UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from ____ to ____
Commission file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification Number) |
(Address of principal executive offices including zip code)
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. ☒
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). ☐ Yes
| Class | Outstanding at November 16, 2024 | |
| Common Stock, $0.001 par value per share |
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | 1 | |
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 29 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 39 |
| Item 4. | Controls and Procedures | 39 |
| PART II. OTHER INFORMATION | 40 | |
| Item 1. | Legal Proceedings | 40 |
| Item 1A. | Risk Factors | 41 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 41 |
| Item 3. | Defaults upon Senior Securities | 41 |
| Item 4. | Mine Safety Disclosure | 41 |
| Item 5. | Other Information | 41 |
| Item 6. | Exhibits | 41 |
| SIGNATURES | 42 | |
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FUTURE FINTECH GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, 2024 | December 31, 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short - term investment | ||||||||
| Accounts receivable, net | ||||||||
| Advances to suppliers and other current assets | ||||||||
| Loan receivables | ||||||||
| Other receivables, net | ||||||||
| Amount due from related party | ||||||||
| Assets related to discontinued operation | ||||||||
| TOTAL CURRENT ASSETS | $ | $ | ||||||
| Property, plant and equipment, net | $ | $ | ||||||
| Right of use assets - operation lease | ||||||||
| Intangible assets | ||||||||
| Debt investment | ||||||||
| Assets related to discontinued operation | ||||||||
| TOTAL NON-CURRENT ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other payables | ||||||||
| Advances from customers | ||||||||
| Convertible notes payables | ||||||||
| Lease liability - operation lease | ||||||||
| Amounts due to related parties | ||||||||
| Liability related to discontinued operation | ||||||||
| TOTAL CURRENT LIABILITIES | $ | $ | ||||||
| NON-CURRENT LIABILITIES | ||||||||
| Lease liability - operation lease | ||||||||
| TOTAL NON-CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| Commitments and contingencies (Note 22) | ||||||||
| STOCKHOLDER’S EQUITY | ||||||||
| Future FinTech Group, Inc, Stockholders’ equity | ||||||||
| Common stock, $ | $ | $ | ||||||
| Additional paid-in capital | ||||||||
| Statutory reserve | ||||||||
| Accumulated deficits | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Future FinTech Group, Inc. stockholders’ equity | ||||||||
| Non-controlling interests | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
FUTURE FINTECH GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenues-third party | ||||||||||||||||
| Cost of revenues-related party | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Research and development expenses | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| Impairment loss | ||||||||||||||||
| Provision (Recovery) of doubtful debts | ( | ) | ||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expenses) income | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expenses | ( | ) | ( | ) | ||||||||||||
| Other expense, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other expense, net | ( | ) | ( | ) | ||||||||||||
| Loss from Continuing Operations before Income Tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax provision | ( | ) | ( | ) | ||||||||||||
| Loss from Continuing Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Discontinued Operations | ||||||||||||||||
| Loss from discontinued operations | ( | ) | ( | ) | ||||||||||||
| (Loss) Gain on disposal of discontinued operations | ( | ) | ||||||||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Net Loss attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss from continued operations attributable to Future Fintech Group, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income (loss) | ||||||||||||||||
| Loss from continued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign currency translation – continued operations | ( | ) | ||||||||||||||
| Unrealized holding losses on available-for-sale securities | ( | ) | - | |||||||||||||
| Comprehensive loss - continued operation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net (loss) income from discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Foreign currency translation – discontinued operations | ||||||||||||||||
| Comprehensive (loss) income - discontinued operation | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Net loss attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| COMPREHENSIVE LOSS ATTRIBUTABLE TO FUTURE FINTECH GROUP INC. STOCKHOLDERS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Earnings (Loss) per share: | ||||||||||||||||
| Basic loss per share from continued operation | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic earnings per share from discontinued operation | ( | ) | ||||||||||||||
| $ | ( | ) | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Diluted Earnings (Loss) per share: | ||||||||||||||||
| Diluted loss per share from continued operation | $ | ( | ) | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Diluted earnings per share from discontinued operation | ( | ) | ||||||||||||||
| $ | ( | ) | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average number of shares outstanding | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| * | Reclassification- certain reclassifications have been made to the financial statements for the period ended September 30, 2023 to conform to the presentation for the period ended September 30, 2024, with no effect on previously reported net income (loss). |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Future Fintech Group, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
Three Months ended September 30, 2023
| Accumulative | ||||||||||||||||||||||||||||||||
| Additional | Other | Non- | ||||||||||||||||||||||||||||||
| Common Stock | paid-in | Statutory | Accumulated | comprehensive | controlling | |||||||||||||||||||||||||||
| Shares | Amount | capital | reserve | Deficits | income | interests | Total | |||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Net loss from continued operation | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Net loss from discontinued operation | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Unrealized loss on available-for-sale securities | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
Three Months ended September 30, 2024
| Accumulative | ||||||||||||||||||||||||||||||||
| Common Stock | Additional paid-in | Statutory | Accumulated | Other comprehensive | Non- controlling | |||||||||||||||||||||||||||
| Shares | Amount | capital | reserve | Deficits | income | interests | Total | |||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Net loss from continued operation | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Issuance of common stocks-conversion of debt | ||||||||||||||||||||||||||||||||
| Disposition of discontinued operation | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
3
Nine Months ended September 30, 2023
| Accumulative | ||||||||||||||||||||||||||||||||
| Additional | Other | Non- | ||||||||||||||||||||||||||||||
| Common Stock | paid-in | Statutory | Accumulated | comprehensive | controlling | |||||||||||||||||||||||||||
| Shares | Amount | capital | reserve | Deficits | income | interests | Total | |||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Net loss from continued operation | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Net loss from discontinued operation | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Disposition of discontinued operation | - | |||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
Nine Months ended September 30, 2024
| Accumulative | ||||||||||||||||||||||||||||||||
| Additional | Other | Non- | ||||||||||||||||||||||||||||||
| Common Stock | paid-in | Statutory | Accumulated | comprehensive | controlling | |||||||||||||||||||||||||||
| Shares | Amount | capital | reserve | Deficits | income | interests | Total | |||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Net loss from continued operation | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Issuance of common stocks-cash | ||||||||||||||||||||||||||||||||
| Issuance of common stocks-conversion of debt | ||||||||||||||||||||||||||||||||
| Disposition of discontinued operation | - | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
FUTURE FINTECH GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net income (loss) from discontinued operation | ( | ) | ||||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
| Depreciation | ||||||||
| Amortization | ||||||||
| Provision of doubtful debts | ||||||||
| Impairment of short term investment | ||||||||
| Interest expenses related to convertible note | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ||||||||
| Other receivable | ( | ) | ||||||
| Advances to suppliers and other current assets | ( | ) | ||||||
| Operating lease assets and liabilities | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued expenses and other payables | ( | ) | ||||||
| Advances from customers | ( | ) | ( | ) | ||||
| Net cash used in operating activities from continued operations | ( | ) | ( | ) | ||||
| Net cash provided in operating activities from discontinued operations | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Additions to property, plant and equipment | ( | ) | ( | ) | ||||
| Disposal of property and equipment | ||||||||
| Repayment for loan receivable | ( | ) | ||||||
| Debt investment | ( | ) | ||||||
| Payment for short term investment | ||||||||
| Net cash provided by investing activities from continued operations | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from the issuance of common stock, net of issuance costs | ||||||||
| Notes payable | ( | ) | ||||||
| Proceeds from amounts due from related parties, net | ||||||||
| Repayment of amounts due to related parties, net | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities from continued operations | ( | ) | ||||||
| Effect of change in exchange rate | ( | ) | ||||||
| NET (DECREASE) INCREASE IN CASH AND RESTRICTED CASH | ( | ) | ||||||
| Cash and cash equivalents, from the continuing operations beginning of year | ||||||||
| Cash and cash equivalents, from the continuing operations end of year | $ | $ | ||||||
| Less: Cash and cash equivalents from the discontinued operations, end of year | ( | ) | ||||||
| Cash and cash equivalents, from the continuing operations end of year | ||||||||
| SUPPLEMENTARY DISCLOSURE OF SIGNIFICANT NON-CASH TRANSACTION | 6,519,391 | 33,339,371 | ||||||
| Issuance of common stocks (Note 19) | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION | - | |||||||
| Cash paid for income taxes | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
FUTURE FINTECH GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CORPORATE INFORMATION
Future FinTech Group Inc. (the “Company”) is a holding company incorporated under the laws of the State of Florida. The Company historically engaged in the production and sale of fruit juice concentrates (including fruit purees and fruit juices), fruit beverages (including fruit juice beverages and fruit cider beverages) in the PRC. Due to drastically increased production costs and tightened environmental laws in China, the Company had transformed its business from fruit juice manufacturing and distribution to financial technology related service businesses. The main business of the Company includes supply chain financing services and trading in China, asset management business in Hong Kong and cross-border money transfer service in UK. The Company also expanded into brokerage and investment banking business in Hong Kong and cryptocurrency mining farm in the U.S. The Company had contractual arrangements with a VIE E-Commerce Tianjin in China, which has generated minimal revenue and business since 2021 due to the negative impact caused by COVID-19. The Company started the process to close it down in November 2023 and completed deregistration and dissolution of the VIE with local authority on March 7, 2024.
