UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the Quarterly Period Ended
or
For the transition period from _________ to _________
Commission
File Number
(Exact name of registrant issuer as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
Registrant’s
phone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common stock, par value $0.001 per share
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
As of November 15, 2021, there were shares, par value $0.001, of the registrant’s common stock outstanding.
TABLE OF CONTENTS
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
FORTUNE VALLEY TREASURES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2021 AND DECEMBER 31, 2020
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Prepayments and other current assets | ||||||||
| Due from related parties | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Deposits paid | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Operating lease right-of-use assets, related parties | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Operating lease obligations – current | $ | $ | ||||||
| Operating lease obligations, related parties - current | ||||||||
| Accounts payable | ||||||||
| Accrued liabilities | ||||||||
| Income tax payable | ||||||||
| Customer advances | ||||||||
| Due to related parties | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Operating lease obligations – non-current | ||||||||
| Operating lease obligations, related parties – non-current | ||||||||
| Bank and other borrowings | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock ( shares authorized, issued and outstanding as of September 30, 2021 and December 31, 2020)* | ||||||||
| Additional paid in capital* | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total Fortune Valley Treasures, Inc. stockholders’ equity | ||||||||
| Noncontrolling interests | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
| * | Given effect of the Reverse Stock Split, see Note 10. |
See accompanying notes to the unaudited condensed consolidated financial statements.
| 3 |
FORTUNE VALLEY TREASURES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (Restated) | (Restated) | |||||||||||||||
| Revenues from related parties | $ | $ | $ | $ | ||||||||||||
| Revenues from third parties | ||||||||||||||||
| Net Revenues | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Other operating income | - | - | - | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and distribution expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||||||||||
| Other income (expense): | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Income (loss) before income tax | ( | ) | ( | ) | ||||||||||||
| Income tax expense | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Less: Net income (loss) attributable to noncontrolling interests | ( | ) | ( | ) | ||||||||||||
| Net income (loss) attributable to Fortune Valley Treasures, Inc. | ( | ) | ( | ) | ||||||||||||
| Other comprehensive income: | ||||||||||||||||
| Foreign currency translation gain | ||||||||||||||||
| Total comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
| Less: comprehensive income (loss) attributable to noncontrolling interests | ( | ) | ( | ) | ||||||||||||
| Comprehensive income (loss) attributable to Fortune Valley Treasures, Inc. | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Earnings (loss) per share | ||||||||||||||||
| Basic and diluted earnings (loss) per share* | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Basic and diluted weighted average shares outstanding* | ||||||||||||||||
| * | Given effect of the Reverse Stock Split, See Note 10. |
See accompanying notes to the unaudited condensed consolidated financial statements.
| 4 |
FORTUNE VALLEY TREASURES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
| Common Stock* | Additional | Accumulated Other | Non | Total | ||||||||||||||||||||||||
| Number of shares | Amount | Paid-in Capital* | Comprehensive Income | Accumulated Deficit | controlling Interests | Stockholders’ Equity | ||||||||||||||||||||||
| Balance as of December 31, 2020* | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Net income | - | - | - | - | ||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | ( | ) | - | ( | ) | ( | ) | ||||||||||||||||||
| Balance as of March 31, 2021* | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Net income | - | - | - | - | ||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ||||||||||||||||||||||||
| Balance as of June 30, 2021* | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Net income | - | - | - | - | ||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ||||||||||||||||||||||||
| Balance as of September 30, 2021* | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| * | Given effect of the Reverse Stock Split, see Note 10. |
| Common Stock* | Additional | Accumulated Other | Non | Total | ||||||||||||||||||||||||
| Number of shares | Amount | Paid-in Capital* | Comprehensive Income | Accumulated Deficit | controlling Interests | Stockholders’ Deficit | ||||||||||||||||||||||
| Balance as of December 31, 2019* | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | |||||||||||||||||||||||
| Balance as of March 31, 2020* | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Noncontrolling interests arising from acquisition of subsidiary | - | - | - | - | - | |||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | ( | ) | - | ( | ) | ( | ) | ||||||||||||||||||
| Balance as of June 30, 2020* | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Noncontrolling interests arising from acquisition of subsidiary (Restated) | - | - | - | - | - | |||||||||||||||||||||||
| Net loss (Restated) | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Foreign currency translation adjustment (Restated) | - | - | - | - | ||||||||||||||||||||||||
| Balance as of September 30, 2020* (Restated) | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| * | Given effect of the Reverse Stock Split, see Note 10. |
See accompanying notes to the unaudited condensed consolidated financial statements.
| 5 |
FORTUNE VALLEY TREASURES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
| Nine months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| (Restated) | ||||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Non-cash lease expense | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepayments and other current assets | ( | ) | ( | ) | ||||
| Deposits paid | ( | ) | - | |||||
| Accounts payable | ||||||||
| Customer advances | ( | ) | ||||||
| Accrued liabilities | ||||||||
| Income tax payable | ( | ) | - | |||||
| Operating lease obligations | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Repayment of advance to related parties | ||||||||
| Advance to related parties | ( | ) | ( | ) | ||||
| Purchase of intangible asset | ( | ) | - | |||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from acquisition of subsidiary | - | |||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Borrowings from related parties | ||||||||
| Borrowings from and repayments to bank loans, net | ( | ) | ||||||
| Repayments to related parties | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| Net changes in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents–beginning of the period | ||||||||
| Cash and cash equivalents–end of the period | $ | $ | ||||||
| Supplementary cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing activities | ||||||||
| Expenses paid by related parties on behalf of the Company | $ | $ | ||||||
| Remeasurement of operating lease obligation and right-of-use asset due to lease termination | $ | $ | ||||||
| Operating lease right-of-use assets obtained in exchange for operating lease obligations | $ | $ | ||||||
| Shares payable for acquisition of subsidiary | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 6 |
FORTUNE VALLEY TREASURES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fortune Valley Treasures, Inc. (formerly Crypto-Services, Inc.) (“FVTI” or the “Company”) was incorporated in the State of Nevada on March 21, 2014. The Company’s current primary business operations of wholesale distribution and retail sales of alcoholic beverages of wine and distilled liquors, and drinking water distribution and delivery are conducted through its subsidiaries in the People’s Republic of China (“PRC”).
On April 11, 2018, the Company entered into a share exchange agreement by and among DaXingHuaShang Investment Group Limited (“DIGLS”) and its shareholders: 1.) Yumin Lin, 2.) Gaosheng Group Co., Ltd. and 3.) China Kaipeng Group Co., Ltd whereby the Company newly issued shares of its common stock in exchange for all the outstanding shares in DIGLS. This transaction has been accounted for as a reverse takeover transaction and a recapitalization of the Company whereby the Company, the legal acquirer, is the accounting acquiree, and DIGLS, the legal acquiree, is the accounting acquirer.
On
March 1, 2019, the Company entered into a sale and purchase agreement (the “SP Agreement”) to acquire 100% of the shares
of Jiujiu Group Stock Co., Ltd. (“JJGS”), a company incorporated under the laws of the Republic of Seychelles. The transaction
closed on March 1, 2019. Pursuant to the SP Agreement, the Company issued shares of its common stock to JJGS to acquire
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
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
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.
| 7 |
Basis of presentation
The accompanying unaudited condensed consolidated financial statements as of and for the nine months ended September 30, 2021 and 2020, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) that permit reduced disclosure for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. In the opinion of management, all adjustments consisting of normal recurring entries considered necessary for a fair presentation have been included. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole. The condensed consolidated balance sheet information as of December 31, 2020 was derived from the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, for the year ended December 31, 2020, filed with the SEC on April 26, 2021 (the “report”). These unaudited condensed consolidated financial statements should be read in conjunction with the report.
The
accompanying financial statements have been prepared in conformity with U.S. GAAP which contemplates continuation of the Company as a
going-concern basis. The going-concern basis assumes that assets are realized, and liabilities are settled in the ordinary course of
business at amounts disclosed in the financial statements. Although the Company has generated a negative operating cash flow of $
Basis of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. The results of subsidiaries acquired during the respective periods are included in the consolidated statements of operations from the effective date of acquisition or up to the effective date of disposal, as appropriate. The portion of the income or loss applicable to noncontrolling interests in subsidiaries is reflected in the consolidated statements of operations.
As of September 30, 2021, details of the Company’s major subsidiaries were as follows:
| Entity Name | Date of Incorporation | Parent Entity | Nature of Operation | Place of Incorporation | ||||
| FVTI | ||||||||
| DIGLS | ||||||||
| DILHK | ||||||||
| QHDX | ||||||||
| FVTI | ||||||||
| JJGS | ||||||||
| JJHK | ||||||||
| QHDX | ||||||||
| FVTL | ||||||||
| FVTL | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| QHDX |
| 8 |
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates include certain assumptions related to going concern, allowance of doubtful accounts, allowance of deferred tax asset, useful lives and impairment of long-lived assets, and impairment of goodwill. Actual results may differ from these estimates.
Reclassification
Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position.
Foreign currency translation and re-measurement
The Company translates its foreign operations to the U.S. dollar in accordance with ASC 830, “Foreign Currency Matters”.
The reporting currency for the Company and its subsidiaries is the U.S. dollar. The Company, DIGLS, DILHK, JJGS and JJHK’s functional currency is the U.S. dollar; QHDX, JJSZ and their subsidiaries which are incorporated in PRC use the Chinese Renminbi (“RMB”) as their functional currency.
