NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(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 15,000,000
shares (given effect of the Reverse Stock Split, see Note 9) 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 5
shares (given effect of the Reverse Stock Split, see Note 9) 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, JJHK and JJSZ did not have any material assets or liabilities as
of December 31, 2019, and they did not have any substantial operations or active business during the year ended December 31, 2019.
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 Reserve Stock Split, see Note 9) 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 from the Valley Holdings seller (the “Valley Holdings Agreement”). On July 8, 2022,
FVTI, DILHK, Valley Holdings and the Valley Holdings Seller signed a termination agreement, pursuant to which the parties mutually agreed
to terminate the Valley Holdings Agreement signed on March 16, 2020. The Valley Holdings Agreement was terminated effective July 8, 2022
and the parties have no further rights or obligations under the Valley Holdings Agreement. The parties further agreed to waive their
rights to any claims that may arise under the Valley Holdings Agreement. As of the date of the termination agreement, no equity interest
of Valley Holdings had been transferred to FVTI, DILHK or Valley Holdings.
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 June 30, 2022 and for the three and six months ended June
30, 2022 and 2021, 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, 2021 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, 2021, filed with
the SEC on April 1, 2022 (the “report”). These unaudited condensed consolidated financial statements should be read in
conjunction with the report.
Basis
of consolidation
The
unaudited condensed 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 unaudited
condensed consolidated statements of operations.
As
of June 30, 2022, 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 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 (“FYBL”) |
|
November
12, 2020 |
|
Xixingdao |
|
Drinking
water distribution and delivery |
|
PRC |
Dongguan
City Fu Xi Drinking Water Company Ltd (“FXWL”) |
|
March
17, 2021 |
|
Xixingdao |
|
Sales of agriculture products, household electric appliances and plastic
products |
|
PRC
|
Dongguan
City Fu Jia Drinking Water Company Ltd (“FJWL”) |
|
March
29, 2021 |
|
Xixingdao |
|
Sales of agriculture products, household electric appliances and food |
|
PRC
|
Dongguan
City Fu Sheng Drinking Water Company Ltd (“FSWL”) |
|
March
29, 2021 |
|
Xixingdao |
|
Sales of agriculture products, household electric appliances and food |
|
PRC
|
Shenzhen
Fu Jin Trading Technology Company Ltd (“FJSTL”) |
|
June
7, 2021 |
|
Xixingdao |
|
Trading
of primary agricultural products, household appliances and plastic products |
|
PRC
|
Dongguan City Fu Li Trading Ltd (“FLTL”) |
|
September 10, 2021 |
|
Xixingdao |
|
Sales of agriculture products, household electric appliances and plastic
products |
|
PRC |
Guangdong Fu Gu Supply Chain Group Ltd (“FGGC”) |
|
September 13, 2021 |
|
QHDX |
|
Supply chain service, sales of food and health products,
machinery, plastic products, and investment holding
|
|
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
| |
2022 | | |
2021 | |
| |
As
of and for the six months ended June 30, | |
| |
2022 | | |
2021 | |
Period-end
RMB:US$1 exchange rate | |
| 0.14927 | | |
| 0.15483 | |
Period-average
RMB:US$1 exchange rate | |
| 0.15451 | | |
| 0.15451 | |
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 U.S. 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 six months ended June 30, 2022 and 2021.
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 six months ended June 30, 2022 and 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, oil and water purifier 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
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
Three
months ended June 30, | | |
Six
months ended June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Sales
of wine | |
$ | 1,203,484 | | |
$ | 617,568 | | |
$ | 1,833,946 | | |
$ | 1,396,788 | |
Sales of water | |
| 808,648 | | |
| 1,027,651 | | |
| 1,338,092 | | |
| 1,728,146 | |
Sales of oil | |
| - | | |
| 81,120 | | |
| - | | |
| 217,117 | |
Sales of water purifier | |
| 310,807 | | |
| 99,005 | | |
| 395,548 | | |
| 127,453 | |
Others | |
| 13,520 | | |
| - | | |
| 30,683 | | |
| - | |
Total | |
$ | 2,336,459 | | |
$ | 1,825,344 | | |
$ | 3,598,269 | | |
$ | 3,469,504 | |
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 June 30, 2022
and December 31, 2021, the Company had customer advances of $255,980 and $382,518, respectively. During the six months ended June 30,
2022, the Company recognized $314,780 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.
