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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the Quarterly Period Ended September 30, 2022

 

or

 

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

 

For the transition period from _________ to _________

 

Commission File Number 001-38308

 

Fortune Valley Treasures, Inc.

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

 

Nevada   32-0439333

(State or other jurisdiction
of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

B1601 Donogfang Yinxiang Building

No. 139 Liansheng Road, Humen Town

Dongguan, Guangdong, China 523000

(Address of principal executive offices, including zip code)

 

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

 

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

 

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

 

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

 

Yes ☒ No ☐

 

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

 

Yes ☒ No ☐

 

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

 

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

 

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

 

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

 

Yes ☐ No

 

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

 

 

 

 
 

 

TABLE OF CONTENTS

 

    Page
     
PART I FINANCIAL INFORMATION 3
     
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: 3
     
  Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021 3
     
  Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited) 4
     
  Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (Unaudited) 6
     
  Notes to Condensed Consolidated Financial Statements for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited) 7
     
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17
     
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 20
     
ITEM 4. CONTROLS AND PROCEDURES 20
     
PART II OTHER INFORMATION 22
     
ITEM 1 LEGAL PROCEEDINGS 22
     
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 22
     
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 22
     
ITEM 4 MINE SAFETY DISCLOSURES 22
     
ITEM 5 OTHER INFORMATION 22
     
ITEM 6 EXHIBITS 22
     
SIGNATURES 23

 

2
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements.

 

FORTUNE VALLEY TREASURES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021

 

  

September 30,

2022

  

December 31,

2021

 
   (Unaudited)     
Assets          
Current assets          
Cash and cash equivalents  $239,443   $123,163 
Accounts receivable (including $116,995 and $43,477 from related parties as of September 30, 2022 and December 31, 2021, respectively)   3,650,531    2,662,168 
Inventories   147,097    81,073 
Prepayments and other current assets (including $1,957,201 and $1,813,904 to related parties as of September 30, 2022 and December 31, 2021, respectively)   2,507,504    2,176,713 
Due from related party   -    26,364 
Total current assets   6,544,575    5,069,481 
           
Non-current assets          
Deposits paid (including $1,607,955 and $1,596,075 to related parties as of September 30, 2022 and December 31, 2021, respectively)   2,316,264    2,306,160 
Property and equipment, net   110,019    140,394 
Operating lease right-of-use assets   317,612    385,896 
Operating lease right-of-use assets, related parties   76,639    98,626 
Intangible assets, net   1,475,000    2,281,790 
Goodwill   1,255,931    1,406,289 
Total Assets  $12,096,040   $11,688,636 
           
Liabilities and Stockholders’ Equity          
Current liabilities          
Operating lease obligations – current  $110,896   $133,586 
Operating lease obligations, related parties - current   24,851    22,666 
Accounts payable (including $3,629 and $17,789 to related parties as of September 30, 2022 and December 31, 2021, respectively)   155,039    239,492 
Accrued liabilities   131,363    128,343 
Bank and other borrowings - current   413,207    101,207 
Income tax payable   111,142    25,726 
Customer advances   176,213    382,518 
Due to related parties   596,006    683,981 
Total current liabilities   1,718,717    1,717,519 
           
Non-current liabilities          
Operating lease obligations – non-current   202,180    240,611 
Operating lease obligations, related parties – non-current   57,238    77,934 
Bank and other borrowings   89,424    188,218 
Total Liabilities   2,067,559    2,224,282 
           
Stockholders’ Equity          
Common stock (150,000,000 shares authorized, 15,655,038 shares issued and outstanding as of September 30, 2022 and December 31, 2021)   15,655    15,655 
Additional paid-in capital   11,061,233    11,061,233 
Accumulated deficit and statutory reserves   (809,468)   (2,561,681)
Accumulated other comprehensive income (loss)   (679,256)   544,305 
Total Fortune Valley Treasures, Inc. stockholders’ equity   9,588,164    9,059,512 
Noncontrolling interests   440,317    404,842 
Total Stockholders’ Equity   10,028,481    9,464,354 
           
Total Liabilities and Stockholders’ Equity  $12,096,040   $11,688,636 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

3
 

 

FORTUNE VALLEY TREASURES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(Unaudited)

 

   2022   2021   2022   2021 
  

Three months ended

September 30,

  

Nine months ended

September 30,

 
   2022   2021   2022   2021 
                 
Net revenues (including $79,137 and $106,378 from related parties for the three months ended September 30, 2022 and 2021, respectively; $120,632 and $495,062 from related parties for the nine months ended September 30, 2022 and 2021, respectively)  $2,915,303   $2,005,390   $6,513,572   $5,474,894 
                     
Cost of revenues (including $377,283 and $238,524 from related parties for the three months ended September 30, 2022 and 2021, respectively; $763,663 and $508,867 from related parties for the nine months ended September 30, 2022 and 2021, respectively)   1,400,522    875,418    3,018,507    2,402,685 
Gross profit   1,514,781    1,129,972    3,495,065    3,072,209 
                     
Operating expenses:                    
Selling and distribution expenses   15,509    21,964    49,593    69,122 
General and administrative expenses   472,131    499,928    1,347,074    1,431,377 
                     
Operating income   1,027,141    608,080    2,098,398    1,571,710 
                     
Other income (expense):                    
Other income   2,221    2,309    10,423    2,595 
Interest income   114    203    207    851 
Interest expense   (10,388)   (4,327)   (21,077)   (13,814)
Other expense, net   (8,053)   (1,815)   (10,447)   (10,368)
                     
Income before income tax   1,019,088    606,265    2,087,951    1,561,342 
                     
Income tax expense   108,353    156,402    212,274    319,024 
                     
Net income  $910,735   $449,863   $1,875,677   $1,242,318 
Less: Net income attributable to noncontrolling interests   54,931    59,875    123,464    132,601 
Net income attributable to Fortune Valley Treasures, Inc.   855,804    389,988    1,752,213    1,109,717 
                     