The Company’s subsidiaries, whose records are not maintained in that company’s functional currency, re-measure their records into their functional currency as follows:
| ● | Monetary assets and liabilities at exchange rates in effect at the end of each period | |
| ● | Nonmonetary assets and liabilities at historical rates | |
| ● | Revenue and expense items at the average rate of exchange prevailing during the period |
Gains and losses from these re-measurements were not significant and have been included in the Company’s results of operations.
The Company’s subsidiaries, whose functional currency is not the U.S. dollar, translate their records into the U.S. dollar as follows:
| ● | Assets and liabilities at the rate of exchange in effect at the balance sheet date | |
| ● | Equities at the historical rate | |
| ● | Revenue and expense items at the average rate of exchange prevailing during the period |
Translation of amounts from the local currencies of the Company into US$ has been made at the following exchange rates for the respective periods:
| As of and for the nine months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Period-end RMB:US$1 exchange rate | ||||||||
| Period-average RMB:US$1 exchange rate | ||||||||
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.
| 9 |
Impairment of long-lived assets other than goodwill
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Impairment may be the result of becoming obsolete from a change in the industry or new technologies. Impairment is present if the carrying amount of an asset is less than its undiscounted cash flows to be generated.
If an asset is considered impaired, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
The Company did not recognize any impairment of long-lived assets during the nine months ended September 30, 2021 and 2020.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. In accordance with FASB ASC Topic 350, “Intangibles-Goodwill and Others”, goodwill is subject to at least an annual assessment for impairment or more frequently if events or changes in circumstances indicate that an impairment may exist, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis. The Company would recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit.
During the nine months ended September 30, 2021, the Company did not record any impairment of goodwill.
| 10 |
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:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Sales of wine | $ | $ | $ | $ | ||||||||||||
| Sales of water | ||||||||||||||||
| Sales of oil | ||||||||||||||||
| Others | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Contract liabilities
Contract
liabilities consist mainly of customer advances. On certain occasions, the Company may receive prepayments from downstream retailers
or wholesales customers for wines, water and other products prior to them taking possession of the Company’s products. The Company
records these receipts as customer advances until the control of the products has been transferred the customers. As of September 30,
2021 and December 31, 2020, the Company had customer advances of $
Related party transaction
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
Recent accounting pronouncements adopted
In December 2020, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The ASU removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. On January 1, 2021, the Company adopted ASU 2019-12 on a prospective basis. The adoption did not have a material impact on the Company’s consolidated financial statements.
| 11 |
NOTE 2 - ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following as of September 30, 2021 and December 31, 2020:
| September 30, 2021 | December 31, 2020 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: Allowance for doubtful accounts | - | - | ||||||
| Accounts receivable, net | $ | $ | ||||||
NOTE 3 – PREPAYMENTS AND OTHER CURRENT ASSETS
Prepayments and other current assets consisted of the following as of September 30, 2021 and December 31, 2020:
| September 30, 2021 | December 31, 2020 | |||||||
| Prepayments | $ | $ | ||||||
| Other current assets | ||||||||
| Total prepayments and other receivables | $ | $ | ||||||
As
of September 30, 2021 and December 31, 2020, the balance of $
NOTE 4 – PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following as of September 30, 2021 and December 31, 2020:
| September 30, 2021 | December 31, 2020 | |||||||
| Office equipment | $ | $ | ||||||
| Leasehold improvement | ||||||||
| Property and equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense, which was included in general and administrative expenses, for the nine months ended September 30, 2021 and 2020 was $
NOTE 5 – INTANGIBLE ASSETS
Intangible assets and related accumulated amortization were as follows:
| September 30, 2021 | December 31, 2020 | |||||||
| Distributor channel | $ | $ | ||||||
| Other | ||||||||
| Total intangible assets | ||||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Amortization
expense for the nine months ended September 30, 2021 and 2020 was $
Other intangible assets mainly consist of internal-used software under development, which is not yet ready for use.
As of September 30, 2021, the future estimated amortization costs for distribution channel are as follows:
| 2021 (remaining) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Thereafter | ||||
| Total | $ |
| 12 |
NOTE 6- RELATED PARTY TRANSACTIONS
Amounts due from related parties as of September 30, 2021 and December 31, 2020 were as follows:
| September 30, 2021 | December 31, 2020 | |||||||||
| Mr. Yumin Lin | President, Chief Executive Officer, Secretary, Director | $ | $ | |||||||
| Mr. Kaihong Lin | Chief Financial Officer and Treasurer | |||||||||
| Ms. Xiulan Zhou | Manager of a subsidiary, Mr. Yumin Lin’s wife | |||||||||
| Mr. Huagen Li | Manager of a subsidiary | |||||||||
| Mr. Zhipeng Zuo | Manager of a subsidiary | |||||||||
| Mr. Deqin Ke | Manager of a subsidiary | |||||||||
| Ms. Shuqin Chen | Manager of a subsidiary | |||||||||
| Mr. Hongwei Ye | Manager of a subsidiary | |||||||||
| $ | $ | |||||||||
Amounts due to related parties as of September 30, 2021 and December 31, 2020 were as follows:
| September 30, 2021 | December 31, 2020 | |||||||||
| Mr. Yumin Lin | President, Chief Executive Officer, Secretary, Director | $ | $ | |||||||
| Ms. Huagen Li | Manager of a subsidiary | |||||||||
| Ms. Xiulan Zhou | Manager of a subsidiary, Mr. Yumin Lin’s wife | |||||||||
| Mr. Yuwen Li | Vice President | |||||||||
| Ms. Lihua Li | Mr. Yuwen Li’s wife | |||||||||
| Mr. Zihao Ye | Manager of a subsidiary | |||||||||
| Mr. Zhipeng Zuo | Manager of a subsidiary | |||||||||
| Mr. Weihua Zuo | Manager of a subsidiary | |||||||||
| Mr. Deqin Ke | Manager of a subsidiary | |||||||||
| Ms. Shuqin Chen | Manager of a subsidiary | |||||||||
| Ms. Xiuyun Wang | Manager of a subsidiary | |||||||||
| Mr. Shengpin Liu | Manager of a subsidiary | |||||||||
| Mr. Aisheng Zhang | Manager of a subsidiary | |||||||||
| Mr. Zhihua Liao | Manager of a subsidiary | |||||||||
| Mr. Meng Xue | Manager of a subsidiary | |||||||||
| Mr. Minghua Cheng | Director | |||||||||
| Mr. Anping Chen | Manager of a subsidiary | |||||||||
| Ms. Chunxiang Zhang | Manager of a subsidiary | |||||||||
| Mr. Youliang Ma | Manager of a subsidiary | |||||||||
| Shenzhen DaXingHuaShang Industry Development Ltd. | Mr. Yumin Lin is the supervisor of Shenzhen DaXingHuaShang Industry Development Ltd. | |||||||||
| $ | $ | |||||||||
Revenues generated from related parties during the nine months ended September 30, 2021 and 2020 were as follows:
| For the nine months ended September 30, | ||||||||||
| 2021 | 2020 | |||||||||
| Mr. Kaihong Lin | Chief Financial Officer and Treasurer | $ | $ | |||||||
| Mr. Yumin Lin | President, Chief Executive Officer, Secretary, Director | |||||||||
| Ms. Xiulan Zhou | Manager of a subsidiary, Mr. Yumin Lin’s wife | 42 | ||||||||
| Mr. Naiyong Luo | Manager of a subsidiary | |||||||||
| Mr. Hongwei Ye | Manager of a subsidiary, Shareholder | |||||||||
| Mr. Zihao Ye | Manager of a subsidiary | |||||||||
| Mr. Yuwen Li | Vice President | |||||||||
| $ | $ | |||||||||
Due
from related parties mainly consists of funds advanced to related parties as borrowings or funds advanced to pay off the Company’s
expenses. The balances are unsecured, non-interest bearing. During the nine months ended September
30, 2021 and 2020, the Company advanced $
Due
to related parties mainly consists of borrowings for working capital purpose, the balances are unsecured, non-interest bearing and due
on demand. During the nine months ended September 30, 2021 and 2020, the Company borrowed
$
In
addition, during the nine months ended September 30, 2021 and 2020, the Company’s related parties paid expenses on the Company’s
behalf in amounts of $
| 13 |
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
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
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.
The components of the income tax provision are as follows:
| Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | |||||||
| Current: | ||||||||
| – United States of America | $ | $ | - | |||||
| – Seychelles | ||||||||
| – Hong Kong | ||||||||
| – The PRC | ||||||||
| Deferred | ||||||||
| – United States of America | ||||||||
| – Seychelles | ||||||||
| – Hong Kong | ||||||||
| – The PRC | ||||||||
| Total | $ | $ | ||||||
The
effective tax rate was
| 14 |
NOTE 8 - OPERATING LEASES
As
of September 30, 2021,
Two
of these leases were entered with related parties. The
Company has an operating lease agreement with Qingmei Lin, Yumin Lin’s former wife,
for the premises in Dongguan City, PRC.
