| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES Basis
of Presentation The accompanying unaudited condensed consolidated
financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States
of America (“US GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange
Commission (“SEC”). The unaudited condensed consolidated financial statements include the accounts of the Company and
include the assets, liabilities, revenues and expenses of the subsidiaries and VIE. In the opinion of management, all adjustments (including
normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at
the dates and for the periods presented have been included. Interim results are not necessarily indicative of results to be expected for
the full year. The information included in this report should be read in conjunction with the information included in the Company’s
annual report for the year ended December 31, 2020. Principles
of Consolidation The accompanying unaudited condensed consolidated
financial statements include the financial statements of the Company, its wholly-owned subsidiaries, and the VIE and its subsidiary. All
inter-company transactions and balances have been eliminated upon consolidation. VIE Agreements
with Beijing Hongtao The Company does not have a direct equity ownership
interest in Beijing Luji but relies on the VIE Agreements to control and receive the economic benefits of Beijing Luji’s business.
The Company relies on contractual arrangements with its variable interest entity to operate its online to office (O2O) business in the
PRC in which foreign investment is restricted or prohibited. The O2O platform integrates the Company’s e-commerce platform with
physical outlets (service centers) to connect consumers and merchants in a dynamic marketplace. Pursuant to the VIE Agreements, the Company,
through Beijing Hongtao, is able to exercise effective control over, bears the risks of, enjoys substantially all of the economic benefits
its VIE and its subsidiary and has an exclusive option to purchase all or part of the equity interests in the VIE when and to the extent
permitted by PRC law. The Company’s management concluded that Beijing Luji and its subsidiary are variable interest entities
of the Company and Beijing Hongtao is the primary beneficiary of Beijing Luji and its subsidiary. As such, the financial statements of
the VIE and its subsidiary are included in the unaudited condensed consolidated financial statements of the Company. Use of Estimates The
preparation of the unaudited condensed consolidated financial statements in conformity with US GAAP 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 unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. Significant accounting estimates reflected in
the Company’s unaudited condensed consolidated financial statements include the allowance for doubtful accounts and slow-moving
inventory, and the useful lives of property and equipment. Since the use of estimates is an integral component of the financial reporting
process, actual results could differ from those estimates. Fair Value of Financial Instruments The Company follows Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) FASB ASC Section 820, “Fair Value Measurements
and Disclosures.” ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a
fair value hierarchy to classify the inputs used in measuring fair value as follows: Level 1 applies to assets or liabilities
for which there are quoted prices in active markets for identical assets or liabilities. Level 2 applies to assets or liabilities
for which there are inputs, other than quoted prices in level 1, that are observable for the asset or liability such as quoted prices
for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume
or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived
principally from, or corroborated by, observable market data. Level 3 applies to assets or liabilities
for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the
asset or liability. The carrying value of financial instruments included in current assets
and liabilities approximate their fair values because of the short-term nature of these instruments. Cash and Cash Equivalents Cash and cash equivalents
consist of cash on hand, cash on deposit and other highly liquid investments which are unrestricted as to withdrawal or use, and which
have original maturities of three months or less when purchased. The Company maintains cash with various financial institutions in the
PRC. As of June 30, 2021 and December 31, 2020, the Company had cash and cash equivalents of approximately $1.0
million and $2.7 million, respectively. Restricted Cash Restricted cash represents cash reserved for
a legal matter (see Note 16). Risks and Uncertainties The operations of the Company are located in the
PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic,
and legal environment in the PRC, as well as by the general state of the PRC economy. The Company’s operations in the PRC are subject
to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include
risks associated with, among other factors, the political, economic and legal environment and foreign currency restrictions. The Company’s
results may be adversely affected by changes in the political, regulatory and social conditions in the PRC, and by changes in governmental
policies or interpretations with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad,
and rates and methods of taxation, among other things. Although the Company has not experienced losses from these situations and believes
that it is in compliance with existing laws and regulations, changes in the future could affect the Company’s interest in these
entities. The outbreak of COVID-19 that started in late
January 2020 in the PRC had negatively affected the Company’s business. In March 2020, the World Health Organization declared COVID-19
as a pandemic and has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities in China
and the U.S. in the subsequent months. Given the rapidly expanding nature of the COVID-19 pandemic, and because substantially all of the
Company’s business operations and its workforce are concentrated in China, the Company’s business, results of operations,
and financial condition through June 30, 2021 have been adversely affected. There is uncertainty around the breadth and duration of business
disruptions related to COVID-19, as well as its impact on the Company’s business. Based on management’s assessment of the
current economic environment in the PRC, the Company’s recent sales trend, and the possible negative impact from a prolonged pandemic
