The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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, which is based on blockchain technology; supply chain financing services and trading, asset management and
money transfer services. The Company has also expanded into cryptocurrency mining and cryptocurrency market data and information service
business. 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 asset management and money transfer services.
In March 2022, FTFT UK Limited received approval
to operate as an Electronic Money Directive (“EMD”) Agent and has been registered as such with the Financial Conduct Authority
(FCA), a UK regulator. This status grants FTFT UK Limited the ability to distribute or redeem e-money and provide certain financial services
on behalf of an e-money institution (registration number 903050).
On April 14, 2022, the Company established Future
Trading (Chengdu) Co., Ltd. Its business is coal and aluminum ingots supply chain financing services and trading.
On April 18, 2022, the Company and Future Fintech
(Hong Kong) Limited, a wholly owned subsidiary of the Company jointly acquired 100% equity interest of KAZAN S.A., a company incorporated
in Republic of Paraguay for $288. The Company owns 90% and FTFT HK owns 10% of Kazan S.A., respectively. Kazan S.A. has no operation before
the acquisition. The Company plans to develop bitcoin and other cryptocurrency mining and related services in Paraguay. The Company has
changed its name from KAZAN S.A to FTFT Paraguay S.A. on July 28, 2022.
On September 29, 2022, FTFT UK Limited completed its acquisition of
100% of the issued and outstanding shares of Khyber Money Exchange Ltd., a company incorporated in England and Wales, from Rahim Shah,
a resident of United Kingdom for a total of Euros €685,000 (“Purchase Price”), pursuant to a Share Purchase Agreement
(the “Agreement”) dated September 1, 2021. Khyber Money Exchange Ltd. 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 received approval by the FCA before the formal closing of the
transaction. On October 11, 2022, the Company changed the name of Khyber Money Exchange Ltd. to FTFT Finance UK Limited.
On February 27, 2023, Future FinTech (Hong Kong) Limited (“Buyer”),
a company incorporated in Hong Kong and a wholly owned subsidiary of Future FinTech Group Inc. (the “Company”) entered into
a Share Transfer Agreement (the “Agreement”) with Alpha Financial Limited, a company incorporated in Hong Kong (“Seller”)
and sole owner and shareholder of Alpha International Securities (Hong Kong) Limited, a company incorporated in Hong Kong (“Alpha
HK”) and Alpha Information Service (Shenzhen) Co., Ltd., a company incorporated in China (“Alpha SZ”). Alpha HK holds
Type 1 ‘Securities Trading’, Type 2 ‘Futures Contract Trading’ and Type 4 ‘Securities Consulting’
financial licenses issued by the Hong Kong Securities and Futures Commission. Alpha SZ provides technical support services to Alpha HK.
The share transfer transaction is still subject to the approval of the Securities and Futures
Commission of Hong Kong (“SFC”) and has not been closed yet.
The Company’s business and operations are principally conducted
by its subsidiaries in the PRC and Hong Kong.
On January 26, 2023, the Company filed with the Florida Secretary of
State’s office Articles of Amendment (the “Amendment”) to amend its Second Amended and Restated Articles of Incorporation,
as amended (“Articles of Incorporation”). As a result of the Amendment, the Company has authorized and approved a 1-for-5
reverse stock split of the Company’s authorized shares of common stock from 300,000,000 shares to 60,000,000 shares, accompanied
by a corresponding decrease in the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”).
The common stock will continue to be $0.001 par value. The Company rounds up to the next full share of the Company’s shares of common
stock any fractional shares that result from the Reverse Stock Split and no fractional shares is issued in connection with the Reverse
Stock Split and no cash or other consideration is paid in connection with any fractional shares that would otherwise have resulted from
the Reverse Stock Split. No changes are being made to the number of preferred shares of the Company which remain as 10,000,000 preferred
shares as authorized but not issued. The amendment to the Articles of Incorporation of the Company took effect at 1:00am Eastern Time
on February 1, 2023. The Reverse Stock Split and Amendment were authorized and approved by the Board of Directors of the Company without
shareholders’ approval, pursuant to 607.10025 of the Florida Business Corporation Act of the State of Florida.
The reverse stock split would be reflected in our March 31, 2023 and
December 31, 2022 statements of changes in stockholders’ equity, and in per share data for all periods presented.
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 March 31, 2023 and the results of operations and cash flows for
the periods ended March 31, 2023 and 2022. 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 months ended March 31, 2023 are not necessarily indicative
of the results to be expected for any subsequent periods or for the entire year ending December 31, 2023. The balance sheet at December
31, 2022 has been derived from the audited financial statements at that date.
Our contractual arrangements with the VIE and their respective shareholders
allow us to (i) exercise effective control over the VIE, (ii) receive substantially all of the economic benefits of the VIE, and (iii)
have an exclusive option to purchase all or part of the equity interests in the VIE when and to the extent permitted by PRC law.
As a result of our direct ownership in our wholly owned subsidiary
and the contractual arrangements with the VIE, we are regarded as the primary beneficiary of the VIE, and we treat it and its subsidiaries
as our consolidated affiliated entities under U.S. GAAP. We have consolidated the financial results of the 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, 2022 as included in our
Annual Report on Form 10-K.
Discontinued Operations
On June 27, 2022, Chain Cloud Mall Logistics Center
(Shanxi) Co., Ltd. was dissolved and 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.
Segment Information Reclassification
The Company classified business segment into CCM
Shopping Mall Membership, asset management service, coal, aluminum, sand and steel 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. The Company’s operating losses amounted $2.25 million, and it had negative operating cash flows amounted $10.44
million as of March 31, 2023. 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.
Research and development
Research and development expenses include salaries,
contracted services, as well as the related expenses for our research and product development team, and expenditures relating to our efforts
to develop, design, and enhance our service to our clients. The Company expenses research and development costs as they are incurred.
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.
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
and short-term investments are classified within level 1 of the fair value hierarchy because they are value using quoted market price.
Earnings 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.
As of March 31, 2023:
| |
Income | | |
Share | | |
Pre-share amount | |
| |
| | |
| | |
| |
Net loss attributable to Future Fintech Group, Inc. | |
$ | (2,176,464 | ) | |
| 14,645,653 | | |
$ | (0.15 | ) |
| |
| | | |
| | | |
| | |
Basic EPS: | |
| | | |
| | | |
| | |
Loss available to common stockholders | |
$ | (2,176,464 | ) | |
| 14,645,653 | | |
$ | (0.15 | ) |
| |
| | | |
| | | |
| | |
Dilutive EPS: | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Warrants | |
| - | | |
| 210,526 | | |
| - | |
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 | |
$ | (2,176,464 | ) | |
| 14,856,179 | | |
$ | (0.15 | ) |
As of March 31, 2022:
| |
Income | | |
Share | | |
Pre-share amount | |
| |
| | |
| | |
| |
Net loss attributable to Future Fintech Group, Inc. | |
$ | (2,523,162 | ) | |
| 13,088,090 | | |
$ | (0.19 | ) |
| |
| | | |
| | | |
| | |
Basic EPS: | |
| | | |
| | | |
| | |
Loss available to common stockholders | |
$ | (2,523,162 | ) | |
| 13,088,090 | | |
$ | (0.19 | ) |
| |
| | | |
| | | |
| | |
Dilutive EPS: | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Warrants | |
| - | | |
| 557,791 | | |
| - | |
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 | |
$ | (2,523,162 | ) | |
| 13,645,881 | | |
$ | (0.18 | ) |
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 RMB500,000, in the HK are only insured by the government up to HKD500,000, in the United Kingdom are only insured
by the government up to GBP18,000, in the United States of America are only insured by the Federal Deposit Insurance Corporation up to
USD250,000, and are consequently exposed to risk of loss.