The
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 RMB
The components of lease expense and supplemental cash flow information related to leases for the nine months ended September 30, 2021 and 2020 are as follows:
| Operating lease cost (included in general and administrative expenses in the Company’s consolidated statements of operations) | For the nine months ended September 30, | |||||||
| 2021 | 2020 | |||||||
| Related parties | $ | $ | ||||||
| Non-related parties | ||||||||
| Total | $ | $ | ||||||
| Other information for the nine months ended | September 30, 2021 | September 30, 2020 | ||||||
| Cash paid for amounts included in the measurement of lease obligations | $ | $ | ||||||
| Weighted average remaining lease term (in years) | ||||||||
| Weighted average discount rate | % | % | ||||||
Maturities of the Company’s lease obligations as of September 30, 2021 are as follows:
| Year ending December 31, | ||||
| 2021 (remaining) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total lease payment | ||||
| Less: Imputed interest | ( | ) | ||
| Operating lease obligations | $ | |||
NOTE 9 – BANK AND OTHER BORROWINGS
In
December 2020, the Company obtained a revolving credit line in the principal amount of RMB
In
August 2020, the Company obtained a revolving credit line in the principal amount of RMB
The balance of the loans borrowed under these credit lines as of September 30, 2021 and December 31, 2020 was as follows:
| September 30, 2021 | December 31, 2020 | |||||||
| Loan from a trust in PRC | $ | $ | ||||||
| China Construction Bank | ||||||||
| Total non-current borrowings | $ | $ | ||||||
The
total interest expense was $
NOTE 10 - SUBSEQUENT EVENTS
During
the subsequent period, the Company advanced a total amount of $
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 $ per share,
| 15 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission on April 26, 2021 (the “Form 10-K”) and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Form 10-Q.
The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guaranteed of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the factors described in our Form 10-K in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this quarterly report on Form 10-Q. The following should also be read in conjunction with the unaudited Financial Statements and notes thereto that appear elsewhere in this report.
Overview
Fortune Valley Treasures, Inc. (the “Company,” “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. We engage in the food supply chain operations and management through a service platform. Through various acquisitions of high-quality upstream and downstream companies in the industry, the Company creates a complete industrial chain to reduce costs and enhance competitiveness. The company mainly focuses on online and offline sales targeting regional wholesalers, retailers, supermarkets and major food and beverage (“F&B”) chains.
During the nine months ended September 30, 2021, the Company conducted its business in one revenue stream: product sales – wine, water and oil and other F&B products.
Results of Operations
Three Months Ended September 30, 2021 and 2020
| Three Months Ended September 30, | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| Revenue | $ | 2,005,390 | $ | 283,560 | $ | 1,721,830 | ||||||
| Cost of revenue | (875,418 | ) | (245,504 | ) | (629,914 | ) | ||||||
| Gross profit | 1,129,972 | 38,056 | 1,091,916 | |||||||||
| Operating expense | (521,892 | ) | (185,101 | ) | (336,791 | ) | ||||||
| Other income | 2,512 | 78,541 | (76,029 | ) | ||||||||
| Other expense | (4,327 | ) | (5,221 | ) | 894 | |||||||
| Income taxes | (156,402 | ) | (3,415 | ) | (152,987 | ) | ||||||
| Net income (loss) | 449,863 | (77,140 | ) | 527,003 | ||||||||
| Net income (loss) attributable to noncontrolling interests | 59,875 | (2,518 | ) | 62,393 | ||||||||
| Net income (loss) attributable to Fortune Valley Treasures, Inc. | $ | 389,988 | $ | (74,622 | ) | $ | 464,610 | |||||
Nine Months Ended September 30, 2021 and 2020
| Nine Months Ended September 30, | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| Revenue | $ | 5,474,894 | $ | 374,787 | $ | 5,100,107 | ||||||
| Cost of revenue | (2,402,685 | ) | (299,847 | ) | (2,102,838 | ) | ||||||
| Gross profit | 3,072,209 | 74,940 | 2,997,269 | |||||||||
| Other operating income | 166 | - | 166 | |||||||||
| Operating expense | (1,500,499 | ) | (423,593 | ) | (1,076,906 | ) | ||||||
| Other income | 3,280 | 80,727 | (77,447 | ) | ||||||||
| Other expense | (13,814 | ) | (10,201 | ) | (3,613 | ) | ||||||
| Income taxes | (319,024 | ) | (3,415 | ) | (315,609 | ) | ||||||
| Net income (loss) | 1,242,318 | (281,542 | ) | 1,523,860 | ||||||||
| Net income (loss) attributable to noncontrolling interests | 132,601 | (17,187 | ) | 149,788 | ||||||||
| Net income (loss) attributable to Fortune Valley Treasures, Inc. | $ | 1,109,717 | $ | (264,355 | ) | $ | 1,374,072 | |||||
| 16 |
Revenue
Revenue was $2,005,390 for three months ended September 30, 2021, reflecting an increase of $1,721,830, or 607%, from $283,560 for the three months ended September 30, 2020. The reason for the increase was the Company started generating online sales from WeChat Application named Fu Gu Online in April 2021.
Revenue was $5,474,894 for nine months ended September 30, 2021, reflecting an increase of $5,100,107, or 1,361%, from $374,787 for nine months ended September 30, 2020. The reason for the increase was the Company added its water and oil business, which increased our sales volume.
Cost of Revenue
Cost of revenue was $875,418 for the three months ended September 30, 2021, reflecting an increase of $629,914, or 257%, from $245,504 for the three months ended September 30, 2020.
Cost of revenue was $2,402,685 for the nine months ended September 30, 2021, reflecting an increase of $2,102,838, or 701%, from $299,847 for the nine months ended September 30, 2020. The increase in cost of revenue was due to the increase of our revenue.
Gross Profit
Gross profit was $1,129,972 and $38,056 for the three months ended September 30, 2021 and 2020, respectively, reflecting an increase of $1,091,916, or 2,869%.
Gross profit was $3,072,209 and $74,940 for the nine months ended September 30, 2021 and 2020, respectively, reflecting an increase of $2,997,269, or 4,000%. The increase of gross profit was due to the addition of the revenue from our water and oil business, where gross profit was higher.
Operating Expenses
Operating expense was $521,892 for the three months ended September 30, 2021, reflecting an increase of $336,791 or 182%, from $185,101 for the three months ended September 30, 2020.
Operating expense was $1,500,499 for the nine months ended September 30, 2021, reflecting an increase of $1,076,906, or 254%, from $423,593 for the nine months ended September 30, 2020, due to the increase in professional service fees and general administrative costs in connection with the business of bottling and distributing of drinking water in China.
Net Income (loss)
For the three months ended September 30, 2021, net income was $449,863, compared to net loss $77,140 for the three months ended September 30, 2020.
For the nine months ended September 30, 2021, net income was $1,242,318, compared to net loss $281,542 for the nine months ended September 30, 2020. The increase in net income was a result of the factors described above.
Net income (loss) attributable to noncontrolling interests
The Company records net income (loss) attributable to noncontrolling interests in the consolidated statements of operations for any noncontrolling interests of consolidated subsidiaries.
For the three months ended September 30, 2021 and 2020, the Company recorded net income attributable to a noncontrolling interest of $59,875 and net loss attributable to a noncontrolling interest of $2,518, respectively.
For the nine months ended September 30, 2021 and 2020, the Company recorded net income attributable to a noncontrolling interest of $132,601 and net loss attributable to a noncontrolling interest of $17,187, respectively.
| 17 |
Liquidity and Capital Resources
Working Capital
| September 30, | December 31, | |||||||||||
| 2021 | 2020 | Change | ||||||||||
| Total current assets | $ | 4,886,661 | $ | 4,231,054 | $ | 655,607 | ||||||
| Total current liabilities | 2,108,115 | 1,996,446 | 111,669 | |||||||||
| Working capital | $ | 2,778,546 | $ | 2,234,608 | $ | 543,938 | ||||||
As of September 30, 2021, we had working capital of $2,778,546, as compared to working capital of $2,234,608 as of December 31, 2020. We had total current assets of $4,886,661, consisting of cash on hand of $150,189, Inventory of $353,549, prepayments and other current assets of $2,352,728, accounts receivable of $2,003,170 and amount due from related party of $27,025, compared to total current assets of $4,231,054 as of December 31, 2020. The increase was mainly due to the increase in prepayments and other current assets, offset by the decrease in accounts receivable and due from related parties. We had current liabilities of $2,108,115, consisting of accounts payable of $321,528, customer advances $538,829, income tax payable $222,183, due to related parties of $744,231 and accrued liabilities of $121,451.
Although our cash balance at September 30, 2021 decreased to $150,189, as compared to $249,837 at December 31, 2020. We estimate the Company currently has sufficient cash available to meet its anticipated working capital for the next twelve months, without raising additional capital. The Company is continuing to look for different financing opportunities in order to increase sufficient working capital and improve liquidity.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. During the nine months ended September 30, 2021, the Company had a net income of $1,242,318 and used cash in operations of $712,200 and at September 30, 2021, the Company had a working capital of $2,778,546. The Company’s independent registered public accounting firm expressed in its report on the Company’s financial statement for the year ended December 31, 2020 a substantial doubt about the Company’s ability to continue as a going concern. Based on the Company’s effort in improving its operations and the significant working capital generated as of September 30, 2021, the management believes that the substantial doubt has been alleviated.
Despite the increased working capital of the Company, no assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its shareholders, in the case of equity financing.
