ITEM
1. FINANCIAL STATEMENTS
Fortune
Valley Treasures, Inc.
Financial
Statements
March
31, 2020
(Unaudited)
Fortune
Valley Treasures, Inc.
Condensed
Consolidated Balance Sheets
At
March 31, 2020 and December 31, 2019
|
|
March 31,
2020
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|
|
December 31,
2019
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|
|
|
|
(Unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
68,391
|
|
|
$
|
38,137
|
|
Accounts and other receivable, net
|
|
|
16,071
|
|
|
|
146
|
|
Inventories
|
|
|
26,324
|
|
|
|
28,502
|
|
Prepaid expenses
|
|
|
17,000
|
|
|
|
4,094
|
|
Prepaid taxes and taxes recoverable
|
|
|
4,008
|
|
|
|
3,091
|
|
Total current assets
|
|
$
|
131,794
|
|
|
$
|
73,970
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
Plant and equipment, net
|
|
|
55,339
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|
|
|
8,611
|
|
Right of use asset
|
|
|
105,051
|
|
|
|
110,456
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|
Total Assets
|
|
$
|
292,184
|
|
|
$
|
193,037
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Lease obligation-current
|
|
|
13,616
|
|
|
|
13,715
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|
Accounts, taxes, other payables, and accruals
|
|
|
188,357
|
|
|
|
32,860
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|
Due to related parties
|
|
|
852,831
|
|
|
|
808,777
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|
Total current liabilities
|
|
$
|
1,054,804
|
|
|
$
|
855,352
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|
Long term liabilities
|
|
|
|
|
|
|
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|
Lease obligations-non-current
|
|
|
93,234
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|
|
|
98,189
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|
Total Liabilities
|
|
$
|
1,148,038
|
|
|
$
|
953,541
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|
|
|
|
|
|
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|
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|
Stockholders’ Deficit
|
|
|
|
|
|
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Common stock (3,000,000,000 shares authorized, 307,750,100 issued and outstanding at March 31, 2020 and December 31, 2019)
|
|
|
307,750
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|
|
|
307,750
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|
Additional paid in capital
|
|
|
-
|
|
|
|
-
|
|
Accumulated deficit
|
|
|
(1,188,421
|
)
|
|
|
(1,085,853
|
)
|
Accumulated other comprehensive income
|
|
|
24,817
|
|
|
|
17,599
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|
Total Stockholders’ Deficit
|
|
|
(855,854
|
)
|
|
|
(760,504
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)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Deficit
|
|
|
292,184
|
|
|
|
193,037
|
|
See
accompanying notes to the financial statements
Fortune
Valley Treasures, Inc.
Condensed
Consolidated Statements of Operations and Comprehensive Loss
For
the Three Months Ended March 31, 2020 and 2019
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|
Three Months Ended
|
|
|
|
March 31,
2020
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March 31,
2019
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|
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|
|
|
Net revenues (related
party revenue $0 and $34,220, respectively)
|
|
$
|
22,051
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|
|
$
|
42,020
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|
Cost of revenues
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|
14,426
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|
|
|
28,908
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|
Gross profit
|
|
|
7,625
|
|
|
|
13,112
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|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
110,861
|
|
|
|
47,239
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(103,236
|
)
|
|
|
(34,127
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
778
|
|
|
|
1,305
|
|
Interest income
|
|
|
8
|
|
|
|
38
|
|
Interest expense
|
|
|
(118
|
)
|
|
|
(59
|
)
|
|
|
|
668
|
|
|
|
1,284
|
|
|
|
|
|
|
|
|
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Loss before tax
|
|
|
(102,568
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)
|
|
|
(32,843
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)
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|
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Income tax
|
|
|
-
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(102,568
|
)
|
|
$
|
(32,928
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Foreign currency translation gain
|
|
|
7,218
|
|
|
|
(3,493
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
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|
$
|
(95,350
|
)
|
|
$
|
(36,421
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Basic and diluted weighted average shares outstanding
|
|
|
307,750,100
|
|
|
|
307,750,100
|
|
See
accompanying notes to the financial statements
Fortune
Valley Treasures, Inc.
Condensed
Consolidated Statements of Stockholders’ Deficit
For the Years Ended December 31, 2019
and the Three Months Ended March 31, 2020
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Accumulated
|
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|
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|
|
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|
|
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Paid
|
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|
other
|
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|
Non
|
|
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|
|
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|
No. of
|
|
|
Common
|
|
|
in
|
|
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Statutory
|
|
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Retained
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|
|
comprehensive
|
|
|
controlling
|
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|
|
|
|
|
Shares
|
|
|
stock
|
|
|
capital
|
|
|
reserves
|
|
|
earnings
|
|
|
income
|
|
|
interest
|
|
|
Total
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
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|
Balance as of January 1, 2019
|
|
|
307,750,000
|
|
|
|
307,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(708,097
|
)
|
|
|
13,119
|
|
|
|
-
|
|
|
|
(387,228
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(377,756
|
)
|
|
|
|
|
|
|
-
|
|
|
|
(377,756
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,480
|
|
|
|
|
|
|
|
4,480
|
|
Balance as of December 31, 2019
|
|
|
307,750,000
|
|
|
|
307,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,085,853
|
)
|
|
|
17,599
|
|
|
|
-
|
|
|
|
(760,504
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102,586
|
)
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|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,218
|
|
|
|
|
|
|
|
7,218
|
|
Balance as of March 31, 2020
|
|
|
307,750,000
|
|
|
|
307,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,188,421
|
)
|
|
|
24,817
|
|
|
|
-
|
|
|
|
(855,854
|
)
|
See
accompanying notes to the financial statements
Fortune
Valley Treasures, Inc.
