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, 2023 (the “2023 Form 10-K”) and in this Form 10-Q. The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report and in our 2023 Form 10-K. Although the Company believes the expectations reflected in the forward-looking statements are based on reasonable assumptions, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this report, which attempts to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations, and prospects. Overview of Our Business Future FinTech is a holding company incorporated under the laws of the State of Florida. The Company historically engaged in the production and sale of fruit juice concentrates (including fruit purees and fruit juices), fruit beverages (including fruit juice beverages and fruit cider beverages) in the PRC. Due to drastically increased production costs and tightened environmental laws in China, the Company had transformed its business from fruit juice manufacturing and distribution to financial technology related service businesses. The main business of the Company includes supply chain financing services and trading in China, asset management business in Hong Kong and cross-border money transfer service in UK. The Company also expanded into brokerage and investment banking business in Hong Kong and cryptocurrency mining farm in the U.S. The Company had contractual arrangements with a VIE E-Commerce Tianjin in China, which has generated minimal revenue and business since 2021 due to the negative impact caused by COVID-19. The Company started the process to close it down in November 2023 and completed deregistration and dissolution of the VIE with local authority on March 7, 2024. 29 There are legal and operational risks associated with being based in and having a substantial majority of operations in China and Hong Kong. These risks could result in a material change in our operations and/or the value of our common stock or could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our shares to significantly decline or be worthless. In the past few years, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. On July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued an announcement to crack down on illegal activities in the securities market and promote the high-quality development of the capital market, which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the PRC securities laws. On February 15, 2022, Cybersecurity Review Measures published by Cyberspace Administration of China or the CAC, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, Ministry of State Security, Ministry of Finance, Ministry of Commerce, People’s Bank of China, State Administration of Radio and Television, China Securities Regulatory Commission (“CSRC”), State Secrecy Administration and State Cryptography Administration became effective, which provides that, Critical Information Infrastructure Operators (“CIIOs”) that intend to purchase internet products and services and Online Platform Operators engaging in data processing activities that affect or may affect national security shall be subject to the cybersecurity review by the Cybersecurity Review Office. On November 14, 2021, CAC published the Administration Measures for Cyber Data Security (Draft for Public Comments), or the “Cyber Data Security Measure (Draft)”, which requires cyberspace operators with personal information of more than 1 million users who want to list abroad to file a cybersecurity review with the Office of Cybersecurity Review. On July 7, 2022, CAC promulgated the Measures for the Security Assessment of Data Cross-border Transfer, effective on September 1, 2022, which requires the data processors to apply for data cross-border security assessment coordinated by the CAC under the following circumstances: (i) any data processor transfers important data to overseas; (ii) any critical information infrastructure operator or data processor who processes personal information of over 1 million people provides personal information to overseas; (iii) any data processor who provides personal information to overseas and has already provided personal information of more than 100,000 people or sensitive personal information of more than 10,000 people to overseas since January 1st of the previous year; and (iv) other circumstances under which the data cross-border transfer security assessment is required as prescribed by the CAC. On February 17, 2023, the CSRC released New Overseas Listing Rules with five interpretive guidelines, which took effect on March 31, 2023. The New Overseas Listing Rules require Chinese domestic enterprises to complete filings with CSRC and report related information under certain circumstances, such as: a) an issuer making an application for initial public offering and listing in an overseas market; b) an issuer making an overseas securities offering after having been listed on an overseas market; c) a domestic company seeking an overseas direct or indirect listing of its assets through single or multiple acquisition(s), share swap, transfer of shares or other means. According to the Notice on Arrangements for Overseas Securities Offering and Listing by Domestic Enterprises, published by the CSRC on February 