NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
(Unaudited)
NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fortune
Valley Treasures, Inc. (formerly Crypto-Services, Inc.) (“FVTI” or the “Company”) was incorporated in the State
of Nevada on March 21, 2014. The Company’s current primary business operations of wholesale distribution and retail sales of alcoholic
beverages of wine and distilled liquors, and drinking water distribution and delivery are conducted through its subsidiaries in the People’s
Republic of China (“PRC”).
On
April 11, 2018, the Company entered into a share exchange agreement by and among DaXingHuaShang Investment Group Limited (“DIGLS”)
and its shareholders: 1.) Yumin Lin, 2.) Gaosheng Group Co., Ltd. and 3.) China Kaipeng Group Co., Ltd whereby the Company newly issued
300,000,000 shares of its common stock in exchange for all the outstanding shares in DIGLS. This transaction has been accounted for as
a reverse takeover transaction and a recapitalization of the Company whereby the Company, the legal acquirer, is the accounting acquiree,
and DIGLS, the legal acquiree, is the accounting acquirer; accordingly, the Company’s historical statement of stockholders’
equity has been retroactively restated to the first period presented.
On
March 1, 2019, the Company entered into a sale and purchase agreement (the “SP Agreement”) to acquire 100% of the shares
of Jiujiu Group Stock Co., Ltd. (“JJGS”), a company incorporated under the laws of the Republic of Seychelles. The transaction
closed on March 1, 2019. Pursuant to the SP Agreement, the Company issued 100 shares of its common stock to JJGS to acquire 100% of the
shares of JJGS for a cost of $150. After the closing, JJGS became the Company’s wholly owned subsidiary. JJGS owns all of the equity
interest of Jiujiu (HK) Industry Limited (“JJHK”) and Jiujiu (Shenzhen) Industry Co., Ltd. (“JJSZ”). JJGS and
JJHK are holding companies and conduct business through their operating subsidiary, JJSZ, which engages in retail and wholesale distribution
of wine products.
On
June 22, 2020, the Company entered into a sale and purchase agreement along with Qianhai DaXingHuaShang Investment (Shenzhen) Co., Ltd.,
a company incorporated in the PRC and a wholly-owned subsidiary of FVTI (“QHDX”), to acquire 90% of the shares of Dongguan
Xixingdao Technology Co., Ltd. (“Xixingdao”), a company incorporated in the PRC, in exchange for 4,862,681 shares of the
Company’s common stock. The Company obtained the control of Xixingdao on August 31, 2020, the shares were issued on December 28,
2020. Xixingdao became the Company’s subsidiary since August 31, 2020.
On January 6, 2021, FVTI, JJGS, Valley Holding
Limited (“Valley Holdings”) and Angel International Investment Holdings Limited (the “Valley Holdings Seller”)
signed a termination agreement, pursuant to which the parties mutually agreed to terminate the original equity interest transfer agreement
signed on March 16, 2020. On the same date, FVTI, DILHK, Valley Holdings and the Valley Holdings Seller entered into a new equity interest
transfer agreement, pursuant to which DILHK agreed to purchase 70% of Valley Holdings’ equity interest (the “Valley Holdings
Equity Transfer”) from the Valley Holdings seller in consideration of FVTI’s common shares with value equivalents to $15
million. As of the date of this filing, the closing of the Valley Holdings Equity Transfer has not occurred.
On February 28, 2021, FVTI, QHDX and the original
shareholders of Foshan BaiTaFeng Beverage Development Co., Ltd. (“BTF”) signed a termination agreement, pursuant to which
the parties mutually agreed to terminate the original equity interest transfer agreement signed on December 31, 2019 (“BTF Agreement”).
The BTF Agreement was terminated effective February 28, 2021 and the parties have no further rights or obligations under the BTF Agreement.
The parties further agreed to waive their rights to any claims that may arise under the BTF Agreement. As of the date of the termination
agreement, no equity interest of BTF had been transferred to QHDX.