NOTE
2 – PREPAYMENTS AND OTHER CURRENT ASSETS
Prepayments
and other current assets consisted of the following as of June 30, 2022 and December 31, 2021:
SCHEDULE OF PREPAYMENTS AND OTHER CURRENT ASSETS
| |
June
30, 2022 | | |
December
31, 2021 | |
Prepayments (including $2,059,668 and $1,813,904 to related parties as of June 30, 2022 and December 31, 2021, respectively) | |
$ | 2,428,473 | | |
$ | 2,169,095 | |
Other
current assets | |
| 8,845 | | |
| 7,618 | |
Prepayments
and other receivables | |
$ | 2,437,318 | | |
$ | 2,176,713 | |
Balance
of prepayments represented the advanced payments to suppliers including related party suppliers.
NOTE
3 – PROPERTY AND EQUIPMENT, NET
Property
and equipment consisted of the following as of June 30, 2022 and December 31, 2021:
SCHEDULE OF PROPERTY AND EQUIPMENT
| |
June
30, 2022 | | |
December
31, 2021 | |
Office
equipment | |
$ | 114,866 | | |
$ | 113,995 | |
Leasehold
improvement | |
| 126,386 | | |
| 126,386 | |
Property
and equipment | |
| 241,252 | | |
| 240,381 | |
Less:
Accumulated depreciation | |
| (123,189 | ) | |
| (99,987 | ) |
Property
and equipment, net | |
$ | 118,063 | | |
$ | 140,394 | |
Depreciation
expense, which was included in general and administrative expenses, for the six months ended June 30, 2022 and
2021 was $15,647 and $10,194, respectively.
NOTE
4 – INTANGIBLE ASSETS
Intangible
assets and related accumulated amortization were as follows:
SCHEDULE OF INTANGIBLE ASSETS
| |
June
30, 2022 | | |
December
31, 2021 | |
Distributor
channel | |
$ | 3,215,190 | | |
$ | 3,389,404 | |
Others | |
| 27,870 | | |
| 22,299 | |
Total
intangible assets | |
| 3,243,060 | | |
| 3,411,703 | |
Less:
Accumulated amortization | |
| (1,475,323 | ) | |
| (1,129,913 | ) |
Total | |
$ | 1,767,737 | | |
$ | 2,281,790 | |
Amortization
expense for the six months ended June 30, 2022 and 2021 was $417,770
and $416,030,
respectively, included in cost of revenues and general and administrative expenses.
As
of June 30, 2022, the future estimated amortization costs for intangible assets are as
follows:
SCHEDULE OF FUTURE AMORTIZATION EXPENSES FOR DISTRIBUTION CHANNELS
Year ending December
31, | |
| |
2022
(remaining) | |
$ | 404,686 | |
2023 | |
| 809,371 | |
2024 | |
| 541,439 | |
2025 | |
| 5,574 | |
2026 | |
| 5,574 | |
Thereafter | |
| 1,093 | |
Total | |
$ | 1,767,737 | |
NOTE
5- RELATED PARTY TRANSACTIONS
Amounts
due from related party as of June 30, 2022 and December 31, 2021 are as follows:
SCHEDULE OF AMOUNT DUE FROM AND DUE TO RELATED PARTIES
| |
| |
June
30, 2022 | | |
December
31, 2021 | |
Mr.
Deqin Ke | |
Manager
of a subsidiary | |
$ | - | | |
$ | 26,364 | |
Due
from related parties | |
| |
$ | - | | |
$ | 26,364 | |
Amounts
due to related parties as of June 30, 2022 and December 31, 2021 are as follows:
| |
| |
June
30, 2022 | | |
December
31, 2021 | |
Mr.
Yumin Lin | |
President,
Chief Executive Officer, Secretary, Director | |
$ | 336,204 | | |
$ | 344,218 | |
Ms.
Xiulan Zhou | |
Manager
of a subsidiary | |
| 1,384 | | |
| 1,157 | |
Mr.
Huagen Li | |
Manager
of a subsidiary | |
| 2,388 | | |
| 2,518 | |
Mr.
Guodong Jia | |
Manager
of a subsidiary | |
| 1,748 | | |
| 944 | |
Mr.
Minghua Cheng | |
Former
director and majority shareholder | |
| - | | |
| 157,353 | |
Mr.
