UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from ____ to ____
Commission
file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification Number) |
(Address of principal executive offices including zip code)
888-622-1218
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. ☒
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes
| Class | Outstanding at November 16, 2021 | |
| Common Stock, $0.001 par value per share |
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | 1 | |
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 28 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 37 |
| Item 4. | Controls and Procedures | 37 |
| PART II. OTHER INFORMATION | 38 | |
| Item 1. | Legal Proceedings | 38 |
| Item 1A. | Risk Factors | 38 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 38 |
| Item 3. | Defaults upon Senior Securities | 38 |
| Item 4. | Mine Safety Disclosure | 38 |
| Item 5. | Other Information | 38 |
| Item 6. | Exhibits | 39 |
| SIGNATURES | 40 | |
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FUTURE FINTECH GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, 2021 | December 31, 2020 | |||||||
| (Audited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Advances to suppliers and other current assets | ||||||||
| Loan receivables | ||||||||
| Other receivables, net | ||||||||
| Amount due from related party | ||||||||
| Assets related to discontinued operations | ||||||||
| Total current assets | $ | $ | ||||||
| Property, plant and equipment, net | $ | $ | ||||||
| Right of use assets | ||||||||
| Intangible assets | ||||||||
| Goodwill | ||||||||
| Total non-current assets | $ | $ | ||||||
| Total assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other payables | ||||||||
| Advances from customers | ||||||||
| Convertible note payables | ||||||||
| Loan payables | ||||||||
| Lease liability-current | ||||||||
| Amounts due to related parties | ||||||||
| Liabilities related to discontinued operations | ||||||||
| Total current liabilities | $ | $ | ||||||
| Non-current liabilities | ||||||||
| Lease liability-non-current | ||||||||
| Deferred liabilities | $ | $ | ||||||
| Total non-current liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
| Commitments and contingencies (Note 23) | ||||||||
| STOCKHOLDER’S EQUITY | ||||||||
| Future FinTech Group, Inc, Stockholders’ equity | ||||||||
| Common stock, $ | $ | $ | ||||||
| Additional paid-in capital | ||||||||
| Accumulated deficits | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Future FinTech Group, Inc. stockholders’ equity | ||||||||
| Non-controlling interests | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
FUTURE FINTECH GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020* | 2021 | 2020* | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Stock compensation expense | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| (Recovery) Provision for doubtful debts | ( | ) | ||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expenses) income | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expenses | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss on debt settlement and conversion | ( | ) | ( | ) | ||||||||||||
| Other (expenses) income, net | ||||||||||||||||
| Total other income (expenses), net | ( | ) | ( | ) | ||||||||||||
| Loss from Continuing Operations before Income Tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax provision | ||||||||||||||||
| Loss from Continuing Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Discontinued Operations (Note 21) | ||||||||||||||||
| Gain (loss) on disposal of discontinued operations | ( | ) | ( | ) | ||||||||||||
| Income (loss) from discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||||
| NET INCOME (LOSS) | ( | ) | ( | ) | ( | ) | ||||||||||
| Less: Net Loss attributable to non-controlling interests | ( | ) | ( | ) | ||||||||||||
| Net income(loss) from discontinued operations attributable to Future Fintech Group, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Other comprehensive income (loss) | ||||||||||||||||
| Income (loss) from continued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign currency translation – continued operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive income (loss) - continued operation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income (loss) from discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Foreign currency translation – discontinued operations | ( | ) | ||||||||||||||
| Comprehensive income (loss) - discontinued operation | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive Income (Loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Less: Net loss attributable to non-controlling interests | ( | ) | ( | ) | ||||||||||||
| COMPREHENSIVE LOSS ATTRIBUTABLE TO FUTURE FINTECH GROUP INC. STOCKHOLDERS | ( | ) | ( | ) | ( | ) | ||||||||||
| Earnings per share: | ||||||||||||||||
| Basic earnings per share from continued operation | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic earnings per share from discontinued operation | ( | ) | ( | ) | ||||||||||||
| $ | ( | ) | ( | ) | $ | ( | ) | $ | ||||||||
| Diluted Earnings per share: | ||||||||||||||||
| Diluted earnings per share from continued operation | $ | ( | ) | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Diluted earnings per share from discontinued operation | ( | ) | ( | ) | ||||||||||||
| $ | ( | ) | ( | ) | $ | ( | ) | $ | ||||||||
| Weighted average number of shares outstanding | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| * |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Future Fintech Group, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
Three Months ended September 30, 2020
| Common Stock | Additional paid-in | Retained | Accumulative other comprehensive | Non- controlling | ||||||||||||||||||||||||
| Shares | Amount | capital | earnings | income | interests | Total | ||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
| Issuance of common stocks for conversion of debts | ||||||||||||||||||||||||||||
| Issuance of common stocks-cash | ||||||||||||||||||||||||||||
| Net income from continued operations | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net income from discontinued operations | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Disposal of discontinued operation | - | |||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
Three Months ended September 30, 2021
| Common Stock | Additional paid-in | Retained | Accumulative other comprehensive | Non- controlling | ||||||||||||||||||||||||
| Shares | Amount | capital | earnings | income | interests | Total | ||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Issuance of common stocks - cash | ||||||||||||||||||||||||||||
| Issuance of common stocks-non cash | ||||||||||||||||||||||||||||
| Net income from continued operations | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Net income from discontinued operations | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Share-based payments-omnibus equity plan | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Disposal of discontinued operation | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
3
Nine Months ended September 30, 2020
| Common Stock | Additional paid-in | Retained | Accumulative other comprehensive | Non- controlling | ||||||||||||||||||||||||
| Shares | Amount | capital | earnings | income | interests | Total | ||||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||||||||||||
| Issuance of common stocks-conversion of debt | ||||||||||||||||||||||||||||
| Issuance of common stocks - cash | ||||||||||||||||||||||||||||
| Net income from continued operations | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net income from discontinued operations | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Share-based payments-service | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Disposal of discontinued operation | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at September 30, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
Nine Months ended September 30, 2021
| Common Stock | Additional paid-in | Retained | Accumulative other comprehensive | Non- controlling | ||||||||||||||||||||||||
| Shares | Amount | capital | earnings | income | interests | Total | ||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Issuance of common stocks - cash | ||||||||||||||||||||||||||||
| Issuance of common stocks-non cash | ||||||||||||||||||||||||||||
| Net income from continued operations | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Net income from discontinued operations | - | |||||||||||||||||||||||||||
| Share-based payments-service | - | |||||||||||||||||||||||||||
| Share-based payments-omnibus equity plan | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Disposal of discontinued operation | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
FUTURE FINTECH GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Net income from discontinued operation | ( | ) | ||||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
| Depreciation | ||||||||
| Amortization | ||||||||
| Provision for doubtful debts | ( | ) | ||||||
| Share-based payments | ||||||||
| Interest expenses related to convertible note | ( | ) | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ||||||||
| Other receivables | ( | ) | ||||||
| Advances to suppliers and other current assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Due to related parties | ||||||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Advances from customers | ( | ) | ( | ) | ||||
| Proceeds from amounts due from related parties, net | ||||||||
| Repayment of amounts due to related parties, net | ( | ) | ||||||
| Net Cash Used in Operating Activities – Continued Operations | ( | ) | ||||||
| Net Cash Used in Operating Activities – Discontinued Operations | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Additions to property, plant and equipment | ( | ) | ( | ) | ||||
| Additions to loan receivables | ( | ) | ||||||
| Acquisition of a subsidiary, net of cash | ||||||||
| Disposal of a subsidiary, net of cash | ( | ) | ||||||
| Purchase of intangible assets | ( | ) | ||||||
| Net Cash Used in Investing Activities from Continued Operations | ( | ) | ( | ) | ||||
| Net Cash Used in Investing Activities from Discontinuing Operations | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from the issuance of common stock, net of issuance costs | ||||||||
| Proceeds from loan payable | ||||||||
| Proceeds from secured convertible promissory note | ||||||||
| Repayment of convertible note payables | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Effect of change in exchange rate | ( | ) | ||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | ||||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | ||||||||
| Less: Cash and cash equivalents from the discontinued operations, end of period | ||||||||
| Cash and cash equivalents, from the continuing operations end of period | $ | $ | ||||||
| SUPPLEMENTARY DISCLOSURE OF SIGNIFICANT NON-CASH TRANSACTION | ||||||||
| Issuance of common stocks (Note 9) | $ | $ | ||||||
| Deferred liabilities (Note 9) | ||||||||
| Debt settlement by issuance of common stock | ||||||||
| Issuance of common stocks for conversion of debts | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
FUTURE FINTECH GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CORPORATE INFORMATION
Future FinTech Group Inc. (the “Company”) is a holding company incorporated under the laws of the State of Florida. The main business of the Company includes an online shopping platform, Chain Cloud Mall (CCM, website: http://gksharedmall.com/), which is based on blockchain technology; supply chain financing services and trading; a blockchain-based application incubator; and technical service and support for blockchain based assets and their operating entities; and the application and development of blockchain-based e-commerce technology and financial technology. Prior to 2019, the Company engaged in the production and sales of fruit juice concentrates, fruit juice beverages and other fruit-related products in the People’s Republic of China (“PRC”, or “China”), and overseas markets. Due to the drastically increased production cost and tightened environmental law in China, the Company has transformed its business from fruit juice manufacturing and distribution to a real-name blockchain e-commerce platform that integrates blockchain and internet technology, supply chain financing services and trading and financial technology services.
On July 22, 2020, the Company established Future Commercial Management (Beijing) Co., Ltd. Its business includes management and consulting services.
On May 11, 2021, the Company established Future Supply (Chengdu) Co., Ltd. Its business is coal supply chain financing services and trading.
On May 21, 2021, the Company established Future Big Data (Chengdu) Co., Ltd. in Chengdu, China. Its business includes big data technology and industrial internet data services.
On June 8, 2021, the Company established Tianjin Future Private Equity Fund Management Partnership (Limited Partnership) in Tianjin, China. Its business is mainly external equity investment.
June 14, 2021, the Company established Future FinTech Labs Inc. in New York to serve as its global R&D and technical support center.
On June 24, 2021, the Company established FTFT Capital Investments L.L.C. in Dubai, United Arab Emirates. Its business is to serve institutional investors and high net worth individuals.
On July 5, 2021, the Company established Future Fintech Digital Capital Management, LLC, in the State of Connecticut, which provides investment advisory services.
On August 2, 2021, the Company incorporated FTFT UK Limited in United Kingdom as serve as its operating base to develop fintech business in Europe.
On
August 6, 2021, the Company acquired
On August 11, 2021, the Company established Future Private Equity Fund Management (Hainan) Co., Ltd. Its business is investment fund management.
