NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Organization and Business
Jialijia Group Corporation Limited (the “Company”),
formerly known as Rizzen, Inc., was incorporated as a corporation under the laws of the State of Nevada on October 21, 2015.
On July 10, 2019, the Company entered into a share
purchase/exchange agreement (the “Exchange Agreement”) with Jialijia Zhongtai Chunfeng Group Co., Limited (“Jialijia
Zhongtai Chunfeng”, formerly Huazhongyun Group Co., Limited), a company incorporated under the laws of Hong Kong, and Na Jin, the
sole shareholder of Jialijia Zhongtai Chunfeng (the “Shareholder”) and the Chief Executive Officer of the Company. Jialijia
Zhongtai Chunfeng owned 300,000 shares (the “Company Shares”) of the Company, which represented approximately 82% of the shares
of the Company’s common stock, issued and outstanding, at the time of execution of the Exchange Agreement. The Shareholder owned
an aggregate of 10,000 ordinary shares of Jialijia Zhongtai Chunfeng (“Jialijia Zhongtai Chunfeng Shares”), which constituted
all of the issued and outstanding shares of Jialijia Zhongtai Chunfeng.
Pursuant to the Exchange Agreement, among other
matters, the Shareholder sold and transferred the Jialijia Zhongtai Chunfeng Shares in exchange for all of the Company Shares. As a result,
the Shareholder directly owned the Company Shares, which represented approximately 82% of the issued and outstanding shares of the Company’s
common stock at the time of execution of the Exchange Agreement and Jialijia Zhongtai Chunfeng became a wholly-owned subsidiary of the
Company.
Dajiwanqi Holding (Changzhou) Co., Ltd. (“Dajiwanqi
(Changzhou)”, formerly Jialijia Jixiang Investment (Changzhou) Co., Ltd.) is a company incorporated under the laws of the People’s
Republic of China (the “PRC”) on June 13, 2017. Jialijia Zhongtai Chunfeng owned all of the equity interests in Dajiwanqi
(Changzhou) (“WFOE”), a wholly-foreign owned entity formed under the laws of PRC. Rucheng Wenchuan Gas Co., Ltd. (“Rucheng
Wenchuan”) was incorporated under the laws of the PRC on March 30, 2006.
On January 7, 2019, Dajiwanqi (Changzhou) entered
into an equity transfer agreement (the “Equity Transfer”) with Mr. Jiannan Wu, the shareholder who owned 94.77% of Rucheng
Wenchuan’s outstanding shares. Pursuant to the Equity Transfer, Mr. Jiannan Wu agreed to transfer 70% of his ownership of Rucheng
Wenchuan to Dajiwanqi (Changzhou), in exchange of RMB 1,000,000 and 143,000 common shares of the Company owned by Jialijia Zhongtai Chunfeng.
Immediately after the equity transfer agreement, Dajiwanqi (Changzhou) owns 70% of the ownership and becomes the controlling shareholder
of Rucheng Wenchuan. Both Jialijia Zhongtai Chunfeng and Dajiwanqi (Changzhou) are holding companies and have not carried out substantive
business operations of their own. Rucheng Wenchuan is primarily engaged in the production and sale of gases for industrial and medical
purposes, such as oxygen and nitrogen, in the PRC.
Pursuant to the Exchange Agreement, on August
29, 2019 (the “Closing Date”), Na Jin sold and transferred the Jialijia Zhongtai Chunfeng Shares to the Company in exchange
for all of the Company Shares and the Company received all of the outstanding Jialijia Zhongtai Chunfeng Shares. As a result, on the Closing
Date, Na Jin directly owned Company Shares representing approximately 48% of the issued and outstanding shares of the Company’s
common stock, Jialijia Zhongtai Chunfeng became a wholly-owned subsidiary of the Company and the Company owned 70% of the outstanding
equity interest in Rucheng Wenchuan through Jialijia Zhongtai Chunfeng and WFOE.
The acquisition of Jialijia Zhongtai Chunfeng
and WFOE was treated as a reverse merger (the “Reverse Merger”) for accounting purposes. As a result of the consummation of
the Reverse Merger on August 29, 2019, the Company, through its subsidiaries, entered into the business of producing and selling gases
for industrial and medical purposes, such as oxygen and nitrogen, in the PRC. The Company has not commenced its gas production or generated
any revenues.
On August 7, 2020, Jialijia Jixiang Investment
(Changzhou) Co., Ltd. changed its name to Dajiwanqi Holding (Changzhou) Co., Ltd.
On August 28, 2020, Huazhongyun Group Co., Limited
changed its name to Calico Darji Group Holdings Co., Limited and then to Jialijia Zhongtai Chunfeng Group Co., Limited on June 1, 2021.
