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, 2022 (the “2022 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 2022 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 supply chain financing service and trading business, asset management and cross-border money transfer services. The main business of the Company includes supply chain financing services and trading, asset management and cross-border money transfer services. The Company has also expanded into cryptocurrency mining, cryptocurrency market data and information service businesses. 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. The Company owns 90% and FTFT HK owns 10% of Kazan S.A., respectively. Kazan S.A. has no operation before the acquisition. The Company is developing 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. 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. 30 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 subsequently 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 continue to be $0.001 par value. The Company rounds up to the next full share of the Company’s shares of common stock any fractional shares that result from the Reverse Stock Split and no fractional shares is issued in connection with the Reverse Stock Split and no cash or other consideration is paid in connection with any fractional shares that would otherwise have resulted from the Reverse Stock Split. No changes are being made to the number of preferred shares of the Company which remain as 10,000,000 preferred shares as authorized but not issued. The amendment to the Articles of Incorporation of the Company took effect at 1:00am Eastern Time on February 1, 2023. The Reverse Stock Split and Amendment were authorized and approved by the Board of Directors of the Company without shareholders’ approval, pursuant to 607.10025 of the Florida Business Corporation Act of the State of Florida. 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 and UK. We also operate a blockchain based online shopping mall through contractual arrangements with a variable interest entity (VIE) – Cloud Chain E-Commerce (Tianjin) Co., Ltd. or E-Commerce Tianjin in China which currently has very limited business 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 the VIE, instead we control and receive the economic benefits of the VIE’s business operations through certain contractual arrangements, which are used to replicate foreign investment in Chinese-based companies where Chinese law prohibits direct foreign investment 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. 31 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 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 the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises (the “New Overseas Listing Rules”) with five interpretive guidelines, which took effect on June 30, 2023. The New Overseas Listing Rules require Chinese domestic enterprises to complete filings with relevant governmental authorities 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 completes such 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 working 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. 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; 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. The 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. As of the date of this report, we, our subsidiaries and the VIE in China are not subject to permission requirements from the CSRC or CAC or any other entity that is required to approve of the VIE’s operations and have not received or were denied such permissions by any PRC authorities. Currently, we are required to file with CSRC for any offerings under New Overseas Listing Rules. Given the current PRC regulatory environment, it is uncertain whether we, our subsidiaries or the VIE, will be able to obtain permission from the PRC government to offer our securities to foreign investors, and even when such permission is obtained, whether it will be denied or rescinded. If we or any of our subsidiaries or the VIE do not receive or maintain such permissions or approvals, inadvertently conclude that such permissions or approvals are not required, or applicable laws, regulations, or interpretations change and we or our subsidiaries are required to obtain such permissions or approvals, it could significantly limit or completely hinder our ability to offer or continue to offer our securities to investors and cause the value of our securities to significantly decline or become worthless. If applicable laws, regulations, or interpretations change and the VIE is required to obtain permissions or approvals in the future, we may face substantial uncertainties as to whether we can obtain such permissions or approvals in a timely manner, or at all. Failure to take timely and appropriate measures to adapt to any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure and business operations. 32 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. Due to the slowdown of economy and fierce competition in e-commerce area in China, CCM has generated nominal revenue for the Company since its transition to the agent based eCAAS platform. 