Cash Flows
| Nine Months Ended September 30, | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| Cash Flows used in Operating Activities | $ | (712,200 | ) | $ | (363,601 | ) | $ | (348,599 | ) | |||
| Cash Flows provided by (used in) Investing Activities | 362,931 | (61,111 | ) | 424,042 | ||||||||
| Cash Flows provided by Financing Activities | 212,278 | 466,186 | (253,908 | ) | ||||||||
| Effect of change rate changes in cash and cash equivalents | 37,343 | (56,514 | ) | 93,857 | ||||||||
| Net Increase in Cash During the Period | $ | (99,648 | ) | $ | (15,040 | ) | $ | (84,608 | ) | |||
Cash Flow from Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2021 and 2020 was $712,200 and $363,601, respectively, reflecting an increase of $348,599. The cash used in operating activities in 2021 was mainly resulted from net income of $1,242,318, depreciation and amortization expense of $638,099, increase in the prepayments to vendors of $1,968,481, increase in deposits paid to vendors of $1,198,351 and decrease in accounts receivable of $494,352.
Cash Flow from Investing Activities
Net cash provided by investing activities was $362,931 for the nine months ended September 30, 2021, compared to net cash used in investing activities of $61,111 for the nine months ended September 30, 2020. The increase in net cash provided by investing activities was mainly due to an increase in repayment from related parties.
Cash Flow from Financing Activities
Net cash provided by financing activities was $212,278 and $466,186 for the nine months ended September 30, 2021 and 2020, respectively. The increase was mainly due to the increase in advances from related parties and offset by repayments to 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.
Refer to Note 1 in the accompanying unaudited condensed consolidated financial statements.
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.
| 18 |
Related Party Transactions
For the nine months ended September 30, 2021 and 2020, related party revenue totaled $13,046 and $1,957, respectively.
Rental expenses to related parties were $27,944 and $85,212 for the nine months ended September 30, 2021 and 2020, respectively.
Amounts due from related parties were $27,025 and $984,806 as of September 30, 2021 and December 31, 2020, respectively. The amounts due to related parties were $744,231 and $337,400 as of September 30, 2021 and December 31, 2020, respectively.
Our related parties are primarily those persons who can significantly influence based on our common business relationships. Refer to Note 6 to the unaudited condensed consolidated financial statements for additional details regarding the related party transactions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide the information under this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of September 30, 2021, that our disclosure controls and procedures were not effective.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of well-established procedures to identify, approve and review related party transactions; and (2) inadequate design of controls related to business combination transactions accounting given the accounting complexities of business combinations, including, but not limited to, lack of mindset and methods to assess the value of the business prior to acquisition, inadequate process to determine the purchase price, lack of professional understanding to determine when the control of the business acquired is transferred or when the transaction is completed, and inability to make the appropriate disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the board of directors (the “Board”), management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and includes those policies and procedures that:
| ● | Apply to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; | |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and | |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
| 19 |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
We carried out an assessment, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our internal controls over financial reporting, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of September 30, 2021. Management based the assessment on criteria for effective internal control over financial reporting described in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Based on this assessment, management has concluded that as of September 30, 2021, our internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
| ● | We have increased our personnel resources and technical accounting expertise within the accounting function and intend to hire one or more additional personnel for the function due to turnover. | |
| ● | We will create a position to segregate duties consistent with control objectives. | |
| ● | We plan to prepare written policies and procedures for operating, accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity and debt transactions. | |
| ● | We plan to test our updated controls and remediate our deficiencies in the year 2021. |
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during the period covered by this Report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting, except that we have remediated one of our material weaknesses by establishing an Audit Committee on October 26, 2021, with an independent director, Anthony S. Chan, qualifies as an audit committee financial expert as defined in Item 407(d)(5) of Regulation S-K promulgated under the Exchange Act.
| 20 |
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We know of no material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any beneficial shareholder are an adverse party or has a material interest adverse to us.
Item 1A. Risk Factors.
Not applicable to a smaller reporting company
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits
| Exhibit No. | Description | |
| 31.1 | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer | |
| 31.2 | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial officer | |
| 32.1 | Section 1350 Certification of principal executive officer | |
| 32.2 | Section 1350 Certification of principal financial officer and principal accounting officer | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| 21 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Fortune Valley Treasures, Inc. | ||
| Date: November 15, 2021 | By: | /s/ Yumin Lin |
| Yumin Lin | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 15, 2021 | By: | /s/ Kaihong Lin |
| Kaihong Lin | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| 22 |
EXHIBIT 31.1
CERTIFICATION
I, Yumin Lin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fortune Valley Treasures, Inc. (the “Company”) for the quarter ended September 30, 2021;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting or caused such internal control to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 15, 2021 | ||
| By: | /s/ Yumin Lin | |
| Name: | Yumin Lin | |
| Title: | Chief
Executive Officer, President and Secretary (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION
I, Kaihong Lin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fortune Valley Treasures, Inc. (the “Company”) for the quarter ended September 30, 2021;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting or caused such internal control to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting |
| Date: November 15, 2021 | ||
| By: | /s/ Kaihong Lin | |
| Name: | Kaihong Lin | |
| Title: | Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Fortune Valley Treasures, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: November 15, 2021 | ||
| By: | /s/ Yumin Lin | |
| Name: | Yumin Lin | |
| Title: | Chief Executive Officer, President and Secretary (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Fortune Valley Treasures, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
| Date: November 15, 2021 | ||
| By: | /s/ Kaihong Lin | |
| Name: | Kaihong Lin | |
| Title: | Chief Financial Officer and Treasurer | |
| (Principal Financial and Accounting Officer) |
Condensed Consolidated Balance Sheets (Parenthetical) - shares |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Common Stock, Shares Authorized | 150,000,000 | 150,000,000 |
| Common Stock, Shares, Issued | 15,655,038 | 15,655,038 |
| Common Stock, Shares, Outstanding | 15,655,038 | 15,655,038 |
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Income Statement [Abstract] | ||||
| Revenues from related parties | $ 782 | $ 1,957 | $ 13,046 | $ 1,957 |
| Revenues from third parties | 2,004,608 | 281,603 | 5,461,848 | 372,830 |
| Net Revenues | 2,005,390 | 283,560 | 5,474,894 | 374,787 |
| Cost of revenues | 875,418 | 245,504 | 2,402,685 | 299,847 |
| Gross profit | 1,129,972 | 38,056 | 3,072,209 | 74,940 |
| Other operating income | 166 | |||
| Operating expenses: | ||||
| Selling and distribution expenses | 21,964 | 1,530 | 69,122 | 1,530 |
| General and administrative expenses | 499,928 | 183,571 | 1,431,377 | 422,063 |
| Operating income (loss) | 608,080 | (147,045) | 1,571,876 | (348,653) |
| Other income (expense): | ||||
| Other income | 2,309 | 78,525 | 2,429 | 80,631 |
| Interest income | 203 | 16 | 851 | 96 |
| Interest expense | (4,327) | (5,221) | (13,814) | (10,201) |
| Other income (expense), net | (1,815) | 73,320 | (10,534) | 70,526 |
| Income (loss) before income tax | 606,265 | (73,725) | 1,561,342 | (278,127) |
| Income tax expense | 156,402 | 3,415 | 319,024 | 3,415 |
| Net income (loss) | 449,863 | (77,140) | 1,242,318 | (281,542) |
| Less: Net income (loss) attributable to noncontrolling interests | 59,875 | (2,518) | 132,601 | (17,187) |
| Net income (loss) attributable to Fortune Valley Treasures, Inc. | 389,988 | (74,622) | 1,109,717 | (264,355) |
| Other comprehensive income: | ||||
| Foreign currency translation gain | 23,945 | 49,945 | 105,316 | 55,228 |
| Total comprehensive income (loss) | 473,808 | (27,195) | 1,347,634 | (226,314) |
| Less: comprehensive income (loss) attributable to noncontrolling interests | 63,637 | (1,864) | 143,831 | (16,830) |
| Comprehensive income (loss) attributable to Fortune Valley Treasures, Inc. | $ 410,171 | $ (25,331) | $ 1,203,803 | $ (209,484) |
| Earnings (loss) per share | ||||
| Basic and diluted earnings (loss) per share* | $ 0.03 | $ (0.01) | $ 0.08 | $ (0.02) |
| Basic and diluted weighted average shares outstanding* | 15,655,038 | 15,387,632 | 15,655,038 | 15,387,632 |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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 shares of its common stock in exchange for all the outstanding shares in DIGLS. This transaction has been accounted for as a reverse takeover transaction and a recapitalization of the Company whereby the Company, the legal acquirer, is the accounting acquiree, and DIGLS, the legal acquiree, is the accounting acquirer.
On March 1, 2019, the Company entered into a sale and purchase agreement (the “SP Agreement”) to acquire 100% of the shares of Jiujiu Group Stock Co., Ltd. (“JJGS”), a company incorporated under the laws of the Republic of Seychelles. The transaction closed on March 1, 2019. Pursuant to the SP Agreement, the Company issued shares of its common stock to JJGS to acquire 100% of the shares of JJGS for a cost of $. After the closing, JJGS became the Company’s wholly owned subsidiary. JJGS owns all of the equity interest of Jiujiu (HK) Industry Limited (“JJHK”) and Jiujiu (Shenzhen) Industry Co., Ltd. (“JJSZ”). JJGS and JJHK are holding companies and conduct business through their operating subsidiary, JJSZ, which engages in retail and wholesale distribution of wine products.
