ITEM 1.
|
FINANCIAL STATEMENTS
|
TD HOLDINGS,
INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE
SHEETS
As of March 31, 2020 and December 31,
2019
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
27,101
|
|
|
$
|
2,446,683
|
|
Loans receivable from third parties
|
|
|
3,735,799
|
|
|
|
1,955,697
|
|
Due from related parties
|
|
|
4,823,038
|
|
|
|
3,310,883
|
|
Other current assets
|
|
|
291,063
|
|
|
|
166,617
|
|
Total current assets
|
|
|
8,877,001
|
|
|
|
7,879,880
|
|
|
|
|
|
|
|
|
|
|
Investments in equity investees
|
|
|
963,154
|
|
|
|
972,807
|
|
Deposit in investment in equity investee
|
|
|
14,105
|
|
|
|
14,351
|
|
Loan receivable from a third party, noncurrent
|
|
|
49,368
|
|
|
|
50,230
|
|
Property and equipment, net
|
|
|
3,386
|
|
|
|
3,835
|
|
Right-of-use lease assets, net
|
|
|
401,034
|
|
|
|
41,188
|
|
Leasing business assets, net
|
|
|
2,306,133
|
|
|
|
2,426,109
|
|
Total noncurrent assets
|
|
|
3,737,180
|
|
|
|
3,508,520
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
12,614,181
|
|
|
$
|
11,388,400
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Advances from customers
|
|
$
|
14,987
|
|
|
$
|
15,249
|
|
Third party loans payable
|
|
|
2,369,669
|
|
|
|
2,367,967
|
|
Due to related parties
|
|
|
2,005,891
|
|
|
|
1,017,362
|
|
Stock subscription advance
|
|
|
-
|
|
|
|
1,600,000
|
|
Income tax payable
|
|
|
62,124
|
|
|
|
14,735
|
|
Lease liabilities, current
|
|
|
302,028
|
|
|
|
-
|
|
Other current liabilities
|
|
|
402,301
|
|
|
|
420,101
|
|
Total Current Liabilities
|
|
|
5,157,000
|
|
|
|
5,435,414
|
|
|
|
|
|
|
|
|
|
|
Non-current Liabilities
|
|
|
|
|
|
|
|
|
Related party loan, noncurrent
|
|
|
149,515
|
|
|
|
152,124
|
|
Lease liabilities, noncurrent
|
|
|
52,352
|
|
|
|
-
|
|
Total Non-current Liabilities
|
|
|
201,867
|
|
|
|
152,124
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
5,358,867
|
|
|
|
5,587,538
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Common stock (par value $0.001 per share, 100,000,000 shares authorized; 28,585,111 and 11,585,111 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively)
|
|
|
28,585
|
|
|
|
11,585
|
|
Stock subscription receivable
|
|
|
(13,500,000
|
)
|
|
|
-
|
|
Additional paid-in capital
|
|
|
53,606,170
|
|
|
|
38,523,170
|
|
Accumulated deficit
|
|
|
(32,526,743
|
)
|
|
|
(32,391,040
|
)
|
Accumulated other comprehensive loss
|
|
|
(339,857
|
)
|
|
|
(334,281
|
)
|
Total Shareholders’ Equity
|
|
|
7,268,155
|
|
|
|
5,809,434
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
(12,841
|
)
|
|
|
(8,572
|
)
|
Total Equity
|
|
|
7,255,314
|
|
|
|
5,800,862
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
12,614,181
|
|
|
$
|
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 LOSS
For the Three Months Ended March 31,
2020 and 2019
(Expressed in U.S. dollars, except for
the number of shares)
|
|
For the Three Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
|
|
|
|
|
- Revenue from sales of commodity products
|
|
$
|
1,053,632
|
|
|
$
|
-
|
|
- Revenue from supply chain management services
|
|
|
415,377
|
|
|
|
-
|
|
- Income from operating leases
|
|
|
14,051
|
|
|
|
399,999
|
|
Total revenue
|
|
|
1,483,060
|
|
|
|
399,999
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
- Cost of revenue - commodity product sales - related party
|
|
|
(1,055,143
|
)
|
|
|
-
|
|
- Cost of revenue - supply chain management services
|
|
|
(717
|
)
|
|
|
-
|
|
- Cost of operating lease
|
|
|
(99,314
|
)
|
|
|
(237,651
|
)
|
Total cost of revenue
|
|
|
(1,155,174
|
)
|
|
|
(237,651
|
)
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
327,886
|
|
|
|
162,348
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
(425,115
|
)
|
|
|
(1,906,319
|
)
|
Impairment of leasing business assets
|
|
|
-
|
|
|
|
(96,318
|
)
|
Total operating expenses
|
|
|
(425,115
|
)
|
|
|
(2,002,637
|
)
|
|
|
|
|
|
|
|
|
|
Net Operating Loss
|
|
|
(97,229
|
)
|
|
|
(1,840,289
|
)
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
140,012
|
|
|
|
10,463
|
|
Interest expenses
|
|
|
(134,375
|
)
|
|
|
-
|
|
Total other income, net
|
|
|
5,637
|
|
|
|
10,463
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Taxes
|
|
|
(91,592
|
)
|
|
|
(1,829,826
|
)
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
(48,380
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(139,972
|
)
|
|
|
(1,829,826
|
)
|
|
|
|
|
|
|
|
|
|
Less: Net loss attributable to non-controlling interests
|
|
|
4,269
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to TD Holdings, Inc.’s Stockholders
|
|
|
(135,703
|
)
|
|
|
(1,829,826
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(139,972
|
)
|
|
|
(1,829,826
|
)
|
Foreign currency translation adjustment
|
|
|
(5,576
|
)
|
|
|
57,743
|
|
Comprehensive loss
|
|
|
(145,548
|
)
|
|
|
(1,772,083
|
)
|
Less: Total comprehensive loss attributable to non-controlling interests
|
|
|
4,269
|
|
|
|
-
|
|
Comprehensive loss attributable to TD Holdings, Inc.
