NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 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 Reserve Stock
Split, see Note 10) 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 equity
interest of Jiujiu Group Stock Co., Ltd. (“JJGS”), a company incorporated under the laws of the Republic of Seychelles. The
transaction closed on March 1, 2019. Pursuant to the SP Agreement, the Company issued 100 shares of its common stock to JJGS to acquire
100% of the shares of JJGS for a cost of $150. After the closing, JJGS became the Company’s wholly owned subsidiary. JJGS owns
all of the equity interest of Jiujiu (HK) Industry Limited (“JJHK”) and Jiujiu (Shenzhen) Industry Co., Ltd. (“JJSZ”).
JJGS, 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 the PRC and a wholly-owned subsidiary of FVTI (“QHDX”), to acquire 90%
of the equity interest of Dongguan Xixingdao Technology Co., Ltd. (“Xixingdao”), a company incorporated in the PRC, in exchange
for 243,134
shares (given effect of the Reserve Stock
Split, see Note 10) of the Company’s common stock. The Company obtained the control of Xixingdao on August 31, 2020, the shares
were issued on December 28, 2020. Xixingdao became the Company’s subsidiary since August 31, 2020.
On
January 6, 2021, FVTI, JJGS, Valley Holding Limited (“Valley Holdings”) and Angel International Investment Holdings Limited
(the “Valley Holdings Seller”) signed a termination agreement, pursuant to which the parties mutually agreed to terminate
the original equity interest transfer agreement signed on March 16, 2020. On the same date, FVTI, DILHK, Valley Holdings and the Valley
Holdings Seller entered into a new equity interest transfer agreement, pursuant to which DILHK agreed to purchase 70% of Valley Holdings’
equity interest (the “Valley Holdings Equity Transfer”) from the Valley Holdings seller in consideration of FVTI’s
common shares valued at $12 million (subject to adjustments in the event Valley Holdings’ net income is more than HK$5 million
(approximately US$0.6 million) or less than HK$3 million (approximately US$0.4 million) for the fiscal year ended December 31, 2020).
As of the date of this filing, the closing of the Valley Holdings Equity Transfer has not occurred.
On
February 28, 2021, FVTI, QHDX and the original shareholders of Foshan BaiTaFeng Beverage Development Co., Ltd. (“BTF”) signed
a termination agreement, pursuant to which the parties mutually agreed to terminate the original equity interest transfer agreement signed
on December 31, 2019 (“BTF Agreement”). The BTF Agreement was terminated effective February 28, 2021 and the parties have
no further rights or obligations under the BTF Agreement. The parties further agreed to waive their rights to any claims that may arise
under the BTF Agreement. As of the date of the termination agreement, no equity interest of BTF had been transferred to QHDX.
Basis
of presentation
The
accompanying unaudited condensed consolidated
financial statements as of March 31, 2022 and for the three months ended March 31, 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
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 condensed
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 condensed consolidated
statements of operations.
As
of March 31, 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 Tai Food Trade Ltd (“FTFL”) |
|
October 23, 2020 |
|
Xixingdao |
|
Drinking water distribution and delivery |
|
PRC |
Dongguan
City Fu Jia Drinking Water Ltd (“FJWL”) |
|
March 29, 2021 |
|
Xixingdao |
|
Sales of agriculture products, household electric appliances
and food |
|
PRC |
Dongguan
City Fu Sheng Drinking Water Ltd (“FSWL”) |
|
March 29, 2021 |
|
Xixingdao |
|
Sales of agriculture products, household electric appliances
and food |
|
PRC |
Dongguan
City Fu Xi Drinking Water Ltd (“FXWL”) |
|
March 17, 2021 |
|
Xixingdao |
|
Sales of agriculture products, household electric appliances
and plastic products |
|
PRC |
Shenzhen City Fu Jin Trading Technology Ltd (“FJSTL”) |
|
June 7, 2021 |
|
Xixingdao |
|
Sales of agriculture products, household electric appliances,
plastic products and software development |
|
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 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 three months ended
March 31,
| |
| |
| 2022 | | |
| 2021 | |
Period-end RMB:US$1 exchange rate | |
| 0.15770 | | |
| 0.15261 | |
Period-average RMB:US$1 exchange rate | |
| 0.15752 | | |
| 0.15424 | |
The
RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.
No representation is made that the RMB amounts could have been, or could be, converted into US dollars at the rates used in translation.
