ITEM
1. FINANCIAL STATEMENTS
Our
unaudited interim financial statements for the three-month period ended March 31, 2018 form part of this quarterly report. They
are stated in United States Dollars (USD $) and are prepared in accordance with United States Generally Accepted Accounting Principles.
Fortune
Valley Treasures, Inc.
Financial
Statements
March
31, 2019
(Unaudited)
FORTUNE
VALLEY TREASURES, INC.
CONSOLIDATED
BALANCE SHEETS
AT
MARCH 31, 2019 AND DECEMBER 31, 2018
|
|
March 31, 2019
(Unaudited)
|
|
|
December 31, 2018
|
|
Assets
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
157,952
|
|
|
$
|
29,999
|
|
Accounts and other receivable, net
|
|
|
5,709
|
|
|
|
7,706
|
|
Inventories
|
|
|
216,719
|
|
|
|
236,175
|
|
Prepaid expenses
|
|
|
17,000
|
|
|
|
8,000
|
|
Due from related parties
|
|
|
54,333
|
|
|
|
54,344
|
|
Prepaid taxes and taxes recoverable
|
|
|
2,858
|
|
|
|
2,081
|
|
Total current assets
|
|
$
|
454,571
|
|
|
$
|
338,305
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
Plant and equipment, net
|
|
|
9,746
|
|
|
|
9,809
|
|
Right of use asset
|
|
|
122,806
|
|
|
|
-
|
|
Total Assets
|
|
$
|
587,123
|
|
|
$
|
348,114
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts and taxes payable
|
|
|
32,444
|
|
|
|
48,282
|
|
Accrued liabilities and other payables
|
|
|
17,146
|
|
|
|
291
|
|
Customers advances and deposits
|
|
|
606
|
|
|
|
-
|
|
Due to related parties
|
|
|
854,917
|
|
|
|
686,769
|
|
Total current liabilities
|
|
$
|
905,113
|
|
|
$
|
558,668
|
|
Long term liabilities
|
|
|
105,660
|
|
|
|
-
|
|
Total Liabilities
|
|
$
|
1,010,773
|
|
|
$
|
735,342
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Common stock (3,000,000,000 shares authorized, 307,750,100 issued and outstanding at March 31, 2019 and December 31,2018)
|
|
|
307,750
|
|
|
|
307,750
|
|
Additional paid in capital
|
|
|
-
|
|
|
|
-
|
|
Accumulated deficit
|
|
|
(741,025
|
)
|
|
|
(708,097
|
)
|
Accumulated other comprehensive income
|
|
|
9,625
|
|
|
|
13,119
|
|
Total Stockholders’ Equity
|
|
|
(423,650
|
)
|
|
|
(387,228
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
|
587,123
|
|
|
|
348,114
|
|
See
accompanying notes to the financial statements
Fortune
Valley Treasures, Inc.
Consolidated
Statements of Operations and Comprehensive Loss
For
the three months ended March 31, 2019 and 2018
|
|
Three Months Ended
|
|
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
Net revenues (related party revenue $34,220 and $0 for March 31 2019 and 2018)
|
|
$
|
42,020
|
|
|
$
|
13,747
|
|
Cost of revenues
|
|
|
28,908
|
|
|
|
7,559
|
|
Gross profit
|
|
|
13,112
|
|
|
|
6,188
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
47,239
|
|
|
|
102,619
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(34,127
|
)
|
|
|
(96,431
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
1,305
|
|
|
|
|
|
Interest income
|
|
|
38
|
|
|
|
-
|
|
Interest expense
|
|
|
(59
|
)
|
|
|
(491
|
)
|
|
|
|
1,284
|
|
|
|
(491
|
)
|
|
|
|
|
|
|
|
|
|
Earnings before tax
|
|
|
(32,843
|
)
|
|
|
(96,922
|
)
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
|
85
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(32,928
|
)
|
|
$
|
(96,922
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Foreign currency translation gain
|
|
|
(3,493
|
)
|
|
|
(1,528
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(36,421
|
)
|
|
$
|
(98,450
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Basic and diluted weighted average shares outstanding
|
|
|
307,750,100
|
|
|
|
307,750,000
|
|
See
accompanying notes to the financial statements
Fortune
Valley Treasures, Inc.
