| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation and principles of consolidation The accompanying 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.
The accompanying 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 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 consolidated financial statements. Significant
estimates required to be made by management include, but are not limited to, the valuation of accounts receivable, useful lives of property
and equipment, the recoverability of long-lived assets, provision necessary for contingent liabilities, 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by banks that can be added or withdrawn without limitation.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. Restricted cash Restricted cash represents funds set aside and
placed with the bank and serves as the security deposit which is not available to fund general liquidity needs of the Company. 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 consolidated statements of operations and comprehensive
income (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 December 31, 2022 and 2021, 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 December 31, 2022 and 2021. 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 the date of this report, the Company has received a total of lease concessions
amounting to $1,081,885, and among which, $341,396, $141,499, and $598,990 was received during the years ended December 31, 2022,
2021, and 2020, 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, packing 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 years ended December
31, 2022, 2021, and 2020, 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 consolidated statements of operations and
comprehensive income (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 December 31, 2022 and 2021. 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 consolidated statements of operations and comprehensive
income (loss). Membership card breakage was immaterial for the years ended December 31, 2022, 2021, and 2020. 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 December 31, 2022 and 2021. The Company’s contract liabilities, which are reflected in its consolidated balance sheets as
deferred revenue of $6,958,160 and $6,051,683 as of December 31, 2022 and 2021, 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 years ended
December 31, 2022, 2021, and 2020 that was included in the opening deferred revenue was $4,920,442, $4,823,134, and $2,936,748, respectively.
As of December 31, 2022, the aggregate amount of unredeemed membership cards and cash vouchers was $6,958,160. 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 December 31, 2022 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 years ended December 31, 2022, 2021, and 2020 is disclosed
in Note 14 of the consolidated financial statements. F-13 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, short-term bank loans, accounts payable, due to a related party, taxes payable, operating lease liabilities, current and other
current liabilities, approximates the fair value of the respective assets and liabilities as of December 31, 2022 and 2021 based upon
the short-term nature of the assets and liabilities. The fair value of longer-term 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 consolidated financial statements have been translated into
the reporting currency US$. Assets and liabilities of the Company are translated at the exchange rate at each reporting period end date.
Equity is translated at historical rates. Income and expense accounts are translated at the average rate of exchange during the reporting
period. The resulting translation adjustments are reported under other comprehensive income (loss). Because cash flows are translated
based on the average translation rate, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily
agree with changes in the corresponding balances on the balance sheets. Gains and losses resulting from the translations of foreign currency
transactions and balances are reflected in the results of operations. RMB is not freely convertible into foreign currency
and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts
could have been, or could be, converted into US$ at the rates used in translation. The following table outlines the currency exchange
rates that were used in creating the consolidated financial statements in this report:
December 31, December 31, December 31,
Year-end spot rate US$1=RMB6.8972 US$1=RMB6.3614 US$1=RMB6.5326
Average rate US$1=RMB6.7290 US$1=RMB6.4490 US$1=RMB6.9020 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 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 years ended December 31, 2022, 2021, and 2020. The Company does not believe there was any uncertain tax provision at December 31,
2022 and 2021. 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 December 31, 2022, the tax years ended December 31, 2018 through December 31, 2022 for the Company’s PRC subsidiary
remain open for statutory examination by PRC tax authorities, and the tax years ended December 31, 2020 through December 31, 2022 for
the Company’s United States subsidiary remain 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. Before April 1, 2021, 16 of the UFG entities were exempted from paying VAT while nine of these UFG entities were
subject to VAT rate of 3% as determined by the local tax authority. 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. All but one of the UFG entities are currently exempted from paying VAT, since the deemed TNI of each of these UFG entities is currently
less than RMB150,000. 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. Earnings (loss) per share The Company computes earnings (loss) per share
(“EPS”) in accordance with ASC 260, Earnings per Share Comprehensive income (loss) Comprehensive income (loss) consists of two components,
net income (loss) and other comprehensive income (loss). The foreign currency translation gain (loss) resulting from the translation of
the financial statements expressed in RMB to US$ is reported in other comprehensive income (loss) in the consolidated statements of operations
and comprehensive income (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 December 31, 2022 and 2021, $2,747,940 and
$3,647,342 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 December 31, 2022
and 2021, $115,452 and $162,018 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 years ended December 31, 2022, 2021, and
2020, 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 years ended December 31, 2022, 2021, and 2020. As of December 31, 2022, one customer accounted
for 11.7% of the Company’s total accounts receivable balance. As of December 31, 2021, one customer accounted for 11.6% of the Company’s
total accounts receivable balance. For the year ended December 31, 2022, no supplier
accounted for more than 10% of the Company’s total purchases. For the years ended December 31, 2021 and 2020, one supplier accounted
for 14.7% and 21.5% of the Company’s total purchases, respectively. 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 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 consolidated financial position,
statements of operations, and cash flows. |
