The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CORPORATE INFORMATION
Future FinTech Group Inc. (the “Company”)
is a holding company incorporated under the laws of the State of Florida. The main business of the Company includes an online shopping
platform, Chain Cloud Mall (CCM, website: http://gksharedmall.com/), which is based on blockchain technology; a cross-border e-commerce
platform (“NONOGIRL”); a blockchain-based application incubator; and technical service and support for real name and blockchain
based assets and their operating entities; and the application and development of blockchain-based e-commerce technology and financial
technology. Prior to 2019, the Company engaged in the production and sales of fruit juice concentrates, fruit juice beverages and other
fruit-related products in the People’s Republic of China (“PRC”, or “China”), and overseas markets. Due
to the drastically increased production cost and tightened environmental law in China, the Company has transformed its business from fruit
juice manufacturing and distribution to a real-name blockchain e-commerce platform that integrates blockchain and internet technology
from the end of 2018.
On July 22, 2020, the Company established Future
Commercial Management (Beijing) Co., Ltd. Its scope of business includes management and consulting services.
The Company’s activities are principally
conducted by its subsidiaries and Variable Interest Entity (“VIE”) operating in the PRC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial
information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited financial
statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the financial position as of March 31, 2021 and the results of operations and cash
flows for the periods ended March 31, 2021 and 2020. 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, 2021 are not necessarily
indicative of the results to be expected for any subsequent periods or for the entire year ending December 31, 2021. The balance sheet
at December 31, 2020 has been derived from the audited financial statements at that date.
Our contractual arrangements with our VIE and
their respective shareholders allow us to (i) exercise effective control over our VIE, (ii) receive substantially all of the economic
benefits of our VIE, and (iii) have an exclusive option to purchase all or part of the equity interests in our VIE when and to the extent
permitted by PRC law.
As a result of our direct ownership in our wholly
foreign-owned enterprise (“WFOE”) and the contractual arrangements with our VIE, we are regarded as the primary beneficiary
of our VIE, and we treat it and its subsidiaries as our consolidated affiliated entities under U.S. GAAP. We have consolidated the financial
results of our VIE in our condensed consolidated financial statements in accordance with U.S. GAAP
Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have
been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited financial
statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2020
as included in our Annual Report on Form 10-K.
Discontinued Operations
On February 27, 2020, SkyPeople BVI (the “Seller”)
completed the transfer of its ownership of HeDeTang HK to New Continent International Co., Ltd. (the “Buyer”), an unrelated
third party and a company incorporated in the British Virgin Islands for a total price of RMB 0.6 million (approximately $85,714), pursuant
to a Share Transfer Agreement entered into by the Seller and the Buyer on September 18, 2019 and approved at the special shareholders
meeting of the Company on February 26, 2020. As the Company believed that no continued cash flow would be generated by the sold component,
in accordance with ASC 205-20, the Company presented the operating results from Hedetang HK as discontinued operations within the accompanying
consolidated financial statements.
In addition, The Company’s Huludao Wonder
operation, a subsidiary which produces concentrated apple juice, suffered continued operating losses from 2014 to 2016 and its cash flow
was minimal for these three years. In December 2016, the Company established a winding-down plan to close this operation. Based on the
restructuring plan and in accordance with ASC 205-20, the Company presented the operating results from Huludao Wonder as a discontinued
operation.
On March 11, 2020, the Company’s Board
of Directors passed a resolution to sell the operation of Future Supply Chain limited and Zhonglian Hengxin Assets Management Co., Ltd
(“Zhonglian Hengxin”) and close the operation of Digital Online Marketing Limited, Future Digital Fintech (Xi’an) Co.,
Ltd., SkyPeople Foods Holding Ltd. and Chain Future Digital Tech (Beijing) Co., Ltd. On March 18, 2021, Chain Future Digital Tech (Beijing)
Co., Ltd. had deregistered.
On May 7, 2020, Future Business Management Co.,
Ltd. completed the transfer of its ownership of Zhonglian Hengxin Assets Management Co., Ltd to individual third party. On July 24, 2020,
the Company’s Board of Directors passed a resolution to sell the operation of Hedetang Farm Products Trading Markets (Mei County)
Co., Ltd. and close the operation of Chain Cloud Mall Logistics Center (Shaanxi) Co., Ltd. As a result, Skypeople Foods Holdings Limited
Company was deregistered on July 27, 2020; Digital Online Marketing Limited Company was deregistered on July 28, 2020; On October 31,
2020, Cloud Chain Mall Network and Technology (Tianjin) Co., Limited and Chain Cloud Mall Logistics Center (Shanxi) Co., Ltd. completed
the transfer of its ownership of Hedetang Farm Products Trading Markets (Mei county) Co., Ltd to third parties.
Based on the disposal plan and in accordance with ASC 205-20, the
Company presented the operating results from these operations as a discontinued operation.
Segment Information Reclassification
Historically, the Company operated in five segments:
concentrated apple juice and apple aroma, concentrated kiwifruit juice and kiwifruit puree, concentrated pear juice, fruit juice beverages,
and others.
As the Company classified the juice related operation
into discontinued operation in the beginning of year 2019, and in accordance with the Company’s new business strategy, the Company
classified business segment into CCM Shopping Mall Membership, sales of goods and others.
Uses of Estimates in the Preparation of Financial
Statements
The Company’s condensed consolidated financial
statements have been prepared in accordance with US GAAP and this requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated
financial statements and reported amounts of revenue and expenses during the reporting period. The significant areas requiring the use
of management estimates include, but not limited to, the allowance for doubtful receivable, estimated useful life and residual value
of property, plant and equipment, impairment of long-lived assets provision for staff benefit, recognition and measurement of deferred
income taxes and valuation allowance for deferred tax assets. Although these estimates are based on management’s knowledge of current
events and actions management may undertake in the future, actual results may ultimately differ from those estimates and such differences
may be material to our condensed consolidated financial statements.
Going Concern
The Company’s financial statements are
prepared assuming that the Company will continue as a going concern.
The Company incurred operating losses and had
negative operating cash flows and may continue to incur operating losses and generate negative cash flows as the Company implements its
future business plan. These factors raise substantial doubts about the Company’s ability to continue as a going concern. The Company
has raised funds through issuance of convertible notes and common stock.
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.
Impairment of Long-Lived Assets
In accordance with the ASC 360-10,
Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property, plant and equipment and purchased
intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable, or it is reasonably possible that these assets could become impaired as a result of technological
or other industrial changes. The determination of recoverability of assets to be held and used is made by comparing the carrying amount
of an asset to future undiscounted cash flows to be generated by the assets.
