NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial
information and the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of
management, the unaudited financial statements have been prepared on the same basis as the financial statements and reflect all
adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of March 31,
2018 and the results of operations and cash flows for the periods ended March 31, 2018 and 2017. The financial data and other
information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for
the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for any subsequent periods
or for the entire year ending December 31, 2018. The balance sheet at December 31, 2017 has been derived from the audited financial
statements at that date.
Certain
information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted pursuant to the SEC’s rules and regulations. These
unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year
ended December 31, 2017 as included in our Annual Report on Form 10-K.
2.
|
Business
Description and Significant Accounting Policies
|
The principal activities of Future FinTech
Group Inc. (together with our direct or indirect subsidiaries, “we,” “us,” “our” or “the
Company”) consist of production and sales of fruit juice concentrates, fruit juice beverages and other fruit-related products
in the People’s Republic of China (“PRC”, or “China”), and overseas markets,; the design, development,
testing, deployment and maintenance of a blockchain-based Globally Shared Shopping Mall and other related software systems ; the
operation of a supply chain, logistics and trading business for fruit juice products, foods and other consumer and agricultural
products; 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 blockchain
technology; related asset and equity investment management; and the development and operation of a blockchain platform for cyptocurrency
conversion, payment and other services (“DCON”).
The Company’s activities are principally conducted by subsidiaries
operating in the PRC.
Organizational
Structure
Current
organizational structure is set forth in the diagram below:
(1) Xi’an
Qinmei Food Co., Ltd., an entity not affiliated with the Company, owns the remaining 8.85% of the equity interest in Shaanxi Qiyiwangguo.
(2) Formerly
known as Shaanxi Tianren Organic Food Co. Ltd.
(3) Hedetang
Foods Industry (Yidu) Co., Ltd. (“Foods Industry Yidu”), 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-freezing 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 markets 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. On August 10, 2017, it changed its name to Xi’an Hedetang
Nutritious Food Research Institute Co., Ltd.
(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. On June 6, 2017,
it again changed its name to HedeJiachuan Foods (Xi’an) Co. Ltd.
(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 image design
and corporate marketing planning. On June 14, 2017, it changed its name to HedeJiachuan Holding Group Co. Ltd.
(12) The
Company acquired Huludao Wonder Co. Ltd. (“Huludao”) on September 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. (“Foods Industry Jingyang”) was established on September 7, 2016. Its scope of
business includes processing, storage and sales of farm products, fruits, tea and snacks; as well as 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 services forfarm products; and construction and
operation management of an 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 DigiPay FinTech Limited (formerly known as 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 food and beverages;
import and export trade of fruit, vegetables, and 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 2, 2016. Its scope of business includes the planting,
acquisition and sales of vegetables, fruits, flowers, Chinese herbal medicine, and farm products; fresh fruit picking; research,
training and promotion of planting and breeding technology, development and training for E-commerce and online sales of agricultural
and sideline products. On September 6, 2017, it changed its name to Shaanxi China Agricultural Silk Road Farm Products Trading
Center Co., Ltd.
(19) Hedetang
Foods Industry (Zhouzhi) Co., Ltd. (“Foods Industry Zhouzhi”) was established on November 29, 2016. Its scope of business
includes production, processing and sales of kiwifruit wine, juice, puree and beverages; 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, was first established on July 27, 2016. It mainly engages in the import and export of food products.
(21) 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 development and sales, electronic products and communication equipment, computer network
engineering design, business information consultation, online sales and online marketing, and investment management.
(22) Shaanxi
Heying Trading Co. Ltd was established on December 17, 2009. Its main business scope includes the sales of pre-packaged food and
bulk food; import and export of goods and technology; food technology research and development; business management and consulting,
and corporate planning services.
(23) Zhonglian
Hengxin Assets Management Co., Ltd. (“Zhonglian Hengxin”) was established in Xi’an. Its main business scope
includes asset management (except for financial, securities, futures and other restricted items); asset acquisition, asset disposal
and asset operation (except for financial, securities, futures and other restricted items); planning and advisory for corporate
restructure and merger and acquisition; equity and real estate investment (no public offerings, restricted to investment through
assets of the company itself ); financial business process outsourcing entrusted by financial institutions; financial information
technology outsourcing entrusted by financial institutions; financial knowledge process outsourcing. Businesses that require approval
by government agencies shall only operate within the scope of such approval.
(24) Shenzhen
Hedetang Industrial Co., Ltd. (Shenzhen Hedetang) was established on September 29, 2017. Its main business scope includes industrial
projects (specific items to be declared separately); domestic trade; import and export businesses.
(25) DigiPay FinTech Limited (DigiPay FinTech), formerly known as Belking Foods Holdings Group Co., Ltd., was established on May 3,
2016.
