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FVTI Fortune Valley Treasures

Filed: 15 Nov 21, 10:19am

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the Quarterly Period Ended September 30, 2021

 

or

 

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

 

For the transition period from _________ to _________

 

Commission File Number 001-38308

 

Fortune Valley Treasures, Inc.

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

 

Nevada 32-0439333

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

B1601 Dongfang Yinxiang Building,

No. 139 Liansheng Road, Humen Town

Dongguan, Guangdong, China 523000

(Address of principal executive offices, including zip code)

 

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

 

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

 

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

 

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

Yes ☒ No ☐

 

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

Yes ☒ No ☐

 

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

 

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
  Emerging growth company

 

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

 

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

 

Yes ☐ No

 

As of November 15, 2021, there were 15,655,038 shares, par value $0.001, of the registrant’s common stock outstanding.

 

 

 

 
 

 

TABLE OF CONTENTS

 

  Page
   
PART IFINANCIAL INFORMATION3
   
ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:3
   
 Condensed Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 20203
   
 Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)4
   
 Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)5
   
 Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)6
   
 Notes to Condensed Consolidated Financial Statements for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)7
   
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS16
   
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK19
   
ITEM 4.CONTROLS AND PROCEDURES19
   
PART IIOTHER INFORMATION21
   
ITEM 1LEGAL PROCEEDINGS21
   
ITEM 2UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS21
   
ITEM 3DEFAULTS UPON SENIOR SECURITIES21
   
ITEM 4MINE SAFETY DISCLOSURES21
   
ITEM 5OTHER INFORMATION21
   
ITEM 6EXHIBITS21
   
SIGNATURES22

 

2
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements.

 

FORTUNE VALLEY TREASURES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2021 AND DECEMBER 31, 2020

 

  September 30, 2021  December 31, 2020 
  (Unaudited)   
Assets        
Current assets        
Cash and cash equivalents $150,189  $249,837 
Accounts receivable  2,003,170   2,468,038 
Inventories  353,549   144,565 
Prepayments and other current assets  2,352,728   383,808 
Due from related parties  27,025   984,806 
Total current assets  4,886,661   4,231,054 
         
Non-current assets        
Deposits paid  1,883,447   671,921 
Property and equipment, net  149,213   47,815 
Operating lease right-of-use assets  400,415   153,251 
Operating lease right-of-use assets, related parties  100,991   160,013 
Intangible assets, net  2,444,493   3,028,490 
Goodwill  1,386,323   1,368,915 
Total Assets $11,251,543  $9,661,459 
         
Liabilities and Stockholders’ Equity        
Current liabilities        
Operating lease obligations – current $134,589  $67,915 
Operating lease obligations, related parties - current  25,304   160,238 
Accounts payable  321,528   251,541 
Accrued liabilities  121,451   277,531 
Income tax payable  222,183   321,670 
Customer advances  538,829   580,151 
Due to related parties  744,231   337,400 
Total current liabilities  2,108,115   1,996,446 
         
Non-current liabilities        
Operating lease obligations – non-current  258,580   85,764 
Operating lease obligations, related parties – non-current  81,304   93,332 
Bank and other borrowings  224,259   254,266 
Total Liabilities  2,672,258   2,429,808 
         
Stockholders’ Equity        
Common stock (150,000,000 shares authorized, 15,655,038 issued and outstanding as of September 30, 2021 and December 31, 2020)*  

15,655

   15,655 
Additional paid in capital** 11,061,233   11,061,233 
Accumulated deficit  (3,231,700)  (4,341,417)
Accumulated other comprehensive income  394,351   300,265 
Total Fortune Valley Treasures, Inc. stockholders’ equity  8,239,539   7,035,736 
Noncontrolling interests  339,746   195,915 
Total Stockholders’ Equity  8,579,285   7,231,651 
         
Total Liabilities and Stockholders’ Equity $11,251,543  $9,661,459 

 

*Given effect of the Reverse Stock Split, see Note 10.

 

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, 2021 AND 2020

(Unaudited)

 

  2021  2020  2021  2020 
  Three months ended
September 30,
  Nine months ended
September 30,
 
  2021  2020  2021  2020 
     (Restated)     (Restated) 
Revenues from related parties $782  $1,957  $13,046  $1,957 
Revenues from third parties  2,004,608   281,603   5,461,848   372,830 
Net Revenues  2,005,390   283,560   5,474,894   374,787 
                 
Cost of revenues  875,418   245,504   2,402,685   299,847 
Gross profit  1,129,972   38,056   3,072,209   74,940 
                 
Other operating income  -   -   166   - 
                 
Operating expenses:                
Selling and distribution expenses  21,964   1,530   69,122   1,530 
General and administrative expenses  499,928   183,571   1,431,377   422,063 
                 
Operating income (loss)  608,080   (147,045)  1,571,876   (348,653)
                 
Other income (expense):                
Other income  2,309   78,525   2,429   80,631 
Interest income  203   16   851   96 
Interest expense  (4,327)  (5,221)  (13,814)  (10,201)
Other income (expense), net  (1,815)  73,320   (10,534)  70,526 
                 
Income (loss) before income tax  606,265   (73,725)  1,561,342   (278,127)
                 
Income tax expense  156,402   3,415   319,024   3,415 
                 
Net income (loss) $449,863  $(77,140) $1,242,318  $(281,542)
Less: Net income (loss) attributable to noncontrolling interests  59,875   (2,518)  132,601   (17,187)
Net income (loss) attributable to Fortune Valley Treasures, Inc.  389,988   (74,622)  1,109,717   (264,355)
                 
Other comprehensive income:                
Foreign currency translation gain  23,945   49,945   105,316   55,228 
                 
Total comprehensive income (loss)  473,808   (27,195)  1,347,634   (226,314)
Less: comprehensive income (loss) attributable to noncontrolling interests  63,637   (1,864)  143,831   (16,830)
Comprehensive income (loss) attributable to Fortune Valley Treasures, Inc. $410,171  $(25,331) $1,203,803  $(209,484)
                 
Earnings (loss) per share                
Basic and diluted earnings (loss) per share* $0.03  $(0.01) $0.08  $(0.02)
Basic and diluted weighted average shares outstanding*  15,655,038   

15,387,632

   15,655,038   15,387,632 

 

*Given effect of the Reverse Stock Split, See Note 10.

 

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 NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(Unaudited)

 

  Number of
shares
  Amount  Paid-in
Capital
  Comprehensive
Income
  Accumulated
Deficit
  controlling
Interests
  Stockholders’ Equity 
  Common Stock*  Additional  Accumulated
Other
     Non  Total 
  Number of
shares
  Amount  Paid-in
Capital*
  Comprehensive
Income
  Accumulated
Deficit
  controlling
Interests
  Stockholders’ Equity 
Balance as of December 31, 2020*  15,655,038  $15,655  $11,061,233  $300,265  $(4,341,417) $195,915  $7,231,651 
Common stock subscribed amount                            
Noncontrolling interests arising from acquisition of subsidiary                            
Net income  -   -   -   -   305,254   30,320   335,574 
Foreign currency translation adjustment  -   -   -   (6,067)  -   (603)  (6,670)
Balance as of March 31, 2021*  15,655,038  $15,655  $11,061,233  $294,198  $(4,036,163) $225,632  $7,560,555 
Net income  -   -   -   -   414,475   42,406   456,881 
Foreign currency translation adjustment  -   -   -   79,970   -   8,071   88,041 
Balance as of June 30, 2021*  15,655,038  $15,655  $11,061,233  $374,168  $(3,621,688) $276,109  $8,105,477 
Net income  -   -   -   -   389,988   59,875   449,863 
Foreign currency translation adjustment  -   -   -   20,183   -   3,762   23,945 
Balance as of September 30, 2021*  15,655,038  $15,655  $11,061,233  $394,351  $(3,231,700) $339,746  $8,579,285 

 

*Given effect of the Reverse Stock Split, see Note 10.

 

  Common Stock*  Additional  Accumulated
Other
     Non  Total 
  Number of
shares
  Amount  Paid-in
Capital*
  Comprehensive
Income
  Accumulated
Deficit
  controlling
Interests
  Stockholders’ Deficit 
Balance as of December 31, 2019*  15,387,632  $15,388  $

292,362

  $17,599  $(1,085,853) $-  $(760,504)
Net loss  -   -   -   -   (102,568)  -   (102,568)
Foreign currency translation adjustment  -   -   -   7,218   -   -   7,218 
Balance as of March 31, 2020*  15,387,632  $

15,388

  $

292,362

  $24,817  $(1,188,421) $-  $(855,854)
Noncontrolling interests arising from acquisition of subsidiary  -   -   -   -   -   17,042   17,042 
Net loss  -   -   -   -   (87,165)  (14,669)  (101,834)
Foreign currency translation adjustment  -   -   -   (1,638)  -   (297)  (1,935)
Balance as of June 30, 2020*  15,387,632  $15,388  $

292,362

  $23,179  $(1,275,586) $2,076  $(942,581)
Beginning balance, value  15,387,632  $15,388  $292,362  $23,179  $(1,275,586) $2,076  $(942,581)
Noncontrolling interests arising from acquisition of subsidiary (Restated)  -   -   -   -   -   549,033   549,033 
Net loss (Restated)  -   -   -   -   (74,622)  (2,518)  (77,140)
Net income (loss)  -   -   -   -   (74,622)  (2,518)  (77,140)
Foreign currency translation adjustment (Restated)  -   -   -   49,291   -   654   49,945 
Balance as of September 30, 2020* (Restated)  15,387,632  $15,388  $292,362  $72,470  $(1,350,208) $549,245  $(420,743)
Ending balance, value  15,387,632  $15,388  $292,362  $72,470  $(1,350,208) $549,245  $(420,743)

 

*Given effect of the Reverse Stock Split, see Note 10.

 

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, 2021 AND 2020

(Unaudited)

 

  2021  2020 
  Nine months ended September 30, 
  2021  2020 
     (Restated) 
Cash flows from operating activities        
Net income (loss) $1,242,318  $(281,542)
Adjustments to reconcile net income (loss) to net cash used in operating activities:        
Depreciation and amortization expense  638,099   78,629 
Non-cash lease expense  83,211   87,351 
Changes in operating assets and liabilities        
Accounts receivable  494,352   (121,170)
Inventories  (206,348)  (92,804)
Prepayments and other current assets  (1,956,481)  (139,492)
Deposits paid  (1,198,351)  - 
Accounts payable  66,530   87,045 
Customer advances  (48,514)  8,498 
Accrued liabilities  373,916  25,627
Income tax payable  (103,180)  - 
Operating lease obligations  (97,752)  (15,743)
Net cash used in operating activities  (712,200)  (363,601)
         
Cash flows from investing activities        
Repayment of advance to related parties  3,642,059   168 
Advance to related parties  

(3,136,194

)  (12,099)
Purchase of intangible asset  (23,488)  - 
Purchase of property and equipment  (119,446)  (56,852)
Proceeds from acquisition of subsidiary  -   7,672 
Net cash provided by (used in) investing activities  362,931   (61,111)
         
