UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020Quarterly Period Ended March 31, 2021

or

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to ________________

COMMISSION FILE NO.Commission File Number 000-55555

FORTUNE VALLEY TREASURES, INC.Fortune Valley Treasures, Inc.

(Exact name of registrant issuer as specified in its charter)

13th Floor, Building B1, Wisdom Plaza

Qiaoxiang Road, Nanshan District

Shenzhen, Guangdong, China 518000

(Address of principal executive offices, including zip code)

Registrant’s phone number, including area code (86) 755-86961405

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None.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 registrantissuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [X] No [  ]

Indicate by check mark 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.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

As of AugustMay 14, 2020,2021, there were 307,750,100313,098,220 shares, of common stock, par value $0.001, per share, of the registrant issued andregistrant’s common stock outstanding.

TABLE OF CONTENTS

CAUTIONARY NOTES REGARDING FORWARD-LOOKING STATEMENTSPART I – FINANCIAL INFORMATION

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)Item 1. Condensed Consolidated Financial Statements. These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted. These risks and uncertainties include the following:

This quarterly report should be read completely and with the understanding that actual future results may be materially different from what we expect. The forward-looking statements included in this quarterly report are made as of the date of this quarterly report and should be evaluated with consideration of any changes occurring after the date of this quarterly report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Except as otherwise indicated by the context hereof, references in this report to “Company,” “FVTI,” “we,” “us” and “our” are to Fortune Valley Treasures, Inc. and its subsidiaries. All references to “USD” or “U.S. Dollars (US$)” areFORTUNE VALLEY TREASURES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2021 AND DECEMBER 31, 2020

See accompanying notes to the legal currency of the United States of America. All references to “RMB” are to the legal currency of People’s Republic of China.unaudited condensed consolidated financial statements.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Fortune Valley Treasures, Inc.FORTUNE VALLEY TREASURES, INC.

Financial StatementsCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

June 30,AND COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(Unaudited)

Fortune Valley Treasures, Inc.

Condensed Consolidated Balance Sheets

At June 30, 2020 and December 31, 2019

See accompanying notes to the unaudited condensed consolidated financial statementsstatements.

Fortune Valley Treasures, Inc.FORTUNE VALLEY TREASURES, INC.

Condensed Consolidated Statements of Operations and Comprehensive LossCONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

For the Three and Six Months Ended June 30,FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 and 2019

(Unaudited)

See accompanying notes to the unaudited condensed consolidated financial statements.

FORTUNE VALLEY TREASURES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE MONTHS ENDED MARCH 31, 2021 AND 2020

(Unaudited)

See accompanying notes to the unaudited condensed consolidated financial statementsstatements.

Fortune Valley Treasures, Inc.FORTUNE VALLEY TREASURES, INC.

Condensed Consolidated Statements of Stockholders’ DeficitNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended DecemberFOR THE THREE MONTHS ENDED MARCH 31, 2019 and 2018 and the Six Months Ended June 30,2021 AND 2020

See accompanying notes to the financial statements

Fortune Valley Treasures, Inc.

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2020 and 2019

(Unaudited)

See accompanying notes to the financial statements

NOTE 1 - ORGANIZATION AND DESCRIPTIONSUMMARY OF BUSINESSSIGNIFICANT ACCOUNTING POLICIES

Fortune Valley Treasures, Inc. (formerly Crypto-Services, Inc.,) (“FVTI” or the “Company” or “FVTI”) was incorporated in the State of Nevada on March 21, 2014. The Company is engaged in theCompany’s current primary business operations of wholesale distribution and retail sales of alcoholic beverages includingof wine and distilled liquors, and drinking water distribution and delivery are conducted through its subsidiaries in the People’s Republic of China (“PRC” or “China”).

On January 5, 2018, the Company changed its accounting fiscal year end from August 31 to December 31. On January 29, 2018, the Company filed a Certificate of Amendment with the State of Nevada to increase its authorized shares of common stock from 75,000,000 to 3,000,000,000.

On April 6,11, 2018, the Company entered into a share exchange agreement by and among DaXingHuaShang Investment Group Limited a Republic of Seychelles limited liability company (“DIGLS”) and its shareholders: 1.) Yumin Lin, 2.) Gaosheng Group Co., Ltd. and each of the shareholders of DIGLS, pursuant to which3.) China Kaipeng Group Co., Ltd whereby the Company newly issued 300,000,000 shares of its common stock in exchange for 100% ofall the issuedoutstanding shares ofin DIGLS. This transaction washas 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,acquirer; accordingly, the CompanyCompany’s historical statement of stockholders’ equity has been retroactively restated to the first period presented.

