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 September 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 November 14, 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 September 30, 2022 (Unaudited) and December 31, 2021 3 Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited) 4 Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (Unaudited) 6 Notes to Condensed Consolidated Financial Statements for the Three and Nine Months Ended September 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 SEPTEMBER 30, 2022 AND DECEMBER 31, 2021 September 30, 2022 December 31, 2021 (Unaudited) Assets Current assets Cash and cash equivalents $ 239,443 $ 123,163 Accounts receivable (including $ 116,995 and $ 43,477 from related parties as of September 30, 2022 and December 31, 2021, respectively) 3,650,531 2,662,168 Inventories 147,097 81,073 Prepayments and other current assets (including $ 1,957,201 and $ 1,813,904 to related parties as of September 30, 2022 and December 31, 2021, respectively) 2,507,504 2,176,713 Due from related party - 26,364 Total current assets 6,544,575 5,069,481 Non-current assets Deposits paid (including $ 1,607,955 and $ 1,596,075 to related parties as of September 30, 2022 and December 31, 2021, respectively) 2,316,264 2,306,160 Property and equipment, net 110,019 140,394 Operating lease right-of-use assets 317,612 385,896 Operating lease right-of-use assets, related parties 76,639 98,626 Intangible assets, net 1,475,000 2,281,790 Goodwill 1,255,931 1,406,289 Total Assets $ 12,096,040 $ 11,688,636 Liabilities and Stockholders’ Equity Current liabilities Operating lease obligations – current $ 110,896 $ 133,586 Operating lease obligations, related parties - current 24,851 22,666 Accounts payable (including $ 3,629 and $ 17,789 to related parties as of September 30, 2022 and December 31, 2021, respectively) 155,039 239,492 Accrued liabilities 131,363 128,343 Bank and other borrowings - current 413,207 101,207 Income tax payable 111,142 25,726 Customer advances 176,213 382,518 Due to related parties 596,006 683,981 Total current liabilities 1,718,717 1,717,519 Non-current liabilities Operating lease obligations – non-current 202,180 240,611 Operating lease obligations, related parties – non-current 57,238 77,934 Bank and other borrowings 89,424 188,218 Total Liabilities 2,067,559 2,224,282 Stockholders’ Equity Common stock ( 150,000,000 shares authorized, 15,655,038 shares issued and outstanding as of September 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 ( 809,468 ) ( 2,561,681 ) Accumulated other comprehensive income (loss) ( 679,256 ) 544,305 Total Fortune Valley Treasures, Inc. stockholders’ equity 9,588,164 9,059,512 Noncontrolling interests 440,317 404,842 Total Stockholders’ Equity 10,028,481 9,464,354 Total Liabilities and Stockholders’ Equity $ 12,096,040 $ 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 NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (Unaudited) 2022 2021 2022 2021 Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Net revenues (including $ 79,137 and $ 106,378 from related parties for the three months ended September 30, 2022 and 2021, respectively; $ 120,632 and $ 495,062 from related parties for the nine months ended September 30, 2022 and 2021, respectively) $ 2,915,303 $ 2,005,390 $ 6,513,572 $ 5,474,894 Cost of revenues (including $ 377,283 and $ 238,524 from related parties for the three months ended September 30, 2022 and 2021, respectively; $ 763,663 and $ 508,867 from related parties for the nine months ended September 30, 2022 and 2021, respectively) 1,400,522 875,418 3,018,507 2,402,685 Gross profit 1,514,781 1,129,972 3,495,065 3,072,209 Operating expenses: Selling and distribution expenses 15,509 21,964 49,593 69,122 General and administrative expenses 472,131 499,928 1,347,074 1,431,377 Operating income 1,027,141 608,080 2,098,398 1,571,710 Other income (expense): Other income 2,221 2,309 10,423 2,595 Interest income 114 203 207 851 Interest expense ( 10,388 ) ( 4,327 ) ( 21,077 ) ( 13,814 ) Other expense, net ( 8,053 ) ( 1,815 ) ( 10,447 ) ( 10,368 ) Income before income tax 1,019,088 606,265 2,087,951 1,561,342 Income tax expense 108,353 156,402 212,274 319,024 Net income $ 910,735 $ 449,863 $ 1,875,677 $ 1,242,318 Less: Net income attributable to noncontrolling interests 54,931 59,875 123,464 132,601 Net income attributable to Fortune Valley Treasures, Inc. 855,804 389,988 1,752,213 1,109,717 