Consolidated
Statements of Cash Flows
For
the three months ended March 31, 2019 and 2018
(Unaudited)
|
|
For the Three Months Ended
|
|
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(32,928
|
)
|
|
$
|
(96,922
|
)
|
Depreciation of fixed assets
|
|
|
276
|
|
|
|
1,749
|
|
Increase in accounts and other receivables
|
|
|
2,750
|
|
|
|
(29,759
|
)
|
Increase in inventories
|
|
|
24,626
|
|
|
|
6,634
|
|
Increase in advances and prepayments to suppliers
|
|
|
(9,736
|
)
|
|
|
(16,188
|
)
|
Increase (decrease) in accounts and other payables
|
|
|
(16,326
|
)
|
|
|
3,473
|
|
Net cash used in operating activities
|
|
|
(31,338
|
)
|
|
|
(98,637
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of plant and equipment
|
|
|
-
|
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds of owners’ injection of capital
|
|
|
-
|
|
|
|
-
|
|
Borrowing and payments to related parties, net
|
|
|
159,116
|
|
|
|
93,384
|
|
Net cash provided by (used in) financing activities
|
|
|
159,116
|
|
|
|
93,384
|
|
|
|
|
|
|
|
|
|
|
Net decrease of cash and cash equivalents
|
|
|
127,778
|
|
|
|
(5,253
|
)
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency translation on cash and cash equivalents
|
|
|
175
|
|
|
|
4,208
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents–beginning of period
|
|
|
29,999
|
|
|
|
77,782
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents–end of period
|
|
$
|
157,952
|
|
|
$
|
76,737
|
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow information:
|
|
|
|
|
|
|
|
|
Interest received
|
|
$
|
38
|
|
|
$
|
-
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
491
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Recognition of right of use asset
|
|
$
|
122,806
|
|
|
$
|
-
|
|
See
accompanying notes to the financial statements
NOTE
1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Fortune
Valley Treasures, Inc. (formerly Crypto-Services, Inc.) 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
are conducted through its subsidiaries in the People’s Republic of China (“PRC”).
On
January 5, 2018, the Company’s board of directors unanimously approved to modify the Company’s accounting fiscal year
end from August 31 to December 31. On January 29, 2018, the Company filed a Certificate of Amendment with the State of Nevada
to increase its authorized shares to 3,000,000,000.
On
April 11, 2018, the Company entered into 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 300,000,000 shares of its common stock in exchange for all the outstanding shares in DIGLS. This transaction has been accounted
for a reverse takeover transaction and a recapitalization of the Company whereby the Company, the legal acquirer, is the accounting
acquiree, and DIGLS, the legal acquiree, is the accounting acquirer; accordingly, the Company historical statement of stockholders’
equity has been retroactively restated to the first period presented.
DIGLS
was incorporated with limited liability in the Republic of Seychelles on July 4, 2016, with share capital of $100,000 divided
into 250,000,000 ordinary shares with $0.0004 par value. DIGLS wholly owns DaXingHuaShang Investment (Hong Kong) Limited (“DILHK”).
DILHK was incorporated in Hong Kong on June 22, 2016 as an investment holding company with limited liability. DILHK was previously
wholly owned by Mr. Yumin Lin. On November 11, 2016, Mr. Yumin Lin, transferred 100% of his ownership in DILHK to DIGLS. DILHK
wholly owns Qianhai DaXingHuaShang Investment (Shenzhen)Co. Ltd. (“QHDX”) which was incorporated with limited liability
on November 3, 2016 in the PRC as a wholly foreign-owned enterprise. QHDX wholly owns Dongguan City France Vin Tout Ltd. (“FVTL”).
FTVL was incorporated on May 31, 2011 in the PRC with limited liability. FTVL was previously owned and controlled by Mr. Yumin
Lin. FTVL has been a license to sell foods up through September 10, 2022. On November 20, 2016, Mr. Yumin Lin transferred his
ownership in FTVL to QHDX for nominal consideration. The share transfers detailed above by and among Mr. Yumin Lin, DIGLS, DILHK,
QHDX, and FVTL have been accounted for as a series of business combination of entities under common control; accordingly, the
values in these financial statements reflect the carrying values of those entities, and no goodwill was recorded as a result of
these transactions.
On
March 1, 2019, we executed a Sale and Purchase Agreement (the “SP Agreement”) to acquire 100% of the shares and assets
of Jiujiu Group Stock Co., Ltd. (“JJGS”), a company incorporated under the laws of the Republic of Seychelles. The
transaction contemplated in the SP Agreement was closed on March 1, 2019.
Pursuant
to the SP Agreement, the Company has issued one hundred (100) shares of the Company’s common stock to JJGS to acquire 100%
of the shares and assets of JJGS for a cost of US$150 reflecting the value of the rights, titles and interests in the business
assets and all attendant or related assets of JJGS. Both parties agreed that this share issuance by the Company represents payment
in full of US$150. Upon Closing, JJGS became the Company’s wholly owned subsidiary. We now own all of the issued and outstanding
shares of JJGS, which owns all of the equity capital of Jiujiu (HK) Industry Ltd. and Jiujiu (Shenzhen) Industry Ltd. Currently,
JJGS , Jiujiu (HK) Industry Ltd. and Jiujiu (Shenzhen) Industry Ltd. do not have any operations or active business, nor do they
have any assets.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation
These
consolidated financial statements, accompanying notes, and related disclosures have been prepared pursuant to the rules and regulations
of the U.S. Securities and Exchange Commission (“SEC”). These financial statements have been prepared using the accrual
basis of accounting in accordance with the generally accepted accounting principles (“GAAP”) in the United States.