The Company believes the probability of a bank
failure, causing loss to the Company, is remote.
Cash that is restricted as to withdrawal for use
or pledged as security is reported separately on the face of the consolidated balance sheets, and is not included in the total cash and
cash equivalents in the consolidated statements of cash flows.
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 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.
Allowances for doubtful accounts are maintained for
expected credit losses resulting from the Company's customers' inability to make required payments. The allowances are based on the Company's
regular assessment of various factors, including the credit-worthiness and financial condition of specific customers, historical experience
with bad debts and customer deductions, receivables aging, current economic conditions, reasonable and supportable forecasts of future
economic conditions, and other factors that may affect the Company's ability to collect from customers. The Company maintains an allowance
for credit losses in accordance with ASC Topic 326, Credit Losses (“ASC 326”) and records the allowance for credit losses
as an offset to accounts receivable and contract assets, and the estimated credit losses charged to the allowance is classified as “Bad
debt expense” in the consolidated statements of comprehensive income. 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.
The Company has assessed its accounts receivable including credit term
and corresponding all its accounts receivables as of March 31, 2023. Bad debt expense was $16,826 and $2,002 during the three months ended
March 31, 2023 and 2022, respectively. Accounts receivables of $1.14 million and nil have been outstanding for over 90 days as of March
31, 2023 and December 31, 2022, respectively.
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. Control is generally transferred
when the Company has a present right to payment and title and the significant risks and rewards of ownership of products or services are
transferred to its customers.
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:
Sales of coals, aluminum ingots, sand and
steel
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. Revenue was nil
during the three months ended March 31, 2023 and 2022, respectively.
Sales of coals and aluminum ingots as
agent
For the sale of third-party products where the Company obtains control
of the product before transferring it to the customer, the Company recognizes revenue based on the gross amount billed to customers. The
Company considers multiple factors when determining whether it obtains control of third-party products, including evaluating if it can
establish the price of the product, retains inventory risk for tangible products or has the responsibility for ensuring acceptability
of the product. The Company recognizes net revenue from sale of coals and aluminum ingots when no control obtained throughout the transactions.
Revenue was $0.11 million and nil during the three months ended March 31, 2023 and 2022, respectively.
Asset Management Service
The Company recognizes service revenue when a
service is rendered, the Company issues bills to its customers and recognizes revenue according to the bills.
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.
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 3% to 5%. Property, plant and equipment are depreciated over their estimated
useful lives as follows:
Machinery and equipment |
| 5-10 years | |
Building |
| 30 years | |
Furniture and office equipment |
| 3-5 years | |
Motor vehicles |
| 5 years | |
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 year, 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 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 6.87:1 and 6.96:1 at the balance sheet dates of March 31, 2023 and December 31, 2022, respectively. The average exchange rate
for the period has been used to translate revenues and expenses. The average exchange rates we used to convert RMB to USD were 6.67:1
and 6.35:1 for three months ended March 31, 2023 and 2022, respectively.
The exchange rate we used to convert HKD to USD
was 7.85:1 and 7.80:1 at the balance sheet dates of March 31, 2023 and December 31, 2022. The average exchange rate for the period has
been used to translate revenues and expenses. The average exchange rates we used to convert HKD to USD were 7.84:1 and 7.81:1 for three
months ended March 31, 2023 and 2022, respectively.
The exchange rate we used to convert GBP to USD
was 0.81:1 and 0.83:1 at the balance sheet dates of March 31, 2023 and December 31, 2022. The average exchange rate for the period has
been used to translate revenues and expenses. The average exchange rates we used to convert GBP to USD were 0.82:1 and 0.75:1 for three
months ended March 31, 2023 and 2022, respectively.
The exchange rate we used to convert AED to USD
was 3.67:1 and 3.67:1 at the balance sheet dates of March 31, 2023 and December 31, 2022. The average exchange rate for the period has
been used to translate revenues and expenses. The average exchange rates we used to convert AED to USD were 3.67:1 and 3.67:1 for three
months ended March 31 2023 and 2022, respectively.
The exchange rate we used to convert PYG to USD
was 7166.48:1 and 7322.90:1 at the balance sheet dates of March 31, 2023 and December 31, 2022. The average exchange rate for the period
has been used to translate revenues and expenses. The average exchange rate we used to convert PYG to USD was 7275.55:1 for three months
ended March 31 2023.
Translation adjustments are reported separately
and accumulated in a separate component of equity (cumulative translation adjustment).
Government subsidies
Government subsidies primarily consist of financial
subsidies received from provincial and local governments for operating a business in their jurisdictions and compliance with specific
policies promoted by the local governments. For certain government subsidies, there are no defined rules and regulations to govern the
criteria necessary for companies to receive such benefits, and the amount of financial subsidy is determined at the discretion of the
relevant government authorities. The government subsidies of operating nature with no further conditions to be met are recorded of operating
expenses in “Other income” in the consolidated statements when received.
The amendments in this update require disclosures
about transactions with a government that have been accounted for by analogizing to a grant or contribution accounting model to increase
transparency about (1) the types of transactions, (2) the accounting for the transactions, and (3) the effect of the transactions on an
entity’s financial statements.
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’s evaluation of goodwill
for impairment involves the comparison of the fair value of the reporting unit to its carrying value. The Company uses the discounted
cash flow model to estimate fair value, which requires management to make significant estimates and assumptions related to forecasts of
future revenue and operating margin. The company will perform annual goodwill impairment test end of the fiscal year.
Short-term investments
Short-term investments consist primarily of investments
in fixed deposits with original maturities between three months and one year and certain investments in wealth management products and
other investments that the Company has the intention to redeem within one year. Fair valued or carried at amortized costs. As of March
31, 2023 and December 31, 2022, the short-term investments amounted to $1.18 million and $0.99 million, respectively. Due to fluctuations
of the quoted shares included in its investment portfolios, the Company unrealized holding gains on available-for-sale securities of $0.18
million on March 31, 2023 and recognized an impairment to the investment portfolio of $0.91 million on December 31, 2022.
Lease
We adopted ASU No. 2016-02, Leases (Topic 842),
or ASC 842, from January 1, 2020. We determine if an arrangement is a lease or contains a lease at lease inception. For operating leases,
we recognize a right-of-use (“ROU”) asset and a lease liability based on the present value of the lease payments over the
lease term on the consolidated balance sheets at commencement date. As most of our leases do not provide an implicit rate, we estimate
our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.
The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments,
and in economic environments where the leased asset is located. The ROU assets also include any lease payments made, net of lease incentives.
Lease expense is recorded on a straight-line basis over the lease term. Our leases often include options to extend and lease terms include
such extended terms when we are reasonably certain to exercise those options. Lease terms also include periods covered by options to terminate
the leases when we are reasonably certain not to exercise those options.
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, Cloud Chain Network and Technology
(Tianjin) Co., Limited (“CCM Tianjin” or “WFOE”, formerly known as Chain Cloud Mall Network and Technology (Tianjin)
Co., Limited), 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 Cloud Chain 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 Cloud Chain 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 and the vice president
of blockchain division of the Company.
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 and 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 10 years and may be extended unilaterally by CCM Tianjin with CCM Tianjin’s written confirmation prior to the expiration date. E-commerce Tianjin cannot terminate the agreement early unless CCM Tianjin commits fraud, gross negligence or illegal acts, or becomes bankrupt or winds up. |
| |
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 CCM Tianjin, to exclusively operate and use the Cloud Chain Mall System and the authorization period is the same as the term of the EXCLUSIVE THEHNOLOGY CONSULTING AND SERVICE AGREEMENT entered into by and between CCM Tianjin and E-commerce Tianjin dated July 31, 2019. |
| |
5) | GlobalKey Shared Mall Shopping Platform Software and System Transfer Agreement by and between Future Supply Chain Co., Ltd. and Cloud Chain Mall Network and Technology (Tianjian) Co., Ltd., 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 Tianjin. The spouse of such shareholder agreed not to assert any rights over the equity interest in E-Commerce Tianjin held by such shareholder |
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 adopt ASU 2016-13 effective January 1, 2023. Management adopted 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 November 2021, the FASB issued ASU No. 2021-10,
Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. The amendments in this update require
disclosures about transactions with a government that have been accounted for by analogizing to a grant or contribution accounting model
to increase transparency about (1) the types of transactions, (2) the accounting for the transactions, and (3) the effect of the transactions
on an entity’s financial statements. The amendments are effective for all entities within their scope, which excludes not-for-profit
entities and employee benefit plans, for financial statements issued for annual periods beginning after December 15, 2021. Early application
of the amendment is permitted. The Company adopted ASU No. 2021-10 effective on January 1, 2022. The adoption of this standard did not
have a material impact on the Company consolidated financial statements.
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:
| |
March 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Cash and cash equivalents | |
$ | 4,493 | | |
$ | 12,684 | |
Other receivables | |
| 1,506 | | |
| 768 | |
Other current assets | |
| 7,318 | | |
| 14,371 | |
Total current assets | |
| 13,317 | | |
| 27,823 | |
Property and equipment, net | |
| 87 | | |
| 98 | |
Intangible assets | |
| - | | |
| 88,302 | |
Total assets | |
| 13,404 | | |
| 116,223 | |
Total liabilities | |
| (251,283 | ) | |
| (248,964 | ) |
Net assets | |
$ | (237,879 | ) | |
$ | (132,741 | ) |
| |
March 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
Current liabilities: | |
| | |
| |
Accounts payable | |
$ | 18,909 | | |
$ | 18,657 | |
Accrued expenses and other payables | |
| 5,495 | | |
| 6,455 | |
Advances from customers | |
| 2,684 | | |
| 2,648 | |
Amount due to related party | |
| 224,195 | | |
| 221,204 | |
Total current liabilities | |
| 251,283 | | |
| 248,964 | |
Total liabilities | |
$ | 251,283 | | |
$ | 248,964 | |
The summarized operating results of the VIE’s
are as follows:
| |
March 31, | | |
March 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Revenue | |
$ | 10,888 | | |
$ | - | |
Gross profit | |
$ | 4,840 | | |
$ | - | |
Net (loss) income | |
$ | 17,197 | | |
$ | (43,713 | ) |
4. ACCOUNTS RECEIVABLE
Accounts receivable, net consist of the following:
| |
March 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Supply Chain Financing/Trading | |
$ | 3,155,142 | | |
$ | 6,624,654 | |
Asset management service | |
| 1,154,743 | | |
| 1,145,518 | |
Others | |
$ | 32,671 | | |
$ | 26,500 | |
Total accounts receivable, net | |
$ | 4,342,556 | | |
$ | 7,796,672 | |
The following table sets forth our concentration
of accounts receivable, net of specific allowances for doubtful accounts.
| |
March 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Debtor A | |
| 25.13 | % | |
| 46.08 | % |
Debtor B | |
| 24.51 | % | |
| 15.65 | % |
Debtor C | |
| 20.61 | | |
| 14.26 | % |
Total accounts receivable, net | |
| 70.26 | % | |
| 75.99 | % |
5. OTHER RECEIVABLES
As of March 31, 2023, the balance of other receivables
was $5.51 million.
As of April 22, 2022 and January 31, 2023, FTFT Super Computing Inc.
entered into a “Electricity Sales and Purchase Agreement” with a third-party seller. FTFT Super Computing Inc. provided an
initial amount of Adequate Assurance to the seller in the form of a cash deposit in the amount of $1.86 million and has receivables from
resale of electricity $0.18 million.
On February 3, 2023, Future Fintech Group Inc.
entered into a “Consulting Agreement” with a third party for its professional service of potential acquisition projects.
Future Fintech Group Inc. provided initial amount of cash deposit to the third party in the amount of $2.40 million. On May 18,
2023, the parties terminated the agreement and the Company has received repayment of $2.40 million.
In addition, other receivables included total $1.07 million deposit paid
and prepayments to third party.
As of December 31, 2022, the balance of other
receivables was $2.65 million.
On October 1, 2022, FTFT UK Limited, a wholly
owned subsidiary of the Company acquired 100% equity interest of Khyber Money Exchange Ltd., a company incorporated for £786,887.
Buyer deposited £400,000 for cash balance expected to be left in the bank account of Khyber upon the closing (subject to refund
to the Buyer upon the actual amount $0.24 million in Khyber’s account at closing) to Buyer’s solicitors to be held by Buyer’s
solicitors in their client account upon the final closing of the acquisition. As of January 9, 2023, the Company has received refund $0.24
million.
As of April 22, 2022, FTFT Super Computing Inc. entered into a “Electricity
Sales and Purchase Agreement” with a third-party seller. FTFT Super Computing Inc. provided an initial amount of Adequate Assurance
to the seller in the form of a cash deposit in the amount of $1.00 million and has receivables from resale of electricity $0.24 million.
In addition, other receivables included total $1.17 million deposit
paid and prepayments to third party.