The Company’s business and operations are principally conducted by its subsidiaries and its blockchain based e-commerce platform business is conducted through its Variable Interest Entity (“VIE”) - Cloud Chain E-Commerce (Tianjin) Co., Ltd., formerly known as Chain Cloud Mall E-Commerce (Tianjin) Co., Ltd. (“E-Commerce Tianjin”) in the PRC.
6
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of September 30, 2021 and the results of operations and cash flows for the periods ended September 30, 2021 and 2020. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for any subsequent periods or for the entire year ending December 31, 2021. The balance sheet of December 31, 2020 has been derived from the audited financial statements at that date.
Our contractual arrangements with our VIE and their respective shareholders allow us to (i) exercise effective control over our VIE, (ii) receive substantially all of the economic benefits of our VIE, and (iii) have an exclusive option to purchase all or part of the equity interests in our VIE when and to the extent permitted by PRC law.
As a result of our direct ownership in our wholly foreign-owned enterprise (“WFOE”) Cloud Chain Network and Technology (Tianjin) Co., Limited, formerly known as Chain Cloud Mall Network and Technology (Tianjin) Co., Limited (“CCM Tianjin”) and the contractual arrangements with our VIE, we are regarded as the primary beneficiary of our VIE, and we treat it and its subsidiaries as our consolidated affiliated entities under U.S. GAAP. We have consolidated the financial results of our VIE in our condensed consolidated financial statements in accordance with U.S. GAAP
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2020 as included in our Annual Report on Form 10-K.
Discontinued Operations
On
February 27, 2020, SkyPeople Foods Holding Limited(the “Seller”) completed the transfer of its ownership of HeDeTang Holdings
(HK) Ltd. (“HeDeTang HK”) to New Continent International Co., Ltd. (the “Buyer”), an unrelated third party and
a company incorporated in the British Virgin Islands for a total price of RMB
In addition, Company’s Huludao Wonder operation, a subsidiary which produced concentrated apple juice, suffered continued operating losses from 2014 to 2016 and its cash flow was minimal for these three years. In December 2016, the Company established a winding-down plan to close this operation. Based on the restructuring plan and in accordance with ASC 205-20, the Company presented the operating results from Huludao Wonder as a discontinued operation.
On March 11, 2020, the Company’s Board of Directors passed a resolution to sell the operation of Future Supply Chain limited and Zhonglian Hengxin Assets Management Co., Ltd (“Zhonglian Hengxin”) and close the operation of Digital Online Marketing Limited, SkyPeople Foods Holding Limited. and Chain Future Digital Tech (Beijing) Co., Ltd. On March 18, 2021, Chain Future Digital Tech (Beijing) Co., Ltd. was dissolved and deregistered with local government.
On May 7, 2020, Future Business Management Co., Ltd. completed the transfer of its ownership of Zhonglian Hengxin Assets Management Co., Ltd to individual third party. On July 24, 2020, the Company’s Board of Directors passed a resolution to sell the operation of Hedetang Farm Products Trading Markets (Mei County) Co., Ltd. and close the operation of Chain Cloud Mall Logistics Center (Shaanxi) Co., Ltd. As a result, Skypeople Foods Holding Limited was dissolved on July 27, 2020; Digital Online Marketing Limited Company was deregistered on July 28, 2020; On October 31, 2020, Chain Cloud Mall Network and Technology (Tianjin) Co., Limited and Chain Cloud Mall Logistics Center (Shanxi) Co., Ltd. completed the transfer of their ownership of Hedetang Farm Products Trading Markets (Mei country) Co., Ltd. to third parties.
7
On April 19, 2021, FT Commercial Management (Beijing) Co., Ltd. was dissolved and deregistered.
On August 2, 2021, the Company sold Guangchengji (Guangdong) Industrial Co., Ltd. to an unrelated third party.
On September 2, 2021, Future Supply Chain Co., Ltd. discontinued its operations.
Based on the disposal plan and in accordance with ASC 205-20, the Company presented the operating results from these operations as a discontinued operation.
Segment Information Reclassification
Historically,
the Company operated in
As the Company classified the juice related operation into discontinued operation in the beginning of year 2019, and in accordance with the Company’s new business strategy, the Company classified business segment into CCM Shopping Mall Membership, sales of goods, asset management service, coal and aluminum ingots supply chain financing service and trading and others.
Uses of Estimates in the Preparation of Financial Statements
The Company’s condensed consolidated financial statements have been prepared in accordance with US GAAP and this requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenue and expenses during the reporting period. The significant areas requiring the use of management estimates include, but not limited to, the allowance for doubtful receivable, estimated useful life and residual value of property, plant and equipment, impairment of long-lived assets provision for staff benefit, recognition and measurement of deferred income taxes and valuation allowance for deferred tax assets. Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ from those estimates and such differences may be material to our condensed consolidated financial statements.
Going Concern
The Company’s financial statements are prepared assuming that the Company will continue as a going concern.
The Company incurred operating losses and had negative operating cash flows and may continue to incur operating losses and generate negative cash flows as the Company implements its future business plan. These factors raise substantial doubts about the Company’s ability to continue as a going concern. The Company has raised funds through issuance of convertible notes and common stock.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully execute its new business strategy and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
Impairment of Long-Lived Assets
In accordance with the ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, or it is reasonably possible that these assets could become impaired as a result of technological or other industrial changes. The determination of recoverability of assets to be held and used is made by comparing the carrying amount of an asset to future undiscounted cash flows to be generated by the assets.
If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.
8
Fair Value of Financial Instruments
The Company has adopted FASB ASC Topic on Fair Value Measurements and Disclosures (“ASC 820”), which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. ASC 820 establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable input, which may be used to measure fair value and include the following:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Input other than Level 1 that is observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other input that is observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable input that is supported by little or no market activity and that is significant to the fair value of the assets or liabilities.
Our cash and cash equivalents and restricted cash are classified within level 1 of the fair value hierarchy because they are value using quoted market price.
Earnings (Loss) Per Share
Under ASC 260-10, Earnings Per Share, basic EPS excludes dilution for Common Stock equivalents and is calculated by dividing net income (loss) available to common stockholders by the weighted-average number of Common Stock outstanding for the period.
Diluted EPS is calculated by using the treasury stock method, assuming conversion of all potentially dilutive securities, such as stock options and warrants. Under this method, (i) exercise of options and warrants is assumed at the beginning of the period and shares of Common Stock are assumed to be issued, (ii) the proceeds from exercise are assumed to be used to purchase Common Stock at the average market price during the period, and (iii) the incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) are included in the denominator of the diluted EPS computation. The numerators and denominators used in the computations of basic and diluted EPS are presented in the following table.
Three Months ended September 30, 2021:
| Income | Share | Pre-share amount | ||||||||||
| Loss from continuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Income from discontinuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Basic EPS: | ||||||||||||
| Loss available to common stockholders from continuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Income available to common stockholders from discontinuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Dilutive EPS: | ||||||||||||
| Warrants | ||||||||||||
| Diluted loss per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding. Diluted net loss per share equals basic net loss per share because the effect of securities convertible into common shares is anti-dilutive from continuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Diluted Earnings per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding from discontinuing operations | $ | ( | ) | $ | ( | ) | ||||||
9
Three Months ended September 30, 2020:
| Income | Share | Pre-share amount | ||||||||||
| Loss from continuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Income from discontinuing operations | $ | ( | ) | $ | ||||||||
| Basic EPS: | ||||||||||||
| Loss available to common stockholders from continuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Income available to common stockholders from discontinuing operations | $ | ( | ) | $ | ||||||||
| Dilutive EPS: | ||||||||||||
| Warrants | ||||||||||||
| Diluted loss per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding. Diluted net loss per share equals basic net loss per share because the effect of securities convertible into common shares is anti-dilutive from continuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Diluted Earnings per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding from discontinuing operations. | $ | ( | ) | $ | ||||||||
For the nine months ended September 30, 2021:
| Income | Share | Pre-share amount | ||||||||||
| Loss from continuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Income from discontinuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Basic EPS: | ||||||||||||
| Loss available to common stockholders from continuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Income available to common stockholders from discontinuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Dilutive EPS: | ||||||||||||
| Warrants - | ||||||||||||
| Diluted loss per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding. Diluted net loss per share equals basic net loss per share because the effect of securities convertible into common shares is anti-dilutive from continuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Diluted Earnings per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding from discontinuing operations. | $ | ( | ) | $ | ( | ) | ||||||
10
For the nine months ended September 30, 2020:
| Income | Share | Pre-share amount | ||||||||||
| Loss from continuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Income from discontinuing operations | $ | $ | ||||||||||
| Basic EPS: | ||||||||||||
| Loss available to common stockholders from continuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Income available to common stockholders from discontinuing operations | $ | $ | ||||||||||
| Dilutive EPS: | ||||||||||||
| Warrants | ||||||||||||
| Diluted loss per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding. Diluted net loss per share equals basic net loss per share because the effect of securities convertible into common shares is anti-dilutive from continuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Diluted Earnings per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding from discontinuing operations. | $ | | $ | |||||||||
Cash and Cash Equivalents
Cash and cash equivalents included cash on hand and demand deposits placed with banks or other financial institutions, which are unrestricted as to withdrawal and use and with an original maturity of three months or less.
Deposits
in banks in the PRC are only insured by the government up to RMB
Receivable and Allowances
Accounts receivable are recognized and carried at the original invoice amounts less an allowance for any uncollectible amount. We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We extend credit to our customers based on an evaluation of their financial condition and other factors. We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations of our customers and maintain an allowance for potential bad debts if required.
Other receivables, and loan receivables are recognized and carried at the initial amount when occurred less an allowance for any uncollectible amount. We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable impairment losses in our existing receivable.
We determine whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. We may also record a general allowance as necessary.
Direct write-offs are taken in the period when we have exhausted our efforts to collect overdue and unpaid receivable or otherwise evaluate other circumstances that indicate that we should abandon such efforts.
11
The
Company has assessed its receivable including credit term and corresponding all its receivables in September 2021.
Upon such credit terms, bad debt expense was $(
Inventories
Inventories consist of raw materials, packaging materials (which include ingredients and supplies) and finished goods (which) include finished juice in the bottling, canning operations and other. Inventories also consist of merchant gift package to be delivered with the new membership signed up in our e-commerce platform. Inventories are valued at the lower of cost or net realizable value. We determine cost on the basis of the weighted average method. The Company periodically reviews inventories for obsolescence and any inventories identified as obsolete are written off.
Revenue Recognition
We apply the five steps defined under ASC 606: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We assess its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. Revenue arrangements with multiple performance obligations are divided into separate distinct goods or services. We allocate the transaction price to each performance obligation based on the relative standalone selling price of the goods or services provided. Revenue is recognized upon the transfer of control of promised goods or services to a customer.
We do not make any significant judgment in evaluating when control is transferred. Revenue is recorded net of value-added tax.
