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; supply chain financing and
services; a blockchain-based application incubator; and technical service and support for 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 and financial technology services.
On July 22, 2020, the Company established Future
Commercial Management (Beijing) Co., Ltd. Its business includes management and consulting services.
On May 11, 2021, the Company established Future Supply (Chengdu) Co.,
Ltd. Its business is coal supply chain financing and trading.
On May 21, 2021, the Company established Future
Big Data (Chengdu) Co., Ltd. in Chengdu, China. Its business includes big data technology and industrial internet data services.
On June 8, 2021, the Company established Tianjin Future Private Equity
Fund Management Partnership (Ltd Partnership) in Tianjin, China. Its business is mainly external equity investment.
June 14, 2021, the Company established Future
FinTech Labs Inc. in New York to serve as its global R&D and technical support center.
On June 24, 2021, the Company established FTFT
Capital Investments L.L.C. in Dubai, United Arab Emirates. Its business is to serve institutional investors and high net worth individuals.
On August 2, 2021, the Company incorporated FTFT
UK Limited in United Kingdom as serve as its operating base to develop fintech business in Europe.
The Company’s activities are principally
conducted by its subsidiaries and its blockchain based e-commerce platform is conducted through its Variable Interest Entity (“VIE”)
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 June 30, 2021 and the results of operations and cash flows for the
periods ended June 30, 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 to six months ended June 30, 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 of 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, 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, SkyPeople Foods Holding Ltd. and Chain Future Digital Tech
(Beijing) Co., Ltd. On March 18, 2021, Chain Future Digital Tech (Beijing) Co., Ltd. was dissolved and deregistered with local government.
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, Chain Cloud 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.
On April 19, 2021, FT Commercial Management (Beijing)
Co., Ltd was dissolved and deregistered with local government.
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, coal supply chain financing and trading 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.
Three Months ended June 30, 2021:
|
|
Income
|
|
|
Share
|
|
|
Pre-share
amount
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(381,901
|
)
|
|
|
53,798,156
|
|
|
$
|
(0.01
|
)
|
Income from discontinuing operations
|
|
$
|
(21,577
|
)
|
|
|
53,798,156
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss available to common stockholders from continuing operations
|
|
$
|
(381,901
|
)
|
|
|
53,798,156
|
|
|
$
|
(0.01
|
)
|
Income available to common stockholders from discontinuing operations
|
|
$
|
(21,577
|
)
|
|
|
53,798,156
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
(381,901
|
)
|
|
|
54,355,947
|
|
|
$
|
(0.01
|
)
|
Diluted Earnings per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding.
|
|
$
|
(21,577
|
)
|
|
|
54,355,947
|
|
|
$
|
-
|
|
Three Months ended June 30, 2020:
|
|
Income
|
|
|
Share
|
|
|
Pre-share
amount
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(750,935
|
)
|
|
|
33,334,888
|
|
|
$
|
(0.02
|
)
|
Income from discontinuing operations
|
|
$
|
(84,045
|
)
|
|
|
33,334,888
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss available to common stockholders from continuing operations
|
|
$
|
(750,935
|
)
|
|
|
33,334,888
|
|
|
$
|
(0.02
|
)
|
Income available to common stockholders from discontinuing operations
|
|
$
|
(84,045
|
)
|
|
|
33,334,888
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
(750,935
|
)
|
|
|
34,004,411
|
|
|
$
|
(0.02
|
)
|
Diluted Earnings per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding.
|
|
$
|
(84,045
|
)
|
|
|
34,004,411
|
|
|
$
|
-
|
|
For the six months ended June 30, 2021:
|
|
Income
|
|
|
Share
|
|
|
Pre-share
amount
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(1,357,280
|
)
|
|
|
54,324,447
|
|
|
$
|
(0.02
|
)
|
Income from discontinuing operations
|
|
$
|
156,493
|
|
|
|
54,324,447
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss available to common stockholders from continuing operations
|
|
$
|
(1,357,280
|
)
|
|
|
54,324,447
|
|
|
$
|
(0.02
|
)
|
Income available to common stockholders from discontinuing operations
|
|
$
|
156,493
|
|
|
|
54,324,447
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
(1,357,280
|
)
|
|
|
54,882,238
|
|
|
$
|
(0.02
|
)
|
Diluted Earnings per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding.
