| COMMON STOCK | NOTE
10 – COMMON
STOCK Effective on October 21, 2021, the Company has
approved a reverse stock split of the Company’s authorized and issued and outstanding shares of common stock, par value $ 0.001
a ratio
of 1-for-20 150,000,000 313,098,220
15,655,038
0.001
The
information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year
ended December 31, 2021 filed with the Securities and Exchange Commission on April 1, 2022 (the “Form 10-K”)
and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should
be read together with our financial statements and the notes to the financial statements included elsewhere in this Form 10-Q. The
following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guaranteed
of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking
statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We
strongly encourage investors to carefully read the factors described in our Form 10-K in the section entitled “Risk Factors”
for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements.
We assume no responsibility to update the forward-looking statements contained in this quarterly report on Form 10-Q. The following should
also be read in conjunction with the unaudited Financial Statements and notes thereto that appear elsewhere in this report. Overview Fortune Valley Treasures, Inc. (the “Company,”
“we,” “our” or “us”) was incorporated in the State of Nevada on March 21, 2014. We were initially
incorporated to offer users with up-to-date information on digital currencies. The Company, as a holding company, does not conduct
substantial business operations. We, through our operating subsidiaries, engage in the food supply chain operations and management
via a service platform. Through various acquisitions of high-quality upstream and downstream companies in the industry, the Company
seeks to create 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 three months ended March 31, 2022, the Company conducted its business in one revenue stream: product sales – wine, water
and other F&B products. Results
of Operations Three
Months Ended March 31, 2022 and 2021
Three Months Ended March 31,
2022 2021 Change
Net revenues $ 1,261,810 $ 1,644,160 $ (382,350 )
Cost of revenues (518,462 ) (729,743 ) 211,281
Gross profit 743,348 914,417 (171,069 )
Operating expense (545,441 ) (509,131 ) (36,310 )
Interest income 77 165 (88 )
Other income 6,207 31 6,176
Interest expense (5,825 ) (3,553 ) (2,272 )
Income taxes (22,407 ) (66,355 ) 43,948
Net income 175,959 335,574 (159,615 )
Net income attributable to noncontrolling interests 27,283 30,320 (3,037 )
Net income attributable to Fortune Valley Treasures, Inc. $ 148,676 $ 305,254 $ (156,578 ) Net Revenues Revenue
was $1,261,810 for three months ended March 31, 2022, reflecting a decrease of $382,350 from $1,644,160 for the three months ended
March 31, 2021 as the Company did not generated any revenues from sales of oil during the three months ended March 31, 2022. The Company adjusted its product mix and stopped selling oil from this quarter due to low profits. Cost
of Revenues Cost
of revenue was $518,462 for the three months ended March 31, 2022, reflecting a decrease of $211,281 from $729,743 for the three
months ended March 31, 2021. The cost of revenues fluctuated in line with our net revenues. Gross
Profit Gross profit was $743,348 and $914,417 for the three
months ended March 31, 2022 and 2021, respectively, reflecting a decrease of 171,069, which was mainly attributable to the quarantine
requirement imposed by the local government in response to the sporadic outbreaks of new COVID-19 variants in Dongguan
City during the three months ended March 31, 2022. Operating
Expenses Operating
expense was $545,441 for the three months ended March 31, 2022, reflecting an increase of $36,310, from $509,131
for the three months ended March 31, 2021 due to the increase in professional service fees and employee salary. Net
Income For
the three months ended March 31, 2022, net income was $175,959, compared to net income of $335,574 for the three months
ended March 31, 2021. Net
income attributable to noncontrolling interests The
Company records net income attributable to noncontrolling interests in the condensed consolidated statements of operations for
any noncontrolling interests of consolidated subsidiaries. For
the three months ended March 31, 2022 and 2021, the Company recorded net income attributable to noncontrolling interests of $27,283
and $30,320, respectively. Liquidity
and Capital Resources Working
Capital
March 31, December 31,
2022 2021 Change
Total current assets $ 4,835,666 $ 5,069,481 $ (233,815 )
Total current liabilities 1,404,789 1,717,519 (312,730 )
Working capital $ 3,430,877 $ 3,351,962 $ 78,915 As of March 31, 2022, we had working capital of $3,430,877,
as compared to working capital of $3,351,962 as of December 31, 2021. We had total current assets of $4,835,666, consisting
of cash and cash equivalents of $150,613, inventories of $148,004, prepayments and other current assets of $2,628,902,
accounts receivable of $1,881,892 and amount due from related party of $26,255, compared to total current assets of $5,069,481
as of December 31, 2021. The decrease was mainly due to the decrease in accounts receivable and offset by the increase
in prepayments and other current assets. We had current liabilities of $1,404,789, consisting of operating lease obligations
$142,153, accounts payable of $165,432, customer advances $351,412, due to related parties of $491,016, current portion of bank
and other borrowings of $95,815 and accrued liabilities of $158,961. Our cash and cash equivalents balance
at March 31, 2022 increased to $150,613, as compared to $123,163 at December 31, 2021. 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. 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
Three Months Ended March 31,
2022 2021 Change
Cash Flows provided by (used in) Operating Activities $ 133,442 $ (508,778 ) $ 642,220
Cash Flows provided by Investing Activities - 809,036 (809,036 )
Cash Flows provided by (used in) Financing Activities (95,638 ) 404,405 (500,043 )
Effect of change rate changes in cash and cash equivalents (10,354 ) 9,835 (20,189 )
Net Changes in Cash During
the Period $ 27,450 $ 714,498 $ (687,048 ) Cash
Flow from Operating Activities Net cash provided by
operating activities for the three months ended March 31, 2022 was $133,442, as compared to the amount of $508,778 used in operating
activities for the three months ended March 31, 2021, reflecting an increase of $642,220, which was mainly resulted from
net income of $175,959, depreciation and amortization expense of $224,423, decrease in accounts receivable of $785,262, and offset by increase in the prepayments
and other current assets of $446,876, increase in deposits paid to vendors of $327,389 and decrease in due to related parties in $112,717. Cash
Flow from Investing Activities Net
cash used in investing activities was nil for the three months ended March 31, 2022, compared to net cash provided
by investing activities of $809,036 for the three months ended March 31, 2021. Cash
Flow from Financing Activities Net
cash used in financing activities was $95,638 for the three months ended March 31, 2022, compared to net cash provided by financing
activities of $404,405 for the three months ended March 31, 2021. The decrease in net cash provided by financing
activities was mainly due to the decrease in borrowings from related parties and offset by the decrease in repayments
to related parties. Critical
Accounting Policy In
the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations and
financial condition in the preparation of our financial statements in conformity with U.S. generally accepted accounting principles.
