ITEM 1 – BUSINESS
Overview
Future FinTech is a holding company incorporated
under the laws of the State of Florida and it is not a Chinese operating company. As a holding company with no material operations of
our own, we conduct a substantial majority of our operations through our subsidiaries and contractual arrangements with a variable interest
entity (VIE) – Cloud Chain E-Commerce (Tianjin) Co., Ltd. (“E-Commerce Tianjin”), based in China and this structure
involves unique risks to investors. The Company historically engaged in the production and sale of fruit juice concentrates (including
fruit purees and fruit juices), fruit beverages (including fruit juice beverages and fruit cider beverages) in People’s Republic
of China. Due to drastically increased production costs and tightened environmental laws in China, the Company had transformed its business
from fruit juice manufacturing and distribution to a real-name blockchain based e-commerce platform, supply chain financing services and
trading business and financial services and technology business. The business operations of the Company include blockchain based online
shopping platform, Chain Cloud Mall (“CCM”), supply chain financing services and trading, asset management and money transfer
service .The Company is also developing cryptocurrency mining and cryptocurrency market data services.
There are legal and operational risks associated
with being based in and having majority of our operations in Hong Kong and China. Recently, the PRC government initiated a series of
regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal
activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity
structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement.
On July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly
issued an announcement to crack down on illegal activities in the securities market and promote the high-quality development of the capital
market, which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement
and judicial cooperation, to enhance supervision over China-based companies listed overseas, and to establish and improve the system
of extraterritorial application of the PRC securities laws. On December 28, 2021, Cybersecurity Review Measures was published by Cyberspace
Administration of China or the CAC, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry
of Public Security, Ministry of State Security, Ministry of Finance, Ministry of Commerce, People’s Bank of China, State Administration
of Radio and Television, China Securities Regulatory Commission, State Secrecy Administration and State Cryptography Administration,
effective on February 15, 2022, which provides that, Critical Information Infrastructure Operators (“CIIOs”) that purchase
internet products and services and Online Platform Operators engaging in data processing activities that affect or may affect national
security shall be subject to the cybersecurity review by the Cybersecurity Review Office. On November 14, 2021, CAC published the Administration
Measures for Cyber Data Security (Draft for Public Comments), or the “Cyber Data Security Measure (Draft)”, which requires
cyberspace operators with personal information of more than 1 million users who want to list abroad to file a cybersecurity review with
the Office of Cybersecurity Review. On April 2, 2022, the CSRC released the Provisions on Strengthening Confidentiality and Archives
Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), which provide that a domestic
company that seeks to offer and list its securities in a overseas market shall strictly abide by applicable PRC laws and regulations,
enhance legal awareness of keeping state secrets and strengthening archives administration, institute a sound confidentiality and archives
administration system, and take necessary measures to fulfill confidentiality and archives administration obligations. On July 7, 2022,
CAC promulgated the Measures for the Security Assessment of Data Cross-border Transfer, effective on September 1, 2022, which requires
the data processors to apply for data cross-border security assessment coordinated by the CAC under the following circumstances: (i)
any data processor transfers important data to overseas; (ii) any critical information infrastructure operator or data processor who
processes personal information of over 1 million people provides personal information to overseas; (iii) any data processor who provides
personal information to overseas and has already provided personal information of more than 100,000 people or sensitive personal information
of more than 10,000 people to overseas since January 1st of the previous year; and (iv) other circumstances under which
the data cross-border transfer security assessment is required as prescribed by the CAC. On February 17, 2023, the CSRC released the
Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises (the “New Overseas Listing Rules”)
with five interpretive guidelines, which took effect on March 31, 2023. The New Overseas Listing Rules require Chinese domestic enterprises
to complete filings with relevant governmental authorities and report related information under certain circumstances. The required filing
scope is not limited to the initial public offering, but also includes subsequent overseas securities offering, single or multiple acquisition(s),
share swap, transfer of shares or other means to seek an overseas direct or indirect listing and a secondary listing or dual major listing
of issuers already listed overseas. According to the Notice on Arrangements for Overseas Securities Offering and Listing by Domestic
Enterprises, published by the CSRC on February 17, 2023, a company that (i) has already completed overseas listing or (ii) has already
obtained the approval for the offering or listing from overseas securities regulators or exchanges but has not completed such offering
or listing before effective date of the new rules and also completes the offering or listing before September 30, 2023 will be considered
as an existing listed company and is not required to make any filing until it conducts a new offering in the future. Furthermore, upon
the occurrence of any of the material events specified below after an issuer has completed its offering and listed its securities on
an overseas stock exchange, the issuer shall submit a report thereof to the CSRC within 3 working days after the occurrence and public
disclosure of the event: (i) change of control; (ii) investigations or sanctions imposed by overseas securities regulatory agencies or
other competent authorities; (iii) change of listing status or transfer of listing segment; or (iv) voluntary or mandatory delisting.
On February 24, 2023, the CSRC revised the Provisions on Strengthening the Management of Confidentiality and Archives Related to the
Overseas Issuance of Securities and Overseas Listing by Domestic Companies which were issued in 2009 (the “Archives Rules”).
The revised Archives Rules took effect on March 31, 2023. The revised Archives Rules expands their application to cover indirect overseas
offering and listing, stipulating that a domestic company which plans to publicly disclose any documents and materials containing state
secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file
with the secrecy administrative department at the same level. As of the date of this report, these new laws and guidelines have not impacted
the Company’s ability to conduct its business, accept foreign investments, or list and trade on a U.S. or other foreign exchange;
however, there are uncertainties in the interpretation and enforcement of these new laws and guidelines, which could materially and adversely
impact our business and financial outlook and may impact our ability to accept foreign investments or continue to list on a U.S. or other
foreign exchange. Any change in foreign investment regulations, and other policies in China or related enforcement actions by China government
could result in a material change in our operations and the value of our securities and could significantly limit or completely hinder
our ability to offer our securities to investors or cause the value of our securities to significantly decline or be worthless. The Company’s
auditor, Onestop Assurance PAC is headquartered in the Singapore and the Public Company Accounting Oversight Board (United States) (the
“PCAOB”) currently has access to inspect the working papers of our auditor and our auditor is not subject to the determinations
announced by the PCAOB on December 16, 2021. On December 15, 2022, the PCAOB Board determined that the PCAOB was able to secure complete
access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate
its previous determinations to the contrary. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s
access in the future, the PCAOB Board will consider the need to issue a new determination. On December 29, 2022, a legislation entitled
“Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”), was signed into law by President
Biden. The Consolidated Appropriations Act contained, among other things, an identical provision to Accelerating Holding Foreign Companies
Accountable Act, which reduces the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA
Act from three years to two. The Holding Foreign Companies Accountable Act and related regulations currently does not affect the
Company as the Company’s auditor is subject to PCAOB’s inspection and investigation.
As a holding company, we may rely on dividends
and other distributions on equity paid by our subsidiaries for our cash and financing requirements. If any of our subsidiaries or our
WFOE incurs debt on its own behalf in the future, the instruments governing such debt may restrict their ability to pay dividends to
us. However, neither any of our subsidiaries or the VIE has made any dividends, other distributions or cash transfers to our holding
company or any U.S. investors as of the date of this report. In the future, cash proceeds raised from overseas financing activities may
be transferred by us to our PRC subsidiaries via capital contribution or shareholder loans, as the case may be. As a holding company,
we may rely principally on dividends and other distributions on equity paid by our subsidiaries for our cash and financing requirements
we may have. As of the date of this report, we do not have cash management policies and procedures in place that dictate how funds are
transferred through our organization. Rather, the funds can be transferred in accordance with the applicable PRC laws and regulations. See
“Dividend Distribution and Cash Transfer Between the Holding Company, Subsidiary and VIE” and “Selected Condensed
Consolidated Financial Schedule of the Company and Its Subsidiaries and VIE.
As of the date of this report, no dividends or
distributions have been made between the holding company, its subsidiaries, and consolidated VIE, or to investors including U.S. investors.
The holding company, its subsidiaries, and the VIE do not have any plan to distribute dividend or settle amounts owed under the VIE Agreements
in the foreseeable future. To the extent cash and/or assets in the business are in the PRC and/or Hong Kong or our PRC and/or Hong Kong
entities, the VIE, and the WFOE (as defined below), such funds and/or assets may not be available to fund operations or for other use
outside of the PRC and/or Hong Kong due to interventions in or the imposition of restrictions and limitations on the ability of us or
our subsidiaries by the PRC government to transfer cash and/or assets. See “Dividend Distribution and Cash Transfer
Between the Holding Company, Subsidiary and VIE.” and “Risk Factor - We could be restricted from paying dividends to shareholders
due to PRC laws and other contractual requirements. To the extent cash and/or assets in the business are in the PRC and/or Hong Kong
or our PRC and/or Hong Kong entities, the VIE, and the WFOE, such funds and/or assets may not be available to fund operations or for
other use outside of the PRC and/or Hong Kong due to interventions in or the imposition of restrictions and limitations on the ability
of us or our subsidiaries by the PRC government to transfer cash and/or assets.”
In the opinion of our
PRC counsel Fengdong Law Firm, the VIE and certain subsidiaries of the Company are incorporated and operating in mainland China and they
have received all required permissions from Chinese authorities to operate their current business in China, including Business licenses,
Bank Account Open Permits and Value Added Telecom Business License. Our subsidiaries outside of mainland China also have obtained permissions
or approvals to operate their business in the countries where they operate their business.
As of the date of this report, in the opinion
of our PRC counsel Fengdong Law Firm, we, our subsidiaries and the VIE in China are not subject to permission requirements from the China
Securities Regulatory Commission (“CSRC”), Cyberspace Administration of China (“CAC”) or any other entity that
is required to approve of the VIE’s operations and have not received or were denied such permissions by any PRC authorities. Nevertheless,
the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued
the “Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,” or the Opinions, which were made
available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities,
and the need to strengthen the supervision over overseas listings by Chinese companies. On February 17, 2023, the CSRC released the New
Overseas Listing Rules with five interpretive guidelines, which took effect on March 31, 2023. The New Overseas Listing Rules require
Chinese domestic enterprises to complete filings with relevant governmental authorities and report related information for overseas offerings
and listings. Given the current PRC regulatory environment, it is uncertain whether we will be able to obtain permission from the PRC
government to offer our securities to foreign investors, and even when such permission is obtained, whether it will be denied or rescinded.
If we or any of our subsidiaries or the VIE do not receive or maintain such permissions or approvals, inadvertently conclude that such
permissions or approvals are not required, or applicable laws, regulations, or interpretations change and we or our subsidiaries are
required to obtain such permissions or approvals, it could significantly limit or completely hinder our ability to offer or continue
to offer our securities to investors and cause the value of our securities to significantly decline or become worthless. If applicable
laws, regulations, or interpretations change and the VIE is required to obtain such permissions or approvals in the future, we may face
substantial uncertainties as to whether we can obtain such permissions or approvals in a timely manner, or at all. Failure to take timely
and appropriate measures to adapt to any of these or similar regulatory compliance challenges could materially and adversely affect our
current corporate structure and business operations. In addition, these VIE agreements have not been truly tested in the courts in China
and Chinese regulatory authorities could disallow the VIE structure, which would likely result in a material change in our operations
and/or value of our securities, including that it could cause the value of our securities to significantly decline or become worthless.
The VIE structure is used to provide investors with exposure to foreign investment in China-based companies where Chinese law prohibits
or restricts direct foreign investment in certain types of operating companies, and that investors may never hold equity interests in
the VIE. See “Risk Factor - If the PRC government deems that the contractual arrangements in relation to the consolidated variable
interest entity do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations
or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish
our interests in those operations.”
On May 11, 2021, the Company established Future
Supply Chain (Chengdu) Co., Ltd. Its business is coal and aluminum ingots supply chain financing services and trading.
On May 12, 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 (Limited Partnership) in Tianjin, China. Its main business is 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. In December 2021, FTFT Capital Investments, LLC (“FTFT Dubai”),
a subsidiary of the Company, officially launched FTFTX, a cryptocurrency market data platform that provides investors with real-time
cryptocurrency market data and trading information from a large number of cryptocurrency exchanges. The market data is available for
Bitcoin, ETH, EOS, Litecoin, TRON and other cryptocurrencies at https://www.ftftx.com and via the FTFTX App on iOS and Android devices.
The FTFTX app is free to download on Google Play and the Apple Store.
On July 2, 2021, the Company established Future
Fintech Digital Number One US, LP. which is an investment fund.
On July 6, 2021, the Company established Future
Fintech Digital Capital Management, LLC., which provides investment advisory services and investment fund management.
On July 6, 2021, the Company established Future
Fintech Digital Number One GP, LLC., which is an off-shore investment fund.
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.
On August 6, 2021, the Company completed
acquisition of 90% of the issued and outstanding shares of Nice Talent Asset Management Limited (“NTAM”), a Hong
Kong-based asset management company, from Joy Rich Enterprises Limited (“Joy Rich”). NTAM is licensed under the
Securities and Futures Commission of Hong Kong (“SFC”) to carry out regulated activities in Type 4: Advising on
Securities and Type 9: Asset Management.
On August 11, 2021, the Company established Future
Private Equity Fund Management (Hainan) Co., Ltd. Its business is investment fund management.
On November 22, 2021, the Company established
FTFT Digital Number One, Ltd., an investment fund.
On November 22, 2021, the Company established
Future Fintech Digital Number One Offshore, LLC., an investment fund.
On December 15, 2021, the Company established
FTFT Super Computing Inc. Its business is bitcoin and other cryptocurrency mining and related services.
In March 2022, FTFT UK Limited received has
received approval to operate as an Electronic Money Directive (“EMD”) Agent and has been registered as such with the
Financial Conduct Authority (FCA), a UK regulator. This status grants FTFT UK Limited the ability to distribute or redeem e-money
and provide certain financial services on behalf of an e-money institution (registration number 903050).
On April 18, 2022, the
Company and Future Fintech (Hong Kong) Limited, a wholly owned subsidiary of the Company jointly acquired 100% equity interest of
KAZAN S.A., a company incorporated in Republic of Paraguay for $288. The Company owns 90% and FTFT HK owns 10% of Kazan S.A.,
respectively. Kazan S.A. has no operation before the acquisition. The Company plans to develop bitcoin and other cryptocurrency mining
and related services in Paraguay. The Company has changed its name from KAZAN S.A to FTFT Paraguay S.A. on July 28, 2022.
On September 29, 2022, FTFT UK Limited completed its acquisition of
100% of the issued and outstanding shares of Khyber Money Exchange Ltd., a company incorporated in England and Wales, from Rahim Shah,
a resident of United Kingdom for a total of Euros €685,000 (“Purchase Price”), pursuant to a Share Purchase Agreement
(the “Agreement”) dated September 1, 2021. Khyber Money Exchange Ltd. is a money transfer company with a platform for transferring
money through one of its agent locations or via its online portal, mobile platform or over the phone. Khyber Money Exchange Ltd.
is regulated by the UK Financial Conduct Authority (FCA) and the parties received approval by the FCA before the formal closing of the
transaction. On October 11, 2022, the Company changed the name of Khyber Money Exchange Ltd. to FTFT Finance UK Limited.
On February 27, 2023, Future FinTech (Hong Kong)
Limited (“Buyer”), a company incorporated in Hong Kong and a wholly owned subsidiary of Future FinTech Group Inc. (the “Company”)
entered into a Share Transfer Agreement (the “Agreement”) with Alpha Financial Limited, a company incorporated in Hong Kong
(“Seller”) and sole owner and shareholder of Alpha International Securities (Hong Kong) Limited, a company incorporated
in Hong Kong (“Alpha HK”) and Alpha Information Service (Shenzhen) Co., Ltd., a company incorporated in China (“Alpha
SZ”). Alpha HK holds Type 1 ‘Securities Trading’, Type 2 ‘Futures Contract Trading’ and Type 4 ‘Securities
Consulting’ financial licenses issued by the Hong Kong Securities and Futures Commission. Alpha SZ provides technical support services
to Alpha HK.
On January 26, 2023,
the Company filed with the Florida Secretary of State’s office Articles of Amendment (the “Amendment”) to amend its
Second Amended and Restated Articles of Incorporation, as amended (“Articles of Incorporation”). As a result of the Amendment,
the Company has authorized and approved a 1-for-5 reverse stock split of the Company’s authorized shares of common stock from 300,000,000
shares to 60,000,000 shares, accompanied by a corresponding decrease in the Company’s issued and outstanding shares of common stock
(the “Reverse Stock Split”). The common stock will continue to be $0.001 par value. The Company rounds up to the next full
share of the Company’s shares of common stock any fractional shares that result from the Reverse Stock Split and no fractional
shares is issued in connection with the Reverse Stock Split and no cash or other consideration is paid in connection with any fractional
shares that would otherwise have resulted from the Reverse Stock Split. No changes are being made to the number of preferred shares of
the Company which remain as 10,000,000 preferred shares as authorized but not issued. The amendment to the Articles of Incorporation
of the Company will take effect at 1:00am Eastern Time on February 1, 2023. The Reverse Stock Split and Amendment were authorized and
approved by the Board of Directors of the Company without shareholders’ approval, pursuant to 607.10025 of the Florida Business
Corporation Act of the State of Florida.
Currently, Chain Cloud
Mall adopts an “Enterprise Communication as A Service” or eCAAS platform which is a part of 3.15 China Responsible Brand
Program run by the Anti-Counterfeiting Committee of China Foundation of Consumer Protection (the “Anti-Counterfeiting Committee”).
Anti-Counterfeiting Committee reviews and accepts the companies to join its 3.15 China Responsible Brand Program. After acceptance, these
companies are authorized to use anti-counterfeiting labels on their products which have authenticated signatures of these companies and
Anti-Counterfeiting Committee recorded on the blockchain quality and safety traceability system controlled by the Anti-Counterfeiting
Committee. The companies will sell such products on our eCAAS platform. The companies can also use sales agents to sell their products
on our eCAAS platform and parties can negotiate the commission percentages for the products sold. Any new sales agent must be recommended
by existing agents and pay a one-time fee to the eCAAS platform to be admitted as the authorized agent to provide sales agent services
on the platform.
The Company started its trial operation of NONOGIRL,
a cross-border e-commerce platform, in March 2020 and formally launched it in July 2020. The cross-border e-commerce platform aimed to
build a new s2b2c (supplier to business and consumer) outsourcing sales platform dominated by social media influencers. It was aimed
at the growing female consumer market, with the ability to broadcast, short video, and all forms communication through the platform.
It could also create a sales oriented sharing ecosystem with other major social media used by customers, etc. The Company’s promotion
strategy previously mainly relied on the training of members and distributors through meetings and conferences. Due to the outbreak of
COVID-19, the Chinese government put a restriction on large gatherings. These restrictions made the promotion strategy for our 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 the lack of new subscribers, in June 2021, the Company suspended its cross-border e-commerce platform (NONOGIRL) which
has been closed now. Also, since the second quarter of 2021, the Company has transformed its member-based business model of Chain Cloud
Mall to a sale agent based “Enterprise Communication as A Service” or eCAAS platform and began to provide supply chain financing
services and trading of coal for coal mines and power generation plants as well as aluminum ingots.
The Company currently has ten directly
controlled subsidiaries: DigiPay FinTech Limited (“DigiPay”), a company incorporated under the laws of the British
Virgin Islands, Future FinTech (Hong Kong) Limited, a company incorporated under the laws of Hong Kong, GlobalKey Shared Mall
Limited, a company incorporated under the laws of Cayman Islands (“GlobalKey Shared Mall”), Tianjin Future Private
Equity Fund Management Partnership, a Limited Partnership under the laws of China, FTFT UK Limited, a company incorporated under the
laws of United Kingdom, Future Fintech Digital Capital Management, LLC, a company incorporated under the laws of Connecticut, Future
Fintech Digital Number One GP, LLC, a company incorporated under the laws of Connecticut, Future FinTech Labs Inc., a company
incorporated under the laws of New York, FTFT SuperComputing Inc. a company incorporated under the laws of Ohio and FTFT
Paraguay S.A., a company incorporated under the laws of Paraguay.
SkyPeople Foods Holdings Limited (“SkyPeople
BVI”) was a wholly owned subsidiary of the Company and a company organized under the laws of the British Virgin Islands, which
held 100% of the equity interest of HeDeTang Holdings (HK) Ltd. (“HeDeTang HK”), a company organized under the laws of the
Hong Kong Special Administrative Region of the People’s Republic of China (“Hong Kong”), and HeDeTang HK held 73.42%
of the equity interest of SkyPeople Juice Group Co., Ltd., (“SkyPeople (China)”), a company incorporated under the laws of
the PRC. SkyPeople (China) had eleven subsidiaries in the PRC, which were mainly involved in the production and sales of fruit juice
concentrates, fruit juice beverages and other fruit-related products in the PRC and overseas markets. 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 (the “Sale Transaction”). SkyPeople BVI had no operational assets
or business after the transfer and the Company dissolved SkyPeople BVI on July 27, 2020.
Our organizational structure as of December 31,
2022 is set forth in the diagram:
Contractual
Arrangements
Equity
Interest
VIE Contractual Arrangements
On July 31, 2019, Cloud
Chain Network and Technology (Tianjin) Co., Limited (“CCM Network” or “CCM Tianjin”, formerly known as Chain
Cloud Mall Network and Technology (Tianjin) Co., Limited), Cloud Chain E-Commerce (Tianjin) Co., Ltd., formerly known as Chain Cloud
Mall E-Commerce (Tianjin) Co., Ltd. (“E-Commerce Tianjin”), a limited liability company incorporated under the laws of China,
and Mr. Zeyao Xue and Mr. Kai Xu, citizens of China and together 100% shareholders of E-Commerce Tianjin, entered into the following
agreements, or collectively, the “Variable Interest Entity Agreements” or “VIE Agreements,” pursuant to which
CCM Network has contractual rights to control and operate the business of E-commerce Tianjin (the “VIE”). 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 then and currently is the Deputy General Manager of FT Commercial Group Ltd., a wholly owned subsidiary of the Company
and the vice president of blockchain division of the Company. The VIE is consolidated for accounting purposes but is not an entity
in which we own equity.
Pursuant to Chinese
law and regulations, a foreign owned enterprise cannot apply for and hold a license for operation of certain e-commerce businesses. CCM
Network is an indirectly wholly foreign owned enterprise of the Company (“WFOE”). In order to comply with Chinese law and
regulations, CCM Network 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 Network. Although the VIE Contractual Arrangements have been widely adopted by PRC companies
seeking for listing aboard, such arrangements have not been truly tested in any of the PRC courts. There are very few precedents
as to how contractual arrangements in the context of a consolidated variable interest entity should be interpreted or enforced under
PRC laws. In addition, these VIE agreements have not been truly tested in the courts in China and Chinese regulatory authorities could
disallow the VIE structure, which would likely result in a material change in our operations and/or value of our securities, including
that it could cause the value of our securities to significantly decline or become worthless. The VIE structure is used to provide investors
with exposure to foreign investment in China-based companies where Chinese law prohibits or restricts direct foreign investment in certain
types of operating companies, and that investors may never hold equity interests in the VIE. If the consolidated VIE or its shareholders
fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional
resources to enforce such arrangements.
