NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
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 started its trial operation in March 2020 and formally launched in July 2020; a blockchain-based
application incubator and technical service and support for real name and blockchain based assets and their operating entities
(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 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.
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.
On
July 22, 2020, the Company established Future Commercial Management (Beijing) Co., Ltd. Its scope of business includes management
and consulting services.
The
Company’s activities are principally conducted by its subsidiaries operating in the PRC.
2.
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 September 30, 2020 and the results of operations and cash flows for the periods ended September 30, 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 and nine months ended September 30, 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, which raised substantial doubts about its ability to
continue as a going concern. The Company 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.
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 nine months ended September 30, 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 will be effective on 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.
In
August 2020, the FASB issued Accounting Standards Update No. 2020-06 (ASU 2020-06) “Accounting for Convertible Instruments
and Contracts in an Entity’s Own Equity”, which simplifies the accounting for certain financial instruments with characteristics
of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. For public business
entities that are not smaller reporting companies, ASU 2020-6 effective fiscal years beginning after December 15, 2021, and interim
periods within those fiscal years. We are currently evaluating the effect of the adoption of ASU 2020-06 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.
LOAN RECEIVABLES
As of September 30, 2020, the balance of loan receivables was
from Shenzhen Tiantian Haodian Technology Co., Ltd. (“Tiantian Haodian”). On June 28, 2020, Guangchengji, a wholly
owned subsidiary of the Company, entered into a “Loan Agreement” with Tiantian Haodian. Pursuant to the Loan Agreement,
the Company agrees to lend cash up to but not greater than RMB35 million (approximately $5.14 million) with Tiantian Haodian at
the annual interest rate of 10% from June 28, 2020 to June 27, 2021. The interest is paid quarterly. There is no collateral or
guarantee provided by Tiantian Haodian. During the nine months ended September 30, 2020, the Company recorded an interest income
of $99,027 from the loan receivables, which was not paid by Tiantian Haodian as of the date of this report. Management of
the Company believes that the balance of the loan receivables is recoverable as of September 30, 2020.
5.
RELATED PARTY TRANSACTION
The
amount due to the related parties of September 30, 2020, which consisted of the followings:
|
|
Amount (US$)
|
|
|
Relationship
|
|
Note
|
Weicheng Pan
|
|
|
374,444
|
|
|
Legal representative of Guangchengji
|
|
Loan payable
|
Shanchun Huang
|
|
|
200,896
|
|
|
Chief Executive Officer of the Company
|
|
Loan payable
|
Kai Xu
|
|
|
16,689
|
|
|
Chief Operating Officer of the Company
|
|
Payable to employee
|
InUnion Chain Ltd. (“INU”)
|
|
|
300,116
|
|
|
The Company is the 10% equity shareholder of INU
|
|
Accounts payables
|
Zhi Yan
|
|
|
65,302
|
|
|
Chief Technology Officer of the Company
|
|
Loan payable
|
Jing chen
|
|
|
6,984
|
|
|
Chief Financial Officer of the Company
|
|
Payable to employee
|
Yongke Xue
|
|
|
230,352
|
|
|
Chairman of the Company
|
|
Loan payable
|
Shenzen TianShunDa Equity
Investment Fund Management Co., Ltd. (the “TSD”)
|
|
|
322,895
|
|
|
TSD holds 26.36% of the equity interest of SkyPoeple (China),
a former subsidiary of the Company, which was sold to New Continent International Co., Ltd. on February 27, 2020.
|
|
Accounts payables
|
Total
|
|
|
1,517,678
|
|
|
|
|
|
The
amount due from the related parties as of September 30, 2020, which consisted of the followings:
|
|
Amount (US$)
|
|
|
Relationship
|
|
Note
|
Wealth Index (Beijing)
Fund Management Co. Ltd.
|
|
|
14,683
|
|
|
The Company’s CEO is
the legal representative of this company
|
|
Interest free loan*
|
Shaanxi Chunlv Ecological
Agriculture Co., Ltd.
