UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
(Mark
One)
FORM
10-K
[X]
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For
the fiscal year ended December 31, 2018
or
[ ]
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For
the transition period from __________ to __________
FORTUNE
VALLEY TREASURES, INC.
(Exact
Name of Registrant as Specified in Charter)
Nevada
|
|
000-55555
|
|
32-0439333
|
(State
or other Jurisdiction
|
|
(Commission
|
|
(IRS
Employer
|
of
Incorporation)
|
|
File
Number)
|
|
Identification
No.)
|
No.10
of Tuanjie 2nd Road, Beice,
Humen,
Dongguan, China, 518000
(Address
of Principal Executive Offices) (Zip Code)
(86)
76982268999
(Registrant’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Exchange Act
None
Securities
registered under Section 12(g) of the Exchange Act
Common Stock, par value $0.001 per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
[ ] No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes
[ ] No [X]
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
[X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files).
Yes
[X] No [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition
of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer [ ]
|
Accelerated
filer [ ]
|
Non-accelerated
filer [X]
|
Smaller
reporting company [X]
|
|
Emerging
growth company [X]
|
If
an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
[ ] No [X]
The
number of shares outstanding of each of the issuer’s classes of common stock, as of March 28, 2019 is as follows:
Class
of Securities
|
|
Shares
Outstanding
|
Common
Stock, $0.001 par value
|
|
307,750,000
|
TABLE
OF CONTENTS
FORWARD-LOOKING
STATEMENTS
This
Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). These forward-looking statements are not historical facts but rather are based on current expectations, estimates
and projections. We may use words such as “anticipate,” “expect,” “intend,” “plan,”
“believe,” “foresee,” “estimate” and variations of these words and similar expressions to
identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks,
uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results
to differ materially from those expressed or forecasted. These risks and uncertainties include the following:
|
●
|
The
availability and adequacy of working capital to meet our requirements;
|
|
●
|
Actions
taken or omitted to be taken by legislative, regulatory, judicial and other governmental authorities;
|
|
●
|
Changes
in our business strategy or development plans;
|
|
●
|
The
availability of additional capital to support capital improvements and development;
|
|
●
|
Other
risks identified in this report and in our other filings with the Securities and Exchange Commission or the SEC; and
|
|
●
|
The
availability of new business opportunities.
|
This
Annual Report on Form 10-K should be read completely and with the understanding that actual future results may be materially different
from what we expect. The forward-looking statements included in this Annual Report on Form 10-K are made as of the date of this
Annual Report on Form 10-K and should be evaluated with consideration of any changes occurring after the date of this Annual Report
on Form 10-K. We will not update forward-looking statements even though our situation may change in the future and we assume no
obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Use
of Term
Except
as otherwise indicated by the context hereof, references in this report to “Company,” “FVTI,” “we,”
“us” and “our” are references to Fortune Valley Treasures, Inc. All references to “USD” or
United States Dollars refer to the legal currency of the United States of America.
PART
I
Item
1. Business
Company
Background
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 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.
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
We
offer a variety of wines such as dry red wine, dry white wine, rosé wine, and sweet wine. Currently we
sell about 40 different brands of wine, most of which are imported from France and Spain.
Below is
a list of the most popular products we are selling—
Name
|
|
Photo
|
|
Origin
|
|
Alcohol
content
|
|
|
|
|
|
|
|
Le
Petit Tour
|
|
|
|
France
|
|
13%
|
|
|
|
|
|
|
|
Los
Beceux
|
|
|
|
Spain
|
|
12%
|
|
|
|
|
|
|
|
Sorlada
|
|
|
|
Spain
|
|
12%
|
Lapso
|
|
|
|
Chile
|
|
13%
|
|
|
|
|
|
|
|
Saint
Martin
|
|
|
|
France
|
|
12.5%
|
Seguelongue
|
|
|
|
France
|
|
13%
|
|
|
|
|
|
|
|
Saint
Emilion
|
|
|
|
France
|
|
13%
|
We have
put significant efforts in developing and promoting our brand name in different regions of China. We adopt two sales models–
wholesales to distributors and bulk sales to customers. We diversify our portfolio of distributors to maximize our sales turnover
and profits in general. Our distributors include stores, wine shops, regional non-exclusive agents and regional exclusive
agents. There are 151 regional exclusive agents and regional non-exclusive agents authorized to sell our products
throughout China. For regional exclusive agents, our company grants them exclusive distribution rights in certain geographical
territory. For non-exclusive agents, we serve as their supplier and they purchase our products at a higher price than the
regional exclusive agents do.
After
seven years of development, we have cultivated business relationships and achieved recognitions with different organizations
over the years, which has improved our business and management efficacy. Specifically, we have been collaborating with
Shenzhen Institute of Tsinghua University since 2011, who has been helping us develop innovative management model, operating
model and franchising model. Our Company has been a member of Guangdong Provincial Liquor Industry Association since 2011
and was awarded “Excellent Marketing Agency of the Year” in 2012.
Our store is
located in Humen Town, Dongguan City. It is a six-floor building containing a total floor area of 1200 square meters.
We use the first floor exclusively for displaying our sample products. We use the remaining five floors as our Company’s
conference room, offices and storage. Our friendly and knowledgeable staff members on the first floor strive to cultivate long-term
relationships with customers, helping them make informed purchase decisions.
Business
Plan
Our business plan
is to extend our market shares through acquiring quality wine producers and wine importers. Through such business
plan, we believe: (i) we can increase our customer base and obtain more wine supply channels; (ii) such acquisitions will help
us obtain more skilled employees and business connections in the Chinese wine industry.
We
consider following factors when evaluating quality acquisition targets: (i) the costs involved in an acquisition; (ii) the financial
performance of the target; (iii) the reputation of the target in the wine industry; (iv) the target’s existing customer
base; (v) the target’s suppliers; (vi) the expertise and experience of the target’s employees; and (vii) the wine
cellar management and inventory condition of the target.
Our
management believes that successful acquisitions will bring synergies to our business and enhance our shareholders’
value.
Government
Regulations
We
operate our business in China under a legal regime consisting of the National People’s Congress, which is the country’s
highest legislative body, the State Council, which is the highest authority of the executive branch of the PRC central government,
and several ministries and agencies under its authority, including the Ministry of Industry and Information Technology, State
Administration For Industry & Commerce, State Administration of Taxation and their respective local offices. This section
summarizes the principal PRC regulations related to our business.