DIGLS was incorporated in the Republic of Seychelles on July 4, 2016, with an authorized capital of $100,000, divided into 250,000,000 ordinary shares, par value $0.0004 per share. DIGLS wholly owns DaXingHuaShang Investment (Hong Kong) Limited (“DILHK”), a company incorporated in Hong Kong on June 22, 2016 as an investment holding company with limited liability. DILHK was previously wholly owned by Mr. Yumin Lin, the Company’s Chairman, Chief Executive Officer, Chief Financial Officer, President, Treasurer and Secretary. On November 11, 2016, Mr. Yumin Lin transferred 100% of his ownership in DILHK to DIGLS for nominal consideration. DILHK wholly owns Qianhai DaXingHuaShang Investment (Shenzhen) Co., Ltd. (“QHDX”), a PRC limited liability company formed on November 3, 2016 as a wholly foreign-owned enterprise. QHDX wholly owns Dongguan City France Vin Tout Ltd. (“FVTL”). FVTL was incorporated on May 31, 2011 in the PRC as a limited liability company. FVTL was previously owned and controlled by Mr. Yumin Lin. On November 20, 2016, Mr. Yumin Lin transferred his ownership in FVTL to QHDX for nominal consideration. The share transfers detailed above by and among Mr. Yumin Lin, DIGLS, DILHK, QHDX, and FVTL have been accounted for as a series of business combination of entities under common control. Accordingly, the values in these financial statements reflect the carrying values of those entities, and no goodwill was recorded as a result of these transactions.

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 contemplated in the SP Agreement was closed on March 1, 2019. Pursuant to the SP Agreement, the Company issued 100 shares of its common stock to JJGS to acquire 100% of the shares of JJGS for a cost of $150. After the closing, JJGS became the Company’s wholly owned subsidiary. JJGS owns all of the equity interestsinterest of Jiujiu (HK) Industry Limited (“JJHK”) and Jiujiu (Shenzhen) Industry Co., Ltd. (“JJSZ”). NoneJJGS and JJHK are holding companies and conduct business through their operating subsidiary, JJSZ, which engages in retail and wholesale distribution of JJGS, JJHK and JJSZ have any operations or active business, nor do they have any substantial assets.

Makaweng Acquisitionwine products.

On July 13, 2019,June 22, 2020, the Company and QHDX entered into an equity interest transfera sale and purchase agreement which was later amended on September 12, 2019along with Qianhai DaXingHuaShang Investment (Shenzhen) Co., Ltd., a company incorporated in the PRC and a wholly-owned subsidiary of FVTI (“Makaweng Agreement”QHDX”), with Xingwen Wang, a shareholder and legal representativeto acquire 90% of Yunnan Makaweng Wine & Spiritsthe shares of Dongguan Xixingdao Technology Co., Ltd. (“Makaweng” or “MKW”Xixingdao”), a PRC limited liability company engagedincorporated in the business of distribution of wine and beer. Pursuant to the Makaweng Agreement, QHDX purchased 51% of Makaweng’s equity interests from Xingwen WangPRC, in exchange for 4,862,681 shares of ourthe Company’s common stock (“Makaweng Issuable Shares”),stock. The Company obtained the numbercontrol of which is determined according toXixingdao on August 31, 2020, the following formula:

Number of Makaweng Issuable Shares = A x 51% x 20 x B ÷ C

Forshares were issued on December 28, 2020. Xixingdao became the purpose of the foregoing formula:

A = Audited net annual profit of Makaweng in fiscal year 2020.

B = The daily average middle exchange rate of U.S. Dollars to Chinese Yuan published by the State Administration of Foreign Exchange of the People’s Republic of China on DecemberCompany’s subsidiary since August 31, 2020.

C = The closing price of FVTI’s common stock on December 31, 2020.

Mr. Wang has agreed not to transfer the Makaweng Issuable Shares for at least three years after delivery of the Makaweng Issuable Shares (the “Delivery”). He may only transfer up to 30% of his FVTI common stock during the fourth year after the Delivery and cumulatively no more than 60% of his FVTI common stock during the fifth year after the Delivery.

The 51% of equity interest of Makaweng was transferred to QHDX and the registration of such transfer with local government authorities was completed on August 28, 2019.

Makaweng acquired 95% of equity interest of Lijiang Rendetang Biotechnology Co., Ltd., a PRC limited corporation with no operations (“LJRB”), from an existing shareholder of LJRB in January 2020 for a nominal amount as consideration.