The Company’s fiscal year end is December 31. The Company’s financial statements are presented in US dollars.
Basis
of consolidation
The
consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions
have been eliminated.
Entity
Name
|
|
Incorporation
date
|
|
Entity
Owned
By
|
|
Nature
of
Operation
|
|
Country
of
Incorporation
|
DaXingHuaShang
Investment Group Limited (“DIGLS”)
|
|
July
4,2016
|
|
FVTI
|
|
Investment
holding
|
|
Republic
of Seychelles
|
DaXingHuaShang
Investment (Hong Kong) Ltd (“DILHK”)
|
|
June
22, 2016
|
|
DIGLS
|
|
Investment
holding
|
|
Hong
Kong, China
|
Qianhai
DaXingHuaShang Investment (Shenzhen) Co. Ltd. (“QHDX”)
|
|
November
3, 2016
|
|
DILHK
|
|
Investment
holding
|
|
China
|
Dongguan
City France Vin Tout Ltd.,
(“FVTL”)
|
|
May
31, 2011
|
|
QHDX
|
|
Trading
of wine
|
|
China
|
Jiujiu
Group Stock Co., Ltd. (“JJGS”)
|
|
August
17,2017
|
|
FVTI
|
|
Investment
holding
|
|
Republic
of Seychelles
|
Jiujiu
(HK) Industry Ltd(“JJHK”)
|
|
August
24,2017
|
|
JJGS
|
|
Investment
holding
|
|
Hong
Kong, China
|
Jiujiu
(Shenzhen) Industry Ltd(“JJSZ”)
|
|
November
16,2018
|
|
JJHK
|
|
Investment
holding
|
|
China
|
Use
of estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America,
which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well
as the disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will
also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results may materially
differ from these estimates.
Foreign
currency translation and re-measurement
The
Company translates its 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 US dollar. The Company, DIGLS, JJGS , JJHK and DILHK’s functional
currency is the U.S. dollar; QHDX, JJSZ and FVTL 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
|
Adjustments
arising from such translations are included in accumulated other comprehensive income in shareholders’ equity.
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
Spot RMB: USD exchange rate
|
|
$
|
0.1485
|
|
|
$
|
0.1590
|
|
Average RMB: USD exchange rate
|
|
$
|
0.1491
|
|
|
$
|
0.1574
|
|
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.
Cash
and cash equivalents
Cash
and cash equivalents include cash on hand, deposits in banks, and any investments with maturities with less three months from
inception to maturity. The Company’s primary bank deposits are located in the Hong Kong and the PRC; those deposits are
not provided protection under FDIC insurance; however, management has determined that the risk of loss from insolvency by those
financial institution at which it has deposited it funds is insignificant.
Accounts
receivable
Accounts
receivable are carried at the amounts invoiced to customers less allowance for doubtful accounts. The allowance is an estimate
based on a review of individual customer accounts on a regular basis. Accounts receivable are written off when deemed uncollectible.
Recoveries of accounts receivable previously written off are recorded when received.
The
Company reviews the collectability of accounts receivable based on an assessment of historical experience, current economic conditions,
and other collection indicators.
During
the two years ended December 31, 2018 and the three months ended March 31, 2019, the Company did not experience any delinquent
or uncollectible balances; accordingly, the Company did not record any valuation allowance for bad debt during this period.
Inventories
Inventories
consisting of finished goods are stated at the lower of cost or market value. The Company used the weighted average cost method
of accounting for inventory. Inventories on hand are evaluated on an on-going basis to determine if any items are obsolete, spoiled,
or in excess of future demand. The Company provides impairment that is charged directly to cost of sales when is has been determined
the product is obsolete, spoiled, and the Company will not be able to sell it at a normal profit above its carrying cost. The
Company’s primary products are alcoholic beverages; the selling price of alcoholic beverages tend to increase over time;
however, there are circumstances where alcoholic beverages may be subject to spoilage if stored for prolong periods of time. The
Company did not experience an impairment on inventory during the three months ended March 31, 2019.
Advances
and prepayments to suppliers
In
certain instances, in order to secure the supply of limited and sought-after wines and liquors, the Company will make advance
payments to suppliers for the procurement of inventory. Upon physical receipt and inspection of such products from those suppliers,
the applicable balances are reclassified from advances and prepayments to suppliers to inventory.
Property,
plant and equipment
Equipment
is carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line
method. Estimated useful lives of the equipment are as follows:
Office
equipment
|
|
7-20
years
|
|
The
cost of maintenance and repairs is charged to expenses as incurred, whereas significant renewals and betterments are capitalized.