|
|
|
3,089,457
|
|
|
Holds 20.0% interest in Chain Cloud Mall
Logistics Center (Shaanxi) Co., Limited (CCM Logistics)
|
|
Including creditor’s rights of Shaanxi Youyi Co., Ltd of $3.24 million,
which is partially offset by $0.24 million payable to the Company
|
Shaanxi Fullmart Commercial
Holdings (Xi’an) Co., Ltd. (“Fullmart Commercial”)
|
|
|
23,935
|
|
|
Fullmart Commercial was 100% owned by Xiu
Jun Wang, the ex-wife of Yongke Xue, the Chairman of the Company.
|
|
Service fee due
|
Shaanxi Quangou Convenient
Island Co., Ltd.
|
|
|
24,663
|
|
|
Fullmart Commercial holds 33.33%
its equity
|
|
Interest free loan*
|
Zeyao Xue
|
|
|
17,732
|
|
|
Son of the Chairman of the Company and
a major shareholder of the Company of the Company
|
|
Interest free loan*
|
Total
|
|
|
3,170,470
|
|
|
|
|
|
*
|
The interest free loans and other related party transactions have been approved by the Company’s Audit Committee.
|
6.
INTANGIBLE ASSETS
On May 1, 2020, the Company launched CCM v3.0,
an on-line shopping mall platform, which creates a new value cycle system of online shopping malls with a real-name blockchain
system. After the launch of CCM v3.0, the Company reclassified this asset, which the Company prepaid to the software developer
in fiscal year 2019, into intangible assets in the second quarter of 2020, which will be amortized over 10 years.
Also included in the intangible assets
is accounting software. The accounting software will be amortized over 10 years. The amortization expense was $0.19 million and
$0.59 million for the nine months ended September 30, 2020.
The
following table sets intangible assets of the Company as of September 30, 2020 and December 31, 2019, respectively.
|
|
CCM
|
|
|
Accounting Software
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Cost
|
|
$
|
1,952,982
|
|
|
$
|
43,004
|
|
|
$
|
1,292
|
|
|
$
|
-
|
|
Less: Accumulated amortization
|
|
|
(85,046
|
)
|
|
|
(2,114
|
)
|
|
|
(43
|
)
|
|
|
-
|
|
Balance as of September 30, 2020
|
|
$
|
1,867,936
|
|
|
|
40,890
|
|
|
$
|
1,249
|
|
|
$
|
-
|
|
The
following table summarizes the expected amortization expense for the following years (in thousands):
|
|
|
Amortization
|
|
Year ending December 31,
|
|
|
to be
recognized
|
|
2020 (excluding the nine months ended September 30, 2020)
|
|
|
$
|
79
|
|
2021
|
|
|
|
315
|
|
2022
|
|
|
|
315
|
|
2023
|
|
|
|
315
|
|
2024
|
|
|
|
315
|
|
2025 and thereafter
|
|
|
|
530
|
|
Total
|
|
|
$
|
1,869
|
|
7.
LONG TERM INVESTMENT
On June 22, 2018, Digipay Fintech Limited (“Digipay”),
a wholly-owned subsidiary of the Company acquired 10% ownership interest in InUnion Chain Ltd. (“InUnion”) for an aggregate
purchase price of $15 million (“Purchase Price”), pursuant to a Shares Transfer and IUN Digital Assets Investment Agreement
signed with Lake Chenliu, who are the sole owner of InUnion. The Company issued 5 million of its Common Stock to the InUnion on
October 19, 2018 as the payment for Purchase Price.
Upon acquiring the InUnion Shares, Digipay
has access to, and the use of, certain software, technology and related intellectual property of InUnion without further payment.
Digipay also has the right to designate a director nominee to the board of directors of InUnion. The Company has appointed
a director to the Board of Director of InUnion. Pursuant to the agreement, Digipay shall also purchase 20,000,000 of the INU tokens
issued by InUnion (the “INU Tokens”) for an aggregate purchase price of $1,000,000, which such amount shall be paid
in immediately available funds within 180 days of the date of the agreement. Digipay has reached an agreement with InUnion to waive
the purchase of the INU Token. As a result, no INU Token was acquired by Digipay.
As
of December 31, 2019, management assessed the value of the above investment, and recorded an impairment loss of $2.75 million.
