The accompanying notes are an integral part
of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial
information and the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of
management, the unaudited financial statements have been prepared on the same basis as the financial statements and reflect all
adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of March 31,
2019 and the results of operations and cash flows for the periods ended March 31, 2019 and 2018. 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, 2019 are not necessarily indicative of the results to be expected for any subsequent periods
or for the entire year ending December 31, 2019. The balance sheet at December 31, 2018 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, 2018 as included
in our Annual Report on Form 10-K.
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. Due to
drastically increased production cost and tightened environmental law in China, the Company is transforming its business from fruit
juice manufacturing and distribution to a real-name blockchain e-commerce platform that integrates blockchain and internet technology.
On January 22, 2019, the company formally launched of GlobalKey SharedMall, also known as Chain Cloud
Mall (CCM) v1.0, the real-name blockchain shared shopping mall platform that integrates blockchain and internet technology and
distinguishes itself by utilizing the automatic value distribution system of blockchain and sharing the value of the platform with
all participants in the system.
On June 1, 2019, CCM v2.0 was launched. Compared to the 1.0 version, CCM v2.0 has a wider variety of product
categories, easier user interface, more transparent information, more stable operation, higher security level, and faster logistics.
Currently, CCM v2.0 adopts a “multi-vendor hosted stores + platform self-hosted stores” model, supported by multiple
local warehouses in different regions. The platform supports various marketing methods, including point rewards programs, coupons,
live webcasts, game interactions, and social media sharing. Besides the blockchain-powered features, CCM v2.0 is also fully equipped
with the same functions and services that other Chinese leading traditional e-commerce platforms provide.
Besides the design, development, testing,
deployment and maintenance of a blockchain-based CCM Shared Shopping Mall, the Company also operates a supply chain, logistics
and trading business for fruit juice products, foods and other consumer and agricultural products as well as a digital payment
system, “DCON,” through blockchain technology. DCON is built to be a transparent digital payment system backed by
blockchain technology and its mBTC is the only currency and payment system used in Nova Realm City (“NRC”) communities.
Each Bitcoin exchanges for one million mBTC and DCON provides exchange services between its mBTC and Bitcoin.
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 for farm products; and construction and operation management
of an e-commerce information platform.
(16) Yichang Old Orchard Modern Specialized Farmers Cooperatives Union (“Old Orchard”) was established
on April 8, 2016. Its main business scope is the purchase, sales, trading and reprocessing of farm products, development of products
for the union, introducing new technology and new plants, and technical training for union members.
(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. It changed
its name to China Agricultural Silkroad Finance Lease Ltd. on May 24, 2018. The scope of business of China Agricultural Silkroad
Finance Lease Ltd. includes finance leasing; purchasing leased property domestically and abroad; commercial factoring related
to its main businesses; residual value processing related to the leasing business and similar activities.
(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. On April
17, 2019, it changed its name to Chain Cloud Mall Logistics Center.
(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
(“FinTech 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 in 2017. 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; and 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) QR (HK) Limiter (“QR HK”),
formerly known as GlobalKey Holdings Limited, was established on January 13, 2012 and its name was changed on October 23, 2018.
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 the development and marketing of a blockchain
based payment system, computer software, asset management consulting, and business consulting.
(28) Future Digital FinTech (Xi’an)
Co., Ltd. (“FinTech (Xi’an)”) was established on February 9, 2018 in Xi’an. Its main business scope includes
software development and marketing, information consulting services, and financial information technology development.
(29) GlobalKey SharedMall Limited (“GlobalKey
SharedMall”) was established on March 6, 2018 in the Cayman Islands. Its main business scope includes an online trading
and shopping platform for fresh fruits, juices and other products and services, using blockchain technology.
(30) Chain Future Digital Tech (Beijing) Co.,
Ltd, (“Chain Future”) was established on July 10, 2018. Its main business scope includes technical services and technology
transfer, development, promotion and consultation; wholesale of computers, software and auxiliary equipment, electronic products,
and other related products. This company focuses its business on acting as an accelerator for blockchain projects and it provides
basic support including technical support, whitepaper editing, solution design and financial management services for its clients.
Its business also includes training and cultivating technicians for blockchain projects, providing consultation services regarding
cryptocurrency exchanges and token listing matters, as well as marketing-related services.
(31) Chain Future Digital Tech (Tianjin) Co., Ltd, (“Chain Future Tianjin”) was established on
November 12, 2018. Its main business scope includes digital technology development, technology transfer, technical consultation
and technical services; business incubation services; development and sales of software technology; computer system integration
services; company management consulting; financial information consulting; computer system technology services, basic software,
application software; exhibition services; meeting services; and advertisement business. Its business also includes training and
cultivating technicians for blockchain projects, providing consultation services regarding cryptocurrency exchanges and token listing
matters, as well as marketing-related services.
(32) The company acquired 19.88% of the shares of Hedetang Holdings (Shenzhen) Co., Limited which is a NEEQ
listed company, through Shenzhen Hedetang Industrial Co., Ltd on March 26, 2018. The business scope of Hedetang Holdings (Shenzhen)
Limited is information consultation (excluding restricted projects and talent intermediary services); import and export business
(except for the items prohibited by law or administrative regulations of the state council; and restricted items can only be operated
after obtaining permission); venture capital business; business information consulting, financial, investment and enterprise management
consulting (the above items do not include restricted items); research and development of prepackaged food and health food, pre-packaged
food, health food production and sales; and information service business (internet information service business only).
(33) SkyPeople Foods Holdings Limited established
in British Virgin Island in 2011. Its main business scope includes trading, import and export of food products.
(34) HeDeTang Holdings (HK) Ltd. incorporated
in Hong Kong, China in 2007. Its main business scope includes the research and development of food packages, food production techniques;
and the research and development of technique consultancy and transferring.
(35) Digital Online Marketing Limited established in British Virgin Island in 2011. Its main business scope
includes trading consultancy, corporation management, software development and marketing, and information consulting services.
(36) GlobalKey
Network Technology (Tianjin) Co., Ltd. which name was changed to Chain Cloud Mall (CCM) Network and Technology (Tianjin) Co.,
Ltd., was established in January 2019. Its main business scope includes blockchain technology development and services, consultation
and transfer; encryption technology, digital integral system technology, e-commerce platform technology development, and similar
services.
(37) GloblalKey Network and Technology (Beijing) Co., Ltd was established on March 20, 2018. Its main business
scope is technology services, development, consultation, transfer and technology popularization, technology import and export,
serving as agent for import and export, and import and export of goods.