|
|
$
|
(141,279
|
)
|
|
$
|
(1,772,083
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted
|
|
|
|
|
|
|
|
|
Net loss per share – basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.35
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding-Basic and Diluted
|
|
|
13,673,023
|
|
|
|
5,169,041
|
|
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 March 31,
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 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
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,829,826
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,829,826
|
)
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
57,743
|
|
|
|
-
|
|
|
|
57,743
|
|
Balance
as at March 31, 2019
|
|
|
5,526,297
|
|
|
$
|
5,526
|
|
|
$
|
29,649,052
|
|
|
$
|
(27,286,916
|
)
|
|
$
|
-
|
|
|
$
|
(453,314
|
)
|
|
$
|
-
|
|
|
$
|
1,914,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(135,703
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,269
|
)
|
|
|
(139,972
|
)
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,576
|
)
|
|
|
-
|
|
|
|
(5,576
|
)
|
Balance
as at March 31, 2020
|
|
|
28,585,111
|
|
|
$
|
28,585
|
|
|
$
|
53,606,170
|
|
|
$
|
(32,526,743
|
)
|
|
$
|
-
|
|
|
$
|
(339,857
|
)
|
|
$
|
(12,841
|
)
|
|
$
|
7,255,314
|
|
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 Three Months Ended March 31,
2020 and 2019
(Expressed in
U.S. dollar)
|
|
For the Three Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(139,972
|
)
|
|
|
(1,829,826
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation of leasing business assets
|
|
|
79,578
|
|
|
|
46,858
|
|
Depreciation of property and equipment
|
|
|
388
|
|
|
|
551
|
|
Amortization of right of use assets
|
|
|
88,620
|
|
|
|
-
|
|
Impairment on leasing business assets
|
|
|
-
|
|
|
|
96,318
|
|
Stock-based compensation to service providers
|
|
|
-
|
|
|
|
884,208
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
(132,271
|
)
|
|
|
29,320
|
|
Advances from customers
|
|
|
-
|
|
|
|
23,180
|
|
Income tax payable
|
|
|
48,380
|
|
|
|
-
|
|
Other current liabilities
|
|
|
(6,394
|
)
|
|
|
(9,242
|
)
|
Lease liabilities
|
|
|
(94,888
|
)
|
|
|
-
|
|
Net Cash Used in Operating Activities
|
|
|
(156,559
|
)
|
|
|
(758,633
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of leasing business assets
|
|
|
-
|
|
|
|
(406,757
|
)
|
Loans made to related parties
|
|
|
(1,593,260
|
)
|
|
|
-
|
|
Loans made to third parties
|
|
|
(1,831,708
|
)
|
|
|
(592,724
|
)
|
Net Cash Used in Investing Activities
|
|
|
(3,424,968
|
)
|
|
|
(999,481
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from third party borrowings
|
|
|
-
|
|
|
|
592,724
|
|
Proceeds from borrowings from related parties
|
|
|
1,063,773
|
|
|
|
-
|
|
Net Cash Provided by Financing Activities
|
|
|
1,063,773
|
|
|
|
592,724
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
98,172
|
|
|
|
21,969
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(2,419,582
|
)
|
|
|
(1,143,421
|
)
|
Cash at beginning of period
|
|
|
2,446,683
|
|
|
|
1,484,116
|
|
Cash at end of period
|
|
$
|
27,101
|
|
|
$
|
340,695
|
|
|
|
|
|
|
|
|
|
|
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 subsequently collected in April 2020
|
|
$
|
13,500,000
|
|
|
$
|
-
|
|
Issuance of common stocks in connection with private placements, net of issuance costs with proceeds collected in advance in November 2019
|
|
$
|
1,600,000
|
|
|
$
|
|
|
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.
Currently, the Company conducts business
through two variable interest entities (“VIEs”), Beijing Tianxing Kunlun Technology Co. Ltd. (“Beijing Tianxing”)
and Shenzhen Huamucheng Trading Co., Ltd. (“Huamucheng”).
Beijing Tianxing is primarily engaged in operating leasing business of used luxurious cars and Huamucheng is engaged in
commodity trading business and providing supply chain management services to customers in the People’s Republic of China
(“PRC”). Supply chain management services consisted of loan recommendation service and commodity product distribution
services.
The accompanying consolidated financial
statements reflect the activities of Beijing Tianxing, Shenzhen 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
|
Hao Limo Technology (Beijing) Co. Ltd.
(“Hao Limo”)
|
|
● A
PRC company and deemed a wholly foreign owned enterprise (“WOFE”)
● Incorporated
on May 10, 2018
● Registered
capital of $15 million
● A
holding company
|
|
WOFE, 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
|
*
|
As of March 31, 2020, Beijing Tianxing has six wholly owned subsidiaries, including:
|
|
●
|
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 March 31, 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 March 31, 2020 and for the three months ended March 31, 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 the 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 months ended March 31, 2020
and 2019 are not necessarily indicative of the results for the full years.
|
(b)
|
Consolidation of variable interest entities
|
As of March 31,
2020 and December 31, 2019, the Company’s business was primarily conducted through its two VIEs, Beijing Tianxing and Huamucheng.
Beijing Tianxing is engaged in used luxurious car leasing business and Huamucheng is engaged in commodity trading and supply chain
management business.