Revenue recognitions are as follows:
Online sales and membership fee:
The Company recognizes the sale of goods 15 days after the products are shipped (after the 15 days return policy). The revenue from the membership fee is amortized over the lifetime of the membership, which is one year. For the merchandise gift package, revenue is recognized when the receipt of the gift package is confirmed by the members. Other revenues include revenues earned on net basis from sales of certain products on our platform. During the second quarter of 2021, the Company has transformed its member based business model to sales agent based business model for its online shopping mall.
Sales of coals and aluminum ingots
The Company recognize revenue when the receipt of merchandise is confirmed by the customers, which is the point that the title of the goods is transferred to the customer.
Asset Management Service
The company recognition of service revenue when a service is completed, the company issues billing to its customers and recognizes revenue according to the billing.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Depreciation is computed using the straight-line method over the useful lives of the assets. Major renewals and betterments are capitalized and depreciated; maintenance and repairs that do not extend the life of the respective assets are expensed as incurred. Upon disposal of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in the consolidated statements of income and comprehensive income.
12
Depreciation
related to property, plant and equipment used in production is reported in cost of sales, and includes amortized amounts related to capital
leases. We estimated that the residual value of the Company’s property and equipment ranges from
| Machinery and equipment | ||||
| Furniture and office equipment | ||||
| Motor vehicles | ||||
| Leasehold Improvement |
Intangible Assets
Acquired intangible assets are recognized based on their cost to the Company, which generally includes the transaction costs of the asset acquisition, and no gain or loss is recognized unless the fair value of noncash assets given as consideration differs from the assets’ carrying amounts on the Company’s book. These assets are amortized over their useful lives if the assets are deemed to have a finite life and they are reviewed for impairment by testing for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The fair value of an intangible asset is the amount that would be determined if the entity used the assumptions that market participants would use if they were pricing the intangible asset. The useful life of the Company’s intangible assets is ten years, which is determined by using the time period that an intangible is estimated to contribute directly or indirectly to a Company’s future cash flows.
Foreign Currency and Other Comprehensive Income (Loss)
The
financial statements of the Company’s foreign subsidiaries and VIE are measured using the local currency as the functional currency;
however, the reporting currency of the Company is the USD. Assets and liabilities of the Company’s foreign subsidiaries and VIE
have been translated into USD using the exchange rate at the balance sheet dates, while equity accounts are translated using historical
exchange rate. The exchange rate we used to convert RMB to USD was
Income Taxes
We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-25 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.
Goodwill
The Company tests goodwill for impairment for its reporting units on an annual basis, or when events occur or circumstances indicate the fair value of a reporting unit is below its carrying value. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that implied fair value of the goodwill within the reporting unit is less than its carrying value. The company will perform annual goodwill impairment test end of the fiscal year.
13
Lease
After adoption of ASC 842 and related standards, which introduced a lessee model that requires entities to recognize assets and liabilities for most leases, but recognize expenses on their income statements in a manner similar to current accounting, thus operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. For short-term leases with an initial lease term of 12 months or less and with purchase options we are reasonably certain will not be exercised. As a lessee, the Company leases equipment and office building. Lease expense is recognized on a straight-line basis over the lease term.
Convertible notes
The Company accounts for its convertible notes at issuance by allocating the proceeds received from a convertible note among freestanding instruments according to ASC 470, Debt, based upon their relative fair values. The fair value of debt and common stock is determined based on the closing price of the common stock on the date of the transaction. Convertible notes are subsequently carried at amortized cost. Each convertible note is analyzed for the existence of a beneficial conversion feature (“BCF”), defined as the fair value of the common stock at the commitment date for the convertible note, less the effective conversion price. No BCF was recognized for the convertible notes issued during September 30, 2021 and 2020.
Share-based compensation
The Company awards share options and other equity-based instruments to its employees, directors and consultants (collectively “share-based payments”). Compensation cost related to such awards is measured based on the fair value of the instrument on the grant date. The Company recognizes the compensation cost over the period the employee is required to provide service in exchange for the award, which generally is the vesting period. The amount of cost recognized is adjusted to reflect the expected forfeiture prior to vesting. When no future services are required to be performed by the employee in exchange for an award of equity instruments, and if such award does not contain a performance or market condition, the cost of the award is expensed on the grant date. The Company recognizes compensation cost for an award with only service conditions that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award, provided that the cumulative amount of compensation cost recognized at any date at least equals the portion of the grant-date value of such award that is vested at that date.
Variable interest entities
On July 31, 2019, CCM Tianjin, E-commerce Tianjin, and Mr. Zeyao Xue and Mr. Kai Xu, citizens of China and shareholders of E-commerce Tianjin, entered into the following agreements, or collectively, the “Variable Interest Entity Agreements” or “VIE Agreements,” pursuant to which CCM Tianjin has contractual rights to control and operate the business of E-commerce Tianjin (the “VIE”). Therefore, pursuant to ASC 810, E-Commerce Tianjin is included in the Company’s consolidated financial statements since then.
Pursuant to Chinese law and regulations, a foreign owned enterprise cannot apply for and hold a license for operation of certain e-commerce businesses, the category of business which the Company is conducting in China. CCM Tianjin is an indirectly wholly foreign owned enterprise of the Company. In order to comply with Chinese law and regulations, CCM Tianjin agreed to provide E-commerce Tianjin an Exclusive Operation and Use Rights Authorization to operate and use the Chain Cloud Mall System owned by CCM Tianjin.
E-commerce Tianjin was incorporated by Mr. Zeyao Xue and Mr. Kai Xu solely for the purpose of holding the operation license of the Chain Cloud Mall System. Mr. Zeyao Xue is a major shareholder of the Company and the son of Mr. Yongke Xue, the President of the Company. Mr. Kai Xu was the Chief Operating Officer of the Company and currently is the Deputy General Manager of FT Commercial Group Ltd., a wholly owned subsidiary of the Company.
14
The VIE Agreements are as follows:
| 1) | Exclusive Technology Consulting and Service Agreement by and between CCM Tianjin and E-commerce Tianjin. Pursuant to the Exclusive Technology Consulting and Service Agreement, CCM Tianjin agreed to act as the exclusive consultant of E-commerce Tianjin and provide technology consulting and services to E-commerce Tianjin. In exchange, E-commerce Tianjin agreed to pay CCM Tianjin a technology consulting and service fee, the amount of which is to be equivalent to the amount of net profit before tax of E-commerce Tianjin, payable on a quarterly basis after making up losses of previous years (if necessary) and deducting necessary costs, expenses and taxes related to the business operations of E-commerce Tianjin. Without the prior written consent of CCM Tianjin, E-commerce Tianjin may not accept the same or similar technology consulting and services provided by any third party during the term of the agreement. All the benefits and interests generated from the agreement, including but not limited to intellectual property rights, know-how and trade secrets, will be CCM Tianjin’s sole and exclusive property. This agreement has a term of |
| 2) | Exclusive Purchase Option Agreement by and among CCM Tianjin, E-commerce Tianjin, Mr. Zeyao Xue and Mr. Kai Xu. Pursuant to the Exclusive Purchase Option Agreement, Mr. Zeyao Xue and Mr. Kai Xu granted to CCM Tianjin and any party designated by CCM Tianjin the exclusive right to purchase, at any time during the term of this agreement, all or part of the equity interests in E-commerce Tianjin, or the “Equity Interests,” at a purchase price equal to the registered capital paid by Mr. Zeyao Xue and Mr. Kai Xu for the Equity Interests, or, in the event that applicable law requires an appraisal of the Equity Interests, the lowest price permitted under applicable law. Pursuant to powers of attorney executed by Mr. Zeyao Xue and Mr. Kai Xu, they irrevocably authorized any person appointed by CCM Tianjin to exercise all shareholder rights, including but not limited to voting on their behalf on all matters requiring approval of E-commerce Tianjin’s shareholder, disposing of all or part of the shareholder’s equity interest in E-commerce Tianjin, and electing, appointing or removing directors and executive officers. The person designated by CCM Tianjin is entitled to dispose of dividends and profits on the equity interest without reliance on any oral or written instructions of Mr. Zeyao Xue and Mr. Kai Xu. The powers of attorney will remain in force for so long as Mr. Zeyao Xue and Mr. Kai Xu remain the shareholders of E-commerce Tianjin. Mr. Zeyao Xue and Mr. Kai Xu have waived all the rights which have been authorized to CCM Tianjin’s designated person under the powers of attorney. |
| 3) | Equity Pledge Agreements by and among CCM Tianjin, E-commerce Tianjin, Mr. Zeyao Xue and Mr. Kai Xu. Pursuant to the Equity Pledge Agreements, Mr. Zeyao Xue and Mr. Kai Xu pledged all of the Equity Interests to CCM Tianjin to secure the full and complete performance of the obligations and liabilities on the part of E-commerce Tianjin and them under this and the above contractual arrangements. If E-commerce Tianjin, Mr. Zeyao Xue, or Mr. Kai Xu breaches their contractual obligations under these agreements, then CCM Tianjin, as pledgee, will have the right to dispose of the pledged equity interests. Mr. Zeyao Xue and Mr. Kai Xu agree that, during the term of the Equity Pledge Agreements, they will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests, and they also agree that CCM Tianjin’s rights relating to the equity pledge should not be interfered with or impaired by the legal actions of the shareholders of E-commerce Tianjin, their successors or designees. During the term of the equity pledge, CCM Tianjin has the right to receive all of the dividends and profits distributed on the pledged equity. The Equity Pledge Agreements will terminate on the second anniversary of the date when E-commerce Tianjin, Mr. Zeyao Xue and Mr. Kai Xu have completed all their obligations under the contractual agreements described above. |
| 4) | Exclusive Operation and Use Rights Authorization letter which authorizes Chain Cloud Mall E-commerce (Tianjin) Co., Ltd, to exclusively operate and use the Chain Cloud Mall System and the authorization period is the same as the term of the Exclusive Technology Consulting and Service Agreement entered into by and between Chain Cloud Mall Network and Technology (Tianjin) Co., Ltd. and Cloud Chain Mall E-commerce (Tianjin) Co., Ltd. dated July 31, 2019. |
5) |
GlobalKey Shared Mall Shopping Platform Software and System Transfer Agreement by and between Future Supply Chain Co., Ltd. and CCM Tianjin, pursuant to which the GlobalKey Shared Mall Shopping Platform Software and System was transferred from Future Supply China Co., Ltd. to CCM Tianjin and that both parties were wholly owned subsidiaries of the Company and transfer price is $0. |
| (6) | Spousal Consent Letters. The spouse of Mr. Kai Xu (Mr. Zeyao Xue is not married), the shareholder of E-Commerce Tianjin has signed a spousal consent letter agreeing that the equity interests in E-Commerce Tianjin held by and registered under the name of such shareholder will be disposed pursuant to the contractual agreements with CCM Network. The spouse of such shareholder agreed not to assert any rights over the equity interest in E-Commerce Tianjin held by such shareholder. |
15
New Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”) “Financial Instruments - Credit Losses” (“ASC 326”): Measurement of Credit Losses on Financial Instruments” which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. In November 2019, the FASB issued ASU 2019-10 “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)” (“ASC 2019-10”), which defers the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, for public entities which meet the definition of a smaller reporting company. The Company will adopt ASU 2016-13 effective January 1, 2023. Management is currently evaluating the effect of the adoption of ASU 2016-13 on the consolidated financial statements. The effect will largely depend on the composition and credit quality of our investment portfolio and the economic conditions at the time of adoption.
