| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis
of presentation The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (“US GAAP”). Basis
of consolidation The
consolidated financial statements include the financial statements of the Company and its subsidiaries. All subsidiaries are wholly-owned.
All significant intercompany transactions and balances have been eliminated upon consolidation. The
consolidated financial statements have been prepared on a historical cost basis, except for financial assets and financial liabilities
which have been measured at fair value. The consolidated financial statements are presented in United States dollars (“USD”). Use
of estimates The
preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the reporting periods presented. Significant accounting
estimates reflected in the Company’s consolidated financial statements include the useful lives and residual value of property
and equipment. Actual results could differ from those estimates. Foreign
currency translation The
Company’s reporting currency is the USD. The functional currency of its Hong Kong subsidiaries is the Hong Kong dollar (the “HKD”),
and the functional currency of its PRC subsidiary is the Renminbi (the “RMB”). Results of operations and cash flows are translated
at the average exchange rates during the period, and assets and liabilities are translated at the exchange rate at the end of the period.
Capital accounts are translated at their historical exchange rates when the capital transaction occurred. Translation adjustments resulting
from this process are included in accumulated other comprehensive gain (loss). Transaction 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. Translation
of amounts from HKD into USD has been made at the following exchange rates: SCHEDULE
OF EXCHANGE RATE USED FOR FOREIGN CURRENCY TRANSLATION
Balance sheet items, except for equity accounts:
December 31, 2023 HKD 7.81 1
December 31, 2022 HKD 7.80 1
December 31, 2021 HKD 7.80 1
Statement of operations and cash flow items:
For the year ended December 31, 2023 HKD 7.83 1
For the year ended December 31, 2022 HKD 7.76 1
For the year ended December 31, 2021 HKD 7.76 1 Translation
of amounts from RMB into USD has been made at the following exchange rates:
Balance sheet items, except for equity accounts:
December 31, 2023 RMB 7.08 1
December 31, 2022 RMB 6.96 1
December 31, 2021 RMB 6.38 1
Statement of operations and cash flow items:
For the year ended December 31, 2023 RMB 7.05 1
For the year ended December 31, 2022 RMB 6.7 3 1
For the year ended December 31, 2021 RMB 6.45 1 Cash
and cash equivalents Cash
and cash equivalents comprise cash on hand and at banks, which are not restricted as to use; and highly liquid investments that are readily
convertible into known amounts of cash, which have a short maturity of generally within three months when acquired. As of December 31,
2023 and 2022, the Company did not have any cash equivalents. The Company maintains bank accounts in the PRC and Hong Kong. Expected
credit losses On
January 1, 2023, the Company adopted ASC 326, Credit Losses (“ASC 326”), which replaced previously issued guidance regarding
the impairment of financial instruments with an expected loss methodology that will result in more timely recognition of credit losses.
The Company used a modified retrospective approach and did not restate the comparable prior periods. The adoption did not have a material
impact on the Company’s consolidated financial statement. In accordance with ASC 326, the Company maintains an allowance for credit losses in accordance with ASC 326 and records the allowance for credit
losses, if warranted, as an offset to assets such as accounts receivable, and the estimated credit losses charged to the allowance are classified
as general and administrative expenses in the consolidated statements of operations and comprehensive loss. The Company assesses
collectability by reviewing receivables on a collective basis where similar characteristics exist, primarily based on the size and nature
of specific customers’ receivables. In determining the amount of the allowance for credit losses, the Company considers historical
collectability based on past due status, the age of the receivable balances, credit quality of the Company’s customers based on
ongoing credit evaluations, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other
factors that may affect the Company’s ability to collect from customers. Bad debts are written off as incurred. Inventories Inventories
consist of raw materials, work-in-progress and finished goods. They are stated at the lower of cost or net realizable value, as determined
using the weighted average cost method. Management compares the cost of inventories with the related net realizable value and will set
up an allowance to write down the cost of inventories to its net realizable value, if it is lower than cost. As of December 31, 2023
and 2022, the Company determined that no Other
receivables Other
receivables primarily include receivables from employees related to social security benefits and VAT receivable. Management reviews the
composition of other receivables and determines if an allowance for doubtful accounts is needed. A provision for doubtful accounts is
made when collection of the full amount is no longer probable. As of December 31, 2023 and 2022, the Company determined that no Prepayments
and deposits Prepayments
consisted mainly of prepaid marketing research expenses, prepaid manufacture expenses, prepaid research and development expenses, prepaid
taxes, prepaid insurance, and prepaid software license. As of December 31, 2023 and 2022, prepaid marketing research expenses amounted
to $ 755,355 nil 399,442 nil 299,581 nil no t
impaired. Property
and equipment Property
and equipment are stated at cost net of accumulated depreciation, amortization and impairment, if necessary. Depreciation and amortization
are provided over the estimated useful lives of the assets using the straight-line method from the time the assets are placed in service.