Condensed
Consolidated Statements of Cash Flows
For
the Three Months Ended March 31, 2020 and 2019
(Unaudited)
|
|
For the Three Months Ended
|
|
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(102,568
|
)
|
|
$
|
(32,928
|
)
|
Depreciation of fixed assets
|
|
|
6,829
|
|
|
|
276
|
|
Decrease/(increase) in accounts and other receivables
|
|
|
(16,136
|
)
|
|
|
2,750
|
|
Decrease in inventories
|
|
|
1,762
|
|
|
|
24,626
|
|
(Increase)/ decrease in advances and prepayments to suppliers
|
|
|
(13,883
|
)
|
|
|
(9,736
|
)
|
Increase (decrease) in accounts and other payables
|
|
|
149,272
|
|
|
|
(16,326
|
)
|
Net cash used in operating activities
|
|
|
25,276
|
|
|
|
(31,338
|
)
|
|
|
|
|
|
|
|
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Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Investment in improvements and decorations
|
|
|
(50,550
|
)
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(50,550
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)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Borrowing and payments to related parties, net
|
|
|
56,590
|
|
|
|
159,116
|
|
Net cash provided by (used in) financing activities
|
|
|
56,590
|
|
|
|
159,116
|
|
|
|
|
|
|
|
|
|
|
Net increase of cash and cash equivalents
|
|
|
31,316
|
|
|
|
127,778
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency translation on cash and cash equivalents
|
|
|
(991
|
)
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents–beginning of period
|
|
|
38,066
|
|
|
|
29,999
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents–end of period
|
|
$
|
68,391
|
|
|
$
|
157,952
|
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow information:
|
|
|
|
|
|
|
|
|
Interest received
|
|
$
|
8
|
|
|
$
|
38
|
|
Interest paid
|
|
$
|
118
|
|
|
$
|
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Recognition of right of use asset
|
|
$
|
105,051
|
|
|
$
|
122,806
|
|
See
accompanying notes to the financial statements
NOTE
1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Fortune
Valley Treasures, Inc. (formerly Crypto-Services, Inc., the “Company” or “FVTI”) was incorporated in the
State of Nevada on March 21, 2014. The Company is engaged in the business of wholesale distribution and retail sales of
alcoholic beverages, including wine and distilled liquors, through its subsidiaries in the People’s Republic of China (“PRC”
or “China”).
On
January 5, 2018, the Company changed its accounting fiscal year end from August 31 to December 31. On January 29, 2018, the Company
filed a Certificate of Amendment with the State of Nevada to increase its authorized shares of common stock from 75,000,000 to
3,000,000,000.
On
April 6, 2018, the Company entered into a share exchange agreement by and among DaXingHuaShang Investment Group Limited, a Republic
of Seychelles limited liability company (“DIGLS”), and each of the shareholders of DIGLS, pursuant to which the Company
issued 300,000,000 shares of common stock in exchange for 100% of the issued shares of DIGLS. This transaction was accounted for
a reverse takeover transaction and a recapitalization of the Company whereby the Company, the legal acquirer, is the accounting
acquiree, and DIGLS, the legal acquiree, is the accounting acquirer. Accordingly, the Company historical statement of stockholders’
equity has been retroactively restated to the first period presented.
DIGLS
was incorporated in the Republic of Seychelles on July 4, 2016, with an authorized capital of $100,000, divided into 250,000,000
ordinary shares, par value $0.0004 per share. DIGLS wholly owns DaXingHuaShang Investment (Hong Kong) Limited (“DILHK”),
a company incorporated in Hong Kong on June 22, 2016 as an investment holding company with limited liability. DILHK was previously
wholly owned by Mr. Yumin Lin, the Company’s Chairman, Chief Executive Officer, Chief Financial Officer, President, Treasurer
and Secretary. On November 11, 2016, Mr. Yumin Lin transferred 100% of his ownership in DILHK to DIGLS for nominal consideration.
DILHK wholly owns Qianhai DaXingHuaShang Investment (Shenzhen) Co., Ltd. (“QHDX”), a PRC limited liability company
formed on November 3, 2016 as a wholly foreign-owned enterprise. QHDX wholly owns Dongguan City France Vin Tout Ltd. (“FVTL”).
FVTL was incorporated on May 31, 2011 in the PRC as a limited liability company. FVTL was previously owned and controlled by Mr.
Yumin Lin. On November 20, 2016, Mr. Yumin Lin transferred his ownership in FVTL to QHDX for nominal consideration. The share
transfers detailed above by and among Mr. Yumin Lin, DIGLS, DILHK, QHDX, and FVTL have been accounted for as a series of business
combination of entities under common control. Accordingly, the values in these financial statements reflect the carrying values
of those entities, and no goodwill was recorded as a result of these transactions.
On
March 1, 2019, the Company entered into a sale and purchase agreement (the “SP Agreement”) to acquire 100% of the
shares of Jiujiu Group Stock Co., Ltd. (“JJGS”), a company incorporated under the laws of the Republic of Seychelles.
The transaction contemplated in the SP Agreement was closed on March 1, 2019. Pursuant to the SP Agreement, the Company issued
100 shares of its common stock to JJGS to acquire 100% of the shares of JJGS for a cost of $150. After the closing, JJGS became
the Company’s wholly owned subsidiary. JJGS owns all of the equity interests of Jiujiu (HK) Industry Limited (“JJHK”)
and Jiujiu (Shenzhen) Industry Co., Ltd. (“JJSZ”). None of JJGS, JJHK and JJSZ have any operations or active business,
nor do they have any assets.