(38) Chain Cloud Mall E-commerce (Tianjin)
Co., Ltd. was established on April 4, 2019 by Mr. Zeyao Xue and Kai Xu and it is a variable interest entity of the Company. Its
main business scope is sale of products through e-commerce. Mr. Zeyao Xue is a major shareholder of the Company and the son of
Mr. Yongke Xue, our Chairman and Chief Executive Officer. Mr. Kai Xu is the Chief Operating Officer of the Company.
On July 31, 2019, Chain Cloud Mall Network and Technology (Tianjin) Co., Ltd., (“CCM Tianjin”),
a wholly owned subsidiary of the Company, Chain Cloud Mall E-commerce (Tianjin) Co., Ltd., a limited liability company incorporated
under the laws of China (the “E-commerce Tianjin” or “WOFE”), and Mr. Zeyao Xue and Mr. Kai Xu, citizens
of China and shareholders of E-commerce Tianjin, entered into the following agreements, or collectively, the “Variable Interest
Entity Agreements” or “VIE Agreements,” pursuant to which CCM Tianjin has contractual rights to control and operate
the business of E-commerce Tianjin (the “VIE”).
Pursuant to Chinese law and regulations, a
foreign owned enterprise cannot apply for and hold a license for operation of certain e-commerce businesses, the category of business
which the Company plans to expand in China. CCM Tianjin is an indirectly wholly foreign owned enterprise of the Company. In order
to comply with Chinese law and regulations, CCM Tianjin agreed to provide E-commerce Tianjin an Exclusive Operation and Use Rights
Authorization to operate and use the Chain Cloud Mall System owned by CCM Tianjin.
The following is a summary of the currently
effective contractual arrangements relating to E-commerce Tianjin.
Contractual Arrangements with Our Consolidated
Affiliated Entity and Its Respective Shareholders
Our contractual arrangements with our VIE
and their respective shareholders allow us to (i) exercise effective control over our VIE, (ii) receive substantially all of the
economic benefits of our VIE, and (iii) have an exclusive option to purchase all or part of the equity interests in our VIE when
and to the extent permitted by PRC law.
As a result of our direct ownership in our
WFOE and the contractual arrangements with our VIE, we are regarded as the primary beneficiary of our VIE, and we treat them and
their subsidiaries as our consolidated affiliated entities under U.S. GAAP. We have consolidated the financial results of our
VIE in our consolidated financial statements in accordance with U.S. GAAP.
Agreements that Provide us with Effective
Control over our VIE
Exclusive Purchase Option Agreement.
Pursuant to the Exclusive Purchase Option
Agreement, Mr. Zeyao Xue and Mr. Kai Xu granted to CCM Tianjin and any party designated by CCM Tianjin the exclusive right to
purchase, at any time during the term of this agreement, all or part of the equity interests in E-commerce Tianjin, or the “Equity
Interests,” at a purchase price equal to the registered capital paid by Mr. Zeyao Xue and Mr. Kai Xu for the Equity Interests,
or, in the event that applicable law requires an appraisal of the Equity Interests, the lowest price permitted under applicable
law. Pursuant to powers of attorney executed by Mr. Zeyao Xue and Mr. Kai Xu, they irrevocably authorized any person appointed
by CCM Tianjin to exercise all shareholder rights, including but not limited to voting on their behalf on all matters requiring
approval of E-commerce Tianjin’s shareholder, disposing of all or part of the shareholder’s equity interest in E-commerce
Tianjin, and electing, appointing or removing directors and executive officers. The person designated by CCM Tianjin is entitled
to dispose of dividends and profits on the equity interest without reliance on any oral or written instructions of Mr. Zeyao Xue
and Mr. Kai Xu. The powers of attorney will remain in force for so long as Mr. Zeyao Xue and Mr. Kai Xu remain the shareholders
of E-commerce Tianjin. Mr. Zeyao Xue and Mr. Kai Xu have waived all the rights which have been authorized to CCM Tianjin’s
designated person under the powers of attorney.
Equity Pledge Agreement.
Pursuant to the Equity Pledge Agreements,
Mr. Zeyao Xue and Mr. Kai Xu pledged all of the Equity Interests to CCM Tianjin to secure the full and complete performance of
the obligations and liabilities on the part of E-commerce Tianjin and them under this and the above contractual arrangements.
If E-commerce Tianjin, Mr. Zeyao Xue, or Mr. Kai Xu breaches their contractual obligations under these agreements, then CCM Tianjin,
as pledgee, will have the right to dispose of the pledged equity interests. Mr. Zeyao Xue and Mr. Kai Xu agree that, during the
term of the Equity Pledge Agreements, they will not dispose of the pledged equity interests or create or allow any encumbrance
on the pledged equity interests, and they also agree that CCM Tianjin’s rights relating to the equity pledge should not
be interfered with or impaired by the legal actions of the shareholders of E-commerce Tianjin, their successors or designees.
During the term of the equity pledge, CCM Tianjin has the right to receive all of the dividends and profits distributed on the
pledged equity. The Equity Pledge Agreements will terminate on the second anniversary of the date when E-commerce Tianjin, Mr.
Zeyao Xue and Mr. Kai Xu have completed all their obligations under the contractual agreements described above.
Agreements that Allow us to Receive Economic
Benefits from our VIE
Exclusive Technology Consulting and Service
Agreement.
Pursuant to the Exclusive Technology Consulting
and Service Agreement, CCM Tianjin agreed to act as the exclusive consultant of E-commerce Tianjin and provide technology consulting
and services to E-commerce Tianjin. In exchange, E-commerce Tianjin agreed to pay CCM Tianjin a technology consulting and service
fee, the amount of which is to be equivalent to the amount of net profit before tax of E-commerce Tianjin, payable on a quarterly
basis after making up losses of previous years (if necessary) and deducting necessary costs, expenses and taxes related to the
business operations of E-commerce Tianjin. Without the prior written consent of CCM Tianjin, E-commerce Tianjin may not accept
the same or similar technology consulting and services provided by any third party during the term of the agreement. All the benefits
and interests generated from the agreement, including but not limited to intellectual property rights, know-how and trade secrets,
will be CCM Tianjin’s sole and exclusive property. This agreement has a term of 10 years and may be extended unilaterally
by CCM Tianjin with CCM Tianjin’s written confirmation prior to the expiration date. E-commerce Tianjin cannot terminate
the agreement early unless CCM Tianjin commits fraud, gross negligence or illegal acts, or becomes bankrupt or winds up.