Estimated useful lives are as follows: SCHEDULE OF USEFUL LIVES OF PROPERTY AND EQUIPMENT
Category Estimated useful life
Office equipment 5 10
Production equipment 5 10
Motor vehicles 5
Leasehold improvements Over the shorter of remaining lease term or the estimated useful lives of the assets Repairs
and maintenance are charged to expense as incurred, whereas the costs of betterments that extend the useful life of property and equipment
are capitalized as additions to the related assets. The cost and related accumulated depreciation and amortization of assets sold or
otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated statements of operations and
comprehensive loss. Revenue
recognition The
Company follows FASB ASC 606, Revenue from Contracts with Customers in accounting for its revenues. The core principle of the revenue
standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps
are applied to achieve that core principle: Step
1: Identify the contract with the customer Step
2: Identify the performance obligations in the contract Step
3: Determine the transaction price Step
4: Allocate the transaction price to the performance obligations in the contract Step
5: Recognize the allocated revenue when the company satisfies a performance obligation The
Company derives substantially all of its revenue from product sales, specifically sale of door locksets, locksets and related hardware
to customers. Revenue from product sales is recognized when control passes to the customer, which generally occurs at a point in time
when products are delivered FOB (freight on board). Revenue is recorded net of tariffs, VAT and discounts. Cost
of goods sold Cost
of goods sold consists primarily of the cost of raw materials (mainly brass, stainless steel, iron and zinc alloy), direct and indirect
labor and related benefits, and manufacturing overhead that is directly attributable to the production process, and related production
costs from molding of raw materials to production of door locksets such as handles, panels and spindles, product assembly, quality control
and packaging and shipping. Write-down of inventory, export tax rebates, if any, are also recorded in cost of goods sold. For the years
ended December 31, 2023 and 2022, the Company received export tax rebates of approximately RMB 2,906,000 412,000 6,628,000 985,000 Cost
of goods sold – idle capacity Idle
capacity consists of direct production costs in excess of charges allocated to the Company’s finished goods in production. Such
costs relate primarily to depreciation expense related to the Company’s electroplating equipment that cannot be directly attributable
to the production process. Idle capacity expenses amounted to $ 345,424 nil Other
Income Other
income consists primarily of proceeds from sale of raw materials waste (mainly iron), and rental income from sublease of extra factory
space. Leases The
Company follows FASB ASU 2016-02, “Leases” (Topic 842) and measures the lease liability based on the present value of
the lease payments discounted by the relevant borrowing rate and reduces the carrying value of the lease liability for lease payments
made. The
Company accounts for all significant leases as either operating or finance leases. At lease inception, if the lease meets any of the
following five criteria, the Company will classify it as a finance lease: (i) the lease transfers ownership of the underlying asset to
the Company by the end of the lease term, (ii) the lease grants the Company an option to purchase the underlying asset that the lessee
is reasonably certain to exercise, (iii) the lease term is for the major part of the remaining economic life of the underlying asset,
(iv) the present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected
in the lease payments equals or exceeds substantially all (90% or more) of the fair value of the underlying asset, or (v) the underlying
asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. Otherwise,
the lease will be treated as an operating lease. For
leases with a term of 12 months or less, the Company is permitted to and did make an accounting policy election by class of underlying
assets not to recognize lease assets and lease liabilities. During the years ended December 31, 2023 and 2022, the Company recognized
lease expense for such leases on a straight-line basis over the lease term. Income
taxes The
Company accounts for income taxes in accordance with FASB ASC Section 740. The Company is subject to the tax laws of the PRC and Hong
Kong (a special administrative region of PRC). The charge for taxation is based on actual results for the year as adjusted for items
that are non-assessable or disallowed; and it is calculated using tax rates that have been enacted or substantively enacted by the balance
sheet date. The Company is not currently subject to tax in the Cayman Islands or the British Virgin Islands. Deferred
taxes are accounted for using the asset and liability method in respect of temporary differences arising from differences between the
carrying amount of assets and liabilities in the Company’s consolidated financial statements and the corresponding tax basis used
in the computation of assessable tax profit of loss. In principle, deferred tax liabilities are recognized for all taxable temporary
differences. Deferred tax assets are recognized to the extent that it is probable that future taxable income can be utilized with deferred
tax liabilities and/or net operating loss carry forwards. Deferred tax is calculated using tax rates that are expected to apply to the
period when the asset is realized, or the liability is settled. Deferred tax is charged or credited in the statement of operations, except
when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Net
deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion
or all of the net deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the
relevant taxing authorities. 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, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that
has a greater than 50% likelihood of being realized on examination Value
added tax The
Company is subject to value added tax (“VAT”) in the PRC. Revenue generated and purchases within the PRC from domestic suppliers
are generally subject to VAT at the rate of 13 216,000 200,000 Related
parties Parties
are considered to be related to the Company if they, directly or indirectly, through one or more intermediaries, control, are controlled
by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members
of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with
if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting
parties might be prevented from fully pursuing its separate interests. Share-based
compensation The
Board of Directors of the Company approved and adopted Intelligent Living Application Group Inc. 2022 Omnibus Equity Plan (the “Equity
Plan”) on October 20, 2022, which was approved at the stockholders’ meeting on December 16, 2022. The total aggregate ordinary
shares of the Company authorized for issuance during the term of the Equity Plan is limited to 2,500,000 On
February 22, 2023, (the “Grant Date”), the Compensation Committee of the Board of Directors (the “Board”) of
the Company granted stock options to purchase 820,000 1.23 5 The related cost of share-based payments for the ordinary shares is measured by fair
value (“FV”) at the Grant Date. The FV is determined by using a binomial model. The cost is recognized in employee benefit
expenses recorded in the Company’s consolidated statements of operations and comprehensive loss, together with a corresponding amount
in additional paid-in capital. Comprehensive
income (loss) Comprehensive
income (loss) is defined as the increase or decrease in equity of the Company during a period from transactions and other events and
circumstances excluding transactions resulting from investments by owners and distributions to owners. Amongst other disclosures, ASC
220, Comprehensive Income, requires that all items that are required to be recognized under current accounting standards as components
of comprehensive income (loss) be reported in a financial statement that is displayed with the same prominence as other financial statements.
For each of the periods presented, the Company’s comprehensive loss included the net loss and foreign currency translation adjustments
that are presented in the consolidated statements of operations and comprehensive loss. Segment
reporting The
Company follows ASC 280, Segment Reporting. The Company’s Chief Executive Officer as the chief operating decision-maker reviews
the consolidated financial results when making decisions about allocating resources and assessing the performance of the Company as a
whole and has determined that the Company has only one reportable segment. The Company operates and manages its business as a single
segment. The
following table sets forth the Company’s revenue from customers by geographical areas based on the location of the customers: SCHEDULE
OF REVENUE FROM CUSTOMERS BY GEOGRAPHICAL INFORMATION
For the years ended
December 31,
2023 2022 2021
US $ 6,364,773 $ 11,717,347 $ 12,233,382
Canada 78,584 440,755 310,174
Total $ 6,443,357 $ 12,158,102 $ 12,543,556 The
following table sets forth the Company’s property and equipment, for the purpose of geographical information: SCHEDULE
OF PROPERTY AND EQUIPMENT BY GEOGRAPHICAL INFORMATION
As of December 31,
2023 2022
PRC $ 4,863,530 $ 4,966,262
Hong Kong 810,054 168,304
Total $ 5,673,584 $ 5,134,566 Earnings
(loss) per share In
accordance with ASC 260, Earnings per Share, basic earnings (loss) per share is computed by dividing net income (loss) attributable to
ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted income per share is calculated
by dividing net income attributable to ordinary shareholders as adjusted for the effect of dilutive ordinary equivalent shares, if any,
by the weighted average number of ordinary shares and dilutive ordinary equivalent shares outstanding during the period. Ordinary share
equivalents are excluded from the computation of diluted income per share as their effects would be anti-dilutive. Recent
accounting pronouncements In
December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires disaggregated information about an
entity’s effective tax rate reconciliation and additional discloses on income taxes paid. The new requirements are effective for
annual periods beginning after December 15, 2024. The guidance is to be applied prospectively, with an option for retrospective application.
The Company is currently evaluating the impact of this new guidance. The
Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material
effect on its consolidated financial statements. Concentration
of credit risk Details
of the customers accounting for 10% or more of the Company’s total revenues are as follows: SCHEDULES OF CREDIT RISK
For the years ended
December 31,
2023 2022 2021
Customer A $ 1,786,656 27.5 % $ 5,654,248 46.5 % $ 6,833,866 54.5 %
Customer B 888,595 13.7 % 1,871,116 15.4 % 1,588,156 12.7 %
Customer C 1,723,506 26.5 % 1,586,681 13.1 % 1,310,376 10.5 %
Customer D 1,332,746 20.5 % 1,306,755 10.7 % — — %
$ 5,731,503 88.2 % $ 10,418,800 85.7 % $ 9,732,398 77.7 % Details
of the customers which accounted for 10% or more of the Company’s accounts receivable are as follows:
As of December 31,
2023 2022
Customer A $ 110,963 24.9 % $ 1,129,520 69.5 %
Customer B 165,600 37.2 % 312,327 19.2 %
Customer C 135,074 30.3 % 182,853 11.3
$ 41 1 92.4 % $ 1,624,700 100.0 % Liquidity risk The
Company reported consecutive years of net loss of approximately $ 3.5 1.7 12.2 6.4 4.5 Supplier
risk The
Company’s operations are dependent on a limited number of suppliers for its major raw materials. There can be no assurance that
the Company will be able to secure the raw materials supply from these suppliers. Any termination or suspension of the supply arrangements,
any change in cooperation terms, or the deterioration of cooperation relationships with these suppliers may materially and adversely
affect the Company’s results of operations. Details
of the suppliers accounting for 10% or more of total purchases are as follows: SCHEDULES OF SUPPLIER RISK
As of December 31,
2023 2022 2021
Supplier A $ 747,881 22.3 % $ 1,453,212 21.7 % $ 1,701,515 19.9 %
Supplier B — — % 679,950 10.2 % 1,407,690 16.5 %
$ 747,881 22.3 % $ 2,133,162 31.9 % $ 3,109,205 36.4 % Details
of the suppliers which accounted for 10% or more of accounts payable are as follows:
As of December 31,
2023 2022
Supplier A $ 94,913 29.2 % $ 185,982 11.1 %
Supplier B 80,577 24.8 % — — %
Supplier C 34,434 10.6 % — — %
$ 209,924 64.6 % $ 185,982 11.1 % Foreign
currency risk The
RMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People’s Bank
of China, controls the conversion of RMBs into foreign currencies. The value of the RMB is subject to changes in central government policies
and international economic and political developments that affect supply and demand in the China Foreign Exchange Trading System market
of cash and cash equivalents and restricted cash. The Company had $ 81,226 263,350 Certain
transactions of the Company are denominated in HKD which is different from the functional currency of the Company, and therefore the
Company is exposed to foreign currency risk. As the HKD is currently pegged to the USD, management considers that there is no significant
foreign currency risk arising from the Company’s monetary assets denominated in USD. The
Company currently does not have a foreign currency hedging policy. However, management monitors the Company’s foreign exchange
exposure periodically and will consider hedging significant foreign exchange exposure should the need arise. |
