You are cordially invited
to attend the 2017 Annual Meeting of Shareholders of Future FinTech Group Inc., a Florida corporation (the “Company”
or “Future FinTech”), which will be held at our principal executive offices, located at 16F, China Development Bank
Tower, No.2, Gaoxin 1st Road, Xi’an, Shaanxi, China, on Monday, December 18, 2017 at 10:00 A.M., local time.
The Notice of Annual
Meeting of Shareholders and Proxy Statement describe the formal business to be transacted at the annual meeting. Our directors
and officers will be present to respond to appropriate questions from shareholders.
Shareholders
may attend the annual meeting in person or telephonically by dialing 1-866-395-5819 toll-free within the United States, 10-400
682 8609 toll-free within China, or 1-706-643-6986 outside the United States and China (toll charged). Shareholders attending
telephonically should ask for the “Future FinTech Group Inc. 2017 Annual Meeting of Shareholders / Conference ID
9198969
”.
However, a shareholder must complete the attached proxy card or be present in person to vote at the meeting. Shareholders
that participate in the meeting via teleconference will be on listen only mode and will not be able to ask questions or vote their
shares using the teleconference line. If you anticipate participating in the annual meeting via teleconference and have
questions, please provide such questions in advance to the Company’s external investor relations representative at
david.rudnick@preceptir.com or 646-694-8538 and the Board will address them during the meeting.
Whether or not you plan
to attend the meeting, please vote as soon as possible. You can vote by returning the proxy card in the enclosed postage-prepaid
envelope. This will ensure that your shares will be represented and voted at the meeting, even if you do not attend. If you attend
the meeting, you may revoke your proxy and personally cast your vote. Attendance at the meeting does not of itself revoke your
proxy.
No. 2 Gaoxin 1st Road
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held Monday, December 18, 2017
NOTICE IS HEREBY GIVEN that the Annual
Meeting of Shareholders of Future FinTech Group Inc., a Florida corporation (the “Company” or “Future FinTech”),
will be held at our principal executive offices, located at 16F, China Development Bank Tower, No.2, Gaoxin 1st Road, Xi’an,
Shaanxi, China, on Monday, December 18, 2017 at 10:00 A.M., local time, for the following purposes, as set forth in the attached
Proxy Statement:
(1)
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To elect five directors to hold office until the next Annual Meeting of Shareholders and until their successors are elected and qualified;
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(2)
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To ratify the Audit Committee’s selection of the independent registered public accounting firm for the fiscal year ending December 31, 2017;
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(3)
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To approve the spin-off of the Company’s wholly-owned subsidiaries, SkyPeople Foods Holdings Limited (BVI) (“SkyPeople BVI”) and FullMart Holdings Limited (BVI) (“FullMart”), through a pro rata distribution of the ordinary shares of each of SkyPeople BVI and FullMart to holders of the Company’s common stock at the close of business on October 31, 2017, the record date (the “Spin-Offs”);
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(4)
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To approve an amendment to the Second Amended and Restated Articles of Incorporation of Future FinTech, which would increase the amount of authorized shares of common stock, par value $0.001 per share, of Future FinTech from 8,333,333 to 60,000,000 (the “Amendment”);
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(5)
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To adopt and approve the Future FinTech Group Inc. 2017 Omnibus Equity Plan; and
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(6)
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To transact such other business as may properly come before the meeting or any adjournment thereof.
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The Board of Directors of the Company (the
“Board of Directors” or the “Board”) and the Company’s management has fixed the close of business
on October 31, 2017 as the record date for determining the shareholders entitled to notice of, and to vote at, the Annual Meeting
and any adjournment and postponements thereof (the “Record Date”).
After careful consideration, the Board
of Directors recommends a vote IN FAVOR OF the nominees for director named in the accompanying proxy statement, a vote IN FAVOR
OF the ratification of the Audit Committee’s selection of the independent registered public accounting firm, a vote IN FAVOR
OF the Spin-Offs, a vote IN FAVOR OF the Amendment, and a vote IN FAVOR OF the adoption of the Future FinTech Group Inc. 2017 Omnibus
Equity Plan.
Shareholders are
cordially invited to attend the Annual Meeting in person. Whether you plan to attend the Annual Meeting or not, please complete,
sign and date the enclosed Proxy Card and return it without delay in the enclosed postage-prepaid envelope. If you do attend the
Annual Meeting, you may withdraw your proxy and vote personally on each matter brought before the meeting.
YOUR VOTE IS VERY
IMPORTANT.
By Order of the Board of Directors
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/s/
Hongke Xue
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Hongke Xue
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Chief Executive Officer
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October •, 2017
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Xi’an, China
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YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE
ANNUAL MEETING IN PERSON, WE ENCOURAGE YOU TO SUBMIT YOUR PROXY AS PROMPTLY AS POSSIBLE BY MARKING, SIGNING AND DATING THE ENCLOSED
PROXY CARD AND RETURNING IT IN THE POSTAGE-PAID ENVELOPE PROVIDED. You may revoke your proxy or change your vote at any time before
the Annual Meeting. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the
voting instruction card furnished to you by such bank, broker or other nominee, which is considered the shareholder of record,
in order to vote. As a beneficial owner, you have the right to direct your broker or other agent on how to vote the shares in your
account. Your broker or other agent cannot vote on the Spin-Offs and other discretionary matters without your instructions.
If you are a shareholder of record and
fail to return your proxy card to us or vote by ballot in person at the Annual Meeting, your shares will not be counted for purposes
of determining whether a quorum is present at the Annual Meeting. If you are a shareholder of record, voting in person by ballot
at the Annual Meeting will revoke any proxy that you previously submitted. If you hold your shares through a bank, broker or other
nominee, you must obtain from the record holder a valid “legal” proxy issued in your name in order to vote in person
at the Annual Meeting.
We encourage you to read the accompanying
proxy statement carefully and in its entirety, as well as the documents we file from time to time with the Securities and Exchange
Commission, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. If you have any questions concerning
any of the proposals to be voted upon at the Annual Meeting or the accompanying proxy statement, would like additional copies of
the accompanying proxy statement or need help voting your shares of common stock, please contact the Company’s Corporate
Secretary at 16F, China Development Bank Tower, No.2, Gaoxin 1st Road, Xi’an, Shaanxi, China, 710075, or call 86-29-81878827.
Thank you for your participation. We
look forward to your continued support.
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By Order of the Board of Directors,
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Future FinTech Group Inc.
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Date:
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October •, 2017
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By:
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/s/ Hongke Xue
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Name:
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Hongke Xue
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Title:
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Chief Executive Officer
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TABLE OF CONTENTS
ANNEXES
Annex A
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Future FinTech Group Inc. 2017 Omnibus Equity Plan
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Annex B
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Articles of Amendment to Second Amended and Restated Articles of Incorporation of Future FinTech Group, Inc.
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EXHIBITS
Exhibit 1
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Memorandum and Articles
of Association of FullMart Holdings Limited, dated December 28, 2011
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Exhibit 2
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Memorandum and Articles of Association of SkyPeople Foods Holdings Limited, dated December 28, 2011
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QUESTIONS AND
ANSWERS ABOUT THE PROPOSALS
The following
are answers to some questions that you, as a shareholder of Future FinTech, may have regarding the Spin-Offs, the Amendment and
the other matters being considered at the Annual Meeting. We urge you to read carefully the remainder of this proxy statement because
the information in this section does not provide all the information that might be important to you with respect to the Spin-Offs,
the Amendment and the other matters being considered at the Annual Meeting. Additional important information is also contained
in the annexes to and the documents incorporated by reference into this proxy statement.
Q:
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Why am I receiving this proxy statement?
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A:
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The board of directors of Future FinTech is soliciting your proxy to vote at the Annual Meeting because you owned shares of Future FinTech common stock at the close of business on October 31, 2017, the “
Record Date
” for the Annual Meeting, and are therefore entitled to vote at the Annual Meeting. This proxy statement, along with a proxy card or a voting instruction card, is being mailed to shareholders on or about November •, 2017. Future FinTech has made these materials available to you on the Internet, and Future FinTech has delivered printed proxy materials to you or sent them to you by e-mail. This proxy statement summarizes the information that you need to know in order to cast your vote at the Annual Meeting. You do not need to attend the Annual Meeting in person to vote your shares of Future FinTech common stock.
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Q:
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When and where will the Annual Meeting be held?
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A:
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The Annual Meeting will be held at 10:00 a.m., local time, on Monday, December 18, 2017, at the Company’s offices at 16F, China Development Bank Tower, No.2, Gaoxin 1st Road, Xi’an, Shaanxi, China, 710075.
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Q:
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On what matters will I be voting?
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A:
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Future FinTech’s shareholders are being asked to consider and vote upon the following proposals:
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(1)
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To elect five directors to hold office until the next
Annual Meeting of Shareholders and until their successors are elected and qualified;
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(2)
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To ratify the Audit Committee’s selection of the independent registered public accounting firm for the fiscal year ending
December 31, 2017;
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(3)
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To approve the spin-off of the Company’s wholly-owned subsidiaries, SkyPeople Foods Holdings Limited (BVI) (“SkyPeople
BVI”) and FullMart Holdings Limited (BVI) (“FullMart”), through a pro rata distribution of the ordinary shares
of each SkyPeople BVI and FullMart to holders of the Company’s common stock at the close of business on October 31, 2017,
the record date (the “SkyPeople BVI Spin-Off”);
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(4)
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To approve an amendment to the Second Amended and Restated Articles of Incorporation of Future FinTech, which would increase the
amount of authorized shares of common stock, par value $0.001 per share, of Future FinTech from 8,333,333 to 60,000,000;
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(5)
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To adopt and approve the Future FinTech Group Inc. 2017 Omnibus Equity Plan; and
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(6)
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To transact such other business as may properly come before the meeting or any adjournment thereof.
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Future FinTech’s shareholders
may also be asked to consider and vote upon a proposal to adjourn the meeting to a later date or dates to permit further solicitation
and vote of proxies if, based upon the tabulated vote at the time of the Annual Meeting, Future FinTech would not have been authorized
to consummate the Spin-Offs. Future FinTech will hold the Annual Meeting to consider and vote upon these proposals. This proxy
statement contains important information about matters to be acted upon at the Annual Meeting. Shareholders should read it carefully.
The vote of shareholders is important.
In order to complete the Spin-Offs,
Future FinTech shareholders must vote to approve the Spin-Offs, and all other requirements of the Company to complete the Spin-Offs
must be fulfilled.
Q:
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Why is Future FinTech proposing the Spin-Offs?
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A:
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Our Board is submitting the Spin-Offs to our shareholders for approval with the intent of restructuring the Company so that the Company’s management can better focus on the Company’s new business lines and growth strategies and so that SkyPeople BVI, FullMart and the Company can each access capital resources that are focused on their respective industries, operational needs and growth strategies. Additionally, our Board believes that the Spin-Offs will allow Future FinTech’s results of operations to not be as negatively affected by the adverse market conditions currently being experienced by the heavy asset and manufacturing operations of SkyPeople BVI and FullMart in China. However, there is no assurance of the growth of any of the future operations of the Company, SkyPeople BVI or FullMart, or that SkyPeople BVI or FullMart will operate their respective businesses in a manner substantially similar to the current operations of the Company.
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Q:
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What will Future FinTech shareholders receive if the Spin-Offs are completed?
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A:
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If the Spin-Offs are completed, each Future FinTech shareholder will be entitled to receive a pro rata
distribution of the ordinary shares of SkyPeople BVI and FullMart’s ordinary stock for each share of Future FinTech common
stock they hold as of the Record Date, October 31, 2017.
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Q:
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What happens if I buy my shares after the Record Date?
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A:
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Purchasers of Future FinTech common stock after the Record Date will not be entitled to receive ordinary shares of SkyPeople BVI or FullMart upon the completion of the Spin-Offs.
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Q:
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What happens if I sell my shares after the Record Date, but before the Annual Meeting?
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A:
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The Record Date is earlier than the date of the Annual Meeting. If you transfer your shares of the Company after the Record Date but before the Annual Meeting, you will retain your right to vote at the Annual Meeting, but will transfer ownership of the shares and will not hold an interest in the Company in respect of such shares after the Spin-Offs are completed. However, you will still be entitled to receive the distribution of the ordinary shares of SkyPeople BVI and FullMart upon the completion of the Spin-Offs.
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Q:
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Are there risks associated with the Spin-Offs that I should consider in deciding how to vote?
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A:
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Yes. There are a number of risks related to the Spin-Offs, that are discussed in this proxy statement. Please read with particular care the detailed description of the risks described in “Risk Factors” beginning on page 15 of this proxy statement.
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Q.
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What happens if the Spin-Offs are not approved?
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A.
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If the Spin-Offs are not approved, neither of the Spin-Offs will be consummated and the subsidiaries subject to the rejected Spin-Offs will remain wholly-owned subsidiaries of Future FinTech.
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Q:
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How does Future FinTech’s board of directors recommend that I vote on the proposals to be voted upon at the Annual Meeting?
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A:
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The Future FinTech board of directors recommends that Future FinTech shareholders vote or give instruction to vote:
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“
FOR
” the nominees for director named in this proxy statement;
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“
FOR
” the ratification of the Audit Committee’s selection of the independent registered public accounting firm;
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“
FOR
” the SkyPeople BVI and FullMart spin-off proposal;
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“
FOR
” the amendment to Future FinTech’s Second Amended and Restated Articles of Incorporation to increase Future FinTech’s authorized shares of common stock from 8,333,333 to 60,000,000; and
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“
FOR
” the adoption of the Future FinTech Group Inc. 2017 Omnibus Equity Plan.
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You should read “The Spin-Offs
— Recommendation of Future FinTech’s Board of Directors and Reasons for the Spin-Offs” beginning on page 39
for a discussion of the factors that our board of directors considered in deciding to recommend the approval of the spin-off proposal.
Q:
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Do persons involved in the Spin-Offs have interests that may conflict with those as a Future FinTech shareholder generally?
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A:
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In considering the recommendation of the Future FinTech
board of directors to approve the Spin-Offs, Future FinTech shareholders should be aware that certain Future FinTech
executive officers and directors may be deemed to have interests in the Spin-Offs that are different from, or in addition to,
those of Future FinTech shareholders generally. These interests, which may create actual or potential conflicts of interest,
are, to the extent material, described in the section entitled “Interests of Future FinTech’s Directors and
Officers in the Spin-Offs” beginning on page 41.
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A:
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After you have carefully read this proxy statement and have decided how you wish to vote your shares of Future FinTech common stock, please vote your shares promptly.
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Shareholders of Record
If your
shares of Future FinTech common stock are registered directly in your name with Future FinTech’s transfer agent, Continental
Stock Transfer & Trust Company, you are the shareholder of record of those shares and these proxy materials have been mailed
to you by the Company. You may vote your shares by mail or in person at the Annual Meeting. Your vote authorizes Hongke Xue, Chief
Executive Officer of the Company, and Hanjun Zhang, Chief Financial Officer of the Company, as your proxy, with the power to appoint
his substitute, to represent and vote your shares as you directed.
Beneficial Owners
If your
shares of Future FinTech common stock are held in a stock brokerage account, by a bank, broker or other nominee, you are considered
the beneficial owner of shares held in street name and these proxy materials are being forwarded to you by your bank, broker or
nominee that is considered the holder of record of those shares. As the beneficial owner, you have the right to direct your bank,
broker, trustee or nominee on how to vote your shares signing and returning a proxy card. Your bank, broker, trustee or nominee
will send you instructions for voting your shares. Please note that you may not vote shares held in street name by returning a
proxy card directly to Future FinTech or by voting in person at the Annual Meeting unless you provide a “legal proxy,”
which you must obtain from your broker, bank or nominee. Further, brokers, banks and nominees who hold shares of Future FinTech
common stock on your behalf may not give a proxy to Future FinTech to vote those shares without specific instructions from you.
For a
discussion of the rules regarding the voting of shares held by beneficial owners, please see the question below entitled “If
I am a beneficial owner of shares of Future FinTech common stock, what happens if I don’t provide voting instructions? What
is discretionary voting?”
Q:
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What vote is required to approve each proposal?
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A:
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The nominees for election as directors at the Annual Meeting will be elected by a plurality of the votes cast at the meeting.
This means that the director nominee with the most votes for a particular slot is elected for that slot. Votes withheld from one
or more director nominees will have no effect on the election of any director from whom votes are withheld. The approval of each
of the other proposals requires the affirmative vote of a majority of the shares represented at the meeting and entitled to vote
on that proposal.
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Q:
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How many votes do I and others have?
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A:
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You are entitled to one vote for each share of Future FinTech common stock that you held as of the Record Date. As of the close
of business on the Record Date, there were • outstanding shares of Future FinTech common stock.
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Q:
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How will our directors and executive officers vote on the proposals at the Annual Meeting?
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A:
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As of the Record Date, the directors and executive officers of Future FinTech as a group owned and were entitled to vote •
shares of the common stock of the Company, representing approximately • % of the outstanding shares of Future FinTech common
stock on that date. Future FinTech expects that its directors and executive officers will vote their shares in favor of the each
of the proposals to be presented at the Annual Meeting, but none of the Company’s directors or executive officers has entered
into any agreement obligating any of them to do so.
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Q:
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How many shares must be present to hold the Annual Meeting?
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A:
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A majority of the shares of our common stock issued and outstanding and entitled to vote must be represented in person or by proxy
at the meeting to establish a quorum. Both abstentions and broker non-votes (discussed further below) are counted as present for
determining the presence of a quorum. Broker non-votes, however, are not counted as shares present and entitled to be voted with
respect to the matter on which the broker has not voted. Thus, broker non-votes will not affect the outcome of any of the matters
to be voted on at the Annual Meeting. Generally, broker non-votes occur when shares held by a broker for a beneficial owner are
not voted with respect to a particular proposal because (1) the broker has not received voting instructions from the beneficial
owner and (2) the broker lacks discretionary voting power to vote such shares.
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Q:
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If I am a beneficial owner of shares of Future FinTech common stock, what happens if I don’t provide voting instructions?
What is discretionary voting?
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A:
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If you are a beneficial owner and do not provide the shareholder of record with voting instructions, your shares may constitute
“broker non-votes.” A “broker non-vote” occurs when a bank, broker or other holder of record holding shares
for a beneficial owner does not vote on a particular proposal because that holder does not have discretionary voting power and
has not received instructions from the beneficial owner.
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Under applicable regulations, if a broker
holds shares on your behalf, and you do not instruct your broker how to vote those shares on a matter considered “routine,”
the broker may generally vote your shares for you. A “broker non-vote” occurs when a broker has not received voting
instructions from you on a “non-routine” matter, in which case the broker does not have authority to vote your shares
with respect to such matter. Unless you provide voting instructions to a broker holding shares on your behalf, your broker may
no longer use discretionary authority to vote your shares on any of the matters to be considered at the Annual Meeting other than
the ratification of our independent registered public accounting firm. Please vote your proxy so your vote can be counted.
Q:
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What will happen if I return my proxy card without indicating how to vote?
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A:
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If you sign and return your proxy card without indicating how to vote on any particular proposal, the Future FinTech common stock
represented by your proxy will be voted in favor of each such proposal. Proxy cards that are returned without a signature will
not be counted as present at the Annual Meeting and cannot be voted.
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Q:
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Can I change my vote after I have returned a proxy or voting instruction card?
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A:
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Yes. You can change your vote at any time before your proxy is voted at the Annual Meeting. You can do this in one of four ways:
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you can grant a new, valid proxy bearing a later date;
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you can send a signed notice of revocation;
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if you are a holder of record, you can attend the Annual Meeting and vote in person, which will automatically cancel any proxy previously given, or you may revoke your proxy in person, but your attendance alone will not revoke any proxy that you have previously given; or
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if your shares of Future FinTech common stock are held in an account with a broker, bank or other nominee, you must follow the instructions on the voting instruction card you received in order to change or revoke your instructions.
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If you choose
either of the first two methods, you must submit your notice of revocation or your new proxy to the Corporate Secretary of Future
FinTech, as specified in this proxy statement, no later than the beginning of the Annual Meeting. If your shares are held in street
name by your broker, bank or nominee, you should contact them to change your vote.
Q:
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Do I need identification to attend the Annual Meeting in person?
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A:
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Yes. Please bring proper identification, together with proof that you are a record owner of shares of Future FinTech common stock.
If your shares are held in street name, please bring acceptable proof of ownership, such as a letter from your broker or an account
statement stating or showing that you beneficially owned shares of Future FinTech common stock on the record date. Acceptable
proof of ownership is either (a) a letter from your broker stating that you beneficially owned Future FinTech stock on the Record
Date or (b) an account statement showing that you beneficially owned Future FinTech stock on the Record Date.
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Q:
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Are Future FinTech shareholders entitled to appraisal rights?
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A:
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No. Future FinTech shareholders do not have appraisal rights in connection with the Spin-Offs under the Florida Business Corporation
Act.
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Q:
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What do I do if I receive more than one set of voting materials?
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A:
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You may receive more than one set of voting materials for the Annual Meeting, including multiple copies of this proxy statement,
proxy cards and/or voting instruction forms. This can occur if you hold your shares of common stock in more than one brokerage
account, if you hold shares directly as a record holder and also in street name, or otherwise through a nominee, and in certain
other circumstances. If you receive more than one set of voting materials, each should be voted and/or returned separately in
order to ensure that all of your shares of common stock are voted.
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Q:
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If I am a Future FinTech shareholder, should I send in my Future FinTech stock certificates with my proxy card?
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A:
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No. Please DO NOT send your Future FinTech stock certificates with your proxy card.
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After each of the Spin-Offs is completed,
the transfer agent of SkyPeople BVI and FullMart will send you a letter of transmittal and, when applicable, your shares of SkyPeople
BVI and FullMart
Q:
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Do you expect the Spin-Off to be taxable to Future FinTech shareholders?
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A:
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Yes. The receipt of each of SkyPeople BVI and FullMart’s
ordinary shares as a result of the Spin-Offs will be a fully taxable transaction. Please review carefully the information under
“United States Federal Income Tax Consequences of the Spin-Offs” beginning on page 42 for a description of the material
U.S. federal tax consequences of the Spin-Offs. The tax consequences to you will depend on your own situation. Please consult
your tax advisors as to the specific tax consequences to you of the Spin-Offs, including the applicability and effect of U.S.
federal, state, local and foreign income and other tax laws in light of your particular circumstances.
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Q:
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When do you expect the Spin-Offs to be completed?
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A:
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We are working to complete the Spin-Offs as quickly as possible, and we expect to complete all transactions in the first quarter of 2018. However, Future FinTech cannot assure you when or if either of the Spin-Offs will occur. The Spin-Offs are subject to shareholder approvals and other conditions, and it is possible that factors outside the control of Future FinTech could result in the Spin-Offs being completed at a later time, or not at all. There may be a substantial amount of time between the Annual Meeting and the completion of the Spin-Offs.
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Q:
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Whom should I call with questions about the Annual Meeting, the Spin-Off or any of the other proposals to be presented at the Annual Meeting?
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A:
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Future FinTech shareholders should call the Corporate Secretary at 86-29-81878827 with any questions.
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Q:
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What will the business of each of the spun-off companies be if the Spin-Offs are consummated?
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A:
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Following the completion of the Spin-Offs, SkyPeople BVI and its subsidiaries will continue to engage in the manufacture and sale of fruit juice concentrates, fruit juice beverages and other fruit-related products in the People’s Republic of China and overseas markets. FullMart and its subsidiaries will continue to engage in the manufacture and sale of consumer food products.
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Q:
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What will the management of each of Future FinTech, SkyPeople BVI and FullMart be if the Spin-Offs are consummated?
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A:
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The officers and
directors of Future FinTech will not be affected by the completion or non-completion of the Spin-Offs. Following the completion
of the Spin-Offs, Mr. Yongke Xue will continue to be the sole director of SkyPeople BVI, and Mr. Fei Zhu will continue to be the
sole director of FullMart.
See “Officers and Directors of SkyPeople
BVI and FullMart Following the Spin-Offs” for more information.
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Q:
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What material negative factors did the Board of Future FinTech consider in connection with the Spin-Offs?
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A:
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By and large the Board of Future
FinTech does not view the Spin-Offs as negative. Upon deliberation, the Board determined that the potential positive value of
the successful completion of each of the Spin-Offs distinctly outweigh any negative factor. If the Spin-Offs are not approved
by Future FinTech shareholders or if either of the Spin-Offs is not completed for any other reason, Future FinTech shareholders
will not receive any distribution of the ordinary shares of SkyPeople BVI or FullMart, as applicable. Whether or not the Spin-Offs
are completed, Future FinTech will remain an independent public company, its common stock will continue to be listed and traded
on the NASDAQ Global Market, if eligible, and registered under the Exchange Act, and Future FinTech will continue to file periodic
reports with the SEC. In addition, if the Spin-Offs are not completed, Future FinTech expects that management will operate the
business in a manner similar to that in which it is being operated today and that Future FinTech’s shareholders will continue
to be subject to the same risks and opportunities to which they are currently subject, including, without limitation, risks related
to the highly competitive industry in which Future FinTech operates, the potential of NASDAQ delisting if it becomes unable to
meet minimum listing requirements, and the adverse economic conditions it faces.
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The primary negative consequence of the
transaction that Future FinTech’s Board considered was that the transaction could result in Future FinTech’s common
stock moving from NASDAQ to the OTC Markets if Future FinTech’s stock price cannot continue to meet NASDAQ’s listing
requirements and the lower relative liquidity of the ordinary stock of SkyPeople BVI and FullMart as compared to the common stock
of Future FinTech.
If either of the Spin-Offs is not completed,
Future FinTech’s Board will continue to evaluate and review the Company’s business operations, properties, dividend
policy and capitalization, among other things, make such changes as are deemed appropriate and continue to seek to identify strategic
alternatives to enhance shareholder value.
Please read with particular
care the detailed description of the risks described in “
Risk Factors
” beginning on page 15 of this proxy statement.
Q:
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How will I receive information about SkyPeople BVI and FullMart after the Spin-Offs are completed?
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A:
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Each of SkyPeople BVI and FullMart will register a class of securities on Form 10 prior to the completion of the Spin-Offs. As such, so long as those securities remain registered, SkyPeople BVI and FullMart will have periodic and reporting obligations under the Securities Exchange Act of 1934, as amended, and those reports will be available to the public from commercial document retrieval services and at the SEC’s website, www.sec.gov.
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FORWARD-LOOKING
STATEMENTS
This proxy statement, including information
incorporated by reference into this proxy statement, includes forward-looking statements regarding, among other things, Future
FinTech’s plans, strategies and prospects, both business and financial. Although Future FinTech believes that its plans,
intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, Future FinTech cannot
assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject
to risks, uncertainties and assumptions including, without limitation, the factors described under “
Risk Factors
”
from time to time in Future FinTech’s filings with the SEC. Many of the forward-looking statements contained in this presentation
may be identified by the use of forward-looking words such as “believe”, “expect”, “anticipate”,
“should”, “planned”, “will”, “may”, “intend”, “estimated”,
“aim”, “on track”, “target”, “opportunity”, “tentative”, “positioning”,
“designed”, “create”, “predict”, “project”, “seek”, “would”,
“could”, “continue”, “ongoing”, “upside”, “increases” and “potential”,
among others. Important factors that could cause actual results to differ materially from the forward-looking statements we make
in this presentation are set forth in other reports or documents that we file from time to time with the SEC, and include, but
are not limited to:
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the number and percentage of our public shareholders voting against the Spin-Offs and the other proposals described herein;
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the ability to maintain the listing of Future FinTech’s common stock on NASDAQ following the consummation of the Spin-Offs;
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changes adversely affecting the businesses in which any of Future FinTech, SkyPeople BVI and FullMart are engaged;
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general economic conditions;
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business strategies and plans of Future FinTech, SkyPeople BVI and FullMart;
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the result of future financing efforts; and
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and the other factors summarized under the section entitled “
Risk Factors
”.
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You are cautioned
not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement. All forward-looking
statements included herein attributable to any of Future FinTech, SkyPeople BVI, FullMart or any person acting on any party’s
behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except
to the extent required by applicable laws and regulations, Future FinTech, SkyPeople BVI and FullMart undertake no obligations
to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement or to reflect
the occurrence of unanticipated events.
Before a shareholder
grants its proxy or instructs how its vote should be cast or vote on the proposals described herein, it should be aware that the
occurrence of the events described in the “
Risk Factors
” section and elsewhere in this proxy statement may adversely
affect Future FinTech, SkyPeople BVI and FullMart.
SUMMARY
This summary
highlights selected information from this proxy statement and does not contain all of the information that is important to you.
To better understand the proposals to be submitted for a vote at the Annual Meeting, including the Spin-Offs, you should read this
entire document carefully, including the 2017 Future FinTech Equity Plan attached as
Annex A
and the Amendment attached
as
Annex B
to this proxy statement.
References
to “Future FinTech” are references to Future FinTech Group Inc. References to “SkyPeople BVI” are references
to SkyPeople Foods Holdings Limited (BVI). References to “FullMart” are references to FullMart Holdings Limited (BVI).
References to “we” or “our” and other first person references in this joint proxy statement refer to Future
FinTech Group, SkyPeople BVI or FullMart, as the case may be, before completion of the transactions. References to the “transactions,”
unless the context requires otherwise, mean the transactions contemplated by the Spin-Offs, taken as a whole.
The Parties
Future FinTech Group Inc.
We are a holding company incorporated
under the laws of the State of Florida. We have three direct wholly-owned subsidiaries: Belkin Foods Holdings Group Co., Ltd.,
(“Belkin”), a company incorporated under the laws of the British Virgin Island, FullMart Holding Limited (“FullMart”),
a company organized under the laws of British Virgin Island, and SkyPeople Foods Holding Limited (“SkyPeople BVI”),
company organized under the laws of British Virgin Island. SkyPeople BVI holds 100% of the equity interest of HeDeTang Holding
(HK) Ltd. (“HeDeTang Holding (HK)”), a company organized under the laws of the Hong Kong Special Administrative Region
of the People’s Republic of China (“Hong Kong”), and HeDeTang Holding (HK) holds 73.42% of the equity interest
of SkyPeople Juice Group Co., Ltd., (“SkyPeople (China)”), a company incorporated under the laws of the PRC. SkyPeople
(China) has ten subsidiaries, all limited liability companies organized under the laws of the PRC: (i) Shaanxi Qiyiwangguo Modern
Organic Agriculture Co., Ltd. (“Shaanxi Qiyiwangguo”); (ii) Huludao Wonder Fruit Co., Ltd. (“Huludao Wonder”);
(iii) Yingkou Trusty Fruits Co., Ltd. (“Yingkou”); (iv) Hedetang Foods Industry (Yidu) Co. Ltd. (“Food Industry
Yidu”); (v) Shaanxi Heying Trading Co. Ltd (“Shaanxi Heying ”); (vi) Hedetang Agricultural Plantation (Yidu)
Co. Ltd. (“Agricultural Plantation Yidu”); (vii) Xi’an Hedetang Fruit Juice Beverages Co., Ltd. (“Xi’an
Hedetang”); (viii) Xi’an Cornucopia International Co., Ltd. (“Xi’an Cornucopia”); (ix) Xi’an
Hedetang E-commerce Co. Ltd. (“Hedetang E-commerce”) and (x) Hedetang Foods Industry (Zhouzhi) Co. Ltd. (“Foods
Industry Zhouzhi”). Shenzhen TianShunDa Equity Investment Fund Management Co., Ltd. (the “TSD”), a limited liability
corporation registered in China, holds another 26.36% of the equity interest of SkyPeople (China). FullMart holds 100% of equity
interest of Hedetang Holdings (Asia Pacific) Ltd. (“Hedetang Holdings (Asia Pacific)”), a company organized under
the laws of Hong Kong. Hedetang Holdings (Asia Pacific) holds 100% of the equity interest of HeDeJiaChuan Holding Group Co. Ltd.,
(“HeDeJiaChuan Holding”), a company incorporated under the laws of the PRC, which holds 100% of HeDeJiaChuan Foods
(Xi’an) Co. Ltd. (“HeDeJiaChuan Xi’an”), a company incorporated under the laws of the PRC. HeDeJiaChuan
Xi’an has four subsidiaries: (i) SkyPeople (Suizhong) Fruit and Vegetable Products Co., Ltd (“SkyPeople Suizhong”);
(ii) HedeJiachuan Foods (Yichang) Co. Ltd (“Hedejiachuan Yichang”); (iii) Hedetang Foods Industry (Jingyang) Co. Ltd.
(“Foods Industry Jingyang”); and (iv) Shaanxi Guo Wei Mei Kiwi Deep Processing Co., Ltd. (“Guo Wei Mei”).
Belkin holds 100% of the equity interest of Future FinTech (Hong Kong) Limited (“Future FinTech HK”), a company organized
under the laws of Hong Kong. Future FinTech HK holds 100% of the equity interest of Hedetang Foods (China) Ltd. (“Hedetang
Foods (China)”), and Hedetang Foods (China) holds 90% of the equity interest of Hedetang Farm Products Trading Market (Mei
County) Co., Ltd. (“Trading Market Mei County”), a company incorporated under the laws of the PRC. GlobalKey Supply
Chain Limited (“GlobalKey Supply Chain”) holds the remaining 10% of the equity interest of Trading Market Mei County.
Trading Market Mei County holds 100% of the equity interest of Hedetang Agricultural Plantations (Mei County) Co., Ltd. (“Agricultural
Plantations Mei County”) and also holds 100% of the equity interest of GlobalKey Supply Chain.
SkyPeople Foods Holdings Limited (BVI)
SkyPeople BVI is a wholly-owned subsidiary
of Future FinTech organized under the laws of the British Virgin Islands on December 28, 2011. SkyPeople BVI holds 100% equity
interest of HeDeTang Holding (HK). HeDeTang Holding (HK) holds 73.42% of the equity interest of SkyPeople (China). SkyPeople (China)
has ten subsidiaries, all limited liability companies organized under the laws of the PRC: (i) Shaanxi Qiyiwangguo; (ii) Huludao
Wonder; (iii) Yingkou; (iv) Food Industry Yidu; (v) Shaanxi Heying; (vi) Agricultural Plantation Yidu; (vii) Xi’an Hedetang;
(viii) Xi’an Cornucopia; (ix) Hedetang E-commerce and (x) Foods Industry Zhouzhi. TSD holds another 26.36% of the equity
interest of SkyPeople (China).
A class of securities
of SkyPeople BVI will be registered on a Form 10 registration statement prior to the consummation of the Spin-Offs.
FullMart Holdings Limited
FullMart is a
wholly-owned subsidiary of Future FinTech organized under the laws of the British Virgin Islands on December 28, 2011. FullMart
holds 100% of equity interest of Hedetang Holdings (Asia Pacific). Hedetang Holdings (Asia Pacific) holds 100% of the equity interest
of HeDeJiaChuan Holding, which holds 100% of HeDeJiaChuan Xi’an. HeDeJiaChuan Xi’an has four subsidiaries: (i) SkyPeople
Suizhong; (ii) Hedejiachuan Yichang; (iii) Foods Industry Jingyang; and (iv) Guo Wei Mei.
A class of securities
of FullMart will be registered on a Form 10 registration statement prior to the consummation of the Spin-Offs.
The Annual
Meeting
The Annual Meeting
will be held at 10:00 a.m., local time, on Monday, December 18, 2017, at the Company’s principal executive offices at 16F,
China Development Bank Tower, No.2, Gaoxin 1st Road, Xi’an, Shaanxi, China, 710075.
The Spin-Offs
Our board of directors
has adopted resolutions approving a pro rata distribution of the issued and outstanding shares of SkyPeople BVI and FullMart by
Future FinTech to its shareholders of record as of October 31, 2017 (the “
Record Date
”).
Upon completion of the Spin-Offs, all of
the ordinary shares of each of SkyPeople BVI and FullMart will be directly held by the Future FinTech shareholders of record as
of the Record Date.
Future FinTech’s Operations
Following the Spin-Offs
Following the completion of the Spin-Offs,
the main business operations of Future FinTech will be focused on (i) the online sales of fruit juice products and beverages, and
consumer and health-related products, through GlobalKey Supply Chain Limited; (ii) the operation of a supply chain, logistics and
trading business for fruit juice products, foods and other consumer and agricultural products through Hedetang Farm Products Trading
Market (Mei County) Co., Ltd., as described further below; (iii) bulk agricultural products spot trading business and financial
technology businesses, including software development and information services for the financial leasing and project finance industries
through intelligent investment advisory and block chain technology; and (iv) related asset and equity investment management.
On April 3, 2013, SkyPeople (China) entered
into an Investment Agreement (the “Agreement”) with the Managing Committee of Mei County National Kiwi Fruit Wholesale
Trading Center (the “Committee”). The Committee has been authorized by the People’s Government of Mei County
to be responsible for the construction and administration of the Mei County National Kiwi Fruit Wholesale Trading Center (the “Trading
Center”). Contracts relating to the Trading Center were subsequently transferred to subsidiaries that will remain with Future
FinTech following the completion of the Spin-Offs.
Under the Agreement, the parties agreed
to invest and establish a kiwi fruit comprehensive deep processing zone and kiwi fruit and fruit-related materials trading zone
in Yangjia Village, Changxing Town of Mei County with a total planned area of total planned area of 286 mu (approximately 47 acres)
(the “Project”).
Pursuant to the Agreement, the Company
is responsible for the construction and financing of the Project with a total investment of RMB 445.6 million (approximately $71.9
million) in buildings and equipment, which also includes a fee for the land use rights for the Project land in the amount of RMB
0.3 million per mu. The Committee is responsible for financing and constructing the basic infrastructure surrounding the Project,
such as the main water supply, main water drainage, natural gas, electricity, sewage, access roads to the Project, natural gas
and communications networks. As of the date of this report, the Company is in the process of building fruit juice production lines,
a vegetable and fruit flash freeze facility, an R&D center and an office building. Although the schedule for completion could
change, the Company plans to complete the construction of these facilities in the fourth quarter of 2017.
As of the date of this proxy statement,
Mei County National Kiwi Fruit Wholesale Trading Center has started normal operations. There are a number of enterprises operating
in the trading center including 12 express delivery companies, 4 logistic companies, four on-line sales companies, two packing
companies and three agriculture companies. In addition, all government departments that are relevant to the operations of the Mei
County National Kiwi Fruit Wholesale Trading Center have moved into the trading center. Currently, Mei County National Kiwi Fruit
Wholesale Trading is building a data platform for agricultural products in the western part of China, an agricultural business
incubator, and an online-to-offline agricultural products trading center. To meet this requirement, the Company is upgrading its
software and the project has been delayed. The Company expects to complete its investment in the trading center in the fourth quarter
of 2017, and believes that it will generate income from the trading center through various means, such as rental income from cold
storage and shops, and income from logistic services.
As part of the Mei County National Kiwi
Fruit Wholesale Trading Center project, on April 19, 2013, we established Shaanxi Guoweimei Kiwi Deep Processing Co., Ltd. (“Guo
Wei Mei”) to engage in the business of producing kiwi fruit juice, kiwi puree, cider beverages, and related products. The
total estimated investment was RMB 294 million. As the Chinese government recently tightened environment regulations, the Company
is in the process of adapting to the new standards and the project has been delayed. We are now building fruit juice production
lines, a vegetable and fruit flash freeze facility, an R&D center and an office building. Although the schedule for completion
could change, we plan to complete construction in the second quarter of 2018.
Pre-Spin-Offs
Structure
Post-Spin-Offs Structure of Future
FinTech
Abandonment of the Spin-Offs and
Expenses Related to the Spin-Offs
In the event that
the Future FinTech’s shareholders do not approve the Spin-Offs, the Spin-Offs shall not be consummated by the Company and
shall be abandoned. We anticipate that the fees and expenses related to the Spin-Offs, including professional fees, shall be approximately
$80,000 in aggregate.
Recommendation
to Shareholders
After careful consideration, the Board
of Directors recommends a vote IN FAVOR OF the nominees for director named in the accompanying proxy statement, a vote IN FAVOR
OF the ratification of the Audit Committee’s selection of the independent registered public accounting firm, a vote IN FAVOR
OF the Spin-Offs, a vote IN FAVOR OF the amendment to Future FinTech’s Second Amended and Restated Articles of Incorporation
to increase its authorized shares of common stock from 8,333,333 to 60,000,000, and a vote IN FAVOR OF the adoption of the Future
FinTech Group Inc. 2017 Omnibus Equity Plan.
Interests of
Future FinTech’s Directors and Officers in the Spin-Offs
As of the Record
Date, the directors and executive officers of Future FinTech as a group owned and were entitled to vote • shares of the common
stock of the Company, representing approximately • % of the outstanding shares of Future FinTech common stock on that date.
Future FinTech expects that its directors and executive officers will vote their shares in favor the nominees for director named
in this proxy statement, in favor the ratification of the Audit Committee’s selection of the independent registered public
accounting firm, in favor the Spin-Offs, in favor of the amendment to Future FinTech’s Second Amended and Restated Articles
of Incorporation and in favor of the adoption of the Future FinTech Group Inc. 2017 Omnibus Equity Plan, but none of the Company’s
directors or executive officers other has entered into any agreement obligating any of them to do so.
Besides the equity
ownership of Future FinTech detailed above, the directors and executive officers of the Company do not have interests different
than the other shareholders of Future FinTech.
Appraisal Rights
Future FinTech
shareholders do not have appraisal rights in connection with the Spin-Offs under the Florida Business Corporation Act.
Material British Virgin Islands Tax Considerations
In the opinion of Maples and Calder (Hong
Kong) LLP, under current British Virgin Islands law, we will not be subject to British Virgin Islands income tax as a result of
the Spin-Offs and our shareholders who are not residents of the British Virgin Islands will not be subject to any British Virgin
Islands income withholding or capital gains by reason of such transactions.
Material United States Federal Income
Tax Considerations
The following discussion sets forth the
material U.S. Federal income tax consequences to our shareholders of the distribution of the ordinary shares of SkyPeople BVI and
FullMart to our shareholders.
This discussion is limited to shareholders
who are U.S. Holders (as defined below) of our common stock who hold such stock as a capital asset for Federal income tax purposes.
This discussion is based on the Tax Reform Act of 1986, as amended (the “Code”), Treasury Regulations promulgated thereunder,
judicial decisions, and the current administrative rules, practices and interpretations of law of the U.S. Internal Revenue Service
(“IRS”), all as in effect on the date of this document, and all of which are subject to change, possibly with retroactive
effect. This discussion does not address all aspects of Federal income taxation that may be important to particular holders in
light of their individual investment circumstances. Unless specifically stated otherwise, this discussion does not apply to the
following holders, even if they are U.S. Holders, all of whom may be subject to tax rules that differ significantly from those
summarized below: (i) holders who may be subject to special tax rules, including, without limitation, partnerships (including any
entity or arrangement treated as a partnership for Federal income tax purposes); (ii) dealers in securities or foreign currency,
foreign persons, insurance companies, tax-exempt organizations, banks, financial institutions, and broker-dealers; and (iii) holders
of warrants or other convertible securities entitling them to receive stock, holders who acquired common stock pursuant to the
exercise of compensatory stock options or otherwise as compensation, or holders who hold common stock as part of a hedge, straddle,
conversion, constructive sale or other integrated security transaction.
We have not sought, and will not seek,
a ruling from the IRS regarding the Federal income tax consequences of these transactions. This discussion is based on varying
interpretations that could result in U.S federal income tax consequences different from those described below. The following discussion
does not address the tax consequences of this offering or the related share issuance under foreign, state, or local tax laws, or
the alternative minimum tax provisions of the Code. Accordingly, each U.S. holder of common stock is urged to consult his, her
or its (hereinafter, “his”) tax advisor with respect to the particular tax consequences of these transactions.
For purposes of this discussion, a “U.S.
holder” is a holder who is for U.S. federal income tax purposes: (i) a citizen or resident of the U.S.; (ii) a corporation
or other entity taxable as a corporation that is organized in or under the laws of the U.S., any state thereof or the District
of Columbia; (iii) an estate, the income of which is subject to U.S. federal income taxation, regardless of its source; or (iv)
a trust, if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons
have the authority to control all substantial decisions of the trust (or if the trust was in existence on August 20, 1996, and
validly elected to continue to be treated as a U.S. trust).
THIS IS NOT INTENDED TO BE, AND SHOULD
NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE. THE U.S. FEDERAL INCOME TAX TREATMENT OF THESE TRANSACTIONS IS COMPLEX. ACCORDINGLY,
EACH SHAREHOLDER WHO IS A U.S. HOLDER IS STRONGLY URGED TO CONSULT HIS OWN TAX ADVISER WITH RESPECT TO THE U.S. FEDERAL, STATE,
LOCAL AND FOREIGN INCOME, ESTATE AND OTHER TAX CONSEQUENCES OF THE TRANSACTIONS WITH SPECIFIC REFERENCE TO SUCH PERSON’S
PARTICULAR FACTS AND CIRCUMSTANCES.
Distributions of Stock in SkyPeople
BVI and FullMart
The distribution to our shareholders of
interests in SkyPeople BVI and FullMart will be a taxable event to each shareholder. The value of the interests in the SkyPeople
BVI and FullMart stock received by each shareholder will be applied first to reduce the shareholder’s basis in his stock
in Future FinTech; any value of those interests in excess of the shareholder’s basis in Future FinTech stock will be a capital
gain to the shareholder. Any capital gain will be long-term capital gain, taxable at favorable capital gains rates, if the shareholder
has held his Future FinTech stock for more than a year at the time of the distribution; otherwise, any gain will be short-term
capital gain taxable at ordinary income tax rates.
The foregoing discussion assumes that the
Company does not, at the time of the distribution, have current or accumulated earnings and profits (“earnings and profits”).
According to the books of the Company, the Company has no accumulated earnings and profits. If the Company has any current earnings
and profits, then (i) the distribution of the interests in SkyPeople BVI and FullMart will be treated as a dividend distribution
to each shareholder to the extent of the shareholder’s pro rata share of the Company’s current earnings and profits;
and (ii) the value of the distribution, if any, in excess of the shareholder’s pro rata share of current earnings and profits
will be treated in the manner described in the preceding paragraph.
If a shareholder’s basis in his Future
FinTech stock is greater than the value of the interests in SkyPeople BVI and FullMart received by the shareholder, the shareholder
will not recognize a capital loss.
The tax consequences of the distribution
of the shares of SkyPeople BVI and FullMart are complex and not free from doubt. We have provided what we believe are the most
likely consequences. Shareholders should consult their own tax advisors on the tax consequences of these transactions.
Net Investment Income Tax
The net investment income tax (the Medicare
Tax on Unearned Income) – a tax of 3.8% on certain kinds of investment income – will apply to any portion of the distribution
of the stock of SkyPeople BVI and FullMart that is treated as a dividend (see the discussion in the second paragraph of “
Distributions
of Stock in SkyPeople BVI and FullMart
”, above).
The net investment income tax also appears
to apply to any capital gain recognized by the shareholders on the distribution of SkyPeople BVI and FullMart stock to them (see
the first paragraph of “
Distributions of Stock in SkyPeople BVI and FullMart
”, above) but the treatment of such
capital gain under the net investment income rules is not entirely clear. Shareholders should consult their own tax advisors with
respect to the applicability of the net investment income tax to such gains.
Company Tax Liability Due to the Spin-Off
The Company will recognize gain on the
distribution of the SkyPeople BVI and FullMart interests to the shareholders if SkyPeople BVI or FullMart has a fair market value
in excess of the Company’s adjusted basis in such entity. The value SkyPeople BVI or FullMart may exceed the Company’s
adjusted basis in SkyPeople BVI or FullMart, as applicable. Any such gain would be added to the Company’s other income in
determining the Company’s taxable income (taking into account the Company’s deductible expenses, credits, and allowable
net operating loss carryforwards) and its tax liability, if any. The Company expects that any such gain would be offset by its
other expenses and by its allowable net operating loss carryforwards, so that the Company would owe no tax as a result of these
transactions, but there is no certainty that that would be the case.
Information Reporting and Backup Withholding
Payments of proceeds from the distribution
of SkyPeople BVI and FullMart to a shareholder may be subject to information reporting to the IRS and, possibly, U.S. federal backup
withholding. Backup withholding will not apply if the shareholder furnishes a correct taxpayer identification number (certified
on the IRS Form W-9) or otherwise establishes that he is exempt from backup withholding. Backup withholding is not an additional
tax. Amounts withheld as backup withholding may be credited against the shareholder’s U.S. federal income tax liability.
The shareholder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate
claim for refund with the IRS and furnishing any required information. Since any backup withholding required in connection with
the distribution of SkyPeople BVI and FullMart stock would in effect be a cash obligation imposed on the Company (since no withholdable
cash is being distributed), the Company does not intend to distribute SkyPeople BVI or FullMart stock to any shareholder who has
not provided the Company with a Form W-9 or otherwise established an exemption from backup withholding.
Regulatory Approvals Required for
the Spin-Offs
The Spin-Offs
are not subject to any additional federal or state regulatory requirement or approval, except for filings with the British Virgin
Islands to effect the Spin-Offs.
Risk Factors
In evaluating
the proposals to be presented at the Annual Meeting, a shareholder should carefully read this proxy statement and especially consider
the factors discussed in the section entitled “
Risk Factors
.”
Conditions to Consummation of the
Spin-Offs
The Company’s
ability to consummate the Spin-Offs is conditioned upon, among other things, that:
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each of the Spin-Offs having been duly approved, adopted and implemented by the Company’s shareholders by the requisite vote under the laws of Florida; and
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the registration of a class of securities of each of SkyPeople BVI and FullMart on Form 10.
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Post-Spin-Off Board of Directors
and Executive Officers of SkyPeople BVI and FullMart
Following the
completion of the Spin-Offs, Mr. Yongke Xue will continue to be the sole director of SkyPeople BVI, and Mr. Fei Zhu will continue
to be the sole director of FullMart.
Amendment to
the Second Amended and Restated Articles of Incorporation of Future FinTech
The Company is
asking you to approve the Amendment to the Second Amended and Restated Articles of Incorporation of Future FinTech, which would
increase the amount of authorized shares of common stock, par value $0.001 per share (“Common Stock”), of Future FinTech
from 8,333,333 to 60,000,000 shares. A copy of the Amendment is included as
Annex B
to this proxy statement.
Effects of the Increase in Authorized
Shares of Common Stock
Potential
uses of the additional authorized shares of Common Stock may include public or private offerings, conversions of convertible securities,
issuance of stock or stock options to employees, acquisition transactions and other general corporate purposes. Increasing the
authorized number of shares of the Common Stock will give us greater flexibility and will allow the Company to issue such shares,
in most cases, without the expense or delay of seeking shareholder approval. The Company may issue shares of its Common Stock in
connection with financing transactions and other corporate purposes which the Board of Directors believes will be in the best interest
of the Company’s shareholders. The additional shares of Common Stock will have the same rights as the presently authorized
shares, including the right to cast one vote per share of Common Stock. Although the authorization of additional shares will not,
in itself, have any effect on the rights of any holder of our Common Stock, the future issuance of additional shares of Common
Stock (other than by way of a stock split or dividend) would have the effect of diluting the voting rights, and could have the
effect of diluting earnings per share and book value per share, of existing shareholders.
Dissenter’s Rights
Our shareholders have no right under the
Florida Business Corporations Act, our Second Amended and Restated Articles of Incorporation or our Amended and Restated Bylaws
to dissent from the provision adopted in the Amendment.
RISK FACTORS
You should carefully consider the following
risk factors, together with the other information contained in this proxy statement, including the factors discussed in Part I,
Item 1A—Risk Factors in Future FinTech’s annual report on Form 10-K for the year ended December 31, 2016.
The risks described below relate to the Spin-Offs, and are in addition to, and should be read in conjunction with, without limitation,
the factors discussed in Part I, Item 1A—Risk Factors in Future FinTech’s annual report on Form 10-K for the year
ended December 31, 2016. If any of the following risks and uncertainties develops into actual events, these events could have
a material adverse effect on each of Future FinTech’s, SkyPeople BVI’s and FullMart’s businesses, financial conditions
or results of operations. In addition, past financial performance may not be a reliable indicator of future performance, and historical
trends should not be used to anticipate results or trends in future periods.
Risks Related to the Spin-Offs
The Spin-Offs are subject to conditions, including certain
conditions that may not be satisfied or completed on a timely basis.
Completion of the Spin-Offs
is subject to the completion of certain conditions that make the completion and timing of the transactions uncertain. The conditions
include, among others, the issuance of additional shares of ordinary stock of each of SkyPeople BVI and FullMart to Future FinTech
and the filing and effectiveness of Form 10 registration statements for each of SkyPeople BVI and FullMart. The completion of these
conditions may be completed later than anticipated.
Failure to complete the Spin-Offs
may negatively affect the share price and future business and financial results of Future FinTech.
In the event that
we are unable to complete the Spin-Offs in a timely manner, Future FinTech’s ongoing business may be adversely affected.
If the Spin-Offs are not completed at all, Future FinTech will be subject to a number of risks, including the following:
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being required to pay costs and expenses relating to the Spin-Offs, such as legal and accounting fees, whether or not the transactions are completed; and
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loss of time and resources committed by each of the management of each of Future FinTech, SkyPeople BVI and FullMart to matters relating to the Spin-Offs that could have been devoted to pursuing other beneficial opportunities.
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If the Spin-Offs
are not completed, the price of Future FinTech’s common stock may decline to the extent that the current market price reflects
a market assumption that the transactions will be completed and that the related benefits will be realized.
Uncertainties associated with the
Spin-Offs may cause employees to leave Future FinTech, SkyPeople BVI or FullMart and may otherwise affect the future business and
operations of Future FinTech, SkyPeople BVI and FullMart.
The success of each
of Future FinTech, SkyPeople BVI and FullMart after the Spin-Offs will depend in part upon their ability to retain their respective
key employees. Prior to and following the Spin-Offs, current and prospective employees of each of Future FinTech, SkyPeople BVI
and FullMart may experience uncertainty about their future roles and choose to pursue other opportunities, which could have an
adverse effect on the applicable business. If key employees depart, the businesses and results of operations of the entities losing
such key employees could be adversely affected.
Results of operations and financial
condition of Future FinTech, SkyPeople BVI and FullMart following the transactions may differ materially from the pro forma information
presented in this proxy statement.
The pro forma financial
information included in this proxy statement is derived from the historical audited and unaudited consolidated financial statements
of Future FinTech, unaudited carve-out financial statements of SkyPeople BVI and FullMart, as well as from certain internal, unaudited
financial statements. The preparation of this pro forma information is based upon available information and certain assumptions
and estimates that we believe are reasonable. However, this pro forma information may be materially different from what the actual
results of operations and financial conditions of Future FinTech, SkyPeople BVI and FullMart would have been had the transactions
occurred during the periods presented or from what the results of operations and financial position of Future FinTech, SkyPeople
BVI and FullMart will be after the completion of the proposed transactions. In particular, the assumptions used in preparing the
pro forma financial information may not be realized, and other factors may affect the financial condition and results of operations
of each of Future FinTech, SkyPeople BVI and FullMart following the transactions.
Additional Risks Related to Future FinTech After the Spin-Offs
We may not be able to effectively
control and manage our growth, and a failure to do so could adversely affect our operations and financial condition.
Our revenue increased
significantly from 2006 to 2010 and from 2012 to 2014, but decreased in 2015 and 2016. If our business and markets experience significant
growth, we will need to expand our business to maintain our competitive position. We may face challenges in managing and financing
expansion of our business, facilities and product offerings, including challenges relating to integration of acquired businesses
and increased demands on our management team, employees and facilities. Failure to effectively deal with increased demands on us
could interrupt or adversely affect our operations and cause production and service backlogs, longer product development time frames
and administrative inefficiencies. Other challenges involved with expansion, acquisitions and operation include:
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unanticipated costs;
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the diversion of management’s attention from other business concerns;
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potential adverse effects on existing business relationships with suppliers and customers;
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obtaining sufficient working capital to support expansion;
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expanding our product offerings and maintaining the high quality of our products;
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continuing to fill customers’ orders on time;
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maintaining adequate control of our expenses and accounting systems;
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successfully integrating any future acquisitions; and
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anticipating and adapting to changing conditions in the fruit juice, beverage industries and financial technology, whether from changes in government regulations, mergers and acquisitions involving our competitors, technological developments or other economic, competitive or market dynamics.
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Even if we obtain benefits of expansion
in the form of increased sales, there may be delay between the time when the expenses associated with an expansion or acquisition
are incurred and the time when we recognize such benefits, which could negatively affect our earnings.
We may engage in future acquisitions
involving significant expenditures of cash, the incurrence of debt or the issuance of stock, all of which could have a materially
adverse effect on our operating results.
As part of our business
strategy, we review acquisition and strategic investment prospects that we believe would complement our current product offerings,
augment our market coverage, enhance our technological capabilities or otherwise offer growth opportunities. From time to time,
we review investments in new businesses and we expect to make investments in, and to acquire, businesses, products or technologies
in the future. In the event of any future acquisitions, we may expend significant cash, incur substantial debt and/or issue equity
securities and dilute the percentage ownership of current shareholders, all of which could have a material adverse effect on our
operating results and the price of our stock. We cannot guarantee that we will be able to successfully integrate any businesses,
products, technologies or personnel that we may acquire in the future, and our failure to do so could have a material adverse effect
on our business, operating results and financial condition.
Our business and operations may be
subject to disruption from work stoppages, terrorism or natural disasters.
Our operations may be
subject to disruption for a variety of reasons, including work stoppages, acts of war, terrorism, pandemics, fire, earthquake,
flooding or other natural disasters. If a major incident were to occur in either of the regions where our facilities or main offices
are located, our facilities or offices or those of critical suppliers could be damaged or destroyed. Such a disruption could result
in a reduction in available raw materials, the temporary or permanent loss of critical data, suspension of operations, delays in
shipment of products and disruption of business generally, which would adversely affect our revenue and results of operations.
Our success depends substantially
on the continued retention of certain key personnel and our ability to hire and retain qualified personnel in the future to support
our growth.
If one or more of our
senior executives or other key personnel are unable or unwilling to continue in their present positions, our business may be disrupted
and our financial condition and results of operations may be materially and adversely affected. While we depend on the abilities
and participation of our current management team generally, we rely particularly upon Mr. Hongke Xue, our chief executive officer
(“CEO”); Mr. Yongke Xue, a member of the Company’s Board of Directors (the “Board”); and Mr. Hanjun
Zheng, our interim chief financial officer (“CFO”). The loss of the services of Messrs. Hongke Xue, Yongke Xue or Hanjun
Zheng for any reason could significantly adversely impact our business and results of operations. Competition for senior management
and senior technology personnel in the PRC is intense and the pool of qualified candidates is very limited. Accordingly, we cannot
guarantee that the services of our senior executives and other key personnel will continue to be available to us, or that we will
be able to find a suitable replacement for them if they were to leave.
Our ecommerce business depends on
the continued use of the Internet and the adequacy of the Internet infrastructure.
Our ecommerce business
depends upon the widespread use of the Internet and ecommerce. Factors which could reduce the widespread use of the Internet for
ecommerce include actual or perceived lack of security of information or privacy protection, cyberattacks or other disruptions
or damage to the Internet or to users’ computers, significant increases in the costs of transportation of goods, and taxation
and governmental regulation.
Our business depends on our Website,
network infrastructure and transaction-processing systems.
Our ecommerce business
is completely dependent on our infrastructure. Any system interruption that results in the unavailability of our Website or reduced
performance of our transaction systems could reduce our ability to conduct our business. We use internally and externally developed
systems for our Website and our transaction processing systems. We expect to experience system interruptions due to software failure.
We may also experience temporary capacity constraints due to sharply increased traffic during sales or other promotions and during
the holiday shopping season. Capacity constraints can cause system disruptions, slower response times, delayed page presentation,
degradation in levels of customer service and other problems. We may also experience difficulties with our infrastructure upgrades.
Any future difficulties with our transaction processing systems or difficulties upgrading, expanding or integrating aspects of
our systems may cause system disruptions, slower response times, and degradation in levels of customer service, additional expense,
impaired quality and speed of order fulfillment or other problems.
If the location where
all of our computer and communications hardware is located is compromised, our business, prospects, financial condition and results
of operations could be harmed. If we suffer an interruption or degradation of services at the location for any reason, our business
could be harmed. Our success, and in particular, our ability to successfully receive and fulfill orders and provide high-quality
customer service, largely depends on the efficient and uninterrupted operation of our computer and communications systems. These
limitations could have an adverse effect on our conversion rate and sales. Our disaster recovery plan may be inadequate, and we
do not carry business interruption insurance to compensate us for the losses that could occur. Despite our implementation of network
security measures, our servers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, the
occurrence of any of which could lead to interruptions, delays, loss of critical data or the inability to accept and fulfill customer
orders. The occurrence of any of the foregoing risks could harm our business.
Our platform requires frequent updates
on pricing from our vendors. If these updates are inaccurate or do not occur, there could be a negative influence on our business.
We update the prices
of products listed on our site frequently through a third party vendor. If we are unable to obtain, or are not provided updated
pricing information from our third party vendor, or if we fail to act on information provided by our third party vendor, then it
could cause us to remedy the pricing difference to complete the transaction, or source the product from an alternative vendor at
their price.
We are subject to cyber security
risks and may incur increasing costs in an effort to minimize those risks and to respond to cyber incidents.
Our ecommerce business
is entirely dependent on the secure operation of our website and systems as well as the operation of the Internet generally. Our
business involves the storage and transmission of users’ proprietary information, and security breaches could expose us to
a risk of loss or misuse of this information, litigation, and potential liability. A number of large Internet companies have suffered
security breaches, some of which have involved intentional attacks. From time to time we and many other Internet businesses also
may be subject to a denial of service attacks wherein attackers attempt to block customers’ access to our Website. If we
are unable to avert a denial of service attack for any significant period, we could sustain substantial revenue loss from lost
sales and customer dissatisfaction. We may not have the resources or technical sophistication to anticipate or prevent rapidly
evolving types of cyber-attacks.
Cyberattacks may target
us, our customers, our suppliers, banks, payment processors, ecommerce in general or the communication infrastructure on which
we depend. If an actual or perceived attack or breach of our security occurs, customer and/or supplier perception of the effectiveness
of our security measures could be harmed and we could lose customers, suppliers or both. Actual or anticipated attacks and risks
may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees,
and engage third party experts and consultants. A person who is able to circumvent our security measures might be able to misappropriate
our or our users’ proprietary information, cause interruption in our operations, damage our computers or those of our users,
or otherwise damage our reputation and business. Any compromise of our security could result in a violation of applicable privacy
and other laws, significant legal and financial exposure, damage to our reputation, and a loss of confidence in our security measures,
which could harm our business.
The relative lack of public company
experience of our management team may put us at a competitive disadvantage.
Our management team
lacks prior public company experience, which could impair our ability to comply with legal and regulatory requirements such as
those imposed by the Sarbanes-Oxley Act of 2002, (“Sarbanes-Oxley”). Our senior management does not have significant
experience managing a publicly traded company. Such responsibilities include complying with federal securities laws and making
required disclosures on a timely basis. Our senior management may be unable to implement programs and policies in an effective
and timely manner or that adequately respond to the increased legal, regulatory and reporting requirements associated with being
a publicly traded company. Our failure to comply with all applicable requirements could lead to the imposition of fines and penalties,
distract our management from attending to the management and growth of our business, result in a loss of investor confidence in
our financial reports and have an adverse effect on our business and stock price.
As a public company, we are obligated
to maintain effective internal controls over financial reporting. Our internal controls may be determined not to be effective,
which may adversely affect investor confidence in us and, as a result, decrease the value of our Common Stock.
The PRC has not adopted
management and financial reporting concepts and practices similar to those in the United States. We may have difficulty in hiring
and retaining a sufficient number of qualified finance and management employees to work in the PRC. As a result of these factors,
we may experience difficulty in establishing and maintaining accounting and financial controls, collecting financial data, budgeting,
managing our funds and preparing financial statements, books of account and corporate records and instituting business practices
that meet investors’ expectations in the United States.
Rules adopted by the
SEC, or the Commission, pursuant to Sarbanes-Oxley Section 404 require annual assessment of our internal controls over financial
reporting. This requirement first applied to our annual report on Form 10-K for the fiscal year ended December 31, 2008.
The standards that must be met for management to assess the internal controls over financial reporting as effective are relatively
new and complex, and they require significant documentation, testing and possible remediation to meet the detailed standards. This
assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over
financial reporting. During the evaluation and testing process, if we identify one or more material weaknesses in our internal
control over financial reporting as we have done previously, we will be unable to assert that our internal controls are effective.
If we continue to be unable to conclude that our internal control over financial reporting is effective, we could lose investor
confidence in the accuracy and completeness of our financial reports, which could harm our business and cause the price of our
stock to decline.
We may need additional capital to
fund our future operations and, if it is not available when needed, we may need to reduce our planned development and marketing
efforts, which may reduce our sales revenue.
We believe that our
existing working capital and cash available from operations will enable us to meet our working capital requirements for at least
the next 12 months. However, if cash from future operations is insufficient, or if cash is used for acquisitions or other currently
unanticipated uses, we may need additional capital. The development and marketing of new products and the expansion of distribution
channels and associated support personnel require a significant commitment of resources. In addition, if the markets for our products
develop more slowly than anticipated, or if we fail to establish significant market share and achieve sufficient net revenues,
we may continue to consume significant amounts of capital. As a result, we could be required to raise additional capital. To the
extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities
could result in dilution of the shares held by existing shareholders. If additional funds are raised through the issuance of debt
securities, such securities may provide the holders certain rights, preferences, and privileges senior to those of common shareholders,
and the terms of such debt could impose restrictions on our operations. We cannot guarantee that additional capital, if required,
will be available on acceptable terms, or at all. If we are unable to obtain sufficient amounts of additional capital, we may be
required to reduce the scope of our planned product development and marketing efforts, which could harm our business, financial
condition and operating results.
If our costs and demands upon management
increase disproportionately to the growth of our business and revenue as a result of complying with the laws and regulations affecting
public companies, our operating results could be harmed.
As a public company,
we do and will continue to incur significant legal, accounting, investor relations and other expenses, including costs associated
with public company reporting requirements. We also have incurred and will incur costs associated with current corporate governance
requirements, including requirements under Section 404 and other provisions of Sarbanes-Oxley, as well as rules implemented
by the SEC and the stock exchange on which our Common Stock is traded. The expenses incurred by public companies for reporting
and corporate governance purposes have increased dramatically over the past several years. These rules and regulations have increased
our legal and financial compliance costs substantially and make some activities more time consuming and costly. If our costs and
demands upon management increase disproportionately to the growth of our business and revenue, our operating results could be harmed.
There are inherent uncertainties
involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with generally accepted
accounting principles in the United States, or U.S. GAAP. Any changes in estimates, judgments and assumptions could have a material
adverse effect on our business, financial condition and operating results.
The preparation of financial
statements in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) involves making estimates,
judgments and assumptions that affect reported amounts of assets (including intangible assets), liabilities and related reserves,
revenue, expenses and income. Estimates, judgments and assumptions are inherently subject to change in the future, and any such
changes could result in corresponding changes to the amounts of assets, liabilities, revenue, expenses and income. Any such changes
could have a material adverse effect on our business, financial condition and operating results.
Risks Related to the Industry of SkyPeople
BVI and FullMart
Revenue and profitability of each
of SkyPeople BVI and FullMart are heavily dependent on prevailing prices for our products and raw materials, and if we are unable
to effectively offset cost increases by adjusting the pricing of our products, our margins and operating income may decrease.
As a producer of commodities,
our revenue, gross margins and cash flows from operations are substantially dependent on the prevailing prices we receive for our
products and the cost of our raw materials, neither of which we control. The factors influencing the sales price of concentrated
fruit juice include the supply price of fresh fruit, supply and demand of our products in international and domestic markets and
competition in the fruit juice industry.
The price of our principal
raw materials, fresh fruit, is subject to market volatility as a result of numerous factors including, but not limited to, general
economic conditions, governmental regulations, weather, transportation delays and other uncertainties that are beyond our control.
Due to such market volatility, we generally do not, nor do we expect to, have long-term contracts with our fresh fruit suppliers.
Other significant raw materials used in our business include packing barrels, pectic enzyme, amylase and auxiliary materials such
as coal, electricity and water. Prices for these items may be volatile as well and we may experience shortages in these items from
time to time. As a result, we cannot guarantee that the necessary raw materials to produce our products will continue to be available
to us at prices currently in effect or acceptable to us. In the event raw material prices increase materially, we may not be able
to adjust our product prices, especially in the short term, to recover such cost increases. If we are not able to effectively offset
these cost increases by adjusting the price of our products, our margins will decrease and earnings will suffer accordingly.
We sell our products
primarily
through distributors and delays in delivery or poor handling by distributors may affect our sales and damage our reputation.
We primarily sell our
products through our distributors and rely on these distributors for the distribution of our products. These distributors are not
obligated to continue to sell our products. Any disruptions in our relationships with our distributors could cause interruption
to the supply of our products to retailers, which would harm our revenue and results of operations. In addition, delivery disruptions
may occur for various reasons beyond our control, including poor handling by distributors or third party transport operators, transportation
bottlenecks, natural disasters and labor strikes, and could lead to delayed or lost deliveries. Some of our products are perishable
and poor handling by distributors and third party transport operators could also result in damage to our products that would make
them unfit for sale. If our products are not delivered to retailers on time, or are delivered damaged, we may have to pay compensation,
we could lose business and our reputation could be harmed.
If we are unable to gain market acceptance
or significant market share for the new products we introduce, our results of operations and profitability could be adversely impacted.
Our future business
and financial performance depends, in part, on our ability to successfully respond to consumer preferences by introducing new products
and improving existing products. We cannot guarantee that we will be able to gain market acceptance or significant market share
for our new products. Consumer preferences change, and any new products that we introduce may fail to meet the particular tastes
or requirements of consumers, or may be unable to replace their existing preferences. Our failure to anticipate, identify or react
to these particular tastes or changes could result in reduced demand for our products, which could in turn cause us to be unable
to recover our development, production and marketing costs, thereby leading to a decline in our profitability.
The development and
introduction of new products is key to our expansion strategy. We incur significant development and marketing costs in connection
with the introduction of new products. Successfully launching and selling new products puts pressure on our sales and marketing
resources, and we may fail to invest sufficient funds in order to market and sell a new product effectively. If we are not successful
in marketing and selling new products, our results of operations could be materially adversely affected.
Economic conditions have had and
may continue to have an adverse effect on consumer spending on our products.
Certain areas of the
worldwide economy have not yet fully recovered from a recession, which has reduced discretionary income of consumers. The adverse
effect of a sustained international economic downturn, including sustained periods of decreased consumer spending, high unemployment
levels, declining consumer or business confidence and continued volatility and disruption in the credit and capital markets, will
likely result in reduced demand for our products as consumers turn to less expensive substitute goods or forego certain purchases
altogether. To the extent the international economic downturn continues or worsens, we could experience a reduction in sales volume.
If we are unable to reduce our operating costs and expenses proportionately, many of which are fixed, our results of operations
would be adversely affected.
Concerns over food safety and public
health may affect our operations by increasing our costs and negatively impacting demand for our products.
We could be adversely
affected by diminishing confidence in the safety and quality of certain food products or ingredients. As a result, we may elect
or be required to incur additional costs aimed at increasing consumer confidence in the safety of our products. For example, a
crisis in the PRC over melamine contaminated milk in 2008 has adversely impacted Chinese food exports since October 2008, as reported
by the Chinese General Administration of Customs, although most foods exported from the PRC were not significantly affected by
the melamine contamination. In addition, our concentrated fruit juices exported to foreign countries must comply with quality standards
in those countries. Our success depends on our ability to maintain the quality of our existing and new products. Product quality
issues, real or imagined, or allegations of product contamination, even if false or unfounded, could tarnish the image of our brands
and may cause consumers to choose other products.
We may engage in future acquisitions
involving significant expenditures of cash, the incurrence of debt or the issuance of stock, all of which could have a materially
adverse effect on our operating results.
As part of our business
strategy, we review acquisition and strategic investment prospects that we believe would complement our current product offerings,
augment our market coverage, enhance our technological capabilities or otherwise offer growth opportunities. From time to time,
we review investments in new businesses and we expect to make investments in, and to acquire, businesses, products or technologies
in the future. In the event of any future acquisitions, we may expend significant cash, incur substantial debt and/or issue equity
securities and dilute the percentage ownership of current shareholders, all of which could have a material adverse effect on our
operating results and the price of our stock. We cannot guarantee that we will be able to successfully integrate any businesses,
products, technologies or personnel that we may acquire in the future, and our failure to do so could have a material adverse effect
on our business, operating results and financial condition.
We require various licenses and permits
to operate our business, and the loss of or failure to renew any or all of these licenses and permits could materially adversely
affect our business.
In accordance with PRC
laws and regulations, we have been required to maintain various licenses and permits in order to operate our business at the relevant
manufacturing facilities including, without limitation, industrial product production permits. We are required to comply with applicable
hygiene and food safety standards in relation to our production processes. Our premises and transportation vehicles are subject
to regular inspections by the regulatory authorities for compliance with the Detailed Rules for Administration and Supervision
of Quality and Safety in Food Producing and Processing Enterprises. Failure to pass these inspections, or the loss of or failure
to renew our licenses and permits, could require us to temporarily or permanently suspend some or all of our production activities,
which could disrupt our operations and adversely affect our business.
Governmental regulations affecting
the import or export of products could negatively affect our revenue.
The United States and
various other governments have imposed controls, export license requirements and restrictions on the export of some of our products.
Governmental regulation of exports, or our failure to obtain required export approval for our products, could harm our international
sales and adversely affect our revenue and profits. In addition, failure to comply with such regulations could result in penalties,
costs and restrictions on export privileges. Additionally, the new U.S. presidential administration has indicated that it may seek
changes to or withdraw the United States from various international treaties and trade arrangements. Uncertainty regarding policies
affecting global trade may make it difficult for our management to accurately forecast our business, and increases in the duties,
tariffs and other charges imposed on our products by the United States or other countries in which on our products are sold, or
other restraints on international trade, could negatively affect our business and the results of our operations.
We do not presently maintain product
liability insurance, and our property and equipment insurance does not cover the full value of our property and equipment, which
leaves us with exposure in the event of loss or damage to our properties or claims filed against us.
We currently do not
carry any product liability or other similar insurance. Product liability claims and lawsuits in the PRC generally are still rare,
unlike in some other countries. Product liability exposures and litigation, however, could become more commonplace in the PRC.
Moreover, we have product liability exposure in countries in which we sell our products, such as the United States, where product
liability claims are more prevalent. As we expand our international sales, our liability exposure will increase.
We may be required from
time to time to recall products entirely or from specific copackers, markets or batches. Although historically we have not had
any recall of our products, we cannot guarantee that circumstances or incidents will not occur that will require us to recall our
products. We do not maintain recall insurance. In the event we experience product liability claims or a product recall, our business
operations and financial condition could be materially adversely affected.
Our business and operations may be
subject to disruption from work stoppages, terrorism or natural disasters.
Our operations may be
subject to disruption for a variety of reasons, including work stoppages, acts of war, terrorism, pandemics, fire, earthquake,
flooding or other natural disasters. If a major incident were to occur in either of the regions where our facilities or main offices
are located, our facilities or offices or those of critical suppliers could be damaged or destroyed. Such a disruption could result
in a reduction in available raw materials, the temporary or permanent loss of critical data, suspension of operations, delays in
shipment of products and disruption of business generally, which would adversely affect our revenue and results of operations.
Risks Related
to the Business and Operations of SkyPeople BVI
Weather and other environmental factors
affect our raw material supply and a reduction in the quality or quantity of our fresh fruit supplies may have material adverse
consequences on our financial results.
Our business may be
adversely affected by weather and environmental factors beyond our control, such as adverse weather conditions during the growing
or squeezing seasons. A significant reduction in the quantity or quality of fresh fruit harvested resulting from adverse weather
conditions, disease or other factors could result in increased per unit processing costs and decreased production, with adverse
financial consequences to us.
Because we experience seasonal fluctuations
in our sales, our quarterly results will fluctuate and our annual performance will depend largely on results from our first and
fourth quarters.
Our business is highly
seasonal, reflecting the harvest season of our primary source fruits from July or August of a year to April the following year.
Typically, a substantial portion of our revenue is earned during our first and fourth quarters. We generally experience lower revenue
during our second and third quarters. Generally, sales in the first and fourth quarters accounted for approximately 65% to 72%
of our revenue of the whole year. If sales in our first and fourth quarters are lower than expected, our operating results would
be adversely affected and it would have a disproportionately large impact on our annual operating results.
We face increasing competition from
both domestic and foreign companies, and any failure by us to compete effectively could adversely affect our results of operations.
The juice beverage industry
is highly competitive, and we expect it to continue to become even more competitive as new producers enter the market and price
pressures escalate. Our ability to compete in the industry depends, to a significant extent, on our ability to distinguish our
products from those of our competitors by providing high quality products at reasonable prices that appeal to consumers’
tastes and preferences. There are currently a number of well-established companies producing products that compete directly with
ours. Some of our competitors may have been in business longer than we have, may have substantially greater financial and other
resources than we have and may be better established in their markets. We anticipate that our competitors will continue to improve
their products and introduce new products with competitive price and performance characteristics.
We
cannot guarantee that our current or potential competitors will not provide products comparable or superior to those we provide
or adapt more quickly than we do to evolving industry trends or changing market requirements. It is also possible that there will
be significant consolidation in the juice beverage industry among our competitors, and alliances may develop among competitors.
These alliances may rapidly acquire significant market share, and some of our distributors may commence production of products
similar to those we sell to them. Increased competition may result in price reductions, reduced margins and loss of market share,
any of which could materially adversely affect our profit margins. We cannot guarantee that we will be able to compete effectively
against current and future competitors. Aggressive marketing or pricing by our competitors or the entrance of new competitors into
our markets could have a material adverse effect on our business, results of operations and financial condition.
The relative lack of public company
experience of our management team may put us at a competitive disadvantage.
