The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
The unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial
information and the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of
management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect
all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of March
31, 2017 and the results of operations and cash flows for the periods ended March 31, 2017 and 2016. The financial data and other
information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for
the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for any subsequent periods or
for the entire year ending December 31, 2017. The balance sheet at December 31, 2016 has been derived from the audited financial
statements at that date.
Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to the SEC’s rules and regulations. These unaudited financial statements should be
read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2016 as included in
our Annual Report on Form 10-K.
2.
|
Business Description and Significant Accounting Policies
|
The principal activities of SkyPeople Fruit
Juice, Inc. (together with our direct or indirect subsidiaries, “we,” “us,” “our” or “the
Company”) consist of production and sales of fruit juice concentrates, fruit juice beverages, and other fruit-related products
in the People’s Republic of China (“PRC”, or “China”), and overseas markets. All activities of the
Company are principally conducted by subsidiaries operating in the PRC.
Organizational Structure
Current organizational structure is set forth in the diagram
below:
(1)
|
Xi’an Qinmei Food Co., Ltd., an entity not affiliated with the Company, owns the remaining 8.85% of the equity interest in Shaanxi Qiyiwangguo.
|
(2)
|
Formerly known as Shaanxi Tianren Organic Food Co. Ltd.
|
(3)
|
Hedetang Foods Industry (Yidu) Co., Ltd., formerly known as SkyPeople Juice Group Yidu Orange Products Co., Ltd., was established on March 13, 2012. Its scope of business includes deep processing and sales of oranges.
|
(4)
|
Hedetang Agricultural Plantations (Yidu) Co., Ltd., formerly known as Hedetang Fruit Juice Beverages (Yidu) Co., Ltd., was established on March 13, 2012. Its scope of business includes the planting, acquisition and sales of vegetables, fruits, flowers, farm products; fresh fruit picking; research, training and promotion of planting and breeding technology.
|
(5)
|
SkyPeople (Suizhong) Fruit and Vegetable Products Co., Ltd. was established on April 26, 2012. Its scope of business includes the initial processing, quick-frozen and sales of agricultural products and related by-products.
|
(6)
|
Hedetang Farm Products Trading Market (Mei County) Co., Ltd., formerly known as SkyPeople Juice Group (Mei County) Kiwi Fruit and Farm Products Trading Market Co., Ltd. (“Kiwi Fruit & Farm Products”) was established on April 19, 2013. Its scope of business includes preliminary processing of agricultural and subsidiary products, establishment of trading market for agriculture products, and similar activities.
|
(7)
|
Shaanxi Guo Wei Mei Kiwi Deep Processing Co., Ltd. was established on April 19, 2013. Its scope of business includes producing kiwi fruit juice, kiwi puree, cider beverages, and similar products.
|
(8)
|
Xi’an Hedetang Fruit Juice Beverages Co., Ltd. (“Xi’an Hedetang”) was established on March 31, 2014. Its scope of business includes the production and sales of fruit juice beverages.
|
(9)
|
Xi’an Cornucopia International Co., Ltd. (“Cornucopia”) was established on July 2, 2014. Its scope of business includes the retail and wholesale of pre-packaged food.
|
(10)
|
Shaanxi Fruitee Fun Co., Ltd. (“Fruitee Fun”) was established on July 3, 2014. Its scope of business includes retail and wholesale of pre-packaged food. Shaanxi Fruitee Fun Co., Ltd. (also known as Shaanxi Guoweiduomei Beverage Co., Limited) changed its name to Hedetang Foods Industry (Xi’an) Co., Ltd. (“Foods Industry Xi’an”) on July 5, 2016.
|
(11)
|
Hedetang Holding Group Co., Ltd., formerly known as Hedetang Holding Co., Ltd. (“Hedetang Holding”) was established on July 21, 2014. Its scope of business includes corporate investment consulting, corporate management consulting, corporate imagine design and corporative marketing planning.
|
(12)
|
The Company acquired Huludao Wonder Co. Ltd. (“Huludao”) on June 10, 2008. Its scope of business mainly includes the manufacture and sale of concentrated fruit juice and fruit juice beverages.
|
(13)
|
The Company acquired Yingkou Trusty Fruits Co., Ltd. (“Yingkou”) on November 25, 2009. Its scope of business mainly includes the manufacture of concentrated fruit juice.
|
(14)
|
Hedetang Foods Industry (Jingyang) Co., Ltd. was established on June 7, 2016. Its scope of business includes processing, storage and sales of farm products, fruits, tea and snacks; research and promotion of processing technology of organic agriculture, fruit industry and agricultural products.
|
(15)
|
Hedetang Farm Products Trading Market (Yidu) Co., Ltd. was established on March 23, 2016. Its scope of business includes construction, operation, and property management of a farm products trading market; e-commerce service of farm products; and construction and operation management of e-commerce information platform.