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 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) which later being closed. 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 business. The Company currently has ten direct 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”), 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, FTFT SuperComputing Inc. a company incorporated under the laws of Ohio and FTFT Paraguay S.A., a company incorporated under the laws of Paraguay. 33 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 will review and accept 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. Due to the slowdown of economy and fierce competition in e-commerce area in China, CCM has generated nominal revenue for the Company since its transition to the agent based eCAAS platform. 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. 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 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 the commodities to the end users’ designated freight yard or transfer the title of them to us in certain warehouses. We are considered as trading agent if we don’t take control over of the goods and the revenues will be recognized as agent service fees instead of entire purchase price of the goods. We select the customers and suppliers that have good credit and reputation. 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. 34 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, 2023, NTAM has approximately US$242 million assets under its management. 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 and become a global name in money remittance services. FTFT Finance is a financial platform that enables its customers to send their hard-earned money to their countries of origin, or any other countries of their liking, with ease and at a reasonable cost, transparent exchange rate and without any hidden charges. We believe that it is our understanding of our customers and their diverse backgrounds that has helped FTFT Finance to become a credible and trustworthy money remittance business. The FTFT Pay platform and system support direct connections to over 130 countries and their local banks, targeting customers with transfer destinations based in prominent countries across the Middle East and Southeast Asia. Remittance service is a highly saturated market in the United Kingdom. There are many companies that offer remittance services, however, FTFT Finance only sees Ace Money Transfer, Wise (formerly known as Transfer Wise), Remitly and Remit World as its main competitors. 35 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 us an advantage over our competitors. Expats living in the United Kingdom often send money to their relatives either to support them, for emergency uses or weddings, etc. The UK has a large migrant population of Indians, Pakistanis and Bangladeshis. FTFT Finance has been in money remittance business since 2009 and has over 500,000 customers. FTFT Finance advertises through Instagram, Twitter, Facebook and LinkedIn in order to reach out to new customers. FTFT Finance implemented email marketing, in which they email customers daily to keep them updated on their account, transactions as well as marketing and promotions. 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 followed 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. 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. There were outbreaks in various cities and provinces in China due to Omicron variant in many cities, such as 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. In December 2022, the Chinese government eased its strict zero COVID-19 policy which resulted in a surge of new COVID-19 cases during December 2022 and January 2023, which has disrupted our business operations in China. The Company’s promotion strategy of CCM Shopping Mall previously mainly relied on the training of members and distributors through meetings and conferences. Chinese government put a restriction on large gatherings in 2020 and 2021, which made the promotion strategy for our online e-commerce platforms difficult to implement and the Company experienced difficulties to subscribe new members for its online e-commerce platforms. Due to the lack of new subscribers, in June 2021, the Company suspended its cross-border e-commerce platform NONOGIRL which later being closed. Also, since the second quarter of 2021, the Company has transformed its member-based Chain Cloud Mall to a sale agent based eCAAS platform and began to provide supply chain financing services. Due to the slowdown of economy and fierce competition in e-commerce area in China, CCM has generated nominal revenue for the Company since its transition to the agent based eCAAS platform. The global economy has also been materially negatively affected by the COVID-19 and there is continued severe uncertainty about the potential outbreak and new variants of COVID-19. The Chinese and global growth forecast is extremely uncertain, which would seriously affect our business. 36 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. 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. 