17, 2023, a company that (i) has already completed overseas listing or (ii) has already obtained the approval for the offering or listing from overseas securities regulators or exchanges but has not completed such offering or listing before effective date of the new rules and also completes the offering or listing before September 30, 2023 are considered as an existing listed company and is not required to make any filing until it conducts a new offering in the future. Furthermore, upon the occurrence of any of the material events specified below after an issuer has completed its offering and listed its securities on an overseas stock exchange, the issuer shall submit a report thereof to the CSRC within 3 business days after the occurrence and public disclosure of the event: (i) change of control; (ii) investigations or sanctions imposed by overseas securities regulatory agencies or other competent authorities; (iii) change of listing status or transfer of listing segment; or (iv) voluntary or mandatory delisting. The New Overseas Listing Rules stipulate the legal consequences to the companies for breaches, including failure to fulfill filing obligations or filing documents having false statement or misleading information or material omissions, which may result in a fine ranging from RMB1 million to RMB10 million, and in cases of severe violations, the relevant responsible persons may also be barred from entering the securities market. On February 24, 2023, the CSRC, the Ministry of Finance, the National Administration of State Secretes Protection and the National Archives Administration released the Provisions on Strengthening the Confidentiality and Archives Administration Related to the Overseas Securities Offering and Listing by Domestic Companies, or the Confidentiality and Archives Administration Provisions, which took effect on March 31, 2023. PRC domestic enterprises seeking to offer securities and list in overseas markets, either directly or indirectly, shall establish and improve the system of confidentiality and archives work, and shall complete approval and filing procedures with competent authorities, if such PRC domestic enterprises or their overseas listing entities provide or publicly disclose documents or materials involving state secrets and work secrets of state organs to relevant securities companies, securities service institutions, overseas regulatory agencies and other entities and individuals. It further stipulates that (i) providing or publicly disclosing documents and materials which may adversely affect national security or public interests, and accounting records or photocopies thereof to relevant securities companies, securities service institutions, overseas regulatory agencies and other entities and individuals shall be subject to corresponding procedures in accordance with relevant laws and regulations; and (ii) any working papers formed in the territory of the PRC by securities companies and securities service agencies that provide domestic enterprises with securities services relating to overseas securities issuance and listing shall be stored in the territory of the PRC, the outbound transfer of which shall be subject to corresponding procedures in accordance with relevant laws and regulations. As of the date of this report, these new laws and guidelines that became effective have not impacted the Company’s ability to conduct its business, accept foreign investment or list on a U.S. or other foreign stock exchange except for the filing requirement under New Overseas Listing Rules. The Company is still processing the filings with CSRC for its offerings since the effective of New Overseas Listing Rules and has not complied the filing requirements yet which would subject the Company to fines and other penalties for violation of New Overseas Listing Rules. In addition, new rules and regulations could be adopted and there are uncertainties in the interpretation and enforcement of existing laws and guidelines, which could materially and adversely impact our business and financial outlook and may impact our ability to accept foreign investments or continue to list on a U.S. or other foreign stock exchange. Any change in foreign investment regulations, and other policies in China or related enforcement actions by China government could result in a material change in our operations and the value of our securities and could significantly limit or completely hinder our ability to offer our securities to investors or cause the value of our securities to significantly decline or be worthless. 