|
(16)
|
Xi’an Hedetang E-Commerce Co., Ltd. was established on April 21, 2016. Its scope of business includes online sales of pre-packaged foods and bulk foods.
|
(17)
|
The company acquired Hedetang Foods (China) Co., Ltd. (“Hedetang Foods China”) on May 18, 2016 through the acquisition of Belking Foods Holdings Group Co., Ltd., the 100% indirect shareholder of Hedetang Foods China, on the same date. The scope of business of Hedetang Foods China includes wholesale and retail of foods and beverages; import and export trade of fruit, vegetables, dried fruit; packaging; logistics and distribution; online sales; and business management consulting services.
|
(18)
|
Hedetang Agricultural Plantations (Mei County) Co., Ltd. was established on September 2nd, 2016. Its scope of business includes the planting, acquisition and sales of vegetables, fruits, flowers, Chinese herbal medicine, farm products; fresh fruit picking; research, training and promotion of planting and breeding technology, development and training of E-commerce and online sales of agricultural and sideline products.
|
(19)
|
Hedetang Foods Industry (Zhouzhi) Co., Ltd. was established on November 29, 2016. Its scope of business includes production, processing and sales of f kiwifruit wine, juice, puree and beverages; the storage and sales of fresh fruits; and import and export of a variety of products and technology.
|
(20)
|
Future World Trading (Hong Kong) Limited (“Future World Trading (HK)”) was established on July 27, 2016, formerly known asSkyPeople International Trading (HK) Limited. It mainly engages in the import and export of food products.
|
(21)
|
Xi’an RiYing Financial Management Co. Ltd (“Xi’an RiYing”) was established on January 21, 2014. The primary scope of its business includes financing consulting for NEEQ listed companies, M&A and reorganization planning, strategic planning for enterprise development, industrial competition analysis, financial tax planning, equity incentive system and market value management.
|
Principles of Consolidation
Our consolidated financial statements include
the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.
The condensed consolidated financial statements
are prepared in accordance with U.S. GAAP. This basis differs from that used in the statutory accounts of SkyPeople (China), Hedetang
Food (China), Hedetang Holding, Huludao Wonder, Xi’an Cornucopia, Xi’an Hedetang Juice Beverages, Yingkou, Shaanxi
Qiyiwangguo, Hedetang E-commerce, SkyPeople Suizhong, Agricultural Plantation Mei Counting, Food Industry Yidu, Food Industry Jingyang,
Guo Wei Mei, Agriculture Plantation Yidu, Trading Market Yidu, Trading Market Mei County and Hedetang Plantations, which were prepared
in accordance with the accounting principles and relevant financial regulations applicable to enterprises in the PRC. All necessary
adjustments have been made to present the financial statements in accordance with U.S. GAAP.
Uses of estimates in the preparation
of financial statements
The Company’s condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
and this requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenue
and expenses during the reporting period. The significant areas requiring the use of management estimates include, but not limited
to, the allowance for doubtful accounts receivable, estimated useful life and residual value of property, plant and equipment,
provision for staff benefit, recognition and measurement of deferred income taxes and valuation allowance for deferred tax assets.
Although these estimates are based on management’s knowledge of current events and actions management may undertake in the
future, actual results may ultimately differ from those estimates.
Shipping and Handling Costs
Shipping and handling amounts billed to
customers in related sales transactions are included in sales revenues and shipping expenses incurred by the Company are reported
as a component of selling expenses. The shipping and handling expenses of $131,980 and $92,408 for the three months ended March
31, 2017 and 2016, respectively, are reported in the Condensed Consolidated Statements of Comprehensive Income (Expense) as a component
of selling expenses.
Earnings (loss) per share
The Company adopted ASC Topic 215,
Statement
of Shareholder Equity
. Basic Earnings Per Share (“EPS”) are computed by dividing net income available to common
shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS
give effect to all dilutive potential common shares outstanding during a period. In computing diluted EPS, the average price for
the period is used in determining the number of shares assumed to be purchased from the exercise of stock options and warrants.
Recent Accounting Pronouncements
In January 2017, the FASB issued a new
accounting standard update on simplifying the accounting for goodwill impairment. The new guidance eliminates the requirement to
calculate the implied fair value of goodwill (i.e., Step 2 of the goodwill impairment test) to measure a goodwill impairment charge.
Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair
value. This guidance will be effective for interim or annual goodwill impairment tests in fiscal years beginning after December
15, 2019 and will be applied prospectively. Early adoption is permitted for any impairment tests performed after January 1, 2017.
We are evaluating the impact of adopting this amendment to our consolidated financial statements.
There were no other recent accounting pronouncements
or changes in accounting pronouncements during the three months ended March 31, 2017 compared to the recent accounting pronouncements
described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 that are of significance or potential significance
to us.