Basis
of presentation
The accompanying unaudited condensed consolidated
financial statements as of and for the three months ended March 31, 2021 and 2020, have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (the “SEC”) that permit reduced disclosure for interim periods.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted.
In the opinion of management, all adjustments consisting of normal recurring entries considered necessary for a fair presentation
have been included. The results of operations for these periods are not necessarily comparable to, or indicative of, results
of any other interim period or for the fiscal year taken as a whole. The condensed consolidated balance sheet information as of
December 31, 2020 was derived from the Company’s audited consolidated financial statements included in the Company’s
Annual Report on Form 10-K, for the year ended December 31, 2020, filed with the SEC on April 26, 2021 (the “report”).
These unaudited condensed consolidated financial statements should be read in conjunction with the report.
The
accompanying financial statements have been prepared in conformity with U.S. GAAP which contemplates continuation of the Company
as a going-concern basis. The going-concern basis assumes that assets are realized, and liabilities are settled in the ordinary
course of business at amounts disclosed in the financial statements. Although the Company has generated a negative operating cash
flow of $508,778 during the three months ended March 31, 2021, it has reported a net income of $335,574. In addition, as of March
31, 2021, the Company had a working capital of $2,437,539. The Company’s independent registered public accounting firm expressed
in its report on the Company’s financial statements for the year ended December 31, 2020 a substantial doubt about the Company’s
ability to continue as a going concern. Based on the Company’s effort in improving its operation and the significant working
capital raised as of March 31, 2021, the management believes that the substantial doubt has been alleviated.
Basis
of consolidation
The
consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions
have been eliminated. The results of subsidiaries acquired during the respective periods are included in the consolidated statements
of operations from the effective date of acquisition or up to the effective date of disposal, as appropriate. The portion of the income
or loss applicable to noncontrolling interests in subsidiaries is reflected in the consolidated statements of operations.
As of March 31, 2021, details of the Company’s
major subsidiaries were as follows:
Entity
Name
|
|
Date
of Incorporation
|
|
Parent
Entity
|
|
Nature
of Operation
|
|
Place
of Incorporation
|
DIGLS
|
|
July
4, 2016
|
|
FVTI
|
|
Investment
holding
|
|
Republic
of Seychelles
|
DILHK
|
|
June
22, 2016
|
|
DIGLS
|
|
Investment
holding
|
|
Hong
Kong, PRC
|
QHDX
|
|
November
3, 2016
|
|
DILHK
|
|
Investment
holding
|
|
PRC
|
FVTL
|
|
May
31, 2011
|
|
QHDX
|
|
Trading
of food and platform
|
|
PRC
|
JJGS
|
|
August
17, 2017
|
|
FVTI
|
|
Investment
holding
|
|
Republic
of Seychelles
|
JJHK
|
|
August
24, 2017
|
|
JJGS
|
|
Investment
holding
|
|
Hong
Kong, PRC
|
JJSZ
|
|
November
16, 2018
|
|
JJHK
|
|
Trading
of food
|
|
PRC
|
Xixingdao
|
|
August
28, 2019
|
|
QHDX
|
|
Drinking
water distribution and delivery
|
|
PRC
|
Dongguan
City Fu La Tu Trade Ltd (“FLTT”)
|
|
September
27, 2020
|
|
FVTL
|
|
Trading
of alcoholic beverages
|
|
PRC
|
Dongguan
