FVTI 10-Q/A
Fortune Valley Treasures, Inc. (FVTI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(
For
the Quarterly Period Ended
For the transition period from ______ to _______
COMMISSION
FILE NO.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices, including zip code)
Registrant’s
telephone 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: 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 registrant 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 15, 2021, there were shares of common stock, par value $0.001 per share, of the registrant issued and outstanding.
TABLE OF CONTENTS
| 2 |
EXPLANATORY NOTE
We are filing this Amendment No. 1 on Form 10-Q/A (“Amended Report”) to amend in its entirety our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, originally filed with the Securities and Exchange Commission on November 23, 2020 (the “Original Report”), to restate our unaudited consolidated financial statements as of and for the period ended September 30, 2020.
Subsequent to our Original Report, the Company determined, after discussion with its independent auditors, that the Company’s previously issued unaudited condensed consolidated financial statements for the quarter ended September 30, 2020 (the “Interim Financial Statements”) should be restated to correct errors in the Interim Financial Statements related to the acquisition of Dongguan Xixingdao Technology Co., Ltd. (“Xixingdao”) completed on August 31, 2020, and therefore the Interim Financial Statements included in the Original Report should no longer be relied upon.
Because these revisions are treated as corrections of errors to our prior period financial results, the revisions are considered to be an “amendment” under U.S. generally accepted accounting principles (“US GAAP”). Accordingly, the revised financial information included in this Amended Report has been identified as “Restated.”
This Amended Report speaks as of the original filing date and reflects the acquisition of Xixingdao complete on August 31, 2020. In addition, pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, as a result of this amendment, the certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, as exhibits to the Original Report have been re-executed and re-filed as of the date of this Amended Report and are included as exhibits hereto.
Items Amended in this Amended Report
The following sections in the Original Report are revised in this Amended Report, solely as a result of, and to reflect, the restatement:
| ● | Part I – Item 1. Financial Information | |
| ● | Part I – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. | |
| ● | Part II – Item 6. Exhibits and Signatures |
Except as stated herein, this Amended Report does not reflect events occurring after the filing of the Original Report on November 23, 2020 and no attempt has been made in this Amended Report to modify or update other disclosures as presented in the Original Report. Accordingly, this Amended Report should be read in conjunction with the Original Report, and the Company’s other filings with the SEC subsequent to the filing of the Original Report.
| 3 |
CAUTIONARY NOTES REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted. These risks and uncertainties include the following:
| ● | the availability and adequacy of working capital to meet our requirements; | |
| ● | the consummation of any potential acquisitions; | |
| ● | actions taken or omitted to be taken by legislative, regulatory, judicial and other governmental authorities; | |
| ● | changes in our business strategy or development plans; | |
| ● | our ability to continue as a going concern; | |
| ● | the availability of additional capital to support capital improvements and development; | |
| ● | our ability to address and as necessary adapt to changes in foreign, cultural, economic, political and financial market conditions which could impair our future operations and financial performance (including, without limitation, the changes resulting from the global COVID-19 outbreak in China and around the world); | |
| ● | other risks identified in this report and in our other filings with the Securities and Exchange Commission (the “SEC”); and | |
| ● | the availability of new business opportunities. |
This quarterly report should be read completely and with the understanding that actual future results may be materially different from what we expect. The forward-looking statements included in this quarterly report are made as of the date of this quarterly report and should be evaluated with consideration of any changes occurring after the date of this quarterly report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Except as otherwise indicated by the context hereof, references in this report to “Company,” “FVTI,” “we,” “us” and “our” are to Fortune Valley Treasures, Inc. and its subsidiaries. All references to “USD” or “U.S. Dollars (US$)” are to the legal currency of the United States of America. All references to “RMB” are to the legal currency of People’s Republic of China.
| 4 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Fortune Valley Treasures, Inc.
Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)
| F-1 |
Fortune Valley Treasures, Inc.
Condensed Consolidated Balance Sheets
At September 30, 2020 and December 31, 2019
(Unaudited)
| September 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
(Restated see Note 14) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts and other receivables, net | ||||||||
| Inventories | ||||||||
| Prepayments and other current assets | ||||||||
| Due from related parties | - | |||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | - | |||||||
| Operating lease right-of-use assets, related parties | ||||||||
| Deposits paid | - | |||||||
| Intangible assets, net | - | |||||||
| Goodwill | - | |||||||
| Total Assets | $ | $ | ||||||
| Liabilities | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Unearned revenues | - | |||||||
| Operating lease obligation - current | - | |||||||
| Operating lease obligations, related parties - current | ||||||||
| Accounts, taxes, other payables, and accruals | ||||||||
| Due to related parties | ||||||||
| Common stock payable | - | |||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Operating lease obligations - non-current | - | |||||||
| Operating lease obligations, related parties - non-current | ||||||||
| Bank borrowing | - | |||||||
| Total Liabilities | ||||||||
| Stockholders’ Deficit | ||||||||
| Common stock (shares authorized, issued and outstanding at September 30, 2020 and December 31, 2019) | ||||||||
| Additional paid in capital | - | - | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total Fortune Valley Treasures, Inc. stockholders’ deficit | ( | ) | ( | ) | ||||
| Non-controlling interests | - | |||||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
See accompanying notes to the unaudited condensed financial statements
| F-2 |
Fortune Valley Treasures, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
For the Three and Nine Months Ended September 30, 2020 and 2019
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | |||||||||||||
(Restated see Note 14) | (Restated see Note 14) | |||||||||||||||
| Revenue from third parties | $ | $ | $ | $ | ||||||||||||
| Revenue from related parties | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and distribution expenses | - | - | ||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses): | ||||||||||||||||
| Other income (expenses) | ( | ) | ||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses), net | ( | ) | ||||||||||||||
| Loss before income tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | - | |||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Less: Net loss attributable to non-controlling interests | ( | ) | - | ( | ) | - | ||||||||||
| Net loss attributable to Fortune Valley Treasures, Inc. | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive income | ||||||||||||||||
| Foreign currency translation gain | ||||||||||||||||
| Total comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: comprehensive loss attributable to non-controlling interests | ( | ) | - | ( | ) | - | ||||||||||
| Comprehensive loss attributable to Fortune Valley Treasures, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per share | ||||||||||||||||
| Basic and diluted loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted weighted average shares outstanding | ||||||||||||||||
See accompanying notes to the unaudited condensed financial statements
| F-3 |
Fortune Valley Treasures, Inc.
