Fortune Valley Treasures, Inc 10-Q for FY2023 Q3
Fortune Valley Treasures, Inc. (FVTI)
About this 10-Q
Fortune Valley Treasures, Inc filed this 10-Q on November 13, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $909.72K
- down 68.8% from $2.92M a year earlier
- Net loss
- $1.11M
- compared with net income of $855.8K a year earlier
- Diluted EPS
- -$0.07
- compared with $0.05 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the Quarterly Period Ended
or
For the transition period from _________ to _________
Commission
File Number
(Exact name of registrant issuer as specified in its charter)
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
Registrant’s
phone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act:
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.
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).
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 | ☐ | ||
| ☒ | 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
☐
As of November 13, 2023, there were shares, par value $0.001, of the registrant’s common stock outstanding.
TABLE OF CONTENTS
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
FORTUNE VALLEY TREASURES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2023 AND DECEMBER 31, 2022
September 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net (including $ | ||||||||
| Inventories | ||||||||
| Prepayments and other current assets, net (including $ | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Deposits paid, net (including $ | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Operating lease right-of-use assets, related parties | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Operating lease obligations – current | $ | $ | ||||||
| Operating lease obligations, related parties - current | ||||||||
| Operating lease obligations, - current | ||||||||
| Accounts payable (including $ | ||||||||
| Accrued liabilities | ||||||||
| Bank and other borrowings - current | ||||||||
| Income tax payable | ||||||||
| Customer advances | ||||||||
| Due to related parties | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Operating lease obligations – non-current | ||||||||
| Operating lease obligations, related parties – non-current | ||||||||
| Operating lease obligations, – non-current | ||||||||
| Bank and other borrowings | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock ( shares authorized, shares issued and outstanding as of September 30, 2023 and December 31, 2022) | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit and statutory reserves | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Fortune Valley Treasures, Inc. stockholders’ equity | ||||||||
| Noncontrolling interests | ( | ) | ||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
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 NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net revenues (including $ | $ | $ | $ | $ | ||||||||||||
| Cost of revenues (including $ | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and distribution expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||||||||||
| Other income (expense): | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income (loss) before income tax | ( | ) | ( | ) | ||||||||||||
| Income tax expense (benefit) | ( | ) | ||||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Less: Net income (loss) attributable to noncontrolling interests | ( | ) | ( | ) | ||||||||||||
| Net income (loss) attributable to Fortune Valley Treasures, Inc. | ( | ) | ( | ) | ||||||||||||
| Other comprehensive income: | ||||||||||||||||
| Foreign currency translation loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
| Less: Comprehensive income (loss) attributable to noncontrolling interests | ( | ) | ( | ) | ||||||||||||
| Comprehensive income (loss) attributable to Fortune Valley Treasures, Inc. | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Earnings (loss) per share | ||||||||||||||||
| Basic and diluted earnings (loss) per share | $ | ) | $ | $ | ) | $ | ||||||||||
| Basic and diluted weighted average shares outstanding | $ | $ | $ | $ | ||||||||||||
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, 2023 AND 2022
(Unaudited)
Number of shares | Amount | Paid-in Capital | Comprehensive 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 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | | |||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| 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 | $ | $ | $ | $ | ( | ) | $ | $ | | |||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||
| Net income (loss) | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
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, 2023 AND 2022
(Unaudited)
| 2023 | 2022 | |||||||
| Nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Non-cash lease expense | ||||||||
| Allowance for credit losses | ||||||||
| Loss on disposal of intangible asset | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Prepayments and other current assets, net | ( | ) | ( | ) | ||||
| Due from related parties | ||||||||
| Deposits paid, net | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Due to related parties | ( | ) | ||||||
| Customer advances | ( | ) | ( | ) | ||||
| Accrued liabilities | ||||||||
| Income tax payable | ( | ) | ||||||
| Operating lease obligations | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities | ||||||||
| Acquisition of property and equipment | ( | ) | ||||||
| Acquisition of intangible asset | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Borrowings from and repayments to revolving credit lines, net | ||||||||
