NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(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 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 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 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.
Basis
of presentation
The
accompanying unaudited condensed consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023
and 2022, 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, 2022 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, 2022, filed with the SEC on March 31, 2023 (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 March 31, 2023, 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 |
|
Drinking water distribution
and delivery, sales of alcoholic beverages and water purifier |
|
PRC |
Dongguan City Fu Jia Drinking Water Company Ltd (“FJWL”) |
|
March 29, 2021 |
|
Xixingdao |
|
Drinking water distribution and delivery, sales of
water purifier |
|
PRC |
Dongguan City Fu Sheng Drinking Water Company Ltd (“FSWL”) |
|
March 29, 2021 |
|
Xixingdao |
|
Drinking water distribution and delivery, sales of
water purifier |
|
PRC |
Shenzhen Fu Jin Trading Technology Company Ltd (“FJSTL”) |
|
June 7, 2021 |
|
Xixingdao |
|
Drinking water distribution and delivery, sales of
water purifier |
|
PRC |
Dongguan City Fu Li Trading Ltd (“FLTL”) |
|
September 10, 2021 |
|
Xixingdao |
|
Drinking water distribution and delivery, sales of
water purifier |
|
PRC |
Guangdong Fu Gu Supply Chain Group Ltd (“FGGC”) |
|
September 13, 2021 |
|
QHDX |
|
Trading of alcoholic beverages |
|
PRC |
Dongguan City Fu Zhi Gu Trading Ltd (“FZGTL”) |
|
September 9, 2022 |
|
FVTL |
|
Trading of alcoholic beverages |
|
PRC |
Dongguan City Chang Fu Trading Ltd (“CFTL”) |
|
September 9, 2022 |
|
FVTL |
|
Trading of alcoholic beverages |
|
PRC |
Dongguan City La Tong Trading Ltd (“LTTL”) |
|
August 8, 2022 |
|
FVTL |
|
Trading of alcoholic beverages |
|
PRC |
Dongguan City Kai Fu Trading Ltd (“KFTL”) |
|
September 8, 2022 |
|
FVTL |
|
Trading of alcoholic beverages |
|
PRC |
Use
of estimates
The
preparation of financial statements in conformity with U.S. 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 credit losses, allowance of deferred tax asset and uncertain tax position, implicit interest rate of operating
leases, useful lives and impairment of long-lived assets, and impairment of goodwill. Actual results may differ from these estimates.
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
| |
2023 | | |
2022 | |
| |
As of and for the three months ended March 31, | |
| |
2023 | | |
2022 | |
Period-end RMB:US$1 exchange rate | |
| 0.14558 | | |
| 0.15770 | |
Period-average RMB:US$1 exchange rate | |
| 0.14616 | | |
| 0.15752 | |
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 three months ended March 31, 2023 and 2022.
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, 2023 and 2022, 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 liquor, water, water purifier and other products directly to agents, wholesalers and end
users, with majority of sales transactions were conducted offline. 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
| |
2023 | | |
2022 | |
| |
Three months ended March 31, | |
| |
2023 | | |
2022 | |
Sales of liquor | |
$ | 903,720 | | |
$ | 630,462 | |
Sales of water | |
| 419,620 | | |
| 529,444 | |
Sales of water purifier | |
| 253,123 | | |
| 84,740 | |
Others | |
| 58,826 | | |
| 17,164 | |
Total | |
$ | 1,635,289 | | |
$ | 1,261,810 | |
Contract
liabilities
Contract
liabilities consist mainly of customer advances. On certain occasions, the Company may receive prepayments from downstream retailers
or wholesales customers for liquors, 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, 2023
and December 31, 2022, the Company had customer advances of $140,664 and $139,334, respectively. During the three months ended March
31, 2023, the Company recognized $9,786 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.
