The following discussion and analysis of the consolidated financial condition
and results of operations should be read in conjunction with the consolidated
financial statements and related notes appearing elsewhere in this report. This
discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results could differ materially from
the results described in or implied by these forward-looking statements as a
result of various factors, including those discussed below and elsewhere in this
Annual Report on Form 10-K, particularly under the heading "Risk Factors."
Overview
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 People's Republic
of China ("PRC" or "China"). Due to drastically increased production costs and
tightened environmental laws in China, the Company had transformed its business
from fruit juice manufacturing and distribution to a real-name blockchain based
e-commerce platform, supply chain financing services and trading business and
financial technology business. The main business of the Company includes an
online shopping platform, Chain Cloud Mall ("CCM"), which is based on blockchain
technology; supply chain financing services and trading, financial technology
service business and the application and development of blockchain-based
technology in financial technology services. The Company has also expanded into
financial services and cryptocurrency market data and information service
businesses.
On August 6, 2021, the Company completed acquisition of 90% of the issued and
outstanding shares of Nice Talent Asset Management Limited ("NTAM"), a Hong
Kong-based asset management company, from Joy Rich Enterprises Limited ("Joy
Rich"). NTAM is licensed under the Securities and Futures Commission of Hong
Kong ("SFC") to carry out regulated activities in Type 4: Advising on Securities
and Type 9: Asset Management.
On September 1, 2021, FTFT UK Limited, a company organized under the laws of
United Kingdom and a wholly owned subsidiary of the Company ("FTFT UK") entered
into a Share Purchase Agreement with Rahim Shah, a resident of United Kingdom
("Seller") to acquire 100% of the issued and outstanding shares (the "Sale
Shares") of Khyber Money Exchange Ltd., which 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 are
waiting for the approval by the FCA before formal closing of the transaction.
In December 2021, FTFT Capital Investments, LLC officially launched FTFTX, a
cryptocurrency market data platform that provides investors with real-time
cryptocurrency market data and trading information from a large number of
cryptocurrency exchanges. The market data is available for Bitcoin, ETH, EOS,
Litecoin, TRON and other cryptocurrencies at https://www.ftftx.com and via the
FTFTX App on iOS and Android devices. The FTFTX app is free to download on
Google Play and the Apple Store.
In March 2022, FTFT UK received has received approval to operate as an
Electronic Money Directive ("EMD") Agent and has been registered as such with
the Financial Conduct Authority (FCA), a UK regulator. This status grants FTFT
UK the ability to distribute or redeem e-money and provide certain financial
services on behalf of an e-money institution (registration number 903050).
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 and
the VIE E-Commerce Tianjin in China and this structure involves unique risks.
Our shares of common stock are shares of our Florida holding company, and we do
not have any equity ownership of the VIE, instead we control and is the primary
beneficiary of the VIE for accounting purposes through certain contractual
arrangements, which are used to provide investors with exposure foreign
investment in Chinese-based companies where Chinese law prohibits or restricts
direct foreign investment in value added telecom/e-commerce business. Chinese
regulatory authorities could disallow the VIE structure, which would likely
result in a material change in our operations and/or value of our securities,
including that it could cause the value of our securities to significantly
decline or worthless. See "Risk Factors- If the PRC government deems that the
contractual arrangements in relation to the consolidated variable interest
entity do not comply with PRC regulatory restrictions on foreign investment in
the relevant industries, or if these regulations or the interpretation of
existing regulations change in the future, we could be subject to severe
penalties or be forced to relinquish our interests in those operations."
50
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. Recently, the PRC State Internet Information Office issued
the Measures of Cybersecurity Review (Revised Draft for Comments, not yet
effective), 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. As of the date of this report, these
new laws and guidelines have not impacted the Company's ability to conduct its
business, accept foreign investments, or list on a U.S. or other foreign stock
exchange; however, there are uncertainties in the interpretation and enforcement
of these new 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. In
the opinion of our PRC counsel Fengdong Law Firm, 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 a Business license, Bank Account Open
Permits and Value Added Telecom Business License. As of the date of this report,
in the opinion of our PRC counsel Fengdong Law Firm, we, our subsidiaries and
the VIE in China are not subject to permission requirements from the China
Securities Regulatory Commission ("CSRC"), Cyberspace Administration of China
("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.