Hongwei Ye | |
Manager
of a subsidiary, Shareholder | |
| 16 | | |
| 17 | |
Mr.
Anping Chen | |
Manager
of a subsidiary | |
| 1,045 | | |
| 6,924 | |
Mr.
Jiangwei Jia | |
Manager
of a subsidiary | |
| 950 | | |
| 787 | |
Ms.
Xiuyun Wang | |
Manager
of a subsidiary | |
| - | | |
| 6,020 | |
Mr.
Yuwen Li | |
Vice
President | |
| 11,972 | | |
| 70,745 | |
Shenzhen
DaXingHuaShang Industry Development Ltd. | |
Mr.
Yumin Lin is the supervisor of Shenzhen DaXingHuaShang Industry Development Ltd. | |
| 89,560 | | |
| 93,298 | |
Mr.
Deqin Ke | |
Manager
of a subsidiary | |
| 746 | | |
| - | |
Mr.
Zhihua Liao | |
Manager
of a subsidiary | |
| 1,249 | | |
| - | |
Ms.
Chunxiang Zhang | |
Manager
of a subsidiary | |
| 2,239 | | |
| - | |
Mr.
Xue Meng | |
Manager
of a subsidiary | |
| 2,564 | | |
| - | |
Ms.
Shuqin Chen | |
Manager
of a subsidiary | |
| 2,239 | | |
| - | |
Ms. Jinlan Liu | |
Mr. Minghua Cheng’s wife | |
| 37,317 | | |
| - | |
Due
to related parties | |
| |
$ | 491,621 | | |
$ | 683,981 | |
Revenues
generated from related parties during the six months ended June 30, 2022 and 2021 are as
follows:
SCHEDULE OF REVENUE GENERATED FROM RELATED PARTIES
| |
| |
2022 | | |
2021 | |
| |
| |
For
the six months ended June 30, | |
| |
| |
2022 | | |
2021 | |
Mr.
Kaihong Lin | |
Chief
Financial Officer and Treasurer | |
$ | 652 | | |
$ | 160 | |
Mr.
Yumin Lin | |
President,
Chief Executive Officer, Secretary, Director | |
| 438 | | |
| 302 | |
Mr.
Zihao Ye | |
Manager
of a subsidiary | |
| 262 | | |
| 76 | |
Mr.
Naiyong Luo | |
Manager
of a subsidiary | |
| - | | |
| 5,742 | |
Mr.
Hongwei Ye | |
Manager
of a subsidiary, Shareholder | |
| - | | |
| 5,933 | |
Ms.
Xiulan Zhou | |
Manager
of a subsidiary, Mr. Yumin Lin’s wife | |
| - | | |
| 51 | |
Dongguan City Chashan Pingfeng Cigarette and Wine Store Co., Ltd. | |
Mr. Taiping Deng, a manager of a subsidiary, is the controlling shareholder
of Dongguan City Chashan Pingfeng Cigarette and Wine Store Co., Ltd. | |
| - | | |
| 60,762 | |
Dongguan
Zhengui Reality Co., Ltd. | |
Mr. Naiyong Luo, a manager of a subsidiary, is the controlling shareholder
of Dongguan Zhengui Reality Co., Ltd. | |
| - | | |
| 132,334 | |
Dongguan
Huanhai Trading Co., Ltd. | |
Mr. Hongwei Ye, a shareholder of the Company and a manager of a subsidiary,
is the controlling shareholder of Dongguan Huanhai Trading Co., Ltd. | |
| 13,553 | | |
| 13,805 | |
Guangdong
Yuexin Jiaotong Construction Co., Ltd. | |
Mr.