Makaweng
Acquisition
On
July 13, 2019, the Company and QHDX entered into an equity interest transfer agreement, which was later amended on September 12,
2019 (“Makaweng Agreement”), with Xingwen Wang, a shareholder and legal representative of Yunnan Makaweng Wine &
Spirits Co., Ltd. (“Makaweng”), a PRC limited liability company engaged in the business of distribution of wine and
beer. Pursuant to the Makaweng Agreement, QHDX purchased 51% of Makaweng’s equity interests from Xingwen Wang in exchange
for shares of our common stock (“Makaweng Issuable Shares”), the number of which is determined according to the following
formula:
Number
of Makaweng Issuable Shares = A x 51% x 20 x B ÷ C
For
the purpose of the foregoing formula:
A
= Audited net annual profit of Makaweng in fiscal year 2020.
B
= The daily average middle exchange rate of U.S. Dollars to Chinese Yuan published by the State Administration of Foreign Exchange
of the People’s Republic of China on December 31, 2020.
C
= The closing price of FVTI’s common stock on December 31, 2020.
Mr.
Wang has agreed not to transfer the Makaweng Issuable Shares for at least three years after delivery of the Makaweng Issuable
Shares (the “Delivery”). He may only transfer up to 30% of his FVTI common stock during the fourth year after the
Delivery and cumulatively no more than 60% of his FVTI common stock during the fifth year after the Delivery.
The
51% of equity interest of Makaweng was transferred to QHDX and the registration of such transfer with local government authorities
was completed on August 28, 2019.
BTF
Acquisition
On
December 30, 2019, the Company, along with QHDX, entered into an equity interest transfer agreement (the “BTF Agreement”)
with shareholders (the “BTF Original Shareholders”) of Foshan BaiTaFeng Beverage Development Co., Ltd. (“BTF”),
who collectively owned 100% equity interest of BTF, a limited liability company engaged in the business of bottling and distributing
of drinking water in China.
Pursuant
to the BTF Agreement, QHDX agreed to purchase 80% of BTF’s equity interest (the “BTF Equity Transfer”) from
Mr. Chunbin Li, the legal representative and one of the BTF Original Shareholders of BTF (the “BTF Seller”), in exchange
for shares of our common stock (“BTF Issuable Shares”). The completion of the registration of the BTF Equity Transfer
with local government authorities (the “BTF Closing”) is subject to satisfaction of all the closing conditions (unless
waived), including but not limited to, the approval of the BTF Equity Transfer by BTF shareholders, completion of due diligence
review of BTF to the satisfaction of QHDX, waiver from the BTF Original Shareholders to the right of first refusal to purchase
the equity interest subject to the BTF Equity Transfer. It is agreed that the BTF Closing shall be conducted prior to the completion
of an initial draft of the audited financial statements of BTF.
According
to the BTF Agreement, the total number of BTF Issuable Shares will be determined according to the following formula:
Number
of BTF Issuable Shares = X x 80% x 15 ÷ 3.02 ÷ Y
For
the purpose of the foregoing formula:
X
= Net profit of BTF during the period from October 1, 2019 to September 30, 2020.
Y
= 7:1, which is the exchange rate of U.S. Dollars to Chinese Yuan mutually agreed by the parties.
Pursuant
to the BTF Agreement, we will issue the BTF Issuable Shares to the BTF Seller within 30 business days after September 30, 2020
pursuant to a separate subscription agreement to be entered into by the Company and the BTF Seller or his designee.
BTF
and the BTF Original Shareholders have agreed to achieve certain operation objectives of BTF, including a net profit of RMB 9
million (approximately $1.29 million) for the period from October 1, 2019 to September 30, 2020 and a net profit of RMB 3 million
(approximately $0.14 million) for the fiscal year ended December 31, 2019. Pursuant to the BTF Agreement, as long as the BTF Seller
continues to serve as the general manager and legal representative of BTF, the BTF Original Shareholders and BTF shall ensure
BTF achieves an increase in annual net profit of no less than 10% during each year of the five years after September 30, 2020.
Pursuant
to the BTF Agreement, BTF will establish a board of directors consisting of three individuals, two of which will be designated
by QHDX and one by the BTF Original Shareholders, and appoint a person designated by the BTF Original Shareholders as general
manager. To ensure the continuous operations of BTF, the parties agreed that BTF will retain its existing employees and all the
management members of BTF shall sign employment agreements and non-compete agreements with BTF. The parties further agreed that
BTF will not make any profit distribution within three years after the execution of the BTF Agreement. Any subsequent share transfer
or share pledge of QHDX’s equity interest in BTF is subject to the prior written consent of the BTF Original Shareholders.
In the event of a late payment of the consideration by QHDX or any delay in the registration of the BTF Equity Transfer with local
government caused by the BTF Seller, a daily penalty of 0.05% of the outstanding payment is assessed.
Valley
Holdings Acquisition
On
March 16, 2020, the Company, along with JJGS, entered into an equity interest transfer agreement (the “Valley Holdings Agreement”)
with Valley Holdings Limited (“Valley Holdings”), a Hong Kong company, and Angel International Investment Holdings
Limited (the “Valley Holdings Seller”), a 70% shareholder of Valley Holdings. Valley Holdings owns approximately 88.44%
of the equity interest of Valley Foods Holdings (Guangzhou) Co., Ltd. (“Valley Food”), which is a limited liability
company incorporated in China and engaged in the business of food wholesale and production and sale of food additives in China.
Pursuant
to the Valley Holdings Agreement, JJGS agreed to purchase 70% of Valley Holdings’ equity interest (the “Valley Holdings
Equity Transfer”) from the Valley Holdings Seller in consideration of shares of FVTI’s common stock (“Valley
Holdings Issuable Shares”) valued at $14 million (subject to adjustments in the event of Valley Holdings failing to meet
a net profit of HK$5 million (approximately US$0.6 million) for the fiscal year ended December 31, 2019). According to the Valley
Holdings Agreement, the total number of Valley Holdings Issuable Shares will be determined based on the closing price of FVTI’s
common stock as of the business day immediately preceding the date of the Valley Holdings Closing (as defined below).
