EDGAR 10-K Filing

Company CIK: 1517498
Filing Year: 2022
Filename: 1517498_10-K_2022_0001477932-22-002230.json

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ITEM 1. BUSINESS
Item 1. Description of Business
Introduction
Merion, Inc. is a provider of health and nutritional supplements and personal care products. Currently, we are mainly selling our products over the internet directly to end-user customers through our website, at www.merionus.com, and to wholesale distributors through phone and electronic communication. Our major customers of our nutritional and beauty products are located in the Asian market, predominantly in the People’s Republic of China. Our major customers of our Original Equipment Manufacturer (“OEM”) and packaging products are located in the United States (“U.S.”).
Company History
Merion, Inc., a Nevada corporation, was formed on February 4, 2011. Its predecessor, E-World USA Holding, Inc., was a California company incorporated in 2007 (“E-World CA”). In April 2011, E-World CA entered into a merger agreement with its wholly-owned subsidiary with the same name, E-World USA Holding, Inc., a Nevada corporation (“E-World NV”), that was the survivor of the merger and became the Company. Under the Merger Agreement, the Company issued 90,000,000 shares of its common stock on a one-for-one basis for each share of E-World CA’s common stock issued and outstanding at the date of the merger. In addition, the Company issued its Type A Warrants and Type B Warrants in exchange for comparable warrants issued and outstanding of E-World CA at the date of the merger. On June 27, 2017, the Company filed an amendment to its Articles of Incorporation with the Secretary of State for the State of Nevada to change its name effective immediately, from E-World NV, to Merion, Inc.
Products
Since June 2014, we have been selling our products primarily over the internet directly to end-user customers and by phone/email orders directly to our wholesale distributors. Certain miscellaneous sales are made directly to customers who call the Company directly for products. We are now focusing on selling health and nutritional supplements and personal care products directly on the internet through our website at www.merionus.com and provide OEM and packaging products through third party manufacturing. As of the date of filing of this report, we market eight individual nutritional supplement products. We did not develop any new products in 2021. We are no longer selling similar products of third parties on our website.
In January 2018, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with SUSS Technology Corporation, a Nevada corporation (the “Seller”), pursuant to which the Seller agreed to sell to the Company substantially all of the assets associated with the Seller’s manufacture of dietary supplements (the “Nevada Factory”) for an aggregate purchase price (the “Purchase Price”) of $1,000,000 and 333,334 shares of the Company’s common stock (the “Purchase Shares”) valued at $320,000. The Seller was one of our major suppliers during the year ended December 31, 2017. These assets met all industry nutritional and dietary supplement manufacturing standards, including U.S. Food and Drug Administration and Good Manufacturing Practice compliance and Current Good Manufacturing Practice regulations. Upon purchasing these assets from the Seller, we started to manufacture some of the nutritional supplements that we sold until May 2021. In May 2021, we determined that it would be more beneficial to outsource to third-party manufacturers the production of our branded and OEM products rather than manufacturing through our Nevada Factory. As a result, we disposed of our factory machinery and terminated our Nevada Factory lease in May 2021. As we have significant continuing involvement in the sale of our branded and OEM products through our third-party manufacturers, this restructuring did not constitute a strategic shift that will have a major effect on our operations and financial results. Therefore, the results of operations for our Nevada Factory were not reported as discontinued operations under the guidance of FASB ASC 205.
Company Products
Due to the ongoing COVID-19 pandemic in 2021 which has limited global travel, transportation, and import and export of goods, the Company has focused more on its OEM and packaging business to provide private label supplement products or customized formula supplement products to wholesale and retail customers. We manufactured these products through our Nevada Factory prior to May 2021 and subsequently we purchase the raw material for the products and outsource to third-party manufacturers and packaging companies to produce and pack these products for our customers after we closed our Nevada Factory in May 2021.
For the wholesale and retail customers who are looking for private label products, we provide our own formulas, purchase raw material and contract third party manufacturers to produce products. For the customers who have their own formulas, we purchase raw materials and outsource to the third-party manufacturers and packing companies for their products.
We continue to sell our nutritional supplement and beauty products on our website. Our nutritional supplement products are made according to a micro molecular nutrition formula. To achieve the maximum effect of products, micro molecular health foods were designed to be absorbed by cells directly with minimum chemical conversion, which we believe promotes faster absorption. We believe our company is one of only a few companies in the market which are using a micro molecular nutrition formula.
In January 2018, we introduced a beauty product, Noir Naturel, a gentle formula for grey coverage from the first application into hair care.
In September 2018, we introduced three different types of natural aphrodisiac supplements, Viwooba (1-3) for men that may support kidney health, improve immunity, enhance physical fitness, eliminate fatigue, improve sexual desire and enhance body energy, strength and sexual ability.
In March 2019, we introduced 1) Lady-S, a female dietary supplement that may assist with weight loss, 2) Gold King, a nutritional supplement that may provide antioxidant support and liver health, 3) New Power, a nutritional supplement that may support heart health, and 4) Taibao, a nutritional supplement that may enhance physical performance and energy metabolism.
In December 2019, we introduced ReMage Power, a nutritional supplement that may provide anti-aging Nicotinamide adenine dinucleotide (NAD)+ support and promote energy & cell metabolism.
The nutritional supplements’ and beauty products’ formulas do not have patent protection.
Sales breakdown
Nutritional and beauty products
3 %
16 %
OEM and packaging products
97 %
84 %
Currently, the Company does not have plans to expand its business beyond the nutritional products and beauty sector and the OEM and packaging sector.
All nutrition and beauty products are sold in China and all OEM and packaging products are sold in the U.S.
Return and Refund Policy for Our Products
Merion guarantees the quality of its products, and will exchange any product found to be defective. Additionally, customers can apply for a 90% refund of the original purchase price of purchased products within 60 days of purchase. When products are returned, they must be unopened and resalable. All shipping fees for product exchanges or returns must be fully paid by customers. All of the returned products must not be damaged and must be within the valid shelf-life period specified on the product label. In addition to the Company’s 60-day return policy, the Company, at its discretion, may accept a customer’s application for a buy-back of products previously sold within one year at 90% of the original product costs less commissions and shipping costs.
For the years ended December 31, 2021 and 2020, there were no returns of products.
Sourcing and Production
Our Products
During the years ended December 31, 2021 and 2020, we acquired our ingredients from the suppliers and contracted for production of our proprietary products from manufacturers that we believe are reliable, reputable and deliver high quality materials, products and services. During the year ended December 31, 2020, we also acquired our ingredients from suppliers for direct production in our Nevada factory until we disposed of our factory machinery and terminated our Nevada Factory lease in May 2021. In 2021, three suppliers accounted for approximately 69.2% of our total purchases: American Health Formulations Inc. (35.3%), Nutriient LLC (22.8%), and Myland Nutraceuticals Holding (HK) Ltd. (11.1%). In 2020, one supplier accounted for approximately 71.8% of our total purchases: Xi'an Yanhao Bio-tech Co., Ltd. The loss of one or more of these suppliers could have a negative impact on our sales and revenues if we cannot find a substitute quickly or upon favorable terms.
The Company does not have a written or contractual agreement with our other suppliers or manufacturers. Our product ingredient sourcing and other manufacturing requirements are conducted on a purchase-order basis. If one or more of our current suppliers stopped selling us ingredients and/or if one or more of our current manufacturers stopped manufacturing our products, we would be forced to find other suppliers and manufacturers. The time needed to find other suppliers or manufacturers could outlast the inventory on hand and result in loss of sales.
We maintain good relationships with our suppliers and do not anticipate that any of our suppliers will terminate such relationships in the near term. We also have ongoing relationships with secondary and tertiary suppliers. In the event that we become unable to source any products or ingredients from our major suppliers, we believe that we would be able to replace those products or substitute source these ingredients from our secondary and tertiary suppliers without great difficulty or significant increases to our cost of goods sold.
In January 2018, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with SUSS Technology Corporation, a Nevada corporation (the “Seller”), pursuant to which the Seller agreed to sell to the Company substantially all of the assets associated with the Seller’s manufacture of dietary supplements (the “Nevada Factory”) for an aggregate purchase price (the “Purchase Price”) of $1,000,000 and 333,334 shares of the Company’s common stock (the “Purchase Shares”) valued at $320,000. Upon purchasing these assets from the Seller, we started to manufacture some of the nutritional supplements that we sold until May 2021. In May 2021, we determined that it would be more beneficial to outsource to third-party manufacturers the production of our branded and OEM products rather than manufacturing through our Nevada Factory. As a result, we disposed of our factory machinery and terminated our Nevada Factory lease in May 2021. As we have significant continuing involvement in the sale of our branded and OEM products through our third-party manufacturers, this restructuring did not constitute a strategic shift that will have a major effect on our operations and financial results. Therefore, the results of operations for our Nevada Factory were not reported as discontinued operations under the guidance of FASB ASC 205.
For nutritional products and beauty products, we purchase our ingredients from third parties and contract with a third-party manufacturer for further processing of the raw materials into final products to be sold. Prior to January 1, 2018 and starting on June 1, 2021, we did not own a manufacturing plant for product processing and all manufacturing was conducted by third parties.
We also maintain good relationships with our manufacturers and do not anticipate that any of our manufacturers will terminate such relationships in the near term. In the event we become unable have our products produced by our major manufacturers, we believe that we would be able to reallocate production to our other manufacturers or locate other manufacturers without great difficulty or significant increases to our cost of goods sold.
In addition, we maintain good relationships with our wholesale distributors in China and our OEM and packaging customers in the U.S. and do not anticipate that any of those parties will terminate such relationships in the near term. In 2021, one customer accounted for approximately 86.5% of our sales: Uhealth Global Inc. In 2020, one customer accounted for approximately 56.2% of our sales: Staradiant Inc. The loss of one or more customers could result in a potential loss of sales and have a significant negative effect on our operations.
Order Backlog
As of December 31, 2021, we have approximately $0.9 million of order backlog.
Industry Analysis
The nutrition and supplement OEM and packaging business includes enterprises engaged in the production and packaging of health and nutrition supplements for third party customers. The revenue for health and nutrition supplements OEM business has experienced consistent growth over the five years between 2016 and 2021, driven by increased demand from consumers. Increasing consumer awareness of personal health and wellbeing is expected to be a key driving factor for health and nutrition supplements. The increasing number of products launched by small entrepreneur companies that do not have manufacturing capacity is also expected to drive the global health and nutrition supplements OEM market growth. Outsourcing is on the rise in the nutrition supplements industry and contract manufacturing helps supplement companies to approach the business processes in a customer-centric way, which helps lower costs, improve business efficiency and raise profits.
The nutrition industry includes many small and medium sized companies that manufacture and distribute products generally intended to enhance the body’s performance and wellness. The three major product categories within the nutrition industry are:
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Nutritional Supplements - products such as vitamins, minerals, nutritional supplements, herbs and botanicals and compounds derived from these substances.
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Natural and Organic Foods - products such as cereals, milk, non-diary beverages and frozen entrees.
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Functional Foods - products with added ingredients or fortification specifically for health or performance purposes.
The nutritional supplement market is characterized by:
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Large selections of essentially similar products that are difficult to differentiate.
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Retail consumers’ emphasis on value pricing.
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Constantly changing formulations based on evolving scientific research.
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Low entry barriers resulting from low brand loyalty, rapid change, widely available manufacturing, low regulatory requirements and ready access to large distribution channels, such as the Internet and retail stores selling nutritional supplements and other direct marketing companies.
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A lack of uniform standards regarding product ingredient sources, potency, purity, absorption rate and form.
Competition
The market for nutritional products is large and intensely competitive. The Company competes directly with companies that manufacture and market nutritional products. The Company competes with other companies in the nutritional products industry by emphasizing the uniqueness, value and premium quality of the Company's products and convenience of the Company's Internet sales system. Many of the Company's competitors have much greater name recognition and financial resources than the Company. In addition, nutritional products can be purchased in a wide variety of channels of distribution. While the Company believes that consumers appreciate the convenience of ordering products from home through the Internet, the buying habits of many consumers accustomed to purchasing products through traditional retail channels are difficult to change. The Company's product offerings are also relatively small compared to the wide variety of products offered by many other nutritional product companies.
Marketing Plan
The Company signed a new lease agreement effective March 1, 2020 to open a New York office to expand its business in the New York market. The office is intended to be used as the training center for market development. The Company will focus on promoting its new product (ReMage Power) in the New York market. ReMage Power is a nutritional supplement which provides anti-aging Nicotinamide adenine dinucleotide (NAD)+ support and promotes energy and cell metabolism. However, due to the coronavirus (COVID-19) cases continue to surge throughout the United States, we did not utilize the training center since the beginning of the lease. Due to the outbreak of new variants of coronavirus, we kept the training center closed and did not utilize the training center in 2021. We will reopen our New York office after the pandemic eases off and use it for promoting our new product, a hair dye with gentle formula into the market.
As COVID-19 resurges with different variants, at-home COVID test kits are in a high demand, and have become the latest market trend that appears to grow for the coming years because they are relatively simple to perform with the immediacy of test results. The Company is in the process of establishing close working relationships with the suppliers to find its position in this new market.
As the increased beauty and health demand of women, the Company plans to expand the beauty industry market by develop new beauty and anti-aging products, such as the 8D facial masks. The new products are expected to launch in April 2022. The Company also plans to develop a new supplement that can help with the testosterone levels that is expected to be officially launched in June 2022.
In the second quarter of 2022, the Company plans to launch a new gentle formula hair dye product with high technology which is friendly to sensitive skin and has rich and long-lasting color. They are easy to use and can cover gray hair in only 5 minutes. The products are planned to sell in US and Asian stores.
The majority of the Company’s sales on nutritional and beauty products were generated from China for the years ended December 31, 2021and 2020.
We believe that consumers have become more confident in ordering products like ours over the Internet. However, the nutritional supplement and skin care product e-business markets have been, and continue to be, increasingly competitive, and are rapidly evolving.
The Company mainly rely on its CEO’s network and business relationships in the industry to approach potential customers for its OEM and packaging business in fiscal year 2021 and 2020.
Share Distribution Plans
On June 30, 2017, the Company’s Board of Directors approved the grant of up to 6.67 million shares (from authorized but unissued shares of the Company’s common stock) to persons outside the U.S. who sell Company products, based on their sales performance in the future. The Company must determine that this type of incentive compensation is legal and appropriate for each country in which it is utilized. For ease of administration, this plan has been, and will continue to be, implemented solely for persons outside of the United States pursuant to Regulation S under the Securities Act of 1933.
As of December 31, 2021, 21,500 shares were issued to the Company’s sales agents outside the U.S. in 2018.