30 In March 2022, FTFT UK Limited received approval to operate as an Electronic Money Directive (“EMD”) Agent and has been registered as such with the Financial Conduct Authority (FCA), a UK regulator. This status grants FTFT UK Limited the ability to distribute or redeem e-money and provide certain financial services on behalf of an e-money institution (registration number 903050). On April 14, 2022, the Company established Future Trading (Chengdu) Co., Ltd. Its business is bulk commodities supply chain financing services and trading. On April 18, 2022, the Company and Future Fintech (Hong Kong) Limited, a wholly owned subsidiary of the Company jointly acquired 100% equity interest of KAZAN S.A., a company incorporated in Republic of Paraguay for $288. Kazan S.A. has no operation before the acquisition. The Company tried to develop bitcoin and other cryptocurrency mining and related service business in Paraguay. The Company has changed its name from KAZAN S.A to FTFT Paraguay S.A. on July 28, 2022 and it was dissolved in December 2023 as the Company was not able to develop the business in Paraguay as planned. On September 29, 2022, FTFT UK Limited completed its acquisition of 100% of the issued and outstanding shares of Khyber Money Exchange Ltd., a company incorporated in England and Wales, from Rahim Shah, a resident of United Kingdom for a total of Euros €685,000 (“Purchase Price”), pursuant to a Share Purchase Agreement (the “Agreement”) dated September 1, 2021. Khyber Money Exchange Ltd. is a money transfer company with a platform for transferring money through one of its agent locations or via its online portal, mobile platform or over the phone. Khyber Money Exchange Ltd. is regulated by the UK Financial Conduct Authority (FCA) and the parties received approval by the FCA before the formal closing of the transaction. On October 11, 2022, the Company changed the name of Khyber Money Exchange Ltd. to FTFT Finance UK Limited. On February 27, 2023, Future FinTech (Hong Kong) Limited (“Buyer”), a company incorporated in Hong Kong and a wholly owned subsidiary of Future FinTech Group Inc. (the “Company”) entered into a Share Transfer Agreement (the “Agreement”) with Alpha Financial Limited, a company incorporated in Hong Kong (“Seller”) and sole owner and shareholder of Alpha International Securities (Hong Kong) Limited, a company incorporated in Hong Kong (“Alpha HK”) and Alpha Information Service (Shenzhen) Co., Ltd., a company incorporated in China (“Alpha SZ”). Alpha HK holds Type 1 ‘Securities Trading’, Type 2 ‘Futures Contract Trading’ and Type 4 ‘Securities Consulting’ financial licenses issued by the Hong Kong Securities and Futures Commission. Alpha SZ provides technical support services to Alpha HK. The share transfer transaction was approved by the Securities and Futures Commission of Hong Kong (“SFC”) in August 2023 and the acquisition was closed on November 7, 2023. The names of the two entities were also changed to ‘FTFT International Securities and Futures Limited’ and ‘FTFT Information Services (Shenzhen) Co. Ltd.’, respectively. On January 26, 2023, the Company filed with the Florida Secretary of State’s office Articles of Amendment (the “Amendment”) to amend its Second Amended and Restated Articles of Incorporation, as amended (“Articles of Incorporation”). As a result of the Amendment, the Company has authorized and approved a 1-for-5 reverse stock split of the Company’s authorized shares of common stock from 300,000,000 shares to 60,000,000 shares, accompanied by a corresponding decrease in the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”). The common stock continues to be $0.001 par value. The Company rounded up to the next full share of the Company’s shares of common stock any fractional shares that result from the Reverse Stock Split and no fractional shares were issued in connection with the Reverse Stock Split and no cash or other consideration was paid in connection with any fractional shares that would otherwise have resulted from the Reverse Stock Split. No changes have been made to the number of preferred shares of the Company which remain as 10,000,000 preferred shares as authorized but not issued. The amendment to the Articles of Incorporation of the Company took effect on February 1, 2023. The Reverse Stock Split and Amendment were authorized and approved by the Board of Directors of the Company without shareholders’ approval, pursuant to 607.10025 of the Florida Business Corporation Act of the State of Florida. The Company operated a blockchain based online shopping platform, Chain Cloud Mall (“CCM”) Chain Cloud Mall through its VIE and its business was materially and negatively affected by outbreak of COVID-19 since early 2020 because the Company was unable to implement its promotion strategy to enroll new members through training of such members and distributors via meetings and conferences which was not possible during the outbreak of COVID-19. CCM has generated minimal revenue and business since 2021, despite the Company transformed the member-based business model of CCM to a sale agent based “Enterprise Communication as A Service” or eCAAS platform during the second quarter of 2021. The Company started a process to close it down in November 2023 and completed deregistration and dissolution of the VIE with local authority on March 7, 2024. 