(26) GlobalKey
Holdings Limited (“GlobalKey Holdings”), formerly known as Hedejiachuan (HK) Holdings Limited, and SkyPeople Foods
International Holdings (HK) Limited and later Hedetang Holdings (Asia-Pacific) Limited, was established on January 13, 2012. It
was established mainly to engage in the import and export of food products.
(27) DCON DigiPay Limited (“DCON DigiPay”) was established on February 5, 2018 in Tokyo, Japan. Its main business scope
includes design, development, and marketing of computer software, asset management consulting, business consulting.
(28) Future Digital
FinTech (Xi’an) Ltd. (“FinTech (Xi’an)”) was established on February 29, 2018 in Xi’an. Its main
business scope includes software development and marketing, information consulting service, financial information technology development.
This company will focus its business as an accelerator for blockchain projects and plans to provide basic supports including technical
support, whitepaper edit, solution design and project related to financial management for its clients; it’s business will
also include the training and cultivating technicians for blockchain projects, providing consultation regarding to cryptocurrency
exchanges and tokens listing matters, as well as marketing related services.
(29) GlobalKey SharedMall Limited (“GlobalKey SharedMall”) was established on March 6, 2018 in Cayman. Its main business
includes on line trading platform for fresh fruits and juice.
(30) FTEX, Inc.
(“FTEX”) was established on March 15, 2018 in the State of California. It currently does not have business operations.
Principles
of Consolidation
Our
consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation.
The
condensed consolidated financial statements are prepared in accordance with U.S. GAAP. This basis differs from that used in the
statutory accounts of SkyPeople (China), Hedetang Food (China), Hedetang Holding, Huludao Wonder, Xi’an Cornucopia, Xi’an
Hedetang Juice Beverages, Yingkou, Shaanxi Qiyiwangguo, Hedetang E-commerce, SkyPeople Suizhong, Agricultural Plantation Mei Counting,
Food Industry Yidu, Food Industry Jingyang, Guo Wei Mei, Agriculture Plantation Yidu, Trading Market Yidu, Trading Market Mei
County and Hedetang Plantations, which were prepared in accordance with the accounting principles and relevant financial regulations
applicable to enterprises in the PRC. All necessary adjustments have been made to present the financial statements in accordance
with U.S. GAAP.
Uses
of estimates in the preparation of financial statements
The
Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America and this requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated
financial statements and reported amounts of revenue and expenses during the reporting period. The significant areas requiring
the use of management estimates include, but not limited to, the allowance for doubtful accounts receivable, estimated useful
life and residual value of property, plant and equipment, provision for staff benefit, recognition and measurement of deferred
income taxes and valuation allowance for deferred tax assets. Although these estimates are based on management’s knowledge
of current events and actions management may undertake in the future, actual results may ultimately differ from those estimates.
Shipping
and Handling Costs
Shipping
and handling amounts billed to customers in related sales transactions are included in sales revenues and shipping expenses incurred
by the Company are reported as a component of selling expenses. The shipping and handling expenses of $8,614 and $131,980 for
the three months ended March 31, 2018 and 2017, respectively, are reported in the Condensed Consolidated Statements of Comprehensive
Income (Expense) as a component of selling expenses.
Earnings
(loss) per share
The
Company adopted ASC Topic 215,
Statement of Shareholder Equity
. Basic Earnings Per Share (“EPS”) are computed
by dividing net income available to common shareholders (numerator) by the weighted average number of common shares outstanding
(denominator) during the period. Diluted EPS give effect to all dilutive potential common shares outstanding during a period.
In computing diluted EPS, the average price for the period is used in determining the number of shares assumed to be purchased
from the exercise of stock options and warrants.
Recent
Accounting Pronouncements
February 2018, the FASB issued ASU
2018-02, Income Statement-Reporting Comprehensive Income (Topic 220), “Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income”. ASU 2018-02 was issued to allow the reclassification from accumulated other comprehensive income
to retained earnings for the stranded tax effect resulting from the Tax Cuts and Jobs Act enacted on December 22, 2017. The Tax
Cuts and Jobs Act, among other things, reduced the corporate tax rate from 35% to 21%, which required the re-evaluation of any
deferred tax assets or liabilities at the lowered tax rate which potentially could leave disproportionate tax effects in accumulated
other comprehensive income. ASU 2018-02 allows for the election to reclassify these stranded tax effects to retained earnings.
ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those
fiscal years. Early adoption is permitted, including adoption in any interim period for public business entities for reporting
periods for which financial statements have not yet been issued. Adoption of ASU 2018--2 did not have any other material effect
on the results of operations, financial position or cash flows of the Company.
There
were no other recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 31,
2018 compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended December
31, 2017 that are of significance or potential significance to us.