Other comprehensive income (loss):                    
Foreign currency translation income (loss)   (719,949)   23,945    (1,311,550)   105,316 
                     
Total comprehensive income   190,786    473,808    564,127    1,347,634 
Less: comprehensive income attributable to noncontrolling interests   10,749    63,637    35,475    143,831 
Comprehensive income attributable to Fortune Valley Treasures, Inc.  $180,037   $410,171   $528,652   $1,203,803 
                     
Earnings per share                    
Basic and diluted earnings per share*  $0.05   $0.02   $0.11   $0.07 
Basic and diluted weighted average shares outstanding*   15,655,038    15,655,038    15,655,038    15,655,038 

 

* Given effect of the Reverse Stock Split, see Note 9

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

4
 

 

FORTUNE VALLEY TREASURES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(Unaudited)

 

   Number of shares   Amount  

Paid-in

Capital

  

Comprehensive

Income (Loss)

   Statutory
Reserves
  

controlling

Interests

   Stockholders’
Equity
 
   Common Stock   Additional  

Accumulated

Other

  

Accumulated

Deficit and

   Non   Total 
   Number of shares   Amount  

Paid-in

Capital

  

Comprehensive

Income (Loss)

   Statutory
Reserves
  

controlling

Interests

   Stockholders’
Equity
 
Balance as of December 31, 2021   15,655,038   $15,655   $11,061,233   $544,305   $(2,561,681)  $404,842   $    9,464,354 
Net income   -    -    -    -    148,676    27,283    175,959 
Foreign currency translation adjustment   -    -    -    8,972    -    1,748    10,720 
Balance as of March 31, 2022   15,655,038   $15,655   $11,061,233   $553,277   $(2,413,005)  $433,873   $9,651,033 
Net income   -    -    -    -    747,733    41,250    788,983 
Foreign currency translation adjustment   -    -    -    (556,766)   -    (45,555)   (602,321)
Balance as of June 30, 2022   15,655,038   $15,655   $11,061,233   $(3,489)  $(1,665,272)  $429,568   $9,837,695 
Net income   -    -    -    -    855,804    54,931    910,735 
Foreign currency translation adjustment   -    -    -    (675,767)   -    (44,182)   (719,949)
Balance as of September 30, 2022   15,655,038   $15,655   $11,061,233   $(679,256)  $(809,468)  $440,317   $10,028,481 

 

 

   Common Stock *   Additional  

Accumulated

Other

  

Accumulated

Deficit and

   Non   Total 
   Number of shares   Amount  

Paid-in

Capital*

  

Comprehensive

Income

   Statutory
Reserves
  

controlling

Interests

   Stockholders’
Equity
 
Balance as of December 31, 2020*   15,655,038   $15,655   $11,061,233   $300,265   $(4,341,417)  $195,915   $    7,231,651 
Net income   -    

-

    -    -    305,254    30,320    335,574 
Foreign currency translation adjustment   -    -    -    (6,067)   -    (603)   (6,670)
Balance as of March 31, 2021*   15,655,038   $15,655   $11,061,233   $294,198   $(4,036,163)  $225,632   $7,560,555 
Net income   -    -    -    -    414,475    42,406    456,881 
Foreign currency translation adjustment   -    -    -    79,970    -    8,071    88,041 
Balance as of June 30, 2021*   15,655,038   $15,655   $11,061,233   $374,168   $(3,621,688)  $276,109   $8,105,477 
Net income   -    -    -    -    389,988    59,875    449,863 
Foreign currency translation adjustment   -    -    -    20,183    -    3,762    23,945 
Balance as of September 30, 2021*   15,655,038   $15,655   $11,061,233   $394,351   $(3,231,700)  $339,746   $8,579,285 

 

 

* Given effect of the Reverse Stock Split, see Note 9

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

5
 

 

FORTUNE VALLEY TREASURES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(Unaudited)

 

   2022   2021 
   Nine months ended September 30, 
   2022   2021 
Cash flows from operating activities          
Net income  $1,875,677   $1,242,318 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Depreciation and amortization expense   648,740    638,099 
Non-cash lease expense   122,069    83,211 
Changes in operating assets and liabilities          
Accounts receivable   (1,374,495)   494,352 
Inventories   (80,648)   (206,348)
Prepayments and other current assets   (608,448)   (1,956,481)
Due from related party   25,423    - 
Deposits paid   (277,134)   (1,198,351)
Accounts payable   (63,540)   66,530 
Due to related parties   (177,253)   - 
Customer advances   (178,597)   (48,514)
Accrued liabilities   153,158    373,916 
Income tax payable   95,197    (103,180)
Operating lease obligations   (111,705)   (97,752)
Net cash provided by (used in) operating activities   48,444    (712,200)
           
Cash flows from investing activities          
Repayment of advance to related parties   -    3,642,059 
Advance to related parties   -    (3,136,194)
Purchase of property and equipment   -    (119,446)
Purchase of intangible assets   -    (23,488)
Net cash provided by investing activities   -    362,931 
           
Cash flows from financing activities          
Borrowings from related parties   -    1,867,770 
Borrowings from and repayments to revolving credit lines, net   148,606    (33,112)
Borrowings from bank loans   135,499    - 
Borrowings from a third party   80,338    - 
Repayments to related parties   (154,510)   (1,622,380)
Repayments to bank loans   (28,053)   - 
Repayments to a third party   (73,878)   - 
Net cash provided by financing activities   108,002    212,278 
           
Effect of exchange rate changes on cash and cash equivalents   (40,166)   37,343 
Net changes in cash and cash equivalents   116,280    (99,648)
Cash and cash equivalents–beginning of the period   123,163    249,837 
           
Cash and cash equivalents–end of the period  $239,443   $150,189 
           
Supplementary cash flow information:          
Interest paid  $21,077   $13,814 
Income taxes paid  $126,858   $446,755 
           
Non-cash investing and financing activities          
Expenses paid by related parties on behalf of the Company  $135,081   $532,912 
Remeasurement of operating lease obligation and right-of-use asset due to lease termination  $-   $40,888 
Operating lease right-of-use assets obtained in exchange for operating lease obligations  $74,588   $307,550 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

