ITEM 1. FINANCIAL STATEMENTS
TD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE
SHEETS
As of June 30, 2020 and December 31,
2019
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,487,594
|
|
|
$
|
2,446,683
|
|
Accounts receivable, net
|
|
|
1,919,873
|
|
|
|
-
|
|
Loans receivable from third parties
|
|
|
83,233,866
|
|
|
|
1,955,697
|
|
Prepayments
|
|
|
2,828,974
|
|
|
|
-
|
|
Due from related parties
|
|
|
463,390
|
|
|
|
3,310,883
|
|
Other current assets
|
|
|
2,099,072
|
|
|
|
166,617
|
|
Total current assets
|
|
|
92,032,769
|
|
|
|
7,879,880
|
|
|
|
|
|
|
|
|
|
|
Investments in equity investees
|
|
|
964,711
|
|
|
|
972,807
|
|
Deposit in investment in equity investee
|
|
|
-
|
|
|
|
14,351
|
|
Loan receivable from a third party, noncurrent
|
|
|
-
|
|
|
|
50,230
|
|
Property and equipment, net
|
|
|
2,240
|
|
|
|
3,835
|
|
Right-of-use lease assets, net
|
|
|
316,128
|
|
|
|
41,188
|
|
Leasing business assets, net
|
|
|
2,229,819
|
|
|
|
2,426,109
|
|
Total noncurrent assets
|
|
|
3,512,898
|
|
|
|
3,508,520
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
95,545,667
|
|
|
$
|
11,388,400
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Advances from customers
|
|
$
|
15,029
|
|
|
$
|
15,249
|
|
Third party loans payable
|
|
|
1,886,756
|
|
|
|
2,367,967
|
|
Due to related parties
|
|
|
2,187,085
|
|
|
|
1,017,362
|
|
Stock subscription advance
|
|
|
-
|
|
|
|
1,600,000
|
|
Income tax payable
|
|
|
857,641
|
|
|
|
14,735
|
|
Lease liabilities
|
|
|
283,680
|
|
|
|
-
|
|
Other current liabilities
|
|
|
1,400,542
|
|
|
|
420,101
|
|
Total Current Liabilities
|
|
|
6,630,733
|
|
|
|
5,435,414
|
|
|
|
|
|
|
|
|
|
|
Related party loan, noncurrent
|
|
|
149,936
|
|
|
|
152,124
|
|
Total Non-current Liabilities
|
|
|
149,936
|
|
|
|
152,124
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
6,780,669
|
|
|
|
5,587,538
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Common stock (par value $0.001 per share, 100,000,000 shares authorized; 68,585,111 and 11,585,111 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively)
|
|
|
68,585
|
|
|
|
11,585
|
|
Additional paid-in capital
|
|
|
126,026,170
|
|
|
|
38,523,170
|
|
Accumulated deficit
|
|
|
(36,885,197
|
)
|
|
|
(32,391,040
|
)
|
Accumulated other comprehensive loss
|
|
|
(428,915
|
)
|
|
|
(334,281
|
)
|
Total Shareholders’ Equity
|
|
|
88,780,643
|
|
|
|
5,809,434
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
(15,645
|
)
|
|
|
(8,572
|
)
|
Total Equity
|
|
|
88,764,998
|
|
|
|
5,800,862
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
95,545,667
|
|
|
$
|
11,388,400
|
|
The accompanying notes are an integral
part of the unaudited condensed consolidated financial statements.
TD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three and Six Months Ended June
30, 2020 and 2019
(Expressed in U.S. dollars, except for
the number of shares)
|
|
For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from sales of commodity products
|
|
$
|
1,563,669
|
|
|
$
|
-
|
|
|
$
|
2,617,301
|
|
|
$
|
-
|
|
Revenue from supply chain management services
|
|
|
2,145,810
|
|
|
|
-
|
|
|
|
2,561,187
|
|
|
|
-
|
|
Income from operating leases
|
|
|
-
|
|
|
|
540,895
|
|
|
|
14,051
|
|
|
|
940,894
|
|
Total Revenue
|
|
|
3,709,479
|
|
|
|
540,895
|
|
|
|
5,192,539
|
|
|
|
940,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue - commodity product sales
|
|
|
(1,570,132
|
)
|
|
|
-
|
|
|
|
(2,625,275
|
)
|
|
|
-
|
|
Cost of revenue - supply chain management services
|
|
|
(7,849
|
)
|
|
|
-
|
|
|
|
(8,566
|
)
|
|
|
-
|
|
Cost of operating lease
|
|
|
(224,294
|
)
|
|
|
(397,538
|
)
|
|
|
(323,608
|
)
|
|
|
(635,189
|
)
|
Total cost of revenue
|
|
|
(1,802,275
|
)
|
|
|
(397,538
|
)
|
|
|
(2,957,449
|
)
|
|
|
(635,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,907,204
|
|
|
|
143,357
|
|
|
|
2,235,090
|
|
|
|
305,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
(491,671
|
)
|
|
|
(1,133,957
|
)
|
|
|
(916,786
|
)
|
|
|
(3,040,276
|
)
|
Impairment on leasing business assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(96,318
|
)
|
Total operating cost and expenses
|
|
|
(491,671
|
)
|
|
|
(1,133,957
|
)
|
|
|
(916,786
|
)
|
|
|
(3,136,594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,586,552
|
|
|
|
22,018
|
|
|
|
1,726,564
|
|
|
|
32,481
|
|
Interest expenses
|
|
|
(104,314
|
)
|
|
|
(71,743
|
)
|
|
|
(238,689
|
)
|
|
|
(71,743
|
)
|
Amortization of beneficial conversion feature relating to issuance
of convertible notes
|
|
|
(3,400,000
|
)
|
|
|
-
|
|
|
|
(3,400,000
|
)
|
|
|
-
|
|
Amortization of relative fair value of warrants relating to issuance of convertible notes
|
|
|
(3,060,000
|
)
|
|
|
-
|
|
|
|
(3,060,000
|
)
|
|
|
-
|
|
Total other expenses, net
|
|
|
(4,977,762
|
)
|
|
|
(49,725
|
)
|
|
|
(4,972,125
|
)
|
|
|
(39,262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Taxes
|
|
|
(3,562,229
|
)
|
|
|
(1,040,325
|
)
|
|
|
(3,653,821
|
)
|
|
|
(2,870,151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
(799,029
|
)
|
|
|
-
|
|
|
|
(847,409
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(4,361,258
|
)
|
|
|
(1,040,325
|
)
|
|
|
(4,501,230
|
)
|
|
|
(2,870,151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net loss attributable to non-controlling interests
|
|
|
2,804
|
|
|
|
491
|
|
|
|
7,073
|
|
|
|
491
|
|
Net loss attributable to TD Holdings, Inc.’s Stockholders
|
|
$
|
(4,358,454
|
)
|
|
$
|
(1,039,834
|
)
|
|
$
|
(4,494,157
|
)
|
|
$
|
(2,869,660
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(4,361,258
|
)
|
|
$
|
(1,040,325
|
)
|
|
$
|
(4,501,230
|
)
|
|
$
|
(2,870,151
|
)
|
Foreign currency translation adjustment
|
|
|
(89,058
|
)
|
|
|
(74,767
|
)
|
|
|
(94,634
|
)
|
|
|
(17,024
|
)
|
Comprehensive loss
|
|
|
(4,450,316
|
)
|
|
|
(1,115,092
|
)
|
|
|
(4,595,864
|
)
|
|
|
(2,887,175
|
)
|
Less: Total comprehensive loss attributable to non-controlling interests
|
|
|
2,804
|
|
|
|
491
|
|
|
|
7,073
|
|
|
|
491
|
|
Comprehensive loss attributable to TD Holdings, Inc.
|
|
$
|
(4,447,512
|
)
|
|
$
|
(1,114,601
|
)
|
|
$
|
(4,588,791
|
)
|
|
$
|
(2,886,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share – basic and diluted
|
|
$
|
(0.09
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding-Basic and Diluted
|
|
|
47,486,210
|
|
|
|
7,530,693
|
|
|
|
30,579,616
|
|
|
|
6,348,064
|
|
The accompanying notes are an integral
part of the unaudited condensed consolidated financial statements.
TD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CHANGES IN EQUITY
For the Six Months Ended June 30, 2020
and 2019
(Expressed in U.S. dollars, except for
the number of shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional paid-in
|
|
|
Accumulated
|
|
|
advanced from a
|
|
|
other
comprehensive
|
|
|
Non-controlling
|
|
|
Total (Deficit)
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
Deficit
|
|
|
shareholder
|
|
|
loss
|
|
|
interests
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2018
|
|
|
5,023,906
|
|
|
$
|
5,024
|
|
|
$
|
28,765,346
|
|
|
$
|
(25,457,090
|
)
|
|
$
|
-
|
|
|
$
|
(511,057
|
)
|
|
$
|
-
|
|
|
$
|
2,802,223
|
|
Issuance of common stock to service providers
|
|
|
502,391
|
|
|
|
502
|
|
|
|
883,706
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
884,208
|
|
Issuance of common stocks pursuant to registered direct offering, net of transaction cost
|
|
|
3,120,000
|
|
|
|
3,120
|
|
|
|
4,650,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,869,660
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(491
|
)
|
|
|
(2,870,151
|
)
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(17,024
|
)
|
|
|
-
|
|
|
|
(17,024
|
)
|
Balance as at June 30, 2019
|
|
|
8,646,297
|
|
|
$
|
5,526
|
|
|
$
|
34,299,372
|
|
|
$
|
(28,326,750
|
)
|
|
$
|
-
|
|
|
$
|
(528,081
|
)
|
|
$
|
(491
|
)
|
|
$
|
5,452,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2019
|
|
|
11,585,111
|
|
|
$
|
11,585
|
|
|
$
|
38,523,170
|
|
|
$
|
(32,391,040
|
)
|
|
$
|
-
|
|
|
$
|
(334,281
|
)
|
|
$
|
(8,572
|
)
|
|
$
|
5,800,862
|
|
Issuance of common stocks in connection with private placements
|
|
|
17,000,000
|
|
|
|
17,000
|
|
|
|
15,083,000
|
|
|
|
-
|
|
|
|
(13,500,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,600,000
|
|
Issuance of common stocks in connection with exercise of convertible notes
|
|
|
20,000,000
|
|
|
|
20,000
|
|
|
|
29,980,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30,000,000
|
|
Beneficial conversion feature relating to issuance of convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
|
3,400,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,400,000
|
|
Relative fair value of warrants relating to issuance of convertible
notes
|
|
|
|
|
|
|
|
|
|
|
3,060,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,060,000
|
|
Issuance of common stocks in connection with exercise of warrants
|
|
|
20,000,000
|
|
|
|
20,000
|
|
|
|
35,980,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,000,000
|
|
Collection of subscription fee
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,494,157
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,073
|
)
|
|
|
(4,501,230
|
)
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(94,634
|
)
|
|
|
-
|
|
|
|
(94,634
|
)
|
Balance as at June 30, 2020
|
|
|
68,585,111
|
|
|
$
|
68,585
|
|
|
$
|
126,026,170
|
|
|
$
|
(36,885,197
|
)
|
|
$
|
-
|
|
|
$
|
(428,915
|
)
|
|
$
|
(15,645
|
)
|
|
$
|
88,764,998
|
|
The accompanying notes are an integral
part of the unaudited condensed consolidated financial statements
TD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CHANGES IN EQUITY
For the Three Months Ended June 30, 2020
and 2019
(Expressed in U.S. dollars, except for
the number of shares)
|
|
Common Stock
|
|
|
Additional paid-in
|
|
|
Accumulated
|
|
|
Subscription
advanced from a
|
|
|
Accumulated other
comprehensive
|
|
|
Non-controlling
|
|
|
Total (Deficit)
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
Deficit
|
|
|
shareholder
|
|
|
income (loss)
|
|
|
interests
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at March 31, 2019
|
|
|
5,526,297
|
|
|
$
|
5,526
|
|
|
$
|
29,649,052
|
|
|
$
|
(27,286,916
|
)
|
|
$
|
-
|
|
|
$
|
(453,314
|
)
|
|
$
|
-
|
|
|
$
|
1,914,348
|
|
Issuance of common stocks pursuant to registered direct offering, net of transaction cost
|
|
|
3,120,000
|
|
|
|
3,120
|
|
|
|
4,650,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,039,834
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(491
|
)
|
|
|
(1,040,325
|
)
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(74,767
|
)
|
|
|
-
|
|
|
|
(74,767
|
)
|
Balance as at June 30, 2019
|
|
|
8,646,297
|
|
|
$
|
5,526
|
|
|
$
|
34,299,372
|
|
|
$
|
(28,326,750
|
)
|
|
$
|
-
|
|
|
$
|
(528,081
|
)
|
|
$
|
(491
|
)
|
|
$
|
5,452,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at March 31, 2020
|
|
|
28,585,111
|
|
|
$
|
28,585
|
|
|
$
|
53,606,170
|
|
|
$
|
(32,526,743
|
)
|
|
$
|
(13,500,000
|
)
|
|
$
|
(339,857
|
)
|
|
$
|
(12,841
|
)
|
|
$
|
7,255,314
|
|
Issuance of common stocks in connection with exercise of convertible notes
|
|
|
20,000,000
|
|
|
|
20,000
|
|
|
|
29,980,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30,000,000
|
|
Beneficial conversion feature relating to issuance of convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
|
3,400,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,400,000
|
|
Relative fair value of warrants relating to issuance of convertible
notes
|
|
|
|
|
|
|
|
|
|
|
3,060,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,060,000
|
|
Issuance of common stocks in connection with exercise of warrants
|
|
|
20,000,000
|
|
|
|
20,000
|
|
|
|
35,980,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,000,000
|
|
Collection of subscription fee
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,500,000
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,358,454
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,804
|
)
|
|
|
(4,361,258
|
)
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(89,058
|
)
|
|
|
-
|
|
|
|
(89,058
|
)
|
Balance as at June 30, 2020
|
|
|
68,585,111
|
|
|
$
|
68,585
|
|
|
$
|
126,026,170
|
|
|
$
|
(36,885,197
|
)
|
|
$
|
-
|
|
|
$
|
(428,915
|
)
|
|
$
|
(15,645
|
)
|
|
$
|
88,764,998
|
|
The accompanying notes are an integral
part of the unaudited condensed consolidated financial statements
TD HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
For the Six Months Ended June 30, 2020
and 2019
(Expressed in U.S. dollar)
|
|
For the Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,501,230
|
)
|
|
$
|
(2,870,151
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation of leasing business assets
|
|
|
162,211
|
|
|
|
102,179
|
|
Depreciation of property and equipment
|
|
|
1,547
|
|
|
|
1,155
|
|
Amortization of right of use assets
|
|
|
174,432
|
|
|
|
-
|
|
Impairment on leasing business assets
|
|
|
-
|
|
|
|
96,318
|
|
Stock-based compensation to service providers
|
|
|
-
|
|
|
|
884,208
|
|
Amortization of beneficial conversion feature relating to issuance of convertible notes
|
|
|
3,400,000
|
|
|
|
-
|
|
Amortization of relative fair value of warrants relating to issuance of convertible notes
|
|
|
3,060,000
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,927,299
|
)
|
|
|
-
|
|
Prepayments
|
|
|
(2,843,373
|
)
|
|
|
-
|
|
Other current assets
|
|
|
(1,807,117
|
)
|
|
|
(72,394
|
)
|
Advances from customers
|
|
|
-
|
|
|
|
33,497
|
|
Income tax payable
|
|
|
847,409
|
|
|
|
8,352
|
|
Other current liabilities
|
|
|
991,383
|
|
|
|
72,590
|
|
Lease liabilities
|
|
|
(166,242
|
)
|
|
|
-
|
|
Net Cash Used in Operating Activities
|
|
|
(2,608,279
|
)
|
|
|
(1,744,246
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of leasing business assets
|
|
|
-
|
|
|
|
(1,902,529
|
)
|
Purchases of property and equipment
|
|
|
-
|
|
|
|
(707
|
)
|
Investment in one investment security
|
|
|
-
|
|
|
|
(200,000
|
)
|
Investments in equity investees
|
|
|
-
|
|
|
|
(884,225
|
)
|
Investments in financial products
|
|
|
-
|
|
|
|
(1,000,000
|
)
|
Collection of deposits from an equity investee
|
|
|
14,217
|
|
|
|
-
|
|
Loans made to third parties
|
|
|
(78,987,027
|
)
|
|
|
(1,114,225
|
)
|
Net Cash Used in Investing Activities
|
|
|
(78,972,810
|
)
|
|
|
(5,101,686
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from third party borrowings
|
|
|
-
|
|
|
|
2,063,193
|
|
Proceeds from borrowings from related parties
|
|
|
740,706
|
|
|
|
-
|
|
Cash raised in registered direct offering, net of transaction costs
|
|
|
-
|
|
|
|
4,653,440
|
|
Proceeds from a private placement
|
|
|
13,500,000
|
|
|
|
-
|
|
Proceeds from issuance of convertible notes
|
|
|
30,000,000
|
|
|
|
-
|
|
Proceeds from exercise of warrants
|
|
|
36,000,000
|
|
|
|
-
|
|
Net Cash Provided by Financing Activities
|
|
|
80,240,706
|
|
|
|
6,716,633
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
381,294
|
|
|
|
(47,631
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(959,089
|
)
|
|
|
(176,930
|
)
|
Cash at beginning of period
|
|
|
2,446,683
|
|
|
|
1,484,116
|
|
Cash at end of period
|
|
$
|
1,487,594
|
|
|
$
|
1,307,186
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash paid for interest expense
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash paid for income tax
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of Non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for operating lease obligations
|
|
$
|
455,635
|
|
|
$
|
-
|
|
Issuance of common stocks in connection with private placements, net of issuance costs with proceeds collected in advance in November 2019
|
|
$
|
1,600,000
|
|
|
$
|
-
|
|
Issuance of common stocks in connection with conversion of convertible notes
|
|
$
|
30,000,000
|
|
|
$
|
-
|
|
The accompanying notes are an integral
part of the unaudited condensed consolidated financial statements
1.
