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, 2021 (the “2021 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 2021 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, supply chain financing service and trading business, money transfer service, asset management and financial technology business. The main business of the Company includes an online shopping platform, Chain Cloud Mall (“CCM”), which is based on blockchain technology, supply chain financing services and trading, assets management, money transfer service and cryptocurrency market data services. The Company is also engaged in the development of blockchain based e-Commerce technology, cryptocurrency mining, cryptocurrency investment management as well as financial service technology businesses. The Company has also expanded into financial services and cryptocurrency market data and information service businesses. On August 6, 2021, the Company completed acquisition of 90% of the issued and outstanding shares of Nice Talent Asset Management Limited (“NTAM”), a Hong Kong-based asset management company, from Joy Rich Enterprises Limited (“Joy Rich”). NTAM is licensed under the Securities and Futures Commission of Hong Kong (“SFC”) to carry out regulated activities in Type 4: Advising on Securities and Type 9: Asset Management. On September 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 (“Seller”) for a total of Euros €685,000 (“Purchase Price”), pursuant to a Share Purchase Agreement (the “Agreement”) dated September 1, 2021. The Company is in the process of completing accounting and other transition and consolidation of Khyber into the Company. 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 have received the approval by the FCA before formal closing of the transaction. In December 2021, FTFT Capital Investments, L.L.C., a subsidiary of the Company, officially launched FTFTX, a cryptocurrency market data platform that provides investors with real-time cryptocurrency market data and trading information from a large number of cryptocurrency exchanges. The market data is available for Bitcoin, ETH, EOS, Litecoin, TRON and other cryptocurrencies at https://www.ftftx.com and via the FTFTX App on iOS and Android devices. The FTFTX app is free to download on Google Play and the Apple Store. In March 2022, FTFT UK received has 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 the ability to distribute or redeem e-money and provide certain financial services on behalf of an e-money institution (registration number 903050). In June 2022, Future Fintech Labs Inc. (“FTFT Labs”) have teamed up with a third-party money transfer company to launch a cross-border money transfer app Tempo to offer US-based immigrants and other users a streamlined, secure and cost-effective way to send money to friends and family among other parties in Mexico, India and the United Kingdom. By working with the money transfer company and other service providers that are registered with FinCEN and have licenses for money transmission business, FTFT Labs has developed Tempo that can provide its customers with a multicurrency digital wallet that makes sending money to Mexico, India or the UK easier and more cost-effective than many other remittance services who charge high fees per transfer. In October 2022, FTFT UK Limited officially launched the FTFT Orbit e-wallet app. The new app is now available on Google Play and the Apple App Store. The FTFT Orbit e-wallet app is an electronic wallet that integrates popular e-wallet functions similar to Alipay and We chat pay. It also integrates most of the core services that traditional banks offer such as international remittances, transfer payments, a physical debit card and bill payments. In November 2022, FTFT Super Computing Inc. announced it has completed the first construction phase of the build-out of its cryptocurrency mining farm in northwest Ohio. Following testing procedures, on October 24, 2022, the first batch Antminer S19 series mining machines were successfully put into operation. 30 We are a holding company incorporated in Florida and we are not a Chinese operating company. As a holding company with no material operations of our own, we conduct a substantial majority of our operations through our subsidiaries in China, Hong Kong, Dubai, U.S. and UK and we operate a blockchain based online shopping mall through contractual arrangements with a variable interest entity (VIE) –E-Commerce Tianjin, based in China and this structure involves unique risks. Our shares of common stock are shares of our Florida holding company, and we do not have any equity ownership of our VIE, instead we control and receive the economic benefits of our VIE’s business operations through certain contractual arrangements, which are used to replicate foreign investment in Chinese-based companies where Chinese law prohibits foreign invested equity exceeding 50% in value added telecom/e-commerce business. Chinese regulatory authorities could disallow the VIE structure, which could result in a material change in our operations and/or value of our shares, including that it could cause the value of shares to significantly decline or become worthless. There are legal and operational risks associated with being based in and having a substantial majority of operations in China and Hong Kong. These risks could result in a material change in our operations and/or the value of our common stock or could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our shares to significantly decline or be worthless. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas, 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 Platforms 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 December 24, 2021, the CSRC, together with other relevant government authorities in China issued the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), and the Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (“Draft Overseas Listing Regulations”). On April 2, 2022, the CSRC released the Revised Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), which provides that PRC issuers listing their securities on foreign stock exchanges are required to strictly comply with the relevant requirements and procedures on confidentiality and archives. In the event that the above proposed provisions and rules are enacted, the relevant filing procedures of the CSRC and other governmental authorities may be required in connection with any offering of our securities. As of the date of this report, the new laws and guidelines that became effective have not impacted the Company’s ability to conduct its business, accept foreign investments, or list on a U.S. or other foreign stock exchange; however, 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. Our VIE and certain subsidiaries of the Company are incorporated and operating in mainland China and they have received all required permissions from Chinese authorities to operate their current business in China, including Business licenses, Bank Account Open Permits and Value Added Telecom Business License. Chain Cloud Mall is a unique real-name based blockchain e-commerce shopping platform that integrates blockchain, internet technology. 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. Currently, Chain Cloud Mall adopts an “Enterprise Communication as A Service” or eCAAS platform which is a part of 3.15 China Responsible Brand Program run by the Anti-Counterfeiting Committee of China Foundation of Consumer Protection (the “Anti-Counterfeiting Committee”). Anti-Counterfeiting Committee reviews and accepts the companies to join its 3.15 China Responsible Brand Program. After acceptance, these companies are authorized to use anti-counterfeiting labels on their products which have authenticated joint signatures of these companies and Anti-Counterfeiting Committee that are recorded on the blockchain quality and safety traceability system controlled by the Anti-Counterfeiting Committee. The companies will sell such products 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. 31 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. 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 be implemented and the Company has experienced difficulties to subscribe new members for its online e-commerce platforms. Due to the lack of new subscribers, in June 2021, the Company suspended its cross-border e-commerce platform (NONOGIRL). Also, since the second quarter of 2021, the Company has transformed its member-based business model of Chain Cloud Mall to a sale agent based eCAAS platform and began to provide supply chain financing services and trading of coal for coal mines and power generation plants as well as aluminum ingots. The Company currently has ten 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, a Limited Partnership under the laws of China, FTFT UK Limited, a company incorporated under the laws of United Kingdom, Future Fintech Digital Capital Management, LLC, a company incorporated under the laws of Connecticut, 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 and FTFT Paraguay S.A., a company incorporated under the law of Republic of Paraguay. 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 from a member based platform to a sale agent based eCAAS platform since the second quarter of 2021. The eCAAS platform is entrusted by the Anti-Counterfeiting Committee to run its Responsible Brand Program. Anti-Counterfeiting Committee reviews and accepts the companies to join its Responsible Brand Program. After acceptance, these companies are authorized to use 315 anti-counterfeiting labels on their products and sell them on our eCAAS platform. The companies can also use sales agents to sell their products on our eCAAS platform and parties can negotiate the commission percentages for the products sold. Any new sales agent must be recommended by existing agents and pay a one-time fee to the eCAAS platform to be admitted as the authorized agent to provide sales agent services on the platform. Coal and Aluminum Ingots Supply Chain Financing Service and Trading 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. Our supply chain finance business mainly serves the receivables and payables for industrial customers, obtains the creditor’s rights or rights of commodity goods for large state-owned enterprises or public companies