| Borrowings from bank loans | ||||||||
| Borrowings from a third party | ||||||||
| Repayments to related parties | ( | ) | ||||||
| Repayments of bank loans | ( | ) | ( | ) | ||||
| Repayments to a third party | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | ||||
| Net changes in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents–beginning of the period | ||||||||
| Cash and cash equivalents–end of the period | $ | $ | ||||||
| Supplementary cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing activities | ||||||||
| Expenses paid by related parties on behalf of the Company | $ | $ | ||||||
| Operating lease right-of-use assets obtained in exchange for operating lease obligations | $ | $ | ||||||
| Remeasurement of operating lease liabilities and right-of-use assets due to lease modifications | $ | $ | ||||||
| Liabilities assumed in connection with purchase of property and equipment | $ | $ | ||||||
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, 2023 AND 2022
(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 shares 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
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
Basis of presentation
The accompanying unaudited condensed consolidated financial statements as of September 30, 2023 and for the three and nine months ended September 30, 2023 and 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, 2022 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, 2022, filed with the SEC on March 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 September 30, 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 | ||||
| FVTI | ||||||||
| DIGLS | ||||||||
| DILHK | ||||||||
| QHDX | ||||||||
| FVTI | ||||||||
| JJGS | ||||||||
| JJHK | ||||||||
| QHDX | ||||||||
| FVTL | ||||||||
| FVTL | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| Xixingdao | ||||||||
| QHDX | ||||||||
| FVTL | ||||||||
| FVTL | ||||||||
| FVTL | ||||||||
| FVTL |
| 8 |
Going concern
The
accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going
concern, which contemplates the realization of assets and fulfillment of obligations in the normal course of business. The realization
of assets and fulfillment of obligations in the normal course of business is dependent on, among other things, the Company’s ability
to generate sufficient cash flows from operations, and the Company’s ability to arrange adequate financing arrangements. As of
September 30, 2023, the Company had a working capital of $
The Company may need additional capital in the future to fund the continued operations of the Company. If the Company is unable to obtain additional equity or debt financing as required, the business operations and prospects of the Company may suffer.
Use of estimates
The preparation of financial statements in conformity with U.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 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.
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
| 2023 | 2022 | |||||||
| As of and for the nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Period-end RMB:US$1 exchange rate | ||||||||
| Period-average RMB:US$1 exchange rate | ||||||||
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.
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, 2023 and 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 nine months ended September 30, 2023 and 2022, the Company did not record any impairment of goodwill.
| 9 |
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 liquor, water, water purifier and other products directly to agents, wholesalers and end 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
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Sales of liquor | $ | $ | $ | $ | ||||||||||||
| Sales of water | ||||||||||||||||
| Sales of water purifier | ||||||||||||||||
| Others | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Contract liabilities
Contract
liabilities consist mainly of customer advances. On certain occasions, the Company may receive prepayments from downstream retailers
or wholesales customers for 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 September 30,
2023 and December 31, 2022, the Company had customer advances of $
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.
| 10 |
NOTE 2 – ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following as of September 30, 2023 and December 31, 2022:
SCHEDULE OF ACCOUNTS RECEIVABLE
| September 30, 2023 | December 31, 2022 | |||||||
| Accounts receivable (including $ | $ | $ | ||||||
| Less: Doubtful allowance (including $ | ( | ) | ||||||
| Accounts receivable, net | $ | $ | ||||||
Allowance for doubtful accounts movement is as follows:
SCHEDULE OF ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
| September 30, 2023 | December 31, 2022 | |||||||
| Beginning balance | $ | $ | ||||||
| Additions to allowance | ||||||||
| Foreign currency translation adjustment | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
NOTE 3 – PREPAYMENTS AND OTHER CURRENT ASSETS, NET
Prepayments and other current assets consisted of the following as of September 30, 2023 and December 31, 2022:
SCHEDULE OF PREPAYMENT AND OTHER CURRENT ASSETS
| September 30, 2023 | December 31, 2022 | |||||||
| Prepayments (including $ | $ | $ | ||||||
| Other current assets | ||||||||
| Total prepayments and other current assets | ||||||||
| Less: Allowance for doubtful accounts (including $ | ( | ) | ( | ) | ||||
| Prepayments and other current assets, net | $ | $ | ||||||
Balance of prepayments represented the advanced payments to suppliers including related party suppliers.
