 | % | $ | 6,295,104 | 73.7 | % | $ | 91,190 | 1.4 | % | ||||||||||||
| Other products | 624,878 | 7.1 | % | 416,405 | 4.9 | % | 208,473 | 50.1 | % | |||||||||||||||
| Subtotal: revenue from China | 7,011,172 | 79.5 | % | 6,711,509 | 78.6 | % | 299,663 | 4.5 | % | |||||||||||||||
| United States | ||||||||||||||||||||||||
| Bakery products | 234,783 | 2.7 | % | 332,870 | 3.9 | % | (98,087 | ) | (29.5 | )% | ||||||||||||||
| Beverage products | 1,002,252 | 11.4 | % | 993,504 | 11.6 | % | 8,748 | 0.9 | % | |||||||||||||||
| Eat-in services | 563,080 | 6.4 | % | 505,920 | 5.9 | % | 57,160 | 11.3 | % | |||||||||||||||
| Subtotal: revenue from the United States | 1,800,115 | 20.5 | % | 1,832,294 | 21.4 | % | (32,179 | ) | (1.8 | )% | ||||||||||||||
| Total Revenue | $ | 8,811,287 | 100.0 | % | $ | 8,543,803 | 100.0 | % | $ | 267,484 | 3.1 | % | ||||||||||||
China
The PRC Stores accounted for 79.5% and 78.6% of our total revenue for the six months ended June 30, 2023 and 2022, respectively. Revenue from the PRC Stores increased by $299,663, or 4.5%, from $6,711,509 for the six months ended June 30, 2022 to $7,011,172 for the six months ended June 30, 2023. The increase was mainly due to the increased revenue from other products, as discussed below.
Revenue from bakery products remained relatively stable with a slight increase by $91,190, or 1.4%, from $6,295,104 for the six months ended June 30, 2022 to $6,386,294 for the six months ended June 30, 2023. Our revenue from bakery products (excluding the impact of foreign currency translation) increased by 11.8% for the six months ended June 30, 2023 as compared to the same period of last year. The increase was mainly because the PRC Stores’ business operations recovered from the COVID-19 pandemic during the six months ended June 30, 2023. In early December 2022, China announced a nationwide loosening of its zero-COVID policy and experienced a wave in infections after the lifting of these restrictions, but the spread of the COVID-19 has appeared to be under control since January 2023. During the six months ended June 30, 2023, the PRC Stores’ business operations have gradually recovered and the revenue from bakery products increased. The increase was partially offset by the appreciation of the US dollars against RMB. The average translation rate for the six months ended June 30, 2023 and 2022 was at $1=RMB6.9263 and $1=RMB6.4791, respectively, representing an increase of 6.9%.
Revenue from other products increased by $208,473, or 50.1%, from $416,405 for the six months ended June 30, 2022 to $624,878 for the six months ended June 30, 2023. The increase was due to increased revenue from seasonal products and beverage products. Revenue from seasonal products increased by $71,333, or 19.6%, from $364,671 for the six months ended June 30, 2022 to $436,004 for the six months ended June 30, 2023. The increase was mainly due to increased customer orders of seasonal products, which was attributable to (i) the introduction of new products, such as the popular new zongzi products during the Chinese Dragon Boat Festival, and (ii) the upgraded packaging for seasonal products, which were more appealing to the customers. Revenue from beverage products significantly increased by $137,140, or 265.1%, from $51,734 for the six months ended June 30, 2022 to $188,874 for the six months ended June 30, 2023. The increase was due to the increased revenue from freshly brewed coffee products, as the PRC Stores are focusing on developing the business of coffee beverages. As of June 30, 2023, three coffee bakery stores were opened, including one store opened in June 2022 and two stores opened in the six months ended June 30, 2023.
4
United States
Revenue from the U.S. Stores decreased by $32,179, or 1.8%, from $1,832,294 for the six months ended June 30, 2022 to $1,800,115 for the six months ended June 30, 2023. The decrease was due to decreased revenue from bakery products, which was partially offset by the increased revenue from beverage products and eat-in services as discussed below.
Revenue from bakery products decreased by $98,087, or 29.5%, from $332,870 for the six months ended June 30, 2022 to $234,783 for the six months ended June 30, 2023. The decrease was primarily due to increased competition from rivals operating in the same area. As some famous bakery brands opened new stores in New York City, customers now have more choices and revenue from bakery products of Chanson 23rd Street and Chanson Greenwich were affected. The decrease in revenue from bakery products was partially offset by the increased revenue from bakery products of approximately $24,000, generated by Chanson 3rd Ave, the new store opened in March 2023.
Revenue from beverage products remained relatively stable with a slight increase by $8,748, or 0.9%, from $993,504 for the six months ended June 30, 2022 to $1,002,252 for the six months ended June 30, 2023. After the cocktail bars of the U.S. Stores launched several new types of cocktail products with new flavors and styles, such products became popular among customers and the cocktail bars were often fully booked by reservation. But the growth of our revenue from beverage products was limited by the store space as the U.S. Stores have already operated the cocktail bars at full capacity. Therefore, our revenue from beverage products only increased slightly for the six months ended June 30, 2023.
Revenue from eat-in services increased by $57,160, or 11.3%, from $505,920 for the six months ended June 30, 2022 to $563,080 for the six months ended June 30, 2023. The increase was mainly due to the increased revenue from eat-in services of approximately $92,000 generated by the Chanson Greenwich opened in December 2021. Chanson Greenwich has been focusing on increasing brand awareness, improving the quality of customer services and enhancing in-store customer experience. As a result, Chanson Greenwich attracted more customers and its revenue from eat-in services increased in the six months ended June 30, 2023. The increase was partially offset by the decreased revenue of approximately $38,300 from Chanson 23rd Street. Chanson 23rd Street adjusted its menu items, and customers were adjusting to the new products. Accordingly, Chanson 23rd Street’s revenue from eat-in services decreased in the six months ended June 30, 2023 compared to the same period of last year.
Cost of Revenue
Our cost of revenue consists of food ingredient costs, packaging costs, workforce related costs, overhead costs such as store rental and utilities for food production and processing, depreciation, and amortization. Our overall cost of revenue remained relatively stable with a slight increase by $82,001, or 1.9%, from $4,396,715 for the six months ended June 30, 2022 to $4,478,716 for the six months ended June 30, 2023. The slight increase in our cost of revenue was due to increased cost of revenue from both the stores in China and the U.S., as discussed in greater details below.
The following table sets forth the breakdown of our cost of revenue for the six months ended June 30, 2023 and 2022, respectively:
| For the Six Months Ended June 30, | Variance | |||||||||||||||||||||||
| 2023 | % | 2022 | % | Amount | % | |||||||||||||||||||
| China | ||||||||||||||||||||||||
| Bakery products | $ | 3,209,942 | 71.7 | % | $ | 3,243,658 | 73.9 | % | $ | (33,716 | ) | (1.0 | )% | |||||||||||
| Other products | 251,922 | 5.6 | % | 150,656 | 3.4 | % | 101,266 | 67.2 | % | |||||||||||||||
| Subtotal: cost of revenue from China | 3,461,864 | 77.3 | % | 3,394,314 | 77.3 | % | 67,550 | 2.0 | % | |||||||||||||||
| United States | ||||||||||||||||||||||||
| Bakery products | 155,689 | 3.5 | % | 204,208 | 4.6 | % | (48,519 | ) | (23.8 | )% | ||||||||||||||
| Beverage products | 564,686 | 12.6 | % | 568,430 | 12.9 | % | (3,744 | ) | (0.7 | )% | ||||||||||||||
| Eat-in services | 296,477 | 6.6 | % | 229,763 | 5.2 | % | 66,714 | 29.0 | % | |||||||||||||||
| Subtotal: cost of revenue from the United States | 1,016,852 | 22.7 | % | 1,002,401 | 22.7 | % | 14,451 | 1.4 | % | |||||||||||||||
| Total Cost of Revenue | $ | 4,478,716 | 100.0 | % | $ | 4,396,715 | 100.0 | % | $ | 82,001 | 1.9 | % | ||||||||||||
5
China
Cost of revenue from the PRC Stores remained relatively stable with a slight increase by $67,550, or 2.0%, from $3,394,314 for the six months ended June 30, 2022 to $3,461,864 for the six months ended June 30, 2023. The slight increase was primarily due to the increased cost of revenue of other products, as discussed below.
Cost of revenue from sales of bakery products remained relatively stable with a slight decrease by $33,716, or 1.0%, from $3,243,658 for the six months ended June 30, 2022 to $3,209,942 for the six months ended June 30, 2023. Our cost of revenue from bakery products (excluding the impact of foreign currency translation) increased by 5.8% for the six months ended June 30, 2023 as compared to the same period of last year. The increase was partially offset by the appreciation of the US dollars against RMB as mentioned above. The percentage of increase in cost of revenue (excluding the impact of foreign currency translation) was less than that in revenue during the same period, due to less spoilage and wastage of inventory incurred in the six months ended June 30, 2023, as discussed in “—Gross Profit and Gross Margin” below in more details.
Cost of revenue from other products increased by $101,266, or 67.2%, from $150,656 for the six months ended June 30, 2022 to $251,922 for the six months ended June 30, 2023. The cost of revenue from seasonal products increased by $42,458, or 35.5%, from $119,699 for the six months ended June 30, 2022 to $162,157 for the six months ended June 30, 2023 due to the increase in sales of seasonal products. The percentage of increase in cost of revenue was more than that in revenue during the same period, due to more price discounts given to customers of the PRC Stores and the increased packaging cost as a result of updated packaging of seasonal products, as discussed in “—Gross Profit and Gross Margin” below in more details. The cost of revenue from beverage products increased by $58,808, or 190.0%, from $30,957 for the six months ended June 30, 2022 to $89,765 for the six months ended June 30, 2023 due to the increase in sales of coffee products. The percentage of increase in cost of revenue was less than that in revenue during the same period, due to the higher gross margin of coffee products, as discussed in “—Gross Profit and Gross Margin” below in more details.
United States
Cost of revenue from the U.S. Stores remained relatively stable with a slight increase by $14,451, or 1.4%, from $1,002,401 for the six months ended June 30, 2022 to $1,016,852 for the six months ended June 30, 2023. The slight increase was due to the increased cost of revenue from eat-in services, which was partially offset by the decreased cost of revenue from bakery products and beverage products as discussed below.
Cost of revenue from sales of bakery products decreased by $48,519, or 23.8%, from $204,208 for the six months ended June 30, 2022 to $155,689 for the six months ended June 30, 2023, primarily due to the decrease in revenue from bakery products in the U.S. Stores. The percentage of decrease in cost of revenue was less than that in revenue during the same period, which was attributable to the higher spoilage and wastage of inventory, as discussed in “—Gross Profit and Gross Margin” below in more details.
Cost of revenue from sales of beverage products remained relatively stable with a slight decrease by $3,744, or 0.7%, from $568,430 for the six months ended June 30, 2022 to $564,686 for the six months ended June 30, 2023, which was in line with the relatively stable revenue from beverage products in the U.S. Stores.
The cost of revenue from eat-in services increased by $66,714, or 29.0%, from $229,763 for the six months ended June 30, 2022 to $296,477 for the six months ended June 30, 2023, due to the increase in sales of eat-in services from the U.S. Stores. The percentage of increase in cost of revenue was more than that in revenue during the same period, due to the increased spoilage and wastage of inventory, as discussed in “—Gross Profit and Gross Margin” below in more details.
6
Gross Profit and Gross Margin
Our gross profit increased by $185,483, or 4.5%, from $4,147,088 for the six months ended June 30, 2022 to $4,332,571 for the six months ended June 30, 2023. The increase was mainly attributable to the overall increase in revenue. Our gross margin increased slightly by 0.7 percentage points from 48.5% for the six months ended June 30, 2022 to 49.2% for the six months ended June 30, 2023.
The following table sets forth the breakdown of our gross profit for the six months ended June 30, 2023 and 2022, respectively:
| For the Six Months Ended June 30, | Variance | |||||||||||||||||||||||
| 2023 | Margin % | 2022 | Margin % | Amount | % | |||||||||||||||||||
| China | ||||||||||||||||||||||||
| Bakery products | $ | 3,176,352 | 49.7 | % | $ | 3,051,446 | 48.5 | % | $ | 124,906 | 4.1 | % | ||||||||||||
| Other products | 372,956 | 59.7 | % | 265,749 | 63.8 | % | 107,207 | 40.3 | % | |||||||||||||||
| Subtotal: gross margin and margin % from China | 3,549,308 | 50.6 | % | 3,317,195 | 49.4 | % | 232,113 | 7.0 | % | |||||||||||||||
| United States | ||||||||||||||||||||||||
| Bakery products | 79,094 | 33.7 | % | 128,662 | 38.7 | % | (49,568 | ) | (38.5 | )% | ||||||||||||||
| Beverage products | 437,566 | 43.7 | % | 425,074 | 42.8 | % | 12,492 | 2.9 | % | |||||||||||||||
| Eat-in services | 266,603 | 47.3 | % | 276,157 | 54.6 | % | (9,554 | ) | (3.5 | )% | ||||||||||||||
| Subtotal: gross margin and margin % from the United States | 783,263 | 43.5 | % | 829,893 | 45.3 | % | (46,630 | ) | (5.6 | )% | ||||||||||||||
| Total Gross Margin and Margin % | $ | 4,332,571 | 49.2 | % | $ | 4,147,088 | 48.5 | % | $ | 185,483 | 4.5 | % | ||||||||||||
China
Gross profit from the PRC Stores increased by $232,113, or 7.0%, from $3,317,195 for the six months ended June 30, 2022 to $3,549,308 for the six months ended June 30, 2023. The increase was mainly attributable to the overall increase in sales. The gross margin increased by 1.2 percentage points from 49.4% for the six months ended June 30, 2022 to 50.6% for the six months ended June 30, 2023.
The gross profit of bakery products increased by $124,906, or 4.1%, from $3,051,446 for the six months ended June 30, 2022 to $3,176,352 for the six months ended June 30, 2023, and the gross margin of bakery products increased by 1.2 percentage points from 48.5% for the six months ended June 30, 2022 to 49.7% for the six months ended June 30, 2023. During the six months ended June 30, 2022, the PRC Stores experienced temporary closures in compliance with the COVID-19 regional lockdowns and the difficulty in estimating customer demand, which resulted in spoilage and wastage of excess bakery products, fresh ingredients, and ingredients with shorter storage life. During the six months ended June 30, 2023, the PRC Stores gradually returned to normal operation, and less spoilage and wastage of inventory was incurred.
The gross profit of other products increased by $107,207, or 40.3%, from $265,749 for the six months ended June 30, 2022 to $372,956 for the six months ended June 30, 2023, and the gross margin decreased by 4.1 percentage points from 63.8% for the six months ended June 30, 2022 to 59.7% for the six months ended June 30, 2023. The decrease in gross margin was mainly due to a decrease in gross margin of seasonal products by 4.4 percentage points from 67.2% for the six months ended June 30, 2022 to 62.8% for the six months ended June 30, 2023. The decrease in gross margin of seasonal products was mainly due to (i) the sales promotions and price discounts granted to customers as the PRC Stores tried to attract more customers, and (ii) the increased packaging cost as a result of the updated packaging of seasonal products. The decrease in gross margin was partially offset by an increase in gross margin of beverage products by 12.3 percentage points from 40.2% for the six months ended June 30, 2022 to 52.5% for the six months ended June 30, 2023. The increase in gross margin of beverage products was primarily due to a decrease in spoilage and wastage of raw materials during the six months ended June 30, 2023, as the staff at the PRC stores have become more experienced in preparing coffee products since the launch of the coffee business in the six months ended June 30, 2022.
7
United States
Gross profit from the U.S. Stores decreased by $46,630, or 5.6%, from $829,893 for the six months ended June 30, 2022 to $783,263 for the six months ended June 30, 2023. The decrease was mainly attributable to the overall decrease in revenue. The gross margin decreased by 1.8 percentage points from 45.3% for the six months ended June 30, 2022 to 43.5% for the six months ended June 30, 2023.
The gross profit of bakery products decreased by $49,568, or 38.5%, from $128,662 for the six months ended June 30, 2022 to $79,094 for the six months ended June 30, 2023, and the gross margin of bakery products decreased by 5.0 percentage points, from 38.7% for the six months ended June 30, 2022 to 33.7% for the six months ended June 30, 2023. Some famous bakery brands opened new stores in New York City and customers have more options to choose from based on their personal preferences. As a result of the increased competition from rivals operating in the same area, customer demand was harder to estimate and higher spoilage of inventory, excess raw materials and bakery products with short storage life was incurred.
The gross profit of beverage products slightly increased by $12,492, or 2.9%, from $425,074 for the six months ended June 30, 2022 to $437,566 for the six months ended June 30, 2023, and the gross margin of beverage products remained relatively stable with a slight increase of 0.9 percentage points, from 42.8% for the six months ended June 30, 2022 to 43.7% for the six months ended June 30, 2023.
The gross profit of eat-in services decreased by $9,554, or 3.5%, from $276,157 for the six months ended June 30, 2022 to $266,603 for the six months ended June 30, 2023, and the gross margin of eat-in services decreased by 7.3 percentage points from 54.6% for the six months ended June 30, 2022 to 47.3% for the six months ended June 30, 2023. Chanson 23rd Street adjusted its menu items, and customers were adjusting to the new products, which led to difficulty in estimating customer demand and higher spoilage and wastage of inventory and raw materials. Therefore, the gross margin of eat-in services decreased during the six months ended June 30, 2023 compared to the same period of 2022.
Operating Expenses
The following table sets forth the breakdown of our operating expenses for the six months ended June 30, 2023 and 2022.
| For the Six Months Ended June 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Amount | % of revenue | Amount | % of revenue | Amount | % | |||||||||||||||||||
| Total revenue | $ | 8,811,287 | 100.0 | % | $ | 8,543,803 | 100.0 | % | $ | 267,484 | 3.1 | % | ||||||||||||
| Total operating expenses: | ||||||||||||||||||||||||
| Selling expenses | 2,444,292 | 27.7 | % | 2,195,394 | 25.7 | % | 248,898 | 11.3 | % | |||||||||||||||
| General and administrative expenses | 1,774,419 | 20.1 | % | 1,887,285 | 22.1 | % | (112,866 | ) | (6.0 | )% | ||||||||||||||
| Total operating expenses | $ | 4,218,711 | 47.8 | % | $ | 4,082,679 | 47.8 | % | $ | 136,032 | 3.3 | % | ||||||||||||
Selling Expenses
Our selling expenses primarily include payroll and sales commission expenses paid to our sales and marketing personnel, store operating expenses, store rental, store decoration and maintenance expenses, utility expenses, and other expenses related to sales activities. Selling expenses increased by $248,898, or 11.3%, from $2,195,394 for the six months ended June 30, 2022 to $2,444,292 for the six months ended June 30, 2023, due to an increase in selling expenses of $156,204 and $92,694 from the U.S. Stores and PRC Stores, respectively. The increase in the U.S. Stores was primarily due to the increased rental expenses of approximately $0.16 million, which was caused by (i) the increased rental expenses of approximately $0.08 million generated by the newly opened Chanson 3rd Ave in March 2023; and (ii) the decreased lease concession of approximately $0.08 million received by Chanson Greenwich in the six months ended June 30, 2023. The increase in selling expenses from the PRC Stores was mainly attributable to (i) the increased salary and social security expenses by approximately $26,000, as the PRC Stores hired more employees for the new stores; and (ii) the increased service commission of approximately $41,700 paid to the third-party delivery platforms. Our selling expenses accounted for 27.7% and 25.7% of our revenue for the six months ended June 30, 2023 and 2022, respectively.
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General and Administrative Expenses
Our general and administrative expenses primarily consist of administrative employee salaries, welfare and insurance expenses, depreciation, and professional service expenses. General and administrative expenses decreased by $112,866, or 6.0%, from $1,887,285 for the six months ended June 30, 2022 to $1,774,419 for the six months ended June 30, 2023, due to a decrease in general and administrative expenses of $55,513 and $57,353 from the U.S. Stores and PRC Stores, respectively. The decrease in the U.S. Stores was primarily due to decreased salary and social security expenses by approximately $45,400, mainly resulting from optimization of management team in Chanson 23rd Street. The decrease in general and administrative expenses from the PRC Stores was mainly attributable to decreased rental expenses during the six months ended June 30, 2023 compared to the same period of last year, as the rental expenses of our new central factory, which was under construction since June 2021, were recorded in general and administrative expenses in the six months ended June 30, 2022, and since such construction was completed in June 2022, after the construction inspection in July 2022, the rental expenses of the new central factory were recorded in cost of revenue and selling expenses.
