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 annual financial statements and reflect
all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of June
30, 2019 and the results of operations and cash flows for the periods ended June 30, 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 and six months ended June 30, 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, and 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 half year 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 $0.007 million and $0.20 million for the
three months ended June 30, 2019 and 2018, respectively; $0.01 million and $0.33 million for the six months ended June 30,
2019 and 2018, respectively; are reported in the Consolidated Statements of Income and 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)
|
|
June 30,
2019
(Unaudited)
|
|
|
December 31, 2018
(Audited)
|
|
|
|
|
|
|
|
|
Raw materials and packaging
|
|
$
|
135
|
|
|
$
|
25
|
|
Finished goods
|
|
|
211
|
|
|
|
38
|
|
Inventories
|
|
$
|
346
|
|
|
$
|
63
|
|
4.
|
Related
Party Transaction
|
Sales to related parties
The Company did not have any sales to
related parties for the six months ended June 30, 2019 and 2018, respectively. The accounts receivable balances for such transactions
were nil as of June 30, 2019 and December 31, 2018, respectively.
(1)
|
Concentration
of customers
|
Sales to our five largest customers accounted
for approximately 12% and 100% of our net sales during the six months ended June 30, 2019 and 2018, respectively. There was no
single customer representing over 10% of total sales for the six months ended June 30, 2019. There was one customer representing
over 10% of total sales for the six months ended June 30, 2018.
Sales
to our five largest customers accounted for approximately 5% and 100% of our net sales during the three months ended June 30,
2019 and 2018, respectively. There was one single customer representing over 10% of total sales for the three months ended June
30, 2019 and 2018, respectively.
(2)
|
Concentration
of suppliers
|
Purchases from our five largest suppliers
accounted for approximately 11% and 91% for the six months ended June 30, 2019 and ended June 30, 2018, respectively.
During
the three months ended June 30, 2019, no supplier accounted for over 10% of our purchases, During the three months ended June
30, 2018, top 4 suppliers accounted for 93% of our purchases, respectively.
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 June 30, 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 June 30, 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 to1,300,000 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 June 30, 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 and 60% 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 $960,000 for the six months ended June 30, 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
Operations
|
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 June 30, 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.
In compliance with the Company’s
business transformation strategy, membership fee from shared shopping mall, sales of goods through shared shopping mall platform
started to generate the main revenues for the Company and became the more important business sections of the Company from year
2019, while its traditional business section of seasonal fruit related products continued to shrink in the second quarter of year
2019.
In
June 30, 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 June 30, 2019 (in thousands, unaudited):
|
|
Fruit
Related Products
|
|
|
CCM
Shopping Mall Membership
|
|
|
Sales
of Goods
|
|
|
Others
|
|
|
Total
|
|
Reportable segment revenue
|
|
$
|
213
|
|
|
$
|
109
|
|
|
$
|
307
|
|
|
$
|
-
|
|
|
$
|
629
|
|
Inter-segment loss
|
|
|
190
|
|
|
|
-
|
|
|
|
159
|
|
|
|
-
|
|
|
|
349
|
|
Revenue from external customers
|
|
|
23
|
|
|
|
109
|
|
|
|
148
|
|
|
|
-
|
|
|
|
280
|
|
Segment gross profit
|
|
$
|
-
|
|
|
$
|
97
|
|
|
$
|
35
|
|
|
$
|
-
|
|
|
$
|
133
|
|
For
the three months ended June 31, 2018 (in thousands, unaudited):
|
|
Fruit Related Products
|
|
|
CCM Shopping Mall Membership
|
|
|
Sales of Goods
|
|
|
Others
|
|
|
Total
|
|
Reportable segment revenue
|
|
$
|
1,053
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
32
|
|
|
$
|
1,085
|
|
Inter-segment loss
|
|
|
(295
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
(297
|
)
|
Revenue from external customers
|
|
|
758
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30
|
|
|
|
788
|
|
Segment gross profit
|
|
$
|
156
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
17
|
|
|
$
|
173
|
|
For
the six months ended June 30, 2019 (in thousands, unaudited):
|
|
Fruit Related Products
|
|
|
CCM Shopping Mall Membership
|
|
|
Sales of Goods
|
|
|
Others
|
|
|
Total
|
|
Reportable segment revenue
|
|
$
|
248
|
|
|
$
|
131
|
|
|
$
|
465
|
|
|
$
|
14
|
|
|
$
|
858
|
|
Inter-segment loss
|
|
|
204
|
|
|
|
-
|
|
|
|
179
|
|
|
|
-
|
|
|
|
383
|
|
Revenue from external customers
|
|
|
44
|
|
|
|
131
|
|
|
|
286
|
|
|
|
14
|
|
|
|
475
|
|
Segment gross profit
|
|
$
|
1
|
|
|
$
|
118
|
|
|
$
|
53
|
|
|
$
|
14
|
|
|
$
|
186
|
|
For
the six months ended June 30, 2018 (in thousands, unaudited)
|
|
Fruit
Related Products
|
|
|
CCM
Shopping Mall Membership
|
|
|
Sales
of Goods
|
|
|
Others
|
|
|
Total
|
|
Reportable
segment revenue
|
|
$
|
1,691
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
93
|
|
|
$
|
1,755
|
|
Inter-segment
loss
|
|
|
(432
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
(405
|
)
|
Revenue
from external customers
|
|
|
1,259
|
|
|
|
-
|
|
|
|
-
|
|
|
|
91
|
|
|
|
1,350
|
|
Segment
gross profit
|
|
$
|
202
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
33
|
|
|
$
|
235
|
|
The
following table reconciles reportable segment profit to the Company’s condensed consolidated income before income tax provision
for the three months ended June 30, 2019 and 2018: (in thousands)
|
|
2019
|
|
2018
|
Segment profit
|
|
$
|
133
|
|
|
$
|
235
|
|
Unallocated amounts:
|
|
|
-
|
|
|
|
-
|
|
Operating expenses
|
|
|
(2,072
|
)
|
|
|
(5,328
|
)
|
Other expenses
|
|
|
(139
|
)
|
|
|
(871
|
)
|
Loss before tax provision
|
|
$
|
(2,078
|
)
|
|
$
|
(6,198
|
)
|
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 12.21million (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.
13.
|
Entry
into a Material Definitive Agreement
|
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.