6. LOAN RECEIVABLES
As of March 31, 2023, the balance of loan receivables was $19.04 million,
which was from a third party.
On March 10, 2022, Future FinTech (Hong Kong)
Limited (“FTFT HK”), a wholly owned subsidiary of the Company, entered into a “Loan Agreement” with a third party.
Pursuant to the Loan Agreement, FTFT HK loaned an amount of $5.00 million to the third party at the annual interest rate of 10% from March
10, 2022 to September 9, 2023. To strengthen the liquidity, the Company negotiated with the borrower to early settle part of the loan.
As of April 17, 2023, the Company has received repayment $2.16 million.
On May 31, 2022, FTFT HK entered into a
“Loan Agreement” with a third party. Pursuant to the Loan Agreement, FTFT HK loaned an amount of $6.36 million to the
same third party at the annual interest rate of 10% from May 31, 2022 to May 30,2023. To strengthen the liquidity, the Company
negotiated with the borrower to early settle part of the loan. As of April 17, 2023, the Company has received repayment $6.36
million.
On December 26, 2022, FTFT HK entered into a
“Loan Agreement” with a third party. Pursuant to the Loan Agreement, FTFT HK loaned an amount of $0.40 million to the
same third party at the annual interest rate of 10% from December 26, 2022 to March 26, 2023. As of April 17, 2023, the Company has
received repayment $0.40 million.
On July 14, 2022, Future Private Equity Fund Management
(Hainan) Co., Limited entered into a “Loan Agreement” with a third party. Pursuant to the Loan Agreement, Future Private Equity
Fund Management (Hainan) Co., Limited loaned an amount of $7.28 million (RMB50 million) to the third party at the annual interest rate
of 8% from July 15, 2022 to July 14, 2023, guarantee by Junde Chen. To strengthen the liquidity, the Company negotiated with the borrower
to early settle part of the loan. As of April 17, 2023, the Company has received repayment $5.09 million (RMB35 million). The amount of
$2.18 million (RMB15 million) will be repaid within 3 months.
As of December 31, 2022, the balance of loan receivables
was $19.16 million, which was from a third party.
On September 8, 2021, FUCE Future Supply Chain
(Xi’an) Co., Ltd., a wholly owned subsidiary of the Company, entered into a “Loan Agreement” with a third party. Pursuant
to the Loan Agreement, FUCE Future Supply Chain (Xi’an) Co., Ltd. loaned an amount of $0.22 million (RMB1.5 million) to the third
party at the annual interest rate of 5.25% from September 8, 2021 to September 6, 2023.
On March 10, 2022, Future FinTech (Hong Kong)
Limited (“FTFT HK”), a wholly owned subsidiary of the Company, entered into a “Loan Agreement” with a third party.
Pursuant to the Loan Agreement, FTFT HK loaned an amount of $5.00 million to the third party at the annual interest rate of 10% from March
10, 2022 to September 9, 2023. To strengthen the liquidity, the Company negotiated with the borrower to early settle part of the loan.
As of April 17, 2023, the Company has received repayment $2.16 million.
On May 31, 2022, FTFT HK entered into a “Loan
Agreement” with a third party. Pursuant to the Loan Agreement, FTFT HK loaned an amount of $6.36 million to the same third party
at the annual interest rate of 10% from May 31, 2022 to May 30,2023. To strengthen the liquidity, the Company negotiated with the borrower
to early settle part of the loan. As of April 17, 2023, the Company has received repayment $6.36 million.
On December 26, 2022, FTFT HK entered into a “Loan
Agreement” with a third party. Pursuant to the Loan Agreement, FTFT HK loaned an amount of $0.40 million to the same third party
at the annual interest rate of 10% from December 26, 2022 to March 26, 2023. As of April 17, 2023, the Company has received repayment
$0.40 million.
On July 14, 2022, Future Private Equity Fund Management
(Hainan) Co., Limited entered into a “Loan Agreement” with a third party. Pursuant to the Loan Agreement, Future Private Equity
Fund Management (Hainan) Co., Limited loaned an amount of $7.28 million (RMB50 million) to the third party at the annual interest rate
of 8% from July 15, 2022 to July 14, 2023, guarantee by Junde Chen. To strengthen the liquidity, the Company negotiated with the borrower
to early settle part of the loan. As of April 17, 2023, the Company has received repayment $5.09 million (RMB35 million). The amount of
$2.18 million (RMB15 million) will be repaid within 3 months.
7. SHORT - TERM INVESTMENT
As of March 31, 2023, the balance of short - term investments were
$1.18 million. On September 6, 2021, Future Private Equity Fund Management (Hainan) Co., Ltd. invested RMB13,000,000 ($1.89 million) to
entrust Shanghai Yuli Enterprise Management Consulting Firm to invest in various types of investment portfolios. According to the market
value, the Company’s balance of the short - term investment was $1.18 million on March 31, 2023. Due to fluctuations of the quoted
shares included in its investment portfolios, the Company unrealized holding gains on available-for-sale securities of $0.18 million.
As of December 31, 2022, the balance of short - term investments were
$0.99 million. On September 6, 2021, Future Private Equity Fund Management (Hainan) Co., Ltd. invested RMB13,000,000 ($1.87 million) to
entrust Shanghai Yuli Enterprise Management Consulting Firm to invest in various types of investment portfolios. According to the market
value, the Company’s balance of the short - term investments was $0.99 million on December 31, 2022. Due to fluctuations of the
quoted shares included in its investment portfolios, the Company recognized an impairment to the investment portfolio of $0.91 million.
8. OTHER CURRENT ASSETS
The amount of other current assets consisted of
the followings:
| |
March 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Prepayments for Supply Chain Financing/Trading | |
$ | 10,993,990 | | |
$ | 3,766,643 | |
Prepayments for Sand and Steel Supply Chain Financing/Trading | |
| 2,644,050 | | |
| - | |
Prepaid expenses | |
| 184,243 | | |
| 72,544 | |
Others | |
| 1,403,539 | | |
| 831,077 | |
Total | |
$ | 15,225,822 | | |
$ | 4,670,264 | |
9. GOODWILL
As of March 31, 2023 and December 31, 2022, the
balance of goodwill mainly represented an amount of $13.98 million that arose from acquisition of Nice Talent Asset Management Limited
(“Nice Talent”) in 2021 and Khyber Money Exchange Ltd., in 2022.
On August 6, 2021, the Company through its wholly owned subsidiary
Future FinTech (Hong Kong) Limited., completed its acquisition of 90% of the issued and outstanding shares of Nice Talent from Joy Rich
Enterprises Limited for HK$144,000,000 (the “Purchase Price”) which shall be paid in the shares of common stock of the Company
(the “Company Shares”). 60% of the Purchase Price ($11.22 million) was paid in 2,244,156 pre reverse stock split shares of
common stock of the Company on August 4, 2021. 40% of the Purchase Price ($7.39 million) in two installments for 20% each shall be paid
in shares of common stock of the Company upon the completion of the audited reports for Nice Talent for each of the years ended on December
31, 2021 and December 31, 2022, respectively.