through trade execution, provides customers with working capital, accelerates capital turnover, and then expands the business scale and improves the business value. Through our supply chain service ability and customer resources, we can tap into low-risk assets, flexibly carry out financial services for 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 coal and aluminum ingots and take large state-owned or listed companies as the core service targets; We use our own funds as the operation basis, actively use a variety of channels and products of 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 coal to the end users’ designated freight yard or transfer the title of aluminum ingots to us in certain warehouses. We select the customers and suppliers that have good credit and reputation. 32 Asset Management Service NTAM engages assets management and advisory services. NTAM’s main revenue is generated from providing professional advices to customers and management fees for managing the investment of the clients. 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. 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 focus 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 advices to clients and management fees for managing the investment of the clients. As of September 30, 2022, NTAM has approximately US$195 million assets under its management. Recent Developments Related to the COVID-19 Outbreak In December 2019, a novel strain of coronavirus was reported and has spread throughout China and other parts of the world. On March 11, 2020, the World Health Organization characterized the outbreak as a “pandemic”. In early 2020, Chinese government took emergency measures to combat the spread of the virus, including quarantines, travel restrictions, and the temporary closure of office buildings and facilities in China. In response to the evolving dynamics related to the COVID-19 outbreak, the Company is following the guidelines of local authorities as it prioritizes the health and safety of its employees, contractors, suppliers and business partners. Our offices in China were closed and the employees worked from home at the end of January 2020 until late March 2020. The quarantines, travel restrictions, and the temporary closure of office buildings have materially negatively impacted our business. Our suppliers were negatively affected, and could continue to be negatively affected in their ability to supply and ship products to our customers in case of any resurgence of COVID-19. Our customers that have been negatively impacted by the outbreak of COVID-19 may reduce their budgets to purchase products and services from us, which may materially adversely impact our revenue. The business operations of the third parties’ stores on our e-commerce platform have been and continue to be negatively impacted by the outbreak, which in turn adversely affects the business of our platform as a whole as well as our financial condition and operating results. The outbreak has had and continues to have disruption to our supply chain, logistics providers, customers or our marketing activities with the new variants of COVID-19, which could materially adversely impact our business and results of operations, especially to our supply chain financing and trading business during the first quarter of 2022. Although China has already begun to recover from the outbreak of COVID-19, there are still outbreak in various cities and provinces due to new variants, including the recent outbreak of Omicron variant in Xi’an city, Hong Kong, Shanghai and Beijing in 2022, which have resulted quarantines, travel restrictions, and temporary closure of office buildings and facilities in these cities. The Company’s promotion strategy of CCM Shopping Mall previously mainly relied on the training of members and distributors through meetings and conferences. Chinese government still puts a restriction on large gatherings. These restrictions made the promotion strategy for our online e-commerce platforms difficult to implement and the Company has experienced difficulties to subscribe new members for its online e-commerce platforms. Due to the lack of new subscribers, in June 2021, the Company suspended its cross-border e-commerce platform NONOGIRL. Also, since the second quarter of 2021, the Company has transformed its member-based Chain Cloud Mall to a sale agent based eCAAS platform and began to provide supply chain financing services. 