Other Income (Expense), Net
Our other income (expense), net primarily consists of interest expenses on our short-term bank loans, gain or loss from disposal of fixed assets, and government subsidies. Other income, net decreased by $209,111, or 106.0%, from other income, net of $197,268 for the six months ended June 30, 2022 to other expense, net of $11,843 for the six months ended June 30, 2023. The decrease in other income, net was mainly because Chanson 23rd Street received the Employee Retention Credit funding of $195,614, which was a refundable tax credit designed to assist businesses that started operating during the COVID-19 pandemic, in retaining employees during the six months ended June 30, 2022, and no such income was received during the six months ended June 30, 2023.
Income from Long Term Debt Investment
Income from long term debt investment was $171,616 during the six months ended June 30, 2023. On March 31, 2023, the Company entered into a five-year agreement with Worthy Credit Limited (“Worthy Credit”), pursuant to which, the Company made payment of $6.0 million to Worthy Credit, and authorized Worthy Credit to invest the Company’s funds to provide loan services for housing mortgage applicants, with rates of return of 12% per annum. The Company recorded investment income of $171,616 for the six months ended June 30, 2023.
Provision for Income Taxes
Our provision for income taxes was $2,880 and $3,698 for the six months ended June 30, 2023 and 2022, respectively. Under the PRC Enterprise Income Tax Law (the “EIT Law”), domestic enterprises and foreign investment enterprises are usually subject to a unified 25% EIT rate while preferential tax rates, tax holidays, or exemptions may be granted on a case-by-case basis.
Xinjiang United Family Trading Co., Ltd. (“Xinjiang United Family”) and its three branch offices were incorporated in the PRC. During the six months ended June 30, 2023 and 2022, Xinjiang United Family and all its three branch offices qualified as small-scaled minimal profit enterprises. Based on the EIT Law and the Announcement on Implementing the Preferential Income Tax Policies for Small-Scale Minimal Profit Enterprise and Individually-Owned Businesses on April 2, 2021, the tax rate for the portion of their taxable income not more than RMB1 million is further reduced to 2.5% during the period from January 1, 2021 to December 31, 2022 and the tax rate for the portion above RMB1 million remains at a reduced rate of 10%. According to the Announcement on Implementing the Preferential Income Tax Policies for Small-Scale Minimal Profit Enterprise on March 14, 2022 and March 26, 2023, the taxable income not more than RMB3 million is subject to a reduced rate of 5% during the period from January 1, 2023 to December 31, 2024. Xinjiang United Family and all its three branch offices will continue enjoying the favorable tax rate as long as they are qualified as small-scaled minimal profit enterprises.
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The association between Xinjiang United Family and the VIEs is known as the “United Family Group” or “UFG.” UFG is comprised of 28 entities (each a “UFG Entity” and, collectively, the “UFG Entities”). The UFG Entities are individually-owned businesses, which are not subject to the EIT Law, but the Individual Income Tax. The Measures for Individual Income Tax Calculation of Individual Industrial and Commercial Households, or the “Measures,” were adopted on December 19, 2014 and promulgated on December 27, 2014, and amended on June 15, 2018. According to Article 7 of the Measures, for the income from production and operation of individually-owned businesses, the amount of taxable income shall be the balance of the total income of each tax year after deducting costs, expenses, taxes, losses and other expenditures, and allowable compensation for losses in previous years. Income tax for an individually-owned business can generally be assessed on an actual basis or a deemed basis, which the UFG Entities apply. Therefore, income tax for the UFG Entities is levied as a fixed-rate income tax at 1% of the deemed Taxable Net Income (“TNI”) as assessed by the local tax authority. According to Announcement No. 12 [2021] and Announcement No. 6 [2023] of the State Taxation Administration, the tax rate is reduced by half to 0.5% during the period from January 1, 2021 to December 31, 2023. For the six months ended June 30, 2023, 13 of these UFG entities were subject to income tax assessed at 0.5% of TNI that ranged from RMB33,000 to RMB180,000 per month. For the six months ended June 30, 2022, 13 of these UFG entities were subject to income tax assessed at 0.5% of TNI that ranged from RMB25,000 to RMB180,000 per month. The rest of these UFG Entities were exempted from paying income tax. As of June 30, 2023, for the tax years ended December 31, 2018 through December 31, 2022, the UFG Entities remained open for statutory examination by PRC tax authorities. In addition, the TNI and tax rate of the UFG Entities are subject to periodical reassessment by the local tax authority. If the local tax authority determined that income tax for the UFG Entities should be levied at a higher TNI or higher tax rate, the UFG Entities would be obligated to pay additional income tax. Along with the continuing growth of business, we expect that the tax rates of these UFG Entities are likely to increase in the future in the annual assessment by the local tax authority based on past performance. If these UFG Entities change their forms of organization from individually-owned businesses to other corporate forms (such as limited liability company) as a result of their business development requirement, they will no longer enjoy the favorable tax rates and will be subject to the EIT Law, though we currently do not expect their forms of organization to change in the foreseeable future.
For the six months ended June 30, 2023 and 2022, the tax saving as the result of the favorable tax rates and tax exemption amounted to $315,790 and $261,738, respectively, and per share effect of the favorable tax rate and tax exemption was $0.03 and $0.03, respectively.
Net Income
As a result of the foregoing, we reported a net income of $284,760 for the six months ended June 30, 2023 as compared to net income of $220,793 for the six months ended June 30, 2022.
B. Liquidity and Capital Resources
On April 3, 2023, we closed our initial public offering (“IPO”) of 3,390,000 Class A ordinary shares at a public offering price of $4.00 per Class A ordinary share for total gross proceeds of $13.6 million before deducting underwriting discounts and other related expenses. Net proceeds of our IPO were approximately $12.0 million. Our Class A ordinary shares began trading on the Nasdaq Capital Market under the ticker symbol “CHSN” on March 30, 2023.
As of June 30, 2023, we had $1,471,984 in cash and cash equivalents as compared to $2,915,470 as of December 31, 2022. As of June 30, 2023, we had $1,937,261 accounts receivable balance, approximately 38.3%, or $0.7 million, of which has been subsequently collected. The remaining balance is expected to be collected before June 30, 2024. The collection of such receivables made cash available for use in our operations as working capital, if necessary.
10
As of June 30, 2023, we had approximately $0.4 million in a short-term bank loan.
On June 30, 2021, Xinjiang United Family entered into a 10-year lease agreement for approximately 54,638 square feet of building space, where it constructed a new central factory, to expand the production capacity. The investment budget for the new central factory is approximately RMB18.1 million (approximately $2.5 million) after VAT deduction. There are two stages for the construction. The first stage includes: 1) construction and renovation that cost approximately RMB13.1 million (approximately $1.8 million); 2) installation of production equipment of approximately RMB1.4 million (approximately $0.2 million); and 3) miscellaneous projects of approximately RMB1.1 million (approximately $0.2 million). The first stage of the construction was completed in June 2022, and passed inspection in July 2022, and the new central factory started production in early August 2022. The original second stage includes the construction of two new production lines of approximately RMB2.5 million (approximately $0.3 million), which is expected to start in the second half of fiscal year 2023 and complete by the end of 2023. Due to the opening of coffee bakery stores in PRC in fiscal year 2023, the construction plan of beverage production line with a budget of RMB0.8 million (approximately $0.1 million) was cancelled. In addition, the other moon cake production line with a budget of RMB1.7 million (approximately $0.2 million) is postponed to start between fiscal year 2024 and 2025, and complete before the end of 2025. As of June 30, 2023, our contractual obligation under the central factory construction was approximately RMB3.8 million (approximately $0.5 million). As of June 30, 2023, we had spent approximately RMB11.8 million (approximately $1.6 million), and the future minimum expenditure is estimated to be RMB5.5 million (approximately $0.8 million). We plan to use cash flow from the operations of the PRC Stores to fund the future construction. Our payment made and future payment schedule under the central factory construction project are as follows:
| Payment made in | Future payment | |||||||||||||||||||||||
| Fiscal year 2021 | Fiscal year 2022 | First half of fiscal year 2023 | Remainder of fiscal year 2023 | Fiscal year 2024 and 2025 | Total | |||||||||||||||||||
| Contracts signed in fiscal year 2021: | ||||||||||||||||||||||||
| Construction and renovation cost | $ | 683,774 | $ | 442,131 | $ | 38,967 | $ | 459,848 | $ | 47,748 | $ | 1,672,468 | ||||||||||||
| Other expenses related to construction | 87,824 | - | - | - | - | 87,824 | ||||||||||||||||||
| Subtotal: | 771,598 | 442,131 | 38,967 | 459,848 | 47,748 | 1,760,292 | ||||||||||||||||||
| Contracts signed in fiscal year 2022: | ||||||||||||||||||||||||
| Construction and renovation cost | - | 116,258 | - | 14,017 | - | 130,275 | ||||||||||||||||||
| Other expenses related to construction | - | 59,055 | - | - | - | 59,055 | ||||||||||||||||||
| Purchase of production equipment | - | 193,926 | - | - | - | 193,926 | ||||||||||||||||||
| Subtotal: | - | 369,239 | - | 14,017 | - | 383,256 | ||||||||||||||||||
| Contract expected to be signed between fiscal year 2024 and 2025: | ||||||||||||||||||||||||
| Moon cake production line construction | - | - | - | - | 234,302 | 234,302 | ||||||||||||||||||
| Subtotal: | - | - | - | - | 234,302 | 234,302 | ||||||||||||||||||
| Total | $ | 771,598 | $ | 811,370 | $ | 38,967 | $ | 473,865 | $ | 282,050 | $ | 2,377,850 | ||||||||||||
We also intend to open six additional new stores in the U.S. by fiscal year 2026, and the expected expenses related to opening these stores are approximately $3.0 million. We plan to use our cash on hand, cash flows from operations, and the net proceeds we received from the IPO to open the new stores in the U.S.
As of June 30, 2023, three coffee bakery stores were opened. We currently plan to open another four bakery stores and six coffee bakery stores, with a total budget of approximately RMB2.4 million (approximately $0.3 million) and approximately RMB3.0 million (approximately $0.4 million), respectively, during the remainder of fiscal year 2023. We plan to use our cash on hand and cash flows from operations to fund the new stores.
11
As of June 30, 2023, we had a negative working capital of approximately $5.4 million, including deferred revenue of approximately $7.1 million, which was reported as current liability, but will not require cash payment in the future. We expect to spend about $2.8 million when we produce and sell the products and realize the deferred revenue.
In assessing our liquidity, our management monitors and analyzes our cash on hand, the proceeds we received from IPO, our ability to generate sufficient revenue sources in the future, and our operating and capital expenditure commitments. As of June 30, 2023, we had cash and cash equivalents of approximately $1.5 million. The future capital expenditure on the central factory construction is expected to be approximately $0.5 million and $0.3 million in the remainder of fiscal year 2023 and between fiscal year 2024 and 2025, respectively. We believe that we would be able to make additional borrowings from banks based on past experience and our good credit history when necessary. All of the PRC stores resumed their normal business activities on December 10, 2022 and have fully recovered from the COVID-19 outbreak during the six months ended June 30, 2023. We will further implement initiatives to control costs and improve our operating efficiency in fiscal year 2023. Therefore, revenue and net income are expected to increase significantly in the second half of fiscal year 2023 as compared to the same period of last year. On April 3, 2023, we closed our IPO and the net proceeds of our IPO were approximately $12.0 million. Furthermore, our controlling shareholder, Mr. Gang Li, has made pledges to provide continuous financial support to our Company for at least 12 months from the issuance of our unaudited condensed consolidated financial statements as of and for the six months ended June 30, 2023. We believe our cash and cash equivalents on hand, our operating cash flows, the available bank facilities, the continuous support from our shareholder, and the proceeds we received from the IPO will be sufficient to meet our working capital needs over the next 12 months.
Currently, our main operations are conducted in China and a large portion of our revenue, expenses, cash and cash equivalents are denominated in RMB. Our holding company, however, may need dividends and other distributions on equity from our PRC subsidiary and the VIEs to satisfy its liquidity requirements. Although dividends may be freely remitted in or out of China in RMB or foreign currency according to the PRC regulations, our PRC subsidiary and the VIEs are restricted in their ability to transfer a portion of their net assets, equivalent to their reserves and their share capital, to the holding company in the form of loans, advances, or cash dividends. As of June 30, 2023, the total restricted net assets equivalent amounted to $1,325,631.
Cash Flows for the six months ended June 30, 2023 and 2022
The following table sets forth summary of our cash flows for the periods indicated:
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Net cash provided by (used in) operating activities | $ | 610,154 | $ | (359,946 | ) | |||
| Net cash used in investing activities | (11,252,022 | ) | (566,439 | ) | ||||
| Net cash provided by (used in) financing activities | 9,656,029 | (2,196,811 | ) | |||||
| Effect of exchange rate change on cash | (457,647 | ) | (380,232 | ) | ||||
| Net decrease in cash and cash equivalents | (1,443,486 | ) | (3,503,428 | ) | ||||
| Cash and cash equivalents at beginning of period | 2,915,470 | 3,896,812 | ||||||
| Cash and cash equivalents at end of period | $ | 1,471,984 | $ | 393,384 | ||||
Operating Activities
Net cash provided by operating activities was $610,154 for the six months ended June 30, 2023, mainly derived from net income of $284,760 for the period, and net changes in our operating assets and liabilities, which mainly included (i) an increase in deferred revenue of $522,418 due to the growing prepaid membership cards sales; (ii) an increase in accounts receivable of $772,933 due to the increase in sales; and (iii) an increase in accounts payable of $216,032 due to higher outstanding payments to suppliers during the six months ended June 30, 2023.
Net cash used in operating activities was $359,946 for the six months ended June 30, 2022, mainly derived from net income of $220,793 for the period, and net changes in our operating assets and liabilities, which mainly included (i) an increase in accounts receivable of $936,744 due to the increase in sales; (ii) an increase in prepaid expenses and other current assets of $552,985 as a result of the increased short-term security deposits paid to landlords for the Company’s PRC new stores; and (iii) an increase in deferred revenue of $1,078,976 due to the growing prepaid membership cards sales during the six months ended June 30, 2022.
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Investing Activities
Net cash used in investing activities amounted to $11,252,022 for the six months ended June 30, 2023, which primarily consisted of payment made for long term debt investment of $6,000,000, payments made for loans to third parties of $3,900,000 and prepayments for the software, equipment and product development of $1,200,000.
Net cash used in investing activities amounted to $566,439 for the six months ended June 30, 2022, due to purchases of property and equipment and leasehold improvement for the new stores, and payment for construction in progress.
Financing Activities
Net cash provided by financing activities was $9,656,029 for the six months ended June 30, 2023, which primarily consisted of gross proceeds from IPO of $13,560,000, which was partially offset by costs disbursed from IPO proceeds of $1,529,631 and repayment of funds provided by a shareholder of $1,612,215.
Net cash used in financing activities was $2,196,811 for the six months ended June 30, 2022, which primarily consisted of repayments of short-term bank loans of $1,530,987 and repayment of funds provided by a shareholder of $665,824.
Contractual Obligations
As of June 30, 2023, our contractual obligations were as follows:
| Contractual obligations | Total | Less than 1 year | 1-2 years | 2-3 years | 3-4 years | 4-5 years | Thereafter | |||||||||||||||||||||
| Short-term bank loan (1) | $ | 422,048 | $ | 422,048 | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
| Future lease payments (2) | 16,966,472 | 1,234,527 | 2,377,158 | 2,108,601 | 1,969,693 | 1,973,017 | 7,303,476 | |||||||||||||||||||||
| Central factory construction (3) | 521,613 | 473,865 | 47,748 | - | - | - | - | |||||||||||||||||||||
| Software development project (4) | 850,000 | 500,000 | 350,000 | - | - | - | - | |||||||||||||||||||||
| Equipment procurement (5) | 200,000 | 200,000 | - | - | - | - | - | |||||||||||||||||||||
| Product development project (6) | 200,000 | 200,000 | - | - | - | - | - | |||||||||||||||||||||
| Total | $ | 19,160,133 | $ | 3,030,440 | $ | 2,774,906 | $ | 2,108,601 | $ | 1,969,693 | $ | 1,973,017 | $ | 7,303,476 | ||||||||||||||
| (1) |
Repayment of a short-term bank loan: as of June 30, 2023, our contractual obligation to repay an outstanding short-term bank loan totaled $422,048 and related to the following bank loan:
On December 23, 2022, Xinjiang United Family entered into a new loan agreement with Huaxia Bank to borrow RMB3 million ($413,474) as working capital for a year, with a maturity date of December 23, 2023. The loan bears a fixed interest rate of 3.95% per annum. The loan is guaranteed by Ms. Baolin Wang, the legal representative of Xinjiang United Family, and Urumqi Plastic Surgery Hospital Co., Ltd., a related party that is controlled by Mr. Gang Li, the Chairman of the Company. |
| (2) | We lease office spaces, bakery stores facilities, and employee dormitories, which are classified as operating leases in accordance with ASC Topic 842. As of June 30, 2023, our future lease payments totaled $16,966,472. |
| (3) | Payment for central factory construction work: as of June 30, 2023, our contractual obligation to pay for central factory construction totaled $521,613, as discussed above in more details. |
| (4) |
Payment for software development project: as of June 30, 2023, our contractual obligation to pay for the software development project totaled $850,000 and related to the following details:
On March 28, 2023, the Company signed a three-year research and development framework agreement with Peblla Inc. (“Peblla”) with a total value of $1.0 million. Pursuant to the agreement, Peblla will develop software for the Company, including cashier system, customized mobile application, a customer loyalty program and gift card system and online ordering website, etc. As of June 30, 2023, the Company made prepayment of $150,000 as the deposit to Peblla for this software development project. |
13
| (5) |
Payment for product development project: as of June 30, 2023, our contractual obligation to pay for the product development project totaled $200,000 and related to the following details:
On April 1, 2023, the Company entered into an agreement with Luo and Long General Partner (“Luo and Long”) with a total value of $750,000. Pursuant to the agreement, Luo and Long will design and provide equipment for the Company’s new central factory. The equipment is expected to be delivered before January 31, 2024. As of June 30, 2023, the Company made prepayment of $550,000 to Luo and Long, and the remaining of $200,000 is expected to be paid when the equipment are delivered. |
| (6) |
Payment for equipment procurement: as of June 30, 2023, our contractual obligation to pay for the equipment purchase totaled $200,000 and related to the following details:
On April 7, 2023, the Company entered into an agreement with NY West Acupuncture PC (“NY West”) with a total value of $500,000. Pursuant to the agreement, the Company and NY West will initiate a research and development collaboration for Traditional Chinese Medicine (“TCM”) health food and beverage products, including development of six TCM-related health desserts and four TCM-related health beverages within one year, and provision of training to the Company’s team in core production methods and assisted in its marketing strategy. As of June 30, 2023, the Company made prepayment of $300,000 to NY West and the remaining of $200,000 is expected to be paid when NY West completes all product development and receives the acceptance of the Company in the next 12 months. |
Trend Information
Other than as disclosed elsewhere in this report, we are not aware of any trends, uncertainties, demands, commitments, or events for the period from January 1, 2023 to June 30, 2023 that are reasonably likely to have a material adverse effect on our net revenue, income, profitability, liquidity, or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial condition.
Off-Balance Sheet Arrangements
As of June 30, 2023 and December 31, 2022, we had not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties.
Inflation
Inflation does not materially affect our business or the results of our operations.
Seasonality
We have not experienced, and do not expect to experience, any seasonal fluctuations in our results of operations for either our wheelchair business or living aids products business.
Key Factors that Affect Our Results of Operations
We believe the following key factors may affect our financial condition and results of operations:
The operating entities’ business is affected by changes in consumer preferences and discretionary spending.
The operating entities’ success depends, in part, upon the popularity of their bakery products and their ability to develop new bakery products that appeal to consumers. Shifts in consumer preferences away from their bakery stores or their product offerings and mix, their inability to develop new products that appeal to consumers could harm the operating entities’ business. The operating entities’ success depends in large part on their customers’ continued belief that food made with high-quality ingredients, including selected proteins raised without antibiotics, their artisan breads, cakes, pastries, and other bakery treats made without artificial preservatives, flavors, sweeteners, or colors from artificial sources are worth the prices charged at the operating entities’ bakery stores relative to the lower prices offered by some of their competitors. The operating entities’ inability to successfully educate customers about the quality of their bakery products or their customers’ rejection of the operating entities’ pricing approach could result in decreased demand for their products or require the operating entities to change their pricing, marketing, or promotional strategies, which could materially and adversely affect our consolidated financial results or the brand identity that the operating entities have created. In addition, the operating entities’ success depends to a significant extent on discretionary consumer spending, which is influenced by general economic conditions and the availability of discretionary income. Accordingly, the operating entities may experience declines in sales during economic downturns or during periods of uncertainty. Any material decline in the amount of discretionary spending could have a material adverse effect on the operating entities’ sales, results of operations, business, and financial condition.