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 was approved by the Securities and Futures Commission of Hong Kong (“SFC”) in August 2023 and the acquisition was closed on November 7, 2023. The names of the two entities were changed to ‘FTFT International Securities and Futures Limited’ and ‘FTFT Information Services (Shenzhen) Co. Ltd.’, respectively, as a part of the closing.
On October 30, 2023, Future FinTech (Hong Kong)
Limited, a wholly owned subsidiary of the Company acquired
On October 30, 2023, Future FinTech (Hong Kong)
Limited, a wholly owned subsidiary of the Company acquired
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
The reverse stock split would be reflected in our September 30, 2024 and December 31, 2023 statements of changes in stockholders’ equity, and in per share data for all periods presented.
6
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of September 30, 2024 and the results of operations and cash flows for the periods ended September 30, 2024 and 2023. 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 nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for any subsequent periods or for the entire year ending December 31, 2024. The balance sheet at December 31, 2023 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, 2023 as included in our Annual Report on Form 10-K.
Discontinued Operations
On June 16, 2023, QR (HK) Limited was dissolved and deregistered.
On December 5, 2023, FTFT PARAGUAY S.A. was dissolved.
On March 7, 2024, Chain Cloud Mall Network and Technology (Tianjin) Co., Limited was dissolved and deregistered.
On September 4, 2024, Tianjin Future Private Equity Fund Management Partnership (Ltd Partnership) 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 supply chain financing and trading and asset management services, 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.
7
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 $
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.
8
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.
| Income | Share | Pre-share amount | ||||||||||
| Loss from continued operations attributable to Future Fintech Group, Inc. | $ | ( | ) | $ | ( | ) | ||||||
| Income from discontinued operations attributable to Future Fintech Group, Inc. | ||||||||||||
| Basic EPS: | ||||||||||||
| Loss to common stockholders from continuing operations | ( | ) | ( | ) | ||||||||
| Income available to common stockholders from discontinued operations | $ | $ | ||||||||||
| Dilutive EPS: | ||||||||||||
| Warrants | ||||||||||||
| Diluted loss per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding. Diluted net loss per share equals basic net loss per share because the effect of securities convertible into common shares is anti-dilutive from continued operations attributable to Future Fintech Group, Inc. | ( | ) | ( | ) | ||||||||
| Diluted earnings per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding from discontinued operations | ||||||||||||
| Income | Share | Pre-share amount | ||||||||||
| Loss from continued operations attributable to Future Fintech Group, Inc. | $ | ( | ) | $ | ( | ) | ||||||
| Loss from discontinued operations attributable to Future Fintech Group, Inc. | ( | ) | ( | ) | ||||||||
| Basic EPS: | ||||||||||||
| Loss to common stockholders from continuing operations | ( | ) | ( | ) | ||||||||
| Loss available to common stockholders from discontinued operations | $ | ( | ) | $ | ( | ) | ||||||
| Dilutive EPS: | ||||||||||||
| Warrants | ||||||||||||
| Diluted loss per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding. Diluted net loss per share equals basic net loss per share because the effect of securities convertible into common shares is anti-dilutive from continued operations attributable to Future Fintech Group, Inc. | ( | ) | ( | ) | ||||||||
| Diluted loss per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding from discontinued operations | ( | ) | ( | ) | ||||||||
9
| Income | Share | Pre-share amount | ||||||||||
| Loss from continued operations attributable to Future Fintech Group, Inc. | $ | ( | ) | $ | ( | ) | ||||||
| Loss from discontinued operations attributable to Future Fintech Group, Inc. | ( | ) | ||||||||||
| Basic EPS: | ||||||||||||
| Loss to common stockholders from continuing operations | $ | ( | ) | ( | ) | |||||||
| Loss available to common stockholders from discontinued operations | $ | ( | ) | $ | ||||||||
| Dilutive EPS: | ||||||||||||
| Warrants | ||||||||||||
| Diluted loss per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding. Diluted net loss per share equals basic net loss per share because the effect of securities convertible into common shares is anti-dilutive from continued operations attributable to Future Fintech Group, Inc. | $ | ( | ) | ( | ) | |||||||
| Diluted loss per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding from discontinued operations | $ | ( | ) | |||||||||
| Income | Share | Pre-share amount | ||||||||||
| Net loss from continuing operations attributable to Future Fintech Group, Inc. | $ | ( | ) | $ | ( | ) | ||||||
| Net loss from discontinuing operations attributable to Future Fintech Group, Inc. | $ | ( | ) | |||||||||
| Basic EPS: | ||||||||||||
| Loss available to common stockholders from continuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Loss available to common stockholders from discontinuing operations | $ | ( | ) | |||||||||
| Dilutive EPS: | ||||||||||||
| Warrants | ||||||||||||
| Diluted loss per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding. Diluted net loss per share equals basic net loss per share because the effect of securities convertible into common shares is anti-dilutive | $ | ( | ) | $ | ( | ) | ||||||
| Diluted loss per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding. | $ | ( | ) | |||||||||
10
Cash and Cash Equivalents
Cash and cash equivalents included cash on hand and demand deposits placed with banks or other financial institutions, which are unrestricted as to withdrawal and use and with an original maturity of three months or less.
Deposits in banks in the PRC are only insured
by the government up to RMB
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 September 30, 2024. Bad debt expense was $
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.
11
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 $
Sales agent services for coals, aluminum ingots, sand and steel
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 $
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
| Machinery and equipment | ||
| Building | ||
| Furniture and office equipment | ||
| Motor vehicles |
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
12
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
The exchange rate we used to convert HKD to USD
was
The exchange rate we used to convert GBP to USD
was
The exchange rate we used to convert AED to USD
was
The exchange rate we used to convert PYG to USD
was
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.
13
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. In addition, the discounted cash flow model requires the Company to select an appropriate weighted average cost of capital based on current market conditions as of September 30, 2024 and December 31, 2023. A high degree of auditor judgment and an increased extent of effort were required when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the forecasts. Based upon the assessment, the Company has concluded that goodwill was as of September 30, 2024 and December 31, 2023.
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 September
30, 2024 and December 31, 2023, the short-term investments amounted to and $
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.
14
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.
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. ACCOUNTS RECEIVABLE
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Supply Chain Financing/Trading | $ | $ | ||||||
| Asset management service | ||||||||
| Others | ||||||||
| Total accounts receivable, net | $ | $ | ||||||
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Debtor A | % | % | ||||||
| Debtor B | % | % | ||||||
| Debtor C | % | % | ||||||
| Total accounts receivable, net | % | % | ||||||
4. OTHER RECEIVABLES
As of September 30, 2024, the balance of other
receivables was $
As of December 31, 2023, the balance of other
receivables was $
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 $
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 $
15
On December 6, 2023, Future Fintech (Hong Kong)
Limited entered into a “Mobile Software Application Development Agreement” with a third-party. Future Fintech (Hong Kong)
Limited shall pay $
On December 6, 2023, Future Fintech (Hong Kong)
Limited entered into a “Augmented Reality (AR) Group Development and Service Agreement” with a third-party. Future Fintech
(Hong Kong) Limited shall pay $
In addition, other receivables included total $
5. LOAN RECEIVABLES
As of September 30, 2024, the balance of loan
receivables was $
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 $
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 $
On December 8, 2023, 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 $
On December 8, 2023, Future Fin Tech (Hong Kong)
Limited entered into a “Loan Agreement” with a third party. Pursuant to the Loan Agreement, Future Fin Tech (Hong Kong) Limited
loaned an amount of $
On August 29, 2024, FUCE Future Supply Chain (Xi’an)
Co., Ltd 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 $
As of December 31, 2023, the balance of loan receivables
was $
On March 10, 2022, FTFT HK entered into a “Loan
Agreement” with a third party. Pursuant to the Loan Agreement, FTFT HK loaned an amount of $
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 $
On December 8, 2023, 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 $
On December 8, 2023, Future Fin Tech (Hong Kong)
Limited entered into a “Loan Agreement” with a third party. Pursuant to the Loan Agreement, Future Fin Tech (Hong Kong) Limited
loaned an amount of $
16
6. SHORT - TERM INVESTMENT
As of September 30, 2024, the balance of short
- term investment was . On March 5, 2024, the Company sold the short – team investments amount of $
As of December 31, 2023, the balance of short
- term investment was $
7. ADVANCES TO SUPPLIERS AND OTHER CURRENT ASSETS
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Prepayments for Supply Chain Financing/Trading | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Deposit | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
As of September 30, 2024, prepaid expenses were $
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 $
On December 6, 2023, Future Fintech (Hong Kong)
Limited entered into a “Mobile Software Application Development Agreement” with a third-party. Future Fintech (Hong Kong)
Limited shall pay $
On December 6, 2023, Future Fintech (Hong Kong)
Limited entered into a “Augmented Reality (AR) Group Development and Service Agreement” with a third-party. Future Fintech
(Hong Kong) Limited shall pay $
In addition, other receivables included total $
8. DEBT INVESTMENT
As of September 30, 2024, debt investment was
$
On May 20, 2024, Future Commercial Management
Co., Ltd. entered into a “Debt Transfer Agreement” with a third-party. Future Commercial Management Co., Ltd. paid $
On July 4, 2024, Future Commercial Management
Co., Ltd., an indirectly wholly owned subsidiary of the Company, entered into a “Entrustment Agreement” with Xi’an Qifeng
Future Supply Chain Co., Ltd. (“Xi’an Qifeng”) to entrust Xi’an Qifeng for acquisition of certain debt assets.