Allowance for doubtful accounts movement is as follows:
SCHEDULE OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
| September 30, 2023 | December 31, 2022 | |||||||
| Beginning balance | $ | $ | ||||||
| Additions to allowance | ||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
NOTE 4 – DEPOSITS PAID, NET
Deposits paid consisted of the following as of September 30, 2023 and December 31, 2022:
SCHEDULE OF DEPOSITS PAID
| September 30, 2023 | December 31, 2022 | |||||||
| Deposits paid (including $ | $ | $ | ||||||
| Less: Allowance for doubtful accounts (including $ | ( | ) | ( | ) | ||||
| Deposits paid, net | $ | $ | ||||||
Allowance for doubtful accounts movement is as follows:
SCHEDULE OF ALLOWANCE FOR DOUBTFUL ACCOUNTS OF DEPOSITS PAID
| September 30, 2023 | December 31, 2022 | |||||||
| Beginning balance | $ | $ | ||||||
| Additions to allowance | ||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
| 11 |
NOTE 5 – PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following as of September 30, 2023 and December 31, 2022:
SCHEDULE OF PROPERTY AND EQUIPMENT
| September 30, 2023 | December 31, 2022 | |||||||
| Office equipment | $ | $ | ||||||
| Leasehold improvement | ||||||||
| Vehicle | ||||||||
| Property and equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense, which was included in general and administrative expenses, for the nine months ended September 30, 2023 and 2022 was $
NOTE 6 – INTANGIBLE ASSETS, NET
Intangible assets and related accumulated amortization were as follows:
SCHEDULE OF INTANGIBLE ASSETS
| September 30, 2023 | December 31, 2022 | |||||||
| Distribution channel | $ | $ | ||||||
| Others | ||||||||
| Total intangible assets | ||||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Less: Accumulated impairment | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
Amortization
expense for the nine months ended September 30, 2023 and 2022 was $
As of September 30, 2023, the future estimated amortization costs for intangible assets are as follows:
SCHEDULE OF FUTURE AMORTIZATION EXPENSES FOR DISTRIBUTION CHANNELS
| Year ending December 31, | ||||
| 2023 (remaining) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total | $ |
NOTE 7 - RELATED PARTY TRANSACTIONS
Amounts due to related parties as of September 30, 2023 and December 31, 2022 are as follows:
SCHEDULE OF AMOUNT DUE FROM AND DUE TO RELATED PARTIES
| September 30, 2023 | December 31, 2022 | |||||||||
| Mr. Yumin Lin | President, Chief Executive Officer, Secretary, Director and majority shareholder | $ | $ | |||||||
| Ms. Xiulan Zhou | Manager of a subsidiary, Mr. Yumin Lin’s wife | |||||||||
| Mr. Huagen Li | Manager of a subsidiary | |||||||||
| Mr. Guodong Jia | Manager of a subsidiary | |||||||||
| Mr. Hongwei Ye | Manager of a subsidiary, Shareholder | |||||||||
| Mr. Anping Chen | Manager of a subsidiary | |||||||||
| Mr. Jiangwei Jia | Manager of a subsidiary | |||||||||
| Mr. Yuwen Li | Vice President | |||||||||
| Ms. Lihua Li | Manager of a subsidiary | |||||||||
| Shenzhen DaXingHuaShang Industrial Group Ltd. (fka Shenzhen DaXingHuaShang Industry Development Ltd.) | Mr. Yumin Lin is the supervisor of Shenzhen DaXingHuaShang Industrial Group Ltd. | |||||||||
| Ms. Chunxiang Zhang | Manager of a subsidiary | |||||||||
| Mr. Meng Xue | Manager of a subsidiary | |||||||||
| Ms. Shuqin Chen | Manager of a subsidiary | |||||||||
| Mr. Zhipeng Zuo | Manager of a subsidiary | |||||||||
| Mr. Deqin Ke | Manager of a subsidiary | |||||||||
| Mr. Aisheng Zhang | Manager of a subsidiary | |||||||||
