Fortune Valley Treasures, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this Annual Report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward- looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this Report. Our audited financial statements are stated in U.S. Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles. Company Overview Fortune Valley Treasures, Inc. (the “Company” or “FVTI”), was incorporated in the State of Nevada on March 21, 2014. We engage in the food supply chain 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 year 2021, the Company conducted its business in generally one revenue stream: product sales – wine, water and oil and other F&B products. Results of Operations Years Ended December 31, 2021 2020 Change Net revenues $ 8,021,823 100 % $ 5,005,694 100 % $ 3,016,129 60 % Cost of revenues (3,659,805 ) (46 )% (1,673,367 ) (33 )% (1,986,438 ) 119 % Gross profit 4,362,018 54 % 3,332,327 67 % 1,029,691 31 % Other operating income - - % 35,164 1 % (35,164 ) (100 )% Operating expense (2,184,904 ) (27 )% (6,522,200 ) (130 )% 4,337,296 (67 )% Other income 53,008 1 % 27,639 1 % 25,369 92 % Other expense (17,816 ) (0 )% (213,355 ) (4 )% 195,539 (92 )% Income taxes (248,837 ) (3 )% (306,928 ) (6 )% 58,091 (19 )% Net income (loss) $ 1,963,469 24 % $ (3,647,353 ) (73 )% $ 5,610,822 (154 )% Net income (loss) attributable to noncontrolling interests 183,733 2 % (391,789 ) (8 )% 575,522 (147 )% Net income (loss) attributable to Fortune Valley Treasures, Inc. $ 1,779,736 22 % $ (3,255,564 ) (65 )% $ 5,035,300 (155 )% 71 Net Revenues Net revenues totaled $8,021,823 for the year ended December 31, 2021, an increase of $3,016,129, or 60%, as compared to the revenue for the year ended December 31, 2020. The reason for the increase was due to the Company expanded water and oil business department. Cost of Revenues Cost of revenues totaled $3,659,805 for the year ended December 31, 2021, an increase of $1,986,438, or 119%, as compared to for the year ended December 31, 2020. The increase in cost of revenue was due to the increase of our revenue. Gross Profit Gross profit was $4,362,018 and $3,332,327 for the years ended December 31, 2021 and 2020, respectively. Gross profit margin decreased to 54% for the year ended December 31, 2021 from 67% for the corresponding period in 2020 primarily due to the changing of customers’ preference from less popular brands to popular brand products. Popular brands products will incur higher cost of revenue and result in the decrease of gross profit. Operating Expenses General and administrative expenses totaled $2,184,904 for the year ended December 31, 2021, a decrease of $4,337,296, or 67%, as compared to the year ended December 31, 2020. The decrease was primarily due to there was no impairment of goodwill for the year ended December 31,2021, and partially offset by the increase of marketing and professional service fees during 2021. Net Income Net income totaled $1,963,469 for the year ended December 31, 2021, an increase of $5,610,822, of 154%, as compared to the net loss of $3,647,353 for the year ended December 31, 2020. The increase was primarily due to there was no impairment of goodwill for the year ended December 31, 2021 and the increase of gross profit in 2021. Liquidity and Capital Resources Working Capital Years Ended December 31, 2021 2020 Change Total current assets $ 5,069,481 $ 4,231,054 $ 838,427 Total current liabilities 1,717,519 1,996,446 (278,927 ) Working capital $ 3,351,962 $ 2,234,608 $ 1,117,354 As of December 31, 2021, we had working capital of $3,351,962 as compared to working capital of $2,234,608 as of December 31, 2020. We had total current assets of $5,069,481 consisting of cash on hand of $123,163, accounts receivables of $2,662,168, inventory – wine, water, oil and other items of $81,073, prepayments and other current assets of $2,176,713, and amount due from related parties of $26,364, compared to total current assets of $4,231,054 as of December 31, 2020. The increase was due to the prepayment to the vendors to secure more competitive price and allowed customers to have a longer payback period to remain market competitive. We had current liabilities of $1,717,519 consisting of operating lease obligation from non-related parties of $133,586, operating lease obligation from related parties of $22,666, accounts payable of $239,492, accrued liabilities of $128,343, short-term bank and other borrowings of $101,207, income tax payable of $25,726, customer advance of $382,518 and amount due to related parties of $683,981 compared to total current liabilities of $1,996,446 as of December 31, 2020. The Company’s net income was $1,963,469 and net loss $3,647,353 for the years ended December 31, 2021 and 2020, respectively. Cash Flows Years Ended December 31, 2021 2020 Change Cash flows provided by (used in) operating activities $ (457,142 ) $ 1,236,265 $ (1,693,407 ) Cash flows provided by (used in) investing activities 469,190 (948,031 ) 1,417,221 Cash flows used in financing activities (192,034 ) (108,368 ) (83,666 ) Effect of exchange rate changes on cash and cash equivalents 53,312 31,834 21,478 Net changes in cash and cash equivalents $ (126,674 ) $ 211,700 $ (338,374 ) 72 Cash Flow from Operating Activities Cash flow used in operating activities for the year ended December 31, 2021 was $457,142 as compared to the amount of $1,236,265 provided by operating activities for the year ended December 31, 2020, reflecting a decrement of $1,693,407. The decrease in net cash provided by operating activities was mainly due to an increment of prepayment and other current assets, deposits paid to secure market competitive and cost effective. Besides, during Year 2021, funds were used for repayment of account receivables, operating lease liabilities, income tax payable and customers advances. Cash Flow from Investing Activities Cash flow provided by investing activities was $469,190 for the year ended December 31, 2021, compared to the cash flow used in investing activities $948,031 for the year ended December 31, 2020. The net cash flow provided by investing activities was mainly due to the borrowing collection of due from related parties. Cash Flow from Financing Activities Cash flow used in financing activities was $192,034 for the year ended December 31, 2021, compared to cash flow used in financing activities of $108,368 for the year ended December 31, 2020. The increase in net cash used in financing activities was mainly due to the repayment to related parties. Capital requirement for short term and long term As of December 31, 2021, the Company finance capital requirement through trust and commercial bank in PRC for further expansion, details are as follows: December 31, 2021 December 31, 2020 Bank loan from a trust in PRC $ 67,438 $ 114,879 China Construction Bank 143,192 - WeBank 78,795 139,387 Aggregate outstanding principal balances $ 289,425 $ 254,266 Less: current portion 101,207 - Total non-current borrowings $ 188,218 $ 254,266 Other Material Cash requirement In addition to the financing arrangements discussed above, FVTI is party to numerous contracts and arrangements obligating it to make cash payments in future years. FVTI expects current liabilities to be paid within the next twelve months. In addition to the items already discussed, the following represent material expected cash requirements recorded on FVTI’s Consolidated Balance Sheets at December 31, 2021. Such obligations include: Operating lease obligation – See Note 10 to the Consolidated Financial Statement. Trends, commitment and uncertainties that likely to result in material changes in liquidity Except the issues mentioned above, FVTI has no other uncertainties that likely to result in material changes in liquidity based on management’s understanding and knowledge. 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. 73 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. Item 7A. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, we are not required to provide the information required by this item.