31 The Company currently has eight directly controlled subsidiaries: DigiPay FinTech Limited (“DigiPay”), a company incorporated under the laws of the British Virgin Islands, Future FinTech (Hong Kong) Limited, a company incorporated under the laws of Hong Kong, GlobalKey Shared Mall Limited, a company incorporated under the laws of Cayman Islands (“GlobalKey Shared Mall”), FTFT UK Limited, a company incorporated under the laws of United Kingdom, Future Fintech Digital Capital Management, LLC, a company incorporated under the laws of Connecticut, Future Fintech Digital Number One GP, LLC, a company incorporated under the laws of Connecticut, Future FinTech Labs Inc., a company incorporated under the laws of New York, and FTFT SuperComputing Inc. a company incorporated under the laws of Ohio. Supply Chain Financing Service and Trading in China Since the second quarter of 2021, we started coal supply chain financing service and trading business. Since the third quarter of 2021, we started aluminum ingots supply chain financing service and trading business. Since the first quarter of 2023, we started sand and steel supply chain financing service and trading business. Our supply chain finance business mainly serves the receivables and payables of industrial customers, obtains the creditor’s rights or commodity goods rights of large state-owned enterprises through trade execution, provides customers with working capital, accelerates capital turnover, and then expands the business scale and improves the industrial value. Through our supply chain service ability and customer resources, we can tap into low-risk assets, flexibly carry out financial services around the actual financial needs of certain industries and reduce the overall risk of the business by using the control of business flow, goods logistics and capital flow in the process of commodity circulation. We focus on bulk commodity goods such as coal, aluminum ingots, sand and steel and take large state-owned or listed companies as the core service targets; We use our own funds as the operation basis, actively uses a variety of channels and products for financing, such as banks, commercial factoring companies, accounts receivable, asset-backed securities, and other innovative financing methods to obtain sufficient funds. We sign purchase and sale agreements with suppliers and buyers. The suppliers are responsible for the supply and transportation of goods to the end users’ designated freight yard or transfer the title to us in certain warehouses. We also provide trading service as we don’t take control over the ownership of the goods but receive agent service fee for the transaction. For the sale of goods where we obtain control of the goods before transferring it to the customer, we recognize revenue based on the gross revenue amount billed to customers as sales of goods. We consider multiple factors when determining whether we obtain control of the goods, including evaluating if we can establish the price of the goods, retain inventory risk for tangible goods or have the responsibility for ensuring acceptability of the goods. We recognize net revenue as agent services for the sales of coals, aluminum ingots, sand and steel when no control obtained throughout the transactions. We select the customers and suppliers that have good credit and reputation. Asset Management Service, Brokerage and Investment Banking Services in Hong Kong . NTAM engages assets management and advisory services. NTAM’s main revenue is generated from providing professional advice to customers and management fees for managing the investment of the clients. NTAM is licensed under the Securities and Futures Commission of Hong Kong (SFC) for carrying out regulated activities in “Advising on Securities” and “Asset Management”. NTAM offers diversified asset management portfolio for professional investors. Assets of NTAM’s clients are held in banks, where clients gave the banks their authorization allowing NTAM to place trading instructions on behalf of the clients in order to manage the clients’ assets. 32 NTAM mainly engages in following asset management services for its clients: (1) Equity Investment NTAM manages clients’ investment portfolio in stocks of the companies listed on the international markets with strong liquidity. At the same time, it selects companies that have unique or differentiated businesses, realizing above average profit growth. (2) Debt investment When NTAM manages clients’ investment portfolio in bonds that are denominated in major international currencies such as US dollar, euro and sterling, the issuer of debts shall have good credit rating and asset liability ratio. Through active management, NTAM focuses on bonds with higher yield to maturity among bonds with the same maturity and credit rating. (3) Precious metals and currencies investment NTAM also manages clients’ investment portfolio in major international currencies and precious metals, including US dollar, euro, British pound, Japanese yen, Australian dollar and offshore Chinese yuan. Precious metals include gold, platinum and silver. With research on the fundamentals of market supply and demand to predict the trend of commodity prices, NTAM endeavors to improve the rate of return for clients through dual currency investment, options and structured products. (4) Derivative Investment NTAM also manages clients’ investment portfolio in financial derivatives in different asset classes, such as options and structured products. (5) External Asset Management Services (EAM) This business takes customer demand as the service purpose, cooperates with several private banks which provide asset custody services, and innovatively introduces the function of investment bank to provide exclusive private solutions for our clients. NTAM’s