UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the Quarterly Period Ended
or
For the transition period from _________ to _________
Commission
File Number
(Exact name of registrant issuer as specified in its charter)
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
(Registrant’s phone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer | ☐ |
| Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐ No
As of August 14, 2024, there were shares, par value $, of the registrant’s common stock outstanding.
TABLE OF CONTENTS
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
FORTUNE VALLEY TREASURES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2024 AND DECEMBER 31, 2023
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net (including $ | ||||||||
| Inventories | ||||||||
| Prepayments and other current assets, net (including $ | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Deposits paid, net (including $ | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Operating lease right-of-use assets, related parties | ||||||||
| Intangible assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Operating lease obligations – current | $ | $ | ||||||
| Operating lease obligations, related parties - current | ||||||||
| Accounts payable (including $ | ||||||||
| Accrued liabilities | ||||||||
| Bank and other borrowings - current | ||||||||
| Income tax payable | ||||||||
| Customer advances | ||||||||
| Due to related parties | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Operating lease obligations – non-current | ||||||||
| Operating lease obligations, related parties – non-current | ||||||||
| Bank and other borrowings | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock, shares authorized, shares issued and outstanding as of June 30, 2024 and December 31, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit and statutory reserves | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Fortune Valley Treasures, Inc. stockholders’ equity | ||||||||
| Noncontrolling interests | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 3 |
FORTUNE VALLEY TREASURES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(Unaudited)
Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net revenues (including $ | $ | $ | $ | $ | ||||||||||||
| Cost of revenues (including $ | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and distribution expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before income tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Less: Net loss attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to Fortune Valley Treasures, Inc. | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive loss: | ||||||||||||||||
| Foreign currency translation loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: comprehensive loss attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss attributable to Fortune Valley Treasures, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per share | ||||||||||||||||
| Basic and diluted loss per share of common stock | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Basic and diluted weighted average shares outstanding | $ | $ | $ | $ | ||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 4 |
FORTUNE VALLEY TREASURES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(Unaudited)
| Common Stock | Additional | Accumulated Other | Accumulated Deficit and | Non | Total | |||||||||||||||||||||||
Number of shares | Amount | Paid-in Capital | Comprehensive Loss | Statutory Reserves | controlling Interests | Stockholders’ Equity | ||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance as of June 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Common Stock | Additional | Accumulated Other | Accumulated Deficit and | Non | Total | |||||||||||||||||||||||
Number of shares | Amount | Paid-in Capital | Comprehensive Income (Loss) | Statutory Reserves | controlling Interests | Stockholders’ Equity | ||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 5 |
FORTUNE VALLEY TREASURES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(Unaudited)
| Six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Non-cash lease expense | ||||||||
| Allowance for credit losses | ||||||||
| Loss on disposal of intangible asset | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Prepayments and other current assets, net | ||||||||
| Deposits paid, net | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Due to related parties | ||||||||
| Customer advances | ( | ) | ||||||
| Accrued liabilities | ||||||||
| Income tax payable | ( | ) | ( | ) | ||||
| Operating lease obligations | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Acquisition of property and equipment | ( | ) | ||||||
| Acquisition of intangible asset | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Borrowings from and repayments to revolving credit lines, net | ||||||||
| Borrowings from bank loans | ||||||||
| Repayments of bank loans | ( | ) | ( | ) | ||||
| Borrowings from and repayments to third party, net | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | ||||
| Net changes in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents–beginning of the period | ||||||||
| Cash and cash equivalents–end of the period | $ | $ | ||||||
| Supplementary cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing activities | ||||||||
| Operating lease right-of-use assets obtained in exchange for operating lease obligations | $ | $ | ||||||
| Liabilities assumed in connection with purchase of property and equipment | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 6 |
FORTUNE VALLEY TREASURES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fortune Valley Treasures, Inc. (formerly Crypto-Services, Inc.) (“FVTI” or the “Company”) was incorporated in the State of Nevada on March 21, 2014. The Company’s current primary business operations of wholesale distribution and retail sales of alcoholic beverages of wine and distilled liquors, and drinking water distribution and delivery are conducted through its subsidiaries in the People’s Republic of China (“PRC”).
On April 11, 2018, the Company entered into a share exchange agreement by and among DaXingHuaShang Investment Group Limited (“DIGLS”) and its shareholders: 1.) Yumin Lin, 2.) Gaosheng Group Co., Ltd. and 3.) China Kaipeng Group Co., Ltd. whereby the Company newly issued shares of its common stock in exchange for all the outstanding shares in DIGLS. This transaction has been accounted for as a reverse takeover transaction and a recapitalization of the Company whereby the Company, the legal acquirer, is the accounting acquiree, and DIGLS, the legal acquiree, is the accounting acquirer; accordingly, the Company’s historical statement of stockholders’ equity has been retroactively restated to the first period presented.