In August 2020, the FASB issued Accounting Standards Update No. 2020-06 (ASU 2020-06) “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. For public business entities that are not smaller reporting companies, ASU 2020-6 effective fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on the accompanying consolidated financial statements.
3. VARIABLE INTEREST ENTITY
The carrying amount of the VIE’s consolidated assets and liabilities are as follows:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | (Audited) | |||||||
| Current assets | $ | $ | ||||||
| Property and equipment, net | ||||||||
| Total assets | ||||||||
| Total liabilities | ( | ) | ( | ) | ||||
| Net assets | $ | ( | ) | $ | ( | ) | ||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Current liabilities: | (Unaudited) | (Audited) | ||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other payables | ||||||||
| Advances from customers | ||||||||
| Total current liabilities | ||||||||
| Amount Due to Related Party | ||||||||
| Total liabilities | ||||||||
The summarized operating results of the VIE’s are as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020* | 2021 | 2020* | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Gross profit | ||||||||||||||||
| Net income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
16
4. ACCOUNTS RECEIVABLE
Accounts receivable, net consist of the following:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | (Audited) | |||||||
| Coal and Aluminum Ingots Supply Chain Financing/Trading | $ | $ | ||||||
| Asset management service | ||||||||
| Others | ||||||||
| Allowance for doubtful accounts | ( | ) | ||||||
| Total accounts receivable, net | $ | $ | ||||||
Movements of allowance for doubtful accounts are as follows:
| Beginning balance | $ | $ | ||||||
| Addition | ||||||||
| Ending balance | $ | $ |
The following table sets forth our concentration of accounts receivable, net of specific allowances for doubtful accounts.
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | (Audited) | |||||||
| Debtor A | $ | % | $ | |||||
| Debtor B | % | |||||||
| Debtor C | % | |||||||
| Total accounts receivable, net | $ | % | $ | |||||
5. OTHER RECEIVABLES
As of September 30, 2021, the balance of other
receivables was $
In
addition, other receivables included total $
6. LOAN RECEIVABLES
As of September 30, 2021, the balance of loan receivables was $
On July 30, 2021,
On September 16, 2021, Future Commercial Group
Co., Ltd. (“Future Commercial”), a wholly owned subsidiary of the Company, entered into a “Interest-free Loan Agreement”
with a third party. Pursuant to the Loan Agreement, Future Commercial loaned USD
7. OTHER CURRENT ASSETS
The amount of other current assets consisted of the followings:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | (Audited) | |||||||
| Prepayments for Coal and Aluminum Ingots Supply Chain Financing/Trading | $ | $ | ||||||
| Prepayment for properties | ||||||||
| Prepaid expenses | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
17
8. GOODWILL
As
of September 30, 2021, the balance of goodwill mainly represented an amount of $
9. ACQUISITION
On August 6, 2021 (“Acquisition Date”),
the Company through its wholly owned subsidiary Future FinTech (Hong Kong) Limited., completed its acquisition of
The transaction was accounted for in accordance with the provisions of ASC 805-10, Business Combinations. The Company retained an independent appraisal firm to advise management in the determination of the fair value of the various assets acquired and liabilities assumed. The values assigned in these financial statements represent management’s best estimate of fair values as of the Acquisition Date.
As required by ASC 805-20, Business Combinations—Identifiable Assets and Liabilities, and Any Noncontrolling Interest, management conducted a review to reassess whether they identified all the assets acquired and all the liabilities assumed, and followed ASC 805-20’s measurement procedures for recognition of the fair value of net assets acquired.
The following table summarizes the allocation of estimated fair values of net assets acquired and liabilities assumed:
| Accounts receivable | $ | |||
| Other receivables | ||||
| Other current assets | ||||
| Property, plant and equipment, net | ||||
| Amount Due from Related Party | ||||
| Goodwill | ||||
| Accrued expenses and other payables | ( | ) | ||
| Total purchase price for acquisition | $ |
The Company has included the operating results of Nice Talent in its
unaudited condensed consolidated financial statements since the Acquisition Date. US$
10. LEASES
The
Company’s noncancelable operating leases consist of leases for office spaces. The Company is the lessee under the terms of the
operating leases. For the nine months ended September 30, 2021, the operating lease cost was $
The
Company’s operating leases have remaining lease terms that range from approximately
Maturities of lease liabilities were as follows:
| Operating | ||||
| As of September 30, | Lease | |||
| From October 1, 2021 to July 31, 2022 | $ | |||
| Total | $ | |||
| Less: amounts representing interest | $ | |||
| Present Value of future minimum lease payments | ||||
| Less: Current obligations | ||||
| Long term obligations | $ | |||
18
11. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | (Audited) | |||||||
| Office equipment, fixtures and furniture | $ | $ | ||||||
| Vehicle | ||||||||
| Leasehold Improvement | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Impairment | ( | ) | ||||||
| Total | $ | $ | ||||||
Depreciation expense included in general and administration
expenses for the nine months ended September 30, 2021 and 2020 was $
12. ACCOUNTS PAYABLE
Accounts payable consisted of the followings
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | (Audited) | |||||||
| Accounts payable - Coal and Aluminum Ingots Supply Chain Financing/Trading | $ | $ | ||||||
| Other | ||||||||
| Total | $ | $ | ||||||
13. LOAN PAYABLES
As of September 30, 2021, loan payables were
$
The
loan from Shaanxi Entai Bio-Technology Co., Ltd of $
14. ACCRUED EXPENSES AND OTHER PAYABLES
The amount of accrued expenses and other payables were consisted of the followings:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | (Audited) | |||||||
| Legal fee and other professionals | $ | $ | ||||||
| Wages and employee reimbursement | ||||||||
| Suppliers | ||||||||
| Accruals | ||||||||
| Total | $ | $ | ||||||
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15. CONVERTIBLE NOTES PAYABLE
As of September 30, 2021 and December 31, 2020, convertible debt consisted of the following:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | (Audited) | |||||||
| Beginning | $ | $ | ||||||
| Addition | ||||||||
| Payment | ( | ) | ||||||
| Conversion | ( | ) | ||||||
| Balance | $ | - | $ | |||||
16. DEFERRED LIABILITES
As of September 30, 2021, the balance of deferred
liabilities mainly represented an amount of $
17. RELATED PARTY TRANSACTION
As of September 30, 2021, the amounts due to the related parties were consisted of the followings:
| Name | Amount (US$) | Relationship | Note | |||||
| Zhi Yan | $ | |||||||
| Jing Chen | ||||||||
| Reits (Beijing) Technology Co., Ltd | Acquisition of intangibles upon the full completion of the online platform pursuant to an agreement originally entered between parties before Zhi Yan was the general manager of our subsidiary. The amount is interest free and payment on demand. | |||||||
| Shaanxi Chunlv Ecological Agriculture Co. Ltd. | ||||||||
| Kai Xu | ||||||||
| Shaanxi Fuju Mining Co., Ltd | ||||||||
| Total | $ | |||||||
As of September 30, 2021, the amounts due from the related parties were consisted of the followings:
| Name | Amount (US$) | Relationship | Note | |||||
| Shaanxi Fu Chen Venture Capital Management Co. Ltd. (“Shaanxi Fu Chen”) | ||||||||
| Bin Wu | Advance to pay for the incorporation costs of the establishment of the subsidiary in Dubai* Amount is interest free and payment on demand. | |||||||
| Zeyao Xue | ||||||||
| NT SPC Fund | ||||||||
| Ming Yi | ||||||||
Ola Johannes Lind | ||||||||
| Total | $ | |||||||
| * | The related party transactions have been approved by the Company’s Audit Committee. |
20
18. INCOME TAX
The
Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes
have been made, as the Company had no U.S. taxable income for the nine months ended September 30, 2021 and 2020. The effective income
tax rate for the Company for both of the nine months ended September 30, 2021 and 2020 were
The Company evaluates the level of authority for each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. For the nine months ended September 30, 2021, the Company had no unrecognized tax benefits. Due to uncertainties surrounding future utilization, the Company estimates there will not be sufficient future income to realize the deferred tax assets for its subsidiaries and VIE.
The Company has not provided deferred tax assets from foreign subsidiaries operating losses because currently no business operation and no future income is anticipating.
The amount of unrecognized deferred tax liabilities for temporary differences related to the dividend from foreign subsidiaries is not determined because such determination is not practical.
The Company has not provided deferred taxes on undistributed earnings attributable to its PRC and Hong Kong subsidiaries as they are to be permanently reinvested.
The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of ASC Topic 740, Income Taxes. Since the Company intends to reinvest its earnings to further expand its businesses in mainland China, its PRC subsidiaries do not intend to declare dividends to their immediate foreign holding companies in the foreseeable future. Accordingly, the Company has not recorded any deferred taxes in relation to US tax on the cumulative amount of undistributed retained earnings since January 1, 2008.
Effective on January 1, 2008, the PRC Enterprise Income Tax Law, EIT Law, and Implementing Rules imposed a unified enterprise income tax rate of 25% on all domestic-invested enterprises and foreign-invested enterprises in the PRC, unless they qualify under certain limited exceptions. All of the Companies’ Chinese subsidiaries and VIE were subject to an enterprise income tax rate of 25%.