main revenue is generated from providing professional advice to clients and management fees for managing the investment of the clients. As of September 30, 2024, NTAM has approximately US$367 million assets under its management. FTFT International Securities and Futures Limited, a company we acquired in November 2023, provides brokerage and investment banking services in Hong Kong. FTFT International Securities and Futures Limited holds Type 1 “Securities Trading”, Type 2 “Futures Contract Trading” and Type 4 “Securities Consulting” financial licenses issued by the Hong Kong Securities and Futures Commission. Money Transfer Business FTFT Finance UK Limited (“FTFT Finance”) formerly known as Khyber Money Exchange Ltd. was acquired by FTFT UK Limited in September 2022. It is regulated by UK Financial Conduct Authority (“FCA”) for its cross-border money transfer systems and service. FTFT Finance was incorporated in 2009 and is a pioneer in the UK for money remittance services. FTFT Finance provides money transfer services through its platform to transfer money around the world via one of its agent locations or its online portal, mobile platform, or over the phone. FTFT Finance is headquartered in the UK and it has a trade name of FTFT Pay. FTFT Finance’s plan is to develop products and services across different regions of the world. FTFT Finance is a financial platform that enables its customers to send their hard-earned money to their country of origin, or any other country of their liking, with ease and at a reasonable cost, transparent exchange rate and without any hidden charges. We believe our customers and their diverse backgrounds that have helped FTFT Finance to become a credible and trustworthy money remittance business. Remittance service is a highly saturated market in the United Kingdom and there are many companies that offer remittance services. FTFT Finance has an edge over companies like wise in many different ways, for example, FTFT Finance offers competitive rates for its services and does not charge customer fees for remittance to Pakistan as it receives its rebate from local banks. This approach provides gives us an advantage over our competitors. 33 Impact of COVID-19 on our business In December 2019, a novel strain of coronavirus was reported and has spread throughout China and other parts of the world. On March 11, 2020, the World Health Organization characterized the outbreak as a “pandemic”. In early 2020, Chinese government took emergency measures to combat the spread of the virus, including quarantines, travel restrictions, and the temporary closure of office buildings and facilities in China. In response to the evolving dynamics related to the COVID-19 outbreak, the Company was following the guidelines of local authorities as it prioritizes the health and safety of its employees, contractors, suppliers and business partners. Our offices in China were closed and the employees worked from home at the end of January 2020 until late March 2020. The quarantines, travel restrictions, and the temporary closure of office buildings materially negatively impacted our business. Any new variant and outbreak of COVID-19 might disrupt our supply chain, logistics providers, customers or our marketing activities , which could materially adversely impact our business and results of operations. There were outbreaks in various cities and provinces in China due to Omicron variant, such as Xi’an city, Hong Kong, Shanghai, Beijing and other cities in 2022, which have resulted quarantines, travel restrictions, and temporary closure of office buildings and facilities in these cities. In December 2022, the Chinese government eased its strict zero COVID-19 policy which resulted in a surge of new COVID-19 cases during December 2022 and January 2023, which has disrupted our business operations in China. The Company’s promotion strategy of CCM Shopping Mall previously mainly relied on the training of members and distributors through meetings and conferences. Chinese government put a restriction on large gatherings in 2020 and 2021, which made the promotion strategy for our online e-commerce platforms difficult to implement and the Company experienced difficulties to subscribe new members for its online e-commerce platforms. Since 2021, CCM generated minimal revenue and business for the Company. The Company started a process to close it down in November 2023 and completed deregistration and dissolution of the VIE with local authority on March 7, 2024. While the potential economic impact brought by new variants of COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could negatively affect our liquidity. Further, as we do not have access to a revolving credit facility, there can be no assurance that we would be able to secure commercial debt financing in the future in the event that we require additional capital. In the event that we do need to raise capital in the future and there is any outbreak due to new variants, outbreak-related instability in the securities markets could adversely affect our ability to raise additional capital. Results of Operations Comparison of Three Months ended September 30, 2024 and 2023: Revenue The following table presents our consolidated revenues