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, 2022 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.) B1601 Donogfang Yinxiang Building No. 139 Liansheng Road, Humen Town Dongguan, Guangdong, China 523000 (Address of principal executive offices, including zip code) Registrant’s phone number, including area code ( 86 ) 769-85729133 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 12, 2022, there were 15,655,038 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, 2022 (Unaudited) and December 31, 2021 3 Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited) 4 Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (Unaudited) 6 Notes to Condensed Consolidated Financial Statements for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited) 7 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 20 ITEM 4. CONTROLS AND PROCEDURES 20 PART II OTHER INFORMATION 22 ITEM 1 LEGAL PROCEEDINGS 22 ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 22 ITEM 3 DEFAULTS UPON SENIOR SECURITIES 22 ITEM 4 MINE SAFETY DISCLOSURES 22 ITEM 5 OTHER INFORMATION 22 ITEM 6 EXHIBITS 22 SIGNATURES 23 2 PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements . FORTUNE VALLEY TREASURES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2022 AND DECEMBER 31, 2021 June 30, 2022 December 31, 2021 (Unaudited) Assets Current assets Cash and cash equivalents $ 85,326 $ 123,163 Accounts receivable (including $ 53,571 and $ 43,477 from related parties as of June 30, 2022 and December 31, 2021, respectively) 2,704,902 2,662,168 Inventories 139,533 81,073 Prepayments and other current assets (including $ 2,059,668 and $ 1,813,904 to related parties as of June 30, 2022 and December 31, 2021, respectively) 2,437,318 2,176,713 Due from related party - 26,364 Total current assets 5,367,079 5,069,481 Non-current assets Deposits paid (including $ 1,807,382 and $ 1,596,075 to related parties as of June 30, 2022 and December 31, 2021, respectively) 2,751,174 2,306,160 Property and equipment, net 118,063 140,394 Operating lease right-of-use assets 291,748 385,896 Operating lease right-of-use assets, related parties 85,150 98,626 Intangible assets, net 1,767,737 2,281,790 Goodwill 1,334,005 1,406,289 Total Assets $ 11,714,956 $ 11,688,636 Liabilities and Stockholders’ Equity Current liabilities Operating lease obligations – current $ 102,736 $ 133,586 Operating lease obligations, related parties - current 21,777 22,666 Accounts payable (including $ 26,508 and $ 17,789 to related parties as of June 30, 2022 and December 31, 2021, respectively) 191,000 239,492 Accrued liabilities 138,589 128,343 Bank and other borrowings - current 208,012 101,207 Income tax payable 43,101 25,726 Customer advances 255,980 382,518 Due to related parties 491,621 683,981 Total current liabilities 1,452,816 1,717,519 Non-current liabilities Operating lease obligations – non-current 185,806 240,611 Operating lease obligations, related parties – non-current 65,209 77,934 Bank and other borrowings 173,430 188,218 Total Liabilities 1,877,261 2,224,282 Stockholders’ Equity Common stock ( 150,000,000 shares authorized, 15,655,038 shares issued and outstanding as of June 30, 2022 and December 31, 2021) 15,655 15,655 Additional paid-in capital 11,061,233 11,061,233 Accumulated deficit and statutory reserves ( 1,665,272 ) ( 2,561,681 ) Accumulated other comprehensive income (loss) ( 3,489 ) 544,305 Total Fortune Valley Treasures, Inc. stockholders’ equity 9,408,127 9,059,512 Noncontrolling interests 429,568 404,842 Total Stockholders’ Equity 9,837,695 9,464,354 Total Liabilities and Stockholders’ Equity $ 11,714,956 $ 11,688,636 See accompanying notes to the unaudited condensed consolidated financial statements. 3 FORTUNE VALLEY TREASURES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021 (Unaudited) 2022 2021 2022 2021 Three months ended June 30, Six months ended June 30, 2022 2021 2022 2021 Net revenues (including $ 40,770 and $ 119,706 from related parties for the three months ended June 30, 2022 and 2021, respectively; $ 41,495 and $ 388,684 from related parties for the six months ended June 30, 2022 and 2021, respectively) $ 2,336,459 $ 1,825,344 $ 3,598,269 $ 3,469,504 Cost of revenues (including $ 249,468 and $ 139,743 from related parties for the three months ended June 30, 2022 and 2021, respectively; $ 386,380 and $ 270,343 from related parties for the six months ended June 30, 2022 and 2021, respectively) 1,099,523 797,524 1,617,985 1,527,267 Gross profit 1,236,936 1,027,820 1,980,284 1,942,237 Operating expenses: Selling and distribution expenses 15,929 19,604 34,084 47,158 General and administrative expenses 347,657 449,872 874,943 931,449 Operating income 873,350 558,344 1,071,257 963,630 Other income (expense): Other income 1,995 255 8,202 286 Interest income 16 483 93 648 Interest expense ( 4,864 ) ( 5,934 ) ( 10,689 ) ( 9,487 ) Other expense, net ( 2,853 ) ( 5,196 ) ( 2,394 ) ( 8,553 ) Income before income tax 870,497 553,148 1,068,863 955,077 Income tax expense 81,514 96,267 103,921 162,622 Net income $ 788,983 $ 456,881 $ 964,942 $ 792,455 Less: Net income attributable to noncontrolling interests 41,250 42,406 68,533 72,726 Net income attributable to Fortune Valley Treasures, Inc. 747,733 