If such assets are considered to be impaired,
the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.
Fair Value of Financial Instruments
The Company has adopted FASB ASC Topic on Fair
Value Measurements and Disclosures (“ASC 820”), which defines fair value, establishes a framework for measuring fair value
in GAAP, and expands disclosures about fair value measurements. ASC 820 establishes a three-level valuation hierarchy of valuation techniques
based on observable and unobservable input, which may be used to measure fair value and include the following:
Level 1 - Quoted prices in active markets for
identical assets or liabilities.
Level 2 - Input other than Level 1 that is observable,
either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active;
or other input that is observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable input that is supported
by little or no market activity and that is significant to the fair value of the assets or liabilities.
Our cash and cash equivalents and restricted
cash are classified within level 1 of the fair value hierarchy because they are value using quoted market price.
Earnings (Loss) Per Share
Under ASC 260-10, Earnings Per Share,
basic EPS excludes dilution for Common Stock equivalents and is calculated by dividing net income (loss) available to common stockholders
by the weighted-average number of Common Stock outstanding for the period.
Diluted EPS is calculated by using the treasury
stock method, assuming conversion of all potentially dilutive securities, such as stock options and warrants. Under this method, (i)
exercise of options and warrants is assumed at the beginning of the period and shares of Common Stock are assumed to be issued, (ii)
the proceeds from exercise are assumed to be used to purchase Common Stock at the average market price during the period, and (iii) the
incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) are included
in the denominator of the diluted EPS computation. The numerators and denominators used in the computations of basic and diluted EPS
are presented in the following table.
As of March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
Share
|
|
|
Pre-share
amount
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(991,417
|
)
|
|
|
40,039,431
|
|
|
$
|
(0.02
|
)
|
Income from discontinuing operations
|
|
$
|
194,108
|
|
|
|
40,039,431
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss available to common stockholders from continuing operations
|
|
$
|
(991,417
|
)
|
|
|
40,039,431
|
|
|
$
|
(0.02
|
)
|
Income available to common stockholders from discontinuing operations
|
|
$
|
194,108
|
|
|
|
40,039,431
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
-
|
|
|
|
557,791
|
|
|
|
-
|
|
Diluted loss per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding. Diluted net loss per share equals basic net loss per share because the effect of securities convertible into common shares is anti-dilutive from continuing operations
|
|
$
|
(991,417
|
)
|
|
|
40,597,222
|
|
|
$
|
(0.02
|
)
|
Diluted Earnings per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding.
|
|
$
|
194,108
|
|
|
|
40,597,222
|
|
|
$
|
0.01
|
|
As of March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
Share
|
|
|
Pre-share
amount
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(6,698,006
|
)
|
|
|
33,147,793
|
|
|
$
|
(0.20
|
)
|
Income from discontinuing operations
|
|
$
|
123,585,865
|
|
|
|
33,147,793
|
|
|
$
|
3.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss available to common stockholders from continuing operations
|
|
$
|
(6,698,006
|
)
|
|
|
33,147,793
|
|
|
$
|
(0.20
|
)
|
Income available to common stockholders from discontinuing operations
|
|
$
|
123,585,865
|
|
|
|
33,147,793
|
|
|
$
|
3.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
-
|
|
|
|
669,523
|
|
|
|
-
|
|
Diluted loss per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding. Diluted net loss per share equals basic net loss per share because the effect of securities convertible into common shares is anti-dilutive from continuing operations
|
|
$
|
(6,698,006
|
)
|
|
|
33,817,316
|
|
|
$
|
(0.20
|
)
|
Diluted Earnings per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding.
|
|
$
|
123,585,865
|
|
|
|
33,817,316
|
|
|
$
|
3.65
|
|
Cash and Cash Equivalents
Cash and cash equivalents included cash on hand
and demand deposits placed with banks or other financial institutions, which are unrestricted as to withdrawal and use and with an original
maturity of three months or less.
Deposits in banks in the PRC are only insured
by the government up to RMB500,000, and are consequently exposed to risk of loss. The Company believes the probability of a bank failure,
causing loss to the Company, is remote.
Receivable and Allowances
Accounts receivable are recognized and carried
at the original invoice amounts less an allowance for any uncollectible amount. We have a policy of reserving for uncollectible accounts
based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We extend credit to our customers
based on an evaluation of their financial condition and other factors. We generally do not require collateral or other security to support
accounts receivable. We perform ongoing credit evaluations of our customers and maintain an allowance for potential bad debts if required.
Other receivables, and loan receivables are recognized
and carried at the initial amount when occurred less an allowance for any uncollectible amount. We have a policy of reserving for uncollectible
accounts based on our best estimate of the amount of probable impairment losses in our existing receivable.
We determine whether an allowance for doubtful
accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial
obligations. In these cases, we use assumptions and judgment, based on the best available facts and circumstances, to record a specific
allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances
are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount
of the allowance. We may also record a general allowance as necessary.
Direct write-offs are taken in the period when
we have exhausted our efforts to collect overdue and unpaid receivable or otherwise evaluate other circumstances that indicate that we
should abandon such efforts.
The Company has assessed its accounts receivable
including credit term and corresponding all its accounts receivables in March 2021. Upon such credit terms, bad debt expense was $2,872
and $4.2 million during the three months ended March 31, 2021 and 2020, respectively. Accounts receivables of nil have been outstanding
for over 90 days as of March 31, 2021 and December 31, 2020, respectively.
Inventories
Inventories consist of raw materials, packaging
materials (which include ingredients and supplies) and finished goods (which) include finished juice in the bottling, canning operations
and other. Inventories also consist of merchant gift package to be delivered with the new membership signed up in our e-commerce platform.
Inventories are valued at the lower of cost or net realizable value. We determine cost on the basis of the weighted average method. The
Company periodically reviews inventories for obsolescence and any inventories identified as obsolete are written off.
Revenue Recognition
We apply the five steps defined under ASC 606:
(i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction
price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the
entity satisfies a performance obligation. We assess its revenue arrangements against specific criteria in order to determine if it is
acting as principal or agent. Revenue arrangements with multiple performance obligations are divided into separate distinct goods or
services. We allocate the transaction price to each performance obligation based on the relative standalone selling price of the goods
or services provided. Revenue is recognized upon the transfer of control of promised goods or services to a customer.
We do not make any significant judgment in evaluating
when control is transferred. Revenue is recorded net of value-added tax.