Impairment
of long-lived assets other than goodwill
The
Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of
assets may not be recoverable. Impairment may be the result of becoming obsolete from a change in the industry or new technologies. Impairment
is present if the carrying amount of an asset is less than its undiscounted cash flows to be generated.
If
an asset is considered impaired, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value
of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
The
Company did not recognize any impairment of long-lived assets during the three months ended March 31, 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 three months ended March 31, 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 and oil directly to agents, wholesalers and end users. We recognize product
revenue at a point in time when the control of the products has been transferred to customers. The transfer of control is considered
complete when products have been picked up by or delivered to our customers. We account for shipping and handling fees as a fulfillment
cost.
The
following table provides information about disaggregated revenue based on revenue by product types:
SCHEDULE OF DISAGGREGATION REVENUE
| |
2022 | | |
2021 | |
| |
Three months ended 31 March, | |
| |
2022 | | |
2021 | |
Sales of wine | |
$ | 630,462 | | |
$ | 779,220 | |
Sales of water | |
| 529,444 | | |
| 700,495 | |
Sales of oil | |
| - | | |
| 135,997 | |
Others | |
| 101,904 | | |
| 28,448 | |
Total | |
$ | 1,261,810 | | |
$ | 1,644,160 | |
Contract
liabilities
Contract
liabilities consist mainly of customer advances. On certain occasions, the Company may receive prepayments from downstream retailers
or wholesales customers for wines, water and other products prior to them taking possession of the Company’s products. The Company
records these receipts as customer advances until the control of the products has been transferred the customers. As of March 31, 2022
and December 31, 2021, the Company had customer advances of $351,412
and $382,518,
respectively. During the three months ended March 31, 2022, the Company recognized $272,551
of customer advances in the opening balance.
Related
party transactions
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 - ACCOUNTS RECEIVABLE, NET
Accounts
receivable consisted of the following as of March 31, 2022 and December 31, 2021:
SCHEDULE OF ACCOUNTS RECEIVABLE
| |
March 31
2022 | | |
December 31,
2021 | |
Accounts receivable (including $19,044 and $43,477 from related parties as of March 31, 2022 and December 31, 2021, respectively) | |
$ | 1,881,892 | | |
$ | 2,662,168 | |
Less: Allowance for doubtful accounts | |
| - | | |
| - | |
Accounts receivable, net | |
$ | 1,881,892 | | |
$ | 2,662,168 | |
NOTE
3 – PREPAYMENTS AND OTHER CURRENT ASSETS
Prepayments
and other current assets consisted of the following as of March 31, 2022 and December 31, 2021:
SCHEDULE OF PREPAYMENTS AND OTHER CURRENT ASSETS
| |
March 31 2022 | | |
December 31, 2021 | |
Prepayments (including $1,731,874 and 1,813,904 to related parties as of March 31, 2022 and December 31, 2021, respectively) | |
$ | 2,604,463 | | |
$ | 2,169,095 | |
Other current assets | |
| 24,439 | | |
| 7,618 | |
Prepayments and other receivables | |
$ | 2,628,902 | | |
$ | 2,176,713 | |
Balance
of prepayments represented
the advanced payments to suppliers including related party suppliers.
NOTE
4 – PROPERTY AND EQUIPMENT, NET
Property
and equipment consisted of the following as of March 31, 2022 and December 31, 2021:
SCHEDULE OF PROPERTY AND EQUIPMENT
| |
March 31, 2022 | | |
December 31, 2021 | |
Office equipment | |
$ | 116,736 | | |
$ | 113,995 | |
Leasehold improvement | |
| 129,424 | | |
| 126,386 | |
Property and equipment | |
| 246,160 | | |
| 240,381 | |
Less: Accumulated depreciation | |
| (117,936 | ) | |
| (99,987 | ) |
Property and equipment, net | |
$ | 128,224 | | |
$ | 140,394 | |
Depreciation
expense, which was included in general and administrative expenses, for the three months ended March 31, 2022 and 2021 was $12,466
and $4,950,
respectively.
NOTE
5 – INTANGIBLE ASSETS
Intangible
assets and related accumulated amortization were as follows:
SCHEDULE OF INTANGIBLE ASSETS
| |
March 31, 2022 | | |
December 31, 2021 | |
Distributor channel | |
$ | 3,396,880 | | |
$ | 3,389,404 | |
Others | |
| 22,348 | | |
| 22,299 | |
Total intangible assets | |
| 3,419,228 | | |
| 3,411,703 | |
Less: Accumulated amortization | |
| (1,344,598 | ) | |
| (1,129,913 | ) |
Total | |
$ | 2,074,630 | | |
$ | 2,281,790 | |
Amortization
expense for the three months ended March 31, 2022 and 2021 was $211,957
and $196,579,
respectively, included in cost of revenues and
general and administrative expenses.