Type
|
|
Name
|
|
Effective
Date
|
|
Content
|
President
Order 21 of 2015
|
|
Food
Safety Law
|
|
2015/10/01
|
|
The
Food Safety Law is the foundational law and the most important food safety law for alcoholic products in China. A great majority
of wine regulations are drafted in conformity to the requirements of this law.
|
|
|
|
|
|
|
|
AQSIQ
Order 144 of 2011
|
|
Measures
for Administration of Imported/Exported Food Safety
|
|
2012/3/1
|
|
This
rule oversees the safety of imported and exported food.
|
|
|
|
|
|
|
|
CFDA
Order 16 of 2015
|
|
Measures
for Administration of Food Production Licensing
|
|
2015/10/01
|
|
This
rule requires all food producers in China to procure a production license.
|
|
|
|
|
|
|
|
AQSIQ
Order 27 of 2012
|
|
Administrative
Provisions on Inspections and Supervisions of Labeling of Imported/Exported Pre-packaged Foods
|
|
2012/6/1
|
|
This
rule provides guidelines that governs all pre-packaged foods.
|
|
|
|
|
|
|
|
AQSIQ
Order 55 of 2012
|
|
Administrative
Provisions on Filing of Importers and Exporters of Imported Foods
|
|
2012/10/1
|
|
This
rule provides the guidelines for imported food inspection procedures, including investigation
of food importers and exporters, tracking of the source and flow of imported foods and
handling of imported food safety inspections.
|
|
|
|
|
|
|
|
AQSIQ
Order 55 of 2012
|
|
Administrative
Provisions on Recording of Import and Marketing of Imported Foods
|
|
2012/10/1
|
|
This
rule governs the domestic circulation of imported food.
|
|
|
|
|
|
|
|
|
|
Measures
for Administration of Imported Alcohol in Domestic Market
|
|
1997/9/9
|
|
This
rule governs the administrative procedure involved in regulating imported alcohol in Chinese market, promulgated by a variety
of Chinese agencies such as the State Economic and Trade Commission, the State Administration for Industry and Commerce, and
the Customs General Administration.
|
|
|
|
|
|
|
|
AQSIQ
Notice on Dec 23 2004
|
|
Rules
for Inspection on Production Licensing of Wines and Fruit Wines
|
|
2005/1/1
|
|
This
is a rule setting up the inspection procedures on production licensing of wines and fruit wines.
|
|
|
|
|
|
|
|
AQSIQ
Order 78 of 2005
|
|
Geographical
Indication Product Protection Regulation
|
|
2005/7/15
|
|
This
is a regulation that protects China’s geographical indication products. It regulates the use of geographical indication
product names and trademarks while safeguarding the quality of geographical indication products.
|
Intellectual
Property
Protection
of our intellectual property is a strategic priority for our business. We rely primarily on a combination of trademark and trade
secret laws to establish and protect our proprietary rights. We do not rely on third-party licenses of intellectual property for
use in our business.
We currently have
two registered trademarks in China. Our current Chinese trademarks will expire in 2022.
Trademark
Number
|
|
Issue
Date
|
|
Expiration
Date*
|
|
Trademark
Title
|
|
|
|
|
|
|
|
9680266
|
|
2012.08.21
|
|
2022.08.20
|
|
法蓝图
|
|
|
|
|
|
|
|
9680456
|
|
2006.03.14
|
|
2022.08.20
|
|
|
Employees
As
of April 2, 2019, the Company has 18 full time employees. All employment contracts comply with PRC law. The Company believes
its relationship with its employees is good.
WHERE
YOU CAN FIND MORE INFORMATION
The
registrant is subject to the requirements of the Exchange Act, and files reports, proxy statements and other information with
the SEC. You may read and copy these reports, proxy statements and other information at the public reference room maintained by
the SEC at its Public Reference Room, located at 100 F Street, N.E. Washington, D.C. 20549. You may obtain information on the
operation of the public reference room by calling the SEC at (800) SEC-0330. In addition, we are required to file electronic versions
of those materials with the SEC through the SEC’s EDGAR system. The SEC also maintains a website at http://www.sec.gov,
which contains reports, proxy statements and other information regarding registrants that file electronically with the SEC.
Item
1a. Risk Factors
Not required from a smaller reporting
company.
Item
1b. Unresolved Staff Comments
Not
applicable.
Item
2. Properties
The Company entered
into a lease agreement with Ms. Qingmei Lin on May 1, 2018, to lease approximately 1200
square meters of office space located in No. 10, Tuanjie 2nd Road, Hetaogang, Beizha Community, Humen Town, Dongguan City,
China. The lease agreement will expire on April 30, 2027. The original monthly rent expense was $3,811 (RMB 25,000). Effective
as of May 1, 2018, the monthly rent expense was lowered to $2,323 (RMB15,000) based on a written agreement between Ms. Qingmei
and Company. The total rental expenses for the years ended December 31, 2018 and 2017 were $33,317 and $31,707,
respectively. The lease agreement did not require a rental deposit.
Item
3. Legal Proceedings
From
time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.
Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that
may harm our business. To the knowledge of management, no federal, state or local governmental agency is presently contemplating
any proceeding against the Company. No director, executive officer or affiliate of the Company or owner of record or beneficially
of more than five percent of the Company’s common stock is a party adverse to the Company or has a material interest adverse
to the Company in any proceeding.
Item
4. Mine Safety Disclosures
Not
applicable.
PART
II
Item
5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market
Information
There is a limited public market for our common
stock. Our common stock trades on the OTCQB marketplace under the symbol “FVTI”. The OTCQB marketplace is a quotation
service that displays real-time quotes, last-sale prices, and volume information in over-the-counter (“OTC”) equity
securities.
OTCQB
securities are not listed or traded on the floor of an organized national or regional stock exchange. Instead, OTCQB securities
transactions are conducted through a telephone and computer network connecting dealers in stocks. OTCQB issuers are traditionally
smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.
Stockholders
of Record
307,750,000 shares of common stock
were issued and outstanding as of March 28, 2019. They were held by approximately 381 shareholders of record.