BTF Acquisition

On December 30, 2019, the Company, along with QHDX, entered into an equity interest transfer agreement (the “BTF Agreement”) with shareholders (the “BTF Original Shareholders”) of Foshan BaiTaFeng Beverage Development Co., Ltd. (“BTF”), who collectively owned 100% equity interest of BTF, a limited liability company engaged in the business of bottling and distributing of drinking water in China.

Pursuant to the BTF Agreement, QHDX agreed to purchase 80% of BTF’s equity interest (the “BTF Equity Transfer”) from Mr. Chunbin Li, the legal representative and one of the BTF Original Shareholders of BTF (the “BTF Seller”), in exchange for shares of our common stock (“BTF Issuable Shares”). The completion of the registration of the BTF Equity Transfer with local government authorities (the “BTF Closing”) is subject to satisfaction of all the closing conditions (unless waived), including but not limited to, the approval of the BTF Equity Transfer by BTF shareholders, completion of due diligence review of BTF to the satisfaction of QHDX, waiver from the BTF Original Shareholders to the right of first refusal to purchase the equity interest subject to the BTF Equity Transfer. It is agreed that the BTF Closing shall be conducted prior to the completion of an initial draft of the audited financial statements of BTF.

According to the BTF Agreement, the total number of BTF Issuable Shares will be determined according to the following formula:

Number of BTF Issuable Shares = X x 80% x 15 ÷ 3.02 ÷ Y

For the purpose of the foregoing formula:

X = Net profit of BTF during the period from October 1, 2019 to September 30, 2020.

Y = 7:1, which is the exchange rate of U.S. Dollars to Chinese Yuan mutually agreed by the parties.

Pursuant to the BTF Agreement, we will issue the BTF Issuable Shares to the BTF Seller within 30 business days after September 30, 2020 pursuant to a separate subscription agreement to be entered into by the Company and the BTF Seller or his designee.

BTF and the BTF Original Shareholders have agreed to achieve certain operation objectives of BTF, including a net profit of RMB 9 million (approximately $1.29 million) for the period from October 1, 2019 to September 30, 2020 and a net profit of RMB 3 million (approximately $0.14 million) for the fiscal year ended December 31, 2019. Pursuant to the BTF Agreement, as long as the BTF Seller continues to serve as the general manager and legal representative of BTF, the BTF Original Shareholders and BTF shall ensure BTF achieves an increase in annual net profit of no less than 10% during each year of the five years after September 30, 2020.

Pursuant to the BTF Agreement, BTF will establish a board of directors consisting of three individuals, two of which will be designated by QHDX and one by the BTF Original Shareholders, and appoint a person designated by the BTF Original Shareholders as general manager. To ensure the continuous operations of BTF, the parties agreed that BTF will retain its existing employees and all the management members of BTF shall sign employment agreements and non-compete agreements with BTF. The parties further agreed that BTF will not make any profit distribution within three years after the execution of the BTF Agreement. Any subsequent share transfer or share pledge of QHDX’s equity interest in BTF is subject to the prior written consent of the BTF Original Shareholders. In the event of a late payment of the consideration by QHDX or any delay in the registration of the BTF Equity Transfer with local government caused by the BTF Seller, a daily penalty of 0.05% of the outstanding payment is assessed.

As of the date this report, the Company has not closed the transaction with the BTF shareholders.

January 6, 2021, FVTI, JJGS, Valley Holdings Acquisition

On March 16, 2020, the Company, along with JJGS, entered into an equity interest transfer agreement (the “Valley Holdings Agreement”) with Valley HoldingsHolding Limited (“Valley Holdings”), a Hong Kong company, and Angel International Investment Holdings Limited (the “Valley Holdings Seller”), signed a 70% shareholder of Valley Holdings.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 owns approximately 88.44% of the equity interest of Valley Foods Holdings (Guangzhou) Co., Ltd. (“Valley Food”), which is a limited liability company incorporated in China and engaged in the business of food wholesale and production and sale of food additives in China.

Pursuant to the Valley Holdings Agreement, JJGSSeller entered into a new equity interest transfer agreement, pursuant to which DILHK agreed to purchase 70% of Valley Holdings’ equity interest (the “Valley Holdings Equity Transfer”) from the Valley Holdings Sellerseller in consideration of shares of FVTI’s common stock (“Valley Holdings Issuable Shares”) valued at $14 million (subjectshares with value equivalents to adjustments in the event$15 million. As of Valley Holdings failing to meet a net profit of HK$5 million (approximately US$0.6 million) for the fiscal year ended December 31, 2019). According to the Valley Holdings Agreement, the total number of Valley Holdings Issuable Shares will be determined based on the closing price of FVTI’s common stock as of the business day immediately preceding the date of this filing, the Valley Holdings Closing (as defined below).