33 The global economy has also been materially negatively affected by the COVID-19 and there is continued severe uncertainty about the duration and intensity of its impacts. The Chinese and global growth forecast is extremely uncertain, which would seriously affect our business. While the potential economic impact brought by, and the duration of COVID-19 and its new variants may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 and its new variants could materially negatively affect our business and the value of our common stock. Further, as we do not have access to a revolving credit facility, there can be no assurance that we would be able to secure commercial debt financing in the future in the event that we require additional capital. We currently believe that our financial resources will be adequate to see us through the outbreak. However, in the event that we do need to raise capital in the future, outbreak-related instability in the securities markets could adversely affect our ability to raise additional capital. Consequently, our results of operations have been materially and adversely affected by COVID-19 pandemic. Any potential further impact to our results will depend on, to a large extent, future developments and new information that may emerge regarding the duration and severity of the COVID-19, new variants of COVID-19, the efficacy and distribution of COVID-19 vaccines and the actions taken by government authorities and other entities to contain the COVID-19 or treat its impact, almost all of which are beyond our control. Results of Operations Comparison of Three Months ended September 30, 2022 and 2021: Revenue The following table presents our consolidated revenues for the three months ended September 30, 2022 and 2021, respectively: Three months ended September 30, Change 2022 2021 Amount % Coal and Aluminum Ingots Supply Chain Financing/Trading 7,839,635 9,643,977 (1,804,342 ) (18.71 )% Asset management service 4,118,065 2,101,050 2,017,015 96.00 % Others 1,319 - 1,319 - Total $ 11,959,019 11,745,027 213,992 1.82 % Revenues from coal and Aluminum Ingots Supply Chain Financing/Trading business decreased from $9.64 million for the three months ended September 30, 2021 to $7.84 million for the three months ended September 30, 2022. The COVID-19 outbreak in Xi’an and other cities in China where we had our supply chain services and related control measures by local government has had negative impact on the coal and aluminum ingot business and resulted the decrease in revenue in the third quarter 2022 comparing to the same period of 2021. Revenue from asset management service increased from $2.10 million for the three months ended September 30, 2021 to $4.12 million for the three months ended September 30, 2022. We acquired this business on August 6, 2021 and only consolidated partial of its revenues for the third quarter 2021, comparing to the full third quarter for 2022. If only comparing revenues from August and September 2022 to the same period of 2021, the revenue slightly increased in 2022 comparing to such two months in 2021 because NTAM has more assets under its management in 2022 comparing to the same period of 2021. Cost of revenues Three months ended September 30, Change 2022 2021 Amount % Coal and Aluminum Ingots Supply Chain Financing/Trading 7,703,074 9,347,804 (1,644,730 ) (17.59 )% Asset management service 2,762,819 1,414,139 1,348,680 95.37 % Others - - Total $ 10,465,893 10,761,943 (296,050 ) (2.75 )% 34 Cost of revenues for the Coal and Aluminum Ingots Supply Chain Financing/Trading was $7.70 million and $9.35 million for the three months ended September 30, 2022 and 2021, respectively, representing an decrease of 17.59%. The decrease in cost of revenues was in line with a decrease in revenue. Cost of revenues for the asset management service increased from $1.41 for the three months ended September 30, 2021 to $2.76 million for the three months ended September 30, 2022. We acquired this business on August 6, 2021 and only consolidated partial of its cost of revenues for the third quarter 2021, comparing to the full third quarter for 2022. Gross Margin The following table presents the consolidated gross profit of each of our main products and services and the consolidated gross profit margin, which is gross profit as a percentage of the related revenues, for the three months ended September 30, 2022 and 2021, respectively: Three months ended September 30, 2022 2021 Gross profit Gross margin Gross profit Gross margin Coal Supply and Aluminum Ingots Chain Financing/Trading 136,561 1.74 % 296,173 3.07 % Asset management service 1,355,246 32.91 % 686,911 32.69 % Others 1,319 100 % - - Total $ 1,493,126 12.49 % $ 983,084 8.37 % Overall gross margin as a percentage of revenue was 12.49% for the three months ended September 30, 2022, an increase of 4.12% compared to 8.37% for the same period of last fiscal year, mainly due to more revenues from the asset management service which has a higher gross margin. Coal Supply and Aluminum Ingots Chain Financing/Trading gross margin was decreased 1.33% from 3.07% in three months ended September 30, 2021 to 1.74% in same period of 2022, mainly due to the purchase prices of coal and aluminum ingot in three months ended September 30, 2022 increased comparing to the same period of 2021. 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, 2022 and 2021, respectively: (in thousands) September 30, 2022 September 30, 2021 Amount % of revenue Amount % of revenue General and administrative $ 3,559 29.76 % $ 2,243 19.10 % Research and Development expenses 791 6.61 % - - Stock compensation expense 1,280 10.70 % 5,488 46.73 % Selling expenses 274 2.29 % 112 0.96 % Impairment Loss 229 1.91 % - - Total operating expenses $ 6,132 51.28 % $ 7,843 66.78 % General and administrative expenses increased by $1.32 million, or 58.65%, from $2.24 million to $3.56 million for the three months ended September 30, 2022, compared to the same period of last fiscal year. The increase in general and administrative expenses was mainly due to increased professional service fees for acquisition projects and certain training and consulting fees for the acquired and newly established companies during the three months ended September 30, 2022. Stock compensation expense was $1.28 million during the three months ended September 30, 2022, as the Compensation Committee of the Board of Directors (the “Board”) of the Company granted certain shares of common stock of the Company to certain officers and employees in July 2022. Stock compensation expense was decreased 76.68% from $5.49 million in three months ended September 30, 2021 to $1.28million in same period of 2022, mainly due to stock price was lower than 2021, mainly due to the stock price on the grant date is much lower this year comparing to price on grant date of 2021. The Company recorded $0.79 million of research and development expenses for the nine months ended September 30, 2022, which the Company did not have any during the same period 2021. Research and development expenses include salaries, contracted services, as well as the related expenses of our research and product development team. The research and development expenditures also include research, develop, design, and enhance our assets and wealth management options and services to our clients, which is related to the business we acquired in the third quarter 2021. Selling expenses increased by $0.16 million during the three months ended September 30, 2022 comparing to the same period of 2021, the increase in selling expenses was mainly due to increased salary and advertising fee. 35 The Company recorded $0.23 million of impairment loss in three months ended September 30, 2022 relating to short term investment which mainly due to Future Private Equity Fund Management (Hainan) Co., Ltd. invested $1.83 million (RMB13,000,000) to entrust Shanghai Yuli Enterprise Management Consulting Firm to invest in various types of investment portfolios. The impairment loss relating to short term investment is due to that overall economic environment has worsened in China with Covid-19 outbreak and related lockdown in various cities in China in 2022, Ukraine war, inflation, looming recession worldwide. According to the market value, the Company’s balance of the short term investment was$0.97 million on September 30, 2022. Other Income, Net Other income, net increased by $0.98 million to $1.21 million for the three months ended September 30, 2022 from $0.23 million in the same period of the last fiscal year, primarily due to a large change in foreign exchange gain. Income Tax Tax provision increased by $0.20 million for the three months ended September 30, 2022. We did not have tax provision for the same period of the last fiscal year. Non-controlling Interests Shaanxi Chunlv Ecological Agriculture Co., Ltd. (“Shaanxi Chunlv”) holds 20.0% interest in Chain Cloud Mall Logistics Center (Shaanxi) Co., Limited, which was dissolved and deregistered on June 27, 2022. 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. Loss from Continuing Operations Loss from continuing operations decreased by $3.00 million from $6.63 million for the three months ended September 30, 2021 to $3.63 million for the same period of 2022 mainly due to the increase in gross profit margin and decrease in operating expenses, as discussed above. Comparison of Nine Months Ended September 30, 2022 and 2021 Revenue The following table presents our consolidated revenues for the nine months ended September 30, 2022 and 2021, respectively: Nine months ended September 30, Change 2022 2021 Amount % CCM Shopping Mall Membership - 85 (85 ) (100 )% Coal and Aluminum Ingots Supply Chain Financing/Trading 11,494,617 10,402,759 1,091,858 10.50 % Asset management service 11,270,874 2,101,050 9,169,824 436.44 % Others 78,170 - 78,170 - Total $ 22,843,661 $ 12,503,894 $ 10,339,767 82.69 % CCM Shopping Mall Membership fees decreased from $85 for the nine months ended September 30, 2021 to $0 for the nine months ended September 30, 2022 because there was no new membership enrollment and the Company has transformed its business model of CCM Shopping Mall from a member-based platform to a sales agent based eCAAS platform since the second quarter of 2021, which has not generated any meaningful revenue. Due to COVID-19 related restriction on large gathering for meetings and conferences which primarily used by us before the pandemic for marketing and business development of new members for the platform, we were unable to attract new member enrollment and have had difficulties to generate revenues for the platform. Revenues for coal and Aluminum Ingots Supply Chain Financing and Trading business increased from $10.40 million for the nine months ended September 30, 2021 to $11.49 million for the nine months ended September 30, 2022. We started the supply chain financing and trading business in the second quarter 2021, therefore we had more months to generate revenues for such business in 2022comparing to the same period of 2021. The COVID-19 outbreak in Xi’an and