The following
financial statement balances reflect the financial positions of Beijing Tianxing and Huamucheng, which were included in the consolidated
balance sheets as of March 31, 2020 and December 31, 2019, respectively:
|
|
As of March 31, 2020
|
|
|
As of December 31, 2019
|
|
|
|
Beijing
Tianxing
|
|
|
Huamucheng
|
|
|
Total
|
|
|
Beijing
Tianxing
|
|
|
Huamucheng
|
|
|
Total
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
5,780
|
|
|
$
|
2,184
|
|
|
$
|
7,964
|
|
|
$
|
94,380
|
|
|
$
|
1,730,793
|
|
|
$
|
1,825,173
|
|
Loans receivable from third parties
|
|
|
1,374,581
|
|
|
|
738,829
|
|
|
|
2,113,410
|
|
|
|
1,364,125
|
|
|
|
-
|
|
|
|
1,364,125
|
|
Due from TD and Hao Limo*
|
|
|
990,195
|
|
|
|
-
|
|
|
|
990,195
|
|
|
|
966,882
|
|
|
|
-
|
|
|
|
966,882
|
|
Due from related parties
|
|
|
292,828
|
|
|
|
4,360,949
|
|
|
|
4,653,777
|
|
|
|
470,154
|
|
|
|
2,840,729
|
|
|
|
3,310,883
|
|
Other current assets
|
|
|
148,404
|
|
|
|
28,330
|
|
|
|
176,734
|
|
|
|
164,922
|
|
|
|
2,848
|
|
|
|
167,770
|
|
Investment in equity investees
|
|
|
553,154
|
|
|
|
-
|
|
|
|
553,154
|
|
|
|
562,807
|
|
|
|
-
|
|
|
|
562,807
|
|
Leasing business assets, net
|
|
|
2,306,133
|
|
|
|
-
|
|
|
|
2,306,133
|
|
|
|
2,426,109
|
|
|
|
-
|
|
|
|
2,426,109
|
|
Other noncurrent assets
|
|
|
43,162
|
|
|
|
375,363
|
|
|
|
418,525
|
|
|
|
18,186
|
|
|
|
-
|
|
|
|
18,186
|
|
Total Assets
|
|
$
|
5,714,237
|
|
|
$
|
5,505,654
|
|
|
$
|
11,219,891
|
|
|
$
|
6,067,565
|
|
|
$
|
4,574,370
|
|
|
$
|
10,641,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from customers
|
|
$
|
14,987
|
|
|
$
|
-
|
|
|
$
|
14,987
|
|
|
$
|
15,249
|
|
|
$
|
-
|
|
|
$
|
15,249
|
|
Other current liabilities
|
|
|
317,481
|
|
|
|
496,252
|
|
|
|
813,733
|
|
|
|
218,688
|
|
|
|
207,834
|
|
|
|
426,522
|
|
Third parties loans
|
|
|
2,045,250
|
|
|
|
141,052
|
|
|
|
2,186,302
|
|
|
|
2,080,941
|
|
|
|
315,729
|
|
|
|
2,396,670
|
|
Due to related parties
|
|
|
234,329
|
|
|
|
1,062,965
|
|
|
|
1,297,294
|
|
|
|
197,733
|
|
|
|
166,332
|
|
|
|
364,065
|
|
Due to TD and Hao Limo **
|
|
|
5,120,488
|
|
|
|
2,036,116
|
|
|
|
7,156,604
|
|
|
|
5,197,531
|
|
|
|
2,577,356
|
|
|
|
7,774,887
|
|
Total Liabilities
|
|
$
|
7,732,535
|
|
|
$
|
3,736,385
|
|
|
$
|
11,468,920
|
|
|
$
|
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)
|
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 three months ended March 31, 2020 and 2019, respectively:
|
|
For the Three Months Ended
March 31, 2020
|
|
|
For the Three Months Ended
March 31, 2019
|
|
|
|
Beijing Tianxing
|
|
|
Huamucheng
|
|
|
Total
|
|
|
Beijing
Tianxing
|
|
|
Huamucheng
|
|
|
Total
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Revenue
|
|
$
|
14,051
|
|
|
$
|
1,469,009
|
|
|
$
|
1,483,060
|
|
|
$
|
399,999
|
|
|
$
|
-
|
|
|
$
|
399,999
|
|
Cost of revenue
|
|
$
|
(99,314
|
)
|
|
$
|
(1,055,860
|
)
|
|
$
|
(1,155,174
|
)
|
|
$
|
(237,651
|
)
|
|
$
|
-
|
|
|
$
|
(237,651
|
)
|
Operating expenses
|
|
$
|
(70,613
|
)
|
|
$
|
(264,900
|
)
|
|
$
|
(335,513
|
)
|
|
$
|
(702,041
|
)
|
|
$
|
-
|
|
|
$
|
(702,041
|
)
|
Net (loss) income
|
|
$
|
(213,444
|
)
|
|
$
|
143,930
|
|
|
$
|
(69,514
|
)
|
|
$
|
(529,230
|
)
|
|
$
|
-
|
|
|
$
|
(529,230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
March 31, 2020
|
|
|
For the Three Months Ended
March 31, 2019
|
|
|
|
Beijing Tianxing
|
|
|
Huamucheng
|
|
|
Total
|
|
|
Beijing
Tianxing
|
|
|
Huamucheng
|
|
|
Total
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Net Cash Used in Operating Activities
|
|
$
|
(94,559
|
)
|
|
$
|
(295,142
|
)
|
|
$
|
(389,701
|
)
|
|
$
|
(342,335
|
)
|
|
$
|
-
|
|
|
$
|
(342,335
|
)
|
Net Cash Used in by Investing Activities
|
|
|
(34,377
|
)
|
|
|
(2,343,539
|
)
|
|
|
(2,377,916
|
)
|
|
|
(999,481
|
)
|
|
|
-
|
|
|
|
(999,481
|
)
|
Net Cash Provided by Financing Activities
|
|
|
40,607
|
|
|
|
913,427
|
|
|
|
954,034
|
|
|
|
592,724
|
|
|
|
-
|
|
|
|
592,724
|
|
Effect of Exchange Rate Changes on Cash
|
|
|
(271
|
)
|
|
|
(3,355
|
)
|
|
|
(3,627
|
)
|
|
|
20,390
|
|
|
|
-
|
|
|
|
20,390
|
|
Net Decrease in Cash
|
|
|
(88,600
|
)
|
|
|
(1,728,609
|
)
|
|
|
(1,817,209
|
)
|
|
|
(728,702
|
)
|
|
|
-
|
|
|
|
(728,702
|
)
|
Cash at Beginning of Period
|
|
|
94,380
|
|
|
|
1,730,793
|
|
|
|
1,825,173
|
|
|
|
991,385
|
|
|
|
-
|
|
|
|
991,385
|
|
Cash at End of Period
|
|
$
|
5,780
|
|
|
$
|
2,184
|
|
|
$
|
7,964
|
|
|
$
|
262,683
|
|
|
$
|
-
|
|
|
$
|
262,683
|
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
|
(c)
|
Foreign currency translation
|
The reporting currency of the Company is
United States Dollars (“US$”), which is also the Company’s functional currency. HC High BVI and HC High HK maintain
their book and records in US$, which is also their functional currency. The Company’s PRC subsidiaries and VIEs 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:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Balance sheet items, except for equity accounts
|
|
|
7.0896
|
|
|
|
6.9680
|
|
|
|
For the Three Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Items in the statements of operations, comprehensive loss and statements of cash flows
|
|
|
6.9814
|
|
|
|
6.7485
|
|
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)
|
Leasing business asset, net
|
Leasing business asset, net, represents
the automobiles that are underlying our automotive lease contracts and is reported at cost, less accumulated depreciation and net