Agreements that Provide us with the Option
to Purchase the Equity Interests in and Assets of our VIE
See Exclusive Purchase Option Agreement
above
Spousal Consent Letters. The
spouse of Mr. Kai Xu (Mr. Zeyao Xue is not married) of Chain Cloud Mall E-commerce (Tianjin) Co., Ltd. has signed a spousal
consent letter agreeing that the equity interests in Chain Cloud Mall E-commerce (Tianjin) Co., Ltd. held by and
registered under the name of the shareholder will be disposed pursuant to the contractual agreements with our WFOE. Mr.
Xu’s spouse agreed not to assert any rights over the equity interest in Chain Cloud Mall E-commerce (Tianjin) Co., Ltd.
held by the shareholder.
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), , Food Industry Yidu,, Agriculture Plantation Yidu, Yingkou,
Huludao Wonder,,Yichang Odd Orchard, Xi’an Cornucopia, Shaanxi Qiyiwangguo, Shaanxi Heying, Food Industry Jingyang, Foods
Industry Zhouzhi, Hedetang Holding, Hedetang Research, SkyPeople Suizhong, Hedejiachuan Yichang, Guo Wei Mei, HeDeJiaChuan Foods
Xi’an, Shenzhen Hedetang, Dcon Digipay, FinTech HK, Hedetang Foods China, Agricultural Silkroad, Agricultural Plantation
Mei County Trading Market Yidu, Trading Market Mei County, Hedetang Plantations, GlobalKey Supply Chain Limited, Zhonglian Hengxin,
FinTech (Xi’an), and Chain Future (Tianjin), and China Future (Beijing), all of 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. All significant inter-company accounts and transactions
have been eliminated.
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.
Going Concern
The Company’s financial statements
are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities in the normal course of business for the foreseeable
future.
Under the going concern assumption, an
entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of
liquidation, ceasing trading, or seeking protection from creditors pursuant to laws or regulations. Accordingly, assets and liabilities
are recorded on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course
of business.
The accompanying financial statements do
not include any adjustments related to the recoverability and classification of assets or the amounts and classifications of liabilities
that might be necessary should the Company be unable to continue as a going concern.
The ability of the Company to continue
as a going concern is dependent upon its ability to successfully execute its new business strategy and eventually attain profitable
operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable
to continue as a going concern.
For the first quarter of 2019, the Company
started to recognize its revenue for the new business section of blockchain based e-commerce platform.
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 $3,243 and $8,614 for the three months ended March 31, 2019 and 2018,
respectively, are reported in the Condensed Consolidated Statements of Comprehensive Income (Expense) 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 amount paid is credited or charged to a deferred rent account.
Earnings (loss) per share
The Company adopted ASC Topic 215, Statement
of Shareholder Equity. Basic Earnings Per Share (“EPS”) are computed by dividing net income available to common
shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted
EPS give effect to all dilutive potential common shares outstanding during a period. In computing diluted EPS, the average price
for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options and warrants.
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-15,
“Intangibles - Goodwill and Other - Internal-use Software (Subtopic 350-40): Customer’s Accounting for Implementation
Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The standard requires implementation costs
incurred by customers in cloud computing arrangements to be capitalized and amortized under the same premises of authoritative
guidance for internal-use software. Adoption of ASU 2018-15 did not have any other material effect on the results of operations,
financial position or cash flows of the Company.
In June 2018, the FASB issued Accounting Standards
Update “ASU No. 2018-07 – Compensation – Stock Compensation”. The ASU expands the scope of current guidance
to include all share-based payment arrangements related to the acquisition of goods and services from both non-employees and employees.
The guidance in the ASU is effective for the Company in all fiscal years beginning after December 15, 2018. Adoption of ASU 2018-07
did not have any other material effect on the results of operations, financial position or cash flows of the Company.
In 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 2018-02 did not have any other material effect
on the results of operations, financial position or cash flows of the Company.
Other accounting standards that have been issued or proposed by the FASB or other standard-setting bodies
that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated
financial statements upon adoption.
Inventories by major categories are summarized
as follows: (in thousands)
|
|
March 31, 2019
(Unaudited)
|
|
|
December 31, 2018
(Audited)
|
|
|
|
|
|
|
|
|
Raw materials and packaging
|
|
$
|
77
|
|
|
$
|
25
|
|
Finished goods
|
|
|
120
|
|
|
|
38
|
|
Inventories
|
|
$
|
198
|
|
|
$
|
63
|
|
4.
|
Related Party
Transaction
|
Sales to related parties
The Company did not have any sales to related parties for the three months ended March 31, 2019 and March
31, 2018, respectively. The accounts receivable balances for such transactions were nil as of March 31, 2019 and December 31, 2018,
respectively.
(1)
|
Concentration
of customers
|
Sales to our five largest customers accounted for approximately 26% and 100% of our net sales during the
three months ended March 31, 2019 and 2018, respectively. One customer represented 12% of total sales for the three months ended
March 31, 2019, and one customer represented over 87%
of total sales for the three months ended March 31, 2018.
(2)
|
Concentration
of suppliers
|
There was one supplier that accounted over 14% of our purchases for the three months ended March 31, 2019,
and there was no supplier that accounted for over 10% of our purchases for the three months ended March 31, 2018.
6.
|
Issuance of common
stock and warrants
|
On April 12, 2017, the Company entered into
a Securities Purchase Agreement (the “Purchase Agreement”) with certain purchasers identified on the signature pages
thereto (the “Purchasers”), pursuant to which the Company offered 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 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 also issued to 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.
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 filed a registration
statement on Form S-1 (File No. 333-218276) on May 26, 2017, which was declared 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”).
On November 2, 2017 (the “Agreement
Date”), a wholly-owned indirect subsidiary of the Company, Hedetang Foods (China) Co., Ltd. (“Hedetang”), entered
into a series of Creditor’s Rights Transfer Agreements (collectively, the “Acquisition Agreements”) with each
of Shaanxi Chunlv Ecological Agriculture Co. Ltd., Shaanxi Boai Medical Technology Development Co., Ltd., and Shaanxi Fu Chen
Venture Capital Management Co. Ltd. (collectively, the “Sellers”). Pursuant to the Acquisition Agreements, Hedetang
agreed to purchase certain creditor’s rights associated with companies located in the PRC, for an aggregate purchase price
of RMB 181,006,980 (approximately $27,344,096), of which RMB 108,604,188 (approximately $16,437,248.50) was paid in cash and RMB
72,402,792 (approximately $10,937,639) was paid in shares of common stock of the Company based on the average of the closing prices
of Future FinTech’s common stock over the five trading days preceding the date of the Acquisition Agreements.
A summary of the Acquisition Agreements is
as follows:
1) Shaanxi Chunlv Ecological Agriculture Co.