Cash flows from financing activities        
Borrowings from related parties  1,867,770   561,107 
Borrowings from and repayments to bank loans, net  (33,112)  99,981 
Repayments to related parties  

(1,622,380

)  (194,902)
Net cash provided by financing activities  212,278   466,186 
         
Effect of exchange rate changes on cash and cash equivalents  37,343   (56,514)
Net changes in cash and cash equivalents  (99,648)  (15,040)
Cash and cash equivalents–beginning of the period  249,837   38,137 
         
Cash and cash equivalents–end of the period $150,189  $23,097 
         
Supplementary cash flow information:        
Interest paid $13,814  $10,201 
Income taxes paid $446,755  $- 
         
Non-cash investing and financing activities        
Expenses paid by related parties on behalf of the Company $532,912  $277,081 
Remeasurement of operating lease obligation and right-of-use asset due to lease termination $40,888  $- 
Operating lease right-of-use assets obtained in exchange for operating lease obligations $307,550  $172,022 
Shares payable for acquisition of subsidiary $-  $9,773,989 

 

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, 2021 AND 2020

(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 300,000,000 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.

 

On March 1, 2019, the Company entered into a sale and purchase agreement (the “SP Agreement”) to acquire 100% of the shares of Jiujiu Group Stock Co., Ltd. (“JJGS”), a company incorporated under the laws of the Republic of Seychelles. The transaction closed on March 1, 2019. Pursuant to the SP Agreement, the Company issued 100 shares of its common stock to JJGS to acquire 100% of the shares of JJGS for a cost of $150. After the closing, JJGS became the Company’s wholly owned subsidiary. JJGS owns all of the equity interest of Jiujiu (HK) Industry Limited (“JJHK”) and Jiujiu (Shenzhen) Industry Co., Ltd. (“JJSZ”). JJGS and JJHK are holding companies and conduct business through their operating subsidiary, JJSZ, which engages in retail and wholesale distribution of wine products.

 

On June 22, 2020, the Company entered into a sale and purchase agreement along with Qianhai DaXingHuaShang Investment (Shenzhen) Co., Ltd., a company incorporated in China and a wholly-owned subsidiary of FVTI (“QHDX”), to acquire 90% of the shares of Dongguan Xixingdao Technology Co., Ltd. (“Xixingdao”), a company incorporated in the PRC, from certain shareholders of Xixingdao in exchange for 243,134 shares (given effect of the Reverse Stock Split, see Note 10) of the Company’s common stock. The Company obtained the control of Xixingdao and Xixingdao became the Company’s subsidiary on August 31, 2020. The shares were issued on December 28, 2020.

 

On January 6, 2021, FVTI, JJGS, Valley Holding Limited (“Valley Holdings”) and Angel International Investment Holdings Limited (the “Valley Holdings Seller”) signed a termination agreement, pursuant to which the parties mutually agreed to terminate the original equity interest transfer agreement signed on March 16, 2020. On the same date, FVTI, DILHK, Valley Holdings and the Valley Holdings Seller entered into a new equity interest transfer agreement, pursuant to which DILHK agreed to purchase 70% of Valley Holdings’ equity interest (the “Valley Holdings Equity Transfer”) from the Valley Holdings seller in consideration of FVTI’s common shares valued at $12 million (subject to adjustments in the event Valley Holdings’ net profit is more than HK$5 million (approximately US$0.6 million) or less than HK$3 million (approximately US$0.4 million) for the fiscal year ended December 31, 2020). As of the date of this filing, the closing of the Valley Holdings Equity Transfer has not occurred.

 

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

 

7
 

 

Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements as of and for the nine months ended September 30, 2021 and 2020, 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, 2020 was derived from the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, for the year ended December 31, 2020, filed with the SEC on April 26, 2021 (the “report”). These unaudited condensed consolidated financial statements should be read in conjunction with the report.

 

The accompanying financial statements have been prepared in conformity with U.S. GAAP which contemplates continuation of the Company as a going-concern basis. 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. Although the Company has generated a negative operating cash flow of $712,200 during the nine months ended September 30, 2021, it has reported a net income of $1,242,318. In addition, as of September 30, 2021, the Company had a working capital of $2,778,546. The Company’s independent registered public accounting firm expressed in its report on the Company’s financial statements for the year ended December 31, 2020 a substantial doubt about the Company’s ability to continue as a going concern. Based on the Company’s effort in improving its operations and the significant working capital increase as of September 30, 2021, the management believes that the substantial doubt has been alleviated.

 

Basis of consolidation

 

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

 

As of September 30, 2021, details of the Company’s major subsidiaries were as follows:

 SCHEDULE OF ENTITIES AND ITS SUBSIDIARIES

Entity Name Date of Incorporation Parent Entity Nature of Operation Place of Incorporation
DIGLS July 4, 2016 FVTI Investment holding Republic of Seychelles
DILHK June 22, 2016 DIGLS Investment holding Hong Kong, PRC
QHDX November 3, 2016 DILHK Investment holding PRC
FVTL May 31, 2011 QHDX Trading of food and platform PRC
JJGS August 17, 2017 FVTI Investment holding Republic of Seychelles
JJHK August 24, 2017 JJGS Investment holding Hong Kong, PRC
JJSZ November 16, 2018 JJHK Trading of food PRC
Xixingdao August 28, 2019 QHDX Drinking water distribution and delivery PRC
Dongguan City Fu La Tu Trade Ltd (“FLTT”) September 27, 2020 FVTL Trading of alcoholic beverages PRC
Dongguan City Fu Xin Gu Trade Ltd (“FXGT”) December 2, 2020 FVTL Trading of alcoholic beverages PRC
Dongguan City Fu Lai Food Ltd (“FLFL”) September 27, 2020 Xixingdao Drinking water distribution and delivery PRC
Dongguan City Fu Xin Technology Ltd (“FXTL”) November 12, 2020 Xixingdao Drinking water distribution and delivery PRC
Dongguan City Fu Xiang Technology Ltd (“FGTL”) November 16, 2020 Xixingdao Drinking water distribution and delivery PRC
Dongguan City Fu Ji Food & Beverage Ltd (“FJFL”) November 9, 2020 Xixingdao 

