| 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by banks that can be added or withdrawn without limitation.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 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 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:
Useful life
Bakery production equipment 5-8 years
Office equipment and furniture 3-5 years
Transportation vehicles 5 years
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 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:
● 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. The following table outlines the currency exchange
rates that were used in creating the unaudited condensed consolidated financial statements in this report:
For the For the
2023 2022 2022
Period/Year-end spot rate US$1=RMB7.2556 US$1=RMB6.6981 US$1=RMB6.8972
Average rate US$1=RMB6.9263 US$1=RMB6.4791 US$1=RMB6.7290 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” Derivatives
and Hedging” 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 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. |
