Fortune Valley Treasures, Inc. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission File Number 001-38308 Fortune Valley Treasures, Inc. (Exact name of registrant issuer as specified in its charter) Nevada 32-0439333 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 13th Floor, Building B1, Wisdom Plaza Qiaoxiang Road, Nanshan District Shenzhen , Guangdong , China 518000 (Address of principal executive offices, including zip code) Registrant’s phone number, including area code (86) 755-86961405 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock, par value $0.001 per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ As of August 13, 2021, there were 313,098,220 shares, par value $0.001, of the registrant’s common stock outstanding. TABLE OF CONTENTS Page PART I FINANCIAL INFORMATION 3 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS : 3 Condensed Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020 (Audited) 3 Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2021 and 2020 (Unaudited) 4 Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Three and Six Months Ended June 30, 2021 and 2020 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2021 and 2020 (Unaudited) 6 Notes to Condensed Consolidated Financial Statements for the Three and Six Months Ended June 30, 2021 and 2020 (Unaudited) 7 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 19 ITEM 4. CONTROLS AND PROCEDURES 19 PART II OTHER INFORMATION 21 ITEM 1 LEGAL PROCEEDINGS 21 ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 21 ITEM 3 DEFAULTS UPON SENIOR SECURITIES 21 ITEM 4 MINE SAFETY DISCLOSURES 21 ITEM 5 OTHER INFORMATION 21 ITEM 6 EXHIBITS 21 SIGNATURES 22 2 PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements . FORTUNE VALLEY TREASURES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2021 AND DECEMBER 31, 2020 June 30, 2021 December 31, 2020 (Unaudited) (Audited) Assets Current assets Cash and cash equivalents $ 420,400 $ 249,837 Accounts receivable 1,189,597 2,468,038 Inventories 136,361 144,565 Prepayments and other current assets 2,577,516 383,808 Due from related parties 29,812 984,806 Total current assets 4,353,686 4,231,054 Non-current assets Deposits paid 1,676,977 671,921 Property and equipment, net 89,025 47,815 Operating lease right-of-use assets 400,959 153,251 Operating lease right-of-use assets, related parties 104,432 160,013 Intangible assets, net 2,650,433 3,028,490 Goodwill 1,383,758 1,368,915 Total Assets $ 10,659,270 $ 9,661,459 Liabilities and Stockholders’ Equity Current liabilities Operating lease obligations – current $ 124,701 $ 67,915 Operating lease obligations, related parties - current 17,375 160,238 Accounts payable 204,012 251,541 Accrued liabilities 108,283 277,531 Income tax payable 113,964 321,670 Customer advances 695,695 580,151 Due to related parties 729,258 337,400 Total current liabilities 1,993,288 1,996,446 Non-current liabilities Operating lease obligations – non-current 273,194 85,764 Operating lease obligations, related parties – non-current 85,586 93,332 Bank and other borrowings 201,725 254,266 Total Liabilities 2,553,793 2,429,808 Stockholders’ Equity Common stock ( 3,000,000,000 shares authorized, 313,098,220 issued and outstanding as of June 30, 2021 and December 31, 2020) 313,098 313,098 Additional paid in capital 10,763,790 10,763,790 Accumulated deficit ( 3,621,688 ) ( 4,341,417 ) Accumulated other comprehensive income 374,168 300,265 Total Fortune Valley Treasures, Inc. stockholders’ equity 7,829,368 7,035,736 Noncontrolling interests 276,109 195,915 Total Stockholders’ Equity 8,105,477 7,231,651 Total Liabilities and Stockholders’ Equity $ 10,659,270 $ 9,661,459 See accompanying notes to the unaudited condensed consolidated financial statements. 3 FORTUNE VALLEY TREASURES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (Unaudited) 2021 2020 2021 2020 Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 Revenues from related parties $ 1,032 $ - $ 12,264 $ - Revenues from third parties 1,824,312 69,176 3,457,240 91,227 Net Revenues 1,825,344 69,176 3,469,504 91,227 Cost of revenues 797,524 39,917 1,527,267 54,343 Gross profit 1,027,820 29,259 1,942,237 36,884 Other operating income 166 - 166 - Operating expenses: Selling and distribution expenses 19,604 - 47,158 - General and administrative expenses 449,872 127,631 931,449 238,492 Operating income (loss) 558,510 ( 98,372 ) 963,796 ( 201,608 ) Other income (expense): Other income 89 1,328 120 2,106 Interest income 483 72 648 80 Interest expense ( 5,934 ) ( 4,862 ) ( 9,487 ) ( 4,980 ) Other income (expense), net ( 5,362 ) ( 3,462 ) ( 8,719 ) ( 2,794 ) Income (loss) before income tax 553,148 ( 101,834 ) 955,077 ( 204,402 ) Income tax expense 96,267 - 162,622 - Net income (loss) $ 456,881 $ ( 101,834 ) $ 792,455 $ ( 204,402 ) Less: Net income (loss) attributable to noncontrolling interests 42,406 ( 14,669 ) 72,726 ( 14,669 ) Net income (loss) attributable to Fortune Valley Treasures, Inc. 414,475 ( 87,165 ) 719,729 ( 189,733 ) Other comprehensive income (loss): Foreign currency translation gain (loss) 88,041 ( 1,935 ) 81,371 5,283 Total comprehensive income (loss) 544,922 ( 103,769 ) 873,826 ( 199,119 ) Less: comprehensive income (loss) attributable to noncontrolling interests 50,477 ( 14,966 ) 80,194 ( 14,966 ) Comprehensive income (loss) attributable to Fortune Valley Treasures, Inc. $ 494,445 $ ( 88,803 ) $ 793,632 $ ( 184,153 ) Earnings (loss) per share Basic and diluted earnings (loss) per share $ 0.00 $ ( 0.00 ) $ 0.00 $ ( 0.00 ) Basic and diluted weighted average shares outstanding 313,098,220 307,750,100 313,098,220 307,750,100 See accompanying notes to the unaudited condensed consolidated financial statements. 