Intellectual Property
We have no registered trademarks or patents in the United States. We have common law ownership rights under U.S. trade secret law for the formulations for our eight Nutritional Supplements. We also have common law ownership rights for the formulation of our Noir Naturel product.
The Company has obtained a Trademark Registration in China for the name of “Dibeier” (or Mandarin pinyin: “Nuo Lin”) with trademark application number 20669799. Under Chinese law, this trademark may be renewed every 10 years and can be valid for an indefinite period subject to timely renewal.
The Company has obtained a Trademark Registration in China for the name of “DailyNu” with trademark application number 20683305. Under Chinese law, this trademark may be renewed every 10 years and can be valid for an indefinite period subject to timely renewal.
Other than the aforementioned trademarks, we do not own any other registered trademarks, trade names or other governmentally approved intellectual property rights for those products.
The Company owns the domain name of www.merionus.com.
Research and Development
We did not have any research and development activities for the years ended December 31, 2021 and 2020.
Government Regulation
Given uncertainties relating to our compliance with personal network marketing laws in foreign jurisdictions, the Company discontinued sales through the network marketing model in 2014, and began selling directly to end-user customers from our website.
We believe we are no longer subject to personal network marketing regulations since we discontinued sales through the network marketing model in 2014. Nonetheless, we are still subject to federal, state, local and foreign regulations. Various governmental agencies have an impact on our business, including but not limited to the U.S. Food and Drug Administration. Regulations promulgated by the FDA cover product ingredients, manufacturing, distribution, marketing, sales, compensation and taxation, to name a few. All of our products have certificates of free sales issued by the FDA Center for Food Safety and Applied Nutrition. If the Company were to fail to meet standards required by these regulations, then the Company could be prohibited from selling its products.
Human Capital Resources
We understand that our success depends on our ability to attract, train and retain our employees. We strive to attract, recruit, and retain employees through competitive compensation and benefit programs, learning and development opportunities that support career growth and advancement opportunities, and employee engagement initiatives that foster a strong Company culture. In addition to cash compensation, we offer customary benefits in accordance with local regulatory requirements as well as performance-based stock options to our employees. We also recognize the importance of keeping our employees safe. In response to the COVID-19 pandemic, we implemented changes that we determined were in the best interest of our employees and have followed local government orders to prevent the spread of COVID-19.
Employees
We have the following employees:
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Full time: 6
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Operations - 2
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Administrative - 2
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Management - 1
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Sales - 1
We have no collective bargaining agreement with our employees. We consider our relationship with our employees to be excellent.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
The Company operates in an environment that involves a number of risks and uncertainties. The risks and uncertainties described in this Annual Report on Form 10-K are not the only risks and uncertainties that we face. Additional risks and uncertainties that presently are not considered material or are not known to us, and therefore are not mentioned herein, may impair our business operations. If any of the risks described in this Annual Report on Form 10-K actually occur, our business, operating results and financial position could be adversely affected.
We have had a history of losses since inception.
For the years ended December 31, 2021 and 2020, we had net losses of approximately $1.2 million and $1.8 million, respectively. We can offer no assurance that we will ever operate profitably or that we will generate positive cash flows in the future. Our management expects the business to continue to experience negative cash flow for the foreseeable future and cannot predict when, if ever, our business might become profitable. With our cash on hand as of December 31, 2021, management has concluded under generally accepted accounting principles that there is substantial doubt about our ability to continue as a going concern for the next twelve months from the date of this filing. Until we can generate significant revenues, if ever, we expect to satisfy our future cash needs through equity or debt financing and advances from our major shareholder. We will need to raise additional funds, and such funds may not be available on commercially acceptable terms, if at all. If we are unable to raise funds on acceptable terms, we may not be able to continue operations, execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements. This may seriously harm our business, financial condition and results of operations. In the event we are not able to continue operations our shareholders will likely suffer a complete loss of their investment in our securities.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analysts who may cover us were to cease coverage of our Company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
The market price of our common stock may be highly volatile.
The market for our common stock will likely be characterized by significant price volatility when compared to more established issuers and we expect that it will continue to be so for the foreseeable future. The market price of our common stock is likely to be volatile for a number of reasons. First, our common stock is likely to be sporadically and/or thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of common stock by our stockholders may disproportionately influence the price of the common stock in either direction. The price of the common stock could, for example, decline precipitously if even a relatively small number of shares are sold on the market without commensurate demand, as compared to a market for shares of an established issuer which could better absorb those sales without adverse impact on its share price. Secondly, we are a speculative investment due to our lack of profits to date. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the shares of an established issuer. We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time or as to what effect the sale of common stock or the availability of common stock for sale at any time will have on the prevailing market price.
Because the principal trading markets for our shares is the OTC Market, the corporate governance rules of the major U.S. stock exchanges do not apply to us. As a result, our governance practices may differ from those of a company listed on such U.S. exchanges.
Our governance practices need not comply with certain New York Stock Exchange and NASDAQ corporate governance standards, including:
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the requirements that a majority of our board of directors consists of independent directors;
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the requirement that we have an audit committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and
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the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
There can be no assurance that we will voluntarily comply with any of the foregoing requirements. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to such corporate governance requirements.
The requirements of being a public company may strain our resources, divert management’s attention and require us to disclose information that is helpful to competitors, make us more vulnerable to litigation and make it more difficult to attract and retain qualified personnel.
As a public company, we are subject to the reporting requirements of the Securities Act, the Securities Exchange Act of 1934, as amended (Exchange Act), the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Compliance with these rules and regulations requires significant legal and financial compliance costs and makes some business activities and decision-making process difficult, time-consuming or costly. As a public company, our competitor might be able to better understand our business strategies and financial conditions from our public disclosure to compete with us.
Our future growth and stability depends, in part, on our ability to diversify our sales. Our efforts to establish new sales from existing customers and new customers could require significant initial investments, which may or may not result in higher sales and improved financial results.
Our business strategy depends in large part on our ability to develop new product sales from current and new customer relationships. These activities often require a significant up-front investment including, among others, customized formulations, regulatory compliance, product registrations, package design, product testing, pilot production runs, and the build-up of initial inventory. We may experience significant delays from the time we increase our operating expenses and make investments in inventory until the time we generate net sales from new products or customers, and it is possible that we may not generate material revenue from new products or customers after incurring such expenditures. If we incur significant expenses and investments in creating and purchasing inventory that we are not able to recover our cost, and we are not able to compensate for those expenses, our operating results could be adversely affected.
We are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints, which can make compliance costly and subject us to enforcement actions by governmental agencies.
The formulation, manufacturing, packaging, labeling, holding, storage, distribution, advertising and sale of our products are affected by extensive laws, governmental regulations and policies, administrative determinations, court decisions and similar constraints at the federal, state and local levels, both within the United States and China and in any country where we conduct business. There can be no assurance that we, our third party manufacturers or our independent distributors will be in compliance with all of these regulations. A failure by us, our third party manufacturers or our distributors to comply with these laws and regulations could lead to governmental investigations, civil and criminal prosecutions, administrative hearings and court proceedings, civil and criminal penalties, injunctions against product sales or advertising, civil and criminal liability for the Company and/or its principals, bad publicity, and tort claims arising out of governmental or judicial findings of fact or conclusions of law adverse to the Company or its principals. In addition, the adoption of new regulations and policies or changes in the interpretations of existing regulations and policies may result in significant new compliance costs or discontinuation of product sales, and may adversely affect the marketing of our products, resulting in decreased revenues.
We are currently dependent on a limited number of independent suppliers and manufacturers for the production of all our products which may affect our ability to deliver our products in a timely manner. If we are not able to ensure timely product deliveries, potential distributors and customers may not order our products, and our revenues may decrease.
We currently rely entirely on a limited number of third parties to supply and manufacture our products. Our products are manufactured on a purchase order basis only and manufacturers can terminate their relationships with us at will. These third party manufacturers may be unable to satisfy our supply requirements, manufacture our products on a timely basis, fill and ship our orders promptly, provide services at competitive costs or offer reliable products and services. The failure to meet any of these critical needs would delay or reduce product shipment and adversely affect our revenues, as well as jeopardize our relationships with our distributors and customers. In the event any of our third party manufacturers were to become unable or unwilling to continue to provide us with products in required volumes and at suitable quality levels, we would be required to identify and obtain acceptable replacement manufacturing sources. There is no assurance that we would be able to obtain alternative manufacturing sources on a timely basis. Additionally, some of our third party manufacturers source the raw materials for our products, and if we were to use alternative manufacturers we may not be able to duplicate the exact profile of the product from the original manufacturer. An extended interruption in the supply of our products would result in decreased product sales and our revenues would likely decline. We believe that we can meet our current supply and manufacturing requirements with our current suppliers and manufacturers or with available substitute suppliers and manufacturers. Historically, we have not experienced any delays or disruptions to our business caused by difficulties in obtaining supplies.
We face significant competition from existing suppliers of products similar to ours. If we are not able to compete with these companies effectively, we may not be able to achieve and maintain profitability.
We face intense competition from numerous resellers, manufacturers and wholesalers of health and nutritional supplements and personal care products similar to ours, including retail, online and mail order providers. Many of our competitors have longer operating histories, established brands in the marketplace, revenues significantly greater than ours and better access to capital than us. We expect that these competitors may use their resources to engage in various business activities that could result in reduced sales of our products. Companies with greater capital and research capabilities could re-formulate existing products or formulate new products that could gain wide marketplace acceptance, which could have a depressive effect on our future sales. In addition, aggressive advertising and promotion by our competitors may require us to compete by lowering prices because we do not have the resources to engage in marketing campaigns against these competitors, and the economic viability of our operations likely would be diminished.
The disruption of global supply chains due to pandemic has adversely effected our OEM business and profit margin due to increased input costs.
The production cost for the manufacturers in the U.S. have increased due to surging prices for commodities, raw materials, disruption of supply chain and labor shortage caused by COVID-19, which reduce the profit margin and caused the fierce competition in product price. We face the challenges to obtain sufficient raw materials from suppliers during the pandemic due to the port congestion and supply chain disruption, which has caused and might continue to cause delay of product delivery and disruption of manufacturing process for our OEM business, which has and could continue to adversely affect our business, financial conditions and results of operations.
Adverse publicity associated with our products, ingredients, or those of similar companies, could adversely affect our sales and revenue.
Our customers’ perception of the safety and quality of our products or even similar products distributed by others can be significantly influenced by national media attention, publicized scientific research or findings, product liability claims and other publicity concerning our products or similar products distributed by others. Adverse publicity, whether or not accurate, that associates consumption of our products or any similar products with illness or other adverse effects, will likely diminish the public’s perception of our products. Claims that any products are ineffective, inappropriately labeled or have inaccurate instructions as to their use, could have a material adverse effect on the market demand for our products, including reducing our sales and revenues.
The efficiency of nutritional supplement products is supported by limited conclusive clinical studies, which could result in less market acceptance of these products and lower revenues or lower growth rates in revenues.
Our nutritional supplement products are made from various ingredients including vitamins, minerals, amino acids, herbs, botanicals, fruits, berries and other substances for which there is a long history of human consumption. However, there is little long-term experience with human consumption of certain product ingredients or combinations of ingredients in concentrated form. Although we believe all of our products fall within the generally known safe limits for daily doses of each ingredient contained within them, nutrition science is imperfect. Moreover, some people have peculiar sensitivities or reactions to nutrients commonly found in foods, and may have similar sensitivities or reactions to nutrients contained in our products. Furthermore, nutritional science is subject to change based on new research. New scientific evidence may disprove the efficacy of our products or prove our products to have effects not previously known. We could be adversely affected by studies that may assert that our products are ineffective or harmful to consumers, or if adverse effects are associated with a competitor’s similar products.
Our products may not meet health and safety standards or could become contaminated.
We do not have control over all of the third parties involved in the manufacturing of our products and their compliance with government health and safety standards. Even if our products meet these standards they could otherwise become contaminated. A failure to meet these standards or contamination could occur in our operations or those of our distributors or suppliers. This could result in expensive production interruptions, recalls and liability claims. Moreover, negative publicity could be generated from false, unfounded or nominal liability claims or limited recalls. Any of these failures or occurrences could negatively affect our business and financial performance.
Compliance with new and existing laws and governmental regulations could increase our costs significantly and adversely affect our results of operations.
The processing, formulation, safety, manufacturing, packaging, labeling, advertising and distribution of our products are subject to federal laws and regulation by one or more federal agencies, including the FDA. These activities are also regulated by various state, local and international laws and agencies of the states and localities in which our products are sold. Government regulations may prevent or delay the introduction, or require the reformulation, of our products, which could result in lost revenues and increased costs to us. For example, the FDA regulates, among other things, the composition, safety, manufacture, labeling and marketing of dietary ingredients and dietary supplements (including vitamins, minerals, herbs, and other dietary ingredients for human use). Dietary supplements and dietary ingredients that do not comply with FDA’s regulations and/or the Dietary Supplement Health and Education Act of 1994 ("DSHEA") will be deemed adulterated or misbranded. Manufacturers and distributors of dietary supplements and dietary ingredients are prohibited from marketing products that are adulterated or misbranded, and the FDA may take enforcement action against any adulterated or misbranded dietary supplement on the market. The FDA has broad enforcement powers. If we violate applicable regulatory requirements, the FDA may bring enforcement actions against us, which could have a material adverse effect on our business, prospects, financial condition, and results of operations.
The FDA may not accept the evidence of safety for any new dietary ingredient that we may wish to market, may determine that a particular dietary supplement or ingredient presents an unacceptable health risk based on the required submission of serious adverse events or other information, and may determine that a particular claim or statement of nutritional value that we use to support the marketing of a dietary supplement is an impermissible drug claim, is not substantiated, or is an unauthorized version of a "health claim." Any of these actions could prevent us from marketing particular dietary supplement products or making certain claims or statements with respect to those products. The FDA could also require us to remove a particular product from the market. Any future recall or removal would result in additional costs to us, including lost revenues from any products that we are required to remove from the market, any of which could be material. Any product recalls or removals could also lead to an increased risk of litigation and liability, substantial costs, and reduced growth prospects.
We could be exposed to product liability claims or other litigation, which may be costly and could materially adversely affect our operations.
We could face financial liability due to product liability claims if the use of our products results in significant loss or injury. Additionally, the manufacture and sale of our products involves the risk of injury to consumers from tampering by unauthorized third parties or product contamination. We could be exposed to future product liability claims that, among others: our products contain contaminants; we provide consumers with inadequate instructions about product use; or we provide inadequate warning about side effects or interactions of our products with other substances. Even if we were to prevail in any such claims, the cost of litigation and settlement could be significant. We do not maintain product liability insurance, and could experience significant losses from any litigation relating to our products.
