NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
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. 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, 2020 and the results
of operations and cash flows for the periods ended March 31, 2020 and 2019. 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, 2020 are not necessarily indicative of the results to be expected for any subsequent periods or for the entire year ending
December 31, 2020. The balance sheet at December 31, 2019 has been derived from the audited financial statements at that date.
Our contractual arrangements with our VIE
and their respective shareholders allow us to (i) exercise effective control over our VIE, (ii) receive substantially all of the
economic benefits of our VIE, and (iii) have an exclusive option to purchase all or part of the equity interests in our VIE when
and to the extent permitted by PRC law.
As a result of our direct ownership in
our wholly foreign-owned enterprise (“WFOE”) and the contractual arrangements with our VIE, we are regarded as the
primary beneficiary of our VIE, and we treat it and its subsidiaries as our consolidated affiliated entities under U.S. GAAP. We
have consolidated the financial results of our VIE in our condensed consolidated financial statements in accordance with U.S. GAAP
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 Securities and Exchange Commission’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, 2019 as included in our Annual Report on Form 10-K.
Going Concern
The Company’s financial statements
are prepared assuming that the Company will continue as a going concern.
The Company incurred operating losses and
had negative operating cash flows and may continue to incur operating losses and generate negative cash flows as the Company implements
its future business plan. In order to meet its working capital needs through the next twelve months and to fund the growth of the
Company, the Company may consider plans to raise additional funds through the issuance of equity or debt. Although the Company
intends to obtain additional financing to meet its cash needs, the Company may be unable to secure any additional financing on
terms that are favorable or acceptable to it, if at all.
The ability of the Company to continue
as a going concern is dependent upon its ability to successfully execute its new business strategy and eventually attain profitable
operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable
to continue as a going concern.
2. BUSINESS DESCRIPTION
Future FinTech Group Inc. (together with
our direct or indirect subsidiaries, “we,” “us,” “our” or “the Company”) is a holding
company incorporated under the laws of the State of Florida. The main business of the Company includes an online shopping platform,
Chain Cloud Mall (CCM), which is based on blockchain technology; a cross-border e-commerce platform (NONOGIRL) which has started
its trial operation in March 2020 and is expected for a formal launch in the third quarter of 2020; a blockchain-based application
incubator and a digital payment system (DCON); and the application and development of blockchain-based e-commerce technology and
financial technology.
Prior to 2019, the Company engaged in the
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. Due to the drastically increased production
cost and tightened environmental law in China, the Company has transformed its business from fruit juice manufacturing and distribution
to a real-name blockchain e-commerce platform that integrates blockchain and internet technology from the end of 2018. On February
27, 2020 pursuant to a Share Transfer Agreement entered into by the Company’s subsidiary, HeDeTang Holdings (HK) Ltd (“Hedetang
HK”), and New Continent International Co., Ltd. on September 18, 2019, the Company sold Hedetang HK and all its subsidiaries,
which mainly engaged in fruit juice related business, to New Continent International Co., Ltd.
The Company’s activities are principally
conducted by its subsidiaries operating in the PRC.
3. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
For
a detailed discussion about the Company significant accounting policies, refer to Note 2 — “Summary of Significant
Accounting Policies,” in the Company’s consolidated financial statements included in Company’s 2019 Form 10-K.
During the three months ended March 31, 2020, there were no significant changes made to the Company’s significant accounting
policies.
Uses of Estimates in the Preparation
of Financial Statements
The Company’s condensed consolidated
financial statements have been prepared in accordance with US GAAP 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 receivable,
estimated useful life and residual value of property, plant and equipment, impairment of long-lived assets 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 and such differences may be material to our condensed consolidated financial
statements.
Recent Accounting Pronouncements
In June 2016, the FASB issued Accounting
Standards Update No. 2016-13 (ASU 2016-13) "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments" which requires the measurement and recognition of expected credit losses for financial assets held
at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires
the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary
impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit
losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition
of credit losses. ASU 2016-13 effective January 1, 2023. We are currently evaluating the effect of the adoption of ASU 2016-13
and believe it does not have any material impact on our results of operations or financial.
We have reviewed all the recently
issued, but not yet effective, accounting pronouncements and we do not believe any of these pronouncements will have a material
impact on the Company.
4. RELATED PARTY TRANSACTION
The Company did not have any sales
to related parties for the three months ended March 31, 2020 and March 31, 2019, respectively.
The amount due to the related parties
was $1.10 million, which consisted of the followings:
Name of Related Party from Whom Amounts were Received
|
|
Amount
(US$)
|
|
|
Relationship
|
|
Note
|
Shanchun Huang
|
|
|
70,571
|
|
|
Chief Executive Officer of the Company
|
|
Loan payable
|
Shaanxi Fullmart Convenient Chain Supermarket Co., Ltd. (“Fullmart”)
|
|
|
134,084
|
|
|
Shaanxi Fullmart Commercial Holding (Xi’an) Co., Ltd. was 100% owned by Xiu Jun Wang, the ex-wife of Yongke Xue, the Chairman of the Company. Shaanxi Fullmart Commercial Holding (Xi’an) Co., Ltd. holds 16.67% equity of Fullmart.
|
|
Accounts payables
|
Kai Xu
|
|
|
20,468
|
|
|
Chief Operating Officer of the Company
|
|
Payable to employee
|
InUnion Chain Ltd. (“INU”)
|
|
|
206,730
|
|
|
The Company is the 10% equity shareholder of INU
|
|
Accounts payables
|
Zhi Yan
|
|
|
44,547
|
|
|
Chief Technology Officer of the Company
|
|
Payable to employee
|
Jing chen
|
|
|
4,843
|
|
|
Chief Financial Officer of the Company
|
|
Payable to employee
|
Zeyao Xue
|
|
|
305,483
|
|
|
Son of the Chairman of the Company and a shareholder of the Company Chief Operating Officer of the Company
|
|
Loan payable
|
Shenzen TianShunDa Equity Investment Fund Management Co., Ltd. (the “TSD”)
|
|
|
310,511
|
|
|
TSD holds 26.36% of the equity interest of SkyPoeple (China)
|
|
Accounts payables
|
The amount due from the related parties
was $3.10 million as of March 31, 2020, which consisted of the followings:
Name of Related Party to Whom the Amounts
were Paid
|
|
Amount
(US$)
|
|
|
Relationship
|
|
Note
|
Shaanxi Chunlv Ecological Agriculture Co. Ltd.