4 FORTUNE VALLEY TREASURES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (Unaudited) Number of shares Amount Paid-in Capital Comprehensive Loss Accumulated Deficit Controlling Interest Stockholders’ Equity Common Stock Additional Accumulated Other Non Total Number of shares Amount Paid-in Capital Comprehensive Income Accumulated Deficit controlling Interests Stockholders’ Equity Balance as of December 31, 2020 313,098,220 $ 313,098 $ 10,763,790 $ 300,265 $ ( 4,341,417 ) $ 195,915 $ 7,231,651 Noncontrolling interests arising from acquisition of subsidiary Net income - - - - 305,254 30,320 335,574 Foreign currency translation adjustment - - - ( 6,067 ) - ( 603 ) ( 6,670 ) Balance as of March 31, 2021 313,098,220 $ 313,098 $ 10,763,790 $ 294,198 $ ( 4,036,163 ) $ 225,632 $ 7,560,555 Net income - - - - 414,475 42,406 456,881 Foreign currency translation adjustment - - - 79,970 - 8,071 88,041 Balance as of June 30, 2021 313,098,220 $ 313,098 $ 10,763,790 $ 374,168 $ ( 3,621,688 ) $ 276,109 $ 8,105,477 Common Stock Additional Accumulated Other Non Total Number of shares Amount Paid-in Capital Comprehensive Income Accumulated Deficit controlling Interests Stockholders’ Deficit Balance as of December 31, 2019 307,750,100 $ 307,750 $ - $ 17,599 $ ( 1,085,853 ) $ - $ ( 760,504 ) Net loss - - - - ( 102,568 ) - ( 102,568 ) Foreign currency translation adjustment - - - 7,218 - - 7,218 Balance as of March 31, 2020 307,750,100 $ 307,750 $ - $ 24,817 $ ( 1,188,421 ) $ - $ ( 855,854 ) Noncontrolling interests arising from acquisition of subsidiary - - - - - 17,042 17,042 Net loss - - - - ( 87,165 ) ( 14,669 ) ( 101,834 ) Net income (loss) - - - - ( 87,165 ) ( 14,669 ) ( 101,834 ) Foreign currency translation adjustment - - - ( 1,638 ) - ( 297 ) ( 1,935 ) Balance as of June 30, 2020 307,750,100 $ 307,750 $ - $ 23,179 $ ( 1,275,586 ) $ 2,076 $ ( 942,581 ) See accompanying notes to the unaudited condensed consolidated financial statements. 5 FORTUNE VALLEY TREASURES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (Unaudited) 2021 2020 Six months ended June 30, 2021 2020 Cash flows from operating activities Net income (loss) $ 792,455 $ ( 204,402 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization expense 426,224 7,987 Non-cash lease expense 51,831 - Changes in operating assets and liabilities Accounts receivable 1,302,508 ( 38,754 ) Inventories 9,751 ( 5,894 ) Prepayments and other current assets ( 2,185,049 ) ( 10,805 ) Deposits paid ( 995,723 ) - Accounts payable ( 50,152 ) ( 931 ) Customer advances 109,032 - Accrued liabilities 121,960 17,042 Income tax payable ( 210,758 ) - Operating lease obligations ( 61,546 ) - Net cash used in operating activities ( 689,467 ) ( 235,757 ) Cash flows from investing activities Repayment of advance to related parties 3,539,350 - Advance to related parties ( 2,876,774 ) - Purchase of property and equipment ( 57,442 ) - Purchase of intangible assets ( 23,486 ) ( 43,231 ) Net cash provided by (used in) investing activities 581,648 ( 43,231 ) Cash flows from financing activities Borrowings from related parties 1,836,071 245,988 Borrowings from and repayments to bank loans, net ( 22,925 ) 144,009 Repayments to related parties ( 1,529,556 ) ( 134,670 ) Net cash provided by financing activities 283,590 255,327 Effect of exchange rate changes on cash and cash equivalents ( 5,208 ) ( 500 ) Net changes in cash and cash equivalents 170,563 ( 24,161 ) Cash and cash equivalents–beginning of the period 249,837 38,137 Cash and cash equivalents–end of the period $ 420,400 $ 13,976 Supplementary cash flow information: Interest paid $ 9,487 $ 2,982 Income taxes paid $ 446,755 $ - Non-cash investing and financing activities Expenses paid by related parties on behalf of the Company $ 293,862 $ - Remeasurement of operating lease obligation and right-of-use asset due to lease termination $ 40,885 $ - Operating lease right-of-use assets obtained in exchange for operating lease obligations $ 281,058 $ - Noncontrolling interests arising from acquisition of subsidiary $ - $ 17,042 See accompanying notes to the unaudited condensed consolidated financial statements. 6 FORTUNE VALLEY TREASURES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (Unaudited) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fortune Valley Treasures, Inc. (formerly Crypto-Services, Inc.) (“FVTI” or the “Company”) was incorporated in the State of Nevada on March 21, 2014. The Company’s current primary business operations of wholesale distribution and retail sales of alcoholic beverages of wine and distilled liquors, and drinking water distribution and delivery are conducted through its subsidiaries in the People’s Republic of China (“PRC”). On April 11, 2018, the Company entered into a share exchange agreement by and among DaXingHuaShang Investment Group Limited (“DIGLS”) and its shareholders: 1.) Yumin Lin, 2.) Gaosheng Group Co., Ltd. and 3.) China Kaipeng Group Co., Ltd whereby the Company newly issued 300,000,000 shares of its common stock in exchange for all the outstanding shares in DIGLS. This transaction has been accounted for as a reverse takeover transaction and a recapitalization of the Company whereby the Company, the legal acquirer, is the accounting acquiree, and DIGLS, the legal acquiree, is the accounting acquirer; accordingly, the Company’s historical statement of stockholders’ equity has been retroactively restated to the first period presented. On March 1, 2019, the Company entered into a sale and purchase agreement (the “SP Agreement”) to acquire 100 % of the shares of Jiujiu Group Stock Co., Ltd. (“JJGS”), a company incorporated under the laws of the Republic of Seychelles. The transaction closed on March 1, 2019. Pursuant to the SP Agreement, the Company issued 100 shares of its common stock to JJGS to acquire 100% of the shares of JJGS for a cost of $ 150 . After the closing, JJGS became the Company’s wholly owned subsidiary. JJGS owns all of the equity interest of Jiujiu (HK) Industry Limited (“JJHK”) and Jiujiu (Shenzhen) Industry Co., Ltd. (“JJSZ”). JJGS and JJHK are holding companies and conduct business through their operating subsidiary, JJSZ, which engages in retail and wholesale distribution of wine products. On June 22, 2020, the Company entered into a sale and purchase agreement along with Qianhai DaXingHuaShang Investment (Shenzhen) Co., Ltd., a company incorporated in China and a wholly-owned subsidiary of FVTI (“QHDX”), to acquire 90 % of the shares of Dongguan Xixingdao Technology Co., Ltd. (“Xixingdao”), a company incorporated in the PRC, from certain shareholders of Xixingdao in exchange for 4,862,681 shares of the Company’s common stock. The Company obtained the control of Xixingdao and Xixingdao became the Company’s subsidiary on August 31, 2020. The shares were issued on December 28, 2020. On January 6, 2021, FVTI, JJGS, Valley Holding Limited (“Valley Holdings”) and Angel International Investment Holdings Limited (the “Valley Holdings Seller”) signed a termination agreement, pursuant to which the parties mutually agreed to terminate the original equity interest transfer agreement signed on March 16, 2020. On the same