City Fu Xin Gu Trade Ltd (“FXGT”)
|
|
December
2, 2020
|
|
FVTL
|
|
Trading
of alcoholic beverages
|
|
PRC
|
Dongguan
City Fu Xin Technology Ltd (“FXTL”)
|
|
November
12, 2020
|
|
Xixingdao
|
|
Drinking
water distribution and delivery
|
|
PRC
|
Dongguan
City Fu Guan Healthy Industry Technology Ltd (“FGHL”)
|
|
December
21, 2020
|
|
Xixingdao
|
|
Drinking
water distribution and delivery
|
|
PRC
|
Dongguan
City Fu Jing Technology Ltd (“FJTL”)
|
|
November
17, 2020
|
|
Xixingdao
|
|
Drinking
water distribution and delivery
|
|
PRC
|
Dongguan
City Fu Xiang Technology Ltd (“FGTL”)
|
|
November
16, 2020
|
|
Xixingdao
|
|
Drinking
water distribution and delivery
|
|
PRC
|
Dongguan
City Fu Ji Food & Beverage Ltd (“FJFL”)
|
|
November
9, 2020
|
|
Xixingdao
|
|
Drinking
water distribution and delivery
|
|
PRC
|
Dongguan
City Fu Lai Food Ltd (“FLFL”)
|
|
September
27, 2020
|
|
Xixingdao
|
|
Drinking
water distribution and delivery
|
|
PRC
|
Dongguan
City Fu Yi Beverage Ltd (“FYDL”)
|
|
November
12, 2020
|
|
Xixingdao
|
|
Drinking
water distribution and delivery
|
|
PRC
|
Dongguan
City Fu Tai Food Trade Ltd (“FTFL”)
|
|
October
23, 2020
|
|
Xixingdao
|
|
Drinking
water distribution and delivery
|
|
PRC
|
Huizhou City Fu Ye Trade Ltd (“FYTL”)
|
|
February 5, 2021
|
|
Xixingdao
|
|
Drinking water distribution and delivery
|
|
PRC
|
Dongguan City Fu Xi Drinking Water Ltd (“FXDW”)
|
|
March 17, 2021
|
|
Xixingdao
|
|
Drinking water distribution and delivery
|
|
PRC
|
Dongguan City Hao Xian Sheng Food Ltd (“HXSF”)
|
|
March 25, 2021
|
|
Xixingdao
|
|
Drinking water distribution and delivery
|
|
PRC
|
Dongguan City Fu Jia Drinking Water Ltd (“FJDW”)
|
|
March 29, 2021
|
|
Xixingdao
|
|
Drinking water distribution and delivery
|
|
PRC
|
Dongguan City Fu Sheng Drinking Water Ltd (“FSDW”)
|
|
March 29, 2021
|
|
Xixingdao
|
|
Drinking water distribution and delivery
|
|
PRC
|
Use
of estimates
The preparation of financial statements in conformity
with US GAAP requires management to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure
of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting
period. Significant accounting estimates include certain assumptions related to going concern, allowance of doubtful accounts, allowance
of deferred tax asset, useful lives and impairment of long-lived assets, and impairment of goodwill. Actual results may differ from
these estimates.
Reclassification
Certain
prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net
earnings and financial position.
Foreign
currency translation and re-measurement
The
Company translates its foreign operations to the U.S. dollar in accordance with ASC 830, “Foreign Currency Matters”.
The
reporting currency for the Company and its subsidiaries is the U.S. dollar. The Company, DIGLS, DILHK, JJGS and JJHK’s functional
currency is the U.S. dollar; QHDX, JJSZ and their subsidiaries which are incorporated in the PRC use the Chinese Renminbi (“RMB”)
as their functional currency.
The
Company’s subsidiaries, whose records are not maintained in that company’s functional currency, re-measure their records
into their functional currency as follows:
|
●
|
Monetary
assets and liabilities at exchange rates in effect at the end of each period
|
|
●
|
Nonmonetary
assets and liabilities at historical rates
|
|
●
|
Revenue
and expense items at the average rate of exchange prevailing during the period
|
Gains
and losses from these re-measurements were not significant and have been included in the Company’s results of operations.