On
March 1, 2019, the Company entered into a sale and purchase agreement (the “SP Agreement”) to acquire
On
June 22, 2020, the Company entered into a sale and purchase agreement along with Qianhai DaXingHuaShang Investment (Shenzhen) Co., Ltd.,
a company incorporated in China and a wholly-owned subsidiary of FVTI (“QHDX”), to acquire
On June 3, 2024, Mr. Yumin Lin tendered his resignation as a member of the board of directors (the “Board”) and Chief Executive Officer of Fortune Valley Treasures, Inc. (the “Company”) due to personal reasons. The Board accepted the resignation of Mr. Lin. Mr. Lin’s resignation was not the result of any disagreement with the Company, the Company’s management or the Board. Effective June 6, 2024, the Board elected Mr. Yuwen Li to serve as a director and Chairman of the Board. Effective June 6, 2024, the Board appointed Mr. Li as the Chief Executive Officer of the Company. In connection with such appointment, Mr. Li has resigned from other executive positions he previously held with subsidiaries of the Company.
Going concern
The
accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going
concern, which contemplates the realization of assets and fulfillment of obligations in the normal course of business. The realization
of assets and fulfillment of obligations in the normal course of business is dependent on, among other things, the Company’s ability
to generate sufficient cash flows from operations, and the Company’s ability to arrange adequate financing arrangements. As of
June 30, 2024, the Company had a negative working capital of $
The Company requires additional capital within the next six months to fund the continued operations of the Company. In order to support the Company’s operations, the Company plans to take actions to increase revenues and cash inflows by promoting product sales, expanding customer base and making additional efforts in accounts receivable collections, in addition to seeking bank borrowings and funding from shareholders. If the Company is unable to obtain additional equity or debt financing as required, the business operations and prospects of the Company may suffer.
Basis of presentation
The accompanying unaudited condensed consolidated financial statements as of June 30, 2024 and for the six months ended June 30, 2024 and 2023, 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, 2023 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, 2023, filed with the SEC on April 15, 2024 (the “report”). These unaudited condensed consolidated financial statements should be read in conjunction with the report.
Basis of consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. The results of subsidiaries acquired during the respective periods are included in the consolidated statements of operations from the effective date of acquisition or up to the effective date of disposal, as appropriate. The portion of the income or loss applicable to noncontrolling interests in subsidiaries is reflected in the unaudited condensed consolidated statements of operations.
| 7 |
As of June 30, 2024, details of the Company’s major subsidiaries were as follows:
| Entity Name | Date of Incorporation | Parent Entity | % Owned by FVTI | Nature of Operation | Place of Incorporation | |||||||
| FVTI | % | |||||||||||
| DIGLS | % | |||||||||||
| DILHK | % | |||||||||||
| QHDX | % | |||||||||||
| FVTI | % | |||||||||||
| JJGS | % | |||||||||||
| JJHK | % | |||||||||||
| QHDX | % | |||||||||||
| FVTL | % | |||||||||||
| FVTL | % | |||||||||||
| Xixingdao | % | |||||||||||
| Xixingdao | % | |||||||||||
| Xixingdao | % | |||||||||||
| Xixingdao | % | |||||||||||
| Xixingdao | % | |||||||||||
| Xixingdao | % | |||||||||||
| Xixingdao | % | |||||||||||
| Xixingdao | % | |||||||||||
| Xixingdao | % | |||||||||||
| Xixingdao | % | |||||||||||
| Xixingdao | % | |||||||||||
| Xixingdao | % | |||||||||||
| QHDX | % | |||||||||||
| FVTL | % | |||||||||||
| FVTL | % | |||||||||||
| FVTL | % | |||||||||||
| FVTL | % | |||||||||||
| 8 |
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates include certain assumptions related to going concern, allowance of credit losses, allowance of deferred tax asset and uncertain tax position, implicit interest rate of operating leases, useful lives and impairment of long-lived assets, and impairment of goodwill. Actual results may differ from these estimates.
Foreign currency translation and re-measurement
The Company translates its foreign operations to the U.S. dollar in accordance with ASC 830, “Foreign Currency Matters”.
The reporting currency for the Company and its subsidiaries is the U.S. dollar. The Company, DIGLS, DILHK, JJGS and JJHK’s functional currency is the U.S. dollar; QHDX, JJSZ and their subsidiaries which are incorporated in PRC use the Chinese Renminbi (“RMB”) as their functional currency.
The Company’s subsidiaries, whose records are not maintained in that company’s functional currency, re-measure their records into their functional currency as follows:
| ● | Monetary assets and liabilities at exchange rates in effect at the end of each period | |
| ● | Nonmonetary assets and liabilities at historical rates | |
| ● | Revenue and expense items at the average rate of exchange prevailing during the period |
Gains and losses from these re-measurements were not significant and have been included in the Company’s results of operations.