The
closing of the Valley Holdings Equity Transfer (the “Valley Holdings Closing”) is intended to occur on or before April
30, 2020 or such later date agreed upon in writing. The Valley Holdings Closing is subject to certain conditions, including, but
not limited to, (a) completion of due diligence review of Valley Holdings and its subsidiaries to the satisfaction of JJGS, (b)
completion of the initial draft of the audited consolidated financial statements of Valley Holdings for the fiscal year ended
December 31, 2019, (c) execution of non-competition agreements and confidentiality agreements with the senior management members
of Valley Holdings and its subsidiaries, and (d) assignment to Valley Holdings all of the intellectual properties related to the
operations of Valley Holdings and its subsidiaries.
Pursuant
to the Valley Holdings Agreement, FVTI will issue the Valley Holdings Issuable Shares to the Valley Holdings Seller within 30
business days after the later of the Valley Holdings Closing and the issuance of audit report of Valley Holdings for the fiscal
year ended December 31, 2019, pursuant to a separate subscription agreement to be entered into by FVTI and the Valley Holdings
Seller or its designee.
To
ensure the continuous operations of Valley Holdings and its subsidiaries, the parties agreed that Valley Holdings and its subsidiaries
will retain their existing employees and will enter into non-competition and employment agreements with all the management members
of Valley Holdings and its subsidiaries. The parties further agreed that Valley Holdings will not make any profit distribution
within three years after the execution of the Valley Holdings Agreement. JJGS or the Valley Holdings Seller may terminate Valley
Holdings Agreement in writing in the event that any closing condition is not met before April 30, 2020.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation
These
condensed consolidated financial statements, accompanying notes, and related disclosures have been prepared pursuant to
the rules and regulations of the SEC. These financial statements have been prepared using the accrual basis of accounting in accordance
with the generally accepted accounting principles in the United States (“GAAP”). The Company’s fiscal year end
is December 31. The Company’s financial statements are presented in U.S. Dollars.
Basis
of consolidation
The
consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions
have been eliminated.
Entity Name
|
|
Date of Incorporation
|
|
Parent Entity
|
|
Nature of Operation
|
|
Place of Incorporation
|
DIGLS
|
|
July 4, 2016
|
|
FVTI
|
|
Investment holding
|
|
Republic of Seychelles
|
DILHK
|
|
June 22, 2016
|
|
DIGLS
|
|
Investment holding
|
|
Hong Kong, PRC
|
QHDX
|
|
November 3, 2016
|
|
DILHK
|
|
Investment holding
|
|
PRC
|
FVTL
|
|
May 31, 2011
|
|
QHDX
|
|
Trading of wine
|
|
PRC
|
JJGS
|
|
August 17, 2017
|
|
FVTL
|
|
Investment holding
|
|
Republic of Seychelles
|
JJHK
|
|
August 24, 2017
|
|
JJGS
|
|
Investment holding
|
|
Hong Kong, PRC
|
JJSZ
|
|
November 16, 2018
|
|
JJHK
|
|
No operations
|
|
PRC
|
Makaweng
|
|
August 28, 2019
|
|
QHDX
|
|
No operations
|
|
PRC
|
Use
of estimates
The
preparation of financial statements is in conformity with GAAP, which requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the date
of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses
during the reporting period. Actual results may materially differ from these estimates.
Foreign
currency translation and re-measurement
The
Company translates its results of operations into the U.S. dollar in accordance with ASC 830, “Foreign Currency Matters.”
The
reporting currency for the Company and its subsidiaries is the U.S. dollar. The Company, DIGLS, JJGS, JJHK and DILHK’s functional
currency is the U.S. dollar. QHDX, JJSZ, FVTL and Makaweng use the Chinese Renminbi (“RMB”) as their functional currency.
The
Company’s subsidiaries, whose records are not maintained in that company’s functional currency, re-measure their records
into their functional currency as follows:
|
●
|
Monetary
assets and liabilities at exchange rates in effect at the end of each period,
|
|
●
|
Nonmonetary
assets and liabilities at historical rates, and
|
|
●
|
Revenue
and expense items at the average rate of exchange prevailing during the period.
|
Gains
and losses from these re-measurements were not significant and have been included in the Company’s results of operations.
The
Company’s subsidiaries, whose functional currency is not the U.S. dollar, translate their records into the U.S. dollar as
follows:
|
●
|
Assets
and liabilities at the rate of exchange in effect at the balance sheet date,
|
|
●
|
Equities
at the historical rate, and
|
|
●
|
Revenue
and expense items at the average rate of exchange prevailing during the period.
|
Adjustments
arising from such translations are included in accumulated other comprehensive income in shareholders’ equity.
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Spot RMB: USD exchange rate
|
|
$
|
0.14114
|
|
|
$
|
0.14334
|
|
Average RMB: USD exchange rate
|
|
$
|
0.14300
|
|
|
$
|
0.14505
|
|
The
RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.
No representation is made that the RMB amounts could have been, or could be, converted into U.S. Dollars at the rates used
in translation.
Cash
and cash equivalents
Cash
and cash equivalents include cash on hand, deposits in banks, and any investments with maturities with less three months from
inception to maturity. The Company’s primary bank deposits are located in the Hong Kong and the PRC. Under the Deposit Insurance
System in China, a company’s deposits at one bank is insured for a maximum of RMB500,000 (approximately $70,000). However,
management has determined that the risk of loss from insolvency by those financial institutions at which it has deposited its
funds is insignificant.
Accounts
receivable
Accounts
receivable are carried at the amounts invoiced to customers less allowance for doubtful accounts. The allowance is an estimate
based on a review of individual customer accounts on a regular basis. Accounts receivable are written off when deemed uncollectible.
Recoveries of accounts receivable previously written off are recorded when received.