Condensed Consolidated Statements of Stockholders’ Deficit
For the Nine Months Ended September 30, 2020 and 2019
(Unaudited)
For Nine Months Ended September 30, 2020
| No. of Shares | Common Stock | Accumulated Deficit | Accumulated Other Comprehensive Income | Non-controlling interest | Total | |||||||||||||||||||
| (Restated see Note 14) | (Restated see Note 14) | (Restated see Note 14) | (Restated see Note 14) | (Restated see Note 14) | (Restated see Note 14) | |||||||||||||||||||
| Balance as of December 31, 2019 | | $ | | $ | ( | ) | $ | $ | - | $ | ( | ) | ||||||||||||
| Net loss | - | - | ( | ) | - | - | ( | ) | ||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ||||||||||||||||||||
| Balance as of March 31, 2020 | $ | $ | ( | ) | $ | $ | $ | ( | ) | |||||||||||||||
| Non-controlling interest arising from acquisition of subsidiary | - | - | - | - | ||||||||||||||||||||
| Net loss | - | - | ( | ) | - | ( | ) | ( | ) | |||||||||||||||
| Foreign currency translation adjustment | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||
| Balance as of June 30, 2020 | $ | $ | ( | ) | $ | $ | $ | ( | ) | |||||||||||||||
| Non-controlling interest arising from acquisition of subsidiary | - | - | - | - | ||||||||||||||||||||
| Net profit | - | - | ( | ) | - | ( | ) | ( | ) | |||||||||||||||
| Foreign currency translation adjustment | - | - | - | |||||||||||||||||||||
| Balance as of September 30, 2020 | $ | $ | ( | ) | $ | $ | $ | ( | ) | |||||||||||||||
For Nine Months Ended September 30, 2019
| No. of Shares | Common Stock | Accumulated Deficit | Accumulated Other Comprehensive Income | Non-controlling Interest | Total | |||||||||||||||||||
| Balance as of December 31 2018 | $ | $ | ( | ) | $ | $ | $ | ( | ) | |||||||||||||||
| Net income | - | - | ( | ) | - | - | ( | ) | ||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ||||||||||||||||||||
| Balance as of September 30, 2019 | $ | $ | ( | ) | $ | $ | $ | ( | ) | |||||||||||||||
See accompanying notes to the unaudited condensed financial statements
| F-4 |
Fortune Valley Treasures, Inc.
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2020 and 2019
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, 2020 | September 30, 2019 | |||||||
(Restated see Note 14) | ||||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustment to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation and amortization expense | ||||||||
| Non-cash lease expense | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivables | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Prepayments and other current assets | ( | ) | ( | ) | ||||
| Accounts and other payables | ||||||||
| Operating lease obligations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Advance to related parties | ( | ) | ||||||
| Repayment of advance to related parties | ||||||||
| Proceeds from acquisition of subsidiary | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Borrowings from related parties | ||||||||
| Repayments to related parties | ( | ) | ||||||
| Proceed from bank borrowings, net | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of foreign currency translation on cash and cash equivalents | ( | ) | ( | ) | ||||
| Net (decrease)/increase of cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents-beginning of period | ||||||||
| Cash and cash equivalents-end of period | $ | $ | ||||||
| Supplementary cash flow information: | ||||||||
| Interest received | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Expense paid by related parties | $ | $ | ||||||
| Shares payable for acquisition of subsidiary | $ | $ | ||||||
Operating lease right-of-use assets obtained in exchange for operating lease obligations | $ | $ | ||||||
See accompanying notes to the unaudited condensed financial statements
| F-5 |
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNICANT ACCOUNTING POLICIES
Fortune Valley Treasures, Inc. (formerly Crypto-Services, Inc., the “Company” or “FVTI”) was incorporated in the State of Nevada on March 21, 2014. The Company is engaged in the business of wholesale distribution and retail sales of alcoholic beverages, including wine and distilled liquors, through its subsidiaries in the People’s Republic of China (“PRC” or “China”).
On April 11, 2018, the Company entered into a share exchange agreement by and among DaXingHuaShang Investment Group Limited, a Republic of Seychelles limited liability company (“DIGLS”), and each of the shareholders of DIGLS, pursuant to which the Company issued shares of common stock in exchange for of the issued shares of DIGLS. This transaction was accounted for 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 historical statement of stockholders’ equity has been retroactively restated to the first period presented.
DIGLS
was incorporated in the Republic of Seychelles on
On
July 13, 2019, FVTI and QHDX entered into an equity interest transfer agreement (the “Makaweng Agreement”), which was later
amended on September 12, 2019, with Xingwen Wang, a shareholder and legal representative of Yunnan Makaweng Wine & Spirits Co., Ltd.
(“Makaweng” or MKW), a PRC limited liability company formed in 2015. Pursuant to the Makaweng Agreement, QHDX agreed to purchase
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 4,862,681 shares of the Company’s common stock. The Company obtained the control of Xixingdao and Xixingdao became the Company’s subsidiary on August 31, 2020. As of September 30, 2020, the shares have not been issued.
| F-6 |
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These condensed consolidated financial statements, accompanying notes, and related disclosures have been prepared pursuant to the rules and regulations of the SEC. These financial statements have been prepared using the accrual basis of accounting in accordance with the generally accepted accounting principles in the United States (“GAAP”). The Company’s fiscal year end is December 31. The Company’s financial statements are presented in U.S. Dollars.
Basis of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. The results of subsidiaries acquired during the respective periods are included in the consolidated statements of operations from the effective date of acquisition or up to the effective date of disposal, as appropriate. The portion of the income or loss applicable to noncontrolling interests in subsidiaries is reflected in the consolidated statements of operations.
As of September 30, 2020, details of the Company’s major subsidiaries were as follows:
| Entity Name | Date of Incorporation | Parent
Entity |
Nature of Operation | Place
of Incorporation | ||||
| FVTI | ||||||||
| DIGLS | ||||||||
| DILHK | ||||||||
| QHDX | ||||||||
| FVTI | ||||||||
| JJGS | ||||||||
| JJHK | ||||||||
| QHDX | ||||||||
| MKW | ||||||||
QHDX |
Use of estimates
The preparation of financial statements is in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results may materially differ from these estimates.
