NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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.
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 China 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, from certain shareholders
of Xixingdao in exchange for 243,134
shares (given effect of the Reverse Stock
Split, see Note 10) of the Company’s common stock. The Company obtained the control of Xixingdao and Xixingdao became the Company’s
subsidiary on August 31, 2020. The shares were issued on December 28, 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 valued at $12 million (subject to adjustments in the event Valley Holdings’ net profit is more than HK$5 million
(approximately US$0.6 million) or less than HK$3 million (approximately US$0.4 million) for the fiscal year ended December 31, 2020).
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 nine months ended September 30, 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 $712,200
during the nine months ended September 30, 2021, it has reported a net income of $1,242,318. In addition, as of September 30, 2021, the
Company had a working capital of $2,778,546. 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 operations and the significant working capital increase
as of September 30, 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 September 30, 2021, details of the Company’s major subsidiaries were as follows:
SCHEDULE
OF ENTITIES AND ITS SUBSIDIARIES
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 Lai Food Ltd (“FLFL”)
|
|
September 27, 2020
|
|
Xixingdao
|
|
Drinking water distribution and delivery
|
|
PRC
|
Dongguan
City Fu Xin Technology Ltd (“FXTL”)
|
|
November
12, 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 Yi Beverage Ltd (“FYDL”)
|
|
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 Sheng Drinking Water Company Ltd (“FSWL”)
|
|
March 29, 2021
|
|
Xixingdao
|
|
Drinking water distribution and delivery
|
|
PRC
|
Dongguan
City Fu Jia Drinking Water Company Ltd (“FJWL”)
|
|
March
29, 2021
|
|
Xixingdao
|
|
Drinking
water distribution and delivery
|
|
PRC
|
Dongguan City Fu Xi Drinking Water Company Ltd (“FXWL”)
|
|
March 17, 2021
|
|
Xixingdao
|
|
Drinking water
distribution and delivery
|
|
PRC
|
Dongguan City Fu Li Trading Ltd (“FLTL”)
|
|
September 10, 2021
|
|
Xixingdao
|
|
Trading of food, domestic appliance, plastic products
|
|
PRC
|
Shenzhen
Fu Jin Trading Technology Company Ltd (“FJSTL”)
|
|
June
7, 2021
|
|
Xixingdao
|
|
Trading
of primary agricultural products, household appliances and plastic products; and Software technology development
|
|
PRC
|
Guangdong
Fu Gu Supply Chain Group Ltd (“FGGC”)
|
|
September
13, 2021
|
|
QHDX
|
|
Providing supply chain management service, and trading
of food, domestic appliance, and plastic products
|
|
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 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
|
Translation
of amounts from the local currencies of the Company into US$ has been made at the following exchange rates for the respective periods:
SCHEDULE
OF FOREIGN CURRENCY EXCHANGE RATE TRANSLATION
|
|
As of and for the nine months ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Period-end RMB:US$1 exchange rate
|
|
|
0.15512
|
|
|
|
0.14703
|
|
Period-average RMB:US$1 exchange rate
|
|
|
0.15452
|
|
|
|
0.14298
|
|
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 nine months ended September 30, 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 nine months ended September 30, 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:
SCHEDULE
OF DISAGGREGATION REVENUE
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Sales of wine
|
|
$
|
639,635
|
|
|
$
|
156,340
|
|
|
$
|
2,036,423
|
|
|
$
|
247,567
|
|
Sales of water
|
|
|
1,099,586
|
|
|
|
127,220
|
|
|
|
2,827,732
|
|
|
|
127,220
|
|
Sales of oil
|
|
|
14
|
|
|
|
-
|
|
|
|
217,131
|
|
|
|
-
|
|
Others
|
|
|
266,155
|
|
|
|
-
|
|
|
|
393,608
|
|
|
|
-
|
|
Total
|
|
$
|
2,005,390
|
|
|
$
|
283,560
|
|
|
$
|
5,474,894
|
|
|
$
|
374,787
|
|
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 September 30,
2021 and December 31, 2020, the Company had customer advances of $538,829 and $580,151, respectively. During the nine months ended September
30, 2021, the Company recognized $353,033 of customer advances in the opening balance.