As
of March 31, 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) | |
$ | 636,705 | |
2023 | |
| 849,220 | |
2024 | |
| 588,705 | |
Thereafter | |
| - | |
Total | |
$ | 2,074,630 | |
NOTE
6- RELATED PARTY TRANSACTIONS
Amounts
due from related parties as of March 31, 2022 and December 31, 2021 are as follows:
SCHEDULE OF AMOUNT DUE FROM AND DUE TO RELATED PARTIES
| |
| |
March 31, 2022 | | |
December 31, 2021 | |
Mr. Deqin Ke | |
Manager of a subsidiary | |
$ | - | | |
$ | 26,364 | |
Mr. Yuwen Li | |
Vice President | |
| 26,255 | | |
| - | |
Due from related parties | |
| |
$ | 26,255 | | |
$ | 26,364 | |
Amounts
due to related parties as of March 31, 2022 and December 31, 2021 are as follows:
| |
| |
March 31, 2022 | | |
December 31, 2021 | |
Mr. Yumin Lin | |
President, Chief Executive Officer, Secretary, Director | |
$ | 300,114 | | |
$ | 344,218 | |
Ms. Xiulan Zhou | |
Manager of a subsidiary | |
| 1,160 | | |
| 1,157 | |
Mr. Huagen Li | |
Manager of a subsidiary | |
| 2,523 | | |
| 2,518 | |
Mr. Guodong Jia | |
Manager of a subsidiary | |
| 946 | | |
| 944 | |
Mr. Minghua Cheng | |
Former director and majority shareholder | |
| 78,851 | | |
| 157,353 | |
Mr. Hongwei Ye | |
Manager of a subsidiary, Shareholder | |
| 17 | | |
| 17 | |
Mr. Anping Chen | |
Manager of a subsidiary | |
| 8,516 | | |
| 6,924 | |
Mr. Jiangwei Jia | |
Manager of a subsidiary | |
| - | | |
| 787 | |
Ms. Xiuyun Wang | |
Manager of a subsidiary | |
| - | | |
| 6,020 | |
Mr. Yuwen Li | |
Vice President | |
| - | | |
| 70,745 | |
Shenzhen DaXingHuaShang Industry Development Ltd. | |
Mr. Yumin Lin is the supervisor of Shenzhen DaXingHuaShang Industry Development Ltd. | |
| 94,620 | | |
| 93,298 | |
Mr. Deqin Ke | |
Manager of a subsidiary | |
| 789 | | |
| - | |
Mr. Zhihua Liao | |
Manager of a subsidiary | |
| 325 | | |
| - | |
Ms. Chunxiang Zhang | |
Manager of a subsidiary | |
| 1,577 | | |
| - | |
Mr. Xue Meng | |
Manager of a subsidiary | |
| 789 | | |
| - | |
Ms. Shuqin Chen | |
Manager of a subsidiary | |
| 789 | | |
| - | |
Due to related parties | |
| |
$ | 491,016 | | |
$ | 683,981 | |
Revenues
generated from related parties during the three months ended March 31, 2022 and 2021
are as follows:
SCHEDULE OF REVENUE GENERATED FROM RELATED PARTIES
| |
| |
2022 | | |
2021 | |
| |
| |
For
the three months ended March 31, | |
| |
| |
2022 | | |
2021 | |
Mr. Kaihong Lin | |
Chief Financial Officer and Treasurer | |
$ | 241 | | |
$ | 51 | |
Mr. Yumin Lin | |
President, Chief Executive Officer, Secretary, Director | |
| 222 | | |
| 109 | |
Mr. Zihao Ye | |
Manager of a subsidiary | |
| 262 | | |
| 76 | |
Mr. Naiyong Luo | |
Manager of a subsidiary | |
| - | | |
| 5,115 | |
Mr. Hongwei Ye | |
Manager of a subsidiary, Shareholder | |
| - | | |
| 5,922 | |
Dongguan Zhengui Reality Co., Ltd. | |
Mr. Naiyong Luo, a manager of a subsidiary, is the controlling shareholder
of Dongguan Zhengui Reality Co., Ltd. | |
| - | | |
| 132,099 | |
Dongguan Huanhai Trading Co., Ltd. | |
Mr. Weihong Ye, a manager of a subsidiary, is the controlling shareholder
of Dongguan Huanhai Trading Co., Ltd. | |
| - | | |
| 13,781 | |
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. | |
| - | | |
| 98,643 | |
Dongguan Tailai Trading Co., Ltd. | |
Significantly influenced by the Company | |
| - | | |
| 13,182 | |
Revenues generated from
related parties | |
| |
$ | 725 | | |
$ | 268,978 | |