The
Company’s subsidiaries, whose functional currency is not the U.S. dollar, translate their records into the U.S. dollar as follows:
|
●
|
Assets
and liabilities at the rate of exchange in effect at the balance sheet date
|
|
●
|
Equities
at the historical rate
|
|
●
|
Revenue
and expense items at the average rate of exchange prevailing during the period
|
Adjustments arising from such translations are
included in accumulated other comprehensive income in shareholders’ equity.
Translation
of amounts from the local currencies of the Company into US$ has been made at the following exchange rates for the respective periods:
|
|
As of and for the three months ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Period-end RMB : US$1 exchange rate
|
|
|
0.15261
|
|
|
|
0.14114
|
|
Period-average RMB : US$1 exchange rate
|
|
|
0.15424
|
|
|
|
0.14300
|
|
The
RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.
No representation is made that the RMB amounts could have been, or could be, converted into US dollars at the rates used in translation.
Impairment of long-lived assets other than
goodwill
The Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Impairment
may be the result of becoming obsolete from a change in the industry or new technologies. Impairment is present if the carrying amount
of an asset is less than its undiscounted cash flows to be generated.
If an asset is considered impaired, a loss is
recognized based on the amount by which the carrying amount exceeds the fair market value of the asset. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.
The Company did not recognize any impairment
of long-lived assets during the three months ended March 31, 2021 and 2020.
Goodwill
Goodwill represents the excess of the purchase
price over the fair value of the net identifiable assets acquired in a business combination. In accordance with FASB ASC Topic 350, “Intangibles-Goodwill
and Others”, goodwill is subject to at least an annual assessment for impairment or more frequently if events or changes in circumstances
indicate that an impairment may exist, applying a fair-value based test. Fair value is generally determined using a discounted cash flow
analysis. The Company would recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its
fair value up to the amount of goodwill allocated to that reporting unit.
During the three months ended March 31, 2021,
the Company did not record any impairment of goodwill.
Revenue
recognition
The
Company follows the guidance of ASC 606, revenue from contracts with customers is recognized using the following five steps:
|
1.
|
Identify
the contract(s) with a customer;
|
|
2.
|
Identify
the performance obligations in the contract;
|
|
3.
|
Determine
the transaction price;
|
|
4.
|
Allocate
the transaction price to the performance obligations in the contract; and
|
|
5.
|
Recognize
revenue when (or as) the entity satisfies a performance obligation.
|
Under
Topic 606, revenues are recognized when the promised products have been confirmed of delivery or services have been transferred to the
consumers in amounts that reflect the consideration the customer expects to be entitled to in exchange for those services. The Company
presents value added taxes (“VAT”) as reductions of revenues. The Company recognizes revenues net of value added taxes (“VAT”)
and relevant charges.
We
generate revenue primarily from the sales of wine, water and oil directly to agents, wholesalers and end users. We recognize product
revenue at a point in time when the control of the products has been transferred to customers. The transfer of control is considered
complete when products have been picked up by or delivered to our customers. We account for shipping and handling fees as a fulfillment
cost.
The
following table provides information about disaggregated revenue based on revenue by product types:
|
|
Three months ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Sales of wine
|
|
$
|
779,220
|
|
|
$
|
22,051
|
|
Sales of water
|
|
|
700,495
|
|
|
|
-
|
|
Sales of oil
|
|
|
135,997
|
|
|
|
-
|
|
Others
|
|
|
28,448
|
|
|
|
-
|
|
Total
|
|
$
|
1,644,160
|
|
|
$
|
22,051
|
|
Contract
liabilities
Contract liabilities consist mainly of customer advances.
On certain occasions, the Company may receive prepayments from downstream retailers or wholesales customers for wines, water and other
products prior to them taking possession of the Company’s products. The Company records these receipts as customer advances until
the control of the products has been transferred the customers. As of March 31, 2021 and December 31, 2020, the Company had customer
advances of $795,293 and $580,151, respectively. During the three months ended March 31, 2021, the Company recognized $146,811
of customer advances in the opening balance.