Other comprehensive income (loss): Foreign currency translation income (loss) ( 719,949 ) 23,945 ( 1,311,550 ) 105,316 Total comprehensive income 190,786 473,808 564,127 1,347,634 Less: comprehensive income attributable to noncontrolling interests 10,749 63,637 35,475 143,831 Comprehensive income attributable to Fortune Valley Treasures, Inc. $ 180,037 $ 410,171 $ 528,652 $ 1,203,803 Earnings per share Basic and diluted earnings per share * $ 0.05 $ 0.02 $ 0.11 $ 0.07 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 NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (Unaudited) Number of shares Amount Paid-in Capital Comprehensive Income (Loss) Statutory Reserves 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 Net income - - - - 855,804 54,931 910,735 Foreign currency translation adjustment - - - ( 675,767 ) - ( 44,182 ) ( 719,949 ) Balance as of September 30, 2022 15,655,038 $ 15,655 $ 11,061,233 $ ( 679,256 ) $ ( 809,468 ) $ 440,317 $ 10,028,481 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 Beginning balance * 15,655,038 $ 15,655 $ 11,061,233 $ 374,168 $ ( 3,621,688 ) $ 276,109 $ 8,105,477 Net income - - - - 389,988 59,875 449,863 Foreign currency translation adjustment - - - 20,183 - 3,762 23,945 Balance as of September 30, 2021 * 15,655,038 $ 15,655 $ 11,061,233 $ 394,351 $ ( 3,231,700 ) $ 339,746 $ 8,579,285 Ending balance * 15,655,038 $ 15,655 $ 11,061,233 $ 394,351 $ ( 3,231,700 ) $ 339,746 $ 8,579,285 * 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 NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (Unaudited) 2022 2021 Nine months ended September 30, 2022 2021 Cash flows from operating activities Net income $ 1,875,677 $ 1,242,318 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization expense 648,740 638,099 Non-cash lease expense 122,069 83,211 Changes in operating assets and liabilities Accounts receivable ( 1,374,495 ) 494,352 Inventories ( 80,648 ) ( 206,348 ) Prepayments and other current assets ( 608,448 ) ( 1,956,481 ) Due from related party 25,423 - Deposits paid ( 277,134 ) ( 1,198,351 ) Accounts payable ( 63,540 ) 66,530 Due to related parties ( 177,253 ) - Customer advances ( 178,597 ) ( 48,514 ) Accrued liabilities 153,158 373,916 Income tax payable 95,197 ( 103,180 ) Operating lease obligations ( 111,705 ) ( 97,752 ) Net cash provided by (used in) operating activities 48,444 ( 712,200 ) Cash flows from investing activities Repayment of advance to related parties - 3,642,059 Advance to related parties - ( 3,136,194 ) Purchase of property and equipment - ( 119,446 ) Purchase of intangible assets - ( 23,488 ) Net cash provided by investing activities - 362,931 Cash flows from financing activities Borrowings from related parties - 1,867,770 Borrowings from and repayments to revolving credit lines, net 148,606 ( 33,112 ) Borrowings from bank loans 135,499 - Borrowings from a third party 80,338 - Repayments to related parties ( 154,510 ) ( 1,622,380 ) Repayments to bank loans ( 28,053 ) - Repayments to a third party ( 73,878 ) - Net cash provided by financing activities 108,002 212,278 Effect of exchange rate changes on cash and cash equivalents ( 40,166 ) 37,343 Net changes in cash and cash equivalents 116,280 ( 99,648 ) Cash and cash equivalents–beginning of the period 123,163 249,837 Cash and cash equivalents–end of the period $ 239,443 $ 150,189 Supplementary cash flow information: Interest paid $ 21,077 $ 13,814 Income taxes paid $ 126,858 $ 446,755 Non-cash investing and financing activities Expenses paid by related parties on behalf of the Company $ 135,081 $ 532,912 Remeasurement of operating lease obligation and right-of-use asset due to lease termination $ - $ 40,888 Operating lease right-of-use assets obtained in exchange for operating lease obligations $ 74,588 $ 307,550 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 NINE MONTHS ENDED SEPTEMBER 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 September 30, 2022 and for the three and nine months ended September 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 September 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, 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 (“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 Dongguan City Fu Zhi Gu Trading Ltd (“FZGTL”) September 9, 2022 FVTL Sales of pre-packaged food, office equipment, electronic product and consultancy service PRC Dongguan City Chang Fu Trading Ltd (“CFTL”) September 9, 2022 