8.
SHARE BASED COMPENSATION
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 the Company Common Stock (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 nine months ended September 30, 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.
On May 13, 2019, the Company issued 500,000
of its Common Stock to two employees granted in December 2018 by the Compensation Committee of the Board pursuant to the Company’s
2017 Omnibus Equity Plan (the “Plan”). On June 5, 2019, the Company issued 150,000 shares of its Common Stock to three
employees granted in December 2018 by the Compensation Committee of the Board pursuant to the Plan.
On February 26, 2020, the Company’s
shareholders approved the 2019 Omnibus Equity Plan at a Special Meeting of shareholder, which 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, officers and directors of
up to 3,000,000 shares of Common Stock. The Company has not issued any stock under the 2019 Omnibus Equity Plan.
On October 27, 2020, the Company’s board
of directors approved the 2020 Omnibus Equity Plan, which 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, officers and directors of up to 5,000,000 shares of Common Stock. The 2020 Omnibus
Equity Plan is subject to the shareholders’ approval on the annual shareholders’ meeting, which will be held on December
18, 2020. The Company has not issued any stock under the 2020 Omnibus Equity Plan.
The Company did not grant any stock
options during the nine months ended September 30, 2020 and September 30, 2019.
9. OPERATING LEASE
In August 2020, the Company signed an operating
lease agreement for its office in Beijing. The Company recognized operating lease liabilities and operating lease right-of-use
assets on its balance sheets. Right of use assets represent the right to use an underlying asset for the lease term, and lease
liabilities represent the obligation to make lease payments arising from the lease. Right of use assets and liabilities are recognized
at the lease commencement date based on the estimated present value of lease payments over the lease term. The company has leases
with fixed payments for office rental in Beijing, which are classified as operating leases. Options to extend or renew are recognized
as part of the lease liabilities and recognized as right of use assets. There are no residual value guarantees and no restrictions
or covenants imposed by the leases.
The weighted average remaining lease term
is 2 years and the weighted average discount rate is 6%.
In the nine months ended September 30,
2020, the costs of the leases recognized in general administrative expenses are $13,000. Cash paid for the operating leases including
in the operating cash flows was $15,038.
Future minimum lease payments for leases
with initial or remaining noncancelable lease terms in excess of one year are as follows:
Year ending December 31, (In thousands of U.S. Dollars)
|
|
|
|
2020
|
|
$
|
32
|
|
2021
|
|
|
164
|
|
2022
|
|
|
109
|
|
|
|
$
|
305
|
|
10. CONVERTIBLE LOAN PAYABLE
On December 19, 2019, Company entered into
a Note Purchase Agreement with Iliad Research and Trading, L.P., a Utah limited partnership (“Iliad”), pursuant to
which the Company sold and issued to Iliad a Secured Promissory Note in the principal amount of $1.06 million. Iliad purchased
the Note with an original issue discount of $0.05 million, and the Company agreed to pay to Iliad $0.01 million for fees and costs
incurred by Iliad in connection with the consummation of the Purchase Agreement. The Note was sold to Iliad pursuant to an exemption
from registration under Regulation D, promulgated under the Securities Act of 1933, as amended. The Note is one-year term with
an interest rate of 8%. There was no fixed conversation price to the Company’s Common Stock in the agreement. Iliad has converted
all the Note Purchased in fiscal year 2019 to the Company’s Common Stock based on the market date on the conversion date.
The Company believes that this Note will also be converted into the Company’s Common Stock in future. The Company received
proceeds of $0.53 from Iliad on December 23, 2019, and the balance of $0.53 million on January 17, 2020.
On July 28, 2020, the Company, entered into
a Standstill Agreement with the Iliad. Pursuant to the Standstill Agreement, Iliad agreed to refrain and forbear temporarily from
making redemptions for the Note that was sold and issued by the Company on December 19, 2019 in the original principal amount of
$1.06 million. Iliad agreed not to redeem any portion of the Note (the “Standstill”) for a period beginning on the
date of the Agreement and ending on the date that is ninety (90) days from the date of the Agreement. As a material inducement
and partial consideration for Iliad’s agreement to enter into the Agreement, the Company agreed that the outstanding balance
of the Note shall be increased by nine percent (9%), or $0.10 million, on the date of the Agreement (the “Standstill Fee”).
