ITEM
1. FINANCIAL STATEMENTS
Fortune
Valley Treasures, Inc.
Financial
Statements
September
30, 2019
(Unaudited)
Fortune
Valley Treasures, Inc.
Consolidated
Balance Sheets
At
September 30, 2019 and December 31, 2018
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
38,206
|
|
|
$
|
29,999
|
|
Accounts and other receivable, net
|
|
|
5,051
|
|
|
|
7,706
|
|
Inventories
|
|
|
100,531
|
|
|
|
236,175
|
|
Prepaid expenses
|
|
|
11,000
|
|
|
|
8,000
|
|
Due from related parties
|
|
|
54,344
|
|
|
|
54,344
|
|
Prepaid taxes and taxes recoverable
|
|
|
-
|
|
|
|
2,081
|
|
Total current assets
|
|
$
|
209,132
|
|
|
$
|
338,305
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
Plant and equipment, net
|
|
|
8,755
|
|
|
|
9,809
|
|
Right of use asset
|
|
|
128,660
|
|
|
|
-
|
|
Total Assets
|
|
$
|
346,547
|
|
|
$
|
348,114
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts and taxes payable
|
|
|
31,522
|
|
|
|
48,282
|
|
Accrued liabilities and other payables
|
|
|
17,249
|
|
|
|
291
|
|
Customers advances and deposits
|
|
|
15
|
|
|
|
-
|
|
Due to related parties
|
|
|
889,417
|
|
|
|
686,769
|
|
Total current liabilities
|
|
$
|
938,203
|
|
|
$
|
735,342
|
|
Long term liabilities
|
|
|
111,694
|
|
|
|
-
|
|
Total Liabilities
|
|
$
|
1,049,897
|
|
|
$
|
735,342
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Common stock (3,000,000,000 shares authorized, 307,750,100 issued and outstanding at September 30, 2019 and December 31, 2018)
|
|
|
307,750
|
|
|
|
307,750
|
|
Additional paid in capital
|
|
|
-
|
|
|
|
-
|
|
Accumulated deficit
|
|
|
(1,029,935
|
)
|
|
|
(708,097
|
)
|
Accumulated other comprehensive income
|
|
|
18,835
|
|
|
|
13,119
|
|
Total Stockholders’ Deficit
|
|
|
(703,350
|
)
|
|
|
(387,228
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
|
346,547
|
|
|
|
348,114
|
|
See
accompanying notes to the financial statements
Fortune
Valley Treasures, Inc.
Consolidated
Statements of Operations and Comprehensive Loss
For
the Three and Nine Months Ended September 30, 2019 and 2018
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
2019
|
|
|
September 30,
2018
|
|
|
September 30,
2019
|
|
|
September 30,
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from third parties
|
|
$
|
12,251
|
|
|
$
|
45,454
|
|
|
$
|
46,154
|
|
|
$
|
73,427
|
|
Revenue from related parties
|
|
|
83,327
|
|
|
|
-
|
|
|
|
133,380
|
|
|
|
|
|
|
|
|
95,578
|
|
|
|
45,454
|
|
|
|
179,534
|
|
|
|
73,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
75,795
|
|
|
|
19,838
|
|
|
|
137,470
|
|
|
|
36,971
|
|
Gross profit
|
|
|
19,783
|
|
|
|
25,616
|
|
|
|
42,064
|
|
|
|
36,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
98,483
|
|
|
|
64,446
|
|
|
|
366,050
|
|
|
|
238,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(78,700
|
)
|
|
|
(38,830
|
)
|
|
|
(323,986
|
)
|
|
|
(201,871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
(87
|
)
|
|
|
|
|
|
|
2,417
|
|
|
|
1,475
|
|
Interest income
|
|
|
44
|
|
|
|
-
|
|
|
|
185
|
|
|
|
-
|
|
Interest expense
|
|
|
(100
|
)
|
|
|
(91
|
)
|
|
|
(371
|
)
|
|
|
(91
|
)
|
|
|
|
(143
|
)
|
|
|
(91
|
)
|
|
|
2,231
|
|
|
|
1,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before tax
|
|
|
(78,843
|
)
|
|
|
(38,921
|
)
|
|
|
(321,755
|
)
|
|
|
(200,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
|
-
|
|
|
|
(2,854
|
)
|
|
|
84
|
|
|
|
(2,854
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(78,843
|
)
|
|
$
|
(36,067
|
)
|
|
$
|
(321,839
|
)
|
|
$
|
(197,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain
|
|
|
3,054
|
|
|
|
5,372
|
|
|
|
5,718
|
|
|
|
8,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(75,789
|
)
|
|
$
|
(30,695
|
)
|
|
$
|
(316,121
|
)
|
|
$
|
(188,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Basic and diluted weighted average shares outstanding
|
|
|
307,750,100
|
|
|
|
307,750,000
|
|
|
|
307,750,100
|
|
|
|
307,750,000
|
|
See
accompanying notes to the financial statements
Fortune
Valley Treasures, Inc.