6
 

 

FORTUNE VALLEY TREASURES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(Unaudited)

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

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

 

On April 11, 2018, the Company entered into a share exchange agreement by and among DaXingHuaShang Investment Group Limited (“DIGLS”) and its shareholders: 1.) Yumin Lin, 2.) Gaosheng Group Co., Ltd. and 3.) China Kaipeng Group Co., Ltd. whereby the Company newly issued 15,000,000 shares (given effect of the Reverse Stock Split, see Note 9) of its common stock in exchange for all the outstanding shares in DIGLS. This transaction has been accounted for as a reverse takeover transaction and a recapitalization of the Company whereby the Company, the legal acquirer, is the accounting acquiree, and DIGLS, the legal acquiree, is the accounting acquirer; accordingly, the Company’s historical statement of stockholders’ equity has been retroactively restated to the first period presented.

 

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

 

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

 

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

 

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

 

7
 

 

Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) that permit reduced disclosure for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. In the opinion of management, all adjustments consisting of normal recurring entries considered necessary for a fair presentation have been included. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole. The condensed consolidated balance sheet information as of December 31, 2021 was derived from the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, for the year ended December 31, 2021, filed with the SEC on April 1, 2022 (the “report”). These unaudited condensed consolidated financial statements should be read in conjunction with the report.

 

Basis of consolidation

 

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

 

As of September 30, 2022, details of the Company’s major subsidiaries were as follows:

 

Entity Name  

Date of

Incorporation

 

Parent

Entity

  Nature of Operation  

Place of

Incorporation

DIGLS   July 4, 2016   FVTI   Investment holding   Republic of Seychelles
DILHK   June 22, 2016   DIGLS   Investment holding   Hong Kong, PRC
QHDX   November 3, 2016   DILHK   Investment holding   PRC
FVTL   May 31, 2011   QHDX   Trading of food and platform   PRC
JJGS   August 17, 2017   FVTI   Investment holding   Republic of Seychelles
JJHK   August 24, 2017   JJGS   Investment holding   Hong Kong, PRC
JJSZ   November 16, 2018   JJHK   Trading of food   PRC
Xixingdao   August 28, 2019   QHDX   Drinking water distribution and delivery   PRC
Dongguan City Fu La Tu Trade Ltd (“FLTT”)   September 27, 2020   FVTL   Trading of alcoholic beverages   PRC
Dongguan City Fu Xin Gu Trade Ltd (“FXGT”)   December 2, 2020   FVTL   Trading of alcoholic beverages   PRC
Dongguan City Fu Xin Technology Ltd (“FXTL”)   November 12, 2020   Xixingdao   Drinking water distribution and delivery   PRC
Dongguan City Fu Guan Healthy Industry Technology Ltd (“FGHL”)   December 21, 2020   Xixingdao   Drinking water distribution and delivery   PRC
Dongguan City Fu Jing Technology Ltd (“FJTL”)   November 17, 2020   Xixingdao   Drinking water distribution and delivery   PRC
Dongguan City Fu Xiang Technology Ltd (“FGTL”)   November 16, 2020   Xixingdao   Drinking water distribution and delivery   PRC
Dongguan City Fu Ji Food & Beverage Ltd (“FJFL”)   November 9, 2020   Xixingdao   Drinking water distribution and delivery   PRC
Dongguan City Fu Lai Food Ltd (“FLFL”)   September 27, 2020   Xixingdao   Drinking water distribution and delivery   PRC
Dongguan City Fu Yi Beverage Ltd (“FYBL”)   November 12, 2020   Xixingdao   Drinking water distribution and delivery   PRC
Dongguan City Fu Xi Drinking Water Company Ltd (“FXWL”)   March 17, 2021   Xixingdao   Sales of agriculture products, household electric appliances and plastic products   PRC
Dongguan City Fu Jia Drinking Water Company Ltd (“FJWL”)   March 29, 2021   Xixingdao   Sales of agriculture products, household electric appliances and food   PRC
Dongguan City Fu Sheng Drinking Water Company Ltd (“FSWL”)   March 29, 2021   Xixingdao   Sales of agriculture products, household electric appliances and food   PRC
Shenzhen Fu Jin Trading Technology Company Ltd (“FJSTL”)   June 7, 2021   Xixingdao   Trading of primary agricultural products, household appliances and plastic products   PRC
Dongguan City Fu Li Trading Ltd (“FLTL”)   September 10, 2021   Xixingdao   Sales of agriculture products, household electric appliances and plastic products   PRC
Guangdong Fu Gu Supply Chain Group Ltd (“FGGC”)   September 13, 2021   QHDX   Supply chain service, sales of food and health products, machinery, plastic products, and investment holding   PRC
Dongguan City Fu Zhi Gu Trading Ltd (“FZGTL”)   September 9, 2022   FVTL   Sales of pre-packaged food, office equipment, electronic product and consultancy service   PRC
Dongguan City Chang Fu Trading Ltd (“CFTL”)   September 9, 2022   FVTL   Sales of pre-packaged food, office equipment, electronic product and consultancy service   PRC
Dongguan City La Tong Trading Ltd (“LTTL”)   August 8, 2022   FVTL   Sales of pre-packaged food, office equipment, electronic product and consultancy service   PRC
Dongguan City Kai Fu Trading Ltd (“KFTL”)   September 8, 2022   FVTL   Sales of pre-packaged food, office equipment, electronic product and consultancy service   PRC

 

8
 

 

Use of estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates include certain assumptions related to going concern, allowance of doubtful accounts, allowance of deferred tax asset, implicit interest rate of operating leases, useful lives and impairment of long-lived assets, and impairment of goodwill. Actual results may differ from these estimates.

 

Reclassification

 

Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position.

 

Foreign currency translation and re-measurement

 

The Company translates its foreign operations to the U.S. dollar in accordance with ASC 830, “Foreign Currency Matters”.