Ltd. agreed to transfer all its credit rights of principal and interest owed by Xi’an Tongji Department Store Co., Ltd.
to Hedetang. As of the Agreement Date, the book balance of the principal was RMB 23,625,000, the interest was RMB 38,281,900,
and the total credit balance, including the principal and the interest, was RMB 61,906,900, of which the RMB 19,757,800 credit
was guaranteed by a third party company.
2) Shaanxi Chunlv Ecological Agriculture Co.
Ltd. agreed to transfer all its credit rights of principal and interest owed by Shaanxi Youyi Co., Ltd. to Hedetang. As of the
Agreement Date, the book balance for the principal was RMB 45,345,000, the interest was RMB 71,224,300, and the total credit balance
including the principal and the interest was RMB 116,569,300, all of which was guaranteed by a third party company.
3) Shaanxi Fu Chen Venture Capital Management
Co., Ltd. agreed to transfer all its credit rights of principal and interest owed by State Owned Shaanxi No. 8 Cotton and Textile
Mill to Hedetang. As of the Agreement Date, the book balance for the principal was RMB 72,370,000, the interest was RMB 138,037,700,
the total of credit including the principal and the interest was RMB 210,407,700, and there was no effective guarantee or pledged
assets to secure this debt.
4) Shaanxi Boai Medical Technology Development
Co., Ltd. agreed to transfer all its credit rights of principal and interest owed by Xi’an Yanliang Economic Development
Co., Ltd. to Hedetang. As of the Agreement Date, the book balance for the principal was RMB 6,350,000, the interest was RMB 9,834,300,
and the total of credit including the principal and the interest was RMB 16,184,300, which is secured by certain land use rights.
In connection with the Acquisition Agreements
and to provide funding for their consummation, on November 3, 2017, the Company entered into a Share Purchase Agreement (the “Share
Purchase Agreement”) with Mr. Zeyao Xue (“Xue”) pursuant to which Future FinTech agreed to sell 11,362,159 shares
of its common stock (the “Shares”) to Xue for an aggregate purchase price of $16,437,248.50. The per share price for
the Shares was determined using the average closing price quoted on the NASDAQ Global Market for the common stock of the Company
over the three (3) trading days prior to the date of the Share Purchase Agreement (the “Purchase Price”), subject
to potential upward adjustment. The consummation of the Share Purchase Agreement was contingent on Future FinTech receiving shareholder
approval at a Special Shareholders Meeting for an amendment to its articles of incorporation and the approval of Share issuance
under the Share Purchase Agreement by the shareholders of the Company.
On April 6, 2018, the Company issued an aggregate
7,111,599 shares of the Company’s common stock to three individuals designated by the Sellers in the respective amounts
of 3,409,466, 3,323,225 and 378,908 shares, pursuant to the Acquisition Agreements, and 11,362,159 shares of the Company’s
common stock pursuant to the Share Purchase Agreement, which such issuances were approved by the Company’s shareholders
at a special meeting held on March 13, 2018.
On January 23, 2018, DigiPay FinTech Limited
(“DigiPay”), a limited liability company incorporated in the 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 transferred
to DigiPay a 60% ownership interest in certain digital assets of DCON, a blockchain platform for cryptocurrency conversion, payment
and other services (“DCON”), including but not limited to its business plan and white papers, business models, software,
codes, architectures, applications, technologies, patents, copyrights, trade secrets, customer lists, business points, trading
platforms, digital rights, authentication systems, agreements and contracts, intellectual property, tokens, 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 paid 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 Share Payment shares were issued within 90 days of the date of 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.
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 holds a 60%
ownership interest and Peng’s designee holds a 40% ownership interest.
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 “Service 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 Service 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 Service 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 dollar and RMB for the payment is 1:6.65. The Share Payment was made within 15 business days of the
date of the Service Agreement, and the remaining Service Agreement consideration shall be paid by GlobalKey in accordance with
the schedule described in the Service Agreement. The Company paid RMB 876,663 ($139,416) and RMB 788,353 ($115,459) in cash to
Reits in the first and second quarters of 2018, respectively.
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 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 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, 2019, there were no shares
of stock available for awards 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 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 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, 2019, there were no shares of stock available for awards
under the 2015 Stock Incentive Plan.
On March 13, 2018, the Company’s shareholders approved the 2017 Omnibus Equity Plan at the annual
shareholders meeting, which permits the grant of incentive stock options (“ISOs”), nonqualified stock options (“NQSOs”),
stock appreciation rights (“SARs”), restricted stock, unrestricted stock and restricted stock units (“RSUs”)
to its employees of up to 1,300,000 shares of Common Stock. On December 21, 2018, the Company granted 1,300,000 shares of the Company’s
unrestricted common stock to seven of the Company’s employees pursuant to our 2017 Omnibus Equity Plan, which was approved
by the Company’s shareholders at the annual shareholders meeting on December 6, 2018. The Company recorded an expense of
$13,000 in the fourth quarter of fiscal year 2018 under the 2017 Omnibus Equity Plan, reflecting a par value of $0.001 per share
of the Company’s common stock. As of March 31, 2019, there were no shares of stock available for awards under the 2017 Omnibus
Equity Plan.
On October 19, 2018, the Company issued 5 million shares of its Common Stock to Mr. Chenliu pursuant to
the InUnion Chain Ltd. Shares Transfer and IUN Digital Assets Investment Agreement entered into on June 22, 2018 between Digipay
Fintech Limited (“Digipay”), a limited liability company incorporated in the British Virgin Islands and a wholly-owned
subsidiary of the Company, Mr. Chenliu, an individual resident of Costa Rica, and InUnion Chain Ltd. (“InUnion”), a
British Virgin Islands company wholly owned by Mr. Chenliu.
On January 23, 2018, DigiPay FinTech Limited (“DigiPay”),
a limited liability company incorporated in the 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 transferred to DigiPay a 60% ownership interest in certain digital assets of DCON, a blockchain
platform for cryptocurrency 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”).
DCON DigiPay Limited was incorporated in
Japan in February, 2018 and 60% of DCON DigiPay Limited is owned by the Company. The Company has recognized this digital asset
as an intangible asset at a total amount of the purchase price of $9,600,000, and amortized over 5 years with amortization of $480,000
for the three months ended March 31, 2019.
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 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 and the purchase price has not been settled. The Company paid RMB 200 million
(approximately $30 million) as a 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. 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
2020.
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 square acres) of a 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 8,000 mu (approximately 1,317 square acres) of an 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.