On June 22, 2020, the Company entered into a sale and purchase agreement along with Qianhai DaXingHuaShang Investment (Shenzhen) Co., Ltd., a company incorporated in China and a wholly-owned subsidiary of FVTI (“QHDX”), to acquire 90% of the shares of Dongguan Xixingdao Technology Co., Ltd. (“Xixingdao”), a company incorporated in the PRC, from certain shareholders of Xixingdao in exchange for shares (given effect of the Reverse Stock Split, see Note 10) of the Company’s common stock. The Company obtained the control of Xixingdao and Xixingdao became the Company’s subsidiary on August 31, 2020. The shares were issued on December 28, 2020.
On January 6, 2021, FVTI, JJGS, Valley Holding Limited (“Valley Holdings”) and Angel International Investment Holdings Limited (the “Valley Holdings Seller”) signed a termination agreement, pursuant to which the parties mutually agreed to terminate the original equity interest transfer agreement signed on March 16, 2020. On the same date, FVTI, DILHK, Valley Holdings and the Valley Holdings Seller entered into a new equity interest transfer agreement, pursuant to which DILHK agreed to purchase 70% of Valley Holdings’ equity interest (the “Valley Holdings Equity Transfer”) from the Valley Holdings seller in consideration of FVTI’s common shares valued at $12 million (subject to adjustments in the event Valley Holdings’ net profit is more than HK$5 million (approximately US$0.6 million) or less than HK$3 million (approximately US$0.4 million) for the fiscal year ended December 31, 2020). As of the date of this filing, the closing of the Valley Holdings Equity Transfer has not occurred.
On February 28, 2021, FVTI, QHDX and the original shareholders of Foshan BaiTaFeng Beverage Development Co., Ltd. (“BTF”) signed a termination agreement, pursuant to which the parties mutually agreed to terminate the original equity interest transfer agreement signed on December 31, 2019 (“BTF Agreement”). The BTF Agreement was terminated effective February 28, 2021 and the parties have no further rights or obligations under the BTF Agreement. The parties further agreed to waive their rights to any claims that may arise under the BTF Agreement. As of the date of the termination agreement, no equity interest of BTF had been transferred to QHDX.
Basis of presentation
The accompanying unaudited condensed consolidated financial statements as of and for the nine months ended September 30, 2021 and 2020, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) that permit reduced disclosure for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. In the opinion of management, all adjustments consisting of normal recurring entries considered necessary for a fair presentation have been included. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole. The condensed consolidated balance sheet information as of December 31, 2020 was derived from the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, for the year ended December 31, 2020, filed with the SEC on April 26, 2021 (the “report”). These unaudited condensed consolidated financial statements should be read in conjunction with the report.
The accompanying financial statements have been prepared in conformity with U.S. GAAP which contemplates continuation of the Company as a going-concern basis. The going-concern basis assumes that assets are realized, and liabilities are settled in the ordinary course of business at amounts disclosed in the financial statements. Although the Company has generated a negative operating cash flow of $712,200 during the nine months ended September 30, 2021, it has reported a net income of $1,242,318. In addition, as of September 30, 2021, the Company had a working capital of $2,778,546. The Company’s independent registered public accounting firm expressed in its report on the Company’s financial statements for the year ended December 31, 2020 a substantial doubt about the Company’s ability to continue as a going concern. Based on the Company’s effort in improving its operations and the significant working capital increase as of September 30, 2021, the management believes that the substantial doubt has been alleviated.
Basis of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. The results of subsidiaries acquired during the respective periods are included in the consolidated statements of operations from the effective date of acquisition or up to the effective date of disposal, as appropriate. The portion of the income or loss applicable to noncontrolling interests in subsidiaries is reflected in the consolidated statements of operations.
As of September 30, 2021, details of the Company’s major subsidiaries were as follows:
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates include certain assumptions related to going concern, allowance of doubtful accounts, allowance of deferred tax asset, useful lives and impairment of long-lived assets, and impairment of goodwill. Actual results may differ from these estimates.
Reclassification
Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position.
Foreign currency translation and re-measurement
The Company translates its foreign operations to the U.S. dollar in accordance with ASC 830, “Foreign Currency Matters”.
The reporting currency for the Company and its subsidiaries is the U.S. dollar. The Company, DIGLS, DILHK, JJGS and JJHK’s functional currency is the U.S. dollar; QHDX, JJSZ and their subsidiaries which are incorporated in PRC use the Chinese Renminbi (“RMB”) as their functional currency.
The Company’s subsidiaries, whose records are not maintained in that company’s functional currency, re-measure their records into their functional currency as follows:
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:
Translation of amounts from the local currencies of the Company into US$ has been made at the following exchange rates for the respective periods:
The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US dollars at the rates used in translation.
Impairment of long-lived assets other than goodwill
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Impairment may be the result of becoming obsolete from a change in the industry or new technologies. Impairment is present if the carrying amount of an asset is less than its undiscounted cash flows to be generated.
If an asset is considered impaired, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
The Company did not recognize any impairment of long-lived assets during the nine months ended September 30, 2021 and 2020.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. In accordance with FASB ASC Topic 350, “Intangibles-Goodwill and Others”, goodwill is subject to at least an annual assessment for impairment or more frequently if events or changes in circumstances indicate that an impairment may exist, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis. The Company would recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit.
During the nine months ended September 30, 2021, the Company did not record any impairment of goodwill.
Revenue recognition
The Company follows the guidance of ASC 606, revenue from contracts with customers is recognized using the following five steps:
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:
Contract liabilities
Contract liabilities consist mainly of customer advances. On certain occasions, the Company may receive prepayments from downstream retailers or wholesales customers for wines, water and other products prior to them taking possession of the Company’s products. The Company records these receipts as customer advances until the control of the products has been transferred the customers. As of September 30, 2021 and December 31, 2020, the Company had customer advances of $538,829 and $580,151, respectively. During the nine months ended September 30, 2021, the Company recognized $353,033 of customer advances in the opening balance.
Related party transaction
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
Recent accounting pronouncements adopted
In December 2020, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The ASU removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. On January 1, 2021, the Company adopted ASU 2019-12 on a prospective basis. The adoption did not have a material impact on the Company’s consolidated financial statements.
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ACCOUNTS RECEIVABLE, NET |
9 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||
| Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||
| ACCOUNTS RECEIVABLE, NET | NOTE 2 - ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following as of September 30, 2021 and December 31, 2020:
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PREPAYMENTS AND OTHER CURRENT ASSETS |
9 Months Ended | ||||||||||||||||||||||||||||||||||||
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| Prepayments And Other Current Assets | |||||||||||||||||||||||||||||||||||||
| PREPAYMENTS AND OTHER CURRENT ASSETS | NOTE 3 – PREPAYMENTS AND OTHER CURRENT ASSETS
Prepayments and other current assets consisted of the following as of September 30, 2021 and December 31, 2020:
As of September 30, 2021 and December 31, 2020, the balance of $2,345,959 and $376,746, respectively, represented the advanced payments to suppliers.
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PROPERTY AND EQUIPMENT, NET |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY AND EQUIPMENT, NET | NOTE 4 – PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following as of September 30, 2021 and December 31, 2020:
Depreciation expense, which was included in general and administrative expenses, for the nine months ended September 30, 2021 and 2020 was $14,017 and $14,467, respectively.
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INTANGIBLE ASSETS |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INTANGIBLE ASSETS | NOTE 5 – INTANGIBLE ASSETS
Intangible assets and related accumulated amortization were as follows:
Amortization expense for the nine months ended September 30, 2021 and 2020 was $624,082 and $64,162, respectively, included in cost of revenues.
Other intangible assets mainly consist of internal-used software under development, which is not yet ready for use.
As of September 30, 2021, the future estimated amortization costs for distribution channel are as follows:
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RELATED PARTY TRANSACTIONS |
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| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RELATED PARTY TRANSACTIONS | NOTE 6- RELATED PARTY TRANSACTIONS
Amounts due from related parties as of September 30, 2021 and December 31, 2020 were as follows:
Amounts due to related parties as of September 30, 2021 and December 31, 2020 were as follows:
Revenues generated from related parties during the nine months ended September 30, 2021 and 2020 were as follows:
Due from related parties mainly consists of funds advanced to related parties as borrowings or funds advanced to pay off the Company’s expenses. The balances are unsecured, non-interest bearing. During the nine months ended September 30, 2021 and 2020, the Company advanced $3,136,194 and $12,099 to its related parties, and collected $3,642,059 and $168 repayments, respectively.
Due to related parties mainly consists of borrowings for working capital purpose, the balances are unsecured, non-interest bearing and due on demand. During the nine months ended September 30, 2021 and 2020, the Company borrowed $1,867,770 and $561,107 from its related parties, and repaid $1,622,380 and $194,902, respectively.
In addition, during the nine months ended September 30, 2021 and 2020, the Company’s related parties paid expenses on the Company’s behalf in amounts of $532,912 and $277,081, respectively.
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INCOME TAXES |
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| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INCOME TAXES | NOTE 7 - INCOME TAXES
United States of America
The Company is registered in the State of Nevada and is subject to United States of America tax law. The U.S federal income tax rate is 21%.