Our management team
lacks prior public company experience, which could impair our ability to comply with legal and regulatory requirements such as
those imposed by the Sarbanes-Oxley Act of 2002, (“Sarbanes-Oxley”). Our senior management does not have significant
experience managing a publicly traded company. Such responsibilities include complying with federal securities laws and making
required disclosures on a timely basis. Our senior management may be unable to implement programs and policies in an effective
and timely manner or that adequately respond to the increased legal, regulatory and reporting requirements associated with being
a publicly traded company. Our failure to comply with all applicable requirements could lead to the imposition of fines and penalties,
distract our management from attending to the management and growth of our business, result in a loss of investor confidence in
our financial reports and have an adverse effect on our business and stock price.
We may need additional capital to
fund our future operations and, if it is not available when needed, we may need to reduce our planned development and marketing
efforts, which may reduce our sales revenue.
We believe that our
existing working capital and cash available from operations will enable us to meet our working capital requirements for at least
the next 12 months. However, if cash from future operations is insufficient, or if cash is used for acquisitions or other currently
unanticipated uses, we may need additional capital. The development and marketing of new products and the expansion of distribution
channels and associated support personnel require a significant commitment of resources. In addition, if the markets for our products
develop more slowly than anticipated, or if we fail to establish significant market share and achieve sufficient net revenues,
we may continue to consume significant amounts of capital. As a result, we could be required to raise additional capital. To the
extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities
could result in dilution of the shares held by existing shareholders. If additional funds are raised through the issuance of debt
securities, such securities may provide the holders certain rights, preferences, and privileges senior to those of common shareholders,
and the terms of such debt could impose restrictions on our operations. We cannot guarantee that additional capital, if required,
will be available on acceptable terms, or at all. If we are unable to obtain sufficient amounts of additional capital, we may be
required to reduce the scope of our planned product development and marketing efforts, which could harm our business, financial
condition and operating results.
We may not be able to prevent others
from unauthorized use of our intellectual property, which could harm our business and competitive position.
Our success depends,
in part, on our ability to protect our proprietary technologies. We hold 21 patents in the PRC covering our fruit processing technology.
The process of seeking patent protection can be lengthy and expensive and we cannot guarantee that our existing or future issued
patents will be sufficient to provide us with meaningful protection or commercial advantages. We also cannot guarantee that our
current or potential competitors do not have, and will not obtain, patents that will prevent, limit or interfere with our ability
to make or sell our products in the PRC or other countries.
The implementation and
enforcement of PRC intellectual property laws historically have not been vigorous or consistent. Accordingly, intellectual property
rights and confidentiality protections in the PRC are not as effective as those in the United States and other countries. We may
need to resort to litigation to enforce or defend patents issued to us or to determine the enforceability, scope and validity of
our proprietary rights or those of others. Such litigation will require significant expenditures of cash and management efforts
and could harm our business, financial condition and results of operations. An adverse determination in any such litigation will
impair our intellectual property rights and may harm our business, competitive position, business prospects and reputation.
Intellectual property infringement
claims may adversely impact our results of operations.
As we develop and introduce
new products, we may be increasingly subject to claims of infringement of another party’s intellectual property. If a claim
for infringement is brought against us, such claim may require us to modify our products, cease selling certain products or engage
in litigation to determine the validity and scope of such claims. Any of these events may harm our business and results of operations.
We are subject to the risk of increased
income taxes, which could harm our business, financial condition and operating results.
We base our tax position
upon the anticipated nature and conduct of our business and upon our understanding of the tax laws of the various countries in
which we have assets or conduct activities. However, our tax position is subject to review and possible challenge by tax authorities
and to possible changes in law, which may have retroactive effect. We currently operate through Pacific, a wholly-owned subsidiary
organized under the laws of Vanuatu and SkyPeople (China), a 73.42% owned subsidiary of HeDeTang Holdings (HK) Ltd. organized under
the laws of the PRC, and we maintain manufacturing operations in the PRC. Any of these jurisdictions could assert tax claims against
us. We cannot determine in advance the extent to which some jurisdictions may require us to pay taxes or make payments in lieu
of taxes. If we become subject to additional taxes in any jurisdiction, such tax treatment could materially and adversely affect
our business, financial condition and operating results.
Risks Related
to the Business and Operations of FullMart
The relative lack of public company
experience of our management team may put us at a competitive disadvantage.
Our management team
lacks prior public company experience, which could impair our ability to comply with legal and regulatory requirements such as
those imposed by the Sarbanes-Oxley Act of 2002, (“Sarbanes-Oxley”). Our senior management does not have significant
experience managing a publicly traded company. Such responsibilities include complying with federal securities laws and making
required disclosures on a timely basis. Our senior management may be unable to implement programs and policies in an effective
and timely manner or that adequately respond to the increased legal, regulatory and reporting requirements associated with being
a publicly traded company. Our failure to comply with all applicable requirements could lead to the imposition of fines and penalties,
distract our management from attending to the management and growth of our business, result in a loss of investor confidence in
our financial reports and have an adverse effect on our business and stock price.
We may need additional capital to
fund our future operations and, if it is not available when needed, we may need to reduce our planned development and marketing
efforts, which may reduce our sales revenue.
We believe that our
existing working capital and cash available from operations will enable us to meet our working capital requirements for at least
the next 12 months. However, if cash from future operations is insufficient, or if cash is used for acquisitions or other currently
unanticipated uses, we may need additional capital. The development and marketing of new products and the expansion of distribution
channels and associated support personnel require a significant commitment of resources. In addition, if the markets for our products
develop more slowly than anticipated, or if we fail to establish significant market share and achieve sufficient net revenues,
we may continue to consume significant amounts of capital. As a result, we could be required to raise additional capital. To the
extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities
could result in dilution of the shares held by existing shareholders. If additional funds are raised through the issuance of debt
securities, such securities may provide the holders certain rights, preferences, and privileges senior to those of common shareholders,
and the terms of such debt could impose restrictions on our operations. We cannot guarantee that additional capital, if required,
will be available on acceptable terms, or at all. If we are unable to obtain sufficient amounts of additional capital, we may be
required to reduce the scope of our planned product development and marketing efforts, which could harm our business, financial
condition and operating results.
Risks Related to the Ordinary Shares
of SkyPeople BVI and FullMart
Zeyao Xue will have control over
key decision making as a result of his control of a substantial amount of our voting stock.
Zeyao Xue, the son of
a member of the Board of Directors, indirectly and beneficially owns all of the equity interest in Fancylight Limited (“Fancylight”),
and also serves as the sole director of Fancylight. As of October 19, 2017, Fancylight directly and indirectly owns 2,337,155 shares,
or 45.2%, of our outstanding common stock. Following the completion of the Spin-Offs, Mr. Zeyao Xue will be able to exercise voting
rights with respect to shares of the ordinary stock of each of SkyPeople BVI and FullMart in an equal amount to this common stock,
and has the ability to heavily influence the outcome of matters submitted to our shareholders for approval, including the election
of directors and any merger, consolidation, or sale of all or substantially all of our assets. This concentrated control could
delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of our assets that our
other shareholders support, or conversely this concentrated control could result in the consummation of such a transaction that
our other shareholders do not support. This concentrated control could also discourage a potential investor from acquiring our
common stock due to the limited voting power of such stock. As a shareholder, Mr. Zeyao Xue is entitled to vote his shares, and
shares over which he has voting control, in his own interests, which may not always be in the interests of the other shareholders
generally.
There is
currently no trading market for the securities of SkyPeople BVI and FullMart and an established trading market may not develop.
The
securities of SkyPeople BVI and FullMart are not currently listed or quoted on any national securities exchange or national quotation
system. SkyPeople BVI anticipates registering the securities of a subsidiary on a securities exchange in the PRC, but there can
be no assurance that such a listing will be completed or that, if completed, we will be able to maintain such listing. We do not
currently intend to list the ordinary shares of SkyPeople BVI or FullMart on any exchange in the United States.
You may face difficulties in protecting
your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under British
Virgin Islands law.
Each of SkyPeople BVI
and FullMart is a company incorporated under British Virgin Islands’ laws. Their corporate affairs are governed by their
respective amended and restated memorandums and articles of association, and British Virgin Islands’ law. Shareholders’
rights to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors
to us under British Virgin Islands’ law are largely governed by British Virgin Islands’ common law. It is derived in
part from comparatively limited judicial precedent in the British Virgin Islands and from England’s common law. English court
decisions, however, are not binding on a British Virgin Islands’ court.
Our shareholders’
rights and our directors’ fiduciary responsibilities under British Virgin Islands law are not as clearly established as they
would be under the statutes or case law in most U.S. jurisdictions. In particular, the British Virgin Islands has a less developed
body of securities laws than the U.S. Many U.S. states, such as Delaware, have more fully developed and judicially interpreted
bodies of corporate law than the British Virgin Islands. In addition, British Virgin Islands companies may not have standing to
initiate a shareholder derivative action in U.S. federal courts.
The British Virgin Islands’ courts
are also not likely:
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to recognize or enforce against us judgments of courts of the U.S. based on civil liability provisions of U.S. securities laws; and
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to impose liabilities against us, in original actions brought in the British Virgin Islands, based on civil liability provisions of U.S. securities laws that are penal in nature.
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Based on the above, shareholders may have
more difficulty in protecting their interests against actions taken by management, members of the Board of Directors or controlling
shareholders than they would as public shareholders of a company incorporated in the U.S.
Risks Related to Doing Business in China
Each of the Company, SkyPeople BVI and
FullMart will maintain operations in China.
Inflation in the PRC could negatively
affect our profitability and growth.
The rapid growth of
China’s economy has been uneven among economic sectors and geographic regions of the country. China’s economy grew
at an annual rate of 6.7% in 2016, as measured by the year-over-year change in gross domestic product, or GDP, according to the
National Bureau of Statistics of China. Rapid economic growth can lead to growth in the money supply and rising inflation. The
inflation rate in China was approximately 2.0% in 2016, as reported by National Bureau of Statistics, and is expected to increase.
If prices for our products and services fail to rise at a rate sufficient to compensate for the increased costs of supplies, such
as raw materials, due to inflation, it may have an adverse effect on our profitability.
Furthermore, in order
to control inflation in the past, the PRC government has imposed controls on bank credits, limits on loans for property, plant
and equipment and restrictions on state bank lending. The implementation of such policies may impede future economic growth. The
People’s Bank of China has effected increases in interest rates in response to inflationary concerns in the China’s
economy. If the central bank again raises interest rates from current levels, economic activity in China could further slow and,
in turn, materially increase our costs and reduce demand for our products and services.
We face the risk that changes in
the policies of the PRC government could have a significant impact upon the business we may be able to conduct in the PRC and the
profitability of such business.
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. While we believe that the
PRC will continue to strengthen its economic and trading relationships with foreign countries and that business development in
the PRC will continue to follow market forces, we cannot guarantee that this will be the case. Our interests may be adversely affected
by changes in policies by the PRC government, including:
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changes in laws, regulations or their interpretation;
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confiscatory taxation;
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restrictions on currency conversion, imports or sources of supplies;
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expropriation or nationalization of private enterprises; and
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the allocation of resources.
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Although the PRC government
has been pursuing economic reform policies for more than two decades, the PRC government continues to exercise significant control
over economic growth in the PRC through the allocation of resources, controlling payments of foreign currency, setting monetary
policy and imposing policies that impact particular industries in different ways. We cannot guarantee that the PRC government will
continue to pursue policies favoring a market oriented economy or that existing policies will not be significantly altered, especially
in the event of a change in leadership, social or political disruption, or other circumstances affecting political, economic and
social life in the PRC.
The original incorporation of SkyPeople
(China) as a joint stock company in 2001 did not obtain all required approvals from the PRC government authorities pursuant to
the relevant PRC law effective at the time, and we may be subject to various penalties under the law retroactively.
The original incorporation
of SkyPeople (China) (under the original name of Xi’an Zhonglv Ecology Science and Technology Industry Co., Ltd.) as a joint
stock company in 2001 was approved by the Xi’an Municipal People’s Government. However, according to the applicable
PRC Company Law that was in force in 2001, the incorporation of SkyPeople (China) as a joint stock company shall be subject to
the approval by the government authority of Shaanxi Province. Pursuant to the PRC Company Law which was in force in 2001, if company
stocks is arbitrarily issued without obtaining the approval of the relevant competent authorities stipulated under the law, the
parties concerned may be ordered to cease the issuance of the stock, refund the raised capital and the interests accrued therefrom,
and may be subject to a fine of no less than one percent but no more than five percent of the amount of the raised capital. As
such, SkyPeople (China) may be subject to any or all of the foregoing penalties as provided under the PRC Company Law effective
in 2001 should the relevant government authorities choose to enforce the law retroactively.
However, we believe
that the regulatory authorities may consider the following factors as mitigating factors if such authorities choose to enforce
the applicable laws:
(i) the incorporation
of SkyPeople (China) obtained the approval by the Xi’an local government. As general practice in approval procedures,
the applicants may only be able to first approach the Xi’an local government authority in order to acquire the approval by
a higher level government authority, and would generally rely on the Xi’an local government to then submit the application
to a higher level authority for its final approval; and
(ii) the trend of the
PRC Company Law is to deregulate the approvals on the incorporation of joint stock companies in China. In particular, the current
PRC Company Law, effective since January 1, 2006, has eliminated the relevant approval requirement relating to the incorporation
of joint stock companies. Instead, the current PRC Company Law merely requires a registration with the competent Administration
for Industry and Commerce in connection with the incorporation of joint stock companies in the PRC as long as the stock is not
issued to the public.
In addition, if needed in the future, we
may make efforts to seek a written confirmation from the Shaanxi Provencal People’s Government regarding its ratification
of the original incorporation of SkyPeople (China) as a joint stock company.
Our current manufacturing operations
are subject to various environmental protection laws and regulations issued by the central and local governmental authorities,
and we cannot guarantee that we have fully complied with all such laws and regulations. In addition, changes in the existing laws
and regulations or additional or stricter laws and regulations on environmental protection in the PRC may cause us to incur significant
capital expenditures, and we cannot guarantee that we will be able to comply with any such laws and regulations.
We carry out our business
in an industry that is subject to PRC environmental protection laws and regulations. These laws and regulations require enterprises
engaged in manufacturing and construction that may cause environmental waste to adopt effective measures to control and properly
dispose of waste gases, waste water, industrial waste, dust and other environmental waste materials, as well as fee payments from
producers discharging waste substances. Fines may be levied against producers causing pollution. Although we have made
efforts to comply with such laws and regulations, we cannot guarantee that we have fully complied with all such laws and regulations.
Except for Yingkou, all of our operating facilities hold a Pollution Emission Permit. The failure of complying with such laws or
regulations may subject us to various administrative penalties such as fines. If the circumstances of the breach are serious, the
central government of the PRC, including all governmental subdivisions, has the discretion to cease or close any operations failing
to comply with such laws or regulations. There can also be no assurance that the PRC government will not change the existing laws
or regulations or impose additional or stricter laws or regulations, compliance with which may cause us to incur significant capital
expenditure, which we may be unable to pass on to our customers through higher prices for our products. In addition, we cannot
guarantee that we will be able to comply with any such laws and regulations.
Changes in existing PRC food hygiene
and safety laws may cause us to incur additional costs to comply with the more stringent laws and regulations, which could have
an adverse impact on our financial position.
Manufacturers within
the PRC beverage industry are subject to compliance with PRC food hygiene laws and regulations. These food hygiene and safety laws
require all enterprises engaged in the production of juice and other beverages to obtain a food production license for each of
their production facilities. They also set out hygiene and safety standards with respect to food and food additives, packaging
and containers, information to be disclosed on packaging as well as hygiene requirements for food production and sites, facilities
and equipment used for the transportation and sale of food. Failure to comply with PRC food hygiene and safety laws may result
in fines, suspension of operations, loss of business licenses and, in more extreme cases, criminal proceedings against an enterprise
and its management. Although we comply with current food hygiene laws, in the event that the PRC government increases the stringency
of such laws, our production and distribution costs may increase, which could adversely impact our financial position.
We benefit from various forms of
government subsidies and grants, the withdrawal of which could affect our operations.
Certain of our subsidiaries
have received government subsidies from local governments. We recognized $0.03 million and $1.2 million in government subsidies
for fiscal years 2016 and 2015, respectively. Past government grants or subsidies are not indicative of what we will obtain in
the future. We cannot guarantee that we will continue to be eligible for government grants or other forms of government support.
In the event that we are no longer eligible for grants, subsidies or other government support, our business and financial condition
could be adversely affected.
PRC laws and regulations governing
our current business operations are sometimes vague and uncertain and any changes in such laws and regulations may harm our business.
There are substantial
uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws
and regulations governing our business and the enforcement and performance of our arrangements with customers in certain circumstances.
We are considered foreign persons or foreign funded enterprises under PRC laws and, as a result, we are required to comply with
PRC laws and regulations related to foreign persons and foreign funded enterprises. These laws and regulations are sometimes vague
and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty. The
effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance. New laws and
regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect
the interpretation of existing or new PRC laws or regulations may have on our business.
Each of Future FinTech, SkyPeople
BVI and FullMart could be restricted from paying dividends to shareholders due to PRC laws and other contractual requirements.
Each of Future FinTech,
SkyPeople BVI and FullMart is a holding company incorporated outside of China and does not have any assets or conduct any business
operations other than our investments in our subsidiaries and affiliates. As a result of our holding company structure,
we rely entirely on dividend payments from our operating subsidiaries. PRC accounting standards and regulations currently
permit payment of dividends only out of accumulated profits, a portion of which is required to be set aside for certain reserve
funds. Furthermore, if our operating subsidiaries incurs debt on its own in the future, the instruments governing the
debt may restrict its ability to pay dividends or make other payments. Although we do not intend to pay dividends in
the future, our inability to receive all of the revenue from our operating subsidiaries’ operations may provide an additional
obstacle to our ability to pay dividends if we so decide in the future.
Governmental control of currency
conversion may affect the value of shareholder investments.
The PRC government imposes
controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of the PRC. RMB
is currently not a freely convertible currency. Shortages in the availability of foreign currency may restrict our ability
to remit sufficient foreign currency to satisfy foreign currency obligations. Under existing PRC foreign exchange regulations,
payments of current account items, including profit distributions, interest payments and expenditures from the transaction, can
be made in foreign currencies without prior approval by complying with certain procedural requirements. Approval from
appropriate governmental authorities, however, is required where RMB is to be converted into foreign currency and remitted out
of the PRC to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. In addition,
the PRC government could restrict access to foreign currencies for current account transactions in the future. If the
foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may
not be able to pay certain of our expenses as they come due.
The fluctuation of the RMB may harm
shareholder investments.
The value of the RMB
against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political
and economic conditions. Any significant revaluation of the RMB may materially and adversely affect our cash flows,
revenue and financial condition. For example, to the extent that we need to convert U.S. dollars we receive from an
offering of our securities into RMB for our operations, appreciation of the RMB against the U.S. dollar would diminish the value
of the proceeds of the offering and could harm our business, financial condition and results of operations. Conversely,
if we decide to convert our RMB into U.S. dollars for business purposes and the U.S. dollar appreciates against the RMB, the U.S.
dollar equivalent of the RMB we convert would be reduced. In addition, the depreciation of significant U.S. dollar denominated
assets could result in a charge to our income statement and a reduction in the value of these assets.
PRC regulations relating to mergers
and the establishment of offshore special purpose companies by PRC residents, if applied to us, may limit our ability to operate
our business as we see fit.
On August 8, 2006, six
Chinese regulatory agencies, namely, MOFCOM, the State Assets Supervision and Administration Commission, the State Administration
for Taxation (“SAT”), SAIC, the Securities Regulatory Commission (“CSRC”) and the State Administration
of Foreign Exchange (“SAFE”), jointly promulgated the Regulation on Mergers and Acquisitions of Domestic Companies
by Foreign Investors, generally referred to as the 2006 M&A Rules, which became effective on September 8, 2006. The 2006 M&A
Rules, among other things, govern the approval process by which an offshore investor may participate in an acquisition of assets
or equity interests of a Chinese domestic company. Depending on the structure of the transaction, the 2006 M&A Rules require
the transaction parties to make a series of applications to the government agencies. In some instances, the application process
may require the presentation of economic data concerning a transaction, including appraisals of the target business and evaluations
of the acquirer, which are designed to allow the government to assess the transaction. Under certain circumstances, government
approvals will have expiration dates by which a transaction must be completed and reported to the government agencies. Compliance
with the 2006 M&A Rules will be more time consuming and expensive than in the past, and the government can exert more control
over the combination of two businesses under the 2006 M&A Rules. As a result of any potential application of the 2006 M&A
Rules, our ability to engage in business combination transactions in the PRC has become significantly more complicated, time consuming
and expensive, and we may not be able to negotiate a transaction that is acceptable to us or sufficiently protective of our interests
in a transaction.
In October 2005, SAFE
issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose
Companies by Residents Inside the PRC, generally referred to as Circular 75. Circular 75 requires Chinese residents to register
with an applicable branch of SAFE before establishing or acquiring control over an offshore special purpose company for the purpose
of engaging in an equity financing outside of the PRC that is supported by domestic Chinese assets originally held by those residents.
Following the issuance of Circular 75, SAFE issued internal implementing guidelines for Circular 75 in June 2007. These implementing
guidelines, known as Notice 106, effectively expanded the reach of Circular 75 by:
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purporting to regulate the establishment or acquisition of control by Chinese residents of offshore entities which merely acquire “control” over domestic companies or assets, even in the absence of legal ownership;
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adding requirements relating to the source of the Chinese resident’s funds used to establish or acquire the offshore entity;
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regulating the use of existing offshore entities for offshore financings;
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purporting to regulate situations in which an offshore entity establishes a new subsidiary in the PRC or acquires an unrelated company or unrelated assets in the PRC;
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making the domestic affiliate of the offshore entity responsible for the accuracy of certain documents which must be filed in connection with any such registration, notably, the business plan which describes the overseas financing and the use of proceeds; and
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requiring that the registrant establish that all foreign exchange transactions undertaken by the offshore entity and its affiliates were in compliance with applicable laws and regulations.
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No assurance can be
given that our shareholders who are the residents as defined in Circular 75 and who own or owned our shares have fully complied
with, and will continue to comply with, all applicable registration and approval requirements of Circular 75 in connection with
their equity interests in us and our acquisition of equity interests in our PRC based subsidiaries by virtue of the Company’s
acquisition of Pacific. Moreover, because of uncertainty over how Circular 75 will be interpreted and implemented, and how or whether
SAFE will apply it to us following the Pacific acquisition, we cannot predict how it will affect our business operations or future
strategies. For example, the ability of our present and prospective PRC subsidiaries to conduct foreign exchange activities, such
as the remittance of dividends and foreign currency denominated borrowings, may be subject to compliance with Circular 75 by our
Chinese resident beneficial holders. In addition, such Chinese residents may not always be able to complete the necessary registration
procedures required by Circular 75. We have little control over our present or prospective direct or indirect shareholders /beneficial
owners or the outcome of such registration procedures. If our Chinese shareholders/beneficial owners or the Chinese shareholders/beneficial
owners of the target companies we acquired in the past or will acquire in the future fail to comply with Circular 75 and related
regulations, and if SAFE requires it, they may be subject to fines or legal sanctions, and Chinese authorities could restrict our
investment activities in the PRC, limit our subsidiaries’ ability to make distributions or pay dividends, or affect the ownership
structure, which could adversely affect business and prospects.
In August 2008, SAFE
issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement
of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142, regulating the conversion by a foreign-invested
enterprise of foreign currency-registered capital into RMB by restricting how the converted RMB may be used. In addition, SAFE
promulgated Notice on Issues concerning Further Clarifying and Regulating the Foreign Exchange Administration under Some Capital
Accounts, or Circular 45, on November 9, 2011 to clarify the application of SAFE Circular 142. Under SAFE Circular 142 and
Circular 45, RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for
purposes within the business scope approved by the applicable government authority and may not be used for equity investments within
the PRC. In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered
capital of foreign-invested enterprises. The use of such RMB capital may not be changed without SAFE’s approval, and such
RMB capital may not, in any case, be used to repay RMB loans whose proceeds were not used. Furthermore, SAFE promulgated Notice
on Issues Concerning Strengthening Administration of Foreign Exchange Services in November 2010, which tightens the regulation
over settlement of net proceeds from overseas offerings, such as our initial public offering, and requires, among other things,
the authenticity of settlement of net proceeds from offshore offerings to be closely examined and the net proceeds to be settled
in the manner described in our prospectus or otherwise approved by our board of directors. Violations of these SAFE regulations
may result in severe monetary or other penalties, including confiscation of earnings derived from such violation activities, a
fine of up to 30% of the RMB funds converted from the foreign invested funds or in the case of a severe violation, a fine ranging
from 30% to 100% of the RMB funds converted from the foreign-invested funds.
In November 2012, SAFE
promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment,
which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various
special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee
accounts, the reinvestment of RMB proceeds by foreign investors in the PRC, and remittance of foreign exchange profits and dividends
by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple
capital accounts for the same entity may be opened in different provinces, which was not previously possible. In addition, SAFE
promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment
by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration by the SAFE or its local
branches over direct investment by foreign investors in the PRC will be conducted by way of registration, and banks must process
foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and
its branches.
Under the Circular of
the SAFE on Further Improving and Adjusting the Policies for Foreign Exchange Administration under Capital Accounts promulgated
by the SAFE on January 10, 2014 and effective from February 10, 2014, administration over the outflow of the profits
by domestic institutions has been further simplified. In principle, a bank is no longer required to examine transaction documents
when handling the outflow of profits of no more than the equivalent of $50,000 by a domestic institution. When handling the outflow
of profits exceeding the equivalent of $50,000, the bank, in principle, is no longer required to examine the financial audit report
and capital verification report of the domestic institution, provided that it must examine, according to the principle of transaction
authenticity, the profit distribution resolution of the board of directors, or the profit distribution resolution of the partners,
relating to this profit outflow and the original copy of its tax record-filing form. After each profit outflow, the bank must affix
its seal to and endorsements on the original copy of the relevant tax record-filing form to indicate the actual amount of the profit
outflow and the date of the outflow.
On March 30, 2015,
SAFE promulgated the Circular on Reforming the Management Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested
Enterprises, or SAFE Circular 19, which became effective on June 1, 2015. According to SAFE Circular 19, the foreign exchange
capital of foreign-invested enterprises may be settled on a discretionary basis, meaning that the foreign exchange capital in the
capital account of a foreign-invested enterprise for which the rights and interests of monetary contribution has been confirmed
by the local foreign exchange bureau, or the book-entry registration of monetary contribution by the banks, can be settled at the
banks based on the actual operational needs of the foreign-invested enterprise. The proportion of such discretionary settlement
is temporarily determined as 100%. The RMB converted from the foreign exchange capital will be kept in a designated account, and
if a foreign-invested enterprise needs to make further payment from such account, it still must provide supporting documents and
go through the review process with the banks.
Furthermore, SAFE Circular
19 stipulates that the use of capital by foreign-invested enterprises must adhere to the principles of authenticity and self-use
within the business scope of enterprises. The capital of a foreign-invested enterprise and capital in RMB obtained by the foreign-invested
enterprise from foreign exchange settlement must not be used for the following purposes:
(1) directly or indirectly used
for the payment beyond the business scope of the enterprises or the payment prohibited by relevant laws and regulations;
(2) directly or indirectly used
for investment in securities, unless otherwise provided by relevant laws and regulations;
(3) directly or indirectly used
for granting the entrusted loans in RMB, unless permitted by the scope of business, repaying the inter-enterprise borrowing, including
advances by the third party, or repaying the bank loans in RMB that have been sub-lent to the third party; and/or
(4) paying the expenses related
to the purchase of real estate that is not for self-use, except for the foreign-invested real estate enterprises.
On June 19, 2016,
SAFE promulgated the Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts,
or Circular 16, which took effect on the same day. Compared to Circular 19, Circular 16 provides that discretionary foreign exchange
settlement applies to foreign exchange capital, foreign debt offering proceeds and remitted foreign listing proceeds, and the corresponding
Renminbi obtained from foreign exchange settlement are not restricted to extending loans to related parties or repaying the inter-company
loans, including advances by third parties. However, since Circular 16 came into effect recently, there are substantial uncertainties
with respect to its interpretation and implementation in practice.
On January 26,
2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and
Compliance Verification, or Circular 3, which took effect on the same day. Circular 3 sets out various measures with the following
key contents:
(1)relaxing the policy restriction
on foreign exchange inflow to further enhance trade and investment facilitation, including (a) expanding the scope of foreign
exchange settlement for domestic foreign exchange loans, (b) allowing the capital repatriation for offshore financing against
domestic guarantee, (c) facilitating the centralized management of foreign exchange funds of multinational companies, and
(d) allowing the offshore institutions within pilot free trade zones to settle foreign exchange in domestic foreign exchange
accounts; and
(2)tightening genuineness and
compliance verification of cross-border transactions and cross-border capital flow, including (a) improving the statistics
of current account foreign currency earnings deposited offshore, (b) requiring banks to verify board resolutions, tax filing
forms, and audited financial statements before wiring foreign invested enterprises’ foreign exchange distribution above $50,000,
(c) strengthening genuineness and compliance verification of foreign direct investments and (d) implementing full scale
management of offshore loans in Renminbi and foreign currencies by requiring the total amount of offshore loans be no higher than
30% of the onshore lender’s equity shown on its audited financial statements of the last year.
Our PRC subsidiaries’
distributions to the offshore parent and their carrying out cross-border foreign exchange activities are subject to the various
SAFE registration requirements described above.
Our acquisition of SkyPeople (China)
could constitute a Round-trip Investment under the 2006 M&A Rules.
Prior to obtaining the
MOFCOM approval on September 3, 2007 and Xi’an Administration of Industry and Commerce (“AIC”) approval on October
18, 2007, and prior to the full payment of the purchase price by Pacific for 99% of SkyPeople (China)’s capital stock, SkyPeople
(China) was a PRC business some of whose shareholders were PRC individuals including Hongke Xue, chairman of SkyPeople (China).
When Pacific was incorporated on November 30, 2006 and when the SkyPeople (China) acquisition was approved, none of the shareholders
of Pacific were PRC citizens. Immediately after the consummation of the share exchange, shareholders of Pacific became our shareholders,
including Fancylight, our controlling shareholder. To incentivize Mr. Hongke Xue in connection with the continuous development
of SkyPeople (China)’s business, a call option agreement was entered into between Fancylight and Mr. Hongke Xue on February
25, 2008 pursuant to which Mr. Xue had the opportunity to acquire a majority of our Common Stock held by Fancylight. Mr. Xue and
Fancylight also entered into a voting trust agreement pursuant to which Mr. Xue has the right to vote such shares on Fancylight’s
behalf.
The PRC regulatory authorities
may take the view that the SkyPeople (China) acquisition, the share exchange transaction and the call option and voting trust arrangements
are part of an overall series of arrangements which constitute a round-trip investment regulated by the 2006 M&A Rules, because
at the end of these transactions the same PRC individual who controlled SkyPeople (China) became the effective controlling party
of a foreign entity that acquired ownership of SkyPeople (China). The PRC regulatory authorities may also take the view that the
approval of the SkyPeople (China) acquisition by the MOFCOM and the registration of such acquisition with the AIC in Xi’an
AIC may not be evidence that the SkyPeople (China) acquisition has been properly approved because the relevant parties did not
fully disclose to the MOFCOM or AIC the overall restructuring arrangements. If the PRC regulatory authorities take the view that
the SkyPeople (China) acquisition constitutes a round-trip investment under the 2006 M&A Rules, we cannot guarantee that we
will be able to obtain the required MOFCOM approval.
If the PRC regulatory
authorities take the view that the SkyPeople (China) acquisition constitutes a round-trip investment without MOFCOM approval on
such round-trip investment, they could invalidate our acquisition and ownership of SkyPeople (China).
Additionally, the 2006
M&A Rules also purport to require that an offshore special purpose vehicle (“ SPV”) formed for listing purposes
and controlled directly or indirectly by PRC companies or individuals shall obtain the approval of the CSRC prior to the listing
and trading of such SPV’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its
official website procedures specifying documents and materials required to be submitted to it by SPVs seeking CSRC approval of
their overseas listings. However, the application of this PRC regulation remains unclear, with no consensus currently existing
regarding the scope and applicability of the CSRC approval requirement. Given that we established our PRC subsidiaries by means
of direct investments, we believe that these regulations do not require an application to be submitted to the CSRC for the approval
of the listing and trading of our stock on the NASDQ Global Market, unless we are clearly required to do so by subsequently promulgated
rules of the CSRC. If the CSRC or another PRC regulatory agency subsequently determines that CSRC approval was required for the
offerings, we may need to apply for a remedial approval from the CSRC and may be subject to certain administrative punishments
or other sanctions from these regulatory agencies. The regulatory agencies may take actions that could have a material adverse
effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our
stock.
We believe that if this
takes place, we may be able to find a way to reestablish control of our operating subsidiaries’ business operations through
a series of contractual arrangements rather than an outright purchase of our operating subsidiaries. But we cannot guarantee that
such contractual arrangements will be protected by PRC law or that we can receive as complete or effective economic benefit and
overall control of our operating subsidiaries’ business than if we had direct ownership of our operating subsidiaries. In
addition, we cannot guarantee that such contractual arrangements can be successfully implemented under PRC law. If we cannot obtain
approval from MOFCOM and/or CSRC if required by the PRC regulatory authorities to do so, and if we cannot put in place or enforce
relevant contractual arrangements as an alternative and equivalent means of control of our operating subsidiaries, our business
and financial performance will be materially adversely affected.
Because our principal assets are
located outside of the United States, it may be difficult for investors to use U.S. securities laws to enforce their rights
against us, our officers and directors or to enforce judgments of United States courts against us or them in the PRC.
All of our present
officers and directors reside outside of the United States. In addition, our operating subsidiaries are located in the PRC and
substantially all of its assets are located outside of the United States. Therefore, it may be difficult for investors in the
United States to enforce their legal rights based on the civil liability provisions of the U.S. securities laws against us in
the courts of either the United States or the PRC and, even if civil judgments are obtained in courts of the United States, to
enforce such judgments in the PRC courts. Further, it is unclear if extradition treaties now in effect between the United States
and the PRC would permit effective enforcement against us or our officers and directors of criminal penalties under the U.S. Federal
securities laws or otherwise.
THE ANNUAL MEETING
Date, Time and Place of the Annual
Meeting
The Annual Meeting
will be held at 10:00 a.m., local time, on Monday, December 18, 2017, at the Company’s principal executive offices at 16F,
China Development Bank Tower, No.2, Gaoxin 1
st
Road, Xi’an, Shaanxi, China, 710075.
Matters to be Voted Upon at the
Annual Meeting
At the Annual
Meeting, Future FinTech is asking its shareholders as of the record date of October 31, 2017 (the “Record Date”) to
consider and vote upon proposals:
(1)
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To elect five directors to hold office until the next Annual Meeting of Shareholders and until their
successors are elected and qualified;
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(2)
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To ratify the Audit Committee’s selection of the independent registered public accounting firm for the fiscal year ending December 31, 2017;
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(3)
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To approve the spin-off of the Company’s wholly-owned subsidiaries, SkyPeople Foods Holdings Limited (BVI) (“SkyPeople BVI”) and FullMart Holdings Limited (BVI) (“FullMart”), through a pro rata distribution of the ordinary shares of each of SkyPeople BVI and FullMart to holders of the Company’s common stock at the close of business on October 31, 2017, the record date (the “Spin-Offs”);
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(4)
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To amend Future FinTech’s Second Amended and Restated Articles of Incorporation to increase Future FinTech’s authorized shares of common stock, par value $0.001 per share, from 8,333,333 to 60,000,000 shares (the “Amendment”);
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(5)
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To adopt and approve the Future FinTech Group Inc. 2017 Omnibus Equity Plan; and
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(6)
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To transact such other business as may properly come before the meeting or any adjournment thereof.
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Record Date;
Shares Entitled to Vote; Quorum
Shareholders will
be entitled to vote or direct votes to be cast at the Annual Meeting if they owned shares of Future FinTech common stock on the
Record Date. Shareholders will have one vote for each share of Future FinTech common stock owned at the close of business on the
Record Date. If your shares are held in “street name” or are in a margin or similar account, you should contact your
broker to ensure that votes related to the shares you beneficially own are properly counted. On the Record Date, there were •
shares of Future FinTech common stock outstanding.
A quorum of Future
FinTech shareholders is necessary to hold a valid meeting. A quorum will be present at the Annual Meeting if a majority of the
outstanding shares entitled to vote at the meeting are represented in person or by proxy. Abstentions and broker non-votes will
count as present for the purposes of establishing a quorum.
Vote Required;
Abstentions and Broker Non-Votes
The nominees for
election as directors at the Annual Meeting will be elected by a plurality of the votes cast at the meeting. This means that the
director nominee with the most votes for a particular slot is elected for that slot. Votes withheld from one or more director nominees
will have no effect on the election of any director from whom votes are withheld. The approval of each of the other proposals require
the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on that proposal. Abstentions
and broker non-votes will have the same effect as a vote “against” each of the proposals.
Shares Held by Future FinTech’s
Directors and Executive Officers
As of the Record
Date, the directors and executive officers of Future FinTech as a group owned and were entitled to vote • shares of the common
stock of the Company, representing approximately •% of the outstanding shares of Future FinTech common stock on that date.
Future FinTech expects that its directors and executive officers will vote their shares in favor of each of the proposals, but
none of the Company’s directors or executive officers has entered into any agreement obligating any of them to do so.
Voting of Proxies
If your shares are registered in your name
with our transfer agent, Continental Stock Transfer & Trust Company, you may cause your shares to be voted by returning a signed
proxy card, or you may vote in person at the Annual Meeting. Based on your proxy cards, the proxy holders will vote your shares
according to your directions.
If you plan to attend the Annual Meeting
and wish to vote in person, you will be given a ballot at the meeting. If your shares are registered in your name, you are encouraged
to vote by proxy even if you plan to attend the Annual Meeting in person. If you attend the Annual Meeting and vote in person,
your vote by ballot will revoke any proxy previously submitted.
Voting instructions are included on your
proxy card. All shares represented by properly executed proxies received in time for the Annual Meeting will be voted at the Annual
Meeting in accordance with the instructions of the shareholder. In the event that properly executed proxies do not contain voting
instructions for any given proposal, the Future FinTech common stock represented by such proxies will be voted in favor of each
such proposal.
If your shares are held in “street
name” through a broker, bank or other nominee, you may vote through your broker, bank or other nominee by completing and
returning the voting form provided by your broker, bank or other nominee. If you do not return your bank’s, broker’s
or other nominee’s voting form or do not attend the Annual Meeting and vote in person with a proxy from your broker, bank
or other nominee, it will have the same effect as if you voted “
AGAINST
” the proposals presented for a vote.
Revocability of Proxies
If you are a shareholder of record, you
may change your vote or revoke your proxy at any time before it is voted at the Annual Meeting by:
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Signing another proxy card with a later date and returning it to us prior to the Annual Meeting; or
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Attending the Annual Meeting and voting in person.
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Please note that to be effective, your
new proxy card, internet or telephonic voting instructions or written notice of revocation must be received by us prior to the
Annual Meeting. If you have submitted a proxy, your appearance at the Annual Meeting, in the absence of voting in person or submitting
an additional proxy or revocation, will not have the effect of revoking your prior proxy.
If you hold your shares of common stock
in “street name,” you should contact your bank, broker or other nominee for instructions regarding how to change your
vote. You may also vote in person at the Annual Meeting if you obtain a valid “legal” proxy from your bank, broker
or other nominee. Any adjournment, recess or postponement of the Annual Meeting for the purpose of soliciting additional proxies
will allow Future FinTech shareholders who have already sent in their proxies to revoke them at any time prior to their use at
the Annual Meeting as adjourned, recessed or postponed.
Board of Directors’ Recommendation
After careful
consideration, the Company’s board of directors recommends that you vote or give instruction to vote:
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“
FOR
” the nominees for director named in this proxy statement;
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“
FOR
” the ratification of the Audit Committee’s selection of the independent registered public accounting firm;
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“
FOR
” the SkyPeople BVI and FullMart spin-offs proposal;
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“
FOR
” the amendment to Future FinTech’s Second Amended and Restated Articles of Incorporation to increase Future FinTech’s authorized shares of common stock from 8,333,333 to 60,000,000; and
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“
FOR
” the adoption of the Future FinTech Group Inc. 2017 Omnibus Equity Plan.
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Solicitation of Proxies
The expense of soliciting proxies in the
enclosed form will be borne by Future FinTech. Proxies may also be solicited by some of our directors, officers and employees,
personally or by telephone, facsimile, e-mail or other means of communication. No additional compensation will be paid for such
services.
Anticipated Date of Completion of the Spin-Offs
Assuming timely satisfaction of necessary
pre-conditions, including the approval by our shareholders of the proposals to approve the Spin-Offs, we anticipate that the Spin-Offs
will be completed in the first quarter of 2018. However, Future FinTech cannot assure you when or if either of the Spin-Offs will
occur. The Spin-Offs are subject to shareholder approvals and other conditions, and it is possible that factors outside the control
of Future FinTech could result in the Spin-Offs being completed at a later time, or not at all. There may be a substantial amount
of time between the Annual Meeting and the completion of the Spin-Offs.
Householding of Annual Meeting Materials
The SEC has adopted rules that permit companies
and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy materials with respect to two or more shareholders
sharing the same address by delivering a single set of proxy materials. This process, which is commonly referred to as “householding,”
potentially results in extra convenience for shareholders and cost savings for companies. The Company has adopted the SEC-approved
“householding” procedure.
Upon written or oral request, the Company
will deliver promptly a separate copy of the Notice of Annual Meeting of Shareholders, this Proxy Statement and the 2016 Annual
Report to any shareholder at a shared address to which the Company delivered a single copy of any of these documents. If, at any
time, you no longer wish to participate in “householding” and would prefer to receive a separate set of proxy materials,
you may:
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Send a written request to the Company’s Corporate Secretary at 16F, China Development Bank Tower, No.2, Gaoxin 1
st
Road, Xi’an, Shaanxi, China, 710075, or call 86-29-81878827 if you are a shareholder of record; or
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Notify your broker, if you hold your common shares under street name.
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If you are receiving more than one copy
of the proxy materials at a single address and would like to participate in householding, please contact the Company using the
mailing address and phone number above. Shareholders who hold shares in street name may contact their brokerage firm, bank, broker-dealer
or other similar organization to request information about householding.
THE SPIN-OFFS
Parties Involved in the Spin-Offs
Future FinTech Group Inc.
We are a holding company incorporated
under the laws of the State of Florida. We have three direct wholly-owned subsidiaries: Belkin Foods Holdings Group Co., Ltd.,
(“Belkin”), a company incorporated under the laws of the British Virgin Island, FullMart Holding Limited (“FullMart”),
a company organized under the laws of British Virgin Island, and SkyPeople Foods Holding Limited (“SkyPeople BVI”),
company organized under the laws of British Virgin Island. SkyPeople BVI holds 100% of the equity interest of HeDeTang Holding
(HK) Ltd. (“HeDeTang Holding (HK)”), a company organized under the laws of the Hong Kong Special Administrative Region
of the People’s Republic of China (“Hong Kong”), and HeDeTang Holding (HK) holds 73.42% of the equity interest
of SkyPeople Juice Group Co., Ltd., (“SkyPeople (China)”), a company incorporated under the laws of the PRC. SkyPeople
(China) has ten subsidiaries, all limited liability companies organized under the laws of the PRC: (i) Shaanxi Qiyiwangguo Modern
Organic Agriculture Co., Ltd. (“Shaanxi Qiyiwangguo”); (ii) Huludao Wonder Fruit Co., Ltd. (“Huludao Wonder”);
(iii) Yingkou Trusty Fruits Co., Ltd. (“Yingkou”); (iv) Hedetang Foods Industry (Yidu) Co. Ltd. (“Food Industry
Yidu”); (v) Shaanxi Heying Trading Co. Ltd (“Shaanxi Heying ”); (vi) Hedetang Agricultural Plantation (Yidu)
Co. Ltd. (“Agricultural Plantation Yidu”); (vii) Xi’an Hedetang Fruit Juice Beverages Co., Ltd. (“Xi’an
Hedetang”); (viii) Xi’an Cornucopia International Co., Ltd. (“Xi’an Cornucopia”); (ix) Xi’an
Hedetang E-commerce Co. Ltd. (“Hedetang E-commerce”) and (x) Hedetang Foods Industry (Zhouzhi) Co. Ltd. (“Foods
Industry Zhouzhi”). Shenzhen TianShunDa Equity Investment Fund Management Co., Ltd. (the “TSD”), a limited liability
corporation registered in China, holds another 26.36% of the equity interest of SkyPeople (China). FullMart holds 100% of equity
interest of Hedetang Holdings (Asia Pacific) Ltd. (“Hedetang Holdings (Asia Pacific)”), a company organized under
the laws of Hong Kong. Hedetang Holdings (Asia Pacific) holds 100% of the equity interest of HeDeJiaChuan Holding Group Co. Ltd.,
(“HeDeJiaChuan Holding”), a company incorporated under the laws of the PRC, which holds 100% of HeDeJiaChuan Foods
(Xi’an) Co. Ltd. (“HeDeJiaChuan Xi’an”), a company incorporated under the laws of the PRC. HeDeJiaChuan
Xi’an has four subsidiaries: (i) SkyPeople (Suizhong) Fruit and Vegetable Products Co., Ltd (“SkyPeople Suizhong”);
(ii) HedeJiachuan Foods (Yichang) Co. Ltd (“Hedejiachuan Yichang”); (iii) Hedetang Foods Industry (Jingyang) Co. Ltd.
(“Foods Industry Jingyang”); and (iv) Shaanxi Guo Wei Mei Kiwi Deep Processing Co., Ltd. (“Guo Wei Mei”).
Belkin holds 100% of the equity interest of Future FinTech (Hong Kong) Limited (“Future FinTech HK”), a company organized
under the laws of Hong Kong. Future FinTech HK holds 100% of the equity interest of Hedetang Foods (China) Ltd. (“Hedetang
Foods (China)”), and Hedetang Foods (China) holds 90% of the equity interest of Hedetang Farm Products Trading Market (Mei
County) Co., Ltd. (“Trading Market Mei County”), a company incorporated under the laws of the PRC. GlobalKey Supply
Chain Limited (“GlobalKey Supply Chain”) holds the remaining 10% of the equity interest of Trading Market Mei County.
Trading Market Mei County holds 100% of the equity interest of Hedetang Agricultural Plantations (Mei County) Co., Ltd. (“Agricultural
Plantations Mei County”) and also holds 100% of the equity interest of GlobalKey Supply Chain.
SkyPeople Foods Holdings Limited (BVI)
SkyPeople BVI is a wholly-owned subsidiary
of Future FinTech organized under the laws of the British Virgin Islands on December 28, 2011. SkyPeople BVI holds 100% equity
interest of HeDeTang Holding (HK). HeDeTang Holding (HK) holds 73.42% of the equity interest of SkyPeople (China). SkyPeople (China)
has ten subsidiaries, all limited liability companies organized under the laws of the PRC: (i) Shaanxi Qiyiwangguo; (ii) Huludao
Wonder; (iii) Yingkou; (iv) Food Industry Yidu; (v) Shaanxi Heying; (vi) Agricultural Plantation Yidu; (vii) Xi’an Hedetang;
(viii) Xi’an Cornucopia; (ix) Hedetang E-commerce and (x) Foods Industry Zhouzhi. TSD holds another 26.36% of the equity
interest of SkyPeople (China).
A class of securities
of SkyPeople BVI will be registered on a Form 10 registration statement prior to the consummation of the spin-off.
FullMart Holdings Limited
FullMart
is a wholly-owned subsidiary of Future FinTech organized under the laws of the British Virgin Islands on December 28, 2011. FullMart
holds 100% of equity interest of Hedetang Holdings (Asia Pacific). Hedetang Holdings (Asia Pacific) holds 100% of the equity interest
of HeDeJiaChuan Holding, which holds 100% of HeDeJiaChuan Xi’an. HeDeJiaChuan Xi’an has four subsidiaries: (i) SkyPeople
Suizhong; (ii) Hedejiachuan Yichang; (iii) Foods Industry Jingyang; and (iv) Guo Wei Mei.
A class of securities
of FullMart will be registered on a Form 10 registration statement prior to the consummation of the spin-off.
Effects of the Spin-Offs
Upon completion of the Spin-Offs, all of
the ordinary shares of each of SkyPeople BVI and FullMart will be directly held by the Future FinTech shareholders of record as
of the Record Date. We anticipate that one of the subsidiaries of SkyPeople (China) will explore a public listing in the
PRC, but there can be no guarantee that such a listing will occur.
Effect on Future FinTech if the
Spin-Offs are Not Completed
If the Spin-Offs are not approved by Future
FinTech shareholders or if either of the Spin-Offs is not completed for any other reason, Future FinTech shareholders will not
receive a distribution of the ordinary shares of SkyPeople BVI or FullMart, as applicable. Instead, Future FinTech will retain
ownership of the ordinary shares of SkyPeople BVI or FullMart, as applicable. Whether or not the Spin-Offs are completed, the common
stock of Future FinTech will continue to be listed and traded on NASDAQ (assuming the Company can continue to meet all of NASDAQ’s
continued listing standards) and registered under the Exchange Act and Future FinTech will continue to file periodic reports with
the SEC. In addition, if the Spin-Offs are not completed, Future FinTech expects that management will operate the business in a
manner similar to that in which it is being operated today and that Future FinTech’s shareholders will continue to be subject
to the same risks and opportunities to which they are currently subject, including, without limitation, risks related to the highly
competitive industry in which Future FinTech operates and adverse economic conditions.
If either of the Spin-Offs are not completed,
Future FinTech’s Board will continue to evaluate and review the Company’s business operations, properties, dividend
policy and capitalization, among other things, make such changes as are deemed appropriate and continue to seek to identify strategic
alternatives to enhance shareholder value.
Background of the Spin-Offs
The following is a brief discussion of
the background of the deliberations that led to our Board of Directors’ approval of the Spin-Offs.
During the preceding 5 months, Future FinTech
considered several options for maximizing shareholder value. Future FinTech’s management believes that the Spin-Offs
will allow the Company’s management to better focus on the Company’s new business lines and growth strategies and SkyPeople
BVI, FullMart and the Company will each have greater access capital resources that are focused on their respective industries,
operational needs and growth strategies. The Spin-Offs would also allow Future FinTech to be free from the challenging market conditions
affecting the manufacturing businesses of SkyPeople BVI and FullMart, including, for example, increased costs of raw materials,
lower fruit juice prices, required upgrades of environmental protection devises for existing manufacturing facilities to meet heightened
environmental standards, government-mandated interruptions in production due to pollution regulation and increased regulatory requirements
for construction projects, all of which have adversely affected the financial results of Future FinTech and slowed the growth and
development of its operations that are not dependent on heavy assets. At the same time, Future FinTech shareholders will still
be able to participate in the ongoing businesses of SkyPeople BVI and FullMart through their ownership of those entities without
being burdened by the expenses related to additional NASDAQ listings.
The Spin-Offs have been discussed at our
Board meetings several times. On May 15, 2017, our management presented the reasons for spin-off and steps to be taken to complete
the spin-off for the Board’s discussion.
On June 7, 2017, the company held another
Board meeting to discuss the Spin-Offs. The Board concluded at that meeting that further consultation with legal counsel would
be necessary and that the Spin-Offs would be subject to shareholder approval.
On August 29, 2017, the Board approved
the Spin-Offs and the submission of the matter to the vote of the Company’s shareholders at the Company’s Annual Meeting.
Recommendation of Future FinTech’s
Board of Directors and Reasons for the Spin-Offs
After careful
consideration, the Company’s Board of Directors has determined that the Spin-Offs are fair to and in the best interests of
the Company and its shareholders and unanimously recommends that you vote or give instruction to vote IN FAVOR of the Spin-Offs.
Reasons for the Spin-Offs
In evaluating the Spin-Offs and recommending
that Future FinTech’s shareholders vote in favor of approval the Spin-Offs, Future FinTech’s Board of Directors, in
consultation with Future FinTech’s senior management and outside legal counsel, considered numerous positive factors relating
to the Spin-Offs, including the following material factors:
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The Spin-Offs allow our shareholders to retain 100% ownership of Future FinTech’s current business, assets and liabilities.
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Challenging market conditions affecting the businesses of SkyPeople BVI and FullMart, including, for example, increased costs of raw materials, low price for fruit juice products, heavy competition from online sellers and distributors, required upgrades of environmental protection devises for existing manufacturing facilities to meet heightened environmental standards, government-mandated interruptions in production due to pollution regulation and increased regulatory requirements for construction projects, have adversely affected the financial results of Future FinTech and slowed of its operations that are not dependent on the development and exploitation of heavy assets.
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Following the completion of the Spin-Offs, Future FinTech, SkyPeople BVI and FullMart will each be able to focus on the strategic development of their respective businesses.
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Each of Future FinTech, SkyPeople BVI and FullMart will have a better ability to attract capital focused on their respective industries, operational needs and growth strategies after the completion of the Spin-Offs.
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The prospective risks to Future FinTech relating to the risks and uncertainties of maintaining its growth in the highly competitive market for juice products.
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The Company’s Board of Directors concluded that the other strategic alternatives available to Future FinTech, such as continuing to operate its business as it currently does and pursuing its strategic plan and the possibility of growing its business through acquisitions and internal growth, were less attractive than the Spin-Offs to Future FinTech’s shareholders under the circumstances.
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The fact that resolutions approving the Spin-Offs were unanimously approved by Future FinTech’s Board of Directors, which is comprised of a majority of independent directors.
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In the course of reaching the determinations
and decisions and making the recommendation described above, Future FinTech’s Board of Directors, in consultation with Future
FinTech’s senior management and outside legal counsel, considered the risks and potentially negative factors relating to
the Spin-Offs, including the following material factors:
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The possibility that the share price of Future FinTech may decline so that we may not continue to meet NASDAQ’s listing requirements.
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The possibility that the consummation of the Spin-Offs may be delayed or not occur at all, and the adverse impact such event would have on Future FinTech and its business as management continues to devote time and attention to effect the consummation.
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The possible disruption to Future FinTech’s business that may result from announcement of the Spin-Offs and the resulting distraction of management’s attention from the day-to-day operations of its business.
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The potential negative effect of the pendency of the Spin-Offs on Future FinTech’s business, including uncertainty about the effect of the proposed Spin-Offs on the Company’s employees, customers and other parties, which may impair its ability to attract, retain and motivate key personnel, and could cause customers, suppliers and others to seek to change existing business relationships with Future FinTech.
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The possibility that Future FinTech’s shareholders could commence litigation in connection with the Spin-Offs, whether due to the reduced liquidity of the ordinary shares of SkyPeople BVI and FullMart, or otherwise.
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The possibility that Future FinTech will not be able to attract and maintain sufficiently skilled employees to develop and exploit the new line of business software and related technology.
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The cost to Future FinTech of preparing for and consummating the Spin-Offs.
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Future FinTech’s Board of Directors
believed that, overall, the potential benefits of the Spin-Offs to Future FinTech’s shareholders outweighed the risks and
uncertainties of the Spin-Offs.
Following the completion of the Spin-Offs,
the main business operations of Future FinTech will be focused on (i) the online sales of fruit juice products and beverages, and
consumer and health-related products, through GlobalKey Supply Chain Limited (formerly known as Shaanxi Quangoutong E-Commerce
Inc.); (ii) the operation of a supply chain, logistics and trading business for fruit juice products, foods and other consumer
and agricultural products through Hedetang Farm Products Trading Market (Mei County) Co., Ltd., as described further below; (iii)
bulk agricultural products spot trading business and financial technology businesses, including software development and information
services for the financial leasing and project finance industries through intelligent investment advisory and block chain technology;
and (iv) related asset and equity investment management.
On April 3, 2013, SkyPeople (China) entered
into an Investment Agreement (the “Agreement”) with the Managing Committee of Mei County National Kiwi Fruit Wholesale
Trading Center (the “Committee”). The Committee has been authorized by the People’s Government of Mei County
to be responsible for the construction and administration of the Mei County National Kiwi Fruit Wholesale Trading Center (the “Trading
Center”). Contracts relating to the Trading Center were subsequently transferred to subsidiaries that will remain with Future
FinTech following the completion of the Spin-Offs.
Under the Agreement, the parties agreed
to invest and establish a kiwi fruit comprehensive deep processing zone and kiwi fruit and fruit-related materials trading zone
in Yangjia Village, Changxing Town of Mei County with a total planned area of total planned area of 286 mu (approximately 47 acres)
(the “Project”).
Pursuant to the Agreement, the Company
is responsible for the construction and financing of the Project with a total investment of RMB 445.6 million (approximately $71.9
million) in buildings and equipment, which also includes a fee for the land use rights for the Project land in the amount of RMB
0.3 million per mu. The Committee is responsible for financing and constructing the basic infrastructure surrounding the Project,
such as the main water supply, main water drainage, natural gas, electricity, sewage, access roads to the Project, natural gas
and communications networks. As of the date of this report, the Company is in the process of building fruit juice production lines,
a vegetable and fruit flash freeze facility, an R&D center and an office building. Although the schedule for completion could
change, the Company plans to complete the construction of these facilities in the fourth quarter of 2017.
As of the date of this proxy statement,
Mei County National Kiwi Fruit Wholesale Trading Center has started normal operations. There are a number of enterprises operating
in the trading center including 12 express delivery companies, 4 logistic companies, four on-line sales companies, two packing
companies and three agriculture companies. In addition, all government departments that are relevant to the operations of the Mei
County National Kiwi Fruit Wholesale Trading Center have moved into the trading center. Currently, Mei County National Kiwi Fruit
Wholesale Trading is building a data platform for agricultural products in the western part of China, an agricultural business
incubator, and an online-to-offline agricultural products trading center. To meet this requirement, the Company is upgrading its
software and the project has been delayed. The Company expects to complete its investment in the trading center in the fourth quarter
of 2017, and believes that it will generate income from the trading center through various means, such as rental income from cold
storage and shops, and income from logistic services.
As part of the Mei County National Kiwi
Fruit Wholesale Trading Center project, on April 19, 2013, we established Shaanxi Guoweimei Kiwi Deep Processing Co., Ltd. (“Guo
Wei Mei”) to engage in the business of producing kiwi fruit juice, kiwi puree, cider beverages, and related products. The
total estimated investment was RMB 294 million. As the Chinese government recently tightened environment regulations, the Company
is in the process of adapting to the new standards and the project has been delayed. We are now building fruit juice production
lines, a vegetable and fruit flash freeze facility, an R&D center and an office building. Although the schedule for completion
could change, we plan to complete construction in the second quarter of 2018.
Interests of Future FinTech’s
Directors and Officers in the Spin-Offs
As of the Record
Date, the directors and executive officers of Future FinTech as a group owned and were entitled to vote • shares of the common
stock of the Company, representing approximately •% of the outstanding shares of Future FinTech common stock on that date.
Future FinTech expects that its directors and executive officers will vote their shares in favor the nominees for director named
in this proxy statement, in favor the ratification of the Audit Committee’s selection of the independent registered public
accounting firm, in favor of the Spin-Offs, in favor of the amendment to Future FinTech’s Second Amended and Restated Articles
of Incorporation, and in favor of the adoption of the Future FinTech Group Inc. 2017 Omnibus Equity Plan, but none of the Company’s
directors or executive officers other has entered into any agreement obligating any of them to do so.
Besides the equity
ownership of Future FinTech detailed above, the directors and executive officers of the Company do not have interests different
than the other shareholders of Future FinTech.
Completion and Effective Time of
the Spin-Offs
We are working
to complete the Spin-Offs as quickly as possible, and we expect to complete all transactions in the first quarter of 2018. However,
Future FinTech cannot assure you when or if either of the Spin-Offs will occur. The Spin-Offs are subject to shareholder approvals
and other conditions, and it is possible that factors outside the control of Future FinTech could result in the Spin-Offs being
completed at a later time, or not at all. There may be a substantial amount of time between the Annual Meeting and the completion
of the Spin-Offs.
Appraisal Rights
Future FinTech
shareholders do not have appraisal rights in connection with the Spin-Offs under the Florida Business Corporation Act.
Accounting
Treatment
Future FinTech prepares its financial statements
in accordance with accounting principles generally accepted in the United States of America (“GAAP”). There will be
no change in ownership or control of the Future FinTech’s businesses following the completion of the Spin-Offs, and therefore
the transaction constitutes a reorganization of companies under common control, and will be accounted for in a manner similar to
a pooling of interests.
British Virgin Islands Tax Consequences
of the Spin-Offs
In the opinion of Maples and Calder (Hong
Kong) LLP, under current British Virgin Islands law, we will not be subject to British Virgin Islands income tax as a result of
the Spin-Offs and our shareholders who are not residents of the British Virgin Islands will not be subject to any British Virgin
Islands income withholding or capital gains by reason of such transactions.
United States Federal Income Tax
Consequences of the Spin-Offs
The following discussion sets forth the
material U.S. Federal income tax consequences to our shareholders of the distribution of the ordinary shares of SkyPeople BVI and
FullMart to our shareholders.
This discussion is limited to shareholders
who are U.S. Holders (as defined below) of our common stock who hold such stock as a capital asset for Federal income tax purposes.
This discussion is based on the Tax Reform Act of 1986, as amended (the “Code”), Treasury Regulations promulgated thereunder,
judicial decisions, and the current administrative rules, practices and interpretations of law of the U.S. Internal Revenue Service
(“IRS”), all as in effect on the date of this document, and all of which are subject to change, possibly with retroactive
effect. This discussion does not address all aspects of Federal income taxation that may be important to particular holders in
light of their individual investment circumstances. Unless specifically stated otherwise, this discussion does not apply to the
following holders, even if they are U.S. Holders, all of whom may be subject to tax rules that differ significantly from those
summarized below: (i) holders who may be subject to special tax rules, including, without limitation, partnerships (including any
entity or arrangement treated as a partnership for Federal income tax purposes); (ii) dealers in securities or foreign currency,
foreign persons, insurance companies, tax-exempt organizations, banks, financial institutions, and broker-dealers; and (iii) holders
of warrants or other convertible securities entitling them to receive stock, holders who acquired common stock pursuant to the
exercise of compensatory stock options or otherwise as compensation, or holders who hold common stock as part of a hedge, straddle,
conversion, constructive sale or other integrated security transaction.
We have not sought, and will not seek,
a ruling from the IRS regarding the Federal income tax consequences of these transactions. This discussion is based on varying
interpretations that could result in U.S federal income tax consequences different from those described below. The following discussion
does not address the tax consequences of this offering or the related share issuance under foreign, state, or local tax laws, or
the alternative minimum tax provisions of the Code. Accordingly, each U.S. holder of common stock is urged to consult his, her
or its (hereinafter, “his”) tax advisor with respect to the particular tax consequences of these transactions.
For purposes of this discussion, a “U.S.
holder” is a holder who is for U.S. federal income tax purposes: (i) a citizen or resident of the U.S.; (ii) a corporation
or other entity taxable as a corporation that is organized in or under the laws of the U.S., any state thereof or the District
of Columbia; (iii) an estate, the income of which is subject to U.S. federal income taxation, regardless of its source; or (iv)
a trust, if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons
have the authority to control all substantial decisions of the trust (or if the trust was in existence on August 20, 1996, and
validly elected to continue to be treated as a U.S. trust).
THIS IS NOT INTENDED TO BE, AND SHOULD
NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE. THE U.S. FEDERAL INCOME TAX TREATMENT OF THESE TRANSACTIONS IS COMPLEX. ACCORDINGLY,
EACH SHAREHOLDER WHO IS A U.S. HOLDER IS STRONGLY URGED TO CONSULT HIS OWN TAX ADVISER WITH RESPECT TO THE U.S. FEDERAL, STATE,
LOCAL AND FOREIGN INCOME, ESTATE AND OTHER TAX CONSEQUENCES OF THE TRANSACTIONS WITH SPECIFIC REFERENCE TO SUCH PERSON’S
PARTICULAR FACTS AND CIRCUMSTANCES.
Distributions of Stock in SkyPeople
BVI and FullMart
The distribution to our shareholders of
interests in SkyPeople BVI and FullMart will be a taxable event to each shareholder. The value of the interests in the SkyPeople
BVI and FullMart stock received by each shareholder will be applied first to reduce the shareholder’s basis in his stock
in Future FinTech; any value of those interests in excess of the shareholder’s basis in Future FinTech stock will be a capital
gain to the shareholder. Any capital gain will be long-term capital gain, taxable at favorable capital gains rates, if the shareholder
has held his Future FinTech stock for more than a year at the time of the distribution; otherwise, any gain will be short-term
capital gain taxable at ordinary income tax rates.
The foregoing discussion assumes that the
Company does not, at the time of the distribution, have current or accumulated earnings and profits (“earnings and profits”).
According to the books of the Company, the Company has no accumulated earnings and profits. If the Company has any current earnings
and profits, then (i) the distribution of the interests in SkyPeople BVI and FullMart will be treated as a dividend distribution
to each shareholder to the extent of the shareholder’s pro rata share of the Company’s current earnings and profits;
and (ii) the value of the distribution, if any, in excess of the shareholder’s pro rata share of current earnings and profits
will be treated in the manner described in the preceding paragraph.
If a shareholder’s basis in his Future
FinTech stock is greater than the value of the interests in SkyPeople BVI and FullMart received by the shareholder, the shareholder
will not recognize a capital loss.
The tax consequences of the distribution
of the shares of SkyPeople BVI and FullMart are complex and not free from doubt. We have provided what we believe are the most
likely consequences. Shareholders should consult their own tax advisors on the tax consequences of these transactions.
Net Investment Income Tax
The net investment income tax (the Medicare
Tax on Unearned Income) – a tax of 3.8% on certain kinds of investment income – will apply to any portion of the distribution
of the stock of SkyPeople BVI and FullMart that is treated as a dividend (see the discussion in the second paragraph of “
Distributions
of Stock in SkyPeople BVI and FullMart
”, above).
The net investment income tax also appears
to apply to any capital gain recognized by the shareholders on the distribution of SkyPeople BVI and FullMart stock to them (see
the first paragraph of “
Distributions of Stock in SkyPeople BVI and FullMart
”, above) but the treatment of such
capital gain under the net investment income rules is not entirely clear. Shareholders should consult their own tax advisors with
respect to the applicability of the net investment income tax to such gains.
Company Tax Liability Due to the Spin-Off
The Company will recognize gain on the
distribution of the SkyPeople BVI and FullMart interests to the shareholders if SkyPeople BVI or FullMart has a fair market value
in excess of the Company’s adjusted basis in such entity. The value SkyPeople BVI or FullMart may exceed the Company’s
adjusted basis in SkyPeople BVI or FullMart, as applicable. Any such gain would be added to the Company’s other income in
determining the Company’s taxable income (taking into account the Company’s deductible expenses, credits, and allowable
net operating loss carryforwards) and its tax liability, if any. The Company expects that any such gain would be offset by its
other expenses and by its allowable net operating loss carryforwards, so that the Company would owe no tax as a result of these
transactions, but there is no certainty that that would be the case.
Information Reporting and Backup Withholding
Payments of proceeds from the distribution
of SkyPeople BVI and FullMart to a shareholder may be subject to information reporting to the IRS and, possibly, U.S. federal backup
withholding. Backup withholding will not apply if the shareholder furnishes a correct taxpayer identification number (certified
on the IRS Form W-9) or otherwise establishes that he is exempt from backup withholding. Backup withholding is not an additional
tax. Amounts withheld as backup withholding may be credited against the shareholder’s U.S. federal income tax liability.
The shareholder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate
claim for refund with the IRS and furnishing any required information. Since any backup withholding required in connection with
the distribution of SkyPeople BVI and FullMart stock would in effect be a cash obligation imposed on the Company (since no withholdable
cash is being distributed), the Company does not intend to distribute SkyPeople BVI or FullMart stock to any shareholder who has
not provided the Company with a Form W-9 or otherwise established an exemption from backup withholding.
Regulatory Approvals Required for
the Spin-Offs
The Spin-Offs
are not subject to any additional federal or state regulatory requirement or approval, except for filings with the British Virgin
Islands to effect the Spin-Offs.
Legal Matters
Future FinTech and its subsidiaries are
sometimes subject to other legal proceedings and claims that arise in the ordinary course of its business. While the amount of
ultimate liability with respect to such actions is not expected to materially affect the Company’s results of operations,
cash flows or financial position, any litigation resulting from any such legal proceedings or claims could be time consuming and
injure our reputation.
The validity of the ordinary shares
of SkyPeople BVI and FullMart to be issued in the Spin-Offs will be passed upon by Maples and Calder (Hong Kong) LLP prior to the
completion of the Spin-Offs.
UNAUDITED PRO
FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FUTURE FINTECH
GROUP INC.
The following unaudited pro forma condensed consolidated balance sheet and statements of operations are based
upon the historical consolidated financial statements of Future FinTech Group Inc. (the “Company”). The unaudited pro
forma condensed consolidated financial statements have been prepared to illustrate the effect of the spin-off of the Company’s
wholly-owned subsidiary of SkyPeople Foods Holdings Limited (“SkyPeople BVI”) and its subsidiaries – Hedetang
Holding (HK) Ltd. (“Hedetang Holding (HK)”), SkyPeople Juice Group Co. Ltd. PRC (“SkyPeople (China)”),
Xi’an Cornucopia International Co. Ltd. (“Xi’an Cornucopia”), Xi’an Hedetang Fruit Juice Beverages
Co. Ltd. (“Xi’an Holding Juice Beverages”), Yingkou Trusty Fruit Juice Co. Ltd. (“Yingkou”), Huludao
Wonder Fruit Co. Ltd. (“Huludao Wonder”), Hedetang Agriculture Plantation (Yidu) (“Agriculture Plantation (Yidu)”),
Hedetang Foods Industry (Yidu) Co. Ltd. (“Foods Industry (Yidu)”), Shaanxi Qiyiwangguo Organic Agriculture Co. Ltd.
(“Shaanxi Qiyiwangguo”), Shaanxi Heying Trading Co. Ltd. (“Shaanxi Heying”), Xi’an Hedetang E-commerce
Co. Ltd. (“Hedetang E-commerce”), Hedetang Foods Industry (Zhouzhi) Co. Ltd. (“Foods Industry (Zhouzhi)”),
Hedetang Foods Industry (Jingyang) Co. Ltd. (“Foods Industry (Jingyang)”), and the Company’s wholly-owned subsidiary,
FullMart Holding Limited (“FullMart”), and its subsidiaries - Hedetang Holding (Asia-Pacific) Ltd. (“Hedetang
Holding (Asia-Pacific)”), HeDeJiaChuan Holding Group Co. Ltd. (“HeDeJiaChuan Holding”), HeDeJiaChuan Foods (Xi’an)
Co. Ltd. (“HeDeJiaChuan Foods (Xi’an)”), SkyPeople (Suizhong) Fruit and Vegetable Products Co. Ltd. (“SkyPeople
Suizhong”), HeDeJiaChuan Foods (Yichang) Co. Ltd. (“HeDeJiaChuan Yichang”), Shaanxi Guo Wei Mei Kiwi Deep Processing
Co. Ltd. (“Guo Wei Mei”).
The unaudited
pro forma condensed consolidated balance sheet as of June 30, 2017 reflects the pro forma effect as if the spin-off of SkyPeople
BVI and FullMart had been consummated on that date. The unaudited pro forma condensed consolidated statements of operations of
the Company for the year ended December 31, 2016 and six months ended June 30, 2017 included the Company’s historical statements
of operations, adjusted to reflect the pro forma effect as if disposition of SkyPeople BVI and FullMart had been consummated on
January 1, 2016 and 2017 (the first day of the Company's 2016 and 2017 fiscal year), respectively. The historical consolidated
financial statements referred to above for the Company were included in its Quarterly Report on Form 10-Q for the quarter ended
June 30, 2017 and Annual Report on Form 10-K for the year ended December 31, 2016. The accompanying unaudited pro forma condensed
consolidated financial information and the historical consolidated financial information presented herein should be read in conjunction
with the historical consolidated financial statements and notes thereto for the Company.
The unaudited
pro forma condensed consolidated balance sheet and statements of operations include pro forma adjustments which reflect transactions
and events that (a) are directly attributable to the Spin-Offs, (b) are factually supportable and (c) with respect to the statements
of operations, have a continuing impact on consolidated results of the Company. The pro forma adjustments are described in the
accompanying notes to the unaudited pro forma condensed consolidated financial statements. The unaudited pro forma condensed consolidated
financial information does not reflect the tax consequences in any jurisdictions attributable to the Spin-Offs and it does not
reflect future events that may occur after the sale, including potential general and administrative cost savings. The unaudited
pro forma condensed consolidated financial information is provided for informational purposes only and is not necessarily indicative
of the results of operations that would have occurred if the disposition of SkyPeople BVI and FullMart had occurred on January
1, 2016 and 2017, respectively, nor is it necessarily indicative of the Company's future operating results. The pro forma adjustments
are subject to change and are based upon currently available information.
Future
FinTech Group Inc.
UNAUDITED PRO FORMA CONDENSED BALANCE
SHEET
AS AT JUNE 30, 2017
|
|
Future
|
|
|
Pro Forma
|
|
|
|
|
|
|
FinTech
|
|
|
Adjustment
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
7,808
|
|
|
|
-
|
|
|
|
7,808
|
|
Restricted cash
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Accounts receivable
|
|
|
3,545,699
|
|
|
|
-
|
|
|
|
3,545,699
|
|
Other receivables
|
|
|
14,388
|
|
|
|
-
|
|
|
|
14,388
|
|
Inventories
|
|
|
8,978
|
|
|
|
-
|
|
|
|
8,978
|
|
Deferred tax assets
|
|
|
106,993
|
|
|
|
(106,993
|
)
(a)
|
|
|
-
|
|
Advances to suppliers and other current assets
|
|
|
300,324
|
|
|
|
-
|
|
|
|
300,324
|
|
TOTAL CURRENT ASSETS
|
|
|
3,984,190
|
|
|
|
(106,993
|
)
|
|
|
3,877,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
13,307,410
|
|
|
|
-
|
|
|
|
13,307,410
|
|
Land use right, net
|
|
|
5,730,159
|
|
|
|
-
|
|
|
|
5,730,159
|
|
Long term assets
|
|
|
3,338,872
|
|
|
|
-
|
|
|
|
3,338,872
|
|
Deposits
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
41,007,400
|
|
|
|
-
|
|
|
|
41,007,400
|
|
Related party receivables
|
|
|
2,111
|
|
|
|
-
|
|
|
|
2,111
|
|
TOTAL ASSETS
|
|
|
67,370,142
|
|
|
|
(106,993
|
)
|
|
|
67,263,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
5,373,546
|
|
|
|
-
|
|
|
|
5,373,546
|
|
Accrued expenses
|
|
|
1,869,525
|
|
|
|
80,000
|
(b)
|
|
|
1,949,525
|
|
Income tax payable
|
|
|
106,993
|
|
|
|
(106,993
|
)
(a)
|
|
|
-
|
|
Advances from customers
|
|
|
4,132
|
|
|
|
-
|
|
|
|
4,132
|
|
Related party payable
|
|
|
12,211,566
|
|
|
|
-
|
|
|
|
12,211,566
|
|
Short-term bank loans
|
|
|
|
|
|
|
-
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
19,565,762
|
|
|
|
(26,993
|
)
|
|
|
19,538,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations under capital leases
|
|
|
7,380,727
|
|
|
|
-
|
|
|
|
7,380,727
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
TOTAL NON-CURRENT LIABILITIES
|
|
|
7,380,727
|
|
|
|
-
|
|
|
|
7,380,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
26,946,489
|
|
|
|
(26,993
|
)
|
|
|
26,919,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDER' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Preferred stock
|
|
|
(405
|
)
|
|
|
405
|
(c)
|
|
|
|
|
Common stock
|
|
|
9,137,254
|
|
|
|
(9,132,081
|
)(c)
|
|
|
5,173
|
|
Additional paid-in capital
|
|
|
36,305,553
|
|
|
|
9,131,676
|
(c)
|
|
|
45,437,229
|
|
Retained earnings
|
|
|
(5,017,774
|
)
|
|
|
(80,000
|
)
(b)
|
|
|
(5,097,774
|
)
|
Accumulated other comprehensive income
|
|
|
(975
|
)
|
|
|
-
|
|
|
|
(975
|
)
|
Total stockholders' equity
|
|
|
40,423,653
|
|
|
|
(80,000
|
)
|
|
|
40,343,653
|
|
Non-controlling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
TOTAL STOCKHOLDERS' EQUITY
|
|
|
40,423,653
|
|
|
|
(80,000
|
)
|
|
|
40,343,653
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
67,370,142
|
|
|
|
(106,993
|
)
|
|
|
67,263,149
|
|
Future
FinTech Group Inc.