Consolidated
Statements of Stockholders’ Equity
For
the Years Ended December 31, 2018 and 2017 and the Nine Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid
|
|
|
|
|
|
|
|
|
other
|
|
|
Non
|
|
|
|
|
|
|
No. of
|
|
|
Common
|
|
|
in
|
|
|
Statutory
|
|
|
Retained
|
|
|
comprehensive
|
|
|
controlling
|
|
|
|
|
|
|
Shares
|
|
|
Stock
|
|
|
capital
|
|
|
reserves
|
|
|
earnings
|
|
|
income
|
|
|
interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 1, 2017
|
|
|
7,750,000
|
|
|
|
7,750
|
|
|
|
|
|
|
|
81,729
|
|
|
|
(154,116
|
)
|
|
|
|
|
|
|
|
|
|
|
(64,637
|
)
|
Recapitalization
|
|
|
300,000,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
(128,952
|
)
|
|
|
(194,708
|
)
|
|
|
6,930
|
|
|
|
|
|
|
|
10,701
|
|
Capital contribution by owners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,223
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(187,496
|
)
|
|
|
|
|
|
|
|
|
|
|
(187,496
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(489
|
)
|
|
|
|
|
|
|
(489
|
)
|
Balance as of January 1, 2018
|
|
|
307,750,000
|
|
|
|
307,750
|
|
|
|
|
|
|
|
-
|
|
|
|
(445,673
|
)
|
|
|
6,441
|
|
|
|
-
|
|
|
|
(131,482
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(161,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 1, 2018
|
|
|
307,750,000
|
|
|
|
307,750
|
|
|
|
|
|
|
|
|
|
|
|
(607,294
|
)
|
|
|
9,552
|
|
|
|
|
|
|
|
(289,992
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(262,424
|
)
|
|
|
|
|
|
|
|
|
|
|
(262,424
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,677
|
|
|
|
|
|
|
|
6,677
|
|
Balance as of December 31, 2018
|
|
|
307,750,000
|
|
|
|
307,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(708,097
|
)
|
|
|
13,119
|
|
|
|
-
|
|
|
|
(387,228
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(321,839
|
)
|
|
|
|
|
|
|
-
|
|
|
|
(321,839
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,717
|
|
|
|
|
|
|
|
5,717
|
|
Balance as of September 30, 2019
|
|
|
307,750,000
|
|
|
|
307,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,029,935
|
)
|
|
|
18,836
|
|
|
|
-
|
|
|
|
(703,350
|
)
|
See
accompanying notes to the financial statements
Fortune
Valley Treasures, Inc.
Consolidated
Statements of Cash Flows
For
the Nine Months Ended September 30, 2019 and 2018
(Unaudited)
|
|
For the Nine Months Ended
|
|
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(321,839
|
)
|
|
$
|
(197,633
|
)
|
Depreciation of fixed assets
|
|
|
791
|
|
|
|
3,754
|
|
Decrease/(increase) in accounts and other receivables
|
|
|
2,450
|
|
|
|
(7,081
|
)
|
Decrease in inventories
|
|
|
130,213
|
|
|
|
33,617
|
|
(Increase)/ decrease in advances and prepayments to suppliers
|
|
|
(960
|
)
|
|
|
27,312
|
|
Increase (decrease) in accounts and other payables
|
|
|
(16,576
|
)
|
|
|
(11,984
|
)
|
Net cash used in operating activities
|
|
|
(205,921
|
)
|
|
|
(152,015
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Borrowing and payments to related parties, net
|
|
|
215,027
|
|
|
|
109,858
|
|
Net cash provided by (used in) financing activities
|
|
|
215,027
|
|
|
|
109,858
|
|
|
|
|
|
|
|
|
|
|
Net increase of cash and cash equivalents
|
|
|
9,106
|
|
|
|
(42,157
|
)
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency translation on cash and cash equivalents
|
|
|
(899
|
)
|
|
|
2,159
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents–beginning of period
|
|
|
29,999
|
|
|
|
77,782
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents–end of period
|
|
$
|
38,206
|
|
|
$
|
37,784
|
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow information:
|
|
|
|
|
|
|
|
|
Interest received
|
|
$
|
185
|
|
|
$
|
-
|
|
Interest paid
|
|
$
|
371
|
|
|
$
|
(91
|
)
|
Income taxes paid
|
|
$
|
84
|
|
|
$
|
-
|
|
Recognition of right of use asset
|
|
$
|
128,660
|
|
|
$
|
-
|
|
See
accompanying notes to the financial statements
NOTE
1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Fortune
Valley Treasures, Inc. (formerly Crypto-Services, Inc., the “Company” or “FVTI”) was incorporated in the
State of Nevada on March 21, 2014. The Company is engaged in the business of wholesale distribution and retail sales of imported
alcoholic beverages, including wine and distilled liquors, through its subsidiaries in the People’s Republic of China (“PRC”
or “China”).
On
January 5, 2018, the Company changed its accounting fiscal year end from August 31 to December 31. On January 29, 2018, the Company
filed a Certificate of Amendment with the State of Nevada to increase its authorized shares of common stock from 75,000,000 to
3,000,000,000.
On
April 6, 2018, the Company entered into a share exchange agreement by and among DaXingHuaShang Investment Group Limited, a Republic
of Seychelles limited liability company (“DIGLS”), and each of the shareholders of DIGLS, pursuant to which the Company
issued 300,000,000 shares of common stock in exchange for 100% of the issued shares of DIGLS. This transaction was accounted for
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 historical statement of stockholders’
equity has been retroactively restated to the first period presented.
DIGLS
was incorporated in the Republic of Seychelles on July 4, 2016, with an authorized capital of $100,000, divided into 250,000,000
ordinary shares, par value $0.0004 per share. DIGLS wholly owns DaXingHuaShang Investment (Hong Kong) Limited (“DILHK”),
a company incorporated in Hong Kong on June 22, 2016 as an investment holding company with limited liability. DILHK was previously
wholly owned by Mr. Yumin Lin, the Company’s Chairman, Chief Executive Officer, Chief Financial Officer, President, Treasurer
and Secretary. On November 11, 2016, Mr. Yumin Lin transferred 100% of his ownership in DILHK to DIGLS for nominal consideration.