The Company recorded the Standstill Fee of $0.10 million as interest expenses during the third quarter of 2020.
As of September 30, 2020, the balance of the
convertible note payable was $1.16 million.
Common stocks issued in connection with the convertible
notes
On January 6, 2020, the Company entered
into the Eighth Exchange Agreement (the “Eighth Exchange Agreement”) with Iliad. Pursuant to the Eighth Exchange Agreement,
the Company and Iliad 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 Iliad further agreed to exchange the Eighth Partitioned Note for the delivery of 193,333 shares of the Company’s
Common Stock, 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 Iliad. Pursuant to the Exchange Agreement,
the Company and Iliad 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 Iliad further
agreed to exchange the Partitioned Note for the delivery of 186,666 shares of the Company’s Common Stock, 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 Iliad. Pursuant to the Tenth Exchange Agreement,
the Company and Iliad 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 Iliad further agreed
to exchange the Partitioned Note for the delivery of 200,000 shares of the Company’s Common Stock, according to the terms
and conditions of the Exchange Agreement.
On April 17, 2020, the Company entered
into the Eleventh Exchange Agreement (the “Eleventh Exchange Agreement”) with Iliad. Pursuant to Eleventh Exchange
Agreement, the Company and Iliad 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 Iliad further agreed to exchange the Eleventh Partitioned Note for the delivery
of 205,000 shares of the Company’s Common Stock, according to the terms and conditions of the Eleventh Exchange Agreement.
On June 10, 2020, the Company entered into
the Twelfth Exchange Agreement (the “Twelfth Exchange Agreement”) with the Iliad. Pursuant to the Twelfth Exchange
Agreement, the Company and Iliad 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 Iliad
further agreed to exchange the Twelfth Partitioned Note for the delivery of 148,648 shares of the Company’s Common Stock,
according to the terms and conditions of the Twelfth Exchange Agreement.
11. COMMON STOCKS ISSUED
Debt Repayment Agreement
In July 2020, the Company entered a series
of loan agreements with fourteen individuals for a total amount of $4.96 million. On August 4, 2020, the Company entered into a
Debt Repayment Agreement with these individuals (the “Creditors”), pursuant to which the Company agreed to repay $4,961,000
debt owed to the Creditors in the form of shares of Common Stock of the Company for an aggregate of 2,740,883 shares at a price
of $1.81 per share (the “Debt Repayment”). As the closing price of the Company stock was $2.52 on August 4, 2020, the
Company recognized loss of $1.95 million in loss on debt settlement during the third quarter of 2020.
The Debt Repayment will be completed pursuant to the exemption from registration provided by Regulation S promulgated under the
Securities Act of 1933, as amended. The Company issued 2,740,883 shares of its Common Stock to the Creditors on August 12, 2020.
Securities Purchase Agreement
On June 16, 2020, the Company entered into
a Securities Purchase Agreement with Qun Xie, pursuant to which the Company agreed to sell to the Qun Xie in a private placement
500,000 shares of the Company’s Common Stock, purchase price of $1.00 per share for an aggregate offering price of $500,000. The Private Placement will be completed pursuant to the exemption from registration provided by Regulation S promulgated under
the Securities Act of 1933, as amended. On June 30, 2020, Qun Xie paid $500,000, and on August 7, 2020, the Company issued 500,000
Shares pursuant to this Agreement.
On September 16, 2020, the Company entered
into a Securities Purchase Agreement with Houwu Huang, pursuant to which the Company agreed to sell to Houwu Huang in a private
placement 224,599 shares of the Company’s common stock, at a purchase price of $1.87 per share for an aggregate offering
price of $420,000. The Private Placement will be completed pursuant to the exemption from registration provided by Regulation S
promulgated under the Securities Act of 1933, as amended. The Company issued 224,599 shares of its Common Stock to the Purchaser
on September 24, 2020.
12. DISCONTINUED OPERATIONS
The following table listed the total assets
and liabilities of the discontinued operation as of September 30, 2020 and December 31, 2019:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
|
Total
Assets
|
|
|
Total
Liabilities
|
|
|
Assets
|
|
|
Total
Liabilities
|
|
Hedetang Farm (1)
|
|
$
|
5,343,518
|
|
|
$
|
3,367,129
|
|
|
$
|
5,353,790
|
|
|
$
|
3,237,113
|
|
Zhonglian Hengxin (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,623
|
|
|
|
96,924
|
|
CCM Logistics (1)
|
|
|
-
|
|
|
|
146,841
|
|
|
|
-
|
|
|
|
-
|
|
Digital Online Marketing Limited (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
SkyPeople Foods Holding Ltd. (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
HeDeTang HK (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
92,772,786
|
|
|
|
196,261,748
|
|
Total
|
|
$
|
5,343,518
|
|
|
$
|
3,513,970
|
|
|
$
|
98,128,199
|
|
|
$
|
199,595,785
|
|
(1) On March 11, 2020, the Company’s
Board of Directors passed a resolution to sell the operation of Zhonglian Hengxin Assets Management Co., Ltd (“Zhonglian
Hengxin”) and close the operation of Digital Online Marketing Limited, and SkyPeople Foods Holding Ltd.
On July 24, 2020, the Company’s Board of Directors passed
a resolution to close the operation of Chain Cloud Mall Logistics Center (Shaanxi) Co., Limited (“CCM Logistics”),
a subsidiary located in the national kiwifruit Industrial Park of Baoji City and Hedetang Farm Products Trading Markets (Mei County)
Co., Ltd. (“Hedetang Farm”).
The Company has established a winding-down
plan to close these operations. Based on the restructuring plan and in accordance with ASC 205-20, the Company presented the operating
results from these operations. as a discontinued operation, as the Company believed that no continued cash flow would be generated
by these operations. and that the Company would have no significant continuing involvement in the discontinued entity.
In the second quarter of 2020, the Company
signed an Equity Transfer Agreement with Shaanxi Yinlian Huijin Asset Management Co. Ltd. to transfer 65% of the equity shares
of Zhonglian Hengxin at zero consideration. The net liabilities of Zhonglian Hengxin are $0.15 million. The Company recorded a
gain on sale of subsidiary of $0.15 million in the third quarter of 2020.
On
November 12, 2020, CCM Tianjin, a wholly owned subsidiary of the Company entered into an Equity Transfer Agreement with Xi’an
Yishengkang Information Technology, Ltd. (“Xi’an Yishengkang”), an unrelated third party, pursuant to which the
Company agreed to sell 90% of total issued and outstanding capital stock of Hedetang Farm that it owns to Xi’an Yishengkang
at RMB9,000 (approximately $1,324). On the same date, CCM Logistics entered
into another Equity Transfer Agreement with an individual and unrelated third party, Liyuan Ying, pursuant to which the Company
agreed to sell 10% of its shares of total issued and outstanding capital stock of Hedetang Farm that it owns to Liyuan Ying for
RMB1,000 (approximately $147).
(2) HeDeTang HK
On September 18, 2019, 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 and its 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.
13. VARIABLE INTEREST ENTITIES
On July 31, 2019, Chain Cloud Mall Network
and Technology (Tianjin) Co., Limited (“CCM Tianjin”), Chain Cloud Mall E-commerce (Tianjin) Co., Ltd., (“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, and 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, the Chairman of the Board of Directors of the Company.
Mr. Kai Xu is the Deputy General Manager of Future Commercial Management (Beijing) Co., Ltd.
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.
14. ACCRUED EXPENSES AND OTHER PAYABLES
The amount of accrued expenses and other
payables as of September 30, 2020 and December 31, 2019 consisted of the followings:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Acquisition of Intangibles
|
|
$
|
320,267
|
|
|
$
|
15,374
|
|
Legal fee and other professionals
|
|
|
364,924
|
|
|
|
361,279
|
|
Wages and employee reimbursement
|
|
|
321,350
|
|
|
|
452,389
|
|
Suppliers
|
|
|
254,702
|
|
|
|
350,992
|
|
Accrued interest
|
|
|
67,025
|
|
|
|
85,600
|
|
Accrued tax payable
|
|
|
58,073
|
|
|
|
77,064
|
|
Others
|
|
|
11,756
|
|
|
|
-
|
|
Total
|
|
$
|
1,398,097
|
|
|
$
|
1,342,698
|
|
15. LOAN PAYABLE
As of September 30, 2020, loan payable
were $0.86 million, which consisted of the loan payable of $0.17 million to Shaanxi Entai Bio-Technology Co., Ltd., loan payable
$5,870 to Shenzhen Wangjv Trading Co., Ltd. and loan payable of $0.68 million to some individuals creditor.
The loan from Shaanxi Entai Bio-Technology
Co., Ltd. of $0.17 million was an interest free loan and there is not assets pledged for this loan.
On June 15, 2020, the Company entered into
a loan agreement with Shenzhen Wangjv Trading Co., Ltd. Pursuant to the loan agreement, the Company borrowed $0.21 million from
Shenzhen Wangjv Trading Co., Ltd. at the annual interest rate of 8% for the use of working capital for a year. On July 6, 2020,
the Company returned $0.20 million to Shenzhen Wangjv Trading Co., Ltd.
During the third quarter of 2020, the Company
entered into a series of interest free loan agreements with some individual creditors,
borrowing $0.68 million for short-term working capital needs. The repayment term is one year from the borrowing date.
On October 27, 2020, the Company entered into
a series of Debt Repayment Agreements with some of the individual creditors, pursuant to which the Company agreed to repay $0.32
million debt owed to these individual creditors in the form of shares of Common Stock of the Company for an aggregate of 160,000
shares at a price of $2.00 per share (the “Debt Repayment”). As the closing price of the Company stock was $2.23 on
October 27, the Company recognized loss of $0.04 million in other expenses during the fourth quarter of 2020. The Debt Repayment
will be completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of
1933, as amended.
16. REVENUES
All of our revenues are generated in China. The following
table summarizes the Company's revenues disaggregated by revenue source (in thousands). The revenues are recognized as separate
performance obligations that are satisfied by transferring control of the product or service to the customer. There was no deferred
revenue.
|
|
Three Months Ended
|
|
|
Nine Months Ended *
|
|
|
|
September 30,
2020
|
|
|
September 30,
2019
|
|
|
September 30,
2020
|
|
|
September 30,
2019
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service fees
|
|
$
|
38,109
|
|
|
$
|
207,563
|
|
|
$
|
348,896
|
|
|
$
|
338,469
|
|
Sales of Goods
|
|
|
5,548
|
|
|
|
134,520
|
|
|
|
8,399
|
|
|
|
406,508
|
|
Total
|
|
$
|
43,657
|
|
|
$
|
342,083
|
|
|
$
|
357,295
|
|
|
$
|
744,977
|
|
|
*
|
Certain reclassifications have been made to the financial
statements for the period ended September 30, 2019 to conform to the presentation for the period ended September 30, 2020, with
no effect on previously reported net income (loss).
|
17. COMMITMENTS AND CONTINGENCIES
SEC Subpoena
On February 21, 2020, the Company received
a subpoena from the SEC’s Division of Enforcement requiring us to produce documents and detailed information relating to,
among other things, the Company’s accounting procedures, management oversight, and the sale of HeDeTang holdings (HK) Ltd.
to New Continent International Co., Ltd. The subpoena required the Company to produce all responsive documents created during,
or concerning, the period January 1, 2016 to the present, unless otherwise specified.
The Company is cooperating with the SEC’s
investigation and has provided responsive documents and information requested in the subpoena. In the event the Company locates
additional responsive documents, we expect to produce them promptly to the SEC. We will also make officers or other employees available
to be interviewed by the SEC with regard to the subject matters identified in the subpoena.
The Company is unable to predict, what
action, if any, might be taken in the future by the SEC or any other governmental authority as a result of the subpoenas. There
can be no assurance that the SEC will not commence an enforcement action against us or members of our management, or as to the
ultimate resolution of any enforcement action that the SEC may decide to bring. Under applicable law, the SEC has the ability to
impose significant sanctions on companies and individuals who are found to have violated the provisions of applicable federal securities
laws, including cease and desist orders, civil money penalties, and barring individuals from serving as directors or officers of
public companies. We have expended significant financial and managerial resources responding to the SEC subpoena. Defending any
enforcement action brought by the SEC against us would involve further significant expenditures and the resolution of any such
enforcement action could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Entry into a material Definitive Agreement
On July 13, 2020,
the Company and Future FinTech (Hong Kong) Limited, a wholly owned subsidiary of the Company entered into a Share Exchange Agreement
with Nice Talent Asset Management Limited, a limited company organized under the laws of Hong Kong (“Nice”), which
is licensed under the Security and Futures Commission of Hong Kong for assets management, and Joy Rich Enterprises Limited, a limited
company organized under the laws of Hong Kong and 90% shareholder of Nice (“Joy Rich”), pursuant to which the Company
agreed to acquire 90% of the issued and outstanding ordinary shares of Nice (the “Nice Shares”) from Joy Rich in exchange
for the Company’s Common Stock.
Pursuant to the terms of the Share Exchange
Agreement, the parties agreed: (i) the aggregate purchase price for Nice Shares shall be HK$54 million (approximately $6.97 million,
the “Purchase Price”) and it shall be paid in the Company’s Common Stock; (ii) 40% of the Purchase Price HK$21.6
million (approximately $2.79 million) shall be paid in the shares of common stock of the Company based on the average closing price
of the Company’s Common Stock listed on Nasdaq Stock Exchange for the ten (10) trading days prior to the date of the Agreement
and the foreign exchange rate between HK$ and US$ shall be the rate published by Bloomberg on the date of the Agreement; (iii)
30% of Purchase Price shall be paid in the Company Common Stock (the “2020 Earn-Out Shares”) if Nice meets certain
earnings goal for 2020 (the “2020 Earnings Goal”); (iv) the 2020 Earn-Out Shares shall be issued based upon the average
closing price of the Company’s Common Stock listed on Nasdaq Stock Exchange for the ten (10) trading days prior to December
31, 2020 and the exchange rate between HK$ and US$ shall be the rate published by Bloomberg on December 31, 2020; (v) additional
30% of Purchase Price shall be paid in the shares of common stock the Company (the “2021 Earn-Out Shares”) if Nice
meets certain earnings goal for 2021 (the “2021 Earnings Goal”); (vi) the 2021 Earn-Out Shares shall be issued based
upon the average closing price of the Company’s Common Stock listed on Nasdaq Stock Exchange for the ten (10) trading days
prior to December 31, 2021 and the exchange rate between HK$ and US$ shall be the rate published by Bloomberg on December 31, 2021;
(vii) if Nice does not achieve its earnings goal for a given year, the parties agree to have forbearance clause that the amount
of such year’s earn-out shares shall not be reduced for that year if Nice achieves at least sixty percent (60%) of its given
year earnings goal and if Nice achieves lower than 60% earnings goal for a given year, the amount of such year’s earn-out
shares shall be reduced to zero. The Company Shares will be issued pursuant to the exemption from registration provided by Regulation
S promulgated under the Securities Act of 1933, as amended.
This transaction is subject to the approval
of the Security and Futures Commission of Hong Kong. As of the date of this report, the transaction is still pending.
Litigation
Legal case with Zhongcai
Hedetang
Market, a subsidiary of CCM Tianjin, entered into a loan agreement with Shaanxi Zhongcai Pawn Co., Ltd. ("Zhongcai")
in February 2015. Pursuant to the loan agreement, Hedetang Market borrowed $1.84 million from Zhongcai at the monthly interest
rate of 0.4%. Hedetang Market provided its land use right as a pledge for the loan. Hedetang Market did not return the principal
and interest on time pursuant to the loan agreement. Zhongcai filed an enforcement request with Xi’an Intermediate People’s
Court in July 2015. In August 2017, Xi’an Intermediate People’s Court issued a verdict to seize the pledged land use
rights of Hedetang Market for auction. As of the date of this report, the auction sale was not successful. The Company recorded
the unpaid amount of $1.84 million as loan payable.
Legal case with Shaanxi Zhongkun Construction
Co., Ltd.
In May 2015, Hedetang Market 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 Market 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 Market 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 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 Market (Hedetang Market 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 September 30, 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 September 30, 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.
Certain pending legal cases that we previously
disclosed are related to the subsidiaries of HeDengTang HK, which was sold to New Continent International Co., Ltd. on February
27, 2020. Accordingly, the Company is no longer a party to these legal cases.
18. RISKS AND UNCERTAINTIES
Impact of COVID 19
In December 2019, a novel strain of coronavirus
was reported to have surfaced in Wuhan, China, the pandemic quickly spread to many provinces, autonomous regions, and cities all
over the China and other parts of the world. Substantially all of our revenues are generated in China. The Company’s results
of operations have been materially negatively affected by the outbreak of COVID-19 in China, especially during the first half of
2020. In early 2020, Chinese government took emergency measures to combat the spread of the virus, including quarantines, travel
restrictions, and the temporary closure of office buildings and facilities in China, which has materially adversely affected the
Company’s business and services and results of operations. Our suppliers have negatively been affected, and could continue
to be negatively affected in their ability to supply and ship products to our customers by any further outbreak or resurgence of
COVID-19 in China. Our customers that are negatively impacted by the outbreak of COVID-19 may reduce their budgets to purchase
products and services from us, which may materially adversely impact our revenue. The business operations of the third parties’
stores on our platform have been and could continue to be negatively impacted by any further outbreak or resurgence of COVID-19,
which may negatively impact their operations and business, which may in turn adversely affect the business of our platform as a
whole as well as our financial condition and operating results. Some of our customers, contractors, suppliers and other business
partners are small and medium-sized enterprises (SMEs), which may not have strong cash flows or be well capitalized, and may be
vulnerable to an epidemic outbreak and slowing macroeconomic conditions. Further, as we do not have access to a revolving credit
facility, there can be no assurance that we would be able to secure commercial debt financing in the future in the event that we
require additional capital.
The Company’s promotion strategy
of the CCM Shopping Mall previously mainly relied on the training of members and distributors through meetings and conferences
before the outbreak. Although China has already begun to recover from the outbreak of COVID-19, the Chinese government still put
a restriction on large gatherings. These restrictions made the promotion strategy for CCM Shopping Mall difficult to implement.
Consequently, our results of operations have
been materially adversely affected. Any potential impact to our results will depend on, to a large extent, future developments
and new information that may emerge regarding the duration and severity of the COVID-19 and the actions taken by government authorities
and other entities to contain the COVID-19 or treat its impact, almost all of which are beyond our control.
PRC Regulations
We conduct substantially all of our operations
and generate most of our revenue in the PRC. Accordingly, economic, political and legal developments in the PRC will significantly
affect our business, financial condition, results of operations and prospects. The PRC economy is in transition from a planned
economy to a market oriented economy subject to plans adopted by the government that set national economic development goals. Policies
of the PRC government can have significant effects on economic conditions in the PRC.
Currency risks
A majority of the Company’s operating
transactions are denominated in RMB and a significant portion of the Company’s assets and liabilities is denominated in RMB.
RMB is not freely convertible into foreign currencies. The value of the RMB is subject to changes in the central government policies
and to international economic and political developments. In the PRC, certain foreign exchange transactions are required by laws
to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”).
Remittances in currencies other than RMB by the Company in China must be processed through PBOC or other China foreign exchange
regulatory bodies which require certain supporting documentation in order to complete the remittance.
19. SUBSEQUENT EVENTS
On November 2, 2020, the Company entered
into a Securities Purchase Agreement with certain investors pursuant to which the Company agreed to sell to these investors in
a private placement 167,034 shares of the Company’s common stock, at a purchase price of $1.87 per share for an aggregate
offering price of $312,352. This private placement will be completed pursuant to the exemption from registration provided by Regulation
S promulgated under the Securities Act of 1933, as amended.