of impairment charges and origination fees or costs. Depreciation of vehicles is recorded on a straight-line basis to an estimated
residual value over the useful life of nine years. We periodically evaluate our depreciation rate for leased vehicles based on
expected residual values and adjust depreciation expense over the remaining life of the lease if deemed necessary.
We have significant investments in the
residual values of the assets in our operating lease portfolio. The residual values represent an estimate of the values of the
assets at the end of the lease contracts. At contract inception, we determine pricing based on the projected residual value of
the lease vehicle. This evaluation is primarily based on a proprietary model, which includes variables such as age, expected mileage,
seasonality, segment factors, vehicle type, economic indicators, production cycle, automotive manufacturer incentives, and shifts
in used vehicle supply. This internally-generated data is compared against third-party, independent data for reasonableness. Realization
of the residual values is dependent on our future ability to market the vehicles under the prevailing market conditions. Over the
life of the lease, we evaluate the adequacy of our estimate of the residual value and make adjustments to the depreciation rates
to the extent the expected value of the vehicle at lease termination changes. In addition to estimating the residual value at lease
termination, we also evaluate the current value of the leasing business asset and test for impairment to the extent necessary when
there is an indication of impairment based on market considerations and portfolio characteristics. Impairment is determined to
exist if fair value of the leased asset is less than carrying value and it is determined that the net carrying value is not recoverable.
The net carrying value of a leased asset is not recoverable if it exceeds the sum of the undiscounted expected future cash flows
expected to result from the lease payments and the estimated residual value upon eventual disposition. If our leasing business assets
are considered to be impaired, the impairment is measured as the amount by which the carrying amount of the assets exceeds the
fair value as estimated by discounted cash flows. We recognize rental income on our operating leases when collection is reasonably
assured.
|
(e)
|
Income from operating lease
|
Income from operating lease represents
lease origination fees and rental fee, netting off lease origination costs. In accordance with ASC 842, Leases, the Company recognized
the income from operating lease on a straight-line basis over the scheduled lease term.
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
The Company generates income or revenue
from the following source (1) income from operating lease of luxury cars, which is accounted for in accordance with ASC 842, Leases,
the Company recognized the income from operating lease on a straight-line basis over the scheduled lease term; (2) Revenue associated
with commodity trading and revenue associated with supply chain management services are accounted for in accordance with ASC 606.
On January 1, 2019, the Company adopted
ASC Topic 606 Revenue from Contracts with Customers (“ASC 606”) using the modified retrospective approach. ASC 606
establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising
from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize
revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to
be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. This new guidance
provides a five-step analysis in determining when and how revenue is recognized. Under the new guidance, revenue is recognized
when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which
the entity expects to receive in exchange for those goods or services. In addition, the new guidance requires disclosure of the
nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company has assessed
the impact of the new guidance by reviewing its existing customer contracts and current accounting policies and practices to identify
differences that will result from applying the new requirements, including the evaluation of its performance obligations, transaction
price, customer payments, transfer of control and principal versus agent considerations. Based on the assessment, the Company concluded
that there was no change to the timing and pattern of revenue recognition for its current revenue streams in scope of Topic 606
and therefore there was no material changes to the Company’s consolidated financial statements upon adoption of ASC 606.
Revenue from sales of commodity products
In December 2019, the Company started its
commodity trading business through its VIE Huamucheng. The commodity trading business primarily involves purchasing non-ferrous
metal product, including aluminium ingots, copper, silver, and gold from upstream metal and mineral suppliers and then selling
to downstream customers. The Company makes advance payments to upstream suppliers to purchase the metal products, requests suppliers
to ship products to designated warehouse. Upon obtaining purchase orders and receipt of full advance payments from downstream customers,
the Company instructs warehouse agent to transfer ownership of products to customers. The transaction is normally completed within
a short period of time, ranging from a few days to a month.