On October 1, 2022, FTFT UK Limited, a wholly owned subsidiary of the
Company acquired 100% equity interest of Khyber Money Exchange Ltd., a company incorporated in England and Wales, for £786,887 ($0.95
million).
The Company recorded $2.21 million of impairment loss in fiscal year
2022 related with goodwill mainly arose from acquisition of Nice Talent Asset Management Limited and FTFT Finance UK Limited (formerly
known as Khyber Money Exchange Ltd.). Goodwill impairment test as of December 31, 2022 using compare the carrying amount of the reporting
unit (including goodwill) with its fair value. If the carrying amount exceeds the fair value, compare the implied fair value of the reporting
unit’s goodwill with the carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value, an impairment
loss should be recognized.
10. ACQUISITION
Nice Talent
On August 6, 2021 (“Acquisition Date”), the Company through
its wholly owned subsidiary Future FinTech (Hong Kong) Limited., completed its acquisition of 90% of the issued and outstanding shares
of Nice Talent from Joy Rich Enterprises Limited for HK$144,000,000 (the “Purchase Price”) which shall be paid in the shares
of common stock of the Company (the “Company Shares”). 60% of the Purchase Price ($11.22 million) was paid in 2,244,156 shares
of common stock of the Company on August 4, 2021. 40% of the Purchase Price ($7.39 million) in two installments for 20% each shall be
paid in shares of common stock of the Company upon the completion of the audited reports for Nice Talent of the years ended on December
31, 2021 and 2022, respectively. Nice Talent has met the performance requirements for the year ended on December 31, 2021 and 2022, however,
the 40% of the Purchase Price has not been paid in the shares of common stock of the Company to Joy Rich as of the date of this report.
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 | |
$ | 1,407,902 | |
Other receivables | |
| 27,701 | |
Other current assets | |
| 7,039 | |
Property, plant and equipment, net | |
| 53,577 | |
Amount Due from Related Party | |
| 38,323 | |
Accrued expenses and other payables | |
| (498,515 | ) |
Net identifiable assets acquired | |
$ | 1,036,027 | |
Less: non-controlling interests | |
| 131,165 | |
Add: goodwill | |
| 17,164,598 | |
Total purchase price for acquisition net of $275,624 of cash | |
$ | 18,069,460 | |
The Company has included the operating results
of Nice Talent in its consolidated financial statements since the Acquisition Date.
Khyber Money Exchange Ltd.
On October 1, 2022, FTFT UK Limited, a wholly owned subsidiary of the
Company acquired 100% equity interest of Khyber Money Exchange Ltd., a company incorporated in England and Wales, for £786,887 ($0.95
million). The Company has changed its name from Khyber Money Exchange Ltd., to FTFT Finance UK Limited on October 11, 2022.
The following table summarizes the allocation
of estimated fair values of net assets acquired and liabilities assumed:
Other receivables | |
$ | 242,087 | |
Property, plant and equipment, net | |
| 584 | |
Accrued expenses and other payables | |
| (89,888 | ) |
Net identifiable assets acquired | |
$ | 152,783 | |
Add: goodwill | |
| 628,938 | |
Total purchase price for acquisition net of $166,676 of cash | |
$ | 781,721 | |
The Company has included the operating results of FTFT Finance UK Limited
in its consolidated financial statements since October 1, 2022.
11. LEASES
The Company’s non-cancellable operating
leases consist of leases for office space. The Company is the lessee under the terms of the operating leases. For the three months ended
March 31, 2023, the operating lease cost was $0.98 million.
The Company’s operating leases have remaining
lease terms of approximately 48 months. As of March 31, 2023, the weighted average remaining lease term and weighted average discount
rate were 4 years and 4.75%, respectively.
Maturities of lease liabilities were as follows:
| |
Operating | |
As of March 31, | |
Lease | |
From April 1, 2023 to March 31, 2024 | |
$ | 379,958 | |
From April 1, 2024 to March 31, 2025 | |
| 277,317 | |
From April 1, 2025 to March 31, 2026 | |
| 204,000 | |
From April 1, 2026 to March 31, 2027 | |
| 204,000 | |
Total | |
$ | 1,065,275 | |
Less: amounts representing interest | |
$ | 87,972 | |
Present Value of future minimum lease payments | |
| 977,303 | |
Less: Current obligations | |
| 299,920 | |
Long term obligations | |
$ | 677,383 | |
The Company leases office space and equipment
under various short-term operating leases. As permitted by ASC 842, the Company has elected the practical expedient for short-term leases,
whereby lease assets and lease liabilities are not recognized on the balance sheet. Short term leases cost was $0.16 million for three
months ended March 31, 2023.
12. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
| |
March 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Office equipment, fixtures and furniture | |
$ | 562,267 | | |
$ | 491,022 | |
Vehicle | |
| 813,267 | | |
| 798,955 | |
Building | |
| 37,530 | | |
| 37,785 | |
Subtotal | |
| 1,413,064 | | |
| 1,327,762 | |
Less: accumulated depreciation and amortization | |
| (353,378 | ) | |
| (277,094 | ) |
Construction in progress | |
| 3,355,006 | | |
| 3,372,301 | |
Impairment | |
| (5,765 | ) | |
| (5,688 | ) |
Total | |
$ | 4,408,927 | | |
$ | 4,417,281 | |
Depreciation expense included in general and administration
expenses for the three months ended March 31, 2023 and 2022 was $73,614 and $45,208, respectively. Depreciation expense included in cost
of sales for the three months ended March 31, 2023 and 2022 was $0 and $0, respectively.
13. INTANGIBLE ASSETS
Intangible assets consist of the following:
| |
March 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Trademarks | |
$ | 873 | | |
| 862 | |
System and software | |
| 2,605,759 | | |
| 2,578,647 | |
Subtotal | |
| 2,606,632 | | |
| 2,579,509 | |
Less: accumulated depreciation and amortization | |
| (215,391 | ) | |
| (199,151 | ) |
Less: impairment | |
| (1,887,431 | ) | |
| (1,862,289 | ) |
Total | |
$ | 503,810 | | |
$ | 518,069 | |
Amortization expense included in general and administration
expenses for the three months ended March 31, 2023 and 2022 was $14,259 and $11,768, respectively. Amortization expense included in cost
of sales for the three months ended March 31, 2023 and 2022 was $0 and $0, respectively.