The
Company reviews the collectability of accounts receivable based on an assessment of historical experience, current economic conditions,
and other collection indicators.
During
the year ended December 31, 2019 and the three months ended March 31, 2020, the Company did not experience any delinquent or uncollectible
balances; accordingly, the Company did not record any valuation allowance for bad debt during these periods.
Inventories
Inventories
consisting of finished goods are stated at the lower of cost or market value. The Company used the weighted average cost method
of accounting for inventory. Inventories on hand are evaluated on an on-going basis to determine if any items are obsolete, spoiled,
or in excess of future demand. The Company provides impairment that is charged directly to cost of sales when it has been determined
that the product is obsolete, spoiled, and that the Company will not be able to sell it at a normal profit above its carrying
cost. The Company’s primary products are imported alcoholic beverages. The selling price of alcoholic beverages tends to
increase over time. However, there are circumstances where alcoholic beverages may be subject to spoilage if stored for prolong
periods of time. The Company did not experience an impairment on inventory during the three months ended March 31, 2020.
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.
Right-of-use
asset and lease liabilities
In
February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842).” The new standard requires lessees to recognize lease
assets (right of use) and lease obligations (lease liability) for leases previously classified as operating leases under U.S.
GAAP on the balance sheet for leases with terms in excess of 12 months. The standard is effective for annual periods beginning
after December 15, 2018, including interim periods within those fiscal years.
Accounting
for long-lived assets
The
Company annually reviews its long-lived assets for impairment or whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable. Impairment may be the result of becoming obsolete from a change in the industry
or new technologies. Impairment is present if the carrying amount of an asset is less than its undiscounted cash flows to be generated.
If
an asset is considered impaired, a loss is recognized based on the amount by which the carrying amount exceeds the fair market
value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Customer
advances and deposits
On
certain occasions, the Company may receive prepayments from downstream retailers or retail customers for wines and liquors prior
to their taking possession of the Company’s products. The Company records these receipts as customer advances and deposits
until it has met all the criteria for recognition of revenue including the passing possession of the products to its customer,
at such point Company will reduce the customer deposits balance and credit the Company’s revenues.
Revenue
recognition
The
Company adopted ASC Topic 606, Revenue from Contracts with Customers, and all subsequent ASUs that modified ASC 606
on April 1, 2017 using the full retrospective method which requires the Company to present the financial statements for all periods
as if Topic 606 had been applied to all prior periods. 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.
|
In
applying ASC 606, the Company recognizes revenue when the Company
has negotiated the terms of the transaction, set forth the sales price, transferred of possession of product to
customer, determined that the customer does not have the right to return the product, determined that the customer
is able to further sell or transfer the product onto others for economic benefit without any other obligation to be fulfilled
by the Company, and the Company is reasonably assured that funds have been or will be collected from the customer. The Company’s
gross revenue consists of the value of goods invoiced, net of any value-added tax.
Advertising
All
advertising costs are expensed as incurred. Advertising expenses for the three months ended March 31, 2020 and 2019 were $0 and
$0, respectively.
Shipping
and handling
Outbound
shipping and handling are expensed as incurred.
Retirement
benefits
Retirement
benefits in the form of mandatory government sponsored defined contribution plans are charged as expenses as incurred or allocated
to inventory as a part of overhead.
Income
taxes
The
Company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future
years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before
the Company is able to realize their benefits, or that future realization is uncertain.
Statutory
reserves
Statutory
reserves are referring to the amount appropriated from the net income in accordance with laws or regulations, which can be used
to recover losses and increase capital, as approved, and are to be used to expand production or operations. PRC laws prescribe
that an enterprise operating at a profit must appropriate and reserve, on an annual basis, an amount equal to 10% of its profit.
Such an appropriation is necessary until the reserve reaches a maximum that is equal to 50% of the enterprise’s PRC registered
capital.
Earnings
per share
The
Company computes earnings per share (“EPS”) in accordance with ASC Topic 260, “Earnings per share.” Basic
EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding
for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common
shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented,
or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e. those that increase income per share
or decrease loss per share) are excluded from the calculation of diluted EPS.
Financial
instruments
The
Company’s accounts for financial instruments in accordance to ASC Topic 820, “Fair Value Measurements and Disclosures,”
which requires disclosure of the fair value of financial instruments held by the Company and ASC Topic 825, “Financial Instruments,”
which defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances
disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables
and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the
short period of time between the origination of such instruments and their expected realization and their current market rate
of interest. The three levels of valuation hierarchy are defined as follows:
●
|
Level
1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets;
|
|
|
●
|
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs
that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial
instrument; and
|
|
|
●
|
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
Commitments
and contingencies
Liabilities
for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it
is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Comprehensive
income
Comprehensive
income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners.
Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive
income are required to be reported in a financial statement that is presented with the same prominence as other financial statements.
The Company’s current component of other comprehensive income includes the foreign currency translation adjustment and unrealized
gain or loss.
Goodwill
Goodwill
represents the excess of the purchase price over the fair value of the net tangible and identifiable assets acquired in a business
combination. In accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 350, “Goodwill and Other
Intangible Assets,” goodwill is no longer subject to amortization. Rather, goodwill is subject to at least an annual assessment
for impairment, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis.
Recent accounting
pronouncements
In February 2018, the
FASB issued guidance, which eliminates the stranded tax effects in other comprehensive income resulting from the Tax Cuts and
Jobs Act of 2017 (“TCJA”). Because the amendments only relate to the reclassification of the income tax effects of
the TCJA, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing
operations is not affected. The Company adopted the guidance in the first quarter of fiscal year 2020. There was no
material impact to its financial statements.