|
|
|
2,995,320
|
|
|
Holds 20.0% interest in CCM logistics
|
|
Interest free loan*
|
Quangoutong Commercial Holdings (Xi’an) Co., Ltd (“Quangoutong”)
|
|
|
2,964
|
|
|
Shaanxi Fullmart Convenient Chain Supermarket Co., Ltd. (“Fullmart”) holds 16.67% equity of its subsidiary. The subsidiary is 83.33% owned by Quangoutong
|
|
Service fee due
|
Shaanxi Quangou Convenient Island Co. Ltd.
|
|
|
16,704
|
|
|
Fullmart holds 33.33% its equity
|
|
Interest free loan*
|
Yongke Xue
|
|
|
89,145
|
|
|
Chairman of the Company
|
|
Interest free loan*
|
●
|
The interest free loans have been approved by the Company’s Audit Committee.
|
5. COMMON STOCKS ISSUED
Common stocks issued in connection with the convertible notes
On March 26, 2019, the Company entered
into a Securities Purchase Agreement (the “Purchase Agreement”) with Iliad Research and Trading, L.P., a Utah limited
partnership (the “Purchaser”) pursuant to which the Company sold and issued to the Purchaser a Secured Convertible
Promissory Note (the “Note”) in the principal amount of $1,070,000. The Purchaser purchased the Note with an original
issue discount of $50,000, and the Company agreed to pay to the Purchaser $20,000 for fees and costs incurred by Purchaser in connection
with the consummation of the Purchase Agreement. The Note was sold to the Purchaser pursuant to an exemption from registration
under Regulation D, promulgated under the Securities Act of 1933, as amended. The purchase price for the Note was paid by the Purchaser
through an initial cash payment of $500,000 and the issuance of an investor note to the Company with a one-year term and an interest
rate of 8% (the “Investor Note”), which the Purchaser agrees to prepay in full upon the satisfaction of certain conditions
for pledged shares and transfer agent instruction letter pursuant to the Investor Note and Purchase Agreement.
On May 2, 2019, the Company received a
second cash payment from Purchaser of $0.5 million after satisfying certain conditions for pledged shares as required in the Securities
Purchase Agreement, of which $3,818 was interest income for the Company due to late payment past the agreed date by the Purchaser.
The Note bears interest at the rate of
8% per annum. All outstanding principal and accrued interest on the Note became due and payable on March 26, 2020. The Company’s
obligations under the Note may be prepaid at any time, if the company elects to prepay the Company would pay 125% of any amount
outstanding under the Note. The Note may be converted at any time, at the Purchaser’s option, into shares of the Company’s
common stock at a conversion price of $3.00 per share. During the term of the Note, the Company shall not, without the prior written
consent of the Purchaser, enter into or effect certain fundamental business transactions. The Company has the option to redeem
the Note at any time after the six month anniversary of the date when the purchase price is delivered to the Company. The Company’s
obligations under the Note are secured by a pledge of 2,500,000 shares of the Company’s common stock by Mengyao Chan, an
unrelated third party, in favor of the Purchaser.
From October to December 2019, the Company
issued 1,493,333 shares of its common stock to Iliad Research and Trading, L.P., a Utah limited partnership (the “Purchaser”)
pursuant seven Exchange Agreements entered into with the Purchaser.
On January 6, 2020, the Company entered
into the Eighth Exchange Agreement (the “Eighth Exchange Agreement”) with Iliad Research and Trading, L.P., a Utah
limited partnership (the “Lender”). Pursuant to the Eighth Exchange Agreement, the Company and Lender agreed to partition
a new Secured Convertible Promissory Note in the original principal amount of $145,000 (the “Eighth Partitioned Note”)
from a Secured Convertible Promissory Note (the “Note”) issued by the Company on March 26, 2019. The outstanding balance
of the Note shall be reduced by an amount equal to the outstanding balance of the Partitioned Note. The Company and Lender further
agreed to exchange the Eighth Partitioned Note for the delivery of 193,333 shares of the Company’s Common Stock, par value
$0.001, according to the terms and conditions of the Exchange Agreement.
On January 15, 2020, the Company entered
into the Ninth Exchange Agreement (the “Ninth Exchange Agreement”) with the Lender. Pursuant to the Exchange Agreement,
the Company and Lender agreed to partition a new Secured Convertible Promissory Note in the original principal amount of $140,000
(the “Ninth Partitioned Note”) from the Note issued by the Company on March 26, 2019. The outstanding balance of the
Note shall be reduced by an amount equal to the outstanding balance of the Ninth Partitioned Note. The Company and Lender further
agreed to exchange the Partitioned Note for the delivery of 186,666 shares of the Company’s Common Stock, par value $0.001,
according to the terms and conditions of the Exchange Agreement.
On March 11, 2020, the Company entered
into the Tenth Exchange Agreement (the “Tenth Exchange Agreement”) with the Lender.
Pursuant to the Tenth Exchange Agreement,
the Company and Lender agreed to partition a new Secured Convertible Promissory Note in the original principal amount of $150,000
(the “Tenth Partitioned Note”) from the Note issued by the Company on March 26, 2019. The outstanding balance of the
Note shall be reduced by an amount equal to the outstanding balance of the Partitioned Note. The Company and Lender further agreed
to exchange the Partitioned Note for the delivery of 200,000 shares of the Company’s Common Stock, par value $0.001, according
to the terms and conditions of the Exchange Agreement.