Revenue recognitions are as follows:
Online sales and Membership fee:
The Company recognizes the sale of goods 15 days
after the products are shipped (after the 15 days return policy). The revenue from the membership fee is amortized over the lifetime
of the membership, which is one year. For the merchandise gift package, revenue is recognized when the receipt of the gift package is
confirmed by the members. Other revenues include revenues earned on net basis from sales of certain products on our platform.
Property, Plant and Equipment
Property, plant and equipment are stated at cost
less accumulated depreciation and any impairment losses. Depreciation is computed using the straight-line method over the useful lives
of the assets. Major renewals and betterments are capitalized and depreciated; maintenance and repairs that do not extend the life of
the respective assets are expensed as incurred. Upon disposal of assets, the cost and related accumulated depreciation are removed from
the accounts and any gain or loss is included in the consolidated statements of income and comprehensive income.
Depreciation related to property, plant and equipment
used in production is reported in cost of sales, and includes amortized amounts related to capital leases. We estimated that the residual
value of the Company’s property and equipment ranges from 3% to 5%. Property, plant and equipment are depreciated over their estimated
useful lives as follows:
Machinery and equipment
|
|
5-10 years
|
Furniture and office equipment
|
|
3-5 years
|
Motor vehicles
|
|
5 years
|
Depreciation expense included in general and
administration expenses for the three months ended March 31, 2021 and 2020 was $1,515 and $428 respectively. Depreciation expense included
in cost of sales for the three months ended March 31, 2021 and 2020 was nil respectively.
Intangible Assets
Acquired intangible assets are recognized based
on their cost to the Company, which generally includes the transaction costs of the asset acquisition, and no gain or loss is recognized
unless the fair value of noncash assets given as consideration differs from the assets’ carrying amounts on the Company’s
book. These assets are amortized over their useful lives if the assets are deemed to have a finite life and they are reviewed for impairment
by testing for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The
fair value of an intangible asset is the amount that would be determined if the entity used the assumptions that market participants
would use if they were pricing the intangible asset. The useful life of the Company’s intangible assets is ten year, which is determined
by using the time period that an intangible is estimated to contribute directly or indirectly to a Company’s future cash flows.
Foreign Currency and Other Comprehensive Income
(Loss)
The financial statements of the Company’s
foreign subsidiaries are measured using the local currency as the functional currency; however, the reporting currency of the Company
is the USD. Assets and liabilities of the Company’s foreign subsidiaries have been translated into USD using the exchange rate
at the balance sheet dates, while equity accounts are translated using historical exchange rate. The exchange rate we used to convert
RMB to USD was 6.57 and 6.52 at the balance sheet dates of March 31, 2021 and December 31, 2020, respectively. The average exchange rate
for the period has been used to translate revenues and expenses. The average exchange rates we used to convert RMB to USD were 6.48 and
6.98 for three months ended March 31, 2021 and 2020, respectively. Translation adjustments are reported separately and accumulated in
a separate component of equity (cumulative translation adjustment).
Income Taxes
We use the asset and liability method of accounting
for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for
the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting
from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of
operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported
if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred
tax assets will not be realized.
ASC Topic 740-10-30 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC
Topic 740-10-25 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure,
and transition. We have no material uncertain tax positions for any of the reporting periods presented.
Lease
After adoption of ASC 842 and related
standards, which introduced a lessee model that requires entities to recognize assets and liabilities for most leases, but recognize
expenses on their income statements in a manner similar to current accounting, thus operating lease right-of-use assets and liabilities
are recognized at commencement date based on the present value of lease payments over the lease term. For short-term leases with an initial
lease term of 12 months or less and with purchase options we are reasonably certain will not be exercised. As a lessee, the Company leases
equipment, land and office building. Lease expense is recognized on a straight-line basis over the lease term.
Convertible notes
The Company accounts for its convertible notes
at issuance by allocating the proceeds received from a convertible note among freestanding instruments according to ASC 470, Debt, based
upon their relative fair values. The fair value of debt and common stock is determined based on the closing price of the common stock
on the date of the transaction. Convertible notes are subsequently carried at amortized cost. Each convertible note is analyzed for the
existence of a beneficial conversion feature (“BCF”), defined as the fair value of the common stock at the commitment date
for the convertible note, less the effective conversion price. No BCF was recognized for the convertible notes issued during March 31,
2021 and 2020.
Share-based compensation
The Company awards share options and other equity-based
instruments to its employees, directors and consultants (collectively “share-based payments”). Compensation cost related
to such awards is measured based on the fair value of the instrument on the grant date. The Company recognizes the compensation cost
over the period the employee is required to provide service in exchange for the award, which generally is the vesting period. The amount
of cost recognized is adjusted to reflect the expected forfeiture prior to vesting. When no future services are required to be performed
by the employee in exchange for an award of equity instruments, and if such award does not contain a performance or market condition,
the cost of the award is expensed on the grant date. The Company recognizes compensation cost for an award with only service conditions
that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award, provided that the
cumulative amount of compensation cost recognized at any date at least equals the portion of the grant-date value of such award that
is vested at that date.
Variable interest entities
On July 31, 2019, Chain Cloud Mall Network and
Technology (Tianjin) Co., Limited (“CCM Tianjin”), Chain Cloud Mall E-commerce (Tianjin) Co., Ltd. (“E-commerce Tianjin”),
and Mr. Zeyao Xue and Mr. Kai Xu, citizens of China and shareholders of E-commerce Tianjin, entered into the following agreements, or
collectively, the “Variable Interest Entity Agreements” or “VIE Agreements,” pursuant to which CCM Tianjin has
contractual rights to control and operate the business of E-commerce Tianjin (the “VIE”). Therefore, pursuant to ASC 810,
E-Commerce Tianjin is included in the Company’s consolidated financial statements since then.
Pursuant to Chinese law and regulations, a foreign
owned enterprise cannot apply for and hold a license for operation of certain e-commerce businesses, the category of business which the
Company is expanding 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 Cloud Chain Mall System owned by CCM Tianjin.
E-commerce Tianjin was incorporated by Mr. Zeyao
Xue and Mr. Kai Xu solely for the purpose of holding the operation license of the Cloud Chain Mall System. Mr. Zeyao Xue is a major shareholder
of the Company and the son of Mr. Yongke Xue, our Chairman of the Board. Mr. Kai Xu was the Chief Operating Officer of the Company and
currently is the Deputy General Manager of FT Commercial Group Ltd., a wholly owned subsidiary of the Company.