Recently
adopted accounting pronouncements
In
June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic
326), Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 was further amended in November 2020 by ASU No. 2020-10,
Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). As a result, ASC
Topic 326, Financial Instruments – Credit Losses is effective for smaller reporting companies for fiscal years beginning after
December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU No. 2016-13 on January 1, 2023 and the
adoption did not have a material impact on the Company’s unaudited condensed consolidated financial statements.
In
October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers. This ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract
liabilities in a business combination in accordance with ASC Topic 606, “Revenue from Contracts with Customers”. This ASU
is expected to improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date
of and after a business combination. The new guidance is effective for fiscal years beginning after December 15, 2022, including interim
periods within those fiscal years. The Company adopted ASU No. 2021-08 on January 1, 2023 and the adoption did not have a material impact
on the Company’s unaudited condensed consolidated financial statements.
NOTE
2 – PREPAYMENTS AND OTHER CURRENT ASSETS, NET
Prepayments
and other current assets consisted of the following as of March 31, 2023 and December 31, 2022:
SCHEDULE
OF PREPAYMENTS AND OTHER CURRENT ASSETS
| |
March 31, 2023 | | |
December 31, 2022 | |
Prepayments (including $2,451,765 and $2,255,288 to related parties as of March 31, 2023 and December 31, 2022, respectively) | |
$ | 3,032,303 | | |
$ | 3,001,866 | |
Other current assets | |
| 45,314 | | |
| 4,631 | |
Total prepayments and other current assets | |
| 3,077,617 | | |
| 3,006,497 | |
Less: Allowance for doubtful accounts (including $1,169,492 and $1,152,427 to related parties as of March 31, 2023 and December 31, 2022, respectively) | |
| (1,254,386 | ) | |
| (1,247,580 | ) |
Prepayments and other current assets, net | |
$ | 1,823,231 | | |
$ | 1,758,917 | |
Balance
of prepayments represented the advanced payments to suppliers including related party suppliers.
Allowance
for doubtful accounts movements is as follows:
SCHEDULE
OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
| |
March 31, 2023 | | |
December 31, 2022 | |
Beginning balance | |
$ | 1,247,580 | | |
$ | - | |
Additions (Deductions) to allowance | |
| (499 | ) | |
| 1,284,005 | |
Foreign currency translation adjustment | |
| 7,305 | | |
| (36,425 | ) |
Ending balance | |
$ | 1,254,386 | | |
$ | 1,247,580 | |
NOTE
3 – DEPOSITS PAID, NET
Deposits
paid consisted of the following as of March 31, 2023 and December 31, 2022:
SCHEDULE
OF DEPOSITS PAID
| |
March 31, 2023 | | |
December 31, 2022 | |
Deposits paid (including $1,650,128 and $1,628,511 to related parties as of March 31, 2023 and December 31, 2022, respectively) | |
$ | 2,391,336 | | |
$ | 2,365,652 | |
Less: Allowance for doubtful accounts (including $952,257 and $870,066 to related parties as of March 31, 2023 and December 31, 2022, respectively) | |
| (1,527,819 | ) | |
| (1,244,350 | ) |
Deposits paid, net | |
$ | 863,517 | | |
$ | 1,121,302 | |
Allowance
for doubtful accounts movement is as follows:
SCHEDULE
OF ALLOWANCE FOR DOUBTFUL ACCOUNTS OF DEPOSITS PAID
| |
March 31, 2023 | | |
December 31, 2022 | |
Beginning balance | |
$ | 1,244,350 | | |
$ | - | |
Additions to allowance | |
| 277,268 | | |
| 1,280,681 | |
Foreign currency translation adjustment | |
| 6,201 | | |
| (36,331 | ) |
Ending balance | |
$ | 1,527,819 | | |
$ | 1,244,350 | |
NOTE
4 – PROPERTY AND EQUIPMENT, NET
Property
and equipment consisted of the following as of March 31, 2023 and December 31, 2022:
SCHEDULE
OF PROPERTY AND EQUIPMENT
| |
March 31, 2023 | | |
December 31, 2022 | |
Office equipment | |
$ | 116,520 | | |
$ | 116,520 | |
Leasehold improvement | |
| 126,386 | | |
| 126,386 | |
Property and equipment | |
| 242,906 | | |
| 242,906 | |
Less: Accumulated depreciation | |
| (155,162 | ) | |
| (145,016 | ) |
Property and equipment, net | |
$ | 87,744 | | |
$ | 97,890 | |
Depreciation
expense, which was included in general and administrative expenses, for the three months ended March 31, 2023 and 2022 was $10,183 and
$12,466, respectively.