Consulting Service Agreement
On January 25, 2020, the Company entered
into a Consulting Service Agreement (the “Agreement”) with Dragon Investment Holding Limited (Malta) (the “Consultant”),
a company incorporated in Malta, pursuant to which Consultant will: (i) help the Company to locate new merger projects globally,
develop new merger strategy and provide the Company with at least five (5) merger and acquisition targets that have synergy with
the Company’s business and development plans and could clearly contribute to the Company’s strategic goals each year;
(ii) help the Company to map out new growth strategies in addition to its current business; (iii) work with the Company to explore
new lines of business and associated growth strategies; and (iv) conduct market research and evaluating variable projects and providing
feasibility studies per Company’s request from time to time. The term of the Agreement is three years. In consideration of
the services to be provided by Consultant to the Company, the Company agrees to pay the Consultant a three-year consulting fee
totaling $3 million. The Company shall issue a total of 3,750,000 restricted shares of common stock of the Company (the “Consultant
Shares”) at a price of $0.794 per share, (the closing price of the Agreement date), as the payment for the above mentioned
consultant fee to the Consultant. On February 23, 2020, the Company issued the Consultant Shares pursuant to the Agreement, of
which 1,500,000 shares were released to the Consultant immediately, 1,125,000 and 1,125,000 shares, respectively, will be held
by the Company and released to the Consultant on January 25, 2021 and January 25, 2022 if this Agreement has not been terminated
and there has been no breach of the Agreement by the Consultant at such time. If the second and/or third release of the shares
mentioned above does not occur, such shares shall be returned to the Company as treasury shares. The shares contemplated in the
Agreement were issued pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act
of 1933, as amended. For the three months ended March 31, 2020, the Company recorded stock related compensation of $1.19 million,
based on the stock closing price of $0.794 on the Agreement date, for the 1,500,000 shares which were released to the Consultant
immediately upon issuance. The Company will recognize stock related compensation of $1.79 million for the 2,250,000 shares in the
future when they are released to the Consultant pursuant to the Agreement.
6. DISCONTINUED OPERATIONS
HeDeTang HK
On
September 18, 2019, HeDeTang Holdings (HK) Ltd. (“HeDeTang HK”) entered into a Share Transfer Agreement (the “Agreement”)
with New Continent International Co., Ltd., (the “Buyer”) a company incorporated in the British Virgin Islands. Pursuant
to the terms of the Agreement, the Buyer purchased 100% ownership of HeDeTang HK, which value is primarily derived from HeDeTang
HK’s wholly-owned subsidiary HeDeJiaChuan Holdings Co., Ltd. and 73.41% owned subsidiary SkyPeople Juice Group Co., Ltd.,
for a total price of RMB 600,000 (approximately $85,714) (the “Sale Transaction”). The Sale Transaction was closed
on February 27, 2020. In accordance with ASC Topic 205, Presentation of Financial Statement Discontinued Operations (“ASC
Topic 205”), the Company presented the operation results from HeDeTang HK’s and subsidiaries as a discontinued operation,
as the Company believed that no continued cash flow would be generated by the discontinued component and that the Company would
have no significant continuing involvement in the operations of the discontinued component. The total assets of HeDeTang HK were
$106.85 million as of February 27, 2020 and the total liabilities of HeDeTang HK were $231.21 million as of February 27,
2020, resulting in a gain on disposal of $123.69 million. There was no income or loss from HeDeTang HK from January 1, 2020 to
the sale.
Huludao Wonder
The discontinued operation presented in
the financial statement for the period ended March 31, 2019 includes Huludao Wonder operation, a subsidiary which produces concentrated
apple juice. In December 2016, the Company established a winding-down plan to close this operation. Based on the restructuring
plan and in accordance with ASC 205-20, 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 ASC 205-20. In accordance with the restructuring plan, the Company intends to transfer the concentrated fruit juice production
equipment in Huludao Wonder to another subsidiary and to sell the land and facilities upon favorable circumstances. On February
27, 2020 pursuant to a Share Transfer Agreement entered into by HeDeTang Holdings (HK) Ltd. and New Continent International Co.,
Ltd. on September 18, 2019, the ownership of Huludao Wonder was transferred as a subsidiary of HeDeTang Holdings (HK) Ltd. to New
Continent International Co., Ltd.
On March 11,2020, the Company’s Board
of Directors passed a resolution to sell the operation of Globalkey Supply Chain limited and Zhonglian Hengxin Assets Management
Co. Ltd and close the operation of Digital Online Marketing Limited, Future Digital Fintech (Xi’an) Co. Ltd., SkyPeople Foods
Holding Ltd. and Chain Future Digital Tech (Beijing) Co. Ltd. Based on the disposal plan and in accordance with ASC 205-20, the
Company presented the operating results from these operations as a discontinued operation.
7. VARIABLE INTEREST ENTITIES
On July 31, 2019, CCM Tianjin, E-commerce
Tianjin, and Mr. Zeyao Xue and Mr. Kai Xu, citizens of China and shareholders of E-commerce Tianjin, entered into the following
agreements, or collectively, the “Variable Interest Entity Agreements” or “VIE Agreements,” pursuant to
which CCM Tianjin has contractual rights to control and operate the business of E-commerce Tianjin (the “VIE”). Therefore,
pursuant to ASC 810, E-Commerce Tianjin is included in the Company’s condensed consolidated financial statements since then.
Pursuant to Chinese law and regulations,
a foreign owned enterprise cannot apply for and hold a license for operation of certain e-commerce businesses, the category of
business which the Company plans to expand in China. CCM Tianjin is an indirectly wholly foreign owned enterprise of the Company.
In order to comply with Chinese law and regulations, CCM Tianjin agreed to provide E-commerce Tianjin an Exclusive Operation and
Use Rights Authorization to operate and use the Chain Cloud Mall System owned by CCM Tianjin.
E-commerce Tianjin was incorporated by
Mr. Zeyao Xue and Mr. Kai Xu solely for the purpose of holding the operation license of the Chain Cloud Mall System. Mr. Zeyao
Xue is a major shareholder of the Company and the son of Mr. Yongke Xue, our Chairman and Chief Executive Officer. Mr. Kai Xu is
the Chief Operating Officer of the Company.
For the details about the VIE agreements,
refer to Note 15 “Variable Interest Entities,” in the Company’s consolidated financial statements included
in Company’s 2019 Form 10-K.
8. OTHER PAYABLE
As of March 31, 2020, other payable was
$3.71 million, which consisted of the followings:
Name
|
|
Amount
(US$)
|
|
Note
|
Shaanxi Zhongcai Pawn Co. Ltd.
|
|
1,834,837
|
|
Loan payable (interest was stopped and settled)
|
Baoji Sanyi Construction Decoration Engineering Co. Ltd.
|
|
306,277
|
|
Construction expenses payable
|
Shaanxi Zhongkun Construction Co. Ltd.
|
|
231,807
|
|
Construction expenses payable
|
Others
|
|
1,337,681
|
|
Payables not related
with the Company’s normal business
|
9. COMMITMENTS AND CONTINGENCIES
Litigation
Legal case with Beijing Bank
On June 29, 2015, SkyPeople China entered
into a loan agreement with Beijing Bank. Pursuant to the loan agreement, SkyPeople China borrowed RMB 30 million (approximately
$4.36 million) from Beijing Bank. Hongke Xue, Yongke Xue and Xiujun Wang provided guarantees for the loan and Shaanxi Boai Medical
Technology Development Co., Ltd. (“Shaanxi Boai”) provided certain real estate property as a pledge for the loan.
SkyPeople China did not repay the loan on time and Beijing Bank filed an enforcement request with Xi’an Intermediate People’s
Court in June 2017. The Xi’an Intermediate People’s Court seized real estate properties pledged by Shaanxi Boai and
Xiujun Wang. In November 2018, the Court sold the real estate property pledged by Xiujun Wang at RMB 1.17 million (approximately
$0.17 million). Because the real estate property is Xiujun Wang’s primary home, the Court allocated RMB 0.12 million to
Xiujun Wang as transition home leasing fee and deducted outstanding mortgage payments, and the remaining amount was delivered
to the Beijing Bank as the repayment. The Court has also made inquiries to the Beijing Bank as to whether it is willing to accept
the pledged real estate property of Shaanxi Boai as the repayment of the outstanding loan for the amount of RMB 27.93 million
(approximately $4.06 million) but Beijing Bank has refused to take the real property as repayment of the loan and the enforcement
action has been terminated by the Court on December 18, 2018. As of March 31, 2020, SkyPeople China still owe the unpaid
amount. SkyPeople China was one of the subsidiaries transferred along with HeDengTang HK to New Continent International Co., Ltd.
on February 27, 2020. The creditors have no recourse to the current Company.
Legal case with Ningxia Bank
On March 8, 2016, SkyPeople China entered
into a loan agreement with Ningxia Bank. Pursuant to the loan agreement, SkyPeople China borrowed RMB 25 million (approximately
$3.63 million) from Ningxia Bank. Hongke Xue, Yongke Xue, Lake Chen, Shaanxi Boai Medical Technology Development Co., Ltd. and
Shaanxi Qiyiwangguo provided guarantees for the loan. SkyPeople China also pledged 37 pieces of equipment and the related trademarks
to Ningxia Bank for the loan. SkyPeople China has not repaid the loan and Ningxia Bank filed an enforcement action with Xi’an
Intermediate people’s court in August 2017. The Court has frozen the assets of SkyPeople China 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
SkyPeople China for its business. In July 2018, Shaanxi Qiyiwangguo filed a petition to the Court and requested the termination
of the enforcement action on the basis that its guarantee of the loan was not valid because the seal used on the guarantee agreement
was not authentic and the guarantee was not approved by the shareholders of Shaanxi Qiyiwangguo. On November 27, 2018, Shaanxi
Qiyiwangguo withdrew its petition. The Court agreed to such withdrawal and there has been on other progress of this case. As of
March 31, 2020, SkyPeople China still owe the unpaid amount. SkyPeople China was one of the subsidiaries transferred along with
HeDengTang HK to New Continent International Co., Ltd. on February 27, 2020. The creditors have no recourse to the current
Company.
Legal case with China Construction Bank
On December 23, 2015, SkyPeople China entered
into two loan agreements with China Construction Bank. Pursuant to the loan agreements, SkyPeople China borrowed RMB 13.90 million
(approximately $2.13 million), and RMB 30 million (approximately $4.59 million) from China Construction Bank, respectively. Shaanxi
Boai Medical Technology Development Co., Ltd. (“Boai”), Hongke Xue, Yongke Xue, Xiujun Wang and Yingkou Trusty Fruits
Co., Ltd. (“Yingkou”) provided pledges for the loans. SkyPeople China has not repaid the loans and China Construction
Bank filed an enforcement action with Xi’an Intermediate People’s Court in March 2017. In December 2017, SkyPeople
China received the enforcement notice from the Court. The Court has seized certain parking space and land use rights pledged by
Xiujun Wang and Boai and sold the land use right pledged by Boai in auction for approximately RMB 24,835,790 as repayment to China
Construction Bank. The Court also seized certain land use rights pledged by Yingkou Trusty Fruits Co., Ltd., but the auction sale
for those rights was not successful. As of March 31, 2020, SkyPeople China still owe the unpaid amount. SkyPeople China was one
of the subsidiaries transferred along with HeDengTang HK to New Continent International Co., Ltd. on February 27, 2020. The
creditors have no recourse to the current Company.
On May 9, 2016, SkyPeople China entered
into loan agreements with China Construction Bank. Pursuant to the loan agreements, SkyPeople China borrowed RMB 22.9 million (approximately
$3.50 million) from China Construction Bank. Shaanxi Province Credit Reassurance Company (“Credit Reassurance Company”)
provided a guarantee to China Construction Bank for the loan, Hongke Xue and Yongke Xue provided their guarantees, and SkyPeople
China provided an office space that it owned to Credit Reassurance Company as a pledge. SkyPeople China has not repaid the loan
and Credit Reassurance Company repaid the loan for SkyPeople China. In June 2017, Credit Reassurance filed an enforcement action
request with Xi’an Intermediate People’s Court (the “Court”) in June 2017. In December 2017, SkyPeople
China received the enforcement notice from the Court. The Court issued a verdict to seize the office space of SkyPeople China for
auction sale on December 26, 2017. In February 2018, the auction sale was conducted but not successful. In June 2018, the Court
decided to use the pledge property as the repayment for the outstanding loan of RMB 12.21 million (approximately $1.78 million).
Legal case with China Cinda Asset Management
Co., Ltd.
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 (the “Court”) against SkyPeople China for alleged defaults pursuant to guarantees by SkyPeople China to its suppliers
for a total amount of RMB 39.60 million or approximately $5.8 million.
In September 2014, two long term suppliers
of pear, mulberry, and kiwi fruits to SkyPeople China requested that SkyPeople China provide guarantees for their loans with Cinda
Shaanxi Branch. Considering the long term business relationship and to ensure the timely supply of raw materials, SkyPeople China
agreed to provide guarantees on the value of the raw materials supplied to SkyPeople China. Because Cinda Shaanxi Branch is not
a bank authorized to provide loans, it eventually provided financing to the two suppliers through the purchase of accounts receivables
of the two suppliers with SkyPeople China. In July 2014, the parties entered into two agreements – an 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 SkyPeople China 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 SkyPeople China. Consequently, SkyPeople China stopped making any payment
to Cinda Shaanxi Branch.
SkyPeople China has responded to the Court
and taken the position that the financings under the agreements are essentially the 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
had no legal effect from the beginning. Therefore, SkyPeople China has no obligation to repay the debts owed by the two suppliers
to Cinda Shaanxi Branch.
Upon the Court’s suggestion, the
parties agreed to a settlement discussion in April 2017. As a part of the settlement discussion, on April 18, 2017, SkyPeople China
withdrew its non-enforcement request with the Court without prejudice. As of March 31, 2020, SkyPeople China still have liability
of $5.8 million related with these two enforcement proceedings. SkyPeople China was one of the subsidiaries transferred along with
HeDengTang HK to New Continent International Co., Ltd. on February 27, 2020. The creditors have no recourse to the current Company.
Legal case with Cinda Capital Financing
Co. Ltd.
In August 2017, Cinda Capital Financing
Co. Ltd. (“Cinda”) filed a lawsuit with Beijing 2nd Intermediate People’s Court (the “Beijing Intermediate
Court”) against the Company’s indirectly wholly-owned subsidiaries Shaanxi Guoweimei Kiwi Deep Processing Company,
Ltd. (“Guoweimei”) and Hedetang Farm Products Trading Market (Mei County) Co., Ltd. (“Trading Market Mei County
Co”, and together with Guoweimei, “Lessees”) requested that Lessees repay RMB 50 million (approximately $7.27
million) in capital lease fees, plus interest. Cinda purchased or paid for refrigerant warehouse and trading hall to the suppliers
and vendors and agreed to lease them to the Lessees for a leasing fee of RMB 50 million in December 2016. The capital leasing fee
became due on its maturity date of June 2017, with certain land use rights of Lessees in Mei County and equity of Guoweimei as
a pledge. The Company disputed that the land use rights for the refrigerant warehouse and trading hall were never sold to or transferred
to Cinda, and argues that therefore it is a loan agreement and not a capital lease agreement among the parties. Lessees have taken
the position that Cinda is not a bank and does not have government permits required to make loans in China, and the agreements
including pledge agreement were invalid, void and without legal effect from the beginning. Therefore, the Company only has the
obligations to repay principal but not the interest. In November 2017, Beijing Intermediate Court ruled in favor of Cinda and the
Lessees appealed the case to the Beijing Supreme Court. The Beijing Supreme Court held a hearing at the end of July 2018. On December
4, 2018, the Beijing Supreme Court upheld the lower court’s decision. On April 8, 2019, Beijing Intermediate Court issued
the verdict for enforcement of the judgment and the plaintiff has the priority rights for the repayment for the pledged land use
rights of Lessees in Mei County and equity of Guoweimei. The case is under enforcement procedure and Cinda is in the process of
sale the land use rights. Before the land use right is sold, the subsidiaries of SkyPeople China still owns the seized properties
and the liabilities to Cinda. As of March 31, 2020, SkyPeople China has not repaid the amount. SkyPeople China was one of the subsidiaries
transferred along with HeDengTang HK to New Continent International Co., Ltd. on February 27, 2020. The creditors have no recourse
to the current Company.
In August 2017, Cinda Capital Financing
Co. Ltd. (“Cinda”) filed another lawsuit with Beijing Intermediate Court against the Company’s indirectly wholly-owned
subsidiaries Guoweimei and SkyPeople China for repayment of a leasing fee of RMB 84.97 million (approximately $12.35 million) plus
interest. In January 2014, Guoweimei and SkyPeople China (the “Equipment Lessees”) signed an Equipment Financial Lease
Purchase Agreement with Cinda and an equipment supplier pursuant to which Cinda would provide funds to purchase equipment and the
Equipment Lessees would lease the equipment from Cinda. Guoweimei pledged certain land use rights in Mei County to Cinda and Xi’an
Hedetang and Hedetang Holding pledged their equities in Guoweimei to Cinda to secure the repayment. Mr. Hongke Xue also provided
a personal guarantee for the payment of the leasing fee. Beijing Intermediate Court had two hearings of the case and on March 21,
2018, and it ruled in favor of Cinda to the effect that SkyPeople China and Guoweimei shall pay leasing fees due in the amount
of RMB 21.00 million (approximately $3.05 million), as well as leasing fees not yet due in the amount of RMB 63.98 million (approximately
$9.30 million), plus attorney’s fees and expenses. Beijing Intermediate Court also ruled that Mr. Hongke Xue is jointly liable
for the debt as the guarantor, and that Cinda has priority rights to the pledged land use rights in Mei County and the pledged
equities of Guoweimei as well as the ownership of the leasing properties until the leasing fees are paid. SkyPeople China has appealed
the decision to the Beijing Supreme Court. The Beijing Supreme Court rejected the appeal and upheld the original verdict on
September 7, 2018. The case is under enforcement procedure and Cinda is in the process of sale the seized properties. Before they
are sold, the subsidiaries of SkyPeople China still owns the seized properties and the liabilities to Cinda. As of March 31, 2020,
SkyPeople China has not repaid the amount. SkyPeople China was one of the subsidiaries transferred along with HeDengTang HK to
New Continent International Co., Ltd. on February 27, 2020. The creditors have no recourse to the current Company.
Legal case with Shaanxi Fangtian
Decoration Co. Ltd
In April 2015, SkyPeople China entered
into a loan agreement with Shaanxi Fangtian Decoration Co. Ltd. (“Fangtian”). Pursuant to the loan agreement, SkyPeople
China borrowed RMB 3.5 million (approximately $508,780) from Fangtian. SkyPeople China has not repaid the loan and Fangtian filed
a lawsuit with Xi’an Yanta District People’s Court (“Yanta District Court”). On August 10, 2017, Yanta
District Court ruled against SkyPeople China and determined that SkyPeople China must repay the loan of RMB 3.5 million plus interest
RMB of 0.40 million (approximately $585,098). Fangtian has requested court enter into enforcement procedures for the case. As of
March 31, 2020, SkyPeople China has not repaid the amount. SkyPeople China was one of the subsidiaries transferred along with HeDengTang
HK to New Continent International Co., Ltd. on February 27, 2020. The creditors have no recourse to the current Company.
Legal case with Shanghai Pudong Development
Bank
On May 4, 2015, SkyPeople China and Xi’an
Branch of Shanghai Pudong Development Bank (SPD Bank Xi’an Branch) renewed a Working Capital Loan Contract and Repayment
Schedule, according to which both parties agreed that SPD Bank Xi’an Branch loaned RMB 26.9 million (approximately $3.92
million) to SkyPeople China with a term of one year. On the signing date of the Loan Contract, Hongke Xue, Yongke Xue, Xiujun Wang
and SPD Bank Xi’an Branch signed a Contract of Guaranty guaranteeing the repayment of loan and undertaking joint liability.
According to a Mortgage Contract of Maximum Amount signed between SkyPeople China and SPD Bank Xi’an Branch on April 2, 2013,
SkyPeople China provided the property and land use rights of Jingyang factory as the pledge. In October 2015, SPD Bank Xi’an
Branch filed an enforcement request with the Intermediate Court of Xi’an and the Court seized the property and the land use
rights of Jingyang factory. During the enforcement procedure, SPD Bank Xi’an Branch transferred its creditor’s rights
to China Huarong Asset Management Co., Ltd. (“China Huarong”). The Court changed the execution applicant to China Huarong.
In March 2019, the Intermediate Court of Xi’an issued a verdict for the transfer of the pledged property and land use rights
of Jingyang factory to China Huarong as the repayment of the loan.
Legal case with Shaanxi Fangyuan construction
co., Ltd.
Shaanxi Guoweimei Kiwi Deep Processing
Co. Ltd (“Guoweimei”), entered into a construction agreement with Shaanxi Fangyuan construction co., Ltd. (“Fangyuan”)
in July 2013. On October 8, 2018, Fangyuan filed a lawsuit and requested that Guoweimei pay a project construction fee plus penalty
of RMB 56.32 million (approximately $8.22 million). On June 10, 2019, Baoji Intermediate People’s Court issued a verdict
that Guoweimei must pay RMB 41.58 million (approximately $6.07 million) plus penalty to Fangyuan, and Fangyuan will enjoy preferential
right for the projects in processing zone of National Wholesale and Trading Center in Mei County for Kiwi Fruits developed by Guoweimei.
As of March 31, 2020, Guoweimei has not repaid the amount. Guoweimei was one of the subsidiaries transferred along with HeDengTang
HK to New Continent International Co., Ltd. on February 27, 2020. The creditors have no recourse to the current Company.
Legal case with Shaanxi Zhongkun Construction
Co., Ltd.
In May 2015, Hedetang Farm Products Trading
Markets (Mei County) Co., Ltd. (“Hedetang”), subsidiary of GlobalKey Tianjin, and Shaanxi Zhongkun Construction
Co., Ltd. (“Zhongkun”) entered into a construction and decoration agreement. On September 5, 2018, Zhongkun filed the
lawsuit with Mei County People’s Court (the “Court”) for repayment of construction and decoration fees. The Court
issued a civil judgement in November 2018, ordering Hedetang to pay project funds of RMB 1.65 million (approximately $0.24 million)
to Zhongkun, plus interest. On April 19, 2020, the Court issued a verdict to terminate the enforcement because assets of Hedetang
had already been seized by Xi’an Yanta District People’s Court and Baoji Intermediate People’s Court, and there
were no other assets for enforcement. Currently the Company is still liable for the unpaid amount and the interest.
Legal case with Xi’an Shanmei
Food Co., Ltd.
On October 31, 2017, Xi’an Shanmei
Food Co. Ltd. filed a lawsuit against Shaanxi Qiyiwangguo, a majority-owned subsidiary of the Company, with Zhouzhi County People’s
Court in connection with a Land Lease Agreement entered into by the parties on October 1, 2013. On March 2, 2018, Zhouzhi County
People’s Court issued a verdict that: (i) the Land Lease Agreement was thereby terminated; (ii) Shaanxi Qiyiwangguo shall
pay Xi’an Shanmei the outstanding leasing fee RMB 0.21 million (approximately $30,762) and (iii) Shaanxi Qiyiwangguo shall
return the 29.3 mu industrial use land to Xi’an Shanmei. Shaanxi Qiyiwangguo has appealed the decision to the Xi’an
Intermediate People’s Court on the basis that: (x) the land use right was a capital contribution by Xi’an Shanmei for
a shareholder of Shaanxi Qiyiwangguo who is also the sole shareholder of Xi’an Shanmei and the Land Lease Agreement was invalid
and has no legal effect; (y) Zhouzhi Court did not schedule the hearing for the count claims filed by Shaanxi Qiyiwangguo; and
(z) Zhouzhi Court violated certain civil procedures during the trial of the case. Due to the late notice to Zhouzhi Court, the
case file was not timely transferred to Xi’an Intermediate Court and no appeal hearing was scheduled. Zhouzhi Court has issued
verdict for enforcement procedure and Qiyiwangguo has filed petition of disagreement for the enforcement which is still under Zhouzhi
Court’s review. On January 23, 2019, the Court rejected the petition of disagreement and the case has been under enforcement
procedure. As of March 31, 2020, Shaanxi Qiyiwanggu has not repaid the amount. Shaanxi Qiyiwanggu was one of the subsidiaries transferred
along with HeDengTang HK to New Continent International Co., Ltd. on February 27, 2020. The creditors have no recourse to the current
Company.
Legal case with Nanjing Bailuotong Logistics
Services Co., Ltd.
In January 2016 Shaanxi Qiyiwangguo and
Nanjing Bailuotong Logistics Services Co., Ltd (“Bailutong”) entered into a transportation agreement to ship fruit
juices. Bailutong failed to deliver the juice products and held them after their expiration date. Shaanxi Qiyiwangguo filed a lawsuit
against Bailutongwith Zhouzhi county People’s Court, and the Court issued the verdict in February 2018 that: (1) the transportation
contract between Shaanxi Qiyiwangguo and Bailutong was terminated, and (2) Bailutong owed RMB0.20 million (approximately $29,715)
to Shaanxi Qiyiwangguo for the loss of Shaanxi Qiyiwangguo. Bailutong appealed the case to Xi’an Intermediate People’s
Court. Xi’an Intermediate People’s Court rejected the appeal and upheld the original verdict. As of the date of this
report, Shaanxi Qiyiwangguo has not received the payment of RMB0.20 million from Bailutong.
Legal case with Henan Huaxing Glass
Co., Ltd.
Shaanxi Qiyiwangguo entered into an agreement
with Henan Huaxing Glass Co., Ltd. (“Huaxing”) in May 2014 for Huaxing to supply glass bottles to Shaanxi Qiyiwangguo.
However, due to the disputes regarding the quality of products supplied by Huaxing, Shaanxi Qiyiwangguo did not pay the prices
for certain glass bottles. In August 2017, Huaxing filed a lawsuit and the court ruled that Shaanxi Qiyiwangguo owed Huaxing RMB
203,742 (approximately $29,743) in July 2018. During the enforcement process, the parties reached a settlement agreement but Shaanxi
Qiyiwangguo failed to pay the amount due and now the case is still in the court enforcement process. As of March 31, 2020, Shaanxi
Qiyiwanggu has not repaid the amount. Shaanxi Qiyiwanggu was one of the subsidiaries transferred along with HeDengTang HK to New
Continent International Co., Ltd. on February 27, 2020. The creditors have no recourse to the current Company.
Legal case with Huludao Banking Co.
Ltd.
In September 2016, the Suizhong Branch
of Huludao Banking Co. Ltd. (“Suizhong Branch”) filed a lawsuit with Huludao Intermediate People’s Court (the
“Huludao Court”) against the Company’s indirectly wholly-owned subsidiary Huludao Wonder Fruit Co., Ltd. (“Wonder
Fruit”) and requested that Wonder Fruit repay a RMB 40 million (approximately $5.81 million) bank loan, plus interest. The
loan became due on its maturity date of December 9, 2016. On December 19, 2016, the Huludao 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
that the interest charged by Suizhong Branch is 100% higher than the base rate set by People’s Bank of China and is not consistent
with the China People’s Bank’s base interest and floating rate. The Huludao Court has seized land use rights, buildings
and equipment of Wonder Fruit that were pledged as guarantee for the loan and has organized two auction sales for these assets
in January and February of 2018, but both auction sales have been unsuccessful in finding a buyer. On July 19, 2018, the Court
issued a verdict ordering Huludao Wonder to transfer its land use rights, building, equipment, electronic and transportation assets
to Zuizhong Branch as payment of the outstanding principal, auction and evaluation fees and some interest of the loan for RMB 42.64
million (approximately $6.22 million). As of March 31, 2020, there was RMB 11.95 million (approximately $1.74 million) in interest
on the loan unpaid. Huludao Wonder was one of the subsidiaries transferred along with HeDengTang HK to New Continent International
Co., Ltd. on February 27, 2020. The creditors have no recourse to the current Company.
Legal case with Andrew Chien
In September 2017, Andrew Chien, a former
consultant of SkyPeople China, brought a lawsuit against the Company and Mr. Hongke Xue in the District Court of Connecticut (the
“Court”). The complaint was not properly served and the Company learned of the litigation in December 2017. In the
complaint, Mr. Chien has made several claims, most of which attempt to hold the Company liable under novel legal theories that
relate back to an alleged breach of a consulting agreement between SkyPeople China and Chien from August 2006. Mr. Chien claimed
approximately $257,000 damages and interest plus 2.00% of the Company’s then-outstanding shares. Mr. Chien has unsuccessfully
attempted to sue the Company on the breach of the same consulting agreement several times in the courts of Connecticut and New
York, and these cases have been dismissed. The Company has filed a motion to dismiss (“MTD”) and all proceedings are
stayed pending determination of the MTD. On August 31, 2018, the Court granted our MTD. On September 10, 2018, Mr. Chien filed
a motion for reconsideration. On September 28, 2018, the Court denied Mr. Chien’s motion for reconsideration. On October
26, 2018, Mr. Chien appealed the case to the United States Court of Appeals for the Second Circuit. The Court of Appeals
affirmed the trial court’s dismissal of the action on January 22, 2020, and denied Mr. Chien’s petition for en banc
rehearing on March 27, 2020. Mr. Chien’s time to pursue a discretionary appeal to the Supreme Court of the United States
has lapsed and the case is closed.
Legal case with Luwei
In 2018, Mr. Luwei, an individual, filed
a claim for arbitration against SkyPeople China in Xi’an Arbitration Commission for breach of contract pursuant to a new
share purchase agreement and a share redemption agreement. On April, 11, 2019, Xi’an Arbitration Commission made its decision
and ordered SkyPeople China to repay RMB 3 million investment to Luwei. Mr. Luwei applied with Intermediate Court of Xi’an
(the “Court”) for enforcement of the arbitration award which process was terminated by the Court due to no assets for
enforcement. As of March 31, 2020, SkyPeople China has not repaid the amount. SkyPeople China was one of the subsidiaries transferred
along with HeDengTang HK to New Continent International Co., Ltd. on February 27, 2020. The creditors have no recourse to the current
Company.
Legal case with Shaanxi Overseas Investment
Development Corp.
In November 2019, Shaanxi Overseas Investment
Development Corp (“Shaanxi Overseas Investment”) filed a lawsuit against SkyPeople China, Hongke Xue and Shenzhen
Tian Shun Da Equity Investment Fund Management Co., Ltd. (“Shenzhen Tian Shun Da”) pursuant to an investment agreement
entered in March 2016. According to the agreement, Shaanxi Overseas Investment agreed to invest RMB 5 million for the preferred
shares of SkyPeople China with an annual interest rate of 2.38%. Shenzhen Tian Shun Da pledged 1.17% of the shares SkyPeople China
that it owned and Hongke Xue provided guarantee for the performance of agreement by SkyPeople China. SkyPeople China failed to
make the interests payment and Shaanxi Overseas Investment filed the lawsuit for breach of agreement. On December 26, 2019, Yanta
District Court of Xi’an City (the “Court”) ordered SkyPeople China to pay Shaanxi Overseas Investment the preferred
share redemption amount of RMB 5 million plus penalty which is calculated based upon the RMB 5 million at a rate of 24% a year.
The Court also ruled that Shaanxi Overseas Investment may sell the pledged shares owned by Shenzhen Tianshun Da as the repayment
for SkyPeople China and Hongkong Xue shall also assume the repayment obligation as guarantor. As of March 31, 2020, SkyPeople
China has not repaid the amount. SkyPeople China was one of the subsidiaries transferred along with HeDengTang HK to New Continent
International Co., Ltd. on February 27, 2020. The creditors have no recourse to the current Company.
Legal case with Shaanxi Wanyuan Construction
Co., Ltd.
In July 2019, Shaanxi Wanyuan Construction
Co., Ltd. (“Wanyuan) filed a lawsuit with Shaanxi Baoji Municipal Intermediate People’s Court (the “Baoji Court”)
against Guoweimei for repayment of construction and decoration costs of RMB 55.07 million pursuant to a Construction and Decoration
Agreement entered by the parties in May 2017. In July, 2019, the Baoji Court ordered Guoweimei to pay construction and decoration
costs of RMB55.07 million to Wanyuan, plus interest. As of March 31, 2020, Guoweimei has not repaid the amount. Guoweimei was one
of the subsidiaries transferred along with HeDengTang HK to New Continent International Co., Ltd. on February 27, 2020. The creditors
have no recourse to the current Company.
10. SUBSEQUENT EVENTS
On April 17, 2020, the Company entered
into the Eleventh Exchange Agreement (the “Eleventh Exchange Agreement”) with Iliad Research and Trading, L.P., a Utah
limited partnership (the “Lender”).
Pursuant to Eleventh Exchange Agreement,
the Company and Lender agreed to partition a new Secured Convertible Promissory Note in the original principal amount of $153,750
(the “Eleventh Partitioned Note”) from a Secured Convertible Promissory Note (the “Note”) issued by the
Company on March 26, 2019. The outstanding balance of the Note shall be reduced by an amount equal to the outstanding balance of
the Eleventh Partitioned Note. The Company and Lender further agreed to exchange the Eleventh Partitioned Note for the delivery
of 205,000 shares of the Company’s Common Stock, par value $0.001, according to the terms and conditions of the Eleventh
Exchange Agreement.
On April 23, 2020, Future FinTech
(Hong Kong) Limited registered GuangChengJi (Shanghai) Industrial Co. Ltd. (“Guangchengji”) with a registered
capital of $30 million in Shanghai, China, which needs to be paid before April 22, 2049 when the business license will
expire. The business scope of Guangchengji includes wholesaling of electronic components and equipment, metal materials,
petroleum products, import and export business, computer software development, information technology, technology consulting
and services, business management consulting and supply chain management. This operation has not started operating yet.
On June 10, 2020, the Company entered into
the Twelfth Exchange Agreement (the “Twelfth Exchange Agreement”) with the Lender.
Pursuant to the Twelfth Exchange Agreement,
the Company and Lender agreed to partition a new Secured Convertible Promissory Note in the original principal amount of $111,486
(the “Twelfth Partitioned Note”) from the Note issued by the Company on March 26, 2019. The outstanding balance of
the Note shall be reduced by an amount equal to the outstanding balance of the Partitioned Note. The Company and Lender further
agreed to exchange the Twelfth Partitioned Note for the delivery of 148,648 shares of the Company’s Common Stock, par value
$0.001, according to the terms and conditions of the Twelfth Exchange Agreement.