The following is a summary
of the currently effective contractual arrangements relating to E-Commerce Tianjin.
Contractual Arrangements with The Consolidated
Affiliated Entity and Its Respective Shareholders
The contractual
arrangements with the VIE and its shareholders allow us to consolidate financial results of the VIE in our financial statements
because we have satisfied conditions for consolidation of the VIE under U.S. GAAP, pursuant to which E-Commerce Tianjin is
considered a VIE under the Statement of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 810 “Consolidation”, because the equity investments in E-Commerce Tianjin no longer have the
characteristics of a controlling financial interest, and the Company, through CCM Network, is the primary beneficiary of E-Commerce
Tianjin for accounting purposes. A VIE is an entity that either has a total equity investment that is insufficient to finance its
activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling
financial interest, such as through voting rights, right to receive the expected residual returns of the entity. The variable
interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary of, and must
consolidate, the VIE. CCM Network has a controlling financial interest in, receives the economic benefits from, is the primary
beneficiary of and has the power to direct the activities of the VIE to the extent that it has satisfied the conditions for
consolidation of the VIE under U.S. GAAP. Pursuant to the contractual arrangements with CCM Network, E-Commerce Tianjin shall pay
service fees equal to all of its net profit after tax to CCM Network. Such contractual arrangements are designed so that the
E-Commerce Tianjin would operate for the benefit of CCM Network and ultimately, the Company.
As a result of the contractual
arrangements with the VIE, we are regarded as the primary beneficiary of the VIE for accounting purposes, and we treat the VIE and its
subsidiaries as the consolidated affiliated entities under U.S. GAAP. We have consolidated the financial results of the VIE in our consolidated
financial statements in accordance with U.S. GAAP.
Exclusive Technology Consulting and Service
Agreement.
Pursuant to the Exclusive
Technology Consulting and Service Agreement, CCM Network 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 Network 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 and expenses related to the business operations
of E-Commerce Tianjin. Without the prior written consent of CCM Network, 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 Network’s sole and
exclusive property. This agreement has a term of 10 years and may be extended unilaterally by CCM Network with CCM Network’s written
confirmation prior to the expiration date. E-Commerce Tianjin cannot terminate the agreement early unless CCM Network commits fraud,
gross negligence or illegal acts, or becomes bankrupt or winds up.
Exclusive Purchase Option Agreement and Power
of Attorney.
Pursuant to the Exclusive
Purchase Option Agreement, Mr. Zeyao Xue and Mr. Kai Xu granted to CCM Network and any party designated by CCM Network 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 Network
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 Network 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 Network’s designated person under the powers of attorney.
Equity Pledge Agreement.
Pursuant to the
Equity Pledge Agreements, Mr. Zeyao Xue and Mr. Kai Xu pledged all of the Equity Interests to CCM Network 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 Network, 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 Network’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 Network 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.
Spousal Consent Letters. The
spouse of Mr. Kai Xu (Mr. Zeyao Xue is not married), the shareholder of E-Commerce Tianjin has signed a spousal consent letter agreeing
that the equity interests in E-Commerce Tianjin held by and registered under the name of such shareholder will be disposed pursuant to
the contractual agreements with CCM Network. The spouse of such shareholder agreed not to assert any rights over the equity interest
in E-Commerce Tianjin held by such shareholder.
We are a holding company incorporated in Florida.
As a holding company with no material operations of our own, we conduct a substantial majority of our operations through our subsidiaries
and contractual arrangements with the VIE (E-Commerce Tianjin) based in China. The VIE is consolidated for accounting purposes but is
not an entity in which we own equity. The VIE structure is subject to various risks. For example, the contractual arrangements may not
be as effective as direct ownership in providing us with control over E-Commerce Tianjin. We expect to rely on the performance by the
VIE shareholders of their respective obligations under the contracts to exercise control over E-Commerce Tianjin. The VIE shareholders
may not act in the best interests of our company or may not perform their obligations under these contracts. Such risks will exist throughout
the period in which we operate related e-commerce platform business through the contractual arrangements. If any dispute relating to
these contracts remains unresolved, we will have to enforce our rights under these contracts through the operations of PRC law and arbitration,
litigation or other legal proceedings which could be a lengthy process and very costly.
Dividend Distribution and Cash Transfer
Between the Holding Company, Subsidiary and VIE
Our PRC operating entities receive a substantial
part of our revenue in the RMB. Under our current corporate structure, to fund any cash and financing requirements we may have, the Company
may rely on dividend payments from its ten direct wholly-owned subsidiaries. CCM Network will receives payment from E-Commerce Tianjin
when it starts to generate profits, pursuant to the VIE Agreements. Under existing PRC foreign exchange regulations, payments of current
account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies
without prior approval from State Administration of Foreign Exchange or the SAFE by complying with certain procedural requirements. Therefore,
our Chinese subsidiaries are able to pay dividends in foreign currencies to us without prior approval from SAFE, subject to the condition
that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulation, such
as the overseas investment registrations by our shareholders or the ultimate shareholders of our corporate shareholders who are PRC residents.
Approval from or registration with appropriate government authorities is, however, required where the RMB is to be converted into foreign
currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC
government may also at its discretion restrict access in the future to foreign currencies for current account transactions. For the Company
and our subsidiaries in Hong Kong, BVI, Japan, Cayman, UK, Dubai and U.S. (“Non-PRC Entities”), there is no restrictions
on foreign exchange for such entities and they are able to transfer cash among these entities across borders. Also, there is no restrictions
and limitations on the abilities of Non-PRC Entities to distribute earnings from their businesses, including from subsidiaries to the
parent company or from the Company to the U.S. investors.
Current PRC regulations permit our PRC subsidiaries
to pay dividends to the Company only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards
and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year,
if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each such entity in China is also required
to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any,
is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase
the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are
not distributable as cash dividends except in the event of liquidation. Under the existing laws of Hong Kong, funds from capital accounts
can be repatriated and remitted overseas without restrictions, and there is no foreign exchange control imposed.
To the extent cash and/or assets in the business
are in the PRC and/or Hong Kong or our PRC and/or Hong Kong entities, the VIE, and the WFOE, such funds and/or assets may not be available
to fund operations or for other use outside of the PRC and/or Hong Kong due to interventions in or the imposition of restrictions and
limitations on the ability of us or our subsidiaries by the PRC government to transfer cash and/or assets. See “Risk Factor
- We could be restricted from paying dividends to shareholders due to PRC laws and other contractual requirements.” and “Risk
Factor - We could be restricted from paying dividends to shareholders due to PRC laws and other contractual requirements. To the extent
cash and/or assets in the business are in the PRC and/or Hong Kong or our PRC and/or Hong Kong entities, the VIE, and the WFOE, such
funds and/or assets may not be available to fund operations or for other use outside of the PRC and/or Hong Kong due to interventions
in or the imposition of restrictions and limitations on the ability of us or our subsidiaries by the PRC government to transfer cash
and/or assets.” We intend to keep any future earnings to re-invest in and finance the expansion of our business, and we do
not anticipate that any cash dividends will be paid in the foreseeable future. We currently don’t have any cash management policies
and procedures in place that dictate how funds are transferred through our organization. Rather, the funds can be transferred in
accordance with the applicable PRC laws and regulations.
Cash dividends, if any, on our shares of common
stock will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our
overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to
10.0%. Pursuant to the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of
Double Taxation and the Prevention of Fiscal Tax Evasion With Respect to Taxes On Income, or the Double Tax Avoidance Arrangement, the
10% withholding tax rate may be lowered to 5%, if the recipient of the relevant dividends qualifies certain necessary requirements, including
without limitation that (a) the Hong Kong project must be the beneficial owner of the relevant dividends; and (b) the Hong Kong project
must directly hold no less than 25% share ownership in the PRC project during the 12 consecutive months preceding its receipt of the
dividends. The 5% withholding tax rate, however, does not automatically apply and in current practice, a Hong Kong project must obtain
a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax
authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the
tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double
Taxation Arrangement with respect to any dividends paid by our PRC subsidiaries to its immediate holding company, Future FinTech (Hong
Kong) Limited. As of the date of this report, we have not applied for the tax resident certificate from the relevant Hong Kong tax authority.
Future FinTech (Hong Kong) Limited intends to apply for the tax resident certificate if and when its PRC subsidiaries plan to declare
and pay dividends to Future FinTech (Hong Kong) Limited.
During the fiscal years ended December 31, 2022
and 2021, cash transfers between our Company, our subsidiaries, and the VIE were as follows:
Selected Condensed Consolidated Financial
Schedule of the Company and Its Subsidiaries and VIE
The following tables present selected condensed
consolidated financial data of the Company and its subsidiaries and VIE for the years ended December 31, 2022 and 2021, and balance sheet
data as of December 31, 2022 and 2021, which have been derived from our audited consolidated financial statements for those periods.
The Company records its investments in its subsidiaries under the equity method of accounting. Such investments are presented in the
selected condensed consolidated balance sheets of the Company as “Investments in VIE” and the profit of the subsidiaries
is presented as “Income for equity method investment” in the selected condensed consolidated statements of income and comprehensive
income.
Future FinTech Group Inc.
As of December 31, 2022
| |
Future FinTech(1) | | |
WOFE(2) | | |
Parent(3) | | |
Subsidiaries(4) | | |
PRC(5) | | |
Hong Kong subsidiaries(6) | | |
VIE(7) | | |
Eliminations | | |
Consolidated Total(8) | |
Cash | |
| 29,722,486 | | |
| 2,177 | | |
| 8,480,197 | | |
| 1,809,789 | | |
| 16,222,765 | | |
| 3,209,735 | | |
| 12,684 | | |
| - | | |
| 29,735,170 | |
Intercompany receivables | |
| - | | |
| 20,714 | | |
| 168,350,050 | | |
| 1,084,054 | | |
| 26,305,916 | | |
| 21,334,055 | | |
| 307,655 | | |
| (217,381,730 | ) | |
| - | |
TOTAL CURRENT ASSETS | |
| 64,721,998 | | |
| 94,683 | | |
| 177,121,351 | | |
| 5,024,467 | | |
| 61,880,638 | | |
| 38,077,272 | | |
| 328,381 | | |
| (217,381,730 | ) | |
| 65,050,379 | |
Investment in subsidiaries | |
| - | | |
| - | | |
| 2,729,775 | | |
| 1,101,657 | | |
| 1,435,833 | | |
| 51,130,446 | | |
| - | | |
| (56,397,711 | ) | |
| - | |
TOTAL NON CURRENT ASSETS | |
| 19,967,242 | | |
| 134 | | |
| 2,729,775 | | |
| 3,647,349 | | |
| 4,331,362 | | |
| 51,680,383 | | |
| 98 | | |
| (42,421,627 | ) | |
| 19,967,340 | |
TOTAL ASSETS | |
| 84,689,240 | | |
| 94,817 | | |
| 179,851,126 | | |
| 8,671,816 | | |
| 66,212,000 | | |
| 89,757,655 | | |
| 328,479 | | |
| (259,803,357 | ) | |
| 85,017,719 | |
Intercompany payables | |
| | | |
| 1,706,496 | | |
| 802 | | |
| 28,714,374 | | |
| 84,302,045 | | |
| 101,822,055 | | |
| 710,294 | | |
| (215,549,570 | ) | |
| - | |
TOTAL LIABILITIES | |
| 18,379,918 | | |
| 1,756,008 | | |
| 314,387 | | |
| 30,237,905 | | |
| 93,775,031 | | |
| 109,602,165 | | |
| 952,160 | | |
| (215,549,570 | ) | |
| 19,332,078 | |
TOTAL STOCKHOLDERS’ EQUITY | |
| 66,309,322 | | |
| (1,661,191 | ) | |
| 179,536,739 | | |
| (21,566,089 | ) | |
| (27,563,031 | ) | |
| (19,844,510 | ) | |
| (623,681 | ) | |
| (44,253,787 | ) | |
| 65,685,641 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| 84,689,240 | | |
| 94,817 | | |
| 179,851,126 | | |
| 8,671,816 | | |
| 66,212,000 | | |
| 89,757,655 | | |
| 328,479 | | |
| (259,803,357 | ) | |
| 85,017,719 | |
Future FinTech Group Inc.
For the year ended December 31, 2022
| |
Future FinTech(1) | | |
WOFE(2) | | |
Parent(3) | | |
Subsidiaries(4) | | |
PRC(5) | | |
Hong Kong subsidiaries(6) | | |
VIE(7) | | |
Eliminations | | |
Consolidated Total(8) | |
Revenues | |
| 23,878,818 | | |
| - | | |
| - | | |
| 51,000 | | |
| 10,131,137 | | |
| 13,696,681 | | |
| 2,188 | | |
| - | | |
| 23,881,006 | |
Cost of goods/services | |
| 18,485,560 | | |
| - | | |
| - | | |
| 30,000 | | |
| 9,773,366 | | |
| 8,682,194 | | |
| - | | |
| - | | |
| 18,485,560 | |
Other material expenses | |
| 22,229,470 | | |
| 51,629 | | |
| 4,601,483 | | |
| 8,801,251 | | |
| 3,663,973 | | |
| 2,947,938 | | |
| 279,523 | | |
| 2,214,825 | | |
| 22,508,993 | |
Subtotals | |
| (16,836,212 | ) | |
| (51,629 | ) | |
| (4,601,483 | ) | |
| (8,780,251 | ) | |
| (3,306,202 | ) | |
| 2,066,549 | | |
| (277,335 | ) | |
| (2,214,825 | ) | |
| (17,113,547 | ) |
Net Income (Loss) | |
| (14,039,598 | ) | |
| 51,900 | | |
| (4,673,362 | ) | |
| (8,370,070 | ) | |
| (1,550,548 | ) | |
| 2,769,361 | | |
| (276,766 | ) | |
| (2,214,979 | ) | |
| (14,316,364 | ) |
Comprehensive Income ( Loss) | |
| (17,496,232 | ) | |
| (328,909 | ) | |
| (4,673,362 | ) | |
| (8,370,070 | ) | |
| (7,222,162 | ) | |
| 2,769,361 | | |
| 154,726 | | |
| - | | |
| (17,341,507 | ) |
Future FinTech Group Inc.
For the year ended December 31, 2022
| |
Future FinTech(1) | | |
WOFE(2) | | |
Parent(3) | | |
Subsidiaries(4) | | |
PRC(5) | | |
Hong Kong subsidiaries(6) | | |
VIE(7) | | |
Eliminations | | |
Consolidated Total(8) | |
Net cash provided by (used in) operating activities | |
| (2,511,303 | ) | |
| 335,656 | | |
| (27,533,588 | ) | |
| (30,869,964 | ) | |
| (996,606 | ) | |
| 56,888,855 | | |
| (179,342 | ) | |
| - | | |
| (2,690,645 | ) |
Net Cash Used in Investing Activities | |
| (14,128,360 | ) | |
| - | | |
| - | | |
| (7,683,514 | ) | |
| (96,791 | ) | |
| (6,348,055 | ) | |
| (63,265 | ) | |
| - | | |
| (14,191,625 | ) |
Net Cash Provided by Financing Activities | |
| (251,692 | ) | |
| - | | |
| - | | |
| (63,477 | ) | |
| (188,215 | ) | |
| - | | |
| - | | |
| - | | |
| (251,692 | ) |
Future FinTech Group Inc.
As of December 31 2021
| |
Future FinTech(1) | | |
WOFE(2) | | |
Parent(3) | | |
Subsidiaries(4) | | |
PRC(5) | | |
Hong Kong subsidiaries(6) | | |
VIE(7) | | |
Eliminations | | |
Consolidated Total (8) | |
Cash | |
| 50,262,855 | | |
| 3,208 | | |
| 36,013,785 | | |
| 1,735,353 | | |
| 11,385,955 | | |
| 1,127,762 | | |
| 10,662 | | |
| - | | |
| 50,273,517 | |
Intercompany receivables | |
| | | |
| 91,648 | | |
| 145,935,113 | | |
| - | | |
| 16,528,820 | | |
| 21,606,086 | | |
| 399,594 | | |
| (184,469,613 | ) | |
| - | |
TOTAL CURRENT ASSETS | |
| 72,282,967 | | |
| 174,690 | | |
| 181,977,108 | | |
| 3,627,337 | | |
| 40,615,756 | | |
| 31,110,930 | | |
| 438,088 | | |
| (185,048,164 | ) | |
| 72,721,055 | |
Investment in subsidiaries | |
| - | | |
| - | | |
| 373,366 | | |
| 153,259 | | |
| 1,568,455 | | |
| 42,943,083 | | |
| - | | |
| (45,038,163 | ) | |
| - | |
TOTAL NON CURRENT ASSETS | |
| 18,899,330 | | |
| 37,590 | | |
| 373,366 | | |
| 649,526 | | |
| 4,341,708 | | |
| 42,989,219 | | |
| 36,700 | | |
| (29,454,489 | ) | |
| 18,936,030 | |
TOTAL ASSETS | |
| 91,182,297 | | |
| 212,280 | | |
| 182,350,474 | | |
| 4,276,863 | | |
| 44,957,464 | | |
| 74,100,149 | | |
| 474,788 | | |
| (214,502,653 | ) | |
| 91,657,085 | |
Intercompany payables | |
| | | |
| 1,917,979 | | |
| - | | |
| 20,090,419 | | |
| 79,878,750 | | |
| 87,889,375 | | |
| 601,915 | | |
| (188,460,459 | ) | |
| - | |
TOTAL LIABILITIES | |
| 9,938,826 | | |
| 1,972,157 | | |
| 313,363 | | |
| 20,297,678 | | |
| 82,134,085 | | |
| 96,232,710 | | |
| 864,101 | | |
| (189,039,010 | ) | |
| 10,802,927 | |
TOTAL STOCKHOLDERS’ EQUITY | |
| 81,243,471 | | |
| (1,759,877 | ) | |
| 182,037,111 | | |
| (16,020,815 | ) | |
| (37,176,621 | ) | |
| (22,132,561 | ) | |
| (389,313 | ) | |
| (25,463,643 | ) | |
| 80,854,158 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| 91,182,297 | | |
| 212,280 | | |
| 182,350,474 | | |
| 4,276,863 | | |
| 44,957,464 | | |
| 74,100,149 | | |
| 474,788 | | |
| (214,502,653 | ) | |
| 91,657,085 | |
Future FinTech Group Inc.
For the year ended December 31 2021
| |
Future FinTech(1) | | |
WOFE(2) | | |
Parent(3) | | |
Subsidiaries(4) | | |
PRC(5) | | |
Hong Kong subsidiaries(6) | | |
VIE(7) | | |
Eliminations | | |
Consolidated Total(8) | |
Revenues | |
| 25,044,142 | | |
| - | | |
| - | | |
| - | | |
| 34,034,661 | | |
| 5,315,708 | | |
| 6,659 | | |
| (14,306,227 | ) | |
| 25,050,801 | |
Cost of goods/services | |
| 23,242,882 | | |
| - | | |
| - | | |
| - | | |
| 33,524,791 | | |
| 4,024,318 | | |
| 6,054 | | |
| (14,306,227 | ) | |
| 23,248,936 | |
Other material expenses | |
| 14,879,235 | | |
| 66,955 | | |
| 11,401,929 | | |
| 2,564,823 | | |
| 2,260,575 | | |
| 1,479,272 | | |
| 131,214 | | |
| (2,827,364 | ) | |
| 15,010,449 | |
Subtotals | |
| (13,077,975 | ) | |
| (66,955 | ) | |
| (11,401,929 | ) | |
| (2,564,823 | ) | |
| (1,750,705 | ) | |
| (187,882 | ) | |
| (130,609 | ) | |
| 2,827,364 | | |
| (13,208,584 | ) |
Net Income (Loss) | |
| (14,117,924 | ) | |
| 341,357 | | |
| (11,413,830 | ) | |
| (2,584,775 | ) | |
| (523,733 | ) | |
| (235,699 | ) | |
| (88,001 | ) | |
| 640,113 | | |
| (14,205,925 | ) |
Comprehensive Income ( Loss) | |
| (14,349,766 | ) | |
| 385,623 | | |
| (11,413,830 | ) | |
| (2,584,775 | ) | |
| (115,462 | ) | |
| (235,699 | ) | |
| (56,007 | ) | |
| - | | |
| (14,405,773 | ) |
Future FinTech Group Inc.
For the year ended December 31 2021
|
|
Future
FinTech
(1) |
|
|
WOFE (2) |
|
|
Parent(3) |
|
|
Subsidiaries(4) |
|
|
PRC(5) |
|
|
Hong Kong
subsidiaries(6) |
|
|
VIE(7) |
|
|
Eliminations |
|
|
Consolidated
Total(8) |
|
Net cash provided by (used in) operating activities |
|
|
(17,378,033 |
) |
|
|
(44,014 |
) |
|
|
29,838,415 |
|
|
|
2,981,154 |
|
|
|
(56,152,939 |
) |
|
|
5,955,337 |
|
|
|
4,439 |
|
|
|
- |
|
|
|
(17,373,594 |
) |
Net Cash Used in Investing Activities |
|
|
(11,144,882 |
) |
|
|
- |
|
|
|
- |
|
|
|
(586,913 |
) |
|
|
(4,797,486 |
) |
|
|
(5,760,483 |
) |
|
|
(36,105 |
) |
|
|
- |
|
|
|
(11,180,987 |
) |
Net Cash Provided by Financing Activities |
|
|
69,274,810 |
|
|
|
- |
|
|
|
(1,163,146 |
) |
|
|
- |
|
|
|
70,437,956 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
69,274,810 |
|
(1) |
Future FinTech:all
companies except for VIE. |
(2) |
WFOE: Cloud Chain Network and Technology (Tianjin) Co., Limited,
the wholly foreign owned entity of the Company that is the primary beneficiary of the VIE. |
(3) |
Parent:the
holding company, i.e. Future FinTech Group Inc. |
(4) |
Subsidiaries:all
subsidiaries except for VIE, subsidiaries in PRC, Future FinTech (Hong Kong) Limited and Nice Talent Asset Management Limited in
Hong Kong. |
(5) |
PRC:all
subsidiaries in China except for VIE. |
(6) |
Hong Kong subsidiaries:Future
FinTech (Hong Kong) Limited and Nice Talent Asset Management Limited. |
(7) |
VIE:E-Commerce
Tianjin. |
(8) |
Consolidated Total:all
companies included. |
Impact of COVID-19 on our Business
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. In response to the evolving dynamics related to the COVID-19 outbreak, the Company followed
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 the employees worked from home at the end of January 2020 until late March 2020. The
quarantines, travel restrictions, and the temporary closure of office buildings have materially 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 continue to be negatively impacted by the
outbreak, which in turn adversely affects the business of our platform as a whole as well as our financial condition and operating
results. The outbreak has had and continues to have disruption to our supply chain, logistics providers, customers or our marketing
activities with the new variants of COVID-19, which could materially adversely impact our business and results of operations,
especially to our supply chain financing and trading business during the first quarter of 2022. There was outbreak in various cities
and provinces due to Omicron variant in Xi’an city, Hong Kong, Shanghai and Beijing in 2022, which have resulted quarantines,
travel restrictions, and temporary closure of office buildings and facilities in these cities. In December 2022, the Chinese
government eased its strict zero COVID-19 policy which resulted in a surge of new COVID-19 cases during December 2022 and January
2023, which has disrupted our business operations in China. The Company’s promotion strategy of CCM Shopping Mall previously
mainly relied on the training of members and distributors through meetings and conferences. Chinese government put a restriction on
large gatherings in 2020 and 2021, which made the promotion strategy for our online e-commerce platforms difficult to implement and
the Company experienced difficulties to subscribe new members for its online e-commerce platforms. Due to the lack of new
subscribers, in June 2021, the Company suspended its cross-border e-commerce platform NONOGIRL which has been closed now. Also,
since the second quarter of 2021, the Company has transformed its member-based Chain Cloud Mall to a sale agent based eCAAS platform
and began to provide supply chain financing services.
The global economy has
also been materially negatively affected by the COVID-19 and there is continued uncertainty about the duration and intensity of its impacts.
The Chinese and global growth forecast is extremely uncertain, which would seriously affect our business.
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
negatively affect our business and the value of our common stock.
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. We currently believe that our financial resources will be adequate to see us
through the outbreak. However, in the event that we do need to raise capital in the future, outbreak-related instability in the securities
markets could adversely affect our ability to raise additional capital.
Consequently, our results
of operations have been materially and adversely affected by COVID-19 pandemic. Any potential further 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, new
variants of COVID-19, the 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.
Company Strategy and Principal Products and
Services
Our core business historically has been in the production and sale
of fruit juice concentrates (including fruit purees and fruit juices), fruit beverages (including fruit juice beverages and fruit cider
beverages) in the PRC and internationally. Due to drastically increased production cost and tightened environmental laws in China, the
Company has transformed its main business from fruit juice manufacturing and distribution to a real-name blockchain e-commerce platform
that integrates blockchain and internet technology in fiscal year 2019. The e-commerce platform contributed 93.7% to the total revenue
for fiscal year 2020. Due to the outbreak of COVID-19, the Chinese government put a restriction on large gatherings. These restrictions
made the promotion strategy for our online e-commerce platforms difficult to implement and the Company experienced difficulties to subscribe
new members for its online e-commerce platforms. Due to the lack of new subscribers, since the second quarter of 2021, the Company has
transformed its member-based business model of Chain Cloud Mall to a sale agent based eCAAS platform and began to provide supply chain
financing services and trading of coal for coal mines and power generation plants as well as aluminum ingots. Also, the Company acquired
90% of the issued and outstanding shares of NTAM, a Hong Kong-based asset management company in August 2021. NTAM is licensed under the
Securities and Futures Commission of Hong Kong (“SFC”) to carry out regulated activities in Type 4: Advising on Securities
and Type 9: Asset Management. During the fiscal year of 2021, the supply chain financing and wealth management business of NTAM contributed
78.75% and 21.22% of our revenues, respectively. During the fiscal year of 2022, the supply chain financing and wealth management business
of NTAM contributed 42.33% and 57.08% of our revenues, respectively.
On September 29, 2022, FTFT UK Limited completed
its acquisition of 100% of the issued and outstanding shares of Khyber Money Exchange Ltd., a company incorporated in England and Wales,
from Rahim Shah, a resident of United Kingdom for a total of Euros €685,000 (“Purchase Price”), pursuant to a Share
Purchase Agreement (the “Agreement”) dated September 1, 2021. Khyber Money Exchange Ltd. is a money transfer company with
a platform for transferring money through one of its agent locations or via its online portal, mobile platform or over the phone. Khyber
Money Exchange Ltd. is regulated by the UK Financial Conduct Authority (FCA) and the parties received approval by the FCA before the
formal closing of the transaction.
In December 2021, FTFT Capital Investments, LLC
officially launched FTFTX, a cryptocurrency market data platform that provides investors with real-time cryptocurrency market data and
trading information from a large number of cryptocurrency exchanges. The market data is available for Bitcoin, ETH, EOS, Litecoin, TRON
and other cryptocurrencies at https://www.ftftx.com and via the FTFTX App on iOS and Android devices. The FTFTX app is free to download
on Google Play and the Apple Store.
In March 2022, FTFT UK Limited received has received approval to operate
as an Electronic Money Directive (“EMD”) Agent and has been registered as such with the Financial Conduct Authority (FCA),
a UK regulator. This status grants FTFT UK Limited the ability to distribute or redeem e-money and provide certain financial services
on behalf of an e-money institution (registration number 903050).
On February 27, 2023,
Future FinTech (Hong Kong) Limited (“Buyer”), a company incorporated in Hong Kong and a wholly owned subsidiary of Future
FinTech Group Inc. (the “Company”) entered into a Share Transfer Agreement (the “Agreement”) with Alpha Financial
Limited, a company incorporated in Hong Kong (“Seller”) and sole owner and shareholder of Alpha International Securities
(Hong Kong) Limited, a company incorporated in Hong Kong (“Alpha HK”) and Alpha Information Service (Shenzhen) Co., Ltd.,
a company incorporated in China (“Alpha SZ”). Alpha HK holds Type 1 ‘Securities Trading’, Type 2 ‘Futures
Contract Trading’ and Type 4 ‘Securities Consulting’ financial licenses issued by the Hong Kong Securities and Futures
Commission. Alpha SZ provides technical support services to Alpha HK.
The Company is in the
process of transition and developing its financial technology related business, including asset management, supply chain financial services,
digital banking, financial services and payment services, blockchain based e-commerce, and cryptocurrency market data services.
Chain Cloud Mall (CCM)
The trial operation of CCM started on December
26, 2018. On January 22, 2019, the Company formally launched Chain Cloud Mall, the real-name and membership-based blockchain shared shopping
mall platform that integrates blockchain and internet technology. On June 1, 2019, CCM v2.0 was launched and on May 1, 2020, CCM v3.0
was launched. The blockchain technology enables CCM to record every event or transaction on a distributed ledger and makes the whole
process traceable. It also enables the CCM to record and provide CCM points to its members upon a successful new member and/or product
referral, which can be used as credit when making purchases on CCM. It incentivizes its members to promote the platform and share the
products with their social contacts, which in turn increases the sales through CCM.
Due to the outbreak of COVID-19 in early 2020, the
Chinese government put a restriction on large gatherings. These restrictions made the promotion strategy for our 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 the lack of new subscribers, since the second quarter of 2021, the Company has transformed its member-based business model of CCM
to a sale agent based eCAAS platform.
Currently, Chain Cloud Mall adopts an “Enterprise
Communication as A Service” or eCAAS platform which is a part of 3.15 China Responsible Brand Program run by the Anti-Counterfeiting
Committee of China Foundation of Consumer Protection (the “Anti-Counterfeiting Committee”). Anti-Counterfeiting Committee
reviews and accepts the companies to join its 3.15 China Responsible Brand Program. After acceptance, these companies are authorized
to use anti-counterfeiting labels on their products which have authenticated signatures of these companies and Anti-Counterfeiting Committee
recorded on the blockchain quality and safety traceability system controlled by the Anti-Counterfeiting Committee. The companies will
sell such products on our eCAAS platform. The companies can also use sales agents to sell their products on our eCAAS platform and parties
can negotiate the commission percentages for the products sold. Any new sales agent must be recommended by existing agents and pay a
one-time fee to the eCAAS platform to be admitted as the authorized agent to provide sales agent services on the platform.
Coal and Aluminum
Ingots Supply Chain Financing Service and Trading
Since the second quarter
of 2021, we started coal supply chain financing service and trading business. Since the third quarter of 2021, we started aluminum ingots
supply chain financing service and trading business.
Our supply chain finance business mainly serves
the receivables and payables of industrial customers, obtains the creditor’s rights or commodity goods rights of large state-owned
enterprises through trade execution, provides customers with working capital, accelerates capital turnover, and then expands the business
scale and improves the industrial value.
Through our supply chain service ability and
customer resources, we can tap into low-risk assets, flexibly carry out financial services around the actual financial needs of certain
industries, and reduce the overall risk of the business by using the control of business flow, goods logistics and capital flow in the
process of commodity circulation.
We focus on bulk coal and aluminum ingots an
take large state-owned or listed companies as the core service targets; We use our own funds as the operation basis, actively uses a
variety of channels and products for financing, such as banks, commercial factoring companies, accounts receivable, asset-backed securities,
and other innovative financing methods to obtain sufficient funds.
We sign purchase and sale agreements with suppliers and buyers. The
suppliers are responsible for the supply and transportation of coal to the end users’ designated freight yard or transfer the title
of aluminum ingots to us in certain warehouses. We also provide trading service as we don’t take control over the ownership of the
goods but receive lower margin for the transaction. We select the customers and suppliers that have good credit and reputation.
The Company’s revenues are substantially reported on a net basis
as the supply chain service is primarily responsible for providing the underlying supply chain service and the Company does not control
the service provided by the supply chain supplier to the customer.
Asset Management
Service.
NTAM was founded in 2018 and it engages asset
management and advisory services. NTAM is licensed under the Securities and Futures Commission of Hong Kong (SFC) for carrying out regulated
activities in “Advising on Securities” and “Asset Management”. NTAM offers diversified asset management portfolio
for professional investors. Assets of NTAM’s clients are held in banks, where clients gave the banks their authorization allowing
NTAM to place trading instructions on behalf of the clients in order to manage the clients’ assets.
NTAM mainly engages in following asset management services for its
clients:
(1) Equity Investment
NTAM manages clients’ investment portfolio
in stocks of the companies listed on the international market with strong liquidity. At the same time, it selects companies that have
unique or differentiated businesses, realizing above average profit growth.
(2) Debt investment
When NTAM manages clients’ investment portfolio
in bonds that are denominated in major international currencies such as US dollar, euro and sterling, the issuer of debts shall have
good credit rating and asset liability ratio. Through active management, NTAM focus in bonds with higher yield to maturity among bonds
with the same maturity and credit rating.
(3) Precious metals and currencies investment
NTAM also manages clients’ investment portfolio
in major international currencies and precious metals, including US dollar, euro, British pound, Japanese yen, Australian dollar and
offshore Chinese yuan. Precious metals include gold, platinum and silver. With research on the fundamentals of market supply and demand
to predict the trend of commodity prices, NTAM endeavors to improve the rate of return for clients through dual currency investment,
options and structured products.
(4) Derivative Investment
NTAM also manages clients’ investment portfolio
in financial derivatives in different asset classes, such as options and structured products.
(5) External Asset Management Services (EAM)
This business takes customer demand as the service
purpose, cooperates with several private banks which provide asset custody services, and innovatively introduces the function of investment
bank to provide exclusive private solutions for our clients.
NTAM’s main revenue is generated from
providing professional advices to clients and management fees for managing the investment of the clients. As of March 15, 2023,
NTAM has approximately US$300 million assets under its management.
Money Transfer Business
FTFT Finance UK Limited (“FTFT Finance”) formerly known
as Khyber Money Exchange Ltd. was acquired by FTFT UK Limited in September 2022. It is regulated by UK Financial Conduct Authority
(“FCA”) for its cross-border money transfer systems and service. FTFT Finance was incorporated in 2009 and is a pioneer in
the UK for money remittance services. FTFT Finance provides money transfer services through its platform to transfer money around the
world via one of its agent locations or its online portal, mobile platform, or over the phone. FTFT Finance is headquartered in the UK
and it has a trade name of FTFT Pay. FTFT Finance’s plan is to develop products and services across different regions of the world
and become a global name in money remittance services.
FTFT Finance is a financial platform that enables its customers to
send their hard-earned money to their country of origin, or any other country of their liking, with ease and at a reasonable cost, transparent
exchange rate and without any hidden charges. We believe that it is our understanding of our customers and their diverse backgrounds
that has helped FTFT Finance to become a credible and trustworthy money remittance business. The FTFT Pay platform and system support
direct connections to over 130 countries and their local banks, targeting customers with transfer destinations based in prominent countries
across the Middle East and Southeast Asia.
Remittance service is a highly saturated market in the United Kingdom.
There are many companies that offer remittance services however FTFT Finance only sees Ace Money Transfer, Wise (formerly known as Transfer
Wise), Remitly and Remit World as its main competitors.
FTFT Finance has an edge over companies like wise in many different
ways, for example, FTFT Finance offers competitive rates for its services and does not charge customer fees for remittance to Pakistan as it receives
its rebate from local banks. This approach provides
gives us an advantage over our competitors.
In the Year 2022, the total UK Remittance Market
was estimated to be valued at $49.55 billion with a growth rate of 6.0% according to a report of Remittance Brave Global Headwinds of World Bank in November
2022. It is also estimate that
by the year 2027 the UK’s remittance market will be $66.5 billion according to the UK remittance statistics from Finder.com.
Expats living in the United Kingdom often
send money to their relatives either to support them, or for emergency uses or weddings. The UK has a large migrant population of
Indians, Pakistanis and Bangladeshis.
FTFT Finance has been in money remittance business since 2009 and
has over 500,000 customers. FTFT Finance advertises through Instagram, Twitter, Facebook and LinkedIn in order to reach out to new customers.
FTFT Finance implemented email marketing, in which they email customers daily to keep them updated on their account, transactions as
well as marketing and promotions.
The management of FTFT Finance are currently engaged in talks with
different PR companies to kick start a new campaign under FTFT Finance brand name as all previous campaigns were under Khyber Money Exchange
brand.
Competition and our Competitive Advantages
E-Commerce Market in China
The e-commerce industry in China is intensely
competitive. Our competitors include all major e-commerce companies in China, and other internet companies that engage in social e-commerce
businesses.
We anticipate that the e-commerce industry will
continually evolve and will continue to experience rapid technological change, evolving industry standards, shifting customer requirements,
and frequent innovation. We must continually innovate to remain competitive.
We have a unique real-name based blockchain e-commerce
shopping platform that integrates blockchain, internet technology and distinguishes itself through its eCAAS platform which is a part
of 3.15 China Responsible Brand Program run by the Anti-Counterfeiting Committee of China Foundation of Consumer Protection. Our platform
utilizes technologies that read the authenticated signatures of the companies and Anti- Counterfeiting Committee on the products that
are recorded on the blockchain quality and safety traceability system controlled by the Anti-Counterfeiting Committee. We work closely
with Anti-Counterfeiting Committee of the China Foundation of Consumer Protection which is the first and only organization that is approved
by China’s Ministry of Civil Affairs that specializes in anti- counterfeiting in China.
Asset Management Market in Hong Kong
We believe NTAM has the following competitive
advantages in the asset management market in Hong Kong:
(1) Provide customers with comprehensive and
professional financial services
NTAM currently holds Type 4 (Securities Advisory)
and Type 9 (Asset Management) regulated activity licenses issued by the Hong Kong Securities and Futures Commission. It can provide a
series of professional financial services for customers, including providing financial advisory services, and various capital entrusted
investment management services for the investment in the companies and instruments listed or unlisted on the stock exchanges in Hong
Kong, mainland China and worldwide.
(2) Simple and efficient management structure
Compared with the multi-level structure with
multiple approval procedures by other large firms, NTAM adopts a more concise and efficient direct reporting system. Each business team
can directly report the business to the board of directors of NTAM, which provides fast and efficient services for the company’s
customers, quickly responds to the changes of market conditions, timely seizes market investment opportunities and responds to adverse
factors.
(3) An experienced and diligent management team
The senior managers in NTAM have many years of
experience in private banks and accounting firms and some of them have been in the asset management industry for more than 10 years.
The management team has a comprehensive vision and efficient execution ability, and can bring more incremental business to the company
with their professional advantages and personal resources.
(4) Maintain close and stable relationship with
customers
NTAM has established a close and stable
business relationship with its existing customers and understood their long-term business objectives, strategies and preferences, so
that it can provide customized advisory and asset management services to the customers. NTAM believes its market reputation and
existing customers’ confidence in the company can promote customers to introduce and bring new customers.
Supply Chain Finance Market in China
We believe our supply chain finance business
has the following competitive strengths and set us apart from our competitors:
(1) Independent risk control management system
At the beginning of its establishment, we established
a complete and independent risk control management system for our supply chain fiancé business, and have strictly implemented
the unified and comprehensive risk control management for customer access, contract signing, business execution, and capital allocation.
(2) High-quality customer groups
The criteria for our corporate clients are generally
the wholly owned or controlled subsidiaries of large state-owned companies or publicly listed companies. At present, our customers are
mainly in the coal and metal industries, power generation and heating industries, which includes subsidiary of China Datang Corporation,
one of the five large-scale power generation enterprises in China.
(3) Standardization of financing process and
system
To improve operational efficiency and decision-making
timeliness, we have established a standardized financing process and system to provide supply chain finance and services.
(4) Access to capital market
One of the key elements to the supply chain finance
is to have access to sufficient funds in order to expand its business and increase number of clients. Our supply chain business will
take the advantage as a subsidiary of the public company of Future FinTech as well as its other financial technology business development
to obtain enough funds for its further development and provide comprehensive financial services to its clients.
Money Transfer Market in UK
Remittance service is a highly saturated market in the United Kingdom.
There are many companies that offer remittance services however FTFT Finance only sees Ace Money Transfer, Wise (formerly known as Transfer
Wise), Remitly and Remit World as its main competitors.
FTFT Finance has an edge over companies like
wise in many different ways, for example, FTFT Finance offers competitive rates for its services and it does not charge customer
fees for remittance to Pakistan as it receives its rebate from local banks. This approach provides gives us an advantage over our competitors.
Industry and Principal Markets
E-Commerce Market in China
According to emarketer data, the global e-commerce
market is expected to reach US$5.5 trillion in 2022. China is leading the global e-commerce market, with online sales of nearly $4.61
trillion in 2022, accounting for half of the total global e-commerce market. The United States, which ranks second in the world, is expected
to have a total e-commerce market of about US$890 billion in 2022. In addition, China’s digital consumers reached 842 million,
accounting for 38% of the global total, ranking first in the world. In terms of retail, 56.3% of China’s retail transactions
come from e-commerce, and China is the first country in history where online retail sales exceed offline retail sales.
Asset Management Market in Hong Kong
According to a report by Research Office Information
Services Division Legislative Council Secretariat on April 30, 2021, asset management is an important pillar for Hong Kong as an international
financial center. While Hong Kong serves as the gateway for overseas investors to invest in the mainland China, it also serves as the
gateway for the mainland investors to invest in overseas markets at the same time. This has contributed to the rapid development of the
asset management industry in Hong Kong. According to the latest available information, asset management accounted for 1.0% of Hong Kong’s
Gross Domestic Product in 2017. As at end-2020, there were 1,914 companies licensed by or registered with the Securities and Futures
Commission (“SFC”) to carry out asset management business, representing an increase of 78% over 2014. Over the same period,
the number of individuals licensed for asset management also grew from 7,729 to 13,074. The thriving development of the sector is also
reflected in the rising trend in the revenue received by the industry. According to the Census and Statistics Department of Hong Kong,
the business receipts index for the industry increased to 135 in 2020, representing an increase of 45% over 2014. According to a survey
by SFC, Hong Kong’s asset management business amounted to HK$17.9 trillion (approximately US$2.29 trillion) as at end-2019. Within
the industry, licensed corporations (e.g. fund houses) were the major market players, accounting for 87% of the total business. This
was followed by registered institutions (i.e. banks engaging in asset management business) (7%) and insurance companies (6%).
Supply Chain Finance Market in China
Supply chain finance has become an important
financing channel for small and medium-sized enterprises in China. Although China started late in supply chain finance, thanks to the
favorable regulatory environment and good economic development, the scale of China’s supply chain financial market reached RMB 32.2 trillion (approximately US$4.6 trillion) in 2022 according to the Overview Survey and Development Strategy Research Consulting
Report for China Supply Chain Finance Industry 2021-2027 by Zhongyan Puhua Industry Research Institute.
The market participants in supply chain finance
business in China are diversified, among which supply chain management service companies, internet financial platforms and business sections
of commercial banks have a total market share of nearly 60%, according to the 2021 China Supply Chain Finance Market Forecast and Investment
Strategy Planning Analyst Report by Qianzhan Industry Research Institute.
Since 2021, the performance of bulk commodities
has been particularly strong. Affected by COVID-19 pandemic and related supply chain disruption, economic recovery, monetary easing and
the carbon emission control goal, the prices of bulk commodities have been rising, among which the price of coal has reached a new high
in 2021. In this context, the active trading situation and market demand provide a good business environment for commodity supply chain
enterprises.
Commodity supply chain is an important part of
modern economic system. The development of China’s bulk commodity supply chain is conducive to the optimal allocation of bulk commodity
resources and further enhance China’s competitiveness and voice in the global bulk commodity market.
In recent years, thanks to good economic development
and favorable policy support, China’s supply chain financial market has developed rapidly. The scale of supply chain financial
market in China has increased from RMB 16.7 trillion in 2016 to RMB 28.6 trillion in 2021, with an average annual compound growth rate
of 10.5%. The market scale in 2023 is expected to be the same as that in 2022, which was approximately RMB32.2 trillion. With the recovery of the
economy after negative impact caused by COVID-19 in 2022, the supply chain finance industry will continue to expand. The rapid development
of the downstream demands help the growth of the supply chain finance industry. It is estimated that the compound annual growth rate (CAGR)
of the market size of China’s supply chain finance industry will be 7% from 2022 to 2027. By 2027, the market size of China’s supply
chain finance industry will reach RMB 42.9 trillion. (According to the Overview Survey and Development Strategy
Research Consulting Report for China Supply Chain Finance Industry 2021-2027 by Zhongyan Puhua Industry Research Institute.)
The Chinese government has regarded the
development of supply chain finance as an effective way to promote the real economy and supply chain industry. The Guideline
Opinions of Promoting Supply Chain Finance to Serve the Real Economy issued by China Banking and Insurance Regulatory Commission in
2019 and the Opinions on Management of the Development of Supply Chain Finance to Support the Stable Business Cycle and Optimized
Upgrade for Supply Chain Industry jointly issued by the People’s Bank of China, the Ministry of Industry and Information
Technology (“MIIT”), the Ministry of Commerce, China Banking and Insurance Regulatory Commission and four other
regulatory departments in 2020 are designed to encourage and promote the development of supply chain industry.
Money Transfer Market in UK
In the Year 2022, the total UK Remittance Market
was estimated to be valued at $49.55 billion with a growth rate of 6.0% according to a report of Remittance Brave Global Headwinds of World Bank in November
2022. It is also estimate that
by the year 2027 the UK’s remittance market will be $66.5 billion according to the UK remittance statistics from Finder.com.
Expats living in the United Kingdom often send
money to their relatives either to support them, or for emergency uses or weddings. The UK has a large migrant population of Indians,
Pakistanis and Bangladeshis.
Marketing and Sales
Due to the lack of new
member subscriptions caused by restrictions on our promotion strategy for the control of spread of COVID-19, we have transformed the
CCM shopping mall to an “Enterprise Communication as A Service” or eCAAS platform. The eCAAS platform is entrusted by the
Anti-Counterfeiting Committee of the China Foundation of Consumer Protection (the “Anti-Counterfeiting Committee”) to run
its 3.15 China Responsible Brand Program.
Anti-Counterfeiting
Committee will review and accept the companies to join its 3.15 China Responsible Brand Program. After acceptance, these companies are
authorized to use anti-counterfeiting labels on their products and sell them on our eCAAS platform. The companies can also use sales
agents to sell their products on our eCAAS platform and parties can negotiate the commission percentages for the products sold. Any new
sales agent must be recommended by existing agents and pay a one-time fee to the eCAAS platform to be admitted as the authorized agent
to provide sales agent services on the platform.
We market our supply chain financing services
to large state-owned or controlled enterprises and public company, with a focus on energy and metal industries. Our supply chain finance
business has established a high-quality team that fully understands our strategy and market situation and is sensitive to market changes
to find target customers and expand our business. Based on standardized operation, our team has established a good reputation in the
cooperation with existing customers, and to reach out to their respective upstream and downstream business partners to expand our business
scope.
NTAM has multidimensional flexible layout for
its business development. It manages clients’ investment portfolio in a diversified manner across multiple asset classes in global
markets. The type and proportion of positions are determined according to the long-term and short-term investment goals of investors
and other market factors. In terms of specific operation, NTAM relies on solid investment and research ability to flexibly adjust its
position and avoid the price fluctuation of its subject matter caused by risk events. NTAM also uses “License + talent” to
maintain core competitiveness. With its Type 4 (Securities Advisory) and Type 9 (Asset Management) licenses issued by the Hong Kong Securities
and Futures Commission, NTAM continues to take the advantages of such licenses to optimize its business structure, expand the business
scale, actively expand business opportunities in different regions, continue to recruit outstanding talents in the industry, and introduce
incentive measures for the senior management, so as to maintain the development vitality of the company, continuously strengthening the
core competitiveness. NTAM runs its risk management system throughout its core business operations and continuously evaluates the potential
risks that may cause impact in the daily operation of its business segment, including evaluating the effectiveness of existing internal
control measures, whether they are sufficient to deal with potential risks and whether they need to be supplemented. The relevant review
results are entered in time to analyze the potential strategic impact, so that the internal control measures can be more effective and
timely, and ensure the steady operation of the company while developing rapidly.
FTFT Finance has been in money remittance business since 2009 and
has over 500,000 customers. FTFT Finance advertises through Instagram, Twitter, Facebook and LinkedIn in order to reach out to new
customers. FTFT Finance implemented email marketing, in which they email customers daily to keep them updated on their account,
transactions as well as marketing and promotions. The management of FTFT Finance are currently engaged in talks with different PR
companies to kick start a new campaign under FTFT Finance brand name as all previous campaigns were under Khyber Money Exchange
brand.
Government Regulations
Regulations on Cybersecurity Review
On December 28, 2021, Cybersecurity Review Measures
was published by Cyberspace Administration of China or the CAC, National Development and Reform Commission, Ministry of Industry and
Information Technology, Ministry of Public Security, Ministry of State Security, Ministry of Finance, Ministry of Commerce, People’s
Bank of China, State Administration of Radio and Television, China Securities Regulatory Commission, State Secrecy Administration and
State Cryptography Administration, effective on February 15, 2022, which provides that, Critical Information Infrastructure Operators
(“CIIOs”) that purchase internet products and services and Online Platform Operators engaging in data processing activities
that affect or may affect national security shall be subject to the cybersecurity review by the Cybersecurity Review Office. On November
14, 2021, CAC published the Administration Measures for Cyber Data Security (Draft for Public Comments), or the “Cyber Data Security
Measure (Draft)”, which requires cyberspace operators with personal information of more than 1 million users who want to list abroad
to file a cybersecurity review with the Office of Cybersecurity Review.
Regulations Relating to E-Commerce
On March 15, 2021, the SAMR promulgated
the Measures for the Supervision and Administration of Online Transactions, which took effect on May 1, 2021. Under the Measures
for the Supervision and Administration of Online Transactions, online transaction operators engaging in business activities should follow
the principles of voluntariness, equality, fairness, and good faith, comply with laws, regulations, rules, business ethics, public order,
and good morals, participate in market competition fairly, earnestly perform statutory obligations, actively assume subject responsibilities,
and accept supervision from all sectors of the society. Online transaction platform operators should require business operators that
are applying to sell goods or provide services on their platforms to provide authentic information such as information relating to identity,
address, contact, and administrative license, verify and register such information, create registration files, and verify and update
such information at least once every six months. In addition, online transaction platform operators should establish an inspection and
monitoring system relating to information of business operators on their platforms and relating to goods and services such business operators
advertise. Where an online transaction platform operator identifies any information relating to goods and services on its platforms that
is in violation of laws, regulations or rules on market supervision and administration, damages national or public interests, or is detrimental
to public order or good morals, it must take necessary measures to remove such information in accordance with the law, maintain relevant
records, and report the same to the administration for market regulation.
In March 2016, the State Administration of Taxation,
or the SAT, the Ministry of Finance, or the MOF, and the General Administration of Customs jointly issued the Circular on Tax Policy
for Cross-Border E-Commerce Retail Imports, which took effect in April 2016. Pursuant to this circular, goods imported through the cross-border
e-commerce retail are subject to tariff, import value-added tax, and consumption tax based on the types of goods. Individuals purchasing
any goods imported through cross-border e-commerce retail are taxpayers, and e-commerce companies, companies operating e-commerce transaction
platforms or logistic companies are required to withhold the taxes.
On August 31, 2018, the Standing Committee
of the National People’s Congress promulgated the E-Commerce Law, which became effective on January 1, 2019. The E-Commerce
Law sets forth a series of requirements on e-commerce platform operators. According to the E-Commerce Law, e-commerce platform
operators shall verify and register platform merchants, and cooperate with the market regulatory administrative department and tax
administrative department to conduct industry and commerce registrations and tax registrations for merchants. The e-commerce
platform operators shall also prepare a contingency plan for cybersecurity events and take technological measures and other measures
to prevent online illegal and criminal activities. The E-Commerce Law also expressly requires platform operators to take necessary
actions to ensure fair dealing on their platforms to safeguard the legitimate rights and interests of consumers, including to
prepare platform service agreements and transaction information record-keeping and transaction rules, to prominently display such
documents on the platform’s website, and to keep such information for no fewer than three years following the completion of a
transaction. To legally handle intellectual property infringement disputes, upon receipt of the notice specifying preliminary
evidence for alleged infringement, the platform operators are required to take necessary measures in a timely manner, such as
deleting, blocking and disconnecting the hyperlinks, terminating transactions and services, and forwarding notices to merchants on
its platform. If an e-commerce platform operator fails to take necessary measures when it knows or should have known that a merchant
on the platform infringes any third-party intellectual property rights, products or services provided by a merchant on its platform
do not meet the requirements regarding personal or property safety, or any merchant otherwise impairs the lawful rights and
interests of consumers, the e-commerce platform operator will be held jointly liable with the merchants on its platform.
Moreover, the E-Commerce Law imposes a requirement
on operators of e-commerce platforms to assist in tax collection with respect to income generated by sellers from transactions conducted
on e-commerce platforms, including among others, submitting to the tax authority information on the identities of sellers on e-commerce
platforms and other information relating to tax payment. Failure to comply with the requirement may result in operators of e-commerce
platform being subject to fines and, in severe circumstances, suspension of business operations of e-commerce platforms. If the merchants
on our platform were deemed to be selling our products on consignment basis, the PRC tax authorities may require our members to make
tax registration and request our assistance in these efforts, pursuant to the new E-Commerce Law, and the merchants may be subject to
more stringent tax compliance requirements. See “Risk Factors— Failure to comply with the relatively new E-Commerce Law
may have a material adverse impact on our business, financial conditions and results of operations.” According to the EIT Law,
the VAT Law and other applicable regulations, sellers that conduct transactions on e-commerce platforms are generally subject to enterprise
income tax at a rate of 25%, and value-added tax at a rate of 13% or 9% for services or products sold on the e-commerce platforms. Certain
sellers that are deemed as small taxpayers under PRC law are subject to reduced value-added tax at a rate of 3%.
Trial Administrative Measures of Overseas Securities
Offering and Listing by Domestic Enterprises
On February 17, 2023, the CSRC released the Trial
Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises (the “New Overseas Listing Rules”)
with five interpretive guidelines, which took effect on March 31, 2023. The New Overseas Listing Rules require Chinese domestic enterprises
to complete filings with relevant governmental authorities and report related information under certain circumstances. The required filing
scope is not limited to the initial public offering, but also includes subsequent overseas securities offering, single or multiple acquisition(s),
share swap, transfer of shares or other means to seek an overseas direct or indirect listing and a secondary listing or dual major listing
of issuers already listed overseas. According to the Notice on Arrangements for Overseas Securities Offering and Listing by Domestic Enterprises,
published by the CSRC on February 17, 2023, a company that (i) has already completed overseas listing or (ii) has already obtained the
approval for the offering or listing from overseas securities regulators or exchanges but has not completed such offering or listing before
effective date of the new rules and also completes the offering or listing before September 30, 2023 will be considered as an existing
listed company and is not required to make any filing until it conducts a new offering in the future. Furthermore, upon the occurrence
of any of the material events specified below after an issuer has completed its offering and listed its securities on an overseas stock
exchange, the issuer shall submit a report thereof to the CSRC within 3 working days after the occurrence and public disclosure of the
event: (i) change of control; (ii) investigations or sanctions imposed by overseas securities regulatory agencies or other competent authorities;
(iii) change of listing status or transfer of listing segment; or (iv) voluntary or mandatory delisting.
Value-Added Telecommunication Business Operating Licenses
The PRC Telecommunications Regulations, or the
Telecom Regulations, which were issued by the State Council in 2000 and were most recently amended in February 2016 are the primary governing
law on telecommunication services. The Telecom Regulations set out the general framework for the provision of telecommunication services
by PRC entities. Under the Telecom Regulations, telecommunications service providers are required to procure operating licenses prior
to their commencement of operations. The Telecom Regulations draw a distinction between “basic telecommunications services”
and “value-added telecommunications services.” A “Catalog of Telecommunications Business” was issued as an attachment
to the Telecom Regulations to categorize telecommunications services as basic or value-added. In December 2015, MIIT released the Catalog
of Telecommunication Business (2015 Revision), or the 2015 Telecom Catalog, implemented in March 2016. Under the 2015 Telecom Catalog,
both the online data processing and transaction processing business (i.e., operating e-commerce business) and information service business,
continue to be categorized as value-added telecommunication services.
In March 2009, MIIT issued the Administrative
Measures for Telecommunications Business Operating Permit, or the Telecom Permit Measures, which was implemented in 2009 and most recently
amended in 2017. Pursuant to the Telecom Permit Measures, the operation scope of the value-added telecommunication business operating
license, or VATS license, shall detail the permitted activities of the enterprise to which it is granted. An approved telecommunication
services operator shall conduct its business in accordance with the specifications recorded on its VATS License. The VATS Licenses can
be further categorized based on the specific business operations permitted to be carried out under such licenses, including among others,
the VATS Licenses for internet information services, or the ICP License, and the VATS License for electronic data interchange business,
or the EDI License. In addition, a VATS License holder is required to obtain approval from the original permit-issuing authority prior
to any change to its shareholders, business scope or other information recorded on such license. In February 2015, the State Council
issued the Decisions on Cancelling and Adjusting a Batch of Administrative Approval Items, which, among other things, replaced the pre-registration
approval requirement for telecommunications businesses with a post-registration approval requirement.
In September 2000, the State Council promulgated
the Administrative Measures on Internet Information Services, or the Internet Measures, most recently amended in January 2011. Under
the Internet Measures, “internet information services” refer to the provision of information through the internet to online
users, and are divided into “commercial internet information services” and “non-commercial internet information services”.
Commercial internet information services operators shall obtain an ICP License, from the relevant government authorities within China.
E-commerce (Tianjin), the VIE, holds our VATS License for our Value-Added Telecommunication businesses.
Regulations Relating to Internet Information Security and Privacy Protection
Internet information in China is regulated from a
national security standpoint. The National People’s Congress, or the NPC, enacted the Decisions on Preserving Internet Security
in December 2000 and amended in August 2009, which subject violators to potential criminal punishment in China for any attempt to: (i)
gain improper entry into a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak
state secrets; (iv) spread false commercial information; or (v) infringe intellectual property rights. The Ministry of Public Security
of the PRC, or the MPS, promulgated the Administrative Measures for the Computer Information Network and Internet Security Protection
in December 1998 and amended in January 2011, which prohibits use of the internet in ways which, among other things, result in a leak
of state secrets or a spread of socially destabilizing content. If an internet information service provider violates these measures, the
MPS and its local branches may issue a warning, confiscate the illegal gains, impose fines, and, in severe cases, advise competent authority
to revoke its operating license or shut down its websites.
Under the Several Provisions on Regulating the Market
Order of Internet Information Services, issued by the MIIT in December 2011 and implemented in March 2012, an internet information service
provider may not collect any user personal information or provide any such information to third parties without the consent of the user.
An internet information service provider must expressly inform the users of the method, content and purpose of the collection and processing
of such user personal information and may only collect such information necessary for the provision of its services. An internet information
service provider is also required to properly maintain the user’s personal information, and in case of any leak or likely leak of
the user’s personal information, the internet information service provider must take immediate remedial measures and, in severe
circumstances, immediately report to the telecommunications authority. Moreover, pursuant to the Ninth Amendment to the Criminal Law issued
by Standing Committee of the National People’s Congress (the “SCNPC”) in August 2015 and implemented in November 2015,
any internet service provider that fails to fulfill the obligations related to internet information security administration as required
by applicable laws and refuses to rectify such failure upon orders, shall be subject to criminal penalty for the result of (i) any dissemination
of illegal information in large scale; (ii) any severe effect due to the leakage of the client’s information; (iii) any serious
loss of criminal evidence; or (iv) other severe situation. Any individual or entity that (i) sells or provides personal information to
others in a way violating the applicable law, or (ii) steals or illegally obtains any personal information, shall be subject to criminal
penalty in severe situation. In addition, the Interpretations of the Supreme People’s Court and the Supreme People’s Procuratorate
of the PRC on Several Issues Concerning the Application of Law in Handling Criminal Cases of Infringing Personal Information, issued in
May 2017 and implemented in June 2017, clarified certain standards for the conviction and sentencing of the criminals in relation to personal
information infringement.
In November 2016, the SCNPC promulgated the Cyber
Security Law of the PRC, or the Cyber Security Law, which became effective on June 1, 2017. The Cyber Security Law requires that a network
operator, which includes, among other things, internet information services providers, take technical measures and other necessary measures
in accordance with applicable laws and regulations and the compulsory requirements of the national and industrial standards to safeguard
the safe and stable operation of its networks. We are subject to such requirements as we are operating websites and mobile applications
and providing certain internet services mainly through our mobile applications. The Cyber Security Law further requires internet information
service providers to formulate contingency plans for network security incidents, report to the competent departments immediately upon
the occurrence of any incident endangering cyber security and take corresponding remedial measures.
Internet information service providers are also required to maintain the
integrity, confidentiality and availability of network data. The Cyber Security Law reaffirms the basic principles and requirements specified
in other existing laws and regulations on personal data protection, such as the requirements on the collection, use, processing, storage
and disclosure of personal data, and internet information service providers being required to take technical and other necessary measures
to ensure the security of the personal information they have collected and prevent the personal information from being divulged, damaged
or lost. Any violation of the Cyber Security Law may subject the internet information service provider to warnings, fines, confiscation
of illegal gains, revocation of licenses, cancellation of filings, shutdown of websites or criminal liabilities.
Furthermore, MIIT’s Rules on Protection
of Personal Information of Telecommunications and Internet Users promulgated in July 2013, effective September 2013, contain detailed
requirements on the use and collection of personal information as well as security measures required to be taken by telecommunications
business operators and internet information service providers.
Regulations Relating to Pledged Assets and Rights in PRC
On January 1, 2021, the Civil Code of China took
effective which replaced the Guarantee Law, Contract Law, Property Law and General Provisions of Civil Law. The credit control measures
used in supply chain finance business mostly are subject to the relevant provisions of the Civil Code. Article 681 of the Civil Code
stipulates that a guarantee contract is a contract to ensure the realization of creditor’s rights. The guarantor and the creditor
may agree when the debtor fails to pay its due debts or the event agreed by the parties occur, the guarantor shall pay the debts or bear
responsibility. Article 696 of the Civil Code stipulates that if the creditor transfers all or part of the creditor’s rights without
notifying the guarantor, the transfer shall have no effect on the guarantor. The guarantor and the creditor may agree to prohibit the
transfer of creditor’s rights. Also, if the collateral lien is not registered, it cannot be used against a bona fide third party.
A bona fide third party means a buyer who has paid a reasonable price and obtained the property in normal business activities. In supply
chain finance business, the bulk goods are usually used as collaterals for the financing and the pledge must be registered in order to
be used against the claim from a bona fide buyer. Certain accounts receivable may be pledged pursuant to the Civil Code. Article 440
of the Civil Code stipulates that the debtor or a third party that has the disposal rights to the assets may pledge such assets, including
bills of exchange, promissory notes and cheques, bonds and certificates of deposit, warehouse receipt and bill of lading, etc. The Decision
On Implementation of Unified Registration of Tangible Assets and Rights Guarantees by the State Council became effective on January 1,
2021. The types of tangible assets and right guarantees covered by the unified registration include production equipment, raw materials,
semi-finished products and products, accounts receivable, deposit certificate, warehouse receipt and bill of lading, finance lease and
factoring, etc. The tangible assets and rights guarantee covered by the unified registration shall be registered by the parties through
the unified registration and publicity system of tangible assets financing under the credit investigation center of the People’s
Bank of China, and parties shall be responsible for the authenticity, integrity and legitimacy of the registered contents. The registration
authority does not conduct substantive examination of the registered contents.
Regulations Relating to Intellectual Property in the PRC
Trademark
The Trademark Law of the PRC was promulgated
in August 2013, which took effect in May 2014 (the “Trademark Law”), and was revised in 2019, and its implementation rules
protect registered trademarks. The Trademark Office of National Intellectual Property Administration, PRC, formerly the PRC Trademark
Office of the State Administration of Market Regulation, is responsible for the registration and administration of trademarks throughout
the PRC. The Trademark Law has adopted a “first-to-file” principle with respect to trademark registration. Registered trademarks
are granted a valid term of ten years, which can be renewed each time for another ten years commencing from the day after the expiry
date of the last period of validity if the required renewal formalities have been completed. Pursuant to the PRC Trademark Law, counterfeit
or unauthorized production of the label of another person’s registered trademark, or sale of any label that is counterfeited or
produced without authorization will be deemed as an infringement to the exclusive right to use a registered trademark. The infringing
party will be ordered to stop the infringement immediately, a fine may be imposed, and the counterfeit goods will be confiscated. The
infringing party may also be held liable for the right holder’s damages, which will be equal to the gains obtained by the infringing
party or the losses suffered by the right holder as a result of the infringement, including reasonable expenses incurred by the right
holder for stopping the infringement.
Regulations Relating
to Asset Management in Hong Kong.
The Securities and Futures
Ordinance (Cap. 571) of Hong Kong, or the HKSFO, including its subsidiary legislation, is the principal legislation regulating the securities
and futures industry in Hong Kong, including the regulation of securities and futures markets and leveraged foreign exchange trading,
the offering of investments to the public in Hong Kong, and intermediaries and their conduct of regulated activities. In particular,
Part V of the HKSFO and the relevant guidelines and codes issued by the HKSFC deal with licensing and registration matter.
The HKSFO is administered
by the HKSFC, which is the statutory regulatory body that governs the securities and futures markets and non-bank retail leveraged
foreign exchange market in Hong Kong.
The HKSFC is an independent
statutory body which administers the HKSFO and is responsible for regulating the securities and the futures industry in Hong Kong, including
Brokers, investment advisers, fund managers, and intermediaries carrying out the regulated activities as listed in “—Licensing
Regime Under the HKSFO—Types of Regulated Activities” below. The HKSFC works to strengthen and protect the integrity and
soundness of Hong Kong’s securities and futures markets for the benefit of investors and the industry.
Licensing Regime
Under the HKSFO
The functions of the
HKSFC, as a gatekeeper of standards for individuals and corporations seeking approval to enter into the securities and futures markets
of Hong Kong, include the following:
| ● | grant
licenses to those who are appropriately qualified and can demonstrate their fitness and properness
to be licensed under the HKSFO; |
|
● |
maintain online a public register of licensed persons and registered
corporations; |
|
● |
monitor the ongoing compliance of licensing requirements by licensees,
substantial shareholders of licensed corporations, and directors of licensed corporations; and |
|
● |
initiate policies on licensing issues. |
The HKSFC operates a
system of authorizing corporations and individuals (through licenses) to act as financial intermediaries. Under the HKSFO, a corporation
that is not an authorized financial institution (as defined in section 2(1) of the Banking Ordinance (Cap. 155) of Hong Kong) and is:
|
● |
carrying on a business in a regulated activity (or holding out as carrying
on a regulated activity), or |
|
● |
actively marketing, whether in Hong Kong or from a place outside Hong
Kong, to the public such services it provides, would constitute a regulatory activity if provided in Hong Kong, |
must be licensed by
the HKSFC to carry out that regulatory activity, unless one of the exemptions under the HKSFO applies.
In addition to the licensing
requirements on corporations, any individual who: (i) performs any regulated function in relation to a regulated activity carried
on as a business, or (ii) holds himself out as performing such regulated activity, must be licensed separately under the HKSFO as
a Licensed Representative accredited to his principal.
Types of Regulated Activities Under
the HKSFO
The HKSFO provides a
licensing regime under which a person needs a license to carry on different types of regulated activities as specified in Schedule 5
of the HKSFO. The different types of regulated activities are set out as follows:
Type 1: dealing in securities;
Type 2: dealing in futures
contracts;
Type 3: leveraged foreign
exchange trading;
Type 4: advising on
securities;
Type 5: advising on
futures contracts;
Type 6: advising on
corporate finance;
Type 7: providing automated
trading services;
Type 8: securities margin
financing;
Type 9: asset management;
Type 10: providing credit
rating services;
Type 11: Dealing in
OTC derivative products or advising on OTC derivative products; and
Type 12: Providing client
clearing services for OTC derivative transactions.
The Type 12 regulated
activity came into operation on September 1, 2016 pursuant to the Securities and Futures (Amendment) Ordinance 2014 (Commencement)
Notice 2016 (L.N. 27 of 2016), in so far as it relates to paragraph (c) of the new definition of “excluded services”
in Part 2 of Schedule 5 to the HKSFO. The licensing requirement with respect to Type 12 regulated activity is, as of the date of this
annual report, not yet in operation and the effective date will be appointed by the Hong Kong Secretary for Financial Services and the
Treasury by notice published in the Gazette.
As of the date of this
annual report, our subsidiary NTAM is licensed under the HKSFO to conduct the following regulated activities:
Company |
|
Type of Regulated Activities |
Nice Talent Asset Management Limited (“NTAM”) (1) |
|
Type 4 and Type 9 |
Notes:
(1) |
The following conditions are currently imposed on the HKSFC license
of NTAM: |
|
● |
The licensee shall only provide services to professional investors.
The term “professional investor” is as defined in the HKSFO and its subsidiary legislation. |
|
● |
The licensee shall not hold client assets. The terms “hold”
and “client assets” are as defined under the HKSFO. |
Licensed Corporation
For application as a
licensed corporation, the applicant has to be incorporated in Hong Kong or an overseas company registered with the Companies Registry
of Hong Kong. The licensed corporation has to satisfy the HKSFC that it has proper business structure, good internal control systems
and qualified personnel to ensure the proper management of risks that it will encounter in carrying on the proposed regulated activities
as detailed in its business plan submitted to the HKSFC. Detailed guidelines to meet the requirements and expectations of the HKSFC are
contained in the following publications of the HKSFC:
|
● |
“Guidelines on Competence”; |
|
● |
“the Code of Conduct for Persons Licensed by or Registered with
the Securities and Futures Commission,” or the Code of Conduct; |
|
● |
“the Management, Supervision and Internal Control Guidelines
for Persons Licensed by or Registered with the HKSFC”; |
|
● |
“Corporate Finance Adviser Code of Conduct”; and |
|
● |
“Fund Manager Code of Conduct.” |
Responsible Officers
For each regulated activity
conducted by a licensed corporation, it must appoint no less than two responsible officers, at least one of them must be an executive
director, to directly supervise the business of such regulated activity. A responsible officer is an individual approved by the HKSFC
to supervise the regulated activity or activities of the licensed corporation to which he or she is accredited. For each regulated activity
of a licensed corporation, it should have at least one responsible officer available at all times to supervise the business.
Qualification and Experience Required
for Being a Responsible Officer
A person who intends
to apply to be a responsible officer must demonstrate that he or she fulfills the requirements on both competence and sufficient authority.
An applicant should possess appropriate ability, skills, knowledge, and experience to properly manage and supervise the corporation’s
regulated activity or activities. Accordingly, the applicant has to fulfill certain requirements on academic and industry qualifications,
relevant industry experience, management experience, and local regulatory framework paper as stipulated by the HKSFC.
Managers-in-Charge of Core Functions,
or MICs
A licensed corporation
is required to designate certain individuals as MICs and provide to the HKSFC information about its MICs and their reporting lines. MICs
are individuals appointed by a licensed corporation to be principally responsible, either alone or with others, for managing each of
the following eight core functions of the licensed corporation:
|
(a) |
overall management oversight; |
|
(c) |
operational control and review; |
|
(e) |
finance and accounting; |
|
(f) |
information technology; |
|
(h) |
anti-money laundering and counter-terrorist financing. |
The management structure
of a licensed corporation (including its appointment of MICs) should be approved by the board of the licensed corporation. The board
should ensure that each of the licensed corporation’s MICs has acknowledged his or her appointment as MIC and the particular core
function(s) for which he or she is principally responsible.
Fit and Proper Requirement
Persons who apply for
licenses under the HKSFO must satisfy and continue to satisfy after the grant of such licenses by the HKSFC that they are fit and proper
persons to be so licensed. Generally, a fit and proper person means one who is financially sound, competent, honest, reputable, and reliable.
Section 129(1)
of the HKSFO sets out a number of matters that the HKSFC shall have regard to in assessing the fitness and properness of a person, an
individual, corporation, or institution, which includes:
|
● |
financial status or solvency; |
|
● |
educational or other qualifications or experience having regard to
the nature of the functions to be performed; |
|
● |
ability to carry on the regulated activity concerned competently, honestly,
and fairly; and |
|
● |
reputation, character, reliability, and financial integrity of the
applicant and other relevant persons as appropriate. |
The above fit and proper
criteria serve as the fundamental basis when the HKSFC considers each license or registration application. Detailed guidelines are contained
in “the Fit and Proper Guidelines,” “the Licensing Information Booklet,” and “the Guidelines on Competence”
published by the HKSFC.
The Fit and Proper Guidelines
apply to a number of persons including the following:
|
● |
an individual who applies for license or is licensed under Part V of
the HKSFO; |
|
● |
a licensed representative who applies for approval or is approved as
a responsible officer under Part V of the HKSFO; |
|
● |
a corporation which applies for license or is licensed under Part V
of the HKSFO; |
|
● |
an authorized financial institution which applies for registration
or is registered under Part V of the HKSFO; |
|
● |
an individual whose name is to be or is entered in the register maintained
by the Hong Kong Monetary Authority under section 20 of the Banking Ordinance (Cap. 155) of Hong Kong; and |
|
● |
an individual who applies to be or has been given consent to act as
an executive director of a registered institution under section 71C of the Banking Ordinance (Cap. 155 of Hong Kong). |
Section 129(2)
of the HKSFO empowers the HKSFC to take into consideration any of the following in considering whether a person is fit and proper:
|
● |
decisions made by such relevant authorities as stated in section 129(2)(a)
of the HKSFO or any other authority or regulatory organization, whether in Hong Kong or elsewhere, in respect of that person; |
|
● |
in the case of a corporation, any information relating to: |
|
o |
any other corporation within the group of companies; or |
|
o |
any substantial shareholder or officer of the corporation or of any
of its group companies; |
|
● |
in the case of a corporation licensed under section 116 or 117 of the
HKSFO or registered under section 119 of the HKSFO or an application for such license or registration: |
|
o |
any information relating to any other person who will be acting for
or on its behalf in relation to the regulated activity; and |
|
o |
whether the person has established effective internal control procedures
and risk management systems to ensure its compliance with all applicable regulatory requirements under any of the relevant provisions; |
|
● |
in the case of a corporation licensed under section 116 or section
117 of the HKSFO or an application for the license, any information relating to any person who is or to be employed by, or associated
with, the person for the purposes of the regulated activity; and |
|
● |
the state of affairs of any other business which the person carries
on or proposes to carry on. |
The HKSFC is obliged
to refuse an application to be licensed if the applicant fails to satisfy the HKSFC that the applicant is a fit and proper person to
be licensed. The onus is on the applicant to make out a case that the applicant is fit and proper to be licensed for the regulated activity.
Continuing Obligations of Licensed Corporations
Licensed corporations,
licensed representatives, and responsible officers must remain fit and proper as defined under the HKSFO at all times. They are required
to comply with all applicable provisions of the HKSFO and its subsidiary rules and regulations as well as the codes and guidelines issued
by the HKSFC.
Outlined below are some
of the key continuing obligations of the licensed corporations within the Group under the HKSFO:
|
● |
maintenance of minimum paid-up share capital and liquid capital,
and submission of financial returns to the HKSFC in accordance with the requirements under the Securities and Futures (Financial
Resources) Rules (as discussed in more detail below); |
|
● |
maintenance of segregated account(s), and custody and handling of client
securities in accordance with the requirements under the Securities and Futures (Client Securities) Rules (Chapter 571H of the Laws
of Hong Kong); |
|
● |
maintenance of segregated account(s), and holding and payment of client
money in accordance with the requirements under the Securities and Futures (Client Money) Rules (Chapter 571I of the Laws of Hong
Kong); |
|
● |
maintenance of proper records in accordance with the requirements prescribed
under the Securities and Futures (Keeping of Records) Rules (Chapter 571O of the Laws of Hong Kong); |
|
● |
maintenance of insurance against specific risks for specified amounts
in accordance with the requirements under the Securities and Futures (Insurance) Rules (Chapter 571AI of the Laws of Hong Kong); |
|
● |
payment of annual fees and submission of annual returns to the HKSFC
within one month after each anniversary date of the license; and |
|
● |
implementation of appropriate policies and procedures relating to client
acceptance, client due diligence, record keeping, identification, and reporting of suspicious transactions and staff screening, education,
and training in accordance with the requirements under the Guideline on Anti-Money Laundering and Counter-Terrorist Financing issued
by the HKSFC; |
Obligation for substantial shareholders
A person shall, in relation
to a corporation, be regarded as a substantial shareholder of the corporation if he, either alone or with any of his associates—
|
(a) |
has an interest in shares in the corporation— |
|
(i) |
the aggregate number of which shares is equal to more than 10% of the
total number of issued shares of the corporation; or |
|
(ii) |
which entitles the person, either alone or with any of his associates
and either directly or indirectly, to exercise or control the exercise of more than 10% of the voting power at general meetings of
the corporation; or |
|
(b) |
holds shares in any other corporation which entitles him, either alone
or with any of his associates and either directly or indirectly, to exercise or control the exercise of 35% or more of the voting
power at general meetings of the other corporation, or of a further corporation, which is itself entitled, either alone or with any
of its associates and either directly or indirectly, to exercise or control the exercise of more than 10% of the voting power at
general meetings of the corporation. |
A person shall be regarded
as being entitled to exercise or control the exercise of 35% or more of the voting power at general meetings of a corporation indirectly
if he, either alone or with any of his associates, has an interest in shares in a further corporation which entitles him, either alone
or with any of his associates, to exercise or control the exercise of 35% or more of the voting power at general meetings of the further
corporation which is itself entitled, either alone or with any of its associates, to exercise or control the exercise of 35% or more
of the voting power at general meetings of the first-mentioned corporation.
Under section 132 of
the HKSFO, a person (including a corporation) has to apply for HKSFC’s approval prior to becoming or continuing to be, as the case
may be, a substantial shareholder of a corporation licensed under section 116 of the HKSFO. A person who has become aware that he has
become a substantial shareholder of a licensed corporation without HKSFC’s prior approval should, as soon as reasonably practicable
and in any event within three business days after he becomes so aware, apply to the HKSFC for approval to continue to be a substantial
shareholder of the licensed corporation.
An application to the
HKSFC regarding the change of the substantial shareholder of NTAM to Future FinTech (Hong Kong) Limited was approved by the HKSFC on
June 17, 2021.
Supervision by the HKSFC
HKSFC supervises licensed
corporations and intermediaries operating in the market. HKSFC conducts on-site inspections and off-site monitoring
to ascertain and supervise intermediaries’ business conduct and compliance with relevant regulatory requirements and to assess
and monitor the financial soundness of intermediaries.
Disciplinary Power of the HKSFC
Under Part IX of the
HKSFO and subject to the due process for exercising disciplinary powers laid down in section 198 of the HKSFO, the HKSFC may exercise
any of the following disciplinary actions against a regulated person (including a licensed person or a registered institution) if that
person is found to be guilty of misconduct or the HKSFC is of the opinion that a regulated person is not fit and proper to be or remain
the same type of regulated person (sections 194 and 196 of the HKSFO).
|
● |
revocation or suspension of a license or a registration; |
|
● |
revocation or suspension of part of a license or registration in relation
to any of the regulated activities for which a regulated person is licensed or registered; |
|
● |
revocation or suspension of the approval granted to a responsible officer; |
|
● |
public or private reprimand on a regulated person; |
|
● |
prohibition of a regulated person from applying to be licensed or registered
or to be approved as a responsible officer; |
|
● |
prohibition of a regulated person from applying to be given consent
to act or continue to act as an executive officer of a registered institution; |
|
● |
prohibition of a regulated person from re-entry to be licensed
or registered; and |
|
● |
pecuniary penalty of not exceeding the amount of HK$10 million
or three times the amount of the profit gained or loss avoided as a result of the misconduct. |
Regulations Relating
to Money Transfer in UK.
The Financial Conduct Authority (FCA) - The FCA
is the main regulator for money transfer business in the UK. It is responsible for authorizing and supervising money transfer business
that provide payment services, including money transfer services. The FCA sets out the regulatory requirements for money transfer business
in the Payment Services Regulations 2017 (PSR 2017) and the Electronic Money Regulations 2011 (EMR).
Her Majesty’s Revenue and Customs (HMRC) - HMRC
is responsible for supervising money transfer business that are not authorized by the FCA but are required to register with HMRC for anti-money
laundering purposes. HMRC sets out the regulatory requirements for money transfer business in the Money Laundering Regulations 2017 (MLR
2017).
While the FCA and HMRC are the main regulators
for money transfer business in the UK, there may be other regulators that money transfer business needs to comply with depending on their
specific activities. For example, if a money transfer business also provides currency exchange services, it may be subject to additional
regulations from the Financial Conduct Authority or HM Revenue & Customs.
Domain Name
The MIIT promulgated the Measures on Administration
of Internet Domain Names, or the Domain Name Measures, on August 24, 2017, which took effect on November 1, 2017. The MIIT is the major
regulatory body responsible for the administration of PRC internet domain names, under supervision of which the China Internet Network
Information Center, or CNNIC, is responsible for the daily administration of “.cn” domain names and Chinese domain names.
CNNIC adopts a “first-to-file” principle with respect to the registration of domain names. Applicants for registration of
domain names must provide the true, accurate and complete information of their identities to domain name registration service institutions.
The applicants will become the holder of such domain names upon the completion of the registration procedure.
Trademark.
The Trademark Law of the PRC promulgated in August
2013 which took effect in May 2014 (the “Trademark Law”), and revised in 2019, and its implementation rules protect registered
trademarks. The Trademark Office of National Intellectual Property Administration, PRC, formerly the PRC Trademark Office of the State
Administration of Market Regulation is responsible for the registration and administration of trademarks throughout the PRC. The Trademark
Law has adopted a “first-to-file” principle with respect to trademark registration. Where registration is sought for
a trademark that is identical or similar to another trademark which has already been registered or given preliminary examination and
approval for use in the same or similar category of commodities or services, such application for registration of this trademark may
be rejected. Trademark registrations are effective for a renewable ten-year period, unless otherwise revoked.
Copyright
In accordance with the Copyright Law of the PRC
promulgated by the SCNPC on September 7, 1990, amended on February 26, 2010 and November 11, 2020, Chinese citizens, legal persons or
other entities own the copyright in their works whether published or not, including written works, oral works, music, comedy, arts of
talking and singing, dance and acrobatics, work of art and architecture work, photographic works, cinematographic work and work created
by the method similar to the film production method; engineering design drawing, product design drawing, map, sketch and other graphic
works and model works, computer software and other works specified by laws and administrative regulations. The rights a copyright owner
has include but not limited to the following rights of the person and property rights: the right of publication, right of authorship,
right of modification, right of integrity, right of reproduction, distribution right, rental right, right of network communication, translation
right and right of compilation.
In accordance with the Regulations on the Protection
of Computer Software promulgated by the State Council on December 20, 2001 and last amended on January 30, 2013, Chinese citizens, legal
persons or other entities own the copyright, including the right of publication, right of authorship, right of modification, right of
reproduction, distribution right, rental right, right of network communication, translation right and other rights software copyright
owners shall have in software developed by them, regardless of whether it has been published.
In accordance with the Measures for the Registration
of Computer Software Copyright promulgated by the National Copyright Administration on April 6, 1992 and last amended on February 20,
2002, software copyrights, exclusive licensing contracts for software copyrights and software copyright transfer contracts shall be registered,
and the National Copyright Administration shall be the competent authority for the administration of software copyright registration
and designates the Copyright Protection Center of China as a software registration authority. The Copyright Protection Center of China
shall grant a registration certification to a computer software copyright applicant who complies with regulations. Under the Copyright
Law, the term of protection for copyrighted software is 50 years.
Intellectual Property
The Company currently
has 34 registered Internet Domain names, including hedejiachuan.com, intervalue.vip, intervalue.net.cn, intervalue.com.cn, intervalue.cc,
intervalue.ltd, intervalue.top, ftex.ltd, ftex.net.cn, ftex.vip, ftex.top, ftex.cc, dcon.top, dconpay.com, dconio.com, digipay.ink, digipay.vip,
globalkey.vip, globalkey.shop, globalkey.store, digipay.net.cn, digipay.ltd, globalkey.net.cn, globalkey.cc, globalkey.top, ftft.top,
ftftex.com, ftft.com, ftftbank.com, mftftpay.com, inuteam.com,ftftx.com,ftftcapital.com,ftftorbit.com,ftftdigitalcapital.com. All these
Domain names are owned by the subsidiaries of the Company.
The Company owns copyrights
for the software for its blockchain based e-commerce platform application, including: (i) a blockchain credit points discount settlement
system; (ii) a blockchain credit points circulation monitoring system; (iii) a legal currency and credit points synchronization settlement
system; (iv) a blockchain credit points flow system; (v) an agent automatic profit distribution system (vi) an agent automatic tax deduction
and accounting system; (vii) a manufacturer automatic accounting system; (viii) an e-commerce and blockchain anti-counterfeiting linkage
system; (ix) a blockchain discount and promotion automatic balance system; (x) a blockchain real-name authentication and legal responsibility
system. FTFT UK Limited owns the software for its financial app and FTFT Capital Investments L.L.C. owns the software for its marketing
data platform FTFTX.
We believe that our continued success and competitive
status depend largely on our proprietary technology and ability to innovate. We have taken measures to protect the confidentiality of
our proprietary technologies and intellectual property. We rely on a combination of know-how, copyrights for our software and trade secret
laws, as well as confidentiality agreements to protect our proprietary rights. We will take the necessary action to seek remuneration
if we believe our intellectual property rights have been infringed upon.
Human Capital Resources
We understand that our success depends on our
ability to attract, train and retain our employees. We strive to attract, recruit, and retain employees through competitive compensation
and benefit programs, learning and development opportunities that support career growth and advancement opportunities, and employee engagement
initiatives that foster a strong Company culture. In addition to cash compensation, we offer customary benefits in accordance with local
regulatory requirements as well as performance-based stock awards to our employees. We also recognize the importance of keeping our employees
safe. In response to the COVID-19 pandemic, we implemented changes that we determined were in the best interest of our employees and
have followed local government orders to prevent the spread of COVID-19.
Employees
As of December 31, 2022, we had 80 full-time
employees and 25 part-time employees, among which 49 are located in the PRC, 19 are located in Hong Kong, 12 are located in the
United States, 10 are located in United Kingdom and 9 are located in Dubai and 6 are located in Paraguay. None of our employees are
covered by a collective bargaining agreement as of the date of this Report. We consider our relationships with our employees to be
good.
ITEM 1A – RISK FACTORS
Our business and an investment in our securities
are subject to a variety of risks. The following risk factors describe the most significant events, facts or circumstances that could
have a material adverse effect upon our business, financial condition, results of operations, ability to implement our business plan
and the market price for our securities. Additional risks and uncertainties that presently are not considered material or are not known
to us, and therefore are not mentioned herein, may impair our business operations. Many of these events are outside of our control.
If any of these risks actually occurs, our business, financial condition or results of operations may be materially adversely affected.
In such case, the trading price of our common stock could decline and investors in our common stock could lose all or part of their investment.
Risks Related to Our Business
An occurrence of an uncontrollable event
such as the COVID-19 pandemic may negatively affect our operations and financial results.
In recent years, there have been outbreaks of
epidemics in various countries, including China. Recently, there was an outbreak of a novel strain of coronavirus (COVID-19), which has
been spread rapidly to many parts of the world, including China, Hong Kong and the U.S. In March 2020, the World Health Organization
declared COVID-19 a pandemic. The COVID-19 pandemic has resulted in, among other things, quarantines, travel restrictions, and the temporary
closure of office buildings and facilities in China, Hong Kong and in the U.S.
A large part of our revenues are generated in
China and Hong Kong. Consequently, our results of operations have been and may continue to be adversely affected, to the extent that
COVID-19 harms the Chinese, Hong Kong and global economy. 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 COVID-19 and the actions taken by government
authorities and other entities to contain COVID-19 or treat its impact, almost all of which are beyond our control. Potential impacts
include, but are not limited to, the following:
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temporary closure of offices, travel restrictions or suspension of
transportation of products to our customers; and our suppliers have been negatively affected, and could continue to be negatively
affected, on their ability to fulfill our demands if there is any resurgence of COVID-19; |
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our customers that are negatively impacted by the outbreak of COVID-19
may reduce their budgets to purchase our products and services, which may materially adversely impact our revenue; |
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We may have to provide significant sales incentives to our customers
in response to the COVID-19 outbreak, which may in turn materially adversely affect our financial condition and operating results; |
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The business operations of our customers and suppliers have been and
could continue to be negatively impacted by the outbreak, which may result in loss of customers or disruption of our services, which
may in turn materially adversely affect our financial condition and operating results; |
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any disruption of our supply chain, logistics providers or customers
could adversely impact our business and results of operations, including causing our suppliers unable to provide products for a period
of time or materially delay delivery to customers, which may also lead to loss of customers, as well as reputational, competitive
and business harm to us; |
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The Company’s promotion strategy for our e-commerce platform
mainly relied on the training of members and distributors through meetings and conferences. Due to the outbreak of COVID-19, the
Chinese government put a restriction on large gatherings and these restrictions has made CCM Shopping Mall and NONOGIRL difficult
to recruit new members and the Company has to close NONOGIRL platform and change business model of CCM Shopping Mall. |
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The global stock markets may experience, significant decline from the
COVID-19 outbreak, which could materially adversely affect our stock price. |
Because of the uncertainty surrounding the COVID-19
outbreak, the future impact related to the outbreak and potential resurgence as well as the local and global response cannot be reasonably
estimated at this time. There have been outbreaks of Omicron variant in various cities in China in 2022 which have resulted quarantines,
travel restrictions, and temporary closure of office buildings and facilities in these cities. In December 2022, the Chinese government
eased its strict zero COVID-19 policy which resulted in a surge of new COVID-19 cases during December 2022 and January 2023, which has
disrupted our business operations in China.
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 our business.
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
negatively affect our business and the value of our common stock.
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. We currently believe that our financial resources will be adequate to see us
through the outbreak. However, in the event that we do need to raise capital in the future, outbreak-related instability in the securities
markets could adversely affect our ability to raise additional capital.
In general, our business could be adversely affected
by the epidemics, including, but not limited to, COVID-19, avian influenza, severe acute respiratory syndrome (SARS), the influenza A
virus, the Ebola virus, or other outbreaks. In response to an epidemic or other outbreaks, governments and other organizations may adopt
regulations and policies that could lead to severe disruption to our daily operations, including temporary closure of our offices and
other facilities. These severe conditions may cause us and/or our partners to make internal adjustments, including but not limited to,
temporarily closing down business, limiting business hours, and setting restrictions on travel and/or visits with clients and partners
for a prolonged period of time. Various impacts arising from severe conditions may cause business disruption, resulting in material,
adverse effects to our financial condition and results of operations.
Economic conditions have had and may continue
to have an adverse effect on our customers’ spending on our products and services.
The worldwide economy remains volatile and may
have entered in global recession. The adverse effect of a sustained international economic downturn, including sustained periods of decreased
spending, high unemployment levels, declining consumer or business confidence and continued volatility and disruption in the credit and
capital markets, would likely result in reduced demand for our products and services. To the extent an international economic downturn
develops, we could experience a reduction in sales volume. If we are unable to reduce our operating costs and expenses proportionately,
many of which are fixed, our results of operations would be adversely affected.
The supply chain financing service industry
is an emerging and rapidly evolving industry in China and we might not achieve the development as we expected.
The supply chain financing service industry in
China is highly dynamic and rapidly evolving. Operating in this industry demands applying cutting-edge technologies to digitalize supply
chain financing workflows and optimize payment cycles, which is an emerging and relatively new business model in China. In addition,
we are faced with uncertainties relating to the intensifying competition and evolving regulatory environment in China’s supply
chain financing service industry. There have been limited proven methods to project available technology, regulatory and industry standards
on which we can rely, and the delayed, unexpected or adverse developments in this sector may adversely and materially affect our operational
and financial performances. As market dynamics, regulatory environment and our business continue to develop, we may need to adjust our
business model and continue to upgrade our products and service offerings, and if we fail to adapt to these developments promptly, or
at all, our business, financial condition, results of operations and prospects may be materially and adversely affected.
The supply chain financing service industry
is increasingly competitive in China. If we fail to compete effectively, we may lose our customers and partners, which could materially
and adversely affect our business, financial condition and results of operations.
The supply chain financing service industry in
the PRC is increasingly competitive, and there is no guarantee that we will be able to compete effectively and implement our business
strategies. We face intense competition primarily from third-party supply chain financing service providers. Some of these competitors
may have established strong brand recognition, robust technological capabilities and significant financial resources or offer comparable
technology solutions or own similar business scale to us. Intensifying competition may result in certain developments in this industry,
such as downward competitive pressure on price, expansion by existing competitors, adoption by our competitors of innovative technology
solutions or comparatively effective branding efforts, any of which may have a material adverse impact on our financial condition, results
of operations and growth prospects. Increased investments made and lower prices or innovative services offered by our competitors may
require us to divert significant managerial, financial and human resources in order to remain competitive, and ultimately may place a
greater pressure on us to maintain our market share and negatively impact the revenues growth and profitability of our business. Furthermore,
our business is subject to rapid changes in the industries we operate in, such as the introduction of new business models, and the entry
of new and well-funded competitors or industry disruptors. We may face even more intensified competition as a result of certain alliances,
acquisitions or consolidations within the industries where we operate that result in emergence of stronger competitors. Existing and
new competitors may leverage their established platforms or market positions, or introduce innovative business models, to launch products
or services that may attract a large customer base and achieve rapid growth, which may materially and adversely affect our business and
results of operations. If we are not able to compete effectively, the number of our customers and partners may decrease and our market
share and profitability may be negatively affected, which could materially and adversely affect our business, financial condition, results
of operations and prospects, as well as our reputation and brand.
Our supply chain finance business faces
risks in receivables, timely supplies, credit evaluation and commodity price fluctuations all of which could materially and adversely
affect our business, financial condition and results of operations.
Our supply chain finance
business faces various risk in its operation, including (i) risk of failure to collect our receivables in time after the delivery of
commodities; (ii) risk of unable to supply the commodity according to the contract requirements such as issues of quality and/or quantity
of goods. If we fail to control such risk and strictly implement our new supplier and client evaluation standards as well as the background
investigation for our risk control, we might not receive payment for the goods delivered or lose control of the title of the goods or
breach contracts to supply goods according to its terms, which will materially and adversely affect our business, financial condition
and results of operations. Also, if the market for commodities fluctuates sharply, our downstream customers might default on their purchase
obligation and cause losses to us.
The asset management
services that NTAM provides involve various risks, and failure to identify or fully appreciate such risks will negatively affect our
reputation, client relationships, operations and prospects.
NTAM provides asset
and wealth management service to clients.
Neither the principal
nor the return of the asset management products that NTAM has provided its services on is guaranteed by NTAM. As such, NTAM generally
does not bear any liabilities for any loss to capital invested in the products. However, despite related risk warnings and disclaimers,
the investors may attempt to hold NTAM responsible for their losses and terminate their business with us, which could harm our reputation
and result in reduced business. In addition, although NTAM has implemented transparent disclosure policies, such policies and procedures
may not be fully effective. If NTAM or its customer service personnel are found to have engaged in misconduct or negligent in providing
their services, NTAM may be held responsible when the investors incur losses, and our reputation, client relationships, business and
prospects will be materially and adversely affected.
Our operations
of NTAM depend on key management and professional staff and our business may suffer if we are unable to recruit or retain them.
The success of our business
is dependent, to a large extent, on the continued services of NTAM’s senior management, especially Mr. Siu Kei Chan, the Chief
Executive Officer of NTAM. If NTAM loses the services of Mr. Chan, it needs to promptly hire an experienced professional from the market,
otherwise it may not be able to execute its existing business strategy effectively, or we may have to change our current business direction.
Such disruptions to our business may take up significant energy and resources of the Company, and materially and adversely affect our
future prospects.
Moreover, NTAM daily
operations depend on the members of its mid-level management, experienced investment and trading managers, licensed representatives,
risk management officers, research analysts and IT specialists. We devote considerable resources to the recruiting and retaining these
personnel. However, the market for quality professionals is increasingly competitive. We expect to face significant competition from
other assets management firms and technology companies in hiring such personnel. The intense competition may require us to offer more
competitive compensation and other benefits to our talent, which could materially and adversely affect our financial condition and results
of operations. As a result, it may be difficult for us to continue to retain and motivate these employees, and this could affect their
decisions about whether or not they continue to work for us. If we do not succeed in attracting, hiring, and integrating excellent personnel,
or retaining and motivating existing personnel, NTAM may be unable to grow effectively.
Our risk management
and internal control systems of NTAM, as well as the risk management tools available to us, may not fully protect us against various
risks inherent in our business.
Currently, NTAM follows
its comprehensive internal risk management framework and procedures to manage its risks, including but not limited to, reputational risk,
legal risk, regulatory and compliance risk, operational risk, market risk, liquidity risk, and credit risk. However, its risk management
policies, procedures and internal controls may not be adequate or effective in mitigating the risks or protecting it against unidentified
or unanticipated risks. In particular, some methods of managing risks are based upon observed historical market behavior and experience
in the securities industry. These methods may fail to predict future risk exposures, which could be significantly greater than those
indicated by our historical measures. Other risk management methods depend upon an evaluation of available information regarding operating
and market conditions and other matters, which may not be accurate, complete, up-to-date or properly evaluated. In addition, the capital
markets in Hong Kong are rapidly developing, the information and experience that NTAM relies on for its risk management methods may become
quickly outdated as capital markets and regulatory environment in Hong Kong continue to evolve. Deficiencies in the risk management and
internal control systems and procedures may adversely affect our ability to identify or report our deficiencies or non-compliance. Any
of these may have a material and adverse effect on our business, financial condition, and operating results.
The operations
of NTAM may be adversely affected if it fails to obtain or maintain necessary approvals for conducting a particular business.
Due to the highly regulated nature of the financial
industry in jurisdiction where NTAM operates, many aspects of its business depend on obtaining and maintaining approvals, licenses, permits
or qualifications from relevant regulators in Hong Kong. Obtaining and maintaining such approvals, licenses, permits or qualifications
is contingent on NTAM’s compliance with regulatory requirements. Any failure to comply with regulatory requirements could limit
the scope of businesses in which NTAM is permitted to engage. Furthermore, additional regulatory approvals, licenses, permits or qualifications
may be required by relevant regulators in the future, and some of current approvals, licenses, permits or qualifications of NTAM are
subject to periodic renewal. The failure to obtain or maintain the required approvals, licenses, permits or qualifications could adversely
affect our results of operations and financial condition.
We may engage in future acquisitions involving
significant expenditures of cash, the incurrence of debt or the issuance of stock, all of which could have a materially adverse effect
on our operating results.
As part of our business strategy, we review acquisition
and strategic investment prospects that we believe would complement our current product and service offerings, augment our market coverage,
enhance our technological capabilities or otherwise offer growth opportunities. From time to time, we review investments in new business
and we expect to make investments in, and to acquire, business, products or technologies in the future. We are in the process to complete
an acquisition of a money transfer company in UK, which is expected to close during the first half of this year. In the event of any
future acquisitions, we may expend significant cash, incur substantial debt and/or issue equity securities and dilute the percentage
ownership of current shareholders, all of which could have a material adverse effect on our operating results and the price of our stock.
We cannot guarantee that we will be able to successfully integrate any business, products, technologies or personnel that we may acquire
in the future, and our failure to do so could have a material adverse effect on our business, operating results and financial condition.
We may not be able to prevent others from
unauthorized use of our intellectual property, which could harm our business and competitive position.
Our success depends, in part, on our ability
to protect our proprietary technologies. The process of seeking intellectual property protection can be lengthy and expensive and we
cannot guarantee that our existing or future intellectual property rights will be fully protected or bring us the commercial advantages.
We also cannot guarantee that our current or potential competitors do not have, and will not obtain, intellectual property rights that
will prevent, limit or interfere with our ability to use our technology or sell our products and services in the PRC or other countries.
The implementation and enforcement of PRC intellectual
property laws historically have not been vigorous or consistent. Accordingly, intellectual property rights and confidentiality protections
in the PRC are not as effective as those in the United States and other countries. We may need to resort to litigation to enforce or
defend our rights or to determine the enforceability, scope and validity of our proprietary rights or those of others. Such litigation
will require significant expenditures of cash and management efforts and could harm our business, financial condition and results of
operations. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, competitive
position, business prospects and reputation.
The blockchain related products and services
that we are developing have the potential to be used in ways we do not intend, including for criminal or other illegal activities.
Blockchain-related products and services, in
particular cryptocurrencies, have the potential to be used for financial crimes or other illegal activities. Because the blockchain platform
that we are developing is novel, there are uncertainties regarding any legal and regulatory requirements for preventing blockchain-related
products and services from being put to such uses, and there are uncertainties regarding the liabilities and risks to the Company if
we are unable to prevent such uses. Even if we comply with all laws and regulations regarding financial and blockchain related products
and services, we have no ability to ensure that our customers, partners or others to whom we license or sell our products and services
comply with all laws and regulations applicable to them and their transactions.
Our blockchain based Shopping Mall employs security
measures common to blockchain technologies, such a multiple identity authentication and multi-signature requirements. The security measures
to be employed by our blockchain projects are subject to further improvement and development. There is no guarantee that the security
measures that we currently use or any that we may develop in the future will be effective.
Any negative publicity we receive regarding any
allegations of unlawful uses of our blockchain platform could damage our reputation. More generally, any negative publicity regarding
unlawful uses of blockchain technology in the marketplace could reduce the demand for our products and services. The occurrence of any
of the foregoing could have a material adverse effect on our financial results and business.
The regulatory regime governing blockchain
technologies, cryptocurrencies, digital assets, and offerings of digital assets is uncertain, and new regulations or policies may materially
adversely affect the development of our blockchain related business.
Regulation of digital assets, cryptocurrencies,
crypto mining, blockchain technologies, and the blockchain platform we are developing is currently undeveloped and likely to rapidly
evolve as government agencies take greater interest in them. Regulation also varies significantly among international, federal, state
and local jurisdictions and is subject to significant uncertainty. Various legislative and executive bodies in the United States and
in other countries may in the future adopt laws, regulations, or guidance, or take other actions, which may severely impact the permissibility
of tokens generally and the technology behind them or the means of transaction or in transferring them. Failure by our subsidiaries to
comply with any laws, rules and regulations, some of which may not exist yet or are subject to interpretation and may be subject to change,
could result in a variety of adverse consequences, including civil penalties and fines.
Intellectual property infringement claims
may adversely impact our results of operations.
As we develop and introduce new products and
services, we may be increasingly subject to claims of infringement of another party’s intellectual property. If a claim for infringement
is brought against us, such claim may require us to modify our products or services, cease selling certain products or engage in litigation
to determine the validity and scope of such claims. Any of these events may harm our business and results of operations.
Our e-commerce business depends on the
continued use of the Internet and the adequacy of the Internet infrastructure.
Our e-commerce business, money transfer business
and cryptocurrency market data platform depend upon the widespread use of the Internet and e-commerce. Factors which could reduce the
widespread use of the internet for e-commerce include, without limitation, actual or perceived lack of security of information or privacy
protection, cyberattacks or other disruptions or damage to the internet or to users’ computers, whatever the cause, could reduce
customer satisfaction with our platforms and services and harm our business.
Our business depends on our website, app,
network infrastructure and transaction-processing systems.
Our e-commerce business, money transfer business
and cryptocurrency market data platform are dependent on our IT infrastructure. Any system interruption that results in the unavailability
of our websites, apps or reduced performance of our transaction and information systems could reduce our ability to conduct our business.
We use internally and externally developed systems for our websites, apps and our transaction and information processing systems. We
expect to experience system interruptions due to software failure. We may also experience temporary capacity constraints due to sharply
increased traffic during events or other promotions. Capacity constraints can cause system disruptions, slower response times, delayed
page presentation, degradation in levels of customer service and other problems. We may also experience difficulties with our infrastructure
upgrades. Any future difficulties with our transaction and information processing systems or difficulties upgrading, expanding or integrating
aspects of our systems may cause system disruptions, slower response times, and degradation in levels of customer service, additional
expense, impaired quality and speed of our services or other problems.
If the location where all of our computer and
communications hardware is located is compromised, our business, prospects, financial condition and results of operations could be harmed.
If we suffer an interruption or degradation of services at the location for any reason, our business could be harmed. Our success, and
in particular, our ability to successfully receive and fulfil customers’ requests and provide high-quality customer service, largely
depends on the efficient and uninterrupted operation of our computer and communications systems. These limitations could have an adverse
effect on our business. Our disaster recovery plan may be inadequate, and we do not carry business interruption insurance to compensate
us for the losses that could occur. Despite our implementation of network security measures, our servers are vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions, the occurrence of any of which could lead to interruptions, delays, loss of
critical data or the inability to accept and fulfil customer requests. The occurrence of any of the foregoing risks could harm our business.
We are subject to cyber security risks
and may incur increasing costs in an effort to minimize those risks and to respond to cyber incidents.
Our e-commerce business, money transfer business
and cryptocurrency market data platform are entirely dependent on the secure operation of our website and systems as well as the operation
of the internet generally. Our business involves the storage and transmission of users’ proprietary information, and security breaches
could expose us to a risk of loss or misuse of this information, litigation, and potential liability. A number of large internet companies
have suffered security breaches, some of which have involved intentional ransomware attacks. From time to time, we and many other internet
businesses also may be subject to a denial of service attacks wherein attackers attempt to block customers’ access to our website
with ransomware. If we are unable to avert a denial of service attack for any significant period, we could sustain substantial loss from
payment of ransom fee, lost sales and customer dissatisfaction. We may not have the resources or technical sophistication to anticipate
or prevent rapidly evolving types of cyberattacks.
Cyberattacks may target us, our customers, our
suppliers, banks, payment processors, e-commerce in general or the communication infrastructure on which we depend. If an actual or perceived
attack or breach of our security occurs, customer and/or supplier perception of the effectiveness of our security measures could be harmed
and we could lose customers, vendors or both. Actual or anticipated attacks and risks may cause us to incur increasing costs, including
costs to deploy additional personnel and protection technologies, train employees, and engage third party experts and consultants. A
person who is able to circumvent our security measures might be able to misappropriate our or our users’ proprietary information,
cause interruption in our operations, damage our computers or those of our users, or otherwise damage our reputation and business. Any
compromise of our security could result in a violation of applicable privacy and other laws, significant legal and financial exposure,
damage to our reputation, and a loss of confidence in our security measures, which could harm our business.
Failure to comply with the relatively new
E-Commerce Law may have a material adverse impact on our business, financial conditions and results of operations.
As the e-commerce industry is still evolving
in China, new laws and regulations may be adopted from time to time to address new issues that arise from time to time. For example,
in August 2018, the Standing Committee of the National People’s Congress promulgated the E-Commerce Law, which became effective
on January 1, 2019. The E-Commerce Law generally provides that e-commerce operators must obtain administrative licenses if business
activities conducted by the e-commerce operators are subject to administrative licensing requirements under applicable laws and regulations.
In addition, the E-Commerce Law imposes a number of obligations on e-commerce platform operators, including the obligations: (i) to
verify and register platform merchants, (ii) to ensure platform cybersecurity, including, but not limited to, data privacy, (iii) to
ensure fair dealing and the legitimate rights and interests of consumers on the platform, (iv) to publicize transaction information
preservation and transaction rules, and (v) to protect intellectual properties. See “Item 1. Overview—Government
Regulations—Regulations Relating to E-Commerce” for further details. As the E-Commerce Law is relatively new, no detailed
interpretation and implementation rules have been promulgated, and it remains uncertain how the E-Commerce Law will be interpreted and
implemented. We cannot assure you that our current business operations satisfy the obligations provided under the E-Commerce Law in all
respects. If the PRC governmental authorities determine that we are not in compliance with all the requirements proposed under the E-Commerce
Law, we may be subject to fines and/or other sanctions.
The E-Commerce Law also imposes a requirement
on operators of e-commerce platforms, such as E-Commerce Tianjin, to assist in tax collection with respect to income generated by sellers
from transactions conducted on e-commerce platforms, including, among others, submitting to the tax authority information on the identities
of sellers on e-commerce platforms and other information relating to tax payment. Failure to comply with the requirement may result in
operators of e-commerce platforms being subject to fines and, in severe circumstances, suspension of business operations of e-commerce
platforms. Substantial uncertainties exist regarding the interpretation and implementation of the E-Commerce Law. We encourage and incentivize
merchants to promote the products on our platform. If the merchants were deemed to be selling our products on consignment basis, the
PRC tax authorities may require them to make tax registration and request our assistance in these efforts, pursuant to the E-Commerce
Law, and the merchants on our platform may be subject to more stringent tax compliance requirements. The PRC government may adopt additional
requirements from time to time, and we may be requested by tax authorities to provide further assistance in the enforcement of tax regulations,
such as disclosure of transaction records and bank account information of the merchants, and withholding taxes for such merchants. If
any of these were to occur, we may lose our existing stores or fail to attract new stores on our platform and the level of activity may
be reduced on our platform. We may also incur increased costs and expenses as a result. The tightened tax enforcement by PRC tax authorities
in the e-commerce industry, such as imposition of reporting or withholding obligations on operators of e-commerce platforms with respect
to tax payable of merchants on e-commerce platforms, may have a material and adverse effect on our business, financial condition and
results of operations.
Failure to comply with sanctions laws,
anti-terrorist financing laws, anti-money laundering laws, and similar laws associated with
our activities, and anti-corruption laws could subject us to penalties and other adverse consequences.
We have implemented
policies and procedures designed to allow us to comply with anti-money laundering laws and economic sanctions laws and prevent our money
transfer platform from being used to facilitate business in countries or with persons or entities designated on lists promulgated by
UK government and equivalent international authorities or that are otherwise the target of sanctions. We may utilize the services of
vendors, such as screening tools, in implementing such policies and procedures. In the event that we or any of our users engage in any
conduct, intentionally or not, that facilitates money laundering, terrorist financing, or other illicit activity, or that violates anti-money
laundering or sanctions laws, or otherwise constitutes activity that is prohibited by such laws, including through the fault of any vendor,
we may be subject to fines, penalties, lawsuits, and enforcement actions; additional compliance requirements; increased regulatory scrutiny
of our business; restriction of our operations; or damage to our reputation or brand.
Law enforcement and
regulators continue to scrutinize compliance with these obligations, which may require us to further revise or expand our compliance
program, including the procedures that we use to verify the identity of our customers or monitor our platform for potential illegal activity.
In addition, any policies and procedures that we implement to comply with sanctions laws may not be effective, including in preventing
customers from using our services for transactions with sanctioned persons or jurisdictions subject to comprehensive sanctions. Given
the technical limitations in developing controls to prevent, among other things, the ability of customers to publish on our platform
false or deliberately misleading information or to develop sanctions-evasion methods, it is possible that we may inadvertently and without
our knowledge provide services to individuals or entities that have been designated by UK government or other relevant sanctions authorities
are located in a jurisdiction subject to comprehensive sanctions or an embargo by the UK or another country in which we operate or are
licensed to do business, and such services may not be in compliance with applicable economic sanctions regulations.
Sanctions are imposed
to address acute foreign policy and national security threats and may change rapidly and unpredictably in response to world events or
domestic or international political developments. Additionally, as we expand our services into additional jurisdictions, we may become
subject to additional sanctions requirements imposed by those jurisdictions or face increased risk of processing transactions in violation
of sanctions requirements to which we are currently subject. We may be unable to update policies, procedures, or controls to timely and
effectively address changes in applicable legal requirements or in our sanctions risk environment.
Consequences for failing
to comply with applicable rules and regulations could include fines, criminal and civil lawsuits, forfeiture of significant assets, or
other enforcement actions. We could also be required to make changes to our business practices or compliance programs as a result of regulatory
scrutiny. In addition, any perceived or actual breach of compliance by us, our customers, vendors, or our payment or disbursement partners
with respect to applicable laws, rules, and regulations could have a significant impact on our reputation and could cause us to lose existing
customers, prevent us from obtaining new customers, cause other payment or disbursement partners to terminate or not renew their agreements
with us, require us to expend significant funds to remedy problems caused by violations and to avert further violations, adversely affect
our relationship with our partner banks and other commercial counterparties and expose us to legal risk and potential liability, all of
which may adversely affect our business, operating results, and financial condition.
Use of our money
transfer platform for illegal or fraudulent activities could harm our business, reputation, financial condition, and operating results.
Our platform is susceptible
to illegal, improper or fraudulent uses, including money laundering, terrorist financing, sanctions evasion, bank fraud, payments involving
child pornography or human trafficking, and the facilitation of other illegal, improper or fraudulent activity. The digital financial
services industry is under increasing scrutiny from federal, state, and international regulators in connection with the potential for
such illegal, improper or fraudulent activities. In addition, our remittance service facilitates payments to jurisdictions which may in
some cases have higher levels of illegal, improper payments. Our payment system has been utilized for illegal, improper and fraudulent
uses in the past and we cannot guarantee that our policies, procedures and internal controls, or insurance, would adequately protect our
business, maintain our continued ability to operate in the jurisdictions that we serve, or our reputation, especially if such illegal,
improper or fraudulent activities were discovered to have taken place on our platform in the future. Our fraud loss expenses may increase
if our fraud systems lose effectiveness or if new methods or schemes are developed to defraud us. Since the methods and schemes utilized
by perpetrators of fraud are constantly evolving or, in some cases, not immediately detectable, we cannot assure you that our policies,
procedures and controls for managing fraud will be effective over time or of our ability to update these measures to address emerging
fraud risks. In addition, if illicit or fraudulent activity levels involving our services were to rise, it could lead to regulatory intervention
and reputational and financial damage to us. This, in turn, could lead to government enforcement actions and investigations, a suspension
or termination of our operating licenses, a reduction in the use and acceptance of our services, or an increase in our compliance costs,
any of which may harm our business, financial condition, and operating results.
On the other hand, if
the measures we have taken to detect illegal, improper or fraudulent activities are too restrictive and/or inadvertently prevent or delay
proper transactions, this could result in suspension of legitimate customer activity on our payment system, deter new and existing customers
or otherwise diminish our customer experience, any of which could harm our business.
As a public company, we are obligated to
maintain effective internal controls over financial reporting. Our internal controls may be determined not to be effective, which may
adversely affect investor confidence in us and, as a result, decrease the value of our Common Stock.
The PRC has not adopted management and financial
reporting concepts and practices similar to those in the United States. We may have difficulty in hiring and retaining a sufficient number
of qualified financial and accounting employees who are familiar with US GAAP and reporting requirements to work in the PRC. As a result
of these factors, we may experience difficulty in establishing and maintaining accounting and financial controls, collecting financial
data, budgeting, managing our funds and preparing financial statements, books of account and corporate records and instituting business
practices that meet investors’ expectations in the United States.
Rules adopted by the SEC, or the Commission,
pursuant to Sarbanes-Oxley Section 404 require annual assessment of our internal controls over financial reporting. The standards
that must be met for management to assess the internal controls over financial reporting as effective are relatively new and complex,
and they require significant documentation, testing and possible remediation to meet the detailed standards. This assessment will need
to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. During
the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting as
we have done previously and this year, we will be unable to assert that our internal controls are effective. If we continue to be unable
to conclude that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness
of our financial reports, which could harm our business and cause the price of our stock to decline.
We may need additional capital to fund
our future operations and, if it is not available when needed, we may need to reduce our planned development and marketing efforts, which
may reduce our sales revenue.
We believe that our existing working capital
and cash available from operations will enable us to meet our working capital requirements for at least the next twelve months. However,
if cash from future operations is insufficient, or if cash is used for acquisitions or other currently unanticipated uses, we may need
additional capital. The development and marketing of new products and services and the expansion of our business and associated support
personnel require a significant commitment of resources. In addition, if the markets for our products and services develop more slowly
than anticipated, or if we fail to establish significant market share and achieve sufficient net revenues, we may continue to consume
significant amounts of capital. As a result, we could be required to raise additional capital. To the extent that we raise additional
capital through the sale of equity or convertible debt securities or other methods, the issuance of such securities could result in dilution
of the shares held by existing shareholders. If additional funds are raised through the issuance of debt securities, such securities
may provide the holders certain rights, preferences, and privileges senior to those of common shareholders, and the terms of such debt
could impose restrictions on our operations. We cannot guarantee that additional capital, if required, will be available on acceptable
terms, or at all. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our
planned business development and marketing efforts, which could harm our business, financial condition and operating results.
If our costs and demands upon management
increase disproportionately to the growth of our business and revenue as a result of complying with the laws and regulations affecting
public companies, our operating results could be harmed.
As a public company, we do and will continue
to incur significant legal, accounting, investor relations and other expenses, including costs associated with public company reporting
requirements. We also have incurred and will incur costs associated with current corporate governance requirements, including requirements
under Section 404 and other provisions of Sarbanes-Oxley, as well as rules implemented by the SEC and the stock exchange on which
our common stock is traded. The expenses incurred by public companies for reporting and corporate governance purposes have increased
dramatically over the past several years. These rules and regulations have increased our legal and financial compliance costs substantially
and make some activities more time consuming and costly. If our costs and demands upon management increase disproportionately to the
growth of our business and revenue, our operating results could be harmed.
There are inherent uncertainties involved
in estimates, judgments and assumptions used in the preparation of financial statements in accordance with generally accepted accounting
principles in the United States, or U.S. GAAP. Any changes in estimates, judgments and assumptions could have a material adverse effect
on our business, financial condition and operating results.
The preparation of financial statements in accordance
with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) involves making estimates, judgments and assumptions that
affect reported amounts of assets (including intangible assets), liabilities and related reserves, revenue, expenses and income. Estimates,
judgments and assumptions are inherently subject to change in the future, and any such changes could result in corresponding changes
to the amounts of assets, liabilities, revenue, expenses and income. Any such changes could have a material adverse effect on our business,
financial condition and operating results.
We may be exposed to litigation related
to the Sale Transaction on February 27, 2020 from the holders of our common stock.
Transactions such as the Sale Transaction are
often subject to lawsuits by stockholders. Particularly because the holders of our common stock will not receive any consideration from
the Sale Transaction, it is possible that they may sue the Company or the Board of Directors. Such lawsuits could result in substantial
costs and divert our management’s attention from other business concerns, which could seriously harm our business.
Risks Related to Doing Business in the PRC
Changes in China’s economic, political
or social conditions or government policies could have a material adverse effect on our business and results of operations.
A substantial of the Company’s operations
are located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by
the political, economic, and legal environments in the PRC, in addition to the general state of the PRC economy. The Company’s
results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies
with respect to laws and regulations, cybersecurity, anti-monopoly, anti-inflationary measures, currency conversion and remittance abroad,
VIE structures, and rates and methods of taxation, among other things, and such change of rules and policies can happen quickly with
little advance notice.
A substantial of the Company’s sales, purchases
and expense transactions are in RMB. The RMB is not freely convertible into foreign currencies under the current law. In China, foreign
exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s
Bank of China, the central bank of China. Remittances in currencies other than RMB may require certain supporting documentation in order
to affect the remittance.
The Chinese economy differs from the economies
of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control
of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization
of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate
governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition,
the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese
government also exercises significant control over China’s economic growth through allocating resources, controlling payment of
foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.
While the Chinese economy has experienced significant
growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government
has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit
the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may
be adversely affected by government control over blockchain related financial technology, capital investments or changes in tax regulations.
In addition, in the past the Chinese government has implemented certain measures, including interest rate increases, to control the pace
of economic growth. These measures may cause decreased economic activity in China, and since 2012, China’s economic growth has
slowed down. Any prolonged slowdown in the Chinese economy may reduce the demand for our products and services and materially and adversely
affect our business and results of operations.
Furthermore, we and our China based operating
entities, as well as our investors, face uncertainty about future actions by the Chinese government that could significantly affect our
financial performance and operations, including the enforceability of the VIE contractual arrangements. If future laws, administrative
regulations or provisions mandate further actions to be taken by companies with respect to existing VIE contractual arrangements, we
may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely and
appropriate measures to adapt to any of these or similar regulatory compliance challenges could materially and adversely affect our current
corporate structure and business operations.
If we become subject to additional scrutiny,
criticism and negative publicity involving U.S.-listed China-based companies, we may have to expend significant resources to investigate
and resolve the matter which could harm our business operations, any offering and our reputation and could result in a loss of your investment
in our shares, especially if such matter cannot be addressed and resolved favorably.
Recently, U.S. public companies that have substantially
operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators
and regulatory agencies. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities,
a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto
and, in some cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of
many U.S.-listed China-based companies has decreased in value and, in some cases, has become virtually worthless. Many of these companies
have been subject to shareholder lawsuits and SEC enforcement actions and have conducted internal and external investigations into the
allegations. The Company has received subpoenas from the SEC’s Division of Enforcement requiring us to produce documents and detailed
information relating to, among other things, the Company’s accounting procedures and treatment, management oversight, and the sale
of HeDeTang Holdings (HK) Ltd. to New Continent International Co., Ltd. The Company has provided responsive documents and information
and will continue to cooperate with regulator and produce requested documents and information. It is not clear what effect this sector-wide
scrutiny, criticism and negative publicity will have on us and our business. If we become the subject of any unfavorable allegations,
whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations
and/or defend our company. This situation may be a major distraction to our management. If such allegations are not proven to be groundless,
our business operations will be severely hindered and your investment in our shares could be rendered worthless.
Uncertainties and quick change in the interpretation
and enforcement of Chinese laws and regulations with little advance notice could result in a material and negative impact our business
operations, decrease the value of our shares of common stock and limit the legal protections available to us.
The PRC legal system is based on written statutes,
and prior court decisions have limited value as precedents. Since these laws and regulations are relatively new and the PRC legal system
continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these
laws, regulations and rules involves uncertainties. The enforcement of laws and that rules and regulations in China can change quickly
with little advance notice and the risk that the Chinese government may intervene or influence our operations at any time, or may exert
more control over offerings conducted overseas and/or foreign investment in China- based issuers, could result in a material change in
our operations and/or the value of our shares of common stock.
On July 6, 2021, the General Office of the Communist
Party of China Central Committee and the General Office of the State Council jointly issued an announcement to crack down on illegal
activities in the securities market and promote the high-quality development of the capital market, which, among other things, requires
the relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision
over China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the PRC securities
laws. Since this announcement is relatively new, uncertainties still exist in relation to how soon legislative or administrative regulation
making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified
or promulgated, if any, and the potential impact such modified or new laws and regulations will have on companies like us and our shares
of common stock.
On February 15, 2022, Cybersecurity Review Measures
published by Cyberspace Administration of China, National Development and Reform Commission, Ministry of Industry and Information Technology,
Ministry of Public Security, Ministry of State Security, Ministry of Finance, Ministry of Commerce, People’s Bank of China, State
Administration of Radio and Television, China Securities Regulatory Commission, State Secrecy Administration and State Cryptography Administration
became effective, which provides that, Critical Information Infrastructure Operators (“CIIOs”) that purchase internet products
and services and Online Platform Operators engaging in data processing activities that affect or may affect national security shall be
subject to the cybersecurity review by the Cybersecurity Review Office. On November 14, 2021, CAC published the Administration Measures
for Cyber Data Security (Draft for Public Comments), or the “Cyber Data Security Measure (Draft)”, which requires cyberspace
operators with personal information of more than 1 million users who want to list abroad to file a cybersecurity review with the Office
of Cybersecurity Review. As confirmed by our PRC counsel Fengdong Law Firm, we are currently not subject to cybersecurity review with
the Cyberspace Administration of China (“CAC”) under these new measures, because the VIE E-Commerce Tianjin is not a cyberspace
operator with personal information of more than 1 million users or has activities that affect or may affect national security. Nevertheless,
the aforementioned draft measures and any related implementation rules to be enacted may subject us to additional compliance requirement
in the future.
We cannot rule out the possibility that
the PRC government will institute a licensing regime or pre-approval requirement covering our industry at some point in the future. If
such a licensing regime or approval requirement were introduced, we cannot assure you that we would be able to obtain any newly required
license in a timely manner, or at all, which could materially and adversely affect our business and impede our ability to continue our
operations.
From time to time, we may have to resort to administrative
and court proceedings to enforce our legal rights. Since PRC administrative and court authorities have significant discretion in interpreting
and implementing statutory and contractual terms, however, it may be more difficult to evaluate the outcome of administrative and court
proceedings and the level of legal protection we enjoy in the PRC legal system than in more developed legal systems. Furthermore, the
PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at
all) that may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after
the violation. Such uncertainties, including uncertainties over the scope and effect of our contractual, property (including intellectual
property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely
affect our business and impede our ability to continue our operations.
The Chinese government exerts substantial
influence over the manner in which we must conduct our business as well as more oversight and control over offerings that are conducted
overseas and/or foreign investment in China-based issuers, and may intervene or influence our operations at any time, which could result
in a material change in our operations, and significantly limit or completely hinder our ability to offer or continue to offer securities
to investors and, and cause the value of our shares of common stock to significantly decline or be worthless.
The Chinese government has exercised and continues
to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability
to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations,
land use rights, property and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations
or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance
with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support
recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest
ourselves of any interest we then hold in Chinese properties.
As such, our business is subject to various government
and regulatory interferences. We could be subject to regulation by various political and regulatory entities, including various local
and municipal agencies and government sub-divisions. The Company may incur increased costs necessary to comply with existing and newly
adopted laws and regulations or penalties for any failure to comply. Our operations could be adversely affected, directly or indirectly,
by existing or future laws and regulations relating to its business or industry, which could result in a material change in our operation
and the value of our shares of common stock.
On February 17, 2023, the CSRC released New Overseas
Listing Rules with five interpretive guidelines, which will take effect on March 31, 2023. The New Overseas Listing Rules require Chinese
domestic enterprises to complete filings with relevant governmental authorities and report related information under certain circumstances.
The required filing scope is not limited to the initial public offering, but also includes subsequent overseas securities offering, single
or multiple acquisition(s), share swap, transfer of shares or other means to seek an overseas direct or indirect listing and a secondary
listing or dual major listing of issuers already listed overseas. According to the Notice on Arrangements for Overseas Securities Offering
and Listing by Domestic Enterprises, published by the CSRC on February 17, 2023, a company that (i) has already completed overseas listing
or (ii) has already obtained the approval for the offering or listing from overseas securities regulators or exchanges but has not completed
such offering or listing before effective date of the new rules and also completes the offering or listing before September 30, 2023
will be considered as an existing listed company and is not required to make any filing until it conducts a new offering in the future.
Also, upon the occurrence of any of the material events specified below after an issuer has completed its offering and listed its securities
on an overseas stock exchange, the issuer shall submit a report thereof to the CSRC within 3 working days after the occurrence and public
disclosure of the event: (i) change of control; (ii) investigations or sanctions imposed by overseas securities regulatory agencies or
other competent authorities; (iii) change of listing status or transfer of listing segment; or (iv) voluntary or mandatory delisting.
On February 24, 2023, the CSRC revised the Provisions
on Strengthening the Management of Confidentiality and Archives Related to the Overseas Issuance of Securities and Overseas Listing by
Domestic Companies which were issued in 2009 (the “Archives Rules”). The revised Archives Rules took effect on March 31, 2023.
The revised Archives Rules expands their application to cover indirect overseas offering and listing, stipulating that a domestic company
which plans to publicly disclose any documents and materials containing state secrets or working secrets of government agencies, shall
first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level.
Furthermore, given recent statements by the Chinese
government indicating an intent to exert more oversight and control over offerings that are conducted overseas, although we are currently
not required to obtain permission from any of the PRC central or local government and has not received any denial to list on the U.S.
exchange, it is uncertain when and whether we will be required to obtain permission from the PRC government to list on U.S. exchanges
in the future, and even when such permission is obtained, whether it will be denied or rescinded, which could significantly limit or
completely hinder our ability to offer or continue to offer our securities to investors and cause the value of our shares to significantly
decline or be worthless.
There are uncertainties under the PRC Securities
Law relating to the procedures and requisite timing for the U.S. securities regulatory agencies to conduct investigations and collect
evidence within the territory of the PRC.
On December 28, 2019, the amended Securities
Law of the PRC (the “PRC Securities Law”) was promulgated, which became effective on March 1, 2020. According to Article 177 of
the PRC Securities Law (“Article 177”), the securities regulatory authority of the State Council may establish a regulatory
cooperation mechanism with securities regulatory authorities of another country or region for the implementation of cross-border supervision
and administration. Article 177 further provides that overseas securities regulatory authorities shall not engage
in activities pertaining to investigations or evidence collection directly conducted within the territories of the PRC, and that no Chinese
entities or individuals shall provide documents and information in connection with securities business activities to any organizations
and/or persons aboard without the prior consent of the securities regulatory authority of the State Council and the competent departments
of the State Council.
As advised by our PRC counsel Fengdong Law Firm, Article 177 is only
applicable where the activities of overseas authorities constitute a direct investigation or evidence collection by such authorities
within the territory of the PRC. A substantial of our business operation is conducted in the PRC. In the event that the U.S. securities
regulatory agencies carry out an investigation on us such as an enforcement action by the Department of Justice, the SEC or other authorities,
such agencies’ activities will constitute conducting an investigation or collecting evidence directly within the territory of the
PRC and accordingly fall within the scope of Article 177. In that case, the U.S. securities regulatory agencies may have
to consider establishing cross-border cooperation with the securities regulatory authority of the PRC by way of judicial assistance,
diplomatic channels or establishing a regulatory cooperation mechanism with the securities regulatory authority of the PRC. However,
there is no assurance that the U.S. securities regulatory agencies will succeed in establishing such cross-border cooperation in this
particular case and/or establish such cooperation in a timely manner.
Furthermore, as Article 177 is
still a recently promulgated provision and, as the date of this report, there have not been implementing rules or regulations regarding
the application of Article 177, it remains unclear as to how it will be interpreted, implemented or applied by the Chinese
Securities Regulatory Commission or other relevant government authorities. As such, there are uncertainties as to the procedures and
requisite timing for the U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the
PRC. If the U.S. securities regulatory agencies are unable to conduct such investigations, there exists a risk that they may determine
to suspend or de-register our registration with the SEC and may also delist our securities from Nasdaq or other applicable trading market
within the US.
Under the PRC Enterprise Income Tax Law,
we may be classified as a PRC “resident enterprise” for PRC enterprise income tax purposes. Such classification would likely
result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations
and the value of your investment.
Under the PRC Enterprise Income Tax Law,
or the “EIT Law,” that became effective in January 2008, an enterprise established outside the PRC with “de facto management
bodies” within the PRC is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally
subject to a uniform 25% enterprise income tax rate on its worldwide income. Under the implementation rules to the EIT Law, a “de
facto management body” is defined as a body that has material and overall management and control over the manufacturing and business
operations, personnel and human resources, finances, and properties of an enterprise. In addition, a circular, known as SAT Circular
82, issued in April 2009 by the State Administration of Taxation, or the “SAT,” specifies that certain offshore incorporated
enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if the following are
located or resident in the PRC: senior management personnel and departments that are responsible for daily production, operation and
management; financial and personnel decision making bodies; key properties, accounting books, company seal, and minutes of board meetings
and shareholders’ meetings; and half or more of the senior management or directors having voting rights. Further to SAT Circular
82, the SAT issued a bulletin, known as SAT Bulletin 45, which took effect in September 2011, to provide more guidance on the implementation
of SAT Circular 82 and clarify the reporting and filing obligations of such “Chinese-controlled offshore incorporated resident
enterprises.” SAT Bulletin 45 provides procedures and administrative details for the determination of resident status and administration
on post-determination matters. Although both SAT Circular 82 and SAT Bulletin 45 only apply to offshore enterprises controlled by PRC
enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals, the determining criteria set forth
in SAT Circular 82 and SAT Bulletin 45 may reflect the SAT’s general position on how the “de facto management body”
test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC
enterprises, PRC enterprise groups, or by PRC or foreign individuals.
If the PRC tax authorities determine that the
actual management organ of Future FinTech Group Inc. is within the territory of China, it may be deemed to be a PRC resident enterprise
for PRC enterprise income tax purposes and a number of unfavorable PRC tax consequences could follow. First, we will be subject to the
uniform 25% enterprise income tax on our world-wide income, which could materially reduce our net income. In addition, we will also be
subject to PRC enterprise income tax reporting obligations. Finally, dividends payable by us to our investors and gains on the sale of
our shares may become subject to PRC withholding tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC
individuals (in each case, subject to the provisions of any applicable tax treaty), if such gains are deemed to be from PRC sources.
It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country
of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your
investment in our shares. Although up to the date of this report, Future FinTech Group Inc. has not been notified or informed by the
PRC tax authorities that it has been deemed to be a resident enterprise for the purpose of the EIT Law, we cannot assure you that it
will not be deemed to be a resident enterprise in the future.
We could be restricted from paying dividends
to shareholders due to PRC laws and other contractual requirements. To the extent cash and/or assets in the business are in the PRC and/or
Hong Kong or our PRC and/or Hong Kong entities, the VIE, and the WFOE, such funds and/or assets may not be available to fund operations
or for other use outside of the PRC and/or Hong Kong due to interventions in or the imposition of restrictions and limitations on the
ability of us or our subsidiaries by the PRC government to transfer cash and/or assets.
We are a holding company incorporated in the
State of Florida and do not have any assets or conduct any business operations other than our investments in our subsidiaries and affiliates.
As a result of our holding company structure, we rely entirely on dividend payments from our subsidiaries. PRC accounting standards and
regulations currently permit payment of dividends only out of accumulated profits, a portion of which is required to be set aside for
certain reserve funds. Furthermore, if our subsidiaries and the VIE in China incur debt on its own in the future, the instruments governing
the debt may restrict its ability to pay dividends or make other payments. Although we do not intend to pay dividends in the future,
our inability to receive all of the profit from our China subsidiaries’ operations may provide an additional obstacle to our ability
to pay dividends if we so decide in the future. To the extent cash and/or assets in the business are in the PRC and/or Hong Kong or our
PRC and/or Hong Kong entities, the VIE, and the WFOE, such funds and/or assets may not be available to fund operations or for other use
outside of the PRC and/or Hong Kong due to interventions in or the imposition of restrictions and limitations on the ability of us or
our subsidiaries by the PRC government to transfer cash and/or assets.
Governmental control of currency conversion
may affect the value of shareholder investments.
The PRC government imposes controls on the convertibility
of RMB into foreign currencies and, in certain cases, the remittance of currency out of the PRC. RMB is currently not a freely convertible
currency. Shortages in the availability of foreign currency may restrict our ability to remit sufficient foreign currency to satisfy
foreign currency obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions,
interest payments and expenditures from the transaction, can be made in foreign currencies without prior approval by complying with certain
procedural requirements. Approval from appropriate governmental authorities, however, is required where RMB is to be converted into foreign
currency and remitted out of the PRC to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. In
addition, the PRC government could restrict access to foreign currencies for current account transactions in the future. If the foreign
exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to
pay certain of our expenses as they come due.
The fluctuation of the RMB may harm shareholder
investments.
The value of the RMB against the U.S. dollar
and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions.
Any significant revaluation of the RMB may materially and adversely affect our cash flows, revenue and financial condition. For example,
to the extent that we need to convert U.S. dollars we receive from an offering of our securities into RMB for our operations in China,
appreciation of the RMB against the U.S. dollar would diminish the value of the proceeds of the offering and could harm our business,
financial condition and results of operations. Conversely, if we decide to convert our RMB into U.S. dollars for business purposes and
the U.S. dollar appreciates against the RMB, the U.S. dollar equivalent of the RMB we convert would be reduced. In addition, the depreciation
of significant U.S. dollar denominated assets could result in a charge to our income statement and a reduction in the value of these
assets.
PRC regulations relating to offshore investment
activities by PRC residents may limit our PRC subsidiary’s ability to increase its registered capital or distribute profits to
us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law.
The State Administration of Foreign Exchange
or SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment
through Special Purpose Vehicles, or SAFE Circular 37, in July 2014 that requires PRC residents or entities to register with SAFE or
its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment
or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle
undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name, and
operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. SAFE Circular
37 is issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing
and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular 75. SAFE promulgated the Notice on Further Simplifying
and Improving the Administration of the Foreign Exchange Concerning Direct Investment in February 2015, which took effect on June 1,
2015. This notice has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than SAFE
or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment
or financing.
If our shareholders who are PRC residents or
entities do not complete their registration as required, our PRC subsidiaries may be prohibited from distributing its profits and proceeds
from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional
capital to our PRC subsidiaries.
The failure or inability of the relevant shareholders
to comply with the registration procedures set forth in these regulations may subject us to fines and legal sanctions, such as restrictions
on our cross-border investment activities, on the ability of our wholly foreign-owned subsidiaries in China to distribute dividends and
the proceeds from any reduction in capital, share transfer or liquidation to us. Moreover, failure to comply with the various foreign
exchange registration requirements described above could result in liability under PRC law for circumventing applicable foreign exchange
restrictions. As a result, our business operations and our ability to distribute profits to you could be materially and adversely affected.
Any failure to comply with PRC regulations
regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other
legal or administrative sanctions.
In February 2012, SAFE promulgated the Notices
on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed
Company, replacing earlier rules promulgated in March 2007. Pursuant to these rules, PRC citizens and non-PRC citizens who reside in
China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed company,
subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiary
of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution must be retained
to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our
executive officers and other employees who are PRC citizens or who have resided in the PRC for a continuous period of not less than one
year will be subject to these regulations. Failure to complete the SAFE registrations may subject them to fines and legal sanctions and
may also limit our ability to contribute additional capital into our PRC subsidiary and limit our PRC subsidiary’s ability to distribute
dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors,
executive officers and employees under PRC law.
Because our principal assets are located
outside of the United States, it may be difficult for investors to use U.S. securities laws to enforce their rights against us, our officers
and directors in the United States or to enforce judgments of United States courts against us or them in the PRC.
Most of our present officers and directors reside
outside of the United States. In addition, most of our subsidiaries and assets are located outside of the United States. Therefore, it
may be difficult for investors in the United States to enforce their legal rights based on the civil liability provisions of the U.S.
securities laws against us in the courts of either the United States or the Hong Kong/PRC and, even if civil judgments are obtained in
courts of the United States, to enforce such judgments in the PRC or Hong Kong courts. Further, it is unclear if extradition treaties
now in effect between the United States, Hong Kong and the PRC would permit effective enforcement against us or our officers and directors
of criminal penalties under the U.S. Federal securities laws or otherwise.
It may also be difficult for you or overseas
regulators to conduct investigations or collect evidence within China. For example, in China, there are significant legal and other obstacles
to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities.
Although the authorities in China may establish a regulatory cooperation mechanism with its counterparts of another country or region
to monitor and oversee cross-border securities activities, such regulatory cooperation with the securities regulatory authorities in
the Unities States may not be efficient in the absence of practical cooperation mechanism. Furthermore, according to Article 177 of the
PRC Securities Law, or “Article 177,” which became effective in March 2020, no overseas securities regulator is allowed to
directly conduct investigation or evidence collection activities within the territory of the PRC. Article 177 further provides that Chinese
entities and individuals are not allowed to provide documents or materials related to securities business activities to foreign agencies
without prior consent from the securities regulatory authority of the PRC State Council and the competent departments of the PRC State
Council. While detailed interpretation of or implementing rules under Article 177 have yet to be promulgated, the inability for an overseas
securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties
faced by you in protecting your interests.
The Holding Foreign Companies Accountable
Act, or the HFCA Act, and the related regulations are evolving quickly. Further implementations and interpretations of or amendments
to the HFCA Act or the related regulations, or a PCOAB’s determination of its lack of sufficient access to inspect our auditor,
might pose regulatory risks to and impose restrictions on us because of our operations in mainland China and Hong Kong. A potential consequence
is that our shares of common stock may be delisted by the exchange. The delisting of our common stock, or the threat of our common stock
being delisted, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct
full inspections of our auditor deprives our investors of the benefits of such inspections.
The Holding Foreign Companies Accountable Act,
or the HFCA Act, was enacted on December 18, 2020. In accordance with the HFCA Act, trading in securities of any registrant on a national
securities exchange or in the over-the-counter trading market in the United States may be prohibited if the PCAOB determines that it
cannot inspect or fully investigate the registrant’s auditor for three consecutive years beginning in 2021, and, as a result, an
exchange may determine to delist the securities of such registrant. On June 22, 2021, the U.S. Senate passed the Accelerating Holding
Foreign Companies Accountable Act, which, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from
trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus
reducing the time period before our securities may be prohibited from trading or delisted if our auditor is unable to meet the PCAOB
inspection requirement. On December 29, 2022, a legislation entitled “Consolidated Appropriations Act, 2023” (the “Consolidated
Appropriations Act”), was signed into law by President Biden. The Consolidated Appropriations Act contained, among other things,
an identical provision to Accelerating Holding Foreign Companies Accountable Act, which reduces the number of consecutive non-inspection
years required for triggering the prohibitions under the HFCA Act from three years to two.
On November 5, 2021, the SEC adopted the PCAOB
rule to implement HFCA Act, which provides a framework for the PCAOB to determine whether it is unable to inspect or investigate completely
registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.
On December 2, 2021, SEC adopted amendments to
finalize rules implementing the submission and disclosure requirements in the HFCA Act. The rules apply to registrants the SEC identifies
as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction
and that the PCAOB is unable to inspect or investigate (the “Commission-Identified Issuers”). A Commission-Identified Issuer
will be required to comply with the submission and disclosure requirements in the annual report for each year in which it was identified.
If a registrant is identified as a Commission-Identified Issuer based on its annual report for the fiscal year ended December 31, 2021,
the registrant will be required to comply with the submission or disclosure requirements in its annual report filing covering the fiscal
year ended December 31, 2022.
On December 16, 2021, the PCAOB issued its determinations
(the “Determination”) that they are unable to inspect or investigate completely PCAOB-registered public accounting firms
headquartered in mainland China and in Hong Kong. The Determination includes lists of public accounting firms headquartered in mainland
China and Hong Kong that the PCAOB is unable to inspect or investigate completely.
On August 26, 2022, the PCAOB signed a Statement
of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People’s Republic of China governing
inspections and investigations of audit firms based in China and Hong Kong. On December 15, 2022, the PCAOB Board determined that
the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland
China and Hong Kong and voted to vacate its previous determinations to the contrary. However, should PRC authorities obstruct or otherwise
fail to facilitate the PCAOB’s access in the future, the PCAOB Board will consider the need to issue a new determination.
The enactment of the HFCA Act and related regulations
and any additional actions, proceedings, or new rules resulting from these efforts to increase U.S. regulatory access to audit information
could cause investors uncertainty for affected issuers and the market price of our ordinary shares could be adversely affected, and we
could be delisted if our auditor is unable to meet the PCAOB inspection requirement.
The lack of access to PCAOB inspections prevents
the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China and Hong Kong. As a result, investors
may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China and
Hong Kong makes it more difficult to evaluate the effectiveness of these accounting firm’s audit procedures or quality control
procedures as compared to auditors outside of China that are subject to the PCAOB inspections.
Our auditor, Onestop Assurance PAC, an independent
registered public accounting firm that is headquartered in Singapore, as an auditor of companies that are traded publicly in the United
States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts inspections
to assess its compliance with the applicable professional standards. Our auditor is currently subject to PCAOB inspections and is not
included in the PCAOB Determinations. Although we believe that the Holding Foreign Companies Accountable Act and the related regulations
do not currently affect us, we cannot assure you that there will not be any further implementations and interpretations of or amendments
to the Holding Foreign Companies Accountable Act or the related regulations, which might pose regulatory risks to and impose restrictions
on us because of our operations in China and Hong Kong. A potential consequence is that our shares may be delisted by the exchange on
which they are listed. If our securities are unable to be listed on another securities exchange, such a delisting would substantially
impair your ability to sell or purchase our securities when you wish to do so, and the risk and uncertainty associated with a potential
delisting would have a negative impact on the market price of our shares.
Risks Relating to Our Corporate Structure
If the PRC government deems that the contractual
arrangements in relation to the consolidated variable interest entity do not comply with PRC regulatory restrictions on foreign investment
in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject
to severe penalties or be forced to relinquish our interests in those operations.
Foreign ownership of internet-based businesses,
including value-added telecommunications services, is subject to restrictions under current PRC laws and regulations. To comply with
PRC laws and regulations, we conduct our e-commerce operations in China through a series of contractual arrangements entered into among
WFOE, the VIE and the shareholders of the VIE. As a result of these contractual arrangements, we exert control over the VIE and consolidate
its operating results in our financial statements under U.S. GAAP. For a detailed description of these contractual arrangements, see
“The VIE Contractual Arrangements.”
In the opinion of our PRC counsel Fengdong Law
Firm, our current ownership structure, the ownership structure of our PRC subsidiary and the consolidated VIE, and the contractual arrangements
among WFOE, the VIE and the shareholders of the VIE are common practices for the companies listed on stock exchanges in the U.S. engaging
in the businesses restricted in China and these contractual arrangements are valid and binding in accordance with their terms and applicable
PRC laws and regulations currently in effect. However, our PRC counsel Fengdong Law Firm has also advised us that there are substantial
uncertainties regarding the interpretation and application of current or future PRC laws and regulations and there can be no assurance
that the PRC government will ultimately take a view that is consistent with the opinion of our PRC counsel Fengdong Law Firm. In the
event PRC regulations change or are interpreted differently in the future, our shares may decline in value or become worthless if we
are unable to assert our contractual control rights over the assets of the VIE.
If the PRC government finds that our contractual
arrangements do not comply with its restrictions on foreign investment in the e-commerce business, the relevant PRC regulatory authorities,
including the China Securities Regulatory Commission may require us to discontinue or place restrictions or onerous conditions on
our operations and it may also impose fines, confiscate the income from the WFOE or VIE. The imposition of any of these penalties
would result in a material and adverse effect on our ability to conduct our e-commerce business. In addition, it is unclear what impact
the PRC government actions would have on us and on our ability to consolidate the financial results of the VIE in our consolidated financial
statements, if the PRC government authorities were to find the VIE structure and contractual arrangements to be in violation of PRC laws
and regulations. If the imposition of any of these government actions causes us to lose our right to direct the activities of the VIE
or our right as the primary beneficiary of the VIE for accounting purposes and we are not able to restructure our ownership structure
and operations in a satisfactory manner, we would no longer be able to consolidate the financial results of the VIE in our consolidated
financial statements. Either of these results, or any other significant penalties that might be imposed on us in this event, would have
a material adverse effect on our financial condition and results of operations.
Any failure by the consolidated VIE or
its shareholders to perform their obligations under our contractual arrangements with them would have an adverse effect on our business.
If the consolidated VIE or its shareholders fail
to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional
resources to enforce such arrangements. We may also have to rely on legal remedies under PRC laws, including seeking specific performance
or injunctive relief, and claiming damages, which we cannot assure you will be effective under PRC laws. For example, if the shareholders
of the VIE were to refuse to transfer their equity interest in the VIE to us or our designee if we exercise the purchase option pursuant
to these contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal action to
compel them to perform their contractual obligations.
All the agreements under our contractual arrangements
are governed by PRC laws. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved
in accordance with PRC legal procedures. The legal system in the PRC is not as well established as in some other jurisdictions, such
as in the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements.
Meanwhile, there are some regulations unfavorable to VIEs. However, there are very few precedents and little formal guidance as to how
contractual arrangements in the context of a consolidated variable interest entity should be interpreted or enforced under PRC laws and
there remain significant uncertainties regarding the ultimate outcome of such legal proceedings should legal action become necessary.
Currently, almost all of the Chinese companies listed on overseas stock exchanges that are in the internet-based business such as e-commerce
or online-gaming have adopted a VIE structure. If the losing parties fail to carry out the court judgement or arbitration awards within
a prescribed time limit, the prevailing parties may only enforce them in PRC courts, which would require additional expenses and delay.
In the event that we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the
process of enforcing these contractual arrangements, we may not be able to exert effective control over the consolidated variable interest
entities, and our ability to conduct our business may be negatively affected.
The shareholders of the consolidated VIE
may have potential conflicts of interest with us, which may adversely affect our business and financial condition.
The shareholders of the VIE and their interests
in the VIE may differ from their interests of our Company as a whole. These shareholders may breach, or cause the consolidated variable
interest entities to breach, the existing contractual arrangements we have with them and the consolidated variable interest entity, which
would have a material adverse effect on our ability to act as the primary beneficiary of the VIE for accounting purposes. For example,
the shareholders may be able to cause our agreements with E-Commerce Tianjin to be performed in a manner adverse to us by, among other
things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts
of interest arise, any or all of these shareholders will act in the best interests of our company or such conflicts will be resolved
in our favor.
Currently, we do not have any arrangements to
address potential conflicts of interest between these shareholders and our company, except that we could exercise our purchase option
under the exclusive option agreements with these shareholders to request them to transfer all of their equity interests in E-Commerce
Tianjin to a PRC entity or individual designated by us, to the extent permitted by PRC laws. If we cannot resolve any conflict of interest
or dispute between us and the shareholders of the VIE, we would have to rely on legal proceedings, which could result in the disruption
of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.
Our contractual arrangements with the consolidated
affiliated entity may not be as effective in providing operational control as direct ownership.
We have relied and expect to continue to rely
on contractual arrangements with E-Commerce Tianjin and its shareholders to operate our CCM shopping mall business. For a description
of these contractual arrangements, see “The VIE Contractual Arrangements.” These contractual arrangements may not
be as effective in providing us with control over such entity as direct ownership. If we had direct ownership of E-Commerce Tianjin,
we would be able to exercise our rights as a shareholder to effect changes in the board of directors, which in turn could effect changes,
subject to any applicable fiduciary obligations, at the management level. However, under the current contractual arrangements, we rely
on the performance by E-Commerce Tianjin and its shareholders of their contractual obligations to exercise control over the consolidated
affiliated entity. Therefore, our contractual arrangements with the consolidated affiliated entity may not be as effective in ensuring
our control over our CCM shopping mall as direct ownership would be.
Risks Related to Our Common Stock
We are authorized to issue blank check
preferred stock, which may be issued without shareholder approval and which may adversely affect the rights of holders of our Common
Stock.
We are authorized to issue 10,000,000 shares
of preferred stock. The Board is authorized under our articles of incorporation, as amended, to provide for the issuance of shares of
preferred stock by resolution and by filing a certificate of designations under Florida law, to fix the designation, powers, preferences
and rights of the shares of each such series of preferred stock and the qualifications, limitations or restrictions thereof without any
further vote or action by the shareholders. As of December 31, 2022, there were no shares of preferred stock issued and outstanding.
Any shares of preferred stock that are issued are likely to have priority over our Common Stock with respect to dividend or liquidation
rights. In the event of issuance, the preferred stock could be utilized under certain circumstances as a method of discouraging, delaying
or preventing a change in control, which could have the effect of discouraging bids to acquire us and thereby prevent shareholders from
receiving the maximum value for their shares. We have no present intention to issue any shares of preferred stock in order to discourage
or delay a change of control or for any other reason. However, there can be no assurance that preferred stock will not be issued at some
time in the future.
Zeyao Xue has control over key decision
making as a result of his control of a substantial amount of our voting stock.
Mr. Zeyao Xue, the son of our president, indirectly
and directly beneficially owns 2,602,525 shares, or approximately 17.8%, of our outstanding common stock as of April 12,
2023. Mr. Zeyao Xue’s beneficial ownership of 17.8% of Future FinTech’s issued and outstanding common stock will
likely give him the ability to control the outcome of matters submitted to shareholders for approval, including but not limited to the
election of directors and any merger, consolidation, or sale of all or substantially all of the Company’s assets. This concentrated
control could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of the Company’s
assets that other shareholders support, or conversely this concentrated control could result in the consummation of such a transaction
that other shareholders do not support. This concentrated control could also discourage a potential investor from acquiring the common
stock of the Company due to the limited voting power of such shares. As a shareholder, even a controlling shareholder, Mr. Zeyao Xue is
entitled to vote his shares, and shares over which he has voting control, in his own interests, which may not always be in the interests
of our shareholders generally.
Anti-takeover provisions in our charter
documents and under Florida law could discourage, delay or prevent a change in control of our Company and may affect the trading price
of our Common Stock.
As a Florida corporation, we are subject to certain
provisions of the Florida Business Corporation Act that have anti-takeover effects and may inhibit a non-negotiated merger or other
business combination. Our Articles of Incorporation and Bylaws also contain other provisions which could have anti-takeover effects.
These provisions include, without limitation, the authority of our Board of Directors to issue additional shares of preferred stock and
to fix the relative rights and preferences of the preferred stock without the need for any shareholder vote or approval, as discussed
above, and advance notice procedures to be complied with by our shareholders in order to make shareholder proposals or nominate directors,
such as:
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authorize the issuance of “blank check” preferred stock
that could be issued by the Board to thwart a takeover attempt; |
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require that directors only be removed from office upon a majority
shareholder vote; |
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provide that vacancies on the board of directors, including newly created
directorships, may be filled only by a majority vote of directors then in office; |
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limit who may call special meetings of shareholders; and |
For more information regarding these and other
provisions, see the exhibit titled “Description of Our Securities — Anti-Takeover Effects of Certain Provisions of Florida
Law.”
In recent years, our Common Stock has been
in danger of being delisted from the NASDAQ Stock Market (“NASDAQ”).
Our common stock is currently listed on the Nasdaq
Capital Market. The NASDAQ Stock Market LLC has requirements that a company must meet in order to remain listed on NASDAQ, for example,
NASDAQ rules require us to maintain a minimum bid price of $1.00 per share of our common stock. We may be unable to meet NASDAQ
listing requirements, including minimum bid price, minimum levels of stockholders’ equity or market values of our common stock
in which case, our common stock could be delisted. If our common stock were to be delisted, the liquidity of our common stock would be
materially adversely affected and the market price of our common stock could decrease.
On February 28, 2019, the Company received a
letter from NASDAQ notifying the Company that, because the closing bid price for the Company’s common stock listed on NASDAQ was
below $1.00 for 30 consecutive trading days, the Company no longer met the minimum bid price requirement for continued listing on NASDAQ
under NASDAQ Marketplace Rule 5550(a)(2). On May 7, 2019, the Company received a written notification from the NASDAQ Stock Market Listing
Qualifications Staff indicating that the Company has regained compliance with the $1.00 minimum closing bid price requirement and that
the matter is now closed.
On April 17, 2019, the Company received a notification
letter from NASDAQ stating the Company was not in compliance with NASDAQ Listing Rule 5250(c)(1), due to its failure to timely file its
Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 10-K”). On May 21, 2019, the Company received
a notification letter from NASDAQ stating the Company was not in compliance with NASDAQ Listing Rule 5250(c)(1), due to its failure to
timely file its Quarterly Report on Form 10-Q for the quarter ended March 31, 2019. On August 20, 2019, the Company received a notification
letter from the NASDAQ stating the Company was not in compliance with NASDAQ Listing Rule 5250(c)(1), due to its failure to timely file
its Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.
On October 16, 2019, the Company received
a letter from the NASDAQ notifying the Company that it has regained compliance with NASDAQ’s periodic filing requirements for continued
listing on the Nasdaq Capital Market. The letter noted that as a result of the September 3, 2019 filing of the Form 10-K for
the year ended on December 31, 2018 and the September 30, 2019 filing of the Forms 10-Q for the periods ended March 31,
and June 30, 2019 with the Securities and Exchange Commission, the Company has regained compliance with Listing Rule 5250(c)(1)
and the matter is now closed.
On September 4, 2019, the Company received
written notice from the NASDAQ stating that the Company did not meet the requirement of maintaining a minimum of $2,500,000 in
stockholders’ equity for continued listing on the NASDAQ Capital Market, as set forth in NASDAQ Listing Rule 5550(b)(1), the Company
also does not meet the alternative of market value of listed securities of $35 million under NASDAQ Listing Rule 5550(b)(2)
or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three
most recently completed fiscal years under NASDAQ Listing Rule 5550(b)(3), and the Company is no longer in compliance with the NASDAQ
Listing Rules. On March 18, 2020, the Company received written notice form NASDAQ stating that the Company complies with the Listing
Rule 5550(b)(1).
On November 4, 2019, the Company received a letter
from the Nasdaq notifying the Company that, because the closing bid price for the Company’s common stock listed on Nasdaq
was below $1.00 for 30 consecutive trading days, the Company no longer meets the minimum bid price requirement for continued listing
on Nasdaq under Nasdaq Marketplace Rule 5550(a)(2), which requires a minimum bid price of $1.00 per share. On April 14, 2020,
the Company received a written notification from the Nasdaq indicating that the Company has regained compliance with the $1.00 minimum
closing bid price requirement and that the matter is now closed.
On March 1, 2022, the Company received a letter
from the Nasdaq Stock Market (“Nasdaq”) notifying the Company that, because the closing bid price for the Company’s
common stock listed on Nasdaq was below $1.00 for 30 consecutive trading days, the Company no longer meets the minimum bid price requirement
for continued listing on Nasdaq under Nasdaq Marketplace Rule 5550(a)(2), which requires a minimum bid price of $1.00 per share
(the “Minimum Bid Price Requirement”). The Company has a period of 180 calendar days from the date of notification,
until August 29, 2022 (the “Compliance Period”), to regain compliance with the Minimum Bid Price Requirement. On
August 30, 2022, the Company received a written notification from the NASDAQ Stock Market Listing Qualifications Staff (the “Staff”)
indicating that the Company has been granted an additional 180 calendar day period or until February 27, 2023, to regain compliance with
the $1.00 minimum closing bid price requirement for continued listing on the NASDAQ Capital Market pursuant to NASDAQ Listing Rule. On
January 26, 2023, the Company filed with the Florida Secretary of State’s office Articles of Amendment (the “Amendment”) to
amend its Second Amended and Restated Articles of Incorporation, as amended (“Articles of Incorporation”). As a result of
the Amendment, the Company has authorized and approved a 1-for-5 reverse stock split of the Company’s authorized shares of common
stock from 300,000,000 shares to 60,000,000 shares, accompanied by a corresponding decrease in the Company’s issued and outstanding
shares of common stock (the “Reverse Stock Split”). The common stock will continue to be $0.001 par value. The Company’s
shares of common stock began to trade on the NASDAQ Stock Market on the post-Reverse Stock Split basis under the symbol “FTFT”
on February 1, 2023. On February 15, 2023, the Company received a written notification from the NASDAQ Stock Market Listing Qualifications
Staff indicating that the Company has regained compliance with the $1.00 minimum closing bid price requirement for continued listing
on the NASDAQ Capital Market pursuant to NASDAQ Listing Rule 5550(a)(2) and that the matter is now closed.