Our business could be adversely affected by legal challenges to our business model or by actions restricting our ability to provide the full range of our services in certain jurisdictions.
We will be required to monitor our compliance with laws in every jurisdiction in which we operate, on an ongoing basis, and we cannot provide assurance that our activities and arrangements, if challenged, would be found to be in compliance with the applicable laws. Additionally, it is possible that the laws and rules in one or more jurisdictions may change in a manner that is harmful to our business. If a successful legal challenge or an adverse change in the relevant laws were to occur, and we were unable to adapt our business model accordingly, our operations in the affected jurisdictions would be disrupted, which could have a material adverse effect on our business, financial condition and results of operations.
A severe and prolonged downturn in the Chinese or global economy or disruptions in the financial markets may adversely impact our business and results of operations and may limit our access to additional financing.
The nutritional supplement and personal care industry can be affected by macroeconomic factors, including changes in national, regional, and local economic conditions, employment levels and consumer spending patterns. A prolonged slowdown in the Chinese or global economy could erode consumer confidence which could result in changes to consumer spending patterns, which could be harmful to our financial position and results of operations.
In addition, the capital and credit markets are experiencing volatility and the availability of funds remains limited, we will incur increased costs associated with equity and/or debt financing. It is possible that our ability to access the capital and credit markets may be limited by these or other factors at a time when we would like, or need, to do so, which could have an adverse impact on our ability to refinance maturing debt and/or react to changing economic and business conditions. In addition, fluctuations in interest rates could impact our floating rate debt negatively and increase our debt obligations.
Loss of key personnel could impair our ability to operate.
Our success depends on hiring, retaining and integrating senior management and skilled employees. We are currently dependent on certain current key employees, including Mr. Ding Hua Wang, our Chief Executive Officer, Chief Financial Officer, and director, who is vital to our ability to grow our business and achieve profitability. As with all personal service providers, our officers can terminate their relationship with us at will. Our inability to retain these individuals may result in our reduced ability to operate our business.
Ding Hua Wang has control over key decision making as a result of his control of a majority of our voting stock.
Ding Hua Wang, a member of the Board of Directors and our Chief Executive and Financial Officer, beneficially owns 27,717,082 shares, or 45.1%, of our outstanding common stock. Mr. Wang will be able to exercise voting rights with respect to these shares of common stock, and has the ability to control the outcome of matters submitted to our shareholders for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets. This concentrated control could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of our assets that our other shareholders support, or conversely this concentrated control could result in the consummation of such a transaction that our other shareholders do not support. This concentrated control could also discourage a potential investor from acquiring our common stock due to the limited voting power of such stock. As a board member and officer, Mr. Wang owes a fiduciary duty to our shareholders and must act in good faith in a manner he reasonably believes to be in the best interests of our shareholders. As a shareholder, even a controlling shareholder, Mr. Wang is entitled to vote his shares, and shares over which he has voting control, in his own interests, which may not always be in the interests of our shareholders.
Failure to adequately protect our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights may be costly.
We rely primarily on trade secrets and other contractual restrictions to protect our intellectual property. We have not registered or applied for protections for most of our intellectual property or proprietary technologies relating to the formulations of nutritional supplements that we produce. To protect our proprietary technology and processes, we also rely in part on nondisclosure agreements with our employees, licensing partners, third-party producers, consultants, agents and other organizations to which we disclose our proprietary information. The actions we have taken to protect our intellectual property rights may not be adequate to provide us with meaningful protection or commercial advantage. As a result, third parties may use the intellectual property or proprietary technologies that we have developed and compete with us, which could have a material adverse effect on our business, financial condition and operating results.
PRC intellectual property-related laws and their implementation are still under development. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or many other countries. In addition, policing unauthorized use of proprietary technology can be difficult and expensive. Litigation may be necessary to enforce our intellectual property rights and the outcome of any such litigation may not be in our favor. Given the relative unpredictability of China’s legal system and potential difficulties enforcing a court judgment in China, there is no guarantee that we would be able to halt the unauthorized use of our intellectual property through litigation in a timely manner or at all. Furthermore, any such litigation may be costly and may divert management attention away from our business and cause us to expend significant resources. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, prospects and reputation. In addition, we have no insurance coverage against litigation costs and would have to bear all costs arising from such litigation to the extent we are unable to recover them from other parties. The occurrence of any of the foregoing could have a material adverse impact on our business, financial condition and results of operations.
We may be exposed to infringement or misappropriation claims by third parties, which, if determined adversely against us, could disrupt our business and subject us to significant liability to third parties.
Our success largely depends on our ability to use and develop our know-how and product formulations without infringing upon the intellectual property rights of third parties. We may be subject to litigation involving claims of infringement or violation of other intellectual property rights of third parties. The holders of patents and other intellectual property rights potentially relevant to our product offerings may be unknown to us or may otherwise make it difficult for us to acquire a license on commercially acceptable terms.
There may also be technologies licensed to and relied on by us that are subject to infringement or other corresponding allegations or claims by others which could damage our ability to rely on such technologies. In addition, although we endeavor to ensure that companies that work with us possess appropriate intellectual property rights or licenses, we cannot fully avoid the risks of intellectual property rights infringement created by suppliers of raw materials used in our products, our third-party producers, or by companies with which we work in cooperative research and development activities. Our current or potential competitors, many of which have substantial resources and have made substantial investments in competing technologies, may have obtained or may obtain patents that will prevent, limit or interfere with our ability to make, use or sell our products in China or other countries. The defense of intellectual property claims, including patent infringement suits, and related legal and administrative proceedings can be both costly and time-consuming, and may significantly divert the efforts and resources of our technical and management personnel. Furthermore, an adverse determination in any such litigation or proceeding to which we may become a party could cause us to:
·
pay damage awards;
·
seek licenses from third parties, which may not be available on reasonable terms or at all;
·
pay additional ongoing royalties, which could decrease our profit margins;
·
redesign our products, which may be costly, if at all possible; or
·
be restricted by injunctions.
These factors could effectively prevent us from pursuing some or all of our business and result in our customers or potential customers deferring, canceling or limiting their purchase or use of our products, which could have a material adverse effect on our financial condition and results of operations.
We or the third parties upon whom we depend may be adversely affected by health epidemics, including the recent COVID-19 outbreak or other natural disasters.
With the outbreak of a novel strain of the coronavirus (COVID-19)which has spread rapidly in China and many parts of the world, including the U.S. In March 2020, the World Health Organization declared the COVID-19 a pandemic. The pandemic has resulted in quarantines, travel restrictions, and the temporary closure of office buildings and facilities in China and in the U.S.
Substantially all of our own product sales revenues are generated in China and all of our OEM and packaging products revenues are generated in the U.S. Consequently, our results of operations have been and may continuously be adversely, and may be materially, affected, to the extent that the COVID-19 or any other epidemic harms the Chinese and U.S. economy. Any future potential impact to our results will depend on, to a large extent, future developments and new information that may emerge regarding the duration and severity of the COVID-19 pandemic and the actions taken by government authorities and other entities to contain the COVID-19 pandemic or treat its impact, almost all of which are beyond our control. Potential impacts include, but are not limited to, the following:
•
temporary closure of offices, travel restrictions or suspension of shipment of our products to our customers and suppliers have negatively affected, and could continue to negatively affect, to supply our demand for raw materials;
•
our customers that are negatively impacted by the COVID-19 pandemic may reduce their budgets to purchase our products, which may materially adversely impact our revenue;
•
our customers may require additional time to pay us or fail to pay us at all, which could significantly increase the amount of accounts receivable and require us to record additional bad debt expense. We may have to provide significant sales incentives to our customers and distributors in response to the pandemic, which may in turn materially adversely affect our financial condition and operating results;
•
the business operations of our distributors have been and could continue to be negatively impacted by the pandemic which may negatively impact our distribution channel, or result in loss of customers, which may in turn materially adversely affect our financial condition and operating results;
•
any disruption of our supply chain, logistics providers or customers could adversely impact our business and results of operations, including causing our suppliers to cease manufacturing products for a period of time or materially delay delivery to customers, which may also lead to loss of customers, as well as reputational, competitive and business harm to us;
•
many of our customers, distributors, suppliers and other partners are individuals and small and medium-sized enterprises (SMEs), which may not have strong cash flows or be well capitalized, and may be vulnerable to an epidemic outbreak and slowing macroeconomic conditions. If the SMEs that we work with cannot weather the pandemic and the resulting economic impact, or cannot resume business as usual after a prolonged outbreak, our revenues and business operations may be materially and adversely impacted;
•
the global stock markets have experienced, and may continue to experience, significant volatility from the COVID-19 outbreak, which could materially and adversely affect our stock price; and
Our results of operations for year ended of December 31, 2021 have been negatively impacted. Because of the uncertainty surrounding the COVID-19 pandemic, the financial impact and response to the coronavirus cannot be reasonably estimated at this time, but our results for the first quarter of and full year 2022 may be adversely affected. We expect our total revenues in the first quarter of 2022 to decrease year over year, and there is no guarantee that our total revenues will grow or remain at the similar level year over year in the next three quarters of 2022.
In addition, our corporate headquarters is located in Los Angeles, which has in the past experienced severe earthquakes and other natural disasters. Consequently, if any natural disasters, health epidemics or other public safety concerns were to affect cities and regions that we have operations or cause travel restriction in such regions, our operation may experience material disruptions, which may materially and adversely affect our business, financial condition and results of operations.
In general, our business could be adversely affected by the effects of epidemics, including, but not limited to, the COVID-19 pandemic, avian influenza, severe acute respiratory syndrome (SARS), the influenza A virus, Ebola virus, severe weather conditions such as a snowstorm, flood, fires or hazardous air pollution, or other disasters. In response, government and other organizations may adopt regulations and policies that could lead to severe disruption to our daily operations, including temporary closure of our offices and other facilities. These severe conditions may cause us and/or our partners to make internal adjustments, including but not limited to, temporarily closing down business, limiting business hours, and setting restrictions on travel and/or visits with clients and partners for a prolonged period of time. These conditions may cause business disruption, resulting in material, adverse impact to our financial condition and results of operations.
Risks Related to Doing Business in China
Adverse changes in political and economic policies of the PRC government could impede the overall economic growth of China, which could reduce the demand for our products and damage our business.
We generate most of the sales of our nutritional and beauty products in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The PRC economy differs from the economies of most developed countries in many respects, including:
·
the higher level of government involvement and regulation;
·
the early stage of development of the market-oriented sector of the economy;
·
the rapid growth rate;
·
the higher rate of inflation;
·
the higher level of control over foreign exchange; and
·
government control over the allocation of many resources.
As the PRC economy has been transitioning from a planned economy to a more market-oriented economy, the PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. While these measures may benefit the overall PRC economy, they may also have a negative effect on us.
Although the PRC government has in recent years implemented measures emphasizing the utilization of market forces for economic reform, the PRC government continues to exercise substantial control over virtually every sector of the PRC economy through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and imposing policies that impact particular industries or companies in different ways. Our ability to sell our products in China may be harmed by changes in PRC laws and regulations, including those relating to how we conduct our business, taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe that our business in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant adverse effect on economic conditions in China or particular regions thereof and could negatively impact our sales in China.
If we are found to have failed to comply with applicable laws, we may incur additional expenditures or be subject to significant fines and penalties.
Our sales in the PRC are subject to certain PRC laws and regulations applicable to us. However, many PRC laws and regulations are uncertain in their scope, and the implementation of such laws and regulations in different localities could have significant differences. In certain instances, local implementation rules and/or the actual implementation are not necessarily consistent with the regulations at the national level. Although we strive to comply with all the applicable PRC laws and regulations, we cannot assure you that the relevant PRC government authorities will not later determine that we have not been in compliance with certain laws or regulations.
Inflation in China and measures to contain inflation could negatively affect our operations and growth.
While the PRC economy has experienced rapid growth, such growth has been uneven among various sectors of the economy and in different geographical areas of the country. Rapid economic growth can lead to growth in the money supply and rising inflation. If prices for our products rise at a rate that is insufficient to compensate for the rise in our costs, our business may be materially and adversely affected. In order to control inflation in the past, the PRC government has imposed controls on bank credits, limits on loans for fixed assets and restrictions on state bank lending. If imposed in the future, such austerity measures or other measures could lead to a slowing of economic growth. A slowdown in the PRC economy could also materially and adversely affect our business and prospects.
If relations between the U.S. and China worsen, our business could be adversely affected by the trade war and investors may be unwilling to hold or buy our stock and our stock price may decrease.
At various times during recent years, the U.S. and China have had significant disagreements over political and economic issues. Controversies may arise in the future between these two countries. Any political or trade controversies between the U.S. and China, whether or not directly related to our business, could reduce the price of our common stock. These controversies also could make it more difficult for us to sell our products to our customers in China. The international trade policies of China and the U.S. could adversely affect our business, and the imposition of trade sanctions relating to import and export of goods, taxes, tariffs and duties and other charges on imports from China or exports to China. Due to an increase in tariffs imposed by China on products from U.S., some of our customers might seek alternatives, which could have negative impact on our sales as we mainly sell our own products to customers in China. In order to avoid these new tariffs, the market has shifted towards an uncertain era including sourcing from other countries. Our sales during this stage may also be negatively impacted by this shift in behavior.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
None.

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ITEM 2. PROPERTIES
Item 2. Description of Property
We rented the following properties for the year ended December 31, 2021:
California offices and warehouse
Address/Size:
100 N Barranca Street #1000, West Covina, CA 91791 with 5,216 square feet
Term of Lease:
From March 2019 through February 2024
Monthly Rental:
o $10,954 from March 2019 to February 2020
o $11,282 from March 2020 to February 2021
o $11,621 from March 2021 to February 2022
o $11,969 from March 2022 to February 2023
o $12,328 from March 2023 to February 2024
Nevada manufacturing facility (Terminated on May 31, 2021)
·
Address/Size:
1883 Whitney Mesa Drive, Henderson, NV 89014 with 7,000 square feet
New York training center
Address/Size:
Unit 9C, 37-12 Prince Street, Flushing, NY 11354 with 3,000 square feet
Term of Lease:
From March 2020 through February 2023
Monthly Rental:
$8,333
We believe our current facilities, including warehousing facilities, are fully suitable and adequate for our business.
We do not intend to renovate, improve, or develop properties. We are not subject to competitive conditions for property. We have no policy with respect to investments in real estate or interests in real estate, and no policy with respect to investments in real estate mortgages. Further, we have no policy with respect to investments in securities of or interests in persons primarily engaged in real estate activities.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not currently a party to any material legal proceedings, and to our knowledge none is threatened. There can be no assurance that future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our financial position, results of operations or cash flows.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is qualified for quotation on the OTCQB Market under the symbol “EWLU.”