In August 2017, the
FASB issued guidance, which amends the existing accounting standards for derivatives and hedging. The amendment improves the financial
reporting of hedging relationships to better represent the economic results of an entity’s risk management activities in
its financial statements and made certain targeted improvements to simplify the application of the hedge accounting guidance in
current GAAP. The Company is required to adopt the guidance in the first quarter of fiscal year 2020. Earlier adoption is permitted.
The Company adopted the new guidance. There was no material impact to its financial statements.
On
March 17, 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-08 “Revenue from Contracts with Customers
(Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” which amends the principal-versus-agent
implementation guidance and illustrations in the Board’s new revenue standard (ASU 2014-09). The FASB issued the ASU in
response to concerns identified by stakeholders, including those related to (1) determining the appropriate unit of account under
the revenue standard’s principal-versus-agent guidance and (2) applying the indicators of whether an entity is a principal
or an agent in accordance with the revenue standard’s control principle. Among other things, the ASU clarifies that an entity
should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer.
As defined in the ASU, a specified good or service is “a distinct good or service (or a distinct bundle of goods or services)
to be provided to the customer.” Therefore, for contracts involving more than one specified good or service, the entity
may be the principal for one or more specified goods or services and the agent for others. The ASU has the same effective date
as the new revenue standard (as amended by the one-year deferral and the early adoption provisions in ASU 2015-14). In addition,
entities are required to adopt the ASU by using the same transition method they used to adopt the new revenue standard. The Company
has determined that it acts as a principal in its primary business operations.
In August 2018, the
FASB issued ASU 2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The amendments
in this standard will remove, modify and add certain disclosures under ASC Topic 820, Fair Value Measurement, with the objective
of improving disclosure effectiveness. ASU 2018-13 will be effective for the Company’s year beginning January 1, 2020, with
early adoption permitted. The transition requirements are dependent upon each amendment within this update and will be applied
either prospectively or retrospectively. The Company does not expect ASU 2018-13 to have a material impact to the Company’s
consolidated financial statements.
In December 2019,
the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The amendments in this Update
related to separate financial statements of legal entities that are not subject to tax should be applied on a retrospective basis
for all periods presented. The amendments related to changes in ownership of foreign equity method investments or foreign subsidiaries
should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning
of the fiscal year of adoption. The amendments related to franchise taxes that are partially based on income should be applied
on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment
to retained earnings as of the beginning of the fiscal year of adoption. All other amendments should be applied on a prospective
basis. The Company does not expect the adoption of ASU 2019-12 to have a material impact on its condensed consolidated financial
statements.
Unless
otherwise stated, the Company is currently assessing the above accounting pronouncements and their potential impact from their
adoption on the Company’s financial statements.
NOTE
3 - GOING CONCERN
The accompanying financial statements have
been prepared in conformity with GAAP which contemplate continuation of the Company as a going concern. The going concern basis
assumes that assets are realized, and liabilities are settled in the ordinary course of business at amounts disclosed in the financial
statements. The Company’s ability to continue as a going concern depends upon its ability to market and sell its products
to generate positive operating cash flows. As of March 31, 2020 and 2019, the Company reported net losses of $100,745 and $32,928,
respectively. As of March 31, 2020, the Company had working capital deficit of approximately $904,345. In addition, the Company
had net cash outflows of $31,338 from operating activities during the three months ended March 31, 2020. These conditions
still raise a substantial doubt as to whether the Company may continue as a going concern.
The Company relies on related parties to provide financing and management
services at cost that may not be the prevailing market rate for such services.
If
the Company is not able to generate positive operating cash flows, raise additional capital, and retain the services of certain
related parties, it may become insolvent.
NOTE
4 - ACCOUNTS AND OTHER RECEIVABLES
Accounts
and other receivables consisted of the following as of March 31, 2020 and December 31, 2019:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Gross accounts and other receivables
|
|
$
|
16,071
|
|
|
$
|
146
|
|
Less: Allowance for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
16,071
|
|
|
$
|
146
|
|
NOTE
5 – INVENTORIES
Inventories
consisted of the following as of March 31, 2020 and December 31, 2019:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Finished goods
|
|
$
|
26,324
|
|
|
$
|
28,502
|
|
NOTE
6 - EQUIPMENT
Property,
plant and equipment consisted of the following as of March 31, 2020 and December 31, 2019:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
At Cost:
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
110,458
|
|
|
|
61,510
|
|
Less: Accumulated depreciation
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
(55,119
|
)
|
|
|
(52,899
|
)
|
|
|
$
|
55,339
|
|
|
$
|
8,611
|
|
NOTE
7 - INCOME TAXES
The
Company’s primary operations are conducted in the PRC in accordance with the relevant tax laws and regulations. The corporate
income tax rate for each country is as follows:
●
|
PRC
tax rate is 25%;
|
|
|
●
|
Hong
Kong tax rate is 16.5%; and
|
|
|
●
|
Seychelles
is on permanent tax holiday.
|
The
following table provides the reconciliation of differences between statutory and effective tax expenses for three months ended
March 31, 2020 and 2019:
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
Income attributed to PRC operations
|
|
$
|
(33,089
|
)
|
|
$
|
(23,315
|
)
|
Loss attributed to Seychelles and Hong Kong
|
|
|
(73
|
)
|
|
|
|
|
Loss attributed to U.S.
