Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
We are headquartered in Flushing, New York. After
a series of acquisitions and dispositions in 2023 and 2022, our primary business, which is carried out by Shandong Yunchu, Jingshan Sanhe,
Jilin Chuangyuan, Fast Approach Inc and Xianning Bozhuang, is:
● To sell black tea product cultivation, packaging, and sales;
● To sell high-grade synthetic fuel products;
● To sell f ormaldehyde,
urea-formaldehyde glue, methylal, and clean fuel oil;
● Online advertising services and mobile game.
Results of Operations
The following discussion should be read in conjunction
with the company’s audited consolidated financial statement for the years ended December 31, 2023, and 2022 and related notes to
that.
Years Ended
Increase /
Increase /
December 31,
Decrease
Decrease
(In Thousands of USD)
2023
2022
($)
(%)
Net revenues
27,120
44,757
(17,637 )
(39 )
Cost of revenues
25,688
40,405
(14,717 )
(36 )
Gross profit
1,432
4,352
(2,920 )
(67 )
Operating expenses:
Selling and marketing expenses
898
2,167
(1,269 )
(59 )
General and administrative expenses
9,036
7,056
1,980
28
Research & Developing expenses
269
403
(134 )
(33 )
Operating loss
(8,771 )
(5,273 )
(3,498 )
66
Interest expense
(496 )
(624 )
128
(21 )
Other income (expense)
(123 )
1,099
(1,222 )
(111 )
Impairment of goodwill
-
(10,386 )
10,386
(100 )
Share of losses from equity method investments
(569 )
(84 )
(485 )
577
Loss on disposal of equity investments
(10,849 )
-
(10,849 )
N/A
Loss before tax
(20,808 )
(15,268 )
(5,540 )
36
Income tax expense
(35 )
(1,475 )
1,440
(98 )
Loss from continuing operations
(20,843 )
(16,743 )
(4,100 )
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Net loss from discontinuing operations
-
(9,192 )
9,192
(100 )
Net (loss) income
(20,843 )
(25,935 )
5,092
(20 )
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Net Revenues . Our net revenues for the
fiscal year ending on December 31, 2023 amounted to $27.12 million, reflecting a decline of approximately $17.64 million or 39% compared
to the previous year’s figure of $44.76 million (ending on December 31, 2022). In the previous fiscal year, 50% of our total revenue was
generated from the sale of a diverse range of food products to restaurants. However, this segment has been significantly impacted by the
adverse effects of COVID-19, leading to a decline in sales from $23.34 million in 2022 to $14.32 million in 2023. The residual decrease
was attributable to disposal of certain subsidiaries in late 2022.
Cost of Revenues. During the year ended
December 31, 2023, we experienced a decrease in cost of revenue of $14.72 million or 36%, in comparison to the year ended December 31,
2022, from approximately $40.41 million to $25.69 million. This change was mainly due to a decrease in sales of revenue, as discussed
above, and disposal of certain subsidiaries in late 2022.
Gross Profit . Our gross profit
declined by $2.92 million, representing a decrease of 67% to $1.43 million for the fiscal year ended December 31, 2023 compared to
$4.35 million for the fiscal year ended December 31, 2022. This decline can be primarily attributed to the aforementioned factors,
namely a decrease in sales revenue and the divestiture of certain subsidiaries towards the end of 2022. Additionally, another
contributing factor was a slight increase in the average combined cost per unit of our products. The gross profit margin decreased
from 10.77% in 2022 to 5.57% in 2023, representing a decrease of 5.2%. This decline is primarily attributed to the significant
reduction in sales of cold chain food mentioned earlier, as well as a notable increase in associated warehousing costs.
Operating Expenses
Selling and Marketing Expenses. Our selling
and marketing expenses decreased by $1.27 million, or 59%, to $0.90 million for the year ended December 31, 2023 from $2.17 million for
the year ended December 31, 2022. This decrease was mainly due to the aforementioned reasons, attributable to a decrease in sales of revenue
and the disposal of certain subsidiaries in 2022.
General and Administrative Expenses. Our
general and administrative expenses for the year ended December 31, 2023 increased by $1.98 million, or 28%, to $9.04 million compared
to the previous year’s $7.06 million. After adjusting for the impact of $1.10 million from last year’s General and Administrative
Expenses generated by the disposed subsidiary, the increase in fiscal 2023 is approximately $3.03 million. The primary reason for this
increase is attributed to inadequate inventory management, resulting in a loss of inventory of approximately $1.97 million and an expected
credit loss of $2.76 million on trade receivables, partially offset by a decrease of $1.70 million attributed to cost control during 2023.
Net Loss
Our net loss decreased by $5.09 million, or 20%,
to a net loss of $20.84 million for the year ended December 31, 2023 from $25.94 million in net loss for the year ended December 31, 2022.
This decrease was mainly due to the aforementioned reasons, attributable to a decrease in sales of revenue and the disposal of certain
subsidiaries in 2022.
Liquidity and Capital Resources
In assessing our liquidity, we monitor and analyze
our cash-on-hand and operating and capital expenditure commitments. Our liquidity needs meet our working capital requirements, operating
expenses, and capital expenditure obligations. In the reporting period in the fiscal year 2023, our primary sources of financing have
been cash generated from operations and private placements.
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As of December 31, 2023, we had cash and cash equivalents
of $436.38 thousand compared to $93.49 thousand as of December 31, 2022. The debt to assets ratio was 54.40% and 33.16% as of December
31, 2023 and December 31, 2022, respectively. We expect to continue to finance our operations and working capital needs in 2023 from cash
generated from operations and, if needed, private financings. Suppose available liquidity is insufficient to meet our operating and loan
obligations as they come due. In that case, our plans include pursuing alternative financing arrangements or reducing expenditures as
necessary to meet our cash requirements. However, there is no assurance that we will raise additional capital or reduce discretionary
spending to provide liquidity if needed. We cannot be sure of the availability or terms of any alternative financing arrangements.
Going Concern
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern; however, the Company has incurred a net loss of $20,843,796
attributable to common shareholders for the year ended December 31, 2023. As of December 31, 2023, the Company had an accumulated deficit
of $140,724,597, a working capital deficit of $6,675,220, its net cash used in operating activities for the year ended December 31, 2023
was $ 5,282,343.
These factors raise substantial doubt on the Company’s ability
to continue as a going concern. The accompanying audited consolidated financial statements do not include any adjustments that might result
from the outcome of this uncertainty. Management’s plan for the Company’s continued existence is dependent upon management’s
ability to execute the business plan, develop the plan to generate profit; additionally, Management may need to continue to rely on private
placements or certain related parties to provide funding for investment, for working capital and general corporate purposes. If management
is unable to execute its plan, the Company may become insolvent.
The following table provides detailed information
about our net cash flow for all financial statement periods presented in this report.
Cash Flows Data:
For the years ended
December 31
(In thousands of U.S. dollars)
2023
2022
Net cash flows used in operating activities
(5,282 )
(9,012 )
Net cash flows provided by investing activities
2,670
(3,854 )
Net cash flows provided by financing activities
2,888
10,841
Operating Activities
Net cash used in operating activities decreased by $3.73 million to
$5.28 million during the year ended December 31, 2023 from $9.01 million during the year ended December 31, 2022. This decrease was primarily
due to the decrease in net loss excluding non-cash expenses, gains and losses of $1.42 million and changes in net operating assets and
liabilities of $5.15 million.
Investing Activities
Net cash provided by investing activities for
the year ended December 31, 2023 was $2.67 million, representing an increase of $6.52 million from the $3.85 million used in investing
activities for the same period in 2022. This increase is primarily attributed to the disposal of a certain subsidiary amounting to $2.77
million and a decrease in long-term investments totaling $4.10 million compared to the previous year.
Financing Activities
Net cash provided by financing activities for the year ended December
31, 2023, amounted to $2.88 million, indicating a decrease of $7.95 million compared to the corresponding period in 2022. This decline
primarily stems from a reduction of $11.10 million in proceeds generated from the issuance of common stock as opposed to 2022, partially
offset by an increase of $2.97 million attributed to changes involving related parties during 2023.
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Critical Accounting Policies
The preparation of financial statements in conformity
with the United States generally accepted accounting principles requires our management to make assumptions, estimates, and judgments
that affect the amounts reported in the financial statements, including the notes to that, and related disclosures of commitments contingencies,
if any.
We consider our critical accounting policies to
require the more significant judgments and estimates in preparing financial statements, including those outlined in Note 2 to the financial
statements included herein.
The Company has evaluated the timing and the impact
of the guidance above on the financial statements.
As of December 31, 2023, there were no other recently
issued accounting standards not yet adopted that would or could have a material effect on the Company’s consolidated financial statements.
Off-Balance Sheet Arrangements
We do not have any off-balance arrangements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
The full text of our audited consolidated financial
statements as of December 31, 2023, begins on page F-1 of this annual report on Form 10-K/A.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.