UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the Quarterly Period Ended June 30, 20222023

 

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 001-38308000-55555

 

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, China523000

(Address of principal executive offices, including zip code)

Registrant’s phone number, including area code (86(86)) 769-85729133

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: Common stock, par value $0.001 per share

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

 

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

Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 Large accelerated filer☐ Accelerated filer☐
 Non-accelerated filer☒ Smaller reporting company☒
    Emerging growth company☐

 

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

 

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

 

Yes ☐ No ☒

 

As of August 12, 2022,14, 2023, there were 15,655,038 shares, par value $0.001, of the registrant’s common stock outstanding.

 

 

 

 

 

TABLE OF CONTENTS

 

  Page
   
PART IFINANCIAL INFORMATION3
   
ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:3
   
 Condensed Consolidated Balance Sheets as of June 30, 20222023 (Unaudited) and December 31, 202120223
   
 Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 20222023 and 20212022 (Unaudited)4
   
 Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 20222023 and 20212022 (Unaudited)5
   
 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 20222023 and 20212022 (Unaudited)6
   
 Notes to Condensed Consolidated Financial Statements for the Three and Six Months Ended June 30, 20222023 and 20212022 (Unaudited)7
   
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS17
   
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK20
   
ITEM 4.CONTROLS AND PROCEDURES20
   
PART IIOTHER INFORMATION22
   
ITEM 1LEGAL PROCEEDINGS22
   
ITEM 2UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS22
   
ITEM 3DEFAULTS UPON SENIOR SECURITIES22
   
ITEM 4MINE SAFETY DISCLOSURES22
   
ITEM 5OTHER INFORMATION22
   
ITEM 6EXHIBITS22
   
SIGNATURES23

 

2

 

PART I - FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements.

 

FORTUNE VALLEY TREASURES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 20222023 AND DECEMBER 31, 20212022

 

 

June 30,

2022

  

December 31,

2021

  

June 30,

2023

 

December 31,

2022

 
 (Unaudited)   (Unaudited)    
Assets             
Current assets                
Cash and cash equivalents $85,326  $123,163  $75,950  $165,685 
Accounts receivable (including $53,571 and $43,477 from related parties as of June 30, 2022 and December 31, 2021, respectively)  2,704,902   2,662,168 
Accounts receivable, net (including $72,372 and $146,087 from related parties as of June 30, 2023 and December 31, 2022, respectively)  5,101,721   4,797,564 
Inventories  139,533   81,073   76,795   148,925 
Prepayments and other current assets (including $2,059,668 and $1,813,904 to related parties as of June 30, 2022 and December 31, 2021, respectively)  2,437,318   2,176,713 
Due from related party  -   26,364 
Prepayments and other current assets, net (including $1,162,622 and $1,102,861 to related parties as of June 30, 2023 and December 31, 2022, respectively)  1,537,639   1,758,917 
Total current assets  5,367,079   5,069,481   6,792,105   6,871,091 
                
Non-current assets                
Deposits paid (including $1,807,382 and $1,596,075 to related parties as of June 30, 2022 and December 31, 2021, respectively)  2,751,174   2,306,160 
Deposits paid, net (including $573,584 and $758,445 to related parties as of June 30, 2023 and December 31, 2022, respectively)  673,561   1,121,302 
Property and equipment, net  118,063   140,394   112,461   97,890 
Operating lease right-of-use assets  291,748   385,896   244,027   297,232 
Operating lease right-of-use assets, related parties  85,150   98,626   65,242   75,300 
Operating lease right-of-use assets  65,242   75,300 
Intangible assets, net  1,767,737   2,281,790   252,148   370,926 
Goodwill  1,334,005   1,406,289   435,562   454,201 
Total Assets $11,714,956  $11,688,636  $8,575,106  $9,287,942 
                
Liabilities and Stockholders’ Equity                
Current liabilities                
Operating lease obligations – current $102,736  $133,586  $112,632  $110,201 
Operating lease obligations, related parties - current  21,777   22,666   12,625   16,629 
Accounts payable (including $26,508 and $17,789 to related parties as of June 30, 2022 and December 31, 2021, respectively)  191,000   239,492 
Operating lease obligations - current  12,625   16,629 
Accounts payable (including $107,454 and $80,426 to related parties as of June 30, 2023 and December 31, 2022, respectively)  692,035   688,822 
Accrued liabilities  138,589   128,343   553,026   502,389 
Bank and other borrowings - current  208,012   101,207   483,233   422,653 
Income tax payable  43,101   25,726   20,116   38,879 
Customer advances  255,980   382,518   116,769   139,334 
Due to related parties  491,621   683,981   748,543   565,675 
Total current liabilities  1,452,816   1,717,519   2,738,979   2,484,582 
                
Non-current liabilities                
Operating lease obligations – non-current  185,806   240,611   155,593   189,957 
Operating lease obligations, related parties – non-current  65,209   77,934   45,235   55,056 
Operating lease obligations – non-current  45,235   55,056 
Bank and other borrowings  173,430   188,218   46,356   58,438 
Total Liabilities  1,877,261   2,224,282   2,986,163   2,788,033 
                
Stockholders’ Equity                
Common stock (150,000,000 shares authorized, 15,655,038 shares issued and outstanding as of June 30, 2022 and December 31, 2021)  15,655   15,655 
Common stock (150,000,000 shares authorized, 15,655,038 shares issued and outstanding as of June 30, 2023 and December 31, 2022)  15,655   15,655 
Additional paid-in capital  11,061,233   11,061,233   11,061,233   11,061,233 
Accumulated deficit and statutory reserves  (1,665,272)  (2,561,681)  (4,980,048)  (4,504,404)
Accumulated other comprehensive income (loss)  (3,489)  544,305 
Accumulated other comprehensive loss  (516,590)  (180,826)
Total Fortune Valley Treasures, Inc. stockholders’ equity  9,408,127   9,059,512   5,580,250   6,391,658 
Noncontrolling interests  429,568   404,842   8,693   108,251 
Total Stockholders’ Equity  9,837,695   9,464,354   5,588,943   6,499,909 
                
Total Liabilities and Stockholders’ Equity $11,714,956  $11,688,636  $8,575,106  $9,287,942 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

3

 

FORTUNE VALLEY TREASURES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 20222023 AND 20212022

(Unaudited)

 

  2022  2021  2022  2021 
  Three months ended June 30,  Six months ended June 30, 
  2022  2021  2022  2021 
             
Net revenues (including $40,770 and $119,706 from related parties for the three months ended June 30, 2022 and 2021, respectively; $41,495 and $388,684 from related parties for the six months ended June 30, 2022 and 2021, respectively) $2,336,459  $1,825,344  $3,598,269  $3,469,504 
                 
Cost of revenues (including $249,468 and $139,743 from related parties for the three months ended June 30, 2022 and 2021, respectively; $386,380 and $270,343 from related parties for the six months ended June 30, 2022 and 2021, respectively)  1,099,523   797,524   1,617,985   1,527,267 
Gross profit  1,236,936   1,027,820   1,980,284   1,942,237 
                 
Operating expenses:                
Selling and distribution expenses  15,929   19,604   34,084   47,158 
General and administrative expenses  347,657   449,872   874,943   931,449 
                 
Operating income  873,350   558,344   1,071,257   963,630 
                 
Other income (expense):                
Other income  1,995   255   8,202   286 
Interest income  16   483   93   648 
Interest expense  (4,864)  (5,934)  (10,689)  (9,487)
Other expense, net  (2,853)  (5,196)  (2,394)  (8,553)
                 
Income before income tax  870,497   553,148   1,068,863   955,077 
                 
Income tax expense  81,514   96,267   103,921   162,622 
                 
Net income $788,983  $456,881  $964,942  $792,455 
Less: Net income attributable to noncontrolling interests  41,250   42,406   68,533   72,726 
Net income attributable to Fortune Valley Treasures, Inc.  747,733   414,475   896,409   719,729 
                 
Other comprehensive income (loss):                
Foreign currency translation income (loss)  (602,321)  88,041   (591,601)  81,371 
                 
Total comprehensive income  186,662   544,922   373,341   873,826 
Less: comprehensive income (loss) attributable to noncontrolling interests�� (4,305)  50,477   24,726   80,194 
Comprehensive income attributable to Fortune Valley Treasures, Inc. $190,967  $494,445  $348,615  $793,632 
                 
Earnings per share                
Basic and diluted earnings per share* $0.05  $0.03  $0.06  $0.05 
Basic and diluted weighted average shares outstanding*  15,655,038   15,655,038   15,655,038   15,655,038 

*Given effect of the Reverse Stock Split, see Note 9
  2023  2022  2023  2022 
  Three months ended
June 30		  Six months ended
June 30		 
  2023  2022  2023  2022 
             
Net revenues (including $42,848 and $40,770 from related parties for the three months ended June 30, 2023 and 2022, respectively; $69,598 and $41,495 from related parties for the six months ended June 30, 2023 and 2022, respectively) $1,272,597  $2,336,459  $2,907,886  $3,598,269 
                 