10.
|
Discontinued
Operation
|
The Company’s Huludao Wonder operation, a subsidiary which produces concentrated apple juice, has
suffered continued operating losses since year 2014. 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. Huludao Wonder additionally stopped payment of interest on the loan
it borrowed during year 2016. The bank sued Huludao Wonder, the result was that according to the enforcement of the court, Huludao
Wonder paid off its all owed long-term debt principal and interest due at the time of the settlement with its fixed assets in year
2018.
As of March 31, 2019, Huludao Wonder no longer
incurred any income or expenses, and 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 four segments starting from fiscal 2019: shared shopping mall membership fee,
fruit related products, sales of goods and others. Our concentrated juice and juice beverages are primarily produced by the Company’s
Jingyang factory.
Since the Company began transforming its
lines of business, membership fees from the shared shopping mall and sales of goods through the shared shopping mall platform
started to generate the main revenues for the Company, and became the more important business sections of the Company, while
its traditional business section of seasonal fruit related products shrunk.
In March 31, 2019, the Company sold its fruit
related products and other products mainly to domestic customers in the PRC.
Some of these product segments might not 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 asset information by segment are not presented. Segment profit represents the gross profit of each reportable
segment.
For the three months ended March 31, 2019
(in thousands, unaudited):
|
|
Fruit Related Products
|
|
|
CCM Shopping Mall Membership
|
|
|
Sales of Goods
|
|
|
Others
|
|
|
Total
|
|
Reportable segment revenue
|
|
$
|
36
|
|
|
$
|
22
|
|
|
$
|
157
|
|
|
$
|
14
|
|
|
$
|
229
|
|
Inter-segment loss
|
|
|
(14
|
)
|
|
|
-
|
|
|
|
19
|
|
|
|
-
|
|
|
|
(33
|
)
|
Revenue from external customers
|
|
|
22
|
|
|
|
22
|
|
|
|
138
|
|
|
|
14
|
|
|
|
196
|
|
Segment gross profit
|
|
$
|
2
|
|
|
$
|
20
|
|
|
$
|
17
|
|
|
$
|
14
|
|
|
$
|
53
|
|
For the three months ended March 31, 2018 (in
thousands, unaudited):
|
|
Fruit Related Products
|
|
|
CCM Shopping Mall Membership
|
|
|
Sales of Goods
|
|
|
Others
|
|
|
Total
|
|
Reportable segment revenue
|
|
$
|
609
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
61
|
|
|
$
|
670
|
|
Inter-segment loss
|
|
|
(108
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(108
|
)
|
Revenue from external customers
|
|
|
501
|
|
|
|
-
|
|
|
|
-
|
|
|
|
61
|
|
|
|
562
|
|
Segment gross profit
|
|
$
|
46
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
17
|
|
|
$
|
63
|
|
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, 2019 and 2018: (in thousands)
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Segment profit
|
|
$
|
53
|
|
|
$
|
63
|
|
Unallocated amounts:
|
|
|
-
|
|
|
|
-
|
|
Operating expenses
|
|
|
(1,564
|
)
|
|
|
(2,843
|
)
|
Other income
|
|
|
(168
|
)
|
|
|
(453
|
)
|
Loss before tax provision
|
|
$
|
(1,679
|
)
|
|
$
|
(3,233
|
)
|
|
12.
|
Commitments And
Contingencies
|
Litigation
On June 29, 2015, SkyPeople China entered into a loan agreement with Beijing Bank. Pursuant to the loan
agreement, SkyPeople China borrowed RMB 30 million (approximately $4.36 million) from Beijing Bank. Hongke Xue, Yongke Xue and
Xiujun Wang provided guarantees for the loan and Shaanxi Boai Medical Technology Development Co., Ltd. (“Shaanxi Boai”)
provided certain real estate property as a pledge for the loan. SkyPeople China did not repay the loan on time and Beijing Bank
filed an enforcement request with Xi’an Intermediate People's Court in June 2017. The Xi’an Intermediate People’s
Court seized real estate properties pledged by Shaanxi Boai and Xiujun Wang. In November 2018, the Court sold the real estate property
pledged by Xiujun Wang for RMB1,170,180. Because the real estate property is Xiujun Wang’s primary home, the Court allocated
RMB 117,000 to Xiujun Wang as transition home leasing fee and deducted outstanding mortgage payments, and the remaining amount
was delivered to Beijing Bank as the repayment. The Court has also made inquiries to Beijing Bank as to whether it is willing to
accept the pledged real estate property of Shaanxi Boai as the repayment of the outstanding loan for the amount of RMB 27,932,300
(approximately $4.06 million) but Beijing Bank has refused to take the real property as repayment of the loan and the enforcement
has been terminated by the Court.
On March 8, 2016, SkyPeople China entered into a loan agreement with Ningxia Bank. Pursuant to the loan
agreement, SkyPeople China borrowed RMB 25 million (approximately $3.63 million) from Ningxia Bank. Hongke Xue, Yongke Xue, Lake
Chen, Shaanxi Boai Medical Technology Development Co., Ltd. and Shaanxi Qiyiwangguo provided guarantees for the loan. SkyPeople
China also pledged 37 pieces of equipment and the related trademarks to Ningxia Bank for the loan. SkyPeople China has not repaid
the loan and Ningxia Bank filed an enforcement action with Xi’an Intermediate people’s court in August 2017. The Court
has frozen the assets of SkyPeople China that were pledged as guarantee for the loan from being transferred to any third-party,
but the freeze does not limit or affect the use of these properties by SkyPeople China for its business. In July 2018, Shaanxi
Qiyiwangguo filed a petition to the Court and requested the termination of the enforcement action on the basis that its guarantee
of the loan was not valid because the seal used on the guarantee agreement was not authentic and the guarantee was not approved
by the shareholders of Shaanxi Qiyiwangguo. On Novermber 27, 2019, Shaanxi Qiyiwangguo withdrew its petition and the Court agreed
to such withdrawal and there has been on other progress of this case.
On December 23, 2015, SkyPeople China
entered into two loan agreements with China Construction Bank. Pursuant to the loan agreements, SkyPeople China borrowed RMB
13.90 million (approximately $2.13 million), and RMB 30 million (approximately $4.59 million) from China Construction Bank,
respectively. Shaanxi Boai Medical Technology Development Co., Ltd. (“Boai”), Hongke Xue, Yongke Xue, Xiujun Wang
and Yingkou Trusty Fruits Co., Ltd. (“Yingkou”) provided pledges for the loans. SkyPeople China has not repaid
the loans and China Construction Bank filed an enforcement action with Xi’an Intermediate People's Court in March 2017.