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 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, 2023 and 2022: Revenue The following table presents our consolidated revenues for the three months ended September 30, 2023 and 2022, respectively: Three months ended September 30, Change 2023 2022 Amount % Asset management service 3,272,585 7,839,635 (4,567,050 ) (58.26 )% Supply Chain Financing/Trading 19,991,244 4,118,065 15,873,179 385.45 % Others 489,896 1,319 488,577 37041.47 % Total $ 23,753,725 $ 11,959,019 $ 11,794,706 98.63 % Revenue for the three months ended September 30, 2023 was $23.75 million, an increase of $11.79 million, or 98.63%, from $11.96 million for the same period of the last fiscal year. The increase in revenue for the three months ended September 30, 2023 was primarily due to significant increase in revenue from supply chain financing/trading business from $4.12 million for the three months ended September 30, 2022 to $19.99 million for the three months ended September 30, 2023 as the Company increased the revenue from sand and steel supply chain financing. Asset management service decreased by $4.57 million from $7.84 million during the three months ended September 30, 2022 to $3.27 million in the same period of 2023, which mainly due to that clients are cautious on investing stock and other investments during current market condition in the third quarter 2023, which has reduced our revenue in asset management fees. Others are mainly from non-performing debt recovery consulting and service fees. Others increased by $0.49 million from $1,319 during the three months ended September 30, 2022 to $0.48 million in the same period of 2023, which mainly due to its new business of non-performing debt recovery consulting and service fees started during the third quarter of 2023. 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 three months ended September 30, 2023 and 2022, respectively: Three months ended September 30, 2023 2022 Gross profit Gross margin Gross profit Gross margin Asset management service 1,139,039 34.81 % 1,355,246 32.91 % Supply Chain Financing/Trading 59,050 0.03 % 136,561 1.74 % Others 192,769 39.35 % 1,319 100 % Total $ 1,390,858 5.86 % $ 1,493,126 12.49 % 37 Gross profits for the three months ended September 30, 2023 was $1.39 million, an decrease from $1.49 million for the same period of the last fiscal year. Overall gross margin as a percentage of revenue was 5.86% for the three months ended September 30, 2023, a decrease of 6.63% from 12.49% for the same period of last fiscal year, mainly due to lower profit margin from supply chain financing/trading business for the three months ended September 30, 2023, comparing to the same period of 2022, which was mainly due to increased supply chain financing/trading cost. 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, 2023 and 2022, respectively: (in thousands) September 30, 2023 September 30, 2022 Amount % of revenue Amount % of revenue General and administrative $ 3,830 16.12 % $ 3,559 29.76 % Research and Development expenses 17 0.07 % 791 6.61 % Stock compensation expense - - 1,280 10.70 % Selling expenses 109 0.46 % 274 2.29 % Bad debt provision 18 0.08 % - - % Impairment Loss 4 0.02 % 229 1.91 % Total operating expenses $ 3,978 16.75 % $ 6,132 51.28 % Total operating expenses for the three months ended September 30, 2023 was $3.98 million, a decrease of $2.16 million from $6.13 million for the same period of the last fiscal year. General and administrative expenses increased by $270,902, or 7.61%, from $3.56 million to $3.83 million for the three months ended September 30, 2023, compared to the same period of last fiscal year, 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, 2023. 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 and we did not have such expense for three months ended September 30, 2023. Selling expenses decreased by $0.17 million during the three months ended September 30, 2023, compared to the same period of last fiscal year. The decrease in selling expenses was mainly due to decreased salaries and advertising fees. The Company recorded $0.04 million and $0.23 million of impairment loss in three months ended September 30, 2023 and 2022 relating to short term investment which mainly due to Future Private Equity Fund Management (Hainan) Co., Ltd. invested $1.85 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, high interest rate, looming recession worldwide. According to the market value, the Company’s balance of the short term investment was $0.95 million as of September 30, 2023 and $0.99 million as of December 31, 2022. The Company recorded $0.17 million of research and development expenses during the three months ended September 30, 2023. 