Related
party transaction
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 September 30, 2021 and December 31, 2020:
SCHEDULE OF ACCOUNTS RECEIVABLE
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Accounts receivable
|
|
$
|
2,003,170
|
|
|
$
|
2,468,038
|
|
Less: Allowance for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
Accounts receivable, net
|
|
$
|
2,003,170
|
|
|
$
|
2,468,038
|
|
NOTE
3 – PREPAYMENTS AND OTHER CURRENT ASSETS
Prepayments
and other current assets consisted of the following as of September 30, 2021 and December 31, 2020:
SCHEDULE
OF PREPAYMENTS AND OTHER CURRENT ASSETS
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Prepayments
|
|
$
|
2,345,959
|
|
|
$
|
376,746
|
|
Other current assets
|
|
|
6,769
|
|
|
|
7,062
|
|
Total prepayments and other receivables
|
|
$
|
2,352,728
|
|
|
$
|
383,808
|
|
As
of September 30, 2021 and December 31, 2020, the balance of $2,345,959 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 September 30, 2021 and December 31, 2020:
SCHEDULE
OF PROPERTY AND EQUIPMENT, NET
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Office equipment
|
|
$
|
113,558
|
|
|
$
|
69,158
|
|
Leasehold improvement
|
|
|
125,161
|
|
|
|
54,146
|
|
Property and equipment
|
|
|
238,719
|
|
|
|
123,304
|
|
Less: Accumulated depreciation
|
|
|
(89,506
|
)
|
|
|
(75,489
|
)
|
Property and equipment, net
|
|
$
|
149,213
|
|
|
$
|
47,815
|
|
Depreciation
expense, which was included in general and administrative expenses, for the nine months ended September 30, 2021 and 2020 was $14,017
and $14,467, respectively.
NOTE
5 – INTANGIBLE ASSETS
Intangible
assets and related accumulated amortization were as follows:
SCHEDULE
OF INTANGIBLE ASSETS
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Distributor channel
|
|
$
|
3,181,312
|
|
|
$
|
3,299,329
|
|
Other
|
|
|
8,138
|
|
|
|
4,105
|
|
Total intangible assets
|
|
|
3,189,450
|
|
|
|
3,303,434
|
|
Less: Accumulated amortization
|
|
|
(744,957
|
)
|
|
|
(274,944
|
)
|
Total
|
|
$
|
2,444,493
|
|
|
$
|
3,028,490
|
|
Amortization
expense for the nine months ended September 30, 2021 and 2020 was $624,082 and $64,162, 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 September 30, 2021, the future estimated amortization costs for distribution channel
are as follows:
SCHEDULE
OF FUTURE AMORTIZATION EXPENSE FOR DISTRIBUTION CHANNELS
2021 (remaining)
|
|
$
|
208,830
|
|
2022
|
|
|
835,321
|
|
2023
|
|
|
835,321
|
|
2024
|
|
|
556,883
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
2,436,355
|
|
NOTE
6- RELATED PARTY TRANSACTIONS
Amounts
due from related parties as of September 30, 2021 and December 31, 2020 were as follows:
SCHEDULE OF AMOUNT DUE FROM AND DUE TO
RELATED PARTIES
|
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Mr. Yumin Lin
|
|
President, Chief Executive Officer, Secretary, Director
|
|
$
|
-
|
|
|
$
|
45,662
|
|
Mr. Kaihong Lin
|
|
Chief Financial Officer and Treasurer
|
|
|
204
|
|
|
|
215,973
|
|
Ms. Xiulan Zhou
|
|
Manager of a subsidiary, Mr. Yumin Lin’s wife
|
|
|
-
|
|
|
|
360,273
|
|
Mr. Huagen Li
|
|
Manager of a subsidiary
|
|
|
-
|
|
|
|
123,456
|
|
Mr. Zhipeng Zuo
|
|
Manager of a subsidiary
|
|
|
-
|
|
|
|
133,658
|
|
Mr. Deqin Ke
|
|