Naiyong Luo, a manager of a subsidiary, is the controlling shareholder of Guangdong Yuexin Jiaotong Construction Co., Ltd. | |
| 7,581 | | |
| 98,818 | |
Dongguan City Hualianguan Chemical Co., Ltd. | |
Mr. Hongwei Ye, a shareholder of the Company and a manager of a subsidiary,
is the controlling shareholder of Dongguan City Hualianguan Chemical Co., Ltd. | |
| 19,009 | | |
| - | |
Dongguan City Daying Internet Technology Co., Ltd. | |
Mr. Minghua Cheng, a former director and majority shareholder of the Company,
is the controlling shareholder of Dongguan City Daying Internet Technology Co., Ltd. | |
| - | | |
| 57,496 | |
Dongguan
Tailai Trading Co., Ltd. | |
Significantly
influenced by the Company | |
| - | | |
| 13,205 | |
Revenues
generated from related parties | |
| |
$ | 41,495 | | |
$ | 388,684 | |
Cost
of revenues from related parties during the six months ended June 30, 2022 and 2021 is as follows:
SCHEDULE OF COST REVENUES FROM RELATED PARTIES
| |
| |
2022 | | |
2021 | |
|
|
|
|
For
the six months ended June 30, |
|
|
|
|
|
2022 |
|
|
2021 |
|
Dongguan
Baxi Food Distribution Co., Ltd. |
|
Significantly
influenced by the Company |
|
$ |
15,899 |
|
|
$ |
70,815 |
|
Dongguan
Dalingshan Xinwenhua Drinking Water Store |
|
Significantly
influenced by the Company |
|
|
43,759 |
|
|
|
24,540 |
|
Dongguan
Pengqin Drinking Water Co., Ltd. |
|
Significantly
influenced by the Company |
|
|
33,836 |
|
|
|
20,662 |
|
Dongguan Dengqinghu Drinking Water Co., Ltd. |
|
Significantly
influenced by the Company |
|
|
1,475 |
|
|
|
7,855 |
|
Dongguan
Tailai Trading Co., Ltd. |
|
Significantly
influenced by the Company |
|
|
34,519 |
|
|
|
26,328 |
|
Dongguan
Anxiang Technology Co., Ltd. |
|
Significantly
influenced by the Company |
|
|
64,639 |
|
|
|
57,935 |
|
Guangdong
Jiaduonuo Shengshi Trading Co., Ltd. |
|
Significantly
influenced by the Company |
|
|
64,565 |
|
|
|
52,065 |
|
Dongguan
Dalingshan Runxin Drinking Water Store |
|
Significantly
influenced by the Company |
|
|
16,312 |
|
|
|
10,143 |
|
Dongguan City Yijia Trading Co., Ltd. |
|
Mr.
Yongming Li, a shareholder of the Company, is the controlling shareholder of Dongguan City Yijia Trading Co., Ltd. |
|
|
111,376 |
|
|
|
- |
|
Cost
of revenues from related parties |
|
|
|
$ |
386,380 |
|
|
$ |
270,343 |
|
Purchases
from related parties during the six months ended June 30, 2022 and 2021 are as follows:
SCHEDULE OF PURCHASES FROM RELATED PARTIES
| |
| |
2022 | | |
2021 | |
| |
| |
For
the six months ended June 30, | |
| |
| |
2022 | | |
2021 | |
Dongguan
Baxi Food Distribution Co., Ltd. | |
Significantly
influenced by the Company | |
$ | 19,406 | | |
$ | 55,839 | |
Dongguan
Dalingshan Xinwenhua Drinking Water Store | |
Significantly
influenced by the Company | |
| 56,842 | | |
| 19,131 | |
Dongguan
Pengqin Drinking Water Co., Ltd. | |
Significantly
influenced by the Company | |
| 37,266 | | |
| 19,368 | |
Dongguan
Dengqinghu Drinking Water Store | |
Significantly
influenced by the Company | |
| 1,659 | | |
| 8,393 | |
Dongguan
Tailai Trading Co., Ltd. | |
Significantly
influenced by the Company | |
| 33,634 | | |
| 34,460 | |
Dongguan
Anxiang Technology Co., Ltd. | |
Significantly
influenced by the Company | |
| 66,220 | | |
| 69,883 | |
Guangdong
Jiaduonuo Shengshi Trading Co., Ltd. | |
Significantly
influenced by the Company | |
| 69,407 | | |
| 45,365 | |
Dongguan
Dalingshan Runxin Drinking Water Store | |
Significantly
influenced by the Company | |
| 16,374 | | |
| 14,082 | |
Dongguan City Yijia Trading Co., Ltd. | |
Mr. Yongming
Li, a shareholder of the Company, is the controlling shareholder of Dongguan City Yijia Trading Co., Ltd. | |
| 48,579 | | |
| - | |
Purchase
from related party | |
| |
$ | 349,387 | | |
$ | 266,521 | |
Due from related party mainly consists of funds advanced
to a related party as borrowings or funds advanced to pay off the Company’s expenses. The balance is unsecured, non-interest bearing.
Due to related parties mainly consists of borrowings
for working capital purpose, the balances are unsecured, non-interest bearing and due on demand.