other cities in China where we had our supply chain business and the control measures by local government have caused material negative impact on our coal and aluminum ingot supply chain business revenues in the first quarter of 2022. Revenues from asset management service increased from $2.10 million for the nine months ended September 30, 2021 to $11.27 million for the nine months ended September 30, 2022. We acquired this business on August 6, 2021 and only consolidated partial of its revenues for the nine months ended September 30, 2021, comparing to the full third quarters for 2022. If only comparing revenues from August and September 2022 to the same period of 2021, the revenue slightly increased in 2022 comparing to such two months in 2021 because NTAM has more assets under its management in 2022 comparing to the same period of 2021. Other revenues increased from $0 for nine months ended September 30, 2021 to $78,170 for the nine months ended September 30, 2022, which were mainly increased NTAM’s Consulting fee income during the nine months ended September 30, 2022, which we did not have for the same period of 2021. 36 Cost of revenues Nine months ended September 30, Change 2022 2021 Amount % CCM Shopping Mall Membership - - - - Coal and Aluminum Ingots Supply Chain Financing/Trading 11,297,800 10,650,371 647,429 6.08 % Asset management service 6,889,338 1,414,140 5,475,198 387.18 % Others - - - - Total $ 18,187,138 12,064,511 6,122,627 50.75 % Cost of revenues for the Coal and Aluminum Ingots Supply Chain Financing/Trading was $11.30 million and $10.65 million for the nine months ended September 30, 2022 and 2021, respectively, representing an increase of 6.08%. The increase in cost of revenues was in line with an increase in revenue. Cost of revenues for the asset management service increased from $1.41 million for the nine months ended September 30, 2021 to $6.89 million for the nine months ended September 30, 2022. We acquired this business on August 6, 2021 and only consolidated partial of its cost of revenues for nine months ended 2021, comparing to the full third quarters for 2022. If only comparing cost of revenues from August and September 2022 to the same period of 2021, the cost of revenue slightly increased in 2022 comparing to such two months in 2021 which is in line with the slight increase in revenue. Gross Margin The following table presents the consolidated gross profit of each of our main products and services and the consolidated gross profit margin, which is gross profit as a percentage of the related revenues, for the nine months ended September 30, 2022 and 2021, respectively: Nine months ended September 30, 2022 2021 Gross profit Gross margin Gross profit Gross margin CCM Shopping Mall Membership - - 85 - Coal Supply Chain Financing/Trading 196,817 1.71 % (247,611 ) (2.38 )% Asset management service 4,381,536 38.87 % 686,909 32.69 % Others 78,170 100 - - Total $ 4,656,523 20.38 % 439,383 3.51 % Overall gross margin as a percentage of revenue was 20.38% for the nine months ended September 30, 2022, an increase of 16.87% compared to 3.51% for the same period of last fiscal year, mainly due to more revenues from the asset management service which had a higher gross margin. The others were mainly increase in NTAM consulting fee income during the nine months ended September 30, 2022, which we did not have for the same period of 2021. 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, 2022 and 2021, respectively: (in thousands) September 30, 2022 September 30, 2021 Amount % of revenue Amount % of revenue General and administrative $ 9,619 42.11 % $ 4,568 36.53 % Research and Development expenses 1,994 8.73 % - - Stock compensation expense 1,280 5.60 % 5,488 43.89 % Selling expenses 994 4.35 % 135 1.08 % Impairment Loss 926 4.05 % - - Bad debt provision 2 0.01 % (15 ) (0.12 )% Total operating expenses $ 14,815 64.85 % $ 10,176 81.38 % 37 General and administrative expenses increased by $5.05 million, or 110.58%, from $4.57 million to $9.62 million for the nine months ended September 30, 2022, compared to the same period of last fiscal year. The increase in general and administrative expenses was mainly due to increased professional service fees for acquisition projects and certain training and consulting fees for the acquired and newly established companies during the nine months ended September 30, 2022. Stock compensation expense was $1.28 million during the nine months ended September 30, 2022, as the Compensation Committee of the Board of Directors (the “Board”) of the Company granted certain shares of common stock of the Company to certain officers and employees in July 2022. Stock compensation expense was decreased 76.68% from $5.49 million in nine months ended September 30, 2021 to $1.28million in same period of 2022, mainly due to stock price was lower than 2021, mainly due to the stock price on the grant date is much lower this year comparing to price on grant date of 2021. The Company recorded $1.99 million of research and development expenses for the nine months ended September 30, 2022, which the Company did not have any during the same period 2021. Research and development