On December 26, 2020, Jialijia Zhongtai Chunfeng
entered into a share exchange agreement with Shenzhen Lintai Biotechnology Co., Limited (“Shenzhen Lintai”), a company incorporated
under the laws of PRC; pursuant to which Jialijia Zhongtai Chunfeng agreed to exchange 26% of the Company’s common stock held by
Jialijia Zhongtai Chunfeng for 100% of the equity interest of Shenzhen Lintai. As of June 30, 2021, this share exchange agreement has
not been closed due to the required governmental procedures and documents necessary to consider the share exchange completed have not
been completed and obtained by the Company.
On March 5, 2021, Jialijia Zhongtai Chunfeng formed
a wholly-owned subsidiary, Zhongtai Chunfeng Wanqi (Chengdu) Industrial Group Co., Limited, under the laws of the PRC.
Note 2. Basis of Presentation
The accompanying unaudited interim consolidated
financial statements and information have been prepared in accordance with accounting principles generally accepted in the United States
and in accordance with the SEC’s regulations for interim financial information and with the instructions for Form 10-Q. Accordingly,
they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for
complete financial statements. In the opinion of management, these financial statements contain all normal and recurring adjustments considered
necessary to present fairly the Company’s financial position, results of operations, comprehensive income, cash flows, and stockholders’
equity for the periods presented. The results for the three and six months ended June 30, 2021 are not necessarily indicative of the results
to be expected for the full year.
These unaudited interim consolidated financial
statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report
on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission.
Note 3. Going Concern
These consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the
normal course of business. As reflected in the Company’s accompanying consolidated financial statements, for the six months ended
June 30, 2021, the Company had a net loss of $79,647. Additionally, the Company had an accumulated deficit of $4,952,940 and working capital
deficit of $3,441,691 as of June 30, 2021, and has not yet generated revenues. The ability of the Company to continue as a going concern
is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. The Company can give no assurances
that any additional capital that it is able to obtain, if any, will be sufficient to meet its needs.
If the Company is unable to successfully commence
its business operations in a short period of time, or unable to raise additional capital or secure additional lending, the Company may
need to curtail or cease its operations. The Company believes that these matters raise substantial doubt about the Company’s ability
to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to
continue as a going concern.
In order to continue as a going concern, the Company
will need, among other things, additional capital resources. Management plans to obtain such resources for the Company include obtaining
capital from the sale of its equity, and short-term and long-term borrowings from banks, stockholders or other related party(ies). However,
management cannot provide any assurance that the Company will be successful in accomplishing any of its plans.
Note 4. Summary of Significant Accounting Policies
Basis of Accounting
The financial statements and accompanying notes
are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Principles of consolidation
The consolidated financial statements include
the financial statements of Jialijia Group Corporation Limited, Jialijia Zhongtai Chunfeng, Dajiwanqi (Changzhou) and its 70% owned subsidiary,
Rucheng Wenchuan Gas Co., Ltd., and Zhongtai Chunfeng Wanqi (Chengdu), All inter-company transactions and balances are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information
available at the time the estimates are made. However, actual results could differ materially from those results.
Cash and Cash Equivalents
The Company considers all cash on hand and in
banks, certificates of deposit with banks and other highly-liquid investments with maturities of three months or less, when purchased,
to be cash and cash equivalents. There is no insurance securing these deposits in the PRC. The Company has not experienced any losses
in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.
Property and Equipment
Property and equipment are recorded at cost less
accumulated depreciation. Gains or losses on disposals are reflected as gain or loss in the period of disposal. All ordinary repair and
maintenance costs are expensed as incurred.
Depreciation for financial reporting purposes
is provided using the straight-line method over the estimated useful lives of the assets:
|
|
Estimated
Useful
Life
|
Buildings
|
|
20 years
|
Machinery and equipment
|
|
10 years
|
Office equipment
|
|
5 years
|
Vehicles
|
|
5 years
|
Costs incurred in constructing new facilities,
including progress payments and other costs related to construction, are capitalized and transferred to property, plant and equipment
on completion, at which time depreciation commences.
Impairment of Long-lived Assets
The Company evaluates long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated
undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an
impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.
Assets are grouped and evaluated at the lowest
level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers
historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of
the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds
estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the
asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows as the rate the
Company utilizes to evaluate potential investments. The Company estimates fair value based on the information available, judgments and
projections are considered necessary. No impairment loss was recorded for the three and six months ended June 30, 2021 and 2020, respectively.
Impairment of Goodwill
Goodwill represents the excess of the purchase
price over the fair value of net assets acquired in business combinations under the purchase method of accounting. Goodwill is assessed
for impairment annually or if an event occurs or circumstances change that would indicate the carrying amount may be impaired. The impairment
to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. No impairment
of goodwill was recorded for the three and six months ended June 30, 2021 and 2020, respectively.