The closing of the Valley Holdings Equity Transfer (the “Valley Holdings Closing”has not occurred.

On February 28, 2021, FVTI, QHDX and the original shareholders of Foshan BaiTaFeng Beverage Development Co., Ltd. (“BTF”) is intendedsigned a termination agreement, pursuant to occurwhich the parties mutually agreed to terminate the original equity interest transfer agreement signed on or before April 30, 2020 or such later date agreed upon in writing. The Valley Holdings Closing is subject to certain conditions, including, but not limited to, (a) completion of due diligence review of Valley Holdings and its subsidiaries to the satisfaction of JJGS, (b) completion of the initial draft of the audited consolidated financial statements of Valley Holdings for the fiscal year ended December 31, 2019 (c) execution of non-competition agreements and confidentiality agreements with the senior management members of Valley Holdings and its subsidiaries, and (d) assignment to Valley Holdings all of the intellectual properties related to the operations of Valley Holdings and its subsidiaries.

Pursuant to the Valley Holdings(“BTF Agreement”). The BTF Agreement FVTI will issue the Valley Holdings Issuable Shares to the Valley Holdings Seller within 30 business days after the later of the Valley Holdings Closingwas terminated effective February 28, 2021 and the issuance of audit report of Valley Holdings forparties have no further rights or obligations under the fiscal year ended December 31, 2019, pursuant to a separate subscription agreement to be entered into by FVTI and the Valley Holdings Seller or its designee.

To ensure the continuous operations of Valley Holdings and its subsidiaries, the parties agreed that Valley Holdings and its subsidiaries will retain their existing employees and will enter into non-competition and employment agreements with all the management members of Valley Holdings and its subsidiaries.BTF Agreement. The parties further agreed to waive their rights to any claims that Valley Holdings will not make any profit distribution within three years aftermay arise under the execution of the Valley HoldingsBTF Agreement. JJGS or the Valley Holdings Seller may terminate Valley Holdings Agreement in writing in the event that any closing condition is not met before April 30, 2020.

As of the date of this report, the Company has not completed the transaction to acquire Valley Holdings.

Xixingdao Acquisition

On June 22, 2020, FVTI and QHDX entered into an equity interest transfertermination agreement, (the “Xixingdao Agreement”) with Dongguan Xixingdao Technology Co., Ltd. (“Xixingdao”), a company incorporated in China, and the two shareholders of Xixingdao, who collectively own 100%no equity interest of Xixingdao (the “Xixingdao Sellers”). Xixingdao is engaged in the business of drinking water distribution and delivery in Dongguan City, Guangdong Province, China.BTF had been transferred to QHDX.

Pursuant to the Xixingdao Agreement, QHDX agreed to purchase 90%Basis of Xixingdao’s equity interest (the “Xixingdao Equity Transfer”) from the Xixingdao Sellers in consideration of shares of FVTI’s common stock (“Xixingdao Issuable Shares”). The completion of the registration of the Xixingdao Equity Transfer with local government authorities (the “Xixingdao Closing”) is subject to satisfaction of all the closing conditions (unless waived), including, but not limited to, (a) completion of due diligence review of Xixingdao to the satisfaction of QHDX, (b) completion of the initial draft of the audited consolidated financial statements of Xixingdao for the fiscal year ended December 31, 2019, and (c) execution of non-competition agreements and confidentiality agreements with the senior management members of Xixingdao.

According to the Xixingdao Agreement, the total number of Xixingdao Issuable Shares will be determined according to the following formula:

Number of Issuable Shares = A x 15 ÷ B ÷ C

For the purpose of the foregoing formula:

A = Audited net profit of Xixingdao during the period from June 1, 2020 to May 31, 2021.

B = The average of the closing prices of FVTI’s common stock for the 30 business days before the date the Xixingdao Issuable Shares are issued.

C = The central parity rate of Chinese Yuan against U.S. Dollars on the date the Xixingdao Issuable Shares are issued as reported by China Foreign Exchange Trading Center.