Reclassification
Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position.
Foreign currency translation and re-measurement
The Company translates its results of operations into 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, JJGS, JJHK and DILHK’s functional currency is the U.S. dollar. QHDX, JJSZ, FVTL, MKW, LJRB and Xixingdao 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, and | |
| ● | 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, and | |
| ● | Revenue and expense items at the average rate of exchange prevailing during the period. |
| F-7 |
Adjustments arising from such translations are included in accumulated other comprehensive income in shareholders’ equity.
| September 30, 2020 | December 31, 2019 | |||||||
| Spot RMB: USD exchange rate | $ | $ | ||||||
| Average RMB: USD 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.
Cash and cash equivalents
Cash
and cash equivalents include cash on hand, deposits in banks, and any investments with maturities with less three months from inception
to maturity. The Company’s primary bank deposits are located in the Hong Kong and the PRC. Under the Deposit Insurance System in
China, a company’s deposits at one bank is insured for a maximum of RMB
Accounts receivable
Accounts receivable are carried at the amounts invoiced to customers less allowance for doubtful accounts. The allowance is an estimate based on a review of individual customer accounts on a regular basis. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received.
The Company reviews the collectability of accounts receivable based on an assessment of historical experience, current economic conditions, and other collection indicators.
During the year ended December 31, 2019 and the nine months ended September 30, 2020, the Company did not experience any delinquent or uncollectible balances; accordingly, the Company did not record any valuation allowance for bad debt during these periods.
Inventories
Inventories consisting of finished goods are stated at the lower of cost or market value. The Company used the weighted average cost method of accounting for inventory. Inventories on hand are evaluated on an on-going basis to determine if any items are obsolete, spoiled, or in excess of future demand. The Company provides impairment that is charged directly to cost of sales when it has been determined that the product is obsolete, spoiled, and that the Company will not be able to sell it at a normal profit above its carrying cost. The Company’s primary products are imported alcoholic beverages. The selling price of alcoholic beverages tends to increase over time. However, there are circumstances where alcoholic beverages may be subject to spoilage if stored for prolong periods of time. The Company did not experience an impairment on inventory during the nine months ended September 30, 2020 and 2019.
Right-of-use asset and lease liabilities
In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842).” The new standard requires lessees to recognize lease assets (right of use) and lease obligations (lease liability) for leases previously classified as operating leases under U.S. GAAP on the balance sheet for leases with terms in excess of 12 months. The standard is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years.
Accounting for long-lived assets
The Company annually reviews its long-lived assets for impairment or whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Impairment may be the result of becoming obsolete from a change in the industry or new technologies. Impairment is present if the carrying amount of an asset is less than its undiscounted cash flows to be generated.
If an asset is considered impaired, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
| F-8 |
Customer advances and deposits
On certain occasions, the Company may receive prepayments from downstream retailers or retail customers for wines and liquors prior to their taking possession of the Company’s products. The Company records these receipts as customer advances and deposits until it has met all the criteria for recognition of revenue including the passing possession of the products to its customer, at such point Company will reduce the customer deposits balance and credit the Company’s revenues.
Revenue recognition
The Company adopted ASC Topic 606, Revenue from Contracts with Customers, and all subsequent ASUs that modified ASC 606 on April 1, 2017 using the full retrospective method which requires the Company to present the financial statements for all periods as if Topic 606 had been applied to all prior periods. 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. |
In applying ASC 606, the Company recognizes revenue when the Company has negotiated the terms of the transaction, set forth the sales price, transferred of possession of product to customer, determined that the customer does not have the right to return the product, determined that the customer is able to further sell or transfer the product onto others for economic benefit without any other obligation to be fulfilled by the Company, and the Company is reasonably assured that funds have been or will be collected from the customer. The Company’s gross revenue consists of the value of goods invoiced, net of any value-added tax.
Advertising
All
advertising costs are expensed as incurred. Advertising expenses for the nine months ended September 30, 2020 and 2019 were $
Shipping and handling
Outbound shipping and handling are expensed as incurred.
Retirement benefits
Retirement benefits in the form of mandatory government sponsored defined contribution plans are charged as expenses as incurred or allocated to inventory as a part of overhead.
Income taxes
The Company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future realization is uncertain.
Statutory reserves
Statutory reserves are referring to the amount appropriated from the net income in accordance with laws or regulations, which can be used to recover losses and increase capital, as approved, and are to be used to expand production or operations. PRC laws prescribe that an enterprise operating at a profit must appropriate and reserve, on an annual basis, an amount equal to 10% of its profit. Such an appropriation is necessary until the reserve reaches a maximum that is equal to 50% of the enterprise’s PRC registered capital.
Earnings per share
The Company computes earnings per share (“EPS”) in accordance with ASC Topic 260, “Earnings per share.” Basic EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e. those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
| F-9 |
Financial instruments
The Company’s accounts for financial instruments in accordance to ASC Topic 820, “Fair Value Measurements and Disclosures,” which requires disclosure of the fair value of financial instruments held by the Company and ASC Topic 825, “Financial Instruments,” which defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets; |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
Commitments and contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Comprehensive income
Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Company’s current component of other comprehensive income includes the foreign currency translation adjustment and unrealized gain or loss.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable assets acquired in a business combination. In accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 350, “Goodwill and Other Intangible Assets,” goodwill is no longer subject to amortization. Rather, goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis.
Recent accounting pronouncements
In February 2018, the FASB issued guidance, which eliminates the stranded tax effects in other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 (“TCJA”). Because the amendments only relate to the reclassification of the income tax effects of the TCJA, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The Company adopted the guidance in the first quarter of fiscal year 2020. There was no material impact to its financial statements.
In August 2017, the FASB issued guidance, which amends the existing accounting standards for derivatives and hedging. The amendment improves the financial reporting of hedging relationships to better represent the economic results of an entity’s risk management activities in its financial statements and made certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The Company is required to adopt the guidance in the first quarter of fiscal year 2020. Earlier adoption is permitted. The Company adopted the new guidance. There was no material impact to its financial statements.