date, FVTI, DILHK, Valley Holdings and the Valley Holdings Seller entered into a new equity interest transfer agreement, pursuant to which DILHK agreed to purchase 70 % of Valley Holdings’ equity interest (the “Valley Holdings Equity Transfer”) from the Valley Holdings seller in consideration of FVTI’s common shares valued at $ 12 million ( subject to adjustments in the event Valley Holdings’ net profit is more than HK$5 million (approximately US$0.6 million) or less than HK$3 million (approximately US$0.4 million) for the fiscal year ended December 31, 2020 ). As of the date of this filing, the closing of the Valley Holdings Equity Transfer has not occurred. On February 28, 2021, FVTI, QHDX and the original shareholders of Foshan BaiTaFeng Beverage Development Co., Ltd. (“BTF”) signed a termination agreement, pursuant to which the parties mutually agreed to terminate the original equity interest transfer agreement signed on December 31, 2019 (“BTF Agreement”). The BTF Agreement was terminated effective February 28, 2021 and the parties have no further rights or obligations under the BTF Agreement. The parties further agreed to waive their rights to any claims that may arise under the BTF Agreement. As of the date of the termination agreement, no equity interest of BTF had been transferred to QHDX. 7 Basis of presentation The accompanying unaudited condensed consolidated financial statements as of and for the six months ended June 30, 2021 and 2020, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) that permit reduced disclosure for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. In the opinion of management, all adjustments consisting of normal recurring entries considered necessary for a fair presentation have been included. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole. The condensed consolidated balance sheet information as of December 31, 2020 was derived from the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, for the year ended December 31, 2020, filed with the SEC on April 26, 2021 (the “report”). These unaudited condensed consolidated financial statements should be read in conjunction with the report. The accompanying financial statements have been prepared in conformity with U.S. GAAP which contemplates continuation of the Company as a going-concern basis. The going-concern basis assumes that assets are realized, and liabilities are settled in the ordinary course of business at amounts disclosed in the financial statements. Although the Company has generated a negative operating cash flow of $ 689,467 during the six months ended June 30, 2021, it has reported a net income of $ 792,455 . In addition, as of June 30, 2021, the Company had a working capital of $ 2,360,398 . The Company’s independent registered public accounting firm expressed in its report on the Company’s financial statements for the year ended December 31, 2020 a substantial doubt about the Company’s ability to continue as a going concern. Based on the Company’s effort in improving its operations and the significant working capital increase as of June 30, 2021, the management believes that the substantial doubt has been alleviated. Basis of consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. The results of subsidiaries acquired during the respective periods are included in the consolidated statements of operations from the effective date of acquisition or up to the effective date of disposal, as appropriate. The portion of the income or loss applicable to noncontrolling interests in subsidiaries is reflected in the consolidated statements of operations. As of June 30, 2021, details of the Company’s major subsidiaries were as follows: SCHEDULE OF ENTITIES AND ITS SUBSIDIARIES Entity Name Date of Incorporation Parent Entity Nature of Operation Place of Incorporation DIGLS July 4, 2016 FVTI Investment holding Republic of Seychelles DILHK June 22, 2016 DIGLS Investment holding Hong Kong, PRC QHDX November 3, 2016 DILHK Investment holding PRC FVTL May 31, 2011 QHDX Trading of food and platform PRC JJGS August 17, 2017 FVTI Investment holding Republic of Seychelles JJHK August 24, 2017 JJGS Investment holding Hong Kong, PRC JJSZ November 16, 2018 JJHK Trading of food PRC Xixingdao August 28, 2019 QHDX Drinking water distribution and delivery PRC Dongguan City Fu La Tu Trade Ltd (“FLTT”) September 27, 2020 FVTL Trading of alcoholic beverages PRC Dongguan City Fu Xin Gu Trade Ltd (“FXGT”) December 2, 2020 FVTL Trading of alcoholic beverages PRC Dongguan City Fu Xin Technology Ltd (“FXTL”) November 12, 2020 Xixingdao Drinking water distribution and delivery PRC Dongguan City Fu Guan Healthy Industry Technology Ltd (“FGHL”) December 21, 2020 Xixingdao Drinking water distribution and delivery PRC Dongguan City Fu Jing Technology Ltd (“FJTL”) November 17, 2020 Xixingdao Drinking water distribution and delivery PRC Dongguan City Fu Xiang Technology Ltd (“FGTL”) November 16, 2020 Xixingdao Drinking water distribution and delivery PRC Dongguan City Fu Ji Food & Beverage Ltd (“FJFL”) November 9, 2020 Xixingdao Drinking water distribution and delivery PRC Dongguan City Fu Lai Food Ltd (“FLFL”) September 27, 2020 Xixingdao Drinking water distribution and delivery PRC Dongguan City Fu Yi Beverage Ltd (“FYDL”) November 12, 2020 Xixingdao Drinking water distribution and delivery PRC Dongguan City Fu Xi Drinking Water Company Ltd (“FXWL”) March 17, 2021 Xixingdao Drinking water distribution and delivery PRC Dongguan City Fu Jia Drinking Water Company Ltd (“FJWL”) March 29, 2021 Xixingdao Drinking water distribution and delivery PRC Dongguan City Fu Sheng Drinking Water Company Ltd (“FSWL”) March 29, 2021 Xixingdao Drinking water distribution and delivery PRC Shenzhen Fu Jin Trading Technology Company Ltd (“FJSTL”) June 7, 2021 Xixingdao Trading of primary agricultural products, household appliances and plastic products; and Software technology development PRC 8 Use of estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates include certain assumptions related to going concern, allowance of doubtful accounts, allowance of deferred tax asset, useful lives and impairment of long-lived assets, and impairment of goodwill. Actual results may differ from these estimates. Reclassification Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position. Foreign currency translation and re-measurement The Company translates its foreign operations to the U.S. dollar in accordance with ASC 830, “ Foreign Currency Matters ”. The reporting currency for the Company and its subsidiaries is the U.S. dollar. The Company, DIGLS, DILHK, JJGS and JJHK’s functional currency is the U.S. dollar; QHDX, JJSZ and their subsidiaries which are incorporated in PRC use the Chinese Renminbi (“RMB”) as their functional currency. The Company’s subsidiaries, whose records are not maintained in that company’s functional currency, re-measure their records into their functional currency as follows: ● Monetary assets and liabilities at exchange rates in effect at the end of each period ● Nonmonetary assets and liabilities at historical rates ● Revenue and expense items at the average rate of exchange prevailing during the period Gains and losses from these re-measurements were not significant and have been included in the Company’s results of operations. The Company’s subsidiaries, whose functional currency is not the U.S. dollar, translate their records into the U.S. dollar as follows: ● Assets and liabilities at the rate of exchange in effect at the balance sheet date ● Equities at the historical rate ● Revenue and expense items at the average rate of exchange prevailing during the period Translation of amounts from the local currencies of the Company into US$ has been made at the following exchange rates for the respective periods: SCHEDULE OF FOREIGN CURRENCY EXCHANGE RATE TRANSLATION As of and for the six months ended June 30, 2021 2020 Period-end RMB:US$1 exchange rate 0.15483 0.14125 Period-average RMB:US$1 exchange rate 0.15451 0.14202 The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US dollars at the rates used in translation. 9 Impairment of long-lived assets other than goodwill The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Impairment may be the result of becoming obsolete from a change in the industry or new technologies. Impairment is present if the carrying amount of an asset is less than its undiscounted cash flows to be generated. If an asset is considered impaired, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company did not recognize any impairment of long-lived assets during the six months ended June 30, 2021 and 2020. Goodwill Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. In accordance with FASB ASC Topic 350, “Intangibles-Goodwill and Others”, goodwill is subject to at least an annual assessment for impairment or more frequently if events or changes in circumstances indicate that an impairment may exist, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis. The Company would recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. During the six months ended June 30, 2021, the Company did not record any impairment of goodwill. 10 Revenue recognition The Company follows the guidance of ASC 606, revenue from contracts with customers is recognized using the following five steps: 1. Identify the contract(s) with a customer; 2. Identify the performance obligations in the contract; 3. Determine the transaction price; 4. Allocate the transaction price to the performance obligations in the contract; and 5. Recognize revenue when (or as) the entity satisfies a performance obligation. Under Topic 606, revenues are recognized when the promised products have been confirmed of delivery or services have been transferred to the consumers in amounts that reflect the consideration the customer expects to be entitled to in exchange for those services. The Company presents value added taxes (“VAT”) as reductions of revenues. The Company recognizes revenues net of value added taxes (“VAT”) and relevant charges. We generate revenue primarily from the sales of wine, water and oil directly to agents, wholesalers and end users. We recognize product revenue at a point in time when the control of the products has been transferred to customers. The transfer of control is considered complete when products have been picked up by or delivered to our customers. We account for shipping and handling fees as a fulfillment cost. The following table provides information about disaggregated revenue based on revenue by product types: SCHEDULE OF DISAGGREGATION REVENUE Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 Sales of wine $ 617,568 $ 69,176 $ 1,396,788 $ 91,227 Sales of water 1,027,651 - 1,728,146 - Sales of oil 81,120 - 217,117 - Others 99,005 - 127,453 - Total $ 1,825,344 $ 69,176 $ 3,469,504 $ 91,227 Contract liabilities Contract liabilities consist mainly of customer advances. On certain occasions, the Company may receive prepayments from downstream retailers or wholesales customers for wines, water and other products prior to them taking possession of the Company’s products. The Company records these receipts as customer advances until the control of the products has been transferred the customers. As of June 30, 2021 and December 31, 2020, the Company had customer advances of $ 695,695 and $ 580,151 , respectively. During the six months ended June 30, 2021, the Company recognized $ 193,737 of customer advances in the opening balance. Related party transaction Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. Recent accounting pronouncements adopted In December 2020, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The ASU removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. On January 1, 2021, the Company adopted ASU 2019-12 on a prospective basis. The adoption did not have a material impact on the Company’s consolidated financial statements. 11 NOTE 2 - ACCOUNTS RECEIVABLE, NET Accounts receivable consisted of the following as of June 30, 2021 and December 31, 2020 : SCHEDULE OF ACCOUNTS RECEIVABLE June 30, 2021 December 31, 2020 Accounts receivable $ 1,189,597 $ 2,468,038 Less: Allowance for doubtful accounts - - Accounts receivable, net $ 1,189,597 $ 2,468,038 NOTE 3 – PREPAYMENTS AND OTHER CURRENT ASSETS Prepayments and other current assets consisted of the following as of June 30, 2021 and December 31, 2020 : SCHEDULE OF PREPAYMENTS AND OTHER CURRENT ASSETS June 30, 2021 December 31, 2020 Prepayments $ 2,577,034 $ 376,746 Other current assets 482 7,062 Total prepayments and other receivables $ 2,577,516 $ 383,808 As of June 30 , 2021 and December 31, 2020, the balance of $ 2,577,034 and $ 376,746 , respectively, represented the advanced payments to suppliers. NOTE 4 – PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following as of June 30, 2021 and December 31, 2020 : SCHEDULE OF PROPERTY AND EQUIPMENT, NET June 30, 2021 December 31, 2020 Office equipment $ 69,158 $ 69,158 Leasehold improvement 105,550 54,146 Property and equipment 174,708 123,304 Less: Accumulated depreciation ( 85,683 ) ( 75,489 ) Property and equipment, net $ 89,025 $ 47,815 Depreciation expense, which was included in general and administrative expenses, for the six months ended June 30, 2021 and 2020 was $ 10,194 and $ 7,987 , respectively. NOTE 5 – INTANGIBLE ASSETS Intangible assets and related accumulated amortization were as follows : SCHEDULE OF INTANGIBLE ASSETS June 30, 2021 December 31, 2020 Distributor channel $ 3,335,088 $ 3,299,329 Other 10,155 4,105 Total intangible assets 3,345,243 3,303,434 Less: Accumulated amortization ( 694,810 ) ( 274,944 ) Total $ 2,650,433 $ 3,028,490 Amortization expense for the six months ended June 30, 2021 and 2020 was $ 416,030 and $ 0 , respectively, included in cost of revenues. Other intangible assets mainly consist of internal-used software under development, which is not yet ready for use. As of June 30 , 2021, the future estimated amortization costs for distribution channel are as follows: SCHEDULE OF FUTURE AMORTIZATION EXPENSE FOR DISTRIBUTION CHANNELS 2021 (remaining) $ 416,886 2022 833,772 2023 833,772 2024 555,848 Thereafter - Total $ 2,640,278 12 NOTE 6- RELATED PARTY TRANSACTIONS Amounts due from related parties as of June 30, 2021 and December 31, 2020 were as follows: SCHEDULE OF AMOUNT DUE FROM AND DUE TO RELATED PARTIES June 30, 2021 December 31, 2020 Mr. Yumin Lin President, Chief Executive Officer, Secretary, Director $ - $ 45,662 Mr. Kaihong Lin Chief Financial Officer and Treasurer - 215,973 Ms. Xiulan Zhou Manager of a subsidiary, Mr. Yumin Lin’s wife - 360,273 Mr. Huagen Li Manager of a subsidiary - 123,456 Mr. Zhipeng Zuo Manager of a subsidiary - 133,658 Mr. Deqin Ke Manager of a subsidiary 29,812 - Ms. Shuqin Chen Manager of a subsidiary - 105,784 $ 29,812 $ 984,806 Amounts due to related parties as of June 30, 2021 and December 31, 2020 were as follows: June 30, 2021 December 31, 2020 Mr. Yumin Lin President, Chief Executive Officer, Secretary, Director $ 54,969 $ - Ms. Huagen Li Manager of a subsidiary 1,703 - Ms. Xiulan Zhou Manager of a subsidiary, Mr. Yumin Lin’s wife 1,185 - Mr. Yuwen Li Vice President 351,888 292,024 Ms. Lihua Li Mr. Yuwen Li’s wife - 677 Mr. Zihao Ye Manager of a subsidiary - 12,958 Mr. Zhipeng Zuo Manager of a subsidiary 26,786 - Mr. Weihua Zuo Manager of a subsidiary - 2,298 Mr. Deqin Ke Manager of a subsidiary - 9,274 Ms. Shuqin Chen Manager of a subsidiary 2,127 - Ms. Xiuyun Wang Manager of a subsidiary 5,924 1,483 Mr. Shengpin Liu Manager of a subsidiary - 306 Mr. Aisheng Zhang Manager of a subsidiary 3,871 3,063 Mr. Zhihua Liao Manager of a subsidiary 20,902 12,254 Mr. Guodong Jia Manager of a subsidiary 4,939 - Mr. Meng Xue Manager of a subsidiary 4,461 - Mr. Minghua Cheng Director 154,833 - Shenzhen DaXingHuaShang Industry Development Ltd. Mr. Yumin Lin is the supervisor of Shenzhen DaXingHuaShang Industry Development Ltd. 95,670 3,063 $ 729,258 $ 337,400 Revenues generated from related parties during the six months ended June 30 , 2021 and 2020 were as follows: SCHEDULE OF REVENUE GENERATED FROM RELATED PARTIES For the six months ended June 30, 2021 2020 Mr. Kaihong Lin Chief Financial Officer and Treasurer $ 160 $ - Mr. Yumin Lin President, Chief Executive Officer, Secretary, Director 302 - Mr. Naiyong Luo Manager of a subsidiary 5,742 - Mr. Hongwei Ye Manager of a subsidiary, Shareholder 5,933 - Mr. Zihao Ye Manager of a subsidiary 76 - Ms. Xiulan Zhou Manager of a subsidiary, Mr. Yumin Lin’s wife 51 - $ 12,264 $ - Due from related parties mainly consists of funds advanced to related parties as borrowings or funds advanced to pay off the Company’s expenses. The balances are unsecured, non-interest bearing. During the six months ended June 30 , 2021, the Company advanced $ 2,876,774 to its related parties, and collected $ 3,539,350 repayments. Due to related parties mainly consists of borrowings for working capital purpose, the balances are unsecured, non-interest bearing and due on demand. During the six months ended June 30 , 2021 and 2020, the Company borrowed $ 1,836,071 and $ 245,988 from its related parties, and repaid $ 1,529,556 and $ 134,670 , respectively. In addition, during the six months ended June 30, 2021 and 2020, the Company’s related parties paid expenses on the Company’s behalf in amounts of $ 293,862 and $ 0 , respectively. 13 NOTE 7 - INCOME TAXES United States of America The Company is registered in the State of Nevada and is subject to United States of America tax law. The U.S federal income tax rate is 21 % . Seychelles Under the current laws of the Seychelles, DIGLS and JJGS are registered as an international business company which governed by the International Business Companies Act of Seychelles and there is no income tax charged in Seychelles. Hong Kong From year of assessment of 2018/2019 onwards, Hong Kong profit tax rates are 8.25 % on assessable profits up to HK$ 2,000,000 (approximately $ 289,855 ), and 16.5 % on any part of assessable profits over HK$2,000,000. For the six months ended June 30, 2021 and 2020, the Company did not have any assessable profits arising in or derived from Hong Kong, therefore no provision for Hong Kong profits tax was made in the periods reported. The PRC The Company’s subsidiaries are incorporated in the PRC, and are subject to the PRC Enterprise Income Tax Laws (“EIT Laws”) with the statutory income tax rate of 25 % with the following exceptions. On January 17, 2019, the State Taxation Administration issued the notice on the scope of small-scale and low-profit corporate income tax preferential policies of the Ministry of Finance and the State Administration of Taxation, [2019] No. 13 for small-scale and low-profit enterprises whose annual taxable income is less than RMB 1,000,000 (including RMB1,000,000), approximately $ 142,209 , their income is reduced by 25% to the taxable income, and enterprise income tax is paid at 20 % tax rate, which is essentially resulting in a favorable income tax rate of 5%. While for the portion of annual taxable income exceeding RMB1,000,000, approximately $142,209, but not more than RMB 3,000,000 , approximately $ 426,627 , the income is reduced by 50% to the taxable income, and enterprise income tax is paid at 20% tax rate, which is essentially resulting in a favorable income tax rate of 10 % . The qualifications of small-scale and low-profit enterprises were examined annually by the Tax Bureau. All of the Company’s PRC subsidiaries met the criteria of small-scale and low-profit enterprises. The components of the income tax provision are as follows: SCHEDULE OF COMPONENTS OF INCOME TAX PROVISION Six Months Ended June 30, 2021 Six Months Ended June 30, 2020 Current: – United States of America $ 79,096 $ - – Seychelles - - – Hong Kong - - – The PRC 83,526 - Deferred – United States of America - - – Seychelles - - – Hong Kong - - – The PRC - - Total $ 162,622 $ - The effective tax rate was 17.0 % and 0.0 % for the six months ended June 30, 2021 and 2020, respectively. 14 NOTE 8 - OPERATING LEASES As of June 30, 2021, the Company has fourteen separate operating lease agreements for three office spaces, one warehouse and ten stores in PRC with remaining lease terms of from 15 months to 70 months. Two of these leases were entered with related parties. The Company has an operating lease agreement with Qingmei Lin, Yumin Lin’s former wife , for the premises in Dongguan City, PRC. The agreement covers the period from January 1, 2019 to April 30, 2027. The monthly rent expense is RMB 10,000 (approximately $ 1,450 ). The Company has an operating lease agreement with Hongwei Ye, a related party, for the premises in Dongguan City, PRC. The agreement covers the period from September 27, 2020 to September 30, 2023. The monthly rent expense is RMB 960 (approximately $ 139 ). The Company terminated an operating lease agreement with a subsidiary of Shenzhen DaXingHuaShang Industry Development Ltd., a related party, for the premised in Shenzhen City, PRC on February 28, 2021. The monthly rent expense for this lease was RMB 30,000 (approximately $ 4,349 ). The components of lease expense and supplemental cash flow information related to leases for the six months ended June 30, 2021 and 2020 are as follows: SCHEDULE OF COMPONENTS OF LEASE EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION Operating lease cost (included in general and administrative expenses in the Company’s consolidated statements of operations) For the six months ended June 30, 2021 2020 Related parties $ 23,307 $ 34,791 Non-related parties 42,666 - Total $ 65,973 $ 34,791 Other information for the six months ended June 30, 2021 June 30, 2020 Cash paid for amounts included in the measurement of lease obligations $ 72,024 $ 8,521 Weighted average remaining lease term (in years) 4.26 4.49 Weighted average discount rate 3.23 % 3.23 % Maturities of the Company’s lease obligations as of June 30, 2021 are as follows: SCHEDULE OF MATURITIES OF LEASE OBLIGATIONS Year ending December 31, 2021 (remaining) $ 77,842 2022 148,253 2023 102,619 2024 77,710 2025 81,160 Thereafter 51,875 Total lease payment 539,459 Less: Imputed interest ( 38,603 ) Operating lease obligations $ 500,856 NOTE 9 – BANK AND OTHER BORROWINGS In December 2020, the Company obtained a revolving credit line in the principal amount of RMB 750,000 (approximately $ 115,000 ) from Huaneng Guicheng Trust Co., Ltd, a financial institution in PRC, which bears interest at the base Loan Prime Rate of 3.85% plus 8.75%. The credit line is guaranteed by Yumin Lin, the Company’s Chief Executive Officer. The maturity date is on December 21, 2022 . In August 2020, the Company obtained a revolving credit line in the principal amount of RMB 910,000 (approximately $ 139,000 ) from China Construction Bank, which bears interest at the base Loan Prime Rate of 3.85% plus 0.4%. The credit line is guaranteed by Xiulan Zhou, a related party, and pledged by her property. The maturity date is on July 21, 2023 . The balance of the loans borrowed under these credit lines as of June 30 , 2021 and December 31, 2020 was as follows: SCHEDULE OF BALANCE OF LOAN BORROWED UNDER CREDIT LINES June 30, 2021 December 31, 2020 Loan from a trust in PRC $ 99,536 $ 114,879 China Construction Bank 102,189 139,387 Total non-current borrowings $ 201,725 $ 254,266 The total interest expense was $ 9,487 and $ nil for the six months ended June 30, 2021 and 2020, respectively. NOTE 10 - SUBSEQUENT EVENTS During the subsequent period, the Company advanced a total amount of $ nil to its related parties, and the related parties repaid the amount of $ 1,545 to the Company. The remaining balance of due from related party as of the filing date was $ 28,264 . 15 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission on April 26, 2021 (the “Form 10-K”) and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Form 10-Q. The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guaranteed of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the factors described in our Form 10-K in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this quarterly report on Form 10-Q. The following should also be read in conjunction with the unaudited Financial Statements and notes thereto that appear elsewhere in this report. Overview Fortune Valley Treasures, Inc. (the “Company,” “we,” “our” or “us”) was incorporated in the State of Nevada on March 21, 2014. We were initially incorporated to offer users with up-to-date information on digital currencies. We engage in the food supply chain operations and management through a service platform. Through various acquisitions of high-quality upstream and downstream companies in the industry, the Company creates a complete industrial chain to reduce costs and enhance competitiveness. The company mainly focuses on online and offline sales targeting regional wholesalers, retailers, supermarkets and major food and beverage (“F&B”) chains. During the six months ended June 30, 2021, the Company conducted its business in one revenue stream: product sales – wine, water and oil and other F&B products. Results of Operations Three Months Ended June 30, 2021 and 2020 Three Months Ended June 30, 2021 2020 Change Revenue $ 1,825,344 $ 69,176 $ 1,756,168 Cost of revenue (797,524 ) (39,917 ) (757,607 ) Gross profit 1,027,820 29,259 998,561 Other operating income 166 - 166 Operating expense (469,476 ) (127,631 ) (341,845 ) Other income 572 1,400 (828 ) Other expense (5,934 ) (4,862 ) (1,072 ) Income taxes (96,267 ) - (96,267 ) Net income (loss) 456,881 (101,834 ) 558,715 Net income (loss) attributable to noncontrolling interests 42,406 (14,669 ) 57,075 Net income (loss) attributable to Fortune Valley Treasures, Inc. $ 414,475 $ (87,165 ) $ 501,640 Six Months Ended June 30, 2021 and 2020 Six Months Ended June 30, 2021 2020 Change Revenue $ 3,469,504 $ 91,227 $ 3,378,277 Cost of revenue (1,527,267 ) (54,343 ) (1,472,924 ) Gross profit 1,942,237 36,884 1,905,353 Other operating income 166 - 166 Operating expense (978,607 ) (238,492 ) (740,115 ) Other income 768 2,186 (1,418 ) Other expense (9,487 ) (4,980 ) (4,507 ) Income taxes (162,622 ) - (162,622 ) Net income (loss) 792,455 (204,402 ) 996,857 Net income (loss) attributable to noncontrolling interests 72,726 (14,669 ) 87,395 Net income (loss) attributable to Fortune Valley Treasures, Inc. $ 719,729 $ (189,733 ) $ 909,462 16 Revenue Revenue was $1,825,344 for three months ended June 30, 2021, reflecting an increase of $1,756,168, or 2,539%, from $69,176 for the three months ended June 30, 2020. The reason for the increase was the Company started generating online sales from WeChat Application named Fu Gu Online in April 2021. Revenue was $3,469,504 for six months ended June 30, 2021, reflecting an increase of $3,378,277, or 3,703%, from $91,227 for six months ended June 30, 2020. The reason for the increase was the Company added its water and oil business, which increased our sales volume. Cost of Revenue Cost of revenue was $797,524 for the three months ended June 30, 2021, reflecting an increase of $757,607, or 1,898%, from $39,917 for the three months ended June 30, 2020. Cost of revenue was $1,527,267 for the six months ended June 30, 2021, reflecting an increase of $1,472,924, or 2,710%, from $54,343 for the six months ended June 30, 2020. The increase in cost of revenue was due to the increase of our revenue. Gross Profit Gross profit was $1,027,820 and $29,259 for the three months ended June 30, 2021 and 2020, respectively, reflecting an increase of $998,561, or 3,413%. Gross profit was $1,942,237 and $36,884 for the six months ended June 30, 2021 and 2020, respectively, reflecting an increase of $1,905,353, or 5,166%. The increase of gross profit was due to the addition of the revenue from our water and oil business, where gross profit was higher. Operating Expenses Operating expense was $469,475 for the three months ended June 30, 2021, reflecting an increase of $341,845, or 268%, from $127,631 for the three months ended June 30, 2020. Operating expense was $978,607 for the six months ended June 30, 2021, reflecting an increase of $740,115, or 310%, from $238,492 for the six months ended June 30, 2020, due to the increase in professional service fees and general administrative costs in connection with the business of bottling and distributing of drinking water in China. Net Income (loss) For the three months ended June 30, 2021, net income was $456,881, compared to net loss $101,834 for the three months ended June 30, 2020. For the six months ended June 30, 2021, net income was $792,455, compared to net loss $204,402 for the six months ended June 30, 2020. The increase in net income was a result of the factors described above. Net income (loss) attributable to noncontrolling interests The Company records net income (loss) attributable to noncontrolling interests in the consolidated statements of operations for any noncontrolling interests of consolidated subsidiaries. For the three months ended June 30, 2021 and 2020, the Company recorded net income attributable to a noncontrolling interest of $42,406 and net loss attributable to a noncontrolling interest of $14,669, respectively. For the six months ended June 30, 2021 and 2020, the Company recorded net income attributable to a noncontrolling interest of $72,726 and net loss attributable to a noncontrolling interest of $14,669, respectively. 17 Liquidity and Capital Resources Working Capital June 30, December 31, 2021 2020 Change Total current assets $ 4,353,686 $ 4,231,054 $ 122,632 Total current liabilities 1,993,288 1,996,446 (3,158 ) Working capital $ 2,360,398 $ 2,234,608 $ 125,790 As of June 30, 2021, we had working capital of $2,360,398, as compared to working capital of $2,234,608 as of December 31, 2020. We had total current assets of $4,353,686, consisting of cash on hand of $420,400, Inventory of $136,361, prepayments and other current assets of $2,577,516, accounts receivable of $1,189,597 and amount due from related party of $29,812, compared to total current assets of $4,231,054 as of December 31, 2020. The increase was mainly due to the increase in prepayments and other current assets, offset by the decrease in accounts receivable and due from related parties. We had current liabilities of $1,993,288, consisting of accounts payable of $204,012, customer advances $695,695, income tax payable $113,964, due to related parties of $729,258 and accrued liabilities of $108,236. Our cash balance at June 30, 2021 increased to $420,400, as compared to $249,837 at December 31, 2020. We estimate the Company currently has sufficient cash available to meet its anticipated working capital for the next twelve months, without raising additional capital. The Company is continuing to look for different financing opportunities in order to increase sufficient working capital and improve liquidity. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. During the six months ended June 30, 2021, the Company had a net income of $792,455 and used cash in operations of $689,467 and at June 30, 2021, the Company had a working capital of $2,360,398. The Company’s independent registered public accounting firm expressed in its report on the Company’s financial statement for the year ended December 31, 2020 a substantial doubt about the Company’s ability to continue as a going concern. Based on the Company’s effort in improving its operations and the significant working capital generated as of June 30, 2021, the management believes that the substantial doubt has been alleviated. Despite the increased working capital of the Company, no assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its shareholders, in the case of equity financing. Cash Flows Six Months Ended June 30, 2021 2020 Change Cash Flows used in Operating Activities $ (689,467 ) $ (235,757 ) $ (453,710 ) Cash Flows provided by (used in) Investing Activities 581,648 (43,231 ) 624,879 Cash Flows provided by Financing Activities 283,590 255,327 28,263 Effect of change rate changes in cash and cash equivalents (5,208 ) (500 ) (4,708 ) Net Increase in Cash During the Period $ 170,563 $ (24,161 ) $ 194,724 Cash Flow from Operating Activities Net cash used in operating activities for the six months ended June 30, 2021 and 2020 was $689,467 and $235,757, respectively, reflecting an increase of $453,710. The cash used in operating activities in 2021 was mainly resulted from net income of $792,455, depreciation and amortization expense of $426,224, increase in the prepayments to vendors of $2,185,049, increase in deposits paid to vendors of $995,723 and decrease in accounts receivable of $1,302,508. Cash Flow from Investing Activities Net cash provided by investing activities was $581,648 for the six months ended June 30, 2021, compared to net cash used in investing activities of $43,231 for the six months ended June 30, 2020. The increase in net cash provided by investing activities was mainly due to an increase in repayment from related parties. Cash Flow from Financing Activities Net cash provided by financing activities was $283,590 and $255,327 for the six months ended June 30, 2021 and 2020, respectively. The increase was mainly due to the increase in advances from related parties and offset by repayments to related parties. Critical Accounting Policy and Estimates In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with U.S. generally accepted accounting principles. We base our estimates on historical experience, when available, and on other various assumptions that are believed to be reasonable under the circumstances. Actual results could differ significantly from those estimates under different assumptions and conditions. Refer to Note 1 in the accompanying unaudited condensed consolidated financial statements. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. 18 Related Party Transactions For the six months ended June 30, 2021 and 2020, related party revenue totaled $12,264 and $0, respectively. Rental expenses to related parties were $23,207 and $34,791 for the six months ended June 30, 2021 and 2020, respectively. Amounts due from related parties were $29,812 and $984,806 as of June 30, 2021 and December 31, 2020, respectively. The amounts due to related parties were $729,258 and $337,400 as of June 30, 2021 and December 31, 2020, respectively. Our related parties are primarily those persons who can significantly influence based on our common business relationships. Refer to Note 6 to the unaudited condensed consolidated financial statements for additional details regarding the related party transactions. Item 3. Quantitative and Qualitative Disclosures About Market Risk. As a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide the information under this item. Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of June 30, 2021, that our disclosure controls and procedures were not effective. The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of well-established procedures to identify, approve and review related party transactions; and (2) inadequate design of controls related to business combination transactions accounting given the accounting complexities of business combinations, including, but not limited to, lack of mindset and methods to assess the value of the business prior to acquisition, inadequate process to determine the purchase price, lack of professional understanding to determine when the control of the business acquired is transferred or when the transaction is completed, and inability to make the appropriate disclosure. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the board of directors (the “Board”), management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States (“GAAP”) and includes those policies and procedures that: ● Apply to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; ● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and ● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. 19 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. We carried out an assessment, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our internal controls over financial reporting, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of June 30, 2021. Management based the assessment on criteria for effective internal control over financial reporting described in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Based on this assessment, management has concluded that as of June 30, 2021, our internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures: ● We have increased our personnel resources and technical accounting expertise within the accounting function and intend to hire one or more additional personnel for the function due to turnover. ● We will create a position to segregate duties consistent with control objectives. ● We plan to prepare written policies and procedures for operating, accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity and debt transactions. ● We plan to test our updated controls and remediate our deficiencies in the year 2021. Changes in Internal Control over Financial Reporting There have been no changes in our internal controls over financial reporting that occurred during the period covered by this Report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting, except that we have remediated one of our material weaknesses by establishing an Audit Committee on April 9, 2021, with an independent director, Yumei Liu, qualifies as an audit committee financial expert as defined in Item 407(d)(5) of Regulation S-K. 20 PART II — OTHER INFORMATION Item 1. Legal Proceedings. We know of no material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any beneficial shareholder are an adverse party or has a material interest adverse to us. Item 1A. Risk Factors. Not applicable to a smaller reporting company Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Mine Safety Disclosures. Not applicable. Item 5. Other Information. None. Item 6. Exhibits Exhibit No. Description 31.1 Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer 31.2 Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial officer 32.1 Section 1350 Certification of principal executive officer 32.2 Section 1350 Certification of principal financial officer and principal accounting officer 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Fortune Valley Treasures, Inc. Date: August 13, 2021 By: /s/ Yumin Lin Yumin Lin President and Chief Executive Officer (Principal Executive Officer) Date: August 13, 2021 By: /s/ Kaihong Lin Kaihong Lin Chief Financial Officer (Principal Financial and Accounting Officer) 22