Xixingdao and Xixingdao Sellers have agreed to achieve certain operation objectives of Xixingdao, including a net profit of RMB 4 million (approximately $565,155) for the period from January 1, 2020 to December 31, 2020. Pursuant to the Xixingdao Agreement, as long as Yuwen Li, one of the Xixingdao Sellers, continues to serve as the general manager and legal representative of Xixingdao, Xixingdao and Xixingdao Sellers shall ensure Xixingdao achieves an increase in annual net profit of no less than 10% during its fiscal years between 2022 to 2025.

To ensure the continuous operations of Xixingdao, the parties agreed that Xixingdao will retain their existing employees and will enter into non-competition and employment agreements with the management team of Xixingdao.

Pursuant to the Xixingdao Agreement, Xixingdao will establish a board of directors consisting of three individuals, two of which will be designated by QHDX and one by the Xixingdao Sellers, and appoint a person designated by the Xixingdao Sellers as general manager.presentation

The parties further agreed that Xixingdao will not make any profit distribution within four years after the execution of the Xixingdao Agreement. In the event of a late payment of the consideration by QHDX or any delay in the registration of the Xixingdao Equity Transfer with local government caused by the Xixingdao Sellers, a daily penalty of 0.01% of the outstanding payment is assessed.

As of the date of this report, the Company has not completed the transaction to acquire Xixingdao.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

Theseaccompanying unaudited condensed consolidated financial statements accompanying notes,as of and related disclosuresfor the three months ended March 31, 2021 and 2020, have been prepared pursuant to the rules and regulations of the SEC.Securities and Exchange Commission (the “SEC”) that permit reduced disclosure for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. In the opinion of management, all adjustments consisting of normal recurring entries considered necessary for a fair presentation have been included. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole. The condensed consolidated balance sheet information as of December 31, 2020 was derived from the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, for the year ended December 31, 2020, filed with the SEC on April 26, 2021 (the “report”). These unaudited condensed consolidated financial statements should be read in conjunction with the report.

The accompanying financial statements have been prepared usingin conformity with U.S. GAAP which contemplates continuation of the accrualCompany as a going-concern basis. The going-concern basis of accounting in accordance with the generally accepted accounting principlesassumes that assets are realized, and liabilities are settled in the United States (“GAAP”).ordinary course of business at amounts disclosed in the financial statements. Although the Company has generated a negative operating cash flow of $508,778 during the three months ended March 31, 2021, it has reported a net income of $335,574. In addition, as of March 31, 2021, the Company had a working capital of $2,437,539. The Company’s fiscal year end is December 31. Theindependent registered public accounting firm expressed in its report on the Company’s financial statements are presentedfor the year ended December 31, 2020 a substantial doubt about the Company’s ability to continue as a going concern. Based on the Company’s effort in U.S. Dollars.improving its operation and the significant working capital raised as of March 31, 2021, the management believes that the substantial doubt has been alleviated.

Basis of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. The results of subsidiaries acquired during the respective periods are included in the consolidated statements of operations from the effective date of acquisition or up to the effective date of disposal, as appropriate. The portion of the income or loss applicable to noncontrolling interests in subsidiaries is reflected in the consolidated statements of operations.

As of March 31, 2021, details of the Company’s major subsidiaries were as follows:

Use of estimates

The preparation of financial statements is in conformity with US GAAP which requires management to make estimates and assumptions that affectrelating to the reported amountsreporting of assets and liabilities as well asand the disclosure of contingent assets and liabilities at the date of the financial statements. The estimatesstatements, and judgments will also affect the reported amounts for certainof 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 materially 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 results offoreign operations intoto 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 JJHK and DILHK’sJJHK’s functional currency is the U.S. dollar.dollar; QHDX, JJSZ FVTL, MKW and LJRBtheir subsidiaries which are incorporated in the 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:

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:

Adjustments arising from such translations are included in accumulated other comprehensive income in shareholders’ equity.

Translation of amounts from the local currencies of the Company into US$ has been made at the following exchange rates for the respective periods:

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. DollarsUS dollars at the rates used in translation.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits in banks, and any investments with maturities with less three months from inception to maturity. The Company’s primary bank deposits are located in the Hong Kong and the PRC. Under the Deposit Insurance System in China, a company’s deposits at one bank is insured for a maximumImpairment of RMB500,000 (approximately $70,000). However, management has determined that the risk of loss from insolvency by those financial institutions at which it has deposited its funds is insignificant.

Accounts receivable

Accounts receivable are carried at the amounts invoiced to customers less allowance for doubtful accounts. The allowance is an estimate based on a review of individual customer accounts on a regular basis. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received.long-lived assets other than goodwill

The Company reviews the collectability of accounts receivable based on an assessment of historical experience, current economic conditions, and other collection indicators.