Cost of revenues (including $133,114 and $249,468 from related parties for the three months ended June 30, 2023 and 2022, respectively; $362,096 and $386,380 from related parties for the six months ended June 30, 2023 and 2022, respectively)  652,798   1,099,523   1,330,165   1,617,985 
Gross profit  619,799   1,236,936   1,577,721   1,980,284 
                 
Operating expenses:                
Selling and distribution expenses  13,016   15,929   26,258   34,084 
General and administrative expenses  1,027,572   347,657   1,978,967   874,943 
                 
Operating income (loss)  (420,789)  873,350   (427,504)  1,071,257 
                 
Other income (expense):                
Other income  6,436   1,995   8,210   8,202 
Interest income  16   16   47   93 
Interest expense  (8,964)  (4,864)  (18,256)  (10,689)
Other expense, net  (2,512)  (2,853)  (9,999)  (2,394)
                 
Income (loss) before income tax  (423,301)  870,497   (437,503)  1,068,863 
                 
Income tax expense  21,528   81,514   96,502   103,921 
                 
Net income (loss) $(444,829) $788,983  $(534,005) $964,942 
Less: Net income (loss) attributable to noncontrolling interests  (58,004)  41,250   (58,361)  68,533 
Net income (loss) attributable to Fortune Valley Treasures, Inc.  (386,825)  747,733   (475,644)  896,409 
                 
Other comprehensive income:                
Foreign currency translation loss  (422,433)  (602,321)  (376,961)  (591,601)
                 
Total comprehensive income (loss)  (867,262)  186,662   (910,966)  373,341 
Less: comprehensive income (loss) attributable to noncontrolling interests  (99,383)  (4,305)  (99,558)  24,726 
Comprehensive income (loss) attributable to Fortune Valley Treasures, Inc. $(767,879) $190,967  $(811,408) $348,615 
                 
Earnings (loss) per share                
Basic and diluted earnings (loss) per share $(0.02) $0.05  $(0.03) $0.06 
Basic and diluted weighted average shares outstanding $15,655,038  $15,655,038  $15,655,038  $15,655,038 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

4

 

FORTUNE VALLEY TREASURES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 20222023 AND 20212022

(Unaudited)

 

  Number of shares  Amount  

Paid-in

Capital

 

Comprehensive

Income

  

Accumulated

Deficit

  

controlling

Interests

  Stockholders’ Equity 
  Common Stock  Additional  

Accumulated

Other

  

Accumulated

Deficit and

  Non  Total 
  Number of shares  Amount  

Paid-in

Capital

 

Comprehensive

Income (Loss)

  

Statutory Reserves

  

controlling

Interests

  Stockholders’ Equity 
Balance as of December 31, 2021  15,655,038  $15,655  $11,061,233  $544,305  $(2,561,681) $404,842  $9,464,354 
Net income  -   -   -   -   148,676   27,283   175,959 
Foreign currency translation adjustment  -   -   -   8,972   -   1,748   10,720 
Balance as of March 31, 2022  15,655,038  $15,655  $11,061,233  $553,277  $(2,413,005) $433,873  $9,651,033 
Net income  -   -   -   -   747,733   41,250   788,983 
Foreign currency translation adjustment  -   -   -   (556,766)  -   (45,555)   (602,321) 
Balance as of June 30, 2022  15,655,038  $15,655  $11,061,233  $(3,489) $(1,665,272) $429,568  $9,837,695 
  Number of shares  Amount  Paid-in
Capital		  Comprehensive
Income (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
Loss		  Statutory
Reserves		  controlling
Interests		  Stockholders’
Equity		 
Balance as of December 31, 2022  15,655,038  $15,655  $11,061,233  $(180,826) $(4,504,404) $108,251  $6,499,909 
Net loss  -   -   -   -   (88,819)  (357)  (89,176)
Foreign currency translation adjustment  -   -   -   45,290   -   182   45,472 
Balance as of March 31, 2023  15,655,038  $15,655  $11,061,233  $(135,536) $(4,593,223) $108,076  $6,456,205 
Net loss  -   -   -   -   (386,825)  (58,004)  (444,829)
Foreign currency translation adjustment  -   -   -   (381,054)  -   (41,379)  (422,433)
Balance as of June 30, 2023  15,655,038  $15,655  $11,061,233  $(516,590) $(4,980,048) $8,693  $5,588,943 

 

  Number of shares  Amount  

Paid-in

Capital

 

Comprehensive

Income

  

Accumulated

Deficit

  

controlling

Interests

  Stockholders’ Equity 
  Common Stock*  Additional  Accumulated
Other		  Accumulated
Deficit and		  Non  Total 
  Number of shares  Amount  Paid-in Capital*  Comprehensive
Income		  Statutory Reserves  controlling
Interests		  Stockholders’
Equity		 
Balance as of December 31, 2020*  15,655,038  $15,655  $11,061,233  $300,265  $(4,341,417) $195,915  $7,231,651 
Net income  -   -   -   -   305,254   30,320   335,574 
Foreign currency translation adjustment  -   -   -   (6,067)  -   (603)  (6,670)
Balance as of March 31, 2021*  15,655,038  $15,655  $11,061,233  $294,198  $(4,036,163) $225,632  $7,560,555 
Net income  -   -   -   -   414,475   42,406   456,881 
Foreign currency translation adjustment  -   -   -   79,970   -   8,071   88,041 
Balance as of June 30, 2021*  15,655,038  $15,655  $11,061,233  $374,168  $(3,621,688) $276,109  $8,105,477 

*Given effect of the Reverse Stock Split, see Note 9
  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 
Balance  15,655,038  $15,655  $11,061,233  $553,277  $(2,413,005) $433,873  $9,651,033 
Net income  -   -   -   -   747,733   41250   788,983 
Net income (loss)  -   -   -   -   747,733   41250   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 
Balance  15,655,038  $15,655  $11,061,233  $(3,489) $(1,665,272) $429,568  $9,837,695 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

5

 

FORTUNE VALLEY TREASURES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 20222023 AND 20212022

(Unaudited)

 

 2022 2021  2023 2022 
 Six months ended June 30,  Six months ended June 30, 
 2022 2021  2023 2022 
Cash flows from operating activities                
Net income $964,942  $792,455 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:        
Net income (loss) $(534,005) $964,942 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:        
Depreciation and amortization expense  433,417   426,224   124,680   433,417 
Non-cash lease expense  85,628   51,831   91,369   85,628 
Allowance for credit losses  960,144   - 
Loss on disposal of intangible asset  1,855   - 
Changes in operating assets and liabilities                
Accounts receivable  (185,856)  1,302,508 
Accounts receivable, net  (896,403)  (185,856)
Inventories  (64,826)  9,751   68,723   (64,826)
Prepayments and other current assets  (385,553)  (2,185,049)
Due from related party  25,887   - 
Deposits paid  

(583,325

)  (995,723)
Prepayments and other current assets, net  232   (385,553)
Due from related parties  -   25,887 
Deposits paid, net  (12,080)  (583,325)
Accounts payable  

(37,455

)  (50,152)  32,763   (37,455)
Due to related parties  

(122,702 

)  -   111,324  (122,702)
Customer advances  (110,633)  109,032   (17,538)  (110,633)
Accrued liabilities  56,060   121,960   74,167   56,060 
Income tax payable  19,354   (210,758)  (17,871)  19,354 
Operating lease obligations  

(77,497

)  (61,546)  (73,176)  (77,497)
Net cash provided by (used in) operating activities  17,441  (689,467)  (85,816)  17,441 
                
Cash flows from investing activities                
Repayment of advance to related parties  -   3,539,350 
Advance to related parties  -   (2,876,774)
Purchase of property and equipment  -   (57,442)
Purchase of intangible assets  -   (23,486)
Net cash provided by investing activities  -   581,648 
Acquisition of property and equipment  (4,786)  - 
Acquisition of intangible asset  (702)  - 
Net cash used in investing activities  (5,488)  - 
                
Cash flows from financing activities                
Borrowings from related parties  -   1,836,071 
Borrowings from and repayments to revolving credit lines, net  

148,606

  (22,925)   7,224   148,606 
Borrowings from bank loans  

10,352

   -   113,418   10,352 
Borrowings from a third party  

24,154

   -   -   24,154 
Repayments to related parties  (154,510)   (1,529,556)  -  (154,510)
Repayments to bank loans  (11,763)  -   (58,299)  (11,763)
Repayments to a third party  (66,379)  -   (19,541)  (66,379)
Net cash provided by (used in) financing activities  (49,540)  283,590   42,802   (49,540)
                
Effect of exchange rate changes on cash and cash equivalents  (5,738)  (5,208)  (41,233)  (5,738)
Net changes in cash and cash equivalents  (37,837)  170,563   (89,735)  

(37,837

)
Cash and cash equivalents–beginning of the period  123,163   249,837   165,685   123,163 
                
Cash and cash equivalents–end of the period $85,326  $420,400  $75,950  $85,326 
                
Supplementary cash flow information:                
Interest paid $10,191  $9,487  $18,378  $10,191 
Income taxes paid $86,546  $446,755  $152,140  $86,546 
                
Non-cash investing and financing activities                
Expenses paid by related parties on behalf of the Company $

38,627

  $293,862  $-  $38,627 
Remeasurement of operating lease obligation and right-of-use asset due to lease termination $-  $40,885
Operating lease right-of-use assets obtained in exchange for operating lease obligations $-  $281,058 $39,797  $- 
Liabilities assumed in connection with purchase of property and equipment $28,234  $- 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

6

 

FORTUNE VALLEY TREASURES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 20222023 AND 20212022

(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%100% of the shares of Jiujiu Group Stock Co., Ltd. (“JJGS”), a company incorporated under the laws of the Republic of Seychelles. The transaction closed on March 1, 2019. Pursuant to the SP Agreement, the Company issued 5 shares (given effect of the Reverse Stock Split, see Note 9) of its common stock to JJGS to acquire 100% of the shares of JJGS for a cost of $150. After the closing, JJGS became the Company’s wholly owned subsidiary. JJGS owns all of the equity interest of Jiujiu (HK) Industry Limited (“JJHK”) and Jiujiu (Shenzhen) Industry Co., Ltd. (“JJSZ”). JJGS, JJHK and JJSZ did not have any material assets or liabilities as of December 31, 2019, and they did not have any substantial operations or active business during the year ended December 31, 2019.