On February 28, 2018, we up-listed our trading market from the OTC Pink Open Market to the OTCQB Market. The following table sets forth the quarterly high and low sales prices of a share of our common stock as reported by OTCQB Market for the periods indicated. These over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Year
Quarter Ending
High
Low
December 31
$ 0.75
$ 0.06
September 30
$ 3.00
$ 0.05
June 30
$ 4.80
$ 0.63
March 31
$ 11.88
$ 1.05
December 31
$ 3.00
$ 1.65
September 30
$ 1.65
$ 0.45
June 30
$ 1.65
$ 1.29
March 31
$ 2.67
$ 0.90
Holders of Common Stock
As of April 8, 2022, there were 61,519,905 shares of our common stock issued and outstanding and there were approximately 5,144 shareholders of record of our common stock.
Dividends
We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of the Board of Directors and will be dependent upon then existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, business prospects and other factors that the Board of Directors considers relevant.
There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:
·
we would not be able to pay our debts as they become due in the usual course of business; or
·
our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution, unless otherwise permitted under our articles of incorporation.
Equity Compensation Plan Information
The following table provides information about our equity compensation plan as of December 31, 2021:
Plan Category
Number of securities to be issued upon exercise of options warrants and rights
(a)
Weighted-average exercise price of outstanding options warrants and rights
(b)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)
Equity compensation plans approved by stockholders
-
$ -
-
Equity compensation plans not approved by stockholders
-
$ -
-
Total
-
$ -
-
Recent Sales of Unregistered Securities
None.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Consolidated Financial Data
Not applicable.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes, and other financial information included in this Form 10-K.
Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “potential,” “believes,” “seeks,” “hopes,” “estimates,” “should,” “may,” “will,” “with a view to” and variations of these words or similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national, and local general economic and market conditions; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; change in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; the risk of foreign currency exchange rates; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
Overview
Our Company is a provider of health and nutritional supplements and personal care products. Currently, we are mainly selling our products over the internet directly to end-user customers through our website, at www.merionus.com, and to wholesale distributors through phone and electronic communication. Our major customers of our nutritional and beauty products are located in the Asian market, predominantly in the People’s Republic of China. Our major customers of our OEM and packaging products are located in the United States.
Since June 2014, we have been selling our products primarily over the internet directly to end-user customers and by phone/email orders directly to our wholesale distributors. Certain miscellaneous sales are made directly to customers who walk into the Company offices and customers who call the Company directly for products. We are now focusing on selling health and nutritional supplements and personal care products directly on the internet through our website at www.merionus.com and to our OEM and packaging customers. As of the date of this report, we market eight individual nutritional supplement products, three and five of which were introduced in 2018 and 2019 respectively, and one beauty product, which was also introduced in 2018, on our website. We are no longer selling similar products of third parties on our website.
In January 2018, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with SUSS Technology Corporation, a Nevada corporation (the “Seller”), pursuant to which the Seller agreed to sell to the Company substantially all of the assets associated with the Seller’s manufacture of dietary supplements (the “Nevada Factory”) for an aggregate purchase price (the “Purchase Price”) of $1,000,000 and 333,334 shares of the Company’s common stock (the “Purchase Shares”) valued at $320,000. The Seller was one of our major suppliers during the year ended December 31, 2017. Upon purchasing these assets from the Seller, we started to manufacture some of the nutritional supplements that we sold until May 2021. In May 2021, we determined that it would be more beneficial to outsource to third-party manufacturers the production of our branded and OEM products rather than manufacturing through our Nevada Factory. As a result, we disposed of our factory machinery and terminated our Nevada Factory lease in May 2021. As we have significant continuing involvement in the sale of our branded and OEM products through our third-party manufacturers, this restructuring did not constitute a strategic shift that will have a major effect on our operations and financial results. Therefore, the results of operations for our Nevada Factory were not reported as discontinued operations under the guidance of FASB ASC 205.
In January 2018, we introduced a new beauty product, Noir Naturel, a gentle formula for grey coverage from the first application into hair care.
In September 2018, we introduced three different types of natural aphrodisiac supplements, Viwooba (1-3) for men that may support kidney health, improve immunity, enhance physical fitness, eliminate fatigue, improve sexual desire and enhance body energy, strength and sexual ability.
In March 2019, we introduced 1) Lady-S, a female dietary supplement that may assist with weight loss, 2) Gold King, a nutritional supplement that may provide antioxidant support and liver health, 3) New Power, a nutritional supplement that may support heart health, and 4) Taibao, a nutritional supplement that may enhance physical performance and energy metabolism.
In December 2019, we introduced ReMage Power, a nutritional supplement that may provide anti-aging Nicotinamide adenine dinucleotide (NAD)+ support and promote energy & cell metabolism.
On June 11, 2021, our Board of Directors approved a 1-for-3 reverse stock split of our common stock. On July 27, 2021, we filed a Certificate of Change with the State of Nevada (the “Certificate”) to effect a 1-for-3 reverse stock split of our authorized shares of common stock, par value $0.001 (the “Common Stock”), accompanied by a corresponding decrease in our issued and outstanding shares of Common Stock (the “Reverse Stock Split”), effective upon filing. Following the Reverse Stock Split, the number of authorized shares of Common Stock was reduced from 1,000,000,000 to 333,333,333. All shares and per share amounts (except for par value amount) used herein and in the accompanying financial statements have been retroactively restated to reflect the 1-for-3 Reverse Stock Split.
Principal Factors Affecting Our Financial Performance
We believe consumers have become more confident in ordering products like ours over the internet. However, the nutritional supplement and skin care products e-commerce markets have been, and continue to be, increasingly competitive and are rapidly evolving due to the reasons discussed below.
Barriers to entry are minimal in the nutritional supplement and skin care businesses, and current and new competitors can launch new websites at a relatively low cost. Many competitors in this area have greater financial, technical and marketing resources than we do. Continued advancement in e-commerce, and increased access to online shopping, is paving the way for growth in direct marketing. We also face competition for consumers from retailers, duty-free retailers, specialty stores, department stores and specialty and general merchandise catalogs, many of which have greater financial and marketing resources than we have. Notwithstanding the foregoing, we believe that we are well-positioned within the Asian consumer market with our current plan of supplying American merchandise to consumers in Asia. There can be no assurance that we will maintain or increase our competitive position or that we will continue to provide only American-made merchandise.
As COVID-19 has limited the global travels, transportation, and import and export of goods, we focused more on our local OEM and packaging business and it has become our major revenue source in fiscal year 2021. We manufactured these products through our Nevada Factory prior to May 2021 and subsequently we purchase the raw material for the products and outsource to the third-party manufacturers and packaging companies to produce and pack these products for our customers after we closed our Nevada Factory in May 2021. The loss of one or more of our U.S. OEM and packaging customers would result in a significant loss of sales and have a negative effect on our operations.
For the wholesale and retail customers who are looking for private label products, we provide our own formulas, purchase raw material and contract third party manufacturers to produce products. For the customers who have their own formulas, we purchase raw materials and outsource to the third-party manufacturers and packing companies for their products.
Our products are sensitive to business and personal discretionary spending levels, and demand tends to decline or grow more slowly during economic downturns, including downturns in any of our major markets. The global economy is currently undergoing a period of downturn due to COVID-19, and the future economic environment continues to remain uncertain. This has led, and could further lead, to reduced consumer spending, which may include spending on nutritional and beauty products and other discretionary items. The increase of trade tensions between US and China and the COVID-19 pandemic have and might continue to have negative impacts on our business. The reduced consumer spending may force us and our competitors to lower prices. These conditions may adversely affect our revenues and results of operations.
Coronavirus (COVID-19)
At the end of 2019, there was an outbreak of a novel strain of coronavirus (COVID-19) which has spread rapidly to many parts of China and other parts of the world, including the U.S. In March 2020, the World Health Organization declared COVID-19 a pandemic. The pandemic has resulted in quarantines, travel restrictions, and the temporary closure of office buildings and facilities in China and in the U.S. The economic impact of the coronavirus or COVID-19 in both China and the U.S have significantly impacted our business and results of operations.
Our headquarters are located in California and were closed from March 19, 2020 to June 9, 2020. Due to the surge of COVID-19 cases in California, our offices were closed again from July 16, 2020 to September 16, 2020 and our employees worked remotely from home during these periods. Our offices have been reopened since September 16, 2020. Substantially all of our product sales revenues are generated in China and all of our OEM and packaging revenues are generated in the U.S. Consequently, our results of operations have been and will continue to be materially adversely affected, to the extent that the pandemic harms the Chinese and U.S. economies. Any potential impact to our results will depend on, to a large extent, future developments and new information that may emerge regarding the duration and severity of the pandemic and new variants, efficacy and distribution of COVID-19 vaccines and the actions taken by government authorities and other entities in China and U.S. to contain COVID-19 or treat its impact, almost all of which are beyond our control.
Although we expect that our health supplement products and our OEM/packaging services will still be in demand due to awareness of the importance of health growing along with the realities of COVID-19, the global economy has been and may continue to be negatively affected by COVID-19 and there is continued uncertainty about the duration and intensity of the impact of COVID-19. Many of our customers are individuals and small and medium-sized enterprises (SMEs), which may not have strong cash flows or be well capitalized, and may be vulnerable to a pandemic outbreak and slowing macroeconomic conditions. If the SMEs cannot weather the COVID-19 pandemic and the resulting economic impact, or cannot resume business as usual after a prolonged outbreak, our revenues and business operations may be materially and adversely impacted.
While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing the Company’s ability to access capital, which could negatively affect the Company’s liquidity.
Substantially all of our revenues are concentrated in the United States. Consequently, the COVID-19 outbreak has and may continue to materially adversely affect our business operations, financial condition and operating results, including but not limited to the material negative impact to the sourcing of raw materials and delivery of our products, revenues and collection of accounts receivable and any additional bad debt expense. The situation remains highly uncertain for any further outbreak or resurgence of the COVID-19, new variants and the efficacy and distribution of COVID-19 vaccines. It is therefore difficult for the Company to estimate the impact on our business or operating results that might be adversely affected by any further outbreak or resurgence of COVID-19 for 2022.
In addition, due to COVID-19 spreading around the world and some of the raw materials to produce our products are sourced from outside of the United States, the suppliers have been and might continue to be negatively impacted due to supply chain disruption, increased shipping costs and shortage of raw materials. Consequently, the COVID-19 outbreak has and may continue to materially adversely affect the Company’s business operations, financial condition and operating results for 2022, including but not limited to the shortage of raw materials, delay of shipment, and increased prices for the Company’s products manufactured by our suppliers.
The Company started to recover as total revenues for the years ended December 31, 2021 were higher as compared to the same period of 2020. Because of the uncertainty surrounding COVID-19, the financial impact for 2022 cannot be reasonably estimated at this time.
Looking ahead, we understand that these unprecedented times will have a financial impact on some of our customers, and might potentially cause us loss of certain existing customers. Our plan has been to promote the awareness of the importance of health and our health supplement products, which in turn might build sales with new customers to offset the loss of any of our existing customers.
As COVID-19 continues to impact global business, the U.S. government established relief programs for small business such as the Paycheck Protection Program (“PPP”) and the Economic Injury Disaster Loan program (“EIDL”). In 2020, we received a PPP loan of $131,100 and EIDL loan of $150,000 to help fund our operation in 2020. The PPP loan was fully forgiven by the SBA administration in January 2021.
On February 2, 2021, the Company received loan proceeds of $137,792 under the U.S. Small Business Administration (“SBA”) second round of Paycheck Protection Program (“PPP”) to help fund our operations in 2021. The PPP loan was fully forgiven by the SBA administration in October 2021.
Results of Operations
Comparison of the years ended December 31, 2021 and 2020
For the years ended December 31,
Percentage
Change
Change
Total sales
$ 1,481,068
$ 439,033
$ 1,042,035
237.3 %
Total cost of sales
1,035,091
454,346
580,745
127.8 %
Gross profit (loss)
445,977
(15,313 )
461,290
3,012.4 %
Operating expenses
Selling
82,981
48,190
34,791
72.2 %
General and administrative
1,271,500
1,345,007
(73,507 )
(5.5 )%
Stock compensation expense
179,992
421,101
(241,109 )
(57.3 )%
Loss (gain) on disposal of equipment
268,800
(16,000 )
284,800
1,780.0 %
Total operating expenses
1,803,273
1,798,298
4,975
0.3 %
Loss from operations
(1,357,296 )
(1,813,611 )
(456,315 )
(25.2 )%
Other income (expense), net
161,772
(3,927 )
165,699
4,219.5 %
Provision for income taxes
-
0.0 %
Net loss
$ (1,196,324 )
$ (1,818,338 )
$ (622,014 )
(34.2 )%
Total sales increased by approximately $1,042,000 or 237.3%, from approximately $439,000 in the year ended December 31, 2020 to approximately $1,481,000 in the year ended December 31, 2021. The increase of sales was mainly due to the OEM contracts that the Company signed in 2020 and we fulfilled approximately $1.3 million of the orders during the year ended December 31, 2021 with approximately $0.9 million unfilled as of December 31, 2021
The cost of sales increased by approximately $581,000, or 127.8%, from approximately $454,000 in the year ended December 31, 2020 to approximately $1,035,000 in the year ended December 31, 2021. The increase of cost of sales was in line with the increase of revenue as we fulfilled our OEM orders during the year ended December 31, 2021.
Our overall gross margin (loss) percentage increased from a gross loss of approximately (3.5)% in the year ended December 31, 2020 to a gross margin of approximately 30.1% in the year ended December 31, 2021, mainly due to the increase of sales in the year ended December 31, 2021 as compared to the same period in 2020. We had more sales to absorb our fixed production costs during the year ended December 31, 2021 as our products normally have high gross margins. In May 2021, we determined that it is more beneficial to outsource to third-party manufacturers the production of our branded and OEM products rather than manufacturing through our Nevada Factory. As a result, we closed our Nevada Factory, disposed its assets and terminated its lease in May 2021, which also contributed to a higher gross margin in 2021 because we had more idle manufacturing capacity cost for our Nevada factory during the same period in 2020 which had driven down our gross margin.
Our product sales decreased by approximately $27,000, or 38.0% from $69,735 for the year ended December 31, 2020 to $43,217 for the year ended December 31, 2021. The gross margin percentage decreased from approximately 48.8% in the year ended December 31, 2020 to approximately 30.7% in the year ended December 31, 2021. The reason for the decrease of gross margin percentage was due to providing more discounts to our customers during the year ended December 31, 2021 on some of our products that were closer to the expiration date as compared to the same period in 2020.