NOTE
5 – INTANGIBLE ASSETS, NET
Intangible
assets and related accumulated amortization were as follows:
SCHEDULE
OF INTANGIBLE ASSETS
| |
March 31, 2023 | | |
December 31, 2022 | |
Distribution channel | |
$ | 3,135,879 | | |
$ | 3,117,635 | |
Others | |
| 27,151 | | |
| 27,809 | |
Total intangible assets | |
| 3,163,030 | | |
| 3,145,444 | |
Less: Accumulated amortization | |
| (1,887,441 | ) | |
| (1,822,875 | ) |
Less: Accumulated impairment | |
| (957,215 | ) | |
| (951,643 | ) |
Intangible assets, net | |
$ | 318,374 | | |
$ | 370,926 | |
Amortization
expense for the three months ended March 31, 2023 and 2022 was $54,111 and $211,957, respectively, included in cost of revenues and general
and administrative expenses.
As
of March 31, 2023, the future estimated amortization costs for intangible assets are as follows:
SCHEDULE
OF FUTURE AMORTIZATION EXPENSES FOR DISTRIBUTION CHANNELS
Year ending December 31, | |
| |
2023 (remaining) | |
$ | 161,697 | |
2024 | |
| 145,016 | |
2025 | |
| 5,255 | |
2026 | |
| 5,255 | |
2027 | |
| 1,151 | |
Total | |
$ | 318,374 | |
NOTE
6 - RELATED PARTY TRANSACTIONS
Amounts
due to related parties as of March 31, 2023 and December 31, 2022 are as follows:
SCHEDULE
OF AMOUNT DUE FROM AND DUE TO RELATED PARTIES
| |
| |
March 31, 2023 | | |
December 31, 2022 | |
Mr. Yumin Lin | |
President, Chief Executive Officer, Secretary, Director and majority shareholder | |
$ | 361,026 | | |
$ | 389,051 | |
Ms. Xiulan Zhou | |
Manager of a subsidiary, Mr. Yumin Lin’s wife | |
| 931 | | |
| 508 | |
Mr. Huagen Li | |
Manager of a subsidiary | |
| 2,329 | | |
| 2,316 | |
Mr. Guodong Jia | |
Manager of a subsidiary | |
| 3,508 | | |
| 2,342 | |
Mr. Hongwei Ye | |
Manager of a subsidiary, Shareholder | |
| 16 | | |
| 16 | |
Mr. Anping Chen | |
Manager of a subsidiary | |
| 2,601 | | |
| 1,290 | |
Mr. Jiangwei Jia | |
Manager of a subsidiary | |
| 5,307 | | |
| 3,678 | |
Mr. Yuwen Li | |
Vice President | |
| 80,068 | | |
| 64,924 | |
Ms. Lihua Li | |
Manager of a subsidiary | |
| 480 | | |
| - | |
Shenzhen DaXingHuaShang Industrial Group Ltd. (fka Shenzhen DaXingHuaShang Industry Development Ltd.) | |
Mr. Yumin Lin is the supervisor of Shenzhen DaXingHuaShang Industrial Group Ltd. | |
| 87,350 | | |
| 86,842 | |
Ms. Chunxiang Zhang | |
Manager of a subsidiary | |
| 2,175 | | |
| 998 | |
Mr. Meng Xue | |
Manager of a subsidiary | |
| 6,867 | | |
| 5,449 | |
Ms. Shuqin Chen | |
Manager of a subsidiary | |
| 3,306 | | |
| 1,358 | |
Mr. Zhipeng Zuo | |
Manager of a subsidiary | |
| - | | |
| 59 | |
Mr. Deqin Ke | |
Manager of a subsidiary | |
| 728 | | |
| 724 | |
Mr. Aisheng Zhang | |
Manager of a subsidiary | |
| 9,549 | | |
| 2,320 | |
Mr. Zhihua Liao | |
Manager of a subsidiary | |
| 4,789 | | |
| 3,800 | |
| |
| |
$ | 571,030 | | |
$ | 565,675 | |
Revenues
generated from related parties during the three months ended March 31, 2023 and 2022 are as follows:
SCHEDULE OF REVENUE GENERATED FROM RELATED PARTIES
| |
| |
2023 | | |
2022 | |
| |
| |
Three months ended March 31, | |
| |
| |
2023 | | |
2022 | |
Mr. Kaihong Lin | |
Chief Financial Officer and Treasurer | |
$ | 146 | | |
$ | 241 | |
Mr. Yumin Lin | |
President, Chief Executive Officer, Secretary, Director and majority shareholder | |
| - | | |
| 222 | |
Mr. Zihao Ye | |
Manager of a subsidiary | |
| - | | |
| 262 | |
Ms. Xiulan Zhou | |