Related
party transaction
A
related party is generally defined as (i) any person that holds 10% or more of the Company’s securities and their immediate families,
(ii) the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control
with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction
is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
Transactions
involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive,
free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related
party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations
can be substantiated.
Recent
accounting pronouncements adopted
In December 2020, the FASB issued ASU 2019-12, Income
Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The ASU removes certain exceptions to the general principles in Topic
740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance.
On January 1, 2021, the Company adopted ASU 2019-12 on a prospective basis. The adoption did not have a material impact
on the Company’s consolidated financial statements.
NOTE
2 - ACCOUNTS RECEIVABLE, NET
Accounts
receivable consisted of the following as of March 31, 2021 and December 31, 2020:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Accounts receivable
|
|
$
|
1,181,889
|
|
|
$
|
2,468,038
|
|
Less: Allowance for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
Account receivable, net
|
|
$
|
1,181,889
|
|
|
$
|
2,468,038
|
|
NOTE
3 – Prepayments AND OTHER CURRENT ASSETS
Prepayments
and other current assets consisted of the following as of March 31, 2021 and December 31, 2020:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Prepayments
|
|
$
|
2,106,839
|
|
|
$
|
376,746
|
|
Other current assets
|
|
|
2,944
|
|
|
|
7,062
|
|
|
|
$
|
2,109,783
|
|
|
$
|
383,808
|
|
As
of March 31, 2021 and December 31, 2020, the balance of $2,106,839 and $376,746, respectively, represented the advanced payments
to suppliers.
NOTE
4 – PROPERTY AND EQUIPMENT, NET
Property
and equipment consisted of the following as of March 31, 2021 and December 31, 2020:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Office equipment
|
|
$
|
69,158
|
|
|
$
|
69,158
|
|
Leasehold improvement
|
|
|
54,146
|
|
|
|
54,146
|
|
Property and equipment
|
|
|
123,304
|
|
|
|
123,304
|
|
Less: Accumulated depreciation
|
|
|
(80,563
|
)
|
|
|
(75,489
|
)
|
Property and equipment, net
|
|
$
|
42,741
|
|
|
$
|
47,815
|
|
Depreciation expense, which was included in general and administrative
expenses, for the three months ended March 31, 2021 and 2020 was $4,950 and $6,829, respectively.
NOTE
5 – INTANGIBLE ASSETS
Intangible
assets and related accumulated amortization were as follows:
|
|
March 31,
2021
|
|
|
December
31,
2020
|
|
Distributor channel
|
|
$
|
3,299,329
|
|
|
$
|
3,299,329
|
|
Other
|
|
|
27,301
|
|
|
|
4,105
|
|
Total intangible assets
|
|
|
3,326,630
|
|
|
|
3,303,434
|
|
Less: Accumulated amortization
|
|
|
(471,523
|
)
|
|
|
(274,944
|
)
|
Total
|
|
$
|
2,855,107
|
|
|
$
|
3,028,490
|
|
Amortization expense for the three months ended
March 31, 2021 and 2020 was $196,579 and $0, respectively, included in cost of revenues.
Other
intangible assets mainly consist of internal-used software under development, which is not yet ready for use.