DILHK wholly owns Qianhai DaXingHuaShang Investment (Shenzhen) Co., Ltd. (“QHDX”), a PRC limited liability company
formed on November 3, 2016 as a wholly foreign-owned enterprise. QHDX wholly owns Dongguan City France Vin Tout Ltd. (“FVTL”).
FVTL was incorporated on May 31, 2011 in the PRC as a limited liability company. FVTL was previously owned and controlled by Mr.
Yumin Lin. On November 20, 2016, Mr. Yumin Lin transferred his ownership in FVTL to QHDX for nominal consideration. The share
transfers detailed above by and among Mr. Yumin Lin, DIGLS, DILHK, QHDX, and FVTL have been accounted for as a series of business
combination of entities under common control. Accordingly, the values in these financial statements reflect the carrying values
of those entities, and no goodwill was recorded as a result of these transactions.
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 contemplated in the SP Agreement was 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 interests of Jiujiu (HK) Industry Limited (“JJHK”)
and Jiujiu (Shenzhen) Industry Co., Ltd. (“JJSZ”). None of JJGS, JJHK and JJSZ have any operations or active business,
nor do they have any assets.
On
July 13, 2019, FVTI and QHDX entered into an equity interest transfer agreement (the “Makaweng Agreement”), which
was later amended on September 12, 2019, with Xingwen Wang, a shareholder and legal representative of Yunnan Makaweng Wine &
Spirits Co., Ltd. (“Makaweng”), a PRC limited liability company formed in 2015.
Pursuant
to the Makaweng Agreement, QHDX agreed to purchase 51% of Makaweng’s equity interests from Mr. Wang in exchange for shares
of FVTI’s common stock (“Issuable Shares”). The total number of Issuable Shares will be determined according
to the following formula:
Number
of Issuance Shares = A x 51% x 20 x B ÷ C
For
the purpose of the foregoing formula:
A
= Audited net annual profit of Makaweng in fiscal year 2020.
B
= The daily average middle exchange rate of U.S. Dollars to Chinese Yuan published by the State Administration of Foreign Exchange
of the People’s Republic of China on December 31, 2020.
C
= The closing price of FVTI’s common stock on December 31, 2020.
Mr.
Wang has agreed not to transfer the Issuable Shares for at least three years after delivery of the Issuable Shares (the “Delivery”).
He may only transfer up to 30% of his FVTI common stock during the fourth year after the Delivery and cumulatively no more than
60% of his FVTI common stock during the fifth year after the Delivery.
Pursuant
to the Makaweng Agreement, Makaweng agreed to establish a board of directors consisting of seven individuals. QHDX agreed to continue
to retain Mr. Wang as the legal representative of Makaweng, and appoint him as the manager and Chairman of Makaweng.
The
51% of equity interest of Makaweng was transferred to QHDX and the registration of such transfer with local government authorities
was completed on August 28, 2019.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation
These
consolidated financial statements, accompanying notes, and related disclosures have been prepared pursuant to the rules and regulations
of the SEC. These financial statements have been prepared using the accrual basis of accounting in accordance with the generally
accepted accounting principles in the United States (“GAAP”). The Company’s fiscal year end is December 31.
The Company’s financial statements are presented in U.S. dollars.
Basis
of consolidation
The
consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions
have been eliminated.
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 wine
|
|
PRC
|
JJGS
|
|
August
17, 2017
|
|
FVTL
|
|
Investment
holding
|
|
Republic
of Seychelles
|
JJHK
|
|
August
24, 2017
|
|
JJGS
|
|
Investment
holding
|
|
Hong
Kong, PRC
|
JJSZ
|
|
November
16, 2018
|
|
JJHK
|
|
No
operations
|
|
PRC
|
Makaweng
|
|
August
28, 2019
|
|
QHDX
|
|
No
operations
|
|
PRC
|
Use
of estimates
The
preparation of financial statements is in conformity with GAAP, which requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the date
of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses
during the reporting period. Actual results may materially differ from these estimates.
Foreign
currency translation and re-measurement
The
Company translates its results of operations into 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, JJGS, JJHK and DILHK’s functional
currency is the U.S. dollar. QHDX, JJSZ, FVTL and Makaweng 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, and
|
|
●
|
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, and
|
|
●
|
Revenue
and expense items at the average rate of exchange prevailing during the period.
|
Adjustments
arising from such translations are included in accumulated other comprehensive income in shareholders’ equity.
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Spot RMB: USD exchange rate
|
|
$
|
0.14138
|
|
|
$
|
0.1454
|
|
Average RMB: USD exchange rate
|
|
$
|
0.14255
|
|
|
$
|
0.1514
|
|
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.
Cash
and cash equivalents
Cash and cash equivalents
include cash on hand, deposits in banks, and any investments with maturities with less three months from inception to maturity.
The Company’s primary bank deposits are located in the Hong Kong and the PRC. Under
the Deposit Insurance System in China, a company’s
deposits at one bank is insured for a maximum of approximately $70,000 (RMB500,000). However, management has determined
that the risk of loss from insolvency by those financial institutions at which it has deposited its funds is insignificant.
Accounts
receivable
Accounts
receivable are carried at the amounts invoiced to customers less allowance for doubtful accounts. The allowance is an estimate
based on a review of individual customer accounts on a regular basis. Accounts receivable are written off when deemed uncollectible.