Inventories
by major categories are summarized as follows:
|
|
March 31, 2018
(Unaudited)
|
|
|
December 31, 2017
(Audited)
|
|
|
|
|
|
|
|
|
Raw materials and packaging
|
|
$
|
883,998
|
|
|
$
|
837,613
|
|
Finished goods
|
|
|
1,359,694
|
|
|
|
1,259,694
|
|
Inventories
|
|
$
|
2,243,692
|
|
|
$
|
2,097,307
|
|
4.
|
Related
Party Transaction
|
Sales
to related parties
The Company’s did not have any sales
to related parties for the three months ended March 31, 2018 and March 31, 2017, respectively. The accounts receivable balances
for such transactions were $0 as of March 31, 2018 and December 31, 2017, respectively.
Long-term
Loan – Related Party
There
were no short-term loans to a related party as of each of March 31, 2018 and 2017.
(1)
|
Concentration
of customers
|
Sales to our five largest customers accounted
for approximately 100% and 33% of our net sales during the three months ended March 31, 2018 and 2017, respectively. One single
customer represented over 87% of total sales for the three months ended March 31, 2018, and there was no single customer representing
over 10% of total sales for the three months ended March 31, 2017.
(2)
|
Concentration
of suppliers
|
Two suppliers accounted for 1% and 74%
of our purchases for the three months ended March 31, 2018 and 2017, respectively. There was no supplier that accounted for over
10% of our purchases for the three months ended March 31, 2018, and our top supplier accounted for 74% of our purchases for the
three months ended March 31, 2017.
6.
|
Issuance
of common stock and warrants
|
On January 5,
2018, the Company issued 880,580 shares of its common stock to Reits (Beijing) Technology Co. Ltd., a limited liability company
incorporated in China (“Reits”) pursuant to the Technology Development Service Contract (the “Agreement”)
signed on December 18, 2017, by Reits and GlobalKey Supply Chain Ltd. (“GlobalKey”), a limited liability company incorporated
in China and a wholly owned subsidiary of the Company.
Under
the Agreement, Reits shall provide services to GlobalKey relating to the design, development, testing, deployment and maintenance
of a blockchain-based Globally Shared Shopping Mall and other software systems (the “System”). Following the completion
and delivery of the System by Reits, (i) GlobalKey shall provide the hardware and network requirements for the trial deployment
of the System, (ii) Reits shall provide training of GlobalKey’s staff in the use and operation of the System, and (iii)
for a period of one year from the System delivery date and for no additional charge, Reits shall provide ongoing System maintenance
and technical support (the “Free Maintenance Period”). Following the completion of the Free Maintenance Period, GlobalKey
may elect to engage Reits for ongoing maintenance and technical support. Under the Agreement, GlobalKey shall pay Reits aggregate
consideration of RMB 13,000,000 ($2,067,397), of which RMB 9,100,000 ($1,447,178) may be paid in shares of the Company’s
common stock, par value $0.001 per share (the “Common Stock”), at a per share price equal to the average of the Common
Stock’s closing prices over the 5 trading days prior to the date of the Agreement, or $1.554 per share (the “Share
Payment”). The exchange rate between US$ and RMB for the payment is 1:6.65. The Share Payment was made within 15 business
days of the date of the Agreement, and the remaining Agreement consideration shall be paid by GlobalKey in accordance with the
schedule described in the Agreement. The Company has paid RMB 876,663 ($139,416) in cash to Reits in the first quarter of 2018.
The
Agreement also contains customary representations and warranties regarding the intellectual property developed pursuant to the
Agreement and covenants regarding the parties’ cooperation.
On April 12, 2017, the Company entered
into 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 offering expenses payable by the Company. In a concurrent private placement, the Company also agreed
to issue 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 are 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.
On
January 5, 2018, the Company issued 30,000 shares of the Company’s common stock to a certain warrant holder
for the exercise of Warrants.
On February 28, 2017, the Company issued
an option to purchase 62,500 shares of the Company’s common stock with an exercise price equal to the fair market value of
the Company’s Common Stock (as defined under the 2011 Stock Incentive Plan in conformity with Regulation 409A of the Internal
Revenue Code of 1986, as amended) at the date of grant to three of the Company’s employees pursuant to the 2011 Stock Incentive
Plan, which was approved by the Company’s shareholders at annual stockholders meeting on August 18, 2011. These options vested
immediately on the grant date with a fair market value of $223,375 based on the fair value of $3.57 per share, which was determined
by using the Black Scholes option pricing model. The Company recognized stock-based compensation expense of $223,375 in the first
quarter of fiscal 2017 under the 2011 Stock Incentive Plan. On January 5, 2018, the Company issued 62,500 shares of the Company’s
common stock to three of its employees for the exercise of such stock options.
As of March 31, 2018, there were no shares
of stock available for awards under the 2011 Stock Incentive Plan.
On February 6, 2018, the Company issued
600,000 shares of its common stock to Peng Youwang (“Peng”), a Chinese citizen, according to a DCON Digital Assets
Transfer Agreement (the “Agreement”) that DigiPay FinTech Limited (“DigiPay”), a subsidiary of the Company,
entered into on January 23, 2018.
