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, financial technology
service business and the application and development of blockchain-based technology in financial technology services. The Company has
also expanded into financial services and cryptocurrency market data and information service businesses. Prior to 2019, the Company engaged
in the production and sales of fruit juice concentrates, fruit juice beverages and other fruit-related products in the People’s
Republic of China (“PRC”, or “China”), and overseas markets. Due to the drastically increased production cost
and tightened environmental law in China, the Company has transformed its business from fruit juice manufacturing and distribution to
a real-name blockchain e-commerce platform that integrates blockchain and internet technology, supply chain financing services and trading
and financial services.
On July 22, 2020, the Company established Future
Commercial Management (Beijing) Co., Ltd. Its scope of business includes management and consulting services.
On May 11, 2021, the Company established Future
Supply (Chengdu) Co., Ltd. Its business is coal and aluminum ingots supply chain financing services and trading.
On May 12, 2021, the Company established Future
Big Data (Chengdu) Co., Ltd. in Chengdu, China. Its business includes big data technology and industrial internet data services.
On June 8, 2021, the Company established Tianjin
Future Private Equity Fund Management Partnership (Limited Partnership) in Tianjin, China. Its main business is external equity investment.
June 14, 2021, the Company established Future
FinTech Labs Inc. in New York to serve as its global R&D and technical support center.
On June 24, 2021, the Company established FTFT
Capital Investments L.L.C. in Dubai, United Arab Emirates. Its business is to provide financial technology and services, including a cryptocurrency
market data platform that provides investors with real-time cryptocurrency market data and trading information.
On July 2, 2021, the Company established Future
Fintech Digital Number One US, LP. which is an investment fund.
On July 6, 2021, the Company established Future
Fintech Digital Capital Management, LLC, in the State of Connecticut, which provides investment advisory services and investment fund
management.
On July 6, 2021, the Company established Future
Fintech Digital Number One GP, LLC., which is an off-shore investment fund.
On August 2, 2021, the Company incorporated FTFT
UK Limited in United Kingdom which serve as its operating base to develop fintech business in Europe.
On August 6, 2021, the Company acquired 90% equity
interest of Nice Talent Asset Management Limited which mainly provides assets and wealth management services.
On August 11, 2021, the Company established Future
Private Equity Fund Management (Hainan) Co., Ltd. Its business is investment fund management.
On November 22, 2021, the Company established
FTFT Digital Number One, Ltd., an investment fund.
On November 22, 2021, the Company established
Future Fintech Digital Number One Offshore, LLC., an investment fund.
On December 15, 2021, the Company established
FTFT Super Computing Inc. Its business is bitcoin and other cryptocurrency mining and related services.
The Company’s business and operations are
principally conducted by its subsidiaries and its blockchain based e-commerce platform business is conducted through its Variable Interest
Entity (“VIE”) - Cloud Chain E-Commerce (Tianjin) Co., Ltd., formerly known as Chain Cloud Mall E-Commerce (Tianjin) Co.,
Ltd. (“E-Commerce Tianjin”) in the PRC.
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, 2022 and the results of operations and cash
flows for the periods ended March 31, 2022 and 2021. 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, 2022 are not necessarily
indicative of the results to be expected for any subsequent periods or for the entire year ending December 31, 2022. The balance sheet
at December 31, 2021 has been derived from the audited financial statements at that date.
Our contractual arrangements with our VIE and
their respective shareholders allow us to (i) exercise effective control over our VIE, (ii) receive substantially all of the economic
benefits of our VIE, and (iii) have an exclusive option to purchase all or part of the equity interests in our VIE when and to the extent
permitted by PRC law.
As a result of our direct ownership in our wholly
owned subsidiary and the contractual arrangements with our VIE, we are regarded as the primary beneficiary of our VIE, and we treat it
and its subsidiaries as our consolidated affiliated entities under U.S. GAAP. We have consolidated the financial results of our VIE in
our condensed consolidated financial statements in accordance with U.S. GAAP
Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have
been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited financial
statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2021
as included in our Annual Report on Form 10-K.