Drinking water distribution and delivery

 PRC
Dongguan City Fu Yi Beverage Ltd (“FYDL”) November 12, 2020 Xixingdao Drinking water distribution and delivery PRC
Dongguan City Fu Guan Healthy Industry Technology Ltd (“FGHL”) December 21, 2020 Xixingdao Drinking water distribution and delivery PRC
Dongguan City Fu Jing Technology Ltd (“FJTL”) November 17, 2020 Xixingdao Drinking water distribution and delivery PRC
Dongguan City Fu Sheng Drinking Water Company Ltd (“FSWL”) March 29, 2021 Xixingdao Drinking water distribution and delivery PRC
Dongguan City Fu Jia Drinking Water Company Ltd (“FJWL”) March 29, 2021 Xixingdao Drinking water distribution and delivery 

PRC

Dongguan City Fu Xi Drinking Water Company Ltd (“FXWL”) March 17, 2021 Xixingdao 

Drinking water distribution and delivery

 PRC
Dongguan City Fu Li Trading Ltd (“FLTL”) September 10, 2021 Xixingdao Trading of food, domestic appliance, plastic products PRC
Shenzhen Fu Jin Trading Technology Company Ltd (“FJSTL”) June 7, 2021 Xixingdao Trading of primary agricultural products, household appliances and plastic products; and Software technology development 

PRC

Guangdong Fu Gu Supply Chain Group Ltd (“FGGC”) September 13, 2021 QHDX Providing supply chain management service, and trading of food, domestic appliance, and plastic products 

PRC

 

8
 

 

Use of estimates

 

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

 

Reclassification

 

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

 

Foreign currency translation and re-measurement

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 SCHEDULE OF FOREIGN CURRENCY EXCHANGE RATE TRANSLATION

  As of and for the nine months ended September 30, 
  2021  2020 
Period-end RMB:US$1 exchange rate  0.15512   0.14703 
Period-average RMB:US$1 exchange rate  0.15452   0.14298 

 

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 US dollars at the rates used in translation.

 

9
 

 

Impairment of long-lived assets other than goodwill

 

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

 

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

 

The Company did not recognize any impairment of long-lived assets during the nine months ended September 30, 2021 and 2020.

 

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, 2021, the Company did not record any impairment of goodwill.

 

10
 

 

Revenue recognition

 

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

 

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

 

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

 

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

 

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

 SCHEDULE OF DISAGGREGATION REVENUE

  Three months ended September 30,  Nine months ended September 30, 
  2021  2020  2021  2020 
Sales of wine $639,635  $156,340  $2,036,423  $247,567 
Sales of water  1,099,586   127,220   2,827,732   127,220 
Sales of oil  14   -   217,131   - 
Others  266,155   -   393,608   - 
Total $2,005,390  $283,560  $5,474,894  $374,787 

 

Contract liabilities

 

Contract liabilities consist mainly of customer advances. On certain occasions, the Company may receive prepayments from downstream retailers or wholesales customers for wines, water and other products prior to them taking possession of the Company’s products. The Company records these receipts as customer advances until the control of the products has been transferred the customers. As of September 30, 2021 and December 31, 2020, the Company had customer advances of $538,829 and $580,151, respectively. During the nine months ended September 30, 2021, the Company recognized $353,033 of customer advances in the opening balance.

 

Related party transaction

 

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

 

Recent accounting pronouncements adopted

 

In December 2020, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The ASU removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. On January 1, 2021, the Company adopted ASU 2019-12 on a prospective basis. The adoption did not have a material impact on the Company’s consolidated financial statements.

 

11
 

 

NOTE 2 - ACCOUNTS RECEIVABLE, NET

 

Accounts receivable consisted of the following as of September 30, 2021 and December 31, 2020:

SCHEDULE OF ACCOUNTS RECEIVABLE 

  September 30,
2021
  December 31,
2020
 
Accounts receivable $2,003,170  $2,468,038 
Less: Allowance for doubtful accounts  -   - 
Accounts receivable, net $2,003,170  $2,468,038 

 

NOTE 3 – PREPAYMENTS AND OTHER CURRENT ASSETS

 

Prepayments and other current assets consisted of the following as of September 30, 2021 and December 31, 2020:

SCHEDULE OF PREPAYMENTS AND OTHER CURRENT ASSETS 

  September 30,
2021
  December 31,
2020
 
Prepayments $2,345,959  $376,746 
Other current assets  6,769   7,062 
Total prepayments and other receivables $2,352,728  $383,808 

 

As of September 30, 2021 and December 31, 2020, the balance of $2,345,959 and $376,746, respectively, represented the advanced payments to suppliers.

 

NOTE 4 – PROPERTY AND EQUIPMENT, NET

 

Property and equipment consisted of the following as of September 30, 2021 and December 31, 2020:

 SCHEDULE OF PROPERTY AND EQUIPMENT, NET

  September 30,
2021
  December 31,
2020
 
Office equipment $113,558  $69,158 
Leasehold improvement  125,161   54,146 
Property and equipment  238,719   123,304 
Less: Accumulated depreciation  (89,506)  (75,489)
Property and equipment, net $149,213  $47,815 

 

Depreciation expense, which was included in general and administrative expenses, for the nine months ended September 30, 2021 and 2020 was $14,017 and $14,467, respectively.

 

NOTE 5 – INTANGIBLE ASSETS

 

Intangible assets and related accumulated amortization were as follows:

SCHEDULE OF INTANGIBLE ASSETS 

  September 30,
2021
  December 31,
2020
 
Distributor channel $3,181,312  $3,299,329 
Other  8,138   4,105 
Total intangible assets  3,189,450   3,303,434 
Less: Accumulated amortization  (744,957)  (274,944)
Total $2,444,493  $3,028,490 

 

Amortization expense for the nine months ended September 30, 2021 and 2020 was $624,082 and $64,162, respectively, included in cost of revenues.

 

Other intangible assets mainly consist of internal-used software under development, which is not yet ready for use.

 

As of September 30, 2021, the future estimated amortization costs for distribution channel are as follows:

 SCHEDULE OF FUTURE AMORTIZATION EXPENSE FOR DISTRIBUTION CHANNELS

2021 (remaining) $208,830 
2022  835,321 
2023  835,321 
2024  556,883 
Thereafter  - 
Total $2,436,355 

 

12
 

 

NOTE 6- RELATED PARTY TRANSACTIONS

 

Amounts due from related parties as of September 30, 2021 and December 31, 2020 were as follows:

SCHEDULE OF AMOUNT DUE FROM AND DUE TO RELATED PARTIES 

    September 30,
2021
  December 31,
2020
 
Mr. Yumin Lin President, Chief Executive Officer, Secretary, Director $-  $45,662 
Mr. Kaihong Lin Chief Financial Officer and Treasurer  204   215,973 
Ms. Xiulan Zhou Manager of a subsidiary, Mr. Yumin Lin’s wife  -   360,273 
Mr. Huagen Li Manager of a subsidiary  -   123,456 
Mr. Zhipeng Zuo Manager of a subsidiary  -   133,658 
Mr. Deqin Ke Manager of a subsidiary  26,765   - 
Ms. Shuqin Chen Manager of a subsidiary  -   105,784 
Mr. Hongwei Ye Manager of a subsidiary  56     
    $27,025  $984,806 

 

Amounts due to related parties as of September 30, 2021 and December 31, 2020 were as follows:

 

    September 30,
2021
  December 31,
2020
 
Mr. Yumin Lin President, Chief Executive Officer, Secretary, Director $153,587  $- 
Ms. Huagen Li Manager of a subsidiary  2,482   - 
Ms. Xiulan Zhou Manager of a subsidiary, Mr. Yumin Lin’s wife  1,141   - 
Mr. Yuwen Li Vice President  295,331   292,024 
Ms. Lihua Li Mr. Yuwen Li’s wife  -   677 
Mr. Zihao Ye Manager of a subsidiary  -   12,958 
Mr. Zhipeng Zuo Manager of a subsidiary  3,878   - 
Mr. Weihua Zuo Manager of a subsidiary  -   2,298 
Mr. Deqin Ke Manager of a subsidiary  -   9,274 
Ms. Shuqin Chen Manager of a subsidiary  4,956   - 
Ms. Xiuyun Wang Manager of a subsidiary  5,935   1,483 
Mr. Shengpin Liu Manager of a subsidiary  -   306 
Mr. Aisheng Zhang Manager of a subsidiary  11,944   3,063 
Mr. Zhihua Liao Manager of a subsidiary  4,654   12,254 
Mr. Meng Xue Manager of a subsidiary  776   - 
Mr. Minghua Cheng Director  155,120   - 
Mr. Anping Chen Manager of a subsidiary  3,878   - 
Ms. Chunxiang Zhang Manager of a subsidiary  6,205   - 
Mr. Youliang Ma Manager of a subsidiary  1,551   - 
Shenzhen DaXingHuaShang Industry Development Ltd. Mr. Yumin Lin is the supervisor of Shenzhen DaXingHuaShang Industry Development Ltd.  92,793   3,063 
    $744,231  $337,400 

 

Revenues generated from related parties during the nine months ended September 30, 2021 and 2020 were as follows:

 SCHEDULE OF REVENUE GENERATED FROM RELATED PARTIES

    For the nine months ended
September 30,
 
    2021  2020 
Mr. Kaihong Lin Chief Financial Officer and Treasurer $391  $- 
Mr. Yumin Lin President, Chief Executive Officer, Secretary, Director  302   327 
Ms. Xiulan Zhou Manager of a subsidiary, Mr. Yumin Lin’s wife  52   42 
Mr. Naiyong Luo Manager of a subsidiary  5,742   - 
Mr. Hongwei Ye Manager of a subsidiary, Shareholder  6,451   823 
Mr. Zihao Ye Manager of a subsidiary  108   - 
Mr. Yuwen Li Vice President  -   765 
    $13,046  $1,957 

 

Due from related parties mainly consists of funds advanced to related parties as borrowings or funds advanced to pay off the Company’s expenses. The balances are unsecured, non-interest bearing. During the nine months ended September 30, 2021 and 2020, the Company advanced $3,136,194 and $12,099 to its related parties, and collected $3,642,059 and $168 repayments, respectively.

 

Due to related parties mainly consists of borrowings for working capital purpose, the balances are unsecured, non-interest bearing and due on demand. During the nine months ended September 30, 2021 and 2020, the Company borrowed $1,867,770 and $561,107 from its related parties, and repaid $1,622,380 and $194,902, respectively.

 

In addition, during the nine months ended September 30, 2021 and 2020, the Company’s related parties paid expenses on the Company’s behalf in amounts of $532,912 and $277,081, respectively.

 

13
 

 

NOTE 7 - INCOME TAXES

 

United States of America

 

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

 

Seychelles

 

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

 

Hong Kong

 

From year of assessment of 2018/2019 onwards, Hong Kong profit tax rates are 8.25% on assessable profits up to HK$2,000,000 (approximately $289,855), and 16.5% on any part of assessable profits over HK$2,000,000. For the nine months ended September 30, 2021 and 2020, the Company did not have any assessable profits arising in or derived from Hong Kong, therefore no provision for Hong Kong profits tax was made in the periods reported.

 

The PRC

 

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

 

On January 17, 2019, the State Taxation Administration issued the notice on the scope of small-scale and low-profit corporate income tax preferential policies of the Ministry of Finance and the State Administration of Taxation, [2019] No. 13 for small-scale and low-profit enterprises whose annual taxable income is less than RMB1,000,000 (including RMB1,000,000), approximately $142,209, their income is reduced by 25% to the taxable income, and enterprise income tax is paid at 20% tax rate, which is essentially resulting in a favorable income tax rate of 5%. While for the portion of annual taxable income exceeding RMB1,000,000, approximately $142,209, but not more than RMB3,000,000, approximately $426,627, the income is reduced by 50% to the taxable income, and enterprise income tax is paid at 20% tax rate, which is essentially resulting in a favorable income tax rate of 10%. The qualifications of small-scale and low-profit enterprises were examined annually by the Tax Bureau. All of the Company’s PRC subsidiaries met the criteria of small-scale and low-profit enterprises.

 

The components of the income tax provision are as follows:

 SCHEDULE OF COMPONENTS OF INCOME TAX PROVISION

  Nine Months Ended
September 30, 2021
  Nine Months Ended
September 30, 2020
 
Current:        
– United States of America $154,485  $          - 
– Seychelles  -   - 
– Hong Kong  -   - 
– The PRC  164,539   3,415 
Deferred        
– United States of America  -   - 
– Seychelles  -   - 
– Hong Kong  -   - 
– The PRC  -   - 
Total $319,024  $3,415 

 

The effective tax rate was 20.4% and (1.2)% for the nine months ended September 30, 2021 and 2020, respectively.

 

14
 

 

NOTE 8 - OPERATING LEASES

 

As of September 30, 2021, the Company has sixteen separate operating lease agreements for three office spaces, one warehouse and twelve stores in PRC with remaining lease terms of from 12 months to 67 months.

 

Two of these leases were entered with related parties. The Company has an operating lease agreement with Qingmei Lin, Yumin Lin’s former wife, for the premises in Dongguan City, PRC. The agreement covers the period from January 1, 2019 to April 30, 2027. The monthly rent expense is RMB10,000 (approximately $1,450). The Company has an operating lease agreement with Hongwei Ye, a related party, for the premises in Dongguan City, PRC. The agreement covers the period from September 27, 2020 to September 30, 2023. The monthly rent expense is RMB960 (approximately $139).

 

The Company terminated an operating lease agreement with a subsidiary of Shenzhen DaXingHuaShang Industry Development Ltd., a related party, for the premise in Shenzhen City, PRC on February 28, 2021. The monthly rent expense for this lease was RMB30,000 (approximately $4,349).

 

The components of lease expense and supplemental cash flow information related to leases for the nine months ended September 30, 2021 and 2020 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 consolidated statements of operations) For the nine months ended
September 30,
 
  2021  2020 
       
Related parties $27,944  $85,212 
Non-related parties  79,471   2,139 
Total $107,415  $87,351 

 

Other information for the nine months ended September 30, 2021  September 30, 2020 
Cash paid for amounts included in the measurement of lease obligations $101,203  $11,152 
Weighted average remaining lease term (in years)  3.92   3.91 
Weighted average discount rate  3.23%  3.23%

 

Maturities of the Company’s lease obligations as of September 30, 2021 are as follows:

SCHEDULE OF MATURITIES OF LEASE OBLIGATIONS 

Year ending December 31,   
2021 (remaining) $49,076 
2022  159,387 
2023  108,676 
2024  83,439 
2025  81,311 
Thereafter  53,523 
Total lease payment  535,412 
Less: Imputed interest  (35,635)
Operating lease obligations $499,777 

 

NOTE 9 – BANK AND OTHER BORROWINGS

 

In December 2020, the Company obtained a revolving credit line in the principal amount of RMB750,000 (approximately $115,000) from Huaneng Guicheng Trust Co., Ltd, a financial institution in PRC, which bears interest at the base Loan Prime Rate of 3.85% plus 8.75%. The credit line is guaranteed by Yumin Lin, the Company’s Chief Executive Officer. The maturity date is on December 21, 2022.

 

In August 2020, the Company obtained a revolving credit line in the principal amount of RMB910,000 (approximately $141,000) from China Construction Bank, which bears interest at the base Loan Prime Rate of 3.85% plus 0.4%. The credit line is guaranteed by Xiulan Zhou, a related party, and pledged by her property. The maturity date is on July 21, 2023.

 

The balance of the loans borrowed under these credit lines as of September 30, 2021 and December 31, 2020 was as follows:

 SCHEDULE OF BALANCE OF LOAN BORROWED UNDER CREDIT LINES

  September 30,
2021
  December 31,
2020
 
Loan from a trust in PRC $83,100  $114,879 
China Construction Bank  141,159   139,387 
Total non-current borrowings $224,259  $254,266 

 

The total interest expense was $13,814 and $10,201 for the nine months ended September 30, 2021 and 2020, respectively.

 

NOTE 10 - SUBSEQUENT EVENTS

 

During the subsequent period, the Company advanced a total amount of $70,245 to its related parties, and the related parties repaid the amount of $2,620 to the Company. The remaining balance of due from related party as of the filing date was $26,153.

 

Effective on October 21, 2021, the Company has approved a reverse stock split of the Company’s authorized and issued and outstanding shares of common stock, par value $0.001 per share, at a ratio of 1-for-20 (the “Reverse Stock Split”). As a result of the Reverse Stock Split, the Company’s authorized shares of common stock became 150,000,000 shares. As of September 30, 2020 and immediately prior to the Reverse Stock Split, there were 313,098,220 shares of common stock issued and outstanding. As a result of the Reverse Stock Split, the Company has 15,655,038 shares of common stock issued and outstanding. The par value remains unchanged at $0.001 per share, which resulted in a reclassification of capital from par value to additional paid-in capital in excess of par value. All share and per share data included within the condensed consolidated financial statements and related footnotes have been adjusted to account for the effect of the Reverse Stock Split.

 

15
 

 

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, 2020 filed with the Securities and Exchange Commission on April 26, 2021 (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, 2021, the Company conducted its business in one revenue stream: product sales – wine, water and oil and other F&B products.

 

Results of Operations

 

Three Months Ended September 30, 2021 and 2020

 

  Three Months Ended September 30,    
  2021  2020  Change 
Revenue $2,005,390  $283,560  $1,721,830 
Cost of revenue  (875,418)  (245,504)  (629,914)
Gross profit  1,129,972   38,056   1,091,916 
             
Operating expense  (521,892)  (185,101)  (336,791)
Other income  2,512   78,541   (76,029)
Other expense  (4,327)  (5,221)  894 
Income taxes  (156,402)  (3,415)  (152,987)
Net income (loss)  449,863   (77,140  527,003 
Net income (loss) attributable to noncontrolling interests  59,875   (2,518  62,393 
Net income (loss) attributable to Fortune Valley Treasures, Inc. $389,988  $(74,622 $464,610 

 

 

Nine Months Ended September 30, 2021 and 2020

 

  Nine Months Ended September 30,    
  2021  2020  Change 
Revenue $5,474,894  $374,787  $5,100,107 
Cost of revenue  (2,402,685)  (299,847)  (2,102,838)
Gross profit  3,072,209   74,940   2,997,269 
             
Other operating income  166   -   166 
Operating expense  (1,500,499)  (423,593)  (1,076,906)
Other income  3,280   80,727   (77,447)
Other expense  (13,814)  (10,201)  (3,613)
Income taxes  (319,024)  (3,415)  (315,609)
Net income (loss)  1,242,318   (281,542)  1,523,860 
Net income (loss) attributable to noncontrolling interests  132,601   (17,187)  149,788 
Net income (loss) attributable to Fortune Valley Treasures, Inc. $1,109,717  $(264,355) $1,374,072 

 

16
 

 

Revenue

 

Revenue was $2,005,390 for three months ended September 30, 2021, reflecting an increase of $1,721,830, or 607%, from $283,560 for the three months ended September 30, 2020. The reason for the increase was the Company started generating online sales from WeChat Application named Fu Gu Online in April 2021.

 

Revenue was $5,474,894 for nine months ended September 30, 2021, reflecting an increase of $5,100,107, or 1,361%, from $374,787 for nine months ended September 30, 2020. The reason for the increase was the Company added its water and oil business, which increased our sales volume.

 

Cost of Revenue

 

Cost of revenue was $875,418 for the three months ended September 30, 2021, reflecting an increase of $629,914, or 257%, from $245,504 for the three months ended September 30, 2020.

 

Cost of revenue was $2,402,685 for the nine months ended September 30, 2021, reflecting an increase of $2,102,838, or 701%, from $299,847 for the nine months ended September 30, 2020. The increase in cost of revenue was due to the increase of our revenue.

 

Gross Profit

 

Gross profit was $1,129,972 and $38,056 for the three months ended September 30, 2021 and 2020, respectively, reflecting an increase of $1,091,916, or 2,869%.

 

Gross profit was $3,072,209 and $74,940 for the nine months ended September 30, 2021 and 2020, respectively, reflecting an increase of $2,997,269, or 4,000%. The increase of gross profit was due to the addition of the revenue from our water and oil business, where gross profit was higher.

 

Operating Expenses

 

Operating expense was $521,892 for the three months ended September 30, 2021, reflecting an increase of $336,791 or 182%, from $185,101 for the three months ended September 30, 2020.

 

Operating expense was $1,500,499 for the nine months ended September 30, 2021, reflecting an increase of $1,076,906, or 254%, from $423,593 for the nine months ended September 30, 2020, due to the increase in professional service fees and general administrative costs in connection with the business of bottling and distributing of drinking water in China.

 

Net Income (loss)

 

For the three months ended September 30, 2021, net income was $449,863, compared to net loss $77,140 for the three months ended September 30, 2020.

 

For the nine months ended September 30, 2021, net income was $1,242,318, compared to net loss $281,542 for the nine months ended September 30, 2020. The increase 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 consolidated statements of operations for any noncontrolling interests of consolidated subsidiaries.

 

For the three months ended September 30, 2021 and 2020, the Company recorded net income attributable to a noncontrolling interest of $59,875 and net loss attributable to a noncontrolling interest of $2,518, respectively.

 

For the nine months ended September 30, 2021 and 2020, the Company recorded net income attributable to a noncontrolling interest of $132,601 and net loss attributable to a noncontrolling interest of $17,187, respectively.