for the three months ended September 30, 2024 and 2023, respectively: Three months ended September 30, Change 2024 2023 Amount % Asset management service 3,710,415 3,272,585 437,830 13.38 % Supply Chain Financing/Trading 428,875 19,991,243 (19,562,368 ) (97.85 )% Others 1,036,164 473,675 562,489 118.75 % Total $ 5,175,454 $ 23,737,503 $ (18,562,049 ) (78.20 )% Revenue for the three months ended September 30, 2024 decreased to approximately $5.18 million from approximately $23.74 million for the same period of the last year. The decrease in revenue for the three months ended September 30, 2024 was primarily due to decrease revenue from supply chain financing/trading, as the real estate, infrastructure and overall economy in China have slowed down in 2024. The demand for sand and steel has dropped during three months ended September 30, 2024 comparing to the same period of 2023, and coal price has decreased in China and the market demand has also decreased during the third quarter 2024 as comparing to the same period of 2023. Asset management service revenues increased $0.44 million from $3.27 million for the three months ended September 30, 2023 to $3.71 million for the same period of 2024, as the Company hired more seasoned account managers to boost the services and the revenues. Other revenues increased from $0.47 million for the three months ended September 30, 2023 to $1.04 million for the same period of 2024, mainly due to the increased debt recovery consulting service fee as well as U.S. dollar bond service income of approximately $0.50 million, as we did not have such income in the third quarter 2023. 34 Gross Profit and Margin The following table presents the consolidated gross profit of each of our main products and services and the consolidated gross profit margin, which is gross profit as a percentage of the related revenue, for the three months ended September 30, 2024 and 2023, respectively: Three months ended September 30, 2024 2023 Gross profit Gross margin Gross profit Gross margin Asset Management Service 960,290 25.88 % 1,139,039 34.81 % Supply Chain Financing/Trading 36,776 8.57 % 59,050 0.30 % Others 516,980 49.89 % 213,489 45.07 % Total $ 1,514,046 29.25 % $ 1,411,578 5.95 % Overall gross profit increased to $1.51 million for three months ended September 30, 2024 from $1.41 million for the same period of 2023. The increase is mainly due to the increase of gross profit from others business which is in line with the increase of revenues for such business segment during the third quarter of 2024. Overall gross margin as a percentage of revenue was 29.25% for the three months ended September 30, 2024, an increase of 22.42% from 5.95% for the same period of last fiscal year, mainly due to higher profit margin from supply chain financing/trading business and other businesses for the three months ended September 30, 2024, comparing to the same period of 2023, which was mainly due to higher supply chain financing/trading cost in 2023, and the increased debt recovery consulting service fee as well as U.S. dollar bond service income of approximately $0.50 million in third quarter of 2024 as we did not have such income in the third quarter 2023. Operating Expenses The following table presents our consolidated operating expenses and operating expenses as a percentage of revenue for the three months ended September 30, 2024 and 2023, respectively: (in thousands) Third quarter of 2024 Third quarter of 2023 Amount % of revenue Amount % of revenue General and administrative $ 3,320 64.15 % $ 3,792 15.97 % Research and Development expenses 1 0.02 % 17 0.07 % Selling expenses 121 2.34 % 109 0.46 % Impairment Loss - - 4 0.02 % Bad debt provision 3,383 65.37 % 18 0.08 % Total operating expenses $ 6,825 131.88 % $ 3,940 16.60 % General and administrative expenses decreased by $0.47 million, or 12.45%, to $3.32 million for the three months ended September 30, 2024, from $3.79 million for the same period of last fiscal year. The decrease in general and administrative expenses was mainly due to decreased professional service fees and rental fee. Selling expenses increased by $0.01 million during the three months ended September 30, 2024, compared to the same period of last fiscal year. Bad debt provision increased by $3.37 million during the three months ended September 30, 2024, compared to the same period of last fiscal year. The increase was due to bad debt recovery recognized in previous years and a different bad debt provision accounting treatment method used in 2024. The Company recorded $655 of research and development expenses. Research and development expenses include salaries, contracted services, as well as the related expenses of our research and product development team, and expenditures relating to our efforts to develop, design new products and services, and enhance our existing products and services to our clients. Research and development expenses decreased by $0.02 million during the three months ended September 30, 2024, compared to the same period of last fiscal year. The decrease in research and development expenses was mainly due to decreased salaries. Other Income (Expense), Net Other expenses, net increased by $0.23 million to $0.38 million for the three months ended September 30, 2024 from $0.15 million in the same period of the last fiscal year, primarily due to change of foreign currency exchange rate and impact of exchange gains and losses. 35 Income Tax Tax provision decreased by $10,735 for the three months ended September 30, 2024, primarily due to decreased revenue. Non-controlling Interests Nature Worldwide Resources Ltd. holds 40% interest in DCON DigiPay Limited (“DCON Digipay”). Each of Bin Wu and Lixiong Huang holds 25% and 20% interest in FTFT Capital Investments L.L.C., respectively. Aspenwood Capital Partner Limited holds 9.52%, Lau kwai Chun holds 9.05%, Cheung Hiu Tung holds 1.9% and Choi Tsz Leung holds 2.38% of equity interest of NATM. Yaohua Dai holds 20% equity interest of Future Fintech Digital Capital. Net loss from continue operation Net loss from continue operation increased by $2.54 million from $2.39 million for the three months ended September 30, 2023 to $4.93 million for the same period of 2024 mainly due to the increase in operating expenses, as discussed above. Comparison of Nine Months ended September 30, 2024 and 2023: Revenue The following table presents our consolidated revenues for the nine months ended September 30, 2024 and 2023, respectively: Nine months ended September 30, Change 2024 2023 Amount % Asset management service 11,875,338 9,690,714 2,184,624 22.54 % Supply Chain Financing/Trading 935,313 20,472,036 (19,536,723 ) (95.43 )% Others 1,690,659 660,454 1,030,205 155.98 % Total $ 14,501,310 $ 30,823,204 $ (16,321,894 ) (52.95 )% Revenue for the nine months ended September 30, 2024 decreased to approximately $14.5 million from approximately $30.82 million for the same period of the last year. The decrease in revenue for the nine months ended September 30, 2024 was primarily due to decrease revenue from supply chain financing/trading, as the real estate, infrastructure and overall economy in China have slowed down in 2024. The demand for sand and steel has dropped during nine months ended September 30, 2024 comparing to the same period of 2023, and coal price has decreased in China and the market demand has also decreased during three quarters in 2024 as comparing to the same period of 2023. Asset management service increased $2.18 million from $9.69 million for the nine months ended September 30, 2023 to $11.88 million for the same period of 2024. It was due to the Company hired more seasoned account managers to boost the services and the revenues. Other revenues increased from $0.66 million for the nine months ended September 30, 2023 to $1.69 million for the same period of 2024, mainly due to the increased debt recovery consulting service fee as well as U.S. dollar bond service income of approximately $0.60 million and cryptocurrency mining service income of $0.65 million, as we did not have such income in 2023. 36 Gross Profit and Margin The following table presents the consolidated gross profit of each of our main products and services and the consolidated gross profit margin, which is gross profit as a percentage of the related revenues, for the nine months ended September 30, 2024 and 2023, respectively: Nine months ended September 30, 2024 2023 Gross profit Gross margin Gross profit Gross margin Asset management service 3,935,458 33.14 % 3,320,498 34.26 % Supply Chain Financing/Trading 142,878 15.28 % 234,550 1.15 % Others 981,105 58.03 % 300,621 45.52 % Total $ 5,059,441 34.89 % $ 3,855,669 12.51 % Overall gross profit increased to $5.06 million for nine months ended September 30, 2024 from $3.86 million for the same period of 2023. The increase is mainly due to others including debt recovery consulting service fee as well as U.S. dollar bond service income of approximately $0.60 million and cryptocurrency mining service income of $0.65 million, as we did not have such income in 2023. Overall gross margin as a percentage of revenue was 34.89% for the nine months ended September 30, 2024, an increase of 22.38% from 12.51% for the same period of last fiscal year, mainly due to higher profit margin from supply chain financing/trading business for the nine months ended September 30, 2024, comparing to the same period of 2023, which was mainly due to higher supply chain financing/trading cost in 2023. Operating Expenses The following table presents our consolidated operating expenses and operating expenses as a percentage of revenue for the nine months ended September 30, 2024 and 2023, respectively: (in thousands) Nine months ended September 30, 2024 Nine months ended September 30, 2023 Amount % of revenue Amount % of revenue General and administrative $ 10,128 69.84 % $ 9,589 31.11 % Research and Development expenses 3 0.02 % 339 1.10 % Selling expenses 539 3.72 % 360 1.17 % Impairment Loss - - 4 0.01 Bad debt provision 3,942 27.18 % (1,153 ) (3.74 )% Total operating expenses $ 14,612 100.77 % $ 9,139 29.65 % General and administrative expenses increased by $0.54 million, or 5.62%, to $10.13 million for the nine months ended September 30, 2024 from $9.59 million for the same period of last fiscal year. The increase in general and administrative expenses was mainly due to increased professional service fees for lawyers for litigation with FT Global and internal control training