Manager of a subsidiary
|
|
|
26,765
|
|
|
|
-
|
|
Ms. Shuqin Chen
|
|
Manager of a subsidiary
|
|
|
-
|
|
|
|
105,784
|
|
Mr. Hongwei Ye
|
|
Manager of a subsidiary
|
|
|
56
|
|
|
|
|
|
|
|
|
|
$
|
27,025
|
|
|
$
|
984,806
|
|
Amounts
due to related parties as of September 30, 2021 and December 31, 2020 were as follows:
|
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Mr. Yumin Lin
|
|
President, Chief Executive Officer, Secretary, Director
|
|
$
|
153,587
|
|
|
$
|
-
|
|
Ms. Huagen Li
|
|
Manager of a subsidiary
|
|
|
2,482
|
|
|
|
-
|
|
Ms. Xiulan Zhou
|
|
Manager of a subsidiary, Mr. Yumin Lin’s wife
|
|
|
1,141
|
|
|
|
-
|
|
Mr. Yuwen Li
|
|
Vice President
|
|
|
295,331
|
|
|
|
292,024
|
|
Ms. Lihua Li
|
|
Mr. Yuwen Li’s wife
|
|
|
-
|
|
|
|
677
|
|
Mr. Zihao Ye
|
|
Manager of a subsidiary
|
|
|
-
|
|
|
|
12,958
|
|
Mr. Zhipeng Zuo
|
|
Manager of a subsidiary
|
|
|
3,878
|
|
|
|
-
|
|
Mr. Weihua Zuo
|
|
Manager of a subsidiary
|
|
|
-
|
|
|
|
2,298
|
|
Mr. Deqin Ke
|
|
Manager of a subsidiary
|
|
|
-
|
|
|
|
9,274
|
|
Ms. Shuqin Chen
|
|
Manager of a subsidiary
|
|
|
4,956
|
|
|
|
-
|
|
Ms. Xiuyun Wang
|
|
Manager of a subsidiary
|
|
|
5,935
|
|
|
|
1,483
|
|
Mr. Shengpin Liu
|
|
Manager of a subsidiary
|
|
|
-
|
|
|
|
306
|
|
Mr. Aisheng Zhang
|
|
Manager of a subsidiary
|
|
|
11,944
|
|
|
|
3,063
|
|
Mr. Zhihua Liao
|
|
Manager of a subsidiary
|
|
|
4,654
|
|
|
|
12,254
|
|
Mr. Meng Xue
|
|
Manager of a subsidiary
|
|
|
776
|
|
|
|
-
|
|
Mr. Minghua Cheng
|
|
Director
|
|
|
155,120
|
|
|
|
-
|
|
Mr. Anping Chen
|
|
Manager of a subsidiary
|
|
|
3,878
|
|
|
|
-
|
|
Ms. Chunxiang Zhang
|
|
Manager of a subsidiary
|
|
|
6,205
|
|
|
|
-
|
|
Mr. Youliang Ma
|
|
Manager of a subsidiary
|
|
|
1,551
|
|
|
|
-
|
|
Shenzhen DaXingHuaShang Industry Development Ltd.
|
|
Mr. Yumin Lin is the supervisor of Shenzhen DaXingHuaShang Industry Development Ltd.
|
|
|
92,793
|
|
|
|
3,063
|
|
|
|
|
|
$
|
744,231
|
|
|
$
|
337,400
|
|
Revenues
generated from related parties during the nine months ended September 30, 2021 and 2020
were as follows:
SCHEDULE
OF REVENUE GENERATED FROM RELATED PARTIES
|
|
|
|
For the nine months ended
September 30,
|
|
|
|
|
|
2021
|
|
|
2020
|
|
Mr. Kaihong Lin
|
|
Chief Financial Officer and Treasurer
|
|
$
|
391
|
|
|
$
|
-
|
|
Mr. Yumin Lin
|
|
President, Chief Executive Officer, Secretary, Director
|
|
|
302
|
|
|
|
327
|
|
Ms. Xiulan Zhou
|
|
Manager of a subsidiary, Mr. Yumin Lin’s wife
|
|
|
52
|
|
|
|
42
|
|
Mr. Naiyong Luo
|
|
Manager of a subsidiary
|
|
|
5,742
|
|
|
|
-
|
|
Mr. Hongwei Ye
|
|
Manager of a subsidiary, Shareholder
|
|
|
6,451
|
|
|
|
823
|
|
Mr. Zihao Ye
|
|
Manager of a subsidiary
|
|
|
108
|
|
|
|
-
|
|
Mr. Yuwen Li
|
|
Vice President
|
|
|
-
|
|
|
|
765
|
|
|
|
|
|
$
|
13,046
|
|
|
$
|
1,957
|
|
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 nine months ended September
30, 2021 and 2020, the Company advanced $3,136,194
and $12,099 to its related parties, and collected
$3,642,059
and $168
repayments, respectively.
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 nine months ended September 30, 2021 and 2020, the Company borrowed
$1,867,770
and $561,107
from its related parties, and repaid $1,622,380
and $194,902,
respectively.
