UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

Amendment No. 1

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number: 001-36055

TD Holdings, Inc.

(Exact name of registrant as specified in its charter)

+86 (0755) 88898711

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 12, 2020, 68,963,229 shares of the Company’s Common Stock, $0.001 par value per share, were issued and outstanding.

EXPLANATORY NOTE

As disclosed in our Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2021, as amended, on March 26, 2021, the Audit Committee (the “Audit Committee”) of the Board of Directors of TD Holdings, Inc. (the “Company”), after discussion with the Company’s management, concluded that the Company’s previously issued financial statements contained in the Company’s Quarterly Reports (“2020 Quarterly Reports”) on Form 10-Q for the periods ended March 31, 2020, June 30, 2020, and September 30, 2020 (collectively “Non-Reliance Periods”), originally filed on June 26, 2020, August 14, 2020, and November 13, 2020, respectively, should no longer be relied upon. Similarly, related press releases, earnings releases, and investor communications describing the Company’s financial statements for the Non-Reliance Periods should no longer be relied upon.

We are therefore filing this this amended Form 10-Q (“Amended Form 10-Q”) to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 (the “Original Form 10-Q”), to restate our interim financial statements and revise related disclosures (including, without limitation, those contained under Item 1, Financial Statements and Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Original Form 10-Q to reflect reversal of revenues from supply chain management, which impacted the Company’s net income (loss) and earnings (loss) per share, and related disclosures and Management’s Discussion and Analysis of Financial Condition and Results of Operations. In addition, the identification of related parties changes the footnote for related parties.

As several parts of the Original Form 10-Q are amended and/or restated by this Amended Form 10-Q, for convenience, we have repeated the entire text of the Original Form 10-Q, as amended and/or restated by this Amended Form 10-Q. Readers should therefore read and rely on this Amended Form 10-Q in lieu of the Original Form 10-Q.

Except as amended and/or restated by this Amended Form 10-Q, no other information included in the Original Form 10-Q is being amended or updated by this Amended Form 10-Q. This Amended Form 10-Q continues to describe the conditions as of the date of the Original Form 10-Q and, except as contained therein, we have not updated or modified the disclosures contained in the Original Form 10-Q. Accordingly, this Amended Form 10-Q should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original Form 10-Q, including any amendment to those filings.

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TD HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

As of June 30, 2020 and December 31, 2019

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

TD HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Three and Six Months Ended June 30, 2020 and 2019

(Expressed in U.S. dollars, except for the number of shares)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

TD HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Six Months Ended June 30, 2020 and 2019

(Expressed in U.S. dollars, except for the number of shares)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

TD HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Three Months Ended June 30, 2020 and 2019

(Expressed in U.S. dollars, except for the number of shares)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

TD HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2020 and 2019

(Expressed in U.S. dollar)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements

TD Holdings, Inc. (“TD” or “the Company”), is a holding company that was incorporated under the laws of the State of Delaware on December 19, 2011. On January 11, 2019, the Company changed its name to China Bat Group, Inc. and on June 3, 2019, further changed its name to Bat Group, Inc. On March 6, 2020, the Company amended its Certificate of Incorporation with the Secretary of State of Delaware to effect a name change to TD Holdings, Inc.

On April 2, 2020, HC High Summit Holding Limited (“HC High BVI”), the Company’s wholly owned subsidiary, established Tongdow Block Chain Information Technology Company Limited (“Tongdow Block Chain”), a holding company incorporated in accordance with the laws and regulations of Hong Kong. Tongdow Block Chain is wholly owned by HC High BVI. On April 2, 2020, Tongdow Block Chain established Shanghai Jianchi Supply Chain Company Limited (“Shanghai Jianchi”) as its wholly owned subsidiary. Shanghai Jianchi is a holding company incorporated in accordance with the laws and regulations of People’s Republic of China (“PRC”).

On June 25, 2020, Hao Limo Technology (Beijing) Co. Ltd. (“Hao Limo”), the Company’s wholly owned subsidiary incorporated in PRC, and Shenzhen Huamucheng Trading Co., Ltd. (“Huamucheng”), a former VIE of the Company, entered into certain VIE Termination Agreement (the “VIE Termination Agreement”) to terminate the Huamucheng VIE Agreements. As such, Hao Limo will no longer have the control rights and rights to the assets, property and revenue of Huamucheng. On the same date, Shanghai Jianchi, Huamucheng and the shareholders of Huamucheng (the “Huamucheng Shareholders”) entered into certain Share Acquisition Agreement (the “Acquisition Agreement”) pursuant to which Shanghai Jianchi acquired 100% equity interest of Huamucheng from the Huamucheng Shareholders for nominal consideration.