The Company’s subsidiaries, whose functional currency is not the U.S. dollar, translate their records into the U.S. dollar as follows:
| ● | Assets and liabilities at the rate of exchange in effect at the balance sheet date | |
| ● | Equities at the historical rate | |
| ● | Revenue and expense items at the average rate of exchange prevailing during the period |
Translation of amounts from the local currencies of the Company into US$ has been made at the following exchange rates for the respective periods:
| As of and for the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Period-end RMB:US$1 exchange rate | ||||||||
| Period-average RMB:US$1 exchange rate | ||||||||
The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the rates used in translation.
Impairment of long-lived assets other than goodwill
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Impairment may be the result of becoming obsolete from a change in the industry or new technologies. Impairment is present if the carrying amount of an asset is less than its undiscounted cash flows to be generated.
If an asset is considered impaired, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
The Company did not recognize any impairment of long-lived assets during the six months ended June 30, 2024 and 2023.
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 six months ended June 30, 2024 and 2023, the Company did not record any impairment of goodwill.
| 9 |
Revenue recognition
The Company follows the guidance of ASC 606, revenue from contracts with customers is recognized using the following five steps:
| 1. | Identify the contract(s) with a customer; | |
| 2. | Identify the performance obligations in the contract; | |
| 3. | Determine the transaction price; | |
| 4. | Allocate the transaction price to the performance obligations in the contract; and | |
| 5. | Recognize revenue when (or as) the entity satisfies a performance obligation. |
Under Topic 606, revenues are recognized when the promised products have been confirmed of delivery or services have been transferred to the consumers in amounts that reflect the consideration the customer expects to be entitled to in exchange for those services. The Company presents value added taxes (“VAT”) as reductions of revenues. The Company recognizes revenues net of value added taxes (“VAT”) and relevant charges.
We generate revenue primarily from the sales of liquor, water, water purifier and other products directly to agents, wholesalers and end users, with majority of sales transactions were conducted offline. We recognize product revenue at a point in time when the control of the products has been transferred to customers. The transfer of control is considered complete when products have been picked up by or delivered to our customers. We account for shipping and handling fees as a fulfillment cost.
The following table provides information about disaggregated revenue based on revenue by product types:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Sales of liquor | $ | $ | $ | $ | ||||||||||||
| Sales of water | ||||||||||||||||
| Sales of water purifier | ||||||||||||||||
| Others | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Contract liabilities
Contract
liabilities consist mainly of customer advances. On certain occasions, the Company may receive prepayments from downstream retailers
or wholesales customers for liquors, water and other products prior to them taking possession of the Company’s products. The Company
records these receipts as customer advances until the control of the products has been transferred the customers. As of June 30, 2024
and December 31, 2023, the Company had customer advances of $
Related party transaction
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
Recently adopted accounting pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 was further amended in November 2020 by ASU No. 2020-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). As a result, ASC Topic 326, Financial Instruments – Credit Losses is effective for smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU No. 2016-13 on January 1, 2023 and the adoption did not have a material impact on the Company’s unaudited condensed consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC Topic 606, “Revenue from Contracts with Customers”. This ASU is expected to improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The new guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU No. 2021-08 on January 1, 2023 and the adoption did not have a material impact on the Company’s unaudited condensed consolidated financial statements.
| 10 |
NOTE 2 – ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following as of June 30, 2024 and December 31, 2023:
| June 30, 2024 | December 31, 2023 | |||||||
| Accounts receivable (including $ | $ | $ | ||||||
| Less: Doubtful allowance (including $ | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
Allowance for doubtful accounts movement is as follows:
| June 30, 2024 | December 31, 2023 | |||||||
| Beginning balance | $ | $ | ||||||
| Additions to allowance | ||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
NOTE 3 – PREPAYMENTS AND OTHER CURRENT ASSETS, NET
Prepayments and other current assets consisted of the following as of June 30, 2024 and December 31, 2023:
| June 30, 2024 | December 31, 2023 | |||||||
| Prepayments (including $ | $ | $ | ||||||
| Other current assets | ||||||||
| Total prepayments and other current assets | ||||||||
| Less: Allowance for doubtful accounts (including $ | ( | ) | ( | ) | ||||
| Prepayments and other current assets, net | $ | $ | ||||||
Balance of prepayments represented the advanced payments to suppliers including related party suppliers.
Allowance for doubtful accounts movement is as follows:
| June 30, 2024 | December 31, 2023 | |||||||
| Beginning balance | $ | $ | ||||||
| Additions to allowance | ||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
NOTE 4 – DEPOSITS PAID, NET
Deposits paid consisted of the following as of June 30, 2024 and December 31, 2023:
| June 30, 2024 | December 31, 2023 | |||||||
| Deposits paid (including $ | $ | $ | ||||||
| Less: Allowance for doubtful accounts (including $ | ( | ) | ( | ) | ||||
| Deposits paid, net | $ | $ | ||||||
Allowance for doubtful accounts movement is as follows:
| June 30, 2024 | December 31, 2023 | |||||||
| Beginning balance | $ | $ | ||||||
| Additions to allowance | ||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
| 11 |
NOTE 5 – PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following as of June 30, 2024 and December 31, 2023:
| June 30, 2024 | December 31, 2023 | |||||||
| Office equipment (including $ | $ | $ | ||||||
| Leasehold improvement | ||||||||
| Vehicle | ||||||||
| Property and equipment | ||||||||
| Less: Accumulated depreciation (including $ | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense, which was included in general and administrative expenses, for the six months ended June 30, 2024 and 2023 was $
Written
back depreciation expense, which was included in general and administrative expenses, for the six months ended June 30, 2024 and 2023
was $
No gain or loss was recorded for the disposal as the property and equipment was fully depreciated with zero residual value upon disposal and no proceeds were received.