in the PRC, management believes that the Company’s revenues and operating cash flows may be lower than expected in year 2021. To
mitigate the overall financial impact of COVID-19 on the Company’s business, management continues to explore opportunities to reduce
its operating overhead and works closely with its service centers to develop promotional activities that will hopefully generate additional
sales in the second half of 2021. Inventories, Net Inventories consist of finished goods and they
are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. The Company periodically
evaluates its inventories and will record an allowance for inventories that are either slow-moving, may not be saleable or whose cost
exceeds its net realizable value. Advance to Suppliers, Net Advance to suppliers consists of payments to suppliers
for finished goods that have not been delivered to the Company. The Company periodically evaluates and reviews its advance to suppliers
to determine whether its carrying value has been impaired. Long-term Investment Long-term investment consists of the Company’s
equity investment for strategic or business development purposes. The Company applies the equity method of accounting for its equity investment,
according to FASB ASC 323 “Investment—Equity Method and Joint Ventures,” over which it has significant influence but
does not own a majority equity interest or otherwise control. Under the equity method, the Company’s share of the profits or losses
of the equity investees are recorded in its consolidated statements of comprehensive income (loss). The Company reviews its investment at least annually
to determine whether a decline in fair value to below the carrying value is other-than-temporary. The primary factors the Company considers
in its determination are the duration and severity of the decline in fair value; the financial condition, operating performance and the
prospects of the equity investee; and other company specific information such as recent financing activities. If the decline in fair value
is deemed to be other-than-temporary, the carrying value of the investment will be written down to its fair value. No events have occurred that indicated an impairment
in fair value for the six months ended June 30, 2021 Property and Equipment, Net Property and equipment are carried at cost and
are depreciated on the straight-line basis over the estimated useful lives of the underlying assets. The cost of repairs and maintenance
is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated
depreciation and amortization are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.
The Company examines the possibility of decreases in the value of its property and equipment, when events or changes in circumstances
reflect the fact that their recorded value may not be recoverable. Estimated useful lives are as follows, taking
into account the assets’ estimated residual value:
Schedule of property and equipment estimated useful lives
Classification Estimated useful lives
Property 20
Vehicles 10
Office equipment 3
Furniture and fixtures 3
Software 3 Long-lived Assets Finite-lived assets and intangibles are reviewed
for impairment testing when circumstances require. For purposes of evaluating the recoverability of long-lived assets, when undiscounted
future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value. The
long-lived assets of the Company that are subject to evaluation consist primarily of property and equipment, and long-term investment.
For the six months ended June 30, 2021 and 2020, the Company did no Leases In January 2016, the FASB issued ASU 2016-02,
“Leases” (“ASU 2016-02”) requiring leases to be recognized on the balance sheet as a right-of-use asset and lease
liability for all long-term leases and requiring disclosure of key information about leasing arrangements in order to increase transparency
and comparability among organizations. Effective July 1, 2020, the Company adopted ASU
2016-02, “Leases” (Topic 842), and elected the practical expedients that do not require it to reassess: (1) whether any expired
or existing contracts are, or contain, leases, (2) lease classification for any expired or existing leases and (3) initial direct costs
for any expired or existing leases. The Company also adopted the practical expedient that allows lessees to treat the lease and non-lease
components of a lease as a single lease component. The Company measures the lease liability based
on the present value of the lease payments discounted by the relevant borrowing rate and reduces the carrying value of the lease liability
for lease payments made. Leases with an initial expected term of 12 months or less are considered short-term and are not recorded on the
Company’s consolidated balance sheets. The Company recognizes lease expense for these leases on a straight-line basis over the expected
lease term. Revenue Recognition In accordance with FASB ASC 606, Revenue from
Contracts with Customers, the Company will recognize revenue to represent the transfer of products or services to customers in an amount
that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify
contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when
control of the product or the benefit of the services transfers to the customer. Under the guidance of ASC 606, the Company is required
to (a) identify the contract with a customer, (b) identify the performance obligations in the contract, (c) determine the
transaction price, (d) allocate the transaction price to the performance obligations in the contract and (e) recognize revenue
when (or as) the Company satisfies its performance obligations. Product Sales: Fozgo Beijing Luji collects cash from customers before
or upon delivery of products mainly through banks and third-party online payment platforms (such as Alipay). Cash collected from customers
before product delivery is recognized as advance from customers. Cost of Revenues Cost of revenues consists primarily of the cost
of merchandise sold, delivery cost, service fees, sales incentives and commissions that are directly attributable to the sale of certain
designated products as well as allowance for slow-moving items and write off of expired inventories. Included in cost of revenues for
the three and six months ended June 30, 2021 and 2020, are write-off of expired inventories of $ 197,583
nil General and Administrative Expenses General and administrative expenses consist mainly
of payroll and related costs for employees involved in general corporate functions, including accounting, finance, tax, legal and human