FVTL Sales of pre-packaged food, office equipment, electronic product and consultancy service PRC Dongguan City La Tong Trading Ltd (“LTTL”) August 8, 2022 FVTL Sales of pre-packaged food, office equipment, electronic product and consultancy service PRC Dongguan City Kai Fu Trading Ltd (“KFTL”) September 8, 2022 FVTL Sales of pre-packaged food, office equipment, electronic product and consultancy service 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, implicit interest rate of operating leases, 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 nine months ended September 30, 2022 2021 Period-end RMB:US$1 exchange rate 0.14053 0.15512 Period-average RMB:US$1 exchange rate 0.15174 0.15452 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 nine months ended September 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 nine months ended September 30, 2022 and 2021, the Company did no t record any impairment of goodwill. 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 Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Sales of wine $ 1,582,829 $ 639,635 $ 3,416,775 $ 2,036,423 Sales of water 1,005,738 1,099,586 2,343,830 2,827,732 Sales of oil - 14 - 217,131 Sales of water purifier 245,581 220,861 641,129 348,314 Others 81,155 45,294 111,838 45,294 Total $ 2,915,303 $ 2,005,390 $ 6,513,572 $ 5,474,894 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 September 30, 2022 and December 31, 2021, the Company had customer advances of $ 176,213 and $ 382,518 , respectively. During the nine months ended September 30, 2022, the Company recognized $ 322,084 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. 10 NOTE 2 – PREPAYMENTS AND OTHER CURRENT ASSETS Prepayments and other current assets consisted of the following as of September 30, 2022 and December 31, 2021 : SCHEDULE OF PREPAYMENTS AND OTHER CURRENT ASSETS September 30, 2022 December 31, 2021 Prepayments (including $ 1,957,201 and $ 1,813,904 to related parties as of September 30, 2022 and December 31, 2021, respectively) $ 2,484,824 $ 2,169,095 Other current assets 22,680 7,618 Prepayments and other current assets $ 2,507,504 $ 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 September 30, 2022 and December 31, 2021 : SCHEDULE OF PROPERTY AND EQUIPMENT September 30, 2022 December 31, 2021 Office equipment $ 116,447 $ 113,995 Leasehold improvement 126,386 126,386 Property and equipment 242,833 240,381 Less: Accumulated depreciation ( 132,814 ) ( 99,987 ) Property and equipment, net $ 110,019 $ 140,394 Depreciation expense, which was included in general and administrative expenses, for the nine months ended September 30, 2022 and 2021 was $ 32,829 and $ 14,017 , respectively. NOTE 4 – INTANGIBLE ASSETS Intangible assets and related accumulated amortization were as follows : SCHEDULE OF INTANGIBLE ASSETS September 30, 2022 December 31, 2021 Distributor channel $ 3,027,016 $ 3,389,404 Others 27,418 22,299 Total intangible assets 3,054,434 3,411,703 Less: Accumulated amortization ( 1,579,434 ) ( 1,129,913 ) Total $ 1,475,000 $ 2,281,790 Amortization expense for the nine months ended September 30, 2022 and 2021 was $ 615,911 and $ 624,082 , respectively, included in cost of revenues and general and administrative expenses. As of September 30 , 2022, the future estimated amortization costs for intangible assets are as follows: SCHEDULE OF FUTURE AMORTIZATION EXPENSES FOR INTANGIBLE ASSETS Year ending December 31, 2022 (remaining) $ 190,559 2023 762,238 2024 509,986 2025 5,484 2026 5,484 Thereafter 1,249 Total $ 1,475,000 11 NOTE 5- RELATED PARTY TRANSACTIONS Amounts due from related party as of September 30, 2022 and December 31, 2021 are as follows: SCHEDULE OF AMOUNT DUE FROM AND DUE TO RELATED PARTIES September 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 September 30, 2022 and December 31, 2021 are as follows: September 30, 2022 December 31, 2021 Mr. Yumin Lin President, Chief Executive Officer, Secretary, Director $ 441,365 $ 344,218 Ms. Xiulan Zhou Manager of a subsidiary 1,708 1,157 Mr. Huagen Li Manager of a subsidiary 2,248 2,518 Mr. Guodong Jia Manager of a subsidiary 385 944 Mr. Minghua Cheng Former director and majority shareholder - 157,353 Mr. Hongwei Ye Manager of a subsidiary, Shareholder 15 17 Mr. Anping Chen Manager of a subsidiary 2,129 6,924 Mr. Jiangwei Jia Manager of a subsidiary 2,289 787 Ms. Xiuyun Wang Manager of a subsidiary - 6,020 Mr. Yuwen Li Vice President 48,525 70,745 Shenzhen