Cost
of revenues from related parties during the three months ended March 31, 2022 and 2021 is as follows:
SCHEDULE OF COST REVENUES FROM RELATED PARTIES
| |
| |
2022 | | |
2021 | |
| |
| |
For the three months ended March 31, | |
| |
| |
2022 | | |
2021 | |
Dongguan Baxi Food Distribution Co., Ltd. | |
Significantly influenced by the Company | |
$ | 8,178 | | |
$ | 31,424 | |
Dongguan Dalingshan Xinwenhua Drinking Water Store | |
Significantly influenced by the Company | |
| 14,648 | | |
| 19,307 | |
Dongguan Pengqin Drinking Water Co., Ltd. | |
Significantly influenced by the Company | |
| 9,555 | | |
| 16,283 | |
Dongguan Dengqinghu Drinking Water Store | |
Significantly influenced by the Company | |
| 1,082 | | |
| 6,472 | |
Dongguan Tailai Trading Co., Ltd. | |
Significantly influenced by the Company | |
| 9,736 | | |
| 14,615 | |
Dongguan Anxiang Technology Co., Ltd. | |
Significantly influenced by the Company | |
| 46,721 | | |
| 35,826 | |
Guangdong Jiaduonuo Shengshi Trading Co., Ltd. | |
Significantly influenced by the Company | |
| 39,765 | | |
| 3,157 | |
Dongguan Dalingshan Runxin Drinking Water Store | |
Significantly influenced by the Company | |
| 7,227 | | |
| 3,516 | |
Cost of revenues from
related parties | |
| |
$ | 136,912 | | |
$ | 130,600 | |
Purchases
from related parties during the three months ended March 31, 2022 and 2021 are as follows:
SCHEDULE
OF PURCHASES FROM RELATED PARTIES
| |
| |
2022 | | |
2021 | |
| |
| |
For the three months ended March 31, | |
| |
| |
2022 | | |
2021 | |
Dongguan Baxi Food Distribution Co., Ltd. | |
Significantly influenced by the Company | |
$ | 8,178 | | |
$ | 31,424 | |
Dongguan Dalingshan Xinwenhua Drinking Water Store | |
Significantly influenced by the Company | |
| 14,648 | | |
| 18,319 | |
Dongguan Pengqin Drinking Water Co., Ltd. | |
Significantly influenced by the Company | |
| 9,555 | | |
| 15,450 | |
Dongguan Dengqinghu Drinking Water Store | |
Significantly influenced by the Company | |
| 1,082 | | |
| 6,141 | |
Dongguan Tailai Trading Co., Ltd. | |
Significantly influenced by the Company | |
| 9,736 | | |
| 13,868 | |
Dongguan Anxiang Technology Co., Ltd. | |
Significantly influenced by the Company | |
| 46,721 | | |
| 33,993 | |
Guangdong Jiaduonuo Shengshi Trading Co., Ltd. | |
Significantly influenced by the Company | |
| 39,765 | | |
| 2,996 | |
Dongguan Dalingshan Runxin Drinking Water Store | |
Significantly influenced by the Company | |
| 7,227 | | |
| 3,336 | |
Purchase from related
party | |
| |
$ | 136,912 | | |
$ | 125,527 | |
Due
from related parties mainly consists of funds advanced to related parties as borrowings or funds advanced to pay off the Company’s
expenses. The balances are unsecured, non-interest bearing.
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 three months ended March 31, 2022 and 2021, these related parties paid expenses on the Company’s
behalf in an amount of nil
and $14,487,
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, 3 and 8 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 which governed by the International
Business Companies Act of Seychelles and there is no income tax charged in Seychelles.
Hong
Kong
From
year of assessment of 2018/2019 onwards, Hong Kong profit tax rates are 8.25%
on assessable profits up to HK$2,000,000
(approximately $289,855),
and 16.5%
on any part of assessable profits over HK$2,000,000.