Seychelles
Under the current laws of the Seychelles, DIGLS and JJGS are registered as an international business company which governed by the International Business Companies Act of Seychelles and there is no income tax charged in Seychelles.
Hong Kong
From year of assessment of 2018/2019 onwards, Hong Kong profit tax rates are 8.25% on assessable profits up to HK$2,000,000 (approximately $289,855), and 16.5% on any part of assessable profits over HK$2,000,000. For the nine months ended September 30, 2021 and 2020, the Company did not have any assessable profits arising in or derived from Hong Kong, therefore no provision for Hong Kong profits tax was made in the periods reported.
The PRC
The Company’s subsidiaries are incorporated in the PRC, and are subject to the PRC Enterprise Income Tax Laws (“EIT Laws”) with the statutory income tax rate of 25% with the following exceptions.
On January 17, 2019, the State Taxation Administration issued the notice on the scope of small-scale and low-profit corporate income tax preferential policies of the Ministry of Finance and the State Administration of Taxation, [2019] No. 13 for small-scale and low-profit enterprises whose annual taxable income is less than RMB1,000,000 (including RMB1,000,000), approximately $142,209, their income is reduced by 25% to the taxable income, and enterprise income tax is paid at 20% tax rate, which is essentially resulting in a favorable income tax rate of 5%. While for the portion of annual taxable income exceeding RMB1,000,000, approximately $142,209, but not more than RMB3,000,000, approximately $426,627, the income is reduced by 50% to the taxable income, and enterprise income tax is paid at 20% tax rate, which is essentially resulting in a favorable income tax rate of 10%. The qualifications of small-scale and low-profit enterprises were examined annually by the Tax Bureau. All of the Company’s PRC subsidiaries met the criteria of small-scale and low-profit enterprises.
The components of the income tax provision are as follows:
The effective tax rate was 20.4% and (1.2)% for the nine months ended September 30, 2021 and 2020, respectively.
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OPERATING LEASES |
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| Operating Leases | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPERATING LEASES | NOTE 8 - OPERATING LEASES
As of September 30, 2021, the Company has sixteen separate operating lease agreements for three office spaces, one warehouse and twelve stores in PRC with remaining lease terms of from 12 months to 67 months.
Two of these leases were entered with related parties. The Company has an operating lease agreement with Qingmei Lin, Yumin Lin’s former wife, for the premises in Dongguan City, PRC. The agreement covers the period from January 1, 2019 to April 30, 2027. The monthly rent expense is RMB10,000 (approximately $1,450). The Company has an operating lease agreement with Hongwei Ye, a related party, for the premises in Dongguan City, PRC. The agreement covers the period from September 27, 2020 to September 30, 2023. The monthly rent expense is RMB960 (approximately $139).
The Company terminated an operating lease agreement with a subsidiary of Shenzhen DaXingHuaShang Industry Development Ltd., a related party, for the premise in Shenzhen City, PRC on February 28, 2021. The monthly rent expense for this lease was RMB30,000 (approximately $4,349).
The components of lease expense and supplemental cash flow information related to leases for the nine months ended September 30, 2021 and 2020 are as follows:
Maturities of the Company’s lease obligations as of September 30, 2021 are as follows:
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BANK AND OTHER BORROWINGS |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
| BANK AND OTHER BORROWINGS | NOTE 9 – BANK AND OTHER BORROWINGS
In December 2020, the Company obtained a revolving credit line in the principal amount of RMB750,000 (approximately $115,000) from Huaneng Guicheng Trust Co., Ltd, a financial institution in PRC, which bears interest at the base Loan Prime Rate of 3.85% plus 8.75%. The credit line is guaranteed by Yumin Lin, the Company’s Chief Executive Officer. The maturity date is on December 21, 2022.
In August 2020, the Company obtained a revolving credit line in the principal amount of RMB910,000 (approximately $141,000) from China Construction Bank, which bears interest at the base Loan Prime Rate of 3.85% plus 0.4%. The credit line is guaranteed by Xiulan Zhou, a related party, and pledged by her property. The maturity date is on July 21, 2023.
The balance of the loans borrowed under these credit lines as of September 30, 2021 and December 31, 2020 was as follows:
The total interest expense was $13,814 and $10,201 for the nine months ended September 30, 2021 and 2020, respectively.
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SUBSEQUENT EVENTS |
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Sep. 30, 2021 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 10 - SUBSEQUENT EVENTS
During the subsequent period, the Company advanced a total amount of $70,245 to its related parties, and the related parties repaid the amount of $2,620 to the Company. The remaining balance of due from related party as of the filing date was $26,153.
Effective on October 21, 2021, the Company has approved a reverse stock split of the Company’s authorized and issued and outstanding shares of common stock, par value $ 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 shares. As of September 30, 2020 and immediately prior to the Reverse Stock Split, there were shares of common stock issued and outstanding. As a result of the Reverse Stock Split, the Company has shares of common stock issued and outstanding. The par value remains unchanged at $ per share, which resulted in a reclassification of capital from par value to additional paid-in capital in excess of par value. All share and per share data included within the condensed consolidated financial statements and related footnotes have been adjusted to account for the effect of the Reverse Stock Split. |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of presentation | Basis of presentation
The accompanying unaudited condensed consolidated financial statements as of and for the nine months ended September 30, 2021 and 2020, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) that permit reduced disclosure for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. In the opinion of management, all adjustments consisting of normal recurring entries considered necessary for a fair presentation have been included. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole. The condensed consolidated balance sheet information as of December 31, 2020 was derived from the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, for the year ended December 31, 2020, filed with the SEC on April 26, 2021 (the “report”). These unaudited condensed consolidated financial statements should be read in conjunction with the report.
The accompanying financial statements have been prepared in conformity with U.S. GAAP which contemplates continuation of the Company as a going-concern basis. The going-concern basis assumes that assets are realized, and liabilities are settled in the ordinary course of business at amounts disclosed in the financial statements. Although the Company has generated a negative operating cash flow of $712,200 during the nine months ended September 30, 2021, it has reported a net income of $1,242,318. In addition, as of September 30, 2021, the Company had a working capital of $2,778,546. The Company’s independent registered public accounting firm expressed in its report on the Company’s financial statements for the year ended December 31, 2020 a substantial doubt about the Company’s ability to continue as a going concern. Based on the Company’s effort in improving its operations and the significant working capital increase as of September 30, 2021, the management believes that the substantial doubt has been alleviated.
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| Basis of consolidation | Basis of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. The results of subsidiaries acquired during the respective periods are included in the consolidated statements of operations from the effective date of acquisition or up to the effective date of disposal, as appropriate. The portion of the income or loss applicable to noncontrolling interests in subsidiaries is reflected in the consolidated statements of operations.
As of September 30, 2021, details of the Company’s major subsidiaries were as follows:
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| Use of estimates | Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates include certain assumptions related to going concern, allowance of doubtful accounts, allowance of deferred tax asset, useful lives and impairment of long-lived assets, and impairment of goodwill. Actual results may differ from these estimates.
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| Reclassification | 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.
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| Foreign currency translation and re-measurement | 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:
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:
Translation of amounts from the local currencies of the Company into US$ has been made at the following exchange rates for the respective periods:
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.
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| Impairment of long-lived assets other than goodwill | Impairment of long-lived assets other than goodwill
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Impairment may be the result of becoming obsolete from a change in the industry or new technologies. Impairment is present if the carrying amount of an asset is less than its undiscounted cash flows to be generated.
If an asset is considered impaired, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
The Company did not recognize any impairment of long-lived assets during the nine months ended September 30, 2021 and 2020.
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| Goodwill | Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. In accordance with FASB ASC Topic 350, “Intangibles-Goodwill and Others”, goodwill is subject to at least an annual assessment for impairment or more frequently if events or changes in circumstances indicate that an impairment may exist, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis. The Company would recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit.
During the nine months ended September 30, 2021, the Company did not record any impairment of goodwill.
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| Revenue recognition | Revenue recognition
The Company follows the guidance of ASC 606, revenue from contracts with customers is recognized using the following five steps:
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:
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| Contract liabilities | Contract liabilities
Contract liabilities consist mainly of customer advances. On certain occasions, the Company may receive prepayments from downstream retailers or wholesales customers for wines, water and other products prior to them taking possession of the Company’s products. The Company records these receipts as customer advances until the control of the products has been transferred the customers. As of September 30, 2021 and December 31, 2020, the Company had customer advances of $538,829 and $580,151, respectively. During the nine months ended September 30, 2021, the Company recognized $353,033 of customer advances in the opening balance.
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| Related party transaction | 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.