19. SHARE BASED COMPENSATION
On
July 12, 2021 (the “Grant Date”), the Compensation Committee of the Board of Directors (the “Board”) of the Company
granted
Consulting Service Agreement
On
January 25, 2020, the Company entered into a Consulting Service Agreement (the “Agreement”) with Dragon Investment Holding
Limited (Malta) (the “Consultant”), a company incorporated in Malta, pursuant to which Consultant will: (i) help the Company
to locate new merger projects globally, develop new merger strategy and provide the Company with at least five (5) merger and acquisition
targets that have synergy with the Company’s business and development plans and could clearly contribute to the Company’s
strategic goals each year; (ii) help the Company to map out new growth strategies in addition to its current business; (iii) work with
the Company to explore new lines of business and associated growth strategies; and (iv) conduct market research and evaluating variable
projects and providing feasibility studies per Company’s request from time to time. The term of the Agreement is three years. In
consideration of the services to be provided by the Consultant to the Company, the Company agrees to pay the Consultant a three-year
consulting fee totaling $
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20. COMMON STOCK
Securities Purchase Agreement
On
December 24, 2020, the Company entered into a securities purchase agreement with certain purchasers, pursuant to which the Company sold
to the purchasers in a registered direct offering, an aggregate of
The
net proceeds offering were $
On
January 11, 2021, the Company entered into a securities purchase agreement with certain purchasers identified on the signature page
thereto, pursuant to which the Company sold to the purchasers in a registered direct offering, an aggregate of
On
February 9, 2021, the Company entered into a securities purchase agreement with certain purchasers identified on the signature page
thereto, pursuant to which the Company sold to the purchasers in a registered direct offering, an aggregate of
On
April 1, 2021, the Company entered into a Securities Purchase Agreement with certain purchasers identified on the signature page thereto
(the “Purchasers”), pursuant to which the Company sold to the Purchasers in a registered direct offering, an aggregate of
On
April 12, 2017,
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On
July 26, 2021, the Company entered into a Securities Purchase Agreement (the “Agreement”) with certain investors identified
on the signature pages thereto (the “Purchasers”),
On
August 6, 2021,
21. DISCONTINUED OPERATIONS
HeDeTang HK
On September 18, 2019, SkyPeople Foods Holdings Limited
(“SkyPeople Foods”) entered into a Share Transfer Agreement (the “Agreement”) with New Continent International
Co., Ltd., (the “Buyer”) a company incorporated in the British Virgin Islands.
The discontinued operation presented in the financial statement includes Huludao Wonder operation, a subsidiary which produced concentrated apple juice. In December 2016, the Company established a winding-down plan to close this operation. Based on the restructuring plan and in accordance with ASC 205-20, the Company presented the operating results from Huludao Wonder as a discontinued operation, as the Company believed that no continued cash flow would be generated by the disposed component (Huludao Wonder) and that the Company would have no significant continuing involvement in the operation of the discontinued component. Management of the Company initiated a plan to sell the property located in Huludao in December 2016, and ceased the depreciation of the property in accordance with ASC 205-20. On February 27, 2020 pursuant to a Share Transfer Agreement entered into by SkyPeople Foods and New Continent International Co., Ltd. on September 18, 2019, the ownership of Huludao Wonder was transferred as a subsidiary of HeDeTang HK to New Continent International Co., Ltd.
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On March 11, 2020, the Company’s Board of Directors passed a resolution to sell the operation of Future Supply Chain Limited and Zhonglian Hengxin Assets Management Co., Ltd (“Zhonglian Hengxin”) and close the operation of Digital Online Marketing Limited, SkyPeople Foods Holding Limited. and Chain Future Digital Tech (Beijing) Co., Ltd. On March 18, 2021, Chain Future Digital Tech (Beijing) Co., Ltd. was deregistered. Based on the disposal plan and in accordance with ASC 205-20, the Company presented the operating results from these operations as a discontinued operation. On October 31, 2020, the transfer of ownership of Future Supply Chain Limited and Zhonglian Hengxin was completed.
On July 24, 2020, the Company’s Board of Directors passed a resolution to sell the operation of Hedetang Farm Products Trading Markets (Mei County) Co., Ltd. and close the operation of Chain Cloud Mall Logistics Center (Shaanxi) Co., Ltd. On July 27,2020, Skypeople Foods Holdings Limited was dissolved; On July 28, 2020 Digital Online Marketing Limited was dissolved; On October 31, 2020, Chain Cloud Mall Network and Technology (Tianjin) Co., Limited and Chain Cloud Mall Logistics Center (Shanxi) Co., Ltd. completed the transfer of their ownership of Hedetang Farm Products Trading Markets (Mei country) Co., Ltd. to third parties.
On
April 19, 2021, FT Commercial Management (Beijing) Co., Ltd was deregistered, resulting in a loss on disposal of $
On August 2, 2021, Guangchengji (Guangdong) Industrial Co., Ltd was
sold to a third party, resulting in a loss on disposal of $
On September 2, 2021, Future Supply Chain Co., Ltd ceased operation.
Loss from discontinued operations for three months ended and nine months ended September 30, 2021 and 2020 was as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020* | 2021 | 2020* | |||||||||||||
| REVENUES | $ | ( | ) | $ | $ | $ | ||||||||||
| COST OF SALES | ( | ) | ||||||||||||||
| GROSS PROFIT | ( | ) | ||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| Bad debt provision | ( | ) | ||||||||||||||
| Total | ||||||||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Interest income | ( | ) | ||||||||||||||
| Interest expenses | ( | ) | ( | ) | ||||||||||||
| Other income(expenses) net | ||||||||||||||||
| Total | ( | ) | ||||||||||||||
| Income (loss) from discontinued operations before income tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax provision | ||||||||||||||||
| Income (loss) from discontinued operation before noncontrolling interest | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss on disposal of discontinued operations | ||||||||||||||||
| (INCOME) LOSS FROM DISCONTINUED OPERATION | ( | ) | ( | ) | ( | ) | ||||||||||
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The major components of assets and liabilities related to discontinued operations are summarized below:
| September 30, 2021 | December 31, 2020 | |||||||
| Cash | $ | $ | ||||||
| Other current assets | ||||||||
| Loan receivables | ||||||||
| Property, plant and equipment, net | ||||||||
| Amount due from related parties | ||||||||
| Total assets related to discontinued operations | $ | |||||||
| Accounts payable | ||||||||
| Accrued expenses | $ | $ | ||||||
| Loan payables | ||||||||
| Amount due to related parties | ||||||||
| Total liabilities related to discontinued operations | $ | $ | ||||||
22. SEGMENT REPORTING
In its operation of the business, management,
including our chief operating decision maker, who is our Chief Executive Officer, reviews certain financial information, including segmented
internal profit and loss statements prepared on a basis consistent with GAAP. The Company operates in
In compliance with the Company’s business transformation strategy, membership fees from the shared shopping mall and sales of goods through the shared shopping mall platform started to generate the main revenues for the Company and became more and more important business sections of the Company from fiscal year 2019, while its traditional business section of seasonal fruit related products continued to shrink in fiscal year 2019. However, due the COVID-19 pandemic and restriction on large gatherings in China, which have made the promotion strategy for its online e-commerce platforms difficult to implement and the Company has experienced difficulties to subscribe new members for its online e-commerce platforms. Due to lack of new members, difficulties in retaining old customers and significant decrease of revenue in e-commerce business, the Company began to provide supply chain financing services for coal mines and power generation plants to buy and sell coals and trading aluminum ingots.
Some of our operation might not individually meet the quantitative thresholds for determining reportable segments and we determine the reportable segments based on the discrete financial information provided to the chief operating decision maker. The chief operating decision maker evaluates the results of each segment in assessing performance and allocating resources among the segments. Since there is an overlap of services and products between different subsidiaries of the Company, the Company does not allocate operating expenses and assets based on the product segments. Therefore, operating expenses and asset information by segment are not presented. Segment profit represents the gross profit of each reportable segment.
Three Months ended September 30, 2021
| Coals and aluminum ingots supply chain financing/trading | Asset management service | Total | ||||||||||
| Reportable segment revenue | $ | $ | $ | |||||||||
| Inter-segment loss | ||||||||||||
| Revenue from external customers | ||||||||||||
| Segment gross profit | $ | $ | $ | |||||||||
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Three Months ended September 30, 2020
| CCM Shopping Mall Membership | Sales of Goods | Others | Total | |||||||||||||
| Reportable segment revenue | $ | $ | $ | $ | ||||||||||||
| Inter-segment loss | ||||||||||||||||
| Revenue from external customers | $ | |||||||||||||||
| Segment gross profit | $ | $ | $ | $ | ||||||||||||
As of September 30, 2021:
| CCM Shopping Mall Membership | Coal and aluminum ingots supply chain financing/trading | Asset management service | Total | |||||||||||||
| Reportable segment revenue | $ | | $ | $ | $ | |||||||||||
| Inter-segment loss | ||||||||||||||||
| Revenue from external customers | $ | |||||||||||||||
| Segment gross profit | $ | $ | ( | ) | $ | $ | ||||||||||
As of September 30, 2020:
| CCM Shopping Mall Membership | Sales of Goods | Others | Total | |||||||||||||
| Reportable segment revenue | $ | $ | $ | $ | ||||||||||||
| Inter-segment loss | ||||||||||||||||
| Revenue from external customers | $ | |||||||||||||||
| Segment gross profit | $ | $ | $ | $ | ||||||||||||
23. COMMITMENTS AND CONTINGENCIES
Legal case with FT Global Litigation
In
January 2021, FT Global Capital, Inc. (“FT Global”), a former placement agent of the Company filed a lawsuit against the
Company in the Superior Court of Fulton County, Georgia. FT Global served the complaint upon the Company in January 2021. In
the complaint, FT Global alleges claims, most of which attempt to hold the Company liable under legal theories that relate back to an
alleged breach of an exclusive placement agent agreement between FT Global and the Company in July 2020 which had a term of three months.
FT Global claims that the Company failed to compensate FT Global for securities purchase transactions between December 2020 and April
2021, pursuant to the terms of the expired exclusive placement agent agreement. Allegedly, the exclusive placement agent agreement
required the Company to pay FT Global for capital received during the term of the agreement and for the 12-month period following the
termination of the agreement involving any investors that FT Global introduced and/or wall-crossed to the Company. However, the
Company believes the securities purchase transactions at issue did not involve the one investor which FT Global introduced or wall-crossed
to the Company during the term of the agreement. FT Global claims approximately $
The Company timely removed the case to the United States District Court for the Northern District of Georgia (the (“Court”) on February 9, 2021 based on diversity of jurisdiction. On March 9, 2021, the Company filed a motion to dismiss based on FT Global’s failure to state a claim which is pending before the Court. On March 23, 2021, FT Global filed its response to the Company’s motion to dismiss. FT Global argues that the Court should deny the Company’s motion to dismiss. However, if the Court is inclined to grant the Company’s motion to dismiss, FT Global requested that the Court permit it to file an amended complaint. On April 8, 2021, the parties filed a Joint Preliminary Report and Discovery Plan. On April 12, 2021, the Court approved the Joint Preliminary Report and Discovery Plan and issued a Scheduling Order placing this case on a six-month discovery tract. On April 30, 2021, the Company served FT Global with its Initial Disclosures. On May 6, 2021, FT Global served the Company with its Initial Disclosures. On May 17, 2021, FT Global served the Company with its First Amended Initial Disclosures. On November 10, 2021, the Court entered an Order granting the Company’s motion to dismiss FT Global’s fraud claim and breach of contract claim as to the disclosure of its confidential and proprietary information. The Court denied the Company’s motion to dismiss FT Global’s i) breach of contract claim for failure to pay FT Global pursuant to the terms of the exclusive placement agent agreement; ii) claim for breach of the covenant of good faith and fair dealing; and iii) claim for attorney’s fees, and the court concluded that additional information can be obtained through discovery. The Company will timely file an answer and defenses to FT Global’s complaint which is due on November 24, 2021. The Company will continue to vigorously defend the action against FT Global.
