Future FinTech Group Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. This quarterly report on Form 10-Q and other reports filed by the Company from time to time with the SEC (collectively the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “may”, “will”, “should”, “would”, “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan”, or the negative of these terms and similar expressions as they relate to Company or Company’s management identify forward-looking statements. Such statements reflect the current view of Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors (including the statements in the section “results of operations” below), and any businesses that Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those listed under the heading “Risk Factors” and those listed in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”) and in this Form 10-Q. The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report and in our 2020 Form 10-K. Although the Company believes the expectations reflected in the forward-looking statements are based on reasonable assumptions, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this report, which attempts to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations, and prospects. Overview of Our Business Future FinTech is a holding company incorporated under the laws of the State of Florida. The Company historically engaged in the production and sale of fruit juice concentrates (including fruit purees and fruit juices), fruit beverages (including fruit juice beverages and fruit cider beverages) in the PRC. Due to drastically increased production costs and tightened environmental laws in China, the Company had transformed its business from fruit juice manufacturing and distribution to a real-name blockchain based e-commerce platform and supply chain financing and service business. The main business of the Company includes an online shopping platform, Chain Cloud Mall (“CCM”), which is based on blockchain technology; supply chain financing and services; a blockchain-based application incubator; and technical service and support for blockchain based assets and their operating entities; and the application and development of blockchain-based e-commerce technology and financial technology services. The Company is also expanding into financial services. On August 6, 2021, the Company completed acquisition of 90% of the issued and outstanding shares of Nice Talent Asset Management Limited (“NTAM”), a Hong Kong-based asset management company, from Joy Rich Enterprises Limited (“Joy Rich”). NTAM is licensed under the Securities and Futures Commission of Hong Kong (“SFC”) to carry out regulated activities in Type 4: Advising on Securities and Type 9: Asset Management. Chain Cloud Mall adopts a “multi-vendor hosted stores + platform self-hosted stores” model. The platform supports various marketing methods, including point rewards programs, coupons, live webcasts, game interaction, and social media sharing. Besides the blockchain-powered features, CCM is also fully equipped with the same functions and services that other Chinese leading traditional e-commerce platforms provide. Based on blockchain technology, CCM is established to transform the relationship between companies and consumers from traditional selling and buying relationships to a value-sharing relationship. The platform will fairly distribute the benefit of the entire mall to users who engaged in the promotion, development, and consumption based on their contributions to the platform. The users of CCM are not only consumers and entrepreneurs but also participants, promoters and beneficiaries. The CCM shared shopping mall platform is designed to be a block-chain based shopping mall for merchants and goods, not the exchange of digital currencies, and it currently only accepts payment from credit cards, Alipay and WeChat. Chain Cloud Mall is an enterprise and customer interactive and comprehensive shopping and sales service platform. It is an open network promotion system with a blockchain based anti-counterfeit system including referral point and discount points issuance and settlement. Such business model creates a completely new source of data traffic for enterprises on our platform. 