UNAUDITED PRO FORMA CONDENSED STATEMENT
OF INCOME / (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 2017
|
|
Future
|
|
|
Pro Forma
|
|
|
|
|
|
|
FinTech
|
|
|
Adjustment
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
815
|
|
|
|
-
|
|
|
|
815
|
|
Cost of goods sold
|
|
|
432
|
|
|
|
-
|
|
|
|
432
|
|
Gross profit
|
|
|
383
|
|
|
|
-
|
|
|
|
383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
General and administrative expenses
|
|
|
684,948
|
|
|
|
80,000
|
(b)
|
|
|
764,948
|
|
Selling expenses
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Total operating expenses
|
|
|
684,948
|
|
|
|
80,000
|
|
|
|
764,948
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Income (loss) from operations
|
|
|
(684,565
|
)
|
|
|
(80,000
|
)
|
|
|
(764,565
|
)
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Other (expenses) income
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Interest income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Subsidy income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest expenses
|
|
|
(39
|
)
|
|
|
-
|
|
|
|
(39
|
)
|
Consulting fee related to capital lease
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total other expenses
|
|
|
(39
|
)
|
|
|
-
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Income(loss) from Continuing Operations before Income Tax
|
|
|
(684,604
|
)
|
|
|
-
|
|
|
|
(684,604
|
)
|
Income tax provision
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Income (loss) from Continuing Operations before Minority Interest
|
|
|
(684,604
|
)
|
|
|
(80,000
|
)
|
|
|
(764,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to non-controlling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Income from Continuing Operations
|
|
|
(684,604
|
)
|
|
|
(80,000
|
)
|
|
|
(764,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Income from discontinued operations
|
|
|
|
|
|
|
-
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
(684,604
|
)
|
|
|
(80,000
|
)
|
|
|
(764,604
|
)
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Other comprehensive income, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Comprehensive income
|
|
|
(684,604
|
)
|
|
|
(80,000
|
)
|
|
|
(764,604
|
)
|
Comprehensive (income) expense attributable to non-controlling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
COMPREHENSIVE INCOME(LOSS)
|
|
|
(684,604
|
)
|
|
|
(80,000
|
)
|
|
|
(764,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share from continued operation
|
|
|
(0.15
|
)
|
|
|
(0.02
|
)
|
|
|
(0.17
|
)
|
Basic earnings (loss) per share from discontinued operation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
(0.15
|
)
|
|
|
(0.02
|
)
|
|
|
(0.17
|
)
|
Diluted Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share from continued operation
|
|
|
(0.15
|
)
|
|
|
(0.02
|
)
|
|
|
(0.17
|
)
|
Diluted earnings (loss) per share from discontinued operation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
(0.15
|
)
|
|
|
(0.02
|
)
|
|
|
(0.17
|
)
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
4,537,240
|
|
|
|
4,537,240
|
|
|
|
4,537,240
|
|
Diluted
|
|
|
4,599,740
|
|
|
|
4,599,740
|
|
|
|
4,599,740
|
|
Future
FinTech Group Inc.
UNAUDITED PRO FORMA CONDENSED STATEMENT
OF INCOME / (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 2016
|
|
Future
|
|
|
Pro Forma
|
|
|
|
|
|
|
FinTech
|
|
|
Adjustment
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cost of goods sold
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
General and administrative expenses
|
|
|
756,990
|
|
|
|
80,000
|
(b)
|
|
|
836,990
|
|
Selling expenses
|
|
|
340
|
|
|
|
-
|
|
|
|
340
|
|
Total operating expenses
|
|
|
757,330
|
|
|
|
80,000
|
|
|
|
837,330
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Income (loss) from operations
|
|
|
(757,330
|
)
|
|
|
(80,000
|
)
|
|
|
(837,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Other (expenses) income
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Interest income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Subsidy income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consulting fee related to capital lease
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total other expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Income(loss) from Continuing Operations before Income Tax
|
|
|
(757,330
|
)
|
|
|
-
|
|
|
|
(757,330
|
)
|
Income tax provision
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Income (loss) from Continuing Operations before Minority Interest
|
|
|
(757,330
|
)
|
|
|
(80,000
|
)
|
|
|
(837,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to non-controlling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Income from Continuing Operations
|
|
|
(757,330
|
)
|
|
|
(80,000
|
)
|
|
|
(837,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Income from discontinued operations
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
NET INCOME (LOSS)
|
|
|
(757,330
|
)
|
|
|
(80,000
|
)
|
|
|
(837,330
|
)
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Other comprehensive income, net of income tax
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Comprehensive income
|
|
|
(757,330
|
)
|
|
|
(80,000
|
)
|
|
|
(837,330
|
)
|
Comprehensive (income) expense attributable to non-controlling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
COMPREHENSIVE INCOME(LOSS)
|
|
|
(757,330
|
)
|
|
|
(80,000
|
)
|
|
|
(837,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Basic and diluted earnings per share from continued operation
|
|
|
(0.19
|
)
|
|
|
(0.02
|
)
|
|
|
(0.21
|
)
|
Basic and diluted earnings per share from discontinued operation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
(0.19
|
)
|
|
|
|
|
|
|
(0.19
|
)
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Basic and diluted
|
|
|
3,933,999
|
|
|
|
3,933,999
|
|
|
|
3,933,999
|
|
FUTURE FINTECH
GROUP INC.
NOTES TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Description
of Transaction and Basis of Presentation
Future Fintech Group Inc. (“the Company”) is a holding company incorporated under the laws of
the State of Florida. After the spin-offs, it will have one direct wholly-owned subsidiary: Belkin Foods Holdings Group Co., Ltd.,
(“Belkin”), a company incorporated under the laws of the British Virgin Islands.
Belkin holds 100% of the equity interest
of Future FinTech (Hong Kong) Limited (“FinTech HK”), a company organized under the laws of Hong Kong. FinTech
HK holds 100% of the equity interest of Hedetang Foods (China) Ltd. (“Hedetang Foods (China)”), and Hedetang Foods
(China) holds 90% of the equity interest of Hedetang Farm Products Trading Market (Mei County) Co., Ltd. (“Trading Market
Mei County”), a company incorporated under the laws of the PRC. GlobalKey Supply Chain Limited (“GlobalKey Supply
Chain”) holds the remaining 10% of the equity interest of Trading Market Mei County. Trading Market Mei County holds 100%
of the equity interest of Shaanxi China Agricultural Silk Road Farm Products Trading Center Co., Ltd. and 100% of the equity interest
of GlobalKey Supply Chain. Belkin was acquired on May 18, 2016.
FinTech HK, formerly known as Future World
Trading (Hong Kong) and SkyPeople International Trading (HK) Limited, was established on July 27, 2016. It mainly engages in the
import and export of food products.
The Company acquired Hedetang Foods China on May 18, 2016 through the acquisition of Belkin. The scope of
business of Hedetang Foods China includes wholesale and retail of foods and beverages; import and export trade of fruit, vegetables,
dried fruit; packaging; logistics and distribution; online sales; and business management consulting services.
Trading Market Mei County, formerly known as SkyPeople Juice Group (Mei County) Kiwi Fruit and Farm Products
Trading Market Co., Ltd., was established on April 19, 2013. Its scope of business includes preliminary processing of agricultural
and subsidiary products, establishment of trading market for agriculture products, and similar activities.
Shaanxi China Agricultural Silk Road Farm Products Trading Center Co., Ltd., formerly known as Hedetang Agricultural
Plantations (Mei County) Co., Ltd., was established on September 2, 2016. Its scope of business includes the planting, acquisition
and sales of vegetables, fruits, flowers, Chinese herbal medicine, farm products; fresh fruit picking; research, training and promotion
of planting and breeding technology, development and training of E-commerce and online sales of agricultural and sideline products.
GlobalKey Supply Chain Limited, formerly known as Shaanxi Quangoutong E-commerce Inc., was acquired on May
27, 2017. Its main business scope includes computer hardware and software equipment, electronic products and communication equipment,
computer network engineering design, business information consultation and investment management. On July 4, 2017, it changed its
name to GlobalKey Supply Chain Limited.
The unaudited
pro forma condensed consolidated balance sheet and statements of operations are based upon the historical consolidated financial
statements of the Company, which were included in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 and Annual
Report on Form 10-K for the year ended December 31, 2016.
Note 2: Adjustments
to the pro forma condensed financial statement:
The unaudited pro forma condensed consolidated statements of operations reflect the Spin-Off of the Company’s
subsidiaries (SkyPeople BVI, and FullMart) as if the Spin-Off had been consummated on January 1, 2017 and 2016 (the first day of
the Company's 2016 and 2017 fiscal year), respectively. The unaudited pro forma condensed consolidated balance sheet as of June
30, 2017 reflects such sale as if it had been consummated on that date.
|
(a)
|
Reflect the adjustment to the deferred assets, which is allocated to SkyPeople BVI and FullMart.
|
|
(b)
|
Reflects attorney fee, accounting fee and SEC filing fee related with the spin-off transactions. All the attorney fees, accounting fees and SEC filing fees related with the spin-off transaction were charged to Future Fintech Group, Inc.
|
|
(c)
|
Reflects the reclassification of the Company’s preferred stock and common stock to additional
paid in capital.
|
SKYPEOPLE FOODS
HOLDINGS LIMITED
UNAUDITED PRO
FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet and statements of operations are based
upon the historical consolidated financial statements of SkyPeople Foods Holdings Limited (BVI) (“SkyPeople BVI”).
The unaudited pro forma condensed consolidated financial statements have been prepared to illustrate the effect of the spin-off
of SkyPeople BVI from Future FinTech Group Inc.
The unaudited
pro forma condensed consolidated balance sheet as of June 30, 2017 reflects the pro forma effect as if the spin-off of SkyPeople
BVI had been consummated on that date. The unaudited pro forma condensed consolidated statements of operations of the SkyPeople
BVI for the year ended December 31, 2016 and six months ended June 30, 2017 included the Company’s historical statements
of operations, adjusted to reflect the pro forma effect as if disposition of SkyPeople BVI had been consummated on January 1, 2016
and 2017 (the first day of the Company's 2016 and 2017 fiscal year), respectively. The historical consolidated financial statements
referred to above for the Company were included in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 and Annual
Report on Form 10-K for the year ended December 31, 2016. The accompanying unaudited pro forma condensed consolidated financial
information and the historical consolidated financial information presented herein should be read in conjunction with the historical
consolidated financial statements and notes thereto for the Company.
The unaudited
pro forma condensed consolidated balance sheet and statements of operations include pro forma adjustments which reflect transactions
and events that (a) are directly attributable to the Spin-off, (b) are factually supportable and (c) with respect to the statements
of operations, have a continuing impact on consolidated results of the Company. The pro forma adjustments are described in the
accompanying notes to the unaudited pro forma condensed consolidated financial statements. The unaudited pro forma condensed consolidated
financial information does not reflect the tax consequences in any jurisdictions attributable to the Spin-off and it does not
reflect future events that may occur after the sale, including potential general and administrative cost savings. The unaudited
pro forma condensed consolidated financial information is provided for informational purposes only and is not necessarily indicative
of the results of operations that would have occurred if the disposition of SkyPeople BVI had occurred on January 1, 2016 and
2017, respectively, nor is it necessarily indicative of the Company's future operating results. The pro forma adjustments are
subject to change and are based upon currently available information.
SKYPEOPLE FOODS
HOLDINGS LIMITED
UNAUDITED PRO
FORMA CONDENSED BALANCE SHEET
AS AT JUNE 30, 2017
|
|
June 30,
|
|
|
Pro forma
|
|
|
June 30,
|
|
|
|
2017
(unaudited)
|
|
|
adjustment
|
|
|
2017
Pro forma
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,131,679
|
|
|
|
|
|
|
$
|
3,131,679
|
|
Restricted cash
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Accounts receivable
|
|
|
747,459
|
|
|
|
|
|
|
|
747,459
|
|
Other receivables
|
|
|
18,827,618
|
|
|
|
|
|
|
|
18,827,618
|
|
Inventories
|
|
|
3,669,997
|
|
|
|
|
|
|
|
3,669,997
|
|
Deferred tax assets
|
|
|
1,212,590
|
|
|
|
|
|
|
|
1,212,590
|
|
Advances to suppliers and other current assets
|
|
|
22,042,174
|
|
|
|
|
|
|
|
22,042,174
|
|
TOTAL CURRENT ASSETS
|
|
|
49,631,517
|
|
|
|
|
|
|
|
49,631,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
36,889,193
|
|
|
|
|
|
|
|
36,889,193
|
|
LAND USE RIGHT, NET
|
|
|
6,101,693
|
|
|
|
|
|
|
|
6,101,693
|
|
DEPOSIT
|
|
|
21,674,105
|
|
|
|
|
|
|
|
21,674,105
|
|
Related party receivables
|
|
|
186,672,993
|
|
|
|
|
|
|
|
186,672,993
|
|
TOTAL ASSETS
|
|
$
|
300,969,501
|
|
|
|
|
|
|
$
|
300,969,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,682,123
|
|
|
|
|
|
|
$
|
5,682,123
|
|
Accrued expenses
|
|
|
17,496,008
|
|
|
|
|
|
|
|
17,496,008
|
|
Income tax payable
|
|
|
1,212,590
|
|
|
|
|
|
|
|
1,212,590
|
|
Advances from customers
|
|
|
14,854
|
|
|
|
|
|
|
|
14,854
|
|
Short-term bank loan
|
|
|
30,069,084
|
|
|
|
|
|
|
|
30,069,084
|
|
TOTAL CURRENT LIABILITIES
|
|
|
54,474,659
|
|
|
|
|
|
|
|
54,474,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party payables
|
|
|
76,445,070
|
|
|
|
|
|
|
|
76,445,070
|
|
TOTAL NON-CURRENT LIABILITIES
|
|
|
76,445,070
|
|
|
|
|
|
|
|
76,445,070
|
|
TOTAL LIABILITIES
|
|
|
130,919,730
|
|
|
|
|
|
|
|
130,919,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SkyPeople Foods Holdings Limited Stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.02 par value; 25,000,000 shares authorized;25,000,000 and 25,000,000 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
|
|
|
50,000
|
|
|
|
|
|
|
|
50,000
|
|
Additional paid-in capital
|
|
|
59,401,372
|
|
|
|
|
|
|
|
59,401,372
|
|
Retained earning (loss)
|
|
|
114,989,157
|
|
|
|
|
|
|
|
114,989,157
|
|
Accumulated other comprehensive loss
|
|
|
(14,094,948
|
)
|
|
|
|
|
|
|
(14,094,948
|
)
|
Total SkyPeople Foods Holdings Limited stockholders' equity
|
|
|
160,345,581
|
|
|
|
|
|
|
|
160,345,581
|
|
Non-controlling interests
|
|
|
9,704,191
|
|
|
|
|
|
|
|
9,704,191
|
|
TOTAL STOCKHOLDERS' EQUITY
|
|
|
170,049,772
|
|
|
|
|
|
|
|
170,049,772
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
300,969,501
|
|
|
|
|
|
|
$
|
300,969,501
|
|
SKYPEOPLE FOODS
HOLDINGS LIMITED
UNAUDITED PRO FORMA CONDENSED STAMENT
OF INCOME / (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 2017
|
|
For the Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
2017
(unaudited)
|
|
|
Pro forma Adjustment
|
|
|
Pro forma
|
|
Revenue
|
|
$
|
5,619,161
|
|
|
$
|
|
|
|
$
|
5,619,161
|
|
Cost of goods sold
|
|
|
3,795,921
|
|
|
|
|
|
|
|
3,795,921
|
|
Gross profit
|
|
|
1,823,240
|
|
|
|
|
|
|
|
1,823,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
2,775,280
|
|
|
|
|
|
|
|
2,775,280
|
|
Selling expenses
|
|
|
479,814
|
|
|
|
|
|
|
|
479,814
|
|
Total operating expenses
|
|
|
3,255,094
|
|
|
|
|
|
|
|
3,255,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
(1,431,854
|
)
|
|
|
|
|
|
|
(1,431,854
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2,167
|
|
|
|
|
|
|
|
2,167
|
|
Subsidy income
|
|
|
342,124
|
|
|
|
|
|
|
|
342,124
|
|
Interest expenses
|
|
|
(625,316
|
)
|
|
|
|
|
|
|
(625,316
|
)
|
Other expenses (income)
|
|
|
51,457
|
|
|
|
|
|
|
|
51,457
|
)
|
Total other income (expenses)
|
|
|
(229,568
|
)
|
|
|
|
|
|
|
(229,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations before Income Tax
|
|
|
1,661,422
|
|
|
|
|
|
|
|
1,661,422
|
|
Income tax provision
|
|
|
260,085
|
|
|
|
|
|
|
|
260,085
|
|
Income from Continuing Operations before Minority Interest
|
|
|
(1,921,507
|
)
|
|
|
|
|
|
|
(1,921,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to non-controlling interests
|
|
|
(690,710
|
)
|
|
|
|
|
|
|
(690,710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income loss from Continuing Operations
|
|
|
(2,612,217
|
)
|
|
|
|
|
|
|
(2,612,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(96,708
|
)
|
|
|
|
|
|
|
(96,708
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC. STOCKHOLDERS
|
|
$
|
(2,708,925
|
)
|
|
$
|
|
|
|
$
|
(2,708,925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
$
|
3,857,044
|
|
|
$
|
|
|
|
$
|
3,857,044
|
|
Comprehensive income
|
|
|
1,744,150
|
|
|
|
|
|
|
|
1,744,150
|
|
Comprehensive expense attributable to non-controlling interests
|
|
|
5,030,212
|
|
|
|
|
|
|
|
5,030,212
|
|
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC. STOCKHOLDERS
|
|
$
|
6,774,362
|
|
|
$
|
|
|
|
$
|
6,774,362
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share from continued operation
|
|
$
|
(0.10
|
)
|
|
$
|
|
|
|
$
|
(0.10
|
)
|
Basic and diluted earnings (loss) per share from discontinued operation
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
(0.00
|
)
|
Basic and diluted earnings (loss) per share from net income
|
|
|
(0.10
|
)
|
|
|
|
|
|
|
(0.10
|
)
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted*
|
|
|
25,000,000
|
|
|
|
|
|
|
|
25,000,000
|
|
SKYPEOPLE FOODS
HOLDINGS LIMITED
UNAUDITED PRO FORMA CONDENSED STAMENT
OF INCOME / (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 2016
|
|
For the Year Ended
December 31,
|
|
|
|
|
|
|
|
|
|
2016
(unaudited)
|
|
|
Pro forma
Adjustment
|
|
|
Pro Forma
|
|
Revenue
|
|
$
|
44,617,305
|
|
|
$
|
|
|
|
$
|
44,617,305
|
|
Cost of goods sold
|
|
|
35,859,600
|
|
|
|
|
|
|
|
35,859,600
|
|
Gross profit
|
|
|
8,757,704
|
|
|
|
|
|
|
|
8,757,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
1,916,941
|
|
|
|
|
|
|
|
1,916,941
|
|
Selling expenses
|
|
|
1,701,765
|
|
|
|
|
|
|
|
1,701,765
|
|
Total operating expenses
|
|
|
3,618,706
|
|
|
|
|
|
|
|
3,618,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
5,138,998
|
|
|
|
|
|
|
|
5,138,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
157,984
|
|
|
|
|
|
|
|
157,984
|
|
Subsidy income
|
|
|
16,738
|
|
|
|
|
|
|
|
16,738
|
|
Interest expenses
|
|
|
(1,698,426
|
)
|
|
|
|
|
|
|
(1,698,426
|
)
|
Consulting fee related to capital lease
|
|
|
411,532
|
|
|
|
|
|
|
|
411,532
|
|
Total other income (expenses)
|
|
|
1,112,173
|
|
|
|
|
|
|
|
1,112,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations before Income Tax
|
|
|
4,026,826
|
|
|
|
|
|
|
|
4,026,826
|
|
Income tax provision
|
|
|
1,601,967
|
|
|
|
|
|
|
|
1,601,967
|
|
Income from Continuing Operations before Minority Interest
|
|
|
2,424,859
|
|
|
|
|
|
|
|
2,424,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to non-controlling interests
|
|
|
(328,919
|
)
|
|
|
|
|
|
|
(328,919
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income loss from Continuing Operations
|
|
|
2,095,940
|
)
|
|
|
|
|
|
|
2,095,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(4,785,187
|
)
|
|
|
|
|
|
|
(4,785,187
|
)
|
NET INCOME (LOSS) ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC. STOCKHOLDERS
|
|
|
(2,689,247
|
)
|
|
|
|
|
|
|
(2,689,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(6,105,966
|
)
|
|
|
|
|
|
|
(6,105,966
|
)
|
Comprehensive income
|
|
|
(3,681,107
|
)
|
|
|
|
|
|
|
(3,681,107
|
)
|
Comprehensive expense attributable to non-controlling interests
|
|
|
641,626
|
|
|
|
|
|
|
|
641,626
|
|
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC. STOCKHOLDERS
|
|
|
(3,039,481
|
)
|
|
|
|
|
|
|
(3,039,481
|
)
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share from continued operation
|
|
|
0.08
|
|
|
|
|
|
|
|
0.08
|
|
Basic and diluted earnings (loss) per share from discontinued operation
|
|
|
(0.19
|
)
|
|
|
|
|
|
|
(0.19
|
)
|
Basic and diluted earnings (loss) per share from net income
|
|
|
(0.11
|
)
|
|
|
|
|
|
|
(0.11
|
)
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted*
|
|
|
25,000,000
|
|
|
|
|
|
|
|
25,000,000
|
|
SKYPEOPLE FOODS
HOLDINGS LIMITED
NOTES TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Description of Transaction and Basis
of Presentation
SkyPeople Foods Holdings Limited (“SkyPeople
BVI”) is a wholly-owned subsidiary of Future Fintech Group Inc. which was organized under the laws of the British Virgin
Islands on December 28, 2011. SkyPeople BVI holds 100% equity interest of HeDeTang Holdings (HK) Ltd. (“HeDeTang Holdings
(HK)”), a company organized under the laws of the Hong Kong Special Administrative Region of the People’s Republic
of China (“Hong Kong”), HeDeTang Holding (HK) holds 73.42% of the equity interest of SkyPeople Juice Group Co., Ltd.,
(“SkyPeople (China)”), a company incorporated under the laws of the PRC. SkyPeople (China) has ten subsidiaries, all
limited liability companies organized under the laws of the PRC: (i) Shaanxi Qiyiwangguo Modern Organic Agriculture Co., Ltd. (“Shaanxi
Qiyiwangguo”); (ii) Huludao Wonder Fruit Co., Ltd. (“Huludao Wonder”); (iii) Yingkou Trusty Fruits Co., Ltd.
(“Yingkou”); (iv) Hedetang Foods Industry (Yidu) Co. Ltd. (“Food Industry Yidu”); (v) Shaanxi Heying Trading
Co. Ltd (“Shaanxi Heying ”); (vi) Hedetang Agricultural Plantation (Yidu) Co. Ltd. (“Agricultural Plantation
Yidu”); (vii) Xi’an Hedetang Fruit Juice Beverages Co., Ltd. (“Xi’an Hedetang”); and (viii) Xi’an
Cornucopia International Co., Ltd. (“Xi’an Cornucopia”); (ix) Xi’an Hedetang E-commerce Co. Ltd. (“Hedetang
E-commerce”) and (x) Hedetang Foods Industry (Zhouzhi) Co. Ltd. (“Foods Industry Zhouzhi”). Shenzhen TianShunDa
Equity Investment Fund Management Co., Ltd. (the “TSD”), a limited liability corporation registered in China, holds
another 26.36% of the equity interest of SkyPeople (China).
HeDeTang Holdings (HK), formerly known
as Peakwing Enterprise Ltd., China Kiwi King Limited and SkyPeople Juice International Hong Kong (HK) Ltd., was established on
August 21, 2007.
SkyPeople Juice Group Co., Ltd., formerly
known as Shaanxi Tianren Organic Food Co. Ltd., was established on August 8, 2001.
Cornucopia was established on July 2, 2014.
Its scope of business includes the retail and wholesale of pre-packaged food.
Xi’an Hedetang Nutritious Food Research
Institute Co., Ltd., formerly known as Xi’an Hedetang, was established on March 31, 2014. Its scope of business includes
the production and sales of fruit juice beverages.
The Company acquired Yingkou on November
25, 2009. Its scope of business mainly includes the manufacture of concentrated fruit juice.
The Company acquired Huludao on June 10,
2008. Its scope of business mainly includes the manufacture and sale of concentrated fruit juice and fruit juice beverages.
Hedetang Agricultural Plantations (Yidu)
Co., Ltd., formerly known as Hedetang Fruit Juice Beverages (Yidu) Co., Ltd., was established on March 13, 2012. Its scope of business
includes the planting, acquisition and sales of vegetables, fruits, flowers, farm products; fresh fruit picking; research, training
and promotion of planting and breeding technology.
Hedetang Foods Industry (Yidu) Co., Ltd.,
formerly known as SkyPeople Juice Group Yidu Orange Products Co., Ltd., was established on March 13, 2012. Its scope of business
includes deep processing and sales of oranges.
Xi’an Qinmei Food Co., Ltd., an entity
not affiliated with the Company, owns the remaining 8.85% of the equity interest in Shaanxi Qiyiwangguo.
Shaanxi Heying Trading Co. Ltd was established
on December 17, 2009. Its main business scope includes the sales of pre-packaged food, bulk food; import and export of goods and
technology; food technology research and development; business management and consulting, corporate planning services.
Xi’an Hedetang E-Commerce Co., Ltd.
was established on April 21, 2016. Its scope of business includes online sales of pre-packaged foods and bulk foods.
Hedetang Foods Industry (Zhouzhi) Co.,
Ltd. was established on November 29, 2016. Its scope of business includes production, processing and sales of kiwifruit wine, juice,
puree and beverages; the storage and sales of fresh fruits; and import and export of a variety of products and technology.
The unaudited
pro forma condensed consolidated balance sheet and statements of operations are based upon the historical consolidated financial
statements of the Company, which were included in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 and Annual
Report on Form 10-K for the year ended December 31, 2016. The unaudited pro forma condensed consolidated statements of operations
reflect the Spin-off of the Company’s subsidiaries (SkyPeople Foods, and FullMart) as if the Spin-Off had been consummated
on January 1, 2017 and 2016 (the first day of the Company's 2016 and 2017 fiscal years), respectively. The unaudited pro forma
condensed consolidated balance sheet as of June 30, 2017 reflects such sale as if it had been consummated on that date.
FULLMART HOLDINGS
LIMITED
UNAUDITED PRO
FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following
unaudited pro forma condensed consolidated balance sheet and statements of operations are based upon the historical consolidated
financial statements of FullMart Holdings Limited (BVI) (“Fullmart”). The unaudited pro forma condensed consolidated
financial statements have been prepared to illustrate the effect of the spin-off of FullMart from Future FinTech Group Inc.
The unaudited
pro forma condensed consolidated balance sheet as of June 30, 2017 reflects the pro forma effect as if the spin-off of FullMart
had been consummated on that date. The unaudited pro forma condensed consolidated statements of operations of the FullMart for
the year ended December 31, 2016 and six months ended June 30, 2017 included the Company’s historical statements of operations,
adjusted to reflect the pro forma effect as if disposition of FullMart had been consummated on January 1, 2016 and 2017 (the first
day of the Company's 2016 and 2017 fiscal year), respectively. The historical consolidated financial statements referred to above
for the Company were included in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 and Annual Report on Form
10-K for the year ended December 31, 2016. The accompanying unaudited pro forma condensed consolidated financial information and
the historical consolidated financial information presented herein should be read in conjunction with the historical consolidated
financial statements and notes thereto for the Company.
The unaudited
pro forma condensed consolidated balance sheet and statements of operations include pro forma adjustments which reflect transactions
and events that (a) are directly attributable to the Spin-off, (b) are factually supportable and (c) with respect to the statements
of operations, have a continuing impact on consolidated results of the Company. The pro forma adjustments are described in the
accompanying notes to the unaudited pro forma condensed consolidated financial statements. The unaudited pro forma condensed consolidated
financial information does not reflect the tax consequences in any jurisdictions attributable to the Spin-off and it does not reflect
future events that may occur after the sale, including potential general and administrative cost savings. The unaudited pro forma
condensed consolidated financial information is provided for informational purposes only and is not necessarily indicative of the
results of operations that would have occurred if the disposition of FullMart had occurred on January 1, 2016 and 2017, respectively,
nor is it necessarily indicative of the Company's future operating results. The pro forma adjustments are subject to change and
are based upon currently available information.
FULLMART HOLDINGS
LIMITED
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS AT JUNE 30, 2017
|
|
June 30,
|
|
|
|
|
|
June 30,
|
|
|
|
2017
(unaudited)
|
|
|
Pro forma adjustment
|
|
|
2017
Pro forma
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
91,572
|
|
|
|
|
|
|
$
|
91,572
|
|
Accounts receivable
|
|
|
668,629
|
|
|
|
|
|
|
|
668,629
|
|
Other receivables
|
|
|
49,987
|
|
|
|
|
|
|
|
49,987
|
|
Inventories
|
|
|
2,246,858
|
|
|
|
|
|
|
|
2,246,858
|
|
Deferred tax assets
|
|
|
1,224
|
|
|
|
|
|
|
|
1,224
|
|
Advances to suppliers and other current assets
|
|
|
3,337,081
|
|
|
|
|
|
|
|
3,337,081
|
|
TOTAL CURRENT ASSETS
|
|
|
668,629
|
|
|
|
|
|
|
|
668,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
32,948,859
|
|
|
|
|
|
|
|
32,948,859
|
|
LAND USE RIGHT, NET
|
|
|
20,522,590
|
|
|
|
|
|
|
|
20,522,590
|
|
LONG TERM ASSETS
|
|
|
2,856,342
|
|
|
|
|
|
|
|
2,856,342
|
|
DEPOSIT
|
|
|
54,600,013
|
|
|
|
|
|
|
|
54,600,013
|
|
Related party receivables
|
|
|
5,660,446
|
|
|
|
|
|
|
|
5,660,446
|
|
TOTAL ASSETS
|
|
$
|
119,925,331
|
|
|
|
|
|
|
$
|
119,925,331117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,518,620
|
|
|
|
|
|
|
$
|
7,518,620
|
|
Accrued expenses
|
|
|
10,934,235
|
|
|
|
|
|
|
|
10,934,235
|
|
Income tax payable
|
|
|
2,246,858
|
|
|
|
|
|
|
|
2,246,858
|
|
Advances from customers
|
|
|
5,376
|
|
|
|
|
|
|
|
5,376
|
|
TOTAL CURRENT LIABILITIES
|
|
|
20,705,089
|
|
|
|
|
|
|
|
20,705,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term payables
|
|
|
16,592,943
|
|
|
|
|
|
|
|
16,592,943
|
|
Related party payables
|
|
|
84,416,413
|
|
|
|
|
|
|
|
84,416,413
|
|
TOTAL NON-CURRENT LIABILITIES
|
|
|
101,009,356
|
|
|
|
|
|
|
|
101,009,356
|
|
TOTAL LIABILITIES
|
|
|
121,714,445
|
|
|
|
|
|
|
|
119,097,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fullmart Holdings Limited Stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.002 par value; 25,000,000 shares authorized; 50,000 and50,000 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
|
|
|
50,000
|
|
|
|
|
|
|
|
50,000
|
|
Additional paid-in capital
|
|
|
8,123,873
|
|
|
|
|
|
|
|
8,123,873
|
|
Retained earning (loss)
|
|
|
(9,962,986
|
)
|
|
|
|
|
|
|
(9,962,986
|
)
|
Accumulated other comprehensive loss
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Total Fullmart Holdings Limited stockholders' equity
|
|
|
(1,789,114
|
)
|
|
|
|
|
|
|
(1,789,114
|
)
|
TOTAL LIABILITIES AND EQUITY
|
|
|
119,925,331
|
|
|
|
|
|
|
|
119,925,331
|
|
FULLMART HOLDINGS LIMITED
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME / (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 2017
|
|
For the Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
2017
(unaudited)
|
|
|
Pro forma Adjustment
|
|
|
Pro forma
|
|
Revenue
|
|
$
|
115,982
|
|
|
$
|
|
|
|
$
|
115,982
|
|
Cost of goods sold
|
|
|
103,315
|
|
|
|
|
|
|
|
103,315
|
|
Gross profit
|
|
|
12,667
|
|
|
|
|
|
|
|
12,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
2,514,398
|
|
|
|
|
|
|
|
2,514,398
|
|
Selling expenses
|
|
|
26,511
|
|
|
|
|
|
|
|
26,511
|
|
Total operating expenses
|
|
|
2,540,909
|
|
|
|
|
|
|
|
2,540,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,528,242
|
)
|
|
|
|
|
|
|
(2,528,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
Subsidy income
|
|
|
(236
|
)
|
|
|
|
|
|
|
(236
|
)
|
Interest expenses
|
|
|
(227
|
)
|
|
|
|
|
|
|
(227
|
)
|
Total other income (expenses)
|
|
|
(2,528,467
|
)
|
|
|
|
|
|
|
(2,528,467
|
)
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Loss from before Income Tax
|
|
|
(2,528,467
|
)
|
|
|
|
|
|
|
(2,528,467
|
)
|
Income tax provision
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Income from Continuing Operations before Minority Interest
|
|
|
(2,528,467
|
|
|
|
|
|
|
|
(2,528,467
|
|
Less: Net income attributable to non-controlling interests
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
LOSS ATTRIBUTABLE TO FULLMART HOLDINGS LTD. STOCKHOLDERS
|
|
|
(2,528,469
|
)
|
|
|
|
|
|
|
(2,528,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
31,510
|
|
|
|
|
|
|
|
31,510
|
|
COMPREHENSIVE LOSS ATTRIBUTABLE TO FULLMART HOLDINGS LTD. STOCKHOLDERS
|
|
|
(2,496,959
|
)
|
|
|
|
|
|
|
(2,496,959
|
)
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share from net loss
|
|
|
(0.10
|
)
|
|
|
|
|
|
|
(0.10
|
)
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
25,000,000
|
|
|
|
|
|
|
|
25,000,000
|
|
FULLMART HOLDINGS LIMITED
UNAUDITED PRO FORMA CONDENSED STATEMENT
OF INCOME / (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 2016
|
|
For the Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2016 (unaudited)
|
|
|
Pro forma Adjustment
|
|
|
Pro forma
|
|
Revenue
|
|
$
|
297,964
|
|
|
$
|
|
|
|
$
|
297,964
|
|
Cost of goods sold
|
|
|
278,962
|
|
|
|
|
|
|
|
278,962
|
|
Gross profit
|
|
|
19,002
|
|
|
|
|
|
|
|
19,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
2,790,573
|
|
|
|
|
|
|
|
2,790,573
|
|
Selling expenses
|
|
|
7,856
|
|
|
|
|
|
|
|
7,856
|
|
Total operating expenses
|
|
|
2,798,429
|
|
|
|
|
|
|
|
2,798,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,779,427
|
)
|
|
|
|
|
|
|
(2,779,427
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
746
|
|
|
|
|
|
|
|
746
|
|
Subsidy income
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Interest expenses
|
|
|
(227,199
|
)
|
|
|
|
|
|
|
(227,199
|
)
|
Other income
|
|
|
11,800
|
|
|
|
|
|
|
|
11,800
|
|
Total other income (expenses)
|
|
|
(214,653
|
)
|
|
|
|
|
|
|
(214,653
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from before Income Tax
|
|
|
(2,994,080
|
)
|
|
|
|
|
|
|
(2,994,080
|
)
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS ATTRIBUTABLE TO FULLMART HOLDINGS LTD. STOCKHOLDERS
|
|
|
(2,994,080
|
)
|
|
|
|
|
|
|
(2,994,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(111,753
|
)
|
|
|
|
|
|
|
(111,753
|
)
|
COMPREHENSIVE LOSS ATTRIBUTABLE TO FULLMART HOLDINGS LTD.STOCKHOLDERS
|
|
|
(3,105,833
|
)
|
|
|
|
|
|
|
(3,105,833
|
)
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share from net loss
|
|
|
(0.12
|
)
|
|
|
|
|
|
|
(0.12
|
)
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
25,000,000
|
|
|
|
|
|
|
|
25,000,000
|
|
FULLMART HOLDINGS LIMITED
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Description of Transaction and Basis
of Presentation
FullMart Holdings
Limited (“FullMart”) is a wholly-owned subsidiary of Future Fintech Group Inc. which was organized under the laws of
the British Virgin Islands on December 28, 2011. FullMart holds 100% of equity interest of Hedetang Holdings (Asia Pacific) Ltd.
(“Hedetang Holdings (Asia Pacific)”), a company organized under the laws of Hong Kong. Hedetang Holdings (Asia Pacific)
holds 100% of the equity interest of HeDeJiaChuan Holding Group Co. Ltd., (“HeDeJiaChuan Holding”), a company incorporated
under the laws of the PRC, which holds 100% of HeDeJiaChuan Foods (Xi’an) Co. Ltd., (“HeDeJiaChuan Xi’an”),
a company incorporated under the laws of the PRC. HeDeJiaChuan Xi’an” has four subsidiaries: (i) SkyPeople (Suizhong)
Fruit and Vegetable Products Co., Ltd (“SkyPeople Suizhong:); (ii) HedeJiachuan Foods (Yichang)Co. Ltd (“Hedejiachuan
Yichang”); (iii) Hedetang Foods Industry (Jingyang) Co. Ltd. (“Foods Industry Jingyang”); (iv) Shaanxi Guo Wei
Mei Kiwi Deep Processing Co., Ltd. (“Guo Wei Mei”).
HeDeJiaChuan (Hong
Kong) Ltd., formerly known as SkyPeople Foods International Holdings (HK) Limited and Hedetang Holdings (Asia-Pacific) Ltd., which
was first established on January 13, 2012.
Hedetang Holding,
formerly known as Hedetang Holding Co., Ltd., was established on July 21, 2014. Its scope of business includes corporate investment
consulting, corporate management consulting, corporate imagine design and corporative marketing planning. On June 14, 2017, it
changed its name to Hedejiachuan Holding Group Co., Ltd.
HeDeJiaChuan Foods
(Xi’an) Co., Ltd. was established on July 03, 2014, formerly known as Shaanxi Fruitee Fun Co., Ltd. and Hedetang Foods Industry
(Xi’an) Co., Ltd. Its scope of business includes retail and wholesale of pre-packaged food.
Hedetang Foods
Industry (Jingyang) Co., Ltd. was established on June 7, 2016. Its scope of business includes processing, storage and sales of
farm products, fruits, tea and snacks; research and promotion of processing technology of organic agriculture, fruit industry and
agricultural products.
SkyPeople (Suizhong)
Fruit and Vegetable Products Co., Ltd. was established on April 26, 2012. Its scope of business includes the initial processing,
quick-frozen and sales of agricultural products and related by-products.
Hedejiachuan Yichang,
formerly known as Hedetang Farm Products Trading Market (Yidu) Co., Ltd., and Hedetang Foods Industry (Yichang) Co., Ltd, was established
on March 23, 2016. Its scope of business includes construction, operation, and property management of a farm products trading market;
e-commerce service of farm products; and construction and operation management of e-commerce information platform.
Shaanxi Guo Wei
Mei Kiwi Deep Processing Co., Ltd. was established on April 19, 2013. Its scope of business includes producing kiwi fruit juice,
kiwi puree, cider beverages, and similar products.
The unaudited
pro forma condensed consolidated balance sheet and statements of operations are based upon the historical consolidated financial
statements of the Company, which were included in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 and Annual
Report on Form 10-K for the year ended December 31, 2016. The unaudited pro forma condensed consolidated statements of operations
reflect the Spin-off of the Company’s subsidiaries (SkyPeople Foods, and FullMart) as if the Spin-Off had been consummated
on January 1, 2017 and 2016 (the first day of the Company's 2016 and 2017 fiscal year), respectively. The unaudited pro forma condensed
consolidated balance sheet as of June 30, 2017 reflects such sale as if it had been consummated on that date.
DESCRIPTION
OF SKYPEOPLE BVI SECURITIES
Future FinTech
shareholders who receive shares of SkyPeople BVI in the Spin-Off will become shareholders of SkyPeople BVI. SkyPeople BVI is a
corporation organized under the laws of the British Virgin Islands and is subject to the provisions of British Virgin Islands law.
Given below is a summary of the material features of the SkyPeople BVI shares. This summary is not a complete discussion of the
charter documents and other instruments of SkyPeople BVI that create the rights of its shareholders. You are urged to read carefully
those documents and instruments, which are included as exhibits to this proxy statement.
General
SkyPeople BVI was incorporated in the British
Virgin Islands (the “BVI”) as a BVI business company under the BVI Business Companies Act, 2004 (the “Act”)
on December 28, 2011. The affairs of SkyPeople BVI are governed by its memorandum and articles of association, the Act and the
common law of the BVI.
As of the date of this proxy statement,
SkyPeople BVI is authorized to issue a maximum of 25,000,000 shares of a single class each with a par value of US$0.002. As of
the date of this proxy statement, 25,000,000 shares in SkyPeople BVI are issued and outstanding, all of which are owned by Future
FinTech.
The following are summaries of certain
material provisions of the memorandum and articles of association of SkyPeople BVI currently in effect and the Act, insofar as
they relate to the material terms of the shares in SkyPeople BVI.
Shares
All of the issued and outstanding shares
in SkyPeople BVI are fully paid and non-assessable. The shares in SkyPeople BVI are issued in registered form, and are issued when
registered in its register of members. SkyPeople BVI is not authorized to issue bearer shares. Shareholders of SkyPeople BVI who
are non-residents of the BVI may freely hold and vote their shares.
Dividends
Subject to the Act and articles of association
of SkyPeople BVI, the directors of SkyPeople BVI may resolve to declare and pay dividends at a time and of an amount they think
fit if they are satisfied, on reasonable grounds, that immediately after the payment of the dividend, the value of SkyPeople BVI’s
assets will exceed its liabilities and SkyPeople BVI is able to pay its debts as they fall due. Dividends may be pad in money,
shares or other property. Under the memorandum of association of SkyPeople BVI, each share in SkyPeople BVI confers upon the shareholder
the right to an equal share in any dividend paid by SkyPeople BVI.
Voting Rights
Under the memorandum of association of
SkyPeople BVI, each share in SkyPeople BVI confers upon the shareholder the right to one vote at a meeting of the shareholders
of SkyPeople BVI or on any resolution of shareholders. A “resolution of shareholders” is defined in the memorandum
of association of SkyPeople BVI to mean a resolution approved at a duly convened and constituted meeting of the shareholders of
SkyPeople BVI by the affirmative vote of a majority of in excess of 50 percent of the votes of the shares entitled to vote thereon
which were present at the meeting and were voted, or a resolution consented to in writing by a majority of in excess of 50 percent
of the votes of the shares entitled to vote thereon.
Meetings of Shareholders
Shareholders’ meeting may be convened
by any director of SkyPeople BVI at such times and in such manner and places within or outside the BVI as the director considers
necessary or desirable. The articles of association of SkyPeople BVI allow shareholders entitled to exercise 30 percent or more
of the voting rights in respect of the matter for which the meeting is requested to requisition a meeting of the shareholders,
in which case the directors are obliged to convene such meeting.
A quorum required for a meeting of the
shareholders consists of one or more shareholders, present in person or by proxy, holding not less than 50 percent of the votes
of the shares entitled to vote on the resolutions of shareholders to be considered at the meeting. Advance notice of not less than
7 days is required for the convening of a meeting of the shareholders.
Issue of Shares
Shares in SkyPeople BVI may be issued at
such times, to such persons, for such consideration and on such terms as the directors of SkyPeople BVI may by resolution of directors
determine. Shares may be issued in one or more series of shares as the directors of SkyPeople BVI may by resolution of directors
determine from time to time. Holders of shares in SkyPeople BVI do not have pre-emptive rights.
Transfer of Shares
SkyPeople BVI shall, on receipt of an instrument
of transfer complying with the requirements set out in its articles of association, enter the name of the transferee of a share
in its register of members unless the directors resolve to refuse or delay the registration of the transfer for reasons that shall
be specified in a resolution of directors. The directors may not resolve to refuse or delay the transfer of a share unless the
shareholder has failed to pay an amount due in respect of the share.
SkyPeople BVI is a private company and
accordingly any invitation to the public to subscribe for any shares in SkyPeople BVI is prohibited and the number of shareholders
of SkyPeople BVI shall be limited to fifty.
Liquidation
SkyPeople BVI may by resolution of shareholders
or by resolution of directors appoint a voluntary liquidator for the voluntary liquidation of SkyPeople BVI in accordance with
the Act. Under the memorandum of association of SkyPeople BVI, each share in SkyPeople BVI confers upon the shareholder the right
to an equal share in the distribution of the surplus assets of SkyPeople BVI on its liquidation.
Calls on Shares and Forfeiture of
Shares
The directors of SkyPeople BVI may from
time to time make calls upon shareholders for any amount unpaid on their shares in a written notice served to such shareholders
at least fourteen days prior to the specified time of payment. The shares in SkyPeople BVI that have been called upon and remain
unpaid on the specified time are subject to forfeiture.
Repurchase, Redemption or Acquisition
of Shares
According to the articles of association
of SkyPeople BVI, SkyPeople BVI may purchase, redeem or otherwise acquire and hold its own shares save that it may not purchase,
redeem or otherwise acquire its own shares without the consent of the shareholders whose shares are to be purchased, redeemed or
otherwise acquired. SkyPeople BVI may only offer to purchase, redeem or otherwise acquire its own shares if the resolution of directors
authorising the purchase, redemption or other acquisition contains a statement that the directors are satisfied, on reasonable
grounds, that immediately after the acquisition the value of SkyPeople BVI’s assets will exceed its liabilities and SkyPeople
BVI will be able to pay its debts as they fall due. Shares which have been repurchased, redeemed or otherwise acquired may be cancelled
or held as treasury shares (except to the extent that such shares are in excess of 50 percent of the issued shares in which case
they shall be cancelled).
Variation of Rights of Shares
If at any time the shares in SkyPeople
BVI are divided into different classes, the rights attached to any class may only be varied, whether or not SkyPeople BVI is in
liquidation, with the consent in writing of or by a resolution passed at a meeting by the holders of not less than 50 percent of
the issued shares in that class.
The rights conferred upon the holders of
the shares of any class in SkyPeople BVI shall not, unless otherwise expressly provided by the terms of the issue of the shares
of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.
Changes in the Number of Shares Authorized
to Issue
SkyPeople BVI may amend its
memorandum of association by resolution of shareholders or by resolution of directors (subject to certain restrictions) to
change the maximum number of shares it is authorized to issue.
DESCRIPTION
OF FULLMART SECURITIES
Future FinTech
shareholders who receive shares of FullMart in the Spin-Off will become shareholders of FullMart. FullMart is a corporation organized
under the laws of the British Virgin Islands and is subject to the provisions of British Virgin Islands law. Given below is a summary
of the material features of the FullMart shares. This summary is not a complete discussion of the charter documents and other instruments
of FullMart that create the rights of its shareholders. You are urged to read carefully those documents and instruments, which
are included as exhibits to this proxy statement.
General
FullMart was incorporated in the British
Virgin Islands (the “BVI”) as a BVI business company under the BVI Business Companies Act, 2004 (the “Act”)
on December 28, 2011. The affairs of FullMart are governed by its memorandum and articles of association, the Act and the common
law of the BVI.
As of the date of this proxy statement,
FullMart is authorized to issue a maximum of 25,000,000 shares of a single class each with a par value of US$0.002. As of the date
of this proxy statement, 25,000,000 shares in FullMart are issued and outstanding, all of which are owned by Future FinTech.
The following are summaries of certain
material provisions of the memorandum and articles of association of FullMart currently in effect and the Act, insofar as they
relate to the material terms of the shares in FullMart.
Shares
All of the issued and outstanding shares
in FullMart are fully paid and non-assessable. The shares in FullMart are issued in registered form, and are issued when registered
in its register of members. FullMart is not authorized to issue bearer shares. Shareholders of FullMart who are non-residents of
the BVI may freely hold and vote their shares.
Dividends
Subject to the Act and articles of association
of FullMart, the directors of FullMart may resolve to declare and pay dividends at a time and of an amount they think fit if they
are satisfied, on reasonable grounds, that immediately after the payment of the dividend, the value of FullMart’s assets
will exceed its liabilities and FullMart is able to pay its debts as they fall due. Dividends may be pad in money, shares or other
property. Under the memorandum of association of FullMart, each share in FullMart confers upon the shareholder the right to an
equal share in any dividend paid by FullMart.
Voting Rights
Under the memorandum of association of
FullMart, each share in FullMart confers upon the shareholder the right to one vote at a meeting of the shareholders of FullMart
or on any resolution of shareholders. A “resolution of shareholders” is defined in the memorandum of association of
FullMart to mean a resolution approved at a duly convened and constituted meeting of the shareholders of FullMart by the affirmative
vote of a majority of in excess of 50 percent of the votes of the shares entitled to vote thereon which were present at the meeting
and were voted, or a resolution consented to in writing by a majority of in excess of 50 percent of the votes of the shares entitled
to vote thereon.
Meetings of Shareholders
Shareholders’ meeting may be convened
by any director of FullMart at such times and in such manner and places within or outside the BVI as the director considers necessary
or desirable. The articles of association of FullMart allow shareholders entitled to exercise 30 percent or more of the voting
rights in respect of the matter for which the meeting is requested to requisition a meeting of the shareholders, in which case
the directors are obliged to convene such meeting.
A quorum required for a meeting of the
shareholders consists of one or more shareholders, present in person or by proxy, holding not less than 50 percent of the votes
of the shares entitled to vote on the resolutions of shareholders to be considered at the meeting. Advance notice of not less than
7 days is required for the convening of a meeting of the shareholders.
Issue of Shares
Shares in FullMart may be issued at such
times, to such persons, for such consideration and on such terms as the directors of FullMart may by resolution of directors determine.
Shares may be issued in one or more series of shares as the directors of FullMart may by resolution of directors determine from
time to time. Holders of shares in FullMart do not have pre-emptive rights.
Transfer of Shares
FullMart shall, on receipt of an instrument
of transfer complying with the requirements set out in its articles of association, enter the name of the transferee of a share
in its register of members unless the directors resolve to refuse or delay the registration of the transfer for reasons that shall
be specified in a resolution of directors. The directors may not resolve to refuse or delay the transfer of a share unless the
shareholder has failed to pay an amount due in respect of the share.
FullMart is a private company and accordingly
any invitation to the public to subscribe for any shares in FullMart is prohibited and the number of shareholders of FullMart shall
be limited to fifty.
Liquidation
FullMart may by resolution of shareholders
or by resolution of directors appoint a voluntary liquidator for the voluntary liquidation of FullMart in accordance with the Act.
Under the memorandum of association of FullMart, each share in FullMart confers upon the shareholder the right to an equal share
in the distribution of the surplus assets of FullMart on its liquidation.
Calls on Shares and Forfeiture of
Shares
The directors of FullMart may from time
to time make calls upon shareholders for any amount unpaid on their shares in a written notice served to such shareholders at least
fourteen days prior to the specified time of payment. The shares in FullMart that have been called upon and remain unpaid on the
specified time are subject to forfeiture.
Repurchase, Redemption or Acquisition
of Shares
According to the articles of association
of FullMart, FullMart may purchase, redeem or otherwise acquire and hold its own shares save that it may not purchase, redeem or
otherwise acquire its own shares without the consent of the shareholders whose shares are to be purchased, redeemed or otherwise
acquired. FullMart may only offer to purchase, redeem or otherwise acquire its own shares if the resolution of directors authorising
the purchase, redemption or other acquisition contains a statement that the directors are satisfied, on reasonable grounds, that
immediately after the acquisition the value of FullMart’s assets will exceed its liabilities and FullMart will be able to
pay its debts as they fall due. Shares which have been repurchased, redeemed or otherwise acquired may be cancelled or held as
treasury shares (except to the extent that such shares are in excess of 50 percent of the issued shares in which case they shall
be cancelled).
Variation of Rights of Shares
If at any time the shares in FullMart are
divided into different classes, the rights attached to any class may only be varied, whether or not FullMart is in liquidation,
with the consent in writing of or by a resolution passed at a meeting by the holders of not less than 50 percent of the issued
shares in that class.
The rights conferred upon the holders of
the shares of any class in FullMart shall not, unless otherwise expressly provided by the terms of the issue of the shares of that
class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.
Changes in the Number of Shares Authorized
to Issue
FullMart may amend its memorandum of association
by resolution of shareholders or by resolution of directors (subject to certain restrictions) to change the maximum number of shares
it is authorized to issue.
DESCRIPTION OF FUTURE FINTECH SECURITIES
Given
below is a summary of the material features of Future FinTech’s securities. This summary is not a complete discussion of
the certificate of incorporation and bylaws of Future FinTech that create the rights of its shareholders. You are urged to read
carefully the certificate of incorporation and bylaws, which have been filed as exhibits to SEC reports filed by Future FinTech.
Please see “Where You Can Find More Information” for information on how to obtain copies of those instruments.
General
The following description
of common stock and preferred stock, together with the additional information we include in any applicable amendments hereto, summarizes
the current material terms and provisions of our common stock and preferred stock. For the complete terms of our common stock and
preferred stock, please refer to our Articles of Incorporation, as amended, which may be further amended from time to time, any
certificates of designation for our preferred stock, and our amended and restated bylaws, as amended from time to time. The Florida
Business Corporations Act may also affect the terms of these securities.
On March 10, 2016, the
Company filed with the Florida Secretary of State’s office an amendment to its Articles of Incorporation. As a result of
the Articles of Amendment, the Company authorized and approved an 1-for-8 reverse stock split of the Company’s authorized
shares of common stock (“Common Stock”) from 66,666,666 shares to 8,333,333 shares, accompanied by a corresponding
decrease in the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”). The common
stock continues have a par value of $0.001. No changes were made to the number of authorized preferred shares of the Company, which
remains as 10,000,000. The amendment to the Articles of Incorporation of the Company took effect on March 16, 2016. As of October
19, 2017, there were 5,173,187 shares of our common stock issued and outstanding and no shares of our preferred stock issued and
outstanding.
Common Stock
Holders of shares of
our Common Stock are entitled to one vote for each share on all matters to be voted on by the shareholders. Except if
a greater plurality is required by the express requirements of law or our amended and restated articles of incorporation, the affirmative
vote of a majority of the shares of voting stock represented at a meeting of shareholders at which there shall be a quorum present
shall be required to authorize all matters to be voted upon by our shareholders. According to our charter documents,
holders of our Common Stock do not have preemptive rights and are not entitled to cumulative voting rights. There are
no conversion or redemption rights or sinking funds provided for our shareholders. Shares of our Common Stock share
ratably in dividends, if any, as may be declared from time to time by the board of directors in its discretion from funds legally
available for distribution as dividends. In the event of our liquidation, dissolution or winding up, the holders of
our Common Stock are entitled to share pro rata all assets remaining after payment in full of all liabilities. All of
the outstanding shares of our Common Stock are fully paid and non-assessable.
Stock Transfer
Agent
Our
transfer agent is Continental Stock Transfer & Trust Company, 1 State Street, 30
th
Floor, New York, NY 10004, phone
number (212) 509-4000.
INFORMATION WITH RESPECT TO SKYPEOPLE
BVI AND FULLMART
Following the completion
of the Spin-Offs, SkyPeople BVI and its subsidiaries will continue to engage in the manufacture and sale of fruit juice concentrates,
fruit juice beverages and other fruit-related products in the People’s Republic of China and overseas markets.
Following the completion
of the Spin-Offs, FullMart and its subsidiaries will continue to engage in the manufacture and sale of consumer food products.
OFFICERS
AND DIRECTORS OF SKYPEOLE BVI AND FULLMART
AFTER THE SPIN-OFFS
The following table
sets forth information regarding SkyPeople BVI’s executive officer and director upon the completion of the Spin-Offs. The
business address of the below-listed director and officer is 16F, China Development Bank Tower, No.2, Gaoxin 1
st
Road,
Xi’an, Shaanxi, China.
Name
|
|
Age
|
|
Position
|
Yongke Xue
|
|
51
|
|
Director
|
Yongke Xue has been the director of SkyPeople
BVI since December 28, 2011. Mr. Xue served as the Chief Executive Officer of Future FinTech from February 2008 to February 2013,
at which time he resigned from his positions as the Chief Executive Officer and Chairman of Future FinTech. Mr. Xue continues to
be a director of Future FinTech. Mr. Xue was reappointed as the Chief Executive Officer on December 24, 2014. On September 2, 2016,
Mr. Yongke Xue, resigned from his position as the Chief Executive Officer of the Company and Chairman of the Board of the Directors
of the Company, but remained as a director. Mr. Yongke Xue has also served as the director of SkyPeople (China) since December
2005. Mr. Xue served as the general manager of Hede from December 2005 to June 2007. Prior to that, he served as the business
director of the investment banking division of Hualong Securities Co., Ltd. from April 2001 to December 2005. He also acted as
the vice general manager of Shaanxi Huaye Foods Co., Ltd. from July 1998 to March 2001. Mr. Xue graduated from Xi’an
Jiaotong University with an MBA in 2000. Mr. Xue graduated with a Bachelor’s degree in Metal Material & Heat Treatment
from National University of Defense Technology in July 1989.
The following table sets forth information
regarding FullMart’s executive officer and director upon the completion of the Spin-Offs. The business address of the below-listed
director and officer is 16F, China Development Bank Tower, No.2, Gaoxin 1
st
Road, Xi’an, Shaanxi, China.
Name
|
|
Age
|
|
Position
|
Fei Zhu
|
|
34
|
|
Director
|
Fei Zhu has been the director of FullMart
since June 29, 2017, and the director of HeDeJiaChuan (Hong Kong) Holdings Limited since June 14, 2017. Mr. Zhu has significant
experience in business management and large project management. He has served as the chairman of HeDeJiaChuan Holding Group Co,
Ltd. and the general manager of Shaanxi Guo Wei Mei Kiwi Deep Processing Co., Ltd. from 2014 to present. Prior to that, Mr. Zhu
served as the project manager of SkyPeople Juice Group Co., Ltd. Jingyang Branch from 2011 to 2014 and as the head of the engineering
department of Shaanxi Xirui Real Estate Development Co., Ltd. from 2008 to 2011. Mr. Zhu holds a Bachelor’s
degree in Engineering Management from Zhengzhou University of Aeronautics.
Committees of the Board of Directors
Neither SkyPeople BVI nor FullMart anticipate
having committees of their respective boards of directors.
INDEX
TO FINANCIAL STATEMENTS
FUTURE
FINTECH GROUP INC.
INDEX
TO UNAUDITED FINANCIAL STATEMENTS
SKYPEOPLE
FOODS HOLDING LIMITED
INDEX
TO UNAUDITED FINANCIAL STATEMENTS
FISCAL
YEARS ENDED DECEMBER 31, 2016 AND 2015
SKYPEOPLE
FOODS HOLDING LIMITED
INDEX
TO UNAUDITED FINANCIAL STATEMENTS
AS
AT JUNE 30, 2017 AND 2016 AND
THE
SIX MONTHS ENDED JUNE 30, 2017
FULLMART
HOLDING LIMITED
INDEX
TO UNAUDITED FINANCIAL STATEMENTS
FISCAL
YEARS ENDED DECEMBER 31, 2016 AND 2015
FULLMART
HOLDING LIMITED
INDEX
TO UNAUDITED FINANCIAL STATEMENTS
AS
AT JUNE 30, 2017 AND 2016 AND
THE
SIX MONTHS ENDED JUNE 30, 2017
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Shareholders and Board of Directors of
SkyPeople
Fruit Juice, Inc.:
We
have audited the accompanying consolidated balance sheets of SkyPeople Fruit Juice, Inc.
1
as of December 31, 2016,
and the related consolidated statement of income and comprehensive income, changes in stockholders’ equity, and cash flows
for the year then ended. The consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on the consolidated financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2016, including the results of their operations and their cash flows for the year then ended,
in conformity with accounting principles generally accepted in the United States of America.
/s/
Wang Certified Public accountant, P.C.
Flushing,
New York
March
31, 2017
1
Future FinTech Group Inc. changed its name from SkyPeople Fruit Juice, Inc., effective as of June 6, 2017.
FUTURE
FINTECH GROUP INC.
CONSOLIDATED
BALANCE SHEETS
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,143,585
|
|
|
$
|
50,006,914
|
|
Restricted cash
|
|
|
-
|
|
|
|
3,079,956
|
|
Accounts receivable, net of allowance of $4,843,809 and $2,407,160 as of December 31, 2016 and 2015, respectively
|
|
|
7,325,773
|
|
|
|
50,062,300
|
|
Other receivables
|
|
|
28,417,194
|
|
|
|
265,079
|
|
Inventories
|
|
|
3,041,300
|
|
|
|
3,444,740
|
|
Deferred tax assets
|
|
|
3,566,442
|
|
|
|
2,326,194
|
|
Advances to suppliers and other current assets
|
|
|
58,132,189
|
|
|
|
3,809,970
|
|
TOTAL CURRENT ASSETS
|
|
|
101,626,483
|
|
|
|
112,995,153
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
81,523,569
|
|
|
|
83,124,874
|
|
LAND USE RIGHT, NET
|
|
|
31,854,360
|
|
|
|
25,690,291
|
|
LONG TERM ASSETS
|
|
|
2,789,390
|
|
|
|
2,979,857
|
|
DEPOSITS
|
|
|
43,867,228
|
|
|
|
45,321,919
|
|
Related party receivables
|
|
|
-
|
|
|
|
290,976
|
|
TOTAL ASSETS
|
|
$
|
261,661,030
|
|
|
$
|
270,403,070
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
16,569,988
|
|
|
$
|
18,332,502
|
|
Accrued expenses
|
|
|
27,449,664
|
|
|
|
17,356,081
|
|
Income tax payable
|
|
|
3,590,084
|
|
|
|
1,153,194
|
|
Advances from customers
|
|
|
696
|
|
|
|
369,992
|
|
Short-term bank loans
|
|
|
29,364,279
|
|
|
|
33,506,838
|
|
TOTAL CURRENT LIABILITIES
|
|
|
76,974,711
|
|
|
|
70,718,607
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Obligations under capital leases
|
|
|
14,494,003
|
|
|
|
16,720,307
|
|
TOTAL NON-CURRENT LIABILITIES
|
|
|
14,494,003
|
|
|
|
16,720,307
|
|
TOTAL LIABILITIES
|
|
|
91,468,714
|
|
|
|
87,438,914
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SkyPeople Fruit Juice, Inc, Stockholders' equity
|
|
|
|
|
|
|
|
|
Series B Preferred stock, $0.001 par value; 10,000,000 shares authorized; None issued and outstanding as of December 31, 2016 and 2015, respectively
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.001 par value; 8,333,333 shares authorized; 4,061,090 and 27,161,499* shares issued and outstanding as of December 31, 2016 and 2015, respectively
|
|
|
4,061
|
|
|
|
27,161
|
|
Additional paid-in capital
|
|
|
105,366,887
|
|
|
|
59,189,860
|
|
Retained earnings
|
|
|
100,237,011
|
|
|
|
105,782,482
|
|
Accumulated other comprehensive income (loss)
|
|
|
(70,579,747
|
)
|
|
|
13,069,031
|
|
Total SkyPeople Fruit Juice, Inc. stockholders' equity
|
|
|
135,028,212
|
|
|
|
178,068,534
|
|
Non-controlling interests
|
|
|
35,164,104
|
|
|
|
4,895,622
|
|
TOTAL EQUITY
|
|
|
170,192,316
|
|
|
|
182,964,156
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
261,661,030
|
|
|
$
|
270,403,070
|
|
*
The amount of shares is given prior to the Company’s 1-for-8 reverse stock split on March 10, 2016.
The
accompanying notes are an integral part of these consolidated financial statements.
FUTURE
FINTECH GROUP INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
|
|
For the Year Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Revenue
|
|
$
|
34,407,422
|
|
|
$
|
86,440,402
|
|
Cost of goods sold
|
|
|
25,233,950
|
|
|
|
60,315,601
|
|
Gross profit
|
|
|
9,173,472
|
|
|
|
26,124,801
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
5,010,222
|
|
|
|
10,684,077
|
|
Selling expenses
|
|
|
1,932,148
|
|
|
|
5,196,657
|
|
Total operating expenses
|
|
|
6,942,370
|
|
|
|
15,880,734
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
2,231,102
|
|
|
|
10,244,067
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
13,475
|
|
|
|
--
|
|
Interest income
|
|
|
158,730
|
|
|
|
351,915
|
|
Subsidy income
|
|
|
16,738
|
|
|
|
1,204,649
|
|
Interest expenses
|
|
|
(1,659,300
|
)
|
|
|
(3,885,018
|
)
|
Other income (expenses)
|
|
|
207,386
|
|
|
|
(1,413
|
)
|
Total other expenses
|
|
|
(1,262,971
|
)
|
|
|
(2,329,867
|
)
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations before Income Tax
|
|
|
968,131
|
|
|
|
7,914,200
|
|
Income tax provision
|
|
|
1,601,967
|
|
|
|
4,267,350
|
|
Income (loss) from Continuing Operations before Minority Interest
|
|
|
(633,836
|
)
|
|
|
3,646,850
|
|
|
|
|
|
|
|
|
|
|
Less: Net income (loss) attributable to non-controlling interests
|
|
|
(126,448
|
)
|
|
|
(698,115
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) from Continuing Operations
|
|
|
(760,284
|
)
|
|
|
2,948,735
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations (Note 16)
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(4,785,187
|
)
|
|
|
-
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC. STOCKHOLDERS
|
|
$
|
(5,545,471
|
)
|
|
$
|
2,948,735
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
$
|
(4,599,934
|
)
|
|
$
|
(4,401,140
|
)
|
Comprehensive income
|
|
|
(10,018,957
|
)
|
|
|
(754,290
|
)
|
Comprehensive expense attributable to non-controlling interests
|
|
|
(19,674,513
|
)
|
|
|
(136,372
|
)
|
COMPREHENSIVE INCOME ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC. STOCKHOLDERS
|
|
$
|
(29,693,470
|
)
|
|
$
|
(890,662
|
)
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share from continued operation
|
|
$
|
(0.19
|
)
|
|
$
|
0.11
|
|
Basic and diluted earnings (loss) per share from discontinued operation
|
|
|
(1.22
|
)
|
|
|
-
|
|
Basic and diluted earnings (loss) per share from net income
|
|
|
(1.41
|
)
|
|
|
0.11
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
Basic and diluted*
|
|
|
3,933,999
|
|
|
|
26,828,166
|
|
*
The amount of shares is given prior to the Company’s 1-for-8 reverse stock split on March 10, 2016.
The
accompanying notes are an integral part of these consolidated financial statements.
FUTURE
FINTECH GROUP INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
|
|
Common
Stock
Shares*
|
|
|
Common
Stock
|
|
|
Additional
Paid in
Capital
|
|
|
Retained
Earnings
|
|
|
Other
Comprehensive
Income
|
|
|
Non-Controlling Interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
26,661,499
|
|
|
$
|
26,661
|
|
|
$
|
59,189,860
|
|
|
$
|
102,833,747
|
|
|
$
|
19,351,703
|
|
|
$
|
4,685,819
|
|
|
$
|
186,087,790
|
|
Common Stocks issued during 2015
|
|
|
500,000
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,948,735
|
|
|
|
—
|
|
|
|
698,115
|
|
|
|
3,646,850
|
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
(6,282,672
|
)
|
|
$
|
(488,312
|
)
|
|
$
|
(6,770,984
|
)
|
Balance at December 31, 2015
|
|
|
27,161,499
|
|
|
|
27,161
|
|
|
|
59,189,860
|
|
|
|
105,782,482
|
|
|
|
13,069,031
|
|
|
|
4,895,622
|
|
|
$
|
182,964,156
|
|
Share split during 2016
|
|
|
(23,766,312
|
)
|
|
|
(23,766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,766
|
)
|
Common Stocks issued during 2016
|
|
|
665,950
|
|
|
|
666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
666
|
|
Net income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,545,471
|
)
|
|
|
—
|
|
|
|
(126,448
|
)
|
|
|
(5,671,91
|
)
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
46,177,027
|
|
|
|
—
|
|
|
$
|
(83,648,778
|
)
|
|
$
|
30,394,930
|
|
|
$
|
(7,076,821
|
)
|
Balance at December 31, 2016
|
|
|
4,061,137
|
|
|
|
4,061
|
|
|
|
105,366,887
|
|
|
|
100,237,011
|
|
|
|
(70,579,747
|
)
|
|
|
35,164,104
|
|
|
|
170,192,316
|
|
*
The amount of shares is given prior to the Company’s 1-for-8 reverse stock split on March 10, 2016.
The
accompanying notes are an integral part of these consolidated financial statements.
FUTURE
FINTECH GROUP INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For the fiscal year
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(5,419,023
|
)
|
|
$
|
3,646,850
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,426,089
|
|
|
|
7,617,752
|
|
Deferred income tax assets
|
|
|
(1,240,248
|
)
|
|
|
1,410,690
|
|
Bad debt provision
|
|
|
3,070,944
|
|
|
|
2,531,850
|
|
Inventory markdown
|
|
|
-
|
|
|
|
32,440
|
|
Impairment loss
|
|
|
3,203,523
|
|
|
|
2,383,991
|
|
Gain on sale of assets
|
|
|
-
|
|
|
|
(126,752
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
35,449,683
|
|
|
|
11,841,355
|
|
Other receivable
|
|
|
(29,268,821
|
)
|
|
|
20,687,724
|
|
Advances to suppliers and other current assets
|
|
|
(56,580,699
|
)
|
|
|
(3,537,529
|
)
|
Inventories
|
|
|
190,337
|
|
|
|
426,456
|
|
Accounts payable
|
|
|
8,114,987
|
|
|
|
55,414,623
|
|
Accrued expenses
|
|
|
2,038,938
|
|
|
|
(85,776
|
)
|
Income tax payable
|
|
|
937,915
|
|
|
|
2,094,800
|
)
|
Advances from customers
|
|
|
(358,999
|
)
|
|
|
(75,686
|
)
|
Net cash provided by operating activities
|
|
|
(34,435,374
|
)
|
|
|
104,262,788
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(8,730,051
|
)
|
|
|
(279,691
|
)
|
Purchase of intangible assets
|
|
|
(9,329,762
|
)
|
|
|
|
|
Prepayment for other assets
|
|
|
(2,977,045
|
)
|
|
|
(20,530,471
|
)
|
Prepayments for deposit on equipment
|
|
|
-
|
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(21,036,858
|
)
|
|
|
(20,810,162
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Issue of common stock
|
|
|
17,355,246
|
|
|
|
-
|
|
Reverse split of common stock
|
|
|
(40,884,860
|
)
|
|
|
-
|
|
Decrease (Increased) in restricted cash
|
|
|
2,994,460
|
|
|
|
3,239,496
|
|
(Repayment) Proceeds from short-term notes
|
|
|
-
|
|
|
|
(8,098,740
|
)
|
Proceeds from related party loan
|
|
|
(8,269,592
|
)
|
|
|
(306,049
|
)
|
Proceeds from short-term bank loans
|
|
|
-
|
|
|
|
(828,505
|
)
|
Repayment of short-term bank loans
|
|
|
(2,078,155
|
)
|
|
|
7,249,797
|
|
Proceeds (repayments) long term debt
|
|
|
(1,202,289
|
)
|
|
|
|
|
Payment for capital lease
|
|
|
7,982,400
|
|
|
|
(78
|
)
|
Repayment of related party loans
|
|
|
-
|
|
|
|
(61,667,195
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(24,102,790
|
)
|
|
|
(60,411,274
|
)
|
|
|
|
|
|
|
|
|
|
Effect of change in exchange rate
|
|
|
30,711,693
|
|
|
|
1,835,260
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(48,863,329
|
)
|
|
|
24,876,612
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
50,006,914
|
|
|
|
25,130,302
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,143,585
|
|
|
$
|
50,006,914
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
833,690
|
|
|
$
|
3,885,018
|
|
Cash paid for income taxes
|
|
$
|
2,707,227
|
|
|
$
|
4,267,350
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE OF SIGNIFICANT NON-CASH TRANSACTION
|
|
|
|
|
|
|
|
|
Transferred from other assets to property, plant and equipment and construction in process
|
|
$
|
60,838,131
|
|
|
$
|
-
|
|
Equipment acquired by capital lease
|
|
$
|
-
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
FUTURE
FINTECH GROUP INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
YEARS ENDED DECEMBER 31, 2016 AND 2015
1.
CORPORATE INFORMATION
SkyPeople
Fruit Juice, Inc.
2
(“SkyPeople” or the “Company”), formerly known as Entech Environmental Technologies,
Inc. (“Entech”) and Cyber Public Relations, Inc. (“Cyber Public Relations”), was initially incorporated
on June 29, 1998 under the laws of the State of Florida.
The
principal activities of SkyPeople (together with our direct or indirect subsidiaries, “we,” “us,” “our”
or “the Company”) consist of production and sales of fruit juice concentrates, fruit juice beverages, and other fruit-related
products in the People’s Republic of China (“PRC”, or “China”), and overseas markets. All activities
of the Company are principally conducted by subsidiaries operating in the PRC.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Preparation
These
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America,
or US GAAP.
The
Company’s functional currency is the Chinese Renminbi (RMB); however, the accompanying consolidated financial statements
have been translated and presented in United States Dollars (USD).
The
consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts
and transactions have been eliminated.
Certain
amounts of prior year were reclassified to conform with current year presentation.
Use
of Estimates
The
Company’s 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 consolidated financial statements and reported amounts of revenue and expenses during the reporting
period. The significant areas requiring the use of management estimates include, but not limited to, the allowance for doubtful
accounts receivable, estimated useful life and residual value of property, plant and equipment, provision for staff benefit, valuation
of change in fair value of warrant liability, 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 consolidated financial statements.
Impairment
of Long-Lived Assets
In
accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
360-10,
Accounting for the Impairment or Disposal of Long-Lived Assets
, long-lived assets, such as property, plant
and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable, or it is reasonably possible that these assets could become
impaired as a result of technological or other industrial changes. The determination of recoverability of assets to be held and
used is made by comparing the carrying amount of an asset to future undiscounted cash flows to be generated by the assets.
2
Future FinTech Group Inc. changed
its name from SkyPeople Fruit Juice, Inc., effective as of June 6, 2017. References to “SkyPeople Fruit Juice, Inc.”
and “SkyPeople” herein refer to Future FinTech Group, Inc.
If
such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount
or fair value less cost to sell.
During
fiscal year 2015, the Company’s subsidiary Yinkou had no production activities due to a market demand decline for concentrated
apple juice, and Yinkou also had no production in year 2016 since it had difficulty in remaining competitive in apple juice market.
The Company decided to recognize an impairment loss of $2.38 million with respect to the concentrated fruit juice production equipment
in Yingkou, which has not operated in the past two years. In fiscal year 2016, the Company’s recorded an impairment loss
of $2.1 million with respect to the concentrated fruit juice production equipment in Yingkou.
The Company’s Huludao Wonder operation,
a subsidiary which produces concentrated apple juice, suffered continued operating losses in the three fiscal years ended December
31, 2016 and the cash flows were minimal during the same three fiscal years. Thus, in December 2016, we established a restructuring
plan to close Huludao Wonder Operation. In fiscal year 2016, the Company’s recorded an impairment loss of $2.4 million with
respect to the concentrated fruit juice production equipment in Huludao Wonder. The Company plan to sale the assets of Huludao
Wonder to a third party when there is a chance.
Fair
Value of Financial Instruments
The
Company has adopted FASB Accounting Standard Codification Topic on Fair Value Measurements and Disclosures (“ASC 820”),
which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements.
ASC 820 establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable input, which
may be used to measure fair value and include the following:
Level
1 - Quoted prices in active markets for identical assets or liabilities.
Level
2 - Input other than Level 1 that is observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other input that is observable or can be corroborated by observable market data
for substantially the full term of the assets or liabilities.
Level
3 - Unobservable input that is supported by little or no market activity and that is significant to the fair value of the assets
or liabilities.
Our
cash and cash equivalents and restricted cash are classified within level 1of the fair value hierarchy because they are value
using quoted market price.
Earnings
Per Share
Under
ASC 260-10,
Earnings Per Share
, basic EPS excludes dilution for Common Stock equivalents and is calculated by dividing
net income available to common stockholders by the weighted-average number of Common Stock outstanding for the period. Our Series
B Convertible Preferred Stock is a participating security. Consequently, the two-class method of income allocation is used in
determining net income available to common stockholders.
Diluted
EPS is calculated by using the treasury stock method, assuming conversion of all potentially dilutive securities, such as stock
options and warrants. Under this method, (i) exercise of options and warrants is assumed at the beginning of the period and shares
of Common Stock are assumed to be issued, (ii) the proceeds from exercise are assumed to be used to purchase Common Stock at the
average market price during the period, and (iii) the incremental shares (the difference between the number of shares assumed
issued and the number of shares assumed purchased) are included in the denominator of the diluted EPS computation. The numerators
and denominators used in the computations of basic and diluted EPS are presented in the following table.
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
NUMERATOR FOR BASIC AND DILUTED EPS
|
|
|
|
|
|
|
Income (loss) from continuing operations (numerator for
Diluted EPS)
|
|
$
|
(760,284
|
)
|
|
$
|
2,948,735
|
|
Loss from discontinued operations (numerator for Diluted EPS)
|
|
|
(4,785,187
|
)
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) (numerator for Diluted EPS)
|
|
$
|
(5,545,471
|
)
|
|
$
|
2,948,735
|
|
Net income (loss) allocated to Common Stock
holders
|
|
$
|
(5,545,471
|
)
|
|
$
|
2,948,735
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
Basic earnings per share from continuing operations
|
|
|
(0.19
|
)
|
|
|
0.11
|
|
Basic earnings per share from discontinued operations
|
|
|
(1.22
|
)
|
|
|
--
|
|
Basic earnings per share from Net Income
|
|
|
(1.41
|
)
|
|
|
0.11
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share
|
|
|
|
|
|
|
|
|
Diluted earnings per share from continuing operations
|
|
|
(0.19
|
)
|
|
|
0.11
|
|
Diluted earnings per share from discontinued operations
|
|
|
(1.22
|
)
|
|
|
--
|
|
Diluted earnings per share from Net Income
|
|
|
(1.41
|
)
|
|
|
0.11
|
|
|
|
|
|
|
|
|
|
|
Weighted average Common Stock outstanding
|
|
|
3,933,999
|
|
|
|
26,828,166
|
*
|
DENOMINATOR FOR BASIC AND DILUTIVED EPS
|
|
|
3,933,999
|
|
|
|
26,828,166
|
|
*
The amount of shares is given prior to the Company’s 1-for-8 reverse stock split on March 10, 2016.
Cash
and Cash Equivalents
Cash
and cash equivalents included cash on hand and demand deposits placed with banks or other financial institutions, which are unrestricted
as to withdrawal and use and with an original maturity of three months or less.