In
addition, during the nine months ended September 30, 2021 and 2020, the Company’s related parties paid expenses on the Company’s
behalf in amounts of $532,912 and $277,081, 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 nine months ended September 30, 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:
SCHEDULE
OF COMPONENTS OF INCOME TAX PROVISION
|
|
Nine Months Ended
September 30, 2021
|
|
|
Nine Months Ended
September 30, 2020
|
|
Current:
|
|
|
|
|
|
|
|
|
– United States of America
|
|
$
|
154,485
|
|
|
$
|
-
|
|
– Seychelles
|
|
|
-
|
|
|
|
-
|
|
– Hong Kong
|
|
|
-
|
|
|
|
-
|
|
– The PRC
|
|
|
164,539
|
|
|
|
3,415
|
|
Deferred
|
|
|
|
|
|
|
|
|
– United States of America
|
|
|
-
|
|
|
|
-
|
|
– Seychelles
|
|
|
-
|
|
|
|
-
|
|
– Hong Kong
|
|
|
-
|
|
|
|
-
|
|
– The PRC
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
319,024
|
|
|
$
|
3,415
|
|
The
effective tax rate was 20.4% and (1.2)% for the nine months ended September 30, 2021 and 2020, respectively.
NOTE
8 - OPERATING LEASES
As
of September 30, 2021, the Company has sixteen separate
operating lease agreements for three office spaces, one warehouse and twelve stores in PRC with remaining lease terms of from
12 months to 67 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 premise 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 nine months ended September 30, 2021 and
2020 are as follows:
SCHEDULE
OF COMPONENTS OF LEASE EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION
Operating lease cost (included in general and administrative expenses in the Company’s consolidated statements of operations)
|
|
For the nine months ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Related parties
|
|
$
|
27,944
|
|
|
$
|
85,212
|
|
Non-related parties
|
|
|
79,471
|
|
|
|
2,139
|
|
Total
|
|
$
|
107,415
|
|
|
$
|
87,351
|
|
Other information for the nine months ended
|
|
September 30, 2021
|
|
|
September 30, 2020
|
|
Cash paid for amounts included in the measurement of lease obligations
|
|
$
|
101,203
|
|
|
$
|
11,152
|
|
Weighted average remaining lease term (in years)
|
|
|
3.92
|
|
|
|
3.91
|
|
Weighted average discount rate
|
|
|
3.23
|
%
|
|
|
3.23
|
%
|
Maturities
of the Company’s lease obligations as of September 30, 2021 are as follows:
SCHEDULE
OF MATURITIES OF LEASE OBLIGATIONS
Year ending December 31,
|
|
|
|
2021 (remaining)
|
|
$
|
49,076
|
|
2022
|
|
|
159,387
|
|
2023
|
|
|
108,676
|
|
2024
|
|
|
83,439
|
|
2025
|
|
|
81,311
|
|
Thereafter
|
|
|
53,523
|
|
Total lease payment
|
|
|
535,412
|
|
Less: Imputed interest
|
|
|
(35,635
|
)
|
Operating lease obligations
|
|
$
|
499,777
|
|
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 $141,000)
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 September 30, 2021 and December
31, 2020 was as follows:
SCHEDULE
OF BALANCE OF LOAN BORROWED UNDER CREDIT LINES
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Loan from a trust in PRC
|
|
$
|
83,100
|
|
|
$
|
114,879
|
|
China Construction Bank
|
|
|
141,159
|
|
|
|
139,387
|
|
Total non-current borrowings
|
|
$
|
224,259
|
|
|
$
|
254,266
|
|
The
total interest expense was $13,814 and
$10,201 for
the nine months ended September 30, 2021 and 2020, respectively.
NOTE
10 - SUBSEQUENT EVENTS
During
the subsequent period, the Company advanced a total amount of $70,245 to its related parties, and the related parties repaid the amount
of $2,620 to the Company. The remaining balance of due from related party as of the filing date was $26,153.
Effective
on October 21, 2021, the Company has approved a reverse stock split of the Company’s authorized and issued and outstanding shares
of common stock, par value $0.001 per share, at a ratio of 1-for-20 (the “Reverse Stock Split”).
As a result of the Reverse Stock Split, the Company’s authorized
shares of common stock became 150,000,000 shares. As of September 30, 2020 and immediately prior to the Reverse Stock Split, there were
313,098,220 shares of common stock issued and outstanding. As a result of the Reverse Stock Split, the Company has 15,655,038 shares of
common stock issued and outstanding. The par value remains unchanged at $0.001 per share, which resulted in a reclassification of capital
from par value to additional paid-in capital in excess of par value. All share and per share data included within the condensed consolidated
financial statements and related footnotes have been adjusted to account for the effect of the Reverse Stock Split.