414,475 896,409 719,729 Other comprehensive income (loss): Foreign currency translation income (loss) ( 602,321 ) 88,041 ( 591,601 ) 81,371 Total comprehensive income 186,662 544,922 373,341 873,826 Less: comprehensive income (loss) attributable to noncontrolling interests ( 4,305 ) 50,477 24,726 80,194 Comprehensive income attributable to Fortune Valley Treasures, Inc. $ 190,967 $ 494,445 $ 348,615 $ 793,632 Earnings per share Basic and diluted earnings per share * $ 0.05 $ 0.03 $ 0.06 $ 0.05 Basic and diluted weighted average shares outstanding * 15,655,038 15,655,038 15,655,038 15,655,038 * Given effect of the Reverse Stock Split, see Note 9 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 THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021 (Unaudited) Number of shares Amount Paid-in Capital Comprehensive Income Accumulated Deficit controlling Interests Stockholders’ Equity Common Stock Additional Accumulated Other Accumulated Deficit and Non Total Number of shares Amount Paid-in Capital Comprehensive Income (Loss) Statutory Reserves controlling Interests Stockholders’ Equity Balance as of December 31, 2021 15,655,038 $ 15,655 $ 11,061,233 $ 544,305 $ ( 2,561,681 ) $ 404,842 $ 9,464,354 Net income - - - - 148,676 27,283 175,959 Foreign currency translation adjustment - - - 8,972 - 1,748 10,720 Balance as of March 31, 2022 15,655,038 $ 15,655 $ 11,061,233 $ 553,277 $ ( 2,413,005 ) $ 433,873 $ 9,651,033 Net income - - - - 747,733 41,250 788,983 Foreign currency translation adjustment - - - ( 556,766 ) - ( 45,555 ) ( 602,321 ) Balance as of June 30, 2022 15,655,038 $ 15,655 $ 11,061,233 $ ( 3,489 ) $ ( 1,665,272 ) $ 429,568 $ 9,837,695 Number of shares Amount Paid-in Capital Comprehensive Income Accumulated Deficit controlling Interests Stockholders’ Equity Common Stock* Additional Accumulated Other Accumulated Deficit and Non Total Number of shares Amount Paid-in Capital* Comprehensive Income Statutory Reserves controlling Interests Stockholders’ Equity Balance as of December 31, 2020* 15,655,038 $ 15,655 $ 11,061,233 $ 300,265 $ ( 4,341,417 ) $ 195,915 $ 7,231,651 Net income - - - - 305,254 30,320 335,574 Foreign currency translation adjustment - - - ( 6,067 ) - ( 603 ) ( 6,670 ) Balance as of March 31, 2021* 15,655,038 $ 15,655 $ 11,061,233 $ 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* 15,655,038 $ 15,655 $ 11,061,233 $ 374,168 $ ( 3,621,688 ) $ 276,109 $ 8,105,477 * Given effect of the Reverse Stock Split, see Note 9 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, 2022 AND 2021 (Unaudited) 2022 2021 Six months ended June 30, 2022 2021 Cash flows from operating activities Net income $ 964,942 $ 792,455 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization expense 433,417 426,224 Non-cash lease expense 85,628 51,831 Changes in operating assets and liabilities Accounts receivable ( 185,856 ) 1,302,508 Inventories ( 64,826 ) 9,751 Prepayments and other current assets ( 385,553 ) ( 2,185,049 ) Due from related party 25,887 - Deposits paid ( 583,325 ) ( 995,723 ) Accounts payable ( 37,455 ) ( 50,152 ) Due to related parties ( 122,702 ) - Customer advances ( 110,633 ) 109,032 Accrued liabilities 56,060 121,960 Income tax payable 19,354 ( 210,758 ) Operating lease obligations ( 77,497 ) ( 61,546 ) Net cash provided by (used in) operating activities 17,441 ( 689,467 ) 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 ) Net cash provided by investing activities - 581,648 Cash flows from financing activities Borrowings from related parties - 1,836,071 Borrowings from and repayments to revolving credit lines, net 148,606 ( 22,925 ) Borrowings from bank loans 10,352 - Borrowings from a third party 24,154 - Repayments to related parties ( 154,510 ) ( 1,529,556 ) Repayments to bank loans ( 11,763 ) - Repayments to a third party ( 66,379 ) - Net cash provided by (used in) financing activities ( 49,540 ) 283,590 Effect of exchange rate changes on cash and cash equivalents ( 5,738 ) ( 5,208 ) Net changes in cash and cash equivalents ( 37,837 ) 170,563 Cash and cash equivalents–beginning of the period 123,163 249,837 Cash and cash equivalents–end of the period $ 85,326 $ 420,400 Supplementary cash flow information: Interest paid $ 10,191 $ 9,487 Income taxes paid $ 86,546 $ 446,755 Non-cash investing and financing activities Expenses paid by related parties on behalf of the Company $ 38,627 $ 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 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, 2022 AND 2021 (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 15,000,000 shares (given effect of the Reverse Stock Split, see Note 9) 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 5 shares (given effect of the Reverse Stock Split, see Note 9) 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, JJHK and JJSZ did not have any material assets or liabilities as of December 31, 2019, and they did not have any substantial operations or active business during the year ended December 31, 2019. 