Deposits
in banks in the PRC are not insured by any government entity or agency, and are consequently exposed to risk of loss. The Company
believes the probability of a bank failure, causing loss to the Company, is remote.
Restricted
Cash
Restricted
cash consists of cash equivalents used as collateral to secure short-term notes payable.
Accounts
Receivable and Allowances
Accounts
receivable are recognized and carried at the original invoice amounts less an allowance for any uncollectible amount. We have
a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing
accounts receivable. We extend credit to our customers based on an evaluation of their financial condition and other factors.
We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations
of our customers and maintain an allowance for potential bad debts if required.
We
determine whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the
customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best
available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable
to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received.
The amounts calculated are analyzed to determine the total amount of the allowance. We may also record a general allowance as
necessary.
Direct
write-offs are taken in the period when we have exhausted our efforts to collect overdue and unpaid receivables or otherwise evaluate
other circumstances that indicate that we should abandon such efforts.
The
Company has not experienced any significant difficulty in collecting its accounts receivable in the past and is not aware of any
financial difficulties being experienced by its major customers. Bad debt expense was $4,843,809 and $2,326,194 during the years
ended December 31, 2016 and 2015, respectively. Our credit term for distributors with good credit history is from 30 days to 120
days. As of December 31, 2016 and 2015 accounts receivables of $2,130,746.95 and $18,189,947 have been outstanding for over 120
days, the increase is due to the growth of sales in concentrated apply juice which had longer credit period to distributors.
Inventories
Inventories
consist of raw materials, packaging materials (which include ingredients and supplies) and finished goods (which include finished
juice in the bottling and canning operations). Inventories are valued at the lower of cost or market. We determine cost on the
basis of the weighted average method. The Company periodically reviews inventories for obsolescence and any inventories identified
as obsolete are reserved or written off. Although we believe that the assumptions we use in estimate inventory write downs are
reasonable, future changes in these assumptions could provide a significantly different result. The Company recorded inventory
markdown allowance of $0 and $64,065 for the year ended December 31, 2016 and 2015, respectively.
Revenue
Recognition
The
Company recognizes revenue in accordance with ASC 605,
Revenue Recognition
. Revenue from sales of products is recognized
upon shipment or delivery to customers, provided that persuasive evidence of sales arrangements exist, title and risk of loss
have been transferred to the customers, the sales amounts are fixed and determinable and collection of the revenue is reasonably
assured. Customers have no contractual right to return products. Historically, the Company has not had any returned products.
Accordingly, no provision has been made for returnable goods. The Company is not required to rebate or credit a portion of the
original fee if it subsequently reduces the price of its product and the distributor still has rights with respect to that product.
Shipping
and Handling Costs
Shipping
and handling amounts billed to customers in sales transactions are included in sales revenues and shipping expenses incurred by
the Company are reported as a component of selling expenses. The shipping and handling expenses of $1,180,328 and $4,400,044 for
2016 and 2015, respectively, are reported in the Consolidated Statements of Income and Comprehensive Income as a component of
selling expenses. The decrease in shipping and handling costs in fiscal year 2016 was mainly due to a decrease in sales quantity
of our products.
Government
Subsidies
A
government subsidy is recognized only when the Company complies with any conditions attached to the grant and there is reasonable
assurance that the grant will be received.
The
government subsidies recognized were $30,213 and $1,204,649 for the years ended December 31, 2016 and 2015, respectively, and
are included in other income of the consolidated statements of comprehensive income.
Advertising
and Promotional Expense
Advertising
and promotional costs are expensed as incurred and are included in selling expenses. The Company incurred $50,230 and $128,204
in advertising and promotional costs for the years ended December 31, 2016 and 2015, respectively.
Property,
Plant and Equipment
Property,
plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Depreciation is computed using
the straight-line method over the useful lives of the assets. Major renewals and betterments are capitalized and depreciated;
maintenance and repairs that do not extend the life of the respective assets are expensed as incurred. Upon disposal of assets,
the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in the consolidated
statements of income and comprehensive income.
Construction
in progress primarily represents the construction or the renovation costs of plant, machinery and equipment stated at cost less
any accumulated impairment loss, which is not depreciated. Costs and interest on borrowings incurred are capitalized
and transferred to property and equipment upon completion, at which time depreciation commences. Cost of repairs and
maintenance is expensed as incurred.
Depreciation
related to property, plant and equipment used in production is reported in cost of sales, and includes amortized amounts
related to capital leases. We estimated that the residual value of the Company’s property and equipment ranges from 3% to
5%. Property, plant and equipment are depreciated over their estimated useful lives as follows:
Buildings
|
|
20-30 years
|
Machinery and equipment
|
|
5-10 years
|
Furniture and office equipment
|
|
3-5 years
|
Motor vehicles
|
|
5 years
|
Foreign
Currency and Other Comprehensive Income
The
financial statements of the Company’s foreign subsidiaries are measured using the local currency as the functional currency;
however, the reporting currency of the Company is the United States dollar (“USD”). Assets and liabilities of the
Company’s foreign subsidiaries have been translated into USD using the exchange rate at the balance sheet date, while equity
accounts are translated using historical exchange rate. The average exchange rate for the period has been used to translate revenues
and expenses. Translation adjustments are reported separately and accumulated in a separate component of equity (cumulative translation
adjustment).
Other
comprehensive income for the year ended December 31, 2016 and 2015 represented foreign currency translation adjustments gain of
$1,579,713 and loss of $4,401,140, respectively, and were included in the consolidated statements of comprehensive income.
Income
Taxes
We
use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.”
Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and
(ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s
financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the
enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available
positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC
Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements
and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions
for any of the reporting periods presented.
Leases
Leases
are reviewed and classified as capital or operating at their inception in accordance with ASC Topic 840, Accounting for Leases.
For leases that contain rent escalations, the Company records monthly rent expense equal to the total amount of the payments due
in the reporting period over the lease term. The difference between rent expense recorded and the amount paid is credited or charged
to deferred rent account.
Land
Use Right
The
Company paid in advance for land use rights according to Chinese law. Prepaid land use rights are being amortized and recorded
as lease expenses using the straight-line method over the use terms of the lease, which are 40 to 50 years.
Reportable
Segments
We
have six operating segments for financial reporting purposes for all periods presented in our consolidated financial statements
in accordance with FASB ASC 280 “Segment Reporting.”
Research
and Development
Research
and development costs are expensed when incurred and are included in operating expenses.
New
Accounting Pronouncements
In
January 2016, the FASB issued an amendment to its accounting guidance related to recognition and measurement of financial assets
and financial liabilities. The amendment addresses certain aspects of recognition, measurement, presentation and disclosure of
financial instruments. The amendment will be effective for us beginning in our first quarter of fiscal year 2019. We are evaluating
the impact of adopting this amendment to our consolidated financial statements.
In
February 2016, the FASB issued a new standard on accounting for leases. The new standard is intended to provide enhanced transparency
and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet.
The new standard will continue to classify leases as either finance or operating, with classification affecting the pattern of
expense recognition in the statement of earnings. The new standard is required to be adopted using a modified retrospective method
to each prior reporting period presented with various optional practical expedients. The new standard will be effective for us
beginning in our first quarter of fiscal year 2020 with early adoption permitted. We are evaluating the impact of adopting this
amendment to our consolidated financial statements.
In
March 2016, the FASB issued an amendment to its accounting guidance related to employee share-based payments. The amendment simplifies
several aspects of the accounting for employee share-based payments including the accounting for income taxes, forfeitures, and
statutory tax withholding requirements, as well as classification in the statement of cash flows. The amendment will be effective
for us beginning in our first quarter of fiscal year 2018 with early adoption permitted. We are evaluating the impact of adopting
this amendment to our consolidated financial statements.
In
August 2016, FASB issued “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments.” The
issues include but are not limited to the classification of debt prepayment and debt extinguishment costs, payments made for contingent
consideration for a business combination, proceeds from the settlement of insurance proceeds, distributions received from equity
method investees and separately identifiable cash flows and the application of the predominance principle. This update is effective
for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.
The Company is currently evaluating the provisions of this standard and assessing its impact on the Company’s consolidated
financial statements and disclosures.
In
December 2016, the FASB issued ASU 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts
with Customers
, which amended the guidance on performance obligation disclosures and makes technical corrections and improvements
to the new revenue standard. The standard is effective for annual reporting periods beginning after December 15, 2017, including
interim periods within that reporting period, and permits early adoption on a limited basis. The update permits the use of either
the retrospective or cumulative effect transition method. The Company is currently evaluating the effect the adoption of these
standards will have on the Company’s consolidated financial statements.
There
were no other recent accounting pronouncements or changes in accounting pronouncements during the fiscal year ended December 31,
2016, that are of significance or potential significance to us.
3.
INVENTORIES
Inventories
by major categories are summarized as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Raw materials and packaging
|
|
$
|
1,107,857
|
|
|
$
|
944,812
|
|
Finished goods
|
|
|
1,933,443
|
|
|
|
2,499,928
|
|
Inventories
|
|
$
|
3,041,300
|
|
|
$
|
3,444,740
|
|
4.
PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consist of the following:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Machinery and equipment
|
|
$
|
28,125,109
|
|
|
$
|
33,238,470
|
|
Furniture and office equipment
|
|
|
566,348
|
|
|
|
577,399
|
|
Motor vehicles
|
|
|
497,024
|
|
|
|
530,962
|
|
Buildings
|
|
|
50,758,428
|
|
|
|
53,841,614
|
|
Construction in progress
|
|
|
35,979,862
|
|
|
|
27,364,494
|
|
Subtotal
|
|
|
115,920,500
|
|
|
|
115,552,939
|
|
Less: accumulated depreciation
|
|
|
(34,403,200
|
)
|
|
|
(32,605,706
|
)
|
Net property and equipment
|
|
$
|
81,523,569
|
|
|
$
|
82,947,233
|
|
In
2016, the Company recognized impairment loss of $3.20 million, mainly related to the concentrated fruit juice production equipment
in Yingkou and Huludao, which has not operated in the past two years due to unfavorable market conditions.
In
2015, the Company recognized impairment loss of $2.38 million, mainly related to the concentrated fruit juice production equipment
in Yingkou, which has not operated in the past two years due to unfavorable market conditions. There were no impairment provisions
made for the fiscal year ended December 31, 2014.
Depreciation
expense included in general and administration expenses for the year ended December 31, 2016 and 2015 was $3,599,276 and $3,125,778,
respectively. Depreciation expense included in cost of sales for the year ended December 31, 2016 and 2015 was $604,734 and $2,819,874
respectively.
5.
LONG TERM ASSETS
Long
term assets were $2,789,390 and $2,979,857 for the year ended December 31, 2016 and 2015, respectively. It represents the capital
lease risk deposits made by the Company to Cinda Financial Leasing Co., LTD in terms of capital lease agreement.
6.
LAND USAGE RIGHTS
According
to the laws of the PRC, the government owns all of the land in the PRC. The government of the PRC, its agencies and collectives
hold all land ownership. Companies or individuals are authorized to use the land only through land usage rights granted
by the PRC government. Land usage rights can be transferred upon approval by the land administrative authorities of the PRC (State
Land Administration Bureau) upon payment of the required land transfer fee. Accordingly, the Company paid in advance for land
usage rights. Prepaid land usage rights are being amortized and recorded as lease expenses using the straight-line method over
the terms of the leases, which range from 40 to 50 years. The amortization expense was $1,222,079 and $177,311 for fiscal years
2016 and 2015, respectively. The following table sets forth land usage rights of the Company as of December 31, 2016 and 2015,
respectively.
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cost
|
|
$
|
34,321,098
|
|
|
$
|
8,011,269
|
|
Less: Accumulated amortization
|
|
|
(2,466,738
|
)
|
|
|
(1,508,849
|
)
|
|
|
$
|
31,854,360
|
|
|
$
|
6,502,420
|
|
7.
DEPOSITS
Deposits
mainly include payments made to acquire land use right and purchase property, plant and equipment. Payments for acquiring land
use right are recorded as long term deposits before the land use right certificate is received. The amount is transferred to Land
Use Right once the official certificate received from the government. Payments to purchase property, plant and equipment are recorded
as long-term deposits. The amounts are transferred to property, plant and equipment once the equipment is delivered or installed.
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deposits for land use rights
|
|
$
|
103,187,832
|
|
|
$
|
16,232,136
|
|
Deposits to purchase property, plant and equipment
|
|
|
366,002
|
|
|
|
29,089,783
|
|
|
|
$
|
101,000,474
|
|
|
$
|
45,321,919
|
|
8.
SHORT-TERM BANK LOANS
Short-term
bank loans consist of the following loans collateralized by assets of the Company:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Loan payable to Huludao Bank, Suizhong branch due on December 9, 2016, bearing interest at 9.6% per annum, collateralized by the buildings, machinery and land use rights of Huludao Wonder
|
|
|
5,766,181
|
|
|
|
6,159,911
|
|
|
|
|
|
|
|
|
|
|
Loan payable to China Construction Bank due on May 12, 2016 bearing interest at 5.6% per annum, collateralized by the buildings of SkyPeople (China)
|
|
|
-
|
|
|
|
3,526,549
|
|
|
|
|
|
|
|
|
|
|
Loan payable to China Construction Bank due on January 10, 2018, bearing interest at 5.84% per annum, collateralized by the buildings and land use rights of Yingkou.
|
|
|
2,003,748
|
|
|
|
2,140,569
|
|
|
|
|
|
|
|
|
|
|
Loan payable to Bank of Xi’an due on November 15, 2017, bearing interest at 4.71% per annum, guaranteed by a third party Shaanxi Bo Ai Medical Science & Technology Development Co., Ltd
|
|
|
2,162,318
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Loan payable to Shanghai Pudong Development Bank due on May 3, 2018, bearing interest at 6.16% per annum, collateralized by the buildings of SkyPeople (China)
|
|
|
3,877,757
|
|
|
|
4,142,540
|
|
|
|
|
|
|
|
|
|
|
Loan payable to Bank of Beijing due on June 30, 2018, bearing interest at 7.28% per annum, collateralized by the buildings of a third party, Shaanxi Jiu Chang Medical Science & Technology Development Co., Ltd.
|
|
|
4,324,636
|
|
|
|
4,619,933
|
|
|
|
|
|
|
|
|
|
|
Loan payable to China Construction Bank due on May 3, 2018 bearing interest at 4.99% per annum, guaranteed by a third party guarantee company.
|
|
|
3,301,139
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Loan payable to China Construction Bank due on May 13, 2018, bearing interest at 5.6% per annum, collateralized by the buildings and land use rights of Yingkou.
|
|
|
4,324,636
|
|
|
|
4,619,933
|
|
|
|
|
|
|
|
|
|
|
Loan payable to the rural credit cooperative union of Mei County due on Feb 4, 2016 and Feb 3, 2017, each with half the loan paid back and bearing an annual interest at 8.3412% in 2015 and the rate will be floated once a year, collateralized by the buildings and land use rights of a third party, Kiwi investment and development of Mei County Co., Ltd.
|
|
|
-
|
|
|
|
1,539,978
|
|
|
|
|
|
|
|
|
|
|
Loan payable to The Bank of Ningxia Xi’an branch due on Jan 4, 2016, bearing interest at 7.28% per annum, collateralized by the fixed assets and brand name of SkyPeople (China).
|
|
|
-
|
|
|
|
3,849,945
|
|
|
|
|
|
|
|
|
|
|
Loan payable to The Bank of Ningxia Xi’an branch due on March 14, 2017, bearing interest at 0.47% per annum, collateralized by the fixed assets and brand name of SkyPeople (China).
|
|
|
3,603,863
|
|
|
|
|
|
Total
|
|
$
|
29,364,279
|
|
|
|
33,506,838
|
|
9.
LEASE OBLIGATION PAYABLE
The
schedule below represents the commitments for the Company’s capital equipment under the lease contract with Cinda Financial
Leasing Co., Ltd, entered into in April of 2014. The Company’s obligations under the finance lease are secured by the lessors’
title to the leased assets. The lease has an interest rate as 7.36%.
Minimum lease payments for the years ending December 31, are as follows;
|
|
|
|
|
|
|
|
2017
|
|
$
|
6,945,442
|
|
2018
|
|
|
5,787,869
|
|
2019
|
|
|
1,760,692
|
|
Less: amount representing interest
|
|
|
-
|
|
Present value of minimum lease payments
|
|
$
|
14,494,003
|
|
|
|
|
|
|
Due within one year
|
|
$
|
6,945,442
|
|
Due after one year
|
|
|
7,548,560
|
|
Present value of minimum lease payments
|
|
$
|
14,494,003
|
|
In
April 2015, China Cinda Asset Management Co., Ltd. Shaanxi Branch (“Cinda Shaanxi Branch”) filed two enforcement proceedings
with Xi’an Intermediate People’s Court against the Company for alleged defaults pursuant to guarantees by the Company
to its suppliers for a total amount of RMB 39,596,250, or approximately $6.1 million.
In
June 2014, two long term suppliers of pear, mulberry, kiwi fruits to the Company requested the Company to provide guarantees for
their loans with Cinda Shaanxi Branch. Considering the long term business relationship and to ensure the timely supply of raw
materials, the Company agreed to provide guarantees upon the value of the raw materials supplied to the Company. Because Cinda
Shaanxi Branch is not a bank authorized to provide loans, it eventually provided financing to the two suppliers through purchase
of accounts receivables of the two suppliers with the Company. In July, 2014, the parties entered into two agreements - Accounts
Receivables Purchase and Debt Restructure Agreement and Guarantee Agreements for Accounts Receivables Purchase and Debt Restructure.
Pursuant to the agreements, Cinda Shaanxi Branch agreed to provide a RMB 100 million credit line on a rolling basis to the two
suppliers and the Company agreed to pay its accounts payables to the two suppliers directly to Cinda Shaanxi Branch and provided
guarantees for the two suppliers. In April 2015, Cinda Shaanxi Branch stopped providing financing to the two suppliers and the
two suppliers were unable to continue the supply of raw materials to the Company. Consequently, the Company stopped making any
payment to Cinda Shaanxi Branch.
The
Company has responded to the court and taken the position that the financings under the agreements are essentially 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 have no legal forces from the beginning. Therefore, the Company has no obligations to repayment
the debts owed by the two suppliers to Cinda Shaanxi Branch. The proceeding is currently pending for the verdict of the judge.
In
September 2016, the Suizhong Branch of Huludao Banking Co. Ltd. (“Suizhong Branch”) filed a lawsuit with Huludao
Intermediate People’s Court (the “Court”) against the Company’s indirectly wholly-owned subsidiary Huludao
Wonder Fruit Co., Ltd. (“Wonder Fruit”) and requested that Wonder Fruit repay a 40 million RMB (approximately $6.35
million) bank loan, plus interest. The loan became due on its maturity date on December 9, 2016. On December 19, 2016, the
Court accepted the case. The Company has been disputing the interest rate of the loan with Suizhong Branch, and has not
repaid the loan to date. Wonder Fruit believes the interest charged by Suizhong Branch is 100% higher than the base rate
set by China People’s Bank and is not in consistent with China People’s Bank’s base interest and floating rate.
The Court has temporarily frozen the land and real property of the Wonder Fruit that were pledged as guarantee for the loan from
being transferred to any third-party, but the freeze does not limit or affect the use of these properties by Wonder Fruit for
its business. Wonder Fruit is currently in discussions with the Suizhong Branch on repayment of the bank loan and a reduction
of the interest due thereon.
From
time to time we may be a party to various litigation proceedings arising in the ordinary course of our business, none of which,
in the opinion of management, is likely to have a material adverse effect on our financial condition or results of operations.
10.
RELATED PARTY TRANSACTION
Sales
The
company’s subsidiary sold fruit beverages to a related entity, Shaanxi Fullmart Convenient Chain Supermarket Co., Ltd. (“Fullmart”)
for approximately $360,184 and $1,255,393 for the year ended December 31, 2016 and 2015, respectively. The sales to this related
party were consistent with pricing and terms offered to third parties. The remained accounts receivable balances were $308,304
and $441,253 as of December 31, 2016 and 2015, respectively. Fullmart is a company indirectly owned by a member of our Board of
Directors, Mr. Yongke Xue.
Long-term
loan – related party
There
were no short-term loans to a related party as of December 31, 2016.
On February 18, 2013, SkyPeople (China) entered into a loan agreement with SkyPeople International Holdings Group Limited (the
“Lender”). The Lender indirectly holds 50.2% interest in the Company. Mr. Yongke Xue (“Y. K. Xue”), then
the Chairman and Chief Executive Officer (“CEO”) of the Company and currently a Member of the Company’s Board
of Directors (the “Board”) and Mr. Hongke Xue, our Chairman and CEO, indirectly and beneficially own 80.0% and 9.4%
of the equity interest in the Lender, respectively. Pursuant to the Agreement, the Lender agreed to extend to the Company a one-year
unsecured term loan with a principal amount of $8.0 million at an interest rate of 6% per annum. During 2013, the Company received
$8.0 million from the Lender. In February 2014, both parties extended this loan for another two years under the original terms
of the agreement.
On
October 16, 2015, the Company entered into a Share Purchase Agreement with the Lender to sell 5,321,600 shares of the common stock
of the Company at the price of $7,982,400, and which was paid by cancellation of the loan by the Lender. On March 10, 2016, the
Lender canceled the loan and the shares were issued to the Lender.
11.
INCOME TAX
The
Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income
taxes have been made, as the Company had no U.S. taxable income for the year ended December 31, 2016 and 2015. The effective income
tax rate for the Company for both of the years ended December 31, 2016 and 2015 were negative 44% and 54%, respectively. Some
of our subsidiaries generated income and we accrued income tax according to the Chinese corporate income tax rate, but some had
a loss and no tax provision was made.
The
amount of unrecognized deferred tax liabilities for temporary differences related to the dividend from foreign subsidiaries is
not determined because such determination is not practical.
The
Company has not provided deferred taxes on undistributed earnings attributable to its PRC subsidiaries as they are to be permanently
reinvested. On February 22, 2008, MOFCOM, and SAT, jointly issued Cai Shui 2008 Circular 1, “Circular 1.” According
to Article 4 of Circular 1, distributions of accumulated profits earned by foreign investment enterprises, (“FIE”)
prior to January 1, 2008 to their foreign investors will be exempt from withholding tax, (“WHT”) while distribution
of the profits earned by a FIE after January 1, 2008 to its foreign investors shall be subject to WHT.
Dividend
payments by PRC subsidiaries are limited by certain statutory regulations in the PRC. No dividends may be paid by PRC subsidiaries
without first receiving prior approval from SAFE. Dividend payments are restricted to 90% of after tax profits.
The
Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of ASC
Topic 740,
Income Taxes
. Since SkyPeople (China) intends to reinvest its earnings to further expand its businesses
in mainland China, its PRC subsidiaries do not intend to declare dividends to their immediate foreign holding companies in the
foreseeable future. Accordingly, the Company has not recorded any deferred taxes in relation to US tax on the cumulative amount
of undistributed retained earnings since January 1, 2008.
Effective
on January 1, 2008, the PRC Enterprise Income Tax Law, EIT Law, and Implementing Rules imposed a unified enterprise income tax
rate of 25% on all domestic-invested enterprises and foreign-invested enterprises in the PRC, unless they qualify under certain
limited exceptions. All of the Companies’ Chinese subsidiaries were subject to an enterprise income tax rate of 25%.
The
reconciliation of income tax expense at the U.S. statutory rate of 35% in 2016 and 2015, to the Company’s effective tax
rate is as follows:
|
|
Year ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Expected income tax expenses at U.S. statutory rate
|
|
$
|
--
|
|
|
$
|
2,769,970
|
|
Tax rate difference between China and U.S.
|
|
|
(325,658
|
)
|
|
|
(791,420
|
)
|
Change in Valuation Allowance
|
|
|
195,934
|
|
|
|
373,587
|
|
Permanent difference
|
|
|
1,731,691
|
|
|
|
1,915,213
|
|
Income tax expense at effective tax rate
|
|
$
|
1,601,967
|
|
|
$
|
4,267,350
|
|
The
provisions for income taxes are summarized as follows:
|
|
Year ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Current
|
|
$
|
2,442,904
|
|
|
$
|
5,182,854
|
|
Deferred
|
|
|
(840,937
|
)
|
|
|
(915,504
|
)
|
Total
|
|
$
|
1,601,967
|
|
|
$
|
4,267,350
|
|
The
tax effects of temporary differences that give rise to the Company’s net deferred tax asset as of December 31, 2016 and
2015 are as follows:
|
|
Year ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net operating loss carry forward
|
|
$
|
3,973,803
|
|
|
$
|
2,810,336
|
|
Inventory markdown
|
|
|
-
|
|
|
|
14,468
|
|
Bad debt provision
|
|
|
-
|
|
|
|
-
|
|
Accrued expenses
|
|
|
496,515
|
|
|
|
209,332
|
|
Startup costs
|
|
|
-
|
|
|
|
-
|
|
Others
|
|
|
-
|
|
|
|
-
|
|
|
|
|
4,470,318
|
|
|
|
3,034,136
|
|
Less: valuation allowance
|
|
|
(903,876
|
)
|
|
|
(707,942
|
)
|
Deferred tax assets
|
|
$
|
3,566,442
|
|
|
$
|
2,326,194
|
|
12.
CONCENTRATIONS
There
was no customer who accounted for 10% of the Company’s sales for the year ended December 31, 2016. There was one customer
who accounted for 10% of the Company’s sales for the year ended December 31, 2015. Sales to our five largest customers accounted
for approximately 18% and 36% of our net sales during the years ended December 31, 2016 and 2015, respectively.
One
supplier accounted for 62% and 66% of our purchases for the year ended December 31, 2016 and 2015, respectively. There was no
other single supplier representing 10% of purchases during both years.
13.
SHARE SPLIT
On
March 10, 2016, the Company filed with the Florida Secretary of State’s office an amendment to its Articles of Incorporation.
As a result of the Articles of Amendment, the Company authorized and approved an 1-for-8 reverse stock split of the Company’s
authorized shares of common stock from 66,666,666 shares to 8,333,333 shares, accompanied by a corresponding decrease in the Company’s
issued and outstanding shares of common stock (the “Reverse Stock Split”). The common stock continues to have a par
value of $0.001. No changes were made to the number of authorized preferred shares of the Company, which remains as 10,000,000,
none of which have been issued. The amendment to the Articles of Incorporation of the Company took effect on March 16, 2016.
14.
TRANSFER OF SHARES
On March 11, 2016, SkyPeople Juice International Holding (HK) Limited (the “SkyPeople HK”), a wholly owned subsidiary
of SkyPeople Fruit Juice, Inc. (the “Company”) and a 99.78% owner of SkyPeople Juice Group Co., Ltd. (“SkyPeople
China”) entered into a Share Transfer Agreement and a Capital Contribution (the “Agreements”) with Shenzhen
TianShunDa Equity Investment Fund Management Co., Ltd. (the “TSD”), a limited liability corporation registered in
China.
SkyPeople
HK incorporated SkyPeople China in Shaanxi Province, China on March 13, 2012 and pursuant to the approval certificate and business
license of SkyPeople China, SkyPeople HK was required to contribute RMB 427,000,000 (approximately $65,698,308) and Hongke Xue,
currently the Chairman of the Board of Directors of the Company and our Chief Executive Officer (“Xue”), was required
to contribute RMB 1,000,000 (approximately $153,846) to SkyPeople China, and SkyPeople HK and Xue as a result would own 427,000,000
shares (99.78%) and 1,000,000 shares (0.22%) of SkyPeople China, respectively. As of March 10, 2016, SkyPeople HK had contributed
RMB 314,190,900 (approximately $48,337,062) to SkyPeople China but had not contributed the remaining RMB 112,809,100 (approximately
$17,355,246) as the payment for 112,809,100 shares of SkyPeople China.
Pursuant
to the Agreements, TSD shall acquire 112,809,100 shares of SkyPeople China from SkyPeople HK and shall make a total capital contribution
RMB 131,761,028.80 (approximately $20,270,928) to SkyPeople China, which is calculated based upon 8 times of SkyPeople China’s
net profit per share for 2014 (about RMB 0.146 per share) multiplied by 112,809,100 shares. RMB 112,809,100 out of the RMB 131,761,028.80
(the “Capital Contributions”) shall be used as payment for outstanding capital contribution due to SkyPeople China
by SkyPeople HK and the remaining RMB 18,951,928.80 (approximately $2,915,681) shall be used as additional capital contribution
to SkyPeople China and shall be deposited into SkyPeople China’s capital surplus account. On March 18, 2016, TSD paid the
full Capital Contributions to SkyPeople China s and the shares were transferred, resulting in TSD owning 112,809,100 shares, or
26.36%, of SkyPeople China.
On
June 15, 2016, Hedetang Holdings Co., Ltd. (the “Hedetang”), a wholly owned subsidiary of the Company, entered into
a Share Transfer Agreement (the “Agreement”) with Shaanxi New Silk Road Kiwifruit Group Inc. (“NSR”),
a limited liability corporation registered in China.
Pursuant
to the Agreement, NSR will acquire 51% of the equity shares of Shaanxi Guoweiduomei Beverage Co, Limited, a wholly owned subsidiary
of Hedetang (the “Shares”). The tentative total transfer price for the Shares is 300 million RMB (approximately $46
million) and is subject to and will be settled according to the final price in the valuation report to be issued by an appraisal
firm jointly engaged by both parties. NSR shall pay the total transfer price to Hedetang within six months of the effective date
of the Agreement. If NSR fails to pay the total transfer price within six months due to the delay of the approval process from
the local authority, NSR can receive a payment extension for up to twelve months from the effective date of the Agreement upon
the negotiation and agreement by the parties. Because NSR is a state-owned enterprise in China and its investment needs to be
approved by a higher level administrative authority in China, NSR has the right to terminate the Agreement unilaterally if it
fails to receive the approval from such administrative authority within twelve months from the date of this Agreement.
On
July 5, 2016, Hedetang completed the registration of 51% of its shares in Shaanxi Guoweiduomei Beverage Co., Limited under the
name of NSR with China’s State Administration for Industry and Commerce. Pursuant to the terms of the Agreement, the transferred
shares are still under the control of Hedetang until it receives full payment from NSR.
On
January 20, 2017, the Company’s Board of Directors approved the termination of the Agreement with NSR because the local
government authority had not approved the transaction contemplated thereby and the Company had not received the required payment
within six months of the effective date of the Agreement. On January 26, 2017, Hedetang executed a Termination Agreement for the
Share Transfer Agreement with NSR. Pursuant to the Termination Agreement, Hedetang agreed not to claim any compensation or penalty
against NSR under the Agreement and NSR agreed to cooperate with Hedetang to complete the process to transfer share ownership
back to the Hedetang within 60 days of the date of the Termination Agreement.
15.
DEPOSITS
As
of December 31, 2016, the balance of deposits was $103,789,865, which mainly consisted of a deposit of approximately $30 million
for the purchase of a kiwi orchard in Mei County, approximately $37.4 million for the leasing fee for the kiwifruits orchard in
Mei County and approximately $24 million for the leasing fee for the orange orchard in Yidu city.
In
April 2016, the Company signed a letter of intent with Mei County Kiwifruits Investment and Development Corporation to purchase
833.5 mu of kiwifruits orchard in Mei County. The purchase price will be determined by a third party valuation company appointed
by both parties. The Company paid RMB 200 million (approximately $30 million) as a deposit (“Deposit”) in the second
quarter of 2016. The purchase is subject to government approval, approval by the Company’s Board of Directors and definitive
agreement negotiated and signed by the parties. Pursuant to the letter of intent, the Deposit shall be returned to the Company
within 10 working days upon the request of the Company if the kiwifruits orchard cannot be transferred to the Company according
to the schedule. The Company expects to complete the purchase process in the second quarter of 2017.
On
August 3, 2016, Shaanxi Guoweimei Kiwi Deep Processing Company, an indirectly wholly-owned subsidiary of the Company, signed a
lease agreement for 20,000 mu (approximately 3,300 square acres) of kiwifruits orchard located in Mei County, Shaanxi Province,
with the Di’erpo Committe of Jinqu Village, Mei County, Shaanxi for a term of 30 years, from August 5, 2016 to August 4,
2046. The annual leasing fee is RMB 1,250 (approximately $189) per mu, and payment of 10 years’ of leasing fees shall be
made on each of September 25, 2016, 2026 and 2036. The Company made a payment of RMB 250 million (approximately $37.4 million)
for the first 10 years’ leasing fees on August 15, 2016, which is recorded as deposits in the Company’s balance sheet.
On
August 15, 2016, Hedetang Agricultural Plantations (Yidu) Co., Ltd., an indirectly wholly-owned subsidiary of the Company, signed
a lease agreement for 8000 mu (approximately 1,320 square acres) of orange orchard located in city of Yidu, Hubei Province, with
the Yidu Sichang Farmers Association, Hubei Province, for a term of 20 years, from September 22, 2016 to September 21, 2036. The
annual leasing fee is RMB 2,000 (approximately $306) per mu, and payment of 10 years’ of leasing fees shall be made on each
of September 25, 2016 and 2026. The Company made a payment of RMB 160 million (approximately $24.0 million) for the first 10 years’
of leasing fees on September 20, 2016, which is recorded as deposits in the Company’s balance sheet.
16.
DISCONTINUED OPERATIONS
The
Company’s Huludao Wonder operation, a subsidiary which produces concentrated apple juice, suffered continued operating losses
in the three fiscal years prior to 2016 and its cash flow was minimal for these three years. In December 2016, the Company established
a winding-down plan to close this operation. Based on the restructuring plan and in accordance with EITF 03-13, the Company presented
the operation results from Huludao Wonder as a discontinued operation, as the Company believed that no continued cash flow would
be generated by the disposed component (Huludao Wonder) and that the Company would have no significant continuing involvement
in the operation of the discontinued component. Management of the Company initiated a plan to sell the property located in Huludao
in December 2016, and ceased the depreciation of the property in accordance with SFAS No. 144. In fiscal year 2016, the Company
recorded an impairment loss of $2.4 million with respect to the concentrated fruit juice production equipment in Huludao Wonder.
In accordance with the restructuring plan, the Company intends to transfer the concentrated fruit juice production equipment in
Huludao Wonder to another subsidiary and sell the land and facilities upon favorable circumstances. As the Company does not expect
to sell the assets of Huludao Wonder in near future, the assets are not recorded as assets held for sale as of December 31, 2016.
The book value of the land usage right was $4,394,708 and the book value of the building was $15,477,389 as of December 31, 2016.
The Company believe the assets’ book value was lower than its fair value, less the cost to sell.
There
was an outstanding bank loan of $5.99 million from Huludao Wonder. Huludao Wonder had a dispute of interest rate on this loan
with the bank, and stopped payment of interest on this loan during 2016. The bank sued Huludao Wonder and asked Huludao Wonder
to pay back the loan premium and the outstanding interest. The Company expects to pay back the outstanding premium and interest
of this loan after the assets are sold.
During
the process of winding down the Company’s operation in Huludao, the Company incurred general and administrative expenses
of approximately $2,727,359 during 2016.
Loss
from discontinued operations for fiscal 2016 and 2015 was as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
14,972
|
|
|
$
|
-
|
|
COST OF SALES
|
|
|
1,613,661
|
|
|
|
-
|
|
GROSS PROFIT (LOSS)
|
|
|
(1,598,688
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
(2,727,359
|
)
|
|
|
-
|
|
Selling expenses
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
(2,727,359
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(459,753
|
)
|
|
|
-
|
|
Interest income
|
|
|
284
|
|
|
|
-
|
|
Total
|
|
|
(459,468
|
)
|
|
|
-
|
|
(Loss) Income from discontinued operations before income tax
|
|
|
(459,468
|
)
|
|
|
-
|
|
Income tax provision
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM DISCONTINUED OPERATIONS
|
|
$
|
(4,785,187
|
)
|
|
$
|
-
|
|
The
loss from discontinued operations was $4,785,187 for fiscal year 2016. The Company does not provide a separate cash flow statement
for the discontinued operation. The loss from discontinued operations was deemed as cash outflow from operating activities of
the discontinued operation. The impact of this discontinued operation was immaterial, because the total revenues for fiscal years
2016 and 2015 were approximately $34.41 million and $580.89 million, respectively. The Company believes there will not be any
future significant cash flows from the discontinued operation, as the outstanding accounts receivable and accounts payable are
immaterial to the Company’s financial position and liquidity.
17.
SEGMENT REPORTING
The Company operates in five segments: concentrated
apple juice and apple aroma, concentrated kiwifruit juice and kiwifruit puree, concentrated pear juice, fruit juice beverages,
and others. Our concentrated apple juice and apple aroma is primarily produced by the Company’s Huludao Wonder factory and
concentrated pear juice is primarily produced by the Company’s Jiangyang factory. However, the Company uses the same production
line to manufacture concentrated apple juice and concentrated pear juice. In addition, both Shaanxi Province, where the factory
of Jianyang factory is located, and Liaoning Province, where the factory of Huludao Wonder is located, are rich in fresh apple
and pear supplies. Jiangyang factory also produces concentrated apple juice and Huludao Wonder factory also produces concentrated
pear juice when necessary. Concentrated kiwifruit juice and kiwifruit puree is primarily produced by the Company’s Qiyiwangguo
factory, and fruit juice beverages are primarily produced by the Company’s Qiyiwangguo factory. The Company’s other
products include fructose, concentrated turnjujube juice, and other by products, such as kiwifruit seeds.
Concentrated
fruit juice is used as a basic ingredient for manufacturing juice drinks and as an additive to fruit wine and fruit jam, cosmetics
and medicines. The Company sells its concentrated fruit juice to domestic customers and exported directly or via distributors.
The Company believes that its main export markets are the United States, the European Union, South Korea, Russia and the Middle
East to North America, Europe, Russia, South Korea and the Middle East. The Company sells its Hedetang branded bottled
fruit beverages domestically primarily to supermarkets in the PRC. The Company sells its fresh fruit and vegetables to supermarkets
and whole sellers in the PRC.
Some
of these product segments might never individually meet the quantitative thresholds for determining reportable segments and we
determine the reportable segments based on the discrete financial information provided to the chief operating decision maker.
The chief operating decision maker evaluates the results of each segment in assessing performance and allocating resources among
the segments. Since there is an overlap of services provided and products manufactured between different subsidiaries of the Company,
the Company does not allocate operating expenses and assets based on the product segments. Therefore, operating expenses and assets
information by segment are not presented. Segment profit represents the gross profit of each reportable segment.
(In Thousand)
For the Year Ended
December 31, 2016
|
|
Concentrated
apple juice
and apple
aroma
|
|
|
Concentrated
kiwifruit
juice and
kiwifruit
puree
|
|
|
Concentrated pear juice
|
|
|
Fruit juice beverages
|
|
|
Others
|
|
|
Total
|
|
Reportable segment Revenue
|
|
$
|
8,855
|
|
|
$
|
790
|
|
|
$
|
11,503
|
|
|
$
|
21,767
|
|
|
$
|
2,000
|
|
|
$
|
44,915
|
|
Inter-segment revenue
|
|
|
(1,147
|
)
|
|
|
(65
|
)
|
|
|
(2,241
|
)
|
|
|
6,999
|
)
|
|
|
(56
|
)
|
|
|
(10,508
|
)
|
Revenue from external Customers
|
|
|
7,708
|
|
|
|
725
|
|
|
|
9,262
|
|
|
|
14,768
|
|
|
|
1,944
|
|
|
|
34,407
|
|
Segment gross profit
|
|
$
|
1,985
|
|
|
$
|
62
|
|
|
$
|
2,101
|
|
|
$
|
4,692
|
|
|
$
|
333
|
|
|
$
|
9,173
|
|
(In Thousand)
For the Year Ended
December 31, 2015
|
|
Concentrated
apple juice
and apple
aroma
|
|
|
Concentrated
kiwifruit
juice and
kiwifruit
puree
|
|
|
Concentrated pear juice
|
|
|
Fruit juice beverages
|
|
|
Others
|
|
|
Total
|
|
Reportable segment Revenue
|
|
$
|
19,835
|
|
|
$
|
17,797
|
|
|
$
|
13,624
|
|
|
$
|
99,718
|
|
|
$
|
1
|
|
|
$
|
150,975
|
|
Inter-segment revenue
|
|
|
(28
|
)
|
|
|
(8,594
|
)
|
|
|
(198
|
)
|
|
|
(55,714
|
)
|
|
|
-
|
|
|
|
(64,535
|
)
|
Revenue from external
Customers
|
|
|
19,806
|
|
|
$
|
9,203
|
|
|
$
|
13,426
|
|
|
$
|
44,004
|
|
|
$
|
1
|
|
|
$
|
86,440
|
|
Segment gross profit
|
|
$
|
1,635
|
|
|
$
|
1,544
|
|
|
$
|
4,764
|
|
|
$
|
18,181
|
|
|
$
|
1
|
|
|
$
|
26,125
|
|
The
following table reconciles reportable segment profit to the Company’s consolidated income before income tax provision for
the years ended December 31, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
Segment profit
|
|
$
|
9,173,472
|
|
|
$
|
26,124,801
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(6,942,370
|
)
|
|
|
(15,880,734
|
)
|
Other expenses
|
|
|
(1,262,972
|
)
|
|
|
(2,329,867
|
)
|
Income before tax provision
|
|
$
|
968,131
|
|
|
$
|
7,914,200
|
|
The
Company’s export business is primarily comprised of fruit juice concentrates. As most of the export sales are through distributors
and therefore we are not certain exactly where the Company’s products are ultimately sold, revenue by geographical location
is not presented. However, the Company estimates that our main export markets are the United States, the European Union, South
Korea, Russia and the Middle East.
18.
COMMITMENTS AND CONTINGENCIES
Litigation
In
April 2015, China Cinda Asset Management Co., Ltd. Shaanxi Branch (“Cinda Shaanxi Branch”) filed two enforcement proceedings
with Xi’an Intermediate People’s Court against the Company for alleged defaults pursuant to guarantees by the Company
to its suppliers for a total amount of RMB 39,596,250, or approximately $6.1 million.
In
June 2014, two long term suppliers of pear, mulberry, kiwi fruits to the Company requested the Company to provide guarantees for
their loans with Cinda Shaanxi Branch. Considering the long term business relationship and to ensure the timely supply of raw
materials, the Company agreed to provide guarantees upon the value of the raw materials supplied to the Company. Because Cinda
Shaanxi Branch is not a bank authorized to provide loans, it eventually provided financing to the two suppliers through purchase
of accounts receivables of the two suppliers with the Company. In July, 2014, the parties entered into two agreements - Accounts
Receivables Purchase and Debt Restructure Agreement and Guarantee Agreements for Accounts Receivables Purchase and Debt Restructure.
Pursuant to the agreements, Cinda Shaanxi Branch agreed to provide a RMB 100 million credit line on a rolling basis to the two
suppliers and the Company agreed to pay its accounts payables to the two suppliers directly to Cinda Shaanxi Branch and provided
guarantees for the two suppliers. In April 2015, Cinda Shaanxi Branch stopped providing financing to the two suppliers and the
two suppliers were unable to continue the supply of raw materials to the Company. Consequently, the Company stopped making any
payment to Cinda Shaanxi Branch.
The
Company has responded to the court and taken the position that the financings under the agreements are essentially 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 have no legal forces from the beginning. Therefore, the Company has no obligations to repayment
the debts owed by the two suppliers to Cinda Shaanxi Branch. The proceeding is currently pending for the verdict of the judge.
From
time to time we may be a party to various litigation proceedings arising in the ordinary course of our business, none of which,
in the opinion of management, is likely to have a material adverse effect on our financial condition or results of operations.
In
September 2016, the Suizhong Branch of Huludao Banking Co. Ltd. (“Suizhong Branch”) filed a lawsuit with Huludao
Intermediate People’s Court (the “Court”) against the Company’s indirectly wholly-owned subsidiary Huludao
Wonder Fruit Co., Ltd. (“Wonder Fruit”) and requested that Wonder Fruit repay a 40 million RMB (approximately $6.35
million) bank loan, plus interest. The loan became due on its maturity date on December 9, 2016. On December 19, 2016, the
Court accepted the case. The Company has been disputing the interest rate of the loan with Suizhong Branch, and has not
repaid the loan to date. Wonder Fruit believes the interest charged by Suizhong Branch is 100% higher than the base rate
set by China People’s Bank and is not in consistent with China People’s Bank’s base interest and floating rate.
The Court has temporarily frozen the land and real property of the Wonder Fruit that were pledged as guarantee for the loan from
being transferred to any third-party, but the freeze does not limit or affect the use of these properties by Wonder Fruit for
its business. Wonder Fruit is currently in discussions with the Suizhong Branch on repayment of the bank loan and a reduction
of the interest due thereon.
19.
IMMATERIAL CORRECTION OF ERRORS IN PRIOR PERIOD
During
the 2015 fiscal year audit, the company identified calculation errors in the other comprehensive income portion of 2014 audited
consolidated statements of comprehensive income. In accordance with ASC Topic 250, Accounting Changes and Error Corrections, the
Company evaluated the materiality of the errors from quantitative and qualitative perspectives, and concluded that the errors
were immaterial to the Company’s prior period interim and annual consolidated financial statements. Since the revisions
were not material to any prior period interim or annual consolidated financial statements, no amendments to previously filed interim
or annual periodic reports were required. The Company has revised the historical consolidated financial information presented
herein to reflect the correction of these errors.
20.
SUBSEQUENT EVENTS
On
January 20, 2017, the Company’s Board of Directors approved the termination of the Agreement with NSR because the local
government authority had not approved the transaction contemplated thereby and the Company had not received the required payment
within six months of the effective date of the Agreement. On January 26, 2017, Hedetang executed a Termination Agreement for the
Share Transfer Agreement with NSR. Pursuant to the Termination Agreement, Hedetang agreed not to claim any compensation or penalty
against NSR under the Agreement and NSR agreed to cooperate with Hedetang to complete the process to transfer share ownership
back to the Hedetang within 60 days of the date of the Termination Agreement.
On
April 12, 2017, the
Company
entered into a Securities Purchase Agreement (the “
Purchase Agreement
”)
with certain purchasers (the “
Purchasers
”), pursuant to which the Company will offer to the Purchasers, in
a registered direct offering, an aggregate of 862,097 shares (the “
Shares
”) of common stock, par value $0.001
per share (“
Common Stock
”). The Shares will be sold to the Purchasers at a negotiated purchase price
of $3.10 per share, for aggregate gross proceeds to the Company of $2,672,500,
before deducting fees to the placement
agent and other estimated offering expenses payable by the Company. The Shares are being offered by the Company pursuant
to an effective shelf registration statement on Form S-3, which was originally filed with the Securities and Exchange Commission
on August 3, 2015, amended on February 17, 2017, and was declared effective on February 23, 2017 (File No. 333-206353) (the “
Registration
Statement
”).
In
a concurrent private placement, the Company is also issuing to the each of the Purchasers a warrant to purchase one (1) share
of the Company’s Common Stock for each share purchased under the Purchase Agreement, pursuant to that certain Common Stock
Purchase Warrant, by and between the Company and each Purchaser (each, a “
Warrant
”, and collectively, the “
Warrants
”). The
Warrants will be exercisable beginning on the six month anniversary of the date of issuance at an initial exercise price of $5.20
per share and will expire on the five and a half year anniversary of the date of issuance.
The
Warrants and the shares of the Company’s Common Stock issuable upon the exercise of the Warrants (the “
Warrant
Shares
”) are not being registered under the Securities Act of 1933, as amended (the “
Securities Act
”),
pursuant to the Company’s Registration Statement, and are instead being offered pursuant to the exemption provided in Section 4(a)(2) under
the Securities Act. Each Purchaser is either (i) an “accredited investor” as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in
Rule 144A(a) under the Securities Act. Each Purchaser, either alone or together with its representatives, has enough knowledge
and experience to be considered a sophisticated investor, has access to the type of information normally provided in a prospectus
for a registered securities offering, and has agreed not to resell or distribute the Warrants or the Warrant Shares to the public
except pursuant to sales registered or exempted under the Securities Act.
In
connection with the private placement and in accordance with the Purchase Agreement, the Company is required to file a registration
statement on Form S-1 within 45 calendar days after the date of the Purchase Agreement to provide for the resale of the Warrant
Shares.
Rodman
& Renshaw, a unit of H.C. Wainwright & Co., is serving as our placement agent in connection with the offering under the
Purchase Agreement and will receive warrants to purchase our Common Stock in an amount equal to 4% of our Shares sold to the Purchasers
in the offering on substantially the same terms as the Warrants, with an initial exercise price of $5.20 per share, except that
the termination date shall be April 12, 2022 and the warrants shall have certain transfer restrictions pursuant to FINRA Rule
5110 (the “
Placement Agent Warrants
”).
The
Warrants will be issued as individual warrant agreements to investors, and the Placement Agent Warrants will be issued as an individual
warrant agreement to the placement agent.
Per
the terms of the Purchase Agreement, the Company has agreed with the Purchasers to the following: (i) that subject to certain
exceptions, the Company will not, within the ninety day period immediately following the closing of the offering, enter into any
agreement to issue or announce the issuance or proposed issuance of any securities; (ii) the Company will not, during the period
in which the Warrants are outstanding, enter into an agreement to effect a “Variable Rate Transaction,” as that term
is defined in the Purchase Agreement; and (iii) until the one-year
anniversary of the closing of the offering, the
Company will not undertake a reverse or forward stock split or reclassification of the Common Stock without the prior written
consent of the Purchasers holding a majority in interest of the Shares then outstanding and still held by them, subject to certain
exceptions.
The
Company also agreed to indemnify each of the Purchasers against certain losses resulting from its breach of any representations,
warranties or covenants under agreements with each of the Purchasers, as well as under certain other circumstances described in
the Purchase Agreement.
FUTURE
FINTECH GROUP INC.
CONSOLIDATED
BALANCE SHEETS
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,417,789
|
|
|
$
|
1,143,585
|
|
Accounts receivable, net of allowance of $4,843,809 as of June 30, 2017 and December 31, 2016, respectively
|
|
|
449,039
|
|
|
|
7,325,773
|
|
Other receivables
|
|
|
29,814,516
|
|
|
|
28,417,194
|
|
Inventories
|
|
|
3,728,962
|
|
|
|
3,041,300
|
|
Deferred tax assets
|
|
|
3,566,442
|
|
|
|
3,566,442
|
|
Advances to suppliers and other current assets
|
|
|
56,835,838
|
|
|
|
58,132,189
|
|
TOTAL CURRENT ASSETS
|
|
|
98,812,586
|
|
|
|
101,626,483
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
83,145,461
|
|
|
|
81,523,569
|
|
LAND USE RIGHT, NET
|
|
|
32,354,442
|
|
|
|
31,854,360
|
|
LONG TERM ASSETS
|
|
|
2,856,342
|
|
|
|
2,789,390
|
|
DEPOSITS
|
|
|
45,120,875
|
|
|
|
43,867,228
|
|
TOTAL ASSETS
|
|
$
|
262,289,706
|
|
|
$
|
261,661,030
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
12,310,298
|
|
|
$
|
16,569,988
|
|
Accrued expenses
|
|
|
34,339,736
|
|
|
|
27,449,664
|
|
Income tax payable
|
|
|
-
|
|
|
|
3,590,084
|
|
Advances from customers
|
|
|
24,363
|
|
|
|
696
|
|
Short-term bank loans
|
|
|
30,069,084
|
|
|
|
29,364,279
|
|
TOTAL CURRENT LIABILITIES
|
|
|
76,743,481
|
|
|
|
76,974,711
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES
|
|
|
-
|
|
|
|
|
|
Obligations under capital leases
|
|
|
16,891,465
|
|
|
|
14,494,003
|
|
TOTAL NON-CURRENT LIABILITIES
|
|
|
16,891,465
|
|
|
|
14,494,003
|
|
TOTAL LIABILITIES
|
|
|
93,634,946
|
|
|
|
91,468,714
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Fintech Group Inc., Stockholders’ equity
|
|
|
|
|
|
|
|
|
Series B Preferred stock, $0.001 par value; 10,000,000 shares authorized; None issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value; 8,333,333 shares authorized; 5,173,187 and 4,061,090 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
|
|
|
5,173
|
|
|
|
4,061
|
|
Additional paid-in capital
|
|
|
111,386,729
|
|
|
|
105,366,887
|
|
Retained earnings
|
|
|
95,051,082
|
|
|
|
100,237,011
|
|
Accumulated other comprehensive loss
|
|
|
(74,096,086
|
)
|
|
|
(70,579,747
|
)
|
Total Future FinTech Group Inc. stockholders’ equity
|
|
|
132,346,898
|
|
|
|
135,028,212
|
|
Non-controlling interests
|
|
|
36,307,862
|
|
|
|
35,164,104
|
|
TOTAL EQUITY
|
|
|
168,654,760
|
|
|
|
170,192,316
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
262,289,706
|
|
|
$
|
261,661,030
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
FUTURE
FINTECH GROUP INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
$
|
2,776,872
|
|
|
$
|
10,229,298
|
|
|
$
|
5,735,706
|
|
|
$
|
15,665,606
|
|
Cost of goods sold
|
|
|
1,484,129
|
|
|
|
7,018,326
|
|
|
|
3,908,349
|
|
|
|
12,411,810
|
|
Gross profit
|
|
|
1,292,743
|
|
|
|
3,210,972
|
|
|
|
1,827,357
|
|
|
|
3,253,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
3,077,013
|
|
|
|
1,007,113
|
|
|
|
5,932,342
|
|
|
|
1,687,057
|
|
Selling expenses
|
|
|
311,078
|
|
|
|
750,690
|
|
|
|
505,957
|
|
|
|
1,611,830
|
|
Total operating expenses
|
|
|
3,388,091
|
|
|
|
1,757,803
|
|
|
|
6,438,299
|
|
|
|
3,298,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(2,095,348
|
)
|
|
|
1,453,169
|
|
|
|
(4,610,942
|
)
|
|
|
(45,091
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,139
|
|
|
|
15,599
|
|
|
|
2,179
|
|
|
|
146,623
|
|
Subsidy income
|
|
|
342,124
|
|
|
|
18,701
|
|
|
|
342,124
|
|
|
|
550,146
|
|
Interest expenses
|
|
|
(595,313
|
)
|
|
|
(790,694
|
)
|
|
|
(626,109
|
)
|
|
|
(999,359
|
)
|
Consulting fee related to capital lease
|
|
|
(312,356
|
)
|
|
|
71,936
|
|
|
|
(140,209
|
)
|
|
|
62,777
|
|
Total other expenses
|
|
|
(564,406
|
)
|
|
|
(684,458
|
)
|
|
|
(422,015
|
)
|
|
|
(239,813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
|
(2,659,754
|
)
|
|
|
768,711
|
|
|
|
(5,032,957
|
)
|
|
|
(284,904
|
)
|
Income tax provision
|
|
|
198,663
|
|
|
|
633,829
|
|
|
|
260,085
|
|
|
|
633,829
|
|
Net income (loss)
|
|
|
(2,858,417
|
)
|
|
|
134,882
|
|
|
|
(5,293,042
|
)
|
|
|
(918,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net loss (income) attributable to non-controlling interests
|
|
|
370,419
|
|
|
|
249,929
|
|
|
|
203,821
|
|
|
|
237,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO FUTURE FINTECH GROUP, INC.
|
|
|
(2,487,998
|
)
|
|
|
384,811
|
|
|
|
(5,089,221
|
)
|
|
|
(681,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations (Note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(48,023
|
)
|
|
|
-
|
|
|
|
(96,708
|
)
|
|
|
-
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO FUTURE FINTECH GROUP, INC.
|
|
|
(2,536,021
|
)
|
|
|
384,811
|
|
|
|
(5,185,929
|
)
|
|
|
(681,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
1,612,180
|
|
|
|
(12,277,105
|
)
|
|
|
2,238,236
|
|
|
|
8,421,541
|
|
Comprehensive income (loss)
|
|
|
(1,246,237
|
)
|
|
|
(12,142,223
|
)
|
|
|
(3,054,806
|
)
|
|
|
7,502,808
|
|
Comprehensive income (loss) attributable to non-controlling interests
|
|
|
(618,546
|
)
|
|
|
7,046,862
|
|
|
|
(743,443
|
)
|
|
|
2,049,453
|
|
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO FUTURE FINTECH GROUP, INC.
|
|
$
|
(1,864,783
|
)
|
|
$
|
(5,095,361
|
)
|
|
$
|
(3,798,249
|
)
|
|
$
|
9,552,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share from continued operations
|
|
|
(0.49
|
)
|
|
|
0.12
|
|
|
|
(1.12
|
)
|
|
|
(0.18
|
)
|
Basic income (loss) per share from discontinued operations
|
|
|
(0.01
|
)
|
|
|
-
|
|
|
|
(0.02
|
)
|
|
|
-
|
|
Basic income ( loss( per share from net income
|
|
|
(0.50
|
)
|
|
|
0.12
|
|
|
|
(1.14
|
)
|
|
|
(0.18
|
)
|
Diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income( loss) per share from continued operations
|
|
|
(0.49
|
)
|
|
|
0.12
|
|
|
|
(1.11
|
)
|
|
|
(0.18
|
)
|
Diluted income (loss) per share from discontinued operations
|
|
|
(0.01
|
)
|
|
|
-
|
|
|
|
(0.02
|
)
|
|
|
-
|
|
Diluted income( loss) per share from net income
|
|
|
(0.50
|
)
|
|
|
0.12
|
|
|
|
(1.12
|
)
|
|
|
(0.18
|
)
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,537,240
|
|
|
|
3,807,611
|
|
|
|
4,537,240
|
|
|
|
3,807,611
|
|
Diluted
|
|
|
4,599,740
|
|
|
|
3,807,611
|
|
|
|
4,599,740
|
|
|
|
3,807,611
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
FUTURE
FINTECH GROUP INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For the six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,185,929
|
)
|
|
$
|
(681,269
|
)
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
(203,821
|
)
|
|
|
(237,464
|
)
|
Depreciation and amortization
|
|
|
1,581,819
|
|
|
|
2,513,321
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
6,954,731
|
|
|
|
19,139,955
|
|
Other receivable
|
|
|
(1,176,722
|
)
|
|
|
(2,976,550
|
)
|
Advances to suppliers and other current assets
|
|
|
2,946,991
|
|
|
|
(11,265,461
|
)
|
Inventories
|
|
|
(606,137
|
)
|
|
|
(233,562
|
)
|
Accounts payable
|
|
|
(4,706,261
|
)
|
|
|
1,116,836
|
|
Accrued expenses
|
|
|
1,254,603
|
|
|
|
284,774
|
|
Income tax payable
|
|
|
(796,119
|
)
|
|
|
(1,146,977
|
)
|
Advances from customers
|
|
|
23,322
|
|
|
|
41,843
|
|
Net cash provided by (used in) operating activities
|
|
|
86,477
|
|
|
|
6,555,446
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(990,799
|
)
|
|
|
(10,125
|
)
|
Proceeds from disposal of plant, property and equipment
|
|
|
-
|
|
|
|
190,185
|
|
Prepayment for other assets
|
|
|
(197,956
|
)
|
|
|
(1,336,259
|
)
|
Prepayments for deposit on equipment
|
|
|
-
|
|
|
|
(31,163,680
|
)
|
Net cash used in investing activities
|
|
|
(1,188,755
|
)
|
|
|
(32,319,879
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Issue of common stock
|
|
|
2,679,779
|
|
|
|
16,641,291
|
|
Proceeds from short-term notes
|
|
|
-
|
|
|
|
61,267
|
|
(Repayment) proceed of related party loans
|
|
|
263,020
|
|
|
|
(87,267
|
)
|
Repayment of short-term bank loans
|
|
|
-
|
|
|
|
(594,290
|
)
|
(Repayment) proceed of long term debt
|
|
|
2,021,142
|
|
|
|
(1,229,949
|
)
|
Payment for capital lease
|
|
|
-
|
|
|
|
7,982,400
|
|
Net cash provided by financing activities
|
|
|
4,963,941
|
|
|
|
22,773,452
|
|
Effect of change in exchange rate
|
|
|
(587,459
|
)
|
|
|
(6,272,151
|
)
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
3,274,204
|
|
|
|
(9,263,132
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
1,143,585
|
|
|
|
50,006,914
|
|
Cash and cash equivalents, end of period
|
|
$
|
4,417,789
|
|
|
$
|
40,743,782
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
562,761
|
|
|
$
|
208,665
|
|
Cash paid for income taxes
|
|
$
|
260,085
|
|
|
$
|
1,259,559
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE OF SIGNIFICANT NON-CASH TRANSACTION
|
|
|
|
|
|
|
|
|
Transferred from other assets to property, plant and equipment and construction in process
|
|
$
|
197,956
|
|
|
$
|
2,342,127
|
|
Equipment acquired by capital lease
|
|
$
|
-
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
FUTURE
FINTECH GROUP INC.
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 June 30, 2017 and the results of operations and cash flows for the periods ended June 30, 2017 and 2016. The financial
data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited.
The results for the three months and six months ended June 30, 2017 are not necessarily indicative of the results to be expected
for any subsequent periods or for the entire year ending December 31, 2017. The balance sheet at December 31, 2016 has been derived
from the audited financial statements at that date.
Certain
information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted pursuant to the 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, 2016 as included in our Annual Report on Form 10-K.
2.
Business Description and Significant Accounting Policies
On
June 6, 2017, the Company filed a Certificate of Amendment with the Secretary of State for the State of Florida to amend and restate
its articles of incorporation to change its name from SkyPeople Fruit Juice, Inc. to Future FinTech Group Inc., effective immediately
(“the Name Change”). The Name Change was approved by the Company’s Board of Directors on March 30, 2017 and
by shareholders holding a majority of the Company’s issued and outstanding capital stock on March 31, 2017. In addition,
effective as of June 6, 2017, the Company’s bylaws were amended and restated to reflect the Name Change.
The
principal activities of Future Fintech Group Inc. (“Future FinTech”) (together with our direct or indirect subsidiaries,
“we,” “us,” “our” or “the Company”) consist of production and sales of fruit juice
concentrates, fruit juice beverages, and other fruit-related products in the People’s Republic of China (“PRC”,
or “China”), and overseas markets. All activities of the Company are principally conducted by subsidiaries operating
in the PRC.
Organizational
Structure
Our
current organizational structure is set forth in the diagram below:
(1)
|
Xi’an Qinmei Food Co., Ltd., an entity not affiliated with the Company, owns the remaining 8.85% of the equity interest in Shaanxi Qiyiwangguo.
|
(2)
|
Formerly known as Shaanxi Tianren Organic Food Co. Ltd.
|
(3)
|
Hedetang Foods Industry (Yidu) Co., Ltd., formerly known as SkyPeople Juice Group Yidu Orange Products Co., Ltd., was established on March 13, 2012. Its scope of business includes deep processing and sales of oranges.
|
(4)
|
Hedetang Agricultural Plantations (Yidu) Co., Ltd., formerly known as Hedetang Fruit Juice Beverages (Yidu) Co., Ltd., was established on March 13, 2012. Its scope of business includes the planting, acquisition and sales of vegetables, fruits, flowers, farm products; fresh fruit picking; research, training and promotion of planting and breeding technology.
|
(5)
|
SkyPeople (Suizhong) Fruit and Vegetable Products Co., Ltd. was established on April 26, 2012. Its scope of business includes the initial processing, quick-frozen and sales of agricultural products and related by-products.
|
(6)
|
Hedetang Farm Products Trading Market (Mei County) Co., Ltd., formerly known as SkyPeople Juice Group (Mei County) Kiwi Fruit and Farm Products Trading Market Co., Ltd. (“Kiwi Fruit & Farm Products”) was established on April 19, 2013. Its scope of business includes preliminary processing of agricultural and subsidiary products, establishment of trading market for agriculture products, and similar activities.
|
(7)
|
Shaanxi Guo Wei Mei Kiwi Deep Processing Co., Ltd. was established on April 19, 2013. Its scope of business includes producing kiwi fruit juice, kiwi puree, cider beverages, and similar products.
|
(8)
|
Xi’an Hedetang Fruit Juice Beverages Co., Ltd. (“Xi’an Hedetang”) was established on March 31, 2014. Its scope of business includes the production and sales of fruit juice beverages.
|
(9)
|
Xi’an Cornucopia International Co., Ltd. (“Cornucopia”) was established on July 2, 2014. Its scope of business includes the retail and wholesale of pre-packaged food.
|
(10)
|
Shaanxi Fruitee Fun Co., Ltd. (“Fruitee Fun”) was established on July 3, 2014. Its scope of business includes retail and wholesale of pre-packaged food. Shaanxi Fruitee Fun Co., Ltd. (also known as Shaanxi Guoweiduomei Beverage Co., Limited) changed its name to Hedetang Foods Industry (Xi’an) Co., Ltd. (“Foods Industry Xi’an”) on July 5, 2016.
|
(11)
|
Hedetang Holding Group Co., Ltd., formerly known as Hedetang Holding Co., Ltd. (“Hedetang Holding”) was established on July 21, 2014. Its scope of business includes corporate investment consulting, corporate management consulting, corporate imagine design and corporative marketing planning.
|
(12)
|
The Company acquired Huludao Wonder Co. Ltd. (“Huludao”) on June 10, 2008. Its scope of business mainly includes the manufacture and sale of concentrated fruit juice and fruit juice beverages.
|
(13)
|
The Company acquired Yingkou Trusty Fruits Co., Ltd. (“Yingkou”) on November 25, 2009. Its scope of business mainly includes the manufacture of concentrated fruit juice.
|
(14)
|
Hedetang Foods Industry (Jingyang) Co., Ltd. was established on June 7, 2016. Its scope of business includes processing, storage and sales of farm products, fruits, tea and snacks; research and promotion of processing technology of organic agriculture, fruit industry and agricultural products.
|
(15)
|
HedeJiachuan Foods (Yichang)Co. Ltd (“Hedejiachuan Yichang”), formerly known as Hedetang Farm Products Trading Market (Yidu) Co., Ltd., and Hedetang Foods Industry (Yichang) Co., Ltd, was established on March 23, 2016. Its scope of business includes construction, operation, and property management of a farm products trading market; e-commerce service of farm products; and construction and operation management of e-commerce information platform.
|
(16)
|
Xi’an Hedetang E-Commerce Co., Ltd. was established on April 21, 2016. Its scope of business includes online sales of pre-packaged foods and bulk foods.
|
(17)
|
The company acquired Hedetang Foods (China) Co., Ltd. (“Hedetang Foods China”) on May 18, 2016 through the acquisition of Belking Foods Holdings Group Co., Ltd., the 100% indirect shareholder of Hedetang Foods China, on the same date. The scope of business of Hedetang Foods China includes wholesale and retail of foods and beverages; import and export trade of fruit, vegetables, dried fruit; packaging; logistics and distribution; online sales; and business management consulting services.
|
(18)
|
Hedetang Agricultural Plantations (Mei County) Co., Ltd. was established on September 2nd, 2016. Its scope of business includes the planting, acquisition and sales of vegetables, fruits, flowers, Chinese herbal medicine, farm products; fresh fruit picking; research, training and promotion of planting and breeding technology, development and training of E-commerce and online sales of agricultural and sideline products.
|
(19)
|
Hedetang Foods Industry (Zhouzhi) Co., Ltd. was established on November 29, 2016. Its scope of business includes production, processing and sales of kiwifruit wine, juice, puree and beverages; the storage and sales of fresh fruits; and import and export of a variety of products and technology.
|
(20)
|
Future FinTech (HongKong) Limited (“FintTech HK”), formerly known as Future World Trading (Hong Kong) and SkyPeople International Trading (HK) Limited, which was first established on July 27, 2016. It mainly engages in the import and export of food products.
|
(21)
|
Shaanxi Quangoutong E-commerce Inc. was acquired on May 27, 2017. Its main business scope includes computer hardware and software equipment, electronic products and communication equipment, computer network engineering design, business information consultation and investment management.
|
(22)
|
Xi’an Taizhan Financial Management Co. Ltd (“Xi’an Taizhan”) was established on March 17, 2017. Its main business scope includes financial management consulting, business information consulting and engineering information consulting, enterprise management consulting and feasibility analysis and editing of project construction.
|
(23)
|
Shaanxi Heying Trading Co. Ltd was established on December 17, 2009. Its main business scope includes the sales of pre-packaged food, bulk food; import and export of goods and technology; food technology research and development; business management and consulting, corporate planning services.
|
Principles
of Consolidation
Our
consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation.
The
consolidated financial statements are prepared in accordance with U.S. GAAP. This basis differs from that used in the statutory
accounts of SkyPeople (China), Hedetang Food (China), Hedetang Holding, Huludao Wonder, Xi’an Cornucopia, Xi’an Hedetang
Juice Beverages, Yingkou, Shaanxi Qiyiwangguo, Hedetang E-commerce, SkyPeople Suizhong, Shaanxi Fruitee Fun, Food Industry Yidu,
Food Industry Jingyang, Guo Wei Mei, Agriculture Plantation Yidu, Trading Market Yidu, and Trading Market Mei County, which were
prepared in accordance with the accounting principles and relevant financial regulations applicable to enterprises in the PRC.
All necessary adjustments have been made to present the financial statements in accordance with U.S. GAAP.
Uses
of estimates in the preparation of financial statements
The
Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America and this requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated
financial statements and reported amounts of revenue and expenses during the reporting period. The significant areas requiring
the use of management estimates include, but not limited to, the allowance for doubtful accounts receivable, estimated useful
life and residual value of property, plant and equipment, provision for staff benefit, recognition and measurement of deferred
income taxes and valuation allowance for deferred tax assets. Although these estimates are based on management’s knowledge
of current events and actions management may undertake in the future, actual results may ultimately differ from those estimates.
Shipping
and Handling Costs
Shipping
and handling amounts billed to customers in related sales transactions are included in sales revenues and shipping expenses incurred
by the Company are reported as a component of selling expenses. The shipping and handling expenses of $193,871 and $27,883 for
the three months ended June 30, 2017 and 2016, respectively; and
$325,851
and $42,037 for the six months ended June 30, 2017 and 2016, respectively; are reported in the Consolidated Statements of Income
and Comprehensive Income (Loss) as a component of selling expenses.
Leases
Leases
are reviewed and classified as capital or operating at their inception in accordance with ASC Topic 840, Accounting for Leases.
For leases that contain rent escalations, the Company records monthly rent expense equal to the total amount of the payments due
in the reporting period over the lease term. The difference between rent expense recorded and the amount paid is credited or charged
to deferred rent account.
Earnings
per share
The
Company adopted ASC Topic 215,
Statement of Shareholder Equity
. Basic EPS are computed by dividing net income available
to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period.
Diluted EPS give effect to all dilutive potential common shares outstanding during a period. In computing diluted EPS, the average
price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options and
warrants.
Recent
Accounting Pronouncements
In
January 2017, the FASB issued a new accounting standard update on simplifying the accounting for goodwill impairment. The new
guidance eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the goodwill impairment test)
to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting
unit’s carrying amount over its fair value. This guidance will be effective for interim or annual goodwill impairment tests
in fiscal years beginning after December 15, 2019 and will be applied prospectively. Early adoption is permitted for any impairment
tests performed after January 1, 2017. We are evaluating the impact of adopting this amendment to our consolidated financial statements.
In
January 2017, the FASB issued ASU No. 2017-01, “Clarifying the Definition of a Business,” which clarifies the definition
of a business in ASC 805. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods
within those fiscal years. Early application is permitted. Currently, there is no impact to our consolidated financial statements
and related disclosures, but we will adopt on January 1, 2018 for any business combinations and will consider adopting early for
any acquisitions prior to January 1, 2018.
In
May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting”,
which amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types
of changes to the terms or conditions of share-based payment awards to which we would be required to apply modification accounting
under ASC 718. Specifically, we would not apply modification accounting if the fair value, vesting conditions, and classification
of the awards are the same immediately before and after the modification. The guidance is effective for annual reporting periods,
including interim period within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including
adoption in any interim period. We are currently evaluating the impact the standard may have on our consolidated financial statements
and related disclosures should we have a modification to our share-based payment awards in the future.
There
were no other recent accounting pronouncements or changes in accounting pronouncements during the six months ended June 30, 2017
compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended December
31, 2016 that are of significance or potential significance to us.
3.
Inventories
Inventories
by major categories are summarized as follows:
|
|
June 30,
2017
(Unaudited)
|
|
|
December 31, 2016
(Audited)
|
|
|
|
|
|
|
|
|
Raw materials and packaging
|
|
$
|
2,498,845
|
|
|
$
|
1,107,857
|
|
Finished goods
|
|
|
1,230,117
|
|
|
|
1,933,443
|
|
Inventories
|
|
$
|
3,728,962
|
|
|
$
|
3,041,300
|
|
4.
Related Party Transaction
Sales
to related party
The
Company’s subsidiary sold fruit beverages to a related entity, Shaanxi Fullmart Convenient Chain Supermarket Co., Ltd. (“Fullmart”)
for approximately $58,972 and $0 for the six months ended June 30, 2017 and 2016, respectively. The accounts receivable balances
were approximately $59,802 and $308,304 as of June 30, 2017 and December 31, 2016, respectively. Fullmart is a company indirectly
owned by a member of our Board of Directors (and former Chairman and Chief Executive Officer), Mr. Yongke Xue.
Long-term
loan – related party
There
were no short-term loans to a related party as of each of June 30, 2017 and 2016.
On
February 18, 2013, SkyPeople (China) entered into a loan agreement with SkyPeople International Holdings Group Limited (the “Lender”).
At that time the Lender indirectly held 50.2% interest in the Company and currently holds 12.9% interest in the Company. Mr. Yongke
Xue (“Y. K. Xue”), then the Chairman and Chief Executive Officer (“CEO”) of the Company and currently
a Member of the Company’s Board of Directors (the “Board”) and Mr. Hongke Xue, our Chairman and CEO, indirectly
and beneficially own 80.0% and 9.4% of the equity interest in the Lender, respectively. Pursuant to the Agreement, the Lender
agreed to extend to the Company a one-year unsecured term loan with a principal amount of $8.0 million at an interest rate of
6% per annum. During 2013, the Company received $8.0 million from the Lender. In February 2014, both parties extended this loan
for another two years under the original terms of the agreement.
On
October 16, 2015, the Company entered into a Share Purchase Agreement with the Lender to sell 5,321,600 shares (not giving effect
to the reverse split of the Company’s common stock) of the common stock of the Company at the price of $7,982,400, and which
was paid by cancellation of the loan by the Lender. On March 10, 2016, the Lender canceled the loan and the shares were issued
to the Lender.
5.
Concentrations
(1)
Concentration of customers
Sales
to our five largest customers accounted for approximately 20% and 33% of our net sales during the six months ended June 30, 2017
and 2016, respectively. There was no single customer representing over 10% of total sales for the six months ended June 30, 2017
and 2016, respectively.
Sales
to our five largest customers accounted for approximately 20% and 49% of our net sales during the three months ended June 30,
2017 and 2016, respectively. There was no single customer representing over 10% of total sales for the three months ended June
30, 2017, and there was one customer representing 13% of total sales for the three months ended June 30, 2016.
(2)
Concentration of suppliers
Two
suppliers accounted for 59% and 11% of our purchases, respectively, for the six months ended June 30, 2017, and one supplier accounted
for 83% of our purchases for the six months ended June 30, 2016.
During
the three months ended June 30, 2017, four suppliers accounted for 33%, 19%, 14% and 12% of our purchases, respectively. During
the three months ended June 30, 2016, three suppliers accounted for 59%, 13% and 11% of our purchases, respectively.
6.
Issuance of common stock and warrants
On
February 28, 2017, the Company issued options to purchase 62,500 shares of the Company’s common stock with an exercise price
equal to the fair market value of the Company’s Common Stock (as defined under the 2011 Stock Incentive Plan in conformity
with Regulation 409A of the Tax Reform Act of 1986, as amended) at the date of grant to three of the Company’s employees
pursuant to the 2011 Stock Incentive Plan, which was approved by the Company’s shareholders at annual stockholders meeting
on August 18, 2011. These options vested immediately on the grant date with a fair market value of $223,375 based on the fair
value of $3.57 per share, which was determined by using the Black Scholes option pricing model. The Company recognized stock-based
compensation expense of $223,375 in the first quarter of fiscal 2017 under the 2011 Stock Incentive Plan.
On
March 29, 2017, the Company issued 250,000 shares of the Company’s unrestricted common stock to six of the Company’s
employees pursuant to our Omnibus Equity Plan, which was approved by the Company’s shareholders at the annual stockholders
meeting on November 19, 2015. The Company recorded an expense of $250 in the first quarter of fiscal 2017 under the Omnibus Equity
Plan, reflecting a par value of $0.01 per share of the Company’s common stock.
The
Company’s the Omnibus Equity Plan permits the grant of incentive stock options (“ISOs”), nonqualified stock
options (“NQSOs”), stock appreciation rights (“SARs”), restricted stock, unrestricted stock and restricted
stock units (“RSUs”) to its employees of up to 250,000 shares of Common Stock.
On
April 12, 2017, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain purchasers
(the “Purchasers”), pursuant to which the Company offered and sold to the Purchasers, in a registered direct offering,
an aggregate of 862,097 shares (the “Shares”) of common stock, par value $0.001 per share (“Common Stock”).
The Shares were sold to the Purchasers at a negotiated purchase price of $3.10 per share, for aggregate gross proceeds to the
Company of $2,672,500,
before deducting fees to the placement agent and other estimated offering expenses payable
by the Company. The Shares were offered pursuant to an effective shelf registration statement on Form S-3, which was originally
filed with the SEC on August 3, 2015, amended on February 17, 2017, and was declared effective on February 23, 2017 (File No.
333-206353) (the “Registration Statement”).
In
a concurrent private placement, the Company also issued to the each of the Purchasers a warrant to purchase one (1) share of the
Company’s Common Stock for each share purchased under the Purchase Agreement, pursuant to that certain Common Stock Purchase
Warrant, by and between the Company and each Purchaser (each, a “Warrant”, and collectively, the “Warrants”).
The Warrants will be exercisable beginning on the six month anniversary of the date of issuance at an initial exercise price of
$5.20 per share and will expire on the five and a half year anniversary of the date of issuance.
The
Warrants and the shares of the Company’s Common Stock issuable upon the exercise of the Warrants (the “Warrant Shares”)
are not being registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s
Registration Statement, and were instead offered pursuant to the exemption provided in Section 4(a)(2) under the Securities
Act. Each Purchaser was either (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or
(a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities
Act.
In
connection with the private placement and in accordance with the Purchase Agreement, the Company was required to file a registration
statement on Form S-1 within 45 calendar days after the date of the Purchase Agreement to provide for the resale of the Warrant
Shares. The Company’s registration statement on Form S-1 (File No. 333-218276) became effective on June 12, 2017.
Rodman
& Renshaw, a unit of H.C. Wainwright & Co., served as our placement agent in connection with the offering under the Purchase
Agreement and received warrants to purchase our Common Stock in an amount equal to 4% of our Shares sold to the Purchasers in
the offering on substantially the same terms as the Warrants, with an initial exercise price of $5.20 per share, except that the
termination date shall be April 12, 2022 and the warrants have certain transfer restrictions pursuant to FINRA Rule 5110 (the
“Placement Agent Warrants”).
Per
the terms of the Purchase Agreement, the Company agreed with the Purchasers to the following: (i) that subject to certain exceptions,
the Company will not, within the ninety day period immediately following the closing of the offering, enter into any agreement
to issue or announce the issuance or proposed issuance of any securities; (ii) the Company will not, during the period in which
the Warrants are outstanding, enter into an agreement to effect a “Variable Rate Transaction,” as that term is defined
in the Purchase Agreement; and (iii) until the one-year
anniversary of the closing of the offering, the Company will
not undertake a reverse or forward stock split or reclassification of the Common Stock without the prior written consent of the
Purchasers holding a majority in interest of the Shares then outstanding and still held by them, subject to certain exceptions.
The
Company also agreed to indemnify each of the Purchasers against certain losses resulting from its breach of any representations,
warranties or covenants under agreements with each of the Purchasers, as well as under certain other circumstances described in
the Purchase Agreement.
7.
Share split
On
March 10, 2016, the Company filed with the Florida Secretary of State’s office an amendment to its Articles of Incorporation.
As a result of the Articles of Amendment, the Company authorized and approved an 1-for-8 reverse stock split of the Company’s
authorized shares of common stock from 66,666,666 shares to 8,333,333 shares, accompanied by a corresponding decrease in the Company’s
issued and outstanding shares of common stock (the “Reverse Stock Split”). The common stock remains a par value of
$0.001. No changes were made to the number of authorized preferred shares of the Company, which remains as 10,000,000, none of
which have been issued. The amendment to the Articles of Incorporation of the Company took effect on March 16, 2016.
8.
Transfer of shares
On
March 11, 2016, SkyPeople Juice International Holding (HK) Limited (the “Skypeople HK”), a wholly owned subsidiary
of SkyPeople Fruit Juice, Inc. (the “Company”) and a 99.78% owner of SkyPeople Juice Group Co., Ltd. (“Skypeople
China”) entered into a Share Transfer Agreement and a Capital Contribution (the “Agreements”) with Shenzhen
TianShunDa Equity Investment Fund Management Co., Ltd. (the “TSD”), a limited liability corporation registered in
China.
Skypeople
HK incorporated Skypeople China in Shaanxi Province, China on March 13, 2012 and pursuant to the approval certificate and business
license of Skypeople China, SkyPeople HK was required to contribute RMB 427,000,000 (approximately $65,698,308) and Hongke Xue,
currently the Chairman of the Board of Directors of the Company and our Chief Executive Officer (“Xue”), was required
to contribute RMB 1,000,000 (approximately $153,846) to Skypeople China, and Skypeople HK and Xue as a result would own 427,000,000
shares (99.78%) and 1,000,000 shares (0.22%) of Skypeople China, respectively. As of March 10, 2016, Skypeople HK had contributed
RMB 314,190,900 (approximately $48,337,062) to Skypeople China but had not contributed the remaining RMB 112,809,100 (approximately
$17,355,246) as the payment for 112,809,100 shares of Skypeople China.
Pursuant
to the Agreements, TSD shall acquire 112,809,100 shares of Skypeople China from Skypeople HK and shall make a total capital contribution
RMB 131,761,028.80 (approximately $20,270,928) to Skypeople China, which is calculated based upon 8 times of Skypeople China’s
net profit per share for 2014 (about RMB 0.146 per share) multiplied by 112,809,100 shares. RMB 112,809,100 out of the RMB 131,761,028.80
(the “Capital Contributions”) shall be used as payment for outstanding capital contribution due to Skypeople China
by Skypeople HK and the remaining RMB 18,951,928.80 (approximately $2,915,681) shall be used as additional capital contribution
to Skypeople China and shall be deposited into Skypeople China’s capital surplus account. On March 18, 2016, TSD paid the
full Capital Contributions to Skypeople China and the shares were transferred, resulting in TSD owning 112,809,100 shares, or
26.36%, of Skypeople China.
On
June 15, 2016, Hedetang Holdings Co., Ltd. (the “Hedetang”), a wholly owned subsidiary of the Company, entered into
a Share Transfer Agreement (the “Agreement”) with Shaanxi New Silk Road Kiwifruit Group Inc. ( “NSR”),
a limited liability corporation registered in China. Pursuant to the Agreement, NSR was to acquire 51% of the equity shares of
Shaanxi Guoweiduomei Beverage Co, Limited, a wholly owned subsidiary of Hedetang (the “Shares”). The tentative total
transfer price for the Shares was 300 million RMB (approximately $46 million). NSR was to pay the total transfer price to Hedetang
within six months of the effective date of the Agreement.
On
July 5, 2016, Hedetang completed the registration of 51% of its shares in Shaanxi Guoweiduomei Beverage Co., Limited under the
name of NSR with China’s State Administration for Industry and Commerce. Pursuant to the terms of the Agreement, the transferred
shares were still under the control of Hedetang until it receives full payment from NSR. On January 20, 2017, the Company’s
Board of Directors approved the termination of the Agreement with NSR because the local government authority had not approved
the transaction contemplated thereby and the Company had not received the required payment within six months of the effective
date of the Agreement. On January 26, 2017, Hedetang executed a Termination Agreement for the Share Transfer Agreement with NSR.
Pursuant to the Termination Agreement, Hedetang agreed not to claim any compensation or penalty against NSR under the Agreement
and NSR agreed to cooperate with Hedetang to complete the process to transfer share ownership back to the Hedetang within 60 days
of the date of the Termination Agreement. On March 15, 2017, NSR transferred back the share ownership to Hedetang.
9.
Other Receivables
As
of June 30, 2017, the balance of other receivables was $29,814,516, which mainly consisted of a deposit of approximately $29 million
for the purchase of a kiwi orchard in Mei County.
In
April 2016, the Company signed a letter of intent with Mei County Kiwifruits Investment and Development Corporation to purchase
833.5 mu (approximately 137.3 acres) of kiwifruits orchard in Mei County. The purchase price will be determined by a third party
valuation company appointed by both parties. As of the date of this report, the valuation has not been completed. The Company
paid RMB 200 million (approximately $29 million) as a deposit (“Deposit”) in the second quarter of 2016. The purchase
is subject to government approval, approval by the Company’s Board of Directors and definitive agreement negotiated and
signed by the parties. Pursuant to the letter of intent, the Deposit shall be returned to the Company within 10 working days upon
the request of the Company if the kiwifruits orchard cannot be transferred to the Company according to the schedule. The Company
expects to complete the purchase process in the fourth quarter of 2017. As the transaction is not completed, the Company recorded
this deposit as other receivables in its balance sheet.
10.
Advances to suppliers and other current assets
As
of June 30, 2017, the balance of advances to suppliers and other current assets was $56,835,838, which mainly consisted of approximately
$34.7 million for the leasing fee for the kiwifruits orchard in Mei County and approximately $21.8 million for the leasing fee
for the orange orchard in Yidu city.
On
August 3, 2016, Shaanxi Guoweimei Kiwi Deep Processing Company, an indirectly wholly-owned subsidiary of the Company, signed a
lease agreement for 20,000 mu (approximately 3,292 acres) of a kiwifruits orchard located in Mei County, Shaanxi Province, with
the Di’ErPo Committee of Jinqu Village, Mei County, Shaanxi for a term of 30 years, from August 5, 2016 to August 4, 2046.
The annual leasing fee is RMB 1,250 (approximately $189) per mu, and payment of 10 years’ of leasing fees shall be made
on each of September 25, 2016, 2026 and 2036. The Company made a payment of RMB 250 million (approximately $36.2 million) for
the first 10 years’ leasing fees on August 15, 2016, which is recorded as advances to suppliers and other current assets
in the Company’s balance sheet. The Company has amortized $1.8 million as expenses for the six months ended June 30, 2017.
On
August 15, 2016, Hedetang Agricultural Plantations (Yidu) Co., Ltd., an indirectly wholly-owned subsidiary of the Company, signed
a lease agreement for 8,000 mu (approximately 1,317 acres) of an orange orchard located in the city of Yidu, Hubei Province, with
the Yidu Sichang Farmers Association, Hubei Province, for a term of 20 years, from September 22, 2016 to September 21, 2036. The
annual leasing fee is RMB 2,000 (approximately $306) per mu, and payment of 10 years’ of leasing fees shall be made on each
of September 25, 2016 and 2026. The Company made a payment of RMB 160 million (approximately $23.2 million) for the first 10 years’
of leasing fees on September 20, 2016, which is recorded as deposits in the Company’s balance sheet. The Company has amortized
$1.2 million as expenses for the six months ended June 30, 2017.
11.
Discontinued Operation
The
Company’s Huludao Wonder operation, a subsidiary which produces concentrated apple juice, suffered continued operating losses
in the three fiscal years prior to 2016 and its cash flow was minimal for these three years. In December 2016, the Company established
a winding-down plan to close this operation. Based on the restructuring plan and in accordance with EITF 03-13, the Company presented
the operating results from Huludao Wonder as a discontinued operation, as the Company believed that no continued cash flow would
be generated by the disposed component (Huludao Wonder) and that the Company would have no significant continuing involvement
in the operation of the discontinued component. Management of the Company initiated a plan to sell the property located in Huludao
in December 2016, and ceased the depreciation of the property in accordance with SFAS No. 144. In fiscal year 2016, the Company
recorded an impairment loss of $2.4 million with respect to the concentrated fruit juice production equipment in Huludao Wonder.
In accordance with the restructuring plan, the Company intends to transfer the concentrated fruit juice production equipment in
Huludao Wonder to another subsidiary and sell the land and facilities upon favorable circumstances. As the Company does not expect
to sell the assets of Huludao Wonder in the near future, the assets were not recorded as assets held for sale as of June 30, 2017.
The book value of the land usage right was $4,460,936 and the book value of the building was $15,848,879 as of June 30, 2017.
The Company believes that the assets’ book value was lower than its fair value, less the cost to sell.
As
of June 30, 2017, there was an outstanding bank loan of $5.80 million owed by Huludao Wonder to a lending bank. Huludao Wonder
has disputed the interest rate on this loan with the bank, and stopped payment of interest on this loan during 2016. The bank
sued Huludao Wonder and asked Huludao Wonder to pay back the loan principal and the outstanding interest. As of the date of this
report, the Company has not yet reached an agreement with the bank. The Company expects to pay back the outstanding principal
and interest of this loan after the assets are sold.
During
the process of winding down the Company’s operation in Huludao Wonder, the Company incurred general and administrative expenses
of approximately $48,023 during the three months ended June 30, 2017, and approximately $96,708 during the six months ended June
30, 2017.
Loss
from discontinued operations for the three and six months ended June 30, 2017 and 2016 was as follows:
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2017
(Unaudited)
|
|
|
2016
(Unaudited)
|
|
|
2017
(Unaudited)
|
|
|
2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
COST OF SALES
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
GROSS PROFIT
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
(48,023
|
)
|
|
|
-
|
|
|
|
(96,708
|
)
|
|
|
-
|
|
Selling expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
(48,023
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
Interest income
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
Total
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loss from discontinued operations before income tax
|
|
|
(48,023
|
)
|
|
|
-
|
|
|
|
(96,708
|
)
|
|
|
|
|
Income tax provision
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM DISCONTINUED OPERATIONS
|
|
$
|
(48,023
|
)
|
|
$
|
-
|
|
|
|
(96,708
|
)
|
|
|
-
|
|
The
loss from discontinued operations was $48,023 and $96,708 for the three months and six months ended June 30, 2017, respectively.
The Company does not provide a separate cash flow statement for the discontinued operations. The loss from discontinued operations
was deemed cash outflow from operating activities of the discontinued operations. The impact of this discontinued operation was
considered immaterial when compared with the total revenues for the six months ended June 30, 2017 and 2016, which were approximately
$5.74 million and $15.67 million, respectively. The Company believes there will not be any future significant cash flows from
the discontinued operation, as the outstanding accounts receivable and accounts payable are immaterial to the Company’s
financial position and liquidity.
12.
Segment Reporting
The Company operates in six segments: concentrated
apple juice and apple aroma, concentrated kiwifruit juice and kiwifruit puree, concentrated pear juice, fruit juice beverages,
fresh fruits and vegetables, and others. Our concentrated apple juice and apple aroma was primarily produced by the Company’s
Huludao Wonder factory; concentrated pear juice is primarily produced by the Company’s Jiangyang factory. The Company’s
Huludao Wonder operation suffered continued operating losses in the three fiscal years prior to 2016 and its cash flow was minimal
for these three years. In December 2016, the Company established a winding-down plan to close this operation. The Company’s
Yingkou factory in Liaoning also did not produce any concentrated apple juice in the past two years due to lower market demand
on concentrated apple juice and heavy competition in the international market. The Company uses the same production line to manufacture
both concentrated apple juice and concentrated pear juice. Shaanxi Province, where the factory of Jianyang factory is located
is rich in fresh apple and pear supplies. Jiangyang factory also produces concentrated apple juice. Concentrated kiwifruit juice
and kiwifruit puree is primarily produced by the Company’s Qiyiwangguo factory, and fruit juice beverages are primarily
produced by the Company’s Qiyiwangguo factory. The Company’s other products include fructose, concentrated turnjujube
juice, and other by products, such as kiwifruit seeds. The production of other products is based on customers’ orders. The
other products sales amount is currently small and unpredictable.
Concentrated
fruit juice is used as a basic ingredient for manufacturing juice drinks and as an additive to fruit wine and fruit jam, cosmetics
and medicines. The Company sells its concentrated fruit juice to domestic customers and exported directly or via distributors.
The Company believes that its main export markets are the United States, the European Union, South Korea, Russia and the Middle
East. The Company sells its Hedetang branded bottled fruit beverages domestically primarily to supermarkets in the
PRC. The Company sells its fresh fruit and vegetables to supermarkets and whole sellers in the PRC.
Some
of these product segments might never individually meet the quantitative thresholds for determining reportable segments and we
determine the reportable segments based on the discrete financial information provided to the chief operating decision maker.
The chief operating decision maker evaluates the results of each segment in assessing performance and allocating resources among
the segments. Since there is an overlap of services provided and products manufactured between different subsidiaries of the Company,
the Company does not allocate operating expenses and assets based on the product segments. Therefore, operating expenses and assets
information by segment are not presented. Segment profit represents the gross profit of each reportable segment.
For
the three months ended June 30, 2017 (in thousands)
|
|
Concentrated apple juice and apple aroma
|
|
|
Concentrated kiwifruit
juice and
kiwifruit puree
|
|
|
Concentrated pear juice
|
|
|
Fruit juice beverages
|
|
|
Fresh fruits and vegetables
|
|
|
Others
|
|
|
Total
|
|
Reportable segment revenue
|
|
$
|
277
|
|
|
$
|
178
|
|
|
$
|
278
|
|
|
$
|
4,280
|
|
|
$
|
-
|
|
|
|
13
|
|
|
$
|
5,026
|
|
Inter-segment loss
|
|
|
(246
|
)
|
|
|
(61
|
)
|
|
|
(165
|
)
|
|
|
(1,776
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(2,248
|
)
|
Revenue from external
customers
|
|
|
31
|
|
|
|
117
|
|
|
|
113
|
|
|
|
2,504
|
|
|
|
-
|
|
|
|
12
|
|
|
|
2,777
|
|
Segment gross profit
|
|
$
|
3
|
|
|
$
|
36
|
|
|
$
|
21
|
|
|
$
|
1,226
|
|
|
$
|
-
|
|
|
|
6
|
|
|
$
|
1,292
|
|
For
the three months ended June 30, 2016 (in thousands)
|
|
Concentrated apple juice and apple aroma
|
|
|
Concentrated kiwifruit
juice and
kiwifruit puree
|
|
|
Concentrated pear juice
|
|
|
Fruit juice beverages
|
|
|
Fresh fruits and vegetables
|
|
|
Others
|
|
|
Total
|
|
Reportable segment revenue
|
|
$
|
3,204
|
|
|
$
|
433
|
|
|
$
|
1,945
|
|
|
$
|
5,457
|
|
|
$
|
-
|
|
|
|
1,548
|
|
|
$
|
12,587
|
|
Inter-segment loss
|
|
|
(1,324
|
)
|
|
|
(2
|
)
|
|
|
(988
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(44
|
)
|
|
|
(2,358
|
)
|
Revenue from external
customers
|
|
|
1,880
|
|
|
|
431
|
|
|
|
957
|
|
|
|
5,457
|
|
|
|
-
|
|
|
|
1,505
|
|
|
|
10,229
|
|
Segment gross profit
|
|
$
|
321
|
|
|
$
|
32
|
|
|
$
|
216
|
|
|
$
|
2,600
|
|
|
$
|
-
|
|
|
|
43
|
|
|
$
|
3,211
|
|
For
the six months ended June 30, 2017 (in thousands)
|
|
Concentrated apple juice and apple aroma
|
|
|
Concentrated kiwifruit
juice and
kiwifruit puree
|
|
|
Concentrated pear juice
|
|
|
Fruit juice beverages
|
|
|
Fresh fruits and vegetables
|
|
|
Others
|
|
|
Total
|
|
Reportable segment revenue
|
|
$
|
1,515
|
|
|
$
|
383
|
|
|
$
|
1,771
|
|
|
$
|
5,652
|
|
|
$
|
-
|
|
|
|
14
|
|
|
$
|
9,335
|
|
Inter-segment loss
|
|
|
(465
|
)
|
|
|
(72
|
)
|
|
|
(735
|
)
|
|
|
(2,326
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(3,599
|
)
|
Revenue from external
customers
|
|
|
1,050
|
|
|
|
311
|
|
|
|
1,036
|
|
|
|
3,326
|
|
|
|
-
|
|
|
|
13
|
|
|
|
5,736
|
|
Segment gross profit
|
|
$
|
32
|
|
|
$
|
81
|
|
|
$
|
147
|
|
|
$
|
1,561
|
|
|
$
|
-
|
|
|
|
6
|
|
|
$
|
1,827
|
|
For
the six months ended June 30, 2016 (in thousands)
|
|
Concentrated apple juice and apple aroma
|
|
|
Concentrated kiwifruit
juice and
kiwifruit puree
|
|
|
Concentrated pear juice
|
|
|
Fruit juice beverages
|
|
|
Fresh fruits and vegetables
|
|
|
Others
|
|
|
Total
|
|
Reportable segment revenue
|
|
$
|
13,678
|
|
|
$
|
472
|
|
|
$
|
2,255
|
|
|
$
|
5,461
|
|
|
$
|
-
|
|
|
|
1,550
|
|
|
$
|
23,416
|
|
Inter-segment loss
|
|
|
(6,538
|
)
|
|
|
(26
|
)
|
|
|
(1,141
|
)
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
(43
|
)
|
|
|
(7,750
|
)
|
Revenue from external
customers
|
|
|
7,140
|
|
|
|
446
|
|
|
|
1,114
|
|
|
|
5,459
|
|
|
|
-
|
|
|
|
1,507
|
|
|
|
15,666
|
|
Segment gross profit
|
|
$
|
365
|
|
|
$
|
24
|
|
|
$
|
220
|
|
|
$
|
2,601
|
|
|
$
|
-
|
|
|
|
44
|
|
|
$
|
3,254
|
|
The
following table reconciles reportable segment profit to the Company’s condensed consolidated income before income tax provision
for the three months ended June 30, 2016 and 2015:
|
|
2017
|
|
|
2016
|
|
Segment profit
|
|
$
|
1,827,357
|
|
|
$
|
3,253,796
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(6,438,299
|
)
|
|
|
(3,298,887
|
)
|
Other expenses
|
|
|
(422,015
|
)
|
|
|
(239,813
|
)
|
Income (loss) before tax provision
|
|
$
|
(5,032,957
|
)
|
|
$
|
(284,904
|
|
13.
Entry into a Material Definitive Agreement.
On
March 20, 2017, Hedetang Foods (China) Co. Ltd. (“Hedetang Foods (China)”) and Hedetang Farm Products Trading Market
(Mei County) Co. Ltd. (“Trading Market Mei County”), two wholly-owned subsidiaries of SkyPeople Fruit Juice, Inc.
(the “Company”), entered into a Cooperation Framework Agreement of the Spot Trading Company (the “Agreement”)
with Xi’an Taizhan Financial Management Co., Ltd. (“Taizhan”).
Pursuant
to the Agreement, Hedetang Foods (China), Trading Market Mei County and Taizhan will jointly establish a new company currently
named as China Agricultural Commodity Trading Market Co., Ltd. (“China Agricultural Commodity Trading Center”) in
Mei County, Shaanxi Province, China. The total registered capital for China Agricultural Commodity Trading Center will be RMB
50 million (approximately $7.35 million). Hedetang Foods (China) agreed to contribute RMB 17.50 million (approximately $2.57 million),
Trading Market Mei County agreed to contribute RMB 15 million (approximately $2.21 million) and Taizhan agreed to contribute RMB
17.50 million (approximately $2.57 million) in capital contributions to China Agricultural Commodity Trading Center. All capital
contributions to China Agricultural Commodity Trading Center shall be completed before March 20, 2037. Each shareholder of China
Agricultural Commodity Trading Center shall be able to enjoy the profits and assume the losses of China Agricultural Commodity
Trading Center based upon the percentages of their respective capital contributions. As of the date of this report, the new company
has not yet been registered.
14.
Commitments and Contingencies
Litigation
In
April 2015, China Cinda Asset Management Co., Ltd. Shaanxi Branch (“Cinda Shaanxi Branch”) filed two enforcement proceedings
with Xi’an Intermediate People’s Court against the Company for alleged defaults pursuant to guarantees by the Company
to its suppliers for a total amount of RMB 39,596,250, or approximately $6.1 million.
In
June 2014, two long term suppliers of pear, mulberry, kiwi fruits to the Company requested the Company to provide guarantees for
their loans with Cinda Shaanxi Branch. Considering the long term business relationship and to ensure the timely supply of raw
materials, the Company agreed to provide guarantees upon the value of the raw materials supplied to the Company. Because Cinda
Shaanxi Branch is not a bank authorized to provide loans, it eventually provided financing to the two suppliers through purchase
of accounts receivables of the two suppliers with the Company. In July, 2014, the parties entered into two agreements - Accounts
Receivables Purchase and Debt Restructure Agreement and Guarantee Agreements for Accounts Receivables Purchase and Debt Restructure.
Pursuant to the agreements, Cinda Shaanxi Branch agreed to provide a RMB 100 million credit line on a rolling basis to the two
suppliers and the Company agreed to pay its accounts payables due to the two suppliers directly to Cinda Shaanxi Branch and provided
guarantees for the two suppliers. In April 2015, Cinda Shaanxi Branch stopped providing financing to the two suppliers and the
two suppliers were unable to continue the supply of raw materials to the Company. Consequently, the Company stopped making any
payment to Cinda Shaanxi Branch.
The
Company has responded to the court and taken the position that the financings under the agreements are essentially loans from
Cinda Shaanxi Branch to the two suppliers, and because Cinda Shaanxi Branch does not have permits to make loans in China, the
agreements are invalid, void and have no legal force from inception. Therefore, the Company has no obligations to repayment the
debts owed by the two suppliers to Cinda Shaanxi Branch. The proceeding is currently pending the judge’s verdict.
In
September 2016, the Suizhong Branch of Huludao Banking Co. Ltd. (“Suizhong Branch”) filed a lawsuit with Huludao
Intermediate People’s Court (the “Court”) against the Company’s indirectly wholly-owned subsidiary Huludao
Wonder Fruit Co., Ltd. (“Wonder Fruit”) and requested that Wonder Fruit repay an RMB 40 million (approximately $5.80
million) bank loan, plus interest. The loan became due on its maturity date on December 9, 2016. On December 19, 2016, the Court
accepted the case. The Company has been disputing the interest rate of the loan with Suizhong Branch, and has not repaid the loan
to date. Wonder Fruit believes the interest charged by Suizhong Branch is 100% higher than the base rate set by China People’s
Bank and is not in consistent with China People’s Bank’s base interest and floating rate. The Court has temporarily
frozen the land and real property of the Wonder Fruit that were pledged as guarantee for the loan from being transferred to any
third-party, but the freeze does not limit or affect the use of these properties by Wonder Fruit for its business. Wonder Fruit
is currently in discussions with the Suizhong Branch on repayment of the bank loan and a reduction of the interest due thereon,
and the Company has not reached an agreement with the bank as of the date of this report.
From
time to time we may be a party to various litigation proceedings arising in the ordinary course of our business, none of which,
in the opinion of management, is likely to have a material adverse effect on our financial condition or results of operations.
15.
Acquisition of a Business
On
December 2, 2016, the Company’s wholly owned subsidiary, Xi’an Cornucopia International Co., Ltd. (“Cornucopia”)
entered an Equity Investment Agreement (the “Agreement”) with two shareholders of Shaanxi Heying Trading Co. Ltd (“Heying”
and formerly know Xi’an Yingxin Business Consulting Co., Ltd.) who own 100% of Heying. The main business of Heying includes
the sales of pre-packaged food and bulk food; the import and export of goods and technology; food technology research and development;
business management and consulting, and corporate planning services.
Under
the terms of the Agreement, the Company agreed to increase Heying’s registered capital from RMB 50,000 (approximately $7,380)
to RMB 10 million (approximately $1.5) million to satisfy its future operating cash flow needs, and Heying agreed to issue new
shares to Cornucopia so that it will hold 99.5% of the issued and outstanding shares of Heying. The increased registered capital
can be contributed before December 31, 2046. As Heying did not finish the change of registration process with State Administration
of Industry and Commerce (“SAIC”) and the local Tax Bureau in China after the Agreement was signed, Heying’s
original Board of Directors was not changed and the Company did not gain control over Heying at that time.
After
Heying changed the registration with SAIC and the local Tax Bureau in China, on April 3, 2017, the parties signed a supplement
agreement to the Agreement to confirm Cornucopia is the 99.5% shareholder of Heying and enjoy all the rights and benefits as the
99.5% shareholder, effective on April 3, 2017.
As
a result of the contractual arrangements, Cornucopia became the 99.5% beneficiary and actual owner of Heying. Accordingly, the
Company adopted the provisions of FIN 46R and consolidated the financial results of Heying from April 1, 2017.
The
Company used the purchase method to consolidate Heying with the current assets and liabilities recorded at fair value. The fair
value of the acquired net assets of Heying was RMB 15,260 (approximately $2,212).
The following table summarizes the fair value
of Heying’s assets and liabilities as of April 1, 2017 (based on the exchange rate of April 1, 2017):
ASSETS
|
|
|
|
Cash
|
|
$
|
4,274
|
|
Accounts receivable, net
|
|
|
1,015
|
|
TOTAL ASSETS
|
|
$
|
5,289
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Accounts payable
|
|
$
|
3.077
|
|
TOTAL LIABILITIES
|
|
$
|
3,077
|
|
|
|
|
|
|
NET ASSETS
|
|
$
|
2,212
|
|
SkyPeople
FoodS Holdings Limited
Balance
Sheets
|
|
December 31,
|
|
|
|
2016
(unaudited)
|
|
|
2015
(unaudited)
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,112,498
|
|
|
$
|
49,141,047
|
|
Restricted cash
|
|
|
-
|
|
|
|
3,079,956
|
|
Accounts receivable
|
|
|
4,480,613
|
|
|
|
47,446,432
|
|
Other receivables
|
|
|
18,382,850
|
|
|
|
11,780,541
|
|
Inventories
|
|
|
3,003,459
|
|
|
|
3,442,583
|
|
Deferred tax assets
|
|
|
1,212,590
|
|
|
|
1,000,263
|
|
Advances to suppliers and other current assets
|
|
|
22,619,783
|
|
|
|
99,198
|
|
TOTAL CURRENT ASSETS
|
|
|
50,811,793
|
|
|
|
115,990,020
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
36,888,364
|
|
|
|
37,864,221
|
|
LAND USE RIGHT, NET
|
|
|
11,548,821
|
|
|
|
10,504,412
|
|
DEPOSIT
|
|
|
21,166,075
|
|
|
|
15,172,309
|
|
Related party receivables
|
|
|
173,196,763
|
|
|
|
42,029,949
|
|
TOTAL ASSETS
|
|
$
|
293,611,816
|
|
|
$
|
221,560,911
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,140,599
|
|
|
$
|
7,984,061
|
|
Accrued expenses
|
|
|
26,376,750
|
|
|
|
6,601,833
|
|
Income tax payable
|
|
|
1,276,623
|
|
|
|
2,153,457
|
|
Advances from customers
|
|
|
91
|
|
|
|
282,846
|
|
Short-term bank loan
|
|
|
29,364,279
|
|
|
|
33,506,838
|
|
TOTAL CURRENT LIABILITIES
|
|
|
64,158,342
|
|
|
|
50,529,035
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Related party payables
|
|
|
65,082,710
|
|
|
|
7,583,424
|
|
TOTAL NON-CURRENT LIABILITIES
|
|
|
65,082,710
|
|
|
|
7,583,424
|
|
TOTAL LIABILITIES
|
|
|
129,241,052
|
|
|
|
58,112,459
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SkyPeople Foods Holdings Limited Stockholders' equity
|
|
|
|
|
|
|
|
|
Common stock, $0.002 par value; 25,000,000 shares authorized; 25,000,000 and 25,000,000 shares issued and outstanding as of December 31, 2016 and 2015, respectively
|
|
|
50,000
|
|
|
|
50,000
|
|
Additional paid-in capital
|
|
|
59,401,372
|
|
|
|
46,067,101
|
|
Retained earning (loss)
|
|
|
117,698,082
|
|
|
|
120,387,329
|
|
Accumulated other comprehensive loss
|
|
|
(17,951,992
|
)
|
|
|
(7,916,57
|
))
|
Total SkyPeople Foods Holdings Limited stockholders' equity
|
|
|
159,197,462
|
|
|
|
158,587,857
|
|
Non-controlling interests
|
|
|
5,173,302
|
|
|
|
4,860,595
|
|
TOTAL STOCKHOLDERS' EQUITY
|
|
|
164,370,764
|
|
|
|
163,448,452
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
293,611,816
|
|
|
$
|
221,560,911
|
|
SkyPeople
Foods Holdings Limited
Statements of Operations AND COMPRENSIVE INCOME (LOSS)
|
|
For the Year Ended
December 31,
|
|
|
|
2016
(unaudited)
|
|
|
2015
(unaudited)
|
|
Revenue
|
|
$
|
44,617,305
|
|
|
$
|
86,185,199
|
|
Cost of goods sold
|
|
|
35,859,600
|
|
|
|
60,112,693
|
|
Gross profit
|
|
|
8,757,704
|
|
|
|
26,072,506
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
1,916,941
|
|
|
|
7,945,745
|
|
Selling expenses
|
|
|
1,701,765
|
|
|
|
5,098,743
|
|
Total operating expenses
|
|
|
3,618,706
|
|
|
|
13,044,488
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
5,138,998
|
|
|
|
13,028,018
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
157,984
|
|
|
|
351,915
|
|
Subsidy income
|
|
|
16,738
|
|
|
|
791,619
|
|
Interest expenses
|
|
|
(1,698,426
|
)
|
|
|
(3,885,018
|
)
|
Consulting fee related to capital lease
|
|
|
411,532
|
|
|
|
(1,413
|
)
|
Total other income (expenses)
|
|
|
1,112,173
|
|
|
|
(2,742,897
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations before Income Tax
|
|
|
4,026,826
|
|
|
|
10,285,121
|
|
Income tax provision
|
|
|
1,601,967
|
|
|
|
4,168,142
|
|
Income from Continuing Operations before Minority Interest
|
|
|
2,424,859
|
|
|
|
6,116,979
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to non-controlling interests
|
|
|
(328,919
|
))
|
|
|
(4,048,189
|
))
|
|
|
|
|
|
|
|
|
|
Income loss from Continuing Operations
|
|
|
2,095,940
|
)
|
|
|
2,068,790
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations (Note 10)
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(4,785,187
|
)
|
|
|
-
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC. STOCKHOLDERS
|
|
$
|
(2,689,247
|
)
|
|
$
|
2,068,790
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
$
|
(6,105,966
|
)
|
|
$
|
(4,401,140
|
))
|
Comprehensive income
|
|
|
(3,681,107
|
)
|
|
|
1,715,839
|
|
Comprehensive expense attributable to non-controlling interests
|
|
|
641,626
|
|
|
|
3,851,644
|
|
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC. STOCKHOLDERS
|
|
$
|
(3,039,481
|
)
|
|
$
|
5,567,483
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share from continued operation
|
|
$
|
0.08
|
|
|
$
|
0.8
|
|
Basic and diluted earnings (loss) per share from discontinued operation
|
|
|
(0.19
|
)
|
|
|
-
|
|
Basic and diluted earnings (loss) per share from net income
|
|
|
(0.11
|
)
|
|
|
0.08
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
Basic and diluted*
|
|
|
25,000,000
|
|
|
|
25,000,000
|
|
SkyPeople
FoodS Holdings Limited
Statements
of Cash Flows
|
|
For the fiscal year
|
|
|
|
2016
(unaudited)
|
|
|
2015
(unaudited)
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net income
|
|
$
|
(2,689,247
|
))
|
|
$
|
2,068,790
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,684,565
|
|
|
|
5,352,110
|
|
Deferred income tax assets
|
|
|
-
|
|
|
|
|
|
Bad debt provision
|
|
|
2,690,578
|
|
|
|
2,748,747
|
|
Inventory markdown
|
|
|
-
|
|
|
|
|
|
Impairment loss
|
|
|
3,148,468
|
|
|
|
2,383,991
|
|
Gain on sale of assets
|
|
|
-
|
|
|
|
(315,611
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
35,530,246
|
|
|
|
13,847,590
|
|
Other receivable
|
|
|
60,361,964
|
)
|
|
|
(13,879,219
|
))
|
Advances to suppliers and other current assets
|
|
|
(23,397,108
|
)
|
|
|
106,676
|
|
Inventories
|
|
|
227,544
|
|
|
|
590,940
|
|
Accounts payable
|
|
|
19,725,374
|
|
|
|
(9,814,472
|
))
|
Accrued expenses
|
|
|
710,595
|
|
|
|
1,858,470
|
|
Income tax payable
|
|
|
(1,054,677
|
)
|
|
|
(149,444
|
))
|
Advances from customers
|
|
|
(274,901
|
)
|
|
|
84,279
|
)
|
Net cash provided by operating activities
|
|
|
98,663,401
|
|
|
|
4,882,847
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(6,362,893
|
)
|
|
|
(976,881
|
)
|
Purchase of intangible assets
|
|
|
(2,189,246
|
)
|
|
|
(5,063,445
|
)
|
Prepayment for other assets
|
|
|
(8,600,604
|
)
|
|
|
47,740,231
|
|
Net cash provided by (used in) investing activities
|
|
|
(17,152,743
|
)
|
|
|
41,699,905
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Issue of common stock
|
|
|
8,919,355
|
|
|
|
-
|
|
(Repayment) Proceeds from short-term notes
|
|
|
-
|
|
|
|
(8,098,740
|
))
|
Proceeds from related party loan
|
|
|
(138,816,058
|
))
|
|
|
|
|
Proceeds from short-term bank loans
|
|
|
|
|
|
|
7,249,797
|
|
Repayment of short-term bank loans
|
|
|
(2,078,155
|
)
|
|
|
|
|
Repayment of related party loans
|
|
|
-
|
|
|
|
(22,671,976
|
))
|
Net cash used in financing activities
|
|
|
(163,453,100
|
)
|
|
|
(23,520,919
|
))
|
|
|
|
|
|
|
|
|
|
Effect of change in exchange rate
|
|
|
(644,305
|
)
|
|
|
(2,298,802
|
)
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(51,108,505
|
))
|
|
|
20,763,031
|
|
Cash and cash equivalents, beginning of year
|
|
|
52,221,003
|
|
|
|
31,457,972
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,112,498
|
|
|
$
|
52,221,003
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
2,158,179
|
|
|
$
|
3,885,018
|
|
Cash paid for income taxes
|
|
$
|
1,601,967
|
|
|
$
|
4,168,142
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE OF SIGNIFICANT NON-CASH TRANSACTION
|
|
|
|
|
|
|
|
|
Transferred from other assets to property, plant and equipment and construction in process
|
|
$
|
1,815,615
|
|
|
$
|
1,954,220
|
|
Equipment acquired by capital lease
|
|
$
|
-
|
|
|
$
|
-
|
|
Unaudited
SkyPeople Foods Holdings Limited
Statements
of Changes in Parent Company Equity
|
|
Common Stock Shares*
|
|
|
Common Stock
|
|
|
Additional Paid in Capital
|
|
|
Retained Earnings
|
|
|
Other Comprehensive Income
|
|
|
Non-Controlling Interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
25,000,000
|
|
|
$
|
50,000
|
|
|
$
|
46,067,101
|
|
|
$
|
118,318,539
|
)
|
|
$
|
502,334
|
|
|
$
|
5,057,140
|
|
|
$
|
169,995,114
|
|
Common Stocks issued during 2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Net income(loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
2,068,790
|
|
|
|
|
|
|
|
(4,048,189
|
)
|
|
|
(1,979,399
|
))
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
$
|
(8,418,907
|
)
|
|
$
|
3,851,644
|
|
|
$
|
(4,567,263
|
)
|
Balance at December 31, 2015
|
|
|
25,000,000
|
|
|
|
50,000
|
|
|
|
46,067,101
|
|
|
|
120,387,329
|
)
|
|
|
(7,916,573
|
)
|
|
|
4,860,595
|
|
|
$
|
163,448,452
|
|
Common Stocks issued during 2016
|
|
|
—
|
|
|
|
—
|
|
|
|
13,334,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,334,271
|
|
Net income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
(2,689,247
|
)
|
|
|
|
|
|
$
|
(328,919
|
))
|
|
|
(3,018,166
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,035,419
|
)
|
|
|
641,626
|
|
|
|
(9,393,793
|
)
|
Balance at December 31, 2016
|
|
|
25,000,000
|
|
|
$
|
50,000
|
|
|
$
|
59,401,372
|
|
|
$
|
117,698,082
|
)
|
|
$
|
(17,951,992
|
)
|
|
|
5,173,302
|
|
|
|
164,370,764
|
|
SkyPeople
Foods Holdings Limited
Notes
to Financial Statements
1.
BASIS OF PRESENTATION
The
Separation — Future FinTech Group Inc (“Future FinTech”) Board of Directors approved the spin-off of the Future
FinTech’s wholly-owned subsidiaries, SkyPeople Foods Holdings Limited (BVI) (“SkyPeople BVI”) and FullMart Holdings
Limited (BVI) (“FullMart”), through a pro rata distribution of the ordinary shares of each of SkyPeople BVI and FullMart
to holders of Future FinTech’s common stock at the close of business on September 10, 2017, the record date (the “Spin-Offs”).
Upon
completion of the Spin-Offs, all of the ordinary shares of each of SkyPeople BVI and FullMart will be directly held by the Future
FinTech shareholders of record as of the Record Date.
The
transactions, which is subject to customary regulatory and shareholder approvals is expected to close in the second half of 2017.
Basis
of Presentation — The accompanying financial statements include the accounts of SkyPeople BVI (the “Company”),
a business engaging in the manufacture and sale of consumer food products.
SkyPeople BVI, company organized under the
laws of British Virgin Island. SkyPeople BVI holds 100% equity interest of HeDeTang Holding (HK) Ltd. (“HeDeTang Holding
(HK)”), a company organized under the laws of the Hong Kong Special Administrative Region of the People’s Republic
of China (“Hong Kong”), HeDeTang Holding (HK) holds 73.42% of the equity interest of SkyPeople Juice Group Co., Ltd.,
(“SkyPeople (China)”), a company incorporated under the laws of the PRC. SkyPeople (China) has eight subsidiaries,
all limited liability companies organized under the laws of the PRC: (i) Shaanxi Qiyiwangguo Modern Organic Agriculture Co., Ltd.
(“Shaanxi Qiyiwangguo”); (ii) Huludao Wonder Fruit Co., Ltd. (“Huludao Wonder”); (iii) Yingkou Trusty
Fruits Co., Ltd. (“Yingkou”); (iv) Hedetang Foods Industry (Yidu) Co. Ltd. (“Food Industry Yidu”); (v)
SkyPeople (Suizhong) Fruit and Vegetable Products Co., Ltd. (“SkyPeople Suizhong”); (vi) Hedetang Agricultural Plantation
(Yidu) Co. Ltd. (“Agricultural Plantation Yidu”); (vii) Xi’an Hedetang Fruit Juice Beverages Co., Ltd. (“Xi’an
Hedetang”); and (viii) Xi’an Cornucopia International Co., Ltd. (“Xi’an Cornucopia”). Shenzhen TianShunDa
Equity Investment Fund Management Co., Ltd. (the “TSD”), a limited liability corporation registered in China, holds
another 26.36% of the equity interest of SkyPeople (China).
Historically,
separate financial statements have not been prepared for the Company. These financial statements reflect the historical financial
position, results of operations, changes in parent company equity and cash flows of the Company for the periods presented, as
the Company was historically managed within Future FinTech (the "Parent"). The financial statements have been prepared
on a “carve-out” basis and are derived from the consolidated financial statements and accounting records of Future
FinTech. The financial statements are prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP").
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
Company’s 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 consolidated financial statements and reported amounts of revenue and expenses during the reporting period.
The significant areas requiring the use of management estimates include, but not limited to, the allowance for doubtful accounts
receivable, estimated useful life and residual value of property, plant and equipment, provision for staff benefit, valuation
of change in fair value of warrant liability, 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 consolidated financial statements.
Impairment
of Long-Lived Assets
In
accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
360-10,
Accounting for the Impairment or Disposal of Long-Lived Assets
, long-lived assets, such as property, plant
and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable, or it is reasonably possible that these assets could become
impaired as a result of technological or other industrial changes. The determination of recoverability of assets to be held and
used is made by comparing the carrying amount of an asset to future undiscounted cash flows to be generated by the assets.
If
such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount
or fair value less cost to sell.
Fair
Value of Financial Instruments
The
Company has adopted FASB Accounting Standard Codification Topic on Fair Value Measurements and Disclosures (“ASC 820”),
which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements.
ASC 820 establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable input, which
may be used to measure fair value and include the following:
Level
1 - Quoted prices in active markets for identical assets or liabilities.
Level
2 - Input other than Level 1 that is observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other input that is observable or can be corroborated by observable market data
for substantially the full term of the assets or liabilities.
Level
3 - Unobservable input that is supported by little or no market activity and that is significant to the fair value of the assets
or liabilities.
Our
cash and cash equivalents and restricted cash are classified within level 1of the fair value hierarchy because they are value
using quoted market price.
Earnings
Per Share
Under
ASC 260-10,
Earnings Per Share
, basic EPS excludes dilution for Common Stock equivalents and is calculated by dividing
net income available to common stockholders by the weighted-average number of Common Stock outstanding for the period. Our Series
B Convertible Preferred Stock is a participating security. Consequently, the two-class method of income allocation is used in
determining net income available to common stockholders.
Diluted
EPS is calculated by using the treasury stock method, assuming conversion of all potentially dilutive securities, such as stock
options and warrants. Under this method, (i) exercise of options and warrants is assumed at the beginning of the period and shares
of Common Stock are assumed to be issued, (ii) the proceeds from exercise are assumed to be used to purchase Common Stock at the
average market price during the period, and (iii) the incremental shares (the difference between the number of shares assumed
issued and the number of shares assumed purchased) are included in the denominator of the diluted EPS computation. The numerators
and denominators used in the computations of basic and diluted EPS are presented in the following table.
|
|
Year Ended December 31,
|
|
|
|
2016
(unaudited)
|
|
|
2015
(unaudited)
|
|
NUMERATOR FOR BASIC AND DILUTED EPS
|
|
|
|
|
|
|
Income (loss) from continuing operations (numerator for
Diluted EPS)
|
|
$
|
2,095,940
|
|
|
$
|
2,068,790
|
|
Loss from discontinued operations (numerator for Diluted EPS)
|
|
|
(4,785,187
|
)
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) (numerator for Diluted EPS)
|
|
$
|
2,095,940
|
|
|
$
|
2,068,790
|
|
Net income (loss) allocated to Common Stock
holders
|
|
$
|
(4,785,187
|
)
|
|
$
|
2,068,790
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
Basic earnings per share from continuing operations
|
|
|
0.08
|
|
|
|
0.08
|
|
Basic earnings per share from discontinued operations
|
|
|
(0.19
|
)
|
|
|
--
|
|
Basic earnings per share from Net Income
|
|
|
0.11
|
)
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share
|
|
|
|
|
|
|
|
|
Diluted earnings per share from continuing operations
|
|
|
0.08
|
|
|
|
0.08
|
|
Diluted earnings per share from discontinued operations
|
|
|
(0.19
|
)
|
|
|
--
|
|
Diluted earnings per share from Net Income
|
|
|
(0.11
|
)
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
Weighted average Common Stock outstanding
|
|
|
25,000,000
|
|
|
|
25,000,000
|
|
DENOMINATOR FOR BASIC AND DILUTIVED EPS
|
|
|
25,000,000
|
|
|
|
25,000,000
|
|
Cash
and Cash Equivalents
Cash
and cash equivalents included cash on hand and demand deposits placed with banks or other financial institutions, which are unrestricted
as to withdrawal and use and with an original maturity of three months or less.
Deposits
in banks in the PRC are not insured by any government entity or agency, and are consequently exposed to risk of loss. The Company
believes the probability of a bank failure, causing loss to the Company, is remote.
Restricted
Cash
Restricted
cash consists of cash equivalents used as collateral to secure short-term notes payable.
Accounts
Receivable and Allowances
Accounts
receivable are recognized and carried at the original invoice amounts less an allowance for any uncollectible amount. We have
a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing
accounts receivable. We extend credit to our customers based on an evaluation of their financial condition and other factors.
We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations
of our customers and maintain an allowance for potential bad debts if required.
We
determine whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the
customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best
available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable
to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received.
The amounts calculated are analyzed to determine the total amount of the allowance. We may also record a general allowance as
necessary.
Direct
write-offs are taken in the period when we have exhausted our efforts to collect overdue and unpaid receivables or otherwise evaluate
other circumstances that indicate that we should abandon such efforts.
The
Company has not experienced any significant difficulty in collecting its accounts receivable in the past and is not aware of any
financial difficulties being experienced by its major customers. Our credit term for distributors with good credit history is
from 30 days to 120 days. As of December 31, 2016 and 2015, there was no accounts receivables have been outstanding for over 120
days, the increase is due to the growth of sales in concentrated apply juice which had longer credit period to distributors.
Inventories
Inventories
consist of raw materials, packaging materials (which include ingredients and supplies) and finished goods (which include finished
juice in the bottling and canning operations). Inventories are valued at the lower of cost or market. We determine cost on the
basis of the weighted average method. The Company periodically reviews inventories for obsolescence and any inventories identified
as obsolete are reserved or written off. Although we believe that the assumptions we use in estimate inventory write downs are
reasonable, future changes in these assumptions could provide a significantly different result. The Company did not record any
inventory markdown allowance for the year ended December 31, 2016 and 2015, respectively.
Revenue
Recognition
The
Company recognizes revenue in accordance with ASC 605,
Revenue Recognition
. Revenue from sales of products is recognized
upon shipment or delivery to customers, provided that persuasive evidence of sales arrangements exist, title and risk of loss
have been transferred to the customers, the sales amounts are fixed and determinable and collection of the revenue is reasonably
assured. Customers have no contractual right to return products. Historically, the Company has not had any returned products.
Accordingly, no provision has been made for returnable goods. The Company is not required to rebate or credit a portion of the
original fee if it subsequently reduces the price of its product and the distributor still has rights with respect to that product.
Shipping
and Handling Costs
Shipping
and handling amounts billed to customers in sales transactions are included in sales revenues and shipping expenses incurred by
the Company are reported as a component of selling expenses. The shipping and handling expenses of $1,182,083 and $4,446,607 for
2016 and 2015, respectively, are reported in the Consolidated Statements of Income and Comprehensive Income as a component of
selling expenses. The decrease in shipping and handling costs in fiscal year 2016 was mainly due to a decrease in sales quantity
of our products.
Government
Subsidies
A
government subsidy is recognized only when the Company complies with any conditions attached to the grant and there is reasonable
assurance that the grant will be received.
The
government subsidies recognized were $16,783 and $791,619 for the years ended December 31, 2016 and 2015, respectively, and are
included in other income of the consolidated statements of comprehensive income.
Advertising
and Promotional Expense
Advertising
and promotional costs are expensed as incurred and are included in selling expenses. The Company incurred $0 and $641 in advertising
and promotional costs for the years ended December 31, 2016 and 2015, respectively.
Property,
Plant and Equipment
Property,
plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Depreciation is computed using
the straight-line method over the useful lives of the assets. Major renewals and betterments are capitalized and depreciated;
maintenance and repairs that do not extend the life of the respective assets are expensed as incurred. Upon disposal of assets,
the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in the consolidated
statements of income and comprehensive income.
Construction
in progress primarily represents the construction or the renovation costs of plant, machinery and equipment stated at cost less
any accumulated impairment loss, which is not depreciated. Costs and interest on borrowings incurred are capitalized
and transferred to property and equipment upon completion, at which time depreciation commences. Cost of repairs and
maintenance is expensed as incurred.
Depreciation
related to property, plant and equipment used in production is reported in cost of sales, and includes amortized amounts
related to capital leases. We estimated that the residual value of the Company’s property and equipment ranges from 3% to
5%. Property, plant and equipment are depreciated over their estimated useful lives as follows:
Buildings
|
|
20-30 years
|
Machinery and equipment
|
|
5-10 years
|
Furniture and office equipment
|
|
3-5 years
|
Motor vehicles
|
|
5 years
|
Foreign
Currency and Other Comprehensive Income
The
financial statements of the Company’s foreign subsidiaries are measured using the local currency as the functional currency;
however, the reporting currency of the Company is the United States dollar (“USD”). Assets and liabilities of the
Company’s foreign subsidiaries have been translated into USD using the exchange rate at the balance sheet date, while equity
accounts are translated using historical exchange rate. The average exchange rate for the period has been used to translate revenues
and expenses. Translation adjustments are reported separately and accumulated in a separate component of equity (cumulative translation
adjustment).
Other
comprehensive income for the year ended December 31, 2016 and 2015 represented foreign currency translation adjustments loss of
$6,105,966 and loss of $4,401,140, respectively, and were included in the consolidated statements of comprehensive income.
Income
Taxes
We
use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.”
Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and
(ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s
financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the
enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available
positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC
Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements
and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions
for any of the reporting periods presented.
Leases
Leases
are reviewed and classified as capital or operating at their inception in accordance with ASC Topic 840, Accounting for Leases.
For leases that contain rent escalations, the Company records monthly rent expense equal to the total amount of the payments due
in the reporting period over the lease term. The difference between rent expense recorded and the amount paid is credited or charged
to deferred rent account.
Land
Use Right
The
Company paid in advance for land use rights according to Chinese law. Prepaid land use rights are being amortized and recorded
as lease expenses using the straight-line method over the use terms of the lease, which are 40 to 50 years.
Reportable
Segments
We
have six operating segments for financial reporting purposes for all periods presented in our consolidated financial statements
in accordance with FASB ASC 280 “Segment Reporting.”
Research
and Development
Research
and development costs are expensed when incurred and are included in operating expenses.
New
Accounting Pronouncements
In
January 2016, the FASB issued an amendment to its accounting guidance related to recognition and measurement of financial assets
and financial liabilities. The amendment addresses certain aspects of recognition, measurement, presentation and disclosure of
financial instruments. The amendment will be effective for us beginning in our first quarter of fiscal year 2019. We are evaluating
the impact of adopting this amendment to our consolidated financial statements.
In
February 2016, the FASB issued a new standard on accounting for leases. The new standard is intended to provide enhanced transparency
and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet.
The new standard will continue to classify leases as either finance or operating, with classification affecting the pattern of
expense recognition in the statement of earnings. The new standard is required to be adopted using a modified retrospective method
to each prior reporting period presented with various optional practical expedients. The new standard will be effective for us
beginning in our first quarter of fiscal year 2020 with early adoption permitted. We are evaluating the impact of adopting this
amendment to our consolidated financial statements.
In
March 2016, the FASB issued an amendment to its accounting guidance related to employee share-based payments. The amendment simplifies
several aspects of the accounting for employee share-based payments including the accounting for income taxes, forfeitures, and
statutory tax withholding requirements, as well as classification in the statement of cash flows. The amendment will be effective
for us beginning in our first quarter of fiscal year 2018 with early adoption permitted. We are evaluating the impact of adopting
this amendment to our consolidated financial statements.
In
August 2016, FASB issued “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments.” The
issues include but are not limited to the classification of debt prepayment and debt extinguishment costs, payments made for contingent
consideration for a business combination, proceeds from the settlement of insurance proceeds, distributions received from equity
method investees and separately identifiable cash flows and the application of the predominance principle. This update is effective
for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.
The Company is currently evaluating the provisions of this standard and assessing its impact on the Company’s consolidated
financial statements and disclosures.
In
December 2016, the FASB issued ASU 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts
with Customers
, which amended the guidance on performance obligation disclosures and makes technical corrections and improvements
to the new revenue standard. The standard is effective for annual reporting periods beginning after December 15, 2017, including
interim periods within that reporting period, and permits early adoption on a limited basis. The update permits the use of either
the retrospective or cumulative effect transition method. The Company is currently evaluating the effect the adoption of these
standards will have on the Company’s consolidated financial statements.
There
were no other recent accounting pronouncements or changes in accounting pronouncements during the fiscal year ended December 31,
2016, that are of significance or potential significance to us.
3.
INVENTORIES
Inventories
by major categories are summarized as follows:
|
|
December 31,
|
|
|
|
2016
(unaudited)
|
|
|
2015
(unaudited)
|
|
Raw materials and packaging
|
|
$
|
1,093,683
|
|
|
$
|
1,494,781
|
|
Finished goods
|
|
|
1,909,776
|
|
|
|
1,947,802
|
|
Inventories
|
|
$
|
3,003,459
|
|
|
$
|
3,442,583
|
|
4.
PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consist of the following:
|
|
December 31,
|
|
|
|
2016
(unaudited)
|
|
|
2015
(unaudited)
|
|
Machinery and equipment
|
|
$
|
31,092,276
|
|
|
$
|
33,212,086
|
|
Furniture and office equipment
|
|
|
2,068,479
|
|
|
|
2,209,270
|
|
Motor vehicles
|
|
|
350,441
|
|
|
|
529,753
|
|
Buildings
|
|
|
27,801,786
|
|
|
|
32,342,018
|
|
Construction in progress
|
|
|
7,903,126
|
|
|
|
735,257
|
|
Subtotal
|
|
|
69,216,108
|
|
|
|
69,028,384
|
|
Less: accumulated depreciation
|
|
|
(32,327,744
|
)
|
|
|
(29,172,208
|
)
|
Net property and equipment
|
|
$
|
36,888,364
|
|
|
$
|
39,856,176
|
|
Depreciation
expense included in general and administration expenses for the year ended December 31, 2016 and 2015 was $10,072,95 and $9,833,536
respectively. Depreciation expense included in cost of sales for the year ended December 31, 2016 and 2015 was $23,503,562 and
$22,944,916, respectively.
5.
LAND USAGE RIGHTS
According
to the laws of the PRC, the government owns all of the land in the PRC. The government of the PRC, its agencies and collectives
hold all land ownership. Companies or individuals are authorized to use the land only through land usage rights granted
by the PRC government. Land usage rights can be transferred upon approval by the land administrative authorities of the PRC (State
Land Administration Bureau) upon payment of the required land transfer fee. Accordingly, the Company paid in advance for land
usage rights. Prepaid land usage rights are being amortized and recorded as lease expenses using the straight-line method over
the terms of the leases, which range from 40 to 50 years. The amortization expense was $407,135 and $270,838 for fiscal years
2016 and 2015, respectively. The following table sets forth land usage rights of the Company as of December 31, 2016 and 2015,
respectively.
|
|
December 31,
|
|
|
|
2016
(unaudited)
|
|
|
2015
(unaudited)
|
|
Cost
|
|
$
|
13,230,331
|
|
|
$
|
11,881,981
|
|
Less: Accumulated amortization
|
|
|
(1,681,510
|
)
|
|
|
(1,377,569
|
)
|
|
|
$
|
11,548,821
|
|
|
$
|
10,504,412
|
|
6.
CONCENTRATIONS
There
was no customer who accounted for 10% of the Company’s sales for the year ended December 31, 2016 and December 31, 2015,
respectively. Sales to our five largest customers accounted for 18% and 14% of our net sales during the years ended December 31,
2016 and 2015, respectively.
There
was two supplies and one supplier who accounted for more than 10% of our purchase for the year ended December 31, 2016 and 2015,
respectively.
7.
DEPOSITS
On
August 15, 2016, Hedetang Agricultural Plantations (Yidu) Co., Ltd., an indirectly wholly-owned subsidiary of the Company, signed
a lease agreement for 8000 mu (approximately 1,320 square acres) of orange orchard located in city of Yidu, Hubei Province, with
the Yidu Sichang Farmers Association, Hubei Province, for a term of 20 years, from September 22, 2016 to September 21, 2036. The
annual leasing fee is RMB 2,000 (approximately $306) per mu, and payment of 10 years’ of leasing fees shall be made on each
of September 25, 2016 and 2026. The Company made a payment of RMB 160 million (approximately $24.0 million) for the first 10 years’
of leasing fees on September 20, 2016, which is recorded as deposits in the Company’s balance sheet.
8.
SHORT-TERM BANK LOANS
Short-term
bank loans consist of the following loans collateralized by assets of the Company:
|
|
December 31,
|
|
|
|
2016
(unaudited)
|
|
|
2015
(unaudited)
|
|
|
|
|
|
|
|
|
Loan payable to Huludao Bank, Suizhong branch due on December 9, 2016, bearing interest at 9.6% per annum, collateralized by the buildings, machinery and land use rights of Huludao Wonder
|
|
|
5,766,181
|
|
|
|
6,159,911
|
|
|
|
|
|
|
|
|
|
|
Loan payable to China Construction Bank due on May 12, 2016 bearing interest at 5.6% per annum, collateralized by the buildings of SkyPeople (China)
|
|
|
-
|
|
|
|
3,526,549
|
|
|
|
|
|
|
|
|
|
|
Loan payable to China Construction Bank due on January 10, 2018, bearing interest at 5.84% per annum, collateralized by the buildings and land use rights of Yingkou.
|
|
|
2,003,748
|
|
|
|
2,140,569
|
|
|
|
|
|
|
|
|
|
|
Loan payable to Bank of Xi’an due on November 15, 2017, bearing interest at 4.71% per annum, guaranteed by a third party Shaanxi Bo Ai Medical Science & Technology Development Co., Ltd
|
|
|
2,162,318
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Loan payable to Shanghai Pudong Development Bank due on May 3, 2018, bearing interest at 6.16% per annum, collateralized by the buildings of SkyPeople (China)
|
|
|
3,877,757
|
|
|
|
4,142,540
|
|
|
|
|
|
|
|
|
|
|
Loan payable to Bank of Beijing due on June 30, 2018, bearing interest at 7.28% per annum, collateralized by the buildings of a third party, Shaanxi Jiu Chang Medical Science & Technology Development Co., Ltd.
|
|
|
4,324,636
|
|
|
|
4,619,933
|
|
|
|
|
|
|
|
|
|
|
Loan payable to China Construction Bank due on May 3, 2018 bearing interest at 4.99% per annum, guaranteed by a third party guarantee company.
|
|
|
3,301,139
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Loan payable to China Construction Bank due on May 13, 2018, bearing interest at 5.6% per annum, collateralized by the buildings and land use rights of Yingkou.
|
|
|
4,324,636
|
|
|
|
4,619,933
|
|
|
|
|
|
|
|
|
|
|
Loan payable to the rural credit cooperative union of Mei County due on Feb 4, 2016 and Feb 3, 2017, each with half the loan paid back and bearing an annual interest at 8.3412% in 2015 and the rate will be floated once a year, collateralized by the buildings and land use rights of a third party, Kiwi investment and development of Mei County Co., Ltd.
|
|
|
-
|
|
|
|
1,539,978
|
|
|
|
|
|
|
|
|
|
|
Loan payable to The Bank of Ningxia Xi’an branch due on Jan 4, 2016, bearing interest at 7.28% per annum, collateralized by the fixed assets and brand name of SkyPeople (China).
|
|
|
-
|
|
|
|
3,849,945
|
|
|
|
|
|
|
|
|
|
|
Loan payable to The Bank of Ningxia Xi’an branch due on March 14, 2017, bearing interest at 0.47% per annum, collateralized by the fixed assets and brand name of SkyPeople (China).
|
|
|
3,603,863
|
|
|
|
|
|
Total
|
|
$
|
29,364,279
|
|
|
|
33,506,838
|
|
9.
RELATED PARTY TRANSACTION
Sales
The
company’s subsidiary sold fruit beverages to a related entity, Shaanxi Fullmart Convenient Chain Supermarket Co., Ltd. (“Fullmart”)
for approximately $360,184 and $1,255,393 for the year ended December 31, 2016 and 2015, respectively. The sales to this related
party were consistent with pricing and terms offered to third parties. The remained accounts receivable balances were $308,304
and $441,253 as of December 31, 2016 and 2015, respectively. Fullmart is a company indirectly owned by a member of our Board of
Directors, Mr. Yongke Xue.
10.
DISCONTINUED OPERATIONS
The
Company’s Huludao Wonder operation, a subsidiary which produces concentrated apple juice, suffered continued operating losses
in the three fiscal years prior to 2016 and its cash flow was minimal for these three years. In December 2016, the Company established
a winding-down plan to close this operation. Based on the restructuring plan and in accordance with EITF 03-13, the Company presented
the operation results from Huludao Wonder as a discontinued operation, as the Company believed that no continued cash flow would
be generated by the disposed component (Huludao Wonder) and that the Company would have no significant continuing involvement
in the operation of the discontinued component. Management of the Company initiated a plan to sell the property located in Huludao
in December 2016, and ceased the depreciation of the property in accordance with SFAS No. 144. In fiscal year 2016, the Company
recorded an impairment loss of $2.4 million with respect to the concentrated fruit juice production equipment in Huludao Wonder.
In accordance with the restructuring plan, the Company intends to transfer the concentrated fruit juice production equipment in
Huludao Wonder to another subsidiary and sell the land and facilities upon favorable circumstances. As the Company does not expect
to sell the assets of Huludao Wonder in near future, the assets are not recorded as assets held for sale as of December 31, 2016.
The book value of the land usage right was $4,394,708 and the book value of the building was $15,477,389 as of December 31, 2016.
The Company believe the assets’ book value was lower than its fair value, less the cost to sell.
There
was an outstanding bank loan of $5.99 million from Huludao Wonder. Huludao Wonder had a dispute of interest rate on this loan
with the bank, and stopped payment of interest on this loan during 2016. The bank sued Huludao Wonder and asked Huludao Wonder
to pay back the loan premium and the outstanding interest. The Company expects to pay back the outstanding premium and interest
of this loan after the assets are sold.
During
the process of winding down the Company’s operation in Huludao, the Company incurred general and administrative expenses
of approximately $2,727,359 during 2016.
Loss
from discontinued operations for fiscal 2016 and 2015 was as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
(unaudited)
|
|
|
2015
(unaudited)
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
14,972
|
|
|
$
|
-
|
|
COST OF SALES
|
|
|
1,613,661
|
|
|
|
-
|
|
GROSS PROFIT (LOSS)
|
|
|
(1,598,688
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
(2,727,359
|
)
|
|
|
-
|
|
Selling expenses
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
(2,727,359
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(459,753
|
)
|
|
|
-
|
|
Interest income
|
|
|
284
|
|
|
|
-
|
|
Total
|
|
|
(459,468
|
)
|
|
|
-
|
|
(Loss) Income from discontinued operations before income tax
|
|
|
(459,468
|
)
|
|
|
-
|
|
Income tax provision
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM DISCONTINUED OPERATIONS
|
|
$
|
(4,785,187
|
)
|
|
$
|
-
|
|
The
loss from discontinued operations was $4,785,187 for fiscal year 2016. The Company does not provide a separate cash flow statement
for the discontinued operation. The loss from discontinued operations was deemed as cash outflow from operating activities of
the discontinued operation. The impact of this discontinued operation was immaterial, because the total revenues for fiscal years
2016 and 2015 were approximately $34.41 million and $580.89 million, respectively. The Company believes there will not be any
future significant cash flows from the discontinued operation, as the outstanding accounts receivable and accounts payable are
immaterial to the Company’s financial position and liquidity.
11.
COMMITMENTS AND CONTINGENCIES
Litigation
In
April 2015, China Cinda Asset Management Co., Ltd. Shaanxi Branch (“Cinda Shaanxi Branch”) filed two enforcement proceedings
with Xi’an Intermediate People’s Court against the Company for alleged defaults pursuant to guarantees by the Company
to its suppliers for a total amount of RMB 39,596,250, or approximately $6.1 million.
In
June 2014, two long term suppliers of pear, mulberry, kiwi fruits to the Company requested the Company to provide guarantees for
their loans with Cinda Shaanxi Branch. Considering the long term business relationship and to ensure the timely supply of raw
materials, the Company agreed to provide guarantees upon the value of the raw materials supplied to the Company. Because Cinda
Shaanxi Branch is not a bank authorized to provide loans, it eventually provided financing to the two suppliers through purchase
of accounts receivables of the two suppliers with the Company. In July, 2014, the parties entered into two agreements - Accounts
Receivables Purchase and Debt Restructure Agreement and Guarantee Agreements for Accounts Receivables Purchase and Debt Restructure.
Pursuant to the agreements, Cinda Shaanxi Branch agreed to provide a RMB 100 million credit line on a rolling basis to the two
suppliers and the Company agreed to pay its accounts payables to the two suppliers directly to Cinda Shaanxi Branch and provided
guarantees for the two suppliers. In April 2015, Cinda Shaanxi Branch stopped providing financing to the two suppliers and the
two suppliers were unable to continue the supply of raw materials to the Company. Consequently, the Company stopped making any
payment to Cinda Shaanxi Branch.
The
Company has responded to the court and taken the position that the financings under the agreements are essentially 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 have no legal forces from the beginning. Therefore, the Company has no obligations to repayment
the debts owed by the two suppliers to Cinda Shaanxi Branch. The proceeding is currently pending for the verdict of the judge.
From
time to time we may be a party to various litigation proceedings arising in the ordinary course of our business, none of which,
in the opinion of management, is likely to have a material adverse effect on our financial condition or results of operations.
In
September 2016, the Suizhong Branch of Huludao Banking Co. Ltd. (“Suizhong Branch”) filed a lawsuit with Huludao
Intermediate People’s Court (the “Court”) against the Company’s indirectly wholly-owned subsidiary Huludao
Wonder Fruit Co., Ltd. (“Wonder Fruit”) and requested that Wonder Fruit repay a 40 million RMB (approximately $6.35
million) bank loan, plus interest. The loan became due on its maturity date on December 9, 2016. On December 19, 2016, the
Court accepted the case. The Company has been disputing the interest rate of the loan with Suizhong Branch, and has not
repaid the loan to date. Wonder Fruit believes the interest charged by Suizhong Branch is 100% higher than the base rate
set by China People’s Bank and is not in consistent with China People’s Bank’s base interest and floating rate.
The Court has temporarily frozen the land and real property of the Wonder Fruit that were pledged as guarantee for the loan from
being transferred to any third-party, but the freeze does not limit or affect the use of these properties by Wonder Fruit for
its business. Wonder Fruit is currently in discussions with the Suizhong Branch on repayment of the bank loan and a reduction
of the interest due thereon.
12.
IMMATERIAL CORRECTION OF ERRORS IN PRIOR PERIOD
During
the 2015 fiscal year audit, the company identified calculation errors in the other comprehensive income portion of 2014 audited
consolidated statements of comprehensive income. In accordance with ASC Topic 250, Accounting Changes and Error Corrections, the
Company evaluated the materiality of the errors from quantitative and qualitative perspectives, and concluded that the errors
were immaterial to the Company’s prior period interim and annual consolidated financial statements. Since the revisions
were not material to any prior period interim or annual consolidated financial statements, no amendments to previously filed interim
or annual periodic reports were required. The Company has revised the historical consolidated financial information presented
herein to reflect the correction of these errors.
SkyPeople
Foods Holdings Limited
Balance
Sheets
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
(unaudited)
|
|
|
2016
(unaudited)
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,131,679
|
|
|
$
|
1,112,498
|
|
Restricted cash
|
|
|
-
|
|
|
|
-
|
|
Accounts receivable
|
|
|
747,459
|
|
|
|
4,480,613
|
|
Other receivables
|
|
|
18,827,618
|
|
|
|
18,382,850
|
|
Inventories
|
|
|
3,669,997
|
|
|
|
3,003,459
|
|
Deferred tax assets
|
|
|
1,212,590
|
|
|
|
1,212,590
|
|
Advances to suppliers and other current assets
|
|
|
22,042,174
|
|
|
|
22,619,783
|
|
TOTAL CURRENT ASSETS
|
|
|
49,631,517
|
|
|
|
50,811,793
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
36,889,193
|
|
|
|
36,888,364
|
|
LAND USE RIGHT, NET
|
|
|
6,101,693
|
|
|
|
11,548,821
|
|
DEPOSIT
|
|
|
21,674,105
|
|
|
|
21,166,075
|
|
Related party receivables
|
|
|
186,672,993
|
|
|
|
173,196,763
|
|
TOTAL ASSETS
|
|
$
|
300,969,501
|
|
|
$
|
293,611,816
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,682,123
|
|
|
$
|
7,140,599
|
|
Accrued expenses
|
|
|
17,496,008
|
|
|
|
26,376,750
|
|
Income tax payable
|
|
|
1,212,590
|
|
|
|
1,276,623
|
|
Advances from customers
|
|
|
14,854
|
|
|
|
91
|
|
Short-term bank loan
|
|
|
30,069,084
|
|
|
|
29,364,279
|
|
TOTAL CURRENT LIABILITIES
|
|
|
54,474,659
|
|
|
|
64,158,342
|
|
|
|
|
|
|
|
|
)
|
|
NON-CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Related party payables
|
|
|
76,445,070
|
|
|
|
65,082,710
|
|
TOTAL NON-CURRENT LIABILITIES
|
|
|
76,445,070
|
|
|
|
65,082,710
|
|
TOTAL LIABILITIES
|
|
|
130,919,730
|
|
|
|
129,241,052
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SkyPeople Foods Holdings Limited Stockholders' equity
|
|
|
|
|
|
|
|
|
Common stock, $0.002 par value; 25,000,000 shares authorized; 25,000,000 and 25,000,000 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
|
|
|
50,000
|
|
|
|
50,000
|
|
Additional paid-in capital
|
|
|
59,401,372
|
|
|
|
59,401,372
|
|
Retained earning (loss)
|
|
|
114,989,157
|
|
|
|
117,698,082
|
|
Accumulated other comprehensive loss
|
|
|
(14,094,948
|
))
|
|
|
(17,951,992
|
)
|
Total SkyPeople Foods Holdings Limited stockholders' equity
|
|
|
160,345,581
|
|
|
|
159,197,462
|
|
Non-controlling interests
|
|
|
9,704,191
|
|
|
|
5,173,302
|
|
TOTAL STOCKHOLDERS' EQUITY
|
|
|
170,049,772
|
|
|
|
164,370,764
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
300,969,501
|
|
|
$
|
293,611,816
|
|
SkyPeople
FoodS Holdings Limited
Statements of Operations AND COMPRENSIVE INCOME (LOSS)
|
|
For
the Six Months Ended
June 30,
|
|
|
|
2017
(unaudited)
|
|
|
2016
(unaudited)
|
|
Revenue
|
|
$
|
5,619,161
|
|
|
$
|
15,587,792
|
|
Cost
of goods sold
|
|
|
3,795,921
|
|
|
|
12,333,996
|
|
Gross
profit
|
|
|
1,823,240
|
|
|
|
3,253,796
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
2,775,280
|
|
|
|
1,450,790
|
|
Selling
expenses
|
|
|
479,814
|
|
|
|
1,611,784
|
|
Total
operating expenses
|
|
|
3,255,094
|
|
|
|
3,062,574
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
(1,431,854
|
)
|
|
|
191,222
|
|
|
|
|
|
|
|
|
|
|
Other
income (expenses)
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
2,167
|
|
|
|
146,623
|
|
Subsidy
income
|
|
|
342,124
|
|
|
|
536,360
|
|
Interest
expenses
|
|
|
(625,316
|
)
|
|
|
(999,074
|
)
|
Other
expenses (income)
|
|
|
51,457
|
|
|
|
62,777
|
|
Total
other income (expenses)
|
|
|
(229,568
|
|
|
|
(253,314)
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Continuing Operations before Income Tax
|
|
|
1,661,422
|
|
|
|
(62,092
|
)
|
Income
tax provision
|
|
|
260,085
|
|
|
|
633,829
|
|
Income
from Continuing Operations before Minority Interest
|
|
|
(1,921,507
|
)
|
|
|
(695,921
|
)
|
|
|
|
|
|
|
|
|
|
Less:
Net income attributable to non-controlling interests
|
|
|
(690,710
|
)
|
|
|
(149,261
|
)
|
|
|
|
|
|
|
|
|
|
Income
loss from Continuing Operations
|
|
|
(2,612,217
|
)
|
|
|
(845,182)
|
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations (Note 9)
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
(96,708
|
)
|
|
|
-
|
|
NET
INCOME (LOSS) ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC. STOCKHOLDERS
|
|
$
|
(2,708,925
|
)
|
|
$
|
(845,182
|
)
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
$
|
3,857,044
|
|
|
$
|
(11,405,204
|
)
|
Comprehensive
income
|
|
|
1,744,150
|
|
|
|
(12,101,125
|
)
|
Comprehensive
expense attributable to non-controlling interests
|
|
|
5,030,212
|
|
|
|
7,667,823
|
|
COMPREHENSIVE
INCOME (LOSS) ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC. STOCKHOLDERS
|
|
$
|
6,774,362
|
|
|
$
|
(4,433,302
|
)
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings (loss) per share from continued operation
|
|
$
|
(0.10)
|
|
|
$
|
(0.03
|
)
|
Basic
and diluted earnings (loss) per share from discontinued operation
|
|
|
(0.00)
|
|
|
|
-
|
|
Basic
and diluted earnings (loss) per share from net income
|
|
|
(0.10
|
)
|
|
|
(0.03
|
)
|
Weighted
average number of shares outstanding
|
|
|
|
|
|
|
|
|
Basic
and diluted*
|
|
|
25,000,000
|
|
|
|
25,000,000
|
|
SkyPeople
FoodS Holdings Limited
Statements
of Cash Flows
|
|
For the Six Months Ended
June 30,
|
|
|
|
2017
(unaudited)
|
|
|
2016
(unaudited)
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net income
|
|
$
|
(2,708,925
|
)
|
|
$
|
(845,182
|
)
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
984,450
|
|
|
|
2,404,535
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
6,951,931
|
|
|
|
29,695,335
|
|
Other receivable
|
|
|
215,493
|
|
|
|
(1,685,780
|
)
|
Advances to suppliers and other current assets
|
|
|
1,104,988
|
|
|
|
(7,991,619
|
)
|
Inventories
|
|
|
(586,202
|
)
|
|
|
(426,829
|
)
|
Accounts payable
|
|
|
(10,967,792
|
)
|
|
|
2,423,124
|
|
Accrued expenses
|
|
|
(13,732
|
)
|
|
|
8,713,608
|
|
Income tax payable
|
|
|
(129,320
|
)
|
|
|
(1,212,92
|
))
|
Advances from customers
|
|
|
14,557
|
|
|
|
-
|
|
Net cash provided by(used in) operating activities
|
|
|
(5,134,552
|
)
|
|
|
31,074,263
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
-
|
|
Proceeds from disposal of plant, property and equipment
|
|
|
5,532,764
|
)
|
|
|
201,121
|
|
Loan repayment from related parties
|
|
|
1,772,313
|
|
|
|
-
|
|
Additions to property, plant and equipment
|
|
|
-
|
|
|
|
(10,707
|
)
|
Purchase of intangible assets
|
|
|
-
|
|
|
|
(1,823,112
|
)
|
Prepayment for other assets
|
|
|
-
|
|
|
|
(40,616,949
|
)
|
Net cash provided (used in) by investing activities
|
|
|
7,305,077
|
|
|
|
(42,249,647
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Issue of common stock
|
|
|
-
|
|
|
|
26,039,579
|
|
Repayment from short-term bank loans
|
|
|
|
|
|
|
(628,462
|
)
|
Repayment of related party loans
|
|
|
(1,302,023
|
)
|
|
|
(27,796,361
|
)
|
Net cash (used in)provided by financing activities
|
|
|
(1,302,023
|
)
|
|
|
(2,385,244
|
)
|
|
|
|
|
|
|
|
|
|
Effect of change in exchange rate
|
|
|
1,150,679
|
|
|
|
8,010,911
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
2,019,181
|
|
|
|
(5,549,717
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
1,112,498
|
|
|
|
52,221,003
|
|
Cash and cash equivalents, end of year
|
|
$
|
3,131,679
|
|
|
$
|
46,671,286
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
625,317
|
|
|
$
|
1,935,377
|
|
Cash paid for income taxes
|
|
$
|
260,085
|
|
|
$
|
1,638,822
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE OF SIGNIFICANT NON-CASH TRANSACTION
|
|
|
|
|
|
|
|
|
Transferred from other assets to property, plant and equipment and construction in process
|
|
$
|
-
|
|
|
$
|
-
|
|
Equipment acquired by capital lease
|
|
$
|
-
|
|
|
$
|
-
|
|
SkyPeople
Foods Holdings Limited
Notes
to Financial Statements
1.