Under the terms of the Agreement, Peng
transfered to DigiPay a 60% ownership interest in certain digital assets of DCON, a blockchain platform for cyptocurrency conversion,
payment and other services (“DCON”), including but not limited to its business plan and white papers, business models,
software, codes, architectures, codes, software, applications, technologies, patents, copyrights, trade secrets, customer lists,
business points, trading platforms, digital rights, authentication systems, agreements and contracts, intellectual property, token
and the DCON communities established on Nova Realm City (the “Transfer Assets”) for an aggregate purchase price of
$9,600,000 (the “Purchase Price”). The Company will pay the Purchase Price by issuing to Peng 1,200,000 shares of the
Company’s common stock, par value $0.001 per share (the “Common Stock”), equaling a per share sale price of $8.00
(the “Share Payment”). Half of the shares of Common Stock subject to the Share Payment were within 30 days of the date
of the Agreement, and the remaining Shares Payment shares were issued within 90 days of the date of the Agreement. The shares of
Common Stock to be issued by the Company pursuant to the Share Payment under the Agreement shall be sold and issued pursuant to
the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.
The
Agreement also contains customary representations and warranties regarding the Transfer Assets and the ownership thereof, and
covenants regarding the parties’ cooperation. DigiPay and Peng further agreed to establish a Japanese operating company
for the Transfer Assets, of which DigiPay will hold a 60% ownership interest and Peng’s designee will hold a 40% ownership
interest.
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 2015 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 2015 Omnibus Equity Plan, reflecting a par value of $0.001
per share of the Company’s common stock.
The Company’s the 2015 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.
As
of March 31, 2018, the balance of other receivables was $36,749,171, which mainly consisted of a deposit of approximately $31.81
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 $31.81 million) as a deposit (the “Deposit”) in the second quarter of 2016. The
purchase is subject to government approval, approval by the Company’s Board of Directors and a definitive agreement negotiated
and signed by the parties. As Mei County is in the process of governmental personnel change, the approval was delayed. 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 2018. As the transaction is not completed, the Company recorded this deposit as other receivables
in its balance sheet.
As
of March 31, 2018, the balance of deposits was $68.91 million, which mainly consisted of a balance of approximately $27.34 million
for the leasing fee for the kiwifruits orchard in Mei County and a balance of approximately $17.50 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
$199) 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 $39.76 million) for the first 10 years’ leasing fees on August 15, 2016,
which is recorded as deposit in the Company’s balance sheet. The Company has amortized $982,210 as expenses during the first
quarter of fiscal year 2018.
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
$318) 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 $25.44 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 $628,614 as expenses during
the first quarter of fiscal year 2018.
9.
|
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 2017 and 2016,
the Company recorded an impairment loss of $11.3 million and $2.4 million, respectively 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 to sell the land and facilities upon favorable circumstances.
As the Company does not expect to sell the assets of Huludao Wonder in the near future, the assets were not recorded as assets
held for sale as of March 31, 2018. The book value of the land usage right was $4,617,449 and the book value of the building was
$884,680 as of March 31, 2018. The Company believes that the assets’ book value was lower than its fair value at such time,
less the anticipated cost to sell such assets.
As
of March 31, 2018, there was an outstanding bank loan of $6.12 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 Huludao Wonder 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 $49,571 and $48,685 during the first quarter of 2018 and 2017, respectively.
Loss
from discontinued operations for the three months ended March 31, 2018 and 2017 was as follows:
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
-
|
|
|
$
|
-
|
|
COST OF SALES
|
|
|
-
|
|
|
|
-
|
|
GROSS PROFIT
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
(49,571
|
)
|
|
|
(48,685
|
)
|
Selling expenses
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
(49,571
|
)
|
|
|
(48,685
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
Interest income
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
(49,571
|
)
|
|
|
(48,685
|
)
|
Loss from discontinued operations before income tax
|
|
|
-
|
|
|
|
-
|
|
Income tax provision
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM DISCONTINUED OPERATIONS
|
|
$
|
(49,571
|
)
|
|
$
|
(48,685
|
)
|
The
loss from discontinued operations was $49,571 and $48,685 for the first quarter of 2018 and 2017, respectively. 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 Company believes there will not be any future significant
cash flows from the discontinued operation, as the outstanding accounts receivable and accounts payable are immaterial to the
Company’s financial position and liquidity.
The Company operates in 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 Jingyang factory
and concentrated pear juice is primarily produced by the Company’s Jingyang factory. 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 Jingyang factory is located, and Liaoning Province, where the factory of Huludao Wonder is located, are rich in fresh apple
and pear supplies. 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 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.
For the three months ended March 31, 2018 (in thousands, unaudited):
|
|
Concentrated apple juice and
apple aroma
|
|
|
Concentrated kiwifruit
juice and
kiwifruit puree
|
|
|
Concentrated pear juice
|
|
|
Fruit juice beverages
|
|
|
Others
|
|
|
Total
|
|
Reportable segment revenue
|
|
$
|
46
|
|
|
$
|
111
|
|
|
$
|
17
|
|
|
$
|
435
|
|
|
$
|
61
|
|
|
$
|
562
|
|
Inter-segment loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(108
|
)
|
|
|
-
|
|
|
|
-
|
|
Revenue from external customers
|
|
|
46
|
|
|
|
111
|
|
|
|
17
|
|
|
|
327
|
|
|
|
61
|
|
|
|
562
|
|
Segment gross profit
|
|
$
|
5
|
|
|
$
|
10
|
|
|
$
|
1
|
|
|
$
|
30
|
|
|
$
|
17
|
|
|
$
|
63
|
|
For the three months ended March 31, 2017 (in thousands, unaudited):
|
|
Concentrated apple juice and
apple aroma
|
|
|
Concentrated kiwifruit
juice and
kiwifruit puree
|
|
|
Concentrated pear juice
|
|
|
Fruit juice beverages
|
|
|
Others
|
|
|
Total
|
|
Reportable segment revenue
|
|
$
|
1,238
|
|
|
$
|
205
|
|
|
$
|
1,493
|
|
|
$
|
1,372
|
|
|
$
|
-
|
|
|
$
|
4,308
|
|
Inter-segment loss
|
|
|
(219
|
)
|
|
|
(10
|
)
|
|
|
(570
|
)
|
|
|
(550
|
|
|
|
-
|
|
|
|
(1,350
|
)
|
Revenue from external customers
|
|
|
1,019
|
|
|
|
195
|
|
|
|
923
|
|
|
|
822
|
|
|
|
-
|
|
|
|
2,959
|
|
Segment gross profit
|
|
$
|
29
|
|
|
$
|
45
|
|
|
$
|
126
|
|
|
$
|
335
|
|
|
$
|
-
|
|
|
$
|
535
|
|
The
following table reconciles reportable segment profit to the Company’s condensed consolidated loss before income tax provision
for the three months ended March 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Segment profit
|
|
$
|
62,586
|
|
|
$
|
534,614
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(2,843,328
|
)
|
|
|
(3,050,208
|
)
|
Other income
|
|
|
(452,598
|
)
|
|
|
142,391
|
|
Loss before tax provision
|
|
$
|
(3,233,340
|
)
|
|
$
|
(2,373,203
|
)
|
|
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 (the “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 $6.0 million.
In
September 2014, two long term suppliers of pear, mulberry, and kiwi fruits to the Company requested that the Company 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 the purchase
of accounts receivables of the two suppliers with the Company. In July, 2014, the parties entered into two agreements –
an Accounts Receivables Purchase and Debt Restructure Agreement, and Guarantee Agreements for Accounts Receivables Purchase and
Debt Restructure. Pursuant to the agreements, Cinda Shaanxi Branch agreed to provide a RMB 100 million credit line on a rolling
basis to the two suppliers and 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 had no legal effect from the beginning. Therefore, the Company has no obligation to repay the
debts owed by the two suppliers to Cinda Shaanxi Branch.
Upon the Court’s suggestion, parties
agreed to a settlement discussion in April 2017. As a part of the settlement discussion, on April 18, 2017, the Company withdrew
its non-enforcement request with the Court without prejudice. Both parties are still in the process of settlement negotiations.
If the parties cannot reach a settlement agreement, the Company has the right to refile the non-enforcement request with the Court.
As the Company may still be liable for this loan, the Company recorded expenses and liability of $6.0 million as the result of
these two enforcement proceedings in the first quarter of 2018.
Between
October, 2013 and January, 2014, Xuzhou Jinkaifeng Glass Co. Ltd. (“JKF”) supplied glass bottles to SkyPeople China.
SkyPeople China believed that the glass bottles supplied by JKF had quality issues and did not pay for the bottles delivered.
In November, 2016, JKF filed a lawsuit against SkyPeople China with Xuzhou Tongshan District People’s Court. On July 27,
2017, SkyPeople China received judgment from Xuzhou Tongshan District People’s Court that SkyPeople China must pay JKF RMB
365,292 (approximately $55,040) for the glass bottles. SkyPeople China currently is in discussions with JKF on the payment terms
and final amount in connection with the enforcement of the judgment.
In
April 2015, SkyPeople China entered into a loan agreement with Shaanxi Fangtian Decoration Co. Ltd. (“Fangtian”).
Pursuant to the loan agreement, SkyPeople China borrowed RMB 3.5 million (approximately $527,355) from Fangtian. SkyPeople China
has not repaid the loan and Fangtian filed a lawsuit with Xi’an Yanta District People’s Court (“Yanta District
Court”). On August 10, 2017, Yanta District Court ruled against SkyPeople China and determined that SkyPeople China must
repay the loan of RMB 3.5 million plus interest RMB of 402,500 (approximately $588,000). SkyPeople China currently is in discussions
with Fangtian on the payment terms and the final amount.
Shaanxi
Hengtong Development Co. Ltd. (“Hengtong”) is a coal supplier to SkyPeople China’s Jingyang Branch
(“SkyPeople Jingyang”). In November, 2016, Hengtong filed a lawsuit against SkyPeople Jingyang for unpaid coal
deliveries and interest for a total amount of RMB 3,133,916 (approximately $482,141). On March 13, 2017, SkyPeople
Jingyang received judgment from Jingyang County People’s Court ordering SkyPeople Jingyang to repay RMB 1.78 million
(approximately $268,788) to Hengtong. SkyPeople Jingyang appealed the judgement to Xianyang Intermediate People’s
Court, and on August 29, 2017, Xiangyang Intermediate Court affirmed the lower court’s decision. SkyPeople Jingyang
currently is in discussions with Hengtong on payment terms and the final amount.
In September 2016, the Suizhong Branch of
Huludao Banking Co. Ltd. (“Suizhong Branch”) filed a lawsuit with Huludao Intermediate People’s Court (the
“Huludao Court”) against the Company’s indirectly wholly-owned subsidiary Huludao Wonder Fruit Co., Ltd.
(“Wonder Fruit”) and requested that Wonder Fruit repay a RMB 40 million (approximately $6.35 million) bank loan,
plus interest. The loan became due on its maturity date of December 9, 2016. On December 19, 2016, the Huludao Court accepted
the case. The Company has been disputing the interest rate of the loan with Suizhong Branch, and has not repaid the loan to
date. Wonder Fruit believes that the interest charged by Suizhong Branch is 100% higher than the base rate set by
People’s Bank of China and is not in consistent with the China People’s Bank’s base interest and floating
rate. The Huludao Court has seized land use rights, buildings and equipment of Wonder Fruit that were pledged as guarantee
for the loan and has organized two auction sales for these assets in January and February of 2018, but both auction sales
have been unsuccessful in finding a buyer. Wonder Fruit is currently in discussions with the Suizhong Branch on repayment of
the bank loan and a reduction of the interest due thereon.
On
June 29, 2015, SkyPeople China entered into a loan agreement with Beijing Bank. Pursuant to the loan agreement, SkyPeople China
borrowed RMB 30 million (approximately $4.59 million) from Beijng Bank. Hongke Xue, Yongke Xue and Xiujun Wang provided guarantees
for the loan and Shaanxi Boai Medical Technology Development Co., Ltd. (“Shaanxi Boai”) provided certain real estate
property as a pledge for the loan. SkyPeople China did not repay the loan on time and Beijing Bank filed an enforcement request
with Xi’an Intermediate People's Court in June 2017. The Xi’an Intermediate People’s Court has seized real estate
properties pledged by Shaanxi Boai and Xiujun Wang. In April, 2018, Xi’an Intermediate Court organized two auction sale
for real estate property pledged by Shaanxi Boai but they were not successful. In April, 2018, the Xi’an Intermediate People’s Court organized two more auction sales for the
pledged office space but they were not successful.. SkyPeople China currently is in discussions with
Beijing Bank on the payment terms and the final amount.
On
March 8, 2016, SkyPeople China entered into a loan agreement with Ningxia Bank. Pursuant to the loan agreement, SkyPeople China
borrowed RMB 25 million (approximately $3.83 million) from Ningxia Bank. Hongke Xue, Yongke Xue, Lake Chen, Shaanxi Boai Medical
Technology Development Co., Ltd. and Shaanxi Qiyiwangguo provided guarantees for the loan. SkyPeople China also pledged 37 equipment
and its trademarks to Ningxia Bank for the loan. SkyPeople China has not repaid the loan and Ningxia Bank filed enforcement action
with Xi’an Intermediate people's court in August 2017. The Court has frozen the assets of SkyPeople China that were pledged
as guarantee for the loan from being transferred to any third-party, but the freeze does not limit or affect the use of these
properties by SkyPeople China for its business. SkyPeople China currently is in discussions with Ningxia Bank on the payment terms
and the final amount.
On December 23, 2015, SkyPeople China entered
into two loan agreements with China Construction Bank. Pursuant to the loan agreements, SkyPeople China borrowed RMB 13.90 million
(approximately $2.13 million), and RMB 30 million (approximately $4.59 million) from China Construction Bank, respectively. Shaanxi
Boai Medical Technology Development Co., Ltd. (“Boai”), Mr. Hongke Xue, Mr. Yongke Xue, Mrs. Xiujun Wang and Yingkou
Trusty Fruits Co., Ltd. (“Yingkou”) provided pledges for the loans. SkyPeople China has not repaid the loans and China
Construction Bank filed an enforcement action with Xi’an Intermediate People's Court in March 2017. The Court has seized
and sold by auction certain park space and land use rights pledged by Xiujun Wang and Boai for approximately RMB 25,000,000. The
Court also seized certain land use rights pledged by Yingkou Trusty Fruits Co., Ltd., but the auction sale for those rights was
not successful. SkyPeople China currently is in discussions with China Construction Bank on the payment terms and the final amount.