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24. RISKS AND UNCERTAINTIES
Impact of COVID 19
In December 2019, a novel strain of coronavirus was reported and has spread throughout China and other parts of the world. On March 11, 2020, the World Health Organization characterized the outbreak as a “pandemic”. In early 2020, Chinese government took emergency measures to combat the spread of the virus, including quarantines, travel restrictions, and the temporary closure of office buildings and facilities in China. Substantially all of our revenues are generated in China. In response to the evolving dynamics related to the COVID-19 outbreak, the Company has followed the guidelines of local authorities as it prioritizes the health and safety of its employees, contractors, suppliers and business partners. Our offices in China were closed and all of the Company’s employees worked from home at the end of January until late March 2020. The quarantines, travel restrictions, and the temporary closure of office buildings have materially negatively impacted our business. Our suppliers were negatively affected, and could continue to be negatively affected in their ability to supply and ship products to our customers in case of any resurgence of COVID-19. Our customers that have been negatively impacted by the outbreak of COVID-19 may reduce their budgets to purchase products and services from us, which may materially adversely impact our revenue. The business operations of the third parties’ stores on our e-commerce platform have been and could continue to be negatively impacted by the outbreak, which may in turn adversely affect the business of our platform as a whole as well as our financial condition and operating results. The outbreak has had and might continue to have disruption to our supply chain, logistics providers, customers or our marketing activities in case of any resurgence of COVID-19, which could materially adversely impact our business and results of operations. Some of our customers, contractors, suppliers and other business partners are small and medium-sized enterprises (SMEs), which may not have strong cash flows or be well capitalized, and may be vulnerable to an epidemic outbreak and slowing macroeconomic conditions. If the SMEs that we work with cannot weather the COVID-19 and the resulting economic impact, or cannot resume business as usual after a prolonged outbreak, our revenues and business operations may be materially and adversely impacted. The Company’s promotion strategy of CCM Shopping Mall previously mainly relied on the training of members and distributors through meetings and conferences. Although China has already begun to recover from the outbreak of COVID-19, there have been small outbreaks of COVID-19 in various cities in China and Chinese government still put a restriction on large gatherings. These restrictions made the promotion strategy for our online e-commerce platforms difficult to implement. The Company has experienced difficulties to subscribe new members for its online e-commerce platforms and has to transform its business model from member based platform to sales agent based platform during the second quarter of 2021. Any further outbreaks of COVID-19 and its new variants could also negatively affect our supply chain financing service and trading business for coals and aluminum ingots if there is any quarantines, travel restriction or supply chain disruptions in China due to outbreak.
The global economy has also been materially negatively affected by the COVID-19 and there is continued severe uncertainty about the duration and intensity of its impacts. The Chinese and global growth forecast is extremely uncertain, which would seriously affect customer spending on our online shopping malls.
While the potential economic impact brought by, and the duration of COVID-19 and its new variants may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, negatively impacting our assets management business as well as reducing our ability to access capital, which could negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 and its new variants could materially affect our business and the value of our common stock.
PRC Regulations
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business and the enforcement and performance of our arrangements with customers in certain circumstances. We are considered foreign persons or foreign funded enterprises under PRC laws and, as a result, we are required to comply with PRC laws and regulations related to foreign persons and foreign funded enterprises. These laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our business.
25. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date of the issuance of the condensed consolidated financial statements and no subsequent event is identified.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This quarterly report on Form 10-Q and other reports filed by the Company from time to time with the SEC (collectively the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “may”, “will”, “should”, “would”, “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan”, or the negative of these terms and similar expressions as they relate to Company or Company’s management identify forward-looking statements. Such statements reflect the current view of Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors (including the statements in the section “results of operations” below), and any businesses that Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those listed under the heading “Risk Factors” and those listed in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”) and in this Form 10-Q. The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report and in our 2020 Form 10-K.
Although the Company believes the expectations reflected in the forward-looking statements are based on reasonable assumptions, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this report, which attempts to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations, and prospects.
Overview of Our Business
Future FinTech is a holding company incorporated under the laws of the State of Florida. The Company historically engaged in the production and sale of fruit juice concentrates (including fruit purees and fruit juices), fruit beverages (including fruit juice beverages and fruit cider beverages) in the PRC. Due to drastically increased production costs and tightened environmental laws in China, the Company had transformed its business from fruit juice manufacturing and distribution to a real-name blockchain based e-commerce platform and supply chain financing service and trading business. The main business of the Company includes an online shopping platform, Chain Cloud Mall (“CCM”), which is based on blockchain technology; supply chain financing services and trading; a blockchain-based application incubator; and technical service and support for blockchain based assets and their operating entities; and the application and development of blockchain-based e-commerce technology and financial technology services. The Company has also expanded into financial services business. On August 6, 2021, the Company completed acquisition of 90% of the issued and outstanding shares of Nice Talent Asset Management Limited (“NTAM”), a Hong Kong-based asset management company, from Joy Rich Enterprises Limited (“Joy Rich”). NTAM is licensed under the Securities and Futures Commission of Hong Kong (“SFC”) to carry out regulated activities in Type 4: Advising on Securities and Type 9: Asset Management. On September 1, 2021, FTFT UK Limited, a company organized under the laws of United Kingdom and a wholly owned subsidiary of the Company entered into a Share Purchase Agreement with Rahim Shah, a resident of United Kingdom (“Seller”) to acquire 100% of the issued and outstanding shares (the “Sale Shares”) of Khyber Money Exchange Ltd., which is a money transfer company with a platform for transferring money through one of its agent locations or via its online portal, mobile platform or over the phone. Khyber Money Exchange Ltd. is regulated by the UK Financial Conduct Authority (FCA) and the parties are waiting for the approval by the FCA before formal closing of the transaction.
We are a holding company incorporated in Florida and we are not a Chinese operating company. As a holding company with no material operations of our own, we conduct a substantial majority of our operations through our subsidiaries and contractual arrangements with a variable interest entity (VIE) – Cloud Chain E-Commerce (Tianjin) Co., Ltd., formerly known as Chain Cloud Mall E-Commerce (Tianjin) Co., Ltd. (“E-Commerce Tianjin”), based in China and this structure involves unique risks. Our shares of common stock are shares of our Florida holding company, and we do not have any equity ownership of our VIE, instead we control and receive the economic benefits of our VIE’s business operations through certain contractual arrangements, which are used to replicate foreign investment in Chinese-based companies where Chinese law prohibits direct foreign investment in value added telecom/e-commerce business. Chinese regulatory authorities could disallow the VIE structure, which would likely result in a material change in our operations and/or value of our shares, including that it could cause the value of shares to significantly decline or become worthless.
28
There are legal and operational risks associated with being based in and having a substantial majority of operations in China and Hong Kong. These risks could result in a material change in our operations and/or the value of our common stock or could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our shares to significantly decline or be worthless. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. On July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued an announcement to crack down on illegal activities in the securities market and promote the high-quality development of the capital market, which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the PRC securities laws. Recently, the PRC State Internet Information Office issued the Measures of Cybersecurity Review (Revised Draft for Comments, not yet effective), which requires cyberspace operators with personal information of more than 1 million users who want to list abroad to file a cybersecurity review with the Office of Cybersecurity Review. As of the date of this report, these new laws and guidelines have not impacted the Company’s ability to conduct its business, accept foreign investments, or list on a U.S. or other foreign stock exchange; however, there are uncertainties in the interpretation and enforcement of these new laws and guidelines, which could materially and adversely impact our business and financial outlook and may impact our ability to accept foreign investments or continue to list on a U.S. or other foreign stock exchange. Our VIE and certain subsidiaries of the Company are incorporated and operating in mainland China and they have received all required permissions from Chinese authorities to operate their current business in China, including a Business license, Bank Account Open Permits and Value Added Telecom Business License.
Chain Cloud Mall adopts a “multi-vendor hosted stores + platform self-hosted stores” model. The platform supports various marketing methods, including point rewards programs, coupons, live webcasts, game interaction, and social media sharing. Besides the blockchain-powered features, CCM is also fully equipped with the same functions and services that other Chinese leading traditional e-commerce platforms provide.
Based on blockchain technology, CCM is established to transform the relationship between companies and consumers from traditional selling and buying relationships to a value-sharing relationship. The platform will fairly distribute the benefit of the entire mall to users who engaged in the promotion, development, and consumption based on their contributions to the platform. The users of CCM are not only consumers and entrepreneurs but also participants, promoters and beneficiaries. The CCM shared shopping mall platform is designed to be a block-chain based shopping mall for merchants and goods, not the exchange of digital currencies, and it currently only accepts payment from credit cards, Alipay and WeChat.
Chain Cloud Mall is an enterprise and customer interactive and comprehensive shopping and sales service platform. It is an open network promotion system with a blockchain based anti-counterfeit system including referral point and discount points issuance and settlement. Such business model creates a completely new source of data traffic for enterprises on our platform.
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The Company started its trial operation of NONOGIRL, a cross-border e-commerce platform, in March 2020 and formally launched it in July 2020. The cross-border e-commerce platform aimed to build a new s2b2c (supplier to business and consumer) outsourcing sales platform dominated by social media influencers. It was aimed at the growing female consumer market, with the ability to broadcast, short video, and all forms communication through the platform. It could also create a sales oriented sharing ecosystem with other major social media used by customers, etc. The Company’s promotion strategy previously mainly relied on the training of members and distributors through meetings and conferences. Due to the outbreak of COVID-19, the Chinese government put a restriction on large gatherings. These restrictions made the promotion strategy for our online e-commerce platforms difficult to implement and the Company has experienced difficulties to subscribe new members for its online e-commerce platforms. Due to the lack of new subscribers, in June 2021, the Company suspended its cross-border e-commerce platform (NONOGIRL). Also, since the second quarter of 2021, the Company has transformed its member-based business model of Chain Cloud Mall to sales agent based business model and began to provide supply chain financing services and trading for coal mines and power generation plants as well as aluminum ingots.
The Company currently has seven direct wholly-owned subsidiaries: DigiPay FinTech Limited (“DigiPay”), a company incorporated under the laws of the British Virgin Islands, Future FinTech (Hong Kong) Limited, a company incorporated under the laws of Hong Kong, GlobalKey Shared Mall Limited, a company incorporated under the laws of Cayman Islands (“GlobalKey Shared Mall”), Tianjin Future Private Equity Fund Management Partnership( Limited Partnership), a company incorporated under the laws of China, FTFT UK Limited, a company incorporated under the laws of United Kingdom, Future Fintech Digital Capital Management, LLC, a company incorporated under the laws of Connecticut and Future FinTech Labs Inc., a company incorporated under the laws of New York.