BASIS OF PRESENTATION
The
Separation — Future FinTech Group Inc (“Future FinTech”) Board of Directors approved the spin-off of the Future
FinTech’s wholly-owned subsidiaries, SkyPeople Foods Holdings Limited (BVI) (“SkyPeople BVI”) and FullMart Holdings
Limited (BVI) (“FullMart”), through a pro rata distribution of the ordinary shares of each of SkyPeople BVI and FullMart
to holders of Future FinTech’s common stock at the close of business on September 10, 2017, the record date (the “Spin-Offs”).
Upon
completion of the Spin-Offs, all of the ordinary shares of each of SkyPeople BVI and FullMart will be directly held by the Future
FinTech shareholders of record as of the Record Date.
The
transactions, which is subject to customary regulatory and shareholder approvals is expected to close in the second half of 2017.
Basis of Presentation — The accompanying
financial statements include the accounts of SkyPeople BVI ("the Company"), a business engaging in the manufacture and
sale of consumer food products.
SkyPeople BVI, company organized under the
laws of British Virgin Island. SkyPeople BVI holds 100% equity interest of HeDeTang Holding (HK) Ltd. (“HeDeTang Holding
(HK)”), a company organized under the laws of the Hong Kong Special Administrative Region of the People’s Republic
of China (“Hong Kong”), HeDeTang Holding (HK) holds 73.42% of the equity interest of SkyPeople Juice Group Co., Ltd.,
(“SkyPeople (China)”), a company incorporated under the laws of the PRC. SkyPeople (China) has eight subsidiaries,
all limited liability companies organized under the laws of the PRC: (i) Shaanxi Qiyiwangguo Modern Organic Agriculture Co., Ltd.
(“Shaanxi Qiyiwangguo”); (ii) Huludao Wonder Fruit Co., Ltd. (“Huludao Wonder”); (iii) Yingkou Trusty
Fruits Co., Ltd. (“Yingkou”); (iv) Hedetang Foods Industry (Yidu) Co. Ltd. (“Food Industry Yidu”); (v)
SkyPeople (Suizhong) Fruit and Vegetable Products Co., Ltd. (“SkyPeople Suizhong”); (vi) Hedetang Agricultural Plantation
(Yidu) Co. Ltd. (“Agricultural Plantation Yidu”); (vii) Xi’an Hedetang Fruit Juice Beverages Co., Ltd. (“Xi’an
Hedetang”); and (viii) Xi’an Cornucopia International Co., Ltd. (“Xi’an Cornucopia”). Shenzhen TianShunDa
Equity Investment Fund Management Co., Ltd. (the “TSD”), a limited liability corporation registered in China, holds
another 26.36% of the equity interest of SkyPeople (China).
Historically,
separate financial statements have not been prepared for the Company. These financial statements reflect the historical financial
position, results of operations, changes in parent company equity and cash flows of the Company for the periods presented, as
the Company was historically managed within Future FinTech (the "Parent"). The financial statements have been prepared
on a “carve-out” basis and are derived from the consolidated financial statements and accounting records of Future
FinTech. The financial statements are prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP").
2.
SUMMARY OF 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 accounting principles generally
accepted in the United States of America and this requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated
financial statements and reported amounts of revenue and expenses during the reporting period. The significant areas requiring
the use of management estimates include, but not limited to, the allowance for doubtful accounts receivable, estimated useful
life and residual value of property, plant and equipment, provision for staff benefit, recognition and measurement of deferred
income taxes and valuation allowance for deferred tax assets. Although these estimates are based on management’s knowledge
of current events and actions management may undertake in the future, actual results may ultimately differ from those estimates.
Shipping
and Handling Costs
Shipping
and handling amounts billed to customers in related sales transactions are included in sales revenues and shipping expenses incurred
by the Company are reported as a component of selling expenses. The shipping and handling expenses of $324,355 and $ 47,658 for
the six months ended June 30, 2017 and 2016, respectively; are reported in the Consolidated Statements of Income and Comprehensive
Income (Loss) as a component of selling expenses.
Leases
Leases
are reviewed and classified as capital or operating at their inception in accordance with ASC Topic 840, Accounting for Leases.
For leases that contain rent escalations, the Company records monthly rent expense equal to the total amount of the payments due
in the reporting period over the lease term. The difference between rent expense recorded and the amount paid is credited or charged
to deferred rent account.
Earnings
per share
The
Company adopted ASC Topic 215,
Statement of Shareholder Equity
. Basic EPS are computed by dividing net income available
to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period.
Diluted EPS give effect to all dilutive potential common shares outstanding during a period. In computing diluted EPS, the average
price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options and
warrants.
|
2.
|
New
Accounting Pronouncements
|
In
January 2017, the FASB issued a new accounting standard update on simplifying the accounting for goodwill impairment. The new
guidance eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the goodwill impairment test)
to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting
unit’s carrying amount over its fair value. This guidance will be effective for interim or annual goodwill impairment tests
in fiscal years beginning after December 15, 2019 and will be applied prospectively. Early adoption is permitted for any impairment
tests performed after January 1, 2017. We are evaluating the impact of adopting this amendment to our consolidated financial statements.
In
January 2017, the FASB issued ASU No. 2017-01, “Clarifying the Definition of a Business,” which clarifies the definition
of a business in ASC 805. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods
within those fiscal years. Early application is permitted. Currently, there is no impact to our consolidated financial statements
and related disclosures, but we will adopt on January 1, 2018 for any business combinations and will consider adopting early for
any acquisitions prior to January 1, 2018.
In
May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting”,
which amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types
of changes to the terms or conditions of share-based payment awards to which we would be required to apply modification accounting
under ASC 718. Specifically, we would not apply modification accounting if the fair value, vesting conditions, and classification
of the awards are the same immediately before and after the modification. The guidance is effective for annual reporting periods,
including interim period within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including
adoption in any interim period. We are currently evaluating the impact the standard may have on our consolidated financial statements
and related disclosures should we have a modification to our share-based payment awards in the future.
There
were no other recent accounting pronouncements or changes in accounting pronouncements during the six months ended June 30, 2017
compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended December
31, 2016 that are of significance or potential significance to us.
3.
INVENTORIES
Inventories
by major categories are summarized as follows:
|
|
June 30,
2017
(Unaudited)
|
|
|
December 31, 2016
(Audited)
|
|
|
|
|
|
|
|
|
Raw materials and packaging
|
|
$
|
796,168
|
|
|
$
|
1,093,683
|
|
Finished goods
|
|
|
2,873,829
|
|
|
|
1,909,776
|
|
Inventories
|
|
$
|
3,669,997
|
|
|
$
|
3,003,459
|
|
4.
PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
(Unaudited)
|
|
|
2016
(Unaudited)
|
|
Machinery and equipment
|
|
$
|
29,097,045
|
|
|
$
|
31,092,276
|
|
Furniture and office equipment
|
|
|
260,750
|
|
|
|
2,068,479
|
|
Motor vehicles
|
|
|
507,795
|
|
|
|
350,441
|
|
Buildings
|
|
|
32,919,035
|
|
|
|
27,801,786
|
|
Construction in progress
|
|
|
8,092,818
|
|
|
|
7,903,126
|
|
Subtotal
|
|
|
70,877,443
|
|
|
|
69,216,108
|
|
Less: accumulated depreciation
|
|
|
(33,988,250
|
)
|
|
|
(32,327,744
|
)
|
Net property and equipment
|
|
$
|
36,889,193
|
|
|
$
|
36,888,364
|
|
Depreciation
expense included in general and administration expenses for the six months ended June 30, 2017 and June 30, 2016 was $305,305
and $612,546 respectively. Depreciation expense included in cost of sales for the six months ended June 30, 2017 and June 30,
2016 was $566,995 and $ 1,429,274, respectively.
5.
LAND USAGE RIGHTS
According
to the laws of the PRC, the government owns all of the land in the PRC. The government of the PRC, its agencies and collectives
hold all land ownership. Companies or individuals are authorized to use the land only through land usage rights granted
by the PRC government. Land usage rights can be transferred upon approval by the land administrative authorities of the PRC (State
Land Administration Bureau) upon payment of the required land transfer fee. Accordingly, the Company paid in advance for land
usage rights. Prepaid land usage rights are being amortized and recorded as lease expenses using the straight-line method over
the terms of the leases, which range from 40 to 50 years. The amortization expense was $112,150 and $245,309 for six months ended
June 30, 2017 and 2016, respectively. The following table sets forth land usage rights of the Company as of June 30, 2017 and
December 31, 2016, respectively.
|
|
June 30
|
|
|
December 31,
|
|
|
|
2017
(unaudited)
|
|
|
2016
(unaudited)
|
|
Cost
|
|
$
|
7,614,816
|
|
|
$
|
13,230,331
|
|
Less: Accumulated amortization
|
|
|
(1,513,123
|
)
|
|
|
(1,681,510
|
)
|
|
|
$
|
6,101,693
|
|
|
$
|
11,548,821
|
|
6.
CONCENTRATIONS
There was no customer who accounted for 10%
of the Company’s sales for the six months ended June 30, 0017. There were four customers who accounted for more than 10%
of our sales for the six months ended June 30, 2016. 31, 2015, respectively. Sales to our five largest customers accounted for
20% and 89% of our net sales during the six months ended June 30, 0017 and 2016, respectively.
There
was two supplies and one supplier who accounted for more than 10% of our purchase for the six months ended June 30, 0017 and 2016,
respectively.
7
DEPOSITS
On
August 15, 2016, Hedetang Agricultural Plantations (Yidu) Co., Ltd., an indirectly wholly-owned subsidiary of the Company, signed
a lease agreement for 8000 mu (approximately 1,320 square acres) of orange orchard located in city of Yidu, Hubei Province, with
the Yidu Sichang Farmers Association, Hubei Province, for a term of 20 years, from September 22, 2016 to September 21, 2036. The
annual leasing fee is RMB 2,000 (approximately $306) per mu, and payment of 10 years’ of leasing fees shall be made on each
of September 25, 2016 and 2026. The Company made a payment of RMB 160 million (approximately $24.0 million) for the first 10 years’
of leasing fees on September 20, 2016, which is recorded as deposits in the Company’s balance sheet.
8.
RELATED PARTY TRANSACTION
Sales
The
Company’s subsidiary sold fruit beverages to a related entity, Shaanxi Fullmart Convenient Chain Supermarket Co., Ltd. (“Fullmart”)
for approximately $58,972 and $0 for the six months ended June 30, 2017 and 2016, respectively. The accounts receivable balances
were approximately $59,802 and $308,304 as of June 30, 2017 and December 31, 2016, respectively. Fullmart is a company indirectly
owned by a member of our Board of Directors (and former Chairman and Chief Executive Officer), Mr. Yongke Xue.
9.
DISCONTINUED OPERATIONS
The
Company’s Huludao Wonder operation, a subsidiary which produces concentrated apple juice, suffered continued operating losses
in the three fiscal years prior to 2016 and its cash flow was minimal for these three years. In December 2016, the Company established
a winding-down plan to close this operation. Based on the restructuring plan and in accordance with EITF 03-13, the Company presented
the operating results from Huludao Wonder as a discontinued operation, as the Company believed that no continued cash flow would
be generated by the disposed component (Huludao Wonder) and that the Company would have no significant continuing involvement
in the operation of the discontinued component. Management of the Company initiated a plan to sell the property located in Huludao
in December 2016, and ceased the depreciation of the property in accordance with SFAS No. 144. In fiscal year 2016, the Company
recorded an impairment loss of $2.4 million with respect to the concentrated fruit juice production equipment in Huludao Wonder.
In accordance with the restructuring plan, the Company intends to transfer the concentrated fruit juice production equipment in
Huludao Wonder to another subsidiary and sell the land and facilities upon favorable circumstances. As the Company does not expect
to sell the assets of Huludao Wonder in the near future, the assets were not recorded as assets held for sale as of June 30, 2017.
The book value of the land usage right was $4,460,936 and the book value of the building was $15,848,879 as of June 30, 2017.
The Company believes that the assets’ book value was lower than its fair value, less the cost to sell.
As
of June 30, 2017, there was an outstanding bank loan of $5.80 million owed by Huludao Wonder to a lending bank. Huludao Wonder
has disputed the interest rate on this loan with the bank, and stopped payment of interest on this loan during 2016. The bank
sued Huludao Wonder and asked Huludao Wonder to pay back the loan principal and the outstanding interest. As of the date of this
report, the Company has not yet reached an agreement with the bank. The Company expects to pay back the outstanding principal
and interest of this loan after the assets are sold.
During
the process of winding down the Company’s operation in Huludao Wonder, the Company incurred general and administrative expenses
of approximately $48,023 during the three months ended June 30, 2017, and approximately $96,708 during the six months ended June
30, 2017.
Loss
from discontinued operations for the three and six months ended June 30, 2017 and 2016 was as follows:
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2017
(Unaudited)
|
|
|
2016
(Unaudited)
|
|
|
2017
(Unaudited)
|
|
|
2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
COST OF SALES
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
GROSS PROFIT
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
(48,023
|
)
|
|
|
-
|
|
|
|
(96,708
|
)
|
|
|
-
|
|
Selling expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
(48,023
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
Interest income
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
Total
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loss from discontinued operations before income tax
|
|
|
(48,023
|
)
|
|
|
-
|
|
|
|
(96,708
|
)
|
|
|
|
|
Income tax provision
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM DISCONTINUED OPERATIONS
|
|
$
|
(48,023
|
)
|
|
$
|
-
|
|
|
|
(96,708
|
)
|
|
|
-
|
|
The
loss from discontinued operations was $48,023 and $96,708 for the three months and six months ended June 30, 2017, respectively.
The Company does not provide a separate cash flow statement for the discontinued operations. The loss from discontinued operations
was deemed cash outflow from operating activities of the discontinued operations. The impact of this discontinued operation was
considered immaterial when compared with the total revenues for the six months ended June 30, 2017 and 2016, which were approximately
$5.74 million and $15.67 million, respectively. The Company believes there will not be any future significant cash flows from
the discontinued operation, as the outstanding accounts receivable and accounts payable are immaterial to the Company’s
financial position and liquidity.
10.
COMMITMENTS AND CONTINGENCIES
Litigation
In
April 2015, China Cinda Asset Management Co., Ltd. Shaanxi Branch (“Cinda Shaanxi Branch”) filed two enforcement proceedings
with Xi’an Intermediate People’s Court against the Company for alleged defaults pursuant to guarantees by the Company
to its suppliers for a total amount of RMB 39,596,250, or approximately $6.1 million.
In
June 2014, two long term suppliers of pear, mulberry, kiwi fruits to the Company requested the Company to provide guarantees for
their loans with Cinda Shaanxi Branch. Considering the long term business relationship and to ensure the timely supply of raw
materials, the Company agreed to provide guarantees upon the value of the raw materials supplied to the Company. Because Cinda
Shaanxi Branch is not a bank authorized to provide loans, it eventually provided financing to the two suppliers through purchase
of accounts receivables of the two suppliers with the Company. In July, 2014, the parties entered into two agreements - Accounts
Receivables Purchase and Debt Restructure Agreement and Guarantee Agreements for Accounts Receivables Purchase and Debt Restructure.
Pursuant to the agreements, Cinda Shaanxi Branch agreed to provide a RMB 100 million credit line on a rolling basis to the two
suppliers and the Company agreed to pay its accounts payables to the two suppliers directly to Cinda Shaanxi Branch and provided
guarantees for the two suppliers. In April 2015, Cinda Shaanxi Branch stopped providing financing to the two suppliers and the
two suppliers were unable to continue the supply of raw materials to the Company. Consequently, the Company stopped making any
payment to Cinda Shaanxi Branch.
The
Company has responded to the court and taken the position that the financings under the agreements are essentially 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 have no legal forces from the beginning. Therefore, the Company has no obligations to repayment
the debts owed by the two suppliers to Cinda Shaanxi Branch. The proceeding is currently pending for the verdict of the judge.
From
time to time we may be a party to various litigation proceedings arising in the ordinary course of our business, none of which,
in the opinion of management, is likely to have a material adverse effect on our financial condition or results of operations.
In
September 2016, the Suizhong Branch of Huludao Banking Co. Ltd. (“Suizhong Branch”) filed a lawsuit with Huludao
Intermediate People’s Court (the “Court”) against the Company’s indirectly wholly-owned subsidiary Huludao
Wonder Fruit Co., Ltd. (“Wonder Fruit”) and requested that Wonder Fruit repay a 40 million RMB (approximately $6.35
million) bank loan, plus interest. The loan became due on its maturity date on December 9, 2016. On December 19, 2016, the
Court accepted the case. The Company has been disputing the interest rate of the loan with Suizhong Branch, and has not
repaid the loan to date. Wonder Fruit believes the interest charged by Suizhong Branch is 100% higher than the base rate
set by China People’s Bank and is not in consistent with China People’s Bank’s base interest and floating rate.
The Court has temporarily frozen the land and real property of the Wonder Fruit that were pledged as guarantee for the loan from
being transferred to any third-party, but the freeze does not limit or affect the use of these properties by Wonder Fruit for
its business. Wonder Fruit is currently in discussions with the Suizhong Branch on repayment of the bank loan and a reduction
of the interest due thereon.
11.
ACQUISITION OF A BUSINESS
On
December 2, 2016, the Company’s wholly owned subsidiary, Xi’an Cornucopia International Co., Ltd. (“Cornucopia”)
entered an Equity Investment Agreement (the “Agreement”) with two shareholders of Shaanxi Heying Trading Co. Ltd (“Heying”
and formerly know Xi’an Yingxin Business Consulting Co., Ltd.) who own 100% of Heying. The main business of Heying includes
the sales of pre-packaged food and bulk food; the import and export of goods and technology; food technology research and development;
business management and consulting, and corporate planning services.
Under
the terms of the Agreement, the Company agreed to increase Heying’s registered capital from RMB 50,000 (approximately $7,380)
to RMB 10 million (approximately $1.5) million to satisfy its future operating cash flow needs, and Heying agreed to issue new
shares to Cornucopia so that it will hold 99.5% of the issued and outstanding shares of Heying. The increased registered capital
can be contributed before December 31, 2046. As Heying did not finish the change of registration process with State Administration
of Industry and Commerce (“SAIC”) and the local Tax Bureau in China after the Agreement was signed, Heying’s
original Board of Directors was not changed and the Company did not gain control over Heying at that time.
After
Heying changed the registration with SAIC and the local Tax Bureau in China, on April 3, 2017, the parties signed a supplement
agreement to the Agreement to confirm Cornucopia is the 99.5% shareholder of Heying and enjoy all the rights and benefits as the
99.5% shareholder, effective on April 3, 2017.
As
a result of the contractual arrangements, Cornucopia became the 99.5% beneficiary and actual owner of Heying. Accordingly, the
Company adopted the provisions of FIN 46R and consolidated the financial results of Heying from April 1, 2017.
The
Company used the purchase method to consolidate Heying with the current assets and liabilities recorded at fair value. The fair
value of the acquired net assets of Heying was RMB 15,260 (approximately $2,212).
The following table summarizes the fair value
of Heying’s assets and liabilities as of April 1, 2017 (based on the exchange rate of April 1, 2017):
ASSETS
|
|
|
|
Cash
|
|
$
|
4,274
|
|
Accounts receivable, net
|
|
|
1,015
|
|
TOTAL ASSETS
|
|
$
|
5,289
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Accounts payable
|
|
$
|
3.077
|
|
TOTAL LIABILITIES
|
|
$
|
3,077
|
|
|
|
|
|
|
NET ASSETS
|
|
$
|
2,212
|
|
Fullmart
Holdings Limited
Balance
Sheets
|
|
December 31,
|
|
|
|
2016
(unaudited)
|
|
|
2015
(unaudited)
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17,143
|
|
|
$
|
862,033
|
|
Accounts receivable
|
|
|
|
|
|
|
-
|
|
Other receivables
|
|
|
720,247
|
|
|
|
732,702
|
|
Inventories
|
|
|
28,646
|
|
|
|
994
|
|
Deferred tax assets
|
|
|
2,246,858
|
|
|
|
1,256,145
|
|
Advances to suppliers and other current assets
|
|
|
27,101,975
|
|
|
|
3,710,772
|
|
TOTAL CURRENT ASSETS
|
|
|
30,114,869
|
|
|
|
6,562,646
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
31,674,052
|
|
|
|
32,384,813
|
|
LAND USE RIGHT, NET
|
|
|
14,650,891
|
|
|
|
9,019,486
|
|
LONG TERM ASSETS
|
|
|
2,789,390
|
|
|
|
2,979,857
|
|
DEPOSIT
|
|
|
54,942,901
|
|
|
|
21,502,812
|
|
Related party receivables
|
|
|
5,528,941
|
|
|
|
51,016
|
|
TOTAL ASSETS
|
|
$
|
139,701,044
|
|
|
$
|
72,500,630
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
8,736,193
|
|
|
$
|
483,379
|
|
Accrued expenses
|
|
|
1,072,914
|
|
|
|
4,366,494
|
|
Income tax payable
|
|
|
3,011,611
|
|
|
|
1,256,145
|
|
Advances from customers
|
|
|
|
|
|
|
87,146
|
|
TOTAL CURRENT LIABILITIES
|
|
|
12,820,718
|
|
|
|
6,193,164
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Long-term payables
|
|
|
14,494,003
|
|
|
|
16,720,307
|
|
Related party payables
|
|
|
111,954,762
|
|
|
|
46,049,764
|
|
TOTAL NON-CURRENT LIABILITIES
|
|
|
126,448,765
|
|
|
|
62,770,071
|
|
TOTAL LIABILITIES
|
|
|
139,269,483
|
|
|
|
68,963,235
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fullmart Holdings Limited Stockholders' equity
|
|
|
|
|
|
|
|
|
Common stock, $0.002 par value; 25,000,000 shares authorized; 25,000,000 and 25,000,000 shares issued and outstanding as of December 31, 2016 and 2015, respectively
|
|
|
50,000
|
|
|
|
50,000
|
|
Additional paid-in capital
|
|
|
8,123,873
|
|
|
|
8,123,873
|
|
Retained earning (loss)
|
|
|
(7,434,517
|
)
|
|
|
(4,440,437
|
)
|
Accumulated other comprehensive loss
|
|
|
(307,795
|
)
|
|
|
(196,041
|
)
|
Total Fullmart Holdings Limited stockholders' equity
|
|
|
431,561
|
|
|
|
3,537,395
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
139,701,044
|
|
|
$
|
72,500,630
|
|
Fullmart
Holdings Limited
Statements of Operations AND COMPRENSIVE INCOME (LOSS)
|
|
For the Year Ended
December 31,
|
|
|
|
2016
(unaudited)
|
|
|
2015
(unaudited)
|
|
Revenue
|
|
$
|
297,964
|
|
|
$
|
255,203
|
|
Cost of goods sold
|
|
|
278,962
|
|
|
|
202,909
|
|
Gross profit
|
|
|
19,002
|
|
|
|
52,294
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
2,790,573
|
|
|
|
1,828,618
|
|
Selling expenses
|
|
|
7,856
|
|
|
|
97,913
|
|
Total operating expenses
|
|
|
2,798,429
|
|
|
|
1,926,531
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,779,427
|
)
|
|
|
(1,874,237
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
746
|
|
|
|
-
|
|
Subsidy income
|
|
|
-
|
|
|
|
413,029
|
|
Interest expenses
|
|
|
(227,199
|
)
|
|
|
-
|
|
Other income
|
|
|
11,800
|
|
|
|
-
|
|
Total other income (expenses)
|
|
|
(214,653
|
)
|
|
|
413,029
|
|
|
|
|
|
|
|
|
|
|
Loss from before Income Tax
|
|
|
(2,994,080
|
)
|
|
|
(1,461,208
|
)
|
Income tax provision
|
|
|
|
|
|
|
99,208
|
|
LOSS ATTRIBUTABLE TO FULLMART HOLDINGS Ltd. STOCKHOLDERS
|
|
$
|
(2,994,080
|
)
|
|
$
|
(1,560,416
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
$
|
(111,753
|
)
|
|
$
|
(3,124,667
|
)
|
COMPREHENSIVE LOSS ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC. STOCKHOLDERS
|
|
|
(3,105,833
|
)
|
|
|
(4,685,083
|
)
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share from net loss
|
|
|
(0.12
|
)
|
|
|
(0.06
|
)
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
25,000,000
|
|
|
|
25,000,000
|
|
Fullmart
Holdings Limited
Statements
of Cash Flows
|
|
For the fiscal year
|
|
|
|
2016
(unaudited)
|
|
|
2015
(unaudited)
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,994,080
|
)
|
|
$
|
(1,560,416
|
)
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,500,466
|
|
|
|
936,472
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
-
|
|
|
|
57,167
|
|
Other receivable
|
|
|
63,807,731
|
)
|
|
|
12,566,873
|
|
Advances to suppliers and other current assets
|
|
|
(61,305,599
|
)
|
|
|
(3,731,005
|
)
|
Inventories
|
|
|
(28,786
|
)
|
|
|
6,146
|
|
Accounts payable
|
|
|
7,335,214
|
|
|
|
115,408
|
|
Accrued expenses
|
|
|
5,797,820
|
|
|
|
4,084,835
|
|
Income tax payable
|
|
|
794,294
|
|
|
|
|
|
Advances from customers
|
|
|
(84,727
|
)
|
|
|
91,661
|
|
Net cash provided by operating activities
|
|
|
14,822,333
|
|
|
|
12,567,141
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(2,331,350
|
)
|
|
|
(480,481
|
)
|
Purchase of intangible assets
|
|
|
(7,028,551
|
)
|
|
|
(9,485,253
|
)
|
Refund of purchase deposit
|
|
|
605,138
|
)
|
|
|
-
|
|
Loan repayment from related parties
|
|
|
-
|
|
|
|
1,732
|
|
Net cash used in investing activities
|
|
|
(8,754,763
|
)
|
|
|
(9,964,002
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds (repayments) long term debt
|
|
|
(1,202,289
|
)
|
|
|
(1,706,288
|
)
|
Repayment of related party loans
|
|
|
(5,687,932
|
)
|
|
|
-
|
|
Net cash used in financing activities
|
|
|
(6,890,221
|
))
|
|
|
(1,706,288
|
)
|
|
|
|
|
|
|
|
|
|
Effect of change in exchange rate
|
|
|
(22,239
|
)
|
|
|
(44,290
|
)
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(844,890
|
)
|
|
|
852,560
|
|
Cash and cash equivalents, beginning of year
|
|
|
862,033
|
|
|
|
9,473
|
|
Cash and cash equivalents, end of year
|
|
$
|
17,143
|
|
|
$
|
862,033
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
880,702
|
|
|
$
|
1,268,485
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE OF SIGNIFICANT NON-CASH TRANSACTION
|
|
|
|
|
|
|
|
|
Transferred from other assets to property, plant and equipment and construction in process
|
|
$
|
-
|
|
|
$
|
9,148,465
|
|
Equipment acquired by capital lease
|
|
$
|
-
|
|
|
$
|
-
|
|
Unaudited
Fullmart Holdings Limited
Statements
of Changes in Parent Company Equity
|
|
Common
Stock
Shares*
|
|
|
Common
Stock
|
|
|
Additional
Paid in
Capital
|
|
|
Retained
Earnings
|
|
|
Other
Comprehensive
Income
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
25,000,000
|
|
|
$
|
50,000
|
|
|
$
|
8,123,873
|
|
|
$
|
(2,880,022
|
)
|
|
$
|
2,928,626
|
|
|
$
|
8,222,477
|
|
Common Stocks issued during 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,560,416
|
)
|
|
|
—
|
|
|
|
(1,560,416
|
)
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
(3,124,667
|
)
|
|
$
|
(3,124,667
|
)
|
Balance at December 31, 2015
|
|
|
25,000,000
|
|
|
|
50,000
|
|
|
|
8,123,873
|
|
|
|
(4,440,437
|
)
|
|
|
(196,041
|
)
|
|
$
|
3,537,395
|
|
Common Stocks issued during 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,994,080
|
)
|
|
|
—
|
|
|
|
(2,994,080
|
)
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
(111,753
|
)
|
|
$
|
(111,753
|
)
|
Balance at December 31, 2016
|
|
|
25,000,000
|
|
|
|
50,000
|
|
|
|
8,123,873
|
|
|
|
(7,434,517
|
)
|
|
|
(307,794
|
)
|
|
|
431,562
|
|
Fullmart
Holdings Limited
Notes
to Financial Statements
1.
BASIS OF PRESENTATION
The
Separation — Future FinTech Group Inc (“Future FinTech”) Board of Directors approved the spin-off of the Future
FinTech’s wholly-owned subsidiaries, SkyPeople Foods Holdings Limited (BVI) (“SkyPeople BVI”) and FullMart Holdings
Limited (BVI) (“FullMart”), through a pro rata distribution of the ordinary shares of each of SkyPeople BVI and FullMart
to holders of Future FinTech’s common stock at the close of business on September 10, 2017, the record date (the “Spin-Offs”).
Upon
completion of the Spin-Offs, all of the ordinary shares of each of SkyPeople BVI and FullMart will be directly held by the Future
FinTech shareholders of record as of the Record Date.
The
transactions, which is subject to customary regulatory and shareholder approvals is expected to close in the second half of 2017.
Basis
of Presentation — The accompanying financial statements include the accounts of FullMart ("the Company"), a business
engaging in the manufacture and sale of consumer food products.
FullMart,
a company organized under the laws of British Virgin Island, ), holds 100% of equity interest of Hedetang Holdings (Asia Pacific)
Ltd. (“Hedetang Holdings (Asia Pacific)”), a company organized under the laws of Hong Kong. Hedetang Holdings (Asia
Pacific) holds 100% of the equity interest of Hedetang Holding Group Co. Ltd., (“Hedetang Holding”), a company incorporated
under the laws of the PRC, which holds 100% of Hedetang Foods Industry (Xi’an) Co. Ltd., (“Food Industry Xi’an”),
a company incorporated under the laws of the PRC. Food Industry Xi’an has nine subsidiaries: (i) SkyPeople Suizhong; (ii)
Food Industry Yidu; (iii) Hedetang Food Industry (Jingyang) Co. Ltd. (“Fruit Industry Jingyang”); (iv) Hedetang Foods
Industry (Zhouzhi) Co. Ltd. (“Foods Industry Zhouzhi”); (v) Shaanxi Guo Wei Mei Kiwi Deep Processing Co., Ltd. (“Guo
Wei Mei”); (vi) Hedetang Agricultural Plantations (Yidu) Co., Ltd (“Agricultural Plantations Yidu”); (vii) Hedetang
Agricultural Plantations (Mei County) Co., Ltd (“Agricultural Plantations Mei County”); (viii) Hedetang Farm Products
Trading Market (Mei County) Co., Ltd (“Trading Market Mei County”); and (ix) Hedetang Farm Products Trading Market
(Yidu) Co., Ltd (“Trading MarketYidu”).
Historically,
separate financial statements have not been prepared for the Company. These financial statements reflect the historical financial
position, results of operations, changes in parent company equity and cash flows of the Company for the periods presented, as
the Company was historically managed within Future FinTech (the "Parent"). The financial statements have been prepared
on a “carve-out” basis and are derived from the consolidated financial statements and accounting records of Future
FinTech. The financial statements are prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP").
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
Company’s 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 consolidated financial statements and reported amounts of revenue and expenses during the reporting period.
The significant areas requiring the use of management estimates include, but not limited to, the allowance for doubtful accounts
receivable, estimated useful life and residual value of property, plant and equipment, provision for staff benefit, valuation
of change in fair value of warrant liability, 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 consolidated financial statements.
Impairment
of Long-Lived Assets
In
accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
360-10,
Accounting for the Impairment or Disposal of Long-Lived Assets
, long-lived assets, such as property, plant
and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable, or it is reasonably possible that these assets could become
impaired as a result of technological or other industrial changes. The determination of recoverability of assets to be held and
used is made by comparing the carrying amount of an asset to future undiscounted cash flows to be generated by the assets.
If
such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount
or fair value less cost to sell.
Fair
Value of Financial Instruments
The
Company has adopted FASB Accounting Standard Codification Topic on Fair Value Measurements and Disclosures (“ASC 820”),
which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements.
ASC 820 establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable input, which
may be used to measure fair value and include the following:
Level
1 - Quoted prices in active markets for identical assets or liabilities.
Level
2 - Input other than Level 1 that is observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other input that is observable or can be corroborated by observable market data
for substantially the full term of the assets or liabilities.
Level
3 - Unobservable input that is supported by little or no market activity and that is significant to the fair value of the assets
or liabilities.
Our
cash and cash equivalents and restricted cash are classified within level 1of the fair value hierarchy because they are value
using quoted market price.
Earnings
Per Share
Under
ASC 260-10,
Earnings Per Share
, basic EPS excludes dilution for Common Stock equivalents and is calculated by dividing
net income available to common stockholders by the weighted-average number of Common Stock outstanding for the period. Our Series
B Convertible Preferred Stock is a participating security. Consequently, the two-class method of income allocation is used in
determining net income available to common stockholders.
Diluted
EPS is calculated by using the treasury stock method, assuming conversion of all potentially dilutive securities, such as stock
options and warrants. Under this method, (i) exercise of options and warrants is assumed at the beginning of the period and shares
of Common Stock are assumed to be issued, (ii) the proceeds from exercise are assumed to be used to purchase Common Stock at the
average market price during the period, and (iii) the incremental shares (the difference between the number of shares assumed
issued and the number of shares assumed purchased) are included in the denominator of the diluted EPS computation. The numerators
and denominators used in the computations of basic and diluted EPS are presented in the following table.
|
|
Year Ended December 31,
|
|
|
|
2016
(unaudited)
|
|
|
2015
(unaudited)
|
|
NUMERATOR FOR BASIC AND DILUTED EPS
|
|
|
|
|
|
|
Net loss(numerator for Diluted EPS)
|
|
$
|
(2,994,080
|
)
|
|
$
|
(1,560,416
|
)
|
Net loss allocated to Common Stock holders
|
|
$
|
(2,994,080
|
)
|
|
$
|
(1,560,416
|
)
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
Basic earnings per share from Net Income
|
|
|
(0.12
|
)
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share
|
|
|
|
|
|
|
|
|
Diluted earnings per share from Net Income
|
|
|
(0.12
|
)
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average Common Stock outstanding
|
|
|
25,000,000
|
|
|
|
25,000,000
|
|
DENOMINATOR FOR BASIC AND DILUTIVED EPS
|
|
|
25,000,000
|
|
|
|
25,000,000
|
|
Cash
and Cash Equivalents
Cash
and cash equivalents included cash on hand and demand deposits placed with banks or other financial institutions, which are unrestricted
as to withdrawal and use and with an original maturity of three months or less.
Deposits
in banks in the PRC are not insured by any government entity or agency, and are consequently exposed to risk of loss. The Company
believes the probability of a bank failure, causing loss to the Company, is remote.
Restricted
Cash
Restricted
cash consists of cash equivalents used as collateral to secure short-term notes payable.
Accounts
Receivable and Allowances
Accounts
receivable are recognized and carried at the original invoice amounts less an allowance for any uncollectible amount. We have
a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing
accounts receivable. We extend credit to our customers based on an evaluation of their financial condition and other factors.
We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations
of our customers and maintain an allowance for potential bad debts if required.
We
determine whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the
customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best
available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable
to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received.
The amounts calculated are analyzed to determine the total amount of the allowance. We may also record a general allowance as
necessary.
Direct
write-offs are taken in the period when we have exhausted our efforts to collect overdue and unpaid receivables or otherwise evaluate
other circumstances that indicate that we should abandon such efforts.
The
Company has not experienced any significant difficulty in collecting its accounts receivable in the past and is not aware of any
financial difficulties being experienced by its major customers. Our credit term for distributors with good credit history is
from 30 days to 120 days. As of December 31, 2016 and 2015, there was no accounts receivables have been outstanding for over 120
days, the increase is due to the growth of sales in concentrated apply juice which had longer credit period to distributors.
Inventories
Inventories
consist of raw materials, packaging materials (which include ingredients and supplies) and finished goods (which include finished
juice in the bottling and canning operations). Inventories are valued at the lower of cost or market. We determine cost on the
basis of the weighted average method. The Company periodically reviews inventories for obsolescence and any inventories identified
as obsolete are reserved or written off. Although we believe that the assumptions we use in estimate inventory write downs are
reasonable, future changes in these assumptions could provide a significantly different result. The Company did not record any
inventory markdown allowance for the year ended December 31, 2016 and 2015, respectively.
Revenue
Recognition
The
Company recognizes revenue in accordance with ASC 605,
Revenue Recognition
. Revenue from sales of products is recognized
upon shipment or delivery to customers, provided that persuasive evidence of sales arrangements exist, title and risk of loss
have been transferred to the customers, the sales amounts are fixed and determinable and collection of the revenue is reasonably
assured. Customers have no contractual right to return products. Historically, the Company has not had any returned products.
Accordingly, no provision has been made for returnable goods. The Company is not required to rebate or credit a portion of the
original fee if it subsequently reduces the price of its product and the distributor still has rights with respect to that product.
Shipping
and Handling Costs
Shipping
and handling amounts billed to customers in sales transactions are included in sales revenues and shipping expenses incurred by
the Company are reported as a component of selling expenses. The shipping and handling expenses of $3,739 and $7,694 for 2016
and 2015, respectively, are reported in the Consolidated Statements of Income and Comprehensive Income as a component of selling
expenses. The decrease in shipping and handling costs in fiscal year 2016 was mainly due to a decrease in sales quantity
of our products.
Government
Subsidies
A
government subsidy is recognized only when the Company complies with any conditions attached to the grant and there is reasonable
assurance that the grant will be received.
The
government subsidies recognized were $0 and $413,029for the years ended December 31, 2016 and 2015, respectively, and are included
in other income of the consolidated statements of comprehensive income.
Advertising
and Promotional Expense
Advertising
and promotional costs are expensed as incurred and are included in selling expenses. The Company incurred $0 and $641 in advertising
and promotional costs for the years ended December 31, 2016 and 2015, respectively.
Property,
Plant and Equipment
Property,
plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Depreciation is computed using
the straight-line method over the useful lives of the assets. Major renewals and betterments are capitalized and depreciated;
maintenance and repairs that do not extend the life of the respective assets are expensed as incurred. Upon disposal of assets,
the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in the consolidated
statements of income and comprehensive income.
Construction
in progress primarily represents the construction or the renovation costs of plant, machinery and equipment stated at cost less
any accumulated impairment loss, which is not depreciated. Costs and interest on borrowings incurred are capitalized
and transferred to property and equipment upon completion, at which time depreciation commences. Cost of repairs and
maintenance is expensed as incurred.
Depreciation
related to property, plant and equipment used in production is reported in cost of sales, and includes amortized amounts
related to capital leases. We estimated that the residual value of the Company’s property and equipment ranges from 3% to
5%. Property, plant and equipment are depreciated over their estimated useful lives as follows:
Buildings
|
|
20-30 years
|
Machinery and equipment
|
|
5-10 years
|
Furniture and office equipment
|
|
3-5 years
|
Motor vehicles
|
|
5 years
|
Foreign
Currency and Other Comprehensive Income
The
financial statements of the Company’s foreign subsidiaries are measured using the local currency as the functional currency;
however, the reporting currency of the Company is the United States dollar (“USD”). Assets and liabilities of the
Company’s foreign subsidiaries have been translated into USD using the exchange rate at the balance sheet date, while equity
accounts are translated using historical exchange rate. The average exchange rate for the period has been used to translate revenues
and expenses. Translation adjustments are reported separately and accumulated in a separate component of equity (cumulative translation
adjustment).
Other
comprehensive income for the year ended December 31, 2016 and 2015 represented foreign currency translation adjustments loss of
$111,753 and loss of $3,124,667, respectively, and were included in the consolidated statements of comprehensive income.
Income
Taxes
We
use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.”
Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and
(ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s
financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the
enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available
positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC
Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements
and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions
for any of the reporting periods presented.
Leases
Leases
are reviewed and classified as capital or operating at their inception in accordance with ASC Topic 840, Accounting for Leases.
For leases that contain rent escalations, the Company records monthly rent expense equal to the total amount of the payments due
in the reporting period over the lease term. The difference between rent expense recorded and the amount paid is credited or charged
to deferred rent account.
Land
Use Right
The
Company paid in advance for land use rights according to Chinese law. Prepaid land use rights are being amortized and recorded
as lease expenses using the straight-line method over the use terms of the lease, which are 40 to 50 years.
Research
and Development
Research
and development costs are expensed when incurred and are included in operating expenses.
New
Accounting Pronouncements
In
January 2016, the FASB issued an amendment to its accounting guidance related to recognition and measurement of financial assets
and financial liabilities. The amendment addresses certain aspects of recognition, measurement, presentation and disclosure of
financial instruments. The amendment will be effective for us beginning in our first quarter of fiscal year 2019. We are evaluating
the impact of adopting this amendment to our consolidated financial statements.
In
February 2016, the FASB issued a new standard on accounting for leases. The new standard is intended to provide enhanced transparency
and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet.
The new standard will continue to classify leases as either finance or operating, with classification affecting the pattern of
expense recognition in the statement of earnings. The new standard is required to be adopted using a modified retrospective method
to each prior reporting period presented with various optional practical expedients. The new standard will be effective for us
beginning in our first quarter of fiscal year 2020 with early adoption permitted. We are evaluating the impact of adopting this
amendment to our consolidated financial statements.
In
March 2016, the FASB issued an amendment to its accounting guidance related to employee share-based payments. The amendment simplifies
several aspects of the accounting for employee share-based payments including the accounting for income taxes, forfeitures, and
statutory tax withholding requirements, as well as classification in the statement of cash flows. The amendment will be effective
for us beginning in our first quarter of fiscal year 2018 with early adoption permitted. We are evaluating the impact of adopting
this amendment to our consolidated financial statements.
In
August 2016, FASB issued “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments.” The
issues include but are not limited to the classification of debt prepayment and debt extinguishment costs, payments made for contingent
consideration for a business combination, proceeds from the settlement of insurance proceeds, distributions received from equity
method investees and separately identifiable cash flows and the application of the predominance principle. This update is effective
for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.
The Company is currently evaluating the provisions of this standard and assessing its impact on the Company’s consolidated
financial statements and disclosures.
In
December 2016, the FASB issued ASU 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts
with Customers
, which amended the guidance on performance obligation disclosures and makes technical corrections and improvements
to the new revenue standard. The standard is effective for annual reporting periods beginning after December 15, 2017, including
interim periods within that reporting period, and permits early adoption on a limited basis. The update permits the use of either
the retrospective or cumulative effect transition method. The Company is currently evaluating the effect the adoption of these
standards will have on the Company’s consolidated financial statements.
There
were no other recent accounting pronouncements or changes in accounting pronouncements during the fiscal year ended December 31,
2016, that are of significance or potential significance to us.
3.
INVENTORIES
Inventories
by major categories are summarized as follows:
|
|
December 31,
|
|
|
|
2016
(unaudited)
|
|
|
2015
(unaudited)
|
|
Raw materials and packaging
|
|
$
|
930
|
|
|
$
|
994
|
|
Finished goods
|
|
|
27,716
|
|
|
|
-
|
|
Inventories
|
|
$
|
28,646
|
|
|
$
|
994
|
|
4.
PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consist of the following:
|
|
December 31,
|
|
|
|
2016
(unaudited)
|
|
|
2015
(unaudited)
|
|
Machinery and equipment
|
|
$
|
18,595,935
|
|
|
$
|
19,865,714
|
|
Furniture and office equipment
|
|
|
6,234
|
|
|
|
5,467
|
|
Motor vehicles
|
|
|
1,132
|
|
|
|
1,209
|
|
Buildings
|
|
|
15,065
|
|
|
|
15,863
|
|
Construction in progress
|
|
|
15,123,479
|
|
|
|
13,759,661
|
|
Subtotal
|
|
|
33,741,845
|
|
|
|
33,647,914
|
|
Less: accumulated depreciation
|
|
|
2,067,793
|
)
|
|
|
1,263,101
|
)
|
Net property and equipment
|
|
$
|
31,674,052
|
|
|
$
|
32,384,813
|
|
Depreciation
expense included in general and administration expenses for the year ended December 31, 2016 and 2015 was $2,147,668 and $1,328,527,
respectively. Depreciation expense included in cost of sales for the year ended December 31, 2016 and 2015 was $0, respectively.
5.
LONG TERM ASSETS
Long
term assets were $2,789,390 and $2,979,857 for the year ended December 31, 2016 and 2015, respectively. It represents the capital
lease risk deposits made by the Company to Cinda Financial Leasing Co., LTD in terms of capital lease agreement.
6.
LAND USAGE RIGHTS
According
to the laws of the PRC, the government owns all of the land in the PRC. The government of the PRC, its agencies and collectives
hold all land ownership. Companies or individuals are authorized to use the land only through land usage rights granted
by the PRC government. Land usage rights can be transferred upon approval by the land administrative authorities of the PRC (State
Land Administration Bureau) upon payment of the required land transfer fee. Accordingly, the Company paid in advance for land
usage rights. Prepaid land usage rights are being amortized and recorded as lease expenses using the straight-line method over
the terms of the leases, which range from 40 to 50 years. The amortization expense was $580,835 and $491 for fiscal years 2016
and 2015, respectively. The following table sets forth land usage rights of the Company as of December 31, 2016 and 2015, respectively.
|
|
December 31,
|
|
|
|
2016
(unaudited)
|
|
|
2015
(unaudited)
|
|
Cost
|
|
$
|
15,210,717
|
|
|
$
|
9,020,120
|
|
Less: Accumulated amortization
|
|
|
(559,826
|
)
|
|
|
(634
|
)
|
|
|
$
|
14,650,891
|
|
|
$
|
9,019,486
|
|
7.
LEASE OBLIGATION PAYABLE
The
schedule below represents the commitments for the Company’s capital equipment under the lease contract with Cinda Financial
Leasing Co., Ltd, entered into in April of 2014. The Company’s obligations under the finance lease are secured by the lessors’
title to the leased assets. The lease has an interest rate as 7.36%.
Minimum lease payments for the years ending December 31, are as follows;
|
|
|
|
|
|
|
|
2017
|
|
$
|
6,945,442
|
|
2018
|
|
|
5,787,869
|
|
2019
|
|
|
1,760,692
|
|
Less: amount representing interest
|
|
|
-
|
|
Present value of minimum lease payments
|
|
$
|
14,494,003
|
|
|
|
|
|
|
Due within one year
|
|
$
|
6,945,442
|
|
Due after one year
|
|
|
7,548,560
|
|
Present value of minimum lease payments
|
|
$
|
14,494,003
|
|
In
April 2015, China Cinda Asset Management Co., Ltd. Shaanxi Branch (“Cinda Shaanxi Branch”) filed two enforcement proceedings
with Xi’an Intermediate People’s Court against the Company for alleged defaults pursuant to guarantees by the Company
to its suppliers for a total amount of RMB 39,596,250, or approximately $6.1 million.
In
June 2014, two long term suppliers of pear, mulberry, kiwi fruits to the Company requested the Company to provide guarantees for
their loans with Cinda Shaanxi Branch. Considering the long term business relationship and to ensure the timely supply of raw
materials, the Company agreed to provide guarantees upon the value of the raw materials supplied to the Company. Because Cinda
Shaanxi Branch is not a bank authorized to provide loans, it eventually provided financing to the two suppliers through purchase
of accounts receivables of the two suppliers with the Company. In July, 2014, the parties entered into two agreements - Accounts
Receivables Purchase and Debt Restructure Agreement and Guarantee Agreements for Accounts Receivables Purchase and Debt Restructure.
Pursuant to the agreements, Cinda Shaanxi Branch agreed to provide a RMB 100 million credit line on a rolling basis to the two
suppliers and the Company agreed to pay its accounts payables to the two suppliers directly to Cinda Shaanxi Branch and provided
guarantees for the two suppliers. In April 2015, Cinda Shaanxi Branch stopped providing financing to the two suppliers and the
two suppliers were unable to continue the supply of raw materials to the Company. Consequently, the Company stopped making any
payment to Cinda Shaanxi Branch.
The
Company has responded to the court and taken the position that the financings under the agreements are essentially 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 have no legal forces from the beginning. Therefore, the Company has no obligations to repayment
the debts owed by the two suppliers to Cinda Shaanxi Branch. The proceeding is currently pending for the verdict of the judge.
In
September 2016, the Suizhong Branch of Huludao Banking Co. Ltd. (“Suizhong Branch”) filed a lawsuit with Huludao
Intermediate People’s Court (the “Court”) against the Company’s indirectly wholly-owned subsidiary Huludao
Wonder Fruit Co., Ltd. (“Wonder Fruit”) and requested that Wonder Fruit repay a 40 million RMB (approximately $6.35
million) bank loan, plus interest. The loan became due on its maturity date on December 9, 2016. On December 19, 2016, the
Court accepted the case. The Company has been disputing the interest rate of the loan with Suizhong Branch, and has not
repaid the loan to date. Wonder Fruit believes the interest charged by Suizhong Branch is 100% higher than the base rate
set by China People’s Bank and is not in consistent with China People’s Bank’s base interest and floating rate.
The Court has temporarily frozen the land and real property of the Wonder Fruit that were pledged as guarantee for the loan from
being transferred to any third-party, but the freeze does not limit or affect the use of these properties by Wonder Fruit for
its business. Wonder Fruit is currently in discussions with the Suizhong Branch on repayment of the bank loan and a reduction
of the interest due thereon.
From
time to time we may be a party to various litigation proceedings arising in the ordinary course of our business, none of which,
in the opinion of management, is likely to have a material adverse effect on our financial condition or results of operations.
8.
CONCENTRATIONS
There
was one customer who accounted for 10% of the Company’s sales for the year ended December 31, 2016 and December 31, 2015,
respectively. Sales to our five largest customers accounted for 100% of our net sales during the years ended December 31, 2016
and 2015, respectively.
Full
market purchased all of its products from the related party, SkyPeople Juice Group Co., Ltd., for the year ended December 31,
2016 and 2015, respectively. There was no other single supplier representing 10% of purchases during both years.
9
DEPOSITS
As
of December 31, 2016, the balance of deposits was $54,942,909, which mainly consisted of a deposit of approximately $35.4 million
for the leasing fee for the kiwifruits orchard in Mei County.
On August 3, 2016, Shaanxi Guoweimei Kiwi
Deep Processing Company, an indirectly wholly-owned subsidiary of the Company, signed a lease agreement for 20,000 mu (approximately
3,300 square acres) of kiwifruits orchard located in Mei County, Shaanxi Province, with the Di’erpo Committee of Jinqu Village,
Mei County, Shaanxi for a term of 30 years, from August 5, 2016 to August 4, 2046. The annual leasing fee is RMB 1,250 (approximately
$189) per mu, and payment of 10 years’ of leasing fees shall be made on each of September 25, 2016, 2026 and 2036. The Company
made a payment of RMB 246 million (approximately $35.4 million) for the first 10 years’ leasing fees on August 15, 2016,
which is recorded as deposits in the Company’s balance sheet.
10.
IMMATERIAL CORRECTION OF ERRORS IN PRIOR PERIOD
During
the 2015 fiscal year audit, the company identified calculation errors in the other comprehensive income portion of 2014 audited
consolidated statements of comprehensive income. In accordance with ASC Topic 250, Accounting Changes and Error Corrections, the
Company evaluated the materiality of the errors from quantitative and qualitative perspectives, and concluded that the errors
were immaterial to the Company’s prior period interim and annual consolidated financial statements. Since the revisions
were not material to any prior period interim or annual consolidated financial statements, no amendments to previously filed interim
or annual periodic reports were required. The Company has revised the historical consolidated financial information presented
herein to reflect the correction of these errors.
Fullmart
Holdings Limited
Balance
Sheets
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
(unaudited)
|
|
|
2016
(unaudited)
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
91,572
|
|
|
$
|
17,143
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
Other receivables
|
|
|
668,629
|
|
|
|
720,247
|
|
Inventories
|
|
|
49,987
|
|
|
|
28,646
|
|
Deferred tax assets
|
|
|
2,246,858
|
|
|
|
2,246,858
|
|
Advances to suppliers and other current assets
|
|
|
1,224
|
|
|
|
27,101,975
|
|
TOTAL CURRENT ASSETS
|
|
|
3,337,081
|
|
|
|
27,868,011
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
32,948,859
|
|
|
|
31,674,052
|
|
LAND USE RIGHT, NET
|
|
|
20,522,590
|
|
|
|
14,650,891
|
|
LONG TERM ASSETS
|
|
|
2,856,342
|
|
|
|
2,789,390
|
|
DEPOSIT
|
|
|
54,600,013
|
|
|
|
54,942,901
|
|
Related party receivables
|
|
|
5,660,446
|
|
|
|
5,528,941
|
|
TOTAL ASSETS
|
|
$
|
119,925,331
|
|
|
$
|
137,454,186
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,518,620
|
|
|
$
|
8,736,193
|
|
Accrued expenses
|
|
|
10,934,235
|
|
|
|
1,072,914
|
|
Income tax payable
|
|
|
2,246,858
|
|
|
|
764,753
|
|
Advances from customers
|
|
|
5,376
|
|
|
|
-
|
|
TOTAL CURRENT LIABILITIES
|
|
|
20,705,089
|
|
|
|
10,573,860
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Long-term payables
|
|
|
16,592,943
|
|
|
|
14,494,003
|
|
Related party payables
|
|
|
84,416,413
|
|
|
|
111,954,762
|
|
TOTAL NON-CURRENT LIABILITIES
|
|
|
101,009,356
|
|
|
|
126,448,765
|
|
TOTAL LIABILITIES
|
|
|
121,714,445
|
|
|
|
137,022,625
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fullmart Holdings Limited Stockholders' equity
|
|
|
|
|
|
|
|
|
Common stock, $0.02 par value; 25,000,000 shares authorized; 25,000,000 and 25,000,000 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
|
|
|
50,000
|
|
|
|
50,000
|
|
Additional paid-in capital
|
|
|
8,123,873
|
|
|
|
8,123,873
|
|
Retained earning (loss)
|
|
|
(9,962,986
|
)
|
|
|
(7,434,517
|
)
|
Accumulated other comprehensive loss
|
|
|
-
|
|
|
|
(307,795
|
)
|
Total Fullmart Holdings Limited stockholders' equity
|
|
|
(1,789,114
|
)
|
|
|
431,561
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
119,925,331
|
|
|
$
|
137,454,186
|
|
Fullmart
Holdings Limited
Statements of Operations AND COMPRENSIVE INCOME (LOSS)
|
|
For the Six Months Ended
June 30,
|
|
|
|
2017
(unaudited)
|
|
|
2016
(unaudited)
|
|
Revenue
|
|
$
|
115,982
|
|
|
$
|
77,814
|
|
Cost of goods sold
|
|
|
103,315
|
|
|
|
77,814
|
|
Gross profit
|
|
|
12,667
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
2,514,398
|
|
|
|
94,649
|
|
Selling expenses
|
|
|
26,511
|
|
|
|
47
|
|
Total operating expenses
|
|
|
2,540,909
|
|
|
|
94,696
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,528,242
|
)
|
|
|
(94,696
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
11
|
|
|
|
-
|
|
Subsidy income
|
|
|
-
|
|
|
|
13,785
|
|
Interest expenses
|
|
|
(236
|
)
|
|
|
(285
|
)
|
Total other income (expenses)
|
|
|
(225
|
)
|
|
|
13,500
|
|
|
|
|
|
|
|
|
|
|
Loss from before Income Tax
|
|
|
(2,528,467
|
)
|
|
|
(81,196
|
)
|
Income tax provision
|
|
|
-
|
|
|
|
-
|
|
Income from Continuing Operations before Minority Interest
|
|
|
(2,528,467
|
)
|
|
|
|
|
Less: Net income attributable to non-controlling interests
|
|
|
(2
|
)
|
|
|
|
|
LOSS ATTRIBUTABLE TO FULLMART HOLDINGS Ltd. STOCKHOLDERS
|
|
$
|
(2,528,469
|
)
|
|
|
(81,196
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
$
|
31,510
|
|
|
$
|
(111,754
|
)
|
COMPREHENSIVE LOSS ATTRIBUTABLE TO SKYPEOPLE FRUIT JUICE, INC. STOCKHOLDERS
|
|
|
(2,496,959
|
)
|
|
|
(192,950
|
)
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share from net loss
|
|
|
(0.10
|
)
|
|
|
(0.00
|
)
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
25,000,000
|
|
|
|
25,000,000
|
|
Fullmart
Holdings Limited
Statements
of Cash Flows
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2017
(unaudited)
|
|
|
2016
(unaudited)
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net income
|
|
$
|
(2,528,469
|
)
|
|
$
|
(81,196
|
)
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
536,273
|
|
|
|
564,373
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
-
|
|
|
|
(569,842
|
)
|
Other receivable
|
|
|
(21,907,020
|
)
|
|
|
2,856,605
|
|
Advances to suppliers and other current assets
|
|
|
29,096,566
|
|
|
|
(1,574,609
|
)
|
Inventories
|
|
|
(20,367
|
)
|
|
|
-
|
|
Accounts payable
|
|
|
(174,188
|
)
|
|
|
6,126,700
|
|
Accrued expenses
|
|
|
364,183
|
|
|
|
(1,071,089
|
)
|
Income tax payable
|
|
|
(772,245
|
)
|
|
|
|
|
Advances from customers
|
|
|
-
|
|
|
|
41,843
|
|
Net income
|
|
|
4,594,733
|
|
|
|
6,292,785
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Refund of purchase deposit
|
|
|
(91,707
|
)
|
|
|
-
|
|
Additions to property, plant and equipment
|
|
|
(954,403
|
)
|
|
|
(1,416
|
)
|
Purchase of intangible assets
|
|
|
(5,532,764
|
)
|
|
|
-
|
|
Loan repayment from related parties
|
|
|
|
|
|
|
872
|
|
Net cash used in investing activities
|
|
|
(6,578,874
|
)
|
|
|
(544
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds (repayments) long term debt
|
|
|
2,021,142
|
|
|
|
(1,229,949
|
)
|
Repayment of related party loans
|
|
|
|
|
|
|
(5,820,152
|
)
|
Net cash used in financing activities
|
|
|
2,021,142
|
|
|
|
(7,050,101
|
)
|
|
|
|
|
|
|
|
|
|
Effect of change in exchange rate
|
|
|
37,428
|
|
|
|
(6,731
|
)
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
74,429
|
|
|
|
(764,591
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
17,143
|
|
|
|
862,033
|
|
Cash and cash equivalents, end of year
|
|
$
|
91,572
|
|
|
$
|
97,442
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
285
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE OF SIGNIFICANT NON-CASH TRANSACTION
|
|
|
|
|
|
|
|
|
Transferred from other assets to property, plant and equipment and construction in process
|
|
$
|
954,403
|
|
|
$
|
|
|
Equipment acquired by capital lease
|
|
$
|
-
|
|
|
$
|
-
|
|
Fullmart
Holdings Limited
Notes
to Financial Statements
1.
BASIS OF PRESENTATION
The
Separation — Future FinTech Group Inc (“Future FinTech”) Board of Directors approved the spin-off of the Future
FinTech’s wholly-owned subsidiaries, SkyPeople Foods Holdings Limited (BVI) (“SkyPeople BVI”) and FullMart Holdings
Limited (BVI) (“FullMart”), through a pro rata distribution of the ordinary shares of each of SkyPeople BVI and FullMart
to holders of Future FinTech’s common stock at the close of business on September 10, 2017, the record date (the “Spin-Offs”).
Upon
completion of the Spin-Offs, all of the ordinary shares of each of SkyPeople BVI and FullMart will be directly held by the Future
FinTech shareholders of record as of the Record Date.
The
transactions, which is subject to customary regulatory and shareholder approvals is expected to close in the second half of 2017.
Basis
of Presentation — The accompanying financial statements include the accounts of FullMart (the “Company”), a
business engaging in the manufacture and sale of consumer food products.
FullMart,
a company organized under the laws of British Virgin Island, ), holds 100% of equity interest of Hedetang Holdings (Asia Pacific)
Ltd. (“Hedetang Holdings (Asia Pacific)”), a company organized under the laws of Hong Kong. Hedetang Holdings (Asia
Pacific) holds 100% of the equity interest of Hedetang Holding Group Co. Ltd., (“Hedetang Holding”), a company incorporated
under the laws of the PRC, which holds 100% of Hedetang Foods Industry (Xi’an) Co. Ltd., (“Food Industry Xi’an”),
a company incorporated under the laws of the PRC. Food Industry Xi’an has nine subsidiaries: (i) SkyPeople Suizhong; (ii)
Food Industry Yidu; (iii) Hedetang Food Industry (Jingyang) Co. Ltd. (“Fruit Industry Jingyang”); (iv) Hedetang Foods
Industry (Zhouzhi) Co. Ltd. (“Foods Industry Zhouzhi”); (v) Shaanxi Guo Wei Mei Kiwi Deep Processing Co., Ltd. (“Guo
Wei Mei”); (vi) Hedetang Agricultural Plantations (Yidu) Co., Ltd (“Agricultural Plantations Yidu”); (vii) Hedetang
Agricultural Plantations (Mei County) Co., Ltd (“Agricultural Plantations Mei County”); (viii) Hedetang Farm Products
Trading Market (Mei County) Co., Ltd (“Trading Market Mei County”); and (ix) Hedetang Farm Products Trading Market
(Yidu) Co., Ltd (“Trading Market Yidu”).
Historically,
separate financial statements have not been prepared for the Company. These financial statements reflect the historical financial
position, results of operations, changes in parent company equity and cash flows of the Company for the periods presented, as
the Company was historically managed within Future FinTech (the "Parent"). The financial statements have been prepared
on a “carve-out” basis and are derived from the consolidated financial statements and accounting records of Future
FinTech. The financial statements are prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP").
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
Company’s 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 consolidated financial statements and reported amounts of revenue and expenses during the reporting period.
The significant areas requiring the use of management estimates include, but not limited to, the allowance for doubtful accounts
receivable, estimated useful life and residual value of property, plant and equipment, provision for staff benefit, valuation
of change in fair value of warrant liability, 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 consolidated financial statements.
Impairment
of Long-Lived Assets
In
accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
360-10,
Accounting for the Impairment or Disposal of Long-Lived Assets
, long-lived assets, such as property, plant
and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable, or it is reasonably possible that these assets could become
impaired as a result of technological or other industrial changes. The determination of recoverability of assets to be held and
used is made by comparing the carrying amount of an asset to future undiscounted cash flows to be generated by the assets.
If
such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount
or fair value less cost to sell.
Fair
Value of Financial Instruments
The
Company has adopted FASB Accounting Standard Codification Topic on Fair Value Measurements and Disclosures (“ASC 820”),
which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements.
ASC 820 establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable input, which
may be used to measure fair value and include the following:
Level
1 - Quoted prices in active markets for identical assets or liabilities.
Level
2 - Input other than Level 1 that is observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other input that is observable or can be corroborated by observable market data
for substantially the full term of the assets or liabilities.
Level
3 - Unobservable input that is supported by little or no market activity and that is significant to the fair value of the assets
or liabilities.
Our
cash and cash equivalents and restricted cash are classified within level 1of the fair value hierarchy because they are value
using quoted market price.
Earnings
Per Share
Under
ASC 260-10,
Earnings Per Share
, basic EPS excludes dilution for Common Stock equivalents and is calculated by dividing
net income available to common stockholders by the weighted-average number of Common Stock outstanding for the period. Our Series
B Convertible Preferred Stock is a participating security. Consequently, the two-class method of income allocation is used in
determining net income available to common stockholders.
Diluted
EPS is calculated by using the treasury stock method, assuming conversion of all potentially dilutive securities, such as stock
options and warrants. Under this method, (i) exercise of options and warrants is assumed at the beginning of the period and shares
of Common Stock are assumed to be issued, (ii) the proceeds from exercise are assumed to be used to purchase Common Stock at the
average market price during the period, and (iii) the incremental shares (the difference between the number of shares assumed
issued and the number of shares assumed purchased) are included in the denominator of the diluted EPS computation. The numerators
and denominators used in the computations of basic and diluted EPS are presented in the following table.
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
NUMERATOR FOR BASIC AND DILUTED EPS
|
|
|
|
|
|
|
Net loss(numerator for Diluted EPS)
|
|
$
|
(2,528,469
|
)
|
|
$
|
(81,196
|
)
|
Net loss allocated to Common Stock holders
|
|
$
|
(2,528,469
|
)
|
|
$
|
(81,196
|
)
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
Basic earnings per share from Net Income
|
|
|
(0.10
|
)
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share
|
|
|
|
|
|
|
|
|
Diluted earnings per share from Net Income
|
|
|
(0.10
|
)
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average Common Stock outstanding
|
|
|
25,000,000
|
|
|
|
25,000,000
|
|
DENOMINATOR FOR BASIC AND DILUTIVED EPS
|
|
|
25,000,000
|
|
|
|
25,000,000
|
|
Cash
and Cash Equivalents
Cash
and cash equivalents included cash on hand and demand deposits placed with banks or other financial institutions, which are unrestricted
as to withdrawal and use and with an original maturity of three months or less.
Deposits
in banks in the PRC are not insured by any government entity or agency, and are consequently exposed to risk of loss. The Company
believes the probability of a bank failure, causing loss to the Company, is remote.
Restricted
Cash
Restricted
cash consists of cash equivalents used as collateral to secure short-term notes payable.
Accounts
Receivable and Allowances
Accounts
receivable are recognized and carried at the original invoice amounts less an allowance for any uncollectible amount. We have
a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing
accounts receivable. We extend credit to our customers based on an evaluation of their financial condition and other factors.
We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations
of our customers and maintain an allowance for potential bad debts if required.
We
determine whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the
customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best
available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable
to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received.
The amounts calculated are analyzed to determine the total amount of the allowance. We may also record a general allowance as
necessary.
Direct
write-offs are taken in the period when we have exhausted our efforts to collect overdue and unpaid receivables or otherwise evaluate
other circumstances that indicate that we should abandon such efforts.
The
Company has not experienced any significant difficulty in collecting its accounts receivable in the past and is not aware of any
financial difficulties being experienced by its major customers. Our credit term for distributors with good credit history is
from 30 days to 120 days. As of June 30, 2017 and December 31, 2016 , there was no accounts receivables have been outstanding
for over 120 days, the increase is due to the growth of sales in concentrated apply juice which had longer credit period to distributors.
Inventories
Inventories
consist of raw materials, packaging materials (which include ingredients and supplies) and finished goods (which include finished
juice in the bottling and canning operations). Inventories are valued at the lower of cost or market. We determine cost on the
basis of the weighted average method. The Company periodically reviews inventories for obsolescence and any inventories identified
as obsolete are reserved or written off. Although we believe that the assumptions we use in estimate inventory write downs are
reasonable, future changes in these assumptions could provide a significantly different result. The Company did not record any
inventory markdown allowance for the year ended June 30, 2017 and December 31, 2016, respectively.
Revenue
Recognition
The
Company recognizes revenue in accordance with ASC 605,
Revenue Recognition
. Revenue from sales of products is recognized
upon shipment or delivery to customers, provided that persuasive evidence of sales arrangements exist, title and risk of loss
have been transferred to the customers, the sales amounts are fixed and determinable and collection of the revenue is reasonably
assured. Customers have no contractual right to return products. Historically, the Company has not had any returned products.
Accordingly, no provision has been made for returnable goods. The Company is not required to rebate or credit a portion of the
original fee if it subsequently reduces the price of its product and the distributor still has rights with respect to that product.
Shipping
and Handling Costs
Shipping
and handling amounts billed to customers in sales transactions are included in sales revenues and shipping expenses incurred by
the Company are reported as a component of selling expenses. The shipping and handling expenses of $1,496 and $0 for the six months
ended June 30, 2017 and 2016, respectively, are reported in the Consolidated Statements of Income and Comprehensive Income as
a component of selling expenses. The decrease in shipping and handling costs in fiscal year 2016 was mainly due to a decrease
in sales quantity of our products.
Government
Subsidies
A
government subsidy is recognized only when the Company complies with any conditions attached to the grant and there is reasonable
assurance that the grant will be received.
The
government subsidies recognized were $0 and $13,785 for the six months ended June 30, 2017 and 2016, respectively, and are included
in other income of the consolidated statements of comprehensive income.
Advertising
and Promotional Expense
Advertising
and promotional costs are expensed as incurred and are included in selling expenses. The Company incurred $0 in advertising and
promotional costs for the six months ended June 30, 2017 and 2016, respectively.
Property,
Plant and Equipment
Property,
plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Depreciation is computed using
the straight-line method over the useful lives of the assets. Major renewals and betterments are capitalized and depreciated;
maintenance and repairs that do not extend the life of the respective assets are expensed as incurred. Upon disposal of assets,
the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in the consolidated
statements of income and comprehensive income.
Construction
in progress primarily represents the construction or the renovation costs of plant, machinery and equipment stated at cost less
any accumulated impairment loss, which is not depreciated. Costs and interest on borrowings incurred are capitalized
and transferred to property and equipment upon completion, at which time depreciation commences. Cost of repairs and
maintenance is expensed as incurred.
Depreciation
related to property, plant and equipment used in production is reported in cost of sales, and includes amortized amounts
related to capital leases. We estimated that the residual value of the Company’s property and equipment ranges from 3% to
5%. Property, plant and equipment are depreciated over their estimated useful lives as follows:
Buildings
|
|
20-30 years
|
Machinery and equipment
|
|
5-10 years
|
Furniture and office equipment
|
|
3-5 years
|
Motor vehicles
|
|
5 years
|
Foreign
Currency and Other Comprehensive Income
The
financial statements of the Company’s foreign subsidiaries are measured using the local currency as the functional currency;
however, the reporting currency of the Company is the United States dollar (“USD”). Assets and liabilities of the
Company’s foreign subsidiaries have been translated into USD using the exchange rate at the balance sheet date, while equity
accounts are translated using historical exchange rate. The average exchange rate for the period has been used to translate revenues
and expenses. Translation adjustments are reported separately and accumulated in a separate component of equity (cumulative translation
adjustment).
Other
comprehensive income for the six months ended June 30, 2017 and 2016 represented foreign currency translation adjustments income
of $31,510 and loss of $111,754, respectively, and were included in the consolidated statements of comprehensive income.
Income
Taxes
We
use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.”
Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and
(ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s
financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the
enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available
positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC
Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements
and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions
for any of the reporting periods presented.
Leases
Leases
are reviewed and classified as capital or operating at their inception in accordance with ASC Topic 840, Accounting for Leases.
For leases that contain rent escalations, the Company records monthly rent expense equal to the total amount of the payments due
in the reporting period over the lease term. The difference between rent expense recorded and the amount paid is credited or charged
to deferred rent account.
Land
Use Right
The
Company paid in advance for land use rights according to Chinese law. Prepaid land use rights are being amortized and recorded
as lease expenses using the straight-line method over the use terms of the lease, which are 40 to 50 years.
Research
and Development
Research
and development costs are expensed when incurred and are included in operating expenses.
New
Accounting Pronouncements
In
January 2017, the FASB issued a new accounting standard update on simplifying the accounting for goodwill impairment. The new
guidance eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the goodwill impairment test)
to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting
unit’s carrying amount over its fair value. This guidance will be effective for interim or annual goodwill impairment tests
in fiscal years beginning after December 15, 2019 and will be applied prospectively. Early adoption is permitted for any impairment
tests performed after January 1, 2017. We are evaluating the impact of adopting this amendment to our consolidated financial statements.
In
January 2017, the FASB issued ASU No. 2017-01, “Clarifying the Definition of a Business,” which clarifies the definition
of a business in ASC 805. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods
within those fiscal years. Early application is permitted. Currently, there is no impact to our consolidated financial statements
and related disclosures, but we will adopt on January 1, 2018 for any business combinations and will consider adopting early for
any acquisitions prior to January 1, 2018.
In
May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting”,
which amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types
of changes to the terms or conditions of share-based payment awards to which we would be required to apply modification accounting
under ASC 718. Specifically, we would not apply modification accounting if the fair value, vesting conditions, and classification
of the awards are the same immediately before and after the modification. The guidance is effective for annual reporting periods,
including interim period within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including
adoption in any interim period. We are currently evaluating the impact the standard may have on our consolidated financial statements
and related disclosures should we have a modification to our share-based payment awards in the future.
There
were no other recent accounting pronouncements or changes in accounting pronouncements during the six months ended June 30, 2017
compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended December
31, 2016 that are of significance or potential significance to us.
3.
INVENTORIES
Inventories
by major categories are summarized as follows:
|
|
June 30,
2017
(Unaudited)
|
|
|
December 31, 2016
(Audited)
|
|
|
|
|
|
|
|
|
Raw materials and packaging
|
|
$
|
5,901
|
|
|
$
|
930
|
|
Finished goods
|
|
|
44,086
|
|
|
|
27,716
|
|
Inventories
|
|
$
|
49,987
|
|
|
$
|
28,646
|
|
4.
PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consist of the following:
|
|
June 30
|
|
|
December 31,
|
|
|
|
2017
(unaudited)
|
|
|
2016
(unaudited)
|
|
Machinery and equipment
|
|
$
|
19,042,277
|
|
|
$
|
18,595,935
|
|
Furniture and office equipment
|
|
|
6,383
|
|
|
|
6,234
|
|
Motor vehicles
|
|
|
1,159
|
|
|
|
1,132
|
|
Buildings
|
|
|
15,426
|
|
|
|
15,065
|
|
Construction in progress
|
|
|
16,454,304
|
|
|
|
15,123,479
|
|
Subtotal
|
|
|
35,519,549
|
|
|
|
33,741,845
|
|
Less: accumulated depreciation
|
|
|
(2,570,690
|
)
|
|
|
(2,067,793
|
)
|
Net property and equipment
|
|
$
|
32,948,859
|
|
|
$
|
31,674,052
|
|
Depreciation
expense included in general and administration expenses for the six months ended June 30, 2017 and 2016 was $446,979 and $470,416,
respectively. Depreciation expense included in cost of sales for the six months ended June 30, 2017 and 2016 was $0, respectively.
5.
LONG TERM ASSETS
Long
term assets were $ 2,856,342 and $ 2,789,390 as of June 30, 2017 and December 31, 2016, respectively. It represents the capital
lease risk deposits made by the Company to Cinda Financial Leasing Co., LTD in terms of capital lease agreement.
6.
LAND USAGE RIGHTS
According
to the laws of the PRC, the government owns all of the land in the PRC. The government of the PRC, its agencies and collectives
hold all land ownership. Companies or individuals are authorized to use the land only through land usage rights granted
by the PRC government. Land usage rights can be transferred upon approval by the land administrative authorities of the PRC (State
Land Administration Bureau) upon payment of the required land transfer fee. Accordingly, the Company paid in advance for land
usage rights. Prepaid land usage rights are being amortized and recorded as lease expenses using the straight-line method over
the terms of the leases, which range from 40 to 50 years. The amortization expense was $ 89,294 and $93,957 for six months ended
June 30, 2017 and 2016, respectively. The following table sets forth land usage rights of the Company as of June 30, 2017 and
December 31, 2016, respectively.
|
|
June 30
|
|
|
December 31,
|
|
|
|
2017
(unaudited)
|
|
|
2016
(unaudited)
|
|
Cost
|
|
$
|
21,186,404
|
|
|
$
|
15,210,717
|
|
Less: Accumulated amortization
|
|
|
(663,814
|
)
|
|
|
(559,826
|
)
|
|
|
$
|
20,522,590
|
|
|
$
|
14,650,891
|
|
7.
CONCENTRATIONS
There was one customer who accounted for more
than 10% of the Company’s sales for the six months ended June 30, 2017 and June 30, 2016, respectively. Sales to our five
largest customers accounted for 100% and 99% of our net sales for the six months ended June 30, 2017 and June 30, 2016, respectively.
Full
market purchased all of its products from the related party, SkyPeople Juice Group Co., Ltd., for the six months ended June 30,
2017 and June 30, 2016, respectively. There was no other single supplier representing 10% of purchases during both years.
8.
DEPOSITS
As
of June 30, 2017, the balance of deposits was $54,600,013, which mainly consisted of a deposit of approximately $35.4 million
for the leasing fee for the kiwifruits orchard in Mei County.
On August 3, 2016, Shaanxi Guoweimei Kiwi
Deep Processing Company, an indirectly wholly-owned subsidiary of the Company, signed a lease agreement for 20,000 mu (approximately
3,300 square acres) of kiwifruits orchard located in Mei County, Shaanxi Province, with the Di’erpo Committee of Jinqu Village,
Mei County, Shaanxi for a term of 30 years, from August 5, 2016 to August 4, 2046. The annual leasing fee is RMB 1,250 (approximately
$189) per mu, and payment of 10 years’ of leasing fees shall be made on each of September 25, 2016, 2026 and 2036. The Company
made a payment of RMB 246 million (approximately $35.4 million) for the first 10 years’ leasing fees on August 15, 2016,
which is recorded as deposits in the Company’s balance sheet.
Annex
A
Future
Fintech grOup inc.