On May 9, 2016, SkyPeople China entered
into loan agreements with China Construction Bank. Pursuant to the loan agreements, SkyPeople China borrowed RMB 22.9 million (approximately
$3.50 million) from China Construction Bank. Shaan xi Province Credit Reassurance Company (“Credit Reassurance Company”)
provided a guarantee to China Construction Bank for the loan, Mr. Hongke Xue and Mr. Yongke Xue provided their guarantees, and
SkyPeople China provided an office space that it owned to Credit Reassurance Company as a pledge. SkyPeople China has not repaid
the loan and Credit Reassurance Company repaid the loan for SkyPeople China. In June 2017, Credit Reassurance filed an enforcement
action request with Xi’an Intermediate People’s Court in June 2017. In December 2017, the Xi’an Intermediate
People’s Court seized the office space of SkyPeople China for auction sale in February 2018 but the sale was not successful.
SkyPeople China currently is in discussions with Credit Reassurance Company on the payment terms and the final amount.
In
August 2017, Cinda Capital Financing Co. Ltd. (“Cinda”) filed a lawsuit with Beijing 2
nd
Intermediate People’s
Court (the “Beijing Intermediate Court”) against the Company’s indirectly wholly-owned subsidiaries Shaanxi
Guoweimei Kiwi Deep Processing Company, Ltd. (“Guoweimei”) and Hedetang Farm Products Trading Market (Mei County)
Co., Ltd. (“Trading Market Mei County Co”, and together with Guoweimei, “Leasees”) requested that Leasees
repay RMB 50 million (approximately $7.65 million) in capital lease fees, plus interest. Cinda has purchased or paid for refrigerant
warehouse and trading hall to the suppliers and vendors and agreed to lease them to the Leasees for a leasing fee of RMB 50 million
in December, 2016. The capital leasing fee became due on its maturity date of June 2017, with certain land use rights of Leasees
in Mei County and equity of Guoweimei as a pledge. The Company has disputed that the land use rights for the refrigerant warehouse
and trading hall were never sold to or transferred to Cinda, therefore it is loan agreement and not capital lease agreement among
the parties. Leasees have taken the position that Cinda is not a bank and does not have government permits required to make loans
in China, and the agreements including pledge agreement were invalid, void and without legal effect from the beginning. Therefore,
the Company only has the obligations to repay principal but not the interest. In November 2017, Beijing Intermediate Court ruled
in favor of Cinda and the Leasees have appealed the case to Beijing Supreme Court. Beijing Supreme Court has not scheduled hearings
yet. As the Company may still be liable for this loan, the Company recorded expenses and liability of $7.66 million as the result
of the enforcement proceeding in the third quarter of 2017.
In
August, 2017, Cinda Capital Financing Co. Ltd. (“Cinda”) filed another lawsuit at Beijing Intermediate Court against
the Company’s indirectly wholly-owned subsidiaries Guoweimei and SkyPeople China for repayment of leasing fee of RMB 84,970,959
(approximately $13 million) plus interest. In January 2014, Guoweimei and SkyPeople China (the “Equipment Leasees”)
signed an Equipment Financial Lease Purchase Agreement with Cinda and an equipment supplier pursuant to which Cinda would provide
funds to purchase equipment and the Equipment Leasees would lease the equipment from Cinda. Guoweimei pledged certain land use
rights in Mei County to Cinda and Xi’an Hedetang and Hedetang Holding pledged their equities in Guoweimei to Cinda to secure
the repayment. Mr. Hongke Xue also provided a personal guarantee for the payment of the leasing fee. Beijing Intermediate Court
had two hearings of the case and on March 21, 2018, and it ruled in favor of Cinda to the effect that SkyPople China and Guoweimei
shall pay leasing fees due in the amount of 20,994,048 (approximately $3.3 million), as well as leasing fees not yet due in the
amount of RMB 63,975,910 (approximately $10 million), plus attorney’s fee and expenses. Beijing Intermediate Court also
ruled that Mr. Hongke Xue is jointly liable for the debt as the guarantor, and that Cinda has priority rights to the pledged land
use rights in Mei County and the pledged equities of Guoweimei as well as the ownership of the leasing properties until the leasing
fees are paid. SkyPeople China has appealed the decision to the Beijing Supreme Court.