In
addition, during the six months ended June 30, 2022 and 2021, these related parties paid expenses on the Company’s behalf in
an amount of $38,627 and $293,862,
respectively.
Mr.
Yuwen Li, the Vice President of the Company, authorized the Company to use trademarks that were owned by him for ten years from October
5, 2019 to October 4, 2029 at no cost.
Also
see Note 2 and 7 for more transactions with related parties.
NOTE
6 - 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 six months ended June 30, 2022 and 2021, 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%.
MOF and SAT [2021] No.12 provides an enterprise income tax rate of 2.5%
on small-scale and low-profit enterprises whose annual taxable income is less than RMB1,000,000,
approximately $142,209,
from January 1, 2021 to December 31, 2022. MOF and SAT [2022] No.13 also provides an enterprise income tax rate of 5%
on small-scale and low-profit enterprises whose annual taxable income is more than RMB1,000,000,
approximately $142,209,
but less than RMB3,000,000,
approximately $426,627,
from January 1, 2022 to December 31, 2024. 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
| |
Six
Months Ended June 30, 2022 | | |
Six
Months Ended June 30, 2021 | |
Current: | |
| | | |
| | |
–
United States of America | |
$ | 45,562 | | |
$ | 79,096 | |
– Seychelles | |
| - | | |
| - | |
–
Hong Kong | |
| - | | |
| - | |
–
The PRC | |
| 58,359 | | |
| 83,526 | |
Current income tax expense | |
| | | |
| | |
Deferred | |
| | | |
| | |
–
United States of America | |
| - | | |
| - | |
– Seychelles | |
| - | | |
| - | |
–
Hong Kong | |
| - | | |
| - | |
–
The PRC | |
| - | | |
| - | |
Deferred income tax expense | |
| | | |
| | |
Total | |
$ | 103,921 | | |
$ | 162,622 | |
The
effective tax rate was 9.7% and 17.0% for the six months ended June 30, 2022 and 2021, respectively.
NOTE
7 - OPERATING LEASES
As
of June 30, 2022, the Company has seventeen separate operating lease agreements for three office spaces,
one warehouse and thirteen stores in PRC with remaining lease terms of from 3 months to 58 months.
Two
of these leases described above were entered with related
parties. The operating lease entered with Ms. Qingmei Lin, a related party, is for the premises in Dongguan City, PRC. The
agreement covers the period from January 1, 2019 to April 30, 2027 with the
monthly rent expense of RMB10,000
(approximately $1,545).
The operating lease agreement entered with Mr. Hongwei Ye, another related party, is for the premises in Dongguan City, PRC. The
agreement covers the period from September 27, 2020 to September 30, 2023 with the monthly rent expense of RMB960
(approximately
$148).
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 six months ended June 30, 2022 and 2021
are as follows:
SCHEDULE OF COMPONENTS OF LEASE EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION
| |
2022 | | |
2021 | |
Operating
lease cost (included in general and administrative expenses in the Company’s unaudited condensed consolidated statements of
operations) | |
For
the six months ended June 30, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Related
parties | |
$ | 11,347 | | |
$ | 23,307 | |
Non-related
parties | |
| 74,009 | | |
| 42,666 | |
Total | |
$ | 85,356 | | |
$ | 65,973 | |
Other
information for the six months ended | |
June
30, 2022 | | |
June
30, 2021 | |
Cash
paid for amounts included in the measurement of lease obligations | |
$ | 78,215 | | |
$ | 72,024 | |
Weighted
average remaining lease term (in years) | |
| 3.55 | | |
| 4.26 | |
Weighted
average discount rate | |
| 3.23 | % | |
| 3.23 | % |
Maturities
of the Company’s lease obligations as of June 30, 2022 are as follows:
SCHEDULE OF MATURITIES OF LEASE OBLIGATIONS
Year
ending December 31, | |
| | |
2022
(remaining) | |
$ | 74,148 | |
2023 | |
| 111,468 | |
2024 | |
| 82,081 | |
2025 | |
| 78,242 | |
2026 | |
| 44,039 | |
Thereafter | |
| 5,971 | |
Total
lease payment | |
| 395,949 | |
Less:
Imputed interest | |
| (20,421 | ) |
Operating
lease obligations | |
$ | 375,528 | |
NOTE
8 – BANK AND OTHER BORROWINGS
In
August 2020, the Company obtained a revolving credit line in the principal amount of RMB910,000
(approximately $139,000 when borrowed) 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.