|
ORGANIZATION AND BUSINESS DESCRIPTION
|
TD Holdings, Inc. (“TD” or
“the Company”), is a holding company that was incorporated under the laws of the State of Delaware on December 19,
2011. On January 11, 2019, the Company changed its name to China Bat Group, Inc. and on June 3, 2019, further changed its name
to Bat Group, Inc. On March 6, 2020, the Company amended its Certificate of Incorporation with the Secretary of State of Delaware
to effect a name change to TD Holdings, Inc.
On April 2, 2020, HC High Summit Holding
Limited (“HC High BVI”), the Company’s wholly owned subsidiary, established Tongdow Block Chain Information Technology
Company Limited (“Tongdow Block Chain”), a holding company incorporated in accordance with the laws and regulations
of Hong Kong. Tongdow Block Chain is wholly owned by HC High BVI. On April 2, 2020, Tongdow Block Chain established Shanghai Jianchi
Supply Chain Company Limited (“Shanghai Jianchi”) as its wholly owned subsidiary. Shanghai Jianchi is a holding company
incorporated in accordance with the laws and regulations of People’s Republic of China (“PRC”).
On June 25, 2020, Hao Limo Technology (Beijing)
Co. Ltd. (“Hao Limo”), the Company’s wholly owned subsidiary incorporated in PRC, and Shenzhen
Huamucheng Trading Co., Ltd. (“Huamucheng”), a former VIE of the Company,
entered into certain VIE Termination Agreement (the “VIE Termination Agreement”) to terminate the Huamucheng VIE Agreements.
As such, Hao Limo will no longer have the control rights and rights to the assets, property and revenue of Huamucheng. On the same
date, Shanghai Jianchi, Huamucheng and the shareholders of Huamucheng (the “Huamucheng Shareholders”) entered into
certain Share Acquisition Agreement (the “Acquisition Agreement”) pursuant to which Shanghai Jianchi acquired 100%
equity interest of Huamucheng from the Huamucheng Shareholders for nominal consideration.
As a result of the above reorganization,
Huamucheng transitioned from being a variable interest entity (“VIE”) controlled by Company into a wholly owned subsidiary
of the Company. The Company remained in control of Huamucheng both before and after the reorganization and its operating results
are consolidated into the Company’s consolidated financial statements.
As of June 30, 2020, the Company conducts
business through Huamucheng, a subsidiary of the Company, and one VIE, Beijing Tianxing Kunlun Technology Co. Ltd. (“Beijing
Tianxing”). Beijing Tianxing is primarily engaged in operating the leasing
business of used luxurious cars and Huamucheng is engaged in the commodity trading business and providing supply chain management
services to customers in the PRC. Supply chain management services consists of loan recommendation services and commodity product
distribution services.
The accompanying consolidated financial
statements reflect the activities of Beijing Tianxing, Huamucheng and each of the following holding entities:
Name
|
|
Background
|
|
Ownership
|
HC High Summit Holding Limited (“HC High BVI”)
|
|
● A
BVI company
● Incorporated
on March 22, 2018
● A
holding company
|
|
100% owned by the Company
|
HC High Summit Limited (“HC High HK”)
|
|
● A
Hong Kong company
● Incorporated
on April 16, 2018
● A
holding company
|
|
100% owned by HC High BVI
|
Tongdow Block Chain Information Technology Company Limited (“Tongdow Block Chain”)
|
|
● A
Hong Kong company
● Incorporated
on April 2, 2020
● A
holding company
|
|
100% owned by HC High BVI
|
Shanghai Jianchi Supply Chain Company Limited (“Shanghai Jianchi”)
|
|
● A
PRC company and deemed a wholly foreign owned enterprise (“WFOE”)
● Incorporated
on April 2, 2020
● Registered
capital of $10 million
● A
holding company
|
|
WFOE, 100% owned by Tongdow Block Chain
|
Hao Limo Technology (Beijing) Co. Ltd.
(“Hao Limo”)
|
|
● A
PRC company and deemed a wholly foreign owned enterprise (“WFOE”)
● Incorporated
on May 10, 2018
● Registered
capital of $15 million
● A
holding company
|
|
WFOE, 100% owned by HC High HK
|
Beijing Tianxing Kunlun Technology Co. Ltd. (“Beijing Tianxing”)*
|
|
● A
PRC limited liability company
● Incorporated
on April 17, 2018
● Registered
capital of $31,839 (RMB 200,000)
● Engaged
in operating leasing business of used luxurious cars
|
|
VIE of Hao Limo
|
Shenzhen Huamucheng Trading Co., Ltd. (“Huamucheng”)
|
|
● A
PRC limited liability company
● Incorporated
on December 30, 2013
● Registered
capital of $1,417,736 (RMB 10 million) with registered capital fully paid-up
● Engaged
in commodity trading business and providing supply chain management services to customers
|
|
VIE of Hao Limo before June 25, 2020, and a wholly owned subsidiary of Shanghai Jianchi
|
*
|
As of June 30, 2020, Beijing Tianxing has six wholly owned subsidiaries:
|
|
●
|
Beijing Tianrenshijia Apparel Co., Ltd.
|
|
●
|
Beijing Blue Light Marching Technology Co., Ltd.
|
|
●
|
Beijing Eighty Weili Technology Co., Ltd.
|
|
●
|
Beijing Bat Riding Technology Co., Ltd
|
|
●
|
Beijing Blue Light Riding Technology Co., Ltd., and
|
|
●
|
Car Master (Beijing) Information Consulting Co., Ltd.
|
In addition, the Company has one subsidiary
over which the Company has 60% ownership, Beijing Blue Light Super Car Technology Co., Ltd. The remaining 40% of ownership interest
is owned by an employee of the Company.
Each of these subsidiaries owns a license
to hold cars in Beijing or Zhejiang, and was either inactive or generated minimal revenues for the periods ended June 30, 2020
and 2019.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
(a)
|
Basis of Presentation
|
The interim unaudited
condensed consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted
in the United States (“U.S. GAAP”).
The unaudited
condensed consolidated financial information as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019
has been prepared without audit, pursuant to the rules and regulations of the SEC and pursuant to Regulation S-X. Certain information
and footnote disclosures, which are normally included in annual financial statements prepared in accordance with U.S. GAAP, have
been omitted pursuant to those rules and regulations. The unaudited interim financial information should be read in conjunction
with the audited financial statements and the notes thereto, included in the Form 10-K for the fiscal year ended December 31, 2019,
which was filed with the SEC on May 29, 2020.
In the opinion
of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments,
which are necessary for a fair presentation of financial results for the interim periods presented. The Company believes that the
disclosures are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial
statements have been prepared using the same accounting policies as used in the preparation of the Company’s consolidated
financial statements for the year ended December 31, 2019. The results of operations for the three and six months ended June 30,
2020 and 2019 are not necessarily indicative of the results for the full years.
(b)
|
Consolidation of variable interest entities
|
As a result
of reorganization on June 25, 2020 (Note 1), Huamucheng became a wholly owned subsidiary of the Company. As of June 30, 2020,
the Company had Beijing Tianxing as its sole VIE. As of December 31, 2019, the Company had two VIEs, Beijing Tianxing and
Huamucheng. Beijing Tianxing is engaged in used luxurious car leasing business and Huamucheng is engaged in the commodity
trading and supply chain management business.
The following
financial statement balances reflect the financial positions of the Company’s VIE(s), which was included in the consolidated
balance sheets as of June 30, 2020 and December 31, 2019, respectively:
|
|
As of June 30, 2020
|
|
|
As of December 31, 2019
|
|
|
|
Beijing
Tianxing
|
|
|
Huamucheng
|
|
|
Total
|
|
|
Beijing
Tianxing
|
|
|
Huamucheng
|
|
|
Total
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
55
|
|
|
$
|
-
|
|
|
$
|
55
|
|
|
$
|
94,380
|
|
|
$
|
1,730,793
|
|
|
$
|
1,825,173
|
|
Loans receivable from third parties
|
|
|
680,439
|
|
|
|
-
|
|
|
|
680,439
|
|
|
|
1,364,125
|
|
|
|
-
|
|
|
|
1,364,125
|
|
Due from TD and Hao Limo*
|
|
|
807,246
|
|
|
|
-
|
|
|
|
807,246
|
|
|
|
966,882
|
|
|
|
-
|
|
|
|
966,882
|
|
Due from related parties
|
|
|
293,653
|
|
|
|
-
|
|
|
|
293,653
|
|
|
|
470,154
|
|
|
|
2,840,729
|
|
|
|
3,310,883
|
|
Other current assets
|
|
|
428,723
|
|
|
|
-
|
|
|
|
428,723
|
|
|
|
164,922
|
|
|
|
2,848
|
|
|
|
167,770
|
|
Investment in equity investees
|
|
|
554,711
|
|
|
|
-
|
|
|
|
554,711
|
|
|
|
562,807
|
|
|
|
-
|
|
|
|
562,807
|
|
Leasing business assets, net
|
|
|
2,229,819
|
|
|
|
-
|
|
|
|
2,229,819
|
|
|
|
2,426,109
|
|
|
|
-
|
|
|
|
2,426,109
|
|
Other noncurrent assets
|
|
|
15,434
|
|
|
|
-
|
|
|
|
15,434
|
|
|
|
18,186
|
|
|
|
-
|
|
|
|
18,186
|
|
Total Assets
|
|
$
|
5,010,080
|
|
|
$
|
-
|
|
|
$
|
5,010,080
|
|
|
$
|
6,067,565
|
|
|
$
|
4,574,370
|
|
|
$
|
10,641,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from customers
|
|
$
|
15,029
|
|
|
$
|
-
|
|
|
$
|
15,029
|
|
|
$
|
15,249
|
|
|
$
|
-
|
|
|
$
|
15,249
|
|
Other current liabilities
|
|
|
356,692
|
|
|
|
-
|
|
|
|
356,692
|
|
|
|
218,688
|
|
|
|
207,834
|
|
|
|
426,522
|
|
Third parties loans
|
|
|
1,564,253
|
|
|
|
-
|
|
|
|
1,564,253
|
|
|
|
2,080,941
|
|
|
|
315,729
|
|
|
|
2,396,670
|
|
Due to related parties
|
|
|
229,530
|
|
|
|
-
|
|
|
|
229,530
|
|
|
|
197,733
|
|
|
|
166,332
|
|
|
|
364,065
|
|
Due to TD and Hao Limo **
|
|
|
5,146,671
|
|
|
|
-
|
|
|
|
5,146,671
|
|
|
|
5,197,531
|
|
|
|
2,577,356
|
|
|
|
7,774,887
|
|
Total Liabilities
|
|
$
|
7,312,175
|
|
|
$
|
-
|
|
|
$
|
7,312,175
|
|
|
$
|
7,710,142
|
|
|
$
|
3,267,251
|
|
|
$
|
10,977,393
|
|
*
|
Receivable due from TD and Hao Limo is eliminated upon consolidation.
|
**
|
Payable due to TD and Hao Limo is eliminated upon consolidation.
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
(b)
|
Consolidation of variable interest entities (continued)
|
Because Huamucheng
was a VIE of the Company before June 25, 2020, and there were no material transactions for the five days ended June 30, 2020, the
following financial statement amounts reflect the financial performances and cash flows of Beijing Tianxing and Huamucheng, which
were included in the consolidated financial statements for the six months ended June 30, 2020 and 2019, respectively:
|
|
For the Six Months Ended
June 30, 2020
|
|
|
For the Six Months Ended
June 30, 2019
|
|
|
|
Beijing Tianxing
|
|
|
Huamucheng
|
|
|
Total
|
|
|
Beijing
Tianxing
|
|
|
Huamucheng
|
|
|
Total
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Revenue
|
|
$
|
14,051
|
|
|
$
|
5,178,488
|
|
|
$
|
5,192,539
|
|
|
$
|
940,894
|
|
|
$
|
-
|
|
|
$
|
940,894
|
|
Cost of revenue
|
|
$
|
(323,608
|
)
|
|
$
|
(2,633,840
|
)
|
|
$
|
(2,957,448
|
)
|
|
$
|
(635,189
|
)
|
|
$
|
-
|
|
|
$
|
(635,189
|
)
|
Operating expenses
|
|
$
|
(103,078
|
)
|
|
$
|
(682,159
|
)
|
|
$
|
(785,237
|
)
|
|
$
|
(1,894,015
|
)
|
|
$
|
-
|
|
|
$
|
(1,894,015
|
)
|
Net (loss) income
|
|
$
|
(495,734
|
)
|
|
$
|
2,540,279
|
|
|
$
|
2,044,545
|
|
|
$
|
(993,034
|
)
|
|
$
|
-
|
|
|
$
|
(993,034
|
)
|
|
|
For the Six Months Ended
June 30, 2020
|
|
|
For the Six Months Ended
June 30, 2019
|
|
|
|
Beijing Tianxing
|
|
|
Huamucheng
|
|
|
Total
|
|
|
Beijing
Tianxing
|
|
|
Huamucheng
|
|
|
Total
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Net Cash (Used in) Provided by Operating Activities
|
|
$
|
(320,687
|
)
|
|
$
|
77,363,926
|
|
|
$
|
77,043,239
|
|
|
$
|
655,481
|
|
|
$
|
-
|
|
|
$
|
655,481
|
|
Net Cash Provided by (Used in) by Investing Activities
|
|
|
681,659
|
|
|
|
(78,672,099
|
)
|
|
|
(77,990,440
|
)
|
|
|
(3,671,685
|
)
|
|
|
-
|
|
|
|
(3,671,685
|
)
|
Net Cash (Used in) Provided by Financing Activities
|
|
|
(454,413
|
)
|
|
|
1,071,786
|
|
|
|
617,373
|
|
|
|
2,063,193
|
|
|
|
-
|
|
|
|
2,063,193
|
|
Effect of Exchange Rate Changes on Cash
|
|
|
(884
|
)
|
|
|
(23,699
|
)
|
|
|
(24,583
|
)
|
|
|
12,826
|
|
|
|
-
|
|
|
|
12,826
|
|
Net Decrease in Cash
|
|
|
(94,325
|
)
|
|
|
(260,086
|
)
|
|
|
(354,411
|
)
|
|
|
(940,185
|
)
|
|
|
-
|
|
|
|
(940,185
|
)
|
Cash at Beginning of Period
|
|
|
94,380
|
|
|
|
1,730,793
|
|
|
|
1,825,173
|
|
|
|
991,385
|
|
|
|
-
|
|
|
|
991,385
|
|
Cash at End of Period
|
|
$
|
55
|
|
|
$
|
1,470,707
|
|
|
$
|
1,470,762
|
|
|
$
|
51,200
|
|
|
$
|
-
|
|
|
$
|
51,200
|
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
(c)
|
Foreign currency translation
|
The reporting currency of the Company is
United States Dollars (“US$”), which is also the Company’s functional currency. HC High BVI, HC High HK, and
Tongdow Block Chain maintain their book and records in US$, which is also their functional currency. The Company’s PRC subsidiaries
and VIE maintain their books and records in its local currency, the Renminbi Yuan (“RMB”), which is their functional
currencies as being the primary currency of the economic environment in which these entities operate.
For financial reporting purposes, the financial
statements of the PRC subsidiaries and VIEs prepared using RMB, are translated into the Company’s reporting currency, US$,
at the exchange rates quoted by www.oanda.com. Assets and liabilities are translated using the exchange rate at each balance sheet
date. Revenue and expenses are translated using average rates prevailing during each reporting period, and shareholders’
equity is translated at historical exchange rates, except for the change in accumulated deficit during the year which is the result
of the income statement translation process. Adjustments resulting from the translation are recorded as a separate component of
accumulated other comprehensive loss in stockholders’ equity. Translation of amounts from RMB into US$ has been made at the
following exchange rates for the respective periods:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Balance sheet items, except for equity accounts
|
|
|
7.0697
|
|
|
|
6.9680
|
|
|
|
For the Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Items in the statements of operations, comprehensive loss and statements of cash flows
|
|
|
7.0339
|
|
|
|
6.7856
|
|
Transactions denominated in currencies
other than the functional currency are translated into prevailing functional currency at the exchange rates prevailing at the dates
of the transactions. The resulting exchange differences are included in the consolidated statements of comprehensive loss.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
(d)
|
Accounts receivable, net
|
Accounts receivable are recorded at the
gross amount less an allowance for any uncollectible accounts and do not bear interest. The Company provides commodity trading
business customers with credit term ranging between one week to one month, depending on credit assessment of customers. Management
reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of
receivables. Management also periodically evaluates individual customer’s financial condition, credit history and the current
economic conditions to make adjustments in the allowance when necessary. Account balances are charged off against the allowance
after all means of collection have been exhausted and the potential for recovery is considered remote. As of June 30, 2020, the
Company determined no allowances for doubtful accounts were necessary for accounts receivable.
Prepayments represent amounts advanced
to suppliers for supply of commodity products to the Company. The suppliers of commodity trading business usually require advance
payments when the Company orders service and the prepayments will be utilized to offset the Company’s future payments. These
amounts are unsecured, non-interest bearing and generally short-term in nature.
The Company accounts for income taxes in
accordance with the U.S. GAAP for income taxes. Under the asset and liability method as required by this accounting standard, the
recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between
the income tax basis and financial reporting basis of assets and liabilities. Provision for income taxes consists of taxes currently
due plus deferred taxes.
The charge for taxation is based on the
results for the year as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax is accounted for using the
balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets
and liabilities in the financial statements and the corresponding tax basis. Deferred tax assets are recognized to the extent that
it is probable that taxable income to be utilized with prior net operating loss carried forward. Deferred tax is calculated using
tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged
or credited in the income statement, except when it is related to items credited or charged directly to equity. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant
taxing authorities.
An uncertain tax position is recognized
as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with
a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50%
likely of being realized on examination. Penalties and interest incurred related to underpayment of income tax are classified as
income tax expense in the period incurred. The Company did not have unrecognized uncertain tax positions or any unrecognized liabilities,
interest or penalties associated with unrecognized tax benefit as of June 30, 2020 and December 31, 2019. As of June 30, 2020,
all of the Company’s income tax returns for the tax years ended December 31, 2015 through December 31, 2019 remain
open for statutory examination by relevant tax authorities.
(g)
|
Recent accounting pronouncement
|
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This
ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments
held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial
assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.
This ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates
and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of the Company’s
portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts
recorded in the financial statements. Its mandatory effective dates are as follows: 1. Public business entities that meet the definition
of an SEC filer for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years; 2. All
other public business entities for fiscal years beginning after December 15, 2020, including interim periods within those fiscal
years; and 3. All other entities (private companies, not-for-profit organizations, and employee benefit plans) for fiscal years
beginning after December 15, 2021, including interim periods within those fiscal years. On November 15, 2019, FASB issued ASU 2019-10
which provides a framework to stagger effective dates for future major accounting standards (including ASC 326 Financial instrument-credit
losses) and amends the effective dates to give implementation relief to certain type of entities: 1. Public business entities that
meet the definition of an SEC filer, excluding entities eligible to be Smaller Reporting Companies, or SRC, as defined by the SEC,
for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years; and 2. All other entities
for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. As an “emerging
growth company,” or EGC, the Company has elected to take advantage of the extended transition period provided in the Securities
Act Section 7(a)(2)(B) for complying with new or revised accounting standards applicable to private companies. The Company will
adopt ASU 2016-13 and its related amendments effective January 1, 2023, and the Company is in the process of evaluating the potential
effect on its consolidated financial statements.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
In
August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other
Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting
for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 will simplify the
accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible
preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from
the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1)
those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition
of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments
issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance
for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting
conclusions. For public business entities, the amendments in ASU 2020-06 are effective for public entities which meet the
definition of a smaller reporting company are effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2023. The Company will adopt ASU 2020-06 effective January 1, 2024. Management is currently
evaluating the effect of the adoption of ASU 2020-06 on the consolidated financial statements. The effect will largely depend
on the composition and terms of the financial instruments at the time of adoption.
(h)
|
Risks and uncertainties
|
Assets
that potentially subject the Company to significant concentration of credit risk primarily consist of cash and cash equivalents.
The maximum exposure of such assets to credit risk is their carrying amount as at the balance sheet dates. As of June 30, 2020,
approximately $16,803 was deposited with a bank in the United States which was insured by the government up to $250,000. As of
June 30, 2020 and December 31, 2019, approximately $1,470,791 and $2,399,300, respectively, were primarily deposited in financial
institutions located in Mainland China, which were uninsured by the government authority. To limit exposure to credit risk relating
to deposits, the Company primarily place cash deposits with large financial institutions in China which management believes are
of high credit quality.
The Company’s operations are carried
out in Mainland China. Accordingly, the Company’s business, financial condition and results of operations may be influenced
by the political, economic and legal environments in the PRC as well as by the general state of the PRC’s economy. In addition,
the Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, rates and methods of taxation, and the extraction of mining resources, among
other factors.
The Company is also exposed to liquidity
risk which is risk that it is unable to provide sufficient capital resources and liquidity to meet its commitments and business
needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary,
the Company will turn to other financial institutions and the owners to obtain short-term funding to meet the liquidity shortage.
Substantially all of the Company’s
operating activities and the Company’s major assets and liabilities are denominated in RMB, except for the cash deposit of
approximately $16,803 which was in U.S. dollars as of June 30, 2020, which is not freely convertible into foreign currencies. All
foreign exchange transactions take place either through the Peoples’ Bank of China (“PBOC”) or other authorized
financial institutions at exchange rates quoted by PBOC. Approval of foreign currency payments by the PBOC or other regulatory
institutions requires submitting a payment application form together with suppliers’ invoices and signed contracts.
The value of RMB is subject to changes
in central government policies and to international economic and political developments affecting supply and demand in the China
Foreign Exchange Trading System market. Where there is a significant change in value of RMB, the gains and losses resulting from
translation of financial statements of a foreign subsidiary will be significant affected.
It is possible
that the Company’s VIE agreements with Beijing Tianxing would not be enforceable in China if PRC government authorities or
courts were to find that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy
reasons. In the event that the Company were unable to enforce these contractual arrangements, the Company would not be able to
exert effective control over the VIE. Consequently, the VIE’s results of operations, assets and liabilities would not be
included in the Company’s consolidated financial statements. If such were the case, the Company’s cash flows, financial
position, and operating performance would be materially adversely affected.
For the six months ended June
30, 2020, the Company incurred a net loss of $4.50 million, and reported cash outflows of approximately $2.61 million from operating
activities. As of June 30, 2020, the Company had cash balance of $1.5 million. These factors caused concern as to the Company’s
liquidity as of June 30, 2020. The accompanying unaudited condensed financial statements do not include any adjustments that may
be necessary if the Company is unable to continue as a going concern.
In
assessing the Company’s liquidity, the Company monitors and analyzes its cash and its ability to generate sufficient cash
flow in the future to support its operating and capital expenditure commitments. The Company’s liquidity needs are to meet
its working capital requirements and operating expenses obligations.
As
of June 30, 2020, the Company had a positive working capital of approximately $85.4 million, among which the
Company had a loan due from a customer of approximately $79.4 million for the purpose of developing supply chain financing
business. Pursuant to the loan agreement, the loan term for each individual loan was twelve months from disbursement, but in
practice the loans are revolving every 3 – 4 months. From July 1, 2020 to the date of the report, the Company collected
approximately RMB 507.63 million, or $71.80 million from the customer.
Going
forward, the Company plans to fund its operations through revenue generated from its commodity trading business, operating lease
income, funds from its private placements as well as financial support commitments from the Company’s Chief Executive Officer
and major shareholders.
Based
on above operating plan, the management believes that the Company will continue as a going concern in the following 12 months.
4.
|
LOANS RECEIVABLE
FROM THIRD PARTIES
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Loans receivable from Shenzhen Xinsuniao Technology Co., Ltd. (“Shenzhen Xinsuniao”)
|
|
$
|
79,372,505
|
|
|
$
|
-
|
|
Loans receivable from Shenzhen Qianhai Baiyu Supply Chain Co., Ltd. (“Qianhai Baiyu”)
|
|
|
1,562,662
|
|
|
|
-
|
|
Loans receivable from other third parties
|
|
|
2,298,699
|
|
|
|
1,955,697
|
|
Loan receivable from other third parties, current
|
|
$
|
83,233,866
|
|
|
$
|
1,955,697
|
|
Loan receivable from a third party, noncurrent
|
|
$
|
-
|
|
|
$
|
50,230
|
|
Loans receivable from Shenzhen Xinsuniao
On March 25, 2020 , the Company entered
into a revolving credit facility with Shenzhen Xinsuniao to provide a credit line of RMB 568 million or approximately $80 million
to Shenzhen Xinsuniao, to which the Company also provided loan recommendations services during the six months ended June 30, 2020.
The Company selected Shenzhen Xinsuniao as its customer, because Shenzhen Xinsuniao and its wholly-owned subsidiary Qianhai Baiyu,
were reputable for their extensive experiences in supply chain services for commodities trading.
Pursuant to the
loan agreement, the proceeds should solely be used for the operations of the commodity trading business including sales and purchase
of commodity products, and supply chain management services. Each loan was repayable in twelve months from disbursement, with a
per annum interest rate of 10%. However in practice, the loans are generally revolving every three months, which
matches the transaction turnover of Shenzhen Xinsuniao and Qianhai Baiyu. From July 1, 2020 to the date of this report, the Company
has collected RMB 507.63 million, or US$ 71.80 million from Shenzhen Xinsuniao.
The revolving credit facility lasts for a period
of two years. Shenzhen Xinsuniao pledged 100% of its equity interest in Qianhai Baiyu, which enterprise value was estimated
at approximately $106 million. For the six months ended June 30, 2020, the Company made loans aggregating $79.8 million to
Shenzhen Xinsuniao and recognized interest income of $1.4 million with corresponding account of “other current assets.”
Loans receivable from Qianhai Baiyu
The
Company had a balance of $1,562,662 due from Qianhai Baiyu, which was recorded as a balance due from a related party because Qianhai
Biayu was controlled by Mr. Zhiping Chen, the legal representative of Huamucheng before March 31, 2020. On March 31, 2020, Mr.
Zhiping Cheng transferred its equity interest in Qianhai Baiyu to unrelated third parties, and Qianhai Baiyu became a third party
to the Company. As of June 30, 2020, the Company classified the balance due from Qianhai Baiyu to the account of “loans
receivable due from third parties.” The Company charged an interest rates of 10% per annum. Principal and interest are repaid
on maturity of the loan. For the six months ended June 30, 2020, the Company made loans of $1,570,615 to and collected $2,789,031
from Qianhai Baiyu.
Loans receivable from other third
parties
In addition,
during the six months ended June 30, 2020 and 2019, the Company entered into loan agreements with three and three third parties
and advanced an aggregate of $1,818,037 and $1,114,225 to these third parties as interest-bearing loans, respectively.
The interest rate ranges between 9% and 16% per annum. During the six months ended June 30,
2020 and 2019, the third parties paid back $1,503,109 and $nil, respectively. As of June 30, 2020, the balances of loan principal
and interest payment were due in September 2020 through December 2020. The Company classified loan receivables as current assets.
Management
periodically assesses the collectability of these third-party loans receivable. Delinquent account balances are written-off against
the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. As of June
30, 2020 and December 31, 2019, there was no allowance recorded as the Company considers all of the loans receivable fully
collectible.
Interest income of $1,558,166 and $18,817 was recognized
for the three months ended June 30, 2020 and 2019, respectively. Interest income of $1,643,440 and $31,246 was accrued for
the six months ended June 30, 2020 and 2019. As of June 30, 2020 and December 31, 2019, the Company recorded an interest receivable
of $1,741,205 and $133,742 as reflected under “other current assets” in the unaudited condensed consolidated balance
sheets.
5.
|
INVESTMENTS IN
EQUITY INVESTEES
|
As
of June 30, 2020, the Company’s investments in equity investees were comprised of the following:
|
|
Investment
|
|
|
% of ownership
|
|
|
Investment
dates
|
|
|
|
|
|
|
|
|
|
Chengdu Jianluo Technology Co., Ltd. (“Chengdu Jianluo”) (a)
|
|
$
|
282,897
|
|
|
|
40
|
%
|
|
June 28, 2019
|
Shanghai Huxin Technology Co., Ltd. (“Shanghai Huxin”) (a)
|
|
|
282,897
|
|
|
|
40
|
%
|
|
July 4, 2019
|
Hangzhou Yihe Network Technology Co., Ltd. (“Hangzhou Yihe”) (b)
|
|
|
410,000
|
|
|
|
20
|
%
|
|
December 17, 2019
|
|
|
|
975,794
|
|
|
|
|
|
|
|
Less: Share of results of equity investees
|
|
|
(11,083
|
)
|
|
|
|
|
|
|
|
|
$
|
964,711
|
|
|
|
|
|
|
|
(a)
|
On June 28, 2019
and July 4, 2019, the Company made investments of $282,897 (RMB 2,000,000) and $282,897 (RMB 2,000,000), for 40% of the ownership
interest in each of these two investees, respectively. The purpose of such investment is to establish a cooperative business
partnership with these investees and utilize their marketing strength and customer network to bring in more customers for
the Company’s car leasing services in Chengdu and Shanghai markets.
|
(b)
|
October 14, 2019,
the Company entered into an agreement with Hangzhou Yihe and agreed to issue 1,253,814 shares of the Company’s common
stock to acquire 20% equity interest in Hangzhou Yihe. Hangzhou Yihe was engaged in car leasing business, and the acquisition
was for the purpose of producing synergy between the Company and Hangzhou Yihe so as to promote car leasing business in Zhejiang
province.
|
For
the three and six months ended June 30, 2020, the three equity investees were closed as affected by COVID-19. As a result, the
Company had no share of results of equity investees for the period. As of June 30, 2020 and December 31, 2019, the balance of
share of results of equity investees was $11,083 and $11,245, respectively. Because these equity investees gradually resumed work
since April, the Company expected the closure was temporary, and the decline in fair value below the carrying value is not other-than-temporary.
As of June 30, 2020, the Company did not provide impairment against the investments in equity investees.
6.
|
LEASING BUSINESS
ASSETS, NET
|
As
of June 30, 2020 and December 31, 2019, the Company had investments in eleven and eleven used luxury cars, respectively.
As
of June 30, 2020 and December 31, 2019, the Company, by reference to the market price, determined the fair value of nil and four
used luxurious car were below the original carrying amount of the leased asset and had accumulated impairment of $317,575 and
$322,210, respectively. For the six months ended June 30, 2020 and 2019, the Company recorded impairment of $nil and $96,318,
respectively, for these leasing business assets. For the three months ended June 30, 2020 and 2019, the Company did not provide
impairment for these leasing business assets.
As
of the June 30, 2020 and December 31, 2019, the balance of the used luxurious cars is comprised of the following:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Used luxury cars
|
|
$
|
2,754,927
|
|
|
$
|
2,795,136
|
|
Less: accumulated depreciation
|
|
|
(525,108
|
)
|
|
|
(369,027
|
)
|
|
|
$
|
2,229,819
|
|
|
$
|
2,426,109
|
|
For
the three months ended June 30, 2020 and 2019, the Company charged depreciation expenses of $82,633 and $55,321 on used luxurious
cars, respectively. For the six months ended June 30, 2020 and 2019, the Company charged depreciation expenses of $162,211 and
$102,179 on used luxurious cars, respectively.
7.
|
THIRD PARTIES LOANS PAYABLE
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
Third parties loans payable
|
|
$
|
1,886,756
|
|
|
$
|
2,367,967
|
|
The borrowings are due through December 2020.
The purpose of such borrowings was to use the funds to purchase used luxurious cars. The interest rate charged on the borrowings
ranged between 7% and 11.5%. For the three months ended June 30, 2020 and 2019, the Company recognized interest expenses of
$60,426 and $30,675 on the borrowings, respectively. For the six months ended June 30, 2020 and 2019, the Company recognized interest
expenses of $158,541 and $37,544 on the borrowings, respectively.
As
of June 30, 2020 and December 31, 2019, eight used luxurious cars with an aggregated carrying amount of $1,889,182 were pledged
for borrowings from third parties (see Note 4).
8.
|
OTHER CURRENT LIABILITIES
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Other payable (1)
|
|
$
|
792,113
|
|
|
$
|
128,301
|
|
Accrued interest expenses
|
|
|
273,604
|
|
|
|
117,554
|
|
Deposit payable
|
|
|
57,164
|
|
|
|
64,342
|
|
Accrued payroll and benefit
|
|
|
36,281
|
|
|
|
49,690
|
|
Other tax payable
|
|
|
207,342
|
|
|
|
39,692
|
|
Others
|
|
|
34,038
|
|
|
|
20,522
|
|
|
|
$
|
1,400,542
|
|
|
$
|
420,101
|
|
|
(1)
|
As
of June 30, 2020, the balance of other payable represented advances from one customer for commodities trading business.
However since the Company cannot deliver the products in due time, the transaction was cancelled in early July 2020, and the
Company returned the amount to the customer.
|
9.
|
STOCK SUBSCRIPTION
ADVANCE FROM SHAREHOLDERS
|
On
November 21, 2019, the Company entered into a securities purchase agreement with certain investors, pursuant to which the Company
agreed to sell an aggregate of 2,000,000 shares of its common stock, par value $0.001 per share, at a per share purchase price
of $0.80. As of December 31, 2019, the Company received the proceeds of $1,600,000 in advance from these investors and recorded
the amount as “stock subscription advance from shareholder”. On February 5, 2020, the Company issued 2,000,000 shares
of Common Stock to the Purchasers, and reversed the amount in the account of “stock subscription advance from shareholder”.
Common
Stock
On
January 22, 2020, the Company entered into certain securities purchase agreement with certain investors, pursuant to which the
Company agreed to sell an aggregate of 15,000,000 shares of Common Stock, at a per share purchase price of $0.90. The transaction
was consummated on March 23, 2020 by issuance of 15,000,000 shares of Common Stock. The Company received proceeds of $13,500,000
in April 2020.
On January 22, 2020, the Company also
agreed to sell unsecured senior convertible promissory notes (“Notes”) in the aggregate principal amount of $30,000,000
accompanied by warrants to purchase 20,000,000 shares of Common Stock issuable upon conversion of the Notes at an exercise price
of $1.80 (the “2020 Warrants” ). On March 23, 2020, the Company issued the Notes and Warrants to the investors.
In April 2020, the Company received the proceeds of $30,000,000 from the issuance of Notes and 2020 Warrants.
The
Notes have a maturity date of 12 months with an interest rate of 7.5% per annum. Holders have the right to convert all or any
part of the Notes into shares of Common Stock at a conversion price of $1.50 per share 30 days after its date of issuance. The
Company retains the right to prepay the Note at any time prior to conversion with an amount in cash equal to 107.5% of the principal
that the Company elects to prepay.
The
2020 Warrants are exercisable immediately upon the date of
issuance at the exercise price of $1.80 for cash (the “Warrant Shares”). The 2020 Warrants may also be exercised cashless
if at any time after the six-month anniversary of the issuance date. There is no effective registration statement registering,
or no current prospectus available for the resale of the Warrant Shares, if exercised, The 2020 Warrants will expire five years
from date of issuance. The 2020 Warrants are subject to anti-dilution provisions to reflect stock dividends and splits or other
similar transactions. The 2020 Warrants contain a mandatory exercise right for the Company to force exercise of the 2020 Warrants
if the Company’s common stock trades at or above $3.00 for 20 consecutive trading days, provided, among other things, that
the shares issuable upon exercise of the are registered or may be sold pursuant to Rule 144 and the daily trading volume exceeds
300,000 shares of Common stock per trading day on each trading day in a period of 20 consecutive trading days prior to the applicable
date.
The
Company applied Black-Scholes model to determine the fair value of the 2020 Warrants at $3.42 million. Significant
estimates and assumptions used included stock price on January 22, 2020 of $1.52 per share, risk-free interest rate of six month
of 1.52%, time to maturity of 2.5 years, and volatility of 25.99%.
10.
|
CAPITAL TRANSACIONS
(CONTINUED)
|
The proceeds of $30 million must be allocated
between the Note and the 2020 Warrants, based on the relative fair value. The ratio of the relative fair values of the Notes and
the Warrants was 89.8% to 10.2%. After allocating 10.2%, or $3.06 million, of the proceeds to the 2020 Warrants, the Company estimated
the embedded conversion option within the Notes is beneficial to the holders, because the effective conversion price was $1.35
($27.0 million/20 million shares), which was below the Company’s share price of $1.52 on January 22, 2020. The fair value
of this beneficial conversion feature was estimated to be $3.4 million, and was recorded to debt discount, to be amortized to
interest expense using the effective interest method over the term of the Note.
The total Notes discount was recognized
at $6.46 million ($3.06 million from the allocation of proceeds to the Warrants and an additional $3.4 million from the measurement
of the intrinsic value of the conversion option). The Note discount was initially recognized as a reduction to the carrying amount
of the Notes and an addition to paid-in capital, and was to be subsequently amortized to interest expense using the effective interest
method over the Note period.
In
April 2020, the Holders elected to convert the Notes at a conversion price of $1.50 per share and also exercise the Warrants at
an exercise price of $1.80 per share, and paid cash consideration of $36,000,000 for the exercise of the Warrants by April 15,
2020. As a result, an aggregate of 40,000,000 shares of the Company’s Common Stock were issued on May 18, 2020. The Company
received proceeds aggregating $66,000,000 from the transaction, and upon settlement of the Note and the 2020 Warrants, the
Company immediately expensed the Note discount of $6.46 million For the six months ended June 30, 2020, the Company recognized
amortization of beneficial conversion feature relating
to issuance of convertible notes of $3.4 million and amortization of relative fair value of warrants relating to issuance of conversion
notes of $3.06 million.
Warrants
A
summary of warrants activity for the six months ended June 30, 2020 was as follows:
|
|
Number of
shares
|
|
|
Weighted
average life
|
|
|
Weighted average exercise price
|
|
|
|
|
|
|
|
|
|
|
|
Balance of warrants outstanding as of December 31, 2019
|
|
|
3,033,370
|
|
|
|
4.38 years
|
|
|
|
1.58
|
|
Granted
|
|
|
20,000,000
|
|
|
|
|
|
|
|
1.80
|
|
Exercised
|
|
|
(20,000,000
|
)
|
|
|
|
|
|
|
1.80
|
|
Balance of warrants outstanding as of June 30, 2020
|
|
|
3,033,370
|
|
|
|
3.88 years
|
|
|
|
1.58
|
|
As
of June 30, 2020 and December 31, 2019, the Company had 3,033,370 shares of warrants, among which 273,370 shares of warrants were
issued to two individuals in private placements, and 2,760,000 shares of warrants were issued in two direct offerings
closed on May 20, 2019 (“May Offering”) and April 11, 2019 (“April Offering”)
In
connection with April Offering, the Company issued warrants to investors to purchase a total of 1,680,000 ordinary shares with
a warrant term of five (5) years. The warrants have an exercise price of $2.20 per share. On May 20, 2019, the exercise price
was reduced to $1.32, and on August 30, 2019 the exercise price was revised to $2.20.
In
connection with May Offering, the Company issued warrants to investors to purchase a total of 1,080,000 ordinary shares with a
warrant term of five and a half (5.5) years. The warrants have an exercise price of $1.32 per share.
On
August 30, 2019, the Company updated the estimation of fair value of warrants issued on April 11, 2019 as a result of the change
in exercise price of the warrants from $1.32 to $2.20. Accordingly the fair value of the Replacement Warrant decreased from $1,638,000
to $1,357,440.
Both
warrants are subject to anti-dilution provisions to reflect stock dividends and splits or other similar transactions, but not
as a result of future securities offerings at lower prices. The warrants did not meet the definition of liabilities or derivatives,
and as such they are classified as an equity.
On
April 11, 2019 and May 20, 2019, the Company estimated fair value of the both warrants at $1,638,000 and $762,480, respectively,
using the Black-Scholes valuation model, which took into consideration the underlying price of ordinary shares, a risk-free interest
rate, expected term and expected volatility. As a result, the valuation of the warrant was categorized as Level 3 in accordance
with ASC 820, “Fair Value Measurement”.
The
key assumption used in estimates are as follows:
|
|
April 11,
|
|
|
August 30,
|
|
|
May 20,
|
|
|
|
2019
|
|
|
2019
|
|
|
2019
|
|
|
|
|
|
|
(Replacement Warrants)
|
|
|
|
|
Price of underlying stock
|
|
|
1.71
|
|
|
|
1.71
|
|
|
|
1.32
|
|
Terms of warrants (in months)
|
|
|
60.0
|
|
|
|
55.3
|
|
|
|
66.0
|
|
Exercise price
|
|
$
|
1.32
|
|
|
$
|
2.20
|
|
|
$
|
1.32
|
|
Risk free rate of interest
|
|
|
2.77
|
%
|
|
|
2.77
|
%
|
|
|
2.77
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Annualized volatility of underlying stock
|
|
|
55.6
|
%
|
|
|
63.45
|
%
|
|
|
57.04
|
%
|
Effective
January 1, 2008, the New Taxation Law of PRC stipulates that domestic enterprises and foreign invested enterprises (the “FIEs”)
are subject to a uniform tax rate of 25%. Under the PRC tax law, companies are required to make quarterly estimate payments based
on 25% tax rate; companies that received preferential tax rates are also required to use a 25% tax rate for their installment
tax payments. The overpayment, however, will not be refunded and can only be used to offset future tax liabilities.
The
Company evaluates the level of authority for each uncertain tax position (including the potential application of interest and
penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. For the three
and six months ended June 30, 2020, the Company had no unrecognized tax benefits. Due to uncertainties surrounding future utilization,
the Company estimates there will not be sufficient future income to realize the deferred tax assets for certain subsidiaries and
a VIE. As of June 30, 2020 and December 31, 2019, the Company had deferred tax assets of $5,908,788 and $3,574,333, respectively.
The Company maintains a full valuation allowance on its net deferred tax assets as of June 30, 2020.
The
Company does not anticipate any significant increase to its liability for unrecognized tax benefit within the next 12 months.
The Company will classify interest and penalties related to income tax matters, if any, in income tax expense.
For
the three months ended June 30, 2020 and 2019, the Company had current income tax expenses of $847,409 generated by Huamucheng
and $nil, respectively, and deferred income tax expenses of $nil and $nil, respectively. For the six months ended June 30, 2020
and 2019, the Company had current income tax expenses of $799,029 generated by Huamucheng and $nil, respectively, and deferred
income tax expenses of $nil and $nil, respectively.
The
Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions.
The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that
it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized
upon settlement. Interest and penalties related to uncertain tax positions are recognized and recorded as necessary in the provision
for income taxes. The Company is subject to income taxes in the PRC. According to the PRC Tax Administration and Collection Law,
the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or
the withholding agent. The statute of limitations is extended to five years under special circumstances, where the underpayment
of taxes is more than RMB 100,000. In the case of transfer pricing issues, the statute of limitation is ten years. There is no
statute of limitation in the case of tax evasion. There were no uncertain tax positions as of June 30, 2020 and December 31, 2019
and the Company does not believe that its unrecognized tax benefits will change over the next twelve months.
12.
|
RELATED PARTY
TRANSACTIONS AND BALANCES
|
1)
|
Nature of relationships
with related parties
|
Name
|
|
Relationship
with the Company
|
Chengdu
Jianluo Technology Co., Ltd.
(“Chengdu
Jianluo”)
|
|
An associate of the Company, over which the
Company has 40% equity interest and exercises significant influence
|
Shanghai
Huxin Technology Co., Ltd.
(“Shanghai
Huxin”)
|
|
An associate of the Company, over which the
Company has 40% equity interest and exercises significant influence
|
Shenzhen
Qianhai Baiyu Supply Chain Co., Ltd.
(“Qianhai
Baiyu”)
|
|
Controlled by Mr. Zhiping Chen, the legal representative
of Huamucheng, prior to March 31, 2020
|
Guangzhou Chengji Investment Development Co.,
Ltd.
(“Guangzhou Chengji”)
|
|
Controlled by Mr. Weicheng Pan, who is an independent
director of the Company.
|
Jiaxi Gao
|
|
Chief Executive Office of the Company prior
to January 9, 2020
|
Guotao Deng
|
|
Legal representative of an entity over which
the Company exercised significant influence
|
Tao Sun
|
|
Senior Management of the Company
|
Shun Li
|
|
Legal representative of Beijing Tianxing
|
Lu Zhao
|
|
Senior Management
of Beijing Tianxing
|
12.
|
RELATED PARTY
TRANSACTIONS AND BALANCES (CONTINUED)
|
2)
|
Balances with
related parties
|
As
of June 30, 2020 and December 31, 2019, the balances with related parties were as follows:
-
|
Due from related
parties
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Qianhai Baiyu (i)
|
|
$
|
-
|
|
|
$
|
2,840,728
|
|
Chengdu Jianluo (ii)
|
|
|
445,838
|
|
|
|
452,346
|
|
Shanghai Huxin (iii)
|
|
|
17,552
|
|
|
|
17,809
|
|
Total Due from related parties
|
|
$
|
463,390
|
|
|
$
|
3,310,883
|
|
(i)
|
The balance due
from Qianhai Baiyu represented a loan principal and interest due from the related party. The Company charged the related party
interest rates 10% per annum. Principal and interest are repaid on maturity of the loan. On March 31, 2020, Mr. Zhiping Chen
transferred his controlling equity interest to an unrelated third party and Qianhai Baiyu was not a related party of the Company.
As of June 30, 2020, the Company classified the balance due from Qianhai Baiyu to “Loans receivable from third parties”
(Note 4).
|
(i)
|
As of June 30, 2020,
the balance due from Chengdu Jianluo consisted of receivables for transfers of two used luxurious cars at consideration aggregating
$462,600, netting off against car-related fees due to the related party of $16,762.
|
As
of December 31, 2019, the balance due from Chengdu Jianluo consisted of receivables for transfers of two used luxurious cars at
consideration aggregating $461,513, netting off against car-related fees due to the related party of $17,006.
(iii)
|
The balance due
from Shanghai Huxin represented a loan due from the related party. The balance is collected on demand, and no interest income
is charged to the associate.
|
12.
|
RELATED PARTY
TRANSACTIONS AND BALANCES (CONTINUED)
|
2)
|
Balances with
related parties (continued)
|
-
|
Due to related
parties, current
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Guangzhou Chengji (1)
|
|
$
|
2,107,002
|
|
|
$
|
970,318
|
|
Lu Zhao (2)
|
|
|
62,243
|
|
|
|
33,269
|
|
Jiaxi Gao (3)
|
|
|
8,017
|
|
|
|
8,134
|
|
Tao Sun (3)
|
|
|
9,335
|
|
|
|
4,206
|
|
Guotao Deng (3)
|
|
|
488
|
|
|
|
1,435
|
|
Total
|
|
$
|
2,187,085
|
|
|
$
|
1,017,362
|
|
(1)
|
The balance due
to Guangzhou Chengji represents loan principal and interest due to the related parties. The loan has an interest rate of 8%
per annum with a maturity date of September 4, 2020.
|
(2)
|
As of June 30, 2020
and December 31, 2019, the balance due to Lu Zhao consisted of the operating expenses of $2,829 and $2,870, respectively,
which was paid by the related party on behalf the Company and is payable on demand and interest free, and loan principal and
interest aggregating $59,414 and $ 30,399 due to the related party. The loans have an interest rate
of 10% per annum with a maturity date of December 30, 2020
|
(3)
|
The balances due
to Jiaxi Gao, Guotao Deng and Tao Sun represents the operating expenses paid by the related parties on behalf of the Company.
The balance is payable on demand and interest free.
|
-
|
Due to related
parties, noncurrent
|
|
|
June
30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
Tao
Sun
|
|
$
|
149,936
|
|
|
$
|
152,124
|
|
The
balance of related party loan was payable in September 2022, with an interest rate of 9.5% per annum.
For
the above mentioned related party borrowings, interest expense amounted to $43,888 and $nil for the three months ended June 30,
2020 and 2019, respectively. Interest expense amounted to $80,148 and $nil for the six months ended June 30, 2020 and 2019, respectively.
12.
|
RELATED PARTY
TRANSACTIONS AND BALANCES (CONTINUED)
|
3)
|
Transactions
with related parties
|
-
|
Purchase from
a related party and cost of revenue associated with commodity trading business
|
For
the three months ended March 31, 2020, the Company purchased aluminum ingots of $1,055,143 from Qianhai Baiyu, which was controlled
by Mr. Zhiping Chen, the legal representative of Huamucheng. For the three months ended March 31, 2020, the Company sold all aluminum
ingots to customers and recorded cost of revenue of $1,055,143 associated with commodity product sales.
From April 1, 2020, Qianhai Baiyu was
no longer a related party of the Company.
-
|
Lending to a
related party
|
For the three months ended March 31, 2020,
the Company lent loans aggregating $1,593,260 to Qianhai Baiyu, which was controlled by Mr. Zhiping Chen, the legal representative
of Huamucheng. The Company charged the related party interest rates 10% per annum. For the three months ended March 31, 2020,
the Company recognized interest income of $54,193.
From
April 1, 2020, Qianhai Baiyu was not a related party of the Company.
-
|
Borrowings from
related parties
|
For the six months ended June 30, 2020, the
Company borrowed loans aggregating $36,344 from and collected $9,745 to Mr. Lu Zhao, a member of the senior management team of
Beijing Tianxing. The loan will expire on December 24, 2020. The interest rate charged on the borrowing was 10%. For the three
and six months ended June 30, 2020, the Company accrued interest expenses of $1,429 and $3,003, respectively.
For
the six months ended June 30, 2020, the Company borrowed a loan of $1,035,560 from Guangzhou Chengji. The Loan has an annual interest
rate of 8% and a maturity date of December 4, 2020. For the three and six months ended June 30, 2020, the Company accrued interest
expenses of $39,659 and $71,929, respectively.
In
accordance with ASC 280, Segment Reporting, operating segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), or
decision making group, in deciding how to allocate resources and in assessing performance. The Company uses the “management
approach” in determining reportable operating segments. The management approach considers the internal organization and
reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance
as the source for determining the Company’s reportable segments. Management, including the chief operating decision maker,
reviews operation results by the revenue of different services. For the six months ended June 30, 2020, the Company has two operating
business lines, including business with metal products trading and supply chain management services business conducted by Huamucheng
(“Commodity Trading and Supply Chain Management Services” or “Huamucheng Business”) and used luxurious
car leasing business conducted by Beijing Tianxing (“Used Car Leasing” or “Tianxing Business”). Based
on management’s assessment, the Company has determined that the two operating business lines are two operating segments
as defined by ASC 280. For the six months ended June 30, 2019, the Company had one operating business line and one reporting unit.
The following table presents summary information
by segment for the three months ended June 30, 2020 and 2019:
|
|
For the Three Months Ended
June 30, 2020
|
|
|
|
Tianxing
Business
|
|
|
Huamucheng
Business
|
|
|
Unallocated
|
|
|
Total
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
3,709,479
|
|
|
$
|
-
|
|
|
$
|
3,709,479
|
|
Cost of revenue and related tax
|
|
|
(224,295
|
)
|
|
|
(1,577,980
|
)
|
|
|
-
|
|
|
|
(1,802,275
|
)
|
Gross profit
|
|
$
|
(224,295
|
)
|
|
$
|
2,131,499
|
|
|
$
|
-
|
|
|
$
|
1,907,204
|
|
Total other income (expenses), net
|
|
$
|
(25,532
|
)
|
|
$
|
1,481,133
|
|
|
$
|
(6,433,363
|
)
|
|
$
|
(4,977,762
|
)
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
(799,029
|
)
|
|
$
|
-
|
|
|
$
|
(799,029
|
)
|
Segment (loss) profit
|
|
$
|
(282,290
|
)
|
|
$
|
2,396,349
|
|
|
$
|
(6,475,317
|
)
|
|
$
|
(4,361,258
|
)
|
Segment assets as of June 30, 2020
|
|
$
|
4,202,834
|
|
|
$
|
88,976,877
|
|
|
$
|
2,365,956
|
|
|
$
|
95,545,667
|
|
|
|
For the Three Months Ended June 30, 2019
|
|
|
|
Tianxing
Business
|
|
|
Huamucheng
Business
|
|
|
Unallocated
|
|
|
Total
|
|
Revenue
|
|
$
|
549,895
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
549,895
|
|
Cost of revenue and related tax
|
|
|
(387,538
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(387,538
|
)
|
Gross profit
|
|
$
|
143,357
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
143,357
|
|
Interest expense, net
|
|
$
|
(49,725
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(49,725
|
)
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Segment loss
|
|
$
|
(1,040,325
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(1,040,325
|
)
|
Segment assets as of June 30, 2019
|
|
$
|
8,034,039
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,034,039
|
|
The
following table presents summary information by segment for the six months ended June 30, 2020 and 2019:
|
|
For the Six Months Ended June 30, 2020
|
|
|
|
Tianxing
Business
|
|
|
Huamucheng
Business
|
|
|
Unallocated
|
|
|
Total
|
|
Revenue
|
|
$
|
14,051
|
|
|
$
|
5,178,488
|
|
|
$
|
-
|
|
|
$
|
5,192,539
|
|
Cost of revenue and related tax
|
|
|
(323,609
|
)
|
|
|
(2,633,840
|
)
|
|
|
-
|
|
|
|
(2,957,449
|
)
|
Gross profit
|
|
$
|
(309,558
|
)
|
|
$
|
2,544,648
|
|
|
$
|
-
|
|
|
$
|
2,235,090
|
|
Total other income (expenses), net
|
|
$
|
(82,957
|
)
|
|
$
|
1,525,194
|
|
|
$
|
(6,414,362
|
)
|
|
$
|
(4,972,125
|
)
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
(847,409
|
)
|
|
$
|
-
|
|
|
$
|
(847,409
|
)
|
Segment (loss) profit
|
|
$
|
(495,734
|
)
|
|
$
|
2,540,279
|
|
|
$
|
(6,545,775
|
)
|
|
$
|
(4,501,230
|
)
|
Segment assets as of June 30, 2020
|
|
$
|
4,202,834
|
|
|
$
|
88,976,877
|
|
|
$
|
2,365,956
|
|
|
$
|
95,545,667
|
|
|
|
For the Six Months Ended June 30, 2019
|
|
|
|
Tianxing
Business
|
|
|
Huamucheng
Business
|
|
|
Unallocated
|
|
|
Total
|
|
Revenue
|
|
$
|
940,894
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
940,894
|
|
Cost of revenue and related tax
|
|
|
(635,189
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(635,189
|
)
|
Gross profit
|
|
$
|
305,705
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
305,705
|
|
Interest expense, net
|
|
$
|
(39,262
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(39,262
|
)
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Segment loss
|
|
$
|
(2,870,151
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(2,870,151
|
)
|
Segment assets as of June 30, 2019
|
|
$
|
8,034,039
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,034,039
|
|
14.
|
COMMITMENTS AND
CONTINGENCIES
|
The
Company’s VIEs lease their offices which are classified as operating leases in accordance with Topic 842. Under Topic 842,
lessees are required to recognize the following for all leases (with the exception of short-term leases) on the commencement date:
(i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted
basis; and (ii) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of,
a specified asset for the lease term.
The
Company leases offices space with terms ranging from one to two years. The Company considers those renewal or termination options
that are reasonably certain to be exercised in the determination of the lease term and initial measurement of right of use assets
and lease liabilities. Lease expense for lease payment is recognized on a straight-line basis over the lease term. Leases with
initial term of 12 months or less are not recorded on the balance sheet.
The
Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification
criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments
to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore,
the Company discount lease payments based on an estimate of its incremental borrowing rate.
As
of June 30, 2020, the Company had two lease contracts with lease expiration in June 2021 and September 2020, respectively. The
lease contract does not contain any material residual value guarantees or material restrictive covenants. The table below presents
the operating lease related assets and liabilities recorded on the balance sheet.
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Rights of use lease assets
|
|
$
|
316,128
|
|
|
$
|
41,188
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities, current
|
|
$
|
283,680
|
|
|
$
|
-
|
|
Operating lease liabilities, noncurrent
|
|
|
-
|
|
|
|
-
|
|
Total operating lease liabilities
|
|
$
|
283,680
|
|
|
$
|
-
|
|
As
of June 30, 2020 and December 31, 2019, the weighted average remaining lease term was 0.84 years and 0.71 years, respectively,
and discount rates were 4.75% for all of the operating leases.
Lease
expenses for the three months ended June 30, 2020 and 2019 were $92,414 and $28,125, respectively. Lease expenses for the six
months ended June 30, 2020 and 2019 were $187,538 and $44,749, respectively.
The
following is a schedule, by years, of maturities of lease liabilities as of June 30, 2020:
Twelve months ended June 30, 2021
|
|
$
|
290,462
|
|
|
|
|
|
|
Total lease payments
|
|
|
290,462
|
|
Less: imputed interest
|
|
|
(6,782
|
)
|
Present value of lease liabilities
|
|
$
|
283,680
|
|
14.
|
COMMITMENTS AND
CONTINGENCIES (CONTINUED)
|
On
February 3, 2015, a purported shareholder Kiran Kodali filed a putative shareholder derivative complaint against the Company,
alleging that the Company and its former officers and directors violated their fiduciary duties, grossly mismanaged the Company
and were unjustly enriched based upon the transfer that was the subject of the Internal Review and other grounds substantially
similar to those asserted in the class action complaints.
On
July 16, 2019, the Company received a copy of the final order and judgment that the Court entered on July 11, 2019, approving
the settlement set forth in the Stipulation. The Stipulation provides for dismissal of the Derivative Action as to the Company
and the Individual Defendants, and the Company agrees to adopt or maintain certain corporate governance reforms for at least three
years. The Stipulation also provides for attorneys’ fees and expenses to be paid by the Individual Defendants’ insurance
carriers to plaintiffs’ counsel.
b
|
2017 Arbitration
with Sorghum
|
On
December 21, 2017, the Company delivered notice (“Notice”) to Sorghum notifying Sorghum that certain recent actions
of Sorghum constituted breaches of Sorghum’s covenants under the Exchange Agreement. Specifically, we believe that Sorghum
is in breach of Section 6.9 (a and Section 6.11 (b of the Exchange Agreement which required Sorghum to use commercially reasonable
efforts and to cooperate fully with the other parties to consummate the transactions contemplated by the Exchange Agreement and
to make its directors, officers and employees available in connection with responding in a timely manner to SEC comments. According
to the terms of the Exchange Agreement, the Company is entitled to terminate the Exchange Agreement if the breach is not cured
within twenty (20 days after the Notice is provided to Sorghum.
On
January 25, 2018, the Company filed an arbitration demand (“Arbitration Demand” with the American Arbitration Association
(“AAA” against Sorghum in connection with Sorghum’s breach of the Exchange Agreement.
On
July 30, 2018, Arbitrator entered a reasoned award, accepting the Company’s proposal for resolution, awarding the Company
damages of $1,436,522 against Sorghum and denying Sorghum’s Counterclaim against the Company in its entirety with prejudice.
Sorghum has sought to vacate the arbitration award by filing a petition to vacate the arbitration award in the Supreme Court for
the State of New York, New York County. The Court heard the Company and Sorghum’s arguments on May 1, 2019, and entered
an order vacating the arbitration award. The Company vigorously opposed and moved to confirm the arbitration award on May 6, 2019.
On June 5, 2019, the Company filed a notice of appeal with the New York Supreme Court Appellate Division First Department. The
appeal was scheduled to be mediated on November 20, 2019. On November 15, 2019, the Company withdrew its appeal filed June 5,
2019, upon the stipulation of the parties and accordingly, the arbitration award is deemed to be vacated.
14.
|
COMMITMENTS AND
CONTINGENCIES (CONTINUED)
|
c
|
2018 Court Matter
with Shanghai Nonobank Financial Information Service Co. Ltd.
|
On
August 2, 2018, the Company became party to an action filed by Shanghai Nonobank Financial Information Service Co. Ltd. (“Plaintiff”)
in the Supreme Court for the State of New York, New York County (“NY Supreme Court” (Index No. 653834/2018 (the “Action”).
Plaintiff’s complaint seeks to recover approximately $3.5 million of Plaintiff’s funds that were allegedly required
to be held in escrow in New York pursuant to an agreement by and between Plaintiff, Yang Jie and Yi Lin (the “Complaint”).
Plaintiff has alleged that the funds were required to be held in escrow in a New York attorney trust account pending the alleged
consummation of a merger between Plaintiff’s parent company and the Company. Plaintiff alleged two causes of action against
the Company for fraud/fraudulent inducement and conversion. On August 30, 2018, the Company filed a motion to dismiss Plaintiff’s
causes of action against the Company. The Court has scheduled oral arguments on the Company’s motion to dismiss for May
1, 2019.
On
July 15, 2019, the Company received a copy of the decision and order the Court entered on July 12, 2019, granting the Company’s
motion to dismiss the Complaint in its entirety as against the Company without prejudice, with costs and disbursements to the
Company as taxed by the Clerk of the Court, and the Clerk is directed to enter judgment accordingly in favor of the Company.
d
|
2020 Court Matter
with Harrison Fund
|
On
April 6, 2020, the Company filed a law suit against Harrison Fund, LLC (“Harrison Fund”) in the United States District
Court for the Northern District of California (the “District Court”) (Case No. 3:20-cv-2307). The Company had invested
$1,000,000 in Harrison Fund around May 2019. However, Harrison Fund had been reluctant to disclose related investment information
to the Company and it was discovered that certain information presented on Harrison Fund’s brochure appeared to be problematic.
The Company demanded a return of its investment from Harrison Fund. When the Company failed to obtain a response from Harrison
Fund, it filed the complaint against Harrison Fund seeking to recover the $1,000,000 investment.
Due
to the uncertainty arising from this pending legal proceeding, a full impairment has been applied against the Company’s
investment in financial products.
From July 1, 2020 to the date of this report,
the Company collected RMB 507.63 million, or $71.80 million from Shenzhen Xinsuniao.
The Company evaluated all events and transactions
that occurred after June 30, 2020 up through the date the Company issued these unaudited condensed consolidated financial statements
on August 14, 2020.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Overview
As
of June 30, 2020, the Company had two business lines, used luxury car leasing business and commodities trading business.
Used
luxury car leasing business
Currently the Company has eleven used luxurious
cars with net book value of approximately US$2.23 million. In addition, the Company also leased used luxurious cars from peer companies
and individuals to provide more varieties of luxurious cars to our customers. To determine the model of vehicles to be purchased,
we collect data related to customers’ demands and preferences through sales and online promotions. Our professional procurement
personnel will then compare models of vehicles offered by different sellers. The decision to purchase a specific vehicle is
based on a number of considerations including time of delivery, vehicle condition, vehicle safety features, mileage, repair and
maintenance history, accident history, market scarcity, etc. Due to the effects of COVID-19, we had closed our luxury car rental
facilities from the end of January 2020 and have resumed our operations since April 2020. For the six months ended June 30, 2020
and 2019, the Company earned income from operating lease of $14,051 and $940,894, respectively. For the three months ended June
30, 2020 and 2019, the Company earned income from operating lease of $nil and $540,895, respectively.
We
rent our luxurious cars to our customers from our offices in Beijing, Shanghai, Zhejiang and Chengdu. We market our cars to targeted
potential customers via phone calls or messages. The rental price varies based on the rental term which ranges from one day to
one month. The longer the rental term, the cheaper the price. The daily rental price is the highest, while the average weekly
rental price and average monthly rental price are 10% to 20% cheaper and 20% to 30% cheaper, respectively, than that of the daily
rental price.
We
conduct a comprehensive credit check against customers who place orders. We work with credit rating platforms such as JD Wanxiang
and TYi Online to evaluate the customer’s credit. We may reject an order for any reason including unacceptable credit ratings.
Once an order is accepted, we will require a deposit ranging from US$7,500 to US$15,000 based on the vehicle being ordered and
the customer’s credit score. The deposit covers vehicle deposit and traffic violation deposit. Customer can confirm the
time and place for vehicle delivery and rental term via SMS messages, phone calls or face-to-face communication with our sales
personnel. After that, our sales personnel will deliver the vehicle to the customers at their designated location. The customer,
before signing the car rental agreement, will inspect the vehicle in person and pay the lease fee along with the deposit via credit
card, Wechat Pay or Alipay. The customer is responsible for the gas, toll fee, fees incurred to return the car, and any other
expenses related to the use of the vehicle during the rental term.
We
install five GPS trackers on each vehicle to track the location of the vehicles. Once the rental period is over, the vehicle needs
to be returned to our designated location. In the event the vehicle is returned with no damage other than normal wear and tear,
we will process the refund of the vehicle deposit on the next business day. The traffic deposit will be refunded after we confirm
that there are no traffic violation records associated with the vehicle from the local police (approximately a month after the
return).
Competition
We
compete with car rental companies, many of which are more established and have more resources than us. Currently we compete primarily
with Benson, V-FLY Travel and Wagons.
Commodities
trading business
In
order to diversify the Company’s business and generate additional revenue, on November 22, 2019, the Company’s wholly-owned
subsidiary, Hao Limo Technology (Beijing) Co., Ltd. (“Hao Limo”), entered into a series of contractual agreements
(the “Huamucheng VIE Agreements”) with Shenzhen Huamucheng Trading Co., Ltd. (“Huamucheng”) and certain
shareholders of Huamucheng (“Huamucheng Shareholders”), who collectively hold 100% of Huamucheng. The Huamucheng VIE
Agreements are designed to provide Hao Limo with the power, rights and obligations equivalent, in all material respects, to those
it would possess as the sole equity holder of Huamucheng, including absolute control rights and the rights to the management,
operations, assets, property and revenue of Huamucheng. The purpose of the VIE Agreements is solely to give Hao Limo the exclusive
control over Huamucheng’s management. Through Huamucheng VIE structure, the Company is able to consolidate operations of
Huamucheng effective November 22, 2019 and now operates a separate commodity trading business.
The
commodity trading business primarily involves purchasing non-ferrous metal product, such as aluminium ingots, copper, silver,
and gold, from upstream metal and mineral suppliers and then selling to downstream customers. In connection with the Company’s
commodity sales, in order to help customers to obtain sufficient funds to purchase various metal products and also help upstream
metal and mineral suppliers to sell their metal products, the Company launched its supply chain management service in December
2019. The Company primarily generates revenues from bulk non-ferrous commodity products, and from providing related supply chain
management services in the PRC.
For
the six months ended June 30, 2020, the Company recorded revenue of $2,617,301 from commodities trading business and $2,561,187
from supply chain management services (all from loan recommendation services), respectively, from Huamucheng’s operations.
For the three months ended June 30, 2020, the Company recorded revenue of $1,563,669 from commodities trading business and $2,145,810
from supply chain management services (all from loan recommendation services), respectively, from Huamucheng’s operations.
For the six and three months ended June 30, 2020, the Company generated
net income of $2.54 million and $2.40 million from commodities trading business.
In addition, the Company commenced supply
chain financing services and for the six months ended June 30, 2020, the Company provided such services to one customer. On March
25, 2020, the Company entered into a revolving credit facility with Shenzhen Xinsuniao to provide a credit line of RMB 568 million
or approximately $80 million to Shenzhen Xinsuniao, to which the Company also provided loan recommendations services during the
six months ended June 30, 2020. The Company selected Shenzhen Xinsuniao as its customer because Shenzhen Xinsuniao and its wholly-owned
subsidiary Qianhai Baiyu were reputable for their extensive experience in supply chain services for commodities trading.
Through
Huamucheng’s business, the Company sources bulk commodity products from non-ferrous metal and mines or its designated distributors
and then sells to manufactures who need these metals in large quantity. The Company works with upstream suppliers in the sourcing
of commodities. Major suppliers include various metal and mineral suppliers such as Kunsteel Group, Baosteel Group, Aluminum Corporate
of China Limited, Yunnan Benyuan, Yunnan Tin, and Shanghai Copper. Potential customers include large infrastructure companies
such as China National Electricity, Datang Power, China Aluminum Foshan International Trade, Tooke Investment (China), CSSC International
Trade Co., Ltd., Shenye Group, and Keliyuan.
Competition
The
Company mainly competes against other large domestic commodity metal product trading service providers such as Xiamen International
Trade and Yijian Shares. Currently, the principal competitive factors in the non-ferrous metals commodities trading business are
price, product availability, quantity, service, and financing terms for purchases and sales of commodities.
Applicable
Government Regulations
Huamucheng
has obtained all material approvals, permits, licenses and certificates required for our metal product trading operations, including
registrations from the local business and administrative department authorizing the purchase of raw materials.
Recent developments
Revolving Credit Facility
On March 25, 2020, the Company entered into
a revolving credit facility with Shenzhen Xinsuniao to provide a credit line of RMB 568 million or approximately $80 million to
Shenzhen Xinsuniao, to which the Company also provided loan recommendations services during the six months ended June 30, 2020.
From July 1, 2020 to the date of this report,
the Company collected RMB 507.63 million, or $71.80 million from Shenzhen Xinsuniao.
Termination of VIE Agreement
On
April 2, 2020, HC High Summit Holding Limited (“HC High BVI”), the Company’s wholly owned subsidiary, established
Tongdow Block Chain Information Technology Company Limited (“Tongdow Block Chain”), a holding company incorporated
in accordance with the laws and regulations of Hong Kong. Tongdow Block Chain is wholly owned by HC High BVI. On April 2, 2020,
Tongdow Block Chain established Shanghai Jianchi Supply Chain Company Limited (“Shanghai Jianchi”) as its wholly owned
subsidiary. Shanghai Jianchi is a holding company incorporated in accordance with the laws and regulations of People’s Republic
of China (“PRC”).
On
June 25, 2020, Hao Limo Technology (Beijing) Co. Ltd. (“Hao Limo”), the Company’s wholly owned subsidiary incorporated
in PRC, and Shenzhen Huamucheng Trading Co., Ltd. (“Huamucheng”),
a former VIE of the Company, entered into certain VIE Termination Agreement (the “VIE Termination Agreement”)
to terminate the Huamucheng VIE Agreements. As such, Hao Limo will no longer have the control rights and rights to the assets,
property and revenue of Huamucheng. On the same date, Shanghai Jianchi, Huamucheng and the shareholders of Huamucheng (the “Huamucheng
Shareholders”) entered into certain Share Acquisition Agreement (the “Acquisition Agreement”) pursuant to which
Shanghai Jianchi acquired 100% equity interest of Huamucheng from the Huamucheng Shareholders for nominal consideration.
As a result of the above reorganization, Huamucheng
transitioned from being a variable interest entity (“VIE”) controlled by Company into a wholly owned subsidiary of
the Company. The Company remained in control of Huamucheng both before and after the reorganization and its operating results
are consolidated into the Company’s consolidated financial statements.
The Company has commenced its supply chain financing services and
the Company provided such services to one customer for the six months ended June 30, 2020.
Key
Factors Affecting Our Results of Operation
The
car rental and car service industry in China is competitive and fragmented. The commodities trading industry is also experiencing
decreasing demand as a result of China’s overall economic slowdown. We expect competition in both China’s car leasing
industry and commodities trading business to persist and intensify.
We
have a limited operating history having just launched the car leasing business in May 2018 and started our commodities trading
business in late November 2019. We believe our future success depends on our ability to significantly increase sales as well as
maintain profitability from our operations. Our limited operating history makes it difficult to evaluate our business and future
prospects. You should consider our future prospects in light of the risks and challenges encountered by a company with a limited
operating history in an emerging and rapidly evolving industry. These risks and challenges include, among other things,
|
●
|
our
ability to integrate commodities trading business with car leasing business;
|
|
●
|
our ability to continue
our growth as well as maintain profitability;
|
|
●
|
preservation of
our competitive position in both of the luxurious car leasing and car service industry and commodities trading industry in
China;
|
|
●
|
our ability to implement
our strategies and make timely and effective responses to competition and changes in customer preferences; and
|
|
●
|
recruitment, training
and retaining of qualified managerial and other personnel.
|
Our
business requires a significant amount of capital in large part due to needing to continuously grow our fleet, to purchase bulk
volume of commodities, and expand our business in existing markets and to additional markets where we currently do not have operations.
Results
of Operations
Three
Months Ended June 30, 2020 as Compared to Three Months Ended June 30, 2019
|
|
For the Three Months Ended
June 30,
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
Amount
|
|
|
%
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from sales of commodity products
|
|
$
|
1,563,669
|
|
|
$
|
-
|
|
|
$
|
1,563,669
|
|
|
|
100
|
%
|
Revenue from supply chain management services
|
|
|
2,145,810
|
|
|
|
-
|
|
|
|
2,145,810
|
|
|
|
100
|
%
|
Income from operating leases
|
|
|
-
|
|
|
|
540,895
|
|
|
|
(540,895
|
)
|
|
|
(100
|
)%
|
Total Revenue
|
|
|
3,709,479
|
|
|
|
540,895
|
|
|
|
3,168,584
|
|
|
|
586
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue - commodity product sales - related party
|
|
|
(1,570,132
|
)
|
|
|
-
|
|
|
|
(1,570,132
|
)
|
|
|
100
|
%
|
Cost of revenue - supply chain management services
|
|
|
(7,849
|
)
|
|
|
-
|
|
|
|
(7,849
|
)
|
|
|
100
|
%
|
Cost of operating lease
|
|
|
(224,294
|
)
|
|
|
(397,538
|
)
|
|
|
173,244
|
|
|
|
(44
|
)%
|
Total cost of revenue
|
|
|
(1,802,275
|
)
|
|
|
(397,538
|
)
|
|
|
(1,404,737
|
)
|
|
|
353
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,907,204
|
|
|
|
143,357
|
|
|
|
1,763,847
|
|
|
|
1,230
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
(491,671
|
)
|
|
|
(1,133,957
|
)
|
|
|
642,286
|
|
|
|
(57
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating cost and expenses
|
|
|
(491,671
|
)
|
|
|
(1,133,957
|
)
|
|
|
642,286
|
|
|
|
(57
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,586,552
|
|
|
|
22,018
|
|
|
|
1,564,534
|
|
|
|
7,106
|
%
|
Interest expenses
|
|
|
(104,314
|
)
|
|
|
(71,743
|
)
|
|
|
(32,571
|
)
|
|
|
45
|
%
|
Amortization of beneficial conversion feature relating to issuance of convertible notes
|
|
|
(6,460,000
|
)
|
|
|
-
|
|
|
|
(6,460,000
|
)
|
|
|
100
|
%
|
Total other expenses, net
|
|
|
(4,977,762
|
)
|
|
|
(49,725
|
)
|
|
|
(4,928,037
|
)
|
|
|
9,911
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Taxes
|
|
|
(3,562,229
|
)
|
|
|
(1,040,325
|
)
|
|
|
(2,521,904
|
)
|
|
|
242
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
(799,029
|
)
|
|
|
-
|
|
|
|
(799,029
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(4,361,258
|
)
|
|
$
|
(1,040,325
|
)
|
|
$
|
(3,320,933
|
)
|
|
|
319
|
%
|
Revenue
We generate revenue from the following
three sources, including (1) revenue from sales of commodity products, (2) revenue from supply chain management services,
and (3) income from operating lease. Both revenue from sales of commodity and revenue from supply chain management services were
newly incorporated into our operations as a result of the consolidation of Huamucheng through VIE contractual agreements in November
2019, and Huamucheng subsequently became a wholly owned subsidiary of the Company on June 25, 2020. Total revenue increased by
$3,168,584 or 586%, from $540,895 for the three months ended June 30, 2019 to $3,709,479 for the three months ended June 30, 2020,
among which revenue from commodity trading, supply chain management and car leasing accounted for 42.2%, 57.8% and 0%, respectively,
of our total revenue for the three months ended June 30, 2020. For the three months ended June 30, 2019, 100% of our revenue was
generated from the used luxurious car leasing business.
(1)
|
Revenue from
sales of commodity products
|
For
the three months ended June 30, 2020, the Company sold non-ferrous metals to two customers at fixed prices, and earned revenues
when the product ownership was transferred to its customers. The Company earned revenues of $1,563,669 from sales of commodity
products. There was no such revenue for the three months ended June 30, 2019.
(2)
|
Revenue from
supply chain management services
|
In
connection with the Company’s commodity sales, in order to help customers to obtain sufficient funds to purchase various
metal products and also help upstream metal and mineral suppliers sell their metal products, the Company launched its supply chain
management service business in December 2019, which primarily consisted of loan recommendation services and distribution services.
For the three months ended June 30, 2020, the Company provided loan recommendation services to customers.
Loan
recommendation service fees
The
Company refers customers who have financing needs for metal product trading to various financial institutions and assists these
customers in obtain loans from the financial institutions. The Company receives a referral fee from the customers if funding is
secured. Such revenue is recognized at the point when referral services are performed and the related funds are drawdown by the
customer. The referral service fee is set at 2.5% of the amount of loans obtained by the customers from the financial institutions.
For the three months ended June 30, 2020, the Company earned $2,145,810 from loan recommendation services from the facilitation
of a loan volume of approximately $86.0 million (RMB 604.6 million) with eight customers.
(3)
|
Income from operating
lease
|
The
Company commenced its business of lease services of used luxurious cars in May 2018. As of June 30, 2020 and 2019, the Company
had eleven and thirteen used luxurious cars, respectively. The lease term is generally within one month. The operating lease income
is recognized on a straight-line basis over the scheduled lease term.
As
affected by COVID-19, we closed our car rental facilities from the end of January to March 2020, and gradually resumed business
in April 2020. However due to cautious attitude on transportation, we did not generate operating lease income for the three months
ended June 30, 2020. The extent to which COVID-19 impacts our income from operating lease for the fiscal year 2020 will depend
on certain future developments, including the duration and spread of the outbreak, emerging information concerning the severity
of COVID-19 and the actions taken by governments and private businesses in attempting to contain the spread of COVID-19, all of
which is uncertain at this point.
For
the three months ended June 30, 2019, the Company generated operating lease income from used luxurious cars which are either owned
by the Company or leased from third party vendors. The Company generated operating lease income of $540,895 for the three months
ended June 30, 2019.
Cost
of revenue
Our
cost of revenue primarily include cost of revenue associated with commodity product sales, cost of revenue associated with management
services of supply chain and cost of operating lease. Total cost of revenue increased by $1,404,737 or 353% from $397,538 for
the three months ended June 30, 2019 to $1,802,275 for the three months ended June 30, 2020, primarily due to an increase of $1,570,132
in cost of revenue associated with commodity product sales which was just launched in December 2019, against a decrease of $173,244
in cost of operating lease as affected by COVID-19.
Cost
of revenue associated with commodity trading
Cost
of revenue primarily consists of purchase costs of non-ferrous metal products. For the three months ended June 30, 2020, the Company
purchased non-ferrous metal products of $1,570,132 from two third party suppliers, and sold non-ferrous metal products to two
customers. The Company recorded cost of revenue of $1,570,132. There was no such cost for the three months ended June 30, 2019
because this was a new business launched in December 2019.
Costs
associated with Operating lease
The
operating lease expense mainly consisted of depreciation expenses on leasing business assets and car related expenses arising
from lease of cars.
The
depreciation expenses on leasing business assets increased from $55,321 for the three months ended June 30, 2019 to $82,633 for
the three months ended June 30, 2020, representing an increase of $27,312, or 49%. The Company purchased five used luxurious cars
in April through June 2019, leading to an increase of depreciated months for these new cars for the three months ended June 30,
2020 as compared with the same period ended June 30, 2019. As of June 30, 2020, the Company had eleven used luxurious cars, as
compared with thirteen cars as of June 30, 2019.
In January 2019, the Company officially
launched sub-lease of luxurious car business through leasing cars from both third party peer companies and individuals. The Company
recorded car leasing expenses of $141,661 and $342,217 for the three months ended
June 30, 2020 and 2019, respectively. The decrease was mainly caused by the Company’s closure of car rental facilities from
the end of January 2020 and the Company slowed down the business since we resumed business in April 2020, as affected by COVID-19.
Selling,
general, and administrative expenses
Selling,
general and administrative expenses decreased from $1,133,957 for the three months ended June 30, 2019 to $491,671 for the three
months ended June 30, 2020, representing a decrease of $642,286, or 57%. Selling, general and administrative expenses primarily
consisted of salary and employee benefits, office rental expense, business tax and surcharge, professional service fees, office
supplies. The decrease was mainly attributable to combined effects of a decrease of other operating expenses of $368,344 as a
result of we slowed down our car rental business for the three months ended June 30, 2020, and a decrease of legal and consulting
expenses of $261,477, primarily as a result of a decrease in expenses incurred for the registered direct offerings in April and
May 2019, including a decrease of audit related fees of $139,694, and an decrease of commission of $100,000 to a third party vendor
for referral of underwriters.
Interest
income
Interest
income was primarily generated from loans made to third parties and related parties. For the three months ended June 30, 2020,
interest income was $1,586,552, representing an increase of $1,564,534, or 7,106% from $22,018 for the three months ended June
30, 2019. The increase was primarily due to 1) loans aggregating $79.8 million made to a customer, to whom the Company also provided
loan recommendations services. For the three months ended June 30, 2020, the Company recognized interest income of $1,355,107,
and 2) an increase of loans receivable from others third parties by $1.5 million, leading to an increase of interest income.
Amortization of beneficial conversion feature
and relative fair value of warrants relating to issuance of convertible notes
For the six months ended June 30, 2020, the item represented the
full amortization of beneficial conversion feature of $3.4 million and amortization of relative fair value of warrants of $3.06
million relating to the convertible notes which was exercised in May 2020.
For
the three months ended June 30, 2020, no such expenses incurred.
Net
loss
As
a result of the foregoing, net loss for the three months ended June 30, 2020 was $4,361,258, representing an increase of $3,320,033
from net loss of $1,040,325 for the three months ended June 30, 2019.
For the three
months ended June 30, 2020, our net loss was by segment was as follows, which consisted of a net profit of $2.40 million in our
commodities trading business, and an amortization expenses of beneficial conversion feature and relative fair value of warrants
relating to issuance of convertible notes of $6.46 million.
|
|
For the Three Months Ended June 30, 2020
|
|
|
|
Used luxury car leasing business
|
|
|
Commodities trading business
|
|
|
Unallocated
|
|
|
Total
|
|
Segment (loss) profit
|
|
$
|
(282,290
|
)
|
|
$
|
2,396,349
|
|
|
$
|
(6,475,317
|
)
|
|
$
|
(4,361,258
|
)
|
Six
Months Ended June 30, 2020 as Compared to Six Months Ended June 30, 2019
|
|
For the Six Months Ended
June 30,
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
Amount
|
|
|
%
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from sales of commodity products
|
|
$
|
2,617,301
|
|
|
$
|
-
|
|
|
$
|
2,617,301
|
|
|
|
100
|
%
|
Revenue from supply chain management services
|
|
|
2,561,187
|
|
|
|
-
|
|
|
|
2,561,187
|
|
|
|
100
|
%
|
Income from operating leases
|
|
|
14,051
|
|
|
|
940,894
|
|
|
|
(926,843
|
)
|
|
|
(99
|
)%
|
Total Revenue
|
|
|
5,192,539
|
|
|
|
940,894
|
|
|
|
4,251,645
|
|
|
|
452
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue - commodity product sales - related party
|
|
|
(2,625,275
|
)
|
|
|
-
|
|
|
|
(2,625,275
|
)
|
|
|
100
|
%
|
Cost of revenue - supply chain management services
|
|
|
(8,566
|
)
|
|
|
-
|
|
|
|
(8,566
|
)
|
|
|
100
|
%
|
Cost of operating lease
|
|
|
(323,608
|
)
|
|
|
(635,189
|
)
|
|
|
311,581
|
|
|
|
(49
|
)%
|
Total cost of revenue
|
|
|
(2,957,449
|
)
|
|
|
(635,189
|
)
|
|
|
(2,322,260
|
)
|
|
|
366
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,235,090
|
|
|
|
305,705
|
|
|
|
1,929,385
|
|
|
|
631
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
(916,786
|
)
|
|
|
(3,040,276
|
)
|
|
|
2,123,490
|
|
|
|
(70
|
)%
|
|
|
|
-
|
|
|
|
(96,318
|
)
|
|
|
96,318
|
|
|
|
(100
|
)%
|
Total operating cost and expenses
|
|
|
(916,786
|
)
|
|
|
(3,136,594
|
)
|
|
|
2,219,808
|
|
|
|
(71
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,726,564
|
|
|
|
32,481
|
|
|
|
1,694,083
|
|
|
|
5,216
|
%
|
Interest expenses
|
|
|
(238,689
|
)
|
|
|
(71,743
|
)
|
|
|
(166,946
|
)
|
|
|
233
|
%
|
Amortization of beneficial conversion feature and relative fair value of warrants relating to issuance of convertible notes
|
|
|
(6,460,000
|
)
|
|
|
-
|
|
|
|
(6,460,000
|
)
|
|
|
100
|
%
|
Total other expenses, net
|
|
|
(4,972,125
|
)
|
|
|
(39,262
|
)
|
|
|
(4,932,863
|
)
|
|
|
12,564
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Taxes
|
|
|
(3,653,821
|
)
|
|
|
(2,870,151
|
)
|
|
|
(783,670
|
)
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
(847,409
|
)
|
|
|
-
|
|
|
|
(847,409
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(4,501,230
|
)
|
|
$
|
(2,870,151
|
)
|
|
$
|
(1,631,079
|
)
|
|
|
57
|
%
|
Revenue
For
the six months ended June 30, 2020, we generate revenue from the following three sources, including (1) revenue from sales of
commodity products, (2) revenue from supply chain management services, and (3) income from operating lease. Total revenue
increased by $4,251,645 or 452%, from $940,894 for the six months ended June 30, 2019 to $5,192,539 for the six months ended June
30, 2020, among which revenue from commodity trading, supply chain management and car leasing accounted for 50.4%, 49.3% and 0.3%,
respectively, of our total revenue for the six months ended June 30, 2020. For the six months ended June 30, 2019, 100% of our
revenue was generated from the used luxurious car leasing business.
(1)
|
Revenue from
sales of commodity products
|
For
the six months ended June 30, 2020, the Company sold non-ferrous metals to two customers at fixed prices, and earned revenues
when the product ownership was transferred to its customers. The Company earned revenues of $2,617,301 from sales of commodity
products. There was no such revenue for the six months ended June 30, 2019.
(2)
|
Revenue from
supply chain management services
|
In
connection with the Company’s commodity sales, in order to help customers to obtain sufficient funds to purchase various
metal products and also help upstream metal and mineral suppliers sell their metal products, the Company launched its supply chain
management service business in December 2019, which primarily consisted of loan recommendation services and distribution services.
For the six months ended June 30, 2020, the Company provided loan recommendation services to customers.
Loan
recommendation service fees
The
Company refers customers who have financing needs for metal product trading to various financial institutions and assists these
customers in obtain loans from the financial institutions. The Company receives a referral fee from the customers if funding is
secured. Such revenue is recognized at the point when referral services are performed and the related funds are drawdown by the
customer. The referral service fee is set at 2.5% of the amount of loans obtained by the customers from the financial institutions.
For the six months ended June 30, 2020, the Company earned $2,561,187 from loan recommendation services from the facilitation
of a loan volume of approximately $102.4 million (RMB 720.6 million) with eight customers.
(3)
|
Income from operating
lease
|
The
operating lease income is recognized on a straight-line basis over the scheduled lease term.
As
affected by COVID-19, we closed our car rental facilities from the end of January to March 2020, and gradually resumed business
in April 2020. However due to cautious attitude on transportation, we did not generate operating lease income for the six months
ended June 30, 2020. The extent to which COVID-19 impacts our income from operating lease for the fiscal year 2020 will depend
on certain future developments, including the duration and spread of the outbreak, emerging information concerning the severity
of COVID-19 and the actions taken by governments and private businesses in attempting to contain the spread of COVID-19, all of
which is uncertain at this point.
For
the six months ended June 30, 2019, the Company generated operating lease income from used luxurious cars which are either owned
by the Company or leased from third party vendors. The Company generated operating lease income of $940,894 for the six months
ended June 30, 2019.
Cost
of revenue
Our
cost of revenue primarily include cost of revenue associated with commodity product sales, cost of revenue associated with management
services of supply chain and cost of operating lease. Total cost of revenue increased by $2,322,260 or 366% from $635,189 for
the six months ended June 30, 2019 to $2,957,449 for the six months ended June 30, 2020, primarily due to an increase of $2,625,275
in cost of revenue associated with commodity product sales which was just launched in December 2019, against a decrease of $311,581
in cost of operating lease as affected by COVID-19.
Cost
of revenue associated with commodity trading
Cost
of revenue primarily consists of purchase costs of non-ferrous metal products. For the six months ended June 30, 2020, the Company
purchased non-ferrous metal products of $2,625,275 from two third party suppliers, and sold non-ferrous metal products to two
customers. The Company recorded cost of revenue of $2,625,275. There was no such cost for the six months ended June 30, 2019 because
this was a new business launched in December 2019.
Costs
associated with Operating lease
The
operating lease expense mainly consisted of depreciation expenses on leasing business assets and car related expenses arising
from lease of cars.
The
depreciation expenses on leasing business assets increased from $102,179 for the six months ended June 30, 2019 to $162,211 for
the six months ended June 30, 2020, representing an increase of $60,032, or 59%. The Company purchased five used luxurious cars
in April through June 2019, leading to an increase of depreciated months for these new cars for the six months ended June 30,
2020 as compared with the same period ended June 30, 2019. As of June 30, 2020, the Company had eleven used luxurious cars, as
compared with thirteen cars as of June 30, 2019.
In
January 2019, the Company officially launched sub-lease of luxurious car business through leasing cars from both third party peer
companies and individuals. The Company recorded car leasing expenses of $161,397 and $533,010
for the six months ended June 30, 2020 and 2019, respectively. The decrease was mainly caused by the Company’s closure
of car rental facilities from the end of January 2020 and the Company slowed down the business since we resumed business in April
2020, as affected by COVID-19.
Selling,
general, and administrative expenses
Selling,
general and administrative expenses decreased from $3,040,276 for the six months ended June 30, 2019 to $916,786 for the six months
ended June 30, 2020, representing a decrease of $2,123,490, or 70%. Selling, general and administrative expenses primarily consisted
of salary and employee benefits, office rental expense, business tax and surcharge, professional service fees, office supplies.
The decrease was mainly attributable to combined effects of a decrease of other operating expenses of $726,862 as a result of
we slowed down our car rental business for the six months ended June 30, 2020, and a decrease of legal and consulting expenses
of $1,482,400, primarily as a result of 1) issuance of 502,391 restricted shares as compensation of $884,208 to certain service
providers for the three months ended March 31, 2019, while no such issuance for the three months ended March 31, 2020, and 2)
a decrease in expenses incurred for the registered direct offerings in April and May 2019, including an increase of audit related
fees of $296,353, an increase of commission of $100,000 to a third party vendor for referral of underwriters.
Interest
income
Interest
income was primarily generated from loans made to third parties and related parties. For the six months ended June 30, 2020, interest
income was $1,726,564, representing an increase of $1,694,083, or 5,216% from $32,486 for the six months ended June 30, 2019.
The increase was primarily due to 1) loans aggregating $79.8 million made to a customer, to whom the Company also provided loan
recommendations services. For the three months ended June 30, 2020, the Company recognized interest income of $1,355,107, and
2) an increase of loans receivable from others third parties by $1.5 million, leading to an increase of interest income.
Amortization of beneficial conversion feature and relative fair
value of warrants relating to issuance of convertible notes
For the six months ended June 30, 2020, the
item represented the full amortization of beneficial conversion feature of $3.4 million and amortization of relative fair value
of warrants of $3.06 million relating to the convertible notes which was exercised in May 2020.
For
the six months ended June 30, 2020, no such expenses incurred.
Net
loss
As
a result of the foregoing, net loss for the six months ended June 30, 2020 was $4,501,230, representing an increase of $1,631,079
from net loss of $2,870,151 for the six months ended June 30, 2019.
For the six months ended June 30, 2020, our
net loss was by segment was as follows, which consisted of a net profit of $2.54 million in our commodities trading business,
and an amortization expenses of beneficial conversion feature and relative fair value of warrants relating to issuance of convertible
notes of $6.46 million.
|
|
For the Six Months Ended June 30, 2020
|
|
|
|
Used luxury car leasing business
|
|
|
Commodities trading business
|
|
|
Unallocated
|
|
|
Total
|
|
Segment (loss) profit
|
|
$
|
(495,734
|
)
|
|
$
|
2,540,279
|
|
|
$
|
(6,545,775
|
)
|
|
$
|
(4,501,230
|
)
|
Cash
Flows and Capital Resources
We
have financed our operations primarily through shareholder contributions, cash flow from operations, borrowings from third parties
and related parties, and equity financing through public offerings of our securities.
In
March 2020, the Company issued an aggregate of 17,000,000 shares of its common stock, and unsecured senior convertible promissory
notes (“Notes”) in the aggregate principal amount of $30,000,000 accompanied by warrants to purchase 20,000,000 shares
of Common Stock issuable upon conversion of the Notes at an exercise price of $1.80. In April 2020, the Holders elected to convert
the Notes at a conversion price of $1.50 per share and also exercise the Warrants at an exercise price of $1.80 per share. The
Company raised an aggregation of $81.1 million from these equity financing transactions, among which $1.6 million was advanced
from investors in November 2019, and the remaining $79.5 million was collected in April and May 2020. The
Company expects to use the proceeds from this equity financing as working capital to expand its commodity trading business.
Liquidity
For
the six months ended June 30, 2020, the Company incurred a net loss of $4.50 million, and reported cash outflows of approximately
$2.61 million from operating activities. As of June 30, 2020, the Company had cash balance of $1,487,594. These factors caused
concern as to the Company’s liquidity as of June 30, 2020.
In
assessing the Company’s liquidity, the Company monitors and analyzes its cash and its ability to generate sufficient cash
flow in the future to support its operating and capital expenditure commitments. The Company’s liquidity needs are to meet
its working capital requirements and operating expenses obligations.
As of June 30, 2020, the Company had a
positive working capital of approximately $85.4 million, among which the Company had a loan due from a customer of approximately
$79.4 million for the purpose of developing supply chain financing business. Pursuant to the loan agreement, the loan term for
each individual loan was twelve months from disbursement, but in practice the loans are revolving every 3 – 4 months. As
of the date of the report, the Company collected RMB 507.63 million, or $71.80 million from the customer.
Going
forward, the Company plans to fund its operations through revenue generated from its commodity trading business, operating lease
income, funds from its private placements as well as financial support commitments from the Company’s Chief Executive Officer
and major shareholders.
Based
on above operating plan, the management believes that the Company will continue as a going concern in the following 12 months.