NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
|
1.
|
ORGANIZATION
AND BUSINESS DESCRIPTION
|
The
Company conducts business through Shanghai Jianchi Supply chain Co.,Ltd, a subsidiary of the Company, which is engaged in the commodity
trading business and providing supply chain management services to customers in the PRC. Supply chain management services consist of
loan recommendation services and commodity product distribution services. The Company incorporated Hainan Jianchi Import and Export Co.,
Ltd, a subsidiary of Shanghai Jianchi, and Hainan Baiyu Cross-border e-commerce Limited, a subsidiary of Tongdow HK, Hainan Baiyu
Cross-border e-commerce Limited, a subsidiary of Tongdow HK, and Yangzhou Baiyu Cross-border e-commerce Limited, a subsidiary
of Yangzhou Baiyu VC during the six months ended June 30, 2021.
HMC
was renamed Shenzhen Baiyu Jucheng Data Techonology Co.,Ltd during the three months ended June 30, 2021.
Name
|
|
Background
|
|
Ownership
|
Hainan Jianchi Import and Export Co., Ltd
|
|
A PRC limited liability company
|
|
A wholly owned subsidiary of Shanghai Jianchi
|
(“Hainan Jianchi”)
|
|
Incorporated on December 21,2020
|
|
|
|
|
Engaged in commodity trading business and providing supply chain management services to customers
|
|
|
Hainan Baiyu Cross-border e-commerce Limited
|
|
A Hong Kong company
|
|
A wholly owned subsidiary of Tongdow HK
|
(“Hainan Baiyu”)
|
|
Incorporated on March 18,2021
|
|
|
|
|
Engaged in commodity trading business and providing supply chain management services to customers
|
|
|
Yangzhou Baiyu Venture Capital Co.,Ltd
|
|
A Hong Kong company
|
|
A wholly owned subsidiary of Tongdow HK
|
(“Yangzhou Baiyu VC”)
|
|
Incorporated on April 19,2021
|
|
|
|
|
Engaged in commodity trading business and providing supply chain management services to customers
|
|
|
Yangzhou Baiyu Cross-border e-commerce Limited
|
|
A PRC limited liability company
|
|
A wholly owned subsidiary of Yangzhou Baiyu VC
|
(“Yangzhou Baiyu”)
|
|
Incorporated on May 14, 2021
|
|
|
|
|
Engaged in commodity trading business and providing supply chain management services to customers
|
|
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
|
(a)
|
Basis
of presentation
|
The
accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America (“U.S. GAAP”). All transactions and balances among the Company and its subsidiaries
have been eliminated upon consolidation.
The
unaudited interim condensed consolidated financial information as of June 30, 2021 and for the six months ended June 30, 2021 and 2020
have been prepared, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain
information and footnote disclosures, which are normally included in annual condensed consolidated financial statements prepared in accordance
with US GAAP, have been omitted pursuant to those rules and regulations. The unaudited interim condensed consolidated financial information
should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s Form
10-K for the fiscal year ended December 31, 2020 previously filed with the SEC on June 4, 2021.
In
the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the
Company’s unaudited condensed consolidated financial position as of June 30, 2021 and its unaudited condensed consolidated results
of operations for the three months and six months ended June 30, 2021 and 2020, and its unaudited condensed consolidated cash flows for
the six months ended June 30, 2021 and 2020, as applicable, have been made. The interim results of operations are not necessarily indicative
of the operating results for the fiscal year or any future periods.
Error
Correction
On
March 4, 2021, the Company issued 750,000 fully-vested warrants with an exercise price of $0.01, with a five-year life, to an agent who
was engaged to complete the warrant waiver and exercise agreements discussed in Note 7.
The
Company applied Black-Scholes model and determined the fair value of the warrants to be $1.7 million. Significant estimates and assumptions
used included stock price on March 4, 2021 of $2.27 per share, risk-free interest rate of one year of 0.08%, life of 5 years, and volatility
of 71.57%.
The
Company’s quarterly financial statements ended March 31, 2021 contained an error related to above share-based payment for service.
Management has determined such error was qualitatively immaterial and the correction was made during this quarter. No restatement to
previous issued interim financial statements was deemed necessary.
The following table illustrates the correction of the error had it
been shown in the statement of operations on March 31, 2021 in the interim financial statement in Form 10-Q filing on
June 26, 2021:
|
|
Three months
ended
March 31,
2021
|
|
Income from operations as reported
|
|
$
|
557,235
|
|
Effect on share-based payment for service
|
|
|
(1,695,042
|
)
|
Loss from operations as revised
|
|
$
|
1,137,807
|
)
|
|
|
Three months
ended
March 31,
2021
|
|
Net income as reported
|
|
$
|
156,766
|
|
Effect on share-based payment for service
|
|
|
(1,695,042
|
)
|
Net loss as revised
|
|
$
|
(1,538,276
|
)
|
|
|
Three months
ended
March 31,
2021
|
|
EPS as reported
|
|
$
|
0.00
|
|
Effect on EPS
|
|
|
(0.02
|
)
|
EPS as revised
|
|
$
|
(0.02
|
)
|
The
Company included $1,695,042 as share-based payment for service on the condensed consolidated statement of operations for the six months
ended June 30, 2021.