Recoveries of accounts receivable previously written off are recorded when received.
The
Company reviews the collectability of accounts receivable based on an assessment of historical experience, current economic conditions,
and other collection indicators.
During
the year ended December 31, 2018 and the nine months ended September 30, 2019, the Company did not experience any delinquent or
uncollectible balances; accordingly, the Company did not record any valuation allowance for bad debt during these periods.
Inventories
Inventories
consisting of finished goods are stated at the lower of cost or market value. The Company used the weighted average cost method
of accounting for inventory. Inventories on hand are evaluated on an on-going basis to determine if any items are obsolete, spoiled,
or in excess of future demand. The Company provides impairment that is charged directly to cost of sales when it has been determined
that the product is obsolete, spoiled, and that the Company will not be able to sell it at a normal profit above its carrying
cost. The Company’s primary products are imported alcoholic beverages. The selling price of alcoholic beverages tends to
increase over time. However, there are circumstances where alcoholic beverages may be subject to spoilage if stored for prolong
periods of time. The Company did not experience an impairment on inventory during the nine months ended September 30, 2019.
Advances
and prepayments to suppliers
In
certain instances, in order to secure the supply of limited and sought-after wines and liquors, the Company will make advance
payments to suppliers for the procurement of inventory. Upon physical receipt and inspection of such products from those suppliers,
the applicable balances are reclassified from advances and prepayments to suppliers to inventory.
Property,
plant and equipment
Equipment
is carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line
method. Estimated useful lives of the equipment are as follows:
Office
equipment
|
|
7-20
years
|
The
cost of maintenance and repairs is charged to expenses as incurred, whereas significant renewals and betterments are capitalized.
Accounting
for long-lived assets
The
Company annually reviews its long-lived assets for impairment or 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.
Customer
advances and deposits
On
certain occasions, the Company may receive prepayments from downstream retailers or retail customers for wines and liquors prior
to their taking possession of the Company’s products. The Company records these receipts as customer advances and deposits
until it has met all the criteria for recognition of revenue including the passing possession of the products to its customer,
at such point Company will reduce the customer deposits balance and credit the Company’s revenues.
Revenue
recognition
Revenues
are recognized when the Company has negotiated the terms of the transaction, which includes determining and fixing the sales price,
transfer of possession of product to customer, the customer does not have the right to return the product, the customer is able
to further sell or transfer the product onto others for economic benefit without any other obligation to be fulfilled by the Company,
and the Company is reasonably assured that funds have been or will be collected from the customer. The Company’s gross revenue
consists of the value of goods invoiced, net of any value-added tax or excise tax.
Advertising
All
advertising costs are expensed as incurred. Advertising expense for the nine months ended September 30, 2019 and 2018 were $0
and $0, respectively.
Shipping
and handling
Outbound
shipping and handling are expensed as incurred.
Retirement
benefits
Retirement
benefits in the form of mandatory government sponsored defined contribution plans are charged as expenses as incurred or allocated
to inventory as a part of overhead.
Income
taxes
The
Company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future
years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before
the Company is able to realize their benefits, or that future realization is uncertain.
Statutory
reserves
Statutory
reserves are referring to the amount appropriated from the net income in accordance with laws or regulations, which can be used
to recover losses and increase capital, as approved, and are to be used to expand production or operations. PRC laws prescribe
that an enterprise operating at a profit must appropriate and reserve, on an annual basis, an amount equal to 10% of its profit.
Such an appropriation is necessary until the reserve reaches a maximum that is equal to 50% of the enterprise’s PRC registered
capital.
Earnings
per share
The
Company computes earnings per share (“EPS”) in accordance with ASC Topic 260, “Earnings per share.” Basic
EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding
for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common
shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented,
or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e. those that increase income per share
or decrease loss per share) are excluded from the calculation of diluted EPS.
Financial
instruments
The
Company’s accounts for financial instruments in accordance to ASC Topic 820, “Fair Value Measurements and Disclosures,”
which requires disclosure of the fair value of financial instruments held by the Company and ASC Topic 825, “Financial Instruments,”
which defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances
disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables
and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the
short period of time between the origination of such instruments and their expected realization and their current market rate
of interest. The three levels of valuation hierarchy are defined as follows:
●
|
Level
1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets;
|
|
|
●
|
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs
that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial
instrument; and
|
|
|
●
|
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
Commitments
and contingencies
Liabilities
for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it
is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Comprehensive
income
Comprehensive
income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners.
Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive
income are required to be reported in a financial statement that is presented with the same prominence as other financial statements.
The Company’s current component of other comprehensive income includes the foreign currency translation adjustment and unrealized
gain or loss.
Goodwill
Goodwill
represents the excess of the purchase price over the fair value of the net tangible and identifiable assets acquired in a business
combination. In accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 350, “Goodwill and Other
Intangible Assets,” goodwill is no longer subject to amortization. Rather, goodwill is subject to at least an annual assessment
for impairment, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis.
Recent
accounting pronouncements
In
January 2017, the FASB issued guidance, which amended the existing accounting standards for business combinations. The amendments
clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions
should be accounted for as acquisitions (or disposals) of assets or businesses. The Company is required to adopt the guidance
in the first quarter of fiscal year 2019. Earlier adoption is permitted. The Company adopted this guidance in the fourth quarter
of fiscal year 2018. The implementation of this guidance did not have a material impact on the Company’s consolidated financial
statements.
In
February 2018, the FASB issued guidance, which eliminates the stranded tax effects in other comprehensive income resulting from
the Tax Cuts and Jobs Act of 2017 (“TCJA”). Because the amendments only relate to the reclassification of the income
tax effects of the TCJA, the underlying guidance that requires that the effect of a change in tax laws or rates be included in
income from continuing operations is not affected. The Company is required to adopt the guidance in the first quarter of fiscal
year 2020. Earlier adoption is permitted. The Company is currently evaluating the timing and the impact of this guidance on its
consolidated financial statements.
In
August 2017, the FASB issued guidance, which amends the existing accounting standards for derivatives and hedging. The amendment
improves the financial reporting of hedging relationships to better represent the economic results of an entity’s risk management
activities in its financial statements and made certain targeted improvements to simplify the application of the hedge accounting
guidance in current GAAP. The Company is required to adopt the guidance in the first quarter of fiscal year 2020. Earlier adoption
is permitted. The Company is currently evaluating the timing and impact of this guidance on its consolidated financial statements.
In
November 2016, the FASB issued guidance, which addresses the presentation of restricted cash in the statement of cash flows. The
guidance requires entities to present the changes in the total of cash, cash equivalents, restricted cash, and restricted cash
equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents
and restricted cash and restricted cash equivalents in the statement of cash flows. The Company is required to adopt the guidance
retrospectively in the first quarter of fiscal year 2019. Earlier adoption is permitted. The Company adopted this guidance in
the first quarter of fiscal year 2019. The Company expects that the implementation of this guidance will not have a material impact
on its consolidated financial statements.
On
March 17, 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-08 “Revenue from Contracts with Customers
(Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” which amends the principal-versus-agent
implementation guidance and illustrations in the Board’s new revenue standard (ASU 2014-09). The FASB issued the ASU in
response to concerns identified by stakeholders, including those related to (1) determining the appropriate unit of account under
the revenue standard’s principal-versus-agent guidance and (2) applying the indicators of whether an entity is a principal
or an agent in accordance with the revenue standard’s control principle. Among other things, the ASU clarifies that an entity
should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer.
As defined in the ASU, a specified good or service is “a distinct good or service (or a distinct bundle of goods or services)
to be provided to the customer.” Therefore, for contracts involving more than one specified good or service, the entity
may be the principal for one or more specified goods or services and the agent for others. The ASU has the same effective date
as the new revenue standard (as amended by the one-year deferral and the early adoption provisions in ASU 2015-14). In addition,
entities are required to adopt the ASU by using the same transition method they used to adopt the new revenue standard. The Company
has determined that it acts as a principal in its primary business operations.
On
March 30, 2016, the FASB issued ASU 2016-09 “Compensation—Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting,” which simplifies several aspects of the accounting for employee share-based payment transactions
for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding
requirements, as well as classification in the statement of cash flows. The ASU is for annual reporting periods beginning after
December 15, 2016, including interim periods within those annual reporting periods. Management has determined that the new standard
did not have a material impact on the Company’s consolidated financial statements.
Unless
otherwise stated, the Company is currently assessing the above accounting pronouncements and their potential impact from their
adoption on the Company’s financial statements.
NOTE
3 - GOING CONCERN
The
accompanying financial statements have been prepared in conformity with GAAP which contemplate continuation of the Company as
a going concern. 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. The Company’s ability to continue as a going concern depends
upon its ability to market and sell its products to generate positive operating cash flows. As of September 30, 2019 and 2018,
the Company reported net losses of $321,839 and $197,633, respectively. As of September 30, 2019, the Company had working
capital deficit of approximately $729,071. In addition, the Company had net cash outflows of $207,675 from operating activities
during the nine months September 30, 2019. These conditions still raise a substantial doubt as to whether the Company may continue
as a going concern.
The
Company also relies on related parties to provide financing and management services at cost that may not be the prevailing market
rate for such services.
If
the Company is not able to generate positive operating cash flows, raise additional capital, and retain the services of certain
related parties, it may become insolvent.
NOTE
4 - ACCOUNTS AND OTHER RECEIVABLES
Accounts
and other receivables consisted of the following as of September 30, 2019 and December 31, 2018:
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
Gross accounts and other receivables
|
|
$
|
5,051
|
|
|
$
|
7,706
|
|
Less: Allowance for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
5,051
|
|
|
$
|
7,706
|
|
NOTE
5 – INVENTORIES
Inventories
consisted of the following as of September 30, 2019 and December 31, 2018:
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
Finished goods
|
|
$
|
100,531
|
|
|
$
|
236,173
|
|
|
|
|
|
|
|
|
|
|
NOTE
6 - EQUIPMENT
Property,
plant and equipment consisted of the following as of September 30, 2019 and December 31, 2018:
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
At Cost:
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
60,669
|
|
|
|
62,385
|
|
Less: Accumulated depreciation
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
51,914
|
|
|
|
52,576
|
|
|
|
$
|
8,755
|
|
|
$
|
9,809
|
|
NOTE
7 - INCOME TAXES
The
Company’s primary operations are conducted in the PRC in accordance with the relevant tax laws and regulations. The corporate
income tax rate for each country is as follows:
●
|
PRC
tax rate is 25%;
|
|
|
●
|
Hong
Kong tax rate is 16.5%; and
|
|
|
●
|
Seychelles
is on permanent tax holiday.