27 Merchants on the Chain Cloud Mall issue their own blockchain points and anti-counterfeiting QR codes. Every product comes with unique anti-counterfeiting QR codes on the label. Customers collect the points issued by the merchants by scanning products with their mobile phones on the anti-counterfeiting QR code. These QR codes are generated by blockchain system of Chain Cloud Mall and provided to merchants. The successful collection of the merchant points confirms that the authentication of product from such enterprise. The Chain Cloud Mall records and provides Chain Cloud Mall points to its customers upon a successful product referral, which can be used as credit when making purchases on CCM. It incentivizes its customers to promote the platform and share the products with their social contacts, which in turn increases the sales through Chain Cloud Mall and helps the Company generate greater value. The Company started its trial operation of NONOGIRL, a cross-border e-commerce platform, in March 2020 and formally launched it in July 2020. The cross-border e-commerce platform aimed to build a new s2b2c (supplier to business and consumer) outsourcing sales platform dominated by social media influencers. It was aimed at the growing female consumer market, with the ability to broadcast, short video, and all forms communication through the platform. It could also create a sales oriented sharing ecosystem with other major social media used by customers, etc. The Company’s promotion strategy previously mainly relied on the training of members and distributors through meetings and conferences. Due to the outbreak of COVID-19, the Chinese government put a restriction on large gatherings. These restrictions made the promotion strategy for our online e-commerce platforms difficult to implement and the Company has experienced difficulties to subscribe new members for its online e-commerce platforms. Due to the lack of new subscribers, in June 2021, the Company suspended its cross-border e-commerce platform (NONOGIRL). Also, during the second quarter of 2021, the Company has transformed its member-based business model of Chain Cloud Mall to sales agent based business model and began to provide supply chain financing and services for coal mines and power generation plants. The Company currently has six direct wholly-owned subsidiaries: DigiPay FinTech Limited (“DigiPay”), a company incorporated under the laws of the British Virgin Islands, Future FinTech (Hong Kong) Limited, a company incorporated under the laws of Hong Kong, GlobalKey Shared Mall Limited, a company incorporated under the laws of Cayman Islands (“GlobalKey Shared Mall”), Tianjin Future Private Equity Fund Management Partnership( Limited Partnership), a company incorporated under the laws of China, FTFT UK Limited, a company incorporated under the laws of United Kingdom, and Future FinTech Labs Inc., a company incorporated under the laws of New York. CCM Shopping Mall Due to the lack of new member subscriptions caused by restrictions on our promotion strategy for the control of spread of COVID-19, we have transformed the CCM shopping mall to an “Enterprise Communication As A Service” or eCAAS platform. The eCAAS platform is entrusted by the 315 Consumer Protection Foundation to run its Responsible Brand Program. 315 Consumer Protection Foundation (the “Foundation”) will review and accept the companies to join its Responsible Brand Program. After acceptance, these companies are authorized to use 315 anti-counterfeiting label on their products and sell them on our eCAAS platform. The companies can also use sales agents to sell their products on our eCAAS platform and parties can negotiate the commission percentages for the products sold. Any new sales agent must be recommended by existing agents and pay a one-time fee to the eCAAS platform to be admitted as the authorized agent to provide sales agent services on the platform. Sales of Goods We have a unique real-name based blockchain e-commerce shopping platform that integrates blockchain, internet technology and distinguishes itself by utilizing the automatic value distribution system of the blockchain and sharing the value of the platform to all the participants in the system. Our eCAAC platform has a value cycle system of online shopping mall with the real-name blockchain system with following characteristics: 1. Blockchain anti-counterfeiting Using real-name blockchain technology to carry out anti-counterfeiting for products produced by the enterprises. The essence of anti-counterfeiting is to determine the person responsible for the product. Using real-name blockchain system, it provides the assurance to our customers to the authentication of the products they purchase and solve the problem of counterfeiting products in online shopping mall. 28 2. Blockchain points settlement leads to secondary data traffic Blockchain points are also discount coupons for merchants, guiding customers to the platform of the merchants, and provide them discounts when purchasing. This process is called secondary data traffic. Every company is aware of the importance of maintaining old customers. Blockchain anti-counterfeiting technology through scanning of QR codes by the customers helps companies identify such customers and allows them to systematically maintain contacts with such customers. 3. Points promotion system Points promotion system brings secondary data traffic comes with volume and high turnover ratio. All such sales are directed to the merchants’ stores when customers possess and use merchants coupons. With a high level of user stickiness, customers are likely to purchase products again and collect more blockchain points. 4. Building a high value community Anti-counterfeiting technology plus the Company’s secondary data traffic platform have created great value for the merchants that have stores on our platform. By gathering all loyal customers to a merchant’s store, we can build a standard value community. With the common interest, the value community of a merchants can form a self-organizing system with customer groups to maximize the interests of such merchant. The anti-counterfeiting technology, combined with the company’s secondary data traffic platform, has created great value for merchants who set up shop on our platform. By gathering all our loyal customers into one merchant’s store, we can build a standard value community. With common interests, the value community of merchants can form a self-organizing system with customer groups to maximize the interests of merchants. Coal Supply Chain Financing and Trading To carry out coal supply chain financing and trading business, we sign the supply and sales contracts with upstream coal mines and downstream end users, respectively, while the upstream supplier is responsible for the supply and transportation of coal to the end users’ designated freight yard. After the downstream end users issue relevant settlement documents, inspect and accept goods, we make payment to the upstream suppliers. The downstream end users shall pay us according to the payment terms under our contracts. At present, we only provide supply chain financing services the central government owned enterprises, local or state government owned enterprises or listed public companies and other customers with good credit rating. 29 Results of Operations Comparison of Three Months ended June 30, 2021 and 2020: Revenue The following table presents our consolidated revenues for the three months ended June 30, 2021 and 2020, respectively: Three months ended June 30, Change 2021 2020 Amount % CCM Shopping Mall Membership 12 104,762 (104,750 ) (99.99 )% Coal Supply Chain Financing/Trading 1,941,557 - 1,941,557 - Sales of goods - 1,786 (1,786 ) 100 % Others 13 7,139 (7,126 ) (99.82 )% Total $ 1,941,582 $ 113,687 $ 1,827,895 1607.83 % CCM Shopping Mall Membership fees decreased from $104,762 for the three months ended June 30, 2020 to $12 for the three months ended June 30, 2021 because there was no new member enrollment during the second quarter of 2021 and the Company has transformed its business model of CCM Shopping Mall from a member-based platform to a sales agent based eCAAC platform. Due to COVID-19 related restriction on large gathering for meetings and conference which primarily used by us before the pandemic for marketing and business development of new members, we were unable to attract new member enrollment during the three months ended June 30, 2021. Coal Supply Chain Financing and Trading business increased from $0 for the three months ended June 30, 2020 to $1.9 million for the three months ended June 30, 2021. This is a new business that did not exist last year. Sale of goods decreased from $1,786 for the three months ended June 30, 2020 to $0 for the three months ended June 30, 2021 as no sale of goods during the same period of 2021. Other revenues decreased from $7,139 from three months ended June 30, 2020 to $13 for the three months ended June 30, 2021, mainly due to the service fee income during the three months ended June 30, 2020 and no such income during the same period of 2021. Gross Margin The following table presents the consolidated gross profit of each of our main products and services and the consolidated gross profit margin, which is gross profit as a percentage of the related revenues, for the three months ended June 30, 2021 and 2020, respectively: Three months ended June 30, 2021 2020 Gross profit Gross margin Gross profit Gross margin CCM Shopping Mall Membership 12 100 % 100,803 99.9 % Coal Supply Chain Financing/Trading 71,341 3.67 % - - Sales of goods - - 1,067 59.75 % Others 2 12.03 % 2,457 34.42 % Total $ 71,355 3.68 % $ 104,327 91.77 % Overall gross margin as a percentage of revenue was 3.68% for the three months ended June 30, 2021, a decrease of 88.09% compared to 91.77% for the same period of last fiscal year, mainly due to less revenues from the membership fee which has a much higher margin than that of sales of goods and coals. 