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 243,134 shares (given effect of the Reserve Stock Split, see Note 9) of the Company’s common stock. The Company obtained the control of Xixingdao on August 31, 2020, the shares were issued on December 28, 2020. Xixingdao became the Company’s subsidiary since August 31, 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 from the Valley Holdings seller (the “Valley Holdings Agreement”). On July 8, 2022, FVTI, DILHK, Valley Holdings and the Valley Holdings Seller signed a termination agreement, pursuant to which the parties mutually agreed to terminate the Valley Holdings Agreement signed on March 16, 2020. The Valley Holdings Agreement was terminated effective July 8, 2022 and the parties have no further rights or obligations under the Valley Holdings Agreement. The parties further agreed to waive their rights to any claims that may arise under the Valley Holdings Agreement. As of the date of the termination agreement, no equity interest of Valley Holdings had been transferred to FVTI, DILHK or Valley Holdings. 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 June 30, 2022 and for the three and six months ended June 30, 2022 and 2021, 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, 2021 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, 2021, filed with the SEC on April 1, 2022 (the “report”). These unaudited condensed consolidated financial statements should be read in conjunction with the report. Basis of consolidation The unaudited condensed 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 unaudited condensed consolidated statements of operations. As of June 30, 2022, 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, 202 0 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 (“FYBL”) November 12, 2020 Xixingdao Drinking water distribution and delivery PRC Dongguan City Fu Xi Drinking Water Company Ltd (“FXWL”) March 17, 2021 Xixingdao Sales of agriculture products, household electric appliances and plastic products PRC Dongguan City Fu Jia Drinking Water Company Ltd (“FJWL”) March 29, 2021 Xixingdao Sales of agriculture products, household electric appliances and food PRC Dongguan City Fu Sheng Drinking Water Company Ltd (“FSWL”) March 29, 2021 Xixingdao Sales of agriculture products, household electric appliances and food PRC Shenzhen Fu Jin Trading Technology Company Ltd (“FJSTL”) June 7, 2021 Xixingdao Trading of primary agricultural products, household appliances and plastic products PRC Dongguan City Fu Li Trading Ltd (“FLTL”) September 10, 2021 Xixingdao Sales of agriculture products, household electric appliances and plastic products PRC Guangdong Fu Gu Supply Chain Group Ltd (“FGGC”) September 13, 2021 QHDX Supply chain service, sales of food and health products, machinery, plastic products, and investment holding 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 2022 2021 As of and for the six months ended June 30, 2022 2021 Period-end RMB:US$1 exchange rate 0.14927 0.15483 Period-average RMB:US$1 exchange rate 0.15451 0.15451 The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the rates used in translation. 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, 2022 and 2021. 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, 2022 and 2021, the Company did no t 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, oil and water purifier 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 2022 2021 2022 2021 Three months ended June 30, Six months ended June 30, 2022 2021 2022 2021 Sales of wine $ 1,203,484 $ 617,568 $ 1,833,946 $ 1,396,788 Sales of water 808,648 1,027,651 1,338,092 1,728,146 Sales of oil - 81,120 - 217,117 Sales of water purifier 310,807 99,005 395,548 127,453 Others 13,520 - 30,683 - Total $ 2,336,459 $ 1,825,344 $ 3,598,269 $ 3,469,504 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, 2022 and December 31, 2021, the Company had customer advances of $ 255,980 and $ 382,518 , respectively. During the six months ended June 30, 2022, the Company recognized $ 314,780 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. 11 NOTE 2 – PREPAYMENTS AND OTHER CURRENT ASSETS Prepayments and other current assets consisted of the following as of June 30, 2022 and December 31, 2021 : SCHEDULE OF PREPAYMENTS AND OTHER CURRENT ASSETS June 30, 2022 December 31, 2021 Prepayments (including $ 2,059,668 and $ 1,813,904 to related parties as of June 30, 2022 and December 31, 2021, respectively) $ 2,428,473 $ 2,169,095 Other current assets 8,845 7,618 Prepayments and other receivables $ 2,437,318 $ 2,176,713 Balance of prepayments represented the advanced payments to suppliers including related party suppliers. NOTE 3 – PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following as of June 30, 2022 and December 31, 2021 : SCHEDULE OF PROPERTY AND EQUIPMENT June 30, 2022 December 31, 2021 Office equipment $ 114,866 $ 113,995 Leasehold improvement 126,386 126,386 Property and equipment 241,252 240,381 Less: Accumulated depreciation ( 123,189 ) ( 99,987 ) Property and equipment, net $ 118,063 $ 140,394 Depreciation expense, which was included in general and administrative expenses, for the six months ended June 30, 2022 and 2021 was $ 15,647 and $ 10,194 , respectively. NOTE 4 – INTANGIBLE ASSETS Intangible assets and related accumulated amortization were as follows : SCHEDULE OF INTANGIBLE ASSETS June 30, 2022 December 31, 2021 Distributor channel $ 3,215,190 $ 3,389,404 Others 27,870 22,299 Total