As a result of the above reorganization, Huamucheng transitioned from being a variable interest entity (“VIE”) controlled by Company into a wholly owned subsidiary of the Company. The Company remained in control of Huamucheng both before and after the reorganization and its operating results are consolidated into the Company’s consolidated financial statements.

As of June 30, 2020, the Company conducts business through Huamucheng, a subsidiary of the Company, and one VIE, Beijing Tianxing Kunlun Technology Co. Ltd. (“Beijing Tianxing”). Beijing Tianxing is primarily engaged in operating the leasing business of used luxurious cars and Huamucheng is engaged in the commodity trading business and providing supply chain management services to customers in the PRC. Supply chain management services consists of loan recommendation services and commodity product distribution services.

The accompanying consolidated financial statements reflect the activities of Beijing Tianxing, Huamucheng and each of the following holding entities:

In addition, the Company has one subsidiary over which the Company has 60% ownership, Beijing Blue Light Super Car Technology Co., Ltd. The remaining 40% of ownership interest is owned by an employee of the Company.

Each of these subsidiaries owns a license to hold cars in Beijing or Zhejiang, and was either inactive or generated minimal revenues for the periods ended June 30, 2020 and 2019.

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 statements as of and for the three and six months ended June 30, 2020, have been restated (see Note 16). The unaudited condensed consolidated financial information as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019 has been prepared without audit, pursuant to the rules and regulations of the SEC and pursuant to Regulation S-X. Certain information and footnote disclosures, which are normally included in annual financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited interim financial information should be read in conjunction with the audited financial statements and the notes thereto, included in the Form 10-K for the fiscal year ended December 31, 2019, which was filed with the SEC on May 29, 2020.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which are necessary for a fair presentation of financial results for the interim periods presented. The Company believes that the disclosures are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements have been prepared using the same accounting policies as used in the preparation of the Company’s consolidated financial statements for the year ended December 31, 2019. The results of operations for the three and six months ended June 30, 2020 and 2019 are not necessarily indicative of the results for the full years.

As a result of reorganization on June 25, 2020 (Note 1), Huamucheng became a wholly owned subsidiary of the Company. As of June 30, 2020, the Company had Beijing Tianxing as its sole VIE. As of December 31, 2019, the Company had two VIEs, Beijing Tianxing and Huamucheng. Beijing Tianxing is engaged in used luxurious car leasing business and Huamucheng is engaged in the commodity trading and supply chain management business.

The following financial statement balances reflect the financial positions of the Company’s VIE(s), which was included in the consolidated balance sheets as of June 30, 2020 and December 31, 2019, respectively:

Because Huamucheng was a VIE of the Company before June 25, 2020, and there were no material transactions for the five days ended June 30, 2020, the following financial statement amounts reflect the financial performances and cash flows of Beijing Tianxing and Huamucheng, which were included in the consolidated financial statements for the six months ended June 30, 2020 and 2019, respectively:

The reporting currency of the Company is United States Dollars (“US$”), which is also the Company’s functional currency. HC High BVI, HC High HK, and Tongdow Block Chain maintain their book and records in US$, which is also their functional currency. The Company’s PRC subsidiaries and VIE maintain their books and records in its local currency, the Renminbi Yuan (“RMB”), which is their functional currencies as being the primary currency of the economic environment in which these entities operate.

For financial reporting purposes, the financial statements of the PRC subsidiaries and VIEs prepared using RMB, are translated into the Company’s reporting currency, US$, at the exchange rates quoted by www.oanda.com. Assets and liabilities are translated using the exchange rate at each balance sheet date. Revenue and expenses are translated using average rates prevailing during each reporting period, and shareholders’ equity is translated at historical exchange rates, except for the change in accumulated deficit during the year which is the result of the income statement translation process. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive loss in stockholders’ equity. Translation of amounts from RMB into US$ has been made at the following exchange rates for the respective periods:

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.

Accounts receivable are recorded at the gross amount less an allowance for any uncollectible accounts and do not bear interest. The Company provides commodity trading business customers with credit term ranging between one week to one month, depending on credit assessment of customers. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s financial condition, credit history and the current economic conditions to make adjustments in the allowance when necessary. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of June 30, 2020, the Company determined no allowances for doubtful accounts were necessary for accounts receivable.