In
September, 2017, Andrew Chien, a former consultant of SkyPeople China, brought a lawsuit against the Company and Mr. Hongke Xue
in the District Court of Connecticut. The complaint was not properly served and the Company learned of the litigation in
December 2017. In the complaint, Mr. Chien has made several claims, most of which attempt to hold the Company liable under novel
legal theories that relate back to an alleged breach of a consulting agreement between SkyPeople China and Chien from August,
2006. Mr. Chien claimed for approximately $257,000 damages and interest plus 2% of the Company’s then-outstanding
shares. Mr. Chien has unsuccessfully attempted to sue the Company on the breach of the same consulting agreement several times
in the courts of Connecticut and New York and these cases have been dismissed in the past. The Company has filed a
motion to dismiss (“MTD”) and all proceedings are stayed pending determination of the MTD. The Company will
vigorously defend this lawsuit and expects to obtain early dismissal of Mr. Chien’s claims.
In
the past couple years, to expand our production and diversify our products and businesses, our subsidiaries in China borrowed
loans from certain banks for our new construction projects. Because the business environment for manufacture industries and financing
for non-stated owned companies in China have deteriorated, banks started to collect loans before their maturity dates for their
own capital security consideration which has interrupted our business plan. In June 2017, one of the banks that we had loan with
made the early payment request and applied for the enforcement action with local court which caused chain reactions for other
banks that we had loan with and they all declared their loans due and applied for enforcement actions. Because the run on us by
the banks at the same time, our subsidiaries can’t repay all the loans in a short period of time. Our subsidiaries have
been in discussion with the banks to find solutions for the outstanding loans. The enforcement actions made by the banks are the
usual practices used by the banks which don’t cause actual impact to our daily business operation. After the discussion
and negotiation with the banks, we will cooperate with each party to solve the loan issues.
|
12.
|
Acquisition
of A Business
|
On January 23,
2018, DigiPay FinTech Limited (“DigiPay”), a limited liability company incorporated in British Virgin Islands and a
wholly-owned subsidiary of the Company, and Peng Youwang (“Peng”), a Chinese citizen, entered into a DCON Digital Assets
Transfer Agreement (the “Agreement”).
Under the terms of the Agreement, Peng
transfered to DigiPay a 60% ownership interest in certain digital assets of DCON, a blockchain platform for cyptocurrency conversion,
payment and other services (“DCON”), including but not limited to its business plan and white papers, business models,
software, codes, architectures, codes, software, applications, technologies, patents, copyrights, trade secrets, customer lists,
business points, trading platforms, digital rights, authentication systems, agreements and contracts, intellectual property, token
and the DCON communities established on Nova Realm City (the “Transfer Assets”) for an aggregate purchase price of
$9,600,000 (the “Purchase Price”). The Company will pay the Purchase Price by issuing to Peng 1,200,000 shares of the
Company’s common stock, par value $0.001 per share (the “Common Stock”), equaling a per share sale price of $8.00
(the “Share Payment”). Half of the shares of Common Stock subject to the Share Payment were issued within 30 days of
the date of the Agreement, and the remaining Shares Payment shares were issued within 90 days of the date of the Agreement. The
shares of Common Stock to be issued by the Company pursuant to the Share Payment under the Agreement shall be sold and issued pursuant
to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.
The
Agreement also contains customary representations and warranties regarding the Transfer Assets and the ownership thereof, and
covenants regarding the parties’ cooperation. DigiPay and Peng further agreed to establish a Japanese operating company
for the Transfer Assets, of which DigiPay will hold a 60% ownership interest and Peng’s designee will hold a 40% ownership
interest.
On
February 6, 2018, the Company issued 600,000 shares of its common stock to Mr. Peng and his designee according to the Agreement.
On May 3, 2018, the Company issued the remaining 600,000 shares of its common stock to Mr. Peng and his designee according to
the Agreement.
On
April 6, 2018, the Company issued an aggregate 7,111,599 shares of the Company’s common stock pursuant to series of Creditor’s
Rights Transfer Agreements between a wholly owned subsidiary of the Company, Hedetang Foods (China) Co., Ltd. and sellers of such
creditor’s rights, which was entered on November 2, 2017 and approved by the shareholders at a Special Meeting of shareholders
held on March 13, 2018.
On
April 6, 2018, the Company issued an aggregate 11,362,159 shares of the Company’s common stock pursuant to a Share Purchase
Agreement between the Company and a certain investor, which was entered on November 2, 2017 and approved by the shareholders at
a Special Meeting of shareholders held on March 13, 2018.
On April 25, 2018, the Company’s board of directors (the “Board”) received a resignation
letter from Mr. Guolin Wang, a member of the Board and a member of the Board’s Compensation and Audit Committees. Mr.
Wang indicated that his resignation was due to personal reasons. On May 6, 2018, the board of directors (the “Board”)
of the Company appointed Mr. Yiliang Li as a member of the Board and a member of the Compensation Committee and the Audit Committee
of the Board, effective immediately, to fill the vacancies created by the resignation of Mr. Guolin Wang.