We base our estimates on historical experience, when available, and on other various assumptions that are believed to be reasonable under
the circumstances. Actual results could differ significantly from those estimates under different assumptions and conditions. Revenue
Recognition The
Company follows the guidance of ASC 606, revenue from contracts with customers is recognized using the following five steps:
1. Identify
the contract(s) with a customer;
2. Identify
the performance obligations in the contract;
3. Determine
the transaction price;
4. Allocate
the transaction price to the performance obligations in the contract; and
5. Recognize
revenue when (or as) the entity satisfies a performance obligation. Under
Topic 606, revenues are recognized when the promised products have been confirmed of delivery or services have been transferred to the
consumers in amounts that reflect the consideration the customer expects to be entitled to in exchange for those services. The Company
presents value added taxes (“VAT”) as reductions of revenues. The Company recognizes revenues net of value added taxes (“VAT”)
and relevant charges. 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. Off-Balance
Sheet Arrangements We
do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources
that is material to investors. Related
Party Transactions As of March 31,
2022 and December 31, 2021, the Company had accounts receivable from related parties in amounts of $19,044 and $43,477,
prepayments to related parties in the amounts of $1,731,874 and $1,813,904, deposits to related parties in the amounts of
$1,778,143 and $1,596,075, and accounts payable to related parties in amounts of $29,181 and $17,789, respectively. As of March 31, 2022 and December 31, 2021, the Company had outstanding receivables
due from its related parties in the amounts of $26,255 and $26,364, respectively, which mainly consisted of funds advanced to related
parties as borrowings or funds advances to pay off the Company’s expenses. The balances were unsecured and non-interest bearing. As of March 31, 2022
and December 31, 2021, the Company had outstanding payables due to its related parties in the amounts of $491,016 and $683,981, respectively,
which mainly consisted of borrowings for working capital purpose. The balances were unsecured, non-interest bearing and due on demand. During the three months ended March 31, 2022 and 2021, the Company’s related parties
paid expenses on behalf of the Company in the amounts of nil and $14,487, respectively. During the three months
ended March 31, 2022 and 2021, the Company sold products to its related parties in the amounts of $725 and $268,978, respectively, purchased
goods from its related parties in the amounts of $136,912 and $125,527, and incurred cost of revenues from related parties in the amounts
of $136,912 and $130,600, respectively. During the three months
ended March 31, 2022 and 2021, the rental expenses to related parties were $4,726 and $18,490, 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. 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. 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 March
31, 2022, that our disclosure controls and procedures were not effective. The
matter involving internal controls and procedures that our management considered to be material weaknesses under the standards of the
Public Company Accounting Oversight Board was lack of well-established procedures to identify, approve and review related party
transactions. Management’s
Report on Internal Control over Financial Reporting Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over
financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the
supervision of, the Company’s principal executive and principal financial officers and effected by the board of directors (the
“Board”), management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the
United States (“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. 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 March 31, 2022. 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 March 31, 2022, our internal control over financial reporting was not effective
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted accounting principles. In an effort to remediate the identified material weaknesses
and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
● We have increased our personnel
resources and technical accounting expertise within the accounting function and intend to hire one or more additional personnel for
the function due to turnover.
● We will create a position
to segregate duties consistent with control objectives.
● We plan to prepare written
policies and procedures for operating, accounting and financial reporting to establish a formal process to close our books monthly
on an accrual basis and account for all transactions, including equity and debt transactions.
● We
plan to test our updated controls and remediate our deficiencies in the year 2022. 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. 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 None. None. Not
applicable. None.
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) 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:
May 16, 2022 By: /s/ Yumin
Lin
Yumin Lin
President and Chief Executive Officer
(Principal Executive Officer)
Date:
May 16, 2022 By: /s/ Kaihong
Lin
Kaihong Lin
Chief Financial Officer
(Principal Financial and Accounting Officer) |