 

The reporting currency for the Company and its subsidiaries is the U.S. dollar. The Company, DIGLS, DILHK, JJGS and JJHK’s functional currency is the U.S. dollar; QHDX, JJSZ and their subsidiaries which are incorporated in PRC use the Chinese Renminbi (“RMB”) as their functional currency.

 

The Company’s subsidiaries, whose records are not maintained in that company’s functional currency, re-measure their records into their functional currency as follows:

 

  Monetary assets and liabilities at exchange rates in effect at the end of each period
  Nonmonetary assets and liabilities at historical rates
  Revenue and expense items at the average rate of exchange prevailing during the period

 

Gains and losses from these re-measurements were not significant and have been included in the Company’s results of operations.

 

The Company’s subsidiaries, whose functional currency is not the U.S. dollar, translate their records into the U.S. dollar as follows:

 

  Assets and liabilities at the rate of exchange in effect at the balance sheet date
  Equities at the historical rate
  Revenue and expense items at the average rate of exchange prevailing during the period

 

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

 

           
  

As of and for the nine months ended

September 30,

 
   2022   2021 
Period-end RMB:US$1 exchange rate   0.14053    0.15512 
Period-average RMB:US$1 exchange rate   0.15174    0.15452 

 

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

 

9
 

 

Impairment of long-lived assets other than goodwill

 

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

 

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

 

The Company did not recognize any impairment of long-lived assets during the nine months ended September 30, 2022 and 2021.

 

Goodwill

 

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

 

During the nine months ended September 30, 2022 and 2021, the Company did not record any impairment of goodwill.

 

Revenue recognition

 

The Company follows the guidance of ASC 606, revenue from contracts with customers is recognized using the following five steps:

 

  1. Identify the contract(s) with a customer;
  2. Identify the performance obligations in the contract;
  3. Determine the transaction price;
  4. Allocate the transaction price to the performance obligations in the contract; and
  5. Recognize revenue when (or as) the entity satisfies a performance obligation.

 

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

 

We generate revenue primarily from the sales of wine, water, oil and water purifier directly to agents, wholesalers and end users. We recognize product revenue at a point in time when the control of the products has been transferred to customers. The transfer of control is considered complete when products have been picked up by or delivered to our customers. We account for shipping and handling fees as a fulfillment cost.

 

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

                     
   Three months ended
September 30,
   Nine months ended
September 30,
 
   2022   2021   2022   2021 
Sales of wine  $1,582,829   $639,635   $3,416,775   $2,036,423 
Sales of water   1,005,738    1,099,586    2,343,830    2,827,732 
Sales of oil   -    14    -    217,131 
Sales of water purifier   245,581    220,861    641,129    348,314 
Others   81,155    45,294    111,838    45,294 
Total  $2,915,303   $2,005,390   $6,513,572   $5,474,894 

 

Contract liabilities

 

Contract liabilities consist mainly of customer advances. On certain occasions, the Company may receive prepayments from downstream retailers or wholesales customers for wines, water and other products prior to them taking possession of the Company’s products. The Company records these receipts as customer advances until the control of the products has been transferred the customers. As of September 30, 2022 and December 31, 2021, the Company had customer advances of $176,213 and $382,518, respectively. During the nine months ended September 30, 2022, the Company recognized $322,084 of customer advances in the opening balance.

 

Related party transaction

 

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.

 

10
 

 

NOTE 2 – PREPAYMENTS AND OTHER CURRENT ASSETS

 

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

           
   September 30,
2022
   December 31,
2021
 
Prepayments (including $1,957,201 and $1,813,904 to related parties as of September 30, 2022 and December 31, 2021, respectively)  $2,484,824   $2,169,095 
Other current assets   22,680    7,618 
Prepayments and other current assets  $2,507,504   $2,176,713 

 

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

 

NOTE 3 – PROPERTY AND EQUIPMENT, NET

 

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

 

                 
    September 30,
2022
    December 31,
2021
 
Office equipment   $ 116,447     $ 113,995  
Leasehold improvement     126,386       126,386  
Property and equipment     242,833       240,381  
Less: Accumulated depreciation     (132,814 )     (99,987 )
Property and equipment, net   $ 110,019     $ 140,394  

 

Depreciation expense, which was included in general and administrative expenses, for the nine months ended September 30, 2022 and 2021 was $32,829 and $14,017, respectively.

 

NOTE 4 – INTANGIBLE ASSETS

 

Intangible assets and related accumulated amortization were as follows:

                 
   

September 30,

2022

   

December 31,

2021

 
Distributor channel   $ 3,027,016     $ 3,389,404  
Others     27,418       22,299  
Total intangible assets     3,054,434       3,411,703  
Less: Accumulated amortization     (1,579,434 )     (1,129,913 )
Total   $ 1,475,000     $ 2,281,790  

 

Amortization expense for the nine months ended September 30, 2022 and 2021 was $615,911 and $624,082, respectively, included in cost of revenues and general and administrative expenses.

 

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

 

      
Year ending December 31,    
2022 (remaining)  $190,559 
2023   762,238 
2024   509,986 
2025   5,484 
2026   5,484 
Thereafter   1,249 
Total  $1,475,000 

 

11
 

 

NOTE 5- RELATED PARTY TRANSACTIONS

 

Amounts due from related party as of September 30, 2022 and December 31, 2021 are as follows:

 

       

September 30,

2022

   

December 31,

2021

 
Mr. Deqin Ke   Manager of a subsidiary   $ -     $ 26,364  
Due from related parties       $        -     $ 26,364  

 

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

 

     

