The discussion and analysis which follows in this Annual Report may contain trend analysis and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to future events and financial results. These include statements regarding our future financial results, projected growth and forecasts, and similar matters which are not historical facts. We remind stockholders that forward-looking statements are merely predictions and therefore are inherently subject to uncertainties and other factors which could cause the actual future events or results to differ materially from those described in the forward-looking statements. These uncertainties and other factors include, among other things, the impact of the spread of the COVID-19 pandemic, business conditions affecting our business and general economic conditions; our ability to generate sufficient revenues to reach profitable operations; and our need to obtain additional financing. The forward-looking statements contained in this Annual Report and made elsewhere by or on our behalf should be considered in light of these factors. We currently operate our business through our subsidiaries, HSAL, SAL and Ezekiel. -10- HSAL's e-Commerce business HSAL is an e-Commerce company operating through its self-developed online application "Bibishengjia". Bibishengjia is a shopping search engine that concurrently searches many shopping sites, preliminarily based in
China, including major shopping sites such as Taobao.com, Tmall.com, JD.com and Pinduoduo.com, and helps customers meet their one-stop online shopping needs. Bibishengjia also runs its own online shopping platforms - Bibi Malland Lianlian Nongyuan Agricultural Products Store. Bibishengjia was launched on August 18, 2019and is currently available for download at the Apple APP Storeand other major mobile download stores. In addition to our own marketing and promotional efforts and Pretech's sales support, in the third quarter of 2020, we started to promote the Bibishengjia APP through "Momo" by using live streaming. We believe the mobile streaming media will accelerate our growth in the future.
Ezekiel Petroleum Products Distribution Company
October 2020, Ezekiel entered into the business of distribution of petroleum based products, such as asphalt, heat conduction oil and machine (lubricating) oil. Ezekiel's suppliers include large Chinese state-owned enterprises as well as reputable private Chinese companies. Ezekiel doesn't take possession of the petroleum based products which are stored in the supplier's designated warehouse and is not responsible for delivery to the customers.
Ezekiel’s Multi-Function Lottery Ticket Machine Company
In late 2020, Ezekiel started a new business where it purchases custom-made multi-function lottery ticket machines and re-sells them to third parties. The machines are designed and manufactured by third parties with third party technologies. Ezekiel doesn't own any intellectual property rights relating to the machines. Besides dispensing lottery tickets for which the machine owner retains 7-8% of the ticket sales price, the machines also function as a cellphone charging station for about
$0.45per hour and a disinfectant wipes dispenser at cost. No sales were recorded in 2021.
Critical accounting policies
Our financial statements have been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The policies discussed below are considered by management to be critical to an understanding of our financial statements because their application places the most significant demands on management's judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. -11- Revenue Recognition. We adopted Accounting Standard Codification ("ASC") Topic 606, Revenues from Contract with Customers ("ASC 606") for all periods presented. Under ASC 606, revenue is recognized when control of the promised goods and services is transferred to the Company's customers, in an amount that reflects the consideration that we expect to be entitled to in exchange for those goods and services, net of value-added tax. We determine revenue recognition through
the following steps:
? Identify the contract with a customer;
? Identify performance obligations in the contract;
? Determine the price of the transaction;
? Attribute the transaction price to the performance obligations of the contract;
? Recognize revenue when (or as) the entity satisfies a performance obligation.
The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied by the control of the promised goods and services is transferred to the customers, which at a point in time or over time as appropriate. Our revenues are net of value added tax ("VAT") collected on behalf of PRC tax authorities in respect to the sales of merchandise. VAT collected from customers, net of VAT paid for purchases, is recorded as a liability in the accompanying consolidated balance sheets until it is paid to the relevant PRC tax authorities Ezekiel's petroleum-based product distribution business generates revenue from its sales. Ezekiel's multi-function lottery ticket machine business generates revenue from the sale of machines to third parties and from its retention of a percentage of all lottery ticket sales made by the machines.
Cost of sales. Cost of sales includes the cost of direct labour, goods and materials.
Selling fees. Selling expenses include advertising, depreciation and certain expenses associated with the operation of the Company’s head office.
General and administrative expenses. General and administrative expenses include rent, salaries, business registration fees, telephone and utilities costs, and office miscellaneous expenses. Accounts Receivable. We don't have any accounts receivable in this period. For our e-commence segment, our customers are required to pay while placing their orders per our policy, and therefore we don't record any accounts receivable. The payment under the Pretech Agreement was paid in full upon signing. Lump sum payments are required to be made for our petroleum based products and our multi-function lottery machines per our sales policy, and therefore we don't incur any material accounts receivable. Plant and equipment. Plant and equipment are stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to physical properties are capitalized. Depreciation of plant and equipment is provided using the straight-line method over their estimated useful lives at the following annual rates. -12-
Income Taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. 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 that includes the enactment date.