Our OEM and packaging sales increased by approximately $1,069,000, or 289.3% from approximately $369,000 for the year ended December 31, 2020 to approximately $1,438,000 for the year ended December 31, 2021. The gross margin percentage increased from approximately 29.2% in the year ended December 31, 2020 to approximately 31.2% in the year ended December 31, 2021. For the year ended December 31, 2021, we fulfilled our OEM orders with normal gross margin because we are no longer required to absorb our fixed production costs after the closing of our factory in Nevada in May 2021. During the year ended December 31, 2020, we had manufacturing overhead costs for our OEM and packaging sales including labor hours being allocated to such production, which we didn’t have during the majority of the year ended December 31, 2021. As a result, our OEM and packaging sales gross margin percentage increased by 2.0% during the year ended December 31, 2021 as compared to the year ended December 31, 2020.
Selling expenses increased from approximately $48,000 in the year ended December 31, 2020 to approximately $83,000 in the year ended December 31, 2021. The increase of approximately $35,000, or 72.2%, was mainly due to the increase of approximately $10,000 of sales department salaries as we transferred our factory employees to be our sales representatives after closing our Nevada factory in May 2021, the increase of approximately $46,000 of shipping and packing expenses as we had more OEM orders that required packing and shipping services, offset by the decrease of approximately $21,000 of advertising and marketing expenses and other selling expenses.
General and administrative (“G&A”) expenses decreased by approximately $74,000 from approximately $1,345,000 in the year ended December 31, 2020 to approximately $1,272,000 in the year ended December 31, 2021. The decrease was mainly attributable to the decrease of approximately $29,000 of bad debt expense, a decrease of approximately $54,000 contractor expense and the decrease of approximately $21,000 salary and employee benefit expenses as we closed our Nevada factory in May 2021. The decrease was offset by the increase of approximately $29,000 in professional fees, such as attorney fees, auditor fees and consulting fees.
Stock compensation expenses decreased by approximately $241,000 during the year ended December 31, 2021 compared to the same period in 2020. Approximately $180,000 and $296,000, related to the amortization of the value of 766,668 shares of restricted common stock issued to three employees for the years ended December 31, 2021 and 2020, respectively, which all had a vesting period of three years and were fully vested as of July 2021.
The loss on disposal of equipment increased by approximately $285,000 from a gain of $16,000 in the year ended December 31, 2020 to a loss of $268,800 in the year ended December 31, 2021. The decrease was mainly due to the Company disposing of its machinery in the Nevada factory for $7,700 which resulted $268,800 of loss on disposal of equipment in May 2021.
Other income (expense) increased by approximately $166,000 from an expense of approximately $(4,000) in the year ended December 31, 2020 to approximately $162,000 in the year ended December 31, 2021, mainly due to the decrease of interest expenses of approximately $143,000 incurred from a third party and related parties interest bearing loans that were transferred to DW Food California Food Distribution LLC, a related party, through a debt sale agreement in December 2020 and subsequently paid with shares of the Company’s common stock in December 2020. The increase of other income was also due to a $25,000 California Small Business COVID-19 Relief Grant that we received in May 2021.
Net loss decreased by approximately $622,000 from approximately $1.8 million in the year ended December 31, 2020 to approximately $1.2 million in the year ended December 31, 2021, mainly due to the reasons discussed above.
Liquidity and Capital Resources
As of December 31, 2021, we had a cash balance of approximately $900, compared to a cash balance of approximately $10,000 at December 31, 2020.
In assessing our liquidity, we monitor and analyze our cash on-hand and our operating and capital expenditure commitments. Our liquidity needs are to meet our working capital requirements, operating expenses and capital expenditure obligations. Other than operating expenses and current liabilities of approximately $1.4 million, the Company does not have significant cash commitments. Cash requirements include cash needed for purchase of inventory, payroll, payroll taxes, rent, and other operating expenses. However, in response to the liquidity factors described above, the Company has continued to find ways to reduce its operating expenses. In addition, should our Company need funds, our principal shareholder and Chief Executive and Financial Officer Mr. Dinghua Wang may lend additional money to the Company from time to time to the extent he is in a position and willing to do so. No assurance can be provided that he will continue to lend funds to the Company in the future.
Management has concluded under U.S. GAAP that there is substantial doubt about our ability to continue as a going concern as a result of our lack of significant revenue and sufficient working capital. If we are unable to generate significant revenue or secure financing, we may be required to cease or limit our operations. Our financial statements do not include adjustments that might result from the outcome of this uncertainty.
For the year ended December 31, 2021, cash used in operating activities amounted to approximately $216,000 as compared to approximately $990,000 used in operating activities in the same period in 2020. Cash used in operating activities for the year ended December 31, 2021 was primarily the result of our approximately $1.2 million net loss, the non-cash adjustment of approximately $138,000 for the gain on forgiveness of loan payable, and the payment of lease liabilities of approximately $162,000. This amount was partially offset by the non-cash expense of approximately $180,000 in stock based compensation, approximately $38,000 of depreciation expenses, approximately $214,000 in amortization of operating leases right-of-use assets and approximately $269,000 of loss on disposal of equipment, the decrease of accounts receivable of approximately $50,000, the decrease of inventories of approximately $52,000, the decrease of prepaid expenses approximately $113,000 as we realized our prepaid inventory purchases to fulfill our OEM orders and the increase of accounts payable and accrued expenses of approximately $111,000 and the increase of deferred revenue of approximately $246,000 as we still have some OEM backlog orders to be fulfilled.
For the year ended December 31, 2021, investing activities provided $7,700 in cash received from the sale of machinery in our Nevada factory.
For the year ended December 31, 2021, financing activities provided approximately $200,000 as compared to approximately $990,000 during the year ended December 31, 2020. Net cash received in the year ended December 31, 2021 includes approximately $138,000 from the second round of the SBA PPP loan that was forgiven in October 2021, and approximately $103,000 from a loan from our principal shareholder and Chief Executive and Financial Officer, Mr. Dinghua Wang partially offset by our repayment of approximately $24,000 to Mr. Dinghua Wang and approximately $17,000 of principal payments for long-term debt.
The material terms of the loans from Mr. Dinghua Wang, certain related parties and certain unaffiliated third parties are set forth in Note 6 and Note 7 of the accompanying notes to financial statements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements
Page
Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID: 2388)
Balance Sheets
Statements of Operations
Statements of Changes in Shareholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Merion, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Merion, Inc. (the “Company”) as of December 31, 2021 and 2020, and the related statements of operations, changes in shareholders’ deficit and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2 to the financial statements, the Company reported net losses of approximately $1,196,000 for the year ended December 31, 2021. At December 31, 2021, the Company has a significant working capital deficiency of approximately $1,300,000, a shareholders’ deficit of approximately $1,185,000 and has had to rely on additional borrowings to continue its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee/Board of Directors and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Going Concern
As described further in Note 2 to the financial statements, the Company has incurred significant losses, had negative working capital and lacks significant revenues. The ability of the Company to continue as a going concern is dependent on raising capital and ultimately to attain profitable operations. Accordingly, the Company has determined that these factors raise substantial doubt as to the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. Management intends to alleviate the going concern risk by investigating and securing various financing resources, including but not limited to borrowing from the Company’s major shareholder, private placements, and the possibility of raising funds through a future public offering.
We determined the Company’s ability to continue as a going concern is a critical audit matter due to the estimation and uncertainty regarding the Company’s available capital and the risk of bias in management’s judgments and assumptions in their determination.
Our audit procedures related to the Company’s assertion on its ability to continue as a going concern included the following:
·
We performed testing procedures such as analytical procedures to identify conditions and events that indicated there was substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.
·
We reviewed and evaluated management’s plans for dealing with the adverse effects of these conditions and events.
·
We inquired of Company management and reviewed Company records to assess whether there are additional factors that contribute to the uncertainties disclosed.
·
We assessed whether the Company’s determination that there is substantial doubt about its ability to continue as a going concern was adequately disclosed.
/s/ Wei, Wei & Co., LLP
We have served as the Company’s auditor since 2017.
Flushing, New York
April 8, 2022
PCAOB ID: 2388
MERION, INC.
BALANCE SHEETS
December,31
December 31
ASSETS
CURRENT ASSETS:
Cash
$ 882
$ 9,506
Accounts receivable, net
25,144
75,258
Inventories
22,174
80,730
Prepaid expenses
76,856
190,059
TOTAL CURRENT ASSETS
125,056
355,553
PROPERTY AND EQUIPMENT, net
86,043
400,694
OPERATING RIGHT-OF-USE ASSETS
398,260
612,118
DEPOSITS
15,410
15,410
TOTAL ASSETS
$ 624,769
$ 1,383,775
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Loan payable - Economic Injury Disaster Loan
$ 4,386
$ 2,344
Accounts payable and accrued expenses
218,360
113,125
Deferred revenue
749,600
503,448
Operating lease liabilities - current
288,049
221,819
Long term debt - current
17,395
15,208
Due to shareholder, non-interest bearing
134,500
55,607
TOTAL CURRENT LIABILITIES
1,412,290
911,551
NON-CURRENT LIABILITIES:
Operating lease liabilities - non-current
183,397
411,584
Long term debt
60,598
79,407
Loan payable - Economic Injury Disaster Loan
153,583
150,000
TOTAL NON-CURRENT LIABILITIES
397,578
640,991
TOTAL LIABILITIES
1,809,868
1,552,542
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Common stock, $0.001 par value, 333,333,333 shares authorized, 62,286,573 and 61,519,905 shares issued and outstanding, as of December 31, 2021 and December 31, 2020, respectively*
62,287
61,520
Additional paid-in capital
26,438,841
26,439,608
Deferred stock compensation
-
(179,992 )
Deficit
(25,950,532 )
(24,754,208 )
Stock subscription receivable
(1,735,695 )
(1,735,695 )
TOTAL SHAREHOLDERS' DEFICIT
(1,185,099 )
(168,767 )
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT
$ 624,769
$ 1,383,775
___________
*Giving retroactive effect to the 1-for-3 reverse stock split effected on July 27, 2021.
The accompanying notes are an integral part of these financial statements.
MERION, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
For the Years Ended December 31,
SALES
Direct Sales
$ 43,217
$ 69,735
OEM and Packaging
1,437,851
369,298
TOTAL SALES
1,481,068
439,033
COST OF SALES
Direct Sales
29,968
35,690
OEM and Packaging
988,917
261,320
Inventory write-down
6,908
49,358
Idle Capacity
9,298
107,978
TOTAL COST OF SALES
1,035,091
454,346
GROSS PROFIT (LOSS)
445,977
(15,313 )
OPERATING EXPENSES
Selling expenses
82,981
48,190
General and administrative expenses
1,271,500
1,345,007
Stock compensation expense
179,992
421,101
Loss (gain) on disposal of equipment
268,800
(16,000 )
Total operating expenses
1,803,273
1,798,298
LOSS FROM OPERATIONS
(1,357,296 )
(1,813,611 )
OTHER INCOME (EXPENSE), net
Other income
36,870
21,136
Finance expenses
(12,890 )
(156,163 )
Gain on forgiveness of loan payable
137,792
131,100
Total other income (expense), net
161,772
(3,927 )
LOSS BEFORE INCOME TAXES
(1,195,524 )
(1,817,538 )
PROVISION FOR INCOME TAXES
NET LOSS
$ (1,196,324 )
$ (1,818,338 )
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
Basic and diluted*
61,881,184
59,433,104
LOSS PER SHARE
Basic and diluted*
$ (0.02 )
$ (0.03 )
_________
*Giving retroactive effect to the 1-for-3 reverse stock split effected on July 27, 2021.
The accompanying notes are an integral part of these financial statements.
MERION, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
For the Years Ended December 31, 2021 and 2020
Additional
Deferred
Stock
Common Stock*
Paid-in
Stock
Subscription
Shares
Amount
Capital
Compensation
Deficit
Receivable
Total
BALANCE, December 31, 2019
59,136,129
$ 59,136
$ 19,302,663
$ (601,093 )
$ (22,935,870 )
$ (1,140,695 )
$ (5,315,859 )
Net loss
-
-
-
-
(1,818,338 )
-
(1,818,338 )
Amortization of deferred stock compensation
-
-
-
421,101
-
-
421,101
Issuance of common stock for cash and financing related services
570,666
1,699,429
-
-
(645,000 )
1,055,000
Collection of stock subscription
-
-
-
-
-
50,000
50,000
Issuance of common stock for debt settlement
1,813,110
1,813
5,437,516
-
-
-
5,439,329
BALANCE, December 31, 2020
61,519,905
61,520
26,439,608
(179,992 )
(24,754,208 )
(1,735,695 )
(168,767 )
Net loss
-
-
-
-
(1,196,324 )
-
(1,196,324 )
Amortization of deferred stock compensation
-
-
-
179,992
-
-
179,992
Vested restricted stock units
766,668
(767 )
-
-
-
-
BALANCE, December 31, 2021
62,286,573
$ 62,287
$ 26,438,841
$ -
$ (25,950,532 )
$ (1,735,695 )
$ (1,185,099 )
__________
*Giving retroactive effect to the 1-for-3 reverse stock split effected on July 27, 2021.
The accompanying notes are an integral part of these financial statements.
MERION, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
For the Years Ended December 31,
Cash Flows from Operating Activities:
Net loss
$ (1,196,324 )
$ (1,818,338 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
38,150
59,209
Loss (gain) on disposal of equipment
268,800
(16,000 )
Stock compensation expense
179,992
421,101
Amortization of operating right-of-use assets
213,858
189,649
Bad debt expense
-
28,723
Inventory write-down
6,908
49,358
Gain on forgiveness of loan payable
(137,792 )
(131,100 )
Changes in operating assets and liabilities
Accounts receivable
50,114
(64,200 )
Inventories
51,648
35,656
Prepaid expenses
113,203
(166,709 )
Accounts payable and accrued expenses
110,862
102,701
Deferred revenue
246,152
496,755
Operating lease liabilities
(161,957 )
(176,901 )
Net Cash Used in Operating Activities
(216,386 )
(990,096 )
Cash Flows from Investing Activities:
Proceeds from disposal of equipment
7,700
-
Net Cash Provided by Investing Activities
7,700
-
Cash Flows from Financing Activities:
Proceeds from issuance of common stock and stock subscription
-
1,105,000
Advances from shareholder
103,148
27,927
Repayment of shareholder loan
(24,255 )
(410,375 )
Advances from third parties, non-interest bearing
-
10,000
Repayment of advances from third parties, non-interest bearing
-
(10,000 )
Proceeds from loan payable
137,792
281,100
Principal payments of long-term debt
(16,623 )
(13,287 )
Net Cash Provided by Financing Activities
200,062
990,365
Net Change in Cash
(8,624 )
Cash, beginning of year
9,506
9,237
Cash, end of year
$ 882
$ 9,506
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest
$ 2,075
$ 3,866
Cash paid for income tax
$ 800
$ 800
.