Manager of a subsidiary, Mr. Yumin Lin’s wife | |
| 14 | | |
| - | |
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. | |
| 8,383 | | |
| - | |
Dongguan Humen Shuiyan Drinking Water Store | |
Ms. Shuiyan Li, a shareholder of the Company, is the controlling shareholder of Dongguan Humen Shuiyan Drinking Water Store | |
| 18,207 | | |
| - | |
Revenues generated from
related parties | |
| |
$ | 26,750 | | |
$ | 725 | |
Cost
of revenues from related parties during the three months ended March 31, 2023 and 2022 is as follows:
SCHEDULE OF COST OF REVENUES FROM RELATED PARTIES
| |
| |
2023 | | |
2022 | |
| |
| |
Three months ended March 31, | |
| |
| |
2023 | | |
2022 | |
Dongguan Baxi Food Distribution Co., Ltd. | |
Significantly influenced by the Company | |
$ | 32,883 | | |
$ | 8,178 | |
Dongguan Dalingshan Xinwenhua Drinking Water Store | |
Significantly influenced by the Company | |
| 13,743 | | |
| 14,648 | |
Dongguan Pengqin Drinking Water Co., Ltd. | |
Significantly influenced by the Company | |
| 17,186 | | |
| 9,555 | |
Dongguan Dengqinghu Drinking Water Store | |
Significantly influenced by the Company | |
| 1,388 | | |
| 1,082 | |
Dongguan Tailai Trading Co., Ltd. | |
Significantly influenced by the Company | |
| 31,470 | | |
| 9,736 | |
Dongguan Anxiang Technology Co., Ltd. | |
Significantly influenced by the Company | |
| 35,989 | | |
| 46,721 | |
Guangdong Jiaduonuo Shengshi Trading Co., Ltd. | |
Significantly influenced by the Company | |
| 68,214 | | |
| 39,765 | |
Dongguan Dalingshan Runxin Drinking Water Store | |
Significantly influenced by the Company | |
| 9,450 | | |
| 7,227 | |
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. | |
| 18,659 | | |
| - | |
Cost
of revenues from related parties | |
| |
$ | 228,982 | | |
$ | 136,912 | |
Purchases
from related parties during the three months ended March 31, 2023 and 2022 are as follows:
SCHEDULE OF PURCHASES FROM RELATED PARTIES
| |
| |
2023 | | |
2022 | |
| |
| |
Three months ended March 31, | |
| |
| |
2023 | | |
2022 | |
Dongguan Baxi Food Distribution Co., Ltd. | |
Significantly influenced by the Company | |
$ | 36,365 | | |
$ | 8,178 | |
Dongguan Dalingshan Xinwenhua Drinking Water Store | |
Significantly influenced by the Company | |
| 15,198 | | |
| 14,648 | |
Dongguan Pengqin Drinking Water Co., Ltd. | |
Significantly influenced by the Company | |
| 19,005 | | |
| 9,555 | |
Dongguan Dengqinghu Drinking Water Store | |
Significantly influenced by the Company | |
| 1,535 | | |
| 1,082 | |
Dongguan Tailai Trading Co., Ltd. | |
Significantly influenced by the Company | |
| 34,802 | | |
| 9,736 | |
Dongguan Anxiang Technology Co., Ltd. | |
Significantly influenced by the Company | |
| 35,989 | | |
| 46,721 | |
Guangdong Jiaduonuo Shengshi Trading Co., Ltd. | |
Significantly influenced by the Company | |
| 68,215 | | |
| 39,765 | |
Dongguan Dalingshan Runxin Drinking Water Store | |
Significantly influenced by the Company | |
| 10,451 | | |
| 7,227 | |
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. | |
| 18,660 | | |
| - | |
Purchase
from related party | |
| |
$ | 240,220 | | |
$ | 136,912 | |
Due
to related parties mainly consists of borrowings for working capital purpose, the balances are unsecured, non-interest bearing and due
on demand.
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, 3, 8 and 9 for more transactions with related parties.
