The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission on April 1, 2022 (the "Form 10-K") and presumes that readers have access to, and will have read, the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Form 10-Q.

The following discussion contains certain statements that may be deemed "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, "Management's Discussion and Analysis of Financial Condition and Results of Operations." These statements are not guaranteed of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the factors described in our Form 10-K in the section entitled "Risk Factors" for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this quarterly report on Form 10-Q. The following should also be read in conjunction with the unaudited Financial Statements and notes thereto that appear elsewhere in this report.

Overview

Fortune Valley Treasures, Inc. (the "Company," "we," "our" or "us") was incorporated in the State of Nevada on March 21, 2014. We were initially incorporated to offer users with up-to-date information on digital currencies. The Company, as a holding company, does not conduct substantial business operations. We, through our operating subsidiaries, engage in the food supply chain operations and management via a service platform. Through various acquisitions of high-quality upstream and downstream companies in the industry, the Company seeks to create a complete industrial chain to reduce costs and enhance competitiveness. The Company mainly focuses on online and offline sales targeting regional wholesalers, retailers, supermarkets and major food and beverage ("F&B") chains.

During the three months ended March 31, 2022, the Company conducted its business in one revenue stream: product sales - wine, water and other F&B products.

Results of Operations

Three Months Ended March 31, 2022 and 2021



                                          Three Months Ended March 31,
                                            2022                 2021             Change
Net revenues                           $     1,261,810       $   1,644,160     $    (382,350 )
Cost of revenues                              (518,462 )          (729,743 )         211,281
Gross profit                                   743,348             914,417          (171,069 )
Operating expense                             (545,441 )          (509,131 )         (36,310 )
Interest income                                     77                 165               (88 )
Other income                                     6,207                  31             6,176
Interest expense                                (5,825 )            (3,553 )          (2,272 )
Income taxes                                   (22,407 )           (66,355 )          43,948
Net income                                     175,959             335,574          (159,615 )
Net income attributable to
noncontrolling interests                        27,283              30,320            (3,037 )
Net income attributable to Fortune
Valley Treasures, Inc.                 $       148,676       $     305,254     $    (156,578 )




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Net Revenues

Revenue was $1,261,810 for three months ended March 31, 2022, reflecting a decrease of $382,350 from $1,644,160 for the three months ended March 31, 2021 as the Company did not generated any revenues from sales of oil during the three months ended March 31, 2022. The Company adjusted its product mix and stopped selling oil from this quarter due to low profits.

Cost of Revenues

Cost of revenue was $518,462 for the three months ended March 31, 2022, reflecting a decrease of $211,281 from $729,743 for the three months ended March 31, 2021. The cost of revenues fluctuated in line with our net revenues.

Gross Profit

Gross profit was $743,348 and $914,417 for the three months ended March 31, 2022 and 2021, respectively, reflecting a decrease of 171,069, which was mainly attributable to the quarantine requirement imposed by the local government in response to the sporadic outbreaks of new COVID-19 variants in Dongguan City during the three months ended March 31, 2022.




Operating Expenses

Operating expense was $545,441 for the three months ended March 31, 2022, reflecting an increase of $36,310, from $509,131 for the three months ended March 31, 2021 due to the increase in professional service fees and employee salary.





Net Income

For the three months ended March 31, 2022, net income was $175,959, compared to net income of $335,574 for the three months ended March 31, 2021.

Net income attributable to noncontrolling interests

The Company records net income attributable to noncontrolling interests in the condensed consolidated statements of operations for any noncontrolling interests of consolidated subsidiaries.

For the three months ended March 31, 2022 and 2021, the Company recorded net income attributable to noncontrolling interests of $27,283 and $30,320, respectively.

Liquidity and Capital Resources



Working Capital

                             March 31,       December 31,
                               2022              2021            Change
Total current assets        $ 4,835,666     $    5,069,481     $ (233,815 )
Total current liabilities     1,404,789          1,717,519       (312,730 )
Working capital             $ 3,430,877     $    3,351,962     $   78,915



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As of March 31, 2022, we had working capital of $3,430,877, as compared to working capital of $3,351,962 as of December 31, 2021. We had total current assets of $4,835,666, consisting of cash and cash equivalents of $150,613, inventories of $148,004, prepayments and other current assets of $2,628,902, accounts receivable of $1,881,892 and amount due from related party of $26,255, compared to total current assets of $5,069,481 as of December 31, 2021. The decrease was mainly due to the decrease in accounts receivable and offset by the increase in prepayments and other current assets. We had current liabilities of $1,404,789, consisting of operating lease obligations $142,153, accounts payable of $165,432, customer advances $351,412, due to related parties of $491,016, current portion of bank and other borrowings of $95,815 and accrued liabilities of $158,961.