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The operating entities’ revenue and growth could be adversely affected if their comparable store sales are less than expected.
The operating entities’ success depends on increasing comparable store sales. To increase sales and profits, and therefore comparable store sales growth, the operating entities must focus on delivering value and generating customer excitement by strengthening opportunistic purchasing, optimizing inventory management, maintaining strong store conditions, and effectively marketing current products and new product offerings. The operating entities may not be able to maintain or improve the levels of comparable store sales that they have experienced in the past, and the operating entities’ comparable store sales growth is a significant driver of their profitability and overall business results. In addition, competition and pricing pressures from competitors may materially adversely impact the operating entities’ operating margins. The operating entities’ comparable store sales growth could be lower than their historical average or their future target for many reasons, including general economic conditions, operational performance, price inflation or deflation, new competitive entrants near their stores, price changes in response to competitive factors, the impact of new stores entering the comparable store base, possible supply shortages or other operational disruptions, the number and dollar amount of customer transactions in their stores, and their ability to provide product or service offerings that generate new and repeat visits to their stores. Opening new stores in the operating entities’ established markets may result in inadvertent oversaturation, temporarily or permanently diverting customers and sales from their existing stores to new stores and reduce comparable store sales, thus adversely affecting their overall financial performance. These factors may cause the operating entities’ comparable store sales results to be materially lower than in recent periods, which could harm their profitability and business. Changes in their average store sales or their inability to increase their average store sales could cause their operating results to vary adversely from expectations, which could adversely affect their results of operations.
Fluctuations in various food and supply costs, including dairy, could adversely affect the operating entities’ operating results.
Supplies and prices of the various ingredient materials that are used to prepare the operating entities’ bakery products (including flour, milk, sugar, and eggs) can be affected by a variety of factors, such as weather, seasonal fluctuations, demand, politics, and economics factors, and such prices may fluctuate. An increase in pricing of any ingredient that is used in the operating entities’ bakery products could result in an increase in costs from their suppliers, and the operating entities may not be able to increase prices to cover increased costs which would have an adverse effect on their operating results and profitability.
The geographic concentration of the operating entities’ stores primarily in Xinjiang and New York City subjects the operating entities to an increased risk of loss of revenue from events beyond their control or conditions affecting that region.
Currently, our PRC subsidiary and the VIEs operate 39 bakery stores exclusively located in Xinjiang. In addition, the U.S. Stores’ current operations are limited to New York City. As a result, they are particularly susceptible to adverse trends, severe weather, competition, and economic conditions in these areas. Any unforeseen events or circumstances that negatively affect these areas could materially adversely affect the operating entities’ sales and profitability. These factors include, among other things, epidemics, changes in demographics, population and employee bases, wage increases, changes in economic conditions, severe weather conditions, and climate change. Such conditions may result in reduced customer traffic and spending in the operating entities’ stores, physical damage to their stores, loss of inventory, closure of one or more of their stores, inadequate workforce in their markets, temporary disruption in the supply of products, delays in the delivery of goods to their stores, increased expenses, and a reduction in the availability of products in their stores. Any of these factors may disrupt the operating entities’ business and materially adversely affect their financial condition and results of operations.
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If the operating entities are unable to compete successfully, their financial condition and results of operations may be harmed.
The industry in which the operating entities conduct their business is intensely competitive. The operating entities’ bakery stores compete with well-established national, regional, and locally-owned traditional bakeries, cafés, and other companies providing bakery products. Additionally, the operating entities also compete with certain quick-service restaurants, specialty food stores, supermarkets, and convenience stores. The principal factors on which they compete are taste, quality, prices of products offered, customer service, atmosphere, location, convenience, and overall customer experience. The operating entities also compete for retail space in desirable locations. Many competitors or potential competitors have substantially greater financial and other resources, which may allow them to react more quickly to changes in pricing, marketing, and other changing tastes of consumers. In the event that the operating entities cannot effectively compete on a continuing basis or competitive pressures arise, such inability to compete or competitive pressures could have a material adverse effect on their business, results of operations and financial condition.
COVID-19 Affecting Our Results of Operations
Our business has been adversely affected by the COVID-19 pandemic.
Due to the impact from a resurgence of the COVID-19 pandemic in August 2022 in Xinjiang (the “2022 Outbreak”), significant governmental measures were implemented, including lockdowns, closures, quarantines, and travel bans, the operations of the PRC Stores and the production of the PRC Stores’ central factory were affected starting from August 10, 2022, all of the PRC Stores and the central factory were closed between October 5, 2022 and November 30, 2022 and the PRC Stores only managed to generate limited online sales and group sales during the period. The PRC Stores and the central factory stared to reopen in early December 2022 and resumed their normal business activities on December 10, 2022. As a result, our revenue generated in China was negatively affected by the 2022 Outbreak during the year ended December 31, 2022.
In early December 2022, China announced a nationwide loosening of its zero-COVID policy, and the country faced a wave in infections after the lifting of these restrictions, but the spread of the COVID-19 has appeared to be under control currently. Our PRC Stores have fully recovered from the 2022 Outbreak during the six months ended June 30, 2023. However, the impact of COVID-19 pandemic still depends on the future developments of the pandemic, including new information concerning the global severity of and actions taken to contain the pandemic, or the appearance of new or more severe strains of the virus, which are highly uncertain and unpredictable. Therefore, while we expect the COVID-19 pandemic to continue negatively impacting our business, results of operations, and financial position, the related financial impact cannot be reasonably estimated at this time.
During the time the stores were closed, the operating entities paid all their employees base salaries in order to satisfy their basic living expenditure needs. After the reopening, the operating entities have taken various preventative and quarantine measures across their stores, including conducting regular nucleic acid tests in accordance with the government requirement, monitoring their employees’ health conditions daily, and distributing face masks to all their employees. The operating entities also limit the customer flows in their stores and customers who visit their stores are required to measure temperature and wear masks. In the U.S., Chanson 23rd Street kept its store in New York City open and provided takeout and delivery services. To fulfill its social responsibility, Chanson 23rd Street has offered special discounts on its products to all hospital workers and free pastries to all frontline workers, drivers, and delivery people as a gesture to show its appreciation for what they contributed to the society during the pandemic.
The operating entities have taken actions to preserve their liquidity during the COVID-19 pandemic. On December 23, 2022, Xinjiang United Family entered into a new loan agreement with Huaxia Bank to borrow RMB3 million (approximately $0.4 million) as working capital for a year, with a maturity date of December 23, 2023. The loan bears a fixed interest rate of 3.95%. In addition, we have increased efforts to collect our accounts receivable. As of the date of this report, approximately 38.3%, or $0.7 million, of our accounts receivable balance as of June 30, 2023 has been collected. The remaining balance is expected to be collected before June 30, 2024. As of June 30, 2023, we had a negative working capital of approximately $5.4 million, including deferred revenue of approximately $7.1 million, which was reported as current liability, but will not require cash payment in the future.
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C. Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements. These financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of our assets and liabilities and revenue and expenses, to disclose contingent assets and liabilities on the date of the unaudited condensed consolidated financial statements, and to disclose the reported amounts of revenue and expenses incurred during the financial reporting period. The most significant estimates and assumptions include the valuation of accounts receivable and inventories, useful lives of property and equipment, the recoverability of long-lived assets, provision necessary for contingent liabilities, realization of deferred tax assets and revenue recognition. We continue to evaluate these estimates and assumptions that we believe to be reasonable under the circumstances. We rely on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We believe critical accounting policies as disclosed in this report reflect the more significant judgments and estimates used in preparation of our unaudited condensed consolidated financial statements.
The following critical accounting policies rely upon assumptions and estimates and were used in the preparation of our unaudited condensed consolidated financial statements:
Uses of estimates
In preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates are based on information as of the date of the unaudited condensed consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the valuation of accounts receivable and inventories, useful lives of property and equipment, the recoverability of long-lived assets, provision necessary for contingent liabilities, realization of deferred tax assets and revenue recognition. Actual results could differ from those estimates.
Accounts receivable, net
Accounts receivable are recognized and carried at original invoiced amount less an estimated allowance for uncollectible accounts.
We determine the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trend. We establish a provision for doubtful receivables when there is objective evidence that we may not be able to collect amounts due. The allowance is based on management’s best estimate of specific losses on individual exposures, as well as a provision on historical trends of collections. The provision is recorded against accounts receivable balances, with a corresponding charge recorded in the unaudited condensed consolidated statements of operations and comprehensive loss. Actual amounts received may differ from management’s estimate of credit worthiness and the economic environment. Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. As of June 30, 2023 and December 31, 2022, there was no allowance recorded as we consider all of the accounts receivable fully collectible.
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Inventories
Inventories consist of ingredient materials, finished goods, packaging materials and other materials. Inventories are stated at the lower of cost or net realizable value, on a weighted average basis. Costs include the cost of ingredient materials, direct labor, and related production overhead. Any excess of the cost over the net realizable value of each item of inventories is recognized as a provision for diminution in the value of inventories. Net realizable value is the estimated selling price in the normal course of business less any costs to complete and sell products. We periodically evaluate inventories for their net realizable value adjustments, and reduces the carrying value of those inventories that are obsolete or in excess of the forecasted usage to their estimated net realizable value based on various factors including aging and expiration dates, as applicable, taking into consideration historical and expected future product sales. For the six months ended June 30, 2023 and 2022, no inventory reserve was recorded because no slow-moving, obsolete, or damaged inventory was identified.
Revenue recognition
We follow Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), for revenue recognition. ASC 606 establishes principles for reporting information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized, as performance obligations are satisfied.
We currently generate our revenue through our bakery/café stores as well as through online sales. We recognize revenue from bakery/café sales upon delivery of the related food and other products to the customer and fulfillment of all performance obligations. Revenue is recognized net of any discounts, sales incentives, sales taxes, and value added taxes that are collected from customers and remitted to tax authorities.
The PRC Stores sell membership cards that do not have an expiration date and from which the PRC Stores do not deduct non-usage fees from outstanding card balances. Membership cards are reloadable and redeemable at any of our store locations. Amounts loaded into these cards are initially recorded as deferred revenue. When membership cards are redeemed at stores, the PRC Stores recognize revenue and reduce the deferred revenue. While the PRC Stores continue to honor all membership cards presented for payments, management determines the likelihood of redemption to be remote for certain cards with long periods of inactivity (“breakage”), which is five years after the last usage based upon our historical redemption patterns. Membership card breakage is recorded as revenue in the unaudited condensed consolidated statements of operations and comprehensive loss. Membership card breakage was immaterial for the six months ended June 30, 2023 and 2022.
The PRC Stores maintain a customer loyalty program in which customers earn free cash vouchers when purchasing or reloading membership cards at certain amount. These cash vouchers typically do not expire, except for certain vouchers given out at special occasions, which usually state an expiration date and can only be exchanged for certain seasonal products or specialty cakes. We establish corresponding liabilities in deferred revenue for the membership cards and the free cash vouchers upon issuance. We allocate the consideration received proportionately between the membership cards and cash vouchers based on their face values. Revenue is recognized at the allocated amount upon redemption of membership cards and cash vouchers, at which point the PRC Stores deliver products to customers and reduce the deferred revenue. Unredeemed cash vouchers will be recognized as revenue upon their expiration dates, if any, or five years after their issuance if there are no stated expiration dates, when management determines the likelihood of redemption to be remote.
Contract balances and remaining performance obligations
Contract balances typically arise when a difference in timing between the transfer of control to the customer and receipt of consideration occurs. We did not have contract assets as of June 30, 2023 and December 31, 2022. Our contract liabilities, which are reflected in its unaudited condensed consolidated balance sheets as deferred revenue of $7,114,127 and $6,958,160 as of June 30, 2023 and December 31, 2022, respectively, consist primarily of customer payments for the membership cards and the fair value of the cash vouchers under our customer loyalty programs. These amounts represent our unsatisfied performance obligations as of the balance sheet dates. The amount of revenue recognized in the six months ended June 30, 2023 and 2022 that was included in the opening deferred revenue was $3,945,400 and $3,899,040, respectively. As of June 30, 2023, the aggregate amount of unredeemed membership cards and cash vouchers was $7,114,127. We will recognize revenue when customers redeem the membership cards or cash vouchers in store purchases. Based on our historical experience, a significant portion of the redemption is expected to occur during the first two years after June 30, 2023 and the remaining between the third and fifth year.
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Income taxes
We account for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the unaudited condensed consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No penalties or interest relating to income taxes were incurred during the six months ended June 30, 2023 and 2022. We do not believe there was any uncertain tax provision at June 30, 2023 and December 31, 2022.
Our operating subsidiary in China is subject to the income tax laws of the PRC. Our operating subsidiaries in United States are subject to the tax law of the United States. As of June 30, 2023, the tax years ended December 31, 2018 through December 31, 2022 for our PRC subsidiary remain open for statutory examination by PRC tax authorities, and the tax years ended December 31, 2020 through December 31, 2022 for our United States subsidiaries remain open for statutory examination by U.S. tax authorities.
Recent accounting pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses,” which will require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Further, the FASB issued ASU No. 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11 and ASU 2020-02 to provide additional guidance on the credit losses standard. The new effective date for SEC filers that are eligible to be smaller reporting companies under the SEC’s definition, as well as private companies and not-for-profit entities is for annual and interim periods in fiscal years beginning after December 15, 2022. Adoption of the ASUs is on a modified retrospective basis. We adopted ASU 2016-13 on January 1, 2023, and the adoption of this ASU did not have a material impact on our unaudited condensed consolidated financial statements.
Except for the above-mentioned pronouncements, there are no new recently issued accounting standards that will have material impact on our unaudited condensed consolidated financial position, statements of operations, and cash flows.
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Exhibit 99.3
Chanson International Holding Announces First Half of Fiscal Year 2023 Financial Results
URUMQI, China, October 6, 2023 /PRNewswire/ -- Chanson International Holding (Nasdaq: CHSN) (the “Company” or “Chanson”), a provider of bakery, seasonal, and beverage products through its chain stores in China and the United States, today announced its unaudited financial results for the six months ended June 30, 2023.
Mr. Gang Li, Chairman of the Board of Directors and Chief Executive Officer of the Company, commented, “We are pleased to announce our financial performance for the first half of fiscal year 2023. Since the loosening of COVID-19 policy in China, our business operation has recovered from the pandemic. This resurgence has translated into a notable 3.1% growth in the total revenue and a 7.0% increase in gross profit within the Chinese market. We also saw a significant increase of 29.0% in net income, signaling a leap in profitability and the successful execution of our business model. These results reflect not only the resilience of our operations but also the effectiveness of our strategic initiatives. As we move forward, we are committed to providing a diverse portfolio of bakery and beverage products and offering quality eat-in services. We are poised to capitalize on the current momentum by continuing to enforce cost control, invest in product innovation, and execute expansion plan. We believe our long-term strategy and commitment to quality products will further enhance our profitability and create more value for our shareholders.”
First Half of Fiscal Year 2023 Financial Highlights
| · | Total revenue was $8.8 million, an increase of 3.1% from $8.5 million for the same period of last year. |
| · | Gross profit was $4.3 million, an increase of 4.5%, from $4.1 million for the same period of last year. |
| · | Gross margin was 49.2%, increased from 48.5% for the same period of last year. |
| · | Net income was $0.3 million, increased from $0.2 million for the same period of last year. |
| · | Basic and diluted earnings were $0.03, increased from $0.02 for the same period of last year. |
First Half of Fiscal Year 2023 Financial Results
Revenue
Total revenue was $8.8 million for the six months ended June 30, 2023, increased by 3.1% from $8.5 million for the same period of last year. The increase in our revenue was due to increased revenue from stores in China, which was partially offset by the slightly decreased revenue from the United States Stores.
China Stores
| · | Revenue from China stores was $7.0 million for the six months ended June 30, 2023, increased by 4.5% from $6.7 million for the same period of last year. The increase was mainly due to the increased revenue from other products. |
| · | Revenue from bakery products was $6.4 million for the six months ended June 30, 2023, increased by 1.4%, from $6.3 million for the same period of last year. Our revenue from bakery products (excluding the impact of foreign currency translation) increased by 11.8% for the six months ended June 30, 2023, as compared to the same period of last year. The increase was mainly because China Stores’ business operations recovered from the COVID-19 pandemic during the six months ended June 30, 2023. In early December 2022, China announced a nationwide loosening of its zero-COVID policy and experienced a wave in infections after the lifting of these restrictions, but the spread of the COVID-19 has appeared to be under control since January 2023. During the six months ended June 30, 2023, China Stores’ business operations have gradually recovered and the revenue from bakery products increased. The increase was partially offset by the appreciation of the USD against RMB. The average translation rate for the six months ended June 30, 2023 and 2022 was at $1=RMB6.9263 and $1=RMB6.4791, respectively, representing an increase of 6.9%. |
| · | Revenue from other products was $624,878 for the six months ended June 30, 2023, increased by 50.1%, from $416,405 for the same period of last year. The increase was due to increased revenue from seasonal products and beverage products. Revenue from seasonal products increased by 19.6% to $436,004 for the six months ended June 30, 2023, from $364,671 for the same period of last year. The increase was mainly due to increased customer orders of seasonal products, which was attributable to (i) the introduction of new products, such as the popular new zongzi products during the Chinese Dragon Boat Festival, and (ii) the upgraded packaging for seasonal products, which were more appealing to the customers. Revenue from beverage products significantly increased by 265.1%, from $51,734 for the six months ended June 30, 2022 to $188,874 for the six months ended June 30, 2023. The increase was due to the increased revenue from freshly brewed coffee products, as China Stores are focusing on developing the business of coffee beverages. As of June 30, 2023, three coffee bakery stores were opened, including one store opened in June 2022 and two stores opened in the six months ended June 30, 2023. |
United States Stores
| · | Revenue from the United States Stores was $1.80 million for the six months ended June 30, 2023, decreased by 1.8% to from $1.83 million for the same period of last year. The decrease was due to decreased revenue from bakery products, which was partially offset by the increased revenue from beverage products and eat-in services. |
| · | Revenue from bakery products was $0.2 million for the six months ended June 30, 2023, decreased by 29.5% from $0.3 million for the same period of last year. The decrease was primarily due to increased competition from rivals operating in the same area. As some famous bakery brands opened new stores in New York City, customers now have more choices and revenue from bakery products of Chanson 23rd Street LLC (“Chanson 23rd Street”) and Chanson 355 Greenwich LLC (“Chanson Greenwich”) were affected. The decrease in revenue from bakery products was partially offset by the increased revenue from bakery products of approximately $24,000 generated by Chanson 1293 3rd Ave LLC (“Chanson 3rd Ave”), the new store opened in March 2023. |
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| · | Revenue from beverage products was $1.00 million for the six months ended June 30, 2023, remained relatively stable with a slight increase by 0.9% from $0.99 million for the same period of last year. After the cocktail bars of the United States Stores launched several new types of cocktail products with new flavors and styles, such products became popular among customers and the cocktail bars were often fully booked by reservation. But the growth of our revenue from beverage products was limited by the store space as the United States Stores have already operated the cocktail bars at full capacity. Therefore, our revenue from beverage products only increased slightly for the six months ended June 30, 2023. |
| · | Revenue from eat-in services was $0.6 million for the six months ended June 30, 2023, increased by 11.3% from $0.5 million for the same period of last year. The increase was mainly due to the increased revenue from eat-in services of approximately $92,000 generated by the Chanson Greenwich opened in December 2021. Chanson Greenwich has been focusing on increasing brand awareness, improving the quality of customer services and enhancing in-store customer experience. As a result, Chanson Greenwich attracted more customers and its revenue from eat-in services increased in the six months ended June 30, 2023. The increase was partially offset by the decreased revenue of approximately $38,300 from Chanson 23rd Street. Chanson 23rd Street adjusted its menu items, and customers were adjusting to the new products. Accordingly, Chanson 23rd Street’s revenue from eat-in services decreased in the six months ended June 30, 2023 compared to the same period of last year. |
Gross Profit and Gross Margin
Gross profit was $4.3 million for the six months ended June 30, 2023, increased by 4.5%, from $4.1 million for the same period of last year. Gross margin was 49.2% for the six months ended June 30, 2023, increased slightly by 0.7 percentage points from 48.5% for the same period of last year.
Operating Expenses
Operating expenses were $4.2 million for the six months ended June 30, 2023, compared to $4.1 million for the same period of last year.
| · | Selling expenses were $2.4 million for the six months ended June 30, 2023, increased by 11.3%, from $2.2 million for the same period of last year. The increase in selling expenses was primarily due to an increase in selling expenses of $0.2 million and $0.1 million from the United States Stores and China Stores, respectively. The increase in the United States Stores was primarily due to the increased rental expenses of approximately $0.16 million, which was caused by (i) the increased rental expenses of approximately $0.08 million generated by the newly opened Chanson 3rd Ave in March 2023; and (ii) the decreased lease concession of approximately $0.08 million received by Chanson Greenwich in the six months ended June 30, 2023. The increase in selling expenses from China Stores was mainly attributable to (i) the increased salary and social security expenses by approximately $26,000 as China Stores hired more employees for the new stores; and (ii) the increased service commission of approximately $41,700 paid to the third-party delivery platforms. |
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| · | General and administrative expenses were $1.8 million for the six months ended June 30, 2023, decreased by 6.0% from $1.9 million for the same period of last year. The decrease was due to a decrease in general and administrative expenses of $0.06 million and $0.06 million from the United States Stores and China Stores, respectively. The decrease in the United States Stores was primarily due to decreased salary and social security expenses by approximately $45,400 mainly resulting from optimization of management team in Chanson 23rd Street. The decrease in general and administrative expenses from China Stores was mainly attributable to decreased rental expenses during the six months ended June 30, 2023 compared to the same period of last year, as the rental expenses of our new central factory, which was under construction since June 2021, were recorded in general and administrative expenses in the six months ended June 30, 2022, and since such construction was completed in June 2022, after the construction inspection in July 2022, the rental expenses of the new central factory were recorded in cost of revenue and selling expenses. |
Net Income
Net income was $0.3 million for the six months ended June 30, 2023, increased from $0.2 million for the same period of last year.
Basic and Diluted Earnings per Share
Basic and diluted earnings per share were $0.03 for the six months ended June 30, 2023, increased from $0.02 for the same period of last year.
Balance Sheet
As of June 30, 2023, the Company had cash of $1.5 million, compared to $2.9 million as of December 31, 2022.
Cash Flow
Net cash provided by operating activities was $0.6 million for the six months ended June 30, 2023, compared to net cash used in operating activities of $0.4 million for the same period of last year.
Net cash used in investing activities was $11.3 million for the six months ended June 30, 2023, compared to $0.6 million for the same period of last year.
Net cash provided by financing activities was $9.7 million for the six months ended June 30, 2023, compared to net cash used in financing activities of $2.2 million for the same period of last year.
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About Chanson International Holding
Founded in 2009, Chanson International Holding is a provider of bakery, seasonal, and beverage products through its chain stores in China and the United States. Headquartered in Urumqi, China, Chanson directly operates stores in Xinjiang, China and New York, United States. Chanson currently manages 39 chain stores under the “George●Chanson” brand in Xinjiang and four stores in New York City while selling on digital platforms and third-party online food ordering platforms. Chanson offers not only packaged bakery products but also made-in-store pastries and eat-in services, serving freshly prepared bakery products and extensive beverage products. Chanson aims to make healthy, nutritious, and ready-to-eat food through advanced facilities based on in-depth industry research, while creating a comfortable and distinguishable store environment for customers. Chanson’s dedicated and highly-experienced product development teams constantly create new products that reflect market trends to meet customer demand. For more information, please visit the Company’s website: http://ir.chanson-international.net/.
Forward-Looking Statements
Certain statements in this announcement are forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and are based on the Company’s current expectations and projections about future events that the Company believes may affect its financial condition, results of operations, business strategy and financial needs. Investors can identify these forward-looking statements by words or phrases such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “will,” “would,” “should,” “could,” “may” or other similar expressions. The Company undertakes no obligation to update or revise publicly any forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and the Company cautions investors that actual results may differ materially from the anticipated results and encourages investors to review other factors that may affect its future results in the Company’s registration statement and other filings with the U.S. Securities and Exchange Commission.
For investor and media inquiries, please contact:
Chanson International Holding
Investor Relations Department
Email: IR@chansoninternational.com
Ascent Investor Relations LLC
Tina Xiao
Phone: +1-646-932-7242
Email: investors@ascent-ir.com
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CHANSON INTERNATIONAL HOLDING AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 1,471,984 | $ | 2,915,470 | ||||
| Accounts receivable | 1,937,261 | 1,260,453 | ||||||
| Inventories | 577,867 | 693,506 | ||||||
| Deferred offering costs | - | 763,611 | ||||||
| Prepaid expenses and other current assets | 3,071,216 | 833,238 | ||||||
| 7,058,328 | 6,466,278 | |||||||
| NON-CURRENT ASSETS: | ||||||||
| Operating lease right-of-use assets | 13,576,694 | 13,921,825 | ||||||
| Property and equipment, net | 5,479,812 | 5,871,775 | ||||||
| Long term security deposits | 960,664 | 958,320 | ||||||
| Prepayment for the software, equipment and product development | 1,200,000 | - | ||||||
| Long term debt investment | 6,171,616 | - | ||||||
| Long term loan to a third-party | 2,021,452 | - | ||||||
| Long term prepaid expenses | 85,200 | 110,988 | ||||||
| 29,495,438 | 20,862,908 | |||||||
| TOTAL ASSETS | $ | 36,553,766 | $ | 27,329,186 | ||||
| LIABILITIES | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Short-term bank loan | $ | 413,474 | $ | 434,959 | ||||
| Accounts payable | 1,564,941 | 1,424,766 | ||||||
| Due to a related party | 186,388 | 1,798,605 | ||||||
| Taxes payable | 20,338 | 130,727 | ||||||
| Deferred revenue | 7,114,127 | 6,958,160 | ||||||
| Operating lease liabilities, current | 2,145,319 | 1,770,398 | ||||||
| Other current liabilities | 1,012,041 | 1,014,452 | ||||||
| 12,456,628 | 13,532,067 | |||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Operating lease liabilities, non-current | 11,970,348 | 12,620,070 | ||||||
| 11,970,348 | 12,620,070 | |||||||
| TOTAL LIABILITIES | 24,426,976 | 26,152,137 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Ordinary shares, $0.001 par value, 50,000,000 shares authorized; 12,390,000 shares and 9,000,000 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively: | ||||||||
| Class A ordinary share, $0.001 par value, 44,000,000 shares authorized; 6,450,000 shares and 3,060,000 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively | 6,450 | 3,060 | ||||||
| Class B ordinary share, $0.001 par value, 6,000,000 shares authorized; 5,940,000 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively | 5,940 | 5,940 | ||||||
| Additional paid-in capital | 11,836,858 | 869,400 | ||||||
| Statutory reserve | 447,231 | 447,231 | ||||||
| Retained earnings (Accumulated deficit) | 100,918 | (183,842 | ) | |||||
| Accumulated other comprehensive (loss) income | (270,607 | ) | 35,260 | |||||
| TOTAL SHAREHOLDERS’ EQUITY | 12,126,790 | 1,177,049 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 36,553,766 | $ | 27,329,186 | ||||
6
CHANSON INTERNATIONAL HOLDING AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| REVENUE | $ | 8,811,287 | $ | 8,543,803 | ||||
| COST OF REVENUE | 4,478,716 | 4,396,715 | ||||||
| GROSS PROFIT | 4,332,571 | 4,147,088 | ||||||
| OPERATING EXPENSES | ||||||||
| Selling expenses | 2,444,292 | 2,195,394 | ||||||
| General and administrative expenses | 1,774,419 | 1,887,285 | ||||||
| Total operating expenses | 4,218,711 | 4,082,679 | ||||||
| INCOME FROM OPERATIONS | 113,860 | 64,409 | ||||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest income (expense), net | 14,007 | (37,186 | ) | |||||
| Other (expense) income, net | (11,843 | ) | 197,268 | |||||
| Income from long term debt investment | 171,616 | - | ||||||
| Total other income, net | 173,780 | 160,082 | ||||||
| INCOME BEFORE INCOME TAX PROVISION | 287,640 | 224,491 | ||||||
| PROVISION FOR INCOME TAXES | (2,880 | ) | (3,698 | ) | ||||
| NET INCOME | 284,760 | 220,793 | ||||||
| Foreign currency translation loss | (305,867 | ) | (259,238 | ) | ||||
| TOTAL COMPREHENSIVE LOSS | $ | (21,107 | ) | $ | (38,445 | ) | ||
| Earnings per ordinary share - basic and diluted | $ | 0.03 | $ | 0.02 | ||||
| Weighted average shares - basic and diluted | 10,666,906 | 9,000,000 | ||||||
7
CHANSON INTERNATIONAL HOLDING AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 284,760 | $ | 220,793 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Amortization of operating lease right-of-use assets | 1,422,155 | 1,455,762 | ||||||
| Depreciation | 402,784 | 351,395 | ||||||
| Property and equipment written down | 5,434 | - | ||||||
| Interest income from long term debt investment | (171,616 | ) | - | |||||
| Interest income from loan to a third-party | (21,452 | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (772,933 | ) | (936,744 | ) | ||||
| Inventories | 88,841 | (53,880 | ) | |||||
| Prepaid expenses and other current assets | 73,944 | (552,985 | ) | |||||
| Long term security deposits | (17,375 | ) | 27,458 | |||||
| Long term prepaid expenses | 21,534 | 1,472 | ||||||
| Accounts payable | 216,032 | (97,463 | ) | |||||
| Taxes payable | (109,830 | ) | 55,142 | |||||
| Deferred revenue | 522,418 | 1,078,976 | ||||||
| Other current liabilities | 35,633 | (556,361 | ) | |||||
| Operating lease liabilities | (1,370,175 | ) | (1,353,511 | ) | ||||
| Net cash provided by (used in) operating activities | 610,154 | (359,946 | ) | |||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | (152,022 | ) | (566,439 | ) | ||||
| Payment made for long term debt investment | (6,000,000 | ) | - | |||||
| Advance of loans to third parties | (3,900,000 | ) | - | |||||
| Prepayment for the software, equipment and product development | (1,200,000 | ) | - | |||||
| Net cash used in investing activities | (11,252,022 | ) | (566,439 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Gross proceeds from initial public offerings | 13,560,000 | - | ||||||
| Direct costs disbursed from initial public offerings proceeds | (1,529,631 | ) | - | |||||
| Repayments of short-term bank loans | - | (1,530,987 | ) | |||||
| Payments made to a related party | (1,612,215 | ) | (665,824 | ) | ||||
| Payments made for deferred offering costs | (312,125 | ) | - | |||||
| Prepayment for the related service after listing | (450,000 | ) | - | |||||
| Net cash provided by (used in) financing activities | 9,656,029 | (2,196,811 | ) | |||||
| Effect of exchange rate fluctuation on cash and cash equivalents | (457,647 | ) | (380,232 | ) | ||||
| Net decrease in cash and cash equivalents | (1,443,486 | ) | (3,503,428 | ) | ||||
| Cash and cash equivalents, beginning of period | 2,915,470 | 3,896,812 | ||||||
| Cash and cash equivalents, end of period | $ | 1,471,984 | $ | 393,384 | ||||
| Supplemental cash flow information | ||||||||
| Cash paid for income taxes | $ | 9,436 | $ | 1,833 | ||||
| Cash paid for interest | $ | 8,364 | $ | 38,715 | ||||
| Non-cash operating, investing and financing activities | ||||||||
| Payable for purchase of property and equipment | $ | - | $ | 169,777 | ||||
| Right of use assets obtained in exchange for operating lease liabilities | $ | 1,103,383 | $ | 4,902,529 | ||||
| Deferred IPO cost offset with additional paid-in capital | $ | 1,059,521 | $ | - | ||||
8
Document And Entity Information |
6 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Document Information Line Items | |
| Entity Registrant Name | Chanson International Holding |
| Document Type | 6-K |
| Current Fiscal Year End Date | --12-31 |
| Amendment Flag | false |
| Entity Central Index Key | 0001825349 |
| Document Period End Date | Jun. 30, 2023 |
| Document Fiscal Year Focus | 2023 |
| Document Fiscal Period Focus | Q2 |
| Entity File Number | 001-41663 |
Unaudited Condensed Consolidated Balance Sheets (Parentheticals) - $ / shares |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Ordinary shares, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
| Ordinary shares, shares authorized | 50,000,000 | 50,000,000 |
| Ordinary shares, shares issued | 12,390,000 | 9,000,000 |
| Ordinary shares, shares outstanding | 12,390,000 | 9,000,000 |
| Class A Ordinary Shares | ||
| Ordinary shares, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
| Ordinary shares, shares authorized | 44,000,000 | 44,000,000 |
| Ordinary shares, shares issued | 6,450,000 | 3,060,000 |
| Ordinary shares, shares outstanding | 6,450,000 | 3,060,000 |
| Class B Ordinary Shares | ||
| Ordinary shares, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
| Ordinary shares, shares authorized | 6,000,000 | 6,000,000 |
| Ordinary shares, shares issued | 5,940,000 | 5,940,000 |
| Ordinary shares, shares outstanding | 5,940,000 | 5,940,000 |
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss (Parentheticals) - $ / shares |
6 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Income Statement [Abstract] | ||
| Earnings (loss) per ordinary share - diluted | $ 0.03 | $ 0.02 |
| Weighted average shares - diluted | 10,666,906 | 9,000,000 |
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity - USD ($) |
Class A
Ordinary Shares
|
Class A |
Class B
Ordinary Shares
|
Class B |
Additional Paid-in Capital |
Statutory Reserve |
Retained Earnings (Accumulated Deficit) |
Accumulated Other Comprehensive Income |
Total |
|---|---|---|---|---|---|---|---|---|---|
| Balance at Dec. 31, 2021 | $ 3,060 | $ 5,940 | $ 869,400 | $ 447,231 | $ 1,104,363 | $ 404,965 | $ 2,834,959 | ||
| Balance (in Shares) at Dec. 31, 2021 | 3,060,000 | 5,940,000 | |||||||
| Net income | 220,793 | 220,793 | |||||||
| Foreign currency translation loss | (259,238) | (259,238) | |||||||
| Balance at Jun. 30, 2022 | $ 3,060 | $ 5,940 | 869,400 | 447,231 | 1,325,156 | 145,727 | 2,796,514 | ||
| Balance (in Shares) at Jun. 30, 2022 | 3,060,000 | 5,940,000 | |||||||
| Balance at Dec. 31, 2021 | $ 3,060 | $ 5,940 | 869,400 | 447,231 | 1,104,363 | 404,965 | 2,834,959 | ||
| Balance (in Shares) at Dec. 31, 2021 | 3,060,000 | 5,940,000 | |||||||
| Balance at Dec. 31, 2022 | $ 3,060 | $ 5,940 | 869,400 | 447,231 | (183,842) | 35,260 | $ 1,177,049 | ||
| Balance (in Shares) at Dec. 31, 2022 | 3,060,000 | 3,060,000 | 5,940,000 | 5,940,000 | 9,000,000 | ||||
| Issuance of ordinary shares in initial public offerings, gross | $ 3,390 | 13,556,610 | $ 13,560,000 | ||||||
| Issuance of ordinary shares in initial public offerings, gross (in Shares) | 3,390,000 | ||||||||
| Cost directly related to the initial public offering | (2,589,152) | (2,589,152) | |||||||
| Net income | 284,760 | 284,760 | |||||||
| Foreign currency translation loss | (305,867) | (305,867) | |||||||
| Balance at Jun. 30, 2023 | $ 6,450 | $ 5,940 | $ 11,836,858 | $ 447,231 | $ 100,918 | $ (270,607) | $ 12,126,790 | ||
| Balance (in Shares) at Jun. 30, 2023 | 6,450,000 | 6,450,000 | 5,940,000 | 5,940,000 | 12,390,000 |
Organization and Business Description |
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| Organization and Business Description [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ORGANIZATION AND BUSINESS DESCRIPTION | NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION
Chanson International Holding (“Chanson International,” or the “Company”), formerly known as RON Holding Limited, was established under the laws of the Cayman Islands on July 26, 2019 as a holding company. Chanson International owns 100% of the equity interests of Deen Global Limited (“Deen Global”), a limited liability company incorporated under the laws of British Virgin Islands (“BVI”) on August 13, 2019. Deen Global owns 100% of the equity interests of Jenyd Holdings Limited (“Jenyd”), a business company incorporated in accordance with the laws and regulations of Hong Kong on September 13, 2019.
Chanson International, Deen Global, and Jenyd are currently not engaging in any active business operations and merely acting as holding companies.
Xinjiang United Family Trading Co., Ltd. (“Xinjiang United Family”), is a company incorporated on August 7, 2009 in the People’s Republic of China (the “PRC”), with a registered capital of RMB6 million (approximately $0.88 million). On September 27, 2020, the original shareholders of Xinjiang United Family signed a share transfer agreement and transferred their 100% ownership interest in Xinjiang United Family to Jenyd, and accordingly Xinjiang United Family became a wholly foreign-owned enterprise (“WFOE”) and a wholly-owned subsidiary of Jenyd.
Xinjiang United Family operates a bakery chain in China’s Xinjiang autonomous region under the brand name of “George●Chanson.” The chain currently consists of five directly-owned high-end bakery stores in the City of Urumqi and 34 bakery stores organized as individually-owned businesses known as the United Family Group (each a “UFG entity” and, collectively, the “UFG entities”) in Xinjiang region. The UFG entities are owned by the original shareholders of Xinjiang United Family but operated under a series of contractual agreements signed between the owners of these UFG entities and Xinjiang United Family.
On April 17, 2015, Xinjiang United Family incorporated a wholly-owned subsidiary, George Chanson (NY) Corp. (“Chanson NY”), in the State of New York, which owns and operates Chanson 23rd Street LLC (“Chanson 23rd Street”), a modern European-style café and eatery that specializes in the art of making French-style viennoiseries and pastries in the heart of Manhattan’s Flatiron District. On February 20, 2020, the Company’s Chairman, Mr. Gang Li, formed Chanson 355 Greenwich LLC (“Chanson Greenwich”), a New York limited liability company, and subsequently assigned his membership interests in Chanson Greenwich to Chanson NY on September 28, 2020. After the transfer, Chanson Greenwich became a wholly owned subsidiary of Chanson NY. Chanson Greenwich is another boutique café in Manhattan opened in December 2021. On April 21, 2021, Chanson NY formed a wholly owned subsidiary, Chanson Management LLC, a Delaware limited liability company. On August 5, 2021, Chanson NY formed a wholly owned subsidiary, Chanson 1293 3rd Ave LLC (“Chanson 3rd Ave”), a New York limited liability company. On March 21, 2022, Chanson NY formed a wholly owned subsidiary, Chanson 2040 Broadway LLC (“Chanson Broadway”), a New York limited liability company. Chanson 3rd Ave and Chanson Broadway are another two boutique cafés opened in March 2023 and July 2023, respectively.
Reorganization
In connection with its initial public offering, the Company has undertaken a reorganization of its legal structure (the “Reorganization”). The Reorganization involved the incorporation of Chanson International, Deen Global, and Jenyd, the entry into a Share Transfer Agreement to transfer the ownership interest in Xinjiang United Family from its original shareholders to Jenyd, and the signing of a series of contractual agreements between Xinjiang United Family and the owners of the UFG entities. After the Reorganization, Chanson International became the ultimate holding company of Xinjiang United Family and Xinjiang United Family became the primary beneficiary of the UFG entities through the VIE Agreements, as further discussed below.
Xinjiang United Family entered into a series of contractual arrangements with the owners of the 22 UFG entities on May 2, 2020, and with the owners of three newly established UFG entities in fiscal year 2020, five newly established UFG entities in fiscal year 2021, one newly established UFG entity in fiscal year 2022, and eight newly established UFG entity in fiscal year 2023, respectively. Three of these UFG entities were closed in fiscal year 2021 and two of these UFG entities were closed in fiscal year 2023. These agreements include Exclusive Service Agreements, Pledge Agreements, Call Option Agreements, Operating Rights Proxy and Powers of Attorney Agreements and Spousal Consents (collectively, the “VIE Agreements”). Pursuant to the above VIE Agreements, Xinjiang United Family has the exclusive right to provide the UFG entities with consulting services related to business operations including operational and management consulting services. The VIE Agreements obligate Xinjiang United Family to absorb all of the risk of loss from business activities of these UFG entities and entitle Xinjiang United Family to receive all of their residual returns. In essence, Xinjiang United Family has gained the power to direct activities of the UFG entities that most significantly impact their economic performance, and the right to receive benefits from the UFG entities that could potentially be significant to them. Therefore, the Company believes that Xinjiang United Family has a controlling financial interest in and is the primary beneficiary of the UFG entities and these UFG entities should be considered as Variable Interest Entities (“VIEs”) under the Statement of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810 Consolidation. Hereinafter, the four bakery stores directly owned by Xinjiang United Family and the UFG entities controlled through the VIE Agreements are collectively referred to as the “PRC Stores.”
The Company, together with its wholly-owned subsidiaries are under common control by the same shareholders before and after the Reorganization and therefore the consolidation of the Company and its subsidiaries has been accounted for at historical cost.
After the Reorganization, the unaudited condensed consolidated financial statements of the Company include the following entities:
The VIE contractual arrangements
The UFG entities are controlled by the Company through contractual arrangements in lieu of direct equity ownership by the Company or any of its subsidiaries.
A VIE is an entity that either has a total equity investment that is insufficient to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive the expected residual returns of the entity, or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary of, and must consolidate, the VIE.
Xinjiang United Family is deemed to have a controlling financial interest in and be the primary beneficiary of the UFG entities because it has both of the following characteristics:
Pursuant to the contractual arrangements with the UFG entities, the UFG entities pay service fees equal to all of their net profit after tax payments to Xinjiang United Family. At the same time, Xinjiang United Family is obligated to absorb all of their losses. Such contractual arrangements are designed so that the operation of the UFG entities is for the benefit of Xinjiang United Family and, ultimately, the Company.
Risks associated with the VIE structure
The Company believes that the contractual arrangements with the UFG entities and their respective owners are in compliance with PRC laws and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce such contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:
The Company’s ability to conduct its consulting services business may be negatively affected if the PRC government were to carry out of any of the aforementioned actions. As a result, the Company may not be able to consolidate the UFG entities in its unaudited condensed consolidated financial statements as it may lose the ability to direct activities of the UFG entities and receive economic benefits from the UFG entities. The Company, however, does not believe such actions would result in the liquidation or dissolution of the Company and its PRC subsidiary and the UFG entities. The financial position, operation, and cash flow of the UFG entities are material to total assets and liabilities presented on the unaudited condensed consolidated balance sheets and revenue, expenses, and net income presented on the unaudited condensed consolidated statements of operations and other comprehensive loss as well as the cash flows from operating, investing, and financing activities presented on the unaudited condensed consolidated statements of cash flows. The Company did not provide any financial support to the UFG entities for the six months ended June 30, 2023 and 2022. The Company had no contractual obligation to provide financial support to the VIEs as of June 30, 2023 and December 31, 2022. The amount of the recognized and unrecognized revenue-producing assets held by the VIEs was $1,573,220, including $441,722 of bakery production equipment, $73,201 of office equipment and furniture, and $1,058,297 of leasehold improvement, with the accumulated depreciation of $997,068, so net of these property, plant, and equipment was $576,152 as of June 30, 2023. The amount of the recognized and unrecognized revenue-producing assets held by the VIEs was $1,626,516, including $422,226 of bakery production equipment, $75,555 of office equipment and furniture, and $1,128,735 of leasehold improvement, with the accumulated depreciation of $934,222, so net of these property, plant, and equipment was $692,294 as of December 31, 2022. The following financial statement amounts and balances of the UFG entities were included in the accompanying unaudited condensed consolidated financial statements after elimination of intercompany transactions and balances:
Initial Public Offering
On April 3, 2023, the Company closed its initial public offering (the “IPO”) of 3,390,000 Class A ordinary shares at a public offering price of $4.00 per Class A ordinary share. The Company’s Class A ordinary shares began trading on the Nasdaq Capital Market under the ticker symbol “CHSN” on March 30, 2023. |
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Summary of Significant Accounting Policies |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles of consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities Exchange Commission and have been consistently applied. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal years ended December 31, 2022 and 2021. Operating results for the six-month period ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
The accompanying unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries and the VIEs. All intercompany balances and transactions are eliminated upon consolidation.
Uses of estimates
In preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates are based on information as of the date of the unaudited condensed consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the valuation of accounts receivable and inventories, useful lives of property and equipment, the recoverability of long-lived assets, provision necessary for contingent liabilities, realization of deferred tax assets and revenue recognition. Actual results could differ from those estimates.
Cash and cash equivalents
Cash includes currency on hand and deposits held by banks that can be added or withdrawn without limitation. The Company maintains a significant amount of its bank accounts in the PRC. The Company considers all highly liquid investment instruments with an original maturity of three months or less from the date of purchase to be cash equivalents.
Accounts receivable
Accounts receivable are recognized and carried at original invoiced amount less an estimated allowance for uncollectible accounts.
The Company determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trend. The Company establishes a provision for doubtful receivables when there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s best estimate of specific losses on individual exposures, as well as a provision on historical trends of collections. The provision is recorded against accounts receivable balances, with a corresponding charge recorded in the unaudited condensed consolidated statements of operations and comprehensive loss. Actual amounts received may differ from management’s estimate of credit worthiness and the economic environment. Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. As of June 30, 2023 and December 31, 2022, there was no allowance recorded as the Company considers all of the accounts receivable fully collectible.
Leases
The Company follows FASB ASC No. 842, Leases (“Topic 842”). The Company leases office spaces, bakery store facilities, employee dormitories, and a vehicle, which are classified as operating leases in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases (with the exception of short-term leases, usually with initial term of 12 months or less) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
At the commencement date, the Company recognizes the lease liability at the present value of the lease payments not yet paid, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate for the same term as the underlying lease. The ROU asset is recognized initially at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All ROU assets are reviewed for impairment annually. There was no impairment for ROU lease assets as of June 30, 2023 and December 31, 2022.
In response to the large volume of anticipated lease concessions to be granted related to the effects of the COVID-19 pandemic, and the resultant expected cost and complexity of applying the lease modification requirements in Topic 842, the FASB issued Staff Q&A—Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic in April 2020 as interpretive guidance to provide clarity in response to the crisis. The FASB staff indicated that it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how they would be accounted for as though enforceable rights and obligations for those concessions existed in the original contract. Consequently, for such lease concessions, an entity will not need to reassess each existing contract to determine whether enforceable rights and obligations for concessions exist and an entity can elect to apply or not to apply the lease modification guidance in Topic 842 to those contracts. The election is available for concessions related to the effects of the COVID-19 pandemic that result in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract.
Due to the COVID-19 pandemic, the Company renegotiated the leases for some of its PRC stores and New York stores. Based on the nature of the agreements reached with the landlords, the Company has accounted for rent concessions as if they were part of the enforceable rights and obligations of the existing lease contracts and did not account for the concessions as lease modifications. As of the date of this report, the Company has received a total of lease concessions amounting to $1,078,753, and among which, $9,783 and $109,719 was received during the six months ended June 30, 2023 and 2022, respectively. The Company accounted for the concession as negative variable lease payments with a corresponding reduction in the lease liability. The Company has continued to recognize lease expenses on a straight-line basis for its leases over the related lease terms.
Inventories
Inventories of the Company consist of ingredient materials, finished goods, packaging materials, and other materials. Inventories are stated at the lower of cost or net realizable value, on a weighted average basis. Costs include the cost of ingredient materials, direct labor, and related production overhead. Any excess of the cost over the net realizable value of each item of inventories is recognized as a provision for diminution in the value of inventories. Net realizable value is the estimated selling price in the normal course of business less any costs to complete and sell products. The Company periodically evaluates inventories for their net realizable value adjustments, and reduces the carrying value of those inventories that are obsolete or in excess of the forecasted usage to their estimated net realizable value based on various factors including aging and expiration dates, as applicable, taking into consideration historical and expected future product sales. For the six months ended June 30, 2023 and 2022, no inventory reserve was recorded because no slow-moving, obsolete, or damaged inventory was identified.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property and equipment are provided using the straight-line method over their expected useful lives, as follows:
Expenditures for repair and maintenance, which do not materially extend the useful lives of the assets, are charged to expenses as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the unaudited condensed consolidated statements of operations and comprehensive loss in other income or expenses.
Impairment of long-lived assets
Long-lived assets with finite lives, primarily property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value. There were no impairments of these assets as of June 30, 2023 and December 31, 2022.
Revenue recognition
The Company follows ASC 606, Revenue from Contracts with Customers (“ASC 606”), for revenue recognition. ASC 606 establishes principles for reporting information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized, as performance obligations are satisfied.
The Company currently generates its revenue through its bakery/café stores as well as through online sales. The Company recognizes revenue from bakery/café sales upon delivery of the related food and other products to the customer and fulfillment of all performance obligations. Revenue is recognized net of any discounts, sales incentives, sales taxes, and value added taxes that are collected from customers and remitted to tax authorities. In the PRC Stores, the Company sells membership cards that do not have an expiration date and from which the Company does not deduct non-usage fees from outstanding card balances. Membership cards are reloadable and redeemable at any of the Company’s store locations. Amounts loaded into these cards are initially recorded as deferred revenue. When membership cards are redeemed at stores, the Company recognizes revenue and reduces the deferred revenue. While the Company continues to honor all membership cards presented for payments, management determines the likelihood of redemption to be remote for certain cards with long periods of inactivity (“breakage”), which is five years after the last usage, based upon the Company’s historical redemption patterns. Membership card breakage is recorded as revenue in the unaudited condensed consolidated statements of operations and comprehensive loss. Membership card breakage was immaterial for the six months ended June 30, 2023 and 2022.
In the PRC Stores, the Company maintains a customer loyalty program in which customers earn free cash vouchers when purchasing or reloading membership cards at certain amount. These cash vouchers typically do not expire, except for certain vouchers given out at special occasions, which usually state an expiration date and can only be exchanged for certain seasonal products or specialty cakes. The Company establishes corresponding liabilities in deferred revenue for the membership cards and the free cash vouchers upon issuance. The Company allocates the consideration received proportionately between the membership cards and cash vouchers based on their face values. Revenue is recognized at the allocated amount upon redemption of membership cards and cash vouchers, at which point, the Company delivers products to customers and reduces the deferred revenue. Unredeemed cash vouchers will be recognized as revenue upon their expiration dates, if any, or five years after their issuance if there are no stated expiration dates, when management determines the likelihood of redemption to be remote.
Contract balances and remaining performance obligations
Contract balances typically arise when a difference in timing between the transfer of control to the customer and receipt of consideration occurs. The Company did not have contract assets as of June 30, 2023 and December 31, 2022. The Company’s contract liabilities, which are reflected in its unaudited condensed consolidated balance sheets as deferred revenue of $7,114,127 and $6,958,160 as of June 30, 2023 and December 31, 2022, respectively, consist primarily of customer payments for the membership cards and the fair value of the cash vouchers under the Company’s customer loyalty programs. These amounts represent the Company’s unsatisfied performance obligations as of the balance sheet dates. The amount of revenue recognized in the six months ended June 30, 2023 and 2022 that was included in the opening deferred revenue was $3,945,400 and $3,899,040, respectively. As of June 30, 2023, the aggregate amount of unredeemed membership cards and cash vouchers was $7,114,127. The Company will recognize revenue when customers redeem the membership cards or cash vouchers in store purchases. Based on the Company’s historical experience, a significant portion of the redemption is expected to occur during the first two years after June 30, 2023 and the remaining between the third and fifth year.
Disaggregation of revenue
The Company disaggregates its revenue by geographic areas, as the Company believes it best depicts how the nature, amount, timing, and uncertainty of the revenue and cash flows are affected by economic factors. The Company’s disaggregation of revenue for the six months ended June 30, 2023 and 2022 is disclosed in Note 17 of the unaudited condensed consolidated financial statements. F-12 Fair value of financial instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
Unless otherwise disclosed, the fair value of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, loans to third parties, short-term bank loan, accounts payable, due to a related party, taxes payable, current portion of operating lease liabilities, current and other current liabilities, approximates the fair value of the respective assets and liabilities as of June 30, 2023 and December 31, 2022 based upon the short-term nature of the assets and liabilities. The fair value of longer-term debt investment and loan to a third party, as well as non-current portion of operating lease liabilities approximates their recorded values as their stated interest rates approximate the rates currently available.
Foreign currency translation
The functional currency of the Company’s PRC subsidiary and the UFG entities is the Chinese Yuan (“RMB”) and the functional currency of the Company’s U.S. subsidiaries is the U.S. Dollars (“US$”). RMB amounts in the Company’s unaudited condensed consolidated financial statements have been translated into the reporting currency US$. Assets and liabilities of the Company are translated at the exchange rate at each reporting period end date. Equity is translated at historical rates. Income and expense accounts are translated at the average rate of exchange during the reporting period. The resulting translation adjustments are reported under other comprehensive loss. Because cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets. Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the results of operations.
RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.
The following table outlines the currency exchange rates that were used in creating the unaudited condensed consolidated financial statements in this report:
Income taxes
The Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the unaudited condensed consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No penalties or interest relating to income taxes were incurred during the six months ended June 30, 2023 and 2022. The Company does not believe there was any uncertain tax provision as of June 30, 2023 and December 31, 2022.
The Company’s operating subsidiary in China is subject to the income tax laws of the PRC. The Company’s operating subsidiary in United States is subject to the tax law of the United States. As of June 30, 2023, for the tax years ended December 31, 2018 through December 31, 2022, the Company’s PRC subsidiaries remained open for statutory examination by PRC tax authorities, and for the tax years ended December 31, 2020 through December 31, 2022, the Company’s United States subsidiaries remained open for statutory examination by U.S. tax authorities.
Value added tax (“VAT”)
The Company’s subsidiary Xinjiang United Family and its three branch offices are general tax payers. The applicable VAT rate is 13% based on the Chinese tax law. VAT is reported as a deduction to revenue when incurred. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. The UFG entities were formed as individually-owned businesses, which are generally subject to a lower VAT rate of 3% and the local PRC tax authority has the jurisdiction to assess and determine their VAT obligation or exemption on a case-by-case basis. From April 1, 2021 to December 31, 2022, based on the new tax regulation, individually-owned businesses whose monthly deemed Taxable Net Income (“TNI”) is less than RMB150,000 are exempted from paying VAT. From January 1, 2023 to December 31, 2023, based on the new tax regulation, individually-owned businesses whose monthly deemed Taxable Net Income (“TNI”) is less than RMB100,000 are exempted from paying VAT. All but three of the UFG entities are currently exempted from paying VAT, since the deemed TNI of each of these UFG entities is currently less than RMB100,000 and RMB150,000 for the six months ended June 30, 2023 and 2022, respectively. Their VAT eligibility is subject to periodical reassessment, and they may lose or regain the exemption status as determined by the tax authorities on a case-by-case basis.
Warrant accounting
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent interim period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations and comprehensive loss.
As the warrants issued upon the initial public offering meet the criteria for equity classification under ASC 815, therefore, the warrants are classified as equity.
Earnings per share
The Company computes earnings per share (“EPS”) in accordance with ASC 260, Earnings per Share (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average ordinary shares outstanding for the period. Diluted presents the dilutive effect on a per share basis of potential ordinary shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential ordinary shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. As of June 30, 2023 and December 31, 2022, there were no dilutive shares.
Comprehensive loss
Comprehensive loss consists of two components, net income and other comprehensive loss. The foreign currency translation loss resulting from the translation of the financial statements expressed in RMB to US$ is reported in other comprehensive loss in the unaudited condensed consolidated statements of operations and comprehensive loss.
Risks and uncertainties
Political and economic risk
The operations of the Company are located in the PRC and United States. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by political, economic, and legal environments in the PRC and United States, as well as by the general state of the PRC and United States economy. The Company’s results may be adversely affected by changes in the political, regulatory, and social conditions in the PRC and United States. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note 1, such experience may not be indicative of future results.
Foreign currency exchange risk
A majority of the Company’s revenue and expense transactions are denominated in RMB and most of the Company and its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to effect the remittance.
Credit risk
As of June 30, 2023 and December 31, 2022, $1,282,446 and $2,747,940 of the Company’s cash was on deposit at financial institutions in the PRC where there currently is no rule or regulation requiring such financial institutions to maintain insurance to cover bank deposits in the event of bank failure. As of June 30, 2023 and December 31, 2022, $143,368 and $115,452 of the Company’s cash was on deposit at financial institutions in the U.S. which were insured by the Federal Deposit Insurance Corporation subject to certain limitations. The Company has not experienced any losses in such accounts.
For the six months ended June 30, 2023 and 2022, the Company’s substantial assets were located in the PRC and the U.S. and the Company’s substantial revenue was derived from its subsidiaries and the UFG entities located in the PRC and the U.S.
Accounts receivable are typically unsecured and derived from revenue earned from customers, thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.
Concentrations
No single customer accounted for more than 10% of the Company’s revenue for the six months ended June 30, 2023 and 2022.
As of June 30, 2023, no customer accounted for more than 10% of the Company’s total accounts receivable balance. As of December 31, 2022, one customer accounted for 11.7% of the Company’s total accounts receivable balance.
For the six months ended June 30, 2023, two suppliers accounted for 18.0% and 14.7% of the Company’s total purchases, respectively. For the six months ended June 30, 2022, no supplier accounted for more than 10% of the Company’s total purchases.
Recent accounting pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses,” which will require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Further, the FASB issued ASU No. 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, and ASU 2020-02 to provide additional guidance on the credit losses standard. The new effective date for SEC filers that are eligible to be smaller reporting companies under the SEC’s definition, as well as private companies and not-for-profit entities is for annual and interim periods in fiscal years beginning after December 15, 2022. Adoption of the ASUs is on a modified retrospective basis. The Company adopted ASU 2016-13 on January 1, 2023, and the adoption of this ASU did not have a material impact on its unaudited condensed consolidated financial statements.
Except for the above-mentioned pronouncement, there are no new recently issued accounting standards that will have material impact on the Company’s unaudited condensed consolidated financial position, statements of operations, and cash flows. |
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Liquidity |
6 Months Ended |
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Jun. 30, 2023 | |
| Liquidity [Abstract] | |
| LIQUIDITY | NOTE 3 — LIQUIDITY
As reflected in the unaudited condensed consolidated financial statements, the Company’s cash provided by operating activities was $0.6 million for the six months ended June 30, 2023 as compared to cash used in operating activities was $0.4 million for the same period of last year. Total cash and cash equivalents decreased by $1,443,486 to $1,471,984 as of the June 30, 2023 from $2,915,470 as of December 31, 2022. As of June 30, 2023, negative working capital was approximately $5.4 million, including deferred revenue of approximately $7.1 million, which was reported as current liability, but will not require cash payment in the future. Management expects to spend about $2.8 million when the Company produces and sells the products and realizes the deferred revenue. In early December 2022, China announced a nationwide loosening of its zero-COVID policy, and the country faced a wave in infections after the lifting of these restrictions. Although the spread of the COVID-19 has appeared to be under control currently, a resurgence of the COVID-19 outbreak may again give rise to economic downturns and other significant changes in regional and global economic conditions, and negatively affect the Company’s ability to execute the sales contract, fulfil customer orders, and collect customer payments timely. As a result, there is a possibility that the Company’s revenue and cash flows may underperform in the next 12 months.
In assessing its liquidity, management monitors and analyzes the Company’s cash on-hand, its ability to generate sufficient revenue sources and ability to obtain additional financial support in the future, and its operating and capital expenditure commitments. As of June 30, 2023, the Company had cash of approximately $1.5 million. All of the PRC stores resumed their normal business activities on December 10, 2022 and have fully recovered from the 2022 COVID-19 outbreak during the six months ended June 30, 2023. The Company opened three stores in PRC and two stores in the U.S. in 2023, and the Company expects to open another ten stores in PRC later in fiscal year 2023. In addition, the Company will further implement initiatives to control costs and improve its operating efficiency in fiscal year 2023. Therefore, revenue and net income are expected to increase significantly in the second half of fiscal year 2023 as compared to the same period of last year. On April 3, 2023, the Company closed its IPO of 3,390,000 Class A ordinary shares at a public offering price of $4.00 per Class A ordinary share for the total gross proceeds of $13.6 million before deducting underwriting discounts and other related expenses. Net proceeds of the Company’s IPO were approximately $12.0 million. Furthermore, the Company’s controlling shareholder, Mr. Gang Li, has made pledges to provide continuous financial support to the Company for at least 12 months from the issuance of the unaudited condensed consolidated financial statements.