On March 17, 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-08 “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” which amends the principal-versus-agent implementation guidance and illustrations in the Board’s new revenue standard (ASU 2014-09). The FASB issued the ASU in response to concerns identified by stakeholders, including those related to (1) determining the appropriate unit of account under the revenue standard’s principal-versus-agent guidance and (2) applying the indicators of whether an entity is a principal or an agent in accordance with the revenue standard’s control principle. Among other things, the ASU clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. As defined in the ASU, a specified good or service is “a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer.” Therefore, for contracts involving more than one specified good or service, the entity may be the principal for one or more specified goods or services and the agent for others. The ASU has the same effective date as the new revenue standard (as amended by the one-year deferral and the early adoption provisions in ASU 2015-14). In addition, entities are required to adopt the ASU by using the same transition method they used to adopt the new revenue standard. The Company has determined that it acts as a principal in its primary business operations.
| F-10 |
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this standard will remove, modify and add certain disclosures under ASC Topic 820, Fair Value Measurement, with the objective of improving disclosure effectiveness. ASU 2018-13 will be effective for the Company’s year beginning January 1, 2020, with early adoption permitted. The transition requirements are dependent upon each amendment within this update and will be applied either prospectively or retrospectively. The Company does not expect ASU 2018-13 to have a material impact to the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The amendments in this Update related to separate financial statements of legal entities that are not subject to tax should be applied on a retrospective basis for all periods presented. The amendments related to changes in ownership of foreign equity method investments or foreign subsidiaries should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The amendments related to franchise taxes that are partially based on income should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other amendments should be applied on a prospective basis. The Company does not expect the adoption of ASU 2019-12 to have a material impact on its condensed consolidated financial statements.
Unless otherwise stated, the Company is currently assessing the above accounting pronouncements and their potential impact from their adoption on the Company’s financial statements.
NOTE 3 - GOING CONCERN
The
accompanying financial statements have been prepared in conformity with GAAP which contemplate continuation of the Company as a going
concern. The going concern basis assumes that assets are realized, and liabilities are settled in the ordinary course of business at
amounts disclosed in the financial statements. The Company’s ability to continue as a going concern depends upon its ability to
market and sell its products to generate positive operating cash flows. As of September 30, 2020 and 2019, the Company reported net losses
of $
The Company relies on related parties to provide financing and management services at cost that may not be the prevailing market rate for such services.
If the Company is not able to generate positive operating cash flows, raise additional capital, and retain the services of certain related parties, it may become insolvent.
NOTE 4 - ACCOUNTS AND OTHER RECEIVABLES
Accounts and other receivables consisted of the following as of September 30, 2020 and December 31, 2019:
September 30, 2020 | December 31, 2019 | |||||||
| Gross accounts and other receivables | $ | $ | ||||||
| Less: Allowance for doubtful accounts | - | - | ||||||
| $ | $ | |||||||
NOTE 5 – INVENTORIES
Inventories consisted of the following as of September 30, 2020 and December 31, 2019:
September 30, 2020 | December 31, 2019 | |||||||
| Finished goods | $ | $ | ||||||
| F-11 |
NOTE 6 - PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following as of September 30, 2020 and December 31, 2019:
September 30, 2020 | December 31, 2019 | |||||||
| At Cost: | ||||||||
| Equipment | $ | $ | ||||||
| Improvements | - | |||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
NOTE 7 – INTANGIBLE ASSETS
Intangible assets and related accumulated amortization were as follows:
September 30, 2020 | December 31, 2019 | |||||||
| At Cost: | ||||||||
| Distributor channel | $ | $ | - | |||||
| Less: Accumulated depreciation | ( | ) | - | |||||
| $ | $ | |||||||
Amortization
expense for the nine months ended September 30, 2020 and 2019 was $
As of September 30, 2020, the future estimated amortization costs for distribution channel are as follows:
| 2020 (remaining of the year) | $ | |||
| 2021 | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Total | $ |
NOTE 8 – BUSINESS COMBINATION AND GOODWILL
On
August 31, 2020, FVTI completed the acquisition of
The determination of fair values involves the use of significant judgment and estimates and in the case of Xixingdao, this is with specific reference to acquired intangible asset. The judgments used to determine the estimated fair value assigned to assets acquired and liabilities assumed, as well as the intangible asset life and the expected future cash flows and related discount rate, can materially impact the Company’s consolidated financial statements. Significant inputs and assumptions used for the model included the amount and timing of expected future cash flows and discount rate. The Company utilized the assistance of a third-party valuation appraiser to determine the fair value as of the date of acquisition.
The purchase price was allocated on the acquisition date of Xixingdao as follows:
| Account and other receivables | $ | |||
| Inventories | ||||
| Other net assets | ( |
) | ||
| Distribution channel | ||||
| Due to related parties | ( |
) | ||
| Noncontrolling interest | ( |
) | ||
| Goodwill | ||||
| Total | $ |
The results of operations, financial position, and cash flows of Xixingdao have been included in the Company’s consolidated financial statements since the date of acquisition. Goodwill arising from this business combination is not tax deductible.
The following unaudited pro forma information presents the combined results of operations for the nine months ended September 30, 2020 and 2019 as if the acquisition of Xixingdao had occurred as of January 1, 2020 and May 31, 2019, the inception date of Xixingdao. These unaudited pro forma results are presented for informational purpose only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the Company consummated the acquisition on January 1, 2020 or May 31, 2019, nor are they indicative of future results of operations:
| For nine months ended September 30, 2020 | For nine months ended September30, 2019 | |||||||
| Pro forma net revenues | $ | $ | ||||||
| Pro forma net loss | ||||||||
| Pro forma net loss attributable to Fortune Valley Treasures, Inc. | ||||||||
The Company’s policy is to perform its annual impairment testing on goodwill for its reporting unit on December 31, of each fiscal year or more frequently if events or changes in circumstances indicate that an impairment may exist.