The estimated amortization is as follows:
As of March 31, |
|
Estimated
amortization
expense |
|
From April 1, 2023 to March 31, 2024 |
|
$ |
57,035 |
|
From April 1, 2024 to March 31, 2025 |
|
|
57,035 |
|
From April 1, 2025 to March 31, 2026 |
|
|
57,035 |
|
From April 1, 2026 to March 31, 2027 |
|
|
57,035 |
|
From April 1, 2027 to March 31, 2028 |
|
|
57,035 |
|
Thereafter |
|
|
218,635 |
|
Total |
|
$ |
503,810 |
|
14. NOTE PAYABLE
Note payable consist of the following:
| |
Issue date | | |
Principal amount US$ | | |
Mature date | | |
Effective
annual
rate | |
FUCE Future Supply Chain (Xi’an) Co., Ltd. | |
| August 10, 2022 | | |
$ | 1,455,244 | | |
| August 10, 2023 | | |
| 0.05 | % |
FUCE Future Supply Chain (Xi’an) Co., Ltd. | |
| August 12, 2022 | | |
| 727,622 | | |
| August 12, 2023 | | |
| 0.05 | % |
FUCE Future Supply Chain (Xi’an) Co., Ltd. | |
| July 28, 2022 | | |
| 727,622 | | |
| July 28, 2023 | | |
| 0.05 | % |
FUCE Future Supply Chain (Xi’an) Co., Ltd. | |
| December 19, 2022 | | |
| 727,622 | | |
| December 19, 2023 | | |
| 0.05 | % |
Total | |
| | | |
$ | 3,638,110 | | |
| | | |
| | |
At maturity, the Notes are payable at their principal amount thereon.
The occurring with respect to any of the Company’s indebtedness, an event of default resulting in accelerated maturity or a failure
to pay principal, interest or premium when due, the overdue interest shall be charged at 0.05% per day, without the need to notify the
applicant and sign another loan contract. As of March 31, 2023, there was no such event of default.
15. ACCOUNT PAYABLES
The amount of account payables were consisted
of the followings:
| |
March 31, | |
December 31, |
| |
2023 | |
2022 |
| |
| |
|
Supply Chain Financing/Trading payment | |
$ | 1,605,375 | | |
$ | 3,584,920 | |
Others | |
| 27,875 | | |
| 18,657 | |
Total | |
$ | 1,633,250 | | |
$ | 3,603,577 | |
16. ACCRUED EXPENSES AND OTHER PAYABLES
The amount of accrued expenses and other payables
consisted of the followings:
| |
March 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Legal fee and other professionals | |
$ | 248,088 | | |
$ | 533,048 | |
Wages and employee reimbursement | |
| 289,151 | | |
| 763,983 | |
Suppliers | |
| 675,122 | | |
| 708,287 | |
Accruals | |
| 342,102 | | |
| 208,938 | |
Total | |
$ | 1,554,463 | | |
$ | 2,214,256 | |
17. DEFERRED LIABILITIES
As of March 31, 2023 and December 31, 2022, the
balance of deferred liabilities mainly represented an amount of $7.39 million that arose from the payment for the remaining 40% of the
Purchase Price of the acquisition of Nice Talent Asset Management Limited (“Nice Talent”). 20% and 20% of the Purchase Price
in two installments for 20% each shall be paid in shares of common stock of the Company upon the completion of the audited reports for
Nice Talent for the years ended on December 31, 2021 and 2022, respectively. However, the 40% of the Purchase Price has not been paid
in the shares of common stock of the Company as of the date of this report
18. RELATED PARTY TRANSACTION
As of March 31, 2023, the amounts due to the related
parties were consisted of the followings:
Name | |
Amount (US$) | | |
Relationship | |
Note |
Zhi Yan | |
| 223,335 | | |
General Manager of a subsidiary of the Company | |
Accrued expenses, interest free and payment on demand. |
Reits (Beijing) Technology Co., Ltd | |
| 14,734 | | |
Zhi Yan is the legal representative of this company | |
Acquisition of intangibles upon the full completion of the online platform pursuant to an agreement originally entered between parties before Zhi Yan became a related party. The amount is interest free and payment on demand. |
Total | |
$ | 238,069 | | |
| |
|
As of March 31, 2023, the amounts due from the
related parties were consisted of the followings:
Name | |
Amount (US$) | | |
Relationship | |
Note |
Kai Xu | |
| 43,502 | | |
Deputy General Manager of a subsidiary of the Company | |
Prepaid expenses, interest free and payment on demand. |
OLA | |
| 127 | | |
Chief Executive Officer of a subsidiary of the Company and Chief Strategy Officer of the Company | |
Prepaid expenses, interest free and payment on demand. |
Ming Yi | |
| 56,393 | | |
Chief Financial Officer of the Company | |
Prepaid expenses, interest free and payment on demand. |
Total | |
$ | 100,022 | | |
| |
|
During three months ended March 31, 2023, the
Company had the following transactions with related parties:
Name | |
Amount | | |
Relationship | |
Note |
JKNDC Limited | |
$ | 1,914 | | |
A company owned by the minority shareholder of NTAM | |
Other expenses |
JKNDC Limited | |
| 361,958 | | |
A company owned by the minority shareholder of NTAM | |
Cost of revenue- Asset management service |
Alpha Yield Limited | |
| 178,913 | | |
A director of the Company is a shareholder of this company | |
Consultancy fee |
Nice Talent Partner Limited | |
| 76,542 | | |
A company owned by the minority shareholder of NTAM | |
Consultancy fee |
As of December 31, 2022, the amount due to the
related parties was consisted of the followings:
Name | |
Amount (US$) | | |
Relationship | |
Note |
Reits (Beijing) Technology Co., Ltd | |
| 14,538 | | |
Zhi Yan is the legal representative of this company | |
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. |
Zhi Yan | |
| 230,281 | | |
General Manager of a subsidiary of the Company | |
Other payables, interest free and payment on demand. |
Total | |
$ | 244,819 | | |
| |
|
As of December 31, 2022, the amount due from the
related parties was consisted of the followings:
Name | |
Amount | | |
Relationship | |
Note |
Kai Xu | |
$ | 16 | | |
Deputy General Manager of a subsidiary of the Company | |
Loan receivables*, interest free and payment on demand. |
Ming Yi | |
| 12,135 | | |
Chief Financial Officer of the Company | |
Loan receivables*, interest free and payment on demand. |
Jing Chen | |
| 971 | | |
Vice president of the Company | |
Loan receivables*, interest free and payment on demand. |
Ola Johannes Lind | |
| 2,168 | | |
Chief Executive Officer of the FTFT Capital Investments L.L.C. and Chief Strategy Officer of the Company | |
Loan receivables*, interest free and payment on demand. |
Wong Tai Kue | |
| 37,836 | | |
NTAM’s Director | |
Advance to pay for directors* Amount is interest free and payment on demand. |
Total | |
$ | 53,126 | | |
| |
|
During three months ended March 31, 2022, the Company had the following
transactions with related parties:
Name | |
Amount | | |
Relationship | |
Note |
Nice Talent Partner Limited | |
| 76,862 | | |
A company owned by the minority shareholder of NTAM | |
Consultancy fee |
* | The related party transactions have been approved by the Company’s Audit Committee. |
19. INCOME TAX
The Company is incorporated in the United States
of America and is subject to United States federal taxation. The applicable tax rate is 21% in 2023 and 2022. No provisions for income
taxes have been made, as the Company had no U.S. taxable income for the three months ended March 31, 2023 and 2022. For the three months
ended March 31, 2023 and 2022, the Company had current income tax expenses of $25,674 and $187,953, respectively.
