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. 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 nine months ended September 30, 2022, the Company conducted its business in one revenue stream: product sales - wine, water, water purifier and other F&B products.

Results of Operations

Three Months Ended September 30, 2022 and 2021



                                                  Three Months Ended
                                                    September 30,
                                                 2022            2021           Change
Net revenues                                 $  2,915,303     $ 2,005,390     $  909,913
Cost of revenues                               (1,400,522 )      (875,418 )     (525,104 )
Gross profit                                    1,514,781       1,129,972        384,809

Operating expense                                (487,640 )      (521,892 )       34,252
Other income                                        2,335           2,512           (177 )
Other expense                                     (10,388 )        (4,327 )       (6,061 )
Income taxes                                     (108,353 )      (156,402 )       48,049
Net income                                        910,735         449,863        460,872
Net income attributable to noncontrolling
interests                                          54,931          59,875         (4,944 )
Net income attributable to Fortune Valley
Treasures, Inc.                              $    855,804     $   389,988     $  465,816

Nine Months Ended September 30, 2022 and 2021



                                                   Nine Months Ended
                                                     September 30,
                                                 2022             2021           Change
Net revenues                                 $  6,513,572     $  5,474,894     $ 1,038,678
Cost of revenues                               (3,018,507 )     (2,402,685 )      (615,822 )
Gross profit                                    3,495,065        3,072,209         422,856

Operating expense                              (1,396,667 )     (1,500,499 )       103,832
Other income                                       10,630            3,446           7,184
Other expense                                     (21,077 )        (13,814 )        (7,263 )
Income taxes                                     (212,274 )       (319,024 )       106,750
Net income                                      1,875,677        1,242,318         633,359
Net income attributable to noncontrolling
interests                                         123,464          132,601          (9,137 )
Net income attributable to Fortune Valley
Treasures, Inc.                              $  1,752,213     $  1,109,717     $   642,496



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Net Revenues

Net revenues were $2,915,303 for three months ended September 30, 2022, reflecting an increase of $909,913, or 45%, from $2,005,390 for the three months ended September 30, 2021. The increase in net revenues was mainly due to the increase in the product sale as a result of a newly launched distribution channel via a WeChat App.

Net revenues were $6,513,572 for nine months ended September 30, 2022, reflecting an increase of $1,038,678, or 19%, from $5,474,894 for nine months ended September 30, 2021. The increase in net revenues was mainly attributable to the increase in the product sale as a result of the improved market condition with the impact of COVID-19, as compared to the same period of the prior year.





Cost of Revenues

Cost of revenues was $1,400,522 for the three months ended September 30, 2022, reflecting an increase of $525,104, or 60%, from $875,418 for the three months ended September 30, 2021. The increase in cost of revenue was due to the higher product sales volume in line with our revenue increase.

Cost of revenues was $3,018,507 for the nine months ended September 30, 2022, reflecting an increase of $615,822, or 26%, from $2,402,685 for the nine months ended September 30, 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 $1,514,781 and $1,129,972 for the three months ended September 30, 2022 and 2021, respectively, reflecting an increase of $384,809, or 34%. The increase in gross profit was due to the increase in the net revenues.

Gross profit was $3,495,065 and $3,072,209 for the nine months ended September 30, 2022 and 2021, respectively, reflecting an increase of $422,856, or 14%. The increase in gross profit was due to the increase in the net revenues.





Operating Expenses

Operating expense was $487,640 for the three months ended September 30, 2022, reflecting a slight decrease of $34,252, or 7%, from $521,892 for the nine months ended September 30, 2021.

Operating expense was $1,396,667 for the nine months ended September 30, 2022, reflecting a slight decrease of $103,832, or 7%, from $1,500,499 for the nine months ended September 30, 2021.





Net Income

For the three months ended September 30, 2022, our net income was $910,735, compared to a net income of $449,863 for the three months ended September 30, 2021. The increase in net income was a result of the factors described above.

For the nine months ended September 30, 2022, our net income was $1,875,677, compared to a net income of $1,242,318 for the nine months ended September 30, 2021. The increase in net income was a result of the factors described above.

Net income attributable to noncontrolling interests

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

For the three months ended September 30, 2022 and 2021, the Company recorded a net income attributable to noncontrolling interests of $54,931 and $59,875, respectively.

For the nine months ended September 30, 2022 and 2021, the Company recorded a net income attributable to noncontrolling interests of $123,464 and $132,601, respectively.