|
|
$
|
156,493
|
|
|
|
54,882,238
|
|
|
$
|
-
|
|
For the six months ended June 30, 2020:
|
|
Income
|
|
|
Share
|
|
|
Pre-share
amount
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(7,515,575
|
)
|
|
|
35,867,188
|
|
|
$
|
(0.21
|
)
|
Income from discontinuing operations
|
|
$
|
123,568,454
|
|
|
|
35,867,188
|
|
|
$
|
3.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss available to common stockholders from continuing operations
|
|
$
|
(7,515,575
|
)
|
|
|
35,867,188
|
|
|
$
|
(0.21
|
)
|
Income available to common stockholders from discontinuing operations
|
|
$
|
123,568,454
|
|
|
|
35,867,188
|
|
|
$
|
3.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
(7,515,575
|
)
|
|
|
36,536,711
|
|
|
$
|
(0.21
|
)
|
Diluted Earnings per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding.
|
|
$
|
123,568,454
|
|
|
|
36,536,711
|
|
|
$
|
3.38
|
|
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 June 2021. Upon such credit terms, bad debt expense was $18,329 and $4.4
million during the six months ended June 30, 2021 and 2020, respectively. There is no accounts receivable balance overdue for over 90 days
as of June 30, 2021 and December 31, 2020
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. During the second
quarter of 2021, the Company has transformed its member based business model to sales agent based business model for its online shopping
mall.
Sales of Coals
The Company recognize revenue when the receipt
of merchandise is confirmed by the customers, which is the point that the title of the goods is transferred to the customer.
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 six months ended June 30, 2021 and 2020 was $4,088 and $849, respectively. Depreciation expense included in cost of sales
for the six months ended June 30, 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 years, 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 6.46 and 6.52 at the balance sheet dates of June 30, 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 6.47 and 7.03
for six months ended June 30, 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 June 30,
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 Chain Cloud 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 Chain Cloud Mall System. Mr. Zeyao Xue is a
major shareholder of the Company and the son of Mr. Yongke Xue, the President of the Company. 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 Chain Cloud Mall E-commerce (Tianjin) Co., Ltd, to exclusively operate and use the Chain Cloud Mall System and the authorization period is the same as the term of the Exclusive Technology Consulting and Service Agreement entered into by and between Chain Cloud 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 Chain Cloud 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 June 30, 2021, the balance of loan
receivables was $5.41 million, which was from Shenzhen Tiantian Haodian Technology Co., Ltd. (“Tiantian Haodian”). On
June 28, 2020, GuangChengJi (Shanghai) Industrial Co., Ltd. (“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 RMB 35 million (approximately $5.41 million) with Tiantian Haodian at the annual interest
rate of 10% from June 28, 2020 to December 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 six months ended June 30,
2021, the operating lease cost was $0.20 million.
The Company’s operating leases have remaining
lease terms that range from approximately one year to two years. As of June 30, 2021, the weighted average remaining lease term and weighted
average discount rate were 1.08 years and 6%, respectively.
Maturities of lease liabilities were as follows:
|
|
Operating
|
|
As of June 30,
|
|
Lease
|
|
From July 1, 2021 to June 30, 2022
|
|
$
|
195,307
|
|
From July 1, 2022 to June 31, 2022
|
|
|
16,276
|
|
Total
|
|
$
|
211,583
|
|
Less: amounts representing interest
|
|
$
|
7,224
|
|
Present Value of future minimum lease payments
|
|
|
204,359
|
|
Less: Current obligations
|
|
|
188,164
|
|
Long term obligations
|
|
$
|
16,195
|
|
5. LOAN PAYABLES
As of June 30, 2021, loan payables were $0.44
million, which consisted of the loan payable of $0.19 million to Shaanxi Entai Bio-Technology Co., Ltd., loan payable $0.01 million to
Shenzhen Wangjv Trading Co., Ltd., and loan payable of $0.25 million to seven individuals.