2017
OMNIBUS EQUITY PLAN
ARTICLE
1
GENERAL
PROVISIONS
1.1.
|
PURPOSE
OF THE PLAN.
|
The
Future FinTech Group Inc. 2017 Omnibus Equity Plan has been established by Future FinTech Group Inc. to (a) attract and retain
high caliber employees, directors, consultants and independent contractors; (b) motivate Participants, by means of appropriate
incentives, to achieve long-range goals; (c) provide incentive compensation opportunities that are competitive with those of other
similarly-situated companies; and (d) further align Participants’ interests with those of the Corporation’s stockholders
through compensation that is based on the Corporation’s common stock; and thereby promote the long-term financial interest
of the Corporation, including the growth in value of the Corporation’s equity and enhancement of long-term stockholder return.
Capitalized
terms shall have the meanings assigned to such terms in Section 9 of the Plan.
1.2.
|
TYPES
OF AWARDS AVAILABLE UNDER THE PLAN.
|
The
Plan provides for five types of Awards:
Options
- the
Option Grant Program
under which Eligible Persons may be granted Incentive Stock Options or Non-Statutory Stock
Options to purchase Shares is set forth in Article 2;
Stock
Appreciation Rights
- the
Stock Appreciation Rights Program
under which Eligible Persons may be granted a right to
receive the appreciation in the Fair Market Value of Shares in the form of cash or Stock is set forth in Article 3;
Restricted
Stock
- the
Restricted Stock Program
under which Eligible Persons may be issued Shares, subject to certain conditions
and restrictions, is set forth in Article 4; and
Unrestricted
Stock
: the
Unrestricted Stock Program
under which Eligible Persons may be issued Shares, is set forth in Article 5;
and
Restricted
Stock Units
- the
Restricted Stock Unit Program
under which Eligible Persons may be granted a right to receive Stock
upon the satisfaction of certain conditions and restrictions is set forth in Article 6.
The
provisions of Articles 1, 7 (to the extent applicable), 8 and 9 apply to each type of Award made under the Plan and govern the
interests of all persons under the Plan.
1.3.
|
ADMINISTRATION
OF THE PLAN.
|
(a)
|
General
Administration.
The Plan shall be administered and interpreted by the Committee (as designated pursuant to Paragraph (b)).
Subject to the express provisions of the Plan, the Committee shall have authority to interpret the Plan, to prescribe, amend
and rescind rules and regulations relating to the Plan, to determine the terms and provisions of the Award Agreements by which
Awards shall be evidenced (which shall not be inconsistent with the terms of the Plan), and to make all other determinations
necessary or advisable for the administration of the Plan, all of which determinations shall be final, binding and conclusive.
|
(b)
|
Appointment
of Committee
. The Board shall appoint the Committee from among its nonemployee members to serve at the pleasure of the
Board. The Board from time to time may remove members from, or add members to, the Committee and shall fill all vacancies
thereon. The Committee at all times shall be composed of two or more nonemployee directors who shall meet all of the following
requirements:
|
|
(i)
|
Disinterested
Administration for Rule 16b-3 Exemption
. During the period any director is serving on the Committee, he shall (A) not
be an officer of the Corporation or a parent or subsidiary of the Corporation, or otherwise currently employed by the Corporation
or a parent or subsidiary of the Corporation; (B) not receive compensation, either directly or indirectly, from the Corporation
or a parent or subsidiary of the Corporation for services rendered as a consultant or in any capacity other than as a director,
except for an amount that does not exceed the dollar amount for which disclosure would be required pursuant to Rule 404(a)
of the Securities Exchange Act of 1934; (C) not possess an interest in any other transaction for which disclosure would be
required pursuant to Rule 404(a) of the Securities Exchange Act of 1934; and (D) not be engaged in a business relationship
for which disclosure would be required pursuant to Rule 404(b) of the Securities Exchange Act of 1934. The requirements of
this subsection are intended to comply with Rule 16b-3 under Section 16 of the Securities Exchange Act of 1934, and shall
be interpreted and construed in a manner which assures compliance with said Rule 16b-3. To the extent said Rule 16b-3 is modified
to reduce or increase the restrictions on who may serve on the Committee, the Plan shall be deemed modified in a similar manner;
|
|
(ii)
|
Outside
Director Rule for Compliance with Code Section 162(m)
. No director serving on the Committee may be a current employee
of the Corporation or a former employee of the Corporation (or any corporation affiliated with the Corporation under Code
§1504) receiving compensation for prior services (other than benefits under a tax-qualified retirement plan) during each
taxable year during which the director serves on the Committee. Furthermore, no director serving on the Committee shall be
or have ever been an officer of the Corporation (or any Code §1504 affiliated corporation), or shall receive remuneration
(directly or indirectly) from such a corporation in any capacity other than as a director. The requirements of this subsection
are intended to comply with the "outside director" requirements of Treasury Regulation §1.162-27(e)(3), and
shall be interpreted and construed in a manner which assures compliance with the "outside" director requirement
of Code §162(m)(4)(C)(i). To the extent Code §162(m) or the regulations issued thereunder are modified to reduce
or increase the restrictions on who may serve on the Committee, the Plan shall be deemed modified in a similar manner; and
|
|
(iii)
|
Independent
Director Rule for Stock Exchange
. During the period any director is serving on the Committee, he shall satisfy all requirements
to qualify as an independent director for purposes of the rules of the exchange on which the Stock is traded.
|
(c)
|
Organization
.
The Committee may select one of its members as its chairman and shall hold its meetings at such times and at such places as
it shall deem advisable. A majority of the Committee shall constitute a quorum. Actions may be taken by a majority of the
Committee at a meeting or by unanimous written consent of all Committee members in lieu of a meeting. The Committee shall
keep minutes of its proceedings and shall report the same to the Board at the meeting next succeeding.
|
(d)
|
Powers
of Committee
. The Committee may make one or more Awards under the Plan to a Participant. The Committee shall decide which
Eligible Persons shall receive an Award and when to grant an Award, the type of Award that it shall grant and the number of
Shares covered by the Award. The Committee shall also decide the terms, conditions, performance criteria, restrictions and
other provisions of the Award. The Committee may grant a single Award or an Award in combination with another Award(s) to
a Participant. The Committee may grant an Award as an alternate to or replacement of an existing Award under the Plan or award
under any other compensation plan or arrangement of the Corporation or a Related Corporation, including a plan of any entity
acquired by the Corporation or a Related Corporation, upon the cancellation of the existing award;
provided
, that such
grant of an alternate or replacement Award may be made only if the alternate or replacement Award does not constitute a repricing
of the existing award (as limited by Section 1.5(c) of the Plan). In making Award decisions, the Committee may take into account
the nature of services rendered by the individual, the individual’s present and potential contribution to the Corporation’s
success and such other factors as the Committee, in its sole discretion, deems relevant.
|
|
In
accordance with Article 7 of the Plan, the Committee shall decide whether and to what extent Awards under the Plan shall be
structured to conform with Code §162(m) requirements for the Performance-Based Exception. The Committee may take any
action, establish any procedures and impose any restrictions that it finds necessary or appropriate to conform to Code §162(m).
If every member of the Committee does not meet the definition of “outside director” as defined in Code §162(m),
the Committee shall form a subcommittee of those members who do meet that definition, and that subcommittee shall have all
authority and discretion to act as the Committee to make Awards that conform with Code §162(m).
|
|
The
Committee shall interpret the Plan, establish and rescind any rules and regulations relating to the Plan, decide the terms
and provisions of any Award Agreements made under the Plan, and determine how to administer the Plan. The Committee also shall
decide administrative methods for the exercise of Stock Options. Each Committee decision shall be final, conclusive and binding
on all parties.
|
(e)
|
Delegation
by Committee
. Unless prohibited by applicable law or the applicable rules of a stock exchange, the Committee may allocate
all or some of its responsibilities and powers to any one or more of its members. The Committee also may delegate some or
all of it administrative duties and powers to any Employee, including officers.
|
(f)
|
Information
to be Furnished to Committee
. The records of the Corporation and Related Corporations as to an Eligible Person’s
or Participant’s employment, termination of employment, performance of Services, termination of Services, leave of absence,
reemployment and compensation shall be conclusive on all persons unless determined to be manifestly incorrect. Participants
and other persons entitled to benefits under the Plan must, as a condition to the receipt or settlement of any Award hereunder,
furnish the Committee with such evidence, data or information as the Committee reasonably considers desirable to carry out
the terms of the Plan.
|
(g)
|
Indemnification
.
In addition to such other rights of indemnification that they have as members of the Board or the Committee, the Corporation
shall indemnify the members of the Committee (and any designees of the Committee, as permitted under Paragraph (e)), to the
extent permitted by applicable law, against reasonable expenses (including, without limitation, attorney’s fees) actually
and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal,
to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the
Plan or any Award awarded hereunder, and against all amounts paid by them in settlement thereof (
provided
such settlement
is approved to the extent required by and in the manner provided by the articles of incorporation or the bylaws of the Corporation
relating to indemnification of the members of the Board) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to such matters as to which it is adjudged in such action, suit or proceeding that
such Committee member or members (or their designees) did not act in good faith and in a manner reasonably believed to be
in or not opposed to the best interests of the Corporation.
|
The
persons eligible to participate in this Plan (“Eligible Persons”) are as follows:
(a)
|
Employees.
Employees (including Employees who are members of the Board and Employees who reside in countries other than the United
States),
provided
that awards of Incentive Stock Options shall only be made to Employees.
|
(b)
|
Outside
Directors.
Non-Employee members of the Board or the board of directors of any Related Corporation.
|
(c)
|
Consultants.
Other consultants and independent advisors who provide bona-fide services to the Corporation (or any Related Corporation).
|
(d)
|
New
Hires.
Persons who have been offered employment by the Corporation or a Related Corporation,
provided
that such
a prospective Employee may not be granted an Incentive Stock Option until he or she becomes an Employee and may not receive
any payment or exercise any right relating to an Award until such person begins employment with the Corporation or the Related
Corporation.
|
1.5
|
STOCK
SUBJECT TO THE PLAN.
|
(a)
|
Shares
Available for Issuance
.
|
|
(i)
|
Reserve
.
The Stock issuable under the Plan shall be Shares of authorized but unissued or reacquired Stock, including Shares repurchased
by the Corporation as treasury shares. The maximum number of Shares available for issuance under the Plan shall be 1,300,000
Shares.
|
|
(ii)
|
Share
Use
. Any Shares granted under the Plan that are forfeited because of the failure to meet an Award contingency or condition
shall again be available for issuance pursuant to new Awards granted under the Plan. To the extent any Shares covered by an
Award are not delivered to a Participant or beneficiary because the Award is forfeited or canceled, or the Shares are not
delivered because the Award is settled in cash, such Shares shall not be deemed to have been delivered for purposes of determining
the maximum number of Shares available for delivery under the Plan. However, should the Exercise Price of an Option under
the Plan be paid with Shares or should Shares otherwise issuable under the Plan be withheld by the Corporation in satisfaction
of the withholding taxes incurred in connection with the exercise or vesting of an Award under the Plan, then such number
of Shares shall be treated for purposes of this Paragraph as having been issued to the holder. Notwithstanding the above,
the total number of Shares underlying a SAR granted under the Plan that is settled in Stock shall not be available for subsequent
issuance under the Plan regardless of the number of Shares used to settle the SAR.
|
|
(iii)
|
Individual
Participant Limitations
.
The maximum aggregate cash amount payable under the Plan for any Awards intended to constitute
performance-based compensation under Code §162(m) to any Participant in any single calendar year shall not exceed $1,000,000.
Subject to adjustment as provided in Paragraph (b) below, the maximum aggregate number of Shares (including Options, SARs,
Restricted Stock, and RSUs) that may be granted to any Participant in any calendar year shall be 1,000,000 Shares.
|
(b)
|
Adjustment
to Shares and Awards.
|
|
(i)
|
Recapitalization
.
If the Corporation is involved in a corporate transaction or any other event which affects the Shares (including, without
limitation, any recapitalization, reclassification, reverse or forward stock split, stock dividend, extraordinary cash dividend,
split-up, spin-off, combination or exchange of shares), then the Committee shall adjust Awards to preserve the benefits or
potential benefits of the Awards as follows:
|
|
(1)
|
The
Committee shall take action to adjust the number and kind of Shares that are issuable under the Plan and the maximum limits
for each type of grant;
|
|
(2)
|
The
Committee shall take action to adjust the number and kind of Shares subject to outstanding Awards;
|
|
(3)
|
The
Committee shall take action to adjust the Exercise Price or base price of outstanding Options and Stock Appreciation Rights;
and
|
|
(4)
|
The
Committee shall make any other equitable adjustments.
|
Only
whole Shares shall be issued in making the above adjustments. Further, the number of Shares available under the Plan or the number
of Shares subject to any outstanding Awards shall be the next lower number of Shares, so that fractions are rounded downward.
Any adjustment to or assumption of ISOs under this Section shall be made in accordance with Code §424. If the Corporation
issues any rights to subscribe for additional Shares pro rata to holders of outstanding Shares of the class or classes of stock
then set aside for the Plan, then each Participant shall be entitled to the same rights on the same basis as holders of outstanding
Shares with respect to such portion of the Participant’s Award as is exercised on or prior to the record date for determining
stockholders entitled to receive or exercise such rights.
|
(ii)
|
Reorganization.
If the Corporation is part of any reorganization involving merger, consolidation, acquisition of the Common Stock or acquisition
of the assets of the Corporation, the Committee, in its discretion, may decide that:
|
|
(1)
|
any
or all outstanding Awards shall pertain to and apply, with appropriate adjustment as determined by the Committee, to the securities
of the resulting corporation to which a holder of the number of Shares subject to each such Award would have been entitled;
|
|
(2)
|
any
or all outstanding Options or SARs shall become immediately fully exercisable (to the extent permitted under federal or state
securities laws) and shall remain exercisable for the remaining term of the Options or SARs under the terms of the Plan;
|
|
(3)
|
any
or all Options or SARs shall become immediately fully exercisable (to the extent permitted under federal or state securities
laws) and shall be terminated after giving at least 30 days’ notice to the Participants to whom such Options or SARs
have been granted; and/or
|
|
(4)
|
any
or all unvested Restricted Stock Units AND Restricted Stock on which restrictions have not yet lapsed shall become immediately
fully vested, nonforfeitable and payable.
|
|
(iii)
|
Limits
on Adjustments. Any issuance by the Corporation of stock of any class other than the Stock, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number
or price of Shares subject to any Award, except as specifically provided otherwise in this Plan. The grant of Awards under
the Plan shall not affect in any way the right or authority of the Corporation to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure or to merge, consolidate or dissolve, or to liquidate, sell or transfer all
or any part of its business or assets. All adjustments the Committee makes under this Plan shall be conclusive.
|
(c)
|
No
Repricings.
Except in connection with a corporate transaction involving the Corporation (including, without limitation,
any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination, or exchange of Shares), the terms of outstanding Awards may not be amended to reduce the Exercise Price
of outstanding Options or the base price of SARs or to cancel outstanding Options or SARS in exchange for cash, other awards
or Options or SARs with an Exercise Price or base price that is less than the Exercise Price of the original Options or base
price of the original SARs without stockholder approval.
|
ARTICLE
2
OPTION
GRANT PROGRAM
The
grant of an Option entitles the Participant to purchase the number of Shares designated in the Award Agreement for such Option
at an Exercise Price established by the Committee. Options may be either Incentive Stock Options or Non-Statutory Stock Options,
as determined in the discretion of the Committee. Each Option shall be evidenced by and conditional on an Award Agreement in the
form approved by the Committee, which Award Agreement shall specify whether the Option is an ISO or NSO. No ISO may be granted
to any person more than ten (10) years after the Effective Date of the Plan. Award Agreements need not be identical, but shall
include (through incorporation of provisions hereof, by reference in the Award Agreements, or otherwise) the terms specified below
and be subject to the provisions of the Plan applicable to such Options.
To
the extent that the aggregate Fair Market Value of the Shares (determined as of the respective date or dates of grant), subject
to ISOs granted to any Participant under the Plan and any other option plan of the Corporation or any Related Corporation that
first become exercisable in any calendar year, including any ISOs which become exercisable on an accelerated basis during such
year, exceeds the sum of One Hundred Thousand Dollars ($100,000), such excess Options shall be treated as NSOs.
Each
Option shall vest and become exercisable at such time or times, during such period, and for such number of Shares as shall be
determined by the Committee and set forth in the Award Agreement evidencing the Option;
provided
that no Option may be
exercisable after the expiration of ten (10) years (or, in the case of an ISO granted to a 10% Stockholder, five (5) years) from
the date of grant. Vesting may be conditioned on the continued performance of Services or the achievement of performance conditions
measured on an individual, corporate or other basis, or any combination thereof.
The
Exercise Price shall be fixed by the Committee, provided that the Exercise Price for any Option shall never be less than one hundred
percent (100%) (or, in the case of a 10% Stockholder receiving an ISO, 110%) of the Fair Market Value per share of Stock on the
Option grant date.
The
Participant may exercise the Option by delivering a written notice of exercise to the Corporation, in the form and manner designated
by the Committee. The notice shall be effective only if accompanied by payment of the Exercise Price in full. The Committee shall
have the discretion to provide that the Exercise Price may be payable, to the extent permitted by applicable law, in one or more
of the forms specified below:
(a)
|
Cash/Check.
Cash or check made payable to the Corporation;
|
(b)
|
Shares
Owned.
By delivery to the Corporation of Shares owned by the Participant (by either actual delivery of Shares or by attestation,
with such Shares valued at Fair Market Value as of the day of exercise) with such documentation as the Committee may require
or in such other manner as the Committee may require;
|
(c)
|
Share
Withholding.
By withholding Shares that would otherwise be acquired on exercise having an aggregate Fair Market Value
at the time of exercise equal to the Exercise Price;
|
(d)
|
Cashless
Exercise.
By cashless exercise through delivery of irrevocable instructions to a broker to promptly deliver to the Corporation
the amount of proceeds from a sale of Shares having a Fair Market Value equal to the Exercise Price; and/or
|
(e)
|
Other
Forms.
In any other form of legal consideration that may be acceptable to the Committee, so long as it does not result in
the deferral of recognition of income or a “deferral of compensation” within the meaning of Code §409A.
|
The
Corporation shall deliver Shares as soon as practicable after the Corporation’s receipt of the Participant’s properly
completed notice of exercise and payment in full of the Exercise Price as described in Section 2.4. Such Shares shall be subject
to such conditions as the Committee may establish, except that such conditions may not cause the deferral of recognition of income.
2.6
|
CANCELLATION
AND REGRANT OF OPTIONS.
|
The
Committee shall have the authority to effect, at any time and from time to time, with the consent of the affected Participant,
the cancellation of any or all outstanding Options under the Option Grant Program and to grant in substitution new Options covering
the same or different number of Shares which might have an Exercise Price per Share no less than the Fair Market Value per Share
on the new grant date. The cancellation and grant need not be simultaneous.
ARTICLE
3
STOCK
APPRECIATION RIGHTS PROGRAM
A
Stock Appreciation Right (“SAR”) entitles the Participant to receive, with respect to each Share subject to the SAR,
the appreciation in the Fair Market Value over a base price established by the Committee (as determined below), payable in cash
or Stock, or a combination of both, as determined by the Committee at the time of payment. Each SAR shall be evidenced by an Award
Agreement in the form approved by the Committee. Award Agreements evidencing SARs need not be identical, but shall include (through
incorporation of provisions hereof, by reference in the Award Agreements, or otherwise) the terms specified below and be subject
to the provisions of the Plan applicable to such SARs.
The
SAR shall cover a specified number of Shares and shall vest and become exercisable upon such terms and conditions as the Committee
shall establish;
provided
that no SAR may be exercisable more than ten (10) years after the date of grant unless otherwise
determined by the Committee and set forth in the Award Agreement
.
Vesting may be conditioned on the continued performance
of Services or the achievement of performance conditions measured on an individual, corporate or other basis, or any combination
thereof.
The
base price in effect for Shares covered by a SAR shall be determined by the Committee at the time of grant. In no event, however,
may the base price per Share be less than the Fair Market Value per Share on the grant date. The Participant will receive upon
exercise of the SAR an amount equal to the excess of the Fair Market Value of a Share on the surrender date over the base price
of a Share (the “Spread”) multiplied by the number of Shares covered by the SAR Award. Notwithstanding the foregoing,
the Committee, in its sole discretion, may provide at the time it grants a SAR that the Spread covered by such SAR may not exceed
a specified amount.
The
Participant may exercise the SAR by delivering a written notice of exercise to the Corporation, in the form and manner designated
by the Committee.
To
the extent the Committee determines that the Participant will receive cash upon exercise of a SAR, the Corporation shall deliver
the cash amount which becomes due upon exercise of a SAR as soon as administratively practicable after the Corporation’s
receipt of the Participant’s properly completed notice of exercise. To the extent the Committee determines that Shares will
be delivered to the Participant upon exercise of a SAR, the Shares shall be subject to such conditions, restrictions and contingencies
as the Committee may establish, except that such conditions may not cause the deferral of recognition of income.
ARTICLE
4
RESTRICTED
STOCK PROGRAM
A
Restricted Stock Award is a grant of Shares subject to conditions and restrictions as determined by the Committee. Each Restricted
Stock Award shall be evidenced by an Award Agreement in the form approved by the Committee. Award Agreements evidencing Restricted
Stock Awards need not be identical, but shall include (through incorporation of provisions hereof, by reference in the Award Agreements,
or otherwise) the terms specified below and be subject to the provisions of the Plan applicable to such Restricted Stock Awards.
4.2
|
LAPSE
OF RESTRICTIONS.
|
Each
Restricted Stock Award shall be, for the applicable Period of Restriction determined by the Committee, subject to such conditions,
restrictions and contingencies as the Committee shall determine. Lapse of restrictions may be conditioned on the continued performance
of Services or the achievement of performance conditions measured on an individual, corporate or other basis, or any combination
thereof.
4.4
|
SHARE
ESCROW/LEGENDS.
|
(a)
|
Legend.
Unless the certificate representing shares of the Restricted Stock are deposited with a custodian (as described in subparagraph
(b) below), each certificate shall bear the following legend (in addition to any other legend required by law):
|
"The
transferability of this certificate and the shares represented hereby are subject to the restrictions, terms and conditions (including
forfeiture and restrictions against transfer) contained in the Future FinTech Group Inc. 2017 Omnibus Equity Plan and a Restricted
Stock Agreement dated __________, ____, between ________________ and Future FinTech Group Inc. The Plan and the Restricted Stock
Agreement are on file in the office of the Corporate Secretary of Future FinTech Group Inc."
Such
legend shall be removed or canceled from any certificate evidencing shares of Restricted Stock as of the date that such Shares
become nonforfeitable.
(b)
|
Deposit
with Custodian.
As an alternative to delivering a stock certificate to the Participant, the Committee may deposit or transfer
such Shares electronically to a custodian designated by the Committee. The Committee shall cause the custodian to issue a
receipt for the Shares to the Participant for any Restricted Stock so deposited. The custodian shall hold the Shares and deliver
the same to the Participant in whose name the Restricted Stock evidenced thereby are registered only after such Shares become
nonforfeitable.
|
ARTICLE
5
UNRESTRICTED
STOCK PROGRAM
The
Committee may, in its sole discretion, award Unrestricted Stock to any Participant as a stock bonus or otherwise pursuant to which
such Participant may receive shares of Stock free of restrictions or limitations that would otherwise be applied under Section
4 of this Plan.
ARTICLE
6
RESTRICTED
STOCK UNIT (RSU) PROGRAM
A
Restricted Stock Unit Award entitles the Participant to receive Shares upon the vesting of the Award. Each Restricted Stock Unit
Award shall be evidenced by an Award Agreement in the form approved by the Committee. Subject to the terms of the Plan, Restricted
Stock Units may be granted to Participants in such amounts and upon such terms and at any time and from time to time, as shall
be determined by the Committee. Award Agreements evidencing Restricted Stock Unit Awards need not be identical, but shall include
(through incorporation of provisions hereof, by reference in the Award Agreements, or otherwise) the terms specified below and
be subject to the provisions of the Plan applicable to Restricted Stock Unit Awards.
Each
Restricted Stock Unit shall be subject to such vesting conditions, restrictions and contingencies as the Committee shall determine
and set forth in the Award Agreement evidencing the RSU. Vesting may be conditioned on the continued performance of Services or
the achievement of performance conditions measured on an individual, corporate or other basis, or any combination thereof.
As
soon as practicable following the date each Restricted Stock Unit vests, the Corporation shall deliver to the Participant the
Share underlying such Restricted Stock Unit, subject to such conditions, restrictions and contingencies as the Committee may establish.
ARTICLE
7
PERFORMANCE-BASED
COMPENSATION
7.1
|
AWARDS
OF PERFORMANCE-BASED COMPENSATION
.
|
At
its discretion, the Committee may make Awards to Participants intended to comply with the exemption for Performance-Based Exception
set forth in Code §162(m). In such event, the number of Shares becoming exercisable or transferable or amounts payable with
respect to grants of Options, Stock Appreciation Rights, and/or awards of Restricted Stock, Unrestricted Stock or Restricted Stock
Units may be determined based on the attainment of written performance goals based on the performance measures set forth in Section
7.2 and which have been approved by the Committee for a specified performance period. The performance goals shall state, in terms
of an objective formula or standard, the method of computing the amount of compensation payable to the Participant if the goal
is attained. The performance goals must be established by the Committee in writing no more than ninety (90) days after the commencement
of the performance period or, if less, the number of days that is equal to 25% of the relevant performance period. The outcome
of the performance goal must be substantially uncertain at the time the Committee establishes the performance goal. Performance
goals will be based on the attainment of one or more objectives based on performance measures. To the degree consistent with Code
§162(m), the performance goals may be calculated without regard to extraordinary items.
7.2
|
PERFORMANCE
MEASURES.
|
Performance
measures may include the following: (i) earnings before all or any taxes (“EBT”); (ii) earnings before all or any
of interest expense, taxes, depreciation and amortization (“EBITDA”); (iii) earnings before all or any of interest
expense, taxes, depreciation, amortization and rent (“EBITDAR”); (iv) earnings before all or any of interest expense
and taxes (“EBIT”); (v) net earnings; (vi) net income; (vii) operating income or margin; (viii) earnings per share;
(ix) growth; (x) return on stockholders’ equity; (xi) capital expenditures; (xii) expenses and expense ratio management;
(xiii) return on investment; (xiv) improvements in capital structure; (xv) profitability of an identifiable business unit or product;
(xvi) profit margins; (xvii) stock price; (xviii) market share; (xvix) revenues; (xx) costs; (xxi) cash flow; (xxii) working capital;
(xxiii) return on assets; (xxiv) economic value added; (xxv) industry indices; (xxvi) peer group performance; (xxvii) regulatory
ratings; (xxviii) asset quality; (xxix) gross or net profit; (xxx) net sales; (xxxi) total stockholder return; (xxxii) sales (net
or gross) measured by product line, territory, customers or other category; (xxxiii) earnings from continuing operations; (xxxiv)
net worth; (xxxv) levels of expense, receivables, cost or liability by category, operating unit or any other delineation, or any
other measures approved by the Committee. Performance Measures may relate to the Corporation and/or one or more of its affiliates,
one or more of its divisions or units or any combination of the foregoing, on a consolidated or nonconsolidated basis, and may
be applied on an absolute basis or be relative to one or more peer group companies or indices, or any combination thereof, all
as the Committee determines. In addition, to the extent consistent with the requirements of Code §162(m), the performance
measures may be calculated without regard to extraordinary items.
7.3
|
STOCKHOLDER
APPROVAL.
|
For
Awards to constitute performance-based compensation under Code §162(m), the material terms of performance measures on which
the performance goals are to be based must be disclosed to and subsequently approved by the Corporation’s stockholders prior
to payment of the compensation. Stockholder approval of the Plan is necessary for the Awards to meet the Code §162(m) exemption.
7.4
|
CODE
SECTION 162(M) COMMITTEE AND CERTIFICATION.
|
Awards
intended to qualify for exemption as performance-based compensation shall be granted by a committee of “outside directors”
as defined in Code §162(m). Pursuant to the provisions of Section 1.3(d)) hereof, the Committee may establish a Code §162(m)
subcommittee, if necessary, to make such grants. Any payment of compensation with respect to an Award that is intended to be performance-based
compensation will be, to the extent that such requirement applies under Code §162(m), subject to the written certification
of the Committee that the performance measures were satisfied prior to the payment of the performance-based compensation. This
written certification may include the approved minutes of the Committee meeting in which the certification is made.
ARTICLE
8
RULES
APPLICABLE TO ALL AWARDS
8.1
|
TERMINATION
OF SERVICE
.
|
Unless
otherwise determined by the Committee and included in the Participant’s Award Agreement, in the event that a Participant’s
Service with the Corporation and all Related Corporations is terminated for any reason, all Awards held by the Participant which
are unexercised or have not yet vested as of such date shall expire, terminate, and become unexercisable as of such termination
date,
provided
, however, that if the Participant’s Service terminates for reasons other than Cause, all outstanding
vested Options and SARs held by the Participant as of his or her termination date shall continue to be exercisable until the earlier
of the expiration of their term or the date that is three months after such termination date.
8.2
|
ACCELERATION
OF VESTING.
|
The
Committee shall have complete discretion, subject to the terms of the Plan, exercisable either at the time an Award is granted
or at any time while the Award remains outstanding, to accelerate the vesting of or lapse of restrictions on any Award.
8.3
|
EXTENSION
OF EXERCISE PERIOD.
|
The
Committee shall have complete discretion, subject to the terms of the Plan, exercisable either at the time an Award is granted
or at any time while the Award remains outstanding, to extend the period of time for which the Option or SAR is to remain exercisable
following the Participant's termination of Service from the limited exercise period otherwise in effect for that Option or SAR
to such greater period of time as the Committee shall deem appropriate, but in no event beyond the expiration of the Option or
SAR term, and/or to permit the Option or SAR to be exercised, during the applicable post-termination exercise period, not only
with respect to the number of vested Shares for which such Option or SAR is exercisable at the time of the Participant's termination
of Service but also with respect to one or more additional installments in which the Participant would have vested had the Participant
continued in Service. Such an extension may result in recharacterization of an ISO as a Non-Statutory Stock Option.
All
rights with respect to an Award granted to a Participant under the Plan shall be available during his or her lifetime only to
such Participant, except as designated by the Participant by will or by the laws of descent and distribution;
provided
,
however, that the Committee shall have the discretion to provide that an Award other than an ISO may, in connection with the Participant's
estate plan, be assigned in whole or in part during the Participant's lifetime to a trust established exclusively for one or more
members of the Participant's immediate family. The terms applicable to the assigned portion shall be the same as those in effect
for the Award immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Committee
may deem appropriate. Any assignment shall not affect the Participant’s obligations to satisfy applicable tax withholding
as described herein. The Participant may also designate in writing one or more persons as the beneficiary or beneficiaries of
his or her outstanding Awards, and those Awards shall, except to the extent that any lifetime transfer as provided herein, automatically
be transferred to such beneficiary or beneficiaries upon the Participant's death while holding those Awards. Each such designation
shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Corporation, and will be effective
only when filed by the Participant in writing with the Corporation during the Participant’s lifetime. In the absence of
any such designation, benefits under an Award remaining unpaid at the Participant’s death shall be paid to the Participant’s
estate. A beneficiary or beneficiaries shall take the transferred Awards subject to all the terms and conditions of the applicable
Award Agreement, including (without limitation) the limited time period during which any Award may be exercised following the
Participant's death.
Except
as otherwise provided by the Committee in the Award Agreement, the Participant (or his or her beneficiaries) holding an Award
shall have no stockholder rights with respect to the Shares subject to the Award until he or she has received and become a holder
of record of the Shares underlying the Award or, in the case of Restricted Stock, all restrictions have lapsed.
(a)
|
Conditions
on Delivery of Stock
. The Corporation's obligation to deliver Shares under the Plan shall, to the extent required by Federal,
state, local or foreign law, be subject to the satisfaction of all applicable Federal, state, local and foreign income and
employment tax withholding requirements (or, in the case of Restricted Stock, the making of arrangements satisfactory to the
Corporation regarding such payment). Whenever under the Plan payments are to be made in cash, such payments may be net of
an amount sufficient to satisfy such withholding requirements.
|
(b)
|
Tender
of Shares
. The Committee may, in its discretion, provide any or all Participants granted Non-Statutory Stock Options,
SARs, Restricted Stock, Unrestricted Stock, or RSUs settled in Stock under the Plan with the right to use Shares in satisfaction
of all or part of the applicable withholding taxes to which such Participants may become subject in connection with the exercise
of their Options or SARs, the vesting of their Restricted Stock, or the settlement of their Restricted Stock Units or other
Awards in Stock. Such right may be provided to any such Participant in either or both of the following formats:
|
|
(i)
|
The
election to have the Corporation withhold, from the Shares otherwise issuable upon the exercise of the NSO or SAR, the vesting
of the Restricted Stock, or the settlement of Restricted Stock Units or other Awards in Stock, a portion of those Shares with
an aggregate Fair Market Value equal to the percentage of the applicable withholding taxes (not to exceed the minimum required
by law) designated by the Participant.
|
|
(ii)
|
The
election to deliver to the Corporation, at the time the NSO or SAR is exercised, the Restricted Stock vests, or the Restricted
Stock Units or other Awards are settled in Stock, one or more Shares previously acquired by such Participant (other than in
connection with the Option or SAR exercise, Restricted Stock vesting or Restricted Stock Units or other Awards in Stock settlement
triggering the withholding taxes) with an aggregate Fair Market Value equal to the percentage of the withholding taxes (not
to exceed the minimum required by law) designated by the Participant.
|
ARTICLE
9
DEFINITIONS
The
following definitions shall be in effect under the Plan:
9.1
Award Agreement
shall mean a written document setting forth the terms and provisions applicable to an Award granted to a Participant under the Plan, and is a condition to the grant of an Award hereunder.
9.2
Awards
shall mean any award or benefit granted to any Participant under the Plan, including, without limitation, the grant of Options, SARs, Restricted Stock, Unrestricted Stock and Restricted Stock Units.
9.3
Board
shall mean the Corporation's Board of Directors.
9.4
Cause
shall mean the commission of any act of fraud, embezzlement or dishonesty by the Participant, any act or omission by such person constituting a breach or default under any written or oral agreement between such person and the Corporation (or any Related Corporation), any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Related Corporation), or any other intentional act by such person adversely affecting the business or affairs of the Corporation (or any Related Corporation) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Related Corporation) may consider as grounds for the dismissal or discharge of any Participant or other person in the Service of the Corporation (or any Related Corporation).
9.5
Change of Control
shall mean the first of the following events to occur:
(a)
|
The
acquisition by any one person or more than one person acting as a group (within the meaning of Treasury Regulation §1.409A-3(i)(5)(v)(B)),
other than the Corporation, any Related Corporation, or any employee benefit plan (or related trust) sponsored or maintained
by the Corporation or any Related Corporation, (a “Person”) of any of stock of the Corporation that, together
with stock held by such Person, constitutes more than 50% of the total fair market value or total voting power of the stock
of the Corporation. For purposes of this Paragraph (a), the following acquisitions shall not constitute a Change of Control:
(i) the acquisition of additional stock by a Person who is considered to own more than 50% of the total fair market value
or total voting power of the stock of the Corporation, (ii) any acquisition in which the Corporation does not remain outstanding
thereafter and (iii) any acquisition pursuant to a transaction which complies with Paragraph (c) below. An increase in the
percentage of stock owned by any one Person as a result of a transaction in which the Corporation acquires its stock in exchange
for property will be treated as an acquisition of stock for purposes of this Paragraph;
|
(b)
|
The
replacement of individuals who, as of the date hereof, constitute a majority of the Board, during any twelve (12) month period
by directors whose appointment or election is not endorsed by a majority of the Board before the date of the appointment or
election, provided that, if the Corporation is not the relevant corporation for which no other corporation is a majority stockholder
for purposes of Treasury Regulation §1.409A-3(i)(5)(iv)(A)(2), this Paragraph (b) shall be applied instead with respect
to the members of the board of the directors of such relevant corporation for which no other corporation is a majority stockholder;
|
(c)
|
The
acquisition by any one person or more than one person acting as a group (within the meaning of Treasury Regulation §1.409A-3(i)(5)(vi)(D)),
other than the Corporation, a Related Corporation or any employee benefit plan (or related trust) sponsored or maintained
by the Corporation or any Related Corporation, during the 12-month period ending on the date of the most recent acquisition
by such by such person or persons, of ownership of stock of the Corporation possessing 30% or more of the total voting power
of the stock of the Corporation. For purposes of this Paragraph (c), the following acquisitions shall not constitute a Change
of Control: (i) the acquisition of additional control by a person or more than one person acting as a group who are considered
to effectively control the Corporation within the meaning of Treasury Regulation §1.409A-3(i)(5)(vi) and (ii) any acquisition
pursuant to a transaction which complies with Paragraph (a); or
|
(d)
|
The
acquisition by any individual person or more than one person acting as a group (within the meaning of Treasury Regulation
§1.409A-3(i)(5)(vii)(C)), other than a transfer to a related person within the meaning of Treasury Regulation §1.409A-3(i)(5)(vii)(B),
during the 12-month period ending on the date of the most recent acquisition by such person or persons, of assets from the
Corporation that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all
of the assets of the Corporation immediately prior to such acquisition(s). For purposes of this Paragraph (d), “gross
fair market value” means the value of the assets of the Corporation, or the value of the assets being disposed of, determined
without regard to any liabilities associated with such assets.
|
The
above definition of “Change of Control” shall be interpreted by the Board, in good faith, to apply in a similar manner
to transactions involving partnerships and partnership interests, and to comply with Code §409A and official guidance issued
thereunder from time to time.
9.6
Code
shall mean the Internal Revenue Code of 1986, as amended.
9.7
Committee
shall mean the particular entity, whether the Committee or the Board, which is authorized to administer the Plan,
to the extent such entity is carrying out its administrative functions under the Plan.
9.8
Corporation
shall mean Future FinTech Group Inc., a Florida corporation, and any corporate successor to all or substantially
all of the assets or voting stock of Future FinTech Group Inc. which shall by appropriate action adopt the Plan.
9.9
Disability
shall mean, unless otherwise provided in the Award Agreement or in an employment, change of control or similar
agreement in effect between the Participant and the Corporation or Related Corporation, the Participant is unable to engage in
any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to
result in death or can be expected to last for a continuous period of not less than 12 months; or, by reason of any medically
determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous
period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident
and health plan covering employees of the Corporation or a Related Corporation.
9.10
Effective Date
shall mean the date the Plan is adopted by the Board.
9.11
Eligible Persons
shall mean persons eligible to participate in the Plan, as described in Section 1.4.
9.12
Employee
shall mean an employee of the Corporation (or any Related Corporation).
9.13
Exercise Price
shall mean the per Share exercise price of an Option as determined under Article 2 of the Plan.
9.14
Fair Market Value
per Share on the relevant date shall mean, if the Shares are duly listed on a national securities exchange
or on The Nasdaq Stock Market, the closing price of the Stock on the relevant date, or, if there are no sales on such date, on
the next preceding day on which there were sales, or if the Shares are not so listed, the fair market value of the Shares for
the relevant date, as determined by the Committee in good faith and in compliance with Code §409A.
9.15
Incentive Stock Option or ISO
shall mean an Option that is intended to qualify as, and that satisfies the requires applicable
to, an “incentive stock option” described in Code § 422(b).
9.16
Non-Statutory Stock Option or NSO
shall mean an Option that is not intended to be, or does not qualify as, an Incentive Stock
Option.
9.17
Option
shall mean a right to acquire Stock of the Corporation pursuant to a Non-Statutory Stock Option or Incentive Stock
Option granted under Article 2 of the Plan.
9.18
Participant
shall mean any Eligible Person who receives an Award under the Plan, and includes those former Eligible Persons
who have certain post-termination rights under the terms of an Award granted under the Plan.
9.19
Performance-Based Exception
means the exception for performance-based compensation from the tax deductibility limitations
of Code §162(m).
9.20
Period of Restriction
shall mean the period(s) during which the transfer of an Award or the Shares subject to an Award is
limited in some way (based on the passage of time, the achievement of performance goals, or upon the occurrence of other events
as determined by the Committee, at its discretion) or the Shares are subject to a substantial risk of forfeiture, pursuant to
the terms of this Plan or the applicable Award Agreement.
9.21
Plan
shall mean the Future FinTech Group Inc. 2017 Omnibus Equity Plan, as set forth in this document.
9.22
Related Corporation
shall mean any affiliate of the Corporation;
provided
, however, that with respect to any ISO and
for purposes of the definition of 10% Stockholder, “Related Corporation” shall mean any Corporation during any period
in which it is a “parent corporation” (as that term is defined in Code §424(e)) with respect to the Corporation
or a “subsidiary corporation” (as that term is defined in Code §424(f)) with respect to the Corporation.
9.23
Restricted Stock
shall mean a grant of Shares granted under Article 4 of the Plan that is subject to such conditions, restrictions
and contingencies as the Committee determines and sets forth in the applicable Award Agreement.
9.24
Restricted Stock Unit or RSUs
shall mean a right to receive Shares upon satisfaction of certain vesting requirements pursuant
to Article 6 of the Plan.
9.25
Service
shall mean the performance of services for the Corporation (or any Related Corporation) by a person in the capacity
of an Employee, a non-Employee member of the board of directors, or a consultant or independent advisor, except to the extent
otherwise specifically provided in the Award Agreement.
9.26
Shares or Stock
shall mean Shares of common stock of the Corporation, par value $0.001 per share.
9.27
Stock Appreciation Rights or SARs
shall mean a right to receive the appreciation in the Fair Market Value of Shares, as granted
under Article 3 of the Plan.
9.28
10% Stockholder
shall mean the owner of stock (as determined under Code §424(d)) possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the Corporation (or any Related Corporation).
ARTICLE
10
MISCELLANEOUS
10.1
|
EFFECTIVE
DATE AND TERM OF PLAN.
|
(a)
|
Effective
Date
. The Plan shall become effective immediately upon its adoption by the Board, subject to approval by the stockholders
of the Corporation at the first annual meeting of stockholders held following the adoption by the Board, or any special meeting
of the stockholders duly called. Options may be granted under the Option Grant Program at any time on or after the Effective
Date. However, until the stockholders approve the Plan, no Options or SARs granted under the Plan may be exercised, no Restricted
or Unrestricted Stock shall be issued under the Plan and no Award may be settled in Stock under the Plan. If stockholder approval
is not obtained within twelve (12) months after the Effective Date, then all Awards shall be null and void.
|
(b)
|
Termination
Date
. The Plan shall terminate upon the earliest to occur of (i) the tenth (10th) anniversary of the Plan’s effective
date, or (ii) the date on which all Shares available for issuance under the Plan shall have been issued as fully-vested Shares.
Should the Plan terminate on the tenth (10th) anniversary of the Effective Date, then all Awards outstanding at that time
shall continue to have force and effect in accordance with the provisions of the applicable Award Agreements.
|
(a)
|
Amendment
and Termination By the Board.
Subject to Paragraph (b) below, the Board shall have the power at any time to add to, amend,
modify or repeal any of the provisions of the Plan, to suspend the operation of the entire Plan or any of its provisions for
any period or to terminate the Plan in whole or in part. In the event of any such action, the Committee shall prepare written
procedures which, when approved by the Board, shall govern the administration of the Plan resulting from such addition, amendment,
modification, repeal, suspension or termination. The Committee may amend any Award Agreement that it previously has authorized
under the Plan and the applicable Participant;
provided
, however, that no Award Agreement may be amended to reprice
or constructively reprice any Award.
|
(b)
|
Restrictions
on Amendment and Termination
. Notwithstanding the provisions of Paragraph (a) above, the following restrictions shall
apply to the Board’s authority under Paragraph (a) above:
|
|
(i)
|
Prohibition
Against Adverse Effects on Outstanding Awards
. No addition, amendment, modification, repeal, suspension or termination
shall adversely affect, in any way, the rights of the Participants who have outstanding Awards without the consent of such
Participants;
|
|
(ii)
|
Stockholder
Approval Required for Certain Modifications
. No modification or amendment of the Plan may be made without the prior approval
of the stockholders of the Company if (i) such modification or amendment would cause the applicable portions of the Plan to
fail to qualify as an ISO plan pursuant to Code §422, (ii) such modification or amendment would materially increase the
benefits accruing to participants under the Plan, (iii) such modification or amendment would materially increase the number
of securities which may be issued under the Plan, or (iv) such modification or amendment would materially modify the requirements
as to eligibility for participation in the Plan, or (v) such modification or amendment would modify the material terms of
the Plan within the meaning of Treasury Regulation §1.162-27(e)(4). Clauses (ii), (iii) and (iv) of the preceding sentence
shall be interpreted in accordance with the provisions of paragraph (b)(2) of Rule 16b-3 of the 1934 Act. Stockholder approval
shall be made by a majority of the votes cast at a duly held meeting at which a quorum representing a majority of all outstanding
voting stock is, either in person or by proxy, present and voting, or by the written consent in lieu of a meeting of the holders
of a majority of the outstanding voting stock or such greater number of shares of voting stock as may be required by the Company’s
articles or certificate of incorporation and bylaws and by applicable law; provided, however, that for modifications described
in clauses (ii), (iii) and (iv) above, such stockholder approval, whether by vote or by written consent in lieu of a meeting,
must be solicited substantially in accordance with the rules and regulations in effect under Section 14(a) of the 1934 Act
as required by paragraph (b)(2) of Rule 16b-3 of the 1934 Act.
|
10.3
|
CONTINUING
SECURITIES LAW COMPLIANCE; LEGENDS.
|
The
granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, and to such approvals by
any governmental agencies or national securities exchanges as may be required. If at any time on or after the Effective Date,
the Committee, in its discretion, shall determine that the requirements of any applicable federal or state securities laws should
fail to be met, no Shares issuable under Awards and no Options or SARs shall be exercisable until the Committee has determined
that these requirements have again been met. The Committee may suspend the right to exercise an Options or SAR at any time when
it determines that allowing the exercise and issuance of Shares would violate any federal or state securities or other laws, and
may provide that any time periods to exercise the Option or SAR are extended during a period of suspension. With respect to “Insiders,”
transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 under the Securities Exchange
Act of 1934. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee. Each Award Agreement and each certificate representing
securities granted pursuant to the Plan (including securities issuable pursuant to the terms of derivative securities) may bear
such restrictive legend(s) as the Corporation deems necessary or advisable under applicable law, including Federal and state securities
laws. If any Award is made to a Participant who is subject to the Corporation’s policy regarding trading of its Stock by
its officers and directors and Shares are scheduled to be delivered under the Plan to the Participant on a day (the “original
distribution date”) that does not occur during a “window period” applicable to the Participant, as determined
by the Corporation in accordance with such policy, then the Corporation can choose not to deliver such Shares on such original
distribution date and instead to deliver such Shares on the first day of the next “window period” applicable to the
Participant pursuant to such policy, but in no event later than the March 15 following the close of the calendar year in which
such Shares were no longer subject to a substantial risk of forfeiture (within the meaning of Code §409A).
10.4
|
LIQUIDATION
OF THE CORPORATION.
|
In
the event of the complete liquidation or dissolution of the Corporation, any outstanding Awards granted under this Plan shall
be deemed automatically canceled without any action on the part of the Corporation and without regard to or limitation by any
other provision of the Plan.
10.5
|
NO
EMPLOYMENT/SERVICE RIGHTS.
|
Nothing
in the Plan shall confer upon the Participant any right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any Related Corporation employing or retaining such person)
or of the Participant, which rights are hereby expressly reserved by each, to terminate the Participant’s Service at any
time for any reason, with or without Cause.
10.6
|
RULES
OF CONSTRUCTION.
|
For
all purposes of this Plan, except as otherwise expressly provided:
(a)
|
all
accounting terms not otherwise defined herein have the meanings ascribed thereto under U.S. generally accepted accounting
principles;
|
|
|
(b)
|
all
references in this Plan to designated “Articles,” “Sections” and other subdivisions are to the designated
Articles, Sections and other subdivisions of the body of this Plan except to the extent identified as references to sections
or subsections of the Code;
|
|
|
(c)
|
the
words “herein,” “hereof” and “hereunder” and other words of similar import refer to this
Plan as a whole and not to any particular Article, Section or other subdivision;
|
|
|
(d)
|
whenever
the words “include,” “includes” or “including” are used in this Plan, they shall be deemed
to be followed by the words “without limitation”;
|
|
|
(e)
|
whenever
this Plan refers to a number of days, such number shall refer to calendar days unless business days are expressly specified;
|
|
|
(f)
|
a
reference to any legislation or to any provision of any legislation shall include such legislation, as amended through the
date hereof, and all subsequent amendments or modification thereto or re-enactment thereof, any legislative provision substituted
therefor and all regulations and statutory instruments issued thereunder or pursuant thereto; and
|
|
|
(g)
|
except
where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
|
10.7
|
UNFUNDED
STATUS OF PLAN.
|
The
Plan is intended to constitute an “unfunded” plan for incentive compensation. With respect to any payments not yet
made to a Participant by the Corporation, nothing set forth herein shall give any such Participant any rights that are greater
than those of a general creditor of the Corporation. In its sole discretion, the Committee may authorize the creation of trusts
or other arrangements to meet the obligations created under the Plan to deliver Stock or a payment in lieu of or with respect
to Awards hereunder,
provided
, however, that the existence of such trusts or other arrangements is consistent with the
unfunded status of the Plan.
10.8
|
AWARDS
TO PARTICIPANTS OUTSIDE THE UNITED STATES.
|
The
Committee may modify the terms of any Award under the Plan made to or held by a Participant who is then resident or primarily
employed outside the United States in any manner deemed by the Committee to be necessary or appropriate in order that the Award
shall conform to laws, regulations, and customs of the country in which the Participant is then resident or primarily employed,
or so that the value and other benefits of the Award to the Participant, as affected by foreign tax laws and other restrictions
applicable as a result of the Participant’s residence or employment abroad, shall be comparable to the value of such an
Award to a Participant who is resident or primarily employed in the United States. Such authorization shall extend to and include
establishing one or more separate sub-plans which include provisions not inconsistent with the Plan that comply with statutory
or regulatory requirements imposed by the foreign country or countries in which the Participant resides.
In
the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been
included.
To
the extent not preempted by United States Federal law, the Plan, and all agreements hereunder, shall be construed in accordance
with and governed by the laws of the State of Florida.
Annex
B
ARTICLES
OF AMENDMENT
TO
THE
SECOND
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
FUTURE
FINTECH GROUP INC.
Pursuant
to Section 607.1006 of the Business Corporation Act of the State of Florida, the undersigned corporation hereby submits these
Articles of Amendment (the “
Amendment
”) to the corporation’s Second Amended and Restated Articles of
Incorporation:
|
1.
|
The
name of the corporation is Future FinTech Group Inc. (the “
Corporation
”).
|
|
2.
|
Article
1.01 of the Second Amended and Restated Articles of Incorporation of the Corporation
is hereby amended and restated as follows:
|
1.01
Authorized
Stock
. The total number of shares of common stock, par value $0.001 per share (the “Common Stock”), which the
Company shall have authority to issue is 60,000,000. The total number of shares of preferred stock, par value $0.001 per share
(the “Preferred Stock”), which the Company shall have authority to issue is 10,000,000.
|
3.
|
The
Amendment does not provide for an exchange, reclassification or cancellation of issued
shares.
|
|
4.
|
The
Amendment was unanimously approved by the Board of Directors of the Corporation on __________________,
2017 and by shareholders holding a majority of the issued and outstanding shares of the
Corporation’s capital stock on ___________________, 2017 in accordance with the
Florida Business Corporation Act.
|
|
5.
|
The
Amendment will be effective upon filing.
|
DATED
as of __________________, 2017.
|
FUTURE
FINTECH GROUP INC.
|
|
|
|
|
By
|
|
|
|
Hongke
Xue, Chief Executive Officer
|
Exhibit
A
Company
Number: 1686539
FullMartHoldings
Limited
CERTIFIED
COPY OF EXTRACT OF RESOLUTION
ADOPTED
BY THE DIRECTOR PURSUANT TO
THE
MEMORANDUM AND ARTICLES OF ASSOCIATION OF
THE
COMPANY ON THE 2ND DAY OF AUGUST 2017
Amendment
to Memorandum of Association
RESOLVED
|
that
Clause 6.2 of the Memorandum of Association of the Company be deleted in their entirety and the following he substituted in
lieu thereof:
|
6.2
The Company is authorised to issue a maximum or 25,000,000 shares of a single class each with a par value of US$0.002.
Dated
this 3rd day of August, 2017
Vistra
(BVI)
Limited
Registered Agent
(Resolution
dated 2nd August, 2017 was filed on 3rd August, 2017)
BVI
COMPANY NUMBER: 1686539
TERRITORY
OF THE BRITISH VIRGIN ISLANDS
THE
BVI BUSINESS COMPANIES ACT, 2004
MEMORANDUM
AND ARTICLES
OF
ASSOCIATION
OF
FullMart
Holdings Limited
A
COMPANY LIMITED BY SHARES
Incorporated
on the 28th day of December, 2011
INCORPORATED
IN THE BRITISH VIRGIN ISLANDS
TERRITORY
OF THE BRITISH VIRGIN ISLANDS
THE BVI BUSINESS COMPANIES ACT, 2004
MEMORANDUM
OF ASSOCIATION
OF
FullMart
Holdings Limited
A
COMPANY LIMITED BY SHARES
1.
|
DEFINITIONS AND INTERPRETATION
|
1.1.
|
In
this Memorandum of Association and the attached Articles of Association. if not inconsistent with the subject or context:
|
“Act”
means the BVI
Business Companies Act, 2004 (No. 16 of 2004) and includes the regulations made under the Act;
“Articles”
means the attached Articles of Association of the Company;
“
Chairman
of the Board’’
has the meanings specified in Regulation, 12;
“Distribution”
in relation to a distribution by the Company to a Shareholder means the direct or indirect transfer of an asset, other than
Shares, to or for the benefit of the Shareholder. or the incurring of a debt to or for the benefit of a Shareholder, in relation
to Shares held by a Shareholder, and whether by means of the purchase of an asset, the purchase, redemption or other acquisition
of Shares, a transfer of indebtedness or otherwise, and includes a dividend;
“
Eligible
Person”
means individuals, corporations. trusts, the
estates of deceased individuals, partnerships and unincorporated associations of persons;
“Memorandum”
means this Memorandum of Association of the Company:
“
Registrar”
means the Registrar of Corporate Affairs appointed under section
229 of the Act;
“
Resolution
of Directors”
means either:
|
(a)
|
a
resolution approved at a duly convened and constituted meeting of directors of the Company
or of a committee of directors of the Company by the affirmative vote of a majority of
the directors present at the meeting who voted except that where a director is given
more than one vote, he shall be counted by the number of votes he casts for the purpose
of establishing a majority: or
|
|
(b)
|
a
resolution consented to in writing by all directors or by all members of a committee
of directors of the Company. as the case may be:
|
“
Resolution
of Shareholders”
means either:
|
(a)
|
a
resolution approved at a duly convened and constituted meeting of the Shareholders of
the Company by the affirmative vote of a majority of in excess of 50 percent of the votes
of the Shares entitled to vote thereon which were present at the meeting and were voted;
or
|
|
(b)
|
a
resolution consented to in writing by a majority of in excess of 50 percent of the votes
of Shares entitled to vote thereon;
|
“
Seal”
means any seal which has been duly adopted as the common seal
of the Company;
“
Securities”
means Shares and debt obligations of every kind of the Company.
and including without limitation options. warrants and rights to acquire Shares or debt obligations;
“
Share”
means
a share issued or to be issued by the Company;
“
Shareholder”
means an Eligible Person whose name is entered in the register
of members or the Company as the holder of one or more Shares or fractional Shares;
“
Treasury
Share”
means a Share that was previously issued but was
repurchased. redeemed or otherwise acquired by the Company and not cancelled; and
“Written”
or any term of like import includes information generated. sent. received or stored by electronic, electrical, digital, magnetic,
optical, electromagnetic, biometric or photonic means, including electronic data interchange, electronic mail, telegram, telex
or telecopy, and
“in writing”
shall be construed accordingly.
1.2.
|
In
the Memorandum and the Articles, unless the context otherwise requires a reference to:
|
|
(a)
|
a
“Regulation”
is a reference to a regulation of the Articles;
|
|
(b)
|
a
“Clause”
is a reference to a clause of the Memorandum;
|
|
(c)
|
voting
by Shareholders is a reference to the casting of the votes attached to the Shares held
by the Shareholder voting;
|
|
(d)
|
the
Act, the Memorandum or the Articles is a reference to the Act or those documents as amended
or, in the case of the Act, any re-enactment thereof; and
|
|
(e)
|
the
singular includes the plural and vice versa.
|
1.3.
|
Any
words or expressions defined in the Act unless the context otherwise requires bear the
same meaning in the Memorandum and the Articles unless otherwise defined herein.
|
1.4.
|
Headings
are inserted for convenience only and shall be disregarded in interpreting the Memorandum
and the Articles.
|
The
name of the Company is FullMart Holdings Limited ( ).
The
Company is a company limited by Shares.
4.
|
REGISTERED OFFICE AND REGISTERED AGENT
|
4.1.
|
The
first registered office of the Company is at P.O. Box 957, Offshore Incorporations Centre,
Road Town, Tortola, British Virgin Islands, the office of the first registered agent.
|
4.2.
|
The
first registered agent of the Company is Offshore Incorporations Limited of P.O. Box
957. Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.
|
4.3.
|
The
Company may by Resolution of Shareholders or by Resolution of Directors change the location
of its registered office or change its registered agent.
|
4.4.
|
Any change of registered office or registered agent
will take effect on the registration by the Registrar of a notice of the change filed by the existing registered agent or a legal
practitioner in the British Virgin Islands acting on behalf of the Company.
|
5.1.
|
Subject
to the Act and any other British Virgin Islands legislation, the Company has, irrespective
of corporate benefit:
|
|
(a)
|
full
capacity to carry on or undertake any business or activity, do any act or enter into
any transaction; and
|
|
(b)
|
for
the purposes of paragraph (a), full rights, powers and privileges.
|
5.2.
|
For
the purposes of section 9(4) of the Act, there are no limitations on the business that
the Company may carry on.
|
6.
|
NUMBER
AND CLASSES OF SHARES
|
6.1.
|
Shares
in the company shall be issued in the currency of the United s
tates
of America.
|
6.2.
|
The
Company is authorised to issue a maximum of 50,000 Shares of a single class each with
a par value of US$1.00.
|
6.3.
|
The
Company may issue fractional Shares and a fractional Share shall have the corresponding
fractional rights, obligations and liabilities of a whole Share of the same class or
series of Shares.
|
6.4.
|
Shares
may be issued in one or more series of Shares as the directors may by Resolution of
Directors determine from time to time.
|
7.1.
|
Each
Share in the Company confers upon the Shareholder;
|
|
(a)
|
the
right to one vote at a meeting of the Shareholders of the Company or on any Resolution
of Shareholders;
|
|
|
|
|
(b)
|
the
right to an equal share in any dividend paid by the Company; and
|
|
|
|
|
(c)
|
the
right to an equal share in the distribution of the surplus assets of the Company on its
liquidation.
|
7.2.
|
The
Company may by Resolution of Directors redeem, purchase or otherwise acquire all or any
of the Shares in the Company subject to Regulation 3 of the Articles.
|
If
at any time the Shares are divided into different classes, the rights attached to any class may only be varied, whether or not
the Company is in liquidation, with the consent in writing of or by a resolution passed at a meeting by the holders of not less
than 50 percent of the issued Shares in that class.
9.
|
RIGHTS
NOT VARIED BY THE ISSUE OF SHARES PARI PASSU
|
The
rights conferred upon the holders of the Shares of any class shall not, unless otherwise expressly provided by the terms of issue
of the Shares of that class, be deemed to be varied by the creation or issue of further Shares ranking
pari passu
therewith.
1
0.1.
|
The Company shall issue Registered Shares only.
|
10.2.
|
The
Company is not authorised to issue Bearer Shares, convert Registered Shares to Bearer
Shares or exchange Registered Shares for Bearer Shares.
|
11.1.
|
Subject to Clause 13. the Company shall, on receipt
of an instrument of transfer complying with Sub-Regulation 6.1 of the Articles, enter the name of the transferee of a Share in
the register of members unless the directors resolve to refuse or delay the registration of the transfer for reasons that shall
be specified in a Resolution of Directors.
|
11.2.
|
The directors may
not resolve to refuse or delay the transfer of a Share unless the Shareholder has failed to pay an amount due in respect of
the Share.
|
12.
|
AMENDMENT
OF THE MEMORANDUM AND THE ARTICLES
|
12.1.
|
Subject
to Clause 8. the Company may amend the Memorandum or the Articles by Resolution of Shareholders
or by Resolution of Directors, save that no amendment may be made by Resolution of Directors:
|
|
(a)
|
to
restrict the rights or powers of the Shareholders to amend the Memorandum or the Articles;
|
|
(b)
|
to
change the percentage of Shareholders required to pass a Resolution of Shareholders to
amend the Memorandum or the Articles;
|
|
(c)
|
in
circumstances where the Memorandum or the Articles cannot be amended by the Shareholders;
or
|
|
(d)
|
to
Clauses 7. 8. 9 or this Clause 12.
|
12.2.
|
Any
amendment of the Memorandum or the Articles will take effect on the registration by the
Registrar of a notice of amendment. or restated Memorandum and Articles. filed by the
registered agent.
|
The
Company is a private company, and accordingly:
|
(a)
|
any
invitation to the public to subscribe for any Shares or debentures of the Company is
prohibited:
|
|
(b)
|
the
number of the members of the Company (not including persons who are in the employment of the Company, and persons who, having
been formerly in the employment of the Company, were, while in such employment, and have continued after the determination of
such employment to be, members of the Company) shall be limited to fifty PROVIDED that where two or more persons hold one or more
Shares in the Company jointly they shall, for the purposes of this Clause 13, be treated as a single member:
|
|
(c)
|
the
right to transfer the Shares of the Company shall be restricted in manner herein prescribed:
and
|
|
(d)
|
the
Company shall not have power to issue Share Warrants to Bearer.
|
We,
OFFSHORE INCORPORATIONS LIMITED of P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola. British Virgin Islands for
the purpose of incorporating a BVI Business Company under the laws of the British Virgin Islands hereby sign this Memorandum of
Association the 28th day of December, 2011.
Incorporator
(Sd.)
Rexella D. Hodge
Authorised Signatory
OFFSHORE
INCORPORATIONS LIMITED
TERRITORY
OF THE BRITISH VIRGIN ISLANDS
THE BVI BUSINESS COMPANIES ACT, 2004
ARTICLES
OF ASSOCIATION
OF
FullMart
Holdings Limited
A
COMPANY LIMITED BY SHARES
l. l.
|
Every Shareholder is entitled to a certificate signed
by a director or officer of the Company, or any other person authorised by Resolution of Directors, or under the Seal specifying
the number of Shares held by him and the signature of the director, officer or authorised person and the Seal may be facsimiles.
|
1.2.
|
Any
Shareholder receiving a certificate shall indemnify and hold the Company and its directors
and officers harmless from any loss or liability which it or they may incur by reason
of any wrongful or fraudulent use or representation made by any person by virtue of the
possession thereof. If a certificate for Shares is worn out or lost it may be renewed
on production of the worn out certificate or on satisfactory proof of its loss together
with such indemnity as may be required by Resolution of Directors.
|
1.3.
|
If
several Eligible Persons are registered as joint holders of any Shares, any one of such Eligible Persons may give an effectual
receipt for any Distribution.
|
2.1.
|
Shares
and other Securities may be issued at such times, to such Eligible Persons, for such consideration
and on such terms as the directors may by Resolution of Directors determine.
|
|
|
2.2.
|
Section
46 of the Act
(Pre-emptive rights)
does not apply to the Company.
|
|
|
2.3.
|
A
Share may be issued for consideration in any form. including money. a promissory note. or other written obligation to contribute
money or property. real property. personal property (including goodwill and know-how). services rendered or a contract for
future services.
|
2.4.
|
The consideration for a Share with par value shall not
be less than the par value of the Share. If a Share with par value is issued for consideration less than the par value. the
person to whom the Share is issued is liable to pay to the Company an amount equal to the difference between the issue price and
the par value.
|
2.5.
|
No
Shares may be issued for a consideration other than money. unless a Resolution of Directors
has been passed stating:
|
|
(a)
|
the
amount to be credited for the issue of the Shares;
|
|
(b)
|
the
determination of the directors of the reasonable present cash value of the non-money
consideration for the issue; and
|
|
(c)
|
that.
in the opinion of the directors, the present cash value of the non-money consideration
for the issue is not less than the amount to be credited for the issue of the Shares.
|
2.6.
|
The
consideration paid for any Share. whether a par value Share or a no par value Share.
shall not be treated as a liability or debt of the Company for the purposes of
|
|
(a)
|
the
solvency test in Regulations 3 and 18; and
|
|
(b)
|
sections
197 and 209 of the Act.
|
2.7.
|
The
Company shall keep a register (the
“register of members’’)
containing:
|
|
(a)
|
the
names and addresses of the Eligible Persons who hold Shares:
|
|
(b)
|
the
number of each class and series of Shares held by each Shareholder:
|
|
(c)
|
the
date on which the name of each Shareholder was entered in the register of members: and
|
|
(d)
|
the
date on which any Eligible Person ceased to be a Shareholder.
|
2.8.
|
The
register of members may be· any such form as the directors may approve. but if
it is in magnetic. electronic or other data storage form, the Company must be able to
produce legible evidence of its contents. Until the directors Otherwise determine, the
magnetic, electronic or other data storage form shall be the original register of members.
|
2.9.
|
A
Share is deemed to be issued when the name of the Shareholder is entered in the register
of members.
|
3.
|
REDEMPTION
OF SHARES AND TREASURY SHARES
|
3.1.
|
The
Company may purchase, redeem or otherwise acquire and hold its own Shares save that the
Company may not purchase, redeem or otherwise acquire its own Shares without the consent
of Shareholders whose Shares are to be purchased, redeemed or otherwise acquired unless
the Company is permitted by the Act or any other Provision in the Memorandum or Articles
to purchase; redeem or otherwise acquire the Shares without their consent.
|
3.2.
|
The
Company may only offer to purchase, redeem or otherwise acquire Shares if the Resolution
of Directors authorising the purchase, redemption or other acquisition contains a statement
that the directors are satisfied, on reasonable grounds, that immediately after the acquisition
the value of the Company’s assets will exceed its liabilities and the Company will be
able to pay its debts as they fall due.
|
3.3.
|
Sections
60
(Process for acquisition of own Shares).
61 (
Offer to one or more shareholders)
and 62
(Shares
redeemed otherwise than at the option of company)
of the Act shall not apply to the Company.
|
3.4.
|
Shares that the Company purchases, redeems or otherwise
acquires pursuant to this Regulation may be cancelled or held as Treasury Shares except to the extent that such Shares are in
excess of 50 percent of the issued Shares in which case they shall be cancelled but they shall be available for reissue.
|
3.5.
|
All
rights and obligations attaching to a Treasury Share are suspended and shall not be exercised
by the Company while it holds the Share as a Treasury Share.
|
3.6.
|
Treasury
Shares may be transferred by the Company on such terms and conditions (not otherwise
inconsistent with the Memorandum and the Articles) as the Company may by Resolution of
Directors determine.
|
3.7.
|
Where
Shares are held by another body corporate of which the Company holds, directly or indirectly,
Shares having more than 50 percent of the votes in the election of directors of the other
body corporate, all rights and obligations attaching to the Shares held by the other
body corporate are suspended and shall not be exercised by the other body corporate.
|
4.
|
MORTGAGES
AND CHARGES OF SHARES
|
4.1.
|
Shareholders
may mortgage or charge their Shares.
|
4.2.
|
There shall be entered in the register of members at
the written request of the Shareholder:
|
|
(a)
|
a
statement that the Shares held by him are mortgaged or charged:
|
|
(b)
|
the
name of the mortgagee or chargee; and
|
|
(c)
|
the
date on which the particulars specified in subparagraphs (a) and (b) are entered in the
register of members.
|
4.3.
|
Where
particulars of a mortgage or charge are entered in the register of members. such particulars
may be cancelled:
|
|
(a)
|
with
the written consent of the named mortgagee or chargee or anyone authorised to act on
his behalf: or
|
|
(b)
|
upon
evidence satisfactory to the directors of the discharge of the liability secured by the
mortgage or charge and the issue of sue indemnities as the directors shall consider necessary
or desirable.
|
4.4.
|
Whilst
particulars of a mortgage or charge over Shares are entered in the register of members
pursuant to this Regulation:
|
|
(a)
|
no
transfer of any Share the subject of those particulars shall be effected;
|
|
(b)
|
the
Company may not purchase, redeem or otherwise acquire any such Share; and
|
|
(c)
|
no replacement certificate shall be issued in respect of such Shares.
|
without the written consent of the named mortgagee
or chargee.
5.1.
|
Shares
that are not fully paid on issue are subject to the forfeiture provisions set forth in
this Regulation and for this purpose Shares issued for a promissory note, other written
obligation to contribute money or property or a contract for future services are deemed
to be not fully paid.
|
5.2.
|
A
written notice of call specifying the date for payment to be made shall be served on
the Shareholder who defaults in making payment in respect of the Shares.
|
5.3.
|
The
written notice of call referred to in Sub-Regulation 5.2 shall name a further date not
earlier than the expiration of 14 days from the date of service of the notice on or before
which the payment required by the notice is to be made and shall contain a statement
that in the event of non-payment at or before the time named in the notice the Shares,
or any of them, in respect of which payment is not made will be liable to be forfeited.
|
5.4.
|
Where
a written notice of call has been issued pursuant to Sub-Regulation 5.3 and the requirements
of the notice have not been complied with, the directors may, at any time before tender
of payment. forfeit and cancel the Shares to which the notice relates.
|
5.5.
|
The
Company is under no obligation to refund any moneys to the Shareholder whose Shares have
been cancelled pursuant to Sub-Regulation 5.4 and that Shareholder shall be discharged
from any further obligation to the Company.
|
6.1.
|
Subject
to the Memorandum. Shares may be transferred by a written instrument of transfer signed
by the transferor and containing the name and address of the transferee, which shall
be sent to the Company for registration.
|
6.2.
|
The
transfer of a Share is effective when the name of the transferee is entered on the register
of members.
|
6.3.
|
If
the directors of the Company are satisfied that an instrument of transfer relating to
Shares has been signed but that the instrument has been lost or destroyed. they may resolve
by Resolution of Directors:
|
|
(a)
|
to
accept such evidence of the transfer of Shares as they consider appropriate: and
|
|
(b)
|
that
the transferee’s name should be entered in the register of members notwithstanding
the absence of the instrument of transfer.
|
6.4.
|
Subject
to the Memorandum. the personal representative of a deceased Shareholder may transfer
a Share even though the personal representative is not a Shareholder at the time of the
transfer.
|
7.
|
MEETINGS
AND CONSENTS OF SHAREHOLDERS
|
7.1.
|
Any
director of the Company may convene meetings of the Shareholders at such times and in
such manner and places within or outside the British Virgin Islands as the director considers
necessary or desirable.
|
7
.
2
.
|
Upon the written
request of Shareholders entitled to exercise 30 percent or more of the voting rights in respect of the matter for which the
meeting requested the directors shall convene a meeting of Shareholders.
|
7 .3.
|
The director convening a meeting shall give
not less than 7 days’ notice of a meeting of Shareholders to:
|
|
(a)
|
those
Shareholders whose names on the date the notice is given appear as Shareholders in the
register of members of the Company and are entitled to vote at the meeting; and
|
7.4.
|
The
director convening a meeting of Shareholders may fix as the record date for determining
those Shareholders that are entitled to vote at the meeting the date notice is given
of the meeting, or such other date as may be specified in the notice. being a date not
earlier than the date of the notice.
|
7.5.
|
A
meeting of Shareholders held in contravention of the requirement to give notice is valid
if Shareholders holding at least 90 percent of the total voting rights on all the matters
to be considered at the meeting have waived notice of the meeting and. for this purpose.
the presence of a Shareholder at the meeting shall constitute waiver in relation to all
the Shares which that Shareholder holds.
|
7.6.
|
The
inadvertent failure of a director who convenes a meeting to give notice of a meeting
to a Shareholder or another director. or the fact that a Shareholder or another director
has not received notice. does not invalidate the meeting.
|
7.7.
|
A
Shareholder may be represented at a meeting of Shareholders by a proxy who may speak
and vote on behalf of the Shareholder.
|
7.8.
|
The
instrument appointing a proxy shall be produced at the place designated for the meeting
before the time for holding the meeting at which the person named in such instrument
proposes to vote. The notice of the meeting may specify an alternative or additional
place or time at which the proxy shall be presented.
|
7.9.
|
The
instrument appointing a proxy shall be in substantially the following form or such other
form as the chairman of the meeting shall accept as properly evidencing the wishes of
the Shareholder appointing the proxy.
|
|
|
|
[COMPANY
NAME]
|
|
|
|
I/We
being a Shareholder of the above Company HEREBY APPOINT
of
or failing him
of
to be my/our proxy to vote for me/us at the meeting of Shareholders to be held on
the
day of
,
20
and at any adjournment thereof.
|
|
|
|
(Any
restrictions on voting to be inserted here.)
|
|
|
|
Signed
this
day of
,
20
|
|
|
|
|
|
Shareholder
|
7.
10.
|
The
following applies where Shares are jointly owned:
|
|
(a)
|
if
two or more persons hold Shares jointly each of them may be present in person or by proxy
at a meeting of Shareholders and may speak as a Shareholder;
|
|
(b)
|
if
only one of the joint owners is present in person or by proxy he may vote on behalf of all joint owners; and
|
|
(c)
|
if
two or more of the joint owners are present in person or by proxy they must vote as one.
|
7. 11.
|
A Shareholder shall be deemed to be present at a meeting of Shareholders if he participates
by telephone or other electronic means and all Shareholders participating in the meeting are able to hear each other.
|
7.2.
|
A
meeting of Shareholders is duly constituted if, at the commencement of the meeting, there
are present in person or by proxy not less than 50 percent of the votes of the Shares
entitled to vote on Resolutions of Shareholders to be considered at the meeting. A quorum
may comprise a single Shareholder or proxy and then such person may pass a Resolution
of Shareholders and a certificate signed by such person accompanied where such person
be a proxy by a copy of the proxy instrument shall constitute a valid Resolution of Shareholders
.
|
7.13.
|
If within two hours from the time appointed for the
meeting a quorum is not present. the meeting. if convened upon the requisition of Shareholders. shall be dissolved; in any other
case it shall stand adjourned to the next business day in the jurisdiction in which the meeting was to have been held at the same
time and place or to such other time and place as the directors may determine. and if at the adjourned meeting there are present
within one hour from the time appointed for the meeting in person or by proxy not less than one third of the votes of the Shares
or each class or series of Shares entitled to vote on the matters to be considered by the meeting. those present shall constitute
a quorum but otherwise the meeting shall be dissolved.
|
7.14.
|
At every meeting of Shareholders. the Chairman of the
Board shall preside as chairman of the meeting. If there is no Chairman of the Board or if the Chairman of the Board is not present
at the meeting. the Shareholders present shall choose one of their number to be the chairman. If the Shareholders are unable to
choose a chairman for any reason. then the person representing the greatest number of voting Shares present in person or by proxy
at the meeting shall preside as chairman failing which the oldest individual Shareholder or representative of a Shareholder present
shall take the chair.
|
7.15.
|
The chairman may, with the consent of the meeting, adjourn
any meeting from time to time, and from place to place, but no business shall be transacted at any adjourned meeting other than
the business left unfinished at the meeting from which the adjournment took place.
|
|
7.16.
|
At
any meeting of the Shareholders the chairman is responsible for deciding in such manner as he considers appropriate whether any
resolution proposed has been carried or not and the result of his decision shall be announced to the meeting and recorded in the
minutes of the meeting. If the chairman has any doubt as to the outcome of the vote on a proposed resolution, he shall cause a
poll to be taken of all votes cast upon such resolution. If the chairman fails to take a poll then any Shareholder present in
person or by proxy who disputes the announcement by the chairman of the result of any vote may immediately following such announcement
demand that a poll be taken and the chairman shall cause a poll to be taken. If a poll is taken at any meeting, the result shall
be announced to the meeting and recorded in the minutes of the meeting.
|
|
7.17.
|
Subject
to the specific provisions contained in this Regulation for the appointment of representatives of Eligible Persons other than
individuals the right of any individual to speak for or represent a Shareholder shall be determined by the law of the jurisdiction
where, and by the documents by which, the Eligible Person is constituted or derives its existence. In case of doubt, the directors
may in good faith seek legal advice from any qualified person and unless and until a court of competent jurisdiction shall otherwise
rule, the directors may rely and act upon such advice without incurring any liability to any Shareholder or the Company.
|
|
7.18.
|
Any
Eligible Person other than an individual which is a Shareholder may by resolution of its directors or other governing body authorise
such individual as it thinks fit to act as its representative at any meeting of Shareholders or of any class of Shareholders,
and the individual so authorised shall be entitled to exercise the same rights on behalf of the Shareholder which he represents
as that Shareholder could exercise if it were an individual.
|
|
7.19.
|
The chairman of
any meeting at which a vote is cast by proxy or on behalf of any Eligible Person other than an individual may call for a notarially
certified copy of such proxy or authority which shall be produced within 7 days of being so requested or the votes cast by such
proxy or on behalf of such Eligible
Person shall be
disregarded.
|
|
7.20.
|
Directors of the
Company may attend and speak at any meeting of Shareholders and at any separate meeting
of the holders of any class or series of Shares.
|
|
7.21.
|
An action that may
be taken by the Shareholders at a meeting may also be taken by a resolution consented to in writing, without the need for
any notice, but if any Resolution of Shareholders is adopted otherwise than by the unanimous written
consent of all Shareholders, a copy of such resolution shall forthwith be sent to all Shareholders nor consenting to such
resolution.
The consent may be in the form of counterparts, each counterpart being signed by one or more Shareholders.
If
the
consent
is in one or more counterparts, and the counterparts bear different dates, then the resolution shall take effect on the
earliest date upon which Shareholders holding a sufficient number of votes of Shares to constitute a Resolution of
Shareholders have consented to the resolution by signed counterparts.
|
|
8.1.
|
The
first directors of the Company shall be appointed by the first registered agent within 6 months of the date of incorporation of
the Company; and thereafter, the directors shall be elected by Resolution of Shareholders or by Resolution of Directors.
|
|
8.2.
|
No
person shall be appointed as a director, or nominated as a reserve director, of the Company unless he has consented in writing
to be a director or to be nominated as a reserve director.
|
|
8.3.
|
Subject
to Sub-Regulation 8.1. the minimum number of directors shall be one and there shall be no maximum number.
|
|
8.4.
|
Each
director holds office for the term, if any, fixed by the Resolution of Shareholders or the Resolution of Directors appointing
him, or until his earlier death, resignation or removal. If no term is fixed on the appointment of a director, the director serves
indefinitely until his earlier death, resignation or removal.
|
|
8.5.
|
A
director may be removed from office.
|
|
(a)
|
with
or without cause, by Resolution of Shareholders passed at a meeting of Shareholders called
for the purposes of removing the director or for purposes including the removal of the
director or by a written resolution passed by at least 75 percent of the Shareholders
of the Company entitled to vote; or
|
|
|
|
|
(b)
|
with
cause, by Resolution of Directors passed at a meeting of directors called for the purpose
of removing the director or for purposes including the removal of the director.
|
8.6.
|
A
director may resign his office by giving written notice of his resignation to the Company
and the resignation has effect from the date the notice is received by the Company or
from such later date as may be specified in the notice. A director shall resign forthwith
as a director if he is, or becomes, disqualified from acting as a director under the
Act.
|
|
|
8.7.
|
The
directors may at any time appoint any person to be a director either to fill a vacancy
or as an addition to the existing directors. Where the directors appoint a person as
director to fill a vacancy, the term shall not exceed the term that remained when the
person who has ceased to be a director ceased to hold office.
|
|
|
8.8.
|
A
vacancy in relation to directors occurs if a director dies or otherwise ceases to hold
office prior to the expiration of his term of office.
|
|
|
8.9.
|
Where
the Company only has one Shareholder who is an individual and that Shareholder is also
the sole director of the Company, the sole Shareholder/director may, by instrument in
writing, nominate a person who is not disqualified from being a director of the Company
as a reserve director of the Company to act in the place of the sole director in the
event of his death.
|
8.10.
|
The
nomination of a person as a reserve director of the Company ceases to have effect if:
|
|
(a)
|
before
the death of the sole Shareholder/director who nominated him,
|
|
(i)
|
he
resigns as reserve director, or
|
|
|
|
|
(ii)
|
the
sole Shareholder/director revokes the nomination in writing: or
|
|
(b)
|
the sole Shareholder/director
who nominated him ceases to be able to be the sole Shareholder/director of the Company for any reason other than his death.
|
8.11.
|
The
Company shall keep a register of directors containing:
|
|
(a)
|
the
names and addresses of the persons who are directors of the Company or who have been
nominated as reserve directors of the Company:
|
|
(b)
|
the
date on which each person whose name is entered in the register was appointed as a director, or nominated as a reserve director,
of the Company;
|
|
(c)
|
the
date on which each person named as a director ceased to be a director of the Company;
|
|
(d)
|
the
date on which the nomination of any person nominated as a reserve director ceased to
have effect; and
|
|
(e)
|
such
other information as may be prescribed by the Act.
|
8.12.
|
The
register of directors may be kept in any such form as the directors may approve, but
if it is in magnetic, electronic or other data storage form, the Company must be able
to produce legible evidence of its contents. Until a Resolution of Directors determining
otherwise is passed, the magnetic, electronic or other data storage shall be the original
register of directors.
|
|
|
8.13.
|
The
directors may, by Resolution of Directors, fix the emoluments of directors with respect
to services to be rendered in any capacity to the Company.
|
8.14.
|
A director is not required to hold a Share as a qualification
to office.
|
9.
|
POWERS
OF DIRECTORS
|
|
|
9.1.
|
The
business and affairs of the Company shall be managed by, or under the direction or supervision
of, the directors of the Company. The directors of the Company have all the powers necessary
for managing, and for directing and supervising, the business and affairs of the Company.
The directors may pay all expenses incurred preliminary to and in connection with the
incorporation of the Company and may exercise all such powers of the Company as are not
by the Act or by the Memorandum or the Articles required to be exercised by the Shareholders.
|
|
|
9.2.
|
Each
director shall exercise his powers for a proper purpose and shall not act or agree to
the Company acting in a manner that contravenes the Memorandum, the Articles or the Act.
Each director, in exercising his powers or performing his duties, shall act honestly
and in good faith in what the director believes to be the best interests of the Company.
|
|
|
9.3.
|
If
the Company is the wholly owned subsidiary of a holding company, a director of the Company
may, when exercising powers or performing duties as a director, act in a manner which
he believes is in the best interests of the holding company even though it may not be
in the best interests of the Company.
|
9.4.
|
Any director which
is a body corporate may appoint any individual as its duly authorised representative for the purpose of representing it at
meetings of the directors, with respect to the signing of consents or otherwise.
|
9.5.
|
The
continuing directors may act notwithstanding any vacancy in their body.
|
9.6.
|
The directors may
by Resolution of Directors exercise all the powers of the Company to incur indebtedness, liabilities or obligations and
to secure indebtedness, liabilities or obligations whether of the Company or of any third party.
|
9.7.
|
All
cheques, promissory notes, drafts, bills of exchange and other negotiable instruments
and all receipts for moneys paid to the Company shall be signed, drawn, accepted, endorsed
or otherwise executed, as the case may be, in such manner as shall from time to time be determined by Resolution of Directors.
|
|
|
9.8.
|
For
the purposes of Section 175
(Disposition of assets)
of the Act, the directors may by Resolution of Directors determine
that any sale, transfer, lease, exchange or other disposition is in the usual or regular course of the business carried on by
the Company and such determination is, in the absence of fraud, conclusive.
|
10.
|
PROCEEDINGS
OF DIRECTORS
|
10.1.
|
Any one director
of the Company may call a meeting of the directors by sending a written notice to each other director.
|
10.2.
|
The
directors of the Company or any committee thereof may meet at such times and in such
manner and places within or outside the British Virgin Islands as the directors may determine
to be necessary or desirable.
|
10.3.
|
A
director is deemed to be present at a meeting of directors if he participates by telephone
or other electronic means and all directors participating in the meeting are able to
hear each other.
|
10.4.
|
A director shall be
given not less than 3 days’ notice of meetings of directors, but a meeting of directors held without 3 days’
notice having been given to all directors shall be valid if all the directors entitled to vote at the meeting who do not
attend waive notice of the meeting, and for this purpose the presence of a director at a meeting shall constitute waiver by
that director. The inadvertent failure to give notice of a meeting to a director, or the fact that a director has not
received the notice, does not invalidate the meeting.
|
10.5.
|
A director may by a
written instrument appoint an alternate who need not be a director and the alternate shall be entitled to attend meetings in
the absence of the director who appointed him and to vote in place of the director until the appointment lapses or is
terminated.
|
10.6.
|
A meeting of directors is duly constituted for all purposes
if at the commencement of the meeting there are present in person or by alternate not less than one-half of the total number of
directors, unless there are only 2 directors in which case the quorum is 2.
|
10.7.
|
If the Company has only one director the provisions
herein contained for meetings of directors do not apply and such sole director has full power to represent and act for the Company
in all matters as are not by the Act, the Memorandum or the Articles required to be exercised by the Shareholders. In lieu of
minutes of a meeting the sole director shall record in writing and sign a note or memorandum of all matters requiring a Resolution
of Directors. Such a note or memorandum constitutes sufficient evidence of such resolution for all purposes.
|
10.8.
|
At meetings of directors at which the Chairman of the
Board is present, he shall preside as chairman of the meeting. If there is no Chairman of the Board or if the Chairman of the
Board is not present, the directors present shall choose one of their number to be chairman of the meeting.
|
10.9.
|
An action that may
be taken by the directors or a committee of directors at a meeting may also be taken by a Resolution of Directors or a
resolution of a committee of directors consented to in writing by all directors or by all members of the committee, as the
case may be, without the need for any notice. The consent may be in the form of counterparts each counterpart being signed by
one or more directors. If the consent is in one or more counterparts, and the counterparts bear different dates, then the
resolution shall take effect on the date upon which the last director has consented to the resolution by signed
counterparts.
|
11.1.
|
The directors may,
by Resolution of Directors, designate one or more committees, each consisting of one or more directors, and delegate one or
more of their powers, including the power to affix the Seal, to the committee.
|
11.2.
|
The
directors have no power to delegate to a committee of directors any of the following
powers:
|
|
(a)
|
to
amend the Memorandun or the Articles;
|
|
(b)
|
to
designate committees of directors;
|
|
(c)
|
to
delegate powers to a committee of directors;
|
|
(d)
|
to
appoint or remove directors;
|
|
(e)
|
to
appoint or remove an agent;
|
|
(f)
|
to
approve a plan of merger, consolidation or arrangement;
|
|
(g)
|
to
make a declaration of solvency or to approve a liquidation plan; or
|
|
(h)
|
to
make a determination that immediately after a proposed Distribution the value of the
Company's assets will exceed its liabilities and the Company will be able to pay its
debts as they fall due.
|
11.3.
|
Sub-Regulation
11.2(b) and (c) do not prevent a committee of directors, where authorised by the Resolution
of Directors appointing such committee or by a subsequent Resolution of Directors, from
appointing a sub-committee and delegating powers exercisable by the committee to the
sub-committee.
|
|
|
11.4.
|
The meetings
and proceedings of each committee of directors consisting of 2 or more directors shall be governed
mutatis mutandis
by the provisions of the Articles regulating the proceedings of directors so far as the same are not
superseded by any provisions in the Resolution of Directors establishing the committee.
|
11.5.
|
Where the directors delegate their powers to a
committee of directors they remain responsible for the exercise of that power by the committee. unless they believed on reasonable
grounds at all times before the exercise of the power that the committee would exercise the power in conformity with the duties
imposed on directors of the Company under the Act.
|
12.
|
OFFICERS
AND AGENTS
|
|
|
12.1.
|
The
Company may by Resolution of Directors appoint officers of the Company al such times
as may be considered necessary or expedient. Such officers may consist of a Chairman
of the Board of Directors, a president and one or more vice-presidents, secretaries and
treasurers and such other officers as may from time to time be considered necessary or
expedient. Any number of offices may be held by the same person.
|
|
|
12.2.
|
The
officers shall perform such duties as are prescribed at the time of their appointment
subject to any modification in such duties as may be prescribed thereafter by Resolution
of Directors. In the absence of any specific prescription of duties it shall be the responsibility of the Chairman of the
Board to preside at meetings of directors and Shareholders, the president lo manage the day to day affairs of the Company,
the vice-presidents to act in order of seniority in the absence of the president but
otherwise to perform such duties as may be delegated to them by the president, the
secretaries to maintain the register of members, minute books and records (other
than financial records) of the Company and to ensure compliance with all procedural
requirements imposed on the Company by applicable law, and the treasurer to be
responsible for the financial affairs of the Company.
|
12.3.
|
The emoluments of all officers shall be fixed by Resolution
of Directors.
|
12.4.
|
The officers of the Company shall hold office until
their successors are duly appointed, but any officer elected or appointed by the directors may be removed at any time, with
or without cause, by Resolution of Directors. Any vacancy occurring in any office of the Company may be filled by Resolution of
Directors.
|
1
2.5.
|
The directors may,
by Resolution of Directors, appoint any person, including a person who is a director, to be an agent of the
Company.
|
12.6.
|
An agent of the Company
shall have such-powers and authority of the directors, including the power and authority to affix the Seal, as are set forth
in the Articles or in the Resolution of Directors appointing the agent, except that no agent has any power or authority with
respect to the following:
|
|
(a)
|
to
amend the Memorandum or the Articles;
|
|
(b)
|
to
change the registered office or agent;
|
|
(c)
|
to
designate committees of directors;
|
|
(d)
|
to
delegate powers to a committee of directors;
|
|
(e)
|
to
appoint or remove directors;
|
|
(f)
|
to
appoint or remove an agent;
|
|
(g)
|
to
fix emoluments of directors;
|
|
(h)
|
to
approve a plan of merger, consolidation or arrangement;
|
|
(i)
|
to
make a declaration of solvency or to approve a liquidation plan;
|
|
(j)
|
to
make a determination that immediately after a proposed Distribution the value of the
Company's assets will exceed its liabilities and the Company will be able to pay its
debts as they fall due; or
|
|
(k)
|
to
authorise the Company to continue as a company incorporated under the laws of a jurisdiction
outside the British Virgin Islands.
|
12.7.
|
The Resolution of
Directors appointing an agent may authorise the agent to appoint one or more substitutes or delegates to exercise some or all
of the powers conferred on the agent by the Company.
|
|
|
12.8.
|
The directors may remove an agent appointed by the Company
and may revoke or vary a power conferred on him.
|
13.
|
CONFLICT
OF INTERESTS
|
|
|
13.1.
|
A
director of the Company shall, forthwith after becoming aware of the fact that he is
interested in a transaction entered into or to be entered into by the Company, disclose
the interest to all other directors of the Company.
|
|
|
13.2.
|
For
the purposes of Sub-Regulation 13.1, a disclosure to all other directors to the effect
that a director is a member, director or officer of another named entity or has a fiduciary
relationship with respect to the entity or a named individual and is to be regarded as
interested in any transaction which may, after the date of the entry into the transaction
or disclosure of the interest, be entered into with that entity or individual, is a sufficient
disclosure of interest in relation to that transaction.
|
13.3.
|
A
director of the Company who is interested in a transaction entered into or to be entered
into by the Company may:
|
|
(a)
|
vote
on a matter relating to the transaction:
|
|
|
|
|
(b)
|
attend
a meeting of directors at which a matter relating to the transaction arises and be included
among the directors present at the meeting for the purposes of a quorum; and
|
|
|
|
|
(c)
|
sign
a document on behalf of the Company, or do any other thing in his capacity as a director, that relates to the
transaction,
|
and, subject
to compliance with the Act shall not, by reason of his office be accountable to the Company for any benefit which he
derives from such transaction and no such transaction shall be liable to be avoided on the grounds of any such interest
or benefit.
14.
|
INDEMNIFICATION
|
|
|
14.1.
|
Subject
to the limitations hereinafter provided the Company shall indemnify against all expenses, including legal fees, and against
all judgments, fines and amounts paid in settlement and reasonably incurred in
connection with legal, administrative or investigative proceedings any person
who:
|
|
(a)
|
is
or was a party or is threatened to be made a party to any threatened, pending or completed
proceedings, whether civil, criminal, administrative or investigative, by reason of the
fact that the person is or was a director of the Company: or
|
|
|
|
|
(b)
|
is
or was, at the request of the Company, serving as a director of, or in any other capacity
is or was acting for, another body corporate or a partnership, joint venture, trust or
other enterprise.
|
14.2.
|
The indemnity in
Sub-Regulation 14.1 only applies if the person acted honestly and in good faith with a view to the best interests of the
Company and, in the case of criminal proceedings, the person had no reasonable cause to believe that their conduct was
unlawful.
|
14.3.
|
For
the purposes of Sub-Regulation 14.2, a director acts in the best interests of the Company
if he acts in the best interests of
|
|
(a)
|
the
Company’s holding company; or
|
|
|
|
|
(b)
|
a
Shareholder or Shareholders of the Company;
|
in
either case. in the circumstances specified in Sub-Regulation 9.3 or the Act. as the case may be.
14.4.
|
The decision of
the directors as to whether the person acted honestly and in good faith and with a view to the best interests of the Company
and as to whether the person had no reasonable cause to believe that his conduct was unlawful is. in the absence of fraud.
sufficient for the purposes of the Articles. unless a question of law is involved.
|
|
|
14.5.
|
The termination
of any proceedings by any judgment, order, settlement, conviction or the entering of a
nolle prosequi
does not, by
itself. create a presumption that the person did not act honestly and in good faith and with a view to the best interests
of the Company or that the person had reasonable cause to believe that his conduct was unlawful.
|
|
|
14.6.
|
Expenses,
including legal fees, incurred by a director in defending any legal. administrative or investigative proceedings may be
paid by the Company in advance of the final disposition of such proceedings upon receipt of an undertaking by or on
behalf of the director to repay the amount if it shall ultimately be determined that the director is not entitled to be
indemnified by the Company in accordance with Sub-Regulation 14.1.
|
|
|
14.7.
|
Expenses,
including legal fees, incurred by a former director in defending any legal, administrative or investigative proceedings may
be paid by the Company in advance of the final disposition of such proceedings upon receipt of an undertaking by or on behalf
of the former director to repay the amount if it shall ultimately be determined that the former director is not entitled to
be indemnified by the Company in accordance with Sub-Regulation 14.1 and upon such terms and conditions, if any, as the
Company deems appropriate.
|
|
|
14.8.
|
The
indemnification and advancement of expenses provided by, or granted pursuant to, this section is not exclusive of any
other rights to which the person seeking indemnification or advancement of expenses may be entitled under any agreement,
Resolution of Shareholders. resolution of disinterested directors or otherwise, both as acting in the person’s
official capacity and as to acting in another capacity while serving as a director of the Company.
|
|
|
14.9.
|
If a person referred to in Sub-Regulation 14.1 has been successful in defence of any
proceedings referred to in Sub-Regulation 14.1, the person is entitled to be indemnified against all expenses,
including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the
person in connection with the proceedings.
|
|
|
14.10.
|
The Company may purchase and maintain insurance in relation to any person who is or was a
director, officer or liquidator of the Company, or who at the request of the Company is or was serving as a director, officer
or liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust
or other enterprise against any liability asserted against the person and incurred by the person in that capacity.
whether or not the Company has or would have had the power to indemnify the person against the liability as provided
in the Articles.
|
15.
|
RECORDS
|
|
|
15.1.
|
The
Company shall keep the following documents at the office of its registered agent:
|
|
(a)
|
the
Memorandum and the Articles:
|
|
|
|
|
(b)
|
the
register of members. or a copy of the register of members:
|
|
|
|
|
(c)
|
the
register of directors. or a copy of the register of directors: and
|
|
|
|
|
(d)
|
copies
of all notices and other documents filed by the Company with the Registrar of Co rporate
Affairs in the previous IO years.
|
15.2.
|
Until
the directors determine otherwise by Resolution of Direcwrs the Company shaJI keep the
original register of members and original register of directors at the office of its registered
agent.
|
|
|
15.3.
|
If
the Company maintains only a copy of the register of members or a copy of the register
of directors at the office of its registered agent. it shall:
|
|
(a)
|
within
15 days of any change in either register. notify the registered agent in writing of the
change: and
|
|
|
|
|
(b)
|
provide
the registered agent with a written record of the physical address of the place or places
at which the original register of members or the original register of directors is kept.
|
15.4.
|
The Company shall keep the following records at the
office of its registered agent or at such other place or places, within or outside the British Virgin Islands. as the directors
may determine:
|
|
(a)
|
minutes
of meetings and Resolutions of Shareholders and classes of Shareholders:
|
|
|
|
|
(b)
|
minutes
of meetings and Resolutions of Directors and committees of directors: and
|
|
|
|
|
(c)
|
an
impression of the Seal.
|
15.5.
|
Where
any original records referred to in this Regulation are maintained other than at the
office of the registered agent of the Company. and the place at which the original records
is changed. the Company shall provide the registered agent with the physical address
of the new location of the records of the Company within 14 days of the change of location.
|
|
|
15.6.
|
The
records kept by the Company under this Regulation shall be in written form or either
wholly or partly as electronic records complying with the requirements of the Electronic
Transactions Act.
2001
(No. 5 of
200
I) as from time to time amended or
re-enacted.
|
The
Company shall maintain at the office of its registered agent a register of charges in which there shall be entered the
following particulars regarding each mortgage, charge and other encumbrance created by the Company:
|
(a)
|
the
date of creation of the charge;
|
|
|
|
|
(b)
|
a
short description of the liability secured by the charge;
|
|
|
|
|
(c)
|
a
short description of the property charged;
|
|
|
|
|
(d)
|
the
name and address of the trustee fo the security or, if there is no such trustee, the
name and address of the chargee;
|
|
|
|
|
(e)
|
unless
the charge is a security to bearer, the name and address of the holder of the charge; and
|
|
|
|
|
(f)
|
details
of any prohibition or restriction contained in the instrument creating the charge on
the power of the Company co create any future charge ranking in priority to or equally
with the charge.
|
The
Company shall have a Seal and may have more than one Seal and references herein to the Seal shall be references to every
Seal which shall have been duly adopted by Resolution of Directors. The directors shall provide for the safe custody of the
Seal and for an imprint thereof co be kept at the registered office. Except as otherwise expressly provided herein the Seal
when affixed to any written instrument shall be witnessed and attested co by the signature of any one director or other
person so authorised from time to time by Resolution of Directors. Such authorisation may be before or after the Seal is
affixed. may be general or specific and may refer to any number of sealings. The directors may provide for a facsimile of the
Seal and of the signature of any director or authorised person which may be reproduced by printing or other means on any
instrument and it shall have the same force and validity as if the Seal had been affixed to such instrument and the same had
been attested to as herein before described.
18.
|
DISTRIBUTIONS
BY WAY OF DIVIDEND
|
|
|
18.1.
|
The directors of the Company may, by Resolution of Directors. authorise a Distribution
by way of dividend at a time and of an amount they think fit if they are satisfied. on
reasonable grounds. that. immediately after the Distribution. the value of the Company"s
assets will exceed its liabilities and the Company will be able to pay its debts as they
fall due.
|
|
|
18.2.
|
Dividends
may be paid in money, Shares. or other property.
|
|
|
18.3.
|
Notice
of any dividend that may have been declared shall be given to each Shareholder as specified
in Sub-Regulation 20.1 and all dividends unclaimed for 3 years after having been declared
may be forfeited by Resolution of Directors for the benefit of the Company.
|
|
|
18.4.
|
No
dividend shall bear interest as against the Company and no dividend shall be paid on
Treasury Shares.
|
|
|
19.
|
ACCOUNTS
AND AUDIT
|
19.1
|
The Company shall keep records that are sufficient
to show and explain the Company’s transactions and that will. at any time. enable the financial position of the Company to
be determined with reasonable accuracy.
|
19.2
|
The Company may
by Resolution of Shareholders call for the directors to prepare periodically and make available a profit and loss account
and a balance sheet. The profit and loss account and balance sheet shall be drawn up so as to give respectively a true and
fair view of the profit and loss of the Company for a financial period and a true and fair view of the assets and liabilities
of the Company as at the end of a financial period.
|
|
|
19.3.
|
The
Company may by Resolution of Shareholders call for the accounts to be examined by auditors.
|
|
|
19.4.
|
The
first auditors shall be appointed by Resolution of Directors; subsequent auditors shall
be appointed by Resolution of Shareholders or by Resolution of Directors.
|
|
|
19.5.
|
The
auditors may be Shareholders, but no director or other officer shall be eligible to be
an auditor of the Company during their continuance in office.
|
|
|
19.6.
|
The
remuneration of the auditors of the Company may be fixed by Resolution of Directors.
|
|
|
19.7.
|
The
auditors shall examine each profit and loss account and balance sheet required to be
laid before a meeting of the Shareholders or otherwise given to Shareholders and shall
state in a written report whether or not:
|
|
(a)
|
in
their opinion the profit and loss account and balance sheet give a true and fair view
respectively of the profit and loss for the period covered by the accounts. and of the
assets and liabilities of the Company at the end of that period: and
|
|
|
|
|
(b)
|
all
the information and explanations required by the auditors have been obtained.
|
19.8.
|
The
report of the auditors shall be annexed to the accounts and shall be read at the meeting
of Shareholders at which the accounts are laid before the Company or shall be otherwise
given to the Shareholders.
|
|
|
19.9.
|
Every
auditor of the Company shall have a right of access at all times to the books of account
and vouchers of the Company. and shall be entitled to require from the directors and
officers of the Company such information and explanations as he thinks necessary for
the performance of the duties of the auditors.
|
|
|
19.10.
|
The
auditors of the Company shall be entitled to receive notice of. and to attend any meetings
or Shareholders at which the Company"s profit and loss account and balance sheet
are to be presented.
|
20.
|
NOTICES
|
|
|
20.1.
|
Any notice. information or written statement to be given by the Company to Shareholders
may be given by personal service or by mail addressed to each Shareholder at the address
shown in the register of members.
|
|
|
20.2.
|
Any
summons. notice. order. document. process. informatio n or written statement to be served
on the Company may be served by leaving it. or by sending it by registered mail addressed
to the Company. at its registered office. or by leaving it with. or by sending it by
registered mail to. the registered agent of the Company.
|
|
|
20.3.
|
Service
of any summons, notice. order. document. process. information or written statement to
be served on the Company may be proved by showing that the summons. notice. order. document.
process, information or written statement was delivered to the registered office or the
registered agent of the Company or that it was mailed in such time as to admit to its
being delivered to the registered office or the registered agent of the Company in the
normal course of delivery withjn the period prescribed for service and was correctly
addressed and the postage was prepaid.
|
|
|
21.
|
VOLUNTARY
LIQUIDATION
|
The
Company may by Resolution of Shareho lders or by Resolution of Directors appoint a voluntary liquidator.
The
Company may by Resolution of Shareholders or by a resolution passed unanimously by all directors of the Company continue as
a company incorporated under the laws of a jurisdiction outside the British Virgin Islands in the manner provided under
those laws.
We, OFFSHORE INCORPORATIONS
LIMITED of P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands for, the purpose of incorporating
a BVI Business Company under the laws of the British Virgin Islands hereby sign these Articles of Association the 28th day of
December. 2011.
Incorporator
(Sd.)
Rexella D. Hodge
Authorised Signatory
OFFSHORE
INCORPORATIONS LIMITED
Exhibit
B
Company
Number: 1686548
SkyPeople
Foods Holdings Limited
CERTIFIED
COPY OF EXTRACT OF RESOLUTION
ADOPTED
BY THE DIRECTOR PURSUANT TO
THE
MEMORANDUM AND ARTICLES OF ASSOCIATION OF
THE
COMPANY ON THE 2ND DAY OF AUGUST 2017
Amendment
to Memorandum of Association
RESOLVED
|
that
Clause 6.2 of the Memorandum of Association of the Company be deleted in their entirety and the following he substituted in
lieu thereof:
|
6.2
The Company is authorised to issue a maximum or 25,000,000 shares of a single class each with a par value of US$0.002.
Dated
this 3rd day of August, 2017
Vistra
(BVI)
Limited
Registered Agent
(Resolution
dated 2nd August, 2017 was filed on 3rd August, 2017)
BVI
COMPANY NUMBER: 1686548
TERRITORY
OF THE BRITISH VIRGIN ISLANDS
THE
BVI BUSINESS COMPANIES ACT, 2004
MEMORANDUM
AND ARTICLES
OF
ASSOCIATION
OF
SkyPeople
Foods Holdings Limited
A
COMPANY LIMITED BY SHARES
Incorporated
on the 28th day of December, 2011
INCORPORATED
IN THE BRITISH VIRGIN ISLANDS
TERRITORY
OF THE BRITISH VIRGIN ISLANDS
THE BVI BUSINESS COMPANIES ACT, 2004
MEMORANDUM
OF ASSOCIATION
OF
SkyPeople
Foods Holdings Limited
A
COMPANY LIMITED BY SHARES
1.
|
DEFINITIONS AND INTERPRETATION
|
1.1.
|
In
this Memorandum of Association and the attached Articles of Association. if not inconsistent with the subject or context:
|
“Act”
means the BVI
Business Companies Act, 2004 (No. 16 of 2004) and includes the regulations made under the Act;
“Articles”
means the attached Articles of Association of the Company;
“
Chairman
of the Board’’
has the meanings specified in Regulation, 12;
“Distribution”
in relation to a distribution by the Company to a Shareholder means the direct or indirect transfer of an asset, other than
Shares, to or for the benefit of the Shareholder. or the incurring of a debt to or for the benefit of a Shareholder, in relation
to Shares held by a Shareholder, and whether by means of the purchase of an asset, the purchase, redemption or other acquisition
of Shares, a transfer of indebtedness or otherwise, and includes a dividend;
“
Eligible
Person”
means individuals, corporations. trusts, the
estates of deceased individuals, partnerships and unincorporated associations of persons;
“Memorandum”
means this Memorandum of Association of the Company:
“
Registrar”
means the Registrar of Corporate Affairs appointed under section
229 of the Act;
“
Resolution
of Directors”
means either:
|
(a)
|
a
resolution approved at a duly convened and constituted meeting of directors of the Company
or of a committee of directors of the Company by the affirmative vote of a majority of
the directors present at the meeting who voted except that where a director is given
more than one vote, he shall be counted by the number of votes he casts for the purpose
of establishing a majority: or
|
|
(b)
|
a
resolution consented to in writing by all directors or by all members of a committee
of directors of the Company. as the case may be:
|
“
Resolution
of Shareholders”
means either:
|
(a)
|
a
resolution approved at a duly convened and constituted meeting of the Shareholders of
the Company by the affirmative vote of a majority of in excess of 50 percent of the votes
of the Shares entitled to vote thereon which were present at the meeting and were voted;
or
|
|
(b)
|
a
resolution consented to in writing by a majority of in excess of 50 percent of the votes
of Shares entitled to vote thereon;
|
“
Seal”
means any seal which has been duly adopted as the common seal
of the Company;
“
Securities”
means Shares and debt obligations of every kind of the Company.
and including without limitation options. warrants and rights to acquire Shares or debt obligations;
“
Share”
means
a share issued or to be issued by the Company;
“
Shareholder”
means an Eligible Person whose name is entered in the register
of members or the Company as the holder of one or more Shares or fractional Shares;
“
Treasury
Share”
means a Share that was previously issued but was
repurchased. redeemed or otherwise acquired by the Company and not cancelled; and
“Written”
or any term of like import includes information generated. sent. received or stored by electronic, electrical, digital, magnetic,
optical, electromagnetic, biometric or photonic means, including electronic data interchange, electronic mail, telegram, telex
or telecopy, and
“in writing”
shall be construed accordingly.
1.2.
|
In
the Memorandum and the Articles, unless the context otherwise requires a reference to:
|
|
(a)
|
a
“Regulation”
is a reference to a regulation of the Articles;
|
|
(b)
|
a
“Clause”
is a reference to a clause of the Memorandum;
|
|
(c)
|
voting
by Shareholders is a reference to the casting of the votes attached to the Shares held
by the Shareholder voting;
|
|
(d)
|
the
Act, the Memorandum or the Articles is a reference to the Act or those documents as amended
or, in the case of the Act, any re-enactment thereof; and
|
|
(e)
|
the
singular includes the plural and vice versa.
|
1.3.
|
Any
words or expressions defined in the Act unless the context otherwise requires bear the
same meaning in the Memorandum and the Articles unless otherwise defined herein.
|
1.4.
|
Headings
are inserted for convenience only and shall be disregarded in interpreting the Memorandum
and the Articles.
|
The
name of the Company is SkyPeople
Foods Holdings Limited ( ).
The
Company is a company limited by Shares.
4.
|
REGISTERED OFFICE AND REGISTERED AGENT
|
4.1.
|
The
first registered office of the Company is at P.O. Box 957, Offshore Incorporations Centre,
Road Town, Tortola, British Virgin Islands, the office of the first registered agent.
|
4.2.
|
The
first registered agent of the Company is Offshore Incorporations Limited of P.O. Box
957. Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.
|
4.3.
|
The
Company may by Resolution of Shareholders or by Resolution of Directors change the location
of its registered office or change its registered agent.
|
4.4.
|
Any change of registered office or registered agent
will take effect on the registration by the Registrar of a notice of the change filed by the existing registered agent or a legal
practitioner in the British Virgin Islands acting on behalf of the Company.
|
5.1.
|
Subject
to the Act and any other British Virgin Islands legislation, the Company has, irrespective
of corporate benefit:
|
|
(a)
|
full
capacity to carry on or undertake any business or activity, do any act or enter into
any transaction; and
|
|
(b)
|
for
the purposes of paragraph (a), full rights, powers and privileges.
|
5.2.
|
For
the purposes of section 9(4) of the Act, there are no limitations on the business that
the Company may carry on.
|
6.
|
NUMBER
AND CLASSES OF SHARES
|
6.1.
|
Shares
in the company shall be issued in the currency of the United s
tates
of America.
|
6.2.
|
The
Company is authorised to issue a maximum of 50,000 Shares of a single class each with
a par value of US$1.00.
|
6.3.
|
The
Company may issue fractional Shares and a fractional Share shall have the corresponding
fractional rights, obligations and liabilities of a whole Share of the same class or
series of Shares.
|
6.4.
|
Shares
may be issued in one or more series of Shares as the directors may by Resolution of
Directors determine from time to time.
|
7.1.
|
Each
Share in the Company confers upon the Shareholder;
|
|
(a)
|
the
right to one vote at a meeting of the Shareholders of the Company or on any Resolution
of Shareholders;
|
|
|
|
|
(b)
|
the
right to an equal share in any dividend paid by the Company; and
|
|
|
|
|
(c)
|
the
right to an equal share in the distribution of the surplus assets of the Company on its
liquidation.
|
7.2.
|
The
Company may by Resolution of Directors redeem, purchase or otherwise acquire all or any
of the Shares in the Company subject to Regulation 3 of the Articles.
|
If
at any time the Shares are divided into different classes, the rights attached to any class may only be varied, whether or not
the Company is in liquidation, with the consent in writing of or by a resolution passed at a meeting by the holders of not less
than 50 percent of the issued Shares in that class.
9.
|
RIGHTS
NOT VARIED BY THE ISSUE OF SHARES PARI PASSU
|
The
rights conferred upon the holders of the Shares of any class shall not, unless otherwise expressly provided by the terms of issue
of the Shares of that class, be deemed to be varied by the creation or issue of further Shares ranking
pari passu
therewith.
1
0.1.
|
The Company shall issue Registered Shares only.
|
10.2.
|
The
Company is not authorised to issue Bearer Shares, convert Registered Shares to Bearer
Shares or exchange Registered Shares for Bearer Shares.
|
11.1.
|
Subject to Clause 13. the Company shall, on receipt
of an instrument of transfer complying with Sub-Regulation 6.1 of the Articles, enter the name of the transferee of a Share in
the register of members unless the directors resolve to refuse or delay the registration of the transfer for reasons that shall
be specified in a Resolution of Directors.
|
11.2.
|
The directors may
not resolve to refuse or delay the transfer of a Share unless the Shareholder has failed to pay an amount due in respect of
the Share.
|
12.
|
AMENDMENT
OF THE MEMORANDUM AND THE ARTICLES
|
12.1.
|
Subject
to Clause 8. the Company may amend the Memorandum or the Articles by Resolution of Shareholders
or by Resolution of Directors, save that no amendment may be made by Resolution of Directors:
|
|
(a)
|
to
restrict the rights or powers of the Shareholders to amend the Memorandum or the Articles;
|
|
(b)
|
to
change the percentage of Shareholders required to pass a Resolution of Shareholders to
amend the Memorandum or the Articles;
|
|
(c)
|
in
circumstances where the Memorandum or the Articles cannot be amended by the Shareholders;
or
|
|
(d)
|
to
Clauses 7. 8. 9 or this Clause 12.
|
12.2.
|
Any
amendment of the Memorandum or the Articles will take effect on the registration by the
Registrar of a notice of amendment. or restated Memorandum and Articles. filed by the
registered agent.
|
The
Company is a private company, and accordingly:
|
(a)
|
any
invitation to the public to subscribe for any Shares or debentures of the Company is
prohibited:
|
|
(b)
|
the
number of the members of the Company (not including persons who are in the employment of the Company, and persons who, having
been formerly in the employment of the Company, were, while in such employment, and have continued after the determination of
such employment to be, members of the Company) shall be limited to fifty PROVIDED that where two or more persons hold one or more
Shares in the Company jointly they shall, for the purposes of this Clause 13, be treated as a single member:
|
|
(c)
|
the
right to transfer the Shares of the Company shall be restricted in manner herein prescribed:
and
|
|
(d)
|
the
Company shall not have power to issue Share Warrants to Bearer.
|
We,
OFFSHORE INCORPORATIONS LIMITED of P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola. British Virgin Islands for
the purpose of incorporating a BVI Business Company under the laws of the British Virgin Islands hereby sign this Memorandum of
Association the 28th day of December, 2011.
Incorporator
(Sd.)
Rexella D. Hodge
Authorised Signatory
OFFSHORE
INCORPORATIONS LIMITED
TERRITORY
OF THE BRITISH VIRGIN ISLANDS
THE BVI BUSINESS COMPANIES ACT, 2004
ARTICLES
OF ASSOCIATION
OF
SkyPeople
Foods Holdings Limited
A
COMPANY LIMITED BY SHARES
l. l.
|
Every Shareholder is entitled to a certificate signed
by a director or officer of the Company, or any other person authorised by Resolution of Directors, or under the Seal specifying
the number of Shares held by him and the signature of the director, officer or authorised person and the Seal may be facsimiles.
|
1.2.
|
Any
Shareholder receiving a certificate shall indemnify and hold the Company and its directors
and officers harmless from any loss or liability which it or they may incur by reason
of any wrongful or fraudulent use or representation made by any person by virtue of the
possession thereof. If a certificate for Shares is worn out or lost it may be renewed
on production of the worn out certificate or on satisfactory proof of its loss together
with such indemnity as may be required by Resolution of Directors.
|
1.3.
|
If
several Eligible Persons are registered as joint holders of any Shares, any one of such Eligible Persons may give an effectual
receipt for any Distribution.
|
2.1.
|
Shares
and other Securities may be issued at such times, to such Eligible Persons, for such consideration
and on such terms as the directors may by Resolution of Directors determine.
|
|
|
2.2.
|
Section
46 of the Act
(Pre-emptive rights)
does not apply to the Company.
|
|
|
2.3.
|
A
Share may be issued for consideration in any form. including money. a promissory note. or other written obligation to contribute
money or property. real property. personal property (including goodwill and know-how). services rendered or a contract for
future services.
|
2.4.
|
The consideration for a Share with par value shall not
be less than the par value of the Share. If a Share with par value is issued for consideration less than the par value. the
person to whom the Share is issued is liable to pay to the Company an amount equal to the difference between the issue price and
the par value.
|
2.5.
|
No
Shares may be issued for a consideration other than money. unless a Resolution of Directors
has been passed stating:
|
|
(a)
|
the
amount to be credited for the issue of the Shares;
|
|
(b)
|
the
determination of the directors of the reasonable present cash value of the non-money
consideration for the issue; and
|
|
(c)
|
that.
in the opinion of the directors, the present cash value of the non-money consideration
for the issue is not less than the amount to be credited for the issue of the Shares.
|
2.6.
|
The
consideration paid for any Share. whether a par value Share or a no par value Share.
shall not be treated as a liability or debt of the Company for the purposes of
|
|
(a)
|
the
solvency test in Regulations 3 and 18; and
|
|
(b)
|
sections
197 and 209 of the Act.
|
2.7.
|
The
Company shall keep a register (the
“register of members’’)
containing:
|
|
(a)
|
the
names and addresses of the Eligible Persons who hold Shares:
|
|
(b)
|
the
number of each class and series of Shares held by each Shareholder:
|
|
(c)
|
the
date on which the name of each Shareholder was entered in the register of members: and
|
|
(d)
|
the
date on which any Eligible Person ceased to be a Shareholder.
|
2.8.
|
The
register of members may be· any such form as the directors may approve. but if
it is in magnetic. electronic or other data storage form, the Company must be able to
produce legible evidence of its contents. Until the directors Otherwise determine, the
magnetic, electronic or other data storage form shall be the original register of members.
|
2.9.
|
A
Share is deemed to be issued when the name of the Shareholder is entered in the register
of members.
|
3.
|
REDEMPTION
OF SHARES AND TREASURY SHARES
|
3.1.
|
The
Company may purchase, redeem or otherwise acquire and hold its own Shares save that the
Company may not purchase, redeem or otherwise acquire its own Shares without the consent
of Shareholders whose Shares are to be purchased, redeemed or otherwise acquired unless
the Company is permitted by the Act or any other Provision in the Memorandum or Articles
to purchase; redeem or otherwise acquire the Shares without their consent.
|
3.2.
|
The
Company may only offer to purchase, redeem or otherwise acquire Shares if the Resolution
of Directors authorising the purchase, redemption or other acquisition contains a statement
that the directors are satisfied, on reasonable grounds, that immediately after the acquisition
the value of the Company’s assets will exceed its liabilities and the Company will be
able to pay its debts as they fall due.
|
3.3.
|
Sections
60
(Process for acquisition of own Shares).
61 (
Offer to one or more shareholders)
and 62
(Shares
redeemed otherwise than at the option of company)
of the Act shall not apply to the Company.
|
3.4.
|
Shares that the Company purchases, redeems or otherwise
acquires pursuant to this Regulation may be cancelled or held as Treasury Shares except to the extent that such Shares are in
excess of 50 percent of the issued Shares in which case they shall be cancelled but they shall be available for reissue.
|
3.5.
|
All
rights and obligations attaching to a Treasury Share are suspended and shall not be exercised
by the Company while it holds the Share as a Treasury Share.
|
3.6.
|
Treasury
Shares may be transferred by the Company on such terms and conditions (not otherwise
inconsistent with the Memorandum and the Articles) as the Company may by Resolution of
Directors determine.
|
3.7.
|
Where
Shares are held by another body corporate of which the Company holds, directly or indirectly,
Shares having more than 50 percent of the votes in the election of directors of the other
body corporate, all rights and obligations attaching to the Shares held by the other
body corporate are suspended and shall not be exercised by the other body corporate.
|
4.
|
MORTGAGES
AND CHARGES OF SHARES
|
4.1.
|
Shareholders
may mortgage or charge their Shares.
|
4.2.
|
There shall be entered in the register of members at
the written request of the Shareholder:
|
|
(a)
|
a
statement that the Shares held by him are mortgaged or charged:
|
|
(b)
|
the
name of the mortgagee or chargee; and
|
|
(c)
|
the
date on which the particulars specified in subparagraphs (a) and (b) are entered in the
register of members.
|
4.3.
|
Where
particulars of a mortgage or charge are entered in the register of members. such particulars
may be cancelled:
|
|
(a)
|
with
the written consent of the named mortgagee or chargee or anyone authorised to act on
his behalf: or
|
|
(b)
|
upon
evidence satisfactory to the directors of the discharge of the liability secured by the
mortgage or charge and the issue of sue indemnities as the directors shall consider necessary
or desirable.
|
4.4.
|
Whilst
particulars of a mortgage or charge over Shares are entered in the register of members
pursuant to this Regulation:
|
|
(a)
|
no
transfer of any Share the subject of those particulars shall be effected;
|
|
(b)
|
the
Company may not purchase, redeem or otherwise acquire any such Share; and
|
|
(c)
|
no
replacement certificate shall be issued in respect of such Shares.
|
without the written consent of the named mortgagee
or chargee.
5.1.
|
Shares
that are not fully paid on issue are subject to the forfeiture provisions set forth in
this Regulation and for this purpose Shares issued for a promissory note, other written
obligation to contribute money or property or a contract for future services are deemed
to be not fully paid.
|
5.2.
|
A
written notice of call specifying the date for payment to be made shall be served on
the Shareholder who defaults in making payment in respect of the Shares.
|
5.3.
|
The
written notice of call referred to in Sub-Regulation 5.2 shall name a further date not
earlier than the expiration of 14 days from the date of service of the notice on or before
which the payment required by the notice is to be made and shall contain a statement
that in the event of non-payment at or before the time named in the notice the Shares,
or any of them, in respect of which payment is not made will be liable to be forfeited.
|
5.4.
|
Where
a written notice of call has been issued pursuant to Sub-Regulation 5.3 and the requirements
of the notice have not been complied with, the directors may, at any time before tender
of payment. forfeit and cancel the Shares to which the notice relates.
|
5.5.
|
The
Company is under no obligation to refund any moneys to the Shareholder whose Shares have
been cancelled pursuant to Sub-Regulation 5.4 and that Shareholder shall be discharged
from any further obligation to the Company.
|
6.1.
|
Subject
to the Memorandum. Shares may be transferred by a written instrument of transfer signed
by the transferor and containing the name and address of the transferee, which shall
be sent to the Company for registration.
|
6.2.
|
The
transfer of a Share is effective when the name of the transferee is entered on the register
of members.
|
6.3.
|
If
the directors of the Company are satisfied that an instrument of transfer relating to
Shares has been signed but that the instrument has been lost or destroyed. they may resolve
by Resolution of Directors:
|
|
(a)
|
to
accept such evidence of the transfer of Shares as they consider appropriate: and
|
|
(b)
|
that
the transferee’s name should be entered in the register of members notwithstanding
the absence of the instrument of transfer.
|
6.4.
|
Subject
to the Memorandum. the personal representative of a deceased Shareholder may transfer
a Share even though the personal representative is not a Shareholder at the time of the
transfer.
|
7.
|
MEETINGS
AND CONSENTS OF SHAREHOLDERS
|
7.1.
|
Any
director of the Company may convene meetings of the Shareholders at such times and in
such manner and places within or outside the British Virgin Islands as the director considers
necessary or desirable.
|
7
.
2
.
|
Upon the written
request of Shareholders entitled to exercise 30 percent or more of the voting rights in respect of the matter for which the
meeting requested the directors shall convene a meeting of Shareholders.
|
7 .3.
|
The director convening a meeting shall give
not less than 7 days’ notice of a meeting of Shareholders to:
|
|
(a)
|
those
Shareholders whose names on the date the notice is given appear as Shareholders in the
register of members of the Company and are entitled to vote at the meeting; and
|
7.4.
|
The
director convening a meeting of Shareholders may fix as the record date for determining
those Shareholders that are entitled to vote at the meeting the date notice is given
of the meeting, or such other date as may be specified in the notice. being a date not
earlier than the date of the notice.
|
7.5.
|
A
meeting of Shareholders held in contravention of the requirement to give notice is valid
if Shareholders holding at least 90 percent of the total voting rights on all the matters
to be considered at the meeting have waived notice of the meeting and. for this purpose.
the presence of a Shareholder at the meeting shall constitute waiver in relation to all
the Shares which that Shareholder holds.
|
7.6.
|
The
inadvertent failure of a director who convenes a meeting to give notice of a meeting
to a Shareholder or another director. or the fact that a Shareholder or another director
has not received notice. does not invalidate the meeting.
|
7.7.
|
A
Shareholder may be represented at a meeting of Shareholders by a proxy who may speak
and vote on behalf of the Shareholder.
|
7.8.
|
The
instrument appointing a proxy shall be produced at the place designated for the meeting
before the time for holding the meeting at which the person named in such instrument
proposes to vote. The notice of the meeting may specify an alternative or additional
place or time at which the proxy shall be presented.
|
7.9.
|
The
instrument appointing a proxy shall be in substantially the following form or such other
form as the chairman of the meeting shall accept as properly evidencing the wishes of
the Shareholder appointing the proxy.
|
|
|
|
[COMPANY
NAME]
|
|
|
|
I/We
being a Shareholder of the above Company HEREBY APPOINT
of
or failing him
of
to be my/our proxy to vote for me/us at the meeting of Shareholders to be held on
the
day of
,
20
and at any adjournment thereof.
|
|
|
|
(Any
restrictions on voting to be inserted here.)
|
|
|
|
Signed
this
day of
,
20
|
|
|
|
|
|
Shareholder
|
7.
10.
|
The
following applies where Shares are jointly owned:
|
|
(a)
|
if
two or more persons hold Shares jointly each of them may be present in person or by proxy
at a meeting of Shareholders and may speak as a Shareholder;
|
|
(b)
|
if
only one of the joint owners is present in person or by proxy he may vote on behalf of all joint owners; and
|
|
(c)
|
if
two or more of the joint owners are present in person or by proxy they must vote as one.
|
7. 11.
|
A Shareholder shall be deemed to be present at a meeting of Shareholders if he participates
by telephone or other electronic means and all Shareholders participating in the meeting are able to hear each other.
|
7.2.
|
A
meeting of Shareholders is duly constituted if, at the commencement of the meeting, there
are present in person or by proxy not less than 50 percent of the votes of the Shares
entitled to vote on Resolutions of Shareholders to be considered at the meeting. A quorum
may comprise a single Shareholder or proxy and then such person may pass a Resolution
of Shareholders and a certificate signed by such person accompanied where such person
be a proxy by a copy of the proxy instrument shall constitute a valid Resolution of Shareholders
.
|
7.13.
|
If within two hours from the time appointed for the
meeting a quorum is not present. the meeting. if convened upon the requisition of Shareholders. shall be dissolved; in any other
case it shall stand adjourned to the next business day in the jurisdiction in which the meeting was to have been held at the same
time and place or to such other time and place as the directors may determine. and if at the adjourned meeting there are present
within one hour from the time appointed for the meeting in person or by proxy not less than one third of the votes of the Shares
or each class or series of Shares entitled to vote on the matters to be considered by the meeting. those present shall constitute
a quorum but otherwise the meeting shall be dissolved.
|
7.14.
|
At every meeting of Shareholders. the Chairman of the
Board shall preside as chairman of the meeting. If there is no Chairman of the Board or if the Chairman of the Board is not present
at the meeting. the Shareholders present shall choose one of their number to be the chairman. If the Shareholders are unable to
choose a chairman for any reason. then the person representing the greatest number of voting Shares present in person or by proxy
at the meeting shall preside as chairman failing which the oldest individual Shareholder or representative of a Shareholder present
shall take the chair.
|
7.15.
|
The chairman may, with the consent of the meeting, adjourn
any meeting from time to time, and from place to place, but no business shall be transacted at any adjourned meeting other than
the business left unfinished at the meeting from which the adjournment took place.
|
|
7.16.
|
At
any meeting of the Shareholders the chairman is responsible for deciding in such manner as he considers appropriate whether any
resolution proposed has been carried or not and the result of his decision shall be announced to the meeting and recorded in the
minutes of the meeting. If the chairman has any doubt as to the outcome of the vote on a proposed resolution, he shall cause a
poll to be taken of all votes cast upon such resolution. If the chairman fails to take a poll then any Shareholder present in
person or by proxy who disputes the announcement by the chairman of the result of any vote may immediately following such announcement
demand that a poll be taken and the chairman shall cause a poll to be taken. If a poll is taken at any meeting, the result shall
be announced to the meeting and recorded in the minutes of the meeting.
|
|
7.17.
|
Subject
to the specific provisions contained in this Regulation for the appointment of representatives of Eligible Persons other than
individuals the right of any individual to speak for or represent a Shareholder shall be determined by the law of the jurisdiction
where, and by the documents by which, the Eligible Person is constituted or derives its existence. In case of doubt, the directors
may in good faith seek legal advice from any qualified person and unless and until a court of competent jurisdiction shall otherwise
rule, the directors may rely and act upon such advice without incurring any liability to any Shareholder or the Company.
|
|
7.18.
|
Any
Eligible Person other than an individual which is a Shareholder may by resolution of its directors or other governing body authorise
such individual as it thinks fit to act as its representative at any meeting of Shareholders or of any class of Shareholders,
and the individual so authorised shall be entitled to exercise the same rights on behalf of the Shareholder which he represents
as that Shareholder could exercise if it were an individual.
|
|
7.19.
|
The chairman of
any meeting at which a vote is cast by proxy or on behalf of any Eligible Person other than an individual may call for a notarially
certified copy of such proxy or authority which shall be produced within 7 days of being so requested or the votes cast by such
proxy or on behalf of such Eligible
Person shall be
disregarded.
|
|
7.20.
|
Directors of the
Company may attend and speak at any meeting of Shareholders and at any separate meeting
of the holders of any class or series of Shares.
|
|
7.21.
|
An action that may
be taken by the Shareholders at a meeting may also be taken by a resolution consented to in writing, without the need for
any notice, but if any Resolution of Shareholders is adopted otherwise than by the unanimous written
consent of all Shareholders, a copy of such resolution shall forthwith be sent to all Shareholders nor consenting to such
resolution.
The consent may be in the form of counterparts, each counterpart being signed by one or more Shareholders.
If
the
consent
is in one or more counterparts, and the counterparts bear different dates, then the resolution shall take effect on the
earliest date upon which Shareholders holding a sufficient number of votes of Shares to constitute a Resolution of
Shareholders have consented to the resolution by signed counterparts.
|
|
8.1.
|
The
first directors of the Company shall be appointed by the first registered agent within 6 months of the date of incorporation of
the Company; and thereafter, the directors shall be elected by Resolution of Shareholders or by Resolution of Directors.
|
|
8.2.
|
No
person shall be appointed as a director, or nominated as a reserve director, of the Company unless he has consented in writing
to be a director or to be nominated as a reserve director.
|
|
8.3.
|
Subject
to Sub-Regulation 8.1. the minimum number of directors shall be one and there shall be no maximum number.
|
|
8.4.
|
Each
director holds office for the term, if any, fixed by the Resolution of Shareholders or the Resolution of Directors appointing
him, or until his earlier death, resignation or removal. If no term is fixed on the appointment of a director, the director serves
indefinitely until his earlier death, resignation or removal.
|
|
8.5.
|
A
director may be removed from office.
|
|
(a)
|
with
or without cause, by Resolution of Shareholders passed at a meeting of Shareholders called
for the purposes of removing the director or for purposes including the removal of the
director or by a written resolution passed by at least 75 percent of the Shareholders
of the Company entitled to vote; or
|
|
|
|
|
(b)
|
with
cause, by Resolution of Directors passed at a meeting of directors called for the purpose
of removing the director or for purposes including the removal of the director.
|
8.6.
|
A
director may resign his office by giving written notice of his resignation to the Company
and the resignation has effect from the date the notice is received by the Company or
from such later date as may be specified in the notice. A director shall resign forthwith
as a director if he is, or becomes, disqualified from acting as a director under the
Act.
|
|
|
8.7.
|
The
directors may at any time appoint any person to be a director either to fill a vacancy
or as an addition to the existing directors. Where the directors appoint a person as
director to fill a vacancy, the term shall not exceed the term that remained when the
person who has ceased to be a director ceased to hold office.
|
|
|
8.8.
|
A
vacancy in relation to directors occurs if a director dies or otherwise ceases to hold
office prior to the expiration of his term of office.
|
|
|
8.9.
|
Where
the Company only has one Shareholder who is an individual and that Shareholder is also
the sole director of the Company, the sole Shareholder/director may, by instrument in
writing, nominate a person who is not disqualified from being a director of the Company
as a reserve director of the Company to act in the place of the sole director in the
event of his death.
|
8.10.
|
The
nomination of a person as a reserve director of the Company ceases to have effect if:
|
|
(a)
|
before
the death of the sole Shareholder/director who nominated him,
|
|
(i)
|
he
resigns as reserve director, or
|
|
|
|
|
(ii)
|
the
sole Shareholder/director revokes the nomination in writing: or
|
|
(b)
|
the sole Shareholder/director
who nominated him ceases to be able to be the sole Shareholder/director of the Company for any reason other than his death.
|
8.11.
|
The
Company shall keep a register of directors containing:
|
|
(a)
|
the
names and addresses of the persons who are directors of the Company or who have been
nominated as reserve directors of the Company:
|
|
(b)
|
the
date on which each person whose name is entered in the register was appointed as a director, or nominated as a reserve director,
of the Company;
|
|
(c)
|
the
date on which each person named as a director ceased to be a director of the Company;
|
|
(d)
|
the
date on which the nomination of any person nominated as a reserve director ceased to
have effect; and
|
|
(e)
|
such
other information as may be prescribed by the Act.
|
8.12.
|
The
register of directors may be kept in any such form as the directors may approve, but
if it is in magnetic, electronic or other data storage form, the Company must be able
to produce legible evidence of its contents. Until a Resolution of Directors determining
otherwise is passed, the magnetic, electronic or other data storage shall be the original
register of directors.
|
|
|
8.13.
|
The
directors may, by Resolution of Directors, fix the emoluments of directors with respect
to services to be rendered in any capacity to the Company.
|
8.14.
|
A director is not required to hold a Share as a qualification
to office.
|
9.
|
POWERS
OF DIRECTORS
|
|
|
9.1.
|
The
business and affairs of the Company shall be managed by, or under the direction or supervision
of, the directors of the Company. The directors of the Company have all the powers necessary
for managing, and for directing and supervising, the business and affairs of the Company.
The directors may pay all expenses incurred preliminary to and in connection with the
incorporation of the Company and may exercise all such powers of the Company as are not
by the Act or by the Memorandum or the Articles required to be exercised by the Shareholders.
|
|
|
9.2.
|
Each
director shall exercise his powers for a proper purpose and shall not act or agree to
the Company acting in a manner that contravenes the Memorandum, the Articles or the Act.
Each director, in exercising his powers or performing his duties, shall act honestly
and in good faith in what the director believes to be the best interests of the Company.
|
|
|
9.3.
|
If
the Company is the wholly owned subsidiary of a holding company, a director of the Company
may, when exercising powers or performing duties as a director, act in a manner which
he believes is in the best interests of the holding company even though it may not be
in the best interests of the Company.
|
9.4.
|
Any director which
is a body corporate may appoint any individual as its duly authorised representative for the purpose of representing it at
meetings of the directors, with respect to the signing of consents or otherwise.
|
9.5.
|
The
continuing directors may act notwithstanding any vacancy in their body.
|
9.6.
|
The directors may
by Resolution of Directors exercise all the powers of the Company to incur indebtedness, liabilities or obligations and
to secure indebtedness, liabilities or obligations whether of the Company or of any third party.
|
9.7.
|
All
cheques, promissory notes, drafts, bills of exchange and other negotiable instruments
and all receipts for moneys paid to the Company shall be signed, drawn, accepted, endorsed
or otherwise executed, as the case may be, in such manner as shall from time to time be determined by Resolution of Directors.
|
|
|
9.8.
|
For
the purposes of Section 175
(Disposition of assets)
of the Act, the directors may by Resolution of Directors determine
that any sale, transfer, lease, exchange or other disposition is in the usual or regular course of the business carried on by
the Company and such determination is, in the absence of fraud, conclusive.
|
10.
|
PROCEEDINGS
OF DIRECTORS
|
10.1.
|
Any one director
of the Company may call a meeting of the directors by sending a written notice to each other director.
|
10.2.
|
The
directors of the Company or any committee thereof may meet at such times and in such
manner and places within or outside the British Virgin Islands as the directors may determine
to be necessary or desirable.
|
10.3.
|
A
director is deemed to be present at a meeting of directors if he participates by telephone
or other electronic means and all directors participating in the meeting are able to
hear each other.
|
10.4.
|
A director shall be
given not less than 3 days’ notice of meetings of directors, but a meeting of directors held without 3 days’
notice having been given to all directors shall be valid if all the directors entitled to vote at the meeting who do not
attend waive notice of the meeting, and for this purpose the presence of a director at a meeting shall constitute waiver by
that director. The inadvertent failure to give notice of a meeting to a director, or the fact that a director has not
received the notice, does not invalidate the meeting.
|
10.5.
|
A director may by a
written instrument appoint an alternate who need not be a director and the alternate shall be entitled to attend meetings in
the absence of the director who appointed him and to vote in place of the director until the appointment lapses or is
terminated.
|
10.6.
|
A meeting of directors is duly constituted for all purposes
if at the commencement of the meeting there are present in person or by alternate not less than one-half of the total number of
directors, unless there are only 2 directors in which case the quorum is 2.
|
10.7.
|
If the Company has only one director the provisions
herein contained for meetings of directors do not apply and such sole director has full power to represent and act for the Company
in all matters as are not by the Act, the Memorandum or the Articles required to be exercised by the Shareholders. In lieu of
minutes of a meeting the sole director shall record in writing and sign a note or memorandum of all matters requiring a Resolution
of Directors. Such a note or memorandum constitutes sufficient evidence of such resolution for all purposes.
|
10.8.
|
At meetings of directors at which the Chairman of the
Board is present, he shall preside as chairman of the meeting. If there is no Chairman of the Board or if the Chairman of the
Board is not present, the directors present shall choose one of their number to be chairman of the meeting.
|
10.9.
|
An action that may
be taken by the directors or a committee of directors at a meeting may also be taken by a Resolution of Directors or a
resolution of a committee of directors consented to in writing by all directors or by all members of the committee, as the
case may be, without the need for any notice. The consent may be in the form of counterparts each counterpart being signed by
one or more directors. If the consent is in one or more counterparts, and the counterparts bear different dates, then the
resolution shall take effect on the date upon which the last director has consented to the resolution by signed
counterparts.
|
11.1.
|
The directors may,
by Resolution of Directors, designate one or more committees, each consisting of one or more directors, and delegate one or
more of their powers, including the power to affix the Seal, to the committee.
|
11.2.
|
The
directors have no power to delegate to a committee of directors any of the following
powers:
|
|
(a)
|
to
amend the Memorandun or the Articles;
|
|
(b)
|
to
designate committees of directors;
|
|
(c)
|
to
delegate powers to a committee of directors;
|
|
(d)
|
to
appoint or remove directors;
|
|
(e)
|
to
appoint or remove an agent;
|
|
(f)
|
to
approve a plan of merger, consolidation or arrangement;
|
|
(g)
|
to
make a declaration of solvency or to approve a liquidation plan; or
|
|
(h)
|
to
make a determination that immediately after a proposed Distribution the value of the
Company's assets will exceed its liabilities and the Company will be able to pay its
debts as they fall due.
|
11.3.
|
Sub-Regulation
11.2(b) and (c) do not prevent a committee of directors, where authorised by the Resolution
of Directors appointing such committee or by a subsequent Resolution of Directors, from
appointing a sub-committee and delegating powers exercisable by the committee to the
sub-committee.
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11.4.
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The meetings
and proceedings of each committee of directors consisting of 2 or more directors shall be governed
mutatis mutandis
by the provisions of the Articles regulating the proceedings of directors so far as the same are not
superseded by any provisions in the Resolution of Directors establishing the committee.
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11.5.
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Where the directors delegate their powers to a
committee of directors they remain responsible for the exercise of that power by the committee. unless they believed on reasonable
grounds at all times before the exercise of the power that the committee would exercise the power in conformity with the duties
imposed on directors of the Company under the Act.
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12.
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OFFICERS
AND AGENTS
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12.1.
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The
Company may by Resolution of Directors appoint officers of the Company al such times
as may be considered necessary or expedient. Such officers may consist of a Chairman
of the Board of Directors, a president and one or more vice-presidents, secretaries and
treasurers and such other officers as may from time to time be considered necessary or
expedient. Any number of offices may be held by the same person.
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12.2.
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The
officers shall perform such duties as are prescribed at the time of their appointment
subject to any modification in such duties as may be prescribed thereafter by Resolution
of Directors. In the absence of any specific prescription of duties it shall be the responsibility of the Chairman of the
Board to preside at meetings of directors and Shareholders, the president lo manage the day to day affairs of the Company,
the vice-presidents to act in order of seniority in the absence of the president but
otherwise to perform such duties as may be delegated to them by the president, the
secretaries to maintain the register of members, minute books and records (other
than financial records) of the Company and to ensure compliance with all procedural
requirements imposed on the Company by applicable law, and the treasurer to be
responsible for the financial affairs of the Company.
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12.3.
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The emoluments of all officers shall be fixed by Resolution
of Directors.
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12.4.
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The officers of the Company shall hold office until
their successors are duly appointed, but any officer elected or appointed by the directors may be removed at any time, with
or without cause, by Resolution of Directors. Any vacancy occurring in any office of the Company may be filled by Resolution of
Directors.
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1
2.5.
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The directors may,
by Resolution of Directors, appoint any person, including a person who is a director, to be an agent of the
Company.
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12.6.
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An agent of the Company
shall have such-powers and authority of the directors, including the power and authority to affix the Seal, as are set forth
in the Articles or in the Resolution of Directors appointing the agent, except that no agent has any power or authority with
respect to the following:
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(a)
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to
amend the Memorandum or the Articles;
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(b)
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to
change the registered office or agent;
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(c)
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to
designate committees of directors;
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(d)
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to
delegate powers to a committee of directors;
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(e)
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to
appoint or remove directors;
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(f)
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to
appoint or remove an agent;
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(g)
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to
fix emoluments of directors;
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(h)
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to
approve a plan of merger, consolidation or arrangement;
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(i)
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to
make a declaration of solvency or to approve a liquidation plan;
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(j)
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to
make a determination that immediately after a proposed Distribution the value of the
Company's assets will exceed its liabilities and the Company will be able to pay its
debts as they fall due; or
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(k)
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to
authorise the Company to continue as a company incorporated under the laws of a jurisdiction
outside the British Virgin Islands.
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12.7.
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The Resolution of
Directors appointing an agent may authorise the agent to appoint one or more substitutes or delegates to exercise some or all
of the powers conferred on the agent by the Company.
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12.8.
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The directors may remove an agent appointed by the Company
and may revoke or vary a power conferred on him.
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13.
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CONFLICT
OF INTERESTS
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13.1.
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A
director of the Company shall, forthwith after becoming aware of the fact that he is
interested in a transaction entered into or to be entered into by the Company, disclose
the interest to all other directors of the Company.
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13.2.
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For
the purposes of Sub-Regulation 13.1, a disclosure to all other directors to the effect
that a director is a member, director or officer of another named entity or has a fiduciary
relationship with respect to the entity or a named individual and is to be regarded as
interested in any transaction which may, after the date of the entry into the transaction
or disclosure of the interest, be entered into with that entity or individual, is a sufficient
disclosure of interest in relation to that transaction.
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13.3.
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A
director of the Company who is interested in a transaction entered into or to be entered
into by the Company may:
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(a)
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vote
on a matter relating to the transaction:
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(b)
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attend
a meeting of directors at which a matter relating to the transaction arises and be included
among the directors present at the meeting for the purposes of a quorum; and
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(c)
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sign
a document on behalf of the Company, or do any other thing in his capacity as a director, that relates to the
transaction,
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and, subject
to compliance with the Act shall not, by reason of his office be accountable to the Company for any benefit which he
derives from such transaction and no such transaction shall be liable to be avoided on the grounds of any such interest
or benefit.
14.
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INDEMNIFICATION
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14.1.
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Subject
to the limitations hereinafter provided the Company shall indemnify against all expenses, including legal fees, and against
all judgments, fines and amounts paid in settlement and reasonably incurred in
connection with legal, administrative or investigative proceedings any person
who:
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(a)
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is
or was a party or is threatened to be made a party to any threatened, pending or completed
proceedings, whether civil, criminal, administrative or investigative, by reason of the
fact that the person is or was a director of the Company: or
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(b)
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is
or was, at the request of the Company, serving as a director of, or in any other capacity
is or was acting for, another body corporate or a partnership, joint venture, trust or
other enterprise.
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14.2.
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The indemnity in
Sub-Regulation 14.1 only applies if the person acted honestly and in good faith with a view to the best interests of the
Company and, in the case of criminal proceedings, the person had no reasonable cause to believe that their conduct was
unlawful.
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14.3.
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For
the purposes of Sub-Regulation 14.2, a director acts in the best interests of the Company
if he acts in the best interests of
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(a)
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the
Company’s holding company; or
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(b)
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a
Shareholder or Shareholders of the Company;
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in
either case. in the circumstances specified in Sub-Regulation 9.3 or the Act. as the case may be.
14.4.
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The decision of
the directors as to whether the person acted honestly and in good faith and with a view to the best interests of the Company
and as to whether the person had no reasonable cause to believe that his conduct was unlawful is. in the absence of fraud.
sufficient for the purposes of the Articles. unless a question of law is involved.
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14.5.
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The termination
of any proceedings by any judgment, order, settlement, conviction or the entering of a
nolle prosequi
does not, by
itself. create a presumption that the person did not act honestly and in good faith and with a view to the best interests
of the Company or that the person had reasonable cause to believe that his conduct was unlawful.
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14.6.
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Expenses,
including legal fees, incurred by a director in defending any legal. administrative or investigative proceedings may be
paid by the Company in advance of the final disposition of such proceedings upon receipt of an undertaking by or on
behalf of the director to repay the amount if it shall ultimately be determined that the director is not entitled to be
indemnified by the Company in accordance with Sub-Regulation 14.1.
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14.7.
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Expenses,
including legal fees, incurred by a former director in defending any legal, administrative or investigative proceedings may
be paid by the Company in advance of the final disposition of such proceedings upon receipt of an undertaking by or on behalf
of the former director to repay the amount if it shall ultimately be determined that the former director is not entitled to
be indemnified by the Company in accordance with Sub-Regulation 14.1 and upon such terms and conditions, if any, as the
Company deems appropriate.
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14.8.
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The
indemnification and advancement of expenses provided by, or granted pursuant to, this section is not exclusive of any
other rights to which the person seeking indemnification or advancement of expenses may be entitled under any agreement,
Resolution of Shareholders. resolution of disinterested directors or otherwise, both as acting in the person’s
official capacity and as to acting in another capacity while serving as a director of the Company.
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14.9.
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If a person referred to in Sub-Regulation 14.1 has been successful in defence of any
proceedings referred to in Sub-Regulation 14.1, the person is entitled to be indemnified against all expenses,
including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the
person in connection with the proceedings.
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14.10.
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The Company may purchase and maintain insurance in relation to any person who is or was a
director, officer or liquidator of the Company, or who at the request of the Company is or was serving as a director, officer
or liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust
or other enterprise against any liability asserted against the person and incurred by the person in that capacity.
whether or not the Company has or would have had the power to indemnify the person against the liability as provided
in the Articles.
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15.
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RECORDS
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15.1.
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The
Company shall keep the following documents at the office of its registered agent:
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(a)
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the
Memorandum and the Articles:
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(b)
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the
register of members. or a copy of the register of members:
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(c)
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the
register of directors. or a copy of the register of directors: and
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(d)
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copies
of all notices and other documents filed by the Company with the Registrar of Co rporate
Affairs in the previous IO years.
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15.2.
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Until
the directors determine otherwise by Resolution of Direcwrs the Company shaJI keep the
original register of members and original register of directors at the office of its registered
agent.
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15.3.
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If
the Company maintains only a copy of the register of members or a copy of the register
of directors at the office of its registered agent. it shall:
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(a)
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within
15 days of any change in either register. notify the registered agent in writing of the
change: and
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(b)
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provide
the registered agent with a written record of the physical address of the place or places
at which the original register of members or the original register of directors is kept.
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15.4.
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The Company shall keep the following records at the
office of its registered agent or at such other place or places, within or outside the British Virgin Islands. as the directors
may determine:
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(a)
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minutes
of meetings and Resolutions of Shareholders and classes of Shareholders:
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(b)
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minutes
of meetings and Resolutions of Directors and committees of directors: and
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(c)
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an
impression of the Seal.
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15.5.
|
Where
any original records referred to in this Regulation are maintained other than at the
office of the registered agent of the Company. and the place at which the original records
is changed. the Company shall provide the registered agent with the physical address
of the new location of the records of the Company within 14 days of the change of location.
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15.6.
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The
records kept by the Company under this Regulation shall be in written form or either
wholly or partly as electronic records complying with the requirements of the Electronic
Transactions Act.
2001
(No. 5 of
200
I) as from time to time amended or
re-enacted.
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The
Company shall maintain at the office of its registered agent a register of charges in which there shall be entered the
following particulars regarding each mortgage, charge and other encumbrance created by the Company:
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(a)
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the
date of creation of the charge;
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(b)
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a
short description of the liability secured by the charge;
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(c)
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a
short description of the property charged;
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(d)
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the
name and address of the trustee fo the security or, if there is no such trustee, the
name and address of the chargee;
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(e)
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unless
the charge is a security to bearer, the name and address of the holder of the charge; and
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(f)
|
details
of any prohibition or restriction contained in the instrument creating the charge on
the power of the Company co create any future charge ranking in priority to or equally
with the charge.
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The
Company shall have a Seal and may have more than one Seal and references herein to the Seal shall be references to every
Seal which shall have been duly adopted by Resolution of Directors. The directors shall provide for the safe custody of the
Seal and for an imprint thereof co be kept at the registered office. Except as otherwise expressly provided herein the Seal
when affixed to any written instrument shall be witnessed and attested co by the signature of any one director or other
person so authorised from time to time by Resolution of Directors. Such authorisation may be before or after the Seal is
affixed. may be general or specific and may refer to any number of sealings. The directors may provide for a facsimile of the
Seal and of the signature of any director or authorised person which may be reproduced by printing or other means on any
instrument and it shall have the same force and validity as if the Seal had been affixed to such instrument and the same had
been attested to as herein before described.
18.
|
DISTRIBUTIONS
BY WAY OF DIVIDEND
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18.1.
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The directors of the Company may, by Resolution of Directors. authorise a Distribution
by way of dividend at a time and of an amount they think fit if they are satisfied. on
reasonable grounds. that. immediately after the Distribution. the value of the Company"s
assets will exceed its liabilities and the Company will be able to pay its debts as they
fall due.
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18.2.
|
Dividends
may be paid in money, Shares. or other property.
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18.3.
|
Notice
of any dividend that may have been declared shall be given to each Shareholder as specified
in Sub-Regulation 20.1 and all dividends unclaimed for 3 years after having been declared
may be forfeited by Resolution of Directors for the benefit of the Company.
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18.4.
|
No
dividend shall bear interest as against the Company and no dividend shall be paid on
Treasury Shares.
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19.
|
ACCOUNTS
AND AUDIT
|
19.1
|
The Company shall keep records that are sufficient
to show and explain the Company’s transactions and that will. at any time. enable the financial position of the Company to
be determined with reasonable accuracy.
|
19.2
|
The Company may
by Resolution of Shareholders call for the directors to prepare periodically and make available a profit and loss account
and a balance sheet. The profit and loss account and balance sheet shall be drawn up so as to give respectively a true and
fair view of the profit and loss of the Company for a financial period and a true and fair view of the assets and liabilities
of the Company as at the end of a financial period.
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19.3.
|
The
Company may by Resolution of Shareholders call for the accounts to be examined by auditors.
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|
19.4.
|
The
first auditors shall be appointed by Resolution of Directors; subsequent auditors shall
be appointed by Resolution of Shareholders or by Resolution of Directors.
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|
19.5.
|
The
auditors may be Shareholders, but no director or other officer shall be eligible to be
an auditor of the Company during their continuance in office.
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19.6.
|
The
remuneration of the auditors of the Company may be fixed by Resolution of Directors.
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|
19.7.
|
The
auditors shall examine each profit and loss account and balance sheet required to be
laid before a meeting of the Shareholders or otherwise given to Shareholders and shall
state in a written report whether or not:
|
|
(a)
|
in
their opinion the profit and loss account and balance sheet give a true and fair view
respectively of the profit and loss for the period covered by the accounts. and of the
assets and liabilities of the Company at the end of that period: and
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(b)
|
all
the information and explanations required by the auditors have been obtained.
|
19.8.
|
The
report of the auditors shall be annexed to the accounts and shall be read at the meeting
of Shareholders at which the accounts are laid before the Company or shall be otherwise
given to the Shareholders.
|
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|
19.9.
|
Every
auditor of the Company shall have a right of access at all times to the books of account
and vouchers of the Company. and shall be entitled to require from the directors and
officers of the Company such information and explanations as he thinks necessary for
the performance of the duties of the auditors.
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|
19.10.
|
The
auditors of the Company shall be entitled to receive notice of. and to attend any meetings
or Shareholders at which the Company"s profit and loss account and balance sheet
are to be presented.
|
20.
|
NOTICES
|
|
|
20.1.
|
Any notice. information or written statement to be given by the Company to Shareholders
may be given by personal service or by mail addressed to each Shareholder at the address
shown in the register of members.
|
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|
20.2.
|
Any
summons. notice. order. document. process. informatio n or written statement to be served
on the Company may be served by leaving it. or by sending it by registered mail addressed
to the Company. at its registered office. or by leaving it with. or by sending it by
registered mail to. the registered agent of the Company.
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20.3.
|
Service
of any summons, notice. order. document. process. information or written statement to
be served on the Company may be proved by showing that the summons. notice. order. document.
process, information or written statement was delivered to the registered office or the
registered agent of the Company or that it was mailed in such time as to admit to its
being delivered to the registered office or the registered agent of the Company in the
normal course of delivery withjn the period prescribed for service and was correctly
addressed and the postage was prepaid.
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21.
|
VOLUNTARY
LIQUIDATION
|
The
Company may by Resolution of Shareho lders or by Resolution of Directors appoint a voluntary liquidator.
The
Company may by Resolution of Shareholders or by a resolution passed unanimously by all directors of the Company continue as
a company incorporated under the laws of a jurisdiction outside the British Virgin Islands in the manner provided under
those laws.
We, OFFSHORE INCORPORATIONS
LIMITED of P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands for, the purpose of incorporating
a BVI Business Company under the laws of the British Virgin Islands hereby sign these Articles of Association the 28th day of
December. 2011.
Incorporator
(Sd.)
Rexella D. Hodge
Authorised Signatory
OFFSHORE
INCORPORATIONS LIMITED
YOUR
VOTE IS IMPORTANT. PLEASE VOTE TODAY.
Vote
by Internet - QUICK *** EASY
IMMEDIATE - 24 Hours a Day, 7 Days a Week or by Mail
FUTURE
FINTECH GROUP INC.
|
Your
Internet vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your
proxy card. Votes submitted electronically over the Internet must be received by 11:59 p.m., Eastern Time, on December 17,
2017.
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INTERNET/MOBILE
–
www.cstproxyvote.com
Use the Internet to vote your proxy. Have your proxy card available when you access
the above website. Follow the prompts to vote your shares.
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MAIL
–
Mark, sign and date your proxy card and return it in the postage-paid envelope provided.
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