Income Taxes
The Company accounts for income taxes using an
asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization
of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before
the Company is able to realize their benefits, or that future deductibility is uncertain.
Under ASC 740, a 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, with a tax examination
being presumed to occur. The evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not
that a tax position will be sustained upon examination, including the resolution of any related appeals or litigations based on the technical
merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount
of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than
50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition
threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that
no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the
threshold is no longer met. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense
in the year incurred.
Foreign Currency Translation
The Company uses the United States dollar (“U.S.
dollars”) for financial reporting purposes. The functional currency of the Company and its subsidiaries is the Chinese Yuan or Renminbi
(“RMB”). The Company’s subsidiaries maintain their books and records in their functional currency, being the primary
currency of the economic environment in which their operations are conducted. For the Company and its subsidiaries whose functional currencies
are other than the U.S. dollar, all asset and liability accounts were translated at the exchange rate on the balance sheet date; stockholders’
equity is translated at the historical rates and items in the income statement and cash flow statements are translated at the average
rate in each applicable period. Translation adjustments resulting from this process are included in accumulated other comprehensive income
in the statement of shareholders’ equity. The resulting translation gains and losses that arise from exchange rate fluctuations
on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
Fair Values of Financial Instruments
ASC 820 defines fair value as the exchange price
that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value
hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 – quoted prices in active markets
for identical assets or liabilities.
Level 2 – quoted prices for similar assets
and liabilities in active markets or inputs that are observable
Level 3 – inputs that are unobservable
The Company’s financial instruments primarily
consist of cash and cash equivalents, other receivables, advances to suppliers, accrued expenses, other payables, and related party borrowings.
As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying
values as presented on the balance sheets. This is attributed to the short maturities of the instruments and that interest rates on the
borrowings approximate those that would have been available for loans of similar remaining maturity and risk profile at respective balance
sheet dates.
Recent Accounting Pronouncements
Management has considered all recent accounting
pronouncements issued and their potential effect on the consolidated financial statements. The Company’s management believes that
these recent pronouncements will not have a material effect on its consolidated financial statements.
Note 5. Property, Plant, and Equipment, Net
Property, plant, and equipment consisted of the
following:
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
$
|
1,707,635
|
|
|
$
|
1,689,734
|
|
Buildings
|
|
|
33,958
|
|
|
|
33,602
|
|
|
|
|
1,741,593
|
|
|
|
1,723,336
|
|
Less: Accumulated depreciation
|
|
|
(1,267,930
|
)
|
|
|
(1,254,639
|
)
|
Less: Accumulated impairment
|
|
|
(473,663
|
)
|
|
|
(468,697
|
)
|
Property, plant, and equipment, net
|
|
$
|
-
|
|
|
$
|
-
|
|
Depreciation expense for the three months ended
June 30, 2021 and 2020 were $0 and $0, respectively.
Depreciation expense for the six months ended
June 30, 2021 and 2020 were $0 and $0, respectively.
Note 6. Accrued Expenses
Accrued expenses consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Accrued local taxes
|
|
$
|
60,698
|
|
|
$
|
54,248
|
|
Accrued professional fees
|
|
|
62,171
|
|
|
|
54,471
|
|
Payroll and others
|
|
|
6,846
|
|
|
|
184
|
|
|
|
$
|
129,715
|
|
|
$
|
108,903
|
|
Note 7. Income Tax
United States
The Company was incorporated in the United States
of America and is subject to United States federal taxation. No provisions for income taxes have been made, as there was no taxable income
from U.S. operations for the three and six months ended June 30, 2021 and 2020. The U.S. Tax Cuts and Jobs Act (the “Act”)
was enacted on December 22, 2017. Effective in 2018, the Tax Act reduces the U.S. statutory tax rate from 35% to 21%.
PRC
The PRC Enterprise Income Tax Law, EIT Law, and
Implementing Rules impose a unified enterprise income tax rate of 25% on all domestic-invested enterprises and foreign investment enterprises
in PRC, unless they qualify under certain limited exceptions. As such, the Company’s subsidiaries in PRC are subject to an enterprise
income tax rate of 25%. The Company had recorded no income tax provisions for the six months ended June 30, 2021 and 2020.
Provision for income tax expense (benefit) consists
of the following:
|
|
For the Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Current
|
|
|
|
|
|
|
USA
|
|
$
|
-
|
|
|
$
|
-
|
|
China
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
|
|
|
|
|
|
USA
|
|
|
-
|
|
|
|
-
|
|
China
|
|
|
-
|
|
|
|
-
|
|
Total provision for income tax expense (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
The following is a reconciliation of the statutory
tax rate to the effective tax rate:
|
|
For the Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
U.S. statutory tax benefit
|
|
|
(21.0
|
)%
|
|
|
(21.0
|
)%
|
Change in deferred tax asset valuation allowance
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
PRC statutory tax benefit
|
|
|
(25.0
|
)%
|
|
|
(25.0
|
)%
|
Change in deferred tax asset valuation allowance
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
Effective income tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
The Company periodically evaluates the likelihood
of the realization of deferred tax assets, and adjusts the carrying amount of the deferred tax assets by the valuation allowance to the
extent that the future realization of the deferred tax assets is not judged to be more likely than not. The Company considers many factors
when assessing the likelihood of future realization of its deferred tax assets, including its recent cumulative earnings experience by
taxing jurisdiction, expectations of future taxable income or loss, the carryforward periods available to the Company for tax reporting
purposes, and other relevant factors.
As of June 30, 2021 and December 31, 2020, based
on the weight of available evidence, including cumulative losses in recent years and expectations of future taxable income, the Company
determined that it was more likely than not that its deferred tax assets would not be realized and have a 100% valuation allowance associated
with its deferred tax assets.
Note 8. Related Party Transactions and Balances
The related parties of the company with whom transactions
are reported in these consolidated financial statements are as follows:
Name of entity or Individual
|
|
Relationship with the Company
|
Shenzhen Wenchuan Gas Co., Ltd.
|
|
Mr. Jiannan Wu is the legal representative and president of this entity
|
Rucheng County Minhang Special Gas Co., Ltd
|
|
Mr. Jiannan Wu is the legal representative and president of this entity
|
Jiannan Wu
|
|
Major shareholder of Rucheng Wenchuan
|
Dongzhi Zhang
|
|
Chairman of the Board
|
Na Jin
|
|
Shareholder, director, Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”)
|
Due to related parties:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Shenzhen Wenchuan Gas Co., Ltd.
|
|
$
|
2,638,198
|
|
|
$
|
2,610,542
|
|
Dongzhi Zhang
|
|
|
569,094
|
|
|
|
433,034
|
|
Rucheng County Minhang Special Gas Co., Ltd.
|
|
|
53,701
|
|
|
|
53,138
|
|
Na Jin
|
|
|
122,759
|
|
|
|
121,892
|
|
Jiannan Wu
|
|
|
17,347
|
|
|
|
17,165
|
|
|
|
$
|
3,401,099
|
|
|
$
|
3,235,771
|
|
Due to related parties were advances from its
related parties for the Company’s purchase of equipment and daily operating expenses. The balances are unsecured, non-interest bearing,
and payable on demand.
Note 9. Equity
The Company has authorized 1,000,000,000 shares
of Common Stock at par value of $0.001.
On May 28, 2020, by unanimous written consent
in lieu of a meeting, the Board adopted resolutions authorizing a one (1)-for-twenty (20) reverse stock split and on June 24, 2020 filed
Articles of Amendment to effect the reverse stock split with the Secretary of State of the State of Nevada. The reverse stock split becomes
effective on June 19, 2020. All share and earnings per share information has been retroactively adjusted to reflect the reverse stock
split.
On June 30, 2020, the Company entered into stock
subscription agreements with 7 individuals, pursuant to which the Company agreed to issue an aggregate of 12,409 shares of the Company’s
common stock for the purchase price of $0.6 per share. These shares were issued on June 30, 2020.
As of June 30, 2021, Jialijia Zhongtai Chunfeng
owned 300,000 shares of the Company. These shares have been reclassified and recorded as treasury stock at the cost of $0.4 per share,
as a result of the Reverse Merger.
In April and May 2021, the Company entered into
stock subscription agreements with 200 individuals, pursuant to which the Company agreed to issue an aggregate of 2,278,373 shares of
the Company’s common stock for the purchase price of $0.04 per share. In addition, the Company entered into stock subscription agreements
with 10 individuals, pursuant to which the Company agreed to issue an aggregate of 1,932,706 shares of the Company’s common stock
for the purchase price of $0.03 per share, of which 1,847,656 shares were subscribed by Dongzhi Zhang, the Company’s Chairman of
the Board. All of these shares were issued in July 2021 (see Note 10).
Note 10. Subsequent Events
In July 2021, the Company issued 4,211,079 shares
to 210 individual subscribers for $149,116, of which 1,847,656 shares were issued to Dongzhi Zhang, the Company’s Chairman of the
Board, for $55,430 (see Note 9).
The Company has evaluated subsequent events through
the date which the consolidated financial statements were available to be issued and determined that no subsequent events require disclosure
in accordance with FASB ASC Topic 855, “Subsequent Events.”