Accounting
for long-lived assets
The
Company annually reviews its long-lived assets for impairment or whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable. Impairment may be the result of becoming obsolete from a change in the industry
or new technologies. Impairment is present if the carrying amount of an asset is less than its undiscounted cash flows to be generated.
If
an asset is considered impaired, a loss is recognized based on the amount by which the carrying amount exceeds the fair market
value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Customer
advances and deposits
On
certain occasions, the Company may receive prepayments from downstream retailers or retails customer for wines and liquor prior
to their taking possession of the Company’s products; the Company records these receipts as customer advances and deposits
until it has met all the criteria for recognition of revenue including the passing possession of the products to its customer,
at such point Company will reduce the customer and deposits balance and credit the Company’s revenues.
Revenue
recognition
Revenues
are recognized when the Company has negotiated the terms of the transaction, which includes determining and fixing the sales price,
the transfer of possession of the product to the customer, the customer does not have the right to return the product, the customer
is able to further sell or transfer the product onto others for economic benefit without any other obligation to be fulfilled
by the Company, and the Company is reasonably assured that funds have been or will be collected from the customer. The Company’s
gross revenue consists the value of goods invoiced, net of any value-added tax (VAT) or excise tax.
Advertising
All
advertising costs are expensed as incurred. Advertising expense for the three months ended March 31, 2019 and March 31, 2018 were
$0 and 0, respectively.
Shipping
and handling
Outbound
shipping and handling are expensed as incurred.
Retirement
benefits
Retirement
benefits in the form of mandatory government sponsored defined contribution plans are charged to the either expenses as incurred
or allocated to inventory as a part of overhead.
Income
taxes
The
Company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future
years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before
the Company is able to realize their benefits, or that future realization is uncertain.
Statutory
reserves
Statutory
reserves are referring to the amount appropriated from the net income in accordance with laws or regulations, which can be used
to recover losses and increase capital, as approved, and are to be used to expand production or operations. PRC laws prescribe
that an enterprise operating at a profit must appropriate and reserve, on an annual basis, an amount equal to 10% of its profit.
Such an appropriation is necessary until the reserve reaches a maximum that is equal to 50% of the enterprise’s PRC registered
capital.
Earnings
per share
The
Company computes earnings per share (“EPS”) in accordance with ASC Topic 260, “Earnings per share”. Basic
EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding
for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common
shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented,
or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e. those that increase income per share
or decrease loss per share) are excluded from the calculation of diluted EPS.
Financial
instruments
The
Company’s accounts for financial instruments in accordance to ASC Topic 820, “Fair Value Measurements and Disclosures,”
which requires disclosure of the fair value of financial instruments held by the Company and ASC Topic 825, “Financial Instruments,”
which defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances
disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables
and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the
short period of time between the origination of such instruments and their expected realization and their current market rate
of interest. The three levels of valuation hierarchy are defined as follows:
●
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
●
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs
that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial
instrument.
●
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
Commitments
and contingencies
Liabilities
for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it
is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Comprehensive
income
Comprehensive
income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners.
Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive
income are required to be reported in a financial statement that is presented with the same prominence as other financial statements.
The Company’s current component of other comprehensive income includes the foreign currency translation adjustment and unrealized
gain or loss.
Goodwill
Goodwill
represents the excess of the purchase price over the fair value of the net tangible and identifiable assets acquired in a business
combination. In accordance with FASB ASC Topic 350, “Goodwill and Other Intangible Assets”, goodwill is no longer
subject to amortization. Rather, goodwill is subject to at least an annual assessment for impairment, applying a fair-value based
test. Fair value is generally determined using a discounted cash flow analysis.
Recent
accounting pronouncements
In
January 2017, the FASB issued guidance, which amended the existing accounting standards for business combinations. The amendments
clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions
should be accounted for as acquisitions (or disposals) of assets or businesses. The Company is required to adopt the guidance
in the first quarter of fiscal year 2019. Earlier adoption is permitted. The Company has early adopted this guidance in the fourth
quarter of fiscal year 2018. The implementation of this guidance did not have a material impact on the Consolidated Financial
Statements.
In
February 2018, the FASB issued guidance, which eliminates the stranded tax effects in other comprehensive income resulting from
the TCJA. Because the amendments only relate to the reclassification of the income tax effects of the TCJA, the underlying guidance
that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected.
The Company is required to adopt the guidance in the first quarter of fiscal year 2020. Earlier adoption is permitted. The Company
is currently evaluating the timing and the impact of this guidance on the Consolidated Financial Statements. In August 2017, the
FASB issued guidance, which amends the existing accounting standards for derivatives and hedging. The amendment improves the financial
reporting of hedging relationships to better represent the economic results of an entity’s risk management activities in
its financial statements and made certain targeted improvements to simplify the application of the hedge accounting guidance in
current U.S. GAAP. The Company is required to adopt the guidance in the first quarter of fiscal year 2020. Earlier adoption is
permitted. The Company is currently evaluating the timing and impact of this guidance on the Consolidated Financial Statements.
In
November 2016, the FASB issued guidance, which addresses the presentation of restricted cash in the statement of cash flows. The
guidance requires entities to present the changes in the total of cash, cash equivalents, restricted cash, and restricted cash
equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents
and restricted cash and restricted cash equivalents in the statement of cash flows. The Company is required to adopt the guidance
retrospectively in the first quarter of fiscal year 2019. Earlier adoption is permitted. The Company will adopt this guidance
in the first quarter of fiscal year 2019. The Company expects that the implementation of this guidance will not have a material
impact on its Consolidated Financial Statements.
On
March 17, 2016, the FASB issued ASU 2016-08 “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations
(Reporting Revenue Gross versus Net)”, which amends the principal-versus-agent implementation guidance and illustrations
in the Board’s new revenue standard (ASU 2014-09). The FASB issued the ASU in response to concerns identified by stakeholders,
including those related to (1) determining the appropriate unit of account under the revenue standard’s principal-versus-agent
guidance and (2) applying the indicators of whether an entity is a principal or an agent in accordance with the revenue standard’s
control principle. Among other things, the ASU clarifies that an entity should evaluate whether it is the principal or the agent
for each specified good or service promised in a contract with a customer. As defined in the ASU, a specified good or service
is “a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer.” Therefore,
for contracts involving more than one specified good or service, the entity may be the principal for one or more specified goods
or services and the agent for others. The ASU has the same effective date as the new revenue standard (as amended by the one-year
deferral and the early adoption provisions in ASU 2015-14). In addition, entities are required to adopt the ASU by using the same
transition method they used to adopt the new revenue standard. The Company has determined that it acts as a principal in its primary
business operations.
On
March 30, 2016, the FASB issued ASU 2016-09 “Compensation—Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting”, which simplifies several aspects of the accounting for employee share-based payment transactions
for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding
requirements, as well as classification in the statement of cash flows. The ASU is for annual reporting periods beginning after
December 15, 2016, including interim periods within those annual reporting periods. Management has determined that the new standard
did not have a material impact on these financial statements.
Unless
otherwise stated, the Company is currently assessing the above the accounting pronouncements and their potential impact from their
adoption on the financial statements.
NOTE
3 - GOING CONCERN
The
accompanying financial statements have been prepared in conformity with generally accepted accounting principles which contemplate
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. The Company’s ability to
continue as a going concern depends upon its ability to market and sell its products to generate positive operating cash flows.
As of March 31, 2019 and 2018, the Company reported net losses of $741,025 and $528,458, respectively. As of March 31, 2019, the
Company had working capital deficit of approximately $433,396 In addition, the Company had net cash outflows of $31,338 from operating
activities during the three months March 31, 2019. These conditions still raise a substantial doubt as to whether the Company
may continue as a going concern.
In
an effort to improve its financial position, the Company is working to obtain new working capital through a reverse merger with
a publicly listed entity and shortly thereafter the sales of equity or debt securities by the listed entity to investors for cash
to fund operations and further expansion. The Company also relies on relates parties to provided financing and management services
at cost that may not be the prevailing market rate for such services.
If
the Company is not able to generate positive operating cash flows, raise additional capital, and retain the services of certain
related parties, it may become insolvent.
NOTE
4 - ACCOUNTS AND OTHER RECEIVABLES
Accounts
and other receivables consisted of the following as of March 31, 2019 and December 31, 2018:
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Gross accounts and other receivables
|
|
$
|
5,709
|
|
|
$
|
7,706
|
|
Less: Allowance for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
5,709
|
|
|
$
|
7,706
|
|
NOTE
5 – INVENTORIES
Inventories
consisted of the following as of March 31, 2019 and December 31, 2018:
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Finished goods
|
|
$
|
216,719
|
|
|
$
|
236,173
|
|
NOTE
6 - EQUIPMENT
Property,
plant and equipment consisted of the following as of March 31, 2019 and December 31, 2018:
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
At Cost:
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
63,727
|
|
|
|
62,385
|
|
Less: Accumulated depreciation
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
53,981
|
|
|
|
52,576
|
|
|
|
$
|
9,746
|
|
|
$
|
9,809
|
|
NOTE
7 - INCOME TAXES
The
Company’s primary operations are in the PRC, and in accordance with the relevant tax laws and regulations. The corporate
income tax rate for each country is as follows:
|
●
|
PRC
tax rate is 25%.
|
|
●
|
Hong
Kong tax rate is 16.5%
|
|
●
|
Seychelles
is on permanent tax holiday
|
The
Company is registered the British Virgin Islands, which is a tax-exempt region.
The
following tables provide the reconciliation of the differences between the statutory and effective tax expenses for three months
ended March 31, 2019 and March 31, 2018:
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
Income attributed to PRC operations
|
|
$
|
(23,315
|
)
|
|
$
|
(53,650
|
)
|
Loss attributed to Seychelles and HK
|
|
|
0
|
|
|
|
(119
|
)
|
Loss attributed to US
|
|
|
(9,528
|
)
|
|
|
(43,153
|
)
|
Loss before tax
|
|
|
(32,843
|
)
|
|
|
(96,922
|
)
|
|
|
|
|
|
|
|
|
|
PRC Statutory Tax at 25% Rate
|
|
|
(5,829
|
)
|
|
|
(13,412
|
)
|
Effect of Seychelles, PRC, HK, deductions and other reconciling items
|
|
|
5,914
|
|
|
|
13,412
|
|
Income tax
|
|
$
|
85
|
|
|
$
|
-
|
|
The
difference between the U.S. federal statutory income tax rate and the Company’s effective tax rate was as follows for three
months ended March 31, 2019 and 2018:
|
|
March 31,2019
|
|
|
March 31,2018
|
|
U.S. federal statutory income tax rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
Higher rates in PRC, net
|
|
|
4.0
|
%
|
|
|
-9.0
|
%
|
Net operating losses in PRC and other jurisdictions
|
|
|
-23.9
|
%
|
|
|
-12.0
|
%
|
The Company’s effective tax rate
|
|
|
1.1
|
%
|
|
|
0
|
%
|
NOTE
8- RELATED PARTY TRANSACTIONS?
Amounts
due to related parties as of March 31, 2019 and December 31, 2018:
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Mr. Yumin Lin
|
|
Director, CEO, Shareholder
|
|
$
|
743,868
|
|
|
$
|
554,061
|
|
Mr. Sheng
|
|
Former Director of the Company
|
|
|
-
|
|
|
|
|
|
Ms. Qingmei Lin
|
|
Mr. Yumin Lin’s wife
|
|
|
4,455
|
|
|
|
28,350
|
|
Mr. Naiyong Luo
|
|
Director of DIGL
|
|
|
80,324
|
|
|
|
78,639
|
|
Mr.Hongwei Ye
|
|
|
|
|
26,270
|
|
|
|
25,719
|
|
|
|
|
|
$
|
854,917
|
|
|
$
|
686,769
|
|
The
outstanding payables due to Mr. Yumin Lin are comprised of working capital advances and borrowings. These amounts are due on demand
and are non-interest bearing.
The
amounts due to Ms. Qingmei Lin are for office rental expenses. The Company’s operating facilities are located within a building
owned by Ms. Qingmei Lin.
The
Company sold its wine and liquor products to Mr. Naiyong Luo in the amounts of $34,220 and $41,565 for March 31, 2019 and 2018.
As of March 31, 2019, the Company had a customer deposit from Mr. Luo in the amount of $80,324. These sales occurred in the normal
course of business. Mr. Luo is a shareholder of Gaosheng Group Co., Ltd., the prior owner of DIGLS.
The
Company sold its wine and liquor products to Mr. Hongwei Ye in the amounts of $0 and $5,020 for the years ended March 31, 2019
and 2018. As of March 31, 2018, the Company had a customer deposit from Mr. Ye in the amount of $26,270. These sales occurred
in the normal course of business.
As
of March 31,2019, the note payable due to Mr. Yumin Lin amounted to $743,868. These note payable were unsecured, non-interest
bearing and due on demand. The imputed interest on these notes was deemed immaterial.
NOTE
9 – LEASE COMMITMENTS
The
Company has a non-cancelable operating lease agreement with Ms. Qingmei Lin, a related party, for the premises in Dongguan City,
PRC. The agreement covers the period from May 1, 2017 to April 30, 2027 which increased the space covered in prior agreements.
The monthly rent expense is $3,811 (RMB 25,000). but effective as of May 1, 2018 was lowered to $2,323 (RMB15,000) based on agreement
between Ms. Qingmei and Company. but effective as of January 1, 2019 was lowered to $1,491 (RMB10,000) based on agreement between
Ms. Qingmei and Company.The agreement does not call for a rental deposit equivalent. The Company discounted its lease using
an expected borrowing rate of 4.35% per annum.
Minimum
operating lease commitment for the agreement is as follows:
2019
|
|
|
17,892
|
|
2020
|
|
|
17,892
|
|
2021
|
|
|
17,892
|
|
2022
|
|
|
17,892
|
|
Thereafter:
|
|
|
77,532
|
|
Total future payments
|
|
$
|
149,100
|
|
Less: discount
|
|
|
(26,294
|
)
|
Right of use asset
|
|
$
|
122,806
|
|
NOTE
10 - RISKS
Credit
risk
The
Company is subject to risk borne from credit extended to customers.
FTVL
and QHDX bank deposits are with banks located in the PRC. JJHK’s bank account is with located in Hong Kong. DIGLS does not
have any bank accounts. The bank accounts that the Company uses that that are located outside of the U.S. do not carry federal
deposit insurance.
Interest
risk
The
Company is subject to interest rate risk when its loans become due and require refinancing.
Economic
and political risks
The
Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition, and results
of operations may be influenced by changes in the political, economic, and legal environments in the PRC. As alcoholic beverages
are considered a luxury item, they may be subject to political pressure and risks. The PRC has government from time to time limited
the amount of import of foreign alcoholic beverages based on their relationships with those foreign countries. The Company’s
results of operations may be materially adversely affected if the are unable to procure such products because the PRC government
has limited the amount of imports.
Inflation
risk
Management
monitors changes in prices levels. Historically inflation has not materially impacted the Company’s financial statements;
however, significant increases in the price of wine and liquors that cannot be passed on the Company’s customers could adversely
impact the Company’s results of operations.
Concentrations
risks
In
2018, the Company had a concentration of risk in its supply of raw materials, one vendor supplied all of the Company’s purchases
for finished goods inventory.
NOTE
11 - SUBSEQUENT EVENTS
Company
evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued. There
are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that
existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and
(2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet
but arose subsequent to that date.
On
March 1, 2019, we executed a Sale and Purchase Agreement (the “SP Agreement”) to acquire 100% of the shares and assets
of Jiujiu Group Stock Co., Ltd. (“JJGS”), a company incorporated under the laws of the Republic of Seychelles. The
transaction contemplated in the Agreement was closed on March 1, 2019.
Except
for the above-mentioned material subsequent events and disclosures found in these financial statements, there were no other events
that management deemed necessary for disclosure as a material subsequent event.
Item
2.
MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company
Overview
Fortune
Valley Treasures, Inc. (“FVTI” or the “Company”), formerly Crypto-Services, Inc. (“CRYT”),
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 worldwide online.
On
July 22, 2015, the Company filed an amendment to its Articles of Incorporation with the Nevada Secretary of State changing its
name from Crypto-Services, Inc. to Fortune Valley Treasures, Inc.
As
previously reported in a Current Report on Form 8-K filed on December 14, 2016, we entered into a Sale and Purchase Agreement
(the “Original Agreement”) with DaXingHuaShang Investment Group Limited (“DIGL”) and its shareholders,
Mr. Yumin Lin, Gaosheng Group Co., Ltd. and China Kaipeng Group Co., Ltd. to acquire 100% of the shares and assets of DIGL, a
company incorporated under the laws of the Republic of Seychelles. Pursuant to the Original Agreement, FVTI had agreed to issue
Three Hundred Million (300,000,000) shares of common stock of FVTI to the existing stockholders of DIGL to acquire 100% of the
shares of DIGL.
On
December 14, 2016, in anticipation of the reverse merger between the Company and DIGL, Shen Xinlong resigned from the position
of President, Secretary and Treasurer but remained on the Board as a Director. Additionally, the Company announced the appointment
of Mr. Yumin Lin to the Board of Directors, and as President, Secretary and Treasurer.
On
April 11, 2018, the Company entered into a termination agreement (“Termination Agreement”) with DIGL, terminating
the Original Agreement and all transactions contemplated under the Original Agreement.
On
April 11, 2018, the Company entered into a Share Exchange Agreement (the “Agreement”) to acquire 100% of the outstanding
equity securities of DIGL. Pursuant to the Agreement, the Company agreed to issue 300 million (300,000,000) shares of common stock,
par value $0.001 of the Company to the existing stockholders of DIGL to acquire 100% outstanding equity securities of DIGL (the
“Share Exchange”). The Share Exchange closed on April 19, 2018
Immediately
following the Share Exchange, the business of DIGL became our business. DIGL is engaged in the business of retail and wholesale
of imported wine products in China. We now own all of the issued and outstanding shares of DIGL, which owns all of the equity
capital of DaXingHuaShang Investment (Hong Kong) Limited, Qianhai DaXingHuaShang Investment (Shenzhen) Co. Ltd., and Dongguan
City France Vin Tout Ltd.
On
March 1, 2019, we executed a Sale and Purchase Agreement (the “SP Agreement”) to acquire 100% of the shares and assets
of Jiujiu Group Stock Co., Ltd. (“JJGS”), a company incorporated under the laws of the Republic of Seychelles. The
transaction contemplated in the SP Agreement was closed on March 1, 2019.
Pursuant
to the SP Agreement, the Company has issued one hundred (100) shares of the Company’s shares. The transaction contemplated
in the SP Agreement was closed on March 1, 2019.now own all of the issued and outstanding shares of DIG interests in the business
assets and all attendant or related assets of JJGS. Both parties agreed that this share issuance by the Company represents payment
in full of US$150. Upon Closing, JJGS became the Company’s wholly owned subsidiary. We now own all of the issued and outstanding
shares of JJGS, which owns all of the equity capital of Jiujiu (HK) Industry Ltd. and Jiujiu (Shenzhen) Industry Ltd. Currently,
JJGS , Jiujiu (HK) Industry Ltd. and Jiujiu (Shenzhen) Industry Ltd. do not have any operations or active business, nor do
they have any assets.