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 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
$255,146), and 16.5% on any part of assessable profits over HK$2,000,000. For the three months ended March 31, 2023 and 2022, 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
April 2, 2021, the State Taxation Administration issued the notice of the Ministry of Finance and the State Administration of Taxation
(“MOF and SAT”) [2021] No.12 to provide 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, except for Xixingdao, FVT Supply Chain and FLTT.
The
components of the income tax provision are as follows:
SCHEDULE OF COMPONENTS OF INCOME TAX PROVISION
| |
2023 | | |
2022 | |
| |
Three months ended March 31, | |
| |
2023 | | |
2022 | |
Current: | |
| | | |
| | |
– United States of America | |
$ | 41,444 | | |
$ | - | |
– Seychelles | |
| - | | |
| - | |
– Hong Kong | |
| - | | |
| - | |
– The PRC | |
| 33,530 | | |
| 22,407 | |
Current income tax expense | |
| | | |
| | |
Deferred | |
| | | |
| | |
– United States of America | |
| - | | |
| - | |
– Seychelles | |
| - | | |
| - | |
– Hong Kong | |
| - | | |
| - | |
– The PRC | |
| - | | |
| - | |
Deferred income tax expense | |
| - | | |
| - | |
Total | |
$ | 74,974 | | |
$ | 22,407 | |
The
effective tax rate was -527.9% and 11.3% for the three months ended March 31, 2023 and 2022, respectively.
NOTE
8 - OPERATING LEASES
As
of March 31, 2023, the Company has nineteen separate operating lease agreements for three office spaces, one warehouse and fifteen stores
in PRC with remaining lease terms of from 4 months to 49 months.
Two
of the 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 $1,462). 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 $140).
The
components of lease expense and supplemental cash flow information related to leases for the three months ended March 31, 2023 and 2022
are as follows:
SCHEDULE OF COMPONENTS OF LEASE EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION
| |
2023 | | |
2022 | |
Operating lease cost (included in general and administrative expenses in the Company’s unaudited condensed consolidated statements of operations) | |
Three months ended March 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Related parties | |
$ | 4,806 | | |
$ | 4,726 | |
Non-related parties | |
| 33,284 | | |
| 37,773 | |
Total | |
$ | 38,090 | | |
$ | 42,499 | |
Operating lease cost | |
$ | 38,090 | | |
$ | 42,499 | |
Other information for the three months ended | |
March 31, 2023 | | |
March 31, 2022 | |
Cash paid for amounts included in the measurement of lease obligations | |
$ | 42,179 | | |
$ | 51,477 | |
Weighted average remaining lease term (in years) | |
| 2.91 | | |
| 3.66 | |
Weighted average discount rate | |
| 3.23 | % | |
| 3.23 | % |
Maturities
of the Company’s lease obligations as of March 31, 2023 are as follows:
SCHEDULE OF MATURITIES OF LEASE OBLIGATIONS
Year ending December 31, | |
| |
2023 (remaining) | |
$ | 105,231 | |
2024 | |
| 119,801 | |
2025 | |
| 104,701 | |
2026 | |
| 42,953 | |
2027 | |
| 5,823 | |
Total lease payment | |
| 378,509 | |
Less: Imputed interest | |
| (20,693 | ) |
Operating lease obligations | |
$ | 357,816 | |
NOTE
9 – 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 4.10%. The credit line is guaranteed by Xiulan Zhou, a related party, and pledged
by her property. The maturity date is on August 7, 2023.