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 $0.77 million during the three months ended September 30, 2023, compared to the same period of last fiscal year. The decrease in research and development expenses was mainly due to decreased salaries. Provision of doubtful debt recorded $0.02 million during the three months ended September 30, 2023 which we did not have for the same period of 2022. Other Income (Expense), Net Other expenses, net, decreased by $1.05 million to negative $0.06 million for the three months ended September 30, 2023 from positive $1.21 million in the same period of the last fiscal year, primarily due to a large change in foreign exchange gain. 38 Income Tax Tax provision decreased by $0.19 million from $0.01 million for the three months ended September 30, 2023, comparing to $0.20 million for the same period of 2022, primarily due to decreased revenue from asset management service. Non-controlling Interests As of September 30, 2023, (i) Nature Worldwide Resources Ltd. holds 40% interest in DCON DigiPay Limited (“DCON Digipay”); (ii) each of Bin Wu and Lixiong Huang holds 25% and 20% interest in FTFT Capital Investments L.L.C., respectively; (iii) Aspenwood Capital Partner Limited holds 5%, Cheung Hiu Tung holds 2.22% and Choi Tsz Leung holds 2.78% of equity interest of NATM, respectively and (iv) Yaohua Dai holds 20% equity interest of Future Fintech Digital Capital. Loss from Continuing Operations Loss from Continuing Operations decreased by $1.18 million from $3.63 million for the three months ended September 30, 2022 to $2.45 million for the same period of 2023 mainly due to the decrease in operating expenses, as discussed above. Comparison of Nine Months Ended September 30, 2023 and 2022 Revenue The following table presents our consolidated revenues for the nine months ended September 30, 2023 and 2022, respectively: Nine months ended September 30, Change 2023 2022 Amount % Asset management service 9,690,714 11,270,874 (1,580,160 ) (14.02 )% Supply Chain Financing/Trading 20,472,036 11,494,617 8,977,419 78.10 % Others 793,931 78,170 715,761 915.65 % Total $ 30,956,681 $ 22,843,661 $ 8,113,020 35.52 % Revenue for the nine months ended September 30, 2023 was $30.96 million, an increase of $8.11 million, or 35.52%, from $22.84 million for the same period of the last fiscal year. The increase in revenue for the nine months ended September 30, 2023 was primarily due to significant increase in revenue from sand and steel supply chain financing and trading business in 2023. Asset management service decreased by $1.58 million from $11.27 million during the nine months ended September 30, 2022 to $9.69 million in the same period of 2023, which mainly due to that clients are cautious on investing stock and other investments during current market condition in 2023, which has reduced our revenue in asset management fees. Others are mainly from non-performing debt recovery consulting and service fees. Others increased by $0.72 million from $0.08 million during the nine months ended September 30, 2022 to $0.79 million in the same period of 2023, which mainly due to its new business of non-performing asset recovery service started during the third quarter of 2023. 39 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, 2023 and 2022, respectively: Nine months ended September 30, 2023 2022 Gross profit Gross margin Gross profit Gross margin Asset management service 3,320,498 34.26 % 4,381,536 38.87 % Supply Chain Financing/Trading 234,550 1.15 % 196,817 1.71 % Others 302,614 38.12 % 78,170 100 % Total $ 3,857,662 12.46 % $ 4,656,523 20.38 % Gross profits for the nine months ended September 30, 2023 was $3.86 million, an decrease from $0.80 million form $4.66 million for the same period of the last fiscal year. Overall gross margin as a percentage of revenue was 12.46% for the nine months ended September 30, 2023, a decrease of 7.92% from 20.38% for the same period of last fiscal year, mainly due to lower profit margin from supply chain financing/trading business for the nine months ended September 30, 2023, comparing to the same period of 2022, which was mainly due to increased supply chain financing/trading cost. 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, 2023 and 2022, respectively: (in thousands) Nine months ended Nine months ended September 30, 2023 September 30, 2022 Amount % of revenue Amount % of revenue General and administrative $ 9,854 31.83 % $ 9,619 42.11 % Research and Development expenses 342 1.10 % 1,994 8.73 % Stock compensation expense - - 1,280 5.60 Selling expenses 365 1.18 % 994 4.35 % Bad debt provision (1,153 ) (3.72 )% 2 0.01 % Impairment Loss 4 0.01 % 926 4.05 % Total operating expenses $ 9,412 30.40 % $ 14,815 64.85 % Total operating expenses for the nine months ended September 30, 2023 was $9.41 million, an decrease of $5.40 million from $14.82 million for the same period of the last fiscal year. General and administrative expenses increased by $0.23 million, or 2.44%, to $9.85 million for the nine months ended September 30, 2023, compared to $9.62 million for the same period of last fiscal year, 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, 2023. 