NOTE 6 – INTANGIBLE ASSETS, NET
Intangible assets and related accumulated amortization were as follows:
| June 30, 2024 | December 31, 2023 | |||||||
| Distribution channel | $ | $ | ||||||
| Others | ||||||||
| Total intangible assets | ||||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Less: Accumulated impairment | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
Amortization
expense for the six months ended June 30, 2024 and 2023 was $
As of June 30, 2024, the future estimated amortization costs for intangible assets are as follows:
| Year ending December 31, | ||||
| 2024 (remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total | $ | |||
NOTE 7 - RELATED PARTY TRANSACTIONS
Amounts due to related parties as of June 30, 2024 and December 31, 2023 are as follows:
| June 30, 2024 | December 31, 2023 | |||||||||
| Mr. Yumin Lin | Former President, former Chief Executive Officer, Director and majority shareholder | $ | $ | |||||||
| Ms. Xiulan Zhou | Manager of a subsidiary, Mr. Yumin Lin’s wife | |||||||||
| Mr. Huagen Li | Manager of a subsidiary | |||||||||
| Mr. Guodong Jia | Manager of a subsidiary | |||||||||
| Mr. Hongwei Ye | Manager of a subsidiary, Shareholder | |||||||||
| Mr. Anping Chen | Manager of a subsidiary | |||||||||
| Mr. Jiangwei Jia | Manager of a subsidiary | |||||||||
| Mr. Yuwen Li | President, Chief Executive Officer and Director | |||||||||
| Ms. Lihua Li | Manager of a subsidiary | |||||||||
| Shenzhen DaXingHuaShang Industrial Group Ltd. (fka Shenzhen DaXingHuaShang Industry Development Ltd.) | Mr. Yumin Lin is the supervisor of Shenzhen DaXingHuaShang Industrial Group Ltd. | |||||||||
| Ms. Chunxiang Zhang | Manager of a subsidiary | |||||||||
| Mr. Meng Xue | Manager of a subsidiary | |||||||||
| Ms. Shuqin Chen | Manager of a subsidiary | |||||||||
| Mr. Zhipeng Zuo | Manager of a subsidiary | |||||||||
| Mr. Aisheng Zhang | Manager of a subsidiary | |||||||||
| Mr. Zhihua Liao | Manager of a subsidiary | |||||||||
| Ms. Xiuyun Wang | Manager of a subsidiary | |||||||||
| Mr. Kaihong Lin | Chief Financial Officer | |||||||||
| Mr. Minghua Cheng | Majority shareholder | |||||||||
| $ | $ | |||||||||
| 12 |
Revenues generated from related parties during the six months ended June 30, 2024 and 2023 are as follows:
| Six months ended June 30, | ||||||||||
| 2024 | 2023 | |||||||||
| Mr. Kaihong Lin | Chief Financial Officer and Treasurer | $ | $ | |||||||
| Ms. Xiulan Zhou | Manager of a subsidiary, Mr. Yumin Lin’s wife | |||||||||
| Mr. Hongwei Ye | Manager of a subsidiary, Shareholder | |||||||||
| Dongguan Huanhai Trading Co., Ltd. | Mr. Hongwei Ye, a shareholder of the Company and a manager of a subsidiary, is the controlling shareholder of Dongguan Huanhai Trading Co., Ltd. | |||||||||
| Guangdong Yuexin Jiaotong Construction Co., Ltd. | Mr. Naiyong Luo, a manager of a subsidiary, is the controlling shareholder of Guangdong Yuexin Jiaotong Construction Co., Ltd. | |||||||||
| Dongguan City Hualianguan Chemical Co., Ltd. | Mr. Hongwei Ye, a shareholder of the Company and a manager of a subsidiary, is the controlling shareholder of Dongguan City Hualianguan Chemical Co., Ltd. | |||||||||
| Dongguan Humen Shuiyan Drinking Water Store | Ms. Shuiyan Li, a shareholder of the Company, is the controlling shareholder of Dongguan Humen Shuiyan Drinking Water Store | |||||||||
| Dongguan Zhengui Industry Ltd. | Significantly influenced by the Company | |||||||||
| $ | $ | |||||||||
Cost of revenues from related parties during the six months ended June 30, 2024 and 2023 is as follows:
| Six months ended June 30, | ||||||||||
| 2024 | 2023 | |||||||||
| Dongguan Baxi Food Distribution Co., Ltd. | Significantly influenced by the Company | $ | $ | |||||||