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| Recent accounting pronouncements adopted | Recent accounting pronouncements adopted
In December 2020, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The ASU removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. On January 1, 2021, the Company adopted ASU 2019-12 on a prospective basis. The adoption did not have a material impact on the Company’s consolidated financial statements. |
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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF ENTITIES AND ITS SUBSIDIARIES | As of September 30, 2021, details of the Company’s major subsidiaries were as follows:
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| SCHEDULE OF FOREIGN CURRENCY EXCHANGE RATE TRANSLATION | Translation of amounts from the local currencies of the Company into US$ has been made at the following exchange rates for the respective periods:
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| SCHEDULE OF DISAGGREGATION REVENUE | The following table provides information about disaggregated revenue based on revenue by product types:
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ACCOUNTS RECEIVABLE, NET (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||
| Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||
| SCHEDULE OF ACCOUNTS RECEIVABLE | Accounts receivable consisted of the following as of September 30, 2021 and December 31, 2020:
|
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PREPAYMENTS AND OTHER CURRENT ASSETS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||
| Prepayments And Other Current Assets | |||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PREPAYMENTS AND OTHER CURRENT ASSETS | Prepayments and other current assets consisted of the following as of September 30, 2021 and December 31, 2020:
|
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PROPERTY AND EQUIPMENT, NET (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PROPERTY AND EQUIPMENT, NET | Property and equipment consisted of the following as of September 30, 2021 and December 31, 2020:
|
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INTANGIBLE ASSETS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF INTANGIBLE ASSETS | Intangible assets and related accumulated amortization were as follows:
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| SCHEDULE OF FUTURE AMORTIZATION EXPENSE FOR DISTRIBUTION CHANNELS | As of September 30, 2021, the future estimated amortization costs for distribution channel are as follows:
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RELATED PARTY TRANSACTIONS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF AMOUNT DUE FROM AND DUE TO RELATED PARTIES | Amounts due from related parties as of September 30, 2021 and December 31, 2020 were as follows:
Amounts due to related parties as of September 30, 2021 and December 31, 2020 were as follows:
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| SCHEDULE OF REVENUE GENERATED FROM RELATED PARTIES | Revenues generated from related parties during the nine months ended September 30, 2021 and 2020 were as follows:
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INCOME TAXES (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF COMPONENTS OF INCOME TAX PROVISION | The components of the income tax provision are as follows:
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OPERATING LEASES (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating Leases | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF COMPONENTS OF LEASE EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION | The components of lease expense and supplemental cash flow information related to leases for the nine months ended September 30, 2021 and 2020 are as follows:
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| SCHEDULE OF MATURITIES OF LEASE OBLIGATIONS | Maturities of the Company’s lease obligations as of September 30, 2021 are as follows:
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BANK AND OTHER BORROWINGS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2021 | |||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
| SCHEDULE OF BALANCE OF LOAN BORROWED UNDER CREDIT LINES | The balance of the loans borrowed under these credit lines as of September 30, 2021 and December 31, 2020 was as follows:
|
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SCHEDULE OF FOREIGN CURRENCY EXCHANGE RATE TRANSLATION (Details) |
Sep. 30, 2021 |
Sep. 30, 2020 |
|---|---|---|
| RMB [Member] | ||
| Offsetting Assets [Line Items] | ||
| Foreign currency exchange rate translation | 0.15512 | 0.14703 |
| Average RMB [Member] | ||
| Offsetting Assets [Line Items] | ||
| Foreign currency exchange rate translation | 0.15452 | 0.14298 |
SCHEDULE OF DISAGGREGATION REVENUE (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Product Information [Line Items] | ||||
| Total revenue | $ 2,005,390 | $ 283,560 | $ 5,474,894 | $ 374,787 |
| Sales of Wine [Member] | ||||
| Product Information [Line Items] | ||||
| Total revenue | 639,635 | 156,340 | 2,036,423 | 247,567 |
| Sales of Water [Member] | ||||
| Product Information [Line Items] | ||||
| Total revenue | 1,099,586 | 127,220 | 2,827,732 | 127,220 |
| Sales of Oil [Member] | ||||
| Product Information [Line Items] | ||||
| Total revenue | 14 | 217,131 | ||
| Others [Member] | ||||
| Product Information [Line Items] | ||||
| Total revenue | $ 266,155 | $ 393,608 | ||
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Apr. 11, 2021 |
Jan. 06, 2021 |
Jun. 22, 2020 |
Mar. 01, 2019 |
Apr. 11, 2018 |
Sep. 30, 2021 |
Jun. 30, 2021 |
Mar. 31, 2021 |
Sep. 30, 2020 |
Jun. 30, 2020 |
Mar. 31, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
Dec. 31, 2020 |
|
| Common shares value equivalents | $ 12,000,000 | |||||||||||||
| Equity investment description | subject to adjustments in the event Valley Holdings’ net profit is more than HK$5 million (approximately US$0.6 million) or less than HK$3 million (approximately US$0.4 million) for the fiscal year ended December 31, 2020 | |||||||||||||
| Net cash operating activities | $ 712,200 | $ 363,601 | ||||||||||||
| Net income loss | $ 449,863 | $ 456,881 | $ 335,574 | $ (77,140) | $ (101,834) | $ (102,568) | 1,242,318 | $ (281,542) | ||||||
| Working capital | 2,778,546 | 2,778,546 | ||||||||||||
| Customer advances | 538,829 | 538,829 | $ 580,151 | |||||||||||
| Customer advances in opening balance | $ 353,033 | $ 353,033 | ||||||||||||
| DILHK [Member] | ||||||||||||||
| Equity Method Investment, Ownership Percentage | 70.00% | |||||||||||||
| Xixingdao Agreement [Member] | ||||||||||||||
| Stock issued during period, shares, acquisitions | 243,134 | |||||||||||||
| Gaosheng Group Co Ltd [Member] | ||||||||||||||
| Stock issued new issued shares | 300,000,000 | |||||||||||||
| China Kaipeng Group Co Ltd [Member] | ||||||||||||||
| Stock issued new issued shares | 300,000,000 | |||||||||||||
| Yumin Lin [Member] | ||||||||||||||
| Stock issued new issued shares | 300,000,000 | |||||||||||||
| Jiujiu Group Stock Co., Ltd. [Member] | ||||||||||||||
| Stock issued during period, shares, acquisitions | 100 | |||||||||||||
| Equity Method Investment, Ownership Percentage | 100.00% | |||||||||||||
| Stock issued during period acquisitions cost | $ 150 | |||||||||||||
| QHDX [Member] | Xixingdao Agreement [Member] | ||||||||||||||
| Equity Method Investment, Ownership Percentage | 90.00% | |||||||||||||
SCHEDULE OF ACCOUNTS RECEIVABLE (Details) - USD ($) |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Receivables [Abstract] | ||
| Accounts receivable | $ 2,003,170 | $ 2,468,038 |
| Less: Allowance for doubtful accounts | ||
| Accounts receivable, net | $ 2,003,170 | $ 2,468,038 |
SCHEDULE OF PREPAYMENTS AND OTHER CURRENT ASSETS (Details) - USD ($) |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Prepayments And Other Current Assets | ||
| Prepayments | $ 2,345,959 | $ 376,746 |
| Other current assets | 6,769 | 7,062 |
| Total prepayments and other receivables | $ 2,352,728 | $ 383,808 |
PREPAYMENTS AND OTHER CURRENT ASSETS (Details Narrative) - USD ($) |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Deferred Compensation Arrangement with Individual, Excluding Share-based Payments and Postretirement Benefits [Line Items] | ||
| Advanced payments | $ 2,345,959 | $ 376,746 |
| Supplier [Member] | ||
| Deferred Compensation Arrangement with Individual, Excluding Share-based Payments and Postretirement Benefits [Line Items] | ||
| Advanced payments | $ 2,345,959 | $ 376,746 |
SCHEDULE OF PROPERTY AND EQUIPMENT, NET (Details) - USD ($) |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment | $ 238,719 | $ 123,304 |
| Less: Accumulated depreciation | (89,506) | (75,489) |
| Property and equipment, net | 149,213 | 47,815 |
| Office Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment | 113,558 | 69,158 |
| Leasehold Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment | $ 125,161 | $ 54,146 |
PROPERTY AND EQUIPMENT, NET (Details Narrative) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Property, Plant and Equipment [Abstract] | ||
| Depreciation | $ 14,017 | $ 14,467 |
SCHEDULE OF INTANGIBLE ASSETS (Details) - USD ($) |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Finite-Lived Intangible Assets [Line Items] | ||
| Total intangible assets | $ 3,189,450 | $ 3,303,434 |
| Less: Accumulated amortization | (744,957) | (274,944) |
| Total intangible assets, net | 2,444,493 | 3,028,490 |
| Distributor Channel [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Total intangible assets | 3,181,312 | 3,299,329 |