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 years ended March 31, 2023, 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 certain subsidiaries and a VIE.
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 subsidiaries as they are to be permanently reinvested.
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. The tax rate for pre-tax profits below
RMB 1 million is 2.5%; the tax rate for pre-tax profits between RMB1 million to RMB 3 million is 10%. E-Commerce Tianjin, Future Supply
(Chengdu) Co., Ltd. and Future Big Data (Chengdu) Co., Ltd. were subject to an enterprise income tax rate of 2.5% and 10%. Other subsidiaries
and VIE were subject to an enterprise income tax rate of 25%.
Future Fin Tech (HongKong) Limited, QR (HK) Limited
and Nice Talent Asset Management Limited is incorporated in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as
reported in its statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 16.5%
in Hong Kong.
FTFT UK Limited and FTFT Finance UK Limited are incorporated
in United Kingdom and are subject to United Kingdom Profits Tax on the taxable income as reported in its statutory financial statements
adjusted in accordance with relevant United Kingdom tax laws. The applicable tax rate is 19% in United Kingdom.
FTFT Capital investments L.L.C is incorporated
in Dubai, United Arab Emirates. The applicable tax rate is nil in Dubai, United Arab Emirates.
Digipay Fintech Limited is incorporated in British
Virgin Island. The applicable tax rate is nil in British Virgin Island.
FTFT Paraguay S.A. is incorporated in Republic
of Paraguay. The applicable tax rate is 10%.
Reconciliation of the differences between the
statutory EIT rate applicable to profits of the consolidated entities and the income tax expenses of the Company:
|
|
March 31,
2023 |
|
|
March
31,
2022 |
|
|
|
|
|
|
|
|
Loss before taxation |
|
$ |
(2,221,803 |
) |
|
$ |
(2,510,418 |
) |
PRC statutory tax rate |
|
|
25 |
% |
|
|
25 |
% |
Computed expected benefits |
|
|
(555,451 |
) |
|
|
(627,605 |
) |
Others, primarily the differences in tax rates |
|
|
77,237 |
|
|
|
137,645 |
|
Effect of tax losses not recognized |
|
|
503,888 |
|
|
|
677,913 |
|
Total |
|
$ |
25,674 |
|
|
$ |
187,953 |
|
20. IMPAIRMENT LOSS
The
Company recorded nil and $0.25 million of impairment loss in three months ended 2023 and 2022 relating to the short - term investment
mainly due to Future Private Equity Fund Management (Hainan) Co., Ltd. invested $2.05 million (RMB13,000,000) to entrust Shanghai Yuli
Enterprise Management Consulting Firm to invest in various types of investment portfolios. The Company may still suffer significant impairment
loss or downward adjustments of our investments in the future, due to the potential worsening global economic conditions and the recent
disruptions to, and volatility in, the continuing low market price of shares caused the Company to recognize a fair-value loss in three
months ended March 31, 2022. According to the market value, the Company’s balance of the short - term investment was $1.8 million
on March 31, 2022.
21. SHARE BASED COMPENSATION
On February 1, 2023, the Company effected a 1-for-5
reverse stock split of the Company’s authorized shares of common stock from 300,000,000 shares to 60,000,000 shares.
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 $3.0 million. The Company shall issue a total of
3,750,000 restricted shares of the Company Common Stock (the “Consultant Shares”) at a price of $0.794 per share (the closing
price of the Agreement date), as the payment for the abovementioned consultant fee to the Consultant. On February 23, 2020, the Company
issued the Consultant Shares pursuant to the Agreement, of which 1,500,000 shares were released to the Consultant immediately, 1,125,000
and 1,125,000 shares, respectively, will be held by the Company and released to the Consultant on January 25, 2021 and January 25, 2022
if this Agreement has not been terminated and there has been no breach of the Agreement by the Consultant at such time. If the second
and/or third release of the shares mentioned above does not occur, such shares shall be returned to the Company as treasury shares. The
shares contemplated in the Agreement were issued pursuant to the exemption from registration provided by Regulation S promulgated under
the Securities Act of 1933, as amended. For the year ended December 31, 2020, the Company recorded stock related compensation of $1.19
million, based on the stock closing price of $0.794 on the Agreement date, for the 1,500,000 shares which were released to the Consultant
immediately upon issuance. On January 25, 2021, the Company recorded stock related compensation of $0.89 million, based on the stock closing
price of $0.794 on the date of the Agreement, for the 1,125,000 shares which were released to the Consultant on January 25, 2021. On January
25, 2022, the Company released the final 1,125,000 shares to the Consultant and the Company has recognized stock related compensation
of $0.89 million for the 1,125,000 shares. The share numbers are pre-reverse stock split effected on February 1, 2023.
Restricted net assets
PRC laws and regulations permit payments of dividends by the Company’s
subsidiaries incorporated in the PRC only out of their retained earnings, if any, as determined in accordance with PRC accounting standards
and regulations. In addition, the Company’s subsidiaries incorporated in the PRC are required to annually appropriate 10% of their
net income to the statutory reserve prior to payment of any dividends, unless the reserve has reached 50% of their respective registered
capital. Furthermore, registered share capital and capital reserve accounts are also restricted from distribution. As a result of the
restrictions described above and elsewhere under PRC laws and regulations, the Company’s subsidiaries incorporated in the PRC are
restricted in their ability to transfer a portion of their net assets to the Company in the form of dividends. The restriction amounted
to $31.75 million (RMB211,700,556) as of March 31, 2023. Except for the above or disclosed elsewhere, there is no other restriction on
the use of proceeds generated by the Company’s subsidiaries to satisfy any obligations of the Company.
Payments-omnibus equity plan
On July 12, 2022 (the “Grant Date”), the Compensation Committee
of the Board of Directors (the “Board”) of the Company granted 3,047,000 shares of common stock of the Company, par value
$0.001 (the “Shares”), pursuant to the Company’s 2020 Omnibus Equity Plan, to certain officers and employees of the
Company and its subsidiaries (the “Grantees”), including: 800,000 shares to Shanchun Huang, Chief Executive Officer of the
Company; 800,000 shares to Yongke Xue, President of the Company; 100,000 shares to Ming Yi, Chief Financial Officer of the Company, 547,000
shares to Peng Lei, general manager of a subsidiary of the Company, 300,000 shares to Pang Dong, general manager of a subsidiary the Company,
and 500,000 shares to Kai Xu, Deputy General Manager of a subsidiary of the Company and vice president of blockchain division of the Company
(collectively, the “Grants”). The Grants vested immediately on the Grant Date and each of the Grantees also entered into an
Unrestricted Stock Award Agreement with the Company on July 12, 2022. As the closing price of the Company stock was $0.42 on July 12,
2022, the Company recorded an expense of $1.28 million in the third quarter of fiscal year 2022. As of the date of this report, the Shares
have been issued to the Grantees. The share numbers are pre-reverse stock split effected on February 1, 2023.