| Dongguan Dalingshan Xinwenhua Drinking Water Store | Significantly influenced by the Company | |||||||||
| Dongguan Pengqin Drinking Water Co., Ltd. | Significantly influenced by the Company | |||||||||
| Dongguan Dengqinghu Drinking Water Store | Significantly influenced by the Company | |||||||||
| Dongguan Tailai Trading Co., Ltd. | Significantly influenced by the Company | |||||||||
| Dongguan Anxiang Technology Co., Ltd. | Significantly influenced by the Company | |||||||||
| Guangdong Jiaduonuo Shengshi Trading Co., Ltd. | Significantly influenced by the Company | |||||||||
| Dongguan Dalingshan Runxin Drinking Water Store | Significantly influenced by the Company | |||||||||
| Dongguan City Yijia Trading Co., Ltd. | Mr. Yongming Li, a shareholder of the Company, is the controlling shareholder of Dongguan City Yijia Trading Co., Ltd. | |||||||||
| $ | $ | |||||||||
Purchases from related parties during the six months ended June 30, 2024 and 2023 are as follows:
| Six months ended June 30, | ||||||||||
| 2024 | 2023 | |||||||||
| Dongguan Baxi Food Distribution Co., Ltd. | Significantly influenced by the Company | $ | $ | |||||||
| Dongguan Dalingshan Xinwenhua Drinking Water Store | Significantly influenced by the Company | |||||||||
| Dongguan Pengqin Drinking Water Co., Ltd. | Significantly influenced by the Company | |||||||||
| Dongguan Dengqinghu Drinking Water Store | Significantly influenced by the Company | |||||||||
| Dongguan Tailai Trading Co., Ltd. | Significantly influenced by the Company | |||||||||
| Dongguan Anxiang Technology Co., Ltd. | Significantly influenced by the Company | |||||||||
| Guangdong Jiaduonuo Shengshi Trading Co., Ltd. | Significantly influenced by the Company | |||||||||
| Dongguan Dalingshan Runxin Drinking Water Store | Significantly influenced by the Company | |||||||||
| Dongguan City Yijia Trading Co., Ltd. | Mr. Yongming Li, a shareholder of the Company, is the controlling shareholder of Dongguan City Yijia Trading Co., Ltd. | |||||||||
| $ | $ | |||||||||
Due to related parties mainly consists of borrowings for working capital purpose, the balances are unsecured, non-interest bearing and due on demand.
Mr. Yuwen Li, the Vice President of the Company, authorized the Company to use trademarks that were owned by him for ten years from October 5, 2019 to October 4, 2029 at no cost.
Also see Note 2, 3, 4, 9 and 10 for more transactions with related parties.
| 13 |
NOTE 8 - INCOME TAXES
United States of America
The
Company is registered in the State of Nevada and is subject to United States of America tax law. The U.S. federal income tax rate is
Seychelles
Under the current laws of the Seychelles, DIGLS and JJGS are registered as an international business company governed by the International Business Companies Act of Seychelles and there is no income tax charged in Seychelles.
Hong Kong
From
year of assessment of 2018/2019 onwards, Hong Kong profit tax rates are
The PRC
The
Company’s subsidiaries are incorporated in the PRC, and are subject to the PRC Enterprise Income Tax Laws (“EIT Laws”)
with the statutory income tax rate of
The components of the income tax provision are as follows:
| Six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Current: | ||||||||
| – United States of America | $ | $ | ||||||
| – Seychelles | ||||||||
| – Hong Kong | ||||||||
| – The PRC | ||||||||
| Deferred | ||||||||
| – United States of America | ||||||||
| – Seychelles | ||||||||
| – Hong Kong | ||||||||
| – The PRC | ||||||||
| Total | $ | $ | ||||||
The
effective tax rate was
| 14 |
NOTE 9 - OPERATING LEASES
As
of June 30, 2024,
Two
of the leases described above were entered with related parties. The operating lease entered with Ms. Qingmei Lin, a related party, is
for the premises in Dongguan City, PRC.