The Company’s contracts with customers
for metal commodity trading are fixed-price contracts. The Company does not grant customers with incentives or return rights, and
therefore, there is no variable considerations derived from the contracts. The Company acts as the principal because the Company
is responsible for fulfilling the promise to provide the specified metal products to customers, is subject to inventory risk before
the product ownership and risk are transferred and has the discretion in establishing prices. As a result, revenue is recognized
on a gross basis. The Company recognizes revenue when the product ownership is transferred to its customers.
For the three months ended March 31, 2020,
the Company sold non-ferrous metal products to two customers and generated revenue of $1,053,632.
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 to sell their metal products, the Company launched its supply chain management service business in
December 2019, which primarily consisted of loan recommendation service fees and distribution service fees. For the three months
ended March 31, 2020, the Company provided loan recommendation services to customers.
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
|
(f)
|
Revenue recognition (continued)
|
|
-
|
Loan recommendation service fees
|
The Company recommends customers who have
financing need for commodity trading to various financial institutions and assist these customers to obtain loans from the financial
institutions. The Company’s services include conducting customer screening and credit check, matching customer with right
financial institution and assisting in customer’s applications and related paperwork etc. 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 customer. For the three months ended March 31, 2020, the Company provided loan recommendation
services to six customers and earned revenue of $415,377 from loan recommendation services.
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.
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
|
(g)
|
Income taxes (continued)
|
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 March 31, 2020 and December 31, 2019. As of March 31,
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.
|
(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 March 31, 2020, approximately $17,187 was deposited
with a bank in the United States which was insured by the government up to $250,000. As of March 31, 2020 and December 31,
2019, approximately $9,914 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.
(c)
|
Foreign currency risk
|
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 $17,187 which was in U.S. dollars as of March 31, 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, and Huamucheng 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 VIEs. Consequently, the VIEs’ 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.
|
3.
|
LOANS
RECEIVABLE FROM THIRD PARTIES
|
Accounts receivable, net consist of the
following:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Loans receivable from third parties
|
|
$
|
3,785,167
|
|
|
$
|
2,005,927
|
|
Less: loan receivable from third parties, current
|
|
|
3,735,799
|
|
|
|
1,955,697
|
|
Loan receivable from a third party, noncurrent
|
|
$
|
49,368
|
|
|
$
|
50,230
|
|
During the three months ended March 31,
2020 and 2019, the Company entered into loan agreements with three and two third parties, respectively, and advanced an aggregate
of $1,831,708 and $592,724, respectively, to these third parties as interest-bearing loans. The interest rate ranges between 9%
and 16% per annum. As of March 31, 2020, the balances of loan principal and interest payment were due in September 2020 through
August 2021. The Company classified loan receivables due before December 31, 2020 as current assets, and those after December 31,
2020 as noncurrent 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 March
31, 2020 and December 31, 2019, there was no allowance recorded as the Company considers all of the loans receivable fully
collectible. In April 2020, the Company terminated certain third-party loan receivable contracts and collected approximately $1.0
million loans receivable from these third-parties.
Interest income of $85,275 and $12,429
was accrued for the three months ended March 31, 2020 and 2019. As of March 31, 2020 and December 31, 2019, the Company recorded
an interest receivable of $216,271 and $133,742 as reflected under “other current assets” in the consolidated balance
sheets.
|
4.
|
INVESTMENTS
IN EQUITY INVESTEES
|
As of March 31, 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)
|
|
$
|
282,103
|
|
|
|
40
|
%
|
|
June 28, 2019
|
Shanghai Huxin Technology Co., Ltd. (“Shanghai Huxin”) (a)
|
|
|
282,103
|
|
|
|
40
|
%
|
|
July 4, 2019
|
Hangzhou Yihe Network Technology Co., Ltd. (“Hangzhou Yihe”) (b)
|
|
|
410,000
|
|
|
|
20
|
%
|
|
December 17, 2019
|
|
|
|
974,206
|
|
|
|
|
|
|
|
Less: Share of results of equity investees
|
|
|
(11,052
|
)
|
|
|
|
|
|
|
|
|
$
|
963,154
|
|
|
|
|
|
|
|
(a)
|
On June 28, 2019 and July 4, 2019, the Company made investments of $282,103 (RMB 2,000,000) and $282,103 (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 months ended March 31, 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 March 31, 2020 and December 31, 2019, the balance of share of results of equity investees was $11,052 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 March 31, 2020, the Company
did not provide impairment against the investments in equity investees.
|
5.
|
LEASING BUSINESS ASSETS, NET
|
As of March 31, 2020 and December 31,
2019, the Company had investments in eleven and eleven used luxury cars, respectively.
As
of March 31, 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 $316,683 and
$322,210, respectively. For the three months ended March 31, 2020 and 2019, the Company recorded impairment of $nil and $96,318,
respectively, for these leasing business assets.
As of the March 31, 2020 and December 31,
2019, the balance of the used luxurious cars is comprised of the following:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Used luxury cars
|
|
$
|
2,747,194
|
|
|
$
|
2,795,136
|
|
Less: accumulated depreciation
|
|
|
(441,061
|
)
|
|
|
(369,027
|
)
|
|
|
$
|
2,306,133
|
|
|
$
|
2,426,109
|
|
For
the three months ended March 31, 2020 and 2019, the Company charged depreciation expenses of $79,578 and $46,858 on used luxurious
cars, respectively.