As
of March 31, 2021, the future estimated amortization costs for distribution channel are as follows:
2021 (remaining)
|
|
$
|
628,253
|
|
2022
|
|
|
824,832
|
|
2023
|
|
|
824,832
|
|
2024
|
|
|
549,806
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
2,827,806
|
|
NOTE
6 - RELATED PARTY TRANSACTIONS
Amounts
due from related parties as of March 31, 2021 and December 31, 2020 were as follows:
|
|
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Mr. Yumin Lin
|
|
President, Chief Executive Officer, Secretary, Director
|
|
$
|
-
|
|
|
$
|
45,662
|
|
Mr. Kaihong Lin
|
|
Chief Financial Officer and Treasurer
|
|
|
-
|
|
|
|
215,973
|
|
Ms. Xiulan Zhou
|
|
Manager of a subsidiary, Mr. Yumin Lin’s wife
|
|
|
-
|
|
|
|
360,273
|
|
Mr. Huagen Li
|
|
Manager of a subsidiary
|
|
|
14,513
|
|
|
|
123,456
|
|
Mr. Zhipeng Zuo
|
|
Manager of a subsidiary
|
|
|
-
|
|
|
|
133,658
|
|
Mr. Deqin Ke
|
|
Manager of a subsidiary
|
|
|
41,303
|
|
|
|
-
|
|
Ms. Shuqin Chen
|
|
Manager of a subsidiary
|
|
|
39,456
|
|
|
|
105,784
|
|
|
|
|
|
$
|
95,272
|
|
|
$
|
984,806
|
|
Amounts
due to related parties as of March 31, 2021 and December 31, 2020 were as follows:
|
|
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Mr. Yumin Lin
|
|
President, Chief Executive Officer, Secretary, Director
|
|
$
|
142,265
|
|
|
$
|
-
|
|
Ms. Xiulan Zhou
|
|
Manager of a subsidiary, Mr. Yumin Lin’s wife
|
|
|
1,012
|
|
|
|
-
|
|
Mr. Yuwen Li
|
|
Vice President
|
|
|
489,262
|
|
|
|
292,024
|
|
Ms. Lihua Li
|
|
Mr. Yuwen Li’s wife
|
|
|
21,672
|
|
|
|
677
|
|
Mr. Zihao Ye
|
|
Manager of a subsidiary
|
|
|
-
|
|
|
|
12,958
|
|
Mr. Zhipeng Zuo
|
|
Manager of a subsidiary
|
|
|
52,344
|
|
|
|
-
|
|
Mr. Weihua Zuo
|
|
Manager of a subsidiary
|
|
|
-
|
|
|
|
2,298
|
|
Mr. Deqin Ke
|
|
Manager of a subsidiary
|
|
|
-
|
|
|
|
9,274
|
|
Ms. Xiuyun Wang
|
|
Manager of a subsidiary
|
|
|
5,838
|
|
|
|
1,483
|
|
Mr. Shengpin Liu
|
|
Manager of a subsidiary
|
|
|
304
|
|
|
|
306
|
|
Mr. Aisheng Zhang
|
|
Manager of a subsidiary
|
|
|
1,526
|
|
|
|
3,063
|
|
Mr. Zhihua Liao
|
|
Manager of a subsidiary
|
|
|
18,313
|
|
|
|
12,254
|
|
Shenzhen DaXingHuaShang Industry Development Ltd.
|
|
Mr. Yumin Lin is the supervisor of Shenzhen DaXingHuaShang Industry Development Ltd.
|
|
|
91,290
|
|
|
|
3,063
|
|
|
|
|
|
$
|
823,826
|
|
|
$
|
337,400
|
|
Revenues
generated from related parties during the three months ended March 31, 2021 and 2020 were as follows:
|
|
|
|
For the three months
ended March 31,
|
|
|
|
|
|
2021
|
|
|
2020
|
|
Mr. Kaihong Lin
|
|
Chief Financial Officer and Treasurer
|
|
$
|
51
|
|
|
$
|
-
|
|
Mr. Yumin Lin
|
|
President, Chief Executive Officer, Secretary, Director
|
|
|
109
|
|
|
|
-
|
|
Mr. Naiyong Luo
|
|
Manager of a subsidiary
|
|
|
5,115
|
|
|
|
-
|
|
Mr. Hongwei Ye
|
|
Manager of a subsidiary, Shareholder
|
|
|
5,881
|
|
|
|
-
|
|
Mr. Zihao Ye
|
|
Manager of a subsidiary
|
|
|
76
|
|
|
|
-
|
|
|
|
|
|
$
|
11,232
|
|
|
$
|
-
|
|
Due from related parties mainly consists of funds
advanced to related parties as borrowings or funds advanced to pay off the Company’s expenses. The balances are unsecured, non-interest
bearing. During the three months ended March 31, 2021, the Company advanced $1,841,767 to its related parties, and collected $2,674,247
repayments.