The components of lease expense and supplemental cash flow information related to leases for the six months ended June 30, 2024 and 2023 are as follows:
| Operating lease cost (included in general and administrative expenses in the Company’s unaudited condensed consolidated statements of operations) | Six months ended June 30, | |||||||
| 2024 | 2023 | |||||||
| Related parties | $ | $ | ||||||
| Non-related parties | ||||||||
| Total | $ | $ | ||||||
| Other information for the three months ended | June 30, 2024 | June 30, 2023 | ||||||
| Cash paid for amounts included in the measurement of lease obligations | $ | $ | ||||||
| Weighted average remaining lease term (in years) | ||||||||
| Weighted average discount rate | % | % | ||||||
Maturities of the Company’s lease obligations as of June 30, 2024 are as follows:
| Year ending December 31, | ||||
| 2024 (remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total lease payment | ||||
| Less: Imputed interest | ( | ) | ||
| Operating lease obligations | $ | |||
NOTE 10 – BANK AND OTHER BORROWINGS
In
May 2022, the Company obtained a loan in the principal amount of RMB
In
May 2022, the Company obtained a bank loan in the principal amount of RMB
In
July 2022, the Company obtained two loans in the principal amount of RMB
In
July 2022, the Company obtained two loans in the principal amount of RMB
In
July 2022, the Company obtained a loan in the principal amount of RMB
| 15 |
In
February 2023, the Company obtained a revolving credit line in the principal amount of RMB
In
April 2023, the Company obtained two bank loans in the principal amount of RMB
In
April 2023, the Company obtained a mortgage loan in the principal amount of RMB
In
May 2023, the Company obtained a revolving credit line in the principal amount of RMB
In
July 2023, the Company obtained two bank loans in the principal amount of RMB
In
July 2023, the Company obtained a revolving credit line in the principal amount of RMB
In
July 2023, the Company obtained a revolving credit line in the principal amount of RMB
In
November 2023, the Company obtained a bank loan in the principal amount of RMB
In
January 2024, the Company obtained a bank loan, in the principal amount of RMB
In
February 2024, the Company obtained two bank loans, both in the principal amount of RMB
The balance of the loans borrowed as of June 30, 2024 and December 31, 2023 were as follows:
| June 30, 2024 | December 31, 2023 | |||||||
| Loans from a trust in PRC | $ | $ | ||||||
| China Construction Bank | ||||||||
| Guangdong Nanyue Bank | ||||||||
| WeBank | ||||||||
| Bank of Ningbo | ||||||||
| Aggregate outstanding principal balances | ||||||||
| Less: current portion | ||||||||
| Non-current portion | $ | $ | ||||||
The
total interest expense was $
Future minimum loan payments as of June 30, 2024 are as follows:
| Year ending December 31, | ||||
| 2024 (remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total | $ | |||
NOTE 11 – SUBSEQUENT EVENT
In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before consolidated financial statements are issued, the Company has evaluated all events or transactions that occurred up to August 14, 2024, the date the consolidated financial statements were available to issue. Based upon this evaluation, the Company did not identify any subsequent events that would have required adjustment or disclosure in the consolidated financial statements.
| 16 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on April 15, 2024 (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 six months ended June 30, 2024 and 2023, the Company conducted its business in one revenue stream: product sales – liquor, water, water purifier and other F&B products.
Results of Operations
Three months ended June 30, 2024 and 2023
| Three months ended June 30, | ||||||||||||
| 2024 | 2023 | Change | ||||||||||
| Net revenues | $ | 247,061 | $ | 1,272,597 | $ | (1,025,536 | ) | |||||
| Cost of revenues | (202,785 | ) | (652,798 | ) | 450,013 | |||||||
| Gross profit | 44,276 | 619,799 | (575,523 | ) | ||||||||
| Operating expense | (816,426 | ) | (1,040,588 | ) | 224,162 | |||||||
| Other income | 2,213 | 6,436 | (4,223 | ) | ||||||||
| Interest income | 3 | 16 | (13 | ) | ||||||||
| Interest expense | (7,699 | ) | (8,964 | ) | 1,265 | |||||||
| Income taxes expense | (90 | ) | (21,528 | ) | 21,438 | |||||||
| Net loss | (777,723 | ) | (444,829 | ) | (332,894 | ) | ||||||
| Net loss attributable to noncontrolling interests | (48,247 | ) | (58,004 | ) | 9,757 | |||||||
| Net loss attributable to Fortune Valley Treasures, Inc. | $ | (729,476 | ) | $ | (386,825 | ) | $ | (342,651 | ) | |||
Six months ended June 30, 2024 and 2023
| Six months ended June 30, | ||||||||||||
| 2024 | 2023 | Change | ||||||||||
| Net revenues | $ | 514,883 | $ | 2,907,886 | $ | (2,393,003 | ) | |||||
| Cost of revenues | (415,674 | ) | (1,330,165 | ) | 914,491 | |||||||
| Gross profit | 99,209 | 1,577,721 | (1,478,512 | ) | ||||||||
| Operating expense | (1,864,300 | ) | (2,005,225 | ) | 140,925 | |||||||
| Other income | 5,207 | 8,210 | (3,003 | ) | ||||||||
| Interest income | 33 | 47 | (14 | ) | ||||||||
| Interest expense | (18,543 | ) | (18,256 | ) | (287 | ) | ||||||
| Income taxes expense | (409 | ) | (96,502 | ) | 96,093 | |||||||
| Net loss | (1,778,803 | ) | (534,005 | ) | (1,244,798 | ) | ||||||
| Net loss attributable to noncontrolling interests | (49,796 | ) | (58,361 | ) | 8,565 | |||||||
| Net loss attributable to Fortune Valley Treasures, Inc. | $ | (1,729,007 | ) | $ | (475,644 | ) | $ | (1,253,363 | ) | |||
| 17 |
Net Revenues
Net revenues were $247,061 for the three months ended June 30, 2024, reflecting a decrease of $1,025,536, or 81%, from $1,272,597 for the three months ended June 30, 2023. The decrease in net revenues was mainly due to the lower product sales volume than the same period of the prior year and to a lesser extent, the lower unit sales prices of wine products. The decrease in product sales was resulted from a decline in market demand resulting from the sluggish economic environment and slow recovery in China’s economy as compared to the same period of the prior year. And in order to attract new customers, the Company has lowered the unit sales prices of wine products beginning in April 2023.
Net revenues were $514,883 for the six months ended June 30, 2024, reflecting a decrease of $2,393,003, or 82%, from $2,907,886 for the six months ended June 30, 2023. The decrease in net revenues was mainly due to the lower product sales volume than the same period of the prior year and to a lesser extent, the lower unit sales prices of wine products. The decrease in product sales was resulted from a decline in market demand resulting from the sluggish economic environment and slow recovery in China’s economy as compared to the same period of the prior year. And in order to attract new customers, the Company has lowered the unit sales prices of wine products beginning in April 2023.
Cost of Revenues
Cost of revenues was $202,785 for the three months ended June 30, 2024, reflecting a decrease of $450,13, or 69%, from $652,798 for the three months ended June 30, 2023. The decrease in cost of revenues was mainly due to the lower product sales volume in line with our net revenues decrease and to a lesser extent, the lower unit sales prices of wine products, which led to a lesser decrease in cost of revenues comparing to net revenues.
Cost of revenues was $415,674 for the six months ended June 30, 2024, reflecting a decrease of $914,491, or 69%, from $1,330,165 for the six months ended June 30, 2023. The decrease in cost of revenues was mainly due to the lower product sales volume in line with our net revenues decrease and to a lesser extent, the lower unit sales prices of wine products, which led to a lesser decrease in cost of revenues comparing to net revenues.
Gross Profit
Gross profit was $44,276 and $619,799 for the three months ended June 30, 2024 and 2023, respectively, reflecting a decrease of $575,523, or 93%. The decrease in gross profit was mainly due to the decrease in the net revenues.
Gross profit was $99,209 and $1,577,721 for the six months ended June 30, 2024 and 2023, respectively, reflecting a decrease of $1,478,512, or 94%. The decrease in gross profit was mainly due to the decrease in the net revenues.
Operating Expenses
Operating expenses were $816,426 for the three months ended June 30, 2024, reflecting a decrease of $224,162, or 22%, from $1,040,588 for the three months ended June 30, 2023. The decrease in operating expenses was mainly due to the allowance of credit loss for accounts receivable.
Operating expenses were $1,864,300 for the six months ended June 30, 2024, reflecting a decrease of $140,925, or 7%, from $2,005,225 for the six months ended June 30, 2023. The decrease in operating expenses was mainly due to the allowance of credit loss for accounts receivable.
Net Loss
For the three months ended June 30, 2024, our net loss was $777,723, compared to the net loss of $444,829 for the three months ended June 30, 2023. The increase in net loss was a result of the factors described above.
For the six months ended June 30, 2024, our net loss was $1,778,803, compared to the net loss of $534,005 for the six months ended June 30, 2023. The increase in net loss was a result of the factors described above.
Net Loss Attributable to Noncontrolling Interests
The Company records net loss attributable to noncontrolling interests in the unaudited condensed consolidated statements of operations for any noncontrolling interests of consolidated subsidiaries.
For the three months ended June 30, 2024 and 2023, the Company recorded the net loss attributable to noncontrolling interests of $48,247 and $58,004, respectively.
For the six months ended June 30, 2024 and 2023, the Company recorded the net loss attributable to noncontrolling interests of $49,796 and $58,361, respectively.
Liquidity and Capital Resources
Working Capital
| June 30, 2024 | December 31, 2023 | Change | ||||||||||
| Total current assets | $ | 3,652,437 | $ | 5,083,189 | $ | (1,430,752 | ) | |||||
| Total current liabilities | 4,153,090 | 3,851,925 | 301,165 | |||||||||
| Working capital | $ | (500,653 | ) | $ | 1,231,264 | $ | (1,731,917 | ) | ||||
As of June 30, 2024, we had a negative working capital of $500,653, as compared to working capital of $1,231,264 as of December 31, 2023. We had total current assets of $3,652,437, consisting of cash and cash equivalents of $7,410, inventories of $34,546, prepayments and other current assets of $1,454,869, accounts receivable of $2,155,612 compared to total current assets of $5,083,189 as of December 31, 2023. The decrease in total current assets was mainly due to the decrease in accounts receivable, prepayments and other current assets, and cash and cash equivalents. We had current liabilities of $4,153,090, consisting of operating lease obligations - current of $103,531, accounts payable of $518,058, accrued liabilities of $756,864, bank and other borrowing - current of $420,636, customer advances of $1,338,274 and due to related parties of $1,015,727. The decrease in total current liabilities was mainly due to the decrease in the accounts payable and customer advances.
| 18 |
Our cash and cash equivalents balance decreased to $7,410 as of June 30, 2024, from $288,255 as of December 31, 2023. We estimate the Company currently has insufficient working capital to support its daily operations for the next twelve months, without raising additional capital. The Company is continuing to look for different financing opportunities in order to increase working capital and improve liquidity, including bank borrowings and additional funding from major shareholders. We intend to commence new promotion plans to increase product sales and expand customer base and make additional efforts in accounts receivable collections. If we are unable to generate sufficient profits from operations or obtain additional equity or debt financing as required, there could be substantial uncertainty regarding our ability to continue as a going concern.