Currently,
we are engaged in the retail and wholesale wine product business in Dongguan City, Guangdong Province.
Our
office is located at No.10 of Tuanjie 2nd Road, Beice, Humen, Dongguan, 518000, China. Our telephone number is: +
(86)
76982268999
Results
of Operations
|
|
Three months ended March 31,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
Revenue
|
|
$
|
42,020
|
|
|
$
|
13,747
|
|
|
$
|
28,273
|
|
Cost of revenue
|
|
|
28,908
|
|
|
|
7,559
|
|
|
|
21,349
|
|
Gross profit
|
|
|
13,112
|
|
|
|
6,188
|
|
|
|
6,924
|
|
Gross profit (%)
|
|
|
31
|
%
|
|
|
45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense
|
|
|
47,239
|
|
|
|
102,619
|
|
|
|
(55,380
|
)
|
Other income(expense)
|
|
|
1,284
|
|
|
|
(491
|
)
|
|
|
1,775
|
|
Provision for income taxes
|
|
|
85
|
|
|
|
-
|
|
|
|
85
|
|
Foreign currency translation gain
|
|
|
(3,493
|
)
|
|
|
(1,528
|
)
|
|
|
(1,965
|
)
|
Comprehensive loss
|
|
$
|
(36,421
|
)
|
|
$
|
(98,450
|
)
|
|
$
|
62,029
|
|
Revenue
Net
revenues was $42,020 for three months ended March 31, 2019, an increase of $28,273 as compared to that of $13,747 for the three
months ended March 31, 2018. The reason for the increase was that the company sold.
Cost
of revenue
Cost
of revenue was $28,908 for the three months ended March 31, 2019, an increase of $21,349 from $7,559 as compared to the three
months ended March 31, 2018. The increase was due to an increase in related sales revenue.
Gross
profit
Gross
profit was 31% ($13,112) and 45% ($6,188) for the three months ended March 31, 2019 and 2018, respectively.
Operating
expenses
General
and administrative expenses was $47,239 for the three months ended March 31, 2019, a decrease of $55,380 as compared to that of
$102,619 for the three months ended March 31, 2018. The decrease was primarily due to a decrease in general and administrative
expense related to reporting and maintenance costs of being a publicly listed company.
Net
loss
Net
loss was $36,421 for the three months ended March 31, 2019, a decrease of $ 62,029 compared to that of 2018, primarily as the
result of a decrease in operating expenses.
Liquidity
and Capital Resources
Working
Capital
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
454,571
|
|
|
$
|
338,305
|
|
|
$
|
116,266
|
|
Total current liabilities
|
|
|
905,113
|
|
|
|
735,342
|
|
|
|
169,771
|
|
Working capital
|
|
$
|
(450,542
|
)
|
|
$
|
(397,037
|
)
|
|
$
|
(53,505
|
)
|
As
of March 31, 2019, we had cash and cash equivalents in an amount of $76,737. We have financed our operations primarily though
borrowings from parties related to us. The change in working capital was primarily from an increase in the amount due from related
party at $83,575.
Cash
Flows
|
|
Three Ended March 31,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
Cash Flows used in Operating Activities
|
|
$
|
(31,338
|
)
|
|
$
|
(98,637
|
)
|
|
$
|
67,299
|
|
Cash Flows used in Investing Activities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cash Flows provided by Financing Activities
|
|
|
159,116
|
|
|
|
93,384
|
|
|
|
65,732
|
|
Net Decrease in Cash During Period
|
|
$
|
127,778
|
|
|
$
|
(5,253
|
)
|
|
$
|
133,031
|
|
Cash
Flow from Operating Activities
For
the three months ended March 31, 2019, net cash flows used in operating activities consisted of a net loss of $32,928 and was
reduced by depreciation of $276, and a net change of operating assets and liabilities of $31,338. For the three months ended
March 31, 2018, net cash flows provided in operating consisted of a net loss of $96,922 and was reduced by depreciation
of $1,749 and a net change of operating assets and liabilities of $98,637.
Cash
Flow from Financing Activities
Net
cash provided by financing for the three months ended March 31, 2019 was $159,116, as compared to that of $93,384 for the three
months ended March 31, 2018. The increase in net cash provided by financing activities was mainly due to the Company’s borrowing
loan from related parties.
Critical
Accounting Policy and Estimates
In
the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations
and financial condition in the preparation of our financial statements in conformity with U.S. generally accepted accounting principles.
We base our estimates on historical experience, when available, and on other various assumptions that are believed to be reasonable
under the circumstances. Actual results could differ significantly from those estimates under different assumptions and conditions.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital
resources that is material to investors.