Discontinued Operations
On March 18, 2021, Chain Future Digital Tech (Beijing)
Co., Ltd. was deregistered.
On April 9, 2021, FT Commercial Management (Beijing)
Co., Ltd. was dissolved and deregistered.
On August 2, 2021, the Company sold Guangchengji
(Guangdong) Industrial Co., Ltd. to an unrelated third party.
On September 2, 2021, Future Supply Chain Co.,
Ltd. discontinued its operations, and on November 4, 2021, it was transferred to Shaanxi Fu Chen Venture Capital Management Co. Ltd.
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 and aluminum
ingots supply chain financing service and trading and others.
Uses of Estimates in the Preparation of Financial
Statements
The Company’s condensed consolidated financial
statements have been prepared in accordance with US GAAP and this requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated
financial statements and reported amounts of revenue and expenses during the reporting period. The significant areas requiring the use
of management estimates include, but not limited to, the allowance for doubtful receivable, estimated useful life and residual value
of property, plant and equipment, impairment of long-lived assets provision for staff benefit, recognition and measurement of deferred
income taxes and valuation allowance for deferred tax assets. Although these estimates are based on management’s knowledge of current
events and actions management may undertake in the future, actual results may ultimately differ from those estimates and such differences
may be material to our condensed consolidated financial statements.
Going Concern
The Company’s financial statements are
prepared assuming that the Company will continue as a going concern.
The Company incurred operating losses and had
negative operating cash flows and may continue to incur operating losses and generate negative cash flows as the Company implements its
future business plan. Operating losses amounted $2.70 million, and had negative operating cash flows amounted $0.64 million
as of March 31, 2022. 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. All the expenses are related to the planning and implementation phases
of development, and costs that are associated with maintenance of the existing websites or software for internal use, apps for users.
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 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, 2022:
| |
Income | | |
Share | | |
Pre-share amount | |
| |
| | |
| | |
| |
Loss from continuing operations | |
$ | (2,523,162 | ) | |
| 70,067,147 | | |
$ | (0.04 | ) |
| |
| | | |
| | | |
| | |
Basic EPS: | |
| | | |
| | | |
| | |
Loss available to common stockholders from discontinuing operations | |
$ | (2,523,162 | ) | |
| 70,067,147 | | |
$ | (0.04 | ) |
| |
| | | |
| | | |
| | |
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 from continuing operations | |
$ | (2,523,162 | ) | |
| 70,624,938 | | |
$ | (0.04 | ) |
As of March 31, 2021:
| |
Income | | |
Share | | |
Pre-share amount | |
| |
| | |
| | |
| |
Loss from continuing operations | |
$ | (541,302 | ) | |
| 40,039,431 | | |
$ | (0.01 | ) |
Loss from discontinuing operations | |
$ | (256,007 | ) | |
| 40,039,431 | | |
$ | (0.01 | ) |
| |
| | | |
| | | |
| | |
Basic EPS: | |
| | | |
| | | |
| | |
Loss available to common stockholders from continuing operations | |
$ | (541,302 | ) | |
| 40,039,431 | | |
$ | (0.01 | ) |
Loss available to common stockholders
from discontinuing operations | |
$ | (256,007 | ) | |
| 40,039,431 | | |
$ | (0.01 | ) |
| |
| | | |
| | | |
| | |
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 from continuing operations | |
$ | (541,302 | ) | |
| 40,597,222 | | |
$ | (0.01 | ) |
Diluted Earnings per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding. | |
$ | (256,007 | ) | |
| 40,597,222 | | |
$ | (0.01 | ) |
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, and are consequently exposed to risk of loss. The Company believes the probability of a bank failure,
causing loss to the Company, is remote.
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.
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 in March 2022. Upon such credit terms, bad debt
expense(recovery) was $2,002 and $(15,224) during the three months ended March 31, 2022 and 2021, respectively. Accounts receivables
of nil have been outstanding for over 90 days as of March 31, 2022 and December 31, 2021, 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:
Online sales and Membership fee:
The Company recognizes the sale of goods 15 days after the products
are shipped (after the 15 days return policy). The revenue from the membership fee is amortized over the lifetime of the membership, which
is one year. For the merchandise gift package, revenue is recognized when the receipt of the gift package is confirmed by the members.