intangible assets 3,243,060 3,411,703 Less: Accumulated amortization ( 1,475,323 ) ( 1,129,913 ) Total $ 1,767,737 $ 2,281,790 Amortization expense for the six months ended June 30, 2022 and 2021 was $ 417,770 and $ 416,030 , respectively, included in cost of revenues and general and administrative expenses. As of June 30 , 2022, the future estimated amortization costs for intangible assets are as follows: SCHEDULE OF FUTURE AMORTIZATION EXPENSES FOR DISTRIBUTION CHANNELS Year ending December 31, 2022 (remaining) $ 404,686 2023 809,371 2024 541,439 2025 5,574 2026 5,574 Thereafter 1,093 Total $ 1,767,737 12 NOTE 5- RELATED PARTY TRANSACTIONS Amounts due from related party as of June 30, 2022 and December 31, 2021 are as follows: SCHEDULE OF AMOUNT DUE FROM AND DUE TO RELATED PARTIES June 30, 2022 December 31, 2021 Mr. Deqin Ke Manager of a subsidiary $   - $ 26,364 Due from related parties $ - $ 26,364 Amounts due to related parties as of June 30, 2022 and December 31, 2021 are as follows: June 30, 2022 December 31, 2021 Mr. Yumin Lin President, Chief Executive Officer, Secretary, Director $ 336,204 $ 344,218 Ms. Xiulan Zhou Manager of a subsidiary 1,384 1,157 Mr. Huagen Li Manager of a subsidiary 2,388 2,518 Mr. Guodong Jia Manager of a subsidiary 1,748 944 Mr. Minghua Cheng Former director and majority shareholder - 157,353 Mr. Hongwei Ye Manager of a subsidiary, Shareholder 16 17 Mr. Anping Chen Manager of a subsidiary 1,045 6,924 Mr. Jiangwei Jia Manager of a subsidiary 950 787 Ms. Xiuyun Wang Manager of a subsidiary - 6,020 Mr. Yuwen Li Vice President 11,972 70,745 Shenzhen DaXingHuaShang Industry Development Ltd. Mr. Yumin Lin is the supervisor of Shenzhen DaXingHuaShang Industry Development Ltd. 89,560 93,298 Mr. Deqin Ke Manager of a subsidiary 746 - Mr. Zhihua Liao Manager of a subsidiary 1,249 - Ms. Chunxiang Zhang Manager of a subsidiary 2,239 - Mr. Xue Meng Manager of a subsidiary 2,564 - Ms. Shuqin Chen Manager of a subsidiary 2,239 - Ms. Jinlan Liu Mr. Minghua Cheng’s wife 37,317 - Due to related parties $ 491,621 $ 683,981 13 Revenues generated from related parties during the six months ended June 30, 2022 and 2021 are as follows: SCHEDULE OF REVENUE GENERATED FROM RELATED PARTIES 2022 2021 For the six months ended June 30, 2022 2021 Mr. Kaihong Lin Chief Financial Officer and Treasurer $ 652 $ 160 Mr. Yumin Lin President, Chief Executive Officer, Secretary, Director 438 302 Mr. Zihao Ye Manager of a subsidiary 262 76 Mr. Naiyong Luo Manager of a subsidiary - 5,742 Mr. Hongwei Ye Manager of a subsidiary, Shareholder - 5,933 Ms. Xiulan Zhou Manager of a subsidiary, Mr. Yumin Lin’s wife - 51 Dongguan City Chashan Pingfeng Cigarette and Wine Store Co., Ltd. Mr. Taiping Deng, a manager of a subsidiary, is the controlling shareholder of Dongguan City Chashan Pingfeng Cigarette and Wine Store Co., Ltd. - 60,762 Dongguan Zhengui Reality Co., Ltd. Mr. Naiyong Luo, a manager of a subsidiary, is the controlling shareholder of Dongguan Zhengui Reality Co., Ltd. - 132,334 Dongguan Huanhai Trading Co., Ltd. Mr. Hongwei Ye, a shareholder of the Company and a manager of a subsidiary, is the controlling shareholder of Dongguan Huanhai Trading Co., Ltd. 13,553 13,805 Guangdong Yuexin Jiaotong Construction Co., Ltd. Mr. Naiyong Luo, a manager of a subsidiary, is the controlling shareholder of Guangdong Yuexin Jiaotong Construction Co., Ltd. 7,581 98,818 Dongguan City Hualianguan Chemical Co., Ltd. Mr. Hongwei Ye, a shareholder of the Company and a manager of a subsidiary, is the controlling shareholder of Dongguan City Hualianguan Chemical Co., Ltd. 19,009 - Dongguan City Daying Internet Technology Co., Ltd. Mr. Minghua Cheng, a former director and majority shareholder of the Company, is the controlling shareholder of Dongguan City Daying Internet Technology Co., Ltd. - 57,496 Dongguan Tailai Trading Co., Ltd. Significantly influenced by the Company - 13,205 Revenues generated from related parties $ 41,495 $ 388,684 Cost of revenues from related parties during the six months ended June 30, 2022 and 2021 is as follows: SCHEDULE OF COST REVENUES FROM RELATED PARTIES 2022 2021 For the six months ended June 30, 2022 2021 Dongguan Baxi Food Distribution Co., Ltd. Significantly influenced by the Company $ 15,899 $ 70,815 Dongguan Dalingshan Xinwenhua Drinking Water Store Significantly influenced by the Company 43,759 24,540 Dongguan Pengqin Drinking Water Co., Ltd. Significantly influenced by the Company 33,836 20,662 Dongguan Dengqinghu Drinking Water Co., Ltd. Significantly influenced by the Company 1,475 7,855 Dongguan Tailai Trading Co., Ltd. Significantly influenced by the Company 34,519 26,328 Dongguan Anxiang Technology Co., Ltd. Significantly influenced by the Company 64,639 57,935 Guangdong Jiaduonuo Shengshi Trading Co., Ltd. Significantly influenced by the Company 64,565 52,065 Dongguan Dalingshan Runxin Drinking Water Store Significantly influenced by the Company 16,312 10,143 Dongguan City Yijia Trading Co., Ltd. Mr. Yongming Li, a shareholder of the Company, is the controlling shareholder of Dongguan City Yijia Trading Co., Ltd. 111,376 - Cost of revenues from related parties $ 386,380 $ 270,343 Purchases from related parties during the six months ended June 30, 2022 