As of March 31, 2020 and December 31, 2019,
eight used luxurious cars with an aggregated carrying amount of $1,883,879 were pledged for borrowings from third parties (Note
6).
|
6.
|
THIRD
PARTIES LOANS PAYABLE
|
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Third parties loans payable
|
|
$
|
2,369,669
|
|
|
$
|
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 March 31, 2020 and 2019, the Company accrued interest expenses of $98,115
and $6,869 on the borrowings, respectively.
As of March 31, 2020 and December 31,
2019, eight used luxurious cars with an aggregated carrying amount of $1,883,879 were pledged for borrowings from third parties
(see Note 5).
7.
|
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”.
As
of March 31, 2020 and December 31, 2019, the Company had stock subscription advance from shareholder of $nil and $1,600,000, respectively.
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.
Convertible Promissory Notes
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.
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 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
Warrants are exercisable immediately upon the date of issuance at the exercise price of $1.80 for cash (the “Warrant
Shares”). The 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 Warrants will expire five years from date of issuance. The Warrants are
subject to anti-dilution provisions to reflect stock dividends and splits or other similar transactions. The Warrants contain
a mandatory exercise right for the Company to force exercise of the 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.
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 a 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.
Because
the Company did not receive the proceeds until April 2020, the Holders did not have the conversion rights of either convertible
notes or warrants until payment were made. Accordingly the Company did not record accounting book on the transaction.
|
8.
|
CAPITAL
TRANSACIONS (CONTINUED)
|
Warrants
A summary of warrants activity for the
three months ended March 31, 2020 was as follows:
|
|
Number of
shares
|
|
|
Weighted
average life
|
|
Expiration
dates
|
|
|
|
|
|
|
|
|
Balance of warrants outstanding as of December 31,
2019
|
|
|
3,033,370
|
|
|
4.38 years
|
|
|
Grant of warrants during the three months ended March 31, 2020
|
|
|
-
|
|
|
|
|
|
Exercise of warrants during the three months ended March 31, 2020
|
|
|
-
|
|
|
|
|
|
Forfeiture of warrants during the three months ended March 31, 2020
|
|
|
-
|
|
|
|
|
|
Balance of warrants outstanding as of March 31, 2020
|
|
|
3,033,370
|
|
|
3.78 years
|
|
|
As of March 31, 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 awrrants 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”.
|
8.
|
CAPITAL
TRANSACIONS (CONTINUED)
|
Warrants (continued)
The key assumption used in estimates are
as follows:
|
|
April 11,
|
|
|
August 30,
|
|
|
May 20,
|
|
|
|
2019
|
|
|
2019
|
|
|
2019
|
|
|
|
|
|
|
(Replacement Warrants)
|
|
|
|
|
Terms of warrants
|
|
|
60 months
|
|
|
|
55.3 months
|
|
|
|
66 months
|
|
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
|
%
|
The following table sets forth the computation
of basic and diluted loss per common share for the three months ended March 31, 2020, respectively:
|
|
For the Three Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Net loss attributable to TD Holdings, Inc.’s Stockholders
|
|
$
|
(135,703
|
)
|
|
$
|
(1,829,826
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding-Basic and Diluted
|
|
|
13,673,023
|
|
|
|
5,169,041
|
|
Loss per share - basic and diluted
|
|
|
|
|
|
|
|
|
Net loss per share – basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.35
|
)
|
Basic loss per share is computed by dividing
the net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share is the same
as basic loss per share due to the lack of dilutive items in the Company for the three months ended March 31, 2020 and 2019. The
number of warrants is excluded from the computation as the anti-dilutive effect.
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.
10.
|
INCOME TAXES (CONTINUED)
|
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
months ended March 31, 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 March 31, 2020 and December 31, 2019, the Company had deferred tax assets of $3,635,446 and $3,574,333, respectively.
The Company maintains a full valuation allowance on its net deferred tax assets as of March 31, 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 March 31, 2020 and 2019, the Company had current income tax expenses of $48,380 generated by a profitable
VIE 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 March 31, 2020 and December 31, 2019 and the Company does not believe
that its unrecognized tax benefits will change over the next twelve months.
|
11.
|
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
|
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 the Company
|
|
11.
|
RELATED
PARTY TRANSACTIONS AND BALANCES (CONTINUED)
|
|
2)
|
Balances
with related parties
|
As of March 31, 2020 and December 31,
2019, the balances with related parties were as follows:
|
-
|
Due from related
parties
|
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Qianhai Baiyu (i)
|
|
$
|
4,360,948
|
|
|
$
|
2,840,728
|
|
Chengdu Jianluo (ii)
|
|
|
444,587
|
|
|
|
452,346
|
|
Shanghai Huxin (iii)
|
|
|
17,503
|
|
|
|
17,809
|
|
Total Due from related parties
|
|
$
|
4,823,038
|
|
|
$
|
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. Interest income amounted to $54,193
and $nil for the three months ended March 31, 2020 and 2019. The balance of due from Qianhai Baiyu is fully collected as of the
date of this report.
|
|
(i)
|
As of March 31, 2020, the balance due from Chengdu Jianluo
consisted of receivables for transfers of two used luxurious cars at consideration aggregating $461,302, netting off against car-related
fees due to the related party of $16,715.
|
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.