Dividends
The
Company has not declared any cash dividends with respect to its common stock and does not intend to declare dividends in the foreseeable
future. There are no material restrictions limiting, or that are likely to limit, the Company’s ability to pay dividends
on its common stock.
Securities
Authorized for Issuance under Equity Compensation Plans
None.
Recent
Sales of Unregistered Securities
None
.
Purchase
of Equity Securities By the Issuer and Affiliated Purchasers.
None.
Item
6. Selected Financial Data
Not
applicable to a smaller reporting company.
Item
7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations
The
following discussion and analysis should be read in conjunction with our financial statements and related notes thereto.
Results
of Operations
|
|
Years Ended December 31,
|
|
|
Change
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
95,849
|
|
|
|
100.0
|
%
|
|
$
|
260,973
|
|
|
|
100.0
|
%
|
|
$
|
(165,124
|
)
|
|
|
(63.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
46,497
|
|
|
|
48.5
|
%
|
|
|
134,728
|
|
|
|
51.6
|
%
|
|
|
(88,231
|
)
|
|
|
(65.5
|
)%
|
Gross profit
|
|
|
49,352
|
|
|
|
51.5
|
%
|
|
|
126,245
|
|
|
|
48.4
|
%
|
|
|
(76,893
|
)
|
|
|
(60.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0
|
|
|
|
|
|
Operating expense
|
|
|
315,437
|
|
|
|
329.1
|
%
|
|
|
311,085
|
|
|
|
119.2
|
%
|
|
|
4,352
|
|
|
|
1.4
|
%
|
Other income(expense)
|
|
|
847
|
|
|
|
0.9
|
%
|
|
|
177
|
|
|
|
0.1
|
%
|
|
|
670
|
|
|
|
378.5
|
%
|
income taxes
|
|
|
(2,814
|
)
|
|
|
(2.9
|
)%
|
|
|
2,833
|
|
|
|
1.1
|
%
|
|
|
(5,647
|
)
|
|
|
(199.3
|
)%
|
Net loss
|
|
$
|
(262,424
|
)
|
|
|
(273.8
|
)%
|
|
$
|
(187,496
|
)
|
|
|
(71.8
|
)%
|
|
$
|
(74,928
|
)
|
|
|
(40.0
|
)%
|
Revenue
Net revenues totaled $95,849 for the year
ended December 31, 2018, a decrease of $165,124 compared to that of 2017. This is a 63.3% decrease in net revenues
compared to that of 2017. Such decrease was primarily due to a decrease in sales from $139,990 to
$46,585 with related parties, and a decrease in sales from $165,124 to $93,405 with non-related parties.
Cost
of revenue
Cost of revenue totaled $46,497 for the year
ended December 31, 2018, which is a decrease of $88,231 compared to that of 2017. Such decrease is due to a decrease
in our revenue and hence a decrease in our supplies procurement. Our cost of revenues consisted mainly
of supplies procurement.
Gross
profit
Gross profit was $49,352 and $126,245 for
the year ended December 31, 2018 and 2017, respectively. The decrease in gross profit was due to a decrease in our revenue
in the fiscal year 2018.
Operating
expenses
General and administrative expenses totaled
$315,437 for the year ended December 31, 2018, which is an increase of $4,352 compared to that of 2017. The increase
was primarily due to an increase in expense for professional services.
Net
loss
Net loss totaled $262,424 for the year ended
December 31, 2018, which is an increase of $74,928 compared to that of 2017. Such increase was due to a decrease
in our revenue.
Liquidity
and Capital Resources
Working
Capital
|
|
December
31,
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
$
|
338,305
|
|
|
$
|
413,362
|
|
|
$
|
(75,057
|
)
|
Total
current liabilities
|
|
|
735,342
|
|
|
|
558,668
|
|
|
|
176,674
|
|
Working
capital
|
|
$
|
(397,037
|
)
|
|
$
|
(145,306
|
)
|
|
$
|
(251,731
|
)
|
As of December 31, 2018, we had cash and cash
equivalents in an amount of $29,999. To date, we have financed our operations primarily though borrowings
from related parties. The change in working capital was primarily from an increase in due from our related parties.
Cash
Flows
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
Cash
Flows (used in) generated in Operating Activities
|
|
$
|
(230,379
|
)
|
|
$
|
(279,270
|
)
|
|
$
|
48,892
|
|
Cash
Flows used in Investing Activities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cash
Flows provided by(used in) Financing Activities
|
|
|
182,417
|
|
|
|
254,712
|
|
|
|
(72,295
|
)
|
Net
(decrease) increase in Cash During Period
|
|
$
|
(47,962
|
)
|
|
$
|
(24,558
|
)
|
|
$
|
(23,404
|
)
|
Cash
Flow from Operating Activities
Net cash flow used in operating activities
for the year ended December 31, 2018 was $230,379 as compared to that of $279,270 in 2017. The Company experienced an overall
net loss of $262,424, this was partially offset by a decrease in inventory of $33,816, other working capital account balances
remained stable during the period.
Cash
Flow from Financing Activities
Net cash flow provided by financing
activities was $182,417 for the year ended December 31, 2018, compared to that of $254,712 in
2017. The Company’s net cash flow provided by financing activities consisted mainly of borrowings from
our CEO and Director Mr. Yumin Lin, who is a related party to our Company. Our decrease in net cash flow provided by financing
activities was due to our decreased borrowings from Mr. Yumin Lin.
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.
Item
7A. Quantitative And Qualitative Disclosures About Market Risk
Not
applicable to a smaller reporting company.
Item
8. Financial Statements And Supplementary Data
The
consolidated financial statements of the Company are included in this Annual Report on Form 10-K beginning on page F-1, which
are incorporated herein by reference.
Item
9. Changes in And Disagreements With Accountants on Accounting And Financial Disclosure
None.
Item
9a. Controls And Procedures
Evaluation
of Disclosure Control and Procedures.
We
are required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed
in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated
and communicated to our management, including our chief executive officer (also our principal executive officer) and our chief
financial officer (also our principal financial and accounting officer) to allow for timely decisions regarding required disclosure.
Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company’s management, including
the Company’s Chief Executive Officer (“CEO”) (the Company’s principal executive officer) and Chief Financial
Officer (“CFO”) (the Company’s principal financial and accounting officer), has evaluated the effectiveness
of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end
of the period covered by this report. Based upon that evaluation the Company’s CEO and CFO concluded that the Company’s
disclosure controls and procedures were not effective as of December 31, 2018 to ensure that information required to be disclosed
by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and
reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated
to the Company’s management, including the Company’s CEO and CFO Mr. Yumin Lin, as appropriate, to allow timely
decisions regarding required disclosure. The principal basis for this conclusion is the lack of segregation of duties within our
financial function and the lack of an operating Audit Committee.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a
process designed by, or under the supervision of, the company’s principal executive and principal financial officers and
effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America and includes those policies and procedures that:
|
●
|
Apply
to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
the assets of the company
|
|
|
|
|
●
|
Provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company; and
|
|
|
|
|
●
|
Provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial statements.
|
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems,
no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of
internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control
over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore,
it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
We
carried out an assessment, under the supervision and with the participation of our management, including our CEO and CFO Mr. Yumin
Lin, of the effectiveness of the design and operation of our internal controls over financial reporting, as defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of December 31, 2018. Integrated Framework (2013). Based on
that assessment and on those criteria, our CEO and CFO concluded that our internal control over financial reporting was not effective
as of December 31, 2018. The principal basis for this conclusion is failure to engage sufficient resources in regards to our accounting
and reporting obligations.
Attestation
Report of Registered Public Accounting Firm
This
prospectus does not include an attestation report of our independent registered public accounting firm, regarding internal controls
over financial reporting. Our internal control over financial reporting was not subject to such attestation as we are a smaller
reporting company.
Changes
in internal control over financial reporting.
As
reported on the Form 8-K filed by the Company with the SEC on November 22, 2018, the Company’s director, Mr. Xinlong Shen,
resigned on November 21, 2018.
Other
than the foregoing, there was no change in our internal controls over financial reporting that occurred during the period covered
by this report, which has materially affected or is reasonably likely to materially affect, our internal controls over financial
reporting
.
Item
9B. Other Information
None.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance
The
name, address, age and titles of our executive officers and director are as follows:
Name
& Address
|
|
Age
|
|
Title
|
|
Date
of First Appointment
|
Lin
Yu Min
|
|
51
|
|
Chairman
of the Board, Chief Executive Officer, President, Treasurer, and Secretary
|
|
December
14, 2016
|
Shen
Xinlong (1)
|
|
37
|
|
Director
|
|
December
14, 2016
|
(1)
On November 21, 2018, Mr. Shen Xinlong resigned from his position as a director.
Lin
Yu Min, age 51, is the Chairman, CEO, President, Secretary and Treasurer of our Company.
From
July 1987 to April 1992 Mr. Lin worked as a manager at the LuChengXinChao Furniture Factory. From April 1992 to April 1999 he
was a manager at the Shangying Business Development Company in Guangdong, China and from April 1993 to April 1999 he worked to
establish the Huizhou Branch of Shangying Business Development Company located in Guangdong. He was the company’s operations
manager and was also responsible for selling construction steel products. From April 1999 to May 2011 he was the General Manager
of the Dongguan Saite Building Material Company. From May 2011 to the present he has served as chairman to Dongguan France Vin
Tout Co., Ltd., located in Dongguan, Guangdong, China. Additionally, from November 2015 to the present, he has served as chairman
at the Shenzhen DaxingHuashang Liquor Culture Company in the Nanchang District, Shenzhen, China.
Xinlong
Shen, age 37, has more than 10-year experience in electronic appliances trading and marketing field in several China-based enterprises.
He graduated in 2003 from Xidian University in China with a bachelor degree in management and major in business administration.
In July 2003, Mr. Shen started his first career as Overseas Sales in Shenzhen Yu Ou Electronics Co., Ltd., which produces and
sells consumer electronics such as DVD and MP3 players. In August 2005, he worked as an Overseas Trade Manager in Shenzhen Richtec
Industry Co., Ltd., which is a high-tech corporation and a global exporter and manufacturer specializing in developing, producing
and marketing home theater systems, iPod/Mp3/mobile speakers and car speakers. In January 2008, he worked as an Overseas Trade
Manager in Shenzhen Zhongmeipeng Industry Co., Ltd., which is an integrated trading company producing industrial products and
consumer electronics. As Overseas Trade Manager in these two firms, Mr. Shen was responsible for leading the marketing team to
conduct overseas marketing for the company’s products. From December 2013 to September 2014, Mr. Shen served as Vice President
in Shenzhen Boao Asset Management Consulting Service Co., Ltd., which is a financial consulting firm providing professional financial
services including asset management and financial planning services to clients. In order to solve clients’ financial issues,
he was dedicated to offer comprehensive, integrated and tailor-made in-depth financial advisory services. From September 2014
to present, Mr. Shen has served as Chairman of the Board in Qianhai Shenzhen Xinzilong Media Co., Ltd., which specializes in production
of film, video and media and entertainment programs. In addition, the Company manages various events ranging from cultural activities
to conferences and exhibitions and provides advisory services. Mr. Shen is responsible for managing media production and sales
and marketing. Moreover, he gives professional advice to clients related to branding, marketing and advertising. Since November
2014, Mr. Shen has served as Vice Chairman in Chinacom Investment Association, which was mutually found by Chinese merchants and
entrepreneurs. It aims at providing integrated information platform service to facilitate communication between association members
and government departments and bilateral and multilateral trade and investment activities.
Director
Independence
We are not currently subject to listing requirements
of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors
be “independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a
majority of “independent directors.” Our sole director is not independent under the applicable standards.
Family
Relationships
There
are no family relationships among our directors or executive officers.
Involvement
in Certain Legal Proceedings
During
the past 10 years, to our knowledge, except as described below, none of our present or former directors, executive officers or
persons nominated to become directors or executive officers has been the subject of any of the following:
(1)
A petition under the federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent
or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a
general partner at or within two (2) years before the time of such filing, or any corporation or business association of which
he was an executive officer at or within two (2) years before the time of such filing;
(2)
Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations
and other minor offenses);
(3)
Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining him or her from, or otherwise limiting, the following activities:
(i)
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person
of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person,
director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing
any conduct or practice in connection with such activity;
(ii)
Engaging in any type of business practice; or
(iii)
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation
of Federal or State securities laws or Federal commodities laws;
(4)
Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal
or State authority barring, suspending or otherwise limiting for more than sixty (60) days the right of such person to engage
in any activity described in paragraph (3)(i) above, or to be associated with persons engaged in any such activity;
(5)
Such person was found by a court of competent jurisdiction in a civil action or by the SEC to have violated any federal or state
securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or
vacated;
(6)
Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to
have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission
has not been subsequently reversed, suspended or vacated;
(7)
Such person was the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding,
not subsequently reversed, suspended or vacated, relating to an alleged violation of:
(i)
Any federal or state securities or commodities law or regulation; or
(ii)
Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent
injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal
or prohibition order; or
(iii)
Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
(8)
Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any
self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26)), any registered entity
(as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29)), or any equivalent exchange, association, entity
or organization that has disciplinary authority over its members or persons associated with a member.
Except
as disclosed herein, we are not a party to any pending legal proceeding. To the knowledge of our management, except as disclosed
herein, no federal, state or local governmental agency is presently contemplating any proceeding against us.
Board
Committees
The
Company currently has not established any committees of the Board of Directors. Our Board of Directors may designate from among
its members an executive committee and one or more other committees in the future. We do not have a nominating committee or a
nominating committee charter. Further, we do not have a policy with regard to the consideration of any director candidates recommended
by security holders. To date, other than as described above, no security holders have made any such recommendations. The entire
Board of Directors performs all functions that would otherwise be performed by committees. Given the present size of our board,
it is not practical for us to have committees. If we are able to grow our business and increase our operations, we intend to expand
the size of our board and allocate responsibilities accordingly.
Audit
Committee Financial Expert
We
have no separate audit committee at this time. The entire Board of Directors oversees our audits and auditing procedures. Our
sole director is not an “audit committee financial expert” within the meaning of Item 407(d)(5) of SEC Regulation
S-K.
Compensation
Committee
We
have no separate compensation committee at this time. The entire Board of Directors oversees the functions, which would be performed
by a compensation committee.
Code
of Ethics
The
Company did not adopt a Code of Ethics.
Item
11. Executive Compensation
The
following table sets forth the compensation paid or accrued by us to our Chief Executive Officer, Chief Financial Officer and
each of our other officers for the year ended December 31, 2018 and the period ended December 31, 2017.
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
All Other Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xilong Shen
|
|
2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yumin Lin
|
|
2017
|
|
|
10,489
|
|
|
|
|
|
|
|
|
|
President, CEO,
|
|
2018
|
|
|
17,497
|
|
|
|
|
|
|
|
|
|
Secretary, CFO,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xilong
Shen was appointed as President, CEO, Secretary, CFO and director on August 3, 2016. He resigned from all the positions except
director on December 14, 2016. On November 21, 2018, Mr. Shen Xinlong resigned from his position as a director.
Yumin
Lin was appointed as President, CEO, Secretary, CFO and director on December 14, 2016.
Outstanding
Equity Awards
There
are no outstanding equity awards.
Equity
Compensation Plan Information
We
currently do not have an equity compensation plan.
Director
Compensation
We
do not pay our directors any money and we have no plans to pay our directors any money in the future.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, requires our executive officers, directors and
persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. These
executive officers, directors, and greater than 10% beneficial owners are required by SEC regulation to furnish us with copies
of all Section 16(a) forms filed by such reporting persons.
Based
solely on our review of such forms furnished to us and written representations from certain reporting persons, we believe that
all filing requirements applicable to our executive officers, directors and greater than 10% beneficial owners were filed in a
timely manner during the fiscal year ended December 31, 2018.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The
following table sets forth information with respect to the beneficial ownership of our Common Stock as of March 28, 2019,
by (i) each stockholder known by us to be the beneficial owner of more than 5% of our Common Stock (our only class of voting securities),
(ii) each of our directors and executive officers, and (iii) all of our directors and executive officers as a group. To the best
of our knowledge, except as otherwise indicated, each of the persons named in the table has sole voting and investment power with
respect to the shares of our Common Stock beneficially owned by such person, except to the extent such power may be shared with
a spouse. To our knowledge, none of the shares listed below are held under a voting trust or similar agreement, except as noted.
To our knowledge, there is no arrangement, including any pledge by any person of securities of the Company or any of its parents,
the operation of which may at a subsequent date result in a change in control of the Company.
Officers
and Directors
Title
of Class
|
|
Name
and Address of Beneficial Owner (1)
|
|
Amount
and Nature of Beneficial Ownership
|
|
|
Percent
|
|
Common
Stock
|
|
Yumin
Lin
19F, Lianhe Tower, 1069 Nanhai Ave, Nanshan District,Shenzhen, 518000, China
|
|
|
18,000,000
|
|
|
|
5.85
|
%
|
Officers and Directors as a Group(1person)
|
|
|
|
|
18,000,000
|
|
|
|
5.85
|
%
|
Greater
than 5% Shareholders
Title of Class
|
|
Name and Address of Beneficial Owner (1)
|
|
Amount and Nature of Beneficial Ownership
|
|
|
Percent
|
|
Common Stock
|
|
Gaosheng Group Co.,Ltd.
Luo Nai Yong (Beneficial Owner)
Second Floor, Capital City Independence Avenue Mahe Victoria Seychelles
|
|
|
89,953,274
|
|
|
|
29.23
|
%
|
Common Stock
|
|
China Kaiping Group CO., Ltd.
Ma Hui Jun (Beneficial Owner)
Second Floor, Capital City Independence Avenue Mahe Victoria Seychelles
|
|
|
153,000,000
|
|
|
|
49.72
|
%
|
The percent of class is based
on 307,750,000 shares of common stock issued and outstanding as of March 28, 2019.
Item
13. Certain Relationships, Related Transactions and Director Independence
The
Company sold its wine and liquor products to Mr. Naiyong Luo in the amounts of $41,565 and $139,990 for the years ended
December 31, 2018 and 2017. As of December 31, 2018, the Company had a customer deposit from Mr. Luo in the amount of $78,639.
These sales occurred in the normal course of business. Mr. Luo is a shareholder of Gaosheng Group Co., Ltd., the prior owner of
DIGL.