| Mr. Zhihua Liao | Manager of a subsidiary | |||||||||
| $ | $ | |||||||||
| 12 |
Revenues generated from related parties during the nine months ended September 30, 2023 and 2022 are as follows:
SCHEDULE OF REVENUE GENERATED FROM RELATED PARTIES
| 2023 | 2022 | |||||||||
| Nine months ended September 30, | ||||||||||
| 2023 | 2022 | |||||||||
| Mr. Kaihong Lin | Chief Financial Officer and Treasurer | $ | $ | |||||||
| Mr. Yumin Lin | President, Chief Executive Officer, Secretary, Director and majority shareholder | |||||||||
| Mr. Zihao Ye | Manager of a subsidiary | |||||||||
| Ms. Xiulan Zhou | Manager of a subsidiary, Mr. Yumin Lin’s wife | |||||||||
| 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. | |||||||||
| 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. | |||||||||
| 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. | |||||||||
| 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 | |||||||||
| Mr. Yuwen Li | Vice President | |||||||||
| Revenues generated from related parties | $ | $ | ||||||||
Cost of revenues from related parties during the nine months ended September 30, 2023 and 2022 is as follows:
SCHEDULE OF COST OF REVENUES FROM RELATED PARTIES
| 2023 | 2022 | |||||||||
| Nine months ended September 30, | ||||||||||
| 2023 | 2022 | |||||||||
| Dongguan Baxi Food Distribution Co., Ltd. | Significantly influenced by the Company | $ | $ | |||||||
| Dongguan Dalingshan Xinwenhua Drinking Water Store | Significantly influenced by the Company | |||||||||
| Dongguan Pengqin Drinking Water Co., Ltd. | Significantly influenced by the Company | |||||||||
| Dongguan Dengqinghu Drinking Water Store | Significantly influenced by the Company | |||||||||
| Dongguan Tailai Trading Co., Ltd. | Significantly influenced by the Company | |||||||||
| Dongguan Anxiang Technology Co., Ltd. | Significantly influenced by the Company | |||||||||
| Guangdong Jiaduonuo Shengshi Trading Co., Ltd. | Significantly influenced by the Company | |||||||||
| Dongguan Dalingshan Runxin Drinking Water Store | Significantly influenced by the Company | |||||||||
| 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. | |||||||||
| Cost of revenues from related parties | $ | $ | ||||||||
Purchases from related parties during the nine months ended September 30, 2023 and 2022 are as follows:
SCHEDULE OF PURCHASES FROM RELATED PARTIES
| 2023 | 2022 | |||||||||
| Nine months ended September 30, | ||||||||||
| 2023 | 2022 | |||||||||
| Dongguan Baxi Food Distribution Co., Ltd. | Significantly influenced by the Company | $ | $ | |||||||
| Dongguan Dalingshan Xinwenhua Drinking Water Store | Significantly influenced by the Company | |||||||||
| Dongguan Pengqin Drinking Water Co., Ltd. | Significantly influenced by the Company | |||||||||
| Dongguan Dengqinghu Drinking Water Store | Significantly influenced by the Company | |||||||||
| Dongguan Tailai Trading Co., Ltd. | Significantly influenced by the Company | |||||||||
| Dongguan Anxiang Technology Co., Ltd. | Significantly influenced by the Company | |||||||||
| Guangdong Jiaduonuo Shengshi Trading Co., Ltd. | Significantly influenced by the Company | |||||||||
| Dongguan Dalingshan Runxin Drinking Water Store | Significantly influenced by the Company | |||||||||
| 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. | |||||||||
| Purchase from related party | $ | $ | ||||||||
Due to related parties mainly consists of borrowings for working capital purpose, the balances are unsecured, non-interest bearing and due on demand.