| F-12 |
NOTE 9 – LONG TERM BORROWINGS
In
August 2020, the Company entered in long term line of credit with China Construction Bank-Dongguan City Branch for an aggregate of
RMB
NOTE 10 - INCOME TAXES
The Company’s primary operations are conducted in the PRC in accordance with the relevant tax laws and regulations. The corporate income tax rate for each country is as follows:
| ● | PRC
tax rate is |
| ● | Hong
Kong tax rate is |
| ● | Seychelles is on permanent tax holiday. |
The following table provides the reconciliation of differences between statutory and effective tax expenses for nine months ended September 30, 2020 and 2019:
| September 30, 2020 | September 30, 2019 | |||||||
| Loss attributed to PRC operations | $ | ( | ) | $ | ( | ) | ||
| Loss attributed to Seychelles and Hong Kong | ( | ) | ||||||
| Loss attributed to U.S. | ( | ) | ( | ) | ||||
| Loss before tax | ( | ) | ( | ) | ||||
| PRC statutory tax at | ( | ) | ( | ) | ||||
| Effect of Seychelles, PRC, Hong Kong, deductions and other reconciling items | ||||||||
| Income tax | $ | $ | ||||||
The difference between the U.S. federal statutory income tax rate and the Company’s effective tax rate was as follows for nine months ended September 30, 2020 and 2019:
| September 30, 2020 | September 30, 2019 | |||||||
| U.S. federal statutory income tax rate | % | % | ||||||
| Higher rates in PRC, net | % | % | ||||||
| Effect of reconciling items | ( | %) | ( | %) | ||||
| The Company’s effective tax rate | ( | %) | % | |||||
| F-13 |
NOTE 11 - RELATED PARTY TRANSACTIONS
Amounts due from related parties as of September 30, 2020 and December 31, 2019 are as follow:
| Relationship with the Company | September 30, 2020 | December 31, 2019 | ||||||||
| Mr. Naiyong Luo | Director of DIGLS | $ | $ | - | ||||||
| Ms. Lihua Li | Mr. Yumin Lin’s wife | |||||||||
| $ | $ | |||||||||
Amounts due to related parties as of September 30, 2020 and December 31, 2019 are as follow:
| Relationship with the Company | September 30, 2020 | December 31, 2019 | ||||||||
| Mr. Yumin Lin | Chairman, Chief Executive Officer, President and Secretary | $ | $ | |||||||
| Ms. Qingmei Lin | Mr. Yumin Lin’s wife | |||||||||
| Mr. Yuwen Li | Vice President | |||||||||
| Hua Hui (Shenzhen) Education Management Ltd. | Mr. Hongwei Ye, manager of a subsidiary, is the supervisor of Hua Hui (Shenzhen) Education Management Ltd. | |||||||||
| Mr. Xingwen Wang | Manager of a subsidiary | |||||||||
| Shenzhen Daxinghuashang Industry Group Co., Ltd. | Mr. Yumin Lin is the supervisor of Shenzhen Daxinghuashang Industry Group Co., Ltd. | - | ||||||||
| $ | $ | |||||||||
Due from related parties mainly consists of funds advanced to related parties as 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 balance is unsecured, non-interest bearing.
The balance with Hua Hui (Shenzhen) Education Management Ltd. bears interest at the rate of
In addition, during the nine months ended September
30, 2020, these related parties paid expenses on the Company’s behalf in an amount of $
NOTE 12 – LEASE COMMITMENTS
Three
of these leases were entered with related parties. The Company has an operating lease agreement with Qingmei Lin, a related party, 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, 2020 and 2019 are as follows:
| Operating lease cost (included in general and administrative expenses in the Company’s consolidated statements of operations) | For the nine
months ended September 30, 2020 | |||
| Related parties | $ | |||
| Non-related parties | ||||
| Total | $ | |||
| Other information for the nine months ended | September 30, 2020 | |||
| 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, 2020 are as follows:
| 2020 | $ | |||
| 2021 | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Thereafter: | ||||
| Total lease payment | ||||
| Less: Imputed interest | ( | ) | ||
| Operating lease obligations | $ |
| F-14 |
NOTE 13 - RISKS
Credit risk
The Company is subject to risk borne from credit extended to customers.
FVTL, MKW, LJRB and QHDX bank deposits are with banks located in the PRC. JJHK’s bank account is located in Hong Kong. DIGLS and JJGS do not have any bank accounts. The bank accounts that the Company uses are located outside of the U.S. and the Company’s bank accounts in China are protected by a deposit insurance system.
Economic and political risks and national emergencies risk
The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by changes in the political, economic, and legal environments in the PRC. As imported alcoholic beverages are considered a luxury item in the PRC, they may be subject to political risks. From time to time, the PRC government limits the amount of import of foreign alcoholic beverages based on diplomatic relationships with foreign countries. The Company’s results of operations may be materially and adversely affected if it is unable to procure such products because of change of government policies.
In addition, the Company’s sales and operations may materially adversely affected by national emergencies, such as COVID-19 pandemic.
Inflation risk
Management monitors changes in prices. Historically inflation has not materially impacted the Company’s financial statements. However, significant increases in the price of wine and liquors that cannot be passed on to the Company’s customers could adversely impact the Company’s results of operations.
Concentrations risk
During the nine months ended September 30, 2020 and the year ended December 31, 2019, the Company had a concentration of risk in its supply of goods, as one vendor supplied all of the Company’s purchases of finished goods.