|
The
following table provides the reconciliation of differences between statutory and effective tax expenses for nine months ended
September 30, 2019 and 2018:
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
Income attributed to PRC operations
|
|
$
|
(145,784
|
)
|
|
$
|
(123,314
|
)
|
Loss attributed to Seychelles and Hong Kong
|
|
|
(208
|
)
|
|
|
|
|
Loss attributed to U.S.
|
|
|
(175,763
|
)
|
|
|
(77,173
|
)
|
Loss before tax
|
|
|
(321,755
|
)
|
|
|
(200,487
|
)
|
|
|
|
|
|
|
|
|
|
PRC statutory tax at 25% rate
|
|
|
(80,439
|
)
|
|
|
(50,122
|
)
|
Effect of Seychelles, PRC, Hong Kong, deductions and other reconciling items
|
|
|
80,523
|
|
|
|
47,268
|
|
Income tax
|
|
$
|
84
|
|
|
$
|
(2,854
|
)
|
The
difference between the U.S. federal statutory income tax rate and the Company’s effective tax rate was as follows for nine
months ended September 30, 2019 and 2018:
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
U.S. federal statutory income tax rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
Higher rates in PRC, net
|
|
|
4.0
|
%
|
|
|
-9.0
|
%
|
Net operating losses in PRC and other jurisdictions
|
|
|
-25.3
|
%
|
|
|
-12.0
|
%
|
The Company’s effective tax rate
|
|
|
-0.3
|
%
|
|
|
0
|
%
|
NOTE
8 - RELATED PARTY TRANSACTIONS
Amounts
due to related parties as of September 30, 2019 and December 31, 2018 are as follow:
|
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Mr. Yumin Lin (1)
|
|
Chief Executive Officer, Chief Financial Officer, President, Treasurer and Secretary
|
|
$
|
876,693
|
|
|
$
|
554,061
|
|
Ms. Qingmei Lin (2)
|
|
Mr. Yumin Lin’s wife
|
|
|
12,724
|
|
|
|
28,350
|
|
Mr. Naiyong Luo (3)
|
|
Director of DIGLS
|
|
|
0
|
|
|
|
78,639
|
|
Mr. Hongwei Ye
|
|
Shareholder
|
|
|
0
|
|
|
|
25,719
|
|
|
|
|
|
$
|
889,417
|
|
|
$
|
686,769
|
|
(1)
The outstanding payables due to Mr. Yumin Lin are comprised of working capital advances and borrowings. These amounts are due
on demand and non-interest bearing.
(2)
The amounts due to Ms. Qingmei Lin are office rental expenses. The Company’s operating facilities are located within a building
owned by Ms. Qingmei Lin.
(3)
The Company sold its wine and liquor products to Mr. Naiyong Luo in the amount of $133,378 for the nine months ended September
30, 2019. Mr. Luo is a shareholder of Gaosheng Group Co., Ltd., the prior owner of DIGLS.
NOTE
9 – LEASE COMMITMENTS
The
Company has a non-cancelable operating lease with Ms. Qingmei Lin, a related party, for the premises in Dongguan City, Guangdong
Province, China. The lease covers the period from May 1, 2017 to April 30, 2027. The monthly rent expense is $3,811 (RMB 25,000).
Effective as of May 1, 2018, the monthly rent was lowered to $2,323 (RMB15,000) based on agreement between Ms. Qingmei and Company.
Effective as of January 1, 2019, the monthly rent was lowered to $1,491 (RMB10,000) until April 30, 2027, based on agreement between
Ms. Qingmei Lin and Company. The agreement does not require a rental deposit. The Company discounted its lease commitment using
an expected borrowing rate of 4.35% per annum.
Minimum
operating lease commitment under the lease agreement is as follows:
2019
|
|
|
4,242
|
|
2020
|
|
|
16,966
|
|
2021
|
|
|
16,966
|
|
2022
|
|
|
16,966
|
|
Thereafter:
|
|
|
73,520
|
|
Total future payments of right of use asset
|
|
$
|
128,660
|
|
NOTE
10 - RISKS
Credit
risk
The
Company is subject to risk borne from credit extended to customers.
FVTL,
Makaweng and QHDX bank deposits are with banks located in the PRC. JJHK’s bank account is located in Hong Kong. DIGLS does
not have any bank accounts. The bank accounts that the Company uses are located outside of the U.S. and do not carry federal deposit
insurance.
Economic
and political risks
The
Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition, and results
of operations may be influenced by changes in the political, economic, and legal environments in the PRC. As imported alcoholic
beverages are considered a luxury item in the PRC, they may be subject to political risks. From time to time, the PRC government
limits the amount of import of foreign alcoholic beverages based on diplomatic relationships with foreign countries. The Company’s
results of operations may be materially and adversely affected if it is unable to procure such products because of change of government
policies.
Inflation
risk
Management
monitors changes in prices. Historically inflation has not materially impacted the Company’s financial statements. However,
significant increases in the price of wine and liquors that cannot be passed on to the Company’s customers could adversely
impact the Company’s results of operations.
Concentrations
risk
During
the nine months ended September 30, 2019 and the year ended December 31, 2018, the Company had a concentration of risk in its
supply of goods, as one vendor supplied all of the Company’s purchases of finished goods.
NOTE
11 - SUBSEQUENT EVENTS
Company
evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued. There
are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that
existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and
(2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet
but arose subsequent to that date.
There
was no event that management deemed necessary for disclosure as a material subsequent event.
Item
2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company
Overview
Fortune
Valley Treasures, Inc. (formerly Crypto-Services, Inc., the “Company,” “FVTI,” “we,” “our”
or “us”) was incorporated in the State of Nevada on March 21, 2014. We were initially incorporated to offer users
with up-to-date information on digital currencies.