Prepayments represent amounts advanced to suppliers for supply of commodity products to the Company. The suppliers of commodity trading business usually require advance payments when the Company orders service and the prepayments will be utilized to offset the Company’s future payments. These amounts are unsecured, non-interest bearing and generally short-term in nature. 

The Company accounts for income taxes in accordance with the U.S. GAAP for income taxes. Under the asset and liability method as required by this accounting standard, the recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between the income tax basis and financial reporting basis of assets and liabilities. Provision for income taxes consists of taxes currently due plus deferred taxes.

The charge for taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis. Deferred tax assets are recognized to the extent that it is probable that taxable income to be utilized with prior net operating loss carried forward. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. The Company did not have unrecognized uncertain tax positions or any unrecognized liabilities, interest or penalties associated with unrecognized tax benefit as of June 30, 2020 and December 31, 2019. As of June 30, 2020, all of the Company’s income tax returns for the tax years ended December 31, 2015 through December 31, 2019 remain open for statutory examination by relevant tax authorities.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of the Company’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. Its mandatory effective dates are as follows: 1. Public business entities that meet the definition of an SEC filer for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years; 2. All other public business entities for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years; and 3. All other entities (private companies, not-for-profit organizations, and employee benefit plans) for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. On November 15, 2019, FASB issued ASU 2019-10 which provides a framework to stagger effective dates for future major accounting standards (including ASC 326 Financial instrument-credit losses) and amends the effective dates to give implementation relief to certain type of entities: 1. Public business entities that meet the definition of an SEC filer, excluding entities eligible to be Smaller Reporting Companies, or SRC, as defined by the SEC, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years; and 2. All other entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. As an “emerging growth company,” or EGC, the Company has elected to take advantage of the extended transition period provided in the Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards applicable to private companies. The Company will adopt ASU 2016-13 and its related amendments effective January 1, 2023, and the Company is in the process of evaluating the potential effect on its consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.”  ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital.  ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions.   For public business entities, the amendments in ASU 2020-06 are effective for public entities which meet the definition of a smaller reporting company  are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023.  The Company will adopt ASU 2020-06 effective January 1, 2024.  Management is currently evaluating the effect of the adoption of ASU 2020-06 on the consolidated financial statements.  The effect will largely depend on the composition and terms of the financial instruments at the time of adoption.

Assets that potentially subject the Company to significant concentration of credit risk primarily consist of cash and cash equivalents. The maximum exposure of such assets to credit risk is their carrying amount as at the balance sheet dates. As of June 30, 2020, approximately $16,803 was deposited with a bank in the United States which was insured by the government up to $250,000. As of June 30, 2020 and December 31, 2019, approximately $1,470,791 and $2,399,300, respectively, were primarily deposited in financial institutions located in Mainland China, which were uninsured by the government authority. To limit exposure to credit risk relating to deposits, the Company primarily place cash deposits with large financial institutions in China which management believes are of high credit quality.

The Company’s operations are carried out in Mainland China. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC as well as by the general state of the PRC’s economy. In addition, the Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, rates and methods of taxation, and the extraction of mining resources, among other factors.

The Company is also exposed to liquidity risk which is risk that it is unable to provide sufficient capital resources and liquidity to meet its commitments and business needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary, the Company will turn to other financial institutions and the owners to obtain short-term funding to meet the liquidity shortage.

Substantially all of the Company’s operating activities and the Company’s major assets and liabilities are denominated in RMB, except for the cash deposit of approximately $16,803 which was in U.S. dollars as of June 30, 2020, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the Peoples’ Bank of China (“PBOC”) or other authorized financial institutions at exchange rates quoted by PBOC. Approval of foreign currency payments by the PBOC or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices and signed contracts.

The value of RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. Where there is a significant change in value of RMB, the gains and losses resulting from translation of financial statements of a foreign subsidiary will be significant affected.

It is possible that the Company’s VIE agreements with Beijing Tianxing would not be enforceable in China if PRC government authorities or courts were to find that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event that the Company were unable to enforce these contractual arrangements, the Company would not be able to exert effective control over the VIE. Consequently, the VIE’s results of operations, assets and liabilities would not be included in the Company’s consolidated financial statements. If such were the case, the Company’s cash flows, financial position, and operating performance would be materially adversely affected.