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 and we did not have such expense for three months ended September 30, 2023. Selling expenses decreased by $0.63 million during the nine months ended September 30, 2023, compared to the same period of last fiscal year. The decrease in selling expenses was mainly due to decreased salaries and advertising fees. The Company recorded $3,872 and $0.93 million of impairment loss in nine months ended September 30, 2023 and 2022 relating to short term investment which mainly due to Future Private Equity Fund Management (Hainan) Co., Ltd. invested $1.85 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, high interest rate, looming recession worldwide. According to the market value, the Company’s balance of the short term investment was $0.95 million as of September 30, 2023 and $0.99 million as of December 31, 2022. The Company recorded $0.34 million of research and development expenses during the nine months ended September 30, 2023. 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 $1.65 million during the nine months ended September 30, 2023, compared to the same period of last fiscal year. The decrease in research and development expenses was mainly due to decreased salaries. Write back of provision of doubtful debt recorded $1.15 million during the nine months ended September 30, 2023, it was due to bad debt recovery recognized in previous years and the Company did not have same recovery for the same period in 2022. 40 Other Income (Expense), Net Other expenses, net increased by $2.72 million to negative $0.71 million for the nine months ended September 30, 2023 from positive $2.00 million in the same period of the last fiscal year, primarily due to the payment of a civil penalty for the aggregate amount of $1,650,000 that was approved by the Board during the nine months ended September 30, 2023 for the settlement with the Securities and Exchange Commission. Income Tax Tax provision decreased by $0.44 million for the nine months ended September 30, 2023, from $0.07 million to $0.51 million comparing to the same period of 2022, primarily due to decreased revenue from asset management service. Non-controlling Interests As of September 30, 2023, (i) Nature Worldwide Resources Ltd. holds 40% interest in DCON DigiPay Limited (“DCON Digipay”); (ii)each of Bin Wu and Lixiong Huang holds 25% and 20% interest in FTFT Capital Investments L.L.C., respectively; (iii) Aspenwood Capital Partner Limited holds 5%, Cheung Hiu Tung holds 2.22% and Choi Tsz Leung holds 2.78% of equity interest of NATM, respectively; and(iv)Yaohua Dai holds 20% equity interest of Future Fintech Digital Capital. Loss from Continuing Operations Loss from Continuing Operations decreased by $2.33 million from $8.67 million for the nine months ended September 30, 2022 to $6.34 million for the same period of 2023 mainly due to the decrease in operating expenses, as discussed above. Gain on disposal of discontinued operations Gain on disposal of discontinued operation was $0.11 million for the nine months ended September 30, 2023, which was related to the dissolution and deregistration of QR (HK) Limited on June 16, 2023. Loss per Share Basic and diluted loss per share from continuing operations were $0.42 and $0.42 for the nine months ended September 30, 2023, respectively, as compared to a loss of $0.57 and $0.55 for the same periods of 2022, respectively. Basic and diluted income per share attributable to discontinued operations was $0.01 and $0.01 for the nine months ended September 30, 2023, respectively. Basic and diluted earnings per share attributable to discontinued operations was nil for the nine months ended September 30, 2022, respectively. Liquidity and Capital Resources As of September 30, 2023, we had cash and restricted cash of $33.40 million, as compared to $29.74 million as of December 31, 2022. The increase in cash, cash equivalents and restricted cash was mainly due to decreased accounts receivable and loan receivable for the nine months ended September 30, 2023. 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 $39.14 million as of September 30, 2023, a decrease of $7.34 million from working capital of $46.48 million as of December 31, 2022, mainly due to the decrease in current assets and an increase in current liabilities. Net cash used in operating activities increased by $4.64 million to $6.42 million for the nine months ended September 30, 2023 from $1.78 million for the same period of the last fiscal year. The increase in net cash used in operating activities was primarily due to increase in advances from customers. Net cash provided by investing activities increased $34.08 million to $13.64 million for the nine months ended September 30, 2023 from $(20.44) million for the same period of the last fiscal year. It was due to increase in repayment from loan receivable and decrease in payment for loan receivable. Net cash used in financing activities for the nine months ended September 30, 2023 was $2.91 million, representing an increase of $5.23 million, as compared to cash provided by financing activities of positive $2.11 million during the nine months ended September 30, 2022. The increase in cash used in financing activities was mainly due to proceeds from loan payable to the Company and increase in notes payable. Off-balance sheet arrangements As of September 30, 2023, we did not have any off-balance sheet arrangements. 41 Item 3. Quantitative and Qualitative Disclosures about Market Risk Not applicable.