No assurance can be given that any future financing 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, 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
| Six months ended June 30, | ||||||||||||
| 2024 | 2023 | Change | ||||||||||
| Cash Flows used in Operating Activities | $ | (274,805 | ) | $ | (85,816 | ) | $ | (188,989 | ) | |||
| Cash Flows used in Investing Activities | - | (5,488 | ) | 5,488 | ||||||||
| Cash Flows (used in) provided by Financing Activities | (130 | ) | 42,802 | (42,932 | ) | |||||||
| Effect of exchange rate changes | (5,910 | ) | (41,233 | ) | 35,323 | |||||||
| Net Changes in Cash and Cash Equivalents | $ | (280,845 | ) | $ | (89,735 | ) | $ | (191,110 | ) | |||
Cash Flow from Operating Activities
Net cash used in operating activities for the six months ended June 30, 2024 was $274,805, as compared to the amount of $85,816 provided by operating activities for the six months ended June 30, 2023, reflecting an increase of $188,989 in cash outflows. Such increase was mainly resulted from the net loss for the period and the allowance of credit loss for accounts receivables.
Cash Flow from Investing Activities
Net cash used in investing activities was $nil for the six months ended June 30, 2024, compared to net cash used in investing activities of $5,488 for the t six months ended June 30, 2023. Such decrease was mainly resulted from no purchase of property and equipment in 2024.
Cash Flow from Financing Activities
Net cash used in financing activities was $130 for the six months ended June 30, 2024, compared to net cash provided by financing activities of $42,802 for the six months ended June 30, 2023. Such decrease was mainly resulted from the higher repayment to bank loan during the periods ended June 30, 2024 than 2023.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States. The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported and disclosed in our financial statements and the accompanying notes. Actual results could differ materially from these estimates under different assumptions or conditions. We identified no critical accounting estimates in the current period.
As described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, we consider our critical accounting policies to be those related to revenue recognition, allowance of doubtful accounts and impairment of intangible assets and goodwill. There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
| 19 |
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 June 30, 2024 and December 31, 2023, the Company had accounts receivable from related parties in the amounts of $33,043 and $61,113, prepayments to related parties in the amounts of $806,932 and $941,978, deposits to related parties in the amounts of $523,886 and $536,450, and accounts payable to related parties in amounts of $187,954 and $162,310, respectively.
As of June 30, 2024 and December 31, 2023, the Company had outstanding payables due to its related parties in the amounts of $1,015,727 and $680,226, respectively, which mainly consisted of borrowings for working capital purpose. The balances were unsecured, non-interest bearing and due on demand.
During the six months ended June 30, 2024 and 2023, the Company sold products to its related parties in the amounts of $9,751 and $69,598, respectively, purchased goods from its related parties in the amounts of $167,351 and $374,686, and incurred the costs of revenues from related parties in the amounts of $167,351 and $362,096, respectively.
During the six months ended June 30, 2024 and 2023, the rental expenses to related parties were $8,918 and $9,501, respectively.
Our related parties are primarily those who are significantly influenced by the Company based on our common business relationships. Refer to Note 7 to the unaudited condensed consolidated financial statements for additional details regarding the related party transactions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide the information under this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of June 30, 2024, that our disclosure controls and procedures were not effective.
The matters involving internal controls and procedures that our management considered to be material weakness under the standards of the Public Company Accounting Oversight Board was lack of well-established procedures to identify, approve and review related party transactions.
| 20 |
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the board of directors (the “Board”), management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States (“GAAP”) and includes those policies and procedures that:
| ● | Apply to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; | |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and | |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
We carried out an assessment, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our internal controls over financial reporting, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of June 30, 2024. 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 June 30, 2024, our internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
| ● | We have increased our personnel resources and technical accounting expertise within the accounting function and intend to hire one or more additional personnel for the function due to turnover. | |
| ● | We plan to test our updated controls and remediate our deficiencies at the end of 2024. |
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during the period covered by this Report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
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: August 14, 2024 | By: | /s/ Yuwen Li |
| Yuwen Li | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: August 14, 2024 | By: | /s/ Kaihong Lin |
| Kaihong Lin | ||
| Chief Financial Officer and Treasurer | ||
| (Principal Financial and Accounting Officer) | ||
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