The VIE Agreements are as follows:
1)
|
Exclusive Technology Consulting and Service Agreement by and between CCM Tianjin and E-commerce Tianjin. 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.
|
|
|
2)
|
Exclusive Purchase Option Agreement by and among CCM Tianjin, E-commerce Tianjin, Mr. Zeyao Xue and Mr. Kai Xu. 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.
|
|
|
3)
|
Equity Pledge Agreements by and among CCM Tianjin, E-commerce Tianjin, Mr. Zeyao Xue and Mr. Kai Xu. 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.
|
|
|
4)
|
Exclusive Operation and Use Rights Authorization
letter which authorizes Cloud Chain Mall E-commerce (Tianjin) Co., Ltd, to exclusively operate and use the Cloud Chain Mall System and
the authorization period is the same as the term of the EXCLUSIVE THEHNOLOGY CONSULTING AND SERVICE AGREEMENT entered into by and between
Cloud Chain Mall Network and Technology (Tianjin) Co., Ltd. and Cloud Chain Mall E-commerce (Tianjin) Co., Ltd. dated July 31, 2019.
|
5)
|
GlobalKey Shared Mall
Shopping Platform Software and System Transfer Agreement by and between Future Supply Chain Co., Ltd. and Cloud Chain Mall Network
and Technology (Tianjian) Co., Ltd., pursuant to which the GlobalKey Shared Mall Shopping Platform Software and System was
transferred from Future Supply China Co., Ltd. to CCM Tianjin and that both parties were wholly owned subsidiaries of the Company
and transfer price is $0.
|
New Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13
(“ASU 2016-13”) “Financial Instruments - Credit Losses” (“ASC 326”): Measurement of Credit Losses
on Financial Instruments” which requires the measurement and recognition of expected credit losses for financial assets held at
amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of
forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and
requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than
as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. In November
2019, the FASB issued ASU 2019-10 “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815),
and Leases (Topic 842)” (“ASC 2019-10”), which defers the effective date of ASU 2016-13 to fiscal years beginning after
December 15, 2022, including interim periods within those fiscal years, for public entities which meet the definition of a smaller reporting
company. The Company will adopt ASU 2016-13 effective January 1, 2023. Management is currently evaluating the effect of the adoption of
ASU 2016-13 on the consolidated financial statements. The effect will largely depend on the composition and credit quality of our investment
portfolio and the economic conditions at the time of adoption.
In August 2020, the FASB issued Accounting Standards
Update No. 2020-06 (ASU 2020-06) “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which
simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments
and contracts on an entity’s own equity. For public business entities that are not smaller reporting companies, ASU 2020-6 effective
fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.
Management does not believe that any other recently
issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on the accompanying consolidated financial
statements.
3. LOAN RECEIVABLES
As of March 31, 2021, the balance of loan receivables
was $5.32 million, which was from Shenzhen Tiantian Haodian Technology Co., Ltd. (“Tiantian Haodian”). On June 28, 2020, Guangchengji,
a wholly owned subsidiary of Future FinTech (Hong Kong) Limited, entered into a “Loan Agreement” with Tiantian Haodian. Pursuant
to the Loan Agreement, Guangchengji loaned up to the amount of RMB35 million (approximately $5.36 million) with Tiantian Haodian at the
annual interest rate of 10% from June 28, 2020 to June 27, 2021.
4. LEASES
The Company’s noncancelable operating leases
consist of leases for office space. The Company is the lessee under the terms of the operating leases. For the three months ended March
31, 2021, the operating lease cost was $0.24 million.
The Company’s operating leases have remaining
lease terms that range from approximately one year to two years. As of March 31, 2021, the weighted average remaining lease term and weighted
average discount rate were 1.33 years and 6%, respectively.
Maturities of lease liabilities were as follows:
|
|
Operating
|
|
As of March 31,
|
|
Lease
|
|
From April 1, 2021 to March 31, 2022
|
|
$
|
192,002
|
|
From April 1, 2022 to March 31, 2023
|
|
|
64,001
|
|
Total
|
|
$
|
256,003
|
|
Less: amounts representing interest
|
|
$
|
10,561
|
|
Present Value of future minimum lease payments
|
|
|
245,442
|
|
Less: Current obligations
|
|
|
182,233
|
|
Long term obligations
|
|
$
|
63,209
|
|
5. LOAN PAYABLES
As of March 31, 2021, loan payables were $0.27
million, which consisted of the loan payable of $0.02 million to Shaanxi Entai Bio-Technology Co., Ltd., loan payable $0.01 million to
Shenzhen Wangjv Trading Co., Ltd., and loan payable of $0.24 million to seven individuals.
The loan from Shaanxi Entai Bio-Technology Co.,
Ltd of $0.02 million was interest free and has no assets pledged for this loan.
On June 15, 2020, the Company entered into a loan
agreement with Shenzhen Wangjv Trading Co., Ltd. Pursuant to the loan agreement, the Company borrowed $0.23 million from Shenzhen Wangjv
Trading Co., Ltd. at the annual interest rate of 8% with the term of 1 year for the use of working capital. On July 6, 2020, the Company
repaid $0.22 million to Shenzhen Wangjv Trading Co., Ltd.
During the third quarter of 2020, the Company
entered into a series of interest free loan agreements with seven individuals, borrowing $0.36 million for working capital. The repayment
term is one year. The Company repaid $0.12 million to two individual lenders, Yinyang Chen and Zhixing Pan.