|
|
|
(69,406
|
)
|
|
|
(9,528
|
)
|
Loss before tax
|
|
|
(102,568
|
)
|
|
|
(32,843
|
)
|
|
|
|
|
|
|
|
|
|
PRC statutory tax at 25% rate
|
|
|
(8,272
|
)
|
|
|
(5,829
|
)
|
Effect of Seychelles, PRC, Hong Kong, deductions and other reconciling items
|
|
|
8,272
|
|
|
|
5,914
|
|
Income tax
|
|
$
|
0
|
|
|
$
|
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, 2020 and 2019:
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
U.S. federal statutory income tax rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
Higher rates in PRC, net
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
Net operating losses in PRC and other jurisdictions
|
|
|
-25
|
%
|
|
|
-23.5
|
%
|
The Company’s effective tax rate
|
|
|
0
|
%
|
|
|
1.1
|
%
|
NOTE
8 - RELATED PARTY TRANSACTIONS
Amounts
due to related parties as of March 31, 2020 and December 31, 2019 are as follow:
|
|
Relationship with the Company
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Mr. Yumin Lin (1)
|
|
Chairman, Chief Executive Officer, President and Secretary
|
|
$
|
848,597
|
|
|
$
|
791,576
|
|
Ms. Qingmei Lin (2)
|
|
Mr. Yumin Lin’s wife
|
|
|
4,234
|
|
|
|
17,201
|
|
|
|
|
|
$
|
852,831
|
|
|
$
|
808,777
|
|
(1)
|
The
outstanding payables due to Mr. Yumin Lin are comprised of working capital advances and borrowings. These amounts are due
on demand and non-interest bearing.
|
|
|
(2)
|
The
amounts due to Ms. Qingmei Lin are for office rental expenses. The Company’s operating facilities are located
within a building owned by Ms. Qingmei Lin.
|
NOTE
9 – LEASE COMMITMENTS
The
Company has a non-cancelable operating lease with Ms. Qingmei Lin, a related party, for the premises in Dongguan City, Guangdong
Province, China. The lease covers the period from May 1, 2017 to April 30, 2027. The monthly rent expense is RMB 25,000 (approximately
$3,811). Effective as of May 1, 2018, the monthly rent was lowered to RMB 15,000 (approximately $2,323) based on agreement between
Ms. Qingmei and Company. Effective as of January 1, 2019, the monthly rent was lowered to RMB 10,000 (approximately $1,411) until
April 30, 2027, based on agreement between Ms. Qingmei Lin and Company. The agreement does not require a rental deposit.
Minimum
operating lease commitment under the lease is as follows:
2020
|
|
|
12,703
|
|
2021
|
|
|
16,937
|
|
2022
|
|
|
16,937
|
|
2023
|
|
|
16,937
|
|
2024
|
|
|
16,973
|
|
Thereafter:
|
|
|
39,375
|
|
Total future payments of right of use asset
|
|
$
|
119,970
|
|
NOTE
10 - RISKS
Credit
risk
The
Company is subject to risk borne from credit extended to customers.
FVTL, Makaweng and QHDX bank deposits are
with banks located in the PRC. JJHK’s bank account is located in Hong Kong. DIGLS does not have any bank accounts. The bank
accounts that the Company uses are located outside of the U.S. and the Company’s bank accounts in China are protected
by a deposit insurance system.
Economic
and political risks and national emergencies risk
The
Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition, and results
of operations may be influenced by changes in the political, economic, and legal environments in the PRC. As imported alcoholic
beverages are considered a luxury item in the PRC, they may be subject to political risks. From time to time, the PRC government
limits the amount of import of foreign alcoholic beverages based on diplomatic relationships with foreign countries. The Company’s
results of operations may be materially and adversely affected if it is unable to procure such products because of change of government
policies.
In addition, the
Company’s sales and operations may materially adversely affected by national emergencies, such as COVID-19 pandemic.
Inflation
risk
Management
monitors changes in prices. Historically inflation has not materially impacted the Company’s financial statements. However,
significant increases in the price of wine and liquors that cannot be passed on to the Company’s customers could adversely
impact the Company’s results of operations.
Concentrations
risk
During
the three months ended March 31, 2020 and the year ended December 31, 2019, the Company had a concentration of risk in its supply
of goods, as one vendor supplied all of the Company’s purchases of finished goods.
NOTE
11 - SUBSEQUENT EVENTS
Company
evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued. There
are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that
existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and
(2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet
but arose subsequent to that date.
There
was no event that management deemed necessary for disclosure as a material subsequent event.
Item
2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company
Overview
Fortune
Valley Treasures, Inc. (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 are engaged in the retail and wholesale distribution of a wide spectrum of food and beverage products in Guangdong, China.
In addition, we are actively seeking quality target companies in the food, beverage and alcohol industries for mergers and acquisition
for further development of our company.
Coronavirus
(COVID-19) Update
Recently,
there is an ongoing outbreak of a novel strain of coronavirus (COVID-19) first identified in China and has since spread rapidly
globally. The pandemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities
globally for the past few months. In March 2020, the World Health Organization declared the COVID-19 as a pandemic. Given the
rapidly expanding nature of the COVID-19 pandemic, and because substantially all of our business operations and our workforce
are concentrated in China, our business, results of operations and financial condition have been and will continue to be adversely
affected. Potential impact to our results of operations will also depend on future developments and new information that may emerge
regarding the duration and severity of the COVID-19 and the actions taken by government authorities and other entities to contain
the COVID-19 or mitigate its impact, almost all of which are beyond our control.
The
impacts of COVID-19 on our business, financial condition, and results of operations include, but are not limited to, the following:
|
●
|
We
temporally closed our offices for approximately one month from late January 2020, as
required by relevant PRC regulatory authorities. In the first quarter of 2020, the COVID-19
outbreak has caused disruptions in our operations and supply chains, which have resulted
in delays in the shipment of products to certain of our customers.
|
|
|
|
|
●
|
Our
customers have been negatively impacted by the outbreak, which reduced the demand of our
products. The demand may decrease further if the COVID-19 pandemic continues.
|
A
prolonged disruption or any further unforeseen delay in our operations and supply chains could continue to result in delays in
the shipment of products to our customers, increased costs and reduced revenue.