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Liquidity and Capital Resources



Working Capital

                             September 30, 2022       December 31, 2021        Change
Total current assets        $          6,544,575     $         5,069,481     $ 1,475,094
Total current liabilities              1,718,717               1,717,519           1,198
Working capital             $          4,825,858     $         3,351,962     $ 1,473,896

As of September 30, 2022, we had working capital of $4,825,858, as compared to working capital of $3,351,962 as of December 31, 2021. We had total current assets of $6,544,575, consisting of cash and cash equivalents of $239,443, inventories of $147,097, prepayments and other current assets of $2,507,504, and accounts receivable of $3,650,531, compared to total current assets of $5,069,481 as of December 31, 2021. The increase was mainly due to the increase in cash and cash equivalents, account receivable, and prepayment and other current assets. We had current liabilities of $1,718,717, consisting of operating lease obligations of $135,747, accounts payable of $155,039, accrued liabilities of $131,363, bank and other borrowing of $413,207, customer advances of $176,213, income tax payable of $111,142 and due to related parties of $596,006. The balance of total current liabilities is comparable with the balance as of December 31, 2021.

Our cash and cash equivalents balance increased to $239,443 as of September 30, 2022, from $123,163 at December 31, 2021. We estimate the Company currently has sufficient cash available to meet its anticipated working capital requirements 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.

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

                                                  Nine Months Ended
                                                    September 30,
                                                2022            2021           Change
Cash Flows provided by (used in) Operating
Activities                                   $    48,444     $  (712,200 )   $  760,644
Cash Flows provided by Investing
Activities                                             -         362,931       (362,931 )
Cash Flows provided by Financing
Activities                                       108,002         212,278       (104,276 )
Effect of exchange rate changes                  (40,166 )        37,343        (77,509 )

Net Changes in Cash and Cash Equivalents $ 116,280 $ (99,648 ) $ 215,928

Cash Flow from Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2022 was $48,444, as compared to the amount of $712,200 used in operating activities for the nine months ended September 30, 2021, reflecting an increase of $760,644. The cash provided by operating activities during the nine months ended September 30, 2022 was mainly resulted from net income of $1,875,677 and depreciation and amortization expenses of $648,740, offset by the increase in accounts receivable of $1,374,495, increase in the prepayments and other current assets of $608,448, increase in deposits paid to vendors of $277,134, and decrease in customer advances of $178,597.

Cash Flow from Investing Activities

Net cash used in investing activities was nil for the nine months ended September 30, 2022, compared to net cash provided by investing activities of $362,931 for the nine months ended September 30, 2021.

Cash Flow from Financing Activities

Net cash provided by financing activities was $108,002 for the nine months ended September 30, 2022, compared to net cash provided by financing activities of $212,278 for the nine months ended September 30, 2021. The cash provided by financing activities for the nine months ended September 30, 2022 was mainly resulted from the net proceeds from revolving credit lines of $148,606 and the proceeds from bank loans of $135,499, offset by the repayments to related parties of $154,510.




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.



19

We generate revenue primarily from the sales of wine, water, oil and water purifier 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 September 30, 2022 and December 31, 2021, the Company had accounts receivable from related parties in amounts of $116,995 and $43,477, prepayments to related parties in the amounts of $1,957,201 and $1,813,904, deposits to related parties in the amounts of $1,607,955 and $1,596,075, and accounts payable to related parties in amounts of $3,629 and $17,789, respectively.

As of September 30, 2022 and December 31, 2021, the Company had outstanding receivables due from a related party in the amounts of nil and $26,364, respectively, which mainly consisted of funds advanced to a related party as borrowings or funds advances to pay off the Company's expenses. The balance was unsecured and non-interest bearing.

As of September 30, 2022 and December 31, 2021, the Company had outstanding payables due to its related parties in the amounts of $596,006 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 nine months ended September 30, 2022 and 2021, the Company's related parties paid expenses on behalf of the Company in the amounts of $135,081 and $532,912, respectively.

During the nine months ended September 30, 2022 and 2021, the Company sold products to its related parties in the amounts of $120,632 and $495,062, respectively, purchased goods from its related parties in the amounts of $769,387 and $575,495, and incurred cost of revenues from related parties in the amounts of $763,663 and $508,867, respectively.

During the nine months ended September 30, 2022 and 2021, the rental expenses to related parties were $16,132 and $27,944, respectively.

Our related parties are primarily those who are significantly influenced by the Company based on our common business relationships. Refer to Note 5 to the unaudited condensed consolidated financial statements for additional details regarding the related party transactions.

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