| Other Intangible Assets [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Total intangible assets | $ 8,138 | $ 4,105 |
SCHEDULE OF FUTURE AMORTIZATION EXPENSE FOR DISTRIBUTION CHANNELS (Details) - USD ($) |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Finite-Lived Intangible Assets [Line Items] | ||
| Total | $ 2,444,493 | $ 3,028,490 |
| Distribution Channel [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| 2021 (remaining) | 208,830 | |
| 2022 | 835,321 | |
| 2023 | 835,321 | |
| 2024 | 556,883 | |
| Thereafter | ||
| Total | $ 2,436,355 |
INTANGIBLE ASSETS (Details Narrative) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Amortization expenses | $ 624,082 | $ 64,162 |
RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Related Party Transaction [Line Items] | ||
| Payment advance to related parties | $ 3,136,194 | $ 12,099 |
| Proceeds from Related Party Debt | 1,867,770 | 561,107 |
| Related Party Transaction [Member] | ||
| Related Party Transaction [Line Items] | ||
| Payment advance to related parties | 3,136,194 | 12,099 |
| Collection of related party debt | 3,642,059 | 168 |
| Proceeds from Related Party Debt | 1,867,770 | 561,107 |
| Repayments of Related Party Debt | 1,622,380 | 194,902 |
| Related party transaction, expenses from transactions with related party | $ 532,912 | $ 277,081 |
SCHEDULE OF COMPONENTS OF INCOME TAX PROVISION (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Operating Loss Carryforwards [Line Items] | ||||
| Income Tax Expense (Benefit) | $ 156,402 | $ 3,415 | $ 319,024 | $ 3,415 |
| UNITED STATES | ||||
| Operating Loss Carryforwards [Line Items] | ||||
| Current Income Tax Expense (Benefit) | 154,485 | |||
| Deferred Income Tax Expense (Benefit) | ||||
| Seychelles [Member] | ||||
| Operating Loss Carryforwards [Line Items] | ||||
| Current Income Tax Expense (Benefit) | ||||
| Deferred Income Tax Expense (Benefit) | ||||
| HONG KONG | ||||
| Operating Loss Carryforwards [Line Items] | ||||
| Current Income Tax Expense (Benefit) | ||||
| Deferred Income Tax Expense (Benefit) | ||||
| People's Republic of China [Member] | ||||
| Operating Loss Carryforwards [Line Items] | ||||
| Current Income Tax Expense (Benefit) | 164,539 | 3,415 | ||
| Deferred Income Tax Expense (Benefit) | ||||
INCOME TAXES (Details Narrative) |
9 Months Ended | ||||
|---|---|---|---|---|---|
|
Jan. 17, 2019
USD ($)
|
Jan. 17, 2019
CNY (¥)
|
Sep. 30, 2021
USD ($)
|
Sep. 30, 2021
HKD ($)
|
Sep. 30, 2020 |
|
| Operating Loss Carryforwards [Line Items] | |||||
| U.S federal income tax rate | 21.00% | 21.00% | |||
| People's Republic of China [Member] | |||||
| Operating Loss Carryforwards [Line Items] | |||||
| Effective income tax rate reconciliation, foreign income tax rate differential, percent | 20.40% | 20.40% | (1.20%) | ||
| Income tax preferential policies | On January 17, 2019, the State Taxation Administration issued the notice on the scope of small-scale and low-profit corporate income tax preferential policies of the Ministry of Finance and the State Administration of Taxation, [2019] No. 13 for small-scale and low-profit enterprises whose annual taxable income is less than RMB1,000,000 (including RMB1,000,000), approximately $142,209, their income is reduced by 25% to the taxable income, and enterprise income tax is paid at 20% tax rate, which is essentially resulting in a favorable income tax rate of 5%. While for the portion of annual taxable income exceeding RMB1,000,000, approximately $142,209, but not more than RMB3,000,000, approximately $426,627, the income is reduced by 50% to the taxable income, and enterprise income tax is paid at 20% tax rate, which is essentially resulting in a favorable income tax rate of 10%. The qualifications of small-scale and low-profit enterprises were examined annually by the Tax Bureau. All of the Company’s PRC subsidiaries met the criteria of small-scale and low-profit enterprises. | On January 17, 2019, the State Taxation Administration issued the notice on the scope of small-scale and low-profit corporate income tax preferential policies of the Ministry of Finance and the State Administration of Taxation, [2019] No. 13 for small-scale and low-profit enterprises whose annual taxable income is less than RMB1,000,000 (including RMB1,000,000), approximately $142,209, their income is reduced by 25% to the taxable income, and enterprise income tax is paid at 20% tax rate, which is essentially resulting in a favorable income tax rate of 5%. While for the portion of annual taxable income exceeding RMB1,000,000, approximately $142,209, but not more than RMB3,000,000, approximately $426,627, the income is reduced by 50% to the taxable income, and enterprise income tax is paid at 20% tax rate, which is essentially resulting in a favorable income tax rate of 10%. The qualifications of small-scale and low-profit enterprises were examined annually by the Tax Bureau. All of the Company’s PRC subsidiaries met the criteria of small-scale and low-profit enterprises. | |||
| Statutory income tax rate | 25.00% | 25.00% | |||
| Up To HK$2,000,000 [Member] | Inland Revenue, Hong Kong [Member] | |||||
| Operating Loss Carryforwards [Line Items] | |||||
| Effective income tax rate reconciliation, foreign income tax rate differential, percent | 8.25% | 8.25% | |||
| Income tax assessable profit | $ 289,855 | $ 2,000,000 | |||
| Over HK$2,000,000 [Member] | Inland Revenue, Hong Kong [Member] | |||||
| Operating Loss Carryforwards [Line Items] | |||||
| Effective income tax rate reconciliation, foreign income tax rate differential, percent | 16.50% | 16.50% | |||
| Income tax assessable profit | $ 2,000,000 | ||||
| 25% to the Taxable Income [Member] | People's Republic of China [Member] | |||||
| Operating Loss Carryforwards [Line Items] | |||||
| Annual taxable income | $ 142,209 | ||||
| Statutory income tax rate | 20.00% | 20.00% | |||
| 25% to the Taxable Income [Member] | People's Republic of China [Member] | Maximum [Member] | |||||
| Operating Loss Carryforwards [Line Items] | |||||
| Annual taxable income | $ 426,627 | ||||
| Statutory income tax rate | 10.00% | 10.00% | |||
| 25% to the Taxable Income [Member] | People's Republic of China [Member] | RMB [Member] | |||||
| Operating Loss Carryforwards [Line Items] | |||||
| Annual taxable income | ¥ | ¥ 1,000,000 | ||||
| 25% to the Taxable Income [Member] | People's Republic of China [Member] | RMB [Member] | Maximum [Member] | |||||
| Operating Loss Carryforwards [Line Items] | |||||
| Annual taxable income | ¥ | ¥ 3,000,000 | ||||
SCHEDULE OF COMPONENTS OF LEASE EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION (Details) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2021 |
Sep. 30, 2020 |
|
| Deferred Compensation Arrangement with Individual, Excluding Share-based Payments and Postretirement Benefits [Line Items] | ||
| Total | $ 107,415 | $ 87,351 |
| Cash paid for amounts included in the measurement of lease obligations | $ 101,203 | $ 11,152 |
| Weighted average remaining lease term (in years) | 3 years 11 months 1 day | 3 years 10 months 28 days |
| Weighted average discount rate | 3.23% | 3.23% |
| Related Parties [Member] | ||
| Deferred Compensation Arrangement with Individual, Excluding Share-based Payments and Postretirement Benefits [Line Items] | ||
| Total | $ 27,944 | $ 85,212 |
| Non-Related Parties [Member] | ||
| Deferred Compensation Arrangement with Individual, Excluding Share-based Payments and Postretirement Benefits [Line Items] | ||
| Total | $ 79,471 | $ 2,139 |
SCHEDULE OF MATURITIES OF LEASE OBLIGATIONS (Details) |
Sep. 30, 2021
USD ($)
|
|---|---|
| Operating Leases | |
| 2021 (remaining) | $ 49,076 |
| 2022 | 159,387 |
| 2023 | 108,676 |
| 2024 | 83,439 |
| 2025 | 81,311 |
| Thereafter | 53,523 |
| Total lease payment | 535,412 |
| Less: Imputed interest | (35,635) |
| Operating lease obligations | $ 499,777 |
SCHEDULE OF BALANCE OF LOAN BORROWED UNDER CREDIT LINES (Details) - USD ($) |
Sep. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Line of Credit Facility [Line Items] | ||
| Total non-current borrowings | $ 224,259 | $ 254,266 |
| Bank Loan From The Trust In PRC [Member] | ||
| Line of Credit Facility [Line Items] | ||
| Total non-current borrowings | 83,100 | 114,879 |
| China Construction Bank [Member] | ||
| Line of Credit Facility [Line Items] | ||
| Total non-current borrowings | $ 141,159 | $ 139,387 |
BANK AND OTHER BORROWINGS (Details Narrative) |
1 Months Ended | 9 Months Ended | ||||
|---|---|---|---|---|---|---|
|
Dec. 31, 2020
USD ($)
|
Aug. 31, 2020
USD ($)
|
Sep. 30, 2021
USD ($)
|
Sep. 30, 2020
USD ($)
|
Dec. 31, 2020
CNY (¥)
|
Aug. 31, 2020
CNY (¥)
|
|
| Line of Credit Facility [Line Items] | ||||||
| Interest Expense, Debt | $ 13,814 | $ 10,201 | ||||
| Huaneng Guicheng Trust Co., Ltd [Member] | ||||||
| Line of Credit Facility [Line Items] | ||||||
| Principal amount | $ 115,000 | |||||
| Interest rate | interest at the base Loan Prime Rate of 3.85% plus 8.75%. | |||||
| Maturity date | Dec. 21, 2022 | |||||
| China Construction Bank [Member] | ||||||
| Line of Credit Facility [Line Items] | ||||||
| Principal amount | $ 141,000 | |||||
| Interest rate | interest at the base Loan Prime Rate of 3.85% plus 0.4%. | |||||
| Maturity date | Jul. 21, 2023 | |||||
| RMB [Member] | Huaneng Guicheng Trust Co., Ltd [Member] | ||||||
| Line of Credit Facility [Line Items] | ||||||
| Principal amount | ¥ | ¥ 750,000 | |||||
| RMB [Member] | China Construction Bank [Member] | ||||||
| Line of Credit Facility [Line Items] | ||||||
| Principal amount | ¥ | ¥ 910,000 | |||||