Our cash and cash equivalents balance at March 31, 2022 increased to $150,613, as compared to $123,163 at December 31, 2021. We estimate the Company currently has sufficient cash available to meet its anticipated working capital for the next twelve months, without raising additional capital. The Company is continuing to look for different financing opportunities in order to increase sufficient working capital and improve liquidity.

Despite the increased working capital of the Company, no assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its shareholders, in the case of equity financing.

Cash Flows



                                           Three Months Ended March 31,
                                            2022                 2021              Change
Cash Flows provided by (used in)
Operating Activities                   $      133,442       $      (508,778 )   $     642,220
Cash Flows provided by Investing
Activities                                          -               809,036          (809,036 )
Cash Flows provided by (used in)
Financing Activities                          (95,638 )             404,405          (500,043 )
Effect of change rate changes in
cash and cash equivalents                     (10,354 )               9,835           (20,189 )
Net Changes in Cash During the
Period                                 $       27,450       $       714,498     $    (687,048 )

Cash Flow from Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2022 was $133,442, as compared to the amount of $508,778 used in operating activities for the three months ended March 31, 2021, reflecting an increase of $642,220, which was mainly resulted from net income of $175,959, depreciation and amortization expense of $224,423, decrease in accounts receivable of $785,262, and offset by increase in the prepayments and other current assets of $446,876, increase in deposits paid to vendors of $327,389 and decrease in due to related parties in $112,717.




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Cash Flow from Investing Activities

Net cash used in investing activities was nil for the three months ended March 31, 2022, compared to net cash provided by investing activities of $809,036 for the three months ended March 31, 2021.

Cash Flow from Financing Activities

Net cash used in financing activities was $95,638 for the three months ended March 31, 2022, compared to net cash provided by financing activities of $404,405 for the three months ended March 31, 2021. The decrease in net cash provided by financing activities was mainly due to the decrease in borrowings from related parties and offset by the decrease in repayments to related parties.



Critical Accounting Policy

In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with U.S. generally accepted accounting principles. We base our estimates on historical experience, when available, and on other various assumptions that are believed to be reasonable under the circumstances. Actual results could differ significantly from those estimates under different assumptions and conditions.





Revenue Recognition

The Company follows the guidance of ASC 606, revenue from contracts with customers is recognized using the following five steps:





  1. Identify the contract(s) with a customer;
  2. Identify the performance obligations in the contract;
  3. Determine the transaction price;
  4. Allocate the transaction price to the performance obligations in the
     contract; and
  5. Recognize revenue when (or as) the entity satisfies a performance obligation.

Under Topic 606, revenues are recognized when the promised products have been confirmed of delivery or services have been transferred to the consumers in amounts that reflect the consideration the customer expects to be entitled to in exchange for those services. The Company presents value added taxes ("VAT") as reductions of revenues. The Company recognizes revenues net of value added taxes ("VAT") and relevant charges.

We generate revenue primarily from the sales of wine, water and oil directly to agents, wholesalers and end users. We recognize product revenue at a point in time when the control of the products has been transferred to customers. The transfer of control is considered complete when products have been picked up by or delivered to our customers. We account for shipping and handling fees as a fulfillment cost.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

Related Party Transactions

As of March 31, 2022 and December 31, 2021, the Company had accounts receivable from related parties in amounts of $19,044 and $43,477, prepayments to related parties in the amounts of $1,731,874 and $1,813,904, deposits to related parties in the amounts of $1,778,143 and $1,596,075, and accounts payable to related parties in amounts of $29,181 and $17,789, respectively.

As of March 31, 2022 and December 31, 2021, the Company had outstanding receivables due from its related parties in the amounts of $26,255 and $26,364, respectively, which mainly consisted of funds advanced to related parties as borrowings or funds advances to pay off the Company's expenses. The balances were unsecured and non-interest bearing.

As of March 31, 2022 and December 31, 2021, the Company had outstanding payables due to its related parties in the amounts of $491,016 and $683,981, respectively, which mainly consisted of borrowings for working capital purpose. The balances were unsecured, non-interest bearing and due on demand.

During the three months ended March 31, 2022 and 2021, the Company's related parties paid expenses on behalf of the Company in the amounts of nil and $14,487, respectively.

During the three months ended March 31, 2022 and 2021, the Company sold products to its related parties in the amounts of $725 and $268,978, respectively, purchased goods from its related parties in the amounts of $136,912 and $125,527, and incurred cost of revenues from related parties in the amounts of $136,912 and $130,600, respectively.

During the three months ended March 31, 2022 and 2021, the rental expenses to related parties were $4,726 and $18,490, respectively.

Our related parties are primarily those persons who can significantly influence based on our common business relationships. Refer to Note 6 to the unaudited condensed consolidated financial statements for additional details regarding the related party transactions.

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