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. 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 Trust Co., Ltd. (“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.
In
July 2022, the Company obtained two loans in the principal amount of RMB99,000 (approximately $15,000 when borrowed) and RMB231,000 (approximately
$34,000 when borrowed) from WeBank and Guangdong Nanyue Bank Co., Ltd. (“Nanyue Bank”), respectively, which bear interest
at 14.4%. The loans are guaranteed by Kaihong Lin. The maturity date is on July 8, 2024.
In
July 2022, the Company obtained two loans in the principal amount of RMB153,000 (approximately $23,000 when borrowed) and RMB357,000
(approximately $53,000 when borrowed) from WeBank and Nanyue Bank, respectively, which bear interest at 14.4%. The loans are guaranteed
by Falan Zhou, a manager of subsidiaries. The maturity date is on July 13, 2024.
In
July 2022, the Company obtained a loan in the principal amount of RMB380,000 (approximately $57,000 when borrowed) from Huaneng Guicheng,
which bears interest at 12.6%. The loan is guaranteed by Yumin Lin. The maturity date is on July 21, 2024.
In
February 2023, the Company obtained a revolving credit line in the principal amount of RMB465,000 (approximately $68,000 when borrowed)
from China Construction Bank, which bears interest at 4.00%. The loan is guaranteed by Shuqin Chen, a related party. The maturity date
is on February 11, 2024.
The
balance of the loans borrowed as of March 31, 2023 and December 31, 2022 were as follows:
SCHEDULE OF BALANCE OF LOAN BORROWED UNDER CREDIT LINES
| |
March 31, 2023 | | |
December 31, 2022 | |
Loans from a trust in PRC | |
$ | 50,554 | | |
$ | 60,049 | |
China Construction Bank | |
| 345,762 | | |
| 276,447 | |
WeBank | |
| 61,416 | | |
| 77,220 | |
Guangdong Nanyue Bank | |
| 57,069 | | |
| 67,375 | |
Aggregate outstanding principal balances | |
| 514,801 | | |
| 481,091 | |
Less: current portion | |
| 482,409 | | |
| 422,653 | |
Non-current portion | |
$ | 32,392 | | |
$ | 58,438 | |
The
total interest expense was $9,292 and $5,825 for the three months ended March 31, 2023 and 2022, respectively.
Future
minimum loan payments as of March 31, 2023 are as follows:
SCHEDULE OF FUTURE MINIMUM LOAN PAYMENTS
Year ending December 31, | |
| | |
2023 (remaining) | |
$ | 388,325 | |
2024 | |
| 126,476 | |
Thereafter | |
| - | |
Total | |
$ | 514,801 | |
NOTE
10 - SUBSEQUENT EVENTS
In
April 2023, the Company obtained two bank loans in the principal amount of RMB224,000
(approximately $33,000
when borrowed) and RMB96,000
(approximately $14,000
when borrowed) from
Bank of Ningbo and WeBank, respectively. Both loans bear interest at 12.24%
with the maturity date on April 7, 2025 and are guaranteed by Falan Zhou, a manager of subsidiaries.