Due to related parties mainly consists of borrowings
for working capital purpose, the balances are unsecured, non-interest bearing and due on demand. During the three months ended March
31, 2021 and 2020, the Company borrowed $814,808 and $146,704 from its related parties, and repaid $371,843 and $90,114, respectively.
In addition, during the three months ended March
31, 2021 and 2020, the Company’s related parties paid expenses on the Company’s behalf in amounts of $14,487 and $nil, respectively.
NOTE
7 - INCOME TAXES
United
States of America
The
Company is registered in the State of Nevada and is subject to United States of America tax law. The U.S federal income tax rate is 21%.
Seychelles
Under
the current laws of the Seychelles, DIGLS and JJGS are registered as an international business company which governed by the International
Business Companies Act of Seychelles and there is no income tax charged in Seychelles.
Hong
Kong
From year of assessment of 2018/2019 onwards, Hong
Kong profit tax rates are 8.25% on assessable profits up to HK$2,000,000 (approximately $289,855), and 16.5% on any part of assessable
profits over HK$2,000,000. For the three months ended March 31, 2021 and 2020, the Company did not have any assessable profits
arising in or derived from Hong Kong, therefore no provision for Hong Kong profits tax was made in the periods reported.
The
PRC
The
Company’s subsidiaries are incorporated in the PRC, and are subject to the PRC Enterprise Income Tax Laws (“EIT Laws”)
with the statutory income tax rate of 25% with the following exceptions.
On
January 17, 2019, the State Taxation Administration issued the notice on the scope of small-scale and low-profit corporate income tax
preferential policies of the Ministry of Finance and the State Administration of Taxation, [2019] No. 13 for small-scale and low-profit
enterprises whose annual taxable income is less than RMB1,000,000 (including RMB1,000,000), approximately $142,209, their income is reduced
by 25% to the taxable income, and enterprise income tax is paid at 20% tax rate, which is essentially resulting in a favorable income
tax rate of 5%. While for the portion of annual taxable income exceeding RMB1,000,000, approximately $142,209, but not more than RMB3,000,000,
approximately $426,627, the income is reduced by 50% to the taxable income, and enterprise income tax is paid at 20% tax rate, which
is essentially resulting in a favorable income tax rate of 10%. The qualifications of small-scale and low-profit enterprises were examined
annually by the Tax Bureau. All of the Company’s PRC subsidiaries met the criteria of small-scale and low-profit enterprises.
The
components of the income tax provision are as follows:
|
|
Three Months Ended
March 31,
2021
|
|
|
Three Months
Ended March 31,
2020
|
|
Current:
|
|
|
|
|
|
|
|
|
– United States of America
|
|
$
|
43,096
|
|
|
$
|
-
|
|
– Seychelles
|
|
|
-
|
|
|
|
-
|
|
– Hong Kong
|
|
|
-
|
|
|
|
-
|
|
– The PRC
|
|
|
23,259
|
|
|
|
-
|
|
Deferred
|
|
|
|
|
|
|
|
|
– United States of America
|
|
|
-
|
|
|
|
-
|
|
– Seychelles
|
|
|
-
|
|
|
|
-
|
|
– Hong Kong
|
|
|
-
|
|
|
|
-
|
|
– The PRC
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
66,355
|
|
|
$
|
-
|
|
The effective tax rate was 16.5% and 0.0% for
the three months ended March 31, 2021 and 2020, respectively.
NOTE
8 - OPERATING LEASES
As of March 31, 2021, the Company has eleven
separate operating lease agreements for two office spaces, one warehouse and eight stores in PRC with remaining lease terms of
from 18 months to 73 months.