The
Company sold its wine and liquor products to Mr. Hongwei Ye in the amounts of $5,020 and $0 for the years ended December 31, 2018
and 2017. As of December 31, 2018, the Company had a customer deposit from Mr. Ye in the amount of $25,719. These sales occurred
in the normal course of business.
The
Current CEO, Mr. Yumin Lin, settled the loan amount $21,500 due to the former CEO Mr. Sheng on behalf of the Company. During the
year ended December 31,2018 Mr. Yumin Lin also extended a loan of $532,561 to the Company for working capital purposes. As of
December 31, 2018, the note payable due to Mr. Yumin Lin amounted to $554,061. These notes were unsecured, non-interest
bearing and due on demand. The imputed interest on these notes was deemed immaterial.
Item
14. Principal Accountant Fees and Services
The
following table shows the fees that were billed for the audit and other services for
the fiscal year ended December 2018 and 2017.
|
|
2018
|
|
|
2017
|
|
Audit Fees
|
|
|
50,177
|
|
|
|
55,850
|
|
Audit-Related Fees
|
|
|
-
|
|
|
|
-
|
|
Tax Fees
|
|
|
-
|
|
|
|
-
|
|
All Other Fees
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
-
|
|
|
|
-
|
|
Audit
Fees
— This category includes the audit of our annual financial statements, review of financial statements included
in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting
firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters
that arose during, or as a result of, the audit or the review of interim financial statements.
Audit-Related
Fees
— This category consists of assurance and related services by the independent registered public accounting firm
that is reasonably related to the performance of the audit or review of our financial statements and is not reported above under
“Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence
with the Securities and Exchange Commission and other accounting consulting.
Tax
Fees
— This category consists of professional services rendered by our independent registered public accounting firm
for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and
technical tax advice.
All
Other Fees
— This category consists of fees for other miscellaneous items.
Our
Board of Directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting
firm. Under the procedure, the Board approves the engagement letter with respect to audit and review services. Other fees are
subject to pre-approval by the Board, or, in the period between meetings, by a designated member of Board. Any such approval by
the designated member is disclosed to the entire Board at the next meeting. The audit fees that were paid to the auditors with
respect to 2018 were pre-approved by the entire Board of Directors.
Item
15. Exhibits, Financial Statement Schedules
(1)
All financial statements
Index
to Consolidated Financial Statements
(2)
Financial Statement Schedules
All
financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts
sufficient to require submission of the schedule, or because the information required is included in the consolidated financial
statements and notes thereto included in this Annual Report on Form 10-K.
(3)
Exhibits
Number
|
|
Description
|
2.1*
|
|
Share
Exchange Agreement, dated April 6, 2018, by and among FVTI, DKTI and Yumin Lin. (incorporated by reference to Exhibit
2.1 to the Company’s Current Report on Form 8-K as filed with the SEC on April 19, 2018)
|
2.2*
|
|
Termination
Agreement, dated April 6, 2018, by and among FVTI, DKTI and Yumin Lin. (incorporated by reference to Exhibit 2.2 to
the Company’s Current Report on Form 8-K as filed with the SEC on April 19, 2018)
|
3.1*
|
|
Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 as amended filed with the SEC on December 5, 2014)
|
3.2*
|
|
Bylaws (incorporated by reference to Exhibit 3.2 the Company’s Registration Statement on Form S- as amended filed with the SEC on December 5, 2014).
|
31.1**
|
|
Certification of Chief Executive Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant Section 302 of the Sarbanes Oxley Act of 2002
|
31.2**
|
|
Certification of Chief Financial Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant Section 302 of the Sarbanes Oxley Act of 2002
|
32.1***
|
|
Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
32.2***
|
|
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
101.INS
|
|
XBRL
Instance Document
|
|
|
|
101.SCH
|
|
XBRL
Taxonomy Schema
|
|
|
|
101.CAL
|
|
XBRL
Taxonomy Calculation Linkbase
|
|
|
|
101.DEF
|
|
XBRL
Taxonomy Definition Linkbase
|
|
|
|
101.LAB
|
|
XBRL
Taxonomy Label Linkbase
|
|
|
|
101.PRE
|
|
XBRL
Taxonomy Presentation Linkbase
|
*
|
Previously
filed
|
**
|
Filed
herewith
|
***
|
In
accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits
32.1 and 32.2 herewith are deemed to accompany this Form 10-K and will not be deemed filed for purposes of Section 18 of the
Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities
Act or the Exchange Act.
|
Item
16. Form 10–K Summary
None.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Date:
April 2, 2019
|
FORTUNE
VALLEY TREASURES, INC.
|
|
|
|
|
By:
|
/s/
Yumin Lin
|
|
Name:
|
Yumin
Lin
|
|
Title:
|
Chief
Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)
|
Fortune
Valley Treasures, Inc.
Consolidated
Financial Statements
For
the year ended December 31, 2018 and 2017
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To:
|
The
Board of Directors and Stockholders of
|
|
Fortune
Valley Treasures, Inc.
|
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Fortune Valley Treasures, Inc. (the Company) as of December
31, 2018 and 2017, and the related consolidated statements of operations, comprehensive loss, stockholders’
deficit, and cash flows for each of the years in the two-year period ended December 31, 2018, and the related notes (collectively
referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the
United States of America.
Emphasis
of Matter
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 3 to the financial statements, the Company had incurred substantial losses and has a working capital deficit, which raises
substantial doubt about its ability to continue as a going concern Management's plans in regards to these matters are also described
in Note 3. These financial statements do not include any adjustments that might result from the outcome of this uncertainly.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
WWC,
P.C.
Certified
Public Accountants
We
have served as the Company’s auditor since December 4, 2017
San
Mateo, California
April
1, 2019
Fortune
Valley Treasures, Inc.