Non-cash Transactions of Investing and Financing Activities:
Stock issued for debt settlement
$ -
$ 5,439,329
Forgiveness of loan payable
$ 137,792
$ 131,100
Initial recognition of operating right-of-use assets and lease liabilities
$ -
$ 278,883
Nonmonetary exchange of equipment and issuance of debt for equipment
$ -
$ 123,902
The accompanying notes are an integral part of these financial statements.
MERION, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization
Merion, Inc. (the “Company”), a Nevada corporation, was formed on February 4, 2011. Its predecessor, E-World USA Holding, Inc., was a California company incorporated in 2007 (“E-World CA”). In April 2011, E-World CA entered into a merger agreement with its wholly-owned subsidiary, E-World USA Holding, Inc., a Nevada corporation (“E-World NV”) that was the survivor of the merger and became the Company. Under the Merger Agreement, the Company issued 30,000,000 shares of its common stock on a one for one basis for each share of E-World CA’s common stock issued and outstanding at the date of the merger. In addition, the Company issued Type A Warrants and Type B Warrants in exchange for comparable warrants issued and outstanding of E-World CA at the date of the merger. On June 27, 2017, the Company filed an amendment to its Articles of Incorporation with the Secretary of State for the State of Nevada to change its name from E-World NV to Merion, Inc.
The Company is a provider of health and nutritional supplements and personal care products currently sold on the internet through its website, at www.merionus.com, and to wholesale distributors. The Company also provides Original Equipment Manufacturer (“OEM”) and packaging services of hard capsules, tablets, solid beverage (sachet packaging), teabags, powder, granules, dietary supplements for export, softgel capsules and health food.
In May 2021, the Company decided to outsource to third-party manufacturers the production of its branded and OEM products rather than manufacturing through its Nevada factory. As a result, the Company disposed of its machinery and terminated its Nevada factory lease in May 2021. As the Company has significant continuing involvement in the sale of its branded and OEM products through its third-party manufacturers, this restructuring did not constitute a strategic shift that will have a major effect on the Company’s operations and financial results. Therefore, the results of operations for its Nevada factory were not reported as discontinued operations under the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Section 205.
Note 2 - Going Concern
Management has determined there is substantial doubt about our ability to continue as a going concern as a result of our lack of significant revenues, significant recurring losses, and negative working capital. If we are unable to generate significant revenue or secure additional financing, we may be required to cease or curtail our operations. Our financial statements do not include adjustments that might result from the outcome of this uncertainty.
Management is trying to alleviate the going concern risk by: engaging external sales representatives to sell the Company’s products, investigating and securing various financing resources, including but not limited to borrowing from the Company’s major shareholder, private placements, and the possibility of raising funds through a future public offering.
Note 3 - Summary of Significant Accounting Policies
Basis of Presentation
These financial statements have been presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s financial statements include the useful lives of property and equipment, the collectability of receivables, the valuation of inventory and impairment of long-lived assets. The inputs into the Company’s judgments and estimates consider the economic implications of COVID-19 on the Company’s critical and significant accounting estimates. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are comprised primarily of money market accounts and foreign and domestic bank accounts. To reduce its credit risk, the Company monitors the credit standing of the financial institutions that hold the Company’s cash and cash equivalents.
Accounts Receivable
Trade accounts receivable are periodically evaluated for collectability based on credit history with customers and their current financial condition. Bad debt expense or write-offs of receivables are determined on the basis of loss experience, known and inherent risks in the receivable portfolio, and current economic conditions.
The accounts receivable balance and allowance for doubtful accounts are as follows:
December 31,
December 31,
Accounts receivable
$ 25,144
$ 75,258
Allowance for doubtful accounts
-
-
Accounts receivable, net
$ 25,144
$ 75,258
Movement of the allowance for doubtful accounts is as follows:
Year
Ended
December 31,
Year
Ended
December 31,
Beginning balance
$ -
$ 41,011
Provision for doubtful accounts
-
28,723
Less: write-offs
-
(69,734 )
Ending balance
$ -
$ -
Inventories
Inventories are valued at the lower of cost (determined on a first-in, first-out basis) or net realizable value. Inventory consists of nutritional products, beauty products, and raw materials to be used by the Company’s third party manufacturers. Management reviews inventory on hand for estimated obsolescence or unmarketable items, as compared to future demand requirements and the shelf life of the various products. Based on the review, the Company records inventory write-downs, when necessary, when costs exceed expected net realizable value. The inventories’ shelf lives are approximately 3 years. For the years ended December 31, 2021 and 2020, the Company recognized $6,908 and $49,358, respectively, of inventory obsolescence reserves or write-downs.
Property and Equipment, net
Property and equipment are stated at cost, net of accumulated depreciation. Upon disposition, the cost and related accumulated depreciation and amortization is removed from the books, and any resulting gain or loss is included in operations. The Company provides depreciation and amortization using the straight-line method over the estimated useful lives of various classes as follows:
Machinery
10 years
Computer and software
3 to 5 years
Furniture and fixtures
5 to 10 years
Vehicles
5 to 7 years
Leasehold improvements
over the lesser of the remaining lease term or the expected life of the improvement
Repairs and maintenance are charged to operations when incurred while betterments and renewals are capitalized.
Right-of-use Asset and Lease Liabilities
The Company utilizes the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02 “Leases (Topic 842).” for all periods presented. This standard requires lessees to recognize lease assets (“right of use”) and related lease obligations (“lease liabilities”) on the balance sheet for leases with terms in excess of 12 months.
Long-Lived Assets
Long-lived assets, including property, equipment, and right-of-use-assets with finite lives, are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognizes an impairment loss when estimated discounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When the Company identifies an impairment, the Company reduces the carrying amount of the asset to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values. Management reviewed the impact of COVID-19 and the related disruptions on the Company’s operating results, and based upon potential orders, it believes that currently there was no impairment during the years ended December 31, 2021 and 2020.
Deferred Revenue
Deferred revenue represents payments advanced by customers on specified product orders or on future orders that have not been shipped as of the balance sheet date. Deferred revenue also represents shipping fee deposits advanced by customers in relation to the unshipped product orders. Deferred revenue is reduced when the related sale is recognized in accordance with the Company’s revenue recognition policy.
Fair Value of Financial Instruments
The FASB accounting standards codification (“ASC”), FASB ASC 825 Financial Instruments, requires that the Company discloses estimated fair values of financial instruments.
As defined in ASC 820 Fair Value Measurement, fair value is 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 (exit price). The Company utilizes the market data of similar entities in its industry or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
The three levels of the fair value hierarchy are as follows:
Level 1 -
Quoted prices that are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 -
Pricing inputs, other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reporting date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Level 3 -
Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
Revenue Recognition
The Company’s revenue is recognized based on the amount of consideration the Company expects to receive in exchange for satisfying the performance obligations in accordance with ASC 606 Revenue from Contracts with Customers.
The core principle underlying the revenue recognition is that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This requires the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s revenue streams are recognized at a point in time, based on when control of goods and services transfers to a customer and there are no remaining performance obligations under the contract.
ASC 606 requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies each performance obligation.
The Company accounts for a contract with a customer when the contract is committed in writing, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection.
The Company derives its revenues from sales contracts with its customers with revenues being recognized upon delivery of products. Persuasive evidence of an arrangement is demonstrated via sales contracts and invoices; and the sales price to the customer is fixed upon acceptance of the sales contract. Sales rebates or discounts are recognized as a reduction of revenue when the sale is made. The Company recognizes revenue when control of the goods is transferred upon shipment to the customer by the Company and collectability of payment is reasonably assured. These revenues are recognized at a point in time after all performance obligations are satisfied.
The Company also recognizes revenue on shipping and handling fees charged to the Company’s customers. Shipping and handling fee revenue is recognized when products have been delivered at a point in time. Shipping and handling fee revenues totaled $10,430 and $1,288 for the years ended December 31, 2021 and 2020, respectively.
Product returns are allowed for unopened products purchased under regular sales terms within 60 days. Allowances for product returns are provided at the time the sale is recorded using historic return rates for each country and the relevant return pattern. Historically the Company has a return rate of nearly zero. Accordingly, the allowance as of December 31, 2021 and 2020 is estimated at $0.
In addition to the Company’s 60-day return policy, the Company, at its discretion, may accept a customer’s application for a buy-back of products previously sold within one year at 90% of the original product’s cost less commissions and shipping costs. To date, the Company has not received any buy-back applications. As a result, no allowance for buy-backs had been recorded as of December 31, 2021 and 2020.
The majority of the Company’s product sales are generated from China and all of the Company’s OEM and packaging sales are generated from the United States.
Shipping and Handling Expenses
Shipping and handling costs incurred by the Company are included in selling expenses and totaled $27,443 and $13,617 for the years ended December 31, 2021 and 2020, respectively.
Income Taxes
The Company utilizes ASC 740 Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Deferred taxes are also recognized for net operating losses that can be carried forward. A valuation allowance is established, when necessary, to reduce net deferred tax assets to the amount expected to be realized.
Reverse Stock Split
On June 11, 2021, the Company’s Board of Directors approved a 1-for-3 reverse stock split of the Company’s common stock and filed on July 27, 2021, a Certificate of Change with the State of Nevada effective upon filing (see Note 11). All share and per share amounts (except for par value amount) used herein and in the accompanying financial statements have been retroactively restated to reflect this reverse stock split.
Basic and Diluted Earnings (Loss) Per Share
Generally accepted accounting principles regarding earnings per share (“EPS”) require presentation of basic and diluted earnings (loss) per share in conjunction with the disclosure of the methodology used in computing such earnings (loss) per share.
Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average of common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. These common stock equivalents are not included when the Company has a loss because they would be anti-dilutive.
766,668 shares of vested but unissued common stock are included in the basic and diluted EPS calculation for the year ended December 31, 2021.
Concentration of Credit Risk
Financial instruments
Financial instruments that potentially subject the Company to concentrations of credit risk are cash and accounts receivable arising from its normal business activities. The Company maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation (FDIC) insured limits for the banks located in the United States. The Company had no uninsured balances as of December 31, 2021.
Major Customers and Suppliers
For the year ended December 31, 2021, one customer accounted for approximately 87% of the Company’s sales and for the year ended December 31, 2020, one customer accounted for approximately 56% of the Company’s sales.
As of December 31, 2021 and 2020, one customer accounted for approximately 100% and 82% of the Company’s accounts receivable, respectively.
For the year ended December 31, 2021, three suppliers accounted for 69% (35%, 23% and 11%) of the Company’s product purchases and for the year ended December 31, 2020, one supplier accounted for 72% of the Company’s product purchases.
Related Parties
A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is 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 if one party controls or can significantly influence management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.
New Accounting Pronouncements
In May 2019, the FASB issued ASU 2019-05, which is an update to ASU Update No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in Update 2016-13 added Topic 326, Financial Instruments-Credit Losses, and made several consequential amendments to the Codification. The amendments in this update address those stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with decision-useful information. In November 2019, the FASB issued ASU No. 2019-10, to update the effective date of ASU No. 2016-13 for private companies, not-for-profit organizations and certain smaller reporting companies applying this standard. The new effective date for these preparers is for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company has not early adopted this update and it will become effective on January 1, 2023 assuming the Company will remain eligible to be a smaller reporting company. The Company is currently evaluating the impact of this new standard on the Company’s financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. The amendments in this Update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 was effective for the Company for annual and interim reporting periods beginning January 1, 2021. The adoption of this ASU on January 1, 2021 did not have any significant impact on Company’s financial statements and related disclosures.
The Company does not believe other recently issued but not yet effective accounting standards and updates, if currently adopted, would have a material effect on the Company’s financial statements.
Note 4 - Inventories
Inventories consist of raw materials for production, work-in-progress and finished goods available for resale, and can be categorized as:
December 31,
December 31,
Raw materials
$ 12,136
$ 51,078
Work-in-progress
4,873
8,925
Finished goods
5,165
20,727
Inventories
$ 22,174
$ 80,730
Note 5 - Property and Equipment
Property and equipment consist of the following:
December 31,
December 31,
Computer equipment and software
$ 114,953
$ 114,953
Furniture and fixtures
26,686
26,686
Automobiles
123,902
123,902
Leasehold improvements
40,053
40,053
Machinery
-
420,000
Total
305,594
725,594
Less: accumulated depreciation and amortization
(219,551 )
(324,900 )
Property and equipment, net
$ 86,043
$ 400,694
Depreciation expense totaled $38,150 and $59,209 for the years ended December 31, 2021 and 2020, respectively.
In May 2021, the Company determined that it would outsource to the third-party manufacturers the production of its branded and OEM products rather than manufacturing through its Nevada factory. As a result, the Company disposed of its machinery for $7,700 which resulted in $268,800 of loss on disposal of equipment for the year ended December 31, 2021.
Note 6 - Debt
Loan payable - Paycheck Protection Program (“PPP”)
On April 17, 2020, the Company received loan proceeds in the amount of approximately $131,100 under the U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualified business. The loans and accrued interest are forgivable after eight weeks (or an extended 24-week covered period) as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The loan forgiveness amount will be reduced for the Economic Injury Disaster Loan (“EIDL”) advance of $10,000 that the Company received on April 28, 2020. The amount of loan forgiveness will be further reduced if the borrower terminates employees or reduces salaries during the eight-week period by more than 25%. The Company filed for loan forgiveness and the application was approved on January 8, 2021. The PPP loan was accounted for as a government grant and the forgiveness of the loan was recorded in other income during the year ended December 31, 2020.
On February 2, 2021, the Company received loan proceeds of $137,792 under the U.S. Small Business Administration (“SBA”) second round of the Paycheck Protection Program (“PPP”). The Company filed for loan forgiveness and the application was approved on October 20, 2021. The PPP loan was accounted for as a government grant and the forgiveness of the loan was recorded in other income during the year ended December 31, 2021.
Loan payable - Economic Injury Disaster Loan (“EIDL”)
On July 17, 2020, the Company received a loan in the amount of $150,000 from the Small Business Administration (“SBA”) EIDL program administered by the SBA pursuant to the CARES Act. In accordance with the requirements of the CARES Act, the Company used the proceeds primarily for working capital to alleviate economic injury caused by the COVID pandemic occurring in the month of January 2020 and continuing thereafter. The SBA loan is scheduled to mature on July 17, 2050 with a 3.75% interest rate and is subject to the terms and conditions applicable to loans administered by the SBA under the CARES Act. The monthly payable, including principal and interest of $731, commences on July 17, 2022.
The obligation is payable as follows:
Year ended December 31,
Amount
(Unaudited)
$ 4,386
8,772
8,772
8,772
8,772
Thereafter
229,463
Total SBA loan payment
268,937
Less: interest
(110,968 )
Present value of SBA loan
157,969
Less; current portion of SBA loan
(4,386 )
Non-current portion of SBA loan
$ 153,583
Interest expense for the year ended December 31, 2021 amounted to $5,625.
Due to third parties, interest bearing
The Company borrowed money from third parties to fund operations. These third parties consisted of friends of Mr. Dinghua Wang, the Chairman, Chief Executive and Financial Officer of the Company, and the spouse of a former board member of the Company. These advances had a weighted average annual interest rate of 10%. and were unsecured. The full balance of the loans of $1,500,000 was transferred to DW California Food Distribution LLC (“DW Food”), a California limited liability company that is owned by Mr. Dinghua Wang, through a debt sale agreement in December 2020. This balance due to DW Food was subsequently paid with shares of the Company’s common stock in December 2020 (See Note 7 - Related Party Transactions).
Interest expense for the years ended December 31, 2021 and 2020 for the above loans amounted to $0 and $136,937, respectively.
Long term debt
In March 2020, the Company purchased and financed a vehicle with a six year loan for approximately $124,000. The Company traded in a fully depreciated vehicle and received a credit of $16,000. The monthly payments are $1,715 from March 2020 to February 2026, with interest at 4.56% per annum.
The obligation is payable as follows:
Year ended December 31 ,
Amount
(Unaudited)
$ 17,395
18,203
19,049
19,934
3,412
Total long-term debt payment
77,993
Less: current portion
(17,395 )
Long term debt
$ 60,598
Interest expense for the years ended December 31, 2021 and 2020 for the above loan amounted to $3,961 and $3,866, respectively.
Note 7 - Related Party Transactions
Due to shareholder, non-interest bearing
From time to time, Mr. Dinghua Wang advances monies to the Company and the Company repays such advances. Such business transactions are recorded as due to or from Mr. Dinghua Wang at the time of the transaction. During the years ended December 31, 2021 and 2020, advances totaled $103,148 and $27,927, respectively, and repayments totaled $24,255 and $410,375, respectively. As of December 31, 2021 and 2020, the balance due to Mr. Dinghua Wang, non-interest bearing, amounted to $134,500 and $55,607, respectively. This balance is unsecured.
Advance from related party, interest bearing
The Company borrowed $30,000 from a related party to fund operations in July 2016. This related party is the son of Mr. Dinghua Wang. The advance had an annual interest rate of 10%, was unsecured and was due on March 20, 2024. The advance of $30,000 was transferred to DW Food, a related party, through a debt sale agreement in December 2020. This balance due to DW Food was subsequently paid with shares of the Company’s common stock in December 2020.
Interest expense for the years ended December 31, 2021 and 2020 for the above loans amounted to $0 and $2,753, respectively.
Note 8 - Income Taxes
The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the years ended December 31, 2021 and 2020:
Year ended December 31, 2021
Year ended December 31, 2020
Federal statutory rate
21.0 %
21.0 %
State statutory rate
7.0 %
7.0 %
Valuation allowance
(25.0
)%
(24.2 )%
Permanent difference *
(3.1
)%
(3.8 )%
Effective tax rate
(0.1 )%
(0.0 )%
________
*Represents 50% of meal and entertainment expenses and stock compensation expenses that are not deductible offset by the forgiveness of the PPP loan which is not taxable.
The Company uses the asset and liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. Deferred taxes are also recognized for net operating loss carry forwards which can be utilized to offset taxable income in the future. Net operating losses for the years from 2017 through December 31, 2021 of approximately $6.3 million will not expire but are limited to 80% of income until utilized. Net operating losses for the year ended 2016 and prior years of approximately $4.0 million will expire in the years from 2031 to 2036. As deferred tax assets may not be fully realizable due to potential recurring losses, management has provided a 100% valuation allowance for the deferred tax assets.
The components of the deferred tax assets are as follows:
December 31,
December 31,
Amortization of intangible assets
$ -
$ 181,333
Net operating losses
2,892,295
2,593,424
Deferred tax assets
2,892,295
2,774,757
Valuation allowance
(2,892,295
)
(2,774,757 )
Deferred tax assets, net
$ -
$ -
Changes in the valuation allowance for deferred tax assets increased by $117,538 and $441,734 for the years ended December 31, 2021 and 2020, respectively.
As of December 31, 2021, federal tax returns filed for 2018, 2019 and 2020 remain subject to examination by the taxing authorities. As of December 31, 2021, California tax returns filed for 2017, 2018, 2019 and 2020 remain subject to examination by the taxing authorities
Note 9 - Leases
Operating leases
Effective January 1, 2019, the Company adopted ASU 2016-02, “Leases” (Topic 842), and elected the practical expedients that did not require us to reassess: (1) whether any expired or existing contracts are, or contain, leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. The Company adopted the practical expedient that allows lessees to treat the lease and non-lease components of a lease as a single lease component.
In January 2019, the Company entered an office lease agreement with a 5-year lease term starting in March 2019 and ending in February 2024. The Company recognized lease liabilities of approximately $618,000, with a corresponding right-of-use (“ROU”) asset in the same amount based on the present value of the future minimum rental payments of the lease, using an effective interest rate of 4.78%, which was determined using the Company’s estimated incremental borrowing rate. As of December 31, 2021, the remaining term of the lease is 2.17 years.
In March 2020, the Company entered another office lease agreement with a 3-year lease term starting in March 2020 and ending in February 2023. The Company recognized lease liabilities of approximately $279,000, with a corresponding right-of-use (“ROU”) asset in the same amount based on the present value of the future minimum rental payments of the new lease, using an effective interest rate of 4.78%, which was determined using the Company’s incremental borrowing rate. As of December 31, 2021, the remaining term of the lease is 1.17 years.
The Company leased factory space on a month-to-month basis, which it classified as an operating lease. This lease was terminated in May 2021. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
For the years ended December 31, 2021 and 2020, lease expenses amounted to $253,146 and $264,479, respectively, of which, $14,000 and $42,000 are short-term lease expenses, respectively.
The maturity of the Company’s lease obligations is presented below:
Year ended December 31,
Amount
$ 302,795
163,885
24,656
Total lease payments
491,336
Less: interest
(19,890 )
Present value of lease liabilities
471,446
Less: current portion of lease liabilities
(288,049 )
Non-current portion of lease liabilities
$ 183,397
Note 10 - Commitments and Contingencies
Contingencies
Coronavirus (COVID-19)
At the end of 2019, there was an outbreak of a novel strain of coronavirus (COVID-19) which has spread rapidly to many parts of China and other parts of the world, including the United States. The pandemic resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities in China, United States, and elsewhere around the world.
Substantially all of the Company’s revenues are concentrated in China and the United States. Consequently, the COVID-19 pandemic had and may continue to materially adversely affect the Company’s business operations, financial condition and operating results for 2022, including but not limited to the material negative impact to the Company’s suppliers and delivery of products, total revenues, slower collection of accounts receivable and additional bad debt expense. The situation remains highly uncertain for any further outbreak or resurgence of COVID-19 and its new variants. It is therefore difficult for the Company to estimate the impact on our business or operating results that might be adversely affected by any further outbreak or resurgence of COVID-19 and its new variants.
In addition, due to COVID-19 going around the world and some of the raw materials to produce our products are sourced from outside of the United States, the suppliers have been and might continue to be negatively impacted due to supply chain disruption, increases of shipping costs and shortages of raw materials around the world. Consequently, COVID-19 has continued to materially adversely affect the Company’s business operations, financial condition and operating results for 2021, including but not limited to the raw material shortage, delay of shipment, and increased price for the Company’s products manufactured by our suppliers.
Because of the uncertainty surrounding COVID-19, the financial impact for 2022 cannot be reasonably estimated at this time. The Company’s operations started to recover as total revenues for year ended December 31, 2021 were higher as compared to the same period of 2020. There can be no assurance that we will be able to maintain or increase our revenues for 2022.
Note 11 - Equity
Reverse stock split
On June 11, 2021, the Company’s Board of Directors approved a 1-for-3 reverse stock split of the Company’s common stock. On July 27, 2021, the Company filed a Certificate of Change with the State of Nevada (the “Certificate”) to effect a 1-for-3 reverse stock split of the Company’s authorized shares of common stock, par value $0.001 (the “Common Stock”), accompanied by a corresponding decrease in the Company’s issued and outstanding shares of Common Stock (the “Reverse Stock Split”), effective upon filing. Following the Reverse Stock Split, the number of authorized shares of Common Stock was reduced from 1,000,000,000 to 333,333,333.
Private placements
During year ended December 31, 2020, the Company entered into a series of Securities Purchase Agreements with various unrelated third party purchasers, pursuant to which the Company sold to these purchasers in private placements an aggregate of 566,667 shares of the Company’s common stock, at a purchase price of $3.00 per share for an aggregate offering price of $1,700,000.
In connection with the private placements, the Company issued an aggregate of 4,000 shares of Common Stock to various unrelated third-party individuals located outside the United States as compensation for introducing private placement investors outside of the U.S. to the Company. These shares were valued at $12,000, which was determined by using the associated average private placement purchase price of $3.00 per share. The value of the shares was accounted for as a reduction of additional paid-in capital because the issuances were made as compensation for financing-related services in connection with the Company’s private placement.
As of December 31, 2021 and 2020, $1,735,695 was unpaid and recognized as stock subscription receivables in the accompanying statements of changes in shareholders’ deficit. During the years ended December 31, 2021 and 2020, the Company received $0 and $50,000 of the stock subscription receivables, respectively.
Settlement of debt
On December 11, 2020, the Company entered into a Debt Repayment Agreement with Mr. Dinghua Wang and DW Food, a company that is owned by him, pursuant to which the Company agreed to repay $5,243,839 of debt owed to Mr. Dinghua Wang and his Company in the form of shares of Common Stock of the Company for an aggregate of 1,747,947 shares at a price of $3.00 per share, which was determined by using the latest private placement purchase price of $3.00 per share. As a result, there was no gain/loss recorded in these transactions. The Debt Repayment was completed pursuant to the exemption from registration provided by Regulation D promulgated under the Securities Act of 1933, as amended.
On December 21, 2020, the Company entered into a Debt Repayment Agreement with Mr. Dinghua Wang and DW Food, a company that is owned by him, pursuant to which the Company agreed to repay $195,490 of debt owed to Mr. Dinghua Wang and his Company in the form of shares of Common Stock of the Company for an aggregate of 65,163 shares at a price of $3.00 per share, which was determined by using the latest private placement purchase price of $3.00 per share. As a result, there was no gain/loss recorded in this transaction. The Debt Repayment was completed pursuant to the exemption from registration provided by Regulation D promulgated under the Securities Act of 1933, as amended.
Common stock issued for consulting services
On March 13, 2019, the Company entered into a consulting agreement with Global Merchants Union (“GMU”), pursuant to which GMU was to provide business, financial operations and planning consultation services to the Company for consideration of $7,500 per month and a one-time stock payment of 333,334 shares of common stock of the Company (the “Share Payment”). The monthly payments in the agreement were cancelled in May 2019. However, GMU was required to provide services in respect to the stock compensation for the remaining term of the agreement until March 12, 2020. For the years ended December 31, 2021 and 2020, amortization of deferred compensation of these shares amounted to $0 and $125,000, respectively.
Issuance of restricted common stock
On July 13, 2018, the Board of Directors of the Company approved the grant of 766,668 restricted stock units (the “RSUs”) to three employees of the Company, pursuant to the Merion, Inc. 2018 Omnibus Equity Plan. The RSUs vested 30% each on July 13, 2019 and 2020 and the remaining 40% of the RSUs vested on July 13, 2021, in each case provided that the employee remains employed, in good standing, by the Company. These shares were valued at $851,000, determined using the closing price of the Company’s common stock on July 13, 2018 of $1.11 per share, and were being amortized ratably over the term of the vesting period of three years on a straight line basis. The Company accounts for the restricted common stock as equity-settled awards in accordance with ASC 718. For the years ended December 31, 2021 and 2020, amortization of deferred stock compensation of these shares amounted to $179,992 and $296,101, respectively.
Although the RSUs were fully vested in July 2021, the Company has not instructed the transfer agent to issue the shares of common stock. However, the 766,668 shares of common stock to be issued are being shown as outstanding as of July 13, 2021 for financial statement purposes.
The following table summarizes unvested restricted common stock activity for the years ended December 31, 2021 and for the year ended December 31, 2020:
Number of
shares
Weighted average grant-date fair value per share
Outstanding as of December 31, 2019
536,668
$ 1.11
Granted
-
-
Vested
230,000
-
Forfeited
-
-
Outstanding as of December 31, 2020
306,668
1.11
Granted
-
-
Vested
306,668
-
Forfeited
-
-
Outstanding as of December 31, 2021
-
$ -
Note 12 - Subsequent Events
The Company evaluated all events and transactions that occurred after December 31, 2021 up through the date the Company issued these financial statements on April 8, 2022. Based on the review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosures
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Office/Chief Financial Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2021. Based upon such evaluation, the Chief Executive Officer/Chief Financial Officer concluded that, as of December 31, 2021, the Company’s disclosure controls and procedures were not effective. This conclusion by the Company’s Chief Executive Officer/Chief Financial Officer does not relate to reporting periods after December 31, 2021.
Management’s Report on Internal Control over Financial Reporting
Under the supervision of our Chief Executive Officer/ Chief Financial Officer, and with the participation of our management, we conducted an evaluation of the effectiveness of our internal controls over financial reporting as of December 31, 2021, based on the framework stated by the Committee of Sponsoring Organizations of the Treadway Commission.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on its evaluation as of December 31, 2021, our management concluded that our internal controls over financial reporting were not effective as of December 31, 2021. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness relates to the following:
Lack of Accounting and Finance Expertise - Our current accounting staff is relatively small, and we do not have the required infrastructure of meeting the higher demands of being a U.S. public company. This material weakness also relates to a lack of personnel with expertise in preparing financial statements in accordance with U.S. GAAP.
Remediation
Our management has dedicated resources to correct the control deficiencies and to ensuring that we take proper steps to improve our internal control over financial reporting in the area of financial statement preparation and disclosure.
We have taken a number of remediation actions that we believe will improve the effectiveness of our internal control over financial reporting, including the following:
·
Hired a consulting firm with expertise in U.S. GAAP financial reporting and accounting.
·
Implemented an internal review process over financial reporting to continue to improve our ongoing review and supervision of our internal control over financial reporting;
This annual report does not and is not required to include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting.
Changes in Internal Control over Financial Reporting
No change in the Company’s internal controls over financial reporting occurred during the period covered by this annual report on Form 10-K, that materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
Directors and Executive Officers
The board of directors appoints our executive officers. Any vacancy on the board of directors may be filled by the affirmative vote of a majority of the shareholders at a special meeting called for that purpose or by the board of directors. Each director is elected by the Company’s shareholders, to serve until his successor is elected and qualified, or until his earlier resignation or removal. Our directors and executive officers are as follows:
Name
Age
Position
Ding Hua Wang
Chairman, CEO, CFO, President and Director
Xun Zhang
Director
Vickie Ho
Executive Vice President
Ding Hua Wang joined our predecessor company in January 2007 as a product consultant. In November 2007, he became CEO, CFO, President and Chairman of our predecessor company and has been CEO, CFO, President, Chairman and Director of our company since March 2011. From August 2005 to December 2006, Mr. Wang was CEO of Ansheng Company International Products, a nutrition products manufacturing and wholesale company. From January 1999 to August 2005, Mr. Wang was CEO of Ansheng Company, a Chinese herbal medicine imports and store sales company. Mr. Wang studied at Zhejiang University of Traditional Chinese Medicine from January 1986 to February 1991. He attended American Global University in alternative medicine from August 2001 to September 2003 but did not receive a degree. As a member of the board, Mr. Wang contributes significant industry-specific experience and expertise on our products and services. Mr. Wang also contributes his knowledge of the Company and a deep understanding of all aspects of our business, products and markets, as well as substantial experience developing corporate strategy, assessing emerging industry trends, and business operations.
Xun Zhang has served as a member of our Board of Directors since March 2011. From 2003 to date, Mr. Zhang has been Assistant Professor at Harvard Medical School in Boston, Massachusetts. From 1998 to date, he has been the director of Neuroendocrine Research Laboratory of Massachusetts General Hospital in Boston, Massachusetts. Mr. Zhang received a PhD in 1994 from the State University of New York at Albany. With responsibility for product development guidance, Mr. Zhang brings his educational and research knowledge and experience to the Board which makes him a valuable member of the Board.
Vickie Ho has served as the Company’s Executive Vice President since May 2017. From September 2010 until her appointment as Executive Vice President, Ms. Ho served as the assistant to the Company’s President, Public Relations Manager and Human Resources Director of the Company. From April 2009 to August 2010, Ms. Ho was the assistant to the Company’s President and provided English interpretation services. Ms. Ho originally joined the Company in March 2008 in the Company’s stock department. Ms. Ho received her Bachelor’s degree in English with International Business from Shenyang Engineering Institution in 2006.
Family Relationships
There are no family relationships between our officers and directors.
Legal Proceedings
No officer, director, or persons nominated for such positions or significant employee has been involved in the last ten years in any of the following, except as noted below:
·
Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time,
·
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses),
·
Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.
·
Being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
·
Having any government agency, administrative agency, or administrative court impose an administrative finding, order, decree, or sanction against them as a result of their involvement in any type of business, securities, or banking activity.
·
Being the subject of a pending administrative proceeding related to their involvement in any type of business, securities, or banking activity.
·
Having any administrative proceeding been threatened against them related to their involvement in any type of business, securities, or banking activity.
Because the Chinese legal system is different from that in the U.S., please refer to the Complaint filed as noted in “Legal Proceedings” and filed as an Exhibit 10.1 to our Annual Report on Form 10-K for the year ended December 31, 2014 as it affects Dinghua Wang. Although not being named a defendant personally, the Complaint discussed Mr. Wang’s activities and indicated that the following order had been issued against Mr. Wang: “After the case was discovered, Dinghua Wang's special accounts for sales under the Company’s DSA model in China were blocked and the funds in the amount of RMB 22,848,738 and $1,321 in the accounts were frozen.” At the date of filing of this report, the status of this Order was still open. Accordingly, Mr. Wang may be considered to have been involved in one or more of the above named activities in the last 10 years
Code of Ethics
We do not currently have a Code of Ethics applicable to our principal executive, financial or accounting officer given the limited scope of our operations.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company’s officers and directors are not subject to Section 16(a) reporting requirements.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to our Principal Executive Officer ("PEO”) and Principal Financial Officer ("PFO”), our three most highly compensated executive officers other than our PEO and PFO, who occupied such position at the end of our latest fiscal year and up to two additional individuals who would have been included in the table below except for the fact that they were not executive officers at the end of our latest fiscal year, by us, or by any third-party where the purpose of a transaction was to furnish compensation, for all services rendered in all capacities to us or our subsidiary for the latest two fiscal years ended December 31, 2021, and 2020.
Executive Compensation
Name
Title
Year
Salary
Bonus
Stock
awards
Option
awards
Non-equity
incentive plan
compensation
Non
qualified
deferred
compensation
and all
other
compensation
Total
compensation
Ding Hua Wang
CEO and CFO and President
$ -
$ -
$ -
$ -
$ -
$ -
$ -
$ -
$ -
$ -
$ -
$ -
$ -
$ -
Vickie Ho
Executive Vice President
$ 148,800
$ -
$ 78,261
$ -
$ -
$ -
$ 227,064
$ 148,800
$ -
$ 128,745
$ -
$ -
$ -
$ 277,545
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END DECEMBER 31, 2021
The following table sets forth information regarding all unexercised, unvested, outstanding equity awards held, as of December 31, 2021, by those individuals who served as our named executive officers during any part of fiscal year 2021.
Name
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
Equity
Incentive
Plan
Awards:
Number
Of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
(#)
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
($)
Ding Hua Wang
-
-
-
-
-
-
-
-
-
Xun Zhang
-
-
-
-
-
-
-
-
-
Vickie Ho
-
-
-
-
-
-
-
-
-
No option awards, unexercised options, unvested stock awards or equity incentive plan awards were granted to our named executive officers during fiscal years ended at December 31, 2021 and 2020.
Director Compensation
The following table summarizes the compensation paid to our directors for the fiscal year ended December 31, 2021:
Name
Fees
Earned
or
Paid in
Cash
Stock
Awards
($)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
All Other
Compensation
($)
Total
($)
Ding Hua Wang
-
-
-
-
-
-
Xun Zhang
-
-
-
-
-
-
No director was paid any form of compensation for acting as a Director for year ended December 31, 2021 and 2020. See Executive Compensation table above for salaries paid to these Directors for their role as officers.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following tables set forth the ownership of our common stock by each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, our directors, and our executive officers and directors as a group as of April 8, 2022. To the best of our knowledge, the persons named have sole voting and investment power with respect to such shares, except as otherwise noted. There are not any pending or anticipated arrangements that may cause a change in control.
On July 27, 2021, the Company effected a 1-for-3 reverse stock split of its common stock. The share numbers herein have reflected the 1-for-3 Reverse Stock Split.
The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a "beneficial owner" of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days of April 8, 2022 through the conversion or exercise of any convertible security, warrant, option or other right. More than one person may be deemed to be a beneficial owner of the same securities. The percentage of beneficial ownership by any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within 60 days of April 8, 2022, by the sum of the number of shares outstanding as of such date plus the number of shares as to which such person has the right to acquire voting or investment power within 60 days of April 8, 2022. Consequently, the denominator used for calculating such percentage may be different for each beneficial owner. Except as otherwise indicated below and under applicable community property laws, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown. The business address for these shareholders is 100 N Barranca Street #1000, West Covina, CA 91791.
Name
Number of
Shares of
Common stock
Percentage
Ding Hua Wang(1)
27,717,082
45.1 %
Xun Zhang
166,667
0.3 %
Vickie Ho*
333,334
0.5 %
All officers and directors as a group [3 persons]
28,217,083
45.9 %
_______
*333,334 shares were vested but have not been issued as of April 8, 2022.
This table is based upon information derived from our stock records. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, each of the shareholders named in this table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned. Except as set forth above, applicable percentages are based upon 61,519,905 shares of common stock outstanding as of April 8, 2022.
(1)
including 1,146,444 shares owned by DW California Food Distribution LLC, a company wholly owned by Mr. Ding Hua Wang.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Due to shareholder, non-interest bearing
From time to time, Mr. Dinghua Wang advances monies to the Company and the Company repays such advances. Such business transactions are recorded as due to or from Mr. Dinghua Wang at the time of the transaction. During the years ended December 31, 2021 and 2020, advances totaled $103,148 and $27,927, respectively, and repayments totaled $24,255 and $410,375, respectively. As of December 31, 2021 and 2020, the balance due to Mr. Dinghua Wang, non-interest bearing, amounted to $134,500 and $55,607, respectively. This balance is unsecured.
Advance from related party, interest bearing
The Company borrowed $30,000 from a related party to fund operations in July 2016. This related party is the son of Mr. Dinghua Wang. The advance had an annual interest rate of 10%, was unsecured and was due on March 20, 2024. The advance of $30,000 was transferred to DW Food, a related party, through a debt sale agreement in December 2020. This balance due to DW Food was subsequently paid with shares of the Company’s common stock in December 2020.
Interest expense for the years ended December 31, 2021 and 2020 for the above loans amounted to $0 and $2,753, respectively.
Director Independence
Our board of directors has determined that Mr. Xun Zhang is qualifies as “independent” as the term is defined by Rule as 5605(a)(2).

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services
The Company incurred audit fees in the total of $140,000 and $134,000 for fiscal years 2021 and 2020, respectively.
The following table shows the aggregate fees paid or accrued by us for the audit and other services provided by our auditors for fiscal 2021 and 2020.
Audit Fees
$ 140,000
$ 134,000
Audit-Related Fees
-
-
Tax Fees
-
-
All Other Fees
-
-
Total
$ 140,000
$ 134,000
As defined by the SEC, (i) “audit fees” are fees for professional services rendered by our principal accountant for the audit of our annual financial statements and review of financial statements included in our Form 10-K, Form 10-Q, or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years; (ii) “audit-related fees” are fees for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “audit fees;” (iii) “tax fees” are fees for professional services rendered by our principal accountant for tax compliance, tax advice, and tax planning; and (iv) “all other fees” are fees for products and services provided by our principal accountant, other than the services reported under “audit fees,” “audit-related fees,” and “tax fees.”
Under applicable SEC rules, the Audit Committee of the Board of Directors is required to pre-approve the audit and non-audit services performed by the independent auditors in order to ensure that they do not impair the auditors’ independence. The SEC’s rules specify the types of non-audit services that an independent auditor may not provide to its audit client and establish the Audit Committee’s responsibility for administration of the engagement of the independent auditors. Currently, we don’t have an Audit Committee under our Board of Director. Until such time as we have an Audit Committee in place, our Board of Directors pre-approves the audit and non-audit services performed by the independent auditors.

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits
Exhibit No.
Document Description
3.1
Articles of Incorporation - Incorporated by reference to Exhibit 3.1 to our Registration Statement on Form S-1 (File No. 333-193871) as filed with the SEC on February 11, 2014, as amended by Amendment, incorporated by reference to Exhibit 3.1 of our Form 8-K as filed with the SEC on June 27, 2017.
3.2
Bylaws - Incorporated by reference to Exhibit 3.2 to our Registration Statement on Form S-1 (File No. 333-193871) as filed with the SEC on February 11, 2014.
3.3
Certificate of Amendment to Articles of Incorporation filed with the Secretary of the State of Nevadaon October 13, 2020, Incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 15, 2020
3.4
Certificate of Change for Reverse Stock Split filed with the Secretary of the State of Nevada on July 27, 2021, Incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on July 29, 2021
10.1
Asset Purchase Agreement, dated January 1, 2018, by and between the Company and Suss Technology Corporation - Incorporated by reference to Exhibit 10.1 to our Form 8-K as filed with the SEC on January 4, 2018.
10.2
Strategic Cooperation Agreement by and between Merion, Inc. and Alitaitai Industrial Holding Group, dated January 8, 2019 - Incorporated by reference to Exhibit 10.1 to our Form 8-K as filed with the SEC on January 14, 2019.
10.3
Lease Agreement between Merion, Inc. and Barranca Tower, LLC on January 25, 2019.
10.4
Consulting Agreement between Merion, Inc. and Global Merchants Union on March 13, 2019 - Incorporated by reference to Exhibit 10.1 to our Form 8-K as filed with the SEC on March 15, 2019.
10.5
Securities Purchase Agreement by and between the Company and Jinzhuang Zhang, dated January 13, 2020 - Incorporated by reference to Exhibit 10.1 to our Form 8-K as filed with the SEC on January 16, 2020.
10.6
Securities Purchase Agreement by and between the Company and Deping Song, dated January 14, 2020 - Incorporated by reference to Exhibit 10.2 to our Form 8-K as filed with the SEC on January 16, 2020
10.7
Securities Purchase Agreement by and between the Company and Jinming Chen, dated January 25, 2020 - Incorporated by reference to Exhibit 10.1 to our Form 8-K as filed with the SEC on January 27, 2020.
10.8
Securities Purchase Agreement by and between the Company and Charming Life International, LLC, dated September 7, 2020 - Incorporated by reference to Exhibit 10.1 to our Form 8-K as filed with the SEC on September 9, 2020.
10.9
Securities Purchase Agreement by and between the Company and Min Zhang, dated September 7, 2020 - Incorporated by reference to Exhibit 10.2 to our Form 8-K as filed with the SEC on September 9, 2020.
10.10
Securities Purchase Agreement by and between the Company and Vickie Hienthuc Duong, dated September 22, 2020 - Incorporated by reference to Exhibit 10.1 to our Form 8-K as filed with the SEC on September 24, 2020.
10.11
Securities Purchase Agreement by and between the Company and Vickie Hienthuc Duong, dated October 19, 2020 - Incorporated by reference to Exhibit 10.1 to our Form 8-K as filed with the SEC on October 19, 2020.
10.12
Form of Debt Sale Agreement by and among the Company, certain creditors of the Company and DW California Food Distribution LLC dated November 29 and November 30, 2020, Incorporated by reference to Exhibit 10.1 to our Form 8-K as filed with the SEC on December 2, 2020.
10.13
Debt Repayment Agreement by and among the Company, Dinghua Wang and DW California Food Distribution LLC, dated December 11, 2020, Incorporated by reference to Exhibit 10.1 to our Form 8-K as filed with the SEC on December 15, 2020.
31.1
CERTIFICATION of CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
32.1 *
CERTIFICATION of CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEYACT OF 2002
Exhibit 101
Interactive data files formatted in XBRL (extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to the Consolidated Financial Statements.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive File (embedded within the Inline XBRL document and included in Exhibit 101)
__________
* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 of the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.