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 10 for more transactions with related parties.
| 13 |
NOTE 8 - 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
Seychelles
Under the current laws of the Seychelles, DIGLS and JJGS are registered as an international business company 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
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
The components of the income tax provision are as follows:
SCHEDULE OF COMPONENTS OF INCOME TAX PROVISION
| Nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Current: | ||||||||
| – United States of America | $ | $ | ||||||
| – Seychelles | ||||||||
| – Hong Kong | ||||||||
| – The PRC | ||||||||
| Current income tax expense | ||||||||
| Deferred | ||||||||
| – United States of America | ||||||||
| – Seychelles | ||||||||
| – Hong Kong | ||||||||
| – The PRC | ||||||||
| Deferred income tax expense | ||||||||
| Total | $ | $ | ||||||
The
effective tax rate was -
| 14 |
NOTE 9 - OPERATING LEASES
As
of September 30, 2023,
Two
of the 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 components of lease expense and supplemental cash flow information related to leases for the nine months ended September 30, 2023 and 2022 are as follows:
SCHEDULE OF COMPONENTS OF LEASE EXPENSE AND SUPPLEMENTAL CASH FLOW INFORMATION
| Operating lease cost (included in general and administrative expenses in the Company’s unaudited condensed consolidated statements of operations) | Nine months ended September 30, | |||||||
| 2023 | 2022 | |||||||
| Related parties | $ | $ | ||||||
| Non-related parties | ||||||||
| Total | $ | $ | ||||||
| Other information for the nine months ended | September 30, 2023 | September 30, 2022 | ||||||
| Cash paid for amounts included in the measurement of lease obligations | $ | $ | ||||||
| Weighted average remaining lease term (in years) | ||||||||
| Weighted average discount rate | % | % | ||||||
Maturities of the Company’s lease obligations as of September 30, 2023 are as follows:
SCHEDULE OF MATURITIES OF LEASE OBLIGATIONS
| Year ending December 31, | ||||
| 2023 (remaining) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total lease payment | ||||
| Less: Imputed interest | ( | ) | ||
| Operating lease obligations | $ |
NOTE 10 – BANK AND OTHER BORROWINGS
In
August 2020, the Company obtained a revolving credit line in the principal amount of RMB
In
November 2021, the Company obtained a bank loan in the principal amount of RMB
In
May 2022, the Company obtained a revolving credit line in the principal amount of RMB
| 15 |
In
May 2022, the Company obtained a loan in the principal amount of RMB
In
May 2022, the Company obtained a bank loan in the principal amount of RMB
In
July 2022, the Company obtained two loans in the principal amount of RMB
In
July 2022, the Company obtained two loans in the principal amount of RMB
In
July 2022, the Company obtained a loan in the principal amount of RMB
In
February 2023, the Company obtained a revolving credit line in the principal amount of RMB
In
April 2023, the Company obtained two bank loans in the principal amount of RMB
In
April 2023, the Company obtained a mortgage loan in the principal amount of RMB
In
May 2023, the Company obtained a revolving credit line in the principal amount of RMB
In July 2023, the Company obtained two bank loans in the principal amount of RMB
In
July 2023, the Company obtained a revolving credit line in the principal amount of RMB
In
July 2023, the Company obtained a revolving credit line in the principal amount of RMB
The balance of the loans borrowed as of September 30, 2023 and December 31, 2022 were as follows:
SCHEDULE OF BALANCE OF LOAN BORROWED UNDER CREDIT LINES
| September 30, 2023 | December 31, 2022 | |||||||
| Loans from a trust in PRC | $ | $ | ||||||
| China Construction Bank | ||||||||
| WeBank | ||||||||
| Guangdong Nanyue Bank | ||||||||
| Bank of Ningbo | ||||||||
| Aggregate outstanding principal balances | ||||||||
| Less: current portion | ||||||||
| Non-current portion | $ | $ | ||||||
The
total interest expense was $
Future minimum loan payments as of September 30, 2023 are as follows:
SCHEDULE OF FUTURE MINIMUM LOAN PAYMENTS
| Year ending December 31, | ||||
| 2023 (remaining) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total | $ |
| 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, 2022 filed with the Securities and Exchange Commission on March 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 nine months ended September 30, 2023, the Company conducted its business in one revenue stream: product sales – liquor, water, water purifier and other F&B products.