The loan from Shaanxi Entai Bio-Technology Co.,
Ltd of $0.18 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 $0.37 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:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Legal fee and other professionals
|
|
$
|
36,154
|
|
|
$
|
457,276
|
|
Wages and employee reimbursement
|
|
|
301,864
|
|
|
|
289,815
|
|
Suppliers
|
|
|
1,186,991
|
|
|
|
1,548,556
|
|
Accruals
|
|
|
89,231
|
|
|
|
173,455
|
|
Total
|
|
$
|
1,614,240
|
|
|
$
|
2,469,102
|
|
7. CONVERTIBLE NOTES PAYABLE
As of June 30, 2021 and December 31, 2020, convertible
debt consisted of the following:
|
|
June 30,
|
|
|
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 June 30, 2021, the amounts due to the related
parties were consisted of the followings:
Name
|
|
Amount
(US$)
|
|
|
Relationship
|
|
Note
|
Yongke Xue
|
|
$
|
33,900
|
|
|
President of the Company
|
|
Loan payable
|
Wei Cheng Pan
|
|
|
193,495
|
|
|
Legal representative of Guangchengji and Chief Strategy Officer of the Company
|
|
Loan payable
|
Shaanxi Fu Chen Venture Capital Management Co. Ltd. (“Shaanxi Fu Chen”)
|
|
|
92,487
|
|
|
Two outside shareholders of the Company who are also the shareholders
of Shaanxi Fu Chen
|
|
Other payables
|
Zhi Yan
|
|
|
243,742
|
|
|
General Manager of a subsidiary of the Company
|
|
Accrued expenses
|
Jing Chen
|
|
|
18,686
|
|
|
Vice president of the Company
|
|
Accrued expenses
|
Shenzhen TianShunDa Equity Investment Fund Management Co., Ltd. (“TianShunDa”)
|
|
|
340,552
|
|
|
Shaanxi Fu Chen holds 70% interest of TianShunDa
|
|
Other payables
|
Reits (Beijing) Technology Co., Ltd
|
|
|
16,602
|
|
|
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 Chunlv Ecological Agriculture Co. Ltd.
|
|
|
254,507
|
|
|
Shaanxi Fu Chen Venture holds 80% interest of the company
|
|
Other payables
|
Kai Xu
|
|
|
12,738
|
|
|
Deputy General Manager of a subsidiary of the Company
|
|
Accrued expenses
|
Shaanxi Fuju Mining Co., Ltd
|
|
|
3,252
|
|
|
Shaanxi Fu Chen holds 80% interest of the company
|
|
Other payables
|
Total
|
|
$
|
1,209,961
|
|
|
|
|
|
As of June 30, 2021, the amounts due from the
related parties were consisted of the followings:
Name
|
|
Amount
(US$)
|
|
|
Relationship
|
|
Note
|
Shanchun Huang
|
|
|
123,836
|
|
|
Chief Executive Officer of the Company
|
|
Prepaid expenses*
|
Bin Wu
|
|
|
200,000
|
|
|
a shareholder of a subsidiary of the Company
|
|
Advance to pay for the incorporation costs of the establishment of the subsidiary in Dubai*
|
Zeyao Xue
|
|
|
34,172
|
|
|
Son of the President of the Company, a shareholder of the VIE of the Company and a major shareholder of the Company
|
|
Prepaid expenses *
|
Ming Yi
|
|
|
5,945
|
|
|
Chief Financial Officer of the Company
|
|
Prepaid expenses *
|
Yang Liu
|
|
|
767
|
|
|
Chief Operator Officer of the Company
|
|
Prepaid expenses *
|
Total
|
|
$
|
364,720
|
|
|
|
|
|
*
|
The related party transactions 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 six months ended June 30, 2021 and 2020. The effective income tax rate
for the Company for both of the six months ended June 30, 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 if and 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 $7,338,500, after
deducting underwriting discounts and commissions and other estimated offering expenses, and were received on December 29, 2020. The Company
issued 4,210,530 shares of its Common Stock to the purchaser on December 29, 2020. 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 net 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 of common stock 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 net 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 common stock to the purchasers on February
11, 2021.