In December 2017, SkyPeople China received the enforcement notice from the Court. The Court has seized certain parking space
and land use rights pledged by Xiujun Wang and Boai and sold the land use right pledged by Boai in auction for approximately
RMB 24,835,790 as repayment to China Construction Bank. The Court also seized certain land use rights pledged by Yingkou
Trusty Fruits Co., Ltd., but the auction sale for those rights was not successful. 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. Shaanxi
Province Credit Reassurance Company (“Credit Reassurance Company”) provided a guarantee to China Construction Bank
for the loan, Hongke Xue and Yongke Xue provided their guarantees, and SkyPeople China provided an office space that it owned to
Credit Reassurance Company as a pledge. SkyPeople China has not repaid the loan and Credit Reassurance Company repaid the loan
for SkyPeople China. In June 2017, Credit Reassurance filed an enforcement action request with Xi’an Intermediate People’s
Court (the “Court”) in June 2017. In December 2017, SkyPeople China received the enforcement notice from the Court.
The Court issued a verdict to seize the office space of SkyPeople China for auction sale on December 26, 2017. In February 2018,
the auction sale was conducted but not successful. In June 2018, the Court decided to use the pledge property as the repayment
for the outstanding loan of RMB 12.21 million (approximately $1.78 million).
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 $5.8 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 on 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, the 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 from 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 $5.8 million as the result of these two enforcement proceedings in the third quarter of 2018.
In August 2017, Cinda Capital Financing Co. Ltd. (“Cinda”) filed a lawsuit with Beijing 2nd
Intermediate People’s Court (the “Beijing Intermediate Court”) against the Company’s indirectly wholly-owned
subsidiaries Shaanxi Guoweimei Kiwi Deep Processing Company, Ltd. (“Guoweimei”) and Hedetang Farm Products Trading
Market (Mei County) Co., Ltd. (“Trading Market Mei County Co”, and together with Guoweimei, “Lessees”)
requested that Lessees repay RMB 50 million (approximately $7.27 million) in capital lease fees, plus interest. Cinda has purchased
or paid for refrigerant warehouse and trading hall to the suppliers and vendors and agreed to lease them to the Lessees for a leasing
fee of RMB 50 million in December 2016. The capital leasing fee became due on its maturity date of June 2017, with certain land
use rights of Lessees in Mei County and equity of Guoweimei as a pledge. The Company 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. Lessees have taken the position that Cinda is not a bank and does not have government permits
required to make loans in China, and the agreements including pledge agreement were invalid, void and without legal effect from
the beginning. Therefore, the Company only has the obligations to repay principal but not the interest. In November 2017, Beijing
Intermediate Court ruled in favor of Cinda and the Lessees appealed the case to the Beijing Supreme Court. The Beijing Supreme
Court held a hearing at the end of July 2018. On December 4, 2018, the Beijing Supreme Court upheld the lower court’s decision.
Currently, the case is under enforcement procedure and Cinda is in the process of evaluating the value of the land use rights.
Currently, the seized properties are still owned by subsidiaries of SkyPeople China.
In August 2017, Cinda Capital Financing Co. Ltd. (“Cinda”) filed another lawsuit with Beijing
Intermediate Court against the Company’s indirectly wholly-owned subsidiaries Guoweimei and SkyPeople China for repayment
of leasing fee of RMB 84,970,959 (approximately $12.35 million) plus interest. In January 2014, Guoweimei and SkyPeople China (the
“Equipment Lessees”) signed an Equipment Financial Lease Purchase Agreement with Cinda and an equipment supplier pursuant
to which Cinda would provide funds to purchase equipment and the Equipment Lessees would lease the equipment from Cinda. Guoweimei
pledged certain land use rights in Mei County to Cinda and Xi’an Hedetang and Hedetang Holding pledged their equities in
Guoweimei to Cinda to secure the repayment. Mr. Hongke Xue also provided a personal guarantee for the payment of the leasing fee.
Beijing Intermediate Court had two hearings of the case and on March 21, 2018 it ruled in favor of Cinda to the effect that SkyPeople
China and Guoweimei shall pay leasing fees due in the amount of RMB 20,994,048 (approximately $3.05 million), as well as leasing
fees not yet due in the amount of RMB 63,975,910 (approximately $9.30 million), plus attorney’s fees and expenses. Beijing
Intermediate Court also ruled that Mr. Hongke Xue is jointly liable for the debt as the guarantor, and that Cinda has priority
rights to the pledged land use rights in Mei County and the pledged equities of Guoweimei as well as the ownership of the leasing
properties until the leasing fees are paid. SkyPeople China has appealed the decision to the Beijing Supreme Court. The Beijing
Supreme Court rejected the appeal and upheld the original verdict on September 7, 2018. Currently, the case is under enforcement
procedure and the seized properties are still owned by subsidiaries of SkyPeople China.
In April 2015, SkyPeople China entered
into a loan agreement with Shaanxi Fangtian Decoration Co. Ltd. (“Fangtian”). Pursuant to the loan agreement, SkyPeople
China borrowed RMB 3.5 million (approximately $508,780) from Fangtian. SkyPeople China has not repaid the loan and Fangtian filed
a lawsuit with Xi’an Yanta District People’s Court (“Yanta District Court”). On August 10, 2017, Yanta
District Court ruled against SkyPeople China and determined that SkyPeople China must repay the loan of RMB 3.5 million plus interest
RMB of 402,500 (approximately $585,098). Fangtian has requested that the Yanta District Court enter into enforcement procedures
for the case.
On May 4, 2015, SkyPeople China and Xi’an
Branch of Shanghai Pudong Development Bank (SPD Bank Xi’an Branch) renewed a Working Capital Loan Contract and Repayment
Schedule, according to which both parties agreed that SPD Bank Xi’an Branch loaned RMB 26.9 million (approximately $3.92
million) to SkyPeople China with a term of one year. On the signing date of the Loan Contract, Hongke Xue, Yongke Xue, Xiujun Wang
and SPD Bank Xi’an Branch signed a Contract of Guaranty, guaranteeing the repayment of loan and undertaking joint liability.
According to a Mortgage Contract of Maximum Amount signed between SkyPeople China and SPD Bank Xi’an Branch on April 2, 2013,
SkyPeople China provided one of its real properties and land use rights as the pledge. But SkyPeople China failed to repay after
SPD Bank Xi’an Branch issued the loan.
In October 2015, SPD Bank Xi’an
Branch filed the enforcement request with the Intermediate Court of Xi’an and the Court has seized pledge real property
and land use rights and equity ownership of SkyPeople China in Wonder Fruit and SkyPeople Suizhong. During the enforcement procedure,
SPD Bank Xi’an Branch has transferred its creditor’s rights to China Huarong Asset Management Co., Ltd. (“China
Huarong”). The Court changed the execution applicant to China Huarong on December 12, 2018. China Huarong had applied to
the Court to evaluate the seized real property and land use rights. The valuation process has not yet been completed.