 

On June 22, 2020, the Company entered into a sale and purchase agreement along with Qianhai DaXingHuaShang Investment (Shenzhen) Co., Ltd., a company incorporated in China and a wholly-owned subsidiary of FVTI (“QHDX”), to acquire 90% of the shares of Dongguan Xixingdao Technology Co., Ltd. (“Xixingdao”), a company incorporated in the PRC, from certain shareholders of Xixingdao in exchange for 243,134 shares (given effect of the Reserve Stock Split, see Note 9) of the Company’s common stock. The Company obtained the control of Xixingdao on August 31, 2020, the shares were issued on December 28, 2020. Xixingdao became the Company’s subsidiary since August 31, 2020.

 

On January 6, 2021, FVTI, JJGS, Valley Holding Limited (“Valley Holdings”) and Angel International Investment Holdings Limited (the “Valley Holdings Seller”) signed a termination agreement, pursuant to which the parties mutually agreed to terminate the original equity interest transfer agreement signed on March 16, 2020. On the same date, FVTI, DILHK, Valley Holdings and the Valley Holdings Seller entered into a new equity interest transfer agreement, pursuant to which DILHK agreed to purchase 70% of Valley Holdings’ equity interest from the Valley Holdings seller (the “Valley Holdings Agreement”). On July 8, 2022, FVTI, DILHK, Valley Holdings and the Valley Holdings Seller signed a termination agreement, pursuant to which the parties mutually agreed to terminate the Valley Holdings Agreement signed on March 16, 2020. The Valley Holdings Agreement was terminated effective July 8, 2022 and the parties have no further rights or obligations under the Valley Holdings Agreement. The parties further agreed to waive their rights to any claims that may arise under the Valley Holdings Agreement. As of the date of the termination agreement, no equity interest of Valley Holdings had been transferred to FVTI, DILHK or Valley Holdings.

On February 28, 2021, FVTI, QHDX and the original shareholders of Foshan BaiTaFeng Beverage Development Co., Ltd. (“BTF”) signed a termination agreement, pursuant to which the parties mutually agreed to terminate the original equity interest transfer agreement signed on December 31, 2019 (“BTF Agreement”). The BTF Agreement was terminated effective February 28, 2021 and the parties have no further rights or obligations under the BTF Agreement. The parties further agreed to waive their rights to any claims that may arise under the BTF Agreement. As of the date of the termination agreement, no equity interest of BTF had been transferred to QHDX.

7

Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements as of June 30, 20222023 and for the three and six months ended June 30, 20222023 and 2021,2022, 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, 20212022 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, 2021,2022, filed with the SEC on April 1, 2022March 31, 2023 (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.

 

7

As of June 30, 2022,2023, 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, 20220200 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 SalesDrinking water distribution and delivery, sales of agriculture products, household electric appliancesalcoholic beverages and plastic productswater purifier PRC
Dongguan City Fu Jia Drinking Water Company Ltd (“FJWL”) March 29, 2021 Xixingdao SalesDrinking water distribution and delivery, sales of agriculture products, household electric appliances and foodwater purifier PRC
Dongguan City Fu Sheng Drinking Water Company Ltd (“FSWL”) March 29, 2021 Xixingdao SalesDrinking water distribution and delivery, sales of agriculture products, household electric appliances and foodwater purifier PRC
Shenzhen Fu Jin Trading Technology Company Ltd (“FJSTL”) June 7, 2021 Xixingdao TradingDrinking water distribution and delivery, sales of primary agricultural products, household appliances and plastic productswater purifier PRC
Dongguan City Fu Li Trading Ltd (“FLTL”)September 10, 2021

Xixingdao

SalesXixingdaoDrinking water distribution and delivery, sales of agriculture products, household electric appliances and plastic productswater purifierPRC
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

QHDXTrading of alcoholic beveragesPRC
Dongguan City Fu Zhi Gu Trading Ltd (“FZGTL”)September 9, 2022FVTLTrading of alcoholic beveragesPRC
Dongguan City Chang Fu Trading Ltd (“CFTL”)September 9, 2022FVTLTrading of alcoholic beveragesPRC
Dongguan City La Tong Trading Ltd (“LTTL”)August 8, 2022FVTLTrading of alcoholic beveragesPRC
Dongguan City Kai Fu Trading Ltd (“KFTL”)September 8, 2022FVTLTrading of alcoholic beveragesPRC

 

8

 

Use of estimates

 

The preparation of financial statements in conformity with USU.S. 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,credit losses, allowance of deferred tax asset and uncertain tax position, 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

 2022 2021  2023 2022 
 

As of and for the six months ended June 30,

  As of and for the
six months ended June 30,		 
 2022 2021  2023 2022 
Period-end RMB:US$1 exchange rate  0.14927   0.15483   0.13880   0.14927 
Period-average RMB:US$1 exchange rate  0.15451   0.15451   0.14448   0.15451 

 

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the rates used in translation.

9

 

Impairment of long-lived assets other than goodwill

 

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

 

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

 

The Company did not recognize any impairment of long-lived assets during the six months ended June 30, 20222023 and 2021.2022.

 

Goodwill

 

Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. In accordance with FASB ASC Topic 350, “Intangibles-Goodwill and Others”, goodwill is subject to at least an annual assessment for impairment or more frequently if events or changes in circumstances indicate that an impairment may exist, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis. The Company would recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit.

 

During the six months ended June 30, 20222023 and 2021,2022, the Company did 0tnot record any impairment of goodwill.

 

109

 

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,liquor, water, oilwater purifier and water purifierother products directly to agents, wholesalers and end users.users, with majority of sales transactions were conducted offline. We recognize product revenue at a point in time when the control of the products has been transferred to customers. The transfer of control is considered complete when products have been picked up by or delivered to our customers. We account for shipping and handling fees as a fulfillment cost.

 

The following table provides information about disaggregated revenue based on revenue by product types:

SCHEDULE OF DISAGGREGATION REVENUE

 2022 2021 2022 2021  2023 2022 2023 2022 
 Three months ended June 30, Six months ended June 30,  Three months ended
June 30,		 Six months ended
June 30,		 
 2022 2021 2022 2021  2023 2022 2023 2022 
Sales of wine $1,203,484  $617,568  $1,833,946  $1,396,788 
Sales of liquor $878,952  $1,203,484  $1,782,672  $1,833,946 
Sales of water  808,648   1,027,651   1,338,092   1,728,146   213,582   808,648   633,202   1,338,092 
Sales of oil  -   81,120   -   217,117 
Sales of water purifier  

310,807

   

99,005

   

395,548

   

127,453

   114,714   310,807   367,837   395,548 
Others  13,520   -   30,683   -   65,349   13,520   124,175   30,683 
Total $2,336,459  $1,825,344  $3,598,269  $3,469,504  $1,272,597  $2,336,459  $2,907,886  $3,598,269 

 

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,liquors, water and other products prior to them taking possession of the Company’s products. The Company records these receipts as customer advances until the control of the products has been transferred the customers. As of June 30, 20222023 and December 31, 2021,2022, the Company had customer advances of $255,980116,769 and $382,518139,334, respectively. During the six months ended June 30, 2022,2023, the Company recognized $314,78024,707 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.

 

Recently adopted accounting pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 was further amended in November 2020 by ASU No. 2020-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). As a result, ASC Topic 326, Financial Instruments – Credit Losses is effective for smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU No. 2016-13 on January 1, 2023 and the adoption did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC Topic 606, “Revenue from Contracts with Customers”. This ASU is expected to improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The new guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU No. 2021-08 on January 1, 2023 and the adoption did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

1110

NOTE 2 – ACCOUNTS RECEIVABLE, NET

 

Accounts receivable consisted of the following as of June 30, 2023 and December 31, 2022:

SCHEDULE OF ACCOUNTS RECEIVABLE

  June 30,
2023		  December 31,
2022		 
Accounts receivable (including $73,096 and $nil to related parties as of June 30, 2023 and December 31, 2022, respectively) $5,461,870  $4,797,564 
Less: Doubtful allowance (including $724 and $nil to related parties as of June 30, 2023 and December 31, 2022, respectively)  (360,149)  - 
Accounts receivable, net $5,101,721  $4,797,564 

Allowance for doubtful accounts movement is as follows:

SCHEDULE OF ALLOWANCE FOR DOUBTFUL ACCOUNTS

  June 30,
2023		  December 31,
2022		 
Beginning balance $-  $- 
Additions to allowance  374,894   - 
Foreign currency translation adjustment  (14,745)  - 
Ending balance $360,149  $- 

 

NOTE 23 – PREPAYMENTS AND OTHER CURRENT ASSETS, NET

 

Prepayments and other current assets consisted of the following as of June 30, 20222023 and December 31, 2021:2022:

SCHEDULE OF PREPAYMENTSPREPAYMENT AND OTHER CURRENT ASSETS

  June 30,
2022		  December 31,
2021		 
Prepayments (including $2,059,668 and $1,813,904 to related parties as of June 30, 2022 and December 31, 2021, respectively) $2,428,473  $2,169,095 
Other current assets  8,845   7,618 
Prepayments and other receivables $2,437,318  $2,176,713 
  

June 30,

2023

  

December 31,

2022

 
Prepayments (including $2,394,062 and $2,255,288 to related parties as of June 30, 2023 and December 31, 2022, respectively) $2,875,927  $3,001,866 
Other current assets  6,995   4,631 
Total prepayments and other current assets  2,882,922   3,006,497 
Less: Allowance for doubtful accounts (including $1,231,440 and $1,152,427 to related parties as of June 30, 2023 and December 31, 2022, respectively)  (1,345,283)  (1,247,580)
Prepayments and other current assets, net $1,537,639  $1,758,917 

 

Balance of prepayments represented the advanced payments to suppliers including related party suppliers.

Allowance for doubtful accounts movements is as follows:

SCHEDULE OF ALLOWANCE FOR DOUBTFUL ACCOUNTS

  

June 30,

2023

  

December 31,

2022

 
Beginning balance $1,247,580  $- 
Additions to allowance  154,985   1,284,005 
Foreign currency translation adjustment  (57,282)  (36,425)
Ending balance $1,345,283  $1,247,580 

NOTE 4 – DEPOSITS PAID, NET

Deposits paid consisted of the following as of June 30, 2023 and December 31, 2022:

SCHEDULE OF DEPOSITS PAID

  

June 30,

2023

  

December 31,

2022

 
Deposits paid (including $1,573,209 and $1,628,511 to related parties as of June 30, 2023 and December 31, 2022, respectively) $2,280,196  $2,365,652 
Less: Allowance for doubtful accounts (including $999,625 and $870,066 to related parties as of June 30, 2023 and December 31, 2022, respectively)  (1,606,635)  (1,244,350)
Deposits paid, net $673,561  $1,121,302 

Allowance for doubtful accounts movement is as follows:

SCHEDULE OF ALLOWANCE FOR DOUBTFUL ACCOUNTS OF DEPOSITS PAID

  

June 30,

2023

  

December 31,

2022

 
Beginning balance $1,244,350  $- 
Additions to allowance  430,265   1,280,681 
Foreign currency translation adjustment  (67,980)  (36,331)
Ending balance $1,606,635  $1,244,350 

 

NOTE 35 – PROPERTY AND EQUIPMENT, NET

 

Property and equipment consisted of the following as of June 30, 20222023 and December 31, 2021:2022:

 

SCHEDULE OF PROPERTY AND EQUIPMENT

 June 30,
2022		 December 31,
2021		  

June 30,

2023

 

December 31,

2022

 
Office equipment $114,866  $113,995  $116,520  $116,520 
Leasehold improvement  126,386   126,386   126,386   126,386 
Vehicle  31,910   - 
Property and equipment  241,252   240,381   274,816   242,906 
Less: Accumulated depreciation  (123,189)  (99,987)  (162,355)  (145,016)
Property and equipment, net $118,063  $140,394  $112,461  $97,890 

 

Depreciation expense, which was included in general and administrative expenses, for the six months ended June 30, 20222023 and 20212022 was $15,64718,046 and $10,19415,647, respectively.

 

11

NOTE 46 –INTANGIBLE ASSETS, NET

 

Intangible assets and related accumulated amortization were as follows:

SCHEDULE OF INTANGIBLE ASSETS 

 

June 30,

2022

 

December 31,

2021

  

June 30,

2023

 

December 31,

2022

 
Distributor channel $3,215,190  $3,389,404 
Distribution channel $2,989,709  $3,117,635 
Others  27,870   22,299   25,553   27,809 
Total intangible assets  3,243,060   3,411,703   3,015,262   3,145,444 
Less: Accumulated amortization  (1,475,323)  (1,129,913)  (1,850,517)  (1,822,875)
Total $1,767,737  $2,281,790 
Less: Accumulated impairment  (912,597)  (951,643)
Intangible assets, net $252,148  $370,926 

 

Amortization expense for the six months ended June 30, 20222023 and 20212022 was $417,770106,634 and $416,030417,770, respectively, included in cost of revenues and general and administrative expenses.

 

As of June 30,, 2022, 2023, the future estimated amortization costs for intangible assets are as follows:

 

SCHEDULE OF FUTURE AMORTIZATION EXPENSES FOR DISTRIBUTION CHANNELS

Year ending December 31,   
2022 (remaining) $404,686 
2023  809,371 
2024  541,439 
2025  

5,574

 
2026  

5,574

 
Thereafter  1,093 
Total $1,767,737 

12

     
Year ending December 31,    
2023 (remaining) $102,773 
2024  138,256 
2025  5,010 
2026  5,010 
2027  1,099 
Total $252,148 

 

NOTE 5-7 - RELATED PARTY TRANSACTIONS

 

Amounts due fromto related partyparties as of June 30, 20222023 and December 31, 20212022 are as follows:

SCHEDULE OF AMOUNT DUE FROM AND DUE TO RELATED PARTIES

    June 30, 2022  December 31, 2021 
Mr. Deqin Ke Manager of a subsidiary $ -  $26,364 
Due from related parties   $-  $26,364 

 

Amounts due to related parties as of June 30, 2022 and December 31, 2021 are as follows:

   June 30, 2022 December 31, 2021    

June 30,

2023

 

December 31,

2022

 
Mr. Yumin Lin President, Chief Executive Officer, Secretary, Director $336,204  $344,218  President, Chief Executive Officer, Secretary, Director and majority shareholder $517,426  $389,051 
Ms. Xiulan Zhou Manager of a subsidiary  1,384   1,157  Manager of a subsidiary, Mr. Yumin Lin’s wife  1,287   508 
Mr. Huagen Li Manager of a subsidiary  2,388   2,518  Manager of a subsidiary  2,221   2,316 
Mr. Guodong Jia Manager of a subsidiary  1,748   944  Manager of a subsidiary  4,462   2,342 
Mr. Minghua Cheng Former director and majority shareholder  -   157,353 
Mr. Hongwei Ye Manager of a subsidiary, Shareholder  16   17  Manager of a subsidiary, Shareholder  15   16 
Mr. Anping Chen Manager of a subsidiary  1,045   6,924  Manager of a subsidiary  5,424   1,290 
Mr. Jiangwei Jia Manager of a subsidiary  950   787  Manager of a subsidiary  6,497   3,678 
Ms. Xiuyun Wang Manager of a subsidiary  -   6,020 
Mr. Yuwen Li Vice President  11,972   70,745  Vice President  69,925   64,924 
Shenzhen DaXingHuaShang Industry Development Ltd. Mr. Yumin Lin is the supervisor of Shenzhen DaXingHuaShang Industry Development Ltd.  89,560   93,298 
Ms. Lihua Li Manager of a subsidiary  3,376   - 
Shenzhen DaXingHuaShang Industrial Group Ltd. (fka Shenzhen DaXingHuaShang Industry Development Ltd.) Mr. Yumin Lin is the supervisor of Shenzhen DaXingHuaShang Industrial Group Ltd.  83,279   86,842 
Ms. Chunxiang Zhang Manager of a subsidiary  3,168   998 
Mr. Meng Xue Manager of a subsidiary  7,359   5,449 
Ms. Shuqin Chen Manager of a subsidiary  5,400   1,358 
Mr. Zhipeng Zuo Manager of a subsidiary  16,762   59 
Mr. Deqin Ke Manager of a subsidiary  746   -  Manager of a subsidiary  -   724 
Mr. Aisheng Zhang Manager of a subsidiary  15,982   2,320 
Mr. Zhihua Liao Manager of a subsidiary  1,249   -  Manager of a subsidiary  5,960   3,800 
Ms. Chunxiang Zhang Manager of a subsidiary  2,239   - 
Mr. Xue Meng Manager of a subsidiary  2,564   - 
Ms. Shuqin Chen Manager of a subsidiary  2,239   - 
Ms. Jinlan Liu Mr. Minghua Cheng’s wife  

37,317

   - 
Due to related parties   $491,621  $683,981 
 $748,543  $565,675 

 

1312

 

Revenues generated from related parties during the six months ended June 30, 20222023 and 20212022 are as follows:

 

SCHEDULE OF REVENUE GENERATED FROM RELATED PARTIES

   2022 2021      
   For the six months ended June 30,  Six months ended
June 30,		 
   2022 2021  2023 2022 
Mr. Kaihong Lin Chief Financial Officer and Treasurer $652  $160  Chief Financial Officer and Treasurer $278  $652 
Mr. Yumin Lin President, Chief Executive Officer, Secretary, Director  438   302  President, Chief Executive Officer, Secretary, Director and majority shareholder  -   438 
Mr. Zihao Ye Manager of a subsidiary  262   76  Manager of a subsidiary  -   262 
Mr. Naiyong Luo Manager of a subsidiary  -   5,742 
Mr. Hongwei Ye Manager of a subsidiary, Shareholder  -   5,933 
Ms. Xiulan Zhou Manager of a subsidiary, Mr. Yumin Lin’s wife  -   51  Manager of a subsidiary, Mr. Yumin Lin’s wife  14   - 
Dongguan City Chashan Pingfeng Cigarette and Wine Store Co., Ltd. Mr. Taiping Deng, a manager of a subsidiary, is the controlling shareholder of Dongguan City Chashan Pingfeng Cigarette and Wine Store Co., Ltd.  -   60,762 
Dongguan Zhengui Reality Co., Ltd. Mr. Naiyong Luo, a manager of a subsidiary, is the controlling shareholder of Dongguan Zhengui Reality Co., Ltd.  -   132,334 
Dongguan Huanhai Trading Co., Ltd. Mr. Hongwei Ye, a shareholder of the Company and a manager of a subsidiary, is the controlling shareholder of Dongguan Huanhai Trading Co., Ltd.  13,553   13,805  Mr. Hongwei Ye, a shareholder of the Company and a manager of a subsidiary, is the controlling shareholder of Dongguan Huanhai Trading Co., Ltd.  10,886   13,553 
Guangdong Yuexin Jiaotong Construction Co., Ltd. Mr. Naiyong Luo, a manager of a subsidiary, is the controlling shareholder of Guangdong Yuexin Jiaotong Construction Co., Ltd.  7,581   98,818  Mr. Naiyong Luo, a manager of a subsidiary, is the controlling shareholder of Guangdong Yuexin Jiaotong Construction Co., Ltd.  10,578   7,581 
Dongguan City Hualianguan Chemical Co., Ltd. Mr. Hongwei Ye, a shareholder of the Company and a manager of a subsidiary, is the controlling shareholder of Dongguan City Hualianguan Chemical Co., Ltd.  19,009   -   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.  14,808   19,009 
Dongguan City Daying Internet Technology Co., Ltd. Mr. Minghua Cheng, a former director and majority shareholder of the Company, is the controlling shareholder of Dongguan City Daying Internet Technology Co., Ltd.  -   57,496 
Dongguan Tailai Trading Co., Ltd. Significantly influenced by the Company  -   13,205 
Dongguan Humen Shuiyan Drinking Water Store Ms. Shuiyan Li, a shareholder of the Company, is the controlling shareholder of Dongguan Humen Shuiyan Drinking Water Store  33,034   - 
Revenues generated from related parties    $41,495  $388,684  $69,598  $41,495 

 

Cost of revenues from related parties during the six months ended June 30, 20222023 and 20212022 is as follows:

SCHEDULE OF COST OF REVENUES FROM RELATED PARTIES

   2022 2021      
   For the six months ended June 30,  Six months ended
June 30,		 
   2022 2021  2023 2022 
Dongguan Baxi Food Distribution Co., Ltd. Significantly influenced by the Company $15,899  $70,815  Significantly influenced by the Company $57,509  $15,899 
Dongguan Dalingshan Xinwenhua Drinking Water Store Significantly influenced by the Company 43,759 24,540  Significantly influenced by the Company  23,614   43,759 
Dongguan Pengqin Drinking Water Co., Ltd. Significantly influenced by the Company 33,836 20,662  Significantly influenced by the Company  23,433   33,836 
Dongguan Dengqinghu Drinking Water Co., Ltd. Significantly influenced by the Company 1,475 7,855 
Dongguan Dengqinghu Drinking Water Store Significantly influenced by the Company  2,934   1,475 
Dongguan Tailai Trading Co., Ltd. Significantly influenced by the Company 34,519 26,328  Significantly influenced by the Company  52,324   34,519 
Dongguan Anxiang Technology Co., Ltd. Significantly influenced by the Company 64,639 57,935  Significantly influenced by the Company  56,704   64,639 
Guangdong Jiaduonuo Shengshi Trading Co., Ltd. Significantly influenced by the Company 64,565 52,065  Significantly influenced by the Company  90,355   64,565 
Dongguan Dalingshan Runxin Drinking Water Store Significantly influenced by the Company 16,312 10,143  Significantly influenced by the Company  11,473   16,312 
Dongguan City Yijia Trading Co., Ltd. Mr. Yongming Li, a shareholder of the Company, is the controlling shareholder of Dongguan City Yijia Trading Co., Ltd.  111,376  -  Mr. Yongming Li, a shareholder of the Company, is the controlling shareholder of Dongguan City Yijia Trading Co., Ltd.  43,750   111,376 
Cost of revenues from related parties   $386,380 $270,343  $362,096  $386,380 

 

Purchases from related parties during the six months ended June 30, 20222023 and 20212022 are as follows:

 

SCHEDULE OF PURCHASES FROM RELATED PARTIES

   2022 2021      
   For the six months ended June 30,  Six months ended
June 30,		 
   2022 2021  2023 2022 
Dongguan Baxi Food Distribution Co., Ltd. Significantly influenced by the Company $19,406  $55,839  Significantly influenced by the Company $61,259  $19,406 
Dongguan Dalingshan Xinwenhua Drinking Water Store Significantly influenced by the Company  56,842   19,131  Significantly influenced by the Company  25,221   56,842 
Dongguan Pengqin Drinking Water Co., Ltd. Significantly influenced by the Company  37,266   19,368  Significantly influenced by the Company  25,416   37,266 
Dongguan Dengqinghu Drinking Water Store Significantly influenced by the Company  1,659   8,393  Significantly influenced by the Company  3,124   1,659 
Dongguan Tailai Trading Co., Ltd. Significantly influenced by the Company  33,634   34,460  Significantly influenced by the Company  55,999   33,634 
Dongguan Anxiang Technology Co., Ltd. Significantly influenced by the Company  66,220   69,883  Significantly influenced by the Company  56,965   66,220 
Guangdong Jiaduonuo Shengshi Trading Co., Ltd. Significantly influenced by the Company  69,407   45,365  Significantly influenced by the Company  90,430   69,407 
Dongguan Dalingshan Runxin Drinking Water Store Significantly influenced by the Company  16,374   14,082  Significantly influenced by the Company  12,522   16,374 
Dongguan City Yijia Trading Co., Ltd. Mr. Yongming Li, a shareholder of the Company, is the controlling shareholder of Dongguan City Yijia Trading Co., Ltd.  

48,579

   -  Mr. Yongming Li, a shareholder of the Company, is the controlling shareholder of Dongguan City Yijia Trading Co., Ltd.  43,750   48,579 
Purchase from related party   $349,387  $266,521  $374,686  $349,387 

 

Due from related party mainly consists of funds advanced to a related party as borrowings or funds advanced to pay off the Company’s expenses. The balance is unsecured, non-interest bearing.

Due to related parties mainly consists of borrowings for working capital purpose, the balances are unsecured, non-interest bearing and due on demand.

In addition, during the six months ended June 30, 2022 and 2021, these related parties paid expenses on the Company’s behalf in an amount of $38,627and $293,862, respectively.

 

Mr. Yuwen Li, the Vice President of the Company, authorized the Company to use trademarks that were owned by him for ten years from October 5, 2019 to October 4, 2029 at no cost.

 

Also see Note 2, 3, 4, 9 and 710 for more transactions with related parties.

 

1413

 

NOTE 68 - 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 $289,855255,112), and 16.5% on any part of assessable profits over HK$2,000,000. For the six months ended June 30, 20222023 and 2021,2022, 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,April 2, 2021, 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 RMB1,000,000 (including RMB1,000,000), approximately $142,209, their income is reduced by 25% to the taxable income, and enterprise income tax is paid at 20% tax rate, which is essentially resulting in a favorable income tax rate of 5%. While for the portion of annual taxable income exceeding RMB1,000,000, approximately $142,209, but not more than RMB3,000,000, 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 SATSAT”) [2021] No.12 providesto provide an enterprise income tax rate of 2.5%2.5% on small-scale and low-profit enterprises whose annual taxable income is less than RMB1,000,000,RMB1,000,000, approximately $142,209,$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%5% on small-scale and low-profit enterprises whose annual taxable income is more than RMB1,000,000,RMB1,000,000, approximately $142,209,$144,482, but less than RMB3,000,000,RMB3,000,000, approximately $426,627,$433,445, 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.enterprises, except for Xixingdao, FVT Supply Chain and FLTT.

 

The components of the income tax provision are as follows:

SCHEDULE OF COMPONENTS OF INCOME TAX PROVISION

     
 Six months ended June 30, 
 Six Months Ended
June 30, 2022		 Six Months Ended
June 30, 2021		  2023 2022 
Current:                
– United States of America $45,562  $79,096  $41,444  $45,562 
– Seychelles  -   -   -   - 
– Hong Kong  -   -   -   - 
– The PRC  58,359   83,526   55,058   58,359 
Current income tax expense                
Deferred                
– United States of America  -   -   -   - 
– Seychelles  -   -   -   - 
– Hong Kong  -   -   -   - 
– The PRC  -   -   -   - 
Deferred income tax expense                
Total $103,921  $162,622  $96,502  $103,921 

 

The effective tax rate was 9.7-22.1% and 17.09.7% for the six months ended June 30, 20222023 and 2021,2022, respectively.

 

1514

 

NOTE 79 - OPERATING LEASES

 

As of June 30, 2022,2023, the Company has seventeennineteen separate operating lease agreements for three office spaces, one warehouse and thirteenfifteen stores in PRC with remaining lease terms of from 31 month to 46 months to 58 months..

 

Two of thesethe 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 withthe monthly rent expense of RMB10,000(approximately (approximately $1,545)1,445). 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 RMB960(approximately $148).

The Company terminated an operating lease agreement with a subsidiary of Shenzhen DaXingHuaShang Industry Development Ltd., a related party, for the premises in Shenzhen City, PRC on February 28, 2021. The monthly rent expense for this lease was RMB30,000 (approximately $4,349138).

 

The components of lease expense and supplemental cash flow information related to leases for the six months ended June 30, 20222023 and 20212022 are as follows:

 

SCHEDULE OF COMPONENTS OF LEASE EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION

 2022 2021      
Operating lease cost (included in general and administrative expenses in the Company’s unaudited condensed consolidated statements of operations) For the six months ended
June 30,		  Six months ended
June 30,		 
 2022 2021  2023 2022 
          
Related parties $11,347  $23,307  $9,501  $11,347 
Non-related parties  74,009   42,666   63,683   74,009 
Total $85,356  $65,973  $73,184  $85,356 
Operating Lease Cost $73,184  $85,356 

 

Other information for the six months ended June 30, 2022 June 30, 2021  June 30,
2023		 June 30,
2022		 
Cash paid for amounts included in the measurement of lease obligations $78,215  $72,024  $77,612  $78,215 
Weighted average remaining lease term (in years)  3.55   4.26   2.72   3.55 
Weighted average discount rate  3.23%  3.23%  3.23%  3.23%

 

Maturities of the Company’s lease obligations as of June 30, 20222023 are as follows:

SCHEDULE OF MATURITIES OF LEASE OBLIGATIONS 

Year ending December 31,        
2022 (remaining) $74,148 
2023  111,468 
2023 (remaining) $65,998 
2024  82,081   121,342 
2025  78,242   103,943 
2026  44,039   40,951 
Thereafter  5,971 
2027  5,552 
Total lease payment  395,949   337,786 
Less: Imputed interest  (20,421)  (11,701)
Operating lease obligations $375,528  $326,085 

 

NOTE 810 – BANK AND OTHER BORROWINGS

 

In August 2020, the Company obtained a revolving credit line in the principal amount of RMB910,000 (approximately $139,000 when borrowed) from China Construction Bank, which bears interest at the base Loan Prime Rate of 3.85% plus 0.4%4.10%. The credit line is guaranteed by Xiulan Zhou, a related party, and pledged by her property. The maturity date is on July 21,August 7, 2023.

In December 2020, the Company obtained a loan in the principal amount of RMB750,000 (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 RMB500,000(approximately (approximately $79,000 when borrowed)borrowed) from Shenzhen Qianhai Webank Co., Ltd. (“WeBank”), which bears interest at 3.6%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 RMB500,750 (approximately $79,000 when borrowed) reflecting the accrued interest. The loan is guaranteed by Yumin Lin and bears interest at 10.71%10.71%.

 

In May 2022, the Company obtained a revolving credit line in the principal amount of RMB1,000,000 (approximately(approximately $149,000when borrowed) from China Construction Bank, which bears interest at 4.45%4.45%.The credit line is guaranteed by Xiulan Zhou, a related party, and pledged by her property. party. The credit line was fully repaid on the maturity date is onof May 26, 2023.

 

15

In May 2022, the Company obtained a loan in the principal amount of RMB161,000 (approximately $24,000 when borrowed) from Huaneng Guicheng Trust Co., Ltd. (“Huaneng Guicheng”), which bears interest at 11.34%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 RMB69,000 (approximately $10,000 when borrowed) from WeBank, which bears interest at 11.34%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 RMB99,000 (approximately $15,000 when borrowed) and RMB231,000 (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.

In July 2022, the Company obtained two loans in the principal amount of RMB153,000 (approximately $23,000 when borrowed) and RMB357,000 (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.

In July 2022, the Company obtained a loan in the principal amount of RMB380,000 (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.

In February 2023, the Company obtained a revolving credit line in the principal amount of RMB465,000 (approximately $68,000 when borrowed) from China Construction Bank, which bears interest at 4.00%. The loan is guaranteed by Shuqin Chen, a related party. The maturity date is on February 11, 2024.

In April 2023, the Company obtained two bank loans in the principal amount of RMB224,000 (approximately $31,000 when borrowed) and RMB96,000 (approximately $13,000 when borrowed) from Bank of Ningbo and WeBank, respectively, which bear interest at 12.24%. The loans are guaranteed by Falan Zhou, a manager of subsidiaries. The maturity date is on April 7, 2025.

In April 2023, the Company obtained a mortgage loan in the principal amount of RMB195,415 (approximately $27,000 when borrowed) from WeBank, which bears interest at 6.54%. The loan is pledged by a vehicle of the Company. The maturity date is on April 10, 2028.

In May 2023, the Company obtained a revolving credit line in the principal amount of RMB1,050,000 (approximately $146,000 when borrowed), with Yumin Lin as a co-borrower, from China Construction Bank, which bears interest at 4.20%. The maturity date is on May 26, 2024.

The balance of the loans borrowed as of June 30, 20222023 and December 31, 20212022 were as follows:

 

SCHEDULE OF BALANCE OF LOAN BORROWED UNDER CREDIT LINES

 June 30,
2022		 

December 31,

2021

  June 30,
2023		 December 31,
2022		 
Loan from a trust in PRC $23,030  $67,438 
Loans from a trust in PRC $38,810  $60,049 
China Construction Bank  285,098   143,192   336,585   276,447 
WeBank  73,314   78,795   81,488   77,220 
Guangdong Nanyue Bank  44,207   67,375 
Bank of Ningbo  28,499   - 
Aggregate outstanding principal balances $381,442  $289,425   529,589   481,091 
Less: current portion  208,012   101,207   483,233   422,653 
Non-current portion $173,430  $188,218  $46,356  $58,438 

 

The total interest expense was $10,68918,256 and $9,48710,689 for the six months ended June 30, 20222023 and 2021,2022, respectively.

 

Future minimum loan payments as of June 30, 20222023 are as follows:

SCHEDULE OF FUTURE MINIMUM LOAN PAYMENTS

Year ending December 31,   
2022 (remaining) $29,315 
2023  344,975 
2024  7,152 
Thereafter  - 
Total $381,442 

NOTE 9 – COMMON STOCK

Effective on October 21, 2021, the Company has approved a reverse stock split of the Company’s authorized and issued and outstanding shares of common stock, par value $0.001 per share, at a ratio of 1-for-20 (the “Reverse Stock Split”). As a result of the Reverse Stock Split, the Company’s authorized shares of common stock became 150,000,000 shares. As of June 30, 2021, and immediately prior to the Reverse Stock Split, there were 313,098,220 shares of common stock issued and outstanding. As a result of the Reverse Stock Split, the Company has 15,655,038 shares of common stock issued and outstanding. The par value remains unchanged at $0.001 per share, which resulted in a reclassification of capital from par value to additional paid-in capital in excess of par value. All share and per share amount in the accompanying financial statement for the prior period have been retroactively adjusted to reflect the Reverse Stock Split.

     
Year ending December 31,    
2023 (remaining) $210,155 
2024  293,951 
2025  12,826 
2026  5,425 
2027  5,425 
Thereafter  1,807 
Total $529,589 

NOTE 1011 - SUBSEQUENT EVENTS

OnIn July 8, 2022,2023, the Company obtained two loans in the principal amount of RMB99,000 (approximately $15,000) and RMB231,000 (approximately $34,000) from WeBank and Guangdong Nanyue Bank Co., Ltd. (“Nanyue Bank”), respectively, which bear interest at 14.4%. The loans are guaranteed by Kaihong Lin with the maturity date on July 8, 2024.

On July 13, 2022, the Company obtained two loans in the principal amount of RMB153,000 (approximately $23,000) and RMB357,000 (approximately $53,000) from WeBank and Nanyue Bank, respectively, which bear interest at 14.4%. The loans are guaranteed by Falan Zhou, a manager of subsidiaries, with the maturity date on July 13, 2024.

On July 21, 2022, the Company obtained abank loan in the principal amount of RMB380,000817,000 (approximately(approximately $57,000114,000 )when borrowed) from Huaneng Guicheng,China Construction Bank, which bears interest at 12.6%3.85. The loan is guaranteed by Yumin Lin % with the maturity date on July 21, 202422, 2024..

 

16

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 20212022 filed with the Securities and Exchange Commission on April 1, 2022March 31, 2023 (the “Form 10-K”) and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Form 10-Q.

 

The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guaranteed of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the factors described in our Form 10-K in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this quarterly report on Form 10-Q. The following should also be read in conjunction with the unaudited Financial Statements and notes thereto that appear elsewhere in this report.

 

Overview

 

Fortune Valley Treasures, Inc. (the “Company,” “we,” “our” or “us”) was incorporated in the State of Nevada on March 21, 2014. We were initially incorporated to offer users with up-to-date information on digital currencies. We engage in the food supply chain operations and management through a service platform. Through various acquisitions of high-quality upstream and downstream companies in the industry, the Company creates a complete industrial chain to reduce costs and enhance competitiveness. The company mainly focuses on online and offline sales targeting regional wholesalers, retailers, supermarkets and major food and beverage (“F&B”) chains.

 

During the six months ended June 30, 2022,2023, the Company conducted its business in one revenue stream: product sales – wine,liquor, water, water purifier and other F&B products.

 

Results of Operations

 

Three Months Endedmonths ended June 30, 20222023 and 20212022

 

 Three Months Ended June 30,     Three months ended June 30,    
 2022  2021  Change  2023 2022 Change 
Net revenues $2,336,459  $1,825,344  $511,115  $1,272,597  $2,336,459  $(1,063,862)
Cost of revenues  (1,099,523)  (797,524)  (301,999)
Cost of revenues  (652,798)  (1,099,523)  446,725 
Gross profit  1,236,936   1,027,820   209,116   619,799   1,236,936   (617,137)
            
Operating expense  (363,586)  (469,476)  105,890   (1,040,588)  (363,586)  (677,002)
Other income  2,011   738   1,273   6,436   1,995   4,441 
Other expense  (4,864)  (5,934)  1,070 
Interest income  16   16   - 
Interest expense  (8,964)  (4,864)  (4,100)
Income taxes  (81,514)  (96,267)  14,753   (21,528)  (81,514)  59,986 
Net income  788,983   456,881   332,102 
Net income attributable to noncontrolling interests  41,250   42,406   (1,156)
Net income attributable to Fortune Valley Treasures, Inc. $747,733  $414,475  $333,258 
Net income (loss)  (444,829)  788,983   (1,233,812)
Net income (loss) attributable to noncontrolling interests  (58,004)  41,250   (99,254)
Net income (loss) attributable to Fortune Valley Treasures, Inc. $(386,825) $747,733  $(1,134,558)

 

Six Months Endedmonths ended June 30, 20222023 and 20212022

 

 Six Months Ended June 30,     Six months ended June 30,    
 2022  2021  Change  2023 2022 Change 
Net revenues $3,598,269  $3,469,504  $128,765  $2,907,886  $3,598,269  $(690,383)
Cost of revenues  (1,617,985)  (1,527,267)  (90,718)  (1,330,165)  (1,617,985)  287,820 
Gross profit  1,980,284   1,942,237   38,047   1,577,721   1,980,284   (402,563)
            
Operating expense  (909,027)  (978,607)  69,580  (2,005,225)  (909,027)  (1,096,198)
Other income  8,295   934   

7,361

  8,210   8,202   8 
Other expense  (10,689)  (9,487)  (1,202)
Interest income  47   93   (46)
Interest expense  (18,256)  (10,689)  (7,567)
Income taxes  (103,921)  (162,622)  58,701  (96,502)  (103,921)  7,419 
Net income  964,942   792,455   172,487 
Net income attributable to noncontrolling interests  68,533  72,726  (4,193)
Net income attributable to Fortune Valley Treasures, Inc. $896,409  $719,729  $176,680 
Net income (loss)  (534,005)  964,942   (1,498,947)
Net income (loss) attributable to noncontrolling interests  (58,361)  68,533   (126,894)
Net income (loss) attributable to Fortune Valley Treasures, Inc. $(475,644) $896,409  $(1,372,053)

 

17

 

Net Revenues

 

Net revenues were $2,336,459 for three months ended June 30, 2022, reflecting an increase of $511,115, or 28.00%, from $1,825,344$1,272,597 for the three months ended June 30, 2021. The reason2023, reflecting a decrease of $1,063,862, or 46%, from $2,336,459 for the increasethree months ended June 30, 2022. The decrease in net revenues was mainly due to the lower product sales volume than the same period of the prior year and to a lesser extent, the lower unit sales prices of wine products. The decrease in product sales was resulted from a decline in market demand resulting from the sluggish economic environment and slow recovery in China’s economy as compared to the same period of the prior year. And in order to attract new customers, the Company launched a new distribution channel via a WeChat App. has lowered the unit sales prices of wine products beginning in April 2023.

 

Net revenues were $3,598,269$2,907,886 for the six months ended June 30, 2022,2023, reflecting an increasea decrease of $128,765,$690,383, or 3.71%19%, from $3,469,504$3,598,269 for the six months ended June 30, 2021.2022. The reason fordecrease in net revenues was mainly due to the slight increase waslower product sales volume than the same period of the prior year and to a lesser extent, the lower unit sales prices of wine products. The decrease in product sales reflected a decline in market was getting reviveddemand resulting from COVID-19.the sluggish economic environment and slow recovery in China’s economy as compared to the same period of the prior year. And in order to attract new customers, the Company has lowered the unit sales prices of wine products since April 2023.

 

Cost of Revenues

 

Cost of revenues was $652,798 for the three months ended June 30, 2023, reflecting a decrease of $446,725, or 41%, from $1,099,523 for the three months ended June 30, 2022, reflecting an increase of $301,999, or 37.87%, from $797,524 for the three months ended June 30, 2021.2022. The increasedecrease in cost of revenues was due to the increase inlower product sales volume in line with the increase in our net revenues. 

revenue decrease.

 

Cost of revenues was $1,330,165 for the six months ended June 30, 2023, reflecting a decrease of $287,820, or 18%, from $1,617,985 for the six months ended June 30, 2022, reflecting an increase of $90,718, or 5.94%, from $1,527,267 for the six months ended June 30, 2021.2022. The increasedecrease in cost of revenues was due to the lower product sales volume in line with the increase in our net revenues.

revenue decrease.

 

Gross Profit

 

Gross profit was $1,236,936$619,799 and $1,027,820$1,236,936 for the three months ended June 30, 20222023 and 2021,2022, respectively, reflecting an increasea decrease of $209,116,$617,137, or 20.35 %.50%. The increasedecrease in gross profit was due to the addition ofdecrease in the net revenues. revenues

.

 

Gross profit was $1,980,284$1,577,721 and $1,942,237$1,980,284 for the six months ended June 30, 20222023 and 2021,2022, respectively, reflecting an increasea decrease of $38,047,$402,563, or 1.96%20%. The increasedecrease in gross profit was due to the addition ofdecrease in the net revenues.revenues.

 

Operating Expenses

 

Operating expense wasexpenses were $1,040,588 for the three months ended June 30, 2023, reflecting an increase of $677,002, or 186%, from $363,586 for the three months ended June 30, 2022, reflecting a decrease of $105,890, or 22.55%, from $469,4762022. The increase in operating expenses was mainly due to the increase in professional service fees and credit loss expenses.

Operating expenses were $2,005,225 for the threesix months ended June 30, 2021, due to the decrease in professional service fees.

Operating expense was2023, reflecting an increase of $1,096,198, or 121%, from $909,027 for the six months ended June 30, 2022, reflecting a decrease of $69,580, or 7.11%, from $978,607 for the six months ended June 30, 2021,2022. The increase in operating expenses was mainly due to the decreaseincrease in professional service fees.

fees and credit loss expenses.

 

Net Income (loss)

For the three months ended June 30, 2022,2023, our net loss was $444,829, compared to a net income wasof $788,983 compared to net income $456,881 for the three months ended June 30, 2021.2022. The increasedecrease in net income was a result of the factors described above.

 

For the six months ended June 30, 2022,2023, our net loss was $534,005, compared to a net income wasof $964,942 compared to net income $792,455 for the six months ended June 30, 2021.2022. The increasedecrease in net income was a result of the factors described above.

 

Net income (loss) attributable to noncontrolling interests

 

The Company records net income (loss) attributable to noncontrolling interests in the unaudited condensed consolidated statements of operations for any noncontrolling interests of consolidated subsidiaries.

 

For the three months ended June 30, 20222023 and 2021,2022, the Company recorded a net loss attributable to noncontrolling interests of $58,004 and a net income attributable to noncontrolling interests of $41,250, and $42,406, respectively.

For the six months ended June 30, 20222023 and 2021,2022, the Company recorded a net loss attributable to noncontrolling interests of $58,361 and a net income attributable to noncontrolling interests of $68,533, and $72,726, respectively.

 

18

 

Liquidity and Capital Resources

 

Working Capital

 

 June 30, 2022 December 31, 2021  Change  June 30,
2023		 December 31,
2022		 Change 
Total current assets $5,367,079  $5,069,481  $297,598  $6,792,105  $6,871,091  $(78,986)
Total current liabilities  1,452,816   1,717,519   (264,703)   2,738,979   2,484,582   254,397 
Working capital $3,914,263  $3,351,962  $562,301  $4,053,126  $4,386,509  $(333,383)

 

As of June 30, 2022,2023, we had working capital of $3,914,263,$4,053,126, as compared to working capital of $3,351,962$4,386,509 as of December 31, 2021.2022. We had total current assets of $5,367,079,$6,792,105, consisting of cash and cash equivalents of $85,326,$75,950, inventories of $139,533,$76,795, prepayments and other current assets of $2,437,318, and$1,537,639, accounts receivable of $2,704,902,$5,101,721 compared to total current assets of $5,069,481$6,871,091 as of December 31, 2021.2022. The decrease in total current assets was mainly due to the decrease in prepayments and other current assets, inventories and cash and cash equivalents, and offset by the increase in accounts receivable. We had current liabilities of $2,738,979, consisting of operating lease obligations of $125,257, accounts payable of $692,035, accrued liabilities of $553,026, bank and other borrowing - current of $483,233, customer advances of $116,769, income tax payable of $20,116 and due to related parties of $748,543. The increase in total current liabilities was mainly due to the increase in accounts receivable and prepayments and otherthe current assets, offset by the decrease in cash and cash equivalents and due from a related party. We had current liabilitiesportion of $1,452,816, consisting of operating lease obligations of $124,513, accounts payable of $191,000, accrued liabilities of $138,589, bank and other borrowing $208,012, customer advances $255,980, income tax payable $43,101borrowings, and the amount due to related parties of $491,621.The decrease was mainly due to the repayment of account payable, decrease in customer advances during the period, repayment to related parties, offset by the increase in bank and other borrowings.

parties.

 

Our cash and cash equivalents balance atdecreased to $75,950 as of June 30, 2022 decreased to $85,326,2023, from $165,685 as compared to $123,163 atof December 31, 2021.2022. We estimate the Company currently has sufficient cash availableworking capital to meetsupport its anticipated working capitaldaily operations for the next twelve months, without raising additional capital. The Company is continuing to look for different financing opportunities in order to increase sufficient working capital and improve liquidity.

 

Despite the increasedpositive 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 financingfinancing.

 

Cash Flows

 

  Six months ended June 30,    
  2023  2022  Change 
Cash Flows provided by (used in) Operating Activities $(85,816) $17,441  $(103,257)
Cash Flows used in Investing Activities  (5,488)  -   (5,488)
Cash Flows provided by (used in) Financing Activities  42,802   (49,540)  92,342 
Effect of exchange rate changes  (41,233)  (5,738)  (35,495)
Net Changes in Cash and Cash Equivalents $(89,735) $(37,837) $(51,898)

  Six Months Ended June 30,    
  2022  2021  Change 
Cash Flows provided by (used in) Operating Activities $17,441  $(689,467) $706,908 
Cash Flows provided by Investing Activities  -   581,648   (581,648)
Cash Flows provided by (used in) by Financing Activities  (49,540)  283,590   (333,130)
Effect of exchange rate changes  (5,738)  (5,208)  (530)
Net Changes in Cash and Cash Equivalents $(37,837) $170,563  $(208,400)

Cash Flow from Operating Activities

 

Net cash used in operating activities for the six months ended June 30, 2023 was $85,816, as compared to the amount of $17,441 provided by operating activities for the six months ended June 30, 2022, was $17,441, as compared to the amountreflecting a decrease of $689,467 used in operating activities for the six months ended June 30, 2021, reflecting an increase of $706,908.$103,257. The cash provided byused in operating activities during the six months ended June 30, 20222023 was mainly resulted from the net incomeloss of $964,942, depreciation and amortization expense of $433,417, and offset by$534,005, the increase in accounts receivable of $185,856,$896,403, and offset by the allowance for credit losses of $960,144, depreciation and amortization expense of $124,680, non-cash lease expense of $91,369 and the increase in the prepayments and other current assets of $385,553, increase in deposits paid to vendors of $583,325, decrease in due to related parties of $122,702,$111,324 and decrease in customer advancesaccrued liabilities of $110,633.$74,167.

Cash Flow from Investing Activities

Net cash used in investing activities was nil$5,488 for the six months ended June 30, 2022,2023, compared to net cash provided byused in investing activities of $581,648$nil for the six months ended June 30, 2021.2022. The cash used in investing activities during the six months ended June 30, 2023 was mainly for the purchase of a vehicle in April 2023 for daily operating use.

Cash Flow from Financing Activities

Net cash provided by financing activities was $42,802 for the six months ended June 30, 2023, compared to net cash used in financing activities wasof $49,540 for the six months ended June 30, 2022, compare to net2022. The cash provided by financing activities of $283,590 for the six months ended June 30, 2021. The cash used in financing activities for the six months ended June 30, 20222023 was mainly resulted from the repayments to related partiesnet proceeds from bank loans of $154,510, repayments to third party $66,379$113,418, and offset by the net proceeds from revolving credit linesrepayments to bank loans of $148,606.$58,299.

19

 

Critical Accounting PolicyPolicies and Estimates

 

InThe discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with the ordinary courseaccounting principles generally accepted in the United States. The preparation of business, wefinancial statements requires management to make a number of estimates and assumptions relating tothat affect the reporting of results of operationsamounts reported and financial conditiondisclosed 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.accompanying notes. Actual results could differ significantlymaterially from thosethese estimates under different assumptions or conditions. We identified no critical accounting estimates in the current period.

As described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, we consider our critical accounting policies to be those related to revenue recognition, allowance of doubtful accounts and conditions.

Revenue recognition

The Company follows the guidanceimpairment 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 productsintangible assets and goodwill. There 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 deliveredno material changes to our customers. We accountcritical accounting policies as disclosed in our Annual Report on Form 10-K for shipping and handling fees as a fulfillment cost.the fiscal year ended December 31, 2022.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

19

Related Party Transactions

 

As of June 30, 20222023 and December 31, 2021,2022, the Company had accounts receivable from related parties in the amounts of $53,571$72,372 and $43,477,$146,087, prepayments to related parties in the amounts of $2,059,668$1,162,622 and $1,813,904,$1,102,861, deposits to related parties in the amounts of $1,807,382$573,584 and $1,596,075,$758,445, and accounts payable to related parties in amounts of $26,508$107,454 and $17,789,$80,426, respectively.

As of June 30, 20222023 and December 31, 2021, the Company had outstanding receivables due from a related party in the amounts of nil and $26,364, respectively, which mainly consisted of funds advanced to a related party as borrowings or funds advances to pay off the Company’s expenses. The balance was unsecured and non-interest bearing.

As of June 30, 2022, and December 31, 2021, the Company had outstanding payables due to its related parties in the amounts of $491,621$748,543 and $683,981,$565,675, respectively, which mainly consisted of borrowings for working capital purpose. The balances were unsecured, non-interest bearing and due on demand.

During the six months ended June 30, 20222023 and 2021, the Company’s related parties paid expenses on behalf of the Company in the amounts of $38,627 and $293,862, respectively.

During the six months ended June 30, 2022, and 2021, the Company sold products to its related parties in the amounts of $41,495$69,598 and $388,684,$41,495, respectively, purchased goods from its related parties in the amounts of $374,686 and $349,387, and $266,521, and incurred costthe costs of revenues from related parties in the amounts of $362,096 and $386,380, and $270,343, respectively.

During the six months ended June 30, 20222023 and 2021,2022, the rental expenses to related parties were $9,501 and $11,347, and $23,207, respectively.

Our related parties are primarily those who are significantly influenced by the Company based on our common business relationships. Refer to Note 57 to the unaudited condensed consolidated financial statements for additional details regarding the related party transactions.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

As a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide the information under this item.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of June 30 2022,, 2023, that our disclosure controls and procedures were not effective.

20

 

The matters involving internal controls and procedures that our management considered to be material weakness under the standards of the Public Company Accounting Oversight Board was lack of well-established procedures to identify, approve and review related party transactions.

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the board of directors (the “Board”), management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States (“GAAP”) and includes those policies and procedures that:

 

 ●Apply to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
   
 ●Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
   
 ●Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

 

20

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

We carried out an assessment, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our internal controls over financial reporting, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of June 30, 2022.2023. Management based the assessment on criteria for effective internal control over financial reporting described in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Based on this assessment, management has concluded that as of June 30 2022,, 2023, 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 2022.2023.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal controls over financial reporting that occurred during the period covered by this Report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

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.INSInline XBRL Instance Document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

22

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 Fortune Valley Treasures, Inc.
   
Date: August 12, 202214, 2023By:/s/ Yumin Lin
  Yumin Lin
  President and Chief Executive Officer
  (Principal Executive Officer)
   
Date: August 12, 202214, 2023By:/s/ Kaihong Lin
  Kaihong Lin
  Chief Financial Officer
  (Principal Financial and Accounting Officer)

 

23