NOTE 14 – RESTATEMENT
Our interim financial statements for the nine months ended September 30, 2020, as previously filed with the SEC on November 23, 2020, have been restated. The previously filed financial statements did not reflect the acquisition of Xixingdao, completed on August 31, 2020 and the results of Xixingdao from the effective date of acquisition. The impact of this restatement on the Company’s Condensed Consolidated Balance Sheet, Statements of Operations and Comprehensive Loss, and Statement of Cash Flows is reflected in the tables below:
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited）
Previously filed September 30, | Restated September 30, | |||||||||||
| 2020 | Adjustment | 2020 | ||||||||||
| Assets | ||||||||||||
| Current assets | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Accounts and other receivables, net | ||||||||||||
| Inventories | ||||||||||||
| Prepayments and other current assets | ||||||||||||
| Due from related parties | ||||||||||||
| Total current assets | ||||||||||||
| Non-current assets | ||||||||||||
| Property and equipment, net | ||||||||||||
| Operating lease right of use asset | - | |||||||||||
| Operating lease right of use asset, related parties | ||||||||||||
| Deposits paid | - | |||||||||||
| Intangible assets, net | - | |||||||||||
| Goodwill | - | |||||||||||
| Total Assets | $ | $ | $ | |||||||||
| Liabilities | ||||||||||||
| Current liabilities | ||||||||||||
| Accounts payable | $ | $ | $ | |||||||||
| Unearned revenues | ( | ) | ||||||||||
| Operating lease obligation - current | - | |||||||||||
| Operating lease obligation, related parties - current | ||||||||||||
| Accounts, taxes, other payables, and accruals | ||||||||||||
Short term borrowings | 197,934 | (197,934 | ) | - | ||||||||
| Due to related parties | ||||||||||||
| Common stock payable | - | |||||||||||
| Total current liabilities | ||||||||||||
| Non-current liabilities | ||||||||||||
| Operating lease obligation - non-current | - | |||||||||||
| Operating lease obligation, related parties - non-current | ||||||||||||
| Long term borrowings | - | |||||||||||
| Total liabilities | ||||||||||||
| Stockholders’ Deficit | ||||||||||||
| Common stock (3,000,000,000 shares authorized, 307,750,100 issued and outstanding at September 30, 2020 and December 31, 2019) | - | |||||||||||
| Additional paid in capital | - | - | - | |||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
| Accumulated other comprehensive income | ||||||||||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ( | ) | ||||||
| Non-controlling interest | ||||||||||||
| Total Deficit | ( | ) | ( | ) | ||||||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | $ | |||||||||
| F-15 |
CONDENSED CONSOLDIATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited）
For Three Months Ended September 30, 2020
Previously filed Three months ended September 30, | Restated Three months ended September 30, | |||||||||||
| 2020 | Adjustment | 2020 | ||||||||||
| Revenue from third parties | $ | $ | $ | |||||||||
| Revenue from related parties | ||||||||||||
| Cost of revenues | ||||||||||||
| Gross profit | ||||||||||||
| Operating expenses | ||||||||||||
| Selling and distribution expenses | ||||||||||||
| General and administrative expenses | ||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ||||||
| Other income (expenses): | ||||||||||||
| Other income (expenses) | ||||||||||||
| Interest income | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||
| Other income (expenses), net | ||||||||||||
| Income (loss) before income tax | ( | ) | ( | ) | ||||||||
| Income tax | ||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | |||||
| Less: Net income (loss) attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||
| Net income (loss) attributable to Fortune Valley Treasures, Inc. | ( | ) | ( | ) | ||||||||
| Other comprehensive income (loss): | ||||||||||||
| Foreign currency translation gain (loss) | ( | ) | ||||||||||
| Comprehensive loss | (15,788 | ) | (11,407 | ) | (27,195 | ) | ||||||
| Less: Comprehensive loss attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||
| Comprehensive loss attributable to Fortune Valley Treasures, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Loss per share | ||||||||||||
| Basic and diluted loss per share | $ | ( | ) | $ | $ | ( | ) | |||||
| Basic and diluted weighted average shares outstanding | ||||||||||||
| F-16 |
For Nine Months Ended September 30, 2020
Previously filed Nine months | Restated Nine months | |||||||||||
| ended | ended | |||||||||||
| September 30, | September 30, | |||||||||||
| 2020 | Adjustment | 2020 | ||||||||||
| Revenue from third parties | $ | $ | $ | |||||||||
| Revenue from related parties | ||||||||||||
| Cost of revenues | ||||||||||||
| Gross profit | ||||||||||||
| Operating expenses | ||||||||||||
| Selling and distribution expenses | ||||||||||||
| General and administrative expenses | ||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ||||||
| Other income (expenses): | ||||||||||||
| Other income (expenses) | ||||||||||||
| Interest income | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||
| Other income (expenses), net | ||||||||||||
| Loss before income tax | ( | ) | ( | ) | ( | ) | ||||||
| Income tax expense | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Less: Net loss attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||
| Net loss attributable to Fortune Valley Treasures, Inc. | ( | ) | ( | ) | ( | ) | ||||||
| Other comprehensive gain (loss): | ||||||||||||
| Foreign currency translation gain (loss) | ( | ) | ||||||||||
| Comprehensive loss: | (212,482 | ) | (13,832 | ) | (226,314 | ) | ||||||
| Less: Comprehensive loss attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||
| Comprehensive loss attributable to Fortune Valley Treasures, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Loss per share | ||||||||||||
| Basic and diluted loss per share | $ | ( | ) | $ | ( | ) | ||||||
| Basic and diluted weighted average shares outstanding | ||||||||||||
| F-17 |
CONDENSED CONSOLDIATED STATEMENTS OF CASH FLOWS
(Unaudited)
Previously filed Nine months ended | Restated Nine months ended | |||||||||||
| September 30, | September 30, | |||||||||||
| 2020 | Adjustment | 2020 | ||||||||||
| Cash flows from operating activities | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Adjustments to reconcile net income to net cash provided by (used for) operating activities | ||||||||||||
| Depreciation of fixed assets | ||||||||||||
| Non-cash lease expense | ||||||||||||
| Changes in operating assets and liabilities | ||||||||||||
| Accounts and other receivables | ( | ) | ( | ) | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ( | ) | ||||||
| Prepayments and other current assets | ( | ) | ( | ) | ( | ) | ||||||
| Accounts and other payables | ||||||||||||
| Lease liabilities | ( | ) | ( | ) | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash flows from investing activities | ||||||||||||
| Advance to related parties | ( | ) | ( | ) | ||||||||
| Repayment from related parties | ||||||||||||
| Proceeds from acquisition of subsidiary | ||||||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash flows from financing activities | ||||||||||||
| Capital injections from owners | ( | ) | ||||||||||
| Proceeds from short term borrowings | ( | ) | ||||||||||
| Borrowings from related parties | ||||||||||||
| Repayment to related parties | ( | ) | ( | ) | ||||||||
| Proceeds from long term bank borrowings, net | ||||||||||||
| Net cash provided by financing activities | ||||||||||||
| Effect of foreign currency translation on cash and cash equivalents | ( | ) | ( | ) | ||||||||
| Net (decrease)/increase of cash and cash equivalents | ( | ) | ( | ) | ||||||||
| Cash and cash equivalents-beginning of period | ||||||||||||
| Cash and cash equivalents-end of period | $ | $ | $ | |||||||||
| Supplementary cash flow information: | ||||||||||||
| Interest received | $ | $ | $ | |||||||||
| Interest paid | $ | $ | $ | |||||||||
| Income tax paid | $ | $ | $ | |||||||||
| Non-cash investing and financing activities: | ||||||||||||
| Expense paid by related parties | $ | $ | $ | |||||||||
| Shares payable for acquisition of subsidiary | $ | $ | $ | |||||||||
| Operating lease right-of-use assets obtained in exchange for operating lease obligations | $ | $ | $ | |||||||||
NOTE 15 - SUBSEQUENT EVENTS
Company evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date.