Shaanxi Guoweimei Kiwi Deep Processing Co.
Ltd (“Guoweimei”), entered into a construction agreement with Shaanxi Fangyuan construction co., Ltd. (“Fangyuan”)
in July, 2013. On October 8, 2018, Fangyuan filed a lawsuit and requested that Guoweimei pay a project construction fee plus penalty
of RMB 56,323,403.93 (approximately $8.22 million). On June 10, 2019, Baoji Intermediate People's Court issued a verdict that
Guoweimei just pay RMB41, 576,833.4 (approximately $6.07 million) plus penalty to Fangyuan, and Fangyuan will enjoy preferential
right for the projects in processing zone of National Wholesale and Trading Center in Mei County for Kiwi Fruits developed by
Guoweimei.
In May 2015, Hedetang Farm Products Trading
Markets (Mei County) Co., Ltd. (“Hedetang”) and Shaanxi Zhongkun Construction Co., Ltd. (“Zhongkun”) entered
into a construction and decoration agreement. On September 5, 2018, Zhongkun filed the lawsuit with Shaanxi Provincial People’s
Court (the “Court”) for repayment of construction and decoration fees. The Court issued a civil judgement in November
2018, ordering Hedetang to pay project funds of RMB 1,632,971.6 (approximately $238,389) to Zhongkun, plus interest. After entering
into the enforcement phase, the Court found assets of Hedetang had been seized by Xi’an Yanta District People’s Court
and Baoji Intermediate People's Court, and there were no other assets for enforcement, so the enforcement procedure has been terminated
by the Court.
On October 31, 2017, Xi’an Shanmei Food
Co. Ltd. filed a lawsuit against Shaanxi Qiyiwangguo, a majority-owned subsidiary of the Company, with Zhouzhi County People’s
Court in connection with a Land Lease Agreement entered into by the parties on October 1, 2013. On March 2, 2018, Zhouzhi County
People’s Court issued a verdict that: (i) the Land Lease Agreement was thereby terminated; (ii) Shaanxi Qiyiwangguo shall
pay Xi’an Shanmei the outstanding leasing fee RMB 211,621 (approximately $30,762) and (iii) Shaanxi Qiyiwangguo shall return
the 29.3 mu industrial use land to Xi’an Shanmei. Shaanxi Qiyiwangguo has appealed the decision to the Xi’an Intermediate
People’s Court on the basis that: (x) the land use right was a capital contribution by Xi’an Shanmei for a shareholder
of Shaanxi Qiyiwangguo who is also the sole shareholder of Xi’an Shanmei and the Land Lease Agreement was invalid and has
no legal effect; (y) Zhouzhi Court did not schedule the hearing for the count claims filed by Shaanxi Qiyiwangguo; and (z) Zhouzhi
Court violated certain civil procedures during the trial of the case. Due to the late notice to Zhouzhi Court, the case file was
not timely transferred to Xi’an Intermediate Court and no appeal hearing was scheduled. Zhouzhi Court has issued verdict
for enforcement procedure and Qiyiwangguo has filed petition of disagreement for the enforcement which is still under Zhouzhi
Court’s review.
In January 2016 Shaanxi Qiyiwangguo
Modern Organic Agriculture Co., Ltd (“Qiyiwangguo”) and Nanjing Bailuotong Logistics Services Co., Ltd
(“Bailutong”) entered into a transportation agreement to ship fruit juices. Bailutong failed to deliver the juice
products and held them after their expiration date. Qiyiwangguo filed a lawsuit against Bailutong with Zhouzhi county
People’s Court, and the Court issue the verdict in February 2018 that: (1) the transportation contract between
Qiyiwangguo and Bailutong was terminated; and (2) Bailutong owed RMB 203, 550.76 (approximately $29,715) to Qiyiwangguo for
the loss of Qiyiwangguo. Bailutong appealed the case to Xi’an Intermediate People's Court. Xi’an Intermediate
People's Court rejected the appeal and upheld the original verdict.
Qiyiwangguo entered into an agreement
with Henan Huaxing Glass Co., Ltd. (“Huaxing”) in May 2014 for Huaxing to supply glass bottles to Qiyiwangguo.
However, due to the disputes regarding the quality of products supplied by Huaxing, Qiyiwangguo did not pay the prices for
certain glass bottles. In August 2017, Huaxing filed a lawsuit and the court ruled Qiyiwangguo was required to pay Huaxing
RMB 203,742 (approximately $29,743) in July 2018. During the enforcement process, the parties reached a settlement agreement
but Qiyiwangguo failed to pay the amount due and now the case is still in the court enforcement process.
In September 2016, the Suizhong Branch of
Huludao Banking Co. Ltd. (“Suizhong Branch”) filed a lawsuit with Huludao Intermediate People’s Court (the “Huludao
Court”) against the Company’s indirectly wholly-owned subsidiary Huludao Wonder Fruit Co., Ltd. (“Wonder Fruit”)
and requested that Wonder Fruit repay a RMB 40 million (approximately $5.81 million) bank loan, plus interest. The loan became
due on its maturity date of December 9, 2016. On December 19, 2016, the Huludao Court accepted the case. The Company has been
disputing the interest rate of the loan with Suizhong Branch, and has not repaid the loan to date. Wonder Fruit believes that
the interest charged by Suizhong Branch is 100% higher than the base rate set by People’s Bank of China and is not consistent
with the China People’s Bank’s base interest and floating rate. The Huludao Court has seized land use rights, buildings
and equipment of Wonder Fruit that were pledged as guarantee for the loan and has organized two auction sales for these assets
in January and February of 2018, but both auction sales have been unsuccessful in finding a buyer. On July 19, 2018, the Court
issued a verdict ordering Huludao Wonder to transfer its land use rights, building, equipment, electronic and transportation assets
to Zuizhong Branch as payment of the outstanding principal, auction and evaluation fees and some interest of the loan for RMB
42, 639,264 (approximately $6.22 million).
