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 inU.S. Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles. Company Overview
During the year 2022, 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, 2022 2021 Change Net revenues$ 9,234,079 100 %$ 8,021,823 100 %$ 1,212,256 15 % Cost of revenues (4,593,405 ) (50 )% (3,659,805 ) (46 )% (933,600 ) 26 % Gross profit 4,640,674 50 % 4,362,018 54 % 278,656 6 % Operating expense (6,590,240 ) (71 )% (2,184,904 ) (27 )% (4,405,336 ) 202 % Other income 10,811 0 % 53,008 1 % (42,197 ) (80 )% Other expense (31,444 ) (0 )% (17,816 ) (0 )% (13,628 ) 76 % Income taxes (186,480 ) (2 )% (248,837 ) (3 )% 62,357 (25 )% Net income (loss)$ (2,156,679 ) (23 )% $
1,963,469 24 %
(213,956 ) (2 )% 183,733 2 % (397,689 ) 216 % Net income (loss) attributable to Fortune Valley Treasures, Inc.$ (1,942,723 ) (21 )%$ 1,779,736 22 %$ (3,722,459 ) 209 % 90 Net Revenues Net revenues totaled$9,234,079 for the year endedDecember 31, 2022 , an increase of$1,212,256 , or 15%, as compared to the revenue for the year endedDecember 31, 2021 . The increase in net revenues was mainly due to an increase in sales of liquor and water purifier products as a result of the business expansion of the liquor and water purifier business departments. Cost of Revenues Cost of revenues totaled$4,593,405 for the year endedDecember 31, 2022 , an increase of$933,600 , or 26%, as compared to for the year endedDecember 31, 2021 . The increase in cost of revenue was due to the higher product sales volume in line with our revenue increase. Gross Profit
Gross profit was$4,640,674 and$4,362,018 for the years endedDecember 31, 2022 and 2021, respectively. Gross profit margin decreased to 50% for the year endedDecember 31, 2022 from 54% for the corresponding period in 2021 primarily due to the changing of customers' preference from less popular brands to popular brand products. Popular brands products incurred higher costs of revenue and resulted in the decrease of gross profit. Operating Expenses General and administrative expenses totaled$6,590,240 for the year endedDecember 31, 2022 , an increase of$4,405,336 , or 202%, as compared to the year endedDecember 31, 2021 . The increase was primarily due to the increase in professional expense incurred in 2022 in connection with the Company's proposed Nasdaq listing and related securities offering transaction, bad debt expense incurred for allowance reserved for doubtful accounts, including prepayments and deposits paid, and impairment loss on intangible asset and goodwill recognized in 2022. Net Loss Net loss totaled$2,156,679 for the year endedDecember 31, 2022 , an increase of$4,120,148 , of 210%, as compared to the net income of$1,963,469 for the year endedDecember 31, 2021 . The increase was primarily due to the allowance booked for doubtful accounts and impairment loss on intangible asset and goodwill, while net income was generated in 2021.
Liquidity and Capital Resources
Working Capital Years Ended December 31, 2022 2021 Change Total current assets$ 6,871,091 $ 5,069,481 $ 1,801,610 Total current liabilities 2,484,582 1,717,519 767,063 Working capital$ 4,386,509 $ 3,351,962 $ 1,034,547 As ofDecember 31, 2022 , we had working capital of$4,386,509 as compared to working capital of$3,351,962 as ofDecember 31, 2021 . We had total current assets of$6,871,091 consisting of cash on hand of$165,685 , accounts receivables of$4,797,564 , inventory of$148,925 , and prepayments and other current assets of$1,758,917 , compared to total current assets of$5,069,481 as ofDecember 31, 2021 . The increase was mainly due to the increase in accounts receivable, resulting from an increase in sales and the extension of payment term in 2022. We had current liabilities of$2,484,582 consisting of operating lease obligation from non-related parties of$110,201 , operating lease obligation from related parties of$16,629 , accounts payable of$688,822 , accrued liabilities of$502,389 , current portion of bank and other borrowings of$422,653 , income tax payable of$38,879 , customer advance of$139,334 and amount due to related parties of$565,675 compared to total current liabilities of$1,717,519 as ofDecember 31, 2021 .
The Company's net loss was
Cash Flows Years Ended December 31, 2022 2021 Change Cash flows provided by (used in) operating activities$ 6,927 $ (457,142 ) $ 464,069 Cash flows provided by (used in) investing activities (10,110 ) 469,190 (479,300 ) Cash flows provided by (used in) financing activities 66,120 (192,034 ) 258,154 Effect of exchange rate changes on cash and cash equivalents (20,415 )
53,312 (73,727 )
Net changes in cash and cash equivalents
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Cash Flow from Operating Activities
Cash flow provided by operating activities for the year endedDecember 31, 2022 was$6,927 as compared to the amount of$457,142 used in operating activities for the year endedDecember 31, 2021 , reflecting a increment of$464,069 . The increase in net cash provided by operating activities was mainly due to the fact that the bad debt expense and impairment losses on intangible asset and goodwill have no impact on cash flows, offset by changes in accounts receivable and prepayments and other current assets, net.
Cash Flow from Investing Activities
Cash flow used in investing activities was$10,110 for the year endedDecember 31, 2022 , compared to the cash flow provided by investing activities$469,190 for the year endedDecember 31, 2021 . The increase in net cash flow used in investing activities was mainly due to the decrease in repayment of advance
to related parties.
Cash Flow from Financing Activities
Cash flow provided by financing activities was$66,120 for the year endedDecember 31, 2022 , compared to cash flow used in financing activities of$192,034 for the year endedDecember 31, 2021 . The increase in net cash provided by used in 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, 2022 December 31, 2021 Loan from a trust in PRC $ 60,049 $ 67,438 China Construction Bank 276,447 143,192 WeBank 77,220 78,795 Guangdong Nanyue Bank 67,375 -
Aggregate outstanding principal balances $ 481,091
$ 289,425 Less: current portion 422,653 101,207 Total non-current borrowings $ 58,438 $ 188,218
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 represents material expected cash requirements recorded on FVTI's Consolidated Balance Sheets atDecember 31, 2022 . Such obligations include:
Operating lease obligation - See Note 9 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 endedDecember 31, 2022 . 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. 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.
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