For the six months ended June 30, 2020, the Company incurred a net loss of $5.82 million, and reported cash outflows of approximately $2.72 million from operating activities. As of June 30, 2020, the Company had cash balance of $1.5 million. These factors caused concern as to the Company’s liquidity as of June 30, 2020. The accompanying unaudited condensed financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.

In assessing the Company’s liquidity, the Company monitors and analyzes its cash and its ability to generate sufficient cash flow in the future to support its operating and capital expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements and operating expenses obligations.

As of June 30, 2020, the Company had a positive working capital of approximately $84.1 million, among which the Company had a loan due from Shenzhen Xinsuniao Technology Co., Ltd. (“Shenzhen Xinsuniao”), which was a related party before March 31, 2020 and a third party thereafter, of approximately $79.4 million for the purpose of developing supply chain financing business. Pursuant to the loan agreement, the loan term for each individual loan was twelve months from disbursement, but in practice the loans are revolving every 3 – 4 months. From July 1, 2020 to the date of the restatement report, the Company fully collected outstanding balance from the third party.

Going forward, the Company plans to fund its operations through revenue generated from its commodity trading business, operating lease income, funds from its private placements as well as financial support commitments from the Company’s Chief Executive Officer and major shareholders.

Based on above operating plan, the management believes that the Company will continue as a going concern in the following 12 months.

Loans receivable from Shenzhen Xinsuniao

On March 25, 2020, the Company entered into a revolving credit facility with Shenzhen Xinsuniao to provide a credit line of RMB 568 million or approximately $80 million to Shenzhen Xinsuniao, which was a related party of the Company before March 31, 2020 and a third party thereafter. Shenzhen Xinsuniao was reputable for its extensive experiences in supply chain services for commodities trading.

Pursuant to the loan agreement, the proceeds should solely be used for the operations of the commodity trading business including sales and purchase of commodity products, and supply chain management services. Each loan was repayable in twelve months from disbursement, with a per annum interest rate of 10%. However in practice, the loans are generally revolving every three months,  which matches the transaction turnover of Shenzhen Xinsuniao and Qianhai Baiyu. From July 1, 2020 to the date of this report, the Company has fully collected outstanding balances from Shenzhen Xinsuniao.

The revolving credit facility lasts for a period of two years. Shenzhen Xinsuniao pledged 100% of its equity interest in Qianhai Baiyu, which enterprise value was estimated at approximately $106 million. For the six months ended June 30, 2020, the Company made loans aggregating $79.8 million to Shenzhen Xinsuniao and recognized interest income of $1.69 million with corresponding account of “other current assets.”  

Loans receivable from Qianhai Baiyu

The Company had a balance of $1,562,662 due from Qianhai Baiyu, which was recorded as a balance due from a related party because Qianhai Biayu was controlled by Mr. Zhiping Chen, the legal representative of Huamucheng before March 31, 2020. On March 31, 2020, Mr. Zhiping Cheng transferred its equity interest in Qianhai Baiyu to unrelated third parties, and Qianhai Baiyu became a third party to the Company. As of June 30, 2020, the Company classified the balance due from Qianhai Baiyu to the account of “loans receivable due from third parties.” The Company charged an interest rates of 10% per annum. Principal and interest are repaid on maturity of the loan. For the six months ended June 30, 2020, the Company made loans of $1,570,615 to and collected $2,789,031 from Qianhai Baiyu. 

Loans receivable from other third parties

In addition, during the six months ended June 30, 2020 and 2019, the Company entered into loan agreements with three and three third parties, respectively, and advanced an aggregate of $1,137,334 and $1,114,225 to these third parties as interest-bearing loans, respectively.   The interest rate ranges between 9% and 16% per annum. During the six months ended June 30, 2020 and 2019, the third parties paid back $1,503,109 and $nil, respectively. As of June 30, 2020, the balances of loan principal and interest payment were due in September 2020 through December 2020. The Company classified loan receivables as current assets.

Management periodically assesses the collectability of these third-party loans receivable. Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. As of June 30, 2020 and December 31, 2019, there was no allowance recorded as the Company considers all of the loans receivable fully collectible. 

Interest income of $1,843,448 and $18,817 was recognized for the three months ended June 30, 2020 and 2019, respectively. Interest income of $1,916,927 and $31,246 was recognized for the six months ended June 30, 2020 and 2019. As of June 30, 2020 and December 31, 2019, the Company recorded an interest receivable of $332,709 and $133,742 as reflected under “other current assets” in the unaudited condensed consolidated balance sheets.