On September 26, 2024, Xi’an Qifeng through its authorized agent entered into a “Debt Transfer Agreement” with China
Zhongxin Financial Assets Management Co., Ltd. Gansu Branch, pursuant to which Future Commercial Management Co., Ltd. paid $
17
9. ACQUISITION
Alpha International Securities (Hong Kong) Limited
On November 7, 2023, Future FinTech (Hong Kong)
Limited, a wholly owned subsidiary of the Company completed the acquisition of
Alpha Information Services (Shenzhen) Co., Ltd
On November 7, 2023, Future FinTech (Hong Kong)
Limited, a wholly owned subsidiary of the Company completed the acquisition of
| Accounts receivable | $ | |||
| Other current assets | ||||
| Property, plant and equipment, net | ||||
| Intangible assets | ||||
| Right of use assets | ||||
| Lease liability-current | ( | ) | ||
| Accounts payable | ( | ) | ||
| Accrued expenses and other payables | ( | ) | ||
| Net identifiable assets acquired | $ | ( | ) | |
| Add: goodwill | ||||
| Total purchase price for acquisition net of $ | $ | ( | ) |
The Company has included the operating results
of FTFT International Securities and Futures Limited in its consolidated financial statements since November 7, 2023. US$
The Company has included the operating results
of Future information service (Shenzhen) Co., Ltd in its consolidated financial statements since November 7, 2023. US$
10. 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 nine months ended
September 30, 2024, the operating lease cost was $
The Company’s operating leases have remaining
lease terms of approximately
| Operating | ||||
| As of September 30, | Lease | |||
| From October 1, 2024 to September 30, 2025 | $ | |||
| From October 1, 2025 to September 30, 2026 | ||||
| From October 1, 2026 to September 30, 2027 | ||||
| From October 1, 2027 to September 30, 2028 | ||||
| Total | $ | |||
| Less: amounts representing interest | $ | |||
| Present Value of future minimum lease payments | ||||
| Less: Current obligations | ||||
| Long term obligations | $ | |||
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 $
18
11. PROPERTY AND EQUIPMENT
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Office equipment, fixtures and furniture | $ | $ | ||||||
| Vehicle | ||||||||
| Building | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Construction in progress | ||||||||
| Impairment | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Depreciation expense included in general and administration
expenses for the nine months ended September 30, 2024 and 2023 was $
12. INTANGIBLE ASSETS
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Trademarks | $ | |||||||
| System and software | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Less: impairment | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Amortization expense included in general and administration
expenses for the nine months ended September 30, 2024 and 2023 was $
| As of September 30, | Estimated amortization expense | |||
| From October 1, 2024 to September 30, 2025 | $ | |||
| From October 1, 2025 to September 30, 2026 | ||||
| From October 1, 2026 to September 30, 2027 | ||||
| From October 1, 2027 to September 30, 2028 | ||||
| From October 1, 2028 to September 30, 2029 | ||||
| Thereafter | ||||
| Total | $ | |||
Type 1 and Type 2 licenses by Hong Kong Securities
and Futures Commission have no expiration date and do not require amortization, amount was $
19
13. ACCOUNT PAYABLES
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Supply Chain Financing/Trading payment | $ | $ | ||||||
| Others | ||||||||
| Total | $ | $ | ||||||
14. ACCRUED EXPENSES AND OTHER PAYABLES
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Legal fee and other professionals | $ | $ | ||||||
| Wages and employee reimbursement | ||||||||
| Provision for legal case | ||||||||
| Suppliers | ||||||||
| Accruals | ||||||||
| Total | $ | $ | ||||||
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
(the “Court”). 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. On April 11, 2024, the jury returned a verdict in favor of FT Global and the Court entered a judgment
awarding FT Global $
15. CONVERTIBLE NOTES PAYABLE
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Beginning | $ | $ | ||||||
| Addition | ||||||||
| Interest expenses | ||||||||
| Payment | ||||||||
| Conversion | ( | ) | ||||||
| Balance | $ | $ | ||||||
16. RELATED PARTY TRANSACTION
| Name | Amount (US$) | Relationship | Note | |||||
| Ming Yi | ||||||||
| Total | $ | |||||||
20
| Name | Amount (US$) | Relationship | Note | |||||
| Chao Li | ||||||||
| Hu Li | ||||||||
| Kai Li | ||||||||
| Chan Siu Kei | ||||||||
| Total | $ | |||||||
| Name | Amount | Relationship | Note | |||||
| JKNDC Limited | $ | ( | ||||||
| JKNDC Limited | ||||||||
| Nice Talent Partner Limited | ||||||||
| Name | Amount | Relationship | Note | |||||
| Chao Li | $ | |||||||
| Ming Yi | ||||||||
| Xiaochen Zhao | ||||||||
| Chan Siu Kei | ||||||||
| Total | $ | |||||||
| Name | Amount | Relationship | Note | |||||
| Kai Xu | $ | |||||||
| Total | $ | |||||||
| Name | Amount | Relationship | Note | |||||
| JKNDC Limited | $ | ( | ) | |||||
| JKNDC Limited | ||||||||
| Alpha Yield Limited | ||||||||
| Nice Talent Partner Limited | ||||||||
| * | The related party transactions have been approved by the Company’s Audit Committee. |
21
17. 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
The Company evaluates the level of authority for each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. For the nine months ended September 30, 2024, 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
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
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
FTFT Capital investments L.L.C is incorporated in Dubai, United Arab Emirates. The applicable tax rate is in Dubai, United Arab Emirates.
Digipay Fintech Limited is incorporated in British Virgin Island. The applicable tax rate is in British Virgin Island.
| September 30, 2024 | September 30, 2023 | |||||||
| Loss before taxation | $ | ( | ) | $ | ( | ) | ||
| PRC statutory tax rate | % | % | ||||||
| Computed expected benefits | ( | ) | ( | ) | ||||
| Others, primarily the differences in tax rates | ||||||||
| Deferred tax assets losses not recognized | ||||||||
| Total | $ | $ | ||||||
22
18. SHARE BASED COMPENSATION
On February 1, 2023, the Company effected a
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
Payments-omnibus equity plan
On October 12, 2023, the Compensation Committee
of the Board of Directors of the Company granted
19. COMMON STOCK
Securities Purchase Agreement
On December 24, 2020, the Company entered into
a securities purchase agreement with certain purchasers, pursuant to which the Company sold to the purchasers in a registered direct offering,
an aggregate of
On August 6, 2021, the Company, through its wholly
owned subsidiary Future FinTech (Hong Kong) Limited., completed its acquisition of
On January 5, 2024, the Company entered into a
securities purchase agreement with certain purchasers identified on the signature page thereto, pursuant to which the Company sold
to the purchasers in a private placement, an aggregate of
Common stocks issued in connection with the convertible notes
On December 27, 2023, the Company entered into
a Securities Purchase Agreement with Streeterville Capital, LLC, a Utah limited liability company (the “Lender”), pursuant
to which the Company sold and issued to the Lender a Convertible Promissory Note (the “Note”) in the principal amount of $
On July 3, 2024, that Lender elects to redeem
a portion of the Note in redemption conversion shares. Lender redemption conversion shares
On July 18, 2024, that Lender elects to redeem
a portion of the Note in redemption conversion shares. Lender redemption conversion shares
On August 26, 2024, that Lender elects to redeem
a portion of the Note in redemption conversion shares. Lender redemption conversion shares
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20. DISCONTINUED OPERATIONS
On June 16, 2023, QR (HK) Limited was dissolved and deregistered.
On December 5, 2023, FTFT PARAGUAY S.A. was dissolved.
On March 7, 2024, Chain Cloud Mall Network and Technology (Tianjin) Co., Limited was dissolved and deregistered.
On September 4, 2024, Tianjin Future Private Equity Fund Management Partnership (Ltd Partnership) was dissolved and deregistered.