Currently, the Company is working to improve its liquidity and capital sources primarily through cash flows from operation, debt financing, financial support from its principal shareholder, and the proceeds the Company received from the IPO. In order to fully implement its business plan and sustain continued growth, the Company may also seek equity financing from outside investors when necessary. Based on the current operating plan, management believes that the above-mentioned measures collectively will provide sufficient liquidity for the Company to meet its future liquidity and capital requirement for at least 12 months from the date of the unaudited condensed consolidated financial statements. |
Accounts Receivable, Net |
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| ACCOUNTS RECEIVABLE, NET | NOTE 4 — ACCOUNTS RECEIVABLE, NET
The Company’s accounts receivable primarily include balance generated from selling bakery products to local corporate customers, billed but has not been collected as of the balance sheet dates. Accounts receivable consisted of the following:
As of the date of the unaudited condensed consolidated financial statements, approximately 38.3%, or $0.7 million, of the June 30, 2023 balance has been subsequently collected. The remaining balance of approximately $1.2 million is expected to be collected before June 30, 2024. |
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Prepaid Expenses And Other Current Assets, Net |
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| Long Term Debt Investment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PREPAID EXPENSES AND OTHER CURRENT ASSETS, NET | NOTE 5 — PREPAID EXPENSES AND OTHER CURRENT ASSETS, NET
Prepaid expenses and other current assets consisted of the following:
F-17 |
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Inventories |
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| Inventories [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| INVENTORIES | NOTE 6 — INVENTORIES
Inventories consisted of the following:
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Long Term Loan to a Third-Party |
6 Months Ended |
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Jun. 30, 2023 | |
| Short-Term Bank Loans [Abstract] | |
| LONG TERM LOAN TO A THIRD-PARTY | NOTE 7 — LONG TERM LOAN TO A THIRD-PARTY
On April 3, 2023, the Company entered a loan agreement with Liberty Asset Management Capital Limited (the “Borrower”) to lend the Borrower $2.0 million for two years, with a maturity date of April 3, 2025. The loan has a fixed interest rate of 4.5% per annum. The Company recorded interest income of $21,452 for the six months ended June 30, 2023. |
Leases |
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| LEASES | NOTE 8 — LEASES
The Company leases office spaces, bakery store facilities, employee dormitories and a vehicle under non-cancelable operating leases, with terms ranging from 1 to 15 years. The Company considers those renewal or termination options that are reasonably certain to be exercised in the determination of the lease term and initial measurement of ROU assets and lease liabilities. Lease expenses are recognized on a straight-line basis over the lease term. Leases with initial term of 12 months or less are not recorded on the balance sheet.
The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company discounts lease payments based on an estimate of its incremental borrowing rate.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The table below presents the operating lease related assets and liabilities recorded on the balance sheets.
The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of June 30, 2023 and December 31, 2022:
During the six months ended June 30, 2023 and 2022, the Company incurred total operating lease expenses of $1,734,513 and $1,524,429, respectively.
The following is a schedule, by years, of maturities of lease liabilities as of June 30, 2023:
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Property and Equipment, Net |
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| PROPERTY AND EQUIPMENT, NET | NOTE 9 — PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of the following:
Depreciation expenses were $402,784 and $351,395 for the six months ended June 30, 2023 and 2022, respectively. |
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Prepayment for the Software, Equipment and Product Development |
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| Prepayment for the Software, Equipment and Product Development [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PREPAYMENT FOR THE SOFTWARE, EQUIPMENT AND PRODUCT DEVELOPMENT | NOTE 10 — PREPAYMENT FOR THE SOFTWARE, EQUIPMENT AND PRODUCT DEVELOPMENT
Prepayment for the software, equipment and product development consisted of the following:
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Long Term Debt Investment |
6 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Long Term Debt Investment [Abstract] | |
| LONG TERM DEBT INVESTMENT | NOTE 11 — LONG TERM DEBT INVESTMENT
On March 31, 2023, the Company entered into a five-year agreement with Worthy Credit Limited (“Worthy Credit”), pursuant to which, the Company made payment of $6.0 million to Worthy Credit, and authorized Worthy Credit to invest the Company’s funds to provide loan services for housing mortgage applicants, with rates of return of 12% per annum. The qualification of the applicants was approved by the approval board, which was composed of the members of the Company and Worthy Credit. The Company recorded investment income of $171,616 for the six months ended June 30, 2023. |
Short-Term Bank Loans |
6 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Short-Term Bank Loans [Abstract] | |
| SHORT-TERM BANK LOANS | NOTE 12 — SHORT-TERM BANK LOANS
On December 23, 2022, Xinjiang United Family entered into a loan agreement with Huaxia Bank to borrow RMB3.0 million ($413,474) as working capital for a year, with a maturity date of December 23, 2023. The loan bears a fixed interest rate of 3.95% per annum. The loan is guaranteed by Ms. Baolin Wang, the legal representative of Xinjiang United Family, and Urumqi Plastic Surgery Hospital Co., Ltd., a related party that is controlled by the Chairman of the Company.
The Company incurred interest expenses of $8,364 and $38,715 for the six months ended June 30, 2023 and 2022, respectively. |
Related Party Transactions |
6 Months Ended | ||||||
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Jun. 30, 2023 | |||||||
| Related Party Transactions [Abstract] | |||||||
| RELATED PARTY TRANSACTIONS | NOTE 13 — RELATED PARTY TRANSACTIONS
As of June 30, 2023, due to a related party of $186,388 primarily represented advances provided by Mr. Gang Li, Chairman of the Company, to fund the Company’s operations. These payables were unsecured, non-interest bearing, and due on demand. All expenses and liabilities were paid by Mr. Gang Li on behalf of the Company, and recorded in the Company’s unaudited condensed consolidated financial statements in a timely manner. The outstanding amount is expected to be repaid before June 30, 2024.
Several related parties provided guarantees in connection with the Company’s loan borrowed from Huaxia Bank (see Note 12). |
Taxes |
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| Taxes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TAXES | NOTE 14 — TAXES
Cayman Islands
Under the current tax laws of the Cayman Islands, the Company is not subject to tax on its income or capital gains. In addition, no Cayman Islands withholding tax will be imposed upon the payment of dividends by the Company to its shareholders.
British Virgin Islands
Deen Global is incorporated in the BVI as an offshore holding company and is not subject to tax on income or capital gain under the laws of BVI.
Hong Kong
Jenyd is incorporated in Hong Kong and is subject to profit taxes in Hong Kong at a rate of 8.25% on assessable profits up to HK$2,000,000, and 16.5% on any part of assessable profits over HK$2,000,000. However, Jenyd did not generate any assessable profits arising in or derived from Hong Kong for the six months ended June 30, 2023 and 2022, and accordingly no provision for Hong Kong profits tax was made in these periods.
PRC
Under the Enterprise Income Tax (“EIT”) Law of the PRC, domestic enterprises and Foreign Investment Enterprises (the “FIE”) are usually subject to a unified 25% enterprise income tax rate while preferential tax rates, tax holidays, or exemptions may be granted on a case-by-case basis. The Company’s subsidiary Xinjiang United Family and its three branch offices were incorporated in the PRC. During the six months ended June 30, 2023 and 2022, Xinjiang United Family and all its three branch offices qualified as small-scaled minimal profit enterprises. Based on the EIT Law of PRC, and according to the Announcement on Implementing the Preferential Income Tax Policies for Small-Scale Minimal Profit Enterprise and Individually-Owned Businesses on April 2, 2021, the portion of their taxable income not more than RMB1 million is further reduced to 2.5% during the period from January 1, 2021 to December 31, 2022 and the portion between RMB1 million and RMB3 million remained at a reduced rate of 10%. According to the Announcement on Implementing the Preferential Income Tax Policies for Small-Scale Minimal Profit Enterprise on March 14, 2022 and March 26, 2023, the taxable income not more than RMB3 million is subject to a reduced rate of 5% during the period from January 1, 2023 to December 31, 2024.
The UFG entities are individually-owned businesses, which are not subject to the EIT Law of the PRC, but the Individual Income Tax. The Measures for Individual Income Tax Calculation of Individual Industrial and Commercial Households, or the “Measures,” were adopted by the State Administration of Taxation on December 19, 2014 and promulgated on December 27, 2014, and amended on June 15, 2018. According to Article 7 of the Measures, for the income from production and operation of individually-owned businesses, the amount of taxable income shall be the balance of the total income of each tax year after deducting costs, expenses, taxes, losses and other expenditures, and allowable compensation for losses in previous years. Income tax for an individually-owned business can generally be assessed on an actual basis or a deemed basis, which the UFG entities apply. Therefore, income tax for the UFG entities is levied as a fixed-rate income tax at 1% of TNI as assessed by the local tax authority. According to Announcement No. 12 [2021] and Announcement No. 6 [2023] of the State Taxation Administration, the tax rate is reduced by half to 0.5% during the period from January 1, 2021 to December 31, 2023. For the six months ended June 30, 2023, 13 of these UFG entities were subject to income tax assessed at 0.5% of TNI that ranged from RMB33,000 to RMB180,000 per month. For the six months ended June 30, 2022, 13 of these UFG entities were subject to income tax assessed at 0.5% of TNI that ranged from RMB25,000 to RMB180,000 per month. The rest of these UFG entities were exempted from paying income tax. During the six months ended June 30, 2023 and 2022, the total tax exemption of the UFG entities were $7,665 and $8,558, respectively. As of June 30, 2023, for the tax years ended December 31, 2018 through December 31, 2022 the Company’s UFG entities remained open for statutory examination by PRC tax authorities. In addition, the TNI and tax rate of the Company’s UFG entities are subject to periodical reassessment by the local tax authority. If the local tax authority determined that income tax for the UFG entities should be levied at a higher TNI or higher tax rate, the Company would be obligated to pay additional income tax for the UFG entities. Along with the continuing growth of business, the Company expects that the tax rates of these UFG entities are likely to increase in the future in the annual assessment based on the past performance.
United States
The Company’s subsidiaries in the U.S. are subject to a U.S. federal corporate income tax rate of 21%.
The components of the income tax provision were as follows:
The Company’s deferred tax assets, net were comprised of the following:
The Company’s operations in the U.S. incurred a cumulative net operating loss (“NOL”) which may reduce future federal taxable income. As of December 31, 2022, the cumulative NOL was $11,907,922. During the six months ended June 30, 2023, the U.S. operations incurred an additional NOL of $1,180,111, resulting in a cumulative NOL of $13,088,033 as of June 30, 2023, among which approximately $2,882,465 will expire in 2037 and the remaining balance is carried forward indefinitely.
The Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of the deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. Management considers new evidence, both positive and negative, that could affect the Company’s future realization of deferred tax assets including its recent cumulative earnings experience, expectation of future income, the carry forward periods available for tax reporting purposes and other relevant factors. The Company determined that it is more likely than not its deferred tax assets could not be realized due to uncertainty on future earnings in the U.S. operations. The Company provided a 100% valuation allowance for its deferred tax assets as of June 30, 2023 and December 31,2022, respectively.
Income before provision for income taxes is attributable to the following geographic locations for the six months ended June 30:
Reconciliation of the differences between the income tax provision computed based on PRC statutory income tax rate and the Company’s actual income tax provision for the six months ended June 30, 2023 and 2022 are as follows:
Taxes payable consisted of the following:
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Shareholders' Equity |
6 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Shareholders' Equity [Abstract] | |
| SHAREHOLDERS' EQUITY | NOTE 15 — SHAREHOLDERS’ EQUITY
Ordinary shares
Chanson International was established under the laws of the Cayman Islands on July 26, 2019. The authorized number of ordinary shares was 50,000 shares with par value of $1 per share and 100 ordinary shares were issued, prior to the 1,000-for-1 forward split and the share issuances described below. The issuance of these 100 ordinary shares, and the 1,000-for-1 forward split and the share issuances are considered as a part of the Reorganization of the Company, which was retroactively applied as if the transaction occurred at the beginning of the period presented (see Note 1).
On March 27, 2021, the Company’s shareholders and board of directors approved (i) a forward split of the Company’s ordinary shares at a ratio of 1,000-for-1 share to increase the authorized ordinary shares from 50,000 shares to 50,000,000 shares and subdivide the 100 ordinary shares of a par value of $1 then outstanding into 100,000 ordinary shares of a par value of $0.001 (the “1,000-for-1 forward split”); (ii) the creation of Class A Ordinary Shares and Class B Ordinary Shares. Holders of Class A Ordinary Shares and Class B Ordinary Shares have the same rights except for voting and conversion rights. In respect of matters requiring a vote of all shareholders, each holder of Class A Ordinary Shares will be entitled to one vote per one Class A Ordinary Share and each holder of Class B Ordinary Shares will be entitled to 10 votes per one Class B Ordinary Share. The Class A Ordinary Shares are not convertible into shares of any other class. The Class B Ordinary Shares are convertible into Class A Ordinary Shares at any time after issuance at the option of the holder on a one-to-one basis; and (iii) issuances of Class A Ordinary Shares and Class B Ordinary Shares to the existing shareholders, to increase the number of total ordinary shares issued and outstanding prior to the completion of this offering from 100,000 to 9,000,000 (the “share issuances”). The Company believes the 1,000-for-1 forward split and the share issuances should be considered as a part of the Reorganization of the Company and accounted for on a retroactive basis pursuant to ASC 260. The Company has retroactively restated all shares and per share data for all periods presented.
Initial Public Offering
On April 3, 2023, the Company closed its IPO of 3,390,000 Class A ordinary shares at a public offering price of $4.00 per Class A ordinary share for the total gross proceeds of $13.6 million before deducting underwriting discounts and other related expenses. Net proceeds of the Company’s IPO were approximately $12.0 million. The Company’s Class A ordinary shares began trading on the Nasdaq Capital Market under the ticker symbol “CHSN” on March 30, 2023.
As a result, the Company had 44,000,000 authorized Class A Ordinary Shares of a par value of $0.001, of which 6,450,000 and 3,060,000 Class A Ordinary Shares were issued and outstanding as of June 30, 2023 and December 31, 2022, respectively, and the Company had 6,000,000 authorized Class B Ordinary Shares of a par value of $0.001, of which 5,940,000 Class B Ordinary Shares were issued and outstanding as of June 30, 2023 and December 31, 2022. In total, the Company had 50,000,000 authorized ordinary shares of a par value of $0.001, of which 12,390,000 shares and 9,000,000 shares were issued and outstanding as of June 30, 2023 and December 31, 2022.
Statutory Reserve
The Company’s PRC subsidiary is required to make appropriations to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”). Appropriations to the statutory surplus reserve are required to be at least 10% of the after-tax net income determined in accordance with PRC GAAP until the reserve is equal to 50% of the entity’s registered capital. Appropriations to the discretionary surplus reserve are made at the discretion of the Board of Directors. The statutory reserve may be applied against prior year losses, if any, and may be used for general business expansion and production or increase in registered capital, but are not distributable as cash dividends. As of June 30, 2023 and December 31, 2022, the balance of the statutory reserves was $447,231 and $447,231, respectively, which is equal to 50% of the entity’s registered capital.
Restricted net assets
The Company’s PRC subsidiary and the UFG entities are restricted in their ability to transfer a portion of their net assets, equivalent to their statutory reserves and their share capital to the Company in the form of loans, advances, or cash dividends. The payment of dividends by entities organized in China is subject to limitations, procedures, and formalities. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. As of June 30, 2023 and December 31, 2022, the total restricted net assets amounted to $1,325,631 and $1,325,631, respectively. |
Commitments and Contingencies |
6 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | NOTE 16 — COMMITMENTS AND CONTINGENCIES
Contingencies
From time to time, the Company is a party to various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. As of June 30, 2023 and December 31, 2022, there were no legal claims and litigation against the Company. |
Segment Reporting |
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEGMENT REPORTING | NOTE 17 — SEGMENT REPORTING
In accordance with ASC 280, Segment Reporting, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (the “CODM”), or decision making group, in deciding how to allocate resources and in assessing performance. The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s CODM for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the CODM, reviews operation results by locations. Based on management’s assessment, the Company has determined that it has two operating segments, China and the United States.
The following table presents the segment information for the six months ended June 30, 2023 and 2022, respectively:
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Subsequent Events |
6 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 18 — SUBSEQUENT EVENTS
The Company evaluated the subsequent events through October 6, 2023, which is the date of the issuance of these unaudited condensed consolidated financial statements, and concluded that there are no additional subsequent events except disclosed above that would have required adjustment or disclosure in the unaudited condensed consolidated financial statements. |
Condensed Financial Information of the Parent Company |
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| Condensed Financial Information of the Parent Company [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY | NOTE 19 — CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
Pursuant to the requirements of Rules 12-04(a), 5-04(c), and 4-08(e)(3) of Regulation S-X, the condensed financial information of the parent company shall be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. The Company performed a test on the restricted net assets of consolidated subsidiaries in accordance with such requirements and concluded that it was applicable to the Company as the restricted net assets of the Company’s PRC subsidiary and the UFG entities exceeded 25% of the consolidated net assets of the Company. Therefore, the condensed financial statements for the parent company are included herein.
For purposes of the above test, restricted net assets of consolidated subsidiaries and VIEs shall mean that amount of the Company’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries and VIEs in the form of loans, advances, or cash dividends without the consent of a third party.
The condensed financial information of the parent company has been prepared using the same accounting policies as set out in the Company’s unaudited condensed consolidated financial statements except that the parent company used the equity method to account for investment in its subsidiaries and VIEs. Such investment is presented on the condensed balance sheets as “Investment in subsidiaries and VIEs” and the respective profit or loss as “Equity in earnings of subsidiaries and VIEs” on the condensed statements of operations and comprehensive loss.
The footnote disclosures contain supplemental information relating to the operations of the Company and, as such, these statements should be read in conjunction with the notes to the consolidated financial statements of the Company. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.
The Company did not pay any dividend for the periods presented. As of June 30, 2023 and December 31, 2022, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except for those which have been separately disclosed in the unaudited condensed consolidated financial statements, if any.
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Accounting Policies, by Policy (Policies) |
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| Summary of Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||
| Basis of presentation and principles of consolidation | Basis of presentation and principles of consolidation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities Exchange Commission and have been consistently applied. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal years ended December 31, 2022 and 2021. Operating results for the six-month period ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The accompanying unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries and the VIEs. All intercompany balances and transactions are eliminated upon consolidation. |
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| Uses of estimates | Uses of estimates In preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates are based on information as of the date of the unaudited condensed consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the valuation of accounts receivable and inventories, useful lives of property and equipment, the recoverability of long-lived assets, provision necessary for contingent liabilities, realization of deferred tax assets and revenue recognition. Actual results could differ from those estimates. |
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| Cash and cash equivalents | Cash and cash equivalents Cash includes currency on hand and deposits held by banks that can be added or withdrawn without limitation. The Company maintains a significant amount of its bank accounts in the PRC. The Company considers all highly liquid investment instruments with an original maturity of three months or less from the date of purchase to be cash equivalents.
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| Accounts receivable | Accounts receivable Accounts receivable are recognized and carried at original invoiced amount less an estimated allowance for uncollectible accounts. The Company determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trend. The Company establishes a provision for doubtful receivables when there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s best estimate of specific losses on individual exposures, as well as a provision on historical trends of collections. The provision is recorded against accounts receivable balances, with a corresponding charge recorded in the unaudited condensed consolidated statements of operations and comprehensive loss. Actual amounts received may differ from management’s estimate of credit worthiness and the economic environment. Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. As of June 30, 2023 and December 31, 2022, there was no allowance recorded as the Company considers all of the accounts receivable fully collectible. |
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| Leases | Leases The Company follows FASB ASC No. 842, Leases (“Topic 842”). The Company leases office spaces, bakery store facilities, employee dormitories, and a vehicle, which are classified as operating leases in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases (with the exception of short-term leases, usually with initial term of 12 months or less) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. At the commencement date, the Company recognizes the lease liability at the present value of the lease payments not yet paid, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate for the same term as the underlying lease. The ROU asset is recognized initially at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All ROU assets are reviewed for impairment annually. There was no impairment for ROU lease assets as of June 30, 2023 and December 31, 2022. In response to the large volume of anticipated lease concessions to be granted related to the effects of the COVID-19 pandemic, and the resultant expected cost and complexity of applying the lease modification requirements in Topic 842, the FASB issued Staff Q&A—Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic in April 2020 as interpretive guidance to provide clarity in response to the crisis. The FASB staff indicated that it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how they would be accounted for as though enforceable rights and obligations for those concessions existed in the original contract. Consequently, for such lease concessions, an entity will not need to reassess each existing contract to determine whether enforceable rights and obligations for concessions exist and an entity can elect to apply or not to apply the lease modification guidance in Topic 842 to those contracts. The election is available for concessions related to the effects of the COVID-19 pandemic that result in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract. Due to the COVID-19 pandemic, the Company renegotiated the leases for some of its PRC stores and New York stores. Based on the nature of the agreements reached with the landlords, the Company has accounted for rent concessions as if they were part of the enforceable rights and obligations of the existing lease contracts and did not account for the concessions as lease modifications. As of the date of this report, the Company has received a total of lease concessions amounting to $1,078,753, and among which, $9,783 and $109,719 was received during the six months ended June 30, 2023 and 2022, respectively. The Company accounted for the concession as negative variable lease payments with a corresponding reduction in the lease liability. The Company has continued to recognize lease expenses on a straight-line basis for its leases over the related lease terms.