On April 1, 2021, the Company entered into a Securities
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 of its common stock, par value $0.001
per share at a purchase price of $6.10 per share, for aggregate net proceeds to the Company of approximately $32,380,492, after deducting
fees to the placement agent and other offering expenses payable by the Company. The Company issued 5,737,706 shares of common stock to
the purchasers on April 5, 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. 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-months 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 six months ended June 30, 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 close of
the Sale Transaction.
The
discontinued operation presented in the financial statement includes Huludao Wonder operation, a subsidiary which produced 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, 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 was dissolved; On October
31, 2020, Chain Cloud 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.
On
April 19, 2021, FT Commercial Management (Beijing) Co., Ltd was deregistered, resulting in a loss on disposal of $21,577.
Loss
from discontinued operations for June 30, 2021 and 2020 was as follows:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
REVENUES
|
|
$
|
-
|
|
|
$
|
-
|
|
COST
OF SALES
|
|
|
-
|
|
|
|
-
|
|
GROSS
PROFIT
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
-
|
|
|
|
139,614
|
|
Provision
(Recovery) of doubtful debts
|
|
|
-
|
|
|
|
(19,745
|
)
|
Total
|
|
|
-
|
|
|
|
119,869
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
-
|
|
|
|
22
|
|
Interest
expenses
|
|
|
-
|
|
|
|
(32
|
)
|
other
income (expenses)
|
|
|
-
|
|
|
|
(541
|
)
|
Total
|
|
|
-
|
|
|
|
(551
|
)
|
Income
(loss) from discontinued operations before income tax
|
|
|
-
|
|
|
|
(120,420
|
)
|
Income
tax provision
|
|
|
-
|
|
|
|
-
|
|
Income
(loss) from discontinued operation before noncontrolling interest
|
|
$
|
-
|
|
|
|
(120,420
|
)
|
Loss
on disposal of discontinued operations
|
|
|
-
|
)
|
|
|
-
|
|
(INCOME)
LOSS FROM DISCONTINUED OPERATION
|
|
$
|
-
|
|
|
$
|
(120,420
|
)
|
The
major components of assets and liabilities related to discontinued operations are summarized below:
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Cash
|
|
$
|
-
|
|
|
$
|
3,037
|
|
Property,
plant and equipment, net
|
|
|
-
|
|
|
|
2,747
|
|
Other
current assets
|
|
|
|
|
|
|
897
|
|
Amount
due from related parties
|
|
|
155
|
|
|
|
13,056
|
|
Total
assets related to discontinued operations
|
|
$
|
155
|
|
|
|
19,737
|
|
|
|
|
|
|
|
|
|
|
Accrued
expenses
|
|
$
|
-
|
|
|
$
|
10,341
|
|
Amount
due to related parties
|
|
|
-
|
|
|
|
154,875
|
|
Total
liabilities related to discontinued operations
|
|
$
|
-
|
|
|
$
|
165,216
|
|
13.
SEGMENT REPORTING
In its operation of the business, management,
including our chief operating decision maker, who is our Chief Executive Officer, reviews certain financial information, including segmented
internal profit and loss statements prepared on a basis consistent with GAAP. The Company operates in four segments starting in fiscal
2020: 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 2021, the Company principally engages in coal supply chain financing and trading business.