DaXingHuaShang Industry Development Ltd. Mr. Yumin Lin is the supervisor of Shenzhen DaXingHuaShang Industry Development Ltd. 84,318 93,298 Mr. Deqin Ke Manager of a subsidiary 703 - Mr. Zhihua Liao Manager of a subsidiary 2,588 - Ms. Chunxiang Zhang Manager of a subsidiary 2,925 - Mr. Xue Meng Manager of a subsidiary 4,156 - Ms. Shuqin Chen Manager of a subsidiary 1,910 - Mr. Zhipeng Zuo Manager of a subsidiary 742 - Due to related parties $ 596,006 $ 683,981 12 Revenues generated from related parties during the nine months ended September 30, 2022 and 2021 are as follows: SCHEDULE OF REVENUE GENERATED FROM RELATED PARTIES 2022 2021 For the nine months ended September 30, 2022 2021 Mr. Kaihong Lin Chief Financial Officer and Treasurer $ 697 $ 391 Mr. Yumin Lin President, Chief Executive Officer, Secretary, Director 438 302 Mr. Zihao Ye Manager of a subsidiary 262 108 Mr. Naiyong Luo Manager of a subsidiary - 5,742 Mr. Hongwei Ye Manager of a subsidiary, Shareholder - 6,451 Ms. Xiulan Zhou Manager of a subsidiary, Mr. Yumin Lin’s wife - 52 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. - 104,351 Dongguan Zhengui Reality Co., Ltd. Mr. Naiyong Luo, a manager of a subsidiary, is the controlling shareholder of Dongguan Zhengui Reality Co., Ltd. - 132,341 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. 49,676 54,568 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. 12,639 100,490 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. 56,920 19,560 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. - 57,500 Dongguan Tailai Trading Co., Ltd. Significantly influenced by the Company - 13,206 Revenues generated from related parties $ 120,632 $ 495,062 Cost of revenues from related parties during the nine months ended September 30, 2022 and 2021 is as follows: SCHEDULE OF COST REVENUES FROM RELATED PARTIES 2022 2021 For the nine months ended September 30, 2022 2021 Dongguan Baxi Food Distribution Co., Ltd. Significantly influenced by the Company $ 27,916 $ 56,588 Dongguan Dalingshan Xinwenhua Drinking Water Store Significantly influenced by the Company 78,474 45,701 Dongguan Pengqin Drinking Water Co., Ltd. Significantly influenced by the Company 63,429 44,047 Dongguan Dengqinghu Drinking Water Co., Ltd. Significantly influenced by the Company 2,043 7,758 Dongguan Tailai Trading Co., Ltd. Significantly influenced by the Company 60,614 51,943 Dongguan Anxiang Technology Co., Ltd. Significantly influenced by the Company 95,045 140,043 Guangdong Jiaduonuo Shengshi Trading Co., Ltd. Significantly influenced by the Company 112,598 115,077 Dongguan Dalingshan Runxin Drinking Water Store Significantly influenced by the Company 26,174 23,070 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. 297,370 24,640 Cost of revenues from related parties $ 763,663 $ 508,867 Purchases from related parties during the nine months ended September 30, 2022 and 2021 are as follows: SCHEDULE OF PURCHASES FROM RELATED PARTIES 2022 2021 For the nine months ended September 30, 2022 2021 Dongguan Baxi Food Distribution Co., Ltd. Significantly influenced by the Company $ 31,360 $ 73,366 Dongguan Dalingshan Xinwenhua Drinking Water Store Significantly influenced by the Company 90,930 39,794 Dongguan Pengqin Drinking Water Co., Ltd. Significantly influenced by the Company 66,659 39,679 Dongguan Dengqinghu Drinking Water Store Significantly influenced by the Company 2,217 8,857 Dongguan Tailai Trading Co., Ltd. Significantly influenced by the Company 59,449 59,133 Dongguan Anxiang Technology Co., Ltd. Significantly influenced by the Company 96,341 145,545 Guangdong Jiaduonuo Shengshi Trading Co., Ltd. Significantly influenced by the Company 117,062 141,278 Dongguan Dalingshan Runxin Drinking Water Store Significantly influenced by the Company 26,122 32,040 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. 279,247 35,803 Purchase from related party $ 769,387 $ 575,495 13 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 nine months ended September 30, 2022 and 2021, these related parties paid expenses on the Company’s behalf in an amount of $ 135,081 and $ 532,912 , 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, 7 and 8 for more transactions with related parties. 