30 Operating Expenses The following table presents our consolidated operating expenses and operating expenses as a percentage of revenue for the three months ended June 30, 2021 and 2020, respectively: (in thousands) June 30, 2021 June 30, 2020 Amount % of revenue Amount % of revenue General and administrative $ 594 30.61 % $ 310 273 % Selling expenses 10 0.52 % 8 0.01 % Bad debt provision - - 230 0.20 % Total operating expenses $ 604 31.13 % $ 548 0.48 % General and administrative expenses increased by $0.28 million, or 91.85%, from $0.31 million to $0.59 million for the three months ended June 30, 2021, compared to the same period of last fiscal year. The increase in general and administrative expenses was mainly due to increased wage costs, office rent expenses and professional service fee during the three months ended June 30, 2021. Selling expenses increased by $0.02 million during the three months ended June 30, 2021, compared to the same period of last fiscal year. Write back of provision of doubtful debt was $0 for the three months ended June 30, 2021, decreased by $0.23 million comparing to the same period of the last fiscal year, mainly due to provision was made in 2020 due to the age of the account, and the age of the account in 2021 did not exceed the provision requirements . Other (Expense) Income, Net Other expenses, net decreased by $0.02 million to positive $0.02 million for the three months ended June 30, 2021 from negative $0.002 million in the same period of the last fiscal year. 31 Income Tax We did not have tax provision for the three months ended June 30, 2021 and 2020, as the Company incurred losses in the second quarter of 2021 and 2020. Non-controlling Interests As of June 30, 2021, Shaanxi Chunlv Ecological Agriculture Co., Ltd. (“Shaanxi Chunlv”) holds 20.0% interest in Chain Cloud Mall Logistics Center (Shaanxi) Co., Limited, Nature Worldwide Resources Ltd. holds 40% interest in DCON DigiPay Limited (“DCON Digipay”), Bin Wu and Lixiong Huang holds 25% and 20% interest in FTFT Capital Investments L.L.C. Loss from Continuing Operations Loss from continuing operations decreased by $0.37 million from $0.75 million for the three months ended June 30, 2020 to $0.38 million for the same period of 2021 mainly due to the debt repayment with shares during the three months ended June 30, 2020 and no such expense during the same period of 2021. Loss on disposal of discontinued operations Loss on disposal of discontinued operation was $21,577 for the three months ended June 30, 2021, which was related to the dissolution and deregistration of FT Commercial Management (Beijing) Co., Ltd during the second quarter of 2021. Comparison of Six Months Ended June 30, 2021 and 2020 Revenue The following table presents our consolidated revenues for the six months ended June 30, 2021 and 2020, respectively: Six months ended June 30, Change 2021 2020 Amount % CCM Shopping Mall Membership 84 303,647 (303,563 ) (99.97 )% Coal Supply Chain Financing/Trading 1,941,557 - 1,941,557 - Sales of goods - 2,852 (2,852 ) 100 % Others 6,554 7,139 (585 ) (8.19 )% Total $ 1,948,195 $ 313,638 $ 1,634,557 521.16 % CCM Shopping Mall Membership fees decreased from $303,647 for the six months ended June 30, 2020 to $84 for the six months ended June 30, 2021 because the Company had difficulties to enroll new members during the first half of 2021 and the Company has transformed its business model of CCM Shopping Mall from member-based platform to a sales agent based eCAAC platform during the second quarter of 2021. Due to the COVID-19 related restriction on large gathering for meetings and conference which primarily used by us before the pandemic for marketing and business development of new members, we were unable to attract more new members during first half of 2021. 32 Coal Supply Chain Financing and Trading business increased from $0 for the six months ended June 30, 2020 to $1.9 million for the six months ended June 30, 2021. This is a new business that did not exist last year. Sale of goods decreased from $2,852 for the six months ended June 30, 2020 to $0 for the six months ended June 30, 2021 as no sale of goods. Other revenues decreased from $7,139 for the six months ended June 30, 2020 to $6,554 for the six months ended June 30, 2021. Gross Margin The following table presents the consolidated gross profit of each of our main products and services and the consolidated gross profit margin, which is gross profit as a percentage of the related revenues, for the six months ended June 30, 2021 and 2020, respectively: Six months ended June 30, 2021 2020 Gross profit Gross margin Gross profit Gross margin CCM Shopping Mall Membership 84 100 % 299,412 98.61 % Coal Supply Chain Financing/Trading 71,341 3.67 % - - Sales of goods - - 1,897 66.51 % Others 520 7.93 % 2,457 34.42 % Total $ 71,945 3.69 % $ 303,766 96.85 % Overall gross margin as a percentage of revenue was 3.69% for the six months ended June 30, 2021, a decrease of 93.16% compared to 96.85% for the same period of last fiscal year, mainly due to less revenues from the membership fee which has a much higher margin than that of sales of goods and coals. Operating Expenses The following table presents our consolidated operating expenses and operating expenses as a percentage of revenue for the six months ended June 30, 2021 and 2020, respectively: (in thousands) June 30, 2021 June 30, 2020 Amount % of revenue Amount % of revenue General and administrative $ 2,194 112.63 % $ 2,193 699.28 % Selling expenses 23 1.18 % 20 6.53 % Bad debt provision (18 ) (0.94 )% 4,433 1,413.51 % Total operating expenses $ 2,199 112.87 % $ 6,646 2,119.32 % General and administrative expenses increased by $981, or 0.05%, from $2.193 million for the six months ended June 30, 2020 to $2.194 million for the six months ended June 30, 2021. 