We
cannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can we predict the severity and duration of
its impact. If the outbreak of COVID-19 is not effectively and timely controlled, our business operations and financial condition
may be materially and adversely affected as a result of the deteriorating market outlook, the slowdown in regional and national
economic growth, weakened liquidity and financial condition of our customers or other factors that we cannot foresee. Any of these
factors and other factors beyond our control could have an adverse effect on the overall business environment, cause uncertainties
in the regions where we conduct business, cause our business to suffer in ways that we cannot predict and materially and adversely
impact our business, financial condition and results of operations.
Results
of Operations
Three
Months Ended March 31, 2020 and 2019
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
Revenue
|
|
$
|
22,051
|
|
|
$
|
42,020
|
|
|
$
|
(19,969
|
)
|
Cost of revenue
|
|
|
14,426
|
|
|
|
28,908
|
|
|
|
(14,482
|
)
|
Gross profit
|
|
|
7,625
|
|
|
|
13,112
|
|
|
|
(5,487
|
)
|
Gross profit (%)
|
|
|
34.58
|
%
|
|
|
31.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense
|
|
|
110,861
|
|
|
|
47,239
|
|
|
|
63,622
|
|
Other income(expense)
|
|
|
778
|
|
|
|
1,305
|
|
|
|
(527
|
)
|
Interest income
|
|
|
8
|
|
|
|
38
|
|
|
|
(30
|
)
|
Interest expense
|
|
|
(118
|
)
|
|
|
(59
|
)
|
|
|
(59
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
(85
|
)
|
|
|
85
|
|
Foreign currency translation gain
|
|
|
7,218
|
|
|
|
(3,493
|
)
|
|
|
10,711
|
|
Comprehensive loss
|
|
$
|
(95,350
|
)
|
|
$
|
(36,421
|
)
|
|
$
|
(59,109
|
)
|
Revenue
Revenue was $22,051 for three months
ended March 31, 2020, reflecting a decrease of $19,969 from $42,020 for the three months ended March 31, 2019. The reason for
the decrease was caused by adverse impact from the outbreak of COVID-19, which resulted in a general decline in
the number of customer orders. The Company’s products are considered non-essential luxury goods. During the
COVID-19 pandemic, the PRC government imposed sheltering at home which led to significantly reduced demand for the
Company’s products.
Cost
of revenue
Cost
of revenue was $14,426 for the three months ended March 31, 2020, reflecting a decrease of $14,428 from $28,908 for the three
months ended March 31, 2019. The decrease in cost of revenue was in line with the decrease of our revenue as a result
of the outbreak of COVID-19.
Gross
profit
Gross profit was $7,625 and $13,112 for
the three months ended March 31, 2020 and 2019, respectively, reflecting a decrease of $5,487. The decrease of gross profit was
due to the outbreak of COVID-19 and the decrease in purchase volume.
Operating
expense
Operating expense was $110,861 for
the three months ended March 31, 2020, reflecting an increase of $61,799 from $49,062 for the three months ended March
31, 2019, due to the increase in professional service fees and general administrative costs in connection with the proposed
acquisitions of Foshan BaiTaFeng Beverage Development Co., Ltd., a limited liability company engaged in the business of
bottling and distributing of drinking water in China, and Valley Holdings Limited, a Hong Kong company and a majority shareholder
of Valley Foods Holdings (Guangzhou) Co., Ltd., which is a limited liability company incorporated in China and engaged in the
business of food wholesale and production and sale of food additives in China.
Comprehensive
loss
Comprehensive
loss was $95,350 for the three months ended March 31,
2020, reflecting an increase of $59,109 compared to the same period of 2019, primarily as a result of the increased operating
expenses and the decrease in revenue.
Liquidity
and Capital Resources
Working
Capital Deficit
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
131,794
|
|
|
$
|
73,970
|
|
|
$
|
57,895
|
|
Total current liabilities
|
|
|
1,054,854
|
|
|
|
855,352
|
|
|
|
180,858
|
|
Working capital deficit
|
|
$
|
(923,010
|
)
|
|
$
|
(781,382
|
)
|
|
$
|
(122,963
|
)
|
As
of March 31, 2020, we had cash and cash equivalents in an amount of $68,391. We have financed our operations primarily
though borrowings from related parties. The increase in working capital deficit was primarily due to continued losses from operations
and net cash used in operating activities.
Cash
Flows
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
Cash Flows Provided by (Used in) Operating Activities
|
|
$
|
25,276
|
|
|
$
|
(31,338
|
)
|
|
$
|
56,614
|
|
Cash Flows Used in Investing Activities
|
|
|
(50,550
|
)
|
|
|
-
|
|
|
|
(50,550
|
)
|
Cash Flows Provided by Financing Activities
|
|
|
56,590
|
|
|
|
159,116
|
|
|
|
(102,526
|
)
|
Net Increase in Cash During Period
|
|
$
|
31,316
|
|
|
$
|
127,778
|
|
|
$
|
(96,462
|
)
|
Cash
Flow from Operating Activities
For the three months ended March 31, 2020,
net cash provided by operating activities was $25,276, which represents a $56,514 increase compared to $31,338 of net cash used
in operating activities for the three months ended March 31, 2019. This was the result of a net loss of $102,568 and increases
in accounts and other receivables of $16,136 and increases in prepayments of 13,883; these uses of cash were offset by increases
in accounts and other payables of $144,068 as a source of cash. The net use of cash was a result of greater operating losses
from the decline in first quarter 2020 sales stemming from the COVID-19 pandemic.
Cash Flow from Investing Activities
The Company invested in certain improvements
and decorations totaling $50,550 during the first quarter of 2020. The Company did not make any such investment in the first quarter
of 2019.
Cash
Flow from Financing Activities
Net
cash provided by financing activities for the three months ended March 31, 2020 was $56,590, as compared to $159,116 for
the three months ended March 31, 2019. The increase in net cash provided by financing activities was mainly due to an increase
in the advances 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.