fees. Selling expenses increased by $0.18 million during the nine months ended September 30, 2024, compared to the same period of last fiscal year. The increase in selling expenses was mainly due to increased employees’ salaries. Bad debt provision increased by $5.09 million during the nine months ended September 30, 2024, compared to the same period of last fiscal year. The increase was due to bad debt recovery recognized in previous years and a different bad debt provision accounting treatment method used in 2024. The Company recorded $3,029 of research and development expenses during nine months ended September 30, 2024. Research and development expenses include salaries, contracted services, as well as the related expenses of our research and product development team, and expenditures relating to our efforts to develop, design new products and services, and enhance our existing products and services to our clients. Research and development expenses decreased by $0.34 million during the nine months ended September 30, 2024, compared to the same period of last fiscal year. The decrease in research and development expenses was mainly due to decreased salaries. Other Income (Expense), Net Other expenses, net increased by $0.43 million to $1.15 million for the nine months ended September 30, 2024 from $0.71 million in the same period of the last fiscal year, primarily due to primarily due to civil penalty payments for the settlement with the Securities and Exchange Commission, and change of foreign currency exchange rate and impact of exchange gains and losses. 37 Income Tax Tax provision decreased by $0.07 million for the nine months ended September 30, 2024, primarily due to decreased revenue. Non-controlling Interests Nature Worldwide Resources Ltd. holds 40% interest in DCON DigiPay Limited (“DCON Digipay”). Each of Bin Wu and Lixiong Huang holds 25% and 20% interest in FTFT Capital Investments L.L.C., respectively. Aspenwood Capital Partner Limited holds 9.52%, Lau kwai Chun holds 9.05%, Cheung Hiu Tung holds 1.9% and Choi Tsz Leung holds 2.38% of equity interest of NATM. Yaohua Dai holds 20% equity interest of Future Fintech Digital Capital. Net loss from continue operation Net loss from continue operation increased by $4.63 million from $6.07 million for the nine months ended September 30, 2023 to $10.70 million for the same period of 2024 mainly due to the increase in operating expenses, as discussed above. Gain on disposal of discontinued operations Gain on disposal of discontinued operation was $0.64 million for the nine months ended September 30, 2024, which was related to the dissolution and deregistration of Chain Cloud Mall Network and Technology (Tianjin) Co., Limited and Tianjin Future Private Equity Fund Management Partnership (Ltd Partnership). Loss per Share Basic and diluted loss per share from continuing operations were $0.53 and $0.53 for the nine months ended September 30, 2024, respectively, as compared to a loss of $0.40 and $0.40 for the same periods of 2023, respectively. Basic and diluted income per share attributable to discontinued operations was $0.03 and $0.03 for the nine months ended September 30, 2024, respectively. Basic and diluted loss per share attributable to discontinued operations was $0.01 and $0.01 for the nine months ended September 30, 2023, respectively. Liquidity and Capital Resources As of September 30, 2024, we had cash and restricted cash of $6.52 million, as compared to $19.02 million as of December 31, 2023. The decrease in cash, cash equivalents and restricted cash was mainly due to increased other current asset from the nine months ended September 30, 2024. Our working capital has historically been generated from our operating cash flows, advances from our customers and loans from bank facilities. Our working capital was $28.29 million as of September 30, 2024, a decrease of $10.85 million from working capital of $39.14 million as of September 30, 2023, mainly due to the decrease in current assets and an increase in current liabilities. Net cash used in operating activities increased by $6.10 million to $13.52 million for the nine months ended September 30, 2024 from $7.43 million for the same period of the last fiscal year. The increase in net cash used by operating activities was primarily due to increase in advances to suppliers and other current assets. Net cash used in investing activities increased $14.94 million to $1.18 million for the nine months ended September 30, 2024 from positive $13.76 million for the same period of the last fiscal year. It was due to decrease in repayment for loan receivable. Net cash provided in financing activities for the nine months ended September 30, 2024 was $1.32 million representing an increase of $4.23 million, as compared to cash used in financing activities of $2.91 million during the nine months ended September 30, 2023. The increase in cash provided by financing activities was mainly due to proceeds from the issuance of common stock from a private placement, net of issuance costs. Off-balance sheet arrangements As of September 30, 2024, we did not have any off-balance sheet arrangements. 38 Item 3. Quantitative and Qualitative Disclosures about Market Risk Not applicable.