resources, professional fees and other general corporate expenses as well as costs associated with the use by these functions of facilities
and equipment, such as depreciation and rental expenses. Selling Expenses Selling expenses consist mainly of payroll and
benefits for employees involved in the sales and distribution functions, meeting/event fees, advertisement, marketing and selling expenses
that are related to events and activities at the Company’s service centers designed to promote product sales as well as operating
expenses related to the service centers. Finance Expenses (Income), Net Finance expenses consist mainly of service fees
related to the use of third-party online payment platforms, bank fees and interest expenses related to borrowings; net of interest income
from bank and related bank products. Other Income (Expenses), Net Other income consists primarily of income from
the administration of Beijing Luji’s online marketplace. Other expenses consist mainly of estimated tax penalties and charitable
contributions. Income Taxes The Company follows FASB ASC Topic 740, “Income
Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each
period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect
taxable income. Deferred tax assets are also recognized for operating losses that are available to offset the future taxable income. Valuation
allowances are established when deemed necessary to reduce deferred tax assets to the amount expected to be realized. The Company follows FASB ASC 740-10-25, “Accounting
for Uncertainty in Income Taxes”, which requires income tax positions to meet a more-likely-than-not recognition threshold to be
recognized in the financial statements. Under ASC 740-10-25, tax positions that previously failed to meet the more-likely-than-not threshold
should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions
that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which
that threshold is no longer met. The Company believes that it does not have any uncertain tax positions. It is not expected that there
will be any uncertain tax position within months of June 30, 2021. The application of tax laws and regulations is
subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a
result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability
may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse
previously recorded tax liabilities or the deferred tax asset valuation allowance. Due to the lack of temporary differences between the
tax bases and their financial reporting amounts, the Company has no Enterprise Income Tax Under the Provisional Regulations of the PRC
concerning income tax on enterprises promulgated by the PRC (the “EIT Law”), the Company was qualified as a high and new
technology enterprise starting in 2018, and enjoys a preferential tax rate of 15% for 3 years that expired in 2020 and the Company is
preparing to summit the applying documents to qualify for the same preferential tax rate in 2021 and expect to obtain the qualification
in October, 2021. An entity can re-apply to be a high and new technology enterprise when the prior certificate expires. Value-Added Tax Starting from May 1, 2018, the VAT rate for revenue
generated from providing products was 16%. Starting from April 1, 2019, the VAT rate for revenue generated from providing products
was reduced to 13%. Foreign Currency Translation The functional currency of the Company’s
operations in the PRC is the Chinese Yuan or Renminbi (“RMB”). The financial statements are translated into U.S. dollars (“USD”)
using the period end rates of exchange for assets and liabilities, equity is translated at historical exchange rates, and average rates
of exchange (for the period) are used for revenues and expenses and cash flows. As a result, amounts relating to assets and liabilities
reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets.
Translation adjustments resulting from the process of translating the local currency financial statements into USD are included in determining
comprehensive income (loss). Transactions denominated in foreign currencies are translated into the functional currency at the exchange
rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional
currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate
fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as
incurred. All of the Company’s revenue transactions
are transacted in its functional currency. The Company does not enter into any material transactions in foreign currencies. Transaction
gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company. The exchange rates as of June 30, 2021 and December
31, 2020 and for the six months ended June 30, 2021 and 2020 are as follows:
Foreign currency translation rates
June 30, December 31, Six months ended
2021 2020 2021 2020
Foreign currency Balance Sheet Balance Sheet Profits/Loss Profits/Loss
RMB:1USD 6.4601 6.5249 6.4718 7.0319 Comprehensive Income (Loss) Comprehensive income (loss) consists of two components,
net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains and losses
that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income (loss). Other comprehensive
income (loss) consists entirely of foreign currency translation adjustments resulting from the Company’s translation of its financial
statements from its functional currency into USD. Earnings
(Loss) Per Share Basic earnings (loss) per share is computed by
dividing net income (loss) by the weighted-average number of ordinary shares outstanding during the period. Diluted earnings per share
is computed by dividing net income by the weighted-average number of ordinary shares plus dilutive potential ordinary shares outstanding
during the period. When the Company has a loss, the potential ordinary shares are not included since their inclusion would be anti-dilutive.
For the six months ended June 30, 2021 and 2020, there were no Recent Accounting Pronouncements In December 2019, the FASB issued ASU No. 2019-12,
Income Taxes (Topic 740) to simplify accounting for income taxes. This ASU removes certain exceptions to the general principles in Topic
740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December
15, 2020 and interim periods within those fiscal years, with early adoption permitted. The Company does not expect the adoption of this
ASU to have a significant impact on its unaudited condensed consolidated financial statements. The Company does not believe that other recently
issued accounting standards, if currently adopted, will have a material effect on the Company’s unaudited condensed consolidated
financial statements. |