The balance was fully collected
as of the date of this report.
|
(ii)
|
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. The balance was fully collected as of the date of this report.
|
|
11.
|
RELATED
PARTY TRANSACTIONS AND BALANCES (CONTINUED)
|
|
2)
|
Balances
with related parties (continued)
|
|
-
|
Due to related
parties, current
|
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Guangzhou Chengji (1)
|
|
$
|
1,920,589
|
|
|
$
|
970,318
|
|
Lu Zhao (2)
|
|
|
70,306
|
|
|
|
33,269
|
|
Jiaxi Gao (3)
|
|
|
7,994
|
|
|
|
8,134
|
|
Tao Sun (3)
|
|
|
6,515
|
|
|
|
4,206
|
|
Guotao Deng (3)
|
|
|
487
|
|
|
|
1,435
|
|
Total
|
|
$
|
2,005,891
|
|
|
$
|
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 March 31,
2020 and December 31, 2019, the balance due to Lu Zhao consisted of the operating expenses
of $2,821 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
$67,485 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 Jiaxin 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
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
|
|
Tao Sun
|
|
$
|
149,515
|
|
|
$
|
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 $36,260 and $nil for the three months ended March 31, 2020 and 2019, respectively.
|
11.
|
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.
|
-
|
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 the Company. 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.
|
-
|
Borrowings
from related parties
|
For the three months ended March 31, 2020,
the Company borrowed loans aggregating $36,617 form Mr. Lu Zhao, a senior management of the Company. The loan will expire on December
24, 2020. The interest rate charged on the borrowing was 10%. For the three months ended March 31, 2020, the Company accrued interest
expenses of $1,574.
For the three months ended March 31, 2020,
the Company borrowed a loan of $948,863. The Loan has an annual interest rate of 8% and a maturity date of December 4, 2020. For
the three months ended March 31, 2020, the Company accrued interest expenses of $32,270.
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 three months ended March 31, 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 three months ended March 31, 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 March 31, 2020 and 2019:
|
|
For the Three Months Ended
March 31, 2020
|
|
|
|
Tianxing
Business
|
|
|
Huamucheng
Business
|
|
|
Unallocated
|
|
|
Total
|
|
Revenue
|
|
$
|
14,051
|
|
|
$
|
1,469,009
|
|
|
$
|
-
|
|
|
$
|
1,483,060
|
|
Cost of revenue and related tax
|
|
|
(99,314
|
)
|
|
|
(1,055,860
|
)
|
|
|
-
|
|
|
|
(1,155,174
|
)
|
Gross profit
|
|
$
|
(85,263
|
)
|
|
$
|
413,149
|
|
|
$
|
-
|
|
|
$
|
327,886
|
|
Interest (expense) income, net
|
|
$
|
(57,425
|
)
|
|
$
|
44,061
|
|
|
$
|
19,001
|
|
|
$
|
5,637
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
(48,380
|
)
|
|
$
|
-
|
|
|
$
|
(48,380
|
)
|
Segment (loss) profit
|
|
$
|
(213,444
|
)
|
|
$
|
143,930
|
|
|
$
|
(70,458
|
)
|
|
$
|
(139,972
|
)
|
Segment assets as of March 31, 2020
|
|
$
|
4,724,042
|
|
|
$
|
5,505,654
|
|
|
$
|
2,384,485
|
|
|
$
|
12,614,181
|
|
|
|
For the Three Months Ended
March 31, 2019
|
|
|
|
Tianxing
Business
|
|
|
Huamucheng
Business
|
|
|
Unallocated
|
|
|
Total
|
|
Revenue
|
|
$
|
399,999
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
399,999
|
|
Cost of revenue and related tax
|
|
|
(237,651
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(237,651
|
)
|
Gross profit
|
|
$
|
162,348
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
162,348
|
|
Interest income, net
|
|
$
|
10,463
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,463
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Segment loss
|
|
$
|
(1,829,826
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(1,829,826
|
)
|
Segment assets as of March 31, 2019
|
|
$
|
2,941,747
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,941,747
|
|
|
13.
|
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 March 31, 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.
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Rights of use lease assets
|
|
$
|
401,034
|
|
|
$
|
41,188
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities, current
|
|
$
|
302,028
|
|
|
$
|
-
|
|
Operating lease liabilities, noncurrent
|
|
|
52,352
|
|
|
|
-
|
|
Total operating lease liabilities
|
|
$
|
354,380
|
|
|
$
|
-
|
|
As of March 31, 2020 and December 31,
2019, the weighted average remaining lease term was 1.09 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
March 31, 2020 and 2019 were $95,124 and $16,624, respectively.
The following is a schedule, by years,
of maturities of lease liabilities as of March 31, 2020:
Twelve months ended March 31, 2021
|
|
$
|
312,413
|
|
Twelve months ended March 31, 2022
|
|
|
52,663
|
|
Total lease payments
|
|
|
365,076
|
|
Less: imputed interest
|
|
|
(10,696
|
)
|
Present value of lease liabilities
|
|
$
|
354,380
|
|
|
13.
|
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.
|
13.
|
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.
Please see “Note 8 – Capital
Transactions” for all subsequent capital transactions
ITEM 2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Overview
As of March 31, 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$2.43 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 three months ended March 31, 2020 and 2019, the Company earned income from operating lease of $14,051 and $399,999,
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 three months ended March 31, 2020,
the Company recorded revenue of $1,053,632 from commodities trading business and $415,377 from supply chain management services
(all from loan recommendation services), respectively, from Huamucheng’s operations.
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.