Two of these leases were entered with related
parties. The Company has an operating lease agreement with Qingmei Lin, Yumin Lin’s former wife, for the premises in Dongguan
City, PRC. The agreement covers the period from January 1, 2019 to April 30, 2027. The monthly rent expense is RMB10,000 (approximately
$1,450). The Company has an operating lease agreement with Hongwei Ye, a related party, for the premises in Dongguan City, PRC. The agreement
covers the period from September 27, 2020 to September 30, 2023. The monthly rent expense is RMB960 (approximately $139).
The Company terminated an operating lease agreement
with a subsidiary of Shenzhen DaXingHuaShang Industry Development Ltd., a related party, for the premises in Shenzhen City, PRC on February
28, 2021. The monthly rent expense for this lease was RMB30,000 (approximately $4,349).
The
components of lease expense and supplemental cash flow information related to leases for the three months ended March 31, 2021 and 2020
are as follows:
|
|
For
the three months ended
March
31,
|
|
Operating
lease cost (included in general and administrative expenses in the Company’s consolidated statements of operations)
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Related
parties
|
|
$
|
18,490
|
|
|
$
|
17,160
|
|
Non-related
parties
|
|
|
18,200
|
|
|
|
-
|
|
Total
|
|
$
|
36,690
|
|
|
$
|
17,160
|
|
Other information for the three months ended
|
|
March 31, 2021
|
|
|
March 31,
2020
|
|
Cash paid for amounts included in the measurement of lease obligations
|
|
$
|
41,336
|
|
|
$
|
-
|
|
Weighted average remaining lease term (in years)
|
|
|
3.77
|
|
|
|
4.77
|
|
Weighted average discount rate
|
|
|
3.23
|
%
|
|
|
3.23
|
%
|
Maturities
of the Company’s lease obligations as of March 31, 2021 are as follows:
Year ending December 31,
|
|
|
|
2021 (remaining)
|
|
$
|
68,618
|
|
2022
|
|
|
84,166
|
|
2023
|
|
|
42,828
|
|
2024
|
|
|
18,313
|
|
2025
|
|
|
18,313
|
|
Thereafter
|
|
|
24,417
|
|
Total lease payment
|
|
|
256,655
|
|
Less: Imputed interest
|
|
|
(14,577
|
)
|
Operating lease obligations
|
|
$
|
242,078
|
|
NOTE
9 – BANK AND OTHER BORROWINGS
In
December 2020, the Company obtained a revolving credit line in the principal amount of RMB750,000 (approximately $115,000) from
Huaneng Guicheng Trust Co., Ltd, a financial institution in PRC, which bears interest at the base Loan Prime Rate of 3.85% plus
8.75%. The credit line is guaranteed by Yumin Lin, the Company’s Chief Executive Officer. The maturity date is on
December 21, 2022.
In August 2020, the Company obtained a revolving
credit line in the principal amount of RMB910,000 (approximately $139,000) from China Construction Bank, which bears interest at the
base Loan Prime Rate of 3.85% plus 0.4%. The credit line is guaranteed by Xiulan Zhou, a related party, and pledged by her property.
The maturity date is on July 21, 2023.
The
balance of the loans borrowed under these credit lines as of March 31, 2021 and December 31, 2020 was as follows:
|
|
March 31,
2021
|
|
|
December
31,
2020
|
|
Bank loan from the trust in PRC
|
|
$
|
114,455
|
|
|
$
|
114,879
|
|
China Construction Bank
|
|
|
100,721
|
|
|
|
139,387
|
|
Total non-current borrowings
|
|
$
|
215,176
|
|
|
$
|
254,266
|
|
The total interest expense was $3,553 and $nil
for the three months ended March 31, 2021 and 2020, respectively.
NOTE
10 - SUBSEQUENT EVENTS
During the subsequent period, the Company advanced
a total amount of $920,659 to its related parties, and the related parties repaid the amount of $879,589 to the Company.
The remaining balance of due from related parties as of the filing date was $137,833.