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| REVENUES | $ | $ | $ | $ | ||||||||||||
| COST OF SALES | ||||||||||||||||
| GROSS PROFIT | ( | ) | ||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and Development expenses | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| Total | ||||||||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Other expense (income) | ( | ) | ||||||||||||||
| Total | ( | ) | ||||||||||||||
| Loss from discontinued operations before income tax | ( | ) | ( | ) | ||||||||||||
| Income tax provision | ||||||||||||||||
| Loss from discontinued operation before noncontrolling interest | $ | $ | $ | $ | ||||||||||||
| (Loss) Gain on disposal of discontinued operations | ( | ) | ||||||||||||||
| Less: Net loss attributable to non-controlling interests | ||||||||||||||||
| (LOSS) INCOME FROM DISCONTINUED OPERATION | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| September 30, 2024 | December 31, 2023 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Other receivables | ||||||||
| Advances to suppliers and other current assets | ||||||||
| Total current assets related to discontinued operations | $ | $ | ||||||
| - | ||||||||
| Property, plant and equipment, net | ||||||||
| Total assets related to discontinued operations | $ | $ | ||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other payables | ||||||||
| Advances from customers | ||||||||
| Total liabilities related to discontinued operations | $ | $ | ||||||
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21. 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
The Company began to provide coal and aluminum ingots supply chain financing and trading 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 and trading 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.
| Supply Chain Financing/ Trading | Asset management service | Others | Total | |||||||||||||
| Reportable segment revenue | $ | $ | $ | $ | ||||||||||||
| Inter-segment loss | ||||||||||||||||
| Revenue from external customers | ||||||||||||||||
| Segment gross profit | $ | $ | $ | $ | ||||||||||||
| Supply Chain Financing/ Trading | Asset management service | Others | Total | |||||||||||||
| Reportable segment revenue | $ | $ | $ | $ | ||||||||||||
| Inter-segment loss | ||||||||||||||||
| Revenue from external customers | ||||||||||||||||
| Segment gross profit | $ | $ | $ | $ | ||||||||||||
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| Supply Chain Financing/ Trading | Asset management service | Others | Total | |||||||||||||
| Reportable segment revenue | $ | $ | $ | $ | ||||||||||||
| Inter-segment loss | ||||||||||||||||
| Revenue from external customers | ||||||||||||||||
| Segment gross profit | $ | $ | $ | $ | ||||||||||||
| Supply Chain Financing/ Trading | Asset management service | Others | Total | |||||||||||||
| Reportable segment revenue | $ | $ | $ | $ | ||||||||||||
| Inter-segment loss | ||||||||||||||||
| Revenue from external customers | ||||||||||||||||
| Segment gross profit | $ | $ | $ | $ | ||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Supply chain financing/trading | $ | $ | ( | ) | $ | $ | ||||||||||
| Asset management service | ||||||||||||||||
| Others | ( | ) | ||||||||||||||
| Corporate and Unallocated | ||||||||||||||||
| Total operating expenses and other expenses | ||||||||||||||||
| Loss before Income Tax | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| September 30, 2024 | December 31, 2023 | |||||||
| Supply chain financing/trading | ||||||||
| Asset management service | ||||||||
| Others | ||||||||
| Corporate and Unallocated | ||||||||
| Assets related to discontinued operation | ||||||||
| Total assets | ||||||||
26
22. COMMITMENTS AND CONTINGENCIES
Legal case with FT Global Litigation
In January 2021, FT Global Capital, Inc. (“FT
Global”), a former placement agent of the Company filed a lawsuit against the Company in the Superior Court of Fulton County, Georgia.
FT Global served the complaint upon the Company in January 2021. In the complaint, FT Global alleges claims, most of which attempt to
hold the Company liable under legal theories that relate back to an alleged breach of an exclusive placement agent agreement between FT
Global and the Company in July 2020 which had a term of three months. FT Global claims that the Company failed to compensate FT Global
for securities purchase transactions between December 2020 and April 2021, pursuant to the terms of the expired exclusive placement agent
agreement. Allegedly, the exclusive placement agent agreement required the Company to pay FT Global for capital received during the term
of the agreement and for the 12-month period following the termination of the agreement involving any investors that FT Global introduced
and/or wall-crossed to the Company. However, the Company believes the securities purchase transactions at issue did not involve the one
investor which FT Global introduced or wall-crossed to the Company during the term of the agreement. FT Global claims approximately $
The Company timely removed the case to the United
States District Court for the Northern District of Georgia (the (“Court”) on February 9, 2021 based on diversity of jurisdiction.
On March 9, 2021, the Company filed a motion to dismiss based on FT Global’s failure to state a claim which is pending before the
Court. On March 23, 2021, FT Global filed its response to the Company’s motion to dismiss. FT Global argues that the Court should
deny the Company’s motion to dismiss. However, if the Court is inclined to grant the Company’s motion to dismiss, FT Global
requested that the Court permit it to file an amended complaint. On April 8, 2021, the parties filed a Joint Preliminary Report and Discovery
Plan. On April 12, 2021, the Court approved the Joint Preliminary Report and Discovery Plan and issued a Scheduling Order placing this
case on a six-month discovery tract. On April 30, 2021, the Company served FT Global with its Initial Disclosures. On May 6, 2021, FT
Global served the Company with its Initial Disclosures. On May 17, 2021, FT Global served the Company with its First Amended Initial Disclosures.
On November 10, 2021, the Court entered an Order granting the Company’s motion to dismiss FT Global’s fraud claim and breach
of contract claim as to the disclosure of its confidential and proprietary information. The Court denied the Company’s motion to
dismiss FT Global’s i) breach of contract claim for failure to pay FT Global pursuant to the terms of the exclusive placement agent
agreement; ii) claim for breach of the covenant of good faith and fair dealing; and iii) claim for attorney’s fees, and the court
concluded that additional information can be obtained through discovery. The Company 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 judgment on all claims asserted by FT Global in this lawsuit. On August 31, 2023,
the Court entered an Order denying the Company’s motion for summary judgment. On September 20, 2023, the parties filed a joint motion
to extend the deadline to file the consolidated pretrial order pending mediation of the case by the parties. On September 21, 2023, the
Court granted the parties’ joint motion to extend the deadline to file the consolidated pretrial order to October 27, 2023. On October
16, 2023, the parties mediated the case. On October 24, 2023, the parties filed another joint motion to extend the deadline to file the
consolidated pretrial order. On October 27, 2023, the Court granted the parties’ joint motion to extend the deadline to file the
consolidated pretrial order to November 17, 2023 and set the case for trial on January 8, 2024. Subsequently, the Court approved an extension
of the deadline to file a pretrial order to December 1, 2023. The Court has also rescheduled the trial to commence on April 8, 2024. The
trial began on April 8, 2024 and ended on April 11, 2024, on which date the jury returned a verdict in favor of FT Global and the Court
entered a judgment awarding FT Global $
27
23. 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 2020 until late March 2020. The quarantines, travel restrictions, and the temporary closure of office buildings materially negatively impacted our business. Any new variant or outbreak of COVID-19 might have disruption to our supply chain, logistics providers, customers or our marketing activities, which could materially adversely impact our business and results of operations. There were outbreaks in various cities and provinces in China due to Omicron variant, such as 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. Since 2021, CCM generated minimal revenue and business for the Company. The Company started a process to close it down in November 2023 and completed deregistration and dissolution of the VIE with local authority on March 7, 2024.
While the potential economic impact brought by new variants of COVID-19 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. 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. In the event that we do need to raise capital in the future and there is any outbreak due to new variants, outbreak-related instability in the securities markets could adversely affect our ability to raise additional capital.
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 nine months ended September 30, 2024, three
customers accounted for
Vendor concentration risk
For nine months ended September 30, 2024, two
vendors accounted for
24. 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.
28
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This quarterly report on Form 10-Q and other reports filed by the Company from time to time with the SEC (collectively the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “may”, “will”, “should”, “would”, “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan”, or the negative of these terms and similar expressions as they relate to Company or Company’s management identify forward-looking statements. Such statements reflect the current view of Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors (including the statements in the section “results of operations” below), and any businesses that Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those listed under the heading “Risk Factors” and those listed in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”) and in this Form 10-Q. The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report and in our 2023 Form 10-K.
Although the Company believes the expectations reflected in the forward-looking statements are based on reasonable assumptions, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this report, which attempts to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations, and prospects.
Overview of Our Business
Future FinTech is a holding company incorporated under the laws of the State of Florida. The Company historically engaged in the production and sale of fruit juice concentrates (including fruit purees and fruit juices), fruit beverages (including fruit juice beverages and fruit cider beverages) in the PRC. Due to drastically increased production costs and tightened environmental laws in China, the Company had transformed its business from fruit juice manufacturing and distribution to financial technology related service businesses. The main business of the Company includes supply chain financing services and trading in China, asset management business in Hong Kong and cross-border money transfer service in UK. The Company also expanded into brokerage and investment banking business in Hong Kong and cryptocurrency mining farm in the U.S. The Company had contractual arrangements with a VIE E-Commerce Tianjin in China, which has generated minimal revenue and business since 2021 due to the negative impact caused by COVID-19. The Company started the process to close it down in November 2023 and completed deregistration and dissolution of the VIE with local authority on March 7, 2024.
29
There are legal and operational risks associated with being based in and having a substantial majority of operations in China and Hong Kong. These risks could result in a material change in our operations and/or the value of our common stock or could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our shares to significantly decline or be worthless. In the past few years, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. On July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued an announcement to crack down on illegal activities in the securities market and promote the high-quality development of the capital market, which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the PRC securities laws. On February 15, 2022, Cybersecurity Review Measures published by Cyberspace Administration of China or the CAC, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, Ministry of State Security, Ministry of Finance, Ministry of Commerce, People’s Bank of China, State Administration of Radio and Television, China Securities Regulatory Commission (“CSRC”), State Secrecy Administration and State Cryptography Administration became effective, which provides that, Critical Information Infrastructure Operators (“CIIOs”) that intend to purchase internet products and services and Online Platform Operators engaging in data processing activities that affect or may affect national security shall be subject to the cybersecurity review by the Cybersecurity Review Office. On November 14, 2021, CAC published the Administration Measures for Cyber Data Security (Draft for Public Comments), or the “Cyber Data Security Measure (Draft)”, which requires cyberspace operators with personal information of more than 1 million users who want to list abroad to file a cybersecurity review with the Office of Cybersecurity Review. On July 7, 2022, CAC promulgated the Measures for the Security Assessment of Data Cross-border Transfer, effective on September 1, 2022, which requires the data processors to apply for data cross-border security assessment coordinated by the CAC under the following circumstances: (i) any data processor transfers important data to overseas; (ii) any critical information infrastructure operator or data processor who processes personal information of over 1 million people provides personal information to overseas; (iii) any data processor who provides personal information to overseas and has already provided personal information of more than 100,000 people or sensitive personal information of more than 10,000 people to overseas since January 1st of the previous year; and (iv) other circumstances under which the data cross-border transfer security assessment is required as prescribed by the CAC. On February 17, 2023, the CSRC released New Overseas Listing Rules with five interpretive guidelines, which took effect on March 31, 2023. The New Overseas Listing Rules require Chinese domestic enterprises to complete filings with CSRC and report related information under certain circumstances, such as: a) an issuer making an application for initial public offering and listing in an overseas market; b) an issuer making an overseas securities offering after having been listed on an overseas market; c) a domestic company seeking an overseas direct or indirect listing of its assets through single or multiple acquisition(s), share swap, transfer of shares or other means. According to the Notice on Arrangements for Overseas Securities Offering and Listing by Domestic Enterprises, published by the CSRC on February 17, 2023, a company that (i) has already completed overseas listing or (ii) has already obtained the approval for the offering or listing from overseas securities regulators or exchanges but has not completed such offering or listing before effective date of the new rules and also completes the offering or listing before September 30, 2023 are considered as an existing listed company and is not required to make any filing until it conducts a new offering in the future. Furthermore, upon the occurrence of any of the material events specified below after an issuer has completed its offering and listed its securities on an overseas stock exchange, the issuer shall submit a report thereof to the CSRC within 3 business days after the occurrence and public disclosure of the event: (i) change of control; (ii) investigations or sanctions imposed by overseas securities regulatory agencies or other competent authorities; (iii) change of listing status or transfer of listing segment; or (iv) voluntary or mandatory delisting. The New Overseas Listing Rules stipulate the legal consequences to the companies for breaches, including failure to fulfill filing obligations or filing documents having false statement or misleading information or material omissions, which may result in a fine ranging from RMB1 million to RMB10 million, and in cases of severe violations, the relevant responsible persons may also be barred from entering the securities market. On February 24, 2023, the CSRC, the Ministry of Finance, the National Administration of State Secretes Protection and the National Archives Administration released the Provisions on Strengthening the Confidentiality and Archives Administration Related to the Overseas Securities Offering and Listing by Domestic Companies, or the Confidentiality and Archives Administration Provisions, which took effect on March 31, 2023. PRC domestic enterprises seeking to offer securities and list in overseas markets, either directly or indirectly, shall establish and improve the system of confidentiality and archives work, and shall complete approval and filing procedures with competent authorities, if such PRC domestic enterprises or their overseas listing entities provide or publicly disclose documents or materials involving state secrets and work secrets of state organs to relevant securities companies, securities service institutions, overseas regulatory agencies and other entities and individuals. It further stipulates that (i) providing or publicly disclosing documents and materials which may adversely affect national security or public interests, and accounting records or photocopies thereof to relevant securities companies, securities service institutions, overseas regulatory agencies and other entities and individuals shall be subject to corresponding procedures in accordance with relevant laws and regulations; and (ii) any working papers formed in the territory of the PRC by securities companies and securities service agencies that provide domestic enterprises with securities services relating to overseas securities issuance and listing shall be stored in the territory of the PRC, the outbound transfer of which shall be subject to corresponding procedures in accordance with relevant laws and regulations. As of the date of this report, these new laws and guidelines that became effective have not impacted the Company’s ability to conduct its business, accept foreign investment or list on a U.S. or other foreign stock exchange except for the filing requirement under New Overseas Listing Rules. The Company is still processing the filings with CSRC for its offerings since the effective of New Overseas Listing Rules and has not complied the filing requirements yet which would subject the Company to fines and other penalties for violation of New Overseas Listing Rules. In addition, new rules and regulations could be adopted and there are uncertainties in the interpretation and enforcement of existing laws and guidelines, which could materially and adversely impact our business and financial outlook and may impact our ability to accept foreign investments or continue to list on a U.S. or other foreign stock exchange. Any change in foreign investment regulations, and other policies in China or related enforcement actions by China government could result in a material change in our operations and the value of our securities and could significantly limit or completely hinder our ability to offer our securities to investors or cause the value of our securities to significantly decline or be worthless.
30
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 bulk commodities 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. Kazan S.A. has no operation before the acquisition. The Company tried to develop bitcoin and other cryptocurrency mining and related service business in Paraguay. The Company has changed its name from KAZAN S.A to FTFT Paraguay S.A. on July 28, 2022 and it was dissolved in December 2023 as the Company was not able to develop the business in Paraguay as planned.
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 was approved by the Securities and Futures Commission of Hong Kong (“SFC”) in August 2023 and the acquisition was closed on November 7, 2023. The names of the two entities were also changed to ‘FTFT International Securities and Futures Limited’ and ‘FTFT Information Services (Shenzhen) Co. Ltd.’, respectively.
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 continues to be $0.001 par value. The Company rounded 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 were issued in connection with the Reverse Stock Split and no cash or other consideration was paid in connection with any fractional shares that would otherwise have resulted from the Reverse Stock Split. No changes have been 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 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 Company operated a blockchain based online shopping platform, Chain Cloud Mall (“CCM”) Chain Cloud Mall through its VIE and its business was materially and negatively affected by outbreak of COVID-19 since early 2020 because the Company was unable to implement its promotion strategy to enroll new members through training of such members and distributors via meetings and conferences which was not possible during the outbreak of COVID-19. CCM has generated minimal revenue and business since 2021, despite the Company transformed the member-based business model of CCM to a sale agent based “Enterprise Communication as A Service” or eCAAS platform during the second quarter of 2021. The Company started a process to close it down in November 2023 and completed deregistration and dissolution of the VIE with local authority on March 7, 2024.
31
The Company currently has eight directly controlled subsidiaries: DigiPay FinTech Limited (“DigiPay”), a company incorporated under the laws of the British Virgin Islands, Future FinTech (Hong Kong) Limited, a company incorporated under the laws of Hong Kong, GlobalKey Shared Mall Limited, a company incorporated under the laws of Cayman Islands (“GlobalKey Shared Mall”), FTFT UK Limited, a company incorporated under the laws of United Kingdom, Future Fintech Digital Capital Management, LLC, a company incorporated under the laws of Connecticut, Future Fintech Digital Number One GP, LLC, a company incorporated under the laws of Connecticut, Future FinTech Labs Inc., a company incorporated under the laws of New York, and FTFT SuperComputing Inc. a company incorporated under the laws of Ohio.
Supply Chain Financing Service and Trading in China
Since the second quarter of 2021, we started coal supply chain financing service and trading business. Since the third quarter of 2021, we started aluminum ingots supply chain financing service and trading business. Since the first quarter of 2023, we started sand and steel supply chain financing service and trading business.
Our supply chain finance business mainly serves the receivables and payables of industrial customers, obtains the creditor’s rights or commodity goods rights of large state-owned enterprises through trade execution, provides customers with working capital, accelerates capital turnover, and then expands the business scale and improves the industrial value.
Through our supply chain service ability and customer resources, we can tap into low-risk assets, flexibly carry out financial services around the actual financial needs of certain industries and reduce the overall risk of the business by using the control of business flow, goods logistics and capital flow in the process of commodity circulation.
We focus on bulk commodity goods such as coal, aluminum ingots, sand and steel and take large state-owned or listed companies as the core service targets; We use our own funds as the operation basis, actively uses a variety of channels and products for financing, such as banks, commercial factoring companies, accounts receivable, asset-backed securities, and other innovative financing methods to obtain sufficient funds.
We sign purchase and sale agreements with suppliers and buyers. The suppliers are responsible for the supply and transportation of goods to the end users’ designated freight yard or transfer the title to us in certain warehouses. We also provide trading service as we don’t take control over the ownership of the goods but receive agent service fee for the transaction. For the sale of goods where we obtain control of the goods before transferring it to the customer, we recognize revenue based on the gross revenue amount billed to customers as sales of goods. We consider multiple factors when determining whether we obtain control of the goods, including evaluating if we can establish the price of the goods, retain inventory risk for tangible goods or have the responsibility for ensuring acceptability of the goods. We recognize net revenue as agent services for the sales of coals, aluminum ingots, sand and steel when no control obtained throughout the transactions. We select the customers and suppliers that have good credit and reputation.
Asset Management Service, Brokerage and Investment Banking Services in Hong Kong.
NTAM engages assets management and advisory services. NTAM’s main revenue is generated from providing professional advice to customers and management fees for managing the investment of the clients. NTAM is licensed under the Securities and Futures Commission of Hong Kong (SFC) for carrying out regulated activities in “Advising on Securities” and “Asset Management”. NTAM offers diversified asset management portfolio for professional investors. Assets of NTAM’s clients are held in banks, where clients gave the banks their authorization allowing NTAM to place trading instructions on behalf of the clients in order to manage the clients’ assets.
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NTAM mainly engages in following asset management services for its clients:
(1) Equity Investment
NTAM manages clients’ investment portfolio in stocks of the companies listed on the international markets with strong liquidity. At the same time, it selects companies that have unique or differentiated businesses, realizing above average profit growth.
(2) Debt investment
When NTAM manages clients’ investment portfolio in bonds that are denominated in major international currencies such as US dollar, euro and sterling, the issuer of debts shall have good credit rating and asset liability ratio. Through active management, NTAM focuses on bonds with higher yield to maturity among bonds with the same maturity and credit rating.
(3) Precious metals and currencies investment
NTAM also manages clients’ investment portfolio in major international currencies and precious metals, including US dollar, euro, British pound, Japanese yen, Australian dollar and offshore Chinese yuan. Precious metals include gold, platinum and silver. With research on the fundamentals of market supply and demand to predict the trend of commodity prices, NTAM endeavors to improve the rate of return for clients through dual currency investment, options and structured products.
(4) Derivative Investment
NTAM also manages clients’ investment portfolio in financial derivatives in different asset classes, such as options and structured products.
(5) External Asset Management Services (EAM)
This business takes customer demand as the service purpose, cooperates with several private banks which provide asset custody services, and innovatively introduces the function of investment bank to provide exclusive private solutions for our clients.
NTAM’s main revenue is generated from providing professional advice to clients and management fees for managing the investment of the clients. As of September 30, 2024, NTAM has approximately US$367 million assets under its management.
FTFT International Securities and Futures Limited, a company we acquired in November 2023, provides brokerage and investment banking services in Hong Kong. FTFT International Securities and Futures Limited 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.
Money Transfer Business
FTFT Finance UK Limited (“FTFT Finance”) formerly known as Khyber Money Exchange Ltd. was acquired by FTFT UK Limited in September 2022. It is regulated by UK Financial Conduct Authority (“FCA”) for its cross-border money transfer systems and service. FTFT Finance was incorporated in 2009 and is a pioneer in the UK for money remittance services. FTFT Finance provides money transfer services through its platform to transfer money around the world via one of its agent locations or its online portal, mobile platform, or over the phone. FTFT Finance is headquartered in the UK and it has a trade name of FTFT Pay. FTFT Finance’s plan is to develop products and services across different regions of the world.
FTFT Finance is a financial platform that enables its customers to send their hard-earned money to their country of origin, or any other country of their liking, with ease and at a reasonable cost, transparent exchange rate and without any hidden charges. We believe our customers and their diverse backgrounds that have helped FTFT Finance to become a credible and trustworthy money remittance business.
Remittance service is a highly saturated market in the United Kingdom and there are many companies that offer remittance services. FTFT Finance has an edge over companies like wise in many different ways, for example, FTFT Finance offers competitive rates for its services and does not charge customer fees for remittance to Pakistan as it receives its rebate from local banks. This approach provides gives us an advantage over our competitors.
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Impact of COVID-19 on our business
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 2020 until late March 2020. The quarantines, travel restrictions, and the temporary closure of office buildings materially negatively impacted our business. Any new variant and outbreak of COVID-19 might disrupt our supply chain, logistics providers, customers or our marketing activities , which could materially adversely impact our business and results of operations. There were outbreaks in various cities and provinces in China due to Omicron variant, such as 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. Since 2021, CCM generated minimal revenue and business for the Company. The Company started a process to close it down in November 2023 and completed deregistration and dissolution of the VIE with local authority on March 7, 2024.
While the potential economic impact brought by new variants of COVID-19 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. 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. In the event that we do need to raise capital in the future and there is any outbreak due to new variants, outbreak-related instability in the securities markets could adversely affect our ability to raise additional capital.
Results of Operations
Comparison of Three Months ended September 30, 2024 and 2023:
Revenue
The following table presents our consolidated revenues for the three months ended September 30, 2024 and 2023, respectively:
| Three months ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | Amount | % | |||||||||||||
| Asset management service | 3,710,415 | 3,272,585 | 437,830 | 13.38 | % | |||||||||||
| Supply Chain Financing/Trading | 428,875 | 19,991,243 | (19,562,368 | ) | (97.85 | )% | ||||||||||
| Others | 1,036,164 | 473,675 | 562,489 | 118.75 | % | |||||||||||
| Total | $ | 5,175,454 | $ | 23,737,503 | $ | (18,562,049 | ) | (78.20 | )% | |||||||
Revenue for the three months ended September 30, 2024 decreased to approximately $5.18 million from approximately $23.74 million for the same period of the last year. The decrease in revenue for the three months ended September 30, 2024 was primarily due to decrease revenue from supply chain financing/trading, as the real estate, infrastructure and overall economy in China have slowed down in 2024. The demand for sand and steel has dropped during three months ended September 30, 2024 comparing to the same period of 2023, and coal price has decreased in China and the market demand has also decreased during the third quarter 2024 as comparing to the same period of 2023.
Asset management service revenues increased $0.44 million from $3.27 million for the three months ended September 30, 2023 to $3.71 million for the same period of 2024, as the Company hired more seasoned account managers to boost the services and the revenues.
Other revenues increased from $0.47 million for the three months ended September 30, 2023 to $1.04 million for the same period of 2024, mainly due to the increased debt recovery consulting service fee as well as U.S. dollar bond service income of approximately $0.50 million, as we did not have such income in the third quarter 2023.
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Gross Profit and Margin
The following table presents the consolidated gross profit of each of our main products and services and the consolidated gross profit margin, which is gross profit as a percentage of the related revenue, for the three months ended September 30, 2024 and 2023, respectively:
| Three months ended September 30, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| Gross profit |
Gross margin |
Gross profit |
Gross margin |
|||||||||||||
| Asset Management Service | 960,290 | 25.88 | % | 1,139,039 | 34.81 | % | ||||||||||
| Supply Chain Financing/Trading | 36,776 | 8.57 | % | 59,050 | 0.30 | % | ||||||||||
| Others | 516,980 | 49.89 | % | 213,489 | 45.07 | % | ||||||||||
| Total | $ | 1,514,046 | 29.25 | % | $ | 1,411,578 | 5.95 | % | ||||||||
Overall gross profit increased to $1.51 million for three months ended September 30, 2024 from $1.41 million for the same period of 2023. The increase is mainly due to the increase of gross profit from others business which is in line with the increase of revenues for such business segment during the third quarter of 2024. Overall gross margin as a percentage of revenue was 29.25% for the three months ended September 30, 2024, an increase of 22.42% from 5.95% for the same period of last fiscal year, mainly due to higher profit margin from supply chain financing/trading business and other businesses for the three months ended September 30, 2024, comparing to the same period of 2023, which was mainly due to higher supply chain financing/trading cost in 2023, and the increased debt recovery consulting service fee as well as U.S. dollar bond service income of approximately $0.50 million in third quarter of 2024 as we did not have such income in the third quarter 2023.
Operating Expenses
The following table presents our consolidated operating expenses and operating expenses as a percentage of revenue for the three months ended September 30, 2024 and 2023, respectively: (in thousands)
| Third quarter of 2024 | Third quarter of 2023 | |||||||||||||||
| Amount | % of revenue | Amount | % of revenue | |||||||||||||
| General and administrative | $ | 3,320 | 64.15 | % | $ | 3,792 | 15.97 | % | ||||||||
| Research and Development expenses | 1 | 0.02 | % | 17 | 0.07 | % | ||||||||||
| Selling expenses | 121 | 2.34 | % | 109 | 0.46 | % | ||||||||||
| Impairment Loss | - | - | 4 | 0.02 | % | |||||||||||
| Bad debt provision | 3,383 | 65.37 | % | 18 | 0.08 | % | ||||||||||
| Total operating expenses | $ | 6,825 | 131.88 | % | $ | 3,940 | 16.60 | % | ||||||||
General and administrative expenses decreased by $0.47 million, or 12.45%, to $3.32 million for the three months ended September 30, 2024, from $3.79 million for the same period of last fiscal year. The decrease in general and administrative expenses was mainly due to decreased professional service fees and rental fee.
Selling expenses increased by $0.01 million during the three months ended September 30, 2024, compared to the same period of last fiscal year.
Bad debt provision increased by $3.37 million during the three months ended September 30, 2024, compared to the same period of last fiscal year. The increase was due to bad debt recovery recognized in previous years and a different bad debt provision accounting treatment method used in 2024.
The Company recorded $655 of research and development expenses. Research and development expenses include salaries, contracted services, as well as the related expenses of our research and product development team, and expenditures relating to our efforts to develop, design new products and services, and enhance our existing products and services to our clients. Research and development expenses decreased by $0.02 million during the three months ended September 30, 2024, compared to the same period of last fiscal year. The decrease in research and development expenses was mainly due to decreased salaries.
Other Income (Expense), Net
Other expenses, net increased by $0.23 million to $0.38 million for the three months ended September 30, 2024 from $0.15 million in the same period of the last fiscal year, primarily due to change of foreign currency exchange rate and impact of exchange gains and losses.
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Income Tax
Tax provision decreased by $10,735 for the three months ended September 30, 2024, primarily due to decreased revenue.
Non-controlling Interests
Nature Worldwide Resources Ltd. holds 40% interest in DCON DigiPay Limited (“DCON Digipay”). Each of Bin Wu and Lixiong Huang holds 25% and 20% interest in FTFT Capital Investments L.L.C., respectively. Aspenwood Capital Partner Limited holds 9.52%, Lau kwai Chun holds 9.05%, Cheung Hiu Tung holds 1.9% and Choi Tsz Leung holds 2.38% of equity interest of NATM. Yaohua Dai holds 20% equity interest of Future Fintech Digital Capital.
Net loss from continue operation
Net loss from continue operation increased by $2.54 million from $2.39 million for the three months ended September 30, 2023 to $4.93 million for the same period of 2024 mainly due to the increase in operating expenses, as discussed above.
Comparison of Nine Months ended September 30, 2024 and 2023:
Revenue
The following table presents our consolidated revenues for the nine months ended September 30, 2024 and 2023, respectively:
| Nine months ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | Amount | % | |||||||||||||
| Asset management service | 11,875,338 | 9,690,714 | 2,184,624 | 22.54 | % | |||||||||||
| Supply Chain Financing/Trading | 935,313 | 20,472,036 | (19,536,723 | ) | (95.43 | )% | ||||||||||
| Others | 1,690,659 | 660,454 | 1,030,205 | 155.98 | % | |||||||||||
| Total | $ | 14,501,310 | $ | 30,823,204 | $ | (16,321,894 | ) | (52.95 | )% | |||||||
Revenue for the nine months ended September 30, 2024 decreased to approximately $14.5 million from approximately $30.82 million for the same period of the last year. The decrease in revenue for the nine months ended September 30, 2024 was primarily due to decrease revenue from supply chain financing/trading, as the real estate, infrastructure and overall economy in China have slowed down in 2024. The demand for sand and steel has dropped during nine months ended September 30, 2024 comparing to the same period of 2023, and coal price has decreased in China and the market demand has also decreased during three quarters in 2024 as comparing to the same period of 2023.
Asset management service increased $2.18 million from $9.69 million for the nine months ended September 30, 2023 to $11.88 million for the same period of 2024. It was due to the Company hired more seasoned account managers to boost the services and the revenues.
Other revenues increased from $0.66 million for the nine months ended September 30, 2023 to $1.69 million for the same period of 2024, mainly due to the increased debt recovery consulting service fee as well as U.S. dollar bond service income of approximately $0.60 million and cryptocurrency mining service income of $0.65 million, as we did not have such income in 2023.
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Gross Profit and Margin
The following table presents the consolidated gross profit of each of our main products and services and the consolidated gross profit margin, which is gross profit as a percentage of the related revenues, for the nine months ended September 30, 2024 and 2023, respectively:
| Nine months ended September 30, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| Gross profit |
Gross margin |
Gross profit |
Gross margin |
|||||||||||||
| Asset management service | 3,935,458 | 33.14 | % | 3,320,498 | 34.26 | % | ||||||||||
| Supply Chain Financing/Trading | 142,878 | 15.28 | % | 234,550 | 1.15 | % | ||||||||||
| Others | 981,105 | 58.03 | % | 300,621 | 45.52 | % | ||||||||||
| Total | $ | 5,059,441 | 34.89 | % | $ | 3,855,669 | 12.51 | % | ||||||||
Overall gross profit increased to $5.06 million for nine months ended September 30, 2024 from $3.86 million for the same period of 2023. The increase is mainly due to others including debt recovery consulting service fee as well as U.S. dollar bond service income of approximately $0.60 million and cryptocurrency mining service income of $0.65 million, as we did not have such income in 2023. Overall gross margin as a percentage of revenue was 34.89% for the nine months ended September 30, 2024, an increase of 22.38% from 12.51% for the same period of last fiscal year, mainly due to higher profit margin from supply chain financing/trading business for the nine months ended September 30, 2024, comparing to the same period of 2023, which was mainly due to higher supply chain financing/trading cost in 2023.
Operating Expenses
The following table presents our consolidated operating expenses and operating expenses as a percentage of revenue for the nine months ended September 30, 2024 and 2023, respectively: (in thousands)
| Nine months ended September 30, 2024 | Nine months ended September 30, 2023 | |||||||||||||||
| Amount | % of revenue | Amount | % of revenue | |||||||||||||
| General and administrative | $ | 10,128 | 69.84 | % | $ | 9,589 | 31.11 | % | ||||||||
| Research and Development expenses | 3 | 0.02 | % | 339 | 1.10 | % | ||||||||||
| Selling expenses | 539 | 3.72 | % | 360 | 1.17 | % | ||||||||||
| Impairment Loss | - | - | 4 | 0.01 | ||||||||||||
| Bad debt provision | 3,942 | 27.18 | % | (1,153 | ) | (3.74 | )% | |||||||||
| Total operating expenses | $ | 14,612 | 100.77 | % | $ | 9,139 | 29.65 | % | ||||||||
General and administrative expenses increased by $0.54 million, or 5.62%, to $10.13 million for the nine months ended September 30, 2024 from $9.59 million for the same period of last fiscal year. The increase in general and administrative expenses was mainly due to increased professional service fees for lawyers for litigation with FT Global and internal control training fees.
Selling expenses increased by $0.18 million during the nine months ended September 30, 2024, compared to the same period of last fiscal year. The increase in selling expenses was mainly due to increased employees’ salaries.
Bad debt provision increased by $5.09 million during the nine months ended September 30, 2024, compared to the same period of last fiscal year. The increase was due to bad debt recovery recognized in previous years and a different bad debt provision accounting treatment method used in 2024.
The Company recorded $3,029 of research and development expenses during nine months ended September 30, 2024. Research and development expenses include salaries, contracted services, as well as the related expenses of our research and product development team, and expenditures relating to our efforts to develop, design new products and services, and enhance our existing products and services to our clients. Research and development expenses decreased by $0.34 million during the nine months ended September 30, 2024, compared to the same period of last fiscal year. The decrease in research and development expenses was mainly due to decreased salaries.
Other Income (Expense), Net
Other expenses, net increased by $0.43 million to $1.15 million for the nine months ended September 30, 2024 from $0.71 million in the same period of the last fiscal year, primarily due to primarily due to civil penalty payments for the settlement with the Securities and Exchange Commission, and change of foreign currency exchange rate and impact of exchange gains and losses.
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Income Tax
Tax provision decreased by $0.07 million for the nine months ended September 30, 2024, primarily due to decreased revenue.
Non-controlling Interests
Nature Worldwide Resources Ltd. holds 40% interest in DCON DigiPay Limited (“DCON Digipay”). Each of Bin Wu and Lixiong Huang holds 25% and 20% interest in FTFT Capital Investments L.L.C., respectively. Aspenwood Capital Partner Limited holds 9.52%, Lau kwai Chun holds 9.05%, Cheung Hiu Tung holds 1.9% and Choi Tsz Leung holds 2.38% of equity interest of NATM. Yaohua Dai holds 20% equity interest of Future Fintech Digital Capital.
Net loss from continue operation
Net loss from continue operation increased by $4.63 million from $6.07 million for the nine months ended September 30, 2023 to $10.70 million for the same period of 2024 mainly due to the increase in operating expenses, as discussed above.
Gain on disposal of discontinued operations
Gain on disposal of discontinued operation was $0.64 million for the nine months ended September 30, 2024, which was related to the dissolution and deregistration of Chain Cloud Mall Network and Technology (Tianjin) Co., Limited and Tianjin Future Private Equity Fund Management Partnership (Ltd Partnership).
Loss per Share
Basic and diluted loss per share from continuing operations were $0.53 and $0.53 for the nine months ended September 30, 2024, respectively, as compared to a loss of $0.40 and $0.40 for the same periods of 2023, respectively. Basic and diluted income per share attributable to discontinued operations was $0.03 and $0.03 for the nine months ended September 30, 2024, respectively. Basic and diluted loss per share attributable to discontinued operations was $0.01 and $0.01 for the nine months ended September 30, 2023, respectively.
Liquidity and Capital Resources
As of September 30, 2024, we had cash and restricted cash of $6.52 million, as compared to $19.02 million as of December 31, 2023. The decrease in cash, cash equivalents and restricted cash was mainly due to increased other current asset from the nine months ended September 30, 2024.
Our working capital has historically been generated from our operating cash flows, advances from our customers and loans from bank facilities. Our working capital was $28.29 million as of September 30, 2024, a decrease of $10.85 million from working capital of $39.14 million as of September 30, 2023, mainly due to the decrease in current assets and an increase in current liabilities.
Net cash used in operating activities increased by $6.10 million to $13.52 million for the nine months ended September 30, 2024 from $7.43 million for the same period of the last fiscal year. The increase in net cash used by operating activities was primarily due to increase in advances to suppliers and other current assets.
Net cash used in investing activities increased $14.94 million to $1.18 million for the nine months ended September 30, 2024 from positive $13.76 million for the same period of the last fiscal year. It was due to decrease in repayment for loan receivable.
Net cash provided in financing activities for the nine months ended September 30, 2024 was $1.32 million representing an increase of $4.23 million, as compared to cash used in financing activities of $2.91 million during the nine months ended September 30, 2023. The increase in cash provided by financing activities was mainly due to proceeds from the issuance of common stock from a private placement, net of issuance costs.
Off-balance sheet arrangements
As of September 30, 2024, we did not have any off-balance sheet arrangements.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, our principal executive officer and principal interim financial officer, respectively, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2024, our disclosure controls and procedures were not effective due to a material weakness in our internal control over financial reporting. Specifically, we currently lack sufficient accounting personnel with the appropriate level of knowledge, experience and training in U.S. GAAP and SEC reporting requirements.
We have taken, and are taking, certain actions to remediate the material weakness related to our lack of U.S. GAAP experience. We have engaged an outside consultant with U.S. GAAP knowledge and experience to supplement our current internal accounting personnel and assist us in the preparation of our financial statements to ensure that our financial statements are prepared in accordance with U.S. GAAP. We also engaged an internal control consulting firm in July 2023 to review, test and improve our internal accounting controls and internal control over financial reporting which has issued a report in early January 2024. We have adopted and are continuously implementing policies, procedures and practices recommended in the report of the consultant and have arranged training of internal control for our employees and management on disclosure controls and procedures. We believe the measures described above will remediate the material weakness from the quarter identified above. The Company continues to make efforts to implementing its existing and newly adopted procedures to improve our disclosure controls and internal controls over financing reporting. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine that additional measures.
Changes to Internal Control over Financial Reporting
Other than discussed above, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Legal case with FT Global Litigation
In January 2021, FT Global Capital, Inc. (“FT Global”), a former placement agent of the Company filed a lawsuit against the Company in the Superior Court of Fulton County, Georgia. FT Global served the complaint upon the Company in January 2021. In the complaint, FT Global alleges claims, most of which attempt to hold the Company liable under legal theories that relate back to an alleged breach of an exclusive placement agent agreement between FT Global and the Company in July 2020 which had a term of three months. FT Global claims that the Company failed to compensate FT Global for securities purchase transactions between December 2020 and April 2021, pursuant to the terms of the expired exclusive placement agent agreement. Allegedly, the exclusive placement agent agreement required the Company to pay FT Global for capital received during the term of the agreement and for the 12-month period following the termination of the agreement involving any investors that FT Global introduced and/or wall-crossed to the Company. However, the Company believes the securities purchase transactions at issue did not involve the one investor which FT Global introduced or wall-crossed to the Company during the term of the agreement. FT Global claims approximately $7,000,000 in damages and attorneys’ fees.
The Company timely removed the case to the United States District Court for the Northern District of Georgia (the (“Court”) on February 9, 2021 based on diversity of jurisdiction. On March 9, 2021, the Company filed a motion to dismiss based on FT Global’s failure to state a claim which is pending before the Court. On March 23, 2021, FT Global filed its response to the Company’s motion to dismiss. FT Global argues that the Court should deny the Company’s motion to dismiss. However, if the Court is inclined to grant the Company’s motion to dismiss, FT Global requested that the Court permit it to file an amended complaint. On April 8, 2021, the parties filed a Joint Preliminary Report and Discovery Plan. On April 12, 2021, the Court approved the Joint Preliminary Report and Discovery Plan and issued a Scheduling Order placing this case on a six-month discovery tract. On April 30, 2021, the Company served FT Global with its Initial Disclosures. On May 6, 2021, FT Global served the Company with its Initial Disclosures. On May 17, 2021, FT Global served the Company with its First Amended Initial Disclosures. On November 10, 2021, the Court entered an Order granting the Company’s motion to dismiss FT Global’s fraud claim and breach of contract claim as to the disclosure of its confidential and proprietary information. The Court denied the Company’s motion to dismiss FT Global’s i) breach of contract claim for failure to pay FT Global pursuant to the terms of the exclusive placement agent agreement; ii) claim for breach of the covenant of good faith and fair dealing; and iii) claim for attorney’s fees, and the court concluded that additional information can be obtained through discovery. The Company 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 judgment on all claims asserted by FT Global in this lawsuit. On August 31, 2023, the Court entered an Order denying the Company’s motion for summary judgment. On September 20, 2023, the parties filed a joint motion to extend the deadline to file the consolidated pretrial order pending mediation of the case by the parties. On September 21, 2023, the Court granted the parties’ joint motion to extend the deadline to file the consolidated pretrial order to October 27, 2023. On October 16, 2023, the parties mediated the case. On October 24, 2023, the parties filed another joint motion to extend the deadline to file the consolidated pretrial order. On October 27, 2023, the Court granted the parties’ joint motion to extend the deadline to file the consolidated pretrial order to November 17, 2023 and set the case for trial on January 8, 2024. Subsequently, the Court approved an extension of the deadline to file a pretrial order to December 1, 2023. The Court has also rescheduled the trial to commence on April 8, 2024. The trial began on April 8, 2024 and ended on April 11, 2024, on which date the jury returned a verdict in favor of FT Global and the Court entered a judgment awarding FT Global $8,875,265.31. On April 16, 2024, the Court issued an amended judgment, awarding FT Global $10,598,379.93, which includes $7,895,265.31 in damages, $1,723,114.62 in prejudgment interest, and $980,000.00 in attorney’s fees. The Company filed a post-trial motion challenging the judgment on May 9, 2024, which remains pending before the Court. The Company will continue to vigorously defend the action against FT Global, including by appealing the judgment to the United States Court of Appeals for the Eleventh Circuit, if necessary. FT Global has registered the judgment in the Southern District of New York (“NY Court”), where FT Global has brought a motion requiring the Company to turn over its stock in its subsidiary companies. The Company has filed an opposition to the motion, arguing that according to the New York statute the Court should first determine that the value of the stock in the subsidiary is insufficient to satisfy the judgment as the Company believe the request for turnover is premature before a valuation hearing. On August 28, 2024, NY Court granted FT Global’s motion for turnover of Defendant’s shares in Defendant’s wholly-owned subsidiaries as Defendant 1) failed to satisfy the $10.8 million judgment rendered in the Northern District of Georgia and registered in the Southern District of New York, and 2) is in possession of money and property in which it has an interest. The NY Court ordered Defendant shall turn over the shares, membership, or limited partnership interests in all of its subsidiaries, and the corporate seals of its China and Hong Kong-based subsidiaries, to the U.S. Marshal for auction or sale until the judgment is satisfied. The Company will continue to vigorously defend the action against FT Global, including by appealing the order of the NY Court to the United States Court of Appeals for the Second Circuit.
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Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company did not make any sales of unregistered securities during the nine months ended September 30, 2024 that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information
Item 6. Exhibits
| * | filed herewith |
| + | Furnished herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FUTURE FINTECH GROUP INC. | ||
| By: | /s/ Hu Li | |
| Hu Li | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| November 19, 2024 | ||
| By: | /s/ Ming Yi | |
| Ming Yi | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| November 19, 2024 | ||
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