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 nine months ended September 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 Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 Current: – United States of America $ 105,074 $ 154,485 – Seychelles - - – Hong Kong - - – The PRC 107,200 164,539 Current income tax expense Deferred – United States of America - - – Seychelles - - – Hong Kong - - – The PRC - - Deferred income tax expense Total $ 212,274 $ 319,024 The effective tax rate was 10.2 % and 20.4 % for the nine months ended September 30, 2022 and 2021, respectively. 14 NOTE 7 - OPERATING LEASES As of September 30, 2022, the Company has twenty one separate operating lease agreements for three office spaces, one warehouse and seventeen stores in PRC with remaining lease terms of from 2 months to 55 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 $ 1,517 ). 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 $ 146 ). 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 $ 4,552 ). The components of lease expense and supplemental cash flow information related to leases for the nine months ended September 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 nine months ended September 30, 2022 2021 Related parties $ 16,132 $ 27,944 Non-related parties 109,050 79,471 Total $ 125,182 $ 107,415 Other information for the nine months ended September 30, 2022 September 30, 2021 Cash paid for amounts included in the measurement of lease obligations $ 110,768 $ 101,203 Weighted average remaining lease term (in years) 3.31 3.92 Weighted average discount rate 3.23 % 3.23 % Maturities of the Company’s lease obligations as of September 30, 2022 are as follows: SCHEDULE OF MATURITIES OF LEASE OBLIGATIONS Year ending December 31, 2022 (remaining) $ 46,458 2023 130,694 2024 102,573 2025 92,635 2026 41,462 Thereafter 5,621 Total lease payment 419,443 Less: Imputed interest ( 24,278 ) Operating lease obligations $ 395,165 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 . In July 2022, the Company obtained two loans in the principal amount of RMB 99,000 (approximately $ 15,000 when borrowed) and RMB 231,000 (approximately $ 34,000 when borrowed) from WeBank and Guangdong Nanyue Bank Co., Ltd. (“Nanyue Bank”), respectively, which bear interest at 14.4% . The loans are guaranteed by Kaihong Lin. The maturity date is on July 8, 2024. 15 In July 2022, the Company obtained two loans in the principal amount of RMB 153,000 (approximately $ 23,000 when borrowed) and RMB 357,000 (approximately $ 53,000 when borrowed) from WeBank and Nanyue Bank, respectively, which bear interest at 14.4% . The loans are guaranteed by Falan Zhou, a manager of subsidiaries. The maturity date is on July 13, 2024 . On July 21, 2022, the Company obtained a loan in the principal amount of RMB 380,000 (approximately $ 57,000 when borrowed) from Huaneng Guicheng, which bears interest at 12.6% . The loan is guaranteed by Yumin Lin. The maturity date is on July 21, 2024. The balance of the loans borrowed as of September 30, 2022 and December 31, 2021 were as follows: SCHEDULE OF BALANCE OF LOAN BORROWED UNDER CREDIT LINES September 30, 2022 December 31, 2021 Loan from a trust in PRC $ 67,804 $ 67,438 China Construction Bank 268,413 143,192 WeBank 90,668 78,795 Nanyue Bank 75,746 - Aggregate outstanding principal balances $ 502,631 $ 289,425 Less: current portion 413,207 101,207 Non-current portion $ 89,424 $ 188,218 The total interest expense was $ 21,077 and $ 13,814 for the nine months ended September 30, 2022 and 2021, respectively. Future minimum loan payments as of September 30, 2022 are as follows: SCHEDULE OF FUTURE MINIMUM LOAN PAYMENTS Year ending December 31, 2022 (remaining) $ 35,384 2023 410,509 2024 56,738 Thereafter - Total $ 502,631 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 September 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. 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 nine months ended September 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 September 30, 2022 and 2021 Three Months Ended September 30, 2022 2021 Change Net revenues $ 2,915,303 $ 2,005,390 $ 909,913 Cost of revenues (1,400,522 ) (875,418 ) (525,104 ) Gross profit 1,514,781 1,129,972 384,809 Operating expense (487,640 ) (521,892 ) 34,252 Other income 2,335 2,512 (177 ) Other expense (10,388 ) (4,327 ) (6,061 ) Income taxes (108,353 ) (156,402 ) 48,049 Net income 910,735 449,863 460,872 Net income attributable to noncontrolling interests 54,931 59,875 (4,944 ) Net income attributable to Fortune Valley Treasures, Inc. $ 855,804 $ 389,988 $ 465,816 Nine Months Ended September 30, 2022 and 2021 Nine Months Ended September 30, 