CCM Shopping Mall
Due to the lack of new member subscriptions caused by restrictions on our promotion strategy for the control of spread of COVID-19, we have transformed the CCM shopping mall to an “Enterprise Communication as A Service” or eCAAS platform. The eCAAS platform is entrusted by the 315 Consumer Protection Foundation to run its Responsible Brand Program.
315 Consumer Protection Foundation (the “Foundation”) will review and accept the companies to join its Responsible Brand Program. After acceptance, these companies are authorized to use 315 anti-counterfeiting labels on their products and sell them on our eCAAS platform. The companies can also use sales agents to sell their products on our eCAAS platform and parties can negotiate the commission percentages for the products sold. Any new sales agent must be recommended by existing agents and pay a one-time fee to the eCAAS platform to be admitted as the authorized agent to provide sales agent services on the platform.
Sales of Goods
We have a unique real-name based blockchain e-commerce shopping platform that integrates blockchain, internet technology and distinguishes itself by utilizing the automatic value distribution system of the blockchain and sharing the value of the platform to all the participants in the system.
Our eCAAC platform has a value cycle system of online shopping mall with the real-name blockchain system with following characteristics:
| 1. | Blockchain anti-counterfeiting |
Using real-name blockchain technology to carry out anti-counterfeiting for products produced by the enterprises. The essence of anti-counterfeiting is to determine the person responsible for the product. Using real-name blockchain system, it provides the assurance to our customers to the authentication of the products they purchase and solve the problem of counterfeiting products in online shopping mall.
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| 2. | Blockchain points settlement leads to secondary data traffic |
Blockchain points are also discount coupons for merchants, guiding customers to the platform of the merchants, and provide them with discounts when purchasing. This process is called secondary data traffic. Blockchain anti-counterfeiting technology through scanning of QR codes by the customers helps companies identify such customers and allows them to systematically maintain contacts with such customers.
| 3. | Points promotion system |
Points promotion system brings secondary data traffic comes with volume and high turnover ratio. All such sales are directed to the merchants’ stores when customers possess and use merchant’s coupons. With a high level of user stickiness, customers are likely to purchase products again and collect more blockchain points.
| 4. | Building a high value community |
We believe anti-counterfeiting technology plus the Company’s secondary data traffic platform will create great value for the merchants that have stores on our platform. By gathering all loyal customers to a merchant’s store, we can build a standard value community. With the common interest, the value community of merchants can form a self-organizing system with customer groups to maximize the interests of such merchants and customers.
Coal and Aluminum Ingots Supply Chain Financing Service and Trading
Since the sconed quarter of 2021, we started coal supply chain financing service and trading business. Since the third quarter of 2021, we started aluminum ingots supply chain financing service and trading business. We signed purchase and sale agreements with suppliers and buyers. The suppliers are responsible for the supply and transportation of coal to the end users’ designated freight yard or transfer the title of aluminum ingots to us in certain warehouses. We select the customers and suppliers that have good credit and reputation.
NTAM engages assets management and advisory services. NTAM’s main revenue is generated from providing professional advices to customers and management fees for managing the investment of the clients.
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Results of Operations
Comparison of Three Months ended September 30, 2021 and 2020:
Revenue
The following table presents our consolidated revenues for the three months ended September 30, 2021 and 2020, respectively:
| Three months ended September 30, | Change | |||||||||||||||
| 2021 | 2020 | Amount | % | |||||||||||||
| CCM Shopping Mall Membership | - | 29,779 | (29,779 | ) | (100 | )% | ||||||||||
| Coal and Aluminum Ingots Supply Chain Financing/Trading | 9,643,977 | - | 9,643,977 | - | ||||||||||||
| Sales of goods | - | 4,264 | (4,264 | ) | 100 | % | ||||||||||
| Asset management service | 2,101,050 | - | 2,101,050 | - | ||||||||||||
| Others | - | 9,407 | (9,407 | ) | (100 | )% | ||||||||||
| Total | $ | 11,745,027 | $ | 43,450 | $ | 11,701,577 | 26931 | % | ||||||||
CCM Shopping Mall Membership fees decreased from $29,779 for the three months ended September 30, 2020 to $0 for the three months ended September 30, 2021 because there was no new member enrollment during the third quarter of 2021 and the Company has transformed its business model of CCM Shopping Mall from a member-based platform to a sales agent based eCAAC platform. Due to COVID-19 related restriction on large gathering for meetings and conference which primarily used by us before the pandemic for marketing and business development of new members, we were unable to attract new member enrollment during the three months ended September 30, 2021.
Coal and Aluminum Ingots Supply Chain Financing Service and Trading business increased from $0 for the three months ended September 30, 2020 to $9.64 million for the three months ended September 30, 2021. This is a new business we started during the second quarter this year which did not exist last year.
Sale of goods decreased from $4,264 for the three months ended September 30, 2020 to $0 for the three months ended September 30, 2021 as no sale of goods during the same period of 2021.
Asset management service increased from $0 for the three months ended September 30, 2020 to $2.1 million for the three months ended September 30, 2021. This is a new business we acquired during the third quarter 2021 which did not exist last year.
Other revenues decreased from $9,407 from three months ended September 30, 2020 to $0 for the three months ended September 30, 2021, mainly due to the service fee income during the three months ended September 30, 2020 and no such income during the same period of 2021.
Gross Margin
The following table presents the consolidated gross profit of each of our main products and services and the consolidated gross profit margin, which is gross profit as a percentage of the related revenues, for the three months ended September 30, 2021 and 2020, respectively:
| Three months ended September 30, | ||||||||||||||||
| 2021 | 2020 | |||||||||||||||
| Gross profit | Gross margin | Gross profit | Gross margin | |||||||||||||
| CCM Shopping Mall Membership | - | - | 24,561 | 82.48 | % | |||||||||||
| Coal and Aluminum Ingots Supply Chain Financing/Trading | 296,173 | 3.07 | % | - | - | |||||||||||
| Sales of goods | - | - | 2,012 | 47.19 | % | |||||||||||
| Asset management service | 686,910 | 32.69 | % | - | - | |||||||||||
| Others | - | - | 3,483 | 37.02 | % | |||||||||||
| Total | $ | 983,084 | 8.37 | % | $ | 30,056 | 69.17 | % | ||||||||
Overall gross margin as a percentage of revenue was 8.37% for the three months ended September 30, 2021, a decrease of 60.8% compared to 69.17% for the same period of last fiscal year, mainly due to less revenues from the membership fee which has a much higher margin than that of coals and aluminum ingots financial service and trading business.
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Operating Expenses
The following table presents our consolidated operating expenses and operating expenses as a percentage of revenue for the three months ended September 30, 2021 and 2020, respectively: (in thousands)
| September 30, 2021 | September 30, 2020 | |||||||||||||||
| Amount | % of revenue | Amount | % of revenue | |||||||||||||
| General and administrative | $ | 2,243 | 19.10 | % | $ | 643 | 1480.72 | % | ||||||||
| Stock compensation expense | 5,488 | 46.73 | % | |||||||||||||
| Selling expenses | 112 | 0.96 | % | 26 | 59.37 | % | ||||||||||
| Bad debt provision | - | - | 53 | 121.3 | % | |||||||||||
| Total operating expenses | $ | 7,844 | 66.78 | % | $ | 722 | 1661.39 | % | ||||||||
General and administrative expenses increased by $1.60 million, or 248.66%, from $0.64 million to $2.24 million for the three months ended September 30, 2021, compared to the same period of last fiscal year. The increase in general and administrative expenses was mainly due to new business development and new subsidiaries established by the Company during the three months ended September 30, 2021 comparing to the same period of 2020.
Stock compensation expense increased by $5.49 million during the three months ended September 30, 2021, compared to the same period of last fiscal year as the Compensation Committee of the Board of Directors (the “Board”) of the Company granted certain shares of common stock of the Company to certain officers and employees in July 2021 which we didn’t have such grant in the same period of 2020.
Selling expenses increased by $0.09 million during the three months ended September 30, 2021, compared to the same period of last fiscal year.
Other (Expense) Income, Net
Other expenses, net increased by $1.93 million to positive $0.23 million for the three months ended September 30, 2021 from negative $1.7 million in the same period of the last fiscal year, mainly due to debt repayment with shares during the three months ended September 30, 2020 and no such expense in the same period of 2021.
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Income Tax
We did not have tax provision for the three months ended September 30, 2021 and 2020, as the Company incurred losses in the third quarter of 2021 and 2020.
Non-controlling Interests
As of September 30, 2021, Joy Rich Enterprises Limited (“Joy Rich”) holds 10% interest in Nice Talent Asset Management Limited, Nature Worldwide Resources Ltd. holds 40% interest in DCON DigiPay Limited (“DCON Digipay”), Bin Wu and Lixiong Huang holds 25% and 20% interest in FTFT Capital Investments L.L.C.
Loss from Continuing Operations
Loss from continuing operations increased by $4.2 million from $2.4 million for the three months ended September 30, 2020 to $6.6 million for the same period of 2021 mainly due to increase in operating expenses, as discussed above.
Loss on disposal of discontinued operations
Loss on disposal of discontinued operation was $3,679,447 for the three months ended September 30, 2021, which was related to the disposal of Guagnchengji (Guangdong) Industrial Co., Ltd during the third quarter of 2021.
Comparison of Nine Months Ended September 30, 2021 and 2020
Revenue
The following table presents our consolidated revenues for the nine months ended September 30, 2021 and 2020, respectively:
| Nine months ended September 30, | Change | |||||||||||||||
| 2021 | 2020 | Amount | % | |||||||||||||
| CCM Shopping Mall Membership | 85 | 333,425 | (333,340 | ) | (99.97 | )% | ||||||||||
| Coal and Aluminum Ingots Supply Chain Financing/Trading | 10,402,760 | - | 10,402,760 | - | ||||||||||||
| Sales of goods | - | 6,399 | (6,399 | ) | 100 | % | ||||||||||
| Asset management service | 2,101,049 | - | 2,101,049 | - | ||||||||||||
| Others | - | 15,876 | (15,876 | ) | (100 | )% | ||||||||||
| Total | $ | 12,503,894 | $ | 355,700 | $ | 12,148,194 | 3415 | % | ||||||||
CCM Shopping Mall Membership fees decreased from $333,425 for the nine months ended September 30, 2020 to $85 for the nine months ended September 30, 2021 because the Company had difficulties to enroll new members during the first half of 2021 and the Company has transformed its business model of CCM Shopping Mall from member-based platform to a sales agent based eCAAC platform during the second quarter of 2021. Due to the COVID-19 related restriction on large gathering for meetings and conference which primarily used by us before the pandemic for marketing and business development of new members, we were unable to attract more new members in 2021.