There was RMB
| F-18 |
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company 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 are engaged in the retail and wholesale distribution of a wide spectrum of food and beverage products in Guangdong, China. In addition, we are actively seeking quality target companies in the food, beverage and alcohol industries for mergers and acquisition for further development of our company.
Coronavirus (COVID-19) Update
Recently, there is an ongoing outbreak of a novel strain of coronavirus (COVID-19) first identified in China and has since spread rapidly globally. The pandemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities globally for the past few months. In March 2020, the World Health Organization declared the COVID-19 as a pandemic. Given the rapidly expanding nature of the COVID-19 pandemic, and because substantially all of our business operations and our workforce are concentrated in China, our business, results of operations and financial condition have been and will continue to be adversely affected. Potential impact to our results of operations will also depend on future developments and new information that may emerge regarding the duration and severity of the COVID-19 and the actions taken by government authorities and other entities to contain the COVID-19 or mitigate its impact, almost all of which are beyond our control.
The impacts of COVID-19 on our business, financial condition, and results of operations include, but are not limited to, the following:
| ● | We temporarily closed our offices for approximately one month from late January 2020, as required by relevant PRC regulatory authorities. In the first quarter of 2020, the COVID-19 outbreak caused disruptions in our operations and supply chains, which have resulted in delays in the shipment of products to certain of our customers. | |
| ● | Our customers have been negatively impacted by the outbreak, which reduced the demand of our products. The demand may decrease further if the COVID-19 pandemic continues. |
Our operations and supply chains have gradually recovered from the impact of COVID-19 during the three months ended September 30, 2020 due to the effective control of the COVID-19 by the PRC government.
However, we cannot foresee whether any reoccurrence of COVID-19 will be forthcoming in the future. If any reoccurrence of COVID-19 is not effectively and timely controlled, our business operations and financial condition may be materially and adversely affected as a result of the deteriorating market outlook, the slowdown in regional and national economic growth, weakened liquidity and financial condition of our customers or other factors that we cannot foresee. Any of these factors and other factors beyond our control could have an adverse effect on the overall business environment, cause uncertainties in the regions where we conduct business, cause our business to suffer in ways that we cannot predict and materially and adversely impact our business, financial condition and results of operations.
| 5 |
Results of Operations
Three Months Ended September 30, 2020 and 2019
| Three Months Ended September 30, | ||||||||||||
| 2020 | 2019 | Change | ||||||||||
| (Restated) | ||||||||||||
| Revenue | $ | 283,560 | $ | 95,578 | $ | 187,982 | ||||||
| Cost of revenue | (245,504 | ) | (75,795 | ) | (169,709 | ) | ||||||
| Gross profit | 38,056 | 19,783 | 18,273 | |||||||||
| Gross profit (%) | 13 | % | 21 | % | 92 | % | ||||||
| Operating expense | (185,101 | ) | (98,483 | ) | (86,618 | ) | ||||||
| Other income (expense) | 78,525 | (87 | ) | 78,612 | ||||||||
| Interest income (loss) | 16 | 44 | (28 | ) | ||||||||
| Interest expense | (5,221 | ) | (100 | ) | (5,121 | ) | ||||||
| Provision for income taxes | (3,415 | ) | - | (3,415 | ) | |||||||
| Net loss | (77,140 | ) | (78,843 | ) | 1,703 | |||||||
| Net loss attributable to non-controlling interest | (2,518 | ) | - | (2,518 | ) | |||||||
| Net loss attributable to Fortune Valley Treasures, Inc | $ | (74,622 | ) | $ | (78,843 | ) | $ | 4,221 | ||||
Revenue
Revenue was $283,560 for three months ended September 30, 2020, reflecting an increase of $187,982 from $95,578 for the three months ended September 30, 2019. The reason for the increase was that the Company made sales to a handful of new customers which increased our sales volume and the acquisition of Xixingdao.
Cost of revenue
Cost of revenue was $245,504 for the three months ended September 30, 2020, reflecting an increase of $169,709 from $75,795 for the three months ended September 30, 2019. The increase was due to the increase in sales volume and the acquisition of Xixingdao.
Gross profit
Gross profit was $38,056 and $19,783 for the three months ended September 30, 2020 and 2019, respectively, reflecting an increase of $18,273. Gross profit margin decreased to 13% for the three months ended September 30, 2020 from 21% for the corresponding period in 2019. The increase in gross profit was primarily attributable to the increase in revenue as a result of sales to new customers and existing customers’ revenge spending since the business reopening after the COVID-19 lockdown and the significant increase in gross profit margin. The decrease in gross profit margin was primarily due to the decrease in cost per unit resulting from procurement of larger quantities of supplies.
Operating expense
Operating expense was $185,101 for the three months ended September 30, 2020, reflecting an increase of $86,618 from $98,483 for the three months ended September 30, 2019. The increase was due to an increase in professional service fees and the amortization of intangible asset.
Net loss
For the three months ended September 30, 2020, net loss was $77,140 compared to net loss of $78,843 for the three months ended September 30, 2019.
Net loss attributable to noncontrolling interest
For the three months ended September 30, 2020, the Company recorded net loss attributable to noncontrolling interest of $2,518 compared to net loss attributable to noncontrolling interest of $0 for the three months ended September 30, 2019.