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 March 31, 2020 as Compared to Three Months Ended March 31, 2019
|
|
For the Three Months Ended
March 31,
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
Amount
|
|
|
%
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from sales of commodity products
|
|
$
|
1,053,632
|
|
|
$
|
-
|
|
|
$
|
1,053,632
|
|
|
|
100
|
%
|
Revenue from supply chain management services
|
|
|
415,377
|
|
|
|
-
|
|
|
|
415,377
|
|
|
|
100
|
%
|
Income from operating leases
|
|
|
14,051
|
|
|
|
399,999
|
|
|
|
(385,948
|
)
|
|
|
(96
|
)%
|
Total Revenue
|
|
|
1,483,060
|
|
|
|
399,999
|
|
|
|
1,083,061
|
|
|
|
271
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue - commodity product sales - related party
|
|
|
(1,055,143
|
)
|
|
|
-
|
|
|
|
(1,055,143
|
)
|
|
|
100
|
%
|
Cost of revenue - supply chain management services
|
|
|
(717
|
)
|
|
|
-
|
|
|
|
(717
|
)
|
|
|
100
|
%
|
Cost of operating lease
|
|
|
(99,314
|
)
|
|
|
(237,651
|
)
|
|
|
138,337
|
|
|
|
(58
|
)%
|
Total cost of revenue
|
|
|
(1,155,174
|
)
|
|
|
(237,651
|
)
|
|
|
(917,523
|
)
|
|
|
386
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
327,886
|
|
|
|
162,348
|
|
|
|
165,538
|
|
|
|
102
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
(425,115
|
)
|
|
|
(1,906,319
|
)
|
|
|
1,481,204
|
|
|
|
(78
|
)%
|
Impairment on leasing business assets
|
|
|
-
|
|
|
|
(96,318
|
)
|
|
|
96,318
|
|
|
|
(100
|
)%
|
Total operating cost and expenses
|
|
|
(425,115
|
)
|
|
|
(2,002,637
|
)
|
|
|
1,577,522
|
|
|
|
(79
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
|
5,637
|
|
|
|
10,463
|
|
|
|
(4,826
|
)
|
|
|
(46
|
)%
|
Total other income, net
|
|
|
5,637
|
|
|
|
10,463
|
|
|
|
(4,826
|
)
|
|
|
(46
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Taxes
|
|
|
(91,592
|
)
|
|
|
(1,829,826
|
)
|
|
|
1,738,234
|
|
|
|
(95
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
(48,380
|
)
|
|
|
-
|
|
|
|
(48,380
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(139,972
|
)
|
|
$
|
(1,829,826
|
)
|
|
$
|
1,689,854
|
|
|
|
(92
|
)%
|
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. Total revenue increased by $1,083,061 or 271%, from $399,99 for the three months ended March 31, 2019 to $1,483,060 for
the three months ended March 31, 2020, among which revenue from commodity trading, supply chain management and car leasing accounted
for 71.1%, 28.0% and 0.9%, respectively, of our total revenue for the three months ended March 31, 2020. For the three months
ended March 31, 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 March 31, 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 $1,053,632 from sales of commodity products. There was no such revenue for the
three months ended March 31, 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 March 31,
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. The Company earned $415,377 from
loan recommendation services from the facilitation of a loan volume of approximately $17.6 million (RMB 123.0 million) with six
customers.
|
(3)
|
Income
from operating lease
|
The Company commenced its business of
lease services of used luxurious cars in May 2018. As of March 31, 2020 and 2019, the Company had eleven and eight 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. As a result, we generated
minimal operating lease income for the three months ended March 31, 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 March 31, 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 $399,999 for the three months ended March 31, 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 $917,523 or 386% from $237,651 for the three months ended March
31, 2019 to $1,155,174 for the three months ended March 31, 2020, primarily due to an increase of $1,055,143 in cost of revenue
associated with commodity product sales which was just launched in December 2019, against a decrease of $138,337 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 March 31, 2020, the Company purchased non-ferrous metal
products of $1,055,143 from Shenzhen Qianhai Baiyu Supply Chain Co., Ltd. (“Shenzhen Baiyu”), a related party controlled
by the legal representative of Huamucheng, and sold non-ferrous metal products to two customers. The Company recorded cost of
revenue of $1,055,143. There was no such cost for the three months ended March 31, 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 $46,858 for the three months ended March 31, 2019 to $79,578 for the three months ended March 31,
2020, representing an increase of $32,720, or 70%. The increase was mainly caused by the Company’s continuous investments
in used luxurious cars. As of March 31, 2020, the Company had eleven used luxurious cars, as compared with eight cars as of March
31, 2019.
In the three months ended March 31, 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 $19,736 and $190,793 for the three months ended March 31, 2020 and
2019, respectively. The decrease was mainly caused by the Company’s closure of car rental facilities from the end of January
2020 to March 2020, as affected by COVID-19.
Selling, general, and administrative
expenses
Selling, general and administrative expenses
decreased from $1,906,319 for the three months ended March 31, 2019 to $425,115 for the three months ended March 31, 2020, representing
a decrease of $1,481,204, or 78%. 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 $358,518 as a result of closures of our car rental facilities
for the three months ended March 31, 2020, and a decrease of legal and consulting expenses of $1,220,923 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 $156,659, an increase of commission of $100,000
to a third party vendor for referral of underwriters.
Net loss
As a result of the foregoing, net loss
for the three months ended March 31, 2020 was $139,972, representing a decrease of $1,689,854 from net loss of $1,829,826 for
the three months ended March 31, 2019.
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.
For the three months ended March 31, 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.
Liquidity
During the three months ended March 31,
2020, the Company entered into additional private placement agreements with certain private
investors and issued 15,000,000 shares of common stock at $0.90 per share and also sold 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. On April
14 and 15, 2020, the holders of Notes exercised warrants and paid cash consideration of $36,000,000 to
the Company. Total equity financing from this transaction was $79.5 million. The Company received $79.5 million proceeds
by April 15, 2020. The Company expects to use the proceeds from this equity financing as
working capital to expand its commodity trading business.
Based on above financing activities, the
management believes that the Company will continue as a going concern in the following 12 months.