Other revenues include revenues earned on net basis from sales of certain products on our platform and agent authorization fee. Since
the second quarter of 2021, the Company has transformed its member based business model to a sale agent based eCAAS platform for its online
shopping mall.
Sales
of coals and aluminum ingots
The Company
recognize revenue when the receipt of merchandise is confirmed by the customers, which is the point that the title of the goods is transferred
to the customer.
Asset
Management Service
The Company
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 | |
| 20 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 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 6.35 and 6.38 at the balance sheet dates of March 31, 2022 and December 31, 2021, 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 6.35 and
6.48 for three months ended March 31, 2022 and 2021, respectively.
The exchange rate we used to convert HKD to USD
was 7.83 at the balance sheet dates of March 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 7.81 for three months ended March 31 2022.
The exchange rate we used to convert GBP to USD
was 0.76 at the balance sheet dates of March 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 0.75 for three months ended March 31 2022.
The exchange rate we used to convert AED to USD
was 3.67 at the balance sheet dates of March 30, 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 for three months ended March 31 2022.
Translation adjustments are reported separately
and accumulated in a separate component of equity (cumulative translation adjustment).
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. As of March 31, 2022 and 2021, the short-term investments
amounted to $1.80 million and $2.19 million, respectively.
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.
Convertible notes
The Company accounts for its convertible notes
at issuance by allocating the proceeds received from a convertible note among freestanding instruments according to ASC 470, Debt, based
upon their relative fair values. The fair value of debt and common stock is determined based on the closing price of the common stock
on the date of the transaction. Convertible notes are subsequently carried at amortized cost. Each convertible note is analyzed for the
existence of a beneficial conversion feature (“BCF”), defined as the fair value of the common stock at the commitment date
for the convertible note, less the effective conversion price. No BCF was recognized for the convertible notes issued during March 31,
2022 and 2021.
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 will adopt ASU 2016-13 effective January 1, 2023. Management is currently evaluating the effect of the adoption
of ASU 2016-13 on the consolidated financial statements. The effect will largely depend on the composition and credit quality of our
investment portfolio and the economic conditions at the time of adoption.
In 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 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, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Current assets | |
$ | 131,211 | | |
$ | 46,721 | |
Property and equipment, net | |
| 353 | | |
| 36,700 | |
Intangible assets | |
| 35,470 | | |
| - | |
Total assets | |
| 167,034 | | |
| 83,421 | |
Total liabilities | |
| (271,689 | ) | |
| (270,413 | ) |
Net assets | |
$ | (104,655 | ) | |
$ | (186,992 | ) |
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Current liabilities: | |
| | |
| |
Accounts payable | |
$ | 79 | | |
$ | 79 | |
Accrued expenses and other payables | |
| 1,222 | | |
| 1,112 | |
Advances from customers | |
| 2,905 | | |
| 2,893 | |
Amount due to related party | |
| 267,483 | | |
| 266,329 | |
Total current liabilities | |
| 271,689 | | |
| 270,413 | |
Total liabilities | |
$ | 271,689 | | |
$ | 270,413 | |
The summarized operating results of the VIE’s
are as follows:
| |
March 31, | | |
March 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Revenue | |
$ | - | | |
$ | 6,613 | |
Gross profit | |
$ | - | | |
$ | 6,025 | |
Net income | |
$ | (43,713 | ) | |
$ | 23,868 | |
4. ACCOUNTS RECEIVABLE
Accounts receivable, net consist of the following:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Coal and Aluminum Ingots Supply Chain Financing/Trading | |
$ | 6,554,815 | | |
$ | 7,938,152 | |
Asset management service | |
$ | 1,262,871 | | |
$ | 1,163,664 | |
Total accounts receivable, net | |
$ | 7,817,686 | | |
$ | 9,101,816 | |
The following table sets forth our concentration
of accounts receivable, net of specific allowances for doubtful accounts.