The
preparation of these condensed consolidated financial statements in conformity with the US GAAP requires management to make estimates
and judgments that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities on the date
of these condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.
The Company bases its estimates and judgments on historical experience and on various other assumptions and information that are believed
to be reasonable under the circumstances. Estimates and assumptions of future events and their effects cannot be perceived with certainty
and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained
and as our operating environment changes. Significant estimates and assumptions made by management include, among others, useful lives
and impairment of long-lived assets, collectability of receivables, including accounts receivable, loans receivable, and amount due from
related parties, advances to suppliers, allowance for doubtful accounts and fair value of goodwill. While the Company believes that the
estimates and assumptions used in the preparation of these condensed consolidated financial statements are appropriate, actual results
could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in
the condensed consolidated financial statements in the period they are determined to be necessary.
The
functional currency of the Company and its Hong Kong subsidiary is the United States dollars (“US$”). The Company’s
PRC subsidiaries determined their functional currency to be the Chinese Renminbi (“RMB”). The determination of functional
currency is based on the criteria of ASC 830, Foreign Currency Matters (“ASC 830”). The Company uses the RMB
as its reporting currency.
The
financial statements of the Company and its Hong Kong subsidiary are translated from the functional currency to the reporting currency,
RMB. Monetary assets and liabilities of the subsidiaries are translated into RMB using the exchange rate in effect at each balance sheet
date. Income and expense items are translated at the average exchange rate prevailing during the fiscal year. Translation gains
and losses are accumulated in other comprehensive loss, as a component of shareholders’ deficit in the consolidated financial statements.
Transactions
denominated in other than the functional currencies are remeasured into the functional currency of the entity at the exchange rates prevailing
on the transaction dates. Financial assets and liabilities denominated in other than the functional currency are re-measured into the
functional currency at the exchange rates prevailing at the balance sheet date. The foreign exchange differences are recorded in the
consolidated statements of comprehensive income (loss).
Inventories
of the Company are bulk commodities products, such as precious metals. Inventories are stated at the lower of cost or net realizable
value. Costs of inventory are determined using the first-in first-out method. Adjustments to reduce the cost of inventories are made,
if required, for decreases in sales prices, obsolescence or similar reductions in the estimated net realizable value.
We
keep inventory for our direct sales model. Our inventory control policy requires us to monitor our inventory level and to manage obsolete
inventory. Risk is passed to our customers (or to delivery service providers) upon the delivery of commodities to our customers. For
a substantial majority of precious metal sold through our network, the whole transaction process takes from a few hours to a few days,
thus our inventory risk is limited. For a small portion of our transactions under direct sales model, we hold inventories for repeating
customers with relatively stable demands of large quantity based on our transaction data. We analyze historical sales data and days in
inventory to establish inventory management plans. We monitor our real-time inventory volume and adjust our inventory management plans
based on factors such as fluctuations in supply and prices, seasonality, and sales of a particular product.
|
(c)
|
Convertible promissory notes
|
The
Company accounts for its convertible notes at issuance by allocating the proceeds received among freestanding instruments according to
ASC 470, Debt ("ASC 470,") based upon their relative fair values. The fair value of debt and common stock is
determined based on the closing price of the common stock on the date of the transaction, and the fair value of warrants, if any, is
determined using the Black-Scholes option-pricing model. Convertible notes are subsequently carried at amortized cost. The
fair value of the warrants is recorded as additional paid-in capital, with a corresponding debt discount from the face amount of the
convertible note.
Each
convertible note is analyzed for the existence of a beneficial conversion feature, defined as the fair value of the common stock at the
commitment date for the convertible note less the effective conversion price. Beneficial conversion features are recognized at their
intrinsic value, and recorded as an increase to additional paid-in capital, with a corresponding reduction in the carrying amount of
the convertible note (as a debt discount from the face amount of the convertible note.) The discounts on the convertible notes,
consisting of amounts ascribed to warrants and beneficial conversion features, are amortized to interest expense, using the effective
interest method, over the terms of the related convertible notes. Beneficial conversion features that are contingent upon the occurrence
of a future event are recorded when the contingency is resolved.
Each
convertible note is also analyzed for the existence of embedded derivatives, which may require bifurcation from the convertible note
and separate accounting treatment.
The
Company also analyzes the features of its convertible notes which, when triggered, mandate a downward adjustment to the instrument’s
strike price (or conversion price) if equity shares are issued at a lower price (or equity-linked financial instruments are issued at
a lower strike price) than the instrument’s then-current strike price. The purpose of the feature is typically to protect the instrument’s
counterparty from future issuances of equity shares at a more favorable price.
|
(d)
|
Recent accounting pronouncement
|
In
June 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”) “Financial
Instruments - Credit Losses” (“ASC 326”): Measurement of Credit Losses on Financial Instruments” which requires
the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing
incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit
loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale
debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities.