On
July 22, 2015, the Company filed an amendment to its Articles of Incorporation with the Nevada Secretary of State to change its
name from Crypto-Services, Inc. to Fortune Valley Treasures, Inc.
As
previously reported in a Current Report on Form 8-K filed with the SEC, on December 14, 2016, we entered into a sale and purchase
agreement (the “Original Agreement”) with DaXingHuaShang Investment Group Limited, a company incorporated under the
laws of the Republic of Seychelles (“DIGLS”), and its shareholders. Pursuant to the Original Agreement, the Company
agreed to issue 300,000,000 shares of its common stock to the stockholders of DIGLS in exchange for 100% of the shares of DIGLS.
On
December 14, 2016, in anticipation of the reverse merger between the Company and DIGLS, Shen Xinlong resigned from the positions
of President, Secretary and Treasurer but remained on the board of directors of the Company (the “Board”) as a Director.
Simultaneously, the Company appointed Mr. Yumin Lin to the Board of the Company and as President, Secretary and Treasurer of the
Company.
On
April 11, 2018, the Company entered into a termination agreement with DIGLS, terminating the Original Agreement and all transactions
contemplated under the Original Agreement.
On
April 6, 2018, the Company entered into a share exchange agreement by and among DIGLS, and each of the shareholders of DIGLS,
pursuant to which the Company issued 300,000,000 shares of common stock in exchange for 100% of issued shares of DIGLS. The transaction
closed on April 19, 2018.
DIGLS
is engaged in the business of retail and wholesale of imported wine products in China. We now own all of the issued and outstanding
shares of DIGLS, which owns all of the equity capital of DILHK, QHDX and FVTL.
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 contemplated in the SP Agreement was closed on March 1, 2019. Pursuant to the SP Agreement, the Company issued
100 shares of the Company’s 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 interests of JJHK and JJSZ. None of JJGS,
JJHK and JJSZ have any operations or active business, nor do they have any assets.
On
July 13, 2019, the Company and QHDX entered into an equity interest transfer agreement, which was later amended on September 12,
2019 (“Makaweng Agreement”), with Xingwen Wang, a shareholder and legal representative of Yunnan Makaweng Wine &
Spirits Co., Ltd. (“Makaweng”), a PRC limited liability company engaged in the distribution of wine and beer. Pursuant
to the Makaweng Agreement, QHDX agreed to purchase 51% of Makaweng’s equity interests from Xingwen Wang in exchange for
shares of the Company’s common stock based on a formula.
Pursuant
to the Makaweng Agreement, QHDX agreed to purchase 51% of Makaweng’s equity interests from Mr. Wang in exchange for shares
of FVTI’s common stock (“Issuable Shares”). The total number of Issuable Shares will be determined according
to the following formula:
Number
of Issuance Shares = A x 51% x 20 x B ÷ C
For
the purpose of the foregoing formula:
A
= Audited net annual profit of Makaweng in fiscal year 2020.
B
= The daily average middle exchange rate of U.S. Dollars to Chinese Yuan published by the State Administration of Foreign Exchange
of the People’s Republic of China on December 31, 2020.
C
= The closing price of FVTI’s common stock on December 31, 2020.
Mr.
Wang has agreed not to transfer the Issuable Shares for at least three years after delivery of the Issuable Shares (the “Delivery”).
He may only transfer up to 30% of his FVTI common stock during the fourth year after the Delivery and cumulatively no more than
60% of his FVTI common stock during the fifth year after the Delivery.
The
51% of equity interest of Makaweng was transferred to QHDX and the registration of such transfer with local government authorities
was completed on August 28, 2019.
Currently,
we are engaged in the business of wholesale distribution and retail sales of imported alcoholic beverages, including wine and
distilled liquors in China. Our principal executive offices are located at No. 10 of Tuanjie 2nd Road, Beice, Humen, Dongguan,
Guangdong, China 518000. Our telephone number is (86) 76982268999.
Results
of Operations
Three
Months Ended September 30, 2019 and 2018
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
Revenue
|
|
$
|
95,578
|
|
|
$
|
45,454
|
|
|
$
|
50,124
|
|
Cost of revenue
|
|
|
75,795
|
|
|
|
19,838
|
|
|
|
55,957
|
|
Gross profit
|
|
|
19,783
|
|
|
|
25,616
|
|
|
|
(5,833
|
)
|
Gross profit (%)
|
|
|
21
|
%
|
|
|
56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense
|
|
|
98,483
|
|
|
|
64,446
|
|
|
|
34,037
|
|
Other income(expense)
|
|
|
(143
|
)
|
|
|
(91
|
)
|
|
|
(52
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
(2,854
|
)
|
|
|
2,851
|
|
Foreign currency translation gain
|
|
|
3,054
|
|
|
|
5,372
|
|
|
|
(782
|
)
|
Comprehensive loss
|
|
$
|
(75,789
|
)
|
|
$
|
(30,695
|
)
|
|
$
|
(45,094
|
)
|
Revenue
Revenue was $95,578 for three months ended
September 30, 2019, reflecting an increase of $50,124 from $45,454 for the three months ended September 30, 2018. The reason for
the increase was the adoption of new sales and marketing strategies, including price reduction and online marketing,
by the Company which increased our sales volume.
Cost
of revenue
Cost of revenue was $75,795 for the three
months ended September 30, 2019, reflecting an increase of $55,957 from $19,838 for the three months ended September 30, 2018.
The increase in cost of revenue was due to the increase of our revenue.
Gross
profit
Gross
profit was $19,783 and $25,616 for the three months ended September 30, 2019 and 2018, respectively. The gross profit margin decreased
to 21% for the three months ended September 30, 2019 from 56% for the corresponding period in 2018, due to the decrease in
the sales price of our products, as part of our strategies to promote more sales.
Operating
expense
Operating
expense was $98,483 for the three months ended September 30, 2019, reflecting an increase of $34,037 from $64,446
for the three months ended September 30, 2018. The increase was primarily due to an increase in general and administrative expense
related to professional service fees.
Comprehensive
loss
Net
loss was $75,789 for the three months ended September 30, 2019, reflecting an increase of $45,094 compared to that
of 2018, primarily as a result of the increase in cost of revenue and operating expenses.
Nine
Months Ended September 30, 2019 and 2018
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
Revenue
|
|
$
|
179,534
|
|
|
$
|
73,427
|
|
|
$
|
106,107
|
|
Cost of revenue
|
|
|
137,470
|
|
|
|
36,971
|
|
|
|
100,499
|
|
Gross profit
|
|
|
42,064
|
|
|
|
36,456
|
|
|
|
5,608
|
|
Gross profit (%)
|
|
|
23
|
%
|
|
|
49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense
|
|
|
366,050
|
|
|
|
238,327
|
|
|
|
127,723
|
|
Other income(expense)
|
|
|
2,231
|
|
|
|
1,384
|
|
|
|
847
|
|
Provision for income taxes
|
|
|
81
|
|
|
|
(2,854
|
)
|
|
|
2935
|
|
Foreign currency translation gain
|
|
|
5,718
|
|
|
|
8,786
|
|
|
|
(3,068
|
)
|
Comprehensive loss
|
|
$
|
(316,121
|
)
|
|
$
|
(188,847
|
)
|
|
$
|
(127,274
|
)
|
Revenue
Net revenue was $179,534 for nine months ended
September 30, 2019, reflecting an increase of $106,107 from $73,427 for the nine months ended September 30, 2018. The reason for
the increase in revenue was due to the adoption of new sales and marketing strategies, including price reduction and
online marketing, by the Company which increased our sales volume.
Cost
of revenue
Cost of revenue was $137,470 for the nine
months ended September 30, 2019, reflecting an increase of $100,499 from $36,971 for the nine months ended September 30, 2018.
The increase in cost of revenue was due to the increase of our revenue.
Gross
profit
Gross
profit was $42,064 and $36,456 for the nine months ended September 30, 2019 and 2018, respectively. Gross profit margin decreased
to 23% for the nine months ended September 30, 2019 from 49% for the corresponding period in 2018 primarily due to the decrease
in the sales price of our products, as part of our strategies to promote more sales.
Operating
expense
Operating expense was $366,050 for the nine
months ended September 30, 2019, reflecting an increase of $127,723 from $238,327 for the nine months ended September 30,
2018. The increase was primarily due to an increase in general and administrative expense related to professional service fees.
Comprehensive
loss
Net
loss was $316,121 for the nine months ended September 30, 2019, reflecting an increase of $127,274 compared to that of
2018, primarily as a result of the increase in cost of revenue and operating expenses.
Liquidity
and Capital Resources
Working
Capital Deficit
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
209,132
|
|
|
$
|
338,305
|
|
|
$
|
(129,173
|
)
|
Total current liabilities
|
|
|
938,203
|
|
|
|
735,342
|
|
|
|
202,861
|
|
Working capital deficit
|
|
$
|
(729,071
|
)
|
|
$
|
(397,037
|
)
|
|
$
|
(332,034
|
)
|
As
of September 30, 2019, we had cash and cash equivalents in an amount of $38,206. We have financed our operations primarily though
borrowings from related parties. The increase in working capital deficit was primarily due to continued losses from operations
and net cash used in operating activities.
Cash
Flows
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
Cash Flows Used in Operating Activities
|
|
$
|
(205,921
|
)
|
|
$
|
(152,015
|
)
|
|
$
|
(53,906
|
)
|
Cash Flows Provided by Financing Activities
|
|
|
215,027
|
|
|
|
109,858
|
|
|
|
105,169
|
|
Net Decrease in Cash During Period
|
|
$
|
9,106
|
|
|
$
|
(42,157
|
)
|
|
$
|
51,263
|
|
Cash
Flow from Operating Activities
For
the nine months ended September 30, 2019, net cash used in operating activities consisted of a net loss of $321,839 offset
by a liquidation of inventory in the amount of $130,213, which was partially offset by reductions in accounts and other payables
of $16,576.
For the nine months ended September 30, 2018,
net cash used in operating activities was a result of a net loss of $197,633 reduced by depreciation of $3,754, and a net increase
of operating expenses in the amount of $41,864.
Cash
Flow from Financing Activities
Net
cash provided by financing activities for the nine months ended September 30, 2019 was $215,027, as compared to $109,858 for the
nine months ended September 30, 2018. The increase in net cash provided by financing activities was mainly due to increase in
the amount of loans from related parties.
Critical
Accounting Policy and Estimates
In
the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations
and financial condition in the preparation of our financial statements in conformity with U.S. generally accepted accounting principles.
We base our estimates on historical experience, when available, and on other various assumptions that are believed to be reasonable
under the circumstances. Actual results could differ significantly from those estimates under different assumptions and conditions.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital
resources that is material to investors.