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Debtor A | |
| 83.85 | % | |
| 87.22 | % |
Debtor B | |
| 15.84 | % | |
| 10.60 | % |
Debtor C | |
| - | | |
| 1.14 | % |
Total accounts receivable, net | |
| 99.69 | % | |
| 98.96 | % |
5. OTHER RECEIVABLES
As of March 31, 2022, the balance of other receivables
was $2.4 million. On September 1, 2021, FTFT UK Limited, a company organized under the laws of United Kingdom and a wholly owned subsidiary
of the Company entered into a Share Purchase Agreement (the “Agreement”) with Rahim Shah, a resident of United Kingdom (“Seller”).
Under this agreement, FTFT UK Limited (the “Buyer”) agreed to acquire 100% of the issued and outstanding shares (the “Sale
Shares”) of Khyber Money Exchange Ltd. (“Khyber”), a company incorporated in England and Wales from the Seller for a
total of Euros €685,000 (“Purchase Price”). Buyer deposited Euros €685,000 ($0.79 million) for the Purchase Price
and £400,000 ($0.53 million) 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 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.
In addition, other receivables included total
$1.09 million deposit paid and prepayments.
6. LOAN RECEIVABLES
As of March 31, 2022, the balance of loan receivables
was US$5 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 up to the amount of US$5 million to the third party at the annual interest rate of 10% from March 10, 2022 to September 9,
2022.
7. SHORT TERM INVESTMENT
As of March 31, 2022, the balance of short term
investment was $1.80 million. On September 6, 2021, 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. According to the market
value, the Company’s balance of the short term investment was $1.8 million on March 31, 2022.
8. OTHER CURRENT ASSETS
The amount of other current assets consisted of
the followings:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Prepayments for Coal and Aluminum Ingots Supply Chain Financing/Trading | |
$ | 1,575,250 | | |
$ | 2,243,295 | |
Prepaid expenses | |
| 393,016 | | |
| 439,404 | |
Others | |
| 395,601 | | |
| 245,000 | |
Total | |
$ | 2,363,867 | | |
$ | 2,927,699 | |
9. GOODWILL
As of March 31, 2022, the balance of goodwill
mainly represented an amount of $15.61 million that arose from acquisition of Nice Talent Asset Management Limited (“Nice Talent”)
in 2021. 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 (“Joy Rich”) 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) paid in 2,244,156 shares of common stock of the Company on August 4, 2021. 40% of the Purchase
Price ($7.21 million) shall be paid in shares of common stock of the Company upon the completion of the audited reports for Nice Talent
with 20% for each of the years ended on December 31, 2021 and December 31, 2022, respectively. Nice Talent has met the performance requirements
for the year ended on December 31, 2021, however, the 20% 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.
10. ACQUISITION
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 ($7.21 million) shall be paid in
shares of common stock of the Company upon the completion of the audited reports for Nice Talent with 20% for each of the years ended
on December 31, 2021 and December 31, 2022, respectively. Nice Talent has met the performance requirements for the year ended on December
31, 2021, however, the 20% 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.
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, 2022, the operating lease cost was $0.07 million.
The Company’s operating leases have remaining lease terms of
approximately four months. As of March 31, 2022, the weighted average remaining lease term and weighted average discount rate were 0.33
years and 6%, respectively.
Maturities of lease liabilities were as follows:
| |
Operating | |
As of March 31, | |
Lease | |
From April 1, 2022 to July 31, 2022 | |
$ | 66,250 | |
Total | |
$ | 66,250 | |
Less: amounts representing interest | |
$ | 820 | |
Present Value of future minimum lease payments | |
| 65,430 | |
Less: Current obligations | |
| 65,430 | |
Long term obligations | |
$ | - | |
12. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Office equipment, fixtures and furniture | |
$ | 190,011 | | |
$ | 173,551 | |
Vehicle | |
| 586,508 | | |
| 595,569 | |
Leasehold Improvement | |
| 37,636 | | |
| 37,779 | |
Subtotal | |
| 814,155 | | |
| 806,899 | |
Less: accumulated depreciation and amortization | |
| (144,362 | ) | |
| (99,323 | ) |
Construction in progress | |
| 2,472,354 | | |
| 2,461,690 | |
Impairment | |
| (6,241 | ) | |
| (6,214 | ) |
Total | |
$ | 3,135,906 | | |
$ | 3,163,052 | |
Depreciation expense included in general and administration
expenses for the three months ended March 31, 2022 and 2021 was $45,208 and $396, respectively. Depreciation expense included in cost
of sales for the three months ended March 31, 2022 and 2021 was $0 and $0, respectively.
13. INTANGIBLE ASSETS
Intangible assets consist of the following:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Trademarks | |
$ | 945 | | |
| 941 | |
System and software | |
| 2,706,343 | | |
| 2,126,791 | |
Subtotal | |
| 2,707,288 | | |
| 2,127,732 | |
Less: accumulated depreciation and amortization | |
| (160,945 | ) | |
| (148,533 | ) |
Less: impairment | |
| (1,911,303 | ) | |
| (1,903,059 | ) |
Total | |
$ | 635,040 | | |
$ | 76,140 | |
Amortization expense included in general and administration
expenses for the three months ended March 31, 2022 and 2021 was $11,768 and $1,248, respectively. Amortization expense included in cost
of sales for the three months ended March 31, 2022 and 2021 was $0 and $0, respectively.
14. SHORT TERM LOANS
As of March 31, 2022, loan payables were $4.65
million, which consisted of the loan payable of $4.65 million to a third party.
Fuce Future Supply Chain (Xi’an) Co., Ltd signed a factoring
business contract with a third party and obtained a factoring financing of $4.65 million (RMB 29.50 million) that was interest free, RMB
6.50 million ($1.02 million) due date was April 28, 2022, which was renewed to May 28, 2022, RMB 10 million ($1.56 million) will due on
May 26, 2022 and RMB 13 million ($2.04 million) will due on June 20, 2022.
As of December 31, 2021, loan payables were $1.02 million, which consisted
of the loan payable of $1.02 million to a third party.
Fuce Future Supply Chain (Xi’an) Co., Ltd signed a factoring
business contract with third party and obtained a factoring financing of $1.02 million (RMB 6.5 million) was interest free, with an expiration
date of April 28, 2022.
15. LONG TERM DEBT
As of March 31, 2022, loan payables were $0.19 million, which consisted
of the loan payable of $0.19 million to Shaanxi Entai Bio-Technology Co., Ltd.
The loan from Shaanxi Entai Bio-Technology Co., Ltd of $0.19 million
was interest free and has no assets pledged for this loan.
As of December 31, 2021, loan payables were $0.19
million, which consisted of the loan payable of $0.19 million to Shaanxi Entai Bio-Technology Co., Ltd.
The loan from Shaanxi Entai Bio-Technology Co., Ltd of $0.19 million
was interest free and has no assets pledged for this loan.
16. ACCRUED EXPENSES AND OTHER PAYABLES
The amount of accrued expenses and other payables
consisted of the followings:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Legal fee and other professionals | |
$ | 79,723 | | |
$ | 280,647 | |
Wages and employee reimbursement | |
| 80,309 | | |
| 272,093 | |
Suppliers | |
| 77,041 | | |
| 155,043 | |
Accruals | |
| 656,655 | | |
| 590,815 | |
Total | |
$ | 893,728 | | |
$ | 1,298,598 | |
17. CONVERTIBLE NOTES PAYABLE
As of March 31, 2022 and December 31, 2021, convertible
debt consisted of the following:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Beginning | |
$ | - | | |
$ | 1,163,146 | |
Addition | |
| - | | |
| - | |
Payment | |
| - | | |
| (1,163,146 | ) |
Balance | |
$ | - | | |
$ | - | |
18.
DEFERRED LIABILITIES
As of March 31, 2022, the balance of deferred
liabilities mainly represented an amount of $7.21 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% of the Purchase Price (current $3.74 million, non-current
$3.47 million) 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. Nice Talent has met the performance requirements for
the year ended on December 31, 2021, however, the 20% of the Purchase Price has not been paid in the shares of common stock of the Company
as of the date of this report.
As
of December 31, 2021, the balance of deferred liabilities mainly represented an amount of $7.12 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% of
the Purchase Price (current $3.74 million, non-current $3.38 million) shall be paid in shares of common stock of the Company upon the
completion of the audited reports for Nice Talent for each of the years ended on December 31, 2021 and December 31, 2022, respectively.
19. RELATED PARTY TRANSACTION
As of March 31, 2022, the amounts due to the related
parties were consisted of the followings:
Name | |
Amount (US$) | | |
Relationship | |
Note |
Shaanxi Chunlv Ecological Agriculture Co. Ltd. (Chunlv) | |
$ | 258,994 | | |
Shaanxi Fu Chen Venture Capital Management Co. Ltd. (“Fu Chen”)
holds 80% interest of Chunlv; Two outside shareholders of the Company are shareholders of Fu Chen. | |
Accrued expenses, interest free and payment on demand. |
Kai Xu | |
| 25,994 | | |
Deputy General Manager of a subsidiary of the Company | |
Accrued expenses, interest free and payment on demand. |
Zhi Yan | |
| 280,983 | | |
General Manager of a subsidiary of the Company | |
Accrued expenses, interest free and payment on demand. |
Jing Chen | |
| 25,005 | | |
Vice president of the Company | |
Accrued expenses, interest free and payment on demand. |
Future Supply Chain Co., Ltd. | |
| 281,621 | | |
Fu Chen holds 100% interest of this company | |
Accrued expenses, interest free and payment on demand. |
Reits (Beijing) Technology Co., Ltd | |
| 15,949 | | |
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. |
Shaanxi Fuju Mining Co., Ltd | |
| 3,308 | | |
Fu Chen holds 80% interest of the company | |
Accrued expenses, interest free and payment on demand. |
Total | |
$ | 891,854 | | |
| |
|
As of March 31, 2022, the amounts due from the
related parties were consisted of the followings:
Name | |
Amount (US$) | | |
Relationship | |
Note |
Bin Wu | |
| 186 | | |
A shareholder of a Company’s subsidiary | |
Advance to pay for the incorporation costs of the establishment of the subsidiary in Dubai Amount is interest free and paument on demand. |
OLA | |
| 14,022 | | |
Chief Executive Officer of a
subsidiary of the Company and Chief Strategy Officer of the Company | |
Loan receivables, interest free and payment on demand. |
Shaanxi Fu Chen Venture Capital Management Co. Ltd. (“Fu Chen”) | |
| 230,090 | | |
Two outside shareholders of the Company are shareholders of Fu
Chen | |
Loan receivables, interest free and payment on demand. |
Ming Yi | |
| 60,000 | | |
Chief Financial Officer of the Company | |
Prepaid expenses, interest free and payment on demand. |
Total | |
$ | 304,298 | | |
| |
|
As of December 31, 2021, the amounts due to the
related parties were consisted of the followings:
Name |
|
Amount
(US$) |
|
|
Relationship |
|
Note |
Zhi Yan |
|
$ |
286,045 |
|
|
General Manager of a subsidiary of the Company |
|
Accrued expenses, interest free and payment on demand. |
Jing Chen |
|
|
37,604 |
|
|
Vice president of the Company |
|
Accrued expenses, interest free and payment on demand. |
Shaanxi Fu Chen Venture Capital Management Co. Ltd. (“Shaanxi Fu Chen”) |
|
|
72,046 |
|
|
Two outside shareholders of the Company are shareholders of Shaanxi Fu Chen |
|
Other payables, interest free and payment on demand. |
Future Supply Chain Co., Ltd. |
|
|
280,571 |
|
|
Shaanxi Fu Chen holds 100% interest of this company |
|
Other payables, interest free and payment on demand. |
Reits (Beijing) Technology Co., Ltd |
|
|
15,881 |
|
|
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. |
Shaanxi Chunlv Ecological Agriculture Co. Ltd. |
|
|
257,876 |
|
|
Shaanxi Fu Chen holds 80% interest of this company |
|
Other payables, interest free and payment on demand. |
Ming Yi |
|
|
8,942 |
|
|
Chief Financial Officer of the Company |
|
Accrued expenses, interest free and payment on demand. |
OLA |
|
|
4,933 |
|
|
Chief Executive Officer of a subsidiary of the Company and Chief Strategy Officer of the Company |
|
Other payables, interest free and payment on demand. |
Kai Xu |
|
|
25,509 |
|
|
Deputy General Manager of a subsidiary of the Company |
|
Accrued expenses, interest free and payment on demand. |
Shaanxi Fuju Mining Co., Ltd |
|
|
3,295 |
|
|
Shaanxi Fu Chen holds 80% interest of this company |
|
Other payables, interest free and payment on demand. |
Total |
|
$ |
992,702 |
|
|
|
|
|
As of December 31, 2021, the amounts due from
the related parties were consisted of the followings:
Name |
|
Amount
(US$) |
|
|
Relationship |
|
Note |
Shaanxi Fu Chen Venture Capital Management Co. Ltd. (“Shaanxi Fu Chen”) |
|
|
235,268 |
|
|
Two outside shareholders of the Company are shareholders of Shaanxi Fu Chen |
|
Loan receivables, interest free and payment on demand. |
Bin Wu |
|
|
26,145 |
|
|
A shareholder of a Company’s subsidiary |
|
Advance to pay for the incorporation costs of the establishment of the subsidiary in Dubai Amount is interest free and payment on demand. |
Total |
|
$ |
261,413 |
|
|
|
|
|
* |
The related party transactions
have been approved by the Company’s Audit Committee. |
20. 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 2022 and 2021. No provisions
for income taxes have been made, as the Company had no U.S. taxable income for the three months ended March 31, 2022 and 2021. For
the three months ended March 31, 2022 and 2021, the Company had current income tax expenses of $187,953 and nil, 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, 2022, 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 is incorporated in United Kingdom
and is 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.
Reconciliation of the differences between the
statutory EIT rate applicable to profits of the consolidated entities and the income tax expenses of the Company:
| |
2022 | | |
2021 | |
| |
| | |
| |
Loss before taxation | |
$ | (2,510,418 | ) | |
$ | (541,302 | ) |
PRC statutory tax rate | |
| 25 | % | |
| 25 | % |
Computed expected benefits | |
| (627,605 | ) | |
| (135,325 | ) |
Others, primarily the differences in tax rates | |
| 137,645 | | |
| 41,857 | |
Effect of tax losses not recognized | |
| 677,913 | | |
| 93,468 | |
Total | |
$ | 187,953 | | |
$ | - | |
21. IMPAIRMENT LOSS
The Company recorded $0.25 million of impairment
loss in three months ended 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. Overall economic environment has worsened in China with Covid-19 outbreak and related lockdown in various cities
in China in 2022, Ukraine war, inflation, looming recession worldwide. According to the market value, the Company’s balance of the
short term investment was $1.8 million on March 31, 2022.
22. SHARE BASED COMPENSATION
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.
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 $26.49 million (RMB 168,239,218) as of March 31, 2022. 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.
23. DISCONTINUED OPERATIONS
On November 12, 2020, CCM Tianjin and Chain Cloud Mall Logistics Center
(Shanxi) Co., Ltd. entered into agreements to transfer their ownership of Hedetang Farm Products Trading Markets (Mei county) Co., Ltd.
(“Hedetang Farm”) to third parties and the Company has discontinued the operations of Hedetang Farm. However, the ownership
transfer process with local government was delayed due to COVID-19.
On April 9, 2021, FT Commercial Management (Beijing)
Co., Ltd was deregistered, resulting in a loss on disposal of $ 351,914.
On August 2, 2021, Guangchengji (Guangdong) Industrial
Co., Ltd was sold to a third party.