6. ACCRUED EXPENSES AND OTHER PAYABLES
The amount of accrued expenses and other payables
were consisted of the followings:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Legal fee and other professionals
|
|
$
|
40,107
|
|
|
$
|
457,276
|
|
Wages and employee reimbursement
|
|
|
282,579
|
|
|
|
290,079
|
|
Suppliers
|
|
|
1,416,363
|
|
|
|
1,379,971
|
|
Accruals
|
|
|
83,432
|
|
|
|
173,086
|
|
Total
|
|
$
|
1,822,481
|
|
|
$
|
2,300,412
|
|
7. CONVERTIBLE NOTES PAYABLE
As of March 31, 2021 and December 31, 2020, convertible
debt consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Beginning
|
|
$
|
1,163,146
|
|
|
$
|
957,990
|
|
Addition
|
|
|
-
|
|
|
|
905,392
|
|
Payment
|
|
|
(1,163,146
|
)
|
|
|
-
|
|
Conversion
|
|
|
-
|
|
|
|
(700,236
|
)
|
Balance
|
|
$
|
-
|
|
|
$
|
1,163,146
|
|
8. RELATED PARTY TRANSACTION
As of March 31, 2021, the amounts due to the related
parties were consisted of the followings:
Name
|
|
Amount
(US$)
|
|
|
Relationship
|
|
Note
|
Yongke Xue
|
|
$
|
33,327
|
|
|
Chairman of the Company
|
|
Loan payable
|
Wei Cheng Pan
|
|
|
190,221
|
|
|
Legal representative of Guangchengji and Chief Strategy Officer of the Company
|
|
Loan payable
|
Shaanxi Fu Chen Venture Capital Management Co. Ltd. (“Shaanxi Fu Chen”)
|
|
|
90,922
|
|
|
Two outside shareholders of the Company are shareholders of Shaanxi Fu Chen
|
|
Other payables
|
Zhi Yan
|
|
|
165,964
|
|
|
General Manager of a subsidiary of the Company
|
|
Accrued expenses
|
Jing Chen
|
|
|
389
|
|
|
Vice president of the Company
|
|
Accrued expenses
|
Shenzhen TianShunDa Equity Investment Fund Management Co., Ltd. (“TianShunDa”)
|
|
|
334,789
|
|
|
Shaanxi Fu Chen holds 70% interest of TianShunDa
|
|
Other payables
|
Reits (Beijing) Technology Co., Ltd
|
|
|
16,321
|
|
|
Zhi Yan is the legal representative of this company
|
|
Acquisition of intangibles upon the full completion of the online platform pursuant to an agreement originally entered between parties before Zhi Yan was the general manager of our subsidiary.
|
Shaanxi Fuju Mining Co., Ltd
|
|
|
3,196
|
|
|
Shaanxi Fu Chen holds 80% interest of the company
|
|
Other payables
|
Total
|
|
$
|
835,129
|
|
|
|
|
|
As of March 31, 2021, the amounts due from the
related parties were consisted of the followings:
Name
|
|
Amount
(US$)
|
|
|
Relationship
|
|
Note
|
Shanchun Huang
|
|
|
121,742
|
|
|
Chief Executive Officer of the Company
|
|
Interest free loan*
|
Kai Xu
|
|
|
11,044
|
|
|
Deputy General Manager of a subsidiary of the Company
|
|
Interest free loan*
|
Zeyao Xue
|
|
|
33,070
|
|
|
Son of the Chairman of the Company and a major shareholder of the Company
|
|
Interest free loan*
|
Ming Yi
|
|
|
3,309
|
|
|
Chief Financial Officer of the Company
|
|
Interest free loan*
|
Yang Liu
|
|
|
6,435
|
|
|
Chief Operator Officer of the Company
|
|
Interest free loan*
|
Total
|
|
$
|
175,600
|
|
|
|
|
|
●
|
The interest free loans have been approved by the Company’s Audit Committee.
|
9. INCOME TAX
The Company is incorporated in the United States
of America and is subject to United States federal taxation. No provisions for income taxes have been made, as the Company had no U.S.
taxable income for the three months ended March 31, 2021 and 2020. The effective income tax rate for the Company for both of the three
months ended March 31, 2021 and 2020 were 0% and 0% respectively. Some of our subsidiaries generated income and we accrued income tax
according to the Chinese corporate income tax rate, but some had a loss and no tax provision was made.
The amount of unrecognized deferred tax liabilities
for temporary differences related to the dividend from foreign subsidiaries is not determined because such determination is not practical.
The Company has not provided deferred taxes on
undistributed earnings attributable to its PRC subsidiaries as they are to be permanently reinvested.
The Company had no material adjustments to its
liabilities for unrecognized income tax benefits according to the provisions of ASC Topic 740, Income Taxes. Since the Company
intends to reinvest its earnings to further expand its businesses in mainland China, its PRC subsidiaries do not intend to declare dividends
to their immediate foreign holding companies in the foreseeable future. Accordingly, the Company has not recorded any deferred taxes in
relation to US tax on the cumulative amount of undistributed retained earnings since January 1, 2008.
Effective on January 1, 2008, the PRC Enterprise
Income Tax Law, EIT Law, and Implementing Rules imposed a unified enterprise income tax rate of 25% on all domestic-invested enterprises
and foreign-invested enterprises in the PRC, unless they qualify under certain limited exceptions. All of the Companies’ Chinese
subsidiaries were subject to an enterprise income tax rate of 25%.
10. SHARE BASED COMPENSATION
Consulting Service Agreement
On January 25, 2020, the Company entered into
a Consulting Service Agreement (the “Agreement”) with Dragon Investment Holding Limited (Malta) (the “Consultant”),
a company incorporated in Malta, pursuant to which Consultant will: (i) help the Company to locate new merger projects globally, develop
new merger strategy and provide the Company with at least five (5) merger and acquisition targets that have synergy with the Company’s
business and development plans and could clearly contribute to the Company’s strategic goals each year; (ii) help the Company to
map out new growth strategies in addition to its current business; (iii) work with the Company to explore new lines of business and associated
growth strategies; and (iv) conduct market research and evaluating variable projects and providing feasibility studies per Company’s
request from time to time. The term of the Agreement is three years. In consideration of the services to be provided by the Consultant
to the Company, the Company agrees to pay the Consultant a three-year consulting fee totaling $3.0 million. The Company shall issue a
total of 3,750,000 restricted shares of the Company Common Stock (the “Consultant Shares”) at a price of $0.794 per share,
(the closing price of the Agreement date), as the payment for the above mentioned consultant fee to the Consultant. On February 23, 2020,
the Company issued the Consultant Shares pursuant to the Agreement, of which 1,500,000 shares were released to the Consultant immediately,
1,125,000 and 1,125,000 shares, respectively, will be held by the Company and released to the Consultant on January 25, 2021 and January
25, 2022 if this Agreement has not been terminated and there has been no breach of the Agreement by the Consultant at such time. If the
second and/or third release of the shares mentioned above does not occur, such shares shall be returned to the Company as treasury shares.
The shares contemplated in the Agreement were issued pursuant to the exemption from registration provided by Regulation S promulgated
under the Securities Act of 1933, as amended. For the year ended December 31, 2020, the Company recorded stock related compensation of
$1.19 million, based on the stock closing price of $0.794 on the Agreement date, for the 1,500,000 shares which were released to the Consultant
immediately upon issuance. On January 25, 2021, the Company recorded stock related compensation of $0.89 million, based on the stock closing
price of $0.794 on the date of the Agreement, for the 1,125,000 shares which were released to the Consultant on January 25, 2021. The
Company will recognize stock related compensation of $0.89 million for the 1,125,000 shares in the future when they are released to the
Consultant pursuant to the Agreement.