Consolidated
Balance Sheets
At
December 31, 2018 and 2017
|
|
2018
|
|
|
2017
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
29,999
|
|
|
$
|
77,782
|
|
Accounts and other receivable, net
|
|
|
7,706
|
|
|
|
15,317
|
|
Inventories
|
|
|
236,175
|
|
|
|
273,491
|
|
Prepaid expenses
|
|
|
8,000
|
|
|
|
5,895
|
|
Due from related parties
|
|
|
54,344
|
|
|
|
40,126
|
|
Prepaid taxes and taxes recoverable
|
|
|
2,081
|
|
|
|
751
|
|
Total current assets
|
|
$
|
338,305
|
|
|
$
|
413,362
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
Plant and equipment, net
|
|
|
9,809
|
|
|
|
13,824
|
|
Total Assets
|
|
$
|
348,114
|
|
|
$
|
427,186
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts and taxes payable
|
|
|
48,282
|
|
|
|
44,187
|
|
Accrued liabilities and other payables
|
|
|
291
|
|
|
|
2,175
|
|
Customers advances and deposits
|
|
|
-
|
|
|
|
11,697
|
|
Due to related parties
|
|
|
686,769
|
|
|
|
500,609
|
|
Total current liabilities
|
|
$
|
735,342
|
|
|
$
|
558,668
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
735,342
|
|
|
$
|
558,668
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Common stock (3,000,000,000 shares authorized, 307,750,000 issued and outstanding at December 31, 2018 and 2017)
|
|
|
307,750
|
|
|
|
307,750
|
|
Accumulated deficit
|
|
|
(708,097
|
)
|
|
|
(445,673
|
)
|
Accumulated other comprehensive income
|
|
|
13,119
|
|
|
|
6,441
|
|
Total Stockholders’ Deficit
|
|
|
(387,228
|
)
|
|
|
(131,482
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Deficit
|
|
|
348,114
|
|
|
|
427,186
|
|
See
accompanying notes to the financial statements
Fortune
Valley Treasures, Inc.
Consolidated
Statements of Operations and Comprehensive Loss
For
the Years ended December 31, 2018 and 2017
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net revenues (related party revenue $46,585 and $139,990 for 2018 and 2017)
|
|
$
|
95,849
|
|
|
$
|
260,973
|
|
Cost of revenues
|
|
|
46,497
|
|
|
|
134,728
|
|
Gross profit
|
|
|
49,352
|
|
|
|
126,245
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
315,437
|
|
|
|
311,085
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(266,085
|
)
|
|
|
(184,840
|
)
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
1,442
|
|
|
|
-
|
|
Interest income
|
|
|
104
|
|
|
|
177
|
|
Interest expense
|
|
|
(699
|
)
|
|
|
-
|
|
|
|
|
847
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
Loss before tax
|
|
|
(265,238
|
)
|
|
|
(184,663
|
)
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
|
(2,814
|
)
|
|
|
2,833
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(262,424
|
)
|
|
$
|
(187,496
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
6,677
|
|
|
|
(489
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(255,747
|
)
|
|
$
|
(187,985
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Basic and diluted weighted average shares outstanding
|
|
|
307,750,000
|
|
|
|
307,750,000
|
|
See
accompanying notes to the financial statements
Fortune
Valley Treasures, Inc.
Consolidated
Statements of Stockholders’ Deficit
For
the Years ended December 31, 2018 and 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
|
No. of
|
|
|
Common
|
|
|
Paid in
|
|
|
Retained
|
|
|
comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Stock
|
|
|
capital
|
|
|
earnings
|
|
|
income
|
|
|
Total
|
|
Balance as of January 1, 2017
|
|
|
7,750,000
|
|
|
|
7,750
|
|
|
|
71,299
|
|
|
|
(63,469
|
)
|
|
|
-
|
|
|
|
15,510
|
|
Recapitalization
|
|
|
300,000,000
|
|
|
|
300,000
|
|
|
|
(128,952
|
)
|
|
|
(194,708
|
)
|
|
|
6,930
|
|
|
|
(16,730
|
)
|
Capital contribution by owners
|
|
|
-
|
|
|
|
-
|
|
|
|
57,723
|
|
|
|
-
|
|
|
|
-
|
|
|
|
57,723
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(187,496
|
)
|
|
|
-
|
|
|
|
(187,496
|
)
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(489
|
)
|
|
|
(489
|
)
|
Balance as of December 31, 2017
|
|
|
307,750,000
|
|
|
|
307,750
|
|
|
|
-
|
|
|
|
(445,673
|
)
|
|
|
6,441
|
|
|
|
(131,482
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(262,424
|
)
|
|
|
-
|
|
|
|
(262,424
|
)
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,677
|
|
|
|
6,677
|
|
Balance as of December 31, 2018
|
|
|
307,750,000
|
|
|
|
307,750
|
|
|
|
-
|
|
|
|
(708,097
|
)
|
|
|
13,119
|
|
|
|
(387,228
|
)
|
See
accompanying notes to the financial statements
Fortune
Valley Treasures, Inc.
Consolidated
Statements of Cash Flows
For
the Years ended December 31, 2018 and 2017
|
|
2018
|
|
|
2017
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(262,424
|
)
|
|
$
|
(187,496
|
)
|
Depreciation of fixed assets
|
|
|
3,926
|
|
|
|
6,776
|
|
Increase in accounts and other receivables
|
|
|
(4,294
|
)
|
|
|
(3,630
|
)
|
(Decrease)/increase in inventories
|
|
|
33,816
|
|
|
|
(125,205
|
)
|
Increase in advances and prepayments to suppliers
|
|
|
(3,504
|
)
|
|
|
(2,324
|
)
|
Increase in accounts and other payables
|
|
|
2,100
|
|
|
|
32,608
|
|
Net cash used in operating activities
|
|
|
(230,379
|
)
|
|
|
(279,271
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds of owners’ injection of capital
|
|
|
-
|
|
|
|
11,629
|
|
Borrowing and payments to related parties, net
|
|
|
182,417
|
|
|
|
243,083
|
|
Net cash provided by financing activities
|
|
|
182,417
|
|
|
|
254,712
|
|
|
|
|
|
|
|
|
|
|
Net decrease of cash and cash equivalents
|
|
|
(47,962
|
)
|
|
|
(24,558
|
)
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency translation on cash and cash equivalents
|
|
|
178
|
|
|
|
1,626
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents–beginning of period
|
|
|
77,782
|
|
|
|
103,966
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents–end of period
|
|
$
|
29,999
|
|
|
$
|
77,782
|
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow information:
|
|
|
|
|
|
|
|
|
Interest received
|
|
$
|
104
|
|
|
$
|
177
|
|
Interest paid
|
|
$
|
699
|
|
|
$
|
-
|
|
Income taxes paid(received)
|
|
$
|
(2,814
|
)
|
|
$
|
2,833
|
|
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.
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
|
Use
of estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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, and DILH’s functional currency
is the U.S. dollar; QHDX 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.
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Spot RMB: USD exchange rate
|
|
$
|
0.1454
|
|
|
$
|
0.1480
|
|
Average RMB: USD exchange rate
|
|
$
|
0.1514
|
|
|
$
|
0.1524
|
|
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 years ended December 31, 2018, the Company had not experienced 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 any impairment on inventory during the years ended December 31, 2018 and 2017.
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 years ended December 31, 2018 and 2017, 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.
For the years ended December 31, 2018 and 2017, the Company reported net losses of $262,424 and $187,496, respectively. As of
December 31, 2018, the Company had working capital deficit of approximately $397,037. In addition, the Company had net cash outflows
of $230,379 from operating activities during the years ended December 31, 2018. 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 December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Gross accounts and other receivables
|
|
$
|
7,678
|
|
|
$
|
15,317
|
|
Less: Allowance for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
7,678
|
|
|
$
|
15,317
|
|
All
accounts and other receivables have been outstanding for less than 365 days. Included in the balance for 2017 was an amount of
$6,799 owed by a third-party vendor for shipment of wine that was never delivered; the amount was refunded to the Company on January
11, 2018. The Company’s general manager received funds totaling $6,995 on behalf of the Company for products sold
to costumers; this balance has been recorded as other receivables and occurred in the normal course of business.
NOTE
5 – INVENTORIES
Inventories
consisted of the following as of December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Finished goods
|
|
$
|
236,175
|
|
|
$
|
273,491
|
|
NOTE
6 - EQUIPMENT
Property,
plant and equipment consisted of the following as of December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
At Cost:
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
62,385
|
|
|
|
63,512
|
|
Less: Accumulated depreciation
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
52,576
|
|
|
|
49,688
|
|
|
|
$
|
9,809
|
|
|
$
|
13,824
|
|
The
Company did not purchase any equipment during the years ended December 31, 2018 and 2017. Changes in the cost of equipment are
related to differences in foreign currency rates at different reporting periods. Depreciation expenses translated at the average
exchange rates for the years ended December 31, 2018 and 2017 were $3,926 and $6,776 respectively.
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 the years
ended December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Loss attributed to PRC operations
|
|
$
|
(162,259
|
)
|
|
$
|
(40,745
|
)
|
Loss attributed to Seychelles and HK
|
|
|
(82
|
)
|
|
|
(1,288
|
)
|
Loss attributed to US
|
|
|
(102,897
|
)
|
|
|
(142,630
|
)
|
Loss before tax
|
|
|
(265,238
|
)
|
|
|
(184,663
|
)
|
|
|
|
|
|
|
|
|
|
PRC Statutory Tax at 25% Rate
|
|
|
(40,565
|
)
|
|
|
(10,186
|
)
|
Effect of Seychelles, PRC, HK, deductions and other reconciling items
|
|
|
37,751
|
|
|
|
13,019
|
|
Income tax
|
|
$
|
(2,814
|
)
|
|
$
|
2,833
|
|
The
difference between the U.S. federal statutory income tax rate and the Company’s effective tax rate was as follows for the
years ended December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
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
|
|
|
-23.9
|
%
|
|
|
-26.5
|
%
|
The Company’s effective tax rate
|
|
|
1.1
|
%
|
|
|
-1.5
|
%
|
On
July 1,2018, the Company changed its status from a general VAT taxpayer to simplified calculation method Taxpayer. In accordance to the rules for general VAT taxpayer, and entity
must present VAT payable using the net between the output VAT (at a rate of 16%) and the available input VAT amount (at the
rate applicable to the supplier). Under the simplified calculation method, no input VAT is deductible and a uniform 3%
levying rate applies.
NOTE
8- RELATED PARTY TRANSACTIONS
Amounts
due to related parties as of December 31, 2018 and 2017:
|
|
|
|
2018
|
|
|
2017
|
|
Mr. Yumin Lin
|
|
President, CEO, Secretary, CFO, Director
|
|
$
|
554,061
|
|
|
$
|
360,018
|
|
Mr. Sheng
|
|
Former Director of the Company
|
|
|
-
|
|
|
|
21,500
|
|
Ms. Qingmei Lin
|
|
Mr. Yumin Lin’s wife
|
|
|
28,350
|
|
|
|
25,902
|
|
Mr. Naiyong Luo
|
|
Director of DIGL
|
|
|
78,639
|
|
|
|
93,189
|
|
Mr. Hongwei Ye
|
|
|
|
|
25,719
|
|
|
|
|
|
|
|
|
|
$
|
686,769
|
|
|
$
|
500,609
|
|
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 $41,565 and $139,990 for the years ended
December 31, 2018 and 2017. As of December 31, 2018, the Company had a customer deposit from Mr. Luo in the amount of $78,639.
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 $5,020 and $0 for the years ended December 31, 2018
and 2017. As of December 31, 2018, the Company had a customer deposit from Mr. Ye in the amount of $25,719. These sales occurred
in the normal course of business.
The
Current CEO, Mr. Yumin Lin, settled the loan amount $21,500 due to the former CEO Mr. Sheng on behalf of the Company. During the
year ended December 31,2018 Mr. Yumin Lin also extended a loan of $532,561 to the Company for working capital purposes.
As of December 31,2018, the note payable due to Mr. Yumin Lin amounted to $554,061. 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. The total rental rent expense for the year ended December 31, 2018 and 2017 was $33,317 and $31,707,
respectively. The agreement does not call for a rental deposit equivalent.
Minimum
operating lease commitment for the agreement is as follows:
2019
|
|
|
26,169
|
|
2020
|
|
|
26,169
|
|
2021
|
|
|
26,169
|
|
2022
|
|
|
26,169
|
|
Thereafter:
|
|
|
104,676
|
|
|
|
$
|
209,352
|
|
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. DILHK’s bank account is with located in Hong Kong, it is closed
by November 1,2018. 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
During
the years ended December 31, 2018 and 2017, a single customer contributed 43.3% and 53.6% of the Company’s sales;
accordingly, there was a concentration of risk in demand for the Company’s products.
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.
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