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Coal and Aluminum Ingots Supply Chain Financing Service and Trading business increased from $0 for the nine months ended September 30, 2020 to $10.4 million for the nine months ended September 30, 2021. This is a new business we started during the second quarter this year which did not exist last year.
Sale of goods decreased from $6,399 for the nine months ended September 30, 2020 to $0 for the nine months ended September 30, 2021 as no sale of goods during the same period of 2021.
Asset management service increased from $0 for the nine months ended September 30, 2020 to $2.1 million for the nine months ended September 30, 2021. This is a new business we acquired during the third quarter 2021 which did not exist last year.
Other revenues decreased from $15,876 for the nine months ended September 30, 2020 to $0 for the nine months ended September 30, 2021, mainly due to the service fee income during the three months ended September 30, 2020 and no such income during the same period of 2021.
Gross Margin
The following table presents the consolidated gross profit of each of our main products and services and the consolidated gross profit margin, which is gross profit as a percentage of the related revenues, for the nine months ended September 30, 2021 and 2020, respectively:
| Nine months ended September 30, | ||||||||||||||||
| 2021 | 2020 | |||||||||||||||
| Gross profit | Gross margin | Gross profit | Gross margin | |||||||||||||
| CCM Shopping Mall Membership | 85 | 100 | % | 323,972 | 97.16 | % | ||||||||||
| Coal and Aluminum Ingots Supply Chain Financing/Trading | (247,611 | ) | (2.38 | )% | - | - | ||||||||||
| Sales of goods | - | 3,006 | 46.98 | % | ||||||||||||
| Asset management service | 686,909 | 32.69 | % | |||||||||||||
| Others | - | - | 5,270 | 33.20 | % | |||||||||||
| Total | $ | 439,383 | 3.51 | % | $ | 332,249 | 93.41 | % | ||||||||
Overall gross margin as a percentage of revenue was 3.51% for the nine months ended September 30, 2021, a decrease of 89.9% compared to 93.41% for the same period of last fiscal year, mainly due to less revenues from the membership fee which has a much higher margin than that of coals and aluminum ingots financing service and trading.
Operating Expenses
The following table presents our consolidated operating expenses and operating expenses as a percentage of revenue for the nine months ended September 30, 2021 and 2020, respectively: (in thousands)
| September 30, 2021 | September 30, 2020 | |||||||||||||||
| Amount | % of revenue | Amount | % of revenue | |||||||||||||
| General and administrative | $ | 4,568 | 36.53 | % | $ | 2,818 | 791.57 | % | ||||||||
| Stock compensation expense | 5,488 | 43.89 | % | - | - | |||||||||||
| Selling expenses | 135 | 1.08 | % | 44 | 12.43 | % | ||||||||||
| Bad debt provision | (15 | ) | (0.12 | )% | 243 | 68.32 | % | |||||||||
| Total operating expenses | $ | 10,176 | 81.38 | % | $ | 3,105 | 872.89 | % | ||||||||
General and administrative expenses increased by $1.75 million, or 62.11%, from $2.82 million for the nine months ended September 30, 2020 to $4.57 million for the nine months ended September 30, 2021. It is mainly due to new business development and new subsidiaries established by the Company during the nine months ended September 30, 2021 comparing to the same period of 2020.
Stock compensation expense increased by $5.49 million during the nine months ended September 30, 2021, compared to the same period of last fiscal year as the Compensation Committee of the Board granted certain shares of common stock of the Company to certain officers and employees in July 2021 which we didn’t have such grant in the same period of 2020.
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Selling expenses increased by $91,248 during the nine months ended September 30, 2021, compared to the same period of last fiscal year.
Write back of provision of doubtful debt was $15,255 for the nine months ended September 30, 2021, decreased by $0.26 million comparing to the same period of the last fiscal year.
Other (Expense) Income, Net
Other expenses, net, increased by $3.57 million to positive $0.69 million for the nine months ended September 30, 2021 from negative $2.88 million in the same period of the last fiscal year, mainly due to debt repayment with shares during the nine months ended September 30, 2020 and no such expense in the same period of 2021.
Income Tax
We did not have tax provision for the nine months ended September 30, 2021 and 2020, as the Company incurred losses in the nine months ended September 30, 2021 and 2020.
Non-controlling Interests
As of September 30, 2021, Joy Rich Enterprises Limited (“Joy Rich”) holds 10% interest in Nice Talent Asset Management Limited, Nature Worldwide Resources Ltd. holds 40% interest in DCON DigiPay Limited (“DCON Digipay”), Bin Wu and Lixiong Huang holds 25% and 20% interest in FTFT Capital Investments L.L.C.
Loss from Continuing Operations
Loss from continuing operations increased by $3.4 million from $5.65 million for the nine months ended September 30, 2020 to $9.05 million for the same period of 2021 mainly due to increase in operating expenses, as discussed above.
Loss on disposal of discontinued operations
Loss on disposal of discontinued operation was $3.52 million for the nine months ended September 30, 2021, which was related to the dissolution and deregistration of FT Commercial Management (Beijing) Co., Ltd . and Chain Future Digital Tech (Beijing) Co., Ltd., which was partially offset by the loss on disposal of Guagnchengji (Guangdong) Industrial Co., Ltd., during the nine months ended September 30, 2021.
Loss per Share
Basic and diluted loss per share from continuing operations was $0.14 and $0.14 for the nine months ended September 30, 2021, respectively, as compared to a loss of $0.15 and $0.15 for the same periods of 2020, respectively. Basic and diluted income per share attributable to discontinued operations was $0.04 and $0.04 for the nine months ended September 30, 2021 respectively. Basic and diluted loss per share attributable to discontinued operations was $3.22 and $3.17 for the nine months ended September 30, 2020 respectively.
Liquidity and Capital Resources
As of September 30, 2021, we had cash and cash equivalents of $52.97 million, as compared to $9.43 million as of December 31, 2020. The increase in cash, cash equivalents and restricted cash was mainly due to financing from the issuance of shares of common stock.
Our working capital has mainly been generated from financing activities of issuance of shares of common stock of the Company. Our working capital was positive $73.14 million, as of September 30, 2021, an increase of $67.31 million from working capital of $5.83 million, as of September 30, 2020, mainly due to an increase in current assets and a decrease in current liabilities.
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Net cash used in operating activities decreased by $20.37 million to $19.81 million for the nine months ended September 30, 2021 from a cash inflow of $0.56 million for the same period of the last fiscal year. The decrease in net cash used by operating activities was primarily due to a decrease in accounts receivable during the nine months ended September 30, 2021.
Net cash used in investing activities decreased by $4.84 million comparing the nine months ended September 30, 2021 and September 30, 2020, mainly due to payment for Loan receivable.
Net cash provided in financing activities for the nine months ended September 30, 2021 was $68.27 million representing an increase of $58.17 million, as compared to cash provided by financing activities of $10.1 million during the nine months ended September 30, 2020. The increase in cash provided by financing activities was mainly due to financing from the issuance of shares of common stock.
Off-balance sheet arrangements
As of September 30, 2021, we did not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, our principal executive officer and principal interim financial officer, respectively, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2021, our disclosure controls and procedures were not effective due to a material weakness in our internal control over financial reporting. Specifically, we currently lack sufficient accounting personnel with the appropriate level of knowledge, experience and training in U.S. GAAP and SEC reporting requirements.
We have taken, and are taking, certain actions to remediate the material weakness related to our lack of U.S. GAAP experience. We have engaged an outside consultant with U.S. GAAP knowledge and experience to supplement our current internal accounting personnel and assist us in the preparation of our financial statements to ensure that our financial statements are prepared in accordance with U.S. GAAP. We believe the measures described above will remediate the material weakness from the quarter identified above. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine that additional measures.
Changes to Internal Control over Financial Reporting
Other than discussed above, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Legal case with FT Global Litigation
In January 2021, FT Global Capital, Inc. (“FT Global”), a former placement agent of the Company filed a lawsuit against the Company in the Superior Court of Fulton County, Georgia. FT Global served the complaint upon the Company in January 2021. In the complaint, FT Global alleges claims, most of which attempt to hold the Company liable under legal theories that relate back to an alleged breach of an exclusive placement agent agreement between FT Global and the Company in July 2020 which had a term of three months. FT Global claims that the Company failed to compensate FT Global for securities purchase transactions between December 2020 and April 2021, pursuant to the terms of the expired exclusive placement agent agreement. Allegedly, the exclusive placement agent agreement required the Company to pay FT Global for capital received during the term of the agreement and for the 12-month period following the termination of the agreement involving any investors that FT Global introduced and/or wall-crossed to the Company. However, the Company believes the securities purchase transactions at issue did not involve the one investor which FT Global introduced or wall-crossed to the Company during the term of the agreement. FT Global claims approximately $7,000,000 in damages and attorneys’ fees.
The Company timely removed the case to the United States District Court for the Northern District of Georgia (the (“Court) on February 9, 2021 based on diversity of jurisdiction. On March 9, 2021, the Company filed a motion to dismiss based on FT Global’s failure to state a claim which is pending before the Court. On March 23, 2021, FT Global filed its response to the Company’s motion to dismiss. FT Global argues that the Court should deny the Company’s motion to dismiss. However, if the Court is inclined to grant the Company’s motion to dismiss, FT Global requested that the Court permit it to file an amended complaint. On April 8, 2021, the parties filed a Joint Preliminary Report and Discovery Plan. On April 12, 2021, the Court approved the Joint Preliminary Report and Discovery Plan and issued a Scheduling Order placing this case on a six-month discovery tract. On April 30, 2021, the Company served FT Global with its Initial Disclosures. On May 6, 2021, FT Global served the Company with its Initial Disclosures. On May 17, 2021, FT Global served the Company with its First Amended Initial Disclosures. On November 10, 2021, the Court entered an Order granting the Company’s motion to dismiss FT Global’s fraud claim and breach of contract claim as to the disclosure of its confidential and proprietary information. The Court denied the Company’s motion to dismiss FT Global’s i) breach of contract claim for failure to pay FT Global pursuant to the terms of the exclusive placement agent agreement; ii) claim for breach of the covenant of good faith and fair dealing; and iii) claim for attorney’s fees, and the court concluded that additional information can be obtained through discovery. The Company will timely file an answer and defenses to FT Global’s complaint which is due on November 24, 2021. The Company will continue to vigorously defend the action against FT Global.
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company did not make any sales of unregistered securities during the three months ended September 30, 2021 that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| * | filed herewith |
| + | Furnished herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FUTURE FINTECH GROUP INC. | ||
| By: | /s/ Shanchun Huang | |
| Shanchun Huang | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| November 17, 2021 | ||
| By: | /s/ Ming Yi | |
| Ming Yi | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| November 17, 2021 | ||
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