 

17
 

 

Liquidity and Capital Resources

 

Working Capital

 

  September 30,  December 31,    
  2021  2020  Change 
Total current assets $4,886,661  $4,231,054  $655,607 
Total current liabilities  2,108,115   1,996,446   111,669 
Working capital $2,778,546  $2,234,608  $543,938 

 

As of September 30, 2021, we had working capital of $2,778,546, as compared to working capital of $2,234,608 as of December 31, 2020. We had total current assets of $4,886,661, consisting of cash on hand of $150,189, Inventory of $353,549, prepayments and other current assets of $2,352,728, accounts receivable of $2,003,170 and amount due from related party of $27,025, compared to total current assets of $4,231,054 as of December 31, 2020. The increase was mainly due to the increase in prepayments and other current assets, offset by the decrease in accounts receivable and due from related parties. We had current liabilities of $2,108,115, consisting of accounts payable of $321,528, customer advances $538,829, income tax payable $222,183, due to related parties of $744,231 and accrued liabilities of $121,451.

 

Although our cash balance at September 30, 2021 decreased to $150,189, as compared to $249,837 at December 31, 2020. We estimate the Company currently has sufficient cash available to meet its anticipated working capital for the next twelve months, without raising additional capital. The Company is continuing to look for different financing opportunities in order to increase sufficient working capital and improve liquidity.

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. During the nine months ended September 30, 2021, the Company had a net income of $1,242,318 and used cash in operations of $712,200 and at September 30, 2021, the Company had a working capital of $2,778,546. The Company’s independent registered public accounting firm expressed in its report on the Company’s financial statement for the year ended December 31, 2020 a substantial doubt about the Company’s ability to continue as a going concern. Based on the Company’s effort in improving its operations and the significant working capital generated as of September 30, 2021, the management believes that the substantial doubt has been alleviated.

 

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

 

Cash Flows

 

  Nine Months Ended September 30,    
  2021  2020  Change 
Cash Flows used in Operating Activities $(712,200) $(363,601) $(348,599)
Cash Flows provided by (used in) Investing Activities  362,931   (61,111)  424,042 
Cash Flows provided by Financing Activities  212,278   466,186   (253,908)
Effect of change rate changes in cash and cash equivalents  37,343   (56,514  93,857 
Net Increase in Cash During the Period $(99,648) $(15,040) $(84,608)

 

Cash Flow from Operating Activities

 

Net cash used in operating activities for the nine months ended September 30, 2021 and 2020 was $712,200 and $363,601, respectively, reflecting an increase of $348,599. The cash used in operating activities in 2021 was mainly resulted from net income of $1,242,318, depreciation and amortization expense of $638,099, increase in the prepayments to vendors of $1,968,481, increase in deposits paid to vendors of $1,198,351 and decrease in accounts receivable of $494,352.

 

Cash Flow from Investing Activities

 

Net cash provided by investing activities was $362,931 for the nine months ended September 30, 2021, compared to net cash used in investing activities of $61,111 for the nine months ended September 30, 2020. The increase in net cash provided by investing activities was mainly due to an increase in repayment from related parties.

 

Cash Flow from Financing Activities

 

Net cash provided by financing activities was $212,278 and $466,186 for the nine months ended September 30, 2021 and 2020, respectively. The increase was mainly due to the increase in advances from related parties and offset by repayments to related parties.

 

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.

 

Refer to Note 1 in the accompanying unaudited condensed consolidated financial statements.

 

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.

 

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Related Party Transactions

 

For the nine months ended September 30, 2021 and 2020, related party revenue totaled $13,046 and $1,957, respectively.

 

Rental expenses to related parties were $27,944 and $85,212 for the nine months ended September 30, 2021 and 2020, respectively.

 

Amounts due from related parties were $27,025 and $984,806 as of September 30, 2021 and December 31, 2020, respectively. The amounts due to related parties were $744,231 and $337,400 as of September 30, 2021 and December 31, 2020, respectively.

 

Our related parties are primarily those persons who can significantly influence based on our common business relationships. Refer to Note 6 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, 2021, that our disclosure controls and procedures were not effective.

 

The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of well-established procedures to identify, approve and review related party transactions; and (2) inadequate design of controls related to business combination transactions accounting given the accounting complexities of business combinations, including, but not limited to, lack of mindset and methods to assess the value of the business prior to acquisition, inadequate process to determine the purchase price, lack of professional understanding to determine when the control of the business acquired is transferred or when the transaction is completed, and inability to make the appropriate disclosure.

 

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 (“U.S. 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.

 

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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, 2021. 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, 2021, our internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:

 

 We have increased our personnel resources and technical accounting expertise within the accounting function and intend to hire one or more additional personnel for the function due to turnover.
   
 We will create a position to segregate duties consistent with control objectives.
   
 We plan to prepare written policies and procedures for operating, accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity and debt transactions.
   
 We plan to test our updated controls and remediate our deficiencies in the year 2021.

 

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, except that we have remediated one of our material weaknesses by establishing an Audit Committee on October 26, 2021, with an independent director, Anthony S. Chan, qualifies as an audit committee financial expert as defined in Item 407(d)(5) of Regulation S-K promulgated under the Exchange Act.

 

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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)

 

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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 15, 2021By:/s/ Yumin Lin
  Yumin Lin
  President and Chief Executive Officer
  (Principal Executive Officer)
   
Date: November 15, 2021By:/s/ Kaihong Lin
  Kaihong Lin
  Chief Financial Officer
  (Principal Financial and Accounting Officer)

 

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