2022 2021 Change Net revenues $ 6,513,572 $ 5,474,894 $ 1,038,678 Cost of revenues (3,018,507 ) (2,402,685 ) (615,822 ) Gross profit 3,495,065 3,072,209 422,856 Operating expense (1,396,667 ) (1,500,499 ) 103,832 Other income 10,630 3,446 7,184 Other expense (21,077 ) (13,814 ) (7,263 ) Income taxes (212,274 ) (319,024 ) 106,750 Net income 1,875,677 1,242,318 633,359 Net income attributable to noncontrolling interests 123,464 132,601 (9,137 ) Net income attributable to Fortune Valley Treasures, Inc. $ 1,752,213 $ 1,109,717 $ 642,496 17 Net Revenues Net revenues were $2,915,303 for three months ended September 30, 2022, reflecting an increase of $909,913, or 45%, from $2,005,390 for the three months ended September 30, 2021. The increase in net revenues was mainly due to the increase in the product sale as a result of a newly launched distribution channel via a WeChat App . Net revenues were $6,513,572 for nine months ended September 30, 2022, reflecting an increase of $1,038,678, or 19%, from $5,474,894 for nine months ended September 30, 2021. The increase in net revenues was mainly attributable to the increase in the product sale as a result of the improved market condition with the impact of COVID-19, as compared to the same period of the prior year . Cost of Revenues Cost of revenues was $1,400,522 for the three months ended September 30, 2022, reflecting an increase of $525,104, or 60%, from $875,418 for the three months ended September 30, 2021. The increase in cost of revenue was due to the higher product sales volume in line with our revenue increase. Cost of revenues was $3,018,507 for the nine months ended September 30, 2022, reflecting an increase of $615,822, or 26%, from $2,402,685 for the nine months ended September 30, 2021. The increase in cost of revenue was due to the higher product sales volume in line with our revenue increase. Gross Profit Gross profit was $1,514,781 and $1,129,972 for the three months ended September 30, 2022 and 2021, respectively, reflecting an increase of $384,809, or 34%. The increase in gross profit was due to the increase in the net revenues . Gross profit was $3,495,065 and $3,072,209 for the nine months ended September 30, 2022 and 2021, respectively, reflecting an increase of $422,856, or 14%. The increase in gross profit was due to the increase in the net revenues. Operating Expenses Operating expense was $487,640 for the three months ended September 30, 2022, reflecting a slight decrease of $34,252, or 7%, from $521,892 for the nine months ended September 30, 2021. Operating expense was $1,396,667 for the nine months ended September 30, 2022, reflecting a slight decrease of $103,832, or 7%, from $1,500,499 for the nine months ended September 30, 2021. Net Income For the three months ended September 30, 2022, our net income was $910,735, compared to a net income of $449,863 for the three months ended September 30, 2021. The increase in net income was a result of the factors described above. For the nine months ended September 30, 2022, our net income was $1,875,677, compared to a net income of $1,242,318 for the nine months ended September 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 September 30, 2022 and 2021, the Company recorded a net income attributable to noncontrolling interests of $54,931 and $59,875, respectively. For the nine months ended September 30, 2022 and 2021, the Company recorded a net income attributable to noncontrolling interests of $123,464 and $132,601, respectively. 18 Liquidity and Capital Resources Working Capital September 30, 2022 December 31, 2021 Change Total current assets $ 6,544,575 $ 5,069,481 $ 1,475,094 Total current liabilities 1,718,717 1,717,519 1,198 Working capital $ 4,825,858 $ 3,351,962 $ 1,473,896 As of September 30, 2022, we had working capital of $4,825,858, as compared to working capital of $3,351,962 as of December 31, 2021. We had total current assets of $6,544,575, consisting of cash and cash equivalents of $239,443, inventories of $147,097, prepayments and other current assets of $2,507,504, and accounts receivable of $3,650,531, compared to total current assets of $5,069,481 as of December 31, 2021. The increase was mainly due to the increase in cash and cash equivalents, account receivable, and prepayment and other current assets. We had current liabilities of $1,718,717, consisting of operating lease obligations of $135,747, accounts payable of $155,039, accrued liabilities of $131,363, bank and other borrowing of $413,207, customer advances of $176,213, income tax payable of $111,142 and due to related parties of $596,006. The balance of total current liabilities is comparable with the balance as of December 31, 2021. Our cash and cash equivalents balance increased to $239,443 as of September 30, 2022, from $123,163 at December 31, 2021. We estimate the Company currently has sufficient cash available to meet its anticipated working capital requirements for the next twelve months, without raising additional capital. The Company is continuing to look for different financing opportunities in order to increase 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 Nine Months Ended September 30, 2022 2021 Change Cash Flows provided by (used in) Operating Activities $ 48,444 $ (712,200 ) $ 760,644 Cash Flows provided by Investing Activities - 362,931 (362,931 ) Cash Flows provided by Financing Activities 108,002 212,278 (104,276 ) Effect of exchange rate changes (40,166 ) 37,343 (77,509 ) Net Changes in Cash and Cash Equivalents $ 116,280 $ (99,648 ) $ 215,928 Cash Flow from Operating Activities Net cash provided by operating activities for the nine months ended September 30, 2022 was $48,444, as compared to the amount of $712,200 used in operating activities for the nine months ended September 30, 2021, reflecting an increase of $760,644. The cash provided by operating activities during the nine months ended September 30, 2022 was mainly resulted from net income of $1,875,677 and depreciation and amortization expenses of $648,740, offset by the increase in accounts receivable of $1,374,495, increase in the prepayments and other current assets of $608,448, increase in deposits paid to vendors of $277,134, and decrease in customer advances of $178,597. Cash Flow from Investing Activities Net cash used in investing activities was nil for the nine months ended September 30, 2022, compared to net cash provided by investing activities of $362,931 for the nine months ended September 30, 2021. Cash Flow from Financing Activities Net cash provided by financing activities was $108,002 for the nine months ended September 30, 2022, compared to net cash provided by financing activities of $212,278 for the nine months ended September 30, 2021. The cash provided by financing activities for the nine months ended September 30, 2022 was mainly resulted from the net proceeds from revolving credit lines of $148,606 and the proceeds from bank loans of $135,499, offset by the repayments to related parties of $154,510. 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. 19 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. Related Party Transactions As of September 30, 2022 and December 31, 2021, the Company had accounts receivable from related parties in amounts of $116,995 and $43,477, prepayments to related parties in the amounts of $1,957,201 and $1,813,904, deposits to related parties in the amounts of $1,607,955 and $1,596,075, and accounts payable to related parties in amounts of $3,629 and $17,789, respectively. As of September 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 September 30, 2022 and December 31, 2021, the Company had outstanding payables due to its related parties in the amounts of $596,006 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 nine months ended September 30, 2022 and 2021, the Company’s related parties paid expenses on behalf of the Company in the amounts of $135,081 and $532,912, respectively. During the nine months ended September 30, 2022 and 2021, the Company sold products to its related parties in the amounts of $120,632 and $495,062, respectively, purchased goods from its related parties in the amounts of $769,387 and $575,495, and incurred cost of revenues from related parties in the amounts of $763,663 and $508,867, respectively. During the nine months ended September 30, 2022 and 2021, the rental expenses to related parties were $16,132 and $27,944, 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 September 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 September 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 September 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: November 14, 2022 By: /s/ Yumin Lin Yumin Lin President and Chief Executive Officer (Principal Executive Officer) Date: November 14, 2022 By: /s/ Kaihong Lin Kaihong Lin Chief Financial Officer (Principal Financial and Accounting Officer) 23