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 three segments starting in fiscal
2021: “supply chain financing service and trading business and asset management service and others”.
The Company began to provide coal and aluminum ingots supply chain
financing services during the second quarter of 2021 and the Company acquired Nice Talent and started to provide asset management services
since August 2021. The Company began to provide sand and steel supply chain financing services during the first quarter of 2023.
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.
As of March 31, 2023:
| |
Supply Chain Financing/Trading | | |
Asset management service | | |
Others | | |
Total | |
Reportable segment revenue | |
$ | 110,798 | | |
$ | 3,163,064 | | |
$ | 120,103 | | |
$ | 3,393,965 | |
Inter-segment loss | |
| - | | |
| - | | |
| - | | |
| - | |
Revenue from external customers | |
| 110,798 | | |
| 3,163,064 | | |
| 120,103 | | |
| 3,393,965 | |
Segment gross profit | |
$ | 105,854 | | |
$ | 1,056,307 | | |
$ | 45,476 | | |
$ | 1,207,637 | |
As of March 31, 2022:
| |
Asset management service | | |
Others | | |
Total | |
Reportable segment revenue | |
$ | 3,456,376 | | |
$ | 9,989 | | |
$ | 3,466,365 | |
Inter-segment loss | |
| - | | |
| - | | |
| - | |
Revenue from external customers | |
| 3,456,376 | | |
| 9,989 | | |
| 3,466,365 | |
Segment gross profit | |
$ | 1,777,988 | | |
$ | 9,989 | | |
$ | 1,787,977 | |
Loss before Income Tax:
| |
Three months Ended, March 31 |
| |
2023 | |
2022 |
Supply chain financing/trading | |
| 219,179 | | |
| 99,117 | |
Asset management service | |
| 782,177 | | |
| 498,842 | |
Others | |
| 14,571 | | |
| 639,719 | |
Corporate and Unallocated | |
| 2,413,513 | | |
| 3,060,717 | |
Total operating expenses and other expense | |
| 3,429,440 | | |
| 4,298,395 | |
Loss before Income Tax | |
| (2,221,803 | ) | |
| (2,510,418 | ) |
Segment assets:
| |
March 31, 2023 | |
December 31,
2022 |
Supply chain financing/trading | |
| 28,701,480 | | |
| 26,487,090 | |
Asset management service | |
| 3,398,297 | | |
| 3,387,506 | |
Others | |
| 15,684,559 | | |
| 14,090,091 | |
Corporate and Unallocated | |
| 37,274,323 | | |
| 41,053,032 | |
Total assets | |
| 85,058,659 | | |
| 85,017,719 | |
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 $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 timely filed an answer and defenses to FT Global’s
complaint on November 24, 2021. On January 3, 2022, the Company propounded discovery requests upon FT Global, including interrogatories
and requests for production of documents. On March 23, 2022, the Company propounded requests for admission upon FT Global. On March 24,
2022, FT Global propounded discovery requests upon the Company, including requests for production of documents and requests for admission.
On April 1, 2022, FT Global served its response to the Company’s requests for production of documents. On May 13, 2022, FT Global
served its responses to the Company’s interrogatories and requests for admissions. On May 13, 2022, FT Global produced documents
in response to the Company’s requests for production of documents. On June 3, 2022, the Company produced documents in response to
FT Global’s requests for production of documents. On August 3, 2022, the Company took the deposition of FT Global. On August 4,
2022, FT Global took the deposition of the Company. On August 3, 2022, the Court granted the parties’ Consent Motion to Extend Discovery
Period extending the discovery period from August 5, 2022 to September 14, 2022 and the deadline to file dispositive motions to October
12, 2022. On October 12, 2022, the Company filed a motion for summary judgment on all claims asserted by FT Global in this lawsuit. On
November 2, 2022, FT Global filed its opposition to the Company’s motion for summary judgment. On November 16, 2022, the Company
filed its reply in support of its motion for summary judgement on all claims asserted by FT Global in this lawsuit. The Company will continue
to vigorously defend the action against FT Global.
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. In response to
the evolving dynamics related to the COVID-19 outbreak, the Company was following 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 the employees
worked from home at the end of January 20200 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 continue
to be negatively impacted by the outbreak, which in turn adversely affects 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 with the new variants of COVID-19, which could materially adversely impact our business and results
of operations. There was outbreak in various cities and provinces due to Omicron variant in Xi’an city, Hong Kong, Shanghai, Beijing
and other cities in 2022, which have resulted quarantines, travel restrictions, and temporary closure of office buildings and facilities
in these cities. In December 2022, the Chinese government eased its strict zero COVID-19 policy which resulted in a surge of new
COVID-19 cases during December 2022 and January 2023, which has disrupted our business operations in China. The Company’s
promotion strategy of CCM Shopping Mall previously mainly relied on the training of members and distributors through meetings and conferences.
Chinese government put a restriction on large gatherings in 2020 and 2021, which made the promotion strategy for our online e-commerce
platforms difficult to implement and the Company 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 which later being closed.
Also, since the second quarter of 2021, the Company has transformed its member-based Chain Cloud Mall to a sale agent based eCAAS platform
and began to provide supply chain financing services.
The global economy has also been materially negatively
affected by the COVID-19 and there is continued severe uncertainty about the potential outbreak and new variants of COVID-19. The Chinese
and global growth forecast is extremely uncertain, which would seriously affect our business.
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, 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 negatively affect our business
and the value of our common stock.
Further, as we do not have access to a revolving
credit facility, there can be no assurance that we would be able to secure commercial debt financing in the future in the event that we
require additional capital. We currently believe that our financial resources will be adequate to see us through the outbreak. However,
in the event that we do need to raise capital in the future, outbreak-related instability in the securities markets could adversely affect
our ability to raise additional capital.
Consequently, our results of operations have been
materially and adversely affected by COVID-19 pandemic. Any potential further impact to our results will depend on, to a large extent,
future developments and new information that may emerge regarding the new variants of COVID-19, the efficacy and distribution of COVID-19
vaccines and the actions taken by government authorities and other entities to contain the COVID-19 or treat its impact, almost all of
which are beyond our control.
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.
Customer concentration risk
For three months ended March 31, 2023, one customer
accounted for 84.78% of the Company’s total revenues. For three months ended March 31, 2022, one customer accounted for 98.89% of
the Company’s total revenues.
Vendor concentration risk
For three months ended March 31, 2023, one vendor accounted for 16.56%
of the Company’s total purchases. For three months ended March 31, 2022, one vendor accounted for 17.70% of the Company’s
total purchases.
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.