As of June 30, 2020, the Company’s investments in equity investees were comprised of the following:

For the three and six months ended June 30, 2020, the three equity investees were closed as affected by COVID-19. As a result, the Company had no share of results of equity investees for the period. As of June 30, 2020 and December 31, 2019, the balance of share of results of equity investees was $11,083 and $11,245, respectively. Because these equity investees gradually resumed work since April, the Company expected the closure was temporary, and the decline in fair value below the carrying value is not other-than-temporary. As of June 30, 2020, the Company did not provide impairment against the investments in equity investees.

As of June 30, 2020 and December 31, 2019, the Company had investments in eleven and eleven used luxury cars, respectively. 

As of June 30, 2020 and December 31, 2019, the Company, by reference to the market price, determined the fair value of nil and four used luxurious car were below the original carrying amount of the leased asset and had accumulated impairment of $317,575 and $322,210, respectively. For the six months ended June 30, 2020 and 2019, the Company recorded impairment of $nil and $96,318, respectively, for these leasing business assets. For the three months ended June 30, 2020 and 2019, the Company did not provide impairment for these leasing business assets.  

As of the June 30, 2020 and December 31, 2019, the balance of the used luxurious cars is comprised of the following: 

For the three months ended June 30, 2020 and 2019, the Company charged depreciation expenses of $82,633 and $55,321 on used luxurious cars, respectively. For the six months ended June 30, 2020 and 2019, the Company charged depreciation expenses of $162,211 and $102,179 on used luxurious cars, respectively.

The borrowings are due through December 2020. The purpose of such borrowings was to use the funds to purchase used luxurious cars. The interest rate charged on the borrowings ranged between 7% and 11.5%. For the three months ended June 30, 2020 and 2019, the Company recognized interest expenses of $60,426 and $30,675 on the borrowings, respectively. For the six months ended June 30, 2020 and 2019, the Company recognized interest expenses of $158,541 and $37,544 on the borrowings, respectively.

As of June 30, 2020 and December 31, 2019, eight used luxurious cars with an aggregated carrying amount of $1,889,182 were pledged for borrowings from third parties (see Note 4).

On November 21, 2019, the Company entered into a securities purchase agreement with certain investors, pursuant to which the Company agreed to sell an aggregate of 2,000,000 shares of its common stock, par value $0.001 per share, at a per share purchase price of $0.80. As of December 31, 2019, the Company received the proceeds of $1,600,000 in advance from these investors and recorded the amount as “stock subscription advance from shareholder”. On February 5, 2020, the Company issued 2,000,000 shares of Common Stock to the Purchasers, and reversed the amount in the account of “stock subscription advance from shareholder”.  

Common Stock

On January 22, 2020, the Company entered into certain securities purchase agreement with certain investors, pursuant to which the Company agreed to sell an aggregate of 15,000,000 shares of Common Stock, at a per share purchase price of $0.90. The transaction was consummated on March 23, 2020 by issuance of 15,000,000 shares of Common Stock. The Company received proceeds of $13,500,000 in April 2020.

On January 22, 2020, the Company also agreed to sell unsecured senior convertible promissory notes (“Notes”) in the aggregate principal amount of $30,000,000 accompanied by warrants to purchase 20,000,000 shares of Common Stock issuable upon conversion of the Notes at an exercise price of $1.80 (the “2020 Warrants” ). On March 23, 2020, the Company issued the Notes and Warrants to the investors. In April 2020, the Company received the proceeds of $30,000,000 from the issuance of Notes and 2020 Warrants. 

The Notes have a maturity date of 12 months with an interest rate of 7.5% per annum. Holders have the right to convert all or any part of the Notes into shares of Common Stock at a conversion price of $1.50 per share 30 days after its date of issuance. The Company retains the right to prepay the Note at any time prior to conversion with an amount in cash equal to 107.5% of the principal that the Company elects to prepay.

The 2020 Warrants are exercisable immediately upon the date of issuance at the exercise price of $1.80 for cash (the “Warrant Shares”). The 2020 Warrants may also be exercised cashless if at any time after the six-month anniversary of the issuance date. There is no effective registration statement registering, or no current prospectus available for the resale of the Warrant Shares, if exercised, the 2020 Warrants will expire five years from date of issuance. The 2020 Warrants are subject to anti-dilution provisions to reflect stock dividends and splits or other similar transactions. The 2020 Warrants contain a mandatory exercise right for the Company to force exercise of the 2020 Warrants if the Company’s common stock trades at or above $3.00 for 20 consecutive trading days, provided, among other things, that the shares issuable upon exercise of the are registered or may be sold pursuant to Rule 144 and the daily trading volume exceeds 300,000 shares of Common stock per trading day on each trading day in a period of 20 consecutive trading days prior to the applicable date.

The Company applied Black-Scholes model to determine the fair value of the 2020 Warrants at $3.42 million. Significant estimates and assumptions used included stock price on January 22, 2020 of $1.52 per share, risk-free interest rate of six month of 1.52%, time to maturity of 2.5 years, and volatility of 25.99%. 

The proceeds of $30 million must be allocated between the Note and the 2020 Warrants, based on the relative fair value. The ratio of the relative fair values of the Notes and the Warrants was 89.8% to 10.2%. After allocating 10.2%, or $3.06 million, of the proceeds to the 2020 Warrants, the Company estimated the embedded conversion option within the Notes is beneficial to the holders, because the effective conversion price was $1.35 ($27.0 million/20 million shares), which was below the Company’s share price of $1.52 on January 22, 2020. The fair value of this beneficial conversion feature was estimated to be $3.4 million, and was recorded to debt discount, to be amortized to interest expense using the effective interest method over the term of the Note.

The total Notes discount was recognized at $6.46 million ($3.06 million from the allocation of proceeds to the Warrants and an additional $3.4 million from the measurement of the intrinsic value of the conversion option). The Note discount was initially recognized as a reduction to the carrying amount of the Notes and an addition to paid-in capital, and was to be subsequently amortized to interest expense using the effective interest method over the Note period.

In April 2020, the Holders elected to convert the Notes at a conversion price of $1.50 per share and also exercise the Warrants at an exercise price of $1.80 per share, and paid cash consideration of $36,000,000 for the exercise of the Warrants by April 15, 2020. As a result, an aggregate of 40,000,000 shares of the Company’s Common Stock were issued on May 18, 2020. The Company received proceeds aggregating $66,000,000 from the transaction, and upon settlement of the Note and the 2020 Warrants, the Company immediately expensed the Note discount of $6.46 million For the six months ended June 30, 2020, the Company recognized amortization of beneficial conversion feature   relating to issuance of convertible notes of $3.4 million and amortization of relative fair value of warrants relating to issuance of conversion notes of $3.06 million.

During July 2020 through August 2020, the holders of warrants issued in direct offering closed on April 11, 2019 (“April Offer”) elected to exercise 167,978 shares of warrants at an exercise price of $2.2, and exercise 1,502,022 shares of warrants at cashless exercise. The Company received proceeds of $369,522 through escrow account and issued 545,401 shares of common stocks.

On March 10, 2021, the Company entered into certain waiver and warrant exercise agreements (the “Exercise Agreement”) with each holders. Pursuant to the Exercise Agreement, in order to induce the holders to exercise all of the outstanding Original Warrants cashlessly, pursuant to the terms of and subject to beneficial ownership limitations contained in the Original Warrants, the Company agreed to waive the Holders’ obligation to pay such portion of the exercise price of each of the May Warrants in excess of $0.95 per share and each of the April Warrants in excess of $1.17 per share, immediately prior to the time of exercise of such Original Warrants. Upon the exercise of all the Original Warrants, the Company will issue a total of 808,891 shares of Common Shares (the “Warrant Shares”) to the Holders.

Warrants

A summary of warrants activity for the six months ended June 30, 2020 was as follows:

As of June 30, 2020 and December 31, 2019, the Company had 3,033,370 shares of warrants, among which 273,370 shares of warrants were issued to two individuals in private placements, and 2,760,000 shares of warrants   were issued in two direct offerings closed on May 20, 2019 (“May Offering”) and April 11, 2019 (“April Offering”)

In connection with April Offering, the Company issued warrants to investors to purchase a total of 1,680,000 ordinary shares with a warrant term of five (5) years. The warrants have an exercise price of $2.20 per share. On May 20, 2019, the exercise price was reduced to $1.32, and on August 30, 2019 the exercise price was revised to $2.20.

In connection with May Offering, the Company issued warrants to investors to purchase a total of 1,080,000 ordinary shares with a warrant term of five and a half (5.5) years. The warrants have an exercise price of $1.32 per share.

On August 30, 2019, the Company updated the estimation of fair value of warrants issued on April 11, 2019 as a result of the change in exercise price of the warrants from $1.32 to $2.20. Accordingly the fair value of the Replacement Warrant decreased from $1,638,000 to $1,357,440. 

Both warrants are subject to anti-dilution provisions to reflect stock dividends and splits or other similar transactions, but not as a result of future securities offerings at lower prices. The warrants did not meet the definition of liabilities or derivatives, and as such they are classified as an equity.

On April 11, 2019 and May 20, 2019, the Company estimated fair value of the both warrants at $1,638,000 and $762,480, respectively, using the Black-Scholes valuation model, which took into consideration the underlying price of ordinary shares, a risk-free interest rate, expected term and expected volatility. As a result, the valuation of the warrant was categorized as Level 3 in accordance with ASC 820, “Fair Value Measurement”. 

The key assumption used in estimates are as follows:

Effective January 1, 2008, the New Taxation Law of PRC stipulates that domestic enterprises and foreign invested enterprises (the “FIEs”) are subject to a uniform tax rate of 25%. Under the PRC tax law, companies are required to make quarterly estimate payments based on 25% tax rate; companies that received preferential tax rates are also required to use a 25% tax rate for their installment tax payments. The overpayment, however, will not be refunded and can only be used to offset future tax liabilities.

The Company evaluates the level of authority for each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. For the three and six months ended June 30, 2020, the Company had no unrecognized tax benefits. Due to uncertainties surrounding future utilization, the Company estimates there will not be sufficient future income to realize the deferred tax assets for certain subsidiaries and a VIE. As of June 30, 2020 and December 31, 2019, the Company had deferred tax assets of $5,908,788 and $3,574,333, respectively. The Company maintains a full valuation allowance on its net deferred tax assets as of June 30, 2020.

The Company does not anticipate any significant increase to its liability for unrecognized tax benefit within the next 12 months. The Company will classify interest and penalties related to income tax matters, if any, in income tax expense.

For the three months ended June 30, 2020 and 2019, the Company had current income tax expenses of $408,829 generated by Huamucheng and $nil, respectively, and deferred income tax expenses of $nil and $nil, respectively. For the six months ended June 30, 2020 and 2019, the Company had current income tax expenses of $408,829 generated by Huamucheng and $nil, respectively, and deferred income tax expenses of $nil and $nil, respectively.

The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. Interest and penalties related to uncertain tax positions are recognized and recorded as necessary in the provision for income taxes. The Company is subject to income taxes in the PRC. According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances, where the underpayment of taxes is more than RMB 100,000. In the case of transfer pricing issues, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion. There were no uncertain tax positions as of June 30, 2020 and December 31, 2019 and the Company does not believe that its unrecognized tax benefits will change over the next twelve months.

As of June 30, 2020 and December 31, 2019, the balances with related parties were as follows:

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 of related party loan was payable in September 2022, with an interest rate of 9.5% per annum.

For the above mentioned related party borrowings, interest expense amounted to $43,888 and $nil for the three months ended June 30, 2020 and 2019, respectively. Interest expense amounted to $80,148 and $nil for the six months ended June 30, 2020 and 2019, respectively.

For the three and six months ended June 30, 2020, the Company generated revenues from below related party customers:

For the three and six months ended June 30, 2020, the Company purchased metal commodities aggregating $1,256,219 from TD International Trade, and these commodities have all been sold to Yunfeihu as of June 30, 2020.

In accordance with ASC 280, Segment Reporting, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), or decision making group, in deciding how to allocate resources and in assessing performance. The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the chief operating decision maker, reviews operation results by the revenue of different services. For the six months ended June 30, 2020, the Company has two operating business lines, including business with metal products trading and supply chain management services business conducted by Huamucheng (“Commodity Trading and Supply Chain Management Services” or “Huamucheng Business”) and used luxurious car leasing business conducted by Beijing Tianxing (“Used Car Leasing” or “Tianxing Business”). Based on management’s assessment, the Company has determined that the two operating business lines are two operating segments as defined by ASC 280. For the six months ended June 30, 2019, the Company had one operating business line and one reporting unit.

The following table presents summary information by segment for the three months ended June 30, 2020 and 2019: