Business Context and Reporting Period
Company: Code Chain New Continent Limited (CCNC)
Filing Type: Form 8-K (Current Report)
Date of Report: June 21, 2022
Event: Completion of the acquisition of Shanghai Yuanma Food and Beverage Management Co., Ltd. ("Yuan Ma") via a Variable Interest Entity (VIE) structure.
Key Financial Metrics
This filing does not contain audited financial statements, revenue, profit, cash flow, or liquidity metrics for the company or the acquired entity. The filing notes that financial statements and pro forma information will be filed in an amendment within 71 days.
Transaction Valuation: The Company issued 7,680,000 shares of common stock valued at $1.00 per share, totaling $7,680,000 in consideration.
Material Changes
- Acquisition Completion: On June 21, 2022, the Company's wholly-owned subsidiary (WFOE) entered into VIE Agreements with Yuan Ma and its shareholders, finalizing the transaction previously announced on April 14, 2022.
- Consolidation: Under U.S. GAAP, the Company will now consolidate the financial results and balance sheet of Yuan Ma into its own consolidated financial statements.
- Related Party Transaction: The shares were issued to Wei Xu (CEO and Chairman) and Jiangsu Lingkong Network Joint Stock Co., Ltd. (controlled by Wei Xu), who are the shareholders of Yuan Ma.
Outlook, Risks, and Contingencies
Management Commentary: The transaction establishes a VIE structure to control Yuan Ma's operations and financial results without direct equity ownership, a common structure for PRC-based entities listed in the U.S.
Key Agreements and Risks:
- Technical Consultation Agreement: Grants WFOE exclusive rights to provide services and determine fees; effective for 20 years with unilateral extension rights by WFOE.
- Equity Pledge: Yuan Ma shareholders pledged all equity interests to WFOE as security for obligations.
- Equity Option: WFOE holds an irrevocable option to purchase all or part of Yuan Ma's equity or assets at the minimum price permitted by PRC law.
- Voting Rights Proxy: Shareholders irrevocably appointed WFOE as attorney-in-fact to exercise all voting rights for a 20-year term.
Unusual Items: The filing explicitly states that "Variable Interest Entity" is an accounting concept, not a legal relationship, and relies on contractual arrangements to consolidate financials.
Investor Verification Checklist
- Verify the upcoming filing of financial statements and pro forma information (due within 71 days of June 21, 2022).
- Review the full text of the VIE Agreements (Exhibits 10.1 through 10.4) to understand specific termination clauses and fee structures.
- Assess the financial health and revenue potential of Yuan Ma, as this entity is now consolidated into CCNC's results.
- Monitor the impact of the $7.68 million stock issuance on existing shareholder dilution.
- Confirm the registration status of the equity pledge with local Chinese authorities as required by the agreement.