During the year ended December 31, 2019 and the six months ended June 30, 2020, the Company did not experience any delinquent or uncollectible balances; accordingly, the Company did not record any valuation allowance for bad debt during these periods.

Inventories

Inventories consisting of finished goods are stated at the lower of cost or market value. The Company used the weighted average cost method of accounting for inventory. Inventories on hand are evaluated on an on-going basis to determine if any items are obsolete, spoiled, or in excess of future demand. The Company provides impairment that is charged directly to cost of sales when it has been determined that the product is obsolete, spoiled, and that the Company will not be able to sell it at a normal profit above its carrying cost. The Company’s primary products are imported alcoholic beverages. The selling price of alcoholic beverages tends to increase over time. However, there are circumstances where alcoholic beverages may be subject to spoilage if stored for prolong periods of time. The Company did not experience an impairment on inventory during the six months ended June 30, 2020.

Advances and prepayments to suppliers

In certain instances, in order to secure the supply of limited and sought-after wines and liquors, the Company will make advance payments to suppliers for the procurement of inventory. Upon physical receipt and inspection of such products from those suppliers, the applicable balances are reclassified from advances and prepayments to suppliers to inventory.

Property, plant and equipment

Equipment is carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the equipment are as follows:

The cost of maintenance and repairs is charged to expenses as incurred, whereas significant renewals and betterments are capitalized.

Right-of-use asset and lease liabilities

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842).” The new standard requires lessees to recognize lease assets (right of use) and lease obligations (lease liability) for leases previously classified as operating leases under U.S. GAAP on the balance sheet for leases with terms in excess of 12 months. The standard is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years.

Accounting for long-lived assets

The Company annually reviews its long-lived assets for impairment or whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Impairment may be the result of becoming obsolete from a change in the industry or new technologies. Impairment is present if the carrying amount of an asset is less than its undiscounted cash flows to be generated.

If an asset is considered impaired, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Customer advancesThe Company did not recognize any impairment of long-lived assets during the three months ended March 31, 2021 and deposits2020.

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 three months ended March 31, 2021, the Company did not record any impairment of goodwill.

Revenue recognition

On certain occasions, the Company may receive prepayments from downstream retailers or retail customers for wines and liquors prior to their taking possession of the Company’s products. The Company records these receipts as customer advances and deposits until it has met allfollows the criteria for recognitionguidance of revenue including the passing possession of the products to its customer, at such point Company will reduce the customer deposits balance and credit the Company’s revenues.

Revenue recognition

The Company adopted ASC Topic 606, Revenue from Contracts with Customers, and all subsequent ASUs that modified ASC 606, on April 1, 2017 using the full retrospective method which requires the Company to present the financial statements for all periods as if Topic 606 had been applied to all prior periods. Revenuerevenue from contracts with customers is recognized using the following five steps:

In applying ASCUnder Topic 606, revenues are recognized when the promised products have been confirmed of delivery or services have been transferred to the consumers in amounts that reflect the consideration the customer expects to be entitled to in exchange for those services. The Company presents value added taxes (“VAT”) as reductions of revenues. The Company recognizes revenues net of value added taxes (“VAT”) and relevant charges.

We generate revenue primarily from the sales of wine, water and oil directly to agents, wholesalers and end users. We recognize product revenue at a point in time when the Company has negotiated the termscontrol of the transaction, set forth the sales price,products has been transferred to customers. The transfer of possession of product to customer, determined that the customer does not have the right to return the product, determined that the customercontrol is able to further sell or transfer the product onto others for economic benefit without any other obligation to be fulfilled by the Company, and the Company is reasonably assured that fundsconsidered complete when products have been picked up by or will be collected from the customer. The Company’s gross revenue consists of the value of goods invoiced, net of any value-added tax.

Advertising

All advertising costs are expensed as incurred. Advertising expensesdelivered to our customers. We account for the six months ended June 30, 2020 and 2019 were $0 and $0, respectively.

Shipping and handling

Outbound shipping and handling are expensed as incurred.

Retirement benefits

Retirement benefits in the form of mandatory government sponsored defined contribution plans are charged as expenses as incurred or allocated to inventoryfees as a part of overhead.

Income taxesfulfillment cost.

The Company accounts for income tax using an asset and liability approach and allows for recognitionfollowing table provides information about disaggregated revenue based on revenue by product types: