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 2023, the Company conducted its business in generally one revenue stream: product sales – wine, water, water purifier and other F&B products, with majority of the sales transactions were conducted offline. Results of Operations Years ended December 31, 2023 2022 Change Net revenues $ 4,236,565 $ 9,234,079 $ (4,997,514 ) Cost of revenues (2,255,306 ) (4,593,405 ) (2,338,099 ) Gross profit 1,981,259 4,640,674 (2,659,415 ) Operating expense (6,137,486 ) (6,590,240 ) (452,754 ) Other income 19,862 10,811 9,051 Other expense (38,389 ) (31,444 ) (6,945 ) Income taxes (96,445 ) (186,480 ) (90,035 ) Net loss (4,271,199 ) (2,156,679 ) (2,114,520 ) Net loss attributable to noncontrolling interests (224,584 ) (213,956 ) (10,628 ) Net loss attributable to Fortune Valley Treasures, Inc. $ (4,046,615 ) $ (1,942,723 ) $ (2,103,892 ) 92 Net Revenues Net revenues totaled $4,236,565 and $9,234,079 for the years ended December 31, 2023 and 2022, respectively, reflecting a decrease of $4,997,514, or 54 %. The decrease in product sales was primarily due to 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 since April 2023, which has also contributed to the decline in the net revenue. Cost of Revenues Cost of revenues totaled $2,255,306 and $4,593,405 for the years ended December 31, 2023 and 2022, respectively, representing a decrease of $2,338,099, or 51%. The decrease in the cost of revenues was due to the lower product sales volume in line with our revenue decrease. Gross Profit Gross profit was $1,981,259 and $4,640,674 for the years ended December 31, 2023 and 2022, respectively. Gross profit margin decreased to 47% for the year ended December 31, 2023 from 50% for the corresponding period in 2022 primarily due to the decrease in the net revenues. Operating Expenses General and administrative expenses totaled $6,137,486 and $6,590,240 for the years ended December 31, 2023 and 2022, respectively, representing a decrease of $452,574, or 7%. The decrease in operating expenses was mainly due to the decrease in professional service fees, and impairment loss on goodwill. Net Loss Net loss totaled $4,271,199 and $2,156,679 for the years ended December 31, 2023 and 2022, respectively, representing an increase in net loss of $2,114,520, of 98%. The increase in net loss was a result of the factors described above. Liquidity and Capital Resources Working Capital Years Ended December 31, 2023 2022 Change Total current assets $ 5,083,189 $ 6,871,091 $ (1,787,902 ) Total current liabilities 3,851,925 2,484,582 1,367,343 Working capital $ 1,231,264 $ 4,386,509 $ (3,155,245 ) As of December 31, 2023, we had working capital of $1,231,264 as compared to working capital of $4,386,509 as of December 31, 2022. We had total current assets of $5,083,189 consisting of cash on hand of $288,255, accounts receivables of $3,118,892, inventory of $32,587, and prepayments and other current assets of $1,643,455, compared to total current assets of $6,871,091 as of December 31, 2022. The decrease was mainly due to the decrease in accounts receivable, and prepayments and other current assets. We had current liabilities of $3,851,925 consisting of operating lease obligations of $136,619, accounts payable of $583,887, accrued liabilities of $627,457, current portion of bank and other borrowings of $458,023, income tax payable of $1,453, customer advance of $1,364,260 and amount due to related parties of $680,226 compared to total current liabilities of $2,484,582 as of December 31, 2022. The Company’s net losses were $4,271,199 and $2,156,679, respectively, for the years ended December 31, 2023 and 2022. Cash Flows Years Ended December 31, 2023 2022 Change Cash flows provided by (used in) operating activities $ (179,210 ) $ 6,927 $ (186,137 ) Cash flows provided by (used in) investing activities (4,879 ) (10,110 ) 5,231 Cash flows provided by financing activities 236,605 66,120 170,485 Effect of exchange rate changes on cash and cash equivalents 70,054 (20,415 ) 90,469 Net changes in cash and cash equivalents $ 122,570 $ 42,522 $ 80,048 93 Cash Flow from Operating Activities Cash flow used in operating activities for the year ended December 31, 2023 was $179,210, as compared to the amount of $6,927 provided by operating activities for the year ended December 31, 2022, reflecting a decrease of $186,137. Such decrease was mainly due to less net revenue we generated during the year of 2023 than 2022. Cash Flow from Investing Activities Cash flow used in investing activities was $4,879 for the year ended December 31, 2023, compared to the cash flow used in investing activities $10,110 for the year ended December 31, 2022. The decrease in net cash flow used in investing activities was mainly due to the less cash used in purchase of fixed assets and intangible assets in the year of 2023 than 2022. Cash Flow from Financing Activities Cash flow provided by financing activities was $236,605 for the year ended December 31, 2023, compared to cash flow provided by financing activities of $66,120 for the year ended December 31, 2022. The increase in net cash provided by financing activities was mainly due to the increase in net proceeds of bank and other borrowings. Capital requirement for short term and long term As of December 31, 2023, the Company financed capital requirement through trust and commercial banks in PRC for further expansion, details are as follows: December 31, 2023 December 31, 2022 Loan from a trust in PRC $ 20,343 $ 60,049 China Construction Bank 475,121 276,447 WeBank 129,396 77,220 Guangdong Nanyue Bank 24,164 67,375 Bank of Ningbo 21,041 - Aggregate outstanding principal balances $ 670,065 $ 481,091 Less: current portion 458,023 422,653 Total non-current borrowings $ 212,042 $ 58,438 Other Material Cash requirement In addition to the financing arrangements discussed above, FVTI is a 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 represents material expected cash requirements recorded on FVTI’s Consolidated Balance Sheets at December 31, 2023. 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 Policies and Estimates Our accounting policies are discussed in detail in the footnotes to our financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2023. However, we consider our critical accounting policies to be those related to revenue recognition, allowance of doubtful accounts and impairment of intangible asset and goodwill. Our critical estimates include estimates used to review the Company’s goodwill impairments and estimations of recoverability for intangible asset, and bad debt expense incurred for allowance reserved for doubtful accounts, including prepayments and deposits paid . The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. 94 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.