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 from fiscal year 2019, while its traditional business section of seasonal fruit related products continued to
shrink in fiscal year 2019. However, due the COVID-19 pandemic and restriction on large gatherings in China, which have made the promotion
strategy for its online e-commerce platforms difficult to implement and the Company has experienced difficulties to subscribe new members
for its online e-commerce platforms. Due to lack of new members, difficulties in retaining old customers and significant decrease of
revenue in e-commerce business, the Company began to provide supply chain financing and services for coal mines and power generation
plants to buy and sell coals.
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.
Three Months
ended June 30, 2021
|
|
CCM Shopping
Mall Membership
|
|
|
Coals
supply chain
financing/trading
|
|
|
Others
|
|
|
Total
|
|
Reportable segment revenue
|
|
$
|
12
|
|
|
$
|
3,288,688
|
|
|
$
|
13
|
|
|
$
|
3,288,713
|
|
Inter-segment loss
|
|
|
-
|
|
|
|
1,347,131
|
|
|
|
-
|
|
|
|
1,347,131
|
|
Revenue from external customers
|
|
$
|
12
|
|
|
|
1,941,557
|
|
|
|
13
|
|
|
|
1,941,582
|
|
Segment gross profit
|
|
$
|
12
|
|
|
$
|
71,341
|
|
|
$
|
2
|
|
|
$
|
71,355
|
|
Three Months
ended June 30, 2020
|
|
CCM
Shopping
Mall Membership
|
|
|
Sales
of
Goods
|
|
|
Others
|
|
|
Total
|
|
Reportable
segment revenue
|
|
$
|
104,762
|
|
|
$
|
1,853
|
|
|
$
|
7,139
|
|
|
$
|
113,754
|
|
Inter-segment
loss
|
|
|
-
|
|
|
|
67
|
|
|
|
-
|
|
|
|
67
|
|
Revenue
from external customers
|
|
$
|
104,762
|
|
|
|
1,786
|
|
|
|
7,139
|
|
|
|
113,687
|
|
Segment
gross profit
|
|
$
|
100,803
|
|
|
$
|
1,067
|
|
|
$
|
2,458
|
|
|
$
|
104,328
|
|
As of June
30, 2021:
|
|
CCM Shopping
Mall Membership
|
|
|
Coal
supply chain
financing/trading
|
|
|
Others
|
|
|
Total
|
|
Reportable segment revenue
|
|
$
|
84
|
|
|
$
|
3,288,688
|
|
|
$
|
6,553
|
|
|
$
|
3,295,325
|
|
Inter-segment loss
|
|
|
-
|
|
|
|
1,347,131
|
|
|
|
-
|
|
|
|
1,347,131
|
|
Revenue from external customers
|
|
$
|
84
|
|
|
|
1,941,557
|
|
|
|
6,553
|
|
|
|
1,948,194
|
|
Segment gross profit
|
|
$
|
84
|
|
|
$
|
71,341
|
|
|
$
|
520
|
|
|
$
|
71,945
|
|
As
of June 30, 2020:
|
|
CCM
Shopping
Mall Membership
|
|
|
Sales
of
Goods
|
|
|
Others
|
|
|
Total
|
|
Reportable
segment revenue
|
|
$
|
303,647
|
|
|
$
|
3,670
|
|
|
$
|
7,139
|
|
|
$
|
314,456
|
|
Inter-segment
loss
|
|
|
-
|
|
|
|
818
|
|
|
|
-
|
|
|
|
818
|
|
Revenue
from external customers
|
|
$
|
303,647
|
|
|
|
2,852
|
|
|
|
7,139
|
|
|
|
313,638
|
|
Segment
gross profit
|
|
$
|
299,412
|
|
|
$
|
1,897
|
|
|
$
|
2,457
|
|
|
$
|
303,766
|
|
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. On April 30, 2021, the Company
served FT Global with its Initial Disclosures. On May 6, 2021, FT Global served the Company with its Initial Disclosures.