33 Selling expenses increased by $2,561 during the six months ended June 30, 2021, compared to the same period of last fiscal year. Write back of provision of doubtful debt was $18,000 for the six months ended June 30, 2021, decreased by $4.45 million comparing to the same period of the last fiscal year. Write back of provision was for doubtful debts from subsidiaries that disposed during the six months ended June 30, 2020，but no such item in the six months ended June 30, 2021. Other (Expense) Income, Net Other expenses, net, decreased by $1.94 million to positive $0.77 million for the six months ended June 30, 2021 from negative $1.17 million in the same period of the last fiscal year, mainly due to debt repayment with shares during the six months ended June 30, 2020 and no such expense in the same period of 2021. Income Tax We did not have tax provision for the six months ended June 30, 2021 and 2020, as the Company incurred losses in the six months ended June 30, 2021 and 2020. Non-controlling Interests As of June 30, 2021, Shaanxi Chunlv Ecological Agriculture Co., Ltd. (“Shaanxi Chunlv”) holds 20.0% interest in Chain Cloud Mall Logistics Center (Shaanxi) Co., Limited, Nature Worldwide Resources Ltd. holds 40% interest in DCON DigiPay Limited (“DCON Digipay”), Bin Wu and Lixiong Huang holds 25% and 20% interest in FTFT Capital Investments L.L.C. Loss from Continuing Operations Loss from continuing operations decreased by $6.16 million from $7.52 million for the six months ended June 30, 2020 to $1.36 million for the same period of 2021 mainly due to a decrease in operating expenses, as discussed above. Gain on disposal of discontinued operations Gain on disposal of discontinued operation was $0.16 million for the six months ended June 30, 2021, which was related to the dissolution and deregistration of FT Commercial Management (Beijing) Co., Ltd and Chain Future Digital Tech (Beijing) Co., Ltd during the six months ended June 30, 2021. Loss per Share Basic and diluted loss per share from continuing operations were $0.02 and $0.02 for the six months ended June 30, 2021, respectively, as compared to a loss of $0.21 and $0.21 for the same periods of 2020, respectively. Basic and diluted income per share attributable to discontinued operations was nil for the six months ended June 30, 2021 respectively. Basic and diluted loss per share attributable to discontinued operations was $3.45 and $3.38 for the six months ended June 30, 2020 respectively. 34 Liquidity and Capital Resources As of June 30, 2021, we had cash and cash equivalents of $72.01 million, as compared to $9.79 million as of December 31, 2020. The increase in cash, cash equivalents and restricted cash was mainly due to financing from the issuance of shares of common stock. Our working capital has mainly been generated from financing activities of issuance of shares of common stock of the Company. Our working capital was positive $76.91 million, as of June 30, 2021, an increase of $78.22 million from working capital of negative $1.31 million, as of June 30, 2020, mainly due to an increase in current assets and a decrease in current liabilities. Net cash used in operating activities increased by $1.27 million to $2.99 million for the six months ended June 30, 2021 from a cash inflow of $1.72 million for the same period of the last fiscal year. The increase in net cash used by operating activities was primarily due to an increase in accounts receivable during the six months ended June 30, 2021. Net cash used in investing activities decreased by $2 million comparing the six months ended June 30, 2021 and June 30, 2020, mainly due to purchase of intangible assets in 2020. Net cash provided in financing activities for the six months ended June 30, 2021 was $65.52 million representing an increase of $63.21 million, as compared to cash provided by financing activities of $2.31 million during the six months ended June 30, 2020. The increase in cash provided by financing activities was mainly due to financing from the issuance of shares of common stock. Off-balance sheet arrangements As of June 30, 2021, we did not have any off-balance sheet arrangements. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not applicable. 35