Inventories by major categories are summarized
as follows:
|
|
March 31, 2017
(Unaudited)
|
|
|
December 31, 2016
(Audited)
|
|
|
|
|
|
|
|
|
Raw materials and packaging
|
|
$
|
2,206,647
|
|
|
$
|
1,107,857
|
|
Finished goods
|
|
|
611,578
|
|
|
|
1,933,443
|
|
Inventories
|
|
$
|
2,818,225
|
|
|
$
|
3,041,300
|
|
4.
|
Related Party Transaction
|
Sales to related party
The Company’s subsidiary sold fruit
beverages to a related entity, Shaanxi Fullmart Convenient Chain Supermarket Co., Ltd. (“Fullmart”), for approximately
$31,417 and $0 for the three months ended March 31, 2017 and March 31, 2016, respectively. The accounts receivable balances were
approximately $346,676 and $308,304 as of March 31, 2017 and December 31, 2016, respectively. Fullmart is a company indirectly
owned by a member of our Board of Directors (and former Chairman and Chief Executive Officer), Mr. Yongke Xue.
Long-term Loan – Related Party
There were no short-term loans to a related
party as of each of March 31, 2017 and 2016.
On February 18, 2013, SkyPeople (China)
entered into a loan agreement with SkyPeople International Holdings Group Limited (the “Lender”). The Lender indirectly
holds 50.2% interest in the Company. Mr. Yongke Xue (“Y. K. Xue”), then the Chairman and Chief Executive Officer (“CEO”)
of the Company and currently a Member of the Company’s Board of Directors (the “Board”) and Mr. Hongke Xue, our
Chairman and CEO, indirectly and beneficially own 80.0% and 9.4% of the equity interest in the Lender, respectively. Pursuant to
the Agreement, the Lender agreed to extend to the Company a one-year unsecured term loan with a principal amount of $8.0 million
at an interest rate of 6% per annum. During 2013, the Company received $8.0 million from the Lender. In February 2014, both parties
extended this loan for another two years under the original terms of the agreement.
On October 16, 2015, the Company entered
into a Share Purchase Agreement with the Lender to sell 5,321,600 shares of the common stock of the Company at the price of $7,982,400,
and which was paid by cancellation of the loan by the Lender. On March 10, 2016, the Lender canceled the loan and the shares were
issued to the Lender.
(1)
|
Concentration of customers
|
Sales to our five largest customers accounted
for approximately 33% and 53% of our net sales during the three months ended March 31, 2017 and 2016, respectively. There was no
single customer representing over 10% of total sales for the three months ended March 31, 2017 and March 31, 2016, respectively.
(2)
|
Concentration of suppliers
|
Two suppliers accounted for 74% and 97%
of our purchases for the three months ended March 31, 2017 and 2016, respectively. Our top supplier accounted for 74% of our purchases
for the three months ended March 31, 2017, and our top supplier accounted for 96% of our purchases for the three months ended March
31, 2016.
6.
|
Issuance of common stock and warrants
|
On March 29, 2017, the Company issued 250,000
shares of the Company’s unrestricted common stock to six of the Company’s employees pursuant to our Omnibus Equity
Plan, which was approved by the Company’s shareholders at the annual stockholders meeting on November 19, 2015. The Company
recorded an expense of $250 in the first quarter of fiscal 2017 under the Omnibus Equity Plan, reflecting a par value of $0.01
per share of the Company’s common stock.
The Company’s the Omnibus Equity
Plan permits the grant of incentive stock options (“ISOs”), nonqualified stock options (“NQSOs”), stock
appreciation rights (“SARs”), restricted stock, unrestricted stock and restricted stock units (“RSUs”)
to its employees of up to 250,000 shares of Common Stock.
On February 28, 2017, the Company issued
an option to purchase 62,500 shares of the Company’s common stock with an exercise price equal to the fair market value of
the Company’s Common Stock (as defined under the 2011 Stock Incentive Plan in conformity with Regulation 409A of the Internal
Revenue Code of 1986, as amended) at the date of grant to three of the Company’s employees pursuant to the 2011 Stock Incentive
Plan, which was approved by the Company’s shareholders at annual stockholders meeting on August 18, 2011. These options vested
immediately on the grant date with a fair market value of $223,375 based on the fair value of $3.57 per share, which was determined
by using the Black Scholes option pricing model. The Company recognized stock-based compensation expense of $223,375 in the first
quarter of fiscal 2017 under the 2011 Stock Incentive Plan.
On March 10, 2016, the Company filed with
the Florida Secretary of State’s office an amendment to its Articles of Incorporation. As a result of the Articles of Amendment,
the Company authorized and approved an 1-for-8 reverse stock split of the Company’s authorized shares of common stock from
66,666,666 shares to 8,333,333 shares, accompanied by a corresponding decrease in the Company’s issued and outstanding shares
of common stock (the “Reverse Stock Split”). The common stock remains a par value of $0.001. No changes were made to
the number of authorized preferred shares of the Company, which remains as 10,000,000, none of which have been issued. The amendment
to the Articles of Incorporation of the Company took effect on March 16, 2016.
On March 11, 2016, SkyPeople Juice International
Holding (HK) Limited (the “Skypeople HK”), a wholly owned subsidiary of SkyPeople Fruit Juice, Inc. (the “Company”)
and a 99.78% owner of SkyPeople Juice Group Co., Ltd. (“Skypeople China”) entered into a Share Transfer Agreement and
a Capital Contribution (the “Agreements”) with Shenzhen TianShunDa Equity Investment Fund Management Co., Ltd. (the
“TSD”), a limited liability corporation registered in China.
Skypeople HK incorporated Skypeople China
in Shaanxi Province, China on March 13, 2012 and pursuant to the approval certificate and business license of Skypeople China,
SkyPeople HK was required to contribute RMB 427,000,000 (approximately $65,698,308) and Hongke Xue, currently the Chairman of the
Board of Directors of the Company and our Chief Executive Officer (“Xue”), was required to contribute RMB 1,000,000
(approximately $153,846) to Skypeople China, and Skypeople HK and Xue as a result would own 427,000,000 shares (99.78%) and 1,000,000
shares (0.22%) of Skypeople China, respectively. As of March 10, 2016, Skypeople HK had contributed RMB 314,190,900 (approximately
$48,337,062) to Skypeople China but had not contributed the remaining RMB 112,809,100 (approximately $17,355,246) as the payment
for 112,809,100 shares of Skypeople China.
Pursuant to the Agreements, TSD shall acquire
112,809,100 shares of Skypeople China from Skypeople HK and shall make a total capital contribution RMB 131,761,028.80 (approximately
$20,270,928) to Skypeople China, which is calculated based upon 8 times of Skypeople China’s net profit per share for 2014
(about RMB 0.146 per share) multiplied by 112,809,100 shares. RMB 112,809,100 out of the RMB 131,761,028.80 (the “Capital
Contributions”) shall be used as payment for outstanding capital contribution due to Skypeople China by Skypeople HK and
the remaining RMB 18,951,928.80 (approximately $2,915,681) shall be used as additional capital contribution to Skypeople China
and shall be deposited into Skypeople China’s capital surplus account. On March 18, 2016, TSD paid the full Capital Contributions
to Skypeople China s and the shares were transferred, resulting in TSD owning 112,809,100 shares, or 26.36%, of Skypeople China.
On June 15, 2016, Hedetang Holdings Co.,
Ltd. (the “Hedetang”), a wholly owned subsidiary of the Company, entered into a Share Transfer Agreement (the “Agreement”)
with Shaanxi New Silk Road Kiwifruit Group Inc. ( “NSR”), a limited liability corporation registered in China. Pursuant
to the Agreement, NSR was to acquire 51% of the equity shares of Shaanxi Guoweiduomei Beverage Co, Limited, a wholly owned subsidiary
of Hedetang (the “Shares”). The tentative total transfer price for the Shares was 300 million RMB (approximately $46
million). NSR was to pay the total transfer price to Hedetang within six months of the effective date of the Agreement.
On July 5, 2016, Hedetang completed the
registration of 51% of its shares in Shaanxi Guoweiduomei Beverage Co., Limited under the name of NSR with China’s State
Administration for Industry and Commerce. Pursuant to the terms of the Agreement, the transferred shares were still under the control
of Hedetang until it receives full payment from NSR. On January 20, 2017, the Company’s Board of Directors approved the termination
of the Agreement with NSR because the local government authority had not approved the transaction contemplated thereby and the
Company had not received the required payment within six months of the effective date of the Agreement. On January 26, 2017, Hedetang
executed a Termination Agreement for the Share Transfer Agreement with NSR. Pursuant to the Termination Agreement, Hedetang agreed
not to claim any compensation or penalty against NSR under the Agreement and NSR agreed to cooperate with Hedetang to complete
the process to transfer share ownership back to the Hedetang within 60 days of the date of the Termination Agreement. On March
15, 2017, NSR transferred back the share ownership to Hedetang.
As of March 31, 2017, the balance of other
receivables was $29,830,980, which mainly consisted of a deposit of approximately $29 million for the purchase of a kiwi orchard
in Mei County.
In April 2016, the Company signed a
letter of intent with Mei County Kiwifruits Investment and Development Corporation to purchase 833.5 mu (approximately 137.3
acres) of kiwifruits orchard in Mei County. The purchase price will be determined by a third party valuation company
appointed by both parties. As of the date of this report, the valuation has not been completed. The Company paid RMB 200
million (approximately $29 million) as a deposit (“Deposit”) in the second quarter of 2016. The purchase is
subject to government approval, approval by the Company’s Board of Directors and definitive agreement negotiated and
signed by the parties. Pursuant to the letter of intent, the Deposit shall be returned to the Company within 10 working days
upon the request of the Company if the kiwifruits orchard cannot be transferred to the Company according to the schedule. The
Company expects to complete the purchase process in the third quarter of 2017. As the transaction has not been completed, the
Company recorded this deposit as other receivables in its balance sheet.
10.
|
Advances to suppliers and other current assets
|
As of March 31, 2017, the balance of advances
to suppliers and other current assets was $57,167,955, which mainly consisted of approximately $34.7 million for the leasing fee
for the kiwifruits orchard in Mei County and approximately $21.8 million for the leasing fee for the orange orchard in Yidu city.
On August 3, 2016, Shaanxi Guoweimei Kiwi
Deep Processing Company, an indirectly wholly-owned subsidiary of the Company, signed a lease agreement for 20,000 mu (approximately
3,292 acres) of kiwifruits orchard located in Mei County, Shaanxi Province, with the Di’ErPo Committee of Jinqu Village,
Mei County, Shaanxi for a term of 30 years, from August 5, 2016 to August 4, 2046. The annual leasing fee is RMB 1,250 (approximately
$189) per mu, and payment of 10 years’ of leasing fees shall be made on each of September 25, 2016, 2026 and 2036. The Company
made a payment of RMB 250 million (approximately $36.2 million) for the first 10 years’ leasing fees on August 15, 2016,
which is recorded as advances to suppliers and other current assets in the Company’s balance sheet. The Company had amortized
$1.5 million as expenses as of March 31, 2017.
On August 15, 2016, Hedetang Agricultural
Plantations (Yidu) Co., Ltd., an indirectly wholly-owned subsidiary of the Company, signed a lease agreement for 8000 mu (approximately
1,317 acres) of orange orchard located in city of Yidu, Hubei Province, with the Yidu Sichang Farmers Association, Hubei
Province, for a term of 20 years, from September 22, 2016 to September 21, 2036. The annual leasing fee is RMB 2,000 (approximately
$306) per mu, and payment of 10 years’ of leasing fees shall be made on each of September 25, 2016 and 2026. The Company
made a payment of RMB 160 million (approximately $23.2 million) for the first 10 years’ of leasing fees on September 20,
2016, which is recorded as deposits in the Company’s balance sheet. The Company had amortized $1.4 million as expenses as
of March 31, 2017
11.
|
Discontinued Operation
|
The Company’s Huludao Wonder operation,
a subsidiary which produces concentrated apple juice, suffered continued operating losses in the three fiscal years prior to 2016
and its cash flow was minimal for these three years. In December 2016, the Company established a winding-down plan to close this
operation. Based on the restructuring plan and in accordance with EITF 03-13, the Company presented the operating results from
Huludao Wonder as a discontinued operation, as the Company believed that no continued cash flow would be generated by the disposed
component (Huludao Wonder) and that the Company would have no significant continuing involvement in the operation of the discontinued
component. Management of the Company initiated a plan to sell the property located in Huludao in December 2016, and ceased the
depreciation of the property in accordance with SFAS No. 144. In fiscal year 2016, the Company recorded an impairment loss
of $2.4 million with respect to the concentrated fruit juice production equipment in Huludao Wonder. In accordance with the restructuring
plan, the Company intends to transfer the concentrated fruit juice production equipment in Huludao Wonder to another subsidiary
and sell the land and facilities upon favorable circumstances. As the Company does not expect to sell the assets of Huludao Wonder
in the near future, the assets were not recorded as assets held for sale as of March 31, 2017. The book value of the land usage
right was $4,804,167 and the book value of the building was $15,561,962 as of March 31, 2017. The Company believes that the assets’
book value was lower than its fair value, less the cost to sell.
As of March 31, 2017, there was
an outstanding bank loan of $5.80 million owed by Huludao Wonder to a lending bank. Huludao Wonder has disputed the
interest rate on this loan with the bank, and stopped payment of interest on this loan during 2016. The bank sued Huludao
Wonder and asked Huludao Wonder to pay back the loan principal and the outstanding interest. As of the date of this report,
the Company has not yet reached an agreement with the bank. The Company expects to pay back the outstanding principal and
interest of this loan after the assets are sold.
During the process of winding down the
Company’s operation in Huludao Wonder, the Company incurred general and administrative expenses of approximately $48,685
during the first quarter of 2017.
Loss from discontinued operations for the
three months ended March 31, 2017 and 2016 was as follows:
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2017
(Unaudited)
|
|
|
2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
-
|
|
|
$
|
-
|
|
COST OF SALES
|
|
|
-
|
|
|
|
-
|
|
GROSS PROFIT
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
(48,685
|
)
|
|
|
-
|
|
Selling expenses
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
(48,685
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
Interest income
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
(48,685
|
)
|
|
|
-
|
|
Loss from discontinued operations before income tax
|
|
|
-
|
|
|
|
-
|
|
Income tax provision
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM DISCONTINUED OPERATIONS
|
|
$
|
(48,685
|
)
|
|
$
|
-
|
|
The loss from discontinued operations was
$48,685 for the first quarter of 2017. The Company does not provide a separate cash flow statement for the discontinued operation.
The loss from discontinued operations was deemed as cash outflow from operating activities of the discontinued operation. The impact
of this discontinued operation was considered immaterial, when compared with the total revenues for the first quarter of fiscal
years 2017 and 2016, which were approximately $2.96 million and $5.44 million, respectively. The Company believes there will not
be any future significant cash flows from the discontinued operation, as the outstanding accounts receivable and accounts payable
are immaterial to the Company’s financial position and liquidity.
The Company operates in six segments: concentrated
apple juice and apple aroma, concentrated kiwifruit juice and kiwifruit puree, concentrated pear juice, fruit juice beverages,
fresh fruits and vegetables, and others. Our concentrated apple juice and apple aroma was primarily produced by the Company’s
Huludao Wonder factory and Yingkou factory. In the three fiscal years ended December 31, 2016, Huludao Wonder factory suffered
continued operating losses and its cash flows were minimal. Thus, in December 2016, we established a restructuring plan to close
the Hudludao Wonder operation, and concentrated pear juice is now primarily produced by the Company’s Jiangyang factory.
However, the production line in Jiangyang factory can manufacture both concentrated apple juice and concentrated pear juice, and
Shaanxi Province, where Jianyang factory is located, is rich in fresh apple and pear supplies. Jinagyang factory also produces
concentrated apple juice when necessary. Concentrated kiwifruit juice and kiwifruit puree is primarily produced by the Company’s
Qiyiwangguo factory, and fruit juice beverages is primarily produced by the Company’s Qiyiwangguo factory. The Company’s
other products include fructose, concentrated turnjujube juice, and other by products, such as kiwifruit seeds.
Concentrated fruit juice is used as a basic
ingredient for manufacturing juice drinks and as an additive to fruit wine and fruit jam, cosmetics and medicines. The Company
sells its concentrated fruit juice to domestic customers and exported directly or via distributors. The Company’s main export
markets are the United States, the European Union, South Korea, Russia and the Middle East. The Company sells its Hedetang branded bottled fruit beverages domestically primarily to supermarkets
in the PRC. The Company sells its fresh fruit and vegetables to supermarkets and whole sellers in the PRC.
Some of these product segments might never
individually meet the quantitative thresholds for determining reportable segments and we determine the reportable segments based
on the discrete financial information provided to the chief operating decision maker. The chief operating decision maker evaluates
the results of each segment in assessing performance and allocating resources among the segments. Since there is an overlap of
services provided and products manufactured between different subsidiaries of the Company, the Company does not allocate operating
expenses and assets based on the product segments. Therefore, operating expenses and assets information by segment are not presented.
Segment profit represents the gross profit of each reportable segment.
For the Three Months Ended March 31, 2017 (in thousands, unaudited):
|
|
Concentrated apple juice and apple aroma
|
|
|
Concentrated kiwifruit
juice and
kiwifruit puree
|
|
|
Concentrated pear juice
|
|
|
Fruit juice beverages
|
|
|
Fresh fruits and vegetables
|
|
|
Others
|
|
|
Total
|
|
Reportable segment revenue
|
|
$
|
1,238
|
|
|
$
|
205
|
|
|
$
|
1,493
|
|
|
$
|
1,372
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
4,308
|
|
Inter-segment loss
|
|
|
(219
|
)
|
|
|
(10
|
)
|
|
|
(570
|
)
|
|
|
(550
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,350
|
)
|
Revenue from external customers
|
|
|
1,019
|
|
|
|
195
|
|
|
|
923
|
|
|
|
822
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,959
|
|
Segment gross profit
|
|
$
|
29
|
|
|
$
|
45
|
|
|
$
|
126
|
|
|
$
|
335
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
535
|
|
For the Three Months Ended March 31, 2016 (in thousands, unaudited):
|
|
Concentrated apple juice and apple aroma
|
|
|
Concentrated kiwifruit
juice and
kiwifruit puree
|
|
|
Concentrated pear juice
|
|
|
Fruit juice beverages
|
|
|
Fresh fruits and vegetables
|
|
|
Others
|
|
|
Total
|
|
Reportable segment revenue
|
|
$
|
10,473
|
|
|
$
|
39
|
|
|
$
|
310
|
|
|
$
|
4
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
10,830
|
|
Inter-segment loss
|
|
|
(5,214
|
)
|
|
|
(23
|
)
|
|
|
(153
|
)
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,394
|
)
|
Revenue from external customers
|
|
|
5,259
|
|
|
|
16
|
|
|
|
157
|
|
|
|
2
|
|
|
|
2
|
|
|
|
-
|
|
|
|
5,436
|
|
Segment gross profit (loss)
|
|
$
|
45
|
|
|
$
|
(8
|
)
|
|
$
|
4
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
-
|
|
|
$
|
43
|
|
The following table reconciles reportable
segment profit to the Company’s condensed consolidated loss before income tax provision for the three months ended March
31, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Segment profit
|
|
$
|
534,614
|
|
|
$
|
42,824
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(2,852,033
|
)
|
|
|
(1,541,084
|
)
|
Other income
|
|
|
142,391
|
|
|
|
444,645
|
|
Loss before tax provision
|
|
$
|
(2,175,028
|
)
|
|
$
|
(1,053,615
|
)
|
13.
|
Entry into a Material Definitive Agreement.
|
On March 20, 2017, Hedetang Foods (China)
Co. Ltd. (“Hedetang Foods (China)”) and Hedetang Farm Products Trading Market (Mei County) Co. Ltd. (“Trading
Market Mei County”), two wholly-owned subsidiaries of SkyPeople Fruit Juice, Inc. (the “Company”), entered into
a Cooperation Framework Agreement of the Spot Trading Company (the “Agreement”) with Xi’an Taizhan Financial
Management Co., Ltd. (“Taizhan”).
Pursuant to the Agreement, Hedetang Foods
(China), Trading Market Mei County and Taizhan will jointly establish a new company currently named as China Agricultural Commodity
Trading Market Co., Ltd. (“China Agricultural Commodity Trading Center”) in Mei County, Shaanxi Province, China. The
total registered capital for China Agricultural Commodity Trading Center will be RMB 50 million (approximately $7.35 million).
Hedetang Foods (China) agreed to contribute RMB 17.50 million (approximately $2.57 million), Trading Market Mei County agreed to
contribute RMB 15 million (approximately $2.21 million) and Taizhan agreed to contribute RMB 17.50 million (approximately $2.57
million) in capital contributions to China Agricultural Commodity Trading Center. All capital contributions to China Agricultural
Commodity Trading Center shall be completed before March 20, 2037. Each shareholder of China Agricultural Commodity Trading Center
shall be able to enjoy the profits and assume the losses of China Agricultural Commodity Trading Center based upon the percentages
of their respective capital contributions. As of the date of this report, the new company has not yet been registered.
14.
|
Commitments and Contingencies
|
Litigation
In April 2015, China Cinda Asset Management
Co., Ltd. Shaanxi Branch (“Cinda Shaanxi Branch”) filed two enforcement proceedings with Xi’an Intermediate People’s
Court against the Company for alleged defaults pursuant to guarantees by the Company to its suppliers for a total amount of RMB
39,596,250, or approximately $6.1 million.
In June 2014, two long term suppliers of
pear, mulberry, kiwi fruits to the Company requested the Company to provide guarantees for their loans with Cinda Shaanxi Branch.
Considering the long term business relationship and to ensure the timely supply of raw materials, the Company agreed to provide
guarantees upon the value of the raw materials supplied to the Company. Because Cinda Shaanxi Branch is not a bank authorized to
provide loans, it eventually provided financing to the two suppliers through purchase of accounts receivables of the two suppliers
with the Company. In July, 2014, the parties entered into two agreements - Accounts Receivables Purchase and Debt Restructure Agreement
and Guarantee Agreements for Accounts Receivables Purchase and Debt Restructure. Pursuant to the agreements, Cinda Shaanxi Branch
agreed to provide a RMB 100 million credit line on a rolling basis to the two suppliers and the Company agreed to pay its accounts
payables to the two suppliers directly to Cinda Shaanxi Branch and provided guarantees for the two suppliers. In April 2015, Cinda
Shaanxi Branch stopped providing financing to the two suppliers and the two suppliers were unable to continue the supply of raw
materials to the Company. Consequently, the Company stopped making any payment to Cinda Shaanxi Branch.
The Company has responded to the court
and taken the position that the financings under the agreements are essentially loans from Cinda Shaanxi Branch to the two suppliers,
and because Cinda Shaanxi Branch does not have permits to make loans in China, the agreements are invalid, void and have no legal
force from inception. Therefore, the Company has no obligations to repayment the debts owed by the two suppliers to Cinda Shaanxi
Branch. The proceeding is currently pending the judge’s verdict.
In September 2016, the Suizhong Branch
of Huludao Banking Co. Ltd. (“Suizhong Branch”) filed a lawsuit with Huludao Intermediate People’s Court (the
“Court”) against the Company’s indirectly wholly-owned subsidiary Huludao Wonder Fruit Co., Ltd. (“Wonder
Fruit”) and requested that Wonder Fruit repay an RMB40 million (approximately $6.35 million) bank loan, plus interest. The
loan became due on its maturity date on December 9, 2016. On December 19, 2016, the Court accepted the case. The Company has been
disputing the interest rate of the loan with Suizhong Branch, and has not repaid the loan to date. Wonder Fruit believes the interest
charged by Suizhong Branch is 100% higher than the base rate set by China People’s Bank and is not in consistent with China
People’s Bank’s base interest and floating rate. The Court has temporarily frozen the land and real property of the
Wonder Fruit that were pledged as guarantee for the loan from being transferred to any third-party, but the freeze does not limit
or affect the use of these properties by Wonder Fruit for its business. Wonder Fruit is currently in discussions with the Suizhong
Branch on repayment of the bank loan and a reduction of the interest due thereon, and the Company has not reached an agreement
with the ban as of the date of this report.
From time to time we may be a party to
various litigation proceedings arising in the ordinary course of our business, none of which, in the opinion of management, is
likely to have a material adverse effect on our financial condition or results of operations.
On March 30, 2017, the Company’s
Board approved and adopted the Second and Restated Articles of Incorporation (the “A&R Articles”) of the Company,
which were approved by shareholders holding a majority of the Company’s issued and outstanding common stock on March 31,
2017. Pursuant to the A&R Articles, the Company’s name will change to “Future FinTech Group Inc.” following
the filing of the A&R Articles at least 20 days following the mailing of the Definitive Information Statement filed with the
Securities and Exchange Commission (the “SEC”) on April 28, 2017 (the “Name Change”) to the Company’s
shareholders. The Company expects to complete the Name Change in the second quarter of 2017.
On April 12, 2017, the Company entered
into a Securities Purchase Agreement (the “Purchase Agreement”) with certain purchasers (the “Purchasers”),
pursuant to which the Company offered and sold to the Purchasers, in a registered direct offering, an aggregate of 862,097 shares
(the “Shares”) of common stock, par value $0.001 per share (“Common Stock”). The Shares were sold to the
Purchasers at a negotiated purchase price of $3.10 per share, for aggregate gross proceeds to the Company of $2,672,500,
before
deducting fees to the placement agent and other estimated offering expenses payable by the Company. The Shares were offered pursuant
to an effective shelf registration statement on Form S-3, which was originally filed with the SEC on August 3, 2015, amended on
February 17, 2017, and was declared effective on February 23, 2017 (File No. 333-206353) (the “Registration Statement”).
In a concurrent private placement, the
Company also issued to the each of the Purchasers a warrant to purchase one (1) share of the Company’s Common Stock for each
share purchased under the Purchase Agreement, pursuant to that certain Common Stock Purchase Warrant, by and between the Company
and each Purchaser (each, a “Warrant”, and collectively, the “Warrants”). The Warrants will be exercisable
beginning on the six month anniversary of the date of issuance at an initial exercise price of $5.20 per share and will expire
on the five and a half year anniversary of the date of issuance.
The Warrants and the shares of the Company’s
Common Stock issuable upon the exercise of the Warrants (the “Warrant Shares”) are not being registered under the Securities
Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s Registration Statement, and were instead
offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act. Each Purchaser was either (i)
an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or
(ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.
In connection with the private placement
and in accordance with the Purchase Agreement, the Company is required to file a registration statement on Form S-1 within 45 calendar
days after the date of the Purchase Agreement to provide for the resale of the Warrant Shares.
Rodman & Renshaw,
a unit of H.C. Wainwright & Co., served as our placement agent in connection with the offering under the Purchase Agreement
and received warrants to purchase our Common Stock in an amount equal to 4% of our Shares sold to the Purchasers in the offering
on substantially the same terms as the Warrants, with an initial exercise price of $5.20 per share, except that the termination
date shall be April 12, 2022 and the warrants have certain transfer restrictions pursuant to FINRA Rule 5110 (the “Placement
Agent Warrants”).
Per the terms of the Purchase Agreement,
the Company agreed with the Purchasers to the following: (i) that subject to certain exceptions, the Company will not, within the
ninety day period immediately following the closing of the offering, enter into any agreement to issue or announce the issuance
or proposed issuance of any securities; (ii) the Company will not, during the period in which the Warrants are outstanding, enter
into an agreement to effect a “Variable Rate Transaction,” as that term is defined in the Purchase Agreement; and (iii)
until the one-year
anniversary of the closing of the offering, the Company will not undertake a reverse or forward
stock split or reclassification of the Common Stock without the prior written consent of the Purchasers holding a majority in interest
of the Shares then outstanding and still held by them, subject to certain exceptions.
The Company also agreed to indemnify each
of the Purchasers against certain losses resulting from its breach of any representations, warranties or covenants under agreements
with each of the Purchasers, as well as under certain other circumstances described in the Purchase Agreement.