Nevertheless, the General Office of the Central Committee of the Communist Party
of China and the General Office of the State Council jointly issued the
"Opinions on Severely Cracking Down on Illegal Securities Activities According
to Law," or the Opinions, which were made available to the public on July 6,
2021. The Opinions emphasized the need to strengthen the administration over
illegal securities activities, and the need to strengthen the supervision over
overseas listings by Chinese companies. Given the current PRC regulatory
environment, it is uncertain when and whether we, our subsidiaries or the VIE,
might be required to obtain permission from the PRC government to offer our
securities to foreign investors in the future, 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 in the
future, 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 such
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.
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.
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). Also, since the second quarter of
2021, the Company has transformed its member-based business model of Chain Cloud
Mall to a sale agent based eCAAS platform and began to provide supply chain
financing services and trading of coal for coal mines and power generation
plants as well as aluminum ingots.
The Company currently has nine direct wholly-owned subsidiaries: DigiPay FinTech
Limited ("DigiPay"), a company incorporated under the laws of the British Virgin
Islands, Future FinTech (Hong Kong) Limited, a company incorporated under the
laws of Hong Kong, GlobalKey Shared Mall Limited, a company incorporated under
the laws of Cayman Islands ("GlobalKey Shared Mall"), Tianjin Future Private
Equity Fund Management Partnership, a Limited Partnership under the laws of
China, FTFT UK Limited, a company incorporated under the laws of United Kingdom,
Future Fintech Digital Capital Management, LLC, a company incorporated under the
laws of Connecticut, Future Fintech Digital Number One GP, LLC, a company
incorporated under the laws of Connecticut. Future FinTech Labs Inc., a company
incorporated under the laws of New York and FTFT SuperComputing Inc. a company
incorporated under the laws of Ohio.
SkyPeople Foods Holdings Limited ("SkyPeople BVI") was a wholly owned subsidiary
of the Company and a company organized under the laws of the British Virgin
Islands, which held 100% of the equity interest of HeDeTang Holdings (HK) Ltd.
("HeDeTang HK"), a company organized under the laws of the Hong Kong Special
Administrative Region of the People's Republic of China ("Hong Kong"), and
HeDeTang HK held 73.42% of the equity interest of SkyPeople Juice Group Co.,
Ltd., ("SkyPeople (China)"), a company incorporated under the laws of the PRC.
SkyPeople (China) had eleven subsidiaries in the PRC, which were mainly involved
in the production and sales of fruit juice concentrates, fruit juice beverages
and other fruit-related products in the PRC and overseas markets. On February
27, 2020, SkyPeople BVI (the "Seller") completed the transfer of its ownership
of HeDeTang HK to New Continent International Co., Ltd. (the "Buyer"), an
unrelated third party and a company incorporated in the British Virgin Islands
for a total price of RMB 0.6 million (approximately $85,714), pursuant to a
Share Transfer Agreement entered into by the Seller and the Buyer on September
18, 2019 and approved at the special shareholders meeting of the Company on
February 26, 2020 (the "Sale Transaction"). SkyPeople BVI had no operational
assets or business after the transfer and the Company dissolved SkyPeople BVI on
July 27, 2020.
51
CCM Shopping MallDue 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. 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.
Coal and Aluminum Ingots Supply Chain Financing Service and Trading
Since the second quarter of 2021, we started coal supply chain financing service
and trading business. Since the third quarter of 2021, we started aluminum
ingots supply chain financing service and trading business.
Our supply chain finance business mainly serves the receivables and payables 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 and aluminum ingots an 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 coal to the end users'
designated freight yard or transfer the title of aluminum ingots to us in
certain warehouses. We select the customers and suppliers that have good credit
and reputation.
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.
52
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 market 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 in 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 March 15,
2022, NTAM has approximately US$260 million assets under its management.
53
Recent Developments Related to the COVID-19 Outbreak
In December 2019, a novel strain of coronavirus was reported and has spread
throughout China and other parts of the world. On March 11, 2020, the World
Health Organization characterized the outbreak as a "pandemic". In early 2020,
Chinese government took emergency measures to combat the spread of the virus,
including quarantines, travel restrictions, and the temporary closure of office
buildings and facilities in China. In response to the evolving dynamics related
to the COVID-19 outbreak, the Company is following the guidelines of local
authorities as it prioritizes the health and safety of its employees,
contractors, suppliers and business partners. Our offices in China were closed
and the employees worked from home at the end of January until late March 2020
and was closed again in January 2022 due to the COVID-19 outbreak. The
quarantines, travel restrictions, and the temporary closure of office buildings
have materially negatively impacted our business. Our suppliers were negatively
affected, and could continue to be negatively affected in their ability to
supply and ship products to our customers in case of any resurgence of COVID-19.
Our customers that have been negatively impacted by the outbreak of COVID-19 may
reduce their budgets to purchase products and services from us, which may
materially adversely impact our revenue. The business operations of the third
parties' stores on our e-commerce platform have been and continue to be
negatively impacted by the outbreak, which in turn adversely affects the
business of our platform as a whole as well as our financial condition and
operating results. The outbreak has had and continues to have disruption to our
supply chain, logistics providers, customers or our marketing activities with
the new variants of COVID-19, which could materially adversely impact our
business and results of operations. Although China has already begun to recover
from the outbreak of COVID-19, there are still outbreak in various cities and
provinces due to new variants, including the recent outbreak of Omicron variant
in Xi'an city, Hong Kong and Shanghai city in 2022, which have resulted
quarantines, travel restrictions, and temporary closure of office buildings and
facilities in these cities. The Company's promotion strategy of CCM Shopping
Mall previously mainly relied on the training of members and distributors
through meetings and conferences. Although China has already begun to recover
from the outbreak of COVID-19, there are still outbreak in various cities and
provinces due to new variants including the recent outbreak of Omicron variant
in Xi'an city, Hong Kong and Shanghai city during the first quarter of 2022
which have resulted quarantines, travel restrictions, and temporary closure of
office buildings and facilities in these cities. Chinese government still puts a
restriction on large gatherings. These restrictions made the promotion strategy
for our online e-commerce platforms difficult to implement and the Company has
experienced difficulties to subscribe new members for its online e-commerce
platforms. Due to the lack of new subscribers, in June 2021, the Company
suspended its cross-border e-commerce platform NONOGIRL. Also, since the second
quarter of 2021, the Company has transformed its member-based Chain Cloud Mall
to a sale agent based eCAAS platform and began to provide supply chain financing
services.
The global economy has also been materially negatively affected by the COVID-19
and there is continued severe uncertainty about the duration and intensity of
its impacts. The Chinese and global growth forecast is extremely uncertain,
which would seriously affect our business.
While the potential economic impact brought by, and the duration of COVID-19 and
its new variants may be difficult to assess or predict, a widespread pandemic
could result in significant disruption of global financial markets, reducing our
ability to access capital, which could negatively affect our liquidity. In
addition, a recession or market correction resulting from the spread of COVID-19
and its new variants could materially negatively affect our business and the
value of our common stock.
Further, as we do not have access to a revolving credit facility, there can be
no assurance that we would be able to secure commercial debt financing in the
future in the event that we require additional capital. We currently believe
that our financial resources will be adequate to see us through the outbreak.
However, in the event that we do need to raise capital in the future,
outbreak-related instability in the securities markets could adversely affect
our ability to raise additional capital.
Consequently, our results of operations have been materially and adversely
affected by COVID-19 pandemic. Any potential further impact to our results will
depend on, to a large extent, future developments and new information that may
emerge regarding the duration and severity of the COVID-19, new variants of
COVID-19, the efficacy and distribution of COVID-19 vaccines and the actions
taken by government authorities and other entities to contain the COVID-19 or
treat its impact, almost all of which are beyond our control.
54
Discontinued Operations
On September 18, 2019, SkyPeople Foods Holdings Limited, entered into a Share
Transfer Agreement (the "Agreement") with New Continent International Co., Ltd.,
(the "Buyer") a company incorporated in the British Virgin Islands. Pursuant to
the terms of the Agreement, the Buyer purchased 100% ownership of HeDeTang HK
from SkyPeople Foods Holdings Limited, which value is primarily derived from
HeDeTang HK's wholly-owned subsidiary HeDeJiaChuan Holdings Co., Ltd. and 73.41%
owned subsidiary SkyPeople Juice Group Co., Ltd., for a total price of RMB
600,000 (approximately $85,714) (the "Sale Transaction"). The Sale Transaction
was closed on February 27, 2020. In accordance with ASC Topic 205, Presentation
of Financial Statement Discontinued Operations ("ASC Topic 205"), the Company
presented the operation results of HeDeTang HK and its subsidiaries as a
discontinued operation, as the Company believed that no continued cash flow
would be generated by the discontinued component and that the Company would have
no significant continuing involvement in the operations of the discontinued
component. The total assets of HeDeTang HK were $106.85 million as of February
27, 2020 and the total liabilities of HeDeTang HK were $231.21 million as of
February 27, 2020, resulting in a gain on disposal of $123.69 million. There was
no income or loss from HeDeTang HK from January 1, 2020 to the close of Sale
Transaction.
On March 11, 2020, the Company's Board of Directors passed a resolution to sell
the operation of Globalkey Supply Chain Limited and Zhonglian Hengxin Assets
Management Co., Ltd ("Zhonglian Hengxin") and close the operation of Digital
Online Marketing Limited, SkyPeople Foods Holdings Limited and Chain Future
Digital Tech (Beijing) Co., Ltd. Based on the disposal plan and in accordance
with ASC 205-20, the Company presented the operating results from these
operations as a discontinued operation.
On May 7, 2020, Future Business Management Co., Ltd. completed the transfer of
its ownership of Zhonglian Hengxin to an individual third party. On July 24,
2020, the Company's Board of Directors passed a resolution to sale the operation
of Hedetang Farm Products Trading Markets (Mei County) Co., Ltd. and close the
operation of Chain Cloud Mall Logistics Center (Shaanxi) Co., Ltd, a subsidiary
located in the national kiwifruit Industrial Park of Baoji City ("CCM
Logistics"). On July 27, 2020, Skypeople Foods Holdings Limited was dissolved;
On July 28, 2020, Digital Online Marketing Limited was dissolved;
On November 12, 2020, CCM Tianjin, a wholly owned subsidiary of the Company
entered into an Equity Transfer Agreement with Xi'an Yishengkang Information
Technology, Ltd. ("Xi'an Yishengkang"), an unrelated third party, pursuant to
which CCM Tianjin agreed to sell 90% of total issued and outstanding capital
stock of in Hedetang Farm Products Trading Markets (Mei county) Co., Ltd. that
it owns to Xi'an Yishengkang for RMB9,000 (approximately $1,324). On the same
date, CCM Logistics entered into another Equity Transfer Agreement with an
individual and unrelated third party, Liyuan Ying, pursuant to which CCM Tianjin
agreed to sell 10% of total issued and outstanding capital stock of in Hedetang
Farm Products Trading Markets (Mei county) Co., Ltd. that it owns to Liyuan Ying
for RMB1,000 (approximately $147).
On April 9, 2021, FT Commercial Management (Beijing) Co., Ltd. was dissolved and
deregistered.
On August 2, 2021, the Company sold Guangchengji (Guangdong) Industrial Co.,
Ltd. to an unrelated third party.
On September 2, 2021, Future Supply Chain Co., Ltd. discontinued its operations,
and on November 4, 2021, it completed the transfer of its ownership to Shaanxi
Fu Chen Venture Capital Management Co. Ltd. .
Segment Information Reclassification
The Company's businesses mainly are CCM Shopping Mall, Coal and Aluminum Ingots
Supply Chain Financing Service and Trading and Asset Management Services.
Use of Estimates
The Company's consolidated financial statements have been prepared in accordance
with U.S. GAAP and this requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure at
contingent assets and liabilities at the date of the consolidated financial
statements and reported amounts of revenue and expenses during the reporting
period. The significant areas requiring the use of management estimates include
the allowance for doubtful accounts receivable, estimated useful life and
residual value of property, plant and equipment, impairment of long-lived
assets, provision for staff benefit, valuation of change in fair value of
warrant liability, recognition and measurement of deferred income taxes and
valuation allowance for deferred tax assets. Although these estimates are based
on management's knowledge of current events and actions management may undertake
in the future, actual results may ultimately differ from those estimates.
55
Fair Value of Financial Instruments
On January 1, 2009, the Company adopted FASB Accounting Standard Codification
Topic on Fair Value Measurements and Disclosures ("ASC 820"), which defines fair
value, establishes a framework for measuring fair value in GAAP, and expands
disclosures about fair value measurements. ASC 820 does not require any new fair
value measurements, but provides guidance on how to measure fair value by
providing a fair value hierarchy used to classify the source of the information.
In February 2008, FASB deferred the effective date of ASC 820 by one year for
certain non-financial assets and non-financial liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The Company adopted the provisions of ASC
820, except as it applies to those non-financial assets and non-financial
liabilities for which the effective date has been delayed by one year.
ASC 820 establishes a three-level valuation hierarchy of valuation techniques
based on observable and unobservable input, which may be used to measure fair
value and include the following:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Input other than Level 1 that is observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other input that is observable or can
be corroborated by observable market data for substantially the full term of the
assets or liabilities.
Level 3 - Unobservable input that is supported by little or no market activity
and that is significant to the fair value of the assets or liabilities.
Classification within the hierarchy is determined based on the lowest level of
input that is significant to the fair value measurement.
Revenue Recognition
The Company adopted ASC 606, Revenue from Contracts with Customers, from January
1, 2018. The adoption had no impact on the Company's retained earnings as of
January 1, 2018 as well as the Company's financial statements for the year ended
December 31, 2019. To achieve that core principle, we apply the five steps
defined under Topic 606: (i) identify the contract(s) with a customer, (ii)
identify the performance obligations in the contract, (iii) determine the
transaction price, (iv) allocate the transaction price to the performance
obligations in the contract, and (v) recognize revenue when (or as) the entity
satisfies a performance obligation. We assess its revenue arrangements against
specific criteria in order to determine if it is acting as principal or agent.
Revenue is recognized upon the transfer of control of promised goods or services
to a customer. Historically, the Company has not had any returned products.
Accordingly, no provision has been made for returnable goods. The Company is not
required to rebate or credit a portion of the original fee if it subsequently
reduces the price of its products.
Foreign Currency and Other Comprehensive Income
The financial statements of the Company's foreign subsidiaries are measured
using the local currency as the functional currency; however, the reporting
currency of the Company is the United States dollar ("USD"). Assets and
liabilities of the Company's foreign subsidiaries have been translated into USD
using the exchange rate at the balance sheet date, while equity accounts are
translated using historical exchange rate. The average exchange rate for the
period has been used to translate revenues and expenses. Translation adjustments
are reported separately and accumulated in a separate component of equity
(cumulative translation adjustment).
Other comprehensive income for the years ended December 31, 2021 and 2020
represented foreign currency translation adjustments and were included in the
consolidated statements of comprehensive income.
There is no guarantee the RMB amounts could have been, or could be, converted
into USD at rates used in translation.
Income Taxes
Income taxes are provided on an asset and liability approach for financial
accounting and reporting of income taxes. Any tax paid by subsidiaries during
the year is recorded. Current tax is based on the profit or loss from ordinary
activities adjusted for items that are non-assessable or disallowable for income
tax purpose and is calculated using tax rates that have been enacted at the
balance sheet date. Deferred income tax liabilities or assets are recorded to
reflect the tax consequences in future years of differences between the tax
basis of assets and liabilities and the financial reporting amounts at each
period end. A valuation allowance is recognized if it is more likely than not
that some portion, or all, of a deferred tax asset will not be realized.
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ASC 740 provides guidance for recognizing and measuring uncertain tax positions,
and it prescribes a threshold condition that a tax position must meet for any of
the benefits of the uncertain tax position to be recognized in the financial
statements. ASC 740 also provides accounting guidance on derecognizing,
classification and disclosure of these uncertain tax positions.
Impairment of Long-Lived Assets
In accordance with the FASB ASC 360-10, Accounting for the Impairment or
Disposal of Long-Lived Assets, long-lived assets, such as property, plant and
equipment and purchased intangibles subject to amortization are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. It is reasonably possible
that these assets could become impaired as a result of technological or other
industrial changes. Determination of recoverability of assets to be held and
used is by comparing the carrying amount of an asset to future net undiscounted
cash flows to be generated by the assets.
If such assets are considered to be impaired, the impairment to be recognized is
measured as the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Recent Accounting Pronouncements
We have reviewed all the recently issued, but not yet effective, accounting
pronouncements and we do not believe any of these pronouncements will have a
material impact on the Company.
Comparison of Operation Results of years ended December 31, 2021 and 2020
Revenue
The following table presents our consolidated revenues for our main products and
services for the fiscal years 2021 and 2020, respectively, (in thousands):
Year ended
December 31, Change
2021 2020 Amount %
CCM Shopping Mall Membership $ 0.09 $ 338 $ -338 -99.97 %
Coal and Aluminum Ingots Supply Chain
Financing/Trading 19,728 - 19,728 100 %
Sales of goods - 2 -2 -100 %
Asset management service 5,316 - 5,316 100 %
others 7 29 -22 -75.86 %
Total $ 25,051 $ 369 $ 24,682 6,688.89 %
Revenue increased from $0.37 million in 2020 to $25.05 million in 2021, increase
of $24.68 million or 6,688.89%. The increase in overall revenue was mainly due
to an increase in asset management services and supply chain financing service
and trading business.
CCM Shopping Mall Membership fees decreased from $0.34 million for the year
ended 2020 to $86 for the year ended 2021, because there was no new membership
enrollment during the year of 2021 and the Company has transformed its business
model of CCM Shopping Mall from a member-based platform to a sales agent based
eCAAS platform. Due to COVID-19 related restriction on large gathering for
meetings and conference which primarily used by us before the pandemic for
marketing and business development of new members, we were unable to attract new
member enrollment during the year ended 2021 and have transformed business model
for the platform.
Coal and Aluminum Ingots Supply Chain Financing Service and Trading business
increased from $0 for year ended 2020 to $19.73 million for the year ended 2021.
This is a new business we started during the second quarter of 2021 which did
not exist in 2020.
Sale of goods decreased from $1,675 for the year ended 2020 to $0 for the year
ended 2021 as no sale of goods during the same period of 2021.
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Asset management service fee increased from $0 for the year ended 2020 to $5.32
million for the year ended 2021. This is a new business we acquired during the
third quarter 2021 which did not exist in 2020.
Gross Margin
(in thousands)
2021 2020
Gross Gross Gross Gross
profit margin profit margin
CCM Shopping Mall Membership $ 0.09 98.95 % 334 98.72 %
Coal and Aluminum Ingots Supply Chain
Financing/Trading 510 2.58 % - -
Sales of goods - - 0.28 16.54 %
Asset management service 1,291 24.29 % - -
Other 0.5 7.19 % -0.54 -1.89 %
Total $ 1,802 6.68 % $ 334 90.5 %
Overall gross margin as a percentage of revenue was 7.19% for the year ended
2021, a decrease of 83.31% compared to 90.5% for the same period of last fiscal
year, mainly due to less revenues from the membership fee which has a much
higher margin than that of coals and aluminum ingots financial service and
trading and asset management business.
Operating Expenses
The following table presents consolidated operating expenses and operating
expenses as a percentage of revenue for 2021 and 2020, respectively, (in
thousands):
2021 2020
% of % of
Amount revenue Amount revenue
General and administrative $ 7,678 30.65 % $ 4,075 1,105.23 %
Research and development expenses 698 2.79 % -
-
Stock compensation expense 5,488 21.91 % 5,940 1,610.95 %
Selling expenses 366 1.46 % 36 9.75 %
Bad debt provision (2 ) -0.01 % 3,570 968.19 %
Impairment Loss 782 3.12 % 1,759 477.06 %
Total operating expenses $ 15,010 59.92 % $ 15,380 4,171.18 %
General and administrative expenses increased by $3.6 million, or 88.42%, from
$4.1million to $7.7 million for the year ended 2021, compared to the same period
of last fiscal year. The increase in general and administrative expenses was
mainly due to new business development and new subsidiaries established by the
Company during the year ended 2021 comparing to the same period of 2020.
Selling expenses increased by $0.33 million to $0.37 million in 2021 as compared
to $0.04 million in 2020, mainly due to an increase in selling expenses from our
new business.
Stock compensation expense decreased by $0.5 million during the year ended 2021,
compared to the same period of last fiscal year 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 2021 which
had less value than the shares we granted to the officers, employees and
director of the Company in 2020.
Loss from Operations
Loss from operations decreased by $1.84 million to $13.21 million for 2021 from
$15.05 million for 2020, mainly due to in the increase in revenue.
Noncontrolling Interests
As of December 31, 2021, Shaanxi Chunlv Ecological Agriculture Co., Ltd.
("Shaanxi Chunlv") holds 20.0% interest in CCM logistics, Nature Worldwide
Resources Ltd. holds 40% interest in DCON DigiPay Limited ("DCON Digipay").
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Loss per Share
Basic and diluted loss per share from continuing operations were $0.17 and $0.17
in fiscal 2021, as compared to $0.8 and $0.7 in fiscal 2020, respectively. Basic
and diluted loss per share attributable to discontinued operations was $0.04 and
$0.04 for fiscal year 2021 as compared to basic and diluted income per share
$3.13 and $2.76 for fiscal year 2020 respectively.
Liquidity and Capital Resources
As of December 31, 2021, we had cash and cash equivalents of $50.27 million, an
increase of $40.85 million, from $9.43 million as of December 31, 2020. The
increase in cash, cash equivalents and restricted cash was mainly due to
financing from the issuance of shares of common stock.
Our working capital has historically been generated from our operating cash
flows, advances from our customers and loans from bank facilities. Our working
capital was positive $65.49 million as of December 31, 2021, an increase of
$56.80 million from positive $8.69 million as of December 31, 2020, mainly due
to an increase in current assets.
In 2021, net cash used in our operating activities was $18.74 million compared
to net cash used in operating activities of $1.97 million in 2020. The increase
in net cash used by operating activities was primarily due to an increase in
accounts receivable during the year ended December 31, 2021.
In 2021, net cash used in our investing activities was $11.18 million compared
to net cash used in operating activities of $2,944 in 2020 mainly due to payment
for loan receivable.
In 2021, cash provided by financing activities was $69.27 million as compared to
cash used in financing activities $16.42 million in 2020. The increase in cash
provided by financing activities was mainly due to financing from the issuance
of shares of common stock.
Goodwill
On August 6, 2021, Future FinTech Group Inc., through its wholly owned
subsidiary Future FinTech (Hong Kong) Limited., acquired of 90% of the issued
and outstanding shares of Nice Talent Asset Management Limited (NTAM) from Joy
Rich Enterprises Limited for HK$144,000,000, goodwill arises from the
acquisition amounting to HK$127,618,555. As of December 31, 2021, the Company
engaged a third party professional to reassess the valuation of NTAM by using
discounted cash flow model to estimate its fair value. The Company's evaluation
of goodwill for impairment involves the comparison of the fair value of NTAM to
its carrying value. The fair value of NTAM decreases by 4.56% of its original
value, which resulted a write down of goodwill of 4.56%.
The Company uses discounted cash flow model to estimate fair value of NTAM,
which requires management to make significant estimates and assumptions related
to forecasts of future revenue and operating margin. In addition, the discounted
cash flow model requires the Company to select an appropriate weighted average
cost of capital based on current market conditions as of December 31, 2021. A
high degree of auditor judgment and an increased extent of effort were required
when performing audit procedures to evaluate the reasonableness of management's
estimates and assumptions related to the forecasts. The main factor that causes
the changes in the estimation attributable to uncertainty of the future economic
growth when the Omicron variant circulating globally.
Off-Balance Sheet Arrangements
As of December 31, 2021, we did not have any off-balance sheet arrangements.
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FUTURE FINTECH GROUP INC. 