Recent accounting statements
Our company considers the applicability and impact of all Accounting Standard Updates ("ASUs"). ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on our balance sheets or statements of operations. In
June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments. The amendments in this Update require a new topic to be added (Topic 326) to the Accounting Standards Codification ("ASC") and removes the thresholds that entities apply to measure credit losses on financial instruments measured at amortized cost, such as loans, trade receivables, reinsurance recoverables and off-balance-sheet credit exposures, and held-to-maturity securities. Under current U.S.GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred. The guidance under ASU 2016-13 will remove all current recognition thresholds and will require entities under the new current expected credit loss ("CECL") model to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that an entity expects to collect over the instrument's contractual life. The new CECL model is based upon expected losses rather than incurred losses. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently evaluating the effect that this new guidance will have on our financial statements and related disclosures. Recent Developments The COVID-19 outbreak has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, layoffs, defaults and other significant economic impacts, as well as general concern and uncertainty. The current severity of the pandemic and the uncertainty regarding the length of its effects could have negative consequences for our company.
Most of our administrative functions are being performed remotely. A small crew maintains each of our three offices for those functions that cannot be handled remotely. Our ability to collect money, pay bills, handle customer and consumer communications, schedule production, and order ingredients necessary for our production has not been impacted. To date, the pandemic has had minimal impact on our sales. The majority of our sales are made online. We experienced a slight decline in sales at the beginning of the imposition of restrictions to mitigate the spread of COVID-19. To date we have not experienced a significant change in the timeliness of payments of our invoices and our cash position, remains stable with approximately
$1,932,693of cash and cash equivalents as of December 31, 2021. Segment Reporting In 2021 and 2020, we were engaged in two business segments, (i) the e-commerce business, consisting of HSAL and SAL's e-commerce operations and (ii) Ezekiel's sales of petroleum based products and multi-function lottery machines. Gross Revenue Percentage E-commerce segment $ 915,550.001.2 % Sales segment $ 77,569,749.0098.8 % Consolidated total $ 78,485,299.00100 % -13- Result of Operations
The following table presents a summary of our consolidated statements of earnings for the periods indicated.
Full year Ended Variance December 31, December 31, 2021 2020 Amount % Net sales
$ 78,485,299 $ 4,508,70373,976,596 1,641 % Cost of revenues (76,906,929 ) (4,266,850 ) (72,640,079 ) 1,702 % Gross profit 1,578,370 241,853 1,336,517 553 % General and administrative and other operating expenses (1,407,566 ) (676,983
) (730,583 ) 108%
Income (loss) from operations 170,804 (435,130
) 605,934 -139%
Other non-operating income 9,262 228,251
(218,989 ) -96 % Other expenses (7,752 ) (156,575 ) 148,824 -95 % Interest income 2 5 (3 ) -60 % Interest expenses (156,350 ) (23,378 ) (132,972 ) 569 %
Income (loss) before income taxes 15,967 (386,827
) 402,794 -104 % Income taxes - - - - Net income (loss) 15,967 (386,827 ) 402,794 -104 % Net revenue for the year ended
December 31, 2021was $78,485,299, an increase of $73,976,596, or 1,641%, from net revenue of $4,508,703for the year ended December 31, 2020. The increase is primarily attributable to an increase in revenues from the operations of Ezekiel that entered the business of selling petroleum-based products and the sales of multi-function lottery ticket machines in 2021. In 2021, Ezekiel recorded net revenues of $ $77,5697,49from the sale of petroleum-based products and revenues of $ 0from the sale of multi-function lottery tickets machines compared to revenue of $3,929,716from petroleum-based product, $44,416from lottery ticket machines and design. E-commerce generated revenues of $915,550in the year ended December 31, 2021compared to revenues of $277,099in the year ended December 31, 2020. Our cost of revenues increased to $76,906,929for the year ended December 31, 2021, an increase of $72,640,079, or 1,702%, from $4,266,850for the year ended December 31, 2020. The increased costs are primarily attributable to Ezekiel's sales of petroleum based products. In 2021, Ezekiel had cost of revenues of $76,782,221and the e-Commerce segment's cost of revenues were $124,709. Our gross profit increased by $1,336,517, or 553%, to $1,578,370in the year ended December 31, 2021from $241,853in the year ended December 31, 2020. Our gross profit percentage was 2.01% in the year ended December 31, 2021compared to 5.36% in the year ended December 31, 2020. In 2020, we started the business of selling petroleum-based products and the lottery machines. which have high costs of goods . Ezekiel's gross profit was $787,528in 2021 compared to $197,289in the year ended December 31, 2020and the e-Commerce segment's gross profit was $790,841in 2021 compared to $44,564in the year ended December