Results of Operations
Three months ended September 30, 2023 and 2022
| Three months ended September 30, | ||||||||||||
| 2023 | 2022 | Change | ||||||||||
| Net revenues | $ | 909,719 | $ | 2,915,303 | $ | (2,005,584 | ) | |||||
| Cost of revenues | (593,294 | ) | (1,400,522 | ) | 807,228 | |||||||
| Gross profit | 316,425 | 1,514,781 | (1,198,356 | ) | ||||||||
| Operating expense | (1,538,265 | ) | (487,640 | ) | (1,050,625 | ) | ||||||
| Other income | 7,466 | 2,221 | 5,245 | |||||||||
| Interest income | 14 | 114 | (100 | ) | ||||||||
| Interest expense | (10,290 | ) | (10,388 | ) | 98 | |||||||
| Income taxes benefit (expense) | 1,906 | (108,353 | ) | 110,259 | ||||||||
| Net income (loss) | (1,222,744 | ) | 910,735 | (2,133,479 | ) | |||||||
| Net income (loss) attributable to noncontrolling interests | (114,085 | ) | 54,931 | (169,016 | ) | |||||||
| Net income (loss) attributable to Fortune Valley Treasures, Inc. | $ | (1,108,659 | ) | $ | 855,804 | $ | (1,964,463 | ) | ||||
Nine months ended September 30, 2023 and 2022
| Nine months ended September 30, | ||||||||||||
| 2023 | 2022 | Change | ||||||||||
| Net revenues | $ | 3,817,605 | $ | 6,513,572 | $ | (2,695,967 | ) | |||||
| Cost of revenues | (1,923,459 | ) | (3,018,507 | ) | 1,095,048 | |||||||
| Gross profit | 1,894,146 | 3,495,065 | (1,600,919 | ) | ||||||||
| Operating expense | (3,543,490 | ) | (1,396,667 | ) | (2,146,823 | ) | ||||||
| Other income | 15,676 | 10,423 | 5,253 | |||||||||
| Interest income | 61 | 207 | (146 | ) | ||||||||
| Interest expense | (28,546 | ) | (21,077 | ) | (7,469 | ) | ||||||
| Income taxes expense | (94,596 | ) | (212,274 | ) | 117,678 | |||||||
| Net income (loss) | (1,756,749 | ) | 1,875,677 | (3,632,426 | ) | |||||||
| Net income (loss) attributable to noncontrolling interests | (172,446 | ) | 123,464 | (295,910 | ) | |||||||
| Net income (loss) attributable to Fortune Valley Treasures, Inc. | $ | (1,584,303 | ) | $ | 1,752,213 | $ | (3,336,516 | ) | ||||
| 17 |
Net Revenues
Net revenues were $909,719 for the three months ended September 30, 2023, reflecting a decrease of $2,005,584, or 69%, from $2,915,303 for the three months ended September 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 has lowered the unit sales prices of wine products beginning in April 2023.
Net revenues were $3,817,605 for the nine months ended September 30, 2023, reflecting a decrease of $2,695,967, or 41%, from $6,513,572 for the nine months ended September 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 reflected 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 has lowered the unit sales prices of wine products since April 2023.
Cost of Revenues
Cost of revenues was $593,294 for the three months ended September 30, 2023, reflecting a decrease of $807,228, or 58%, from $1,400,522 for the three months ended September 30, 2022. The decrease in cost of revenues was mainly due to the lower product sales volume in line with our net revenues decrease and to a lesser extent, the lower unit sales prices of wine products, which led to a lesser decrease in cost of revenues comparing to net revenues.
Cost of revenues was $1,923,459 for the nine months ended September 30, 2023, reflecting a decrease of $1,095,048, or 36%, from $3,018,507 for the nine months ended September 30, 2022. The decrease in cost of revenues was due to the lower product sales volume in line with our net revenues decrease.