and 2021 are as follows: SCHEDULE OF PURCHASES FROM RELATED PARTIES 2022 2021 For the six months ended June 30, 2022 2021 Dongguan Baxi Food Distribution Co., Ltd. Significantly influenced by the Company $ 19,406 $ 55,839 Dongguan Dalingshan Xinwenhua Drinking Water Store Significantly influenced by the Company 56,842 19,131 Dongguan Pengqin Drinking Water Co., Ltd. Significantly influenced by the Company 37,266 19,368 Dongguan Dengqinghu Drinking Water Store Significantly influenced by the Company 1,659 8,393 Dongguan Tailai Trading Co., Ltd. Significantly influenced by the Company 33,634 34,460 Dongguan Anxiang Technology Co., Ltd. Significantly influenced by the Company 66,220 69,883 Guangdong Jiaduonuo Shengshi Trading Co., Ltd. Significantly influenced by the Company 69,407 45,365 Dongguan Dalingshan Runxin Drinking Water Store Significantly influenced by the Company 16,374 14,082 Dongguan City Yijia Trading Co., Ltd. Mr. Yongming Li, a shareholder of the Company, is the controlling shareholder of Dongguan City Yijia Trading Co., Ltd. 48,579 - Purchase from related party $ 349,387 $ 266,521 Due from related party mainly consists of funds advanced to a related party as borrowings or funds advanced to pay off the Company’s expenses. The balance is unsecured, non-interest bearing. Due to related parties mainly consists of borrowings for working capital purpose, the balances are unsecured, non-interest bearing and due on demand. In addition, during the six months ended June 30, 2022 and 2021, these related parties paid expenses on the Company’s behalf in an amount of $ 38,627 and $ 293,862 , respectively. Mr. Yuwen Li, the Vice President of the Company, authorized the Company to use trademarks that were owned by him for ten years from October 5, 2019 to October 4, 2029 at no cost. Also see Note 2 and 7 for more transactions with related parties. 14 NOTE 6 - 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, 2022 and 2021, 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 RMB 1,000,000 , 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 %. MOF and SAT [2021] No.12 provides an enterprise income tax rate of 2.5 % on small-scale and low-profit enterprises whose annual taxable income is less than RMB 1,000,000 , approximately $ 142,209 , from January 1, 2021 to December 31, 2022. MOF and SAT [2022] No.13 also provides an enterprise income tax rate of 5 % on small-scale and low-profit enterprises whose annual taxable income is more than RMB 1,000,000 , approximately $ 142,209 , but less than RMB 3,000,000 , approximately $ 426,627 , from January 1, 2022 to December 31, 2024. 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, 2022 Six Months Ended June 30, 2021 Current: – United States of America $ 45,562 $ 79,096 – Seychelles - - – Hong Kong - - – The PRC 58,359 83,526 Current income tax expense Deferred – United States of America - - – Seychelles - - – Hong Kong - - – The PRC - - Deferred income tax expense Total $ 103,921 $ 162,622 The effective tax rate was 9.7 % and 17.0 % for the six months ended June 30, 2022 and 2021, respectively. 15 NOTE 7 - OPERATING LEASES As of June 30, 2022, the Company has seventeen separate operating lease agreements for three office spaces, one warehouse and thirteen stores in PRC with remaining lease terms of from 3 months to 58 months. Two of these leases described above were entered with related parties. The operating lease entered with Ms. Qingmei Lin, a related party, is for the premises in Dongguan City, PRC. The agreement covers the period from January 1, 2019 to April 30, 2027 with the monthly rent expense of RMB 10,000 (approximately $ 1,545 ). The operating lease agreement entered with Mr. Hongwei Ye, another related party, is for the premises in Dongguan City, PRC. The agreement covers the period from September 27, 2020 to September 30, 2023 with the monthly rent expense of RMB 960 (approximately $ 148 ). The Company terminated an operating lease agreement with a subsidiary of Shenzhen DaXingHuaShang Industry Development Ltd., a related party, for the premises 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, 2022 and 2021 are as follows: SCHEDULE OF COMPONENTS OF LEASE EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION 2022 2021 Operating lease cost (included in general and administrative expenses in the Company’s unaudited condensed consolidated statements of operations) For the six months ended June 30, 2022 2021 Related parties $ 11,347 $ 23,307 Non-related parties 74,009 42,666 Total $ 85,356 $ 65,973 Other information for the six months ended June 30, 2022 June 30, 2021 Cash paid for amounts included in the measurement of lease obligations $ 78,215 $ 72,024 Weighted average remaining lease term (in years) 3.55 4.26 Weighted average discount rate 3.23 % 3.23 % Maturities of the Company’s lease obligations as of June 30, 2022 are as follows: SCHEDULE OF MATURITIES OF LEASE OBLIGATIONS Year ending December 31, 2022 (remaining) $ 74,148 2023 111,468 2024 82,081 2025 78,242 2026 44,039 Thereafter 5,971 Total lease payment 395,949 Less: Imputed interest ( 20,421 ) Operating lease obligations $ 375,528 NOTE 8 – BANK AND OTHER BORROWINGS In August 2020, the Company obtained a revolving credit line in the principal amount of RMB 910,000 (approximately $ 139,000 when borrowed) 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 . In December 2020, the Company obtained a loan in the principal amount of RMB 750,000 (approximately $ 115,000 when borrowed) from Huaneng Guicheng Trust Co., Ltd. (“Huaneng Guicheng”), a financial institution in PRC, which bears interest at the base Loan Prime Rate of 3.85% plus 8.75%. The loan is guaranteed by Yumin Lin. The maturity date is on December 21, 2022 . The loan was fully repaid in June 2022. In November 2021, the Company obtained a bank loan in the principal amount of RMB 500,000 (approximately $ 79,000 when borrowed ) from Shenzhen Qianhai Webank Co., Ltd. (“WeBank”), which bears interest at 3.6%. The maturity date is on December 11, 2021 . On December 11, 2021, the Company and WeBank agreed to extend the maturity date of the loan to December 21, 2023 and increase the principal amount to RMB 500,750 (approximately $ 79,000 when borrowed) reflecting the accrued interest. The loan is guaranteed by Yumin Lin and bears interest at 10.71%. In May 2022, the Company obtained a revolving credit line in the principal amount of RMB 1,000,000 (approximately $ 149,000 when borrowed) from China Construction Bank, which bears interest at 4.45%. The credit line is guaranteed by Xiulan Zhou, a related party, and pledged by her property. The maturity date is on May 26, 2023 . In May 2022, the Company obtained a loan in the principal amount of RMB 161,000 (approximately $ 24,000 when borrowed) from Huaneng Guicheng, which bears interest at 11.34% . The loan is guaranteed by Yumin Lin. The maturity date is on May 21, 2024 . In May 2022, the Company obtained a bank loan in the principal amount of RMB 69,000 (approximately $ 10,000 when borrowed) from WeBank, which bears interest at 11.34% . The loan is guaranteed by Yumin Lin. The maturity date is on May 21, 2024 . The balance of the loans borrowed as of June 30, 2022 and December 31, 2021 were as follows: SCHEDULE OF BALANCE OF LOAN BORROWED UNDER CREDIT LINES June 30, 2022 December 31, 2021 Loan from a trust in PRC $ 23,030 $ 67,438 China Construction Bank 285,098 143,192 WeBank 73,314 78,795 Aggregate outstanding principal balances $ 381,442 $ 289,425 Less: current portion 208,012 101,207 Non-current portion $ 173,430 $ 188,218 The total interest expense was $ 10,689 and $ 9,487 for the six months ended June 30, 2022 and 2021, respectively. Future minimum loan payments as of June 30, 2022 are as follows: SCHEDULE OF FUTURE MINIMUM LOAN PAYMENTS Year ending December 31, 2022 (remaining) $ 29,315 2023 344,975 2024 7,152 Thereafter - Total $ 381,442 NOTE 9 – COMMON STOCK Effective on October 21, 2021, the Company has approved a reverse stock split of the Company’s authorized and issued and outstanding shares of common stock, par value $ 0.001 per share, at a ratio of 1-for-20 (the “Reverse Stock Split”). As a result of the Reverse Stock Split, the Company’s authorized shares of common stock became 150,000,000 shares. As of June 30, 2021, and immediately prior to the Reverse Stock Split, there were 313,098,220 shares of common stock issued and outstanding. As a result of the Reverse Stock Split, the Company has 15,655,038 shares of common stock issued and outstanding. The par value remains unchanged at $ 0.001 per share, which resulted in a reclassification of capital from par value to additional paid-in capital in excess of par value. All share and per share amount in the accompanying financial statement for the prior period have been retroactively adjusted to reflect the Reverse Stock Split. NOTE 10 - SUBSEQUENT EVENTS On July 8, 2022, the Company obtained two loans in the principal amount of RMB 99,000 (approximately $ 15,000 ) and RMB 231,000 (approximately $ 34,000 ) from WeBank and Guangdong Nanyue Bank Co., Ltd. (“Nanyue Bank”), respectively, which bear interest at 14.4% . The loans are guaranteed by Kaihong Lin with the maturity date on July 8, 2024 . On July 13, 2022, the Company obtained two loans in the principal amount of RMB 153,000 (approximately $ 23,000 ) and RMB 357,000 (approximately $ 53,000 ) from WeBank and Nanyue Bank, respectively, which bear interest at 14.4% . The loans are guaranteed by Falan Zhou, a manager of subsidiaries, with the maturity date on July 13, 2024 . On July 21, 2022, the Company obtained a loan in the principal amount of RMB 380,000 (approximately $ 57,000 ) from Huaneng Guicheng, which bears interest at 12.6% . The loan is guaranteed by Yumin Lin with the maturity date on July 21, 2024 . 16 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, 2021 filed with the Securities and Exchange Commission on April 1, 2022 (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, 2022, the Company conducted its business in one revenue stream: product sales – wine, water, water purifier and other F&B products. Results of Operations Three Months Ended June 30, 2022 and 2021 Three Months Ended June 30, 2022 2021 Change Net revenues $ 2,336,459 $ 1,825,344 $ 511,115 Cost of revenue s (1,099,523 ) (797,524 ) (301,999 ) Gross profit 1,236,936 1,027,820 209,116 Operating expense (363,586 ) (469,476 ) 105,890 Other income 2,011 738 1,273 Other expense (4,864 ) (5,934 ) 1,070 Income taxes (81,514 ) (96,267 ) 14,753 Net income 788,983 456,881 332,102 Net income attributable to noncontrolling interests 41,250 42,406 (1,156 ) Net income attributable to Fortune Valley Treasures, Inc. $ 747,733 $ 414,475 $ 333,258 Six Months Ended June 30, 2022 and 2021 Six Months Ended June 30, 2022 2021 Change Net revenues $ 3,598,269 $ 3,469,504 $ 128,765 Cost of revenues (1,617,985 ) (1,527,267 ) (90,718 ) Gross profit 1,980,284 1,942,237 38,047 Operating expense (909,027 ) (978,607 ) 69,580 Other income 8,295 934 7,361 Other expense (10,689 ) (9,487 ) (1,202 ) Income taxes (103,921 ) (162,622 ) 58,701 Net income 964,942 792,455 172,487 Net income attributable to noncontrolling interests 68,533 72,726 (4,193 ) Net income attributable to Fortune Valley Treasures, Inc. $ 896,409 $ 719,729 $ 176,680 17 Net Revenues Net revenues were $2,336,459 for three months ended June 30, 2022, reflecting an increase of $511,115, or 28.00%, from $1,825,344 for the three months ended June 30, 2021. The reason for the increase was the Company launched a new distribution channel via a WeChat App. Net revenues were $3,598,269 for six months ended June 30, 2022, reflecting an increase of $128,765, or 3.71%, from $3,469,504 for six months ended June 30, 2021. The reason for the slight increase was the market was getting revived from COVID-19. Cost of Revenues Cost of revenues was $1,099,523 for the three months ended June 30, 2022, reflecting an increase of $301,999, or 37.87%, from $797,524 for the three months ended June 30, 2021. The increase in cost of revenues was due to the increase in product sales in line with the increase in our net revenues. Cost of revenues was $1,617,985 for the six months ended June 30, 2022, reflecting an increase of $90,718, or 5.94%, from $1,527,267 for the six months ended June 30, 2021. The increase in cost of revenues was in line with the increase in our net revenues. Gross Profit Gross profit was $1,236,936 and $1,027,820 for the three months ended June 30, 2022 and 2021, respectively, reflecting an increase of $209,116, or 20.35 %. The increase in gross profit was due to the addition of the net revenues. Gross profit was $1,980,284 and $1,942,237 for the six months ended June 30, 2022 and 2021, respectively, reflecting an increase of $38,047, or 1.96%. The increase in gross profit was due to the addition of the net revenues. Operating Expenses Operating expense was $363,586 for the three months ended June 30, 2022, reflecting a decrease of $105,890, or 22.55%, from $469,476 for the three months ended June 30, 2021, due to the decrease in professional service fees. Operating expense was $909,027 for the six months ended June 30, 2022, reflecting a decrease of $69,580, or 7.11%, from $978,607 for the six months ended June 30, 2021, due to the decrease in professional service fees. Net Income For the three months ended June 30, 2022, net income was $788,983, compared to net income $456,881 for the three months ended June 30, 2021. The increase in net income was a result of the factors described above. For the six months ended June 30, 2022, net income was $964,942, compared to net income $792,455 for the six months ended June 30, 2021. The increase in net income was a result of the factors described above. Net income attributable to noncontrolling interests The Company records net income attributable to noncontrolling interests in the unaudited condensed consolidated statements of operations for any noncontrolling interests of consolidated subsidiaries. For the three months ended June 30, 2022 and 2021, the Company recorded net income attributable to noncontrolling interests of $41,250 and $42,406, respectively. For the six months ended June 30, 2022 and 2021, the Company recorded net income attributable to noncontrolling interests of $68,533 and $72,726, respectively. 18 Liquidity and Capital Resources Working Capital June 30, 2022 December 31, 2021 Change Total current assets $ 5,367,079 $ 5,069,481 $ 297,598 Total current liabilities 1,452,816 1,717,519 ( 264,703 ) Working capital $ 3,914,263 $ 3,351,962 $ 562,301 As of June 30, 2022, we had working capital of $3,914,263, as compared to working capital of $3,351,962 as of December 31, 2021. We had total current assets of $5,367,079, consisting of cash and cash equivalents of $85,326, inventories of $139,533, prepayments and other current assets of $2,437,318, and accounts receivable of $2,704,902, compared to total current assets of $5,069,481 as of December 31, 2021. The increase was mainly due to the increase in accounts receivable and prepayments and other current assets, offset by the decrease in cash and cash equivalents and due from a related party. We had current liabilities of $1,452,816, consisting of operating lease obligations of $124,513, accounts payable of $191,000, accrued liabilities of $138,589, bank and other borrowing $208,012, customer advances $255,980, income tax payable $43,101 and due to related parties of $491,621. The decrease was mainly due to the repayment of account payable, decrease in customer advances during the period, repayment to related parties, offset by the increase in bank and other borrowings. Our cash and cash equivalents balance at June 30, 2022 decreased to $85,326, as compared to $123,163 at December 31, 2021. 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. 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, 2022 2021 Change Cash Flows provided by (used in) Operating Activities $ 17,441 $ (689,467 ) $ 706,908 Cash Flows provided by Investing Activities - 581,648 (581,648 ) Cash Flows provided by (used in) by Financing Activities (49,540 ) 283,590 (333,130 ) Effect of exchange rate changes (5,738 ) (5,208 ) (530 ) Net Changes in Cash and Cash Equivalents $ (37,837 ) $ 170,563 $ (208,400 ) Cash Flow from Operating Activities Net cash provided by operating activities for the six months ended June 30, 2022 was $17,441, as compared to the amount of $689,467 used in operating activities for the six months ended June 30, 2021, reflecting an increase of $706,908. The cash provided by operating activities during the six months ended June 30, 2022 was mainly resulted from net income of $964,942, depreciation and amortization expense of $433,417, and offset by the increase in accounts receivable of $185,856, increase in the prepayments and other current assets of $385,553, increase in deposits paid to vendors of $583,325, decrease in due to related parties of $122,702, and decrease in customer advances of $110,633. Cash Flow from Investing Activities Net cash used in investing activities was nil for the six months ended June 30, 2022, compared to net cash provided by investing activities of $581,648 for the six months ended June 30, 2021. Cash Flow from Financing Activities Net cash used in financing activities was $49,540 for the six months ended June 30, 2022, compare to net cash provided by financing activities of $283,590 for the six months ended June 30, 2021. The cash used in financing activities for the six months ended June 30, 2022 was mainly resulted from the repayments to related parties of $154,510, repayments to third party $66,379 and offset by net proceeds from revolving credit lines of $148,606. Critical Accounting Policy 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. 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, oil and water purifier 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. 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. 19 Related Party Transactions As of June 30, 2022 and December 31, 2021, the Company had accounts receivable from related parties in amounts of $53,571 and $43,477, prepayments to related parties in the amounts of $2,059,668 and $1,813,904, deposits to related parties in the amounts of $1,807,382 and $1,596,075, and accounts payable to related parties in amounts of $26,508 and $17,789, respectively. As of June 30, 2022 and December 31, 2021, the Company had outstanding receivables due from a related party in the amounts of nil and $26,364, respectively, which mainly consisted of funds advanced to a related party as borrowings or funds advances to pay off the Company’s expenses. The balance was unsecured and non-interest bearing. As of June 30, 2022 and December 31, 2021, the Company had outstanding payables due to its related parties in the amounts of $491,621 and $683,981, respectively, which mainly consisted of borrowings for working capital purpose. The balances were unsecured, non-interest bearing and due on demand. During the six months ended June 30, 2022 and 2021, the Company’s related parties paid expenses on behalf of the Company in the amounts of $38,627 and $293,862, respectively. During the six months ended June 30, 2022 and 2021, the Company sold products to its related parties in the amounts of $41,495 and $388,684, respectively, purchased goods from its related parties in the amounts of $349,387 and $266,521, and incurred cost of revenues from related parties in the amounts of $386,380 and $270,343, respectively. During the six months ended June 30, 2022 and 2021, the rental expenses to related parties were $11,347 and $23,207, respectively. Our related parties are primarily those who are significantly influenced by the Company based on our common business relationships. Refer to Note 5 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, 2022, that our disclosure controls and procedures were not effective. The matters involving internal controls and procedures that our management considered to be material weakness under the standards of the Public Company Accounting Oversight Board was lack of well-established procedures to identify, approve and review related party transactions. 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. 20 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, 2022. 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, 2022, 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 2022. Changes in Internal Control over Financial Reporting T here 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. 21 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 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) 22 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 12, 2022 By: /s/ Yumin Lin Yumin Lin President and Chief Executive Officer (Principal Executive Officer) Date: August 12, 2022 By: /s/ Kaihong Lin Kaihong Lin Chief Financial Officer (Principal Financial and Accounting Officer) 23