On May 17, 2021, FT Global served the Company with its First Amended Initial Disclosures. 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 and has spread throughout China and other parts of the world. On March 11, 2020, the World Health Organization
characterized the outbreak as a “pandemic”. 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. Substantially
all of our revenues are generated in China. In response to the evolving dynamics related to the COVID-19 outbreak, the Company is
following the guidelines of local authorities as it prioritizes the health and safety of its employees, contractors, suppliers and business
partners. Our offices in China were closed and all of the Company’s employees worked from home at the end of January until late
March 2020. The quarantines, travel restrictions, and the temporary closure of office buildings have negatively impacted our business.
Our suppliers were negatively affected, and could continue to be negatively affected in their ability to supply and ship products to our
customers in case of any resurgence of COVID-19. Our customers that have been 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 e-commerce platform have been and could continue to be negatively impacted by the outbreak, which
may in turn adversely affect the business of our platform as a whole as well as our financial condition and operating results. The outbreak
has had and might continue to have disruption to our supply chain, logistics providers, customers or our marketing activities in case
of any resurgence of COVID-19, which could materially adversely impact our business and results of operations. 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. If the SMEs that we work with
cannot weather the COVID-19 and the resulting economic impact, or cannot resume business as usual after a prolonged outbreak, our revenues
and business operations may be materially and adversely impacted. The Company’s promotion strategy of 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 our online e-commerce platforms difficult to implement. The Company has experienced difficulties to subscribe new members
for its online e-commerce platforms and has to transform its business model from member based platform to sales agent based platform during
the second quarter of 2021.
The
global economy has also been materially negatively affected by the COVID-19 and there is continued severe uncertainty about the duration
and intensity of its impacts. The Chinese and global growth forecast is extremely uncertain, which would seriously affect customer spending
on our online shopping malls.
While
the potential economic impact brought by, and the duration of COVID-19 and its new variants may be difficult to assess or predict, a
widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which
could negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 and its new
variants could materially affect our business and the value of our common stock.
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
July 7, 2021, the Company filed a Form S-8 to register the shares of Common Stock under the Company’s 2020 Omnibus Equity Plan
(the “Equity Plan”). The Board of Directors of the Company approved and adopted the Equity Plan on October 27, 2020, which
was approved by the shareholders at the Company’s annual shareholders meeting on December 18, 2021. The total aggregate shares
of common stock authorized for issuance during the term of the Equity Plan is limited to 5,000,000 shares.
On
July 12, 2021 (the “Grant Date”), the Compensation Committee of the Board of Directors (the “Board”) of the Company
granted 1,953,000 shares of common stock of the Company, par value $0.001 (the “Shares”), pursuant to the Company’s
2020 Omnibus Equity Plan, to certain officers and employees of the Company and its subsidiaries (the “Grantees”), including:
500,000 shares to Shanchun Huang, Chief Executive Officer of the Company; 300,000 shares to Yongke Xue, President of the Company; 20,000
shares to Ming Yi, Chief Financial Officer of the Company, and 40,000 shares to Yang Liu, Chief Operating Officer of the Company (collectively,
the “Grants”). The Grants vested immediately on the Grant Date and each of the Grantees also entered into an Unrestricted
Stock Award Agreement with the Company on July 12, 2021. As of the date of this report, the Shares have been issued to the Grantees.
On
July 22, 2021, the Company filed a shelf registration statement on Form S-3 under which the Company may, from time to time, sell securities
in one or more offerings up to a total dollar amount of $200,000,000. The shelf registration statement has not been declared
effective as of the date of this report.
On
July 22, 2021, the Company entered into a Securities Purchase Agreement (the “Agreement”) with certain investors identified
on the signature pages thereto (the “Purchasers”), pursuant to which the Company agreed to sell to the Purchasers in a private
placement 548,799 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share (the “Common
Stock”), at a purchase price of $2.83 per share for an aggregate offering price of $1,553,101 (the “Private Placement”).
The Private Placement will be completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities
Act of 1933, as amended.