In
December 2020, the Company obtained a loan in the principal amount of RMB750,000
(approximately $115,000
when borrowed) from Huaneng Guicheng Trust Co., Ltd. (“Huaneng Guicheng”), a financial institution in PRC, which bears interest
at the base Loan Prime Rate of 3.85% plus 8.75%. The loan is guaranteed by Yumin Lin. The maturity date is on December
21, 2022. The loan was fully repaid in June 2022.
In
November 2021, the Company obtained a bank loan in the principal amount of RMB500,000 (approximately
$79,000
when borrowed) from Shenzhen Qianhai Webank Co., Ltd. (“WeBank”), which bears
interest at 3.6%. The maturity date is on December
11, 2021. On December 11, 2021, the Company and WeBank agreed to extend the maturity date of the loan to December 21, 2023
and increase the principal amount to RMB500,750
(approximately $79,000
when borrowed) reflecting the accrued interest. The loan is guaranteed by Yumin Lin and bears interest
at 10.71%.
In
May 2022, the Company obtained a revolving credit line in the principal amount of RMB1,000,000
(approximately $149,000
when borrowed) from China Construction Bank, which bears interest
at 4.45%. The credit line is guaranteed by Xiulan Zhou, a related party, and pledged by her property. The maturity date is on May
26, 2023.
In May 2022, the Company obtained a loan in the principal amount of RMB161,000 (approximately $24,000 when borrowed) from Huaneng Guicheng, which bears interest at 11.34%. The loan is guaranteed by Yumin Lin. The maturity date is on
May 21, 2024.
In
May 2022, the Company obtained a bank loan in the principal amount of RMB69,000
(approximately $10,000
when borrowed) from WeBank, which bears interest
at 11.34%. The loan is guaranteed by Yumin Lin. The maturity date is on May
21, 2024.
The
balance of the loans borrowed as of June 30, 2022 and December 31, 2021 were as follows:
SCHEDULE OF BALANCE OF LOAN BORROWED UNDER CREDIT LINES
| |
June
30, 2022 | | |
December 31,
2021 | |
Loan
from a trust in PRC | |
$ | 23,030 | | |
$ | 67,438 | |
China
Construction Bank | |
| 285,098 | | |
| 143,192 | |
WeBank | |
| 73,314 | | |
| 78,795 | |
Aggregate
outstanding principal balances | |
$ | 381,442 | | |
$ | 289,425 | |
Less:
current portion | |
| 208,012 | | |
| 101,207 | |
Non-current
portion | |
$ | 173,430 | | |
$ | 188,218 | |
The
total interest expense was $10,689 and $9,487 for the six months ended June 30, 2022 and 2021, respectively.
Future
minimum loan payments as of June 30, 2022 are as follows:
SCHEDULE OF FUTURE MINIMUM LOAN PAYMENTS
Year ending December 31, | |
| |
2022 (remaining) | |
$ | 29,315 | |
2023 | |
| 344,975 | |
2024 | |
| 7,152 | |
Thereafter | |
| - | |
Total | |
$ | 381,442 | |
NOTE 9 – COMMON STOCK
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 June 30, 2021, 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 amount in the accompanying financial statement for the prior period have been
retroactively adjusted to reflect the Reverse Stock Split.
NOTE
10 - SUBSEQUENT EVENTS
On July 8, 2022, the Company obtained two
loans in the principal amount of RMB99,000
(approximately $15,000)
and RMB231,000
(approximately $34,000)
from WeBank and Guangdong Nanyue Bank Co., Ltd. (“Nanyue Bank”), respectively, which bear interest
at 14.4%. The loans are guaranteed by Kaihong Lin with the maturity date on July
8, 2024.
On July 13, 2022, the Company obtained two
loans in the principal amount of RMB153,000
(approximately $23,000)
and RMB357,000
(approximately $53,000)
from WeBank and Nanyue Bank, respectively, which bear interest
at 14.4%. The loans are guaranteed by Falan Zhou, a manager of subsidiaries, with the maturity date on July
13, 2024.
On July 21, 2022, the Company obtained a loan in the
principal amount of RMB380,000 (approximately $57,000) from Huaneng Guicheng, which bears interest at 12.6%. The loan is guaranteed by
Yumin Lin with the maturity date on July 21, 2024.