11. COMMON STOCK
Securities Purchase Agreement
On December 24, 2020, the Company entered into
a securities purchase agreement with certain purchasers, pursuant to which the Company sold to the purchasers in a registered direct offering,
an aggregate of 4,210,530 units, each consisting of one share of our common stock and a warrant to purchase 1 share of our Common Stock,
at a purchase price of $1.90 per unit, for aggregate gross proceeds to the Company of $8,000,007, before deducting fees to the placement
agent and other offering expenses payable by the Company. On December 29, 2020, the Company issued Units consisting of an aggregate of
4,210,530 shares of our Common Stock and warrants to purchase up to an aggregate of 4,210,530 shares of our Common Stock at an exercise
price of $2.15 per share (the “Investors’ Warrants”). The Investors’ Warrants have a term of five years and are
exercisable by the holder at any time after the date of issuance. In connection with the offering, the Company also issued placement agent
a warrant to purchase 210,526 shares of our Common Stock (the “Placement Agent Warrant”) on substantially the same terms
as the Investors’ Warrants, except that the Placement Agent Warrant has an exercise price of $2.375 per share and are not exercisable
until June 24, 2021.
The net proceeds offering were $9,052,640,
after deducting underwriting discounts and commissions and other estimated offering expenses, and were received in January 2021. During
the three months ended March 31, 2021, the Investors Warrants to purchase an aggregate of 4,210,530 shares of common stock were fully
exercised by the investors.
On January 11, 2021, the Company entered into
a securities purchase agreement with certain purchasers identified on the signature page thereto, pursuant to which the Company sold
to the Purchasers in a registered direct offering, an aggregate of 3,000,000 share of its common stock, par value $0.001 per share at
a purchase price of $5.00 per share, for aggregate gross proceeds to the Company of $13,797,732, after deducting fees to the placement
agent and other offering expenses payable by the Company. On January 13, 2021, the Company issued 3,000,000 Shares pursuant to this Agreement.
On February 9, 2021, the Company entered into
a securities purchase agreement with certain purchasers identified on the signature page thereto, pursuant to which the Company sold
to the Purchasers in a registered direct offering, an aggregate of 2,000,000 shares of its common stock, par value $0.001 per share at
a purchase price of $5.95 per share, for aggregate gross proceeds to the Company of $10,992,250 , after deducting fees to the placement
agent and other offering expenses payable by the Company. The Company issued 2,000,000 shares of its Common Stock to the purchaser on
February 11, 2021.
On April 12, 2017, the Company entered into a
Securities Purchase Agreement with certain purchasers (the “Purchasers”), pursuant to which the Company offered and sold to
the Purchasers, in a registered direct offering, an aggregate of 862,097 shares of common stock, par value $0.001 per share. The Shares
were sold to the Purchasers at a negotiated purchase price of $3.10 per share, for aggregate gross proceeds to the Company of $2,672,500, before
deducting fees to the placement agent and other offering expenses payable by the Company. In a concurrent private placement, the
Company also issued to the each of the Purchasers a warrant to purchase one (1) share of the Company’s Common Stock for each share
purchased under the Purchase Agreement, pursuant to that certain Common Stock Purchase Warrant, by and between the Company and each Purchaser
(each, a “Warrant”, and collectively, the “Warrants”). The Warrants will be exercisable beginning on the six month
anniversary of the date of issuance at an initial exercise price of $5.20 per share and will expire on the five and a half year anniversary
of the date of issuance.
During the three months ended March 31, 2021, the holders of the Warrants
purchased an aggregate of 319,350 shares of common stock of the Company for $1,654,224, of which 1,230 shares of common stock were issued
based upon cashless exercises.
12. DISCONTINUED OPERATIONS
HeDeTang HK
On September 18, 2019, SkyPeople Foods Holdings
Limited (“SkyPeople Foods”) entered into a Share Transfer Agreement (the “Agreement”) with New Continent International
Co., Ltd., (the “Buyer”) a company incorporated in the British Virgin Islands. Pursuant to the terms of the Agreement, the
Buyer purchased 100% ownership of HeDeTang Holdings (HK) Ltd. (“HeDeTang HK”) from SkyPeople Foods, which value is primarily
derived from HeDeTang HK’s wholly-owned subsidiary HeDeJiaChuan Holdings Co., Ltd. and 73.41% owned subsidiary SkyPeople Juice Group
Co., Ltd., for a total price of RMB 600,000 (approximately $85,714) (the “Sale Transaction”). The Sale Transaction was closed
on February 27, 2020. In accordance with ASC Topic 205, Presentation of Financial Statement Discontinued Operations (“ASC
Topic 205”), the Company presented the operation results from HeDeTang HK’s and subsidiaries as a discontinued operation,
as the Company believed that no continued cash flow would be generated by the discontinued component and that the Company would have no
significant continuing involvement in the operations of the discontinued component. The total assets of HeDeTang HK were $106.85 million
as of February 27, 2020 and the total liabilities of HeDeTang HK were $231.21 million as of February 27, 2020, resulting in a gain on
disposal of $123.69 million. There was no income or loss from HeDeTang HK from January 1, 2020 to the sale.
The discontinued operation presented in the financial
statement includes Huludao Wonder operation, a subsidiary which produces concentrated apple juice. In December 2016, the Company established
a winding-down plan to close this operation. Based on the restructuring plan and in accordance with ASC 205-20, 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 ASC 205-20. In accordance with the restructuring plan, the Company intended to transfer
the concentrated fruit juice production equipment in Huludao Wonder to another subsidiary and to sell the land use right and facilities
upon favorable circumstances. On February 27, 2020 pursuant to a Share Transfer Agreement entered into by SkyPeople Foods and New Continent
International Co., Ltd. on September 18, 2019, the ownership of Huludao Wonder was transferred as a subsidiary of HeDeTang HK to New Continent
International Co., Ltd.
On March 11, 2020, the Company’s Board of
Directors passed a resolution to sell the operation of Future Supply Chain limited and Zhonglian Hengxin Assets Management Co., Ltd (“Zhonglian
Hengxin”) and close the operation of Digital Online Marketing Limited, Future Digital Fintech (Xi’an) Co., Ltd., SkyPeople
Foods Holding Ltd. and Chain Future Digital Tech (Beijing) Co., Ltd. On March 18, 2021, Chain Future Digital Tech (Beijing) Co., Ltd.
was deregistered. Based on the disposal plan and in accordance with ASC 205-20, the Company presented the operating results from these
operations as a discontinued operation. On October 31, 2020, the transfer of ownership of Future Supply Chain Limited and Zhonglian Hengxin
was completed.
On July 24, 2020, the Company’s Board of
Directors passed a resolution to sell the operation of Hedetang Farm Products Trading Markets (Mei County) Co., Ltd. and close the operation
of Chain Cloud Mall Logistics Center (Shaanxi) Co., Ltd. On July 27,2020, Skypeople Foods Holdings Limited Company was dissolved; On July
28, 2020 digital online marketing limited company was dissolved; On October 31, 2020, Cloud Chain Mall Network and Technology (Tianjin)
Co., Limited and Chain Cloud Mall Logistics Center (Shanxi) Co., Ltd. completed the transfer of their ownership of Hedetang Farm Products
Trading Markets (Mei county) Co., Ltd.
Loss from discontinued operations
for March 31, 2021 and 2020 was as follows:
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
REVENUES
|
|
$
|
-
|
|
|
$
|
-
|
|
COST OF SALES
|
|
|
-
|
|
|
|
-
|
|
GROSS PROFIT
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
-
|
|
|
|
71,948
|
|
(Recovery) Provision of doubtful debts
|
|
|
(15,421
|
)
|
|
|
-
|
|
Total
|
|
|
(15,421
|
)
|
|
|
71,948
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
-
|
|
|
|
116
|
|
other income (expenses)
|
|
|
530,601
|
|
|
|
(31,177
|
)
|
Total
|
|
|
530,601
|
|
|
|
(31,061
|
)
|
Income (loss) from discontinued operations before income tax
|
|
|
546,022
|
|
|
|
(103,009
|
)
|
Income tax provision
|
|
|
-
|
|
|
|
-
|
|
Income (loss) from discontinued operation before noncontrolling interest
|
|
$
|
546,022
|
|
|
|
(103,009
|
)
|
Loss on disposal of discontinued operations
|
|
|
(351,914
|
)
|
|
|
-
|
|
(INCOME) LOSS FROM DISCONTINUED OPERATION
|
|
$
|
194,108
|
|
|
$
|
(103,009
|
)
|
The major components of assets and liabilities
related to discontinued operations are summarized below:
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Cash
|
|
$
|
446
|
|
|
$
|
2,985
|
|
Amount due from related parties
|
|
|
1,005
|
|
|
|
32,097
|
|
Total assets related to discontinued operations
|
|
$
|
1,451
|
|
|
|
35,082
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
168,192
|
|
|
$
|
431,011
|
|
Amount due from related parties
|
|
|
342,756
|
|
|
|
434,557
|
|
Total liabilities related to discontinued operations
|
|
$
|
510,948
|
|
|
$
|
865,568
|
|
13. SEGMENT REPORTING
In its operation of the business, management,
including our chief operating decision maker, who is also our Chief Executive Officer, reviews certain financial information, including
segmented internal profit and loss statements prepared on a basis not consistent with GAAP. The Company operates in four segments starting
in 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. The operation of fruit related products is classified as discontinued
operation as disclosed in Note 12.
In compliance with the Company’s business
transformation strategy, 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 more and more important business sections of the Company since fiscal year 2019,
while its traditional business section of seasonal fruit related products continued to shrink in fiscal year 2019.
Some of our operation 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 and products 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.
As of March 31, 2021:
|
|
CCM Shopping
Mall Membership
|
|
|
Sales of
Goods
|
|
|
Total
|
|
Reportable segment revenue
|
|
$
|
73
|
|
|
$
|
6,540
|
|
|
$
|
6,613
|
|
Revenue from external customers
|
|
$
|
73
|
|
|
$
|
6,540
|
|
|
$
|
6,613
|
|
Segment gross profit
|
|
$
|
73
|
|
|
$
|
517
|
|
|
$
|
590
|
|
As of March 31, 2020:
|
|
CCM Shopping
Mall Membership
|
|
|
Sales of
Goods
|
|
|
Total
|
|
Reportable segment revenue
|
|
$
|
198,885
|
|
|
$
|
1,817
|
|
|
$
|
200,702
|
|
Inter-segment loss
|
|
|
-
|
|
|
|
751
|
|
|
|
751
|
|
Revenue from external customers
|
|
|
198,885
|
|
|
|
1,066
|
|
|
|
199,951
|
|
Segment gross profit
|
|
$
|
198,610
|
|
|
$
|
828
|
|
|
$
|
199,438
|
|
14. COMMITMENTS AND CONTINGENCIES
Legal case with FT Global Litigation
In January 2021, FT Global Capital, Inc. (“FT
Global”), a former placement agent of the Company filed a lawsuit against the Company in the Superior Court of Fulton County, Georgia.
FT Global served the complaint upon the Company in January 2021. In the complaint, FT Global alleges claims, most of which
attempt to hold the Company liable under legal theories that relate back to an alleged breach of an exclusive placement agent agreement
between FT Global and the Company in July 2020 which had a term of three months. FT Global claims that the Company failed to compensate
FT Global for securities purchase transactions between December 2020 and April 2021, pursuant to the terms of the expired exclusive placement
agent agreement. Allegedly, the exclusive placement agent agreement required the Company to pay FT Global for capital received during
the term of the agreement and for the 12-month period following the termination of the agreement involving any investors that FT Global
introduced and/or wall-crossed to the Company. However, the Company believes the securities purchase transactions at issue did not
involve the one investor which FT Global introduced or wall-crossed to the Company during the term of the agreement. FT Global claims
approximately $7,000,000 in damages and attorneys’ fees.
The Company timely removed the case to the United
States District Court for the Northern District of Georgia (the (“Court”) on February 9, 2021 based on diversity of jurisdiction.
On March 9, 2021, the Company filed a motion to dismiss based on FT Global’s failure to state a claim which is pending before the
Court. On March 23, 2021, FT Global filed its response to the Company’s motion to dismiss. FT Global argues that the Court
should deny the Company’s motion to dismiss. However, if the Court is inclined to grant the Company’s motion to dismiss,
FT Global requested that the Court permit it to file an amended complaint. On April 8, 2021, the parties filed a Joint Preliminary
Report and Discovery Plan. On April 12, 2021, the Court approved the Joint Preliminary Report and Discovery Plan and issued a Scheduling
Order placing this case on a six-month discovery tract. The Company will continue to vigorously defend the action against FT Global.
15. RISKS AND UNCERTAINTIES
Impact of COVID 19
In December 2019, a novel strain of coronavirus
was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world. Substantially
all of our revenues are generated in China. The Company’s results of operations were affected by the outbreak of COVID-19 in China. In early
2020, Chinese government took emergency measures to combat the spread of the virus, including quarantines, travel restrictions, and the
temporary closure of office buildings and facilities in China, which has adversely affected the Company’s business and services
and results of operations. Our suppliers have negatively been affected, and could continue to be negatively affected in their ability
to supply and ship products to our customers. Our customers that are negatively impacted by the outbreak of COVID-19 may reduce their
budgets to purchase products and services from us, which may materially adversely impact our revenue. The business operations of the third
parties’ stores on our platform have been and could continue to be negatively impacted by the outbreak, which may negatively impact
their operations and business, which may in turn adversely affect the business of our platform as a whole as well as our financial condition
and operating results. Some of our customers, contractors, suppliers and other business partners are small and medium-sized enterprises
(SMEs), which may not have strong cash flows or be well capitalized, and may be vulnerable to an epidemic outbreak and slowing macroeconomic
conditions, Further, as we do not have access to a revolving credit facility, there can be no assurance that we would be able to secure
commercial debt financing in the future in the event that we require additional capital.
The Company’s promotion strategy of the
CCM Shopping Mall previously mainly relied on the training of members and distributors through meetings and conferences. Although China
has already begun to recover from the outbreak of COVID-19, the Chinese government still put a restriction on large gatherings. These
restrictions made the promotion strategy for CCM Shopping Mall difficult to implement.
Consequently, our results of operations have been
materially adversely affected by the COVID-19. Any potential impact to our results will depend on, to a large extent, future developments
and new information that may emerge regarding the duration and severity of the COVID-19, efficacy and distribution of COVID-19 vaccines
and the actions taken by government authorities and other entities to contain the COVID-19 or treat its impact, almost all of which are
beyond our control.
PRC Regulations
There are substantial uncertainties regarding
the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business
and the enforcement and performance of our arrangements with customers in certain circumstances. We are considered foreign persons or
foreign funded enterprises under PRC laws and, as a result, we are required to comply with PRC laws and regulations related to foreign
persons and foreign funded enterprises. These laws and regulations are sometimes vague and may be subject to future changes, and their
official interpretation and enforcement may involve substantial uncertainty. The effectiveness of newly enacted laws, regulations or amendments
may be delayed, resulting in detrimental reliance. New laws and regulations that affect existing and proposed future businesses may also
be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our
business.
16. SUBSEQUENT EVENTS
On April 1, 2021, the Company entered into a Securities
Purchase Agreement (the “Purchase Agreement”) with certain purchasers identified on the signature page thereto (the “Purchasers”),
pursuant to which the Company sold to the Purchasers in a registered direct offering, an aggregate of 5,737,706 shares (the “Shares”)
of its common stock, par value $0.001 per share (“Common Stock”) at a purchase price of $6.10 per share, for aggregate gross
proceeds to the Company of approximately $35 million, before deducting fees to the placement agent and other offering expenses payable
by the Company. As of report day, the transaction has completed.
On April 9, 2021, the Company, Future FinTech
(Hong Kong) Limited., a limited company organized under the laws of Hong Kong and a wholly owned subsidiary of the Company (“Buyer”), Nice
Talent Asset Management Limited, a limited company organized under the laws of Hong Kong (“Nice”) and Joy Rich Enterprises
Limited, a limited company organized under the laws of Hong Kong and 90% shareholder of Nice (“Joy Rich” or the “Seller”)
entered into the First Amendment (the “Amendment”) to the Share Exchange Agreement (the “Agreement”), which was
originally entered into by the parties on July 13, 2020. Pursuant to the Agreement, the Buyer agreed to acquire 90% of the issued and
outstanding ordinary shares of Nice (the “Nice Shares”) from the Seller in exchange for the shares of common stock of the
Company, as disclosed in the Form 8-K filed on July 16, 2020. Pursuant to the Amendment, the parties agree to amend the purchase price
and certain earn-out terms as follows: (i) the aggregate purchase price for Nice Shares shall be HK$144,000,000 (the “Purchase Price”)
and it shall be paid in the shares of common stock of the Company (the “Company Shares”); (ii) 60% of the Purchase Price or
HK$86,400,000 shall be paid in the shares of common stock of the Company based on 95% of the closing price of the Company’s common
stock listed on Nasdaq Stock Exchange on the date prior to the date of the Amendment and the foreign exchange rate between HK$ and US$
shall be 7.7:1; (iii) 20% of Purchase Price shall be paid in the shares of common stock of the Company if Nice achieves an Earnings Before
Interest and Taxes (the “EBIT”) of HK$14,000,000 (the “2021 EBIT Goal”), as evidenced in its 2021 audited financial
statements for fiscal year ended December 31, 2021 audited by the auditor of the Company (the “2021 Earn-Out Shares”); (iv)
the final 20% of Purchase Price shall be paid in the shares of common stock of the Company if Nice achieves an EBIT of HK$20,000,000 (the
“2022 EBIT Goal”), as evidenced in its 2022 audited financial statements for fiscal year ended December 31, 2022 audited by
the auditor of the Company (the “2022 Earn-Out Shares”); (v) if Nice does not achieve the EBIT Goal for a given year, the
shortfall between EBIT Goal and the actual EBIT for that year shall be the EBIT Shortfall (the “EBIT Shortfall”) and the amount
of an EBIT Shortfall Fee that equals to 10 (ten) times of the EBIT Shortfall amount (the “EBIT Shortfall Fee”) shall be paid
in cash by the Seller to the Buyer even though such year’s Earn-Out Shares shall still be issued in full to the Seller.
On April 16, 2021, the Company through its wholly
owned subsidiary, Future Supply Chain Co., Ltd., completed its acquisition of 60% equity interest of Sichuan Ticode Supply Chain Management
Co., Ltd. (“Ticode”) from Sichuan Longma Electronic Technology Co. Ltd. (the “Seller”) in exchange for 7,789,882
shares of common stock of the Company (the “Company Shares”), pursuant to a Share Exchange Agreement (the “Agreement”)
dated February 26, 2021.
On April 25, 2021, the Audit Committee of the
Board of Directors of the Company dismissed BF Borgers CPA PC (“BF Borgers”) as the Company’s independent registered
public accounting firm, effective immediately.
On April 25, 2021, the Audit Committee of the
Board of Directors of the Company approved the engagement of Onestop Assurance PAC (“Onestop Assurance”) as the Company’s
independent registered public accounting firm, effective immediately. The Audit Committee also approved Onestop Assurance to act as the
Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021.