In September 2017, Andrew Chien, a former
consultant of SkyPeople China, brought a lawsuit against the Company and Mr. Hongke Xue in the District Court of Connecticut (the
“Court”). The complaint was not properly served and the Company learned of the litigation in December 2017. In the
complaint, Mr. Chien has made several claims, most of which attempt to hold the Company liable under novel legal theories that
relate back to an alleged breach of a consulting agreement between SkyPeople China and Chien from August 2006. Mr. Chien claimed
approximately $257,000 damages and interest plus 2% of the Company’s then-outstanding shares. Mr. Chien has unsuccessfully
attempted to sue the Company on the breach of the same consulting agreement several times in the courts of Connecticut and New
York, and these cases have been dismissed. The Company has filed a motion to dismiss (“MTD”) and all proceedings are
stayed pending determination of the MTD. On August 31, 2018, the Court granted our MTD. On September 10, 2018, Mr. Chien filed
a motion for reconsideration. On September 28, 2018, the Court denied Mr. Chien’s motion for reconsideration. On October
26, 2018, Mr. Chien appealed the case to the United States Court of Appeals for the Federal Second Circuit. The appeal is
fully briefed and presently awaiting decision. The Company will vigorously defend this lawsuit and expects to obtain early dismissal
of Mr. Chien’s claims.
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13.
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Entry into
a Material Definitive Agreement
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On March 26, 2019, Future FinTech Group, Inc.,
a Florida corporation (the “Company”), entered into a Securities Purchase Agreement (the “Purchase Agreement”)
with Iliad Research and Trading, L.P., a Utah limited partnership (the “Purchaser”), pursuant to which the Company
sold and issued to the Purchaser a Secured Convertible Promissory Note (the “Note”) in the principal amount of $1,070,000.
The Purchaser purchased the Note with an original issue discount of $50,000, and the Company agreed to pay to the Purchaser $20,000
for fees and costs incurred by Purchaser in connection with the consummation of the Purchase Agreement. The Note was sold to the
Purchaser pursuant to an exemption from registration under Regulation D, promulgated under the Securities Act of 1933, as amended.
The purchase price for the Note will be paid by the Purchaser through an initial cash payment of $500,000 and the issuance of
an Investor note to the Company with a one-year term and an interest rate of 8% (the “Investor Note”), which the Purchaser
agrees to prepay in full upon the satisfaction of certain conditions for pledged shares and transfer agent instruction letter
pursuant to the Investor Note and Purchase Agreement.
On May 2, 2019, the Company received the second cash payment of $503,817.92 after satisfying certain conditions
for pledged shares as required in the Securities Purchase Agreement. Among which, $3,817.92 was interest income for the Company
due to late payment past the agreed date by Iliad Research and Trading, L.P.
The Note bears interest at the rate of 8%
per annum. All outstanding principal and accrued interest on the Note will become due and payable on March 26, 2020. The Company’s
obligations under the Note may be prepaid at any time, provided that in such circumstance the Company would pay a 125% of any
amounts outstanding under the Note. Amounts outstanding under the Note may be converted at any time, at the Purchaser’s
option, into shares of the Company’s common stock at a conversion price of $3.00 per share. During the term of the Note,
the Company shall not, without the prior written consent of the Purchaser, enter into or effect certain fundamental business transactions.
The Company has the option to redeem the Note at any time after the six month anniversary of the date when the purchase price
is delivered to the Company. The Company’s obligations under the Note are secured by a pledge of 2,500,000 shares of the
Company’s common stock by Mengyao Chan, an unrelated third party, in favor of the Purchaser.
On May 16, 2019, the Board of the Directors
(the “Board”) of Future FinTech Group Inc. (the “Company”) appointed Ms. Jing (Veronica) Chen as the Chief
Financial Officer (“CFO”) of the Company.
Ms. Chen, age 53, served as the CFO of AnZhiXinCheng (Beijing) Technology Co., Ltd. from August, 2018
to May, 2019. From August, 2017 to July, 2018, Ms. Chen served as CFO of Beijing Logis Technology Development Co., Ltd., a company
listed on The National Equities Exchange and Quotations Co., Ltd. of China which is a Chinese over-the-counter stock trading system.
From June 2016 to July 2017, Ms. Chen served as Group Chief Financial Officer of Beijing AnWuYou Food Co., Ltd. Ms. Chen served
as Chief Financial Officer Beijing DKI Investment Management Co., Ltd. from August, 2012 to May, 2016.
Ms. Chen received a degree of Doctor of Business Administration from Victoria University, Neuchatel, Switzerland
in March 2008 and an MBA degree from City University of Seattle, Washington, U.S. in April 2000. Ms. Chen holds Fellow Membership
of CPA Australia (FCPA), and Fellow Membership of the Association of International Accountants U.K. (FAIA). Ms. Chen is a Member
of Chartered Institute of Management Accountants (CIMA), a Senior Member of International Financial Management (SIFM) accredited
by Ministry of Human Resources and Social Security of PRC and a Certified Internal Control Professional granted by Internal Control
Institute (ICI).
In connection with her appointment as CFO,
the Company entered into an employment agreement (the “Agreement”) with Ms. Chen on May 21, 2019. The employment agreement
provides that Ms. Chen will receive compensation in the amount of RMB 624,000 (approximately $90,620) per year after tax, payable
monthly. The term of the employment agreement is for one year.
On September 18, 2019, SkyPeople Foods Holdings Limited, a company incorporated in the British Virgin
Islands (“SkyPeople Foods”) and a wholly owned subsidiary of Future FinTech Group Inc. (the “Company”),
entered into a Share Transfer Agreement (the “Agreement”) with New Continent International Co., Ltd., a company incorporated
in the British Virgin Islands (the “Buyer”). Pursuant to the terms of the Agreement, SkyPeople Foods will sell
all of the issued and outstanding shares of HeDeTang Holdings (HK) Ltd. (“HeDeTang HK”), a wholly owned subsidiary
of SkyPeople Foods, to the Buyer for a total of RMB 600,000, or approximately US$85,714 (the “Purchase Price”), which
value is primarily derived from HeDeTang HK’s wholly-owned subsidiary HeDeJiaChuan Holdings Co., Ltd. and 73.41% owned subsidiary
SkyPeople Juice Group Co., Ltd. (“SkyPeople China”). The Purchase Price was based upon the preliminary evaluation of
HeDeTang HK and its subsidiaries by Shanxi Delixin Assets Evaluation Co., Ltd. (“ Shanxi Delixin”) If the final evaluation
amount of HeDeTang HK and its subsidiaries by Shanxi Delixin is lower than or no more than 10% higher than the Purchase Price,
the Parties agree there will be no change to the Purchase Price. If the final evaluation amount of HeDeTang HK and its subsidiaries
by Shanxi Delixin is more than 10% higher than the Purchase Price, the Parties agree the final evaluation amount shall be the final
purchase price. The closing of the above mentioned share transfer is subject to the approval by the shareholders of both parties
and the approval by the shareholders of the Company.