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| Inventories | Inventories Inventories of the Company consist of ingredient materials, finished goods, packaging materials, and other materials. Inventories are stated at the lower of cost or net realizable value, on a weighted average basis. Costs include the cost of ingredient materials, direct labor, and related production overhead. Any excess of the cost over the net realizable value of each item of inventories is recognized as a provision for diminution in the value of inventories. Net realizable value is the estimated selling price in the normal course of business less any costs to complete and sell products. The Company periodically evaluates inventories for their net realizable value adjustments, and reduces the carrying value of those inventories that are obsolete or in excess of the forecasted usage to their estimated net realizable value based on various factors including aging and expiration dates, as applicable, taking into consideration historical and expected future product sales. For the six months ended June 30, 2023 and 2022, no inventory reserve was recorded because no slow-moving, obsolete, or damaged inventory was identified. |
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| Property and equipment | Property and equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property and equipment are provided using the straight-line method over their expected useful lives, as follows:
Expenditures for repair and maintenance, which do not materially extend the useful lives of the assets, are charged to expenses as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the unaudited condensed consolidated statements of operations and comprehensive loss in other income or expenses. |
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| Impairment of long-lived assets | Impairment of long-lived assets Long-lived assets with finite lives, primarily property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value. There were no impairments of these assets as of June 30, 2023 and December 31, 2022. |
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| Revenue recognition | Revenue recognition The Company follows ASC 606, Revenue from Contracts with Customers (“ASC 606”), for revenue recognition. ASC 606 establishes principles for reporting information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized, as performance obligations are satisfied. The Company currently generates its revenue through its bakery/café stores as well as through online sales. The Company recognizes revenue from bakery/café sales upon delivery of the related food and other products to the customer and fulfillment of all performance obligations. Revenue is recognized net of any discounts, sales incentives, sales taxes, and value added taxes that are collected from customers and remitted to tax authorities. In the PRC Stores, the Company sells membership cards that do not have an expiration date and from which the Company does not deduct non-usage fees from outstanding card balances. Membership cards are reloadable and redeemable at any of the Company’s store locations. Amounts loaded into these cards are initially recorded as deferred revenue. When membership cards are redeemed at stores, the Company recognizes revenue and reduces the deferred revenue. While the Company continues to honor all membership cards presented for payments, management determines the likelihood of redemption to be remote for certain cards with long periods of inactivity (“breakage”), which is five years after the last usage, based upon the Company’s historical redemption patterns. Membership card breakage is recorded as revenue in the unaudited condensed consolidated statements of operations and comprehensive loss. Membership card breakage was immaterial for the six months ended June 30, 2023 and 2022. In the PRC Stores, the Company maintains a customer loyalty program in which customers earn free cash vouchers when purchasing or reloading membership cards at certain amount. These cash vouchers typically do not expire, except for certain vouchers given out at special occasions, which usually state an expiration date and can only be exchanged for certain seasonal products or specialty cakes. The Company establishes corresponding liabilities in deferred revenue for the membership cards and the free cash vouchers upon issuance. The Company allocates the consideration received proportionately between the membership cards and cash vouchers based on their face values. Revenue is recognized at the allocated amount upon redemption of membership cards and cash vouchers, at which point, the Company delivers products to customers and reduces the deferred revenue. Unredeemed cash vouchers will be recognized as revenue upon their expiration dates, if any, or five years after their issuance if there are no stated expiration dates, when management determines the likelihood of redemption to be remote. Contract balances and remaining performance obligations Contract balances typically arise when a difference in timing between the transfer of control to the customer and receipt of consideration occurs. The Company did not have contract assets as of June 30, 2023 and December 31, 2022. The Company’s contract liabilities, which are reflected in its unaudited condensed consolidated balance sheets as deferred revenue of $7,114,127 and $6,958,160 as of June 30, 2023 and December 31, 2022, respectively, consist primarily of customer payments for the membership cards and the fair value of the cash vouchers under the Company’s customer loyalty programs. These amounts represent the Company’s unsatisfied performance obligations as of the balance sheet dates. The amount of revenue recognized in the six months ended June 30, 2023 and 2022 that was included in the opening deferred revenue was $3,945,400 and $3,899,040, respectively. As of June 30, 2023, the aggregate amount of unredeemed membership cards and cash vouchers was $7,114,127. The Company will recognize revenue when customers redeem the membership cards or cash vouchers in store purchases. Based on the Company’s historical experience, a significant portion of the redemption is expected to occur during the first two years after June 30, 2023 and the remaining between the third and fifth year. Disaggregation of revenue The Company disaggregates its revenue by geographic areas, as the Company believes it best depicts how the nature, amount, timing, and uncertainty of the revenue and cash flows are affected by economic factors. The Company’s disaggregation of revenue for the six months ended June 30, 2023 and 2022 is disclosed in Note 17 of the unaudited condensed consolidated financial statements. |
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| Fair value of financial instruments | Fair value of financial instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
Unless otherwise disclosed, the fair value of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, loans to third parties, short-term bank loan, accounts payable, due to a related party, taxes payable, current portion of operating lease liabilities, current and other current liabilities, approximates the fair value of the respective assets and liabilities as of June 30, 2023 and December 31, 2022 based upon the short-term nature of the assets and liabilities. The fair value of longer-term debt investment and loan to a third party, as well as non-current portion of operating lease liabilities approximates their recorded values as their stated interest rates approximate the rates currently available. |
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| Foreign currency translation | Foreign currency translation The functional currency of the Company’s PRC subsidiary and the UFG entities is the Chinese Yuan (“RMB”) and the functional currency of the Company’s U.S. subsidiaries is the U.S. Dollars (“US$”). RMB amounts in the Company’s unaudited condensed consolidated financial statements have been translated into the reporting currency US$. Assets and liabilities of the Company are translated at the exchange rate at each reporting period end date. Equity is translated at historical rates. Income and expense accounts are translated at the average rate of exchange during the reporting period. The resulting translation adjustments are reported under other comprehensive loss. Because cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets. Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the results of operations. RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation. The following table outlines the currency exchange rates that were used in creating the unaudited condensed consolidated financial statements in this report:
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| Income taxes | Income taxes The Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the unaudited condensed consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No penalties or interest relating to income taxes were incurred during the six months ended June 30, 2023 and 2022. The Company does not believe there was any uncertain tax provision as of June 30, 2023 and December 31, 2022. The Company’s operating subsidiary in China is subject to the income tax laws of the PRC. The Company’s operating subsidiary in United States is subject to the tax law of the United States. As of June 30, 2023, for the tax years ended December 31, 2018 through December 31, 2022, the Company’s PRC subsidiaries remained open for statutory examination by PRC tax authorities, and for the tax years ended December 31, 2020 through December 31, 2022, the Company’s United States subsidiaries remained open for statutory examination by U.S. tax authorities. |
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| Value added tax (“VAT”) | Value added tax (“VAT”) The Company’s subsidiary Xinjiang United Family and its three branch offices are general tax payers. The applicable VAT rate is 13% based on the Chinese tax law. VAT is reported as a deduction to revenue when incurred. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. The UFG entities were formed as individually-owned businesses, which are generally subject to a lower VAT rate of 3% and the local PRC tax authority has the jurisdiction to assess and determine their VAT obligation or exemption on a case-by-case basis. From April 1, 2021 to December 31, 2022, based on the new tax regulation, individually-owned businesses whose monthly deemed Taxable Net Income (“TNI”) is less than RMB150,000 are exempted from paying VAT. From January 1, 2023 to December 31, 2023, based on the new tax regulation, individually-owned businesses whose monthly deemed Taxable Net Income (“TNI”) is less than RMB100,000 are exempted from paying VAT. All but three of the UFG entities are currently exempted from paying VAT, since the deemed TNI of each of these UFG entities is currently less than RMB100,000 and RMB150,000 for the six months ended June 30, 2023 and 2022, respectively. Their VAT eligibility is subject to periodical reassessment, and they may lose or regain the exemption status as determined by the tax authorities on a case-by-case basis. |
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| Warrant accounting | Warrant accounting The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent interim period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations and comprehensive loss. As the warrants issued upon the initial public offering meet the criteria for equity classification under ASC 815, therefore, the warrants are classified as equity.
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| Earnings per share | Earnings per share The Company computes earnings per share (“EPS”) in accordance with ASC 260, Earnings per Share (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average ordinary shares outstanding for the period. Diluted presents the dilutive effect on a per share basis of potential ordinary shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential ordinary shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. As of June 30, 2023 and December 31, 2022, there were no dilutive shares. |
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| Comprehensive loss | Comprehensive loss Comprehensive loss consists of two components, net income and other comprehensive loss. The foreign currency translation loss resulting from the translation of the financial statements expressed in RMB to US$ is reported in other comprehensive loss in the unaudited condensed consolidated statements of operations and comprehensive loss. |
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| Risks and uncertainties | Risks and uncertainties Political and economic risk The operations of the Company are located in the PRC and United States. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by political, economic, and legal environments in the PRC and United States, as well as by the general state of the PRC and United States economy. The Company’s results may be adversely affected by changes in the political, regulatory, and social conditions in the PRC and United States. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note 1, such experience may not be indicative of future results. Foreign currency exchange risk A majority of the Company’s revenue and expense transactions are denominated in RMB and most of the Company and its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to effect the remittance. Credit risk As of June 30, 2023 and December 31, 2022, $1,282,446 and $2,747,940 of the Company’s cash was on deposit at financial institutions in the PRC where there currently is no rule or regulation requiring such financial institutions to maintain insurance to cover bank deposits in the event of bank failure. As of June 30, 2023 and December 31, 2022, $143,368 and $115,452 of the Company’s cash was on deposit at financial institutions in the U.S. which were insured by the Federal Deposit Insurance Corporation subject to certain limitations. The Company has not experienced any losses in such accounts. For the six months ended June 30, 2023 and 2022, the Company’s substantial assets were located in the PRC and the U.S. and the Company’s substantial revenue was derived from its subsidiaries and the UFG entities located in the PRC and the U.S. Accounts receivable are typically unsecured and derived from revenue earned from customers, thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.
Concentrations No single customer accounted for more than 10% of the Company’s revenue for the six months ended June 30, 2023 and 2022. As of June 30, 2023, no customer accounted for more than 10% of the Company’s total accounts receivable balance. As of December 31, 2022, one customer accounted for 11.7% of the Company’s total accounts receivable balance. For the six months ended June 30, 2023, two suppliers accounted for 18.0% and 14.7% of the Company’s total purchases, respectively. For the six months ended June 30, 2022, no supplier accounted for more than 10% of the Company’s total purchases. |
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| Recent accounting pronouncements | Recent accounting pronouncements In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses,” which will require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Further, the FASB issued ASU No. 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, and ASU 2020-02 to provide additional guidance on the credit losses standard. The new effective date for SEC filers that are eligible to be smaller reporting companies under the SEC’s definition, as well as private companies and not-for-profit entities is for annual and interim periods in fiscal years beginning after December 15, 2022. Adoption of the ASUs is on a modified retrospective basis. The Company adopted ASU 2016-13 on January 1, 2023, and the adoption of this ASU did not have a material impact on its unaudited condensed consolidated financial statements. Except for the above-mentioned pronouncement, there are no new recently issued accounting standards that will have material impact on the Company’s unaudited condensed consolidated financial position, statements of operations, and cash flows. |
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Organization and Business Description (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Organization and Business Description [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Consolidated Financial Statements | After the Reorganization, the unaudited condensed
consolidated financial statements of the Company include the following entities:
|
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| Schedule of Balance Sheet of the UFG Entities | The following financial statement amounts
and balances of the UFG entities were included in the accompanying unaudited condensed consolidated financial statements after elimination
of intercompany transactions and balances:
|
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| Schedule of Operation of the UFG Entities |
|
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Summary of Significant Accounting Policies (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||
| Schedule of Property and Equipment are Stated at Cost Less | Depreciation and amortization of property and equipment are provided using the straight-line
method over their expected useful lives, as follows:
|
||||||||||||||||||||||||||||
| Schedule of currency exchange raSchedule of Currency Exchange Ratestes | The following table outlines the currency exchange
rates that were used in creating the unaudited condensed consolidated financial statements in this report:
|
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Accounts Receivable, Net (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||
| Accounts Receivable, Net [Abstract] | |||||||||||||||||||||||||||||||||||||
| Schedule of Accounts Receivable, Net |
|
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Prepaid Expenses And Other Current Assets, Net (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long Term Debt Investment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Prepaid Expenses and Other Current Assets | Prepaid expenses and other current assets consisted of the following:
|
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Inventories (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Inventory [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Inventories | Inventories consisted of the following:
|
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Leases (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Operating Lease Related Assets and Liabilities Recorded on the Balance Sheets | The table below presents the operating lease
related assets and liabilities recorded on the balance sheets.
|
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| Schedule of Weighted Average Remaining Lease Terms and Discount Rates for All of Operating Leases | The weighted average remaining lease terms and
discount rates for all of operating leases were as follows as of June 30, 2023 and December 31, 2022:
|
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| Schedule of Maturities of Lease Liabilities | The following is a schedule, by years, of maturities
of lease liabilities as of June 30, 2023:
|
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Property and Equipment, Net (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property and equipment net | Property and equipment, net, consisted of the
following:
|
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Prepayment for the Software, Equipment and Product Development (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Prepayment for the Software, Equipment and Product Development [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Prepayment for the software, equipment and product development | Prepayment for the software, equipment and product
development consisted of the following:
|
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| Schedule of future minimum expenditures | future minimum expenditures on the Company’s development of software project are estimated as follows:
|
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Taxes (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Taxes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Components of the Income Tax Provision | The components of the income tax provision were
as follows:
|
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| Schedule of Deferred Tax Assets Net | The Company’s deferred tax assets, net were comprised of the
following:
|
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| Schedule of Income Before Provision for Income Taxes | Income before provision for income taxes is attributable
to the following geographic locations for the six months ended June 30:
|
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| Schedule of Income Tax Provision Computed Based on PRC Statutory Income Tax Rate |
|
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| Schedule of Taxes Payable | Taxes payable consisted of the following:
|
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Segment Reporting (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Segment Information | The following table presents the segment information
for the six months ended June 30, 2023 and 2022, respectively:
|
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| Schedule of total Assets and Liabilities |
|
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Condensed Financial Information of the Parent Company (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Parent Company Balance Sheets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Parent Company Balance Sheets |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Parent Company Statements of Operations and Comprehensive Income (Loss) |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Parent Company Statements of Cash Flows |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization and Business Description (Details) - Schedule of Balance Sheet of the UFG Entities - USD ($) |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Schedule of Balance Sheet of the UFG Entities [Abstract] | ||
| Current assets | $ 7,392,640 | $ 7,123,635 |
| Non-current assets | 4,130,444 | 4,078,979 |
| Total assets | 11,523,084 | 11,202,614 |
| Current liabilities | 6,173,116 | 5,858,647 |
| Non-current liabilities | 1,388,917 | 1,448,744 |
| Total liabilities | $ 7,562,033 | $ 7,307,391 |
Organization and Business Description (Details) - Schedule of Operation of the UFG Entities - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Schedule of Operation of the UFG Entities [Abstract] | ||
| Net revenue | $ 4,562,762 | $ 3,754,826 |
| Net income | $ 1,213,299 | $ 959,198 |
Summary of Significant Accounting Policies (Details) - Schedule of Property and Equipment are Stated at Cost Less |
6 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Property, Plant and Equipment [Line Items] | |
| Leasehold improvement | Lesser of useful life and lease term |
| Bakery production equipment [Member] | Minimum [Member] | |
| Property, Plant and Equipment [Line Items] | |
| Estimated useful lives | 5 years |
| Bakery production equipment [Member] | Maximum [Member] | |
| Property, Plant and Equipment [Line Items] | |
| Estimated useful lives | 8 years |
| Office equipment and furniture [Member] | Minimum [Member] | |
| Property, Plant and Equipment [Line Items] | |
| Estimated useful lives | 3 years |
| Office equipment and furniture [Member] | Maximum [Member] | |
| Property, Plant and Equipment [Line Items] | |
| Estimated useful lives | 5 years |
| Transportation vehicles [Member] | |
| Property, Plant and Equipment [Line Items] | |
| Estimated useful lives | 5 years |
Summary of Significant Accounting Policies (Details) - Schedule of Currency Exchange Rates |
6 Months Ended | 12 Months Ended | ||||
|---|---|---|---|---|---|---|
|
Jun. 30, 2023
USD ($)
|
Jun. 30, 2023
CNY (¥)
|
Jun. 30, 2022
USD ($)
|
Jun. 30, 2022
CNY (¥)
|
Dec. 31, 2022
USD ($)
|
Dec. 31, 2022
CNY (¥)
|
|
| Year-end spot rate [Member] | ||||||
| Currency Exchange Rates [Line Items] | ||||||
| Foreign currency translation | $ 1 | ¥ 7.2556 | $ 1 | ¥ 6.6981 | $ 1 | ¥ 6.8972 |
| Average rate [Member] | ||||||
| Currency Exchange Rates [Line Items] | ||||||
| Foreign currency translation | $ 1 | ¥ 6.9263 | $ 1 | ¥ 6.4791 | $ 1 | ¥ 6.729 |
Liquidity (Details) $ / shares in Units, ¥ in Millions |
6 Months Ended | 12 Months Ended | |||
|---|---|---|---|---|---|
|
Apr. 03, 2023
USD ($)
$ / shares
shares
|
Jun. 30, 2023
USD ($)
|
Dec. 31, 2022
USD ($)
|
Dec. 23, 2022
USD ($)
|
Dec. 23, 2022
CNY (¥)
|
|
| Liquidity [Line Items] | |||||
| Cash provided by operating activities | $ 600,000 | $ 400,000 | |||
| Total cash and cash equivalents | 1,471,984 | $ 2,915,470 | |||
| Working capital | 5,400,000 | $ (413,474) | ¥ 3.0 | ||
| Deferred revenue | 7,100,000 | ||||
| Realizes deferred revenue | 2,800,000 | ||||
| Cash | 1,500,000 | ||||
| Initial public offering (in Shares) | shares | 3,390,000 | ||||
| Offering price per shares (in Dollars per share) | $ / shares | $ 4 | ||||
| Total gross proceeds | $ 13,600,000 | ||||
| Net proceeds | 12,000,000 | ||||
| Minimum [Member] | |||||
| Liquidity [Line Items] | |||||
| Total cash and cash equivalents | 1,443,486 | ||||
| Maximum [Member] | |||||
| Liquidity [Line Items] | |||||
| Total cash and cash equivalents | $ 1,471,984 | ||||
Accounts Receivable, Net (Details) - USD ($) $ in Millions |
6 Months Ended | |
|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
|
| Accounts Receivable, Net [Line Items] | ||
| Financial statements accounts receivable | 38.30% | |
| Amount collected | $ 0.7 | |
| Forecast [Member] | ||
| Accounts Receivable, Net [Line Items] | ||
| Amount collected | $ 1.2 |
Accounts Receivable, Net (Details) - Schedule of Accounts Receivable, Net - USD ($) |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Schedule of Accounts Receivable Net [Abstract] | ||
| Accounts receivable | $ 1,937,261 | $ 1,260,453 |
| Less: allowance for doubtful accounts | ||
| Accounts receivable, net | $ 1,937,261 | $ 1,260,453 |
Prepaid Expenses And Other Current Assets, Net (Details) $ in Millions |
6 Months Ended |
|---|---|
|
Jun. 30, 2023
USD ($)
| |
| Prepaid Expenses And Other Current Assets, Net (Details) [Line Items] | |
| Short-term loans | $ 1.9 |
| Remaining amount | $ 0.5 |
| Debt percentage | 26.00% |
| Third parties [Member] | |
| Prepaid Expenses And Other Current Assets, Net (Details) [Line Items] | |
| Short-term loans | $ 1.9 |
Prepaid Expenses And Other Current Assets, Net (Details) - Schedule of Prepaid Expenses and Other Current Assets - USD ($) |
6 Months Ended | 12 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 |
Dec. 31, 2022 |
|||||||||
| Schedule of prepaid expenses and other current assets [Abstract] | ||||||||||
| Advance to suppliers | [1] | $ 367,332 | $ 512,900 | |||||||
| Prepaid expenses | [2] | 699,331 | 217,064 | |||||||
| Other receivables | [3] | 104,553 | 103,274 | |||||||
| Loans to third parties | [4] | 1,900,000 | ||||||||
| Less: allowance for doubtful accounts | ||||||||||
| Prepaid expenses and other current assets, net | $ 3,071,216 | $ 833,238 | ||||||||
| ||||||||||
Inventories (Details) - Schedule of Inventories - USD ($) |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Schedule of Inventories [Abstract] | ||
| Ingredient materials | $ 418,991 | $ 540,689 |
| Package and other materials | 63,893 | 60,904 |
| Finished goods | 94,983 | 91,913 |
| Total inventories | $ 577,867 | $ 693,506 |
Long Term Loan to a Third-Party (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Apr. 03, 2023 |
|
| Short-Term Bank Loans [Abstract] | ||
| Lend the Borrower | $ 2,000,000 | |
| Fixed interest rate | 4.50% | |
| Interest income | $ 21,452 |
Leases (Details) - USD ($) |
6 Months Ended | ||
|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2022 |
|
| Leases (Details) [Line Items] | |||
| Leases with initial term | 12 months | ||
| Incremental borrowing rate | 3.95% | 6.98% | |
| Total operating lease expenses (in Dollars) | $ 1,734,513 | $ 1,524,429 | |
| United States [Member] | |||
| Leases (Details) [Line Items] | |||
| Incremental borrowing rate | 3.75% | ||
| Minimum [Member] | |||
| Leases (Details) [Line Items] | |||
| Operating leases, with terms | 1 year | ||
| Maximum [Member] | |||
| Leases (Details) [Line Items] | |||
| Operating leases, with terms | 15 years | ||
Leases (Details) - Schedule of Operating Lease Related Assets and Liabilities Recorded on the Balance Sheets - USD ($) |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Schedule of Operating Lease Related Assets and Liabilities Recorded on the Balance Sheets [Abstract] | ||
| ROU lease assets | $ 13,576,694 | $ 13,921,825 |
| Operating lease liabilities – current | 2,145,319 | 1,770,398 |
| Operating lease liabilities – non-current | 11,970,348 | 12,620,070 |
| Total operating lease liabilities | $ 14,115,667 | $ 14,390,468 |
Leases (Details) - Schedule of Weighted Average Remaining Lease Terms and Discount Rates for All of Operating Leases |
Jun. 30, 2023 |
Dec. 31, 2022 |
||
|---|---|---|---|---|
| Remaining lease term and discount rate: | ||||
| Weighted average remaining lease term (years) | 7 years 11 months 4 days | 8 years 6 months 10 days | ||
| Weighted average discount rate | [1] | 4.25% | 4.35% | |
| ||||
Leases (Details) - Schedule of Maturities of Lease Liabilities |
Jun. 30, 2023
USD ($)
|
|---|---|
| Schedule of Maturities of Lease Liabilities [Abstract] | |
| Remainder of 2023 | $ 1,234,527 |
| 2024 | 2,377,158 |
| 2025 | 2,108,601 |
| 2026 | 1,969,693 |
| 2027 | 1,973,017 |
| Thereafter | 7,303,476 |
| Total lease payments | 16,966,472 |
| Less: imputed interest | (2,850,805) |
| Present value of lease liabilities | $ 14,115,667 |
Property and Equipment, Net (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Property, Plant and Equipment [Abstract] | ||
| Depreciation expenses | $ 402,784 | $ 351,395 |
Property and Equipment, Net (Details) - Schedule of property and equipment net - USD ($) |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment | $ 8,473,560 | $ 8,589,303 |
| Less: accumulated depreciation | (2,993,748) | (2,717,528) |
| Property and equipment, net | 5,479,812 | 5,871,775 |
| Bakery production equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment | 1,622,027 | 1,618,358 |
| Automobiles [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment | 80,943 | 85,149 |
| Office equipment and furniture [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment | 653,578 | 596,579 |
| Leasehold Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment | $ 6,117,012 | $ 6,289,217 |
Prepayment for the Software, Equipment and Product Development (Details) - USD ($) |
1 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Mar. 28, 2023 |
Jun. 30, 2023 |
Apr. 07, 2023 |
Apr. 01, 2023 |
|
| Prepayment for the Software, Equipment and Product Development (Details) [Line Items] | ||||
| Prepayment amount | $ 300,000 | |||
| Remaining amount paid | 200,000 | |||
| Luo and Long [Member] | ||||
| Prepayment for the Software, Equipment and Product Development (Details) [Line Items] | ||||
| Total value | $ 750,000 | |||
| Prepayment amount | 550,000 | |||
| Paid the equipment amount | 200,000 | |||
| Wisdom [Member] | ||||
| Prepayment for the Software, Equipment and Product Development (Details) [Line Items] | ||||
| Total contract amount | $ 200,000 | |||
| NY West [Member] | ||||
| Prepayment for the Software, Equipment and Product Development (Details) [Line Items] | ||||
| Total value | $ 500,000 | |||
| Beverages, term | 1 year | |||
| Peblla [Member] | ||||
| Prepayment for the Software, Equipment and Product Development (Details) [Line Items] | ||||
| Research and development total value | $ 1,000,000 | |||
| Prepayment of software development project | $ 150,000 |
Prepayment for the Software, Equipment and Product Development (Details) - Schedule of Prepayment for the software, equipment and product development - USD ($) |
Jun. 30, 2023 |
Dec. 31, 2022 |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Prepayment for the Software, Equipment and Product Development (Details) - Schedule of Prepayment for the software, equipment and product development [Line Items] | ||||||||||
| Total prepayment for the software, equipment and product development | $ 1,200,000 | |||||||||
| Peblla Inc. (“Peblla”) [Member] | ||||||||||
| Prepayment for the Software, Equipment and Product Development (Details) - Schedule of Prepayment for the software, equipment and product development [Line Items] | ||||||||||
| Total prepayment for the software, equipment and product development | [1] | 150,000 | ||||||||
| Luo and Long General Partner (“Luo and Long”) [Member] | ||||||||||
| Prepayment for the Software, Equipment and Product Development (Details) - Schedule of Prepayment for the software, equipment and product development [Line Items] | ||||||||||
| Total prepayment for the software, equipment and product development | [2] | 550,000 | ||||||||
| Wisdom Investment Service Inc (“Wisdom”) [Member] | ||||||||||
| Prepayment for the Software, Equipment and Product Development (Details) - Schedule of Prepayment for the software, equipment and product development [Line Items] | ||||||||||
| Total prepayment for the software, equipment and product development | [3] | 200,000 | ||||||||
| NY West Acupuncture PC (“NY West”) [Member] | ||||||||||
| Prepayment for the Software, Equipment and Product Development (Details) - Schedule of Prepayment for the software, equipment and product development [Line Items] | ||||||||||
| Total prepayment for the software, equipment and product development | [4] | $ 300,000 | ||||||||
| ||||||||||
Prepayment for the Software, Equipment and Product Development (Details) - Schedule of future minimum expenditures |
Jun. 30, 2023
USD ($)
|
|---|---|
| Finite-Lived Intangible Assets [Line Items] | |
| Total development of software project | $ 850,000 |
| Second half of fiscal year 2023 [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| Total development of software project | 200,000 |
| First half of fiscal year 2024 [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| Total development of software project | 300,000 |
| Second half of fiscal year 2024 [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| Total development of software project | $ 350,000 |
Long Term Debt Investment (Details) |
1 Months Ended |
|---|---|
|
Mar. 31, 2023
USD ($)
| |
| Long Term Debt Investment [Abstract] | |
| Long term debt amount | $ 6,000,000 |
| Percentage of loan rate | 12.00% |
| Investment income | $ 171,616 |
Short-Term Bank Loans (Details) ¥ in Millions |
6 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
|
Jun. 30, 2023
USD ($)
|
Jun. 30, 2022
USD ($)
|
Dec. 23, 2022
USD ($)
|
Dec. 23, 2022
CNY (¥)
|
|
| Short-Term Bank Loans (Details) [Line Items] | ||||
| Working capital | $ 5,400,000 | $ (413,474) | ¥ 3.0 | |
| Incurred interest expense | $ 8,364 | $ 38,715 | ||
| Short-term bank loans [Member] | ||||
| Short-Term Bank Loans (Details) [Line Items] | ||||
| Interest rate, percentage | 3.95% | |||
Related Party Transactions (Details) |
Jun. 30, 2023
USD ($)
|
|---|---|
| Mr. Gang Li [Member] | |
| Related Party Transactions (Details) [Line Items] | |
| Due to a related party | $ 186,388 |
Taxes (Details) |
6 Months Ended | 12 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
|
Jun. 30, 2023
USD ($)
|
Jun. 30, 2023
CNY (¥)
|
Jun. 30, 2023
HKD ($)
|
Jun. 30, 2022
USD ($)
|
Jun. 30, 2022
CNY (¥)
|
Dec. 31, 2022
CNY (¥)
|
Dec. 31, 2023 |
Dec. 31, 2022
USD ($)
|
|
| Taxes (Details) [Line Items] | ||||||||
| Assessable profits (in Dollars) | $ 2,000,000 | |||||||
| Income tax rate | 25.00% | 25.00% | 25.00% | |||||
| Enterprise Income Tax, description | During the six months ended June 30, 2023 and 2022, Xinjiang United Family and all its three branch offices qualified as small-scaled minimal profit enterprises. Based on the EIT Law of PRC, and according to the Announcement on Implementing the Preferential Income Tax Policies for Small-Scale Minimal Profit Enterprise and Individually-Owned Businesses on April 2, 2021, the portion of their taxable income not more than RMB1 million is further reduced to 2.5% during the period from January 1, 2021 to December 31, 2022 and the portion between RMB1 million and RMB3 million remained at a reduced rate of 10%. According to the Announcement on Implementing the Preferential Income Tax Policies for Small-Scale Minimal Profit Enterprise on March 14, 2022 and March 26, 2023, the taxable income not more than RMB3 million is subject to a reduced rate of 5% during the period from January 1, 2023 to December 31, 2024. | |||||||
| Income tax fixed-rate | 1.00% | 0.50% | ||||||
| Income tax assessed rate | 0.50% | 0.50% | 0.50% | 0.50% | 0.50% | |||
| Federal income tax rate | 21.00% | 21.00% | 21.00% | |||||
| Cumulative NOL (in Dollars) | $ 2,882,465 | $ 11,907,922 | ||||||
| Allowance for deferred tax assets | 100.00% | 100.00% | 100.00% | 100.00% | ||||
| Favorable tax rate | 2.50% | 2.50% | 2.50% | 2.50% | 2.50% | |||
| Tax rates and tax exemption amount (in Dollars) | $ 0.03 | $ 261,738 | ||||||
| Tax exemption rate | 0.03% | 0.03% | ||||||
| Minimum [Member] | ||||||||
| Taxes (Details) [Line Items] | ||||||||
| Income tax assessed | ¥ | ¥ 33,000 | ¥ 25,000 | ||||||
| Maximum [Member] | ||||||||
| Taxes (Details) [Line Items] | ||||||||
| Income tax assessed | $ 180,000 | ¥ 180,000 | ¥ 180,000 | |||||
| Hong Kong [Member] | ||||||||
| Taxes (Details) [Line Items] | ||||||||
| Tax rate | 8.25% | 8.25% | 8.25% | |||||
| Assessable profits (in Dollars) | $ 2,000,000 | |||||||
| Assessable profit percentage | 16.50% | 16.50% | 16.50% | |||||
| U.S. [Member] | ||||||||
| Taxes (Details) [Line Items] | ||||||||
| Cumulative NOL (in Dollars) | $ 1,180,111 | |||||||
| UFG entities [Member] | ||||||||
| Taxes (Details) [Line Items] | ||||||||
| Income tax assessed rate | 0.50% | 0.50% | 0.50% | 0.50% | 0.50% | |||
| Total tax exemption (in Dollars) | $ 7,665 | $ 8,558 | ||||||
| Tax rates and tax exemption amount (in Dollars) | 315,790 | |||||||
| UFG entities [Member] | Minimum [Member] | ||||||||
| Taxes (Details) [Line Items] | ||||||||
| Income tax assessed | ¥ | ¥ 33,000 | ¥ 25,000 | ||||||
| UFG entities [Member] | Maximum [Member] | ||||||||
| Taxes (Details) [Line Items] | ||||||||
| Income tax assessed | ¥ | ¥ 180,000 | |||||||
| NOL [Member] | ||||||||
| Taxes (Details) [Line Items] | ||||||||
| Cumulative NOL (in Dollars) | $ 13,088,033 | |||||||
Taxes (Details) - Schedule of Components of the Income Tax Provision - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Current tax provision | ||
| Current tax provision | $ 2,880 | $ 3,698 |
| Deferred tax provision | ||
| Deferred tax provision | ||
| Income tax provisions | 2,880 | 3,698 |
| Cayman Islands [Member] | ||
| Current tax provision | ||
| Current tax provision | ||
| Deferred tax provision | ||
| Deferred tax provision | ||
| BVI [Member] | ||
| Current tax provision | ||
| Current tax provision | ||
| Deferred tax provision | ||
| Deferred tax provision | ||
| Hong Kong [Member] | ||
| Current tax provision | ||
| Current tax provision | ||
| Deferred tax provision | ||
| Deferred tax provision | ||
| PRC [Member] | ||
| Current tax provision | ||
| Current tax provision | 2,880 | 3,698 |
| Deferred tax provision | ||
| Deferred tax provision | ||
| United States [Member] | ||
| Current tax provision | ||
| Current tax provision | ||
| Deferred tax provision | ||
| Deferred tax provision | ||
| Income tax provisions | ||
Taxes (Details) - Schedule of Deferred Tax Assets Net - USD ($) |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Schedule Of Deferred Tax Assets Net [Abstract] | ||
| Net operating loss | $ 2,748,487 | $ 2,500,664 |
| Total deferred tax assets | 2,748,487 | 2,500,664 |
| Valuation allowance | (2,748,487) | (2,500,664) |
| Deferred tax assets, net |
Taxes (Details) - Schedule of Income Before Provision for Income Taxes - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Schedule of income(loss) before provision for income taxes [Line Items] | ||
| Total income before income taxes | $ 287,640 | $ 224,491 |
| Cayman Islands [Member] | ||
| Schedule of income(loss) before provision for income taxes [Line Items] | ||
| Income tax provision | 193,068 | |
| PRC [Member] | ||
| Schedule of income(loss) before provision for income taxes [Line Items] | ||
| Income tax provision | 1,274,683 | 1,061,744 |
| US [Member] | ||
| Schedule of income(loss) before provision for income taxes [Line Items] | ||
| Income tax provision | $ (1,180,111) | $ (837,253) |
Taxes (Details) - Schedule of Income Tax Provision Computed Based on PRC Statutory Income Tax Rate - USD ($) |
6 Months Ended | |||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
|||
| Schedule of Income Tax Provision Computed based on PRC Statutory Income Tax Rate [Abstract] | ||||
| Income tax expense computed based on PRC statutory rate | $ 71,910 | $ 56,123 | ||
| Favorable tax rate and tax exemption impact in PRC entities | [1] | (315,790) | (261,738) | |
| Effect of rate differential for non-PRC entities | (1,063) | 33,490 | ||
| Change in valuation allowance | 247,823 | 175,823 | ||
| Actual income tax provision | $ 2,880 | $ 3,698 | ||
| ||||
Taxes (Details) - Schedule of Taxes Payable - USD ($) |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Schedule of Taxes Payable [Abstract] | ||
| Income tax recoverable | $ (11,112) | $ (3,404) |
| Value added tax payable | 5,406 | 93,924 |
| Other taxes payable | 26,044 | 40,207 |
| Total taxes payable | $ 20,338 | $ 130,727 |
Shareholders' Equity (Details) - USD ($) |
1 Months Ended | 6 Months Ended | 12 Months Ended | |
|---|---|---|---|---|
Apr. 03, 2023 |
Apr. 03, 2023 |
Jun. 30, 2023 |
Dec. 31, 2022 |
|
| Shareholders' Equity (Details) [Line Items] | ||||
| Ordinary shares, description | The authorized number of ordinary shares was 50,000 shares with par value of $1 per share and 100 ordinary shares were issued, prior to the 1,000-for-1 forward split and the share issuances described below. The issuance of these 100 ordinary shares, and the 1,000-for-1 forward split and the share issuances are considered as a part of the Reorganization of the Company | |||
| Shareholders and board of directors, description | (i) a forward split of the Company’s ordinary shares at a ratio of 1,000-for-1 share to increase the authorized ordinary shares from 50,000 shares to 50,000,000 shares and subdivide the 100 ordinary shares of a par value of $1 then outstanding into 100,000 ordinary shares of a par value of $0.001 (the “1,000-for-1 forward split”); (ii) the creation of Class A Ordinary Shares and Class B Ordinary Shares. Holders of Class A Ordinary Shares and Class B Ordinary Shares have the same rights except for voting and conversion rights. In respect of matters requiring a vote of all shareholders, each holder of Class A Ordinary Shares will be entitled to one vote per one Class A Ordinary Share and each holder of Class B Ordinary Shares will be entitled to 10 votes per one Class B Ordinary Share. The Class A Ordinary Shares are not convertible into shares of any other class. The Class B Ordinary Shares are convertible into Class A Ordinary Shares at any time after issuance at the option of the holder on a one-to-one basis; and (iii) issuances of Class A Ordinary Shares and Class B Ordinary Shares to the existing shareholders, to increase the number of total ordinary shares issued and outstanding prior to the completion of this offering from 100,000 to 9,000,000 (the “share issuances”). The Company believes the 1,000-for-1 forward split and the share issuances should be considered as a part of the Reorganization of the Company and accounted for on a retroactive basis pursuant to ASC 260. | |||
| Public offering price per share (in Dollars per share) | $ 4 | $ 4 | ||
| Total gross proceeds (in Dollars) | $ 13,600,000 | |||
| Ordinary shares, shares authorized | 50,000,000 | 50,000,000 | ||
| Ordinary shares, par value (in Dollars per share) | $ 0.001 | $ 0.001 | ||
| Ordinary shares, shares issued | 12,390,000 | 9,000,000 | ||
| Ordinary shares, shares outstanding | 12,390,000 | 9,000,000 | ||
| After-tax net income percentage | 10.00% | |||
| Registered capital percentage | 50.00% | 50.00% | ||
| Statutory reserves (in Dollars) | $ 447,231 | $ 447,231 | ||
| Total restricted net assets amount (in Dollars) | $ 1,325,631 | $ 1,325,631 | ||
| IPO [Member] | ||||
| Shareholders' Equity (Details) [Line Items] | ||||
| Net proceeds (in Dollars) | $ 12,000,000 | |||
| Class A Ordinary Shares [Member] | ||||
| Shareholders' Equity (Details) [Line Items] | ||||
| Total gross proceeds (in Dollars) | $ 13,600,000 | |||
| Ordinary shares, shares authorized | 44,000,000 | 44,000,000 | ||
| Ordinary shares, par value (in Dollars per share) | $ 0.001 | $ 0.001 | ||
| Ordinary shares, shares issued | 6,450,000 | 3,060,000 | ||
| Ordinary shares, shares outstanding | 6,450,000 | 3,060,000 | ||
| Class A Ordinary Shares [Member] | IPO [Member] | ||||
| Shareholders' Equity (Details) [Line Items] | ||||
| Shares, issued | 3,390,000 | |||
| Class A Ordinary Shares [Member] | ||||
| Shareholders' Equity (Details) [Line Items] | ||||
| Ordinary shares, shares authorized | 6,450,000 | 6,450,000 | ||
| Ordinary shares, par value (in Dollars per share) | $ 0.001 | $ 0.001 | ||
| Ordinary shares, shares issued | 3,060,000 | 3,060,000 | ||
| Ordinary shares, shares outstanding | 3,060,000 | 3,060,000 | ||
| Class B Ordinary Shares [Member] | ||||
| Shareholders' Equity (Details) [Line Items] | ||||
| Ordinary shares, shares authorized | 6,000,000 | 6,000,000 | ||
| Ordinary shares, par value (in Dollars per share) | $ 0.001 | $ 0.001 | ||
| Ordinary shares, shares issued | 5,940,000 | 5,940,000 | ||
| Ordinary shares, shares outstanding | 5,940,000 | 5,940,000 |
Segment Reporting (Details) - Schedule of total Assets and Liabilities - USD ($) |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Total assets: | ||
| Total assets | $ 36,553,766 | $ 27,329,186 |
| Total liabilities: | ||
| Total liabilities | 24,426,976 | 26,152,137 |
| China [Member] | ||
| Total assets: | ||
| Total assets | 10,483,886 | 11,704,732 |
| Total liabilities: | ||
| Total liabilities | 12,382,470 | 12,102,414 |
| United Stated [Member] | ||
| Total assets: | ||
| Total assets | 26,069,880 | 15,624,454 |
| Total liabilities: | ||
| Total liabilities | $ 12,044,506 | $ 14,049,723 |
Condensed Financial Information of the Parent Company (Details) |
6 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Condensed Financial Information Disclosure [Abstract] | |
| Consolidated net assets percentage | 25.00% |
Condensed Financial Information of the Parent Company (Details) - Schedule of Parent Company Statements of Operations and Comprehensive Income (Loss) - Parent [Member] - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| OTHER INCOME | ||
| Interest income | $ 21,452 | |
| Income from long term debt investment | 171,616 | |
| EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES AND VIES | 91,692 | 220,793 |
| NET INCOME (LOSS) | 284,760 | 220,793 |
| FOREIGN CURRENCY TRANSLATION ADJUSTMENTS | ||
| COMPREHENSIVE INCOME (LOSS) | $ 284,760 | $ 220,793 |