expenses include salaries, contracted services, as well as the related expenses of our research and product development team. The research and development expenditures also include research, develop, design, and enhance our wealth management options and services to our clients, which is related to the new business we acquired in August 2021. Selling expenses increased by $0.86 million during the nine months ended September 30, 2022, the increase in selling expenses was mainly due to increased salary and advertising fee. The Company recorded $0.93 million of impairment loss in nine months ended September 30, 2022 relating to short term investment which mainly due to Future Private Equity Fund Management (Hainan) Co., Ltd. invested $1.83 million (RMB13,000,000) to entrust Shanghai Yuli Enterprise Management Consulting Firm to invest in various types of investment portfolios. The impairment loss relating to the short term investment is due to that overall economic environment has worsened in China with Covid-19 outbreak and related lockdown in various cities in China in 2022, Ukraine war, inflation, looming recession worldwide. According to the market value, the Company’s balance of the short term investment was $0.97 million on September 30, 2022. Other Income, Net Other income, net increased by $1.31 million to $2.00 million for the nine months ended September 30, 2022 from $0.69 million in the same period of the last fiscal year, primarily due to a large change in foreign exchange gain. Income Tax Tax provision increased by $0.51 million for the nine months ended September 30, 2022. We did not have tax provision for the same period of the last fiscal year. Non-controlling Interests Shaanxi Chunlv Ecological Agriculture Co., Ltd. (“Shaanxi Chunlv”) holds 20.0% interest in Chain Cloud Mall Logistics Center (Shaanxi) Co., Limited, which was dissolved and deregistered on June 27, 2022. 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. Loss from Continuing Operations Loss from continuing operations decreased by $0.38 million from $9.05 million for the nine months ended September 30, 2021 to $8.67 million for the same period of 2022 mainly due to increase in revenues and gross margin which was partially offset by increases in cost of revenue and operating expenses, as discussed above. Gain on disposal of discontinued operations Loss on disposal of discontinued operation was $154 for the nine months ended September 30, 2022, which was related to the dissolution and deregistration of Chain Cloud Mall Logistics Center (Shanxi) Co., Ltd. on June 27, 2022. Loss per Share Basic and diluted loss per share from continuing operations were $0.12 and $0.11 for the nine months ended September 30, 2022, respectively, as compared to a loss of $0.14 and $0.14 for the same periods of 2021, respectively. Basic and diluted income per share attributable to discontinued operations was nil for the nine months ended September 30, 2022 respectively. Basic and diluted earnings per share attributable to discontinued operations was $0.04 and $0.04 for the nine months ended September 30, 2021 respectively. 38 Liquidity and Capital Resources As of September 30, 2022, we had cash and cash equivalents of $32.96 million, as compared to $50.27 million as of December 31, 2021. The decrease in cash, cash equivalents was mainly due the loss in operations and Company did not issue shares of common stock to raise money for the nine months ended September 30, 2022 comparing to the same period of 2021. Our working capital has mainly been generated from our business operations and financing activities. Our working capital was $54.59 million, as of September 30, 2022, a decrease of $10.90 million from working capital of $65.49 million, as of December 31, 2021, mainly due to the Company had loss in its operations and did not raise any funds during the nine months ended September 30, 2022. Net cash used in operating activities increased by $20.40 million to $0.59 million for the nine months ended September 30, 2022 from a cash outflow of $19.81 million for the same period of the last fiscal year. The increase in net cash used in operating activities was primarily due to a decrease in accounts receivable, increase in advances from customers and share-based payments during the nine months ended September 30, 2022. Net cash used in investing activities increased by $7.73 million in the nine months ended September 30, 2022, comparing the same period of 2021, mainly due to additional loan to a third party. Net cash provided by financing activities for the nine months ended September 30, 2022 was $0.25 million representing a decrease of $68.52 million, as compared to cash provided by financing activities of $69.43 million during the nine months ended September 30, 2021. The decrease in cash provided by financing activities was mainly due to the Company had loss in operations and did not raise any funds during the nine months ended September 30, 2022, comparing to the same period of 2021. Off-balance sheet arrangements As of September 30, 2022, we did not have any off-balance sheet arrangements. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not applicable.