Gross Profit
Gross profit was $316,425 and $1,514,781 for the three months ended September 30, 2023 and 2022, respectively, reflecting a decrease of $1,198,356, or 79%. The decrease in gross profit was mainly due to the decrease in the net revenues.
Gross profit was $1,894,146 and $3,495,065 for the nine months ended September 30, 2023 and 2022, respectively, reflecting a decrease of $1,600,919, or 46%. The decrease in gross profit was mainly due to the decrease in the net revenues.
Operating Expenses
Operating expenses were $1,538,265 for the three months ended September 30, 2023, reflecting an increase of $1,050,625, or 215%, from $487,640 for the three months ended September 30, 2022. The increase in operating expenses was mainly due to the increase in professional service fees and credit loss expenses.
Operating expenses were $3,543,490 for the nine months ended September 30, 2023, reflecting an increase of $2,146,823, or 154%, from $1,396,667 for the nine months ended September 30, 2022. The increase in operating expenses was mainly due to the increase in professional service fees and credit loss expenses.
Net Income (Loss)
For the three months ended September 30, 2023, our net loss was $1,222,744, compared to a net income of $910,735 for the three months ended September 30, 2022. The decrease in net income was a result of the factors described above.
For the nine months ended September 30, 2023, our net loss was $1,756,749, compared to a net income of $1,875,677 for the nine months ended September 30, 2022. The decrease 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 September 30, 2023 and 2022, the Company recorded a net loss attributable to noncontrolling interests of $114,085 and a net income attributable to noncontrolling interests of $54,931, respectively.
For the nine months ended September 30, 2023 and 2022, the Company recorded a net loss attributable to noncontrolling interests of $172,446 and a net income attributable to noncontrolling interests of $123,464, respectively.
| 18 |
Liquidity and Capital Resources
Working Capital
| September 30, 2023 | December 31, 2022 | Change | ||||||||||
| Total current assets | $ | 5,743,429 | $ | 6,871,091 | $ | (1,127,662 | ) | |||||
| Total current liabilities | 2,671,621 | 2,484,582 | 187,039 | |||||||||
| Working capital | $ | 3,071,808 | $ | 4,386,509 | $ | (1,314,701 | ) | |||||
As of September 30, 2023, we had working capital of $3,071,808, as compared to working capital of $4,386,509 as of December 31, 2022. We had total current assets of $5,743,429, consisting of cash and cash equivalents of $13,276, inventories of $59,239, prepayments and other current assets of $1,367,548, accounts receivable of $4,303,366 compared to total current assets of $6,871,091 as of December 31, 2022. The decrease in total current assets was mainly due to the decrease in accounts receivable, prepayments and other current assets, and cash and cash equivalents. We had current liabilities of $2,671,621, consisting of operating lease obligations - current of $109,191, accounts payable of $683,967, accrued liabilities of $625,189, bank and other borrowing - current of $451,119, customer advances of $71,315, income tax payable of $7,352 and due to related parties of $723,488. The increase in total current liabilities was mainly due to the increase in the accrued liabilities and the amount due to related parties, and offset by the decrease in customer advances and income tax payable.
Our cash and cash equivalents balance decreased to $13,276 as of September 30, 2023, from $165,685 as of December 31, 2022. We estimate the Company currently has sufficient working capital to support its daily operations 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 positive 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, | ||||||||||||
| 2023 | 2022 | Change | ||||||||||
| Cash Flows provided by (used in) Operating Activities | $ | (272,944 | ) | $ | 48,444 | $ | (321,388 | ) | ||||
| Cash Flows used in Investing Activities | (5,488 | ) | - | (5,488 | ) | |||||||
| Cash Flows provided by Financing Activities | 161,355 | 108,002 | 53,353 | |||||||||
| Effect of exchange rate changes | (35,312 | ) | (40,166 | ) | 4,854 | |||||||
| Net Changes in Cash and Cash Equivalents | $ | (152,409 | ) | $ | 116,280 | $ | (268,689 | ) | ||||
Cash Flow from Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2023 was $272,944, as compared to the amount of $48,444 provided by operating activities for the nine months ended September 30, 2022, reflecting a decrease of $321,388. The cash used in operating activities during the nine months ended September 30, 2023 was mainly resulted from the net loss of $1,756,749 and the increase in prepayments and other current assets of $838,488, offset by the allowance for credit losses of $2,175,928.