31, 2020. -14- Selling, general and administrative expenses increased by
$730,593, or 108%, to $1,407,566in the year ended December 31, 2021, from $676,983in the year ended December 31, 2020. The increase is mainly attributable to increased rent expenses and increased employee salaries. We had income from operations of $170,804for the year ended December 31, 2021compared to a loss from operations of $435,130for the year ended December
We had a non-operating income of
compared to the non-operating result of
We have not paid any taxes in the past two years
As a result of the above, we had a net profit of
Cash and capital resources
December 31, 2021, we had $1,932,693in cash and cash equivalents and a working capital deficit of $982,679compared with $932,102in cash and cash equivalents and a working capital deficit of $595,800at December 31, 2020. Our accumulated deficit at December 31, 2021was $2,790,808. To date the Company has funded its operations by advances from related parties which are interest free, unsecured, and have no fixed repayment terms and in 2021 from cash provided from operations including the prepayment made under the Pretech Agreement. As of December 31, 2021and December 31, 2020, the Company had received net advances of $1,348,102and $1,157,601from shareholders and related parties for operating expenses. These advances bear no interest, no collateral and have no repayment term. On December 31, 2021, Ezekiel entered into a loan agreement with Mr. Jianjun Du, a Chinese resident, whereby Ezekiel borrowed RMB 10 millionfrom Mr. Dufor operating purposes. The initial term of the loan is from December 14, 2021to May 13, 2022during which time there is no interest. The term of the loan may be extended upon the parties' mutual agreement. After the initial term, the loan will bear an annual interest of 10%. Management has continued to support the Company's operations and the Company has relied on its officers and directors to perform essential functions with minimal compensation. If the Company is unable to raise the funds it requires from third parties it will have to find alternative sources, such as loans from our officers and directors. As of December 31, 2021and December 31, 2020, the Company reported related party receivables in the aggregate amount of $414,395and $779,768, respectively, due from Hunan Zhong Zong Hong Fu Culture Industry Company Limited("Hong Fu") and Hunan Zhong Zong Lianlian Information Technology Limited Company("Lianlian"), respectively. 100% of equity interests of Hong Fu and Lianlian are owned by Wei Liangand Wei Zhu, the two majority shareholders of the Company. The amount due from Hong Fu, which is a loan in the principal amount of RMB 600,000(approximately $88,203) for a two-year term beginning on July 1, 2019and free of interest. The amount due from Lianlian in 2021, which is a loan with the principal amount of RMB 4,500,000(approximately $ 689,675) for a two-year term beginning on January 1, 2020and free of interest. The $13,018due from Lianlian, is free of interests and due on demand. All of these loans were made in the ordinary course of business.
Management has actively taken steps to monitor its operational and financial needs and believes that its current and available capital resources will enable the Company to continue its operations throughout this fiscal year.
The following table summarizes our cash flows for the periods presented:
Full year Full year Ended Ended December 31, December 31, 2021 2020 Net cash provided by (used for) operating activities
$ (1,129,288 ) $ 243,113Net cash used for investing activities (28,323 ) (152,724 ) Net cash provided by (used for) financing activities 2,128,505 (44,306 ) Net increase (decrease) in cash and cash equivalents $ 970,894 $ 46,083Net cash used for operating activities during the year ended December 31, 2021was $1,129,288, primarily attributable to our increase level of activity in 2021 and net income of $408,409, compared to net cash provided by operating activities of $243,113in 2020, attributable to Pretech contract asset. Net cash used for investing activities during the year ended December 31, 2021, was $28,323compared to net cash used by investing activities of $152,724in 2020. The cash used for investing activities relate to the purchase of fixed assets, consisting of furniture and lottery machines in 2021. Net cash provided by financing activities was $2,128,505for the year ended December 31, 2021compared to net cash used by financing activities of $44,306in 2020. This change was primarily due to proceeds of $1,572,631from short term loan and advances of $412,568from related parties and repayment of loans from related parties. We believe our existing cash and cash equivalents on hand at December 31, 2021and the cash flows expected from operations, will be sufficient to support our operating and capital requirements during the next twelve months. Inflation and Seasonality
We do not believe that our operating results have been materially affected by inflation during the preceding two years. There can be no assurance, however, that our operating results will not be affected by inflation in the future. Our business is subject to minimal seasonal variations.
Off-balance sheet arrangements
The Company had no off-balance sheet arrangements at
© Edgar Online, source