September 30,

2022

   December 31,
2021
 
Mr. Yumin Lin  President, Chief Executive Officer, Secretary, Director  $441,365   $344,218 
Ms. Xiulan Zhou  Manager of a subsidiary   1,708    1,157 
Mr. Huagen Li  Manager of a subsidiary   2,248    2,518 
Mr. Guodong Jia  Manager of a subsidiary   385    944 
Mr. Minghua Cheng  Former director and majority shareholder   -    157,353 
Mr. Hongwei Ye  Manager of a subsidiary, Shareholder   15    17 
Mr. Anping Chen  Manager of a subsidiary   2,129    6,924 
Mr. Jiangwei Jia  Manager of a subsidiary   2,289    787 
Ms. Xiuyun Wang  Manager of a subsidiary   -    6,020 
Mr. Yuwen Li  Vice President   48,525    70,745 
Shenzhen DaXingHuaShang Industry Development Ltd.  Mr. Yumin Lin is the supervisor of Shenzhen DaXingHuaShang Industry Development Ltd.   84,318    93,298 
Mr. Deqin Ke  Manager of a subsidiary   703    - 
Mr. Zhihua Liao  Manager of a subsidiary   2,588    - 
Ms. Chunxiang Zhang  Manager of a subsidiary   2,925    - 
Mr. Xue Meng  Manager of a subsidiary   4,156    - 
Ms. Shuqin Chen  Manager of a subsidiary   1,910    - 
Mr. Zhipeng Zuo  Manager of a subsidiary   742    - 
Due to related parties     $596,006   $683,981 

 

12
 

 

Revenues generated from related parties during the nine months ended September 30, 2022 and 2021 are as follows:

 

      2022   2021 
     

For the nine months ended

September 30,

 
      2022   2021 
Mr. Kaihong Lin  Chief Financial Officer and Treasurer  $697   $391 
Mr. Yumin Lin  President, Chief Executive Officer, Secretary, Director   438    302 
Mr. Zihao Ye  Manager of a subsidiary   262    108 
Mr. Naiyong Luo  Manager of a subsidiary   -    5,742 
Mr. Hongwei Ye  Manager of a subsidiary, Shareholder   -    6,451 
Ms. Xiulan Zhou  Manager of a subsidiary, Mr. Yumin Lin’s wife   -    52 
Dongguan City Chashan Pingfeng Cigarette and Wine Store Co., Ltd.  Mr. Taiping Deng, a manager of a subsidiary, is the controlling shareholder of Dongguan City Chashan Pingfeng Cigarette and Wine Store Co., Ltd.   -    104,351 
Dongguan Zhengui Reality Co., Ltd.  Mr. Naiyong Luo, a manager of a subsidiary, is the controlling shareholder of Dongguan Zhengui Reality Co., Ltd.   -    132,341 
Dongguan Huanhai Trading Co., Ltd.  Mr. Hongwei Ye, a shareholder of the Company and a manager of a subsidiary, is the controlling shareholder of Dongguan Huanhai Trading Co., Ltd.   49,676    54,568 
Guangdong Yuexin Jiaotong Construction Co., Ltd.  Mr. Naiyong Luo, a manager of a subsidiary, is the controlling shareholder of Guangdong Yuexin Jiaotong Construction Co., Ltd.   12,639    100,490 
Dongguan City Hualianguan Chemical Co., Ltd.  Mr. Hongwei Ye, a shareholder of the Company and a manager of a subsidiary, is the controlling shareholder of Dongguan City Hualianguan Chemical Co., Ltd.   56,920    19,560 
Dongguan City Daying Internet Technology Co., Ltd.  Mr. Minghua Cheng, a former director and majority shareholder of the Company, is the controlling shareholder of Dongguan City Daying Internet Technology Co., Ltd.   -    57,500 
Dongguan Tailai Trading Co., Ltd.  Significantly influenced by the Company   -    13,206 
Revenues generated from related parties      $120,632   $495,062 

 

 

Cost of revenues from related parties during the nine months ended September 30, 2022 and 2021 is as follows:

 

      2022   2021 
     

For the nine months ended

September 30,

 
      2022   2021 
Dongguan Baxi Food Distribution Co., Ltd.  Significantly influenced by the Company  $27,916   $56,588 
Dongguan Dalingshan Xinwenhua Drinking Water Store  Significantly influenced by the Company   78,474    45,701 
Dongguan Pengqin Drinking Water Co., Ltd.  Significantly influenced by the Company   63,429    44,047 
Dongguan Dengqinghu Drinking Water Co., Ltd.  Significantly influenced by the Company   2,043    7,758 
Dongguan Tailai Trading Co., Ltd.  Significantly influenced by the Company   60,614    51,943 
Dongguan Anxiang Technology Co., Ltd.  Significantly influenced by the Company   95,045    140,043 
Guangdong Jiaduonuo Shengshi Trading Co., Ltd.  Significantly influenced by the Company   112,598    115,077 
Dongguan Dalingshan Runxin Drinking Water Store  Significantly influenced by the Company   26,174    23,070 
Dongguan City Yijia Trading Co., Ltd.  Mr. Yongming Li, a shareholder of the Company, is the controlling shareholder of Dongguan City Yijia Trading Co., Ltd.   297,370    24,640 
Cost of revenues from related parties     $763,663   $508,867 

 

Purchases from related parties during the nine months ended September 30, 2022 and 2021 are as follows:

 

      2022   2021 
     

For the nine months ended

September 30,

 
      2022   2021 
Dongguan Baxi Food Distribution Co., Ltd.  Significantly influenced by the Company  $31,360   $73,366 
Dongguan Dalingshan Xinwenhua Drinking Water Store  Significantly influenced by the Company   90,930    39,794 
Dongguan Pengqin Drinking Water Co., Ltd.  Significantly influenced by the Company   66,659    39,679 
Dongguan Dengqinghu Drinking Water Store  Significantly influenced by the Company   2,217    8,857 
Dongguan Tailai Trading Co., Ltd.  Significantly influenced by the Company   59,449    59,133 
Dongguan Anxiang Technology Co., Ltd.  Significantly influenced by the Company   96,341    145,545 
Guangdong Jiaduonuo Shengshi Trading Co., Ltd.  Significantly influenced by the Company   117,062    141,278 
Dongguan Dalingshan Runxin Drinking Water Store  Significantly influenced by the Company   26,122    32,040 
Dongguan City Yijia Trading Co., Ltd.  Mr. Yongming Li, a shareholder of the Company, is the controlling shareholder of Dongguan City Yijia Trading Co., Ltd.   279,247    35,803 
Purchase from related party     $769,387   $575,495 

 

13
 

 

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

 

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

 

In addition, during the nine months ended September 30, 2022 and 2021, these related parties paid expenses on the Company’s behalf in an amount of $135,081 and $532,912, respectively.

 

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

 

Also see Note 2, 7 and 8 for more transactions with related parties.

 

NOTE 6 - INCOME TAXES

 

United States of America

 

The Company is registered in the State of Nevada and is subject to United States of America tax law. The U.S. federal income tax rate is 21%.

 

Seychelles

 

Under the current laws of the Seychelles, DIGLS and JJGS are registered as an international business company which governed by the International Business Companies Act of Seychelles and there is no income tax charged in Seychelles.

 

Hong Kong

 

From year of assessment of 2018/2019 onwards, Hong Kong profit tax rates are 8.25% on assessable profits up to HK$2,000,000 (approximately $289,855), and 16.5% on any part of assessable profits over HK$2,000,000. For the nine months ended September 30, 2022 and 2021, the Company did not have any assessable profits arising in or derived from Hong Kong, therefore no provision for Hong Kong profits tax was made in the periods reported.

 

The PRC

 

The Company’s subsidiaries are incorporated in the PRC, and are subject to the PRC Enterprise Income Tax Laws (“EIT Laws”) with the statutory income tax rate of 25% with the following exceptions.

 

On January 17, 2019, the State Taxation Administration issued the notice on the scope of small-scale and low-profit corporate income tax preferential policies of the Ministry of Finance and the State Administration of Taxation, [2019] No.13 for small-scale and low-profit enterprises whose annual taxable income is less than 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 SAT [2021] No.12 provides an enterprise income tax rate of 2.5% on small-scale and low-profit enterprises whose annual taxable income is less than RMB1,000,000, approximately $142,209, from January 1, 2021 to December 31, 2022. MOF and SAT [2022] No.13 also provides an enterprise income tax rate of 5% on small-scale and low-profit enterprises whose annual taxable income is more than RMB1,000,000, approximately $142,209, but less than RMB3,000,000, approximately $426,627, from January 1, 2022 to December 31, 2024. The qualifications of small-scale and low-profit enterprises were examined annually by the Tax Bureau. All of the Company’s PRC subsidiaries met the criteria of small-scale and low-profit enterprises.

 

The components of the income tax provision are as follows:

 

   Nine Months Ended
September 30, 2022
   Nine Months Ended
September 30, 2021
 
Current:          
– United States of America  $105,074   $154,485 
– Seychelles   -    - 
– Hong Kong   -    - 
– The PRC   107,200    164,539 
Current income tax expense          
Deferred          
– United States of America   -    - 
– Seychelles   -    - 
– Hong Kong   -    - 
– The PRC   -    - 
Total  $212,274   $319,024 

 

The effective tax rate was 10.2% and 20.4% for the nine months ended September 30, 2022 and 2021, respectively.

 

14
 

 

NOTE 7 - OPERATING LEASES

 

As of September 30, 2022, the Company has twenty one separate operating lease agreements for three office spaces, one warehouse and seventeen stores in PRC with remaining lease terms of from 2 months to 55 months.

 

Two of these leases described above were entered with related parties. The operating lease entered with Ms. Qingmei Lin, a related party, is for the premises in Dongguan City, PRC. The agreement covers the period from January 1, 2019 to April 30, 2027 with the monthly rent expense of RMB10,000 (approximately $1,517). The operating lease agreement entered with Mr. Hongwei Ye, another related party, is for the premises in Dongguan City, PRC. The agreement covers the period from September 27, 2020 to September 30, 2023 with the monthly rent expense of RMB960 (approximately $146).

 

The Company terminated an operating lease agreement with a subsidiary of Shenzhen DaXingHuaShang Industry Development Ltd., a related party, for the premises in Shenzhen City, PRC on February 28, 2021. The monthly rent expense for this lease was RMB30,000 (approximately $4,552).

 

The components of lease expense and supplemental cash flow information related to leases for the nine months ended September 30, 2022 and 2021 are as follows:

 

   2022   2021 
Operating lease cost (included in general and administrative expenses in the Company’s unaudited condensed consolidated statements of operations)  For the nine months ended
September 30,
 
   2022   2021 
         
Related parties  $16,132   $27,944 
Non-related parties   109,050    79,471 
Total  $125,182   $107,415 

 

Other information for the nine months ended  

September 30,

2022

   

September 30,

2021

 
Cash paid for amounts included in the measurement of lease obligations   $ 110,768     $ 101,203  
Weighted average remaining lease term (in years)     3.31       3.92  
Weighted average discount rate     3.23 %     3.23 %

 

Maturities of the Company’s lease obligations as of September 30, 2022 are as follows:

 

Year ending December 31,    
2022 (remaining)  $46,458 
2023   130,694 
2024   102,573 
2025   92,635 
2026   41,462 
Thereafter   5,621 
Total lease payment   419,443 
Less: Imputed interest   (24,278)
Operating lease obligations  $395,165 

 

NOTE 8 – BANK AND OTHER BORROWINGS

 

In August 2020, the Company obtained a revolving credit line in the principal amount of 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%. The credit line is guaranteed by Xiulan Zhou, a related party, and pledged by her property. The maturity date is on July 21, 2023.

 

In December 2020, the Company obtained a loan in the principal amount of 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 $79,000 when borrowed) from Shenzhen Qianhai Webank Co., Ltd. (“WeBank”), which bears interest at 3.6%. The maturity date is on December 11, 2021. On December 11, 2021, the Company and WeBank agreed to extend the maturity date of the loan to December 21, 2023 and increase the principal amount to RMB500,750 (approximately $79,000 when borrowed) reflecting the accrued interest. The loan is guaranteed by Yumin Lin and bears interest at 10.71%.

 

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

 

In May 2022, the Company obtained a loan in the principal amount of RMB161,000 (approximately $24,000 when borrowed) from Huaneng Guicheng, which bears interest at 11.34%. The loan is guaranteed by Yumin Lin. The maturity date is on May 21, 2024.

 

In May 2022, the Company obtained a bank loan in the principal amount of RMB69,000 (approximately $10,000 when borrowed) from WeBank, which bears interest at 11.34%. The loan is guaranteed by Yumin Lin. The maturity date is on May 21, 2024.

 

In July 2022, the Company obtained two loans in the principal amount of 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.

 

15
 

 

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.

 

On July 21, 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.

 

The balance of the loans borrowed as of September 30, 2022 and December 31, 2021 were as follows:

 

   September 30,
2022
   December 31,
2021
 
Loan from a trust in PRC  $67,804   $67,438 
China Construction Bank   268,413    143,192 
WeBank   90,668    78,795 
Nanyue Bank   75,746    - 
Aggregate outstanding principal balances  $502,631   $289,425 
Less: current portion   413,207    101,207 
Non-current portion  $89,424   $188,218 

 

The total interest expense was $21,077 and $13,814 for the nine months ended September 30, 2022 and 2021, respectively.

 

Future minimum loan payments as of September 30, 2022 are as follows:

 

Year ending December 31,    
2022 (remaining)  $35,384 
2023   410,509 
2024   56,738 
Thereafter   - 
Total  $502,631 

 

NOTE 9 – COMMON STOCK

 

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

 

16
 

 

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

 

The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission on April 1, 2022 (the “Form 10-K”) and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Form 10-Q.

 

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

 

Overview

 

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

 

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

 

Results of Operations

 

Three Months Ended September 30, 2022 and 2021

 

  

Three Months Ended

September 30,

     
   2022   2021   Change 
Net revenues  $2,915,303   $2,005,390   $909,913 
Cost of revenues   (1,400,522)   (875,418)   (525,104)
Gross profit   1,514,781    1,129,972    384,809 
                
Operating expense   (487,640)   (521,892)   34,252 
Other income   2,335    2,512    (177)
Other expense   (10,388)   (4,327)   (6,061)
Income taxes   (108,353)   (156,402)   48,049 
Net income   910,735    449,863    460,872 
Net income attributable to noncontrolling interests   54,931    59,875    (4,944)
Net income attributable to Fortune Valley Treasures, Inc.  $855,804   $389,988   $465,816 

 

Nine Months Ended September 30, 2022 and 2021

 

  

Nine Months Ended

September 30,

     
   2022   2021   Change 
Net revenues  $6,513,572   $5,474,894   $1,038,678 
Cost of revenues   (3,018,507)   (2,402,685)   (615,822)
Gross profit   3,495,065    3,072,209    422,856 
                
Operating expense   (1,396,667)   (1,500,499)   103,832 
Other income   10,630    3,446    7,184 
Other expense   (21,077)   (13,814)   (7,263)
Income taxes   (212,274)   (319,024)   106,750 
Net income   1,875,677    1,242,318    633,359 
Net income attributable to noncontrolling interests   123,464    132,601    (9,137)
Net income attributable to Fortune Valley Treasures, Inc.  $1,752,213   $1,109,717   $642,496 

 

17
 

 

Net Revenues

 

Net revenues were $2,915,303 for three months ended September 30, 2022, reflecting an increase of $909,913, or 45%, from $2,005,390 for the three months ended September 30, 2021. The increase in net revenues was mainly due to the increase in the product sale as a result of a newly launched distribution channel via a WeChat App

 

Net revenues were $6,513,572 for nine months ended September 30, 2022, reflecting an increase of $1,038,678, or 19%, from $5,474,894 for nine months ended September 30, 2021. The increase in net revenues was mainly attributable to the increase in the product sale as a result of the improved market condition with the impact of COVID-19, as compared to the same period of the prior year.

 

Cost of Revenues

 

Cost of revenues was $1,400,522 for the three months ended September 30, 2022, reflecting an increase of $525,104, or 60%, from $875,418 for the three months ended September 30, 2021. The increase in cost of revenue was due to the higher product sales volume in line with our revenue increase. 

 

Cost of revenues was $3,018,507 for the nine months ended September 30, 2022, reflecting an increase of $615,822, or 26%, from $2,402,685 for the nine months ended September 30, 2021. The increase in cost of revenue was due to the higher product sales volume in line with our revenue increase.

 

Gross Profit

 

Gross profit was $1,514,781 and $1,129,972 for the three months ended September 30, 2022 and 2021, respectively, reflecting an increase of $384,809, or 34%. The increase in gross profit was due to the increase in the net revenues.  

 

Gross profit was $3,495,065 and $3,072,209 for the nine months ended September 30, 2022 and 2021, respectively, reflecting an increase of $422,856, or 14%. The increase in gross profit was due to the increase in the net revenues.

 

Operating Expenses

 

Operating expense was $487,640 for the three months ended September 30, 2022, reflecting a slight decrease of $34,252, or 7%, from $521,892 for the nine months ended September 30, 2021.

 

Operating expense was $1,396,667 for the nine months ended September 30, 2022, reflecting a slight decrease of $103,832, or 7%, from $1,500,499 for the nine months ended September 30, 2021.

 

Net Income

 

For the three months ended September 30, 2022, our net income was $910,735, compared to a net income of $449,863 for the three months ended September 30, 2021. The increase in net income was a result of the factors described above.

 

For the nine months ended September 30, 2022, our net income was $1,875,677, compared to a net income of $1,242,318 for the nine months ended September 30, 2021. The increase in net income was a result of the factors described above.

 

Net income attributable to noncontrolling interests

 

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

 

For the three months ended September 30, 2022 and 2021, the Company recorded a net income attributable to noncontrolling interests of $54,931 and $59,875, respectively.

 

For the nine months ended September 30, 2022 and 2021, the Company recorded a net income attributable to noncontrolling interests of $123,464 and $132,601, respectively.

 

18
 

 

Liquidity and Capital Resources

 

Working Capital

 

  

September 30, 2022

   December 31, 2021   Change 
Total current assets  $6,544,575   $5,069,481   $1,475,094 
Total current liabilities   1,718,717    1,717,519    1,198 
Working capital  $4,825,858   $3,351,962   $1,473,896 

 

As of September 30, 2022, we had working capital of $4,825,858, as compared to working capital of $3,351,962 as of December 31, 2021. We had total current assets of $6,544,575, consisting of cash and cash equivalents of $239,443, inventories of $147,097, prepayments and other current assets of $2,507,504, and accounts receivable of $3,650,531, compared to total current assets of $5,069,481 as of December 31, 2021. The increase was mainly due to the increase in cash and cash equivalents, account receivable, and prepayment and other current assets. We had current liabilities of $1,718,717, consisting of operating lease obligations of $135,747, accounts payable of $155,039, accrued liabilities of $131,363, bank and other borrowing of $413,207, customer advances of $176,213, income tax payable of $111,142 and due to related parties of $596,006. The balance of total current liabilities is comparable with the balance as of December 31, 2021.

 

Our cash and cash equivalents balance increased to $239,443 as of September 30, 2022, from $123,163 at December 31, 2021. We estimate the Company currently has sufficient cash available to meet its anticipated working capital requirements for the next twelve months, without raising additional capital. The Company is continuing to look for different financing opportunities in order to increase working capital and improve liquidity.

 

Despite the increased working capital of the Company, no assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its shareholders, in the case of equity financing.

 

Cash Flows

 

  

Nine Months Ended

September 30,

     
   2022   2021   Change 
Cash Flows provided by (used in) Operating Activities  $48,444   $(712,200)  $760,644 
Cash Flows provided by Investing Activities   -    362,931    (362,931)
Cash Flows provided by Financing Activities   108,002    212,278    (104,276)
Effect of exchange rate changes   (40,166)   37,343    (77,509)
Net Changes in Cash and Cash Equivalents  $116,280   $(99,648)  $215,928 

 

Cash Flow from Operating Activities

 

Net cash provided by operating activities for the nine months ended September 30, 2022 was $48,444, as compared to the amount of $712,200 used in operating activities for the nine months ended September 30, 2021, reflecting an increase of $760,644. The cash provided by operating activities during the nine months ended September 30, 2022 was mainly resulted from net income of $1,875,677 and depreciation and amortization expenses of $648,740, offset by the increase in accounts receivable of $1,374,495, increase in the prepayments and other current assets of $608,448, increase in deposits paid to vendors of $277,134, and decrease in customer advances of $178,597.

 

Cash Flow from Investing Activities

 

Net cash used in investing activities was nil for the nine months ended September 30, 2022, compared to net cash provided by investing activities of $362,931 for the nine months ended September 30, 2021.

 

Cash Flow from Financing Activities

 

Net cash provided by financing activities was $108,002 for the nine months ended September 30, 2022, compared to net cash provided by financing activities of $212,278 for the nine months ended September 30, 2021. The cash provided by financing activities for the nine months ended September 30, 2022 was mainly resulted from the net proceeds from revolving credit lines of $148,606 and the proceeds from bank loans of $135,499, offset by the repayments to related parties of $154,510.

 

Critical Accounting Policy

 

In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with U.S. generally accepted accounting principles. We base our estimates on historical experience, when available, and on other various assumptions that are believed to be reasonable under the circumstances. Actual results could differ significantly from those estimates under different assumptions and conditions.

 

Revenue recognition

 

The Company follows the guidance of ASC 606, revenue from contracts with customers is recognized using the following five steps:

 

  1. Identify the contract(s) with a customer;
  2. Identify the performance obligations in the contract;
  3. Determine the transaction price;
  4. Allocate the transaction price to the performance obligations in the contract; and
  5. Recognize revenue when (or as) the entity satisfies a performance obligation.

 

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

 

19
 

 

We generate revenue primarily from the sales of wine, water, oil and water purifier directly to agents, wholesalers and end users. We recognize product revenue at a point in time when the control of the products has been transferred to customers. The transfer of control is considered complete when products have been picked up by or delivered to our customers. We account for shipping and handling fees as a fulfillment cost.

 

Off-Balance Sheet Arrangements

 

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

 

Related Party Transactions

 

As of September 30, 2022 and December 31, 2021, the Company had accounts receivable from related parties in amounts of $116,995 and $43,477, prepayments to related parties in the amounts of $1,957,201 and $1,813,904, deposits to related parties in the amounts of $1,607,955 and $1,596,075, and accounts payable to related parties in amounts of $3,629 and $17,789, respectively.

 

As of September 30, 2022 and December 31, 2021, the Company had outstanding receivables due from a related party in the amounts of nil and $26,364, respectively, which mainly consisted of funds advanced to a related party as borrowings or funds advances to pay off the Company’s expenses. The balance was unsecured and non-interest bearing.

 

As of September 30, 2022 and December 31, 2021, the Company had outstanding payables due to its related parties in the amounts of $596,006 and $683,981, respectively, which mainly consisted of borrowings for working capital purpose. The balances were unsecured, non-interest bearing and due on demand.

 

During the nine months ended September 30, 2022 and 2021, the Company’s related parties paid expenses on behalf of the Company in the amounts of $135,081 and $532,912, respectively.

 

During the nine months ended September 30, 2022 and 2021, the Company sold products to its related parties in the amounts of $120,632 and $495,062, respectively, purchased goods from its related parties in the amounts of $769,387 and $575,495, and incurred cost of revenues from related parties in the amounts of $763,663 and $508,867, respectively.

 

During the nine months ended September 30, 2022 and 2021, the rental expenses to related parties were $16,132 and $27,944, respectively.

 

Our related parties are primarily those who are significantly influenced by the Company based on our common business relationships. Refer to Note 5 to the unaudited condensed consolidated financial statements for additional details regarding the related party transactions.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

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