Cash Flow from Investing Activities
Net cash used in investing activities was $5,488 for the nine months ended September 30, 2023, compared to net cash used in investing activities of $nil for the nine months ended September 30, 2022. The cash used in investing activities during the nine months ended September 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 $161,335 for the nine months ended September 30, 2023, compared to net cash provided by financing activities of $108,002 for the nine months ended September 30, 2022. The cash provided by financing activities for the nine months ended September 30, 2023 was mainly resulted from the net proceeds from revolving credit lines of $141,967.
| 19 |
Critical Accounting Policies and Estimates
The 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 accounting principles generally accepted in the United States. The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported and disclosed in our financial statements and the accompanying notes. Actual results could differ materially from these 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 impairment of intangible assets and goodwill. There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for 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.
Related Party Transactions
As of September 30, 2023 and December 31, 2022, the Company had accounts receivable from related parties in the amounts of $69,746 and $146,087, prepayments to related parties in the amounts of $966,676 and $1,102,861, deposits to related parties in the amounts of $523,296 and $758,445, and accounts payable to related parties in amounts of $124,987 and $80,426, respectively.
As of September 30, 2023 and December 31, 2022, the Company had outstanding payables due to its related parties in the amounts of $723,488 and $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 nine months ended September 30, 2023 and 2022, the Company sold products to its related parties in the amounts of $87,168 and $120,632, respectively, purchased goods from its related parties in the amounts of $497,964 and $769,387, and incurred the costs of revenues from related parties in the amounts of $493,096 and $763,663, respectively.
During the nine months ended September 30, 2023 and 2022, the rental expenses to related parties were $14,046 and $16,132, respectively.
Our related parties are primarily those who are significantly influenced by the Company based on our common business relationships. Refer to Note 7 to the unaudited condensed consolidated financial statements for additional details regarding the related party transactions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide the information under this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of September 30, 2023, that our disclosure controls and procedures were not effective.
The matters involving internal controls and procedures that our management considered to be material weakness under the standards of the Public Company Accounting Oversight Board was lack of well-established procedures to identify, approve and review related party transactions.
| 20 |
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. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
We carried out an assessment, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our internal controls over financial reporting, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of September 30, 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 September 30, 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 plan to test our updated controls and remediate our deficiencies at the end of 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.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| 22 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Fortune Valley Treasures, Inc. | ||
| Date: November 13, 2023 | By: | /s/ Yumin Lin |
| Yumin Lin | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 13, 2023 | By: | /s/ Kaihong Lin |
| Kaihong Lin | ||
| Chief Financial Officer and Treasurer | ||
| (Principal Financial and Accounting Officer) | ||
| 23 |
EXHIBIT 31.1
CERTIFICATION
I, Yumin Lin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fortune Valley Treasures, Inc. (the “Company”) for the quarter ended September 30, 2023;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting or caused such internal control to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 13, 2023 | ||
| By: | /s/ Yumin Lin | |
| Name: | Yumin Lin | |
| Title: | Chief Executive Officer and President (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION
I, Kaihong Lin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fortune Valley Treasures, Inc. (the “Company”) for the quarter ended September 30, 2023;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting or caused such internal control to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting |
| Date: November 13, 2023 | ||
| By: | /s/ Kaihong Lin | |
| Name: | Kaihong Lin | |
| Title: |
Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Fortune Valley Treasures, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: November 13, 2023 | ||
| By: | /s/ Yumin Lin | |
| Name: | Yumin Lin | |
| Title: |
Chief Executive Officer and President (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Fortune Valley Treasures, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
| Date: November 13, 2023 | ||
| By: | /s/ Kaihong Lin | |
| Name: | Kaihong Lin | |
| Title: | Chief Financial Officer and Treasurer | |
| (Principal Financial and Accounting Officer) |