Nine Months Ended September 30, 2020 and 2019
Nine Months Ended September 30, | ||||||||||||
| 2020 | 2019 | Change | ||||||||||
| (Restated) | ||||||||||||
| Revenue | $ | 374,787 | $ | 179,534 | $ | 195,253 | ||||||
| Cost of revenue | (299,847 | ) | (137,470 | ) | (162,377 | ) | ||||||
| Gross profit | 74,940 | 42,064 | 32,876 | |||||||||
| Gross profit (%) | 20 | % | 23 | % | 78 | % | ||||||
| Operating expense | (423,593 | ) | (366,050 | ) | (57,543 | ) | ||||||
| Other income(expense) | 80,631 | 2,417 | 78,214 | |||||||||
| Interest income | 96 | 185 | (89 | ) | ||||||||
| Interest expense | (10,201 | ) | (371 | ) | (9,830 | ) | ||||||
| Provision for income taxes | (3,415 | ) | (84 | ) | (3,331 | ) | ||||||
| Net loss | (281,542 | ) | (321,839 | ) | 40,297 | |||||||
| Net loss attributable to noncontrolling interest | (17,187 | ) | - | (17,187 | ) | |||||||
| Net loss attributable to Fortune Valley Treasures, Inc | $ | (264,355 | ) | $ | (321,839 | ) | $ | 57,484 | ||||
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Revenue
Net revenue was $374,787 for nine months ended September 30, 2020, reflecting an increase of $195,253 from $179,534 for the nine months ended September 30, 2019. The reason for the increase in revenue was that the Company made sales of a handful of new customers that led to increased sales volume and the acquisition of Xixingdao.
Cost of revenue
Cost of revenue was $299,847 for the nine months ended September 30, 2020, reflecting an increase of $162,377 from $137,470 for the nine months ended September 30, 2019. The increase was due to an increase in sales volume and the acquisition of Xixingdao.
Gross profit
Gross profit was $74,940 and $42,064 for the nine months ended September 30, 2020 and 2019, respectively. Gross profit margin decreased to 20% for the nine months ended September 30, 2020 from 23% for the corresponding period in 2019. The decrease in gross profit was attributable to the increase in cost of revenue and gross profit margin.
Operating expense
Operating expense was $423,593 for the nine months ended September 30, 2020, reflecting an increase of $57,543 from $366,050 for the nine months ended September 30, 2019. The increase was primarily due to increases in salaries, marketing and general and administrative costs related to mergers and the amortization of intangible asset, as a result of the Company’s limited business activities due to the COVID-19 pandemic.
Net loss
For the nine months ended September 30, 2020, net loss was $281,542 compared to net loss of $321,839 for the nine months ended September 30, 2019.
Net loss attributable to noncontrolling interest
For the nine months ended September 30, 2020, the Company recorded net loss attributable to noncontrolling interest of $17,187 compared to net loss attributable to noncontrolling interest of $0 for the nine months ended September 30, 2019.
Liquidity and Capital Resources
Working Capital
September 30, 2020 | December 31, 2019 | Change | ||||||||||
| (Restated) | ||||||||||||
| Total current assets | $ | 424,327 | $ | 73,970 | $ | 350,357 | ||||||
| Total current liabilities | 11,269,957 | 855,352 | 10,414,605 | |||||||||
| Working capital deficit | $ | (10,845,630 | ) | $ | (781,382 | ) | $ | (10,064,248 | ) | |||
As of September 30, 2020, we had cash and cash equivalents in an amount of $23,097. We have financed our operations primarily though borrowings from related parties. The decrease in working capital deficit was primarily due to a decrease in losses from operations and net cash used in operating activities.
Cash Flows
| Nine Months Ended September 30, | ||||||||||||
| 2020 | 2019 | Change | ||||||||||
(Restated) |
||||||||||||
| Cash Flows Used in Operating Activities | $ | (363,601 | ) | $ | (205,921 | ) | $ | (157,680 |
) | |||
| Cash Flows Used in Investing Activities | (61,111 | ) | - | (61,111 | ) | |||||||
| Cash Flows Provided by Financing Activities | 466,186 | 215,027 | 251,159 | |||||||||
| Effect of change rate changes in cash and cash equivalent | (56,514 | ) | (899 | ) | (55,615 | ) | ||||||
| Net (Decrease)/Increase in Cash During Period | $ | (15,040 | ) | $ | 8,207 | $ | (23,247 | ) | ||||
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Cash Flow from Operating Activities
For the nine months ended September 30, 2020, net cash used in operating activities was $363,601, which represents a $157,680 increase compared to $205,921 net cash used in operating activities for the nine months ended September 30, 2019. The change was primarily due to an increase in accounts payables of $87,045 and amortization of intangible assets of $64,162.
Cash Flow from Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2020 was $61,111 as compared to $0 for the nine months ended September 30, 2019. The increase in net cash used in investing activities was mainly due to certain office renovation and improvements, advanced to related parties.
Cash Flow from Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2020 was $466,186 as compared to $215,027 for the nine months ended September 30, 2019. The increase in net cash provided by financing activities was mainly due to an increase in advanced from related parties and long term bank borrowings.
Critical Accounting Policy and Estimates
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.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Exchange Act, that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
We carried out 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 our disclosure controls and procedures as of September 30, 2020. Based on the evaluation of these disclosure controls and procedures, our management concluded that our disclosure controls and procedures were not effective as of September 30, 2020 due to the following:
| ● | the Board does not currently have a director who qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K; and |
| ● | the Company lacks accounting and finance personnel with technical knowledge in SEC rules and regulations. |
Our management intends to hire additional accounting staff with an appropriate understanding of U.S. GAAP and SEC reporting requirements in 2021. The Company has interviewed and is in the process of engaging a pre-audit firm to help with the closing of its books and the preparation of SEC filings.
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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
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.
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ITEM 6. EXHIBITS
EXHIBIT INDEX
The exhibits listed on the Exhibit Index are provided as part of this report.
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements 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 15, 2021 | ||
| By: | /s/ Yumin Lin | |
| Name: | Yumin Lin | |
| Title: | Chief Executive Officer, President and Secretary | |
| (Principal Executive Officer) | ||
| By: | /s/ Kaihong Lin | |
| Name: | Kaihong Lin | |
| Title: | Chief Financial Officer and Treasurer | |
| (Principal Financial and Accounting Officer) | ||
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