For the three months ended March 31, 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 (“MOF and SAT”),
[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, pursuant
to which the qualified enterprises’ 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
| |
Three Months Ended March 31, 2022 | | |
Three Months Ended March 31, 2021 | |
Current: | |
| | | |
| | |
– United States of America | |
$ | - | | |
$ | 43,096 | |
– Seychelles | |
| - | | |
| - | |
– Hong Kong | |
| - | | |
| - | |
– The PRC | |
| 22,407 | | |
| 23,259 | |
Current income tax expense | |
| 22,407 | | |
| 23,259 | |
Deferred | |
| | | |
| | |
– United States of America | |
| - | | |
| - | |
– Seychelles | |
| - | | |
| - | |
– Hong Kong | |
| - | | |
| - | |
– The PRC | |
| - | | |
| - | |
Deferred income tax expense | |
| - | | |
| - | |
Total | |
$ | 22,407 | | |
$ | 66,355 | |
The
effective tax rate was 11.3%
and 16.5%
for the three months ended March 31, 2022
and 2021, respectively.
NOTE
8 - OPERATING LEASES
As
of March 31, 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 6 months to 61 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 $1,450). 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 $139).
The Company terminated an operating lease agreement
with a subsidiary of Shenzhen DaXingHuaShang Industry Development Ltd., a related party, for the premise in Shenzhen City, PRC on February
28, 2021. The monthly rent expense for this lease was RMB30,000 (approximately $4,349).
The
components of lease expense and supplemental cash flow information related to leases for the three months ended March 31, 2022
and 2021 are as follows:
SCHEDULE OF COMPONENTS OF LEASE EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION
| |
2022 | | |
2021 | |
| |
For
the three months ended
March 31, |
Operating lease cost (included in general and administrative expenses in the Company’s
condensed consolidated statements of operations) | |
2022 | | |
2021 | |
| |
| | |
| |
Related parties | |
$ | 4,726 | | |
$ | 18,490 | |
Non-related parties | |
| 37,773 | | |
| 18,200 | |
Other information for the three months ended | |
March
31, 2022 | | |
March
31, 2021 | |
Cash paid for amounts included in the measurement of lease obligations | |
$ | 51,477 | | |
$ | 41,336 | |
Weighted average remaining lease term (in years) | |
| 3.66 | | |
| 3.77 | |
Weighted average discount rate | |
| 3.23 | % | |
| 3.23 | % |
Maturities
of the Company’s lease obligations as of March 31, 2022 are as follows:
SCHEDULE OF MATURITIES OF LEASE OBLIGATIONS
Year ending December 31, | |
| |
2022 (remaining) | |
$ | 121,292 | |
2023 | |
| 114,117 | |
2024 | |
| 86,720 | |
2025 | |
| 82,664 | |
2026 | |
| 46,528 | |
Thereafter | |
| 6,308 | |
Total lease payment | |
| 457,629 | |
Less: Imputed interest | |
| (25,905 | ) |
Operating lease obligations | |
$ | 431,724 | |
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) 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) from Huaneng Guicheng Trust
Co., Ltd, a financial institution in PRC, which bears interest at the base Loan Prime Rate of 3.85% plus 8.75%. The credit line is guaranteed
by Yumin Lin. The maturity date is on December 21, 2022.
In
November 2021, the Company obtained a bank loan in the principal amount of RMB500,000 (approximately $79,000) 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) reflecting the accrued interest. The loan is guaranteed by Yumin Lin and bears interest at 10.71%.
The
balance of the loans borrowed as of March 31, 2022 and December 31, 2021 were as follows:
SCHEDULE OF BALANCE OF LOAN BORROWED UNDER CREDIT LINES
|
|
March
31, 2022 |
|
|
December
31, 2021 |
|
Loan
from a trust in PRC |
|
$ |
50,690 |
|
|
$ |
67,438 |
|
China Construction Bank |
|
|
143,508 |
|
|
|
143,192 |
|
WeBank |
|
|
78,968 |
|
|
|
78,795 |
|
Aggregate outstanding principal balances |
|
$ |
273,166 |
|
|
$ |
289,425 |
|
Less: current portion |
|
|
95,815 |
|
|
|
101,207 |
|
Non-current portion |
|
$ |
177,351 |
|
|
$ |
188,218 |
|
The
total interest expense was $5,825
and $3,553
for the three months ended March 31,
2022 and 2021, respectively.
NOTE
10 – 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 March 31, 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.