On November 4, 2021, Future Supply Chain Co.,
Ltd was transferred to a third party.
Loss from discontinued operations
for March 31, 2022 and 2021 was as follows:
| |
March 31, | | |
March 31, | |
| |
2022 | | |
2021 | |
REVENUES | |
$ | - | | |
$ | 886 | |
COST OF SALES | |
| - | | |
| 886 | |
GROSS PROFIT | |
| - | | |
| - | |
| |
| | | |
| | |
OPERATING EXPENSES: | |
| | | |
| | |
General and administrative | |
| - | | |
| 66,612 | |
(Recovery) of doubtful debts | |
| - | | |
| (3,069 | ) |
Total | |
| - | | |
| 63,543 | |
| |
| | | |
| | |
OTHER INCOME (EXPENSE) | |
| | | |
| | |
Interest income | |
| - | | |
| 133,355 | |
other income (expenses) | |
| - | | |
| 26,095 | |
Total | |
| - | | |
| 159,450 | |
Income from discontinued operations before income tax | |
| | | |
| 95,907 | |
Income tax provision | |
| - | | |
| - | |
Income from discontinued operation before noncontrolling interest | |
$ | - | | |
| 95,907 | |
Loss on disposal of discontinued operations | |
| - | | |
| (351,914 | ) |
LOSS FROM DISCONTINUED OPERATION | |
$ | - | | |
$ | (256,007 | ) |
The major components of assets and liabilities
related to discontinued operations are summarized below:
| |
March 31, 2022 | | |
December 31, 2021 | |
Cash | |
$ | - | | |
$ | - | |
Amount due from related parties | |
| 158 | | |
| 157 | |
Total assets related to discontinued operations | |
$ | 158 | | |
| 157 | |
| |
| | | |
| | |
Accrued expenses | |
$ | - | | |
$ | - | |
Amount due from related parties | |
| - | | |
| - | |
Total liabilities related to discontinued operations | |
$ | - | | |
$ | - | |
24. 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 four segments starting in fiscal
2021: shared shopping mall membership fee coal and aluminum ingots supply chain financing service and trading
business and asset management service and others.
Due the COVID-19
pandemic and restriction on large gatherings in China, which have made the promotion strategy for its online e-commerce platforms difficult
to implement and the Company has experienced difficulties to subscribe new members for its online e-commerce platforms. Due to lack of
new members, difficulties in retaining old customers and significant decrease of revenue in e-commerce business, the Company began to
provide supply chain financing services during the second quarter of 2021 and the Company acquired Nice Talent and started to provide
asset management services since August 2021.
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, 2022:
| |
Coals and aluminum ingots supply chain financing/trading | | |
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 | |
As of March 31, 2021:
| |
CCM Shopping Mall
Membership | | |
Others | | |
Total | |
Reportable segment revenue | |
$ | 73 | | |
$ | 7,426 | | |
$ | 7,499 | |
Revenue from external customers | |
$ | 73 | | |
$ | 7,426 | | |
$ | 7,499 | |
Segment gross profit | |
$ | 73 | | |
$ | 517 | | |
$ | 590 | |
25. 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. The Company will continue to vigorously defend the
action against FT Global.
26. 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 is 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 continues 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. Although China has already begun to recover from the outbreak of COVID-19, there
are still outbreak in various cities and provinces due to new variants, including the recent outbreak of Omicron variant in Xi’an
city, Hong Kong, Shanghai and Beijing in 2022 which have resulted quarantines, travel restrictions, and temporary closure of office buildings
and facilities in these cities. 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 still puts a restriction on large gatherings. These restrictions
made the promotion strategy for our online e-commerce platforms difficult to implement and the Company has experienced difficulties to
subscribe new members for its online e-commerce platforms. Due to the lack of new subscribers, in June 2021, the Company suspended
its cross-border e-commerce platform NONOGIRL. Also, since the second quarter of 2021, the Company has transformed its member-based 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 duration and
intensity of its impacts. 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 duration and severity of the COVID-19, 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.
27. 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.