These changes will result in earlier recognition of credit losses. In November 2019, the FASB issued ASU 2019-10 “Financial
Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)” (“ASC 2019-10,”)
which defers the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022, including interim periods within those
fiscal years, for public entities which meet the definition of a smaller reporting company. The Company will adopt ASU 2016-13 effective
January 1, 2023. Management is currently evaluating the effect of the adoption of ASU 2016-13 on the consolidated financial statements.
The effect will largely depend on the composition and credit quality of our investment portfolio and the economic conditions at the time
of adoption.
In
January 2017, the FASB issued ASU 2017-04, “Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment,” which simplifies how an entity is required to test goodwill for impairment by eliminating step two from the goodwill
impairment test. Step two of the goodwill impairment test measures a goodwill impairment loss by comparing the implied fair value of
a reporting unit’s goodwill with its carrying amount. As amended by ASU 2019-10, annual or interim goodwill impairment tests are
performed in fiscal years beginning after December 15, 2022. We do not expect that the adoption of this guidance will have a material
impact on our financial position, results of operations and cash flows.
In
January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint
Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.
This guidance addresses accounting for the transition into and out of the equity method and provides clarification of the interaction
of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of
securities. This standard is effective for the Group beginning January 1, 2022 including interim periods within the fiscal year.
Early adoption is permitted. The Group does not expect any material impact on its consolidated financial statements.
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. 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.
|
3.
|
LOANS
RECEIVABLE FROM THIRD PARTIES
|
|
|
June
30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable from third parties
|
|
$
|
59,504,874
|
|
|
$
|
18,432,691
|
|
As
of June 30, 2021, the Company has fifteen loan agreements compared with four loan agreements on December 31, 2020. The Company provided
loans aggregating $45,057,871 for the purpose of making use of idle cash and maintaining long-term customer relationship and paid back
$13,370,395 during the six months ended June 30, 2021. These loans will mature in July 2021 through December 2021, and charges interest
rate of 10.95% per annum on these customers.
Interest income of $916,010 and$1,843,448 was recognized
for the three months ended June 30, 2021 and 2020, respectively. Interest income of $1,400,678 and $1,884,923 was recognized
for the six months ended June 30, 2021 and 2020. As of June 30, 2021 and December 31, 2020, the Company recorded an interest receivable
of $545,670 and $1,290,864 as reflected under “other current assets” in the unaudited condensed consolidated balance sheets.
As
of June 30, 2021 and December 31,2020 there was no allowance recorded as the Company considers all of the loan receivable fully collectible.
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Customer relationships
|
|
$
|
20,339,875
|
|
|
$
|
20,117,564
|
|
Software copyright
|
|
|
5,107,410
|
|
|
|
-
|
|
Total
|
|
|
25,447,285
|
|
|
|
20,117,564
|
|
|
|
|
|
|
|
|
|
|
Less: accumulative amortization
|
|
|
(2,448,169
|
)
|
|
|
(543,718
|
)
|
Intangible
assets, net
|
|
$
|
22,999,116
|
|
|
$
|
19,573,846
|
|
The
Company’s intangible assets consist of customer relationships, which are recorded in connection with acquisitions at their fair
value, and software copyright which are purchased from the related party Yunfeihu. Intangible assets with estimable lives are amortized,
generally on a straight-line basis, over their respective estimated useful lives of 6.2 years and 6.83 years respectively to their estimated
residual values.
For
the six months ended June 30, 2021 and 2020, the Company amortized $1,895,871 and $Nil respectively. No impairment loss was made
against the intangible assets during the six months ended June 30, 2021.
The
estimated amortization expense for these intangible assets in the next five years and thereafter is as follows:
Period
ending June 30, 2021:
|
|
Amount
|
|
2021
|
|
$
|
2,023,075
|
|
2022
|
|
|
4,046,149
|
|
2023
|
|
|
4,046,149
|
|
2024
|
|
|
4,046,149
|
|
2025
|
|
|
4,046,149
|
|
Thereafter
|
|
|
4,791,445
|
|
Total:
|
|
$
|
22,999,116
|
|
|
|
June
30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
883,961
|
|
|
$
|
-
|
|
The balance
represents a batch of precious product from one of subsidiary Hiannan Jianchi on June 30, 2021.
|
6.
|
CONVERTIBLE
PROMISSORY NOTES
|
|
|
June
30,
2021
|
|
|
December 31,
2020
|
|
Convertible notes – principal
|
|
$
|
5,346,934
|
|
|
$
|
-
|
|
Convertible notes – discount
|
|
|
(326,667
|
)
|
|
|
-
|
|
Convertible notes
– interest
|
|
|
199,093
|
|
|
|
-
|
|
Convertible
notes, net
|
|
$
|
5,219,360
|
|
|
$
|
-
|
|
On
January 6, 2021, the Company entered into a securities purchase agreement with Streeterville Capital, LLC, a Utah limited liability company,
pursuant to which the Company issued an unsecured promissory note in the original principal amount $1,670,000, convertible into shares
of common stock, for proceeds of $1,500,000. The Company recorded a debt discount of $170,000, which is being amortized over 12 months.
On March 4, 2021, the Company entered into a securities purchase agreement with Streeterville Capital, LLC, pursuant to which the Company
issued an unsecured promissory note in the original principal amount of $3,320,000, convertible into shares of common stock, for proceeds
of $3,000,000. The Company recorded a debt discount of $320,000, which is being amortized over 12 months.
The
above two Notes have a maturity date of 12 months with an interest rate of 10% per annum. The Company retains the right to prepay the
Note at any time prior to conversion with an amount in cash equal to 125% of the principal that the Company elects to prepay at any time
three months after the issue date, subject to maximum monthly redemption amount of $187,500 or $375,000 respectively. On or before the
close of business on the third trading day of redemption, the Company should deliver conversion shares via “DWAC” (DTC’s
Deposit/Withdrawal at Custodian system). The Company will be required to pay the redemption amount in cash, or chooses to satisfy a redemption
in registered stock or unregistered stock, such stock shall be issued at 80% of the average of the lowest “VWAP “ (the volume
weighted average price of the Common Stock on the principal market for a particular Trading Day or set of Trading Days) during the fifteen
trading days immediately preceding the redemption notice is delivered.
During
the period that these Notes are outstanding, the Company will reserve from its authorized and unissued shares of common stock more than
5,000,000 shares, free from preemptive rights, to provide for the issuance of the common stock upon the full conversion of the Notes.
The earlier of (i) 45 days after filing of the PRE14C with SEC, or (ii) May 31,2021 under the assumption of no comments from PRE14C.
In the event that the SEC has any comments to the Company’s PRE14C, the Company agrees to grant an additional 30 days to meet the
requirement no later than June 30, 2021. On May 3, outstanding principal amount was increased to $1,790,694 and $3,556,240 or by 7% respectively
due to standstill fee application from the borrower. A modification loss of $356,934 was recognized in the condensed consolidated statement
of operations in relation to this non-substantial notes modification.
Upon
evaluation, the Company determined that the Agreements contained embedded beneficial conversion features which met the definition of Debt
with Conversion and Other Options covered under the Accounting Standards Codification topic 470 (“ASC 470”). According
to ASC 470, an embedded beneficial conversion feature present in a convertible instrument shall be recognized separately at issuance
by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. Pursuant to the agreement,
the Company shall recognize embedded beneficial conversion features three months after commitment date of $417,500 and $830,000 respectively.
The Company will not recognize embedded beneficial conversion features of $447,674 and $889,060 until July 2021 due to the effective
of standstill agreement.
Common
stock issued in private placements
On
January 7, 2021, the Company entered into certain securities purchase agreement with two investors, the Chairman and CEO of the Company,
Ouyang Renmei and another shareholder pursuant to which the Company agreed to sell an aggregate of 15,000,000 shares of Common Stock,
at a per share market price of $1.63. The transaction was consummated on January 12, 2021 by issuance of 15,000,000 shares of Common
Stock. The Company received proceeds of $24,450,000 in January 2021.
Common
stock issued in registered direct offering
On
January 20, 2021, the Company entered into a securities purchase agreement, pursuant to which the Company agreed to sell to certain investor
an aggregate of 478,468 shares of common stock in a registered direct offering, for gross proceeds of approximately $1.07 million. The
Company received proceeds of $834,845 in January 2021 after deducting the agent commission and other professional fee.
On
February 8, 2021, the Company entered into a securities purchase agreement, pursuant to which the Company agreed to sell to certain investor
an aggregate of 775,000 shares of common stock in a registered direct offering, for gross proceeds of approximately $1.62 million. The
Company received proceeds of $1,358,144 in February 2021 after deducting the agent commission and other professional fee.
Common
stocks issued for exercise of warrants by holders of warrants
On
March 10, 2021, the Company entered into certain waiver and warrant exercise agreements with some institutional investors, which modified
(a) 100,000 warrants with an exercise price of $1.32 originally issued on April 15, 2019 in a common stock private placement and (b)
1,530,000 warrants with an exercise price of $2.20 originally issued on March 23, 2019 in a common stock private placement. The modification
of these warrant agreements lowered the exercise prices to $0.95 per warrant and $1.17 per warrant, respectively, and allowed the holders
to exercise the warrants on a cashless basis. In March 2021, the holders exercised 1,630,000 warrants on a cashless basis, resulting
in the issuance of 808,891 shares of common stock. The Company recorded the modification and the cashless exercise of the warrants as
a reduction of retained earnings, similar to a dividend, and an increase in additional paid-in capital, using a fair value of $1,439,826,
estimated according to “free distribution” accounting practice.
On
March 10, 2021, the Company entered into certain waiver and warrant exercise agreements with some institutional investors, which modified
(a) 100,000 warrants with an exercise price of $1.32 originally issued on April 15, 2019 in a common stock private placement and (b)
1,530,000 warrants with an exercise price of $2.20 originally issued on March 23, 2019 in a common stock private placement. The modification
of these warrant agreements lowered the exercise prices to $0.95 per warrant and $1.17 per warrant, respectively, and allowed the holders
to exercise the warrants on a cashless basis. In March 2021, the holders exercised 1,630,000 warrants on a cashless basis, resulting
in the issuance of 808,891 shares of common stock. The Company recorded the modification and the cashless exercise of the warrants as
a reduction of retained earnings, similar to a dividend, and an increase in additional paid-in capital, using a fair value of $1,439,826,
estimated according to “free distribution” accounting practice.
On
March 4, 2021, the Company issued 750,000 fully-vested warrants with an exercise price of $0.01, with a five-year life, to an agent who
was engaged to complete the warrant waiver and exercise agreements. The Company applied Black-Scholes model and determined the fair value
of the warrants to be $1.7 million. Significant estimates and assumptions used included stock price on March 4, 2021 of $2.27 per share,
risk-free interest rate of one year of 0.08%, life of 5 years, and volatility of 71.57%.
On April 27, 2021, the Company entered warrant exercise agreements
and received proceeds of $7,500 and issued 750,000 common stock.
Warrants
A
summary of warrants activity for the six months ended June 30, 2021 was as follows:
|
|
Number of
shares
|
|
|
Weighted
average life
|
|
|
Weighted
average
exercise
price
|
|
|
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of warrants outstanding and exercisable as of December 31, 2020
|
|
|
1,903,370
|
|
|
|
3.13 years
|
|
|
$
|
21
|
|
|
|
|
|
Granted
|
|
|
750,000
|
|
|
|
5 years
|
|
|
|
0.01
|
|
|
|
|
|
Exercised
|
|
|
(2,380,000
|
)
|
|
|
|
|
|
$
|
1.48
|
|
|
|
|
|
Balance of warrants outstanding and exercisable as of June 30, 2021
|
|
|
273,370
|
|
|
|
1.44 years
|
|
|
$
|
21
|
|
|
|
0
|
|
Basic
earnings (loss) per share is computed by dividing the net profit or loss by the weighted average number of common shares outstanding
during the period. Diluted income per share is calculated by dividing net income attributable to
common shares by the weighted average number of common and dilutive common equivalents shares outstanding during the period. Common equivalents
shares consist of shares issuable upon the conversion of convertible notes using the if-converted method.
The
number of warrants is excluded from the computation as the anti-dilutive effect.
The
following table sets forth the computation of basic and diluted loss per common share for the six months ended June 30, 2021 and 2020
respectively:
|
|
For the Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Net loss attributable to TD Holdings, Inc.’s Stockholders
|
|
$
|
(1,180,420
|
)
|
|
$
|
(5,809,897
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding-Basic
|
|
|
95,025,014
|
|
|
|
30,579,616
|
|
Net loss per share - basic and diluted
|
|
|
|
|
|
|
|
|
Net loss per share from continuing operations – basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.17
|
)
|
Net income (loss) per share from discontinued operations – basic and diluted
|
|
$
|
-
|
|
|
$
|
(0.02
|
)
|
|
|
For the Three Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to TD Holdings, Inc.’s Stockholders
|
|
$
|
357,856
|
|
|
$
|
(5,462,485
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding-Basic
|
|
|
96,821,039
|
|
|
|
47,486,210
|
|
Weighted Average Shares Outstanding-Diluted
|
|
|
102,312,155
|
|
|
|
-
|
|
Net loss per share - basic and diluted
|
|
|
|
|
|
|
|
|
Net income (loss) per share from continuing operations – basic
|
|
$
|
(0.00
|
)
|
|
$
|
(0.11
|
)
|
Net income (loss) per share from continuing operations – diluted
|
|
$
|
(0.00
|
)
|
|
$
|
-
|
|
Net income (loss) per share from discontinued operations – basic and diluted
|
|
$
|
-
|
|
|
$
|
(0.01
|
)
|
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 six months ended June
30, 2021, 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, 2021 and December
31, 2020, the Company had deferred tax assets of $4,167,055 and
$4,452,837, respectively. The Company maintains a full valuation allowance on its net deferred tax assets as of June 30, 2021.
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 six months ended June 30, 2021 and 2020, the Company had current
income tax expenses of $771,863 and $nil, respectively, and deferred income tax benefit of $548,982 in the connection of intangible
assets generated from Baiyu acquisition, 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, 2021 and December 31, 2020 and the Company does not believe that its unrecognized tax benefits will change
over the next twelve months.
|
10.
|
RELATED
PARTY TRANSACTIONS AND BALANCES
|
|
1)
|
Nature
of relationships with related parties
|
Name
|
|
Relationship
with the Company
|
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.
|
Yunfeihu
International E-commerce Group Co., Ltd
(“Yunfeihu”)
|
|
An affiliate of the Company, over which an immediate family member of Chief Executive Officer owns equity interest and plays a role of director and senior management
|
Shenzhen
Tongdow International Trade Co., Ltd.
(“TD International Trade”)
|
|
Controlled by an immediate family member of Chief Executive Officer of the Company
|
Beijing
Tongdow E-commerce Co., Ltd.
(“Beijing TD”)
|
|
Wholly owned by Tongdow E-commerce Group Co., Ltd. which is controlled by an immediate family member of Chief Executive Officer of the Company
|
Shanghai
Tongdow Supply Chain Management Co., Ltd.
(“Shanghai TD”)
|
|
Controlled by an immediate family member of Chief Executive Officer of the Company
|
Guangdong
Tongdow Xinyi Cable New Material Co., Ltd.
(“Guangdong TD”)
|
|
Controlled by an immediate family member of Chief Executive Officer of the Company
|
Yangzhou
Tongdow E-commerce Co., Ltd.
(“Yangzhou TD”)
|
|
Controlled by an immediate family member of Chief Executive Officer of the Company
|
Tongdow
(Zhejiang) Supply Chain Management Co., Ltd.
(“Zhejiang TD”)
|
|
Controlled by an immediate family member of Chief Executive Officer of the Company
|
Shenzhen
Meifu Capital Co., Ltd. (“Shenzhen Meifu”)
|
|
Controlled by Chief Executive Officer of the Company
|
Shenzhen
Tiantian Haodian Technology Co., Ltd. (“TTHD”)
|
|
Wholly owned by Shenzhen Meifu
|
Guotao
Deng
|
|
Legal representative of Huamucheng before December 31, 2019
|
Hainan
Tongdow International Trade Co.,Ltd.(“Hainan TD”)
|
|
Controlled by the same ultimate parent company
|
Yunfeihu
modern logistics Co.,Ltd (“Yunfeihu Logistics”)
|
|
Controlled by the same ultimate parent company
|
Shenzhen
Tongdow Jingu Investment Holding Co.,Ltd (“Shenzhen Jingu“)
|
|
Controlled by an immediate family member of Chief Executive Officer of the Company
|
Tongdow
E-commerce Group Co.,Ltd (“TD E-commerce”)
|
|
Controlled by an immediate family member of Chief Executive Officer of the Company
|
|
|
|
Fujian Pan
|
|
Shareholder of TD Holdings Inc
|
|
2)
|
Balances
with related parties
|
|
-
|
Due
from related parties
|
As
of June 30, 2021 and December 31, 2020, the balances with related parties were as follows:
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
TD International Trade (i)
|
|
$
|
-
|
|
|
$
|
4,592,698
|
|
Yangzhou TD (i)
|
|
|
-
|
|
|
|
3,041,180
|
|
Zhejiang TD (i)
|
|
|
-
|
|
|
|
8,734,024
|
|
Beijing TD (ii)
|
|
|
1,996,679
|
|
|
|
-
|
|
Yunfeihu (ii)
|
|
|
12,823,068
|
|
|
|
19,830,214
|
|
Yunfeihu Logistics (ii)
|
|
|
1,496,003
|
|
|
|
-
|
|
TD E-commerce (ii)
|
|
|
2,880,373
|
|
|
|
-
|
|
Shenzhen Jingu (ii)
|
|
|
404,314
|
|
|
|
-
|
|
Guangdong TD
|
|
|
154,910
|
|
|
|
-
|
|
TTHD (ii)
|
|
|
610,696
|
|
|
|
19,640,929
|
|
Total due from related parties
|
|
$
|
20,366,043
|
|
|
$
|
55,839,045
|
|
(i)
|
The balance due from TD International Trade, Yangzhou TD and Zhejiang TD represented prepayments for commodity metal products.
|
|
|
(ii)
|
The balance due from Beijing TD represented loans provided to the related party. Both the principal and interest will be due in September 2021, with an interest rate of 10.95% per annum.
|
|
|
|
The balance due from Yunfeihu Logistics represented loans provided to the related party. Both the principal and interest will be due in December 2021, with an interest rate of 10.95% per annum.
|
|
|
|
The balance due from Yunfeihu represented loans provided to the related party. Both the principal and interest will be due in December 2021, with an interest rate of 10.95% per annum.
|
|
|
|
The balance due from TD E-commerce represented loans provided to the related party. Both the principal and interest will be due in September 2021, with an interest rate of 10.95% per annum.
|
|
|
|
The balance due from Shenzhen Jingu represented loans provided to the related party. Both the principal and interest will be due in September 2021, with an interest rate of 10.95% per annum.
|
|
|
|
The balance due from Guangdong TD represented loans provided to the related party. Both the principal and interest will be due in December 2021, with an interest rate of 10.95% per annum.
|
|
|
|
The balance due from TTHD represented loans provided to the related party. Both the principal and interest will be due in December 2021, with an interest rate of 10.95% per annum.
|
|
|
June
30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
Guangzhou Chengji (1)
|
|
$
|
1,347,011
|
|
|
$
|
1,878,511
|
|
Yunfeihu (2)
|
|
|
-
|
|
|
|
4,235,680
|
|
Guangdong TD (2)
|
|
|
-
|
|
|
|
612,313
|
|
Shenzhen Meifu (2)
|
|
|
-
|
|
|
|
317,637
|
|
Beijing TD (2)
|
|
|
93
|
|
|
|
300,992
|
|
Other related parties
|
|
|
2,076
|
|
|
|
888
|
|
Total
due to related parties
|
|
$
|
1,349,180
|
|
|
$
|
7,346,021
|
|
(1)
|
The balance due to Guangzhou Chengji represents loan principal and interest due to the related parties. As of June 30, 2021 and December 31 2020, the Company borrowed loans of $1,199,163 and $1,768,287, respectively, from Guangzhou Chengji. The loans bear annual interest rate of 6% and maturity date of January 11, 2023. For the three months ended June 30, 2021 and 2020, the Company accrued interest expenses of $17,256 and $39,659, respectively. For the six months ended June 30, 2021 and 2020, the Company accrued interest expense of $34,512 and $71,929, respectively.
|
|
|
(2)
|
The balance due to Yunfeihu, Guangdong TD, Shenzhen Meifu and Beijing TD represents the advance from these four related parties for supply chain management services.
|
|
3)
|
Transactions
with related parties
|
For
the three and six months ended June 30, 2021, the Company generated revenues from below related party customers:
|
|
For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Revenue from sales of commodity products
|
|
|
|
|
|
|
|
|
|
|
|
|
Yunfeihu
|
|
$
|
1,523,616
|
|
|
$
|
1,251,591
|
|
|
$
|
20,284,870
|
|
|
$
|
1,921,586
|
|
Yangzhou TD
|
|
|
-
|
|
|
|
-
|
|
|
|
1,641,761
|
|
|
|
|
|
TD International Trade
|
|
|
-
|
|
|
|
312,078
|
|
|
|
-
|
|
|
|
695,715
|
|
|
|
|
1,523,616
|
|
|
|
1,563,669
|
|
|
|
21,926,631
|
|
|
|
2,617,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from supply chain management services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yunfeihu
|
|
|
-
|
|
|
|
26,949
|
|
|
|
-
|
|
|
|
70,596
|
|
Total revenues generated from related parties
|
|
$
|
1,523,616
|
|
|
$
|
1,590,618
|
|
|
$
|
21,926,631
|
|
|
$
|
2,687,897
|
|
|
-
|
Purchases
from a related party
|
For
the six months ended June 30, 2021 and 2020, the Company purchased commodity products from below related party vendors:
|
|
For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Purchase of commodity products
|
|
|
|
|
|
|
|
|
|
|
|
|
Yunfeihu
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,641,373
|
|
|
$
|
-
|
|
Zhejiang TD
|
|
|
-
|
|
|
|
-
|
|
|
|
7,950,833
|
|
|
|
-
|
|
Hainan TD
|
|
|
-
|
|
|
|
-
|
|
|
|
3,689,844
|
|
|
|
-
|
|
TD International Trade
|
|
|
-
|
|
|
|
1,256,218
|
|
|
|
1,121,386
|
|
|
|
1,256,218
|
|
Yangzhou TD
|
|
|
-
|
|
|
|
-
|
|
|
|
6,801,614
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
1,256,218
|
|
|
$
|
21,205,050
|
|
|
$
|
1,256,218
|
|
For
the three months and six months ended June 30, 2021, the Company purchased copyright software of $5,107,410 from “Yunfeihu”.
|
11.
|
DISCONTINED
OPERATION
|
On
August 28, 2020 when the Company closed disposition of HC High Summit Limited, the Company’s used luxurious car leasing business
met all the conditions required in order to be classified as a discontinued operation. Accordingly, the operating results of used luxurious
car leasing business are reported as a loss from discontinued operations in the accompanying consolidated financial statements for all
periods presented. In addition, the assets and liabilities related to our used luxurious car leasing business are reclassified as assets
and liabilities of discontinued operations in the accompanying consolidated balance sheets at June 30, 2020.
The
summarized operating results of the discontinued operation included in the Company’s unaudited interim condensed consolidated statements
of operations consist of the following:
|
|
For the
six months
ended
June 30,
2020
|
|
Revenues
|
|
$
|
14,051
|
|
Cost of revenues
|
|
|
323,608
|
|
Gross loss
|
|
|
(309,557
|
)
|
|
|
|
|
|
Operating expenses
|
|
|
175,961
|
|
Other expense
|
|
|
66,927
|
|
Loss before income taxes
|
|
|
(552,445
|
)
|
|
|
|
|
|
Income taxes
|
|
|
-
|
|
Net loss from discontinued operations
|
|
$
|
(552,445
|
)
|
|
12.
|
COMMITMENTS
AND CONTINGENCIES
|
The
Company leases 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. Leases
with initial term of 12 months or less are not recorded on the balance sheet.
As
of June 30, 2021, the Company had one lease arrangement with an unrelated third party with a monthly rental fee of approximately $7,200.
The lease term was within 12 months, which will be due in August 2021. As of the date of this report, the Company cannot reasonably assess
whether it will renew the lease term.
Lease
expenses for the three months ended June 30, 2021 and 2020 were $47,008 and $92,414, respectively. Lease expenses for the six months
ended June 30, 2021 and 2020 were $17,093 and $187,538, respectively.
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.
|
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.
|
13.
|
Risks
and uncertainties
|
Financial
instruments that are potentially subject to credit risk consist principally of trade receivables and advances to suppliers. The Company
believes the concentration of credit risk in its trade receivables and advances to suppliers is substantially mitigated by its ongoing
credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The
Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers,
historical trends and other information. All of the Company’s cash is maintained with banks within the People’s Republic
of China of which no deposits are covered by insurance. The Company has not experienced any losses in such accounts. The Company performs
ongoing credit evaluations of its customers and key suppliers to help further reduce credit risk.
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.
|
(3)
|
Foreign
currency risk
|
The
Company’s financial information is presented in U.S. dollars (“USD”). The functional currency of the Company is the
Chinese Yuan, Renminbi (“RMB”), the currency of the PRC. Any transactions which are denominated in currencies other than
RMB are translated into RMB at the exchange rate quoted by the People’s Bank of China prevailing at the dates of the transactions,
and exchange gains and losses are included in the statements of operations as foreign currency transaction gain or loss. The consolidated
financial statements of the Company have been translated into U.S. dollars in accordance with ASC 830, “Foreign Currency Matters”.
The financial information is first prepared in RMB and then is translated into U.S. dollars at period-end exchange rates for assets and
liabilities and average exchange rates for revenue and expenses. Capital accounts are translated at their historical exchange rates when
the capital transactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated
other comprehensive income in stockholder’s equity. Cash flows from the Company’s operations are calculated based upon the
local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statements
of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets. 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.
|
|
June 30,
2021
|
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December 31,
2020
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Balance
sheet items, except for equity accounts
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6.4612
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6.5326
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For
the Six Months Ended
June 30,
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2021
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2020
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Items
in the statements of operations, comprehensive loss and statements of cash flows
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6.4700
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7.0339
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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.
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(4)
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Economic
and political risks
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The
Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operation
may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy. In light
of the uncertain and rapidly evolving situation relating to the spread of the coronavirus (COVID-19), we have taken temporary precautionary
measures intended to help minimize the risk of the virus to our employees, our customers, and the communities in which we participate,
which could negatively impact our business. To this end, we are evaluating alternative working arrangements, including requiring all
employees to work remotely, and we have suspended all non-essential travel for our employees and limiting in-person work-related meetings.
In
addition, with the extended Chinese business shutdowns that resulted from the outbreak of COVID-19, we may experience delays or the inability
to service our customers on a timely basis in our commodities trading business. The disruptions to our supply chain and business operations,
or to our suppliers’ or customers’ supply chains and business operations, could include disruptions from the closure of our
luxury car rental facilities, interruptions in the supply of commodities, personnel absences, and restrictions on the luxury car rental
services or delivery and storage of commodities, any of which could have adverse ripple effects on our luxurious car leasing business
and our commodities trading business. If we need to close any of our facilities or a critical number of our employees become too ill
to work, our ability to provide our products and services to our customers could be materially adversely affected in a rapid manner.
Similarly, if our customers experience adverse business consequences due to COVID-19, or any other pandemic, demand for our products
and services could also be materially adversely affected in a rapid manner. Global health concerns, such as COVID-19, could also result
in social, economic, and labor instability in the localities in which we or our suppliers and customers operate within China.
While
the potential economic impact brought by and the duration of COVID-19 may be difficult to assess or predict, a widespread pandemic could
result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively
affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our
business and the value of our common stock. While it is too early to tell whether COVID-19 will have a material effect on our business
over time, we continue to monitor the situation as it unfolds. The extent to which COVID-19 affects our results will depend on many factors
and future developments, including new information about COVID-19 and any new government regulations which may emerge to contain the
virus, among others.
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(5)
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Risks
related to industry
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The
Company sells precious products to customers through our industrial relationship. Sales contracts are entered into with each individual
customer. The Company is the principal under the precious metal direct sales model as the Company controls the products with the ability
to direct the use of, and obtain substantially all the remaining benefits from the precious metal products before they are sold to its
customers. The Company has a single performance obligation to sell metal products to the buyers. Revenue for precious metal trading under
direct sales model is recognized at a point in time when the single performance obligation is satisfied when the products are delivered
to the customer. We are under the risk of economic environment in general and specific to the precious metal industry and to China as
well as changes to the existing governmental regulations.
Commodity
trading in China is subject to seasonal fluctuations, which may cause our revenues to fluctuate from quarter to quarter. We generally
experience less user traffic and purchase orders during national holidays in China, particularly during the Chinese New Year holiday
season in the first quarter of each year. Consequently, the first quarter of each calendar year generally contributes the smallest portion
of our annual revenues. Furthermore, as we are substantially dependent on sales of precious metal, our quarterly revenues and results
of operations are likely to be affected by price fluctuation under macroeconomic circumstance these years.
As
our revenues have grown rapidly in recent years, these factors are difficult to discern based on our historical results, which, therefore,
should not be relied on to predict our future performance. Our financial condition and results of operations for future periods may continue
to fluctuate. As a result, the trading price of our stock may fluctuate from time to time due to seasonality.
The Company settled convertible notes of $200,000
on July 7, 2021 and $1,683,193.1 on July 16, 2021 and issued 260,254 and 1,980,227 shares of the Company’s common stock on July
8, 2021 and July 19, 2021, respectively.
On July 16, 2021, the Company issued 140,000 shares
of the Company’s common stock as compensation to a PR service provider for increasing the Company’s visibility in the financial
news community.